==========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-10951
August 31, 1994
FEDERATED DEPARTMENT STORES, INC.
7 West Seventh Street
Cincinnati, Ohio 45202
(513) 579-7000
Incorporated in Delaware I.R.S. No. 31-0513863
Exhibit Index on Page 4
Page 1 of __ Pages
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<PAGE>
Item 5. Other Events.
------------
On August 31, 1994, Federated Department Stores, Inc. (the "Company")
and R.H. Macy & Co., Inc. and certain subsidiaries (collectively, "Macy's")
filed a disclosure statement (the "Disclosure Statement") with the bankruptcy
court in Macy's Chapter 11 reorganization. The Disclosure Statement provides
for the merger of Macy's and Federated. A copy of the Disclosure Statement
is filed as Exhibit 28.1 hereto and is incorporated herein by this reference.
The Company does not publish its business plans or projections in the
ordinary course of business. The Company has filed the Disclosure Statement as
an Exhibit hereto because it was filed in Macy's reorganization proceedings.
The Company refers to the limitations and qualifications included in the
Disclosure Statement under the caption "The Combined Company--Certain Projected
Financial Information" with respect to the projections contained therein and
notes that all information is subject to change, whether as a result of
amendments to the plan of reorganization for Macy's and certain of its
subsidiaries, as a result of actions of third parties, or otherwise.
Item 7. Financial Statements, Pro Forma Financial Information
and -----------------------------------------------------
- ---
Exhibits.
--------
28.1 Disclosure Statement
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FEDERATED DEPARTMENT STORES, INC.
Dated: September 1, 1994 By: /s/ DENNIS J. BRODERICK
------------------------
Senior Vice President
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- --------------------------------------------------- --------
28.1 Disclosure Statement
<PAGE>
AS FILED ON 8/31/94
MARKED TO SHOW CUMULATIVE
CHANGES FROM DRAFT
OF 8/27/94
United States Bankruptcy Court
FOR THE SOUTHERN DISTRICT OF NEW YORK
----------------
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In re: CHAPTER 11
R.H. MACY & CO., INC., et al., CASE NOS. 92 B 40477 (BRL)
Debtors. (JOINTLY ADMINISTERED)
DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE
FOR THE AMENDED JOINT PLAN OF
REORGANIZATION OF R.H. MACY & CO., INC.
AND CERTAIN OF ITS SUBSIDIARIES
</TABLE>
DAVID G. HEIMAN (DH 9111)
HARVEY R. MILLER (HM 6078)
RICHARD M. CIERI (RC 6062)
RICHARD P. KRASNOW (RK 5707)
SCOTT J. DAVIDO (SD 7424)
JUDY G.Z. LIU (JL 6449)
PAUL E. HARNER (PH 8276)
WEIL, GOTSHAL & MANGES
JONES, DAY, REAVIS & POGUE
767 Fifth Avenue
North Point
New York, New York 10153
901 Lakeside Avenue
(212) 310-8000
Cleveland, Ohio 44114
ATTORNEYS FOR DEBTORS AND
(216) 586-3939
DEBTORS IN POSSESSION
ROBERT A. PROFUSEK (RP 4594)
MARK E. BETZEN (MB 0176)
JONES, DAY, REAVIS & POGUE
599 Lexington Avenue
New York, New York 10022
(212) 326-3939
ATTORNEYS FOR FEDERATED
DEPARTMENT STORES, INC.
AUGUST 31, 1994
<PAGE>
DISCLOSURE STATEMENT, DATED AUGUST 31, 1994
SOLICITATION OF VOTES WITH RESPECT
TO THE AMENDED JOINT PLAN OF REORGANIZATION
OF
R.H. MACY & CO., INC.
AND CERTAIN OF ITS SUBSIDIARIES
THE DEBTORS AND FEDERATED (COLLECTIVELY, THE "PLAN PROPONENTS"), THE
CREDITORS' COMMITTEES, AND THE REPRESENTATIVES OF THE SENIOR LENDERS BELIEVE
THAT THE PLAN IS IN THE BEST INTERESTS OF CREDITORS. ACCORDINGLY, CREDITORS ARE
URGED TO VOTE IN FAVOR OF THE PLAN. VOTING INSTRUCTIONS ARE SET FORTH AT PAGES
TO OF THIS DISCLOSURE STATEMENT. TO BE COUNTED, YOUR BALLOT MUST BE DULY
COMPLETED, EXECUTED, AND RECEIVED BY 5:00 P.M. EASTERN TIME ON ,
1994. CREDITORS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS ENTIRE
DISCLOSURE STATEMENT, INCLUDING THE PLAN OF REORGANIZATION ATTACHED HERETO AS
EXHIBIT I AND THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT UNDER "RISK
FACTORS," PRIOR TO VOTING.
-------------------
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED HEREIN.
-------------------
THE CONFIRMATION AND EFFECTIVENESS OF THE PLAN ARE SUBJECT TO MATERIAL
CONDITIONS PRECEDENT. SEE "OVERVIEW OF THE PLAN-- CONDITIONS TO CONFIRMATION AND
EFFECTIVE DATE OF THE PLAN." THERE CAN BE NO ASSURANCE THAT THESE CONDITIONS
WILL BE SATISFIED.
-------------------
No person is authorized by any Plan Proponent in connection with the Plan or
the solicitation of acceptances of the Plan to give any information or to make
any representation other than as contained in this Disclosure Statement and the
exhibits and schedules attached hereto or incorporated by reference or referred
to herein, and, if given or made, such information or representation may not be
relied upon as having been authorized by any of the Plan Proponents. The
delivery of this Disclosure Statement will not under any circumstances imply
that all of the information herein is correct as of any time subsequent to the
date hereof.
INFORMATION CONTAINED HEREIN REGARDING EACH PLAN PROPONENT AND ITS
BUSINESSES AND OPERATIONS, INCLUDING HISTORICAL FINANCIAL INFORMATION, HAS BEEN
PROVIDED BY THAT PLAN PROPONENT. NO PLAN PROPONENT ACCEPTS ANY RESPONSIBILITY
FOR ANY INFORMATION PROVIDED BY ANY OTHER PLAN PROPONENT.
-------------------
The summaries of the Plan and related documents contained in this Disclosure
Statement are qualified in their entirety by reference to the Plan itself, the
appendices thereto, and all documents described therein as being filed with the
Bankruptcy Court prior to approval of the Disclosure Statement. The information
contained in this Disclosure Statement, including the information regarding the
Debtors and Federated and their respective histories, businesses, and
operations; the historical and projected financial information of the Debtors
(including the projected results of operations of the Combined Company); and the
liquidation analysis relating to the Debtors, is included herein for purposes of
soliciting acceptances of the Plan. As to contested matters, however, such
<PAGE>
information is not to be construed as admissions or stipulations, but rather as
statements made in settlement negotiations.
-------------------
All capitalized terms and phrases used in this Disclosure Statement and not
otherwise defined herein have the meanings ascribed to them in the Plan. As
required by the context, references herein to "Macy's," "Federated," or the
"Combined Company" should be construed as references to Macy's, Federated, or
the Combined Company, as the case may be, together with the respective
subsidiaries thereof.
-------------------
THIS DISCLOSURE STATEMENT HAS NOT YET BEEN APPROVED BY THE BANKRUPTCY COURT.
UNTIL SUCH TIME AS THE BANKRUPTCY COURT HAS ENTERED AN ORDER (i) DETERMINING
THAT THIS DISCLOSURE STATEMENT CONTAINS "ADEQUATE INFORMATION," WITHIN THE
MEANING OF SECTION 1125 OF THE BANKRUPTCY CODE, AND (ii) AUTHORIZING THE PLAN
PROPONENTS TO USE THIS DISCLOSURE STATEMENT TO SOLICIT ACCEPTANCES OF THE PLAN,
THIS DISCLOSURE STATEMENT IS NOT TO BE CONSTRUED AS A SOLICITATION OF, AND THE
PLAN PROPONENTS ARE NOT TO BE CONSIDERED AS IN ANY WAY SOLICITING, ACCEPTANCES
OF THE PLAN.
<PAGE>
TABLE OF CONTENTS
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TABLE OF EXHIBITS..................................................................... viii
INTRODUCTION.......................................................................... 1
OVERVIEW OF THE PLAN.................................................................. 1
Introduction........................................................................ 1
General Information Concerning Treatment of Claims and Interests.................... 2
Summary of Classes and Treatment of Claims and Interests............................ 2
Additional Information Regarding Treatment of Certain Claims........................ 16
General Administrative Claims..................................................... 16
Adjustments of Amounts of Certain Distributions................................... 17
Adjustments of Amounts of Distributions for Pre-Effective Date Sales of
Collateral............................................................................ 17
Adjustments for Increased Distributions of Cash................................. 17
Adjustments of Amounts of Cash and New Debt to be Distributed to Holders of
Certain Secured Claims................................................................ 17
Adjustments of Amounts of Cash and New Combined Company Common Stock to be
Distributed........................................................................... 18
Adjustment of Amounts of New Series B Notes and New Series C Notes to be
Distributed........................................................................... 18
Adjustments Relating to New Bank Facilities..................................... 18
Special Provisions Regarding Treatment of Allowed Secondary Liability Claims...... 19
Summary of Terms of Certain Securities to be Issued Pursuant to the Plan............ 19
Conditions to Confirmation and Effective Date of the Plan........................... 22
Conditions to Confirmation........................................................ 22
Conditions to Effective Date...................................................... 22
Waiver of Conditions to Confirmation and Effective Date........................... 23
Modification or Revocation of the Plan.............................................. 24
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS.............................. 25
Prepetition Events.................................................................. 25
Pre-LBO Mortgages................................................................. 25
Leveraged Buyout.................................................................. 25
Acquisition Financing............................................................. 25
Macy's/CREI Loan Agreement........................................................ 26
Purchase of I. Magnin and Bullock's............................................... 27
Macy's/49 Store Loan Agreement.................................................... 27
Sale of Credit Card Program; Macy's/GECC Loan Agreement........................... 27
Prepetition Operations and Liquidity................................................ 28
OPERATIONS DURING THE REORGANIZATION CASES............................................ 29
Commencement of Cases and Claims Process............................................ 29
Commencement of Reorganization Cases.............................................. 29
Appointment of Official Committees................................................ 29
Claims Process and Bar Date....................................................... 29
Extension of Time to Assume or Reject Real Estate Leases.......................... 30
Postpetition Operations and Liquidity............................................... 30
Debtor in Possession Financing.................................................... 30
Completion of Certain Prepetition Initiatives..................................... 31
Management Changes................................................................ 31
The Business Plan and Related Matters............................................. 32
Certain Claims Settlements and Litigation........................................... 33
Certain IRS Claims................................................................ 33
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Farah Litigation.................................................................. 33
Casualty Claims................................................................... 34
Settlement Process................................................................ 34
State Sales Tax Litigation........................................................ 34
Plan Negotiations................................................................... 35
Mediation Process................................................................. 36
Settlement of Certain Claims and Intercreditor Issues Under the Plan.............. 36
THE COMBINED COMPANY.................................................................. 37
Restructuring Transactions.......................................................... 37
The Federated/Macy's Merger....................................................... 37
Effects of the Federated/Macy's Merger.......................................... 37
The Federated/Macy's Merger Agreement........................................... 38
Representations and Warranties................................................ 38
Conduct of Business Prior to the Federated/Macy's Merger...................... 38
Access, Approvals, Notices, Etc............................................... 39
Certain Filings............................................................... 39
Certain Macy's Employee and Retiree Matters................................... 40
Indemnification............................................................... 41
Competing Offers.............................................................. 41
Restrictions on Hiring........................................................ 42
Conditions to the Federated/Macy's Merger..................................... 42
Termination................................................................... 43
Antitrust Matters............................................................. 45
Operating Subsidiary Transactions................................................. 45
Real Estate Subsidiary Transactions............................................... 46
Other Restructuring Transactions.................................................. 46
Corporate Structure Diagrams...................................................... 47
Business of the Combined Company.................................................... 48
Introduction...................................................................... 48
Business Presently Operated by Macy's............................................. 48
History......................................................................... 48
Business and Properties......................................................... 48
Capital Expenditures............................................................ 50
Employees....................................................................... 50
Legal Proceedings............................................................... 50
Market for Common Shares........................................................ 50
Business Presently Operated by Federated.......................................... 51
History......................................................................... 51
Business and Properties......................................................... 51
Capital Expenditures............................................................ 53
Employees....................................................................... 53
Legal Proceedings............................................................... 53
Market for Common Shares........................................................ 53
Combined Company Strategic Plan................................................... 54
Certain Other Matters............................................................. 55
Seasonality..................................................................... 55
Competition and Regulation...................................................... 55
Pro Forma Capitalization of the Combined Company.................................... 56
Unaudited Pro Forma Combined Financial Information.................................. 58
Discussion and Analysis of Financial Condition and Results of Operations............ 68
Projected Financial Information..................................................... 68
</TABLE>
ii
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Introduction...................................................................... 68
Principal Assumptions............................................................. 69
Projections....................................................................... 72
Management.......................................................................... 81
Board of Directors................................................................ 81
]Board Committees................................................................. 83
Executive and Finance Committee................................................. 83
Audit Review Committee.......................................................... 83
Board Organization Committee.................................................... 84
Compensation Committee.......................................................... 84
Public Policy Committee......................................................... 84
Director Nomination Procedures.................................................... 84
Director Compensation............................................................. 85
Executive Officers................................................................ 85
Executive Compensation............................................................ 86
Three-Year Compensation Summary................................................. 86
Fiscal 1993 Stock Option Grants................................................. 88
Fiscal Year-End Option Values................................................... 89
Fiscal 1993 Long-Term Incentive Plan Awards..................................... 90
Employment Agreement with Chief Executive Officer............................... 90
Employment Agreements with Other Federated Executive Officers................... 92
Change-in-Control Agreements.................................................... 92
Retirement Programs............................................................. 93
Certain Arrangements with New Deputy Chairman................................... 95
Certain Arrangements with Macy's Employees.......................................... 97
Arrangements with Roger N. Farah.................................................. 97
Other Employee Arrangements....................................................... 97
Limitation of Liability; Indemnification of Directors and Officers.................. 98
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS, AND EXECUTIVE OFFICERS....... 101
CAPITAL STOCK OF THE COMBINED COMPANY................................................. 103
New Combined Company Common Stock................................................... 103
Authorized Capital Stock.......................................................... 103
General........................................................................... 103
Dividends......................................................................... 103
Trading Market.................................................................... 103
Registration...................................................................... 104
Transfer Agent.................................................................... 104
New Combined Company Preferred Stock................................................ 104
New Combined Company Share Purchase Rights.......................................... 104
Certain Corporate Governance Matters................................................ 108
Future Stock Issuances.............................................................. 109
SECURITIES TO BE ISSUED PURSUANT TO THE PLAN.......................................... 111
Introduction........................................................................ 111
Assumptions Regarding Valuation of New Securities................................... 112
New Prudential Mortgage Notes....................................................... 113
New GECC Mortgage Notes............................................................. 114
New Unsecured Notes................................................................. 115
Introduction...................................................................... 115
New Series A Notes................................................................ 116
New Series B Notes................................................................ 116
</TABLE>
iii
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New Series C Notes................................................................ 116
Common Provisions of the New Unsecured Notes...................................... 117
Ranking......................................................................... 117
Registered Form; Transfers...................................................... 117
Limitation on Indebtedness...................................................... 117
Limitation on Liens............................................................. 118
Limitation on Asset Sales....................................................... 118
Limitation on Sale and Leaseback Transactions................................... 118
Limitation on Restricted Payments............................................... 118
Limitation on Transactions with Affiliates...................................... 119
Limitation on Merger and Certain Other Transactions............................. 120
Event Risk Provision............................................................ 120
Limitation on Payment Restrictions Affecting Subsidiaries....................... 120
Limitation on the Issuance of Subsidiary Preferred Stock........................ 120
Restriction on Permitting Unrestricted Subsidiaries to Become Restricted
Subsidiaries.................................................................. 121
Maintenance of Office or Agency................................................. 121
Paying Agents, Etc.............................................................. 121
Payment of Taxes and Other Claims............................................... 121
Maintenance of Properties....................................................... 121
Existence....................................................................... 121
Compliance with Laws............................................................ 121
Events of Default............................................................... 122
Modification and Waiver......................................................... 123
Defeasance...................................................................... 123
Satisfaction and Discharge...................................................... 124
Governing Law................................................................... 124
Regarding the Trustee........................................................... 124
Certain Defined Terms........................................................... 125
New Combined Company Common Stock................................................... 129
New Warrants........................................................................ 129
OTHER INDEBTEDNESS OF THE COMBINED COMPANY............................................ 131
New Bank Facilities................................................................. 131
Revolving Loan Facility........................................................... 132
Term Loan Facility................................................................ 132
Interest Rate..................................................................... 133
Fees.............................................................................. 133
Security and Guarantees........................................................... 133
Covenants......................................................................... 133
Events of Default................................................................. 134
Federated's Existing Bank Credit Facility........................................... 134
Federated Series A Secured Notes.................................................... 135
Prime Receivables Asset-Backed Certificates......................................... 137
Seven Hills Asset-Backed Commercial Paper........................................... 138
ASGREC Mortgage Loan Facility....................................................... 138
Lazarus PA Mortgage Term Loan....................................................... 138
FNC Promissory Note................................................................. 138
Federated Note Monetization Facility................................................ 139
Federated Convertible Notes......................................................... 139
Federated Subsidiary Trade Obligations.............................................. 140
Miscellaneous Mortgage Indebtedness................................................. 140
RISK FACTORS.......................................................................... 141
</TABLE>
iv
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Antitrust Matters................................................................... 141
Business Factors and Competitive Conditions......................................... 141
Leverage; Restrictive Covenants..................................................... 142
Security Interests.................................................................. 142
Holding Company Structure........................................................... 142
Dividend Policies; Restrictions on Payment of Dividends............................. 143
Lack of Established Market for the New Debt and New Equity; Volatility.............. 143
Projections......................................................................... 143
Noncomparability of Historical Financial Information................................ 144
Certain Taxation Matters............................................................ 144
Dilution............................................................................ 144
Certain Conditions to the Federated/Macy's Merger................................... 145
Certain Provisions of the Combined Company's Certificate of Incorporation, By-Laws,
and Other Agreements.............................................................. 145
GENERAL INFORMATION CONCERNING THE PLAN............................................... 146
Vesting of Property of the Macy's Debtors........................................... 146
Legal Effects of the Plan........................................................... 146
Discharge of Claims and Termination of Interests; Related Injunction.............. 146
Intercompany Claims and Certain Claims of Affiliates.............................. 147
Preservation of Rights of Action Held by the Debtors or Reorganized Debtors....... 147
Releases and Certain Settlements Under the Plan; Related Injunction................. 147
Releases by the Debtors........................................................... 147
Releases by Swiss Bank............................................................ 148
Releases by Holders of Claims or Interests........................................ 149
Injunction........................................................................ 149
Resolution of Certain Claims and Subordination Issues............................. 149
Preservation of Certain Subordination and Turnover Rights......................... 150
Continuation of Certain Retirement Benefits......................................... 150
Certain Retiree Health, Medical, and Life Insurance Benefits...................... 150
Purchase Discounts for Retirees................................................... 150
Executory Contracts and Unexpired Leases............................................ 150
Assumptions, Assignments, and Rejections of Non-Real Property Executory Contracts
and Unexpired Leases............................................................ 151
Assumptions and Assignments..................................................... 151
Rejections...................................................................... 151
Assumptions and Rejections of Real Property Executory Contracts and Unexpired
Leases.......................................................................... 151
Payments Related to Assumptions................................................... 152
Bar Date for Rejection Damages.................................................... 152
Special Executory Contract and Unexpired Lease Issues............................... 153
Assignments Related to the Restructuring Transactions............................. 153
Obligations to Indemnify Directors, Officers, and Employees....................... 153
Reinstatement of Allowed Secondary Liability Claims Arising from or Related to
Executory Contracts or Unexpired Leases Assumed by Macy's Subsidiaries.......... 153
Cancellation of Old Indentures.................................................... 154
Limitation of Liability............................................................. 154
Modification or Revocation of the Plan.............................................. 154
DISTRIBUTIONS UNDER THE PLAN.......................................................... 155
General............................................................................. 155
Methods of Distributions............................................................ 155
Distributions to Holders of Allowed Bank Loan Claims.............................. 155
Distributions to Holders of Allowed Debt Security Claims.......................... 156
</TABLE>
v
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Distributions to Holders of Other Claims.......................................... 156
Undeliverable or Unclaimed Distributions............................................ 156
Distributions Held by Disbursing Agents........................................... 156
Distributions Held by Agent Banks or Indenture Trustees........................... 157
Distribution Record Date............................................................ 158
Means of Cash Payments.............................................................. 158
Timing and Calculation of Amounts to be Distributed................................. 158
Allowed Claims in Non-Reserve Classes and the Fixed Cash Portion of Allowed Claims
in Reserve Classes.............................................................. 158
New Combined Company Common Stock to be Distributed to Holders of Allowed Claims
in Reserve Classes.............................................................. 159
Initial Distributions........................................................... 159
Additional Quarterly Distributions on Account of Previously Allowed Claims...... 159
Distributions of New Debt......................................................... 159
Distributions of Shares of New Equity............................................. 160
De Minimis Distributions.......................................................... 160
Special Provisions Regarding Agent Bank Charges, Indenture Trustee Charging Liens,
and Certain Fees and Expenses of Senior Lenders................................. 160
Agent Bank Charges.............................................................. 160
Indenture Trustee Charging Liens................................................ 160
Fees and Expenses of Senior Lenders............................................. 161
Compliance with Tax Requirements.................................................. 161
Surrender of Canceled Securities or Other Instruments............................... 161
General........................................................................... 161
Failure to Surrender Canceled Old Debt Securities or Untendered Securities........ 161
Setoffs............................................................................. 162
Disputed Claims; Reserve and Estimations............................................ 162
Treatment of Disputed Claims...................................................... 162
No Payments on Account of Disputed Claims and Disputed Claims Reserve........... 162
Funding of Disputed Claims Reserve and Recourse................................. 162
Property Held in Disputed Claims Reserve........................................ 163
Distributions on Account of Disputed Claims Once They Are Allowed................. 163
Tax Requirements for Income Generated by the Disputed Claims Reserve.............. 163
Objections to Claims and Authority to Prosecute Objections; Claims Resolution
Committee....................................................................... 164
Objections........................................................................ 164
Claims Resolution Committee....................................................... 165
Function and Composition of the Committee....................................... 165
Committee Procedures............................................................ 165
Employment of Professionals by the Committee and Reimbursement of Committee
Members....................................................................... 165
Dissolution of the Committee.................................................... 165
VOTING AND CONFIRMATION OF THE PLAN................................................... 166
General............................................................................. 166
Voting Procedures And Requirements.................................................. 166
Procedures for Holders of Old Debt Securities....................................... 167
Further Information................................................................. 167
Confirmation Hearing................................................................ 168
Confirmation........................................................................ 168
Acceptance or Cramdown.............................................................. 168
Best Interests Test; Liquidation Analysis........................................... 169
Feasibility......................................................................... 171
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vi
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Compliance with Applicable Provisions of the Bankruptcy Code........................ 171
Alternatives to Confirmation and Consummation of the Plan........................... 171
FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE
PLAN................................................................................ 172
General............................................................................. 172
Federal Income Tax Consequences to the Debtors and the Combined Company............. 172
Net Operating Loss Carryforwards.................................................. 172
Alternative Minimum Tax........................................................... 173
Certain Federal Income Tax Consequences of the Federated/Macy's Merger and Other
Restructuring Transactions........................................................ 173
Federal Income Tax Consequences to Holders of Impaired Allowed Claims............... 173
Definition of Tax Securities...................................................... 174
Holders of Allowed Claims Not Constituting Tax Securities......................... 174
Holders of Allowed Claims Constituting Tax Securities............................. 174
Federal Income Tax Considerations for All Holders of Allowed Claims................. 175
Receipt of Interest............................................................... 175
Future Stock Gains................................................................ 175
Original Issue Discount........................................................... 176
Request for IRS Rulings............................................................. 176
Importance of Obtaining Professional Tax Assistance................................. 176
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS.................................... 177
Issuance of Securities Under the Plan............................................... 177
Transfers of New Securities......................................................... 177
Certain Transactions by Stockbrokers................................................ 178
ADDITIONAL INFORMATION................................................................ 178
RECOMMENDATION AND CONCLUSION......................................................... 179
INDEX TO HISTORICAL FINANCIAL INFORMATION............................................. F-1
</TABLE>
vii
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TABLE OF EXHIBITS
<TABLE>
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Exhibit I Amended Joint Plan of Reorganization of R.H. Macy & Co., Inc. and
Certain of Its Subsidiaries
Exhibit II List of Debtors
Exhibit III List of Members of Each of the Creditors' Committees
Exhibit IV Hypothetical Liquidation Analysis
</TABLE>
viii
<PAGE>
INTRODUCTION
This Disclosure Statement relates to an amended joint plan of reorganization
(as from time to time hereafter further amended or modified, the "Plan") for
R.H. Macy & Co., Inc. ("Macy's") and the subsidiaries of Macy's that are debtors
in the above-captioned chapter 11 cases (collectively with Macy's, the
"Debtors"). A copy of the Plan is attached hereto as Exhibit I. The proponents
of the Plan are the Debtors and Federated Department Stores, Inc. ("Federated"
and, collectively with the Debtors, the "Plan Proponents"). The Plan Proponents
seek Confirmation of the Plan and submit this Disclosure Statement in connection
with their solicitation of acceptances of the Plan.
The official committee of unsecured creditors of the Debtors (the "Unsecured
Creditors' Committee") and the official unsecured bondholders' committee of the
Debtors (the "Bondholders' Committee" and, collectively with the Unsecured
Creditors' Committee, the "Creditors' Committees") appointed in the Debtors'
chapter 11 cases (the "Reorganization Cases"), together with certain principal
secured creditors of the Debtors, including The Prudential Insurance Company of
America ("Prudential"), representatives of the WCB Group, representatives of the
49 Store Bank Group, representatives of the CREI Bank Group, Fidelity Management
& Research Company ("Fidelity"), and Swiss Bank (collectively, the "Senior
Lenders"), have participated with the Plan Proponents in the negotiations
leading to the formulation and proposal of the Plan. The Creditors' Committees
and the representatives of the Senior Lenders have endorsed the Plan and have
recommended that their respective creditor constituencies vote to accept the
Plan.
The requirements for Confirmation of the Plan, including the vote of
creditors to accept the Plan and certain of the statutory findings that must be
made by the Bankruptcy Court, are described below under the caption "Voting and
Confirmation of the Plan." The Plan constitutes a separate plan of
reorganization for each of the Debtors. Accordingly, the voting and other
Confirmation requirements of the Bankruptcy Code must be satisfied for each of
the Debtors.
Confirmation of the Plan and the occurrence of the Effective Date are
subject to a number of material conditions precedent, which are summarized in
"Overview of the Plan--Conditions to Confirmation and Effective Date of the
Plan." There can be no assurance that these conditions will be satisfied.
OVERVIEW OF THE PLAN
INTRODUCTION
The following is an overview of certain material provisions of the Plan.
This overview is qualified in its entirety by reference to the provisions of the
Plan itself, which is attached hereto as Exhibit I, and the appendices thereto,
which are available for inspection at the Document Reviewing Centers. See
"Additional Information." For a description of certain other significant terms
and provisions of the Plan, see "General Information Concerning the Plan" and
"Distributions Under the Plan."
The Plan provides for the merger of Federated and Macy's (the
"Federated/Macy's Merger"). After the consummation of the Federated/Macy's
Merger, the Combined Company will operate the existing businesses of Macy's and
Federated. See "The Combined Company--Business of the Combined Company--Combined
Company Strategic Plan." The directors and officers of Federated immediately
before the Federated/Macy's Merger will be directors and officers of the
Combined Company immediately after the Federated/Macy's Merger. In addition,
pursuant to the Federated/Macy's Merger Agreement, Myron E. Ullman, III, who is
currently the Chairman of the Board of Directors and Chief Executive Officer of
Macy's, together with three additional Macy's directors, will become directors
of the Combined Company immediately after the Federated/Macy's Merger, and Mr.
Ullman will also become the Deputy Chairman of the Combined Company, with
primary responsibility for overseeing transitional matters relating to combining
Federated's and Macy's operations. See "The Combined Company--Management." The
certificate of incorporation (the "Certificate of Incorporation") and by-laws
(the "By-Laws") of the Combined Company immediately after the Federated/Macy's
Merger will be substantially identical to the certificate of incorporation and
<PAGE>
by-laws of Federated immediately before the Federated/Macy's Merger, except that
the authorized capital of the Combined Company will be increased. See "The
Combined Company--Restructuring Transactions--The Federated/Macy's Merger."
GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS
The Plan provides that holders of Allowed Claims in certain Classes will be
entitled to distributions of cash, New Debt, New Equity, or a combination
thereof. See "Securities to be Issued Pursuant to the Plan" for a description of
the securities to be issued pursuant to the Plan. The Plan Proponents presently
intend to seek to consummate the Plan and cause the Effective Date to occur in
December 1994. There can be no assurance, however, when the Effective Date will
actually occur, and, for purposes of this Disclosure Statement, the assumed
Effective Date is January 28, 1995, which is the last day of Federated's fiscal
year. Procedures for the distribution of cash and securities pursuant to the
Plan, including matters that are expected to affect the timing of the receipt of
distributions by holders of Claims in certain Classes and that could affect the
amount of distributions ultimately received by such holders, are described in
"Distributions Under the Plan."
The determination of the relative distributions to be received under the
Plan by the holders of Claims in certain Classes was based upon, among other
factors, estimates of the amounts of Allowed Claims in such Classes and the
relative priorities of such Allowed Claims. The estimates of the amounts of
Allowed Claims in each Class are set forth in "--Summary of Classes and
Treatment of Claims and Interests." The distributions to be received by
creditors in certain Classes could change if those estimates are not accurate.
The "cramdown" provisions of section 1129(b) of the Bankruptcy Code permit
confirmation of a chapter 11 plan of reorganization in certain circumstances
even if the plan is not accepted by all impaired classes of claims and
interests. See "Voting and Confirmation of the Plan--Acceptance or Cramdown."
The Plan Proponents have reserved the right to request Confirmation pursuant to
the cramdown provisions of the Bankruptcy Code and amend the Plan if any Class
of Claims or Interests fails to accept the Plan. If such request were granted by
the Bankruptcy Court, the dissenting Classes could, in certain cases, receive
alternative treatment under the Plan. For purposes of this Disclosure Statement,
however, it has been assumed that the Plan Proponents will not be required to
seek Confirmation under the cramdown provisions of the Bankruptcy Code, except
with respect to certain Classes of Claims and Interests that in any event will
not receive any distributions under the Plan and thus will be deemed under the
Bankruptcy Code to have rejected the Plan. Although the Plan Proponents believe
that, if necessary, the Plan could be confirmed under the cramdown provisions of
the Bankruptcy Code, there can be no assurance that the requirements of such
provisions would be satisfied or, even if such requirements could be satisfied,
that such alternative treatment would not materially affect the distributions
proposed to be made to other creditors or the projected financial condition or
results of operations of the Combined Company. In addition, as described in "The
Combined Company--Restructuring Transactions --The Federated/Macy's Merger--The
Federated/Macy's Merger Agreement--Termination," Federated and Macy's each may
have the right to terminate the Federated/Macy's Merger Agreement if
Confirmation of the Plan is sought under the cramdown provisions of section
1129(b) of the Bankruptcy Code in circumstances involving the proposal of
alternative treatment under the Plan of Classes of Claims that reject the Plan.
SUMMARY OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS
The classification of Claims and Interests, the estimated aggregate amount
of Claims in each Class, and the amount and nature of distributions to holders
of Claims or Interests in each Class are summarized in the table below. In
accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims
and Priority Tax Claims have not been classified. The treatment of such Claims
and estimates of the aggregate amounts of Claims in each category are also set
forth in the table below. For a discussion of certain additional matters related
to Administrative Claims and Priority Tax
2
<PAGE>
Claims, see "--Additional Information Regarding Treatment of Certain
Claims--General Administrative Claims" and "Operations During the Reorganization
Cases--Certain Claims Settlements and Litigation--Certain IRS Claims."
For convenience, the information set forth in the table below with respect
to Administrative Claims, Priority Tax Claims, and each Class of Claims or
Interests is presented on a combined basis for all of the Debtors to which such
information is applicable. The estimated aggregate amounts of Administrative
Claims, Responsible Person Priority Tax Claims, Other Priority Tax Claims,
Priority Claims, and Reserve Class Claims (collectively, the "Uncompromised
Claims") are based on the Debtors' estimates of the aggregate amounts of such
Claims upon resolution of all such Claims that are also Disputed Claims. Certain
of these Disputed Claims are material, and the total amount of all Uncompromised
Claims, including Disputed Claims, is materially in excess of the total amount
of Allowed Claims assumed in the development of the Plan. It is a condition to
Confirmation that the aggregate amounts of Administrative Claims, Priority Tax
Claims, Priority Claims, and Allowed Reserve Class Claims shall have been
estimated or determined by Bankruptcy Court orders (to the extent that the
Bankruptcy Court has jurisdiction) that are not subject to any stay in amounts
that do not exceed the corresponding estimated aggregate amounts set forth in
the table below for each category or Class of Claims. See "--Conditions to
Confirmation and Effective Date of the Plan-- Conditions to Confirmation" and
"--Waiver of Conditions to Confirmation and Effective Date."
The amount of any Disputed Claim that ultimately is allowed by the
Bankruptcy Court may be significantly more or less than the estimated allowed
amount of such Claim. In addition, the actual ultimate aggregate amount of
Allowed Claims in the Classes of general Unsecured Claims, including Trade
Claims, that are not otherwise classified (Reserve Classes M-13, MOS-13, MRS-10,
and MMS-5) may differ significantly from the estimates set forth below.
Accordingly, the amount of the Pro Rata distributions of New Combined Company
Common Stock that will ultimately be received by a particular holder of an
Allowed Claim in a Reserve Class may be adversely or positively affected by the
aggregate amount of Claims ultimately allowed in the applicable Class. Moreover,
because Allowed Claims in Reserve Classes M-13, MOS-13, MRS-10, and MMS-5 will
receive Pro Rata distributions of New Combined Company Common Stock as if such
Claims were in a single Class, the amount of the distribution that will
ultimately be received by a particular holder of an Allowed Claim in any such
Class may be adversely or positively affected by the aggregate amount of Claims
ultimately allowed in any Reserve Class. Consequently, distributions of New
Combined Company Common Stock to holders of Allowed Claims in the Reserve
Classes will be made on an incremental basis until all Disputed Claims in such
Classes have been resolved. See "Distributions Under the Plan--Timing and
Calculation of Amounts to be Distributed--New Combined Company Common Stock to
be Distributed to Holders of Allowed Claims in Reserve Classes" and "--Disputed
Claims; Reserve and Estimations."
Except as otherwise described in "General Information Concerning the
Plan--Releases and Certain Settlements Under the Plan; Related
Injunction--Preservation of Certain Subordination and Turnover Rights," pursuant
to Bankruptcy Rule 9019 and in consideration for the distributions and other
benefits provided under the Plan, the provisions of the Plan will constitute a
good faith compromise and settlement of all claims or controversies relating to
amounts and allowability of: (i) Claims under the Macy's/Prudential Loan
Agreement (Classes M-4, MOS-4, and MRS-4); (ii) Allowed Bank Loan Claims
(Classes M-5 through M-7, MOS-5 through MOS-7, MRS-5 through MRS-7, and MMS-4);
(iii) Claims of Swiss Bank under the Macy's/Swiss Bank Liquidated Damages
Agreement or the Macy's/Macy's South Liquidated Damages Guaranty (Classes M-8,
MOS-8, and MRS-8); (iv) Claims of GECC under the Macy's/GECC Loan Agreement or
the Macy's/GECC Interest Guaranty (Classes M-9 and MOS-9); (v) Claims of John
Hancock under the John Hancock KPM Note or the John Hancock Plaza Store Note
(Class MRS-9); and (vi) Allowed Debt Security Claims (Classes M-10 through M-12
and MOS-10 through MOS-12) (collectively, the "Compromised Classes"), and a good
faith compromise and settlement of all claims and controversies relating to the
3
<PAGE>
enforcement or termination of all contractual, legal, and equitable
subordination and turnover rights that a holder of a Claim or Interest may have
with respect to any Allowed Claim, or any distribution to be made pursuant to
the Plan on account of such Claim. See "General Information Concerning the
Plan--Releases and Certain Settlements Under the Plan; Related
Injunction--Resolution of Certain Claims and Subordination Issues."
Each amount shown in the table below as "Estimated Percentage Recovery" for
each Class is the quotient of the cash, if any, plus the assumed value of the
securities to be distributed to all holders of Allowed Claims in such Class,
divided by the estimated aggregate amount of Allowed Claims in such Class
(including, with respect to Classes of Allowed Debt Security Claims in
connection with the Old Debt Securities, the amount of such Claims held by
Macy's Financial, as specified in "General Information Concerning the
Plan--Legal Effects of the Plan--Intercompany Claims and Certain Claims of
Affiliates"). For purposes of such computation, the New Debt is assumed to have
a value equal to its principal amount, the New Combined Company Common Stock to
be distributed to Claim holders under the Plan is assumed to have an aggregate
value of $1,697,767,100, and the New Warrants are assumed to have an aggregate
value of $139,152,300. See "Securities to be Issued Pursuant to the
Plan--Assumptions Regarding Valuation of New Securities" for a description of
the manner in which the number of shares of New Combined Company Common Stock
and the number of New Warrants will be determined and valued for purposes of the
Plan, the assumptions used in connection with the foregoing, and the limitations
thereon, and "Risk Factors" for a discussion of various other factors that could
materially affect the value of New Securities distributed pursuant to the Plan.
There can be no assurance that the New Debt, the New Combined Company Common
Stock, and the New Warrants will have the values assumed herein. See "Risk
Factors." Moreover, as discussed above, there can be no assurance that the
actual amounts of Allowed Claims in Reserve Classes will not materially exceed
the estimated aggregate amounts shown in the table below. Accordingly, no
representation can be or is being made with respect to whether the percentage
recoveries shown in the table below will actually be realized by the holder of
an Allowed Claim in any particular Class.
Except for Disputed Claims and distributions of New Combined Company Common
Stock to holders of general Unsecured Claims, including Trade Claims, that are
not otherwise classified (Reserve Classes M-13, MOS-13, MRS-10, and MMS-5),
which distributions will be made incrementally, as described in "Distributions
Under the Plan--Timing and Calculation of Amounts to be Distributed -- New
Combined Company Common Stock to be Distributed to Holders of Allowed Claims in
Reserve Classes," distributions will be deemed made on the Effective Date as
follows. In general, distributions will be deemed made on the Effective Date if
made on the Effective Date or as promptly thereafter as practicable, but in any
event no later than (i) 90 days after the Effective Date or (ii) such later date
when the applicable conditions under the Plan relating to such distributions are
satisfied. Notwithstanding the foregoing, subject to the conditions of Section
IV.E.1 of the Plan (regarding execution of the New Mortgage Notes Agreements)
and Section VI.I of the Plan (regarding surrender of canceled instruments and
securities), distributions will be made on the Effective Date to: (a)
Prudential; (b) the applicable Agent Banks; (c) Swiss Bank; (d) GECC; (e) John
Hancock; and (f) the applicable Indenture Trustee or Disbursing Agent, on
account of Allowed Claims in the applicable Compromised Classes. See
"Distributions Under the Plan --General" for a discussion of other Plan
provisions that may affect the timing of distributions under the Plan.
Distributions on account of Claims that become Allowed Claims after the
Effective Date will be made pursuant to Section VI.G of the Plan (relating to
timing and calculation of amounts to be distributed under the Plan) and Section
VII.C of the Plan (relating to distributions on account of Disputed Claims once
they are allowed). See "Distributions Under the Plan--Timing and Calculation of
Amounts to be Distributed" and "--Disputed Claims; Reserve and
Estimations--Distributions on Account of Disputed Claims Once They Are Allowed."
The Plan provides that the Combined Company, at its sole option, may: (i)
increase the amount of cash to be distributed to Prudential, holders of Allowed
Bank Loan Claims, and Swiss Bank
4
<PAGE>
(Classes M-4 through M-8, MOS-4 through MOS-8, MRS-4 through MRS-8, and MMS-4)
and make corresponding reductions in the respective amounts of New Debt or New
Combined Company Common Stock to be distributed to such Classes or (ii) increase
the aggregate principal amount of either the New Series B Notes or New Series C
Notes to be distributed to holders of Allowed Bank Loan Claims and Swiss Bank
(Classes M-5 through M-8, MOS-5 through MOS-8, MRS-5 through MRS-8, and MMS-4),
in exchange for a corresponding reduction in the aggregate principal amount of
the other series, so long as so doing would not cause the aggregate principal
amount of either series of New Unsecured Notes to be distributed to be less than
$200.0 million. See "--Additional Information Regarding Treatment of Certain
Claims--Adjustments of Amounts of Certain Distributions." In this regard,
Federated is seeking to arrange $2,800.0 million in bank credit facilities for
the Combined Company (the "New Bank Facilities"), $1,724.8 million of the net
proceeds of which would be applied as follows (all amounts are as of January 28,
1995) (the following transactions being collectively referred to as the
"Refinance Transactions"): (i) the distribution of $462.6 million in cash to
holders of Allowed Bank Loan Claims and Swiss Bank in lieu of the distributions
of the New Series A Notes and New Series C Notes (see "Securities to be Issued
Pursuant to the Plan--New Unsecured Notes"); (ii) the exercise of the option
held by Federated Noteholding Corporation ("FNC"), a wholly owned subsidiary of
Federated, to purchase the remainder of Prudential's Claims under the
Macy's/Prudential Loan Agreement (the "Prudential Claims") for $473.9 million
(see "Operations During the Reorganization Cases--Plan Negotiations"); (iii) the
prepayment of $335.2 million principal amount of the FNC Note (see "Other
Indebtedness of the Combined Company--FNC Promissory Note"); (iv) the prepayment
of $273.6 million aggregate principal amount of the Federated Series A Notes
(see "Other Indebtedness of the Combined Company--Federated Series A Secured
Notes"); (v) the repayment of $103.9 million of short-term borrowings; (vi) the
application of $22.1 million in respect of additional financing fees to be
incurred in connection with the New Bank Facilities; and (vii) the distribution
of $53.5 million in cash to GECC on account of its Allowed Claims in Classes M-9
and MOS-9 in lieu of the distribution of the New GECC Mortgage Notes (see
"Securities to be Issued Pursuant to the Plan--New GECC Mortgage Notes"). See
"Other Indebtedness of the Combined Company--New Bank Facilities." In such
event, in accordance with the Plan, it is anticipated that the aggregate
principal amount of New Series B Notes that would be issued to the holders of
Allowed Bank Loan Claims and Swiss Bank would be increased by $211.2 million,
from $288.8 million to $500.0 million. The consummation of the transactions
contemplated by the Plan and the Federated/Macy's Merger Agreement is not,
however, conditioned upon the New Bank Facilities being available to the
Combined Company.
For simplicity, the table below has been prepared based on the assumption
that the Refinance Transactions are not consummated and, accordingly, that the
maximum amounts of New Prudential Mortgage Notes; New GECC Mortgage Notes; and
New Series A Notes, New Series B Notes, and New Series C Notes (collectively,
the "New Unsecured Notes") that are distributable under the Plan will in fact be
distributed, and that the New Bank Facilities are not available to the Combined
Company. In addition, the treatment of Claims described in the table below is
subject to the Plan provisions described in "--Additional Information Regarding
Treatment of Certain Claims."
5
<PAGE>
TREATMENT OF CLAIMS AGAINST AND
INTERESTS IN THE DEBTORS UNDER THE PLAN
<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
UNCLASSIFIED CLAIMS
- - ADMINISTRATIVE CLAIMS:
Claims for costs and expenses of administration
allowed under section 503(b), 507(b), or 1114(e)(2)
of the Bankruptcy Code.
- -- ADMINISTRATIVE CLAIMS IN GENERAL-- Administrative Except as specified below, unless otherwise agreed by
Claims, other than Administrative Claims arising the holder of an Administrative Claim and the
in the ordinary course of the Debtors' businesses applicable Debtor or Reorganized Debtor, each holder
or arising from the DIP Credit Agreement, of an Administrative Claim will receive, in full
including allowed reclamation Claims. satisfaction of its Claim, cash equal to the amount
ESTIMATED AGGREGATE CLAIMS AMOUNT: of such Administrative Claim on the Effective Date
$ million or, if the Administrative Claim is not allowed as of
the Effective Date (i) 30 days after the date on
which an order allowing such Claim (other than a
Claim for reclamation under section 546(c) of the
Bankruptcy Code) becomes a Final Order or (ii) with
respect to Claims for reclamation under section
546(c) of the Bankruptcy Code, 30 days after the date
on which (a) an order allowing such Claim becomes a
Final Order or (b) a Stipulation of Amount and Nature
of Claim is executed by the applicable Reorganized
Debtor and Claim holder.
ESTIMATED PERCENTAGE RECOVERY: 100%
- -- ORDINARY COURSE LIABILITIES--Administrative Claims Such Administrative Claims will be assumed and paid
based on liabilities incurred by a Debtor in the by the applicable Reorganized Debtor pursuant to the
ordinary course of its business (including terms and conditions of the particular transaction
Administrative Claims that are Trade Claims, giving rise to such Administrative Claims, without
Administrative Claims of governmental units for any further action by the holders of such Claims.
taxes, and Administrative Claims arising from or ESTIMATED PERCENTAGE RECOVERY: 100%
under postpetition executory contracts and
unexpired leases).
ESTIMATED AGGREGATE CLAIMS AMOUNT:
N/A
- -- DIP CREDIT AGREEMENT--Administrative Claims under On the Effective Date or at a later date determined
or evidenced by the DIP Credit Agreement. pursuant to the DIP Credit Agreement, such
ESTIMATED AGGREGATE CLAIMS AMOUNT: $ million Administrative Claims will be paid, as Federated or
the Combined Company determines, in its sole
discretion: (i) in cash equal to the amount of such
Administrative Claims or (ii) in accordance with the
DIP Credit Agreement.
ESTIMATED PERCENTAGE RECOVERY: 100%
</TABLE>
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<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- - PRIORITY TAX CLAIMS:
- -- FEDERAL PRIORITY TAX CLAIMS The Debtors and the IRS have reached an agreement to
ESTIMATED AGGREGATE CLAIMS AMOUNT: $ million settle the Federal Priority Tax Claims of the IRS
against the Debtors by entering into the IRS
Settlement Agreement. See "Operations During the
Reorganization Cases-- Certain Claims Settlements and
Litigation-- Certain IRS Claims." Pursuant to section
1129(a)(9)(C) of the Bankruptcy Code and as
contemplated in the IRS Settlement Agreement,
beginning one year after the Effective Date, the IRS
will receive, in full satisfaction of its Federal
Priority Tax Claims (except as provided below with
respect to Responsible Person Priority Tax Claims),
deferred cash payments in the amount of such Claims
in six equal annual installments of principal, plus
simple interest accruing from the Effective Date at
7% per annum on the unpaid portion of such Claims (or
upon such other terms determined by the Bankruptcy
Court to provide the holders of Federal Priority Tax
Claims with deferred cash payments having a value, as
of the Effective Date, equal to such Claims);
provided, however, that the Reorganized Debtors will
have the right to pay any Federal Priority Tax Claim,
or any remaining balance of such Claim, in full at
any time on or after the Effective Date, without
premium or penalty.
ESTIMATED PERCENTAGE RECOVERY: 100%
</TABLE>
7
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<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- -- RESPONSIBLE PERSON PRIORITY TAX CLAIMS On the Effective Date or, if the Responsible Person
ESTIMATED AGGREGATE CLAIMS AMOUNT: $ million Priority Tax Claim is not allowed as of the Effective
Date, the first Quarterly Distribution Date after the
date on which (i) an order allowing such Claim
becomes a Final Order or (ii) a Stipulation of Amount
and Nature of Claim is executed by the applicable
Reorganized Debtor and Claim holder, each holder of a
Responsible Person Priority Tax Claim will receive
cash equal to the amount of such Claim. To the extent
that any holder of a Responsible Person Priority Tax
Claim holds any other Allowed Claims, all
distributions received by the holder of such
Responsible Person Priority Tax Claim, whether on
account of such Responsible Person Priority Tax Claim
or on account of other Allowed Claims, will be first
applied toward and will reduce the amount of such
Responsible Person Priority Tax Claim.
ESTIMATED PERCENTAGE RECOVERY: 100%
</TABLE>
8
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<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- -- OTHER PRIORITY TAX CLAIMS Pursuant to section 1129(a)(9)(C) of the Bankruptcy
ESTIMATED AGGREGATE CLAIMS AMOUNT: $ million Code, unless otherwise agreed by the holder of an
Other Priority Tax Claim and the applicable Debtor or
Reorganized Debtor, each holder of an Other Priority
Tax Claim will receive, in full satisfaction of its
Claim, deferred cash payments over a period not
exceeding six years from the date of assessment of
such Claim. Payments will be made in equal annual
installments of principal, plus simple interest
accruing from the Effective Date at 7% per annum on
the unpaid portion of each Other Priority Tax Claim
(or upon such other terms determined by the
Bankruptcy Court to provide the holders of Other
Priority Tax Claims with deferred cash payments
having a value, as of the Effective Date, equal to
such Claims). Unless otherwise agreed by the holder
of such Claim and the applicable Debtor or
Reorganized Debtor, the first payment will be payable
one year after the Effective Date or, if the Other
Priority Tax Claim is not allowed within one year
after the Effective Date, the first Quarterly
Distribution Date after the date on which (i) an
order allowing such Claim becomes a Final Order or
(ii) a Stipulation of Amount and Nature of Claim is
executed by the applicable Reorganized Debtor and
Claim holder; provided, however, that the Reorganized
Debtors will have the right to pay any Other Priority
Tax Claim, or any remaining balance of such Claim, in
full, at any time on or after the Effective Date,
without premium or penalty.
ESTIMATED PERCENTAGE RECOVERY: 100%
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
CLASSIFIED CLAIMS AND INTERESTS
- - CLASSES M-1, MOS-1, MRS-1, AND MMS-1: Unsecured Unimpaired; on the Effective Date, each holder of an
Claims entitled to priority under section Allowed Claim in Class M-1, MOS-1, MRS-1, or MMS-1
507(a)(3), 507(a)(4), or 507(a)(6) of the will receive cash equal to the amount of such Claim.
Bankruptcy Code. ESTIMATED PERCENTAGE RECOVERY: 100%
ESTIMATED AGGREGATE CLAIMS AMOUNT: $ million
- - CLASSES M-2, MOS-2, MRS-2, AND MMS-2 (UNSECURED Unimpaired; on the Effective Date, each holder of an
CONVENIENCE CLASS CLAIMS): Unsecured Claims of Allowed Claim in Class M-2, MOS-2, MRS-2, or MMS-2
$1,000 or less, and Unsecured Claims against a will receive cash equal to the amount of such Claim
particular Debtor that the Claim holder elects by (as reduced, if applicable, pursuant to an election
the Voting Deadline to reduce to $1,000 in the by the holder thereof).
aggregate, which Claims would otherwise be ESTIMATED PERCENTAGE RECOVERY: 100%
classified in Class M-13, MOS-13, MRS-10, or MMS-5,
absent the existence of Classes M-2, MOS-2, MRS-2,
and MMS-2. The holder of a Claim against a
particular Debtor that would have been classified
in Class M-13, MOS-13, MRS-10, or MMS-5, absent
such election, may make this election only as to
all such holder's Claims in such Class against the
applicable Debtor. To obtain classification in
Class M-2, MOS-2, MRS-2, or MMS-2 for multiple
Unsecured Claims against a Debtor that are under
$1,000, but which aggregate more than $1,000 and
would otherwise be classified in Class M-13,
MOS-13, MRS-10, or MMS-5, absent the existence of
Classes M-2, MOS-2, MRS-2, and MMS-2, the holder of
such Claims against the particular Debtor must
elect classification in Class M-2, MOS-2, MRS-2, or
MMS-2, as applicable and reduce the aggregate
amount of such Claims to $1,000, as if such Claims
against the particular Debtor were, in the
aggregate, one Claim.
ESTIMATED AGGREGATE CLAIMS AMOUNT (EXCLUDING CLASS
M-13, MOS-13, MRS-10, AND MMS-5 ALLOWED CLAIMS IN
EXCESS OF $1,000, THE HOLDERS OF WHICH MAY ELECT TO
REDUCE TO $1,000): $ million
- - CLASSES M-3, MOS-3, MRS-3, AND MMS-3: Secured Unimpaired; on the Effective Date, each holder of an
Claims that are not otherwise classified. Allowed Claim in Class M-3, MOS-3, MRS-3, or MMS-3
ESTIMATED AGGREGATE CLAIMS AMOUNT: $37.2 million will have its Allowed Claim Reinstated.
ESTIMATED PERCENTAGE RECOVERY: N/A
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- - CLASSES M-4, MOS-4, AND MRS-4: Claims of Prudential Impaired; on the Effective Date, the respective
or FNC under or evidenced by the Macy's/Prudential aggregate amounts of the Claims of Prudential and FNC
Loan Agreement. in each of Classes M-4, MOS-4, and MRS-4 will each be
ESTIMATED AGGREGATE CLAIMS AMOUNT: $856.3 million deemed to be Allowed Claims of $428,174,000, and,
subject to the adjustments described in "--Additional
Information Regarding Treatment of Certain Claims--
Adjustments of Amounts of Certain Distributions," on
the Effective Date, Prudential will receive, in full
satisfaction of its Allowed Claims: (i) $5,709,000
cash minus 1/2 of the amount of any cash distributed
to Prudential on account of Allowed Claims in Classes
M-4, MOS-4, and MRS-4 prior to the Effective Date and
(ii) $550,926,100 aggregate principal amount of New
Prudential Mortgage Notes. On the Effective Date, FNC
will receive, in full satisfaction of its Allowed
Claims in Classes M-4, MOS-4, and MRS-4: (i)
$5,709,000 cash minus 1/2 of the amount of any cash
distributed to Prudential on account of Allowed
Claims in Classes M-4, MOS-4, and MRS-4 prior to the
Effective Date and (ii) 41.14147% of the number of
Distributable Shares (Pool A).
ESTIMATED PERCENTAGE RECOVERY: 130.0%
- - CLASSES M-5, MOS-5, MRS-5, AND MMS-4: Claims of the Impaired; on the Effective Date, the aggregate amount
WCB Group under or evidenced by the Macy's/WCB Loan of the Claims in each of Classes M-5, MOS-5, MRS-5,
Agreement, the Macy's/WCB Guaranty, or the and MMS-4 will be deemed to be an Allowed Claim of
Macy's/WCB Swap Agreement. $735,698,190, and, subject to the adjustments
ESTIMATED AGGREGATE CLAIMS AMOUNT: $735.7 million described in "--Additional Information Regarding
Treatment of Certain Claims--Adjustments of Amounts
of Certain Distributions," on the Effective Date,
each holder of an Allowed Claim in Classes M-5,
MOS-5, MRS-5, and MMS-4 will receive, in full
satisfaction of its Allowed Claims, its Pro Rata
share of: (i) $23,836,000 cash; (ii) $198,081,000
aggregate principal amount of New Series A Notes;
(iii) $148,561,000 aggregate principal amount of New
Series B Notes; (iv) $148,561,000 aggregate principal
amount of New Series C Notes; and (v) 28.26623% of
the number of Distributable Shares (Pool A).
ESTIMATED PERCENTAGE RECOVERY: 122.0%
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- - CLASSES M-6, MOS-6, AND MRS-6: Claims of the 49 Impaired; on the Effective Date, the aggregate amount
Store Bank Group under or evidenced by the of the Claims in each of Classes M-6, MOS-6, and
Macy's/49 Store Loan Agreement or the Macy's/49 MRS-6 will be deemed to be an Allowed Claim of
Store Loan Guaranty (other than the liquidated $560,434,006, and, subject to the adjustments
damages Claims of Swiss Bank). described in "--Additional Information Regarding
ESTIMATED AGGREGATE CLAIMS AMOUNT: $560.4 million Treatment of Certain Claims--Adjustments of Amounts
of Certain Distributions," on the Effective Date,
each holder of an Allowed Claim in Classes M-6,
MOS-6, and MRS-6 will receive, in full satisfaction
of its Allowed Claims, its Pro Rata share of: (i)
$14,109,000 cash; (ii) $128,559,000 aggregate
principal amount of New Series A Notes; (iii)
$96,420,000 aggregate principal amount of New Series
B Notes; (iv) $96,420,000 aggregate principal amount
of New Series C Notes; and (v) 18.47086% of the
number of Distributable Shares (Pool A).
ESTIMATED PERCENTAGE RECOVERY: 104.0%
- - CLASSES M-7, MOS-7, AND MRS-7: Claims of the CREI Impaired; on the Effective Date, the aggregate amount
Bank Group under or evidenced by the Macy's/CREI of the Claims in each of Classes M-7, MOS-7, and
Loan Agreement or the Macy's/CREI Swap Agreement. MRS-7 will be deemed to be an Allowed Claim of
ESTIMATED AGGREGATE CLAIMS AMOUNT: $201.5 million $201,480,925, and, subject to the adjustments
described in "--Additional Information Regarding
Treatment of Certain Claims--Adjustments of Amounts
of Certain Distributions," on the Effective Date,
each holder of an Allowed Claim in Classes M-7,
MOS-7, and MRS-7 will receive, in full satisfaction
of its Allowed Claims, its Pro Rata share of: (i)
$47,376,000 aggregate principal amount of New Series
A Notes; (ii) $35,532,000 aggregate principal amount
of New Series B Notes; (iii) $35,532,000 aggregate
principal amount of New Series C Notes; and (iv)
6.80307% of the number of Distributable Shares (Pool
A).
ESTIMATED PERCENTAGE RECOVERY: 104.0%
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- - CLASSES M-8, MOS-8, AND MRS-8: Claims of Swiss Bank Impaired; on the Effective Date, the Claims of Swiss
under or evidenced by the Macy's/Swiss Bank Bank in each of Classes M-8, MOS-8, and MRS-8 will be
Liquidated Damages Agreement or the Macy's/Macy's deemed to be an Allowed Claim and, subject to the
South Liquidated Damages Guaranty. adjustments described in "--Additional Information
ESTIMATED AGGREGATE CLAIMS AMOUNT: $50.0 million Regarding Treatment of Certain Claims--Adjustments of
(as compromised and settled pursuant to the Plan) Amounts of Certain Distributions," on the Effective
Date, Swiss Bank will receive, in full satisfaction
of its Allowed Claims: (i) $1,210,300 cash; (ii)
$11,028,000 aggregate principal amount of New Series
A Notes; (iii) $8,272,000 aggregate principal amount
of New Series B Notes; (iv) $8,272,000 aggregate
principal amount of New Series C Notes; and (v)
1.58452% of the number of Distributable Shares (Pool
A).
ESTIMATED PERCENTAGE RECOVERY: 100% of the Allowed
Claim as compromised and settled pursuant to the Plan
- - CLASSES M-9 AND MOS-9: Claims of GECC under or Impaired; on the Effective Date, the aggregate amount
evidenced by the Macy's/GECC Loan Agreement or the of the Claims of GECC in each of Classes M-9 and
Macy's/GECC Interest Guaranty. MOS-9 will be deemed to be an Allowed Claim of
ESTIMATED AGGREGATE CLAIMS AMOUNT: $53.5 million $53,458,000, and, subject to the adjustments
described in "--Additional Information Regarding
Treatment of Certain Claims--Adjustments of Amounts
of Certain Distributions," on the Effective Date,
GECC will receive, in full satisfaction of its
Allowed Claims, $53,458,000 aggregate principal
amount of New GECC Mortgage Notes.
ESTIMATED PERCENTAGE RECOVERY: 100.0%
- - CLASS MRS-9: JOHN HANCOCK KINGS PLAZA CLAIMS
- -- CLASS MRS-9A: Claims of John Hancock under or Impaired; on the Effective Date, John Hancock will
evidenced by the John Hancock KPM Note. receive, in full satisfaction of its Allowed Claims
ESTIMATED AGGREGATE CLAIMS AMOUNT: $7.0 million in Class MRS-9A: (i) $3,245,000 cash and (ii) the New
John Hancock KPM Note in an aggregate principal
amount of $5,178,000.
ESTIMATED PERCENTAGE RECOVERY: 120.2%
- -- CLASS MRS-9B: Claims of John Hancock under or Impaired; on the Effective Date, John Hancock will
evidenced by the John Hancock Plaza Store Note. receive, in full satisfaction of its Allowed Claims
ESTIMATED AGGREGATE CLAIMS AMOUNT: $6.4 million in Class MRS-9B: (i) $2,324,000 cash and (ii) the New
John Hancock Plaza Store Note in an aggregate
principal amount of $6,100,000.
ESTIMATED PERCENTAGE RECOVERY: 131.9%
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- - CLASSES M-10 AND MOS-10: Claims under or evidenced Impaired; on the Effective Date, the aggregate amount
by the Macy's Senior Subordinated Debentures, the of the Claims in each of Classes M-10 and MOS-10 will
Macy's Senior Subordinated Debentures Indenture, be deemed to be an Allowed Claim of $399,106,619,
the Macy's Senior Subordinated Debentures Guaranty, and, on the Effective Date, each holder of an Allowed
or the Macy's Senior Subordinated Debentures Claim in Classes M-10 and MOS-10 will receive, in
Assumption Agreement, other than such Claims full satisfaction of its Allowed Claims, its Pro Rata
secured by an Indenture Trustee Charging Lien. share of: (i) $35,375,000 cash; (ii) 47.90577% of the
ESTIMATED AGGREGATE CLAIMS AMOUNT: number of Distributable Shares (Pool B); and (iii)
$399.1 million 57.38061% of each series of Distributable Warrants.
ESTIMATED PERCENTAGE RECOVERY: 71.9%
- - CLASSES M-11 AND MOS-11: Claims under or evidenced Impaired; on the Effective Date, the aggregate amount
by the Macy's Subordinated Debentures, the Macy's of the Claims in each of Classes M-11 and MOS-11 will
Subordinated Debentures Indenture, the Macy's be deemed to be an Allowed Claim of $508,880,225,
Subordinated Debentures Guaranty, or the Macy's and, on the Effective Date, each holder of an Allowed
Subordinated Debentures Assumption Agreement, other Claim in Classes M-11 and MOS-11 will receive, in
than such Claims secured by an Indenture Trustee full satisfaction of its Allowed Claims, its Pro Rata
Charging Lien. share of: (i) 30.55407% of the number of
ESTIMATED AGGREGATE CLAIMS AMOUNT: $508.9 million Distributable Shares (Pool B) and (ii) 42.61939% of
the number of each series of Distributable Warrants.
ESTIMATED PERCENTAGE RECOVERY: 33.2%
- - CLASSES M-12 AND MOS-12: Claims under or evidenced Impaired; on the Effective Date, the aggregate amount
by the Macy's Subordinated Discount Debentures, the of the Claims in each of Classes M-12 and MOS-12 will
Macy's Subordinated Discount Debentures Indenture, be deemed to be an Allowed Claim of $582,819,136,
the Macy's Subordinated Discount Debentures and, on the Effective Date, each holder of an Allowed
Guaranty, or the Macy's Subordinated Discount Claim in Classes M-12 and MOS-12 will receive, in
Debentures Assumption Agreement, other than such full satisfaction of its Allowed Claims, its Pro Rata
Claims secured by an Indenture Trustee Charging share of 21.54016% of the number of Distributable
Lien. Shares (Pool B).
ESTIMATED AGGREGATE CLAIMS AMOUNT: ESTIMATED PERCENTAGE RECOVERY: 13.3%
$582.8 million
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF CLAIMS OR INTERESTS
AND ESTIMATE(S) OF AGGREGATE CLAIM AMOUNTS TREATMENT
- ----------------------------------------------------- -----------------------------------------------------
- - CLASSES M-13, MOS-13, MRS-10, AND MMS-5: Unsecured Impaired; on the Effective Date, each holder of an
Claims that are not otherwise classified, including Allowed Claim in Class M-13, MOS-13, MRS-10, or MMS-5
Trade Claims. (other than Federated) will receive, in full
ESTIMATED AGGREGATE CLAIMS AMOUNT: $ million satisfaction of its Allowed Claim: (i) the Fixed Cash
Portion (i.e., 25% of the allowed amount) of such
Claim and (ii) its Pro Rata share of 3.73385% of the
number of Distributable Shares (Pool A). For the
purposes of calculating distributions to the holders
of Allowed Claims in Classes M-13, MOS-13, MRS-10,
and MMS-5, each holder's Pro Rata share will be
calculated as if the Allowed Claims in Classes M-13,
MOS-13, MRS-10, and MMS-5 were in a single Class. No
property will be distributed to or retained by
Federated on account of its Claims, including its
Claims in Class M-13 described in proofs of Claim
numbers 10430 and 10446, and all such Claims will be
discharged as of the Effective Date. For a
description of the treatment of Allowed Secondary
Liability Claims, see "--Additional Information
Regarding Treatment of Certain Claims--Special
Provisions Regarding Treatment of Allowed Secondary
Liability Claims."
ESTIMATED PERCENTAGE RECOVERY: 37.5%
- - CLASS M-14: Subordinated Unsecured Claims for Impaired; no property will be distributed to or
penalties, fines, and punitive damages; retained by the holders of Claims in Class M-14 on
subordinated Unsecured Claims related to account of such Claims, and such Claims will be
rescission, damages, or indemnity Claims arising discharged as of the Effective Date.
from securities transactions; and Claims related to ESTIMATED PERCENTAGE RECOVERY: 0%
Old Stock Options.
ESTIMATED AGGREGATE CLAIMS AMOUNT: $ million
- - CLASSES MOS-14, MRS-11, AND MMS-6: Common Stock Unimpaired; on the Effective Date, each Interest in
Interests in the Macy's Subsidiary Debtors. Class MOS-14, MRS-11, or MMS-6 will be Reinstated by
leaving unaltered the legal, equitable, and
contractual rights to which such Interest entitles
the holder of such Interest.
- - CLASSES M-15, M-16, AND M-17: Interests in Macy's. Impaired; no property will be distributed to or
retained by the holders of Interests in Classes M-15,
M-16, and M-17 on account of such Interests, and such
Interests will be terminated as of the Effective
Date.
</TABLE>
15
<PAGE>
ADDITIONAL INFORMATION REGARDING TREATMENT OF CERTAIN CLAIMS
GENERAL ADMINISTRATIVE CLAIMS
Administrative Claims are those claims for costs and expenses of
administration allowed under section 503(b), 507(b), or 1114(e)(2) of the
Bankruptcy Code, including: (i) the actual and necessary costs and expenses
incurred after the applicable Petition Date of preserving the respective Estates
and operating the businesses of the Debtors (such as wages, salaries,
commissions for services, and payments for inventories, leased equipment, and
premises); (ii) compensation for legal, financial advisory, accounting, and
other services and reimbursement of expenses awarded or allowed under section
330(a) or 331 of the Bankruptcy Code; (iii) all fees and charges assessed
against the Estates under chapter 123 of title 28, United States Code, 28 U.S.C.
Sec.Sec. 1911-1930; and (iv) Claims for reclamation allowed in accordance with
section 546(c)(2) of the Bankruptcy Code. In addition to the types of
Administrative Claims described above, section 503(b) of the Bankruptcy Code
provides for payment of compensation or reimbursement of expenses to creditors
and other entities making a "substantial contribution" to a chapter 11 case and
to attorneys for and other professional advisors to such entities. The amounts,
if any, that such entities will seek or may seek for such compensation or
reimbursement are not known by the Plan Proponents at this time. Requests for
such compensation or reimbursement must be approved by the Bankruptcy Court
after notice and a hearing at which the Debtors or Reorganized Debtors and other
parties in interest may participate and, if appropriate, object to the allowance
of any such compensation or reimbursement.
Finally, although not necessarily Administrative Claims or "substantial
contribution" Claims: (i) certain Claims of Agent Banks or Indenture Trustees
that are secured by liens against or are entitled to priority in payment over
distributions to other holders of Allowed Bank Loan Claims or Allowed Debt
Security Claims, respectively; (ii) Claims of Agent Banks arising from certain
rights of indemnification or reimbursement against other holders of Allowed Bank
Loan Claims, to which Agent Banks are entitled under the applicable bank loan
agreements; and (iii) certain fees and expenses of the Senior Lenders and
Indenture Trustees will also be paid by the Debtors in cash, without any
requirement of Bankruptcy Court approval. Such Claims will be paid as specified
in "Distributions Under the Plan--Timing and Calculation of Amounts to be
Distributed--Special Provisions Regarding Agent Bank Charges, Indenture Trustee
Charging Liens, and Certain Fees and Expenses of Senior Lenders."
Except as otherwise provided below for Administrative Claims: (i) of certain
Professionals or other entities requesting compensation or reimbursement of
expenses; (ii) in respect of liabilities incurred by a Debtor in the ordinary
course of its business; and (iii) on account of the Debtors' obligations under
the DIP Credit Agreement, requests for payment of Administrative Claims (unless
previously filed) must be filed and served on the Reorganized Debtors, pursuant
to the procedures specified in the Confirmation Order and the notice of entry of
the Confirmation Order, no later than 30 days after the Effective Date. Holders
of Administrative Claims that are required to file and serve a request for
payment of such Claims and that do not file and serve a request by the
applicable bar date will be forever barred from asserting such Claims against
the Debtors, the Reorganized Debtors, or their respective property. Objections
to such requests must be filed and served on the Reorganized Debtors and the
requesting party by the later of (a) 90 days after the Effective Date and (b) 60
days after the filing of the applicable request for payment of Administrative
Claims.
Professionals or other entities requesting compensation or reimbursement of
expenses pursuant to sections 327, 328, 330, 331, 503(b), and 1103 of the
Bankruptcy Code for services rendered before the Effective Date (including
compensation requested pursuant to section 503(b)(3) and (4) of the Bankruptcy
Code by any Professional or other entity for making a substantial contribution
in any Reorganization Case) must file and serve on the Reorganized Debtors and
such other entities who are designated by the Bankruptcy Rules, the Confirmation
Order, or other order of the Bankruptcy Court an application for final allowance
of compensation and reimbursement of expenses no later than 45 days after the
Effective Date; provided, however, that any Professional who may receive
compensation or
16
<PAGE>
reimbursement of expenses pursuant to the Ordinary Course Professionals Order
may continue to receive such compensation and reimbursement of expenses for
services rendered before the Effective Date, without further Bankruptcy Court
review or approval, pursuant to the Ordinary Course Professionals Order.
Objections to applications of Professionals or other entities for compensation
or reimbursement of expenses must be filed and served on the Reorganized Debtors
and the requesting party by the later of: (i) 75 days after the Effective Date
and (ii) 30 days after the filing of the applicable request for payment of
Administrative Claims.
Holders of Administrative Claims based on liabilities incurred by a Debtor
in the ordinary course of its business (including Administrative Claims that are
Trade Claims, Administrative Claims of governmental units for taxes, and
Administrative Claims arising from or under those executory contracts and
unexpired leases entered into or assumed after the Petition Date) and holders of
Administrative Claims under the DIP Credit Agreement will not be required to
file or serve any request for payment of such Claims.
ADJUSTMENTS OF AMOUNTS OF CERTAIN DISTRIBUTIONS
Adjustments of Amounts of Distributions for Pre-Effective Date Sales of
Collateral
If collateral securing an Allowed Bank Loan Claim is sold or otherwise
reduced to cash after the date of the Plan and prior to the Effective Date, the
net cash proceeds generated from such sales or other transactions will be
distributed Pro Rata, in accordance with Section III.B.2.b, c, or d of the Plan,
as applicable, on the Effective Date to the holders of the Allowed Bank Loan
Claims secured by liens on such collateral, in the priority established between
and among such holders, in addition to the amount of cash to be distributed
pursuant to Section III.B.2.b, c, or d, as applicable. The aggregate principal
amounts of each series of New Unsecured Notes to be distributed pursuant to
Section III.B.2.b, c, or d of the Plan, as applicable, to the holders of such
Allowed Bank Loan Claims will be reduced proportionately (on the basis of the
aggregate amounts of each series of New Unsecured Notes to be distributed
pursuant to the applicable Section of the Plan) by the aggregate amount of such
cash distribution.
If collateral securing the Allowed Claims of Prudential and FNC in Classes
M-4, MOS-4, and MRS-4 is sold or otherwise reduced to cash prior to the
Effective Date, the excess, if any, of the aggregate of (i) (a) the net cash
proceeds generated from such sales or other transactions and (b) any other cash
collateral (as defined in section 363(a) of the Bankruptcy Code) securing such
Claims over (ii) the amount of cash to be distributed pursuant to Section
III.B.2.a of the Plan, will be distributed to Prudential on the Effective Date
(if not previously distributed), and the aggregate principal amount of the New
Prudential Mortgage Notes and the aggregate value of the New Combined Company
Common Stock to be distributed pursuant to Section III.B.2.a of the Plan will
each be reduced by 1/2 of the amount of all cash distributions to Prudential
(both on account of its Claims and the Claims of FNC in Classes M-4, MOS-4, and
MRS-4) in excess of the amount of cash to be distributed pursuant to Section
III.B.2.a of the Plan.
Adjustments for Increased Distributions of Cash
Adjustments of Amounts of Cash and New Debt to be Distributed to Holders of
Certain Secured Claims. Federated or the Combined Company, in its sole
discretion, may elect to increase the amount of cash to be distributed on
account of Allowed Claims in Classes M-4 through M-9, MOS-4 through MOS-9, MRS-4
through MRS-8, and MMS-4, other than cash to be distributed to FNC on account of
its Allowed Claims in Classes M-4, MOS-4, and MRS-4, and make a corresponding
reduction in the amount of New Debt to be distributed to the recipients of such
cash distribution. Such increased cash distributions, if any, will be made, as
determined by Federated or the Combined Company, in its sole discretion, (i) to
Prudential, (ii) to GECC, or (iii) Pro Rata to holders of Allowed Bank Loan
Claims and Swiss Bank as if all Allowed Bank Loan Claims and Allowed Claims of
Swiss Bank in Classes M-8, MOS-8, and MRS-8 were in a single Class. The
aggregate principal amounts of the New Prudential
17
<PAGE>
Mortgage Notes (if an additional distribution of cash is made to Prudential),
the New GECC Mortgage Notes (if an additional distribution of cash is made to
GECC), or the New Unsecured Notes (if an additional distribution of cash is made
to the holders of Allowed Bank Loan Claims and Swiss Bank) to be distributed
pursuant to Sections III.B.2.a through f of the Plan, as applicable, to
Prudential, GECC, or the holders of Allowed Bank Loan Claims and Swiss Bank will
be reduced by the aggregate amount of such cash distribution. Any such reduction
in the aggregate principal amounts of the New Series A Notes, New Series B
Notes, and New Series C Notes will be determined by either Federated or the
Combined Company in its sole discretion.
Adjustments of Amounts of Cash and New Combined Company Common Stock to be
Distributed. Subject to the restrictions described below, Federated or the
Combined Company, in its sole discretion, may elect to increase the amount of
cash to be distributed pursuant to the Plan to holders of Allowed Bank Loan
Claims and Swiss Bank and make a corresponding reduction in the shares of New
Combined Company Common Stock to be distributed to those creditors as specified
herein. Such increased cash distributions, if any, will be made Pro Rata to
holders of Allowed Bank Loan Claims and Swiss Bank as if all Allowed Bank Loan
Claims and Allowed Claims of Swiss Bank in Classes M-8, MOS-8, and MRS-8 were in
a single Class. The aggregate number of Distributable Shares (Pool A) to be
distributed pursuant to Sections III.B.2.b through e of the Plan will be reduced
by a number of shares equal to the aggregate amount of such cash distribution
divided by the Federated Average Market Price (Pool A); provided, however, that
no election as described herein will be permitted if the Federated Average
Market Price (Pool A) would exceed the 115% upper limit described in "Securities
to be Issued Pursuant to the Plan--Assumptions Regarding Valuation of New
Securities," if such limit were not imposed by the Plan.
Adjustment of Amounts of New Series B Notes and New Series C Notes to be
Distributed
Subject to the restrictions described below, Federated or the Combined
Company, in its sole discretion, may elect to increase the aggregate principal
amount of either the New Series B Notes or the New Series C Notes to be
distributed to holders of Allowed Bank Loan Claims and Swiss Bank pursuant to
the Plan, and make a corresponding dollar-for-dollar reduction in the aggregate
principal amount of the New Series C Notes or New Series B Notes, respectively,
to be distributed to those creditors. Such adjustments to the distributions of
the New Series B Notes and the New Series C Notes, if any, will be made Pro Rata
as if all Allowed Bank Loan Claims and Allowed Claims of Swiss Bank in Classes
M-8, MOS-8, and MRS-8 were in a single Class; provided, however, that no
election as described herein will be permitted that would cause the aggregate
principal amount of either the New Series B Notes or the New Series C Notes to
be distributed pursuant to the Plan to be less than $200.0 million.
Adjustments Relating to New Bank Facilities
Federated is seeking to arrange the New Bank Facilities, $1,724.8 million of
the net proceeds of which would be applied to effect the Refinance Transactions.
See "--Summary of Classes and Treatment of Claims and Interests" and "Other
Indebtedness of the Combined Company--New Bank Facilities." In such event, in
accordance with the Plan provisions described in "--Adjustments for Increased
Distributions of Cash" and "--Adjustment of Amounts of New Series B Notes and
New Series C Notes to be Distributed," it is anticipated that no New Series A
Notes or New Series C Notes would be issued and that, in lieu thereof, the
aggregate principal amount of New Series B Notes that would be issued to holders
of Allowed Bank Loan Claims and Swiss Bank (Classes M-5 through M-8, MOS-5
through MOS-8, MRS-5 through MRS-8, and MMS-4) would be increased by $211.2
million, from $288.8 million to $500.0 million. The consummation of the
transactions contemplated by the Plan and the Federated/Macy's Merger Agreement
is not, however, conditioned upon the New Bank Facilities being available to the
Combined Company.
18
<PAGE>
SPECIAL PROVISIONS REGARDING TREATMENT OF ALLOWED SECONDARY LIABILITY CLAIMS
The classification and treatment of Allowed Claims under the Plan take into
consideration all Allowed Secondary Liability Claims. On the Effective Date,
Allowed Secondary Liability Claims will be treated as follows:
(i) The Allowed Secondary Liability Claims arising from or related to any
Debtors' joint or several liability for the obligations under any (a)
Allowed Claim that is being Reinstated under the Plan or (b) executory
contract or unexpired lease that is being assumed by another Debtor or
under any executory contract or unexpired lease that is being assumed
by and assigned to another Debtor, will be Reinstated.
(ii) Except as provided in the foregoing paragraph, holders of Allowed
Secondary Liability Claims, including such Claims against Macy's
arising from or related to Macy's guarantees of payment or collection
of Unsecured Claims in Class MOS-13, MRS-10, or MMS-5, will be entitled
to only one distribution from the Debtor against which the underlying
Allowed Claim is held, which distribution will be as provided in the
Plan in respect of such underlying Allowed Claim. No multiple recovery
on account of any Allowed Secondary Liability Claim will be provided or
permitted. Allowed Secondary Liability Claims will be deemed satisfied
in full by the distributions on account of the related underlying
Allowed Claim.
SUMMARY OF TERMS OF CERTAIN SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
The following is a brief summary of the principal terms of the New
Securities that may be issued pursuant to the Plan (other than the New
John Hancock Mortgage Notes, the aggregate principal amount and terms of
which are immaterial). This summary is qualified by reference to the
description of such securities under "Securities to be Issued Pursuant
to the Plan." All dollar amounts shown are in millions and are as of
January 28, 1995.
19
<PAGE>
<TABLE><CAPTION>
ESTIMATED
PRINCIPAL
SECURITY (ISSUED TO) AMOUNT INTEREST RATE AMORTIZATION OTHER PROVISIONS
- ------------------------------ ----------- ---------------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
New Prudential Mortgage Notes $550.9* 275 basis points Repayment of the Secured in the manner described
(Issued to Prudential over the average principal amount in "Securities to be Issued
(Classes M-4, MOS-4, and rate for 10-Year semiannually Pursuant to the Plan--New
MRS-4)) Treasury Notes based on a Prudential Mortgage Notes"
over the 10 15-year
trading days amortization
immediately schedule
preceding the commencing five
Effective Date, years after the
subject to a Effective Date,
reduction of 25 with the
basis points remaining
under the balance due on
circumstances June 30, 2005
described in
"Securities to
be Issued
Pursuant to the
Plan--New
Prudential
Mortgage Notes"
New GECC Mortgage Notes $53.5* 275 basis points Payable in full Secured in the manner described
(Issued to GECC (Classes M-9 over the average on the fifth in "Securities to be Issued
and MOS-9)) rate for anniversary of Pursuant to the Plan--New GECC
Five-Year the Effective Mortgage Notes"
Treasury Notes Date
over the 10
trading days
immediately
preceding the
Effective Date
New Series A Notes (Issued to $385.0* 325 basis points Payable in full Unsecured; will rank pari passu
holders of Allowed Bank Loan over the average on June 30, 1999 with the other senior unsecured
Claims and Swiss Bank rate for indebtedness of the Combined
(Classes M-5 through M-8, Treasury Company; redeemable at the
MOS-5 through MOS-8, MRS-5 securities with Combined Company's option in
through MRS-8, and MMS-4)) corresponding the manner described in
maturities over "Securities to be Issued
the 10 Pursuant to the Plan--New
consecutive Unsecured Notes--New Series A
trading days Notes"
ending on the
sixth trading
day immediately
preceding the
Effective Date
New Series B Notes (Issued to $288.8* 350 basis points Payable in full Unsecured; will rank pari passu
holders of Allowed Bank Loan over the average on June 30, 2002 with the other senior unsecured
Claims and Swiss Bank rate for indebtedness of the Combined
(Classes M-5 through M-8, Treasury Company; redeemable at the
MOS-5 through MOS-8, MRS-5 securities with Combined Company's option in
through MRS-8, and MMS-4)) corresponding the manner described in
maturities over "Securities to be Issued
the 10 Pursuant to the Plan--New
consecutive Unsecured Notes--New Series B
trading days Notes"
ending on the
sixth trading
day immediately
preceding the
Effective Date
New Series C Notes (Issued to $288.8* 375 basis points Payable in full Unsecured; will rank pari passu
holders of Allowed Bank Loan over the average on June 30, 2005 with the other senior unsecured
Claims and Swiss Bank rate for indebtedness of the Combined
(Classes M-5 through M-8, Treasury Company; redeemable at the
MOS-5 through MOS-8, MRS-5 securities with Combined Company's option in
through MRS-8, and MMS-4)) corresponding the manner described in
maturities over "Securities to be Issued
the 10 Pursuant to the Plan--New
consecutive Unsecured Notes--New Series C
trading days Notes"
ending on the
sixth trading
day immediately
preceding the
Effective Date
</TABLE>
- ------------
* See "--Additional Information Regarding Treatment of Certain
Claims--Adjustments of Amounts of Certain Distributions--Adjustments Relating
to New Bank Facilities" and "Other Indebtedness of the Combined Company--New
Bank Facilities" for a discussion of the Refinance Transactions and possible
resulting adjustments to the amounts of each series of New Debt to be
distributed under the Plan.
20
<PAGE>
<TABLE>
<CAPTION>
SECURITY ISSUED TO DIVIDENDS VOTING OTHER
- -------------------- -------------------------- ------------- ------------- --------------------------
<S> <C> <C> <C> <C>
New Combined Company FNC, holders of Allowed Payable at One vote per To be listed or admitted
Common Stock* Bank Loan Claims, Swiss the option of share for trading on the New
Bank, holders of Allowed the Board of York Stock Exchange (the
Old Debt Security Claims, Directors of "NYSE") or accepted for
and holders of general the Combined quotation through the
Allowed Unsecured Claims Company National Association of
(Classes M-4 through M-8, Securities Dealers
M-10 through M-13, MOS-4 Automated Quotation
through MOS-8, MOS-10 System--National Market
through MOS-13, MRS-4 System ("NASDAQ") and
through MRS-8, MRS-10, accompanied by the
MMS-4, and MMS-5), except associated share purchase
that Federated will not rights described in
receive shares on account "Capital Stock of the
of its general Unsecured Combined Company--New
Claims against Macy's Combined Company Share
(Class M-13) Purchase Rights"
New Series C Holders of Macy's Senior None until None until Exercisable during the
Warrants Subordinated Debentures warrant is warrant is five-year period following
and Macy's Subordinated exercised exercised the Effective Date to
Debentures (Classes M-10, purchase one share of New
M-11, MOS-10, and MOS-11) Combined Company Common
Stock, subject to
adjustment in certain
circumstances. The number
of New Series C Warrants
to be issued, and the
exercise price therefor,
will be determined as
described in "Securities
to be Issued Pursuant to
the Plan-- New Warrants."
New Series D Holders of Macy's Senior None until None until Exercisable during the
Warrants Subordinated Debentures warrant is warrant is seven-year period
and Macy's Subordinated exercised exercised following the Effective
Debentures (Classes M-10, Date to purchase one share
M-11, MOS-10, and MOS-11) of New Combined Company
Common Stock, subject to
adjustment in certain
circumstances. The number
of New Series D Warrants
to be issued, and the
exercise price therefor,
will be determined as
described in "Securities
to be Issued Pursuant to
the Plan-- New Warrants."
</TABLE>
- ------------
* See "--Additional Information Regarding Treatment of Certain
Claims--Adjustments of Amounts of Certain Distributions--Adjustments for
Increased Distributions of Cash--Adjustments of Amounts of Cash and New
Combined Company Common Stock to be Distributed" for a discussion of possible
adjustments to the number of shares of New Combined Company Common Stock to be
distributed to holders of Allowed Bank Loan Claims and Swiss Bank pursuant to
the Plan and the distribution of cash in lieu thereof.
21
<PAGE>
CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE OF THE PLAN
CONDITIONS TO CONFIRMATION
The Plan provides that the Bankruptcy Court will not enter the Confirmation
Order unless and until each of the following conditions has been satisfied or
duly waived by the Plan Proponents or Federated, as applicable, as described in
"--Waiver of Conditions to Confirmation and Effective Date":
(i) The aggregate amounts of Administrative Claims, Priority Tax Claims,
Priority Claims, and Allowed Reserve Class Claims shall have been
estimated or determined by Bankruptcy Court orders (to the extent that
the Bankruptcy Court has jurisdiction) that are not subject to any stay
in amounts that do not exceed the corresponding estimated aggregate
amounts set forth in the table above in "--Summary of Classes and
Treatment of Claims and Interests" for each such category of Claims.
(ii) The Confirmation Order shall be reasonably acceptable in form and
substance to each of the Plan Proponents.
(iii) The Confirmation Date shall occur no later than January 31, 1995.
In addition to the foregoing, there are a number of procedural and substantive
confirmation requirements under section 1129 of the Bankruptcy Code that must be
satisfied for the Plan to be confirmed. See "Voting and Confirmation of the
Plan." There can be no assurance that these conditions will be satisfied by, or,
if permitted, waived by the Plan Proponents or Federated, as applicable.
CONDITIONS TO EFFECTIVE DATE
The Effective Date is defined as a Business Day, as determined by the Plan
Proponents, that is as soon as reasonably practicable but that is at least 11
days after the Confirmation Date and no more than 14 days after the first day on
which each of the conditions to the Effective Date described herein has either
been satisfied or duly waived as described in "--Waiver of Conditions to
Confirmation and Effective Date," and on which (i) no stay of the Confirmation
Order is in effect and (ii) the Effective Time of the Federated/Macy's Merger
occurs. The Effective Date will be deemed to commence simultaneously with the
Effective Time of the Federated/Macy's Merger. See "The Combined
Company--Restructuring Transactions--The Federated/Macy's Merger--The
Federated/Macy's Merger Agreement--Conditions to the Federated/Macy's Merger"
for a description of certain conditions to the consummation of the
Federated/Macy's Merger. Section VIII.B of the Plan provides that the Plan
Proponents will use reasonable efforts and will assist and cooperate with each
other to cause the Effective Date to occur and to consummate the Plan, including
the satisfaction of the conditions to the Effective Date set forth herein. The
Effective Date will not occur and the Plan will not be consummated unless and
until each of the following conditions has been satisfied or duly waived by the
Plan Proponents or Federated, as applicable (see "--Waiver of Conditions to
Confirmation and Effective Date"):
(i)(a) All appendices to the Plan and all other material documents necessary
or appropriate to implement the Plan shall be substantially in the
form provided with the Plan or substantially as described herein.
(b) If any of the New Global Indenture, the New Series A Notes Supplemental
Indenture, the New Series B Notes Supplemental Indenture, or the New
Series C Notes Supplemental Indenture is amended, modified, or
supplemented after its filing, the Plan Proponents shall have promptly
delivered copies of such New Unsecured Notes instruments, as amended,
modified, or supplemented, to each Plan Negotiating Committee for the
WCB Group, the 49 Store Bank Group, or the CREI Bank Group, with a copy
to each Creditors' Committee, and no Plan Negotiating Committee shall
have delivered written notice to the Plan Proponents, with a copy to
each Creditors' Committee, within five days after delivery of
22
<PAGE>
such New Unsecured Notes instruments, that any such amendment,
modification, or supplement adversely changes the consideration to be
received under the Plan by the holders of Allowed Bank Loan Claims in
the applicable Classes.
(c) If the New Series C Warrants Agreement or the New Series D Warrants
Agreement is amended, modified, or supplemented after its filing, the
Plan Proponents shall have promptly delivered a copy of such New
Warrants Agreement, as amended, modified, or supplemented, to the
Bondholders' Committee, with a copy to each Plan Negotiating Committee
and the Unsecured Creditors' Committee, and the Bondholders' Committee
shall not have provided written notice to the Plan Proponents, with a
copy to each Plan Negotiating Committee and the Unsecured Creditors'
Committee, within five days after delivery of such New Warrants
Agreement, that any such amendment, modification, or supplement
adversely changes the consideration to be received under the Plan by
the holders of Allowed Debt Security Claims in the applicable Classes.
(d) If a notice as described in (b) or (c) above shall have been delivered
to the Plan Proponents by a Plan Negotiating Committee or the
Bondholders' Committee as specified herein, the Plan Proponents and the
applicable Plan Negotiating Committee or the Bondholders' Committee
shall seek an expedited hearing for the Bankruptcy Court to determine
whether the amendments, modifications, or supplements at issue
adversely change the consideration to be received under the Plan by the
holders of Allowed Bank Loan Claims or Allowed Debt Security Claims in
the applicable Classes. If the Bankruptcy Court determines in an order
not subject to any stay that the amendments, modifications, or
supplements at issue do not adversely change the consideration to be
received under the Plan by the holders of Allowed Bank Loan Claims or
Allowed Debt Security Claims in the applicable Classes, the conditions
to the Effective Date in (b) or (c) above, as applicable, shall be
deemed to be satisfied.
(ii) The New Global Indenture shall have been qualified under the Trust
Indenture Act of 1939, as amended.
(iii) The New Combined Company Common Stock shall have been authorized for
listing on the NYSE upon official notice of issuance or accepted for
quotation through NASDAQ.
WAIVER OF CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE
Except as described below with respect to the condition to Confirmation
regarding estimates of certain Claims set forth in Section VIII.A.1 of the Plan
(the "Claims Estimation Condition"), each of the conditions to Confirmation set
forth in Section VIII.A of the Plan may be waived in whole or part by the Plan
Proponents after 10 days' written notice of such waiver to each Plan Negotiating
Committee and each Creditors' Committee and an expedited hearing; provided,
however, that an expedited hearing will not be held unless a written request for
a hearing is filed and served on the Plan Proponents, each Plan Negotiating
Committee, and each Creditors' Committee within 10 days after delivery of the
notice of waiver. To be effective, such waiver must be in writing and filed and
served on each Plan Negotiating Committee and each Creditors' Committee.
Notwithstanding the foregoing, the Claims Estimation Condition may be waived
in whole or in part by Federated in its sole discretion. To be effective, such
waiver must be in writing and filed and served on the Debtors, each Plan
Negotiating Committee, and each Creditors' Committee. Federated will determine,
no later than the date of the hearing in the Bankruptcy Court on the adequacy of
the Disclosure Statement, whether it will waive the Claims Estimation Condition
or modify the condition to narrow its scope, and Federated will state its
determination at or prior to the Disclosure Statement hearing.
23
<PAGE>
The conditions to occurrence of the Effective Date set forth in Section
VIII.B of the Plan may be waived in whole or part by the Plan Proponents only
with the written consent of each Plan Negotiating Committee and each Creditors'
Committee.
Subject to the restrictions described herein, any waiver of a condition to
Confirmation or the Effective Date as described herein may be made by the
applicable parties at any time.
Each of the conditions to the Effective Date must be satisfied or duly
waived as described above, and the Effective Date must occur, by February 28,
1995, or by such later date established in the manner described below. On the
earlier of January 31, 1995 and the first date on which the Plan Proponents know
that each of the conditions to the Effective Date will not be satisfied or duly
waived by January 31, 1995, the Plan Proponents will provide written notice to
each Plan Negotiating Committee and each Creditors' Committee of those
conditions to the Effective Date that will not be satisfied or duly waived as of
January 31, 1995, and whether the Plan Proponents expect such unsatisfied
conditions to be satisfied or duly waived by February 28, 1995. Upon receipt of
such notice, a Plan Negotiating Committee or a Creditors' Committee may file and
serve on each Plan Proponent and each other Plan Negotiating Committee and
Creditors' Committee a motion and seek an expedited hearing on reasonable notice
(the scheduling of which the Plan Proponents will not oppose) for an order by
the Bankruptcy Court prohibiting any extension of the February 28 date by which
each condition to the Effective Date must be satisfied or duly waived. If the
Bankruptcy Court has not entered an order in accordance with the foregoing that
there may be no extensions of the February 28 date by which each condition to
the Effective Date must be satisfied or duly waived, the Plan Proponents may
file and serve no later than February 15, 1995 on each Plan Negotiating
Committee and each Creditors' Committee a motion and seek an expedited hearing
for an order by the Bankruptcy Court extending the February 28 date.
If the Effective Date has not occurred by the applicable date established in
accordance with the preceding paragraph, then upon motion by any party in
interest made before the Effective Date has occurred and upon notice to such
parties in interest as the Bankruptcy Court may direct and a hearing, the
Confirmation Order will be vacated by the Bankruptcy Court; provided, however,
that, notwithstanding the filing of such motion to vacate, the Confirmation
Order may not be vacated if the Effective Date occurs before the Bankruptcy
Court enters an order granting such motion. If the Confirmation Order is vacated
as described above or otherwise, except as provided in any order of the
Bankruptcy Court vacating the Confirmation Order, the Plan will be null and void
in all respects, including the discharge of Claims and termination of Interests
pursuant to the Plan and section 1141 of the Bankruptcy Code and the
assumptions, assignments, or rejections of executory contracts or unexpired
leases pursuant to Section V.A of the Plan, and nothing contained in the Plan
will (i) constitute a waiver or release of any claims by or against, or any
Interests in, the Debtors or (ii) prejudice in any manner the rights of the Plan
Proponents or any other party in interest.
For a description of the circumstances under which the conditions to the
consummation of the Federated/Macy's Merger may be waived, see "The Combined
Company--Restructuring Transactions--The Federated/Macy's Merger--The
Federated/Macy's Merger Agreement."
MODIFICATION OR REVOCATION OF THE PLAN
Subject to the restrictions on modifications set forth in section 1127 of
the Bankruptcy Code, the Plan Proponents reserve the right to alter, amend, or
modify the Plan before its substantial consummation. The Plan Proponents also
reserve the right to revoke or withdraw the Plan: (i) as to all of the Debtors,
after five days' notice to each Plan Negotiating Committee and each Creditors'
Committee; and (ii) as to any particular Macy's Miscellaneous Subsidiary Debtor,
without any notice. If the Plan Proponents revoke or withdraw the Plan as
provided above, or if Confirmation as to any or all of the Debtors does not
occur, then, with respect to such Debtors, the Plan will be null and void in all
respects, and nothing contained in the Plan will (a) constitute a waiver or
release of any claims by or against, or any Interests in, such Debtors or (b)
prejudice in any manner the rights of any such Debtors or the Plan Proponents.
24
<PAGE>
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS
PREPETITION EVENTS
PRE-LBO MORTGAGES
From time to time prior to the leveraged buyout described below, Macy's
financed or refinanced the acquisition, construction, and renovation of its
stores through individual project financings reflected by separate notes and
mortgages. As of the Petition Dates, 14 of such mortgages remained outstanding
in the aggregate amount of $48.9 million, consisting of $48.1 million of
principal and approximately $754,000 of prepetition interest. Such Claims are
classified in Class M-3, MOS-3, MRS-3, MMS-3, or MRS-9, as appropriate.
LEVERAGED BUYOUT
On July 15, 1986, Macy's (then known as Macy Acquiring Corp.) and certain of
its subsidiaries acquired the former R.H. Macy & Co., Inc., a New York
corporation ("Former Macy's"), in a leveraged buyout (the "LBO") through a
merger of Macy Merger Corp., a New York corporation ("Merger Corp.") and a
subsidiary of Macy's, with and into Former Macy's. In November 1986, Former
Macy's merged with and into Macy's. The common and preferred stock of Macy's is
owned by a group of current and former management employees and other investors.
Macy's paid the holders of the common stock of Former Macy's approximately
$3,500.0 million in connection with the extinguishment of their equity interests
in Former Macy's in the LBO.
ACQUISITION FINANCING
In connection with the LBO, Macy's obtained approximately $3,720.0 million
in debt and equity financing to fund a portion of the cash consideration paid to
stockholders of Former Macy's in the LBO and to meet a portion of certain other
cash requirements arising out of the LBO, including working capital
requirements, the retirement of employee stock options, the redemption of
certain preferred stock of Former Macy's, and the payment of other costs. Such
financing consisted of: (i) approximately $804.5 million borrowed by certain
subsidiaries of Macy's under the Macy's/Prudential Loan Agreement; (ii)
approximately $773.0 million borrowed by Macy's under the Macy's/WCB Loan
Agreement, as originally in effect; (iii) approximately $275.0 million obtained
through the issuance and sale of 10-year, 13.5% senior notes (the "Senior
Notes") to certain institutional lenders; (iv) approximately $1,350.0 million
obtained from the issuance and sale of debt securities of Merger Corp.,
consisting of approximately $400.0 million principal amount of the Macy's Senior
Subordinated Debentures, approximately $650.0 million principal amount of the
Macy's Subordinated Debentures, and proceeds of approximately $300.0 million
from the sale of approximately $910.0 million face amount of Macy's Subordinated
Discount Debentures; and (v) approximately $300.0 million obtained from the
issuance and sale of preferred stock and common stock. In addition,
approximately $219.0 million of excess cash of Former Macy's (before taking into
account costs of the transaction paid by Former Macy's prior to the consummation
of the LBO) was utilized to finance the LBO.
Borrowings under the Macy's/Prudential Loan Agreement, including additional
borrowings effected in 1987 to refinance third-party mortgages on six of the
stores financed thereunder, are, by their terms, nonrecourse participating loans
secured by first or second fee or leasehold mortgages on 70 of Macy's department
stores (62 of which currently are in operation), a collateral assignment of all
rents and leases relating to the stores, and a lien on the stores' fixtures and
equipment and certain other tangible personal property (other than inventory).
Under the Bankruptcy Code, however, by virtue of the Reorganization Cases, these
borrowings may have become recourse borrowings. As of the Petition Dates, the
total amount outstanding under the Macy's/Prudential Loan Agreement was
approximately
25
<PAGE>
$856.4 million, consisting of $833.0 million in principal (including $7.0
million of capitalized interest) and $23.4 million in prepetition interest.
Borrowings under the Macy's/WCB Loan Agreement are secured by the capital
stock of substantially all of Macy's subsidiaries, receivables, intercompany
notes and obligations, equipment and tangible personal property (other than
inventory), general intangibles, including trademarks and trade names used by
the Debtors in their businesses (including the "Macy's," "Bullock's," and "I.
Magnin" trade names), and junior and senior liens on certain of Macy's stores
and other real property. As of the Petition Dates, the total amount outstanding
under the Macy's/WCB Loan Agreement, including $401.4 million due in respect of
the letter of credit described below in "--Purchase of I. Magnin and Bullock's,"
was approximately $735.7 million, consisting of $699.8 million in principal,
$2.5 million in accrued interest, fees, and expenses, and $33.4 million in
alleged damages relating to certain interest swap arrangements with Citibank,
N.A. ("Citibank") and Chase Manhattan Bank.
Borrowings evidenced by the Senior Notes were fully repaid and retired in
1988.
Borrowings evidenced by the Macy's Senior Subordinated Debentures, the
Macy's Subordinated Debentures, and the Macy's Subordinated Discount Debentures
are unsecured. As of the Petition Dates, the amount of indebtedness outstanding
and held by non-Macy's entities was, in respect of the Macy's Senior
Subordinated Debentures, approximately $394.9 million; in respect of the Macy's
Subordinated Debentures, approximately $394.7 million; and in respect of the
Macy's Subordinated Discount Debentures (accreted value), approximately $503.2
million.
MACY'S/CREI LOAN AGREEMENT
In 1987, certain subsidiaries of Macy's borrowed a total of $180.0 million
from Citicorp Real Estate, Inc. ("CREI") on a nonrecourse basis pursuant to the
Macy's/CREI Loan Agreement. Such borrowings are secured by first mortgages on 10
of Macy's department stores, a collateral assignment of related intercompany
agreements relating to the stores, and a first lien on certain fixtures,
equipment, and tangible personal property (other than inventory). Under the
Bankruptcy Code, however, by virtue of the Reorganization Cases, these
borrowings may have become recourse borrowings. A portion of the proceeds of
such borrowings was used to prepay $55.0 million of the term loan under the
Macy's/WCB Loan Agreement and to repurchase certain subordinated indebtedness of
Macy's for an aggregate purchase price of $45.0 million.
Concurrently with the execution of the Macy's/CREI Loan Agreement, Macy
Special Real Estate Capital Corp., a non-Debtor, wholly owned special purpose
subsidiary of Macy's ("Special Real Estate"), issued and sold to unrelated
purchasers $180.0 million of commercial paper. Citibank issued a $183.0 million
face amount 10-year irrevocable letter of credit in support of the commercial
paper obligations of Special Real Estate. The proceeds of the issuance and sale
of the commercial paper were used by Special Real Estate to purchase 100%
participations in the loans under the Macy's/CREI Loan Agreement, which were
then assigned by Special Real Estate to CREI (as collateral agent for Citibank
and the holders of the commercial paper) as security for Special Real Estate's
reimbursement obligations under the Citibank letter of credit. In addition,
Macy's pledged all of the capital stock of Special Real Estate to secure the
commercial paper indebtedness.
As of the Petition Dates, the total amount outstanding under the Macy's/CREI
Loan Agreement was approximately $201.7 million, consisting of $180.0 million in
principal, $650,000 in accrued interest, and $21.0 million in alleged damages
relating to certain interest swap arrangements with CREI and Citibank.
Subsequent to the Petition Dates, CREI repurchased the participations in the
loans under the Macy's/CREI Loan Agreement from Special Real Estate. Special
Real Estate then repaid the commercial paper as it matured. No drawing was made
on the Citibank letter of credit.
26
<PAGE>
PURCHASE OF I. MAGNIN AND BULLOCK'S
On May 3, 1988, Macy's acquired the I. Magnin and
Bullock's/Bullock's-Wilshire divisions (the "Acquired Divisions") of Federated.
On that date, but prior to the acquisition by Macy's, Federated transferred the
assets of the Acquired Divisions to Bullock's, Inc., Bullock's-Wilshire, Inc.,
Bullock's Specialty Stores, Inc., and I. Magnin, Inc. These entities then became
wholly owned subsidiaries of Macy's.
Macy's paid approximately $1.04 billion for the Acquired Divisions. Of this
amount, Macy's paid Federated $640.0 million in cash and delivered a promissory
note to Federated for the remaining $400.0 million. The funds for the cash
payment and a $420.0 million letter of credit in support of the promissory note,
together with the funds applied to repurchase and extinguish all of the Senior
Notes at their face amount of $275.0 million plus a premium of $69.0 million,
were provided under the Macy's/WCB Loan Agreement, which was amended and
restated in connection with the acquisition of the Acquired Divisions to, among
other things, (i) refinance the remaining outstanding balance of approximately
$214.2 million under the original six-year term loan thereunder through a new
$1.0 billion six-year term loan facility, (ii) increase the commitment under the
revolving working capital line of credit from $475.0 million to $600.0 million,
(iii) provide for an accounts receivable bridge loan in the amount of $135.0
million, (iv) establish a $420.0 million standby letter of credit facility, and
(v) further secure borrowings thereunder by a pledge of the stock of the
subsidiaries of Macy's holding the assets of the Acquired Divisions and certain
intercompany agreements between Macy's and such subsidiaries.
Shortly after the Petition Dates, the standby letter of credit was drawn in
the amount of $401.4 million, thereby increasing the Claims of the WCB Group by
such amount, and Macy's $400.0 million promissory note in favor of Federated,
together with the remaining undrawn amount of the letter of credit, was
canceled.
MACY'S/49 STORE LOAN AGREEMENT
In 1988 and 1989, pursuant to the Macy's/49 Store Loan Agreement, various
subsidiaries of Macy's received approximately $565.0 million of nonrecourse
mortgage financing provided by Swiss Bank and certain other financial
institutions (the "49 Store Financing"). These loans are secured by first fee or
leasehold mortgages on 49 department stores (36 of which are currently in
operation), collateral assignments of intercompany agreements entered into with
respect to such stores, liens on certain fixtures, equipment, and certain other
tangible property (other than inventory), and a pledge of the capital stock of
I. Magnin Properties, Inc. Under the Bankruptcy Code, by virtue of the
Reorganization Cases, such loans may have become recourse loans. As provided in
the Macy's/WCB Loan Agreement, $441.0 million of the proceeds of such loans were
used to make a prepayment on the six-year term loan under the Macy's/WCB Loan
Agreement. In addition, $95.0 million of such proceeds were used to reduce
borrowings under the revolving credit facility established under the Macy's/WCB
Loan Agreement. The total amount outstanding under the Macy's/49 Store Loan
Agreement as of the Petition Dates was approximately $644.0 million, consisting
of $554.0 million in principal, $6.0 million in prepetition interest, and $83.7
million in alleged damages relating to certain interest swap agreements.
SALE OF CREDIT CARD PROGRAM; MACY'S/GECC LOAN AGREEMENT
On May 10, 1991, Macy Credit Corp. ("Macy Credit"), a wholly owned
subsidiary of Macy's and one of the Debtors, and Macy Receivables Funding Corp.
("Macy Funding"), a non-Debtor, wholly owned subsidiary of Macy's, sold all of
the consumer credit card accounts originated by the operating subsidiaries of
Macy's, and all receivables existing under such accounts, to GECC or its
subsidiary, Monogram Bank, USA (now known as GE Capital Consumer Card Co.)
(collectively with GECC, "GE
27
<PAGE>
Credit") for an aggregate purchase price of approximately $1,390.0 million
(including approximately $61.1 million of debt assumption). Macy's and certain
of its subsidiaries, including the Macy's Operating Subsidiary Debtors, also
entered into ongoing arrangements with GE Credit (the "Macy's Credit Card
Program") pursuant to which, among other things, GE Credit: (i) established (and
continues to establish) new credit card accounts with certain individual and
commercial customers of the Macy's Operating Subsidiary Debtors (collectively,
the "Macy Cardholders"), utilizing credit cards bearing tradenames used by the
Debtors; (ii) authorizes and extends credit in the ordinary course of business
to new and existing Macy Cardholders for the purchase of merchandise on credit
from the Macy's Operating Subsidiary Debtors; (iii) makes remittances to the
Macy's Operating Subsidiary Debtors in the ordinary course of business in
respect of such credit sales to Macy Cardholders, which remittances reflect a
discount charged by GE Credit; and (iv) services the accounts of and receivables
from the Macy Cardholders. The initial 15-year term of the Macy's Credit Card
Program expires in 2006, which term is subject to automatic one-year renewal
periods and certain termination rights. For a discussion of the Debtors'
continued operation of the Macy's Credit Card Program after the Petition Dates,
see "The Combined Company--Business of the Combined Company--Business Presently
Operated by Macy's--Business and Properties."
The cash proceeds of the sale of credit card accounts and receivables to GE
Credit were used to, among other things, (i) defease approximately $625.0
million of long-term debt of Macy Credit and Macy Funding, (ii) repay
approximately $500.0 million of commercial paper issued by Macy Funding, and
(iii) make a $100.0 million payment on the six-year term loan under the
Macy's/WCB Loan Agreement.
Concurrently with the sale of accounts and receivables to GE Credit,
pursuant to the Macy's/GECC Loan Agreement, GECC made a 15-year loan to three
subsidiaries of Macy's in an aggregate principal amount of $44.1 million. On
October 15, 1991, GECC made an additional loan of $9.1 million pursuant to the
Macy's/GECC Loan Agreement. The proceeds under the Macy's/GECC Loan Agreement
were used to prepay $44.1 million of the six-year term loan under the Macy's/WCB
Loan Agreement and to establish a reserve for the payment of certain of Macy's
obligations under the Macy's Credit Card Program. These loans are secured by
certain real estate owned by these subsidiaries and generally are nonrecourse
except with respect to payment of interest and certain environmental matters,
which recourse obligations are guaranteed by Macy's. Under the Bankruptcy Code,
however, by virtue of the Reorganization Cases, nonrecourse borrowings under the
Macy's/GECC Loan Agreement may have become recourse borrowings. The total
outstanding amount under the Macy's/GECC Loan Agreement as of the Petition Dates
was approximately $53.5 million, consisting of $53.2 million in principal and
$300,000 in prepetition interest.
PREPETITION OPERATIONS AND LIQUIDITY
In the latter part of 1989, a national economic downturn and the well
publicized turmoil in the retailing industry, particularly during the Christmas
season, gave rise to intense competition and adversely affected the Debtors'
financial performance. Following consecutive Christmas seasons marked by sales
declines in 1990 and 1991, the Debtors attempted unsuccessfully to restructure
their indebtedness in early 1992. Thereafter, as a result of an ensuing
liquidity crisis, the Debtors filed petitions for reorganization under chapter
11 of the Bankruptcy Code in January 1992.
28
<PAGE>
OPERATIONS DURING THE REORGANIZATION CASES
COMMENCEMENT OF CASES AND CLAIMS PROCESS
COMMENCEMENT OF REORGANIZATION CASES
On January 27, 1992, Macy's and nine of its direct or indirect subsidiaries
(Macy's South; Macy's California; Macy's Northeast; Bullock's; MCO; I. Magnin;
Macy's Specialty; Macy's Data and Credit Services Corp.; and Macy's Financial)
filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in
the Bankruptcy Court. On January 31, 1992, 78 additional subsidiaries of Macy's
each filed a voluntary petition for relief under chapter 11 of the Bankruptcy
Code. The names of all 88 Debtors are listed on Exhibit II. Pursuant to orders
of the Bankruptcy Court, the Reorganization Cases are being jointly administered
for procedural purposes only and are pending in the United States Bankruptcy
Court for the Southern District of New York before The Honorable Burton R.
Lifland, Chief United States Bankruptcy Judge. Since the commencement of the
Reorganization Cases, the Debtors have operated as debtors in possession under
sections 1107(a) and 1108 of the Bankruptcy Code.
APPOINTMENT OF OFFICIAL COMMITTEES
Official committees appointed under section 1102 of the Bankruptcy Code have
the right to, among other things: (i) consult with the debtor concerning
administration of the case; (ii) investigate the acts, conduct, assets,
liabilities, and financial condition of the debtor, the operation of the
debtor's business, and any other matter relevant to the case or to the
formulation of a plan; and (iii) participate in the formulation and acceptance
or rejection of a plan. On February 4, 1992, the Office of the United States
Trustee appointed two statutory committees: the Unsecured Creditors' Committee
and the Bondholders' Committee. Exhibit III lists the names of the current
members of each of the Creditors' Committees. Each of the Creditors' Committees
has been active in all aspects of the Reorganization Cases, including the
negotiations leading to the formulation and proposal of the Plan.
CLAIMS PROCESS AND BAR DATE
The Debtors filed their schedules and statements of financial affairs with
the Bankruptcy Court on July 27, 1992. Such schedules have been amended from
time to time, most recently on August 9, 1994, to include additional claimants
and to modify certain information relating to previously listed Claims.
With certain exceptions, the Bar Date Order established December 15, 1992 as
the date by which all claimants were to file proofs of Claim or be barred from
asserting any Claim against the Debtors and voting upon or receiving
distributions under a confirmed plan of reorganization of the Debtors. Certain
creditors (essentially (i) entities holding Claims that were not scheduled by
the Debtors as disputed, contingent, or unliquidated; (ii) entities holding
Claims that were previously allowed by the Bankruptcy Court; (iii) individuals
holding or asserting certain indemnification or other similar Claims; and (iv)
subsidiaries or affiliates of the Debtors holding Intercompany Claims) were not
required to file proofs of Claim. In addition, the Bar Date Order provides that,
to the extent a future order authorizing the rejection of an unexpired lease or
executory contract specifies the date by which any Claims arising from such
rejection must be filed, any Claim related to such rejection must be filed by
the date specified in such order. Claims resulting from the rejection of
executory contracts or unexpired leases under the Plan must be filed and served
on the Reorganized Debtors, pursuant to the procedures specified in the
Confirmation Order and the notice of entry of the Confirmation Order, no later
than 30 days after the later of (a) the Effective Date and (b) delivery of
notice of amendment to Appendix V.A.1.a or V.A.2 of the Plan providing for the
rejection of the applicable executory contract or unexpired lease. See "General
Information Concerning the Plan--Executory Contracts and Unexpired Leases."
Approximately 14,000 proofs of Claim were timely filed in the Reorganization
Cases, asserting Claims in excess of $18.8 billion. The Debtors and the
Reorganized Debtors will continue to review, analyze, and resolve Claims on an
ongoing basis as part of the Claims reconciliation process, and will
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file objections as required. As of August 1, 1994, the Debtors had filed three
omnibus objections to proofs of Claim. In response, the Bankruptcy Court: (i) by
order dated June 3, 1993, disallowed and expunged 404 duplicative proofs of
Claim aggregating approximately $69.4 million; (ii) by order dated August 24,
1993, disallowed and expunged 784 duplicative individual bondholder proofs of
Claim aggregating approximately $285.1 million; and (iii) by order dated March
22, 1994, disallowed and expunged 693 late-filed proofs of Claim aggregating
approximately $63.0 million.
Notwithstanding the Debtors' ongoing efforts in the Claims reconciliation
process, the actual ultimate aggregate amount of Allowed Claims in the Classes
of general Unsecured Claims, including Trade Claims, that are not otherwise
classified (Reserve Classes M-13, MOS-13, MRS-10, and MMS-5) may differ
significantly from the estimates set forth in "Overview of the Plan--Summary of
Classes and Treatment of Claims and Interests." Accordingly, the amount of the
Pro Rata distributions of New Combined Company Common Stock that will ultimately
be received by any particular holder of an Allowed Claim in a Reserve Class may
be adversely or positively affected by the outcome of the Claims resolution
process.
EXTENSION OF TIME TO ASSUME OR REJECT REAL ESTATE LEASES
Under section 365 of the Bankruptcy Code, if a debtor does not assume or
reject an unexpired lease of nonresidential real property within 60 days of the
commencement of the bankruptcy case, the lease is deemed rejected. On March 24,
1992, the Bankruptcy Court extended, subject to certain exceptions relating to
specific leases and circumstances, the Debtors' time within which to assume or
reject leases of nonresidential real property until the date of the confirmation
of a plan of reorganization for the Debtors. From time to time, the Bankruptcy
Court has reduced such period of time in respect of leases relating to stores
that the Debtors have announced would be closed, and approved the assumption,
assumption and assignment, or rejection of other specific leases. For a
discussion of the assumption, assumption and assignment, and rejection of
executory contracts and unexpired leases under the Plan, see "General
Information Concerning the Plan--Executory Contracts and Unexpired Leases."
POSTPETITION OPERATIONS AND LIQUIDITY
DEBTOR IN POSSESSION FINANCING
On January 29, 1992 and February 13, 1992, the Debtors obtained interim and
final Bankruptcy Court approval, respectively, of a debtor in possession
financing arrangement under the DIP Credit Agreement, dated as of January 27,
1992, between and among Macy's, as borrower, the other Debtors, as guarantors,
Chemical Bank, as administrative agent, Bankers Trust Company, as co-agent, and
the other financial institutions identified therein. The DIP Credit Agreement
originally established a working capital facility providing for revolving credit
loans and letters of credit in an aggregate maximum amount of $600.0 million,
inclusive of a sublimit of $250.0 million for standby and documentary letters of
credit, of which no more than $30.0 million could be used for standby letters of
credit. Pursuant to an Amended and Restated Revolving Credit and Guaranty
Agreement, dated as of August 12, 1993, as approved by an order of the
Bankruptcy Court entered on September 8, 1993, the working capital facility
provided under the DIP Credit Agreement was reduced to $550.0 million. The DIP
Credit Agreement, as amended and restated on August 12, 1993, terminates upon
the earlier of (i) August 1, 1995 and (ii) the substantial consummation of a
confirmed plan of reorganization for Macy's or certain other Debtors. In August
1994, Macy's voluntarily reduced the working capital facility under the DIP
Credit Agreement to $450.0 million, reflecting its reduced borrowing
requirements thereunder. Claims in respect of indebtedness incurred by the
Debtors under the DIP Credit Agreement are entitled to superpriority
administrative expense treatment under section 364 of the Bankruptcy Code.
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COMPLETION OF CERTAIN PREPETITION INITIATIVES
Prior to the Petition Dates, Macy's planned and began the process necessary
to realign the operations of its Macy's and Bullock's department store operating
subsidiaries into two principal operating divisions: Macy's East (comprising
Macy's Northeast and Macy's South, other than five Texas stores) and Macy's West
(comprising Bullock's and Macy's California stores, plus the five Texas stores).
Pursuant to this realignment, the Debtors created a business structure and
management system designed to maximize management strengths, consolidate expense
savings, improve inventory utilization, and optimize the growth and
profitability of the "Macy's" and "Bullock's" franchises. See "The Combined
Company--Business of the Combined Company--Business Presently Operated by
Macy's."
As of the Petition Dates, the Debtors were actively engaged in converting
their data processing systems to a state of the art, fully integrated system. On
November 2, 1992, the Bankruptcy Court approved the Debtors' amended and
restated agreement with Federated Systems Group ("FSG"), a division of Federated
formerly known as the SABRE Group, pursuant to which FSG provides services that
satisfy substantially all of the Debtors' needs for data processing and retail
information systems. In addition to providing the Debtors with state of the art,
integrated data processing services and information systems, FSG also is
responsible for the maintenance of the Debtors' computer hardware, training,
staffing, data storage and back-up, business recovery, and software maintenance
(including providing software modifications, upgrades, and enhancements). The
Debtors' agreement with FSG expires in 2002, with provisions for extensions and
early termination after 1997.
Since the Petition Dates, the Debtors have also completed the process of
implementing a Buyer/Planner/Store Merchandising system (the "BPS System") that
functions as a centralized buying mechanism for Macy's East and Macy's West and
is intended to increase the Debtors' merchandising strengths in the retail
market. Under the BPS System, a "planner" works with three to five buyers to
determine the volume and assortment of inventory needed in particular lines of
merchandise for an entire division. As goods are shipped to the stores, the
planner allocates the merchandise to those locations where the goods are most
needed and saleable. In determining such allocations, the planner receives input
from the store group managers, who are responsible for satisfying customer
needs, identifying sale opportunities, and monitoring merchandise presentation,
capacity, and overall sales promotion. The BPS System is intended to maximize
sales, improve store communications, lower working capital requirements, reduce
markdowns, and reduce interstore transfers of inventory, with the ultimate goal
of increasing customer satisfaction and improving inventory utilization.
On May 10, 1991, Macy Credit and Macy Funding sold all of the consumer
credit card accounts originated by certain of the Macy's Operating Subsidiary
Debtors, and all receivables existing under such accounts, to GE Credit. See
"Certain Events Preceding the Debtors' Chapter 11 Filings-- Prepetition
Events--Sale of Credit Card Program; Macy's/GECC Loan Agreement." The sale
contemplated that the servicing and processing of such credit card receivables
would be transferred and converted over time from the Debtors' facilities and
systems to those of GE Credit. As of the Petition Dates, such transfer and
conversion were approximately 70% complete. Since the commencement of the
Reorganization Cases, the Debtors have completed such transfer and conversion,
and the Bankruptcy Court has approved the continued operation of the Macy's
Credit Card Program and the assumption of various related agreements among
certain of the Debtors and GE Credit. See "The Combined Company--Business of the
Combined Company--Business Presently Operated by Macy's-- Business and
Properties."
MANAGEMENT CHANGES
Prior to the Petition Dates, a majority of the members of Macy's board of
directors were officers and employees of the Debtors. Following the Petition
Dates, Macy's stockholders amended the stockholders agreement that had been
entered into prior to the Petition Dates to reconstitute the Macy's board of
directors to consist of a majority of outside directors.
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As of the Petition Dates, Edward S. Finkelstein served as Chairman of the
Board of Directors and Chief Executive Officer of Macy's. On April 27, 1992, Mr.
Finkelstein resigned from such positions, and Mark S. Handler and Myron E.
Ullman, III were elected as Co-Chairmen of the Board of Directors and Co-Chief
Executive Officers of Macy's. Mr. Ullman became the sole Chairman of the Board
of Directors and Chief Executive Officer of Macy's on May 13, 1993. For a
description of certain supplemental and modified arrangements between Macy's and
Mr. Ullman that were effected in connection with the execution of the
Federated/Macy's Merger Agreement, see "The Combined
Company--Management--Executive Compensation--Certain Arrangements with New
Deputy Chairman." At the end of 1992, Daniel B. Finkelstein resigned as Chairman
of Macy's West. On July 29, 1993, the Bankruptcy Court approved an employment
agreement with Michael Steinberg providing for Mr. Steinberg to serve as
Chairman of Macy's West. On November 18, 1993, the Bankruptcy Court approved an
employment agreement with Roger N. Farah providing for Mr. Farah to serve as
President and Chief Operating Officer of Macy's, commencing on July 1, 1994. See
"--Certain Claims Settlements and Litigation--Farah Litigation." For a
description of certain supplemental and modified arrangements between Macy's and
Mr. Farah that were effected in connection with the execution of the
Federated/Macy's Merger Agreement, see "The Combined Company--Certain
Arrangements with Macy's Employees--Arrangements with Roger N. Farah."
THE BUSINESS PLAN AND RELATED MATTERS
Following the commencement of the Reorganization Cases, the Debtors engaged
in an extensive review and analysis of their businesses in order to develop and
implement a long-range business plan designed to enhance their competitive
position in the retailing industry. In November 1992, the Debtors provided the
Creditors' Committees, the Senior Lenders, and certain other parties in interest
with a five-year business plan. The business plan was based upon a comprehensive
analysis of the Debtors' businesses, market survey results, customer feedback,
executives' and associates' input, competitive conditions, changing
demographics, and expense structure. Since November 1992, the Debtors have
continuously tested the business plan against actual operating results and
refined the business plan. The Debtors have also provided the Creditors'
Committees, the Senior Lenders, and certain other parties in interest (including
Federated) with revised business plans.
Since the commencement of the Reorganization Cases, and as part of the
implementation of the business plan and their overall review of operations, as
of July 30, 1994, the Debtors had: (i) closed nine Macy's department stores,
three Bullock's department stores, one Bullock's Woman store, 11 I. Magnin
stores, three Macy's clearance centers, three Macy's Close-Out stores, and 48
specialty stores (all 34 Fantasies by Morgan Taylor stores, six Charter Club
stores, and eight Aeropostale stores); (ii) upgraded or committed to upgrade
their point-of-sale cash registers and related systems to enhance customer
service and control or reduce certain store, merchandise line, and inventory
management and delivery costs; (iii) integrated new computer systems for their
merchandise and support operations to strengthen inventory management and
assortments and improve workforce deployment; (iv) completed or planned for
organizational realignments and operational consolidations to reduce overhead
costs and eliminate duplicative functions and support facilities; (v) in certain
geographic locations, repositioned and eliminated certain merchandise categories
that were unprofitable; and (vi) undertaken a comprehensive expense reduction
program, including accelerated expense reductions and the implementation of
competitive and comprehensive benefits programs throughout the Debtors,
including a new integrated health benefits program intended to achieve
substantial savings to the Debtors. In addition, since the Petition Dates, the
Debtors have reduced their workforce by approximately 18,500 employees
(approximately 27% of the Debtors' workforce as of the applicable Petition
Dates).
As noted above, as part of the Debtors' review and analysis of their retail
locations during the Reorganization Cases, they determined that the maintenance
of certain retail locations was inconsistent with the strategies underlying the
business plan and ceased operations at such locations. In that regard, the
Debtors have been actively marketing their real property interests in their
closed stores during the Reorganization Cases. As of July 30, 1994, the Debtors
had consummated the sale of their leasehold or
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fee interests in 10 of such properties for aggregate net proceeds of
approximately $26.9 million. All liens against these properties have attached to
the net proceeds from the sale of the properties with the same force and effect
that such liens had on the Petition Dates. With respect to any real property
leases that the Debtors were unable to assume and assign to third party
purchasers, the Debtors rejected such leases, surrendered the premises to the
landlords, and, in certain instances, obtained a release or waiver of Claims
relating to such rejections.
Pursuant to the business plan, store modernization and expansion
expenditures most recently have been directed toward established stores, as well
as new geographic areas where the Debtors' management believes there are
opportunities for growth. In addition, as a result of the January 17, 1994
earthquake in southern California, which completely destroyed the Bullock's
department store in Northridge, California and damaged substantially the
Bullock's department store in Sherman Oaks, California, the Debtors have
commenced renovations of those stores.
See "The Combined Company--Business of the Combined Company--Business
Presently Operated by Macy's" for additional information regarding certain
developments in Macy's business operations following the commencement of the
Reorganization Cases.
CERTAIN CLAIMS SETTLEMENTS AND LITIGATION
CERTAIN IRS CLAIMS
Prior to the December 15, 1992 Bar Date, the Debtors and the IRS entered
into a stipulation, which was approved by the Bankruptcy Court, extending the
Bar Date for the IRS to file its proofs of Claim. Such extension permitted the
IRS to conclude certain audits relating to the Debtors' prepetition federal
income tax liability. On July 23, 1993, prior to the IRS filing any proofs of
Claim, the Debtors and the IRS reached an agreement relating to the Debtors'
prepetition federal income tax liability for the fiscal years 1984 through 1991
(the "IRS Settlement Agreement"). The IRS Settlement Agreement fixed the
Debtors' federal income tax deficiency liability for the years 1984 through 1991
at approximately $219.2 (inclusive of approximately $70.2 million in interest
through the Petition Dates), without regard to the application of net operating
loss carrybacks from the Debtors' fiscal years ending after 1991. The IRS
Settlement Agreement was the subject of a stipulation and order of the
Bankruptcy Court entered on August 11, 1993. The IRS has filed a proof of Claim
that is consistent with the terms of the IRS Settlement Agreement. The Debtors
estimate that their actual liability for prepetition federal income taxes will
be approximately $151.0 million (inclusive of interest through the Petition
Dates), due to their ability to carry back certain net operating losses from the
Debtors' fiscal year 1992 operations. For a discussion of the Plan's treatment
of Federal Priority Tax Claims, see "Overview of the Plan--Summary of Classes
and Treatment of Claims and Interests."
FARAH LITIGATION
On September 8, 1993, Macy's filed a motion with the Bankruptcy Court (the
"Farah Motion") seeking authority to enter into an employment agreement with
Roger N. Farah ("Farah") for a term beginning on July 1, 1994, following the
expiration of his employment agreement with Federated. The agreement provided
for Farah to be employed as the President and Chief Operating Officer of Macy's.
At the time of such request, Farah was employed by Federated, serving as
Chairman and Chief Executive Officer of Federated Merchandising, a division of
Federated ("Federated Merchandising"). Federated responded by filing a state
court action against Farah (the "State Action") asserting that Farah's contract
with Federated prohibited him from working for Macy's during the two-year period
following his departure from Federated. Federated also raised similar issues in
the Bankruptcy Court. On November 18, 1993, the Bankruptcy Court approved a
settlement agreement among Macy's, Federated, and Farah under which: (i) Farah
could be employed by Macy's on July 1, 1994, pursuant to the parties' original
agreement; (ii) Macy's agreed not to hire certain employees of Federated and
Federated Merchandising until after April 30, 1995; (iii) Farah agreed not to
disclose confidential information of Federated through June 30, 1994; (iv) a
Claim asserted by Federated in the amount of
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approximately $3.4 million would be allowed in the Reorganization Cases as a
general Unsecured Claim (under the Plan, no distribution will be made to
Federated on account of such Allowed Claim) (see "Overview of the Plan--Summary
of Classes and Treatment of Claims and Interests"); (v) Macy's would pay, either
directly to Farah or to Federated, the compensation that Federated would have
paid directly to Farah for the period from August 5, 1993 to June 30, 1994; (vi)
the State Action would be dismissed with prejudice; and (vii) the parties would
exchange mutual releases of claims. See "--Postpetition Operations and
Liquidity--Management Changes" and "The Combined Company--Certain Arrangements
with Macy's Employees--Arrangements with Roger N. Farah."
CASUALTY CLAIMS
As of the Petition Dates, the Debtors had certain litigation claims
outstanding in connection with more than 1,700 personal injury, property damage,
products liability, and other claims arising in the ordinary course of the
Debtors' businesses and covered by the Debtors' insurance policies maintained
with the Zurich Insurance Company ("Zurich"), including actions that are
currently pending in various state and federal courts in which numerous
plaintiffs have asserted such claims against one or more of the Debtors
(collectively, the "Casualty Claims"). The Debtors dispute a considerable number
of the Casualty Claims.
In June 1992, the Debtors obtained an order from the Bankruptcy Court
modifying the automatic stay provisions of the Bankruptcy Code to permit the
commencement or continuation of actions in respect of Casualty Claims to
judgment or settlement. Although the order prohibits the collection of any
judgment or settlement obtained against any of the Debtors or property of their
estates, the order permits the Debtors and Zurich to compromise and settle in
full individual Casualty Claims in amounts not exceeding $25,000. As of August
26, 1994, approximately 211 proofs of Claim relating to Casualty Claims had not
been settled under this settlement program or otherwise.
SETTLEMENT PROCESS
As part of the Debtors' Claims settlement process, the Debtors have been
reconciling scheduled amounts with the amounts asserted in corresponding proofs
of Claim. On July 14, 1993, the Bankruptcy Court entered an order approving
certain procedures for the compromise, settlement, and resolution of differences
and disputes regarding certain Claims. As of August 26, 1994, the Debtors had
reconciled or allowed approximately 5,400 Claims. Excluding such reconciled or
allowed Claims and Claims as to which various omnibus claims objections have
been interposed, approximately 7,800 proofs of Claim currently assert amounts
that differ from the amounts set forth in the Debtors' schedules. Out of such
approximately 7,800 proofs of Claim, approximately 1,500 involve discrepancies
between the claimed and scheduled amounts of $1,000 or less.
STATE SALES TAX LITIGATION
Between April and September 1992, the Commonwealth of Pennsylvania, the
State of Georgia, and the State of Texas (the "States") each mailed notices of
assessment to certain of the Debtors' officers and employees in their individual
and corporate capacities (the "Assessed Employees") for deficiencies relating to
various taxes, including sales, use, and withholding taxes, allegedly collected
by the Debtors prior to the commencement of the Reorganization Cases but not
paid to the relevant taxing authorities. The States sought to hold each of the
Assessed Employees personally responsible for the Debtors' alleged tax
deficiencies and to recover from them an aggregate amount in excess of $13.6
million (the "Assessments").
Faced with the imminent commencement of a proceeding to determine the
Assessments, Macy's commenced an action in the Bankruptcy Court seeking
preliminarily to enjoin the States from pursuing collection proceedings relating
to the Assessments. At the conclusion of a hearing held in December 1992, the
Bankruptcy Court enjoined the States from taking any further action with respect
to the Assessments until the resolution of the States' tax claims against the
Debtors in the
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Reorganization Cases. The States have appealed the Bankruptcy Court's decision.
The appeal is currently pending before the United States District Court for the
Southern District of New York.
A substantial portion of the tax Claims related to the Assessments would be,
once resolved, Responsible Person Priority Tax Claims. Responsible Person
Priority Tax Claims will be paid by the Debtors in full in cash, as described in
"Overview of the Plan--Summary of Classes and Treatment of Claims and
Interests."
PLAN NEGOTIATIONS
The Plan is the product of extensive negotiations between and among each of
Macy's and Federated and representatives of certain creditors of the Debtors
(including the Creditors' Committees and the representatives of the Senior
Lenders). These negotiations pertained to, among other matters, the
classification and treatment of Claims, the settlement of intercreditor
disputes, the amount and terms of the debt and equity securities to be issued on
account of Allowed Claims, and the values of such securities to be assumed for
purposes of negotiation. The Plan Proponents believe that the Plan provides fair
and equitable recoveries to all creditors of the Debtors and for the settlement,
compromise, or other disposal of certain Claims on terms that the Plan
Proponents believe to be reasonable. A brief description of the manner in which
the Plan evolved following the commencement of the Reorganization Cases is set
forth below.
Pursuant to section 1121 of the Bankruptcy Code, only the debtor may file a
plan of reorganization during the 120-day period following the commencement of
the debtor's bankruptcy case (the "Exclusivity Period"). On the request of a
party in interest, the Bankruptcy Court, for cause, may reduce or increase the
Exclusivity Period. Although the Debtors' Exclusivity Period was initially due
to terminate in May 1992, the Bankruptcy Court, in response to a motion of the
Debtors, extended the Exclusivity Period for all Debtors to February 26, 1993.
By motion dated February 10, 1993, the Debtors requested a second extension of
the Exclusivity Period through September 30, 1993. After an evidentiary hearing,
the Bankruptcy Court granted the Debtors' motion on February 25, 1993. A third
extension of the Exclusivity Period was sought by the Debtors by motion dated
September 8, 1993. By order dated September 29, 1993, the Bankruptcy Court
extended the Exclusivity Period to March 15, 1994.
On December 31, 1993, FNC, a wholly owned subsidiary of Federated, acquired
from Prudential 50% of the Prudential Claims for an aggregate purchase price of
$449.3 million, consisting of $109.3 million in cash and a promissory note in
the amount of $340.0 million. In connection with such acquisition, FNC also
acquired an option, exercisable in whole or in part at any time prior to the
earlier of the Effective Date and December 31, 1996, to purchase the remainder
of the Prudential Claims for 108% of the principal amount thereof, plus, in
respect of each $1.0 million in principal amount of Prudential Claims to be
acquired, commencing on January 1, 1994, $5,000 for each full calendar month
between December 31, 1993 and the date of acquisition and, commencing on January
1, 1995, $10,000 for each full calendar month from January 1, 1995 to the date
of acquisition.
As a result of its acquisition of 50% of the Prudential Claims, FNC became
one of the Debtors' largest secured creditors. In connection with such
acquisition, Federated announced its intention to pursue a business combination
with Macy's. Macy's, however, announced that it intended to pursue a plan of
reorganization under which it would continue as an independent company.
By motion dated February 9, 1994, the Debtors sought a fourth extension of
the Exclusivity Period, through September 15, 1994. Following active discussions
among the Debtors, their various creditor constituencies, and Federated,
however, the Debtors agreed to seek an extension of the Exclusivity Period only
through August 1, 1994. By order dated February 22, 1994, the Bankruptcy Court
extended the Exclusivity Period to August 1, 1994, and extended the Debtors'
exclusive right to solicit acceptances of a plan of reorganization until October
3, 1994. The Bankruptcy Court's order also explicitly provided that such
extensions were subject to further review.
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MEDIATION PROCESS
In its February 22, 1994 order, the Bankruptcy Court, acting sua sponte,
also appointed Cyrus R. Vance, former Secretary of State of the United States,
to act as the mediator in the Reorganization Cases (the "Mediator"). The
Bankruptcy Court's order provided that the Mediator's function was "to develop
and present to the Court an agreement on the principal terms and conditions of a
plan of reorganization in these cases." Pursuant to the provisions of such
order, the Mediator's appointment was to terminate no later than June 22, 1994.
By order dated June 22, 1994, however, the Bankruptcy Court extended the
Mediator's appointment to September 30, 1994.
Following the appointment of the Mediator, representatives of Macy's,
Federated, and various of the Debtors' creditors (including representatives of
the Creditors' Committees and the Senior Lenders) engaged in a series of
discussions that were supervised by the Mediator and that ultimately resulted in
the Plan, which is being proposed jointly by the Debtors and Federated. Based on
certain assumptions, including assumptions with respect to the value of the
securities to be issued pursuant to the Plan, the Plan provides for total
distributions of cash and debt and equity securities to creditors of the Debtors
valued for purposes of the Plan at approximately $4.1 billion.
SETTLEMENT OF CERTAIN CLAIMS AND INTERCREDITOR ISSUES UNDER THE PLAN
The negotiations that led to the formulation of the Plan also involved, and
the proposed treatment of various Claims and Interests under the Plan embodies
the resolution of a number of actual or potential disputes, including
intercreditor and other issues among the Debtors and their various creditor
constituencies. These issues included, among others: (i) a dispute among the
Debtors and certain holders of Secured Claims regarding the allowability and
amount of Swiss Bank's alleged Claim for liquidated damages arising on account
of defaults under the Macy's/49 Store Loan Agreement and the resulting
termination of certain interest rate swap arrangements with Swiss Bank; (ii) a
dispute among the Bondholders' Committee and the Senior Lenders regarding the
interpretation and legal effect of the subordination and turnover provisions of
the Old Indentures; (iii) whether the Debtors possess claims against GE Credit
allegedly arising out of the sale, establishment, and administration of the
Macy's Credit Card Program; and (iv) the appropriate valuation of the Debtors'
interests in the collateral constituting security for various Secured Claims
and, based on such valuation, the appropriate allocation of property to be
distributed under the Plan between the holders of Secured and Unsecured Claims
collectively and among the holders of Secured Claims individually. The proposed
treatment of Claims and Interests under the Plan represents compromises and
settlements of these and various other issues among the Debtors, Federated, the
Creditors' Committees, representatives of the Senior Lenders, and various other
parties that participated in the negotiations regarding the Plan. See "Overview
of the Plan--Summary of Classes and Treatment of Claims and Interests."
Moreover, in connection with such compromises and settlements, the Plan provides
for the release, waiver, and discharge of certain claims, demands, rights,
causes of action, and liabilities that might otherwise be asserted by the
Debtors and the holders of Claims or Interests. See "General Information
Concerning the Plan--Releases and Certain Settlements Under the Plan; Related
Injunction."
The Plan Proponents believe that these compromises, settlements, and related
releases are fair, reasonable, and in the best interests of the Debtors' Estates
and creditors. Nonetheless, such compromises, settlements, and related releases,
and the applicable terms of the Plan itself, will not become binding upon the
holders of Claims and Interests unless and until the Plan is confirmed by the
Bankruptcy Court pursuant to section 1129 of the Bankruptcy Code. See "Voting
and Confirmation of the Plan--Confirmation" and "--Acceptance or Cramdown."
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THE COMBINED COMPANY
RESTRUCTURING TRANSACTIONS
THE FEDERATED/MACY'S MERGER
The following is a summary of the material provisions of the
Federated/Macy's Merger Agreement, the form of which is available for review at
the Document Reviewing Centers. This summary does not purport to be complete,
and is qualified in its entirety by the full text of the Federated/Macy's Merger
Agreement, which is incorporated herein by this reference.
Effects of the Federated/Macy's Merger
On the terms and subject to the conditions set forth in the Federated/Macy's
Merger Agreement: (i) Federated and Macy's will merge, with Macy's being the
surviving corporation in the Federated/Macy's Merger; (ii) the Combined Company
will change its name to "Federated Department Stores, Inc."; and (iii) the
stockholders of Federated immediately prior to the Federated/Macy's Merger will
become stockholders of the Combined Company without exchanging their stock
certificates or taking any other action. Under generally accepted accounting
principles the transaction will be treated as the acquisition of Macy's by
Federated. Although the Federated/Macy's Merger Agreement provides that Macy's
will be the surviving corporation, if certain approvals are not obtained in
connection therewith, the Federated/Macy's Merger Agreement further provides
that Federated and Macy's promptly will amend such agreement to change the form
of the merger to provide that Macy's will be merged into Federated, with
Federated being the surviving corporation, or, at Federated's option, to provide
that (a) Macy's will merge with a wholly owned subsidiary of Federated or (b)
Federated will acquire all of the capital stock of Macy's. See "--The
Federated/Macy's Merger Agreement--Certain Filings" and "Federal Income Tax
Consequences of Consummation of the Plan-- Certain Federal Income Tax
Consequences of the Federated/Macy's Merger and Other Restructuring
Transactions."
The directors and officers of Federated immediately before the
Federated/Macy's Merger will be directors and officers of the Combined Company
immediately after the Federated/Macy's Merger. In addition, Myron E. Ullman,
III, presently the Chairman of the Board of Directors and Chief Executive
Officer of Macy's, and three additional members of Macy's board of directors
designated by Macy's prior to the Effective Time of the Federated/Macy's Merger
(the designation of whom is subject to approval by the Board Organization
Committee of Federated's board of directors upon the recommendation of two of
the three members of the Interim Operations Committee (as defined below in
"--The Federated/Macy's Merger Agreement--Conduct of Business Prior to the
Federated/Macy's Merger")) will become directors of the Combined Company
immediately after the Federated/Macy's Merger. Mr. Ullman will also become the
Deputy Chairman of the Combined Company, with primary responsibility for
overseeing transitional matters relating to combining Federated's and Macy's
operations. See "--Business of the Combined Company--Combined Company Strategic
Plan" and "--Management."
Immediately following the Effective Time of the Federated/Macy's Merger, the
Certificate of Incorporation and By-Laws of the Combined Company will be in the
forms of Appendices IV.C.1.a(i) and IV.C.1.a(ii), respectively, to the Plan,
which are identical in all material respects to the certificate of incorporation
and by-laws of Federated, except for an increase in the number of authorized
shares of capital stock of the Combined Company. See "Capital Stock of the
Combined Company." After the Effective Time of the Federated/Macy's Merger, the
Combined Company may amend and restate its Certificate of Incorporation or
By-Laws as permitted by the Delaware General Corporation Law, subject to the
terms and conditions of the Certificate of Incorporation and By-Laws and the
Federated/Macy's Merger Agreement.
On the terms and subject to the conditions set forth in the Federated/Macy's
Merger Agreement, at the Effective Time of the Federated/Macy's Merger: (i) all
outstanding shares of the common stock
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of Federated (the "Federated Common Stock"), together with the associated share
purchase rights of Federated under the Federated Share Purchase Rights
Agreement, dated as of February 5, 1992, between Federated and The Bank of New
York (the "Federated Share Purchase Rights"), will be converted into and become
one validly issued, fully paid, and nonassessable share of New Combined Company
Common Stock and one associated share purchase right of the Combined Company (a
"Combined Company Share Purchase Right"); and (ii) all shares of Federated
Common Stock held in Federated's treasury or in the treasury of any subsidiary
of Federated, together with the associated Federated Share Purchase Rights, will
be canceled and no consideration will be paid or delivered on account thereof.
See "Capital Stock of the Combined Company." Each certificate that, immediately
prior to the Effective Time of the Federated/Macy's Merger, represented
outstanding shares of Federated Common Stock will, for all corporate purposes
(including the right to vote and to receive dividends), be treated as
representing the number of shares of New Combined Company Common Stock into
which such shares of Federated Common Stock have been converted in the
Federated/Macy's Merger and an equal number of Combined Company Share Purchase
Rights.
On the terms and subject to the conditions set forth in the Federated/Macy's
Merger Agreement, at the Effective Time of the Federated/Macy's Merger, all of
the capital stock of Macy's (including all options, warrants, or other rights to
purchase any such capital stock) issued and outstanding or held in Macy's
treasury or in the treasury of any subsidiary of Macy's will be canceled and
retired pursuant to the Plan and no consideration will be paid or delivered with
respect thereto, in all events without any action on the part of Macy's, the
Combined Company, the holders of the capital stock of Macy's, or any other
entity. Such further provisions will be made in or taken pursuant to the Plan or
the Federated/Macy's Merger Agreement as may be necessary or appropriate to
result in there being no shares of capital stock of the Combined Company issued
or outstanding immediately following the Effective Time of the Federated/Macy's
Merger and prior to the distribution of New Combined Company Common Stock
pursuant to the Plan, except as provided in the Federated/Macy's Merger
Agreement.
Following the Effective Time of the Federated/Macy's Merger, shares of
capital stock of the Combined Company will be issued pursuant to the Plan and
may otherwise be issued pursuant to the Certificate of Incorporation and By-Laws
and the Delaware General Corporation Law. See "Capital Stock of the Combined
Company--Future Stock Issuances."
