<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1999
REGISTRATION NO. 333-92763
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LA-Z-BOY INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 2510 38-0751137
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION) 1284 NORTH TELEGRAPH ROAD
MONROE, MICHIGAN 48161
(734) 241-4414
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
FREDERICK H. JACKSON
LA-Z-BOY INCORPORATED
1284 NORTH TELEGRAPH ROAD
MONROE, MICHIGAN 48161
(734) 241-4414
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
copies to:
KENT E. SHAFER FRED L. SCHUERMANN, JR. ROBERT E. ESLEECK
MILLER, CANFIELD, PADDOCK LADD FURNITURE, INC. KILPATRICK STOCKTON LLP
AND STONE, P.L.C. 4620 GRANDOVER PARKWAY 1001 WEST FOURTH STREET
150 WEST JEFFERSON AVENUE GREENSBORO, NORTH WINSTON-SALEM, NORTH
DETROIT, MICHIGAN 48226 CAROLINA 27407 CAROLINA 27101
(313) 963-6420 (336) 294-5233 (336) 607-7377
Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the effectiveness of this Registration Statement and the
effective time of the merger of a wholly-owned subsidiary of the Registrant
with and into LADD Furniture, Inc. as described in the Agreement and Plan of
Merger dated as of September 28, 1999, as amended.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
[Logo of LADD Furniture, Inc.]
December 23, 1999
Dear Shareholder:
You are invited to attend a special meeting of shareholders of LADD
Furniture, Inc. The meeting will be held at 10:00 a.m., Eastern time, on
Thursday, January 27, 2000, at Grandover Resort and Conference Center, One
Thousand Club Road, Greensboro, North Carolina. At the meeting, LADD
shareholders will be asked to vote on the adoption of a merger agreement
between LADD and La-Z-Boy Incorporated.
In the merger, LADD shareholders will receive 1.18 shares of La-Z-Boy
common stock for each share of LADD common stock they own. We estimate that, on
completion of the merger, former LADD shareholders will receive approximately
9.2 million shares of La-Z-Boy common stock representing approximately 15% of
the outstanding shares of La-Z-Boy common stock.
In light of the importance of the proposed merger, we urge you to attend
the special meeting in person or to participate by proxy. The accompanying
materials contain detailed information on how to vote. If you have any
questions, require additional material or need assistance in voting your proxy,
please call our proxy solicitor, D.F. King & Co., Inc., toll-free at (800) 290-
6424. Please do not send your LADD common stock certificates with the enclosed
proxy.
/s/ Fred L. Schuermann, Jr.
Fred L. Schuermann, Jr.
Chairman of the Board, President and
Chief Executive Officer
You should consider the matters discussed under "Risk Factors" beginning
on page 11 of this proxy statement/prospectus before voting.
La-Z-Boy's common stock is listed on the New York Stock Exchange and the
Pacific Exchange under the symbol LZB, and LADD's common stock is traded on the
Nasdaq Stock Market under the symbol LADF.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the merger described in this proxy
statement/prospectus or the La-Z-Boy common stock to be issued in the merger or
determined if this proxy statement/prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated December 23, 1999 and is first
being mailed to LADD shareholders on or about December 28, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REFERENCES TO ADDITIONAL INFORMATION...................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 2
SUMMARY................................................................... 3
The Companies........................................................... 3
The Merger.............................................................. 3
What You Will Receive in the Merger..................................... 3
Federal Income Tax Consequences......................................... 4
Ownership of La-Z-Boy Following the Merger.............................. 4
Merger Recommendation to LADD's Shareholders............................ 4
LADD'S Reasons for the Merger........................................... 4
Interests of LADD's Officers and Directors in the Merger................ 4
Opinion of LADD's Financial Advisor..................................... 4
Comparative Per Share Market Price Information.......................... 5
Accounting Treatment.................................................... 5
The Terms of the Merger Agreement....................................... 5
Regulatory Approval..................................................... 6
Special Meeting......................................................... 6
Vote Required to Approve the Merger..................................... 6
No Dissenters' Rights................................................... 6
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 7
Selected Historical Financial Data of La-Z-Boy.......................... 7
Selected Historical Financial Data of LADD.............................. 8
Selected Unaudited Pro Forma Consolidated Financial Data................ 9
Unaudited Comparative Per Share Data.................................... 9
RISK FACTORS.............................................................. 11
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 12
THE MERGER TRANSACTION.................................................... 14
Background of the Merger................................................ 14
LADD's Reasons for the Merger........................................... 17
Factors Considered by, and Recommendations of, the LADD Board........... 19
Certain Financial Projections of LADD................................... 20
Financial Projections of La-Z-Boy....................................... 22
Accounting Treatment.................................................... 24
Material Federal Income Tax Consequences................................ 24
Regulatory Matters...................................................... 26
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION............... 27
Market Prices and Dividends............................................. 27
Dividend Policy......................................................... 27
INFORMATION ABOUT LADD.................................................... 28
INFORMATION ABOUT LA-Z-BOY................................................ 28
La-Z-Boy Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 29
Unaudited Quarterly Financial Information............................... 36
Business................................................................ 36
Properties.............................................................. 40
Legal Proceedings....................................................... 42
Share Ownership of Certain Beneficial Owners............................ 42
Management and Related Matters.......................................... 43
Compensation Committee Interlocks and Insider Participation............. 51
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION.......... 52
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL
INFORMATION.............................................................. 56
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 58
Employment Agreements................................................... 58
Executive Benefit Plans................................................. 59
Additional Benefits to Executive Officers Under the Merger Agreement.... 60
Maintenance of Benefits for LADD Employees.............................. 60
Indemnification and Insurance........................................... 60
OPINION OF LADD'S FINANCIAL ADVISOR....................................... 61
MATERIAL TERMS OF THE MERGER AGREEMENT.................................... 66
Structure of the Merger................................................. 66
Timing of Closing....................................................... 66
Merger Consideration.................................................... 66
Treatment of LADD Stock Options; Other LADD Stock-Based Awards.......... 66
Exchange of Shares...................................................... 66
LADD Board.............................................................. 67
Certain Covenants....................................................... 67
Representations and Warranties.......................................... 69
Conditions to the Completion of the Merger.............................. 69
Termination of the Merger Agreement..................................... 70
Amendments; Waivers..................................................... 71
THE SPECIAL MEETING....................................................... 72
Date, Time and Place.................................................... 72
Purpose of the Special Meeting.......................................... 72
Record Date; Stock Entitled to Vote; Quorum............................. 72
Vote Necessary to Approve the Merger.................................... 72
Shares Benefically Owned by Management.................................. 72
Shares Held by LADD's 401(k) Savings Plan............................... 73
Representatives of KPMG LLP............................................. 73
Voting of Proxies....................................................... 73
Other Business; Adjournment............................................. 74
FEDERAL SECURITIES LAW CONSEQUENCES; STOCK TRANSFER RESTRICTIONS.......... 74
DESCRIPTION OF LA-Z-BOY CAPITAL STOCK..................................... 74
General................................................................. 75
Common Stock............................................................ 75
Preferred Stock......................................................... 75
Provisions that May Discourage Takeovers................................ 76
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 78
WHERE YOU CAN FIND MORE INFORMATION....................................... 82
EXPERTS................................................................... 83
LEGAL MATTERS............................................................. 84
SUBMISSION OF SHAREHOLDER PROPOSALS....................................... 84
INDEX TO FINANCIAL STATEMENTS............................................. F-1
ANNEXES
ANNEX A Agreement and Plan of Merger (conformed to reflect Amendment No.
1 dated as of December 13, 1999)
ANNEX B Opinion of Mann, Armistead & Epperson, Ltd.
</TABLE>
ii
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about LADD from documents LADD has filed with the SEC that we have not included
in or delivered with this document. LADD will provide you with copies of this
information, without charge, upon written or oral request to:
LADD Furniture, Inc.
4620 Grandover Parkway
P. O. Box 26777
Greensboro, North Carolina 27417-6777
Attention: William S. Creekmuir, Secretary
Telephone Number: (336) 294-5233
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN JANUARY 20, 2000.
1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. When and where is the special meeting of shareholders?
A. The meeting of LADD's shareholders will take place on January 27, 2000, at
10:00 a.m. The meeting will be held at Grandover Resort and Conference Center,
One Thousand Club Road, Greensboro, North Carolina.
Q. When do you expect the merger to be completed?
A. We are working towards completing the merger as quickly as possible. We
currently expect to complete the merger within a few days after the meeting.
However, we cannot assure you that the merger will occur or when it will occur.
Q. What do I need to do now?
A. After you have carefully read this document, just indicate on your proxy
card how you want to vote. Complete, sign, date and mail the proxy card in the
enclosed return envelope as soon as possible. In order to assure that your vote
is obtained, please give your proxy as instructed on your proxy card even if
you currently plan to attend the special meeting in person.
Q. If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A. If you do not provide your broker with instructions on how to vote your
shares held in "street name," your broker will not be permitted to vote them on
the merger. You should therefore be sure to provide your broker with
instructions on how to vote your shares.
Q. What do I do if I want to change my vote?
A. If you hold your shares of record, you may change your vote:
. by sending a written notice to LADD's Secretary prior to the special
meeting stating that you would like to revoke your proxy;
. by completing, signing and dating another proxy card and returning it
by mail prior to the special meeting; or
. by attending the special meeting and voting in person
If you hold your shares in street name, you should give new instructions
to your broker.
Q. Should I send in my stock certificate at this time?
A. No. If the merger is completed, we will send you written instructions for
exchanging your stock certificates.
Q. Whom should I call if I have questions about the special meeting of
shareholders or the merger?
A. You may call 1-800-290-6424.
2
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. For a more complete description of the legal terms of the
merger, you should carefully read the rest of this document and the other
documents we refer to. See "Where You Can Find More Information" on page 82. We
have included page references directing you to a more complete description of
each item presented in this summary.
THE COMPANIES (SEE PAGE 28)
LADD FURNITURE, INC.
4620 Grandover Parkway
Greensboro, North Carolina 27407
(336) 294-5233
website: http://www.laddfurniture.com
LADD is one of North America's largest residential furniture
manufacturers, as well as one of the leading suppliers of residential furniture
for the hospitality, assisted-living and governmental markets. LADD markets a
wide range of bedroom, dining room, occasional and upholstered furniture under
the brand names American Drew, Barclay, Clayton Marcus, HickoryMark, Lea,
Pennsylvania House and Pilliod. LADD's contract sales group markets its
furniture under the American of Martinsville brand name. Its corporate
headquarters is located in Greensboro, North Carolina. LADD employs
approximately 6,700 people and operates 22 manufacturing facilities in eight
states.
LA-Z-BOY INCORPORATED
1284 N. Telegraph Road
Monroe, Michigan 48162
(734) 241-4414
website: http://www.la-z-boy.com
The successor to a business founded more than 70 years ago in Monroe,
Michigan, La-Z-Boy is one of the nation's leading manufacturers of upholstered
seating and the third largest manufacturer of residential furniture. With
approximately 14,000 employees in 35 manufacturing facilities in the United
States, Canada, England, Mexico and Thailand, La-Z-Boy manufactures and sells a
wide variety of upholstered and casegoods furniture under the brand names La-Z-
Boy, Hammary, Kincaid, England/Corsair, Sam Moore, Bauhaus and Centurion.
THE MERGER
If the merger is approved, LADD will operate as a wholly-owned subsidiary
of La-Z-Boy, and LADD shareholders will become shareholders of La-Z-Boy.
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGE 66)
If the merger is approved, you will receive 1.18 shares of common stock of
La-Z-Boy in exchange for each share of LADD common stock that you own. No
fractional shares will be issued. Shareholders otherwise entitled to receive a
fractional share will receive a check in an amount equal to the average of the
closing prices for the shares of La-Z-Boy's common stock reported on the New
York Stock Exchange over the five business days before the completion of the
merger multiplied by the fraction represented by that fractional share.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL WE
INSTRUCT YOU TO DO SO AFTER WE COMPLETE THE MERGER.
3
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 24)
In general, you will not recognize any gain or loss on the exchange of
your LADD shares for shares of La-Z-Boy, except for any gain or loss recognized
in connection with cash received for a fractional share of La-Z-Boy's common
stock. As a condition to the merger, each company must receive an opinion from
outside legal counsel confirming that federal income tax treatment.
OWNERSHIP OF LA-Z-BOY FOLLOWING THE MERGER
Based on the number of outstanding shares of LADD common stock on the
record date, we anticipate that holders of LADD common stock will receive
approximately 9.2 million shares of La-Z-Boy common stock in the merger. Based
on that number and the number of outstanding shares of La-Z-Boy common stock on
the record date, following the merger, former LADD shareholders will own
approximately 15% of the outstanding shares of La-Z-Boy common stock.
MERGER RECOMMENDATION TO LADD'S SHAREHOLDERS (SEE PAGE 19)
LADD's board of directors believes that the merger is fair to you and in
your best interests and recommends that you vote FOR the approval and adoption
of the merger agreement and the merger. When you consider this recommendation,
you should be aware that members of LADD's board may have an interest in the
merger that may be different from, or in addition to your interest as a
shareholder. See "Interests of Certain Persons in the Merger" on page 58.
LADD'S REASONS FOR THE MERGER (SEE PAGE 17)
LADD believes the merger offers an excellent opportunity to create value
for its shareholders by combining two of the country's largest publicly-traded
residential furniture companies to create a company:
. with increased opportunities for long-term growth, particularly as a
result of the financial strength of the combined companies;
. which is more diverse through the combination of LADD's broad product
and market segment penetration with La-Z-Boy's strong brand name and
national distribution; and
. which may realize operating efficiencies and sales enhancements.
The merger will also provide you with a more liquid, dividend-paying
security in a larger, less leveraged and more diversified company.
INTERESTS OF LADD'S OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 58)
When you consider LADD's board of directors' recommendation that you vote
in favor of the merger, you should be aware that a number of its executive
officers and directors may have interests in the merger that may be different
from, or in addition to, your interest as a shareholder. As an example, LADD's
existing employment contracts with its executive officers will be assumed and
honored by La-Z-Boy upon the consummation of the merger. Certain other
compensation and retirement plans LADD currently has for these executives will
also be assumed by La-Z-Boy after the merger has been completed.
OPINION OF LADD'S FINANCIAL ADVISOR (SEE PAGE 61)
In deciding to approve the merger, LADD's board of directors considered,
among other things, the opinion of LADD's financial advisor, Mann, Armistead &
Epperson, Ltd., that the merger consideration is fair, from a financial point
of view, to you. This opinion is attached to this proxy statement/prospectus as
Annex B. We encourage you to read this opinion carefully.
4
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 27)
LADD common stock trades on the Nasdaq Stock Market, while La-Z-Boy's
common stock is traded on the New York Stock Exchange and the Pacific Exchange.
On September 27, 1999, the day before the merger was announced, the closing
price for LADD common stock reported on the Nasdaq market was $20.25 and the
closing price for La-Z-Boy common stock reported on the NYSE Composite
Transaction Reporting System was $20.94. On December 22, 1999, LADD common
stock closed at $18.69 and La-Z-Boy common stock closed at $16.13.
ACCOUNTING TREATMENT (SEE PAGE 24)
La-Z-Boy will account for the merger as a purchase in accordance with
generally accepted accounting principles.
THE TERMS OF THE MERGER AGREEMENT (SEE PAGE 66)
We have attached the merger agreement as Annex A to this proxy
statement/prospectus. We encourage you to review the merger agreement as it is
the legal document that governs the merger. Some of the more important terms of
the merger agreement are:
Conditions to the Completion of the Merger
LADD and La-Z-Boy will not complete the merger unless a number of
conditions are satisfied or waived by the parties. These include:
. approval of the merger by LADD's shareholders;
. absence of any law, regulation or court order prohibiting the merger;
. absence of an event, occurrence or development that would result in a
material adverse effect on either of the companies; and
. receipt of opinions of La-Z-Boy's and LADD's counsel that the merger
will qualify as a tax-free reorganization. (This condition cannot be
waived.)
Termination of the Merger Agreement
Either LADD or La-Z-Boy may terminate the merger agreement if any of the
following occurs:
. the merger is not completed by March 31, 2000; however, that deadline
will be extended to June 30, 2000 if the only reason the merger is not
completed by March 31, 2000 is that we have not received all necessary
regulatory and legal approvals;
. LADD's shareholders do not approve the merger; or
. a law or court order permanently prohibits the completion of the
merger.
In addition, La-Z-Boy may terminate the merger agreement if LADD's board
of directors changes, in a manner adverse to La-Z-Boy, its recommendation of
the merger. An adverse change would include the board's withdrawing or
qualifying its recommendation or changing its recommendation to support another
transaction. LADD may terminate the merger agreement if its board of directors
authorizes LADD to enter into a binding written agreement with a party other
than La-Z-Boy and LADD pays La-Z-Boy a termination fee.
Finally, LADD and La-Z-Boy may mutually agree to terminate the merger
agreement with approval of both boards of directors.
5
<PAGE>
Termination Fees and Expense Reimbursement
LADD will be required to pay La-Z-Boy a termination payment of $7 million,
plus reimburse La-Z-Boy for its transaction costs, if the merger agreement is
terminated:
. by La-Z-Boy because LADD's board of directors has failed to recommend
or has changed its recommendation of the merger in a manner adverse to
La-Z-Boy;
. by either La-Z-Boy or LADD if the following occur:
. at the time of the shareholder vote, there is an offer from a
third party to acquire LADD;
. LADD's shareholders do not approve the merger; and
. within 12 months of the termination of the merger agreement, LADD
enters into an agreement in which a third party agrees to acquire
LADD at a value greater than that proposed by La-Z-Boy; or
. by LADD because its board of directors recommends another acquisition
transaction proposed by a third party.
REGULATORY APPROVAL (SEE PAGE 26)
We are prohibited by United States antitrust laws from completing the
merger until after both companies have furnished certain information and
materials to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and a required waiting period has ended. LADD and
La-Z-Boy each filed the required notification and report forms with the
Antitrust Division and the Federal Trade Commission on October 26, 1999, and
early termination of the waiting period was received on November 16, 1999. As
with any merger in the United States, the Department of Justice and the Federal
Trade Commission have the authority to challenge the merger on antitrust
grounds before or after the merger is completed.
SPECIAL MEETING (SEE PAGE 72)
You will be asked to vote on the proposed merger at a special meeting
scheduled for January 27, 2000. If you are a LADD shareholder of record at the
close of business on November 19, 1999, you may vote at this special meeting.
VOTE REQUIRED TO APPROVE THE MERGER (SEE PAGE 72)
Approval of the merger requires the affirmative vote of a majority of the
shares of LADD common stock outstanding on the record date. You will have one
vote for each share of LADD common stock that you own on the record date.
NO DISSENTERS' RIGHTS
Under North Carolina law, you do not have the right to dissent from the
proposed merger and demand payment in cash of the fair value of your shares in
the event the merger takes place.
6
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF LA-Z-BOY
La-Z-Boy derived the selected historical financial data set out below for
each of the fiscal years 1995 through 1999 from La-Z-Boy's audited consolidated
financial statements for those years and derived the selected historical
financial data set out below for each of the six months ended October 23, 1999
and October 24, 1998 from La-Z-Boy's unaudited consolidated financial
statements for those periods. This information is only a summary and should be
read together with La-Z-Boy's historical financial statements and related notes
which are included in this proxy statement/prospectus beginning on page F-1.
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
----------------------- FISCAL YEARS ENDED IN APRIL,
OCTOBER 23, OCTOBER 24, --------------------------------------------------
1999(1) 1998 1999 1998(2) 1997 1996(3) 1995
----------- ----------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................. $709,395 $603,711 $1,287,645 $1,108,038 $1,005,825 $947,263 $850,271
Net income............. $ 36,563 $ 25,631 $ 66,142 $ 49,920 $ 45,297 $ 39,253 $ 36,302
Diluted average
shares(4)............. 52,610 53,543 53,148 53,821 54,575 55,596 54,303
Diluted earnings per
share(4).............. $ 0.69 $ 0.48 $ 1.24 $ 0.93 $ 0.83 $ 0.71 $ 0.67
Basic average
shares(4)............. 52,305 53,250 52,890 53,654 54,324 55,494 54,132
Basic earnings per
share(4).............. $ 0.70 $ 0.48 $ 1.25 $ 0.93 $ 0.83 $ 0.71 $ 0.67
Dividends per
share(4).............. $ 0.16 $ 0.15 $ 0.31 $ 0.28 $ 0.26 $ 0.25 $ 0.23
BALANCE SHEET DATA
(AS OF PERIOD END):
Total assets........... $720,164 $601,738 $ 629,792 $ 580,351 $ 528,407 $517,546 $503,818
Long-term debt......... $119,594 $ 63,319 $ 62,469 $ 66,434 $ 52,449 $ 57,075 $ 71,149
Total shareholders'
equity................ $437,749 $391,796 $ 414,915 $ 388,209 $ 359,338 $343,376 $323,640
</TABLE>
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(1) Bauhaus U.S.A., Inc. is included in the consolidated results from its
acquisition date of June 1, 1999.
(2) Sam Moore Furniture Industries, Incorporated is included in the
consolidated results from its acquisition date of April 1, 1998.
(3) England/Corsair, Inc. is included in the consolidated results from its
acquisition date of April 25, 1995.
(4) Restated to reflect a three-for-one stock split, in the form of a 200%
stock dividend, effective September 1998.
7
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF LADD
LADD derived the selected historical financial data set out below for each
of the fiscal years 1994 through 1998 from LADD's audited consolidated
financial statements for those years and derived the selected historical
financial data set out below for each of the nine months ended October 2, 1999
and October 3, 1998 from LADD's unaudited consolidated financial statements for
those periods. This information is only a summary and should be read together
with LADD's historical financial statements and related notes contained in the
annual report and quarterly reports incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" on page 82.
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEARS
--------------------- -------------------------------------------------------
OCTOBER 2, OCTOBER 3, 1998 1997 1996(1) 1995(2) 1994(3)
1999 1998 (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................. $460,810 $425,810 $571,063 $525,500 $497,457 $599,203 $576,549
Net income (loss)(4)... $ 12,398 $ 8,548 $ 12,259 $ 6,312 $ (2,435) $(25,190) $ 4,360
Diluted average
shares(5)............. 7,979 8,074 8,017 7,839 7,722 7,721 7,705
Diluted earnings per
share(5).............. $ 1.55 $ 1.06 $ 1.53 $ 0.81 $ (0.32) $ (3.26) $ 0.57
Basic average
shares(5)............. 7,834 7,801 7,808 7,744 7,722 7,721 7,697
Basic earnings per
share(5).............. $ 1.58 $ 1.10 $ 1.57 $ 0.81 $ (0.32) $ (3.26) $ 0.57
Dividends per
share(5).............. -- -- -- -- -- $ 0.27 $ 0.36
BALANCE SHEET DATA (AS OF PERIOD
END):
Total assets........... $350,318 $345,519 $336,965 $329,190 $315,031 $313,775 $380,137
Long-term debt......... $ 95,365 $109,540 $104,585 $118,586 $125,859 $112,598 $143,584
Total shareholders'
equity................ $156,961 $140,723 $144,521 $130,925 $123,900 $125,986 $152,695
</TABLE>
- -------
(1) Fiscal 1996 reflects the sale of Fournier Furniture, Inc. effective
February 26, 1996 and the liquidation of Daystrom Furniture beginning June
28, 1996.
(2) Fiscal 1995 reflects the sales of Brown Jordan Company and Lea Lumber &
Plywood effective December 29, 1995.
(3) Pilliod Furniture, Inc. is included in consolidated results from its
acquisition date of January 31, 1994.
(4) Net income includes pretax restructuring charges of $3,431 and $25,120 for
1996 and 1995, respectively. These charges relate to the divestitures of
four operating companies, closure of four company-owned retail stores, and
reorganization of the remaining companies.
(5) Restated to reflect a one-for-three reverse stock split effective May 1995.
8
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma consolidated statement of
operations data and selected unaudited pro forma consolidated balance sheet
data give effect to the acquisition by La-Z-Boy of LADD in a transaction to be
accounted for as a purchase. The selected unaudited pro forma consolidated
balance sheet data reflect the acquisition by La-Z-Boy of LADD by combining La-
Z-Boy's balance sheet data as of October 23, 1999 with that of LADD as of
October 2, 1999. The selected unaudited pro forma consolidated statement of
operations data treat the acquisition as if it had occurred as of the beginning
of the earliest period presented (April 26, 1998) and combine the results of
operations data of La-Z-Boy for the year ended April 24, 1999 and for the six
months ended October 23, 1999 (unaudited) with the results of operations data
of LADD for the year ended April 3, 1999 (unaudited) and the six months ended
October 2, 1999 (unaudited), respectively. The unaudited results of operations
data for LADD's year ended April 3, 1999 were derived by subtracting unaudited
financial data for the quarter ended April 4, 1998 from financial data derived
from LADD's audited financial statements for the year ended January 2, 1999 and
adding unaudited financial data for the quarter ended April 3, 1999.
The selected unaudited pro forma consolidated financial data are presented
for illustrative purposes only and are not necessarily indicative of the
consolidated financial position or results of operations of future periods or
the results that actually would have been realized had La-Z-Boy and LADD been a
consolidated company during the specified periods. The selected unaudited pro
forma consolidated financial data should be read in conjunction with the
unaudited pro forma consolidated condensed financial information included in
this proxy statement/prospectus beginning on page F-19 and with the historical
consolidated financial statements and the related notes of La-Z-Boy, which are
included in this proxy statement/prospectus beginning on page F-1, and with the
historical consolidated financial statements and the related notes of LADD,
which are incorporated by reference in this proxy statement/prospectus. See
"Where You Can Find More Information" on page 82.
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED
ENDED OCTOBER 23, APRIL 24,
1999 1999
----------------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales..................................... $1,013,061 $1,868,443
Net income................................ $ 44,928 $ 78,766
Diluted average shares.................... 62,039 62,649
Diluted earnings per share................ $ 0.72 $ 1.26
Basic average shares...................... 61,546 62,128
Basic earnings per share.................. $ 0.73 $ 1.27
Dividends per share....................... $ 0.16 $ 0.31
<CAPTION>
AS OF
OCTOBER 23, 1999
-----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.............................. $1,096,003
Long-term debt............................ $ 214,959
Total shareholders' equity................ $ 622,404
</TABLE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for La-Z-Boy common stock and LADD common
stock, for the periods indicated, historical per share data and the
corresponding unaudited pro forma equivalent per share amounts after giving
effect to La-Z-Boy's acquisition of LADD accounted for as a purchase.
9
<PAGE>
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of per share amounts for future periods
or of the per share amounts that actually would have been realized had La-Z-Boy
and LADD been a consolidated company during the specified periods.
The information presented in this table should be read in conjunction with
the unaudited pro forma consolidated condensed financial information included
in this proxy statement/prospectus beginning on page F-19, and the separate
historical consolidated financial statements and the related notes of La-Z-Boy
included in this proxy statement/prospectus beginning on page F-1, and the
separate historical financial statements and the related notes of LADD
incorporated by reference in this proxy statement/prospectus.
<TABLE>
<CAPTION>
LA-Z-BOY LADD
--------------------- -----------------
SIX SIX YEAR
MONTHS YEAR MONTHS ENDED
ENDED ENDED ENDED APRIL
OCTOBER 23, APRIL 24, OCTOBER 2, 3,
1999 1999 1999 1999
----------- --------- ---------- ------
<S> <C> <C> <C> <C>
Historical earnings per share - La-Z-
Boy and LADD
Diluted............................. $ 0.69 $1.24 $ 1.10 $ 1.68
Basic............................... $ 0.70 $1.25 $ 1.12 $ 1.72
Pro forma earnings per share - La-Z-
Boy
Diluted............................. $ 0.72 $1.26
Basic............................... $ 0.73 $1.27
Equivalent pro forma earnings per
share - LADD
Diluted (1)......................... $ 0.85 $ 1.49
Pro forma (1)....................... $ 0.86 $ 1.50
Dividends per share - La-Z-Boy
Historical.......................... $ 0.16 $0.31
Pro forma (2)....................... $ 0.16 $0.31
Equivalent pro forma - LADD (3)....... $ 0.19 $ 0.37
Book value (as of period end) - La-Z-
Boy
Historical.......................... $ 8.40 $7.93
Pro forma........................... $10.14 $9.71
Book value (as of period end) - LADD
Historical.......................... $20.04 $18.91
Equivalent pro forma (4)............ $11.97 $11.46
</TABLE>
- -------
(1) Pro forma amounts for La-Z-Boy multiplied by 1.18 (the ratio of exchange).
(2) Same as historical since a change in La-Z-Boy's dividend policy is not
expected as a result of the merger.
(3) Historical amounts for La-Z-Boy multiplied by 1.18 (the ratio of exchange).
(4) Pro forma book value for La-Z-Boy multiplied by 1.18 (the ratio of
exchange).
10
<PAGE>
RISK FACTORS
You should carefully read and consider the following factors in evaluating
whether to approve the proposed merger.
MANAGEMENT AND FINANCIAL RESOURCES OF LA-Z-BOY MAY BE DIVERTED FROM
OPERATING ITS BUSINESS DUE TO THE CHALLENGES OF INTEGRATING LADD AND OTHER
ACQUISITIONS, AND THAT DIVERSION COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS
REVENUES, EXPENSES AND OPERATING RESULTS AND ON THE VALUE OF ITS STOCK.
La-Z-Boy acquired Sam Moore Furniture Industries, Incorporated on April 1,
1998 and Bauhaus U.S.A., Inc. on June 1, 1999 and expects to acquire Alexvale
Furniture, Inc, during the current quarter. The integration and consolidation
of these companies, the proposed merger with LADD and any future acquisitions
have required and will continue to require substantial management and financial
resources. The diversion of these resources may make it more difficult for La-
Z-Boy to operate its business as it has in the past and could have a material
adverse effect on its revenues, expenses and operating results and on the value
of its stock.
LADD SHAREHOLDERS WILL RECEIVE MERGER CONSIDERATION WITH A LOWER MARKET
VALUE IF THE MARKET PRICE OF LA-Z-BOY COMMON STOCK DECLINES.
Because the number of shares of La-Z-Boy common stock that LADD
shareholders will receive in the merger is fixed at 1.18 shares of La-Z-Boy
common stock for each share of LADD common stock, the market value of the
consideration you will receive in the merger will depend on the market price of
La-Z-Boy common stock when the merger becomes effective. The price of La-Z-Boy
common stock when the merger becomes effective may vary from its price at the
date of this proxy statement/prospectus or on the date of the special meeting
because of various factors, including:
. general market, industry and economic conditions;
. changes in the business, operations or prospects of La-Z-Boy and LADD;
and
. market assessments of the timing and probability of achieving
operating efficiencies and sales enhancements after the merger.
Neither La-Z-Boy nor LADD will have the right to terminate the merger
agreement as a result of changes in La-Z-Boy's common stock price. You should
obtain current market quotations for La-Z-Boy common stock.
ANTITAKEOVER PROVISIONS IN LA-Z-BOY'S GOVERNING DOCUMENTS AND MICHIGAN LAW
COULD DISCOURAGE SOME POTENTIAL BUYERS OF THE LA-Z-BOY STOCK YOU WILL RECEIVE
IN THE MERGER.
Michigan law and La-Z-Boy's articles of incorporation and bylaws contain
provisions that may have the effect of discouraging transactions involving an
actual or threatened change of control. These provisions could tend to entrench
La-Z-Boy's directors and management and possibly deprive shareholders of an
opportunity to sell their shares of common stock at prices higher than the
prevailing market prices. LADD's governing documents do not contain any
significant antitakeover provisions, and the antitakeover provisions of North
Carolina law currently do not apply to LADD.
11
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document and in documents
that are incorporated by reference in this document that are subject to risks
and uncertainties. Generally, forward-looking statements include information
concerning possible or assumed future actions, events or results of operations
of La-Z-Boy if the merger occurs or of LADD if the merger does not occur. More
specifically, forward-looking statements include the information in this
document regarding:
operating efficiencies future economic performance
sales enhancements the combined company
income and margins the timetable for completing the
growth merger
adequacy and cost of financial future acquisitions
resources management plans, including
product line diversification financing plans
the future price of La-Z-Boy industry trends
stock year 2000 readiness
future La-Z-Boy dividends environmental matters
future repurchases of La-Z-Boy financial projections
stock
Forward-looking statements also include those preceded or followed by the
words "anticipates," "believes," "estimates," "hopes," "plans," "intends" and
"expects" or similar expressions. With respect to all forward-looking
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You should understand that the following important factors, in addition to
those discussed in "Risk Factors" above and elsewhere in this document and in
the documents that are incorporated by reference, could affect the future
results of La-Z-Boy or LADD and could cause those results or other outcomes to
differ materially from those expressed or implied in our forward-looking
statements:
Economic and Industry Conditions
. materially adverse changes in economic and industry conditions and
customer demand generally or in the markets served by our companies
. changes in interest rates
. supply and demand for and pricing of supplies and components
. availability of qualified labor
. changes in demographics and consumer preferences or demands for La-Z-
Boy's and LADD's products
. the impact of e-commerce on the distribution of the companies'
products
. changes in the availability or cost of capital
Competitive Factors
. the competitiveness of foreign-made products
. the actions of competitors
. new manufacturing technologies
. industry consolidation
Operating Factors
. supply, labor or distribution disruptions
. technical difficulties, including the inability of material customers
and suppliers to replace, modify or upgrade computer programs in order
to adequately address year 2000 concerns
12
<PAGE>
. acquisitions or divestitures
. changes in operating conditions and costs
. changes in regulatory environment
Transaction Factors
. the challenges inherent in diverting management's focus and resources
from other strategic opportunities and from operational matters during
the integration process
. experienced employees leaving for other positions
13
<PAGE>
THE MERGER TRANSACTION
We are furnishing you this proxy statement/prospectus in connection with
solicitation of proxies by LADD's board of directors for use at the special
meeting. At the special meeting, you will be asked to vote to approve and adopt
the merger agreement and the merger.
BACKGROUND OF THE MERGER
LADD's board of directors and management continually review LADD's
results of operations and competitive position. In connection with these
reviews, LADD's board of directors and management evaluate and consider a range
of strategic options that might be available to LADD to sustain its recent past
level of growth and further enhance shareholder value, including acquisitions
and dispositions of assets, possible partnerships and joint ventures, and other
strategic corporate transactions.
The following describes significant events leading to execution of the
merger agreement by LADD and La-Z-Boy.
On February 10, 1999, Fred L. Schuermann, Jr., Chairman, President and
Chief Executive Officer of LADD, met with the principals of Mann Armistead. In
discussing the furniture industry, they agreed that LADD and La-Z-Boy would fit
very well together because of their complementary product lines, La-Z-Boy's
opportunity to enhance its casegoods business and increase its exposure in the
market, and the compatibility of management. With Mr. Schuermann's consent,
principals of Mann Armistead traveled to La-Z-Boy's headquarters in Monroe,
Michigan on March 29, 1999 to meet with Patrick H. Norton, Chairman of the
Board of La-Z-Boy, Gerald L. Kiser, its President and Chief Operating Officer,
and Frederick H. Jackson, its Executive Vice President Finance and Chief
Financial Officer, to discuss LADD's history, its recent operating results and
to introduce the idea of a merger. At the conclusion of the meeting, Mr. Norton
was invited to meet with Mr. Schuermann, and Mr. Norton accepted.
On April 12, 1999, Mr. Schuermann, Mr. Norton, and principals of Mann
Armistead met in Greensboro, North Carolina to discuss the possibility of
exploring strategic options involving LADD and La-Z-Boy. They discussed
benefits that might result from a merger of the two companies, and both Mr.
Schuermann and Mr. Norton expressed interest in pursuing the matter further. On
April 13, 1999, Mann Armistead discussed with La-Z-Boy's senior management
general parameters of price, structure and terms for a possible transaction.
On April 29, 1999, at a regular meeting of LADD's board of directors, Mr.
Schuermann advised the board of his meeting with Mr. Norton and informed the
board that he planned to meet the following day with La-Z-Boy's senior
management. On April 30, 1999, Mr. Schuermann met at La-Z-Boy headquarters in
Monroe, Michigan with Messrs. Norton, Kiser and Jackson. They discussed the
mutual benefits that a merger of the two companies could bring to both
companies and the relative strengths of each company and its management.
On June 10, 1999, William S. Creekmuir, LADD's Executive Vice President
and Chief Financial Officer, met with Mr. Jackson in LADD's offices. They
discussed reasons that a combination might produce an entity stronger than the
two companies operating individually. At La-Z-Boy's request, LADD provided
information regarding its management and compensation structure. Mr. Schuermann
joined the meeting to discuss the earnings potential of the combined companies.