The Federated/Macy's Merger Agreement
Representations and Warranties. The Federated/Macy's Merger Agreement
contains various representations and warranties customary for transactions such
as the Federated/Macy's Merger, including, among others, representations and
warranties as to: (i) the corporate organization and qualification of each of
Federated and Macy's; (ii) the authorization and approval by the Bankruptcy
Court of the execution, delivery, and performance of certain provisions of the
Federated/Macy's Merger Agreement; (iii) the absence of conflicts between the
provisions of the Federated/Macy's Merger Agreement and applicable law or the
provisions of certain other documents; (iv) the accuracy in all material
respects of the parties' respective SEC filings (including the financial
statements contained therein) since the end of their respective 1993 fiscal
years; and (v) Federated's authorized and outstanding capital stock.
Conduct of Business Prior to the Federated/Macy's Merger. The
Federated/Macy's Merger Agreement provides that each of Federated and Macy's
will, in general, conduct their respective businesses in the ordinary course
prior to the Effective Time of the Federated/Macy's Merger. In addition, upon
execution and delivery of the Federated/Macy's Merger Agreement, the parties
established an "Interim Operations Committee" for the purpose of receiving
notice of, consulting with respect to, and approving specified actions of Macy's
prior to the Effective Time of the Federated/Macy's Merger. The members of the
Interim Operations Committee are Mr. Ullman and Messrs. Allen Questrom
(Federated's Chairman of the Board and Chief Executive Officer) and James
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M. Zimmerman (Federated's President and Chief Operating Officer). Actions by
Macy's that require notice to the Interim Operations Committee include, among
others, changes in Macy's business plan, SEC reportable items, benefit plan
renewals, potential changes in top management, and consolidation of divisions or
other significant business operations. Actions by Macy's which require
consultation with the Interim Operations Committee include, among others, new
store programs or commitments, financial reporting between both companies,
individual contract commitments not in Macy's business plan with a duration of
more than two years, the status of any known stockholder opposition to the
Federated/Macy's Merger, any major changes in creditor positions regarding the
Federated/Macy's Merger, and events relating to financing of Plan distributions
and post-merger working capital. Actions by Macy's that require the prior
written consent of at least two members of the Interim Operations Committee
include, among others: (i) the incurrence of indebtedness for borrowed money
(other than in the ordinary course of business or pursuant to the DIP Credit
Agreement); (ii) certain purchases or sales of assets (other than inventory or
assets held for sale or no longer used in its business) or capital expenditures
involving more than $5.0 million, except as previously disclosed in Macy's
capital budgets for fall 1994 and spring 1995; (iii) the entry into certain
contracts (other than contracts to purchase or sell inventory or sell assets
held for sale or no longer used in its business) involving total annual
expenditures by Macy's or total annual payments to Macy's of more than $5.0
million, except as previously disclosed in Macy's capital budgets for fall 1994
and spring 1995; (iv) certain compromises or settlements of Unsecured Claims and
Administrative Claims in excess of scheduled amounts; (v) the assumption and
rejection of certain executory contracts in excess of scheduled amounts; and
(vi) the assumption and rejection of unexpired leases for space currently used
in Macy's business.
Access, Approvals, Notices, Etc. The Federated/Macy's Merger Agreement
contains a number of customary additional covenants imposing obligations on each
of Federated and Macy's, including the following: (i) to provide the other party
and its representatives access to information in the possession of such party,
except that neither party will be required to disclose information that could
reasonably be expected to harm the business or prospects of the disclosing
party, and the parties have agreed that any such information disclosed by a
party will not be used by the other party to the disclosing party's detriment;
(ii) to use its reasonable efforts to obtain all approvals necessary to
consummate the Federated/Macy's Merger, including approvals relating to
compliance with federal and state antitrust laws (for which Federated's
reasonable efforts are deemed to include divesting, holding separate, or taking
such other actions (or otherwise agreeing to do any thereof) with respect to its
or any of the Combined Company's assets and properties necessary to obtain such
approvals, except to the extent that certain actions, other than certain
possible actions previously discussed between the parties, would, in the
aggregate, have a material adverse effect on the business, financial condition,
or results of operations of the Combined Company and its subsidiaries taken as a
whole); and (iii) to provide notice to the other party with respect to the
occurrence of any default of such party's obligations under the Federated/Macy's
Merger Agreement and of any material adverse change or development in the
business, financial condition, or results of operations of such party. Federated
also has agreed to pay certain filing fees and related costs and expenses
associated with obtaining any antitrust approvals or authorizations.
Certain Filings. The Federated/Macy's Merger Agreement provides that
Federated and Macy's will cooperate with and assist each other in preparing and
filing with the SEC as soon as practicable (i) a registration statement on Form
S-4 under the Securities Act (the "Registration Statement") to register the
shares of New Combined Company Common Stock to be issued pursuant to the
Federated/Macy's Merger and (ii) a proxy statement and related proxy materials
under the Exchange Act (the "Proxy Statement") to be used in soliciting proxies
of Federated's stockholders to approve the Federated/Macy's Merger Agreement and
the Federated/Macy's Merger. In connection with the Registration Statement, the
Bankruptcy Court entered an order dated September , 1994 appointing
Federated's directors, principal executive officer, principal financial officer,
and principal accounting officer to replace and be substituted for Macy's
directors, principal executive officer, principal financial officer, and
principal accounting officer, respectively (such Federated personnel in such
capacities being
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referred to as the "Federated Representatives"), for all purposes of and in all
respects relating to the Registration Statement, including the execution and
filing thereof, the accuracy and completeness of the information contained
therein, the taking of any other action necessary and advisable in connection
therewith, and the offering and sale of securities pursuant thereto. Such order
also provides that (i) the Federated Representatives will be responsible for the
Registration Statement and related matters as if and to the extent that each of
them held their respective appointed positions with Macy's at all times and for
all purposes and (ii) the persons holding such positions with Macy's (other than
any person designated by Macy's pursuant to the Federated/Macy's Merger
Agreement that becomes a director of the Combined Company after the
Federated/Macy's Merger) will not have any personal responsibility or liability
arising from or in connection with the Registration Statement or the offering
and sale of securities pursuant thereto. The Federated/Macy's Merger Agreement
further provides that in certain circumstances relating to the foregoing
matters, the parties may be required to change the form of the Federated/Macy's
Merger as described above under "--Effects of the Federated/Macy's Merger." In
addition, the Federated/Macy's Merger Agreement provides that Federated and
Macy's will cooperate with and assist each other to cause the New Combined
Company Common Stock (together with the associated New Combined Company Share
Purchase Rights) issuable pursuant to the Federated/Macy's Merger or the Plan or
upon the exercise of the New Warrants to be authorized for listing on the NYSE
upon official notice of issuance or listing for quotation through NASDAQ.
Federated also has agreed to pay the NYSE or NASDAQ listing application fee, as
the case may be, and related costs and expenses.
Certain Macy's Employee and Retiree Matters. In addition, the
Federated/Macy's Merger Agreement provides that the Combined Company will have
sole discretion over the employment terms of its employees, subject to the
following: (i) for a period of one year after the Federated/Macy's Merger,
employees of the Combined Company who were previously employees of Macy's will
receive compensation and employee benefits that are, in the aggregate,
substantially comparable to the compensation and employee benefits they received
immediately prior to the Federated/Macy's Merger and, after such one-year
period, compensation and employee benefits that are substantially comparable to
the compensation and employee benefits provided to similarly situated Combined
Company employees who were not Macy's employees, provided that the Combined
Company will not be required to modify any benefit plan formulas with respect to
any Macy's pension plan in a manner that increases the aggregate expense under
any such plan to comply with the requirements of the Tax Reform Act of 1986,
except as reflected in Macy's spring 1994 business plan and, for purposes of
determining substantial comparability, pension benefits are to be excluded so
long as the Combined Company continues the Macy's pension plans; (ii) with
respect to employee benefits provided to Macy's retirees that currently may be
terminated or reduced by the Combined Company under applicable law, Macy's
retirees will receive, for a period of one year after the Federated/Macy's
Merger, employee benefits that are no less favorable than the employee benefits
they received immediately prior to the Federated/Macy's Merger (in the case of
Macy's retirees who retired prior to the Federated/Macy's Merger but after the
Petition Dates) or prior to the Petition Dates (in the case of Macy's retirees
who retired prior to such dates) and, after such one-year period, to the extent
the Combined Company changes or terminates any such retiree benefits, it may not
reduce the aggregate amount of such benefits, if, after giving effect to such
reduction, such benefits, in the aggregate, would not be at least substantially
comparable to the retiree benefits provided to similarly situated retirees of
the Combined Company who were not Macy's retirees; (iii) with respect to
employee benefits provided to Macy's retirees that cannot be terminated or
reduced by the Combined Company under applicable law, Macy's retirees will
receive employee benefits that are no less favorable than the benefits they
received immediately prior to the Federated/Macy's Merger (in the case of Macy's
retirees who retired prior to the Federated/Macy's Merger but after the Petition
Dates) or the Petition Dates (in the case of Macy's retirees who retired prior
to the Petition Dates); (iv) the Combined Company will continue to make all
annuity or supplemental retirement payments as Macy's was required to make
immediately prior to the Federated/Macy's Merger and will pay any such unpaid
amounts; (v) for a period of two years after
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the Federated/Macy's Merger, Macy's pension plan will not be merged with any
other plan or amended to reduce its benefits; (vi) the Combined Company will pay
in full all valid unpaid claims of Macy's employees or Macy's retirees for
wages, deferred cash compensation, vacation, severance, expense reimbursement,
employee discounts, and similar claims (excluding claims that are the subject of
pending or threatened litigation, including any administrative proceeding); and
(vii) Macy's employees will be credited with service with Macy's for purposes of
vesting, eligibility, benefit accrual, and other determinations of benefits to
the same extent as if they had rendered their services to Federated. For a
discussion of certain additional Macy's employee matters provided for in the
Federated/Macy's Merger Agreement, see "--Management--Executive
Compensation--Certain Arrangements with New Deputy Chairman" and "--Certain
Arrangements with Macy's Employees."
Indemnification. The Federated/Macy's Merger Agreement provides that, from
and after the Effective Time of the Federated/Macy's Merger, and subject to
certain limitations, the Combined Company will indemnify the former officers,
directors, employees, and agents of Macy's and its subsidiaries who served as
such on or after June 15, 1986 against all losses, claims, damages, or
liabilities arising out of actions or omissions occurring on, prior to, or after
the Effective Time of the Federated/Macy's Merger to the full extent provided by
Delaware law and Macy's by-laws in effect as of the date of the Federated/Macy's
Merger Agreement. In addition, the Combined Company may not amend, repeal, or
otherwise modify such indemnification in any manner that would adversely affect
the rights of such individuals thereunder. The Federated/Macy's Merger Agreement
also provides that the Combined Company will maintain Macy's existing directors'
and officers' liability insurance in full force and effect (or procure insurance
substantially comparable in scope and coverage) for six years after the
Effective Time, provided that the Combined Company will not be required to pay
an annual premium therefor in excess of 250% of the last annual premium paid by
Macy's (subject to an obligation to purchase as much coverage as may be
purchased in light of such limitation). In addition, the Federated/Macy's Merger
Agreement provides that the Combined Company will maintain directors' and
officers' liability insurance for the directors and officers of the Combined
Company for at least three years after the Effective Time of the
Federated/Macy's Merger in amounts at least equal to the directors' and
officers' liability insurance maintained by Federated immediately prior to the
date of the Federated/Macy's Merger Agreement.
Competing Offers. Until the Confirmation Date, the Federated/Macy's Merger
Agreement provides that Macy's may not solicit, initiate, or encourage any
inquiries or proposals concerning the potential sale of all or substantially all
of the business, assets, properties, or securities (by merger or otherwise) of
Macy's. Notwithstanding the foregoing, Macy's may furnish information to any
person in response to any unsolicited requests or participate in negotiations
concerning the same if counsel to Macy's advises Macy's board of directors that
such action is necessary for Macy's directors to satisfy their fiduciary duties.
The Federated/Macy's Merger Agreement further provides that Macy's may terminate
the Federated/Macy's Merger Agreement if: (i) Macy's receives a written bona
fide proposal or offer with respect to the potential purchase of all or
substantially all of Macy's business, assets, properties, or securities (by
merger or otherwise) (a "Competing Offer"); (ii) such offer constitutes a Better
Offer (as defined below); and (iii) Macy's board of directors determines, based
on the advice of its counsel, that its fiduciary obligations require that Macy's
accept the Competing Offer and terminate the Federated/Macy's Merger Agreement.
In these circumstances, Macy's is required to deliver to Federated, not less
than 10 days prior to accepting the Competing Offer or otherwise entering into
any agreement or understanding with respect thereto, a written notice (a
"Competing Offer Notice") (together with copies of all written materials
received by Macy's in connection therewith) setting forth (a) the identity of
the person making the Competing Offer and (b) a description of the material
terms and conditions of the Competing Offer, including the value ascribed to any
noncash consideration to be provided thereunder. If, during the period of 10
days after delivery to Federated of a Competing Offer Notice (the "Match
Period"), Federated submits to Macy's an offer that, taken as a whole,
constitutes a Better Offer in respect of the Competing Offer that is the subject
of the Competing Offer Notice (a "Matching Offer"), then Macy's is required to
reject such Competing Offer and Federated and Macy's
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are required promptly to modify the Federated/Macy's Merger Agreement and the
Plan to the extent, in each case, necessary or appropriate to reflect the terms
and conditions of the Matching Offer. If Federated disagrees in good faith with
Macy's determination that a Competing Offer constitutes a Better Offer,
Federated may, within the Match Period, file a motion in the Bankruptcy Court
seeking a determination with respect thereto (a "Federated Objection"). If
Federated files a Federated Objection, but the Bankruptcy Court determines that
the Competing Offer qualifies as a Better Offer, the Match Period with respect
to such Competing Offer will be deemed to commence anew on the date of such
determination. If Federated submits a Matching Offer and Macy's board of
directors determines in good faith, after receiving advice from Macy's
independent financial advisors, that such Matching Offer does not constitute a
Better Offer in respect of the applicable Competing Offer, Macy's may, within 10
days after receipt by Macy's of such Matching Offer, file a motion in the
Bankruptcy Court seeking a determination with respect thereto (a "Macy's
Objection"). If (i) Federated fails to submit a Matching Offer or file a
Federated Objection within the Match Period or (ii) Macy's timely files a Macy's
Objection and the Bankruptcy Court determines that Federated's purported
Matching Offer does not constitute a Better Offer in respect of the applicable
Competing Offer, then Macy's may, within five days after the expiration of the
Match Period or, if applicable, the Bankruptcy Court's determination, terminate
the Federated/Macy's Merger Agreement, withdraw the Plan and this Disclosure
Statement, as applicable, and proceed to consummate the Competing Offer. See
"--Termination." In such event, Macy's would be required to pay to Federated a
fee in the nature of liquidated damages in an amount equal to $80.0 million. See
"--Termination."
The term "Better Offer" means a bona fide written offer presented to Macy's
that: (i) with respect to a Competing Offer or a Matching Offer, is accompanied
by reasonable evidence of the offeror's financial capacity to consummate the
transactions contemplated thereby; (ii) with respect to a Competing Offer,
provides for aggregate distributions to the holders of Claims or Interests of a
value that exceeds the value of the aggregate Plan distributions by at least
$100.0 million and, with respect to a Matching Offer, provides for substantially
comparable economic benefits, taken as a whole, to the holders of Claims against
or Interests in Macy's as under the applicable Competing Offer; and (iii) with
respect to a Competing Offer or a Matching Offer, is otherwise on terms and
conditions that, taken as a whole, are at least as favorable to the holders of
Claims and Interests as those contained in the Plan, taken as a whole.
Restrictions on Hiring. The Federated/Macy's Merger Agreement provides that,
until the earlier of the consummation of the Federated/Macy's Merger or the
second anniversary of the date of the Federated/Macy's Merger Agreement, neither
party will hire or solicit any employee of the other party employed at the level
of Councillor/DMM or administrator or equivalent levels or above on the date of
the Federated/Macy's Merger Agreement, or any individual who becomes an employee
at or above such level after such date.
Conditions to the Federated/Macy's Merger. The obligations of Federated and
Macy's to consummate the Federated/Macy's Merger are subject to the satisfaction
or waiver on or prior to the Effective Time of the Federated/Macy's Merger of
certain conditions, including the following: (i) the absence of any pending
injunction, order, or decree by any foreign, federal, or state court or other
governmental authority restraining, preventing, or prohibiting consummation of
the transactions contemplated by the Federated/Macy's Merger Agreement or by the
Plan; (ii) the absence of any foreign, federal, or state law promulgated,
enacted, entered, or enforced by any governmental authority that restrains,
prevents, or prohibits the transactions contemplated by the Federated/Macy's
Merger Agreement or by the Plan; (iii) all consents and approvals of any
federal, state, or local governmental authorities required to be obtained for
the consummation of the Federated/Macy's Merger having been obtained and
remaining in effect at the Effective Time of the Federated/Macy's Merger, other
than any such consents or approvals that, if not obtained, would not have a
material adverse effect on the business, financial condition, or results of
operations of the Combined Company and its subsidiaries, taken as a whole, or
any antitrust authorizations not obtained as a result of Federated's failure to
divest,
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hold separate, or take other action (or its failure to agree to do any thereof)
with respect to its or the Combined Company's assets to the extent required by
the Federated/Macy's Merger Agreement; (iv) all other consents, approvals, and
authorizations required to be obtained by either party as contemplated by the
Federated/Macy's Merger Agreement having been obtained and remaining in effect
at the Effective Time of the Federated/Macy's Merger, other than any such
consents or approvals that, if not obtained, would not have a material adverse
effect on the business, financial condition, or results of operations of the
Combined Company and its subsidiaries, taken as a whole, or any consents and
approvals of Federated's institutional lenders; (v) adoption by Federated's
stockholders of the Federated/Macy's Merger Agreement as required under
applicable law; (vi) the Registration Statement relating to the New Combined
Company Common Stock to be issued pursuant to the Federated/Macy's Merger having
been declared effective by the SEC, no stop order suspending the effectiveness
thereof having been issued, and no proceedings for such purpose having been
initiated or threatened by the SEC; (vii) the shares of the New Combined Company
Common Stock issuable in connection with the Federated/Macy's Merger having been
authorized for listing on the NYSE upon official notice of issuance or accepted
for quotation through NASDAQ; and (viii) the Bankruptcy Court having entered the
Confirmation Order, at least 10 days having passed since entry of such order and
it not being subject to any stay, and all conditions to the Effective Date of
the Plan having been satisfied or duly waived in accordance with the applicable
provisions of the Plan.
Federated's obligations under the Federated/Macy's Merger Agreement are
further subject to satisfaction or written waiver at or prior to the Effective
Time of the Federated/Macy's Merger of the following conditions: (i) Macy's
having performed in all material respects the covenants and agreements contained
in the Federated/Macy's Merger Agreement required to be performed by it; (ii)
all representations and warranties made by Macy's in the Federated/Macy's Merger
Agreement being true and correct in all material respects; (iii) no material
adverse change having occurred in the per share price of the Federated Common
Stock following the adoption of the Federated/Macy's Merger Agreement by
Federated's stockholders; (iv) all of the consents to the Federated/Macy's
Merger of Federated's institutional lenders having been obtained by August 31,
1994, except that this condition automatically will be waived if Federated does
not exercise its right to terminate the Federated/Macy's Merger Agreement within
five business days of such date; and (v) since the date of the Federated/Macy's
Merger Agreement no material adverse change having occurred in the business,
financial condition, or results of operations of Macy's and its subsidiaries,
taken as a whole.
Macy's obligations under the Federated/Macy's Merger Agreement are further
subject to the satisfaction or written waiver at or prior to the Effective Time
of the Federated/Macy's Merger of the following conditions: (i) Federated having
performed in all material respects the covenants and agreements contained in the
Federated/Macy's Merger Agreement required to be performed by it; (ii) all
representations and warranties made by Federated in the Federated/Macy's Merger
Agreement being true and correct in all material respects; and (iii) since the
date of the Federated/Macy's Merger Agreement, no material adverse change having
occurred in the business, financial condition, or results of operations of
Federated and its subsidiaries, taken as a whole.
Termination. The Federated/Macy's Merger Agreement may be terminated: (i) by
mutual action of Federated and Macy's at any time prior to the Effective Time of
the Federated/Macy's Merger; (ii) by either party on February 28, 1995 (or such
later date as may be provided in the Plan with respect to the Effective Date of
the Plan) in the event that the Effective Time of the Federated/Macy's Merger
shall not have occurred for any reason on or before such date; (iii) by either
party on October 15, 1994 if, on or before such date, the Bankruptcy Court for
any reason shall not have ratified or approved Macy's execution and delivery of
the Federated/Macy's Merger Agreement in the form executed and delivered by the
parties and authorized Macy's to take all actions reasonably necessary to
consummate the transactions contemplated thereby; or (iv) at any time prior to
the Effective Time of the Federated/Macy's Merger, by either party by written
notice to the other party, promptly after (a) any condition to such party's
obligations to consummate the transactions contemplated by the
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Federated/Macy's Merger Agreement is reasonably determined by such party to be
incapable of being satisfied by February 28, 1995 (or such later date as may be
provided in the Plan with respect to the Effective Date of the Plan), other than
any incapacity caused by a breach by such party of any of its material
obligations, (b) Macy's shall have accepted a Competing Offer in accordance with
the provisions therefor in the Federated/Macy's Merger Agreement, (c) the board
of directors of the other party shall have withdrawn or modified in any manner
adverse to the terminating party its approval or recommendation of the
Federated/Macy's Merger Agreement, the Plan, or the transactions contemplated
thereby, (d) the Plan shall have been voted upon and the requisite number and
amount of holders of Claims in each Class entitled to vote shall have failed to
accept the Plan unless, as to those such Classes that shall have failed to
accept the Plan, a cramdown of a plan of reorganization is sought by the parties
pursuant to section 1129(b) of the Bankruptcy Code and the terms of
distributions therein to such classes are as provided in the Plan, or (e) the
Bankruptcy Court shall have entered an order denying confirmation of the Plan,
the Plan shall have been terminated in accordance with its terms, or the
Confirmation Order shall have been vacated or reversed by a final and
unappealable order of a court of competent jurisdiction.
In the event of any termination of the Federated/Macy's Merger Agreement (i)
by either party because all requisite governmental consents or approval of
Federated's stockholders were not obtained, (ii) by Federated because all
requisite consents and approvals of its institutional lenders were not obtained,
or (iii) by Macy's because Federated is in material breach of the
Federated/Macy's Merger Agreement (provided Macy's also is not in material
breach of such agreement), then Federated will be obligated to cause FNC to vote
all Claims held by Federated in the Reorganization Cases with and in the same
manner as all Claims held by Prudential are voted in the Reorganization Cases in
respect of any plan of reorganization of Macy's that may be proposed from time
to time in connection with the Reorganization Cases, provided that all such
Claims of FNC and Prudential are treated identically therein.
If the Federated/Macy's Merger Agreement is terminated because either party
refuses to close in breach of the Federated/Macy's Merger Agreement, then the
breaching party will be obligated to pay to the non-breaching party (provided
that it is not also in material breach), within five business days of the
effective date of such termination, a lump sum cash fee of $80.0 million, which
fee is in addition to, and not in lieu of, any other rights or remedies that the
parties may have. If the Federated/Macy's Merger Agreement is terminated because
Macy's has accepted a Competing Offer, then, as noted above under "--Competing
Offers," Macy's will be obligated to pay Federated, within five business days of
the effective date of such termination, a lump sum cash fee of $80.0 million as
liquidated damages in lieu of any other payment. If the Federated/Macy's Merger
Agreement is terminated because the holders of Claims have failed to accept the
Plan and the Plan is not confirmable under section 1129(b) of the Bankruptcy
Code, and prior to such termination (i) the Bankruptcy Court has approved Macy's
execution and delivery of the Federated/Macy's Merger Agreement and authorized
Macy's to take all actions reasonably necessary to consummate the transactions
contemplated thereby and (ii) a Competing Offer has been made by a third party
that provides for economic benefits, taken as a whole, that are at least as
favorable to the holders of Claims and Macy's as those contained in the Plan and
Macy's thereafter consummates the transaction contemplated by the Competing
Offer or another transaction with the third party that made the Competing Offer,
which other transaction provides for economic benefits, taken as a whole, that
are at least as favorable to the holders of Claims and Interests as those
initially contained in the Competing Offer, Macy's will be required to pay to
Federated, within five business days of such consummation, a lump sum cash fee
of $80.0 million, except that no such fee will be payable if Federated's
stockholders have failed to adopt the Federated/Macy's Merger Agreement or, if
at the time of the termination of the Federated/Macy's Merger Agreement,
Federated is in material breach of the Federated/Macy's Merger Agreement.
Pursuant to the Federated/Macy's Merger Agreement, any obligation of Macy's to
pay a cash fee as described above will be treated as an allowed administrative
expense under the Bankruptcy Code.
44
<PAGE>
Antitrust Matters. On August 19, 1994, the Federal Trade Commission notified
the Plan Proponents that it had granted early termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended. The Plan Proponents were advised by the Office of the Attorney
General for the State of New York, however, that it was investigating the
competitive effects of the Federated/Macy's Merger. On August 23, 1994, the Plan
Proponents were advised that the Office of the Attorney General for the State of
New York intended to commence litigation challenging the merger absent a
mutually satisfactory settlement of the matter. Discussions between the Plan
Proponents and the Attorney General's office are continuing. The Plan Proponents
believe that the Federated/Macy's Merger does not violate any federal or state
antitrust or other law. There presently can be no assurance, however, with
respect to the final outcome of this investigation, or its impact, if any, on
the corporate structure, business, or results of operations of the Combined
Company. The Plan Proponents have not been notified by the Attorneys General of
any other potentially affected states that they are investigating, or intend to
investigate, the Federated/Macy's Merger.
Pursuant to the Federated/Macy's Merger Agreement, Federated agreed to use
its reasonable efforts to obtain all consents, approvals, or authorizations of
any governmental authority required for the consummation of the Federated/Macy's
Merger under any applicable antitrust law, which efforts are deemed to include
divesting, holding separate, or otherwise taking action with respect to
Federated's or any of the Combined Company's assets and properties necessary to
comply therewith, except to the extent that certain actions, other than certain
possible actions previously discussed between Federated and Macy's, would, in
the aggregate, have a material adverse effect on the business, financial
condition, or results of operations of the Combined Company and its
subsidiaries, taken as a whole. See "-- Access, Approvals, Notices, Etc." As
noted above, the Plan Proponents believe that the Federated/Macy's Merger does
not violate any federal or state antitrust or other law, and the pro forma and
projected financial information contained herein assumes that no divestitures or
other extraordinary actions will be required under any such law. See
"--Unaudited Pro Forma Combined Financial Information" and "--Projected
Financial Information." There can be no assurance, however, with respect to such
matters.
OPERATING SUBSIDIARY TRANSACTIONS
The Reorganized Debtors will also take such actions as may be necessary or
appropriate to: (i) incorporate a new corporation under the laws of the State of
Ohio ("New Macy's East") and effect the merger of each of Reorganized Macy's
Northeast and Reorganized Macy's South with and into New Macy's East; (ii)
incorporate a new corporation under the laws of the State of Ohio ("New Macy's
West") and effect the merger of Reorganized Macy's California with and into New
Macy's West; (iii) incorporate a new corporation under the laws of the State of
Ohio ("New Bullock's") and effect the merger of Reorganized Bullock's with and
into New Bullock's; (iv) incorporate a new corporation under the laws of the
State of Ohio ("New I. Magnin") and effect the merger of Reorganized I. Magnin
with and into New I. Magnin; (v) incorporate a new corporation under the laws of
the State of Ohio ("New Macy's Specialty") and effect the merger of Reorganized
Macy's Specialty with and into New Macy's Specialty; (vi) incorporate a new
corporation under the laws of the State of Ohio ("New MCO") and effect the
merger of Reorganized MCO with and into New MCO; (vii) transfer from New Macy's
East to the Combined Company the capital stock of New Macy's Specialty; and
(viii) transfer from each of New Macy's East, New Macy's West, New Bullock's,
and New I. Magnin to the Combined Company certain assets associated with various
centralized support functions (collectively, the "Reorganized Operating
Subsidiary Transactions"). In addition, prior to the Effective Date, Federated
will take such actions as may be necessary or appropriate to: (i) incorporate a
new corporation under the laws of the State of Delaware ("New FSG") and transfer
from Federated to New FSG substantially all of the assets, rights, and
liabilities associated with the FSG division of Federated; (ii) incorporate a
new corporation under the laws of the State of Delaware ("Federated Retail
Holding") and transfer from Federated to Federated Retail Holding the capital
stock of each of Federated's operating subsidiaries;
45
<PAGE>
and (iii) incorporate a new corporation under the laws of the State of Delaware
("Federated Services Corporation") and transfer to Federated Services
Corporation substantially all of the remaining assets, rights, and liabilities
of Federated other than (a) the assets, rights, and liabilities associated with
the Federated Merchandising division of Federated (including intangible assets)
and (b) the capital stock of Federated's nonoperating subsidiaries
(collectively, together with the Reorganized Operating Subsidiary Transactions,
the "Operating Subsidiary Transactions").
REAL ESTATE SUBSIDIARY TRANSACTIONS
The Reorganized Debtors will also take such actions as may be necessary or
appropriate to effect a corporate restructuring of their respective real estate
operations and holdings (collectively, the "Real Estate Subsidiary
Transactions"). Without limiting the generality of the foregoing, it is
presently anticipated that the Real Estate Subsidiary Transactions will include:
(i) the organization of New Macy's Real Estate under the laws of the State of
Delaware; (ii) the transfer to New Macy's Real Estate (by merger, consolidation,
or otherwise) of all of the outstanding capital stock of each subsidiary of
Macy's engaged principally in the business of owning or holding real estate
assets (subject to possible exceptions); and (iii) the consolidation of the real
estate assets to be held by New Macy's Real Estate through its subsidiaries by
means of merging, consolidating, or liquidating certain of such subsidiaries or
otherwise, into three new subsidiaries ("New Macy's Primary Real Estate," "New
Macy's Secondary Real Estate," and "New Macy's Warehouse Real Estate"). New
Macy's Primary Real Estate, which will issue the New Prudential Mortgage Notes,
will own all or substantially all of the real estate assets that will secure the
indebtedness represented by the New Prudential Mortgage Notes. See "Securities
to be Issued Pursuant to the Plan--New Prudential Mortgage Notes." New Macy's
Secondary Real Estate will own all or substantially all of the remaining real
estate assets presently owned by Macy's and its subsidiaries, other than the
real estate assets that will be held by New Macy's Warehouse Real Estate and the
operating real estate assets owned or leased by Macy's Specialty and MCO, which
may continue to be owned from and after the Effective Date by New Macy's
Specialty and New MCO, respectively.
As part of the Real Estate Subsidiary Transactions, it is presently
anticipated that each of Reorganized Bullock's, Reorganized Macy's California,
Reorganized Macy's Northeast, and Reorganized Macy's South will transfer to New
Macy's Warehouse Real Estate certain of their respective warehouse real property
in exchange for the assumption by New Macy's Warehouse Real Estate of such
Reorganized Debtors' respective liability for the Claims of GECC under the
Macy's/GECC Loan Agreement. In addition, certain other real estate assets will
be transferred to New Macy's Warehouse Real Estate. Following these transfers,
New Macy's Warehouse Real Estate will issue the New GECC Mortgage Notes and will
grant GECC a first priority mortgage lien on the warehouse properties and other
assets transferred to New Macy's Warehouse Real Estate to secure the
indebtedness represented by the New GECC Mortgage Notes. See "Securities to be
Issued Pursuant to the Plan--New GECC Mortgage Notes."
Following the completion of the foregoing transactions, New Macy's Primary
Real Estate, New Macy's Secondary Real Estate, and New Macy's Warehouse Real
Estate will enter into a series of intercompany leases with New Macy's East, New
Macy's West, New Bullock's, or New I. Magnin, as appropriate, to provide for the
lease or sublease of retail and other facilities.
OTHER RESTRUCTURING TRANSACTIONS
After the Effective Date, the applicable Debtors or Reorganized Debtors will
enter into such transactions or take such other actions as may be necessary or
appropriate to (i) transfer to the Combined Company certain assets associated
with various centralized support functions and (ii) simplify the overall
corporate structure of the Reorganized Debtors (collectively, the "Other
Restructuring Transactions"). It is contemplated that the Other Restructuring
Transactions will include one or more mergers, consolidations, restructurings,
dispositions, liquidations, or dissolutions, as may be determined by the
Combined Company to be necessary or appropriate to result in substantially all
of the respective assets, properties, rights, liabilities, duties, and
obligations of certain Macy's Subsidiaries vesting in one or more surviving,
resulting, or acquiring corporations.
46
<PAGE>
CORPORATE STRUCTURE DIAGRAMS
The following diagrams illustrate the corporate structure of each of Macy's
and Federated before giving effect to the Federated/Macy's Merger, the Operating
Subsidiary Transactions, the Real Estate Subsidiary Transactions, and the Other
Restructuring Transactions (collectively, the "Restructuring Transactions") and
of the Combined Company after giving effect to the Restructuring Transactions.
CURRENT CORPORATE STRUCTURE OF MACY'S*
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MACY'S
CERTAIN
MACY'S MACY'S MACY'S REAL
BULLOCK'S I. MAGNIN CALIFORNIA NORTHEAST SOUTH MCO ESTATE
SUBSIDIARIES
MACY'S
SPECIALTY
STORES
</TABLE>
CURRENT CORPORATE STRUCTURE OF FEDERATED*
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
FEDERATED
ABRAHAM BLOOM- BURDINES JORDAN LAZARUS RICH'S STERN'S THE
& STRAUS INGDALE'S MARSH BON
<CAPTION>
REAL
ESTATE CREDIT
SUBSIDIARIES SUBSIDIARIES
</TABLE>
CORPORATE STRUCTURE OF THE COMBINED COMPANY*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED COMPANY
FEDERATED RETAIL HOLDING
ABRAHAM & BURDINES RICH'S THE BON NEW MACY'S I. MAGNIN MACY'S
STRAUS REAL ESTATE WEST
<CAPTION>
MACY'S
SPECIALTY NEW FSG CREDIT
STORES SUBSIDIARIES
FEDERATED
BLOOMINGDALE'S JORDAN MARSH LAZARUS STERN'S BULLOCK'S MACY'S EAST MCO SERVICES
CORPORATION
EXISTING
FEDERATED
REAL ESTATE
SUBSIDIARIES
NEW MACY'S NEW MACY'S NEW MACY'S
PRIMARY REAL SECONDARY WAREHOUSE
ESTATE REAL ESTATE REAL ESTATE
</TABLE>
- ------------
* Connecting lines represent 100% direct or indirect ownership. Only selected
entities are shown. See Exhibit II for a complete listing of Debtors.
47
<PAGE>
BUSINESS OF THE COMBINED COMPANY
INTRODUCTION
Following the completion of the Restructuring Transactions, the Combined
Company will continue to operate the businesses presently operated by Macy's,
Federated, and their respective subsidiaries. It is contemplated, however, that,
following the consummation of the Federated/Macy's Merger, the Combined Company
will implement a strategic plan intended to create and enhance economies of
scale and synergies in the business operations of Macy's and Federated on a
combined basis. See "--Combined Company Strategic Plan."
It is contemplated that the Combined Company will operate department stores
that sell a wide range of merchandise, including women's, men's, and children's
apparel, cosmetics, and home furnishings through Bullock's, Macy's East, and
Macy's West (which are presently department store operating groups of Macy's),
and Abraham & Straus/Jordan Marsh, Bloomingdale's, The Bon Marche, Burdines,
Lazarus, Rich's/Goldsmith's, and Sterns (which are presently department store
operating divisions of Federated). It is contemplated that, following the
Effective Date, the Combined Company will initially operate more than 330
department stores in 35 states. It is contemplated that the Combined Company
will also operate the upscale specialty store business of I. Magnin, the
specialty store businesses presently operated by Macy's under the names
"Aeropostale" and "Charter Club," and the clearance business presently operated
by Macy's under the name "Macy's Close-Out."
Additional information regarding the businesses presently operated by each
of Macy's and Federated, including those that will be operated by the Combined
Company after the Effective Date, is set forth below.
BUSINESS PRESENTLY OPERATED BY MACY'S
History
The Debtors and their predecessors have been operating department stores
since 1858. Macy's was organized as a Delaware corporation in 1985 to effect the
acquisition of Former Macy's. See "Certain Events Preceding the Debtors' Chapter
11 Filings" and "Operations During the Reorganization Cases" for additional
information regarding certain developments in Macy's businesses prior to and
following the commencement of the Reorganization Cases.
Business and Properties
Macy's is a leading operator of department stores and specialty stores in a
competitive retail market. Macy's department stores sell a wide range of
merchandise, including men's, women's, and children's apparel and accessories,
cosmetics, home furnishings, and other consumer goods. The stores are located at
urban or suburban sites, principally in densely populated areas in the
northeastern, southeastern, western, and southwestern regions of the United
States.
The properties of Macy's consist primarily of stores and related retail
facilities, including warehouses and distribution centers. As of July 30, 1994,
Macy's owned or leased 122 department stores. Macy's largest store is the Herald
Square store, located in New York City. The Herald Square store contains
approximately 2,151,000 square feet of total store space, including Macy's
corporate headquarters and other nonselling areas. Of the approximately
26,895,000 total square feet of store space in Macy's other 121 stores, 59% is
owned by Macy's or its wholly owned subsidiaries (subject in most instances to
mortgages) and 41% is leased by Macy's or its wholly owned subsidiaries from
third parties. (For purposes of this calculation, store space in buildings owned
by Macy's or its subsidiaries on land held under ground leases is considered to
be leased store space.) In the case of such leased store space, 68% is subject
to leasehold mortgages. Macy's also holds a 50% equity interest in the Kings
Plaza Shopping Center and Marina in Brooklyn, New York, in which it operates a
department store. In addition, Macy's operates a number of furniture stores and
clearance centers.
48
<PAGE>
The following table sets forth certain information with respect to Macy's
department store operations, not including Macy's specialty store operations and
closeout centers:
<TABLE>
<CAPTION>
FISCAL GROSS
PRINCIPAL NUMBER OF 1993 SQUARE
GEOGRAPHIC REGION STORES SALES(A) FEET(B)
------------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
(MILLIONS) (THOUSANDS)
Macy's East.................................. Northeast; 59 $ 3,438.0 16,904
Southeast
Macy's West(c)............................... West 51 2,388.0 11,311
I. Magnin.................................... California 12 329.0 1,050
--- ---------- -----------
122 $ 6,155.0 29,265
--- ---------- -----------
--- ---------- -----------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Reflects sales for Macy's fiscal year ended July 31, 1993.
(b) Includes total square footage of store locations, including office, storage, service,
and other support space that is not dedicated to direct merchandise sales, but excludes
warehouses and distribution terminals not located at store sites.
(c) Includes 20 Bullock's stores.
</TABLE>
The operations of Macy's East are conducted primarily through Macy's
Northeast, Macy's South, and their respective real estate subsidiaries. The
operations of Macy's West are conducted primarily through Bullock's, Macy's
California, and their respective real estate subsidiaries. The operations of I.
Magnin are conducted primarily through I. Magnin, Inc. and its real estate
subsidiaries. Macy's specialty stores had annual retail sales during fiscal 1993
of approximately $76.0 million. Macy's specialty store operations are conducted
primarily through its Macy's Specialty subsidiary.
Pursuant to an ongoing review of its operations, as of July 30, 1994, the
Debtors had closed nine Macy's department stores, three Bullock's department
stores, one Bullock's Woman store, 11 I. Magnin stores, three Macy's clearance
centers, three Macy's Close-Out stores, and 48 specialty stores (all 34
Fantasies by Morgan Taylor stores, six Charter Club stores, and eight
Aeropostale stores), which accounted for a total of approximately 4,285,000
square feet of department and specialty store space, since the commencement of
the Reorganization Cases.
As of July 30, 1994, Macy's operated 100 specialty stores under the names
"Aeropostale" and "Charter Club," with a total of approximately 335,000 square
feet of store space located primarily in suburban shopping malls. Additionally,
Macy's operates 16 inventory closeout centers with a total of approximately
704,000 square feet of store space under the name "Macy's Close-Out." The
specialty stores and the closeout centers are all located in unencumbered leased
store space.
Macy's department store and specialty store operations are supported by
Product Development, a division of Macy's with its principal office in New York
City. Product Development employs designers and technical teams to establish
specifications for and ensure quality control with respect to Macy's private
label merchandise businesses. Product Development has offices in 16 foreign
cities and representatives in five other foreign countries. In addition to
Product Development, a specialized corporate staff at Macy's headquarters in New
York City provides services in accounting, finance, strategic planning,
personnel and labor relations, insurance, real estate, store design, engineering
and construction, law, and taxation.
The continued operation of Macy's Credit Card Program was approved by the
Bankruptcy Court in an order entered on May 5, 1992. For a further discussion of
Macy's Credit Card Program, certain of the Debtors' related indebtedness to GECC
and the treatment of certain related Claims under the Plan, see "Certain Events
Preceding the Debtors' Chapter 11 Filings--Prepetition Events--Sale of Credit
Card Program; Macy's/GECC Loan Agreement" and "Securities to be Issued Pursuant
to the Plan--New GECC Mortgage Notes."
49
<PAGE>
Substantially all of Macy's needs for data processing and related
information services are provided to Macy's pursuant to an agreement with FSG.
These services include data processing with respect to merchandising
information, receivables, payables, sales, credit collection, payroll, and other
financial data. FSG also is responsible for the maintenance of computer
hardware, training, staffing, data storage and back-up, business recovery, and
software maintenance (including providing software modifications, upgrades, and
enhancements). The foregoing arrangements were incorporated into an amended and
restated agreement with FSG that provides for a term of 10 years expiring in
2002 (plus an additional three-year winddown period) and for earlier
termination, at Macy's election, after 1997. The Bankruptcy Court approved this
amended and restated agreement with FSG on November 2, 1992.
Capital Expenditures
Macy's capital expenditures for fiscal 1993 were approximately $135.8
million (excluding the effects of construction reimbursements), of which
approximately $53.0 million consisted of expenditures for data processing and
other systems and equipment, and the balance of which consisted primarily of
expenditures for the construction of new stores, renovations of existing stores,
and upgrading of various support facilities.
Employees
As of July 30, 1994, Macy's had approximately 50,000 regular full-time and
part-time employees. Because of the seasonal nature of the retail business, the
number of employees rises to a peak in the Christmas season. As of July 30,
1994, approximately 10% of Macy's employees were represented by unions. Macy's
considers its relations with employees to be satisfactory.
For certain information relating to Macy's retirement benefit plans, see
Note 18 to Macy's consolidated financial statements. See "Index to Historical
Financial Information." For a description of certain Macy's employee and retiree
matters, see "--Restructuring Transactions--The Federated/ Macy's Merger--The
Federated/Macy's Merger Agreement--Certain Macy's Employee and Retiree Matters"
and "--Certain Arrangements with Macy's Employees."
Legal Proceedings
Macy's and its subsidiaries are involved in various other proceedings
incidental to the normal course of their businesses. The Debtors do not expect
that any such other proceedings will have a material adverse effect on the
Combined Company's financial position.
Market for Common Shares
As of July 30, 1994, the Old Common Stock of Macy's, par value $1.00 per
share, was held by approximately 325 persons, consisting primarily of a group of
current and former management employees. See "Certain Events Preceding the
Debtors' Chapter 11 Filings--Prepetition Events-- Leveraged Buyout." All of such
shares are held subject to contractual restrictions on transfer and are held in
a voting trust. There is no established public trading market for the Old Common
Stock of Macy's.
Macy's has three series (each redeemable) of Old Preferred Stock: the Old
Series I Preferred Stock, the Old Series II Preferred Stock, and the Old Series
III Preferred Stock. All holders of Old Preferred Stock are subject to a
stockholders' agreement that includes, among other things, certain transfer
restrictions applicable to such Old Preferred Stock. There is no established
public trading market for the Old Preferred Stock. For a further description of
Macy's outstanding preferred stock, see Note 9 to Macy's consolidated financial
statements. See "Index to Historical Financial Information."
Pursuant to the Plan, all Old Common Stock and Old Preferred Stock of Macy's
would be canceled and the holders thereof would not receive any distribution on
account thereof.
50
<PAGE>
BUSINESS PRESENTLY OPERATED BY FEDERATED
History
Federated and its predecessors have been operating department stores since
1830. Federated was organized as a Delaware corporation in 1929. On February 4,
1992, Allied Stores Corporation ("Allied") was merged with and into Federated.
Both Allied and Federated were among the leading independent retailers in the
United States prior to being acquired by Campeau Corporation ("Campeau") in 1986
and 1988, respectively, in highly leveraged transactions. During the course of
1989, it became apparent that the indebtedness of Allied and Federated could not
be supported by operations in such a competitive retail environment and, on
January 15, 1990, Federated, Allied, and substantially all of their respective
subsidiaries (collectively, the "Federated/Allied Companies") commenced
voluntary cases under chapter 11 of the Bankruptcy Code (the "Federated
Reorganization Cases") to reorganize and restructure their acquisition debt and
other liabilities.
The Federated/Allied Companies emerged from chapter 11 pursuant to a
confirmed plan of reorganization (the "Federated POR") that became effective on
February 4, 1992 (the "Federated POR Effective Date"). Pursuant to the Federated
POR, among other transactions, (i) the liabilities of the Federated/Allied
Companies were reduced by a net amount of approximately $5.0 billion; (ii)
Federated distributed to prepetition creditors or reinstated approximately $3.9
billion in aggregate principal amount of debt securities and other debt,
approximately $398.8 million in cash, and approximately 79.2 million shares of
Federated Common Stock; (iii) Allied was merged with and into Federated; and
(iv) a new board of directors of Federated was elected. As a result of the
Federated POR, Campeau (now known as Camdev Corporation) no longer has any
direct or indirect equity interest in Federated. For additional information
regarding the Federated Reorganization Cases, see "--Legal Proceedings."
Business and Properties
Federated is one of the leading operators of full-line department stores in
a competitive retail market. Federated's stores sell a wide range of
merchandise, including men's, women's, and children's apparel and accessories,
cosmetics, home furnishings, and other consumer goods, and are diversified by
size of store, merchandising character, and character of community served.
Federated's stores are located at urban and suburban sites, principally in
densely populated areas in the eastern, midwestern, northeastern, northwestern,
and southeastern regions of the United States.
Federated's properties consist primarily of stores and related retail
facilities, including warehouses and distribution centers. Federated also owns
or leases other properties, including its corporate headquarters and other
facilities at which centralized operational support functions are conducted. As
of January 29, 1994, Federated operated 219 stores, of which 102 stores were
entirely or primarily owned and 117 stores were entirely or primarily leased.
(For purposes of this calculation, store space in buildings owned by Federated
or its subsidiaries on land held under ground leases is considered to be leased
store space.) Between January 29, 1994 and July 30, 1994, Federated opened four
new stores and closed one existing store. In addition, Lazarus PA, Inc.
("Lazarus PA"), a wholly owned subsidiary of Federated, acquired 10 stores in
connection with its May 26, 1994 acquisition of Joseph Horne Co., Inc., which
stores are now being operated under the Lazarus name.
In connection with various shopping center agreements, Federated is
obligated to operate certain stores within the centers for periods of up to 20
years. Some of these agreements require that the stores be operated under a
particular name. In addition, certain of Federated's store leases include
operating requirements that are enforceable for the entire remaining terms of
such leases, which in some cases exceed 20 years. Substantially all of
Federated's owned and leased real estate is subject to security interests in
favor of certain creditors of Federated.
Federated presently conducts its business through the following seven retail
operating divisions: Abraham & Straus/Jordan Marsh, Bloomingdale's, The Bon
Marche, Burdines, Lazarus, Rich's/
51
<PAGE>
Goldsmith's, and Stern's. The following table sets forth certain information
with respect to Federated's department store operating divisions as of January
29, 1994:
<TABLE>
<CAPTION>
PRINCIPAL FISCAL GROSS
YEAR GEOGRAPHIC NUMBER OF 1993 SQUARE
FOUNDED REGION STORES SALES(A) FEET(B)
------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
(MILLIONS) (THOUSANDS)
Abraham & Straus/Jordan Marsh............ 1851 Northeast 35 $1,395.3 9,327
Bloomingdale's........................... 1872 East 16 1,216.0(c) 4,372
The Bon Marche........................... 1890 Northwest 39 826.9 4,697
Burdines................................. 1898 Florida 43 1,222.7 7,321
Lazarus(d)............................... 1830 Midwest 40 964.9 7,807
Rich's/Goldsmith's....................... 1867 Southeast 25 928.6 4,925
Stern's.................................. 1867 Northeast 21 675.0 3,879
--------- -------- -----------
219 $7,229.4 42,328
--------- -------- -----------
--------- -------- -----------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Reflects sales for Federated's fiscal year ended January 29, 1994.
(b) Includes total square footage of store locations, including office, storage, service,
and other support space that is not dedicated to direct merchandise sales, but excludes
warehouses and distribution terminals not located at store sites.
(c) Includes $98.9 million of sales by Federated's Bloomingdale's By Mail Ltd. subsidiary.
(d) On May 26, 1994, Joseph Horne Co., Inc. was merged with and into Lazarus PA. The data
presented does not reflect the 10 stores (located in Pittsburgh and Erie, Pennsylvania)
acquired by Lazarus PA pursuant to such merger or any sales or store space attributable
thereto.
</TABLE>
Each of Federated's department store operating divisions is a separate
subsidiary of Federated, except that each of the Abraham & Straus/Jordan Marsh
division and the Lazarus division comprises two separate subsidiaries of
Federated.
Federated provides credit, electronic data processing, and other support
functions to its retail operating divisions on an integrated, company-wide
basis. FACS Group, Inc., Federated's financial and credit services subsidiary
("FACS"), which is based near Cincinnati, Ohio, establishes and monitors credit
policies on a company-wide basis and provides proprietary credit services
(including statement processing and mailing, credit authorizations, new account
development and processing, customer service, and collections) to each of
Federated's retail operating divisions. FSG, Federated's data processing
division, which is based near Atlanta, Georgia, provides operational electronic
data processing and management information services to each of Federated's
retail operating divisions. (As described in "--Restructuring
Transactions--Operating Subsidiary Transactions," prior to the Effective Date,
substantially all of the assets, rights, and liabilities associated with the FSG
division of Federated will be transferred to a newly incorporated, wholly owned
subsidiary of Federated.) In addition, a specialized staff at Federated's
corporate offices in Cincinnati provides services for all divisions in such
areas as store design and construction, real estate, legal, accounting,
merchandise, accounts payable, insurance, supply purchasing, and transportation,
as well as various other corporate office functions. FACS, FSG, a specialized
service subsidiary, and certain departments in Federated's corporate offices
also offer their services to unrelated third parties (including Macy's). See
"--Business Presently Operated by Macy's--Business and Properties."
Federated Merchandising, a division of Federated based in New York City,
coordinates the team buying process that enables Federated to develop and
execute consistent company-wide merchandising strategies on a centralized basis
while retaining the ability to tailor merchandise assortments and merchandising
strategies to the particular character and customer base of Federated's various
department store franchises. In addition, Federated Merchandising is responsible
for private label development for all of Federated's retail operating divisions
other than Bloomingdale's, which administers its own private label program.
52
<PAGE>
Capital Expenditures
Federated's capital expenditures for fiscal 1993 were $309.0 million, which
were primarily attributable to the remodeling and expansion of existing stores
and the opening of new stores.
Employees
As of January 29, 1994, Federated had approximately 67,300 regular full-time
and part-time employees. Because of the seasonal nature of the retail business,
the number of employees rises to a peak in the Christmas season. As of January
29, 1994, approximately 11% of Federated's employees were represented by unions.
Federated considers its relations with employees to be satisfactory.
Legal Proceedings
The Federated POR was confirmed by the United States Bankruptcy Court for
the Southern District of Ohio, Western Division (the "Ohio Bankruptcy Court"),
in Consolidated Case No. 1-90-00130, on January 10, 1992 and became effective on
the Federated POR Effective Date. Notwithstanding the confirmation and
effectiveness of the Federated POR, the Ohio Bankruptcy Court continues to have
jurisdiction to, among other things: (i) resolve disputed prepetition claims
against the Federated/Allied Companies; (ii) resolve matters related to the
assumption, assumption and assignment, or rejection of executory contracts and
unexpired leases pursuant to the Federated POR; and (iii) resolve other matters
that may arise in connection with or relate to the Federated POR.
Pursuant to the Federated POR, and based on Federated's estimate as of the
Federated POR Effective Date of the amount of all bankruptcy claims that
ultimately will be allowed by the Ohio Bankruptcy Court, Federated provided for
the payment of all such claims that had not been resolved as of the Federated
POR Effective Date. During 1993, Federated reduced accrued liabilities and
selling, general, and administrative expenses by $24.0 million to reflect
favorable settlements of certain disputed bankruptcy claims. Federated believes
that it has adequately provided for the resolution of all bankruptcy claims and
other matters related to the Federated POR remaining at January 29, 1994.
Federated and its subsidiaries are also involved in various proceedings that
are incidental to the normal course of their business. Federated does not expect
that any of such proceedings will have a material adverse effect on the Combined
Company's financial position.
Market for Common Shares
Shares of Federated Common Stock currently are listed on the NYSE under the
trading symbol "FD." As of July 31, 1994, there were approximately 5,242 holders
of record of Federated Common Stock. On August 30, 1994, the closing price per
share of Federated Common Stock as reported on the NYSE Composite Tape was
$21.00. The following table sets forth for the fiscal quarters since the
Federated POR Effective Date the high and low sales prices per share of
Federated Common Stock as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- -------------------------------------------------------- ------- -------
<S> <C> <C>
1st Quarter 1992
(commencing February 5, 1992)........................... $18.250 $11.250
2nd Quarter 1992........................................ 14.125 11.375
3rd Quarter 1992........................................ 17.250 12.500
4th Quarter 1992........................................ 21.500 16.375
1st Quarter 1993........................................ 22.750 17.375
2nd Quarter 1993........................................ 25.000 19.000
3rd Quarter 1993........................................ 23.500 18.000
4th Quarter 1993........................................ 23.125 19.250
1st Quarter 1994........................................ 25.250 20.750
2nd Quarter 1994........................................ 22.750 19.000
3rd Quarter 1994 (through August 30, 1994).............. 21.000 18.750
</TABLE>
53
<PAGE>
COMBINED COMPANY STRATEGIC PLAN
Federated and Macy's believe that the Combined Company will be able to
compete more effectively in the increasingly competitive retail business than
could either company alone. Federated and Macy's have a number of common and
complementary attributes, including, in general, positive customer and vendor
relationships and similar corporate cultures, that Federated and Macy's believe
will facilitate the combination of the two companies. Federated and Macy's also
believe that the Federated/Macy's Merger will create and enhance economies of
scale and synergies that, in conjunction with the selective utilization of the
best practices and personnel from the companies' two organizations, will result
in a lower overall cost structure and enable the Combined Company to offer
better value to its customers than either Federated or Macy's could offer
separately.
Federated and Macy's have developed a strategic plan for the Combined
Company. The strategic plan includes the following key components:
. Cost Savings. It is contemplated that the Combined Company will consolidate
and centralize various support operations and staff functions. In addition
to the combination of the two companies' central corporate offices providing
services such as design and construction, real estate, insurance, supply
purchasing, and transportation, as well as various corporate functions, the
Combined Company is expected to explore additional ways to increase
efficiency and reduce costs. Areas of emphasis in this regard include
further rationalization and centralization of operations and support
functions and the enhanced application of information technologies. The
Projections were prepared based upon the assumption that these cost savings
will be $71.0 million in fiscal year 1995 and $122.0 million in fiscal year
1996, with adjustments in each year thereafter for inflation. See
"--Projected Financial Information." There necessarily can be no assurance,
however, that cost savings at any particular level will be realized.
. Centralization of Merchandising and Private Label Operations. It is
anticipated that Federated Merchandising, a division of Federated based in
New York City, will provide centralized buying services for all of the
Combined Company's retail operating divisions, and that the Combined Company
will continue to utilize Federated's team buying program, as modified to
incorporate a number of elements of Macy's BPS System. See "Operations During
the Reorganization Cases-- Postpetition Operations and Liquidity--Completion
of Certain Prepetition Initiatives." The team buying program is designed to
realize the benefits of integrated, company-wide merchandise assortments and
strategies while tailoring such assortments and strategies to the character
and customer base of the Combined Company's various department store
franchises. The objective of the team buying approach will be to take maximum
advantage of the talents of the Combined Company's most successful merchants
and to develop specialty store levels of focus and expertise in its various
merchandise categories.
It is also anticipated that Macy's Product Development division will be
integrated with Federated Merchandising, which will then be responsible for the
private label development for all of the Combined Company's operating
divisions. In addition, it is anticipated that the Combined Company's
private label program will increase the usage of private label merchandise
by existing Federated stores in situations where it is complementary to the
team buying strategy for a particular merchandise line.
. Capital Investment. Federated and Macy's believe that capital investment is
critical to the ability of the Combined Company to compete effectively.
Accordingly, management has allocated approximately 68% (or $1.9 billion) of
the Combined Company's $2.8 billion capital budget for 1995 through 1998 to
upgrading and maintaining existing stores. In addition, approximately 11% of
the Combined Company's capital budget for this period is expected to be spent
on technological improvements, and 21% is expected to be spent to open
between five and eight new stores per year during this period.
. Utilization of Technology. Following the Effective Date, FSG will continue to
provide electronic data processing and management information to each of the
Combined Company's retail operating
54
<PAGE>
divisions. Although FSG presently provides these services to both Macy's and
Federated on an independent basis, it is anticipated that FSG will be able to
provide them to the Combined Company on a more cost-effective basis through
the development of common systems, reduced programming expense, and reduced
overhead costs. The data processing and management information services
provided by FSG will provide management with current company-wide information
designed to improve merchandise assortments, improve accuracy in reporting,
lower inventory levels, reduce expenses, and improve customer service and
satisfaction. The centralization of such services will facilitate the ability
of the Combined Company to monitor the effectiveness of its merchandising
strategies on a consolidated basis.
. Inventory Management. Federated has adopted various inventory management
strategies designed to provide customers with a well selected assortment of
the most wanted merchandise, as well as in-stock positions of basic
merchandise such as socks and underwear. In addition, Federated has adopted
inventory aging standards to ensure that the customer is offered a fresh flow
of merchandise. It is anticipated that the Combined Company will utilize
these strategies on a company-wide basis.
. Store-Level Execution of Merchandising and Selling Strategies. Federated's
existing merchandising and selling strategies are intended to enhance the
effective presentation of assortments and to increase the level of attention
to selling and individual customer service. In this regard, Federated has
developed prototype programs designed to develop optimal merchandise display
strategies for specific merchandise categories. These strategies are
established in a limited number of stores to serve, if successful, as models
for implementation on a company-wide basis. It is anticipated that this
concept will be utilized by the Combined Company on a company-wide basis.
. Pay for Performance. It is anticipated that the Combined Company will
continue Federated's practice of linking the compensation of key employees to
the achievement of specific performance levels. In this regard, Federated
intends to review, and to adjust as appropriate in the context of the
expanded scope of the Combined Company's operations, the incentives provided
under Federated's and Macy's existing benefit plans.
The retailing industry is intensely and increasingly competitive and there
necessarily can be no assurances that the strategic plan described above will be
successfully implemented. See "Risk Factors--Business Factors and Competitive
Conditions."
CERTAIN OTHER MATTERS
Seasonality
The retailing industry is seasonal in nature, with a high proportion of
sales and operating income generated in the months of November and December.
Working capital requirements fluctuate during the year, increasing somewhat in
mid-Summer in anticipation of the Fall merchandising season and increasing
substantially prior to the Christmas season, when the Combined Company will need
to carry significantly higher inventory levels.
Competition and Regulation
The retailing industry is and will continue to be intensely competitive. The
Combined Company's stores will face increasing competition not only with other
department stores in the geographic areas in which they operate, but also with
numerous other types of retail outlets, including specialty stores, general
merchandise stores, off-price and discount stores, new and established forms of
home shopping (including mail order catalogs, television, and computer
services), and manufacturer outlets. See "Risk Factors--Business Factors and
Competitive Conditions."
To the knowledge of the Plan Proponents, the requirements of environmental
protection laws and regulations have not had a material effect upon either
Macy's or Federated's operations. In certain cases, compliance with such laws
and regulations may lengthen the lead time of expansion and renovation plans and
could increase construction and operating costs of the Combined Company.
55
<PAGE>
PRO FORMA CAPITALIZATION OF THE COMBINED COMPANY
The following table sets forth the capitalization of each of Federated and
Macy's as of April 30, 1994 and the pro forma consolidated capitalization of the
Combined Company as of that date, giving effect (i) under the caption "Combined
Company Pro Forma," to the effectiveness of the Plan and the consummation of the
transactions contemplated thereby and (ii) under the caption "As Adjusted for
New Bank Facilities," to the initial borrowings under the New Bank Facilities
and the application of the proceeds therefrom and other cash on hand in the
manner described in "Other Indebtedness of the Combined Company--New Bank
Facilities." The pro forma information set forth below is presented for
illustrative purposes only and is not necessarily indicative of what the
Combined Company's actual consolidated capitalization would have been had the
Effective Date occurred and the foregoing transactions been consummated on April
30, 1994, nor does it give effect to (a) any transactions other than the
foregoing transactions and those discussed in the Notes to Unaudited Pro Forma
Financial Information included elsewhere in this Disclosure Statement or (b)
Federated's or Macy's respective results of operations since April 30, 1994.
Accordingly, the pro forma information set forth below does not purport to be
indicative of the Combined Company's consolidated capitalization as of the date
hereof, the Effective Date, or any other future date.
The following table should be read in conjunction with the historical
financial statements of Federated and Macy's, the unaudited pro forma financial
information, the related notes, and the other information contained in this
Disclosure Statement, including the information set forth in "--Discussion and
Analysis of Financial Condition and Results of Operations." See "Index to
Historical Financial Information" for an index to: (i) the historical financial
statements of Federated and Macy's; (ii) selected financial data of Federated
and Macy's; and (iii) Federated's and Macy's managements' discussions and
analyses of the historical financial condition and results of operations of
Federated and Macy's, respectively, contained in this Disclosure Statement.
56
<PAGE>
PRO FORMA CAPITALIZATION
APRIL 30, 1994
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL (A) COMBINED AS ADJUSTED
------------------------- COMPANY FOR NEW
FEDERATED MACY'S PRO FORMA BANK FACILITIES
---------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Short-term debt:
Total short-term debt............... $ 14,995 $ -- $ 400,997(b) $ 347,050(b)
Current portion of long-term debt... 110,852 13,738 124,590 124,590
---------- ----------- ---------- ---------------
Total short-term debt............. 125,847 13,738 525,587 471,640
---------- ----------- ---------- ---------------
Long-term debt:
New Bank Facilities................. -- -- -- 1,700,000
New GECC Mortgage Notes............. -- -- 53,458 --
New Prudential Mortgage Notes....... -- -- 550,926 --
Macy's Pre-LBO Mortgages............ -- -- 33,425 33,425
New Series A Notes.................. -- -- 385,044 --
New Series B Notes.................. -- -- 288,785 500,000
New Series C Notes.................. -- -- 288,785 --
New Tax Notes....................... -- -- 267,779 267,779
Receivables-Backed Certificates..... 979,565 -- 979,565 979,565
Series A Secured Notes.............. 289,209 -- 289,209 --
Convertible Notes................... 293,341 -- 293,341 293,341
FNC Note............................ 340,000 -- 340,000 --
Note monetization facility (c)...... 352,000 -- 352,000 352,000
Mortgage facility................... 345,064 -- 345,064 345,064
Capital leases...................... 52,443 37,155 104,909 104,909
Other............................... 31,611 -- 31,611 31,611
---------- ----------- ---------- ---------------
Total long-term debt.............. 2,683,233 37,155 4,603,901 4,607,694
---------- ----------- ---------- ---------------
Total debt...................... 2,809,080 50,893 5,129,488 5,079,334
---------- ----------- ---------- ---------------
Shareholders' equity (deficit):
Common stock outstanding............ 1,266 1,750 1,795 1,795
Additional paid-in capital.......... 1,975,591 -- 3,167,938 3,167,938
Retained earnings................... 338,479 (2,594,538) 338,479 338,479
Treasury stock...................... (1,643) (1,333) (1,643) (1,643)
---------- ----------- ---------- ---------------
Total shareholders' equity
(deficit)............................. 2,313,693 (2,594,121) 3,506,569 3,506,569
---------- ----------- ---------- ---------------
Total capitalization............ $5,122,773 $(2,543,228) $8,636,057 $ 8,585,903
---------- ----------- ---------- ---------------
---------- ----------- ---------- ---------------
Ratio of total debt to total
capitalization
(excluding note monetization
facility)........................... 51.5% N/A 57.7% 57.4%
---------- ----------- ---------- ---------------
---------- ----------- ---------- ---------------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) The historical amounts shown do not include (i) liabilities of Macy's subject to
settlement under reorganization proceedings as of April 30, 1994 aggregating
approximately $5,755.9 million or (ii) redeemable preferred stock of Macy's having an
aggregate stated liquidation preference of approximately $499.1 million.
(b) See Note 3(a) of Notes to Unaudited Pro Forma Combined Financial Information.
(c) The note monetization facility represents debt of a trust of which Federated is the
beneficiary. The repayment of such debt is nonrecourse to Federated and its assets
(other than its interests in such trust).
</TABLE>
57
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give effect
(i) under the caption "Combined Company Pro Forma," to the effectiveness of the
Plan and the consummation of the transactions contemplated thereby and (ii)
under the caption "As Adjusted for New Bank Facilities," to the initial
borrowings under the New Bank Facilities and the application of the proceeds
therefrom and other cash on hand in the manner described in "Other Indebtedness
of the Combined Company--New Bank Facilities," in each case as if the Effective
Date had occurred, and the foregoing transactions had been consummated, on: (a)
April 30, 1994, in the case of the Unaudited Pro Forma Combined Balance Sheet at
April 30, 1994; (b) January 30, 1994, in the case of the Unaudited Pro Forma
Combined Statement of Operations for the 13 weeks ended April 30, 1994; and (c)
January 31, 1993, in the case of the Unaudited Pro Forma Combined Statement of
Operations for the 52 weeks ended January 29, 1994. The pro forma financial
information is presented for illustrative purposes only and is not necessarily
indicative of what the Combined Company's actual financial position or results
of operations would have been had the Effective Date occurred, and had the
foregoing transactions been consummated, on such dates, nor does it give effect
to (a) any transactions other than the foregoing transactions and those
discussed in the accompanying Notes to Unaudited Pro Forma Financial Information
or (b) Federated's or Macy's results of operations since April 30, 1994.
Accordingly, the pro forma financial information does not purport to be
indicative of the Combined Company's financial position or results of operations
as of the date hereof or for any period ended on the date hereof, as of the
Effective Date or for any period ending on the Effective Date, or as of or for
any other future date or period.
The following unaudited pro forma financial information is based upon the
historical financial statements of Federated and Macy's contained in this
Disclosure Statement and should be read in conjunction with such historical
financial statements, the related notes, and the other information contained in
this Disclosure Statement, including the information set forth in "--Discussion
and Analysis of Financial Condition and Results of Operations." See "Index to
Historical Financial Information" for an index to (i) the historical financial
statements of Federated and Macy's, (ii) selected historical and pro forma
combined financial data of Federated and Macy's, and (iii) Federated's and
Macy's managements' discussions and analyses of the historical financial
condition and results of operations of Federated and Macy's, respectively,
contained in this Disclosure Statement.
Macy's fiscal year historically has ended on the Saturday nearest July 31,
while Federated's fiscal year ends on the Saturday nearest January 31. Following
the Effective Date, the Combined Company's fiscal year will end on the Saturday
nearest January 31. Accordingly, the following unaudited pro forma combined
financial information for the 52 weeks ended January 29, 1994 is based upon
Federated's results of operations for its fiscal year ended January 29, 1994 and
upon Macy's results of operations for the third and fourth quarters of its
fiscal year ended July 31, 1993 and the first and second quarters of its fiscal
year ended July 30, 1994. In addition, certain items derived from Macy's
historical financial statements have been reclassified to conform to the pro
forma combined presentation.
The retail business is seasonal in nature, with a higher proportion of sales
and earnings usually being generated in the months of November and December than
in other periods. Because of this seasonality and other factors, results of
operations for an interim period are not necessarily indicative of results of
operations for an entire fiscal year.
58
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
APRIL 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR NEW BANK
FACILITIES
----------------------
HISTORICAL COMBINED AS ADJUSTED
----------------------- COMPANY FOR NEW
FEDERATED MACY'S PRO FORMA BANK FACILITIES
---------- ----------- PRO FORMA ADJUSTMENTS ----------- ---------------
----------------------
DEBIT CREDIT DEBIT CREDIT
---------- ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash....................... $ 102,907 $ 53,097 $ 366,484(a) $360,775(b) $ 161,713 $ 4,756(A) $ $ 166,469
Restricted cash............ -- 48,507 48,507(b) -- --
Accounts receivable........ 1,781,938 163,866 1,945,804 1,945,804
Merchandise inventories.... 1,267,958 1,270,058 63,023(b) 2,601,039 2,601,039
Supplies and prepaid
expenses.................... 47,374 51,291 98,665 98,665
Deferred income tax
assets...................... 86,278 -- 86,278 86,278
---------- ----------- ----------- ---------------
Total Current Assets.... 3,286,455 1,586,819 4,893,499 4,898,255
---------- ----------- ----------- ---------------
Property and
Equipment--net.............. 2,544,481 2,504,918 5,049,399 5,049,399
Excess of Cost Over Net
Assets Acquired............ -- -- 980,599(b) 980,599 77,010(A) 903,589
Reorganization Value in
Excess of Amounts Allocable
to Identifiable
Assets--net................. 333,029 -- 333,029 333,029
Other Assets................ 1,207,404 110,147 19,518(c) 449,325(b) 847,450 22,100(B) 869,550
40,294(b)
---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------
Total Assets............ $7,371,369 $ 4,201,884 $1,429,624 $ 898,901 $12,103,976 $ 26,856 $ 77,010 $12,053,822
---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt............ $ 125,847 $ 13,738 $ $ 366,484(a) $ 525,587 $ 386,002(C) $ 22,100(B) $ 471,640
19,518(c) 309,955(C)
Accounts payable and
accrued liabilities...... 1,146,702 832,669 63,000(b) 2,112,371 2,112,371
70,000(d)
Income taxes............... 78,280 177 28,000(d) 50,457 50,457
---------- ----------- ----------- -------------
Total Current
Liabilities................. 1,350,829 846,584 2,688,415 2,634,468
---------- ----------- ----------- -------------
Liabilities Subject to
Settlement Under
Reorganization Proceedings.. -- 5,755,878 5,755,878(b) -- --
Long-Term Debt.............. 2,683,233 37,155 1,883,513(b) 4,603,901 72,254(A) 1,700,000(C) 4,607,694
1,623,953(C)
Deferred Income Taxes....... 803,159 18,902 22,200(b) 844,261 844,261
Other Liabilities........... 220,455 137,486 102,889(b) 460,830 460,830
Shareholders' Equity
(Deficit)................... 2,313,693 (2,594,121) 42,000(d) 2,594,121(b) 3,506,569 3,506,569
1,234,876(b)
---------- ----------- ---------- ---------- ----------- --------- --------- -------------
Total Liabilities and
Shareholders' Equity
(Deficit)................... $7,371,369 $ 4,201,884 $5,825,878 $6,356,601 $12,103,976 $2,082,209 $2,032,055 $12,053,822
---------- ----------- ---------- ---------- ----------- ---------- ---------- --------------
---------- ----------- ---------- ---------- ----------- ---------- ---------- --------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
59
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE 13 WEEKS ENDED APRIL 30, 1994
(IN THOUSANDS, EXCEPT FOR RATIO AND PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR NEW BANK
FACILITIES
---------------
HISTORICAL COMBINED AS ADJUSTED
---------------------- COMPANY FOR NEW
FEDERATED MACY'S PRO FORMA PRO FORMA BANK FACILITIES
---------- ---------- ADJUSTMENTS ---------- ---------------
----------------
DEBIT CREDIT DEBIT CREDIT
------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales, including leased
department sales............ $1,653,631 $1,339,327 $27,281(a) $ $2,965,677 $ $ $ 2,965,677
---------- ---------- ---------- ---------------
Cost of sales............... 1,008,136 808,122 1,725(b) 16,710(a) 1,801,273 1,801,273
Selling, general, and
administrative expenses.... 542,088 584,265 6,129(c) 7,707(a) 1,090,672 481(A) 1,090,191
9,261(d)
24,842(f)
---------- ---------- -------- ------------
Operating Income............ 103,407 (53,060) 73,732 74,213
Interest expense............ (56,363) (66,037) 52,630(g) 44(a) (108,949) 36,283(B) 53,248(B) (91,984)
66,037(h)
Interest income............. 11,024 23 11,047 11,047
Unusual items............... -- -- 58,000(i) (58,000) (58,000)
---------- ---------- --------- -----------
Income (Loss) Before
Earthquake Loss,
Reorganization Items and
Income Taxes................ 58,068 (119,074) (82,170) (64,724)
Earthquake loss............. -- (35,000) (35,000) (35,000)
Reorganization items........ -- (6,049) 6,049(j) -- --
---------- ---------- ---------- --------
Income (Loss) Before Income
Taxes....................... 58,068 (160,123) (117,170) (99,724)
Federal, state, and local
income tax (expense)
benefit..................... (25,846) 2,822 65,564(k) 42,540 6,786(C) 35,754
---------- ---------- ---------- ----------
Net Income (Loss)........... $ 32,222 $ (157,301) $ (74,630) $ (63,970)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
OTHER INCOME STATEMENT DATA
Ratio of earnings to fixed
charges..................... 1.80x -- -- --
Deficiency of earnings to
fixed charges.............. -- $ 160,935 $ 118,127 $ 100,681
EBITDA(n)................... $ 163,300 25,967 197,246 197,246
Income (loss) per share of
common stock*.............. .25 (.42) (.36)
Dividends per share of
common stock............... -- -- -- --
</TABLE>
- ------------
* Federated historical per share data is based on the daily average of
126,464,000 shares outstanding during the period presented. Combined Company
per share data is based on an assumed 179,315,000 shares of New Combined
Company Common Stock to be outstanding as of the Effective Date, which number
is based on an assumed Federated Average Market Price (Pools A and B) of
$21.00 per share. See "Overview of the Plan--Summary of Classes and Treatment
of Claims and Interests." Per share data for Macy's is omitted; such data
would not be meaningful because Macy's common stock is closely held and will
be canceled pursuant to the Plan without the payment of any consideration
therefor.
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
60
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED JANUARY 29, 1994
(IN THOUSANDS, EXCEPT FOR RATIO AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS ADJUSTED
HISTORICAL COMBINED ADJUSTMENTS FOR NEW
---------------------- PRO FORMA COMPANY FOR NEW BANK BANK
FEDERATED MACY'S ADJUSTMENTS PRO FORMA FACILITIES FACILITIES
---------- ---------- -------------------- ----------- -------------------- -----------
DEBIT CREDIT DEBIT CREDIT
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales, including leased
department sales........... $7,229,406 $6,216,326 127,873(a) $ $13,317,859 $ $ $13,317,859
---------- ---------- ----------- -----------
Cost of sales............... 4,373,941 3,781,859 6,920(b) 76,844(a) 8,085,876 8,085,876
Selling, general, and
administrative expenses.... 2,323,546 2,411,240 24,515(c) 33,038(a) 4,540,390 1,925(A) 4,538,465
30,605(d)
71,000(e)
84,268(f)
---------- ---------- ----------- -----------
Operating Income............ 531,919 23,227 691,593 693,518
Interest expense............ (213,544) (256,911) 210,518(g) 195(a) (423,867) 145,128(B) 196,513(B) (372,482)
256,911(h)
Interest income............. 49,405 445 49,850 49,850
Unusual items............... -- (29,365) 87,000(i) 29,365(l) (87,000) (87,000)
---------- ---------- ----------- -----------
Income (Loss) Before
Reorganization Items,
Income Taxes, Extraordinary
Item and Cumulative Effect
of an Accounting Change.... 367,780 (262,604) 230,576 283,886
Reorganization items........ -- (212,483) 212,483(j) -- --
---------- ---------- ----------- -----------
Income Before Income Taxes,
Extraordinary Item and
Cumulative Effect of an
Accounting Change........... 367,780 (475,087) 230,576 283,886
Federal, state, and local
income tax (expense)
benefit..................... (170,987) 671 60,266(k) (110,050) 20,554(C) (130,604)
---------- ---------- ----------- -----------
Income (Loss) Before
Extraordinary Item and
Cumulative Effect of an
Accounting Change........... 196,793 (474,416) 120,526 153,282
Extraordinary item.......... (3,545) -- (3,545) (3,545)
Cumulative effect of an
accounting change.......... -- 185,340 185,340(m) -- --
---------- ---------- ----------- -----------
Net Income (Loss)........... $ 193,248 $ (289,076) $ 116,981 $ 149,737
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
OTHER INCOME STATEMENT DATA
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges..................... 2.33x 1.42x 1.57x
Deficiency of earnings to
fixed charges.............. -- $ 476,348 -- --
EBITDA(n)................... $ 761,699 322,264 $ 1,172,131 $ 1,172,131
Income (loss) before
extraordinary item and
cumulative effect of an
accounting change per share
of common stock*........... 1.56 .67 .86
Dividends per share of
common stock................ -- -- -- --
</TABLE>
- ------------
* Federated historical per share data is based on the daily average of
126,293,000 shares outstanding during the period presented. Combined Company
per share data is based on an assumed 179,144,000 shares of New Combined
Company Common Stock to be outstanding as of the Effective Date, which number
is based on an assumed Federated Average Market Price (Pools A and B) of
$21.00 per share. See "Overview of the Plan--Summary of Classes and Treatment
of Claims and Interests." Per share data for Macy's is omitted; such data
would not be meaningful because Macy's common stock is closely held and will
be canceled pursuant to the Plan without the payment of any consideration
therefor.
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
NOTE 1. DESCRIPTION OF PLAN TRANSACTIONS
As set forth in the table below, subject to the transactions described in
Note 2 below, the Federated/Macy's Merger and the settlement pursuant to the
Plan of Macy's liabilities subject to settlement under reorganization
proceedings will be effected through, among other things, the payment of $384.3
million in cash, the issuance, reinstatement, or assumption by the Combined
Company of $1,939.6 million of indebtedness, and the issuance of New Combined
Company Common Stock and New Warrants:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash to be distributed, net of $5,709 to be distributed to
Federated and $2,568 on deposit at banks..................... $ 335,775
Restricted cash to be distributed.............................. 48,507
Debt to be issued, reinstated, or assumed...................... 1,939,584
Equity to be issued, net of $550,926 to be distributed to
Federated and $51,117 to be distributed to Macy's
Financial...................................................... 1,234,876
--------------
Total...................................................... $3,558,742
--------------
--------------
</TABLE>
See "Overview of the Plan--Summary of Classes and Treatment of Claims and
Interests" for a discussion of certain assumptions regarding the values of the
consideration to be issued pursuant to the Plan.
NOTE 2. DESCRIPTION OF NEW BANK FACILITIES TRANSACTIONS
For purposes of the adjustments set forth under the caption "As Adjusted for
New Bank Facilities," if the Effective Date occurred on April 30, 1994, initial
borrowings under the New Bank Facilities would have been $2,032.1 million
(including $386.0 million of incremental borrowings necessary to repay the
short-term borrowings described in Notes 3(a) and (c) below), and the proceeds
thereof would have been applied to the repayment or elimination of indebtedness,
payment of incremental financing fees, and the purchase of the remaining
Prudential Claims as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Repayment of short-term borrowings............................. $ 386,002
Payment of incremental financing fees.......................... 22,100
Elimination of New GECC Mortgage Notes......................... 53,458
Purchase of remaining Prudential Claims........................ 478,672
Elimination of New Series A Notes.............................. 385,044
Elimination of New Series C Notes.............................. 77,570
Repayment of Series A Secured Notes............................ 289,209
Repayment of FNC Note.......................................... 340,000
--------------
Total...................................................... $2,032,055
--------------
--------------
</TABLE>
See "Other Indebtedness of the Combined Company--New Bank Facilities." In
addition, in these circumstances, $211.2 million of New Series C Notes would be
converted into a like principal amount of New Series B Notes pursuant to the
Plan. See "Overview of the Plan--Additional Information Regarding Treatment of
Certain Claims--Adjustments of Amounts of Certain Distributions--Adjustments
Relating to New Bank Facilities."
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION--(CONTINUED)
NOTE 3. UNAUDITED PRO FORMA COMBINED COMPANY BALANCE SHEET ADJUSTMENTS
PRO FORMA ADJUSTMENTS
(a) To record assumed short-term borrowings that would have been required if
the Effective Date had occurred as of April 30, 1994 as a result of actual cash
balances at such date being lower than those that are expected to exist as of
the Effective Date.
(b) To record: (i) the merger of Federated and Macy's, which will be
accounted for under the purchase method of accounting; (ii) the settlement
pursuant to the Plan of Macy's liabilities subject to settlement under
reorganization proceedings; (iii) adjustments to reflect the net assets acquired
at fair value; and (iv) the excess of cost over net assets acquired, all as set
forth below:
<TABLE>
<CAPTION>
DEBIT CREDIT DESCRIPTION
---------- ---------- ---------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash............................. $ $ 360,775 Distributions pursuant to the
Plan, net of $5,709 to be
distributed to Federated and
$2,568 on deposit at banks;
payment of $25,000 in
transaction costs
Restricted cash.................. 48,507 Distributions pursuant to the
Plan
Merchandise inventories.......... 63,023 Net adjustment to fair value of
Macy's inventory(1)
Excess of cost over net assets
acquired......................... 980,599 To record excess of cost over net
assets
Other assets..................... 449,325 Elimination of Federated's
investment in Macy's
40,294 Net adjustment to fair value of
Macy's other assets(2)
Accounts payable and accrued
liabilities...................... 63,000 Accrual of Macy's severance
liabilities
Liabilities subject to settlement
under reorganization
proceedings...................... 5,755,878 Elimination of Macy's liabilities
subject to settlement under
reorganization proceedings
Long-term debt................... 1,883,513 Issuance of long-term debt
pursuant to the Plan
Deferred income taxes............ 22,200 To reflect effect of the Plan and
the Federated/Macy's Merger on
deferred income taxes,
including adjusting Macy's NOLs
to $600,000
Other liabilities................ 102,889 Net adjustment to fair value of
Macy's other liabilities(3)
Shareholders' equity............. 2,594,121 Elimination of Macy's
shareholders' deficit
1,234,876 Issuance of equity pursuant to
the Plan, net of $550,926
distributed to Federated and
$51,117 distributed to Macy's
Financial
---------- ----------
$6,799,500 $6,799,500
---------- ----------
---------- ----------
</TABLE>
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION--(CONTINUED)
- ------------
(1) Reflects the elimination of the Macy's LIFO reserve of $117,563, net of the
elimination of indirect costs capitalized in Macy's inventory of $54,540.
(2) Reflects the elimination of certain Macy's deferred charges and intangible
assets of $61,032, net of an adjustment to the fair value of prepaid pension
expense of $20,738.
(3) Reflects an adjustment to record the fair value of other postretirement
benefits liabilities of $196,354, net of the write-off of deferred lease
allowances of $93,465.
(c) To record financing fees and certain other costs associated with the
establishment of new financing facilities. See "Securities to be Issued Pursuant
to the Plan" and "Other Indebtedness of the Combined Company."
(d) To reflect the accrual of Federated severance and other liabilities, and
the related tax effects, expected to be recorded subsequent to the Confirmation
Date but prior to the Effective Date in connection with the elimination of
certain duplicative facilities and functions.
ADJUSTMENTS FOR NEW BANK FACILITIES
(A) To reflect the reduction in long-term debt of $72.3 million, the
reduction in cash distributed of $4.8 million, and the corresponding reduction
in excess of cost over net assets acquired that results from the purchase of the
remainder of the Prudential Claims at an assumed purchase price of $478.7
million.
(B) To record incremental financing fees and other costs associated with the
establishment of and initial borrowings under the New Bank Facilities.
(C) To reflect the initial borrowings under the New Bank Facilities and the
application of the proceeds thereof to the purchase of the remainder of the
Prudential Claims, incremental cash distributions pursuant to the Plan, and the
prepayment of certain indebtedness. See Note 2 above.
NOTE 4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS FOR
THE 13 WEEKS ENDED APRIL 30, 1994 AND 52 WEEKS ENDED JANUARY 29, 1994
PRO FORMA ADJUSTMENTS
(a) To reverse historical sales, cost of sales, and expenses relating to
certain Federated operations expected to be modified in connection with the
Federated/Macy's Merger.
(b) To adjust Macy's cost of sales to eliminate the effects of the
capitalization of inventory costs which will be expensed subsequent to the
Effective Date.
(c) To record amortization of estimated excess of cost over net assets
acquired over an assumed 40-year period. The Combined Company will be required
to determine the actual amount of excess of cost over net assets acquired as of
the Effective Date. Such determination will be based upon the fair values of
Macy's net assets as of the Effective Date, which could result in the actual
amount of excess of cost over net assets acquired and related amortization being
materially greater or less than the estimated pro forma amounts thereof.
64
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION--(CONTINUED)
(d) To adjust selling, general, and administrative expenses to reflect the
effects of the eliminations, adjustments, and write-offs of the items referred
to in footnotes (2) and (3) to the table set forth in Note 3(b) above, as
follows:
<TABLE>
<CAPTION>
FOR THE
13 WEEKS FOR THE
ENDED 52 WEEKS
APRIL ENDED
30, JANUARY 29,
1994 1994
-------- -----------
<C> <S> <C> <C>
(IN THOUSANDS)
(i) To reverse historical amortization of Macy's $1,858 $ 7,450
deferred charges................................
(ii) To reverse historical amortization of Macy's 7,867 29,642
intangible assets...............................
(iii) To reverse historical amounts related to the 563 (3,033)
amortization components of Macy's pension and
other postretirement benefits expenses..........
(iv) To reverse historical amortization of Macy's (1,027) (3,454)
lease allowances that had been deferred over
the term of the leases in accordance with
Macy's accounting policies....................
-------- -----------
$9,261 $ 30,605
-------- -----------
-------- -----------
</TABLE>
(e) To reflect cost savings expected to be realized during the 52 weeks
subsequent to the Effective Date. See "--Projected Financial Information" for
estimates of cost savings expected to be achieved in future years.
(f) To adjust depreciation of Macy's property and equipment, for which fair
market value is assumed to approximate net book value, to amounts which are
based on the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements on owned property...................... 35 years
Fixtures and equipment........................................... 5 years
</TABLE>
65
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION--(CONTINUED)
(g) To record interest expense on the new debt to be incurred pursuant to
the Plan and assumed short-term borrowings (see Note 3(a) above), the components
of which, together with related interest rate assumptions, are set forth below:
<TABLE>
<CAPTION>
FOR THE
13 WEEKS FOR THE
ENDED 52 WEEKS
APRIL ENDED ASSUMED
30, JANUARY 29, INTEREST
1994 1994 RATE
-------- ----------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Short-term borrowings....................... $ 4,150 $ 16,598 4.30%
New GECC Mortgage Notes..................... 1,303 5,212 9.75%
New Prudential Mortgages Notes.............. 13,773 55,093 10.00%
Macy's Pre-LBO Mortgages.................... 772 3,088 8.00%
New Series A Notes.......................... 9,559 38,235 9.93%
New Series B Notes.......................... 7,602 30,409 10.53%
New Series C Notes.......................... 7,920 31,680 10.97%
New Tax Notes............................... 4,686 18,745 7.00%
Capital leases.............................. 1,490 5,958 9.00%
-------- -----------
Interest expense on new debt and short-term
borrowings.................................. 51,255 205,018
Amortization of financing costs............. 1,375 5,500
-------- -----------
Total interest expense................ $52,630 $ 210,518
-------- -----------
-------- -----------
</TABLE>
See "Other Indebtedness of the Combined Company."
(h) To reverse historical Macy's interest expense.
(i) To reflect nonrecurring expenses expected to be incurred in connection
with the consolidation of Federated's and Macy's operations during the 13 weeks
subsequent to the Effective Date, in the case of Unaudited Pro Forma Combined
Statement of Operations for the 13 Weeks Ended April 30, 1994, and the 52 weeks
subsequent to the Effective Date, in the case of the Unaudited Pro Forma
Combined Statement of Operations for the 52 Weeks Ended January 29, 1994.
(j) To reverse historical reorganization expense of Macy's that will not be
incurred subsequent to the Effective Date.
(k) To adjust income tax expense (benefit) based upon an assumed composite
(federal, state, and local) income tax rate of 40%.
(l) To eliminate the unusual items for expenses incurred by Macy's during
the 52 weeks ended January 29, 1994 for reorganizational realignments ($19.8
million) and business restructuring ($9.6 million) which will not be incurred
subsequent to the Effective Date.
(m) To reverse the effect of the adoption by Macy's on August 1, 1993 of
Financial Accounting Standards Board Statement No. 109 "Accounting for Income
Taxes," which, if the Effective Date had occurred on January 31, 1993, would
have been adopted at the Effective Date.
(n) EBITDA (defined for purposes of this Disclosure Statement as earnings
before interest, taxes, depreciation, amortization, unusual items, and
extraordinary items) reflects the Combined Company's ability to satisfy
principal and interest obligations with respect to its indebtedness and to
provide cash for other purposes. In addition, certain covenants in Federated's
and the Combined Company's credit documents are based on calculations utilizing
EBITDA. EBITDA does not represent and should not be
66
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION--(CONTINUED)
considered as an alternative to net income or cash flow as determined by
generally accepted accounting principles.
ADJUSTMENTS FOR NEW BANK FACILITIES
(A) To reduce selling, general, and administrative expenses to reflect the
reduction in excess of cost over net assets acquired described in Note 3(A)
above.
(B) To adjust interest expense, as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
13 WEEKS 52 WEEKS
ENDED ENDED ASSUMED
APRIL 30, JANUARY 29, INTEREST
1994 1994 RATE
--------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
To reverse interest expense on certain indebtedness reflected
under the caption "Combined Company Pro Forma" in the
Unaudited Pro Forma Combined Balance Sheet:
Short-term borrowings..................................... $ 4,150 $ 16,598 4.30%
New GECC Mortgage Notes................................... 1,303 5,212 9.75%
New Prudential Mortgages Notes............................ 13,773 55,093 10.00%
New Series A Notes........................................ 9,559 38,235 9.93%
New Series B Notes........................................ 7,602 30,409 10.53%
New Series C Notes........................................ 7,920 31,680 10.97%
Series A Secured Notes.................................... 4,390 17,834 5.80%
FNC Note.................................................. 4,551 1,452 5.05%
--------- -----------
Interest expense on debt................................ $ 53,248 $ 196,513
--------- -----------
--------- -----------
To record interest expense on certain indebtedness reflected
under the caption "As Adjusted for New Bank Facilities" in
the Unaudited Pro Forma Combined Balance Sheet:
New Bank Facilities....................................... $ 21,845 $ 87,378 4.30%
New Series B Notes........................................ 13,163 52,650 10.53%
--------- -----------
Interest expense on debt.................................. 35,008 140,028
Amortization of financing costs........................... 1,275 5,100
--------- -----------
Total interest expense on debt.......................... $ 36,283 $ 145,128
--------- -----------
--------- -----------
</TABLE>
(C) To adjust income tax expense (benefit) based upon an assumed composite
(federal, state, and local) income tax rate of 40%.
67
<PAGE>
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As a result of Confirmation and the consummation of the Effective Date
Transactions, the Combined Company will operate the existing businesses of
Macy's and Federated on a combined basis under a new corporate and capital
structure. See "--Restructuring Transactions," "--Business of the Combined
Company," "--Pro Forma Capitalization of the Combined Company," "--Unaudited Pro
Forma Combined Financial Information," and "--Projected Financial Information."
Accordingly, the financial condition and results of operations of the Combined
Company after the Effective Date are not comparable to the historical financial
conditions or results of operations of Macy's and Federated, either individually
or on a combined basis. Macy's and Federated's managements' discussions and
analyses of the historical financial conditions and results of operations of
Macy's and Federated, respectively, are set forth elsewhere in this Disclosure
Statement. See "Index to Historical Financial Information."
The Combined Company will have three principal sources of liquidity during
the period immediately following the Effective Date: (i) cash and cash
equivalents (after giving effect to the distributions contemplated by the Plan);
(ii) certain financing facilities available to the Combined Company; and (iii)
cash generated by operations. See "--Unaudited Pro Forma Combined Financial
Information," "--Projected Financial Information," and "Other Indebtedness of
the Combined Company." The Plan Proponents believe that the Combined Company's
liquidity and capital resources will be sufficient to cover its reasonably
foreseeable working capital, capital expenditure, and debt service requirements.
PROJECTED FINANCIAL INFORMATION
INTRODUCTION
As a condition to confirmation of a plan of reorganization, the Bankruptcy
Code requires, among other things, that the bankruptcy court determine that
confirmation of the plan is not likely to be followed by the liquidation or the
need for further financial reorganization of the debtor. See "Voting and
Confirmation of the Plan--Confirmation" and "--Feasibility." In connection with
the development of the Plan, and for purposes of determining whether the Plan
satisfies this feasibility standard, the Plan Proponents analyzed the ability of
the Reorganized Debtors, including the Combined Company, to meet their
obligations under the Plan with sufficient liquidity and capital resources to
conduct their businesses. In this regard, the Plan Proponents prepared certain
projections of the Combined Company's operating profit, free cash flow, and
certain other items for the four-year period from fiscal year 1995 through 1998
(the "Projection Period"). In addition, the Plan Proponents have from time to
time furnished representatives of the Creditors' Committees and of certain
creditors that have executed confidentiality agreements certain information
regarding the strategies underlying the Combined Company Business Plan, the
assumptions on which the Combined Company Business Plan was based, and the
computations of projected financial results based on the Combined Company
Business Plan (as described below). Accordingly, such projections (the
"Projections") are summarized below.
As a matter of course, neither Macy's nor Federated publishes its business
plans and strategies or makes public projections or forecasts of their
anticipated financial positions or results of operations. Accordingly, the Plan
Proponents do not anticipate that either of Macy's or Federated will, and the
Plan Proponents disclaim any obligation to: (i) furnish updated business plans
or projections to holders of Claims or Interests prior to the Effective Date;
(ii) cause such information to be included in documents required to be filed
with the SEC; or (iii) otherwise make such information public. Similarly, the
Plan Proponents do not anticipate that the Combined Company will, and the Plan
Proponents disclaim any obligation to, furnish updated business plan or
projections to stockholders or debtholders of the Combined Company after the
Effective Date, cause such information to be included in documents required to
be filed with the SEC, or otherwise make such information public.
The Projections should be read in conjunction with the assumptions,
qualifications, and explanations set forth herein, the historical financial
statements of Federated and Macy's, the unaudited
68
<PAGE>
pro forma combined financial information, the related notes, and the other
information contained in this Disclosure Statement, including the information
set forth in "Risk Factors." See "Index to Historical Financial Information" for
an index to (i) the historical financial statements of Federated and Macy's,
(ii) selected historical and pro forma combined financial data of Federated and
Macy's, and (iii) Federated's and Macy's management's discussions and analyses
of the historical financial conditions and results of operations of Federated
and Macy's, respectively, contained in this Disclosure Statement.
Neither the independent auditors for Federated nor for Macy's have examined
or compiled the Projections presented herein and, accordingly, assume no
responsibility for them.
PRINCIPAL ASSUMPTIONS
The Projections are based on and assume the successful implementation of a
business plan based upon Federated's existing business plan and Macy's existing
business plan, as modified by Federated (such business plan being hereafter
referred to as the "Combined Company Business Plan"). Both the Combined Company
Business Plan and the Projections reflect numerous assumptions, including
various assumptions with respect to the anticipated future performance of each
of Macy's and Federated (prior to the Effective Date) and the Combined Company
(after the Effective Date), industry performance, general business and economic
conditions, increasingly intense competition in the retailing industry, complex
tax issues, and other matters, most of which are beyond the control of Macy's,
Federated, and the Combined Company. Therefore, while the Projections are
necessarily presented with numerical specificity, the actual results achieved
during the Projection Period will vary from the projected results. These
variations may be material. Accordingly, no representation can be or is being
made with respect to the accuracy of the Projections or the ability of Macy's,
Federated, or the Combined Company to achieve the projected results. See "Risk
Factors" for a discussion of certain factors that may affect the future
financial performance of Macy's, Federated, and the Combined Company and of
various risks associated with the securities of the Combined Company to be
issued pursuant to the Plan.
While the Plan Proponents believe that the assumptions underlying the
Projections for the Projection Period, when considered on an overall basis, are
reasonable in light of current circumstances, no assurance can be or is being
given that the Projections will be realized. As indicated below, the Combined
Company Business Plan on which the Projections are based assumes, among other
things, material improvements in the results of operations of Macy's during the
52 weeks ended January 28, 1995 as compared to same period in the prior year,
and even greater improvements in the Combined Company's results of operations
during fiscal year 1995 and the remainder of the Projection Period. In deciding
whether to accept or reject the Plan, holders of Claims must make their own
determinations as to the reasonableness of such assumptions and the reliability
of the Projections. See "Risk Factors."
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below.
(i) Effective Date; Plan Terms: Although the Plan Proponents presently
intend to seek to cause the Effective Date to occur in December 1994, there
can be no assurance as to when the Effective Date will actually occur, and
the Projections assume the Confirmation of the Plan in accordance with its
terms and that all transactions contemplated by the Plan to be consummated
by the Effective Date (including the Federated/Macy's Merger) will be so
consummated as of January 28, 1995. The Projections also assume that the
total amount of Allowed Claims in each Class is the estimated amount as set
forth in "Overview of the Plan--Summary of Classes and Treatment of Claims
and Interests." See "Overview of the Plan" for a brief summary of (a) the
principal provisions of the Plan, including the classification and treatment
of Claims and Interests, (b) the principal financial terms of certain
securities to be issued pursuant to the Plan, and (c) the conditions
precedent to Confirmation and the occurrence of the Effective Date.
69
<PAGE>
(ii) General Economic Conditions: The Projections were prepared based on
the assumption that the current economic expansion will continue through
late 1997, when a modest recession will begin and last until late 1998.
During the Projection Period, annual real growth in the U.S. gross domestic
product is assumed to average 1.6%, while annual real growth in consumer
spending is assumed to average 1.6%. In the general merchandise retailing
industry, growth in demand is expected to show a modestly slowing trend
until the aforesaid recession develops, averaging growth of 4.8%. While
inflationary pressures are expected to rise modestly during the Projection
Period, inflation will remain relatively low, averaging 3.5%. Inflationary
cost pressures in the general merchandise retailing industry are assumed to
follow a similar pattern and to average 3.8%.
(iii) Net Sales: Net sales, including leased department store sales,
reflect the effects of the assumed opening of new stores and the closing of
certain existing stores during the Projection Period. Comparable store sales
(i.e., sales at stores that are assumed to be in operation throughout each
of the periods being compared) of the Combined Company during the Projection
Period are assumed to increase at an average annual rate of approximately
3.6%. These assumed increases are based upon the assumptions as to general
economic conditions described above and assumed operating improvements based
on the Combined Company Business Plan. See "--Business of the Combined
Company--Combined Company Strategic Plan" and "Risk Factors--Business
Factors and Competitive Conditions."
(iv) EBITDA: EBITDA (defined for purposes of this Disclosure Statement
as earnings before interest, taxes, depreciation, amortization, unusual
items, and extraordinary items) is projected to increase as a percentage of
net sales of the Combined Company during the Projection Period from 9.9% in
fiscal year 1995 to 11.7% in fiscal year 1998. These assumed increases
during the Projection Period are based on the assumed net sales growth
described above and on the assumption that the Combined Company Business
Plan, which reflects assumptions as to both gross margin improvement and
expense control, will be implemented effectively. See "--Business of the
Combined Company--Combined Company Strategic Plan." Because Macy's sold its
credit operations in 1991 pursuant to the Macy's Credit Card Program, Macy's
EBITDA as a percentage of net sales is estimated to be 2.3 percentage points
below what it would be if they had not sold their credit operations. This
negatively impacts the assumed EBITDA of the Combined Company by 1.1% of net
sales.
(v) Cost of Sales: The Projections assume that the cost of sales as a
percentage of net sales will remain constant during the Projection Period at
60.7% for the Combined Company, reflecting the competitive nature of the
retail industry. See "Risk Factors--Business Factors and Competitive
Conditions."
(vi) SG&A Expense: For the Projection Period, the Combined Company's
selling, general, and administrative expense (including the amortization of
the excess of cost over net assets acquired and excluding unusual items) as
a percentage of net sales is assumed to decrease from 32.8% in fiscal year
1995 to 31.3% in fiscal year 1998. The assumed decrease is based on the
assumption that the Combined Company Business Plan, which reflects assumed
net cost savings from the elimination of duplicative functions and expenses
of $71.0 million in fiscal year 1995 increasing to $122.0 million in fiscal
year 1996, with adjustments in each year thereafter for inflation, will be
implemented effectively. See "--Business of the Combined Company--Combined
Company Strategic Plan."
(vii) Capital Expenditures: Annual cash capital expenditures of the
Combined Company are assumed to average approximately $700.0 million during
the Projection Period. Approximately 68% of these assumed capital
expenditures relates to upgrading and maintaining existing stores,
approximately 21% relates to the opening of new stores (between five and
eight stores in each year in the Projection Period), and approximately 11%
relates to technological improvements.
70
<PAGE>
(viii) Income Taxes: The Projections assume that: (a) the Plan will not
be generally taxable to the Debtors (including the Reorganized Debtors); (b)
the Plan will provide for payments in settlement of the Priority Tax Claims
asserted by the IRS and various state and local taxing authorities (other
than Responsible Person Priority Tax Claims) in installments; and (c) the
Federated/Macy's Merger will constitute a "reorganization" under section 368
of the Internal Revenue Code and will therefore be tax free at the corporate
level. In general, the Projections assume a 40% composite (federal, state,
and local) income tax rate during the Projection Period and reflect state
income taxes before giving full effect to certain expected intercompany
charges. The Projections also assume that current income tax liabilities are
paid in the year in which they arise and do not reflect current deferred
income taxes separately from noncurrent deferred income taxes. The
Projections assume that Federated will have no net operating loss
carryforwards ("NOLs") available to the Combined Company after the
Federated/Macy's Merger. The Projections also assume that the Macy's
affiliated group will have at least $600.0 million in NOLs as of the
Effective Date and that those NOLs will be utilized by the Macy's
Subsidiaries, after the Federated/Macy's Merger, at the rate of $150.0
million per year. See "Risk Factors--Certain Taxation Matters" and "Federal
Income Tax Consequences of Consummation of the Plan-- Federal Income Tax
Consequences to the Debtors and the Combined Company."
(ix) Post-Combination Debt: The Projections assume that the Combined
Company will have an initial capital structure as set forth under the
caption "As Adjusted for New Bank Facilities" in the table in "--Pro Forma
Capitalization of the Combined Company" and that the indebtedness included
therein will have the terms described in "Securities to be Issued Pursuant
to the Plan" and "Other Indebtedness of the Combined Company," as
applicable. The Projections also assume (a) certain fluctuations in interest
rates during the Projection Period, ranging from a London Interbank Offered
Rate ("LIBOR") rate of 5.81% (in fiscal year 1995), to a LIBOR rate of 4.50%
(in fiscal year 1998) and (b) that no equity securities are sold by the
Combined Company during the Projection Period. The principal and interest
payment dates assumed in the Projections for all indebtedness to be
outstanding during the Projection Period are the last day of the Combined
Company's fiscal year for any year in the Projection Period, or monthly,
quarterly, or semiannual dates measured in relation thereto, rather than the
actual payment dates that may be provided.
If the New Bank Facilities are not obtained, the Combined Company would
have an initial long-term debt structure as set forth under the caption
"Combined Company Pro Forma" in the table in "--Pro Forma Capitalization of
the Combined Company." In that event, if the other assumptions underlying
the Projections were unchanged, among other consequences, (1) the Combined
Company's annual interest expense would increase by the following amounts:
1995: $41.4 million; 1996: $39.0 million; 1997: $46.5 million; and 1998:
$62.0 million; (2) general, selling, and administrative expenses would
increase, as a result of the amortization of an increased amount of excess
of cost over net assets acquired, by $1.9 million in each year in the
Projection Period; and (3) net income would decrease by the following
amounts: 1995: $26.8 million; 1996: $25.3 million; 1997: $29.8 million; and
1998: $39.0 million.
(x) Purchase Accounting: The Projections have been prepared in
accordance with the applicable principles of purchase accounting. Under
purchase accounting principles, the Combined Company will record an
intangible asset equal to the excess, if any, of the purchase price paid by
Federated to acquire Macy's over the net fair market value allocated to the
identifiable assets and liabilities of Macy's. The Projections assume that
such amount will be amortized on a straight-line basis over a period of 40
years. The Combined Company will be required to determine the actual amount
of excess of cost over net assets acquired as of the Effective Date. Such
determination will be based upon the fair values of Macy's net assets as of
the Effective Date, which could result in the actual amount of excess of
cost over net assets acquired and related amortization being materially
greater or less than the amounts thereof assumed for purposes of the
Projections.
71
<PAGE>
(xi) Results of Operations During Fiscal Year 1994: The Projections
assume that the results of operations assumed in Federated's existing
business plan and Macy's existing business plan, as modified by Federated,
are achieved during the 52 weeks ending January 28, 1995. These business
plans assume, among other things, material improvements in the results of
operations of Macy's during the 52 weeks ending January 28, 1995 as compared
to the same period in the prior year, and are subject to inherent
uncertainties. In light of such uncertainties and various other factors,
including the intensely competitive and seasonal nature of the retailing
industry, there can be no assurance that the results of operations assumed
by these business plans to be achieved will actually be achieved. See "Risk
Factors."
(xii) Certain Costs, Etc. Associated with Combination: The total
one-time costs, exclusive of the effects of disruption to the business and
capitalized transaction and financing fees, associated with the combination
of Macy's and Federated are estimated at $70.0 million and $87.0 million
during fiscal years 1994 and 1995, respectively. These costs are expected to
be reflected as unusual items in the financial statements for the periods in
which they are incurred.
PROJECTIONS
The projected consolidated financial statements for the Combined Company
have been prepared on the assumption that the Effective Date is January 28,
1995. While the Plan Proponents presently seek to cause the Effective Date to
occur in December 1994, there can be no assurance as to when the Effective Date
will actually occur. As a result of the seasonal nature of Macy's business and
other factors, the consummation of the Plan and the transactions contemplated
thereby on a date other than the assumed Effective Date of January 28, 1995 will
result in variances, some of which could be material, between the actual fair
value of Macy's assets and liabilities (including amounts of inventory,
receivables, and cash) acquired as of the Effective Date and the results of
operations of the Combined Company subsequent to the Effective Date and the fair
values thereof assumed in the Projections.
The Combined Company Projected Balance Sheet as of January 28, 1995 set
forth below presents the projected consolidated financial position of the
Combined Company (as the successor to Macy's and Federated), after giving effect
to the Plan and the transactions contemplated thereby, including the settlement
of various liabilities and related securities issuances, cash payments, and
borrowings. The various effects of the consummation of the Plan and the
transactions contempated thereby are described in greater detail in the Notes to
the Combined Company Projected Balance Sheet as of January 28, 1995. The
Combined Company Projected Balance Sheet as of January 28, 1995 has been
prepared based upon the consolidated balance sheets for Federated and Macy's as
of January 29, 1994, combined and brought forward to January 28, 1995.
The Combined Company Projected Balance Sheets as of the ends of fiscal years
1994-1998 set forth below present the projected consolidated financial position
of the Combined Company after giving effect to the consummation of the Plan and
the transactions contemplated thereby as of the ends of fiscal year 1994 and
each fiscal year in the Projection Period.
The Combined Company Projected Statements of Operations set forth below
present the projected consolidated results of operations of the Combined Company
for each fiscal year in the Projection Period.
The Combined Company Projected Statements of Cash Flows set forth below
present the projected cash flows of the Combined Company for each fiscal year in
the Projection Period.
The Combined Company Projected Capitalization Table set forth below presents
the projected capitalization of the Combined Company on January 28, 1995 and as
of the end of each fiscal year in the Projection Period after giving effect to
the consummation of the Plan and the transactions contemplated thereby.
72
<PAGE>
COMBINED COMPANY
PROJECTED BALANCE SHEET
JANUARY 28, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
PRO FORMA ADJUSTMENTS FOR NEW BANK FACILITIES
-------------------------- COMBINED --------------------------
FEDERATED MACY'S COMPANY
---------- ---------- -----------
DEBIT CREDIT DEBIT CREDIT
---------- ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.. $ 125,141 $ 363,540 $ 84,280(a) $ 394,527(b) $ 178,434 $ $
Accounts
receivable... 1,996,753 29,304 2,026,057
Merchandise
inventories.. 1,290,226 1,027,790 76,023(b) 2,394,039
Supplies and
prepaid
expenses.... 50,113 138,863 188,976
---------- ---------- -----------
Total
Current
Assets......... 3,462,233 1,559,497 4,787,506
---------- ---------- -----------
Property and
Equipment--net... 2,855,550 2,467,376 5,322,926
Excess of Cost
over Net
Assets
Acquired...... 856,764(b) 856,764 77,010(B)
Reorganization
Value in
Excess of
Amounts
Allocable to
Identifiable
Assets--net... 318,906 318,906
Other Assets... 1,207,182 86,285 19,587(c) 11,682(b) 846,803 22,100(C)
454,569(b)
---------- ---------- ---------- ---------- ----------- ---------- ----------
Total Assets... $7,843,871 $4,113,158 $1,036,654 $ 860,778 $12,132,905 $ 22,100 $ 77,010
---------- ---------- ---------- ---------- ----------- ---------- ----------
---------- ---------- ---------- ---------- ----------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current
Liabilities:
Short-term
debt........... $ 412,269 $ 16,120 $ $ 62,216(b) $ 594,472 $ 103,867(A) $ 2,730(A)
84,280(a) 22,100(C)
19,587(c)
Accounts
payable and
accrued
liabilities. 1,276,967 659,587 29,200(b) 1,965,754
Income
taxes........ 91,578 -- 91,578
---------- ---------- -----------
Total
Current
Liabilities.... 1,780,814 675,707 2,651,804
---------- ---------- -----------
Long-Term
Debt........... 2,720,155 39,984 1,814,988(b) 4,576,225 1,598,863(A) 1,700,000(A)
1,098(b) 77,010(B)
Deferred Income
Taxes.......... 683,814 17,000 59,156(b) 759,970
Other
Liabilities.... 226,331 165,552 85,390(b) 477,273
Liabilities
Subject to
Settlement
under
Reorganization
Proceedings... 5,715,902 5,715,902(b) --
Shareholders'
Equity
(Deficit)...... 2,432,757 (2,500,987) 2,500,987(b) 3,667,633
1,234,876(b)
---------- ---------- ---------- ---------- ----------- ---------- ----------
Total
Liabilities
and
Shareholders'
Equity
(Deficit)..... $7,843,871 $4,113,158 $5,715,902 $5,891,778 $12,132,905 $1,779,740 $1,724,830
---------- ---------- ---------- ---------- ----------- ---------- ----------
---------- ---------- ---------- ---------- ----------- ---------- ----------
<CAPTION>
AS ADJUSTED
FOR NEW
BANK FACILITIES
---------------
<S> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.... $ 178,434
Accounts
receivable..... 2,026,057
Merchandise
inventories.... 2,394,039
Supplies and
prepaid
expenses....... 188,976
---------------
Total
Current
Assets......... 4,787,506
---------------
Property and
Equipment--net. 5,322,926
Excess of Cost
over Net
Assets
Acquired...... 779,754
Reorganization
Value in
Excess of
Amounts
Allocable to
Identifiable
Assets--net... 318,906
Other Assets... 868,903
---------------
Total Assets... $12,077,995
---------------
---------------
LIABILITIES
Current
Liabilities:
Short-term
debt.......... $ 515,435
Accounts
payable and
accrued
liabilities. 1,965,754
Income
taxes........ 91,578
---------------
Total
Current
Liabilities.... 2,572,767
---------------
Long-Term
Debt........... 4,600,352
Deferred Income
Taxes.......... 759,970
Other
Liabilities.... 477,273
Liabilities
Subject to
Settlement
under
Reorganization
Proceedings... --
Shareholders'
Equity
(Deficit)...... 3,667,633
---------------
Total
Liabilities
and
Shareholders'
Equity
(Deficit)..... $12,077,995
---------------
---------------
</TABLE>
The Projections should be read only in conjunction with the assumptions,
qualifications, and explanations set forth under "--Projected Financial
Information" and the historical financial information of Federated and Macy's
contained elsewhere in this Disclosure Statement. See "Index to Historical
Financial Information."
73
<PAGE>
NOTES TO COMBINED COMPANY PROJECTED BALANCE SHEET
NOTE 1. DESCRIPTION OF PLAN TRANSACTIONS
As set forth in the table below, subject to the transactions in Note 2
below, the Federated/Macy's Merger and the settlement pursuant to the Plan of
Macy's liabilities subject to settlement under reorganization proceedings will
be effected through, among other things, the payment of $379.5 million in cash,
the issuance, reinstatement, or assumption by the Combined Company of $1,939.6
million of indebtedness, and the issuance of New Combined Company Common Stock
and New Warrants:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash distributed, net of $953 distributed to Federated and
$2,568 on deposit at banks................................... $ 379,527
Debt issued, reinstated, or assumed............................ 1,939,584
Equity issued, net of $550,926 distributed to Federated and
$51,117 distributed to Macy's Financial........................ 1,234,876
--------------
Total........................................................ $3,553,987
--------------
--------------
</TABLE>
See "Overview of the Plan--Summary of Classes and Treatment of Claims and
Interests" for a discussion of certain assumptions regarding the values of the
consideration to be issued pursuant to the Plan.
NOTE 2. DESCRIPTION OF NEW BANK FACILITIES TRANSACTIONS
For purposes of the adjustments set forth under the caption "As Adjusted for
New Bank Facilities," it is assumed that initial borrowings under the New Bank
Facilities aggregating $1,724.8 million are effected on the Effective Date, and
that the proceeds thereof are applied to the repayment or elimination of
indebtedness, payment of incremental financing fees, and the purchase of the
remaining Prudential Claims as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Repayment of short-term borrowings............................. $ 103,867
Payment of incremental financing fees.......................... 22,100
Elimination of New GECC Mortgage Notes......................... 53,458
Purchase of remaining Prudential Claims........................ 473,916
Elimination of New Series A Notes.............................. 385,044
Elimination of New Series C Notes.............................. 77,570
Repayment of Series A Secured Notes............................ 273,631
Repayment of FNC Notes......................................... 335,244
--------------
Total........................................................ $1,724,830
--------------
--------------
</TABLE>
See "Other Indebtedness of the Combined Company-- New Bank Facilities." In
addition, in these circumstances, $211.2 million of New Series C Notes would be
converted into a like principal amount of New Series B Notes pursuant to the
Plan. See "Overview of the Plan--Additional Information Regarding Treatment of
Certain Claims--Adjustments of Amounts of Certain Distributions--Adjustments
Relating to New Bank Facilities."
NOTE 3. UNAUDITED PROJECTED COMBINED COMPANY BALANCE SHEET ADJUSTMENTS
PRO FORMA ADJUSTMENTS
(a) To record assumed short-term borrowings as of the Effective Date.
74
<PAGE>
NOTES TO COMBINED COMPANY PROJECTED BALANCE SHEET--(CONTINUED)
(b) To record (i) the merger of Federated and Macy's, which will be
accounted for under the purchase method of accounting; (ii) the settlement
pursuant to the Plan of Macy's liabilities subject to settlement under
reorganization proceedings; (iii) adjustments to reflect the net assets acquired
at fair value; and (iv) the excess of cost over net assets required, all as set
forth below:
<TABLE>
<CAPTION>
DEBIT CREDIT DESCRIPTION
---------- ---------- ----------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash and cash
equivalents............. $ $ 394,527 Distributions pursuant to the Plan, net
of $953 to be distributed to Federated;
payment of $15,000 of transaction
costs
Merchandise inventories... 76,023 Net adjustment to fair value of Macy's
inventory(1)
Other assets.............. 11,682 Net adjustment to fair value of Macy's
other assets(2)
454,569 Elimination of Federated's investment in
Macy's, including $10,000 of
transaction costs incurred in fiscal
year 1994
Excess of cost over net
assets acquired........... 856,764 To record excess of cost over net assets
acquired
Short-term debt........... 62,216 Issuance of short-term debt
Accounts payable and
accrued liabilities....... 29,200 Accrual of Macy's severance liabilities
Liabilities subject to
settlement under
reorganization
proceedings............... 5,715,902 Elimination of Macy's liabilities
subject to settlement under
reorganization proceedings
Long-term debt............ 1,814,988 Issuance of long-term debt pursuant to
the Plan
1,098 Elimination of Macy's deferred financing
costs
Deferred income taxes..... 59,156 To reflect effect of the Plan and the
Federated/Macy's Merger on deferred
income taxes, including adjusting
Macy's NOLs to $600,000
Other liabilities......... 85,390 Net adjustment to fair value of Macy's
other liabilities (3)
Shareholders' equity
(deficit)................. 2,500,987 Elimination of Macy's shareholders'
deficit
1,234,876 Issuance of equity pursuant to the Plan,
net of $550,926 to be distributed to
Federated and $51,117 to be
distributed to Macy's Financial
---------- ----------
$6,648,689 $6,648,689
---------- ----------
---------- ----------
</TABLE>
- ------------
(1) Reflects the elimination of the Macy's LIFO reserve of $127,563, net of the
elimination of indirect costs capitalized in Macy's inventory of $51,540.
(2) Reflects the elimination of certain Macy's deferred charges and intangible
assets of $44,682, net of an adjustment to the fair value of prepaid pension
expense of $33,000.
75
<PAGE>
NOTES TO COMBINED COMPANY PROJECTED BALANCE SHEET--(CONTINUED)
(3) Reflects an adjustment to record the fair value of other postretirement
benefits liabilities of $188,600, net of the write-off of deferred lease
allowances of $103,210.
(c) To record financing fees and certain other costs associated with the
establishment of new financing facilities. See "Securities to be Issued Pursuant
to the Plan" and "Other Indebtedness of the Combined Company."
ADJUSTMENTS FOR NEW BANK FACILITIES
(A) To reflect initial borrowings under the New Bank Facilities and the
application of the proceeds thereof to the purchase of the remainder of the
Prudential Claims, incremental cash distributions pursuant to the Plan, and the
prepayment of certain indebtedness.
(B) To reflect the reduction in long-term debt, and the corresponding
reduction in excess of cost over net assets acquired, that results from
eliminating $550.9 million in principal amount of New Prudential Mortgage Notes
through the purchase of the remainder of the Prudential Claims at an assumed
purchase price of $473.9 million.
(C) To record incremental financing fees and other costs associated with the
establishment of and initial borrowings under the New Bank Facilities.
76
<PAGE>
COMBINED COMPANY
PROJECTED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE><CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents............ $ 178,434 $ 178,221 $ 178,505 $ 178,547 $ 178,005
Accounts receivable.... 2,026,057 1,990,746 2,120,591 2,274,309 2,400,621
Merchandise
inventories............ 2,394,039 2,454,522 2,561,751 2,714,339 2,775,339
Supplies and prepaid
expenses............... 188,976 196,864 208,004 222,290 231,506
----------- ----------- ----------- ----------- -----------
Total Current
Assets................... 4,787,506 4,820,353 5,068,851 5,389,485 5,585,471
----------- ----------- ----------- ----------- -----------
Property and Equipment--
net...................... 5,322,926 5,551,818 5,732,285 5,870,999 5,974,874
Excess of Cost Over Net
Assets Acquired--net..... 779,754 760,260 740,766 721,272 701,778
Reorganization Value in
Excess of Amounts
Allocable to
Identifiable
Value--net............. 318,906 299,893 280,880 261,867 242,854
Other Assets............. 868,903 838,942 818,732 600,296 387,402
----------- ----------- ----------- ----------- -----------
Total Assets......... $12,077,995 $12,271,266 $12,641,514 $12,843,919 $12,892,379
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
]LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt........ $ 515,435 $ 450,605 $ 1,287,560 $ 473,189 $ 700,000
Accounts payable and
accrued liabilities.... 1,965,754 1,932,252 2,015,879 2,122,615 2,182,948
Income taxes........... 91,578 155,538 294,587 413,460 510,284
----------- ----------- ----------- ----------- -----------
Total Current
Liabilities.............. 2,572,767 2,538,395 3,598,026 3,009,264 3,393,232
----------- ----------- ----------- ----------- -----------
Long-term Debt........... 4,600,352 4,545,036 3,425,199 3,733,280 2,816,344
Deferred Income Taxes.... 759,970 777,657 759,106 692,505 616,924
Other Liabilities........ 477,273 495,931 520,302 543,070 566,091
Shareholders' Equity..... 3,667,633 3,914,247 4,338,881 4,865,800 5,499,788
----------- ----------- ----------- ----------- -----------
Total Liabilities and
Shareholders'
Equity................... $12,077,995 $12,271,266 $12,641,514 $12,843,919 $12,892,379
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The Projections should be read only in conjunction with the assumptions,
qualifications, and explanations set forth under "-- Projected Financial
Information" and the historical financial information of Federated and Macy's
contained elsewhere in this Disclosure Statement. See "Index to Historical
Financial Information."
77
<PAGE>
COMBINED COMPANY
PROJECTED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------
1995 1996 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales, including leased
department sales................... $14,652,209 $15,607,193 $16,683,355 $17,519,617
----------- ----------- ----------- -----------
Cost of sales...................... 8,896,407 9,471,228 10,118,211 10,626,978
Selling, general, and
administrative expenses.......... 4,808,418 4,991,784 5,291,201 5,485,290
----------- ----------- ----------- -----------
Operating income................... 947,384 1,144,181 1,273,943 1,407,349
Interest expense................... (463,984) (449,808) (393,500) (326,668)
Interest income.................... 40,871 40,232 26,072 5,927
Unusual items...................... (87,000) -- -- --
----------- ----------- ----------- -----------
Income before income taxes......... 437,271 734,605 906,515 1,086,608
Federal, state, and local income
tax expense...................... (193,647) (312,916) (382,090) (454,435)
----------- ----------- ----------- -----------
Net income......................... $ 243,624 $ 421,689 $ 524,425 $ 632,173
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Other Data:
EBITDA*.......................... $ 1,453,654 $ 1,701,845 $ 1,881,879 $ 2,056,758
Income per share of common
stock**.......................... $ 1.36*** $ 2.35 $ 2.92 $ 3.52
</TABLE>
- ------------
* EBITDA reflects the Combined Company's ability to satisfy principal and
interest obligations with respect to its indebtedness and to provide cash
for other purposes. In addition, certain covenants in Federated's and the
Combined Company's credit documents are based on calculations utilizing
EBITDA. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations as determined by
generally accepted accounting principles.
** Per share data is based on the following assumed average numbers of shares
of New Combined Company Common Stock outstanding during the periods
indicated: fiscal year 1995: 179,317,000; fiscal year 1996: 179,458,000;
fiscal year 1997: 179,598,000; and fiscal year 1998: 179,636,000.
*** Excluding unusual items, net of income taxes, income per share of common
stock would have been $1.65.
The Projections should be read only in conjunction with the assumptions,
qualifications, and explanations set forth under "--Projected Financial
Information" and the historical financial information of Federated and
Macy's contained elsewhere in this Disclosure Statement. See "Index to
Historical Financial Information."
78
<PAGE>
COMBINED COMPANY
PROJECTED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------
1995 1996 1997 1998
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 243,624 $ 421,689 $ 524,425 $ 632,173
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 464,773 516,212 566,935 609,087
Amortization of excess of cost over net
assets acquired........................ 19,494 19,494 19,494 19,494
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets.................. 19,013 19,013 19,013 19,013
Amortization of financing costs........ 14,831 15,636 16,326 14,625
Amortization of unearned restricted
stock.................................. 2,990 2,945 2,494 1,815
Changes in assets and liabilities...... 51,234 (15,012) (122,185) (82,035)
--------- --------- ----------- -----------
Net cash provided by operating
activities.......................... 815,959 979,977 1,026,502 1,214,172
--------- --------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment....... (704,720) (696,679) (705,649) (712,963)
Disposition of property and equipment.... 11,055 -- -- --
Receipt of principal payment under
monetized note receivable............... -- -- 200,000 200,000
--------- --------- ----------- -----------
Net cash used by investing
activities.......................... (693,665) (696,679) (505,649) (512,963)
--------- --------- ----------- -----------
Cash flows from financing activities:
Debt issued.............................. 209,506 83,300 900,300 82,655
Debt issue cost.......................... (2,360) (131) (14,522) (11,625)
Debt repaid*............................. (329,653) (366,183) (1,406,589) (772,781)
--------- --------- ----------- -----------
Net cash used by financing
activities.......................... (122,507) (283,014) (520,811) (701,751)
--------- --------- ----------- -----------
Net increase (decrease) in cash............ (213) 284 42 (542)
Cash--beginning of period.................. 178,434 178,221 178,505 178,547
--------- --------- ----------- -----------
Cash--end of period........................ $ 178,221 $ 178,505 $ 178,547 $ 178,005
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
- ------------
* Includes scheduled principal payments of $193,453 in fiscal year 1995,
$183,683 in fiscal year 1996, $936,856 in fiscal year 1997, and $394,514 in
fiscal 1998, as well as projected discretionary prepayments. Scheduled
principal payments in both fiscal year 1997 and fiscal year 1998 include
$176,000 under the note monetization facility.
The Projections should be read only in conjunction with the assumptions,
qualifications, and explanations set forth under "--Projected Financial
Information" and the historical financial information of Federated and Macy's
contained elsewhere in this Disclosure Statement. See "Index to Historical
Financial Information."
79
<PAGE>
COMBINED COMPANY
PROJECTED CAPITALIZATION TABLE
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Short-term debt:
New Bank Facilities.......... $ 24,830 $ 122,330 $ 160,649 $ 185,562 $ 24,830
Receivables-backed commercial
paper....................... 299,000 244,800 327,800 55,800 138,300
Current portion of long-term
debt........................ 191,605 83,475 799,111 231,827 536,870
---------- ---------- ---------- ---------- ----------
Total short-term debt.... 515,435 450,605 1,287,560 473,189 700,000
---------- ---------- ---------- ---------- ----------
Long-term debt:
New Bank Facilities.......... 1,700,000 1,562,500 1,332,181 1,074,268 789,000
Macy's Pre-LBO Mortgages..... 33,425 31,577 28,870 26,944 25,300
New Series B Notes........... 500,000 500,000 500,000 500,000 500,000
New Tax Notes................ 208,747 149,713 90,680 54,581 27,291
Receivables-Backed
Certificates................ 979,789 1,180,089 689,889 1,590,500 1,100,000
Convertible Notes............ 306,611 271,398 183,398 102,398 9,398
Note monetization facility... 352,000 352,000 176,000 -- --
Mortgage facility............ 345,064 345,064 311,884 279,622 265,611
Capital leases............... 101,449 90,083 75,972 69,247 64,684
Other........................ 73,267 62,612 36,325 35,720 35,060
---------- ---------- ---------- ---------- ----------
Total long-term debt..... 4,600,352 4,545,036 3,425,199 3,733,280 2,816,344
---------- ---------- ---------- ---------- ----------
Total debt............... 5,115,787 4,995,641 4,712,759 4,206,469 3,516,344
---------- ---------- ---------- ---------- ----------
Shareholders' equity:
Common stock outstanding..... 1,793 1,795 1,796 1,796 1,796
Additional paid-in capital... 3,210,636 3,213,623 3,216,568 3,219,062 3,220,877
Retained earnings............ 455,204 698,828 1,120,517 1,644,942 2,277,115
---------- ---------- ---------- ---------- ----------
Total shareholders'
equity.................. 3,667,633 3,914,247 4,338,881 4,865,800 5,499,788
---------- ---------- ---------- ---------- ----------
Total capitalization..... $8,783,420 $8,909,888 $9,051,640 $9,072,269 $9,016,132
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratio of total debt to total
capitalization (excluding
note monetization facility). 56.5% 54.3% 50.1% 45.3% 39.0%
</TABLE>
The Projections should be read only in conjunction with the assumptions,
qualifications, and explanations set forth under "-- Projected Financial
Information" and the historical financial information of Federated and Macy's
contained elsewhere in this Disclosure Statement. See "Index to Historical
Financial Information."
80
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
The By-Laws of the Combined Company will provide that the business and
affairs of the Combined Company are to be managed under the direction of the
board of directors (the "Board"). The Federated/Macy's Merger Agreement provides
that the directors of the Combined Company immediately after the consummation of
the Federated/Macy's Merger will be the directors of Federated immediately prior
to the consummation of the Federated/Macy's Merger and, in addition, Mr. Ullman
and three other current directors of Macy's to be designated by Macy's prior to
the Effective Time of the Federated/Macy's Merger, subject to approval by the
Board Organization Committee of Federated's board of directors upon the
recommendation of two of the three members of the Interim Operations Committee.
Certain biographical information relating to each of the persons who is
presently expected to serve on the initial Board (other than the three
individuals still to be designated by Macy's in accordance with the
Federated/Macy's Merger Agreement) is set forth below. Each of these individuals
is presently serving as a member of either Federated's or Macy's board of
directors. If any such person becomes unable or unwilling to serve as a member
of the initial Board, the Plan Proponents contemplate that an appropriate
substitute will be sought.
Robert A. Charpie, age 68, has been Chairman of Ampersand Ventures, a
specialty venture capital firm, since 1988. Prior thereto he was Chairman of the
Board of Cabot Corporation from February 1986 until his retirement in September
1988. Mr. Charpie is also a member of the boards of directors of Alliant
Techsystems, Inc., Ashland Coal, Inc., Cabot Corporation, Champion International
Corporation, Ceramic Process Systems Corporation, and Daniel Products Co. Mr.
Charpie has been a director of Federated since 1992 and previously served as a
director of Federated from 1984 to 1989.
Lyle Everingham, age 68, was Chief Executive Officer of The Kroger Co. from
1978 and Chairman of the Board thereof from 1979 until his retirement in 1991.
Mr. Everingham is also a member of the boards of directors of Cincinnati
Milacron, Inc., Capital Holding Corporation, and The Kroger Co. Mr. Everingham
has been a director of Federated since 1992.
Meyer Feldberg, age 52, has been Dean of the Columbia Business School at
Columbia University since 1989. Professor Feldberg is also a member of the
boards of directors of AMSCO International, Inco Homes, PaineWebber Group Funds,
and SCI Television, Inc. Professor Feldberg has been a director of Federated
since 1992.
Earl G. Graves, Sr., age 59, has been President and Chief Executive Officer
of Earl G. Graves, Ltd., a multifaceted communications company, since 1970, and
is the Publisher of "Black Enterprise" magazine. Additionally, since 1990, Mr.
Graves has served as Chairman and Chief Executive Officer of Pepsi-Cola of
Washington, D.C., L.P., a Pepsi-Cola bottling franchise. Mr. Graves is also a
member of the boards of directors of Aetna Life & Casualty Company, Chrysler
Corporation, and Rohm & Haas Company. Mr. Graves has been a director of
Federated since 1994.
George V. Grune, age 65, has been Chairman of the Board of The Reader's
Digest Association, Inc. since August 1, 1994. From 1984 until that date, he was
Chairman of the Board and Chief Executive Officer of The Reader's Digest
Association, Inc. Mr. Grune is also a member of the boards of directors of Avon
Products, Inc., CPC International, Inc., and Chemical Banking Corporation. Mr.
Grune has been a director of Federated since 1992.
G. William Miller, age 69, has been Chairman of the Board of G. William
Miller & Co., Inc., a merchant banking firm, since 1982. In addition, he was
Chairman of the Board and Chief Executive Officer of Federated Stores, Inc.
("FSI"), the former indirect parent of Federated, from January 1990 to February
1992. Mr. Miller is also a member of the boards of directors of DeBartolo Realty
Corporation, Georgetown Industries, Inc., Gulf Canada Resources Limited,
Kleinwort Benson Australian Income Fund, Inc., Ralphs Grocery Company, and
Repligen Corporation. Mr. Miller has
81
<PAGE>
been a director of Federated since 1992 and previously served as a director of
Federated from 1976 to 1978 and from 1981 to 1989.
Joseph Neubauer, age 52, has been Chairman of the Board and Chief Executive
Officer of The ARA Group, Inc. since 1984. He is a member of the boards of
directors of The ARA Group, Inc., Bell of Pennsylvania, a subsidiary of Bell
Atlantic, First Fidelity Bankcorporation, Penn Mutual Life Insurance Company,
and VS Services, Ltd., a Canadian company. Mr. Neubauer has been a director of
Federated since 1992.
Allen Questrom, age 54, has been Chairman of the Board and Chief Executive
Officer of Federated since February 1990; prior thereto he was President and
Chief Executive Officer of the Neiman-Marcus division of the Neiman-Marcus
Group, Inc. from September 1988 to February 1990. Mr. Questrom has been a
director of Federated since 1990 and previously served as a director of
Federated in 1988.
Ronald W. Tysoe, age 41, has been Vice Chairman of the Board and Chief
Financial Officer of Federated since April 1990; prior thereto he was President
and Treasurer of FSI from 1987 to 1992, Chief Financial Officer of FSI from
April 1990 to February 1992, and President of Campeau from April 1989 to January
1990. Mr. Tysoe has been a director of Federated since 1988.
Myron E. Ullman, III, age 46, has been Chairman of the Board of Directors
and Chief Executive Officer of Macy's since May 1993. Prior thereto, he was
Co-Chairman of the Board of Directors and Chief Executive Officer of Macy's from
April 1992 until May 1993; Vice Chairman of the Board of Directors of Macy's
from September 1991 until April 1992 (as well as Chief Operating Officer of
Macy's from February 1992 until April 1992); and Executive Vice President of
Macy's from November 1988 until September 1991. Mr. Ullman has been a director
of Macy's since 1990.
Karl M. von der Heyden, age 58, has been affiliated with The Clipper Group,
a merchant banking firm, since August 1994. Prior to joining The Clipper Group,
he was President and Chief Executive Officer of Metallgesellschaft Corp. from
December 1993 until August 1994. He was previously Co-Chairman and Chief
Executive Officer of RJR Nabisco, Inc. from March to June 1993. He was Executive
Vice President and Chief Financial Officer of RJR Nabisco from 1989 to 1993.
Prior to joining RJR Nabisco, he was Senior Vice President, Chief Financial
Officer, and a Director of H. J. Heinz Co. Mr. von der Heyden has been a
director of Federated since 1992.
Marna C. Whittington, age 47, is a partner with the private investment firm
of Miller, Anderson & Sherrerd, where she has been employed since 1992. Prior
thereto, she was executive vice president of the University of Pennsylvania from
1988. Dr. Whittington is also a member of the boards of directors of IM&D Group,
Ltd., Rohm & Haas Company, and Royal Group, Inc. In addition, she is a member of
the board of trustees of MAS Pooled Trust Fund. Dr. Whittington has been a
director of Federated since 1993.
James M. Zimmerman, age 50, has been President and Chief Operating Officer
of Federated since May 1988. Mr. Zimmerman has been a director of Federated
since 1988.
The Certificate of Incorporation and By-Laws of the Combined Company will
provide that the directors of the Combined Company will be classified into three
classes, with the directors in each class serving for three-year terms and until
their successors are elected, except that the initial terms of the initial
directors of the Combined Company will expire at the 1995, 1996, or 1997 annual
meeting of the stockholders of the Combined Company, depending upon the
particular class in which each such director is placed. Of the persons expected
to be members of the initial Board, the directors in the class with terms
expiring at the 1995 annual meeting of stockholders will be Messrs. Miller,
Neubauer, Questrom, Ullman, and von der Heyden and one of the three additional
Macy's directors to be designated by Macy's, in accordance with the
Federated/Macy's Merger Agreement, as directors of the Combined Company; the
directors in the class with terms expiring at the 1996 annual meeting of
stockholders will be Dr. Whittington and Messrs. Everingham, Feldberg, and Tysoe
and one of the three additional Macy's directors to be designated by Macy's, in
accordance with the Federated/Macy's
82
<PAGE>
Merger Agreement, as directors of the Combined Company; and the directors in the
class with terms expiring at the 1997 annual meeting of stockholders will be
Messrs. Charpie, Graves, Grune, and Zimmerman and one of the three additional
Macy's directors to be designated by Macy's, in accordance with the
Federated/Macy's Merger Agreement, as directors of the Combined Company. The
Federated/Macy's Merger Agreement provides that the Board will nominate Mr.
Ullman and the other former Macy's director whose initial term as a director of
the Combined Company will expire in 1995 to serve for additional three-year
terms expiring at the 1998 annual meeting of stockholders.
BOARD COMMITTEES
The By-Laws will provide that the Board may establish such directorate
committees as it may from time to time determine. It is presently contemplated
that the Board will establish five standing committees as of or promptly after
the consummation of the Federated/Macy's Merger: the Executive and Finance
Committee, the Audit Review Committee, the Compensation Committee, the Board
Organization Committee, and the Public Policy Committee. The By-Laws will
provide that the members of each of the Audit Review Committee, the Compensation
Committee, and the Board Organization Committee will be Non-Employee Directors
(as defined below), and that a majority of the members of the Executive and
Finance Committee and the Public Policy Committee will be Non-Employee
Directors. The By-Laws will define "Non-Employee Director" as a director of the
Combined Company who is not a full-time employee of the Combined Company or any
subsidiary of the Combined Company.
The discussion that follows reflects the expectation that each person
presently serving as a member of one or more directorate committees of Federated
will serve on the corresponding directorate committee or committees of the
Combined Company. Additional assignments to directorate committees of the
Combined Company will be made after all four Macy designees to the Board have
been identified.
Executive and Finance Committee
It is anticipated that the Executive and Finance Committee will include
Messrs. Charpie, Everingham, Grune, Miller, and Questrom, each of whom is
presently serving on Federated's Executive and Finance Committee. This Committee
will have all authority, consistent with the Delaware General Corporation Law,
granted to it by the Board. Accordingly, the Executive and Finance Committee may
exercise all the powers and authority of the Board in the oversight of the
management of the business and affairs of the Combined Company, except that the
Executive and Finance Committee will not have the power to amend the By-Laws or
the Certificate of Incorporation (except, to the extent authorized by a
resolution of the Board, to fix the designations, preferences, and other terms
of any preferred stock of the Combined Company), adopt an agreement of merger
and consolidation, authorize the issuance of stock, declare a dividend, or
recommend to the stockholders of the Combined Company the sale, lease, or
exchange of all or substantially all of the Combined Company's assets, a
dissolution of the Combined Company, or a revocation of a dissolution.
Audit Review Committee
It is anticipated that the Audit Review Committee will include Dr.
Whittington and Messrs. Charpie, Feldberg, Graves, Grune, and von der Heyden,
each of whom is presently serving on Federated's Audit Review Committee. This
Committee will review the professional services provided by the Combined
Company's independent accountants and the independence of such firm from the
management of the Combined Company. This Committee will also review the scope of
the audit by the Combined Company's independent accountants, the annual
financial statements of the Combined Company, the Combined Company's systems of
internal accounting controls, and such other matters with respect to the
accounting, auditing, and financial reporting practices and procedures of the
Combined Company as it may find appropriate or as may be brought to its
attention, and will meet from time to time with members of the Combined
Company's internal audit staff.
83
<PAGE>
Board Organization Committee
It is anticipated that the Board Organization Committee will include Dr.
Whittington and Messrs. Charpie, Everingham, Feldberg, Neubauer, and von der
Heyden, each of whom is presently serving on Federated's Board Organization
Committee. This Committee will consider and recommend criteria for the selection
of nominees for election as directors of the Combined Company and from time to
time may select candidates for director for recommendation to the full Board.
The full Board may also from time to time select such director candidates and in
all events will act in respect of the filling of any vacancies on the Board, the
recommendations of candidates for nomination for election by the stockholders of
the Combined Company, and the composition of all Board committees. The Board
Organization Committee will consider nominees for director recommended by
stockholders of the Combined Company.
Compensation Committee
It is anticipated that the Compensation Committee will include Dr.
Whittington and Messrs. Charpie, Everingham, Grune, and Neubauer, each of whom
is presently serving on Federated's Compensation Committee. This Committee will
review executive salaries, administer the bonus, incentive, and stock option
plans of the Combined Company, and approve the salaries and other benefits of
the executive officers of the Combined Company. In addition, this Committee will
advise and consult with the Combined Company's management regarding pension and
other benefit plans and compensation policies and practices of the Combined
Company.
Public Policy Committee
It is anticipated that the Public Policy Committee will include Messrs.
Everingham, Feldberg, Graves, Grune, Miller, von der Heyden, and Zimmerman, each
of whom is presently serving on Federated's Public Policy Committee. This
Committee will establish, when necessary or appropriate, policies involving the
Combined Company's role as a corporate citizen, review, evaluate, and monitor
the Combined Company's policies, programs, and practices in public policy areas,
maintain an awareness of public affairs developments and trends, and review and
make recommendations to the Board on stockholder proposals relating to social or
public policy matters.
DIRECTOR NOMINATION PROCEDURES
The By-Laws will provide that nominations for election of directors by the
stockholders will be made by the Board as discussed above or by any stockholder
entitled to vote in the election of directors generally. The By-Laws will
require that stockholders intending to nominate candidates for election as
directors deliver written notice thereof to the Secretary of the Combined
Company not later than 60 days in advance of the meeting of stockholders;
provided, however, that if the date of the meeting is not publicly announced by
the Combined Company by inclusion in a report filed with the SEC or furnished to
stockholders, or by mail, press release, or otherwise more than 75 days prior to
the meeting, notice by the stockholder to be timely must be delivered to the
Secretary of the Combined Company not later than the close of business on the
10th day following the day on which such announcement of the date of the meeting
was so communicated. The By-Laws will further require that the notice by the
stockholder set forth certain information concerning such stockholder and the
stockholder's nominees, including their names and addresses, a representation
that the stockholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice, the class and number of shares of the Combined Company's stock
owned or beneficially owned by such stockholder, a description of all
arrangements or understandings between the stockholder and each nominee, such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the nominees of such stockholder, and the
consent of each nominee to serve as a director of the Combined Company if so
elected. The chairman of the meeting will be able to refuse to acknowledge the
nomination of any person not made in compliance with these requirements.
84
<PAGE>
Similar procedures prescribed by the By-Laws will be applicable to stockholders
desiring to bring any other business before an annual meeting of the
stockholders.
DIRECTOR COMPENSATION
Beginning in the year in which the Effective Date occurs, each director of
the Combined Company who is not an employee of the Combined Company or any of
its subsidiaries will be paid an annual base retainer fee of $30,000, plus
meeting fees of $1,250 for attendance at each meeting of the full Board or any
committee of the Board, and for attendance at meetings relating to committee
business. Each such director will also be entitled to receive stock options
under Federated's 1992 Executive Equity Incentive Plan, as Amended (the "Equity
Plan"), which will be assumed by the Combined Company. Directors who are also
full-time employees of the Combined Company will receive no additional
compensation for service as directors.
Under the terms of Federated's retirement plan for nonemployee directors,
retired nonemployee directors of the Combined Company will receive an annual
retainer at a rate in effect as of the date of termination of service as a
director, payable in monthly installments. Full vesting will occur for
nonemployee directors who have reached age 60 while serving on the Board
irrespective of years of service. Vesting will occur for nonemployee directors
whose termination of Board service occurs before reaching age 60 as follows: 50%
vesting after five years of Board service and an additional 10% vesting for each
year of Board service after five years (with service on Federated's board of
directors prior to the Effective Date being the equivalent of service on the
Board for this purpose). Payments under the retirement plan will commence at age
60 and will continue for the lesser of life or years of Board service. There are
no survivor benefits under the terms of the retirement plan.
Pursuant to their contracts with Federated, or pursuant to contracts entered
into with the Combined Company, nonemployee directors of the Combined Company
will be permitted to defer all or a portion of their retainer and meeting fees
either as stock or cash credits. Nonemployee directors will also receive
executive discounts on merchandise purchased.
EXECUTIVE OFFICERS
The Federated/Macy's Merger Agreement provides that the executive officers
of Federated immediately prior to the consummation of the Federated/Macy's
Merger will be the executive officers of the Combined Company immediately after
the consummation of the Federated/Macy's Merger. In addition, the
Federated/Macy's Merger Agreement provides that Mr. Ullman, who currently serves
as the Chairman of the Board of Directors and Chief Executive Officer of Macy's,
will become the Deputy Chairman of the Board of the Combined Company after the
consummation of the Federated/Macy's Merger.