Messrs. Creekmuir and Jackson agreed that the two companies would enter into a
confidentiality agreement regarding information exchanged in the merger
discussions, and the companies signed such an agreement on June 17, 1999.
On July 6, 1999, Mr. Schuermann and Mr. Kiser spoke by telephone to
arrange visits by La-Z-Boy personnel to various LADD manufacturing facilities.
On July 13, 1999, at a special meeting of LADD's board of directors, Mr.
Schuermann reviewed the discussions that had taken place and the possible
benefits that may be expected for LADD and its shareholders in a merger. The
board approved LADD's engagement of Mann Armistead as financial advisor to LADD
for the potential transaction. The
14
<PAGE>
board discussed its fiduciary responsibilities in consideration of merger or
acquisition proposals. On July 19, 20, and 21, La-Z-Boy personnel visited
several of LADD's manufacturing facilities.
On August 3, 1999, Messrs. Schuermann and Creekmuir, along with
representatives of Mann Armistead, met at La-Z-Boy headquarters with La-Z-Boy
management and representatives of La-Z-Boy's financial advisor, Merrill Lynch &
Co. The parties reviewed the potential benefits of a merger to the shareholders
of both companies. Mr. Schuermann also reviewed with La-Z-Boy's management the
change in control provisions in LADD's benefit plans and executive officer
employment contracts, which provisions would be triggered by a merger. La-Z-Boy
suggested that a merger be based on an exchange ratio of 1 share of La-Z-Boy
stock for each share of LADD stock, but Mr. Schuermann expressed his belief
that a 1 to 1 exchange ratio would be unacceptable to LADD's board. The parties
agreed to continue discussions and to exchange due diligence information.
On August 5, 1999, La-Z-Boy provided LADD with the first of several due
diligence requests and due diligence continued throughout the period of
negotiations. During the course of the numerous discussions and due diligence
investigations, LADD provided La-Z-Boy extensive public and non-public
information and data relating to areas such as manufacturing facilities and
operations, marketing and sales, historical and projected financial results,
tax matters, employee and employee benefits matters, environmental and other
regulatory compliance, pending litigation and management information systems.
On August 11, 1999, Mr. Creekmuir and LADD's Assistant Corporate
Controller delivered due diligence materials to PricewaterhouseCoopers LLP,
which had been engaged to assist La-Z-Boy with its financial due diligence. In
a meeting with representatives of PricewaterhouseCoopers, Merrill Lynch and La-
Z-Boy, LADD representatives provided an overview of LADD and responded to
questions concerning the due diligence materials. On August 16, 17, and 18,
PricewaterhouseCoopers performed financial due diligence in Greensboro, North
Carolina, and interviewed Messrs. Schuermann and Creekmuir.
On August 19, 1999, LADD's board of directors held a regular meeting at
which Mr. Schuermann discussed numerous matters relating to the potential
transaction, including recent discussions with La-Z-Boy, due diligence, the
likely structure of a merger, and the timing of draft merger documents. Mr.
Schuermann reviewed the strategic issues facing LADD and the potential benefits
of the proposed transaction to LADD and its shareholders, including additional
market liquidity and an improved price-to-earnings ratio that might exist
following the transaction. The board was joined by the three principals of
Mann Armistead, who provided an extensive review of the furniture industry and
the potential stock performance of the merged entity. The board discussed with
Mann Armistead possible valuation ranges for the transaction. The board engaged
in lengthy discussions of the merits and other aspects of the merger, including
the pricing of the transaction. Mr. Schuermann called on each of LADD's four
Executive Vice Presidents to provide the board his views on the potential
merger, and each spoke in support of the merger.
On August 24, 1999, La-Z-Boy circulated a draft of a merger agreement.
LADD provided an alternative draft on August 30, 1999. On September 8, 1999,
La-Z-Boy circulated a third draft.
On August 30, 1999, Mr. Schuermann again met with La-Z-Boy management at
La-Z-Boy headquarters. La-Z-Boy management advised Mr. Schuermann that if the
companies merged, LADD would operate as a separate subsidiary under the
direction of current management. On September 2, 1999 Merrill Lynch, on behalf
of La-Z-Boy, proposed to Mann Armistead a variable exchange ratio with a cap
and floor based on the value of La-Z-Boy stock. On September 3, 1999,
Mr. Schuermann, through Mann Armistead, rejected this proposed exchange ratio
structure.
Also on September 2 and 3, 1999, Mr. Creekmuir and members of LADD
management visited La-Z-Boy headquarters, reviewed documents provided by
La-Z-Boy in response to LADD's due diligence requests and interviewed various
members of La-Z-Boy management. This due diligence material, while
comprehensive, was not as extensive or detailed as the information LADD
provided to La-Z-Boy. On September 2 and 3, LADD personnel and representatives
of Mann Armistead visited several of
15
<PAGE>
La-Z-Boy's manufacturing facilities. On September 3, representatives of KPMG
LLP performed additional accounting due diligence at LADD's request at the
Toledo, Ohio office of PricewaterhouseCoopers.
On September 7 and 8, 1999, Messrs. Norton, Kiser, and Jackson, Gene M.
Hardy, La-Z-Boy's Secretary and Treasurer, and representatives of
Mann Armistead and Merrill Lynch met with various members of LADD's executive
and operating management, including Messrs. Schuermann and Creekmuir, to
conduct due diligence and engage in in-depth discussions regarding the
structure and operation of the merged entities. On September 8, Messrs.
Schuermann and Creekmuir also discussed issues relating to price and structure
terms of the merger with La-Z-Boy senior management. At the conclusion of the
meetings, Mr. Schuermann again reiterated LADD's opposition to the variable
exchange ratio structure proposed by Merrill Lynch on September 2.
On September 7, 1999, LADD's board of directors held a special meeting at
which Mr. Schuermann and LADD's legal advisors gave a brief update on the
status of negotiations with La-Z-Boy. The board voted, with Mr. Schuermann
abstaining, to amend the executive officer employment contracts and LADD's
various benefit plans in anticipation of and conditioned upon the merger with
La-Z-Boy. These amended employment contracts and plans were subsequently
revised further and superseded by board action on September 28, 1999. See
"Interests of Certain Persons in the Merger" on page 58.
On September 13, 1999, Mr. Schuermann advised La-Z-Boy that LADD was
terminating negotiations because of issues that had arisen during negotiations
that made it appear that reaching mutually acceptable terms would be unlikely.
On the evening of September 13, 1999, Mr. Schuermann and Mr. Norton spoke by
telephone for an extended period and agreed to meet to determine if there
existed a basis to go forward with negotiations. On September 17, 1999, Mr.
Schuermann met with La-Z-Boy management at La-Z-Boy headquarters and reviewed
the state of the negotiations, previous discussions as to price, and management
issues.
On September 22 and 23, 1999, Mr. Schuermann, representatives of LADD's
legal advisors and Mann Armistead, La-Z-Boy's senior management,
representatives of La-Z-Boy's legal advisors and Merrill Lynch, and counsel to
Merrill Lynch, met at La-Z-Boy headquarters. The parties reached agreement,
subject to approval by each company's board of directors, on the major
transactional terms of the merger agreement except for the exchange ratio. The
parties agreed that they would not place a cap on the exchange of stock in the
merger but reached no agreement on the exchange ratio.
On September 26, 1999, Merrill Lynch conveyed to Mann Armistead La-Z-
Boy's offer of an exchange ratio of 1.175. Discussions between the parties or
their representatives continued until late in the day on September 27, 1999, at
which time management of each company agreed, subject to board approval, to an
exchange ratio of 1.18.
On the morning of September 28, 1999, LADD's board of directors held a
special meeting in LADD's offices in Greensboro to review the terms and
conditions of the proposed merger agreement. All of LADD's senior management
and representatives of Mann Armistead and LADD's legal advisors also attended
the meeting. Mr. Schuermann reviewed the recent negotiations. Mann Armistead
gave its opinion, confirmed in writing, that, as of the market close on the
previous day, the consideration to be paid by La-Z-Boy in the proposed merger
was fair from a financial point of view to LADD's shareholders. LADD's legal
advisors reviewed with the board each section of the proposed merger agreement.
Members of senior management expressed their support of the merger. After a
separate meeting among the outside directors and following further discussion
by the entire board and advisors, the board, with Mr. Schuermann abstaining,
unanimously approved the merger agreement and voted to recommend that LADD's
shareholders approve and adopt the merger agreement and the merger. In
anticipation of the merger, the board, with Mr. Schuermann abstaining, took
additional action concerning LADD's executive employment contracts and its
benefit plans in ways agreed to by La-Z-Boy during the merger negotiations. See
"Interests of Certain Persons in the Merger" on page 58.
16
<PAGE>
In the afternoon of September 28, 1999, La-Z-Boy's board of directors met
in a special meeting and unanimously approved the merger agreement. In the late
afternoon, following the approval of LADD's and La-Z-Boy's respective boards of
directors, the parties executed the merger agreement. That evening, a press
release was issued announcing the merger agreement.
LADD'S REASONS FOR THE MERGER
LADD was formed in 1981 by executives of The Sperry Hutchinson Company.
These executives bought the three furniture companies they managed: Lea,
American Drew and Daystrom.
From 1984 to 1994, LADD grew aggressively by buying Clayton Marcus
(1984); Barclay Furniture (1985); American of Martinsville (1986); Maytag
Corporation's furniture group, including Pennsylvania House (1989); Fournier
Furniture (1992); and Pilliod Furniture (1994). To fund these acquisitions,
LADD incurred long-term debt that was at one time in excess of $200 million.
The recession of the early 1990s, in combination with our heavy debt
level, had serious negative consequences for LADD. Our net profit margins
declined from 8.7% in the mid-1980s to less than 1% in the early 1990s. Our
stock price, adjusted for a reverse split in 1995, went from a high of $74 in
1987 to less than $10 in 1996. In June of 1995, LADD had $148 million of total
debt with a debt-to-capitalization ratio of 54.3%.
Beginning in mid-1995, LADD began an extensive restructuring process.
Over the next 18 months, it sold or liquidated four operating units: Daystrom,
Lea Lumber & Plywood, Fournier and Brown Jordan. In connection with this
restructuring, LADD focused on increasing sales and improving profitability of
its core brands of American Drew, Barclay, Clayton Marcus, Lea, Pennsylvania
House, Pilliod and American of Martinsville, and on reducing debt. During this
process, LADD was reorganized into three operating groups: residential
casegoods, residential upholstery, and contract sales. By the end of June 1999,
total debt stood at $102 million, representing a debt-to-capitalization ratio
of 40.0%, and net profit margins were 2.8%.
Despite LADD's consistently improving performance since the end of 1995,
LADD shareholders have not been rewarded in the marketplace with corresponding
increases in shareholder value. In the 52-week period ended September 27, 1999,
LADD shares traded to a high of $23.50 and to a low of $13.38. During the
second quarter of calender 1999, LADD shares traded in a range of $16.88 to
$22.88, reflecting an average price-to-earnings multiple of approximately 11.5.
LADD's management and its board of directors have become convinced that because
of LADD's relatively small market capitalization of approximately $165 million,
LADD's operating performance is not likely to be rewarded adequately in the
marketplace, and LADD's shareholders are not likely to receive a multiple of
earnings commensurate with companies, such as La-Z-Boy, that have significantly
larger market capitalization. During the second quarter of calendar 1999, La-Z-
Boy, with a market capitalization of approximately $1 billion, traded in a
range of $19.50 to $24.56, reflecting an average price-to-earnings multiple of
approximately 16.6.
Simply becoming part of a larger company is not a sufficient reason for
LADD to merge. To create shareholder value in a stock-for-stock merger, the two
companies must operate together better than they would operate separately. As
explained in more detail below, LADD's board believes that combining the
businesses of LADD and La-Z-Boy can increase profits and returns and provide
LADD shareholders with a more liquid, dividend-paying security in a diversified
company for which continued improvement and performance will be better
recognized by the marketplace. As a subsidiary of La-Z-Boy, LADD will also have
greater financial resources with which to invest in LADD brands and continue to
grow its business by pursuing business opportunities as they present
themselves.
The benefits of the merger fall broadly into four categories: operating
efficiencies, long-term growth, diverse business portfolio and financial
strength/market capitalization.
17
<PAGE>
Operating Efficiencies. LADD's board believes that LADD and La-Z-Boy
together can operate more efficiently than either company can operate on its
own. We expect that after the merger the combined company will be able to
achieve operating efficiencies from increases in production and sales,
decreases in corporate overhead expense, and other benefits possible by
combining complementary operations and better utilizing manufacturing
capacities. We hope to achieve efficiencies in purchasing and transportation by
utilizing the combined companies' capabilities.
While we expect that we will be able to realize these operating
efficiencies, we can give no assurance that we will actually be able to do so.
Long-Term Growth. LADD's board believes that, together, La-Z-Boy and LADD
will also be in a position to achieve accelerated growth by utilizing its
financial strength to fund capital investments and pursue business
opportunities as they occur. We believe that the furniture industry is
beginning to enter a period of significant consolidation. As acquisition
opportunities that would be beneficial to the combined company and its
shareholders present themselves, we will be in a position to pursue those
opportunities aggressively due to La-Z-Boy's financial strength and its ability
to use a highly marketable public security, the La-Z-Boy common stock.
Diverse Business Portfolio. The merger of LADD and La-Z-Boy will create a
combined company with a diverse business portfolio representing many of the
premier brand names in the furniture industry, led by the most widely-
recognized brand name in the industry, La-Z-Boy. Upon completion of the merger,
the combined company will operate the following major furniture business units:
<TABLE>
<CAPTION>
LADD LA-Z-BOY
---- --------
<S> <C>
American Drew (casegoods) Bauhaus U.S.A., Inc. (upholstery)
American of Martinsville (contract) Centurion (upholstery)
Barclay Furniture (upholstery) England/Corsair (upholstery)
Clayton Marcus (upholstery) Hammary (casegoods)
Lea Industries (casegoods) Kincaid (casegoods)
Pennsylvania House La-Z-Boy Business Furniture Group (contract)
(casegoods and upholstery) La-Z-Boy Residential (upholstery)
Pilliod Furniture (casegoods) Sam Moore (upholstery)
Alexvale (upholstery) (closing expected
by end of 1999)
</TABLE>
The strategic combination of LADD's strength in residential casegoods and
contract sales and La-Z-Boy's strength in upholstery will give the combined
company breadth and coverage of virtually the entire spectrum of residential
furniture.
Financial Strength/Market Capitalization. Because of the heavy debt
burden LADD has carried during much of the 1990s, debt reduction has been a
major financial focus of its management. La-Z-Boy, by contrast, currently has
low leverage (21.7% debt-to-capitalization as of October 23, 1999). La-Z-Boy's
financial strength will enable the combined company to fund future capital
expenditures and make opportunistic acquisitions that would be difficult or
impossible for a company with LADD's current leverage.
Further, following the merger, La-Z-Boy's expected market capitalization
of approximately $1.2 billion will provide former LADD shareholders with a more
liquid common stock. We believe that the combination of the two shareholder
groups will provide the combined company a diversified and dynamic shareholder
group, since the majority of LADD's shares have traditionally been owned by
institutions, and the majority of La-Z-Boy's shares have traditionally been
owned by individuals. Finally, in exchanging their LADD shares, which do not
pay dividends, for La-Z-Boy shares, LADD shareholders will begin to receive a
cash dividend, which is currently being paid at the quarterly rate of $.08 per
share. The continuance and amount of dividends paid on La-Z-Boy shares in the
future will be at the discretion of the La-Z-Boy board.
18
<PAGE>
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE LADD BOARD
At its September 28, 1999 meeting, the LADD board, with Mr. Schuermann
abstaining, unanimously determined that the merger agreement and the terms of
the merger are fair to and in the best interest of LADD and LADD's
shareholders. Accordingly, the LADD board has adopted the merger agreement,
with Mr. Schuermann abstaining, and the LADD board, including Mr. Schuermann,
recommends that LADD's shareholders vote "FOR" approval of the merger agreement
and the merger. When you consider this recommendation, you should be aware that
members of LADD's board may have an interest in the merger that may be
different from, or in addition to your interests as a shareholder. See
"Interests of Certain Persons in the Merger" on page 58.
In the course of reaching its decision to adopt the merger agreement, the
LADD board consulted with LADD's management, as well as its outside legal
counsel and its financial advisor, and considered the following material
factors:
. all of the reasons described above under "LADD's Reasons for the
Merger," including operating efficiencies, long-term growth, diverse
business portfolio, and financial strength/market capitalization;
. the risks and benefits associated with, as an alternative to the
merger, continuing to execute LADD's strategic plan as an independent
entity;
. Mann Armistead's written opinion to the effect that as of September
28, 1999, and subject to the various conditions set forth in its
opinion, the merger consideration is fair from a financial point of
view to LADD's shareholders (See "Opinion of LADD's Financial
Advisor" beginning on page 61);
. that LADD's shareholders will own approximately 15% of the
outstanding stock of La-Z-Boy after the merger;
. the merger's expected qualification as a reorganization under the
Internal Revenue Code, in which LADD shareholders generally will not
recognize any gain or loss except for any gain or loss recognized in
connection with cash received for a fractional share of La-Z-Boy
common stock;
. LADD's ability, pursuant to the merger agreement, to conduct its
business in the ordinary course pending closing and the
reasonableness of the restrictions placed on LADD's conduct during
that period;
. the board's ability, pursuant to the merger agreement, to provide
information to and engage in negotiations with any third party that
makes a superior proposal (as described in "The Merger Agreement--
Termination of the Merger Agreement" on page 70);
. that while the termination payment provisions of the merger agreement
could have the effect of discouraging alternative proposals for a
business combination with LADD, these provisions would not prevent
bona fide alternative proposals, and that the size of the termination
fee was reasonable in relation to the size and benefits of the
transaction;
. all aspects of Mann Armistead's analysis, both those portions
supporting the adequacy of the proposed merger consideration and
those portions suggesting that the proposed merger consideration was
not adequate (See "Opinion of LADD's Financial Advisor" beginning on
page 61);
. the strategic fit of LADD and La-Z-Boy, including the combination of
their respective businesses and brand names;
. the expectation that the combined company will produce greater
shareholder returns for LADD shareholders due to La-Z-Boy's market
capitalization, the liquidity of its shares and its payment of cash
dividends;
. LADD management's and its board's knowledge of the furniture industry
in which LADD competes and their belief that greater size and
resources are important to the long-term future of LADD;
19
<PAGE>
. the opportunity for LADD's shareholders to receive a meaningful
premium over the trading value of LADD common stock, while at the
same time participating in a larger and more diversified company and
benefiting from any future growth of the combined company;
. the interest that executive officers and directors of LADD may have
with respect to the merger in addition to their interest as
shareholders of LADD generally (See "Interest of Certain Persons in
the Merger" on page 58);
. the fact that LADD's corporate headquarters will continue to be
located in Greensboro, North Carolina;
. the fact that for at least one year following the effective date of
the merger, La-Z-Boy will continue to provide LADD's employees with
employee benefits that, in the aggregate, are no less favorable than
those provided to the employees of LADD at the time of the merger;
and
. that no members of LADD's board are expected to serve on the combined
company's board and that LADD's executives' role will be limited to
managing the operations of LADD as a division of La-Z-Boy.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, the LADD board
did not find it useful to and did not attempt to quantify, rank or otherwise
assign relative weights to these factors. In considering the factors described
above, individual members of the board may have given different weight to
different factors. The board relied on, among other things, the experience and
expertise of Mann Armistead, its financial advisor, for quantitative analysis
of the financial terms of the merger. The board recognized that certain aspects
of the quantitative analysis prepared by Mann Armistead, primarily those
calculations based on LADD's shareholders' equity, may have suggested that the
proposed merger consideration was not adequate, but it also understood that
these calculations were impacted by LADD's relatively large intangible assets
balance. The board weighed these calculations, together with the other
calculations based on LADD's net income, EBITDA and EBIT, and believed that all
aspects of the quantitative analysis of the financial terms of the merger
presented in Mann Armistead's report, taken as a whole, supported the board's
decision to approve the merger. See "Opinion of LADD's Financial Advisor"
beginning on page 61. The LADD board considered all these factors as a whole
and, over all, considered the factors to be favorable to, and support, its
determination. The general view of the LADD board, however, was that the
factors listed as the second, the eighth, portions of the ninth, the fourteenth
and the seventeenth bullets were uncertainties or risks relating to the
transaction. The other reasons and factors described above were generally
considered favorable.
CERTAIN FINANCIAL PROJECTIONS OF LADD
This section contains financial projections prepared by LADD in September
1999 and provided by it to La-Z-Boy and/or Mann Armistead. The information set
forth below is based on assumptions concerning LADD's business prospects for
fiscal years 1999 and 2000. Information of this type is based on estimates and
assumptions that are inherently subject to significant economic and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond LADD's control. Accordingly, there can be no assurance that
the projected results will be realized or that actual results will not be
significantly higher or lower than those set forth below. The projections do
not reflect any of the effects of the merger or other changes that may in the
future be deemed appropriate concerning LADD and its assets, business,
operations, properties, policies, corporate structure, capitalization and
management in light of the circumstances then existing.
In addition, the projections set forth below were not prepared with a
view to public disclosure or compliance with published guidelines of the SEC or
the guidelines established by the American Institute of Certified Public
Accountants regarding projections and forecasts. LADD does not as a matter of
course publicly disclose internal budgets, plans, estimates, forecasts or
projections as to future revenues, earnings or other financial information. The
projections included in this proxy statement/prospectus are provided solely
because such information was made available to La-Z-Boy during its due
diligence review and to Mann Armistead, who relied on such information in
connection with the preparation of its opinion. See
20
<PAGE>
"Opinion of LADD's Financial Advisor" beginning on page 61.
Neither LADD's independent auditors, nor any other independent
accountants, have compiled, examined or performed any procedures with respect
to the prospective financial information contained in the projections, nor have
they expressed any opinion or given any form of assurance on such information
or its achievability.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND SHAREHOLDER VALUE OF LADD
MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY OF THE
FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND LADD'S ABILITY
TO CONTROL OR PREDICT. SHAREHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON THE PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE
REALIZED OR THAT LADD'S FUTURE FINANCIAL RESULTS WILL NOT MATERIALLY VARY FROM
THE PROJECTIONS. WHILE LADD REGULARLY UPDATES ITS PROJECTIONS FOR INTERNAL
PLANNING PURPOSES, IT DOES NOT INTEND TO PUBLISH ANY UPDATED OR REVISED
PROJECTIONS EXCEPT AS REQUIRED BY LAW.
The information set forth below should be read together with the
information contained in LADD's Annual Report on Form 10-K for the year ended
January 2, 1999, LADD's most recent Quarterly Report on Form 10-Q for the
quarter ended October 2, 1999 and the other information included or
incorporated by reference in this proxy statement/prospectus.
Major Assumptions
1999 ASSUMPTIONS
The LADD forecasted financial information for 1999 took into
consideration the actual operating results for the eight months ended August
28, 1999. Assumptions utilized in preparing the forecasted information for the
balance of 1999 were numerous, the most significant of which were:
. Sales growth rate in the second half of 1999 of 1.1% over the first
six months of 1999;
. No significant increases in raw material prices or decreases in raw
material availability;
. Adequate labor supply to meet manufacturing demands;
. Selling, general and administrative expenses in the range of 14% -
14.5%;
. Capital spending of approximately $10.0 million for the year;
. Interest rate for long-term debt of approximately 6.7% and average
outstanding borrowings of approximately $104 million;
. An effective income tax rate for the year of 37%; and
. 8,000,000 shares outstanding.
2000 ASSUMPTIONS
Assumptions utilized in preparing the forecasted financial information
for 2000 were more general than those used in preparing the 1999 forecast. The
most significant of the 2000 assumptions were:
. Sales growth rate of approximately 4%;
. Increase in gross margins as a percent of net sales of 0.6% in 2000
over 1999; and
. 8,000,000 shares outstanding.
21
<PAGE>
Summary of Projected Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year ---
1999 2000
-------- --------
<S> <C> <C> <C>
Net sales.............................................. $623,794 $650,000
EBITDA................................................. 49,401 55,500
Net income............................................. 17,343 20,853
Earnings per share..................................... 2.17 2.61
</TABLE>
Financial Projections of La-Z-Boy
This section contains financial projections La-Z-Boy provided to LADD
before LADD's board of directors approved the merger. The projections in this
section were not prepared with a view to public disclosure or compliance with
published guidelines of the SEC or the guidelines established by the American
Institute of Certified Public Accountants regarding projections and forecasts.
La-Z-Boy does not as a matter of course publicly disclose internal budgets,
plans, estimates, forecasts or projections as to future revenues, earnings or
other financial information. The projections are included in this proxy
statement/prospectus solely because they were given to LADD during the course
of its merger discussions with La-Z-Boy.
Neither La-Z-Boy's independent accountants nor any other independent
accountants have compiled, examined or performed any procedures with respect to
the prospective financial information contained in these projections, nor have
they expressed any opinion or given any form of assurance on this information.
The projections contained in this section are not guarantees of future
performance, and none of them was represented by La-Z-Boy or understood by LADD
to be a guarantee at the time it was furnished. The projections involve risks,
uncertainties and assumptions. La-Z-Boy's future financial results and
shareholder value may differ materially from those expressed in these
projections, and many of the factors that will determine those results and
values are beyond La-Z-Boy's ability to control or predict. There can be no
assurance that any of the projections will be realized, and we caution you not
to place undue reliance on them. While La-Z-Boy regularly updates its
projections for internal planning purposes, it does not intend to publish any
updated or revised projections except as required by law.
Mann Armistead did not use any of the projections contained in this
section in its material valuation and comparative analyses in connection with
rendering its opinion as to fairness. Instead, as described on pages 62-64, it
relied solely on the actual market price of La-Z-Boy's stock.
You should read the information set forth below together with the other
information about La-Z-Boy contained in this proxy statement/prospectus,
including in particular its actual financial results for the six months ended
October 23, 1999 and the corresponding management's discussion and analysis of
financial condition and results of operations.
During the course of its discussions with LADD, La-Z-Boy provided LADD's
management with several sets of fiscal 2000 projections. The most recent
projections La-Z-Boy provided before LADD's board approved the merger were:
. A May 17, 1999 update of formal fiscal 2000 financial projections
prepared by La-Z-Boy's accounting staff in March 1999 in the ordinary
course of La-Z-Boy's internal planning process; and
22
<PAGE>
. An informal projection prepared by La-Z-Boy's senior management as of
July 26, 1999 of the highest fiscal 2000 earnings per share they
believed the company could achieve under a best case scenario.
May 17 Update of Formal Fiscal 2000 Financial Projections
The following table summarizes the key projected financial information
contained in the May 17,1999 update of the March 1999 formal fiscal 2000
projections prepared by La-Z-Boy:
(in millions, except per share data)
<TABLE>
<CAPTION>
Projected
Fiscal Year
2000
-----------
<S> <C>
Net sales........................................................... $1,579.3
Operating profit.................................................... 150.5
Earnings per share.................................................. 1.65
</TABLE>
La-Z-Boy used numerous assumptions in preparing these projections. Some
of the most significant assumptions were:
. An 8% increase in La-Z-Boy sales over fiscal 1999, of which 2% was
attributable to the fact that fiscal 2000 contains 53 weeks and the
balance of 6% represented an assumed increase based on a comparable
52-week year;
. Improved gross margins, due primarily to La-Z-Boy's plants continuing
to make improvements in efficiency;
. Reductions in selling, general and administrative costs, due
primarily to expected lower bad debt and information technology
expenses;
. Allowance for the then-planned Bauhaus and Alexvale acquisitions; and
. 52,600,000 shares outstanding.
By the time LADD's board of directors approved the merger in September
1999, the projections described above had been rendered obsolete in part due to
developments that occurred after the projections were prepared. The most
significant of those developments were:
. The availability of actual financial results for the first quarter of
fiscal 2000;
. Completion of the Bauhaus acquisition on June 1, 1999; and
. A delay in completing the Alexvale acquisition.
Informal Best Case Scenario
La-Z-Boy's senior management made a presentation to La-Z-Boy's board of
directors at a meeting on July 26, 1999 at which the board was considering the
advisability of proceeding with the proposed acquisition of LADD. The
presentation included an analysis of the merger's likely effect on La-Z-Boy's
earnings per share, and for purposes of that analysis senior management
projected fiscal 2000 earnings per share at $1.69 without giving effect to the
merger. That projection, which was not accompanied by any supporting
calculations or statement of assumptions, represented senior management's view
at that time of the highest fiscal 2000 earnings per share they believed La-Z-
Boy could achieve under a best case scenario. La-Z-Boy's senior management
believed that, for purposes of La-Z-Boy's board's analysis, the most
conservative approach for considering the accretive or dilutive effect of the
proposed merger from La-Z-Boy's perspective was to use the highly optimistic
assumption as to the earnings that might be achieved without the merger.
This projection was based on:
. Actual fiscal 2000 results achieved to date;
. Assuming that La-Z-Boy would meet its formal March 1999 forecast for
the balance of the 2000 fiscal year; and
. Assuming that the earnings of Bauhaus and Alexvale would be
consistent with their earnings in the comparable historical period.
23
<PAGE>
During its discussions with LADD, La-Z-Boy gave LADD's management a copy
of the presentation that had been made to La-Z-Boy's board, and LADD's
management provided it to Mann Armistead. Mann Armistead included the earnings
per share projection contained in the La-Z-Boy board presentation as
supplemental information in the presentation it made to LADD's board. However,
both Mann Armistead and LADD's board understood the context in which that
projection had been made, and as noted above, Mann Armistead did not use this
projection in its material valuation and comparative analyses in connection
with rendering its opinion as to fairness.
ACCOUNTING TREATMENT
The merger will be accounted for by La-Z-Boy as a purchase of a business.
Under this method of accounting, LADD's assets and liabilities will be recorded
at their fair value, and any excess of La-Z-Boy's purchase price over the fair
value of LADD's net assets will be recorded as goodwill. LADD's revenues and
expenses will be included in La-Z-Boy's consolidated financial statements from
the date the merger is completed.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Set forth below are the opinions of Miller, Canfield, Paddock and Stone,
P.L.C., counsel to La-Z-Boy, and of Kilpatrick Stockton LLP, counsel to LADD,
concerning the material United States federal income tax consequences of the
merger. The short-form opinions of counsel are included as exhibits to
La-Z-Boy's registration statement of which this proxy statement/prospectus
forms a part and confirm the opinion stated in this proxy statement/prospectus.
These opinions are not a comprehensive description of all of the tax
consequences that may be relevant to any given shareholder. Counsels' opinions
are based upon the Internal Revenue Code, the regulations of the United States
Treasury Department, and court and administrative rulings and decisions in
effect on the date of this proxy statement/prospectus. These authorities may
change, possibly retroactively, and any change could affect the continuing
validity of counsels' opinions.
Counsels' opinions are also based upon:
. representations made by La-Z-Boy and LADD contained in the tax
representation letters attached to the short-form opinions included
as exhibits to La-Z-Boy's registration statement; and
. the assumptions that the merger will be effected pursuant to
applicable state law and otherwise completed according to the terms
of the merger agreement and as described in this proxy
statement/prospectus.
Counsels' opinions assume that LADD shareholders hold their shares of
LADD common stock as capital assets and do not address the tax consequences
that may be relevant to a particular shareholder receiving special treatment
under some United States federal income tax laws. Shareholders receiving this
special treatment include:
. banks;
. tax-exempt organizations;
. insurance companies;
. dealers in securities or foreign currencies;
. LADD shareholders who received their LADD common stock through the
exercise of employee stock options or otherwise as compensation;
24
<PAGE>
. LADD shareholders who are not U.S. persons; and
. LADD shareholders who hold shares of LADD common stock as part of a
hedge, straddle or conversion transaction.
These opinions do not address any consequences arising under the laws of
any state, locality or foreign jurisdiction. Based on the assumptions and
representations described above, it is the opinion of Miller, Canfield, Paddock
and Stone, P.L.C. and Kilpatrick Stockton LLP that the material United States
federal income tax consequences of the merger are as follows:
. the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
. each of La-Z-Boy, LADD and LZB Acquisition Corp., the subsidiary of
La-Z-Boy that will merge with and into LADD, will be a party to the
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code;
. no gain or loss will be recognized by La-Z-Boy, LADD or LZB
Acquisition Corp. as a result of the merger;
. no gain or loss will be recognized by a shareholder of LADD who
exchanges shares of LADD common stock solely for shares of La-Z-Boy
common stock, except with respect to cash received instead of a
fractional share of common stock;
. the aggregate tax basis of the shares of common stock received by a
LADD shareholder who exchanges all of the shareholders' shares of
LADD common stock for shares of La-Z-Boy common stock in the merger
will be the same as the aggregate tax basis of the shares of LADD
common stock surrendered in exchange (reduced by any amount allocable
to a fractional share of common stock for which cash is received);
. the holding period of the shares of La-Z-Boy common stock received by
a LADD shareholder will include the holding period of shares of LADD
common stock surrendered in exchange;
. a LADD shareholder who receives cash instead of a fractional share of
La-Z-Boy's common stock will, in general, recognize capital gain or
loss equal to the difference between the cash amount received and the
portion of the shareholder's tax basis in shares of LADD common stock
allocable to the fractional share; and
. the gain or loss recognized on receipt of cash for a fractional share
will be long-term capital gain or loss for United States federal
income tax purposes if the shareholder's holding period in the shares
of LADD common stock exchanged for the fractional share is more than
one year, and the gain or loss recognized by a dissenting LADD
shareholder will be long-term capital gain or loss if the dissenter's
holding period in his or her shares of LADD common stock is more than
one year.
It is a non-waivable condition to the merger that each of La-Z-Boy and
LADD receive another tax opinion of counsel, prior to completing the merger,
identical in all material respects to their opinions set forth above. If the
merger is completed, La-Z-Boy will file these new opinions as exhibits to the
registration statement of which this proxy statement/prospectus is a part, by
means of a post-effective amendment to the registration statement. Opinions of
counsel are not binding upon the Internal Revenue Service or the courts.
Neither La-Z-Boy nor LADD has requested or will request an advance ruling from
the Internal Revenue Service as to the tax consequences of the merger.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER
TO EACH LADD SHAREHOLDER WILL DEPEND ON THE FACTS OF THAT SHAREHOLDER'S
SITUATION. LADD SHAREHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER.
25
<PAGE>
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the
merger cannot take place until:
. both of us have given to the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice:
. notification that La-Z-Boy and LADD desire to merge; and
. certain information relating to the competitive nature of
the businesses and industries in which La-Z-Boy and LADD
operate; and
. the waiting period expires or is terminated.
We have filed all the notification and report forms required under the
Hart-Scott-Rodino Act, and we received early termination of the waiting period
on November 16, 1999. However, even though the waiting period has been
terminated, the Federal Trade Commission and the Antitrust Division retain the
authority to challenge the merger on antitrust grounds and may seek to enjoin
the completion of the merger, rescind the merger or approve the merger
conditioned on the divestiture of substantial assets of La-Z-Boy, LADD or both.
It also is possible that other state, local or foreign governmental
entities or third parties may seek to challenge the merger. In addition, it is
possible that governmental entities having jurisdiction over La-Z-Boy and LADD
may seek regulatory concessions as conditions for granting approval of the
merger. Under the merger agreement, both of us have agreed to use our
reasonable best efforts to take all actions to obtain all necessary regulatory
and governmental approvals necessary to complete the merger and to address
concerns of regulators and governmental officials. Addressing these concerns
could require that we sell portions of our businesses. While we do not expect
the closing of the merger to be prevented or materially delayed by any
challenge by regulatory authorities within or outside the United States, we can
give no assurance that the required regulatory approvals will be obtained on
terms that satisfy the conditions to completion of the merger or within the
time frame contemplated by La-Z-Boy or LADD. See "Material Terms of the Merger
Agreement--Conditions to the Completion of the Merger" on page 69.
26
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICES AND DIVIDENDS
La-Z-Boy common stock is listed on the New York and Pacific stock
exchanges under the symbol LZB. LADD common stock is traded on the Nasdaq Stock
Market under the symbol LADF.
The table below sets forth, for the periods indicated, the high and low
sale prices of the shares of La-Z-Boy common stock as reported on the NYSE
Composite Transaction Reporting System and of LADD common stock on the Nasdaq
Stock Market and the cash dividends declared on La-Z-Boy common stock. No cash
dividends were declared on LADD common stock during these periods.
La-Z-Boy's common stock prices and the cash dividend amounts in the
following table have been adjusted to reflect La-Z-Boy's three-for-one stock
split effective September 1998.