Certain biographical information relating to each of the persons who is
expected to serve as an executive officer of the Combined Company is set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMBINED COMPANY
- ------------------------------------------ ---- ------------------------------------------
<S> <C> <C>
Allen Questrom............................ 54 Chairman of the Board and Chief Executive
Officer; Director
James M. Zimmerman........................ 50 President and Chief Operating Officer;
Director
Myron E. Ullman, III...................... 46 Deputy Chairman of the Board; Director
Ronald W. Tysoe........................... 41 Vice Chairman of the Board and Chief
Financial Officer; Director
Thomas G. Cody............................ 52 Executive Vice President--Legal and Human
Resources
Dennis J. Broderick....................... 45 Senior Vice President, General Counsel and
Secretary
John E. Brown............................. 54 Senior Vice President and Controller
Karen M. Hoguet........................... 37 Senior Vice President--Planning and
Treasurer
</TABLE>
85
<PAGE>
Allen Questrom has been Chairman of the Board and Chief Executive Officer of
Federated since February 1990; prior thereto, he was President and Chief
Executive Officer of the Neiman-Marcus division of the Neiman-Marcus Group, Inc.
from September 1988 to February 1990.
James M. Zimmerman has been President and Chief Operating Officer of
Federated since May 1988.
Myron E. Ullman, III has been Chairman of the Board of Directors and Chief
Executive Officer of Macy's since May 1993. Prior thereto, he was Co-Chairman of
the Board of Directors and Chief Executive Officer of Macy's from April 1992
until May 1993; Vice Chairman of the Board of Directors of Macy's from September
1991 until April 1992 (as well as Chief Operating Officer of Macy's from
February 1992 until April 1992); and Executive Vice President of Macy's from
November 1988 until September 1991.
Ronald W. Tysoe has been Vice Chairman and Chief Financial Officer of
Federated since April 1990; prior thereto, he was President and Treasurer of FSI
from 1987 to 1992, Chief Financial Officer of FSI from April 1990 to February
1992, and President of Campeau from April 1989 to January 1990.
Thomas G. Cody has been Executive Vice President--Legal and Human Resources
of Federated since May 1988.
Dennis J. Broderick has been Secretary of Federated since July 1993 and
Senior Vice President and General Counsel of Federated since January 1990; prior
thereto, he served as Vice President and General Counsel of Allied and General
Counsel of Federated since May 1988 and Vice President of Federated since
February 1988.
John E. Brown has been Senior Vice President of Federated since September
1988 and Controller of Federated since January 1992.
Karen M. Hoguet has been Senior Vice President--Planning of Federated since
April 1991 and Treasurer of Federated since January 1992; prior thereto, she
served as Vice President of Federated and Allied since December 1988.
EXECUTIVE COMPENSATION
The compensation discussion that follows has been prepared based on the
compensation paid and benefits provided by Federated and its subsidiaries on a
combined basis during the fiscal year ended January 29, 1994 to the executive
officers of Federated, each of whom is expected to be an executive officer of
the Combined Company following the Effective Date. The existing employment,
compensation, and benefit arrangements to which Federated's executive officers
are parties or in which Federated's executive officers participate will be
assumed and maintained by the Combined Company following the Effective Date,
subject to termination or modification in accordance with their respective terms
or as otherwise permitted under applicable law. In addition, certain employment,
compensation, and benefit arrangements to which the Combined Company and Mr.
Ullman are anticipated to be parties are described below in "--Certain
Arrangements with New Deputy Chairman."
Three-Year Compensation Summary
The following table summarizes the compensation of the five most highly
compensated executive officers of Federated (the "Named Executives") for
Federated's last three fiscal years for services rendered in all capacities for
Federated and its subsidiaries.
86
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND -------------------------------------------- STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL OTHER ANNUAL AWARDS OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY BONUS COMPENSATION(1) ($)(2) SARS(#) (3) ($)(1)(4)
- ----------------- ---- --------- ------- --------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Questrom...... 1993 1,200,000 0 191,354(5) 0 0 800,000 2,631
Chairman & CEO 1992 1,200,000 0 191,162 0 0 800,000 2,410
1991 1,200,000 0 0 0 800,000
J. Zimmerman..... 1993 1,000,000 232,800 42,129(6) 0 100,000 0 2,631
President & COO 1992 1,000,000 310,400 1,960,224 1,012,500 70,000 0 2,410
1991 1,000,000 300,000 0 0 0
R. Tysoe......... 1993 650,000 185,700 50,910(8) 0 72,000 0 2,631
Vice Chairman & 1992 650,000(7) 247,600 609,683 843,750 60,000 0 2,410
CFO 1991 650,000(7) 195,000 0 0 0
T. Cody.......... 1993 518,750 185,700 67,960(9) 0 25,000 0 2,631
Executive Vice 1992 500,000 247,600 68,297 675,000 50,000 0 2,410
President 1991 500,000 150,000 0 0 0
D. Broderick..... 1993 257,500 88,500 20,210(10) 0 5,000 0 2,631
Senior Vice 1992 250,000 83,300 15,641 202,500 10,000 0 2,410
President, 1991 250,000 75,000 0 0 0
General Counsel
& Secretary
</TABLE>
- ------------
(1) Consistent with transition provisions published by the SEC, information
regarding "Other Annual Compensation" and "All Other Compensation" is not
presented for years prior to the fiscal year ended January 30, 1993.
(2) At January 29, 1994, the aggregate number of shares of restricted stock of
Federated issued pursuant to the Equity Plan ("Restricted Stock") held by
each of the Named Executives and the aggregate value thereof (based on the
closing market price of Federated Common Stock on January 28, 1994) were as
follows: Mr. Questrom: 0 shares, $0; Mr. Zimmerman: 48,000 shares,
$1,008,000; Mr. Tysoe: 40,000 shares, $840,000; Mr. Cody: 32,000 shares,
$672,000; and Mr. Broderick: 9,600 shares, $201,600. Shares of Restricted
Stock reflected in the table were awarded on February 7, 1992. The risk of
forfeiture as to the number of shares originally held lapsed as to 20% of
such shares as of the first two anniversaries of the award, lapse as to 15%
of such shares as of each of the next two anniversaries of the award, and
lapse as to 30% of such shares as of the fifth anniversary of the award.
Holders of Restricted Stock are entitled to receive such dividends, if any,
as may be declared on the Federated Common Stock on the same basis as other
holders of Federated Common Stock. In connection with the Federated/Macy's
Merger, each share of Restricted Stock will be converted into a share of
New Combined Company Common Stock subject to the restrictions to which such
Share of Restricted Stock was subject immediately prior thereto.
(3) Consists of value-added payments to Mr. Questrom under his employment
agreement, which will be assumed by the Combined Company. The employment
agreement with Mr. Questrom provides for him to serve as Chairman of the
Board and Chief Executive Officer of Federated for a term beginning on
February 2, 1990 and expiring on February 2, 1995. The agreement also
provides that Mr. Questrom will be entitled to receive a value-added
payment upon completion of the five-year contract period based on
appreciation in the aggregate market value of Federated Common Stock and
common stock of Allied (which was merged into Federated pursuant to the
Federated POR) during such contract period (adjusted to reflect the
restructuring of the debt of Federated and Allied and their respective
subsidiaries pursuant to the Federated POR and the sale of equity). The
value-added payment will equal the amount determined by the following
formula: 0.75% of the first $500.0 million of equity appreciation, 1.5% of
all equity appreciation between $500.0 million and $1.0 billion, and 2.0%
of any equity appreciation in excess of $1.0 billion (less amounts
previously paid as described below). An initial, nonrefundable value-added
payment of $2.0 million was made upon commencement of such contract period
and subsequent nonrefundable value-added payments of $800,000 were made on
each of January 31, 1991, 1992, 1993, and 1994 and will be made on January
31, 1995. These payments will be credited against the contractual
obligation to make any other payments under the formula described above.
See "--Employment Agreement with Chief Executive Officer" for further
information regarding Mr. Questrom's incentive arrangements.
(4) Consists of contributions under the thrift incentive portion of Federated's
Retirement Income and Thrift Incentive Plan ("RITI"), which will be assumed
by the Combined Company.
(5) For 1993, the amount shown includes $168,301 for executive discount on
merchandise purchases.
(6) For 1993, the amount shown includes $19,321 for executive discount on
merchandise purchases.
(7) In addition to the salary amounts shown, Mr. Tysoe was paid $176,346 in
1992 and $350,000 in 1991 by FSI.
(8) For 1993, the amount shown includes $22,963 for executive discount on
merchandise purchases and $16,116 for use of car.
(9) For 1993, the amount shown includes $42,168 for executive discount on
merchandise purchases.
(10) For 1993, the amount shown includes $9,300 for use of car and $6,487 for
executive discount on merchandise purchases.
87
<PAGE>
Fiscal 1993 Stock Option Grants
The following table sets forth certain information regarding grants of stock
options made during fiscal 1993 to the Named Executives pursuant to the Equity
Plan. No grants of stock appreciation rights were made during fiscal 1993 to any
of the Named Executives. Pursuant to the Equity Plan, stock options granted
prior to the consummation of the Federated/Macy's Merger will be adjusted so as
to entitle the holder thereof to purchase upon the exercise thereof one share of
New Combined Company Common Stock for each share of Federated Common Stock that
would have been purchasable upon such exercise absent such adjustment.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS MARKET AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO PRICE ON STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE GRANT OPTION
OPTIONS IN FISCAL PRICE DATE EXPIRATION ----------------------------
NAME GRANTED(#) YEAR(1) $/SH. $/SH.(2) DATE 0%($) 5%($) 10%($)
- -------------------------- ---------- ---------- --------- -------- ---------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Questrom............... 0 0.0% N/A N/A N/A 0 0 0
J. Zimmerman.............. 35,000(3) 2.4% 20.875(4) 23.000 06/28/03 74,375 580,635 1,357,338
65,000(5) 4.5% 19.375 19.375 10/29/03 0 792,014 2,007,119
R. Tysoe.................. 30,000(3) 2.1% 20.875(4) 23.000 06/28/03 63,750 497,687 1,163,432
42,000(5) 2.9% 19.375 19.375 10/29/03 0 511,763 1,296,908
T. Cody................... 25,000(3) 1.7% 20.875(4) 23.000 06/28/03 53,125 414,739 969,527
D. Broderick.............. 5,000(3) 0.3% 20.875 20.875 03/19/03 0 65,641 166,347
</TABLE>
- ------------
(1) Total options granted excludes options rescinded on October 29, 1993, which
are discussed below.
(2) The "market price" shown is the closing price for shares of Federated Common
Stock on the NYSE on the business day immediately preceding the grant date.
(3) One-half of the options vested and became exercisable on March 19, 1994, and
the remainder will vest and become exercisable on March 19, 1995.
(4) Represents the average daily closing price for shares of Federated Common
Stock on the NYSE from the beginning of fiscal 1993 through June 28, 1993
(the date of the award). Additional information regarding the circumstances
under which these options were granted is set forth below.
(5) One-third of the options will vest and become exercisable on October 29,
1996, one-third will vest and become exercisable on October 29, 1997, and
the remainder will vest and become exercisable on October 29, 1998.
Additional information regarding the circumstances under which these options
were granted is set forth below.
At its March 19, 1993 meeting, Federated's Compensation Committee deferred
action on equity awards to Messrs. Zimmerman, Tysoe, and Cody to a later meeting
of the Committee, at which time it would have received additional information
from its executive compensation consultants, KPMG Peat Marwick LLP.
At its June 28, 1993 meeting, following a review of a report prepared by
KPMG Peat Marwick LLP, Federated's Compensation Committee recommended regular
stock option awards for each of Messrs. Zimmerman, Tysoe, and Cody. Mr.
Zimmerman received a regular award for 35,000 shares, Mr. Tysoe received a
regular award for 30,000 shares, and Mr. Cody received a regular award for
25,000 shares. Each of these awards vested or will vest 50% in March 1994 and
50% in March 1995 (the dates at which these awards would have vested had the
awards been made in March 1993). The exercise price for these options is equal
to 100% of the average daily closing price for Federated Common Stock on the
NYSE from the beginning of fiscal 1993 to the date of the grant, which price was
$20.875.
At its June 28, 1993 meeting, Federated's Compensation Committee also
recommended special stock option awards of 65,000 shares and 42,000 shares for
Mr. Zimmerman and Mr. Tysoe, respectively, in view of their outstanding
performance. Federated's Compensation Committee had intended that these options
would vest one-third on June 28, 1996, one-third on June 28, 1997, and one-
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<PAGE>
third on June 28, 1998, with the exercise price being the closing price of
$23.00 on June 25, 1993, and that such awards would be presented to Federated's
board of directors for approval. As a result of a misunderstanding by Federated
of the action taken by Federated's Compensation Committee, however, Federated
believed that the Committee had granted the special awards at the same exercise
price and with the same vesting date as the regular awards to Messrs. Zimmerman
and Tysoe, and treated such special awards as having been so granted. At its
regular meeting on October 29, 1993, Federated's Compensation Committee
rescinded the recommended special stock option awards of June 28, 1993, which
had not been presented to Federated's board of directors for approval, and
recommended in lieu thereof special stock option awards for 65,000 shares and
42,000 shares for Mr. Zimmerman and Mr. Tysoe, respectively, which awards were
approved by Federated's board of directors at its meeting on October 29, 1993.
The exercise price of these options is equal to the closing price for shares of
Federated Common Stock on the NYSE on October 23, 1993, which was $19.375.
Federated's Compensation Committee concluded that the rescission and grant of
new options was equitable given the confusion that had occurred and the delay
that had ensued. Although the actions relating to these special option awards
technically resulted in a "repricing" within the meaning of Item 402 of SEC
Regulation S-K, it was not the desire of Federated's Compensation Committee to
grant these executives options at a lower price, but rather to correct the error
that had been made and have Federated's board of directors approve the special
awards made to these executives.
Fiscal Year-End Option Values
The following table sets forth certain information regarding the total
number of stock options held by each of the Named Executives and the aggregate
value of such options as of January 29, 1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END($)
NAME EXERCISE(#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---------------------------- ----------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
A. Questrom................. 0 0 0 0
J. Zimmerman................ 0 0 35,000/135,000 144,375/254,375
R. Tysoe.................... 0 0 30,000/102,000 123,750/195,750
T. Cody..................... 0 0 25,000/50,000 103,125/106,250
D. Broderick................ 0 0 5,000/10,000 20,625/21,250
</TABLE>
- ------------
(1) In-the-money options are options having a per share exercise price below the
closing price of shares of Federated Common Stock on the NYSE on January 28,
1994. The dollar amounts shown represent the amount by which the product of
such closing price and the number of shares purchasable upon the exercise of
such in-the-money options exceeds the aggregate exercise price payable upon
such exercise.
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<PAGE>
Fiscal 1993 Long-Term Incentive Plan Awards
The following table sets forth certain information with respect to award
opportunities of the Named Executives under Federated's long-term cash incentive
program for the 1993-1995 measurement period. The cash payment under this
program, which will be assumed by the Combined Company, is scheduled to occur in
1996.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
OR OTHER NON-STOCK-PRICE-BASED PLANS(1)
PERIOD UNTIL -------------------------------
MATURATION OR THRESHOLD TARGET MAXIMUM
NAME PAYOUT ($) ($) ($)
- -------------------------------------------------- ------------- --------- ------- -------
<S> <C> <C> <C> <C>
A. Questrom(2).................................... N/A N/A N/A N/A
J. Zimmerman...................................... 1995 77,600 194,000 310,400
R. Tysoe.......................................... 1995 61,900 154,750 247,600
T. Cody........................................... 1995 61,900 154,750 247,600
D. Broderick...................................... 1995 28,000 70,000 112,000
</TABLE>
- ------------
(1) Award opportunities for the 1993-1995 measurement period are based upon
Federated's performance against a cumulative EBIT (earnings before interest
and taxes) target and an EBIT rate target, which together account for 60% of
the incentive opportunity, as well as Federated's performance compared to a
designated group of peer companies, which comprises the remaining 40% of the
incentive opportunity. It is anticipated that Federated's Compensation
Committee will determine the adjustments to the existing performance goals,
if any, that are necessary to recognize the Federated/Macy's Merger.
(2) See "--Employment Agreement with Chief Executive Officer" for further
information regarding Mr. Questrom's incentive arrangements.
Employment Agreement with Chief Executive Officer
Mr. Questrom became the Chairman of the Board and Chief Executive Officer of
Federated and Allied in February 1990 following the initiation of the Federated
Reorganization Cases in January 1990. His compensation arrangements for the
period from February 2, 1990 to February 2, 1995 are set forth in an employment
agreement (the "1990 Employment Agreement") that was approved, effective
February 2, 1990, by the Ohio Bankruptcy Court. Federated has entered into a new
employment agreement with Mr. Questrom (the "1995 Employment Agreement") that
sets forth the terms of Mr. Questrom's employment by Federated from February 2,
1995 to February 2, 1998.
In general, the 1990 Employment Agreement, which will be assumed by the
Combined Company, provides for Mr. Questrom to serve as Chairman of the Board
and Chief Executive Officer for a term beginning February 2, 1990 and expiring
on February 2, 1995 (the "Contract Period"). The 1990 Employment Agreement
provides for annual base compensation of $1.2 million. The 1990 Employment
Agreement also provides that Mr. Questrom will be entitled to receive a
value-added payment upon completion of the Contract Period based on appreciation
in the aggregate market value of the Federated Common Stock and the common stock
of Allied during the Contract Period (adjusted to reflect the restructuring of
the debt of Federated and Allied and their respective subsidiaries pursuant to
the Federated POR and the sale of equity) over a base value to be determined by
a third-party investment banking firm in accordance with the terms of the
agreement. The value-added payment will equal the amount determined by the
following formula: 0.75% of the first $500.0 million of equity appreciation,
1.5% of all equity appreciation between $500.0 million and $1.0 billion, and
2.0% of any equity appreciation in excess of $1.0 billion (less amounts
previously paid as described below). An initial nonrefundable value-added
payment of $2.0 million was made upon commencement of the Contract Period, and
subsequent nonrefundable value-added payments of $800,000 were made on each of
January 31, 1991, 1992, 1993, and 1994, with a final value-added payment of
$800,000 to be made January 31, 1995.
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<PAGE>
It is not possible to determine at this time the aggregate amount of
value-added payments to which Mr. Questrom may ultimately become entitled
pursuant to the 1990 Employment Agreement. However, during 1993, J.P. Morgan
Securities Inc., an investment banking firm, determined that the base value for
purposes of the 1990 Employment Agreement was $1,627.4 million, subject to
adjustment for changes in equity. Based upon this determination, and if, as
provided in the 1990 Employment Agreement, the investment banking firm selected
by Federated's board of directors to determine the increase in the aggregate
value of Federated Common Stock during the Contract Period determines that the
public trading price of Federated Common Stock as of the final valuation date
(January 28, 1995) accurately reflects the market value of Federated without
minority discount, the aggregate value-added payments (inclusive in each case of
the $6.0 million of nonrefundable payments described above) would be as follows
(assuming an aggregate of 126.5 million shares of Federated Common Stock are
outstanding at January 28, 1995): assuming final aggregate market values of
approximately $21.00 per share ($2.656 billion), $24.00 per share ($3.036
billion), and $27.00 per share ($3.415 billion), aggregate value-added payments
to Mr. Questrom would be $11.8 million, $19.4 million, and $27.0 million,
respectively. Should the final aggregate market value fall below $18.00 per
share ($2.277 billion), the aggregate value-added payments would not exceed the
$6.0 million of nonrefundable payments described above. If it is not determined
that the public trading price of the Federated Common Stock accurately reflects
the value of Federated, then Federated's board of directors will select an
investment banking firm to determine such value based on the market value of
similar businesses taking into account net income, cash flow, capital structure,
and such other factors as such investment banking firm deems relevant in
establishing such value.
In light of the provisions of the 1990 Employment Agreement, which preceded
the creation of Federated's Compensation Committee, Mr. Questrom does not
presently participate in any other cash or stock-related compensation programs
of Federated.
In general, the 1995 Employment Agreement provides for Mr. Questrom to serve
as Chairman of the Board and Chief Executive Officer for a term beginning
February 2, 1995 and expiring on February 2, 1998. The 1995 Employment Agreement
provides for annual base compensation of $1.25 million. The 1995 Employment
Agreement also provides that Mr. Questrom will be entitled to participate in
Federated's 1992 Incentive Bonus Plan.
Under Federated's 1992 Incentive Bonus Plan, Mr. Questrom will be paid
annually a bonus calculated as a sliding percentage of his salary based upon the
performance of Federated (or, after the completion of the Federated/Macy's
Merger, the Combined Company) against certain performance goals established in
each year by the Compensation Committee. In addition, under Federated's 1992
Incentive Bonus Plan, Mr. Questrom will be paid at the end of each three-year
performance period a bonus calculated as a sliding percentage of his salary
based upon the performance of Federated (or, after the completion of the
Federated/Macy's Merger, the Combined Company) against certain performance goals
established by the Compensation Committee for such three-year performance period
(subject to acceleration and prorationing in the event of the earlier
termination of Mr. Questrom's employment).
The 1995 Employment Agreement also provides for the grant to Mr. Questrom of
an option to purchase 450,000 shares of Federated Common Stock (or, after the
completion of the Federated/Macy's Merger, New Combined Company Common Stock).
The option will vest on the earlier of February 2, 1998 or the effective date of
the termination of Mr. Questrom's employment other than for "cause" (as defined
below), by Mr. Questrom for "good reason" (as defined below), or by mutual
consent. The exercise price of the options will be the average closing market
price of Federated Common Stock during the 10 trading days immediately preceding
February 2, 1995.
The limitations on deductibility of certain executive compensation payments
imposed under the 1993 federal income tax amendments will not apply to payments
made under the 1990 Employment Agreement, provided that such agreement is not
amended in any material respect (which Federated's
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Compensation Committee has no present intention to authorize). However, such
limitations on deductibility are applicable to certain payments to Mr. Questrom
under the 1995 Employment Agreement. Accordingly, sums paid to Mr. Questrom in
each fiscal year that are in excess of $1.0 million (excluding payments to Mr.
Questrom pursuant to Federated's 1992 Incentive Bonus Plan) will not be
deductible by Federated (or, after the completion of the Federated/Macy's
Merger, the Combined Company) for federal income tax purposes.
Termination of either the 1990 Employment Agreement or the 1995 Employment
Agreement other than for "cause" or termination of either such agreement by Mr.
Questrom for "good reason" would entitle Mr. Questrom to receive a lump-sum
payment of all salary and (i) under the 1990 Employment Agreement, annual
value-added payments that would have been paid during the remaining portion of
the Contract Period or any subsequent renewal period but for such termination,
or (ii) under the 1995 Employment Agreement, the annual targeted bonus to be
paid under Federated's 1992 Incentive Bonus Plan for each year until February 2,
1998. The term "cause" is defined generally to include (a) willful and material
breaches of duties, (b) habitual neglect of duties, or (c) the final conviction
of a felony, but generally does not include bad judgment or negligence, any act
or omission believed by Mr. Questrom in good faith to have been in or not
opposed to the interests of Federated, or any act or omission in respect of
which a determination could properly have been made by Federated's board of
directors that Mr. Questrom met the applicable standard of conduct prescribed
for indemnification or reimbursement under the by-laws of Federated or the laws
of the State of Delaware. The term "good reason" is defined generally to
include: (1) the assignment to Mr. Questrom of any duties materially
inconsistent with his position, authority, duties, or responsibilities as
contemplated in the agreement, or any other action by Federated that results in
a material diminution in such position, authority, duties, or responsibilities;
(2) any material failure by Federated to comply with any of the provisions of
the agreement; (3) Mr. Questrom's failure to be reelected Chairman of the Board
and Chief Executive Officer of Federated or to be reelected to membership on
Federated's board of directors; or (4) any purported termination by Federated of
Mr. Questrom's employment otherwise than as expressly permitted by the
respective employment agreement.
Employment Agreements with Other Federated Executive Officers
Each of Federated's other executive officers and a number of other key
employees are parties to employment agreements with Federated that will be
assumed by the Combined Company. Most of these agreements have a three-year
term, although several are for two years, and all incorporate noncompete and
mitigation clauses. The agreements with Messrs. Zimmerman, Tysoe, Cody, and
Broderick presently specify the following respective annual base salary rates
and expiration dates: $1.0 million, June 30, 1996; $700,000, June 30, 1995;
$550,000, June 30, 1997; and $278,000, June 30, 1997, respectively.
Change-in-Control Agreements
Effective as of the Federated POR Effective Date, Federated entered into a
change-in-control agreement ("Change-in-Control Agreement") with each of its
executive officers other than Mr. Questrom (whose employment agreement contains
certain severance provisions, as described above) and certain other officers and
key employees. Under the Change-in-Control Agreements, if, prior to February 5,
1996, a change in control occurs and thereafter Federated or, in certain
circumstances, the executive terminates the executive's employment and, in the
case of a termination by Federated, cause (as defined in the Change-in-Control
Agreement) therefor does not exist, the executive would be entitled to a cash
severance benefit equal to 120% of the base salary that the executive would have
received during the three-year period following such termination had such
termination not occurred (based generally upon the executive's then-current
salary), subject to reduction by an amount equal to the product of (i) the cash
severance benefit otherwise payable and (ii) a fraction, the numerator of which
is the number of calendar days between February 4, 1993, and the termination
date and the denominator of which is 1,095 (except that this reduction may not
exceed 240% of base salary). The
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<PAGE>
cash severance benefit payable under the Change-in-Control Agreement would also
be reduced by all amounts actually paid to the executive pursuant to any other
employment or severance agreement or plan to which the executive and Federated
are parties or in which the executive is a participant. After a termination of
employment under circumstances in which the executive would be eligible for the
cash severance benefit, the executive would be entitled to certain welfare
benefits for a minimum of one year, and to a prorated portion of any long-term
incentive awards under Federated's 1992 Incentive Bonus Plan, if applicable. The
executive would also be paid an amount pursuant to the Change-in-Control
Agreement to reimburse the executive for any excise tax imposed under sections
280G and 4999 of the Internal Revenue Code, including any tax payable by reason
of such reimbursements. The Federated/Macy's Merger would not constitute a
change in control under the Change-in-Control Agreements.
The Compensation Committee of Federated's board of directors has authorized
the entry into a new change-in-control agreement ("New Change-in-Control
Agreement") with each of its executive officers other than Mr. Questrom (whose
employment agreement contains certain severance provisions, as described above)
and certain other officers and key employees, which New Change-in-Control
Agreements will supersede and replace the Change-in-Control Agreements described
above. Under the New Change-in-Control Agreements, which will be assumed by the
Combined Company, if, within three years of a change in control (as defined in
the New Change-in-Control Agreements), Federated (or, after the completion of
the Federated/Macy's Merger, the Combined Company) or, in certain circumstances,
the executive terminates the executive's employment and, in the case of a
termination by Federated (or, after the completion of the Federated/Macy's
Merger, the Combined Company), cause (as defined in the New Change-in-Control
Agreement) therefor does not exist, the executive would be entitled to a cash
severance benefit equal to two times his or her current base salary, plus
targeted incentive bonus amount, and the continuation of retirement and welfare
plan benefits for two years (subject, but only as to welfare benefits, to early
termination on the date the executive secures other full-time employment). The
cash severance benefit payable under the New Change-in-Control Agreements would
be reduced by all amounts actually paid to the executive pursuant to any other
employment or severance agreement or plan to which the executive and Federated
(or, after the completion of the Federated/Macy's Merger, the Combined Company)
are parties or in which the executive is a participant. In addition, the
executive would not be entitled to receive reimbursement for any excise tax
imposed under sections 280G and 4999 of the Internal Revenue Code. The
Federated/Macy's Merger would not constitute a change in control under the New
Change-in-Control Agreements.
Retirement Programs
The retirement program previously established by Federated (the "Federated
Retirement Program") and the retirement program previously established by Allied
(the "Allied Retirement Program") are the primary programs for providing
retirement benefits to Federated's employees. Each of these programs, which will
be assumed by the Combined Company, initially consisted of a defined benefit
plan and a defined contribution plan. Effective July 1, 1993, the Allied defined
contribution plan was merged into the Federated defined contribution plan. As of
January 1, 1994, approximately 52,500 employees participated in the Federated
Retirement Program, of whom approximately 12,300 participated in the Allied
defined benefit plan. The executive officers of Federated are participants in
the Federated Retirement Program. Accordingly, the Federated Retirement Program
is described below.
To allow the Federated Retirement Program to provide benefits based on a
participant's total compensation, Federated adopted a Supplementary Executive
Retirement Plan ("SERP") when it adopted its defined benefit plan. Federated's
SERP, which is a nonqualified unfunded plan, provides to eligible executives
retirement benefits on compensation and benefits in excess of Internal Revenue
Code maximums, as well as amounts deferred under Federated's Executive Deferred
Compensation Plan ("EDCP") effective November 1, 1993, in each case based on the
same formula contained in Federated's defined benefit plan. As of January 1,
1994, approximately 407 employees were eligible
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<PAGE>
under the terms of Federated's SERP. Federated has reserved the right to suspend
or terminate supplemental payments as to any category of employee or former
employee, or to modify or terminate any other element of the Federated
Retirement Program or the Allied Retirement Program, as the case may be, in
accordance with applicable law.
Under the Federated Retirement Program, a participant retiring at normal
retirement age is eligible to receive monthly benefit payments calculated using
a plan formula that is based on the participant's years of service and final
average compensation, taking into consideration the participant's Retirement
Profit Sharing Credits (as defined below).
Prior to adoption of the defined benefit plan under the Federated Retirement
Program, Federated's primary means of providing retirement benefits to employees
was through the RITI, a defined contribution profit sharing plan. With the
defined benefit plan in place, Federated continued, and presently expects to
continue, to make contributions to the thrift incentive portion of RITI as
described below. An employee's accumulated retirement profit sharing interests
("Retirement Profit Sharing Credits") in the retirement income portion of RITI,
which accrued prior to January 1, 1984, continue to be maintained and invested
until retirement, at which time they are distributed. It is impractical to
estimate the accrued benefits upon retirement of any participant or group of
participants in the thrift incentive portion of RITI under the Federated
Retirement Program because the amount, if any, that will be contributed by
Federated and credited to a participant in any year is determined by such
variable factors, among others, as the amount of the income of Federated, the
number of participants in the plan, their annual contributions to the plan, the
amount of the matching contributions of Federated, and the earnings on
participants' accounts.
The following table shows the estimated hypothetical annual benefits payable
under Federated's defined benefit plan and SERP to persons retiring at their
normal retirement age on January 1, 1994 in specified eligible compensation and
years of service classifications, assuming that a retiring participant under the
Federated Retirement Program elects a single life annuity distribution of his or
her Retirement Profit Sharing Credits and the annual payments under such
distribution would not exceed the level set forth below. Eligible compensation
for this purpose includes amounts reflected in the "Annual Compensation" portion
of the Summary Compensation Table set forth above under the headings "Salary"
and "Bonus" and amounts deferred as stock credits under EDCP that are not so
reflected, but excludes amounts reflected in such portion of such table under
the heading "Other Annual Compensation." Mr. Questrom's eligible compensation
for 1993 was $1,200,000; the eligible compensation for 1993 of each of the other
Named Executives did not vary by more than 10% from the total amount of his
compensation for 1993 reflected in the Annual Compensation portion of the
Summary Compensation Table.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------
FINAL AVERAGE COMPENSATION 15 20 25 30 35
- --------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 250,000.................. 50,456 67,274 84,093 100,911 100,911
300,000................... 60,956 81,274 101,593 121,911 121,911
350,000................... 71,456 95,274 119,093 142,911 142,911
400,000................... 81,956 109,274 136,593 163,911 163,911
450,000................... 92,456 123,274 154,093 184,911 184,911
500,000................... 102,956 137,274 171,593 205,911 205,911
750,000................... 155,456 207,274 259,093 310,911 310,911
1,000,000................. 207,956 277,274 346,593 415,911 415,911
1,250,000................. 260,456 347,274 434,093 520,911 520,911
1,500,000................. 312,956 417,274 521,593 625,911 625,911
</TABLE>
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<PAGE>
Messrs. Questrom, Zimmerman, Tysoe, Cody, and Broderick have completed 26,
25, 5, 11, and 6 years of credited service, respectively, and their estimated
annual retirement benefits at normal retirement age from Federated's defined
benefit plan and SERP, assuming their present eligible compensation remains
unchanged, would be $435,243, $451,388, $346,982, $251,360, and $127,313,
respectively.
Certain Arrangements with New Deputy Chairman
Mr. Ullman currently is Chairman of the Board of Directors and Chief
Executive Officer of Macy's and, upon the occurrence of the Effective Time of
the Federated/Macy's Merger, will become a director and Deputy Chairman of the
Board of the Combined Company.
Macy's paid Mr. Ullman as compensation for his services $727,000 in fiscal
year 1992, $880,000, together with a $200,000 discretionary, performance-based
bonus and $241,330 of other compensation, in fiscal year 1993, and $991,504,
together with a $1,527,300 discretionary, performance-based bonus, comprising a
$600,000 cash payment, forgiveness of a relocation loan in the principal amount
of $500,000, and a tax gross-up payment of $427,300 in respect of such loan
forgiveness, and $199,203 of other compensation (including $15,281 in respect of
executive discounts on merchandise purchased and a related tax gross-up payment
on the purchase of Macy's store merchandise, $32,004 in respect of a car
allowance, $30,021 in respect of a tax gross-up payment for supplemental life
insurance, $1,858 in respect of matching contributions under the Macy's Savings
Plan, $13,500 in respect of supplemental health insurance, $66,781 in respect of
life insurance premiums refundable to Macy's, $37,200 in respect of life
insurance premiums not refundable to Macy's, and $2,558 in respect of premiums
for long-term disability insurance), in fiscal year 1994. Mr. Ullman acquired no
shares of Macy's by exercise of options in Macy's most recently completed fiscal
year. Mr. Ullman held 17,500 exercisable options (and no unexercisable options)
at Macy's most recent fiscal year end, having an exercise price of $20 per share
(for which it is not possible to calculate a value due to Macy's voting
securities not being publicly traded and the pendency of the Reorganization
Cases). Mr. Ullman neither held nor received any long-term incentive plan awards
in Macy's most recently completed fiscal year.
Mr. Ullman currently is employed by Macy's pursuant to an Employment
Agreement, dated as of February 5, 1994 (the "Ullman Agreement"), which will
continue in effect between Mr. Ullman and the Combined Company, subject to
certain modifications described below. The term of the Ullman Agreement extends
from July 1, 1994 through July 1, 1999 (the "Term") and provides for, among
other things: (i) a salary of $1.25 million per annum; (ii) a discretionary
annual bonus to be considered after each fiscal year end by the Personnel
Committee of Macy's board of directors based on Mr. Ullman's performance and the
overall performance of Macy's (which bonus, as described below, is fixed at a
minimum of $625,000 for fiscal year 1995 and subsequent fiscal years); (iii)
split-dollar life insurance of not less than $4.0 million for which Macy's pays
the annual premiums notwithstanding any termination or expiration of the Ullman
Agreement, except termination by Macy's for "Cause" (as defined below) or
termination by Mr. Ullman other than for "Good Reason" (as defined below); (iv)
coverage under all medical, pension, profit-sharing, and other employee benefit
plans of Macy's generally made available to its senior executives; (v) all
incentive and deferred compensation, supplemental pension, annuity, or similar
arrangements generally available to senior executives of Macy's; (vi) an
automobile allowance of $32,000 annually; (vii) use of an apartment located in
Manhattan and a car service, as required in connection with the performance of
his duties and for security purposes; and (viii) reimbursement of all
reasonable, ordinary, and necessary business expenses incurred by Mr. Ullman. In
addition, the Ullman Agreement provides that Macy's will grant Mr. Ullman,
effective as of the consummation date of a plan of reorganization for Macy's,
options to acquire 0.8% of the outstanding common stock of Macy's.
The Ullman Agreement provides that Macy's may terminate Mr. Ullman for
Cause, without obligation to make any payments (other than salary due through
the date of termination) or benefits available to him. If Mr. Ullman is
terminated without Cause or resigns for Good Reason, Mr. Ullman
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would be entitled to a severance payment, as described below. Under the Ullman
Agreement, "Cause," as a basis for termination of employment by Macy's,
includes: (i) conviction of a felony; (ii) a willful act involving moral
turpitude or any willful act that, if generally known, would subject Macy's to
public ridicule or embarrassment; and (iii) willful or repeated failure or
refusal to perform required executive duties. No termination of Mr. Ullman for
Cause may occur unless a majority of the Macy's board of directors or a
committee thereof finds such termination justified and there is no reasonable
prospect that Mr. Ullman will promptly cure the basis for the Cause. "Good
Reason," as a basis for termination of employment by Mr. Ullman, includes: (a)
the assignment of duties inconsistent with Mr. Ullman's status as Chairman and
Chief Executive Officer of Macy's, a significant diminution in his
responsibilities, or removal from his present position; (b) the election of any
person to serve as Co-Chairman or Co-Chief Executive Officer of Macy's; (c) a
reduction in salary; (d) after a Change in Control (as defined therein, and
which will be deemed to occur at the Effective Time of the Federated/Macy's
Merger), the relocation of Mr. Ullman's office beyond a 50-mile radius of his
current workplace; (e) failure to obtain the agreement of a successor to Macy's
to assume and perform the Ullman Agreement; (f) failure to continue an employee
benefit arrangement in which Mr. Ullman participates without a reasonably
acceptable alternative arrangement being made available; and (g) any material
breach of the Ullman Agreement by Macy's unless cured within 10 days.
The Ullman Agreement provides that, if termination occurs during the Term by
Macy's other than for Cause, or by Mr. Ullman for Good Reason, then Macy's will
continue his participation, on the same basis as other senior executives of
Macy's, in Macy's senior executive medical program for a period of 12 months
following such termination and Macy's will pay to Mr. Ullman a severance payment
equal to two times (i) the amount of Mr. Ullman's then-current base annual
salary and (ii) the average of Mr. Ullman's two most recent annual incentive
compensation bonuses previously approved by Macy's board of directors. In the
event of a Change in Control of Macy's, the Ullman Agreement provides that, in
lieu of the grant of options to receive common stock of Macy's, Mr. Ullman will
be paid an amount equal to 0.75% of the excess of (i) the reorganization value
of Macy's as of the date the Change in Control occurs over (ii) $3.0 billion.
The Ullman Agreement also contains customary provisions obligating Mr. Ullman to
maintain the confidentiality of certain information and to refrain from engaging
in certain competitive activities for a period of two years following the
termination of his employment.
A separate letter agreement entered into by Macy's and Mr. Ullman at the
time of the execution and delivery of the Federated/Macy's Merger Agreement (the
"Ullman Letter Agreement") modifies certain provisions of the Ullman Agreement
and certain other rights and obligations of the parties thereto, with the effect
that Mr. Ullman will: (i) be entitled to receive within five business days after
the Effective Time of the Federated/Macy's Merger, in lieu of the grant of stock
options (or any other equity rights) or any cash payment provided in the Ullman
Agreement in respect thereof, a lump sum cash performance bonus payment of $8.4
million; and (ii) have the right to terminate his employment for any reason or
no reason at all at any time from and after the Effective Time of the
Federated/Macy's Merger until the first anniversary thereof, with any
termination during that period constituting a termination for Good Reason after
a Change in Control, for which Mr. Ullman will be entitled to (a) receive the
compensation and benefits provided in the Ullman Agreement following such a
termination of employment and (b) not be subject to the noncompetition covenants
of the Ullman Agreement, which covenants will terminate and be of no force and
effect; provided, however, that the Ullman Letter Agreement will be null and
void if the Federated/Macy's Merger Agreement is terminated prior to the
Effective Time of the Federated/Macy's Merger for any reason. The
Federated/Macy's Merger Agreement also provides that the Ullman Agreement will
be amended to reflect that Mr. Ullman's minimum annual incentive bonus for
fiscal year 1995 and subsequent fiscal years will be a minimum of $625,000.
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<PAGE>
CERTAIN ARRANGEMENTS WITH MACY'S EMPLOYEES
ARRANGEMENTS WITH ROGER N. FARAH
Mr. Farah currently is Macy's President and Chief Operating Officer and is
employed by Macy's pursuant to an Employment Agreement, dated November 23, 1993
(the "Farah Agreement"). See "Operations During the Reorganization
Cases--Certain Claim Settlements and Litigation--Farah Litigation." In
connection with the execution and delivery of the Federated/Macy's Merger
Agreement, Macy's entered into a letter agreement with Mr. Farah that modifies
the Farah Agreement (the "Farah Letter Agreement"). Pursuant to the Farah Letter
Agreement, upon termination of Mr. Farah's employment by either Mr. Farah or the
Combined Company at the time of or after the Federated/Macy's Merger, or at such
earlier time as Macy's, in its sole discretion, determines, Macy's will: (i)
make a lump sum payment to Mr. Farah of $14.0 million in cash, less the
aggregate amount of salary and bonus payments (other than a $2.0 million signing
bonus previously paid to Mr. Farah), if any, paid to Mr. Farah since the
commencement of his employment on July 1, 1994 and less any applicable
withholding taxes (other than any withholding taxes on the signing bonus); (ii)
continue Mr. Farah's participation, on the same basis as other executive
officers, in Macy's senior executive medical program for a period of 12 months
or, if earlier, until such date as Mr. Farah commences other full-time
employment; and (iii) be deemed to have irrevocably waived the noncompetition
covenants contained in the Farah Agreement, which covenants will terminate and
be of no force and effect. The foregoing payments and benefits are in lieu of
any payments or benefits to which Mr. Farah may otherwise be entitled under the
Farah Agreement in connection with any termination of his employment. If the
Federated/Macy's Merger Agreement is terminated for any reason prior to the
Effective Time of the Federated/Macy's Merger, the Farah Letter Agreement will
be null and void.
OTHER EMPLOYEE ARRANGEMENTS
The Federated/Macy's Merger Agreement provides that the Combined Company
will enter into various arrangements, in addition to those described above with
respect to Messrs. Ullman and Farah, with respect to certain executives and
employees of Macy's. Certain of these arrangements are described below.
The Federated/Macy's Merger Agreement provides that, if Federated fails to
offer, on or prior to September 30, 1994, to certain of the Macy's executives
(other than Messrs. Ullman and Farah) who are currently parties to so-called
"Type A" or "Type B" Executive Agreements (the "A/B Executive Agreements") a new
contract having the terms described in the next sentence (a "New Executive
Agreement"), each such executive will have the right, exercisable from the
Effective Time of the Federated/Macy's Merger Agreement until the six month
anniversary thereof, to terminate his or her employment, in which case the
Combined Company will have the obligation to make the termination payments and
provide the benefits to such executive described below in this paragraph. The
New Executive Agreements are required to provide for a term of at least three
years, a restriction on relocation of place of work outside a 25-mile radius of
the current workplace, and substantially the same title, functions, level of
responsibilities, benefits, perquisites, the same compensation, and, in the case
of a specified class of employees, the same reporting relationship provided to
such executive by Macy's. Upon any such executive's employment being terminated
as described above or by the Combined Company other than for "cause," the
Combined Company will be required to pay to such executive the base salary owing
through the date of termination and, in lieu of any further compensation and
benefits under such executive's A/B Executive Agreement, a lump sum severance
payment in an amount equal to three times such executive's base salary. In
addition, such executive will: (i) be entitled to receive a bonus in an amount
equal to three times the product of (a) 25% and (b) such executive's annual base
salary at the time of termination; (ii) be entitled to participate for a
three-year period in benefits and perquisites substantially comparable to the
benefits and perquisites payable immediately prior to his or
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<PAGE>
her termination date; and (iii) not be subject to any non-competition
obligations imposed under such executive's A/B Executive Agreement.
Pursuant to the Federated/Macy's Merger Agreement, Macy's may enter into
such severance, termination, or retention agreements or arrangements ("Program
Agreements") prior to the Effective Time of the Federated/Macy's Merger with any
of Macy's "Corporate Office" employees (approximately 290 employees) that it
deems appropriate, including those with current employment agreements, which
agreements will include provisions with respect to any such employee covered by
an A/B Executive Agreement no less favorable than those required in the New
Executive Agreements, provided that the total cumulative amount of all payments
under such Program Agreements, together with all severance or retention payments
to all such Corporate Office employees, may not exceed $32.0 million in cash
distributions and healthcare benefit accruals (subject to certain exclusions,
including payments due Messrs. Ullman and Farah). Any rights of a Macy's
Corporate Office employee under a Program Agreement will be independent of any
other severance or termination rights such employee may otherwise have. Macy's
is also permitted under the Federated/Macy's Merger Agreement to enter into
appropriate employment, retention, and severance agreements with Macy's
Corporate Office employees whose employment is not covered by an A/B Executive
Agreement or any Program Agreement, in accordance with guidelines agreed to by
Federated and Macy's.
The Federated/Macy's Merger Agreement permits Macy's to pay bonuses (in cash
or forgiveness of indebtedness) to key executives (including Mr. Ullman)
commensurate with their individual contributions during fiscal years 1994 and
1995 for the portion thereof up until the Effective Date, not to exceed $9.0
million in the aggregate, inclusive of any related tax gross-ups or similar
payments. Non-Corporate Office employees not covered by an A/B Executive
Agreement who are terminated in connection with the Federated/Macy's Merger or
otherwise are offered a position with the Combined Company that is not
substantially comparable to such employee's position with Macy's immediately
prior to the Effective Time (or requires relocation of the employee to a
location outside of a 25-mile radius of the geographic area of such employee's
current place of work), which position is not accepted by such employee, will be
entitled to receive severance benefits in accordance with severance policy
guidelines agreed to by Federated and Macy's.
For a discussion of certain other Macy's employee and retiree matters
provided for in the Federated/Macy's Merger Agreement, see "--Restructuring
Transactions--The Federated/Macy's Merger--The Federated/Macy's Merger
Agreement--Certain Macy's Employee and Retiree Matters."
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation will provide, as do the charters of many
other publicly held companies, that the personal liability of directors of the
Combined Company to the Combined Company is eliminated to the maximum extent
permitted by Delaware law. The Certificate of Incorporation and By-Laws will
provide for the indemnification of the directors, officers, employees, and
agents of the Combined Company and its subsidiaries to the fullest extent that
may be permitted by Delaware law from time to time, and the By-Laws will provide
for various procedures relating thereto. Certain provisions of the Certificate
of Incorporation will protect the Combined Company's directors against personal
liability for monetary damages resulting from breaches of their fiduciary duty
of care, except as set forth below. Under Delaware law, absent these provisions,
directors could be held liable for gross negligence in the performance of their
duty of care, but not for simple negligence. The Certificate of Incorporation
will absolve directors of liability for negligence in the performance of their
duties, including gross negligence. However, the Combined Company's directors
will remain liable for breaches of their duty of loyalty to the Combined Company
and its stockholders, as well as for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law and
transactions from which a director derives improper personal benefit. The
Certificate of Incorporation
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will not absolve directors of liability under section 174 of the Delaware
General Corporation Law, which makes directors personally liable for unlawful
dividends or unlawful stock repurchases or redemptions in certain circumstances
and expressly sets forth a negligence standard with respect to such liability.
Under Delaware law, directors, officers, employees, and other individuals
may be indemnified against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement in connection with specified actions,
suits, or proceedings, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the corporation--i.e., a "derivative
action") if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the Combined Company and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is applicable in the case
of a derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement of
such an action, and Delaware law requires court approval before there can be any
indemnification of expenses where the person seeking indemnification has been
found liable to the Combined Company.
The Certificate of Incorporation will provide, among other things, that each
person who was or is made a party to, or is threatened to be made a party to, or
is involved in, any action, suit, or proceeding because he or she is or was a
director or officer of the Combined Company (or was serving at the request of
the Combined Company as a director, officer, employee, or agent for the Combined
Company or another entity), will be indemnified and held harmless by the
Combined Company to the full extent authorized by Delaware law, as in effect on
the Effective Date (or, to the extent indemnification is thereafter broadened,
as it may be amended), against all expense, liability, or loss (including
attorneys' fees, judgments, fines, ERISA excise taxes, penalties, and amounts to
be paid in settlement) reasonably incurred by such person in connection
therewith. The rights conferred thereby will be deemed to be contract rights and
will include the right to be paid by the Combined Company for the expenses
incurred in defending the proceedings specified above in advance of their final
disposition. In general, such rights will apply to a person who was a director
or officer of any predecessor of the Combined Company (or was serving at the
request of such predecessor as a director, officer, employee, or agent for such
predecessor or another entity) as to matters otherwise within the scope of such
rights, whether or not such matters arose before or after the Effective Date,
except to the extent that the obligations of the Combined Company or its
predecessors to provide such indemnification would otherwise have terminated
pursuant to the provisions of either the Federated POR or the Plan, as described
below.
Under the Plan, the obligations of each Debtor or Reorganized Debtor to
indemnify any person serving as a director, officer, or employee of such Debtor
or Reorganized Debtor as of or following July 15, 1986 will be as provided in
the Federated/Macy's Merger Agreement. In its sole discretion, Federated also
may elect to have a Debtor or Reorganized Debtor assume under the Plan, as
described in "General Information Concerning the Plan--Executory Contracts and
Unexpired Leases-- Assumptions, Assignments, and Rejections of Non-Real Property
Executory Contracts and Unexpired Leases--Assumptions and Assignments," certain
of its obligations to indemnify any person who, as of July 15, 1986, was no
longer serving as a director, officer, or employee of such Debtor, which
obligations will be deemed and treated as executory contracts that are assumed
by the applicable Debtor pursuant to the Plan and section 365 of the Bankruptcy
Code as of the Effective Date. Accordingly, to the extent assumed, such
indemnification obligations will survive and be unaffected by entry of the
Confirmation Order, irrespective of whether such indemnification is owed for an
act or event occurring before or after the applicable Petition Date. Conversely,
unless assumed by a Debtor as described in "General Information Concerning the
Plan--Executory Contracts and Unexpired Leases--Assumptions, Assignments, and
Rejections of Non-Real Property Executory Contracts and Unexpired Leases," the
obligations of each Debtor or Reorganized Debtor to indemnify any person who, as
of July 15, 1986, was no longer serving as a director, officer, or employee of
such Debtor or Reorganized Debtor, will terminate and be discharged as described
in "General Information Concerning the Plan--Special
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Executory Contract and Unexpired Lease Issues--Obligations to Indemnify
Directors, Officers, and Employees." Nothing in the Plan will be exclusive of or
limit the terms of any indemnification agreement entered into as described above
or pursuant to the Federated/Macy's Merger Agreement.
The indemnification agreements presently in effect between Federated and
each of its directors and officers will be assumed by the Combined Company. As
so assumed, these indemnification agreements will provide for, among other
things: (i) the indemnification of the indemnitee thereunder by the Combined
Company to the extent described above; (ii) the advancement of attorneys' fees
and other expenses; and (iii) the establishment, upon approval by the Board, of
trusts or other funding mechanisms to fund Combined Company's indemnification
obligations thereunder.
The Federated/Macy's Merger Agreement provides that the Combined Company
will maintain Macy's existing directors' and officers' liability insurance in
full force and effect (or procure insurance substantially comparable in scope
and coverage) for six years after the Effective Time of the Federated/Macy's
Merger, except that the Combined Company will not be required thereby to pay an
annual premium therefor in excess of 250% of the last annual premium paid by
Macy's (subject to the obligation to purchase as much coverage as may be
purchased in light of such limitation). In addition, the Combined Company will
maintain directors' and officers' liability insurance for at least three years
after the effective time of the Federated/Macy's Merger for directors' and
officers' of the Combined Company at least equal to the directors' and officers'
liability insurance maintained by Federated immediately prior to the date of the
Federated/Macy's Merger Agreement.
The Federated/Macy's Merger Agreement provides that the Certificate of
Incorporation and By-Laws will not be amended, repealed, or otherwise modified
in any manner that would adversely affect the indemnification rights thereunder
of individuals who as of or after July 15, 1986 were directors, officers,
employees, or agents of Macy's or any other Debtor.
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<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS, AND EXECUTIVE OFFICERS
The following table sets forth the number and percentage of shares of
Federated Common Stock beneficially owned (or deemed to be beneficially owned
pursuant to SEC rules) as of the respective dates specified by each person known
to Federated to own more than 5% of the Federated Common Stock. The Plan
Proponents are unable to determine the number and percentage of shares of New
Combined Company Common Stock that will be beneficially owned by such persons
upon the completion of the Federated/Macy's Merger because, among other things,
the number of shares of New Combined Company Common Stock issuable pursuant to
the Plan is based upon a formula. See "Overview of the Plan--Summary of Classes
and Treatment of Claims and Interests."
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
OF FEDERATED OF
NAME COMMON STOCK CLASS
- -------------------------------------------------------------------- ---------------- -------
<S> <C> <C>
Ark Asset Management Co., Inc.(1)................................... 6,774,000 5.40%
One New York Plaza
New York, NY 10004
FMR Corp.(2)........................................................ 7,376,424 5.83%
82 Devonshire Street
Boston, MA 02109
Mellon Bank Corporation and certain of its subsidiaries(3).......... 11,037,000 8.73%
One Mellon Bank Center
Pittsburgh, PA 15258
</TABLE>
- ------------
(1) According to information set forth in a Schedule 13G, dated February 7,
1994, filed with the SEC by Ark Asset Management Co., Inc. ("Ark"), Ark was
the beneficial owner of 6,774,000 shares of Federated Common Stock
(approximately 5.40% of the total number of shares of Federated Common Stock
outstanding) as of December 31, 1993.
(2) According to information set forth in a Schedule 13G, dated February 11,
1994, filed with the SEC by FMR Corp. ("FMR"), FMR was the beneficial owner
of 7,376,424 shares of Federated Common Stock (approximately 5.83% of the
total number of shares of Federated Common Stock outstanding) as of December
31, 1993. According to the FMR Schedule 13G, of those 7,376,424 shares,
7,114,388 shares (approximately 5.62% of the total number of shares
outstanding) as of December 31, 1993 were beneficially owned by Fidelity
Management & Research Company, a wholly owned subsidiary of FMR, as a result
of acting as investment advisor to several investment companies. The FMR
Schedule 13G also discloses that Edward C. Johnson 3d, Chairman of FMR,
beneficially owns 34% of the outstanding voting common stock of FMR and that
Mr. Johnson and various trusts for the benefit of Johnson family members,
through their ownership of FMR's voting common stock, form a controlling
group with respect to FMR.
Based upon the aggregate amount of Claims held by funds managed by FMR as of
August 31, 1994, such funds would receive, on a fully diluted basis,
approximately 7.07% of the New Combined Company Common Stock to be
distributed pursuant to the Plan, assuming no change in the number of shares
of Federated Common Stock beneficially owned by FMR since December 31, 1993
and that the Federated Average Market Price is $21.00 per share.
(3) According to information set forth in a Schedule 13G, dated February 11,
1994, filed with the SEC by Mellon Bank Corporation and certain of its
subsidiaries (collectively, "Mellon"), Mellon was the beneficial owner of
11,037,000 shares of Federated Common Stock (approximately 8.73% of the
total number of shares of Federated Common Stock outstanding) as of December
31, 1993.
The following table sets forth the shares of Federated Common Stock
beneficially owned (or deemed to be beneficially owned pursuant to SEC rules) as
of August 31, 1994 by each person that is expected to serve as a director or
executive officer of the Combined Company and by all such persons as a group.
Giving effect to the Federated/Macy's Merger and assuming no change in the
number of shares of Federated Common Stock beneficially owned by such persons
between August 31, 1994 and the Effective Date, the number of shares of New
Combined Company Common Stock beneficially
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<PAGE>
owned by such persons would be the same as the numbers of shares of Federated
Common Stock beneficially owned by such persons set forth in the table below and
the percentage of shares of New Combined Company Common Stock beneficially owned
by each of such persons will continue to be less than 1%. To the knowledge of
the Plan Proponents, each of the individuals named in the table has sole voting
and investment power with respect to his or her shares of Federated Common Stock
and New Combined Company Common Stock, as the case may be. The business address
of each of the individuals named in the table is 7 West Seventh Street,
Cincinnati, Ohio 45202, except that Mr. Ullman's business address is 151 West
34th Street, New York, New York 10001.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
OF FEDERATED OF
NAME COMMON STOCK CLASS
- -------------------------------------------------------------------- ---------------- -------
<S> <C> <C>
Dennis J. Broderick................................................. 24,412 *
John E. Brown....................................................... 11,461 *
Robert A. Charpie................................................... 11,231 *
Thomas G. Cody...................................................... 97,654 *
Lyle Everingham..................................................... 6,500 *
Meyer Feldberg...................................................... 3,500 *
Earl G. Graves, Sr.................................................. 600 *
George V. Grune..................................................... 6,300 *
Karen M. Hoguet..................................................... 25,000 *
G. William Miller................................................... 9,528 *
Joseph Neubauer..................................................... 6,725 *
Allen Questrom...................................................... 5,000 *
Ronald W. Tysoe..................................................... 125,000 *
Myron E. Ullman, III................................................ 0 *
Karl M. von der Heyden.............................................. 2,850 *
Marna C. Whittington................................................ 775 *
James M. Zimmerman.................................................. 147,500 *
All Directors and Executive Officers as a Group..................... 484,036 *
</TABLE>
- ------------
* Less than one percent.
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CAPITAL STOCK OF THE COMBINED COMPANY
NEW COMBINED COMPANY COMMON STOCK
AUTHORIZED CAPITAL STOCK
The Combined Company's Certificate of Incorporation will provide that the
authorized capital stock of the Combined Company will consist of 500.0 million
shares of New Combined Company Common Stock and 125.0 million shares of New
Combined Company Preferred Stock.
GENERAL
Holders of New Combined Company Common Stock will be entitled to one vote
for each share held of record on all matters submitted to a vote of
stockholders. Subject to preferential rights that may be applicable to any of
the New Combined Company Preferred Stock, holders of the New Combined Company
Common Stock will be entitled to receive ratably such dividends, if any, as may
be declared by the Board out of funds legally available therefor. In the event
of a liquidation, dissolution, or winding up of the Combined Company, holders of
the New Combined Company Common Stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any New Combined Company Preferred Stock. Holders of the New Combined Company
Common Stock have no preemptive rights and have no rights to convert their New
Combined Company Common Stock into any other securities, and there are no
redemption provisions with respect to such shares.
DIVIDENDS
Neither Macy's nor Federated has paid any dividends on its capital stock
during its two most recent fiscal years, and it is not anticipated that the
Combined Company will pay any dividends on the New Combined Company Common Stock
in the foreseeable future. In addition, the covenants in certain debt
instruments to which the Combined Company will be a party will restrict the
ability of the Combined Company to pay dividends. See "Other Indebtedness of the
Combined Company" and "Risk Factors--Dividend Policies; Restrictions on Payment
of Dividends." The New Credit Agreement (as defined below) will restrict the
payment of dividends. See "Other Indebtedness of the Combined Company--New Bank
Facilities."
TRADING MARKET
There is no existing market for the New Combined Company Common Stock. It is
a condition to the Federated/Macy's Merger and the Effective Date that the New
Combined Company Common Stock be authorized for listing on the NYSE or accepted
for quotation through NASDAQ. The Plan Proponents presently intend to seek to
have the New Combined Company Common Stock listed for trading on the NYSE or
accepted for quotation through NASDAQ effective as of the Effective Date. There
can be no assurance, however, that the New Combined Company Common Stock will be
authorized for listing on the NYSE or accepted for quotation through NASDAQ. See
"Overview of the Plan--Conditions to Confirmation and Effective Date of the
Plan--Conditions to Effective Date," "The Combined Company--Business of the
Combined Company--Business Presently Operated by Federated--Market for Common
Shares," "Risk Factors--Lack of Established Market for the New Debt and New
Equity; Volatility," and "Applicability of Federal and Other Securities
Laws--Transfers of New Securities."
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REGISTRATION
Although section 1145 of the Bankruptcy Code provides an exemption from the
registration requirements of federal and state securities laws that is
applicable to the shares of New Combined Company Common Stock to be issued to
holders of Claims against the Debtors pursuant to the Plan, the issuance of
shares of New Combined Company Common Stock into which shares of Federated
Common Stock will be converted pursuant to the Federated/Macy's Merger will be
required to be registered under the Securities Act. It is a condition to the
consummation of the Federated/Macy's Merger that the Registration Statement be
declared effective by the SEC. See "The Combined Company--Restructuring
Transactions--The Federated/Macy's Merger--The Federated Macy's Merger
Agreement--Certain Filings."
TRANSFER AGENT
The Plan Proponents presently anticipate that will be the transfer
agent for the New Combined Company Common Stock.
NEW COMBINED COMPANY PREFERRED STOCK
The New Combined Company Preferred Stock will be issuable from time to time
in one or more series, without stockholder approval. Subject to limitations
prescribed by law, the Board will be authorized to determine the voting powers
(if any), designation, preferences, and relative, participating, optional, or
other special rights, and qualifications, limitations, or restrictions thereof
for each series of New Combined Company Preferred Stock that may be issued, and
to fix the number of shares of each such series. Thus, the Board, without
stockholder approval, could authorize the issuance of New Combined Company
Preferred Stock with voting, conversion, and other rights that could adversely
affect the voting power and other rights of holders of New Combined Company
Common Stock or other series of New Combined Company Preferred Stock or that
could have the effect of delaying, deferring, or preventing a change in control
of the Combined Company.
NEW COMBINED COMPANY SHARE PURCHASE RIGHTS
Each share of New Combined Company Common Stock issued prior to the earlier
of the Rights Distribution Date (as defined below) or the Final Expiration Date
(as defined below) will be accompanied by one New Combined Company Share
Purchase Right issued pursuant to the New Combined Company Share Purchase Rights
Agreement to be entered into between the Combined Company and a financial
institution, as agent. Each New Combined Company Share Purchase Right will
entitle the registered holder thereof to purchase from the Combined Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share (the "Series A Preferred Shares"), of the Combined Company
at a price (the "Purchase Price") of $62.50 per one one-hundredth of the Series
A Preferred Share, subject to adjustment.
Under the New Combined Company Share Purchase Rights Agreement, the New
Combined Company Share Purchase Rights will be evidenced by the certificates
evidencing shares of the New Combined Company Common Stock until the earliest
(the "Rights Distribution Date") of: (i) the close of business on the tenth
business day (or such later date as may be specified by the Board) following the
first date of public announcement by the Combined Company that a person (other
than the Combined Company or a subsidiary or employee benefit or stock ownership
plan of the Combined Company), together with its affiliates and associates, has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding New Combined Company Common Stock (any such person being
hereinafter called an "Acquiring Person"); (ii) the close of business on the
tenth business day (or such later date as may be specified by the Board)
following the commencement of a tender offer
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or exchange offer by a person (other than the Combined Company or a subsidiary
or employee benefit or stock ownership plan of the Combined Company), the
consummation of which would result in beneficial ownership by such person of 20%
or more of the outstanding New Combined Company Common Stock; and (iii) the
close of business on the tenth business day following the first date of public
announcement by the Combined Company that a Flip-in Event or a Flip-over Event
(as such terms are hereinafter defined) has occurred.
The New Combined Company Share Purchase Rights Agreement will provide that,
until the Rights Distribution Date, the New Combined Company Share Purchase
Rights may be transferred with and only with the New Combined Company Common
Stock. Until the Rights Distribution Date (or earlier redemption or expiration
of the New Combined Company Share Purchase Rights), any certificate evidencing
shares of the New Combined Company Common Stock issued upon transfer or new
issuance of the New Combined Company Common Stock will contain a notation
incorporating the New Combined Company Share Purchase Rights Agreement by
reference. Until the Rights Distribution Date (or earlier redemption or
expiration of the New Combined Company Share Purchase Rights), the surrender for
transfer of any certificates evidencing New Combined Company Common Stock will
also constitute the transfer of the New Combined Company Share Purchase Rights
associated with such certificates. As soon as practicable following the Rights
Distribution Date, separate certificates evidencing the New Combined Company
Share Purchase Rights ("Rights Certificates") will be mailed to holders of
record of New Combined Company Common Stock as of the close of business on the
Rights Distribution Date and such separate Rights Certificates alone will
evidence the New Combined Company Share Purchase Rights. No New Combined Company
Share Purchase Right is exercisable at any time prior to the Rights Distribution
Date. The New Combined Company Share Purchase Rights will expire on the tenth
anniversary of the Effective Date (the "Final Expiration Date") unless earlier
redeemed or exchanged by the Combined Company as described below. Until a New
Combined Company Share Purchase Right is exercised, the holder thereof, as such,
will have no rights as a preferred stockholder of the Combined Company,
including the right to vote or to receive dividends.
The Purchase Price payable, and the number of the Series A Preferred Shares
or other securities issuable, upon exercise of the New Combined Company Share
Purchase Rights will be subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination,
or reclassification of, the Series A Preferred Shares; (ii) upon the grant to
holders of Series A Preferred Shares of certain rights or warrants to subscribe
for or purchase the Series A Preferred Shares at a price, or securities
convertible into the Series A Preferred Shares with a conversion price, less
than the then-current market price of the Series A Preferred Shares; or (iii)
upon the distribution to holders of the Series A Preferred Shares of evidences
of indebtedness or cash (excluding regular periodic cash dividends), assets,
stock (excluding dividends payable in the Series A Preferred Shares), or
subscription rights or warrants (other than those referred to above). The number
of outstanding New Combined Company Share Purchase Rights and the number of one
one-hundredth of the Series A Preferred Shares issuable upon exercise of each
New Combined Company Share Purchase Right will be subject to adjustment in the
event of a stock dividend on the New Combined Company Common Stock payable in
shares of New Combined Company Common Stock or a subdivision, combination, or
reclassification of the New Combined Company Common Stock occurring, in any such
case, prior to the Rights Distribution Date.
The Series A Preferred Shares issuable upon exercise of the New Combined
Company Share Purchase Rights will not be redeemable. Each Series A Preferred
Share will be entitled to a minimum preferential quarterly dividend payment
equal to the greater of (i) $1.00 per share and (ii) an amount equal to 100
times the aggregate dividends declared per share of New Combined Company Common
Stock during the related quarter. Subject to customary antidilution provisions,
in the event of liquidation, the holders of Series A Preferred Shares will be
entitled to a preferential liquidation
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payment equal to the greater of (a) $100 per share and (b) an amount equal to
100 times the liquidation payment made per share of New Combined Company Common
Stock. Finally, in the event of any merger, consolidation, or other transaction
in which shares of New Combined Company Common Stock are exchanged, each Series
A Preferred Share will be entitled to receive 100 times the amount received per
share of New Combined Company Common Stock. Because of the nature of the Series
A Preferred Shares' dividend, voting, and liquidation rights, the value of the
one one-hundredth interest in a Series A Preferred Share purchasable upon
exercise of each New Combined Company Share Purchase Right should approximate
the value of one share of New Combined Company Common Stock.
New Combined Company Share Purchase Rights will be exercisable to purchase
Series A Preferred Shares only after the Rights Distribution Date occurs and
prior to the occurrence of a Flip-in Event or Flip-over Event. A Rights
Distribution Date resulting from the commencement of a tender offer or exchange
offer described in clause (ii) of the definition of "Rights Distribution Date"
could precede the occurrence of a Flip-in Event or Flip-over Event and thus
result in the New Combined Company Share Purchase Rights being exercisable to
purchase Series A Preferred Shares. A Rights Distribution Date resulting from
any occurrence described in clause (i) or clause (iii) of the definition of
"Rights Distribution Date" would necessarily follow the occurrence of a Flip-in
Event or Flip-over Event and thus result in the New Combined Company Share
Purchase Rights being exercisable to purchase shares of New Combined Company
Common Stock or other securities as described below.
Under the New Combined Company Share Purchase Rights Agreement, in the event
(a "Flip-in Event") that: (i) any person, together with its affiliates and
associates, becomes the beneficial owner of 20% or more of the outstanding New
Combined Company Common Stock; (ii) any Acquiring Person merges into or combines
with the Combined Company and the Combined Company is the surviving corporation
or any Acquiring Person effects certain other transactions with the Combined
Company, as described in the New Combined Company Share Purchase Rights
Agreement; or (iii) during such time as there is an Acquiring Person, there is
any reclassification of securities or recapitalization or reorganization of the
Combined Company that has the effect of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity securities
of the Combined Company or any of its subsidiaries beneficially owned by the
Acquiring Person, then proper provision will be made so that each holder of a
New Combined Company Share Purchase Right, other than New Combined Company Share
Purchase Rights that are or were owned beneficially by the Acquiring Person
(which, from and after the later of the Rights Distribution Date and the date of
the earliest of any such events, will be void), will thereafter have the right
to receive, upon exercise thereof at the then-current exercise price of the New
Combined Company Share Purchase Right, that number of shares of New Combined
Company Common Stock (or, under certain circumstances, an economically
equivalent security or securities of the Combined Company) that have a market
value of two times the exercise price of the New Combined Company Share Purchase
Right.
In the event (a "Flip-over Event") that, following the first date of public
announcement by the Combined Company that a person has become an Acquiring
Person: (i) the Combined Company merges with or into any person and the Combined
Company is not the surviving corporation; (ii) any person merges with or into
the Combined Company and the Combined Company is the surviving corporation, but
all or part of the New Combined Company Common Stock is changed or exchanged; or
(iii) 50% or more of the Combined Company's assets or earning power, including
securities creating obligations of the Combined Company, are sold, then proper
provision will be made so that each holder of a New Combined Company Share
Purchase Right will thereafter have the right to receive, upon the exercise
thereof at the then-current exercise price of the New Combined Company Share
Purchase Right, that number of shares of common stock (or, under certain
circumstances, an economically equivalent security or securities) of such other
person that at the time of such transaction would have a market value of two
times the exercise price of the New Combined Company Share Purchase Right.
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Following the occurrence of any Flip-in Event or Flip-over Event, New
Combined Company Share Purchase Rights (other than any New Combined Company
Share Purchase Rights that have become void) will be exercisable as described
above, upon payment of the exercise price or, at the option of the holder
thereof, without the payment of the exercise price that would otherwise be
payable. If a holder of New Combined Company Share Purchase Rights elects to
exercise New Combined Company Share Purchase Rights without the payment of the
exercise price that would otherwise be payable, such holder will be entitled to
receive upon the exercise of such New Combined Company Share Purchase Rights
securities having a market value equal to the exercise price of the New Combined
Company Share Purchase Rights. In addition, at any time after the later of the
Rights Distribution Date and the first occurrence of a Flip-in Event or a
Flip-over Event and prior to the acquisition by any person or group of
affiliated or associated persons of 50% or more of the outstanding New Combined
Company Common Stock, the Combined Company may exchange the New Combined Company
Share Purchase Rights (other than any New Combined Company Share Purchase Rights
that have become void), in whole or in part, at an exchange ratio of one share
of New Combined Company Common Stock per New Combined Company Share Purchase
Right (subject to adjustment).
For all purposes of the New Combined Company Share Purchase Rights
Agreement, any person or group that acquires beneficial ownership of an
aggregate number of shares of New Combined Company Common Stock equal to 20% or
more of the aggregate number of then outstanding shares of New Combined Company
Common Stock pursuant to the Plan will be deemed not to have acquired beneficial
ownership of an aggregate number of shares of New Combined Company Common Stock
equal to 20% or more of such shares unless and until such person or group
thereafter otherwise acquires beneficial ownership of, or becomes affiliated or
associated with another person or group having beneficial ownership of, an
aggregate number of shares of New Combined Company Common Stock equal to an
additional 1% or more of such shares.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment in the Purchase
Price of at least 1%. The Combined Company will not be required to issue
fractional Series A Preferred Shares (other than fractions that are integral
multiples of one one-hundredth of a Series A Preferred Share, which may, at the
option of the Combined Company, be evidenced by depositary receipts) or
fractional shares of New Combined Company Common Stock or other securities
issuable upon the exercise of New Combined Company Share Purchase Rights. In
lieu of issuing such securities, the Combined Company may make a cash payment,
as provided in the New Combined Company Share Purchase Rights Agreement.
The Combined Company will be able to redeem the New Combined Company Share
Purchase Rights in whole, but not in part, at a price of $.03 per New Combined
Company Share Purchase Right, subject to adjustment and, in the event that the
payment of such amount would be prohibited by loan agreements or indentures to
which the Combined Company is a party, deferral (the "Redemption Price"), at any
time prior to the close of business on the later of (i) the Rights Distribution
Date and (ii) the first date of public announcement that a person has become an
Acquiring Person. Immediately upon any redemption of the New Combined Company
Share Purchase Rights, the right to exercise the New Combined Company Share
Purchase Rights will terminate and the only right of the holders of New Combined
Company Share Purchase Rights will be to receive the Redemption Price.
The New Combined Company Share Purchase Rights Agreement may be amended by
the Combined Company without the approval of any holders of Rights Certificates,
including amendments that add other events requiring adjustment to the Purchase
Price payable and the number of the Series A Preferred Shares or other
securities issuable upon the exercise of the New Combined Company Share Purchase
Rights or that modify procedures relating to the redemption of the New Combined
Company Share Purchase Rights, except that no amendment may be made that
decreases the stated Redemption Price to an amount less than $.01 per New
Combined Company Share Purchase Right,
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decreases the period of time remaining until the Final Expiration Date, or
modifies a time period relating to when the New Combined Company Share Purchase
Rights may be redeemed at such time as the New Combined Company Share Purchase
Rights are not then redeemable.
CERTAIN CORPORATE GOVERNANCE MATTERS
In addition to the provisions relating to the classification of the Board
and the nomination procedures described above (see "The Combined
Company--Management--Board of Directors"), the Certificate of Incorporation and
By-Laws will provide, in general, that: (i) the number of directors of the
Combined Company will be fixed, within a specified range, by a majority of the
number of the Combined Company directors (assuming no vacancies) or by the
holders of at least 80% of the Combined Company's voting stock; (ii) the
directors of the Combined Company in office from time to time will fill any
vacancy or newly created directorship on the Board, with any new director to
serve in the class of directors to which he or she is so elected; (iii)
directors of the Combined Company may be removed only for cause by the holders
of at least 80% of the Combined Company's voting stock; (iv) stockholder action
can be taken only at an annual or special meeting of stockholders and not by
written consent in lieu of a meeting; (v) except as described below, special
meetings of stockholders may be called only by the Combined Company's Chief
Executive Officer or by a majority of the total number of directors of the
Combined Company (assuming no vacancies) and the business permitted to be
conducted at any such meeting is limited to that brought before the meeting by
the Combined Company's Chief Executive Officer or by a majority of the total
number of directors of the Combined Company (assuming no vacancies); and (vi)
subject to certain exceptions, the Board may postpone and reschedule any
previously scheduled annual or special meeting of stockholders. The By-Laws will
also require that stockholders desiring to bring any business before an annual
meeting of stockholders deliver written notice thereof to the Secretary of the
Combined Company not later than 60 days in advance of the meeting of
stockholders; except that, in the event that the date of the meeting is not
publicly announced by the Combined Company by press release or inclusion in a
report with the SEC or furnished to stockholders more than 75 days prior to the
meeting, notice by the stockholder to be timely must be delivered to the
Secretary of the Combined Company not later than the close of business on the
tenth day following the day on which such announcement of the date of the
meeting was so communicated. The By-Laws will further require that the notice by
the stockholder set forth a description of the business to be brought before the
meeting and the reasons for conducting such business at the meeting and certain
information concerning the stockholder proposing such business and the
beneficial owner(s), if any, on whose behalf the proposal is made, including
their names and addresses, the class and number of shares of the Combined
Company that are owned beneficially and of record by each of them, and any
material interest of either of them in the business proposed to be brought
before the meeting. Upon the written request of the holders of not less than 15%
of the Combined Company's voting stock, the Board will be required to call a
meeting of stockholders for the purpose specified in such written request and
fix a record date for the determination of stockholders entitled to notice of
and to vote at such meeting (which record date may not be later than 60 days
after the date of receipt of notice of such meeting), provided that, if the
Board calls an annual or special meeting of stockholders to be held not later
than 90 days after receipt of any such written request, no separate special
meeting of stockholders as so requested will be required to be convened,
provided that the purposes of such annual or special meeting called by the Board
include (among others) the purposes specified in such written request of the
stockholders.
Under applicable provisions of Delaware law, the approval of a Delaware
company's board of directors, in addition to stockholder approval, is required
to adopt any amendment to the company's certificate of incorporation, but a
company's by-laws may be amended either by action of its stockholders or, if the
company's certificate of incorporation so provides, its board of directors. The
Certificate of Incorporation and By-Laws will provide that: (i) except as
described below, the provisions summarized above and the provisions relating to
the classification of the Board and nominating
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procedures may not be amended by the stockholders, nor may any provision
inconsistent therewith be adopted by the stockholders, without the affirmative
vote of the holders of at least 80% of the Combined Company's voting stock,
voting together as a single class, except that if any such action (other than
any direct or indirect amendments to the provision requiring that stockholder
action be taken at a meeting of stockholders rather than by written consent in
lieu of a meeting) is approved by the holders of a majority, but less than 80%,
of the then-outstanding voting stock (in addition to any other approvals
required by law, including approval by the Board with respect to any amendment
to the Certificate of Incorporation), such action will be effective as of one
year from the date of adoption; and (ii) the By-Law provisions relating to the
right of stockholders to cause special meetings of stockholders to be called and
to the composition of certain directorate committees may not be amended by the
Board without stockholder approval.
The Combined Company will be subject to section 203 of the Delaware General
Corporation Law, which restricts the consummation of certain business
combination transactions in certain circumstances. Because the Board will
approve (or will be deemed, pursuant to section 303 of the Delaware General
Corporation Law, to have approved) the issuance of the New Combined Company
Common Stock and the New Warrants, the statutory restrictions on business
combination transactions will not be applicable to any person or group (an
"Initial 15% Stockholder") that becomes or is deemed to become the beneficial
owner of 15% or more of the voting stock of the Combined Company as a result of
its receipt of New Combined Company Common Stock or New Warrants pursuant to the
Plan. However, the Certificate of Incorporation will contain provisions that are
substantially similar to those contained in section 203 of the Delaware General
Corporation Law that will restrict business combination transactions with (i)
any Initial 15% Stockholder that becomes the beneficial owner of an additional
1% or more of the voting stock of the Combined Company and (ii) any other person
or group that becomes the beneficial owner of 15% or more of the voting stock of
the Combined Company.
The foregoing provisions of the Certificate of Incorporation, the provisions
of the By-Laws relating to advance notice of stockholder nominations, and the
provisions of the New Combined Company Share Purchase Rights Agreement (see
"--New Combined Company Share Purchase Rights") may discourage or make more
difficult the acquisition of control of the Combined Company by means of a
tender offer, open market purchase, proxy contest, or otherwise. These
provisions are intended to discourage, or may have the effect of discouraging,
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Combined Company first to
negotiate with the Combined Company. The Plan Proponents believe that the
foregoing measures, many of which are substantially similar to the
takeover-related measures in effect for many other publicly held companies,
provide benefits by enhancing the Combined Company's potential ability to
negotiate with the proponent of any unfriendly or unsolicited proposal to take
over or restructure the Combined Company that outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms. While there necessarily
can be no assurance in this regard, the Plan Proponents also believe that the
foregoing measures are not likely to have a material impact on market prices for
New Combined Company Common Stock in circumstances other than those described
above in light of, among other factors, the existence of generally comparable
measures in effect for other publicly held companies and the Plan Proponents'
belief that market prices will be influenced most significantly by the Combined
Company's actual results of operations and prospects, general market and
economic conditions, and other traditional determinants of stock market prices
rather than takeover-related measures and other corporate governance provisions.
FUTURE STOCK ISSUANCES
The Combined Company will be obligated to issue shares of New Combined
Company Common Stock upon any exercise of some or all of the New Warrants. The
number of shares of New Combined
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Company Common Stock potentially issuable upon the exercise of New Warrants, and
the exercise price payable in connection therewith, is not presently
determinable. See "Operations During the Reorganization Cases--Plan
Negotiations" and "Securities to be Issued Pursuant to the Plan--New Warrants."
In addition, the Combined Company will be obligated to issue up to approximately
5.2 million shares of New Combined Company Common Stock (subject to adjustment)
upon any exercise of some or all of Federated's outstanding Series A Warrants
and Series B Warrants (which, from and after the Effective Time of the
Federated/Macy's Merger, will be exercisable to purchase shares of New Combined
Company Common Stock). Each such existing new warrant, when exercised, will
entitle the holder thereof to acquire one share of New Combined Company Common
Stock (subject to adjustment) at an exercise price of (i) $23.88 per share in
the case of the Series A Warrants, which expire February 15, 1996, or (ii)
$33.43 per share in the case of the Series B Warrants, which expire on February
15, 2000. The Combined Company may also become obligated to issue up to
approximately 4.0 million shares of New Combined Company Common Stock pursuant
to options granted under the Equity Plan prior to the date of this Disclosure
Statement (which options, from and after the Effective Time of the
Federated/Macy's Merger, will be exercisable to purchase shares of New Combined
Company Common Stock). Similarly, the Combined Company may become obligated to
issue up to approximately 8.6 million shares of New Combined Company Common
Stock upon the conversion of Federated's Senior Convertible Discount Notes (the
"Federated Convertible Notes") outstanding as of the date of this Disclosure
Statement (which, from and after the Effective Time of the Federated/Macy's
Merger, will be convertible into shares of New Combined Company Common Stock).
See "Other Indebtedness of the Combined Company--Federated Convertible Notes."
In addition, pursuant to the Federated POR, the Combined Company will be
obligated to issue an aggregate of 122,400 shares of New Combined Company Common
Stock to the United States Treasury in equal annual installments in the years
1995 through 1997.
The Combined Company will also be authorized to issue additional shares of
capital stock from time to time. There will be no specific restrictions upon
such issuances, except for a restriction on the number of shares of New Combined
Company Common Stock that may be issued pursuant to the Equity Plan and the
number of such shares that may be shares of Restricted Stock. As of the date of
this Disclosure Statement, the total number of shares of Federated Common Stock
that may be issued under the Equity Plan upon the exercise of stock options or
stock appreciation rights or as Restricted Stock may not exceed 9,600,000, and
the number of such shares issued as grants of Restricted Stock may not exceed
1,450,000. It is anticipated that, pursuant to the terms of the Equity Plan, in
connection with the Federated/Macy's Merger, Federated's Compensation Committee
will take action to provide for an appropriate increase in the maximum number of
shares of New Combined Company Common Stock that may be issued under the Equity
Plan and the number of such shares that may be issued as grants of Restricted
Stock. Under Delaware law, in the absence of actual fraud in the transaction,
the judgment of the directors as to the value of consideration received upon the
issuance of a corporation's capital stock is conclusive. In addition, as
permitted by Delaware law, under the Certificate of Incorporation, the Combined
Company's stockholders will not have preemptive rights to purchase additional
shares of capital stock of the Combined Company upon any issuance of such shares
authorized by the Board. See "Risk Factors--Certain Provisions of the Combined
Company's Certificate of Incorporation, By-Laws, and Other Agreements."
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SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
INTRODUCTION
As of the Effective Date, subject to the Refinance Transactions: (i) New
Macy's Primary Real Estate will issue the New Prudential Mortgage Notes; (ii)
New Macy's Warehouse Real Estate will issue the New GECC Mortgage Notes; (iii)
Kings Plaza Shopping Center of Avenue U, Inc., a wholly owned subsidiary of
Macy's ("Kings Plaza"), and New Macy's Secondary Real Estate will issue the New
John Hancock KPM Note and the New John Hancock Plaza Store Note (collectively,
the "New John Hancock Mortgage Notes"), respectively; and (iv) the Combined
Company will issue (a) the New Series A Notes, (b) the New Series B Notes, (c)
the New Series C Notes, (d) shares of New Combined Company Common Stock, and (e)
the New Warrants. Subject to the Refinance Transactions and the Plan provisions
described in "Overview of the Plan--Additional Information Regarding Treatment
of Certain Claims--Adjustments of Amounts of Certain Distributions," the
foregoing securities will be issued for distribution in accordance with the Plan
to holders of Allowed Claims in certain Classes. See "Overview of the
Plan--Summary of Classes and Treatment of Claims and Interests" and
"Distributions Under the Plan."
The following discussion summarizes certain provisions of the securities to
be issued pursuant to the Plan (other than the New John Hancock Mortgage Notes,
the aggregate principal amount and terms of which are immaterial). Such
summaries do not purport to be complete and are qualified in their entirety by
reference to the full text of the applicable documents setting forth the terms
and provisions of such securities. Forms of the Certificate of Incorporation and
By-Laws are attached as Appendices IV.C.1.a(i) and IV.C.1.a(ii), respectively,
to the Plan. Forms of each of the other documents setting forth the terms and
provisions of the securities to be issued pursuant to the Plan may be reviewed
at the Document Reviewing Centers. See "Additional Information."
Under the Plan, subject to the Refinance Transactions: (i) the New
Prudential Mortgage Notes will be issued to Prudential on account of its Allowed
Claims in Classes M-4, MOS-4, and MRS-4; (ii) the New GECC Mortgage Notes will
be issued to GECC on account of its Allowed Claims in Classes M-9 and MOS-9; and
(iii) the New Unsecured Notes will be issued to holders of Allowed Bank Loan
Claims and Swiss Bank (Classes M-5 through M-8, MOS-5 through MOS-8, MRS-5
through MRS-8, and MMS-4). See "Overview of the Plan--Summary of Classes and
Treatment of Claims and Interests." The Plan provides that Federated or the
Combined Company, at its sole option, may: (i) increase the amount of cash to be
distributed to Prudential, holders of Allowed Bank Loan Claims, and Swiss Bank
and make corresponding reductions in the respective amounts of New Debt or New
Combined Company Common Stock to be distributed to such creditors or (ii)
increase the aggregate principal amount of either the New Series B Notes or the
New Series C Notes to be distributed to holders of Allowed Bank Loan Claims and
Swiss Bank, in exchange for a corresponding reduction in the aggregate principal
amount of the other series. See "Overview of the Plan--Additional Information
Regarding Treatment of Certain Claims--Adjustments of Amounts of Certain
Distributions." In this regard, Federated is seeking to arrange the New Bank
Facilities, approximately $1,724.8 million of the net proceeds of which would be
applied to effect the Refinance Transactions. See "Overview of the Plan--Summary
of Classes and Treatment of Claims and Interests" and "Other Indebtedness of the
Combined Company--New Bank Facilities." In such event, in accordance with the
Plan provisions described in "Overview of the Plan--Additional Information
Regarding Treatment of Certain Claims--Adjustments of Amounts of Certain
Distributions," it is anticipated that no New Series A Notes or New Series C
Notes would be issued and that, in lieu thereof, the aggregate principal amount
of New Series B Notes that would be issued to holders of Allowed Bank Loan
Claims and Swiss Bank would be increased by $211.2 million, from $288.8 million
to $500.0 million. For simplicity, the discussion of the New Prudential Mortgage
Notes, New GECC Mortgage Notes, and New Unsecured Notes set forth below,
however, assumes that the maximum amount of such securities that is
distributable under the Plan will in fact be distributed.
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ASSUMPTIONS REGARDING VALUATION OF NEW SECURITIES
For purposes of the Plan, the New Combined Company Common Stock to be
distributed pursuant to the Plan (the "Distributable Shares") is assumed to have
an aggregate value of $1,697,767,100. The number of shares of New Combined
Company Common Stock that will constitute the Distributable Shares will be
determined as follows. The Distributable Shares will be divided into two pools.
"Distributable Shares (Pool A)" will be distributed to holders of Allowed
Claims, other than holders of Allowed Debt Security Claims, and "Distributable
Shares (Pool B)" will be distributed to holders of Allowed Debt Security Claims.
The aggregate values of the Distributable Shares (Pool A) and the Distributable
Shares (Pool B), for purposes of the Plan, are assumed to be $1,339,101,700 and
$358,665,400, respectively. The aggregate number of Distributable Shares (Pool
A) and Distributable Shares (Pool B) will be determined by dividing these
respective assumed values by the "Federated Average Market Price," which is the
average of the intraday high and low average sales prices on the NYSE, as
reported in The Wall Street Journal (National Edition), of the Federated Common
Stock for the 30 consecutive trading days ending on the sixth trading day prior
to the Effective Date; provided, however, that (i) in the case of Distributable
Shares (Pool A), if the Federated Average Market Price would otherwise be more
than 115%, or less than 85%, of the average of intraday high and low average
sales prices on the NYSE, as reported in The Wall Street Journal (National
Edition), of the Federated Common Stock for the 30 consecutive trading days
ending on the sixth trading day prior to: (a) the Confirmation Date, if the
Effective Date is within 45 days after the Confirmation Date, or (b) the day
determined pursuant to the following sentence (the "Pool A Collar End Date"), if
the Effective Date is more than 45 days after the Confirmation Date, the
Federated Average Market Price will be equal to 115% (if such amount would
otherwise exceed 115%) or 85% (if such amount would otherwise be less than 85%),
respectively, of such average and (ii) in the case of Distributable Shares (Pool
B), if the Federated Average Market Price would otherwise be more than $23.00,
or less than $18.00, the Federated Average Market Price will be equal to $23.00
(if such amount would otherwise exceed $23.00) or $18.00 (if such amount would
otherwise be less than $18.00), respectively, subject to adjustment if Federated
makes certain distributions on account of the outstanding shares of Federated
Common Stock, or subdivides, combines, or reclassifies the outstanding shares of
Federated Common Stock. If the Effective Date is more than 45 days after the
Confirmation Date but within 75 days after the Confirmation Date, the Pool A
Collar End Date will be the 30th day after the Confirmation Date, subject to
similar extension by an additional 30 days after the Confirmation Date for each
full 30-day period between the 75th day after the Confirmation Date and the
Effective Date, with the first such period commencing on the 75th day after the
Confirmation Date.
The assumed value of the Distributable Shares was established solely for
purposes of formulating the Plan, and does not purport to constitute an estimate
of the actual market value of the New Combined Company Common Stock as of the
Effective Date or any other date. The Combined Company will operate certain of
the existing businesses of Macy's and Federated under a new corporate structure
and a new capital structure, and historical prices of Federated Common Stock are
not necessarily indicative of future prices of New Combined Company Common
Stock. See "The Combined Company--Projected Financial Information." The actual
market value of the New Combined Company Common Stock at any particular time
will be influenced by a number of factors, including the Combined Company's
financial condition and results of operations, perceptions regarding the
Combined Company's prospects, and general market and economic conditions, and
may vary materially from the assumed value thereof used in formulating the Plan.
See "Risk Factors" for a discussion of certain factors that may affect the
financial performance of the Combined Company and of various risks associated
with the securities of the Combined Company to be issued pursuant to the Plan.
For purposes of the Plan, the New Warrants are assumed to have an aggregate
value of $139,152,300. An equal number of New Series C Warrants and New Series D
Warrants, having the respective terms described in "--New Warrants," will be
issued pursuant to the Plan. The number of New Series C Warrants and the number
of New Series D Warrants to be issued will each be equal to
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$139,152,300 divided by the sum of the assumed value of a New Series C Warrant
and the assumed value of a New Series D Warrant, which assumed values will be
determined in each case by applying the Black-Scholes valuation model. The
Black-Scholes valuation model is a complex mathematical formula used to value
warrants that takes into account a number of factors, including assumptions
regarding and estimates of the price of the underlying stock and the volatility
of such price, the exercise price of the warrant, the term of the warrant, and
prevailing interest rates. The key assumptions to be used in applying the
Black-Scholes valuation model to establish values for a New Series C Warrant and
a New Series D Warrant for the purposes of the Plan are as follows:
BLACK-SCHOLES WARRANT VALUATION MODEL ASSUMPTIONS
<TABLE>
<CAPTION>
NEW SERIES C WARRANT NEW SERIES D WARRANT
----------------------------- -----------------------------
<S> <C> <C>
Volatility................... 32.5% 32.5%
Exercise Price............... 130% of the Federated Average 150% of the Federated Average
Market Price (without any Market Price (without any
provision for a stock price provision for a stock price
collar as described above in collar as described above in
the calculation of the the calculation of the
Federated Average Market Federated Average Market
Price) Price)
Term to Maturity............. five years seven years
Interest Rate................ The average of the The average of the
interpolated yield on a interpolated yield on a
Five-Year U.S. Treasury Bond Seven-Year U.S. Treasury Bond
at 3:00 p.m. Eastern Time for at 3:00 p.m. Eastern Time for
the 10 trading days ending on the 10 trading days ending on
the sixth trading day prior the sixth trading day prior
to the Effective Date, as to the Effective Date, as
calculated by Bloomberg calculated by Bloomberg
Financial Markets news Financial Markets news
service service
</TABLE>
Due to the highly subjective nature of certain of these assumptions and
estimates and other factors, the assumed values of the New Warrants determined
in this manner are inherently uncertain and do not purport to constitute
estimates of the actual values of the New Warrants as of the Effective Date or
any other date. The actual values of the New Warrants at any particular time
will be influenced by a number of factors, including factors affecting the value
of the New Combined Company Common Stock and other factors not taken into
account in determining the values thereof. See "Risk Factors" for a discussion
of certain factors that may affect the financial performance of the Combined
Company and of various risks associated with the securities of the Combined
Company to be issued pursuant to the Plan.
For purposes of the Plan, the New Unsecured Notes are assumed to have values
equal to the respective principal amounts thereof. The actual values of the New
Unsecured Notes will be influenced by a number of factors, including prevailing
interest rates, the Combined Company's financial condition and results of
operations, perceptions regarding the Combined Company's prospects, and general
market and economic conditions, and may vary materially from the assumed values
thereof used in formulating the Plan. See "Risk Factors" for a discussion of
certain factors that may affect the financial performance of the Combined
Company and of various risks associated with the securities of the Combined
Company to be issued pursuant to the Plan.
NEW PRUDENTIAL MORTGAGE NOTES
The New Prudential Mortgage Notes will be issued to Prudential on account of
its Allowed Claims in Classes M-4, MOS-4, and MRS-4. See "Overview of the
Plan--Summary of Classes and Treatment of Claims and Interests."
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The New Prudential Mortgage Notes will be issued by New Macy's Primary Real
Estate, which will be a direct wholly owned subsidiary of New Macy's Real
Estate, substantially all of the assets of which will consist of the Encumbered
Stores (as defined below). See "The Combined Company-- Restructuring
Transactions--Real Estate Subsidiary Transactions." The Combined Company will
guaranty the New Prudential Mortgage Notes pursuant to a guaranty agreement
similar to the guaranty agreement entered into by Federated on December 31, 1993
in connection with FNC's acquisition of 50% of the Prudential Claims. See
"Operations During the Reorganization Cases--Plan Negotiations." The Combined
Company's obligations under the guaranty agreement will rank pari passu with all
senior unsecured debt obligations of the Combined Company. The principal amount
of the New Prudential Mortgage Notes will be approximately $550.9 million.
The New Prudential Mortgage Notes will bear interest at a rate per annum
equal to the sum of (i) the average yield, as measured over the 10 trading days
immediately preceding the Effective Date, for United States Treasury securities
having a 10-year maturity plus (ii) a mortgage spread of 275 basis points. The
mortgage spread will be reduced by 25 basis points if: (a) the $340.0 million
note dated December 31, 1993 from FNC to Prudential matures and, prior to
maturity, there occur no defaults under the terms of the note; and (b) the
long-term senior debt of the Combined Company is rated "BB" or better by
Standard & Poor's Corporation. If, however, Standard & Poor's Corporation
subsequently downgrades the rating of the Combined Company's long-term senior
debt to any level below "BB," the mortgage spread will be increased to its
original level and will remain at that level until the final maturity of the New
Prudential Mortgage Notes.
Interest will begin to accrue on the New Prudential Mortgage Notes on
January 31, 1995. During the first five years following the Effective Date,
accrued interest on the New Prudential Mortgage Notes will be payable quarterly
in arrears. No repayments of principal of the New Prudential Mortgage Notes will
be scheduled during the first five years following the Effective Date.
Thereafter, New Macy's Primary Real Estate will be obligated to make quarterly
installment payments of principal and interest based on a 15-year amortization
schedule, with a final installment of principal and all accrued and unpaid
interest being payable on June 30, 2005.
The New Prudential Mortgage Notes will be secured by a first priority
(subject to certain pre-existing mortgages) mortgage lien on certain department
store properties that will consist of properties that secure Macy's prepetition
obligations to Prudential under the Macy's/Prudential Loan Agreement and certain
other properties that will be transferred to New Macy's Primary Real Estate
(collectively, the "Encumbered Stores"), the fee or leasehold interest in which
will be held by New Macy's Primary Real Estate. The lien on the Encumbered
Stores will also secure the FNC Note (as defined below) on an equal and ratable
basis. See "Other Indebtedness of the Combined Company-- FNC Promissory Note."
With limited exceptions, mandatory prepayments of the New Prudential Mortgage
Notes will be required upon the sale of any Encumbered Store. The New Prudential
Mortgage Notes will also be secured by a limited security interest in the name
"Macy's" and other names employed by the Combined Company or any applicable
operating subsidiary in the conduct of its business (collectively, the "Trade
Names") in connection with Encumbered Stores. This limited security interest
will provide Prudential with substantively similar rights as the prepetition
license agreement between Prudential and Macy's and will authorize Prudential to
use the Trade Names in connection with a foreclosure or other enforcement action
with respect to one or more of the Encumbered Stores following an event of
default under the New Prudential Mortgage Note and Guaranty Agreement.
NEW GECC MORTGAGE NOTES
The New GECC Mortgage Notes will be issued to GECC on account of its Allowed
Claims in Classes M-9 and MOS-9. See "Overview of the Plan--Summary of Classes
and Treatment of Claims and Interests."
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The New GECC Mortgage Notes will be issued by New Macy's Warehouse Real
Estate, which will be a direct wholly owned subsidiary of New Macy's Real Estate
and substantially all of the assets of which will consist of warehouse
properties previously owned by certain operating subsidiaries of Macy's and
mortgaged to GECC to secure Macy's obligations under the Macy's/GECC Loan
Agreement and certain other properties that will be transferred to New Macy's
Warehouse Real Estate. See "The Combined Company--Restructuring
Transactions--Real Estate Subsidiary Transactions." The principal amount of the
New GECC Mortgage Notes will be approximately $53.5 million.
The New GECC Mortgage Notes will bear interest at a rate per annum equal to
the sum of (i) the average yield, as measured over the 10 trading days
immediately preceding the Effective Date, for United States Treasury securities
having a five-year maturity plus (ii) 275 basis points. Interest will begin to
accrue on the New GECC Mortgage Notes on January 31, 1995. Accrued interest on
the New GECC Mortgage Notes will be payable semiannually in arrears. The New
GECC Mortgage Notes will mature and be repayable in full on the fifth
anniversary of the Effective Date. The New GECC Mortgage Notes will be secured
by a first priority mortgage lien on the properties of New Macy's Warehouse Real
Estate (collectively, the "Encumbered Properties"). Upon any sale, transfer, or
other disposition of any Encumbered Property, New Macy's Warehouse Real Estate
will be required to pay a specified release price to GECC as a prepayment of the
New GECC Mortgage Notes.
The Combined Company will guaranty the full payment of all payments of
interest with respect to the New GECC Mortgage Notes. In addition, the Combined
Company will indemnify GECC for all liabilities and obligations arising out of
or relating to matters arising out of compliance with, or relating to litigation
under, the environmental laws of the United States and of the states where the
Encumbered Properties are located. Both the interest guaranty and the
environmental indemnity described above will be governed by agreements that will
be substantially identical to corresponding agreements to which Macy's is
presently a party.
NEW UNSECURED NOTES
INTRODUCTION
The New Unsecured Notes will be issued by the Combined Company under the New
Global Indenture. The trustee under the New Global Indenture (the "Trustee") has
not yet been selected, but will be selected no later than the date of the
hearing with respect to Confirmation. The Trustee will be entitled to reasonable
compensation for its services.
The New Global Indenture will provide for the issuance by the Combined
Company from time to time of an unlimited amount of senior debt securities
consisting of debentures, notes, and/or other unsecured evidences of
indebtedness in one or more series. The senior debt securities issued under the
New Global Indenture, including the New Unsecured Notes, will be unsecured
obligations of the Combined Company that will not be subordinated and that will
rank equally and ratably with other unsecured and unsubordinated indebtedness of
the Combined Company. The specific designation, aggregate principal amount, rate
and time of payment of interest (if any), maturity, redemption terms (if any),
and any other terms and provisions of a particular series of senior debt
securities to be issued under the New Global Indenture that are not set forth in
the New Global Indenture will be established in the manner prescribed in the New
Global Indenture. In the case of the New Unsecured Notes, such terms and
provisions will be established pursuant to the New Series A Notes Supplemental
Indenture, the New Series B Notes Supplemental Indenture, and the New Series C
Notes Supplemental Indenture (collectively, the "New Supplemental Indentures"),
respectively, to the New Global Indenture to be entered into between the
Combined Company and the Trustee as of the Effective Date.
Certain terms and provisions of the New Unsecured Notes relating to the
aggregate principal amount of each series of New Unsecured Notes, the rate and
time of payment of interest for each series of New Unsecured Notes, the maturity
of each series of New Unsecured Notes, and the redemption terms of each series
of New Unsecured Notes are summarized below in "--New Series A Notes,"
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"--New Series B Notes," and "--New Series C Notes," respectively. Certain
provisions of the New Global Indenture and the New Supplemental Indentures that
will be applicable to each series of New Unsecured Notes are summarized below in
"--Common Provisions of the New Unsecured Notes." Certain defined terms used in
the following description of the New Unsecured Notes are set forth below in
"--Common Provisions of the New Unsecured Notes--Certain Defined Terms."
NEW SERIES A NOTES
The New Series A Notes are to be issued under the New Global Indenture and
the New Series A Notes Supplemental Indenture to the New Global Indenture and
will be unsecured and unsubordinated obligations of the Combined Company. The
aggregate principal amount of the New Series A Notes will be approximately
$385.0 million. The New Series A Notes will bear interest from January 31, 1995
at the rate per annum equal to 325 basis points over the average rate for United
States Treasury securities of comparable maturity for the 10 consecutive trading
days ending on the sixth trading day immediately preceding the Effective Date,
payable semiannually on June 15 and December 15 of each year, commencing June
15, 1995. The New Series A Notes will mature on June 30, 1999, subject to
earlier redemption as described below, at which time the entire unpaid principal
balance thereof will be payable in full.
On or after January 1, 1998, the New Series A Notes will be redeemable, at
the option of the Combined Company, at any time, in whole or in part, at the
redemption price of 100% of the principal amount thereof, plus accrued interest
to the redemption date. In addition, the New Series A Notes will be redeemable,
in whole or in part, at the option of the Combined Company, on or prior to
January 31, 1995, at the redemption price of 100% of the principal amount
thereof.
NEW SERIES B NOTES
The New Series B Notes are to be issued under the New Global Indenture and
the New Series B Notes Supplemental Indenture to the New Global Indenture and
will be unsecured and unsubordinated obligations of the Combined Company. The
aggregate principal amount of the New Series B Notes will be approximately
$288.8 million. The New Series B Notes will bear interest from January 31, 1995
at the rate per annum equal to 350 basis points over the average rate for United
States Treasury securities of comparable maturity for the 10 consecutive trading
days ending on the sixth trading day immediately preceding the Effective Date,
payable semiannually on June 15 and December 15 of each year, commencing on June
15, 1995. The New Series B Notes will mature on June 30, 2002, subject to
earlier redemption as described below, at which time the entire unpaid principal
balance thereof will be payable in full.
On or after June 30, 1999, the New Series B Notes will be redeemable, at the
option of the Combined Company, at any time, in whole or in part, at the
redemption prices (expressed as percentages of the initial principal amount of
the New Series B Notes) set forth below, plus accrued interest to the redemption
date, if redeemed during the 12-month period commencing on any of the dates
indicated below:
<TABLE>
<CAPTION>
REDEMPTION YEAR PRICE
- ------------------------------------------------------------ -----
<S> <C>
June 30, 1999............................................... 103%
June 30, 2000............................................... 102%
June 30, 2001............................................... 101%
</TABLE>
In addition, the New Series B Notes will be redeemable, in whole or in part, at
the option of the Combined Company, on or prior to January 31, 1995, at the
redemption price of 100% of the principal amount thereof.
NEW SERIES C NOTES
The New Series C Notes are to be issued under the New Global Indenture and
the New Series C Notes Supplemental Indenture to the New Global Indenture and
will be unsecured and unsubordinated
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obligations of the Combined Company. The aggregate principal amount of the New
Series C Notes will be approximately $288.8 million. The New Series C Notes will
bear interest from January 31, 1995 at the rate per annum equal to 375 basis
points over the average rate for United States Treasury securities of comparable
maturity for the 10 consecutive trading days ending on the sixth trading day
immediately preceding the Effective Date, payable semiannually on June 15 and
December 15 of each year, commencing on June 15, 1995. The New Series C Notes
will mature on June 30, 2005, subject to earlier redemption as described below,
at which time the entire unpaid principal balance thereof will be payable in
full.
On or after June 30, 2000, the New Series C Notes will be redeemable, at the
option of the Combined Company, at any time, in whole or in part, at the
redemption prices (expressed as percentages of the initial principal amount of
the New Series C Notes) set forth below, plus accrued interest to the redemption
date, if redeemed during the 12-month period commencing on any of the dates
indicated below:
<TABLE>
<CAPTION>
REDEMPTION YEAR PRICE
- ------------------------------------------------------------ -----
<S> <C>
June 30, 2000............................................... 105%
June 30, 2001............................................... 104%
June 30, 2002............................................... 103%
June 30, 2003............................................... 102%
June 30, 2004............................................... 101%
</TABLE>
In addition, the New Series C Notes will be redeemable, in whole or in part, at
the option of the Combined Company, on or prior to January 31, 1995, at the
redemption price of 100% of the principal amount thereof.
COMMON PROVISIONS OF THE NEW UNSECURED NOTES
Certain provisions of the New Global Indenture and the New Supplemental
Indentures that will be applicable to each series of New Unsecured Notes,
including restrictive and affirmative covenants of the Combined Company, events
of default and remedies therefor, provisions relating to the defeasance of the
New Unsecured Notes, and provisions relating to the modification or waiver of
the provisions of the New Global Indenture and the New Supplemental Indentures,
are set forth below. Certain defined terms used in the following discussion are
set forth below in "--Certain Defined Terms."
Ranking
The New Unsecured Notes will rank pari passu with all existing and future
Senior Indebtedness of the Combined Company and will rank senior to all future
Subordinated Indebtedness of the Combined Company.
Registered Form; Transfers
The New Unsecured Notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof. Principal of and interest
on the New Unsecured Notes will be payable, and the transfer of New Unsecured
Notes will be registerable, at the office or agency of the Combined Company
maintained for such purposes and at any other office or agency maintained for
such purpose. No service charge will be made for any registration of transfer or
exchange of the New Unsecured Notes, but the Combined Company may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
Limitation on Indebtedness
The Combined Company will not be permitted to incur, assume, guarantee, or
otherwise become liable with respect to any Indebtedness other than Permitted
Indebtedness referred to in clauses (i) through (iii), clauses (v) and (vi), and
clauses (viii) through (xii) of the definition thereof unless immediately
thereafter the Interest Coverage Ratio is 2.25 to 1.0 or greater, after giving
effect, on a pro forma basis, to the obligations of the Combined Company and
Restricted Subsidiaries of the Combined Company in respect of such Indebtedness.
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The Restricted Subsidiaries will not be permitted to incur, assume,
guarantee, or otherwise become liable with respect to any Indebtedness other
than Permitted Indebtedness referred to in clauses (i) through (iii), clauses
(v) and (vi), clauses (viii) through (x), and clause (xii) of the definition
thereof; provided, however, that the Restricted Subsidiaries may incur Permitted
Indebtedness referred to in clauses (iv) and (vii) of the definition thereof if
immediately thereafter the Interest Coverage Ratio is 2.25 to 1.0 or greater,
after giving effect, on a pro forma basis, to the obligations of the Combined
Company and the Restricted Subsidiaries in respect of such Indebtedness.
Limitation on Liens
The Combined Company and the Restricted Subsidiaries will not be permitted
to create, incur, assume, or suffer to exist any liens upon any of their
respective assets, other than Permitted Liens, unless the New Unsecured Notes
are secured by an equal and ratable lien on the same assets.
Limitation on Asset Sales
The Combined Company and the Restricted Subsidiaries may not consummate any
sale of assets (other than sales of inventories, goods, fixtures, and accounts
receivable in the ordinary course of business and sales of assets to the
Combined Company or a wholly owned subsidiary of the Combined Company) unless
such sale is for fair market value and, in the case of individual sales of
assets for which the consideration received is more than $10.0 million, at least
75% of the consideration therefor consists of either (i) any combination of
cash, cash equivalents, or promissory notes secured by letters of credit or
similar assurances of payment issued by commercial banks of recognized standing
or (ii) capital asset contributions or capital expenditures made for or on
behalf of the Combined Company or a subsidiary by a third party. Asset sales not
subject to "Limitation on Transactions with Affiliates" will be presumed to be
for fair market value if the consideration received is less than $10.0 million,
and will be conclusively presumed to have been for fair market value if the
transaction is determined by the Board to be fair, from a financial point of
view, to the Combined Company. To the extent that the aggregate amount of net
cash proceeds from such sales of assets that shall not have been reinvested in
the business of the Combined Company or its Subsidiaries or used to reduce
Senior Indebtedness of the Combined Company or its Subsidiaries within 12 months
of the receipt of such proceeds, with cash equivalents being deemed to be
proceeds upon receipt of such cash equivalents and cash payments under
promissory notes secured as aforesaid being deemed to be proceeds upon receipt
of such payments shall exceed $50.0 million ("Excess Sale Proceeds") from time
to time, such Excess Sale Proceeds will be used to offer to repurchase New
Unsecured Notes (on a pro rata basis with any other Senior Indebtedness of the
Combined Company or its Subsidiaries required by the terms of such Indebtedness
to be purchased with such Excess Sale Proceeds) at 100% of principal amount,
plus accrued interest, and to pay related costs and expenses. To the extent that
the aggregate purchase price for New Unsecured Notes or other Senior
Indebtedness tendered pursuant to such an offer to purchase is less than the
aggregate purchase price offered in such offer, an amount of Excess Sale
Proceeds equal to such shortfall will cease to be Excess Sale Proceeds and may
thereafter be used for general corporate purposes. If the aggregate purchase
price for New Unsecured Notes or other Senior Indebtedness tendered pursuant to
such an offer to purchase exceeds the amount of such Excess Sale Proceeds, the
Trustee will select the New Unsecured Notes or other Senior Indebtedness to be
purchased on a pro rata basis.
Limitation on Sale and Leaseback Transactions
The Combined Company and the Restricted Subsidiaries will not be permitted
to enter into any sale and leaseback transaction unless (i) the capital lease
obligation incurred in connection therewith complies with the "Limitation on
Indebtedness" covenant and (ii) the net cash proceeds therefrom are applied in
compliance with the "Limitation on Asset Sales" covenant.
Limitation on Restricted Payments
The Combined Company and the Restricted Subsidiaries will not be permitted
to: (i) declare or pay any dividend on, or make any other distribution on
account of, the Combined Company's capital
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stock; (ii) purchase, redeem, or otherwise acquire or retire for value any
capital stock (including any option, warrant, or right to purchase capital
stock) of the Combined Company owned beneficially by a Person other than a
wholly owned subsidiary of the Combined Company; (iii) purchase, redeem, or
otherwise acquire or retire for value the principal of any Subordinated
Indebtedness (other than the ASGREC Mortgage Loan Facility (as defined below))
prior to the scheduled maturity thereof other than pursuant to mandatory
scheduled redemptions or repayments; or (iv) make any Investment other than
Permitted Investments (all such dividends, distributions, purchases,
redemptions, or investments being collectively referred to as "Restricted
Payments"); if, at the time of such action, or after giving effect thereto: (a)
an Event of Default shall have occurred and is continuing; (b) the Combined
Company could not incur at least $1.00 of additional Indebtedness under the
Interest Coverage Ratio test; or (c) the cumulative amount of Restricted
Payments made subsequent to the Effective Date shall be greater than the sum of:
(1) 50% of the Combined Company's cumulative consolidated net income (or a
negative amount equal to 100% of the Combined Company's cumulative consolidated
net loss, if applicable) from January 31, 1995 through the end of the Combined
Company's fiscal quarter next preceding the taking of such action; (2) 100% of
the aggregate net cash proceeds received by the Combined Company from the issue
or sale of capital stock of the Combined Company (other than redeemable capital
stock), including capital stock issued upon the conversion of convertible
Indebtedness issued on or after the Effective Date, in exchange for outstanding
Indebtedness, or from the exercise of options, warrants, or rights to purchase
capital stock of the Combined Company to any Person other than to a subsidiary
of the Combined Company subsequent to the Effective Date (with the Combined
Company being deemed, in the case of capital stock issued upon conversion or in
exchange for Indebtedness, to have received net cash proceeds equal to the
principal amount of the Indebtedness so converted or exchanged); and (3) $250.0
million; provided, however, that: (A) the payment of any dividend within 60 days
after the date of declaration thereof, if such declaration complied with the
foregoing provisions on the date of such declaration; (B) the purchase,
redemption, or other acquisition or retirement for value of any shares of
capital stock of the Combined Company in exchange for, or out of the proceeds
of, a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of other shares of capital stock (other than redeemable capital
stock) of the Combined Company; (C) the redemption or other acquisition or
retirement for value prior to any scheduled maturity of any Subordinated
Indebtedness in exchange for, or out of the proceeds of, a substantially
concurrent issue and sale of (i) capital stock (other than redeemable capital
stock) of the Combined Company or (ii) Subordinated Indebtedness of the Combined
Company; (D) any purchase, redemption, or other acquisition or retirement for
value of any capital stock (including any option, warrant, or right to purchase
capital stock) of the Combined Company issued to any employee or director of the
Combined Company pursuant to any employee benefit or similar plan; and (E) any
redemption of share purchase rights issued pursuant to Federated's existing
share purchase rights plan (as the same may be amended from time to time) or any
similar successor replacement share purchase rights plan involving an aggregate
redemption price (i) for any one such redemption of less than $30.0 million and
(ii) for all such redemptions of not more than $60.0 million, will not be deemed
to constitute "Restricted Payments" and will not be prohibited.
Limitation on Transactions with Affiliates
Neither the Combined Company nor any Restricted Subsidiary will be permitted
to: (i) sell, lease, transfer, or otherwise dispose of any of its properties,
assets, or securities to; (ii) purchase any property, assets, or securities
from; or (iii) enter into any contract or agreement with, or for the benefit of,
an Affiliate, within the meaning of Rule 405 promulgated by the SEC under the
Securities Act, of the Combined Company or a subsidiary of the Combined Company
(other than the Combined Company or a wholly owned subsidiary of the Combined
Company) (an "Affiliate Transaction") other than Affiliate Transactions in the
ordinary course of business which in the aggregate do not exceed: (a) $25.0
million in any one Affiliate Transaction or series of related Affiliate
Transactions unless a majority of the disinterested members of the Board
determines that such Affiliate Transaction or series of Affiliate Transactions
is on terms not less favorable to the Combined Company or such Restricted
Subsidiary
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than those that would apply to an arms-length transaction with an unaffiliated
party; and (b) $100.0 million in any one Affiliate Transaction or series of
related Affiliate Transactions unless the test set forth in clause (a) has been
satisfied and the Board shall have been advised by an independent financial
advisor that, in the opinion of such advisor, such Affiliate Transaction or
series of Affiliate Transactions is fair, from a financial point of view, to the
Combined Company or such Restricted Subsidiary. For purposes of this provision,
there will be a rebuttable presumption that any Person that holds more than 15%
of the stock having ordinary voting power of an entity is an "Affiliate" of such
entity.
Limitation on Merger and Certain Other Transactions
The Combined Company, in a single transaction or through a series of related
transactions, will not be permitted to consolidate with or merge with or into
any other Person, or transfer (by lease, assignment, sale, or otherwise) all or
substantially all of its properties and assets to another Person unless: (i)
either (a) the Combined Company shall be the continuing Person in such a
consolidation or merger or (b) the Person (if other than the Combined Company)
formed by such consolidation or into which the Combined Company is merged or to
which all or substantially all of the properties and assets of the Combined
Company are transferred (the Combined Company or such other Person being
referred to as the "Surviving Person") shall be a corporation organized and
validly existing under the laws of the United States, any state thereof, or the
District of Columbia, and shall expressly assume, by an indenture supplement,
all the obligations of the Combined Company under the New Unsecured Notes and
the New Global Indenture and the Trustee shall receive a favorable written
opinion of counsel with respect to satisfaction of the foregoing conditions;
(ii) immediately after and giving effect to such transaction and the assumption
contemplated by clause (i) above and the incurrence or anticipated incurrence of
any Indebtedness to be incurred in connection therewith (a) the Surviving Person
shall have a consolidated net worth equal to or greater than the consolidated
net worth of the Combined Company immediately preceding the transaction and (b)
the Surviving Person could incur $1.00 of additional Indebtedness under the
Interest Coverage Ratio test; and (iii) immediately before and immediately after
and giving effect to such transaction and the assumption of the obligations as
set forth in clause (i) above and the incurrence or anticipated incurrence of
any Indebtedness to be incurred in connection therewith, no Event of Default
shall have occurred and be continuing.
Event Risk Provision
Following any Change of Control, the Combined Company will offer to
repurchase the New Unsecured Notes at a price equal to 101% of the principal
amount thereof (or, if the New Unsecured Notes are then redeemable at par, 100%
of the principal amount thereof), plus interest accrued thereon to the date
established for such repurchase.
Limitation on Payment Restrictions Affecting Subsidiaries
The Combined Company will not be permitted to, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist any
contractual restriction on the ability of any Restricted Subsidiary to (i) pay
any dividend on, or make any other distribution on account of, its capital stock
or pay any Indebtedness owed to the Combined Company or a Restricted Subsidiary
or (ii) make loans or advances to the Combined Company or a Restricted
Subsidiary, except for (a) restrictions existing as of the Effective Date, (b)
restrictions in the documentation setting forth the terms of or entered into in
connection with any Permitted Indebtedness, or (c) other restrictions arising in
the ordinary course of business otherwise than in connection with financing
transactions.
Limitation on the Issuance of Subsidiary Preferred Stock
The Combined Company will not permit any Restricted Subsidiary to issue any
shares of preferred stock other than (i) preferred stock issued to the Combined
Company or a wholly owned subsidiary of the Combined Company or (ii) preferred
stock issued to any other Person if, at the time of such issuance, after giving
effect thereto on a pro forma basis, such Restricted Subsidiary could have
incurred additional Indebtedness in an amount equal to the aggregate liquidation
value of such
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preferred stock (assuming such Indebtedness were incurred to the Persons and for
the purposes to which and for which such preferred stock was issued).
Restriction on Permitting Unrestricted Subsidiaries to Become Restricted
Subsidiaries
The Combined Company will not permit any Unrestricted Subsidiary to be
designated as a Restricted Subsidiary unless such subsidiary has outstanding no
Indebtedness except such Indebtedness as the Combined Company could permit it to
become liable for immediately after becoming a Restricted Subsidiary and such
Subsidiary is otherwise in compliance with all provisions of the New Global
Indenture and the applicable New Supplemental Indenture that apply to Restricted
Subsidiaries.
Maintenance of Office or Agency
The Combined Company will be required to maintain an office or agency in
each place of payment for each series of New Unsecured Notes for notice and
demand purposes and for the purposes of presenting or surrendering New Unsecured
Notes for payment, registration of transfer, or exchange.
Paying Agents, Etc.
If the Combined Company acts as its own paying agent with respect to any
series of New Unsecured Notes, on or before each due date of the principal of,
or interest on any of the New Unsecured Notes of that series, it will be
required to segregate and hold in trust for the benefit of the persons entitled
thereto a sum sufficient to pay such amount due and to notify the Trustee
promptly of its action or failure so to act. If the Combined Company has one or
more paying agents for any series of New Unsecured Notes, prior to each due date
of the principal of or interest on any New Unsecured Notes of that series, it
will deposit with a paying agent a sum sufficient to pay such amount, and the
Combined Company will promptly notify the Trustee of its action or failure to so
act (unless such paying agent is the Trustee). All moneys paid by the Combined
Company to a paying agent for the payment of principal of and interest on any
New Unsecured Note that remain unclaimed for two years after such principal or
interest has become due and payable may be repaid to the Combined Company, and
thereafter the holder of such New Unsecured Note may look only to the Combined
Company for payment thereof.
Payment of Taxes and Other Claims
The Combined Company will be required to pay and discharge, before the same
become delinquent, (i) all taxes, assessments, and governmental charges levied
or imposed upon the Combined Company or any subsidiary of the Combined Company
or their properties and (ii) all claims that if unpaid would result in a lien on
their property and have a Material Adverse Effect, unless the same is being
contested by proper proceedings.
Maintenance of Properties
The Combined Company will be required to cause all properties used in the
business of the Combined Company or any subsidiary of the Combined Company to be
maintained and kept in good condition, repair, and working order, except to the
extent that the failure to do so would not have a Material Adverse Effect.
Existence
The Combined Company will be required to, and also will be required to cause
its subsidiaries to, preserve and keep in full force and effect their existence,
charter rights, statutory rights, and franchises, except to the extent that
failure to do so would not have a Material Adverse Effect.
Compliance with Laws
The Combined Company will be required to and to cause its subsidiaries to
comply with all applicable laws to the extent the failure to do so would have a
Material Adverse Effect.
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Events of Default
The following are "Events of Default" with respect to each series of New
Unsecured Notes: (i) failure to pay principal of or premium, if any, on any New
Unsecured Note of that series when due; (ii) the failure to redeem or repurchase
any series of the New Unsecured Notes when required pursuant to the applicable
New Supplemental Indenture; (iii) failure to pay any interest on any New
Unsecured Note of that series when due, which failure continues for 30 days;
(iv) failure to perform any other covenant of the Combined Company in the New
Global Indenture or the New Supplemental Indentures (other than a covenant
included in the New Global Indenture solely for the benefit of a series of
senior debt securities other than that series), which failure continues for 60
days after written notice as provided in the New Global Indenture; (v) any
nonpayment at maturity or other default (beyond any applicable grace period)
under any agreement or instrument relating to any other indebtedness for
borrowed money of the Combined Company the principal amount of which is not less
than $50.0 million, which default results in the acceleration of the maturity of
such indebtedness prior to its stated maturity or occurs at the final maturity
thereof; (vi) certain events of bankruptcy, insolvency, or reorganization of the
Combined Company or any Significant Subsidiary; and (vii) the entry of any final
judgment(s) or order(s) against the Combined Company or any of its subsidiaries
in excess of $50.0 million individually or in the aggregate (not covered in full
by insurance) that is not paid, discharged, or otherwise stayed for 60 days. The
Trustee will be required, within 90 days after the occurrence of a default in
respect of any series of New Unsecured Notes, to give to the holders of New
Unsecured Notes of such series notice of all such uncured defaults known to it
(except that, in the case of a default in the performance of any covenant of the
character contemplated in clause (iii) of the preceding sentence, no such notice
to holders of the New Unsecured Notes of such series will be given until at
least 30 days after the occurrence thereof); provided, however, that, except in
the case of a default of the character contemplated in clause (i) or (ii) of the
preceding sentence, the Trustee may withhold such notice if and so long as it in
good faith determines that the withholding of such notice is in the interests of
the holders of the New Unsecured Notes of such series.
If an Event of Default with respect to a series of New Unsecured Notes
occurs and is continuing, either the Trustee or the holders of at least 25% in
principal amount of the New Unsecured Notes of that series by notice as provided
in the New Global Indenture may declare the principal amount of all New
Unsecured Notes of that series to be due and payable immediately. However, at
any time after a declaration of acceleration with respect to New Unsecured Notes
of any series has been made, but before a judgment or decree based on such
acceleration has been obtained, the holders of a majority in principal amount of
the New Unsecured Notes of that series may, under certain circumstances, rescind
and annul such acceleration. See "--Modification and Waiver" below.
The New Global Indenture will provide that, subject to the duty of the
Trustee thereunder during an Event of Default to act with the required standard
of care, such Trustee will be under no obligation to exercise any of its rights
or powers under the New Global Indenture at the request or direction of any of
the holders of New Unsecured Notes of any series, unless such holders shall have
offered to the Trustee reasonable security or indemnity. Subject to certain
provisions, including those requiring security or indemnification of the
Trustee, the holders of a majority in principal amount of the New Unsecured
Notes of any series will have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the New Unsecured
Notes of that series.
No holder of New Unsecured Notes of any series will have any right to
institute any proceeding with respect to the New Global Indenture or for any
remedy thereunder, unless such holder will have previously given to the Trustee
written notice of a continuing Event of Default and unless also the holders of
at least 25% in aggregate principal amount of the outstanding New Unsecured
Notes of the same series shall have made written request, and offered reasonable
security or indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding New Unsecured Notes of the same
series
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a direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. However, such limitations will not apply to a
suit instituted by a holder of a New Unsecured Note for enforcement of payment
of the principal of and interest on such New Unsecured Note on or after the
respective due dates expressed in such New Unsecured Note.
Modification and Waiver
Modifications and amendments of the New Global Indenture may be made by the
Combined Company and the Trustee with the consent of the holders of not less
than a majority in aggregate principal amount of the New Unsecured Notes of each
series affected thereby, except that no such modification or amendment may,
without the consent of the holder of each New Unsecured Note affected thereby:
(i) change the stated maturity of, or any installment of principal of, or
interest on, any New Unsecured Note; (ii) reduce the principal amount of, the
rate of interest on, or the premium, if any, payable upon the redemption of, any
New Unsecured Note; (iii) change the place or currency of payment of principal
of, or premium, if any, or interest on any New Unsecured Note; (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
any New Unsecured Note on or after the stated maturity thereof; or (v) reduce
the percentage in principal amount of New Unsecured Notes of any series, the
consent of the holders of which is required for modification or amendment of the
New Global Indenture or for waiver of compliance with certain provisions of the
New Global Indenture or for waiver of certain defaults.
The holders of at least a majority in aggregate principal amount of the New
Unsecured Notes of any series may on behalf of the holders of all New Unsecured
Notes of that series waive, insofar as that series is concerned, compliance by
the Combined Company with certain covenants of the New Global Indenture. The
holders of not less than a majority in principal amount of the New Unsecured
Notes of any series may, on behalf of the holders of all New Unsecured Notes of
that series, waive any past default under the New Global Indenture with respect
to that series, except a default in the payment of the principal of, or premium,
if any, or interest on, any New Unsecured Note of that series or in respect of a
provision that under the New Global Indenture cannot be modified or amended
without the consent of the holder of each New Unsecured Note of that series
affected.
Defeasance
The Combined Company, at its option, (i) will be deemed to have been
discharged from its obligations with respect to the New Unsecured Notes of a
particular series (except for certain obligations, including obligations to
register the transfer or exchange of New Unsecured Notes of such series, to
replace destroyed, stolen, lost, or mutilated New Unsecured Notes of such
series, and to maintain an office or agency in respect of the New Unsecured
Notes and hold moneys for payment in trust) or (ii) will be released from its
obligations to comply with the restrictive covenants described above (other than
with respect to Change of Control) with respect to the New Unsecured Notes of
such series, and the occurrence of an event described in clause (iv) under
"Events of Default" above with respect to any defeased covenant will no longer
be an Event of Default if, in either case, the Combined Company irrevocably
deposits with the Trustee, in trust, money or direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged or obligations of an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, that, in either case, are not callable at the issuer's option
("U.S. Government Obligations") that through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay all the principal of and any interest on the New Unsecured
Notes of such series on the dates such payments are due in accordance with the
terms of such New Unsecured Notes. Such defeasance may be effected only if,
among other things: (i) no Event of Default or event that, with the giving of
notice or lapse of time, or both, would become an Event of Default under the New
Global Indenture shall have occurred and be continuing on the date of such
deposit; (ii) no Event of Default described under clause (vi) under "Events of
Default" above or event that with the giving of notice or lapse of time, or
both, would become an Event of Default described under such
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clause (vi) shall have occurred and be continuing at any time on or prior to the
124th day following such date of deposit; (iii) the Combined Company shall have
delivered an opinion of counsel to the effect that, among other things, the
holders of the applicable New Unsecured Notes should not recognize gain or loss
for United States federal income tax purposes as a result of such deposit or
defeasance and should be subject to United States federal income tax in the same
manner as if such defeasance had not occurred; (iv) the Combined Company shall
have delivered to the Trustee an opinion of a nationally recognized independent
public accounting firm certifying the sufficiency of the amount of any U.S.
Government Obligations placed on deposit to pay, without regard to any
reinvestment of any accrued interest, principal, interest, and premium, if any,
on the applicable series of New Unsecured Notes no later than one day prior to
when due; and (v) such defeasance will not result in a breach or violation of,
or constitute a default under, any other agreement to which the Combined Company
is a party or violate any law to which the Combined Company is subject. In the
event the Combined Company fails to comply with its remaining obligations under
the New Global Indenture after a defeasance of such New Global Indenture with
respect to the New Unsecured Notes of any series as described under clause (ii)
of the second next preceding sentence and the New Unsecured Notes of such series
are declared due and payable because of the occurrence of any undefeased Event
of Default, the amount of money and U.S. Government Obligations on deposit with
the Trustee may be insufficient to pay amounts due on the New Unsecured Notes of
such series at the time of the acceleration resulting from such Event of
Default. The Combined Company, however, will remain liable in respect of such
payments.
Satisfaction and Discharge
The Combined Company, at its option, may satisfy and discharge the New
Global Indenture (except for certain obligations of the Combined Company and the
Trustee, including the obligations to apply money held in trust) when: (i)
either (a) all senior debt securities (including all series of New Unsecured
Notes) previously authenticated and delivered (other than (1) senior debt
securities that were destroyed, lost, or stolen and that have been replaced or
paid, and (2) senior debt securities for the payment of which money has been
deposited in trust or segregated and held in trust by the Combined Company and
thereafter repaid to the Combined Company or discharged from such trust) have
been delivered to the Trustee for cancellation, or (b) all such senior debt
securities not theretofore delivered to the Trustee for cancellation (1) have
become due and payable, (2) will become due and payable at their stated maturity
within one year, or (3) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name and at the expense of the Combined Company, and the
Combined Company has deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and discharge
the entire indebtedness on such senior debt securities not previously delivered
to the Trustee for cancellation, for principal and any premium and interest to
the date of such deposit (in the case of senior debt securities that have become
due and payable) or to the stated maturity or redemption date, as the case may
be; (ii) the Combined Company has paid or caused to be paid all other sums
payable under the New Global Indenture by the Combined Company; and (iii) the
Combined Company has delivered to the Trustee an officer's certificate and an
opinion of counsel, each to the effect that all conditions precedent relating to
the satisfaction and discharge of the New Global Indenture have been satisfied.
Governing Law
The New Global Indenture and the senior debt securities issued thereunder
(including the New Unsecured Notes) will be governed by, and construed in
accordance with, the laws of the State of New York.
Regarding the Trustee
The New Global Indenture will contain certain limitations on the right of
the Trustee, should it become a creditor of the Combined Company, to obtain
payment of claims in certain cases, or to realize for its own account on certain
property received in respect of any such claim as security or otherwise.
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The Trustee will be permitted to engage in certain other transactions. If the
Trustee acquires any conflicting interest and there is a default under any
series of senior debt securities issued under the New Global Indenture
(including the New Unsecured Notes), however, the Trustee must eliminate such
conflict or resign.
Certain Defined Terms
For purposes of the New Supplemental Indentures, the following definitions
apply:
"Cash Equivalent" means: (i) obligations issued or unconditionally
guaranteed as to principal and interest by the United States of America or by
any agency or authority controlled or supervised by and acting as an
instrumentality of the United States of America; (ii) obligations (including,
but not limited to, demand or time deposits, bankers' acceptances, and
certificates of deposit) issued by a depository institution or trust company or
a wholly owned subsidiary or branch office of any depository institution or
trust company, provided that (a) such depository institution or trust company
has, at the time of the Combined Company's or any Restricted Subsidiary's
Investment therein or contractual commitment providing for such investment,
capital, surplus, or undivided profits (as of the date of such institution's
most recently published financial statements) in excess of $100.0 million and
(b) the commercial payer of such depository institution or trust company, at the
time of the Combined Company's or any Restricted Subsidiary's Investment therein
or contractual commitment providing for such investment, is rated at least A1 by
Standard & Poor's Corporation or P-1 by Moody's Investors Service; (iii) debt
obligations (including, but not limited to, commercial paper and medium term
notes) issued or unconditionally guaranteed as to principal and interest by any
corporation, state or municipal government or agency or instrumentality thereof,
or foreign sovereignty, if the commercial paper of such corporation, state or
municipal government, or foreign sovereignty, at the time of the Combined
Company's or any Restricted Subsidiary's investment therein or contractual
commitment providing for such investment, is rated at least A1 by Standard &
Poor's Corporation or P-1 by Moody's Investors Service; (iv) repurchase
obligations with a term of not more than 30 days for underlying securities of
the type described above entered into with a depository institution or trust
company meeting the qualifications described in clause (ii) above; and (v)
Investments in money market or mutual funds that invest solely in Cash
Equivalents; provided, however, that, in the case of the clauses (i) through
(iii) above, each such investment has a maturity of one year or less from the
date of acquisition thereof.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act) of more than 50% of the total voting
stock of the Combined Company; (ii) the Combined Company consolidates with, or
merges with or into, another Person or sells, assigns, conveys, transfers,
leases, or otherwise disposes of all or substantially all of its assets to any
Person, or another Person consolidates with, or merges with or into, the
Combined Company, in any such event pursuant to a transaction in which the
outstanding voting stock of the Combined Company is converted into or exchanged
for cash, securities, or other property, other than any such transaction where
(a) the outstanding voting stock of the Combined Company is converted into or
exchanged for (1) voting stock (other than redeemable voting stock) of the
surviving or transferee corporation, (2) cash, securities, and other property in
an amount that could be paid by the Combined Company as a Restricted Payment, or
(3) a combination thereof, and (b) immediately after such transaction (1) no
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act), of more than 50% of the total voting stock of
the Combined Company and (2) the stockholders of the Combined Company
immediately prior to such transaction hold, immediately following such
transaction, a majority of the total voting power of the Person surviving such
transaction; (iii) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
stockholders of the Combined Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office; or (iv) the dissolution or liquidation of the Combined Company.
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"Existing Indebtedness" means all Indebtedness under or evidenced by: (i)
the New Unsecured Notes; (ii) the Federated Series A Notes (as defined below);
(iii) the FNC Note (as defined below); (iv) the ASGREC Mortgage Loan Facility
(as defined below); (v) the New Prudential Mortgage Notes; (vi) the New GECC
Mortgage Notes; (vii) the Lazarus PA Mortgage Term Loan (as defined below);
(viii) the capital lease obligations of the Combined Company and the Restricted
Subsidiaries either (a) reflected on the July 30, 1994 Balance Sheet of
Federated, (b) consistent with the Combined Company Business Plan and the
Projections, or (c) incurred in complete or partial substitution of any of the
foregoing capital lease obligations; (ix) the approximately $35.1 million of
uncertificated obligations of Federated owed to the Internal Revenue Service and
other taxing authorities; (x) the approximately $267.5 million of uncertificated
obligations of Macy's owed to the Internal Revenue Service and other taxing
authorities; (xi) the existing other secured Macy's mortgage debt to be assumed
pursuant to the Plan; (xii) the New John Hancock Mortgage Notes; (xiii) the
other secured Indebtedness of the Combined Company or secured or unsecured
Indebtedness of the Restricted Subsidiaries either (a) reflected on the July 30,
1994 Balance Sheet of Federated, (b) issued, assumed, or reinstated pursuant to
the Plan, (c) consistent with the Combined Company Business Plan and the
Projections, (d) incurred for the purpose of providing working capital, or (e)
incurred in complete or partial substitution of any of the foregoing
Indebtedness; and (xiv) any bank borrowings incurred on or prior to the
Effective Date in complete or partial substitution of any of the foregoing.
"Indebtedness" means, as applied to any Person, without duplication: (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person for the deferred purchase price of property or services (other than
property and services purchased, and expense accruals and deferred compensation
items arising, in the ordinary course of business); (iii) all obligations of
such Person evidenced by notes, bonds, debentures, redeemable preferred stock,
or other similar instruments (other than performance, surety, and appeals bonds
arising in the ordinary course of business); (iv) all payment obligations
created or arising under any conditional sale, deferred price, or other title
retention agreement with respect to property acquired by such Person (unless the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property); (v) any capital
lease obligation of such Person; (vi) all reimbursement, payment, or similar
obligations, contingent or otherwise, of such Person under acceptance, letter of
credit, or similar facilities (other than letters of credit in support of trade
obligations or incurred in connection with public liability insurance, workers'
compensation, unemployment insurance, old-age pensions, and other social
security benefits other than in respect of employee benefit plans subject to
ERISA); (vii) all obligations of such Person, contingent or otherwise, under any
guarantee by such Person of the obligations of another Person of the type
referred to in clauses (i) through (vi) above; and (viii) all obligations
referred to in clauses (i) through (vi) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any mortgage or security interest in property (including without
limitation accounts, contract rights, and general intangibles) owned by such
Person and as to which such Person has not assumed or become liable for the
payment of such obligations other than to the extent of the property subject to
such mortgage or security interest; provided, however, that Indebtedness of the
type referred to in clauses (vii) and (viii) above will be included within the
definition of "Indebtedness" only to the extent of the least of: (a) the amount
of the underlying Indebtedness referred to in the applicable clause (i) through
(vi) above; (b) in the case of clause (vii), the limit on recoveries, if any,
from such Person under obligations of the type referred to in clause (vii)
above; and (c) in the case of clause (viii), the aggregate value (as determined
in good faith by the Board) of the security for such Indebtedness.
"Interest Coverage Ratio" means the ratio of: (i) the sum of: (a) net income
(other than net income of any Restricted Subsidiary during a period in which
such Restricted Subsidiary is prohibited from paying dividends pursuant to any
provision referred to in clause (ii)(b) of "Limitation on Payment Restrictions
Affecting Subsidiaries"), (b) net interest expense (including as interest cash
dividends with respect to redeemable preferred stock), (c) income tax expense,
(d) depreciation expense, (e) amortization expense, and (f) extraordinary and
unusual losses, less the full amount of extraordinary
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and unusual gains, of the Combined Company and its Subsidiaries on a
consolidated basis, all as determined in accordance with generally accepted
accounting principles (or, in respect of the net income of any Restricted
Subsidiary for purposes of the parenthetical in clause (i)(a) above, the normal
accounting practices of such Restricted Subsidiary as in effect from time to
time); to (ii) net interest expense (including as interest cash dividends with
respect to redeemable preferred stock).
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any capital stock, bonds, notes, debentures, or other securities
or evidences of indebtedness issued by, any other Person. The amount of any
Investment shall be the original cost thereof, plus the cost of all additions
thereto, without any adjustments for increases or decreases in value, write-ups,
write-downs, or write-offs with respect to such Investment.
"Material Adverse Effect" means a material adverse change in the ability of
the Combined Company (taken together with its subsidiaries as a whole) to
satisfy its obligations under the New Global Indenture or the senior debt
securities issued thereunder (including the New Unsecured Notes).
"Permitted Indebtedness" means: (i) Existing Indebtedness; (ii) Indebtedness
incurred for the purpose of providing the Combined Company and its subsidiaries
with working capital, including bankers' acceptances, letters of credit, and
similar assurances of payment, in outstanding amounts not to exceed $1,250.0
million at any particular time, subject to increase from and after the Effective
Date at a rate (compounded annually) equal to 3% per annum; (iii) Indebtedness
existing as of the Effective Date of any subsidiary of the Combined Company
engaged primarily in the business of owning or leasing real property; (iv)
Indebtedness incurred for the purpose of financing store construction and
remodeling or other capital expenditures; (v) unsecured Indebtedness among the
Combined Company and its subsidiaries; (vi) Indebtedness in respect of the
deferred purchase price of property or arising under any conditional sale or
other title retention agreement; (vii) Indebtedness of a Person acquired by the
Combined Company or a subsidiary of the Combined Company at the time of such
acquisition; (viii) to the extent deemed to be "Indebtedness," obligations under
agreements or arrangements designed to provide protection against fluctuations
in interest rates or currency exchange rates; (ix) other Indebtedness in
outstanding amounts not to exceed $500.0 million in the aggregate incurred by
the Combined Company and the Restricted Subsidiaries at any particular time; (x)
the approximately $101.5 million of uncertificated obligations of certain
subsidiaries of Federated owed to certain former holders of prepetition claims
against such subsidiaries or their predecessors due February 4, 1995; (xi) the
Indebtedness represented by the Federated Convertible Notes; and (xii)
Indebtedness incurred in connection with any extension, renewal, refinancing,
replacement, or refunding (including successive extensions, renewals,
refinancings, replacements, or refundings), in whole or in part, of any
Indebtedness of the Combined Company or the Restricted Subsidiaries; provided,
however, that: (a) the principal amount of the Indebtedness so incurred does not
exceed the sum of the principal amount of the Indebtedness so extended, renewed,
refinanced, replaced, or refunded, plus all interest accrued thereon and all
related fees and expenses (including any payments made in connection with
procuring any required lender or similar consents); (b) in the case of the
extension, renewal, refinancing, replacement, or refunding of the Indebtedness
referred to in clause (xi) above, the Indebtedness so incurred is pari passu
with or subordinate to the New Unsecured Notes; and (c) in the case of the
refinancing, replacement, or refunding of the New Unsecured Notes in part on or
before January 31, 1995, not less than $200.0 million aggregate principal amount
of the New Unsecured Notes of any series remain outstanding following such
refinancing, replacement, or refunding if any New Unsecured Notes of such series
remain outstanding.
"Permitted Investments" means: (i) Cash Equivalents; (ii) Investment in
another Person, if as a result of such Investment (a) such other Person becomes
a Restricted Subsidiary of the Combined Company or (b) such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Combined Company or a Restricted
Subsidiary of the Combined Company; (iii) Investments in the Combined Company or
any Restricted Subsidiary of the Combined
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Company; (iv) Investments represented by accounts receivable created or acquired
in the ordinary course of business, extension of trade credit on commercially
reasonable terms in accordance with normal trade practices or liabilities to the
Combined Company or any Restricted Subsidiary represented by customer credit
card obligations; (v) commissions and advances to employees of the Combined
Company and its subsidiaries in the ordinary course of business; (vi)
Investments representing notes, securities, or other instruments or obligations
acquired in connection with the sale of assets; (vii) Investments in the form of
the sale (on a "true-sale" non-recourse basis) of receivables transferred from
the Combined Company or any Restricted Subsidiary, or transfers of cash, to an
Unrestricted Subsidiary as a capital contribution or in exchange for
indebtedness of such Unrestricted Subsidiary or cash; (viii) Permitted Joint
Venture Investments; (ix) Investments representing capital stock or obligations
issued to the Combined Company or any Restricted Subsidiary in settlement of
claims against any other Person by reason of a composition or readjustment of
debt or a reorganization of any debtor of the Combined Company or such
Restricted Subsidiary; (x) loans or other advances to vendors in connection with
in-store merchandising to be repaid either on a lump-sum basis or over a period
of time by delivery of merchandise; (xi) loans or advances to sublessees in an
aggregate amount not to exceed $5.0 million at any time outstanding; (xii)
construction advances to developers; (xiii) Investments in interest rate swap
agreements, interest rate insurance arrangements, or any other agreement or
arrangement designed to provide protection against fluctuations in interest
rates; and (xiv) other Investments not to exceed $100.0 million in the
aggregate.
"Permitted Joint Venture Investments" means Investments in joint ventures,
partnerships, or corporations that are engaged in the same or similar lines of
business as the Combined Company or a Restricted Subsidiary or in businesses
consistent with the fundamental nature of the business of the Combined Company
or a Restricted Subsidiary or Investments in joint ventures, partnerships or
corporations as are necessary or desirable to facilitate the business of the
Combined Company or a Restricted Subsidiary; provided, however, that the
business of such joint venture, partnership, or corporation is, by the terms of
the applicable joint venture agreement, partnership agreement, or corporate
charter, prohibited from the making of Investments other than Permitted
Investments to the extent that the Combined Company could make such Permitted
Investments directly.
"Permitted Liens" means: (i) liens (other than liens on inventory) securing
Indebtedness referred to in any of clauses (i) through (iv), clauses (vi)
through (x), and clause (xii) of the definition of "Permitted Indebtedness";
(ii) liens incurred and pledges and deposits made in the ordinary course of
business in connection with liability insurance, workers' compensation,
unemployment insurance, old-age pensions, and other social security benefits
other than in respect of employee benefit plans subject to ERISA; (iii) liens
securing performance, surety, and appeal bonds and other obligations of like
nature incurred in the ordinary course of business; (iv) liens on goods and
documents securing trade letters of credit; (v) liens imposed by law, such as
carriers', warehousemen's, mechanics', materialmen's, and vendor's liens,
incurred in the ordinary course of business and securing obligations which are
not yet due or which are being contested in good faith by appropriate
proceedings; (vi) liens securing the payment of taxes, assessments, and
governmental charges or levies (a) either (1) not delinquent or (2) being
contested in good faith by appropriate legal or administrative proceedings and
(b) as to which adequate reserves shall have been established on the books of
the relevant corporation in conformity with generally accepted accounting
principles; (vii) zoning restrictions, easements, rights of way, reciprocal
easement agreements, operating agreements, covenants, conditions, or
restrictions on the use of any parcel of property that are routinely granted in
real estate transactions or do not interfere in any material respect with the
ordinary conduct of the business of the Combined Company and its Subsidiaries or
the value of such property for the purpose of such business; (viii) liens on
property existing at the time such property is acquired; (ix) purchase money
liens upon or in any property acquired or held in the ordinary course of
business to secure Indebtedness incurred solely for the purpose of financing the
acquisition of such property; (x) liens on the assets of any subsidiary of the
Combined Company at the time such subsidiary is acquired; (xi) liens with
respect to obligations in outstanding amounts not to exceed $25.0 million at any
particular time and that (a) are not incurred in
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connection with the borrowing of money or obtaining advances or credit (other
than trade credit in the ordinary course of business) and (b) do not in the
aggregate interfere in any material respect with the ordinary conduct of the
business of the Combined Company and its Subsidiaries; and (xii) without
limiting the ability of the Combined Company or any Restricted Subsidiary to
create, incur, assume, or suffer to exist any lien otherwise permitted under any
of the foregoing clauses, any extension, renewal, or replacement, in whole or in
part, of any lien described in the foregoing clauses; provided, however, that
any such extension, renewal, or replacement lien is limited to the property or
assets covered by the lien extended, renewed, or replaced or substitute property
or assets, the value of which is determined by the Board to be not materially
greater than the value of the property or assets for which the substitute
property or assets are substituted.