<TABLE>
<CAPTION>
LA-Z-BOY COMMON STOCK LADD COMMON STOCK
--------------------------------------------------------------------------------
QUARTER
ENDED HIGH LOW DIVIDEND QUARTER ENDED HIGH LOW DIVIDEND
-------- ------ ------ -------- ------------------------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
April
26,
1997 $12.29 $10.25 $0.07 March 29, 1997 $16.13 $14.38 --
July 26,
1997 12.64 10.59 0.07 June 28, 1997 15.25 12.25 --
October
25,
1997 12.98 11.42 0.07 September 27, 1997 19.38 13.63 --
January
24,
1998 14.94 12.40 0.07 January 3, 1998 18.25 14.50 --
April
25,
1998 17.83 14.31 0.07 April 4, 1998 25.00 14.63 --
July 25,
1998 19.46 16.33 0.07 July 4, 1998 30.50 21.00 --
October
24,
1998 22.50 15.63 0.08 October 3, 1998 31.50 13.63 --
January
23,
1999 20.44 15.25 0.08 January 2, 1999 20.25 13.38 --
April
24,
1999 22.25 17.00 0.08 April 3, 1999 23.25 15.81 --
July 25,
1999 24.56 19.50 0.08 July 3, 1999 22.88 16.88 --
October
23,
1999 24.44 17.94 0.08 October 2, 1999 23.50 17.50 --
Current
quarter
through
December
22, Current quarter through
1999 20.38 16.06 0.08 December 22, 1999 23.58 18.69 --
</TABLE>
On September 27, 1999, the last full trading day prior to the signing of
the merger agreement, the closing price of La-Z-Boy common stock reported on
the NYSE Composite Transaction Reporting System and the closing price of LADD
common stock on the Nasdaq Stock Market were $20.94 per share and $20.25 per
share, respectively. On December 22, 1999, the last trading day prior to the
printing of this proxy statement/prospectus for which it was practicable to
include prices, the closing price of La-Z-Boy common stock reported on the NYSE
Composite Transaction Reporting System and the closing price of LADD common
stock on the Nasdaq Stock Market were $16.13 per share and $18.69 per share,
respectively. WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING
ANY DECISION WITH RESPECT TO THE MERGER.
Following the merger, La-Z-Boy's common stock will continue to be traded
on the New York and Pacific stock exchanges under the symbol LZB.
DIVIDEND POLICY
The merger agreement permits La-Z-Boy to pay regular quarterly cash
dividends to its shareholders prior to completing the merger, and La-Z-Boy
expects to continue to pay dividends on its common stock after the merger.
However, the payment of dividends will be at the discretion of the La-Z-Boy
board of directors and will be determined after consideration of various
factors, including the earnings and financial condition of the post-merger La-
Z-Boy and its subsidiaries. The merger agreement prohibits any dividend
declarations or payments by LADD pending the merger.
27
<PAGE>
INFORMATION ABOUT LADD
LADD is one of the largest publicly-traded residential furniture
manufacturers in the United States. It is also one of the world's premier
suppliers of residential furniture for the hospitality, assisted-living and
government markets. In the United States, LADD markets its wide range of
bedroom, living room, occasional and upholstered furniture under the major
brand names American Drew, Barclay, Clayton Marcus, HickoryMark, Lea,
Pennsylvania House and Pilliod. These brands are also exported through LADD
International to more than 50 foreign countries. LADD's products cover most
major price points in both residential casegoods and upholstery. It currently
sells to approximately 6,100 customers, including retail furniture chains,
national general retailers, department stores and independent furniture
retailers.
LADD's contract sales group markets its furniture under the American of
Martinsville brand name to major hotel chains and other institutional
customers. LADD also owns and operates LADD Transportation, a full service
trucking company. LADD is headquartered in Greensboro, North Carolina and
employs approximately 6,700 people. It operates 22 manufacturing facilities in
eight states.
LADD's stock trades on the Nasdaq Stock Market under the symbol LADF.
Other information about LADD is incorporated by reference into this proxy
statement/prospectus as described under "Where You Can Find More Information"
on page 82. Internet users can obtain more information about LADD at
http://www.laddfurniture.com.
INFORMATION ABOUT LA-Z-BOY
The successor to a business founded more than 70 years ago in Monroe,
Michigan, La-Z-Boy is the nation's leading manufacturer of upholstered seating,
and the third largest manufacturer of residential furniture. With approximately
14,000 employees in 35 manufacturing facilities in the United States, Canada,
England, Mexico and Thailand, La-Z-Boy manufactures and sells a wide variety of
upholstered and casegoods furniture under the brand names La-Z-Boy, Hammary,
Kincaid, England/Corsair, Sam Moore, Bauhaus and Centurion.
La-Z-Boy reports its divisions' operations under two segments:
. Residential upholstery. Operating divisions in this segment primarily
manufacture and sell upholstered furniture to dealers. Upholstered
furniture includes recliners, sofas, occasional chairs and reclining
sofas that are mostly or fully covered with fabric, leather or vinyl.
La-Z-Boy's major operating divisions in the residential upholstery
segment are La-Z-Boy Residential, England/Corsair, Sam Moore, Bauhaus
and Centurion.
. Residential casegoods. Operating divisions in this segment primarily
manufacture and sell hardwood or hardwood veneer furniture to
dealers. Casegoods furniture includes dining room tables and chairs,
bed frames and bed boards, dressers, coffee tables and end tables.
La-Z-Boy's operating divisions in the residential casegoods segment
are Kincaid and Hammary.
La-Z-Boy's common stock trades on the New York Stock Exchange and the
Pacific Exchange under the symbol LZB. Internet users can obtain more
information about La-Z-Boy at http://www.la-z-boy.com.
La-Z-Boy was incorporated as a Michigan corporation on May 1, 1941. The
address of its principal executive office is 1284 N. Telegraph Road, Monroe,
Michigan 48162, and its telephone number is (734) 241-4414.
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LA-Z-BOY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the information in this section in conjunction with the
financial statements and related information that begins on page F-1.
Recent and Pending Acquisitions
Bauhaus's operations are included in La-Z-Boy's results for the entire
quarter ended October 23, 1999 and for approximately five of the six months
ended on that date but not in the comparable periods of the prior year.
After the consummation of the merger, La-Z-Boy will have three reportable
segments: residential upholstery, residential casegoods and contract sales.
Except where expressly stated otherwise, the discussion that follows does not
include any anticipated results of the merger with LADD or the pending
acquisition of Alexvale.
Analysis of Operations
Year Ended April 24, 1999 (1999 compared with 1998)
1999 sales of $1.3 billion were 16% greater than in 1998. About 80% of
the increase was due to internal growth of existing divisions, and the
remainder was due to acquisitions. La-Z-Boy believes that its 1999 internal
growth rate of about 13% exceeded the U.S. industry average for comparable time
periods. Selling price increases per unit were small, but a product mix that
favored higher priced products did yield a favorable impact of approximately 3-
4%. La-Z-Boy did not introduce any major new product lines in 1999 but did
introduce new styles and new collections of styles across all divisions
throughout the year. Of particular note was the joint introduction of the
Thomas Kinkade Home Furnishings Collection by the La-Z-Boy Residential and
Kincaid divisions. In addition, La-Z-Boy added new fabrics to replace slower
moving fabrics throughout the year. La-Z-Boy did not add any major new dealers
in 1999 and did not drop any significant dealers.
Gross profit margin (gross profit dollars as a percent of sales dollars)
increased to 26.5% in 1999 from 25.5% in 1998. An approximate 11% increase in
unit volume had a favorable impact on the gross margin percentage by enabling
absorption of fixed manufacturing costs more efficiently than in the prior
year. The absence of hardwood and plywood supply chain disruptions and
casegoods manufacturing plant consolidations also favorably affected the gross
profit margin percentage. Currency exchange impacts associated with inventory
movements between supply center plants and Residential division plants in the
U.S. to a Residential division plant in Canada had a negative impact on the
gross profit margin percentage. As in 1998, labor wage rates rose moderately,
and purchased material prices were generally flat as decreased prices for
cardboard, batting and polyurethane foam were offset by increased prices for
other materials.
Selling, general and administrative expense decreased to 18.2% of sales
in 1999 from 18.5% in 1998. Bonus related expense was significantly higher in
1999 as compared to 1998 in addition to increased information technology
expenses. The increase in information technology expenses was mainly due to
year 2000 related issues. However, these increases were more than offset by
selling and advertising expenses being lower as a percent of sales.
Fiscal 1999 included 52 weeks, while fiscal 2000 will contain 53. This
increase in the length of the fiscal year will affect sales and other financial
comparisons from year to year.
Year Ended April 25, 1998 (1998 compared with 1997)
1998 sales of $1.1 billion were 10% greater than in 1997. Internal growth
of existing divisions accounted for about 85% of the increase, and the
remainder was due to acquisitions. Internal division growth rates ranged from a
low of 6% to a high of 19%. La-Z-Boy experienced strong sales in almost all
29
<PAGE>
product lines within each division. La-Z-Boy believes that its 1998 internal
growth rate of about 8.5% slightly exceeded the U.S. industry average for
comparable time periods. Selling price increases per unit were small, and there
were no significant shifts to higher or lower priced products. La-Z-Boy did not
introduce any major new product lines in 1998, but it did add new styles and
new collections of styles across all divisions throughout the year. In
addition, it added new fabrics to replace slower moving fabrics throughout the
year. La-Z-Boy did not add any major new dealers in 1998 and did not drop any
significant dealers. No one dealer accounted for 3% or more of sales in 1998.
Gross profit margin declined to 25.5% in 1998 from 26.0% in 1997.
Hardwood and plywood parts production and delivery problems and related
assembly site production disruptions adversely affected gross margins, as did
the elimination of three manufacturing assembly sites. La-Z-Boy also
encountered cost problems at multiple sites trying to gear up quickly to meet
unexpectedly high product demand primarily in the second half of the year.
These items mostly affected plant overhead costs and unfavorable plant labor
variances. 1998 labor wage rates rose a moderate 2%. Purchased materials prices
were about flat compared to 1997 prices. Increased sales volumes, increased
selling prices and lower frame parts costs favorably impacted gross margins.
Selling, general and administrative expense decreased to 18.5% of sales
in 1998 from 18.6% in 1997. A decline in bonus expense and small increases in
some selling expenses more than offset increased (greater than the rate of
sales) professional related expenses, bad debts and information technology
expenses, which include year 2000 costs.
Income tax expense as a percent of pretax income declined to 37.0% in
1998 from 38.7% in 1997, reflecting a favorable shift of earnings to entities
with lower effective tax rates and the settlement of an IRS audit.
Quarter Ended October 23, 1999 Compared to Quarter Ended October 24, 1998
Sales in the second quarter of fiscal year 2000 were up 16% over the
prior year's second quarter. Roughly half of the increase was caused by the
acquisition of Bauhaus, and most of the remaining increase was also in the
upholstery segment. Casegoods sales increased 3% compared to last year. Sales
growth in casegoods was less than in the upholstery segment, primarily due to
product availability problems and some order weakness. Other sales increased
17%, primarily due to stronger sales at La-Z-Boy retail outlets.
Excluding effects of the Bauhaus acquisition, the current quarter's
results to date and incoming sales orders indicate that third quarter sales
should increase over the prior year, but at a slower rate than in the second
quarter. This continues a trend from the first quarter, and the trend is
expected to continue into the fourth quarter as well. This trend of declining
sales increases is in part due to very strong prior year sales performance and
in part because of slowing growth of U.S. furniture sales generally.
Gross profit margin decreased to 26.1% of sales from 26.8% of sales in
last year's second quarter on a 16% increase in sales and a 14% increase in
unit volume. Higher labor and overhead costs were incurred during the quarter
as a result of improving plant floor layouts to accommodate additional product
lines and to implement lean manufacturing processes. While causing short-term
disruptions and increased plant labor and overhead costs, these changes are
expected to generate long-term production capacity without the need for
additional facilities. In addition, significant employee training costs were
incurred for new hires, especially in sewing and upholstery. It has become
increasingly difficult to acquire and retain labor in a low unemployment
environment. These labor and overhead cost trends are expected to continue into
the third quarter, but at a lesser degree than experienced in the second
quarter.
Gross profit margin was also somewhat impacted by increased costs for
plywood and cardboard packaging during the second quarter, which were only
partially offset by decreased costs for leather. Costs for plywood in the third
quarter are expected to decrease, but costs for cardboard packaging are
expected to continue to increase. Foam (polyurethane) costs could rise during
calendar year 2000 if oil prices continue to rise. Fabric prices also could be
impacted by higher oil prices, although no increases are presently being
experienced. La-Z-Boy typically renegotiates its foam contracts in December on
a calendar year basis. Fabric prices are typically negotiated throughout the
year. Foam and fabric comprise about 5% and 20%, respectively of total costs in
the upholstery segment.
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Second quarter selling, general and administrative expenses decreased to
16.2% of sales from 17.8% last year. Information technology, bad debt and
selling expenses as a percent of sales were below the prior year. This
favorable trend is expected to continue throughout fiscal year 2000.
Operating profit as a percent of sales improved from 5.2% to 8.4% in the
casegoods segment and from 10.6% to 11.0% in the upholstery segment. This
continues a trend from the first quarter where casegoods profitability has
increased at a rate faster than upholstery, although casegoods' absolute level
of profitability is still less than upholstery. The primary reasons for the
improvement in second quarter profitability in the casegoods segment were a
lower level of selling price incentives and reductions in selling, general and
administrative expenses.
Interest expense as a percent of sales increased from 0.3% last year to
0.5% due to financing obtained in the first quarter for the acquisition of
Bauhaus.
Income tax expense as a percent of pretax income declined to 38.7% from
39.4% last year. Canadian operating results for the second quarter were
favorable compared to last year's second quarter. Since La-Z-Boy's Canadian
operation has net operating loss carryforwards to offset income, this resulted
in a decrease to the second quarter effective tax rate.
Six Months Ended October 23, 1999 Compared to Six Months Ended October 24,
1998
Sales in the six months ended October 23, 1999 were up 18% over the prior
year. Roughly 6% of the 18% sales increase was caused by the acquisition of
Bauhaus, which occurred in June, 1999. Most of the remaining increase was in
the upholstery segment. Casegoods sales increased 6% compared to last year.
Gross profit margin increased to 25.6% of sales from 25.4% of sales in
the first six months of the last fiscal year on an 18% increase in sales and a
17% increase in unit volume. The favorable fixed cost absorption was offset in
part by higher labor and overhead costs as a result of improving plant floor
layouts to accommodate additional product lines and implement lean
manufacturing processes. The gross profit margin was also somewhat impacted by
increased costs for plywood, which were only partially offset by decreased
costs for leather.
For the six months ended October 23, 1999, selling, general and
administrative expenses decreased to 17.1% of sales from 18.4% last year.
Information technology, bad debt and selling expenses as a percent of sales
were below the prior year.
Operating profit as a percent of sales improved from 5.4% to 9.3% in the
casegoods segment and 8.4% to 9.3% in the upholstery segment.
Interest expense as a percent of sales increased from 0.4% last year to
0.5% due to financing obtained in the first quarter for the acquisition of
Bauhaus.
Income tax expense as a percent of pretax income declined to 38.6% from
39.5% last year caused by the favorable Canadian operating results previously
discussed.
Liquidity and Capital Resources
Cash flows from operations amounted to $82 million in fiscal 1999.
Capital expenditures, dividends and stock repurchases totaled approximately
$72.2 million. Cash flows from operations amounted to $20.5 million in the
first six months of fiscal year 2000 compared to $30.2 million in the prior
year. Capital expenditures, dividends and stock repurchases totaled
approximately $41 million during the six-month period, while cash and cash
equivalents decreased by $20.8 million.
Total FIFO inventory at April 24, 1999 was 4% higher than at the end of
fiscal 1998, with raw materials increasing 8%, work-in-process decreasing 8%
and finished goods increasing 16%. The absence of last year's hardwood and
plywood supply chain disruptions permitted a significant reduction in work-in-
process inventory. Finished goods inventory levels were higher primarily due to
increased daily
31
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production volumes resulting in more finished product being staged for
shipment. Total FIFO inventory at October 23, 1999 was 20% higher than at the
end of fiscal 1999 and 17% higher than at the end of last year's second
quarter. Of this increase, 6% was due to the acquisition of Bauhaus, 6% was an
increase in finished goods to support additional sales volumes and the
remainder was primarily a raw material and work-in process increase for the
start up of a new upholstery plant.
La-Z-Boy's financial strength is reflected in two commonly used ratios,
the current ratio (current assets divided by current liabilities) and the debt-
to-capital ratio (total debt divided by shareholders' equity plus total debt).
Total debt is defined as current portion of long-term debt plus current portion
of capital leases plus long-term debt plus capital leases. La-Z-Boy's current
ratio was 3.2 to 1 at October 23, 1999 and at the end of fiscal 1999 and 3.1 to
1 at the end of last year's second quarter. At October 23, 1999, the debt to
capital ratio was 22%, compared to 14% at the end of fiscal 1999 and 15% at the
end of last year's second quarter.
As of October 23, 1999, La-Z-Boy had $113 million of unused lines of
credit available under several credit arrangements. Its primary credit
arrangement is a $75 million unsecured revolving credit line currently
scheduled to expire in August 2002. The credit agreement includes covenants
requiring maintenance of certain financial statement ratios. La-Z-Boy is in
compliance with all of the agreement's requirements. To finance the acquisition
of Bauhaus on June 1, 1999, La-Z-Boy borrowed $57 million, which is expected to
be replaced on December 29, 1999 by a borrowing under its $75 million revolving
credit line.
The Alexvale acquisition will require approximately $2.2 million for the
cash portion of the purchase price, which La-Z-Boy intends to finance by
borrowing under one of its credit lines or from cash flow from operations.
Alexvale has approximately $4 million of outstanding debt.
LADD has a $175 million asset-based credit facility maturing on July 12,
2001. As of October 2, 1999, LADD's outstanding borrowings under this credit
facility were $97.5 million, and its remaining availability under its borrowing
base formula was $41.2 million. La-Z-Boy intends to terminate the $175 million
LADD credit facility in connection with the closing of the merger and pay off
all borrowings under this facility by borrowing under a new unsecured $150
million bridge loan that would mature June 29, 2001. La-Z-Boy has obtained a
commitment letter for the new bridge loan and is in the process of negotiating
definitive documents. At October 2, 1999 LADD's total debt was approximately
$102 million. In addition, LADD finances a significant amount of machinery and
equipment through operating lease lines.
La-Z-Boy's capital expenditures were $25.3 million in fiscal 1999 and $22
million during the six months ended October 23, 1999. Without regard to the
pending LADD and Alexvale acquisitions, La-Z-Boy would expect to make capital
expenditures of approximately $8 to $12 million during the remainder of fiscal
year 2000 and approximately $25 to $35 million in fiscal year 2001. Taking the
capital expenditure needs of LADD and Alexvale into account, La-Z-Boy expects
to spend approximately $14 to $18 million during the remainder of fiscal year
2000 and approximately $45 to $55 million in fiscal year 2001. La-Z-Boy does
not currently have any material commitments for capital expenditures.
La-Z-Boy's board of directors has authorized a stock repurchase program,
under which it acquired 1,643,000 shares in 1999, 1,253,000 shares in 1998 and
1,941,000 shares in 1997. Due to repurchases during fiscal 1999, La-Z-Boy was
able to increase diluted earnings per share by $0.02 for the fiscal year. As of
December 22, 1999, 517,720 of the shares authorized for repurchase were still
available for purchase. La-Z-Boy stopped repurchasing shares before LADD sent
this proxy statement/prospectus to you, but after the merger becomes effective,
it expects to be in the market for its shares from time to time as changes in
its stock price and other factors present appropriate opportunities. October
through January are typically part of La-Z-Boy's cyclical lower cash on hand
part of the year. La-Z-Boy is prepared to borrow funds in order to repurchase
shares during this period if necessary. Such borrowings would be expected to be
from La-Z-Boy's credit lines and would be expected to be repaid from cash flow
from operations after the cyclical low period is over.
La-Z-Boy expects to meet its cash needs for pending acquisitions, capital
expenditures, stock repurchases and dividends during the remainder of the
fiscal year 2000 and fiscal year 2001 from cash generated by operations and
borrowings under available lines of credit.
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La-Z-Boy does not expect continuing compliance with existing federal,
state and local provisions dealing with protection of the environment to have a
material effect on capital expenditures, earnings, competitive position or
liquidity. La-Z-Boy will continue its program of conducting voluntary
compliance audits at its facilities. It has also taken steps to assure
compliance with provisions of Titles III and V of the 1990 Clean Air Act
Amendments. You can find more information about the effect of environmental
matters on La-Z-Boy's financial condition and results of operations in note 12
of the notes to consolidated financial statements on page F-18.
Effect of Merger Accounting Treatment on Future Earnings
La-Z-Boy will account for the LADD merger as a purchase, which requires
allocating the purchase price among the assets acquired and liabilities assumed
from LADD. The final allocations have not been completed. Since various types
of assets have different useful lives for purposes of calculating depreciation
and amortization expense, La-Z-Boy's future earnings will be affected to some
extent by the final allocation. For more information about this subject,
including an example of how a change in the allocation would affect pro forma
earnings, see note (f) under "Unaudited Pro Forma Consolidated Condensed
Financial Information" beginning on page 52.
Year 2000
The year 2000 issue arises from the use of two-digit date fields in
computer programs, which may cause problems as the year changes from 1999 to
2000. These problems could cause disruptions of operations or processing of
transactions.
To address the year 2000 challenge, La-Z-Boy established a year 2000
program office guided by a steering committee consisting of senior executive
management. This office serves as the central coordination point for all year
2000 compliance efforts. The scope of La-Z-Boy's year 2000 project includes
information technology systems and non-information technology systems as well
as third party readiness. La-Z-Boy is on schedule with regard to its internal
plan and believes it is taking the steps necessary to minimize the impact of
the year 2000 challenge.
La-Z-Boy's process for addressing the year 2000 consisted of a five-step
approach. The inventory phase was a comprehensive survey and collection of
information technology and non-information technology systems potentially
affected by the year 2000 issue. The assessment phase was a detailed analysis
and review of each identified system to determine whether or not the year 2000
issue may impact the system. The remediation phase included repair, replacement
or retirement of systems to eliminate year 2000 issues identified in the
assessment phase. The testing phase validated that each system functioned
properly using future date scenarios. The implementation phase consisted of
migrating remediated systems into production usage.
To date, La-Z-Boy has not experienced any significant material mishaps
attributed to the year 2000 issue. Failure dates were identified for
information technology and non-information technology systems and these have
been used as year 2000 project deadlines. As projects have progressed, plans
have been adjusted accordingly taking into consideration failure dates.
The challenges La-Z-Boy faces with regard to its information technology
systems include upgrading of operating systems, hardware and software and
modifying order entry and invoicing programs. La-Z-Boy has taken all reasonable
steps necessary to ensure critical information technology systems are compliant
and compatible. La-Z-Boy has completed the inventory, assessment, remediation,
testing and implementation phases for information technology systems that
handle approximately 97% of consolidated sales. For the remaining information
technology systems, it has completed the inventory, assessment and remediation
phases and substantially completed the testing and implementation phases.
However, additional testing is needed to confirm the year 2000 readiness of
these systems, and it may not be possible to complete this testing by calendar
year end. Contingency plans have been created for these systems. These plans
include manual processes and calculations, alternative back-up systems and
alternative payroll calculations. La-Z-Boy intends to continue testing for
specific date impacts through the end of calendar year 1999.
The primary challenges La-Z-Boy faced with regard to its non-information
technology systems related to plant floor machinery and facility related items.
For these systems, the inventory, assessment, remediation, testing and
implementation phases have been completed. La-Z-Boy believes these systems to
be compliant and compatible.
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The table that follows provides more information about these systems.
LA-Z-BOY INCORPORATED YEAR 2000 IT AND NON-IT CRITICAL SYSTEMS AND PHASE
COMPLETION DETAIL
<TABLE>
<CAPTION>
DIVISION PHASE
IT AND NON-IT SYSTEM INVENTORY ASSESMENT REMEDIATION TESTING IMPLEMENTATION
-------------------- --------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
LA-Z-BOY--RESIDENTIAL,
BUSINESS FURNITURE
GROUP
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Local Area Network...... C C C C C
Mainframe System........ C C C C C
Plant Floor Equipment... C C C C C
Manufacturing Execution
System................. C C C C C
HAMMARY
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Local Area Network...... C C C C C
Mainframe System........ C C C C C
Plant Floor Equipment... C C C C C
KINCAID
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
AS/400 System........... C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
ENGLAND/CORSAIR
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Mainframe System........ C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
SAM MOORE
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing--
Upholstery............. C C C C C
Inventory Management--
Frame.................. C C C 12-31-1999* 12-31-1999*
Payroll/Human
Resources--Upholstery.. C C C C C
Time and
Attendance/Payroll--
Frame.................. C C C 12-31-1999* 12-31-1999*
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Mid-Range Computer
System................. C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
BAUHAUS U.S.A., INC.
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
AS/400 System........... C C C C C
Plant Floor Equipment... C C C C C
CENTURION
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
</TABLE>
- --------
C-- Phase has been completed.
* -- Original target completion date 12-10-1999.
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With respect to third party readiness, La-Z-Boy is continuing to work
with customers, suppliers and service providers to prevent disruption of
business activities. La-Z-Boy is using multiple approaches to determine
compliance, such as written communication, oral communication and website
disclosure reviews, based on the priority assigned to the third party. For
critical third parties, oral communications have been the primary means to
obtain compliance information. Based on communications with these third
parties, La-Z-Boy believes that all critical third parties will be sufficiently
prepared for the year 2000 or La-Z-Boy has made or is in the process of making
alternative plans.
While La-Z-Boy believes it is preparing adequately for all year 2000
concerns, the year 2000 computer date changeover will be a unique event that by
its nature involves many unknowns. Internal or external system failures may
still occur, and it is possible that some of them could have a material adverse
effect on La-Z-Boy's results of operations, liquidity and financial condition.
La-Z-Boy is continuing to assess the operational risks related to the year 2000
issue. La-Z-Boy believes that the most likely worst case scenario would be
business interruptions caused by third party failures. La-Z-Boy has developed
contingency plans for issues of concern relating to critical third party
providers. These plans include building inventory levels and/or using
alternative sources. La-Z-Boy also has developed contingency plans for its own
information technology and non-information technology systems. For the
information technology systems, these plans include advance printing of
production information, alternative back-up systems, possible delays in monthly
closing cycles and rolling back of dates. For non-information technology
systems, specifically plant floor equipment, the contingency plans include
forward advancement of dates and/or rolling back of dates. La-Z-Boy intends to
refine its contingency plans through the end of calendar year 1999.
La-Z-Boy estimates that total year 2000 related costs will be between $11
and $12 million. To date, La-Z-Boy has spent approximately $10.5 million. Total
estimated expenditures include both remediation and, in some cases, enhancement
or improvement related costs that cannot easily be separated from remediation
costs. La-Z-Boy had previously planned some of these enhancements or
improvements and merely accelerated them as a means to address year 2000
challenges.
Accounting for Derivative Instruments and Hedging Activities
In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which will
be effective for La-Z-Boy's fiscal year 2002. SFAS No. 133 requires a company
to recognize all derivative instruments as assets or liabilities in its balance
sheet and measure them at fair value. La-Z-Boy has not yet determined when it
will implement SFAS No. 133 or what impact implementation will have on its
financial position or results of operations.
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UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
QUARTERS ENDED
----------------------------------- FISCAL YEAR
7/25/98 10/24/98 1/23/99 4/24/99 1999
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Sales......................... $268,880 $334,831 $318,105 $365,829 $1,287,645
Cost of sales................. 205,431 245,062 230,923 265,315 946,731
-------- -------- -------- -------- ----------
Gross profit................ 63,449 89,769 87,182 100,514 340,914
Selling, general and
administrative............... 51,288 59,510 58,758 64,519 234,075
-------- -------- -------- -------- ----------
Operating profit............ 12,161 30,259 28,424 35,995 106,839
Interest expense.............. 1,187 1,164 1,110 979 4,440
Interest income............... 577 471 430 703 2,181
Other income.................. 355 865 962 476 2,658
-------- -------- -------- -------- ----------
Pretax income............... 11,906 30,431 28,706 36,195 107,238
Income tax expense............ 4,722 11,984 10,978 13,412 41,096
-------- -------- -------- -------- ----------
Net income................ $ 7,184 $ 18,447 $ 17,728 $ 22,783 $ 66,142
======== ======== ======== ======== ==========
Diluted earnings per share.. $ 0.13 $ 0.35 $ 0.34 $ 0.43 $ 1.24
======== ======== ======== ======== ==========
<CAPTION>
FISCAL YEAR
7/26/97 10/25/97 1/24/98 4/25/98 1998
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Sales......................... $212,326 $293,208 $280,520 $321,984 $1,108,038
Cost of sales................. 164,184 215,370 211,688 234,070 825,312
-------- -------- -------- -------- ----------
Gross profit................ 48,142 77,838 68,832 87,914 282,726
Selling, general and
administrative............... 45,357 50,400 50,189 59,577 205,523
-------- -------- -------- -------- ----------
Operating profit............ 2,785 27,438 18,643 28,337 77,203
Interest expense.............. 1,024 1,027 1,048 1,058 4,157
Interest income............... 482 512 568 459 2,021
Other income.................. 750 527 240 2,690 4,207
-------- -------- -------- -------- ----------
Pretax income............... 2,993 27,450 18,403 30,428 79,274
Income tax expense............ 1,267 10,628 6,944 10,515 29,354
-------- -------- -------- -------- ----------
Net income................ $ 1,726 $ 16,822 $ 11,459 $ 19,913 $ 49,920
======== ======== ======== ======== ==========
Diluted earnings per share.. $ 0.03 $ 0.31 $ 0.21 $ 0.37 $ 0.93
======== ======== ======== ======== ==========
</TABLE>
Some of the data in the table above is restated to reflect a three-for-
one stock split that was effective in September 1998.
BUSINESS
Principal Products
La-Z-Boy is the third largest residential furniture maker in the U.S.,
one of the largest reclining chair manufacturers in the world and the nation's
leading manufacturer of upholstered seating. It reports its operations under
two segments: residential upholstery and residential casegoods. You can find
more information about La-Z-Boy's segments, including segment financial data,
in note 11 to the audited financial statements beginning on page F-16.
The primary difference between the upholstery and the casegoods segments
is in the manufacturing area. In general, upholstery manufacturing requires
lower capital expenditures per dollar of sales than casegoods but higher labor
costs. Equipment needs and manufacturing processes are different in many key
areas, and product costs reflect these significant differences. Upholstery
typically uses plywood or other "frame" (not exposed) wood, which requires less
detailing and uses some different manufacturing methods than casegoods wood
processing. Casegoods require more extensive automated equipment for drying,
processing, cutting, sanding and finishing exposed hardwood and veneer
products. Wood and related wood processing costs for upholstery (or total frame
costs) are a much smaller
36
<PAGE>
percentage of total unit costs in upholstery than casegoods. Upholstery's
largest costs are related to the purchased cost of fabric (or leather, vinyl,
etc.), cutting fabric, sewing the fabric and upholstering the fabric and other
materials to the frame. Casegoods manufacturing typically has none of these
costs or processes. Upholstery also extensively uses filler materials such as
polyurethane foam for cushioning and appearance whereas casegoods manufacturing
typically has none of these costs or processes. Also, in "motion" upholstery
products, such as the La-Z-Boy recliner chair, which are a large portion of
La-Z-Boy's total upholstery sales, there are metal mechanism processes and
costs versus none in casegoods.
La-Z-Boy has recently begun contracting with suppliers in the Far East,
Mexico and Central America to produce some of its casegoods products. During
fiscal 1999, these imported products accounted for about 2% of total
consolidated sales.
In addition to the divisions operating in its two principal business
segments, La-Z-Boy has other operating divisions that are reviewed for
performance by management, including business furniture operations, logistics
operations, financing, retail and other operations.
The largest division is La-Z-Boy Residential, which accounts for the
majority of the upholstery segment. Sales by dealer type during the last three
fiscal years were as follows:
<TABLE>
<CAPTION>
LA-Z-BOY RESIDENTIAL DIVISION 1999 1998 1997
----------------------------- ---- ---- ----
<S> <C> <C> <C>
Galleries/proprietary................................... 53% 51% 51%
General dealers......................................... 34 35 36
Department stores/chains................................ 13 14 13
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Recent Acquisitions
On April 29, 1995, La-Z-Boy acquired all of the capital stock of
England/Corsair, Inc., a manufacturer of upholstered furniture. For the twelve
months ended April, 1995, its sales were $103.2 million and income before
income tax expense was $3.9 million.
La-Z-Boy acquired 75% of the ordinary share capital of Centurion
Furniture plc, a furniture manufacturer located in England, during fiscal year
1997 and acquired the remaining 25% during fiscal year 1998. Centurion's sales
for its year ended March 31, 1997 were $12 million.
During fiscal year 1998, La-Z-Boy acquired Distincion Muebles, a
furniture manufacturer located in Mexico. Its sales for its year ended March
30, 1998 were $1.9 million.
On April 1, 1998, La-Z-Boy acquired all of the stock of Sam Moore
Furniture Industries, Incorporated, a manufacturer of upholstered furniture.
For its year ended December 31, 1997, Sam Moore Furniture Industries' sales
were $33 million.
La-Z-Boy acquired Bauhaus U.S.A., Inc., a manufacturer of upholstered
furniture primarily marketed to department stores, on June 1, 1999. Bauhaus's
sales for its fiscal year ended August 31, 1998 were approximately $85 million.
On November 11, 1999, La-Z-Boy signed a definitive agreement to acquire
Alexvale Furniture, Inc., a manufacturer of medium priced upholstered
furniture. Alexvale's sales for its fiscal year ended April 30, 1999 were
approximately $61 million.
Raw Materials
The principal raw materials La-Z-Boy uses are:
. hardwoods for solid wood dining room and bedroom furniture,
casegoods, occasional tables and for the frame components of
seating units
37
<PAGE>
. plywood and chipwood for internal parts
. veneers for wall units and occasional tables
. water-based and liquid finishes (stains, sealant, lacquers) for
external wood
. steel for the mechanisms
. leather, cotton, wool, synthetic and vinyl fabrics for covers
. polyester batting and non-chlorofluorocarbonated polyurethane foam
for cushioning and padding
La-Z-Boy generally purchases steel and wood products from a number of
sources, usually in the vicinity of the particular plant. It purchases product-
covering fabrics and polyurethane from a substantial number of sources on a
mostly centralized basis. It fabricates many of the parts in its products,
largely because quality parts made to its exact specifications are not
obtainable at reasonable cost from outside sources.
Raw material costs historically have been about 38% of sales in
upholstery operations and a somewhat higher percentage in casegoods operations.
Purchased fabric (which includes leather) is the largest single raw material
cost, representing about 41% of total upholstery product material costs.
Polyurethane foam and lumber are La-Z-Boy's next two largest types of
upholstery raw material costs. Polyurethane is sensitive to changes in the
price of oil. Price increases for raw materials have been slightly lower than
the inflation rate in recent years.
Lumber and plywood historically have had measurable changes in prices
over the short term and long term. La-Z-Boy usually is not as affected by these
changes as much as many other furniture manufacturers due to the large
percentage of upholstered goods it manufactures that do not require as much
wood as casegoods. Also, wood substitutes, (for example, steel and plastic) can
be used to some degree in upholstered products.
Patents
La-Z-Boy has no material licenses, franchises or concessions. It
currently holds approximately 90 U.S. and 200 foreign patents, and it has
pending applications for approximately 20 U.S. and 130 foreign patents. Most of
La-Z-Boy's patents and pending patent applications are directed to mechanisms
and improvements for its motion furniture products, including its reclining
chair and rocking chair mechanisms. In addition, some of the patents are
directed to furniture designs. Three of La-Z-Boy's U.S. patents and 19 of its
foreign patents are due to expire within the next three years. These patents
are directed to mechanisms for particular furniture products no longer produced
by La-Z-Boy.
La-Z-Boy's original U.S. patents on its mechanisms expired many years
ago. Its management believes that patents were important to its original
success and significantly helped establish its present competitive position and
that its practice of continuing to patent mechanisms and improvements gives it
certain competitive advantages. However, it also believes that, since it is now
so firmly established in the industry, the loss of any single patent or small
group of patents, including the group scheduled to expire in the next three
years, would not materially affect its business.
Seasonal Business
La-Z-Boy generally experiences its lowest level of sales during the first
quarter. When possible, it designs production schedules to maintain generally
uniform manufacturing activity throughout the year, except for mid-summer plant
shutdowns to coincide with slower sales.
Practices Regarding Working Capital Items
La-Z-Boy does not carry significant amounts of upholstered finished goods
inventory. La-Z-Boy builds most casegoods for inventory to provide for quicker
delivery requirements of customers, which results in higher levels of finished
product on hand at any given point in time than is the case with upholstered
products. The Kincaid and Hammary divisions primarily sell casegood products.
La-Z-Boy also sells casegoods through its Business Furniture Group.
Normal customer terms provide for one payment due within 45 days with a
1% discount for payment within 30 days. La-Z-Boy often offers extended payment
terms on sales promotions.
38
<PAGE>
Customers
La-Z-Boy distributes to over 20,000 locations. It did not have any
customer whose sales amounted to 3% or more of consolidated sales for fiscal
year 1999.
In fiscal 1999, the approximate dealer mix was 43% proprietary, 16% to
major dealers (Montgomery Ward and other department stores) and 41% to general
dealers. Proprietary dealers are stores either dedicated to the sale of La-Z-
Boy products or with a La-Z-Boy gallery within the store. Dedicated stores
include La-Z-Boy Furniture Galleries stores and Showcase Shoppes. Customers
have established in-store dedicated galleries for many of La-Z-Boy's divisions.
Orders and Backlog
The majority of Residential division orders are for dealer stock, with
approximately 39% of orders being requested directly by customers. About 7% of
the units produced at all divisions are for inventory. The rest are built to
order for dealers.
As of September 26, 1999, backlog was approximately $134 million,
compared to approximately $119 million at September 26, 1998. These amounts
represent less than five weeks of sales. On average, La-Z-Boy ships orders in
approximately five weeks. The measure of backlog at a point in time may not be
indicative of future sales performance. La-Z-Boy does not rely entirely on
backlogs to predict future sales since the sales cycle is only five weeks and
backlog can change from week to week.
La-Z-Boy's general cancellation policy is that an order cannot be
canceled after it has been selected for production. Orders from prebuilt stock,
though, may be canceled up to the time of shipment.
Competitive Conditions
La-Z-Boy believes it ranks third in the U.S. in dollar volume of sales
within the residential furniture industry, which includes manufacturers of
bedroom, dining room and living room furniture. Some of the larger companies
that compete with the residential side of La-Z-Boy are Bassett Furniture, Ethan
Allen, Furniture Brands International, LADD, Lifestyle Furnishings
International and Natuzzi.
La-Z-Boy competes primarily by emphasizing the quality of its products,
dealer support, brand name and a lifetime warranty on its reclining and leg
rest mechanisms.
La-Z-Boy has approximately 15 major competitors in the U.S. reclining or
motion chair field and a substantially larger number of competitors in the
upholstery business as a whole, as well as in the casegoods and business
furniture businesses.
Research and Development Activities
During the last three fiscal years, La-Z-Boy spent the amounts shown in
the chart below for new product development, existing product improvement,
quality control, improvement of current manufacturing operations and research
into the use of new materials in the construction of its products. Customers
generally do not engage in research with respect to La-Z-Boy products.
<TABLE>
<CAPTION>
FISCAL YEAR EXPENSE
----------- ------------
<S> <C>
1999................................................. $8.4 million
1998................................................. 9.5 million
1997................................................. 8.3 million
</TABLE>
Compliance with Environmental Regulations
La-Z-Boy has been named as a potentially responsible party at six
environmental clean-up sites. Based on a review of all currently known facts
and experience with previous environmental clean-up sites, management does not
anticipate that future expenditures for environmental clean-up sites will have
a material adverse effect on financial condition or results of operations.
39
<PAGE>
Number of Employees
La-Z-Boy and its subsidiaries employed 14,061 persons as of November 27,
1999, 12,796 persons as of April 24, 1999 and 12,155 persons as of April 25,
1998.
Export and International Sales
About 1% of total sales are exports. La-Z-Boy sells upholstered furniture
to Canadian customers through its Canadian subsidiary, La-Z-Boy Canada Limited,
and to European customers through its United Kingdom subsidiary, Centurion
Furniture plc. It also derives a small amount of royalty revenues from selling
and licensing its trademarks, trade names and patents to foreign manufacturers.
PROPERTIES
La-Z-Boy operates 35 manufacturing plants, most with warehousing space
and several with divisional offices, an automated fabric-processing center,
five supply centers, and a corporate and divisional office. The table below
shows the location of the plants, the approximate floor space, the principal
operations conducted and the average age of the facility. Some locations listed
in the table have more than one plant.
<TABLE>
<CAPTION>
FLOOR SPACE FACILITIES'
LOCATION (SQUARE FEET) OPERATIONS CONDUCTED AVERAGE AGE
---------------------------------------- ------------- ------------------------ -----------
<C> <C> <S> <C>
Bedford, Virginia....................... 285,431 Manufacturing and 40
(Sam Moore) assembly of upholstery
Clearfield, Utah........................ 48,000 Upholstering and 8
(England/Corsair) assembly of upholstery
Dayton, Tennessee....................... 910,880 Manufacturing, assembly 16
(Residential) and warehousing of
upholstery and research
and development
Florence, South Carolina................ 416,249 Manufacturing, assembly 29
(Residential) and warehousing of
upholstery
Florence, South Carolina................ 48,400 Fabric processing center 22
(Residential)
Hudson area, North Carolina............. 1,072,745 Manufacturing, assembly 32
(Kincaid) and warehousing of
casegoods and division
office
Irapuato, Mexico........................ 30,000 Manufacturing of 21
(Distincion Muebles) upholstery
Leland, Mississippi..................... 311,990 Manufacturing, assembly 23
(Contract) and warehousing of
upholstery and
warehousing of Business
Furniture casegoods
Lenoir area, North Carolina............. 654,688 Manufacturing, assembly 31
(Hammary) and warehousing of
primarily casegoods and
some upholstered
products and division
office
Leyland, England, County of Lancashire.. 200,000 Manufacturing and 33
(Centurion) warehousing of
upholstery and division
offices
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
FLOOR SPACE FACILITIES'
LOCATION (SQUARE FEET) OPERATIONS CONDUCTED AVERAGE AGE
---------------------------------- ------------- ------------------------ -----------
<C> <C> <S> <C>
Lincolnton, North Carolina........ 375,823 Manufacturing, 31
(Residential and Contract) warehousing and assembly
of upholstery and
casegoods
Monroe, Michigan.................. 242,235 Corporate office, 48
Residential and Business
Furniture Group division
offices
Morristown, Tennessee............. 15,000 Manufacturing of 11
(England/Corsair) upholstery
Neosho, Missouri.................. 560,640 Manufacturing, assembly 23
(Residential) and warehousing of
upholstery
New Tazewell, Tennessee........... 737,978 Manufacturing, assembly 6
(England/Corsair) and warehousing of
primarily upholstery and
division office
Newton, Mississippi............... 742,255 Manufacturing, assembly, 19
(Residential) leather cutting, plywood
cutting and warehousing
of upholstery
Paoli, Indiana.................... 15,000 Manufacturing of 30
(England/Corsair) upholstery
Redlands, California.............. 189,125 Upholstering, assembly 29
(Residential) and warehousing of
upholstery
Siloam Springs, Arkansas.......... 399,616 Upholstering, 4
(Residential) warehousing and assembly
of upholstery
Tremonton, Utah................... 672,770 Manufacturing, assembly 14
(Residential) and warehousing of
upholstery
Waterloo, Ontario................. 257,340 Assembly and warehousing 29
(Residential) of upholstery and
division office
Northeastern Mississippi.......... 479,000 Manufacturing and 22
(Bauhaus) warehousing of
upholstery and division
office
Booneville, Mississippi .......... 190,000 Manufacturing of 10
(England/Corsair) upholstery
Stockton, California.............. 138,000 Manufacturing of 12
(England/Corsair) upholstery
Phanatnikom, Chon Buri, Thailand.. 70,000 Manufacturing of 10
(La-Z-Boy Thailand) upholstery
---------
9,063,165
=========
</TABLE>
La-Z-Boy owns its Monroe, Michigan headquarters. It also owns the
Redlands, California; Dayton, Tennessee; Waterloo, Ontario, Canada; Lincolnton,
North Carolina; Lenoir, North Carolina; Hudson, North Carolina; New Tazewell,
Tennessee; Morristown, Tennessee; Bedford, Virginia; Leyland, England,
Booneville, Mississippi and Newton, Mississippi plants and one of the Bauhaus
facilities.
The Florence, South Carolina; Neosho, Missouri; Newton, Mississippi;
Siloam Springs, Arkansas and Tremonton, Utah plant as well as the automated
Fabric Processing Center were financed by the issuance of industrial revenue
bonds and are occupied under long-term leases with government authorities. The
Leland, Mississippi plant is occupied under a long-term lease from the Board of
Supervisors of Washington County, Mississippi. These leases are capitalized by
La-Z-Boy. It also occupies the Clearfield, Utah; Paoli, Indiana, Stockton,
California and Irapuato, Mexico plants and the other three Bauhaus facilities
under long-term leases. The facility in Thailand is leased on a month-to-month
basis.
In the Alexvale transaction, La-Z-Boy will acquire 2 upholstery plants,
totaling approximately 330,000 square feet, a 91,000 square foot frame plant
and an assembly/warehouse facility of 95,000 square feet. The facilities are
located in and around Taylorsville, North Carolina.
41
<PAGE>
La-Z-Boy believes that its plants are well maintained, in good operating
condition and will be adequate to meet its present and near future business
requirements.
LEGAL PROCEEDINGS
La-Z-Boy has been named as a defendant in various lawsuits arising in the
ordinary course of business. It is not possible at the present time to estimate
the ultimate outcome of these actions. However, management believes that the
resultant liability, if any, will not be material based on its previous
experience with lawsuits of these types.
La-Z-Boy has been named as a potentially responsible party at six
environmental clean-up sites. Based on a review of all currently known facts
and experience with previous environmental clean-up sites, management does not
anticipate that future expenditures for environmental clean-up sites will have
a material adverse effect on La-Z-Boy's financial condition or results of
operations.
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Table I below identifies each person known to La-Z-Boy to be a beneficial
owner of more than 5% of its common stock, the number and percentage of shares
owned by that person on November 30, 1999, and the merger's effect on that
percentage, and Table II below provides information about the common stock
beneficially owned as of that date by each director and executive officer of
La-Z-Boy and all directors and executive officers as a group. The share
ownership data in the tables concerning a given individual or entity in each
case was provided by that person. Unless otherwise indicated, each person named
in a table has sole voting and investment power over the shares shown for him.
Shares reported in Table II for more than one named individual are
included only once in the total for all directors and executive officers as a
group.
TABLE I
<TABLE>
<CAPTION>
PERCENT OF
CLASS
---------------
NUMBER OF BEFORE AFTER
NAME AND ADDRESS SHARES MERGER MERGER
---------------- ---------- ------- -------
<S> <C> <C> <C>
Monroe Bank & Trust, Monroe, Michigan 48161.......... 11,916,772 22.976% 19.501%
</TABLE>
The shares shown in Table I are held in various trusts of which Monroe
Bank & Trust is the trustee or a co-trustee. In those capacities, Monroe Bank &
Trust has sole or shared investment and/or voting power over these shares and
accordingly is deemed a beneficial owner of all of them. One of the trusts of
which Monroe Bank & Trust is trustee is a trust for the benefit of participants
in La-Z-Boy's profit sharing plan. As trustee, Monroe Bank & Trust has sole
voting and investment power over the 406,500 shares held in that trust, which
are included in the total shown above.
TABLE II
<TABLE>
<CAPTION>
PERCENT OF
CLASS
--------------
NUMBER OF BEFORE AFTER
NAME SHARES MERGER MERGER
---- --------- ------ ------
<S> <C> <C> <C>
Gerald L. Kiser................................... 98,147 * *
Patrick H. Norton................................. 304,960 * *
Frederick H. Jackson.............................. 487,401 * *
Lorne G. Stevens.................................. 38,619 * *
Gene M. Hardy..................................... 121,254 * *
H. George Levy.................................... 7,200 * *
David K. Hehl..................................... 24,972 * *
John F. Weaver.................................... 58,500 * *
Rocque E. Lipford................................. 12,900 * *
James W. Johnston................................. 957,610 1.846% 1.567%
All directors and executive officers as a group
(10 persons)..................................... 2,111,563 4.071% 3.456%
</TABLE>
--------
*less than 1%
42
<PAGE>
For purposes of calculating the percentage of ownership of the group, all
shares subject to options held by any group member that either were exercisable
on, or would become exercisable within 60 days after, the date as of which the
information is given are treated as outstanding, but for purposes of
calculating the percentage of ownership of any individual group member, only
the optioned shares held by that group member are treated as outstanding. Table
II includes the following numbers of optioned shares:
<TABLE>
<CAPTION>
SHARES
COVERED
PERSON BY OPTIONS
------ ----------
<S> <C>
Mr. Kiser................ 45,750
Mr. Norton............... 72,301
Mr. Jackson.............. 72,301
Mr. Hardy................ 21,576
</TABLE>
Table II also includes the following numbers of shares owned by a named
person's wife, the beneficial ownership of which in each case is disclaimed by
the named person:
<TABLE>
<CAPTION>
SHARES OWNED
PERSON BY WIFE
------ ------------
<S> <C>
Mr. Norton.................. 32,540
Mr. Jackson................. 2,400
Mr. Hardy................... 51,330
Mr. Hehl.................... 5,616
Mr. Weaver.................. 46,800
Mr. Lipford................. 2,400
Mr. Johnston................ 162,210
</TABLE>
The shares shown in Table II for each of Mr. Jackson, Mr. Hardy and Mr.
Weaver do not include the 406,500 shares held in the trust for La-Z-Boy's
profit sharing plan. These gentlemen act as an informal committee that from
time to time has made investment recommendations to Monroe Bank & Trust, the
trustee. The trustee has sole voting and investment power over the shares in
the trust, and while it has followed the informal committee's recommendations
in the past, it has no obligation to do so.
MANAGEMENT AND RELATED MATTERS
Directors and Executive Officers
La-Z-Boy's board of directors is divided into three classes, two
consisting of three directors and one consisting of four directors. Directors
serve for three-year, staggered terms, such that the terms of office of
directors comprising one of the classes expires each year. The table that
follows provides background information concerning each of the directors and
executive officers:
43
<PAGE>
DIRECTORS WITH TERMS EXPIRING IN 2000
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE AND OTHER
NAME AGE SINCE DIRECTORSHIPS
---- --- -------- -----------------------------
<C> <C> <C> <S>
Lorne G. Stevens....... 72 1972 On April 30, 1988, Mr. Stevens retired
from La-Z-Boy as Vice President of
Manufacturing, a position he had held for
more than five years.
*Patrick H. Norton..... 77 1981 In October 1997, Mr. Norton was appointed
Chairman of the Board. Previously, he
served as Senior Vice President, Sales
and Marketing of La-Z-Boy for more than
five years. Mr. Norton is a director of
Culp, Inc.
*Frederick H. Jackson.. 72 1971 Mr. Jackson was appointed Executive Vice
President Finance of La-Z-Boy in October
1997, after holding the position of Vice
President Finance for more than five
years.
DIRECTORS WITH TERMS EXPIRING IN 2001
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE AND OTHER
NAME AGE SINCE DIRECTORSHIPS
---- --- -------- -----------------------------
<C> <C> <C> <S>
*Gene M. Hardy......... 62 1982 Mr. Hardy has been Secretary and
Treasurer of La-Z-Boy for more than five
years.
David K. Hehl.......... 53 1977 Mr. Hehl has been a member in the public
accounting firm of Cooley Hehl Wohlgamuth
& Carlton P.L.L.C. since January 1995 and
previously was a partner of Cooley Hehl
Wohlgamuth & Carlton for more than five
years.
Rocque E. Lipford...... 61 1979 Mr. Lipford has been a senior member in
the law firm of Miller, Canfield, Paddock
and Stone, P.L.C., since January 1994 and
previously was a partner of Miller,
Canfield, Paddock and Stone for more than
five years. Mr. Lipford is a director of
Monroe Bank & Trust.
DIRECTORS WITH TERMS EXPIRING IN 2002
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE AND OTHER
NAME AGE SINCE DIRECTORSHIPS
---- --- -------- -----------------------------
<C> <C> <C> <S>
John F. Weaver......... 83 1971 Mr. Weaver was elected Vice Chairman of
the Board of Monroe Bank & Trust in April
1997 and previously was Executive Vice
President and a director of Monroe Bank &
Trust for more than five years.
James W. Johnston...... 60 1991 Mr. Johnston has been a self-employed
financial and business consultant and
private investor for more than five
years.
H. George Levy, M.D. 50 1997 Dr. Levy has been a Doctor of
Otolaryngology for more than five years.
*Gerald L. Kiser....... 52 1997 Mr. Kiser became Executive Vice President
and Chief Operating Officer of La-Z-Boy
in April 1997. He was promoted to
President and Chief Operating Officer in
October 1997. Previously, he served as
La-Z-Boy's Vice President--Operations
(May 1996-April 1997), as its Vice
President of Engineering and Development
for one year and as Senior Vice President
of Operations of Kincaid Furniture
Company for more than five years.
</TABLE>
- --------
*Executive officer
44
<PAGE>
Non-employee directors receive annual retainers of $20,000 and a fee of
$750 for each board meeting and each board committee or subcommittee meeting
attended, including telephonic meetings. Employee directors receive no fees for
attendance at meetings.
In addition, pursuant to the restricted stock plan for non-employee
directors, each director who is not an employee director receives an initial
grant of 30-day options on 4,500 common shares upon first becoming a director
and a subsequent grant of 30-day options on 600 common shares at the beginning
of each fiscal year while he continues as a director. The plan contemplates a
present sale of the optioned shares at 25% of market value but provides
restrictions on the transfer or other disposition of the shares by the grantee
during the restricted time, which expires upon the earliest to occur of the
following events: death or disability, retirement from the board, change of
control, or termination of the grantee's service as a director with the consent
of a majority of La-Z-Boy's employee directors, all as defined in the plan.
Executive Compensation
Summary Information
The following table sets forth summary information for fiscal 1999 and
the preceding two fiscal years with respect to the compensation paid to or
earned by each of La-Z-Boy's executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- ------------------------------------------------------------- ------------------------------
AWARDS PAYOUTS
--------- ----------
OTHER INCENTIVE LONG-TERM ALL
ANNUAL STOCK INCENTIVE OTHER
COMPEN- OPTION PLAN COMPEN-
NAME AND PRINCIPAL SALARY(1) BONUS(1) SATION(2) GRANTS(3) PAYOUTS(4) SATION(5)
POSITION YEAR $ $ $ # $ $
------------------ ---- --------- -------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald L. Kiser......... 1999 336,200 290,907(6) (7) 27,600 122,119 40,331(8,9)
President (since
October 1998 294,524 133,139(6) (7) 28,800 54,133 66,751(8,9)
1997; previously
Executive 1997 190,469 90,022 15,600 17,490 39,053
Vice President) and
Chief
Operating Officer
Patrick H. Norton....... 1999 303,848 262,322 27,600 234,844 78,280
Chairman of the Board
(since 1998 292,499 131,318 28,800 121,569 71,189
October 1997;
previously, 1997 291,496 153,778 30,000 63,600 67,219
Senior Vice President
Sales & Marketing)
Frederick H. Jackson.... 1999 303,852 262,322 27,600 234,844 78,354
Executive Vice
President 1998 292,453 131,318 28,000 121,569 71,246
Finance and Chief
Financial 1997 291,496 153,778 30,000 63,600 66,951
Officer
Gene M. Hardy........... 1999 158,900 95,473(6) (7) 9,000 67,635 46,387(8)
Secretary and Treasurer 1998 156,300 54,060(6) (7) 9,750 33,259 45,358(8)
1997 141,486 57,543 8,790 17,490 36,424
</TABLE>
- --------
(1) Includes, where applicable, amounts electively deferred by a named
executive under La-Z-Boy's 401(k) plan and directors' fees paid to a named
executive for attendance at board of directors' meetings.
(2) As permitted by SEC rules, does not include La-Z-Boy's cost of providing
perquisites or other personal benefits to named executives, which in each
case and for each fiscal year did not exceed the lesser of $50,000 or 10%
of the named executive's total salary and bonus for the year.
(3) All reported option grants have been adjusted to reflect the three-for-one
split of La-Z-Boy's common shares that occurred on September 14, 1998.
(4) All amounts reported in this column relate to performance awards under La-
Z-Boy's performance plan, which is more fully discussed below under "Long-
Term Incentive Compensation Target
45
<PAGE>
Awards." As explained there, all performance awards under that plan are
made as grants of common shares or of discounted 30-day options to purchase
common shares. The dollar amounts reported in this table have been
determined by multiplying the number of shares or options granted by the
NYSE closing price for a common share on the pertinent grant date, reduced,
where applicable, by the option exercise price.
(5) Totals in this column include amounts allocated for named executives to
La-Z-Boy's supplemental executive retirement plan and/or the profit
sharing plan, earnings credited to them under the supplemental executive
retirement plan, and the cash value at date of contribution of matching
contributions made for their accounts under the matched retirement savings
plan, which were made in the form of common shares. Set forth below is a
breakdown of these amounts for fiscal 1999. For information concerning
other 1999 amounts included in this column for certain executives, see
note (8).
<TABLE>
<CAPTION>
AMOUNTS ALLOCATED TO THE SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
AND/OR THE PROFIT SHARING PLAN
------------------------------------
<S> <C>
Gerald L. Kiser.......... $ -0-
Patrick H. Norton........ $ 45,150
Frederick H. Jackson..... 45,150
Gene M. Hardy............ -0-
</TABLE>
<TABLE>
<CAPTION>
EARNINGS CREDITED ON SUPPLEMENTAL
RETIREMENT BALANCES UNDER THE
SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN
- ---------------------------------
<S> <C>
Gerald L. Kiser.......... $ 8,653
Patrick H. Norton........ 31,660
Frederick H. Jackson..... 31,496
Gene M. Hardy............ 11,943
</TABLE>
<TABLE>
<CAPTION>
CONTRIBUTIONS UNDER THE MATCHED
RETIREMENT SAVINGS PLAN
-----------------------------------
<S> <C> <C>
Gerald L. Kiser......... $1,474
Patrick H. Norton....... 1,470
Frederick H. Jackson.... 1,708
Gene M. Hardy........... 1,444
</TABLE>
(6) Does not include a bonus paid to the executive due to his participation
during the year in La-Z-Boy's personal executive life insurance program,
which bonus is included for him under "All Other Compensation" and further
discussed in note (8).
(7) Does not include an amount akin to a partial tax gross up that the
executive received due to his participation in the insurance program,
which amount is included for him under "All Other Compensation" and
further discussed in note (8).
(8) The fiscal 1999 and prior year totals reported for Messrs. Kiser and Hardy
also include certain amounts related to their participation in the
insurance program. Under the insurance program, a participating employee
receives supplemental life insurance intended to provide benefits to the
employee after his retirement and/or to his spouse or other beneficiary
upon his death. An employee participating in the insurance program is not
eligible to receive further contributions for his account under the profit
sharing plan or the supplemental executive retirement plan (which
contributions are not currently taxable to the employee) but does receive
an annual bonus (which is currently taxable) in an amount equal to the
amount of premiums payable by him during the year on his insurance policy
under the program plus an additional 32% of that premium amount, which has
the effect of a partial gross up to the employee for the taxes payable on
the bonus. The program-related bonuses (including tax gross ups) for
Messrs. Kiser and Hardy were $30,204 and $33,000, respectively, in fiscal
1999. Under certain limited circumstances, some or all of the tax gross up
portions of the program-related bonuses paid to a participating employee
would be repayable to La-Z-Boy out of policy proceeds, but La-Z-Boy
considers such repayment in most cases to be a remote possibility at best.
(9) In addition to the bonus payments described in note (8), in most cases
(including Mr. Kiser's case but not including Mr. Hardy's case), during
the early years of an insurance program participant's policy, a portion of
the premiums on the policy are paid by La-Z-Boy. The full amount of these
employer-paid premiums is repayable to La-Z-Boy--generally upon the later
of seven years after purchase of the participant's policy or his or her
retirement, but also upon his or her death or other termination of
employment if that were to occur earlier. For purposes of this table,
$19,295 has been
46
<PAGE>
included in this column for Mr. Kiser as the estimated value to him of the
premiums paid by La-Z-Boy during fiscal 1999, and the fiscal 1998 total
shown for him in this column also includes an estimated amount for the value
to him of premiums so paid. The fiscal 1999 amount has been calculated as if
the payments were advanced to Mr. Kiser on an interest-free basis from the
time they were paid until May 2004 (the seventh anniversary of the policy
issuance date), and the fiscal 1998 amount was similarly calculated.
Depending on the time at which Mr. Kiser actually leaves La-Z-Boy's employ,
the actual value he ultimately receives from these premium payments may be
significantly less or significantly more than the amounts that have been
estimated.
Options
The following table shows all stock options granted to named executives
during fiscal 1999 and the potential realizable value of those grants, assuming
stock price appreciation rates of 5% and 10% annually over the five-year term
of the options. All amounts reported in this table reflect the September 1998
stock split.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERMS ($)(2)
---------------------------------------
INDIVIDUAL GRANTS(1) 5% PER YEAR 10% PER YEAR
---------------------------------------------- ------------------- -------------------
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE OR PRICE AGGREGATE PRICE AGGREGATE
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION PER SHARE VALUE PER SHARE VALUE
NAME (#) FISCAL YEAR ($/SH) DATE ($/SH) ($) ($/SH) ($)
---- ------- --------------- ----------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald L. Kiser......... 27,600 6.54 17.5833 7/26/03 4.86 134,079 10.73 296,278
Patrick H. Norton....... 27,600 6.54 17.5833 7/26/03 4.86 134,079 10.73 296,278
Frederick H. Jackson. 27,600 6.54 17.5833 7/26/03 4.86 134,079 10.73 296,278
Gene M. Hardy........... 9,000 2.13 17.5833 7/26/03 4.86 43,722 10.73 96,613
</TABLE>
- --------
(1) All of the above options are options to purchase shares of La-Z-Boy common
stock that were granted under La-Z-Boy's 1997 incentive stock option plan.
Normally, options granted under this plan first become exercisable with
respect to one-fourth of the optioned shares on each of the first, second,
third, and fourth anniversaries of the date of the grant and, once
exercisable, remain exercisable until after the fifth anniversary of the
date of grant. However, under the terms of the plan, in the event of a
grantee's death or his or her retirement at or after age 65 (or earlier
with La-Z-Boy's consent), each of his or her then outstanding options would
become immediately exercisable in full and continue to be exercisable for
one year thereafter or, if earlier, the option's scheduled expiration date.
In addition, pursuant to the agreements described on page 45 under "Certain
Agreements," if a change of control were to occur, each then outstanding
option granted to a named executive also would become exercisable in full.
Termination of a named executive's employment under any circumstances other
than those described above would cause all of his then outstanding options
to terminate immediately.
(2) Calculations at the 5% and 10% rates of appreciation used in this table are
required by rules of the SEC. These calculations are not intended to
forecast possible future actual appreciation, if any, in La-Z-Boy's stock
prices. It is important to note that options have potential value for a
named executive only if the common stock price advances beyond the exercise
price shown in the table during the effective five-year option period.
The following table provides information as to stock options exercised by
named executives in fiscal 1999 and the value of the remaining options held by
them at the end of that fiscal year. Information in the table on option
exercises that occurred before the September 1998 stock split has been adjusted
to reflect that stock split.
47
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END(2)
SHARES -------------------- --------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME # $(1) # $
- ---- ----------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
Gerald L. Kiser......... 8,280 73,830 31,702/60,188 265,664/260,161
Patrick H. Norton....... 28,800 289,200 69,495/71,325 620,812/357,938
Frederick H. Jackson.... 54,720 548,220 43,575/71,325 361,612/357,938
Gene M. Hardy........... 15,420 154,344 12,726/22,674 104,584/110,775
</TABLE>
- --------
(1) Based on the NYSE closing market price of La-Z-Boy's common stock on the
date of exercise, minus the exercise price. An individual, upon exercise of
an option, does not receive cash equal to the amount contained in the Value
Realized column of this table. No cash is realized until the shares
received upon exercise of an option are sold.
(2) Based on the NYSE closing market price of La-Z-Boy's common stock at the
end of fiscal 1999 ($19.00), minus the exercise price.
Long-Term Incentive Compensation Target Awards
Under La-Z-Boy's 1993 performance-based stock plan, as currently in
effect, prior to or early in each fiscal year employees selected by the board
committee or subcommittee then charged with administering the performance plan
(which since 1997 has been a subcommittee of the Compensation Committee of La-
Z-Boy's board and prior to that time was the Compensation Committee) may be
granted contingent target awards the potential payouts on which are linked to
achievement, by the end of a three-year cycle consisting of that and the next
two fiscal years, of performance goals established by the administrative
committee when the target awards are granted. All performance awards under this
plan are structured as options to purchase, or outright grants of, La-Z-Boy
common stock. For each recipient of a target award for a given performance
cycle, his maximum performance award potential, which is awarded after the end
of the cycle if all performance goals are achieved, is a grant of shares equal
to four times the base number of shares established by the administrative
committee with respect to that target award. The minimum potential performance
award, for achievement of only one performance goal during the cycle, is a 30-
day option to purchase the base number of shares at 50% of their fair market
value at date of grant of the target award.
Early in fiscal 1999, the administrative committee granted target awards
to certain employees, including all named executives, for the performance cycle
ending April 28, 2001. As has been the case since the first grant of target
awards under the performance plan, for the 2001 cycle the administrative
committee established four uniform financial goals for all target award
recipients, each relating to the operating performance of La-Z-Boy and its
subsidiaries for that cycle. One of these goals relates to sales growth, the
second to earnings before income taxes, the third to operating profit margin
and the fourth to return on total capital.
The table that follows provides information concerning the target awards
that were granted to named executives. All reported numbers have been adjusted
to reflect the September 1998 stock split.
48
<PAGE>
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF PERIOD
PERFORMANCE UNTIL
SHARES MATURATION THRESHOLD TARGET MAXIMUM
NAME #(1) OR PAYOUT #(2) #(3) #(4)
---- ----------- ----------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Gerald L. Kiser................ 3,278 (5) 3,278 6,555 13,110
Patrick H. Norton.............. 3,278 (5) 3,278 6,555 13,110
Frederick H. Jackson........... 3,278 (5) 3,278 6,555 13,110
Gene M. Hardy.................. 1,163 (5) 1,163 2,325 4,650
</TABLE>
- --------
(1) Numbers reported are the base numbers of shares subject to target awards
granted.
(2) Numbers reported are the numbers of shares that would become subject to 30-
day option if only one performance goal is achieved. The per share exercise
price for any such option would be 50% of the fair market value of a share
of La-Z-Boy common stock at the date of grant of the target awards.
(3) Numbers reported are the numbers of shares that would become subject to 30-
day option if two performance goals are achieved. The per share exercise
price for each option would be 25% of fair market value of a share of La-Z-
Boy common stock at the date of grant of the target awards. For achievement
of three performance goals, an outright grant of 150% of the same number of
shares would be made. Under the terms of the performance plan, if a target
award grantee's employment terminates due to death, or if termination is
due to disability or retirement with the consent of La-Z-Boy and the
terminated employee subsequently dies before the end of the performance
cycle, his estate administrator may elect to receive a performance award
prior to the end of the cycle. If the election is made, the estate would
receive either a 30-day option on the number of shares shown in this
column, as if two performance goals had been met, or an outright grant of
that number of shares, depending upon whether employment termination
occurred during the first or second half of the performance cycle.
Termination of the grantee's employment due to death, disability or
consensual retirement otherwise has no effect on any outstanding target
awards of the grantee, but termination for any other reason automatically
cancels those awards.
(4) Numbers reported are the numbers of shares that would be awarded, in the
form of an outright grant, if all performance goals are achieved. Under the
terms of the performance plan, the holder of a target award also will be
deemed automatically to have earned and been granted the same performance
award if a person or group becomes an acquiring person (as defined in the
performance plan) or certain changes in the composition of the board of
directors occur while the target award is outstanding. The same effect upon
then-outstanding target awards also will result, if, while there is an
acquiring person, any of certain other significant transactions involving
La-Z-Boy should occur, unless the transaction has been approved by a
majority of directors who were board members before the acquiring person
became an acquiring person.
(5) The performance cycle until maturation or payout is the three-year period
ending April 28, 2001.
Certain Agreements
La-Z-Boy recognizes that establishing and maintaining a strong management
team are essential to protecting and enhancing the interests of La-Z-Boy and
its shareholders. In order to assure management stability and the continuity of
key management personnel, it has entered into change in control agreements with
certain key employees including, among others, all executive officers named in
the Summary Compensation Table. The employees eligible for change in control
agreements are those selected by the Compensation Committee. Each of these
agreements, all of which were unanimously approved by the board of directors,
provides that if the employee is terminated, other than for cause, disability,
death or retirement, within three years after a change in control of La-Z-Boy,
the employee will be entitled to receive a lump sum severance payment equal to
three times the sum of his annualized salary and average bonus over the
previous three years, as well as certain other payments and benefits, including
continuation of employee welfare benefit payments, and reimbursement of certain
legal fees and expenses incurred by the employee in connection with enforcing
the agreement following a change in
49
<PAGE>
control. In consideration of the foregoing, the employee has agreed to remain
in the employ of La-Z-Boy during the pendency of any proposal for a change in
control. The agreements expire December 31, 2000 and are automatically renewed
for additional one-year periods unless either party gives 90 days' notice that
it does not wish to extend the agreement. In the event of a change in control,
the agreements are automatically extended for 36 months.
Certain Transactions
Palm Beach Furniture Company, which has been a La-Z-Boy dealer since
1991, currently operates three La-Z-Boy Furniture Galleries in southeast
Florida. Since December 1996, Palm Beach Furniture has been 100% owned by
Frederick H. Jackson's wife, Jeanne C. Jackson, and before that time, it was
50% owned by their son, Frederick H. Jackson III. The younger Mr. Jackson has
managed Palm Beach Furniture since it commenced operations. Before the current
fiscal year, except for providing inventory financing on normal trade terms,
La-Z-Boy never provided any financial assistance to Palm Beach Furniture.
Last July, La-Z-Boy, for credit reasons, terminated its dealer
arrangements with another, unrelated dealer that had operated three other La-Z-
Boy Furniture Galleries in southeast Florida--one on leased premises owned by a
subsidiary of La-Z-Boy and two on premises leased from third parties. In
connection with the dealer termination, the lease from the La-Z-Boy subsidiary
also was terminated, and La-Z-Boy subsidiaries took over the operations of all
three stores pending identification of an acceptable substitute dealer and,
pursuant to La-Z-Boy's then-existing credit arrangements with the former
dealer, also took over the inventory and other assets of the business,
including the former dealer's lessee interests in the properties leased from
third parties.
One of these leases calls for rental payments of $100,000 per year. The
term of that lease expires on December 31, 2011. La-Z-Boy has expended
approximately $300,000 for leasehold improvements since taking over that lease.
The other lease expired at the end of July 1999. La-Z-Boy has leased a larger,
substitute facility in a more desirable location. The new lease is a triple net
lease for a 5 1/2-year lease term, commencing August 1, 1999, with options to
renew for up to 15 more years. Base rent under that lease is $242,800 per year
for the initial term, with higher subsequent rent if the options are exercised.
La-Z-Boy anticipates that approximately $300,000 in leasehold improvements will
be needed in connection with commencing retail operations at that facility.
La-Z-Boy's management believes that the southeast Florida market has
growth potential for La-Z-Boy's products but that this potential would improve
if dealer operations were more consolidated, which would permit dealer
advertising costs and other fixed dealer costs to be spread over a larger
volume of business. Accordingly, in May 1999, La-Z-Boy's board approved in
principle a proposal for Palm Beach Furniture to take over the operations
formerly conducted by the terminated southeast Florida dealer.
Final documentation of this transfer of operations has not yet been
completed, and some features of the transactions involved remain to be decided.
Currently, the two leased stores are sublet to Palm Beach Furniture on a pass-
through basis. La-Z-Boy will finance the cost of the expected leasehold
improvements to the new leased property, taking back an 8-year promissory note
from Palm Beach Furniture bearing simple interest at 7% per year with payments
of principal and interest due annually, and Palm Beach Furniture also will
agree to repay La-Z-Boy its costs for the leasehold improvements already made
to the other leased property, providing another 8-year promissory note for that
obligation on the same terms.
In addition, the owned property has been leased to Palm Beach Furniture
on the same terms as to the prior tenant. Palm Beach Furniture has an option to
purchase this property (with La-Z-Boy retaining a right of first refusal with
respect to any subsequent sale) for fair market value as determined by an
independent appraiser. If the property is purchased and if requested by Palm
Beach Furniture, La-Z-Boy will finance the purchase over 10 years, taking back
an 8% simple interest promissory note,
50
<PAGE>
with principal payments amortized over 20 years and a balloon payment at the
end of the 10-year term, and a first mortgage on the property.