"Person" means an individual, partnership, corporation (including without
limitation a business trust), joint stock company, trust, unincorporated
association, joint venture, or other entity, or a government or any political
subdivision or agency thereof.
"Restricted Subsidiary" means any direct or indirect subsidiary (as that
term is defined in Regulation S-X promulgated by the SEC) other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means any Indebtedness of the Company or its
Subsidiaries other than Subordinated Indebtedness.
"Significant Subsidiary" means any Subsidiary which accounts (or group of
Subsidiaries which if consolidated would account) for (i) 5% or more of the
total consolidated assets of the Combined Company and its Subsidiaries as of any
date of determination or (ii) 5% or more of the total consolidated revenues of
the Combined Company and its Subsidiaries for the most recently concluded fiscal
quarter.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Senior Notes.
"Unrestricted Subsidiary" means any entity designated as such in the
Indenture (including Federated's and Macy's existing receivables finance
subsidiaries, FDS National Bank, and the Federated Note Monetization Grantor
Trust) or by the Board, provided that such entity is a special purpose entity
formed for financing purposes.
NEW COMBINED COMPANY COMMON STOCK
The New Combined Company Common Stock will be issued to holders of Allowed
Claims in Classes M-4 through M-8, M-10 through M-13, MOS-4 through MOS-8,
MOS-10 through MOS-13, MRS-4 through MRS-8, MRS-10, MMS-4, and MMS-5, except
that (i) Prudential will not receive shares of New Combined Company Common Stock
in satisfaction of its Allowed Claims under the Macy's/Prudential Loan Agreement
and (ii) Federated will not receive shares of New Combined Company Common Stock
on account of its general Unsecured Claims in Class M-13. Except as provided in
the Prudential/Federated Intercreditor Agreement with respect to shares of New
Combined Company Common Stock received by FNC on account of its Allowed Claims
under the Macy's/Prudential Loan Agreement, pursuant to the Plan, FNC and Macy's
Financial will not sell, assign, grant any security interest in, pledge as
collateral, or otherwise transfer or encumber any shares of New Combined Company
Common Stock received by either such entity under the Plan; provided, however,
that FNC and Macy's Financial may transfer all or a portion of such shares to
(i) any wholly owned subsidiary of the Combined Company, which subsidiary will
hold such shares subject to the restrictions, or (ii) the Combined Company; and
provided further that New Combined Company Common Stock acquired by the Combined
Company may be retired and returned to the status of authorized but unissued
shares. See "Capital Stock of the Combined Company" for further information
regarding the New Combined Company Common Stock.
NEW WARRANTS
The New Warrants will consist of equal numbers of the New Series C Warrants
and the New Series D Warrants. The New Warrants will be issued to holders of
Allowed Debt Security Claims in
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Classes M-10, M-11, MOS-10, and MOS-11. The number of New Series C Warrants and
the number of New Series D Warrants will each be equal to $139,152,300 divided
by the sum of the assumed value of a New Series C Warrant and the assumed value
of a New Series D Warrant, which values will be determined in each case by
applying the Black-Scholes Warrant Valuation Model. See "--Assumptions Regarding
Valuation of New Securities."
The New Series C Warrants will be issued under the New Series C Warrants
Agreement to be entered into between the Combined Company and the agent for the
holders of the New Series C Warrants to be named therein. The New Series D
Warrants will be issued under the New Series D Warrants Agreement to be entered
into between the Combined Company and the agent for the holders of the New
Series D Warrants to be named therein. Federated will use its best efforts to
have the New Warrants listed for trading on the NYSE or accepted for quotation
through NASDAQ prior to the Effective Date. Each New Warrant initially will
entitle the holder thereof to acquire one share of New Combined Company Common
Stock at an exercise price equal to (i) 130% of the Federated Average Market
Price (without any provision for a stock price collar as described in
"--Assumptions Regarding Valuation of New Securities"), in the case of the New
Series C Warrants, and (ii) 150% of the Federated Average Market Price (without
any provision for a stock price collar as described in "--Assumptions Regarding
Valuation of New Securities"), in the case of New Series D Warrants.
The number and kind of shares purchasable upon the exercise of New Warrants
will be subject to adjustment in certain events as set forth in the New Warrants
Agreements, including the issuance of capital stock of the Combined Company as a
dividend or distribution on the New Combined Company Common Stock;
reclassifications, subdivisions, and combinations of the New Combined Company
Common Stock; the issuance to holders of New Combined Company Common Stock of
certain rights or warrants entitling them to subscribe for New Combined Company
Common Stock at less than the then-current market price of the New Combined
Company Common Stock; the distribution to holders of New Combined Company Common
Stock of securities or assets of the Combined Company or its subsidiaries or of
rights or warrants to purchase assets or securities of the Combined Company or
its subsidiaries (excluding cash dividends or cash distributions from retained
earnings); the issuance of shares of New Combined Company Common Stock for less
consideration than the then-current market price of the New Combined Company
Common Stock (subject to certain exceptions set forth in the New Warrants
Agreements); and the issuance of securities convertible into or exchangeable for
shares of New Combined Company Common Stock (subject to certain exceptions set
forth in the New Warrants Agreements), for a consideration per share of New
Combined Company Common Stock deliverable on such conversion or exchange that is
less than the current market price thereof (as determined in accordance with the
New Warrants Agreement); provided, however, that no adjustment in such shares
will be required in connection with the issuance of New Combined Company Common
Stock or other securities pursuant to the Plan, the New Combined Company Share
Purchase Rights Agreement (or any similar or successor share purchase rights
plan), any employee benefit or similar plan of the Combined Company, any
options, warrants, or rights outstanding as of the Effective Date, or an
underwritten public offering satisfying specified criteria, and no adjustment in
such shares will be required unless such adjustment would require a change in
the aggregate number of shares issuable upon the hypothetical exercise of a New
Warrant of at least 1% (but any adjustment requiring a change of less than 1%
will be carried forward and taken into account in any subsequent adjustment).
The New Series C Warrants will be exercisable at any time between the
Effective Date and the fifth anniversary of the Effective Date and the New
Series D Warrants will be exercisable at any time between the Effective Date and
the seventh anniversary of the Effective Date. The New Warrants Agreement will
contain certain other restrictions on transfer or exercise that are intended to
assure compliance with applicable securities and other laws. In addition,
pursuant to the Plan, Macy's Financial will not sell, assign, grant any security
interest in, pledge as collateral, or otherwise transfer or encumber any New
Warrants received under the Plan; provided, however, that Macy's Financial may
transfer all or a portion of such warrants to (i) any wholly owned subsidiary of
the Combined Company, which subsidiary will hold such warrants subject to the
foregoing restrictions, or (ii) the Combined Company.
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OTHER INDEBTEDNESS OF THE COMBINED COMPANY
Federated is seeking to arrange the New Bank Facilities in order to effect
the Refinance Transactions and to provide working capital financing for the
Combined Company. Of the $2,800.0 million of expected borrowings under the New
Bank Facilities, $1,724.8 million would be used to (i) make cash distributions
in lieu of distributions of certain New Debt and (ii) refinance certain existing
indebtedness of Federated. See "Overview of the Plan--Summary of Classes and
Treatment of Claims and Interests" and "The Combined Company--Projected
Financial Information." The consummation of the transactions contemplated by the
Plan and the Federated/Macy's Merger Agreement is not, however, conditioned upon
the New Bank Facilities being available to the Combined Company. Accordingly, in
addition to the New Bank Facilities, the following discussion summarizes the
material terms of each series of significant long-term debt of the Combined
Company or its subsidiaries that is anticipated to be outstanding immediately
after the Effective Date (in addition to the New Debt to be issued pursuant to
the Plan).
NEW BANK FACILITIES
Pursuant to a governing agreement to be entered into between the Combined
Company and the financial institutions named therein (the "New Credit
Agreement"), the New Bank Facilities would provide for loans of up to $2,800.0
million, consisting of (i) a $2,000.0 million revolving loan facility (the
"Revolving Loan Facility"), $900.0 million of which would be used to refinance
certain indebtedness, with the remaining $1,100.0 million to be used for the
Combined Company's working capital needs, and (ii) an $800.0 million term loan
facility (the "Term Loan Facility"), which would also be used to refinance
certain indebtedness. As of August 31, 1994, Federated had obtained financing
commitments (the "Initial Commitments") from Citibank, which would act as the
administrative agent and arranger for the New Bank Facilities, and Chemical Bank
("Chemical"), which would act as agent and co-arranger for the New Bank
Facilities. On the terms and subject to the conditions set forth in the Initial
Commitments, Citibank and Chemical have agreed (a) to make available to the
Combined Company a total of $1,100.0 million of the New Bank Facilities
(Citibank's commitment being in the amount of $600.0 million and Chemical's
commitment being in the amount of $500.0 million) and (b) to use their best
efforts to arrange for the syndication of the remainder of the New Bank
Facilities. The Initial Commitments are subject to various conditions,
including: (1) the execution of definitive documentation; (2) the effectiveness
of the Plan and the Federated/Macy's Merger; (3) the absence of any material
adverse change in the business, financial condition, or results of operations of
the Combined Company and its subsidiaries, taken as a whole, since April 30,
1994 or in loan syndication or financial or capital market conditions generally
from those currently in effect; and (4) other customary conditions.
Although Citibank and Chemical have agreed to use their best efforts to
syndicate the remainder of the New Bank Facilities and have advised Federated
that they are highly confident that they will be able to do so based on current
conditions in the loan syndication markets, there can be no assurance that the
remainder of the New Bank Facilities will be available to the Combined Company.
The consummation of the transactions contemplated by the Plan and the
Federated/Macy's Merger Agreement is not, however, conditioned upon the New Bank
Facilities being available to the Combined Company, and the Initial Commitments
are not subject to the successful syndication of the remainder of the New Bank
Facilities. If the remainder of the New Bank Facilities is not available to the
Combined Company, Citibank and Chemical have agreed that the Combined Company
may utilize the Initial Commitments as a revolving working capital and letter of
credit facility on terms substantially identical to those contemplated for the
New Bank Facilities, subject to the satisfaction of the terms and conditions
described above.
Federated's objectives in seeking to secure the New Bank Facilities for the
Combined Company are to (i) reduce significantly the Combined Company's overall
interest expense, (ii) simplify the Combined
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Company's capital structure, (iii) provide access to borrowings for the Combined
Company's working capital needs, and (iv) obtain funds to facilitate the
exercise of FNC's option to acquire the remainder of the Prudential Claims.
Assuming that the New Bank Facilities are available to the Combined Company,
$1,724.8 million of the net proceeds thereof would be used for the following
purposes (all amounts are as of January 28, 1995): (i) the distribution of
$462.6 million in cash to holders of Allowed Bank Loan Claims and Swiss Bank
(Classes M-5 through M-8, MOS-5 through MOS-8, MRS-5 through MRS-8, and MMS-4)
in lieu of the distribution of the New Series A Notes and New Series C Notes
(see "Securities to be Issued Pursuant to the Plan--New Unsecured Notes"); (ii)
the exercise of the option held by FNC to purchase the remainder of the
Prudential Claims for $473.9 million (see "Operations During the Reorganization
Cases--Plan Negotiations"); (iii) the prepayment of $335.2 million principal
amount of the FNC Note (see "--FNC Promissory Note"); (iv) the prepayment of
$273.6 million aggregate principal amount of the Federated Series A Notes (see
"--Federated Series A Secured Notes"); (v) the repayment of $103.9 million of
short-term borrowings; (vi) the application of $22.1 million in respect of
additional financing fees to be incurred in connection with the New Bank
Facilities; and (vii) the distribution of $53.5 million in cash to GECC on
account of its Allowed Claims in Classes M-9 and MOS-9 in lieu of the
distribution of the New GECC Mortgage Notes (see "Securities to be Issued
Pursuant to the Plan--New GECC Mortgage Notes"). In such event, in accordance
with the Plan, it is anticipated that no New Series A Notes or New Series C
Notes would be issued and that, in lieu thereof, the aggregate principal amount
of New Series B Notes that would be issued to holders of Allowed Bank Loan
Claims and Swiss Bank would be increased by $211.2 million, from $288.8 million
to $500.0 million. See "Overview of the Plan--Additional Information Regarding
Treatment of Certain Claims--Adjustments of Amounts of Certain Distributions."
If the remainder of the New Bank Facilities are not available to the
Combined Company on or prior to the Effective Date, Federated and Macy's believe
that the Combined Company will nonetheless have liquidity and capital resources
adequate to meet all obligations under the Plan and to satisfy the Combined
Company's debt service and working capital requirements. See "The Combined
Company-- Discussion and Analysis of Financial Condition and Results of
Operations" and "--Projected Financial Information."
REVOLVING LOAN FACILITY
The Revolving Loan Facility would provide for revolving credit loans
("Revolving Loans" and, together with the loans under the Term Loan Facility,
the "Loans") of up to $2,000.0 million, of which an aggregate of $1,100.0
million will be for working capital purposes (including a letter of credit
subfacility). The Revolving Loan Facility would include a swingline subfacility
pursuant to which certain of the lenders will advance up to $50.0 million to the
Combined Company on a same-day notice basis. The Revolving Loan Facility would
mature on March 31, 2000, with the Revolving Loans then outstanding to be repaid
in full on such date.
TERM LOAN FACILITY
The Term Loan Facility would mature on March 31, 2000 and would not require
any amortization of principal in the first year. Thereafter, the Combined
Company would be required to make quarterly amortization payments totalling, on
an annual basis: $100.0 million in year two; $150.0 million in year three;
$200.0 million in year four; and $350.0 million in year five. The Combined
Company would be permitted by the terms of the New Credit Agreement to make
voluntary prepayments of amounts outstanding under the Term Loan Facility at any
time without penalty or premium. Mandatory repayment of amounts outstanding
under the Term Loan Facility would be required (i) upon the occurrence of
certain events, such as the issuance of certain debt securities or certain asset
sales, and (ii) in the amount of a specified percentage of excess cash flow (as
defined in the New Credit Agreement), until such time as the Combined Company
has obtained an investment grade rating with
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respect to its long-term senior unsecured debt. Mandatory repayments of the Term
Loan Facility would be applied 50% to installments pro rata and 50% to
installments in inverse order of maturity, and, to the extent in excess thereof,
would next apply permanently to reduce the Revolving Loan Facility to a
specified minimum level.
INTEREST RATE
Loans under the New Bank Facility (other than Competitive Bid Loans (as
defined below)) would bear interest at a rate equal to, at the Combined
Company's option, (i) the agent's Base Rate (as defined below) in effect from
time to time plus the Applicable Margin (as defined below) ("Base Rate Loans")
or (ii) the agent's Eurodollar rate (adjusted for reserves) plus the Applicable
Margin ("Eurodollar Loans"). "Applicable Margin" initially means 0.0% for Base
Rate Loans and 1.00% for Eurodollar Loans, subject to adjustment based on the
Combined Company's long-term debt rating and interest coverage ratio. "Base
Rate" is a fluctuating interest rate equal to the highest from time to time of
(a) the rate of interest announced publicly by the agent in New York as its base
rate; (b) 1/2 of 1% per annum above the latest three-week moving average of
secondary market morning offering rates for three-month certificates of deposit
of major United States money market banks, as determined weekly by the agent and
adjusted for the cost of reserves and estimated insurance assessments from the
Federal Deposit Insurance Corporation; and (c) a rate equal to 1/2 of 1% per
annum above the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as determined for any day by the agent.
In addition to Base Rate Loans and Eurodollar Loans, the Revolving Loan
Facility would include a competitive bid component that would enable the
Combined Company to invite the lenders under the Revolving Loan Facility to bid
for loans having maturities of six months or less and consisting of either fixed
rate loans or Eurodollar Loans ("Competitive Bid Loans"). Each such lender would
have the opportunity to bid for Competitive Bid Loans at its discretion. The
Competitive Bid Loans would bear interest at the rate set forth in the bids
accepted by the Combined Company. The competitive bid component of the Revolving
Loan Facility may result in additional interest expense savings to the Combined
Company.
FEES
The banks participating in the New Bank Facilities would be entitled to
customary fees in connection with the New Bank Facilities.
SECURITY AND GUARANTEES
The Combined Company's obligations under the New Bank Facilities would be
secured by a pledge of the capital stock of certain of the Combined Company's
present and future subsidiaries, including all of the Combined Company's
operating subsidiaries, which pledge would be released upon the Combined Company
obtaining an investment grade rating with respect to its long-term senior
unsecured debt. Such obligations also would be guaranteed by certain
subsidiaries of the Combined Company, including all of the Combined Company's
operating subsidiaries.
COVENANTS
The New Credit Agreement would include customary affirmative and negative
covenants, including covenants requiring the Combined Company, subject to
certain exceptions, to (i) comply with laws, pay taxes, maintain insurance,
preserve its corporate existence, and permit the agent to inspect the Combined
Company's properties, books, and records; (ii) perform under its material
agreements; (iii) conduct transactions with affiliates at arm's length; (iv) not
create certain additional liens on the Combined Company's assets; (v) not incur
any material debt, other than as permitted by the New Credit Agreement; (vi) not
prepay, redeem, or otherwise satisfy prior to maturity any material debt; (vii)
not pay any dividends or make any other distributions to stockholders; and
(viii) not amend or
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otherwise alter the terms of any material debt instruments, related agreements,
or material contracts. The New Credit Agreement would require the Combined
Company to comply with certain financial covenants and to maintain certain
ratios, including EBITDA to interest, debt to total capital, and fixed charge
coverage ratios. Certain of these covenants would be liberalized or eliminated
in the event that the Combined Company obtains an investment grade credit
rating.
EVENTS OF DEFAULT
The New Credit Agreement would contain events of default customary for
transactions similar to those contemplated by the New Credit Agreement,
including: (i) the nonpayment of principal and amounts in reimbursement of
letters of credit when due and the nonpayment of interest, fees, or other
amounts within a specified number of days after the due date; (ii) the
nonpayment of principal or interest on certain material indebtedness; (iii) the
occurrence of certain events of bankruptcy or insolvency; (iv) the failure to
observe certain covenants under the New Credit Agreement, subject to applicable
grace periods; (v) the occurrence of certain ERISA events; and (vi) certain
transactions resulting in a change in control of the Combined Company.
FEDERATED'S EXISTING BANK CREDIT FACILITY
Federated is a party to a revolving credit loan and letter of credit
agreement (the "Existing Bank Credit Agreement") that is scheduled to expire on
April 3, 1995 and that provides for direct borrowings and the issuance of
letters of credit in the aggregate amount of up to $380.0 million (the "Existing
Bank Credit Facility"). The rate of interest on borrowings under the Existing
Bank Credit Facility is, at Federated's option, LIBOR plus 1.5% per annum or the
base rate described in the Existing Bank Credit Agreement plus 0.5% per annum.
Interest on the base rate loans is payable quarterly in arrears on the first
business day of the succeeding calendar quarter. LIBOR rate loans are available
for one-, two-, three-, or six-month interest periods, with interest on LIBOR
rate loans being payable on the last business day of the applicable interest
period or, in the case of six-month LIBOR interest periods, on the last business
day of the third and sixth months of such interest periods. As of July 30, 1994,
there were no revolving credit borrowings under the Existing Bank Credit
Facility and the aggregate face amount of letters of credit outstanding under
the Existing Bank Credit Facility was $80.2 million.
A commitment fee of 0.5% per annum is payable quarterly in arrears on the
average daily unused portion of the Existing Bank Credit Facility. Fees for
outstanding letters of credit are 1.0% per annum for outstanding trade letters
of credit and 1.5% per annum for outstanding stand-by letters of credit.
Federated's obligations under the Existing Bank Credit Agreement are secured
by (i) a first priority security interest in all of the outstanding capital
stock of each of Abraham & Straus, Inc., The Bon, Inc., Jordan Marsh Stores
Corporation, Lazarus, Inc., Stern's Department Stores, Inc., BFC Real Estate
Company, Federated Credit Holdings Corporation (the capital stock of which also
secures Federated's obligations under the Federated Series A Notes described
below, on a shared basis), and Allied Stores General Real Estate Company and
(ii) a second priority security interest in all of the outstanding capital stock
of each of Bloomingdale's, Inc., Burdines, Inc., and Rich's Department Stores,
Inc. With certain exceptions, each of Federated's subsidiaries has guaranteed
the payment of Federated's obligations under the Existing Bank Credit Agreement
to the extent of, in general, such subsidiary's net intercompany indebtedness
owed to Federated plus the amount of any capital
contributions received from Federated from time to time.
The Existing Bank Credit Agreement contains restrictive covenants, including
limitations on capital expenditures, additional borrowings, and dividends. The
Existing Bank Credit Agreement also
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requires Federated and its subsidiaries to comply with the following financial
covenants, all of which apply to Federated and its subsidiaries on a
consolidated basis:
(i) Maintain a leverage ratio (i.e., a ratio of senior indebtedness to
tangible net worth) at the end of each fiscal quarter set forth below not in
excess of the ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER MAXIMUM
ENDING IN LEVERAGE RATIO
- -------------------------------------------------------------- --------------
<S> <C>
October 1994.................................................. 1.35:1.0
January 1995.................................................. 1.30:1.0
April 1995.................................................... 1.30:1.0
</TABLE>
(ii) Maintain a tangible net worth at the end of each fiscal quarter set
forth below of not less than the minimum amount set forth opposite such
fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDING IN MINIMUM AMOUNT
- ------------------------------------------------------------ --------------
<S> <C>
October 1994................................................ $1.575 billion
January 1995................................................ $1.675 billion
April 1995.................................................. $1.675 billion
</TABLE>
(iii) Maintain for each period including the fiscal quarter set forth
below and each of the three fiscal quarters immediately preceding such
fiscal quarter a fixed charge coverage ratio not less than the ratio set
forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM
FISCAL QUARTER FIXED CHARGE
ENDING IN COVERAGE RATIO
- ------------------------------------------------------------- --------------
<S> <C>
October 1994................................................. 0.90:1.0
January 1995................................................. 0.90:1.0
April 1995................................................... 1.00:1.0
</TABLE>
(iv) Maintain for each period including the fiscal quarter set forth
below and each of the three fiscal quarters immediately preceding such
fiscal quarter an interest coverage ratio not less than the ratio set forth
opposite such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM
FISCAL QUARTER INTEREST
ENDING IN COVERAGE RATIO
- ------------------------------------------------------------- --------------
<S> <C>
October 1994................................................. 2.50:1.0
January 1995................................................. 2.75:1.0
April 1995................................................... 2.75:1.0
</TABLE>
(v) Maintain at the end of each fiscal quarter a working capital ratio
of not less than 1.20 to 1.
Federated intends to replace the Existing Bank Credit Facility prior to or
upon its scheduled termination with the Revolving Credit Facility under the New
Credit Agreement.
FEDERATED SERIES A SECURED NOTES
Federated is the issuer of certain Series A Secured Notes (the "Federated
Series A Notes"). The Federated Series A Notes are secured obligations of
Federated that mature on February 15, 1997 and bear interest at a rate per annum
equal to, at Federated's option, either (i) the base rate described in the note
agreement relating to the Federated Series A Notes (the "Federated Series A Note
Agreement")
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plus 1.5% or (ii) LIBOR plus 2.5%. Interest at the base rate is payable
quarterly. Interest at the LIBOR rate is payable at the end of each one-, two-,
three-, or six-month period, as selected by Federated, except that, with respect
to any LIBOR interest period of six months, accrued and unpaid interest is
payable at the end of the third and sixth months of such LIBOR interest period.
The outstanding aggregate principal amount of the Federated Series A Notes was
approximately $280.7 million as of July 30, 1994.
The Federated Series A Notes are secured by a first priority security
interest in: (i) all of the outstanding capital stock of each of Bloomingdale's,
Inc., Burdines, Inc., Rich's Department Stores, Inc., Federated Real Estate,
Inc., and Federated Credit Holdings Corporation (the capital stock of which also
secures Federated's obligations under the Existing Bank Credit Agreement, on a
shared basis); and (ii) certain real property of certain subsidiaries of
Federated Real Estate, Inc. The Federated Series A Notes are further secured by
a second priority security interest in all of the outstanding capital stock of
Abraham & Straus, Inc. and Lazarus, Inc.
Under certain circumstances, Federated is required to apply to the repayment
or redemption of the Federated Series A Notes a portion of the net proceeds
realized from (i) the sale, conveyance, or other disposition of collateral
securing the Federated Series A Notes or (ii) Federated's sale of shares of its
capital stock for its own account.
The Federated Series A Note Agreement contains certain restrictive
covenants, including limitations on capital expenditures, additional borrowings,
and dividends. Under the Federated Series A Note Agreement, Federated also must
maintain the following financial ratios (all of which apply to Federated and its
subsidiaries on a consolidated basis):
(i) a leverage ratio (i.e., a ratio of senior indebtedness to tangible
net worth) (a) at the end of each fiscal quarter through the fiscal quarter
ending in January 1995 not in excess of the ratio derived by dividing (1)
the aggregate principal amount of senior indebtedness of Federated and its
subsidiaries (other than its finance subsidiaries) outstanding on February
5, 1992 by (2) adjusted tangible net worth as of the end of such fiscal
quarter, (b) at the end of each of the first three fiscal quarters of fiscal
year 1995 not in excess of the ratio derived by dividing (1) the aggregate
principal amount of senior indebtedness of Federated and its subsidiaries
(other than its finance subsidiaries) outstanding on February 5, 1992 by (2)
adjusted tangible net worth as of the end of the fiscal quarter ending in
January 1995, and (c) at the end of each fiscal quarter from and after the
fiscal quarter ending in January 1996 not in excess of the ratio set forth
below opposite such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM
FISCAL QUARTER INTEREST
ENDING IN COVERAGE RATIO
- ------------------------------------------------------------- --------------
<S> <C>
January 1996................................................. 1.70:1.0
April 1996................................................... 1.70:1.0
July 1996.................................................... 1.70:1.0
October 1996................................................. 1.70:1.0
January 1997 and thereafter.................................. 1.45:1.0
</TABLE>
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(ii) for each period including the fiscal quarter set forth below and
each of the three fiscal quarters immediately preceding such fiscal quarter,
a fixed charge coverage ratio not less than the ratio set forth below
opposite such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM
FISCAL QUARTER INTEREST
ENDING IN COVERAGE RATIO
- ------------------------------------------------------------- --------------
<S> <C>
October 1994................................................. 0.90:1.0
January 1995................................................. 0.71:1.0
April 1995................................................... 0.71:1.0
July 1995.................................................... 0.71:1.0
October 1995................................................. 0.71:1.0
January 1996 and thereafter.................................. 0.95:1.0
</TABLE>
(iii) for each period including the fiscal quarter set forth below and
each of three fiscal quarters immediately preceding such fiscal quarter, an
interest coverage ratio not less than the ratio set forth below opposite
such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM
FISCAL QUARTER INTEREST
ENDING IN COVERAGE RATIO
- ------------------------------------------------------------- --------------
<S> <C>
October 1994................................................. 1.85:1.0
January 1995 and thereafter.................................. 2.00:1.0
</TABLE>
The Federated Series A Notes will be prepaid in full if the Combined Company
enters into the New Credit Agreement. See "--New Bank Facilities."
PRIME RECEIVABLES ASSET-BACKED CERTIFICATES
In 1992, a master trust (the "Master Trust") originated by Prime Receivables
Corporation ("Prime"), an indirect wholly owned special purpose finance
subsidiary of Federated, issued a total of $981.0 million of asset-backed
securities in four separate classes. The four classes of securities are: (i)
$450.0 million in aggregate principal amount of 7.05% Class A-1 Asset-Backed
Certificates, Series 1992-1 due December 15, 1997; (ii) $450.0 million in
aggregate principal amount of 7.45% Class A-2 Asset-Backed Certificates, Series
1992-2 due December 15, 1999; (iii) $40.5 million in aggregate principal amount
of 7.55% Class B-1 Asset-Backed Certificates, Series 1992-1 due January 15,
1998; and (iv) $40.5 million in aggregate principal amount of 7.95% Class B-2
Asset-Backed Certificates, Series 1992-2 due January 18, 2000. As of July 30,
1994, the aggregate principal amount of the certificates was $981.0 million. The
certificates represent undivided interests in the assets of the Master Trust,
which consist primarily of consumer credit card receivables generated by
Federated's department store operations, all of which have been (or, with
respect to future receivables generated by such operations, will be) purchased
by Prime pursuant to a bill of sale or purchase agreement and thereafter
transferred to the Master Trust. Because Macy's Credit Card Program established
by Macy's and GE Credit will continue in effect after the Effective Date, it is
not presently anticipated that Prime will purchase consumer credit card
receivables generated in accounts originated by the Macy's Subsidiaries either
before or after the Effective Date. See "The Combined Company--Business of the
Combined Company--Business Presently Operated by Macy's." Subject to the ability
of Prime, at its option, to make funds available to the Master Trust in certain
circumstances, payments of principal and interest on the certificates are funded
solely from collections of the receivables held by the Master Trust. Prime may
from time to time create other series of certificates that evidence undivided
interests in the assets of the Master Trust.
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SEVEN HILLS ASSET-BACKED COMMERCIAL PAPER
Seven Hills Funding Corporation, an indirect wholly owned special purpose
finance subsidiary of Federated ("Seven Hills"), is a party to a liquidity
facility with a syndicate of banks providing support for the issuance by Seven
Hills from time to time of up to $375.0 million of receivables-backed commercial
paper. The borrowings under the liquidity facility are secured by a pledge of
Seven Hills' variable funding certificate representing an undivided interest in
the Master Trust, and are entitled to the benefit of interest rate caps of 7% in
1994 and 10% thereafter. As of July 30, 1994, Seven Hills had approximately
$110.0 million of commercial paper outstanding and there were no borrowings
outstanding under the liquidity facility.
ASGREC MORTGAGE LOAN FACILITY
Allied Stores General Real Estate Company, a wholly owned subsidiary of
Federated ("ASGREC"), and certain of ASGREC's subsidiaries are parties to a
mortgage loan facility agreement (the "ASGREC Mortgage Loan Facility"). As of
July 30, 1994, approximately $345.0 million was outstanding under the ASGREC
Mortgage Loan Facility. Borrowings under the ASGREC Mortgage Loan Facility bear
interest at 9.99% per annum and will mature in 2002. Borrowings under the ASGREC
Mortgage Loan Facility are secured by liens on certain real property of such
subsidiaries.
LAZARUS PA MORTGAGE TERM LOAN
Lazarus PA, a wholly owned subsidiary of Federated, is a party to a mortgage
loan agreement providing for a nonamortizing term loan in the principal amount
of $40.0 million (the "Lazarus PA Mortgage Term Loan"). The outstanding
principal balance of the Lazarus PA Mortgage Term Loan bears interest at
fluctuating interest rates based on the interbank Eurodollar market plus 1.5%
and will mature in 1999. This indebtedness is secured by liens on certain real
property of Lazarus PA and is guaranteed by Federated on a full recourse basis.
FNC PROMISSORY NOTE
On December 31, 1993, FNC, a wholly owned subsidiary of Federated, acquired
50% of the Prudential Claims for $109.3 million in cash and a promissory note in
the principal amount of $340.0 million (the "FNC Note"). The FNC Note bears
interest at floating rates based on three-month LIBOR plus 1.75% (increasing to
2.0% beginning January 1995) and will mature on December 31, 1996. The FNC Note
is secured by a security interest in all of the property and assets of FNC
(including primarily the Prudential Claims acquired by FNC from Prudential and
distributions in respect thereof) and is guaranteed by Federated. FNC is
required to apply to the prepayment of the FNC Note all cash included in any
distribution (or earned on any noncash distribution) in respect of the
Prudential Claims purchased by it from Prudential. FNC has agreed to cause all
distributions in respect of the Prudential Claims purchased by it from
Prudential to be paid or delivered directly to Prudential until the obligations
under the FNC Note have been paid in full, with cash distributions to be applied
to reduce the obligations under the FNC Note and noncash distributions to be
held by Prudential as collateral. FNC is also required to prepay a portion of
the FNC Note under certain circumstances if a plan of reorganization of the
Debtors not proposed by Federated (either individually or together with
coproponents) is confirmed by the Bankruptcy Court.
Federated has agreed that, if a plan of reorganization proposed by Federated
provides for Federated to acquire all or substantially all of the assets or
equity interests of the Debtors, Federated will cause the FNC Note to become
secured equally and ratably with the New Prudential Mortgage Notes by the lien
on the Encumbered Stores granted to Prudential by New Macy's Primary Real
Estate. See "Securites to be Issued Pursuant to the Plan--New Prudential
Mortgage Notes."
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Moreover, on or prior to the Effective Date, Federated may exercise its option
to acquire the remainder of the Prudential Claims. See "Operations During the
Reorganization Cases--Plan Negotiations."
The FNC Note will be prepaid in full if the Combined Company enters into the
New Credit Agreement. See "--New Bank Facilities."
FEDERATED NOTE MONETIZATION FACILITY
On May 3, 1988, Federated sold its Filene's and Foley's divisions to May
Department Stores for consideration consisting in part of a $400.0 million
promissory note (the "May Note"). Federated subsequently transferred the May
Note to a grantor trust of which Federated is the beneficiary. Using the May
Note as collateral, the trust borrowed $352.0 million under a note monetization
facility and distributed the proceeds of such borrowing to Federated. The
trust's borrowing under the note monetization facility bears interest at
fluctuating interest rates based on LIBOR, subject to certain adjustments, and
matures in two equal installments on May 3, 1997 and 1998. An interest rate swap
agreement was entered into for the note monetization facility which, in effect,
converted the variable interest rate to a fixed rate of 10.344%. Neither
Federated nor any subsidiary of Federated is an obligor on the borrowing under
the note monetization facility, and the lender's recourse thereunder is limited
to the trust's assets and Federated's interest in the trust.
FEDERATED CONVERTIBLE NOTES
The Federated Convertible Notes are unsecured obligations of Federated that
mature on February 15, 2004 and bear interest at the rate of 6%; provided,
however, that such interest rate will be reset effective as of February 15, 1995
to a rate (not to exceed 10% per annum) equal to the sum of (i) the average for
hypothetical Eight-Year Treasury Notes during the 20 consecutive trading days
ending February 15, 1995 and (ii) 200 basis points, unless the per share closing
price of Federated Common Stock (or, following the effectiveness of the
Federated/Macy's Merger, New Combined Company Common Stock) is at least equal to
$35.00 (subject to adjustment in connection with the Federated/Macy's Merger)
for 20 consecutive trading days during the 12-month period ending February 15,
1995. The Federated Convertible Notes do not bear interest prior to February 15,
1995, but accrete from the deemed issue price thereof per $1,000 of stated
principal amount to such stated principal amount at the rate of 6% per annum
during the period prior to February 15, 1995. The outstanding aggregate stated
principal amount of the Federated Convertible Notes was approximately $307.4
million as of July 30, 1994.
On each of February 15, 2002, 2003, and 2004, Federated is required to pay
an amount equal to 33.3% of the aggregate stated principal amount of the
Federated Convertible Notes initially outstanding, in each case together with
accrued interest to the date of payment. In addition, subject to limitations
contained in other debt instruments, at any time on or after February 15, 1995,
Federated may make optional prepayments or redemptions of the Federated
Convertible Notes in whole or in part. All such prepayments will be made at 100%
of the stated principal amount prepaid or redeemed, together with interest
accrued to the date of prepayment or redemption.
At any time at the option of a holder of Federated Convertible Notes, such
holder has the right, subject to certain limitations, to convert the principal
of any such holder's Federated Convertible Notes into fully paid and
nonassessable shares of Federated Common Stock (or, following the effectiveness
of the Federated/Macy's Merger, New Combined Company Common Stock) at the rate
of 27.86 shares of Federated Common Stock (or, following the effectiveness of
the Federated/Macy's Merger, New Combined Company Common Stock) for each $1,000
stated principal amount of Federated Convertible Notes, provided that such
conversion rate will be appropriately adjusted to prevent dilution of such
conversion rights in the event of certain changes in or events affecting the
Federated Common Stock (or, following the effectiveness of the Federated/Macy's
Merger, New Combined Company Common
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Stock) and certain consolidations, mergers, sales, leases, transfers, or other
dispositions to which Federated (or, following the effectiveness of the
Federated/Macy's Merger, the Combined Company) is a party.
FEDERATED SUBSIDIARY TRADE OBLIGATIONS
Pursuant to the Federated POR, the holders of certain allowed general
unsecured prepetition claims against certain of Federated's subsidiaries are
entitled to receive a cash payment on February 4, 1995. The obligations of the
applicable subsidiaries of Federated (the "Subsidiary Trade Obligors") to make
such payment (the "Subsidiary Trade Obligations") have been estimated by
Federated at $101.5 million in the aggregate, exclusive of interest. Until all
disputed claims against the Subsidiary Trade Obligors are resolved in accordance
with the procedures set forth in the Federated POR, there can be no assurance
that the actual amounts thereof will not exceed such estimate by a material
amount. The Subsidiary Trade Obligations bear interest at the rate of 6.94% per
annum. The Subsidiary Trade Obligations are unsecured obligations of the
applicable Subsidiary Trade Obligors and are guaranteed by Federated on a
subordinated basis. The terms of the Federated POR relating to the Subsidiary
Trade Obligations include certain restrictions on, among other things, the
incurrence of indebtedness by the Subsidiary Trade Obligors and the payment of
dividends by the Subsidiary Trade Obligors or Federated.
MISCELLANEOUS MORTGAGE INDEBTEDNESS
In addition to the mortgage indebtedness described above, as of the
Effective Date, (i) Kings Plaza will issue the New John Hancock KPM Note in the
principal amount of approximately $5.2 million, (ii) New Macy's Secondary Real
Estate will issue the New John Hancock Plaza Store Note in the principal amount
of approximately $6.1 million, and (iii) certain other mortgage indebtedness of
the Debtors in an aggregate principal amount of approximately $27.3 million will
be Reinstated.
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RISK FACTORS
The securities to be issued pursuant to the Plan are subject to a number of
material risks, including those enumerated below. The risk factors enumerated
below assume Confirmation and the consummation of the Plan and the transactions
contemplated by the Plan and do not include matters that could prevent
Confirmation. See "Overview of the Plan--Summary of Classes and Treatment of
Claims and Interests" and "--Conditions to Confirmation and Effective Date of
the Plan" and "Voting and Confirmation of the Plan" for discussions of such
matters. Prior to voting on the Plan, each holder of impaired Claims against the
Debtors should carefully consider the risk factors enumerated or referred to
below as well as all of the information contained in this Disclosure Statement,
including the Exhibits hereto.
ANTITRUST MATTERS
On August 19, 1994, the Federal Trade Commission notified the Plan
Proponents that it had granted early termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. The Plan Proponents were advised by the Office of the Attorney General
for the State of New York, however, that it was investigating the competitive
effects of the Federated/Macy's Merger. On August 23, 1994, the Plan Proponents
were advised that the Office of the Attorney General for the State of New York
intended to commence litigation challenging the merger absent a mutually
satisfactory settlement of the matter. Discussions between the Plan Proponents
and the Attorney General's office are continuing. The Plan Proponents believe
that the Federated/Macy's Merger does not violate any federal or state antitrust
or other law. There presently can be no assurance, however, with respect to the
final outcome of this investigation, or its impact, if any, on the corporate
structure, business, or results of operations of the Combined Company. The Plan
Proponents have not been notified by the Attorneys General of any other
potentially affected states that they are investigating, or intend to
investigate, the Federated/Macy's Merger.
Pursuant to the Federated/Macy's Merger Agreement, Federated agreed to use
its reasonable efforts to obtain all consents, approvals, or authorizations of
any governmental authority required for the consummation of the Federated/Macy's
Merger under any applicable antitrust law, which efforts are deemed to include
divesting, holding separate, or otherwise taking action with respect to
Federated's or any of the Combined Company's assets and properties necessary to
comply therewith, except to the extent that certain actions, other than certain
possible actions previously discussed between Federated and Macy's, would, in
the aggregate, have a material adverse effect on the business, financial
condition, or results of operations of the Combined Company and its
subsidiaries, taken as a whole. See "The Combined Company--Restructuring
Transactions--The Federated/Macy's Merger--The Federated/Macy's Merger
Agreement--Access, Approvals, Notices, Etc." and "--Antitrust Matters." As noted
above, the Plan Proponents believe that the Federated/Macy's Merger does not
violate any federal or state antitrust or other law, and the pro forma and
projected financial information contained herein assumes that no divestitures or
other extraordinary actions will be required under any such law. See "The
Combined Company--Unaudited Pro Forma Combined Financial Information" and
"--Projected Financial Information." There can be no assurance, however, with
respect to such matters.
BUSINESS FACTORS AND COMPETITIVE CONDITIONS
The retailing industry is and will continue to be intensely competitive. The
Combined Company's stores will face increasing competition not only with other
department stores in the geographic areas in which they operate, but also with
numerous other types of retail outlets, including specialty stores, general
merchandise stores, off-price and discount stores, new and established forms of
home shopping (including mail order catalogs, television, and computer
services), and manufacturer outlets. The department store business is also
seasonal in nature with a high proportion of sales and operating
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income generated in November and December. Working capital requirements
fluctuate during the year, increasing somewhat in mid-Summer in anticipation of
the Fall merchandising season and increasing substantially prior to the
Christmas season as significantly higher inventory levels are necessary.
LEVERAGE; RESTRICTIVE COVENANTS
The Combined Company's consolidated indebtedness will be greater than its
shareholders' equity. See "The Combined Company--Pro Forma Capitalization of the
Combined Company," "--Unaudited Pro Forma Combined Financial Information," and
"--Projected Financial Information." The debt instruments to which the Combined
Company will be a party will contain a number of restrictive covenants and
events of default, including covenants limiting capital expenditures, incurrence
of debt, and sales of assets. In addition, under certain of its debt
instruments, the Combined Company will be required to achieve certain financial
ratios, some of which may become more restrictive over time, and a substantial
portion of the Combined Company's indebtedness will be secured by the capital
stock or assets of various subsidiaries of the Combined Company or has been
incurred by subsidiaries. See "Securities to be Issued Pursuant to the Plan" and
"Other Indebtedness of the Combined Company." Among other consequences, the
leverage of the Combined Company and such restrictive covenants and other terms
of the Combined Company's debt instruments could impair the Combined Company's
ability to obtain additional financing in the future, to make acquisitions, and
to take advantage of significant business opportunities that may arise. In
addition, the Combined Company's leverage may increase the vulnerability of the
Combined Company to adverse general economic and retailing industry conditions
and to increased competitive pressures. See "--Business Factors and Competitive
Conditions." Assuming that the New Bank Facilities are not available, total
required cash payments of principal in respect of the long-term indebtedness of
the Combined Company during the four-year period following the Effective Date
are anticipated to be approximately $1,548.2 million, which amount includes the
$352.0 million note monetization facility. See "The Combined Company--Projected
Financial Information."
SECURITY INTERESTS
The capital stock of certain of the Combined Company's subsidiaries and
substantially all of the receivables and real estate of the Combined Company and
its subsidiaries will be subject to various liens and security interests. See
"Securities to be Issued Pursuant to the Plan--New Prudential Mortgage Notes,"
"--New GECC Mortgage Notes," and "Other Indebtedness of the Combined Company."
If a holder of a security interest becomes entitled to exercise its rights as a
secured party, it would have the right to foreclose upon and sell or otherwise
transfer the collateral subject to its security interest, and the collateral
would be correspondingly unavailable to the Combined Company or the subsidiary
owning such collateral and to other creditors of the Combined Company or such
subsidiary, except to the extent, if any, that the value of the affected
collateral exceeds the amount of the indebtedness in respect of which such
foreclosure rights are exercised.
HOLDING COMPANY STRUCTURE
The Combined Company will be structured as a holding company, substantially
all of the operations of which will be conducted through subsidiaries.
Consequently, the Combined Company will rely principally on dividends or
advances, including advances pursuant to the Combined Company's cash management
system, from its subsidiaries for the funds necessary for, among other things,
the payment of principal of and interest on the New Debt. The ability of such
subsidiaries to pay dividends is subject to applicable state law and certain
other restrictions. Any right of the holders of the New Debt or New Combined
Company Common Stock to participate in the assets of any of the subsidiaries
upon such subsidiary's liquidation or recapitalization will be effectively
subordinated to the claims of
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such subsidiary's creditors and preferred stockholders (if any), except to the
extent that the Combined Company is itself recognized as a creditor of such
subsidiary.
DIVIDEND POLICIES; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Plan Proponents do not anticipate that the Combined Company will pay any
dividends on the New Combined Company Common Stock in the foreseeable future. In
addition, the covenants in certain debt instruments to which the Combined
Company will be a party will restrict the ability of the Combined Company to pay
dividends, and may prohibit the payment of dividends and certain other payments.
See "Other Indebtedness of the Combined Company." In particular, it is
anticipated that, if the New Bank Facilities are available to the Combined
Company, the New Credit Agreement will include a customary covenant prohibiting
the Combined Company from paying any dividends or making any other distributions
to stockholders. See "Other Indebtedness of the Combined Company-- New Bank
Facilities--Covenants." Moreover, certain institutional investors may invest
only in dividend-paying equity securities or may operate under other
restrictions that may prohibit or limit their ability to invest in New Combined
Company Common Stock.
LACK OF ESTABLISHED MARKET FOR THE NEW DEBT AND NEW EQUITY; VOLATILITY
There is no existing market for the New Debt or the New Equity. Although it
is a condition to the Effective Date that the New Combined Company Common Stock
be authorized for listing on the NYSE or accepted for quotation through NASDAQ,
and Federated has agreed to use its best efforts to cause the New Warrants to be
so authorized or accepted, there can be no assurance, even if such
authorizations or acceptances are obtained, that an active market for such
securities will develop or, if any such market does develop, that it will
continue to exist, or as to the degree of price volatility in any such market
that does develop. It is not presently contemplated that any of the New
Unsecured Notes, the New GECC Mortgage Notes, the New John Hancock Mortgage
Notes, or the New Prudential Mortgage Notes will be traded on a national
securities exchange or that an active trading market therefor will develop.
Accordingly, no assurance can be given that a holder of the New Debt will be
able to sell such securities in the future or as to the price at which any such
sale may occur. To the extent that markets for such securities may exist, the
prices at which such securities trade may depend upon many factors, including
prevailing interest rates, markets for similar securities, industry conditions,
and the performance of, and investor expectations for, the Combined Company.
All of the New Debt and the New Warrants and a material portion of the
shares of New Combined Company Common Stock expected to be outstanding
immediately following the Effective Date will be issued pursuant to the Plan to
prepetition creditors of the Debtors, some of whom may prefer to liquidate their
investment rather than to hold it on a long-term basis. Accordingly, to the
extent that markets for such securities may exist, they may be volatile, at
least for an initial period after the Effective Date.
PROJECTIONS
The Projections included in this Disclosure Statement are inherently
uncertain and are dependent upon, among other factors, the reliability of the
assumptions upon which such Projections are based. See "The Combined
Company--Projected Financial Information." These Projections are based upon
numerous assumptions, including Confirmation and consummation of the Plan in
accordance with its terms, the realization of net cash proceeds from certain
asset sales, the anticipated future performance of the Combined Company,
industry performance, general business and economic conditions, increasingly
intense competition in the retailing industry, and other matters, most of which
are beyond the control of the Combined Company and some of which may not
materialize. In addition, unanticipated events and circumstances occurring
subsequent to the preparation of the Projections may affect the actual financial
results of the Combined Company. Accordingly, the actual results achieved
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<PAGE>
during the Projection Period will vary from the projected results. These
variations may be material. See "The Combined Company--Projected Financial
Information."
NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION
As a result of the consummation of the Plan and the transactions
contemplated thereby, the Combined Company will operate the existing businesses
of Macy's and Federated on a combined basis under a new corporate structure and
a new capital structure. See "The Combined Company-- Restructuring
Transactions," "--Business of the Combined Company," "--Pro Forma Capitalization
of the Combined Company," "--Unaudited Pro Forma Combined Financial
Information," and "--Projected Financial Information." Accordingly, the
financial condition and results of operations of the Combined Company from and
after the Effective Date will not be comparable to the financial condition or
results of operations reflected in the historical financial statements of
Federated and Macy's contained in this Disclosure Statement.
CERTAIN TAXATION MATTERS
The Combined Company will be subject to audits by taxing authorities with
respect to periods both before the Federated/Macy's Merger (involving both of
Federated's and Macy's respective premerger consolidated tax groups) and
thereafter (involving the Combined Company's consolidated tax group). In
addition, the Plan is subject to substantial uncertainties regarding the
application of federal income tax laws, as well as state, local, and foreign tax
laws, to various transactions and events contemplated therein. Although rulings
have been requested from the IRS with respect to certain federal income tax
consequences of the Plan to the Debtors, there can be no assurance that the
requested rulings will be received. If the IRS rules adversely or declines to
rule with respect to some or all of the requested rulings, certain tax
consequences of the Plan may be adverse to a significant extent. In addition,
substantial uncertainties will remain with respect to some tax consequences of
the Plan even if the IRS rules favorably on all matters as to which rulings are
requested.
The Combined Company's cash position, and its corresponding ability to meet
its obligations on the New Debt, will depend in part on whether the
Federated/Macy's Merger and the other Restructuring Transactions are tax free at
the corporate level and on the availability to the Combined Company and to other
members of the Combined Company's consolidated tax group of certain tax benefits
in the nature of net operating loss carryforwards ("NOLs") and business credit
carryforwards. The Projections assume that the Federated/Macy's Merger and the
other Restructuring Transactions will be tax free at the corporate level. Under
the Federated/Macy's Merger Agreement, it is possible that the combination of
Federated and Macy's will be consummated in a form other than a merger of
Federated with and into Macy's, which form may not be able to be effectuated on
a tax free basis. The Projections also assume that the Macy's affiliated group
will have at least $600.0 million in NOLs as of the Effective Date and that
those NOLs will be utilized, after the Federated/Macy's Merger, at the rate of
$150.0 million per year. See "The Combined Company--Projected Financial
Information--Principal Assumptions." There can be no assurance, however, that
the IRS will not seek to challenge part or all of the Macy's NOLs (or other tax
attributes), the rate at which those NOLs can be utilized, or other matters. If
any such challenge were to succeed, tax liabilities materially in excess of
those assumed in the preparation of the Projections could be incurred. In
addition, there can be no assurance that the appropriate Reorganized Debtors
will generate enough taxable income to utilize the Macy's NOLs at the projected
rate. See "Federal Income Tax Consequences of Consummation of the Plan--Federal
Income Tax Consequences to the Debtors and the Combined Company--Net Operating
Loss Carryforwards."
DILUTION
A number of Disputed Claims are material, and the total amount of all
Claims, including Disputed Claims, is materially in excess of the total amount
of Allowed Claims assumed in the development of the
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Plan. It is a condition to Confirmation that the aggregate amounts of
Administrative Claims, Priority Tax Claims, Priority Claims, and Allowed Claims
in Reserve Classes M-13, MOS-13, MRS-10, and MMS-5 shall have been estimated or
determined by Bankruptcy Court orders (to the extent that the Bankruptcy Court
has jurisdiction) that are not subject to any stay in amounts that do not exceed
the corresponding estimated aggregate amounts set forth in the table under
"Overview of the Plan-- Summary of Classes and Treatment of Claims and
Interests" for each such category or Class of Claims. The actual ultimate
aggregate amount of Allowed Uncompromised Claims, including Allowed Reserve
Class Claims, may differ significantly from those estimates. Accordingly, the
amount of the Pro Rata distribution of New Combined Company Common Stock that
will ultimately be received by any particular holder of an Allowed Claim in
Reserve Classes M-13, MOS-13, MRS-10, and MMS-5 may be adversely affected by the
aggregate amount of Claims ultimately allowed in the applicable Class. Moreover,
because Allowed Claims in Reserve Classes will receive Pro Rata distributions as
if such Claims were in a single Class, the amount of the distribution that will
ultimately be received by any particular holder of an Allowed Claim in any such
Class may be adversely affected by the aggregate amount of Claims ultimately
allowed in any Reserve Class. Consequently, distributions of New Combined
Company Common Stock to holders of Allowed Claims in Reserve Classes will be
made on an incremental basis until all Disputed Claims in such Classes have been
resolved. See "Distributions Under the Plan--Timing and Calculation of Amounts
to be Distributed--New Combined Company Common Stock to be Distributed to
Holders of Allowed Claims in Reserve Classes." In addition, the amount of any
Disputed Claim that ultimately is allowed by the Bankruptcy Court may be
significantly less than the amount of the Disputed Claim asserted by the holder
thereof.
CERTAIN CONDITIONS TO THE FEDERATED/MACY'S MERGER
The obligations of Federated and Macy's to consummate the Federated/Macy's
Merger are subject to the satisfaction or waiver at or prior to the Effective
Time of the Federated/Macy's Merger of certain conditions. See "The Combined
Company--Restructuring Transactions--The Federated/Macy's Merger--The
Federated/Macy's Merger Agreement--Conditions to the Federated/Macy's Merger."
There can be no assurance that such conditions will be satisfied or waived at or
prior to the Effective Time of the Federated/Macy's Merger.
CERTAIN PROVISIONS OF THE COMBINED COMPANY'S CERTIFICATE OF
INCORPORATION, BY-LAWS, AND OTHER AGREEMENTS
The Certificate of Incorporation and By-Laws and certain other agreements to
which the Combined Company will be a party contain provisions that may have the
effect of delaying, deferring, or preventing a change in control of the Combined
Company. See "Capital Stock of the Combined Company--Certain Corporate
Governance Matters." In addition, the Certificate of Incorporation will
authorize the issuance of up to 500.0 million shares of New Combined Company
Common Stock and 125.0 million shares of New Combined Company Preferred Stock.
The Board will have the power to determine the price and terms under which any
such additional capital stock may be issued and to fix the terms of such New
Combined Company Preferred Stock, and existing stockholders of the Combined
Company will not have preemptive rights with respect thereto. See "Capital Stock
of the Combined Company--Future Stock Issuances."
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GENERAL INFORMATION CONCERNING THE PLAN
The following is a summary of certain additional information concerning the
Plan. This summary is qualified in its entirety by reference to the provisions
to the Plan. For a discussion of the classification and treatment of Claims and
Interests under the Plan, see "Overview of the Plan--Summary of Classes and
Treatment of Claims and Interests" and "--Additional Information Regarding
Treatment of Certain Claims."
VESTING OF PROPERTY OF THE MACY'S DEBTORS
Subject to the Restructuring Transactions, each Debtor will, as a
Reorganized Debtor, continue to exist after the Effective Date as a separate
corporate entity, with all the powers of a corporation under applicable law and
without prejudice to any right to alter or terminate such existence (whether by
merger or otherwise) under applicable state law. See "The Combined
Company--Restructuring Transactions." Except as otherwise provided in the Plan,
as of the Effective Date, all property of the respective Estates of the Debtors
will vest in the applicable Reorganized Debtor, free and clear of all Claims,
liens, charges, other encumbrances, and Interests. On and after the Effective
Date, each Reorganized Debtor may operate its businesses and may use, acquire,
and dispose of property and compromise or settle any Claims or Interests without
supervision or approval by the Bankruptcy Court and free of any restrictions of
the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the Plan or the Confirmation Order. Without limiting the foregoing,
each Reorganized Debtor may pay the charges that it incurs on or after the
Effective Date for professionals' fees, disbursements, expenses, or related
support services, including those professional fees and expenses incurred by the
Claims Resolution Committee pursuant to Section XII.A.2 of the Plan, without
application to the Bankruptcy Court.
LEGAL EFFECTS OF THE PLAN
DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS; RELATED INJUNCTION
Except as provided in the Confirmation Order, the rights afforded under the
Plan and the treatment of Claims and Interests under the Plan will be in
exchange for and in complete satisfaction, discharge, and release of all Claims
and termination of all Interests, including any interest accrued on Claims from
the applicable Petition Date. Except as provided in the Plan or Confirmation
Order, Confirmation will, as of the Effective Date: (i) discharge the Debtors
from all Claims or other debts that arose before the Effective Date, and all
debts of the kind specified in section 502(g), 502(h), or 502(i) of the
Bankruptcy Code, whether or not (a) a proof of Claim based on such debt is filed
or deemed filed pursuant to section 501 of the Bankruptcy Code, (b) a Claim
based on such debt is allowed pursuant to section 502 of the Bankruptcy Code, or
(c) the holder of a Claim based on such debt has accepted the Plan; and (ii)
terminate all Interests and other rights of equity security holders in the
Debtors.
As of the Effective Date, except as provided in the Plan or Confirmation
Order, all entities will be precluded from asserting against the Debtors, the
Reorganized Debtors, their respective successors, or their respective property,
any other or further Claims, demands, debts, rights, causes of action,
liabilities, or equity interests based upon any act, omission, transaction, or
other activity of any kind or nature that occurred prior to the Effective Date.
In accordance with the foregoing, except as provided in the Plan or Confirmation
Order, the Confirmation Order will be a judicial determination, as of the
Effective Date, of discharge of all such Claims and other debts and liabilities
against the Debtors and termination of all such Interests and other rights of
equity security holders in the Debtors, pursuant to sections 524 and 1141 of the
Bankruptcy Code, and such discharge will void any judgment obtained against the
Debtors at any time, to the extent that such judgment relates to a discharged
Claim.
Except as otherwise provided in the Plan or Confirmation Order, as of the
Effective Date, all entities that have held, currently hold, or may hold a Claim
or other debt or liability that is discharged
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or an Interest or other right of an equity security holder that is terminated
pursuant to the terms of the Plan are permanently enjoined from taking any of
the following actions on account of any such discharged Claims, debts, or
liabilities, or terminated Interests or rights: (i) commencing or continuing in
any manner any action or other proceeding against the Debtors, the Reorganized
Debtors, or their respective property; (ii) enforcing, attaching, collecting, or
recovering in any manner any judgment, award, decree, or order against the
Debtors, the Reorganized Debtors, or their respective property; (iii) creating,
perfecting, or enforcing any lien or encumbrance against the Debtors, the
Reorganized Debtors, or their respective property; (iv) asserting a setoff,
right of subrogation, or recoupment of any kind against any debt, liability, or
obligation due to the Debtors, the Reorganized Debtors, or their respective
property; and (v) commencing or continuing any action, in any manner, in any
place that does not comply with or is inconsistent with the provisions of the
Plan. By accepting distributions pursuant to the Plan, each holder of an Allowed
Claim receiving distributions pursuant to the Plan will be deemed to have
specifically consented to the injunctions described above.
INTERCOMPANY CLAIMS AND CERTAIN CLAIMS OF AFFILIATES
On the Effective Date, all Intercompany Claims, except those Intercompany
Claims that arise from or relate to the intercompany agreements listed on
Appendix IV.L.1 to the Plan, will be extinguished, and no property will be
distributed to or retained by holders of such Intercompany Claims on account of
such Claims. Appendix IV.L.1 specifies the treatment of the Intercompany Claims
that arise from or relate to the intercompany agreements listed thereon. On the
Effective Date, the respective aggregate amounts of the Allowed Debt Security
Claims of Macy's Financial will be deemed to be: (i) $4,230,730 in each of
Classes M-10 and MOS-10, (ii) $114,172,200 in each of Classes M-11 and MOS-11,
and (iii) $79,641,600 in each of Classes M-12 and MOS-12. The New Combined
Company Common Stock and New Warrants to be received by Macy's Financial on
account of such Claims will be subject to the restrictions described in
"Securities to be Issued Pursuant to the Plan--New Combined Company Common
Stock" and "--New Warrants."
PRESERVATION OF RIGHTS OF ACTION HELD BY THE DEBTORS OR REORGANIZED DEBTORS
Except as provided in the Plan or in any contract, instrument, release,
indenture, or other agreement entered into in connection with the Plan, in
accordance with section 1123(b) of the Bankruptcy Code, the Reorganized Debtors
will retain and may enforce any claims, demands, rights, and causes of action
that any Debtor or Estate may hold against any entity. The Reorganized Debtors
or their successors may pursue such retained claims, demands, rights, or causes
of action as appropriate, in accordance with the best interests of the
Reorganized Debtors or the successors holding such rights of action.
RELEASES AND CERTAIN SETTLEMENTS UNDER THE PLAN; RELATED INJUNCTION
RELEASES BY THE DEBTORS
As of the Effective Date, for good and valuable consideration, the adequacy
of which is confirmed under the Plan, each Debtor and Reorganized Debtor will be
deemed to forever release, waive, and discharge all claims, demands, debts,
rights, causes of action, and liabilities in connection with or related to: (i)
Allowed Claims in Classes M-4 through M-9, MOS-4 through MOS-9, MRS-4 through
MRS-8, or MMS-4 (including causes of action under sections 510, 544, 547, 548,
and 550 of the Bankruptcy Code and comparable nonbankruptcy law, but excluding
the rights of the Debtors or Reorganized Debtors to enforce the Plan and the
contracts, instruments, releases, indentures, and other agreements or documents
delivered thereunder) or (ii) those alleged by a Debtor in any adversary
proceeding or contested matter pending in a Reorganization Case, whether
liquidated or unliquidated, fixed or contingent, matured or unmatured, known or
unknown, foreseen or unforeseen, then existing or thereafter arising, that are
based in whole or in part on any act, omission, or other occurrence taking place
on or prior to the Effective Date and that may be asserted by or on behalf of a
Debtor or its Estate
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against: (a) Federated; (b) FNC; (c) any Senior Lender (including any member of
the WCB Group, the 49 Store Bank Group, or the CREI Bank Group); (d) GECC (other
than those claims, demands, debts, rights, causes of action, and liabilities
arising from or in connection with the operation of the credit card program
provided to Macy's and certain of the Macy's Subsidiaries by GE Credit); or (e)
the respective agents, advisors, attorneys, and representatives (including the
respective current and former directors, officers, employees, members, and
professionals) of any of the foregoing, acting in such capacity.
As of the Effective Date, for good and valuable consideration, the adequacy
of which is confirmed under the Plan, each Debtor and Reorganized Debtor will be
deemed to forever release, waive, and discharge all claims, demands, debts,
rights, causes of action, and liabilities in connection with or related to the
Debtors or the Reorganization Cases (other than the rights of the Debtors or the
Reorganized Debtors to enforce the Plan and the contracts, instruments,
releases, indentures, and other agreements or documents delivered thereunder),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
that are based in whole or in part on any act, omission, or other occurrence
taking place on or prior to the Effective Date and that may be asserted by or on
behalf of a Debtor or its Estate against: (i) the Creditors' Committee and its
members, acting in such capacity; (ii) the Bondholders' Committee and its
members, acting in such capacity; (iii) the Voting Trustee; or (iv) the
respective agents, advisors, attorneys, and representatives (including the
current and former members and professionals) of either of the foregoing, acting
in such capacity; provided, however, that this release will not apply to any
releasee that seeks to enforce any subordination or turnover rights terminated,
compromised, or settled pursuant to the Plan.
As of the Effective Date, for good and valuable consideration, the adequacy
of which is confirmed under the Plan, each Debtor and Reorganized Debtor will be
deemed to forever release, waive, and discharge all claims, demands, debts,
rights, causes of action, and liabilities under sections 510, 544, 547, 548, and
550 of the Bankruptcy Code and comparable nonbankruptcy law of any nature,
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
that are based in whole or in part on any act, omission, or other occurrence
taking place on or prior to the Effective Date and that may be asserted by or on
behalf of a Debtor or its Estate against: (i) GE Credit (other than those
claims, demands, debts, rights, causes of action, and liabilities arising from
or in connection with the operation of the credit card program provided to
Macy's and certain of the Macy's Subsidiaries by GE Credit); (ii) any holder of
a Claim in a Reserve Class; or (iii) any holder of an Allowed Debt Security
Claim and any Indenture Trustee (and any predecessor thereof), acting in such
capacity; provided, however, that this release will not apply to any releasee
that seeks to enforce any subordination or turnover rights terminated,
compromised, or settled pursuant to the Plan.
RELEASES BY SWISS BANK
Without in any manner limiting the scope of the release described in
"--Releases by Holders of Claims or Interests," except as provided in Appendix
IV.G.2.c to the Plan with respect to certain interest or swap payments due to
Swiss Bank (as defined in the Macy's/49 Store Loan Agreement) for all or a
portion of the period December 24, 1991 through June 24, 1992 (the "Swiss Bank
Release Carveout"), as of the Effective Date, in exchange for the treatment of
its Claims in Classes M-8, MOS-8, and MRS-8, Swiss Bank will be deemed to
forever release, waive, and discharge all claims, demands, debts, rights, causes
of action, and liabilities, whether liquidated or unliquidated, fixed or
contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then
existing or thereafter arising, that Swiss Bank has, had, or may have against
any member of the 49 Store Bank Group for damages in respect of the unsatisfied
portion of any of its Claims classified in Classes M-8, MOS-8, and MRS-8.
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RELEASES BY HOLDERS OF CLAIMS OR INTERESTS
As of the Effective Date, except as provided in Appendix IV.G.2.c to the
Plan with respect to the Swiss Bank Release Carveout, to the fullest extent
permissible under applicable law, in consideration for the obligations of the
Debtors and the Reorganized Debtors under the Plan and the cash, New Securities,
contracts, instruments, releases, indentures, or other agreements or documents
to be delivered in connection with the Plan, each entity that has held, holds,
or may hold a Claim or Interest will be deemed to forever release, waive, and
discharge all claims, demands, debts, rights, causes of action, or liabilities
(other than the right to enforce the Debtors' or the Reorganized Debtors'
obligations under the Plan and the contracts, instruments, equity securities,
releases, indentures, and other agreements and documents delivered thereunder),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
that are based in whole or in part on any act, omission, or other occurrence
taking place on or prior to the Effective Date in any way relating to a Debtor,
the Reorganization Cases, or the Plan that such entity has, had, or may have
against: (i) Federated; (ii) FNC; (iii) any Senior Lender (including any member
of the WCB Group, the 49 Store Bank Group, or the CREI Bank Group); (iv) GE
Credit (other than those claims, demands, debts, rights, causes of action, and
liabilities arising from or in connection with the operation of the credit card
program provided to Macy's and certain of the Macy's Subsidiaries by GE Credit);
(v) the Creditors' Committees; (vi) the Indenture Trustees; (vii) the Voting
Trustee; (viii) any Debtor (which release will be in addition to the discharge
of Claims and termination of Interests provided herein and under the
Confirmation Order and the Bankruptcy Code); or (ix) the respective agents,
advisors, attorneys, and representatives (including the respective current and
former directors, officers, employees, members, and professionals) of any of the
foregoing, acting in such capacity.
INJUNCTION
As of the Effective Date, all entities that have held, currently hold, or
may hold a claim, demand, debt, right, cause of action, or liability that is
released as described in "--Releases by the Debtors," "--Releases by Swiss
Bank," or "--Releases by Holders of Claims or Interests" are permanently
enjoined from taking any of the following actions on account of such released
claims, demands, debts, rights, causes of action, or liabilities: (i) commencing
or continuing in any manner any action or other proceeding; (ii) enforcing,
attaching, collecting, or recovering in any manner any judgment, award, decree,
or order; (iii) creating, perfecting, or enforcing any lien or encumbrance; (iv)
asserting a setoff, right of subrogation, or recoupment of any kind against any
debt, liability, or obligation due to any released entity; and (v) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan. By accepting distributions
pursuant to the Plan, each holder of an Allowed Claim receiving distributions
pursuant to the Plan will be deemed to have specifically consented to the
injunctions described above.
RESOLUTION OF CERTAIN CLAIMS AND SUBORDINATION ISSUES
Under Section X.C.1 of the Plan, the classification and manner of satisfying
all Claims and Interests under the Plan take into consideration all contractual,
legal, and equitable subordination and turnover rights, whether arising under
general principles of equitable subordination, section 510(c) of the Bankruptcy
Code, or otherwise, that a holder of a Claim or Interest may have against other
Claim holders with respect to any distribution made pursuant to the Plan. Except
as otherwise described in "--Preservation of Certain Subordination and Turnover
Rights," on the Effective Date, all contractual, legal, or equitable
subordination rights that a holder of a Claim or Interest may have with respect
to any distribution to be made pursuant to the Plan will be discharged and
terminated, and all actions related to the enforcement of such subordination
rights will be permanently enjoined. Accordingly, except as otherwise described
in "--Preservation of Certain Subordination and Turnover Rights," distributions
pursuant to the Plan to holders of Allowed Claims will not be subject to payment
to a beneficiary of such
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terminated subordination rights, or to levy, garnishment, attachment, or other
legal process by a beneficiary of such terminated subordination rights.
Except as otherwise described in "--Preservation of Certain Subordination
and Turnover Rights," pursuant to Bankruptcy Rule 9019 and in consideration for
the distributions and other benefits provided under the Plan, the provisions of
the Plan will constitute a good faith compromise and settlement of all claims or
controversies relating to the amounts of Allowed Claims in Classes M-4 through
M-12, MOS-4 through MOS-12, MRS-4 through MRS-9, and MMS-4 and the enforcement
or termination of all contractual, legal, and equitable subordination and
turnover rights that a holder of a Claim or Interest may have with respect to
any Allowed Claim, or any distribution to be made pursuant to the Plan on
account of such Claim. The entry of the Confirmation Order will constitute the
Bankruptcy Court's approval, as of the Effective Date, of the compromise or
settlement of all such claims or controversies and the Bankruptcy Court's
finding that such compromise or settlement is in the best interests of the
Debtors, the Reorganized Debtors, and their respective property and Claim
holders, and is fair, equitable, and reasonable. See "Operations During the
Reorganization Cases--Plan Negotiations--Settlement of Certain Claims and
Intercreditor Issues Under the Plan."
PRESERVATION OF CERTAIN SUBORDINATION AND TURNOVER RIGHTS
If a Class of Claims does not accept the Plan, all contractual, legal, and
equitable subordination or turnover rights to which any Claim or holder of a
Claim in such nonaccepting Class may be subject or entitled will survive and
remain unaffected by Confirmation or occurrence of the Effective Date, and all
contractual subordination and turnover rights to which any Allowed Claim in such
nonaccepting Class, or any distribution to be made pursuant to the Plan on
account of any such Allowed Claim, is subject to, will survive and remain
unaffected by, and will be enforced by entry of the Confirmation Order,
including the rights of holders of Senior Indebtedness Claims against the
holders of Allowed Debt Security Claims.
CONTINUATION OF CERTAIN RETIREMENT BENEFITS
CERTAIN RETIREE HEALTH, MEDICAL, AND LIFE INSURANCE BENEFITS
From and after the Effective Date, the Reorganized Debtors will be obligated
to pay the retiree benefits (as defined in section 1114(a) of the Bankruptcy
Code) in accordance with the terms of the retiree benefit plans governing the
payment of such benefits, subject to any rights to amend, modify, or terminate
such retiree benefits under the terms of the applicable retiree benefits plan or
applicable nonbankruptcy law.
PURCHASE DISCOUNTS FOR RETIREES
From and after the Effective Date, the Reorganized Debtors will provide
their respective retirees with merchandise and service purchase price discounts,
in accordance with the Debtors' business practices in effect prior to the
applicable Petition Dates; provided, however, that each of the Reorganized
Debtors will have the right to modify, reduce, or eliminate such discounts in
its sole discretion without any claims, debts, rights, causes of action, or
liabilities arising against the Reorganized Debtors from such action.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Under section 365 of the Bankruptcy Code, the Debtors have the right,
subject to Bankruptcy Court approval, to assume or reject any executory
contracts or unexpired leases. If an executory contract or unexpired lease
entered into before the applicable Petition Date is rejected by a Debtor, it
will be treated as if the Debtor breached such contract or lease on the date
immediately preceding the Petition Date, and the other party to the agreement
may assert an Unsecured Claim for damages incurred as a result of the rejection.
In the case of rejection of employment agreements and real
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property leases, damages are subject to certain limitations imposed by sections
365 and 502 of the Bankruptcy Code.
ASSUMPTIONS, ASSIGNMENTS, AND REJECTIONS OF NON-REAL PROPERTY EXECUTORY
CONTRACTS AND UNEXPIRED LEASES
Assumptions and Assignments
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture, or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, the Debtors will assume, or assume and assign, as indicated, each of the
executory contracts and unexpired leases listed on Appendix V.A.1.a to the Plan;
provided, however, that Federated and the Reorganized Debtors reserve the right,
at any time prior to 60 days after the Effective Date, to amend Appendix V.A.1.a
to (i) delete any executory contract or unexpired lease listed therein, thus
providing for its rejection, or (ii) add any executory contract or unexpired
lease thereto, thus providing for its assumption or assumption and assignment.
Federated or the Reorganized Debtors, as applicable, will provide notice of any
amendments to Appendix V.A.1.a to the Plan to the parties to the executory
contracts or unexpired leases affected thereby and the Claims Resolution
Committee and, if such amendments are made before the Effective Date, to the
parties on the then-applicable administrative service list in the Reorganization
Cases. Any amendment to Appendix V.A.1.a after the Effective Date to delete an
executory contract or unexpired lease listed therein will be deemed and treated
as a rejection of such contract or lease pursuant to section 365(g)(1) of the
Bankruptcy Code. Each contract and lease listed on Appendix V.A.1.a to the Plan
will be assumed only to the extent that any such contract or lease constitutes
an executory contract or unexpired lease. Listing a contract or lease on
Appendix V.A.1.a to the Plan will not constitute an admission by a Debtor,
Reorganized Debtor, or Federated that such contract or lease is an executory
contract or unexpired lease or that a Debtor or Reorganized Debtor has any
liability thereunder.
Rejections
On the Effective Date, except for a non-Real Property Executory Contract or
Unexpired Lease that was previously assumed or rejected by an order of the
Bankruptcy Court or that is assumed as described in "--Assumptions and
Assignments," each non-Real Property Executory Contract and Unexpired Lease
entered into by a Debtor prior to the applicable Petition Date that has not
previously expired or terminated pursuant to its own terms will be rejected
pursuant to section 365 of the Bankruptcy Code. The non-Real Property Executory
Contracts and Unexpired Leases to be rejected will include the executory
contracts and unexpired leases listed on Appendix V.A.1.b to the Plan. Each
contract and lease listed on Appendix V.A.1.b to the Plan will be rejected only
to the extent that any such contract or lease constitutes an executory contract
or unexpired lease. Listing a contract or lease on Appendix V.A.1.b to the Plan
does not constitute an admission by a Debtor, Reorganized Debtor, or Federated
that such contract or lease is an executory contract or unexpired lease or that
a Debtor or Reorganized Debtor has any liability thereunder. Any non-Real
Property Executory Contract and Unexpired Lease not listed on Appendix V.A.1.a
to the Plan will be rejected irrespective of whether such contract is listed on
Appendix V.A.1.b to the Plan.
ASSUMPTIONS AND REJECTIONS OF REAL PROPERTY EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture, or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, the Debtors will assume, or assume and assign, all Real Property Executory
Contracts and Unexpired Leases that have not previously expired or terminated
pursuant to their respective terms, except for any such Real Property Executory
Contract and Unexpired Lease: (i) that was previously assumed or rejected by an
order of the Bankruptcy Court entered prior to the Confirmation Date, (ii) as to
which a motion for authority to reject has been filed and served prior to the
Confirmation Date, (iii) that has previously expired or terminated pursuant to
its own terms, (iv) that is
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between a Debtor and an Affiliate (other than those agreements described in
"--Legal Effects of the Plan--Intercompany Claims and Certain Claims of
Affiliates"), or (v) that is listed on Appendix V.A.2 to the Plan; provided,
however, that Federated and the Reorganized Debtors reserve the right, at any
time prior to 60 days after the Effective Date, to amend Appendix V.A.2 to the
Plan to: (a) add any Real Property Executory Contract and Unexpired Lease, thus
providing for its rejection, or (b) delete any Real Property Executory Contract
and Unexpired Lease, thus providing for its assumption. Federated or the
Reorganized Debtors, as applicable, will provide notice of any amendments to
Appendix V.A.2 to the Plan to the parties to the Real Property Executory
Contracts and Unexpired Leases affected thereby and the Claims Resolution
Committee and, if such amendments are made before the Effective Date, to the
parties on the then-applicable administrative service list in the Reorganization
Cases. Each Real Property Executory Contract and Unexpired Lease assumed or
rejected pursuant to the Plan will be assumed or rejected only to the extent
that any such contract or lease constitutes an executory contract or unexpired
lease. Listing a Real Property Executory Contract and Unexpired Lease on
Appendix V.A.2 to the Plan does not constitute an admission by a Debtor,
Reorganized Debtor, or Federated that such contract or lease is an executory
contract or unexpired lease or that a Debtor or Reorganized Debtor has any
liability thereunder.
Each Real Property Executory Contract and Unexpired Lease assumed or
rejected pursuant to the Plan will include all modifications, amendments,
supplements, restatements, or other agreements made directly or indirectly by
any agreement, instrument, or other document that in any manner affects such
Real Property Executory Contract and Unexpired Lease.
PAYMENTS RELATED TO ASSUMPTIONS
As a condition to assuming executory contracts and unexpired leases, any
monetary amounts by which each executory contract and unexpired lease to be
assumed pursuant to the Plan is in default will be satisfied, pursuant to
section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor assuming
such contract or lease, the assignee of such Debtor, or Federated: (i) by
payment of the default amount in cash on the Effective Date; (ii) by payment of
the default amount in quarterly cash installments commencing on the Effective
Date and continuing for one year; or (iii) on such other terms as are agreed to
by the parties to such executory contract or unexpired lease. If there is a
dispute regarding: (i) the amount of any default amount or cure payment; (ii)
the ability of the applicable Reorganized Debtor or any assignee to provide
"adequate assurance of future performance" (within the meaning of section 365 of
the Bankruptcy Code) under the contract or lease to be assumed; or (iii) any
other matter pertaining to assumption of such contract or lease, the cure
payments required by section 365(b)(1) of the Bankruptcy Code will be made
following the entry of a Final Order resolving the dispute and approving the
assumption. For assumptions of executory contracts between Debtors, the
Reorganized Debtor assuming such contract may cure any monetary default by
treating such amount as either a direct or indirect contribution to capital or
distribution (as appropriate) in lieu of payment in cash.
BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant to the
Plan gives rise to a Claim by the other party or parties to such contract or
lease, such Claim will be forever barred and will not be enforceable against the
Debtors, the Reorganized Debtors, their respective successors, or their
respective properties unless a proof of claim is filed and served on the
Reorganized Debtors, pursuant to the procedures specified in the Confirmation
Order and the notice of entry of the Confirmation Order, no later than 30 days
after the later of: (i) the Effective Date and (ii) delivery of a notice of
amendment as described in "--Assumptions, Assignments, and Rejections of
Non-Real Property Executory Contracts and Unexpired Leases" providing for the
rejection of the applicable executory contract or unexpired lease.
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SPECIAL EXECUTORY CONTRACT AND UNEXPIRED LEASE ISSUES
ASSIGNMENTS RELATED TO THE RESTRUCTURING TRANSACTIONS
As of the effective time of the applicable Restructuring Transactions, any
executory contract or unexpired lease (including any related agreements as
described in "--Executory Contracts and Unexpired Leases--Assumptions and
Rejections of Real Property Executory Contracts and Unexpired Leases") to be
held by the Combined Company or surviving, resulting, or acquiring corporation
in the Operating Subsidiary Transactions, the Real Estate Subsidiary
Transactions, or any other Restructuring Transactions, as the case may be, will
be deemed assigned to the applicable entity, pursuant to section 365 of the
Bankruptcy Code.
OBLIGATIONS TO INDEMNIFY DIRECTORS, OFFICERS, AND EMPLOYEES
The obligations of each Debtor or Reorganized Debtor to indemnify any person
serving as a director, officer, or employee of such Debtor or Reorganized Debtor
as of or following July 15, 1986 will be as provided in the Federated/Macy's
Merger Agreement. See "The Combined Company-- Limitation of Liability;
Indemnification of Directors and Officers." In its sole discretion, Federated
also may elect to have a Debtor or Reorganized Debtor assume under the Plan, as
described in "--Executory Contracts and Unexpired Leases--Assumptions,
Assignments, and Rejections of Non-Real Property Executory Contracts and
Unexpired Leases--Assumptions and Assignments," certain of its obligations to
indemnify any person who, as of July 15, 1986, was no longer serving as a
director, officer, or employee of such Debtor, which obligations will be deemed
and treated as executory contracts that are assumed by the applicable Debtor
pursuant to the Plan and section 365 of the Bankruptcy Code as of the Effective
Date. Accordingly, to the extent assumed, such indemnification obligations will
survive and be unaffected by entry of the Confirmation Order, irrespective of
whether such indemnification is owed for an act or event occurring before or
after the Petition Date. Conversely, unless assumed by a Debtor as described in
"--Executory Contracts and Unexpired Leases-- Assumptions, Assignments, and
Rejections of Non-Real Property Executory Contracts and Unexpired Leases," the
obligations of each Debtor or Reorganized Debtor to indemnify any person who, as
of July 15, 1986, was no longer serving as a director, officer, or employee of
such Debtor or Reorganized Debtor, which indemnity obligation arose by reason of
such person's prior service in any such capacity, or as a director, officer, or
employee of another corporation, partnership, or other legal entity, whether
provided in the applicable certificates of incorporation, by-laws, or similar
constituent documents or by statutory law or written agreement of or with such
Debtor or policies or procedures of or with such Debtor, will terminate and be
discharged pursuant to section 502(e) of the Bankruptcy Code or otherwise, as of
the Effective Date; provided, however, that, to the extent such indemnification
obligations no longer give rise to contingent Claims that can be disallowed
pursuant to section 502(e) of the Bankruptcy Code, such indemnification
obligations will be deemed and treated as executory contracts that are rejected
by the applicable Debtor pursuant to the Plan and section 365 of the Bankruptcy
Code, as of the Effective Date. Nothing in the Plan will be exclusive of or
limit the terms of any indemnification agreement entered into pursuant to
Section IV.C.3 of the Plan or the Federated/Macy's Merger Agreement. See "The
Combined Company--Limitation of Liability; Indemnification of Officers and
Directors."
REINSTATEMENT OF ALLOWED SECONDARY LIABILITY CLAIMS ARISING FROM OR RELATED TO
EXECUTORY CONTRACTS OR UNEXPIRED LEASES ASSUMED BY MACY'S SUBSIDIARIES
On the Effective Date, any Allowed Secondary Liability Claim arising from or
related to any Debtor's joint or several liability for the obligations under or
with respect to: (i) any executory contract or unexpired lease that is being
assumed or deemed assumed pursuant to section 365 of the Bankruptcy Code by
another Debtor, (ii) any executory contract or unexpired lease that is being
assumed by and assigned to another Debtor, or (iii) a Reinstated Claim, will be
Reinstated. Accordingly, such Allowed Secondary Liability Claims will survive
and be unaffected by entry of the Confirmation Order.
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CANCELLATION OF OLD INDENTURES
As of the Effective Date, except as otherwise provided in Section VI.B.2 of
the Plan (with respect to Indenture Trustees' receiving and making Plan
distributions), Section VI.I of the Plan (with respect to surrender of Old Debt
Securities to Indenture Trustees), Section VI.J.2 (with respect to maintaining
the validity of the Indenture Trustee Charging Liens), and Section X.C.3 of the
Plan (with respect to the preservation of subordination and turnover rights; see
"--Releases and Certain Settlements Under the Plan; Related
Injunction--Preservation of Certain Subordination and Turnover Rights"), the Old
Indentures will be canceled pursuant to section 1123(a)(5)(F) of the Bankruptcy
Code.
LIMITATION OF LIABILITY
The Plan Proponents, FNC, the Senior Lenders, the Creditors' Committees, the
Indenture Trustees, in their capacity as disbursing agents, the Claims
Resolution Committee, and their respective members, agents, advisors, attorneys,
and representatives (including their respective current and former directors,
officers, employees, and professionals), acting in such capacity, will neither
have nor incur any liability to any entity for any act taken or omitted to be
taken in connection with or related to the formulation, preparation,
dissemination, implementation, Confirmation, or consummation of the Plan, the
Disclosure Statement, or any contract, instrument, release, or other agreement
or document created or entered into, or any other act taken or omitted to be
taken in connection with the Plan; provided, however, that the foregoing
provisions will have no effect on: (i) the liability of any entity that would
otherwise result from the failure to perform or pay any obligation or liability
under the Plan or any contract, instrument, release, indenture, or other
agreement or document to be delivered or distributed in connection with the Plan
or (ii) the liability of any entity that would otherwise result from any such
act or omission to the extent that such act or omission is determined in a Final
Order to have constituted gross negligence or willful misconduct.
MODIFICATION OR REVOCATION OF THE PLAN
Subject to the restrictions on modifications set forth in section 1127 of
the Bankruptcy Code, the Plan Proponents reserve the right to alter, amend, or
modify the Plan before its substantial consummation. The Plan Proponents reserve
the right, prior to the Confirmation Date, to revoke or withdraw the Plan: (i)
as to all of the Debtors, after five days' notice to each Plan Negotiating
Committee and each Creditors' Committee, and (ii) as to any particular Macy's
Miscellaneous Subsidiary Debtor, without any notice. If the Plan Proponents
revoke or withdraw the Plan as provided in the preceding sentence, or if
Confirmation as to any or all of the Debtors does not occur, then, with respect
to such Debtors, the Plan will be null and void in all respects, and nothing
contained in the Plan will: (a) constitute a waiver or release of any claims by
or against, or any Interests in, such Debtors or (b) prejudice in any manner the
rights of any such Debtors or the Plan Proponents.
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DISTRIBUTIONS UNDER THE PLAN
GENERAL
Except as otherwise provided in Article VI of the Plan, distributions to be
made on the Effective Date to holders of Claims that are allowed as of the
Effective Date will be deemed made on the Effective Date if made on the
Effective Date or as promptly thereafter as practicable, but in any event no
later than: (i) 90 days after the Effective Date or (ii) such later date when
the applicable conditions of Section IV.E of the Plan (regarding execution of
agreements related to the New Mortgage Notes), Section V.B of the Plan
(regarding cure payments for executory contracts and unexpired leases being
assumed), Section VI.D.2 of the Plan (regarding undeliverable distributions), or
Section VI.I of the Plan (regarding surrender of canceled instruments and
securities) are satisfied. Notwithstanding the foregoing, subject (as
applicable) to the conditions of Section IV.E.1 of the Plan (regarding execution
of the New Mortgage Notes Agreements) and Section VI.I of the Plan (regarding
surrender of canceled instruments and securities), distributions will be made on
the Effective Date on account of Allowed Claims in the Compromised Classes. See
"--Undeliverable or Unclaimed Distributions," "--Timing and Calculation of
Amounts to Be Distributed," "--Surrender of Canceled Securities or Other
Instruments," and "General Information Concerning the Plan--Executory Contracts
and Unexpired Leases--Assumptions, Assignments, and Rejections of Non-Real
Property Executory Contracts and Unexpired Leases." Distributions on account of
Claims that become Allowed Claims after the Effective Date will be made as
described below in "--Timing and Calculation of Amounts to Be Distributed-- New
Combined Company Common Stock to be Distributed to Holders of Allowed Claims in
Reserve Classes" and "--Disputed Claims; Reserve and Estimations--Distributions
on Account of Disputed Claims Once They Are Allowed."
From and after the Effective Date, cash to be distributed on the Effective
Date on account of Reserve Class Claims allowed as of the Effective Date will be
deposited in a segregated bank account in the name of the applicable disbursing
agent (which may include the Combined Company, acting as its own disbursing
agent), held in trust pending distribution by the disbursing agent for the
benefit of the holders of such Claims, and accounted for separately, and,
subject to Section VI.D.2.a.iii of the Plan (regarding failure to claim
undeliverable distributions), will not constitute property of the Combined
Company. The disbursing agent will invest such cash in a manner consistent with
the Combined Company's investment and deposit guidelines. Distributions of cash
on account of each Reserve Class Claim allowed as of the Effective Date will
include a Pro Rata share of the Cash Investment Yield from such investment of
cash. New Securities to be issued will be deemed issued as of, and New Debt thus
will accrue interest from, January 31, 1995, regardless of the date on which New
Securities are actually distributed.
METHODS OF DISTRIBUTIONS
DISTRIBUTIONS TO HOLDERS OF ALLOWED BANK LOAN CLAIMS
All distributions provided for in the Plan on account of Allowed Bank Loan
Claims will be made to the applicable Agent Bank for further distribution to
individual holders of such Claims or those participants that such holders
certify in writing to the applicable Agent Bank by the close of business on the
Distribution Record Date. Distributions will be made by the Reorganized Debtors
to each Agent Bank in the names of those holders of Allowed Bank Loan Claims or
their participants and in such amounts of cash, principal amounts of New Debt,
and numbers of shares of New Combined Company Common Stock (as applicable) as
such Agent Bank provides in writing to Federated within seven days after the
Distribution Record Date. Distributions will be made in accordance with the
applicable Macy's Bank Loan Agreement, as provided in the Plan or in the
Confirmation Order or as otherwise agreed between the Agent Bank and any
beneficial owner of an Allowed Bank Loan Claim, and will be subject to any Agent
Bank Charges, except as may be agreed between Swiss Bank and any beneficial
owner of an Allowed Claim in Classes M-6, MOS-6, and MRS-6. Agent Banks will
make distributions
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to their respective holders of Allowed Bank Loan Claims on the Effective Date or
as promptly thereafter as practicable, but in any event no later than: (i) 10
days after the Effective Date or (ii) as to any particular Allowed Bank Loan
Claim, such later date when the applicable conditions of Section VI.I (regarding
surrender of canceled instruments and securities) are satisfied and any dispute
asserted in writing to the Agent Bank with respect to the identity of the party
that is entitled to receive a distribution or the amount of such distribution on
account of such Claim is resolved. Notwithstanding the cancellation of the
Macy's Bank Loan Agreements under the Plan, the Macy's Bank Loan Agreements will
continue in effect to the extent necessary to allow the Agent Banks to receive
and make distributions pursuant to the Plan, subject to the deduction of Agent
Bank Charges, and the Agent Banks will remain entitled to any limitation of
liability, exculpation, or indemnification provisions between or among the
holders of Allowed Bank Loan Claims under the applicable Macy's Bank Loan
Agreement.
DISTRIBUTIONS TO HOLDERS OF ALLOWED DEBT SECURITY CLAIMS
All distributions provided for in the Plan on account of Allowed Debt
Security Claims will be made, at the option of Federated or the Combined
Company, to the respective Indenture Trustees or a disbursing agent for further
distribution to individual holders of Allowed Debt Security Claims. Any such
distribution made by an Indenture Trustee will be made pursuant to the
applicable Old Indenture or other disbursing agent agreement entered into by the
Combined Company and the applicable Indenture Trustee. Notwithstanding the
cancellation of the Old Indentures under the Plan, the Old Indentures will
continue in effect to the extent necessary to allow the Indenture Trustees to
receive and make distributions pursuant to the Plan on account of Allowed Debt
Security Claims. Any actions taken by the Indenture Trustees that are not for
this purpose will be null and void as against the Debtors and the Reorganized
Debtors, and the Reorganized Debtors will have no obligations to the Indenture
Trustees for any fees, costs, or expenses incurred in connection with any such
actions.
DISTRIBUTIONS TO HOLDERS OF OTHER CLAIMS
The Combined Company, or such third-party disbursing agents as Federated or
the Combined Company, after consultation with the Unsecured Creditors'
Committee, may employ in its sole discretion, will make all distributions of
cash and New Securities required under the Plan, except for distributions made
by Agent Banks or Indenture Trustees as described in "--Distributions to Holders
of Allowed Bank Loan Claims" and "--Distributions to Holders of Allowed Debt
Security Claims." Each disbursing agent will serve without bond, and any
disbursing agent may employ or contract with other entities to assist in or make
the distributions required by the Plan.
UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
DISTRIBUTIONS HELD BY DISBURSING AGENTS
If any Allowed Claim holder's distribution is returned to a disbursing agent
as undeliverable, no further distributions will be made to such holder unless
and until the applicable disbursing agent is notified in writing of such
holder's then-current address. Undeliverable distributions will remain in the
possession of the applicable disbursing agent until such time as a distribution
becomes deliverable. Undeliverable cash (including dividends or other
distributions on undeliverable New Combined Company Common Stock) will be held
in segregated bank accounts in the name of the applicable disbursing agent for
the benefit of the potential claimants of such funds. Any disbursing agent
holding undeliverable cash will invest such cash in a manner consistent with the
Combined Company's investment and deposit guidelines. Undeliverable New Equity
will be held by the applicable disbursing agent for the benefit of the potential
claimants of such securities.
Pending the distribution of any New Combined Company Common Stock, each
disbursing agent will cause all of the New Combined Company Common Stock held by
it in its capacity as disbursing agent to be: (i) represented in person or by
proxy at each meeting of the stockholders of the Combined
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Company; (ii) voted in any election of directors of the Combined Company, at the
option of the disbursing agent, either (a) proportionately with the votes cast
by the other stockholders of the Combined Company, taken as a whole, or (b) for
the nominees recommended by the Board; and (iii) voted with respect to any other
matter, at the option of the disbursing agent, either (a) proportionately with
the votes cast by the other stockholders of the Combined Company, taken as a
whole, or (b) as recommended by the Board.
On each Quarterly Distribution Date, the applicable disbursing agents will
make all distributions that became deliverable to holders of Allowed Claims
during the preceding calendar quarter. Each such distribution will include, to
the extent applicable: (i) dividends or other distributions, if any, that shall
have theretofore been paid to the Disbursing Agent in respect of any New
Combined Company Common Stock included in such distribution and (ii) a Pro Rata
share of the Cash Investment Yield from the investment of any undeliverable cash
(including dividends or other distributions on undeliverable New Combined
Company Common Stock), from the date that such distribution would have first
been due had it then been deliverable to the date that such distribution becomes
deliverable.
Any holder of an Allowed Claim that does not assert a claim pursuant to the
Plan for an undeliverable distribution to be made by a disbursing agent within
two years after the Effective Date will have its claim for such undeliverable
distribution discharged and will be forever barred from asserting any such claim
against the Reorganized Debtors or their respective property. In such cases: (i)
with respect to undeliverable cash held by a disbursing agent, such cash will be
property of the Combined Company, free of any restrictions thereon and (ii) with
respect to undeliverable New Combined Company Common Stock held by a disbursing
agent on account of Allowed Claims in a Reserve Class, such New Combined Company
Common Stock will be retained in the Disputed Claims Reserve for redistribution
Pro Rata to holders of Allowed Claims in the Reserve Classes, pursuant to the
provisions described in "--Timing and Calculation of Amounts to be
Distributed--New Combined Company Common Stock to be Distributed to Holders of
Allowed Claims in Reserve Classes-- Additional Quarterly Distributions on
Account of Previously Allowed Claims." For purposes of this redistribution, each
Allowed Claim in a Reserve Class for which such distributions are undeliverable
will be deemed disallowed in its entirety. To the extent that undeliverable cash
held by a third-party disbursing agent is subject to Section VI.D.2.a.iii(A) of
the Plan, the third-party disbursing agent will return such cash to the Combined
Company. Nothing contained in the Plan will require any Debtor, Reorganized
Debtor, or disbursing agent to attempt to locate any holder of an Allowed Claim.
DISTRIBUTIONS HELD BY AGENT BANKS OR INDENTURE TRUSTEES
For distributions to holders of Allowed Bank Loan Claims or Allowed Debt
Security Claims that are made by an Agent Bank or Indenture Trustee,
respectively, unless otherwise provided in the Confirmation Order or any other
order of the Bankruptcy Court that is not subject to any stay, the provisions of
the applicable Macy's Bank Loan Agreement or Old Indenture will govern the
holding of undeliverable distributions and the delivery of those distributions
to individual holders of Allowed Bank Loan Claims or Allowed Debt Security
Claims, respectively. If an Indenture Trustee or disbursing agent, as
applicable, determines that an individual holder of an Allowed Debt Security
Claim is no longer entitled to a distribution pursuant to the applicable Old
Indenture, the Plan, or the Confirmation Order, such individual holder's claim
for such distribution will be discharged, and such individual holder will be
forever barred from asserting any such claim for a distribution against the
Debtors, the Reorganized Debtors, or their respective property. In such cases:
(i) any cash held for distribution on account of such claims (including
dividends or other distributions on New Combined Company Common Stock) will be
property of the Combined Company, free of any claims or restrictions thereon and
(ii) any New Equity held for distribution on account of such claims will either
be canceled or held in the Combined Company's treasury, as the Combined Company
may determine is appropriate. The applicable Indenture Trustee or third-party
disbursing agent will return such cash or the instruments or securities
evidencing such New Equity to the Combined Company.
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DISTRIBUTION RECORD DATE
The Agent Banks will have no obligation to recognize the transfer of, or the
sale of any participation in, any Allowed Bank Loan Claim occurring after the
close of business on the Distribution Record Date (i.e., with respect to Allowed
Bank Loan Claims, the Confirmation Date), and will be entitled for all purposes
in the Plan to recognize and make distributions to only those holders of Allowed
Bank Loan Claims who are holders of such Claims, or participants therein, as
certified by such holders in writing to the Agent Banks by the close of business
on the Distribution Record Date. As of the close of business on the Distribution
Record Date (i.e., with respect to Allowed Debt Security Claims, the close of
business on the earlier of (i) the Effective Time of the Federated/Macy's Merger
or (ii) 14 days after the Confirmation Date), the respective transfer register
for each of the Old Debt Securities, as maintained by the Debtors, the Indenture
Trustees, or their respective agents, will be closed, and the applicable
disbursing agents, Indenture Trustees, or their respective agents will have no
obligation to recognize the transfer of any Old Debt Securities occurring after
the close of business on the Distribution Record Date and will be entitled for
all purposes herein to recognize and deal only with those holders of record as
of the close of business on the Distribution Record Date. Except as otherwise
provided in an order of the Bankruptcy Court that is not subject to any stay,
the transferees of the Claims in Reserve Classes that are transferred pursuant
to Bankruptcy Rule 3001 on or prior to the Distribution Record Date (i.e., with
respect to Reserve Class Claims, the Confirmation Date) will be treated as the
holders of such Claims for all purposes, notwithstanding that any period
provided by Bankruptcy Rule 3001 for objecting to such transfer has not expired
by the Distribution Record Date.
MEANS OF CASH PAYMENTS
Except as otherwise specified below, cash payments will be in U.S. dollars
by checks drawn on a domestic bank selected by the applicable Debtor or
Reorganized Debtor, or by wire transfer from a domestic bank, at the option of
the applicable Debtor or Reorganized Debtor. Cash payments of $1.0 million or
more to be made pursuant to the Plan to or on behalf of holders of Allowed Bank
Loan Claims, Allowed Trade Claims, or Allowed Debt Security Claims will, to the
extent requested in writing no later than five days after the Confirmation Date
by the applicable holder, be made by wire transfer from a domestic bank. Cash
payments to foreign holders of Allowed Trade Claims may be made, at the option
of the applicable Debtor or Reorganized Debtor, in such funds and by such means
as are necessary or customary in a particular foreign jurisdiction.
TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED
ALLOWED CLAIMS IN NON-RESERVE CLASSES AND THE FIXED CASH PORTION OF ALLOWED
CLAIMS IN RESERVE CLASSES
Subject to the distribution provisions described in "--General," on the
Effective Date: (i) each holder of an Allowed Claim in a non-Reserve Class will
receive the full amount of the distributions that the Plan provides for Allowed
Claims in the applicable non-Reserve Class and (ii) each holder of an Allowed
Claim in a Reserve Class will receive a distribution of cash equal to 25% of the
amount of the Allowed Reserve Class Claim (the "Fixed Cash Portion"). On each
Quarterly Distribution Date, distributions will also be made, pursuant to the
provisions described in "--Disputed Claims; Reserve and
Estimations--Distributions on Account of Disputed Claims Once They Are Allowed,"
to holders of Disputed Claims in any such Class that were allowed during the
preceding calendar quarter. Such quarterly distributions on account of Allowed
Claims in a non-Reserve Class and the Fixed Cash Portion of Allowed Claims in a
Reserve Class will also be in the full amount that the Plan provides for Allowed
Claims in the applicable Class.
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NEW COMBINED COMPANY COMMON STOCK TO BE DISTRIBUTED TO HOLDERS OF ALLOWED CLAIMS
IN RESERVE CLASSES
Initial Distributions
The amount of distributions of New Combined Company Common Stock to be made
on the Effective Date (subject to the distribution provisions described in
"--General") to holders of Allowed Claims in a Reserve Class on account of such
claims will be calculated as if each Disputed Claim in the applicable Reserve
Class were an Allowed Claim in its Face Amount. On each Quarterly Distribution
Date, distributions will also be made, pursuant to the provisions described in
"--Disputed Claims; Reserve and Estimations--Distributions on Account of
Disputed Claims Once They Are Allowed," to holders of Disputed Claims in Reserve
Classes that were allowed during the preceding calendar quarter. Such quarterly
distributions of New Combined Company Common Stock will also be calculated as
described above.
Additional Quarterly Distributions on Account of Previously Allowed Claims
On each Quarterly Distribution Date, each holder of a Claim previously
allowed in a Reserve Class will receive an additional distribution of New
Combined Company Common Stock from the Disputed Claims Reserve on account of
such Claim in an amount equal to: (i) the amount of New Combined Company Common
Stock that such holder would have been entitled to receive as an initial
distribution pursuant to the provisions described in "--Initial Distributions"
as if such Claim had become an Allowed Claim on the applicable Quarterly
Distribution Date minus (ii) the aggregate amount of New Combined Company Common
Stock previously distributed on account of such Claim. Each such quarterly
additional distribution will also include, on the basis of the amount then being
distributed: (i) any dividends or other distributions made on account of New
Combined Company Common Stock held in the Disputed Claims Reserve and (ii) a Pro
Rata share of the Cash Investment Yield from the investment of any cash in the
Disputed Claims Reserve, from the date such amounts would have been due had such
Claim initially been paid on the Effective Date 100% of the allowed amount to
the date that such distribution is made. The Plan's provision for distributions
to holders of Allowed Claims in the Reserve Classes is premised on the
assumption that the ultimate aggregate amount of all allowed claims in the
Reserve Classes will be less than the aggregate Face Amount of the Claims in the
Reserve Classes. Accordingly, if the ultimate aggregate amount of Allowed Claims
in the Reserve Classes exceeds the estimates set forth in "Overview of the
Plan--Summary of Classes and Treatment of Claims and Interests," the amount of
the ultimate distribution received by the holders of Allowed Claims in Reserve
Classes through the quarterly distributions may be adversely affected. In
addition, it is possible that the amount of any particular Disputed Claim that
ultimately is allowed by the Bankruptcy Court may be less than the amount of the
Plan Proponents' estimate thereof or less than the amount asserted by the holder
thereof.
DISTRIBUTIONS OF NEW DEBT
Notwithstanding any other provisions of the Plan, principal amounts of New
Debt will be issued only in denominations of $1,000 and integral multiples
thereof. When any distribution on account of an Allowed Claim would otherwise
result in the issuance of New Debt with an aggregate principal amount that is
not an integral multiple of $1,000, the actual distribution of such notes will
be rounded to the next higher or lower integral multiple of $1,000, as follows:
(i) aggregate principal amounts that exceed an integral multiple of $1,000 by
$500 or more will be rounded to the next higher integral multiple of $1,000; and
(ii) aggregate principal amounts that exceed an integral multiple of $1,000 by
less than $500 will be rounded to the next lower integral multiple of $1,000.
If, as a result of rounding of principal amounts of any series of New Unsecured
Notes to be distributed to particular holders of Allowed Bank Loan Claims in a
particular Class, the sum of such principal amounts differs from the aggregate
principal amount of such series of New Unsecured Notes to be distributed
pursuant to Section III.B.2.b, c, or d of the Plan, as applicable: (i) the
aggregate principal amount of the applicable series of New Unsecured Notes
specified in Section III.B.2.b, c, or d will be adjusted upward or
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downward to provide for the distribution of the applicable series of New
Unsecured Notes in an aggregate principal amount equal to such sum and (ii) the
corresponding amount of cash to be distributed pursuant to Section III.B.2.b, c,
or d, as applicable, will be increased or decreased dollar for dollar to offset
the adjustment to the principal amount of the New Unsecured Notes described in
(i). No consideration will be provided in lieu of principal amounts of any other
issue of New Debt that are rounded down.
DISTRIBUTIONS OF SHARES OF NEW EQUITY
Notwithstanding any other provision of the Plan, only whole numbers of
shares of New Combined Company Common Stock and whole numbers of New Warrants
will be issued. When any distribution on account of an Allowed Claim would
otherwise result in the issuance of a number of shares of New Combined Company
Common Stock or a number of New Warrants that is not a whole number, the actual
distribution of shares of such stock or warrants will be rounded to the next
higher or lower whole number, as follows: (i) fractions equal to or greater than
1/2 will be rounded to the next higher whole number; and (ii) fractions less
than 1/2 will be rounded to the next lower whole number. The total number of
shares of New Combined Company Common Stock and New Warrants to be distributed
to a Class of Claims will be adjusted as necessary to account for this rounding.
No consideration will be provided in lieu of fractional shares or warrants that
are rounded down.
Subject to the provisions of the New Combined Company Share Purchase Rights
Agreement, each share of New Combined Company Common Stock distributed pursuant
to the Plan will be accompanied by one New Combined Company Share Purchase
Right.
DE MINIMIS DISTRIBUTIONS
The disbursing agents and the Indenture Trustees will not be required to
distribute cash to the holder of an Allowed Claim in an impaired Class if the
amount of cash to be distributed on account of such Claim is less than $25. Any
holder of an Allowed Claim on account of which the amount of cash to be
distributed is less than $25 will have its claim for such distribution
discharged and will be forever barred from asserting any such claim against the
Reorganized Debtors or their respective property. Any cash not distributed
pursuant to the foregoing with respect to Claims in a non-Reserve Class or the
Fixed Cash Portion of Allowed Claims in a Reserve Class will be the property of
the Combined Company, free of any restrictions thereon, and any such cash held
by a third-party disbursing agent or an Indenture Trustee will be returned to
the Combined Company. Any cash not distributed pursuant to the foregoing with
respect to dividends or other distributions made on account of New Combined
Company Common Stock held in the Disputed Claims Reserve will be retained in the
Disputed Claims Reserve for redistribution Pro Rata to holders of Allowed Claims
in the Reserve Classes as an additional quarterly distribution. See "--New
Combined Company Common Stock to be Distributed to Holders of Allowed Claims in
Reserve Classes--Additional Quarterly Distributions on Account of Previously
Allowed Claims."
SPECIAL PROVISIONS REGARDING AGENT BANK CHARGES, INDENTURE TRUSTEE CHARGING
LIENS, AND
CERTAIN FEES AND EXPENSES OF SENIOR LENDERS
Agent Bank Charges
Notwithstanding the cancellation of the Macy's Bank Loan Agreements, any
Agent Bank Charges will be preserved. Consequently, distributions actually
received by the holders of Allowed Bank Loan Claims may be less than the gross
distributions provided for under the Plan in an amount equal to the amount of
distributions applied by an Agent Bank to its respective Agent Bank Charges.
Indenture Trustee Charging Liens
Each of the Indenture Trustees has an Indenture Trustee Charging Lien, as
described in each of the Old Indentures. In full satisfaction of Allowed Claims
secured by Indenture Trustee Charging Liens, the Indenture Trustees will receive
from the Combined Company cash equal to the amount of
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such Claims, and any Indenture Trustee Charging Liens will be released.
Distributions received by holders of Allowed Debt Security Claims pursuant to
the Plan will not be reduced on account of payment of Allowed Claims secured by
Indenture Trustee Charging Liens. Notwithstanding any other provisions of the
Plan, upon: (i) submission of appropriate documentation to the Combined Company
regarding fees and expenses incurred by an Indenture Trustee in connection with
the Reorganization Cases through the Effective Date that are secured by an
Indenture Trustee Charging Lien and (ii) the failure of the Combined Company to
object on the grounds of reasonableness, as determined under the terms of the
applicable Old Indenture, to the payment of such fees and expenses within 10
days after receipt of such documentation, such Indenture Trustee will be deemed
to hold an Allowed Claim for such fees and expenses, which the Combined Company
will pay in cash within 30 days after the receipt of the documentation regarding
the fees and expenses of such Indenture Trustee, without further Bankruptcy
Court approval.
Fees and Expenses of Senior Lenders
Based upon ongoing review and discussions with the Senior Lenders, the
Combined Company will reimburse the Senior Lenders for certain fees, costs, and
other expenses incurred by the Senior Lenders in connection with the
Reorganization Cases in amounts to be determined by Federated in its sole
discretion, without further Bankruptcy Court approval.
COMPLIANCE WITH TAX REQUIREMENTS
In connection with the Plan, to the extent applicable, each disbursing
agent, Agent Bank, and Indenture Trustee will comply with all tax withholding
(including back-up tax withholding, to the extent applicable) and reporting
requirements imposed on it by any governmental unit, and all distributions
pursuant to the Plan will be subject to such withholding and reporting
requirements. Each disbursing agent, Agent Bank, and Indenture Trustee will be
authorized to take any and all actions that may be necessary or appropriate to
comply with such withholding and reporting requirements.
Notwithstanding any other provision of the Plan, each entity receiving a
distribution of cash or New Securities pursuant to the Plan will have sole and
exclusive responsibility for the satisfaction and payment of any tax obligations
imposed by any governmental unit, including income, withholding, and other tax
obligations, on account of such distribution.
SURRENDER OF CANCELED SECURITIES OR OTHER INSTRUMENTS
GENERAL
As a condition precedent to receiving any distribution pursuant to the Plan
on account of an Allowed Claim evidenced by the notes, instruments, securities,
or other documentation canceled pursuant to the Plan, the holder of such Claim
must tender, as specified in Section VI.I of the Plan, the applicable notes,
instruments, securities, or other documentation evidencing such Claim to the
applicable Agent Bank, Indenture Trustee, or disbursing agent. Any cash and New
Securities to be distributed pursuant to the Plan on account of any such Claim
will, pending such surrender, be treated as an undeliverable distribution, as
described in "--Undeliverable or Unclaimed Distributions."
FAILURE TO SURRENDER CANCELED OLD DEBT SECURITIES OR UNTENDERED SECURITIES
Any holder of an Old Debt Security or an Untendered Security that fails to
surrender or be deemed to have surrendered the Old Debt Security or Untendered
Security within two years after the Effective Date will have its claim for a
distribution pursuant to the Plan on account of such Old Debt Security or
Untendered Security discharged and will be forever barred from asserting any
such claim against the Reorganized Debtors or their respective property. In such
cases, any cash or New Equity held for distribution on account of such claim
will be disposed of as described in "--Undeliverable or Unclaimed
Distributions."
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SETOFFS
Except with respect to claims of a Debtor or Reorganized Debtor released
pursuant to the Plan or any contract, instrument, release, indenture, or other
agreement or document created in connection with the Plan, the Reorganized
Debtors may, pursuant to section 553 of the Bankruptcy Code or applicable
nonbankruptcy law, set off against any Allowed Claim in a Reserve Class and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights, and
causes of action of any nature that the applicable Debtor or Reorganized Debtor
may hold against the holder of such Allowed Claim; provided, however, that
neither the failure to effect such a setoff nor the allowance of any Claim
hereunder will constitute a waiver or release by the applicable Debtor or
Reorganized Debtor of any such claims, rights, and causes of action that the
Debtor or Reorganized Debtor may possess against such holder. To the extent that
a Reorganized Debtor fails to effect a setoff with a holder of an Allowed
Reserve Class Claim and seeks to collect a claim from such holder after a
distribution to such holder pursuant to the Plan on account of its Claim, the
applicable Reorganized Debtor's recovery on its claim against such holder will
be limited to an amount that does not exceed the amount that would have been
recovered had the claim against the holder been set off against the holder's
Allowed Reserve Class Claim prior to any distribution pursuant to the Plan to
the holder on account of such Allowed Claim.
DISPUTED CLAIMS; RESERVE AND ESTIMATIONS
The procedures for making incremental distributions to holders of Allowed
Claims in the Reserve Classes are summarized below. These distribution
procedures will likely have the effect of reducing the initial distributions to
holders of Allowed Claims in the Reserve Classes.
TREATMENT OF DISPUTED CLAIMS
No Payments on Account of Disputed Claims and Disputed Claims Reserve
Notwithstanding any other provisions of the Plan, no payments or
distributions will be made on account of a Disputed Claim or, if less than the
entire Claim is a Disputed Claim, the portion of a Claim that is a Disputed
Claim, until such Claim or portion of a Claim becomes an Allowed Claim. In lieu
of distributions under the Plan to holders of Disputed Claims that would be in a
Reserve Class if allowed, a Disputed Claims Reserve will be established on the
Effective Date. The Combined Company will fund the Disputed Claims Reserve with
cash and New Combined Company Common Stock as described below.
Funding of Disputed Claims Reserve and Recourse
On the Effective Date, cash will be deposited in the Disputed Claims Reserve
in an amount equal to (i) the greater of (a) $100.0 million and (b) the Fixed
Cash Portion of Allowed Claims in the Reserve Classes on the Effective Date
minus (ii) the amount of cash distributed on the Effective Date on account of
Allowed Claims in the Reserve Classes. At the hearing on Confirmation, the Plan
Proponents will provide testimony or other evidence as to the aggregate amount
of Allowed Claims in the Reserve Classes as of the date of such hearing and the
estimated aggregate amount of such Claims as of the Effective Date. On the
Effective Date, New Combined Company Common Stock will be placed in the Disputed
Claims Reserve in a number of shares equal to (i) 3.73385% of the number of
Distributable Shares (Pool A) minus (ii) the number of shares of New Combined
Company Common Stock distributed on the Effective Date on account of Allowed
Claims in the Reserve Classes.
Each holder of a Disputed Claim that ultimately becomes an Allowed Claim in
a Reserve Class will have recourse: (i) to the Combined Company, the Reorganized
Macy's Subsidiary Debtors, their successors, and their respective property for
satisfaction of the Fixed Cash Portion to which such Claim is entitled under the
Plan and an amount equal to any related Cash Investment Yield, computed on the
basis that such Fixed Cash Portion was placed in the Disputed Claims Reserve on
the Effective Date,
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irrespective of whether it was, and (ii) only to the undistributed New Combined
Company Common Stock held in the Disputed Claims Reserve for satisfaction of the
distributions of New Combined Company Common Stock to which holders of such
Claims are entitled under the Plan, and not to any Reorganized Debtor, its
property, or any assets previously distributed on account of any Allowed Claim.
Property Held in Disputed Claims Reserve
Cash held in the Disputed Claims Reserve (including dividends and other
distributions on New Combined Company Common Stock held in such reserve) will be
deposited in a segregated bank account in the name of the applicable disbursing
agent and held in trust for the benefit of the potential claimants of such funds
and accounted for separately, and, subject to Section VI.D.2.a.iii of the Plan
(regarding failure to claim undeliverable distributions), will not constitute
property of the Combined Company. The applicable disbursing agent will invest
the cash held in the Disputed Claims Reserve in a manner consistent with the
Combined Company's investment and deposit guidelines. The disbursing agent will
also place in the Disputed Claims Reserve the Cash Investment Yield from such
investment of cash.
New Combined Company Common Stock held in the Disputed Claims Reserve will
be held in trust for the benefit of the potential claimants of such securities
by the applicable disbursing agent and accounted for separately, and subject to
Section VI.D.2.a.iii of the Plan (regarding failure to claim undeliverable
distributions), will not constitute property of the Combined Company. Pending
the distribution of any New Combined Company Common Stock held in the Disputed
Claims Reserve, such stock will be voted as described in "--Undeliverable or
Unclaimed Distributions."
DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE THEY ARE ALLOWED
On each Quarterly Distribution Date, the applicable disbursing agent will
make all distributions on account of any Disputed Claim that has become an
Allowed Claim during the preceding calendar quarter. Such distributions will be
made pursuant to the provisions of the Plan governing the applicable Class,
including the incremental distribution provisions described in "--Timing and
Calculation of Amounts to be Distributed--New Combined Company Common Stock to
be Distributed to Holders of Allowed Claims in Reserve Classes." Holders of
Disputed Claims in Reserve Classes that are ultimately allowed will also be
entitled to receive, on the basis of the amount ultimately allowed, the net
amount of (i) any dividends or other distributions received on account of the
shares of New Combined Company Common Stock and (ii) a Pro Rata share of the
Cash Investment Yield from the investment of any cash in the Disputed Claims
Reserve from the Effective Date or, with respect to net cash proceeds generated
after the Effective Date from property held in the Disputed Claims Reserve, the
date that such cash was invested after the Effective Date, as applicable, to the
date that such distributions are made from the Disputed Claims Reserve. The
Plan's provisions for distributions to holders of Disputed Claims in Reserve
Classes that become Allowed Claims after the Effective Date are premised on the
assumption that the ultimate aggregate amount of all Allowed Claims in the
Reserve Classes will be less than the aggregate Face Amount of all Claims in the
Reserve Classes. See "--Timing and Calculation of Amounts to be Distributed--New
Combined Company Common Stock to be Distributed to Holders of Allowed Claims in
Reserve Classes."
TAX REQUIREMENTS FOR INCOME GENERATED BY THE DISPUTED CLAIMS RESERVE
Pursuant to the provisions set forth in Appendix VII.D to the Plan, the
applicable disbursing agent will pay, or cause to be paid, out of the funds held
in the Disputed Claims Reserve, any tax imposed by any governmental unit on the
income generated by the funds and New Combined Company Common Stock held in the
Disputed Claims Reserve. The applicable disbursing agent will also file or cause
to be filed any tax or information return related to the Disputed Claims Reserve
that is required by any governmental unit.
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OBJECTIONS TO CLAIMS AND AUTHORITY TO PROSECUTE OBJECTIONS; CLAIMS RESOLUTION
COMMITTEE
OBJECTIONS
All objections to Claims must be filed and served on the holders of such
Claims by the Claims Objection Bar Date which, other than for certain Claims
allowed prior to the Effective Date or as part of the Plan, is the latest of:
(i) 90 days after the Effective Date; (ii) 45 days after the filing of a proof
of claim for such Claim; and (iii) such other period of limitation as may be
specifically fixed by the Plan, the Confirmation Order, the Bankruptcy Rules, or
an order of the Bankruptcy Court for objecting to a Claim. If an objection has
not been filed to a proof of Claim or a scheduled Claim by the Claims Objection
Bar Date, the Claim to which the proof of Claim or scheduled Claim relates will
be treated as an Allowed Claim if such Claim has not been allowed earlier. An
objection is deemed to have been timely filed as to all Personal Injury Claims,
thus making each such Claim a Disputed Claim as of the Claims Objection Bar
Date. Each such Claim will remain a Disputed Claim until it becomes (a) allowed:
(1) in any Stipulation of Amount and Nature of Claim executed by the applicable
Reorganized Debtor and Claim holder on or after the Effective Date; (2) in any
contract, instrument, indenture, or other agreement entered into in connection
with the Plan; (3) in a Final Order; or (4) pursuant to the terms of the Plan or
(b) is settled prior to the Effective Date pursuant to: (1) that certain Order
Pursuant to Bankruptcy Rule 9019 Approving and Authorizing the Debtors to
Compromise and Settle Certain Disputed Claims in Accordance with Proposed
Settlement Procedures and Limitations, entered July 19, 1993, with respect to
certain Unsecured Claims; (2) that certain Order (A) Pursuant to Bankruptcy Rule
9019(a) Approving and Authorizing the Compromise and Settlement, from Time to
Time, of Certain Disputed Property Tax Claims, and (B) Pursuant to Section
362(d) of the Bankruptcy Code and Bankruptcy Rule 4001(d) Modifying the
Automatic Stay to Permit Setoff of Certain Undisputed Prepetition Property Tax
Claims Against the Refunds Due to the Debtors, entered on January 18, 1994, with
respect to certain Tax Claims; or (3) that certain Omnibus Order (A) Modifying
the Automatic Stay Pursuant to Section 362 of the Bankruptcy Code to Permit
Commencement, Continued Prosecution or Settlement of Certain Personal Injury,
Property Damage, Products Liability and Other Actions Covered by Insurance
Policies and (B) Authorizing the Compromise, Settlement and Payment in Full of
Certain Claims Pursuant to Rule 9019(b) of the Federal Rules of Bankruptcy
Procedure, dated June 8, 1992.
After the Confirmation Date, only the Debtors, with the approval of
Federated, and the Reorganized Debtors will have the authority to file
objections, settle, compromise, withdraw, or litigate to judgment objections to
Claims, including Claims for reclamation under Section 546(c) of the Bankruptcy
Code; provided, however, that the Debtors, Federated, and the Reorganized
Debtors will be prohibited from filing any objections to Claims allowed in
accordance with (a) or (b) of the preceding paragraph. Except as provided below,
from and after the Effective Date, the Reorganized Debtors may settle or
compromise any Disputed Claim without approval of the Bankruptcy Court. Within
30 days after the end of each month or as otherwise agreed in writing by the
Debtors and the Unsecured Creditors' Committee, the Reorganized Debtors will
provide counsel to the Claims Resolution Committee with written notice by
overnight delivery service or facsimile transmission of each Disputed Claim in a
Reserve Class that has been settled or compromised in the prior month, other
than such settlements or compromises that fall within the parameters of
settlement guidelines to be agreed to by the Debtors and the Unsecured
Creditors' Committee. Within 15 days after the receipt of such notice, the
Claims Resolution Committee will provide the Reorganized Debtors with written
notice of any such settlements or compromises with which it does not concur. If
the Reorganized Debtors and the Claims Resolution Committee cannot reach
agreement with respect to any such settlement or compromise, the Claims
Resolution Committee will be permitted to file and serve on the Reorganized
Debtors an objection to the reasonableness of such settlement or compromise by
the last Business Day of the month in which the Claims Resolution Committee
received written notice of the settlement or compromise, with the reasonableness
of such settlement or compromise to be determined by the Bankruptcy Court. If
the Claims Resolution Committee does not provide a written notice and file and
serve an objection as
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specified above with respect to any particular settlement or compromise, then
such settlement or compromise will be deemed resolved on the terms and subject
to the conditions agreed to by the Reorganized Debtors. The Combined Company and
the Claims Resolution Committee may modify the foregoing procedures by a writing
executed by both.
CLAIMS RESOLUTION COMMITTEE
Function and Composition of the Committee
On the Effective Date, the Claims Resolution Committee will be established.
Its sole functions will be: (i) to monitor the Reorganized Debtors' progress in
(a) reconciling and resolving Disputed Claims in Reserve Classes and (b) making
distributions on account of such Claims once resolved and (ii) to review and
assert objections to the reasonableness of the Reorganized Debtors' settlements
or compromises of Disputed Claims in Reserve Classes. The Claims Resolution
Committee will consist of three holders of Claims who each have previously
served as a member of the Unsecured Creditors' Committee.
Committee Procedures
The Claims Resolution Committee will adopt by-laws that will control its
functions. These by-laws, unless modified by the Claims Resolution Committee,
will provide the following: (i) a majority of the Claims Resolution Committee
will constitute a quorum; (ii) one member of the Claims Resolution Committee
will be designated by the majority of its members as its chairperson; (iii)
meetings of the Claims Resolution Committee will be called by its chairperson on
such notice and in such manner as its chairperson may deem advisable; and (iv)
the Claims Resolution Committee will function by decisions made by a majority of
its members in attendance at any meeting.
Employment of Professionals by the Committee and Reimbursement of Committee
Members
The Claims Resolution Committee will be authorized to retain and employ one
law firm and one accounting firm. The role of the Claims Resolution Committee's
professionals will be strictly limited to assisting the committee in its
functions described herein. The Reorganized Debtors will pay the actual,
necessary, reasonable, and documented fees and expenses of the professionals
retained by the Claims Resolution Committee, as well as the actual, necessary,
reasonable, and documented expenses incurred by each committee member in the
performance of its duties, in accordance with Federated's normal business
practices for compensating and reimbursing professionals. Other than as
specified in the preceding sentence, the members of the Claims Resolution
Committee will serve without compensation. If there is any unresolved dispute
between the Combined Company and the Claims Resolution Committee, its
professionals, or a member thereof as to any fees or expenses, such dispute will
be submitted to the Bankruptcy Court for resolution.
Dissolution of the Committee
Subject to further order of the Bankruptcy Court, the Claims Resolution
Committee will dissolve on the earlier of: (i) the date that an officer of the
Combined Company files and serves on counsel to the Claims Resolution Committee
by overnight delivery service or facsimile transmission a certification that the
aggregate Face Amount of the remaining Disputed Claims in Reserve Classes is
equal to or less than $20.0 million and (ii) the third anniversary of the
Effective Date. The Claims Resolution Committee may file and serve on the
Reorganized Debtors an objection to the certification within 10 days of receipt
thereof, with the issue of the aggregate Face Amount of remaining Disputed
Claims to be determined by the Bankruptcy Court. The professionals retained by
the Claims Resolution Committee and the members of the committee will not be
entitled to compensation or reimbursement of expenses for any services rendered
after the date of dissolution of the committee.
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VOTING AND CONFIRMATION OF THE PLAN
GENERAL
To confirm the Plan, the Bankruptcy Code requires that the Bankruptcy Court
make a series of findings concerning the Plan and the Debtors, including that:
(i) the Plan classifies Claims and Interests in a permissible manner; (ii) the
Plan complies with the applicable provisions of the Bankruptcy Code; (iii) the
Plan Proponents comply with the applicable provisions of the Bankruptcy Code;
(iv) the Plan Proponents have proposed the Plan in good faith and not by any
means forbidden by law; (v) the disclosure required by section 1125 of the
Bankruptcy Code has been made; (vi) the Plan has been accepted by the requisite
votes of holders of Claims or Interests (except to the extent that cramdown is
available under section 1129(b) of the Bankruptcy Code (see "--Confirmation" and
"--Acceptance or Cramdown")); (vii) the Plan is feasible and Confirmation will
likely not be followed by the liquidation or the need for further financial
reorganization of the Debtors; (viii) the Plan is in the "best interests" of all
holders of Claims or Interests in an impaired Class by providing to such holders
on account of their Claims or Interests property of a value, as of the Effective
Date, that is not less than the amount that such holder would receive or retain
in a chapter 7 liquidation, unless each holder of a Claim or Interest in such
Class has accepted the Plan (see "--Best Interests Test; Liquidation Analysis");
(ix) all fees and expenses payable under 28 U.S.C. Sec. 1930 (relating to
bankruptcy fees payable to the clerk of the Bankruptcy Court and the United
States trustee) have been paid or the Plan provides for the payment of such fees
on the Effective Date; and (x) the Plan provides for the continuation after the
Effective Date of all retiree benefits, as defined in section 1114 of the
Bankruptcy Code, at the level established at any time prior to Confirmation
pursuant to section 1114 of the Bankruptcy Code, for the duration of the period
that the Debtors have obligated themselves to provide such benefits.
VOTING PROCEDURES AND REQUIREMENTS
Pursuant to the Bankruptcy Code, only classes of claims against or equity
interests in a debtor that are "impaired" (within the meaning of section 1124 of
the Bankruptcy Code) under the terms and provisions of a plan of reorganization
are entitled to vote to accept or reject a plan. A class is "impaired" if the
legal, equitable, or contractual rights attaching to the claims or interests of
that class are modified, other than by curing defaults and reinstating maturity
or by payment in full in cash. Classes of claims and interests that are not
impaired are not entitled to vote on a plan and are conclusively presumed to
have accepted a plan. In addition, classes of claims and interests that receive
no distributions under a plan are deemed to have rejected the plan. See
"Overview of the Plan-- Summary of Classes and Treatment of Claims and
Interests" for a summary of the classification and treatment of Claims and
Interests under the Plan, as well as a designation of whether each Class is
impaired or unimpaired.
Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule 3018, the
Bankruptcy Court may estimate and temporarily allow a Claim for voting or other
purposes. The Plan Proponents or holders of particular Claims may seek an order
of the Bankruptcy Court temporarily allowing, for voting purposes only, certain
Disputed Claims.
VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO VOTE ON
THE PLAN IS IMPORTANT. IF YOU HOLD CLAIMS IN MORE THAN ONE CLASS FOR A
PARTICULAR DEBTOR, OR AGAINST MORE THAN ONE DEBTOR, YOU MAY RECEIVE MORE THAN
ONE BALLOT. YOU SHOULD COMPLETE, SIGN, AND RETURN EACH BALLOT THAT YOU RECEIVE.
In most cases, each ballot enclosed with this Disclosure Statement has been
encoded with the amount of your Claim for voting purposes (if your Claim is a
Disputed Claim, this amount may not be the amount ultimately allowed for
purposes of distributions under the Plan) and the Debtor and Class to which your
Claim relates. PLEASE FOLLOW THE INSTRUCTIONS ACCOMPANYING THE ENCLOSED BALLOT
CAREFULLY.
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TO BE COUNTED, YOUR BALLOT MUST BE ACTUALLY RECEIVED BY 5:00 P.M. EASTERN
TIME ON , 1994, AT THE ADDRESS SET FORTH ON THE ENCLOSED PREADDRESSED
ENVELOPE. IT IS OF THE UTMOST IMPORTANCE TO THE DEBTORS THAT YOU VOTE PROMPTLY
TO ACCEPT THE PLAN. THE PLAN PROPONENTS, THE CREDITORS' COMMITTEES, AND THE
REPRESENTATIVES OF THE SENIOR LENDERS SUPPORT THE PLAN AND STRONGLY ENCOURAGE
YOU TO VOTE TO ACCEPT THE PLAN.
VOTES CANNOT BE TRANSMITTED ORALLY. ACCORDINGLY, YOU ARE URGED TO RETURN
YOUR SIGNED AND COMPLETED BALLOT PROMPTLY.
IF ANY OF THE CLASSES OF HOLDERS OF IMPAIRED CLAIMS OR INTERESTS OF ANY
DEBTOR VOTE TO REJECT THE PLAN, (I) THE PLAN PROPONENTS MAY SEEK TO SATISFY THE
REQUIREMENTS FOR CONFIRMATION OF THE PLAN UNDER THE CRAMDOWN PROVISIONS OF
SECTION 1129(B) OF THE BANKRUPTCY CODE AND, IF REQUIRED, MAY AMEND THE PLAN OF
SUCH DEBTOR TO CONFORM TO THE STANDARDS OF SUCH SECTION OR (II) THE PLAN MAY BE
MODIFIED OR WITHDRAWN WITH RESPECT TO SUCH DEBTOR, WITHOUT AFFECTING THE PLAN AS
TO OTHER DEBTORS, OR IN ITS ENTIRETY. See "--Acceptance or Cramdown" and
"--Alternatives to Confirmation and Consummation of the Plan." As described in
"The Combined Company--Restructuring Transactions--The Federated/Macy's
Merger--The Federated/Macy's Merger Agreement-- Termination," Federated and
Macy's each may have the right to terminate the Federated/Macy's Merger
Agreement if Confirmation of the Plan is sought under the cramdown provisions of
section 1129(b) of the Bankruptcy Code under certain circumstances.
PROCEDURES FOR HOLDERS OF OLD DEBT SECURITIES
The record date for determining the holders of the Old Debt Securities that
are entitled to vote on the Plan is , 1994. Claims related to the
Old Debt Securities are included in Classes M-10, M-11, M-12, MOS-10, MOS-11,
and MOS-12. See "Overview of the Plan--Summary of Classes and Treatment of
Claims and Interests." Entities that acquire Old Debt Securities after the
voting record date will not be entitled to vote on the Plan, but, if they are
holding such securities on the Distribution Record Date (or are otherwise
lawfully entitled to receive distributions pursuant to the Plan in respect of
such securities), they will be entitled to any such distributions. The
Bankruptcy Court has approved special procedures governing the voting of Claims
in respect of the Old Debt Securities. These procedures are set forth in the
ballots and instructional materials distributed to the holders of Old Debt
Securities, and in a Bankruptcy Court order that has been served on each
Indenture Trustee and each known bank or brokerage firm (or its agent) through
which beneficial owners hold such Old Debt Securities, as well as the
Independent Election Corporation of America and ADP Proxy Services,
intermediaries that process voting materials for many banks and brokerage firms.
THE INDENTURE TRUSTEES FOR THE OLD DEBT SECURITIES WILL NOT VOTE ON BEHALF
OF THE HOLDERS OF SUCH SECURITIES. ACCORDINGLY, HOLDERS OF THESE SECURITIES MUST
SUBMIT THEIR OWN BALLOTS IN ACCORDANCE WITH THE PROCEDURES DESCRIBED IN THE
BALLOTS AND INSTRUCTIONAL MATERIALS DISTRIBUTED TO HOLDERS OF THE OLD DEBT
SECURITIES AND IN THE BANKRUPTCY COURT ORDER APPROVING THE SPECIAL PROCEDURES
GOVERNING THE VOTING OF ALLOWED OLD DEBT SECURITY CLAIMS. DO NOT RETURN THE
CERTIFICATES OR OTHER INSTRUMENTS REPRESENTING YOUR SECURITIES WITH YOUR
BALLOTS.
FURTHER INFORMATION
IF YOU HAVE A CLAIM THAT IS IMPAIRED UNDER THE PLAN, THEREBY ENTITLING YOU
TO VOTE, BUT DID NOT RECEIVE A BALLOT, RECEIVED A DAMAGED BALLOT, OR LOST YOUR
BALLOT, OR IF YOU HAVE ANY QUESTIONS CONCERNING THE DISCLOSURE
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STATEMENT OR THE PLAN, PLEASE CALL THE PLAN PROPONENTS' GENERAL VOTING AGENT,
, AT ( ) - .
CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
hearing to determine whether the Plan and the Plan Proponents have fulfilled the
Confirmation requirements of section 1129 of the Bankruptcy Code. The
Confirmation hearing has been scheduled for , 1994, at : .m.,
before The Honorable Burton R. Lifland, Chief Judge, United States Bankruptcy
Court, Southern District of New York, Alexander Hamilton Custom House, One
Bowling Green, Room 623, New York, New York 10004. The Confirmation hearing may
be adjourned from time to time by the Bankruptcy Court without further notice,
except for an announcement of the adjourned Confirmation hearing date made at
the Confirmation hearing.
CONFIRMATION
At the Confirmation hearing, the Bankruptcy Court will confirm the Plan as
to any Debtor only if all of the requirements of section 1129 of the Bankruptcy
Code are met. See "--General." Among the requirements for Confirmation are that
the Plan: (i) is accepted by the requisite holders of impaired Classes of Claims
and Interests of such Debtor or, if not so accepted, is "fair and equitable" and
"does not discriminate unfairly" as to the nonaccepting Class or Classes; (ii)
is in the "best interests" of each holder of a Claim or Interest in each
impaired Class under the Plan for such Debtor; (iii) is feasible; and (iv)
complies with the applicable provisions of the Bankruptcy Code.
ACCEPTANCE OR CRAMDOWN
The Plan constitutes a separate plan of reorganization for each of the 88
Debtors. Accordingly, for the Plan to be confirmed for a particular Debtor, the
requirements discussed below must be met separately for such Debtor.
A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and a majority in number of claims of that class
vote to accept the plan. Only those holders of claims who actually vote (and are
entitled to vote) to accept or to reject a plan count in this tabulation. A plan
is accepted by an impaired class of interests if holders of at least two-thirds
of the number of shares in such class vote to accept the plan. As with claims,
only those holders of interests who actually return a ballot count in this
tabulation. In addition to this voting requirement, section 1129 of the
Bankruptcy Code requires that a plan be accepted by each holder of a claim or
interest in an impaired class or that a plan otherwise be found by the
Bankruptcy Court to be in the best interests of each holder of a claim or
interest in an impaired class. See "--Best Interests Test; Liquidation
Analysis." In addition, the impaired classes of each debtor must accept a plan
for the plan to be confirmed for such debtor without application of the fair and
equitable test in section 1129(b) of the Bankruptcy Code discussed below.
The Bankruptcy Code contains provisions for confirmation of a plan even if
it is not accepted by all impaired classes, as long as at least one impaired
class of claims has accepted it. These so-called "cramdown" provisions are set
forth in section 1129(b) of the Bankruptcy Code. As indicated above, a plan may
be confirmed under the cramdown provisions if, in addition to satisfying the
other requirements of section 1129 of the Bankruptcy Code, it (i) is "fair and
equitable" and (ii) "does not discriminate unfairly" with respect to each class
of claims or interests that is impaired under, and has not accepted, a plan. The
"fair and equitable" standard, also known as the "absolute priority rule,"
requires, among other things, that unless a dissenting unsecured class of claims
or a class of interests receives full compensation for its allowed claims or
allowed interests, no holder of allowed claims or interests in any junior class
may receive or retain any property on account of such claims or interests. With
respect to a dissenting class of secured claims, the "fair and equitable"
standard requires, among other things, that holders either (i) retain their
liens and receive deferred cash payments with a value as
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of the effective date of a plan equal to the value of their interest in property
of the estate or (ii) otherwise receive the indubitable equivalent of their
secured claims. The "fair and equitable" standard has also been interpreted to
prohibit any class senior to a dissenting class from receiving under a plan more
than 100% of its allowed claims. The requirement that a plan not "discriminate
unfairly" means, among other things, that a dissenting class must be treated
substantially equally with respect to other classes of equal rank.
The Plan Proponents believe that, if necessary, the Plan may be crammed down
over the dissent of certain unsecured Classes of Claims, in view of the
treatment proposed for such Classes. Cramdown of certain Classes of Secured
Claims, if necessary, may require amendment of the Plan. If necessary and
appropriate, the Plan Proponents intend to amend the Plan to permit the cramdown
of dissenting Classes of Claims. There can be no assurance, however, that the
"cramdown" requirements of section 1129(b) of the Bankruptcy Code would be
satisfied even if the Plan treatment provisions were amended or withdrawn as to
one or more Classes. In addition, as described in "The Combined Company--
Restructuring Transactions--The Federated/Macy's Merger--The Federated/Macy's
Merger Agreement--Termination," Federated and Macy's each may have the right to
terminate the Federated/Macy's Merger Agreement if Confirmation of the Plan is
sought under the cramdown provisions of section 1129(b) of the Bankruptcy Code
in circumstances involving the proposal of alternative treatment under the Plan
of Classes of Claims that reject the Plan.
The Plan Proponents believe that the treatment under the Plan of the holders
of Claims and Interests in Classes M-14, M-15, M-16, and M-17 will satisfy the
"fair and equitable" test because, although no distribution will be made in
respect of Claims and Interests in such Classes and, as a result, such Classes
will be deemed pursuant to section 1126 of the Bankruptcy Code to have not
accepted the Plan, no Class junior to such nonaccepting Classes will receive or
retain any property under the Plan. In addition, the Plan Proponents do not
believe that the Plan unfairly discriminates against any Class that may not
accept or otherwise consent to the Plan.
Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan, as it applies to any particular Debtor, is not
confirmable pursuant to section 1129 of the Bankruptcy Code will not limit or
affect: (i) the confirmability of the Plan as it applies to any other Debtor or
(ii) the Debtors' ability to modify the Plan, as it applies to any particular
Debtor, to satisfy the provisions of section 1129(b) of the Bankruptcy Code.
BEST INTERESTS TEST; LIQUIDATION ANALYSIS
Notwithstanding acceptance of the Plan by each impaired Class of a
particular Debtor, to confirm the Plan as to such Debtor the Bankruptcy Court
must determine that the Plan is in the best interests of each holder of a Claim
or Interest in any such impaired Class who has not voted to accept the Plan.
Accordingly, if an impaired Class does not unanimously accept the Plan, the
"best interests" test requires that the Bankruptcy Court find that the Plan
provides to each member of such impaired Class a recovery on account of the
member's Claim or Interest that has a value, as of the Effective Date, at least
equal to the value of the distribution that each such member would receive if
the applicable Debtor were liquidated under chapter 7 of the Bankruptcy Code on
such date.
To estimate what the members of each impaired Class of Claims or Interests
would receive if the Debtors were liquidated under chapter 7 of the Bankruptcy
Code, the Bankruptcy Court must first determine the aggregate dollar amount that
would be available if the Reorganization Cases were converted to cases under the
Bankruptcy Code and the Debtors' assets were liquidated by a chapter 7 trustee
(the "Liquidation Value"). The Liquidation Value of the Debtors would consist of
the net proceeds from the disposition of the assets of the Debtors, augmented by
any cash held by the Debtors.
The Liquidation Value available to creditors holding general Unsecured
Claims would be reduced by, among other things: (i) the Claims of secured
creditors, to the extent of the value of their collateral; (ii) the costs, fees,
and expenses of the liquidation, as well as other Administrative Claims incurred
in
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connection with the Debtors' chapter 7 cases, including tax liabilities in
respect of gain arising from the disposition of assets in the liquidation; (iii)
unpaid Administrative Claims incurred in the Reorganization Cases prior to
conversion to chapter 7; and (iv) Priority Claims, including Priority Tax
Claims. The Debtors' costs of liquidation in chapter 7 cases thus would include
the compensation of trustees, counsel, and other professionals retained by such
trustees, asset disposition expenses, applicable taxes, litigation costs, Claims
arising from the operation of the Debtors during the pendency of the chapter 7
cases, and all unpaid Administrative Claims incurred by the Debtors during the
Reorganization Cases. In addition, the liquidation itself would trigger certain
Administrative Claims, Priority Claims, and other Claims, such as Claims for
severance pay and damages Claims in respect of executory contracts or unexpired
leases entered into or assumed in the Reorganization Cases, and would likely
accelerate the payment of other Priority Claims, such as certain deferred income
tax obligations, that would otherwise be payable in the ordinary course of
business or on a deferred basis under the Plan. These Claims are required to be
paid in full out of the net liquidation proceeds, after payment of Secured
Claims, before the balance would be made available to pay general Unsecured
Claims or to make any distribution in respect of Interests. The Plan Proponents
believe that liquidation would also generate a significant increase in Unsecured
Claims, such as executory contract and unexpired lease rejection damages Claims
and tax and other governmental Claims, on an accelerated basis.
A consolidated hypothetical liquidation analysis of Macy's and its
subsidiaries is set forth in Exhibit IV. As more fully described in Exhibit IV,
the liquidation analysis is based on a number of estimates and assumptions that
are subject to significant uncertainties, including estimates and assumptions
relating to the feasibility of transferring Affiliates' owned or leased real
property interests necessary for store operations, the proceeds of sales of the
assets of Macy's and the Macy's Operating Subsidiary Debtors, the timing of such
sales (i.e., an expedited or orderly liquidation), the impact of pending
liquidations on continuing operations and values, and certain tax matters.
Although the Debtors believe that these estimates and assumptions are reasonable
for the purpose of preparing a hypothetical chapter 7 liquidation analysis,
there can be no assurance that such estimates and assumptions would be valid if
the Debtors were in fact liquidated. Moreover, the Debtors believe that chapter
7 liquidations could result in substantial intercompany and other litigation
that could delay the distribution of liquidation proceeds beyond the periods
assumed in Exhibit IV. This delay could materially reduce the amount determined
on a present value basis as of the proposed Effective Date to be available for
distribution to creditors in such liquidations. Further, the Plan Proponents
believe that such litigation and attendant delay could adversely affect the
values realizable in sales of the Debtors' assets to an extent that cannot be
estimated at this time.
The consolidated hypothetical liquidation analysis set forth in Exhibit IV
indicates that the aggregate proceeds of liquidation of the Debtors in cases
under chapter 7 of the Bankruptcy Code would be insufficient to satisfy
Administrative Claims and other Claims entitled to priority under sections 727
and 507 of the Bankruptcy Code and, accordingly, that a liquidation of the
Debtors' Estates would not generate sufficient proceeds to permit any
distribution to the holders of Unsecured Claims. Conversely, under the Plan,
most holders of Unsecured Claims will recover a portion of the allowed amount of
such Claims. See "Overview of the Plan--Summary of Classes and Treatment of
Claims and Interests." The Plan Proponents therefore believe that the Plan in
every respect provides for recoveries equal to or greater than those that would
be realized in chapter 7 liquidation of the Debtors, and that the Plan thus
satisfies the "best interests" test of section 1129(a) of the Bankruptcy Code as
to all Classes of Claims and Interests.
In summary, the Plan Proponents believe that chapter 7 liquidations of the
Debtors would result in a substantial diminution of the value to be realized by
holders of both secured and unsecured Claims, as compared to the proposed
distributions under the Plan, because of, among other factors: (i) the failure
to realize the maximum value for the Debtors' assets; (ii) the substantial
negative impact of conversions of the Reorganization Cases to chapter 7 cases
and subsequent liquidation on the employees and customers of the Debtors' retail
department store businesses; (iii) the additional costs and expenses
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involved in the appointment of trustees, attorneys, accountants, and other
professionals to assist such trustees in chapter 7 cases; (iv) the additional
expenses and Claims, some of which would be entitled to priority in payment,
that would arise by reason of the liquidation and from the rejection of
unexpired real estate leases, other leases, and executory contracts in
connection with a cessation of the Debtors' operations; (v) potential
inter-Debtor litigation in respect of Intercompany Claims and other matters,
including the settlement of Compromised Claims provided for under the Plan; and
(vi) the substantial time that would elapse before creditors would receive any
distributions in respect of their Claims. Consequently, the Plan Proponents
believe that the Plan will provide a substantially greater ultimate return to
holders of Claims than would chapter 7 liquidations of the Debtors, particularly
in light of the creation and enhancement of certain economies of scale,
synergies, and other benefits anticipated to result from the Combined Company's
joint operation of the Debtors' and Federated's businesses.
FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires that Confirmation not be
likely to be followed by the liquidation, or the need for further financial
reorganization, of the Debtors or any successor to the Debtors (unless such
liquidation or reorganization is proposed in the Plan). For purposes of
determining whether the Plan meets this requirement, the Plan Proponents have
analyzed the Reorganized Debtors' ability to meet their respective obligations
under the Plan. As part of this analysis, the Plan Proponents have prepared
projected results from the Reorganized Debtors' future operations. Such
projections, and the material assumptions on which they are based, are set forth
in "The Combined Company--Projected Financial Information." Based upon such
projections, the Plan Proponents believe that the Debtors' reorganization under
the Plan will meet the feasibility requirements of the Bankruptcy Code.
COMPLIANCE WITH APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE
Section 1129(a)(1) of the Bankruptcy Code requires that the Plan comply with
the applicable provisions of the Bankruptcy Code. During the course of
negotiations with the various creditor constituencies and their representatives,
various legal issues, including classification and treatment issues, were
raised. The Plan Proponents have considered each of these issues in the
development of the Plan and believe that the Plan complies with all provisions
of the Bankruptcy Code.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors have evaluated numerous alternatives to the Plan, including a
plan of reorganization under which the Debtors would continue to operate as an
independent enterprise, the sale of the Debtors as a going concern (either as a
whole or on a breakup basis), the liquidation of the Debtors, delaying the
adoption of any plan of reorganization, and the pursuit of various litigation
strategies. While the Debtors have concluded that the Plan is the best
alternative and will maximize recoveries by holders of Claims, if the Plan is
not confirmed, the Debtors (individually or collectively), Federated, or any
other party in interest in the Reorganization Cases, could attempt to formulate
and propose a different plan or plans of reorganization. Further, if no plan of
reorganization can be confirmed, the Bankruptcy Court may convert the
Reorganization Cases to cases under chapter 7 of the Bankruptcy Code. In a
liquidation case under chapter 7, a trustee or trustees would be elected or
appointed to liquidate the assets of each Debtor. The proceeds of the
liquidation would be distributed to the respective creditors of the Debtors in
accordance with the priorities established by the Bankruptcy Code. For a further
discussion of the potential impact on the Debtors of the conversion of the
Reorganization Cases to a chapter 7 liquidation, see "--Best Interests Test;
Liquidation Analysis." The Plan Proponents, the Creditors' Committees, and the
representatives of the Senior Lenders believe that Confirmation and consummation
of the Plan is preferable to the alternatives described above.
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FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN
GENERAL
The consummation of the Plan will have tax consequences to the Debtors, the
Combined Company, and holders of Claims and Interests. A description of certain
federal income tax consequences of the consummation of the Plan is provided
below. The tax consequences are complex and, in many respects, subject to
significant uncertainties. No tax opinion has been sought with respect to any
tax consequences of the Plan, and nothing contained in this Disclosure Statement
should be construed as constituting such an opinion.
HOLDERS OF CLAIMS AND INTERESTS ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE PLAN TO THEM AND TO THE DEBTORS
AND THE COMBINED COMPANY, INCLUDING STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES.
The Combined Company will be subject to significant tax risks, whether or
not the IRS issues any or all of certain requested tax rulings (see "--Request
for IRS Rulings"). See "Risk Factors--Certain Taxation Matters" for information
regarding certain of these risks.
FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS AND THE COMBINED COMPANY
NET OPERATING LOSS CARRYFORWARDS
The Projections assume that Federated will have no NOLs available to the
Combined Company after the Federated/Macy's Merger. The Projections also assume
that the Macy's affiliated group will have at least $600.0 million in NOLs as of
the Effective Date and that those NOLs will be utilized after the
Federated/Macy's Merger at the rate of $150.0 million per year. There can be no
assurance, however, that all or any of such NOLs will be available to the
Combined Company. See "Risk Factors--Certain Taxation Matters."
The principal amount of the Debtors' aggregate outstanding indebtedness will
be substantially reduced under the Plan. Normally, the forgiveness of
indebtedness triggers income to a debtor equal to the principal amount (as
determined for federal income tax purposes) of the debtor's indebtedness
forgiven. If debt is forgiven in a chapter 11 case, however, no income to the
debtor generally results. Instead, certain tax attributes otherwise available to
the debtor are reduced, in most cases by an amount equal to the principal amount
of the indebtedness forgiven. Tax attributes subject to reduction include: (i)
NOLs and NOL carryforwards; (ii) business credits and business credit
carryforwards; (iii) minimum tax credits; (iv) capital losses and capital loss
carryforwards; (v) the tax basis of the debtor's depreciable and nondepreciable
assets (but, generally, not in an amount greater than the excess of the
aggregate tax bases of the property held by the debtor immediately after the
forgiveness over the aggregate of the debtor's liabilities immediately after the
forgiveness); (vi) passive activity loss and credit carryforwards; and (vii)
foreign tax credit carryforwards.
Notwithstanding the foregoing, no income or attribute reduction results from
the forgiveness of debt through the issuance by a bankrupt debtor of its common
stock to the holder of the debt forgiven in chapter 11 cases of the type
involving the Debtors. This "stock-for-debt" rule is subject to a "de minimis"
exception and a proportionality rule. Under the "de minimis" exception, the
stock-for-debt rule does not apply to the issuance of nominal or token shares.
Under the proportionality rule, the stock-for-debt rule does not apply with
respect to debt of a debtor forgiven by an unsecured creditor in any case in
which the ratio of the value of the stock received by such unsecured creditor to
the amount of his indebtedness forgiven in connection therewith is less than 50%
of a similar ratio computed for all unsecured creditors of the debtor.
The substantial amounts of debt forgiven pursuant to the Plan may materially
reduce or even eliminate NOLs, and may reduce other tax attributes, of one or
more of the Debtors that would
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otherwise be available to the Combined Company. In particular, the
stock-for-debt rule, as the result of the operation of either or both of the "de
minimis" exception or the proportionality rule, or for other reasons, may not
apply with respect to a significant amount of indebtedness to be forgiven
pursuant to the Plan in connection with the issuance of New Combined Company
Common Stock. Similarly, there can be no assurance that NOLs of the Debtors
otherwise available will be available to the Combined Company. Finally, the
application of these rules in a case in which the debtors are, as here, members
of an affiliated group of corporations filing consolidated federal income tax
returns is not wholly clear. For these reasons, there can be no assurance of the
extent, if any, to which NOLs or other tax attributes of the Debtors will be
available to the Combined Company.
To the extent, if any, that NOLs of the Debtors are available to the
Combined Company, the ability of the Combined Company to utilize them will be
limited by section 382 of the Internal Revenue Code, by the so-called "SRLY"
rules, and possibly by other rules. Section 382 contains rules that limit the
ability of a loss corporation to offset its taxable income by NOLs (and other
tax attributes) otherwise available to it following certain changes in the
ownership of its stock. Consummation of the Plan will result in a section 382
change of ownership for each of Macy's and the Macy's Subsidiaries. Although the
matter is not entirely free from doubt, in this case the amount of the annual
section 382 limitation will likely be equal to the applicable long-term
tax-exempt rate times the value of the gross assets of Macy's and Macy's
Subsidiaries immediately prior to the ownership change (subject to certain
adjustments). The annual section 382 limitation might be increased, however, by,
among other things, certain built-in gains of Macy's or Macy's Subsidiaries
recognized after the Federated/Macy's Merger.
The SRLY rules would permit NOLs of Macy's and Macy's Subsidiaries otherwise
available to the Combined Company's consolidated tax group after the application
of section 382 and the other rules described above to be used only to offset
taxable income of certain corporations.
ALTERNATIVE MINIMUM TAX
A corporation or a consolidated group of corporations may incur alternative
minimum tax liability even in a case in which its NOLs and other tax attributes
are sufficient to eliminate its taxable income as computed under the regular
corporate income tax. The implementation of the Plan or other events or
transactions relating to the Plan will result in the incurrence by the Debtors
of alternative minimum tax, but the amount of any such tax cannot be estimated
accurately at this time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE FEDERATED/MACY'S MERGER AND OTHER
RESTRUCTURING TRANSACTIONS
The Projections assume that the Federated/Macy's Merger and the other
Restructuring Transaction mergers constitute tax free "reorganizations" under
section 368 of the Internal Revenue Code. If they do not constitute such
reorganizations, among other things, the corporate transferor would be treated
as if it had sold all of its assets at their fair market values in a taxable
transaction and would recognize taxable income in an amount that may be
material. In addition, under the Federated/Macy's Merger Agreement, it is
possible that the combination of Federated and Macy's will be consummated in a
form other than a merger of Federated with and into Macy's. Certain of such
other forms, possibly including a merger of Macy's with and into Federated, may
not be able to be effectuated on a tax free basis and thus may, among other
things, generate a material amount of taxable income not reflected in the
Projections. See "The Combined Company--Restructuring Transactions-- The
Federated/Macy's Merger--The Federated/Macy's Merger Agreement" and "--Projected
Financial Information."
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF IMPAIRED ALLOWED CLAIMS
The following discussion summarizes certain tax consequences of the Plan to
domestic holders of impaired Allowed Claims. It does not address tax
consequences to foreign holders, nor does it address tax consequences to holders
of Reinstated Claims or to holders of Interests, and it is qualified in its
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entirety by the discussion below of receipt of interest. See "--Federal Income
Tax Considerations for All Holders of Allowed Claims--Receipt of Interest."
The tax consequences of the Plan to a holder of an impaired Claim will
depend in part on whether the Claim constitutes a "tax security," the extent to
which such holder's recovery is in the form of stock or a tax security, whether
the holder is a resident of the United States for tax purposes, whether the
holder reports income on the accrual or cash basis method, and when the holder
receives distributions under the Plan. The tax consequences of the Plan to a
holder of such a Claim may also depend on whether the issuer of any stock or tax
securities received is the Debtor for tax purposes with respect to the Claim
satisfied. HOLDERS OF CLAIMS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE TAX TREATMENT UNDER THE PLAN OF THEIR PARTICULAR CLAIMS.
DEFINITION OF TAX SECURITIES
There is no precise definition under the tax law of a "tax security," and
various facts and circumstances pertaining to the origin and character of the
claim are relevant in determining its status. Nevertheless, courts generally
have held that corporate debt obligations evidenced by written instruments with
original maturities of at least 10 years constitute tax securities, while
corporate debt obligations with original maturities of five years or less do
not. The cases are unsettled with respect to corporate debt obligations with
original maturities of between five and 10 years.
HOLDERS OF ALLOWED CLAIMS NOT CONSTITUTING TAX SECURITIES
Holders of impaired Claims not constituting tax securities will generally
recognize any gain or loss realized on the receipt of their recoveries in
satisfaction of their Claims. Such gain or loss will be measured by the
difference, if any, between the tax value of the aggregate consideration
received and the holder's basis in the Claim satisfied. The New Unsecured Notes
will have a tax value equal to the amount at which they are deemed to have been
issued for federal income tax purposes. See "--Federal Income Tax Considerations
for All Holders of Allowed Claims--Original Issue Discount." The holder's basis
in the consideration received will equal its tax value, and the holding period
therefor will commence the day following the day of receipt. The character of
the gain or loss recognized will depend on a number of factors, including the
tax status of the holder, whether the Claim constitutes a capital asset in the
holder's hands, whether the Claim was held for more than one year, whether the
Claim was purchased at a discount, and whether and to what extent the holder has
previously claimed a bad debt deduction with respect to the Claim.
For federal income tax purposes, the Combined Company will treat the
Disputed Claims Reserve as a grantor trust of which the Combined Company (or its
predecessor, Macy's) is the grantor, and will therefore treat all income earned
on the assets held by the Disputed Claims Reserve as income of the Combined
Company. (Pursuant to the provisions of Appendix VII.D to the Plan, cash will be
distributed from the Disputed Claims Reserve to the Combined Company to meet its
tax obligations on income generated by the Disputed Claims Reserve.) It is
possible, however, that the IRS will treat the Disputed Claims Reserve as a
trust taxable currently as a separate entity on its income, as a grantor trust
of which the holders of Allowed Claims are the grantors, or in some other way.
It is unclear when those holders of Claims in the Reserve Classes whose tax
basis in their Claim exceeds their recovery will be able to recognize their loss
for tax purposes. It is possible that such holders may not be entitled to
recognize any loss until the amount of their final recovery has been determined.
HOLDERS OF ALLOWED CLAIMS CONSTITUTING TAX SECURITIES
Holders of impaired Claims constituting tax securities as to which the
issuer of any stock or tax securities received is the tax Debtor with respect to
the Claim satisfied generally should not recognize any loss realized on their
receipt of consideration in satisfaction of their Claims. However, holders of
impaired Claims constituting tax securities who receive consideration other than
stock or a tax security issued by the tax Debtor with respect to the Claim
satisfied may recognize gain, if any, in an amount
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equal to the lesser of the amount of gain realized and the tax value of such
other consideration. See "--Holders of Allowed Claims Not Constituting Tax
Securities" for a discussion of the character of any gain recognized. The
holder's aggregate tax basis in any such stock or tax securities received will
generally equal such holder's basis in the Claim satisfied increased by any gain
recognized and reduced by the tax value of any other consideration received. The
holder's tax basis in any such other consideration will equal its tax value. The
holding period for any stock or tax security received will generally include the
holding period of the Claim satisfied. The holding period for any other
consideration will begin on the day after receipt.
The tax consequences to holders of impaired Claims constituting tax
securities as to which the issuer of any stock or tax securities received is not
the tax Debtor with respect to the Claim satisfied are not totally clear. In
form, such holders will not be receiving stock or tax securities of the tax
Debtor with respect to the Claim satisfied. If that form is respected for tax
purposes (and assuming no relevant Restructuring Transactions involving such
Debtor occurs), the exchange would be a fully taxable event to such holders. A
relevant Restructuring Transaction involving such Debtor may occur, however, or
the exchange may be recharacterized by the IRS. Were either to occur, the tax
consequences to the holder would depend on whether, and the extent to which,
holders are treated as receiving stock or tax securities of the tax Debtor with
respect to the Claim satisfied and then exchanging such consideration in a
transaction qualifying as a tax-free reorganization under section 368 of the
Internal Revenue Code. Although rulings are being requested from the IRS as to
the tax consequences to the Debtors of the recoveries of holders of Claims, no
rulings are being requested as to the tax treatment of such recoveries to such
holders. HOLDERS OF CLAIMS CONSTITUTING TAX SECURITIES AS TO WHICH MACY'S IS NOT
THE DEBTOR FOR TAX PURPOSES ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE APPROPRIATE TAX TREATMENT.
FEDERAL INCOME TAX CONSIDERATIONS FOR ALL HOLDERS OF ALLOWED CLAIMS
RECEIPT OF INTEREST
Holders of Claims not previously required to include in their taxable income
any accrued but unpaid interest on a Claim will be treated as receiving taxable
interest income to the extent any consideration they receive under the Plan is
allocable to such interest. Holders previously required to include in their
taxable income any accrued but unpaid interest on a Claim may be entitled to
recognize a deductible loss to the extent that such interest is not satisfied
under the Plan. The Debtors or the Combined Company will file information
returns reflecting the fact that the consideration received by holders of
Secured Claims under the Plan is allocable first to any interest (both accrued
but unpaid prepetition interest to the extent thereof and postpetition interest
to the extent that Plan recoveries exceed Allowed Claims) and then to principal.
Holders of Claims receiving post-Effective Date distributions should consult
their tax advisors with respect to whether they are subject to the imputed
interest rules.
FUTURE STOCK GAINS
Any gain recognized by a holder of a Claim on any subsequent sale or
exchange of New Combined Company Common Stock received under the Plan in
satisfaction of such holder's Claim that would otherwise be treated as capital
gain will be treated as ordinary income to the extent of any bad debt deductions
(or additions to a bad debt reserve) taken by such holder with respect to such
Claim less any amount included in such holder's gross income on the satisfaction
of such Claim pursuant to the Plan and to the extent of any ordinary loss
recognized by the holder on such satisfaction. (For this purpose, the amount of
gross income a cash basis holder would have recognized had such holder's Claim
been satisfied in full pursuant to the Plan will generally be treated as a bad
debt deduction taken by such holder.) Furthermore, in the case of a holder of a
Claim constituting a tax security who receives New Combined Company Common Stock
or New Combined Company Common Stock and a tax security pursuant to the Plan in
a transaction or transactions in which any realized gain or loss is not
recognized
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in full, any accrued market discount not previously treated as ordinary income
with respect to the Claim satisfied will be treated as market discount with
respect to the New Combined Company Common Stock or, on an allocable basis, to
the New Combined Company Common Stock and the tax security received. Such market
discount will generally be taxed as ordinary income on any disposition of the
New Combined Company Common Stock or tax security received.
ORIGINAL ISSUE DISCOUNT
It is possible that the New Series A Notes, the New Series B Notes, or the
New Series C Notes will be treated as having been issued with original issue
discount. For example, if any such New Unsecured Notes are part of an issue (or
are issued for) securities that are traded on an established securities
exchange, and if the fair market value of the securities exchanged therefor is,
for purposes of section 1273(a)(3) of the Internal Revenue Code, more than a de
minimis amount less than the principal amount of such New Unsecured Notes, such
New Unsecured Notes may be treated as having been issued at their fair market
values (that is, with original issue discount). Otherwise, they will be deemed
to have been issued at their principal amounts. Pursuant to Treasury
regulations, an "established securities market" includes a system of general
circulation (including a computer listing disseminated to subscribing brokers,
dealers, or traders) that provides a reasonable basis to determine fair market
value by disseminating either recent price quotations or actual prices of recent
sale transactions.
If issued with original issue discount, such original issue discount would
be amortized and includible in the holder's gross income as interest over the
term of the debt, based on the constant-interest method. As a result, holders
would be required to include amounts in gross income in advance of any receipt
of cash in respect of such income.
REQUEST FOR IRS RULINGS
Rulings with respect to certain of the tax consequences of the Plan to the
Debtors will be requested from the IRS. However, the receipt of favorable
rulings is not a condition to Confirmation or the Effective Date. There can be
no assurance that the IRS will issue any of the requested rulings. Furthermore,
substantial uncertainties will remain with respect to some tax consequences of
the Plan even if the IRS rules favorably on all matters as to which rulings are
being requested.
One requested ruling deals with the effect under the proportionality rule of
the method of distribution with respect to Reserve Classes. The other requested
rulings deal with the identity of the Debtor, for certain federal income tax
purposes, of joint and several debt and with the proper tax characterization of
recoveries with respect to joint and several debt, general Unsecured Claims
(Classes M-13, MOS-13, MRS-10, and MMS-5), and Secured Claims as to which Macy's
(as opposed to a Macy's Subsidiary) has no primary liability.
IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL TAX
PLANNING WITH A TAX PROFESSIONAL. THE TAX CONSEQUENCES OF THE PLAN ARE IN MANY
CASES UNCERTAIN AND MAY VARY DEPENDING ON A CLAIM HOLDER'S INDIVIDUAL
CIRCUMSTANCES. ACCORDINGLY, HOLDERS OF CLAIMS AND INTERESTS ARE STRONGLY URGED
TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL, AND
FOREIGN TAX CONSEQUENCES OF THE PLAN.
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APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
Certain holders of Claims will receive securities under the Plan. Section
1145 of the Bankruptcy Code creates certain exemptions from the registration and
other requirements of certain federal and state securities laws with respect to
the distribution of securities pursuant to a plan of reorganization. Although
section 1145 of the Bankruptcy Code will apply to securities issued pursuant to
the Plan, it will not apply to the issuance of shares of New Combined Company
Common Stock into which shares of Federated Common Stock will be converted
pursuant to the Federated/Macy's Merger (which shares of New Combined Company
Common Stock will be registered under the Securities Act as described in "The
Combined Company--Restructuring Transactions--The Federated/Macy's Merger--The
Federated/Macy's Merger Agreement--Certain Filings"). See "Capital Stock of the
Combined Company--New Combined Company Common Stock--Registration."
ISSUANCE OF SECURITIES UNDER THE PLAN
Section 1145 of the Bankruptcy Code exempts the issuance of securities under
a plan of reorganization from registration under the Securities Act and under
state securities laws if three principal requirements are satisfied: (i) the
securities must be issued "under a plan" of reorganization by the debtor or its
successor under a plan or by an affiliate participating in a joint plan of
reorganization with the debtor; (ii) the recipients of the securities must hold
a prepetition or administrative expense claim against the debtor or an interest
in the debtor; and (iii) the securities must be issued entirely in exchange for
the recipient's claim against or interest in the debtor, or "principally" in
such exchange and "partly" for cash or property. Although the issuance of the
New Debt and the New Equity to the Debtors' creditors under the Plan satisfies
the requirements of section 1145(a)(1) of the Bankruptcy Code and is, therefore,
exempt from registration under federal and state securities laws, under certain
circumstances subsequent transfers of such securities may be subject to
registration requirements under such securities laws.
TRANSFERS OF NEW SECURITIES
The securities to be issued pursuant to the Plan may be freely transferred
by most recipients thereof, and all resales and subsequent transactions in the
new securities are exempt from registration under federal and state securities
laws, unless the holder is an "underwriter" with respect to such securities.
Section 1145(b) of the Bankruptcy Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for administrative expense against the debtor with a view to
distributing any security received in exchange for such a claim or
interest;
(ii) persons who offer to sell securities offered under a plan for the
holders of such securities;
(iii) persons who offer to buy such securities from the holders of such
securities, if the offer to buy is (a) with a view to distributing
such securities and (b) made under a distribution agreement; and
(iv) a person who is an "issuer" with respect to the securities, as the
term "issuer" is defined in section 2(11) of the Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes any person
directly or indirectly controlling or controlled by the issuer, or any person
under direct or indirect common control with the issuer.
To the extent that persons deemed to be "underwriters" receive securities
pursuant to the Plan, resales by such persons would not be exempt under section
1145 of the Bankruptcy Code from registration under the Securities Act or other
applicable law. Persons deemed to be "underwriters," however, may be able to
sell such securities without registration subject to the provisions of Rule 144
177
<PAGE>
under the Securities Act, which permits the public sale of securities received
pursuant to the Plan by "underwriters," subject to the availability to the
public of current information regarding the issuer and to volume limitations and
certain other conditions.
Whether any particular person would be deemed an "underwriter" with respect
to any security to be issued pursuant to the Plan would depend upon various
facts and circumstances applicable to that person. Accordingly, the Plan
Proponents express no view as to whether any person would be an "underwriter"
with respect to any security to be issued pursuant to the Plan.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR
PERSON MAY BE AN "UNDERWRITER," THE PLAN PROPONENTS MAKE NO REPRESENTATIONS
CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW DEBT OR NEW EQUITY TO BE
DISTRIBUTED PURSUANT TO THE PLAN. POTENTIAL RECIPIENTS OF THE NEW DEBT OR NEW
EQUITY ARE STRONGLY URGED TO CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY
MAY FREELY TRADE SUCH SECURITIES.
CERTAIN TRANSACTIONS BY STOCKBROKERS
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of the Disclosure Statement (and supplements hereto, if any,
if ordered by the Bankruptcy Court) at or before the time of delivery of
securities issued under the Plan to their customers for the first 40 days after
the Effective Date. This requirement specifically applies to trading and other
aftermarket transactions in such securities.
ADDITIONAL INFORMATION
Each of Macy's and Federated is subject to the information requirements of
the Exchange Act and in accordance therewith files reports and other information
with the SEC. Such reports and other information so filed can be inspected and
copied at the Public Reference Room of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the public reference facilities
maintained by the SEC at 7 World Trade Center, New York, New York 10048, and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Section of the SEC at 450 Fifth Street, N.W, Washington, D.C.
20549.
Any statements contained herein concerning the provisions of any document
are not necessarily complete, and in each instance reference is made to the copy
of such document for the full text thereof. Each such statement is qualified in
its entirety by such reference. Certain documents referred to herein have not
been attached as exhibits because of the impracticability of furnishing copies
thereof to all of the Debtors' creditors and Interest holders. All of the
Appendices, Exhibits, and Schedules to the Plan and this Disclosure Statement
are available for inspection at the Document Reviewing Center located at the
offices of Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York
10022. To review such Appendices, Exhibits, and Schedules, contact Mr. Robert J.
Bush at (212) 326-3939.
178
<PAGE>
RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement, the Plan
Proponents believe that the Confirmation and consummation of the Plan is
preferable to all other alternatives. Consequently, the Plan Proponents, the
Creditors' Committees, and the representatives of the Senior Lenders urge all
holders of Claims to vote to ACCEPT the Plan, and to duly complete and return
their ballots such that they will be RECEIVED on or before 5:00 p.m. Eastern
Time on , 1994.
<TABLE>
<S> <C>
Dated: New York, New York Respectfully submitted,
August 31, 1994
FEDERATED DEPARTMENT STORES, INC. R.H. MACY & CO., INC.
(for itself and on behalf of each of the
Macy's Subsidiary Debtors)
By: By:
Name: Ronald W. Tysoe Name: Thomas C. Shull
Title: Vice Chairman and Chief Title: Executive Vice President
Financial Officer
COUNSEL: COUNSEL:
DAVID G. HEIMAN (DH 9111) HARVEY R. MILLER (HM 6078)
RICHARD M. CIERI (RC 6062) RICHARD P. KRASNOW (RK 5707)
SCOTT J. DAVIDO (SD 7424) JUDY G.Z. LIU (JL 6449)
PAUL E. HARNER (PH 8276) WEIL, GOTSHAL & MANGES
JONES, DAY, REAVIS & POGUE 767 FIFTH AVENUE
North Point NEW YORK, NEW YORK 10153
901 Lakeside Avenue (212) 310-8000
Cleveland, Ohio 44114 ATTORNEYS FOR DEBTORS AND
(216) 586-3939 DEBTORS IN POSSESSION
ROBERT A. PROFUSEK (RP 4594)
MARK E. BETZEN (MB 0176)
JONES, DAY, REAVIS & POGUE
599 Lexington Avenue
New York, New York 10022
(212) 326-3939
ATTORNEYS FOR FEDERATED
DEPARTMENT STORES, INC.
</TABLE>
179
<PAGE>
INDEX TO HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Introductory Note................................................................... F-2
Selected Financial Data of Federated................................................ F-3
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Federated for the fiscal year ended January 29, 1994................ F-5
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Federated for the fiscal quarter ended April 30, 1994............... F-9
Audited Financial Information of Federated
Management's Report............................................................... F-11
Independent Auditors' Report...................................................... F-12
Consolidated Statements of Operations for the 52 weeks ended January 29, 1994,
January 30, 1993, and February 1, 1992.......................................... F-13
Consolidated Balance Sheets at January 29, 1994 and January 30, 1993.............. F-14
Consolidated Statements of Cash Flows for the 52 weeks ended January 29, 1994,
January 30, 1993, and February 1, 1992.............................................. F-15
Notes to Consolidated Financial Statements........................................ F-16
Schedules to Consolidated Financial Statements.................................... F-39
Unaudited First Quarter Financial Information of Federated
Consolidated Statements of Operations for the 13 weeks ended April 30, 1994 and
May 1, 1993..................................................................... F-45
Consolidated Balance Sheets at April 30, 1994 and May 1, 1993..................... F-46
Consolidated Statements of Cash Flows for the 13 weeks ended April 30, 1994 and
May 1, 1993..................................................................... F-47
Notes to Consolidated Financial Statements (Unaudited)............................ F-48
Selected Financial Data of Macy's................................................... F-49
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Macy's for the fiscal year ended July 31, 1993...................... F-50
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Macy's for the fiscal quarter ended April 30, 1994.................. F-57
Audited Financial Information of Macy's
Independent Auditors' Report...................................................... F-61
Consolidated Statement of Financial Condition at July 31, 1993 and August 1,
1992............................................................................ F-62
Consolidated Statement of Operations for the years ended July 31, 1993, August 1,
1992, and August 3, 1991........................................................ F-63
Consolidated Statement of Cash Flows for the years ended July 31, 1993, August 1,
1992, and August 3, 1991........................................................ F-64
Consolidated Statement of Changes in Deficiency in Net Assets for the years ended
July 31, 1993, August 1, 1992, and August 3, 1991............................... F-66
Notes to Consolidated Financial Statements........................................ F-67
Schedules to Consolidated Financial Statements.................................... F-94
Unaudited Third Quarter Financial Information of Macy's
Condensed Consolidated Statement of Operations for the quarter ended April 30,
1994 and May 1, 1993 and the nine months ended April 30, 1994 and May 1, 1993... F-104
Condensed Consolidated Statement of Financial Condition at April 30, 1994 and
May 1, 1993..................................................................... F-105
Condensed Consolidated Statement of Cash Flows for the nine months ended
April 30, 1994.................................................................. F-106
Notes to Condensed Consolidated Financial Statements (Unaudited).................. F-108
</TABLE>
F-1
<PAGE>
INTRODUCTORY NOTE
The historical financial information relating to each of Federated and
Macy's set forth in the following pages, including the information set forth
under the captions "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Federated" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Macy's," has been
derived, without substantive change or updating, from reports filed by Federated
and Macy's, as applicable, with the SEC prior to the date hereof. Consequently,
such information is not necessarily current as of the date hereof and shall be
deemed in all respects to be modified or superseded, as applicable, by the
information contained elsewhere in this Disclosure Statement.
The financial condition and results of operations of the Combined Company,
after giving effect to the Plan and the transactions contemplated thereby, will
not be comparable to the historical financial condition or results of operations
of Federated or Macy's, either individually or on a combined basis. See "The
Combined Company--Pro Forma Capitalization of the Combined Company,"
"--Unaudited Pro Forma Combined Financial Information," "--Discussion and
Analysis of Financial Condition and Results of Operations," and "--Projected
Financial Information."
F-2
<PAGE>
SELECTED FINANCIAL DATA OF FEDERATED
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED
JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated Statements of
Operations Data:
Net sales, including leased
department sales.......... $ 7,229,406 $ 7,079,941 $ 6,932,323 $ 7,141,983 $ 7,577,586
----------- ----------- ----------- ----------- -----------
Cost of sales............... 4,373,941 4,229,396 4,202,223 4,394,976 4,649,656
Selling, general and
administrative expenses... 2,323,546 2,420,684 2,463,128 2,611,834 2,678,482
----------- ----------- ----------- ----------- -----------
Operating income............ 531,919 429,861 266,972 135,173 249,448
Interest expense (a)........ (213,544) (258,211) (504,257) (639,527) (914,557)
Interest income............. 49,405 60,357 67,260 83,585 107,892
Unusual items............... -- -- -- -- (1,067,817)(b)
----------- ----------- ----------- ----------- -----------
Income (loss) before
reorganization items,
income taxes,
extraordinary items and
cumulative effect of
change in accounting
principle................. 367,780 232,007 (170,025) (420,769) (1,625,034)
Reorganization items........ -- -- (1,679,936) (127,032) (142,110)
Federal, state and local
income tax (expense)
benefit................... (170,987) (99,299) 613,989 276,355 (6,783)
Extraordinary items......... (3,545) (19,699) 2,165,515 -- --
Cumulative effect of change
in accounting principle... -- -- (93,151) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) (c)....... $ 193,248 $ 113,009 $ 836,392 $ (271,446) $(1,773,927)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per Share of Common
Stock (d):
Income before extraordinary
items..................... $ 1.56 $ 1.19 $ -- $ -- $ --
Net income.................. 1.53 1.01 -- -- --
Average number of shares
outstanding (d)............. 126,293 111,350 -- -- --
Depreciation and
amortization................ $ 229,781 $ 230,124 $ 260,884 $ 278,227 $ 317,575
Capital expenditures.......... $ 312,960 $ 207,931 $ 201,631 $ 93,143 $ 177,792
Balance Sheet Data (at year
end) (e):
Cash........................ $ 222,428 $ 566,984 $ 1,002,482 $ 453,560 $ 446,195
Working capital............. 1,967,569 2,227,336 1,923,812 1,957,037 2,653,693
Total assets................ 7,419,427 7,019,770 7,501,145 9,150,056 9,592,231
Short-term debt............. 10,099 12,944 771,605 309,268 176,216
Liabilities subject to
settlement under
reorganization
proceedings............... -- -- -- 6,475,129 6,729,168
Long-term debt (including
preferred shares)......... 2,786,724 2,809,757 3,176,687 1,361,778 1,561,778
Shareholders' equity
(deficit)................. 2,278,244 2,074,980 1,454,132 (1,398,528) (1,127,082)
</TABLE>
(footnotes on following page)
F-3
<PAGE>
(footnotes for preceding page)
- ------------
(a) Excludes interest on unsecured prepetition indebtedness of $301,576,000,
$290,979,000, and $11,300,000, respectively, for 1991, 1990, and 1989. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(b) Consists primarily of a write-down of the excess of cost over the value of
assets acquired.
(c) See Notes 3, 4, 5, and 13 to the Consolidated Financial Statements.
(d) Per share and share data are not presented for Federated for periods prior
to the Federated POR Effective Date as they are not meaningful because there
were no publicly held shares of common stock of Federated following its
acquisition in 1988. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(e) Balance Sheet Data at February 1, 1992 reflects the adoption of fresh-start
reporting in accordance with AICPA Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code."
As a result of Federated's emergence from bankruptcy and its adoption of
fresh-start reporting as of February 1, 1992, Federated's Consolidated Balance
Sheets at and after February 1, 1992 and its Consolidated Statements of
Operations for periods after February 1, 1992 are not comparable to the
Consolidated Financial Statements for prior periods included elsewhere herein
and therefore are separated by a black line. See the Notes to the Consolidated
Financial Statements.
F-4
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF FEDERATED
FOR THE FISCAL YEAR ENDED JANUARY 29, 1994
INTRODUCTION
Federated's results of operations and financial condition reflect the
combination of certain predecessor companies in the historical financial
information presented, as well as the consummation of the Federated POR and the
transactions contemplated thereby. Accordingly, the results of operations of
Federated for periods after February 1, 1992 are generally not comparable to
periods prior to February 1, 1992 due to the Federated Reorganization
Proceedings and the effects of the Federated POR and the transactions
contemplated thereby.
RESULTS OF OPERATIONS
Comparison of the 52 Weeks Ended January 29, 1994 and January 30, 1993. Net
sales for 1993 were $7,229.4 million, compared to $7,079.9 million for 1992, an
increase of 2.1%. On a comparable store basis, net sales increased 1.9%. The
sales performance reflects the continuing effects of key merchandising
strategies put into effect in 1991, such as team buying and improved inventory
management, as well as improvements in net sales for home-related merchandise,
partially offset by softer apparel sales and the effects of the sluggish economy
in the Northeast. Additionally, net sales for 1992 were positively affected by
strong overall general merchandise sales, a post-hurricane sales surge in South
Florida, and the positive impact of a one-time program to clear old inventory
undertaken at the end of 1991.
Cost of sales was 60.5% of net sales for 1993, compared to 59.7% for 1992.
The increase reflects the impact of higher levels of markdowns taken to keep
in-store inventories fresh and fashion-current. In addition, cost of sales for
the first quarter of 1992 benefited from the one-time strategy to clear old
inventory marked down at the end of fiscal 1991. Cost of sales includes charges
of $2.8 million in 1993 compared to $8.5 million in 1992 resulting from the
valuation of merchandise inventory on the last-in, first-out basis.
Selling, general, and administrative expenses were 32.1% of net sales for
1993, compared to 34.2% for 1992. The decrease is primarily due to reduced costs
from streamlining and consolidation of operations at the divisions. In addition,
operating expenses were reduced by $24.0 million in 1993 as a result of an
adjustment to accrued liabilities for the favorable settlement of disputed
bankruptcy claims. Excluding this adjustment, selling, general, and
administrative expenses would have been 32.5% of net sales for 1993.
Net interest expense was $164.1 million for 1993, compared to $197.9 million
for 1992. Net interest expense for 1993 was positively impacted by the
prepayment of long-term debt. Cash interest payments, net of interest received,
were $136.6 million for 1993, compared to $136.3 million for 1992.
Income tax expense was $171.0 million, excluding extraordinary items, for
1993. This amount differs from the amount computed by applying the federal
income tax statutory rate of 35.0% to income before income taxes and
extraordinary items principally because of state and local income taxes, a one-
time charge of $14.2 million for the impact of the tax rate increase on deferred
taxes and permanent differences arising from the amortization of reorganization
value in excess of amounts allocable to identifiable assets.
Management believes that the turnaround of existing deferred tax liabilities
will generate sufficient taxable income in future periods such that it is more
likely than not that the net deferred tax assets at
F-5
<PAGE>
the end of 1993 will be realized. Management intends to evaluate the
realizability of deferred tax assets quarterly.
Extraordinary items of $3.5 million in 1993 and $19.7 million in 1992 relate
to the after-tax expenses associated with debt prepayments.
Comparison of the 52 Weeks Ended January 30, 1993 and February 1, 1992. Net
sales for 1992 were $7,079.9 million, compared to $6,932.3 million for 1991, an
increase of 2.1%. During 1991, Federated closed 25 stores. On a comparable store
basis, net sales increased 5.2%. Management believes that merchandising
strategies put in place in the prior two years, including the team buying
process, which enables Federated centrally to direct and coordinate divisional
merchandise assortments, and effective inventory management, contributed
significantly to Federated's improved 1992 sales performance.
Cost of sales was 59.7% of net sales for 1992, compared to 60.6% for 1991.
The decrease was due primarily to improved margins resulting from merchandising
strategies designed to improve inventory turnover rate and the freshness of
merchandise inventories, and sales of old inventory marked down at the end of
1991. Additionally, cost of sales included charges of $8.5 million in 1992,
compared to $23.2 million in 1991 resulting from the valuation of merchandise
inventory on the last-in, first-out basis.
Selling, general, and administrative expenses were 34.2% of net sales for
1992, compared to 35.5% for 1991. The decrease was due primarily to reduced
costs from streamlining and consolidation of operations at the divisions and
lower amortization of reorganization value in excess of amounts allocable to
identifiable assets in 1992 compared to amortization of excess of cost over net
assets acquired in 1991.
Net interest expense was $197.9 million for 1992, compared to $437.0 million
for 1991. In addition to the impact of the Federated POR, net interest expense
for 1992 was positively impacted by the prepayment or redemption of a total of
$950.0 million of long-term debt on May 29, 1992. As a result of its chapter 11
filing, Federated did not accrue $301.6 million of interest on unsecured
prepetition debt obligations in 1991. Cash interest payments, net of interest
received, were $136.3 million for 1992 compared to $122.6 million for 1991,
which included the payment of the final $43.0 million of interest on prepetition
indebtedness required under the terms of a previous debtor-in-possession working
capital financing facility.
Reorganization items in 1991 represented expenses incurred as a result of
the chapter 11 filing by Federated and subsequent reorganization efforts,
including, among other things, the closing of 25 stores, the consolidation of
certain operations and the adjustments to record the fair value of assets and
liabilities at February 1, 1992. See Note 4 to the Consolidated Financial
Statements.
Income tax expense was $99.3 million, excluding extraordinary items, for
1992. This amount differs from the amount computed by applying the federal
income tax statutory rate of 34.0% to income before extraordinary items
principally because of permanent differences arising from the amortization of
reorganization value in excess of amounts allocable to identifiable assets and
state and local income taxes.
The extraordinary items in 1992, $19.7 million after taxes, primarily
resulted from non-cash write-offs of accrued financing costs associated with
debt prepayments. The extraordinary item in 1991 represented the gain on debt
discharge resulting from the consummation of the POR. Because the debt was
discharged as a result of a chapter 11 case, no income tax expense was recorded.
See Note 3 to the Consolidated Financial Statements.
In connection with the consummation of the Federated POR, Federated changed
its method of accounting for postretirement benefits other than pensions from
principally a cash basis to the accrual basis in accordance with Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The amount of additional liability
F-6
<PAGE>
recorded at fresh start represented the incremental amount over the remaining
liability for then current retirees previously recorded in connection with the
acquisition of Federated.
LIQUIDITY AND CAPITAL RESOURCES
Federated's principal sources of liquidity are cash on hand, cash from
operations, and certain facilities that are available to it.
Although net income increased $80.2 million to $193.2 million in 1993, net
cash provided by operating activities decreased $31.1 million to $410.5 million.
The decrease in net cash provided by operating activities resulted primarily
from increased accounts receivable due to higher proprietary credit sales and
lower minimum monthly payment requirements, partially offset by increases in
income tax liabilities.
Net cash used by Federated for all financing activities was $349.9 million
in 1993. On March 8, 1993, Federated defeased the entire $355.0 million
outstanding principal amount of its 10% Series B Secured Notes due February 15,
2000 by irrevocably depositing with the trustee therefor an amount sufficient to
prepay the notes. The prepayment was funded from cash on hand.
Federated is a party to a three-year, $380.0 million revolving credit
facility entered into with a syndicate of banks in 1992. From time to time,
Federated has caused letters of credit to be issued thereunder in the ordinary
course of Federated's business. However, Federated has not made any borrowings
under this facility since it was established.
In 1992, Federated also established a facility to finance its receivables.
Among other things, the receivables financing facility provides for the issuance
from time to time of up to $375.0 million of receivables-backed commercial
paper. As of January 29, 1994 and January 30, 1993, there were no commercial
paper borrowings outstanding under this facility.
In connection with Federated's prepayment of its Series B Secured Notes,
certain provisions of Federated's debt instruments were modified to allow
Federated to increase its planned capital expenditures by approximately $460.0
million to approximately $1,210.0 million over the 1993 to 1995 period. Most of
this increase is being invested in or budgeted for new store construction or
acquisition, store expansions and further investments in technology. Management
presently anticipates funding such expenditures from operations. However,
depending upon conditions in the capital and other financial markets and other
factors, Federated may from time to time consider the issuance of debt or other
securities, the proceeds of which could be used to refinance existing debt or
for capital projects or other corporate purposes.
Net cash used in investing activities was $405.1 million in 1993, compared
to $188.1 million in 1992. This increase resulted principally from two factors:
a $111.0 million increase in capital expenditures partially attributable to the
opening of three new stores and the reopening of a hurricane-damaged store in
1993 and a $109.3 million cash payment for the purchase of an investment in a
bankruptcy claim discussed below.
Management believes the department store segment will continue to
consolidate. Accordingly, Federated intends from time to time to consider the
possible acquisition of department store assets and companies.
On December 31, 1993, Federated acquired 50% of a claim held by The
Prudential Insurance Company of America ("Prudential") in the chapter 11
reorganization of R. H. Macy & Co., Inc. ("Macy's") for $109.3 million in cash
and a promissory note due December 31, 1996 in the principal amount of $340.0
million. The rate of interest on the promissory note is 3-month LIBOR plus
1.75%, increasing to 2% beginning January 1995.
The claim arises out of Prudential's secured loan to Macy's in the principal
amount of $832.5 million. The Prudential-Macy's loan bears interest at the rate
of 12% (none of which has been
F-7
<PAGE>
paid since Macy's chapter 11 filing in January 1992) and is secured by mortgages
on 70 of Macy's 110 department store properties. Although Federated is not
accruing interest on its investment in the Prudential bankruptcy claim,
management believes that the investment is adequately collateralized and that
the carrying value is not in excess of its fair market value.
Federated acquired one-half of the Prudential claim with the ultimate
objective of working toward a business combination involving Macy's. There can
be no assurance that Federated will be successful in achieving that objective
or, if so, as to the timing and terms thereof.
Management of Federated believes that, with respect to its current
operations, cash on hand and funds from operations, together with its credit
facilities, will be sufficient to cover its reasonably foreseeable working
capital, capital expenditure, and debt service requirements. Any business
combination transaction involving Federated and Macy's would require the
establishment of a revised capital structure for the combined company. Other
acquisition transactions, if any, are expected to be financed through a
combination of cash on hand and from operations and the possible issuance from
time to time of long-term debt or other securities. Management's objective is to
maintain Federated's debt to equity ratio following any transaction, including
any involving Macy's, at levels determined to be prudent and not to effect any
transaction which would be dilutive to existing stockholders on a long-term
basis.
F-8
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FEDERATED
FOR THE FISCAL QUARTER ENDED APRIL 30, 1994
RESULTS OF OPERATIONS
For purposes of the following discussion, all references to "first quarter
of 1994" and "first quarter of 1993" are to Federated's 13-week fiscal periods
ended April 30, 1994 and May 1, 1993, respectively.
COMPARISON OF THE 13 WEEKS ENDED APRIL 30, 1994 AND MAY 1, 1993
Net sales for the first quarter of 1994 were $1,653.6 million, compared to
$1,590.3 million for the first quarter of 1993, an increase of 4.0%. On a
comparable store basis, net sales increased 2.1%.
Cost of sales was 60.9% as a percent of net sales for the first quarter of
1994, compared to 59.9% for the first quarter of 1993. The increase reflects
additional markdowns taken to offer increased value to the customer and to keep
inventory assortments fresh and fashion current. Cost of sales includes charges
of $5.2 million for the first quarter of 1994 compared to $3.9 million in the
first quarter of 1993 resulting from the valuation of merchandise inventory on
the last-in, first-out basis.
Selling, general and administrative expenses were 32.8% as a percent of net
sales for the first quarter of 1994, compared to 34.9% for the first quarter of
1993. This improvement reflects continued emphasis on controlling variable
expenses through centralization of operations, as well as increased revenue from
credit operations resulting from higher accounts receivable balances this year.
Selling, general and administrative expenses includes finance charge revenues of
$74.4 million for the first quarter of 1994, compared to $60.3 million for the
first quarter of 1993.
Net interest expense was $45.3 million for the first quarter of 1994,
compared to $43.3 million for the first quarter of 1993. Interest expense for
the first quarter of 1994 reflects a full period accrual on the $340.0 million
promissory note issued on December 31, 1993. Interest expense for the first
quarter of 1993 reflects a partial period accrual for the $355.0 million of
Series B Secured Notes which were prepaid on March 8, 1993.
Income tax expense was $25.8 million for the first quarter of 1994. This
amount differs from the amount computed by applying the federal income tax
statutory rate of 35.0% to income before income taxes principally because of
state and local income taxes and permanent differences arising from amortization
of reorganization value in excess of amounts allocable to identifiable assets.
The extraordinary item for the first quarter of 1993, $3.5 million after
taxes, represents the costs associated with the prepayment of debt.
LIQUIDITY AND CAPITAL RESOURCES
Federated's principal sources of liquidity are cash from operations, cash on
hand, and certain credit facilities that are available to it.
Net cash used by operating activities was $92.6 million for the first
quarter of 1994, a reduction of $119.7 million from the net cash provided of
$27.1 million for the first quarter of 1993. This decrease is due primarily to
higher accounts receivable balances this year generated by increases in
proprietary credit sales and a policy change to lower the minimum monthly
payment requirements.
Net cash provided by Federated for all financing activities was $0.3 million
for the first quarter of 1994, and net cash used in investing activities was
$27.2 million. During the first quarter of 1994, the Company opened one new
store, reopened a hurricane-damaged store, and closed one store.
F-9
<PAGE>
Management believes the department store segment will continue to
consolidate. Accordingly, Federated intends from time to time to consider the
possible acquisition of department store assets and companies.
On May 26, 1994, Federated purchased Joseph Horne Co., Inc., a department
store retailer operating ten stores in Pittsburgh and Erie, Pennsylvania, for
$123.0 million, including the assumption of $40.0 million of mortgage debt and
subject to certain post closing adjustments. The acquisition will be accounted
for under the purchase method of accounting.
The ten store locations, which had 1993 sales of approximately $215.0
million, will be merged into the Lazarus department store operation resulting in
certain one-time costs that will negatively impact fiscal 1994 earnings.
Additionally, through its interest in a claim against Macy's, Federated has
continued to pursue within the bankruptcy process its ultimate objective of
working toward a business combination involving Macy's. There can be no
assurance that Federated will be successful in achieving that objective or, if
so, as to the timing and terms thereof.
Management of Federated believes that, with respect to its current
operations, cash on hand, and funds from operations, together with its credit
facilities, will be sufficient to cover its reasonably foreseeable working
capital, capital expenditure and debt service requirements. Any business
combination transaction involving Federated and Macy's would require the
establishment of a revised capital structure for the combined company. Other
acquisition transactions, if any, are expected to be financed through a
combination of cash on hand and from operations and the possible issuance from
time to time of long-term debt or other securities. Management's objective is to
maintain Federated's debt to equity ratio following any transaction, including
any transaction involving Macy's, at levels determined to be prudent and not to
effect any transaction which would adversely affect the long-term value of an
investment in Federated.
F-10
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
MANAGEMENT'S REPORT
To the Shareholders of
Federated Department Stores, Inc.:
The integrity and consistency of the financial statements and financial
statement schedules of Federated Department Stores, Inc., which were prepared in
accordance with generally accepted accounting principles, are the responsibility
of management and properly include some amounts that are based upon estimates
and judgments.
Federated maintains a system of internal accounting controls, which is
supported by a program of internal audits with appropriate management follow-up
action, to provide reasonable assurance, at appropriate cost, that Federated's
assets are protected and transactions are properly recorded. Additionally, the
integrity of the financial accounting system is based on careful selection and
training of qualified personnel, organizational arrangements which provide for
appropriate division of responsibilities and communication of established
written policies and procedures.
The financial statements of Federated have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. Their report expresses their
opinion as to the fair presentation, in all material respects, of the financial
statements and is based upon their independent audit conducted in accordance
with generally accepted auditing standards.
The Audit Review Committee, comprised solely of outside directors, meets
periodically with the independent certified public accountants, the internal
auditors and representatives of management to discuss auditing and financial
reporting matters. In addition, the independent certified public accountants and
Federated's internal auditors meet periodically with the Audit Review Committee
without management representatives present and have free access to the Audit
Review Committee at any time. The Audit Review Committee is responsible for
recommending to the Board of Directors the engagement of the independent
certified public accountants, which is subject to shareholder approval, and the
general oversight review of management's discharge of its responsibilities with
respect to the matters referred to above.
Allen I. Questrom
Chairman and Chief Executive Officer
James M. Zimmerman
President and Chief Operating Officer
Ronald W. Tysoe
Vice Chairman and Chief Financial Officer
John E. Brown
Senior Vice President and Controller
F-11
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Federated Department Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Federated
Department Stores, Inc. and subsidiaries ("Federated") as of January 29, 1994
and January 30, 1993, and the related consolidated statements of operations and
cash flows for each of the fifty-two week periods ended January 29, 1994,
January 30, 1993, and February 1, 1992. In connection with our audits of the
consolidated financial statements, we have also audited the accompanying
financial statement schedules. These consolidated financial statements and
financial statement schedules are the responsibility of management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules 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 Federated
Department Stores, Inc. and subsidiaries as of January 29, 1994 and January 30,
1993, and the results of their operations and their cash flows for each of the
fifty-two week periods ended January 29, 1994, January 30, 1993, and February 1,
1992, in conformity with generally accepted accounting principles. Further, in
our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
On February 4, 1992 Federated emerged from bankruptcy. As described in Note
1 to the consolidated financial statements, Federated accounted for the
reorganization as of February 1, 1992 and adopted "fresh-start reporting." As a
result, the consolidated statements of operations and cash flows for the
fifty-two weeks ended January 29, 1994 and January 30, 1993, which present the
consolidated results of operations and cash flows of the reorganized entity, are
not comparable to the consolidated statements of operations and cash flows for
the fifty-two week period ended February 1, 1992.
As discussed in Note 5 to the consolidated financial statements, Federated
adopted the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
other than Pensions," and changed its method of accounting for income taxes to
adopt the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of February 1, 1992.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
February 28, 1994
F-12
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
-------------- -------------- --------------
(THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net Sales, including leased department sales.... $7,229,406 $7,079,941 $6,932,323
-------------- -------------- --------------
Cost of sales................................... 4,373,941 4,229,396 4,202,223
Selling, general and administrative expenses.... 2,323,546 2,420,684 2,463,128
-------------- -------------- --------------
Operating Income................................ 531,919 429,861 266,972
Interest expense................................ (213,544) (258,211) (504,257)
Interest income................................. 49,405 60,357 67,260
-------------- -------------- --------------
Income (Loss) Before Reorganization Items,
Income Taxes, Extraordinary Items and
Cumulative Effect of Change in Accounting
Principle....................................... 367,780 232,007 (170,025)
Reorganization items............................ -- -- (1,679,936)
-------------- -------------- --------------
Income (Loss) Before Income Taxes, Extraordinary
Items and Cumulative Effect of Change in
Accounting Principle............................ 367,780 232,007 (1,849,961)
Federal, state and local income tax (expense)
benefit ...................................... (170,987) (99,299) 613,989
-------------- -------------- --------------
Income (Loss) Before Extraordinary Items and
Cumulative Effect of Change in Accounting
Principle....................................... 196,793 132,708 (1,235,972)
Extraordinary items............................. (3,545) (19,699) 2,165,515
Cumulative effect of change in accounting
principle..................................... -- -- (93,151)
-------------- -------------- --------------
Net Income...................................... $ 193,248 $ 113,009 $ 836,392
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per Share:
Income before extraordinary items............. $ 1.56 $ 1.19
Extraordinary items........................... (.03) (.18)
-------------- --------------
Net Income................................ $ 1.53 $ 1.01
-------------- --------------
-------------- --------------
</TABLE>
- ------------
Earnings per share are not presented for periods prior to the Federated POR
Effective Date as they are not meaningful because there were no publicly held
shares of common stock of Federated.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-13
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 29, 1994 JANUARY 30, 1993
---------------- ----------------
<S> <C> <C>
(THOUSANDS)
ASSETS
Current Assets:
Cash....................................................... $ 222,428 $ 566,984
Accounts receivable........................................ 1,758,935 1,543,834
Merchandise inventories.................................... 1,180,844 1,148,934
Supplies and prepaid expenses.............................. 46,660 40,068
Deferred income tax assets................................. 88,754 90,261
---------------- ----------------
Total Current Assets..................................... 3,297,621 3,390,081
Property and Equipment--net.................................. 2,576,884 2,478,251
Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets--net................................... 337,720 356,482
Notes Receivable............................................. 408,818 421,454
Other Assets................................................. 798,384 373,502
---------------- ----------------
Total Assets........................................... $ 7,419,427 $ 7,019,770
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt............................................ $ 10,099 $ 12,944
Accounts payable and accrued liabilities................... 1,209,744 1,103,289
Income taxes............................................... 110,209 46,512
---------------- ----------------
Total Current Liabilities................................ 1,330,052 1,162,745
Long-Term Debt............................................... 2,786,724 2,809,757
Deferred Income Taxes........................................ 804,181 750,771
Other Liabilities............................................ 220,226 221,517
Shareholders' Equity......................................... 2,278,244 2,074,980
---------------- ----------------
Total Liabilities and Shareholders' Equity............. $ 7,419,427 $ 7,019,770
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-14
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 193,248 $ 113,009 $ 836,392
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 207,914 205,554 212,186
Amortization of reorganization value in excess of
amounts allocable to identifiable assets........... 18,762 18,762 --
Amortization of excess of cost over net assets
acquired.......................................... -- -- 48,698
Amortization of financing costs..................... 10,163 20,995 7,893
Amortization of original issue discount............. 16,846 15,593 --
Amortization of unearned restricted stock........... 3,105 5,808 --
Loss on early extinguishment of debt................ 3,545 19,699 --
Cumulative effect of change in accounting for
postretirement benefits other than pensions........ -- -- 93,151
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......... (215,101) (28,456) 111,174
(Increase) decrease in merchandise inventories..... (31,910) 18,412 183,840
(Increase) decrease in supplies and prepaid
expenses......................................... (6,592) 2,547 860
Decrease in excess of cost over net assets
acquired......................................... -- -- 133,000
(Increase) decrease in other assets not separately
identified....................................... 20,229 (20,179) 238,605
Increase in accounts payable and accrued
liabilities not
separately identified............................ 70,679 2,898 154,787
Increase in current income taxes................... 65,990 24,520 170,942
Increase (decrease) in deferred income taxes....... 54,917 27,225 (524,829)
Increase (decrease) in other liabilities not
separately identified............................ (1,291) 15,169 (12,692)
-------- ---------------- ----------------
410,504 441,556 1,654,007
Changes due to reorganization activities--net........... -- -- (1,092,774)
-------- ---------------- ----------------
Net cash provided by operating activities........ 410,504 441,556 561,233
-------- ---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment...................... (309,536) (198,505) (201,631)
Disposition of property and equipment................... 1,097 10,431 8,465
Decrease in notes receivable............................ 12,636 -- 400,383
Increase in investments................................. (109,325) -- --
-------- ---------------- ----------------
Net cash provided (used) by investing
activities..................................... (405,128) (188,074) 207,217
-------- ---------------- ----------------
Cash flows from financing activities:
Debt issued............................................. -- 979,141 684,153
Financing costs......................................... (633) (26,518) (45,774)
Debt repaid............................................. (391,986) (2,133,014) (502,999)
Increase (decrease) in outstanding checks............... 35,776 (10,620) 24,194
Acquisition of treasury stock........................... (179) -- --
Issuance of common stock................................ 7,090 502,031 --
-------- ---------------- ----------------
Net cash provided (used) by financing
activities..................................... (349,932) (688,980) 159,574
-------- ---------------- ----------------
Cash flow effect of reorganization activities--payment of
liabilities subject to settlement....................... -- -- (379,102)
-------- ---------------- ----------------
Net increase (decrease) in cash.......................... (344,556) (435,498) 548,922
Cash beginning of period................................. 566,984 1,002,482 453,560
-------- ---------------- ----------------
Cash end of period....................................... $ 222,428 $ 566,984 $ 1,002,482
-------- ---------------- ----------------
-------- ---------------- ----------------
Supplemental cash flow information:
Interest paid........................................... $ 186,658 $ 197,138 $ 190,207
Interest received....................................... 50,019 60,869 67,601
Income taxes paid (net of refunds received)............. 49,588 47,554 18
Schedule of noncash investing and financing activities:
Capital lease obligations for new store fixtures...... 3,424 9,426 --
Property and equipment transferred to other assets.... 5,316 13,395 169,515
Investment purchased for promissory note.............. 340,000 -- --
Common stock issued for the Executive Deferred
Compensation Plan........................................ 686 -- --
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-15
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REORGANIZATION AND EMERGENCE FROM CHAPTER 11
Federated Department Stores, Inc. ("Federated") is a retail organization
operating department stores selling a wide range of merchandise including
women's, men's and children's apparel, cosmetics, home furnishings and other
consumer goods.
On February 4, 1992 (the "POR Effective Date"), Federated emerged from
proceedings under chapter 11 ("Chapter 11") of the United States Bankruptcy Code
as the surviving corporation resulting from the Joint Plan of Reorganization
(the "POR") of its predecessor companies, Federated and Allied Stores
Corporation ("Allied"), and substantially all of their respective subsidiaries
(collectively, the "Federated/Allied Companies"). The POR, which was confirmed
by the United States Bankruptcy Court, Southern District of Ohio, Western
Division (the "Bankruptcy Court") on January 10, 1992, resulted in an
approximately $5,000.0 million net reduction in the total indebtedness,
liabilities subject to reorganization, and redeemable preferred stock of the
Federated/Allied Companies.
The POR provided for, among other things, the cancellation of certain
indebtedness in exchange for cash, new indebtedness, and/or new equity
securities, the discharge of other prepetition claims, the cancellation of all
prepetition ownership interests in Federated and Allied, the settlement of
certain claims and mutual releases of certain claims of the Federated/Allied
Companies and other persons or entities (including certain affiliated persons or
entities), the assumption or rejection of executory contracts and unexpired
leases to which any Federated/Allied Company was a party, and the election of a
board of directors for Federated (the "Board of Directors").
In addition to the foregoing, on the POR Effective Date and in accordance
with the POR, Allied was merged into Federated. The merger was accounted for as
a combination of entities under common control. As of February 1, 1992, in
accordance with AICPA Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), Federated
adopted "fresh-start reporting" and reflected the effects of such adoption in
the Consolidated Financial Statements for the 52 weeks then ended.
The Chapter 11 cases of the Federated/Allied Companies were commenced on
January 15, 1990 (the "Petition Date"). During the pendency of their Chapter 11
cases, the Federated/Allied Companies discontinued accruing interest on their
unsecured prepetition obligations. The net expense occurring as a result of the
Chapter 11 filings and subsequent reorganization efforts of the Federated/Allied
Companies have been segregated from ordinary operations in the Consolidated
Statements of Operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company adopted the recommended accounting for entities emerging from
Chapter 11 reorganization set forth in the SOP 90-7. Consolidated Financial
Statements as of and subsequent to February 1, 1992 are generally not comparable
to Consolidated Financial Statements prior to February 1, 1992 and are separated
by a black line.
The Consolidated Financial Statements include the accounts of Federated and
its subsidiaries. All significant intercompany transactions have been
eliminated.
Cash includes cash and liquid investments with original maturities of three
months or less.
F-16
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Installments of deferred payment accounts receivable maturing after one year
are included in current assets in accordance with industry practice. Such
accounts are accepted on customary revolving credit terms and offer the customer
the option of paying the entire balance on a 25-day basis without incurring
finance charges. Alternatively, customers may make scheduled minimum payments
and incur competitive finance charges. Minimum payments vary from 4.2% to 100.0%
of the account balance, depending on the size of the balance. Profits on
installment sales are included in income when the sales are made. Finance charge
revenues are included as a reduction of selling, general and administrative
expenses.
Substantially all merchandise inventories are valued by the retail method
and stated on the LIFO (last-in, first-out) basis, which is generally lower than
market.
Depreciation and amortization are provided primarily on a straight-line
basis over the shorter of estimated asset lives or related lease terms. Real
estate taxes and interest on construction in progress and land under development
are capitalized. Amounts capitalized are amortized over the estimated lives of
the related depreciable assets.
Reorganization value in excess of amounts allocable to identifiable assets
is being amortized on a straight-line basis over 20 years. Accumulated
amortization was $37.5 million and $18.8 million at January 29, 1994 and January
30, 1993, respectively. The excess of cost over net assets acquired was
amortized on a straight-line basis over 40 years.
Financing costs are amortized over the life of the related debt.
In connection with the adoption of fresh-start reporting, Federated adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Prior to the adoption of fresh-start reporting,
Federated accounted for income taxes under Statement of Financial Accounting
Standards No. 96 ("SFAS No. 96"). Under both SFAS No. 109 and SFAS No. 96,
deferred income taxes are provided for at the statutory rates on the difference
between financial statement basis and tax basis of assets and liabilities and,
under SFAS No. 109, are classified in the Consolidated Balance Sheets as current
or non-current consistent with the assets and liabilities which give rise to
such deferred income taxes.
Also in connection with the adoption of fresh-start reporting, Federated
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits other than Pensions" ("SFAS No. 106"),
which requires that the cost of these benefits be recognized in the financial
statements over an employee's term of service with the Company. (See Note 5.)
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" was issued in November 1992, and must be
implemented by the first quarter of 1994. The adoption of this pronouncement
will not have a material effect on results of operations or financial position.
Earnings per share are computed on the basis of daily average number of
shares outstanding during the year. Any dilution from the potential issuance of
shares under the 1992 Executive Equity Incentive Plan, as Amended (the "Equity
Plan") and the Executive Deferred Compensation Plan (the "deferred compensation
plan") would be less than 3.0%. Fully diluted earnings per share include the
effect of the potential issuance of shares for the above items as well as for
the Senior Convertible Discount Notes and, unless disclosed, any such dilution
would be less than 3.0%.
F-17
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EXTRAORDINARY ITEMS
The extraordinary item for the 52 weeks ended January 29, 1994 represents
costs of $3.5 million, net of income tax benefit of $2.3 million, associated
with the prepayment of the entire $355.0 million outstanding principal amount of
Federated's Series B Secured Notes.
On May 28, 1992, Federated completed a public offering of 46.0 million
shares of Common Stock. The net proceeds from the stock offering of $502.0
million and cash on hand were applied to the prepayment or redemption of a total
of $950.0 million of long-term debt. During the 52 weeks ended January 30, 1993,
Federated recorded an extraordinary item of $13.6 million, net of income tax
benefit of $8.8 million, resulting primarily from the non-cash write-off of
accrued financing costs associated with the debt prepayments.
On December 15, 1992, Prime Receivables Corporation ("Prime"), an indirect
wholly owned special-purpose financing subsidiary of Federated, completed the
public offering of $981.0 million ($979.1 million discounted amount) of
asset-backed debt securities. In connection with the offerings, Federated's
former receivables financing facilities were terminated. During the 52 weeks
ended January 30, 1993, Federated recorded an extraordinary item of $6.1
million, net of income tax benefit of $3.9 million, resulting primarily from the
non-cash write-off of accrued financing costs associated with the prepayment of
the receivables facilities.
The extraordinary item for the 52 weeks ended February 1, 1992 was a gain
resulting from the discharge of prepetition claims against the Federated/Allied
Companies during Chapter 11. The value of cash and securities distributed was
$2,165.5 million less than the allowed claims.
4. REORGANIZATION ITEMS
The net expense incurred as a result of the Chapter 11 filings and
subsequent reorganization efforts has been segregated from ordinary operations
in the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
52 WEEKS ENDED
FEBRUARY 1, 1992
----------------
<S> <C>
(MILLIONS)
Adjustments to fair value................................... $1,231.4
Restructuring costs......................................... 378.8
Professional fees and other expenses related to
bankruptcy................................................ 110.8
Interest income............................................. (41.1)
--------
$1,679.9
--------
--------
</TABLE>
Adjustments to fair value reflect the net change to state assets and
liabilities at fair value. Restructuring costs include costs and expenses from
closing of facilities, consolidation of operations, and certain expenses related
to the rejection of executory contracts as well as gains or losses from the
disposition of related assets. Interest income is attributable to the
accumulation of cash and short-term investments subsequent to the Petition Date.
5. CUMULATIVE EFFECT OF ACCOUNTING CHANGES
In connection with the adoption of fresh-start reporting, Federated adopted
SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions," as of February 1, 1992. The
F-18
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cumulative effect of the change on retained earnings prior to the adoption of
fresh-start reporting at February 1, 1992 was $93.2 million, net of income tax
benefit of $59.5 million. Federated also adopted SFAS No. 109, "Accounting for
Income Taxes," as of February 1, 1992. The cumulative effect of the change to
SFAS No. 109 was not material. (See Note 13.)
6. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
<S> <C> <C>
(MILLIONS)
Due from customers................................... $ 1,702.2 $ 1,498.7
Less allowance for doubtful accounts................. 36.9 45.4
----------- -----------
1,665.3 1,453.3
Other receivables.................................... 93.6 90.5
----------- -----------
Net receivables...................................... $ 1,758.9 $ 1,543.8
----------- -----------
----------- -----------
</TABLE>
Sales through Federated's credit plans were $3,743.1 million, $3,575.2
million and $3,512.8 million for the 52 weeks ended January 29, 1994, January
30, 1993 and February 1, 1992, respectively.
Finance charge revenues amounted to $243.6 million, $225.1 million and
$225.7 million for the 52 weeks ended January 29, 1994, January 30, 1993 and
February 1, 1992, respectively.
7. INVENTORIES
Merchandise inventories were $1,180.8 million at January 29, 1994, compared
to $1,148.9 million at January 30, 1993. Inventories were $11.3 million lower at
January 29, 1994 and $8.5 million lower at January 30, 1993 than they would have
been had the retail method been applied using the first-in, first-out method.
The application of the LIFO method resulted in pre-tax charges of $2.8 million
for the 52 weeks ended January 29, 1994 and $8.5 million for the 52 weeks ended
January 30, 1993. As a result of the adoption of fresh-start reporting,
merchandise inventories were adjusted to the estimated fair market value as of
February 1, 1992, and the LIFO inventory cost, therefore, approximated the cost
of such inventory using the first-in, first-out method.
F-19
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. PROPERTIES AND LEASES
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
<S> <C> <C>
(MILLIONS)
Land................................................. $ 446.0 $ 446.5
Buildings on owned land.............................. 899.8 873.3
Buildings on leased land and leasehold
improvements....................................... 549.4 509.0
Store fixtures and equipment......................... 996.4 782.9
Property not used in operations...................... 6.6 6.1
Leased properties under capital leases............... 49.0 50.0
----------- -----------
2,947.2 2,667.8
Less accumulated depreciation and amortization....... 370.3 189.5
----------- -----------
$ 2,576.9 $ 2,478.3
----------- -----------
----------- -----------
</TABLE>
Buildings on leased land and leasehold improvements include approximately
$160.8 million at January 29, 1994 and $161.2 million at January 30, 1993 of
intangible assets relating to favorable leases which are being amortized over
the related lease terms.
In connection with various shopping center agreements, Federated is
obligated to operate certain stores within the centers for periods of up to 20
years. Some of these agreements require that the stores be operated under a
particular name.
Federated leases a portion of the real estate and personal property used in
its operations. Most leases require Federated to pay real estate taxes,
maintenance and other executory costs; some also require additional payments
based on percentages of sales and some contain purchase options.
Minimum rental commitments (excluding executory costs) at January 29, 1994,
for noncancellable leases are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
------- ---------- ------
<S> <C> <C> <C>
(MILLIONS)
Fiscal year:
1994............................................ $ 9.6 $ 80.2 $ 89.8
1995............................................ 8.5 75.1 83.6
1996............................................ 8.3 70.9 79.2
1997............................................ 8.3 61.9 70.2
1998............................................ 8.2 55.7 63.9
After 1998...................................... 76.4 505.3 581.7
------- ---------- ------
Total minimum lease payments...................... 119.3 $849.1 $968.4
---------- ------
---------- ------
Less amount representing interest................. 62.5
-------
Present value of net minimum capital lease
payments.......................................... $56.8
-------
-------
</TABLE>
F-20
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capital leases are included in the Consolidated Balance Sheets as property
and equipment while the related obligation is included in short-term ($3.0
million) and long-term ($53.8 million) debt. Amortization of capital leases is
included in depreciation and amortization expense. Total minimum lease payments
shown above have not been reduced by minimum sublease rentals of approximately
$1.4 million on capital leases and $4.0 million on operating leases.
Rental expense consists of:
<TABLE>
<CAPTION>
52 WEEKS ENDED
52 WEEKS ENDED 52 WEEKS ENDED FEBRUARY 1, 1992
JANUARY 29, 1994 JANUARY 30, 1993 -
---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Real estate (excluding executory costs)
Capital leases--
Contingent rentals........................ $ 3.4 $ 3.5 $ 3.0
Operating leases--
Minimum rentals........................... 68.5 63.6 61.2
Contingent rentals........................ 8.7 8.5 8.9
----- ----- -----
80.6 75.6 73.1
----- ----- -----
Less income from subleases--
Capital leases............................ 0.8 0.8 0.7
Operating leases.......................... 1.2 6.1 9.3
----- ----- -----
2.0 6.9 10.0
----- ----- -----
$ 78.6 $ 68.7 $ 63.1
----- ----- -----
----- ----- -----
Personal property--
Operating leases............................ $ 38.1 $ 36.4 $ 38.9
----- ----- -----
----- ----- -----
</TABLE>
9. NOTES RECEIVABLE
On May 3, 1988, Federated sold its Bullock's/Bullocks-Wilshire, Filene's,
Foley's, and I. Magnin divisions. The proceeds from the sales included $800.0
million in notes receivable. Federated obtained $704.0 million in cash by
transferring the notes to grantor trusts, which borrowed such amount under note
monetization facilities (see Note 11) and distributed the proceeds to Federated.
At the end of fiscal year 1991, Federated received $400.0 million pursuant to a
letter of credit which secured the payment of a $400.0 million promissory note
for the sale of Federated's Bullock's/Bullocks-Wilshire and I. Magnin divisions.
The remaining $400.0 million note receivable bears interest at 9% and is
supported by a letter of credit.
F-21
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INVESTMENT IN SECURED CLAIM
On December 31, 1993, Federated acquired 50% of a claim held by The
Prudential Insurance Company of America ("Prudential") in the chapter 11
reorganization of R. H. Macy & Co., Inc. ("Macy's") for $109.3 million in cash
and a promissory note (the "Promissory Note") due December 31, 1996 in the
principal amount of $340.0 million (see Note 11). The transaction also provided
Federated with an option to acquire the remaining 50% of Prudential's claim
within three years. The investment is included in other assets on Federated's
Consolidated Balance Sheet.
The claim arises out of Prudential's secured loan to Macy's in the principal
amount of $832.5 million. The Prudential-Macy loan bears interest at the rate of
12% (none of which has been paid since Macy's chapter 11 filing in January 1992)
and is secured by mortgages on 70 of Macy's 110 department store properties.
Although Federated is not accruing interest on its investment in the Prudential
bankruptcy claim, management believes that the investment is adequately
collateralized and that the carrying value is not in excess of its fair market
value (see Note 18).
11. FINANCING
Pursuant to the POR, Federated issued the Series A Secured Notes, Series B
Secured Notes, Series C Secured Notes, Series D Secured Notes, Series E Secured
Notes, and the Senior Convertible Discount Notes (the "Convertible Notes"). In
addition, in consideration of certain distributions under the POR, a letter of
credit facility (the "LC Facility") was made available to Federated.
On May 29, 1992, the net proceeds of $502.0 million from a public offering
of 46.0 million shares of Common Stock and cash on hand were used to prepay a
total of $950.0 million of long-term debt. The indebtedness prepaid included all
of Federated's Series C, D, and E Secured Notes, approximately $170.0 million of
Federated's Series A Secured Notes and approximately $199.0 million of
Federated's Series B Secured Notes. In connection with the stock offering,
Federated entered into a three-year revolving credit loan and letter of credit
agreement (the "Working Capital Facility" described below). This Working Capital
Facility replaced the LC Facility.
On December 15, 1992, Prime completed a public offering of a total of $981.0
million ($979.1 million discounted amount) of asset-backed debt securities in
four separate classes, as described below. The net proceeds from the offerings
have been used by Prime to finance its purchases of revolving consumer credit
card receivables generated by Federated's department store operations and to
prepay approximately $722.6 million of balances outstanding under the
receivables financing facilities which were terminated in connection with the
offerings. On January 5, 1993, another indirect wholly owned special-purpose
financing subsidiary of Federated entered into a liquidity facility with a
syndicate of banks providing support for the issuance of up to $375.0 million of
receivables-backed commercial paper.
On March 8, 1993, Federated defeased the entire $355.0 million outstanding
principal amount of its Series B Secured Notes. In addition, the Series A
Secured Notes, which were scheduled to be repaid with annual installments
beginning on February 15, 1997 and extending through February 15, 2000, were
amended to be payable in full on February 15, 1997.
F-22
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Short-term and long-term debt were as follows:
JANUARY 29, 1994 JANUARY 30, 1993
---------------- ----------------
(MILLIONS)
Short-term debt:
Current portion of long-term
debt............................ $ 10.1 $ 12.9
-------- --------
Total short-term debt......... $ 10.1 $ 12.9
-------- --------
-------- --------
Long-term debt:
Receivables-backed certificates... $ 979.5 $ 979.2
Note monetization facility........ 352.0 352.0
Mortgage facility................. 345.1 346.5
Promissory note................... 340.0 --
Series A secured notes............ 289.2 302.9
Series B secured notes............ -- 355.0
Senior convertible discount
notes........................... 289.0 272.5
Subsidiary trade obligations...... 101.5 101.5
Capital leases.................... 53.8 54.1
Other............................. 36.6 46.1
-------- --------
Total long-term debt.......... $2,786.7 $2,809.8
-------- --------
-------- --------
Future maturities of long-term debt, other than capital leases and including
unamortized original issue discount of $19.9 million, are shown below:
(MILLIONS)
Fiscal year:
1995.................................................... $ 108.0
1996.................................................... 344.7
1997.................................................... 1,012.0
1998.................................................... 187.6
1999.................................................... 503.2
After 1999.............................................. 597.3
The following summarizes certain provisions of Federated's long-term debt:
RECEIVABLES-BACKED CERTIFICATES
The four classes of securities are: (i) $450.0 million in aggregate
principal amount of 7.05% Class A-1 Asset-Backed Certificates, Series 1992-1 due
December 15, 1997; (ii) $450.0 million in aggregate principal amount of 7.45%
Class A-2 Asset-Backed Certificates, Series 1992-2 due December 15, 1999; (iii)
$40.5 million in aggregate principal amount of 7.55% Class B-1 Asset-Backed
Certificates, Series 1992-1 due January 15, 1998; and (iv) $40.5 million in
aggregate principal amount of 7.95% Class B-2 Asset-Backed Certificates, Series
1992-2 due January 18, 2000. The certificates represent undivided interests in
the assets of a master trust originated by Prime.
RECEIVABLES-BACKED COMMERCIAL PAPER
The borrowings are secured by an interest in the master trust originated by
Prime and are subject to interest rate caps of 7% in 1994 and 10% thereafter. As
of January 29, 1994 and January 30, 1993, there were no borrowings outstanding
under the commercial paper program or the liquidity facility.
F-23
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE MONETIZATION FACILITY
On May 3, 1988, Federated sold certain divisions for consideration
consisting of two $400.0 million promissory notes. Federated subsequently
transferred the notes to grantor trusts of which it is the beneficiary. The
trusts borrowed $704.0 million under note monetization facilities, using the
notes as collateral, and distributed the proceeds of such borrowing to
Federated. At the end of fiscal year 1991, Federated received $400.0 million
pursuant to a letter of credit which secured the payment of a $400.0 million
promissory note for the sale of Federated's Bullock's/Bullocks-Wilshire and I.
Magnin divisions. Of the $400.0 million cash received, $352.0 million was
treated as in-substance defeasance of the indebtedness incurred by one of the
grantor trusts. The other trust's borrowing under the remaining note
monetization facility matures in two equal installments on May 3, 1997 and 1998,
and bears interest at fluctuating interest rates based on LIBOR, subject to
certain adjustments. An interest rate swap agreement was entered into for the
remaining note monetization facility which, in effect, converted the variable
interest rate to a fixed rate of 10.344%. Federated is not an obligor on the
borrowing under the note monetization facility, and the lender's recourse
thereunder is limited to the trust's assets and the Company's interest in the
trust.
MORTGAGE FACILITY
Certain of Federated's real estate subsidiaries are parties to a mortgage
loan facility providing for secured borrowings. Under an amendment entered into
pursuant to the POR, borrowings under the facility will mature in 2002 and bear
interest at 9.99% per annum. Borrowings under the facility are secured by liens
on certain real property.
PROMISSORY NOTE
On December 31, 1993, Federated acquired 50% of a claim held by Prudential
in the chapter 11 reorganization of Macy for $109.3 million in cash and the
Promissory Note due December 31, 1996 in the principal amount of $340.0 million.
The note bears interest at 3-month LIBOR plus 1.75%, increasing to 2% beginning
January 1995. The Promissory Note is mandatorily prepayable in certain
circumstances.
THE SERIES A SECURED NOTES
The Series A Secured Notes (as amended on March 8, 1993) are secured
obligations of Federated which mature on February 15, 1997 and bear interest at
the rate per annum equal to, at Federated's option, either (i) Citibank's
Alternate Base Rate III plus 1.5% (the "Base Rate") or (ii) LIBOR plus 2.5% (the
"LIBOR Rate"). Interest at the Base Rate is payable quarterly. Interest at the
LIBOR Rate is payable at the end of each one-, two-, three-, or six-month period
(a "LIBOR Interest Period"), as selected by Federated, except that, with respect
to any LIBOR Interest Period of six months, accrued and unpaid interest will be
payable at the end of the third and sixth months of such LIBOR Interest Period.
Under certain circumstances, Federated will be required to apply to the
repayment or redemption of the Series A Secured Notes a portion of the net
proceeds realized from (i) the sale, conveyance, or other disposition of
collateral securing the Series A Secured Notes or (ii) the sale by Federated for
its own account of shares of its capital stock.
THE SENIOR CONVERTIBLE DISCOUNT NOTES
The Convertible Notes are unsecured obligations of Federated which mature on
February 15, 2004 and bear interest at the rate of 6.0% payable semiannually on
February 15 and August 15, commencing August 15, 1995; provided, however, that
such interest rate will be reset effective as of February 15,
F-24
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1995 to a rate (not to exceed 10% per annum) equal to the sum of (i) the average
rate for hypothetical Eight-Year Treasury Notes during the 20 consecutive
trading days ending February 15, 1995 and (ii) 200 basis points, unless the per
share closing price of the Common Stock is at least equal to $32.00 or $35.00,
respectively, for 20 consecutive trading days in any of the first or second
12-month periods following February 15, 1993. The Convertible Notes will not
bear cash interest prior to February 15, 1995, but will accrete from the deemed
issue price as of the POR Effective Date of $835.81 per $1,000 of stated
principal amount to such stated principal amount at the rate of 6.0% per annum
compounded semiannually during the period from February 3, 1992 to February 15,
1995.
On each of February 15, 2002 and 2003, Federated will pay an amount equal to
33.3% of the aggregate stated principal amount of the Convertible Notes
initially outstanding, and will pay any remaining balance on February 15, 2004,
in each case together with accrued interest to the date of payment. In addition,
subject to the limitations contained in certain other debt instruments to which
Federated is a party, at any time on or after February 15, 1995, Federated may
make optional prepayments or redemptions of the Convertible Notes in whole or
part. All such prepayments will be made at 100% of the stated principal amount
so prepaid or redeemed, together with interest accrued to the date of prepayment
or redemption.
At any time at the option of a holder of Convertible Notes, such holder will
have the right to convert the principal of any such holder's Convertible Notes
that is $100,000 stated principal amount or an integral multiple of such amount
(or such lesser stated principal amount that represents all of such holder's
Convertible Notes) into fully-paid and non-assessable shares of Common Stock at
the rate of 27.86 shares of Common Stock for each $1,000 stated principal amount
of Convertible Notes, provided that such conversion rate will be appropriately
adjusted in order to prevent dilution of such conversion rights in the event of
certain changes in or events affecting the Common Stock and certain
consolidations, mergers, sales, leases, transfers, or other dispositions to
which Federated is a party. In addition, if at any time the closing per share
price of the Common Stock is $42.00 or more for 20 consecutive trading days, or
if the aggregate outstanding stated principal amount of the Convertible Notes is
$12.5 million or less, Federated may require the conversion of all outstanding
Convertible Notes into Common Stock.
As of January 29, 1994, holders of $158.0 million of the Convertible Notes
have exchanged such notes, per the agreement, for registered notes having the
same terms as the original unregistered notes.
SUBSIDIARY TRADE OBLIGATIONS
In addition to the cash distribution made on the POR Effective Date, the
holders of certain allowed general unsecured prepetition claims against certain
of the Company's subsidiaries are entitled pursuant to the POR to receive an
additional cash payment on February 4, 1995.
The obligations of the applicable subsidiaries of Federated (the "Subsidiary
Trade Obligors") to make such payments (the "Subsidiary Trade Obligations") have
been estimated by Federated at $101.5 million in the aggregate, exclusive of
interest. The Subsidiary Trade Obligations bear interest at the rate of 6.94%
per annum, payable annually on February 15, commencing on February 15, 1993. The
Subsidiary Trade Obligations are unsecured obligations of the applicable
Subsidiary Trade Obligors, guaranteed by Federated on a subordinated basis. The
terms of the POR relating to the Subsidiary Trade Obligations include certain
restrictions on, among other things, the incurrence of indebtedness by the
Subsidiary Trade Obligors and the payment of dividends by the Subsidiary Trade
Obligors or Federated.
F-25
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WORKING CAPITAL FACILITY
On May 29, 1992, Federated entered into a three-year revolving credit loan
and letter of credit agreement (the "Revolving Credit Agreement") with a
syndicate of banks. The Revolving Credit Agreement, which expires on April 3,
1995, provides for direct borrowings and the issuance of letters of credit in an
aggregate amount of up to $380.0 million (the "Working Capital Facility"). The
rate of interest on the borrowings is LIBOR plus 2% (1.5% beginning May 1994)
per annum or the Base Rate (described in the Revolving Credit Agreement) plus 1%
(0.5% beginning May 1994) per annum payable quarterly in arrears. A commitment
fee of 0.5% per annum is payable quarterly in arrears on the average daily
unused portion of the facility. Fees for outstanding letters of credit are 1.5%
(1% beginning May 1994) per annum for outstanding trade letters of credit and 2%
(1.5% beginning May 1994) per annum for outstanding stand-by letters of credit.
Federated's obligations under the Revolving Credit Agreement are secured by the
stock of certain operating subsidiaries. The Revolving Credit Agreement contains
restrictive covenants, including limitations on capital expenditures, additional
borrowings and dividends; requires Federated to achieve certain financial
ratios; and requires an annual "clean-up" during the fourth fiscal quarter of
each year. During 1993 and 1992, there were no revolving credit borrowings under
the Working Capital Facility and, as of January 29, 1994 and January 30, 1993,
the aggregate face amount of letters of credit outstanding was $64.1 million and
$86.3 million, respectively.
Interest and financing costs were as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED
52 WEEKS ENDED 52 WEEKS ENDED FEBRUARY 1, 1992
JANUARY 29, 1994 JANUARY 30, 1993 -
---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Interest on debt.............................. $197.5 $232.0 $479.8
Amortization of financing costs............... 10.2 21.0 18.3
Interest on capital leases.................... 6.0 5.3 6.4
------- ------- -------
Subtotal.................................. 213.7 258.3 504.5
Less:
Interest capitalized on construction.......... (0.2) (0.1) (0.2)
Interest income............................... (49.4) (60.3) (67.3)
------- ------- -------
$164.1 $197.9 $437.0
------- ------- -------
------- ------- -------
</TABLE>
Up to $600.0 million of combined borrowings under the Series A Secured
Notes, the Promissory Note and the Working Capital Facility are subject to
interest rate caps of 7% in 1994. Interest expense excludes interest on
unsecured prepetition debt obligations of $301.6 million for the 52 weeks ended
February 1, 1992.
F-26
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
<S> <C> <C>
(MILLIONS)
Merchandise and expense accounts payable............. $ 833.4 $ 710.0
Restructuring and consolidation costs................ 71.5 105.9
Taxes other than income taxes........................ 52.5 51.9
Accrued wages and vacations.......................... 50.3 51.9
Accrued interest..................................... 25.3 28.2
Other................................................ 176.7 155.4
----------- -----------
$ 1,209.7 $ 1,103.3
----------- -----------
----------- -----------
</TABLE>
13. TAXES
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993
---------------- ----------------
<S> <C> <C>
(MILLIONS)
Income from operations....................... $171.0 $ 99.3
Extraordinary items.......................... (2.3) (12.7)
------- ------
Total income taxes......................... $168.7 $ 86.6
------- ------
------- ------
</TABLE>
Income tax expense (benefit) attributable to income (loss) from operations
is as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
----------------------------- ---------------------------- ------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ----- ------- -------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal......... $ 127.9 $ 10.4 $138.3 $64.4 $ 14.2 $78.6 $ (25.9) $ (457.5) $(483.4)
State and
local......... 33.6 (0.9) 32.7 16.1 4.6 20.7 42.6 (173.2) (130.6)
------- -------- ------ ------- -------- ----- ------- -------- -------
$ 161.5 $ 9.5 $171.0 $80.5 $ 18.8 $99.3 $ 16.7 $ (630.7) $(614.0)
------- -------- ------ ------- -------- ----- ------- -------- -------
------- -------- ------ ------- -------- ----- ------- -------- -------
</TABLE>
The passage on August 10, 1993 of the federal Omnibus Budget Reconciliation
Act of 1993 increased the federal income tax statutory rate from 34% to 35%
retroactive to January 1, 1993. The income tax expense (benefit) attributable to
income (loss) from operations reported differs from the expected tax computed by
applying the federal income tax statutory rate of 35% for the 52 weeks ended
January 29, 1994 and 34% for the 52 weeks ended January 30, 1993 and February 1,
1992 to income (loss) before income taxes, extraordinary items and cumulative
effect of change in accounting principles. The reasons for this difference and
their tax effects are as follows:
F-27
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Expected tax.................................. $128.7 $ 78.9 $ (629.0)
Permanent differences arising from:
Amortization of intangible assets........... 6.6 6.4 16.6
Certain non-deductible reorganization
items....................................... -- -- 13.3
Effect of federal tax rate change on deferred
income taxes................................ 14.2 -- --
Effect of consummation of POR................. -- -- 68.2
State and local income taxes, net of federal
income tax expense (benefit)................ 21.2 13.7 (86.2)
Other......................................... 0.3 0.3 3.1
------- ----- -------
$171.0 $ 99.3 $ (614.0)
------- ----- -------
------- ----- -------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
<S> <C> <C>
(MILLIONS)
Deferred tax assets:
Accrued liabilities accounted for on a cash basis
for tax purposes................................. $ 130.1 $ 144.2
Postretirement benefits other than pensions........ 78.4 78.3
Capital lease debt................................. 22.7 23.1
Allowance for doubtful accounts.................... 14.8 17.7
Alternative minimum tax credit carryforwards....... 21.0 25.8
Other.............................................. 46.6 32.1
----------- -----------
Total gross deferred tax assets................ 313.6 321.2
----------- -----------
Deferred tax liabilities:
Excess of book basis over tax basis of property and
equipment........................................ (605.9) (593.9)
Prepaid pension expense............................ (95.2) (91.0)
Deferred gain from sale of divisions............... (82.2) (80.1)
Merchandise inventories............................ (68.1) (76.4)
Effects of reorganization transactions............. (167.8) (130.9)
Other.............................................. (9.8) (9.4)
----------- -----------
Total gross deferred tax liabilities........... (1,029.0) (981.7)
----------- -----------
Net deferred tax............................... $ (715.4) $(660.5)
----------- -----------
----------- -----------
</TABLE>
F-28
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of January 29, 1994, Federated had alternative minimum tax credit
carryforwards of $21.0 million which are available to reduce future federal
regular income taxes, if any, over an indefinite period.
In connection with the POR and the joint plan of reorganization of Federated
Stores, Inc. ("FSI"), the former parent of Federated and Allied and certain of
its subsidiaries, the FSI consolidated tax group (which, with respect to periods
prior to the POR Effective Date, included the Federated/Allied Companies)
triggered certain gains (the "Gains") estimated at approximately $1,800.0
million. Under applicable federal tax law, each member of the FSI consolidated
tax group would be severally liable for the entire amount of any tax liability
incurred by any other member of the group, generally, prior to the POR Effective
Date. Under an indemnification agreement entered into pursuant to the POR, among
other things, Ralphs Grocery Company ("Ralphs"), a former subsidiary of FSI,
would generally be liable to Federated for 21% of the first $71.43 million in
tax liability with respect to the Gains and the Company would indemnify Ralphs
for any tax liability above that amount. Federated believes that net operating
and capital losses ("NOLs") sufficient to offset the Gains were available at the
time the Gains were triggered and, accordingly, that Federated will have no
regular federal income tax liability in respect thereof and that it has
adequately provided for its estimated alternative minimum tax liability.
Management does not expect that the resolution of issues related to the POR will
have a material adverse effect on Federated's financial position. Further, the
realization of any unrecorded tax benefits related to the NOLs generated prior
to the POR Effective Date will be recorded as reductions of reorganization value
in excess of amounts allocable to identifiable assets.
In connection with the Chapter 11 cases, the Internal Revenue Service
("IRS") audited the tax returns of the Federated/Allied Companies and the FSI
consolidated tax group for tax years 1984 through 1989 and asserted certain
claims against the Federated/Allied Companies and other members of the FSI
consolidated tax group. The issues raised by the IRS audit were resolved by
agreement with the IRS in the Chapter 11 cases except for two issues involving
the use by the Federated/Allied Companies of an aggregate of $27.0 million of
NOLs of an acquired company and the deductibility of approximately $176.3
million of so-called "break-up fees." These issues were litigated before the
Bankruptcy Court and resolved in favor of the Federated/Allied Companies;
however, on January 21, 1992, the IRS filed a notice of appeal of the Bankruptcy
Court's determination of these issues to the United States District Court for
the Southern District of Ohio, where such appeal is currently pending.
Management does not expect that the resolution of these issues will have a
material adverse effect on Federated's financial position.
14. RETIREMENT PLANS
Federated has defined benefit plans ("Pension Plans") and a defined
contribution plan ("Profit Sharing Plan") which cover substantially all
employees who work 1,000 hours or more in a year. In addition, Federated has a
defined benefit supplementary retirement plan which includes benefits, for
certain employees, in excess of qualified plan limitations. For the 52 weeks
ended January 29, 1994, net retirement expense for these plans totaled $2.7
million, and for the 52 weeks ended January 30, 1993 and the 52 weeks ended
February 1, 1992, net retirement income totaled $1.1 million and $2.0 million,
respectively.
Measurements of plan assets and obligations for the Pension Plans and the
defined benefit supplementary retirement plan are calculated as of December 31
of each year. In addition, for such plans, the discount rate used to determine
the actuarial present value of projected benefit obligations was 7.0% as of
December 31, 1993 and 8.0% as of December 31, 1992. The assumed rate of increase
in future compensation levels was 5.0% as of December 31, 1993 and 4.5% as of
December 31, 1992. The
F-29
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
long-term rate of return on assets (Pension Plans only) was 9.75% as of December
31, 1993 and 10.0% as of December 31, 1992.
PENSION PLANS
Net pension income for Federated's Pension Plans included the following
actuarially determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.................................. $ 17.5 $ 16.8 $ 16.7
Interest cost................................. 39.0 36.9 37.4
Actual return on assets....................... (94.1) (48.6) (138.6)
Net amortization and deferrals................ 24.9 (19.6) 74.5
Cost of special termination benefits.......... 7.8 -- --
------ ------ -------
$ (4.9) $(14.5) $ (10.0)
------ ------ -------
------ ------ -------
</TABLE>
The following table sets forth the projected actuarial present value of
benefit obligations and funded status at December 31, 1993 and 1992, for the
Pension Plans:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
(MILLIONS)
Accumulated benefit obligations................... $536.4 $486.4
Less: Present value of net accumulated benefits
available under the Profit Sharing Plan......... 43.5 48.7
------------ ------------
Net accumulated benefit obligations, including
vested benefits of $478.7 million and $422.2
million, respectively........................... 492.9 437.7
Projected compensation increases.................. 75.7 60.0
------------ ------------
Projected benefit obligations..................... 568.6 497.7
------------ ------------
Plan assets (primarily stocks, bonds and U.S.
government securities).......................... 744.9 706.8
Unrecognized loss................................. 52.9 24.1
Unrecognized prior service cost................... 8.9 --
------------ ------------
806.7 730.9
------------ ------------
Prepaid pension expense........................... $238.1 $233.2
------------ ------------
------------ ------------
</TABLE>
The Company's policy is to fund the Pension Plans at or above the minimum
required by law. At December 31, 1993 and 1992, Federated had met the full
funding limitation. Plan assets are held by independent trustees.
In connection with a salary reduction program at one division, Federated
provided, in 1993, $7.8 million of special termination benefits to eligible
employees who elected to retire within a specified time period.
One of Federated's Pension Plans was amended effective January 1, 1993 to
reflect then current salary levels. This amendment resulted in an increase of
$9.9 million in the accumulated benefit obligation, which is being recognized
over an amortization period of 10.1 years.
F-30
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTARY RETIREMENT PLAN
Net pension expense for the supplementary retirement plan included the
following actuarially determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.................................. $ 0.3 $ 0.3 $1.0
Prior service cost............................ -- 7.9 --
Interest cost on projected benefit
obligations................................. 1.2 0.6 2.0
Net amortization and deferral................. (0.3) (0.4) 0.9
----- ----- ---
$ 1.2 $ 8.4 $3.9
----- ----- ---
----- ----- ---
</TABLE>
The following table sets forth the projected actuarial present value of
unfunded benefit obligations at December 31, 1993 and 1992, for the
supplementary retirement plan:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
(MILLIONS)
Accumulated benefit obligations, including vested
benefits of $14.0 million and $12.0 million
respectively.................................... $ 14.2 $ 12.4
Projected compensation increases.................. 3.5 3.2
----- -----
Projected benefit obligations..................... 17.7 15.6
Unrecognized gain................................. 3.6 4.1
Unrecognized prior service cost................... (1.1) --
----- -----
Accrued supplementary retirement obligation....... $ 20.2 $ 19.7
----- -----
----- -----
</TABLE>
In December 1992, Federated reestablished a percentage of the benefits for
former employees who had retired prior to the Petition Date. This action
increased the accumulated benefit obligation by $7.9 million at December 31,
1992, which was expensed as prior service cost in the 52 weeks ended January 30,
1993.
PROFIT SHARING PLAN
The Profit Sharing Plan includes a voluntary savings feature for eligible
employees. Federated's contribution is based on Federated's annual earnings. The
minimum Federated contribution is 20% of employee's eligible savings. Profit
sharing expense amounted to $6.4 million for the 52 weeks ended January 29,
1994, $5.0 million for the 52 weeks ended January 30, 1993, and $4.1 million for
the 52 weeks ended February 1, 1992. The Profit Sharing Plan had net assets at
December 31, 1993, aggregating $635.3 million held in independent trusts.
DEFERRED COMPENSATION PLAN
During 1993, Federated implemented a deferred compensation plan wherein
eligible executives may elect to defer a portion of their compensation each year
as either stock or cash credits. Federated transfers shares to a trust to cover
the number it estimates will be needed for distribution of stock credits
currently outstanding. At January 29, 1994, the liability under the plan which
is reflected in other liabilities is $1.1 million. Expense for the 52 weeks
ended January 29, 1994 was immaterial.
F-31
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to providing pension and other supplemental benefits, certain
retired employees are currently provided with specified health care, life
insurance, and certain other benefits. Eligibility requirements for such
benefits vary by division and subsidiary, but generally state that benefits are
available to employees who retire after a certain age with specified years of
service. Federated has the right to modify or terminate these benefits for
employees who retire after the Petition Date. Health care and life insurance
benefits are provided to both retired and active employees through medical
benefit trusts and insurance companies. Based on a change in the retiree health
care coverage, employees hired on January 1, 1994 or later will not be eligible
for retiree health care benefits.
Net postretirement benefit expense included the following actuarially
determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993
---------------- ----------------
<S> <C> <C>
(MILLIONS)
Service cost................................. $ 1.0 $ 3.5
Interest cost................................ 9.7 15.1
Net amortization and deferral................ (5.8) --
----- -----
$ 4.9 $ 18.6
----- -----
----- -----
</TABLE>
The measurement of the postretirement benefit obligations is calculated as
of December 31. The following table sets forth the projected actuarial present
value of unfunded postretirement benefit obligations for the plans at December
31, 1993 and 1992:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
(MILLIONS)
Accumulated postretirement benefit obligation:
Retirees................................................. $112.0 $148.7
Fully eligible active plan participants.................. 14.6 26.0
Other active plan participants........................... 11.4 26.6
------------ ------------
Accumulated postretirement benefit obligations......... 138.0 201.3
Unrecognized net gain.................................... 35.5 --
Unrecognized prior service cost.......................... 22.9 --
------------ ------------
Accrued postretirement benefit obligation.............. $196.4 $201.3
------------ ------------
------------ ------------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% as of December 31, 1993 and 8.0% as
of December 31, 1992. As of January 1, 1993, Federated revised certain
assumptions and estimates related to the cost of certain other benefits. The
resulting unrecognized gain is being recognized over an amortization period of
12.8 years.
On January 1, 1993, all but two subsidiaries changed the retiree health care
benefits and the remaining two subsidiaries adopted the changes on July 1, 1993.
As a result of these changes, the future benefits provided by Federated for
employees who retire after the Petition Date and were hired prior to January 1,
1994, is based on a fixed amount per year of service, and the accumulated
postretirement benefit obligation is not affected by increases in health care
costs. The effect of adopting the benefit changes is reflected as a $24.7
million reduction of the accumulated postretirement benefit obligation and is
being recognized over an amortization period of 11.4 years.
F-32
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. EQUITY PLAN
Federated has implemented an equity plan intended to provide an equity
interest in Federated to key management personnel and thereby provide additional
incentives for such persons to devote themselves to the maximum extent
practicable to the businesses of Federated and its subsidiaries. The Equity Plan
is administered by the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The Compensation Committee is authorized to grant
options, stock appreciation rights and restricted stock to officers and key
employees of the Company and its subsidiaries. The Equity Plan also provides for
the award of options to non-employee directors. A maximum of 9.6 million shares
of Common Stock may be issued pursuant to the Equity Plan, not more than 1.45
million of which may be awarded in the form of restricted stock.
Stock option transactions are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993
------------------------- -------------------------
SHARES GRANT PRICE SHARES GRANT PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
(SHARES IN THOUSANDS)
Outstanding, beginning of year........... 1,828.5 $11.625-18.375 -- $ --
Granted.................................. 1,575.3 19.375-25.000 1,948.7 11.625-18.375
Cancelled................................ (268.2) 15.625-20.875 (120.2) 13.375-16.875
Exercised................................ (97.1) 11.625-16.875 -- --
------- -------------- ------- --------------
Outstanding, end of year............... 3,038.5 $11.625-25.000 1,828.5 $11.625-18.375
------- -------------- ------- --------------
------- -------------- ------- --------------
Exercisable, end of year............... 814.1 $11.625-20.875 -- $ --
------- -------------- ------- --------------
------- -------------- ------- --------------
</TABLE>
As of January 29, 1994, 5,695,500 shares of Common Stock are available for
additional grants pursuant to the Equity Plan, of which not more than 681,100
may be awarded in the form of restricted stock.
F-33
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SHAREHOLDERS' EQUITY
The authorized shares of Federated consist of 125.0 million shares of
preferred stock ("Preferred Stock"), par value of $.01 per share with no shares
issued and 250.0 million shares of Common Stock, par value of $.01 per share
with 126.3 million and 126.0 million shares of Common Stock issued and
outstanding at January 29, 1994 and January 30, 1993, respectively.
In addition to shares issued under the Equity Plan and the deferred
compensation plan, 0.2 million shares were issued in 1993 to certain prepetition
creditors upon realization of a $5.0 million insurance recovery.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Subject to
preferential rights that may be applicable to any Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. However, it
is not presently anticipated that dividends will be paid on Common Stock in the
foreseeable future and certain of the debt instruments to which the Company is a
party restrict the payment of dividends. All of the outstanding shares of Common
Stock issued pursuant to the POR are fully paid and nonassessable.
PREFERRED SHARE PURCHASE RIGHTS
Each share of Common Stock is accompanied by one right (a "Right") issued
pursuant to the Share Purchase Rights Agreement between Federated and The Bank
of New York, as Rights Agent. Each Right entitles the registered holder thereof
to purchase from Federated one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Series A Preferred
Shares"), of Federated at a price (the "Purchase Price") of $62.50 per one
one-hundredth of a Series A Preferred Share (subject to adjustment).
In general, the Rights will not become exercisable or transferable apart
from the shares of Common Stock with which they were issued unless a person or
group of affiliated or associated persons becomes the beneficial owner of, or
commences a tender offer that would result in beneficial ownership of, 20% or
more of the outstanding shares of Common Stock (any such person or group of
persons being referred to as an "Acquiring Person"). Thereafter, under certain
circumstances, each Right (other than any Rights that are or were beneficially
owned by an Acquiring Person, which Rights will be void) could become
exercisable to purchase at the Purchase Price a number of shares of Common Stock
having a market value equal to two times the Purchase Price. The Rights will
expire on February 4, 2002, unless earlier redeemed by Federated at a redemption
price of $.03 per Right (subject to adjustment).
F-34
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SHAREHOLDERS' EQUITY--(CONTINUED)
FUTURE STOCK ISSUANCES
Federated is authorized to issue 8.6 million shares of Common Stock (subject
to adjustment) upon the conversion of the Convertible Notes and 5.2 million
shares of Common Stock (subject to adjustment) upon the exercise of the Series A
Warrants and Series B Warrants. The Series A Warrants were issued under the
Series A Warrant Agreement between Federated and The Bank of New York, as
Warrant Agent (the "Series A Warrant Agreement"). The Series B Warrants were
issued under the Series B Warrant Agreement between Federated and The First
Boston Corporation, as the initial holder of the Series B Warrants (the "Series
B Warrant Agreement"). Each warrant, when exercised, will entitle the holder
thereof to acquire 1.047 shares of Common Stock at an exercise price of (i)
$25.00 per warrant, in the case of the Series A Warrants, or (ii) $35.00 per
warrant, in the case of the Series B Warrants.
The Series A Warrants are transferable. The Series B Warrants are not
transferable prior to February 4, 1995. There are 4.2 million shares of Common
Stock subject to the Series A Warrants and 1.0 million shares of Common Stock
subject to the Series B Warrants, in each case subject to adjustment in certain
events to prevent dilution of the rights conferred thereby as set forth in the
applicable Warrant Agreement. The Series A Warrants expire February 15, 1996 and
the Series B Warrants expire February 15, 2000.
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
<S> <C> <C> <C>
(MILLIONS)
Preferred stock............................... $ -- $ -- $ --
------- ------- --------
Common stock:
Balance, beginning of year.................. 1.3 0.8 --
Issuance of common stock.................... -- 0.5 0.8
------- ------- --------
Balance, end of year........................ 1.3 1.3 0.8
------- ------- --------
Additional paid-in capital:
Balance, beginning of year.................. 1,968.0 1,453.3 915.3
Issuance of common stock.................... 7.7 514.7 2,015.4
Eliminate deficit in accumulated earnings... -- -- (1,477.4)
------- ------- --------
Balance, end of year........................ 1,975.7 1,968.0 1,453.3
------- ------- --------
Unearned restricted stock:
Balance, beginning of year.................. (7.3) -- --
Cancellation (issuance) of common stock..... 0.1 (13.1) --
Amortization................................ 3.1 5.8 --
------- ------- --------
Balance, end of year........................ (4.1) (7.3) --
------- ------- --------
Treasury stock:
Balance, beginning of year.................. -- -- --
Additions................................... (0.9) -- --
------- ------- --------
Balance, end of year........................ (0.9) -- --
------- ------- --------
Accumulated equity (deficit):
Balance, beginning of year.................. 113.0 -- (2,313.8)
Net income.................................. 193.2 113.0 836.4
Eliminate deficit in accumulated earnings... -- -- 1,477.4
------- ------- --------
Balance, end of year........................ 306.2 113.0 --
------- ------- --------
Total shareholders' equity.................... 2,278.2 2,075.0 1,454.1
------- ------- --------
------- ------- --------
</TABLE>
F-35
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in the number of shares held in the treasury for the 52 weeks ended
January 29, 1994, are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
Balance, beginning of year....................................... --
Additions:
Restricted stock............................................... 8.5
Deferred compensation plan..................................... 32.1
---
Balance, end of year............................................. 40.6
---
---
</TABLE>
Additions to treasury stock for restricted stock represent shares accepted
in lieu of cash to cover employee tax liability upon lapse of restrictions.
Under the deferred compensation plan, shares are maintained in a trust to cover
the number estimated to be needed for distribution of stock credits currently
outstanding.
18. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT-TERM INVESTMENTS
The carrying amount approximates fair value because of the short maturity of
these instruments.
ACCOUNTS RECEIVABLE
The carrying amount approximates fair value because of the short average
maturity of the instruments, and bad debt expense can be reasonably estimated
and has been reserved for against the receivable balance.
NOTES RECEIVABLE
The fair value of notes receivable is estimated using discounted cash flow
analysis, based on estimated market discount rates.
OTHER ASSETS
No quoted market prices exist for Federated's long-term investments and,
therefore, a reasonable estimate of fair value could not be made without
incurring excessive costs. Additional information pertinent to the value of the
investments is provided below.
LONG-TERM DEBT
The fair values of Federated's long-term debt are estimated based on the
quoted market prices for publicly traded debt or by using discounted cash flow
analysis, based on Federated's current incremental borrowing rates for similar
types of borrowing arrangements.
INTEREST RATE SWAP AGREEMENT
The fair value of the interest rate swap agreement is obtained from dealer
quotes. The value represents the estimated amount Federated would pay to
terminate the agreement at the reporting date, taking into account current
interest rates and the current creditworthiness of the swap counterparties. The
interest rate swap agreement pertains to the note monetization facility and
although currently in a net payable position, management intends to hold the
agreement to its maturity date or until conditions are favorable to refinance
the note monetization facility.
F-36
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST RATE CAP AGREEMENTS
The fair values of the interest rate cap agreements are estimated based on
current settlement prices of comparable contracts obtained from dealer quotes.
The estimated fair values of Federated's financial instruments are as
follows:
<TABLE>
<CAPTION>
JANUARY 29, 1994 JANUARY 30, 1993
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and short-term investments..................... $ 222.4 $ 222.4 $ 567.0 $ 567.0
Notes receivable.................................... 408.8 459.7 419.7 428.6
Other assets........................................ 475.2 N/A 25.9 N/A
Long-term debt...................................... 2,732.9 2,843.1 2,755.7 2,770.7
Interest rate swap agreement........................ -- (63.3) -- (65.0)
Interest rate cap agreements........................ 6.7 -- 10.1 6.2
</TABLE>
It is not practicable to estimate the fair market value of Federated's
investment in the secured claim against Macy as a result of the uncertainty
related to the outcome of Macy's chapter 11 reorganization proceedings. The
secured claim in Macy is carried at its original cost of $449.3 million in the
Consolidated Balance Sheet at January 29, 1994. (See Note 10.)
Further, it is not practicable to estimate the fair value of Federated's
investment in Ralphs (approximately 6.58% of the issued common stock) due to
lack of a quoted market price. The investment is carried at its original cost of
$25.9 million in the Consolidated Balance Sheet at January 29, 1994 and January
30, 1993. Revenues and net loss reported by Ralphs were $2,843.8 million and
$76.1 million, respectively, for the year ended January 30, 1993 and revenues
and net income were $1,874.2 million and $23.8 million, respectively, for the 36
weeks ended October 10, 1993. At October 10, 1993, Ralphs reported total assets
of $1,363.9 million and shareholders' deficit of $109.5 million.
Commitments to extend credit under revolving agreements relate primarily to
the aggregate unused credit limits for the Company's credit plans. These
commitments generally can be terminated at the option of Federated. It is
unlikely the total commitment amount will represent future cash requirements.
Federated evaluates each customer's creditworthiness on a case-by-case basis.
Financial instruments which potentially subject Federated to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. Federated places its temporary cash investments in what it believes
to be high credit quality financial instruments. Credit risk with respect to
trade receivables is concentrated in the geographic regions in which the Company
operates stores. Such concentrations, however, are considered to be limited due
to Federated's large number of customers and their dispersion across many
regions.
F-37
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. QUARTERLY RESULTS (UNAUDITED)
Unaudited quarterly results for the 52 weeks ended January 29, 1994 and the
52 weeks ended January 30, 1993, were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
52 Weeks Ended January 29, 1994:
Net sales......................................... $1,590.3 $1,502.3 $1,789.3 $2,347.5
Operating income.................................. 82.9 58.4 103.0 287.6
Income before extraordinary items................. 21.7 8.8 20.3 146.0
Net income........................................ $ 18.1 $ 8.8 $ 20.3 $ 146.0
Earnings per share:
Income before extraordinary items............... $ .17 $ .07 $ .16 $ 1.16
Net income...................................... .14 .07 .16 1.16
Fully diluted earnings per share:
Income before extraordinary items............... .17 .07 .16 1.10
Net income...................................... .14 .07 .16 1.10
52 Weeks Ended January 30, 1993:
Net sales......................................... $1,571.7 $1,457.2 $1,789.0 $2,262.0
Operating income.................................. 80.2 27.3 99.5 222.9
Income (loss) before extraordinary items.......... 11.8 (15.8) 31.6 105.1
Net income (loss)................................. $ 11.8 $ (29.4) $ 31.6 $ 99.0
Earnings per share:
Income (loss) before extraordinary items........ $ .15 $ (.14) $ .25 $ .83
Net income (loss)............................... .15 (.26) .25 .78
Fully diluted earnings per share:
Income (loss) before extraordinary items........ .15 (.14) .25 .80
Net income (loss)............................... .15 (.26) .25 .75
</TABLE>
20. LEGAL PROCEEDINGS
Notwithstanding the confirmation and effectiveness of the POR, the
Bankruptcy Court continues to have jurisdiction to, among other things, resolve
disputed prepetition claims against the Federated/Allied Companies, resolve
matters related to the assumption, assumption and assignment, or rejection of
executory contracts pursuant to the POR, and to resolve other matters that may
arise in connection with or relate to the POR. Federated, upon emergence from
Chapter 11, provided for the payment of all remaining bankruptcy claims based
upon management's estimate of the amount of such claims that would ultimately be
allowed by the Bankruptcy Court. During 1993, Federated reduced accrued
liabilities and selling, general and administrative expenses by $24.0 million to
reflect the favorable settlement of disputed bankruptcy claims. Management
believes that Federated has adequately provided for the resolution of all
bankruptcy claims and other matters related to the POR remaining at January 29,
1994.
Federated and its subsidiaries are also involved in various legal
proceedings incidental to the normal course of their business. Management does
not expect that any of such proceedings will have a material adverse effect on
Federated's financial position.
F-38
<PAGE>
SCHEDULE II
FEDERATED DEPARTMENT STORES, INC.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS AND
EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------- -------- -------- ------------------- -------------------
BALANCE AT END OF
DEDUCTIONS PERIOD
------------------- -------------------
BALANCE
AT (1) (2) (1) (2)
BEGINNING AMOUNTS
OF AMOUNTS WRITTEN NOT
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED OFF CURRENT CURRENT
- -------------------------------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
James E. Gray................... $500,000 $-- $ -- $ -- $ -- $500,000
Gordon R. Cooke................. 200,000 -- 200,000 -- -- --
Rudolph V. Javosky.............. 125,000 -- 25,000 -- 25,000 75,000
Carl Tooker..................... 150,000 -- 150,000 -- -- --
</TABLE>
In July 1988, Federated made a loan in the amount of $500,000 to Mr. James
E. Gray, President of Burdines, in connection with his relocation from Los
Angeles, California to Miami, Florida. The note is interest free as long as he
is an employee of Federated and is due the earlier of June 30, 1995 or
termination.
In August 1988, Federated made a loan in the amount of $200,000 to Mr.
Gordon R. Cooke, Chief Executive Officer of Bloomingdale's By Mail Ltd., in
connection with his relocation to New York. The loan bore interest at a rate of
8% per annum and was due in installments from August 19, 1994 through August 19,
1998. His employment with Federated ended in November 1993 and the balance of
the loan was paid at that time.
In July 1988, Federated made a loan in the amount of $225,000 to Mr. Rudolph
V. Javosky, Senior Vice President of Federated, in connection with his
relocation from New York to Cincinnati, Ohio. The loan is interest free as long
as there is no default and is due in installments from August 1, 1989 through
August 1, 1997.
In September 1990, Federated made a loan in the amount of $150,000 to Mr.
Carl Tooker, Chairman of Rich's, in connection with his relocation from
Massachusetts to Georgia. The loan bore interest at a rate of 10% per annum and
was due in installments from April 1, 1993 through April 1, 1995. His employment
with Federated ended in June 1993 and the balance of the loan was paid at that
time.
F-39
<PAGE>
SCHEDULE V
FEDERATED DEPARTMENT STORES, INC.
SCHEDULE V--PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN E
COLUMN B ------------ COLUMN F
---------- COLUMN C OTHER -----------
COLUMN A BALANCE AT -------- COLUMN D CHANGES-- BALANCE AT
- --------------------------------- BEGINNING ADDITIONS -------- ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE PERIOD
- --------------------------------- ---------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
(THOUSANDS)
52 Weeks Ended January 29, 1994:
Land........................... $ 446,481 $ 3,818 $ 426 $ (3,898) $ 445,975
Buildings, substantially all on
owned land................... 873,276 34,422 1,685 (6,166) 899,847
Buildings on leased land,
improvements to leased
properties and leaseholds........ 508,951 38,169 1,245 3,571 549,446
Store fixtures and equipment... 782,888 233,000 18,897 (636) 996,355
Property not used in
operations................... 6,074 -- -- 534 6,608
Capital leases................. 50,049 3,551 4,604 -- 48,996
---------- -------- -------- ------------ -----------
$2,667,719 $312,960 $26,857 $ (6,595) $ 2,947,227
---------- -------- -------- ------------ -----------
---------- -------- -------- ------------ -----------
52 Weeks Ended January 30, 1993:
Land........................... $ 455,044 $ 503 $ -- $ (9,066) $ 446,481
Buildings, substantially all on
owned land................... 850,162 18,374 569 5,309 873,276
Buildings on leased land,
improvements to leased
properties and leaseholds.... 512,821 11,693 6,445 (9,118) 508,951
Store fixtures and equipment... 634,825 167,798 18,619 (1,116) 782,888
Property not used in
operations................... 5,935 137 -- 2 6,074
Capital leases................. 40,913 9,426 290 -- 50,049
---------- -------- -------- ------------ -----------
$2,499,700 $207,931 $25,923 $ (13,989) $ 2,667,719
---------- -------- -------- ------------ -----------
---------- -------- -------- ------------ -----------
52 Weeks Ended February 1, 1992:
Land........................... $ 494,960 $ -- $ -- $ (39,916) $ 455,044
Buildings, substantially all on
owned land................... 1,130,052 11,985 1,820 (290,055) 850,162
Buildings on leased land,
improvements to leased
properties and leaseholds.... 696,796 27,359 3,478 (207,856) 512,821
Store fixtures and equipment... 966,171 162,287 42,679 (450,954) 634,825
Property not used in
operations................... 6,969 -- -- (1,034) 5,935
Capital leases................. 75,516 -- 11,877 (22,726) 40,913
---------- -------- -------- ------------ -----------
$3,370,464 $201,631 $59,854 $ (1,012,541) $ 2,499,700
---------- -------- -------- ------------ -----------
---------- -------- -------- ------------ -----------
</TABLE>
- ------------
Notes:
<TABLE>
<C> <S>
(A) Includes transfers to other assets of $6,595,000, $13,989,000 and $242,758,000 in the
years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively, and
transfers between classifications. For the year ended February 1, 1992, also includes
$769,783,000 for adjustment to fair value as of February 1, 1992.
(B) Depreciation and amortization are provided primarily on a straight-line basis for book
purposes over the shorter of estimated asset lives or lease terms. The more important
rates are as follows:
</TABLE>
Buildings and building equipment....................... 2% to 5%
Leaseholds............................................. Over term of lease
Store fixtures and equipment........................... 6% to 33 1/3%
F-40
<PAGE>
SCHEDULE VI
FEDERATED DEPARTMENT STORES, INC.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------- ---------- ---------- ----------- ------------ ----------
ADDITIONS OTHER
BALANCE AT CHARGED TO CHANGES-- BALANCE AT
BEGINNING COSTS AND ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS DESCRIBE PERIOD
- ------------------------------------- ---------- ---------- ----------- ------------ ----------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
52 Weeks Ended January 29, 1994:
Buildings, substantially all on
owned land....................... $ 39,639 $ 41,726 $ 1,684 $ (514) $ 79,167
Buildings on leased land,
improvements to leased properties
and leaseholds................... 34,755 34,809 777 (759) 68,028
Store fixtures and equipment....... 109,128 125,102 18,943 (6) 215,281
Property not used in operations.... 361 379 -- -- 740
Capital leases..................... 5,585 5,898 4,356 -- 7,127
---------- ---------- ----------- ------------ ----------
$ 189,468 $ 207,914 $25,760 $ (1,279) $ 370,343
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
52 Weeks Ended January 30, 1993:
Buildings, substantially all on
owned land....................... $ -- $ 39,970 $ 228 $ (103) $ 39,639
Buildings on leased land,
improvements to leased properties
and leaseholds................... -- 36,118 1,191 (172) 34,755
Store fixtures and equipment....... -- 123,230 13,783 (319) 109,128
Property not used in operations.... -- 361 -- -- 361
Capital leases..................... -- 5,875 290 -- 5,585
---------- ---------- ----------- ------------ ----------
$ -- $ 205,554 $15,492 $ (594) $ 189,468
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
52 Weeks Ended February 1, 1992:
Buildings, substantially all on
owned land....................... $ 137,253 $ 43,357 $ 1,880 $ (178,730) $ --
Buildings on leased land,
improvements to leased properties
and leaseholds................... 125,066 39,357 3,126 (161,297) --
Store fixtures and equipment....... 337,217 122,687 42,245 (417,659) --
Property not used in operations.... 630 351 -- (981) --
Capital leases..................... 20,431 6,434 4,138 (22,727) --
---------- ---------- ----------- ------------ ----------
$ 620,597 $ 212,186 $51,389 $ (781,394) $ --
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
</TABLE>
- ------------
Note:
<TABLE>
<C> <S>
(A) Includes transfers to other assets of $1,279,000, $594,000 and $73,244,000 in the years
ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively, and
transfers between classifications. For the year ended February 1, 1992, also includes
$708,150,000 for the write-off of accumulated depreciation as of February 1, 1992.
</TABLE>
F-41
<PAGE>
SCHEDULE VIII
FEDERATED DEPARTMENT STORES, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------- ---------- ----------------------- ---------- ----------
ADDITIONS
-----------------------
(2)
CHARGED
(1) TO DEDUCTIONS
BALANCE AT CHARGED TO OTHER FROM BALANCE
BEGINNING COSTS AND ACCOUNTS-- RESERVES-- AT END
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ---------------------------------------- ---------- ---------- --------- ---------- ----------
(NOTE A)
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accounts receivable--allowance for
doubtful accounts (applied as a
reduction of assets):
Years Ended:
January 29, 1994.................... $ 45,346 $ 50,251 $ -- $ 58,707 $ 36,890
---------- ---------- --------- ---------- ----------
---------- ---------- --------- ---------- ----------
January 30, 1993.................... $ 59,193 $ 52,025 $ -- $ 65,872 $ 45,346
---------- ---------- --------- ---------- ----------
---------- ---------- --------- ---------- ----------
February 1, 1992.................... $ 39,087 $ 87,237 $ -- $ 67,131 $ 59,193
---------- ---------- --------- ---------- ----------
---------- ---------- --------- ---------- ----------
</TABLE>
- ------------
Note:
<TABLE>
<C> <S>
(A) Excess of uncollectible balances written off over recoveries of accounts previously
written off.
</TABLE>
F-42
<PAGE>
SCHEDULE IX
FEDERATED DEPARTMENT STORES, INC.
SCHEDULE IX--SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------- ---------- -------- ----------- ----------- -----------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE RATE DURING
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD THE PERIOD
- -------------------------------------- ---------- -------- ----------- ----------- -----------
(NOTE A) (NOTE B)
(THOUSANDS, EXCEPT INTEREST RATE DATA)
<S> <C> <C> <C> <C> <C>
Year Ended January 29, 1994:
Commercial Paper.................... $ -- -- % $ 119,906 $ 26,963 8.85%
Year Ended January 30, 1993:
Accounts Receivable Facility (C).... $ -- -- % $ 715,433 $ 522,367 5.48%
Accounts Receivable Facility (D).... -- -- 478,064 207,387 6.39
Year Ended February 1, 1992:
Accounts Receivable Facility (C).... $ 684,153 4.31% $ 684,153 $ 324,166 8.70%
Accounts Receivable Facility (D).... 458,269 4.54 520,452 427,060 7.54
</TABLE>
- ------------
Notes:
<TABLE>
<C> <S>
(A) Average amount outstanding during the period is computed by dividing the total of daily
outstanding principal balances by the number of days in the fiscal year.
(B) Average interest rate for the year is computed by dividing the actual short-term
interest expense by the average short-term debt outstanding. Short-term interest
expense includes loan fees of $1,505,000 for the year ended January 29, 1994,
$8,538,000 and $5,101,000 for the year ended January 30, 1993 for the Accounts
Receivable Facility of Federated Credit Corporation and Allied Stores Credit
Corporation, respectively, and $9,092,000 and $6,253,000 for the year ended February 1,
1992 for the Accounts Receivable Facility of Federated Credit Corporation and Allied
Stores Credit Corporation, respectively.
(C) Accounts Receivable Facility of Federated Credit Corporation.
(D) Accounts Receivable Facility of Allied Stores Credit Corporation.
</TABLE>
F-43
<PAGE>
SCHEDULE X
FEDERATED DEPARTMENT STORES, INC.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- ----------------------------------------------------------- -----------------------------------------
CHARGED TO COSTS AND EXPENSES
-----------------------------------------
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 30, FEBRUARY 1,
ITEM 1994 1993 1992
- ----------------------------------------------------------- ----------- ----------- -----------
(THOUSANDS)
<S> <C> <C> <C>
Advertising costs.......................................... $ 298,832 $ 296,339 $ 299,085
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------
Note:
All other information has been omitted since the amounts do not exceed 1% of the
total sales reported in the related statement of income.
F-44
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 13 WEEKS ENDED
APRIL 30, 1994 MAY 1, 1993
-------------- --------------
(THOUSANDS, EXCEPT PER SHARE
FIGURES)
<S> <C> <C>
Net sales, including leased department sales.................. $1,653,631 $1,590,259
-------------- --------------
Cost of sales................................................. 1,008,136 951,718
Selling, general and administrative expenses.................. 542,088 555,610
-------------- --------------
Operating income.............................................. 103,407 82,931
Interest expense.............................................. (56,363) (56,088)
Interest income............................................... 11,024 12,816
-------------- --------------
Income before income taxes and extraordinary item............. 58,068 39,659
Federal, state and local income tax expense................... (25,846) (17,959)
-------------- --------------
Income before extraordinary item.............................. 32,222 21,700
Extraordinary item--loss on early extinguishment of debt, net
of tax effect of $2,293..................................... -- (3,545)
-------------- --------------
Net income.............................................. $ 32,222 $ 18,155
-------------- --------------
-------------- --------------
Earnings per share:
Income before extraordinary item............................ $ .25 $ .17
Extraordinary item.......................................... -- (.03)
-------------- --------------
Net income.............................................. $ .25 $ .14
-------------- --------------
-------------- --------------
Average number of shares outstanding.......................... 126,464 126,209
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.
F-45
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 29, MAY 1,
1994 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
(THOUSANDS)
ASSETS:
Current assets:
Cash................................................. $ 102,907 $ 222,428 $ 212,297
Accounts receivable.................................. 1,781,938 1,758,935 1,481,572
Merchandise inventories.............................. 1,267,958 1,180,844 1,215,283
Supplies and prepaid expenses........................ 47,374 46,660 37,245
Deferred income tax assets........................... 86,278 88,754 86,428
---------- ----------- ----------
Total current assets............................... 3,286,455 3,297,621 3,032,825
Property and equipment--net............................ 2,544,481 2,576,884 2,447,056
Reorganization value in excess of amounts allocable to
identifiable assets--net............................. 333,029 337,720 351,791
Notes receivable....................................... 407,757 408,818 420,604
Other assets........................................... 799,647 798,384 371,246
---------- ----------- ----------
Total assets....................................... $7,371,369 $ 7,419,427 $6,623,522
---------- ----------- ----------
---------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt...................................... $ 125,847 $ 10,099 $ 11,018
Accounts payable and accrued liabilities............. 1,146,702 1,209,744 1,057,435
Income taxes......................................... 78,280 110,209 28,385
---------- ----------- ----------
Total current liabilities.......................... 1,350,829 1,330,052 1,096,838
Long-term debt......................................... 2,683,233 2,786,724 2,451,463
Deferred income taxes.................................. 803,159 804,181 754,240
Other liabilities...................................... 220,455 220,226 221,656
Shareholders' equity................................... 2,313,693 2,278,244 2,099,325
---------- ----------- ----------
Total liabilities and shareholders' equity......... $7,371,369 $ 7,419,427 $6,623,522
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.
F-46
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 13 WEEKS ENDED
APRIL 30, 1994 MAY 1, 1993
-------------- --------------
(THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 32,222 $ 18,155
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 54,716 50,903
Amortization of reorganization value in excess of amounts
allocable to identifiable assets........................ 4,691 4,691
Amortization of financing costs........................... 2,542 2,537
Amortization of original issue discount................... 4,411 4,164
Amortization of unearned restricted stock................. 486 832
Loss on early extinguishment of debt...................... -- 3,545
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.............. (23,003) 62,262
Increase in merchandise inventories..................... (87,114) (66,349)
(Increase) decrease in supplies and prepaid expenses.... (714) 2,823
Decrease in other assets not separately identified...... 3,318 793
Decrease in accounts payable and accrued liabilities not
separately identified................................. (53,940) (48,846)
Decrease in current income taxes........................ (31,929) (15,834)
Increase in deferred income taxes....................... 1,454 7,302
Increase in other liabilities........................... 229 139
-------------- --------------
Net cash provided (used) by operating activities...... (92,631) 27,117
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment.......................... (27,822) (19,708)
Disposition of property and equipment....................... 587 --
-------------- --------------
Net cash used by investing activities................. (27,235) (19,708)
-------------- --------------
Cash flows from financing activities:
Debt issued................................................. 14,995 --
Financing costs............................................. (1,140) (224)
Debt repaid................................................. (7,149) (370,202)
Increase (decrease) in outstanding checks................... (9,102) 2,972
Acquisition of treasury stock............................... (273) (170)
Issuance of common stock.................................... 3,014 5,528
-------------- --------------
Net cash provided (used) by financing activities...... 345 (362,096)
-------------- --------------
Net decrease in cash.......................................... (119,521) (354,687)
Cash at beginning of period................................... 222,428 566,984
-------------- --------------
Cash at end of period......................................... $102,907 $212,297
-------------- --------------
-------------- --------------
Supplemental cash flow information:
Interest paid............................................... $ 45,734 $ 49,098
Interest received........................................... $ 11,673 $ 11,863
Income taxes paid (net of refunds received)................. $ 55,691 $ 26,460
Schedule of noncash investing and financing activities:
Property and equipment transferred to other assets........ $ 4,922 $--
</TABLE>
The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.
F-47
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A description of Federated's significant accounting policies is included in
the accompanying notes to Federated's consolidated financial statements for the
year ended January 29, 1994. The accompanying Consolidated Financial Statements
should be read in conjunction with such consolidated financial statements.
Because of the seasonal nature of the general merchandising business, the
results of operations for the 13 weeks ended April 30, 1994 and May 1, 1993
(which do not include the Christmas season) are not indicative of such results
for the fiscal year.
The Consolidated Financial Statements for the 13 weeks ended April 30, 1994
and May 1, 1993, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) considered necessary to
present fairly, in all material respects, the consolidated financial position
and results of operations of the Company and its subsidiaries.
2. EXTRAORDINARY ITEM
The extraordinary item during the 13 weeks ended May 1, 1993 represents the
costs associated with the prepayment of the entire $355.0 million outstanding
principal amount of Federated's Series B Secured Notes.
F-48
<PAGE>
SELECTED FINANCIAL DATA OF MACY'S
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
(52 (52 (53 (52 (52
WEEKS) WEEKS) WEEKS) WEEKS) WEEKS)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net retail sales (A)............. $ 6,300 $ 6,449 $ 6,762 $ 7,267 $ 6,974
Sales percent change............. (2.3 )% (4.6 )% (7.0 )% 4.2% 5.6%
Comparable store sales percent
change (B)..................... (0.7 )% (3.7 )% (7.9 )% 2.6% 1.9%
Loss before extraordinary
gain/(charge) and change in
accounting..................... $ (544 ) $ (1,251 ) $ (263 ) $ (215 ) $ (63)
Extraordinary
gain/(charge)--net............. -- -- 113 -- (8)
Cumulative effect of change in
accounting--net................ -- -- -- -- 17
Net loss......................... $ (544 ) $ (1,251 ) $ (150 ) $ (215 ) $ (54)
Loss per share of common stock:
Loss before extraordinary
gain/(charge) and change in
accounting................... $(336.36 ) $(782.13 ) $(181.47 ) $(146.81 ) $(52.47)
Extraordinary gain/(charge)--
net.......................... -- -- 68.82 -- (4.73)
Cumulative effect of change in
accounting--net.............. -- -- -- -- 10.34
Net loss per share of
common stock................. $(336.36 ) $(782.13 ) $(112.65 ) $(146.81 ) $(46.86)
Weighted average number of common
shares outstanding............. 1,617,000 1,625,000 1,634,000 1,633,000 1,667,000
FINANCIAL POSITION:
Cash and cash equivalents........ $ 42 $ 123 $ 52 $ 53 $ 30
Customer accounts receivable--
net (C)........................ -- -- -- 1,513 1,417
Merchandise inventories.......... 1,280 1,211 1,453 1,475 1,647
Working capital (D).............. 593 627 372 1,357 1,614
Property and equipment--net...... 2,436 2,614 2,679 2,724 2,801
Total assets..................... 4,100 4,340 4,812 6,483 6,561
Obligations subject to settlement
under reorganization proceedings 5,569 5,334 -- -- --
Long-term debt--noncurrent -- -- 3,349 4,501 4,641
Obligations under capitalized
leases--noncurrent............. 28 -- 25 29 20
Convertible preferred stock
(redeemable)................... -- -- 609 389 349
Deficiency in net assets......... (2,565 ) (2,021 ) (750 ) (566 ) (326)
OTHER DATA:
Number of department stores
(October)...................... 122 133 144 147 149
Store space
(millions of square footage)... 29 31 33 33 33
<FN>
- ------------
Notes:
(A) The decrease in net retail sales are partially due to the closing of certain stores.
(B) Comparable store sales in 1991 are on a 52-week, year-to-year basis.
(C) In May 1991, Macy Credit Corp. and Macy Receivables Funding Corp., both wholly owned
subsidiaries of Macy, sold all of their consumer credit card accounts originated by the
department store subsidiaries of Macy, and all receivables existing under such accounts
to GE Credit.
(D) The decrease in working capital reflects, in part, the sale of receivables to GE
Credit.
</TABLE>
F-49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS R.H. MACY & CO., INC. FOR THE FISCAL YEAR ENDED JULY 31,
1993
RESULTS OF OPERATIONS
CHAPTER 11 FILING
On January 27, 1992, Macy's together with nine of its subsidiaries, filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
Thereafter, on January 31, 1992, seventy-eight additional subsidiaries of Macy's
filed Chapter 11 cases in the Bankruptcy Court. Since the commencement of the
Chapter 11 Case, the Macy Debtors have continued to conduct business in the
ordinary course under the protection of the Bankruptcy Code. Macy's financial
condition and results from operations will be affected by the ultimate terms of
any reorganization plan, although no such reorganization plan had been proposed
by any of the Macy Debtors at the time of the accompanying financial statements.
See Item 3 ("Legal Proceedings") of this report.
As a result of the commencement of the Chapter 11 Cases, the Results of
Operations have been affected as follows: (i) interest expense has been reduced
as Macy has ceased accruing interest on unsecured debt obligations and (ii)
administrative and reorganization expenses have increased. Reorganization
expenses include store closing and store restructuring costs and other expenses
which are attributed to the Chapter 11 Cases. Future results may be adversely
affected by other claims and factors resulting from the Chapter 11 Cases. The
potential long-term impact on Macy's operations under Chapter 11, if any, cannot
presently be determined. See "Action Taken to Improve Operating Performance and
Business Plan Initiatives," below.
COMPARISON OF OPERATIONS
Sales for 1993 (52 weeks) were $6,299,982,000 compared with 1992 (52 weeks)
sales of $6,448,885,000. Sales decreased by 2.3%, and comparable store sales
decreased 0.7% in fiscal 1993 as compared with fiscal 1992. Sales increased 1.7%
after eliminating the sales of stores closed or sold in fiscal 1993 or 1992.
Sales for 1992 were $6,448,885,000 compared with 1991 (53 weeks) of
$6,761,633,000. Total 1992 sales decreased 4.6% or 3.7% on a comparable store
and comparable week basis. Sales for 1993 and 1992 and results of operations
were adversely affected by depressed economic conditions in California where
Macy's currently operates 54 Macy's, Bullock's, and I. Magnin stores.
Additionally, the disruption in the normal receipt of merchandise in the period
surrounding the Chapter 11 filing and the civil disturbances in California in
1992 also contributed to lower sales volume during the related periods. Sales
per square foot of average gross store space was $198 in 1993, $191 in 1992, and
$201 in 1991.
Cost of goods sold, including occupancy and buying costs, was 70.8% of sales
in 1993, compared with 73.7% in 1992 and 69.2% in 1991. The favorable percentage
change in 1993 compared to 1992 was primarily related to decreased markdown
activity, improved inventory management,and improved gross margins. The
unfavorable percentage variation in 1992 compared with 1991 was primarily
related to higher occupancy costs and merchandise costs which included the
effect of extraordinary markdowns recorded as a result of the disappointing
fiscal 1992 Christmas holiday selling season.
Selling, general, and administrative expenses were 30.3% of sales in 1993
compared with 31.4% of sales in 1992 and 26.8% of sales in 1991. The decrease in
selling, general, and administrative expenses in 1993 compared to 1992 was
primarily related to lower store-level selling expenses and decreased
advertising costs partially offset by increased data processing costs for
upgraded systems and company-wide computer conversions. The increase in 1992
from 1991 was primarily due to the significant effects of the Receivable
Transaction (see below), higher advertising expenses, and higher health care
costs.
F-50
<PAGE>
The unusual items--net in 1993 included (a) the costs incurred for certain
organizational realignments ($19,768,000) and (b) the costs associated with
certain business restructuring ($9,597,000) offset by (c) a gain related to the
sale of Macy's aircraft ($9,110,000). The organizational realignment costs
related to the consolidation of various departments and the streamlining of
operations to reduce certain selling, general, and administrative expenses. The
business restructuring costs related to the elimination of certain types of
merchandise sold in certain geographic locations in prior periods and include
severance and other incremental expenses net of disposition proceeds.
The unusual items--net in 1992 included (a) the write-off of remaining
excess of cost over fair value of the net assets acquired during the 1986
acquisition of former Macy and the 1988 acquisition for Bullock's, Bullock's
Wilshire, and I. Magnin divisions of Federated ($241,452,000) (see Note 14 of
Notes to the Consolidated Financial Statements), (b) costs incurred for Macy's
East-West organizational realignment ($40,000,000) (see Note 14 of Notes to the
Consolidated Financial Statements), and (c) costs incurred in the one-time
liquidation of certain aged inventory in temporary inventory liquidation
facilities ($30,000,000). This one-time liquidation resulted from Macy's
modification of inventory management policy for the department stores which led
to the establishment of its inventory close-out operation, Macy's Close-Out.
In 1991, the unusual items--net related to (a) costs incurred in the
Receivable Transaction (defined below) and estimated costs associated with the
phased termination of credit servicing operations which included severance,
legal, cardholder notification costs, and other items, (b) gain from the sale of
Macy's interest in the Valley Fair Shopping Center, and (c) costs associated
with the closing of certain I. Magnin stores.
Operating profit/(loss), defined as net retail sales less cost of goods
sold, including occupancy and buying costs, and selling, general, and
administrative expenses was a loss of $71,611,000 in 1993, a loss of
$330,036,000 in 1992, and an operating profit of $274,435,000 in 1991. Operating
profit/(loss) included charges for depreciation and amortization expense
(non-cash expenses) of $287,195,000, $288,757,000 and $280,598,000 in 1993,
1992, and 1991, respectively.
Interest expense--net decreased by $107,847,000 to $236,376,000 in 1993
compared with $344,223,000 in 1992, and decreased by $293,494,000 in 1992 from
$637,717,000 in 1991. The decrease in interest expense--net in 1993 from 1992
was primarily related to the cessation of interest expense accruals on unsecured
debt due to the Chapter 11 Case, interest rate reductions resulting from
accruals at lower variable rates due to the termination of certain fixed rate
interest rate protection agreements, and the reversal of a portion of interest
previously recorded on participating mortgage loans. The decrease in 1992 from
1991 was primarily related to the above items and the subordinated debt
repurchased in 1991.
Reorganization items--net in 1993 primarily included (a) estimated costs
associated with the closing of certain stores ($76,100,000) (see below), (b) the
expense associated with the claim for termination compensation asserted to be
due under an interest rate protection agreement ($83,695,000), (c) estimated
expenses associated with the re-engineering of certain store operations
($21,500,000), and (d) administrative expenses associated with the Chapter 11
Case, net of interest earned on accumulated cash resulting from the Chapter 11
proceedings ($19,214,000).
The estimated costs associated with the closing of certain stores included
the write-off of the remaining book value of assets, related inventory
liquidation costs, severance, post-closing fixed expenses, and other incremental
expenses net of the estimated disposition proceeds.
Reorganization items--net in 1992 primarily related to (a) estimated costs
associated with the closing of certain stores and estimated costs relating to
additional vendor claims which Macy reserves the right to contest
($168,494,000), (b) the expense associated with swap breakage claims that have
been asserted to be due under certain interest rate protection agreements
($54,115,000), (c) the write-off of deferred debt expenses associated with the
unsecured long-term debt ($16,307,000), (d) the write-
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<PAGE>
off of Preferred Stock issuance costs ($8,280,000), and (e) the administrative
expenses associated with the Chapter 11 case net of interest earned on
accumulated cash resulting from the Chapter 11 Case ($11,652,000).
Under current accounting rules, an income tax benefit cannot be recognized
for losses incurred in 1993 and 1992 because the benefit is not expected to be
recovered as an income tax refund or savings currently or in the near future.
Income tax expense in 1993 and 1992 consists of estimated state and local taxes.
The effective income tax rate for 1991 was 38% of pre-tax loss prior to certain
expenses arising from purchase accounting which are non-deductible for tax
purposes.
In 1993, Macy's announced it had reached an agreement with the Internal
Revenue Service ("IRS") regarding federal income taxes arising from its audit of
the fiscal years 1984 through 1991. The impact of the IRS settlement and
estimated state and local tax effects have been recorded in the consolidated
financial statements. See Item 3 ("Legal Proceedings") of this report.
In 1991, the extraordinary gain of $112,449,000 (net of related income tax
expense) primarily related to the gain on the repurchase of subordinated debt at
a discount offset by the expense incurred in the elimination of receivable
related borrowings and the write-off of unamortized deferred debt expense
associated with prepayments on the six-year term loan.
ACTIONS TAKEN TO IMPROVE OPERATING PERFORMANCE AND BUSINESS PLAN INITIATIVES
As part of an ongoing effort to improve financial performance, Macy's
conducted a comprehensive review of its operations. This review, which also
included independent consumer research studies, culminated in the development of
a five year business plan which was furnished to statutory creditor committees
and other major parties in interest in the Chapter 11 cases of the Macy Debtors
in the fall of 1992.
Twenty-one business initiatives were outlined in the business plan. Such
initiatives focus on improving, among other things, (i) merchandise assortments
and basic item replenishment programs, (ii) individual business category
profitability, (iii) vendor relationships, (iv) customer-valued service and
related customer-focused technology investments, (v) local market merchandising
and planning, (vi) the implementation of cost-effective employee benefit
programs, (vii) the focus of advertising expenditures, and (viii) the level of
operating expenses throughout Macy's. The business plan incorporates the
implementation of the "buyer-planner-store" ("BPS") process, which, in many
instances, changed the way by which Macy's previously managed its retail stores
and merchandising operations, by reallocating responsibilities for buying,
planning and managing assortments and inventory needs in specific store
locations. Through BPS, Macy's hopes to improve its ability to deliver
merchandise tailored to the demands of its varied store locations and core
customers, while leveraging certain advantages from the operation of large
department store groups. In May 1993, Macy's revised the business plan to
reflect its progress and focused efforts on certain "headstart" initiatives
thought to hold the highest potential for positive near-term financial impact.
As part of the implementation of the business plan and its overall review of
operations, Macy's has (i) closed 12 Macy's or Bullock's department stores, 11
I. Magnin stores and 42 specialty stores (approximately 4,273,000 square feet of
store space); (ii) upgraded or committed to upgrade its point-of-sale cash
registers and related systems to enhance customer service, and to control or
reduce certain store line and inventory management and delivery costs; (iii)
integrated new computer systems for its merchandise and support operations to
strengthen inventory management and assortments and improve work force
deployment; (iv) completed or planned for organizational realignments and
operational consolidations to reduce overhead costs and eliminate duplicative
functions and support facilities; (v) repositioned and eliminated certain
merchandise categories in certain geographic locations that were unprofitable;
and (vi) undertaken a comprehensive expense reduction program. Over the past two
years, Macy's has reduced its workforce by approximately 18,500 employees or
27%.
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Macy's is continuing to analyze its business operations to identify
additional opportunities for business category profitability improvement and
expense reductions.
SALE OF CREDIT CARD ACCOUNTS AND RECEIVABLES
On May 10, 1991, Macy Credit Corp. and Macy Receivables Funding Corp.,
wholly-owned subsidiaries of Macy, sold all of the consumer credit card accounts
originated by its department store subsidiaries (the "Operating Companies"), and
all receivables existing under such accounts, to General Electric Capital
Corporation ("GE Capital") or its subsidiary, Monogram Bank, USA (now, "GE
Capital Consumer Card Co.", and, collectively with GE Capital, "GE Credit") (the
"Receivable Transaction"). See Note 22 of Notes to Consolidated Financial
Statements. Additionally, Macy's and certain of its subsidiaries, including the
Operating Companies, entered into ongoing arrangements with GE Credit pursuant
to which, among other things, GE Credit established (and will continue to
establish) credit card accounts with customers of the Operating Companies, and
assumed the responsibility for financing and servicing credit card receivables
generated in such accounts.