All of the foregoing is subject to board approval of the finalized terms
of the documentation for the transactions involved including documentation
providing normal security and cross-collateralization for all indebtedness now
or in the future owed by Palm Beach Furniture to La-Z-Boy, prohibiting the
incurrence of other mortgages or liens against any of Palm Beach Furniture's
property without La-Z-Boy's consent, and prohibiting the transfer of any
ownership of Palm Beach Furniture other than to the younger Mr. Jackson.
Kevin Norton, the son of Patrick H. Norton, is an independent sales
representative for La-Z-Boy residential products under an agreement providing
for the payment of commissions at various rates. The terms of his agreement,
including the commission rates, are identical to those of La-Z-Boy's agreements
with all of its approximately 90 other residential sales representatives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the La-Z-Boy board
are Mr. Hehl, Dr. Levy and Messrs. Lipford and Weaver, and the current members
of its Compensation Subcommittee are Mr. Hehl and Dr. Levy. No one other than
the current members served on either the Compensation Committee or the
Compensation Subcommittee at any time during fiscal 1999.
The law firm of Miller, Canfield, Paddock and Stone, P.L.C., of which
Rocque E. Lipford is a principal, provides legal services to La-Z-Boy and has
done so for the past 18 years.
51
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to
the acquisition by La-Z-Boy of LADD in a transaction to be accounted for as a
purchase. Under this method of accounting, LADD's assets and liabilities are
recorded at their fair value, and any excess of La-Z-Boy's purchase price over
the fair value of LADD's net assets acquired is recorded as goodwill. The
allocation of the LADD purchase price is based on preliminary estimates of the
fair value of the assets acquired and liabilities assumed. Final determination
of the allocation of the purchase price has not been made. Accordingly, final
amounts could differ from those used in these statements. However, we do not
expect that the impact of any differences would have a material effect on this
pro forma financial information.
The unaudited pro forma consolidated condensed balance sheet reflects the
acquisition by La-Z-Boy of LADD by combining La-Z-Boy's balance sheet as of
October 23, 1999 with that of LADD as of October 2, 1999. The unaudited pro
forma consolidated condensed statements of income treat the acquisition as if
it had occurred as of the beginning of the earliest period presented (April 26,
1998) and combine the results of operations of La-Z-Boy for the year ended
April 24, 1999 and for the six months ended October 23, 1999 (unaudited) with
the results of operations of LADD for the year ended April 3, 1999 (unaudited)
and the six months ended October 2, 1999 (unaudited), respectively. The
unaudited results of operations for LADD's year ended April 3, 1999 were
derived by subtracting unaudited results of operations for the quarter ended
April 4, 1998 from LADD's audited financial statements for the year ended
January 2, 1999, and adding the unaudited results of operations for the quarter
ended April 3, 1999.
The unaudited pro forma consolidated condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the consolidated financial position or results of operations of future periods
or the results that actually would have been realized had La-Z-Boy and LADD
been a consolidated company during the specified periods. This unaudited pro
forma financial information should be read in conjunction with the historical
consolidated financial statements and related notes of both La-Z-Boy and LADD.
La-Z-Boy's historical financial statements and the related notes are included
in this proxy statement/prospectus beginning on page F-1; LADD's are
incorporated into this proxy statement/prospectus by reference. Certain
reclassifications have been made to LADD's historical consolidated financial
statements to conform with the presentation of La-Z-Boy's historical
consolidated financial statements.
52
<PAGE>
LA-Z-BOY INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LA-Z-BOY LADD PRO FORMA
OCTOBER 23, OCTOBER 2, -------------------------
1999 1999 ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets
Cash and equivalents....... $ 12,769 $ 137 $ (6,000)(a) $ 6,906
Receivables, net........... 281,651 96,113 377,764
Inventories................ 119,578 106,400 10,000 (b) 246,478
10,500 (c)
Deferred income taxes...... 22,660 -- (7,790)(d) 9,597
(5,273)(e)
Other current assets....... 11,510 9,609 21,119
-------- -------- --------- ----------
Total current
assets.............. 448,168 212,259 1,437 661,864
Property, plant and
equipment, net.............. 143,006 66,828 209,834
Goodwill and unallocated
purchase price, net......... 89,271 43,438 24,084 (f) 156,793
Other intangibles, net....... -- 21,467 21,467
Other long-term assets, net.. 39,719 6,326 46,045
-------- -------- --------- ----------
Total assets......... $720,164 $350,318 $ 25,521 $1,096,003
======== ======== ========= ==========
Current liabilities
Current portion--long-term
debt...................... $ 1,585 $ 6,590 $ 8,175
Current portion--capital
leases.................... 844 -- 844
Accounts payable........... 59,506 36,202 95,708
Payroll/other
compensation.............. 44,641 19,131 63,772
Income taxes............... 5,818 7,786 13,604
Deferred taxes............. -- 5,273 $ (5,273)(e) --
Other current liabilities.. 29,393 10,489 39,882
-------- -------- --------- ----------
Total current
liabilities......... 141,787 85,471 (5,273) 221,985
Long-term debt............... 119,594 95,365 214,959
Capital leases............... 1,485 -- 1,485
Deferred income taxes........ 4,995 6,942 (1,900)(d) 10,037
Other long-term liabilities.. 14,554 5,579 5,000 (g) 25,133
Commitments and
contingencies...............
Shareholders' equity
Common shares.............. 52,143 2,350 9,241 (f) 61,384
(2,350)(h)
Capital in excess of par... 32,543 51,459 (51,459)(h) 207,957
176,414 (f)
(1,000)(i)
Retained earnings.......... 354,795 103,152 (103,152)(h) 354,795
Currency translation....... (1,732) -- (1,732)
-------- -------- --------- ----------
Total shareholders'
equity.............. 437,749 156,961 27,694 622,404
-------- -------- --------- ----------
Total liabilities and
shareholders'
equity.............. $720,164 $350,318 $ 25,521 $1,096,003
======== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial information.
53
<PAGE>
LA-Z-BOY INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
OCTOBER 23, PRO FORMA
1999 OCTOBER 2, -----------------------
LA-Z-BOY 1999 LADD ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales.......................... $709,395 $303,666 $1,013,061
Cost of sales.................. 527,546 242,794 770,340
-------- -------- ----------
Gross profit................. 181,849 60,872 242,721
Selling, general and
administrative................ 121,896 43,554 $ 436 (j) 165,886
-------- -------- ----- ----------
Operating profit............. 59,953 17,318 (436) 76,835
Interest expense............... 3,305 3,522 6,827
Interest income................ 1,206 40 1,246
Other income................... 1,708 42 1,750
-------- -------- ----- ----------
Pretax income................ 59,562 13,878 (436) 73,004
Income tax expense............. 22,999 5,077 28,076
-------- -------- ----- ----------
Net income................... $ 36,563 $ 8,801 $(436) $ 44,928
======== ======== ===== ==========
Diluted average shares......... 52,610 7,991 62,039
Diluted earnings per share
(k)........................... $ 0.69 $ 1.10 $ 0.72
Basic average shares........... 52,305 7,831 61,546
Basic earnings per share (k)... $ 0.70 $ 1.12 $ 0.73
Dividends per share............ $ 0.16 $ 0.00 $ 0.16
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial information.
54
<PAGE>
LA-Z-BOY INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------
APRIL 24, APRIL 3, PRO FORMA
1999 1999 ----------------------
LA-Z-BOY LADD ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Sales............................. $1,287,645 $580,798 $1,868,443
Cost of sales..................... 946,731 467,019 1,413,750
---------- -------- ----------
Gross profit.................... 340,914 113,779 454,693
Selling, general and
administrative................... 234,075 82,721 $ 872(j) 317,668
---------- -------- ----- ----------
Operating profit................ 106,839 31,058 (872) 137,025
Interest expense.................. 4,440 8,762 13,202
Interest income................... 2,181 112 2,293
Other income...................... 2,658 (378) 2,280
---------- -------- ----- ----------
Pretax income................... 107,238 22,030 (872) 128,396
Income tax expense................ 41,096 8,534 49,630
---------- -------- ----- ----------
Net income...................... $ 66,142 $ 13,496 $(872) $ 78,766
========== ======== ===== ==========
Diluted average shares............ 53,148 8,052 62,649
Diluted earnings per share (k).... $ 1.24 $ 1.68 $ 1.26
Basic average shares.............. 52,890 7,829 62,128
Basic earnings per share (k)...... $ 1.25 $ 1.72 $ 1.27
Dividends per share............... $ 0.31 $ 0.00 $ 0.31
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial information.
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Adjustment to record acquisition costs of $5,000 and stock issuance costs
of $1,000 to be incurred by La-Z-Boy.
(b) To record inventory at the estimated selling price less cost of disposal
and a profit allowance for the selling effort following the acquisition.
(c) Adjustment to record inventory at fair value by eliminating LADD's LIFO
reserve.
(d) Deferred tax effects of relevant pro forma adjustments at an estimated
effective tax rate of 38%.
(e) Adjustment to reclassify LADD's current deferred tax liability to reflect
the fact that the combined entity has a net current deferred tax asset.
(f) Additional unallocated purchase price arising from the acquisition is
calculated as follows:
<TABLE>
<S> <C>
Fair value of common stock exchanged (LADD shares of 7,831 at the
exchange ratio of 1.18 resulting in 9,241 shares of La-Z-Boy at
a price per share of $19.442 (1))............................... $ 179,655
Fair value of La-Z-Boy stock options exchanged for those of
LADD............................................................ 6,000
Acquisition costs................................................ 5,000
---------
Consideration.................................................... 190,655
Less: Fair value of LADD's net assets excluding existing goodwill
(2)............................................................. (123,133)
---------
Unallocated purchase price....................................... 67,522
Less: LADD's existing goodwill................................... (43,438)
---------
Additional unallocated purchase price........................ $ 24,084
=========
</TABLE>
The allocation of the LADD purchase price is based on preliminary
estimates of the fair value of the assets acquired and liabilities assumed.
Final determination of the allocation of the purchase price has not been
made. Accordingly, final amounts could differ from those used in this pro
forma financial information. However, we do not expect that the impact of
any differences would have a material effect on this pro forma financial
information. A weighted average life of 30 years has been assumed for the
unallocated purchase price for purposes of the pro forma financial
information. If the average life of the unallocated purchase price
decreases by 10 years as a result of the final purchase price allocation,
amortization and depreciation expense would increase in aggregate by
approximately $1,125 per year and pro forma net income would decrease by
approximately $0.02 and $0.009 per diluted share for the year ended April
24, 1999 and for the six months ended October 23, 1999, respectively.
(1) Price per share calculated based on the daily weighted average trade
price for La-Z-Boy stock from September 24,through October 1, 1999,
weighted by the respective day's trading volume.
<TABLE>
<S> <C>
(2) Net assets of LADD at October 2, 1999........................ $156,961
Less: existing goodwill........................................ (43,438)
--------
113,523
Purchase accounting adjustments:
LADD's LIFO reserve (c)........................................ 10,500
Inventory adjustment to fair market value (b).................. 10,000
Change in control liabilities (g).............................. (5,000)
Deferred taxes at 38% (d)...................................... (5,890)
--------
Preliminary fair value of LADD's net assets.................. $123,133
========
</TABLE>
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(g) Recognition of additional retirement benefit obligations due to change
in control features in LADD's executive benefit plans.
(h) Elimination of LADD's common shares, capital in excess of par and
retained earnings.
(i) Estimated stock issuance costs in connection with the acquisition.
(j) Adjustment to reflect amortization of goodwill and unallocated purchase
price of $24,084 over 30 years, the approximate period of expected
benefit. See (f) above.
(k) The basic pro forma earnings per share of common stock is based on pro
forma net income and the weighted average number of outstanding common
shares. Diluted pro forma earnings per share of common stock is based
on net income and the weighted average number of outstanding common
shares and the dilutive effect of stock options and restricted stock
units. The combined weighted average number of outstanding common
shares has been adjusted to reflect the exchange ratio of 1.18 shares
of common stock of the combined company for each share of LADD common
stock. The pro forma combined dividends per share reflect the dividends
paid by La-Z-Boy as La-Z-Boy management intends to continue to pay
dividends at the current per-share levels following the acquisition of
LADD. LADD paid no dividends during the pro forma period presented.
57
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of LADD's board of directors with
respect to the merger, you should be aware that certain members of LADD's
management and board of directors have interests in the merger that may be
different from, or in addition to, the interests of your interests as a
shareholder of LADD.
In anticipation of the merger, LADD's board of directors approved
amendments to executive employment agreements and other executive benefit plans
as described below. These amendments were made with the consent of La-Z-Boy.
The amendments described below were intended to have the effect of serving as
an additional inducement to LADD's executive officers to remain in the employ
of LADD during the transition period between the signing of the merger
agreement and the closing of the transaction, and after the completion of the
merger. La-Z-Boy currently intends to retain LADD's executive officers after
the completion of the merger.
EMPLOYMENT AGREEMENTS
LADD has existing employment agreements with the following executive
officers:
. Fred L. Schuermann, Jr., Chairman of the Board, President and Chief
Executive Officer
. Kenneth E. Church, Executive Vice President
. William S. Creekmuir, Executive Vice President and Chief Financial
Officer
. Michael P. Haley, Executive Vice President
. Donald L. Mitchell, Executive Vice President
The employment agreements (all of which are substantially similar) have a
one-year term, which is automatically extended for successive one-year periods
until terminated by either party. The agreements provide that if the executive
officer's employment is terminated at any time during the term of the
employment agreement for any reason other than "for cause" (as defined in the
employment agreement), or if the agreement is not renewed by LADD, the
executive officer shall be entitled to receive in 24 equal monthly payments an
amount equal to two times the sum of (i) his then current base salary and (ii)
the average annual incentive payments to the executive officer during the
preceding three years.
The employment agreements also provide for the payment of severance
benefits to an executive officer if he terminates his employment for "good
reason" during the 12 months immediately preceding or following the effective
date of a change in control of LADD. This proposed merger with La-Z-Boy would
qualify as a change in control under the employment agreements. La-Z-Boy has
agreed to assume and honor these employment agreements following the completion
of the merger.
In anticipation of the merger LADD's board of directors approved
amendments to the employment agreements as follows:
. the definition of "good reason" was changed to exclude the following
as good reason:
. the executive's failure to be elected to or to remain on the
board of directors of LADD or any of its subsidiaries;
. a change in the executive's status or the scope of his assigned
duties and responsibilities resulting from LADD's ceasing to be a
"reporting company" under the provisions of the Securities
Exchange Act of 1934; and
. the insertion of an additional layer of management or a change in
the individual to whom the executive reports, provided there is
not a material change in the scope of personnel or operations
reporting to the executive;
. the definition of "good reason" was changed to provide that no
reduction in incentive compensation shall be deemed to occur if the
executive is offered the same incentive
58
<PAGE>
compensation offered to similarly situated executive officers of the
subsidiaries of La-Z-Boy with duties and responsibilities comparable
to those of the executive;
. the definition of "good reason" was changed to provide that good
reason would exist if the executive were required to spend more than
two days per week on a regular basis at a business location not
within 50 miles of the executive's primary business location as of
the change in control;
. upon a change in control, all outstanding stock options shall become
100% vested and immediately exercisable, regardless of whether the
executive terminates employment;
. the executive shall not be obligated in any way to mitigate the
company's obligation to make severance payments to him, and any
amounts the executive earns subsequent to his termination shall not
serve as an offset to the severance payments; and
. terms of all of the employment agreements were changed to expire on
September 28, 2000, subject to the renewal provisions described
above.
EXECUTIVE BENEFIT PLANS
Stock Option Plan
Pursuant to their employment agreements, the outstanding options held by
Messrs. Schuermann, Church, Creekmuir, Haley and Mitchell under LADD's stock
option plan will become 100% vested and immediately exercisable at the
completion of the merger, regardless of whether the executives remain employed
with the combined company. In addition, all previously unvested stock options
held by directors will become 100% vested and exercisable upon completion of
the merger. La-Z-Boy has agreed to allow the director options to continue to be
exercisable over the remainder of their outstanding terms.
Executive Retirement Plan
LADD currently has a nonqualified supplemental retirement plan that
provides supplemental retirement income to key executive officers. Messrs.
Schuermann, Church, Creekmuir, Haley and Mitchell are participants in this
executive retirement plan. La-Z-Boy has agreed to assume and honor the
obligations to the participants under this plan after the completion of the
merger.
In anticipation of the merger with La-Z-Boy, LADD's board of directors
approved the following amendments to the executive retirement plan:
. the plan provided that upon a change in control, all benefits accrued
to a participant under this plan become immediately due and payable;
this provision was amended to exclude the proposed merger with La-Z-
Boy from the provision's definition of a change in control, with the
result that no benefits will be due and payable to the participants
in the plan upon the completion of the merger with La-Z-Boy;
. in the event the executive terminates employment for "good reason"
due to a change in control within one year of the change in control
or is terminated "without cause", the executive's years of service
for purposes of calculating the benefit due him under the plan shall
be made by assuming that the executive remained employed and
continued to earn years of service credit until his 55th birthday;
. all participants under the plan become 100% vested;
. normal retirement age under the plan was reduced from age 65 to age
55, thereby eliminating any discount for payout for payment prior to
age 65;
. the funding of the existing "rabbi trust" for payment of benefits
under the plan shall be completed by January 2002, and supplemental
contributions to maintain the funding shall be made annually
thereafter; and
59
<PAGE>
. the participants must consent to any future amendment to the plan.
Other Benefit Plans
In anticipation of the merger with La-Z-Boy (and with La-Z-Boy's
consent), the board of directors amended the 1999 Management Incentive Plan,
1997 Long-Term Incentive Plan, the 1998 Long-Term Incentive Plan and the 1999
Long-Term Incentive Plan to permit acceleration of the payment of performance
bonuses to plan participants on or before the completion of the merger with La-
Z-Boy, and to provide that the entire award would be in cash. In addition, the
1998 and 1999 Long-Term Incentive Plans were further amended to facilitate the
accelerated payment schedule to provide that, if the merger occurs, performance
bonuses under the plans would be determined using a certain percentage (75% for
1998 and 50% for 1999) of each participant's target performance bonus. All
plans were amended to exclude any special expenses related to the proposed
merger with La-Z-Boy from the calculation of the performance bonuses to be
paid. Messrs. Schuermann, Church, Creekmuir, Haley and Mitchell are
participants in these plans.
ADDITIONAL BENEFITS TO EXECUTIVE OFFICERS UNDER THE MERGER AGREEMENT
Pursuant to the merger agreement, should any payment made to one of
LADD's executive officers in connection with the merger be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, La-Z-Boy has
agreed to pay an additional amount sufficient to make the executive officer
whole with respect to the excise tax imposed by Section 4999 and any other
taxes imposed on such additional payment.
MAINTENANCE OF BENEFITS FOR LADD EMPLOYEES
La-Z-Boy has agreed, for a period of one year following the completion of
the merger, to provide LADD employees at the effective time of the merger
employee benefits that, in the aggregate, are no less favorable than the
benefits LADD provides to employees prior to the completion of the merger. La-
Z-Boy has also agreed to recognize:
. for purposes of eligibility, vesting, benefit accrual and
determination of the level of benefits under La-Z-Boy's benefit
plants (other than defined befefit plans), credit for employees'
service with LADD to the same extent LADD recognized it prior to the
completion of the merger; and
. credit for any appropriate out-of-pocket expenses of employees for
purposes of determining their deductible or co-payment expenses under
La-Z-Boy medical plans.
In addition, La-Z-Boy will waive pre-existing condition limitations under any
La-Z-Boy welfare benefit plan in which our employees will be eligible to
participate following the merger's completion to the extent the pre-existing
condition limitation was waived or satisfied under LADD's comparable plans.
INDEMNIFICATION AND INSURANCE
Under the merger agreement, La-Z-Boy will:
. for six years after the completion of the merger, indemnify and hold
harmless LADD's present and former officers, directors and employees
with respect to all acts or omissions by them in their capacities as
such at any time prior to the completion of the merger to the extent
provided under LADD's current charter and bylaws; and
. for six years after the completion of the merger, provide officers'
and directors' liability insurance and employee practices insurance
covering acts or omissions occurring prior to the completion of the
merger by each such person currently covered by LADD's insurance
policies, except that La-Z-Boy is obligated to pay in the aggregate
no more than 200% of the annual premium paid by LADD for such
insurance as of September 28, 1999.
60
<PAGE>
OPINION OF LADD'S FINANCIAL ADVISOR
Mann Armistead was engaged by the board of directors of LADD on July 16,
1999. Mann Armistead is a recognized investment banking firm regularly engaged
in the valuation of private and public businesses and their securities in
connection with mergers and acquisitions, competitive biddings and valuations
for estate, corporate and other purposes and acting as financial advisor in
connection with other forms of strategic corporate transactions. Mann Armistead
is actively involved in securities research on the furniture industry. LADD
selected Mann Armistead as its financial advisor because it is a nationally
known investment banking firm with expertise in the furniture industry, its
experience in transactions similar to the merger and because it is familiar
with LADD and its business.
At the September 28, 1999 meeting of the LADD board of directors, Mann
Armistead delivered its opinion to the effect that, as of the date thereof, and
subject to the assumptions, qualifications and limitations set forth therein,
the merger consideration as defined in the merger agreement was fair, from a
financial point of view, to the shareholders of LADD.
We have attached as Annex B to this document the full text of Mann
Armistead's written opinion and urge you to read the opinion in its entirety.
This opinion sets forth the assumptions made, matters considered and
qualifications and limitations on the review undertaken by Mann Armistead and
is incorporated herein by reference. THE SUMMARY OF MANN ARMISTEAD'S OPINION
SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION WHICH IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS. In
reading the discussion of the fairness opinion set forth below, LADD
shareholders should be aware that Mann Armistead's opinion:
. was provided to the LADD board of directors for its use and benefit;
. did not address LADD's underlying business decision to effect the
merger;
. did not constitute a recommendation to the LADD board of directors in
connection with the merger; and
. does not constitute a recommendation to any LADD shareholder as to
how to vote in connection with the merger agreement.
Although Mann Armistead evaluated the fairness, from a financial point of
view, of the merger consideration to the shareholders of LADD, the merger
consideration itself was determined by LADD and La-Z-Boy through arm's-length
negotiations. Mann Armistead provided advice to LADD during the course of such
negotiations. LADD did not provide specific instructions to, or place any
limitations on, Mann Armistead with respect to the procedures to be followed or
factors to be considered by it in performing its analyses or providing its
opinion.
In arriving at its opinion, Mann Armistead, among other things:
. reviewed the merger agreement;
. reviewed the audited financial statements of LADD for the fiscal
years ended January 2, 1999 and January 3, 1998 and for La-Z-Boy for
the fiscal years ended April 24, 1999 and April 25, 1998;
. reviewed the unaudited financial statements of LADD and La-Z-Boy for
the current interim periods ended July 3, 1999 and July 24, 1999,
respectively;
. reviewed operating and financial information, including projections,
provided to it by management of LADD, as well as securities analysts'
expectations, relating to its business and prospects;
. reviewed operating and financial information, including fiscal year
2000 earnings per share estimates, provided to it by management of
La-Z-Boy, as well as securities analysts' expectations, relating to
its business and prospects;
. visited several of the LADD and La-Z-Boy facilities;
61
<PAGE>
. met with members of LADD's and La-Z-Boy's senior management to
discuss their companies' operations, historical financial statements,
future prospects and the potential benefits of the merger;
. reviewed the historical prices and trading volume of the common
shares of LADD and La-Z-Boy;
. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which Mann Armistead
deemed generally comparable to LADD and La-Z-Boy;
. reviewed the terms of recent acquisitions of companies which it
deemed generally comparable to the merger; and
. conducted other studies, analyses, inquiries and investigation as it
deemed appropriate.
In preparing its opinion, Mann Armistead relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including projections, provided to, discussed with, or
reviewed by or for it by LADD or otherwise publicly available. With respect to
LADD's projected financial results, Mann Armistead assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgment of the senior management of LADD as to the expected future
performance of LADD. Mann Armistead did not assume any responsibility for the
independent verification of any information or of the projections, and relied
upon the assurances of the senior management of LADD that they were unaware of
any facts that would make the information provided to Mann Armistead incomplete
or misleading. In preparing its opinion, Mann Armistead also relied upon the
accuracy and completeness of all financial and other information furnished to
it by, or on behalf of, La-Z-Boy and did not assume any responsibility for
independent verification of that information.
Mann Armistead also assumed with the consent of LADD that the merger will
(a) qualify as a reorganization for United States federal income tax purposes,
(b) be accounted for under the purchase method of accounting and (c) otherwise
be consummated in accordance with the terms described in the merger agreement,
without the waiver of any material condition and with all necessary material
consents and approvals having been obtained without any limitations,
restrictions, conditions, amendments or modifications that collectively would
be material to Mann Armistead's analysis. In arriving at its opinion, Mann
Armistead did not perform or obtain any independent appraisal of the assets or
liabilities of LADD and La-Z-Boy, nor was it furnished with any appraisals. In
rendering its opinion, Mann Armistead did not solicit, and was not authorized
to solicit, third party acquisition interest in LADD. In addition, Mann
Armistead did not express any opinion as to the price or range of prices at
which LADD common stock or La-Z-Boy common stock may trade subsequent to the
announcement or consummation of the merger. Mann Armistead's opinion is
necessarily based on economic market and other conditions, and the information
made available to Mann Armistead, as of the date of its opinion.
The following is a brief summary of the material valuation and financial
and comparative analyses considered by Mann Armistead in connection with the
rendering of the Mann Armistead opinion. This summary is qualified in its
entirety by reference to the full text of the Mann Armistead opinion.
In performing these analyses, Mann Armistead made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Mann Armistead, LADD and La-Z-Boy. Any estimates contained in the analysis
performed by Mann Armistead are not necessarily indicative of actual values of
future results, which may be significantly more or less favorable than
suggested by this analysis. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities may actually be sold. Accordingly, these analyses
and estimates are inherently subject to substantial uncertainty. In addition,
as described above, Mann Armistead's opinion was among several factors taken
into consideration by the LADD board of directors in making its determination
to approve the merger agreement.
62
<PAGE>
The following is a summary of the material analyses performed by Mann
Armistead in connection with its opinion expressed herein:
(A) Comparable Company Analysis. Mann Armistead compared certain operating,
financial, trading and valuation information for LADD to certain publicly
available operating, financial, trading and valuation information for
nine selected companies, which, in Mann Armistead's judgment, were
comparable to LADD for purposes of this analysis. More specifically, in
determining LADD's public comparables, Mann Armistead considered LADD's
composition of shipments between residential casegoods, residential
upholstery and contract furnishings when reviewing the total universe of
public furniture companies. Given the lack of exact comparable public
companies, the companies chosen represent, in Mann Armistead's judgment,
reasonable comparables given LADD's different market segments, products
and company size. These companies included:
. Bassett Furniture Industries, Inc. . La-Z-Boy Incorporated
. Chromcraft Revington, Inc. . Pulaski Furniture Corp.
. Falcon Products, Inc. . The Rowe Companies
. Furniture Brands, Inc. . Stanley Furniture, Inc.
. Flexsteel Industries, Inc.
Mann Armistead compared market values of, among other things, current
equity value and enterprise value (equity value, plus total debt, less
cash and cash equivalents) as multiples of the latest twelve months net
income, earnings before interest, taxes, depreciation and amortization
(EBITDA), earnings before interest and taxes (EBIT) and shareholders'
equity. Based on the above described analysis, Mann Armistead determined
the selected companies (based on a closing stock price date of September
22, 1999) rendered on average a multiple range of 9.69 times net income,
5.80 times EBITDA, 7.21 times EBIT and 1.65 times shareholders' equity.
When compared to the merger consideration (and based solely on the
closing price of La-Z-Boy stock on September 27, 1999 of $20.94), Mann
Armistead determined, based on LADD's financial results for the trailing
twelve months ended July 3, 1999, the offer to equate to 13.64 times net
income, 6.55 times EBITDA, 9.44 times EBIT and 1.34 times shareholder
equity. When comparing the above mentioned multiples to multiples
generated from the merger consideration, the following premiums
(discounts) were realized:
<TABLE>
<CAPTION>
SELECTED
TRANSACTION COMPANIES PREMIUM
MULTIPLE MULTIPLE (DISCOUNT)
----------- --------- ---------
<S> <C> <C> <C>
Net Income............................ 13.64x 9.69x 40.8%
EBITDA................................ 6.55x 5.80x 12.9%
EBIT.................................. 9.44x 7.21x 30.9%
Shareholders' Equity.................. 1.34x 1.65x (18.8%)
</TABLE>
(B) Premium Analysis. Mann Armistead reviewed the merger consideration and
based solely on the closing price of La-Z-Boy stock on September 27, 1999
of $20.94, determined such offer to represent a premium based on market
closing prices for LADD for the following dates noted: 42.2% as of March
29, 1999 (based on $17.38 per share), the date six months prior to the
announcement; 29.2% as of August 27, 1999 (based on $19.13 per share),
the date one month prior to the announcement; and 22.0% as of September
27, 1999 (based on $20.25 per share), the day prior to the announcement.
(C) Merger and Acquisition Analysis. Mann Armistead reviewed and analyzed the
publicly available financial terms of six recently announced and/or
completed merger and acquisition transactions in the furniture industry,
which, in Mann Armistead's judgment were reasonably comparable to the
merger, and compared the financial terms of the transaction to those of
the merger. While the
63
<PAGE>
selected transactions do not necessarily reflect the exact terms of the
merger, these transactions are recent furniture transactions and reflect
current market valuations. The six transactions included:
<TABLE>
<CAPTION>
STATUS AT
TIME OF
TARGET ACQUIROR OPINION
------ -------- ---------
<S> <C> <C>
Cort Business Services, Inc. Management Buyout Pending*
Knoll Furniture, Inc. Management Buyout Pending*
O'Sullivan Industries, Inc. Management Buyout Pending*
Meadowcraft, Inc. Management Buyout Completed
Shelby Williams Industries, Inc. Falcon Products, Inc. Completed
WinsLoew Furniture, Inc. Management Buyout Completed
</TABLE>
--------
* The pending transactions were excluded from the quantitative analysis
due to possible changes in pricing and/or the possibility of
termination or abandonment before closing.
An analysis of the Meadowcraft, Shelby Williams and WinsLoew completed
transactions (the Cort Business, Knoll Furniture and O'Sullivan
Industries pending transactions were excluded for the reasons noted
above) rendered an average multiple range of 12.13 times net income,
7.15 times EBITDA, 8.25 times EBIT and 3.21 times shareholders' equity.
When comparing the above mentioned multiples to multiples generated from
the merger consideration (based solely on the closing price of La-Z-Boy
stock on September 27, 1999 of $20.94), the following premiums
(discounts) were realized:
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TRANSACTION M&A TO M&A
FINANCIAL RESULT MULTIPLE COMPS. ANALYSIS
---------------- ----------- ------ ----------
<S> <C> <C> <C>
Net Income.................................. 13.64x 12.13x 12.4%
EBITDA...................................... 6.55x 7.15x (8.4)%
EBIT........................................ 9.44x 8.25x 14.4%
Shareholders' Equity........................ 1.34x 3.21x (58.3)%
</TABLE>
(D) Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Mann Armistead estimated the net present value of the future streams of
after-tax cash flow that LADD could produce on a stand alone basis for
the fiscal year end periods 1999-2002 and a terminal multiple was
utilized to determine value. For this analysis, Mann Armistead considered
various scenarios for the performance of the LADD common stock using:
. the sales revenue, net income and cash flow projections as supplied by
LADD's senior management;
. a range of 8.0 times to 12.0 times earnings as the terminal value of
LADD's stock (a range determined by using the approximate midpoint of
the selected companies net income multiple analysis); and
. a range of discount rates from 9.0% to 11.0%.
The estimates and ranges used in this analysis were chosen based upon
what Mann Armistead, in its judgment, considered to be appropriate taking
into account, among other things, LADD's past and current financial
performance, the general level of inflation, and rates of return
generally required in the marketplace for companies with similar risk
profiles. This analysis produced a range of per share values of from
$11.49 to $21.67, which represented a premium of 115% and 14%,
respectively, when compared to the merger consideration.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. The opinions are therefore not readily
susceptible to partial analysis or summary description, and taking portions of
the analyses set out above, without considering the analysis as a whole, would,
in the view of Mann Armistead, create an
64
<PAGE>
incomplete and misleading picture of the processes underlying the analysis
considered in rendering its opinion. Mann Armistead did not form an opinion as
to whether any individual analysis or factor (positive or negative), considered
in isolation, supported or failed to support its opinion. In arriving at its
opinion, Mann Armistead considered the results of its separate analysis and did
not attribute particular weight to any one analysis or factor. The analyses
performed by Mann Armistead, particularly those based on estimates and
projections, are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
these analyses. These analyses were performed solely as part of the Mann
Armistead analysis of the fairness, from a financial point of view, of the
merger consideration to the shareholders of LADD.
Pursuant to the terms of its engagement letter with Mann Armistead, LADD
has agreed to pay Mann Armistead a fee based upon the value received by LADD
shareholders. As of the issuance of the Mann Armistead opinion on September 28,
1999, that fee was estimated to be $1.4 million. As of the date of this proxy
statement/prospectus, LADD has paid Mann Armistead approximately $180,000. In
addition, LADD has agreed to reimburse Mann Armistead for all reasonable out-
of-pocket expenses incurred by Mann Armistead in connection with the merger.
LADD has also agreed to indemnify Mann Armistead against certain liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws.
In the ordinary course of business, Mann Armistead has provided
securities research coverage of LADD. Mann Armistead has ceased such coverage
since its engagement by LADD in connection with the merger. In addition,
neither Mann Armistead nor any of its affiliates has performed any investment
banking or other financial services for, or had any material financial
relationship with, LADD during the two years preceding the date of this proxy
statement/prospectus.
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MATERIAL TERMS OF THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference
to the complete text of the merger agreement, which is incorporated by
reference and attached as Annex A.
STRUCTURE OF THE MERGER
Under the merger agreement, a La-Z-Boy subsidiary will merge into LADD so
that LADD becomes a wholly-owned subsidiary of La-Z-Boy.
TIMING OF CLOSING
The closing will occur within three business days after the day on which
the last of the conditions set forth in the merger agreement has been satisfied
or waived, unless La-Z-Boy and LADD agree to a different date. We expect that,
immediately upon the closing of the merger, we will file merger certificates
with the Michigan Department of Consumer and Industry Services and the
Secretary of State of North Carolina. The merger will become effective at or
shortly after the time of those filings.
MERGER CONSIDERATION
The merger agreement provides that each share of LADD common stock
outstanding immediately prior to the effective time will at the effective time
be converted into the right to receive 1.18 shares of La-Z-Boy common stock.
However, any shares of LADD common stock owned by La-Z-Boy or any subsidiary of
La-Z-Boy will be canceled without any payment for those shares.
TREATMENT OF LADD STOCK OPTIONS; OTHER LADD STOCK-BASED AWARDS
At the effective time, each outstanding option granted by LADD to
purchase shares of LADD common stock will be converted into an option to
acquire La-Z-Boy common stock having the same terms and conditions as the LADD
stock option had before the effective time except for the changes in directors'
options described under "Interests of Certain Persons in the Merger--Executive
Benefit Plans" on page 59. The number of shares that the new La-Z-Boy option
will be exercisable for and the exercise price of the new La-Z-Boy option will
reflect the exchange ratio in the merger.
Each other stock-based award granted by LADD under its employee or
director plans or arrangements maintained as of September 28, 1999 will be
converted, as of the effective time, into a similar La-Z-Boy stock-based award,
adjusted as appropriate to preserve the award's inherent value. You can find
more information about LADD stock-based awards under "Interests of Certain
Persons in the Merger" on page 58.
EXCHANGE OF SHARES
La-Z-Boy will appoint an exchange agent to handle the exchange of LADD
stock certificates in the merger for La-Z-Boy stock and the payment of cash for
fractional shares of LADD stock. Soon after the closing, the exchange agent
will send to each holder of LADD stock a letter of transmittal for use in the
exchange and instructions explaining how to surrender LADD stock certificates
to the exchange agent. Holders of LADD stock that surrender their certificates
to the exchange agent, together with a properly completed letter of
transmittal, will receive the appropriate merger consideration. Holders of
unexchanged shares of LADD stock will not be entitled to receive any dividends
or other distributions payable by La-Z-Boy after the closing until their
certificates are surrendered.
La-Z-Boy will not issue any fractional shares in the merger. Holders of
LADD common stock will receive a cash payment in lieu of their fractional
shares.
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LADD BOARD
When the merger becomes effective, the directors of La-Z-Boy's
acquisition subsidiary, all of whom are La-Z-Boy employees, will become the
directors of LADD.
CERTAIN COVENANTS
Each of La-Z-Boy and LADD has undertaken certain covenants in the merger
agreement. The following summarizes the more significant of these covenants.
No Solicitation by LADD. LADD has agreed that it and its subsidiaries and
their officers, directors, employees and advisers will not take action to
solicit or encourage an offer for an alternative acquisition transaction
involving LADD of a nature defined in the merger agreement. Restricted actions
include engaging in discussions or negotiations with any potential bidder, or
disclosing non-public information relating to LADD or its subsidiaries or
affording access to their properties, books or records to a potential bidder.
These actions are permitted in response to an unsolicited bona fide offer so
long as prior to doing so:
. the LADD board determines in its good faith judgment that it is
necessary to do so to comply with its fiduciary duty to shareholders,
after receiving the advice of outside legal counsel, and
. LADD receives from such person an executed confidentiality agreement
with terms no less favorable to LADD than those contained in the
existing confidentiality agreement between La-Z-Boy and LADD.
LADD must keep La-Z-Boy informed of the identity of any potential bidder
and the terms and status of any offer.
LADD Board's Covenant to Recommend. The LADD board has agreed to
recommend the approval and adoption of the merger agreement to LADD's
shareholders. However, the LADD board is permitted not to make this
recommendation, to withdraw it or to modify it in a manner adverse to La-Z-Boy
if:
. the LADD board by a majority vote determines in its good faith
judgment that it is necessary to do so to comply with its fiduciary
duty to shareholders under applicable law, after receiving the advice
of outside legal counsel, and
. LADD and the senior officers and directors of LADD have substantially
complied with their obligations under the no-solicitation covenant
described above under "--No Solicitation by LADD."
When you consider the board's recommendation, you should be aware that
members of LADD's board may have an interest in the merger that may be
different from, or in addition to, your interest as a shareholder. See
"Interests of Certain Persons in the Merger" on page 58.
Interim Operations of La-Z-Boy and LADD. Each of La-Z-Boy and LADD has
undertaken a separate covenant that places restrictions on it and its
subsidiaries until either the effective time or the merger agreement is
terminated. In general, La-Z-Boy and its subsidiaries and LADD and its
subsidiaries are required to conduct their business in the ordinary course
consistent with past practice and to use their reasonable best efforts to
preserve intact their business organizations and relationships with third
parties. The companies also have agreed to some specific restrictions which are
subject to exceptions described in the merger agreement. The following table
summarizes the more significant of these restrictions undertaken by each
company:
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<TABLE>
<CAPTION>
RESTRICTION LA-Z-BOY LADD
----------- -------- ----
<S> <C> <C>
Amending its organizational documents............................ *
Entering into any merger, liquidation or other significant
transaction..................................................... *
Issuing or disposing of equity securities, options or other
securities convertible into or exercisable for equity
securities, except to a limited extent to employees or
directors....................................................... *
Splitting, combining or reclassifying its capital stock.......... *
Declaring dividends.............................................. *
Redeeming or repurchasing its capital stock, except in limited
instances....................................................... * *
Amending the terms of any outstanding stock options.............. *
Making capital expenditures, subject to scheduled exceptions..... *
Increasing employee compensation or benefits except for normal
ordinary course increases consistent with past practice......... *
Acquiring or disposing of material assets, except for permitted
capital expenditures and disposing of assets pursuant to
existing commitments............................................ *
Changing its accounting policies................................. * *
Entering into any material joint venture or partnership.......... *
Taking any other action that would make any representation or
warranty by it inaccurate in any material respect............... * *
</TABLE>
Best Efforts Covenant. La-Z-Boy and LADD have agreed to cooperate with
each other and use their best efforts to take all actions and do all things
necessary or advisable under the merger agreement and applicable laws to
complete the merger and the other transactions contemplated by the merger
agreement.
Employee Matters. In the merger agreement, La-Z-Boy and LADD have agreed
to the following:
. after completion of the merger, La-Z-Boy will cause LADD to honor all
of its obligations under its executive retirement plan, its
management deferred compensation plan, its executive employment
agreements and, subject to certain limitations, its other employee
plans;
. the merger will result in a change in control of LADD under
applicable LADD's stock option plans, executive employment agreements
and supplemental retirement income plan for salaried employees;
. for one year after completion of the merger, LADD employees who
continue their employment will receive benefits, other than salary or
incentive compensation, which, in the aggregate, are no less
favorable than what they currently receive as employees of LADD;
. with certain exceptions, LADD employees who continue their employment
will receive full credit for eligibility, vesting, benefit accrual
and determination of the level of benefits for their LADD service
under the employee benefit plans of La-Z-Boy and its subsidiaries in
which they participate following the merger to the extent that LADD
recognized their service for these purposes before the merger;
. if any payment made to a LADD employee or plan participant is subject
to the excise tax the Internal Revenue Code imposes on "golden
parachute" payments, La-Z-Boy will make an additional payment to that
person in an amount equal to the total of (a) the excise tax, (b) any
related interest or penalty and (c) all income taxes, any excise tax,
and any related interest or penalty the person incurs because of
having received the additional payment.
Please see "Interests of Certain Persons in the Merger," beginning on
page 58 for additional information on employee benefits matters covered in the
merger agreement.
Indemnification and Insurance of LADD Directors and Officers. La-Z-Boy
has agreed that:
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. For six years after closing, it will indemnify former LADD directors,
officers and employees for liabilities from their acts or omissions
in those capacities occurring prior to closing to the extent provided
under LADD's articles of incorporation and bylaws as in effect on
September 28, 1999.
. It will cause LADD to honor all indemnification agreements with its
former directors, officers and employees in effect as of September
28, 1999.
. For six years after closing, it will provide officers' and directors'
liability insurance and employee practices insurance covering acts or
omissions occurring prior to closing by each person currently covered
by LADD's insurance policies. These La-Z-Boy policies must be no less
favorable than the LADD policies in effect on September 28, 1999,
except that La-Z-Boy will only be obligated to pay up to 200% of the
annual premium paid by LADD for such insurance as of September 28,
1999.
Certain Other Covenants. The merger agreement contains mutual covenants
of the parties, the most significant of which is that each party agrees not to
jeopardize the intended tax treatment of the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations
and warranties made by La-Z-Boy and LADD to each other. The most significant of
these relate to:
. corporate authorization to enter into the contemplated transaction;
. governmental approvals required in connection with the contemplated
transaction;
. absence of any breach of organizational documents, law or material
agreements as a result of the contemplated transaction;
. capitalization;
. ownership of subsidiaries;
. accuracy of filings with the SEC;
. financial statement information provided by it for inclusion in this
proxy statement/prospectus;
. absence of material changes;
. absence of undisclosed material liabilities;
. absence of undisclosed material litigation;
. tax matters;
. employee benefits matters;
. compliance with laws;
. finders' or advisors' fees;
. environmental matters; and
. absence of circumstances inconsistent with the intended tax treatment
of the merger.
In addition, LADD represents and warrants to La-Z-Boy as to other
matters, including the shareholder vote required to approve the contemplated
transaction and the inapplicability of the North Carolina antitakeover
statutes. For information about the antitakeover statutes, see "Comparison of
Shareholder Rights" on pages 78-81.
The representations and warranties in the merger agreement do not survive
the closing or termination of the merger agreement.
CONDITIONS TO THE COMPLETION OF THE MERGER
Mutual Closing Conditions. The obligations of La-Z-Boy and LADD to
complete the merger are subject to the satisfaction or, to the extent legally
permissible, waiver of the following conditions:
. approval by the LADD shareholders;
. absence of legal prohibition on completion of the merger;
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. La-Z-Boy's registration statement on Form S-4, which includes this
proxy statement/prospectus, being effective and not subject to any
stop order by the SEC;
. approval for the listing on the NYSE of the shares of La-Z-Boy common
stock to be issued in the merger;
. receipt of opinions of La-Z-Boy's and LADD's counsel that the merger
will qualify as a tax-free reorganization (not waivable);
. absence of a material adverse effect or any reasonable expectation of
a material adverse effect on the other company during the period from
September 28, 1999 until closing;
. accuracy as of closing of the representations and warranties made by
the other party to the extent specified in the merger agreement; and
. performance in all material respects by the other party of the
obligations required to be performed by it at or prior to closing.
Additional Closing Conditions for La-Z-Boy's Benefit. La-Z-Boy's
obligation to complete the merger is subject to the following additional
conditions:
. there being no proceeding seeking to limit La-Z-Boy's ownership of
LADD or to compel divestiture of assets, in either case to an extent
that could reasonably be expected to result in a substantial
detriment to La-Z-Boy and LADD taken as a whole;
. there being no statute, regulation or order reasonably likely to
result in such a substantial detriment;
. all regulatory approvals for the merger being obtained on terms that
are not reasonably likely to result in such a substantial detriment;
. receipt of specified third-party consents; and
. receipt of the letters from LADD's affiliates described under
"Federal Securities Law Consequences; Stock Transfer Restrictions" on
page 74.
TERMINATION OF THE MERGER AGREEMENT
Right to Terminate. The merger agreement may be terminated at any time
prior to the closing in any of the following ways:
(a) La-Z-Boy and LADD may terminate the merger agreement by mutual
written consent.
(b) Either La-Z-Boy or LADD may terminate the merger agreement if:
. the merger has not been completed by March 31, 2000. However,
that date becomes June 30, 2000 if the reason for not closing by
March 31, 2000 is that we have not received all necessary
regulatory and legal approvals by that date, except that LADD or
La-Z-Boy may not terminate the agreement on the foregoing dates
if the cause of the merger not being completed is its failure to
fulfill its obligations;
. LADD shareholders do not approve the merger; or
. a law or court order permanently prohibits the completion of the
merger.
(c) La-Z-Boy may terminate the merger agreement if the LADD board
withdraws or modifies in a manner adverse to La-Z-Boy its approval
or recommendation of the merger, breaches its agreement to call the
LADD meeting or recommends a superior offer.
(d) The merger agreement may be terminated by LADD if:
. the LADD board authorizes LADD, subject to complying with the
merger agreement, to enter into a binding written agreement
concerning an acquisition proposal for at least a majority of the
LADD stock on terms the LADD board determines, in good
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faith after consultation with its financial advisors, are more
favorable to LADD shareholders than the merger, and LADD notifies
La-Z-Boy in writing that it intends to enter into such an
agreement, attaching the most current version of the agreement or
a description of all its material terms and conditions;
. La-Z-Boy does not make an offer, within three business days after
receiving the notice, that the LADD board determines, in good
faith after consultation with its financial advisors, is at least
as favorable to the LADD shareholders as the superior proposal;
and
. LADD has paid La-Z-Boy the cash termination fee described under
"--Termination Fees Payable by LADD" below.
If the merger agreement is validly terminated, the agreement will become
void without any liability on the part of any party unless the party has
willfully breached the agreement. However, the provisions of the merger
agreement relating to expenses and termination fees, as well as the
confidentiality agreement entered into between La-Z-Boy and LADD, will continue
in effect notwithstanding termination of the merger agreement.
Termination Fees Payable by LADD. LADD has agreed to pay La-Z-Boy $7
million in cash in any of the following circumstances:
(a) LADD terminates the merger agreement as described in paragraph (d)
under "--Right to Terminate" above;
(b) La-Z-Boy terminates the merger agreement as described in paragraph
(c) under "--Right to Terminate" above, unless at the relevant time
La-Z-Boy is in material breach in the manner described in the merger
agreement; or
(c) either La-Z-Boy or LADD terminates the merger agreement in
circumstances where the following three conditions are met:
. LADD's shareholders do not vote in favor of the merger,
. a third party has made a proposal for an alternative transaction,
and
. within twelve months of the termination of the merger agreement
LADD enters into an agreement for an alternative transaction with
that third party, or with another third party, at a value per
LADD share higher than $20.20.
In addition, if La-Z-Boy terminates the merger agreement as described in
paragraph (c) under "--Right to Terminate" above or because LADD willfully
breaches the agreement, or if La-Z-Boy becomes entitled to the fees described
in paragraph (b) above, then LADD must pay all costs and expenses incurred by
La-Z-Boy in connection with the merger agreement and the proposed merger.
LADD's obligation to reimburse La-Z-Boy's expenses is not subject to any
ceiling as to amount.
AMENDMENTS; WAIVERS
Any provision of the merger agreement may be amended or waived prior to
closing if the amendment or waiver is in writing and signed, in the case of an
amendment, by LADD, La-Z-Boy and the merger subsidiary or, in the case of a
waiver, by the party against whom the waiver is to be effective. After the
approval of the merger agreement by the shareholders of LADD, no amendment or
waiver that by law requires further approval by shareholders may be made
without the further approval of such shareholders.
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THE SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting will be held on January 27, 2000 at 10:00 a.m.,
Eastern Standard Time, at Grandover Resort and Conference Center, One Thousand
Club Road, Greensboro, North Carolina.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to approve and adopt the merger
agreement and the merger. See "The Merger Transaction" beginning on page 14 and
"Material Terms of the Merger Agreement" beginning on page 66.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Shareholders of record at the close of business on November 19, 1999, the
record date for the special meeting, are entitled to receive notice of and to
vote at the special meeting. On the record date, 7,833,518 shares of our common
stock were issued and outstanding.
A quorum is necessary to have a valid meeting of shareholders. A majority
of the shares of our common stock issued and outstanding and entitled to vote
on the record date must be represented in person or by proxy at the special
meeting in order for a quorum to be established. Abstentions and broker "non-
votes" count as present for establishing a quorum. A broker non-vote occurs on
an item when a broker is not permitted to vote on that item without instruction
from the beneficial owner of the shares and no instruction is given. If a
quorum is not present at the special meeting, we would expect the meeting to be
adjourned or postponed to permit us to solicit additional proxies.
Shareholders of record of our common stock on the record date are each
entitled to one vote per share on the approval and adoption of the merger
agreement and the merger.
VOTE NECESSARY TO APPROVE THE MERGER
The approval of the merger agreement and the merger requires the
affirmative vote of a majority of our shares of common stock outstanding on the
record date. An abstention or a broker "non-vote" will have the same effect as
a vote against the proposal to approve or adopt the merger agreement and the
merger. Please note that if your broker holds your shares in street name, your
broker may not be able to vote your shares on the merger proposal without
instructions from you. You should contact your broker to determine the proper
procedure for voting your shares held in street name. Without your
instructions, a broker non-vote will occur on the merger proposal and will have
the same effect as a vote against the approval and adoption of the merger
agreement and the merger.
The board of directors recommends that you vote FOR the merger proposal.
When you consider this recommendation, you should be aware that members of
LADD's board may have an interest in the merger that may be different from, or
in addition to, your interest as a shareholder. See "Interests of Certain
Persons in the Merger" on page 58.
SHARES BENEFICIALLY OWNED BY MANAGEMENT
At the close of business on the record date, our directors and executive
officers and their affiliates beneficially owned and were entitled to vote
48,048 shares of our common stock, which represented approximately 0.6% of the
shares of our common stock outstanding on that date. Each of those directors
and executive officers has indicated his present intention to vote, or cause to
be voted, the shares of our common stock owned by him FOR the approval and
adoption of the merger agreement and the merger.
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SHARES HELD BY LADD'S 401(K) SAVINGS PLAN
As of the record date, 163,541 shares of LADD's common stock were held by
the LADD 401(k) savings plan. Pursuant to the terms of the plan, the trustee of
the plan, Putnam Investments is entitled to vote the shares held by the plan as
directed by the Corporate Benefits Committee appointed by LADD. The committee
is composed of Messrs. Schuermann, Church, Creekmuir, Haley, Mitchell, Victor
D. Dyer and R. Rand Tucker. Because the committee is composed largely of LADD
executive officers, it has engaged an independent fiduciary to consider the
merger proposal. The independent fiduciary will direct the trustee to vote on
the merger proposal in accordance with the fiduciary's judgment.
REPRESENTATIVES OF KPMG LLP
Representatives of KPMG LLP are expected to be present at the meeting.
These representatives will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
VOTING OF PROXIES
Voting Your Proxy
You may vote in person at the special meeting or by proxy. We recommend
you vote by proxy even though you plan to attend the special meeting. You can
always change your vote at the meeting. Voting instructions are included on
your proxy card. If you properly give your proxy and submit it to us in time to
vote, one of the individuals named as your proxy will vote your shares as you
have directed.
How to Vote By Proxy
You may vote by proxy by completing signing, dating and returning your
proxy card in the enclosed envelope.
Revoking Your Proxy
You may revoke your proxy before it is voted by:
. sending in a new proxy with a later date;
. notifying our Secretary in writing before the meeting that you have
revoked your proxy; or
. voting in person at the special meeting.
Any written notice of a revocation of a proxy must be sent so as to be
delivered before the taking of the vote at the special meeting as follows:
4620 Grandover Parkway
P.O. Box 26777
Greensboro, North Carolina 27417-6777
Telecopy: (336) 315-4399
Attention: William S. Creekmuir, Secretary
Voting in Person
If you plan to attend the special meeting and wish to vote in person, we
will give you a ballot at the meeting. However, if your shares are held in the
name of your broker, bank or other nominee, you must bring a proxy from your
nominee authorizing you to vote the "street name" shares you owned on November
19, 1999, the record date for voting.
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Confidential Voting
Independent inspectors count the votes. Your individual vote is kept
confidential from us except in the event of a contested proxy solicitation or
as may be required by law. We may be informed whether a particular shareholder
has voted and we will have access to any comment written on a proxy, ballot or
other material and the identity of the commenting shareholder.
Proxy Solicitation
LADD will pay the costs of soliciting proxies. In addition to
solicitation by mail, its directors, officers and employees may also solicit
proxies from shareholders by telephone, electronically or in person. LADD will
also make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy materials to beneficial owners.
LADD has retained D.F. King & Co., Inc. to aid in the solicitation of
proxies and to verify certain records related to the solicitation. It will pay
D.F. King & Co., Inc. a fee of $6,500 as compensation for its services and will
reimburse it for its related out-of-pocket costs.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS. SHORTLY
AFTER THE MERGER, THE EXCHANGE AGENT WILL SEND YOU TRANSMITTAL FORMS WITH
INSTRUCTIONS FOR THE SURRENDER OF CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK.
OTHER BUSINESS; ADJOURNMENT
Under LADD's bylaws and North Carolina law, no other business may be
brought before the special meeting.
Adjournments of the special meeting may be made for the purpose of, among
other things, soliciting additional proxies. Any adjournment may be made at any
time by shareholders representing a majority of the votes present or by proxy
at the special meeting, regardless of whether a quorum exists, without further
notice other than by an announcement made at the meeting. We do not currently
intend to seek an adjournment of this special meeting.
FEDERAL SECURITIES LAW CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
All shares of La-Z-Boy common stock received by LADD shareholders in the
merger will be freely transferable, except that shares of La-Z-Boy common stock
received by persons who are deemed to be "affiliates" of LADD under the
Securities Act of 1933 at the time of the meeting may be resold by them only in
transactions permitted by Rule 145 under the 1933 Act or as otherwise permitted
under the 1933 Act. Persons who may be deemed to be affiliates of LADD for such
purposes generally include individuals or entities that control, are controlled
by or are under common control with LADD and include directors and executive
officers of LADD. The merger agreement requires LADD to use its reasonable best
efforts to cause each of its affiliates to execute a written agreement to the
effect that they will not offer, sell or otherwise dispose of any of the shares
of La-Z-Boy common stock issued to them in the merger in violation of the 1933
Act or the related SEC rules.
DESCRIPTION OF LA-Z-BOY CAPITAL STOCK
The following is a summary of the material terms of the capital stock of
La-Z-Boy and the provisions of its articles of incorporation and bylaws. It
also summarizes relevant provisions of the Michigan Business Corporation Act,
which we refer to as Michigan law. Since the terms of the articles of
incorporation, bylaws and Michigan law are more detailed than the general
information provided below, we urge you to read the actual provisions of those
documents and Michigan law. The following summary of the capital stock of La-Z-
Boy is subject in all respects to applicable Michigan law, La-Z-Boy's articles
of incorporation and its bylaws. If you would like to read La-Z-Boy's articles
of incorporation or bylaws, these documents are on file with the SEC, as
described under the heading "Where You Can Find More
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Information" beginning on page 82. Additional information regarding the
capital stock of La-Z-Boy is contained under the heading "Comparison of
Shareholders Rights" beginning on page 78.
GENERAL
The authorized capital stock of La-Z-Boy consists of 150,000,000 shares
of common stock and 5,000,000 shares of preferred stock. As of November 30,
1999, there were 51,866,204 shares of La-Z-Boy common stock outstanding, and
no shares of La-Z-Boy preferred stock were issued and outstanding.
COMMON STOCK
All of the outstanding shares of La-Z-Boy common stock are fully paid
and nonassessable.
Voting Rights. Each holder of common stock is entitled to cast one vote
for each share held of record on all matters submitted to a vote of
shareholders, including the election of directors. Holders of common stock
have no cumulative voting rights.
Dividends. Holders of common stock are entitled to receive dividends or
other distributions declared by the board of directors. The right of the board
of directors to declare dividends, however, is subject to the rights of any
holders of preferred stock of La-Z-Boy and the availability of sufficient
funds under Michigan law to pay dividends.
Liquidation Rights. In the event of the dissolution of La-Z-Boy, La-Z-
Boy common shareholders will share ratably in the distribution of all assets
that remain after it pays all of its liabilities and satisfies its obligations
to the holders of any preferred stock.
Preemptive and Other Rights. Holders of common stock have no preemptive
rights to purchase or subscribe for any stock or other securities of La-Z-Boy.
In addition, there are no conversion rights or redemption or sinking fund
provisions with respect to the common stock.
Transfer Agent. The transfer agent and registrar for the common stock is
American Stock Transfer and Trust Company, 40 Wall Street, 46th Floor, New
York, New York 10005.
PREFERRED STOCK
The board of directors is authorized to issue shares of preferred stock
at any time, without shareholder approval. It has the authority to determine
all aspects of those shares, including the following:
. the designation and number of shares;
. the dividend rate and preferences, if any, which dividends on that
series of preferred stock will have compared to any other class or
series of capital stock of La-Z-Boy;
. the voting rights, if any;
. the conversion or exchange privileges, if any, applicable to that
series;
. the redemption price or prices and the other terms of redemption, if
any, applicable to that series; and
. any purchase, retirement or sinking fund provisions applicable to
that series.
Any of these terms could have an adverse effect on the availability of
earnings for distribution to the holders of La-Z-Boy common stock or for other
corporate purposes.
75
<PAGE>
PROVISIONS THAT MAY DISCOURAGE TAKEOVERS
Michigan law and La-Z-Boy's articles of incorporation and bylaws contain
provisions that may have the effect of discouraging transactions involving an
actual or threatened change of control. These provisions could protect the
continuity of La-Z-Boy's directors and management and possibly deprive
shareholders of an opportunity to sell their shares of common stock at prices
higher than the prevailing market prices. The following description is subject
in its entirety to applicable Michigan law and La-Z-Boy's articles of
incorporation and bylaws.
Availability of Authorized but Unissued Shares. All of La-Z-Boy's
preferred stock and a substantial amount of its common stock is, and after the
merger will continue to be, authorized but unissued and not reserved for any
particular purpose. The La-Z-Boy board of directors may issue shares of
authorized common or preferred stock without shareholder approval. If they
decide to issue shares to persons friendly to current management, they could
render more difficult or discourage an attempt to obtain control of La-Z-Boy by
means of a merger, tender offer, proxy contest or otherwise. Authorized but
unissued shares also could be used to dilute the stock ownership of persons
seeking to obtain control of La-Z-Boy, including dilution through a shareholder
rights plan of the type commonly known as a "poison pill," which the board of
directors could adopt without a shareholder vote.
In addition, the board of directors could issue preferred shares having
voting rights that adversely affect the voting power of common shareholders,
which could have the effect of delaying, deferring or impeding a change of
control of La-Z-Boy.
Election of Directors; Filling Vacancies. La-Z-Boy's bylaws provide for a
board of directors divided into two classes of three directors each and one
class of four directors. Directors are elected by class for three-year,
staggered terms. The bylaws delegate to incumbent directors the power to fill
any vacancies on the board by a vote of two-thirds of the remaining directors.
A person appointed to fill a vacancy holds office for the unexpired portion of
the term of the director whose place was filled.
Under Michigan law, shareholders do not have cumulative voting rights for
the election of directors unless the articles of incorporation so provide. The
La-Z-Boy articles of incorporation do not provide for cumulative voting.
Limitations on Nomination of Directors. Under La-Z-Boy's bylaws, in order
for a shareholder to nominate a candidate for director, notice of the
nomination must be given to La-Z-Boy not less than 90 days before the first
anniversary of the preceding year's annual meeting. The shareholder submitting
the notice of nomination must describe various matters as specified in the
bylaws, including the name, age and address of each proposed nominee, his or
her occupation, the number of shares held by the nominee and any other
information that would be required under SEC rules in a proxy statement
soliciting proxies for the election of the nominee.
Limitation on Calling Special Meetings of Shareholders. Michigan law
allows the board of directors or officers, directors or shareholders authorized
in the corporation's bylaws to call special meetings of shareholders. The La-Z-
Boy bylaws provide that a special meeting may be called by the La-Z-Boy board
of directors or the President or Chairman of the Board of La-Z-Boy, and shall
be called by the directors, President or Chairman of the Board of La-Z-Boy at
the request of holders of not less than 75% of the capital stock entitled to
vote at the proposed special meeting. Shareholders requesting a special meeting
must state the purpose or purposes for which the meeting is to be held.
Business Combination Restrictions in Articles. Under La-Z-Boy's articles
of incorporation, La-Z-Boy may not consummate a business combination involving
any entity that beneficially owns 10% or more of La-Z-Boy's common stock
without the approval of holders of at least 67% of the outstanding stock
entitled to vote in the election of directors, unless:
. the business combination satisfies certain "fair price" and related
conditions specified in the articles of incorporation;
76
<PAGE>
. a majority of the La-Z-Boy directors approved a memorandum of
understanding concerning the business combination before the other
party acquired 10% or more of La-Z-Boy's stock;
. after the other party acquired 10% or more of La-Z-Boy's stock, the
business combination is approved by a majority of continuing
directors; or
. the business combination relates to or is with a majority owned
subsidiary of La-Z-Boy and will not change the proportionate voting
and equity interests of La-Z-Boy's shareholders.
A "business combination" includes:
. a merger;
. a sale, exchange or lease of all or any substantial part of La-Z-
Boy's assets; or
. the issuance of voting securities of La-Z-Boy or rights to acquire
voting securities if issued for any sort of consideration.
A "continuing director" is:
. any La-Z-Boy director who was a member of its board on the date these
provisions of the articles of incorporation were adopted by La-Z-
Boy's shareholders;
. any other La-Z-Boy director elected by the La-Z-Boy shareholders
prior to the time that the other entity involved in the proposed
business combination became a 10%-or-more shareholder or who, if
elected after that time, was elected on the recommendation of a
majority of the continuing directors then in office to succeed
another continuing director.
High Vote Required to Amend Articles or Bylaws. La-Z-Boy's articles of
incorporation provide that the business combination provisions described above
may not be amended or repealed except by the vote of at least 67% of all shares
of stock entitled to vote on the amendment, unless the amendment or repeal is
approved and recommended to the shareholders by a majority of those members of
the board who would then qualify as continuing directors. The articles of
incorporation also require the vote of at least 67% of all shares entitled to
vote in the election of directors for any amendment of La-Z-Boy's bylaws by its
shareholders.
Business Combination Statute. Chapter 7A of the Michigan Business
Corporation Act provides that a business combination between a covered Michigan
corporation and a 10%-or-more beneficial owner of voting shares may not take
place for at least five years after the other party to the proposed business
combination became a 10% shareholder, or at any later time unless certain price
and other conditions are also satisfied, without approval:
. by 90% of the votes of each class of stock entitled to be cast by the
corporation's shareholders; and
. by 2/3 of the votes of each class entitled to be cast, excluding
shares beneficially owned by the other party to the proposed business
combination.
Chapter 7A "business combinations" include mergers, significant asset
transfers, disproportionate issuances of shares, disproportionate
reclassifications and recapitalizations and the adoption of a plan of
liquidation or dissolution in which the other party would receive anything
other than cash.
Currently, Chapter 7A does not apply to La-Z-Boy. However, although its
board has no present intention to take such an action, the chapter would permit
the board at any time, by resolution and without a shareholder vote, to cause
La-Z-Boy to become subject to the supermajority vote requirements of the
chapter.
Control Share Acquisition Statute. Chapter 7B of the Michigan Business
Corporation Act takes away the normal voting rights of any shares of a covered
Michigan corporation that are acquired in a control share acquisition unless,
before or after the acquisition, the shareholders of the corporation approve
those rights. Two votes are required for approval:
. a majority of votes cast by all holders of shares entitled to vote;
and
77
<PAGE>
. a majority of all such votes cast, excluding shares controlled for
voting purposes by the person that made or proposes to make the
control share acquisition.
Generally, a "control share acquisition" is an acquisition of outstanding
voting shares of the corporation or the right to direct the vote of those
shares which, when added to shares previously owned or controlled for voting
purposes, would entitle the person, alone or as part of a group, to exercise or
direct the exercise of voting power in the election of the corporation's
directors within any of the following ranges of voting power:
. over 1/5 but less than 1/3,
. over 1/3 but less than a majority, or
. a majority.
Chapter 7B applies to La-Z-Boy but permits a covered corporation to opt
out of coverage by means of an amendment to its articles of incorporation or
bylaws, including by a bylaw amendment adopted by directors. La-Z-Boy has not
elected to be excluded from coverage. If it were to make that election in the
future, it would be effective only for control share acquisitions occurring
after the amendment making the election.
Under Chapter 7B, unless otherwise provided in the articles of
incorporation or bylaws of a covered corporation before a control share
acquisition has occurred, if the corporation's shareholders approve full voting
rights for the shares acquired in the acquisition and the acquiring person has
acquired a majority of all voting power of the corporation, the corporation's
shareholders other than the acquiring person would have dissenters' rights to
receive the fair value of their shares from the corporation. In addition, if
authorized in the covered corporation's articles of incorporation or bylaws
before a control share acquisition has occurred, shares acquired in a control
share acquisition are redeemable for their fair value at the option of the
corporation during certain periods specified in the chapter. For each of these
purposes, "fair value" is defined in the chapter as a value not less than the
highest per share price paid by the acquiring person in the control share
acquisition. Currently, neither La-Z-Boy's articles of incorporation nor its
bylaws includes any provision that would eliminate dissenters' rights or would
permit redemption of an acquiring person's shares in the circumstances
described in this paragraph.
"Anti-Greenmail" Statute. Michigan law prohibits a corporation that has
shares registered on a national securities exchange, such as La-Z-Boy, from
privately purchasing any of those shares at a per share price in excess of the
average market price per share for the 30 business days prior to the date of
purchase from any person holding more than 3% of its shares, if the person has
owned the listed shares for less than two years, unless the purchase:
. has been authorized in advance by the holders of the corporation's
shares entitled to vote;
. meets the requirements of a provision in the corporation's articles
of incorporation permitting the purchase; or
. is otherwise authorized by Michigan law.
La-Z-Boy's articles of incorporation do not contain any provisions
relevant to this provision of Michigan law.
COMPARISON OF SHAREHOLDER RIGHTS
Upon the completion of the merger, LADD shareholders will become owners
of La-Z-Boy common stock, and their rights will be governed by the Michigan
Business Corporation Act, which we refer to as Michigan law, and La-Z-Boy's
articles of incorporation and bylaws. The rights of LADD shareholders are
governed by the North Carolina Business Corporation Act, which we refer to as
North Carolina law, and LADD's articles of incorporation and bylaws. In many
respects the rights of the
78
<PAGE>
owners of shares of La-Z-Boy common stock are similar to those of owners of
shares of LADD common stock, but there are some differences between those
rights. The following is a summary of the material differences between those
rights, but it does not purport to be a complete statement of all of those
differences. For a more complete understanding of those differences, you should
read carefully the relevant provisions of Michigan law, North Carolina law, La-
Z-Boy's articles of incorporation and bylaws and LADD's articles of
incorporation and bylaws. See "Where You Can Find More Information" on page 82.
79
<PAGE>
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF OWNERS OF LA-Z-BOY
COMMON STOCK AND RIGHTS OF OWNERS OF LADD COMMON STOCK
<TABLE>
<CAPTION>
LA-Z-BOY LADD
------------------------------- -------------------------------
<S> <C> <C>
Authorized Capital The authorized capital stock of The authorized capital stock of
Stock: La-Z-Boy is described under LADD consists of 50,000,000
"Description of La-Z-Boy shares of common stock and
Capital Stock--General" on page 500,000 shares of preferred
77. stock.
Number of Directors: La-Z-Boy's bylaws set the total LADD's articles of
number of directors at ten. incorporation provide that the
number of directors may not be
fewer than three. Its bylaws
permit any number of directors
from three through nine.
Currently, LADD's board has
seven directors.
Structure of Board: La-Z-Boy has a classified LADD does not have a classified
board. See "Description of La- board. All directors are
Z-Boy Capital Stock--Provisions elected for a one-year term at
that May Discourage Takeovers-- each annual meeting of LADD
Election of Directors; Filling shareholders.
Vacancies" on page 76 .
Term of Director Chosen See "Description of La-Z-Boy Even if LADD's board were
to Fill a Vacancy on the Capital Stock--Provisions That changed to a classified board
Board: May Discourage Takeovers-- the term of office of a
Election of Directors; Filling director chosen to fill a
Vacancies" on page 76. vacancy in any class would
continue only until the next
annual meeting of shareholders.
Special Meetings of See "Description of La-Z-Boy Under LADD's bylaws, a special
Shareholders: Capital Stock--Provisions that meeting of shareholders may be
May Discourage Takeovers-- called at any time by the
Limitations on Calling Special Chairman, the President, the
Meetings of Shareholders" on Secretary or the board. The
page 76. bylaws do not require calling a
special meeting under any
circumstances.
Advance Notice: La-Z-Boy's advance notice No special procedures for
requirements are described shareholder nominations of
under "Description of La-Z-Boy prospective directors are
Capital Stock--Provisions that specified in LADD's bylaws or
May Discourage Takeovers-- in its articles of
Limitations on Nomination of incorporation.
Directors" on page 76.
Restrictions on Business Both La-Z-Boy's articles of LADD's articles of
Combinations: incorporation and Chapter 7A of incorporation and bylaws do not
the Michigan law (which impose any high vote
currently does not apply to La- requirements for business
Z-Boy) impose high vote combinations. North Carolina
requirements and other law has a provision requiring a
restrictions on business high vote for business
combinations with 10% combinations in some
shareholders. See "Description circumstances, but LADD has
of La-Z-Boy Common Stock-- elected not to be subject to
Provisions that May Discourage that provision.
Takeovers--Business Combination
Statute" on page 77.
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
LA-Z-BOY LADD
------------------------------- -------------------------------
<S> <C> <C>
Control Share La-Z-Boy is subject to Michigan North Carolina law has a
Acquisitions: law provisions on control share provision substantially similar
acquisitions. See "Description to the Michigan law provision,
of La-Z-Boy Capital Stock-- but LADD has elected not to be
Provisions that May Discourage subject to it.
Takeovers--Control Share
Acquisition Statute" on page
77.
"Anti-Greenmail": The "anti-greenmail" provisions North Carolina law contains no
of Michigan law apply to La-Z- comparable provision nor do
Boy. See "Description of La-Z- LADD's articles of
Boy Capital Stock--Provisions incorporation or bylaws.
that May Discourage Takeovers--
"Anti-Greenmail' Statute" on
page 78.
Indemnification: La-Z-Boy's articles of LADD's articles of
incorporation mandate incorporation mandate
indemnification of its indemnification of its
directors and officers and directors, officers, employees
advancement of their defense and agents and advancement of
expenses to the fullest extent their defense expenses to the
permitted by Michigan law. fullest extent permitted by
North Carolina law.
Derivative Proceedings: Michigan law and North Carolina North Carolina law contains
law are substantially the same specified limitations on the
except as noted in the next ability of a shareholder of a
column. public company to bring a
derivative action and
authorizes the court to require
the shareholder to post a bond
before proceeding.