The Receivable Transaction and related arrangements have significantly
affected certain expense items and limit the comparability of the results of
operations and expense classifications to financial periods prior to the date of
the transaction. Operations and expense classifications were affected by the
Receivable Transaction, as follows: (i) selling, general, and administrative
expenses increased as finance charge income (which prior to the Receivable
Transaction had been recorded as a reduction in this expense category) and bad
debt expense were eliminated, and a discount charged by GE Credit in respect of
new credit card sales was included in this expense category, and (ii) interest
expense decreased, as Macy's no longer bears the direct cost of financing credit
card receivables.
PRO FORMA RESULTS OF OPERATIONS
The consolidated statement of operations for fiscal 1991 included effects of
prior credit card receivable related activities of Macy's which were not present
in fiscal 1993 and 1992 due to the Receivable Transaction.
For comparison purposes to fiscal 1993 and 1992, presented below are
unaudited pro forma results of operations for fiscal 1991 assuming the sale of
receivables and accounts and the ongoing arrangements had occurred prior to the
beginning of fiscal 1991.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED AUGUST
3, 1991
--------------
<S> <C>
Net retail sales........................................... $6,761,633,000
--------------
--------------
Operating profit........................................... $ 144,884,000
--------------
--------------
Loss before income tax benefit............................. $ (336,700,000)
Income tax benefit......................................... (90,368,000)
--------------
Net loss before extraordinary gain......................... $ (246,332,000)
--------------
--------------
Net loss per share of common stock before extraordinary
gain....................................................... $ (171.48)
--------------
--------------
</TABLE>
The adjustments necessary to present the unaudited pro forma results of
operations for the 1991 fiscal year on a comparable basis with subsequent fiscal
years are as follows: (i) the elimination of finance charge income and bad debt
expense, (ii) the addition of the discount charged by GE Credit for remittances
in respect of new credit card sales (Items (i) and (ii) result in a net
reduction of operating profit by approximately $129,826,000), (iii) the
reduction in interest expense (approximately $103,519,000), (iv) an adjustment
to reflect income taxes on a pro forma basis, (v) the elimination of any unusual
items, and (vi) the elimination of the extraordinary gain net of income tax
expense.
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<PAGE>
The pro forma amounts are provided for informational purposes only and
should not be construed to be indicative of actual results that would have been
achieved had the Receivable Transaction and the related arrangements occurred
prior to the commencement of the 1991 fiscal year and are not necessarily
indicative of future results.
RESULTS OF OPERATIONS--FOURTH QUARTER
Sales were $1,443,423,000 in the quarter ended July 31, 1993 compared with
sales of $1,486,840,000 in the quarter ended August 1, 1992. Sales decreased
2.9% and comparable store sales decreased by 1.7%. Sales, after eliminating the
sales of stores closed or sold in fiscal 1993 or 1992, increased .8%.
The results for the fourth quarter of 1993 and 1992 included the expense
associated with claims asserted to be due under certain interest rate protection
and other agreements of $83,695,000 in 1993 and $54,115,000 in 1992.
Included in the 1993 fourth quarter is a LIFO credit of $26,446,000 compared
with a LIFO credit of $7,582,000 in the fourth quarter of 1992.
FINANCIAL CONDITION
As a result of the Chapter 11 filing, Macy's liquidity position has been
positively affected because the cash requirements for the payment of scheduled
principal payments, accrued interest, accounts payable, and other liabilities
that arose prior to the Chapter 11 filing are in most cases deferred until a
plan of reorganization is confirmed by the Bankruptcy Court. For financial
statement purposes and conservatism only, interest expense on pre-petition
secured debt has been accrued but is subject to settlement. No determination has
been made regarding the value of the property interests which secure certain
debt and consequently, whether or not interest thereon will be paid or allowed.
Macy's is continuing to review all future obligations under all store and
equipment leases, as well as other executory contracts to determine whether they
should be assumed or rejected subject to Bankruptcy Court approval.
Substantially all of Macy's pre-petition short and long-term debt at July
31, 1993 is in default of the terms of the applicable loan agreements and is
subject to settlement under the reorganization process. For financial reporting
purposes, those pre-petition liabilities which are dependent upon the outcome of
the Chapter 11 Case have been segregated and reclassified as "Obligations
Subject to Settlement Under Reorganization Proceedings."
On January 29, 1992 and February 13, 1992, Macy's obtained Bankruptcy Court
approval of a debtor-in-possession financing arrangement under a Revolving
Credit and Guaranty Agreement, dated as of January 27, 1992 (as subsequently
amended through March 31, 1993, the "Post-Petition Credit Agreement"), among
Macy's, as Borrower, each of the other Macy Debtors, as guarantors, Chemical
Bank, as administrative agent, Bankers Trust Company, as co-agent, and other
financial institutions party thereto. The Post-Petition Credit Agreement
established a working capital facility consisting of revolving credit loans and
letters of credit in the aggregate maximum amount of $600,000,000, inclusive of
a sublimit of $250,000,000 for standby and documentary letters of credit of
which no more than $30,000,000 could be used for standby letters of credit. The
Post-Petition Credit Agreement was scheduled to terminate pursuant to its
original terms upon the earlier of (i) February 28, 1994 or (ii) substantial
consummation of a plan of reorganization of the registrant or certain of its
subsidiaries.
The Post-Petition Credit Agreement was amended and restated on similar terms
pursuant to an Amended and Restated Credit and Guaranty Agreement, dated as of
August 12, 1993, among Macy's, as Borrower, the Macy Debtors, as guarantors,
Chemical Bank, as administrative agent, Bankers Trust Company, as Co-agent, and
other financial institutions party thereto (the "Amended and Restated
Post-Petition Credit Agreement"), which agreement was approved by a Bankruptcy
Court order dated September 8, 1993.
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<PAGE>
Under the Amended and Restated Post-Petition Credit Agreement, Macy's
working capital facility (the "Working Capital Facility") consisting of
revolving credit loans and letters of credit was reduced from a maximum of
$600,000,000 to $550,000,000, inclusive of a sublimit of $250,000,000 for
standby and documentary letters of credit. The Amended and Restated
Post-Petition Credit Agreement terminates upon the earlier of (i) August 1, 1995
or (ii) the substantial consummation of a plan of reorganization of the
registrant or certain of its subsidiaries. Claims in respect of indebtedness
incurred by the Macy Debtors under the Amended and Restated Post-Petition Credit
Agreement are afforded superpriority administrative expense claim status
pursuant to applicable provisions of the Bankruptcy Code.
Similar to the Post-Petition Credit Agreement, borrowings under the Amended
and Restated Post-Petition Credit Agreement are conditioned upon, among other
things, satisfaction of certain Borrowing Base (as defined therein)
requirements, and compliance with restrictions on capital expenditures and
certain other payments, as well as covenants relating to EBITDA (earnings before
interest, taxes, depreciation and amortization, as defined in the Amended and
Restated Post-Petition Credit Agreement).
The Amended and Restated Post-Petition Credit Agreement provides that
advances made under the Working Capital Facility will bear interest at a rate of
1.5% per annum in excess of Chemical Bank's Alternative Base Rate ("ABR"), or at
the registrant's option, at a rate of 2.5% per annum in excess of the reserve
adjusted London Interbank Offered Rate ("LIBOR") for interest periods of one,
two, three, or six months. Interest on ABR loans and three and six month LIBOR
loans are payable quarterly; and interest on one and two month LIBOR loans are
payable at maturity. Additionally, Macy's is obligated to pay a commitment fee
of 1/2 of 1% per annum on the unused portion of the Working Capital Facility, a
letter of credit fee equal to 2% per annum of the average outstanding letters of
credit and certain other fees.
Management believes that the Working Capital Facility and cash from
operations should be adequate to cover working capital requirements and planned
capital expenditures until the expiration of the Working Capital Facility.
Financial covenants under the Amended and Restated Post-Petition Credit
Agreement, including the EBITDA requirements, were based on financial
projections which assumed, among other things, sales forecasts, economic
conditions, the achievement of expense savings initiatives, inventory
management, and other factors that are subject to uncertainties and
contingencies, many of which are beyond Macy's control. Accordingly, Macy's
compliance with its financial covenant requirements under the Amended and
Restated Post-Petition Credit Agreement while it operates as a
debtor-in-possession cannot be assured. The adequacy of Macy's capital resources
and long-term liquidity will be determined when a plan of reorganization is
developed and confirmed by the Bankruptcy Court.
Commencing on the Chapter 11 filing date, Macy's ceased accruing dividends
on its Convertible Preferred Stock (redeemable) and has included the Convertible
Preferred Stock (redeemable) and the cumulative accrued but unpaid dividends
prior to the filing date on such stock in "Obligations Subject to Settlement
Under Reorganization Proceedings." For purposes of the Bankruptcy Code, the
holders of the Convertible Preferred Stock of the registrant are not considered
creditors.
PROOF OF CLAIMS REVIEW
The last date by which creditors must file proof of claims subject to
certain exceptions was December 15, 1992 (the "Bar Date"). Macy's has received
over 16,000 claims aggregating an amount substantially in excess of the amounts
reported in "Obligations Subject to Settlement Under Reorganization
Proceedings." Based on a review of such claims, Macy's has determined that a
number of these claims are, among other things, duplicative, representing, for
example, identical claims filed against multiple debtors, late filed claims
after the Bar Date, or amendments to claims previously filed. Claims will
continue to be reviewed and analyzed and as the review process continues, the
amount
F-55
<PAGE>
included in the estimate of "Obligations Subject to Settlement Under
Reorganization Proceedings" may change. Macy's, at this time, cannot make a
prediction as to the aggregate amount of claims which will be allowed by the
Bankruptcy Court and therefore included in the "Obligations Subject to
Settlement Under Reorganization Proceedings" caption in the Statement of
Financial Condition.
STORE CHANGES, RENOVATIONS AND TECHNOLOGY
In the 12 months since October 1992, the following changes have occurred
with respect to Macy's stores. Two Macy's, two Bullock's, and six I. Magnin
department stores were closed; and an additional fourteen specialty stores and
three Macy's Close-Out stores have been opened. As a result of these changes,
Macy's operates 122 department stores, 84 specialty stores, and 15 Macy
Close-Out stores with an aggregate of approximately 30,258,000 square feet.
Expenditures for property and equipment amounted to $135,763,000 in fiscal
1993, compared with $276,212,000 in fiscal 1992 including the amounts recorded
for capitalized leases. The fiscal year amounts exclude the effect of
construction reimbursements. Included in the amounts noted above for fiscal 1993
and 1992, are data processing and technological expenditures of $53,011,000 and
$59,506,000.
During the 12 months subsequent to October 1993, one new Bullock's store is
scheduled to open in the Promenade Mall in Woodland Hills, California, selected
existing department stores will be renovated and point-of-sale cash registers
and other various support facilities and functions will be upgraded or replaced.
On June 1, 1993 the registrant announced its intention to enter the
electronic retailing market through the creation of "TV Macy's." Macy's is
currently involved in discussions with potential investors and participants in
this venture.
As described above, certain of Macy's business initiatives are to improve
customer service, operations and inventory management, and to reduce operating
expenses, by implementing enhanced, upgraded and new data processing and other
systems and equipment. During the fiscal years 1993 and 1994, Macy's has
committed to spend approximately $90 million for the upgrade of point-of-sale
registers which will enhance Macy's ability to service customers. Such upgraded
equipment may take the form of capitalized lease transactions. Macy's also
purchases data processing services and specialized software from an advanced
data processing facility and is continually upgrading certain other support and
communication systems. These system enhancements intend to provide timely in-
depth sales, profitability and inventory information which will allow Macy's to
better serve its customers. Macy's has expanded its purchase of data processing
services to take advantage of the economies and efficiency of unified systems.
Furthermore, Macy's intends to expand the electronic transfer of sales data and
vendor payments to an increased number of suppliers in an effort to expedite the
method of replenishing basic inventory and reduce inefficiencies and paperwork.
F-56
<PAGE>
R.H. MACY & CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MACY'S FOR THE
FISCAL QUARTER ENDED APRIL 30, 1994
RESULTS OF OPERATIONS
CHAPTER 11 FILING
On January 27, 1992, Macy's, together with nine of its subsidiaries, filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
Thereafter, on January 31, 1992, seventy-eight additional subsidiaries of Macy's
filed Chapter 11 cases in the Bankruptcy Court. Since commencement of the
Chapter 11 cases, the Macy Debtors have continued to conduct business in the
ordinary course under the protection of the Bankruptcy Code. Macy's financial
condition and results of operations will be affected by the ultimate terms of
any reorganization plan. Macy's has been pursuing a consensual plan of
reorganization for emergence of Macy's as an independent retail store operation
and on May 20, 1994 was directed by the Bankruptcy Court to file a plan of
reorganization as soon as possible. See Part II, Item 1 ("Legal Proceedings") of
this report.
As a result of the commencement of the Chapter 11 cases, the Results of
Operations have been affected as follows: (i) interest expense has been reduced
as Macy's has ceased accruing interest expense on unsecured debt obligations and
(ii) administrative and reorganization expenses have increased. Reorganization
expenses include professional fees and other expenses directly related to the
Chapter 11 cases. Future results may be adversely affected by other claims and
factors resulting from the Chapter 11 cases. The potential long-term impact on
Macy's operations under Chapter 11, if any, cannot presently be determined.
COMPARISON OF OPERATIONS
Sales for the quarter (13 weeks) and nine months (39 weeks) ended April 30,
1994 were $1,339,327,000 and $4,775,558,000 compared with sales of
$1,336,672,000 and $4,856,559,000 for the quarter (13 weeks) and nine months (39
weeks) ended May 1, 1993. Sales increased 0.2% for the quarter and decreased
1.7% for the nine months ended April 30, 1994 compared with the corresponding
periods in the prior year. Sales, after eliminating sales from stores closed in
fiscal 1993 and from stores damaged and closed as a result of the Los Angeles,
California earthquake in January 1994 ("California Earthquake"), increased 5.9%
and 1.6% for the quarter and nine months ended April 30, 1994 from the
corresponding periods in the prior year. Comparable store sales, adjusted for
the restructuring of Macy's electronics business and the effects of the
California Earthquake, increased 6.0% and 2.5% for the quarter and nine months
ended April 30, 1994.
Cost of goods sold, including occupancy and buying costs, as a percentage of
sales was 71.4% and 70.1% for the quarter and nine months ended April 30, 1994
compared with 71.1% and 70.3% for the quarter and nine months ended May 1, 1993.
The unfavorable percentage variation in the quarter ended April 30, 1994
compared with the quarter ended May 1, 1993 is primarily related to higher
merchandising costs offset by an improvement in buying costs. The favorable
percentage variation in the nine months ended April 30, 1994 compared with the
nine months ended May 1, 1993 primarily related to lower occupancy and buying
costs.
Selling, general, and administrative expenses, as a percentage of sales,
were 32.6% and 29.1% for the quarter and nine months ended April 30, 1994
compared with 32.9% and 30.8% for the quarter and nine months ended May 1, 1993.
The percentage decrease in selling, general, and administrative expenses was
primarily related to lower advertising expenses and reductions in store-level
selling expenses and other items resulting from Macy's expense reduction
efforts.
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Operating profit/(loss), defined as net retail sales less cost of goods
sold, including occupancy and buying costs, and selling, general and
administrative expenses, were losses of $53,060,000 and $53,667,000 for the
quarters ended April 30, 1994 and May 1, 1993, and a profit of $42,980,000 and a
loss of $43,355,000 for the nine months ended April 30, 1994 and May 1, 1993.
The operating profit/(loss) for the quarter and nine months ended April 30, 1994
was adversely affected by approximately $13,100,000 and $39,100,000 of aggregate
incremental non-cash expenses associated with the adoption of Financial
Accounting Standards Board Statements entitled "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FASB 106") and "Accounting for
Income Taxes" ("FASB 109") which resulted in increased depreciation recorded as
a result of the remeasurement of assets required under FASB 109. The improvement
in operating profit/(loss) for the quarter ended April 30, 1994 was primarily
the result of expense reduction initiatives and the improvement in the nine
month period was primarily the result of expense reduction initiatives and lower
markdown activity. Operating profit/(loss) included a charge for depreciation
and amortization expense (non-cash expense) of $79,027,000 and $234,181,000 for
the quarter and nine months ended April 30, 1994 and $75,188,000 and
$218,500,000 for the quarter and nine months ended May 1, 1993.
The unusual item in the nine months ended May 1, 1993 related to the sale of
Macy's aircraft.
Interest expense--net for the quarter ended April 30, 1994 compared with the
corresponding period in the prior year remained relatively stable. Interest
expense--net for the nine months ended April 30, 1994 compared with the
corresponding period in the prior year increased due to the reversal in the
prior year of certain additional interest previously accrued on certain senior
real estate debt.
Earthquake loss in the quarter ended April 30, 1994 included the estimated
damage and costs in excess of insurance coverage relating to the California
Earthquake. Several of the Bullock's and I. Magnin stores that operate in this
area experienced property damage, merchandise loss and business interruption.
See Note 3 of Notes to Condensed Consolidated Financial Statements.
Reorganization items--net in the quarters and nine months ended April 30,
1994 primarily related to the administrative expenses associated with the
Chapter 11 cases, net of interest earned on accumulated cash resulting from the
Chapter 11 proceedings ("Administrative Expenses--Net").
Reorganization items--net in the quarter ended May 1, 1993 primarily related
to store closing and restructuring costs ($105,000,000) and Administrative
Expenses--Net ($4,692,000). Reorganization items--net in the nine months ended
May 1, 1993 primarily included store closing and restructuring costs
($105,000,000), Administrative Expenses--Net ($16,871,000) and retention costs
($7,500,000).
The effective income tax rates for both the quarter and nine months ended
April 30, 1994 was 1.8% of the loss before income taxes/(benefit) and cumulative
effect of an accounting change. The effective income tax rate was computed in
accordance with FASB 109 which was adopted at the beginning of the fiscal year.
The income tax expense for the quarter and nine months ended May 1, 1993 was
computed in accordance with income tax accounting guidelines in effect prior to
FASB 109 and related to estimated state and local income taxes.
The cumulative effect of an accounting change of $185,340,000 in the nine
months ended April 30, 1994 related to an income adjustment resulting from the
adoption of FASB 109 on August 1, 1993. See Note 6 of Notes to Condensed
Consolidated Financial Statements.
FINANCIAL CONDITION
As a result of the Chapter 11 filings, Macy's liquidity position has been
positively affected because the cash requirements for the payment of scheduled
principal payments, accrued interest, accounts payable and other liabilities,
which arose prior to the Chapter 11 filings, have been in most cases deferred
until a plan of reorganization is confirmed by the Bankruptcy Court. For
financial statement purposes and conservatism only, interest expense on
pre-petition secured debt has been accrued but is subject to settlement. No
final determination has been made regarding the value of the property
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<PAGE>
interests that secure certain debt and consequently, whether or not interest
thereon will be paid or allowed. Macy's is also reviewing all future obligations
under all store and equipment leases, as well as all other executory contracts
to determine whether they should be assumed or rejected, subject to Bankruptcy
Court approval.
On February 13, 1992, the Bankruptcy Court entered a final order approving a
debtor-in-possession financing arrangement under a Revolving Credit and Guaranty
Agreement, dated as of January 27, 1992 (which, as amended, through March 31,
1993, is referred to herein as the "Post-Petition Credit Agreement"), among
Macy's, as Borrower, each of the other Macy Debtors, as guarantors, Chemical
Bank, as administrative agent, Bankers Trust Company, as co-agent, and other
financial institutions parties thereto, that established a working capital
facility consisting of revolving credit loans and letters of credit.
On August 12, 1993, the Post-Petition Credit Agreement was amended and
restated on similar terms pursuant to an Amended and Restated Revolving Credit
and Guaranty Agreement, approved by a Bankruptcy Court order dated September 8,
1993, among Macy's, as Borrower, each of the other Macy Debtors, as guarantors,
Chemical Bank, as administrative agent, Bankers Trust Company, as co-agent, and
other financial institutions party thereto (as subsequently amended, the
"Amended and Restated Post-Petition Credit Agreement"). Under the Amended and
Restated Post-Petition Credit Agreement, the working capital facility (the
"Working Capital Facility") consisting of revolving credit loans and letters of
credit is in the aggregate maximum amount of $550,000,000. The Working Capital
Facility may be used to fund working capital, inventory purchases, capital
expenditures and for other general corporate purposes of the Macy Debtors.
Borrowings under the Amended and Restated Post-Petition Credit Agreement are
conditioned upon, among other things, satisfaction of certain Borrowing Base (as
defined therein) requirements, and compliance with restrictions on capital
expenditures and certain other payments, as well as covenants relating to EBITDA
(earnings before interest, taxes, depreciation and amortization as defined in
the Amended and Restated Post-Petition Credit Agreement). The Amended and
Restated Post-Petition Credit Agreement terminates upon the earlier of (i)
August 1, 1995 or (ii) the substantial consummation of a plan of reorganization
of the registrant or certain subsidiaries.
Claims in respect of indebtedness incurred by the Macy Debtors under the
Amended and Restated Post-Petition Credit Agreement are afforded superpriority
administrative expense claim status pursuant to applicable provisions of the
Bankruptcy Code.
Substantially all of Macy's pre-petition short and long-term debt at April
30, 1994 is in default of the terms of the applicable loan agreements and is
subject to settlement under the reorganization process. For financial reporting
purposes, these liabilities which are dependent upon the outcome of the Chapter
11 process have been segregated and reclassified as "Obligations Subject to
Settlement Under Reorganization Proceedings." Payment of certain pre-petition
liabilities that were approved for payment by the Bankruptcy Court or are
pending approval have been included in the appropriate liability captions.
Management believes that the Working Capital Facility and cash from
operations should be adequate to cover working capital requirements and planned
capital expenditures until the expiration of the Amended and Restated
Post-Petition Credit Agreement. Financial covenants under the Amended and
Restated Post-Petition Credit Agreement, including the EBITDA requirements, were
based on financial projections which assumed, among other things, sales
forecasts, economic conditions, the achievement of expense savings initiatives,
inventory management and other factors that are subject to uncertainties and
contingencies, many of which are beyond Macy's control. Accordingly, Macy's
compliance with its financial covenant requirements under the Amended and
Restated Post-Petition Credit Agreement while it operates as a
debtor-in-possession cannot be assured. The adequacy of Macy's capital resources
and long-term liquidity will be determined when a plan of reorganization is
confirmed by the Bankruptcy Court.
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In November 1992, the FASB issued Statement No. 112 entitled "Employers'
Accounting for Postemployment Benefits" ("FASB 112"). This statement requires
Macy's to recognize, during the employees' active years of service, an
obligation for postemployment benefits provided to former or inactive employees
after employment but before retirement. Macy's is currently analyzing the
effects of the new standard to determine the financial impact. FASB 112 must be
adopted by no later than the fiscal year ending in July 1995.
Fluctuations in certain balance sheet accounts between April 30, 1994 and
July 31, 1993 reflect normal seasonal variations within the retail industry.
F-60
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
R.H. Macy & Co., Inc. (Debtor-in-Possession)
New York, New York
We have audited the accompanying consolidated statement of financial
condition of R.H. Macy & Co., Inc. (Debtor-in-Possession) and consolidated
subsidiaries as of July 31, 1993 and August 1, 1992, and the related
consolidated statements of operations, cash flows and changes in deficiency in
net assets for each of the three years in the period ended July 31, 1993. Our
audits also included the accompanying financial statement schedules. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in
all material respects, the financial position of R.H. Macy & Co., Inc.
(Debtor-in-Possession) and consolidated subsidiaries as of July 31, 1993 and
August 1, 1992, and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 1993 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in Note 1 of Notes to Consolidated Financial Statements, the
Company and certain of its subsidiaries have filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. The accompanying consolidated
financial statements do not purport to reflect or provide for the consequences
of the bankruptcy proceedings. In particular, such consolidated financial
statements do not purport to show (a) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (b) as to
pre-petition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any additional changes that
may be made in its business. The outcome of these matters is not presently
determinable.
The accompanying consolidated financial statements have been prepared
assuming that the Company and its subsidiaries will continue as a going concern.
The results of operations for each of the two years in the period ended July 31,
1993 together with the uncertainties relating to the development and
confirmation of a plan of reorganization, among other matters, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
discussion of these matters is set forth in Note 1 of Notes to Consolidated
Financial Statements. The consolidated financial statements do not include
adjustments that might result from the outcome of the uncertainties referred to
herein and in the preceding paragraph.
DELOITTE & TOUCHE LLP
New York, New York
September 20, 1993
(August 31, 1994 as to Note 24)
F-61
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JULY 31, AUGUST 1,
1993 1992
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 2)............................................ $ 41,533 $ 122,581
Restricted cash (Note 2)...................................................... 34,915 33,630
Other receivables............................................................. 121,770 123,290
Merchandise inventories (Notes 2 and 3)....................................... 1,279,744 1,210,538
Prepaid expenses.............................................................. 66,412 62,506
---------- ----------
Total Current Assets...................................................... 1,544,374 1,552,545
---------- ----------
Other assets:
Investment in joint venture at equity......................................... 17,197 16,970
Other assets (Notes 2 and 4).................................................. 103,091 156,325
---------- ----------
120,288 173,295
---------- ----------
Property and Equipment (Notes 2, 6, 8 and 19):
Land.......................................................................... 417,072 419,399
Building and improvements on owned properties................................. 1,521,521 1,519,722
Building and improvements on leased properties................................ 463,602 449,656
Fixtures and equipment........................................................ 922,579 916,249
Construction in progress...................................................... 99,267 195,257
Capitalized leases............................................................ 82,515 63,704
Leasehold values.............................................................. 19,210 22,067
---------- ----------
3,525,766 3,586,054
---------- ----------
Accumulated depreciation and amortization..................................... 1,089,939 972,394
---------- ----------
2,435,827 2,613,660
---------- ----------
$4,100,489 $4,339,500
---------- ----------
---------- ----------
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current Liabilities:
Accounts payable and accrued liabilities (Note 5)............................. $ 874,492 $ 925,041
Short-term borrowings (Note 6)................................................ 62,698 --
Current income taxes (Note 16)................................................ 402 406
Current portion of obligations under capitalized leases (Note 19)............. 13,891 --
---------- ----------
Total Current Liabilities................................................. 951,483 925,447
---------- ----------
Other Long-Term Liabilities.................................................... 117,265 100,602
Obligations Under Capitalized Leases (Note 19)................................. 27,829 --
Obligations Subject to Settlement Under Reorganization Proceedings (Note 7).... 5,568,603 5,334,241
Preferred Stock (Note 9):
Par value $1.00 per share, authorized 25,000,000 shares, Series I, II and III
cumulative, 8%:
Series I, 9,000,000 shares designated, 7,494,465 shares outstanding in 1993
and 1992, aggregate liquidation preference $296,900,000, redeemable....... -- --
Series II, 1,000,000 shares designated, 211,506 shares outstanding in 1993
and 1992, aggregate liquidation preference $33,640,000, redeemable........ -- --
Series III, 7,000,000 shares designated, 5,298,330 shares outstanding in
1993 and 1992, aggregate liquidation preference $168,540,000,
redeemable................................................................ -- --
Deficiency in Net Assets:
Common stock, par value $1.00 per share, 40,000,000 authorized, 1,750,000
issued in 1993 and 1992 (Notes 10 and 11)................................... 1,750 1,750
Deficit....................................................................... (2,565,108) (2,021,207)
Less: Treasury Stock, at cost, 133,300 shares in 1993 and 1992................ (1,333) (1,333)
---------- ----------
Deficiency in Net Assets.................................................... (2,564,691) (2,020,790)
---------- ----------
$4,100,489 $4,339,500
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-62
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------------------------------------
JULY 31, 1993 AUGUST 1, 1992 AUGUST 3, 1991
--------------------- ---------------------- ---------------------
(52 WEEKS) (52 WEEKS) (53 WEEKS)
PERCENT PERCENT PERCENT
AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES
---------- -------- ----------- -------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
Net retail sales (including
licensed departments) (Note 12)... $6,299,982 100.0% $ 6,448,885 100.0% $6,761,633 100.0%
Less:
Cost of goods sold, including
occupancy and buying costs...... 4,461,945 70.8 4,753,627 73.7 4,676,490 69.2
Selling, general and
administrative expenses......... 1,909,648 30.3 2,025,294 31.4 1,810,708 26.8
Unusual items--net (Note 14)...... 20,255 0.3 314,926 4.9 (275) --
---------- -------- ----------- -------- ---------- --------
Earnings/(loss) from operations
before interest expense and
reorganization items.............. (91,866) (1.4) (644,962) (10.0) 274,710 4.0
Interest expense--net (Contractual
interest of $439,894 in 1993 and
$443,665 in 1992) (Note 13)..... 236,376 3.8 344,223 5.4 637,717 9.4
---------- -------- ----------- -------- ---------- --------
Loss before reorganization items... (328,242) (5.2) (989,185) (15.4) (363,007) (5.4)
Reorganization items--net
(Note 15)....................... 214,659 3.4 261,122 4.0 -- --
---------- -------- ----------- -------- ---------- --------
Loss before income taxes/(benefit)
and extraordinary gain............ (542,901) (8.6) (1,250,307) (19.4) (363,007) (5.4)
Income taxes/(benefit) (Note
16)............................. 1,000 -- 1,000 -- (100,365) (1.5)
---------- -------- ----------- -------- ---------- --------
Loss before extraordinary gain..... (543,901) (8.6) (1,251,307) (19.4) (262,642) (3.9)
Extraordinary gain (net of tax)
(Note 17)....................... -- -- -- -- 112,449 1.7
---------- -------- ----------- -------- ---------- --------
Net loss........................... $ (543,901) (8.6)% $(1,251,307) (19.4)% $ (150,193) (2.2)%
---------- -------- ----------- -------- ---------- --------
---------- -------- ----------- -------- ---------- --------
Loss per share of common stock:
(Note 2)
Loss before extraordinary gain.... $ (336.36) $ (782.13) $ (181.47)
Extraordinary gain, net........... -- -- 68.82
---------- ----------- ----------
Net loss per share of common
stock........................... $ (336.36) $ (782.13) $ (112.65)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-63
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------------------------------
JULY 31, 1993 AUGUST 1, 1992 AUGUST 3, 1991
------------- -------------- --------------
(52 WEEKS) (52 WEEKS) (53 WEEKS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Loss before extraordinary gain............................. $(543,901) $ (1,251,307) $ (262,642)
Adjustments to reconcile loss before extraordinary gain to
net cash provided by/(used for) operating activities:
Depreciation and amortization.......................... 287,195 288,757 280,598
Interest accrued on pre-petition debt and termination
compensation asserted to be due under interest rate
protection agreements................................. 285,974 154,728 --
Reorganization expenses................................ 35,263 117,834 --
Non-cash interest...................................... 21,722 41,339 121,105
Gain on sale of investment in joint venture............ -- -- (31,595)
Gain on sale of property............................... (13,286) -- --
Write-off of excess of cost over fair value of net
assets acquired....................................... -- 241,452 --
Deferred income tax provisions--non-current............ -- -- (8,502)
Other.................................................. -- 5,748 (24,957)
Change in current assets and liabilities (net of effects
from the sale of receivables and joint venture interest
in 1991):
Restricted cash........................................ (1,285) (33,630) 66,571
Customer accounts receivable--net...................... -- -- 121,997
Other receivables...................................... 1,520 3,494 (38,045)
Income tax receivable.................................. -- 2,000 21,000
Merchandise inventories................................ (69,206) 242,208 21,799
Prepaid expenses....................................... (3,906) 6,674 (6,477)
Accounts payable and accrued liabilities............... (50,549) 616,673 49,011
Income taxes........................................... (4) 406 (56,137)
Decrease in working capital and other liabilities due to
reorganization proceedings............................. (27,421) (914,853) --
Decrease/(increase) in other assets...................... 25,651 (21,392) (26,418)
Increase in other liabilities and deferred taxes......... 16,736 83,032 32,623
Net income tax expense of extraordinary gain............. -- -- (68,920)
Other, net............................................... (11) -- 5,560
------------- -------------- --------------
Net cash provided by/(used for) operating activities....... (35,508) (416,837) 196,571
------------- -------------- --------------
INVESTING ACTIVITIES:
Additions to property and equipment........................ (113,913) (246,219) (194,576)
Proceeds from sale of investment in joint venture.......... -- -- 59,699
Proceeds from disposition of assets........................ 14,299 -- --
Sale of receivables........................................ -- -- 1,329,523
------------- -------------- --------------
Net cash provided by/(used for) investing activities....... (99,614) (246,219) 1,194,646
------------- -------------- --------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................... -- 9,100 44,100
Proceeds from/(repayment of) short-term borrowings......... 65,900 (125,495) (436,492)
Proceeds from issuance of preferred stock.................. -- -- 187,180
Repurchase of treasury shares.............................. -- (175) --
Repayments of long-term debt and obligations under
capitalized leases........................................ (11,826) (50,871) (1,183,582)
Deferral of debt due to reorganization activities.......... -- (3,627,579) --
Decrease in preferred stock due to reorganization
activities................................................ -- (637,315) --
Cost of debtor-in-possession financing..................... -- (15,000) --
Other...................................................... -- 1,275 (3,759)
------------- -------------- --------------
Net cash provided by/(used for) financing activities....... 54,074 (4,446,060) (1,392,553)
------------- -------------- --------------
CASH FLOW EFFECT OF REORGANIZATION ACTIVITIES:
Increase in obligations subject to settlement under
reorganization proceedings................................ -- 5,179,747 --
------------- -------------- --------------
Net cash flow effect of reorganization activities.......... -- 5,179,747 --
------------- -------------- --------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS............ (81,048) 70,631 (1,336)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 122,581 51,950 53,286
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 41,533 $ 122,581 $ 51,950
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-64
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
SUPPLEMENTAL INFORMATION
Amounts in this statement of cash flows are presented on a cash basis and
may differ from those shown in other sections of this report.
Interest paid (excluding interest expense capitalized during construction)
was $12,428,000, $199,022,000, and $557,077,000 in 1993, 1992 and 1991. Income
taxes paid and tax refunds received were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ----------- ------------
<S> <C> <C> <C>
Income taxes paid.................. $1,121,000 $ 1,127,000 $ 9,098,000
Income tax refunds received........ (117,000) (3,466,000) (30,582,000)
---------- ----------- ------------
Net income tax
payments/(refunds)................. $1,004,000 $(2,339,000) $(21,484,000)
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
Preferred Stock increased by $19,649,000 and $33,873,000 in 1992 and 1991
through related charges to the deficiency in net assets.
The registrant sold its consumer credit card receivables in fiscal 1991 and,
in connection with this sale, liabilities were assumed by GE Credit (defined in
Note 2 of Notes to Consolidated Financial Statements) as follows:
<TABLE>
<S> <C>
Selling price of receivables............................... $1,390,654,000
Cash received.............................................. 1,329,523,000
--------------
Liabilities assumed by GE Credit........................... $ 61,131,000
--------------
--------------
</TABLE>
Additions to property and equipment of $21,850,000 and $29,993,000 were
recorded in 1993 and 1992 by incurring obligations under capitalized leases.
In 1993, Macy's assumed approximately $24,451,000 of capitalized leases
which were reclassified from the caption "Obligations Subject to Settlement
Under Reorganization Proceedings" to the caption "Obligations Under Capitalized
Leases."
Secured debt included in the caption "Obligations Subject to Settlement
Under Reorganization Proceedings" was reduced by $5,969,000 due to third party
assumption of such debt. A corresponding rent receivable was reduced.
F-65
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN DEFICIENCY IN NET ASSETS
<TABLE>
<CAPTION>
COMMON SHARES TREASURY SHARES
-------------------- ----------------------
<S> <C> <C> <C> <C> <C>
NUMBER DOLLARS DEFICIT NUMBER DOLLARS
--------- ------- ----------- ----------- -------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, July 28, 1990............... 1,750,000 $ 1,750 $ (566,185) (115,800) $(1,158)
Net loss........................... (150,193)
Preferred dividends................ (33,163)
Accretion of redeemable
preferred stock.................. (710)
--------- ------- ----------- ----------- -------
Balance, August 3, 1991.............. 1,750,000 1,750 (750,251) (115,800) (1,158)
Net loss........................... (1,251,307)
Preferred dividends................ (19,305)
Accretion of redeemable preferred
stock............................ (344)
Treasury shares acquired........... (17,500) (175)
--------- ------- ----------- ----------- -------
Balance, August 1, 1992.............. 1,750,000 1,750 (2,021,207) (133,300) (1,333)
Net loss........................... (543,901)
--------- ------- ----------- ----------- -------
Balance, July 31, 1993............... 1,750,000 $ 1,750 $(2,565,108) (133,300) $(1,333)
--------- ------- ----------- ----------- -------
--------- ------- ----------- ----------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-66
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CHAPTER 11 PROCEEDINGS
On January 27, 1992, R.H. Macy & Co., Inc. ("Macy's"), together with nine of
its subsidiaries, filed voluntary petitions for reorganization under chapter 11
("Chapter 11"), title 11 of the United States Code, as amended (the "Bankruptcy
Code"), in the United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court"). On January 31, 1992, seventy-eight additional
subsidiaries each commenced a Chapter 11 case in the Bankruptcy Court. Macy's
and all such subsidiaries that filed a Chapter 11 case in Bankruptcy Court are
herein defined collectively as the "Macy Debtors" and are currently operating
their respective businesses as debtors-in-possession. Two statutory creditor
committees have been appointed. The cases of Macy's subsidiaries that filed such
petitions are being jointly administered with the case of Macy's for procedural
purposes only.
The consolidated financial statements of Macy's have been prepared in
accordance with generally accepted accounting principles applicable to a going
concern, which assumes continuity of operations in the ordinary course of
business. As a result of the Chapter 11 cases and circumstances relating to this
event, including Macy's leveraged debt structure, recurring losses and current
economic conditions, such realization of assets and liquidation of liabilities
are subject to significant uncertainty. Additionally, the amounts reported on
the consolidated statement of financial condition could materially change in the
future because of a plan of reorganization, since such reported amounts do not
give effect to adjustments to the carrying value of the underlying assets or
amounts of liabilities that may ultimately result.
Generally, actions to enforce or otherwise effect the payment of
pre-petition liabilities are stayed while the Macy Debtors are under the
protection of the Bankruptcy Code. These liabilities will be resolved as part of
the reorganization proceedings. Additional liabilities subject to similar
resolution may arise as a result of claims filed by parties related to the
rejection of any executory contracts, including unexpired leases, and from the
Bankruptcy Court's allowance for contingent and other disputed claims (see Note
7).
Substantially all of Macy's pre-petition short and long-term debt at July
31, 1993 is in default of the terms of the applicable loan agreements and is
subject to settlement under the reorganization process. For financial reporting
purposes, these liabilities which are dependent upon the outcome of the Chapter
11 process have been segregated and reclassified as "Obligations Subject to
Settlement Under Reorganization Proceedings." Payment of certain pre-petition
liabilities that have been approved for payment by the Bankruptcy Court or were
pending approval have been included in the appropriate liability captions.
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
On July 15, 1986, Macy's and certain of its subsidiaries acquired R. H. Macy
& Co., Inc., a New York corporation ("Former Macy"), in a leveraged buyout (the
"Acquisition") through a merger of Macy Merger Corp. ("Merger Corp."), a direct
and indirect subsidiary of the registrant, with and into Former Macy. Macy's and
certain of its subsidiaries, including Merger Corp., were formed to effect the
Acquisition. Macy's is owned by a group of current and former management
employees and other investors.
F-67
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
On May 3, 1988, Macy's acquired the I. Magnin and Bullock's/Bullock's
Wilshire divisions (the "New Divisions") of Federated Department Stores, Inc.
("Federated"). On that date, but prior to the acquisition by Macy's, Federated
transferred the assets of the New Divisions to Bullock's Inc.,
Bullock's-Wilshire, Inc., Bullock's Specialty Stores, Inc., and I. Magnin, Inc.
These subsidiaries then became wholly-owned subsidiaries of Macy's.
PRINCIPLES OF CONSOLIDATION
The accounts of all majority-owned subsidiaries are included in the
consolidated financial statements and all intercompany balances and transactions
are eliminated.
CASH AND CASH EQUIVALENTS
Macy's considers all short-term investments with a maturity of three months
or less as cash equivalents.
RESTRICTED CASH
Macy's has classified as restricted, certain cash and cash equivalents that
are not fully available for use in operations. These cash and cash equivalents
are primarily related to the Chapter 11 Proceedings.
DEFERRED PAYMENT SALES
Macy's operates one of the largest retail department store businesses in the
United States and until May 10, 1991 extended credit to customers through
deferred payment accounts, which credit sales represented approximately 49% of
total sales for the period July 29, 1990 to May 10, 1991. Income from Macy
deferred payment sales was reported in full when the sales were made.
Subsequent to the sale date of accounts and receivables, General Electric
Capital Corporation, a preferred stockholder ("GE Capital"), or its subsidiary,
Monogram Bank, USA (now GE Capital Consumer Card Co. and, collectively with GE
Capital, "GE Credit") are responsible for both the financing and servicing of
receivables generated in the ordinary course of business under an ongoing
arrangement with Macy's (see Note 22).
MERCHANDISE INVENTORIES
The value of merchandise inventories is determined by the lower of the
retail inventory method using LIFO (last-in, first-out) cost or market for about
74% of the total inventory, and the lower of the retail inventory method using
FIFO (first-in, first-out) cost or market for the balance of the inventory,
principally women's ready-to-wear and electronics.
Macy's includes in inventory the capitalization of certain indirect
purchasing, merchandise handling, and inventory storage costs to better match
sales with these related costs.
PRE-OPENING EXPENSES
Costs of opening new stores are expensed as incurred.
INCOME TAXES
Deferred income taxes result primarily from the use for tax purposes of
accelerated depreciation and the nondeductibility of certain noncash interest
expense for tax purposes in the current period. Accumulated investment credits
are amortized over the estimated financial statement lives of the related
property by reductions of income tax provisions.
F-68
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over fair value of net assets acquired was amortized on a
straight-line basis over 40 years (the total amount remaining at February 1,
1992 was written off).
INTANGIBLE ASSETS
Intangible assets, which are included in other assets, are amortized on a
straight-line basis over the lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Customer lists.............................................. 4-8
Assembled workforce......................................... 5
Computer software........................................... 5
Macy product development.................................... 20
</TABLE>
PROPERTY AND EQUIPMENT
Depreciation is computed on a straight-line basis over the shorter of
estimated useful lives or lease terms. Capitalized leases and leasehold values
are amortized over the respective lease terms.
DEFERRED DEBT EXPENSE
Deferred debt expense is amortized over the life of the related debt.
INTEREST RATE SWAP AGREEMENTS
Macy's had entered into interest rate swap and cap arrangements in the
management of interest rate exposure. In 1992 and 1991, the differential to be
paid or received was accrued as an interest rate change and was recognized as an
adjustment to interest expense.
LOSS PER SHARE OF COMMON STOCK
Loss per share of common stock attributable to common stockholders (after
dividends and accretion on the Convertible Preferred Stock (redeemable)) is
computed based upon the weighted average number of shares outstanding during the
period. The effect of the assumed conversion of the Convertible Preferred Stock
(redeemable) on amounts per share is antidilutive and therefore not presented.
SINGLE BUSINESS SEGMENT
Macy's operates a retail department store business through 122 department
stores in three regional store groups and operates certain specialty and
close-out center stores. Because of the similarity of the nature of its
merchandise business, Macy's considers itself to be a single business segment.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform with classifications used in the current year.
3. MERCHANDISE INVENTORIES
If inventories had been valued at the lower of FIFO cost or market,
inventories would have increased by $102,563,000 and $114,009,000 at July 31,
1993 and August 1, 1992, respectively.
F-69
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets are included in other assets as follows:
<TABLE>
<CAPTION>
JULY 31, AUGUST 1,
1993 1992
------------ ------------
<S> <C> <C>
Customer lists................................ $135,409,000 $135,409,000
Assembled workforce........................... -- 30,700,000
Computer software............................. -- 3,550,000
Macy product development...................... 38,223,000 38,223,000
------------ ------------
173,632,000 207,882,000
Less: accumulated amortization................ 130,449,000 140,344,000
------------ ------------
$ 43,183,000 $ 67,538,000
------------ ------------
------------ ------------
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JULY 31, AUGUST 1,
1993 1992
------------ ------------
<S> <C> <C>
Merchandise, expenses and construction
accounts payable............................ $686,677,000 $721,397,000
Accrued interest.............................. 606,000 197,000
Accrued taxes, other than income taxes........ 81,851,000 67,694,000
Accrued wages................................. 26,049,000 37,597,000
Customers' deposits and miscellaneous......... 79,309,000 98,156,000
------------ ------------
$874,492,000 $925,041,000
------------ ------------
------------ ------------
</TABLE>
6. SHORT-TERM BORROWINGS
POST-PETITION FINANCING (SEE ALSO NOTE 8)
Pursuant to orders of the Bankruptcy Court entered on January 29, 1992 and
February 13, 1992, Macy's obtained a debtor-in-possession financing arrangement
under a Revolving Credit and Guaranty Agreement dated as of January 27, 1992 (as
subsequently amended through March 31, 1993, the "Post-Petition Credit
Agreement"), among Macy's, as Borrower, each of the other Macy Debtors, as
guarantors, Chemical Bank, as administrative agent, and Bankers Trust Company,
as co-agent, and other financial institutions to become parties thereto. The
Post-Petition Credit Agreement established a Working Capital Facility consisting
of revolving credit loans and letters of credit in the aggregate maximum amount
of $600,000,000, inclusive of a sub-limit of $250,000,000 for standby and
documentary letters of credit of which no more than $30,000,000 could be used
for standby letters of credit. The Post-Petition Credit Agreement was scheduled
to terminate pursuant to its original terms upon the earlier of (i) February 28,
1994 or (ii) substantial consummation of a plan of reorganization of Macy's or
certain of its subsidiaries. Borrowings under the Working Capital Facility may
be used to fund working capital, inventory purchases, capital expenditures, and
for other general corporate purposes of the Macy Debtors. The Post-Petition
Credit Agreement includes restrictions on capital expenditures, and certain
other payments, as well as covenants relating to EBITDA (earnings before
interest, taxes, depreciation and amortization as defined within the
Post-Petition Credit Agreement).
F-70
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SHORT-TERM BORROWINGS--(CONTINUED)
On August 12, 1993 the Post-Petition Credit Agreement was amended and
restated on similar terms pursuant to an Amended and Restated Credit and
Guaranty Agreement, among Macy's, as Borrower, the Macy Debtors, as guarantors,
Chemical Bank, as administrative agent, Bankers Trust Company, as co-agent, and
other financial institutions party thereto (the "Amended and Restated Post-
Petition Credit Agreement"), which agreement was approved by a Bankruptcy Court
order dated September 8, 1993. Under the Amended and Restated Post-Petition
Credit Agreement, Macy's working capital facility (the "Working Capital
Facility") consisting of revolving credit loans and letters of credit was
reduced from a maximum of $600,000,000 to $550,000,000. The Amended and Restated
Post-Petition Credit Agreement terminates upon the earlier of (i) August 1, 1995
or (ii) the substantial consummation of a plan of reorganization of Macy's or
certain of its subsidiaries.
Claims in respect of indebtedness incurred by the Macy Debtors under the
Amended and Restated Post-Petition Credit Agreement are afforded superpriority
administrative expense claim status pursuant to applicable provisions of the
Bankruptcy Code.
The Amended and Restated Post-Petition Credit Agreement provides that
advances made under the Working Capital Facility will bear interest at a rate of
1.5% per annum in excess of Chemical Bank's Alternative Base Rate ("ABR") (which
was 6.0% at July 31, 1993), or at Macy's option, at a rate of 2.5% per annum in
excess of the reserve adjusted London Interbank Offered Rate ("LIBOR") for
interest periods of one, three, or six months (which was 3.1875%, 3.3125%, or
3.50%, respectively, at July 31, 1993). Interest on ABR loans and three and six
month LIBOR loans are payable quarterly and interest on one month LIBOR loans is
payable at maturity.
Under the Amended and Restated Post-Petition Credit Agreement, Macy's is
obligated to pay a commitment fee of 1/2 of 1% per annum on the unused portion
of the Working Capital Facility, a letter of credit fee and certain other fees.
At July 31, 1993, outstanding revolving credit borrowings and letters of credit
under the Working Capital Facility were $65,900,000 and $116,905,000,
respectively. (Excluding unamortized deferred debt expense of $3,202,000.) There
were no outstanding revolving credit borrowings and $90,768,000 letters of
credit outstanding under the Working Capital Facility at August 1, 1992.
Unamortized deferred debt expense of $11,250,000 was included in the caption
"Other Assets" at August 1, 1992.
7. OBLIGATIONS SUBJECT TO SETTLEMENT UNDER REORGANIZATION PROCEEDINGS
Obligations of the Macy Debtors that are expected to be settled as part of a
plan of reorganization are separately classified in the Consolidated Statement
of Financial Condition as of July 31, 1993 and are as follows:
<TABLE>
<S> <C>
Accounts payable and accrued liabilities................... $ 732,847,000
Accrued interest on long-term debt......................... 381,609,000
Secured debt (Note 8)...................................... 2,317,883,000
Unsecured debt (Note 8).................................... 1,265,611,000
Obligations under capitalized leases (Note 19)............. 15,712,000
Convertible Preferred Stock (redeemable) (Note 9).......... 637,315,000
Other liabilities.......................................... 217,626,000
--------------
$5,568,603,000
--------------
--------------
</TABLE>
F-71
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. OBLIGATIONS SUBJECT TO SETTLEMENT UNDER REORGANIZATION
PROCEEDINGS--(CONTINUED)
"Obligations Subject to Settlement Under Reorganization Proceedings" include
substantially all of Macy's pre-petition short and long-term debt. As discussed
in Note 1, payments of these obligations are stayed while the Macy Debtors
continue to operate as debtors-in-possession.
The increase in "Obligations Subject to Settlement Under Reorganization
Proceedings" from August 1, 1992 to July 31, 1993 was primarily due to the
accrual of interest expense on pre-petition secured debt, the recording of an
expense associated with a claim asserted to be due under an interest rate
protection agreement, offset by the decrease in obligations under capitalized
leases due to certain lease assumptions.
Generally, interest on pre-petition debt does not accrue after the
commencement of the Chapter 11 case. If the debts are secured by property with a
value that is greater than the amount of the debt, interest may accrue up to the
value of the collateral. For financial statement purposes and conservatism only,
interest expense on pre-petition secured debt has been accrued but remains
subject to settlement. No determination has been made regarding the value of the
property interests which secure certain debt and, consequently, whether interest
thereon will be allowed or paid. Such accrual of interest on secured
indebtedness is being recorded at the interest rates applicable under the
respective loan agreements without regard to default and penalty provisions
contained therein (see Note 13). Macy's has ceased accruing interest expense on
its unsecured debt. Contractual interest not recorded on such unsecured debt
aggregated $203,518,000 and $99,442,000 for the fiscal years ended July 31, 1993
and August 1, 1992.
Numerous claims have been asserted in respect of various pre-petition
obligations, which claims individually or in the aggregate may be material and
may not currently be reflected as obligations subject to settlement. The last
day on which these claims could be filed against the Macy Debtors, with certain
exceptions, was December 15, 1992, and over 16,000 claims aggregating an amount
substantially in excess of the amounts reported in the Consolidated Statement of
Financial Condition under the caption "Obligations Subject to Settlement Under
Reorganization Proceedings" were filed by such date. Based on preliminary
review, Macy's believes that a number of these claims are duplicative of and/or
supersede claims previously asserted. In addition, claims have been filed which
do not state a specific claim amount or as to which a specific claim amount is
not readily determinable. Pursuant to Bankruptcy Court orders entered in 1993
certain exact duplicate claims and duplicate bondholder claims were expunged.
Claims will continue to be reviewed and analyzed by Macy's as part of the claims
reconciliation process and objections filed as required. As this review process
continues, the aggregate amount included in the estimate of petition date
obligations subject to settlement may increase or otherwise be adjusted to
reflect the ongoing analyses of claims filed and the aggregate amounts which may
be allowed in respect thereof. Macy's, at this time, cannot make a prediction as
to the aggregate amount of claims allowed or the ultimate treatment of such
allowed claims under a plan of reorganization. Macy's has received claims
relating to termination of various interest rate protection agreements on
pre-petition liabilities aggregating approximately $138,000,000. A provision for
approximately $54,000,000 was recorded in fiscal 1992. The remaining $84,000,000
was provided for in the fourth quarter of fiscal 1993 as a result of the receipt
and preliminary review in fiscal 1993 of documentation relating to this claim.
Such items are included in the pre-petition date obligations as of July 31, 1993
noted above.
Commencing on the Chapter 11 filing date, Macy's ceased accruing dividends
on its Convertible Preferred Stock (redeemable) and has included the Convertible
Preferred Stock (redeemable) and the cumulative accrued but unpaid dividends
prior to the filing date on such stock in "Obligations Subject
F-72
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. OBLIGATIONS SUBJECT TO SETTLEMENT UNDER REORGANIZATION
PROCEEDINGS--(CONTINUED)
to Settlement Under Reorganization Proceedings." Under applicable bankruptcy
law, the holders of the Convertible Preferred Stock (redeemable) of Macy's are
not considered creditors.
The unsecured debt amount included in "Obligations Subject to Settlement
Under Reorganization Proceedings" does not include $5,000,000 of 14 1/2% Senior
Subordinated Debentures, $241,931,000 of 14 1/2% Subordinated Debentures and
$187,769,000 of 16 1/2% Junior Subordinated Discount Debentures purchased in
fiscal 1991 by Macy Financial, Inc. ("MFI"), a wholly-owned subsidiary of Macy's
and also a debtor-in-possession. The capital stock of MFI, as well as such
debentures, were pledged to the pre-petition banks under the pre-petition Macy
Bank Agreement (See Note 8).
F-73
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCING ARRANGEMENTS
The financing arrangements consist of the following:
<TABLE>
<CAPTION>
AS OF JULY 31, 1993 AS OF AUGUST 1, 1992
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LESS LESS
UNAMORTIZED UNAMORTIZED
DEFERRED NET DEFERRED NET
CARRYING VALUE DEBT EXPENSE CARRYING VALUE CARRYING VALUE DEBT EXPENSE CARRYING VALUE
-------------- ------------ -------------- -------------- ------------ --------------
Post-Petition Financing
Working Capital Facility (Note 6).... $ 65,900,000 $ 3,202,000 $ 62,698,000 $ -- $ -- $ --
-------------- ------------ -------------- -------------- ------------ --------------
-------------- ------------ -------------- -------------- ------------ --------------
Pre-Petition Financings
Secured Debt:
Macy Revolving Credit Facility...... $ 128,358,000 $ 3,011,000 $ 125,347,000 $ 128,358,000 $ 7,027,000 $ 121,331,000
Prudential Financing................ 811,672,000 20,371,000 791,301,000 811,672,000 23,851,000 787,821,000
Swiss Financing..................... 553,750,000 12,288,000 541,462,000 553,750,000 14,745,000 539,005,000
Ten Store Financing................. 180,761,000 2,201,000 178,560,000 180,761,000 2,719,000 178,042,000
Warehouse Financing................. 53,200,000 1,497,000 51,703,000 53,200,000 1,630,000 51,570,000
Six-year term loan.................. 170,000,000 -- 170,000,000 170,000,000 448,000 169,552,000
Purchase note....................... 401,408,000 858,000 400,550,000 401,408,000 2,002,000 399,406,000
Mortgage Notes...................... 62,350,000 98,000 62,252,000 68,860,000 111,000 68,749,000
Less imputed interest as a result
of the Acquisition.............. (3,292,000) -- (3,292,000) (3,654,000) -- (3,654,000)
-------------- ------------ -------------- -------------- ------------ --------------
Total Pre-Petition Secured
Debt.......................... 2,358,207,000 40,324,000 2,317,883,000 2,364,355,000 52,533,000 2,311,822,000
-------------- ------------ -------------- -------------- ------------ --------------
Unsecured Debt:
Senior Subordinated Debentures...... 379,000,000 -- 379,000,000 379,000,000 -- 379,000,000
Subordinated Debentures............. 383,434,000 -- 383,434,000 383,434,000 -- 383,434,000
Junior Subordinated Discount
Debentures........................ 503,177,000 -- 503,177,000 502,949,000 -- 502,949,000
-------------- ------------ -------------- -------------- ------------ --------------
Total Pre-Petition Unsecured
Debt.......................... 1,265,611,000 -- 1,265,611,000 1,265,383,000 -- 1,265,383,000
-------------- ------------ -------------- -------------- ------------ --------------
$3,623,818,000 $40,324,000 $3,583,494,000 $3,629,738,000 $52,533,000 $3,577,205,000
-------------- ------------ -------------- -------------- ------------ --------------
-------------- ------------ -------------- -------------- ------------ --------------
</TABLE>
Prior to the commencement of the Chapter 11 cases, Macy's entered into the
following financing agreements. The descriptions of the following financing
arrangements are based on the original contractual terms and maturities. As a
result of the commencement of the Chapter 11 cases, Macy's is in default of
these financing arrangements and the obligations in respect thereof remain
subject to settlement.
PRE-PETITION BANK CREDIT ARRANGEMENTS
Prior to the commencement of the Chapter 11 cases, Macy's was party to a
Bank Credit Agreement which was originally dated as of July 10, 1986 and was
amended and restated as of April 27, 1988 (as subsequently amended the "Macy
Bank Agreement"). The Macy Bank Agreement established a Macy revolving working
capital line of credit ("Macy Revolving Credit Facility"), a six year term loan
and an Acquisition Letter of Credit.
MACY REVOLVING CREDIT FACILITY
The Macy Revolving Credit Facility provided a six-year revolving working
capital line of credit subject to certain sublimits, not to exceed $587,700,000.
Borrowings as of July 31, 1993 and August 1, 1992 were $128,358,000 (excluding
unamortized deferred debt expense of $3,011,000 and $7,027,000),
F-74
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCING ARRANGEMENTS--(CONTINUED)
and are included in "Obligations Subject to Settlement Under Reorganization
Proceedings." The Macy Revolving Credit Facility bears interest at a rate per
annum equal to 1.25% plus the Base Rate (a floating rate of interest publicly
announced by Manufacturers Hanover Trust Company, currently Chemical Bank), or,
at Macy's option, 2.25% plus the Eurodollar Rate (as defined in the Macy Bank
Agreement which definition gives weight to the Eurodollar Reserve Percentage as
therein defined). Interest is computed on the basis of a year of 360 days and is
payable monthly in arrears for Base Rate borrowings and at the end of an
Interest Period (as defined in the Macy Bank Agreement) for Eurodollar Rate
borrowings. The facility was secured by the capital stock of certain of Macy's
U.S. subsidiaries, certain receivables, certain tangible personal property
(other than inventory) and general intangibles, junior liens on certain of
Macy's stores, and substantially all of Macy's other real property.
SENIOR REAL ESTATE DEBT
Senior real estate debt includes the following:
(a) Prudential Financing
In 1986, Macy's and various subsidiaries of Macy's received $800,000,000 of
mortgage financing provided by The Prudential Insurance Company of America
("Prudential Financing"). These loans are, by their terms, nonrecourse
participating loans secured by the first or second mortgages on 70 of Macy's
department stores; however, under the Bankruptcy Code, by virtue of Macy's
Chapter 11 cases, these loans may have become recourse loans. Each of the loans
has a term of 15 years and bears interest at a 12% rate (the "Note Rate"). The
lender receives semi-annual cash payments equal to the greater of (i) 9% per
annum of the loan balance (including accrued interest) for the first three
years, stepping up 1% each year thereafter until such rate becomes 12% (in the
sixth year), and thereafter remaining at 12% until maturity, or (ii) a
percentage in the range of 1.33% to 1.37% of each of the four regional store
group subsidiaries' (as of the date of the Acquisition) annual gross retail
sales (such greater amount being referred to as the "Pay Rate"). The dollar
amount of any excess of the Note Rate over the Pay Rate will be added to the
loan balance and will bear interest at the Note Rate (an "Accrual"). In the
event that the Pay Rate exceeds the Note Rate, the Pay Rate is capped at 13% of
the loan balance (including accrued interest) on a divisional basis (i.e.,
regional store group subsidiaries). To the extent the Pay Rate exceeds the Note
Rate, such excess may be utilized to pay down the Accrual balance with any
further excess being paid as additional interest. At maturity, the lender was
scheduled to receive additional interest based on a percentage of the increase
in real estate value (determined on the basis of retail sales) of the applicable
store securing such debt. The accrual of additional interest has been recorded
and compounded annually as noncash interest until July 1991 (see Note 13).
(b) Swiss Financing
In 1988 and 1989, various subsidiaries of Macy's received approximately
$565,000,000 of mortgage financing provided by Swiss Bank Corporation and
certain other financial institutions ("Swiss Financing"). These loans are
secured by certain real estate owned by such subsidiaries and bear interest at
an overall interest rate cost of approximately 10.4%. The repayment of the
outstanding principal is due in June 1998.
F-75
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCING ARRANGEMENTS--(CONTINUED)
(c) Ten Store Financing
In 1987, various subsidiaries of Macy's received $180,000,000 of proceeds
from nonrecourse indebtedness secured by ten stores (the "Ten Store Financing")
through the issuance of commercial paper by Macy Special Real Estate Capital
Corp. ("Special Real Estate"), a wholly-owned special purpose subsidiary of
Macy's. The assets of Special Real Estate will only be available to Macy's after
Special Real Estate's obligations to its creditors have been satisfied.
Citibank, N.A. issued a letter of credit in support of the commercial paper.
Macy's used $55,000,000 of the proceeds to make a prepayment on the amount then
outstanding under its former six-year term loan and repurchased certain
subordinated indebtedness at an aggregate purchase price of approximately
$45,000,000. Macy's entered into fixed rate protection agreements in respect of
this indebtedness, the effect of which, together with a related option, provides
Macy's with an overall interest rate cost of approximately 10% per annum. The
payment of the outstanding principal amount is due in May 1997.
As a result of the commencement of the Chapter 11 cases, Special Real Estate
ceased issuing commercial paper. Pursuant to a credit support arrangement
entered into in 1987, the outstanding commercial paper was retired through the
proceeds of the repurchase by an affiliate of Citibank, N.A. of a participation
held by Special Real Estate in the loans evidencing the Ten Store Financing.
Additionally, the fixed rate protection agreements were terminated.
(d) Warehouse Financing
Concurrently with the sale of accounts and receivables to GE Credit, GE
Capital made a 15-year loan to three subsidiaries of Macy's in an aggregate
principal amount of $44,100,000. This loan bore interest until October 15, 1991
at an annual rate of 10.5%. Commencing June 10, 1992, this loan amortizes
ratably over its remaining 14 years. On October 15, 1991, an additional loan of
$9,100,000 was made and the annual interest rate changed to 10.44% on the
aggregate principal outstanding of $53,200,000. These loans are secured by
certain real estate owned by the borrowers and generally are non-recourse except
with respect to payment of interest and certain environmental matters, which
recourse obligations have been guaranteed by Macy's.
SIX-YEAR TERM LOAN
The six-year term loan bears interest at a rate per annum equal to 1.25%
plus the Base Rate or, at Macy's option, 2.25% plus the Eurodollar Rate. Such
interest is computed on the basis of a year of 360 days and is payable monthly
in arrears for Base Rate borrowings and at the end of an Interest Period (as
defined in the Macy Bank Agreement) for Eurodollar Rate borrowings, and is
subject to reduction based on terms and conditions set forth in the Macy Bank
Agreement. The principal was payable in semi-annual installments.
During 1992, one mandatory principal installment of $35,000,000 was made.
The six-year term loan is secured by the capital stock of certain of Macy's
U.S. subsidiaries, certain receivables, certain tangible personal property
(other than inventory) and general intangibles, junior liens on certain Macy's
stores, and substantially all of Macy's other real property.
The Macy Bank Agreement gave the banks the option under certain
circumstances to require the termination of Macy's overfunded pension plan upon
an event of default in respect of specific operating
F-76
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCING ARRANGEMENTS--(CONTINUED)
ratios and cash flow coverage requirements. As a result of the Chapter 11
filings, Macy's is in default of the Macy Bank Agreement and the banks' remedies
under these agreements are stayed.
PURCHASE NOTE
As part of the consideration paid for the acquisition of the New Divisions,
Macy's issued a $400,000,000 Note to Federated which was assigned to a third
party. The Note was due and payable in three equal installments beginning May 3,
1997. The Note bore interest at a rate per annum equal to the three month LIBOR
Rate plus .5% or at the Alternative LIBOR Rate (both defined in the Note).
Interest is computed on the basis of a year of 360 days and is payable quarterly
in arrears. As part of the Macy Bank Agreement, an Acquisition Letter of Credit
was issued in support of the Note for a period of six years. Additionally,
Macy's entered into fixed rate protection agreements in respect of the
indebtedness under the Note, the effect of which, together with the cost of the
Letter of Credit, would provide Macy's with an annual overall interest rate cost
of 12.65%.
As a result of the commencement of the Chapter 11 cases, the Acquisition
Letter of Credit was drawn for the beneficiary thereof in the amount of
$400,000,000 plus accrued interest in satisfaction of the Purchase Note.
Pursuant to the terms of the Macy Bank Agreement, Macy's is obligated to
reimburse the lenders who funded the Acquisition Letter of Credit. Additionally,
the fixed rate protection agreements were terminated as a result of the
commencement of the Chapter 11 case.
At July 31, 1993, Macy's is currently recording interest at an annual rate
of 7.25% on the obligations under the Macy Bank Agreement, the Swiss Financing,
and Ten Store Financing.
SENIOR SUBORDINATED DEBENTURES
The senior subordinated debentures bore interest at 14.5% per annum, payable
semi-annually, and mature on October 15, 1998. Such debentures are redeemable at
Macy's option on or after October 15, 1991, initially at 107.5% of their
principal amount, declining to 100% on or after October 15, 1996, and will be
entitled to the benefit of a sinking fund beginning October 15, 1994, in annual
installments of $80,000,000, calculated to retire 80% of their principal amount
prior to maturity.
In 1991, Macy's or a subsidiary repurchased $5,000,000 principal amount of
senior subordinated debentures from a portion of the proceeds received in the
issuance of additional Convertible Preferred Stock. In 1988, Macy's repurchased
$16,000,000 principal amount of senior subordinated debentures from a portion of
the proceeds of the Ten Store Financing.
As a result of the commencement of the Chapter 11 cases, Macy's has ceased
accruing interest expense on its unsecured debt. Therefore, interest expense on
the senior subordinated debentures has not been accrued after January 27, 1992.
SUBORDINATED DEBENTURES
The subordinated debentures bore interest at 14.5% per annum, payable
semi-annually, and mature on November 15, 2001. Such debentures are redeemable
at Macy's option on or after November 15, 1991, initially at 105% of their
principal amount, declining to 100% on or after November 15, 1993, and will be
entitled to the benefits of a sinking fund in annual installments of
F-77
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCING ARRANGEMENTS--(CONTINUED)
$130,000,000 beginning November 15, 1997, calculated to retire 80% of their
principal amount prior to maturity.
In 1991, Macy's or a subsidiary repurchased $247,431,000 principal amount of
subordinated debentures from a portion of the proceeds received in the issuance
of additional Convertible Preferred Stock. In 1988, Macy's repurchased
$19,135,000 principal amount of subordinated debentures from a portion of the
proceeds of the Ten Store Financing.
As a result of the commencement of the Chapter 11 cases, Macy's has ceased
accruing interest expense on its unsecured debt. Therefore, interest expense on
the subordinated debentures has not been accrued after January 27, 1992.
JUNIOR SUBORDINATED DISCOUNT DEBENTURES
Macy's issued $910,150,000 principal amount of junior subordinated discount
debentures maturing on November 15, 2006 for proceeds of $300,003,000. Such
debentures bear no interest for the first seven years and bear interest at 16.5%
payable semi-annually commencing November 15, 1993. The discount rate for these
debentures has been assumed to provide a yield to maturity of approximately
16.5% on a semiannual basis. Such debentures are entitled to the benefits of a
sinking fund beginning November 15, 2002, in annual installments of
$182,030,000, calculated to retire 80% of the issue prior to maturity. These
debentures are redeemable at Macy's option at any time at 100% of their
principal amount.
In 1991, Macy's or a subsidiary repurchased $253,822,000 face amount
($170,814,000 accreted value) of junior subordinated discount debentures from a
portion of the proceeds received in the issuance of additional Convertible
Preferred Stock. In 1988, Macy's repurchased $21,900,000 face amount of junior
subordinated discount debentures from a portion of the proceeds of the Ten Store
Financing.
As a result of the commencement of the Chapter 11 cases, Macy's has ceased
accruing interest expense on its unsecured debt. Therefore, interest expense on
the junior subordinated discount debentures has not been accrued after January
27, 1992.
MORTGAGE NOTES
The average rate of interest approximated 8.8% and 9.5% (ranging from 4.7%
to 12.0%) for 1993 and 1992.
The net book value of the property subject to all mortgages amounted to
approximately $2,152,778,000 at July 31, 1993. Such net book value may not
reflect the fair market value of such property.
Substantially all assets other than cash, inventory and unmortgaged
properties are pledged as collateral at July 31, 1993. The net book value of
assets pledged as collateral (excluding property subject to mortgages) amounted
to approximately $583,922,000 at July 31, 1993. Such net book value may not
reflect the fair market value of such property.
F-78
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. PREFERRED STOCK
Macy's certificate of incorporation provides for 25 million authorized
shares of Preferred Stock, par value $1.00 per share, of which nine million
shares constitutes Convertible Participating Preferred Stock (redeemable)
("Series I Preferred Stock"), one million shares constitutes Convertible
Participating Preferred Stock Series II (redeemable) ("Series II Preferred
Stock"), and seven million shares constitutes Convertible Participating
Preferred Stock Series III (redeemable) ("Series III Preferred Stock"). (Series
I Preferred Stock, Series II Preferred Stock, and Series III Preferred Stock are
collectively referred to in these notes as "Preferred Stock" and in the
financial statements as "Convertible Preferred Stock.")
The certificate of incorporation authorizes the Board of Directors to fix
the conditions and terms of shares of Preferred Stock prior to their issuance.
On July 15, 1986, Macy's sold 7,494,465 shares of Series I Preferred Stock with
a Base Liquidation Preference of $39.62 per share. Between August 1990 and
February 1991, Macy's sold 211,506 shares of Series II Preferred Stock with a
Base Liquidation Preference of $159.05 per share and, between December 1990 and
April 1991, 5,298,330 shares of Series III Preferred Stock with a Base
Liquidation Preference of $31.81 per share. All sales of Preferred Stock have
been made in private placements.
The right to convert Preferred Stock into Common Stock, on a one-to-one
share basis, at the option of the stockholder ended July 15, 1993, except that
each share of Series III Preferred Stock is convertible into one share of common
stock at the option of the holder thereof until the expiration of such right on
December 18, 1997.
It is provided that the Preferred Stock is redeemable, at the option of
Macy's after July 15, 1993 until July 15, 1995, except that Series III Preferred
Stock is redeemable at the option of Macy's until December 18, 1997.
The difference between the carrying value of certain of the Series I
Preferred Stock at date of issue and the mandatory redemption value was recorded
through periodic accretions using the interest method until the commencement of
the Chapter 11 case. The related charge flowed through the deficiency in net
assets.
Except for special class voting rights of the Preferred Stock, each share of
Preferred Stock entitles the holder thereof to one vote on all matters
whatsoever which may be the subject of proper action by stockholders of Macy's
together with the holders of Common Stock as a single class, subject to the
terms of the Non-Management Stockholders' Agreement dated as of July 15, 1986,
as amended, and of the Voting Trust Agreement dated as of July 15, 1986 in
respect of certain Common Stock.
Cumulative quarterly dividends (the "Preferred Dividend") were provided for
at an annual dividend rate of 8% of the Base Liquidation Preference for the
particular series involved, as and when declared by the Board of Directors; and
also, a dividend (the "Participating Dividend"), participating pari passu with
the Common Stock in the payment of Common Stock dividends in an amount equal to
the product of (i) 25% multiplied by a fraction, the numerator of which is the
number of shares of Preferred Stock then outstanding and the denominator of
which is the number of shares of Preferred Stock outstanding at July 15, 1986,
multiplied by (ii) the aggregate amount declared available for dividends on the
Common Stock and Preferred Stock after payment of the Preferred Dividend. It is
F-79
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. PREFERRED STOCK--(CONTINUED)
provided that Macy's may not pay dividends to the Common stockholders, unless
all accrued Preferred Dividends have been paid or declared and provided for.
Commencing on the Chapter 11 filing date, Macy's ceased accruing dividends
on its Convertible Preferred Stock (redeemable) and has included the Convertible
Preferred Stock (redeemable) and the cumulative accrued but unpaid dividends
prior to the filing date on such stock in "Obligations Subject to Settlement
Under Reorganization Proceedings." For purposes of the Bankruptcy Code, the
holders of the Convertible Preferred Stock of Macy's are not considered
creditors.
Any unpaid accrued Preferred and Participating Dividends are forfeitable
upon conversion of Preferred Stock. The holders of Preferred Stock are subject
to a Non-Management Stockholders' Agreement dated as of July 15, 1986, as
amended, which affects the exercise of various rights, including the voting and
transferability of Preferred Stock and the Common Stock into which such
Preferred Stock is convertible.
10. COMMON STOCK
On July 15, 1986, Macy's sold 1,750,000 shares of its Common Stock for
either cash and/or the exchange of common shares of Former Macy. The Common
Stock Subscription Agreement or like agreement executed by each purchaser of
Common Stock (and their transferees) and Macy's contains certain transfer
restrictions and/or (until July 15, 1993 in the case of Common Stock
Subscription Agreements and July 15, 1996 in the case of Stock Purchase, Agency
and Restriction Agreements) certain rights and obligations to sell shares of
Common Stock back to Macy's or its designee upon the occurrence of certain
events. The holders of such Common Stock also entered into a Voting Trust
Agreement dated as of July 15, 1986 pursuant to which a ten-year voting trust
was established.
Dividends on Common Stock are provided for, as and when declared by the
Board of Directors subject to the payment of the Preferred Dividends (see Note
9) and the restrictions as to the payment of dividends included in certain of
the debt agreements. No dividends have been declared on Macy's Common Stock.
11. 1987 KEY EXECUTIVE STOCK INCENTIVE PROGRAM
On June 15, 1987, the Board of Directors approved the 1987 Key Executive
Stock Incentive Program (the "1987 Program"). In view of Macy's Chapter 11 case,
the 1987 Program, which is described below, has become inactive. The 1987
Program consists of (i) the 1987 Participation Stock Option Plan, which provides
for the grant of stock options not intended to qualify as incentive stock
options under the Internal Revenue Code of 1986, as amended ("PSOs"), and (ii)
the 1987 Stock Award Plan, which provides for awards of Common Stock ("Awards").
PSOs, unless determined otherwise, are exercisable in certain specified
installments and for a period of seven years; the exercise price of each share
granted under a PSO is determined at the date of grant. Awards may or may not be
subject to certain terms, conditions, and restrictions and/or a purchase price.
The maximum number of shares of Common Stock subject to the 1987 Program is the
number of Reserved Management Shares (i.e., 92,105 unissued shares) plus such
shares as shall be acquired by Macy's from employees or former employees or
their permitted transferees pursuant to rights or obligations of Macy's under
Common Stock subscription agreements or like agreements. The 1987 Program is
designed to subject all
F-80
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. 1987 KEY EXECUTIVE STOCK INCENTIVE PROGRAM--(CONTINUED)
Common Stock issued under its Plans (a) to the rights and restrictions on the
Common Stock of Macy's currently operative as to holdings of existing management
investors in July 1986 and (b) to the required inclusion of all Common Stock
under the Voting Trust Agreement.
The change in the number of shares subject to options are as follows:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1992
----------- -----------
<S> <C> <C>
Outstanding, beginning of year............... 187,525 191,225
Granted...................................... -- --
Exercised.................................... -- --
Canceled..................................... -- (3,700)
----------- -----------
Outstanding, end of year..................... 187,525 187,525
----------- -----------
----------- -----------
Exercisable, end of year..................... 187,525 182,700
----------- -----------
----------- -----------
</TABLE>
Stock options were held by 196 individuals at July 31, 1993. The exercise
price for all shares under option is $20 per share.
12. NET RETAIL SALES
Net retail sales include sales from licensed departments of $67,004,000,
$83,038,000 and $93,028,000 for 1993, 1992 and 1991.
F-81
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INTEREST EXPENSE--NET
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------------------
JULY 31, 1993 AUGUST 1, 1992 AUGUST 3, 1991
------------- -------------- --------------
<S> <C> <C> <C>
Cash interest expense:*
Interest expense related to deferred payment
accounts.................................... $ -- $ -- $ 99,623,000
DIP Facility interest......................... 8,086,000 2,346,000 --
Mortgage interest............................. 5,495,000 6,767,000 6,875,000
Imputed interest on capitalized leases........ 4,225,000 3,715,000 3,207,000
Macy Revolving Credit Facility................ 9,409,000 19,443,000 21,490,000
Six-year Term Loan............................ 12,462,000 14,221,000 38,502,000
Senior Subordinated Debentures................ -- 26,996,000 55,447,000
Subordinated Debentures....................... -- 27,641,000 73,670,000
Senior Real Estate Debt....................... 146,862,000 178,986,000 175,790,000
Purchase Note................................. 29,094,000 32,465,000 51,421,000
Other interest expense........................ 2,447,000 991,000 2,311,000
------------- -------------- --------------
Total cash interest....................... 218,080,000 313,571,000 528,336,000
------------- -------------- --------------
Non-cash interest expense:
Amortization of the discount on the Junior
Subordinated Discount Debentures................ -- 37,710,000 80,185,000
Additional interest on Senior Real Estate
Debt-- participating loans**................ (26,212,000) (39,448,000) 13,502,000
Interest expense associated with deferred
liabilities................................. 132,000 268,000 307,000
Interest on taxes due......................... 27,578,000 23,500,000 --
Amortization of Macy deferred debt expense.... 19,862,000 18,583,000 17,521,000
Amortization of financing subsidiaries
deferred debt expense....................... -- -- 3,896,000
Other......................................... 362,000 726,000 5,694,000
------------- -------------- --------------
Total non-cash interest................... 21,722,000 41,339,000 121,105,000
------------- -------------- --------------
Total Interest Expense.......................... 239,802,000 354,910,000 649,441,000
------------- -------------- --------------
LESS:
Interest income............................... 462,000 969,000 1,484,000
Interest expense capitalized during
construction................................ 2,964,000 9,718,000 10,240,000
------------- -------------- --------------
Interest Expense--Net........................... $ 236,376,000 $ 344,223,000 $ 637,717,000
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
- ------------
* In fiscal 1993 and 1992, interest accrued but not paid on pre-petition
indebtedness is considered cash interest expense.
** Includes reversal of prior years' expense of $26,212,000 and $52,884,000 in
1993 and 1992, respectively.
F-82
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. UNUSUAL ITEMS--NET
The unusual items--net in 1993 included (a) the costs incurred for
organizational realignments ($19,768,000), (b) the costs incurred for business
restructuring ($9,597,000) offset by (c) a gain related to the sale of Macy's
aircraft ($9,110,000). The organizational realignment costs related to the
consolidation of various departments and the streamlining of operations. The
business restructuring costs relate to the elimination of the sale of certain
types of merchandise in various geographic locations in prior periods. These
expenses include severance and other incremental expenses net of disposition
proceeds and are part of the key business initiatives undertaken by Macy's
beginning in fiscal 1992.
The unusual items--net in 1992 included (a) the write-off of remaining
excess of cost over fair value of the net assets acquired during the 1986
acquisition of Former Macy and the 1988 acquisition of Bullock's, Bullock's
Wilshire, and I. Magnin divisions of Federated ($241,452,000), (b) costs
incurred for Macy's East-West organizational realignment ($40,000,000), and (c)
costs incurred in the one-time liquidation of certain aged inventory in
temporary inventory liquidation facilities ($30,000,000). This one-time
liquidation resulted from Macy's modification of inventory management policy for
the department stores which led to the establishment of its inventory close-out
operation, Macy's Close-Out.
As a result of Macy's operating performance, its overall decline in
financial condition, economic conditions, and an assessment of the prospects for
specific stores, it appeared in fiscal 1992 that future sales, earnings, and
cash flow amounts did not substantiate Macy's continuing to carry the remaining
excess of cost over fair value of the net assets acquired on its statement of
financial condition. Accordingly, Macy's wrote off the remaining balance in
fiscal 1992.
In February 1992, Macy's created the two larger regional department store
groups, Macy's East and Macy's West, which are comprised of certain operating
subsidiaries. Macy's East consists of the Macy's Northeast, Inc. stores as well
as the stores in Macy's South Inc. located in Alabama, Florida, Georgia,
Louisiana, and South Carolina. Macy's West consists of the Macy's California,
Inc. and Bullock's, Inc. stores as well as the stores of Macy's South, Inc.
located in Texas. I. Magnin, Inc. was not affected by the realignment.
In 1991, the unusual items--net related to (a) the costs incurred in the
sale of receivables to GE Credit and the estimated costs associated with the
phased termination of the credit servicing operations which include severance,
legal, cardholder notification costs, and other items, (b) the gain from the
sale of Macy's interest in the Valley Fair Shopping Center, and (c) the costs
associated with the closing of certain I. Magnin stores.
F-83
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. REORGANIZATION ITEMS--NET
The reorganization items--net occurring as a result of the Chapter 11
proceedings have been segregated from operations for the fiscal years ended July
31, 1993 and August 1, 1992. The major components of the reorganization
items--net are:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
JULY 31, 1993 AUGUST 1, 1992
-------------- --------------
<S> <C> <C>
Estimated costs associated with the closing of certain stores
(1993 and 1992) and estimated costs relating to additional
vendor claims (1992)......................................... $ 76,100,000 $ 168,494,000
Estimated expense associated with swap breakage claims on
certain asserted interest rate protection agreements......... 83,695,000 54,115,000
Professional fees and other expenses directly related to the
bankruptcy................................................... 21,538,000 14,388,000
Restructuring costs............................................ 21,500,000 --
Retention costs................................................ 12,000,000 --
Write-off of deferred debt expense related to unsecured
long-term debt............................................... -- 16,307,000
Write-off of Preferred Stock issuance costs.................... -- 8,280,000
Other.......................................................... 2,150,000 2,274,000
-------------- --------------
216,983,000 263,858,000
Less: interest earned on accumulated cash resulting from the
Chapter 11 proceedings....................................... 2,324,000 2,736,000
-------------- --------------
$ 214,659,000 $ 261,122,000
-------------- --------------
-------------- --------------
</TABLE>
The estimated costs associated with the closing of certain stores includes
the write-off of remaining book value of assets, the related inventory
liquidation costs, severance costs, post-closing store expenses and other
incremental expenses net of the estimated disposition proceeds.
16. INCOME TAXES
The reconciliation of taxes on income at the federal statutory rate to the
actual amounts provided is as follows:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1992 FISCAL 1991
----------- ----------- -------------
<S> <C> <C> <C>
Tax expense (benefit) computed at the federal
statutory rates................................... $ -- $ -- $(123,422,000)
Increase (decrease) resulting from:
Depreciation and amortization of step-up of net
assets (not deductible for tax purposes)........ -- -- 37,864,000
State and local income tax expense (benefit), net
of federal tax.................................. 1,000,000 1,000,000 (15,573,000)
Amortization of investment credits................ -- -- (524,000)
Other--net........................................ -- -- 1,290,000
----------- ----------- -------------
$ 1,000,000 $ 1,000,000 $(100,365,000)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
State and local tax expense was $1,000,000 in both 1993 and 1992. State and
local tax benefit was $17,168,000 in 1991.
F-84
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES--(CONTINUED)
Under current accounting principles, an income tax benefit cannot be
recognized for the losses incurred in 1993 and 1992 because the benefit is not
expected to be recovered as an income tax refund or savings currently or in the
near future. Income tax expense in 1993 and 1992 consists of estimated state and
local taxes. The effective income tax rate for 1991 was 38% of pre-tax loss
prior to certain expenses arising from purchase accounting which are
non-deductible for tax purposes.
In June 1993, Macy's announced that it reached an agreement with the
Internal Revenue Service ("IRS") regarding federal income taxes arising from its
audit of fiscal years 1984 through 1991. The IRS will have a priority claim for
federal income tax of approximately $219 million inclusive of interest. Macy's
estimates that its actual liability will be approximately $151 million due to
the availability and carryback of certain net operating losses from fiscal year
1992. All appropriate amounts for the agreed upon settlement with the IRS and
the related estimated state and local tax impact have been provided for at July
31, 1993 (see Note 13) and have been included in the caption "Obligations
Subject to Settlement Under Reorganization Proceedings."
As of July 31, 1993, Macy's has an estimated net operating loss carryover of
approximately $1,130,000,000 for federal income tax purposes which includes
approximately $302,960,000 of post-petition interest expense on unsecured debt
not reflected in the accompanying consolidated financial statements. The loss
carryover will be available to offset future taxable income through 2008.
The provision for income taxes includes the following amounts:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1992 FISCAL 1991
----------- ----------- -------------
<S> <C> <C> <C>
Currently payable (benefit)......................... $ 1,000,000 $ 1,000,000 $ (26,402,000)
Deferred payable (benefit).......................... -- -- (73,963,000)
----------- ----------- -------------
$ 1,000,000 $ 1,000,000 $(100,365,000)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The major components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1992 FISCAL 1991
----------- ----------- -------------
<S> <C> <C> <C>
Installment method of accounting for deferred
payment sales..................................... $ -- $ -- $ (52,542,000)
Excess of tax over book/(book over tax)
depreciation...................................... -- -- (1,607,000)
Non-cash interest not currently deductible for
income tax purposes............................... -- -- (5,131,000)
Inventory cost capitalization....................... -- -- (3,430,000)
Bad debt reserve adjustment......................... -- -- (9,489,000)
Other--net.......................................... -- -- (1,764,000)
----------- ----------- -------------
$ -- $ -- $ (73,963,000)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The Tax Reform Act of 1986 (the "Tax Reform Act") eliminated the installment
method of reporting with respect to revolving credit plans. Under the Tax Reform
Act, the income tax liability in connection with the installment method was
included in taxable income over a four-year period ending in the 1991 fiscal
year.
The Financial Accounting Standards Board ("FASB") issued Statement No. 109,
"Accounting for Income Taxes" ("FASB 109"). This statement will be adopted as of
August 1, 1993. This statement requires that a deferred tax liability be
recognized for taxable temporary differences and deferred tax
F-85
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES--(CONTINUED)
assets be recognized for deductible temporary differences, tax credit
carryforwards, and operating loss carryforwards. FASB 109 requires, in the year
of adoption, an adjustment of certain assets and liabilities that arise from a
business combination such as the 1986 Acquisition. Macy's anticipates that the
adoption of FASB 109 in the first quarter of fiscal 1994 will result in a
favorable cumulative effect income adjustment of approximately $175,000,000.
17. EXTRAORDINARY ITEMS--NET
In 1991, the extraordinary gain primarily related to the gain on the
repurchase of subordinated debt at a discount offset by the expense incurred in
the elimination of receivables related borrowings and the write-off of
unamortized deferred debt expense associated with prepayments on the six-year
term loan. These items resulted in an extraordinary gain, net of income taxes,
of $112,449,000.
18. RETIREMENT PROGRAM AND SAVINGS PLAN
Macy's has a noncontributory pension plan which covers substantially all
employees or employee groups meeting specified eligibility requirements. The
benefits are based on years of service and/or compensation in the five highest
of the participant's last ten full years of employment. In general, with minor
exceptions, Macy's funding policy has been to contribute annually the maximum
contribution permitted for the plan under the full funding limitation of the
Employee Retirement Income Security Act of 1974.
The following tables summarize the plan's funded status as of July 31, 1993
and August 1, 1992 and the components of pension expense for the years ended
1993, 1992 and 1991:
<TABLE>
<CAPTION>
JULY 31, AUGUST 1,
FUNDING STATUS 1993 1992
- -------------------------------------- ------------ ------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation........... $239,619,000 $202,208,000
Accumulated benefit obligation...... 245,991,000 207,852,000
Projected benefit obligation........ 322,551,000 276,827,000
Plan assets at fair value*............ 363,645,000 361,627,000
Plan assets in excess of projected
obligation.......................... 41,094,000 84,800,000
Unrecognized asset.................... (76,171,000) (84,634,000)
Unrecognized loss..................... 48,170,000 12,641,000
Unrecognized prior service cost....... 1,305,000 1,484,000
Prepaid pension costs................. $ 14,399,000 $ 14,291,000
------------ ------------
------------ ------------
</TABLE>
- ------------
* Plan assets consist primarily of fixed income securities and listed stocks.
F-86
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. RETIREMENT PROGRAM AND SAVINGS PLAN--(CONTINUED)
<TABLE>
<CAPTION>
COMPONENTS OF PENSION EXPENSE 1993 1992 1991
- ------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Service cost..................................... $ 16,358,000 $ 15,254,000 $ 14,744,000
Interest......................................... 25,012,000 22,550,000 21,103,000
Actual return on assets.......................... (17,853,000) (24,957,000) (25,934,000)
Amortization of unrecognized net asset........... (8,463,000) (8,463,000) (8,463,000)
Amortization of unrecognized prior service
cost........................................... 145,000 153,000 153,000
Asset (loss) deferred............................ (13,906,000) (6,119,000) (4,237,000)
Amortization of overfunding in pension plan
recorded in connection with the Acquisition.... 5,000,000 5,000,000 5,000,000
------------ ------------ ------------
Pension expense.................................. $ 6,293,000 $ 3,418,000 $ 2,366,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
ACTUARIAL ASSUMPTION 1993 1992 1991
- ----------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Rates of increase in compensation levels......................... 6% 7% 7%
Discount......................................................... 8% 9% 9%
Expected long-term rate of return on plan assets................. 9% 9% 9%
</TABLE>
During 1993 and 1992, Macy's incurred a pension curtailment due to a
reduction in the number of employees relating to the consolidation of certain
operations and the closing of certain stores. The result was a curtailment gain
of approximately $1,394,000 in 1993 and $3,500,000 in 1992.
Macy's also has a savings plan and a terminated profit-sharing plan. The
savings plan fund consists of voluntary employee contributions, matching company
contributions, and all related earnings. The savings plan expense was
$3,688,000, $3,992,000, and $4,016,000 in 1993, 1992, and 1991. The balance in
the savings plan fund at July 31, 1993 was $191,057,015. The balance in the
profit-sharing fund at July 31, 1993 was $18,115,707. No contributions have been
made to the profit-sharing fund since 1976.
In addition to providing pension benefits, Macy's provides certain health
care and life insurance benefits for retired employees. The cost of providing
these benefits is recognized by expensing the annual insurance premiums, which
were approximately $6,254,000, $5,200,000, and $4,200,000 in 1993, 1992, and
1991.
FASB issued Standard No. 106 entitled "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FASB 106"). The statement
requires that employers record the expected cost of postretirement benefits
other than pensions during the employee's active years of service. Macy's is
required to adopt FASB 106 during the fiscal year ending July 1994. As of August
1, 1993, the accumulated postretirement obligation was approximately
$204,000,000. Macy's currently plans to record this obligation through
amortization of the accumulated postretirement obligation over a 20-year period.
In fiscal 1994, the incremental noncash expense associated with the
implementation of the FASB 106, including the amortization of the accumulated
postretirement obligation, will be approximately $26,000,000.
In November 1992, the FASB issued Statement No. 112 entitled "Employers'
Accounting for Postemployment Benefits." This statement requires Macy's to
recognize, during the employee's active years of service, an obligation for
postemployment benefits provided to former or inactive employees after
employment but before retirement. Macy's is currently analyzing the effects of
the new standard to determine the financial impact. This statement requires
adoption by no later than the fiscal year ending in July 1995.
F-87
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. RETIREMENT PROGRAM AND SAVINGS PLAN--(CONTINUED)
The Macy Bank Agreement (see Note 8) gave the banks the option under certain
circumstances to require the termination of Macy's overfunded pension plan upon
an event of default in respect of specific operating ratios and cash flow
coverage requirements. As a result of the Chapter 11 filings, Macy's is in
default of the Macy Bank Agreement and the banks' remedies under this Agreement
are stayed.
19. COMMITMENTS
(a) Leases
Macy's and its subsidiaries lease land and/or buildings, warehouses and
distribution facilities, and fixtures and store equipment for certain of its
retail stores. The leases generally provide for the payment of real estate taxes
and other related expenses and, in certain instances, increased rentals based on
percentages of sales. The leases provide for option renewal periods, and some
contain purchase options.
Capitalized leases included in property and equipment consist of:
<TABLE>
<CAPTION>
JULY 31, AUGUST 1,
1993 1992
----------- -----------
<S> <C> <C>
Property and equipment.................. $82,515,000 $63,704,000
Accumulated depreciation................ 29,397,000 18,835,000
----------- -----------
$53,118,000 $44,869,000
----------- -----------
----------- -----------
</TABLE>
Future minimum lease payments and sublease rentals under noncancelable
leases as of July 31, 1993 are as follows:
<TABLE>
<CAPTION>
SUBLEASES RELATED
PRIMARILY TO
FISCAL YEAR OPERATING LEASES CAPITALIZED LEASES CAPITALIZED LEASES
- --------------------------------------------- ---------------- ------------------ ------------------
<S> <C> <C> <C>
1994......................................... $ 52,672,000 $ 22,935,000 $ 939,000
1995......................................... 51,869,000 17,518,000 939,000
1996......................................... 51,488,000 12,346,000 939,000
1997......................................... 49,088,000 10,219,000 939,000
1998......................................... 48,033,000 1,485,000 939,000
1999 and thereafter.......................... 407,661,000 4,881,000 5,364,000
---------------- ------------------ ------------------
$660,811,000 69,384,000 $ 10,059,000
---------------- ------------------
---------------- ------------------
Less imputed interest........................ 11,952,000
------------------
Obligations under capitalized leases......... $ 57,432,000*
------------------
------------------
</TABLE>
- ------------
* Includes $15,712,000 recorded in the caption "Obligations Subject to
Settlement Under Reorganization Proceedings."
F-88
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. RETIREMENT PROGRAM AND SAVINGS PLAN--(CONTINUED)
Rent expense consists of the following:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1992 FISCAL 1991
----------- ------------ ------------
<S> <C> <C> <C>
Minimum rentals:
Equipment leases................................ $10,492,000 $ 18,839,000 $ 23,293,000
Premise lease................................... 43,208,000 47,492,000 43,091,000
Contingent rentals*............................... 39,852,000 34,292,000 36,536,000
----------- ------------ ------------
$93,552,000 $100,623,000 $102,920,000
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
- ------------
* Including $4,003,000, $4,749,000 and $4,256,000 applicable to capitalized
leases.
(b) Data Processing and Information Services Arrangement
Macy's has entered into an agreement with the SABRE Group ("SABRE"), a
division of Federated, pursuant to which SABRE will provide certain data
processing and information services to Macy's. The Base Price (as defined) for
the year that began September 1, 1992 was $59,600,000. The agreement provides
for additional Supplemental Fees (as defined) for services in excess of the
services included in the Base Price. The Base Price and Supplemental Fees are
calculated on the basis of SABRE's costs plus a return that covers profit and
SABRE's development investment. The agreement may be terminated by Macy's, at
Macy's election, at intervals from and after September 1, 1997.
(c) POS Register Upgrades
Macy's has committed to spend approximately $90 million for the upgrade of
point-of-sale cash registers which will enhance Macy's ability to service
customers. Approximately $36 million has been incurred as of July 31, 1993. It
is anticipated that this project will be completed by the end of calendar year
1994.
20. RELATED PARTY TRANSACTIONS
Macy's has transactions with certain related parties. They are as follows:
(a) General Electric Capital Corp. ("GE Capital") owns 19.2% of Macy's
outstanding preferred stock.
Macy's and its subsidiaries purchased supplies and entered into transactions
relating to radio and television advertising in the net amount of
approximately $3,306,000, $6,457,000, and $5,224,000 from affiliates of GE
Capital in 1993, 1992 and 1991.
Macy's has an arrangement with GE Capital (from May 1991) or an affiliate in
which GE Capital makes remittances to the Macy's operating companies net of a
discount in respect of purchases effected by Macy's customers using credit
cards bearing tradenames used by Macy's. The net discount was $27,704,000,
$20,536,000 and $10,572,000 in 1993, 1992 and 1991. Additionally, in 1991, an
affiliate of GE Capital paid $6,500,000 as a contribution to Macy's
advertising expenses, and Macy's paid $500,000 for financial consulting and
advisory services in connection with the creation and implementation of
Macy's program to repurchase its outstanding subordinated debt.
The Macy Operating Companies have a secured loan in the aggregate amount of
$53,200,000 at an annual interest rate of 10.44% (see Note 8).
F-89
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. RELATED PARTY TRANSACTIONS--(CONTINUED)
(b) Loews Corporation owns approximately 17.7% of Macy's outstanding
preferred stock.
Macy's and its subsidiaries purchased merchandise, entered into transactions
relating to radio and television advertising, obtained hotel and related
services, and purchased insurance from affiliates of Loews Corporation. The
approximate total amount expensed was $5,607,000, $6,781,000, and $5,554,000
in 1993, 1992, and 1991. Additionally, in 1991, Macy's paid $950,000 for
financial consulting and advisory services in connection with the creation
and implementation of Macy's program to repurchase its outstanding
subordinated debt.
21. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
AUGUST NOVEMBER FEBRUARY MAY FISCAL
TO OCTOBER TO JANUARY TO APRIL TO JULY YEAR
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
52 weeks ended July 31, 1993
Net retail sales............... $1,482,637 $2,037,250 $1,336,672 $1,443,423 $6,299,982
Cost of goods sold, including
occupancy and buying costs... 1,037,988 1,426,338 950,894 1,046,725 4,461,945
Unusual items.................. (9,110) -- -- 29,365 20,255
Reorganization items........... 8,422 13,407 109,692 83,138 214,659
Net earnings/(loss)............ (135,863) 8,909 (227,954) (188,993) (543,901)
Net earnings/(loss) per
share*....................... (84.02) 5.51 (140.97) (116.88) (336.36)
52 weeks ended August 1, 1992
Net retail sales............... $1,601,271 $2,055,875 $1,304,899 $1,486,840 $6,448,885
Cost of goods sold, including
occupancy and buying costs... 1,076,072 1,680,002 919,803 1,077,750 4,753,627
Unusual items.................. 30,000 284,926 -- -- 314,926
Reorganization items........... -- 102,861 90,720 67,541 261,122
Net (loss)..................... (155,356) (671,575) (225,866) (198,510) (1,251,307)
Net (loss) per share*.......... (101.29) (417.57) (139.68) (122.79) (782.13)
53 weeks ended August 3, 1991
Net retail sales............... $1,546,100 $2,196,235 $1,385,551 $1,633,747 $6,761,633
Cost of goods sold, including
occupancy and buying costs... 1,034,606 1,518,152 953,973 1,169,759 4,676,490
Unusual items.................. -- -- 25,000 (25,275) (275)
(Loss) before extraordinary
gain......................... (66,703) (7,296) (116,373) (72,270) (262,642)
Extraordinary gain, net........ 10,165 85,337 15,436 1,511 112,449
Net earnings/(loss)............ (56,538) 78,041 (100,937) (70,759) (150,193)
Earnings/(loss) per share*
(Loss) before extraordinary
gain....................... (44.75) (9.12) (77.15) (49.52) (181.47)
Extraordinary gain, net...... 6.22 52.22 9.45 0.92 68.82
Net earnings/(loss) per
share...................... (38.53) 43.10 (67.70) (48.60) (112.65)
</TABLE>
- ------------
* Each period is computed separately.
F-90
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. SALE OF RECEIVABLES
On May 10, 1991, Macy Credit Corp. ("Credit") and Macy Receivables Funding
Corp. ("Funding Corp."), wholly-owned subsidiaries of Macy's, sold all of the
consumer credit card accounts originated by the department store subsidiaries of
Macy's (the "Operating Companies"), and all receivables existing under such
accounts to GE Credit pursuant to an Account Purchase Agreement and a Commercial
Accounts Agreement, for approximate book value at an aggregate purchase price of
$1,390,654,000 (including $61,131,000 of debt assumption) (the "Receivable
Transaction").
In conjunction with such asset sale, Macy's and certain of its subsidiaries,
including the Operating Companies, entered into ongoing arrangements with GE
Credit (the "GE Credit Program") pursuant to which, among other things, (i) GE
Credit established (and continues to establish) new credit card accounts with
individual or certain commercial customers of the Operating Companies
(collectively, "Macy Cardholders"), utilizing credit card bearing tradenames
used by Macy's; (ii) GE Credit authorizes and extends credit in the ordinary
course of business to new and existing Macy Cardholders for the purchase of
merchandise on credit from the Operating Companies; (iii) GE Credit makes
remittances to the Operating Companies in the ordinary course in respect of such
credit sales to Macy's Cardholders, which remittances reflect a discount charged
by GE Credit; and (iv) GE Credit assumed the responsibility of servicing
accounts and receivables of Macy's Cardholders.
The initial 15-year term of the GE Credit Program expires in 2006 which term
is subject to automatic one-year renewal periods and certain termination rights
of the parties.
Subsequent to the sale date, operations were affected as follows: (i)
finance charge income and bad debt expense were eliminated, (ii) interest
expense was reduced, (iii) expenses related to credit servicing were reduced as
such servicing was transferred to GE Credit, and (iv) expenses were increased to
reflect a discount charged by GE Credit for remittances in respect of new credit
card sales.
The statement of operations for fiscal 1991 included effects of prior credit
card receivables related activities of Macy's which were not present in fiscal
1993 and 1992 due to the transaction with GE Credit.
For comparison purposes to fiscal 1993 and 1992, presented below are the
unaudited pro forma results of operations for fiscal 1991 assuming the sale of
receivables and accounts and the ongoing arrangements had occurred prior to the
beginning of the 1991 fiscal year.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
AUGUST 3, 1991
------------------
<S> <C>
Net retail sales.................................. $6,761,633,000
------------------
------------------
Operating profit.................................. $ 144,884,000
------------------
------------------
Loss before income tax benefit.................... $ (336,700,000)
Income tax benefit................................ 90,368,000
------------------
Loss before extraordinary gain.................... $ (246,332,000)
------------------
------------------
Loss per share of common stock
before extraordinary gain....................... $ (171.48)
------------------
------------------
</TABLE>
The adjustments necessary to present the unaudited pro forma results of
operations for fiscal 1991 on a comparable basis with fiscal years thereafter
are as follows: (i) the elimination of finance charge
F-91
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. SALE OF RECEIVABLES--(CONTINUED)
income and bad debt expense, (ii) the addition of the discount charged by GE
Credit for remittances in respect of new credit card sales (Items (i) and (ii)
resulted in a net reduction of operating profit by approximately $129,826,000),
(iii) the reduction in interest expense (approximately $103,519,000), (iv) an
adjustment to reflect income taxes on a pro forma basis, (v) the elimination of
unusual items, and (vi) the elimination of the extraordinary gain net of income
tax expense.
The pro forma amounts are provided for informational purposes only and
should not be construed to be indicative of actual results that would have been
achieved had the Receivable Transaction and related arrangements occurred prior
to the commencement of the 1991 fiscal year and are not necessarily indicative
of future results.
Finance charge income, which was deducted from selling, general, and
administrative expenses, amounted to $199,096,000 (for the period July 29, 1990
through the date of sale of the receivables).
23. SUPPLEMENTARY DATA
The following disclosure of the estimated fair value of financial
instruments and related disclosure is made in accordance with the Financial
Accounting Standards Board Statement No. 107 entitled "Disclosure About Fair
Value of Financial Instruments." The statement requires all entities to disclose
the fair value of financial instruments, both assets and liabilities, recognized
and not recognized in the Consolidated Statement of Financial Condition, for
which it is practicable to estimate fair value.
The uncertainties related to the outcome of the Chapter 11 proceedings and
resulting effect upon the ultimate value of assets and liabilities add
significantly to the uncertain nature of any estimate of fair value.
The following methods and assumptions were used where it is practicable to
estimate fair value:
(i) Cash and cash equivalents, restricted cash, current receivables,
accounts payable, accrued liabilities and short-term borrowings are all
short-term in nature and their carrying amounts approximate fair value.
(ii) Note 1 discusses the uncertainties of the Chapter 11 proceedings which
could significantly influence the estimated fair value of financial
instruments included in "Obligations Subject to Settlement Under
Reorganization Proceedings." Payment of these obligations and any
related interest is subject to approval by the Bankruptcy Court.
Outside investors from time to time may buy and sell certain of these
debt obligations; the terms of any such transactions are private and
not disclosed to the Corporation. Because there can be no assurance as
to the ultimate timing and amount of principal and interest repayments
in respect of these obligations, it is not practicable to determine
their estimated fair values except in the case of Macy's unsecured debt
described below.
(iii) The estimated fair value of Macy's unsecured debt which includes the
14 1/2% Senior Subordinated Debentures, the 14 1/2% Subordinated
Debentures and the 16 1/2% Junior Discount Debentures is based on
quoted market prices for those issues that are traded over the
counter, and estimates provided by brokers for other issues. However,
quoted market prices and broker estimates inherently include judgments
concerning the outcome of the Chapter 11 proceedings, and do not
represent Macy's opinion as to the amounts that will be received in
respect thereof. The financial instruments noted above are included in
"Obligations Subject to Settlement Under Reorganization Proceedings."
F-92
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. SUPPLEMENTARY DATA--(CONTINUED)
ESTIMATED FAIR VALUE AS OF JULY 31, 1993
(IN 000'S)
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Cash and cash equivalents, restricted cash and current
receivables............................................. $ 198,218 $ 198,218
Accounts payable, accrued liabilities and short-term
borrowings.............................................. 937,592 937,592
Obligations Subject to Settlement Under Reorganization
Proceedings............................................. 5,568,603 N/A
Unsecured Debt:
14 1/2% Senior Subordinated Debentures.................... 379,000 135,019
14 1/2% Subordinated Debentures........................... 383,434 59,432
16 1/2% Junior Subordinated Discount Debentures*.......... 634,428 45,996
</TABLE>
-------------------
* Face Amount ($503,177,000 accreted value at July 31, 1993)
24. SUBSEQUENT EVENTS
On July 14, 1994, Macy's and Federated announced that they had reached an
agreement in principle on a merger.
On July 29, 1994, Macy's and Federated jointly filed a proposed plan of
reorganization with the Bankruptcy Court, which plan was amended as of August
31, 1994.
On August 16, 1994, Macy's and Federated announced that their respective
boards of directors had approved a formal agreement and plan of merger.
The obligations of Macy's and Federated to consummate the merger are subject
to various conditions, including approval of the merger agreement and
confirmation of the joint plan of reorganization of Macy's by the Bankruptcy
Court. The proposed merger is also contingent on the satisfaction of various
conditions including the approval by Federated's shareholders as well as
approvals required from regulatory authorities with respect to antitrust
matters.
The assets and liabilities reported in the consolidated financial statements
as of July 30, 1993 could materially change as a result of the consummation of
the merger, the implementation of the proposed joint plan of reorganization, any
resultant changes in store operations or locations, and compliance with any
antitrust or other regulatory requirements. At this time, the effects of such
matters cannot be estimated as they are subject to numerous contingencies.
F-93
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
- ------------------------------- -------- -------- -------- -------- ------------- --------
BALANCE
AT BALANCE
BEGINNING AT END
INTEREST OF DEDUCTIONS OF
NAME OF DEBTOR RATE DUE DATE PERIOD ADDITIONS (COLLECTIONS) PERIOD
- ------------------------------- -------- -------- -------- -------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
52 Weeks ended July 31, 1993:
John Kent Anderson(A)......... -- 12/24/01 $265 $-- -$- $265
Sheila Arnold(A).............. -- 12/03/06 300 -- -- 300
Rudolph Borneo(A)............. -- 08/22/99 250 -- -- 250
Rose Marie Bravo(E)(A)........ -- 07/21/99 300 -- 300 --
Charles Chinni(A)............. 9% 08/31/99 270 -- -- 270
David Coonfield(A)............ -- 08/03/02 -- 150 -- 150
Emily Denning(A).............. -- 11/08/06 109 -- -- 109
Burnett Donoho(A)............. -- 04/15/08 -- 600 -- 600
Donald Eugene(A).............. -- 12/01/01 585 -- -- 585
Paul M. Fitzpatrick(A)........ -- 03/02/99 235 -- -- 235
Joy Frommer(A)................ -- 12/03/01 125 -- -- 125
John Gorham(A)................ -- 10/31/01 245 -- -- 245
Gary Guthrie(A)............... -- 10/24/01 189 -- 94 95
David Herman(A)............... -- 10/28/01 155 -- 73 82
Kent Keish(A)................. -- 12/11/01 250 -- -- 250
Michael Montanino(A).......... -- 10/31/98 200 -- -- 200
Max Roberts(A)................ -- 03/01/07 200 -- -- 200
Tom Shull(A).................. -- 02/05/08 -- 400 -- 400
Felix Smith(A)................ -- 07/01/02 350 -- 75 275
David Suliteanu(A)............ -- 09/09/01 250 -- -- 250
Myron E. Ullman, III(A)(B).... -- 11/01/18 600 -- -- 600
Michael Wirkkala(A)........... -- 12/11/01 125 -- -- 125
52 Weeks ended August 1, 1992:
John Kent Anderson(A)......... -- 12/24/01 $-- $265 -$- $265
Sheila Arnold(A).............. -- 12/03/06 -- 300 -- 300
Rudolph Borneo(A)............. -- 08/22/99 250 -- -- 250
Rose Marie Bravo(A)........... -- 07/21/99 300 -- -- 300
Charles Chinni(A)............. 9% 08/31/99 270 -- -- 270
Emily Denning(A).............. -- 11/08/06 -- 109 -- 109
Donald Eugene(A).............. -- 12/01/01 -- 585 -- 585
Paul M. Fitzpatrick(A)........ -- 03/02/99 235 -- -- 235
Joy Frommer(A)................ -- 12/03/01 -- 125 -- 125
John Gorham(A)................ -- 10/31/01 -- 245 -- 245
Gary Guthrie(A)............... -- 10/24/01 -- 189 -- 189
David Herman(A)............... -- 10/28/01 -- 155 -- 155
Kent Keish(A)................. -- 12/11/01 -- 250 -- 250
Michael Montanino(A).......... -- 10/31/98 200 -- -- 200
Max Roberts(A)................ -- 03/01/07 -- 200 -- 200
Jeffrey Rusinow(D)(A)......... -- 06/15/98 200 -- 200(D) 0
Felix Smith(A)................ -- 07/01/02 -- 350 -- 350
David Suliteanu(A)............ -- 09/09/01 -- 250 -- 250
Myron E. Ullman, III(A)(B).... -- 11/01/18 600 -- -- 600
Michael Wirkkala(A)........... -- 12/11/01 -- 125 -- 125
</TABLE>
See Notes to Schedule II.
F-94
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES--(CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
53 Weeks ended August 3, 1991:
Rudolph Borneo(A)............. -- 08/22/99 $250 $-- -$- $250
Rose Marie Bravo(A)........... -- 07/21/99 300 -- -- 300
Charles Chinni(A)............. 9% 08/31/99 250 20(B) -- 270
Paul M. Fitzpatrick(A)........ -- 03/02/99 235 -- -- 235
Michael Montanino(A).......... -- 10/31/98 200 -- -- 200
Jeffrey B. Rusinow (D)(A)..... -- 06/15/98 200 -- -- 200
Myron E. Ullman, III(A)....... -- 11/01/18 500 100(B) -- 600
</TABLE>
- ------------
NOTES:
<TABLE>
<C> <S>
(A) The listed loans were made in connection with certain housing and/or relocation
activities.
(B) The additional loans relate to their designation as purchasers of certain shares of the
registrant's Common Stock. Mr. Ullman's loan of $100,000 bears interest at a rate of
8.25% per annum.
(C) Collections applied to principal.
(D) Loan was fully paid on August 27, 1991.
(E) Loan was fully paid on January 4, 1993.
(F) Demand loan.
</TABLE>
F-95
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN B COLUMN E COLUMN F
---------- COLUMN C ------------- ----------
COLUMN A BALANCE AT -------- COLUMN D OTHER CHANGES BALANCE AT
- ------------------------------ BEGINNING ADDITIONS --------- ADD (DEDUCT) END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE OF PERIOD
- ------------------------------ ---------- -------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
52 weeks ended July 31, 1993:
Land........................ $ 419,399 $ 346 (1) $ (2,673)(3) $ -- $ 417,072
Buildings and improvements (6,601)(2)
on owned properties....... 1,519,722 11,107 (1) (1,497)(3) (1,210)(4) 1,521,521
Buildings and improvements (6,859)(2)
on leased properties...... 449,656 76,151 (1) (58,126)(3) 2,780 (4) 463,602
Fixtures and equipment...... (93,629)(2)
916,249 109,318 (1) (18,354)(3) 8,995 (4) 922,579
Construction in progress.... 113,913
195,257 (196,922)(1) (2,416)(3) (10,565)(4) 99,267
Capitalized leases.......... (171)(2)
63,704 21,850 (2,868)(3) -- 82,515
Leasehold values............ 22,067 -- (2,857)(3) -- 19,210
---------- -------- --------- ------------- ----------
$3,586,054 $135,763 $(196,051) $ 0 $3,525,766
---------- -------- --------- ------------- ----------
---------- -------- --------- ------------- ----------
52 weeks ended August 1, 1992:
Land........................ $ 428,937 $ 164 (1) $(9,685)(3) $ (17)(4) $ 419,399
Buildings and improvements (4,711)(2)
on owned properties....... 1,572,326 14,191 (1) (57,417)(3) (4,667)(4) 1,519,722
Buildings and improvements (2,327)(2)
on leased properties...... 421,979 25,519 (1) (38,452)(3) 42,937 (4) 449,656
Fixtures and equipment...... (62,416)(2)
886,029 162,346 (1) (26,951)(3) (42,759)(4) 916,249
Construction in progress.... 246,219
146,752 (202,220)(1) -- 4,506 (4) 195,257
Capitalized leases.......... 34,903 29,993 (1,192)(3) -- 63,704
Leasehold values............ 24,083 -- (2,016)(3) -- 22,067
---------- -------- --------- ------------- ----------
$3,515,009 $276,212 $(205,167) $ 0 $3,586,054
---------- -------- --------- ------------- ----------
---------- -------- --------- ------------- ----------
53 weeks ended August 3, 1991:
Land........................ $ 429,843 $ 16 (1) $ (922)(3) $ -- $ 428,937
Buildings and improvements (4,003)(2)
on owned properties....... 1,548,954 28,554 (1) (1,207)(3) 28 (4) 1,572,326
Buildings and improvements (2,369)(2)
on leased properties...... 419,061 14,110 (1) (8,795)(3) (28) (4) 421,979
Fixtures and equipment...... (70,763)(2)
867,945 95,992 (1) (7,145)(3) -- 886,029
Construction in progress.... 190,070
90,848 (134,166)(1) -- -- 146,752
Capitalized leases.......... 34,903 -- -- -- 34,903
Leasehold values............ 24,083 -- -- -- 24,083
---------- -------- --------- ------------- ----------
$3,415,637 $194,576 $ (95,204) $ 0 $3,515,009
---------- -------- --------- ------------- ----------
---------- -------- --------- ------------- ----------
</TABLE>
See Notes to Schedule V--Property and Equipment.
F-96
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO SCHEDULE V--PROPERTY AND EQUIPMENT
NOTES:
(1) Completed projects transferred to appropriate property and equipment
captions.
(2) Fully depreciated assets.
(3) Assets sold or scrapped, including assets in stores closed in the three
fiscal years.
(4) Transfers between fixed asset captions.
(5) Depreciation is computed on a straight-line method using the following rates
on an annual basis:
(a) Buildings on owned properties:
<TABLE>
<S> <C>
Main store buildings.................................. 2% to 2.5%
Main warehouses....................................... 2% to 5%
Building equipment.................................... 5%
Site improvements..................................... 10%
</TABLE>
(b) Buildings, building improvements, and equipment on leased properties and
leasehold values:
Amortized over terms of lease, or at the rates stated in (a) above if those
rates result in amortization over a shorter period.
(c) Capitalized leases, recorded in accordance with the provisions of
Statement of Financial Accounting Standards No. 13, are amortized over
the respective lease terms.
(d) Store fixtures and equipment--primarily 10% to 33-1/3%.
F-97
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------- ---------- ---------- ----------- ------------- ----------
ADDITIONS
BALANCE AT CHARGED TO OTHER CHANGES BALANCE AT
BEGINNING COSTS AND ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS DESCRIBE PERIOD
- -------------------------------- ---------- ---------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
52 weeks ended July 31, 1993:
Buildings and improvements on
owned properties............ $ 393,769 $ 70,181 $ (389)(1) $ (1,334)(3) $ 455,626
(6,601)(2)
Buildings and improvements on
leased properties........... 106,825 25,827 (16,559)(1) (408)(3) 108,826
(6,859)(2)
Fixtures and equipment........ 446,345 141,917 (7,151)(1) 1,742(3) 489,224
(93,629)(2)
Capitalized leases............ 18,835 11,482 (749)(1) -- 29,397
(171)(2)
Leasehold values.............. 6,620 1,103 (857)(1) -- 6,866
---------- ---------- ----------- ------------- ----------
$ 972,394 $ 250,510 $ (132,965) $ 0 $1,089,939
---------- ---------- ----------- ------------- ----------
---------- ---------- ----------- ------------- ----------
52 weeks ended August 1, 1992:
Buildings and improvements on
owned properties............ $ 342,255 $ 71,859 $ (16,424)(1) $ 790(3) $ 393,769
(4,711)(2)
Buildings and improvements on
leased properties........... 80,173 25,143 (6,049)(1) 9,885(3) 106,825
(2,327)(2)
Fixtures and equipment........ 395,788 139,383 (15,735)(1) (10,675)(3) 446,345
(62,416)(2)
Capitalized leases............ 11,490 7,924 (579)(1) -- 18,835
Leasehold values.............. 6,020 1,154 (554)(1) -- 6,620
---------- ---------- ----------- ------------- ----------
$ 835,726 $ 245,463 $ (108,795) $ 0 $ 972,394
---------- ---------- ----------- ------------- ----------
---------- ---------- ----------- ------------- ----------
53 weeks ended August 3, 1991:
Buildings and improvements on
owned properties............ $ 274,494 $ 72,018 $ (200)(1) $ (54)(4) $ 342,255
(4,003)(2)
Buildings and improvements on
leased properties........... 64,668 22,220 (4,335)(1) (11)(3) 80,173
(2,369)(2)
Fixtures and equipment........ 341,014 132,856 (5,176)(1) 11(3) 395,788
(72,917)(2)
Capitalized leases............ 6,430 5,060 -- -- 11,490
Leasehold values.............. 4,816 1,204 -- -- 6,020
---------- ---------- ----------- ------------- ----------
$ 691,422 $ 233,358 $ (89,000) $ (54) $ 835,726
---------- ---------- ----------- ------------- ----------
---------- ---------- ----------- ------------- ----------
</TABLE>
See Notes to Schedule VI--Accumulated Depreciation of Property and Equipment.
F-98
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO SCHEDULE VI--ACCUMULATED DEPRECIATION
OF PROPERTY AND EQUIPMENT
NOTES:
(1) Assets sold or scrapped including assets in stores closed in the three
fiscal years.
(2) Fully depreciated assets.
(3) Transfer between reserve captions.
(4) Transfer between balance sheet captions.
F-99
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------- ---------- ------------------------ ------------ ----------
ADDITIONS
------------------------
(1) (2)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE (DEDUCTIONS) PERIOD
- --------------------------------- ---------- ---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1993:
Allowance for doubtful
accounts..................... $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ------------ ----------
Year ended August 1, 1992:
Allowance for doubtful
accounts..................... $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ------------ ----------
Year ended August 3, 1991:
Allowance for doubtful
accounts..................... $ 34,400 $ 69,545 $(40,207)(A) $(68,738)(B) $ --
---------- ---------- ---------- ------------ ----------
</TABLE>
- ------------
NOTES:
<TABLE>
<C> <S>
(A) Allowance for doubtful accounts at the date of the sale of receivables to GE Credit.
(B) Uncollectible accounts written off less recoveries.
</TABLE>
F-100
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------- --------- -------- ----------- ----------- -----------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
CATEGORY OF AGGREGATE SHORT-TERM AT END OF INTEREST DURING THE DURING THE RATE DURING
BORROWINGS PERIOD RATE PERIOD PERIOD THE PERIOD
- -------------------------------------- --------- -------- ----------- ----------- -----------
(1) (2)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
52 weeks ended July 31, 1993:
Debtor-in-Possession Facility(3).... $ 65,900 6.67% $ 290,000 $ 58,563 6.57%
Macy Revolving Credit Facility(4)... $ -- -- $ -- $ -- --
Credit Revolving Credit
Facility(5)....................... $ -- -- $ -- $ -- --
Funding Corp. Commercial Paper(6)... $ -- -- $ -- $ -- --
52 weeks ended August 1, 1992:
Debtor-in-Possession Facility(3).... $ -- -- $ -- $ -- --
Macy Revolving Credit Facility(4)... $ -- -- $ -- $ -- --
Credit Revolving Credit
Facility(5)....................... $ -- -- $ -- $ -- --
Funding Corp. Commercial Paper(6)... $ -- -- $ -- $ -- --
53 weeks ended August 3, 1991:
Macy Revolving Credit Facility(4)... $ 253,853 9.07% $ 387,200 $ 173,162 10.55%
Credit Revolving Credit
Facility(5)....................... $ -- -- $ 183,166 $ 90,087 10.71%
Funding Corp. Commercial Paper(6)... $ -- -- $ 650,369 $ 489,248 8.86%
</TABLE>
See Notes to Schedule IX--Short-Term Borrowings.
F-101
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO SCHEDULE IX--SHORT-TERM BORROWINGS
NOTES:
(1) Average amount outstanding during the period is computed by dividing the
total of weekly outstanding principal balances by the weeks during the
period.
(2) Weighted average interest rate during the period is computed by dividing the
actual short-term interest expense by the average short-term debt
outstanding during the period.
(3) The Post-Petition Credit Agreement dated as of January 27, 1992 was amended
and restated on August 12, 1993. The agreement provides a working capital
facility, subject to certain sublimits, not to exceed $550,000,000 (amended
from $600,000,000). Macy's pays interest at a rate per annum equal to 1.5%
plus the alternative Base Rate or at Macy's option, at a rate of 2.5% per
annum in excess of the reserve adjusted London Interbank Offered Rate. The
Amended and Restated Post-Petition Credit Agreement expires on the earlier
of August 1, 1995 or the substantial consummation of a plan of
reorganization.
(4) The original Macy Bank Agreement dated as of July 10, 1986 was amended and
restated as of April 27, 1988. The Macy Revolving Credit Facility reflects
the terms of the amended and restated Macy Bank Agreement which provided for
a six-year revolving working capital line of credit, subject to certain
sublimits, not to exceed $587,700,000. Macy's paid the banks interest on the
average daily principal amount outstanding under the revolving credit
agreement at a rate per annum equal to 1.25% plus the Base Rate or, at
Macy's option, 2.25% plus the Eurodollar Rate. Macy's is in default of the
Macy Bank Agreement as a result of its Chapter 11 cases. Therefore the
amount outstanding under the revolving credit agreement is included in
"Obligations Subject to Settlement Under Reorganization Proceedings."
(5) Pursuant to the Credit Bank Agreement dated as of April 27, 1988, effective
May 3, 1988, Macy Credit Corp. obtained a 73-month revolving working capital
facility ("Credit Revolving Credit Facility"), in an amount, subject to
certain sublimits, not to exceed the lesser of (a) $625,000,000 (amended
from $1,250,000,000), or (b) an amount (the "Borrowing Base") equal to 80%
of certain of Credit's customer accounts receivable minus certain of
Credit's indebtedness (as defined in the Credit Bank Agreement). Credit paid
interest under the Credit Revolving Credit Facility at a per annum rate
equal to (i) 1.0% plus the Base Rate or, at Credit's option, (ii) 2.0% plus
the Eurodollar Rate. As a result of the sale of accounts and receivables to
GE Credit, all of Credit's outstanding obligations under the Credit Bank
Agreement were paid and satisfied in full and such agreement was terminated.
(6) In June 1989, Macy Receivables Funding Corp. ("Funding Corp.") started
financing through the issuance of commercial paper a portion of a portfolio
of credit card receivables generated in the ordinary course of business by
Macy's operating subsidiaries. The commercial paper holders were entitled to
the benefits of letters of credit issued by financial institutions. These
receivables were previously financed by Credit. The commercial paper could
not have maturities of greater than 120 days. As a result of the sale of
accounts and receivables to GE Credit, all of Funding Corp.'s commercial
paper was repaid.
F-102
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COLUMN B
--------------------------------
CHARGED TO COSTS AND EXPENSES
--------------------------------
YEAR ENDED
--------------------------------
COLUMN A AUGUST AUGUST
- ------------------------------------------------------------ JULY 31, 1, 3,
ITEM 1993 1992 1991
- ------------------------------------------------------------ -------- -------- --------
(52 (52 (53
WEEKS) WEEKS) WEEKS)
<S> <C> <C> <C>
Depreciation of property and equipment...................... $250,510 $245,463 $233,358
-------- -------- --------
-------- -------- --------
Taxes, other than payroll and income taxes(1)............... $ 61,556 $ 63,744 $ 64,836
-------- -------- --------
-------- -------- --------
Rents....................................................... $ 93,552 $100,623 $102,920
-------- -------- --------
-------- -------- --------
Advertising costs........................................... $417,029 $455,725 $404,350
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------
NOTES:
(1) Processing taxes, liquor taxes, and import duties have all been charged to
cost of sales. They are not included herein because they are considered to
be part of the initial purchase cost of merchandise; a segregation of such
taxes is not practicable.
(2) No other required information has been presented since the amounts do not
exceed 1% of total sales as reported in the related consolidated statement
of operations.
F-103
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE QUARTER ENDED ENDED
------------------------ ------------------------
APRIL 30, MAY 1, APRIL 30, MAY 1,
1994 1993 1994 1993
---------- ---------- ---------- ----------
(13 WEEKS) (13 WEEKS) (39 WEEKS) (39 WEEKS)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Net retail sales (including licensed
departments) (Note 7)...................... $1,339,327 $1,336,672 $4,775,558 $4,856,559
Less:
Cost of goods sold, including occupancy
and buying costs....................... 956,489 950,894 3,345,785 3,415,220
Selling, general and administrative
expenses............................... 435,898 439,445 1,386,793 1,493,804
Unusual item (Note 9).................... -- -- -- (9,110)
---------- ---------- ---------- ----------
Earnings/(loss) from operations before
interest expense and non-operating items... (53,060) (53,667) 42,980 (43,355)
Interest expense--net (Contractual interest
of $119,821 and $362,466 in 1994 and
$116,229 and $330,807 in 1993) (Note 2).. 66,014 64,345 201,041 179,282
---------- ---------- ---------- ----------
Loss before non-operating items............ (119,074) (118,012) (158,061) (222,637)
Non-operating items:
Earthquake loss (Note 3)................. 35,000 -- 35,000 --
Reorganization items--net (Note 4)....... 6,049 109,692 25,702 131,521
---------- ---------- ---------- ----------
Loss before income taxes/(benefit) and
cumulative effect of an accounting change.. (160,123) (227,704) (218,763) (354,158)
Income taxes/(benefit) (Note 6)............ (2,822) 250 (3,993) 750
---------- ---------- ---------- ----------
Loss before cumulative effect of an
accounting change.......................... (157,301) (227,954) (214,770) (354,908)
Cumulative effect of an accounting change
(Note 6)................................... -- -- 185,340 --
---------- ---------- ---------- ----------
Net loss................................... $ (157,301) $ (227,954) $ (29,430) $ (354,908)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary loss per share of common stock
(Note 10):
Loss before cumulative effect of an
accounting change....................... $ (97.28) $ (140.97) $ (132.82) $ (219.49)
Cumulative effect of an accounting
change.................................. -- -- 114.62 --
---------- ---------- ---------- ----------
Primary loss per share of common stock..... $ (97.28) $ (140.97) $ (18.20) $ (219.49)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-104
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
APRIL 30, MAY 1, JULY 31,
1994 1993 1993
----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 53,097 $ 41,114 $ 41,533
Restricted cash................................... 48,507 32,644 34,915
Merchandise inventories (Note 5).................. 1,270,058 1,281,393 1,279,744
Other current assets.............................. 215,157 158,456 188,182
----------- ----------- -----------
Total current assets............................ 1,586,819 1,513,607 1,544,374
Other assets........................................ 110,147 135,280 120,288
Property and equipment (including capitalized
leases), at cost, less accumulated depreciation of
$1,178,921, $1,070,855 and $1,089,939 (Note 2).... 2,504,918 2,470,778 2,435,827
----------- ----------- -----------
$ 4,201,884 $ 4,119,665 $ 4,100,489
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current liabilities:
Short-term borrowings--net (Note 2)............... $ -- $ 42,375 $ 62,698
Accounts payable and accrued liabilities.......... 832,669 862,749 874,492
Current income taxes (Note 6)..................... 177 320 402
Current portion of obligations under capitalized
leases.............................................. 13,738 6,368 13,891
----------- ----------- -----------
Total current liabilities....................... 846,584 911,812 951,483
Deferred taxes (Note 6)............................. 18,902 -- --
Other long-term liabilities......................... 137,486 121,815 117,265
Obligations under capitalized leases................ 37,155 16,150 27,829
Obligations subject to settlement under
reorganization proceedings (Note 2)............... 5,755,878 5,445,586 5,568,603
Deficiency in net assets:
Common stock...................................... 1,750 1,750 1,750
Deficit........................................... (2,594,538) (2,376,115) (2,565,108)
Treasury shares, at cost.......................... (1,333) (1,333) (1,333)
----------- ----------- -----------
Deficiency in net assets........................ (2,594,121) (2,375,698) (2,564,691)
----------- ----------- -----------
$4,201,884.. $ 4,119,665 $ 4,100,489
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-105
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
----------------------
APRIL 30, MAY 1,
1994 1993
--------- ---------
(39 WEEKS)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................ $ (29,430) $(354,908)
Adjustments to reconcile net loss to net cash provided by/ (used
for) operating activities:
Items not requiring the outlay of cash:
Depreciation and amortization................................... 234,181 218,500
Interest accrued on pre-petition secured debt................... 160,421 176,594
Non-cash interest............................................... 29,430 (5,119)
Accrued postretirement benefits................................. 11,875 --
Cumulative effect of an accounting change....................... (185,340) --
Loss on write-off of assets--net................................ 28,374 22,614
Increase in working capital (excluding cash and cash equivalents and
current portion of debt instruments).............................. (72,929) (104,907)
(Increase)/decrease in working capital due to reorganization
proceedings....................................................... 6,741 (19,972)
Other............................................................... (4,632) 21,066
--------- ---------
Net cash provided by/(used for) operating activities.................. 178,691 (46,132)
--------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment................................. (84,427) (85,114)
Proceeds on sale of assets.......................................... 2,580 12,649
--------- ---------
Net cash used for investing activities................................ (81,847) (72,465)
--------- ---------
FINANCING ACTIVITIES:
Decrease in obligations under capitalized leases.................... (14,544) (10,870)
Increase/(decrease) in short-term borrowings........................ (65,900) 48,000
Cost of short-term borrowings....................................... (4,836) --
--------- ---------
Net cash provided by/(used for) financing activities.................. (85,280) 37,130
--------- ---------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS...................... 11,564 (81,467)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 41,533 122,581
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 53,097 $ 41,114
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-106
<PAGE>
R.H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
(UNAUDITED)
SUPPLEMENTAL INFORMATION
Amounts in this statement of cash flows are presented on a cash basis and
may differ from those in other sections of this report.
Interest amounts paid (excluding interest expense capitalized during
construction) for the nine months ended April 30, 1994 and May 1, 1993 were
$11,602,000 and $9,350,000. Income taxes paid net of income tax refunds were
$1,299,000 and $836,000 for the nine months ended April 30, 1994 and May 1,
1993.
In 1994, additions to property and equipment of $20,093,000 were recorded by
incurring obligations under capitalized leases.
In 1993, certain obligations under capitalized leases were reclassified from
"Obligations Subject to Settlement Under Reorganization Proceedings" due to the
assumption of those leases. This amount aggregated $24,451,000.
F-107
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS AND NINE MONTHS ENDED APRIL 30, 1994 (13 WEEKS AND 39 WEEKS)
AND MAY 1, 1993 (13 WEEKS AND 39 WEEKS)
(UNAUDITED)
1. The accompanying Notes to Condensed Consolidated Financial Statements
should be read in conjunction with the Notes to Consolidated Financial
Statements included in the accompanying consolidated financial statements for
Macy's fiscal year ended July 31, 1993. In the opinion of management, all
adjustments necessary for a fair presentation of the results of operations for
the interim period have been included. Because of the seasonal nature of the
business, results for the interim period are not necessarily indicative of a
full year's operations.
2. On January 27, 1992, Macy's, together with nine of its subsidiaries,
filed voluntary petitions for reorganization under chapter 11 ("Chapter 11"),
title 11 of the United States Code, as amended (the "Bankruptcy Code") in the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"). On January 31, 1992, seventy-eight additional subsidiaries
each commenced a Chapter 11 case in the Bankruptcy Court. Macy's and all such
subsidiaries that filed a Chapter 11 case in Bankruptcy Court are herein defined
collectively as the "Macy Debtors" and are currently operating their respective
businesses as debtors-in-possession. Two statutory creditor committees have been
appointed. The cases of Macy's subsidiaries that filed such petitions are being
jointly administered with the case of Macy's for procedural purposes only.
The Condensed Consolidated Financial Statements of Macy's have been prepared
in accordance with generally accepted accounting principles applicable to a
going concern, which assumes continuity of operations in the ordinary course of
business. Additionally, the amounts reported on the Condensed Consolidated
Statement of Financial Condition could materially change in the future because
of a plan of reorganization, since such reported amounts do not give effect to
adjustments to the carrying value of the underlying assets or amounts of
liabilities that may ultimately result. As a result of the Chapter 11 cases and
circumstances relating to this event, including Macy's leveraged debt structure,
and operating losses as well as the economic conditions in Macy's major markets,
such realization of assets and liquidation of liabilities are subject to
significant uncertainty.
Generally, actions to enforce or otherwise affect the payment of
pre-petition liabilities are stayed while the Macy Debtors are under the
protection of the Bankruptcy Code. These liabilities will be resolved as part of
the reorganization proceedings. Additional liabilities subject to similar
resolution may arise as a result of claims filed by parties related to the
rejection of any executory contracts, including unexpired leases, and from the
Bankruptcy Court's allowance for contingent and other disputed claims.
On February 13, 1992, the Bankruptcy Court entered a final order approving a
debtor-in-possession financing arrangement under a Revolving Credit Agreement,
dated as of January 27, 1992 (which, as amended, through March 31, 1993, is
referred to herein as the "Post-Petition Credit Agreement"), among Macy's, as
Borrower, each of the other Macy Debtors, as guarantors, Chemical Bank, as
administrative agent, Bankers Trust Company, as co-agent, and other financial
institutions parties thereto that established a working capital facility
consisting of revolving credit loans and letters of credit.
On August 12, 1993, the Post-Petition Credit Agreement was amended and
restated on similar terms pursuant to an Amended and Restated Revolving Credit
and Guaranty Agreement, approved by a Bankruptcy Court order dated September 8,
1993, among Macy's, as Borrower, each of the other Macy Debtors, as guarantors,
Chemical Bank, as administrative agent, Bankers Trust Company, as co-
F-108
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERS AND NINE MONTHS ENDED APRIL 30, 1994 (13 WEEKS AND 39 WEEKS)
AND MAY 1, 1993 (13 WEEKS AND 39 WEEKS)
(UNAUDITED)
agent, and other financial institutions party thereto (as subsequently amended,
the "Amended and Restated Post-Petition Credit Agreement"). Under the Amended
and Restated Post-Petition Credit Agreement, the working capital facility (the
"Working Capital Facility"), consisting of revolving credit loans and letters of
credit, is in the aggregate maximum amount of $550,000,000. The Working Capital
Facility may be used to fund working capital, inventory purchases, capital
expenditures and for other general corporate purposes of the Macy Debtors.
Borrowings under the Amended and Restated Post-Petition Credit Agreement are
conditioned upon, among other things, satisfaction of certain Borrowing Base (as
defined therein) requirements, and compliance with restrictions on capital
expenditures and certain other payments, as well as covenants relating to EBITDA
(earnings before interest, taxes, depreciation and amortization as defined in
the Amended and Restated Post-Petition Credit Agreement). The Amended and
Restated Post-Petition Credit Agreement terminates upon the earlier of (i)
August 1, 1995 or (ii) the substantial consummation of a plan of reorganization
of Macy's or certain of its subsidiaries.
Claims in respect of indebtedness incurred by the Macy Debtors under the
Amended and Restated Post-Petition Credit Agreement are afforded superpriority
administrative expense claim status pursuant to applicable provisions of the
Bankruptcy Code.
Substantially all of Macy's pre-petition short and long-term debt at April
30, 1994 is in default of the terms of the applicable loan agreements and is
subject to settlement under the reorganization process. For financial reporting
purposes, these liabilities which are dependent upon the outcome of the Chapter
11 process have been segregated and reclassified as "Obligations Subject to
Settlement Under Reorganization Proceedings." Payment of certain pre-petition
liabilities that were approved for payment by the Bankruptcy Court or are
pending approval have been included in the appropriate liability captions.
The estimated obligations at April 30, 1994 that are subject to settlement
as part of a plan of reorganization are listed below.
<TABLE>
<S> <C>
Accounts payable and accrued liabilities....... $ 739,588,000
Accrued interest on long-term debt............. 542,030,000
Secured debt................................... 2,326,792,000
Unsecured debt................................. 1,265,611,000
Obligations under capitalized leases........... 12,088,000
Other long-term liabilities.................... 232,454,000
Convertible Preferred Stock (redeemable)....... 637,315,000
--------------
$5,755,878,000
--------------
--------------
</TABLE>
Generally, interest on pre-petition debt does not accrue after the
commencement of the Chapter 11 case. If the debts are secured by property with a
value that is greater than the amount of the debt, interest may accrue up to the
value of the collateral. For financial statement purposes and conservatism only,
interest expense on pre-petition secured debt has been accrued but is subject to
settlement. No final determination has been made regarding the value of the
property interests that secure certain debt and, consequently, whether interest
thereon will be allowed or paid. Such accrual of interest on secured
indebtedness is being recorded at the interest rates applicable under the
respective loan agreements
F-109
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERS AND NINE MONTHS ENDED APRIL 30, 1994 (13 WEEKS AND 39 WEEKS)
AND MAY 1, 1993 (13 WEEKS AND 39 WEEKS)
(UNAUDITED)
without regard to default and penalty provisions contained therein. Macy's has
ceased accruing interest expense on its unsecured debt. Contractual interest not
recorded on such unsecured debt aggregated $53,807,000 and $161,425,000 for the
quarter and nine months ended April 30, 1994 and $51,884,000 and $151,525,000
for the quarter and nine months ended May 1, 1993.
Numerous claims have been asserted in respect of various pre-petition
obligations, which claims individually or in the aggregate may be material and
may not currently be reflected as obligations subject to settlement. The last
day on which these claims might be filed against the Macy Debtors, with certain
exceptions, was December 15, 1992, and over 16,000 claims aggregating an amount
substantially in excess of the amounts reported in the Condensed Consolidated
Statement of Financial Condition under the caption "Obligations Subject to
Settlement Under Reorganization Proceedings" have been filed as of May 28, 1994.
Based on an ongoing review and reconciliation of claims, Macy's believes that a
number of these claims are duplicative of and/or supersede claims previously
asserted. In addition, claims have been filed which do not state a specific
claim amount or as to which a specific claim amount is not readily determinable.
Pursuant to Bankruptcy Court orders entered in 1993, certain exact duplicate
claims and duplicate bondholder claims were expunged. In March 1994, the
Bankruptcy Court ordered the expunging and disallowing of certain proofs of
claims which had been filed after the December 15, 1992 bar date. Claims will
continue to be reviewed and analyzed by Macy's as part of the claims
reconciliation process and objections filed as required. As this review process
continues, the aggregate amount included in the estimate of petition date
obligations subject to settlement may increase or otherwise be adjusted to
reflect the ongoing analyses of claims filed and the aggregate amounts which may
be allowed in respect thereof. Macy's, at this time, cannot make a prediction as
to the aggregate amount of claims allowed or the ultimate treatment of such
allowed claims under a plan of reorganization.
Commencing on the Chapter 11 filing date, Macy's ceased accruing dividends
on its Convertible Preferred Stock (redeemable) and has included the Convertible
Preferred Stock (redeemable) and the cumulative accrued but unpaid dividends
prior to the filing date on such stock in "Obligations Subject to Settlement
Under Reorganization Proceedings." Under applicable bankruptcy law, the holders
of the Convertible Preferred Stock (redeemable) of Macy's are not considered
creditors. The right to convert Convertible Preferred Stock (redeemable) ended
July 15, 1993 except that each share of Convertible Preferred Stock Series III
("Series III") is convertible into one share of Common Stock at the option of
the holder until expiration of such right on December 18, 1997. In addition, the
Series III Preferred Stock is redeemable at the option of Macy's until December
18, 1999 while the other two series of Convertible Preferred Stock are so
redeemable until July 15, 1995.
Long-term debt does not include $5,000,000 of 14 1/2% Senior Subordinated
Debentures, $241,931,000 of 14 1/2% Subordinated Debentures and $187,769,000
face amount of 16 1/2% Junior Subordinated Discount Debentures purchased in
fiscal 1991 by Macy Financial, Inc. ("MFI"), a wholly-owned subsidiary of the
registrant and also a debtor-in-possession. The capital stock of MFI, as well as
such debentures, were pledged to the pre-petition banks under the pre-petition
Macy Bank Credit Agreement.
3. On January 17, 1994, a major earthquake struck the Los Angeles,
California area. Several of the Bullock's and I. Magnin stores that operate in
this area experienced property damage, merchandise
F-110
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERS AND NINE MONTHS ENDED APRIL 30, 1994 (13 WEEKS AND 39 WEEKS)
AND MAY 1, 1993 (13 WEEKS AND 39 WEEKS)
(UNAUDITED)
loss, and business interruption. The Bullock's Sherman Oaks and Northridge
stores sustained extensive damage. The Sherman Oaks store is expected to be in
complete operation by October 1994 while the Northridge store is expected to
reopen in late 1995. The $35,000,000 loss recorded in the quarter ended April
30, 1994 reflected estimated damage and costs related to the earthquake in
excess of insurance coverage.
4. The reorganization items--net occurring as a result of the Chapter 11
proceedings have been segregated from operations for the quarters and nine
months ended April 30, 1994 and May 1, 1993. The major components of the
reorganization items--net are:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
--------------------------- ---------------------------
APRIL 30, APRIL 30,
1994 MAY 1, 1993 1994 MAY 1, 1993
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Professional fees and other expenses
directly related to the
bankruptcy.......................... $ 7,099,000 $ 5,310,000 $23,885,000 $ 18,933,000
Estimated costs associated with the
closing of certain stores........... -- 84,000,000 -- 84,000,000
Restructuring costs................. -- 21,000,000 -- 21,000,000
Retention costs..................... -- -- 4,500,000 7,500,000
Other............................... -- -- -- 2,150,000
----------- ------------ ----------- ------------
7,099,000 110,310,000 28,385,000 133,583,000
Less: Interest earned on accumulated
cash resulting from the Chapter 11
proceedings......................... (1,050,000) (618,000) (2,683,000) (2,062,000)
----------- ------------ ----------- ------------
$ 6,049,000 $109,692,000 $25,702,000 $131,521,000
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
In March 1993, Macy's provided for the estimated costs related to the announced
closing of two Macy's, two Bullock's, and six I. Magnin department stores, the
expenses associated with the consolidation of store operations and expenses
associated with the closing of certain store support facilities. All such stores
were closed as of July 31, 1993.
5. The value of merchandise inventories is determined by the retail
inventory method using the lower of LIFO (last-in, first-out) cost or market for
about 74% of the total inventory, and the retail inventory method using the
lower of FIFO (first-in, first-out) cost or market for the balance of the
inventory. If inventories had been valued at the lower of FIFO cost or market,
inventories would have increased by $117,563,000, $129,009,000 and $102,563,000
at April 30, 1994, May 1, 1993 and July 31, 1993.
6. The Financial Accounting Standards Board Statement No. 109, "Accounting
for Income Taxes" ("FASB 109") was adopted on August 1, 1993. FASB 109 requires
that a deferred tax liability be recognized for certain temporary differences
and deferred tax assets be recognized for certain temporary differences, tax
credit carryforwards and operating loss carryforwards. A temporary difference
arises as a result of the timing of when income and expense items are reflected
in the financial statements in comparison to when they are reflected for tax
purposes. FASB 109 requires, among other things, the remeasurement of all
business combinations consummated before adoption of FASB 109
F-111
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERS AND NINE MONTHS ENDED APRIL 30, 1994 (13 WEEKS AND 39 WEEKS)
AND MAY 1, 1993 (13 WEEKS AND 39 WEEKS)
(UNAUDITED)
which utilized purchase accounting rules and were recorded on a net-of-tax
basis. The July 15, 1986 leveraged buyout of R. H. Macy & Co., Inc., the former
New York corporation, by the registrant and certain of its subsidiaries (the
"1986 Acquisition") utilized purchase accounting rules and was recorded on a
net-of-tax basis; therefore, with the adoption of FASB 109, certain assets
(primarily fixed assets and intangible assets) and liabilities (deferred income
taxes) resulting from the 1986 Acquisition were increased by $209,308,000 at
August 1, 1993. The cumulative effect of remeasuring the 1986 Acquisition offset
by the effect of certain other requirements of FASB 109 resulted in a favorable
cumulative effect income adjustment of $185,340,000.
At August 1, 1993, Macy's had a net deferred tax liability of approximately
$24,000,000, which consisted of deferred tax liabilities of approximately
$614,000,000 and deferred tax assets of approximately $590,000,000. This
deferred tax liability related primarily to taxes due to certain state
jurisdictions. During the nine months ended April 30, 1994, Macy's's loss before
cumulative effect of an accounting change resulted in a deferred tax asset of
approximately $83,000,000 (representing primarily a federal income tax benefit)
offset by a valuation allowance of like amount. Financial statements for the
prior period have not been restated to reflect FASB 109.
At August 1, 1993, Macy's had an estimated net operating loss carryover of
approximately $1,130,000,000 for federal income tax purposes which includes
approximately $302,960,000 of post-petition interest expense on unsecured debt
not reflected in the accompanying Condensed Consolidated Financial Statements.
The loss carryover will be available to offset future taxable income through the
year 2008, subject to any reductions or limitations that may result from
consummation of a plan of reorganization in the Chapter 11 cases of any of the
Macy Debtors.
Income taxes/(benefit) were recorded under the applicable accounting rules
during all periods presented.
7. Net retail sales included sales from licensed departments of $15,684,000
and $15,732,000 for the quarters ended April 30, 1994 and May 1, 1993 and
$48,694,000 and $52,608,000 for the nine months ended April 30, 1994 and May 1,
1993.
8. The Financial Accounting Standards Board Statement No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions" ("FASB 106") was
adopted on August 1, 1993. This statement requires that employers record the
expected cost of postretirement benefits other than pensions during the
employees' active years of service. As of August 1, 1993, the accumulated
postretirement obligation was approximately $204,000,000. Macy's is recording
this obligation through amortization over a 20-year period. In the quarter and
nine months ended April 30, 1994, the incremental non-cash expense associated
with the adoption of FASB 106 was $6,507,000 and $19,521,000, including the
amortization of the accumulated postretirement obligation of $2,549,000 and
$7,646,000.
9. The unusual item in the nine months ended May 1, 1993 related to the sale
of Macy's aircraft.
10. Primary loss per share of common stock attributable to common
stockholders is computed based upon the weighted average number of shares
outstanding during the period. Fully diluted loss per share of common stock
assumes the conversion of Convertible Preferred Stock (redeemable). The effect
of the assumed conversion of the Convertible Preferred Stock (redeemable) on the
amounts per share
F-112
<PAGE>
R. H. MACY & CO., INC.
(DEBTOR-IN-POSSESSION)
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERS AND NINE MONTHS ENDED APRIL 30, 1994 (13 WEEKS AND 39 WEEKS)
AND MAY 1, 1993 (13 WEEKS AND 39 WEEKS)
(UNAUDITED)
for the quarter and nine months ended April 30, 1994 and May 1, 1993 are
antidilutive and therefore only primary loss per share of common stock is
presented.
11. Certain reclassifications have been made to the May 1, 1993 financial
statements to conform with classifications used at April 30, 1994.
F-113
<PAGE>
EXHIBIT I
AMENDED JOINT PLAN OF REORGANIZATION
OF R.H. MACY & CO., INC. AND
CERTAIN OF ITS SUBSIDIARIES
<PAGE>
AS FILED ON 8/31/94
MARKED TO SHOW CUMULATIVE
CHANGES FROM DRAFT
OF 8/27/94
United States Bankruptcy Court
FOR THE SOUTHERN DISTRICT OF NEW YORK
----------------
<TABLE>
<S> <C> <C>
In re: CHAPTER 11
R.H. MACY & CO., INC., et al., CASE NOS. 92 B 40477 (BRL)
Debtors. (JOINTLY ADMINISTERED)
DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE
FOR THE AMENDED JOINT PLAN OF
REORGANIZATION OF R.H. MACY & CO., INC.
AND CERTAIN OF ITS SUBSIDIARIES
</TABLE>
DAVID G. HEIMAN (DH 9111)
HARVEY R. MILLER (HM 6078)
RICHARD M. CIERI (RC 6062)
RICHARD P. KRASNOW (RK 5707)
SCOTT J. DAVIDO (SD 7424)
JUDY G.Z. LIU (JL 6449)
PAUL E. HARNER (PH 8276)
WEIL, GOTSHAL & MANGES
JONES, DAY, REAVIS & POGUE
767 Fifth Avenue
North Point
New York, New York 10153
901 Lakeside Avenue
(212) 310-8000
Cleveland, Ohio 44114
ATTORNEYS FOR DEBTORS AND
(216) 586-3939
DEBTORS IN POSSESSION
ROBERT A. PROFUSEK (RP 4594)
MARK E. BETZEN (MB 0176)
JONES, DAY, REAVIS & POGUE
599 Lexington Avenue
New York, New York 10022
(212) 326-3939
ATTORNEYS FOR FEDERATED
DEPARTMENT STORES, INC.
AUGUST 31, 1994
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
ARTICLE I. DEFINED TERMS, RULES OF INTERPRETATION
AND COMPUTATION OF TIME . . . . . . . . . . . . . . . . . . . . I-1
A. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
1. "49 Store Bank Group" . . . . . . . . . . . . . . . . . . . . . I-1
2. "1992 Loss Carrybacks" . . . . . . . . . . . . . . . . . . . . . I-1
3. "Administrative Claim" . . . . . . . . . . . . . . . . . . . . . I-1
4. "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
5. "Agent Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
6. "Agent Bank Charges" . . . . . . . . . . . . . . . . . . . . . . I-2
7. "Allowed Bank Loan Claim" . . . . . . . . . . . . . . . . . . . I-2
8. "Allowed Claim" or "Allowed Unsecured Claim" . . . . . . . . . . I-2
9. "Allowed . . . Claim" . . . . . . . . . . . . . . . . . . . . . I-2
10. "Allowed Debt Security Claim" . . . . . . . . . . . . . . . . . I-2
11. "Allowed Secondary Liability Claim" . . . . . . . . . . . . . . I-2
12. "Bankruptcy Code" . . . . . . . . . . . . . . . . . . . . . . . I-2
13. "Bankruptcy Court" . . . . . . . . . . . . . . . . . . . . . . . I-3
14. "Bankruptcy Rules" . . . . . . . . . . . . . . . . . . . . . . . I-3
15. "Bar Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
16. "Bar Date Order" . . . . . . . . . . . . . . . . . . . . . . . . I-3
17. "Bondholders' Committee" . . . . . . . . . . . . . . . . . . . . I-3
18. "Bullock's" . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
19. "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . I-3
20. "Cash Investment Yield" . . . . . . . . . . . . . . . . . . . . I-3
21. "Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
22. "Claims Objection Bar Date" . . . . . . . . . . . . . . . . . . I-3
23. "Claims Resolution Committee" . . . . . . . . . . . . . . . . . I-3
24. "Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
25. "Combined Company" . . . . . . . . . . . . . . . . . . . . . . . I-3
26. "Confirmation" . . . . . . . . . . . . . . . . . . . . . . . . . I-3
27. "Confirmation Date" . . . . . . . . . . . . . . . . . . . . . . I-3
28. "Confirmation Order" . . . . . . . . . . . . . . . . . . . . . . I-4
29. "Creditors' Committees" . . . . . . . . . . . . . . . . . . . . I-4
30. "CREI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
31. "CREI Bank Group" . . . . . . . . . . . . . . . . . . . . . . . I-4
32. "Debtors" . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
33. "Delaware General Corporation Law" . . . . . . . . . . . . . . . I-4
34. "DIP Credit Agreement" . . . . . . . . . . . . . . . . . . . . . I-4
35. "Disbursing Agent" . . . . . . . . . . . . . . . . . . . . . . . I-4
36. "Disclosure Statement" . . . . . . . . . . . . . . . . . . . . . I-4
37. "Disputed Claim" . . . . . . . . . . . . . . . . . . . . . . . . I-4
38. "Disputed Claims Reserve" . . . . . . . . . . . . . . . . . . . I-5
39. "Disputed Insured Claim" and "Disputed Uninsured Claim" . . . . I-5
40. "Distributable Shares (Pool A)" . . . . . . . . . . . . . . . . I-5
41. "Distributable Shares (Pool B)" . . . . . . . . . . . . . . . . I-5
42. "Distributable Warrants" . . . . . . . . . . . . . . . . . . . . I-5
43. "Distribution Record Date" . . . . . . . . . . . . . . . . . . . I-5
44. "Document Reviewing Centers" . . . . . . . . . . . . . . . . . . I-5
45. "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . I-5
I-i
<PAGE>
Page
----
46. "Effective Time of the Federated/Macy's Merger" . . . . . . . . I-5
47. "Estate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-6
48. "Face Amount" . . . . . . . . . . . . . . . . . . . . . . . . . I-6
49. "Federal Priority Tax Claims" . . . . . . . . . . . . . . . . . I-6
50. "Federated" . . . . . . . . . . . . . . . . . . . . . . . . . . I-6
51. "Federated Average Market Price (Pool A)" . . . . . . . . . . . I-6
52. "Federated Average Market Price (Pool B)" . . . . . . . . . . . I-6
53. "Federated/Macy's Merger" . . . . . . . . . . . . . . . . . . . I-7
54. "Federated/Macy's Merger Agreement" . . . . . . . . . . . . . . I-7
55. "Fidelity" . . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
56. "File," "Filed" or "Filing" . . . . . . . . . . . . . . . . . . I-7
57. "Final Order" . . . . . . . . . . . . . . . . . . . . . . . . . I-7
58. "Fixed Cash Portion" . . . . . . . . . . . . . . . . . . . . . . I-7
59. "FNC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
60. "GECC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
61. "GE Credit" . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
62. "I. Magnin" . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
63. "Indenture Trustees" . . . . . . . . . . . . . . . . . . . . . . I-7
64. "Indenture Trustee Charging Lien" . . . . . . . . . . . . . . . I-7
65. "Insured Claim" . . . . . . . . . . . . . . . . . . . . . . . . I-7
66. "Intercompany Claim" . . . . . . . . . . . . . . . . . . . . . . I-7
67. "Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
68. "IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
69. "IRS Settlement Agreement" . . . . . . . . . . . . . . . . . . . I-8
70. "John Hancock" . . . . . . . . . . . . . . . . . . . . . . . . . I-8
71. "John Hancock Kings Plaza Claims" . . . . . . . . . . . . . . . I-8
72. "John Hancock KPM Note" . . . . . . . . . . . . . . . . . . . . I-8
73. "John Hancock Plaza Store Note" . . . . . . . . . . . . . . . . I-8
74. "KPM" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
75. "Macy's" . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
76. "Macy's/49 Store Lease Payment Guaranty" . . . . . . . . . . . . I-8
77. "Macy's/49 Store Loan Agreement" . . . . . . . . . . . . . . . . I-8
78. "Macy's/49 Store Loan Guaranty" . . . . . . . . . . . . . . . . I-9
79. "Macy's/49 Store Operating Subsidiary Debtors" . . . . . . . . . I-9
80. "Macy's/49 Store Real Estate Subsidiary Debtors" . . . . . . . . I-9
81. "Macy's Bank Loan Agreements" . . . . . . . . . . . . . . . . . I-9
82. "Macy's California" . . . . . . . . . . . . . . . . . . . . . . I-9
83. "Macy's/CREI Lease Payment Guaranty" . . . . . . . . . . . . . . I-9
84. "Macy's/CREI Loan Agreement" . . . . . . . . . . . . . . . . . . I-9
85. "Macy's/CREI Operating Subsidiary Debtors" . . . . . . . . . . . I-9
86. "Macy's/CREI Real Estate Subsidiary Debtors" . . . . . . . . . . I-9
87. "Macy's/CREI Swap Agreement" . . . . . . . . . . . . . . . . . . I-9
88. "Macy's Financial" . . . . . . . . . . . . . . . . . . . . . . I-10
89. "Macy's/GECC Interest Guaranty" . . . . . . . . . . . . . . . I-10
90. "Macy's/GECC Loan Agreement" . . . . . . . . . . . . . . . . . I-10
91. "Macy's/GECC Operating Subsidiary Debtors" . . . . . . . . . . I-10
92. "Macy's/Macy's South Liquidated Damages Guaranty" . . . . . . I-10
93. "Macy's Miscellaneous Subsidiary Debtors" . . . . . . . . . . I-10
94. "Macy's Nondebtor Subsidiaries" . . . . . . . . . . . . . . . I-10
95. "Macy's Northeast" . . . . . . . . . . . . . . . . . . . . . . I-10
96. "Macy's Operating Subsidiary Debtors" . . . . . . . . . . . . I-10
I-ii
<PAGE>
Page
----
97. "Macy's/Prudential 1986 Mortgage Notes" . . . . . . . . . . . I-10
98. "Macy's/Prudential 1987 Mortgage Notes" . . . . . . . . . . . I-11
99. "Macy's/Prudential Loan Agreement" . . . . . . . . . . . . . . I-11
100. "Macy's/Prudential Mortgage Notes" . . . . . . . . . . . I-11
101. "Macy's/Prudential Operating Subsidiary Debtors" . . . . I-11
102. "Macy's/Prudential Real Estate Subsidiary Debtors" . . . I-11
103. "Macy's Real Estate Subsidiary Debtors" . . . . . . . . . I-11
104. "Macy's Senior Subordinated Debentures" . . . . . . . . . I-11
105. "Macy's Senior Subordinated Debentures Assumption Agreement"
I-11
106. "Macy's Senior Subordinated Debentures Guarantors" . . . I-11
107. "Macy's Senior Subordinated Debentures Guaranty" . . . . I-11
108. "Macy's Senior Subordinated Debentures Indenture" . . . . I-11
109. "Macy's South" . . . . . . . . . . . . . . . . . . . . . I-12
110. "Macy's Specialty" . . . . . . . . . . . . . . . . . . . I-12
111. "Macy's Subordinated Debentures" . . . . . . . . . . . . I-12
112. "Macy's Subordinated Debentures Assumption Agreement" . . I-12
113. "Macy's Subordinated Debentures Guarantors" . . . . . . . I-12
114. "Macy's Subordinated Debentures Guaranty" . . . . . . . . I-12
115. "Macy's Subordinated Debentures Indenture" . . . . . . . I-12
116. "Macy's Subordinated Discount Debentures" . . . . . . . . I-12
117. "Macy's Subordinated Discount Debentures Assumption
Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . I-12
118. "Macy's Subordinated Discount Debentures Guarantors" . . I-12
119. "Macy's Subordinated Discount Debentures Guaranty" . . . I-12
120. "Macy's Subordinated Discount Debentures Indenture" . . . I-13
121. "Macy's Subsidiaries" . . . . . . . . . . . . . . . . . . I-13
122. "Macy's Subsidiary Debtors" . . . . . . . . . . . . . . . I-13
123. "Macy's/Swiss Bank Liquidated Damages Agreement" . . . . I-13
124. "Macy's/WCB Guarantor Debtors" . . . . . . . . . . . . . I-13
125. "Macy's/WCB Guaranty" . . . . . . . . . . . . . . . . . . I-13
126. "Macy's/WCB (Junior Lien) Subsidiary Debtors" . . . . . . I-13
127. "Macy's/WCB Loan Agreement" . . . . . . . . . . . . . . . I-13
128. "Macy's/WCB Obligor Debtors" . . . . . . . . . . . . . . I-14
129. "Macy's/WCB Real Estate (First Lien) Subsidiary Debtors" I-14
130. "Macy's/WCB Swap Agreement" . . . . . . . . . . . . . . . I-14
131. "MCO" . . . . . . . . . . . . . . . . . . . . . . . . . . I-14
132. "New Combined Company Common Stock" . . . . . . . . . . . I-14
133. "New Combined Company Preferred Stock" . . . . . . . . . I-14
134. "New Combined Company Share Purchase Rights" . . . . . . I-14
135. "New Combined Company Share Purchase Rights Agreement" . I-14
136. "New Debt" . . . . . . . . . . . . . . . . . . . . . . . I-14
137. "New Debt Instruments" . . . . . . . . . . . . . . . . . I-14
138. "New Equity" . . . . . . . . . . . . . . . . . . . . . . I-14
139. "New GECC Mortgage Notes" . . . . . . . . . . . . . . . . I-14
140. "New GECC Mortgage Note Agreement" . . . . . . . . . . . I-15
141. "New Global Indenture" . . . . . . . . . . . . . . . . . I-15
142. "New John Hancock KPM Note" . . . . . . . . . . . . . . . I-15
143. "New John Hancock KPM Note Agreement" . . . . . . . . . . I-15
144. "New John Hancock Plaza Store Note" . . . . . . . . . . . I-15
145. "New John Hancock Plaza Store Note Agreement" . . . . . . I-15
146. "New Macy's Primary Real Estate" . . . . . . . . . . . . I-15
147. "New Macy's Secondary Real Estate" . . . . . . . . . . . I-15
I-iii
<PAGE>
Page
----
148. "New Macy's Warehouse Real Estate" . . . . . . . . . . . I-15
149. "New Mortgage Notes" . . . . . . . . . . . . . . . . . . I-15
150. "New Mortgage Notes Agreements" . . . . . . . . . . . . . I-15
151. "New Prudential Mortgage Note and Guaranty Agreement" . . I-15
152. "New Prudential Mortgage Notes" . . . . . . . . . . . . . I-15
153. "New Securities" . . . . . . . . . . . . . . . . . . . . I-15
154. "New Series A Notes" . . . . . . . . . . . . . . . . . . I-16
155. "New Series A Notes Supplemental Indenture" . . . . . . . I-16
156. "New Series B Notes" . . . . . . . . . . . . . . . . . . I-16
157. "New Series B Notes Supplemental Indenture" . . . . . . . I-16
158. "New Series C Notes" . . . . . . . . . . . . . . . . . . I-16
159. "New Series C Notes Supplemental Indenture" . . . . . . . I-16
160. "New Series C Warrants" . . . . . . . . . . . . . . . . . I-16
161. "New Series C Warrants Agreement" . . . . . . . . . . . . I-16
162. "New Series D Warrants" . . . . . . . . . . . . . . . . . I-16
163. "New Series D Warrants Agreement" . . . . . . . . . . . . I-16
164. "New Unsecured Notes" . . . . . . . . . . . . . . . . . . I-16
165. "New Warrants" . . . . . . . . . . . . . . . . . . . . . I-16
166. "New Warrants Agreements" . . . . . . . . . . . . . . . . I-16
167. "Obligations" . . . . . . . . . . . . . . . . . . . . . . I-16
168. "Old Capital Stock" . . . . . . . . . . . . . . . . . . . I-16
169. "Old Common Stock of . . ." . . . . . . . . . . . . . . . I-17
170. "Old Debt Securities" . . . . . . . . . . . . . . . . . . I-17
171. "Old Debt Securities Assumption Agreements" . . . . . . . I-17
172. "Old Debt Securities Guaranties" . . . . . . . . . . . . I-17
173. "Old Debt Securities Guarantors" . . . . . . . . . . . . I-17
174. "Old Indentures" . . . . . . . . . . . . . . . . . . . . I-17
175. "Old Preferred Stock" . . . . . . . . . . . . . . . . . . I-17
176. "Old Series I Preferred Stock" . . . . . . . . . . . . . I-17
177. "Old Series II Preferred Stock" . . . . . . . . . . . . . I-17
178. "Old Series III Preferred Stock" . . . . . . . . . . . . I-17
179. "Old Stock Options" . . . . . . . . . . . . . . . . . . . I-17
180. "Operating Subsidiary Transactions" . . . . . . . . . . . I-17
181. "Ordinary Course Professionals Order" . . . . . . . . . . I-17
182. "Other Priority Tax Claim" . . . . . . . . . . . . . . . I-18
183. "Personal Injury Claims" . . . . . . . . . . . . . . . . I-18
184. "Petition Dates" . . . . . . . . . . . . . . . . . . . . I-18
185. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . I-18
186. "Plan Negotiating Committee" . . . . . . . . . . . . . . I-18
187. "Plan Proponents" . . . . . . . . . . . . . . . . . . . . I-18
188. "Priority Claim" . . . . . . . . . . . . . . . . . . . . I-18
189. "Priority Tax Claims" . . . . . . . . . . . . . . . . . . I-18
190. "Pro Rata" . . . . . . . . . . . . . . . . . . . . . . . I-18
191. "Professional" . . . . . . . . . . . . . . . . . . . . . I-19
192. "Prudential" . . . . . . . . . . . . . . . . . . . . . . I-19
193. "Prudential/Federated Intercreditor Agreement" . . . . . I-19
194. "Prudential/Federated Security Agreement" . . . . . . . . I-19
195. "Quarterly Distribution Date" . . . . . . . . . . . . . . I-19
196. "Real Estate Subsidiary Transactions" . . . . . . . . . . I-19
197. "Real Property Executory Contracts and Unexpired Leases" I-19
198. "Reinstated" or "Reinstatement" . . . . . . . . . . . . . I-19
I-iv
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199. "Reorganization Case" . . . . . . . . . . . . . . . . . . I-20
200. "Reorganized . . ." . . . . . . . . . . . . . . . . . . . I-20
201. "Reserve Classes" . . . . . . . . . . . . . . . . . . . . I-20
202. "Responsible Person Priority Tax Claim" . . . . . . . . . I-20
203. "Restructuring Transactions" . . . . . . . . . . . . . . I-20
204. "Secondary Liability Claim" . . . . . . . . . . . . . . . I-20
205. "Secured Claim" . . . . . . . . . . . . . . . . . . . . . I-20
206. "Securities Act" . . . . . . . . . . . . . . . . . . . . I-20
207. "Senior Indebtedness" . . . . . . . . . . . . . . . . . . I-21
208. "Senior Indebtedness Claim" . . . . . . . . . . . . . . . I-21
209. "Senior Lenders" . . . . . . . . . . . . . . . . . . . . I-21
210. "Shawmut" . . . . . . . . . . . . . . . . . . . . . . . . I-21
211. "Stipulation of Amount and Nature of Claim" . . . . . . . I-21
212. "Swiss Bank" . . . . . . . . . . . . . . . . . . . . . . I-21
213. "Third-Party Disbursing Agent" . . . . . . . . . . . . . I-21
214. "Trade Claim" . . . . . . . . . . . . . . . . . . . . . . I-21
215. "Uninsured Claim" . . . . . . . . . . . . . . . . . . . . I-21
216. "Unsecured Claim" . . . . . . . . . . . . . . . . . . . . I-21
217. "Unsecured Creditors' Committee" . . . . . . . . . . . . I-21
218. "Untendered Securities" . . . . . . . . . . . . . . . . . I-21
219. "Voting Deadline" . . . . . . . . . . . . . . . . . . . . I-21
220. "Voting Trustee" . . . . . . . . . . . . . . . . . . . . I-22
221. "WCB Group" . . . . . . . . . . . . . . . . . . . . . . . I-22
B. Rules of Interpretation and Computation of Time . . . . . . . . . I-22
1. Rules of Interpretation . . . . . . . . . . . . . . . . . . . I-22
2. Computation of Time . . . . . . . . . . . . . . . . . . . . . I-22
ARTICLE II. CLASSES OF CLAIMS AND INTERESTS . . . . . . . . . . . . . I-22
A. Claims Against and Interests in Macy's (Class M- ) . . . . . . I-22
----
1. Unimpaired Classes of Claims
(Classes M-1 through M-3) . . . . . . . . . . . . . . . . . . I-22
2. Impaired Classes of Claims
(Classes M-4 through M-14) . . . . . . . . . . . . . . . . . . I-23
3. Impaired Classes of Interests
(Classes M-15 through M-17) . . . . . . . . . . . . . . . . . I-24
B. Claims Against and Interests in Macy's Operating Subsidiary
Debtors (Class MOS- ) . . . . . . . . . . . . . . . . . . . . . I-24
----
1. Unimpaired Classes of Claims
(Classes MOS-1 through MOS-3) . . . . . . . . . . . . . . . . I-24
2. Impaired Classes of Claims
(Classes MOS-4 through MOS-13) . . . . . . . . . . . . . . . . I-24
3. Unimpaired Class of Interests
(Class MOS-14) . . . . . . . . . . . . . . . . . . . . . . . . I-25
C. Claims Against and Interests in Macy's Real Estate
Subsidiary Debtors (Class MRS- ) . . . . . . . . . . . . . . . I-25
----
1. Unimpaired Classes of Claims
(Classes MRS-1 through MRS-3) . . . . . . . . . . . . . . . . I-25
2. Impaired Classes of Claims
(Classes MRS-4 through MRS-10) . . . . . . . . . . . . . . . . I-26
3. Unimpaired Class of Interests
(Class MRS-11) . . . . . . . . . . . . . . . . . . . . . . . . I-26
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D. Claims Against and Interests in Macy's Miscellaneous
Subsidiary Debtors (Class MMS- ) . . . . . . . . . . . . . . . . I-27
---
1. Unimpaired Classes of Claims
(Classes MMS-1 through MMS-3) . . . . . . . . . . . . . . . . I-27
2. Impaired Classes of Claims
(Classes MMS-4 and MMS-5) . . . . . . . . . . . . . . . . . . I-27
3. Unimpaired Class of Interests
(Class MMS-6) . . . . . . . . . . . . . . . . . . . . . . . . I-27
ARTICLE III. TREATMENT OF CLAIMS AND INTERESTS . . . . . . . . . . . . I-27
A. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . I-28
1. Payment of Administrative Claims . . . . . . . . . . . . . . . I-28
a. Administrative Claims in General . . . . . . . . . . . . I-28
b. Statutory Fees . . . . . . . . . . . . . . . . . . . . . I-28
c. Ordinary Course Liabilities . . . . . . . . . . . . . . . I-28
d. Claims Under DIP Credit Agreement . . . . . . . . . . . . I-28
e. Bar Dates for Administrative Claims . . . . . . . . . . . I-28
i. General Bar Date Provisions . . . . . . . . . . . . . I-28
ii. Bar Dates for Certain Administrative Claims . . . . . I-29
A. Professional Compensation . . . . . . . . . . . I-29
B. Ordinary Course Liabilities . . . . . . . . . . I-29
C. Claims Under DIP Credit Agreement . . . . . . . I-29
2. Payment of Priority Tax Claims . . . . . . . . . . . . . . . . I-29
a. Federal Priority Tax Claims . . . . . . . . . . . . . . . I-29
b. Responsible Person Priority Tax Claims . . . . . . . . . I-30
c. Other Priority Tax Claims . . . . . . . . . . . . . . . . I-30
B. Classified Claims and Interests . . . . . . . . . . . . . . . . . I-30
1. Unimpaired Classes of Claims Held by Third Parties . . . . . . I-30
a. Unsecured Claims Entitled to Priority Under Section
507(a)(3), 507(a)(4) or 507(a)(6) of the Bankruptcy Code
(Classes M-1, MOS-1, MRS-1 and MMS-1) . . . . . . . . . . I-30
b. Unsecured Convenience Claims (Classes M-2, MOS-2,
MRS-2 and MMS-2) . . . . . . . . . . . . . . . . . . . . I-30
c. Secured Claims Not Otherwise Classified (Classes
M-3, MOS-3, MRS-3 and MMS-3) . . . . . . . . . . . . . . I-30
2. Impaired Classes of Claims Held by Third Parties . . . . . . . I-31
a. Claims Under or Evidenced by the Macy's/Prudential
Loan Agreement (Classes M-4, MOS-4 and MRS-4) . . . . . . I-31
b. Claims Under or Evidenced by the Macy's/WCB
Loan Agreement, the Macy's/WCB Guaranty or the
Macy's/WCB Swap Agreement (Classes M-5, MOS-5,
MRS-5 and MMS-4) . . . . . . . . . . . . . . . . . . . . I-31
c. Claims Under or Evidenced by the Macy's/49 Store
Loan Agreement or the Macy's/49 Store Loan
Guaranty (Other Than Liquidated Damages Claims
of Swiss Bank) (Classes M-6, MOS-6 and MRS-6) . . . . . . I-31
d. Claims Under or Evidenced by the Macy's/CREI
Loan Agreement or the Macy's/CREI Swap Agreement
(Classes M-7, MOS-7 and MRS-7) . . . . . . . . . . . . . I-31
e. Claims Under or Evidenced by the Macy's/Swiss
Bank Liquidated Damages Agreement or the
I-vi
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Macy's/Macy's South Liquidated Damages
Guaranty (Classes M-8, MOS-8 and MRS-8) . . . . . . . . . I-32
f. Claims Under or Evidenced by the Macy's/GECC
Loan Agreement or the Macy's/GECC Interest
Guaranty (Classes M-9 and MOS-9) . . . . . . . . . . . . I-32
g. John Hancock Kings Plaza Claims (Class MRS-9) . . . . . . I-32
i. John Hancock KPM Note Claims (Class MRS-9A) . . . . . I-32
ii. John Hancock Plaza Store Claims (Class MRS-9B) . . . I-32
h. Claims Under or Evidenced by the Macy's Senior
Subordinated Debentures, the Macy's Senior
Subordinated Debentures Indenture, the
Macy's Senior Subordinated Debentures Guaranty
or the Macy's Senior Subordinated Debentures
Assumption Agreement (Classes M-10 and MOS-10) . . . . . I-32
i. Claims Under or Evidenced by the Macy's
Subordinated Debentures, the Macy's Subordinated
Debentures Indenture, the Macy's Subordinated
Debentures Guaranty or the Macy's Subordinated
Debentures Assumption Agreement (Classes M-11
and MOS-11) . . . . . . . . . . . . . . . . . . . . . . . I-33
j. Claims Under or Evidenced by the Macy's
Subordinated Discount Debentures, the
Macy's Subordinated Discount Debentures
Indenture, the Macy's Subordinated Discount
Debentures Guaranty or the Macy's Subordinated
Discount Debentures Assumption Agreement
(Classes M-12 and MOS-12) . . . . . . . . . . . . . . . . I-33
k. General Unsecured Claims (Classes M-13, MOS-13,
MRS-10 and MMS-5) . . . . . . . . . . . . . . . . . . . . I-33
l. Subordinated Unsecured Claims for Penalties, Fines
and Punitive Damages, Subordinated Unsecured
Claims Related to Rescission, Damages or Indemnity
Claims Arising From Securities Transactions and
Claims Relating to Old Stock Options (Class M-14) . . . . I-33
3. Unimpaired Classes of Common Stock Interests in the Macy's
Subsidiary Debtors (Classes MOS-14, MRS-11 and MMS-6) . . . . I-33
4. Impaired Classes of Interests in Macy's (Classes M-15 through
M-17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-34
C. Special Provisions Regarding Treatment of Certain Claims . . . . I-34
1. Adjustments of Amounts of Distributions for Pre-Effective Date
Sales of Collateral . . . . . . . . . . . . . . . . . . . . . I-34
a. Sales of Collateral Securing Allowed Bank Loan Claims . . I-34
b. Sales of Collateral Securing Allowed Claims of Prudential
and FNC . . . . . . . . . . . . . . . . . . . . . . . . . I-34
2. Adjustments for Increased Distributions of Cash . . . . . . . I-34
a. Adjustments of Amounts of Cash and New Debt to be
Distributed to Prudential, GECC or Holders of Allowed
Bank Loan Claims and Swiss Bank . . . . . . . . . . . . . I-34
b. Adjustments of Amounts of Cash and New Combined
Company Common Stock to be Distributed . . . . . . . . . I-35
3. Adjustment of Amounts of New Series B Notes and New Series C
Notes
to be Distributed . . . . . . . . . . . . . . . . . . . . . . I-35
D. Special Provisions Regarding Treatment of Allowed Secondary Liability
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-35
I-vii
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E. Additional Treatment Provisions . . . . . . . . . . . . . . . . . I-36
1. Claims as to Which Macy's is Primarily Liable . . . . . . . . I-36
2. Unsecured Claims as to Which a Debtor Other than Macy's is
Primarily Liable . . . . . . . . . . . . . . . . . . . . . . . I-36
3. Contribution of Certain Secured Claims to the Capital of
Reorganized
Macy's Subsidiary Debtors . . . . . . . . . . . . . . . . . . I-36
4. Distributions Received by FNC and Macy's Financial . . . . . . I-37
F. Accrual of Postpetition Interest . . . . . . . . . . . . . . . . . I-37
ARTICLE IV. MEANS FOR IMPLEMENTATION OF THE PLAN . . . . . . . . . . I-37
A. Continued Corporate Existence and Vesting of Assets in the
Reorganized Debtors . . . . . . . . . . . . . . . . . . . . . . . I-37
B. The Restructuring Transactions . . . . . . . . . . . . . . . . . . I-37
1. The Federated/Macy's Merger . . . . . . . . . . . . . . . . . I-37
a. Consummation of the Federated/Macy's Merger . . . . . . . I-37
b. Cancellation of Old Capital Stock . . . . . . . . . . . . I-38
c. The Reorganized Debtors' Obligations Under the Plan . . . I-38
2. The Operating Subsidiary Transactions . . . . . . . . . . . . I-38
3. The Real Estate Subsidiary Transactions . . . . . . . . . . . I-38
4. Other Restructuring Transactions . . . . . . . . . . . . . . . I-39
C. Corporate Governance, Directors and Officers, Employment-Related
Agreements and Compensation Programs . . . . . . . . . . . . . . . I-39
1. Certificates of Incorporation and By-Laws . . . . . . . . . . I-39
a. Combined Company . . . . . . . . . . . . . . . . . . . . I-39
b. The Reorganized Macy's Subsidiary Debtors . . . . . . . . I-40
2. Directors and Officers of the Reorganized Debtors . . . . . . I-40
a. Combined Company . . . . . . . . . . . . . . . . . . . . I-40
b. The Reorganized Macy's Subsidiary Debtors . . . . . . . . I-40
3. New Employment, Retirement, Indemnification and Other Agreements
and Incentive Compensation Programs . . . . . . . . . . . . . I-40
4. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . I-41
D. Obtaining Cash for Plan Distributions and Transfers of Funds Among
the Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . I-41
E. Execution of Agreements and Indentures Related to New Securities . I-41
F. Collateralization of Obligations to Prudential . . . . . . . . . . I-42
G. Preservation of Rights of Action; Releases . . . . . . . . . . . . I-42
1. Preservation of Rights of Action by the Debtors and Reorganized
Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . I-42
2. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . I-42
a. Releases by the Debtors . . . . . . . . . . . . . . . . . I-42
b. Releases by Swiss Bank . . . . . . . . . . . . . . . . . I-43
c. Releases by Holders of Claims or Interests . . . . . . . I-43
d. Injunction Related to Releases . . . . . . . . . . . . . I-44
H. Continuation of Certain Retirement Benefits . . . . . . . . . . . I-44
1. Certain Retiree Health, Medical and Life Insurance Benefits . I-44
2. Purchase Discounts for Retirees . . . . . . . . . . . . . . . I-44
I. Limitations on Amounts to Be Distributed to Holders of Allowed
Insured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . I-44
J. Cancellation and Surrender of Instruments, Securities and Other
Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . I-44
K. Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . I-45
L. Intercompany Claims and Certain Claims of Affiliates . . . . . . . I-45
M. Effectuating Documents; Further Transactions; Exemption from
Certain Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . I-45
I-viii
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ARTICLE V. TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES . . . . . . . . . . . . . . . . . . . . . I-46
A. Assumption and Rejection . . . . . . . . . . . . . . . . . . . . . I-46
1. Assumptions, Assignments and Rejections of Non-Real Property
Executory Contracts and Unexpired Leases . . . . . . . . . . . I-46
a. Assumptions and Assignments . . . . . . . . . . . . . . . I-46
b. Rejections . . . . . . . . . . . . . . . . . . . . . . . I-46
2. Assumptions and Rejections of Real Property Executory Contracts
and
Unexpired Leases . . . . . . . . . . . . . . . . . . . . . . . I-47
3. Assignments Related to Restructuring Transactions . . . . . . I-47
4. Approval of Assumptions, Assignments and Rejections . . . . . I-47
B. Payments Related to Assumption of Executory Contracts and Unexpired
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-48
C. Bar Date for Rejection Damages . . . . . . . . . . . . . . . . . . I-48
D. Special Executory Contract and Unexpired Lease Issues . . . . . . I-48
1. Obligations to Indemnify Directors, Officers and Employees . . I-48
2. Reinstatement of Allowed Secondary Liability Claims Arising From
or
Related to Executory Contracts or Unexpired Leases Assumed by
Macy's Subsidiaries . . . . . . . . . . . . . . . . . . . . . I-49
3. Cancellation of Old Indentures . . . . . . . . . . . . . . . . I-49
4. Reinstatement of Intercompany Agreement . . . . . . . . . . . I-49
E. Executory Contracts and Unexpired Leases Entered Into and Other
Obligations
Incurred After the Applicable Petition Date . . . . . . . . . . . I-49
ARTICLE VI. PROVISIONS GOVERNING DISTRIBUTIONS . . . . . . . . . . . I-50
A. Distributions for Claims Allowed as of the Effective Date . . . . I-50
B. Methods of Distributions . . . . . . . . . . . . . . . . . . . . . I-50
1. Distributions to Holders of Allowed Bank Loan Claims . . . . . I-50
2. Distributions to Holders of Allowed Debt Security Claims . . . I-51
3. Distributions to Holders of Other Claims . . . . . . . . . . . I-51
C. Compensation and Reimbursement for Services Related to Balloting
and Distributions . . . . . . . . . . . . . . . . . . . . . . . . I-51
D. Delivery of Distributions and Undeliverable or Unclaimed
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . I-52
1. Delivery of Distributions in General . . . . . . . . . . . . . I-52
2. Undeliverable Distributions . . . . . . . . . . . . . . . . . I-52
a. Distributions Held by Disbursing Agents . . . . . . . . . I-52
i. Holding and Investment of
Undeliverable Distributions . . . . . . . . . . . . . I-52
ii. After Distributions Become Deliverable . . . . . . . I-52
iii. Failure to Claim Undeliverable Distributions . . I-53
b. Distributions Held by Agent Banks or Indenture Trustees . I-53
E. Distribution Record Date . . . . . . . . . . . . . . . . . . . . . I-53
F. Means of Cash Payments . . . . . . . . . . . . . . . . . . . . . . I-54
G. Timing and Calculation of Amounts to be Distributed . . . . . . . I-54
1. Allowed Claims in Non-Reserve Classes and the Fixed Cash Portion
of
Allowed Claims in Reserve Classes . . . . . . . . . . . . . . I-54
2. New Combined Company Common Stock to be Distributed to Holders
of Allowed Claims in Reserve Classes . . . . . . . . . . . . . I-54
a. Initial Distributions . . . . . . . . . . . . . . . . . . I-54
b. Additional Quarterly Distributions on Account of
Previously Allowed Claims . . . . . . . . . . . . . . . . I-55
3. Distributions of New Debt . . . . . . . . . . . . . . . . . . I-55
I-ix
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4. Distributions of New Equity . . . . . . . . . . . . . . . . . I-55
5. De Minimis Distributions . . . . . . . . . . . . . . . . . . . I-56
6. Compliance with Tax Requirements . . . . . . . . . . . . . . . I-56
H. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-56
I. Surrender of Canceled Instruments or Securities . . . . . . . . . I-57
1. Old Debt Securities and Untendered Securities . . . . . . . . I-57
2. Lost, Stolen, Mutilated or Destroyed Old Debt Securities or
Untendered Securities . . . . . . . . . . . . . . . . . . . . I-57
3. Failure to Surrender Canceled Old Debt Securities or Untendered
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . I-57
4. Other Notes, Instruments or Documents . . . . . . . . . . . . I-57
J. Special Provisions Regarding Agent Bank Charges, Indenture Trustee
Charging
Liens and Certain Fees and Expenses of Senior Lenders . . . . . . I-58
1. Agent Bank Charges . . . . . . . . . . . . . . . . . . . . . . I-58
2. Indenture Trustee Charging Liens . . . . . . . . . . . . . . . I-58
3. Fees and Expenses of Senior Lenders . . . . . . . . . . . . . I-58
ARTICLE VII. PROCEDURES FOR RESOLVING DISPUTED CLAIMS . . . . . . . . I-58
A. Prosecution of Objections to Claims . . . . . . . . . . . . . . . I-58
1. Objections to Claims . . . . . . . . . . . . . . . . . . . . . I-58
2. Authority to Prosecute Objections . . . . . . . . . . . . . . I-59
B. Treatment of Disputed Claims . . . . . . . . . . . . . . . . . . . I-59
1. No Payments on Account of Disputed Claims and Disputed Claims
Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . I-59
2. Funding of Disputed Claims Reserve and Recourse . . . . . . . I-59
a. Funding . . . . . . . . . . . . . . . . . . . . . . . . . I-59
b. Recourse . . . . . . . . . . . . . . . . . . . . . . . . I-60
3. Property Held in Disputed Claims Reserve . . . . . . . . . . . I-60
C. Distributions on Account of Disputed Claims Once They are Allowed I-60
D. Tax Requirements for Income Generated by Disputed Claim Reserve . I-61
ARTICLE VIII. CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN . . . . . . . . . . . . . . . . . I-61
A. Conditions to Confirmation . . . . . . . . . . . . . . . . . . . . I-61
B. Conditions to Effective Date . . . . . . . . . . . . . . . . . . . I-61
C. Waiver of Conditions to Confirmation or Effective Date . . . . . . I-62
D. Effect of Nonoccurrence of Conditions to Effective Date . . . . . I-63
ARTICLE IX. CONFIRMABILITY AND SEVERABILITY
OF A PLAN AND CRAMDOWN . . . . . . . . . . . . . . . . . . . . I-63
A. Confirmability and Severability of a Plan . . . . . . . . . . . . I-63
B. Cramdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-64
ARTICLE X. DISCHARGE, TERMINATION, INJUNCTION
AND SUBORDINATION RIGHTS . . . . . . . . . . . . . . . . . . . I-64
A. Discharge of Claims and Termination of Interests . . . . . . . . . I-64
B. Injunctions . . . . . . . . . . . . . . . . . . . . . . . . . . . I-64
C. Termination of Subordination Rights and Settlement of Related
Claims and Controversies . . . . . . . . . . . . . . . . . . . . . I-65
ARTICLE XI. RETENTION OF JURISDICTION . . . . . . . . . . . . . . . . I-66
I-x
<PAGE>
Page
----
ARTICLE XII. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . I-67
A. Dissolution of the Creditors' Committees and Creation of the
Claims Resolution Committee . . . . . . . . . . . . . . . . . . . I-67
1. Creditors' Committees . . . . . . . . . . . . . . . . . . . . I-67
2. Claims Resolution Committee . . . . . . . . . . . . . . . . . I-67
a. Function and Composition of the Committee . . . . . . . . I-67
b. Committee Procedures . . . . . . . . . . . . . . . . . . I-68
c. Employment of Professionals by the Committee and
Reimbursement of Committee Members . . . . . . . . . . . I-68
d. Dissolution of the Committee . . . . . . . . . . . . . . I-68
B. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . I-68
C. Modification of the Plan . . . . . . . . . . . . . . . . . . . . . I-69
D. Revocation of the Plan . . . . . . . . . . . . . . . . . . . . . . I-69
E. Severability of Plan Provisions . . . . . . . . . . . . . . . . . I-69
F. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . I-69
G. Service of Certain Plan Appendices and Disclosure Statement Exhibits
I-69
H. Service of Documents on the Plan Proponents or the Reorganized
Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-70
I-xi
<PAGE>
APPENDICES
I.A.42 Determination of Assumed Values for a New Series C Warrant and a
New Series D Warrant1
I.A.54 Federated/Macy's Merger Agreement1
I.A.80* Macy's Real Estate Subsidiary Debtors1
I.A.93* Macy's Miscellaneous Subsidiary Debtors1
I.A.135 New Combined Company Share Purchase Rights Agreement2
I.A.140 New GECC Mortgage Note Agreement Term Sheet1,3
I.A.141 New Global Indenture2
I.A.143 New John Hancock KPM Note Agreement2
I.A.145 New John Hancock Plaza Store Note Agreement2
I.A.151 New Prudential Mortgage Note and Guaranty Agreement Term
Sheet1,3
I.A.155 New Series A, B and C Notes Supplemental Indenture Term Sheet1,3
I.A.161 New Series C Warrants Agreement2
I.A.163 New Series D Warrants Agreement2
IV.C.1.a(i) Certificate of Incorporation of the Combined Company1
IV.C.1.a(ii) By-Laws of the Combined Company1
IV.C.1.b(i) Amended Certificates or Articles of Incorporation of Each
Reorganized Macy's Subsidiary Debtor1
--------------------
1 Filed concurrently with the Plan and available for review
at the Document Reviewing Centers.
2 To be Filed and made available for review at the Document
Reviewing Centers no later than 10 days prior to the
hearing on the adequacy of the Disclosure Statement.
3 New Mortgage Notes Agreements and New Unsecured Notes
supplemental indentures to be Filed and made available for
review at the Document Reviewing Centers no later than 10
days prior to the hearing on the adequacy of the Disclosure
Statement. Upon Filing, such note agreements and
supplemental indentures will be deemed substituted for the
corresponding term sheets in Appendices I.A.140, 151 and
155.
* Attached to Plan as distributed.
I-xii
<PAGE>
APPENDICES (continued)
IV.C.1.b(ii) Amended By-Laws or Regulations of Each Reorganized Macy's
Subsidiary Debtor1
IV.C.2.a Directors and Officers of the Combined Company2
IV.C.2.b Directors and Officers of Each Reorganized Macy's Subsidiary
Debtor2
IV.G.2.c Exceptions to Releases1
IV.L.1 Surviving Intercompany Claims or Agreements2
V.A.1.a Schedule of Non-Real Property Executory Contracts and Unexpired
Leases to be Assumed or Assumed and Assigned2
V.A.1.b Nonexclusive Schedule of Non-Real Property Executory Contracts
and Unexpired Leases to be Rejected2
V.A.2 Schedule of Real Property Executory Contracts and Unexpired
Leases to be Rejected2
VII.D Tax Requirements for Income Generated by Disputed Claims
Reserve1
I-xiii
<PAGE>
INTRODUCTION
R.H. Macy & Co., Inc. ("Macy's") and Federated Department Stores,
Inc. ("Federated") (collectively, the "Plan Proponents") propose the following
amended joint plan of reorganization (the "Plan") for the resolution of the
outstanding creditor claims against and equity interests in Macy's and the
subsidiaries of Macy's that are debtors in the above-captioned chapter 11 cases
(collectively with Macy's, the "Debtors"). The Plan Proponents are proponents
of the Plan within the meaning of section 1129 of the Bankruptcy Code, 11
U.S.C. Sec. 1129. On the Effective Date (as defined herein), Federated will
merge with Macy's, on the terms and subject to the conditions set forth in the
Federated/Macy's Merger Agreement (as defined herein). All securities to be
issued pursuant to the Plan, other than certain mortgage notes, will be issued
by, and the various obligations of the Debtors under the Plan will be performed
by, the Combined Company (as defined herein). ALL HOLDERS OF CLAIMS AGAINST
THE DEBTORS ARE ENCOURAGED TO READ THE PLAN AND THE RELATED DISCLOSURE
STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR TO REJECT THE PLAN.
SUBJECT TO CERTAIN RESTRICTIONS AND REQUIREMENTS SET FORTH IN THE PLAN, THE
PLAN PROPONENTS RESERVE THE RIGHT TO ALTER, AMEND, MODIFY, REVOKE OR WITHDRAW
THE PLAN PRIOR TO ITS CONSUMMATION.
ARTICLE I.
DEFINED TERMS, RULES OF INTERPRETATION
AND COMPUTATION OF TIME
A. Defined Terms
As used in the Plan, capitalized terms have the meanings set forth
below. Any term used in the Plan that is not defined herein, but that is used
in the Bankruptcy Code or the Bankruptcy Rules, will have the meaning assigned
to that term in the Bankruptcy Code or the Bankruptcy Rules.
1. "49 Store Bank Group" means, collectively, those entities
identified as "Lenders" in the Macy's/49 Store Loan Agreement.
2. "1992 Loss Carrybacks" means the net operating loss carrybacks
from the taxable year ended August 1, 1992, to the taxable years ended July 29,
1989 and August 3, 1991, as reflected in the Debtors' Forms 1120X, "Amended
U.S. Corporation Income Tax Return," dated October 25, 1993.
3. "Administrative Claim" means a Claim for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the applicable Petition Date of preserving the respective
Estates and operating the businesses of the Debtors (such as wages, salaries,
commissions for services and payments for inventories, leased equipment and
premises); (b) compensation for legal, financial advisory, accounting and other
services and reimbursement of expenses awarded or allowed under sections 330(a)
or 331 of the Bankruptcy Code; (c) all fees and charges assessed against the
Estates under chapter 123 of title 28, United States Code, 28 U.S.C.
Sects. 1911-1930; and (d) Claims for reclamation allowed in accordance with
section 546(c)(2) of the Bankruptcy Code.
4. "Affiliate" means any corporation in which a Debtor directly or
indirectly owns 50% or more of the outstanding stock entitled to vote generally
in the election of directors.
5. "Agent Bank" means one or more lenders performing the functions
of "Designated Servicer," "Administrative Agent" or "Servicing Agent" under a
Macy's Bank Loan Agreement or otherwise designated as the agent for the lenders
under a Macy's Bank Loan Agreement.
<PAGE>
I-2
6. "Agent Bank Charges" means any lien, right or other priority in
payment or right to indemnification or reimbursement to which an Agent Bank is
entitled, pursuant to the applicable Macy's Bank Loan Agreement, against
distributions to be made to or payments to be made by holders of Allowed Claims
under the applicable Macy's Bank Loan Agreement, including such liens, rights
or priorities in payment with respect to an Agent Bank's out-of-pocket costs
and expenses for attorneys, financial advisors and other professionals that are
incurred or authorized by an Agent Bank acting in such capacity.
7. "Allowed Bank Loan Claim" means an Allowed Claim under or
evidenced by a Macy's Bank Loan Agreement that is classified in Classes M-5,
MOS-5, MRS-5, MMS-4, M-6, MOS-6, MRS-6, M-7, MOS-7 or MRS-7.
8. "Allowed Claim" or "Allowed Unsecured Claim" means:
a. a Claim that has been listed by a particular Debtor in its
schedules of liabilities as other than disputed, contingent or
unliquidated, to the extent that it is not otherwise a Disputed Claim;
b. a Claim that: (i) is allowed: (A) in any Stipulation of Amount
and Nature of Claim executed by the applicable Reorganized Debtor and
Claim holder on or after the Effective Date; (B) in any contract,
instrument, indenture or other agreement entered into in connection with
the Plan; (C) in a Final Order; or (D) pursuant to the terms of the Plan
or (ii) is settled prior to the Effective Date pursuant to: (A) that
certain Order Pursuant to Bankruptcy Rule 9019 Approving and Authorizing
the Debtors to Compromise and Settle Certain Disputed Claims in Accordance
with Proposed Settlement Procedures and Limitations, entered July 19,
1993, with respect to certain Unsecured Claims; (B) that certain Order
(A) Pursuant to Bankruptcy Rule 9019(a) Approving and Authorizing the
Compromise and Settlement, from Time to Time, of Certain Disputed Property
Tax Claims, and (B) Pursuant to Section 362(d) of the Bankruptcy Code and
Bankruptcy Rule 4001(d) Modifying the Automatic Stay to Permit Setoff of
Certain Undisputed Prepetition Property Tax Claims Against the Refunds Due
to the Debtors, entered on January 18, 1994, with respect to certain Tax
Claims; or (C) that certain Omnibus Order (A) Modifying the Automatic Stay
Pursuant to Section 362 of the Bankruptcy Code to Permit Commencement,
Continued Prosecution or Settlement of Certain Personal Injury, Property
Damage, Products Liability and Other Actions Covered by Insurance Policies
and (B) Authorizing the Compromise, Settlement and Payment in Full of
Certain Claims Pursuant to Rule 9019(b) of the Federal Rules of Bankruptcy
Procedure, dated June 8, 1992; or
c. a Claim for which a proof of Claim has been Filed by the Bar
Date or has otherwise been deemed timely Filed under applicable law, to
the extent that it is not otherwise a Disputed Claim.
9. "Allowed . . . Claim" means an Allowed Claim in the particular
Class or category specified. Any reference herein to an Allowed Claim includes
both Secured Claims and Unsecured Claims.
10. "Allowed Debt Security Claim" means an Allowed Claim under or
evidenced by an Old Debt Security, an Old Debt Securities Guaranty, an Old Debt
Securities Assumption Agreement or an Old Indenture.
11. "Allowed Secondary Liability Claim" means a Secondary Liability
Claim that is an Allowed Claim.
12. "Bankruptcy Code" means title 11 of the United States Code, as
now in effect or hereafter amended.
<PAGE>
I-3
13. "Bankruptcy Court" means the United States District Court having
jurisdiction over any of the Reorganization Cases and, to the extent of any
reference made pursuant to 28 U.S.C. Sec. 157, the bankruptcy unit of such
District Court.
14. "Bankruptcy Rules" means, collectively, the Federal Rules of
Bankruptcy Procedure and the local rules of the Bankruptcy Court, as now in
effect or hereafter amended.
15. "Bar Date" means the applicable bar date by which a proof of
Claim must be Filed, as established by an order of the Bankruptcy Court,
including the Bar Date Order and the Confirmation Order.
16. "Bar Date Order" means the Order Granting Application to Set Bar
Date for Filing Certain Proofs of Claim, Approving Bar Order Notice and
Approving Notice and Publication Procedure, entered by the Bankruptcy Court on
October 14, 1992, as subsequently amended or supplemented.
17. "Bondholders' Committee" means the official unsecured
bondholders' committee appointed in the Reorganization Cases pursuant to
section 1102 of the Bankruptcy Code, as the same may have been or is
constituted from time to time.
18. "Bullock's" means Bullock's, Inc., a Delaware corporation and
the debtor in Reorganization Case No. 92 B 40481.
19. "Business Day" means any day, other than a Saturday, Sunday or
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
20. "Cash Investment Yield" means the net yield earned by the
applicable Disbursing Agent from the investment of cash held pending
distribution pursuant to the Plan (including any cash received by such
Disbursing Agent on account of dividends and other distributions on New
Combined Company Common Stock), which investment will be in a manner consistent
with the Combined Company's investment and deposit guidelines.
21. "Claim" means a "claim" (as defined in section 101(5) of the
Bankruptcy Code) against any Debtor.
22. "Claims Objection Bar Date" means, for all Claims, other than
those Claims allowed in accordance with Section I.A.8.b, the latest of: (a) 90
days after the Effective Date; (b) 45 days after the Filing of a proof of claim
for such Claim; and (c) such other period of limitation as may be specifically
fixed by the Plan, the Confirmation Order, the Bankruptcy Rules or an order of
the Bankruptcy Court for objecting to a Claim.
23. "Claims Resolution Committee" means the committee to be
established pursuant to Section XII.A.2.
24. "Class" means a class of Claims or Interests, as described in
Article II below.
25. "Combined Company" means the corporation that is the surviving
corporation in the Federated/Macy's Merger.
26. "Confirmation" means the entry of the Confirmation Order on the
docket of the Bankruptcy Court.
27. "Confirmation Date" means the date on which the Bankruptcy Court
enters the Confirmation Order on its docket, within the meaning of Bankruptcy
Rules 5003 and 9021.
<PAGE>
I-4
28. "Confirmation Order" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
29. "Creditors' Committees" means, collectively: (a) the Unsecured
Creditors' Committee; (b) the Bondholders' Committee; and (c) any other
committee of creditors appointed in the Reorganization Cases pursuant to
section 1102 of the Bankruptcy Code.
30. "CREI" means Citicorp Real Estate, Inc., a Delaware corporation.
31. "CREI Bank Group" means, collectively, those entities identified
as "Lenders," "Designated Servicer" or "Servicing Agent" in the Macy's/CREI
Loan Agreement.
32. "Debtors" means, collectively: (a) Macy's; (b) the Macy's
Operating Subsidiary Debtors; (c) the Macy's Miscellaneous Subsidiary Debtors;
and (d) the Macy's Real Estate Subsidiary Debtors.
33. "Delaware General Corporation Law" means title 8 of the Delaware
Code, as now in effect or hereafter amended.
34. "DIP Credit Agreement" means, collectively: (a) the Amended and
Restated Revolving Credit and Guaranty Agreement, dated as of August 12, 1993,
as subsequently amended and modified, among Macy's (as borrower), the other
Debtors (as guarantors), Chemical Bank (as administrative agent), Bankers Trust
Company (as co-agent) and those entities identified as "Banks" therein and
their respective successors and assigns; and (b) all security agreements and
instruments related to the documents identified in (a).
35. "Disbursing Agent" means the Combined Company, in its capacity
as a disbursing agent pursuant to Article VI, or any Third-Party Disbursing
Agent.
36. "Disclosure Statement" means the disclosure statement (including
all exhibits and schedules thereto or referenced therein) that relates to the
Plan, as approved by the Bankruptcy Court pursuant to section 1125 of the
Bankruptcy Code.
37. "Disputed Claim" means:
a. if no proof of Claim has been Filed by the Bar Date or has
otherwise been deemed timely Filed under applicable law: (i) a Claim that
has been listed on a Debtor's schedules of liabilities as other than
disputed, contingent or unliquidated, but as to which the applicable
Debtor, Reorganized Debtor or, prior to Confirmation, any other party in
interest, has Filed an objection by the Claims Objection Bar Date, but
only to the extent of the difference between the amount of the Claim
listed in the schedules and the amount of such Claim asserted in the
objection or (ii) a Claim that has been listed on a Debtor's schedule of
liabilities as disputed, contingent or unliquidated; or
b. if a proof of Claim or request for payment of an Administrative
Claim has been Filed by the Bar Date or has otherwise been deemed timely
Filed under applicable law: (i) a Claim that is listed on a Debtor's
schedule of liabilities as other than disputed, contingent or
unliquidated, but as to which the nature or amount of the Claim as
asserted in the proof of Claim varies from the nature and amount of such
Claim as it is listed on the schedule of liabilities, but only to the
extent of such variation; (ii) a Claim as to which an objection has been
Filed by the applicable Debtor, Reorganized Debtor or, prior to
Confirmation, any other party in interest by the Claims Objection Bar
Date, and such objection has not been withdrawn on or before the Claims
Objection Bar Date or denied by a Final Order, but only to the extent of
the difference between the amount of the Claim asserted in the proof of
<PAGE>
I-5
Claim and the amount of such Claim asserted in the objection; or (iii) any
Personal Injury Claim, as specified in Section VII.A.1. Notwithstanding
the foregoing, a Claim that is an Allowed Claim in accordance with Section
I.A.8.b will not be a Disputed Claim, and, pursuant to Section VII.A.2,
the Debtors, Federated, the Reorganized Debtors and any other party in
interest will be prohibited from Filing any objections to such Allowed
Claims.
38. "Disputed Claims Reserve" means the reserve of cash and New
Combined Company Common Stock established pursuant to Section VII.B for the
Reserve Classes in which there are Disputed Claims, which reserve will be held
in trust for holders of Allowed Claims in Reserve Classes and will not
constitute property of the Combined Company.
39. "Disputed Insured Claim" and "Disputed Uninsured Claim" means,
respectively, an Insured Claim or an Uninsured Claim that is also a Disputed
Claim.
40. "Distributable Shares (Pool A)" means the number of shares of
New Combined Company Common Stock to be distributed to holders of Allowed
Claims, other than holders of Allowed Debt Security Claims, as specified in
Sections III.B.2.a through e and k. The total number of Distributable Shares
will be equal to $1,339,101,700 divided by the Federated Average Market Price
(Pool A).
41. "Distributable Shares (Pool B)" means the number of shares of
New Combined Company Common Stock to be distributed to holders of Allowed Debt
Security Claims, as specified in Sections III.B.2.h, i and j. The total number
of such shares will be equal to $358,665,400 divided by the Federated Average
Market Price (Pool B).
42. "Distributable Warrants" means the number of New Warrants to be
distributed to holders of Allowed Debt Security Claims in Classes M-10, MOS-10,
M-11 or MOS-11, as specified in Sections III.B.2.h and i. An equal number of
New Series C Warrants and New Series D Warrants will be issued. The number of
New Series C Warrants and the number of New Series D Warrants each will be
equal to $139,152,300 divided by the sum of the value of a New Series C Warrant
and the value of a New Series D Warrant, which values will be determined by
applying the Black-Scholes warrant valuation model as set forth in Appendix
I.A.42.
43. "Distribution Record Date" means: (a) with respect to Allowed
Bank Loan Claims and Allowed Claims in a Reserve Class, the Confirmation Date
and (b) with respect to all other Allowed Claims, the close of business on the
earlier of (i) the Effective Time of the Federated/Macy's Merger or (ii) 14
days after the Confirmation Date.
44. "Document Reviewing Centers" means, collectively: (a) the
offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New
York, New York 10022 and (b) any other locations designated by the Plan
Proponents at which any party in interest may review all of the exhibits and
schedules to the Plan and the Disclosure Statement.
45. "Effective Date" means a Business Day, as determined by the Plan
Proponents, that is as soon as reasonably practicable but that is at least
11 days after the Confirmation Date and no more than 14 days after the first
day on which each of the conditions in Section VIII.B has either been satisfied
or duly waived pursuant to Section VIII.C, and on which: (a) no stay of the
Confirmation Order is in effect and (b) the Effective Time of the
Federated/Macy's Merger occurs. The Effective Date will be deemed to commence
simultaneously with the Effective Time of the Federated/Macy's Merger.
46. "Effective Time of the Federated/Macy's Merger" means the time,
coinciding with the commencement of the Effective Date, at which the
Federated/Macy's Merger is consummated and becomes effective pursuant to the
terms of the Federated/Macy's Merger Agreement and applicable law.
<PAGE>
I-6
47. "Estate" means, as to each Debtor, the estate created for that
Debtor in its Reorganization Case pursuant to section 541 of the Bankruptcy
Code.
48. "Face Amount" means:
a. when used with reference to a Disputed Insured Claim, either (i)
the full stated amount claimed by the holder of such Claim in any proof of
Claim Filed by the Bar Date or otherwise deemed timely Filed under
applicable law if the proof of Claim specifies only a liquidated amount or
(ii) the applicable deductible under the relevant insurance policy, minus
any reimbursement obligations of the applicable Debtor to the insurance
carrier for sums expended by the insurance carrier on account of such
Claim (including defense costs), if such amount is less than the amount
specified in (i) above or the proof of Claim specifies an unliquidated
amount; and
b. when used with reference to a Disputed Uninsured Claim, either
(i) the full stated amount claimed by the holder of such Claim in any
proof of Claim Filed by the Bar Date or otherwise deemed timely Filed
under applicable law if the proof of Claim specifies only a liquidated
amount or (ii) the amount of the Claim set forth in any objection Filed to
such Claim, if no proof of Claim has been Filed by the Bar Date or has
otherwise been deemed timely Filed under applicable law or if the proof of
Claim specifies an unliquidated amount.
49. "Federal Priority Tax Claims" means the Claims of the IRS that
are entitled to priority in payment pursuant to section 507(a)(7) of the
Bankruptcy Code, the aggregate gross amount of which is fixed pursuant to the
IRS Settlement Agreement and which are reduced to reflect the application of
the 1992 Loss Carrybacks.
50. "Federated" means Federated Department Stores, Inc., a Delaware
corporation.
51. "Federated Average Market Price (Pool A)" means the average of
intraday high and low average sales prices on the New York Stock Exchange, as
reported in The Wall Street Journal (National Edition), of the Common Stock of
Federated for the 30 consecutive trading days ending on the sixth trading day
prior to the Effective Date; provided, however, that if the Federated Average
Market Price would otherwise be more than 115%, or less than 85%, of the
average of intraday high and low average sales prices on the New York Stock
Exchange, as reported in The Wall Street Journal (National Edition), of the
Common Stock of Federated for the 30 consecutive trading days ending on the
sixth trading day prior to: (a) the Confirmation Date, if the Effective Date
is within 45 days after the Confirmation Date, or (b) the day determined
pursuant to the following sentence, if the Effective Date is more than 45 days
after the Confirmation Date, the Federated Average Market Price will be equal
to 115% (if such amount would otherwise exceed 115%) or 85% (if such amount
would otherwise be less than 85%), respectively, of such average. If the
Effective Date is more than 45 days after the Confirmation Date but within 75
days after the Confirmation Date, the day referred to in clause (b) above will
be the 30th day after the Confirmation Date, subject to similar extension by an
additional 30 days after the Confirmation Date for each full 30-day period
between the 75th day after the Confirmation Date and the Effective Date, with
the first such period commencing on the 75th day after the Confirmation Date.
52. "Federated Average Market Price (Pool B)" means the average of
intraday high and low average sales prices on the New York Stock Exchange, as
reported in The Wall Street Journal (National Edition), of the Common Stock of
Federated for the 30 consecutive trading days ending on the sixth trading day
prior to the Effective Date; provided, however, that, if the Federated Average
Market Price would otherwise be more than $23.00, or less than $18.00, the
Federated Average Market Price will be equal to $23.00 (if such amount would
otherwise exceed $23.00) or $18.00 (if such amount would otherwise be less than
$18.00), respectively; and provided further, that, if Federated (a) pays a
dividend or makes a distribution on account of the outstanding shares of Common
Stock of Federated (other than the redemption of Federated's existing share
purchase rights at a redemption price not to exceed $.05 per right),
<PAGE>
I-7
(b) subdivides the outstanding shares of such stock, (c) combines the
outstanding shares of such stock into a smaller number of shares or (d) issues,
by reclassification of such stock, any shares of Federated capital stock, the
$23.00 and $18.00 limits established in this Section I.A.52 will be adjusted
proportionately.
53. "Federated/Macy's Merger" means the merger of Federated and
Macy's pursuant to Section IV.B.1.
54. "Federated/Macy's Merger Agreement" means the agreement and plan
of merger substantially in the form of Appendix I.A.54, pursuant to which the
Federated/Macy's Merger will be effected.
55. "Fidelity" means Fidelity Management & Research Company, a
Massachusetts corporation, on behalf of the funds that it manages.
56. "File," "Filed" or "Filing" means file, filed or filing with the
Bankruptcy Court in the Reorganization Cases.
57. "Final Order" means an order or judgment of the Bankruptcy
Court, or other court of competent jurisdiction, as entered on the docket in
any Reorganization Case or the docket of any other court of competent
jurisdiction, which has not been reversed, stayed, modified or amended, and as
to which the time to appeal or seek certiorari has expired, and no appeal or
petition for certiorari has been timely taken, or as to which any appeal that
has been taken or any petition for certiorari that has been timely filed has
been resolved by the highest court to which the order or judgment was appealed
or from which certiorari was sought.
58. "Fixed Cash Portion" means cash in an amount equal to 25% of the
amount of an Allowed Claim in a Reserve Class, to be distributed pursuant to
Sections III.B.2.k and VI.G.1.
59. "FNC" means Federated Noteholding Corporation, a Delaware
corporation and a wholly owned subsidiary of Federated.
60. "GECC" means General Electric Capital Corporation, a New York
corporation.
61. "GE Credit" means, collectively: (a) GECC and (b) GE Capital
Consumer Card Co. (formerly known as Monogram Bank, USA).
62. "I. Magnin" means I. Magnin, Inc., a Delaware corporation and
the debtor in Reorganization Case No. 92 B 40483.
63. "Indenture Trustees" means, collectively: (a) Shawmut; (b) IBJ
Schroder Bank & Trust Company, as trustee under the Macy's Subordinated
Debentures Indenture; and (c) Bank of Montreal Trust Company, as trustee under
the Macy's Subordinated Discount Debentures Indenture.
64. "Indenture Trustee Charging Lien" means any lien or other
priority in payment arising prior to the Effective Date to which an Indenture
Trustee is entitled, pursuant to the applicable Old Indenture, against
distributions to be made to holders of Allowed Debt Security Claims for payment
of any fees, costs or disbursements incurred by such Indenture Trustee.
65. "Insured Claim" means any Claim arising from an incident or
occurrence that is covered under a Debtor's insurance policy, other than a
workers' compensation insurance policy.
66. "Intercompany Claim" means, other than Claims of Macy's
Financial under or evidenced by Old Debt Securities held by Macy's Financial,
<PAGE>
I-8
collectively: (a) any account reflecting intercompany book entries by one
Debtor with respect to any other Debtor; (b) any Claim not reflected in such
book entries that is held by a Debtor; and (c) any Claim held by an Affiliate.
67. "Interest" means the rights of the holders of the Old Common
Stock of any Debtor, the Old Preferred Stock or the Old Stock Options, and the
rights of any entity to purchase or demand the issuance of any of the
foregoing, including: (a) redemption, conversion, exchange, voting,
participation and dividend rights; (b) liquidation preferences; and (c) stock
options and warrants.
68. "IRS" means the Internal Revenue Service of the United States of
America.
69. "IRS Settlement Agreement" means the Closing Agreement as to
Final Determination of Tax Liability and Specific Matters by and between the
Debtors and the IRS, dated July 23, 1993, and the related stipulation and order
entered by the Bankruptcy Court on August 11, 1993.
70. "John Hancock" means John Hancock Mutual Life Insurance Company.
71. "John Hancock Kings Plaza Claims" means, collectively, the
Claims under or evidenced by: (a) the John Hancock KPM Note and (b) the John
Hancock Plaza Store Note.
72. "John Hancock KPM Note" means the 7% Secured Note with
Contingent Interest, dated January 20, 1971, issued by KPM and Kings Plaza
Shopping Center of Flatbush Avenue, Inc. to John Hancock, and all notes,
security agreements, mortgages, guaranties, collateral assignments, pledges and
other instruments, agreements or documents related thereto, as amended,
modified or supplemented.
73. "John Hancock Plaza Store Note" means the 6-1/4% 30-Year Secured
Note, dated January 20, 1971, as amended, issued by Flatbrook Properties Corp.
to John Hancock, and all notes, security agreements, mortgages, guaranties,
collateral assignments, pledges and other instruments, agreements or documents
related thereto, as amended, modified or supplemented.
74. "KPM" means Kings Plaza Shopping Center of Avenue U, Inc., a New
York corporation and the debtor in Reorganization Case No. 92 B 40636.
75. "Macy's" means R.H. Macy & Co., Inc, a Delaware corporation and
the debtor in Reorganization Case No. 92 B 40477.
76. "Macy's/49 Store Lease Payment Guaranty" means Macy's guaranty
of payment obligations in respect of certain alleged intercompany leases in
which the 49 Store Bank Group has a security interest, provided to the
Macy's/49 Store Real Estate Subsidiary Debtors in connection with the Macy's/49
Store Loan Agreement.
77. "Macy's/49 Store Loan Agreement" means, collectively: (a) the
Loan Agreement, dated November 22, 1988, among Bullock's-Wilshire, Inc. (as
borrower), I. Magnin (as co-borrower), Kidder Peabody Mortgage Capital
Corporation (as lender) and Swiss Bank (as lender and agent); (b) the Loan
Agreement, dated November 22, 1988, among Macy's Poydras Properties Corp. (as
borrower), Macy's South (as co-borrower), Kidder Peabody Mortgage Capital
Corporation (as lender) and Swiss Bank (as lender and agent); (c) the Loan
Agreement, dated November 22, 1988, among I. Magnin Properties Corp. (as
borrower), I. Magnin (as co-borrower), Kidder Peabody Mortgage Capital
Corporation (as lender) and Swiss Bank (as lender and agent); (d) the Loan
Agreement, dated November 22, 1988, among Macy's Northeast Properties Corp.
(as borrower), Macy's Northeast (as co-borrower), Kidder Peabody Mortgage
Capital Corporation (as lender) and Swiss Bank (as lender and agent); (e) the
Loan Agreement, dated November 22, 1988, among Bullock's Properties Corp.
(as borrower), Bullock's (as co-borrower), Kidder Peabody Mortgage Capital
Corporation (as lender) and Swiss Bank (as lender and agent); (f) the Indemnity
Agreement, dated November 22, 1988, among Macy's, the Macy's/49 Store Operating
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Subsidiary Debtors, the Macy's/49 Store Real Estate Subsidiary Debtors and the
49 Store Bank Group in respect of certain environmental liabilities; and (g)
all mortgages, notes and other security agreements and instruments related to
the documents identified in (a) through (f) above.
78. "Macy's/49 Store Loan Guaranty" means, collectively: (a) the
Macy's/49 Store Lease Payment Guaranty; (b) the Macy's/Macy's South Liquidated
Damages Guaranty; and (c) any guarantees of debt service in connection with the
Macy's/49 Store Loan Agreement.
79. "Macy's/49 Store Operating Subsidiary Debtors" means,
collectively: (a) Bullock's; (b) I. Magnin; (c) Macy's Northeast; and
(d) Macy's South.
80. "Macy's/49 Store Real Estate Subsidiary Debtors" means,
collectively, the debtors identified as such on Appendix I.A.80.
81. "Macy's Bank Loan Agreements" means, collectively: (a) the
Macy's/49 Store Loan Agreement; (b) the Macy's/CREI Loan Agreement; (c) the
Macy's/WCB Loan Agreement; and (d) the Syndicate Agreement, dated as of
November 22, 1988, among Kidder Peabody Mortgage Capital Corporation, Swiss
Bank Corporation, New York Branch and Swiss Bank Corporation, New York Branch,
as agent, as subsequently amended and supplemented.
82. "Macy's California" means Macy's California, Inc., a Delaware
corporation and the debtor in Reorganization Case No. 92 B 40479.
83. "Macy's/CREI Lease Payment Guaranty" means Macy's guaranty of
payment obligations in respect of certain alleged intercompany leases in which
the CREI Bank Group has a security interest, provided to the Macy's/CREI Real
Estate Subsidiary Debtors pursuant to the terms of the Macy's/CREI Loan
Agreement.
84. "Macy's/CREI Loan Agreement" means, collectively: (a) the Ten
Store Financing New York Division Loan Agreement, dated September 30, 1987,
among CREI (as lender), Macy's, Macy's New York, Inc. (as co-borrower) and
Brooksmith Properties Corp., Waltwhit Properties Corp. and Housgalleria
Properties Corp. (collectively, as borrowers); (b) the Ten Store Financing New
Jersey Division Loan Agreement, dated September 30, 1987, among CREI (as
lender), Macy's, Macy's New Jersey, Inc. (as co-borrower) and Livingston
Properties Corp., Marley Properties Corp. and Owings Mills Properties Corp.
(collectively, as borrowers); (c) the Ten Store Financing Atlanta Division Loan
Agreement, dated September 30, 1987, among CREI (as lender), Macy's, Macy's
Atlanta, Inc. (as co-borrower), Lenox Properties Corp., Macobb Properties
Corp., Riverchase Properties Corp. and Esplanade Properties Corp.
(collectively, as borrowers); (d) the Credit Facility and Reimbursement
Agreement, dated September 30, 1987, among CREI (as lender), Citibank, N.A. (as
letter of credit issuer), Macy's, Macy Special Real Estate Capital Corp. and
Macy's New York, Inc., Macy's New Jersey, Inc., Macy's Atlanta, Inc. and the
Macy's/CREI Real Estate Subsidiary Debtors (collectively, as borrowers); and
(e) all mortgages, notes and other security agreements and instruments related
to the documents identified in (a) through (d) above.
85. "Macy's/CREI Operating Subsidiary Debtors" means, collectively:
(a) Macy's Northeast and (b) Macy's South.
86. "Macy's/CREI Real Estate Subsidiary Debtors" means,
collectively, the debtors identified as such on Appendix I.A.80.
87. "Macy's/CREI Swap Agreement" means, collectively, the three
Interest Rate Exchange Agreements in respect of the Macy's/CREI Loan Agreement,
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all dated May 6, 1987, among CREI Bank, the Macy's/CREI Operating Subsidiary
Debtors and the Macy's/CREI Real Estate Subsidiary Debtors.
88. "Macy's Financial" means Macy's Financial, Inc., a Delaware
corporation and the debtor in Reorganization Case No. 92 B 40486.
89. "Macy's/GECC Interest Guaranty" means Macy's guaranty, pursuant
to the Macy's/GECC Loan Agreement, of interest payment obligations of the
Macy's/GECC Operating Subsidiary Debtors to GECC pursuant to the Macy's/GECC
Loan Agreement.
90. "Macy's/GECC Loan Agreement" means, collectively: (a) the First
Secured Term Loan Agreement, dated May 10, 1991, among GECC (as lender) and
Macy's California, Macy's South and Bullock's (collectively, as borrowers), as
amended in October 1991 to include Macy's Northeast as a borrower and (b) all
mortgages, notes and other security agreements and instruments related to the
documents identified in (a) above.
91. "Macy's/GECC Operating Subsidiary Debtors" means, collectively:
(a) Bullock's; (b) Macy's California; (c) Macy's Northeast; and (d) Macy's
South.
92. "Macy's/Macy's South Liquidated Damages Guaranty" means Macy's
guaranty of the obligations of Macy's South to Swiss Bank pursuant to the terms
of the Macy's/Swiss Bank Liquidated Damages Agreement.
93. "Macy's Miscellaneous Subsidiary Debtors" means, collectively,
the debtors listed on Appendix I.A.93.
94. "Macy's Nondebtor Subsidiaries" means, collectively:
(a) Bamrest Del, Inc., a Delaware corporation; (b) Bamrest NJ, Inc., a New
Jersey corporation; (c) Bamrest Penn, Inc., a Pennsylvania corporation;
(d) Calclove Realty Corp., a California corporation; (e) Cowie & Company,
Limited, a Delaware corporation; (f) Davrest Georgia, Inc., a Georgia
corporation; (g) Finite Limited, a Hong Kong corporation; (h) Hamilton By
Appointment, Inc., a Delaware corporation; (i) L&K Properties Corp., an Ohio
corporation; (j) Mac Fla Rest, Inc., a Florida corporation; (k) Macy
Receivables Funding Corp., a Delaware corporation; (l) Macy Special Real Estate
Capital Corp., a Delaware corporation; (m) Macy's Bank, a New York corporation;
(n) MCC Special Corp., a Delaware corporation; (o) MOA Rest, Inc., a Minnesota
corporation; (p) R.H. Macy (France) S.A.R.L., a French corporation; (q) R.H.
Macy Holdings (HK), Ltd., a Delaware corporation; (r) R.H. Macy Overseas
Finance, N.V., a Netherlands Antilles corporation; (s) R.H. Macy Warehouse
(HK), Ltd., a Delaware corporation; (t) Rest Tex, Inc., a Texas corporation;
(u) Sabugo, Ltd., a Kowloon corporation; (v) U&F Realty Corp., a New York
corporation; (w) Wise Chat, Ltd., a Hong Kong corporation; and (x) any other
subsidiary of a Debtor that is not a Macy's Subsidiary Debtor.
95. "Macy's Northeast" means Macy's Northeast, Inc., a Delaware
corporation and the debtor in Reorganization Case No. 92 B 40480.
96. "Macy's Operating Subsidiary Debtors" means, collectively:
(a) Bullock's; (b) I. Magnin; (c) Macy's California; (d) Macy's Northeast;
(e) Macy's South; (f) Macy's Specialty; and (g) MCO.
97. "Macy's/Prudential 1986 Mortgage Notes" means those notes dated
July 15, 1986, and November 3, 1986, purchased by Prudential from certain of
the Macy's/Prudential Operating Subsidiary Debtors and Macy's/Prudential Real
Estate Subsidiary Debtors pursuant to the Macy's/Prudential Loan Agreement.
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98. "Macy's/Prudential 1987 Mortgage Notes" means those notes dated
May 18, 1987, and June 30, 1987, purchased by Prudential from certain of the
Macy's/Prudential Operating Subsidiary Debtors and Macy's/Prudential Real
Estate Subsidiary Debtors pursuant to the Macy's/Prudential Loan Agreement.
99. "Macy's/Prudential Loan Agreement" means, collectively: (a) the
Term Loan Agreement, dated July 15, 1986, between Macy's and Prudential; (b)
the Rider to Term Loan Agreement, dated July 15, 1986, among Macy's,
Prudential, the Macy's/Prudential Real Estate Subsidiary Debtors (except W.P.
Properties Corp.) and Macy's New York, Inc.; (c) the Macy's/Prudential Mortgage
Notes; and (d) all other security agreements and instruments related to the
documents identified in (a) through (c) above.
100. "Macy's/Prudential Mortgage Notes" means, collectively: (a) the
Macy's/Prudential 1986 Mortgage Notes and (b) the Macy's/Prudential 1987
Mortgage Notes.
101. "Macy's/Prudential Operating Subsidiary Debtors" means,
collectively: (a) Macy's California; (b) Macy's Northeast; and (c) Macy's
South.
102. "Macy's/Prudential Real Estate Subsidiary Debtors" means,
collectively, the debtors identified as such on Appendix I.A.80.
103. "Macy's Real Estate Subsidiary Debtors" means, collectively:
(a) the Macy's/49 Store Real Estate Subsidiary Debtors; (b) the Macy's/CREI
Real Estate Subsidiary Debtors; (c) the Macy's/Prudential Real Estate
Subsidiary Debtors; (d) the Macy's/WCB Real Estate (First Lien) Subsidiary
Debtors; and (e) the remaining debtors identified as such on Appendix I.A.80.
104. "Macy's Senior Subordinated Debentures" means the 14-1/2% Senior
Subordinated Debentures due 1998, issued by Macy's pursuant to the Macy's
Senior Subordinated Debentures Indenture.
105. "Macy's Senior Subordinated Debentures Assumption Agreement"
means, collectively: (a) the Assumption Agreement, dated as of November 3,
1986, provided by Macy's California; (b) the Assumption Agreement, dated as of
November 3, 1986, provided by Macy's New Jersey, Inc.; (c) the Assumption
Agreement, dated as of November 3, 1986, provided by MNY Corp.; and (d) the
Assumption Agreement, dated as of November 3, 1986, provided by Macy's Atlanta,
Inc., pursuant to which each such entity assumed the obligation to pay the
principal and interest on a percentage of the Macy's Senior Subordinated
Debentures and agreed to be bound by the terms of and perform the covenants of
Macy's under the Macy's Senior Subordinated Debentures Indenture.
106. "Macy's Senior Subordinated Debentures Guarantors" means,
collectively: (a) Macy's California; (b) Macy's Northeast; and (c) Macy's
South.
107. "Macy's Senior Subordinated Debentures Guaranty" means,
collectively: (a) the Mirror Subsidiary Guarantee, dated as of November 3,
1986, provided by Macy's California; (b) the Mirror Subsidiary Guarantee, dated
as of November 3, 1986, provided by Macy's New Jersey, Inc.; (c) the Mirror
Subsidiary Guarantee, dated as of November 3, 1986, provided by MNY Corp.; and
(d) the Mirror Subsidiary Guarantee, dated as of November 3, 1986, provided by
Macy's Atlanta, Inc., pursuant to which each such entity guaranteed (y) the
payment of the Macy's Senior Subordinated Debentures, plus interest thereon and
certain costs and expenses incurred in connection therewith and (z) the
performance of all obligations under the Macy's Senior Subordinated Debentures
Indenture.
108. "Macy's Senior Subordinated Debentures Indenture" means the
Indenture, dated as of July 15, 1986, by and between Macy Merger Corp., Macy
Acquiring Corp. (as guarantor) and Shawmut, as trustee, as subsequently amended
and supplemented.
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109. "Macy's South" means Macy's South, Inc., a Delaware corporation
and the debtor in Reorganization Case No. 92 B 40478.
110. "Macy's Specialty" means Macy Specialty Stores, Inc., a Delaware
corporation and the debtor in Reorganization Case No. 92 B 40484.
111. "Macy's Subordinated Debentures" means the 14-1/2% Subordinated
Debentures due 2001, issued by Macy's pursuant to the Macy's Subordinated
Debentures Indenture.
112. "Macy's Subordinated Debentures Assumption Agreement" means,
collectively: (a) the Assumption Agreement, dated as of November 3, 1986,
provided by Macy's California; (b) the Assumption Agreement, dated as of
November 3, 1986, provided by Macy's New Jersey, Inc.; (c) the Assumption
Agreement, dated as of November 3, 1986, provided by MNY Corp.; and (d) the
Assumption Agreement, dated as of November 3, 1986, provided by Macy's Atlanta,
Inc., pursuant to which each such entity assumed the obligation to pay the
principal and interest on a percentage of the Macy's Subordinated Debentures
and agreed to be bound by the terms of and perform the covenants of Macy's
under the Macy's Subordinated Debentures Indenture.
113. "Macy's Subordinated Debentures Guarantors" means, collectively:
(a) Macy's California; (b) Macy's Northeast; and (c) Macy's South.
114. "Macy's Subordinated Debentures Guaranty" means, collectively:
(a) the Mirror Subsidiary Guarantee, dated as of November 3, 1986, provided by
Macy's California; (b) the Mirror Subsidiary Guarantee, dated as of November 3,
1986, provided by Macy's New Jersey, Inc.; (c) the Mirror Subsidiary Guarantee,
dated as of November 3, 1986, provided by MNY Corp.; and (d) the Mirror
Subsidiary Guarantee, dated as of November 3, 1986, provided by Macy's Atlanta,
Inc., pursuant to which each such entity guaranteed (y) the payment of the
Macy's Subordinated Debentures, plus interest thereon and certain costs and
expenses incurred in connection therewith and (z) the performance of all
obligations under the Macy's Subordinated Debentures Indenture.
115. "Macy's Subordinated Debentures Indenture" means the Indenture,
dated as of July 15, 1986, by and between Macy Merger Corp. and IBJ Schroder
Bank & Trust Company (formerly known as J. Henry Schroder Bank & Trust
Company), as trustee, as subsequently amended and supplemented.
116. "Macy's Subordinated Discount Debentures" means the 16-1/2%
Subordinated Discount Debentures due 2006, issued by Macy's pursuant to the
Macy's Subordinated Discount Debentures Indenture.
117. "Macy's Subordinated Discount Debentures Assumption Agreement"
means, collectively: (a) the Assumption Agreement, dated as of November 3,
1986, provided by Macy's California; (b) the Assumption Agreement, dated as of
November 3, 1986, provided by Macy's New Jersey, Inc.; (c) the Assumption
Agreement, dated as of November 3, 1986, provided by MNY Corp.; and (d) the
Assumption Agreement, dated as of November 3, 1986, provided by Macy's Atlanta,
Inc., pursuant to which each such entity assumed the obligation to pay the
principal and interest on a percentage of the Macy's Subordinated Discount
Debentures and agreed to be bound by the terms of and perform the covenants of
Macy's under the Macy's Subordinated Discount Debentures Indenture.
118. "Macy's Subordinated Discount Debentures Guarantors" means,
collectively: (a) Macy's California; (b) Macy's Northeast; and (c) Macy's
South.
119. "Macy's Subordinated Discount Debentures Guaranty" means,
collectively: (a) the Mirror Subsidiary Guarantee, dated as of November 3,
1986, provided by Macy's California; (b) the Mirror Subsidiary Guarantee, dated
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as of November 3, 1986, provided by Macy's New Jersey, Inc.; (c) the Mirror
Subsidiary Guarantee, dated as of November 3, 1986, provided by MNY Corp.; and
(d) the Mirror Subsidiary Guarantee, dated as of November 3, 1986, provided by
Macy's Atlanta, Inc., pursuant to which each such entity guaranteed (y) the
payment of the Macy's Subordinated Discount Debentures, plus interest thereon
and certain costs and expenses incurred in connection therewith and (z) the
performance of all obligations under the Macy's Subordinated Discount
Debentures Indenture.
120. "Macy's Subordinated Discount Debentures Indenture" means the
Indenture, dated as of July 15, 1986, by and between Macy Merger Corp. and Bank
of Montreal Trust Company, as trustee, as subsequently amended and
supplemented.
121. "Macy's Subsidiaries" means, collectively: (a) the Macy's
Operating Subsidiary Debtors; (b) the Macy's Miscellaneous Subsidiary Debtors;
(c) the Macy's Real Estate Subsidiary Debtors; and (d) the Macy's Nondebtor
Subsidiaries.
122. "Macy's Subsidiary Debtors" means, collectively: (a) the Macy's
Operating Subsidiary Debtors; (b) the Macy's Miscellaneous Subsidiary Debtors;
and (c) the Macy's Real Estate Subsidiary Debtors.
123. "Macy's/Swiss Bank Liquidated Damages Agreement" means,
collectively: (a) the letter agreements, dated June 17, 1988, and June 22,
1988, respectively, between Swiss Bank and Macy's and (b) the Macy's/49 Store
Loan Agreement, which provide for liquidated damages in respect of certain
interest rate exchange agreements entered into in connection with the
Macy's/49 Store Loan Agreement.
124. "Macy's/WCB Guarantor Debtors" means, collectively: (a) the
Macy's/WCB Real Estate (First Lien) Subsidiary Debtors (other than Bullock's
Specialty Stores, Inc.); (b) the Macy's/WCB (Junior Lien) Subsidiary Debtors
(other than Bullock's Properties Corp., I. Magnin Properties Corp., Macy's
Northeast Properties Corp., Macy's Poydras Properties Corp., Esplanade
Properties Corp., Housgalleria Properties Corp., Lenox Properties Corp., Macobb
Properties Corp., Riverchase Properties Corp. and Waltwhit Properties Corp.);
(c) the Macy's Real Estate Subsidiary Debtors listed under section E of
Appendix I.A.80; (d) MCO; (e) Pasadena Properties Corp.; (f) Macy Specialty
Stores, Inc.; (g) R. H. Macy Warehouse (HK) Limited; (h) Brooksmith Properties
Corp.; and (i) W. P. Properties Corp.
125. "Macy's/WCB Guaranty" means, collectively, the guaranties
provided to the WCB Group by the Macy's/WCB Guarantor Debtors pursuant to the
terms of the Macy's/WCB Loan Agreement.
126. "Macy's/WCB (Junior Lien) Subsidiary Debtors" means,
collectively: (a) the Macy's/49 Store Real Estate Debtors; (b) the Macy's/CREI
Real Estate Subsidiary Debtors (other than Brooksmith Properties Corp.); (c)
the Macy's Miscellaneous Subsidiary Debtors (other than Delphis Corporation,
Executive Placement Consultants, Inc., Macy Credit Corp. and Macy Receivables
Master Servicing Corp.); (d) the Macy's Operating Subsidiary Debtors; and
(e) the Macy's/Prudential Real Estate Subsidiary Debtors.
127. "Macy's/WCB Loan Agreement" means, collectively: (a) the Credit
Agreement, dated July 10, 1986, among the entities identified therein as
"Banks," the entities identified therein as "Borrowers" and Manufacturers
Hanover Agent Bank Services Corporation, as subsequently amended and restated;
(b) the Amended and Restated Credit Agreement, dated April 27, 1988, between
the Macy's/WCB Obligor Debtors and the WCB Group, as subsequently amended and
restated; (c) the Amended and Restated Collateral Trust Agreement, dated
April 27, 1988, by and among Macy's, the Macy's/WCB Obligor Debtors, the
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Macy's/WCB Guarantor Debtors and Wilmington Trust Company and William J. Wade
(as trustees for the benefit of the WCB Group); (d) the Amended, Restated and
Consolidated Pledge Agreement, dated April 27, 1988, by and among the
Macy's/WCB Obligor Debtors, the Macy's/WCB Guarantor Debtors and Wilmington
Trust Company and William J. Wade (as trustees for the benefit of the WCB
Group); (e) the Amended and Restated Security Agreement, dated April 27, 1988,
by the Macy's/WCB Obligor Debtors, the Macy's/WCB Guarantor Debtors and
Wilmington Trust Company and William J. Wade (as trustees for the benefit of
the WCB Group); (f) the Amended and Restated Trademark Security Agreement and
Conditional Assignment, dated April 27, 1988, by the Macy's/WCB Obligor
Debtors, the Macy's/WCB Guarantor Debtors and Wilmington Trust Company and
William J. Wade (as trustees for the benefit of the WCB Group); (g) the Pledge
Agreement, dated December 11, 1990, between Macy Financial, Inc. and Wilmington
Trust Company and William J. Wade (as trustees for the benefit of the WCB
Group); and (h) all mortgages, notes and other security or pledge agreements
and instruments related to the documents identified in (a) through (g) above.
128. "Macy's/WCB Obligor Debtors" means, collectively, those entities
identified as "Borrowers" in the Macy's/WCB Loan Agreement and their respective
successors and assigns.
129. "Macy's/WCB Real Estate (First Lien) Subsidiary Debtors" means,
collectively, the debtors identified as such on Appendix I.A.80.
130. "Macy's/WCB Swap Agreement" means, collectively: (a) the
Interest Rate Swap Agreement, dated May 12, 1988, between the Chase Manhattan
Bank, N.A. and Macy's and (b) the Interest Rate Swap Agreement, dated May 13,
1988, between Citibank, N.A. and Macy's.
131. "MCO" means MCO, Inc., a Delaware corporation and the debtor in
Reorganization Case No. 92 B 40482.
132. "New Combined Company Common Stock" means the shares of common
stock, par value $.01 per share, authorized pursuant to the certificate of
incorporation of the Combined Company.
133. "New Combined Company Preferred Stock" means the Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Combined
Company authorized pursuant to the certificate of incorporation of the Combined
Company or a certificate of designation substantially in the form of Exhibit B
to the New Combined Company Share Purchase Rights Agreement.
134. "New Combined Company Share Purchase Rights" means the rights to
purchase shares of New Combined Company Preferred Stock to be issued pursuant
to the New Combined Company Share Purchase Rights Agreement.
135. "New Combined Company Share Purchase Rights Agreement" means the
share purchase rights agreement substantially in the form of Appendix I.A.135,
pursuant to which New Combined Company Share Purchase Rights will be issued.
136. "New Debt" means, collectively: (a) the New Mortgage Notes and
(b) the New Unsecured Notes.
137. "New Debt Instruments" means, collectively: (a) the New Global
Indenture; (b) the New Mortgage Notes Agreements; (c) the New Series A Notes
Supplemental Indenture; (d) the New Series B Notes Supplemental Indenture; and
(e) the New Series C Notes Supplemental Indenture.
138. "New Equity" means, collectively: (a) the New Combined Company
Common Stock and (b) the New Warrants.
139. "New GECC Mortgage Notes" means the mortgage notes due on the
fifth anniversary of the Effective Date, to be issued by New Macy's Warehouse
Real Estate to GECC pursuant to the New GECC Mortgage Note Agreement,
substantially in the form provided therein.
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140. "New GECC Mortgage Note Agreement" means the mortgage note
agreement between New Macy's Warehouse Real Estate and GECC, substantially on
the terms provided in Appendix I.A.140.
141. "New Global Indenture" means the global indenture between the
Combined Company and the trustee named therein, substantially in the form of
Appendix I.A.141.
142. "New John Hancock KPM Note" means the secured note to be issued
by KPM to John Hancock pursuant to the New John Hancock KPM Note Agreement,
substantially in the form provided therein.
143. "New John Hancock KPM Note Agreement" means the secured note
agreement between KPM and John Hancock, substantially in the form of Appendix
I.A.143.
144. "New John Hancock Plaza Store Note" means the secured note to be
issued by New Macy's Secondary Real Estate to John Hancock pursuant to the New
John Hancock Plaza Store Note Agreement, substantially in the form provided
therein.
145. "New John Hancock Plaza Store Note Agreement" means the secured
note agreement between New Macy's Secondary Real Estate and John Hancock,
substantially in the form of Appendix I.A.145.
146. "New Macy's Primary Real Estate" means Macy's Primary Real
Estate, Inc., which will be formed as part of the Real Estate Subsidiary
Transactions and will be the issuer of the New Prudential Mortgage Notes.
147. "New Macy's Secondary Real Estate" means Macy's Secondary Real
Estate, Inc., which will be formed as part of the Real Estate Subsidiary
Transactions and will be the issuer of the New John Hancock Plaza Store Note.
148. "New Macy's Warehouse Real Estate" means Macy's Warehouse Real
Estate, Inc., which will be formed as part of the Real Estate Subsidiary
Transactions and will be the issuer of the New GECC Mortgage Notes.
149. "New Mortgage Notes" means, collectively: (a) the New GECC
Mortgage Notes; (b) the New John Hancock KPM Note and the New John Hancock
Plaza Store Note; and (c) the New Prudential Mortgage Notes.
150. "New Mortgage Notes Agreements" means, collectively: (a) the
New GECC Mortgage Note Agreement; (b) the New John Hancock KPM Note Agreement
and the New John Hancock Plaza Store Note Agreement; and (c) the New Prudential
Mortgage Note and Guaranty Agreement.
151. "New Prudential Mortgage Note and Guaranty Agreement" means the
mortgage note and guaranty agreement between and among the Combined Company,
New Macy's Primary Real Estate, the other Reorganized Debtors named therein,
and Prudential, substantially on the terms provided in Appendix I.A.151.
152. "New Prudential Mortgage Notes" means the mortgage notes due
June 30, 2005, to be issued by New Macy's Primary Real Estate to Prudential
pursuant to the New Prudential Mortgage Note and Guaranty Agreement,
substantially in the form provided therein.
153. "New Securities" means, collectively: (a) the New Debt and
(b) the New Equity.
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154. "New Series A Notes" means the unsecured notes due June 30,
1999, to be issued by the Combined Company pursuant to the New Global Indenture
and the New Series A Notes Supplemental Indenture, substantially in the form
provided therein.
155. "New Series A Notes Supplemental Indenture" means the
supplemental indenture between the Combined Company and the trustee named
therein, substantially on the terms provided in Appendix I.A.155.
156. "New Series B Notes" means the unsecured notes due June 30,
2002, to be issued by the Combined Company pursuant to the New Global Indenture
and the New Series B Notes Supplemental Indenture, substantially in the form
provided therein.
157. "New Series B Notes Supplemental Indenture" means the
supplemental indenture between the Combined Company and the trustee named
therein, substantially on the terms provided in Appendix I.A.155.
158. "New Series C Notes" means the unsecured notes due June 30,
2005, to be issued by the Combined Company pursuant to the New Global Indenture
and the New Series C Notes Supplemental Indenture, substantially in the form
provided therein.
159. "New Series C Notes Supplemental Indenture" means the
supplemental indenture between the Combined Company and the trustee named
therein, substantially on the terms provided in Appendix I.A.155.
160. "New Series C Warrants" means the warrants to be issued by the
Combined Company pursuant to the New Series C Warrants Agreement, substantially
in the form provided therein.
161. "New Series C Warrants Agreement" means the warrants agreement
between the Combined Company and the warrants agent named therein,
substantially in the form of Appendix I.A.161.
162. "New Series D Warrants" means the warrants to be issued by the
Combined Company pursuant to the New Series D Warrants Agreement, substantially
in the form provided therein.
163. "New Series D Warrants Agreement" means the warrants agreement
between the Combined Company and the warrants agent named therein,
substantially in the form of Appendix I.A.163.
164. "New Unsecured Notes" means, collectively: (a) the New Series A
Notes; (b) the New Series B Notes; and (c) the New Series C Notes.
165. "New Warrants" means, collectively: (a) the New Series C
Warrants and (b) the New Series D Warrants.
166. "New Warrants Agreements" means, collectively: (a) the New
Series C Warrants Agreement and (b) the New Series D Warrants Agreement.
167. "Obligations" shall have the meaning set forth in Section 1 of
the Prudential/Federated Security Agreement.
168. "Old Capital Stock" means, collectively: (a) the Old Common
Stock of Macy's; (b) the Old Preferred Stock; and (c) the Old Stock Options.
<PAGE>
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169. "Old Common Stock of . . ." means, when used with reference to a
particular Debtor or Debtors, the common stock issued by such Debtor or Debtors
and outstanding immediately prior to the Effective Date.
170. "Old Debt Securities" means, collectively: (a) the Macy's
Senior Subordinated Debentures; (b) the Macy's Subordinated Debentures; and (c)
the Macy's Subordinated Discount Debentures.
171. "Old Debt Securities Assumption Agreements" means, collectively:
(a) the Macy's Senior Subordinated Debentures Assumption Agreement; (b) the
Macy's Subordinated Debentures Assumption Agreement; and (c) the Macy's
Subordinated Discount Debentures Assumption Agreement.
172. "Old Debt Securities Guaranties" means, collectively: (a) the
Macy's Senior Subordinated Debentures Guaranty; (b) the Macy's Subordinated
Debentures Guaranty; and (c) the Macy's Subordinated Discount Debentures
Guaranty.
173. "Old Debt Securities Guarantors" means, collectively: (a) the
Macy's Senior Subordinated Debentures Guarantors; (b) the Macy's Subordinated
Debentures Guarantors; and (c) the Macy's Subordinated Discount Debentures
Guarantors.
174. "Old Indentures" means, collectively: (a) the Macy's Senior
Subordinated Debentures Indenture; (b) the Macy's Subordinated Debentures
Indenture; and (c) the Macy's Subordinated Discount Debentures Indenture.
175. "Old Preferred Stock" means, collectively: (a) the Old Series I
Preferred Stock; (b) the Old Series II Preferred Stock; and (c) the Old Series
III Preferred Stock.
176. "Old Series I Preferred Stock" means the shares of Convertible
Participating Preferred Stock, par value $1.00 per share, of Macy's issued and
outstanding immediately prior to the Effective Date.
177. "Old Series II Preferred Stock" means the shares of Convertible
Participating Preferred Stock Series II, par value $1.00 per share, of Macy's
issued and outstanding immediately prior to the Effective Date.
178. "Old Series III Preferred Stock" means the shares of Convertible
Participating Preferred Stock Series III, par value $1.00 per share, of Macy's
issued and outstanding immediately prior to the Effective Date.
179. "Old Stock Options" means, collectively: (a) the options to
purchase Old Common Stock of Macy's through the 1987 Participation Stock Option
Plan and the 1987 Stock Award Plan, which were established by the Board of
Directors of Macy's on June 15, 1987 and (b) any other options, warrants or
other rights to purchase Old Common Stock of Macy's, whenever granted.
180. "Operating Subsidiary Transactions" means, collectively, such
mergers, consolidations, restructurings, dispositions, liquidations or
dissolutions or other transactions as may be determined by Federated or the
Combined Company to be necessary or appropriate to effect the corporate
restructuring of the Reorganized Debtors' respective department and specialty
store operations that is contemplated in Section IV.B.2.
181. "Ordinary Course Professionals Order" means the Order Pursuant
to Sections 327 and 328 of the Bankruptcy Code Authorizing the Employment of
Attorneys, Accountants, and Real Estate Appraisers Utilized by Debtors in the
Ordinary Course of Business, entered by the Bankruptcy Court on March 9, 1992.
<PAGE>
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182. "Other Priority Tax Claim" means a Claim that is entitled to
priority in payment pursuant to section 507(a)(7) of the Bankruptcy Code, other
than a Federal Priority Tax Claim or a Responsible Person Priority Tax Claim.
183. "Personal Injury Claims" means all personal injury tort or
wrongful death Claims asserted against any of the Debtors that, prior to the
Effective Date, were not settled, compromised or otherwise resolved.
184. "Petition Dates" means, collectively, the dates on which the
Debtors Filed their respective petitions for relief under chapter 11 of the
Bankruptcy Code to commence the Reorganization Cases.
185. "Plan" means this amended joint plan of reorganization for each
of the Debtors, to the extent applicable to any Debtor, and all Appendices
attached hereto or referenced herein, as the same may be amended, modified or
supplemented.
186. "Plan Negotiating Committee" means: (a) with respect to the 49
Store Bank Group, the committee appointed by the Lenders that are parties to
the Macy's/49 Store Loan Agreement to address and negotiate plan of
reorganization matters on behalf of and subject to the ultimate vote of the 49
Store Bank Group; (b) with respect to the CREI Bank Group, CREI; and (c) with
respect to the WCB Group, the committee appointed by the Banks that are parties
to the Macy's/WCB Loan Agreement to address and negotiate plan of
reorganization matters on behalf of and subject to the ultimate vote of the WCB
Group.
187. "Plan Proponents" means, collectively: (a) Macy's and
(b) Federated. When any action or decision is referred to herein as being
taken or made by the Plan Proponents, such actions or decisions will not be
effective (for purposes of the Plan) unless taken or made by the Plan
Proponents acting jointly.
188. "Priority Claim" means a Claim that is entitled to priority in
payment pursuant to section 507(a) of the Bankruptcy Code and that is not an
Administrative Claim or a Priority Tax Claim.
189. "Priority Tax Claims" means, collectively: (a) Federal Priority
Tax Claims; (b) Responsible Person Priority Tax Claims; and (c) Other Priority
Tax Claims.
190. "Pro Rata" means:
a. when used with reference to a distribution of cash or New
Securities pursuant to Article III herein, proportionately so that with
respect to a particular Allowed Claim, the ratio of (i)(A) the amount of
property distributed on account of such Claim to (B) the amount of such
Claim, is the same as the ratio of (ii)(A) the amount of property
distributed on account of all Allowed Claims of the Class in which such
Claim is included to (B) the amount of all Allowed Claims in that Class;
and
b. when used with reference to distributions of the Cash Investment
Yield pursuant to Sections VI.A, VI.D, VI.G and VII.C, the portion of the
Cash Investment Yield allocable to a particular Allowed Claim on the basis
of the amount of cash then being distributed on account of such Claim
(including dividends and other distributions on New Combined Company
Common Stock being distributed on account of such Claim). Calculations of
the Pro Rata shares of the Cash Investment Yield to be distributed at any
particular time will be based on the Cash Investment Yield generated as of
the last day of the month prior to the month in which such distributions
are to be made.
<PAGE>
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191. "Professional" means any professional employed in the
Reorganization Cases pursuant to sections 327 or 1103 of the Bankruptcy Code or
any professional seeking compensation or reimbursement of expenses in
connection with the Reorganization Cases pursuant to section 503(b)(4) of the
Bankruptcy Code.
192. "Prudential" means The Prudential Insurance Company of America,
a New Jersey mutual insurance corporation.
193. "Prudential/Federated Intercreditor Agreement" means the
Intercreditor Agreement, dated December 31, 1993, among Prudential, FNC and
Federated.
194. "Prudential/Federated Security Agreement" means the Pledge and
Security Agreement, dated as of December 31, 1993, by and between FNC and
Prudential.
195. "Quarterly Distribution Date" means the last Business Day of the
month following the end of each calendar quarter after the Effective Date;
provided, however, that if the Effective Date is within 45 days of the end of a
calendar quarter, the first Quarterly Distribution Date will be the last
Business Day of the month following the end of the first calendar quarter after
the calendar quarter in which the Effective Date falls.
196. "Real Estate Subsidiary Transactions" means, collectively, such
mergers, consolidations, restructurings, dispositions, liquidations or
dissolutions or other transactions as may be determined by Federated or the
Combined Company to be necessary or appropriate to effect the corporate
restructuring of the Macy's Real Estate Subsidiaries that is contemplated in
Section IV.B.3, including the formation of New Macy's Primary Real Estate, New
Macy's Secondary Real Estate and New Macy's Warehouse Real Estate.
197. "Real Property Executory Contracts and Unexpired Leases" means
all executory contracts and unexpired leases between a Debtor and any entity
relating to the Debtors' interests in real property, and agreements and leases
appurtenant to real property, including all easements, licenses, permits,
rights, privileges, immunities, options, rights of first refusal, powers, uses,
usufructs, reciprocal easement agreements, vault, tunnel or bridge agreements
or franchises, development rights and any other interests in real estate or
rights in rem related to the applicable real property.
198. "Reinstated" or "Reinstatement" means rendering a Claim
unimpaired within the meaning of section 1124 of the Bankruptcy Code. Unless
the Plan specifies a particular method of Reinstatement, when the Plan provides
that an Allowed Claim or Interest will be Reinstated, such Claim or Interest
will be Reinstated, at the applicable Reorganized Debtor's sole discretion, in
accordance with one of the following:
a. The legal, equitable and contractual rights to which such Claim
or Interest entitles the holder will be unaltered;
b. Notwithstanding any contractual provision or applicable law that
entitles the holder of such Claim or Interest to demand or receive
accelerated payment of such Claim or Interest after the occurrence of a
default:
i. any such default that occurred before or after the
commencement of the applicable Reorganization Case, other than a
default of a kind specified in section 365(b)(2) of the Bankruptcy
Code, will be cured;
ii. the maturity of such Claim or Interest as such maturity
existed before such default will be reinstated;
<PAGE>
I-20
iii. the holder of such Claim or Interest will be compensated
for any damages incurred as a result of any reasonable reliance by
such holder on such contractual provision or such applicable law; and
iv. the legal, equitable or contractual rights to which such
Claim or Interest entitles the holder of such Claim or Interest will
not otherwise be altered; or
c. On the Effective Date, the holder of such Claim will receive, on
account of such Claim, cash equal to the allowed amount of such Claim.
199. "Reorganization Case" means: (a) when used with reference to a
particular Debtor or Debtors, the chapter 11 case or cases pending for that
Debtor or Debtors in the Bankruptcy Court and (b) when used with reference to
all Debtors, the chapter 11 cases pending for the Debtors in the Bankruptcy
Court.
200. "Reorganized . . ." means, when used in reference to a
particular Debtor, such Debtor on and after the Effective Date, including the
Combined Company.
201. "Reserve Classes" means, collectively, Classes M-13, MOS-13,
MRS-10 and MMS-5.
202. "Responsible Person Priority Tax Claim" means a Claim entitled
to priority in payment pursuant to section 507(a)(7) of the Bankruptcy Code, to
the extent that such Claim is: (a) considered to be held in trust for the
governmental unit under applicable nonbankruptcy law; (b) of a type for which
the directors, officers or employees of a corporation may be personally liable
to such governmental unit under section 6672 of the Internal Revenue Code of
1986, as amended, or any comparable provision under the statutory or decisional
laws of the governing jurisdiction; or (c) otherwise designated by the Combined
Company at or before the time of payment as a Responsible Person Priority Tax
Claim.
203. "Restructuring Transactions" means, collectively: (a) the
Federated/Macy's Merger; (b) the Operating Subsidiary Transactions; (c) the
Real Estate Subsidiary Transactions; and (d) the reincorporation or elimination
by merger, consolidation, restructuring, disposition, liquidation or
dissolution of certain Macy's Subsidiaries, substantially as described in the
Disclosure Statement.
204. "Secondary Liability Claim" means an Unsecured Claim that arises
from a Debtor being liable as a guarantor of, or otherwise being jointly,
severally or secondarily liable for, any contractual, tort or other obligation
of another Debtor, including any Unsecured Claim based on: (a) guaranties of
collection, payment or performance; (b) indemnity bonds, obligations to
indemnify or obligations to hold harmless; (c) performance bonds;
(d) contingent liabilities arising out of contractual obligations or out of
undertakings (including any assignment or other transfer) with respect to
leases, operating agreements or other similar obligations made or given by a
Debtor relating to the obligations or performance of another Debtor; (e)
vicarious liability; or (f) any other joint or several liability that any
Debtor may have in respect of any obligation that is the basis of a Claim.
205. "Secured Claim" means a Claim that is secured by a lien on
property in which an Estate has an interest or that is subject to setoff under
section 553 of the Bankruptcy Code, to the extent of the value of the Claim
holder's interest in the applicable Estate's interest in such property or to
the extent of the amount subject to setoff, as applicable, as determined
pursuant to section 506(a) of the Bankruptcy Code.
206. "Securities Act" means the Securities Act of 1933, 15 U.S.C.
Sects. 77a-77aa, as now in effect or hereafter amended.
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207. "Senior Indebtedness" means: (a) when used with reference to
the Macy's Senior Subordinated Debentures, such term as defined in the Macy's
Senior Subordinated Debentures Indenture; (b) when used with reference to the
Macy's Subordinated Debentures, such term as defined in the Macy's Subordinated
Debentures Indenture; and (c) when used with reference to the Macy's
Subordinated Discount Debentures, such term as defined in the Macy's
Subordinated Discount Debentures Indenture.
208. "Senior Indebtedness Claim" means a claim in respect of Senior
Indebtedness under the applicable Old Indenture or Old Debt Securities
Guaranty.
209. "Senior Lenders" means, collectively: (a) Prudential; (b) the
WCB Group; (c) the 49 Store Bank Group; (d) the CREI Bank Group; (e) Fidelity;
and (f) Swiss Bank.
210. "Shawmut" means Shawmut Bank Connecticut, National Association,
as successor to The Connecticut National Bank, as trustee under the Macy's
Senior Subordinated Debentures Indenture.
211. "Stipulation of Amount and Nature of Claim" means a stipulation
between the applicable Reorganized Debtor and a holder of a Claim or an agreed
order of the Bankruptcy Court establishing the amount and nature of a Claim.
212. "Swiss Bank" means Swiss Bank Corporation, New York Branch.
213. "Third-Party Disbursing Agent" means an entity designated by
Federated or the Combined Company, after consultation with the Unsecured
Creditors' Committee, to act as a Disbursing Agent pursuant to Section VI.B.3.
214. "Trade Claim" means any Unsecured Claim arising from or with
respect to the sale of goods or rendition of services prior to the applicable
Petition Date, in the ordinary course of the applicable Debtor's business,
including any Claim of an employee that is not a Priority Claim (other than a
Claim, if any, of an employee for damages arising from the termination or
rejection of any Old Stock Options or otherwise relating to any Old Stock
Options).
215. "Uninsured Claim" means any Claim that is not an Insured Claim.
216. "Unsecured Claim" means any Claim that is not an Administrative
Claim, Priority Claim, Priority Tax Claim, Secured Claim or Intercompany Claim.
217. "Unsecured Creditors' Committee" means the official committee of
unsecured creditors appointed in the Reorganization Cases pursuant to section
1102 of the Bankruptcy Code, as the same may have been or is constituted from
time to time.
218. "Untendered Securities" means the untendered or unredeemed
shares of common stock, par value $.25 per share, and all untendered or
unredeemed shares of preferred stock of R.H. Macy & Co., Inc. (a New York
corporation and the predecessor of Macy's) issued and outstanding immediately
prior to the merger in 1986 of Macy Merger Corp., a New York corporation, into
such predecessor.
219. "Voting Deadline" means the deadline for submitting ballots to
accept or reject the Plan in accordance with section 1126 of the Bankruptcy
Code, as specified in the Disclosure Statement.
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220. "Voting Trustee" shall have the meaning set forth in the Voting
Trust Agreement, dated July 15, 1986, by and among Macy Acquiring Corp., Edward
S. Finkelstein, Mark S. Handler and the other entities identified therein as
"Stockholders," as subsequently amended.
221. "WCB Group" means, collectively, those entities identified as
"Banks" or "Agents" in the Macy's/WCB Loan Agreement.
B. Rules of Interpretation and Computation of Time
1. Rules of Interpretation
For purposes of the Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, will
include both the singular and the plural; (b) unless otherwise provided in the
Plan, any reference in the Plan to a contract, instrument, release, indenture
or other agreement or document being in a particular form or on particular
terms and conditions means that such document will be substantially in such
form or substantially on such terms and conditions; (c) unless otherwise
provided in the Plan, any reference in the Plan to an existing document or
Appendix Filed or to be Filed means such document or Appendix, as it may have
been or may be amended, modified or supplemented pursuant to the Plan;
(d) unless otherwise specified herein, any reference to an entity as a holder
of a Claim includes that entity's successors, assigns and affiliates;
(e) unless otherwise specified, all references in the Plan to Sections,
Articles and Appendices are references to Sections, Articles and Appendices of
or to the Plan; (f) the words "herein" and "hereto" refer to the Plan in its
entirety rather than to a particular portion of the Plan; (g) captions and
headings to Articles and Sections are inserted for convenience of reference
only and are not intended to be a part of or to affect the interpretation of
the Plan; and (h) the rules of construction set forth in section 102 of the
Bankruptcy Code will apply.
2. Computation of Time
In computing any period of time prescribed or allowed by the Plan,
the provisions of Bankruptcy Rule 9006(a) will apply.
ARTICLE II.
CLASSES OF CLAIMS AND INTERESTS
The Plan constitutes a separate plan of reorganization for each
Debtor, and each Class of Claims and Interests constitutes a separate Class for
each Debtor. All Claims and Interests, except Administrative Claims and
Priority Tax Claims, are placed in the following Classes for each of the
Debtors. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims, as described in Section III.A,
have not been classified and thus are excluded from the following Classes. A
Claim or Interest is classified in a particular Class only to the extent that
the Claim or Interest qualifies within the description of that Class and is
classified in other Classes to the extent that any remainder of the Claim or
Interest qualifies within the description of such other Classes.
A. Claims Against and Interests in Macy's (Class M- )
----
1. Unimpaired Classes of Claims
(Classes M-1 through M-3)
Class M-1: Unsecured Claims against Macy's that are entitled to
priority under section 507(a)(3), 507(a)(4) or 507(a)(6) of the Bankruptcy
Code.
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Class M-2: Unsecured Claims against Macy's of $1,000 or less, and
Unsecured Claims against Macy's that the Claim holder elects by the Voting
Deadline to reduce to $1,000 on the ballot provided for voting on the Plan,
which Claims would otherwise be classified in Class M-13, absent the existence
of this Class M-2. A holder of a Claim that would have been classified in
Class M-13, absent such election, may make this election only as to all such
holder's Claims in Classes M-2 and M-13. Therefore, if a Claim holder makes an
election to reduce any Class M-13 Claim to $1,000, all of such holder's Class
M-2 and M-13 Claims will be reduced to $1,000 in the aggregate, and no Claims
of the Claim holder will remain in Class M-13. To obtain classification in
Class M-2 for multiple Unsecured Claims under $1,000 that aggregate more than
$1,000 and would otherwise be classified in Class M-13 absent the existence of
this Class M-2, the holder of such Claims must elect classification in Class M-
2 as if such Claims were, in the aggregate, one Claim.
Class M-3: Secured Claims against Macy's that are not classified in
Class M-5.
2. Impaired Classes of Claims
(Classes M-4 through M-14)
Class M-4: Claims of Prudential or FNC against Macy's under or
evidenced by the Macy's/Prudential Loan Agreement.
Class M-5: Claims of the WCB Group against Macy's under or evidenced
by the Macy's/WCB Loan Agreement or the Macy's/WCB Swap Agreement.
Class M-6: Claims of the 49 Store Bank Group against Macy's under or
evidenced by the Macy's/49 Store Loan Agreement or the Macy's/49 Store Loan
Guaranty, other than those Claims of Swiss Bank in Class M-8.
Class M-7: Claims of the CREI Bank Group against Macy's under or
evidenced by the Macy's/CREI Loan Agreement.
Class M-8: Claims of Swiss Bank against Macy's for liquidated
damages under or evidenced by the Macy's/Swiss Bank Liquidated Damages
Agreement or the Macy's/49 Store Loan Guaranty.
Class M-9: Claims of GECC against Macy's on account of the
Macy's/GECC Interest Guaranty.
Class M-10: Claims against Macy's under or evidenced by the Macy's
Senior Subordinated Debentures or the Macy's Senior Subordinated Debentures
Indenture, other than such Claims secured by an Indenture Trustee Charging
Lien.
Class M-11: Claims against Macy's under or evidenced by the Macy's
Subordinated Debentures or the Macy's Subordinated Debentures Indenture, other
than such Claims secured by an Indenture Trustee Charging Lien.
Class M-12: Claims against Macy's under or evidenced by the Macy's
Subordinated Discount Debentures or the Macy's Subordinated Discount Debentures
Indenture, other than such Claims secured by an Indenture Trustee Charging
Lien.
Class M-13: Unsecured Claims against Macy's that are not otherwise
classified in Classes M-1, M-2, M-4, M-6 through M-12 or M-14, including Trade
Claims.
Class M-14: Unsecured Claims against Macy's: (a) for any fine,
penalty or forfeiture, or for multiple, exemplary or punitive damages, to the
extent that such Claims are not compensation for the Claim holder's actual
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pecuniary loss; (b) arising from rescission of a purchase or sale of a security
of Macy's, for damages arising from a purchase or sale of such security or
reimbursement or contribution allowed under section 502 of the Bankruptcy Code
on account of such Claims; or (c) arising from or related to the Old Stock
Options, including any Claims arising out of the rejection or termination of
any Old Stock Options.
3. Impaired Classes of Interests
(Classes M-15 through M-17)
Class M-15: Interests of the holders of Old Preferred Stock.
Class M-16: Interests of the holders of Old Common Stock of Macy's.
Class M-17: Interests against Macy's that are not otherwise
classified in Classes M-15 or M-16, including Interests of the holders of Old
Stock Options.
B. Claims Against and Interests in Macy's Operating Subsidiary
Debtors (Class MOS- )
----
1. Unimpaired Classes of Claims
(Classes MOS-1 through MOS-3)
Class MOS-1: Unsecured Claims against a Macy's Operating Subsidiary
Debtor that are entitled to priority under section 507(a)(3), 507(a)(4) or
507(a)(6) of the Bankruptcy Code.
Class MOS-2: Unsecured Claims against a Macy's Operating Subsidiary
Debtor of $1,000 or less, and Unsecured Claims against a Macy's Operating
Subsidiary Debtor that the Claim holder elects by the Voting Deadline to reduce
to $1,000 on the ballot provided for voting on the Plan, which Claims would
otherwise be classified in Class MOS-13 absent the existence of this Class MOS-
2. A holder of a Claim that would have been classified in Class MOS-13, absent
such election, may make this election only as to all such holder's Claims in
Classes MOS-2 and MOS-13 that are against the particular Macy's Operating
Subsidiary Debtor against which the reduced Claim is held. Therefore, if a
Claim holder makes an election to reduce any Class MOS-13 Claim to $1,000, all
of such holder's Class MOS-2 and MOS-13 Claims against the particular Macy's
Operating Subsidiary Debtor against which the reduced Claim is held will be
reduced to $1,000 in the aggregate, and no Claims of the Claim holder against
the particular Macy's Operating Subsidiary Debtor against which the reduced
Claim is held will remain in Class MOS-13. To obtain classification in Class
MOS-2 for multiple Unsecured Claims under $1,000 against a particular Macy's
Operating Subsidiary Debtor that aggregate more than $1,000 and would otherwise
be classified in Class MOS-13 absent the existence of this Class MOS-2, the
holder of such Claims must elect classification in Class MOS-2 as if such
Claims were, in the aggregate, one Claim.
Class MOS-3: Secured Claims against a Macy's Operating Subsidiary
Debtor that are not otherwise classified in Classes MOS-4 through MOS-9.
2. Impaired Classes of Claims
(Classes MOS-4 through MOS-13)
Class MOS-4: Claims of Prudential or FNC against a Macy's/Prudential
Operating Subsidiary Debtor under or evidenced by the Macy's/Prudential Loan
Agreement.
Class MOS-5: Claims of the WCB Group against a Macy's Operating
Subsidiary Debtor under or evidenced by the Macy's/WCB Loan Agreement or
Macy's/WCB Swap Agreement.
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Class MOS-6: Claims of the 49 Store Bank Group against a Macy's/49
Store Operating Subsidiary Debtor under or evidenced by the Macy's/49 Store
Loan Agreement, other than those Claims of Swiss Bank in Class MOS-8.
Class MOS-7: Claims of the CREI Bank Group against a Macy's/CREI
Operating Subsidiary Debtor under or evidenced by the Macy's/CREI Loan
Agreement or the Macy's/CREI Swap Agreement.
Class MOS-8: Claims of Swiss Bank against a Macy's/49 Store
Operating Subsidiary Debtor for liquidated damages under or evidenced by the
Macy's/49 Store Loan Agreement or the Macy's/49 Store Loan Guaranty.
Class MOS-9: Claims of GECC against a Macy's/GECC Operating
Subsidiary Debtor under or evidenced by the Macy's/GECC Loan Agreement.
Class MOS-10: Claims against an Old Debt Securities Guarantor under
or evidenced by the Macy's Senior Subordinated Debentures Guaranty or the
Macy's Senior Subordinated Debentures Assumption Agreement, other than such
Claims secured by an Indenture Trustee Charging Lien.
Class MOS-11: Claims against an Old Debt Securities Guarantor under
or evidenced by the Macy's Subordinated Debentures Guaranty or the Macy's
Subordinated Debentures Assumption Agreement, other than such Claims secured by
an Indenture Trustee Charging Lien.
Class MOS-12: Claims against an Old Debt Securities Guarantor under
or evidenced by the Macy's Subordinated Discount Debentures Guaranty or the
Macy's Subordinated Discount Debentures Assumption Agreement, other than such
Claims secured by an Indenture Trustee Charging Lien.
Class MOS-13: Unsecured Claims against a Macy's Operating Subsidiary
Debtor that are not classified in Classes MOS-1, MOS-2 or MOS-10 through
MOS-12, including Trade Claims.
3. Unimpaired Class of Interests
(Class MOS-14)
Class MOS-14: Interests of the holders of Old Common Stock of a
Macy's Operating Subsidiary Debtor.
C. Claims Against and Interests in Macy's Real Estate
Subsidiary Debtors (Class MRS- )
----
1. Unimpaired Classes of Claims
(Classes MRS-1 through MRS-3)
Class MRS-1: Unsecured Claims against a Macy's Real Estate
Subsidiary Debtor that are entitled to priority under section 507(a)(3),
507(a)(4) or 507(a)(6) of the Bankruptcy Code.
Class MRS-2: Unsecured Claims against a Macy's Real Estate
Subsidiary Debtor of $1,000 or less, and Unsecured Claims against a Macy's Real
Estate Subsidiary Debtor that the Claim holder elects by the Voting Deadline to
reduce to $1,000 on the ballot provided for voting on the Plan, which Claims
would otherwise be classified in Class MRS-10, absent the existence of this
Class MRS-2. A holder of a Claim that would have been classified in Class MRS-
10, absent such election, may make this election only as to all such holder's
Claims in Classes MRS-2 and MRS-10 that are against the particular Macy's Real
Estate Subsidiary Debtor against which the reduced Claim is held. Therefore,
if a Claim holder makes an election to reduce any Class MRS-10 Claim to $1,000,
<PAGE>
I-26
all of such holder's Class MRS-2 and MRS-10 Claims against the particular
Macy's Real Estate Subsidiary Debtor against which the reduced Claim is held
will be reduced to $1,000 in the aggregate, and no Claims of the Claim holder
against the particular Macy's Real Estate Subsidiary Debtor against which the
reduced Claim is held will remain in Class MRS-10. To obtain classification in
Class MRS-2 for multiple Unsecured Claims under $1,000 against a particular
Macy's Real Estate Subsidiary Debtor that aggregate more than $1,000 and would
otherwise be classified in MRS-10 absent the existence of this Class MRS-2, the
holder of such Claims must elect classification in Class MRS-2 as if such
Claims were, in the aggregate, one Claim.
Class MRS-3: Secured Claims against a Macy's Real Estate Subsidiary
Debtor that are not otherwise classified in Classes MRS-4 through MRS-9.
2. Impaired Classes of Claims
(Classes MRS-4 through MRS-10)
Class MRS-4: Claims of Prudential or FNC against a Macy's/Prudential
Real Estate Subsidiary Debtor under or evidenced by the Macy's/Prudential Loan
Agreement.
Class MRS-5: Claims of the WCB Group against a Macy's/WCB Real
Estate (First Lien) Subsidiary Debtor or a Macy's/WCB (Junior Lien) Subsidiary
Debtor that is also a Macy's Real Estate Subsidiary Debtor under or evidenced
by the Macy's/WCB Loan Agreement, the Macy's/WCB Guaranty or the Macy's/WCB
Swap Agreement.
Class MRS-6: Claims of the 49 Store Bank Group against a Macy's/49
Store Real Estate Subsidiary Debtor under or evidenced by the Macy's/49 Store
Loan Agreement, other than those Claims of Swiss Bank in Class MRS-8.
Class MRS-7: Claims of the CREI Bank Group against a Macy's/CREI
Real Estate Subsidiary Debtor under or evidenced by the Macy's/CREI Loan
Agreement or the Macy's/CREI Swap Agreement.
Class MRS-8: Claims of Swiss Bank against a Macy's/49 Store Real
Estate Subsidiary Debtor for liquidated damages under or evidenced by the
Macy's/Swiss Bank Liquidated Damages Agreement.
Class MRS-9: John Hancock Kings Plaza Claims
a. Class MRS-9A: Claims of John Hancock under or evidenced by
the John Hancock KPM Note.
b. Class MRS-9B: Claims of John Hancock under or evidenced by
the John Hancock Plaza Store Note.
Class MRS-10: Unsecured Claims against a Macy's Real Estate
Subsidiary Debtor that are not otherwise classified in Classes MRS-1 or MRS-2,
including Trade Claims.
3. Unimpaired Class of Interests
(Class MRS-11)
Class MRS-11: Interests of the holders of Old Common Stock of a
Macy's Real Estate Subsidiary Debtor.
<PAGE>
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D. Claims Against and Interests in Macy's Miscellaneous
Subsidiary Debtors (Class MMS- )
---
1. Unimpaired Classes of Claims
(Classes MMS-1 through MMS-3)
Class MMS-1: Unsecured Claims against a Macy's Miscellaneous
Subsidiary Debtor that are entitled to priority under section 507(a)(3),
507(a)(4) or 507(a)(6) of the Bankruptcy Code.
Class MMS-2: Unsecured Claims against a Macy's Miscellaneous
Subsidiary Debtor of $1,000 or less, and Unsecured Claims against a Macy's
Miscellaneous Subsidiary Debtor that the Claim holder elects by the Voting
Deadline to reduce to $1,000 on the ballot provided for voting on the Plan,
which Claims would otherwise be classified in Class MMS-5 absent the existence
of this Class MMS-2. A holder of a Claim that would have been classified in
Class MMS-2, absent such election, may make this election only as to all such
holder's Claims in Classes MMS-2 and MMS-5 that are against the particular
Macy's Miscellaneous Subsidiary Debtor against which the reduced Claim is held.
Therefore, if a Claim holder makes an election to reduce any Class MMS-5 Claim
to $1,000, all of such holder's Class MMS-2 and MMS-5 Claims against the
particular Macy's Miscellaneous Subsidiary Debtor against which the reduced
Claim is held will be reduced to $1,000 in the aggregate, and no Claims of the
Claim holder against the particular Macy's Miscellaneous Subsidiary Debtor
against which the reduced Claim is held will remain in MMS-5. To obtain
classification in Class MMS-2 for multiple Unsecured Claims under $1,000
against a particular Macy's Miscellaneous Subsidiary Debtor that aggregate more
than $1,000 and would otherwise be classified in Class MMS-5 absent the
existence of this Class MMS-2, the holder of such Claims must elect
classification in Class MMS-2 as if such Claims were, in the aggregate, one
Claim.
Class MMS-3: Secured Claims against a Macy's Miscellaneous
Subsidiary Debtor that are not otherwise classified in Class MMS-4.
2. Impaired Classes of Claims
(Classes MMS-4 and MMS-5)
Class MMS-4: Claims of the WCB Group against a Macy's Miscellaneous
Subsidiary Debtor under or evidenced by the Macy's/WCB Loan Agreement, the
Macy's/WCB Guaranty or the Macy's/WCB Swap Agreement.
Class MMS-5: Unsecured Claims against a Macy's Miscellaneous
Subsidiary Debtor that are not classified in Classes MMS-1 or MMS-2, including
Trade Claims.
3. Unimpaired Class of Interests
(Class MMS-6)
Class MMS-6: Interests of the holders of Old Common Stock of a
Macy's Miscellaneous Subsidiary Debtor.
ARTICLE III.
TREATMENT OF CLAIMS AND INTERESTS
The treatment of Claims provided in Sections III.A and III.B is
subject to the additional treatment provisions of Sections III.C though F.
Section III.E will not affect the nature, amount or timing, as provided in the
other Sections herein, of the ultimate distributions to be received by holders
of Allowed Claims.
<PAGE>
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A. Unclassified Claims
1. Payment of Administrative Claims
a. Administrative Claims in General
Except as specified in this Section III.A.1, and subject to the bar
date provisions herein, unless otherwise agreed by the holder of an
Administrative Claim and the applicable Debtor or Reorganized Debtor, each
holder of an Administrative Claim will receive, in full satisfaction of its
Claim, cash equal to the amount of such Administrative Claim on the Effective
Date or, if the Administrative Claim is not allowed as of the Effective Date:
(i) 30 days after the date on which an order allowing such Claim (other than a
Claim for reclamation under section 546(c) of the Bankruptcy Code) becomes a
Final Order or (ii) with respect to Claims for reclamation under section 546(c)
of the Bankruptcy Code, 30 days after the date on which (A) an order allowing
such Claim becomes a Final Order or (B) a Stipulation of Amount and Nature of
Claim is executed by the applicable Reorganized Debtor and Claim holder.
b. Statutory Fees
On or before the Effective Date, Administrative Claims for fees
payable pursuant to section 1930 of title 28 of the United States Code, 28
U.S.C. Sec. 1930, as determined by the Bankruptcy Court at the hearing on
Confirmation, will be paid in cash equal to the amount of such Administrative
Claims.
c. Ordinary Course Liabilities
Administrative Claims based on liabilities incurred by a Debtor in
the ordinary course of its business (including Administrative Claims that are
Trade Claims, Administrative Claims of governmental units for taxes and
Administrative Claims arising from or under those executory contracts and
unexpired leases described in Section V.E) will be assumed and paid by the
applicable Reorganized Debtor pursuant to the terms and conditions of the
particular transaction giving rise to such Administrative Claims, without any
further action by the holders of such Claims.
d. Claims Under DIP Credit Agreement
On the Effective Date or at a later date determined pursuant to the
DIP Credit Agreement, Administrative Claims under or evidenced by the DIP
Credit Agreement will be paid, as Federated or the Combined Company determines,
in its sole discretion: (i) in cash equal to the amount of such Administrative
Claims or (ii) in accordance with the terms of the DIP Credit Agreement.
e. Bar Dates for Administrative Claims
i. General Bar Date Provisions
Except as otherwise provided in Section III.A.1.e.ii, unless
previously Filed, requests for payment of Administrative Claims must be Filed
and served on the Reorganized Debtors, pursuant to the procedures specified in
the Confirmation Order and the notice of entry of the Confirmation Order, no
later than 30 days after the Effective Date. Holders of Administrative Claims
that are required to File and serve a request for payment of such Claims and
that do not File and serve a request by the applicable bar date will be forever
barred from asserting such Claims against the Debtors, the Reorganized Debtors
or their respective property. Objections to such requests must be Filed and
served on the Reorganized Debtors and the requesting party by the later of:
(A) 90 days after the Effective Date and (B) 60 days after the Filing of the
applicable request for payment of Administrative Claims.
<PAGE>
I-29
ii. Bar Dates for Certain Administrative Claims
A. Professional Compensation
Professionals or other entities requesting compensation or
reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) and
1103 of the Bankruptcy Code for services rendered before the Effective Date
(including compensation requested pursuant to section 503(b)(3) and (4) of the
Bankruptcy Code by any Professional or other entity for making a substantial
contribution in any Reorganization Case) must File and serve on the Reorganized
Debtors and such other entities who are designated by the Bankruptcy Rules, the
Confirmation Order or other order of the Bankruptcy Court an application for
final allowance of compensation and reimbursement of expenses no later than
45 days after the Effective Date; provided, however, that any Professional who
may receive compensation or reimbursement of expenses pursuant to the Ordinary
Course Professionals Order may continue to receive such compensation and
reimbursement of expenses for services rendered before the Effective Date,
without further Bankruptcy Court review or approval, pursuant to the Ordinary
Course Professionals Order. Objections to applications of Professionals or
other entities for compensation or reimbursement of expenses must be Filed and
served on the Reorganized Debtors and the requesting party by the later of:
(1) 75 days after the Effective Date and (2) 30 days after the Filing of the
applicable request for payment of Administrative Claims.
B. Ordinary Course Liabilities
Holders of Administrative Claims based on liabilities incurred by a
Debtor in the ordinary course of its business (including Administrative Claims
that are Trade Claims, Administrative Claims of governmental units for taxes
and Administrative Claims arising from or under those executory contracts and
unexpired leases described in Section V.E) will not be required to File or
serve any request for payment of such Claims. Such Claims will be satisfied
pursuant to Section III.A.1.c.
C. Claims Under DIP Credit Agreement
Holders of Administrative Claims under or evidenced by the DIP Credit
Agreement will not be required to File or serve any request for payment of such
Claims. Such Claims will be satisfied pursuant to Section III.A.1.d.
2. Payment of Priority Tax Claims
a. Federal Priority Tax Claims
On the Effective Date, the aggregate amount of the Federal Priority
Tax Claims will be deemed to be $163,744,339.15 (inclusive of that portion of
such Claims that constitute Responsible Person Priority Tax Claims) and,
pursuant to section 1129(a)(9)(C) of the Bankruptcy Code and as contemplated in
the IRS Settlement Agreement, beginning one year after the Effective Date
(except as provided in Section III.A.2.b), the IRS will receive, in full
satisfaction of its Federal Priority Tax Claims, deferred cash payments in the
amount of such Claims in six equal annual installments of principal, plus
simple interest accruing from the Effective Date at 7% per annum on the unpaid
portion of such Claims (or upon such other terms determined by the Bankruptcy
Court to provide the holders of Federal Priority Tax Claims with deferred cash
payments having a value, as of the Effective Date, equal to such Claims);
provided, however, that the Reorganized Debtors will have the right to pay any
Federal Priority Tax Claim, or any remaining balance of such Claim, in full, at
any time on or after the Effective Date, without premium or penalty.
<PAGE>
I-30
b. Responsible Person Priority Tax Claims
On the Effective Date or, if the Responsible Person Priority Tax
Claim is not allowed as of the Effective Date, the first Quarterly Distribution
Date after the date on which (i) an order allowing such Claim becomes a Final
Order or (ii) a Stipulation of Amount and Nature of Claim is executed by the
applicable Reorganized Debtor and Claim holder, each holder of a Responsible
Person Priority Tax Claim will receive cash equal to the amount of such Claim.
To the extent that any holder of a Responsible Person Priority Tax Claim holds
any other Allowed Claims, all distributions received by the holder of such
Responsible Person Priority Tax Claim, whether on account of such Responsible
Person Priority Tax Claim or on account of other Allowed Claims, will be first
applied toward and will reduce the amount of such Responsible Person Priority
Tax Claim.
c. Other Priority Tax Claims
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless
otherwise agreed by the holder of an Other Priority Tax Claim and the
applicable Debtor or Reorganized Debtor, each holder of an Other Priority Tax
Claim will receive, in full satisfaction of its Claim, deferred cash payments
over a period not exceeding six years from the date of assessment of such
Claim. Payments will be made in equal annual installments of principal, plus
simple interest accruing from the Effective Date at 7% per annum on the unpaid
portion of each Other Priority Tax Claim (or upon such other terms determined
by the Bankruptcy Court to provide the holders of Other Priority Tax Claims
with deferred cash payments having a value, as of the Effective Date, equal to
such Claims). Unless otherwise agreed by the holder of such Claim and the
applicable Debtor or Reorganized Debtor, the first payment will be payable one
year after the Effective Date or, if the Other Priority Tax Claim is not
allowed within one year after the Effective Date, the first Quarterly
Distribution Date after the date on which (i) an order allowing such Claim
becomes a Final Order or (ii) a Stipulation of Amount and Nature of Claim is
executed by the applicable Reorganized Debtor and Claim holder; provided,
however, that the Reorganized Debtors will have the right to pay any Other
Priority Tax Claim, or any remaining balance of such Claim, in full, at any
time on or after the Effective Date, without premium or penalty.
B. Classified Claims and Interests
1. Unimpaired Classes of Claims Held by Third Parties
a. Unsecured Claims Entitled to Priority Under
Section
507(a)(3), 507(a)(4) or 507(a)(6) of the Bankruptcy Code
(Classes M-1, MOS-1, MRS-1 and MMS-1)
On the Effective Date, each holder of an Allowed Claim in Class M-1,
MOS-1, MRS-1 or MMS-1 will receive cash equal to the amount of such Claim.
b. Unsecured Convenience Claims (Classes M-2, MOS-2,
MRS-2 and MMS-2)
On the Effective Date, each holder of an Allowed Claim in Class M-2,
MOS-2, MRS-2 or MMS-2 will receive cash equal to the amount of such Claim (as
reduced, if applicable, pursuant to an election by the holder thereof).
c. Secured Claims Not Otherwise Classified (Classes
M-3, MOS-3, MRS-3 and MMS-3)
On the Effective Date, each holder of an Allowed Claim in Class M-3,
MOS-3, MRS-3 or MMS-3 will have its Allowed Claim Reinstated.
<PAGE>
I-31
2. Impaired Classes of Claims Held by Third Parties
a. Claims Under or Evidenced by the
Macy's/Prudential
Loan Agreement (Classes M-4, MOS-4 and MRS-4)
On the Effective Date, the respective aggregate amounts of the Claims
of Prudential and FNC in each of Classes M-4, MOS-4 and MRS-4 will each be
deemed to be Allowed Claims of $428,174,000, and, subject to certain of the
adjustments specified in Section III.C, on the Effective Date, Prudential will
receive, in full satisfaction of such Allowed Claims: (i) $5,709,000 cash
minus 1/2 of the amount of any cash distributed to Prudential on account of
Allowed Claims in Classes M-4, MOS-4 and MRS-4 prior to the Effective Date and
(ii) $550,926,100 aggregate principal amount of New Prudential Mortgage Notes.
On the Effective Date, FNC will receive, in full satisfaction of its Allowed
Claims in Classes M-4, MOS-4 and MRS-4: (i) $5,709,000 cash minus 1/2 of the
amount of any cash distributed to Prudential on account of Allowed Claims in
Classes M-4, MOS-4 and MRS-4 prior to the Effective Date and (ii) 41.14147% of
the number of Distributable Shares (Pool A).
b. Claims Under or Evidenced by the Macy's/WCB
Loan Agreement, the Macy's/WCB Guaranty or the
Macy's/WCB Swap Agreement (Classes M-5, MOS-5,
MRS-5 and MMS-4)
On the Effective Date, the aggregate amount of the Claims in each of
Classes M-5, MOS-5, MRS-5 and MMS-4 will be deemed to be an Allowed Claim of
$735,698,190, and, subject to the adjustments specified in Section III.C, on
the Effective Date, each holder of an Allowed Claim in Classes M-5, MOS-5,
MRS-5 and MMS-4 will receive, in full satisfaction of its Allowed Claims, its
Pro Rata share of: (i) $23,836,000 cash; (ii) $198,081,000 aggregate principal
amount of New Series A Notes; (iii) $148,561,000 aggregate principal amount of
New Series B Notes; (iv) $148,561,000 aggregate principal amount of New Series
C Notes; and (v) 28.26623% of the number of Distributable Shares (Pool A).
c. Claims Under or Evidenced by the Macy's/49 Store
Loan Agreement or the Macy's/49 Store Loan
Guaranty (Other Than Liquidated Damages Claims
of Swiss Bank) (Classes M-6, MOS-6 and MRS-6)
On the Effective Date, the aggregate amount of the Claims in each of
Classes M-6, MOS-6 and MRS-6 will be deemed to be an Allowed Claim of
$560,434,006, and, subject to the adjustments specified in Section III.C, on
the Effective Date, each holder of an Allowed Claim in Classes M-6, MOS-6 and
MRS-6 will receive, in full satisfaction of its Allowed Claims, its Pro Rata
share of: (i) $14,109,000 cash; (ii) $128,559,000 aggregate principal amount
of New Series A Notes; (iii) $96,420,000 aggregate principal amount of New
Series B Notes; (iv) $96,420,000 aggregate principal amount of New Series C
Notes; and (v) 18.47086% of the number of Distributable Shares (Pool A).
d. Claims Under or Evidenced by the Macy's/CREI
Loan Agreement or the Macy's/CREI Swap Agreement
(Classes M-7, MOS-7 and MRS-7)
On the Effective Date, the aggregate amount of the Claims in each of
Classes M-7, MOS-7 and MRS-7 will be deemed to be an Allowed Claim of
$201,480,925, and, subject to the adjustments specified in Section III.C, on
the Effective Date, each holder of an Allowed Claim in Classes M-7, MOS-7 and
MRS-7 will receive, in full satisfaction of its Allowed Claims, its Pro Rata
share of: (i) $47,376,000 aggregate principal amount of New Series A Notes;
(ii) $35,532,000 aggregate principal amount of New Series B Notes;
(iii) $35,532,000 aggregate principal amount of New Series C Notes; and
(iv) 6.80307% of the number of Distributable Shares (Pool A).