Dissenters' Rights: Shareholders of a Michigan Although LADD shareholders do
corporation like La-Z-Boy, not have dissenters' rights
whose shares are traded on a with respect to the proposed
national securities exchange, merger, they would have these
do not have dissenters' rights rights under North Carolina law
unless the corporation with respect to a merger or
voluntarily grants them. statutory share exchange in
which they would receive any
consideration other than cash
or widely traded shares.
</TABLE>
81
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
La-Z-Boy has filed with the SEC a registration statement under the
Securities Act that registers the distribution of shares of its common stock to
LADD shareholders in the merger. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
La-Z-Boy and LADD. The rules and regulations of the SEC allow us to omit some
information included in the registration statement from this document.
In addition, La-Z-Boy and LADD each files reports, proxy statements and
other information with the SEC under the Exchange Act. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. You may
read and copy this information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-
24511
You also may obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet World Wide
Web site that contains reports, proxy statements and other information about
issuers, including La-Z-Boy and LADD, who file electronically with the SEC. The
address of that site is http://www.sec.gov. You also can inspect reports, proxy
statements and other information about La-Z-Boy at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows LADD to incorporate information by reference into this
document. This means that LADD can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that
LADD previously has filed with the SEC. They contain important information
about LADD and its financial condition.
<TABLE>
<CAPTION>
DESCRIPTION, PERIOD OR
LADD'S SEC FILINGS (FILE NO. 0-11577) DATE
---------------------------------------------------- -------------------------
<C> <S>
Year ended January 2,
Annual Report on Form 10-K 1999
Quarter ended April 3,
Quarterly Report on Form 10-Q 1999
Quarter ended July 3,
Quarterly Report on Form 10-Q 1999
Quarter ended October 2,
Quarterly Report on Form 10-Q 1999
Form 10-Q/A-1 filed December 13, 1999 Amends Form 10-Q for
quarter ended October 2,
1999
Current Report on Form 8-K, filed April 14, 1999 Discloses LADD's
financial results for
the first quarter
Current Report on Form 8-K, filed July 15, 1999 Discloses LADD's
financial results for
the second quarter and
first half of 1999
Current Report on Form 8-K, filed September 30, 1999 Discloses entering into
the merger agreement and
related matters
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION, PERIOD OR
LADD'S SEC FILINGS (FILE NO. 0-11577) DATE
--------------------------------------------------- --------------------------
<C> <S>
Current Report on Form 8-K, filed October 14, 1999 Discloses LADD's financial
results for the third
quarter and first nine
months of 1999
Current Report on Form 8-K, filed December 14, 1999 Discloses entering into
Amendment No. 1 to the
merger agreement.
Definitive Proxy Statement on Schedule 14A Definitive proxy statement
relating to 1999 annual
meeting of LADD's
shareholders (filed on
March 26, 1999)
</TABLE>
We incorporate by reference additional documents that LADD may file with
the SEC between the date of this document and the date of the special meeting.
These documents include periodic reports, which may include Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through LADD or from the SEC through the SEC's web site at the
address provided above. Documents incorporated by reference are available from
LADD without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this
document. You can obtain documents incorporated by reference in this document
by requesting them in writing or by telephone from LADD at the following
addresses:
LADD Furniture, Inc.
4620 Grandover Parkway
P.O. Box 26777
Greensboro, North Carolina 27417-6777
Attention: William S. Creekmuir, Secretary
Telephone No.: (336) 294-5233
If you would like to request documents, please do so by January 20, 2000
to receive them before the special meeting. If you request any incorporated
documents, LADD will mail them to you by first class mail, or another equally
prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger of our companies that differs from, or adds to,
the information in this document or in LADD's documents that are publicly filed
with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
document or to ask for proxies, or if you are a person to whom it is unlawful
to direct these activities, then the offer presented by this document does not
extend to you.
Information in this document about La-Z-Boy has been supplied by La-Z-
Boy, and information about LADD has been supplied by LADD.
EXPERTS
The consolidated financial statements of La-Z-Boy as of April 24, 1999
and April 25, 1998 and for each of the three years in the period ended April
24, 1999 included in this proxy statement/prospectus, and the financial
statement schedule included in the registration statement, have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements and the related financial statement
schedule of LADD that are incorporated in this proxy statement/prospectus by
reference to LADD's Annual Report on
83
<PAGE>
Form 10-K for the year ended January 2, 1999 have been so incorporated in
reliance on the report of KPMG LLP, independent certified public accountants,
also incorporated by reference in this proxy statement/prospectus, and on the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the common stock
offered by this proxy statement/prospectus and relating to federal income tax
matters concerning the merger will be passed upon for La-Z-Boy by Miller,
Canfield, Paddock and Stone, P.L.C., Detroit, Michigan. Rocque E. Lipford, a
director of La-Z-Boy, is a principal in Miller, Canfield, Paddock and Stone,
P.L.C. Certain legal matters relating to federal income tax matters concerning
the merger will be passed upon for LADD by Kilpatrick Stockton LLP, Winston-
Salem, North Carolina.
SUBMISSION OF SHAREHOLDER PROPOSALS
LADD will hold an annual meeting in the year 2000 only if the merger has
not already been completed. The deadline for receipt of a proposal to be
considered for inclusion in the proxy statement for the 2000 annual meeting
pursuant to SEC Rule 14a-8 was December 2, 1999. No shareholder proposals had
been received as of that date. A shareholder planning to submit a proposal at
the 2000 annual meeting outside the processes of Rule 14a-8 must give notice of
the proposal to LADD no later than February 11, 2000 in order for the notice to
be considered timely under the SEC's rules. If notice of such a proposal is not
timely given, proxies for the meeting that are solicited by LADD's board will
confer discretionary authority to vote on the proposal whether or not the
proposal is specifically mentioned in the proxy. Any shareholder proposal
should be directed to the attention of LADD's Secretary at LADD Furniture,
Inc., Post Office Box 26777, Greensboro, North Carolina, 27417-6777.
84
<PAGE>
INDEX TO FINANCIAL STATEMENTS
LA-Z-BOY INCORPORATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED APRIL 24, 1999
<TABLE>
<S> <C>
Report of Independent Accountants--La-Z-Boy Incorporated.................. F-2
Consolidated Balance Sheet of La-Z-Boy at April 24, 1999 and April 25,
1998..................................................................... F-3
Consolidated Statement of Income of La-Z-Boy for the years ended April 24,
1999, April 25, 1998 and April 26, 1997.................................. F-4
Consolidated Statement of Cash Flows of La-Z-Boy for the years ended April
24, 1999,
April 25, 1998 and April 26, 1997........................................ F-5
Consolidated Statement of Changes in Shareholders' Equity of La-Z-Boy for
the years ended
April 24, 1999, April 25, 1998 and April 26, 1997........................ F-6
Notes to Consolidated Financial Statements................................ F-7
UNAUDITED INTERIM FINANCIAL DATA
Condensed Consolidated Balance Sheet of La-Z-Boy at April 24, 1999,
October 23, 1999
and October 24, 1998..................................................... F-19
Condensed Consolidated Statement of Income of La-Z-Boy for the three
months ended
October 23, 1999 and October 24, 1998; and the six months ended October
24, 1998................................................................. F-20
Condensed Consolidated Statement of Cash Flows of La-Z-Boy for the three
months ended October 23, 1999 and October 24, 1998; and the Six months
ended October 23, 1999
and October 24, 1998 .................................................... F-21
Notes to Condensed Consolidated Financial Statements...................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of cash flows and of changes in
shareholders' equity, including pages F-3 through F-18, present fairly, in all
material respects, the financial position of La-Z-Boy Incorporated and its
subsidiaries (the "Company") at April 24, 1999 and April 25, 1998, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended April 24, 1999 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Toledo, Ohio
May 20, 1999, except for Note
13, which is as of November
11, 1999
F-2
<PAGE>
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
------------------------
4/24/99 4/25/98
----------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT PAR VALUE)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents................................ $ 33,550 $ 28,700
Receivables, less allowance of $19,550 in 1999 and
$16,605 in 1998.................................... 265,157 238,260
Inventories
Raw materials...................................... 47,197 43,883
Work-in-process.................................... 37,447 40,640
Finished goods..................................... 34,920 30,193
----------- -----------
FIFO inventories ................................. 119,564 114,716
Excess of FIFO over LIFO.......................... (23,053) (22,812)
----------- -----------
Total inventories................................ 96,511 91,904
Deferred income taxes............................... 20,028 16,679
Income taxes........................................ -- 936
Other current assets................................ 10,342 6,549
----------- -----------
Total current assets ............................ 425,588 383,028
Property, plant and equipment, net................... 125,989 121,762
Goodwill, less accumulated amortization of $13,583 in
1999 and
$11,523 in 1998..................................... 46,985 49,413
Other long-term assets, less allowance of $6,077 in
1999 and $4,034 in 1998............................. 31,230 26,148
----------- -----------
Total assets .................................... $ 629,792 $ 580,351
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt................... $ 2,001 $ 4,822
Current portion of capital leases................... 784 1,383
Accounts payable.................................... 45,419 36,703
Payroll/other compensation.......................... 53,697 39,617
Income taxes........................................ 4,103 --
Other current liabilities........................... 26,424 25,764
----------- -----------
Total current liabilities........................ 132,428 108,289
Long-term debt....................................... 62,469 66,434
Capital leases....................................... 219 819
Deferred income taxes................................ 5,697 5,478
Other long-term liabilities.......................... 14,064 11,122
Commitments and contingencies........................
Shareholders' equity
Preferred shares--5,000 authorized; 0 issued........ -- --
Common shares, $1 par value--150,000 authorized;
52,340 issued in 1999 and 53,551 in 1998*.......... 52,340 53,551
Capital in excess of par value...................... 31,582 29,262
Retained earnings*.................................. 332,934 306,445
Currency translation adjustments.................... (1,941) (1,049)
----------- -----------
Total shareholders' equity....................... 414,915 388,209
----------- -----------
Total liabilities and shareholders' equity....... $ 629,792 $ 580,351
=========== ===========
</TABLE>
- --------
*Restated to reflect a three-for-one stock split, in the form of a 200% stock
dividend, effective September, 1998.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
4/24/99 4/25/98 4/26/97
---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Sales....................................... $1,287,645 $1,108,038 $1,005,825
Cost of sales............................... 946,731 825,312 744,662
---------- ---------- ----------
Gross profit.............................. 340,914 282,726 261,163
Selling, general and administrative......... 234,075 205,523 187,230
---------- ---------- ----------
Operating profit.......................... 106,839 77,203 73,933
Interest expense............................ 4,440 4,157 4,376
Interest income............................. 2,181 2,021 1,770
Other income................................ 2,658 4,207 2,508
---------- ---------- ----------
Pretax income............................. 107,238 79,274 73,835
Income tax expense
Federal--current.......................... 41,286 28,467 26,247
--deferred............................. (4,727) (2,046) (1,699)
State--current.......................... 5,114 3,287 4,304
--deferred............................. (577) (354) (314)
---------- ---------- ----------
Total tax expense........................... 41,096 29,354 28,538
---------- ---------- ----------
Net income.................................. $ 66,142 $ 49,920 $ 45,297
========== ========== ==========
Diluted weighted average shares* ........... 53,148 53,821 54,575
Diluted net income per share*............... $ 1.24 $ 0.93 $ 0.83
Basic average shares*....................... 52,890 53,654 54,324
Basic net income per share*................. $ 1.25 $ 0.93 $ 0.83
</TABLE>
- --------
*Restated to reflect a three-for-one stock split, in the form of a 200% stock
dividend, effective September, 1998.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
4/24/99 4/25/98 4/26/97
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................... $ 66,142 $ 49,920 $ 45,297
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................ 22,081 21,021 20,382
Change in receivables........................ (26,875) (14,090) (8,178)
Change in inventories........................ (4,607) (6,918) 421
Change in other assets and liabilities....... 28,287 2,374 4,254
Change in deferred taxes..................... (3,130) 3,177 (2,014)
-------- -------- --------
Total adjustments.......................... 15,756 5,564 14,865
-------- -------- --------
Cash provided by operating activities...... 81,898 55,484 60,162
Cash flows from investing activities
Proceeds from disposals of assets.............. 401 1,585 1,527
Capital expenditures........................... (25,316) (22,016) (17,778)
Change in other investments.................... (4,895) (16,066) (8,596)
-------- -------- --------
Cash used for investing activities......... (29,810) (36,497) (24,847)
Cash flows from financing activities
Long-term debt................................. -- 35,000 --
Retirements of debt ........................... (6,786) (24,653) (5,640)
Capital leases................................. 204 -- --
Capital lease principal payments............... (1,403) (2,017) (2,114)
Stock for stock option plans................... 6,431 5,748 4,213
Stock for 401(k) employee plans................ 1,902 1,704 1,568
Purchases of La-Z-Boy stock ................... (30,460) (16,391) (20,751)
Payment of cash dividends ..................... (16,417) (15,029) (14,142)
-------- -------- --------
Cash used for financing activities .......... (46,529) (15,638) (36,866)
Effect of exchange rate changes on cash.......... (709) (31) (127)
-------- -------- --------
Net change in cash and equivalents............... 4,850 3,318 (1,678)
Cash and equivalents at beginning of the year.... 28,700 25,382 27,060
-------- -------- --------
Cash and equivalents at end of the year.......... $ 33,550 $ 28,700 $ 25,382
======== ======== ========
Cash paid during the year
--Income taxes................................. $ 44,842 $ 29,025 $ 28,670
--Interest..................................... $ 4,340 $ 4,235 $ 4,437
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL CURRENCY
IN TRANS-
EXCESS LATION
COMMON OF PAR RETAINED ADJUST-
SHARES VALUE EARNINGS MENTS TOTAL
-------- ------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
At April 27, 1996......... $ 18,385 $28,016 $297,750 $( 775) $343,376
Purchases of La-Z-Boy
stock.................. (693) (20,058) (20,751)
Currency translation.... (223) (223)
Stock options/401(k).... 216 (319) 5,884 5,781
Dividends paid.......... (14,142) (14,142)
Net income.............. 45,297 45,297
-------- ------- -------- ------- --------
At April 26, 1997......... 17,908 27,697 314,731 (998) 359,338
Purchases of La-Z-Boy
stock ................. (484) (15,907) (16,391)
Currency translation.... (51) (51)
Stock options/401(k).... 333 1,110 6,008 7,451
Acquisition related..... 93 455 2,423 2,971
Dividends paid.......... (15,029) (15,029)
Net income.............. 49,920 49,920
-------- ------- -------- ------- --------
At April 25, 1998......... 17,850 29,262 342,146 (1,049) 388,209
Three-for-one stock
split.................. 35,700 (35,700) --
Purchases of La-Z-Boy
stock ................. (1,700) (28,760) (30,460)
Currency translation.... (892) (892)
Stock options/401(k).... 490 2,320 5,523 8,333
Dividends paid.......... (16,417) (16,417)
Net income.............. 66,142 66,142
-------- ------- -------- ------- --------
At April 24, 1999......... $ 52,340 $31,582 $332,934 $(1,941) $414,915
======== ======= ======== ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACCOUNTING POLICIES
The Company operates primarily in the U.S. furniture industry. The
following is a summary of significant accounting policies followed in the
preparation of these financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of La-Z-Boy
Incorporated and its subsidiaries. All significant intercompany transactions
have been eliminated. Certain non-U.S. subsidiaries are consolidated on a one-
month lag.
Risks and Uncertainties
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, sales and expenses for the reporting periods. Actual results could
differ from those estimates.
Cash and Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
on the last-in, first-out (LIFO) basis.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing
facilities, are recorded at cost. Depreciation is computed using primarily
accelerated methods over the estimated useful lives of the assets.
Goodwill
The excess of the cost of operating companies acquired over the value of
their net tangible assets is amortized on a straight-line basis over 30 years
from the date of acquisition.
Goodwill is evaluated periodically as events or circumstances indicate a
possible inability to recover its carrying amount. Such evaluation is based on
profitability projections and cash flow analysis. If future expected
undiscounted cash flows are insufficient to recover the carrying amount of the
asset, then the asset is written down to fair value.
Revenue Recognition
Revenue is recognized upon shipment of product.
Income Taxes
Income tax expense is provided on all revenue and expense items included
in the consolidated statement of income, regardless of the period such items
are recognized for income tax purposes.
F-7
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings per Share
Basic net income per share is computed using the weighted-average number
of shares outstanding during the period. Diluted net income per share uses the
weighted-average number of shares outstanding during the period plus the
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. This includes employee stock options.
The information below has been restated for a three-for-one stock split.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average common shares outstanding
(Basic)......................................... 52,890 53,654 54,324
Effect of options................................ 258 167 251
------ ------ ------
Weighted average common shares outstanding
(Diluted)..................................... 53,148 53,821 54,575
====== ====== ======
</TABLE>
NOTE 2: ACQUISITIONS
On April 1, 1998, the Company acquired all of the capital stock of Sam
Moore Furniture Industries, Incorporated, a manufacturer of upholstered
furniture. For the year ended December 31, 1997, Sam Moore Furniture
Industries' sales were $33 million.
During fiscal year 1998, La-Z-Boy acquired the remaining 25% of the
ordinary share capital of Centurion Furniture plc, a furniture manufacturer
located in England. Sales for their year ended March 31, 1997 were $12 million.
The consolidated April 1998 financial statements include the operations
of Distincion Muebles, a furniture manufacturer located in Mexico. Annual sales
for the year ended March 30, 1998 were $1.9 million.
NOTE 3: CASH AND EQUIVALENTS
<TABLE>
<CAPTION>
4/24/99 4/25/98
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Certificates of deposit.......................... $ 19,900 $ 13,000
Cash in bank..................................... 10,704 10,714
Commercial paper................................. 1,878 3,963
Marketable securities............................ 1,068 1,023
----------- -----------
Total cash and equivalents..................... $ 33,550 $ 28,700
=========== ===========
</TABLE>
The Company invests in certificates of deposit with a bank whose board of
directors includes two members of the Company's board of directors. At the end
of fiscal years 1999 and 1998, $15 million and $13 million, respectively, was
invested in this bank's certificates.
F-8
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
LIFE
IN DEPRECIATION
YEARS METHOD 4/24/99 4/25/98
----- ------------ -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Machinery and equipment................... 10 200%DB $124,835 $114,502
Buildings and building fixtures........... 15-30 150%DB 116,601 116,145
Information systems....................... 3-5 150-200%DB 23,228 20,738
Transportation equipment.................. 5 SL 15,685 15,606
Land and land improvements................ 0-20 150%DB 13,514 12,937
Network and production tracking systems... 5-10 SL 4,881 2,407
Other..................................... 3-10 Various 23,923 18,048
-------- --------
322,667 300,383
Less: accumulated depreciation.......... 196,678 178,621
-------- --------
Property, plant and equipment, net.... $125,989 $121,762
======== ========
</TABLE>
DB= Declining Balance SL = Straight Line
NOTE 5: DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
INTEREST
RATES MATURITIES 4/24/99 4/25/98
--------- ---------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Private placement........................ 6.5%-8.8% 1999-08 $36,875 $38,750
Industrial revenue bonds................. 3.1%-3.9% 2000-14 27,400 28,500
La-Z-Boy notes........................... -- -- -- 2,492
Other debt............................... 5.0%-7.0% 1999-00 195 1,514
--------- ------- ------- -------
Total debt............................... 64,470 71,256
Less: current portion.................. 2,001 4,822
------- -------
Long-term debt...................... $62,469 $66,434
======= =======
Weighted average interest rate........... 5.3% 5.8%
Fair value of debt....................... $65,522 $71,352
</TABLE>
The Company has a $75 million unsecured revolving credit line through
August 2002, requiring interest only payments through August 2002 and requiring
principal payment in August 2002. The credit agreement also includes covenants
that, among other things, require the Company to maintain certain financial
statement ratios. There were no draws outstanding at April 24, 1999 and April
25, 1998.
On April 22, 1998, the Company obtained $35 million through the sale of
unsecured senior notes in a private placement. The principal on the notes is
payable at the end of 10 years and has an interest rate of 6.47%. The agreement
also includes covenants that, among other things, require the Company to
maintain certain financial statement ratios.
Proceeds from industrial revenue bonds were used to finance the
construction of manufacturing facilities. These arrangements require the
Company to insure and maintain the facilities and make annual payments that
include interest. The bonds are secured by the facilities constructed from the
bond proceeds.
The Company leases equipment (primarily trucks used as transportation
equipment) under capital leases expiring at various dates through fiscal year
2004. The majority of the leases include bargain purchase options.
F-9
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of debt and lease obligations for the five years subsequent to
April 24, 1999 are $3 million, $1 million, $5 million, $0 and $0, respectively.
As of April 24, 1999, the Company had remaining unused lines of credit and
commitments of $113 million under several credit arrangements.
NOTE 6: FINANCIAL GUARANTEES
La-Z-Boy has provided financial guarantees relating to loans and leases
in connection with some proprietary stores. The amounts of the unsecured
guarantees are shown in the following table. Because almost all guarantees are
expected to retire without being funded, the contract amounts are not estimates
of future cash flows.
<TABLE>
<CAPTION>
4/24/99 4/25/98
------- -------
(CONTRACT
AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Loan guarantees........................................... $17,193 $23,567
Lease guarantees.......................................... $ 5,649 $ 5,122
</TABLE>
Most guarantees require periodic payments to the Company in exchange for
the guarantee. Terms of current guarantees generally range from one to five
years.
The guarantees have off-balance-sheet credit risk because only the
periodic payments and accruals for probable losses are recognized until the
guarantee expires. Credit risk represents the accounting loss that would be
recognized at the reporting date if counter-parties failed to perform
completely as contracted. The credit risk amounts are equal to the contractual
amounts, assuming that the amounts are fully advanced and that no amounts could
be recovered from other parties.
NOTE 7: STOCK OPTION PLANS
The Company's shareholders adopted an employee Incentive Stock Option
Plan that provides grants to certain employees to purchase common shares of the
Company at not less than their fair market value at the date of grant. Options
are for five years and become exercisable at 25% per year beginning one year
from the date of grant. The Company is authorized to grant options for up to
7,500,000 common shares.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at April 27,
1996................... 1,597,650 $ 9.01
Granted................. -- --
Exercised............... (362,142) 7.61
Expired or cancelled.... (10,977) 9.04
---------
Outstanding at April 26,
1997................... 1,224,531 9.43
Granted................. 860,865 11.60
Exercised............... (677,316) 9.36
Expired or cancelled.... (67,521) 10.42
---------
Outstanding at April 25,
1998................... 1,340,559 10.87
Granted................. 422,220 17.58
Exercised............... (314,814) 9.86
Expired or cancelled.... (43,779) 13.82
---------
Outstanding at April 24,
1999................... 1,404,186 13.02
=========
Exercisable at April 24,
1999................... 499,761 $10.51
Shares available for
grants at April 24,
1999................... 6,132,000
</TABLE>
F-10
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The options outstanding at April 24, 1999 have exercise prices ranging
from $9.00-$13.23 for 996,726 shares and $17.58 for 407,460 shares and a
weighted-average remaining contractual life of 2.9 years.
The Company's shareholders have also adopted Restricted Share Plans.
Under one plan, the Compensation Committee of the Board of Directors is
authorized to offer for sale up to an aggregate of 750,000 common shares to
certain employees. Under a second plan, up to an aggregate of 150,000 common
shares are authorized for sale to non-employee directors. Under the Restricted
Share Plans, shares are offered at 25% of the fair market value at the date of
grant. The plans require that all shares be held in an escrow account for a
period of three years in the case of an employee, or until the participant's
service as a director ceases in the case of a director. In the event of an
employee's termination during the escrow period, the shares must be sold back
to the Company at the employee's cost.
Shares aggregating 3,000 were granted and issued during both fiscal year
1999 and 1998, under the directors' plan. Shares remaining for future grants
under the directors' plans amounted to 96,000 at April 24, 1999. Shares
aggregating 67,350 and 69,180 were granted and issued during the fiscal years
1999 and 1998, respectively, under the employee Restricted Share Plan. Shares
remaining for future grants under the above plan amounted to 613,470 at April
24, 1999.
The Company's shareholders have also adopted a Performance-Based
Restricted Stock Plan. This plan authorizes the Compensation Committee of the
Board of Directors to award up to an aggregate of 1,200,000 shares to key
employees. Grants of shares are based on achievement of goals over a three-year
performance period. Any award made under the plan will be at the sole
discretion of the committee after judging all relevant factors. At April 24,
1999, performance awards were outstanding pursuant to which up to approximately
327,000 shares may be issued in fiscal years 2000 through 2002 for the three
outstanding target awards, depending on the extent to which certain specified
performance objectives are met. The cost of performance awards are expensed
over the performance period. In 1999, 48,945 shares were issued.
As permitted by Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," the Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Had the Company elected to recognize compensation cost for incentive
stock options based on the fair value method of accounting prescribed by SFAS
No. 123, the after tax expense relating to the stock options would have been
$0.7 million in 1999, $0.3 million in 1998 and $0.2 million in 1997. Pro forma
net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income....................................... $65,424 $49,575 $45,104
Diluted net income per share..................... $ 1.23 $ 0.92 $ 0.83
Basic net income per share ...................... $ 1.24 $ 0.92 $ 0.83
</TABLE>
The pro forma effect on net income is not representative of the pro forma
effect on net income that will be disclosed in future years as required by SFAS
No. 123 because it does not take into consideration pro forma compensation
expense relating to grants made prior to 1996.
F-11
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
4/24/99 4/25/98 4/26/97
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate........................... 5.15% 5.6% 6.4%
Dividend rate..................................... 1.6% 1.6% 2.4%
Expected life in years............................ 4.4 4.6 4.6
Stock price volatility............................ 39% 23% 25%
</TABLE>
NOTE 8: RETIREMENT/WELFARE
The Company has contributory and non-contributory retirement plans
covering substantially all factory employees.
Eligible salaried employees are covered under a trusteed profit sharing
retirement plan. Cash contributions to a trust are made annually based on
profits.
The Company has established a non-qualified deferred compensation plan
for eligible highly compensated employees called a SERP (Supplemental
Executive Retirement Plan).
The Company provides executive life insurance to certain highly
compensated employees. Such employees are not eligible for current
contributions to the profit sharing plan or the SERP.
The Company offers voluntary 401(k) retirement plans to eligible
employees within U.S. operating divisions. Currently over 60% of eligible
employees are participating in the plans. The Company makes matching
contributions based on specific formulas. For most divisions, this match is
made in La-Z-Boy stock.
The Company maintains defined benefit pension plans for eligible factory
hourly employees.
F-12
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the pension was as follows (for the fiscal years
ended):
<TABLE>
<CAPTION>
4/24/99 4/25/98
------- -------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year............... $39,948 $32,011
Service cost........................................ 2,785 1,903
Interest cost....................................... 3,739 2,508
Amendments and new plans............................ 5,889 474
Benefits paid....................................... (2,051) (1,663)
Acquisition of Sam Moore............................ -- 4,715
------- -------
Benefit obligation at end of year................. 50,310 39,948
Change in plan assets
Fair value of plan assets at beginning of year........ 53,545 41,568
Actual return on plan assets........................ 5,458 9,439
Employer contribution............................... 1,214 --
Benefits paid....................................... (2,051) (1,663)
Acquisition of Sam Moore............................ -- 4,201
------- -------
Fair value of plan assets at end of year.......... 58,166 53,545
Funded status........................................... 7,856 13,597
Unrecognized actuarial gain........................... (3,133) (9,218)
Unamortized prior service cost........................ 795 724
------- -------
Prepaid benefit cost................................ $ 5,518 $ 5,103
======= =======
</TABLE>
The actuarially determined net periodic pension cost and retirement costs
are computed as follows (for the fiscal years ended):
<TABLE>
<CAPTION>
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................... $ 2,785 $1,903 $1,767
Interest cost.................................. 3,739 2,508 2,270
Actual return on plan assets................... (5,458) (9,439) (5,475)
Net amortization and deferral.................. (278) 5,843 2,381
------- ------ ------
Net periodic pension cost.................... 788 815 943
Profit sharing/SERP............................ 6,851 6,035 5,999
401(k)......................................... 2,174 1,661 1,625
Other.......................................... 652 968 882
------- ------ ------
Total retirement costs....................... $10,465 $9,479 $9,449
======= ====== ======
</TABLE>
The expected long-term rate of return on plan assets was 8.0% for fiscal
years 1999, 1998 and 1997. The weighted-average discount rate used in
determining the actuarial present value of projected benefit obligations was
6.8% for fiscal year 1999 and 7.5% for fiscal years 1998 and 1997. Vested
benefits included in the projected benefit obligation were $40 million and $32
million at April 24, 1999 and April 25, 1998, respectively. Plan assets are
invested in a diversified portfolio that consists primarily of debt and equity
securities.
The Company's pension plan funding policy is to contribute annually at
least the amount necessary so that the plan assets exceed the projected benefit
obligation.
F-13
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
While in total the Company is overfunded, at April 24, 1999, there are
two plans with pension benefit obligations of $6.7 million and pension plan
assets of $5.5 million which are included in the tables shown.
NOTE 9: HEALTH CARE
The Company offers eligible employees an opportunity to participate in
group health plans. Participating employees make required premium payments
through pretax payroll deductions. Health-care expenses were as follows (for
the fiscal years ended):
<TABLE>
<CAPTION>
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Gross health care.............................. $37,698 $32,020 $30,831
Participant payments........................... (9,406) (7,531) (6,393)
------- ------- -------
Net health care.............................. $28,292 $24,489 $24,438
======= ======= =======
</TABLE>
The Company makes annual provisions for any current and future retirement
health-care costs which may not be covered by retirees' collected premiums.
F-14
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: INCOME TAXES
The primary components of the Company's deferred tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
4/24/99 4/25/98
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Current
Deferred income tax assets/(liabilities)
Bad debt............................................ $ 10,942 $ 9,393
Warranty............................................ 6,054 4,938
Workers' compensation............................... 1,662 1,838
SERP/other.......................................... 1,626 1,794
Inventory........................................... 1,429 1,795
State income tax.................................... 1,366 926
Stock options....................................... 1,653 1,069
Receivables--mark to market......................... (7,904) (8,700)
Other............................................... 3,382 3,813
Valuation allowance................................. (182) (187)
----------- -----------
Total current deferred tax assets................. 20,028 16,679
Noncurrent
Deferred income tax assets/(liabilities)
Pension ............................................ (2,985) (2,506)
Property, plant and equipment....................... (2,943) (3,110)
Net operating losses................................ 907 842
Other............................................... 360 246
Valuation allowance................................. (1,036) (950)
----------- -----------
Total noncurrent deferred tax liabilities......... (5,697) (5,478)
----------- -----------
Net deferred tax asset.......................... $ 14,331 $ 11,201
=========== ===========
</TABLE>
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate are as follows (for the fiscal
years ended):
<TABLE>
<CAPTION>
4/24/99 4/25/98 4/26/97
------- ------- -------
(% OF PRETAX INCOME)
<S> <C> <C> <C>
Statutory tax rate...................................... 35.0% 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State income taxes net of federal benefit............. 2.7 2.4 3.5
Tax credits........................................... (0.1) (0.2) (0.4)
Goodwill.............................................. 0.7 0.8 0.9
Unutilized loss carryforwards......................... 0.1 (0.5) 0.1
Miscellaneous items................................... (0.1) (0.5) (0.4)
---- ---- ----
Effective tax rate.................................... 38.3% 37.0% 38.7%
==== ==== ====
</TABLE>
F-15
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11: SEGMENTS
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective April 26, 1998. Following the
provisions of SFAS No. 131, La-Z-Boy Incorporated is reporting segment sales
and operating income in the same format reviewed by the Company's management
(the "management approach"). La-Z-Boy Incorporated has two reportable segments:
Residential upholstery and Residential casegoods.
The Residential upholstery segment is comprised of operating divisions
that primarily manufacture and sell upholstered furniture to dealers.
Upholstered furniture includes recliners, sofas, occasional chairs and
reclining sofas that are mostly or fully covered with fabric, leather or vinyl.
The operating divisions included in the Residential upholstery segment are La-
Z-Boy Residential, England/Corsair, Sam Moore, Centurion and Distincion
Muebles.
The Residential casegoods segment is comprised of operating divisions
that primarily manufacture and sell hardwood or hardwood veneer furniture to
dealers. Casegoods furniture includes dining room tables and chairs, bed frames
and bed boards, dressers, coffee tables and end tables that are mostly
constructed of hardwoods or veneers. The operating divisions included in the
Residential casegoods segment are Kincaid and Hammary.
The primary difference between the upholstery and the casegoods segments
is in the manufacturing area. In general, upholstery manufacturing requires
lower capital expenditures per dollar of sales than casegoods but higher labor
costs. Equipment needs and manufacturing processes are different in many key
areas and product costs reflect these significant differences. Upholstery
typically uses plywood or other "frame" (not exposed) wood which requires less
detailing and uses some different manufacturing methods than casegoods wood
processing. Casegoods requires more extensive automated equipment for drying,
processing, cutting, sanding and finishing exposed hardwood and veneer
products. Wood and related wood processing costs for upholstery (or total frame
costs) are a much smaller percentage of total unit costs in upholstery than
casegoods. Upholstery's largest costs are related to the purchased cost of
fabric (or leather, vinyl, etc.), cutting fabric, sewing the fabric and
upholstering the fabric and other materials to the frame; whereas casegoods
manufacturing typically has none of these costs or processes. Upholstery also
extensively uses filler materials such as polyurethane foam for cushioning and
appearance whereas casegoods manufacturing typically has none of these costs or
processes. Also, in "motion" upholstery products, which are a large portion of
La-Z-Boy's total upholstery sales, there are metal mechanism processes and
costs vs. none in casegoods.
The Other category is comprised of additional operating divisions
reviewed for performance by management including business furniture operations,
logistics operations, financing, retail and other operations.
The Company's largest customer is less than 3% of consolidated sales.
F-16
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accounting policies of the operating segments are the same as those
described in Note 1. Segment operating profit is based on profit or loss from
operations before interest income and expense, other income and income taxes.
Certain corporate costs are allocated to the segments based on revenues and
identifiable assets. Identifiable assets are cash and cash equivalents, notes
and accounts receivable, FIFO inventories and net property, plant and
equipment. Segment information used to evaluate segments is as follows (for the
fiscal years ended):
<TABLE>
<CAPTION>
4/24/99 4/25/98 4/26/97
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net revenues
Residential upholstery................... $1,015,162 $ 850,495 $ 772,049
Residential casegoods.................... 198,969 186,968 170,561
Other.................................... 150,435 90,849 78,670
Eliminations............................. (76,921) (20,274) (15,455)
---------- ---------- ----------
Consolidated........................... 1,287,645 1,108,038 1,005,825
========== ========== ==========
Operating profit
Residential upholstery................... 99,542 70,462 63,872
Residential casegoods.................... 11,787 7,425 8,143
Other.................................... (802) 2,754 2,883
Unallocated corporate costs &
eliminations............................ (3,688) (3,438) (965)
---------- ---------- ----------
Consolidated........................... 106,839 77,203 73,933
========== ========== ==========
Depreciation and amortization
Residential upholstery................... 13,995 12,196 11,465
Residential casegoods.................... 3,806 3,992 3,925
Other.................................... 2,999 3,334 3,383
Corporate & eliminations................. 1,281 1,499 1,609
---------- ---------- ----------
Consolidated........................... 22,081 21,021 20,382
========== ========== ==========
Capital expenditures
Residential upholstery................... 19,388 16,556 10,714
Residential casegoods.................... 4,248 3,420 6,032
Other.................................... 3,609 2,263 1,032
Corporate & eliminations................. (1,929) (223) --
---------- ---------- ----------
Consolidated........................... 25,316 22,016 17,778
========== ========== ==========
Assets
Residential upholstery................... 399,803 363,160 313,492
Residential casegoods.................... 97,804 94,019 96,064
Other.................................... 54,900 48,839 45,670
Corporate & eliminations................. (8,252) (2,580) (164)
Unallocated assets....................... 85,537 76,913 73,345
---------- ---------- ----------
Consolidated........................... $ 629,792 $ 580,351 $ 528,407
========== ========== ==========
Sales by country
United States............................ 93% 94% 94%
Canada and other......................... 7% 6% 6%
---------- ---------- ----------
100% 100% 100%
========== ========== ==========
</TABLE>
F-17
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: CONTINGENCIES
The Company has been named as a defendant in various lawsuits arising in
the ordinary course of business. It is not possible at the present time to
estimate the ultimate outcome of these actions; however, management believes
that the resultant liability, if any, will not be material based on the
Company's previous experience with lawsuits of these types.
The Company has been named as a potentially responsible party (PRP) at
six environmental clean-up sites. Based on a review of all currently known
facts and the Company's experience with previous environmental clean-up sites,
management does not anticipate that future expenditures for environmental
clean-up sites will have a material adverse effect on the Company.