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I-32
e. Claims Under or Evidenced by the Macy's/Swiss
Bank Liquidated Damages Agreement or the
Macy's/Macy's South Liquidated Damages
Guaranty (Classes M-8, MOS-8 and MRS-8)
On the Effective Date, the Claims of Swiss Bank in each of Classes M-
8, MOS-8 and MRS-8 will be deemed to be an Allowed Claim and, subject to
certain of the adjustments specified in Section III.C.2, on the Effective Date,
Swiss Bank will receive, in full satisfaction of its Allowed Claims:
(i) $1,210,300 cash; (ii) $11,028,000 aggregate principal amount of New Series
A Notes; (iii) $8,272,000 aggregate principal amount of New Series B Notes;
(iv) $8,272,000 aggregate principal amount of New Series C Notes; and
(v) 1.58452% of the number of Distributable Shares (Pool A).
f. Claims Under or Evidenced by the Macy's/GECC
Loan Agreement or the Macy's/GECC Interest
Guaranty (Classes M-9 and MOS-9)
On the Effective Date, the aggregate amount of the Claims of GECC in
each of Classes M-9 and MOS-9 will be deemed to be an Allowed Claim of
$53,458,000, and, subject to certain of the adjustments specified in Section
III.C.2, on the Effective Date, GECC will receive, in full satisfaction of its
Allowed Claims, $53,458,000 aggregate principal amount of New GECC Mortgage
Notes.
g. John Hancock Kings Plaza Claims (Class MRS-9)
i. John Hancock KPM Note Claims (Class MRS-9A)
On the Effective Date, John Hancock will receive, in full
satisfaction of its Allowed Claims in Class MRS-9A: (A) $3,245,000 cash and
(B) the New John Hancock KPM Note in an aggregate principal amount of
$5,178,000.
ii. John Hancock Plaza Store Claims (Class MRS-9B)
On the Effective Date, John Hancock will receive, in full
satisfaction of its Allowed Claims in Class MRS-9B: (A) $2,324,000 cash and
(B) the New John Hancock Plaza Store Note in an aggregate principal amount of
$6,100,000.
h. Claims Under or Evidenced by the Macy's Senior
Subordinated Debentures, the Macy's Senior
Subordinated Debentures Indenture, the
Macy's Senior Subordinated Debentures Guaranty
or the Macy's Senior Subordinated Debentures
Assumption Agreement (Classes M-10 and MOS-10)
On the Effective Date, the aggregate amount of the Claims in
each of Classes M-10 and MOS-10 will be deemed to be an Allowed Claim of
$399,106,619, and, on the Effective Date, each holder of an Allowed Claim in
Classes M-10 and MOS-10 will receive, in full satisfaction of its Allowed
Claims, its Pro Rata share of: (i) $35,375,000 cash; (ii) 47.90577% of the
number of Distributable Shares (Pool B); and (iii) 57.38061% of each series of
Distributable Warrants.
<PAGE>
I-33
i. Claims Under or Evidenced by the Macy's
Subordinated Debentures, the Macy's Subordinated
Debentures Indenture, the Macy's Subordinated
Debentures Guaranty or the Macy's Subordinated
Debentures Assumption Agreement (Classes M-11
and MOS-11)
On the Effective Date, the aggregate amount of the Claims in
each of Classes M-11 and MOS-11 will be deemed to be an Allowed Claim of
$508,880,225, and, on the Effective Date, each holder of an Allowed Claim in
Classes M-11 and MOS-11 will receive, in full satisfaction of its Allowed
Claims, its Pro Rata share of: (i) 30.55407% of the number of Distributable
Shares (Pool B) and (ii) 42.61939% of the number of each series of
Distributable Warrants.
j. Claims Under or Evidenced by the Macy's
Subordinated Discount Debentures, the
Macy's Subordinated Discount Debentures
Indenture, the Macy's Subordinated Discount
Debentures Guaranty or the Macy's Subordinated
Discount Debentures Assumption Agreement
(Classes M-12 and MOS-12)
On the Effective Date, the aggregate amount of the Claims in
each of Classes M-12 and MOS-12 will be deemed to be an Allowed Claim of
$582,819,136, and, on the Effective Date, each holder of an Allowed Claim in
Classes M-12 and MOS-12 will receive, in full satisfaction of its Allowed
Claims, its Pro Rata share of 21.54016% of the number of Distributable Shares
(Pool B).
k. General Unsecured Claims (Classes M-13, MOS-13,
MRS-10 and MMS-5)
i. On the Effective Date, each holder of an Allowed Claim in
Class M-13, MOS-13, MRS-10 or MMS-5 (other than Federated) will receive, in
full satisfaction of its Allowed Claim: (A) the Fixed Cash Portion of such
Claim and (B) its Pro Rata share of 3.73385% of the number of Distributable
Shares (Pool A). For the purposes of calculating distributions to the holders
of Allowed Claims in Classes M-13, MOS-13, MRS-10 or MMS-5, each holder's Pro
Rata share will be calculated as if the Allowed Claims in Classes M-13, MOS-13,
MRS-10 and MMS-5 were in a single Class.
ii. No property will be distributed to or retained by Federated
on account of its Claims, including its Claims in Class M-13 described in
proofs of Claim numbers 10430 and 10446, and all such Claims will be discharged
as of the Effective Date.
l. Subordinated Unsecured Claims for Penalties,
Fines
and Punitive Damages, Subordinated Unsecured
Claims Related to Rescission, Damages or Indemnity
Claims Arising From Securities Transactions and
Claims Relating to Old Stock Options (Class M-14)
No property will be distributed to or retained by the holders of
Claims in Class M-14 on account of such Claims, and such Claims will be
discharged as of the Effective Date.
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3. Unimpaired Classes of Common Stock Interests in the Macy's
Subsidiary Debtors (Classes MOS-14, MRS-11 and MMS-6)
On the Effective Date, each Interest in Class MOS-14, MRS-11 or MMS-6
will be Reinstated by leaving unaltered the legal, equitable and contractual
rights to which such Interest entitles the holder of such Interest.
4. Impaired Classes of Interests in Macy's (Classes M-15
through M-17)
No property will be distributed to or retained by the holders of
Interests in Classes M-15, M-16 or M-17 on account of such Interests, and such
Interests will be terminated as of the Effective Date.
C. Special Provisions Regarding Treatment of Certain Claims
1. Adjustments of Amounts of Distributions for Pre-Effective Date
Sales of Collateral
a. Sales of Collateral Securing Allowed Bank Loan Claims
If collateral securing an Allowed Bank Loan Claim is sold or
otherwise reduced to cash after the date of this Plan and prior to the
Effective Date, the net cash proceeds generated from such sales or other
transactions will be distributed Pro Rata, in accordance with Sections
III.B.2.b, c or d, as applicable, on the Effective Date to the holders of the
Allowed Bank Loan Claims secured by liens on such collateral, in the priority
established between and among such holders, in addition to the amount of cash
to be distributed pursuant to Sections III.B.2.b, c or d, as applicable. The
aggregate principal amounts of each series of New Unsecured Notes to be
distributed pursuant to Sections III.B.2.b, c or d, as applicable, to the
holders of such Allowed Bank Loan Claims will be reduced proportionately (on
the basis of the aggregate amounts of each series of New Unsecured Notes to be
distributed pursuant to the applicable Section) by the aggregate amount of such
cash distribution.
b. Sales of Collateral Securing Allowed Claims of Prudential and
FNC
If collateral securing the Allowed Claims of Prudential and FNC in
Classes M-4, MOS-4 and MRS-4 is sold or otherwise reduced to cash prior to the
Effective Date, the excess, if any, of the aggregate of (i) (A) the net cash
proceeds generated from such sales or other transactions and (B) any other cash
collateral (as defined in section 363(a) of the Bankruptcy Code) securing such
Claims over (ii) the amount of cash to be distributed pursuant to Section
III.B.2.a, will be distributed to Prudential on the Effective Date (if not
previously distributed), and the aggregate principal amount of the New
Prudential Mortgage Notes and the aggregate value of the New Combined Company
Common Stock to be distributed pursuant to Section III.B.2.a will each be
reduced by 1/2 of the amount of all cash distributions to Prudential (both on
account of its Claims and the Claims of FNC in Classes M-4, MOS-4 and MRS-4) in
excess of the amount of cash to be distributed pursuant to Section III.B.2.a.
2. Adjustments for Increased Distributions of Cash
a. Adjustments of Amounts of Cash and New Debt to be
Distributed to Prudential, GECC or Holders of Allowed
Bank Loan Claims and Swiss Bank
Federated or the Combined Company, in its sole discretion, may elect
to increase the amount of cash to be distributed pursuant to any of Sections
III.B.2.a through f, other than cash to be distributed to FNC on account of its
Allowed Claims in Classes M-4, MOS-4 and MRS-4, and make a corresponding
reduction in the amount of New Debt to be distributed pursuant to those
<PAGE>
I-35
Sections, as specified herein. Such increased cash distributions, if any, will
be made, as determined by Federated or the Combined Company, in its sole
discretion: (i) to Prudential, (ii) to GECC or (iii) Pro Rata to holders of
Allowed Bank Loan Claims and Swiss Bank as if all Allowed Bank Loan Claims and
Allowed Claims of Swiss Bank in Classes M-8, MOS-8 and MRS-8 were in a single
Class. The aggregate principal amounts of the New Prudential Mortgage Notes
(if an additional distribution of cash is made to Prudential), the New GECC
Mortgage Notes (if an additional distribution of cash is made to GECC) or the
New Unsecured Notes (if an additional distribution of cash is made to the
holders of Allowed Bank Loan Claims and Swiss Bank) to be distributed pursuant
to Sections III.B.2.a through f, as applicable, will be reduced by the
aggregate amount of such cash distribution. Any such reduction in the
aggregate principal amounts of the New Series A Notes, New Series B Notes and
New Series C Notes will be determined by either Federated or the Combined
Company in its sole discretion.
b. Adjustments of Amounts of Cash and New Combined
Company Common Stock to be Distributed
Subject to the restrictions in this Section III.C.2.b, Federated or
the Combined Company, in its sole discretion, may elect to increase the amount
of cash to be distributed pursuant to Sections III.B.2.b through e, and make a
corresponding reduction in the shares of New Combined Common Stock to be
distributed pursuant to those Sections, as specified herein. Such increased
cash distributions, if any, will be made Pro Rata to holders of Allowed Bank
Loan Claims and Swiss Bank as if all Allowed Bank Loan Claims and Allowed
Claims of Swiss Bank in Classes M-8, MOS-8 and MRS-8 were in a single Class.
The aggregate number of Distributable Shares (Pool A) to be distributed
pursuant to Sections III.B.2.b through e will be reduced by a number of shares
equal to the aggregate amount of such cash distribution divided by the
Federated Average Market Price (Pool A); provided, however, that no election
pursuant to this Section III.C.2.b will be permitted if the Federated Average
Market Price (Pool A) would exceed the 115% upper limit set forth in Section
I.A.51, if such limit were not imposed.
3. Adjustment of Amounts of New Series B Notes and New Series C
Notes
to be Distributed
Subject to the restrictions in this Section III.C.3, Federated or the
Combined Company, in its sole discretion, may elect to increase the aggregate
principal amount either of the New Series B Notes or the New Series C Notes to
be distributed pursuant to Sections III.B.2.b through e, and make a
corresponding dollar-for-dollar reduction in the aggregate principal amount of
the New Series C Notes or New Series B Notes, respectively, to be distributed
pursuant to those Sections. Such adjustments to the distributions of the New
Series B Notes and the New Series C Notes, if any, will be made Pro Rata as if
all Allowed Bank Loan Claims and Allowed Claims of Swiss Bank in Classes M-8,
MOS-8 and MRS-8 were in a single Class; provided, however, that no election
pursuant to this Section III.C.3 will be permitted that would cause the
aggregate principal amount of either the New Series B Notes or the New Series C
Notes to be distributed pursuant to the Plan to be less than $200,000,000.
D. Special Provisions Regarding Treatment of Allowed Secondary Liability
Claims
The classification and treatment of Allowed Claims under the Plan
take into consideration all Allowed Secondary Liability Claims. On the
Effective Date, Allowed Secondary Liability Claims will be treated as follows:
1. The Allowed Secondary Liability Claims arising from or related
to any Debtor's joint or several liability for the obligations under any:
(a) Allowed Claim that is being Reinstated under the Plan or (b) executory
contract or unexpired lease that is being assumed by another Debtor or under
any executory contract or unexpired lease that is being assumed by and assigned
to another Debtor, will be Reinstated.
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2. Except as provided in Section III.D.1, holders of Allowed
Secondary Liability Claims, including such Claims against Macy's arising from
or related to Macy's guarantees of payment or collection of Unsecured Claims in
Classes MOS-13, MRS-10 or MMS-5, will be entitled to only one distribution from
the Debtor against which the underlying Allowed Claim is held, which
distribution will be as provided in the Plan in respect of such underlying
Allowed Claim. No multiple recovery on account of any Allowed Secondary
Liability Claim will be provided or permitted. Allowed Secondary Liability
Claims will be deemed satisfied in full by the distributions on account of the
related underlying Allowed Claim.
E. Additional Treatment Provisions
1. Claims as to Which Macy's is Primarily Liable
Except as provided in Section III.E.2, all Allowed Claims as to which
Macy's is primarily liable, irrespective of whether any other Debtor is also
primarily liable for all or a portion thereof, will be satisfied for the
consideration provided for herein, which consideration will be provided by the
Combined Company directly and by no other Reorganized Debtor, and any rights of
contribution of the Combined Company against any other Reorganized Debtor on
account of the Combined Company's direct provision of such consideration will
be contributed to the capital of such Reorganized Debtor.
2. Unsecured Claims as to Which a Debtor Other than Macy's is
Primarily Liable
At Macy's election, any Allowed Unsecured Claim as to which a Debtor
other than Macy's is primarily liable, irrespective of whether any other
Debtor, including Macy's, is also primarily liable for all or a portion
thereof, in the first instance will be discharged for cash from the applicable
Reorganized Debtor, debt of such Reorganized Debtor, stock of such Reorganized
Debtor or warrants to acquire stock of such Reorganized Debtor, as the case may
be, in amounts and in proportions paralleling the consideration provided for
herein, or for such other consideration as Macy's may elect. Such
consideration will be held by the Combined Company on behalf of the holders of
the Allowed Claims as to which the election is made and, immediately
thereafter, distributed as provided for herein or, to the extent different from
the consideration provided for herein, exchanged on such holders' behalf for
the consideration provided for herein. For purposes of this Section III.E.2,
an Allowed Claim as to which property of a Debtor serves as collateral but as
to which there is otherwise no recourse to such Debtor will be deemed an
Allowed Claim as to which such Debtor is primarily liable.
3. Contribution of Certain Secured Claims to the Capital of
Reorganized
Macy's Subsidiary Debtors
Notwithstanding any provision herein to the contrary, the Combined
Company will acquire, for the distributions provided for herein, from the
holders thereof, each Secured Claim as to which Macy's is not primarily liable
and as to which the noncash distributions provided for herein are in the form
of debt of the Combined Company or New Combined Company Common Stock.
Thereafter, the Combined Company will, directly or indirectly, contribute all
such Claims acquired to the capital of the respective Reorganized Debtors to
which such Claims relate. Immediately upon such contribution, all promissory
notes and other instruments, indentures or other agreements or documents
evidencing such Claims will be deemed canceled and terminated without further
action under any applicable agreement, law, regulation, order or rule, and the
obligations of the respective Debtors under such promissory notes and other
instruments, indentures or other agreements or documents evidencing such Claims
will be discharged in full.
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4. Distributions Received by FNC and Macy's Financial
Except as provided in the Prudential/Federated Intercreditor Agreement
with respect to shares of New Combined Company Common Stock received by FNC,
FNC and Macy's Financial will not sell, assign, grant any security interest in,
pledge as collateral or otherwise transfer or encumber any shares of New
Combined Company Common Stock or any New Warrants received by either such
entity pursuant to the Plan; provided, however, that FNC and Macy's Financial
may transfer all or a portion of such shares or warrants to (a) any wholly
owned subsidiary of the Combined Company, which subsidiary will hold such
shares or warrants subject to the restrictions herein, or (b) the Combined
Company; and provided further, that New Combined Company Common Stock acquired
by the Combined Company may be retired and returned to the status of authorized
but unissued shares.
F. Accrual of Postpetition Interest
No holder of a Priority Tax Claim, a Priority Claim or an Allowed
Unsecured Claim will be entitled to postpetition interest on account of such
Claim for any purpose.
ARTICLE IV.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. Continued Corporate Existence and Vesting of Assets in the
Reorganized Debtors
Subject to the Restructuring Transactions, each Debtor will, as a
Reorganized Debtor, continue to exist after the Effective Date as a separate
corporate entity, with all the powers of a corporation under applicable law and
without prejudice to any right to alter or terminate such existence (whether by
merger or otherwise) under applicable state law. Except as otherwise provided
in the Plan, as of the Effective Date, all property of the respective Estates
of the Debtors will vest in the applicable Reorganized Debtor, free and clear
of all Claims, liens, charges, other encumbrances and Interests. On and after
the Effective Date, each Reorganized Debtor may operate its businesses and may
use, acquire and dispose of property and compromise or settle any Claims or
Interests without supervision or approval by the Bankruptcy Court and free of
any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan or the Confirmation Order. Without
limiting the foregoing, each Reorganized Debtor may pay the charges that it
incurs on or after the Effective Date for professionals' fees, disbursements,
expenses or related support services, including those professional fees and
expenses incurred by the Claims Resolution Committee pursuant to Section
XII.A.2, without application to the Bankruptcy Court.
B. The Restructuring Transactions
1. The Federated/Macy's Merger
a. Consummation of the Federated/Macy's Merger
Simultaneously with the commencement of the Effective Date, Federated
and Macy's will take all such actions as may be necessary or appropriate to
effect the Federated/Macy's Merger on the terms and subject to the conditions
set forth in the Federated/Macy's Merger Agreement. Without limiting the
generality of the foregoing sentence, each of Federated and Macy's will cause
the Federated/Macy's Merger Agreement or a certificate of merger conforming to
the applicable provisions of the Delaware General Corporation Law to be filed
with the Secretary of State of Delaware pursuant to applicable provisions of
the Delaware General Corporation Law and will take or cause to be taken all
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other actions, including making appropriate filings or recordings, that may be
required by the Delaware General Corporation Law or other applicable law in
connection with the Federated/Macy's Merger.
b. Cancellation of Old Capital Stock
On the Effective Date, all Old Capital Stock issued and outstanding
or held in Macy's treasury or the treasury of any Macy's Subsidiary immediately
prior to the Effective Time of the Federated/Macy's Merger will be canceled and
extinguished and no consideration will be paid or delivered with respect
thereto, in all events without any action on the part of Macy's, the Combined
Company, the holders of Old Capital Stock or any other entity. Such further
provisions will be made in or taken pursuant to the Plan or the
Federated/Macy's Merger Agreement as may be necessary or appropriate to result
in there being no shares of capital stock of the Combined Company issued or
outstanding immediately following the Effective Time of the Federated/Macy's
Merger and prior to the distribution of New Combined Company Common Stock
pursuant to the Plan, except as provided in the Federated/Macy's Merger
Agreement. Thereafter, shares of capital stock of the Combined Company will be
issued pursuant to the Plan and may otherwise be issued pursuant to the
Combined Company's certificate of incorporation and by-laws and the Delaware
General Corporation Law.
c. The Reorganized Debtors' Obligations Under the
Plan
From and after the Effective Time of the Federated/Macy's Merger, the
Reorganized Debtors will perform the obligations of the Debtors under the Plan.
2. The Operating Subsidiary Transactions
On or after the Effective Date, the Reorganized Debtors will take
such actions as may be necessary or appropriate to effect a corporate
restructuring of their respective department and specialty store operations.
Such restructuring is contemplated to include one or more mergers,
consolidations, restructurings, dispositions, liquidations or dissolutions, as
may be determined by Federated or the Combined Company to be necessary or
appropriate. The actions to effect the Operating Subsidiary Transactions may
include: (a) the execution and delivery of appropriate agreements or other
documents of merger, consolidation, restructuring, disposition, liquidation or
dissolution containing terms that are consistent with the terms of the Plan and
that satisfy the applicable requirements of applicable state law and such other
terms to which the applicable entities may agree; (b) the execution and
delivery of appropriate instruments of transfer, assignment, assumption or
delegation of any asset, property, right, liability, duty or obligation on
terms consistent with the terms of the Plan and having such other terms to
which the applicable entities may agree; (c) the filing of appropriate
certificates of merger, consolidation or dissolution pursuant to applicable
state law; and (d) all other actions that the applicable entities determine to
be necessary or appropriate, including making filings or recordings that may be
required by the applicable state law in connection with the transactions
contemplated as part of the Operating Subsidiary Transactions.
3. The Real Estate Subsidiary Transactions
On or after the Effective Date, the Reorganized Debtors will take
such actions as may be necessary or appropriate to effect a corporate
restructuring of their respective real estate operations and holdings. Such
restructuring is contemplated to include one or more mergers, consolidations,
restructurings, dispositions, liquidations or dissolutions, as may be
determined by Federated or the Combined Company to be necessary or appropriate,
including the formation of New Macy's Primary Real Estate, New Macy's Secondary
Real Estate, New Macy's Warehouse Real Estate and other real estate
subsidiaries. The actions to effect the Real Estate Subsidiary Transactions
may include: (a) the execution and delivery of appropriate agreements or other
documents of merger, consolidation, restructuring, disposition, liquidation or
dissolution containing terms that are consistent with the terms of the Plan and
that satisfy the applicable requirements of applicable state law and such other
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terms to which the applicable entities may agree; (b) the execution and
delivery of appropriate instruments of transfer, assignment, assumption or
delegation of any asset, property, right, liability, duty or obligation on
terms consistent with the terms of the Plan and having such other terms to
which the applicable entities may agree; (c) the filing of appropriate
certificates of merger, consolidation or dissolution pursuant to applicable
state law; and (d) all other actions that the applicable entities determine to
be necessary or appropriate, including making filings or recordings that may be
required by the applicable state law in connection with the transactions
contemplated as part of the Real Estate Subsidiary Transactions.
4. Other Restructuring Transactions
After the Effective Date, the applicable Debtors or Reorganized
Debtors will enter into such transactions and take such other actions as may be
necessary or appropriate to simplify the overall corporate structure of the
Reorganized Debtors or to reincorporate certain of the Macy's Subsidiaries
under the laws of jurisdictions other than those under the laws of which the
applicable Macy's Subsidiaries are presently incorporated. Such transactions
or other actions are contemplated to include one or more mergers,
consolidations, restructurings, dispositions, liquidations or dissolutions, as
may be determined by Federated or the Combined Company to be necessary or
appropriate to result in substantially all of the respective assets,
properties, rights, liabilities, duties and obligations of certain Macy's
Subsidiaries vesting in one or more surviving, resulting or acquiring
corporations. In each case in which the surviving, resulting or acquiring
corporation in any such transaction is a successor to a Reorganized Debtor,
such surviving, resulting or acquiring corporation will perform the obligations
of the applicable Reorganized Debtor pursuant to the Plan to pay or otherwise
satisfy the Allowed Claims against such Reorganized Debtor, except as provided
in any contract, instrument or other agreement or document effecting a
disposition of such surviving, resulting or acquiring corporation, which may
provide that another Reorganized Debtor will perform such obligations, subject
to any restrictions or prohibitions under the New Debt Instruments.
The actions to effect these transactions and other actions may include:
(a) the execution and delivery of appropriate agreements or other documents of
merger, consolidation, restructuring, disposition, liquidation or dissolution
containing terms that are consistent with the terms of the Plan and that
satisfy the requirements of applicable state law and such other terms to which
the applicable entities may agree; (b) the execution and delivery of
appropriate instruments of transfer, assignment, assumption or delegation of
any asset, property, right, liability, duty or obligation on terms consistent
with the terms of the Plan and having such other terms to which the applicable
entities may agree; (c) the filing of appropriate certificates of merger,
consolidation or dissolution pursuant to the provisions of applicable state
law; and (d) all other actions that such entities determine to be necessary or
appropriate, including making filings or recordings that may be required by
applicable state law in connection with the transactions contemplated as part
of these other Restructuring Transactions.
C. Corporate Governance, Directors and Officers, Employment-Related
Agreements and Compensation Programs
1. Certificates of Incorporation and By-Laws
a. Combined Company
Immediately following the Effective Time of the Federated/Macy's
Merger, the certificate of incorporation and the by-laws of the Combined
Company will be substantially in the forms of Appendices IV.C.1.a(i) and (ii),
respectively. The initial certificate of incorporation and by-laws of the
Combined Company will, among other things: (i) prohibit the issuance of
nonvoting equity securities to the extent required by section 1123(a) of the
Bankruptcy Code and (ii) authorize the issuance of New Equity and New Combined
Company Share Purchase Rights in amounts not less than the amounts necessary to
permit the distributions thereof required or contemplated by the Plan and the
Federated/Macy's Merger Agreement. After the Effective Time of the
Federated/Macy's Merger, the Combined Company may amend and restate its
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certificate of incorporation or by-laws as permitted by the Delaware General
Corporation Law, subject to the terms and conditions of the certificate of
incorporation and by-laws of the Combined Company.
b. The Reorganized Macy's Subsidiary Debtors
As of the Effective Date or the effective time of any applicable
Restructuring Transaction, as the case may be, the certificate or articles of
incorporation and the by-laws or regulations or similar constituent documents
of each Reorganized Macy's Subsidiary Debtor will, among other things, prohibit
or be amended to prohibit the issuance of nonvoting equity securities to the
extent required by section 1123(a) of the Bankruptcy Code, and otherwise will,
or will be amended and restated to be, substantially in the forms of Appendices
IV.C.1.b(i) and (ii), respectively. If a Reorganized Macy's Subsidiary Debtor
is incorporated under the laws of a jurisdiction for which the forms of a
certificate or articles of incorporation and by-laws or regulations are not
included in Appendices IV.C.1.b(i) or (ii), such Debtor's constituent documents
will be substantially identical to Appendices IV.C.1.b(i) and (ii), with such
differences as may be necessary or appropriate under the applicable
jurisdiction's corporation law. After the Effective Date or the effective time
of any applicable Restructuring Transaction, as the case may be, each such
entity may amend and restate its certificate or articles of incorporation or
its by-laws or regulations or similar constituent documents as permitted by
applicable state law, subject to the terms and conditions of its certificate or
articles of incorporation or its by-laws or regulations or similar constituent
documents.
2. Directors and Officers of the Reorganized Debtors
a. Combined Company
The initial directors and officers of the Combined Company will be
the directors and officers of Federated immediately prior to the Effective Time
of the Federated/Macy's Merger and the additional persons listed on
Appendix IV.C.2.a, which persons will be designated pursuant to the
Federated/Macy's Merger Agreement. Appendix IV.C.2.a will be Filed no later
than 10 days prior to the hearing on the adequacy of the Disclosure Statement
with information regarding such directors' and officers' identities,
affiliations and compensation. Each such director and officer will serve from
and after the Effective Time of the Federated/Macy's Merger until his or her
successor is duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the terms of the certificate
of incorporation and by-laws of the Combined Company and the Delaware General
Corporation Law.
b. The Reorganized Macy's Subsidiary Debtors
The initial directors and officers of each Reorganized Macy's
Subsidiary Debtor will be selected from the directors and officers of Federated
and the subsidiaries of Federated, and will include the additional persons
listed on Appendix IV.C.2.b. Appendix IV.C.2.b will be Filed no later than 10
days prior to the hearing on the adequacy of the Disclosure Statement with
information regarding such directors' and officers' identities, affiliations
and compensation. Each such director and officer will serve from and after the
Effective Date or the effective time of any applicable Restructuring
Transaction, as the case may be, until his or her successor is elected and
qualified in accordance with the terms of the applicable certificate or
articles of incorporation, the applicable by-laws or regulations or similar
constituent documents and applicable corporation or similar law.
3. New Employment, Retirement, Indemnification and Other
Agreements
and Incentive Compensation Programs
As of the Effective Time of the Federated/Macy's Merger, the
Reorganized Debtors will have the authority to: (a) enter into employment,
retirement, indemnification and other agreements with their active directors,
officers and employees and (b) implement retirement income plans, welfare
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benefit plans and other plans for active employees. Such agreements and plans
may include equity, bonus and other incentive plans in which officers and other
employees of the Reorganized Debtors may be eligible to participate. The
Disclosure Statement and the Federated/Macy's Merger Agreement provide a
general summary and description of such agreements and plans that are to take
effect as of the Effective Date, as well as a general summary and description
of the Debtors' and Federated's existing employment, retirement,
indemnification and other agreements and incentive compensation programs that
are to remain in effect as of the Effective Date.
4. Corporate Action
The Restructuring Transactions; the adoption of new or amended and
restated certificates or articles of incorporation and by-laws or regulations
or similar constituent documents for the Reorganized Debtors; the initial
selection of directors and officers for the Reorganized Debtors; the
distribution of cash pursuant to the Plan; the issuance and distribution of New
Securities and New Combined Company Share Purchase Rights pursuant to the Plan;
the grant of mortgages, deeds of trust, liens and other security interests
pursuant to the New Mortgage Notes Agreements; the adoption, execution,
delivery and implementation of all contracts, leases, instruments, releases,
indentures and other agreements or documents related to any of the foregoing,
including the Federated/Macy's Merger Agreement, New Debt Instruments, the New
Warrants Agreements and the New Combined Company Share Purchase Rights
Agreement; the adoption, execution and implementation of employment, retirement
and indemnification agreements, incentive compensation programs, retirement
income plans, welfare benefit plans and other employee plans and related
agreements; and the other matters provided for under the Plan involving the
corporate structure of any Debtor or Reorganized Debtor or corporate action to
be taken by or required of any Debtor or Reorganized Debtor will occur and be
effective as provided herein, and will be authorized and approved in all
respects and for all purposes without any requirement of further action by
stockholders or directors of any of the Debtors or the Reorganized Debtors.
D. Obtaining Cash for Plan Distributions and Transfers of Funds Among the
Debtors
All cash necessary for the Reorganized Debtors to make payments
pursuant to the Plan will be obtained from the Reorganized Debtors' cash
balances and operations or postconfirmation working capital or other borrowing
facilities of the Combined Company or the other Reorganized Debtors. Cash
payments to be made pursuant to the Plan will be made by the Combined Company
or such other Reorganized Debtor that is liable on the underlying Allowed
Claim; provided, however, that the Debtors and the Reorganized Debtors will be
entitled to transfer funds between and among themselves as they determine to be
necessary or appropriate to enable each Reorganized Debtor to satisfy its
obligations under the Plan.
E. Execution of Agreements and Indentures Related to New Securities
1. On or effective as of the Effective Date, the Combined Company
and the applicable subsidiaries of the Combined Company will execute and
deliver the New Debt Instruments, the New Warrants Agreements and the New
Combined Company Share Purchase Rights Agreement. As a condition precedent to
Prudential receiving the New Prudential Mortgage Notes, GECC receiving the New
GECC Mortgage Notes or John Hancock receiving the New John Hancock KPM Note and
the New John Hancock Plaza Store Note, Prudential, GECC or John Hancock shall
have executed and delivered to the Combined Company and the applicable
subsidiaries of the Combined Company the applicable New Mortgage Notes
Agreement.
2. The New Prudential Mortgage Notes, the New GECC Mortgage Notes,
the New John Hancock KPM Note and the New John Hancock Plaza Store Note to be
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distributed will, pending execution and delivery of the applicable New Mortgage
Notes Agreement, be treated as undeliverable distributions pursuant to Section
VI.D.2.
F. Collateralization of Obligations to Prudential
Pursuant to the Prudential/Federated Intercreditor Agreement, all
Obligations owing to Prudential by FNC and Federated thereunder will become
secured by the collateral that secured the Allowed Claims of Prudential and FNC
in Classes M-4, MOS-4 and MRS-4, subject to any prior sales of collateral as
contemplated in Section III.C.1.
G. Preservation of Rights of Action; Releases
1. Preservation of Rights of Action by the Debtors and Reorganized
Debtors
Except as provided in the Plan or in any contract, instrument,
release, indenture or other agreement entered into in connection with the Plan,
in accordance with section 1123(b) of the Bankruptcy Code, the Reorganized
Debtors will retain and may enforce any claims, demands, rights and causes of
action that any Debtor or Estate may hold against any entity. The Reorganized
Debtors or their successors may pursue such retained claims, demands, rights or
causes of action as appropriate, in accordance with the best interests of the
Reorganized Debtors or the successors holding such rights of action.
2. Releases
a. Releases by the Debtors
i. As of the Effective Date, for good and valuable
consideration, the adequacy of which is hereby confirmed, each Debtor and
Reorganized Debtor will be deemed to forever release, waive and discharge all
claims, demands, debts, rights, causes of action and liabilities in connection
with or related to: (A) Allowed Claims in Classes M-4 through M-9, MOS-4
through MOS-9, MRS-4 through MRS-8 or MMS-4 (including causes of action under
sections 510, 544, 547, 548 and 550 of the Bankruptcy Code and comparable
nonbankruptcy law, but excluding the rights of the Debtors or Reorganized
Debtors to enforce the Plan and the contracts, instruments, releases,
indentures and other agreements or documents delivered thereunder) or (B) those
alleged by a Debtor in any adversary proceeding or contested matter pending in
a Reorganization Case, whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing
or thereafter arising, that are based in whole or in part on any act, omission
or other occurrence taking place on or prior to the Effective Date and that may
be asserted by or on behalf of a Debtor or its Estate against: (A) Federated;
(B) FNC; (C) any Senior Lender (including any member of the WCB Group, the 49
Store Bank Group or the CREI Bank Group); (D) GECC (other than those claims,
demands, debts, rights, causes of action and liabilities arising from or in
connection with the operation of the credit card program provided to Macy's and
certain of the Macy's Subsidiaries by GE Credit); or (E) the respective agents,
advisors, attorneys and representatives (including the respective current and
former directors, officers, employees, members and professionals) of any of the
foregoing, acting in such capacity.
ii. As of the Effective Date, for good and valuable
consideration, the adequacy of which is hereby confirmed, each Debtor and
Reorganized Debtor will be deemed to forever release, waive and discharge all
claims, demands, debts, rights, causes of action and liabilities in connection
with or related to the Debtors or the Reorganization Cases (other than the
rights of the Debtors or the Reorganized Debtors to enforce the Plan and the
contracts, instruments, releases, indentures and other agreements or documents
delivered thereunder), whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing
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or thereafter arising, that are based in whole or in part on any act, omission
or other occurrence taking place on or prior to the Effective Date and that may
be asserted by or on behalf of a Debtor or its Estate against: (A) the
Unsecured Creditors' Committee and its members, acting in such capacity;
(B) the Bondholders' Committee and its members, acting in such capacity;
(C) the Voting Trustee; or (D) the respective agents, advisors, attorneys and
representatives (including the current and former members and professionals) of
either of the foregoing, acting in such capacity; provided, however, that this
release will not apply to any releasee that seeks to enforce any subordination
or turnover rights terminated, compromised or settled pursuant to Sections
X.C.1 and X.C.2.
iii. As of the Effective Date, for good and valuable
consideration, the adequacy of which is hereby confirmed, each Debtor and
Reorganized Debtor will be deemed to forever release, waive and discharge all
claims, demands, debts, rights, causes of action and liabilities under sections
510, 544, 547, 548 and 550 of the Bankruptcy Code and comparable nonbankruptcy
law of any nature, whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing
or thereafter arising, that are based in whole or in part on any act, omission
or other occurrence taking place on or prior to the Effective Date and that may
be asserted by or on behalf of a Debtor or its Estate against: (A) GE Credit
(other than those claims, demands, debts, rights, causes of action and
liabilities arising from or in connection with the operation of the credit card
program provided to Macy's and certain of the Macy's Subsidiaries by GE
Credit); (B) any holder of a Claim in a Reserve Class; or (C) any holder of an
Allowed Debt Security Claim and any Indenture Trustee (and any predecessor
thereof), acting in such capacity; provided, however, that this release will
not apply to any releasee that seeks to enforce any subordination or turnover
rights terminated, compromised or settled pursuant to Sections X.C.1 and X.C.2.
b. Releases by Swiss Bank
Without in any manner limiting the scope of the release provided
pursuant to Section IV.G.2.c, except as provided in Appendix IV.G.2.c, as of
the Effective Date, in exchange for the treatment of its Claims in Classes M-8,
MOS-8 and MRS-8, Swiss Bank will be deemed to forever release, waive and
discharge all claims, demands, debts, rights, causes of action and liabilities,
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
that Swiss Bank has, had or may have against any member of the 49 Store Bank
Group for damages in respect of the unsatisfied portion of any of its Claims
classified in Classes M-8, MOS-8 and MRS-8.
c. Releases by Holders of Claims or Interests
As of the Effective Date, except as provided in Appendix IV.G.2.c, to
the fullest extent permissible under applicable law, in consideration for the
obligations of the Debtors and the Reorganized Debtors under the Plan and the
cash, New Securities, contracts, instruments, releases, indentures or other
agreements or documents to be delivered in connection with the Plan, each
entity that has held, holds or may hold a Claim or Interest will be deemed to
forever release, waive and discharge all claims, demands, debts, rights, causes
of action or liabilities (other than the right to enforce the Debtors' or the
Reorganized Debtors' obligations under the Plan and the contracts, instruments,
releases, indentures and other agreements and documents delivered thereunder),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
that are based in whole or in part on any act, omission or other occurrence
taking place on or prior to the Effective Date in any way relating to a Debtor,
the Reorganization Cases or the Plan that such entity has, had or may have
against: (i) Federated; (ii) FNC; (iii) any Senior Lender (including any
member of the WCB Group, the 49 Store Bank Group or the CREI Bank Group);
(iv) GE Credit (other than those claims, demands, debts, rights, causes of
action and liabilities arising from or in connection with the operation of the
credit card program provided to Macy's and certain of the Macy's Subsidiaries
by GE Credit); (v) the Creditors' Committees; (vi) the Indenture Trustees;
(vii) the Voting Trustee; (viii) any Debtor (which release will be in addition
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to the discharge of Claims and termination of Interests provided herein and
under the Confirmation Order and the Bankruptcy Code); or (ix) the respective
agents, advisors, attorneys and representatives (including the respective
current and former directors, officers, employees, members and professionals)
of any of the foregoing, acting in such capacity.
d. Injunction Related to Releases
As further provided in Section X.B, the Confirmation Order will
enjoin the prosecution, whether directly, derivatively or otherwise, of any
claim, demand, debt, right, cause of action or liability released pursuant to
the Plan.
H. Continuation of Certain Retirement Benefits
1. Certain Retiree Health, Medical and Life Insurance Benefits
From and after the Effective Date, the Reorganized Debtors will be
obligated to pay the retiree benefits (as defined in section 1114(a) of the
Bankruptcy Code) in accordance with the terms of the retiree benefit plans
governing the payment of such benefits, subject to any rights to amend, modify
or terminate such retiree benefits under the terms of the applicable retiree
benefits plan or applicable nonbankruptcy law.
2. Purchase Discounts for Retirees
From and after the Effective Date, the Reorganized Debtors will
provide their respective retirees with merchandise and service purchase price
discounts, in accordance with the Debtors' business practices in effect prior
to the applicable Petition Dates; provided, however, that each of the
Reorganized Debtors will have the right to modify, reduce or eliminate such
discounts in its sole discretion without any claims, debts, rights, causes of
action or liabilities arising against the Reorganized Debtors from such action.
I. Limitations on Amounts to Be Distributed to Holders of Allowed
Insured Claims
Distributions under the Plan to each holder of an Allowed Insured
Claim will be in accordance with the treatment provided under the Plan for the
Class in which such Allowed Insured Claim is classified; provided, however,
that the maximum amount of any distribution under the Plan on account of an
Allowed Insured Claim will be limited to an amount equal to: (1) the
applicable deductible under the relevant insurance policy, minus (2) any
reimbursement obligations of the applicable Debtor to the insurance carrier for
sums expended by the insurance carrier on account of such Claim (including
defense costs). Nothing in this Section IV.I will constitute a waiver of any
claim, demand, debt, right, cause of action or liability that any entity may
hold against any other entity, including the Debtors' insurance carriers.
J. Cancellation and Surrender of Instruments, Securities and Other
Documentation
In addition to the cancellation of the Old Capital Stock provided for
in Section IV.B.1.b and the cancellation of the Old Indentures provided for in
Section V.D.3, except as otherwise provided in Section VI.B.1 (with respect to
Agent Banks receiving and making Plan distributions, maintaining the validity
of Agent Bank Charges and remaining entitled to limitation of liability,
exculpation and indemnification under the applicable Macy's Bank Loan
Agreement), Section VI.B.2 (with respect to Indenture Trustees receiving and
making Plan distributions), Section VI.I (with respect to surrender of Old Debt
Securities or other old notes to Indenture Trustees or Agent Banks), Section
VI.J.2 (with respect to maintaining the validity of Indenture Trustee Charging
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Liens) or in any contract, instrument, indenture or other agreement or document
created in connection with the Plan, on the Effective Date and concurrently
with the applicable distributions made pursuant to Article III, the Old Debt
Securities, the Old Debt Securities Assumption Agreements, the Old Debt
Securities Guaranties, the Macy's/49 Store Lease Payment Guaranty, the
Macy's/49 Store Loan Agreement, the Macy's 49 Store Loan Guaranty, the
Macy's/CREI Lease Payment Guaranty, the Macy's/CREI Loan Agreement, the
Macy's/CREI Swap Agreement, the Macy's/GECC Interest Guaranty, the Macy's/GECC
Loan Agreement, the Macy's/Prudential Mortgage Notes, the Macy's/Prudential
Loan Agreement, the Macy's/Swiss Bank Liquidated Damages Agreement, the
Macy's/WCB Guaranty, the Macy's/WCB Loan Agreement, the Macy's/WCB Swap
Agreement, the John Hancock KPM Note and the John Hancock Plaza Store Note will
be canceled and of no further force and effect, without any further action on
the part of any Debtor or Reorganized Debtor. The holders of or parties to
such canceled instruments, securities and other documentation will have no
rights arising from or relating to such instruments, securities and other
documentation or the cancellation thereof, except the rights provided pursuant
to the Plan; provided, however, that no distribution under the Plan will be
made to or on behalf of any holder of an Allowed Claim evidenced by such
canceled instruments or securities unless and until such instruments or
securities are received by the applicable Disbursing Agent, Agent Bank or
Indenture Trustee pursuant to Section VI.I.
K. Release of Liens
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement or document created in
connection with the Plan, on the Effective Date and concurrently with the
applicable distributions made pursuant to Article III, all mortgages, deeds of
trust, liens or other security interests against the property of any Estate
will be fully released and discharged, and all of the right, title and interest
of any holder of such mortgages, deeds of trust, liens or other security
interests will revert to the applicable Reorganized Debtor and its successors
and assigns.
L. Intercompany Claims and Certain Claims of Affiliates
1. On the Effective Date, all Intercompany Claims, except those
Intercompany Claims that arise from or relate to the intercompany agreements
listed on Appendix IV.L.1, will be extinguished, and no property will be
distributed to or retained by holders of such Intercompany Claims on account of
such Claims. Appendix IV.L.1 specifies the treatment of the Intercompany
Claims that arise from or relate to the intercompany agreements listed thereon.
2. On the Effective Date, the respective aggregate amounts of the
Allowed Debt Security Claims of Macy's Financial will be deemed to be:
(a) $4,230,730 in each of Classes M-10 and MOS-10, (b) $114,172,200 in each of
Classes M-11 and MOS-11 and (c) $79,641,600 in each of Classes M-12 and MOS-12.
M. Effectuating Documents; Further Transactions; Exemption from
Certain Transfer Taxes
The Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, President, Chief Financial Officer or any Vice President of
each Debtor or Reorganized Debtor or such other persons as the Bankruptcy Court
may designate at the request of the Plan Proponents will be authorized to
execute, deliver, file or record such contracts, instruments, releases,
indentures and other agreements or documents and take such actions as may be
necessary or appropriate to effectuate and implement the provisions of the
Plan. The Secretary or any Assistant Secretary of each Debtor or Reorganized
Debtor or such other persons as the Bankruptcy Court may designate at the
request of the Plan Proponents will be authorized to certify or attest to any
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of the foregoing actions. Pursuant to section 1146(c) of the Bankruptcy Code:
(1) the issuance, transfer or exchange of New Securities; (2) the creation of
any mortgage, deed of trust or other security interest; (3) the making or
assignment of any lease or sublease; or (4) the making or delivery of any deed
or other instrument of transfer under, in furtherance of, or in connection
with, the Plan, including any merger agreements; agreements of consolidation,
restructuring, disposition, liquidation or dissolution; deeds; bills of sale;
or assignments executed in connection with the Restructuring Transactions, will
not be subject to any stamp tax, real estate transfer tax or similar tax.
ARTICLE V.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
A. Assumption and Rejection
1. Assumptions, Assignments and Rejections of Non-Real Property
Executory Contracts and Unexpired Leases
a. Assumptions and Assignments
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement or document entered into in
connection with the Plan, on the Effective Date, pursuant to section 365 of the
Bankruptcy Code, the Debtors will assume, or assume and assign, as indicated,
each of the executory contracts and unexpired leases listed on
Appendix V.A.1.a; provided, however, that Federated and the Reorganized Debtors
reserve the right, at any time prior to 60 days after the Effective Date, to
amend Appendix V.A.1.a to: (a) delete any executory contract or unexpired
lease listed therein, thus providing for its rejection pursuant to this Section
V.A.1 or (b) add any executory contract or unexpired lease thereto, thus
providing for its assumption or assumption and assignment pursuant to this
Section V.A.1. Federated or the Reorganized Debtors, as applicable, will
provide notice of any amendments to Appendix V.A.1.a to the parties to the
executory contracts or unexpired leases affected thereby and the Claims
Resolution Committee and, if such amendments are made before the Effective
Date, to the parties on the then applicable administrative service list in the
Reorganization Cases. Any amendment to Appendix V.A.1.a after the Effective
Date to delete an executory contract or unexpired lease listed therein will be
deemed and treated as a rejection of such contract or lease pursuant to section
365(g)(1) of the Bankruptcy Code. Each contract and lease listed on
Appendix V.A.1.a will be assumed only to the extent that any such contract or
lease constitutes an executory contract or unexpired lease. Listing a contract
or lease on Appendix V.A.1.a does not constitute an admission by a Debtor,
Reorganized Debtor or Federated that such contract or lease is an executory
contract or unexpired lease or that a Debtor or Reorganized Debtor has any
liability thereunder.
b. Rejections
On the Effective Date, except for a non-Real Property Executory
Contract or Unexpired Lease that was previously assumed or rejected by an order
of the Bankruptcy Court or that is assumed pursuant to Section V.A.1.a, each
non-Real Property Executory Contract and Unexpired Lease entered into by a
Debtor prior to the applicable Petition Date that has not previously expired or
terminated pursuant to its own terms will be rejected pursuant to section 365
of the Bankruptcy Code. The non-Real Property Executory Contracts and
Unexpired Leases to be rejected will include the executory contracts and
unexpired leases listed on Appendix V.A.1.b. Each contract and lease listed on
Appendix V.A.1.b will be rejected only to the extent that any such contract or
lease constitutes an executory contract or unexpired lease. Listing a contract
or lease on Appendix V.A.1.b does not constitute an admission by a Debtor,
Reorganized Debtor or Federated that such contract or lease is an executory
contract or unexpired lease or that a Debtor or Reorganized Debtor has any
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liability thereunder. Any non-Real Property Executory Contract and Unexpired
Lease not listed on Appendix V.A.1.a will be rejected irrespective of whether
such contract is listed on Appendix V.A.1.b.
2. Assumptions and Rejections of Real Property Executory
Contracts and
Unexpired Leases
a. Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement or document entered into in
connection with the Plan, on the Effective Date, pursuant to section 365 of the
Bankruptcy Code, the Debtors will assume, or assume and assign, all Real
Property Executory Contracts and Unexpired Leases that have not previously
expired or terminated pursuant to their respective terms, except for any such
Real Property Executory Contract and Unexpired Lease: (i) that was previously
assumed or rejected by an order of the Bankruptcy Court entered prior to the
Confirmation Date, (ii) as to which a motion for authority to reject has been
Filed and served prior to the Confirmation Date, (iii) that has previously
expired or terminated pursuant to its own terms, (iv) that is between a Debtor
and an Affiliate (other than those agreements listed on Appendix IV.L.1) or
(v) that is listed on Appendix V.A.2; provided, however, that Federated and the
Reorganized Debtors reserve the right, at any time prior to 60 days after the
Effective Date, to amend Appendix V.A.2 to: (i) add any Real Property
Executory Contract and Unexpired Lease, thus providing for its rejection
pursuant to this Section V.A.2, or (ii) delete any Real Property Executory
Contract and Unexpired Lease, thus providing for its assumption pursuant to
this Section V.A.2. Federated or the Reorganized Debtors, as applicable, will
provide notice of any amendments to Appendix V.A.2 to the parties to the Real
Property Executory Contracts and Unexpired Leases affected thereby and the
Claims Resolution Committee and, if such amendments are made before the
Effective Date, to the parties on the then applicable administrative service
list in the Reorganization Cases. Each Real Property Executory Contract and
Unexpired Lease assumed or rejected pursuant to this Section V.A.2 will be
assumed or rejected only to the extent that any such contract or lease
constitutes an executory contract or unexpired lease. Listing a Real Property
Executory Contract and Unexpired Lease on Appendix V.A.2 does not constitute an
admission by a Debtor, Reorganized Debtor or Federated that such contract or
lease is an executory contract or unexpired lease or that a Debtor or
Reorganized Debtor has any liability thereunder.
b. Each Real Property Executory Contract and Unexpired Lease
assumed or rejected pursuant to this Section V.A.2 will include all
modifications, amendments, supplements, restatements or other agreements made
directly or indirectly by any agreement, instrument or other document that in
any manner affects such Real Property Executory Contract and Unexpired Lease.
3. Assignments Related to Restructuring Transactions
As of the effective time of the applicable Restructuring
Transactions, any executory contract or unexpired lease (including any related
agreements as described in Section V.A.2.b) to be held by the Combined Company
or a surviving, resulting or acquiring corporation in the Operating Subsidiary
Transactions, the Real Estate Subsidiary Transactions or any other
Restructuring Transactions, as the case may be, will be deemed assigned to the
applicable entity, pursuant to section 365 of the Bankruptcy Code.
4. Approval of Assumptions, Assignments and Rejections
The Confirmation Order will constitute an order of the Bankruptcy
Court approving the assumptions, assignments and rejections described in this
Section V.A, pursuant to section 365 of the Bankruptcy Code, as of the
Effective Date. The order of the Bankruptcy Court approving the Disclosure
Statement, the Confirmation Order or another order of the Bankruptcy Court
entered on or prior to the Confirmation Date will specify the procedures for
providing notice to each party whose executory contract or unexpired lease is
being assumed or assumed and assigned pursuant to the Plan of: (a) the
contract or lease being assumed or assumed and assigned; (b) the amount of the
cure payment, if any, that the applicable Debtor believes it would be obligated
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to pay in connection with such assumption; and (c) the procedures for such
party to object to the assumption, assignment or amount of the proposed cure
payment.
B. Payments Related to Assumption of Executory Contracts and Unexpired Leases
Any monetary amounts by which each executory contract and unexpired
lease to be assumed pursuant to the Plan is in default will be satisfied,
pursuant to section 365(b)(1) of the Bankruptcy Code, at the option of the
Debtor assuming such contract or lease, the assignee of such Debtor or
Federated: (1) by payment of the default amount in cash on the Effective Date;
(2) by payment of the default amount in quarterly cash installments commencing
on the Effective Date and continuing for one year; or (3) on such other terms
as are agreed to by the parties to such executory contract or unexpired lease.
If there is a dispute regarding: (1) the amount of any default amount or cure
payment; (2) the ability of the applicable Reorganized Debtor or any assignee
to provide "adequate assurance of future performance" (within the meaning of
section 365 of the Bankruptcy Code) under the contract or lease to be assumed;
or (3) any other matter pertaining to assumption of such contract or lease, the
cure payments required by section 365(b)(1) of the Bankruptcy Code will be made
following the entry of a Final Order resolving the dispute and approving the
assumption. For assumptions of executory contracts between Debtors, the
Reorganized Debtor assuming such contract may cure any monetary default by
treating such amount as either a direct or indirect contribution to capital or
distribution (as appropriate) in lieu of payment in cash.
C. Bar Date for Rejection Damages
If the rejection of an executory contract or unexpired lease pursuant
to Section V.A gives rise to a Claim by the other party or parties to such
contract or lease, such Claim will be forever barred and will not be
enforceable against the Debtors, the Reorganized Debtors, their respective
successors or their respective properties unless a proof of Claim is Filed and
served on the Reorganized Debtors, pursuant to the procedures specified in the
Confirmation Order and the notice of the entry of the Confirmation Order, no
later than 30 days after the later of: (1) the Effective Date and (2) delivery
of a notice of amendment pursuant to Sections V.A.1 or V.A.2 providing for the
rejection of the applicable executory contract or unexpired lease.
D. Special Executory Contract and Unexpired Lease Issues
1. Obligations to Indemnify Directors, Officers and Employees
a. The obligations of each Debtor or Reorganized Debtor to
indemnify any person serving as a director, officer or employee of such Debtor
or Reorganized Debtor as of or following July 15, 1986 will be as provided in
the Federated/Macy's Merger Agreement. In its sole discretion, Federated also
may elect to have a Debtor or Reorganized Debtor assume certain of its
obligations to indemnify any person who, as of July 15, 1986, was no longer
serving as a director, officer or employee of such Debtor by listing such
obligations on Appendix V.A.1.a (as provided in Section V.A.1), which
obligations will be deemed and treated as executory contracts that are assumed
by the applicable Debtor pursuant to the Plan and section 365 of the Bankruptcy
Code as of the Effective Date. Accordingly, to the extent assumed, such
indemnification obligations will survive and be unaffected by entry of the
Confirmation Order, irrespective of whether such indemnification is owed for an
act or event occurring before or after the Petition Date.
b. Unless assumed by a Debtor pursuant to an election under Section
V.D.1.a, the obligations of each Debtor or Reorganized Debtor to indemnify any
person who, as of July 15, 1986, was no longer serving as a director, officer
or employee of such Debtor or Reorganized Debtor, which indemnity obligation
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arose by reason of such person's prior service in any such capacity, or as a
director, officer or employee of another corporation, partnership or other
legal entity, whether provided in the applicable certificates of incorporation,
by-laws or similar constituent documents or by statutory law or written
agreement of or with such Debtor or policies or procedures of or with such
Debtor, will terminate and be discharged pursuant to section 502(e) of the
Bankruptcy Code or otherwise, as of the Effective Date; provided, however,
that, to the extent that such indemnification obligations no longer give rise
to contingent Claims that can be disallowed pursuant to section 502(e) of the
Bankruptcy Code, such indemnification obligations will be deemed and treated as
executory contracts that are rejected by the applicable Debtor pursuant to the
Plan and section 365 of the Bankruptcy Code, as of the Effective Date.
c. Nothing herein will be exclusive of or limit the terms of any
indemnification agreement entered into pursuant to Section IV.C.3 or the
Federated/Macy's Merger Agreement.
2. Reinstatement of Allowed Secondary Liability Claims Arising
From or
Related to Executory Contracts or Unexpired Leases Assumed by
Macy's Subsidiaries
On the Effective Date, any Allowed Secondary Liability Claim arising
from or related to any Debtor's joint or several liability for the obligations
under or with respect to: (a) any executory contract or unexpired lease that
is being assumed or deemed assumed pursuant to section 365 of the Bankruptcy
Code by another Debtor, (b) any executory contract or unexpired lease that is
being assumed by and assigned to another Debtor or (c) a Reinstated Claim, will
be Reinstated. Accordingly, such Allowed Secondary Liability Claims will
survive and be unaffected by entry of the Confirmation Order.
3. Cancellation of Old Indentures
As of the Effective Date, except as otherwise provided in Section
VI.B.2 (with respect to Indenture Trustees' receiving and making Plan
distributions), Section VI.I (with respect to surrender of Old Debt Securities
to Indenture Trustees), Section VI.J.2 (with respect to maintaining the
validity of the Indenture Trustee Charging Liens) and Section X.C.3 (with
respect to the preservation of subordination and turnover rights), the Old
Indentures will be canceled pursuant to section 1123(a)(5)(F) of the Bankruptcy
Code.
4. Reinstatement of Intercompany Agreement
Notwithstanding anything to the contrary in Section V.A.2.a or in any
order entered prior to the Confirmation Date in the Reorganization Cases, the
Lease and Agreement, dated September 25, 1974, between Macy's California, as
successor in interest to Liberty House, Inc., and Sanstoff East Properties
Corp., as successor in interest to Amcisco Associates, will be reinstated and
will be deemed to be assumed pursuant to Section V.A.2.a.
E. Executory Contracts and Unexpired Leases Entered Into and Other
Obligations
Incurred After the Applicable Petition Date
Executory contracts and unexpired leases entered into or assumed and
other obligations incurred after the Petition Date by any Debtor will be
performed by the Debtor or Reorganized Debtor liable thereunder in the ordinary
course of its business. Accordingly, such executory contracts, unexpired
leases and other obligations will survive and remain unaffected by entry of the
Confirmation Order.
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ARTICLE VI.
PROVISIONS GOVERNING DISTRIBUTIONS
A. Distributions for Claims Allowed as of the Effective Date
1. Except as otherwise provided in this Article VI, distributions
to be made on the Effective Date to holders of Claims that are allowed as of
the Effective Date will be deemed made on the Effective Date if made on the
Effective Date or as promptly thereafter as practicable, but in any event no
later than: (a) 90 days after the Effective Date or (b) such later date when
the applicable conditions of Section IV.E (regarding execution of agreements
related to the New Mortgage Notes), Section V.B (regarding cure payments for
executory contracts and unexpired leases being assumed), Section VI.D.2
(regarding undeliverable distributions) or Section VI.I (regarding surrender of
canceled instruments and securities) are satisfied. Notwithstanding the
foregoing, subject (as applicable) to the conditions of Section IV.E.1
(regarding execution of the New Mortgage Notes Agreements) and Section VI.I
(regarding surrender of canceled instruments and securities), distributions
will be made on the Effective Date to: (a) the applicable Agent Banks on
account of Allowed Bank Loan Claims, (b) Prudential on account of the Allowed
Claims of Prudential in Classes M-4, MOS-4 and MRS-4, (c) Swiss Bank on account
of Allowed Claims in Classes M-8, MOS-8 and MRS-8, (d) GECC on account of
Allowed Claims in Classes M-9 and MOS-9, (e) John Hancock on account of Allowed
Claims in Class MRS-9 and (f) the applicable Indenture Trustee or Disbursing
Agent on account of Allowed Debt Security Claims. Distributions on account of
Claims that become Allowed Claims after the Effective Date will be made
pursuant to Sections VI.G and VII.C.
2. From and after the Effective Date, cash to be distributed on the
Effective Date on account of Reserve Class Claims allowed as of the Effective
Date will be deposited in a segregated bank account in the name of the
applicable Disbursing Agent, held in trust pending distribution by the
Disbursing Agent for the benefit of the holders of such Claims and accounted
for separately, and, subject to Section VI.D.2.a.iii, will not constitute
property of the Combined Company. The Disbursing Agent will invest such cash
in a manner consistent with the Combined Company's investment and deposit
guidelines. Distributions of cash on account of each Reserve Class Claim
allowed as of the Effective Date will include a Pro Rata share of the Cash
Investment Yield from such investment of cash. New Securities to be issued
will be deemed issued as of, and New Debt thus will accrue interest from,
January 31, 1995, regardless of the date on which New Securities are actually
distributed.
B. Methods of Distributions
1. Distributions to Holders of Allowed Bank Loan Claims
All distributions provided for in the Plan on account of Allowed Bank
Loan Claims will be made to the applicable Agent Bank for further distribution
to individual holders of such Claims or those participants that such holders
certify in writing to the applicable Agent Bank by the close of business on the
Distribution Record Date. Distributions will be made by the Reorganized
Debtors to each Agent Bank in the names of those holders of Allowed Bank Loan
Claims or their participants and in such amounts of cash, principal amounts of
New Debt and numbers of shares of New Combined Company Common Stock (as
applicable) as such Agent Bank provides in writing to Federated within seven
days after the Distribution Record Date. Distributions will be made in
accordance with the applicable Macy's Bank Loan Agreement, as provided herein
or in the Confirmation Order or as otherwise agreed between the Agent Bank and
any beneficial owner of an Allowed Bank Loan Claim, and will be subject to any
Agent Bank Charges, except as may be agreed between Swiss Bank and any
beneficial owner of an Allowed Claim in Classes M-6, MOS-6 and MRS-6. Agent
Banks will make distributions to their respective holders of Allowed Bank Loan
Claims on the Effective Date or as promptly thereafter as practicable, but in
any event no later than: (a) 10 days after the Effective Date or (b) as to any
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particular Allowed Bank Loan Claim, such later date when the applicable
conditions of Section VI.I (regarding surrender of canceled instruments and
securities) are satisfied and any dispute asserted in writing to the Agent Bank
with respect to the identity of the party that is entitled to receive a
distribution or the amount of such distribution on account of such Claim is
resolved. Notwithstanding the provisions of Section IV.J regarding the
cancellation of the Macy's Bank Loan Agreements, the Macy's Bank Loan
Agreements will continue in effect to the extent necessary to allow the Agent
Banks to receive and make distributions pursuant to the Plan, subject to the
deduction of Agent Bank Charges, and the Agent Banks will remain entitled to
any limitation of liability, exculpation or indemnification provisions between
or among the holders of Allowed Bank Loan Claims under the applicable Macy's
Bank Loan Agreement.
2. Distributions to Holders of Allowed Debt Security Claims
All distributions provided for in the Plan on account of Allowed Debt
Security Claims will be made, at the option of Federated or the Combined
Company, to the respective Indenture Trustees or a Disbursing Agent for further
distribution to individual holders of Allowed Debt Security Claims. Any such
distribution made by an Indenture Trustee will be made pursuant to the
applicable Old Indenture or other disbursing agent agreement entered into by
the Combined Company and the applicable Indenture Trustee. Notwithstanding the
provisions of Section V.D.3 (regarding the cancellation of the Old Indentures),
the Old Indentures will continue in effect to the extent necessary to allow the
Indenture Trustees to receive and make distributions pursuant to the Plan on
account of Allowed Debt Security Claims. Any actions taken by the Indenture
Trustees that are not for this purpose will be null and void as against the
Debtors and the Reorganized Debtors, and the Reorganized Debtors will have no
obligations to the Indenture Trustees for any fees, costs or expenses incurred
in connection with any such actions.
3. Distributions to Holders of Other Claims
The Combined Company, or such Third-Party Disbursing Agents as
Federated or the Combined Company, after consultation with the Unsecured
Creditors' Committee, may employ in its sole discretion, will make all
distributions of cash and New Securities required under the Plan, except for
distributions made by Agent Banks or Indenture Trustees pursuant to Sections
VI.B.1 and VI.B.2. Each Disbursing Agent will serve without bond, and any
Disbursing Agent may employ or contract with other entities to assist in or
make the distributions required by the Plan.
C. Compensation and Reimbursement for Services Related to Balloting
and Distributions
1. Each Agent Bank and Indenture Trustee providing services related
to balloting or distributions pursuant to the Plan to holders of Allowed Bank
Loan Claims or Allowed Debt Security Claims will receive, from the Combined
Company, without further Bankruptcy Court approval, reasonable compensation for
such services and reimbursement of reasonable out-of-pocket expenses incurred
in connection with such services. These payments will be made on terms agreed
to with Federated or the Combined Company, and will be in addition to
distributions made on account of any Agent Bank Charges or Indenture Trustee
Charging Liens.
2. Each Third-Party Disbursing Agent providing services related to
distributions pursuant to the Plan will receive from the Combined Company,
without further Bankruptcy Court approval, reasonable compensation for such
services and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services. These payments will be made on terms agreed to
with Federated or the Combined Company.
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D. Delivery of Distributions and Undeliverable or Unclaimed Distributions
1. Delivery of Distributions in General
Distributions to holders of Allowed Claims will be made as follows:
(a) with respect to Allowed Bank Loan Claims, by the applicable Agent Bank, and
as otherwise specified herein, in the Confirmation Order or in the applicable
Macy's Bank Loan Agreement; (b) with respect to Allowed Debt Security Claims,
if made by an Indenture Trustee, in accordance with the applicable Old
Indenture and, if made by a Disbursing Agent, at the addresses supplied by the
applicable Indenture Trustee; and (c) with respect to all other Allowed Claims,
by a Disbursing Agent (i) at the addresses set forth on the respective proofs
of Claim Filed by holders of such Claims; (ii) at the addresses set forth in
any written notices of address change delivered to the Disbursing Agents after
the date of Filing of any related proof of Claim; or (iii) at the addresses
reflected in the applicable Debtor's schedule of liabilities if no proof of
Claim has been Filed and the Disbursing Agents have not received a written
notice of a change of address.
2. Undeliverable Distributions
a. Distributions Held by Disbursing Agents
i. Holding and Investment of
Undeliverable Distributions
A. If any Allowed Claim holder's distribution is returned
to a Disbursing Agent as undeliverable, no further distributions will be made
to such holder unless and until the applicable Disbursing Agent is notified in
writing of such holder's then-current address. Undeliverable distributions
will remain in the possession of the applicable Disbursing Agent pursuant to
this Section VI.D.2.a.i until such time as a distribution becomes deliverable.
Undeliverable cash (including dividends or other distributions on undeliverable
New Combined Company Common Stock) will be held in segregated bank accounts in
the name of the applicable Disbursing Agent for the benefit of the potential
claimants of such funds. Any Disbursing Agent holding undeliverable cash will
invest such cash in a manner consistent with the Combined Company's investment
and deposit guidelines. Undeliverable New Equity will be held by the
applicable Disbursing Agent for the benefit of the potential claimants of such
securities.
B. Pending the distribution of any New Combined Company
Common Stock, each Disbursing Agent will cause all of the New Combined Company
Common Stock held by it in its capacity as Disbursing Agent to be:
(1) represented in person or by proxy at each meeting of the stockholders of
the Combined Company; (2) voted in any election of directors of the Combined
Company, at the option of the Disbursing Agent, either (a) proportionately with
the votes cast by the other stockholders of the Combined Company, taken as a
whole, or (b) for the nominees recommended by the board of directors of the
Combined Company; and (3) voted with respect to any other matter, at the option
of the Disbursing Agent, either (a) proportionately with the votes cast by the
other stockholders of the Combined Company, taken as a whole, or (b) as
recommended by the board of directors of the Combined Company.
ii. After Distributions Become Deliverable
On each Quarterly Distribution Date, the applicable Disbursing Agents
will make all distributions that become deliverable to holders of Allowed
Claims during the preceding calendar quarter. Each such distribution will
include, to the extent applicable: (A) dividends or other distributions, if
any, that shall have theretofore been paid to the Disbursing Agent in respect
of any New Combined Company Common Stock included in such distribution and (B)
a Pro Rata share of the Cash Investment Yield from the investment of any
undeliverable cash (including dividends or other distributions on undeliverable
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New Combined Company Common Stock), from the date that such distribution would
have first been due had it then been deliverable to the date that such
distribution becomes deliverable.
iii. Failure to Claim Undeliverable Distributions
Any holder of an Allowed Claim that does not assert a claim pursuant
to the Plan for an undeliverable distribution to be made by a Disbursing Agent
within two years after the Effective Date will have its claim for such
undeliverable distribution discharged and will be forever barred from asserting
any such claim against the Reorganized Debtors or their respective property.
In such cases: (A) with respect to undeliverable cash held by a Disbursing
Agent, such cash will be property of the Combined Company, free of any
restrictions thereon and (B) with respect to undeliverable New Combined Company
Common Stock held by a Disbursing Agent on account of Allowed Claims in a
Reserve Class, such New Combined Company Common Stock will be retained in the
Disputed Claims Reserve for redistribution Pro Rata to holders of Allowed
Claims in the Reserve Classes, pursuant to Section VI.G.2.b. For purposes of
this redistribution, each Allowed Claim in a Reserve Class for which such
distributions are undeliverable will be deemed disallowed in its entirety. To
the extent that undeliverable cash held by a Third-Party Disbursing Agent is
subject to Section VI.D.2.a.iii(A), the Third-Party Disbursing Agent will
return such cash to the Combined Company. Nothing contained in the Plan will
require any Debtor, Reorganized Debtor or Disbursing Agent to attempt to locate
any holder of an Allowed Claim.
b. Distributions Held by Agent Banks or Indenture Trustees
i. For distributions to holders of Allowed Bank Loan Claims
or Allowed Debt Security Claims that are made by an Agent Bank or Indenture
Trustee, respectively, unless otherwise provided in the Confirmation Order or
any other order of the Bankruptcy Court that is not subject to any stay, the
provisions of the applicable Macy's Bank Loan Agreement or Old Indenture will
govern the holding of undeliverable distributions and the delivery of those
distributions to individual holders of Allowed Bank Loan Claims or Allowed Debt
Security Claims, respectively.
ii. If an Indenture Trustee or Disbursing Agent, as
applicable, determines that an individual holder of an Allowed Debt Security
Claim is no longer entitled to a distribution pursuant to the applicable Old
Indenture, the Plan or the Confirmation Order, such individual holder's claim
for such distribution will be discharged, and such individual holder will be
forever barred from asserting any such claim for a distribution against the
Debtors, the Reorganized Debtors or their respective property. In such cases:
(A) any cash held for distribution on account of such claims (including
dividends or other distributions on New Combined Company Common Stock) will be
property of the Combined Company, free of any claims or restrictions thereon
and (B) any New Equity held for distribution on account of such claims will
either be canceled or held in the Combined Company's treasury, as the Combined
Company may determine is appropriate. The applicable Indenture Trustee or
Third-Party Disbursing Agent will return such cash or the instruments or
securities evidencing such New Equity to the Combined Company.
E. Distribution Record Date
1. The Agent Banks will have no obligation to recognize the
transfer of, or the sale of any participation in, any Allowed Bank Loan Claim
occurring after the close of business on the Distribution Record Date, and will
be entitled for all purposes herein to recognize and distribute only to those
holders of Allowed Bank Loan Claims who are holders of such Claims, or
participants therein, as certified by such holders in writing to the Agent
Banks by the close of business on the Distribution Record Date.
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2. As of the close of business on the Distribution Record Date, the
respective transfer register for each of the Old Debt Securities, as maintained
by the Debtors, the Indenture Trustees or their respective agents, will be
closed, and the applicable Disbursing Agents, Indenture Trustees or their
respective agents will have no obligation to recognize the transfer of any Old
Debt Securities occurring after the close of business on the Distribution
Record Date and will be entitled for all purposes herein to recognize and deal
only with those holders of record as of the close of business on the
Distribution Record Date.
3. Except as otherwise provided in an order of the Bankruptcy Court
that is not subject to any stay, the transferees of Claims in Reserve Classes
that are transferred pursuant to Bankruptcy Rule 3001 on or prior to the
Distribution Record Date will be treated as the holders of such Claims for all
purposes, notwithstanding that any period provided by Bankruptcy Rule 3001 for
objecting to such transfer has not expired by the Distribution Record Date.
F. Means of Cash Payments
Except as otherwise specified herein, cash payments made pursuant to
the Plan will be in U.S. dollars by checks drawn on a domestic bank selected by
the applicable Debtor or Reorganized Debtor, or by wire transfer from a
domestic bank, at the option of the applicable Debtor or Reorganized Debtor.
Cash payments of $1,000,000 or more to be made pursuant to the Plan to or on
behalf of holders of Allowed Bank Loan Claims, Allowed Trade Claims or Allowed
Debt Security Claims will, to the extent requested in writing no later than
five days after the Confirmation Date by the applicable holder, be made by wire
transfer from a domestic bank. Cash payments to foreign holders of Allowed
Trade Claims may be made, at the option of the applicable Debtor or Reorganized
Debtor, in such funds and by such means as are necessary or customary in a
particular foreign jurisdiction.
G. Timing and Calculation of Amounts to be Distributed
1. Allowed Claims in Non-Reserve Classes and the Fixed Cash
Portion of
Allowed Claims in Reserve Classes
Subject to Section VI.A, on the Effective Date: (a) each holder of
an Allowed Claim in a non-Reserve Class will receive the full amount of the
distributions that the Plan provides for Allowed Claims in the applicable
non-Reserve Class and (b) each holder of an Allowed Claim in a Reserve Class
will receive the Fixed Cash Portion of the distributions that the Plan provides
for Allowed Claims in a Reserve Class. On each Quarterly Distribution Date,
distributions will also be made, pursuant to Section VII.C, to holders of
Disputed Claims in any such Class that were allowed during the preceding
calendar quarter. Such quarterly distributions on account of Allowed Claims in
a non-Reserve Class and the Fixed Cash Portion of Allowed Claims in a Reserve
Class will also be in the full amount that the Plan provides for Allowed Claims
in the applicable Class.
2. New Combined Company Common Stock to be Distributed to
Holders
of Allowed Claims in Reserve Classes
a. Initial Distributions
The amount of distributions of New Combined Company Common Stock to
be made on the Effective Date (subject to Section VI.A) to holders of Allowed
Claims in a Reserve Class on account of such Claims will be calculated as if
each Disputed Claim in the applicable Reserve Class were an Allowed Claim in
its Face Amount. On each Quarterly Distribution Date, distributions will also
be made, pursuant to Section VII.C, to holders of Disputed Claims in Reserve
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Classes that were allowed during the preceding calendar quarter. Such
quarterly distributions of New Combined Company Common Stock will also be
calculated pursuant to the provisions set forth in this Section VI.G.2.a.
b. Additional Quarterly Distributions on Account of
Previously Allowed Claims
On each Quarterly Distribution Date, each holder of a Claim
previously allowed in a Reserve Class will receive an additional distribution
of New Combined Company Common Stock from the Disputed Claims Reserve on
account of such Claim in an amount equal to: (i) the amount of New Combined
Company Common Stock that such holder would have been entitled to receive
pursuant to Section VI.G.2.a as if such Claim had become an Allowed Claim on
the applicable Quarterly Distribution Date, minus (ii) the aggregate amount of
New Combined Company Common Stock previously distributed on account of such
Claim. Each such quarterly additional distribution will also include, on the
basis of the amount then being distributed: (i) any dividends or other
distributions made on account of the New Combined Company Common Stock held in
the Disputed Claims Reserve and (ii) a Pro Rata share of the Cash Investment
Yield from the investment of any cash in the Disputed Claims Reserve, from the
date such amounts would have been due had such Claim initially been paid on the
Effective Date 100% of the allowed amount to the date that such distribution is
made.
3. Distributions of New Debt
Notwithstanding any other provisions of the Plan, principal amounts
of the New Debt will be issued only in denominations of $1,000 and integral
multiples thereof. When any distribution on account of an Allowed Claim would
otherwise result in the issuance of New Debt with an aggregate principal amount
that is not an integral multiple of $1,000, the actual distribution of such
notes will be rounded to the next higher or lower integral multiple of $1,000,
as follows: (a) aggregate principal amounts that exceed an integral multiple
of $1,000 by $500 or more will be rounded to the next higher integral multiple
of $1,000 and (b) aggregate principal amounts that exceed an integral multiple
of $1,000 by less than $500 will be rounded to the next lower integral multiple
of $1,000. If, as a result of rounding of principal amounts of any series of
New Unsecured Notes to be distributed to particular holders of Allowed Bank
Loan Claims in a particular Class, the sum of such principal amounts differs
from the aggregate principal amount of such series of New Unsecured Notes to be
distributed pursuant to Section III.B.2.b, c or d, as applicable: (a) the
aggregate principal amount of the applicable series of New Unsecured Notes
specified in Section III.B.2.b, c or d will be adjusted upward or downward to
provide for the distribution of the applicable series of New Unsecured Notes in
an aggregate principal amount equal to such sum and (b) the corresponding
amount of cash to be distributed pursuant to Section III.B.2.b, c or d, as
applicable, will be increased or decreased dollar for dollar to offset the
adjustment to the principal amount of the New Unsecured Notes described in (a).
No consideration will be provided in lieu of principal amounts of any other
issues of New Debt that are rounded down.
4. Distributions of New Equity
a. Notwithstanding any other provision of the Plan, only whole
numbers of shares of New Combined Company Common Stock and whole numbers of New
Warrants will be issued. When any distribution on account of an Allowed Claim
would otherwise result in the issuance of a number of shares of New Combined
Company Common Stock or a number of New Warrants that is not a whole number,
the actual distribution of shares of such stock or warrants will be rounded to
the next higher or lower whole number as follows: (i) fractions equal to or
greater than 1/2 will be rounded to the next higher whole number and
(ii) fractions less than 1/2 will be rounded to the next lower whole number.
The total number of shares of New Combined Company Common Stock and New
Warrants to be distributed to a Class of Claims will be adjusted as necessary
to account for the rounding provided for in this Section VI.G.4.a. No
consideration will be provided in lieu of fractional shares or warrants that
are rounded down.
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b. Subject to the provisions of the New Combined Company Share
Purchase Rights Agreement, each share of New Combined Company Common Stock
distributed pursuant to the Plan will be accompanied by one New Combined
Company Share Purchase Right.
5. De Minimis Distributions
The Disbursing Agents and the Indenture Trustees will not be required
to distribute cash to the holder of an Allowed Claim in an impaired Class if
the amount of cash to be distributed on account of such Claim is less than $25.
Any holder of an Allowed Claim on account of which the amount of cash to be
distributed is less than $25 will have its claim for such distribution
discharged and will be forever barred from asserting any such claim against the
Reorganized Debtors or their respective property. Any cash not distributed
pursuant to this Section VI.G.5 with respect to Claims in a non-Reserve Class
or the Fixed Cash Portion of Allowed Claims in a Reserve Class will be the
property of the Combined Company, free of any restrictions thereon, and any
such cash held by a Third-Party Disbursing Agent or an Indenture Trustee will
be returned to the Combined Company. Any cash not distributed pursuant to this
Section VI.G.5 with respect to dividends or other distributions made on account
of New Combined Company Common Stock held in the Disputed Claims Reserve will
be retained in the Disputed Claims Reserve for redistribution Pro Rata to
holders of Allowed Claims in the Reserve Classes, pursuant to Section VI.G.2.b.
6. Compliance with Tax Requirements
a. In connection with the Plan, to the extent applicable, each
Disbursing Agent, Agent Bank and Indenture Trustee will comply with all tax
withholding and reporting requirements imposed on it by any governmental unit,
and all distributions pursuant to the Plan will be subject to such withholding
and reporting requirements. Each Disbursing Agent, Agent Bank and Indenture
Trustee will be authorized to take any and all actions that may be necessary or
appropriate to comply with such withholding and reporting requirements.
b. Notwithstanding any other provision of the Plan, each entity
receiving a distribution of cash or New Securities pursuant to the Plan will
have sole and exclusive responsibility for the satisfaction and payment of any
tax obligations imposed by any governmental unit, including income, withholding
and other tax obligations, on account of such distribution.
H. Setoffs
Except with respect to claims of a Debtor or Reorganized Debtor
released pursuant to the Plan or any contract, instrument, release, indenture
or other agreement or document created in connection with the Plan, the
Reorganized Debtors may, pursuant to section 553 of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim in a Reserve
Class and the distributions to be made pursuant to the Plan on account of such
Claim (before any distribution is made on account of such Claim), the claims,
rights and causes of action of any nature that the applicable Debtor or
Reorganized Debtor may hold against the holder of such Allowed Claim; provided,
however, that neither the failure to effect such a setoff nor the allowance of
any Claim hereunder will constitute a waiver or release by the applicable
Debtor or Reorganized Debtor of any such claims, rights and causes of action
that the Debtor or Reorganized Debtor may possess against such holder. To the
extent that a Reorganized Debtor fails to effect a setoff with a holder of an
Allowed Reserve Class Claim and seeks to collect a claim from such holder after
a distribution to such holder pursuant to the Plan on account of its Claim, the
applicable Reorganized Debtor's recovery on its claim against such holder will
be limited to an amount that does not exceed the amount that would have been
recovered had the claim against the holder been set off against the holder's
Allowed Reserve Class Claim prior to any distribution pursuant to the Plan to
the holder on account of such Allowed Claim.
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I. Surrender of Canceled Instruments or Securities
As a condition precedent to receiving any distribution pursuant to
the Plan on account of an Allowed Claim evidenced by the notes, instruments,
securities or other documentation canceled pursuant to Section IV.J, the holder
of such Claim will tender, as specified in this Section VI.I, the applicable
notes, instruments, securities or other documentation evidencing such Claim to
the applicable Agent Bank, Indenture Trustee or Disbursing Agent. Any cash and
New Securities to be distributed pursuant to the Plan on account of any such
Claim will, pending such surrender, be treated as an undeliverable distribution
pursuant to Section VI.D.2.
1. Old Debt Securities and Untendered Securities
Except as provided in Section VI.I.2 for lost, stolen, mutilated or
destroyed Old Debt Securities or Untendered Securities, each holder of an
Allowed Claim evidenced by an Old Debt Security or an Untendered Security will
tender such Old Debt Security or Untendered Security to the applicable
Disbursing Agent or Indenture Trustee in accordance with a letter of
transmittal to be provided to such holders by the Disbursing Agents or
Indenture Trustees as promptly as practicable following the Effective Date.
The letter of transmittal will include, among other provisions, customary
provisions with respect to the authority of the holder of the applicable Old
Debt Security or Untendered Security to act and the authenticity of any
signatures required thereon. All surrendered Old Debt Securities and
Untendered Securities will be marked as canceled and delivered to the
appropriate Reorganized Debtor.
2. Lost, Stolen, Mutilated or Destroyed Old Debt Securities or
Untendered Securities
In addition to any requirements under the applicable Old Indenture,
any holder of a Claim evidenced by an Old Debt Security or Untendered Security
that has been lost, stolen, mutilated or destroyed will, in lieu of
surrendering such Old Debt Security or Untendered Security, deliver to the
applicable Disbursing Agent or Indenture Trustee: (a) evidence satisfactory to
the Disbursing Agent or Indenture Trustee of the loss, theft, mutilation or
destruction and (b) such security or indemnity as may be required by the
Disbursing Agent or Indenture Trustee to hold the Disbursing Agent or Indenture
Trustee harmless from any damages, liabilities or costs incurred in treating
such individual as a holder of an Old Debt Security or an Untendered Security.
Upon compliance with this Section VI.I.2 by a holder of a Claim evidenced by an
Old Debt Security or an Untendered Security, such holder will, for all purposes
under the Plan, be deemed to have surrendered an Old Debt Security or an
Untendered Security, as applicable.
3. Failure to Surrender Canceled Old Debt Securities or
Untendered
Securities
Any holder of an Old Debt Security or an Untendered Security that
fails to surrender or be deemed to have surrendered the Old Debt Security or
Untendered Security within two years after the Effective Date will have its
claim for a distribution pursuant to the Plan on account of such Old Debt
Security or Untendered Security discharged and will be forever barred from
asserting any such claim against the Reorganized Debtors or their respective
property. In such cases, any cash or New Equity held for distribution on
account of such claim will be disposed of pursuant to the provisions set forth
in Section VI.D.2.a (for distributions held by Disbursing Agents) or VI.D.2.b
(for distributions held by Indenture Trustees), as applicable.
4. Other Notes, Instruments or Documents
Except as provided below for lost, stolen, mutilated or destroyed
notes or other instruments, holders of Claims in Classes M-4 through M-9, MOS-4
through MOS-9, MRS-4 through MRS-9 or MMS-4 will be required to surrender any
existing notes or, if not evidenced by a note, any other instrument evidencing
their respective Allowed Claims as and when such entities receive cash or New
Securities pursuant to the Plan. If any such entity's notes or other
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instruments evidencing its Allowed Claims are lost, stolen, mutilated or
destroyed, such entity will be required, in lieu of surrendering such note or
other instrument, to deliver to the applicable Agent Bank or Disbursing Agent
evidence satisfactory to the Agent Bank or Disbursing Agent of the loss, theft,
mutilation or destruction.
J. Special Provisions Regarding Agent Bank Charges, Indenture Trustee
Charging
Liens and Certain Fees and Expenses of Senior Lenders
1. Agent Bank Charges
Notwithstanding the provisions of Section IV.J with respect to
cancellation of the Macy's Bank Loan Agreements, any Agent Bank Charges will be
preserved. Consequently, distributions actually received by the holders of
Allowed Bank Loan Claims may be less than the gross distributions provided for
under the Plan in an amount equal to the amount of distributions applied by an
Agent Bank to its respective Agent Bank Charges.
2. Indenture Trustee Charging Liens
In full satisfaction of Allowed Claims secured by Indenture Trustee
Charging Liens, the Indenture Trustees will receive from the Combined Company
cash equal to the amount of such Claims, and any Indenture Trustee Charging
Liens will be released. Distributions received by holders of Allowed Debt
Security Claims pursuant to the Plan will not be reduced on account of payment
of Allowed Claims secured by Indenture Trustee Charging Liens. Notwithstanding
any other provisions of the Plan, upon: (a) submission of appropriate
documentation to the Combined Company regarding fees and expenses incurred by
an Indenture Trustee in connection with the Reorganization Cases through the
Effective Date that are secured by an Indenture Trustee Charging Lien and
(b) the failure of the Combined Company to object on the grounds of
reasonableness, as determined under the terms of the applicable Old Indenture,
to the payment of such fees and expenses within 10 days after receipt of such
documentation, such Indenture Trustee will be deemed to hold an Allowed Claim
for such fees and expenses, which the Combined Company will pay in cash within
30 days after the receipt of the documentation regarding the fees and expense
of such Indenture Trustee, without further Bankruptcy Court approval.
3. Fees and Expenses of Senior Lenders
Based upon ongoing review and discussions with the Senior Lenders,
the Combined Company will reimburse the Senior Lenders for certain fees, costs
and other expenses incurred by the Senior Lenders in connection with the
Reorganization Cases in amounts to be determined by Federated in its sole
discretion, without further Bankruptcy Court approval.
ARTICLE VII.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
A. Prosecution of Objections to Claims
1. Objections to Claims
All objections to Claims must be Filed and served on the holders of
such Claims by the Claims Objection Bar Date. If an objection has not been
Filed to a proof of Claim or a scheduled Claim by the Claims Objection Bar
Date, the Claim to which the proof of Claim or scheduled Claim relates will be
treated as an Allowed Claim if such Claim has not been allowed earlier. An
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objection is deemed to have been timely Filed as to all Personal Injury Claims,
thus making each such Claim a Disputed Claim as of the Claims Objection Bar
Date. Each such Claim will remain a Disputed Claim until it becomes an Allowed
Claim in accordance with Section I.A.8.b.
2. Authority to Prosecute Objections
a. After the Confirmation Date, only the Debtors, with the approval
of Federated, and the Reorganized Debtors will have the authority to File
objections, settle, compromise, withdraw or litigate to judgment objections to
Claims, including Claims for reclamation under section 546(c) of the Bankruptcy
Code; provided, however, that the Debtors, Federated and the Reorganized
Debtors will be prohibited from Filing any objections to Claims allowed in
accordance with Section I.A.8.b. Except as provided in Section VII.A.2.b, from
and after the Effective Date, the Reorganized Debtors may settle or compromise
any Disputed Claim without approval of the Bankruptcy Court.
b. Within 30 days after the end of each month or as otherwise
agreed in writing by the Debtors and the Unsecured Creditors' Committee, the
Reorganized Debtors will provide counsel to the Claims Resolution Committee
with written notice by overnight delivery service or facsimile transmission of
each Disputed Claim in a Reserve Class that has been settled or compromised in
the prior month, other than such settlements or compromises that fall within
the parameters of settlement guidelines to be agreed to by the Debtors and the
Unsecured Creditors' Committee. Within 15 days after the receipt of such
notice, the Claims Resolution Committee will provide the Reorganized Debtors
with written notice (as provided in Section XII.H) of any such settlements or
compromises with which it does not concur. If the Reorganized Debtors and the
Claims Resolution Committee cannot reach agreement with respect to any such
settlement or compromise, the Claims Resolution Committee will be permitted to
File and serve on the Reorganized Debtors an objection to the reasonableness of
such settlement or compromise by the last Business Day of the month in which
the Claims Resolution Committee received written notice of the settlement or
compromise, with the reasonableness of such settlement or compromise to be
determined by the Bankruptcy Court. If the Claims Resolution Committee does
not provide a written notice and File and serve an objection as specified in
this Section VII.A.2.b with respect to any particular settlement or compromise,
then such settlement or compromise will be deemed resolved pursuant to Section
VII.A.2.a on the terms and subject to the conditions agreed to by the
Reorganized Debtors. The Combined Company and the Claims Resolution Committee
may modify the foregoing procedures by a writing executed by both.
B. Treatment of Disputed Claims
1. No Payments on Account of Disputed Claims and Disputed
Claims
Reserve
Notwithstanding any other provisions of the Plan, no payments or
distributions will be made on account of a Disputed Claim or, if less than the
entire Claim is a Disputed Claim, the portion of a Claim that is a Disputed
Claim, until such Claim or portion of a Claim becomes an Allowed Claim. In
lieu of distributions under the Plan to holders of Disputed Claims that would
be in a Reserve Class if allowed, a Disputed Claims Reserve will be established
on the Effective Date. The Combined Company will fund the Disputed Claims
Reserve with cash and New Combined Company Common Stock as described in Section
VII.B.2.
2. Funding of Disputed Claims Reserve and Recourse
a. Funding
i. On the Effective Date, cash will be deposited in the
Disputed Claims Reserve in an amount equal to: (A) the greater of
(i) $100,000,000 and (ii) the Fixed Cash Portion of Allowed Claims in the
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Reserve Classes on the Effective Date minus (B) the amount of cash distributed
on the Effective Date on account of Allowed Claims in the Reserve Classes. At
the hearing on Confirmation, the Plan Proponents will provide testimony or
other evidence as to the aggregate amount of Allowed Claims in the Reserve
Classes as of the date of such hearing and the estimated aggregate amount of
such Claims as of the Effective Date.
ii. On the Effective Date, New Combined Company Common Stock
will be placed in the Disputed Claims Reserve in a number of shares equal to:
(A) 3.73385% of the number of Distributable Shares (Pool A) minus (B) the
number of shares of New Combined Company Common Stock distributed on the
Effective Date on account of Allowed Claims in the Reserve Classes.
b. Recourse
Each holder of a Disputed Claim that ultimately becomes an Allowed
Claim in a Reserve Class will have recourse:
i. to the Combined Company, the Reorganized Macy's Subsidiary
Debtors, their respective successors and their respective property for
satisfaction of the Fixed Cash Portion to which such Claim is entitled under
the Plan and an amount equal to any related Cash Investment Yield, computed on
the basis that such Fixed Cash Portion was placed in the Disputed Claims
Reserve on the Effective Date, irrespective of whether it was, and
ii. only to the undistributed New Combined Company Common
Stock held in the Disputed Claims Reserve for satisfaction of the distributions
of New Combined Company Common Stock to which holders of such Claims are
entitled under the Plan, and not to any Reorganized Debtor, its property or any
assets previously distributed on account of any Allowed Claim.
3. Property Held in Disputed Claims Reserve
a. Cash held in the Disputed Claims Reserve (including dividends
and other distributions on New Combined Company Common Stock held in such
reserve) will be deposited in a segregated bank account in the name of the
applicable Disbursing Agent and held in trust for the benefit of the potential
claimants of such funds and accounted for separately, and, subject to Section
VI.D.2.a.iii, will not constitute property of the Combined Company. The
applicable Disbursing Agent will invest the cash held in the Disputed Claims
Reserve in a manner consistent with the Combined Company's investment and
deposit guidelines. The Disbursing Agent will also place in the Disputed
Claims Reserve the Cash Investment Yield from such investment of cash.
b. New Combined Company Common Stock held in the Disputed Claims
Reserve will be held in trust for the benefit of the potential claimants of
such securities by the applicable Disbursing Agent and accounted for
separately, and, subject to Section VI.D.2.a.iii, will not constitute property
of the Combined Company. Pending the distribution of any New Combined Company
Common Stock held in the Disputed Claims Reserve, such stock will be voted
pursuant to Section VI.D.2.a.i.B.
C. Distributions on Account of Disputed Claims Once They are Allowed
On each Quarterly Distribution Date, the applicable Disbursing Agent
will make all distributions on account of any Disputed Claim that has become an
Allowed Claim during the preceding calendar quarter. Such distributions will
be made pursuant to the provisions of the Plan governing the applicable Class,
including the incremental distribution provisions set forth in Section VI.G.2.
Holders of Disputed Claims in Reserve Classes that are ultimately allowed will
also be entitled to receive, on the basis of the amount ultimately allowed, the
net amount of: (1) any dividends or other distributions received on account of
the shares of New Combined Company Common Stock and (2) a Pro Rata share of the
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Cash Investment Yield from the investment of any cash in the Disputed Claims
Reserve from the Effective Date or, with respect to net cash proceeds generated
after the Effective Date from property held in the Disputed Claims Reserve, the
date that such cash was invested after the Effective Date, to the date that
such distributions are made from the Disputed Claims Reserve.
D. Tax Requirements for Income Generated by Disputed Claim Reserve
Pursuant to the provisions set forth in Appendix VII.D, the
applicable Disbursing Agent will pay, or cause to be paid, out of the funds
held in the Disputed Claims Reserve, any tax imposed by any governmental unit
on the income generated by the funds and New Combined Company Common Stock held
in the Disputed Claims Reserve. The applicable Disbursing Agent will also file
or cause to be filed any tax or information return related to the Disputed
Claims Reserve that is required by any governmental unit.
ARTICLE VIII.
CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. Conditions to Confirmation
The Bankruptcy Court will not enter the Confirmation Order unless and
until each of the following conditions has been satisfied or duly waived by the
Plan Proponents or Federated, as applicable, pursuant to Section VIII.C.
1. The aggregate amounts of Administrative Claims, Priority Tax
Claims, Priority Claims and Allowed Reserve Class Claims shall have been
estimated or determined by Bankruptcy Court orders (to the extent that the
Bankruptcy Court has jurisdiction) that are not subject to any stay in amounts
that do not exceed the corresponding estimated aggregate amounts set forth in
the Disclosure Statement for each such category of Claims.
2. The Confirmation Order shall be reasonably acceptable in form
and substance to each of the Plan Proponents.
3. The Confirmation Date shall occur no later than January 31,
1995.
B. Conditions to Effective Date
The Plan Proponents will use reasonable efforts and will assist and
cooperate with each other to cause the Effective Date to occur and to
consummate the Plan, including the satisfaction of the conditions to the
Effective Date set forth herein. The Effective Date will not occur and the
Plan will not be consummated unless and until each of the following conditions
has been satisfied or duly waived by the Plan Proponents or Federated, as
applicable, pursuant to Section VIII.C:
1. a. All Appendices to the Plan and all other material
documents necessary or appropriate to implement the Plan shall be substantially
in the form provided with the Plan or substantially as described in the
Disclosure Statement.
b. If any of the New Global Indenture, the New Series A Notes
Supplemental Indenture, the New Series B Notes Supplemental Indenture or the
New Series C Notes Supplemental Indenture is amended, modified or supplemented
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after its Filing, the Plan Proponents shall have promptly delivered copies of
such New Unsecured Notes instrument, as amended, modified or supplemented, to
each Plan Negotiating Committee, with a copy to each Creditors' Committee, and
no Plan Negotiating Committee shall have delivered written notice to the Plan
Proponents, with a copy to each Creditors' Committee, within five days after
delivery of such New Unsecured Notes instrument, that any such amendment,
modification or supplement adversely changes the consideration to be received
under the Plan by the holders of Allowed Bank Loan Claims in the applicable
Classes.
c. If the New Series C Warrants Agreement or the New Series D
Warrants Agreement is amended, modified or supplemented after its Filing, the
Plan Proponents shall have delivered a copy of such New Warrants Agreement, as
amended, modified or supplemented, to the Bondholders' Committee, with a copy
to each Plan Negotiating Committee and the Unsecured Creditors' Committee, and
the Bondholders' Committee shall not have provided written notice to the Plan
Proponents, with a copy to each Plan Negotiating Committee and the Unsecured
Creditors' Committee, within five days after delivery of such New Warrants
Agreement, that any such amendment, modification or supplement adversely
changes the consideration to be received under the Plan by the holders of
Allowed Debt Security Claims in the applicable Classes.
d. If a notice as described in Sections VIII.B.1.b or c shall
have been delivered to the Plan Proponents by a Plan Negotiating Committee or
the Bondholders' Committee as specified herein, the Plan Proponents and the
applicable Plan Negotiating Committee or the Bondholders' Committee shall seek
an expedited hearing for the Bankruptcy Court to determine whether the
amendments, modifications or supplements at issue adversely change the
consideration to be received under the Plan by the holders of Allowed Bank Loan
Claims or Allowed Debt Security Claims in the applicable Classes. If the
Bankruptcy Court determines in an order not subject to any stay that the
amendments, modifications or supplements at issue do not adversely change the
consideration to be received under the Plan by the holders of Allowed Bank Loan
Claims or Allowed Debt Security Claims in the applicable Classes, the
conditions to the Effective Date in Sections VIII.B.1.b or c, as applicable,
shall be deemed to be satisfied.
2. The New Global Indenture shall have been qualified under the
Trust Indenture Act of 1939, as amended, by the Securities and Exchange
Commission.
3. The New Combined Company Common Stock shall have been authorized
for listing on the New York Stock Exchange upon official notice of issuance or
accepted for quotation through the National Association of Securities Dealers
Automated Quotation System -- National Market System.
C. Waiver of Conditions to Confirmation or Effective Date
1. Except as provided in Section VIII.C.2 with respect to the
condition set forth in Section VIII.A.1, each of the conditions set forth in
Section VIII.A may be waived in whole or part by the Plan Proponents after 10
days' written notice of such waiver to each Plan Negotiating Committee and each
Creditors' Committee and an expedited hearing; provided, however, that a
hearing will not be held unless a written request for an expedited hearing is
Filed and served on the Plan Proponents, each Plan Negotiating Committee and
each Creditors' Committee within 10 days after delivery of the notice of
waiver. To be effective, such waiver must be in writing and Filed and served
on each Plan Negotiating Committee and each Creditors' Committee.
2. The condition set forth in Section VIII.A.1 may be waived in
whole or in part by Federated in its sole discretion. To be effective, such
waiver must be in writing and Filed and served on the Debtors, each Plan
Negotiating Committee and each Creditors' Committee.
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3. The conditions set forth in Section VIII.B may be waived in
whole or part by the Plan Proponents only with the written consent of each Plan
Negotiating Committee and each Creditors' Committee.
4. Subject to the restrictions of Section VIII.C.1, any waiver
pursuant to this Section VIII.C may be made by the applicable parties at any
time.
D. Effect of Nonoccurrence of Conditions to Effective Date
1. Each of the conditions to the Effective Date must be satisfied
or duly waived pursuant to Section VIII.C, and the Effective Date must occur,
by February 28, 1995, or by such later date established pursuant to Section
VIII.D.2. On the earlier of January 31, 1995 and the first date on which the
Plan Proponents know that each of the conditions to the Effective Date will not
be satisfied or duly waived by January 31, 1995, the Plan Proponents will
provide written notice to each Plan Negotiating Committee and each Creditors'
Committee of those conditions to the Effective Date that will not be satisfied
or duly waived as of January 31, 1995, and whether the Plan Proponents expect
such unsatisfied conditions to be satisfied or duly waived by February 28,
1995. Upon receipt of such notice, a Plan Negotiating Committee or a
Creditors' Committee may File and serve on each Plan Proponent and each other
Plan Negotiating Committee and Creditors' Committee a motion and seek an
expedited hearing on reasonable notice (the scheduling of which the Plan
Proponents will not oppose) for an order by the Bankruptcy Court prohibiting
any extension of the February 28 date by which each condition to the Effective
Date must be satisfied or duly waived.
2. If the Bankruptcy Court has not entered an order, pursuant to
Section VIII.D.1, that there may be no extensions of the February 28 date by
which each condition to the Effective Date must be satisfied or duly waived,
the Plan Proponents may File and serve no later than February 15, 1995 on each
Plan Negotiating Committee and each Creditors' Committee a motion and seek an
expedited hearing for an order by the Bankruptcy Court extending the February
28 date.
3. If the Effective Date has not occurred by the applicable date
established in accordance with this Section VIII.D, then upon motion by any
party in interest made before the Effective Date has occurred and upon notice
to such parties in interest as the Bankruptcy Court may direct and a hearing,
the Confirmation Order will be vacated by the Bankruptcy Court; provided,
however, that, notwithstanding the Filing of such motion to vacate, the
Confirmation Order may not be vacated if the Effective Date occurs before the
Bankruptcy Court enters an order granting such motion. If the Confirmation
Order is vacated pursuant to this Section VIII.D or otherwise, except as
provided in any order of the Bankruptcy Court vacating the Confirmation Order,
the Plan will be null and void in all respects, including the discharge of
Claims and termination of Interests pursuant to the Plan and section 1141 of
the Bankruptcy Code and the assumptions, assignments or rejections of executory
contracts or unexpired leases pursuant to Section V.A, and nothing contained in
the Plan will: (1) constitute a waiver or release of any claims by or against,
or any Interests in, the Debtors or (2) prejudice in any manner the rights of
the Plan Proponents or any other party in interest.
ARTICLE IX.
CONFIRMABILITY AND SEVERABILITY
OF A PLAN AND CRAMDOWN
A. Confirmability and Severability of a Plan
The Plan constitutes a separate plan of reorganization for each
Debtor. Accordingly, the confirmation requirements of section 1129 of the
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Bankruptcy Code must be satisfied separately with respect to each Debtor. The
Plan Proponents reserve the right: (1) to modify the Plan pursuant to Section
XII.C and (2) prior to the Confirmation Date, to revoke or withdraw the Plan
(a) as to all of the Debtors, after five days' notice to each Plan Negotiating
Committee and each Creditors' Committee, and (b) as to any particular Macy's
Miscellaneous Subsidiary Debtor, without any notice, pursuant to Section XII.D.
B. Cramdown
The Plan Proponents request Confirmation under section 1129(b) of the
Bankruptcy Code with respect to any impaired Class that does not accept the
Plan pursuant to section 1126 of the Bankruptcy Code. The Plan Proponents
reserve the right to modify the Plan, subject to the Federated/Macy's Merger
Agreement, to the extent, if any, that Confirmation pursuant to section 1129(b)
of the Bankruptcy Code requires modification, including as provided in Section
X.C.3.
ARTICLE X.
DISCHARGE, TERMINATION, INJUNCTION
AND SUBORDINATION RIGHTS
A. Discharge of Claims and Termination of Interests
1. Except as provided in the Confirmation Order, the rights
afforded under the Plan and the treatment of Claims and Interests under the
Plan will be in exchange for and in complete satisfaction, discharge and
release of all Claims and termination of all Interests, including any interest
accrued on Claims from the applicable Petition Date. Except as provided in the
Plan or Confirmation Order, Confirmation will, as of the Effective Date:
(a) discharge the Debtors from all Claims or other debts that arose before the
Effective Date, and all debts of the kind specified in sections 502(g), 502(h)
or 502(i) of the Bankruptcy Code, whether or not (i) a proof of Claim based on
such debt is Filed or deemed Filed pursuant to section 501 of the Bankruptcy
Code, (ii) a Claim based on such debt is allowed pursuant to section 502 of the
Bankruptcy Code or (iii) the holder of a Claim based on such debt has accepted
the Plan and (b) terminate all Interests and other rights of equity security
holders in the Debtors.
2. As of the Effective Date, except as provided in the Plan or
Confirmation Order, all entities will be precluded from asserting against the
Debtors, the Reorganized Debtors, their respective successors or their
respective property, any other or further Claims, demands, debts, rights,
causes of action, liabilities or equity interests based upon any act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date. In accordance with the foregoing, except as provided in the
Plan or Confirmation Order, the Confirmation Order will be a judicial
determination, as of the Effective Date, of discharge of all such Claims and
other debts and liabilities against the Debtors and termination of all such
Interests and other rights of equity security holders in the Debtors, pursuant
to sections 524 and 1141 of the Bankruptcy Code, and such discharge will void
any judgment obtained against the Debtors at any time, to the extent that such
judgment relates to a discharged Claim.
B. Injunctions
1. Except as provided in the Plan or Confirmation Order, as of the
Effective Date, all entities that have held, currently hold or may hold a Claim
or other debt or liability that is discharged or an Interest or other right of
an equity security holder that is terminated pursuant to the terms of the Plan
are permanently enjoined from taking any of the following actions on account of
any such discharged Claims, debts or liabilities or terminated Interests or
rights: (a) commencing or continuing in any manner any action or other
proceeding against the Debtors, the Reorganized Debtors or their respective
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property; (b) enforcing, attaching, collecting or recovering in any manner any
judgment, award, decree or order against the Debtors, the Reorganized Debtors
or their respective property; (c) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, the Reorganized Debtors or their respective
property; (d) asserting a setoff, right of subrogation or recoupment of any
kind against any debt, liability or obligation due to the Debtors, the
Reorganized Debtors or their respective property; and (e) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
2. As of the Effective Date, all entities that have held, currently
hold or may hold a claim, demand, debt, right, cause of action or liability
that is released pursuant to Section IV.G are permanently enjoined from taking
any of the following actions on account of such released claims, demands,
debts, rights, causes of action or liabilities: (a) commencing or continuing
in any manner any action or other proceeding; (b) enforcing, attaching,
collecting or recovering in any manner any judgment, award, decree or order;
(c) creating, perfecting or enforcing any lien or encumbrance; (d) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to any released entity; and (e) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
3. By accepting distributions pursuant to the Plan, each holder of
an Allowed Claim receiving distributions pursuant to the Plan will be deemed to
have specifically consented to the injunctions set forth in this Section X.B.
C. Termination of Subordination Rights and Settlement of Related
Claims and Controversies
1. The classification and manner of satisfying all Claims and
Interests under the Plan take into consideration all contractual, legal and
equitable subordination and turnover rights, whether arising under general
principles of equitable subordination, section 510(c) of the Bankruptcy Code or
otherwise, that a holder of a Claim or Interest may have against other Claim
holders with respect to any distribution made pursuant to the Plan. Except as
otherwise provided in Section X.C.3, on the Effective Date, all contractual,
legal or equitable subordination rights that a holder of a Claim or Interest
may have with respect to any distribution to be made pursuant to the Plan will
be discharged and terminated, and all actions related to the enforcement of
such subordination rights will be permanently enjoined. Accordingly, except as
otherwise provided in Section X.C.3, distributions pursuant to the Plan to
holders of Allowed Claims will not be subject to payment to a beneficiary of
such terminated subordination rights, or to levy, garnishment, attachment or
other legal process by a beneficiary of such terminated subordination rights.
2. Except as otherwise provided in Section X.C.3, pursuant to
Bankruptcy Rule 9019 and in consideration for the distributions and other
benefits provided under the Plan, the provisions of the Plan will constitute a
good faith compromise and settlement of all claims or controversies relating to
the amounts of Allowed Claims in Classes M-4 through M-12, MOS-4 through MOS-
12, MRS-4 through MRS-9 and MMS-4 and the enforcement or termination of all
contractual, legal and equitable subordination and turnover rights that a
holder of a Claim or Interest may have with respect to any Allowed Claim, or
any distribution to be made pursuant to the Plan on account of such Claim. The
entry of the Confirmation Order will constitute the Bankruptcy Court's
approval, as of the Effective Date, of the compromise or settlement of all such
claims or controversies and the Bankruptcy Court's finding that such compromise
or settlement is in the best interests of the Debtors, the Reorganized Debtors
and their respective property and Claim holders, and is fair, equitable and
reasonable.
3. If a Class of Claims does not accept the Plan, all contractual,
legal and equitable subordination or turnover rights to which any Claim or
holder of a Claim in such nonaccepting Class may be subject or entitled will
survive and remain unaffected by Confirmation or occurrence of the Effective
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Date, and all contractual subordination and turnover rights to which any
Allowed Claim in such nonaccepting Class or any distribution to be made
pursuant to the Plan on account of any such Allowed Claim, is subject, will
survive and remain unaffected by and will be enforced by entry of the
Confirmation Order, including the rights of holders of Senior Indebtedness
Claims against the holders of Allowed Debt Security Claims.
ARTICLE XI.
RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Bankruptcy Court will retain such
jurisdiction over the Reorganization Cases after the Effective Date as is
legally permissible, including jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any Claim or Interest,
including the resolution of any request for payment of any Administrative Claim
and the resolution of any and all objections to the allowance or priority of
Claims or Interests;
2. Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending on or before the Effective Date;
3. Resolve any matters related to the assumption, assumption and
assignment or rejection of any executory contract or unexpired lease to which
any Debtor is a party or with respect to which any Debtor or Reorganized Debtor
may be liable and to hear, determine and, if necessary, liquidate, any Claims
arising therefrom, including those matters related to the amendment of
Appendices V.A.1.a and V.A.2 after the Effective Date pursuant to Section V.A
to add or delete any executory contracts or unexpired leases to the lists of
executory contracts and unexpired leases to be assumed, assumed and assigned or
rejected;
4. Ensure that distributions to holders of Allowed Claims are
accomplished pursuant to the provisions of the Plan;
5. Decide or resolve any motions, adversary proceedings, contested
or litigated matters and any other matters and grant or deny any applications
involving the Debtors that may be pending on the Effective Date;
6. Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases, indentures and other agreements or documents created in
connection with the Plan or the Disclosure Statement or the Confirmation Order,
except as otherwise provided herein;
7. Resolve any cases, controversies, suits or disputes that may
arise in connection with the consummation, interpretation or enforcement of the
Plan or any entity's obligations incurred in connection with the Plan, except
that such retention of jurisdiction will not apply to any cases, controversies,
suits or disputes that may arise in connection with the Combined Company's or
any other entity's rights or obligations as the issuer or a holder,
respectively, of New Debt or New Equity, or as a party to any New Debt
Instrument or any other agreements governing, instruments evidencing or
documents relating to any of the foregoing, including the interpretation or
enforcement of any rights, remedies or obligations under any of the foregoing;
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I-67
8. Permit the Plan Proponents to modify the Plan before or after
the Effective Date pursuant to section 1127 of the Bankruptcy Code, the
Confirmation Order or any contract, instrument, release or other agreement or
document created in connection with the Plan, the Disclosure Statement or the
Confirmation Order; or remedy any defect or omission or reconcile any
inconsistency in any Bankruptcy Court order, the Plan, the Disclosure Statement
or the Confirmation Order or any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, the Disclosure
Statement or the Confirmation Order, in such manner as may be necessary or
appropriate to consummate the Plan, to the extent authorized by the Bankruptcy
Code;
9. Issue injunctions, enter and implement other orders or take such
other actions as may be necessary or appropriate to restrain interference by
any entity with consummation, implementation or enforcement of the Plan or the
Confirmation Order;
10. Enter and implement such orders as are necessary or appropriate
if the Confirmation Order is for any reason modified, stayed, reversed, revoked
or vacated or distributions pursuant to the Plan are enjoined or stayed;
11. Determine any other matters that may arise in connection with or
relate to the Plan, the Disclosure Statement, the Confirmation Order or any
contract, instrument, release, indenture or other agreement or document created
in connection with the Plan or the Disclosure Statement, including the
Federated/Macy's Merger Agreement (subject to the terms thereof);
12. Enforce the subordination and turnover provisions of the Old
Indentures as provided in Sections IX.B and X.C.3; and
13. Enter an order concluding the Reorganization Cases.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
A. Dissolution of the Creditors' Committees and Creation of the Claims
Resolution
Committee
1. Creditors' Committees
On the Effective Date, each of the Creditors' Committees will
dissolve and the members of each Creditors' Committee will be released and
discharged from all duties and obligations arising from or related to the
Reorganization Cases. The Professionals retained by each of the Creditors'
Committees and the members thereof will not be entitled to compensation or
reimbursement of expenses for any services rendered after the Effective Date,
except for services rendered and expenses incurred in connection with any
applications for allowance of compensation and reimbursement of expenses
pending on the Effective Date or Filed and served after the Effective Date
pursuant to Section III.A.1.e.ii.A, which will be the subject of an estimate to
be included in each such Professional's final fee and expense application.
2. Claims Resolution Committee
a. Function and Composition of the Committee
On the Effective Date, the Claims Resolution Committee will be
established. Its sole functions will be: (i) to monitor the Reorganized
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Debtors' progress in (A) reconciling and resolving Disputed Claims in Reserve
Classes and (B) making distributions on account of such Claims once resolved
and (ii) to review and assert objections to the reasonableness of settlements
or compromises of Disputed Claims in Reserve Classes, pursuant to Section
VII.A.2.b. The Claims Resolution Committee will consist of three holders of
Claims who each have previously served as a member of the Unsecured Creditors'
Committee.
b. Committee Procedures
The Claims Resolution Committee will adopt by-laws that will control
its functions. These by-laws, unless modified by the Claims Resolution
Committee, will provide the following: (i) a majority of the Claims Resolution
Committee will constitute a quorum; (ii) one member of the Claims Resolution
Committee will be designated by the majority of its members as its chairperson;
(iii) meetings of the Claims Resolution Committee will be called by its
chairperson on such notice and in such manner as its chairperson may deem
advisable; and (iv) the Claims Resolution Committee will function by decisions
made by a majority of its members in attendance at any meeting.
c. Employment of Professionals by the Committee and
Reimbursement of Committee Members
The Claims Resolution Committee will be authorized to retain and
employ one law firm and one accounting firm. The role of the Claims Resolution
Committee's professionals will be strictly limited to assisting the committee
in its functions as set forth herein. The Reorganized Debtors will pay the
actual, necessary, reasonable and documented fees and expenses of the
professionals retained by the Claims Resolution Committee, as well as the
actual, necessary, reasonable and documented expenses incurred by each
committee member in the performance of its duties, in accordance with
Federated's normal business practices for compensating and reimbursing
professionals. Other than as specified in the preceding sentence, the members
of the Claims Resolution Committee will serve without compensation. If there
is any unresolved dispute between the Combined Company and the Claims
Resolution Committee, its professionals or a member thereof as to any fees or
expenses, such dispute will be submitted to the Bankruptcy Court for
resolution.
d. Dissolution of the Committee
Subject to further order of the Bankruptcy Court, the Claims Resolution
Committee will dissolve on the earlier of: (i) the date that an officer of the
Combined Company Files and serves on counsel to the Claims Resolution Committee
by overnight delivery service or facsimile transmission a certification that
the aggregate Face Amount of the remaining Disputed Claims in Reserve Classes
is equal to or less than $20,000,000 and (ii) the third anniversary of the
Effective Date. The Claims Resolution Committee may File and serve on the
Reorganized Debtors (as provided in Section XII.H) an objection to the
certification within 10 days of receipt thereof, with the issue of the
aggregate Face Amount of remaining Disputed Claims to be determined by the
Bankruptcy Court. The professionals retained by the Claims Resolution
Committee and the members of the committee will not be entitled to compensation
or reimbursement of expenses for any services rendered after the date of
dissolution of the committee.
B. Limitation of Liability
The Plan Proponents, FNC, the Senior Lenders, the Creditors'
Committees, the Indenture Trustees, in their capacity as Disbursing Agents, the
Claims Resolution Committee and their respective members, agents, advisors,
attorneys and representatives (including their respective current and former
directors, officers, employees, and professionals), acting in such capacity,
will neither have nor incur any liability to any entity for any act taken or
omitted to be taken in connection with or related to the formulation,
preparation, dissemination, implementation, Confirmation or consummation of the
Plan, the Disclosure Statement or any contract, instrument, release or other
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I-69
agreement or document created or entered into, or any other act taken or
omitted to be taken in connection with the Plan; provided, however, that the
foregoing provisions of this Section XII.B will have no effect on: (1) the
liability of any entity that would otherwise result from the failure to perform
or pay any obligation or liability under the Plan or any contract, instrument,
release, indenture or other agreement or document to be delivered or
distributed in connection with the Plan or (2) the liability of any entity that
would otherwise result from any such act or omission to the extent that such
act or omission is determined in a Final Order to have constituted gross
negligence or willful misconduct.
C. Modification of the Plan
Subject to the restrictions on modifications set forth in section
1127 of the Bankruptcy Code, the Plan Proponents reserve the right to alter,
amend or modify the Plan before its substantial consummation.
D. Revocation of the Plan
The Plan Proponents reserve the right, prior to the Confirmation
Date, to revoke or withdraw the Plan: (1) as to all of the Debtors, after five
days' notice to each Plan Negotiating Committee and each Creditors' Committee,
and (2) as to any particular Macy's Miscellaneous Subsidiary Debtor, without
any notice. If the Plan Proponents revoke or withdraw the Plan as provided in
the preceding sentence, or if Confirmation as to any or all of the Debtors does
not occur, then, with respect to such Debtors, the Plan will be null and void
in all respects, and nothing contained in the Plan will: (1) constitute a
waiver or release of any claims by or against, or any Interests in, such
Debtors or (2) prejudice in any manner the rights of any such Debtors or the
Plan Proponents.
E. Severability of Plan Provisions
If, prior to Confirmation, any term or provision of the Plan is held
by the Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy
Court will have the power to alter and interpret such term or provision to make
it valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision will then be applicable as altered or
interpreted. Notwithstanding any such holding, alteration or interpretation,
the remainder of the terms and provisions of the Plan will remain in full force
and effect and will in no way be affected, impaired or invalidated by such
holding, alteration or interpretation. The Confirmation Order will constitute
a judicial determination and will provide that each term and provision of the
Plan, as it may have been altered or interpreted in accordance with the
foregoing, is valid and enforceable pursuant to its terms.
F. Successors and Assigns
The rights, benefits and obligations of any entity named or referred
to in the Plan will be binding on, and will inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity.
G. Service of Certain Plan Appendices and Disclosure Statement Exhibits
Because certain of the Appendices referred to in the Plan are
extremely voluminous, these Appendices are not being served with copies of the
Plan and the Disclosure Statement. The table of contents for the Plan
indicates which Plan Appendices are attached to the Plan as distributed and
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which are only available for review in the Document Reviewing Centers. Any
party in interest may review the Plan Appendices during normal business hours
(9:00 a.m. to 4:30 p.m.) in the Document Reviewing Centers.
H. Service of Documents on the Plan Proponents or the Reorganized Debtors
Any pleading, notice or other document required by the Plan or
Confirmation Order to be served on or delivered to the Plan Proponents or the
Reorganized Debtors, the Senior Lenders, the Plan Negotiating Committees, or
the Creditors' Committees will be sent by overnight delivery service, facsimile
transmission or courier service or messenger to:
1. R.H. MACY & CO., INC.
151 West 34th Street
New York, New York 10001
Attn: General Counsel
with copies to:
Harvey R. Miller
Richard P. Krasnow
WEIL, GOTSHAL & MANGES
767 Fifth Avenue
New York, New York 10153-0101
(counsel to the Debtors)
2. Dennis J. Broderick
Senior Vice President, General Counsel
and Secretary
FEDERATED DEPARTMENT STORES, INC.
7 West Seventh Street
Cincinnati, Ohio 45202
with copies to:
David G. Heiman
Richard M. Cieri
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
(counsel to Federated)
3. Chaim J. Fortgang
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
(counsel to Prudential)
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4. Joel B. Zweibel
Benjamin D. Feder
O'MELVENY & MYERS
153 East 53rd Street
52nd Floor
New York, New York 10022
(counsel to the WCB Group; designee to receive notices or
other documents on behalf of WCB Group Plan Negotiating
Committee)
5. Michael J. Crames
Arthur J. Steinberg
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER
425 Park Avenue
New York, New York 10022
(counsel to the 49 Store Bank Group; designee to receive
notices or other documents on behalf of 49 Store Bank Group
Plan Negotiating Committee)
6. R. Paul Wickes
Douglas P. Bartner
SHEARMAN & STERLING
599 Lexington Avenue
New York, New York 10022
(counsel to the CREI Bank Group; designee to receive notices
or other documents on behalf of CREI Bank Group Plan
Negotiating Committee)
7. Daniel H. Golden
Lisa G. Beckerman
STROOCK & STROOCK & LAVAN
Seven Hanover Square
New York, New York 10004
(counsel to Fidelity)
8. Donald S. Bernstein
Karen E. Wagner
DAVIS POLK & WARDWELL
450 Lexington Avenue
New York, New York 10017
(counsel to Swiss Bank)
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9. Scott L. Hazan
Enid N. Stuart
OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
230 Park Avenue
New York, New York 10169
(counsel to the Unsecured Creditors' Committee)
10. Robert M. Miller
Bari J. Mattes
BERLACK, ISRAELS & LIBERMAN
120 West 45th Street
New York, New York 10036
(counsel to the Bondholders' Committee)
<PAGE>
Dated: New York, New York Respectfully submitted,
August 31, 1994
FEDERATED DEPARTMENT STORES, R.H. MACY & CO., INC.
INC. (for itself and on behalf
of each of the Macy's
Subsidiary Debtors)
By: /s/ Ronald W. Tysoe By: /s/ Thomas C. Shull
------------------------ ---------------------
Name: Ronald W. Tysoe Name: Thomas C. Shull
Title: Vice Chairman and Title: Executive Vice
Chief Financial President
Officer
COUNSEL: COUNSEL:
DAVID G. HEIMAN (DH 9111) HARVEY R. MILLER (HM
RICHARD M. CIERI (RC 6062) 6078)
SCOTT J. DAVIDO (SD 7424) RICHARD P. KRASNOW (RK
PAUL E. HARNER (PH 8276) 5707)
JONES, DAY, REAVIS & POGUE JUDY G.Z. LIU (JL 6449)
North Point WEIL, GOTSHAL & MANGES
901 Lakeside Avenue 767 Fifth Avenue
Cleveland, Ohio 44114 New York, New York 10153
(216) 586-3939 (212) 310-8000
ROBERT A. PROFUSEK (RP 4594) ATTORNEYS FOR DEBTORS AND
MARK E. BETZEN (MB 0176) DEBTORS IN POSSESSION
JONES, DAY, REAVIS & POGUE
599 Lexington Avenue
New York, New York 10022
(212) 326-3939
ATTORNEYS FOR FEDERATED
DEPARTMENT STORES, INC.
<PAGE>
EXHIBIT II
LIST OF DEBTORS
<PAGE>
EXHIBIT II
LIST OF DEBTORS
<TABLE>
<CAPTION>
STATE OF REORGANIZATION
NAME OF DEBTOR INCORPORATION CASE NO.
- --------------------------------------------------------------- -------------- --------------
<S> <C> <C>
MACY'S
R.H. Macy & Co., Inc........................................... Delaware 92 B 40477
MACY'S OPERATING SUBSIDIARY DEBTORS
Bullock's, Inc................................................. Delaware 92 B 40481
I. Magnin, Inc................................................. Delaware 92 B 40483
Macy's California, Inc......................................... Delaware 92 B 40479
Macy's Northeast, Inc.......................................... Delaware 92 B 40480
Macy's South, Inc.............................................. Delaware 92 B 40478
Macy Specialty Stores, Inc..................................... Delaware 92 B 40484
MCO, Inc....................................................... Delaware 92 B 40482
MACY'S MISCELLANEOUS SUBSIDIARY DEBTORS
Delphis Corporation............................................ Delaware 92 B 40623
Executive Placement Consultants, Inc........................... New York 92 B 40628
Macy Credit Corp............................................... Delaware 92 B 40640
Macy Financial, Inc............................................ Delaware 92 B 40486
Macy Receivables Master Servicing Corp......................... Delaware 92 B 40642
Macy's Data & Credit Services Corp............................. Delaware 92 B 40485
Pasadena Properties Corp....................................... Delaware 92 B 40660
Sacvent Corp................................................... Delaware 92 B 40668
Sacvent Garage................................................. California 92 B 40670
Shop 34 Advertising, Inc....................................... New York 92 B 40674
W.P. Properties Corp........................................... New York 92 B 40682
MACY'S REAL ESTATE SUBSIDIARY DEBTORS
A. Macy's/49 Store Real Estate Subsidiary Debtors
Bullock's Properties Corp...................................... Delaware 92 B 40614
Bullock's-Wilshire, Inc........................................ Delaware 92 B 40617
I. Magnin Properties Corp...................................... Delaware 92 B 40633
Macy's Northeast Properties Corp............................... Delaware 92 B 40644
Macy's Poydras Properties Corp................................. Delaware 92 B 40645
B. Macy's/CREI Real Estate Subsidiary Debtors
Brooksmith Properties Corp..................................... New York 92 B 40612
Esplanade Properties Corp...................................... Delaware 92 B 40627
Housgalleria Properties Corp................................... Delaware 92 B 40631
Lenox Properties Corp.......................................... Delaware 92 B 40637
Livingston Properties Corp..................................... New Jersey 92 B 40638
Macobb Properties Corp......................................... Delaware 92 B 40639
Marley Properties Corp......................................... Maryland 92 B 40646
Owings Mills Properties Corp................................... Maryland 92 B 40656
Riverchase Properties Corp..................................... Delaware 92 B 40665
Waltwhit Properties Corp....................................... Delaware 92 B 40683
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
C. Macy's/Prudential Real Estate Subsidiary Debtors
Atmain Properties Corp......................................... Delaware 92 B 40608
Bamdel Castle Properties Corp.................................. Delaware 92 B 40609
Bamproperties Corp............................................. New Jersey 92 B 40610
Bird Cage Properties Corp...................................... California 92 B 40611
Brunswick Properties Corp...................................... New Jersey 92 B 40613
Carcone Parking, Inc........................................... Delaware 92 B 40619
Cherry Hill Properties Corp.................................... New Jersey 92 B 40620
Colonie Properties Corp........................................ New York 92 B 40621
Concord Properties Corp........................................ Delaware 92 B 40622
Deptbam Properties Corp........................................ New Jersey 92 B 40624
Eastridge Properties Corp...................................... California 92 B 40625
Fieldgren Realty Corp.......................................... New York 92 B 40629
Hunt Valley Properties Corp.................................... Maryland 92 B 40632
J.N.A. Properties Corp......................................... New Jersey 92 B 40635
Macy N.R. Properties Corp...................................... New York 92 B 40641
Macy's Nevada Properties Corp.................................. Nevada 92 B 40643
Marymarsh Properties Corp...................................... Maryland 92 B 40647
Massapequa Properties Corp..................................... New York 92 B 40648
Montcal Properties Corp........................................ Delaware 92 B 40650
Nanuet Properties Corp......................................... New York 92 B 40652
New Haven Properties Corp...................................... Connecticut 92 B 40654
Northlake Properties Corp...................................... Delaware 92 B 40655
OxVal Properties Corp.......................................... Pennsylvania 92 B 40657
Pleasanton Properties Corp..................................... California 92 B 40659
Quakerbam Properties Corp...................................... New Jersey 92 B 40662
R.H.M. Properties Corp......................................... New York 92 B 40663
Rockprop Corp.................................................. New Jersey 92 B 40666
Sacprop Properties Corp........................................ California 92 B 40667
Santa Rosa Properties Corp..................................... California 92 B 40672
Serramonte Building Corp....................................... California 92 B 40671
Springpenn Properties Corp..................................... Pennsylvania 92 B 40673
Stamford Properties Corp....................................... Connecticut 92 B 40676
Stanshop Properties............................................ California 92 B 40675
Stockton Properties Corp....................................... California 92 B 40678
Sun TownCenter Properties Corp................................. California 92 B 40677
Tombam Properties Corp......................................... New Jersey 92 B 40680
Val-Fair Shopping Center....................................... California 92 B 40681
White Plains Properties Corp................................... New York 92 B 40684
Willowbrook Properties Corp.................................... New Jersey 92 B 40685
D. Macy's/WCB Real Estate (First Lien) Subsidiary Debtors
Bullock's Specialty Stores, Inc................................ Delaware 92 B 40616
Edwood Properties Corp......................................... New Jersey 92 B 40626
N.B. Properties Corp........................................... New Jersey 92 B 40651
Sanstoff East Properties Corp.................................. California 92 B 40689
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
E. Remaining Macy's Real Estate Subsidiary Debtors
3240 Properties Corp........................................... Delaware 92 B 40661
Bullock's Properties Corp. II.................................. Delaware 92 B 40615
CalVal Realty Corp............................................. California 92 B 40618
Garage Park Corp............................................... New York 92 B 40630
I. Magnin Properties Corp. II.................................. Delaware 92 B 40634
Kings Plaza Shopping Center of Avenue U, Inc................... New York 92 B 40636
MHL Properties Corp. of Massachusetts.......................... Massachusetts 92 B 40649
Nasstock, Inc.................................................. New York 92 B 40653
Paramustock, Inc............................................... New Jersey 92 B 40658
R.H. Macy China, Ltd........................................... Delaware 92 B 40664
Sunsac Properties Corp......................................... California 92 B 40679
</TABLE>
II-3
<PAGE>
EXHIBIT III
LIST OF MEMBERS OF EACH
OF THE CREDITORS' COMMITTEES
<PAGE>
EXHIBIT III
LIST OF MEMBERS OF EACH OF THE CREDITORS' COMMITTEES
UNSECURED CREDITORS' COMMITTEE
The Unsecured Creditors' Committee was established to represent the holders
of Unsecured Claims, including Trade Claims. Its members generally consist of
the holders of the largest of these Claims. The current members of the Unsecured
Creditors' Committee are:
BNY Financial Corp. (Chairperson)
Cosmair Inc.
Estee Lauder Companies
Leslie Fay Sales Companies
Local 1-S RWDSU
Pillowtex Corporation
Sony Electronics Inc.
Unilever United States Inc.
Counsel for the Unsecured Creditors' Committee are:
Scott L. Hazan
Enid N. Stuart
Debra SuDock
OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
230 Park Avenue
New York, New York 10169
Financial advisors for the Unsecured Creditors' Committee are:
Ralph O. Hellmold
Michael J. Neilson
HELLMOLD ASSOCIATES, INC.
640 Fifth Avenue--13th Floor
New York, New York 10019
Peter J. Solomon
Henry D. Jackson
PETER J. SOLOMON COMPANY LIMITED
350 Park Avenue
New York, New York 10022
Accountants for the Unsecured Creditors' Committee are:
Jack Weisbaum
William K. Lenhart
BDO SEIDMAN
15 Columbus Circle
New York, New York 10023
III-1
<PAGE>
BONDHOLDERS' COMMITTEE
The Bondholders' Committee was established to represent the holders of
Allowed Debt Security Claims. Its members include the Indenture Trustees and a
holder of Old Debt Securities:
Shawmut Bank Connecticut, National Association
Bank of Montreal Trust Company
IBJ Schroder Bank & Trust Company
Presidential Life Insurance Company
Counsel for the Bondholders' Committee are:
Robert M. Miller
Bari J. Mattes
BERLACK, ISRAELS & LIBERMAN
120 West 45th Street
New York, New York 10036
Financial advisors for the Bondholders' Committee are:
Donald V. Smith
Kevin P. Collins
HOULIHAN, LOKEY, HOWARD & ZUKIN
31 West 52nd Street
New York, New York 10019
Accountants for the Bondholders' Committee are:
Michael O. Gagnon
Andrew M. Miller
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
III-2
<PAGE>
EXHIBIT IV
HYPOTHETICAL LIQUIDATION ANALYSIS
<PAGE>
EXHIBIT IV
HYPOTHETICAL LIQUIDATION ANALYSIS
Section 1129(a) of the Bankruptcy Code provides that the Bankruptcy Court
may confirm a plan of reorganization only if certain requirements are met. One
of these requirements is that each nonaccepting holder of a claim or interest in
an impaired class must receive or retain under the plan on account of such claim
or interest property having a value as of the effective date of the plan at
least equal to the value that such holder would receive if the debtor were
liquidated under chapter 7 of the Bankruptcy Code on the effective date of the
Plan.
Set forth below is a consolidated liquidation analysis for the Debtors,
assuming hypothetical chapter 7 liquidations in which court-appointed trustees
would liquidate the assets of each Debtor. This analysis is based on the
projected assets and liabilities of the Debtors as of January 28, 1995.
Underlying the liquidation analysis are a number of estimates and assumptions
that are inherently subject to significant uncertainties and contingencies, many
of which would be beyond the control of the Debtors. Accordingly, there can be
no assurance that the values assumed in the following analysis would be realized
if the Debtors were in fact liquidated, nor can there be any assurance that the
Bankruptcy Court will accept such analysis or concur with such assumptions in
making its determinations under section 1129(a) of the Bankruptcy Code. In
addition, any liquidation ultimately undertaken necessarily would take place
under future circumstances that cannot presently be predicted. Accordingly,
although the analysis that follows is necessarily presented with numerical
specificity, if the Debtors' Estates were in fact liquidated, the actual
liquidation proceeds could vary from the amounts set forth below. Such actual
liquidation proceeds could be materially lower or higher than the amounts set
forth below, and no representation or warranty can be or is being made with
respect to the actual proceeds that would be generated in liquidations of the
Debtors under chapter 7 of the Bankruptcy Code. The liquidation valuations have
been prepared solely for purposes of estimating the proceeds available in
chapter 7 liquidations of the Debtors' Estates and do not represent values that
may be appropriate for any other purpose, including the values applicable in the
context of the Plan. Nothing contained in these valuations is intended as or
constitutes a concession or admission for any purpose other than the
presentation of a hypothetical liquidation analysis.
The principal assumptions used in preparing the liquidation analysis include
the following:
(i) Estimated Liquidation Proceeds: Substantially all of the operating
assets of the Debtors, including real property, furniture, fixtures,
equipment, and intangibles, are subject to the liens of one or more secured
creditors. The liquidation proceeds ultimately realizable from these
operating assets in chapter 7 liquidations of the Debtors and available for
distribution after satisfaction of the liens of secured creditors would
depend upon a number of factors, including: (a) the manner of sale (e.g., an
accelerated or orderly liquidation, sales of real property by individual
location or on a packaged basis, by geographic region, or otherwise); (b)
the pricing achievable with respect to particular store locations (e.g.,
based on underlying real estate value or on projected sales or EBITDA); (c)
the relative attractiveness of each of the Macy's Operating Subsidiary
Debtors' businesses and assets to potential buyers of retail businesses; (d)
the impact on the market for retail businesses of presenting all of Macy's
businesses and assets to the market concurrently in circumstances in which
potential bidders would know that it was anticipated that all of the Macy's
businesses and assets would be sold by trustees in chapter 7 liquidations
over a relatively short period of time; and (e) the impact on the Debtors'
operations of the disruptions related to the liquidation of the Debtors'
Estates. Additional factors that would impact such sales include the
practical difficulties associated with: (1) combining assets held by various
legal entities, including entities holding assets constituting security for
different lenders, each of which entities would at the time be subject to
its own liquidation proceedings; and (2) limitations under the Bankruptcy
Code
IV-1
<PAGE>
on the assumption and assignment of shopping center leases and other
executory contracts, which may preclude assignment to at least a segment of
the potential buyer market.
The Debtors believe that each of the factors summarized herein and in
"Voting and Confirmation of the Plan--Best Interests Test; Liquidation
Analysis" in the Disclosure Statement, individually and in combination,
would have an adverse effect on the prices that could be obtained in chapter
7 liquidations of the Debtors' Estates, and that, in light of these
uncertainties and the absence of comparable precedents, the total
liquidation proceeds would reflect significant discounts from the values
that could otherwise be realized.
(ii) Nature and Timing of the Liquidation Process. Under section 704 of
the Bankruptcy Code, a chapter 7 trustee must collect and convert the
property of a debtor's estate to cash and close the estate as expeditiously
as is compatible with the best interests of parties in interest. For the
purposes of preparing this hypothetical liquidation analysis, liquidations
of the Debtors' Estates were assumed to commence on January 31, 1995. Any
actual liquidations would require a substantial time and likely would not be
completed in less than two years. As such, distributions of liquidation
proceeds would be made substantially later than the distributions to be made
under the Plan. The estimated amounts of distributions available from the
liquidations have not been discounted on a present value basis to reflect
this delay. Such discounting would be taken into account by the Bankruptcy
Court, however, in making the "best interests" determination required by
section 1129(a) of the Bankruptcy Code. See "Voting and Confirmation of the
Plan--Best Interests Test; Liquidation Analysis."
(iii) Impact on the Debtors' Operations of the Conversion of the
Reorganization Cases to Chapter 7 Cases: The Debtors believe that the
conversion of the Reorganization Cases to cases under chapter 7 of the
Bankruptcy Code and the resulting pendency of sales of the Debtors'
businesses and assets would adversely affect Macy's management and employee
morale, customers' willingness to purchase merchandise, and vendors'
willingness to ship merchandise and extend trade credit. Although the exact
impact of these factors is not definitively predictable, for purposes of the
analysis, it has been assumed that, as a result of these factors, the
Debtors would have no net operating income during the liquidation period.
(iv) Certain Tax Matters: The liquidation analysis assumes that: (a)
Macy's and its subsidiaries (the "Macy Group") would not recognize any net
gains on the sale of their department store businesses after application of
available consolidated group net operating losses; (b) the Macy Group would
have no other net taxable income during the liquidation period; and (c) all
Claims asserted by the IRS or other taxing authorities with respect to
prepetition periods would be determined on the same basis assumed in the
development of the Plan, and no additional audit adjustments or other Claims
would be asserted by the IRS or other taxing authorities for any subsequent
period.
(v) Additional Liabilities and Reserves: The Debtors believe that, in
addition to the reorganization expenses that would be incurred in a chapter
11 reorganization, there would be certain actual and contingent liabilities
and expenses for which provision would be required in any chapter 7
liquidations of the Debtors' Estates, including: (a) Administrative Claims,
Priority Claims, and other liabilities (including severance, retirement,
vacation pay, and other employee-related administrative costs and
liabilities) that otherwise would be funded from continuing operations if
the businesses of the Debtors were reorganized as going concerns; (b) other
Administrative Claims arising as a direct result of the cessation of the
Debtors' business operations, including Administrative Claims for damages
arising from the termination or breach of executory contracts and unexpired
leases that were assumed during the Reorganization Cases or that were
entered into after the Debtors' respective Petition Dates; (c) escrow and
holdback amounts that purchasers of Macy's or the Macy's Operating
Subsidiary Debtors' businesses and assets presumably would require in
connection with disposition transactions if the Debtors were
IV-2
<PAGE>
liquidated; and (d) certain other administrative costs. Although the Debtors
are not able to estimate such amounts with precision at this time, solely
for purposes of the following analysis, the Debtors have included estimates
of the aggregate amounts of certain of such additional liabilities and
expenses.
A liquidation of the Debtors' Estates would likely also result in the
rejection of executory contracts and unexpired real property and other
leases that could not be assumed and assigned in a chapter 7 liquidation,
but that would not be rejected under the Plan. The resulting exclusion of
these assets from the Debtors' Estates would further impair realizable
values from any liquidation of the Debtors. The rejection of such contracts
and leases also would give rise to additional Unsecured Claims for rejection
damages. Because the analysis that follows indicates that the proceeds of a
liquidation of the Debtors' Estates would not be sufficient to permit any
distributions to unsecured creditors, however, it does not account for the
estimated aggregate amount of such additional Unsecured Claims.
(vi) Consolidated Presentation: As indicated above, for clarity of
presentation, the liquidation analysis has been prepared and presented on a
consolidated basis for all of the Debtors. The Debtors believe that a
consolidated presentation is appropriate because, among other things,
various Claims are against multiple Debtors (on a joint and several basis)
or are guaranteed by one or more Debtors for the benefit of the Debtor(s)
that is primarily liable on such Claims. Although liquidation proceeds and
distributions would necessarily differ on an entity-by-entity basis from
those presented in the consolidated analysis, the Debtors believe that the
"best interests" test of section 1129(a) of the Bankruptcy Code is also met
at each individual Debtor entity level.
(vii) Avoidance Claims: Among other settlements of disputed issues, the
Plan constitutes a settlement of certain potential disputes involving
possible transfer avoidance actions against creditors under section 547
(preferential transfers) and sections 544 and 548 (fraudulent conveyances)
of the Bankruptcy Code. See "Operations During the Reorganization
Cases--Plan Negotiations--Settlement of Certain Claims and Intercreditor
Issues Under the Plan" and "General Information Concerning the
Plan--Releases and Certain Settlements Under the Plan; Related Injunctions."
Although these settlements would be inoperative in the context of chapter 7
liquidations of the Debtors' Estates, the Debtors believe it is unlikely
that any such avoidance actions would result in net recoveries that would be
distributable to unsecured creditors, particularly in light of the magnitude
of the projected deficiency in the amount of liquidation proceeds available
to satisfy chapter 11 Administrative and Priority Claims.
(viii) Other Assumptions: Various other specific assumptions relevant to
the Debtors' hypothetical liquidation analysis are set forth in the Notes
accompanying the following tables.
IV-3
<PAGE>
R.H. MACY & CO., INC. AND DEBTOR SUBSIDIARIES
HYPOTHETICAL CONSOLIDATED LIQUIDATION ANALYSIS
PROJECTED AS OF JANUARY 28, 1995
(DOLLARS IN MILLIONS)
SUMMARY ASSET VALUATION
<TABLE>
<CAPTION>
ESTIMATED
LIQUIDATION
NON-COLLATERAL ASSETS(1) PROCEEDS
- --------------------------------------------------------------------------------- -----------
<S> <C>
Approximate cash and cash equivalents at beginning of liquidation period(2)...... $ 359.5
Other current assets(3).......................................................... 100.0
Merchandise inventory(4)......................................................... 937.7
-----------
TOTAL LIQUIDATION PROCEEDS AVAILABLE FOR DISTRIBUTION TO HOLDERS OF
ADMINISTRATIVE, PRIORITY, AND UNSECURED CLAIMS (AFTER COMPLETION OF
DISTRIBUTIONS TO HOLDERS OF SECURED CLAIMS)(1)............................... $ 1,397.2
-----------
-----------
</TABLE>
DISPOSITION OF LIQUIDATION PROCEEDS/
RECOVERIES BY CREDITORS IN HYPOTHETICAL CHAPTER 7 LIQUIDATIONS
<TABLE>
<CAPTION>
REMAINING
AMOUNT
ESTIMATED AGGREGATE PERCENTAGE AVAILABLE FOR
ALLOWED CLAIMS RECOVERY* RECOVERY DISTRIBUTION
-------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Total liquidation proceeds available for
distribution to holders of Administrative,
Priority, and Unsecured Claims, after payment
of Secured Claims............................ $ 1,397.2
Less:
Chapter 7 Administrative Claims:
Chapter 7 administration and other
liquidation expenses(5)................... $504.7 $ 504.7 100%
Employee severance and related costs(6)..... 143.0 143.0 100%
------- --------- --- -------------
Subtotal.................................. $647.7 $ 647.7 100% $ 749.5
Chapter 11 Administrative and Priority Claims:
Superpriority DIP letter of credit
obligations............................... 86.4 86.4 100%
------- --------- --- -------------
Subtotal.................................. $ 86.4 $ 86.4 100% $ 663.1
Reclamation Claims.......................... 26.3 23.1 87.7%
Postpetition trade payables................. 236.4 207.3 87.7%
Other expenses payable...................... 423.2 371.2 87.7%
Assumed contract/lease termination
payments.................................. 50.0 43.9 87.7%
Other Chapter 11 administrative claims...... 20.0 17.6 87.7%
------- --------- --- -------------
Subtotal.................................. $755.9 $ 663.1 87.7% $ 0
Priority Tax Claims......................... $407.0 $ 0 0% $ 0
-------------
PROCEEDS AVAILABLE FOR DISTRIBUTION TO HOLDERS
OF UNSECURED CLAIMS (AFTER COMPLETION OF
DISTRIBUTIONS TO HOLDERS OF SECURED,
ADMINISTRATIVE, AND PRIORITY CLAIMS)........ $ 0
-------------
-------------
</TABLE>
- ------------
* May reflect adjustments for rounding attributable to pro rata percentage
recoveries.
IV-4
<PAGE>
- ------------
(1) Except as otherwise indicated, estimated liquidation proceeds are based on
the projected book value of assets as of January 28, 1995. The holders of
Secured Claims hold liens on various assets not included in the table having
a projected book value of approximately $2.6 billion and consisting of
substantially all of Macy's and the other Debtors' real property, furniture,
fixtures, and equipment, certain restricted cash balances, and certain
intangibles (collectively, the "Collateral"). In chapter 7 liquidations of
the Debtors' Estates, the proceeds of such Collateral would be distributed
to the respective secured creditors up to the amount of their Secured Claims
(including Claims for postpetition interest and certain other costs). As
indicated above, the proceeds recoverable in respect of the Collateral could
vary substantially depending upon the nature of the liquidation process and
other factors. The Debtors have reviewed the range of possible liquidation
recoveries and do not believe that chapter 7 liquidations would under any
circumstances result in either (i) greater recoveries to secured creditors
than those proposed under the Plan or (ii) the realization of excess
proceeds that would otherwise be available for distribution to holders of
Administrative, Priority, or Unsecured Claims.
(2) Excludes restricted cash of $37.3 million, which constitutes collateral for
Secured Claims. The liquidation analysis assumes that operations during the
liquidation period will produce no net cash flow, other than from the
liquidation of inventory.
(3) Assumes a collection rate of 60% of the book value of other current assets,
including vendor receivables and debit balances, prepaid expenses, credit
card receivables, and prepaid rent.
(4) Assumes the Debtors would promptly undertake liquidation sales for a
liquidation value of approximately 42% of inventory value at retail, based
on the Debtors' historical store closing results and after adjustments for
defective merchandise, returns to vendors, and inventory shortages.
(5) Includes estimated chapter 7 trustees' fees and expenses, professional fees,
operating and administrative overhead costs, and other liquidation expenses
during the liquidation period. Pursuant to section 506(c) of the Bankruptcy
Code, a portion of these Claims may be allocable to the proceeds of secured
creditors' collateral. Any such reallocation, however, would not increase
the amounts distributable to the holders of Unsecured Claims.
(6) Employee severance and related costs are based upon existing employee
contracts, plans, and arrangements, without giving effect to the provisions
related thereto in the Federated/Macy's Merger Agreement. See "The Combined
Company--Certain Arrangements with Macy's Employees--Other Employee
Arrangements."
IV-5