NOTE 13: SUBSEQUENT EVENTS
The Company acquired Bauhaus U.S.A., Inc., a manufacturer of upholstered
furniture primarily marketed to department stores, on June 1, 1999 for
approximately $57 million in cash. Bauhaus' sales for its fiscal year ended
August 31, 1998 were approximately $85 million. Bauhaus' operations are
included in the Company's results of operations since the acquisition date.
On September 28, 1999, the Company signed a definitive agreement to
acquire LADD Furniture, Inc., a publicly traded furniture manufacturer, in a
stock-for-stock merger in which LADD shareholders would receive approximately
9.2 million shares of La-Z-Boy common stock (excluding shares issuable on the
exercise of LADD employee stock options) valued at approximately $191 million
as of that date. LADD's sales for its fiscal year ended January 2, 1999 were
approximately $571 million. The transaction will be accounted for as a
purchase. It is subject to approval by LADD's shareholders.
On November 11, 1999, the Company signed a definitive agreement to
acquire Alexvale Furniture, Inc., a manufacturer of medium priced upholstered
furniture, for approximately $17 million in cash and La-Z-Boy common stock.
Alexvale's sales for its fiscal year ended April 30, 1999 were approximately
$61 million. The transaction will be accounted for as a purchase.
F-18
<PAGE>
LA-Z-BOY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
----------------------- ---------
OCTOBER 23, OCTOBER 24, APRIL 24,
1999 1998 1999
----------- ----------- ---------
<S> <C> <C> <C>
Current assets
Cash and equivalents........................ $ 12,769 $ 22,721 $ 33,550
Receivables................................. 281,651 256,328 265,157
Inventories
Raw materials............................. 56,139 47,847 47,197
Work-in-process........................... 43,354 39,118 37,447
Finished goods............................ 43,388 35,627 34,920
-------- -------- --------
FIFO inventories.......................... 142,881 122,592 119,564
Excess of FIFO over LIFO.................. (23,303) (22,712) (23,053)
-------- -------- --------
Total inventories....................... 119,578 99,880 96,511
Deferred income taxes....................... 22,660 19,396 20,028
Other current assets........................ 11,510 5,889 10,342
-------- -------- --------
Total current assets...................... 448,168 404,214 425,588
Property, plant and equipment, net........... 143,006 119,660 125,989
Goodwill..................................... 89,271 48,017 46,985
Other long-term assets....................... 39,719 29,847 31,230
-------- -------- --------
Total assets.............................. $720,164 $601,738 $629,792
======== ======== ========
Current liabilities
Current portion--long-term debt............. $ 1,585 $ 4,726 $ 2,001
Current portion--capital leases............. 844 1,099 784
Accounts payable............................ 59,506 50,693 45,419
Payroll/other compensation.................. 44,641 39,063 53,697
Income taxes................................ 5,818 6,885 4,103
Other current liabilities................... 29,393 26,491 26,424
-------- -------- --------
Total current liabilities................. 141,787 128,957 132,428
Long-term debt............................... 119,594 63,319 62,469
Capital leases............................... 1,485 300 219
Deferred income taxes........................ 4,995 5,454 5,697
Other long-term liabilities.................. 14,554 11,912 14,064
Commitments and contingencies................
Shareholders' equity
Common shares, $1 par ...................... 52,143 52,909 52,340
Capital in excess of par.................... 32,543 30,328 31,582
Retained earnings .......................... 354,795 310,417 332,934
Currency translation........................ (1,732) (1,858) (1,941)
-------- -------- --------
Total shareholders' equity................ 437,749 391,796 414,915
-------- -------- --------
Total liabilities and shareholders'
equity................................... $720,164 $601,738 $629,792
======== ======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-19
<PAGE>
LA-Z-BOY INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
----------------- -----------------
(UNAUDITED) (UNAUDITED)
----------------- -----------------
OCT. 23, OCT. 24, OCT 23, OCT. 24,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales...................................... $387,736 $334,831 $709,395 $603,711
Cost of sales.............................. 286,520 245,062 527,546 450,493
-------- -------- -------- --------
Gross profit............................. 101,216 89,769 181,849 153,218
Selling, general and administrative........ 62,920 59,510 121,896 110,798
-------- -------- -------- --------
Operating profit......................... 38,296 30,259 59,953 42,420
Interest expense........................... 1,866 1,164 3,305 2,351
Interest income............................ 610 471 1,206 1,048
Other income............................... 927 865 1,708 1,220
-------- -------- -------- --------
Pretax income............................ 37,967 30,431 59,562 42,337
Income tax expense......................... 14,697 11,984 22,999 16,706
-------- -------- -------- --------
Net income............................... $ 23,270 $ 18,447 $ 36,563 $ 25,631
======== ======== ======== ========
Diluted average shares..................... 52,625 53,425 52,610 53,543
Diluted earnings per share................. $ 0.44 $ 0.35 $ 0.69 $ 0.48
Basic earnings per share................... $ 0.44 $ 0.35 $ 0.70 $ 0.48
Dividends per share........................ $ 0.08 $ 0.08 $ 0.16 $ 0.15
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-20
<PAGE>
LA-Z-BOY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS.)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
OCTOBER 23, OCTOBER 24, OCTOBER 23, OCTOBER 24,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income................... $23,270 $ 18,447 $ 36,563 $ 25,631
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and
amortization.............. 6,348 5,936 12,128 11,353
Change in receivables...... (57,931) (60,025) (7,931) (17,454)
Change in inventories...... (6,365) 1,393 (17,979) (7,975)
Change in other assets and
liabilities............... 17,657 31,233 261 21,424
Change in deferred taxes... (2,575) (2,815) (2,554) (2,742)
------- -------- -------- --------
Total adjustments........ (42,866) (24,278) (16,075) 4,606
------- -------- -------- --------
Cash Provided/(Used) by
Operating Activities.... (19,596) (5,831) 20,488 30,237
Cash Flows from Investing
Activities
Proceeds from disposals of
assets...................... 483 88 550 293
Capital expenditures......... (8,384) (4,128) (21,952) (8,233)
Acquisition of operating
division, net of cash
acquired.................... (365) -- (58,681) --
Change in other investments.. (2,147) (537) (2,313) (2,427)
------- -------- -------- --------
Cash Used for Investing
Activities.............. (10,413) (4,577) (82,396) (10,367)
Cash Flows from Financing
Activities
Long-term debt............... -- -- 57,000 --
Retirements of debt.......... (102) (120) (2,806) (3,211)
Capital leases............... 935 -- 935 --
Capital lease principal
payments.................... (116) (361) (202) (803)
Stock for stock option
plans....................... 2,012 3,237 4,183 4,688
Stock for 401(k) employee
plans....................... 512 458 1,199 837
Purchase of La-Z-Boy stock... (4,804) (11,160) (10,946) (18,763)
Payment of cash dividends.... (4,189) (4,263) (8,374) (8,006)
------- -------- -------- --------
Cash Provided/(Used) for
Financing Activities.... (5,752) (12,209) 40,989 (25,258)
Effect of exchange rate changes
on cash....................... 426 (281) 138 (591)
------- -------- -------- --------
Net change in cash and
equivalents................... (35,335) (22,898) (20,781) (5,979)
Cash and equivalents at
beginning of period........... 48,104 45,619 33,550 28,700
------- -------- -------- --------
Cash and equivalents at end of
period........................ $12,769 $ 22,721 $ 12,769 $ 22,721
======= ======== ======== ========
Cash paid during period--Income
taxes $21,018 $ 7,403 $ 23,307 $ 7,878
--Interest.......... $ 2,180 $ 588 $ 2,666 $ 1,131
</TABLE>
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-21
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial information is prepared in
conformity with generally accepted accounting principles and such principles
are applied on a basis consistent with those reflected in the Company's 1999
Annual Report on Form 10-K, as amended, filed with the Securities and Exchange
Commission. The financial information included herein, other than the condensed
consolidated balance sheet as of April 24, 1999, has been prepared by
management without audit by independent certified public accountants. The
condensed consolidated balance sheet as of July 24, 1999 has been prepared on a
basis consistent with, but does not include all the disclosures contained, in
the audited consolidated financial statements for the year ended April 24,
1999. The information furnished includes all adjustments and accruals
consisting only of normal recurring accrual adjustments which are, in the
opinion of management, necessary for a fair presentation of results for the
interim period.
2. INTERIM RESULTS
The foregoing interim results are not necessarily indicative of the
results of operations for the full fiscal year ending April 29, 2000.
3. EARNINGS PER SHARE
Basic earnings per share is computed using the weighted-average number of
shares outstanding during the period. Diluted earnings per share uses the
weighted-average number of shares outstanding during the period plus the
additional common shares that would be outstanding if the dilutive potential
common shares issuable under employee stock options were issued.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
OCTOBER 23, OCTOBER 24, OCTOBER 23, OCTOBER 24,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding (basic).......... 52,324 53,121 52,305 53,250
Effect of options............. 301 304 305 293
------ ------ ------ ------
Weighted average common shares
outstanding (diluted)........ 52,625 53,425 52,610 53,543
====== ====== ====== ======
</TABLE>
F-22
<PAGE>
LA-Z-BOY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SEGMENT INFORMATION
The Company's reportable operating segments are Residential upholstery
and Residential casegoods. Financial results of the Company's operating
segments for the three and six months ended October 23, 1999 and October 24,
1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ---------------------
OCTOBER 23, OCTOBER 24, OCTOBER 23, OCTOBER
1999 1998 1999 24, 1998
----------- ----------- ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues
Residential
upholstery............ $314,186 $262,727 $569,274 $ 469,361
Residential casegoods.. 53,810 52,314 104,063 97,889
Other.................. 45,023 38,595 83,600 68,089
Eliminations........... (25,283) (18,805) (47,542) (31,628)
-------- -------- -------- ---------
Consolidated......... $387,736 $334,831 $709,395 $603,711
======== ======== ======== =========
Operating profit
Residential
upholstery............ $ 34,483 $ 27,862 $ 53,075 $ 39,553
Residential casegoods.. 4,533 2,741 9,627 5,321
Other.................. 734 1,054 1,164 277
Unallocated corporate
costs and
eliminations.......... (1,454) (1,398) (3,913) (2,731)
-------- -------- -------- ---------
Consolidated......... $ 38,296 $ 30,259 $ 59,953 $ 42,420
======== ======== ======== =========
</TABLE>
F-23
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
September 28, 1999
among
LADD FURNITURE, INC.
and
LA-Z-BOY INCORPORATED
and
LZB ACQUISITION CORP.
(CONFORMED TO REFLECT AMENDMENT NO. 1 DATED AS OF DECEMBER 13, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 THE MERGER...................................................... A-1
SECTION 1.01. The Merger.................................................. A-1
SECTION 1.02. Conversion of Shares........................................ A-1
SECTION 1.03. Surrender and Payment....................................... A-2
SECTION 1.04. Stock Options............................................... A-3
SECTION 1.05. Adjustments................................................. A-4
SECTION 1.06. Fractional Shares........................................... A-4
SECTION 1.07. Withholding Rights.......................................... A-4
SECTION 1.08. Lost Certificates........................................... A-4
SECTION 1.09. Shares Held by Company Affiliates........................... A-4
ARTICLE 2 CERTAIN GOVERNANCE MATTERS...................................... A-5
SECTION 2.01. Articles of Incorporation of the Surviving Corporation...... A-5
SECTION 2.02. Bylaws of the Surviving Corporation......................... A-5
SECTION 2.03. Directors and Officers of the Surviving Corporation......... A-5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... A-5
SECTION 3.01. Corporate Existence and Power............................... A-5
SECTION 3.02. Corporate Authorization..................................... A-5
SECTION 3.03. Governmental Authorization.................................. A-6
SECTION 3.04. Non-Contravention........................................... A-6
SECTION 3.05. Capitalization of the Company............................... A-6
SECTION 3.06. Subsidiaries................................................ A-7
SECTION 3.07. SEC Filings................................................. A-7
SECTION 3.08. Financial Statements........................................ A-8
SECTION 3.09. Disclosure Documents........................................ A-8
SECTION 3.10. Absence of Certain Changes.................................. A-8
SECTION 3.11. No Undisclosed Material Liabilities......................... A-9
SECTION 3.12. Litigation.................................................. A-9
SECTION 3.13. Taxes....................................................... A-9
SECTION 3.14. Employee Benefit Plans...................................... A-10
SECTION 3.15. Compliance with Laws........................................ A-11
SECTION 3.16. Finders' or Advisors' Fees.................................. A-11
SECTION 3.17. Environmental Matters....................................... A-11
SECTION 3.18. Opinion of Financial Advisor................................ A-11
SECTION 3.19. Tax Treatment............................................... A-11
SECTION 3.20. Takeover Statutes........................................... A-12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ACQUIROR...................... A-12
SECTION 4.01 Corporate Existence and Power................................ A-12
SECTION 4.02. Corporate Authorization..................................... A-12
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 4.03. Governmental Authorization................................... A-12
SECTION 4.04. Non-Contravention............................................ A-12
SECTION 4.05. Capitalization............................................... A-13
SECTION 4.06. Subsidiaries................................................. A-13
SECTION 4.07. SEC Filings.................................................. A-14
SECTION 4.08. Financial Statements......................................... A-14
SECTION 4.09. Disclosure Documents......................................... A-14
SECTION 4.10. Absence of Certain Changes................................... A-15
SECTION 4.11. No Undisclosed Material Liabilities.......................... A-15
SECTION 4.12. Litigation................................................... A-15
SECTION 4.13. Taxes........................................................ A-15
SECTION 4.14. Employee Benefit Plans....................................... A-16
SECTION 4.15. Compliance with Laws......................................... A-16
SECTION 4.16. Finders' or Advisors' Fees................................... A-16
SECTION 4.17. Environmental Matters........................................ A-16
SECTION 4.18. Tax Treatment................................................ A-17
ARTICLE 5 COVENANTS OF THE COMPANY......................................... A-17
SECTION 5.01. Conduct of the Company....................................... A-17
SECTION 5.02. Company Stockholder Meeting; Proxy Material.................. A-19
SECTION 5.03. Other Offers................................................. A-19
ARTICLE 6 COVENANTS OF ACQUIROR............................................ A-20
SECTION 6.01. Conduct of Acquiror.......................................... A-20
SECTION 6.02. Obligations of Merger Subsidiary............................. A-21
SECTION 6.03. Form S-4..................................................... A-21
SECTION 6.04. Stock Exchange Listing....................................... A-21
SECTION 6.05. Director, Officer and Employee Liability..................... A-21
SECTION 6.06. Employee Benefits............................................ A-21
ARTICLE 7 COVENANTS OF ACQUIROR AND THE COMPANY............................ A-23
SECTION 7.01. Reasonable Best Efforts...................................... A-23
SECTION 7.02. Certain Filings.............................................. A-23
SECTION 7.03. Access to Information........................................ A-23
SECTION 7.04. Public Announcements......................................... A-24
SECTION 7.05. Further Assurances........................................... A-24
SECTION 7.06. Notices of Certain Events.................................... A-24
SECTION 7.07. Affiliates................................................... A-24
SECTION 7.08. Tax Treatment................................................ A-24
ARTICLE 8 CONDITIONS TO THE MERGER......................................... A-25
SECTION 8.01. Conditions to the Obligations of Each Party.................. A-25
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 8.02. Conditions to the Obligations of Acquiror and Merger
Subsidiary.............................................................. A-25
SECTION 8.03. Conditions to the Obligations of the Company............... A-26
ARTICLE 9. TERMINATION................................................... A-27
SECTION 9.01. Termination................................................ A-27
SECTION 9.02. Effect of Termination...................................... A-27
ARTICLE 10 MISCELLANEOUS................................................. A-28
SECTION 10.01. Notices................................................... A-28
SECTION 10.02. Non-Survival of Representations and Warranties............ A-28
SECTION 10.03. Amendments; No Waivers.................................... A-28
SECTION 10.04. Expenses.................................................. A-29
SECTION 10.05. Successors and Assigns.................................... A-29
SECTION 10.06. Governing Law............................................. A-29
SECTION 10.07. Jurisdiction.............................................. A-30
SECTION 10.08. Waiver of Jury Trial...................................... A-30
SECTION 10.09. Counterparts; Effectiveness............................... A-30
SECTION 10.10. Entire Agreement.......................................... A-30
SECTION 10.11. Captions; Construction of Certain Contract Provisions..... A-30
SECTION 10.12. Severability.............................................. A-30
</TABLE>
<TABLE>
<C> <C> <S>
EXHIBITS (omitted)
A -- Form of Affiliate's Letter
B-1 -- Form of La-Z-Boy Representation Letter
B-2 -- Form of LADD Representation Letter
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
(CONFORMED TO REFLECT AMENDMENT NO. 1 DATED AS OF DECEMBER 13, 1999)
AGREEMENT AND PLAN OF MERGER dated as of September 28, 1999 among LADD
FURNITURE, INC., a North Carolina corporation (the "Company"), LA-Z-BOY
INCORPORATED, a Michigan corporation ("Acquiror"), and LZB ACQUISITION CORP., a
newly-formed Michigan corporation and a wholly-owned first-tier subsidiary of
Acquiror ("Merger Subsidiary").
WHEREAS, the respective Boards of Directors of Acquiror, Merger
Subsidiary and the Company have approved this Agreement, and deem it advisable
and in the best interests of their respective stockholders to consummate the
merger of Merger Subsidiary with and into the Company on the terms and
conditions set forth herein;
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger contemplated by this Agreement qualify as a "reorganization"
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations promulgated thereunder;
NOW, THEREFORE, in consideration of the promises and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01. THE MERGER. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "Merger") with and into the Company in accordance with the
requirements of the laws of the States of North Carolina and Michigan,
whereupon the separate existence of Merger Subsidiary shall cease, and the
Company shall be the surviving corporation in the Merger (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger
Subsidiary will file a certificate of merger with the appropriate officials and
offices of the States of North Carolina and Michigan and make all other filings
or recordings required by law in connection with the Merger. The Merger shall
become effective at such time as the certificate of merger is duly filed or at
such later time as is specified in the certificate of merger (the "Effective
Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger
Subsidiary, all as provided under applicable law.
(d) The closing of the Merger (the "Closing") shall take place (i) at the
offices of Miller, Canfield, Paddock and Stone, P.L.C., 150 West Jefferson,
Suite 2500, Detroit, Michigan, as soon as practicable, but in any event within
three business days after the day on which the last to be fulfilled or waived
of the conditions set forth in Article 8 (other than those conditions that by
their nature are to be fulfilled at the Closing, but subject to the fulfillment
or waiver of such conditions) shall be fulfilled or waived in accordance with
this Agreement or (ii) at such other place and time or on such other date as
the Company and Acquiror may agree in writing (the "Closing Date").
SECTION 1.02. CONVERSION OF SHARES. (a) At the Effective Time by virtue
of the Merger and without any action on the part of the holder thereof:
(i) each share of common stock, par value $0.30 per share, of the
Company (the "Shares") held by the Company as treasury stock or owned by
Acquiror or any subsidiary of Acquiror immediately prior to the
Effective Time shall be canceled, and no payment shall be made with
respect thereto;
(ii) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and
become one share of common stock of the Surviving Corporation with the
same rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation;
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(iii) each Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 1.02(a)(i), be
converted into the right to receive 1.18 (the "Exchange Ratio") shares
of fully paid and nonassessable common stock, $1.00 par value, of
Acquiror ("Acquiror Common Stock").
(b) All Acquiror Common Stock issued as provided in this Section 1.02
shall be of the same class and shall have the same terms as the currently
outstanding Acquiror Common Stock.
(c) From and after the Effective Time, all Shares converted in accordance
with Section 1.02(a)(iii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration (as
defined below), as applicable, and any dividends payable pursuant to Section
1.03(f). From and after the Effective Time, all certificates representing the
common stock of Merger Subsidiary shall be deemed for all purposes to represent
the number of shares of common stock of the Surviving Corporation into which
they were converted in accordance with Section 1.02(a)(ii).
(d) The Acquiror Common Stock to be received as consideration pursuant to
the Merger by each holder of Shares (together with cash in lieu of fractional
shares of Acquiror Common Stock as specified below) is referred to herein as
the "Merger Consideration."
(e) For purposes of this Agreement, the word "Subsidiary" when used with
respect to any Person means any other Person, whether incorporated or
unincorporated, of which (i) more than fifty percent of the securities or other
ownership interests or (ii) securities or other interests having by their terms
ordinary voting power to elect more than fifty percent of the board of
directors or others performing similar functions with respect to such
corporation or other organization, is directly owned or controlled by such
Person or by any one or more of its Subsidiaries. For purposes of this
Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
SECTION 1.03. SURRENDER AND PAYMENT. (a) Prior to the Effective Time,
Acquiror shall appoint an agent reasonably acceptable to the Company (the
"Exchange Agent") for the purpose of exchanging certificates representing
Shares (the "Certificates") for the Merger Consideration. Acquiror will make
available to the Exchange Agent, as needed, the Merger Consideration to be paid
in respect of the Shares. Promptly after the Effective Time, Acquiror will
send, or will cause the Exchange Agent to send, to each holder of record at the
Effective Time of Shares, a letter of transmittal for use in such exchange
(which shall specify that the delivery shall be effected, and risk of loss and
title shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) in such form as the Company and Acquiror may reasonably agree, for use
in effecting delivery of Shares to the Exchange Agent.
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
Certificate, together with a properly completed letter of transmittal, will be
entitled to receive the Merger Consideration in respect of the Shares
represented by such Certificate. Until so surrendered, each such Certificate
shall, after the Effective Time, represent for all purposes only the right to
receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the Certificate is registered, it shall be
a condition to such payment that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, Certificates are presented
to the Surviving Corporation, they shall be canceled and
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exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by the
holders of Shares one year after the Effective Time shall be returned to
Acquiror, upon demand, and any such holder who has not exchanged his Shares for
the Merger Consideration in accordance with this Section prior to that time
shall thereafter look only to Acquiror for payment of the Merger Consideration
in respect of his Shares. Notwithstanding the foregoing, Acquiror shall not be
liable to any holder of Shares for any amount paid to a public official
pursuant to applicable abandoned property laws. Any amounts remaining unclaimed
by holders of Shares three years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of Acquiror free and clear of any claims or
interest of any Person previously entitled thereto.
(f) No dividends or other distributions with respect to Acquiror Common
Stock issued in the Merger shall be paid to the holder of any unsurrendered
Certificates until such Certificates are surrendered as provided in this
Section. Subject to the effect of applicable laws, following such surrender,
there shall be paid, without interest, to the record holder of the Acquiror
Common Stock issued in exchange therefor (i) at the time of such surrender, all
dividends and other distributions payable in respect of such Acquiror Common
Stock with a record date after the Effective Time and a payment date on or
prior to the date of such surrender and not previously paid and (ii) at the
appropriate payment date, the dividends or other distributions payable with
respect to such Acquiror Common Stock with a record date after the Effective
Time but with a payment date subsequent to such surrender. For purposes of
dividends or other distributions in respect of Acquiror Common Stock, all
Acquiror Common Stock to be issued pursuant to the Merger (but not options
therefor issued pursuant to Section 1.04 unless actually exercised at the
Effective Time) shall be entitled to dividends pursuant to the immediately
preceding sentence as if issued and outstanding as of the Effective Time.
SECTION 1.04. STOCK OPTIONS. (a) At the Effective Time, each outstanding
option to purchase Shares (a "Company Stock Option") granted under the
Company's plans identified in Schedule 1.04 (collectively, the "Company Stock
Option Plans"), whether vested or not vested, shall be deemed assumed by
Acquiror and shall thereafter be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such Company Stock
Option prior to the Effective Time, the number (rounded up to the nearest whole
number) of shares of Acquiror Common Stock determined by multiplying (x) the
number of Shares subject to such Company Stock Option immediately prior to the
Effective Time by (y) the Exchange Ratio, at a price per share of Acquiror
Common Stock (rounded up to the nearest whole cent) equal to (A) the exercise
price per Share otherwise purchasable pursuant to such Company Stock Option
divided by (B) the Exchange Ratio; provided, however, that in the case of any
Company Stock Option to which Section 422 of the Code applies, the adjustments
provided for in this Section shall be effected in a manner consistent with the
requirements of Section 424(a) of the Code. In addition, prior to the Effective
Time, the Company will make any amendments to the terms of such stock option or
compensation plans or arrangements that are necessary to give effect to the
transactions contemplated by this Section. The Company represents that no
consents are necessary to give effect to the transactions contemplated by this
Section.
(b) Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquiror Common Stock for delivery
pursuant to the terms set forth in this Section 1.04.
(c) At the Effective Time, each award or account (including stock
equivalents and stock units, but excluding Company Stock Options) outstanding
as of the date hereof ("Company Award") that has been established, made or
granted under any employee incentive or benefit plans, programs or arrangements
and non-employee director plans maintained by the Company on or prior to the
date hereof which provide for grants of equity-based awards or equity-based
accounts shall be amended or converted into a similar instrument of Acquiror,
in each case with such adjustments to the terms and conditions of such Company
Awards as are appropriate to preserve the value inherent in such Company Awards
with
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no detrimental effects on the holders thereof. The other terms and conditions
of each Company Award, and the plans or agreements under which they were
issued, shall continue to apply in accordance with their terms and conditions,
including any provisions for acceleration or vesting. The Company represents
that there are no Company Awards or Company Stock Options other than those
reflected in Section 3.05.
(d) At the Effective Time, Acquiror shall file with the Securities and
Exchange Commission (the "SEC") a registration statement on an appropriate form
or a post-effective amendment to a previously filed registration statement
under the Securities Act of 1933, as amended (the "1933 Act"), with respect to
the Acquiror Common Stock subject to options and other equity-based awards
issued pursuant to this Section 1.04, and shall use its reasonable best efforts
to maintain the current status of the prospectus contained therein, as well as
comply with any applicable state securities or "blue sky" laws, for so long as
such options or other equity-based awards remain outstanding.
(e) Acquiror shall take such actions as may be necessary so that, from
and after the Effective Time, each option on Acquiror Common Stock issued
pursuant to this Section 1.04 in respect of a Company Stock Option that was
issued under the Company's stock option plan for non-employee directors will be
subject to a plan that provides the holder of such option with substantially
the same rights and benefits as he had under the Company's plan. Such actions
may include amending an existing Acquiror stock option plan or adopting a new
stock option plan to accommodate such options.
SECTION 1.05. ADJUSTMENTS. If at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
shares of capital stock of Acquiror or the Company shall occur by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any similar transaction, or any stock dividend
thereon with a record date during such period, the Merger Consideration shall
be appropriately adjusted to provide the holders of Shares with the same
economic effect as contemplated by this Agreement prior to such event.
SECTION 1.06. FRACTIONAL SHARES. No fractional shares of Acquiror Common
Stock shall be issued in the Merger, but in lieu thereof each holder of Shares
otherwise entitled to a fractional share of Acquiror Common Stock will be
entitled to receive, from the Exchange Agent in accordance with the provisions
of this Section 1.06, a cash payment, without interest, in lieu of such
fractional share of Acquiror Common Stock (after taking into account all
Certificates delivered by such holder) in an amount equal to such fractional
part of a share of Acquiror Common Stock multiplied by the average of the
closing prices of Acquiror's Common Stock on the New York Stock Exchange (the
"NYSE") on the five business days immediately preceding the Closing Date.
SECTION 1.07. WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Acquiror shall be entitled to deduct and withhold from the consideration
otherwise payable to any person pursuant to this Article such amounts as it is
required to deduct and withhold with respect to the making of such payment
under any provision of federal, state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Acquiror, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by the Surviving Corporation or
Acquiror, as the case may be.
SECTION 1.08. LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration to be paid in respect of the Shares
represented by such Certificates as contemplated by this Article.
SECTION 1.09. SHARES HELD BY COMPANY AFFILIATES. Anything to the contrary
herein notwithstanding, any shares of Acquiror Common Stock (or certificates
therefor) issued to affiliates of the Company pursuant to Section 1.03 shall be
subject to the restrictions described in Exhibit A, and such shares (or
certificates therefor) shall bear a legend describing such restrictions.
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ARTICLE 2
CERTAIN GOVERNANCE MATTERS
SECTION 2.01. ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
articles of incorporation of the Company in effect at the Effective Time shall
be the articles of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 2.02. BYLAWS OF THE SURVIVING CORPORATION. The bylaws of Merger
Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable law.
SECTION 2.03. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From
and after the Effective Time, until successors are duly elected or appointed
and qualified in accordance with applicable law, (a) the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation, and (b) the officers of the Company at the Effective Time shall be
the officers of the Surviving Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquiror that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of North Carolina, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted, except for those the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company. The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. For purposes of this Agreement, a "Material
Adverse Effect" with respect to any Person means a material adverse effect on
the financial condition, business, liabilities, properties, assets or results
of operations, taken as a whole, of such Person and its Subsidiaries, taken as
a whole, but excluding the effects of any events or states of facts relating to
the furniture industry in general and not relating specifically to the business
of the Company or Acquiror, as the case may be. The Company has heretofore
delivered to Acquiror true and complete copies of the Company's certificate of
incorporation and bylaws as currently in effect.
SECTION 3.02. CORPORATE AUTHORIZATION. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Company's
corporate powers and, except for any required approval by the Company's
stockholders in connection with the consummation of the Merger, have been duly
authorized by all necessary corporate action. The affirmative vote of holders
of the outstanding Shares having votes representing a majority of the votes of
all Shares is the only vote of the holders of any of the Company's capital
stock necessary in connection with consummation of the Merger. Assuming due
authorization, execution and delivery of this Agreement by Acquiror and Merger
Subsidiary, this Agreement constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(b) The Company's Board of Directors, at a meeting duly called and held,
has (i) determined that this Agreement and the transactions contemplated hereby
(including the Merger) are fair to and in the best interests of the Company's
stockholders, (ii) approved and adopted this Agreement and approved the
consummation by the Company of the transactions contemplated hereby (including
the Merger), and
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(iii) resolved (subject to Section 5.02) to recommend approval and adoption of
this Agreement and approval of the Merger by its stockholders.
SECTION 3.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with North Carolina law and Michigan law,
(b) compliance with any applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (c) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Exchange Act"), (d)
compliance with any applicable requirements of the 1933 Act and (e) other
actions or filings which if not taken or made would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
SECTION 3.04. NON-CONTRAVENTION. Except as set forth in Schedule 3.04,
the execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated hereby do not
and will not (a) assuming compliance with the matters referred to in Section
3.02, contravene or conflict with the certificate of incorporation or bylaws of
the Company, (b) assuming compliance with the matters referred to in Section
3.03, contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company or any of its Subsidiaries, (c) constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of the Company or any of its Subsidiaries or to a loss
of any benefit to which the Company or any of its Subsidiaries is entitled
under any provision of any material agreement, contract or other instrument
binding upon the Company or any of its Subsidiaries or any license, franchise,
permit or other similar authorization held by the Company or any of its
Subsidiaries, or (d) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
other than any such mortgage, lien, pledge, charge, security interest or
encumbrance (i) for Taxes (as defined in Section 3.13) not yet due or being
contested in good faith (and for which adequate accruals or reserves have been
established on the Acquiror Balance Sheet or the Company Balance Sheet, as the
case may be) or (ii) which is a carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like lien arising in the ordinary course of
business. Except as disclosed in Schedule 3.04, neither the Company nor any
Subsidiary of the Company is a party to any agreement that expressly limits the
ability of the Company or any Subsidiary of the Company, or would limit
Acquiror or any Subsidiary of Acquiror after the Effective Time, to compete in
or conduct any line of business or compete with any Person or in any geographic
area or during any period of time.
SECTION 3.05. CAPITALIZATION OF THE COMPANY. The authorized capital stock
of the Company consists of 50,000,000 Shares and 500,000 shares of $100 par
value preferred stock (the "Company Preferred Stock"). As of the close of
business on July 3, 1999, there were outstanding 7,825,783 Shares, and employee
stock options to purchase an aggregate of 903,252 Shares (of which options to
purchase an aggregate of 434,950 Shares were exercisable) and Company Awards
(other than outstanding restricted stock) with respect to an aggregate of
4,762.0383 Shares, and no shares of Company Preferred Stock nor options with
respect thereto were outstanding. The Shares are the only class of the
Company's capital stock entitled to vote. The number of outstanding Shares is
subject to change before the Effective Time through the exercise of currently
outstanding stock options. All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section and except for changes since
the close of business on July 3, 1999 resulting from the exercise of employee
stock options outstanding on such date or options or stock-based awards granted
as permitted by Section 5.01, there are outstanding (a) no shares of capital
stock or other voting securities of the Company, (b) no securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (c) except for its obligations to make matching
contributions under the terms of its 401(k) plan, no options, warrants or other
rights to acquire from the Company, and no preemptive or similar rights,
subscription or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of the Company,
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obligating the Company to issue, transfer or sell, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company or obligating the Company to grant, extend or
enter into any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in clauses 3.05(a),
3.05(b) and 3.05(c) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
SECTION 3.06. SUBSIDIARIES. (a) Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except for those the absence of which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. Each Subsidiary of the Company is duly qualified to do business and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. All "significant subsidiaries," as such term is defined in Section
1-02 of Regulation S-X under the Exchange Act (each, a "Significant
Subsidiary") of the Company and their respective jurisdictions of incorporation
are identified in the Company's annual report on Form 10-K for the fiscal year
ended January 2, 1999 (the "Company 10-K") or in Schedule 3.06(a).
(b) Except as set forth in the Company 10-K, all of the outstanding
capital stock of, or other ownership interests in, each Significant Subsidiary
of the Company is owned by the Company, directly or indirectly, free and clear
(except as set forth in Schedule 3.06(b)) of any material Lien and free of any
other material limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of the Company or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Significant
Subsidiary of the Company or (ii) options, warrants or other rights to acquire
from the Company or any of its Significant Subsidiaries, and no preemptive or
similar rights, subscription or other rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the
capital stock of any Significant Subsidiary of the Company, obligating the
Company or any of its Significant Subsidiaries to issue, transfer or sell, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Significant Subsidiary of the Company
or obligating the Company or any Significant Subsidiary of the Company to
grant, extend or enter into any such option, warrant, subscription or other
right, convertible security, agreement, arrangement or commitment except, in
any such case under clause (i) or (ii), to the extent relating to an
insignificant equity interest in any Significant Subsidiary (the items in
clauses 3.06(b)(i) and 3.06(b)(ii) being referred to collectively as the
"Company Subsidiary Securities"). Except as set forth on Schedule 3.06(b),
there are no outstanding obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any outstanding Company Subsidiary
Securities.
SECTION 3.07. SEC FILINGS. (a) The Company has delivered to Acquiror (i)
its annual reports on Form 10-K for its fiscal years ended December 28, 1996,
January 3, 1998 and January 2, 1999, (ii) its quarterly reports on Form 10-Q
for its fiscal quarters ended after January 2, 1999, (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company held since January 2, 1999, and
(iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since January 2, 1999 (the documents referred to
in this Section 3.07(a) being referred to collectively as the "Company SEC
Documents").
(b) As of its filing date, each Company SEC Document complied as to form
in all material respects with the applicable requirements of the Exchange Act
and the 1933 Act.
(c) As of its filing date, each Company SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
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(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 3.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company (including any related notes and schedules) included in its annual
reports on Form 10-K and the quarterly reports on Form 10-Q referred to in
Section 3.07 fairly present in all material respects, in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto), the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and cash flows for the periods then
ended (subject to normal year-end adjustments and the absence of notes in the
case of any unaudited interim financial statements). For purposes of this
Agreement, "Company Balance Sheet" means the consolidated balance sheet of the
Company as of January 2, 1999 set forth in the Company 10-K and "Company
Balance Sheet Date" means January 2, 1999.
SECTION 3.09. DISCLOSURE DOCUMENTS. (a) Neither the proxy statement of
the Company (the "Company Proxy Statement") to be filed with the SEC in
connection with the Merger, nor any amendment or supplement thereto, will, at
the date the Company Proxy Statement or any such amendment or supplement is
first mailed to stockholders of the Company or at the time such stockholders
vote on the adoption and approval of this Agreement and the transactions
contemplated hereby, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Company Proxy Statement will, when filed, comply as to form in all material
respects with the requirements of the Exchange Act. No representation or
warranty is made by the Company in this Section 3.09 with respect to statements
made or incorporated by reference therein based on information supplied by
Acquiror or Merger Subsidiary for inclusion or incorporation by reference in
the Company Proxy Statement.
(b) None of the information supplied or to be supplied by Company for
inclusion or incorporation by reference in the Form S-4 (as defined in Section
4.09) or any amendment or supplement thereto will at the time the Form S-4 or
any such amendment or supplement becomes effective under the 1933 Act or at the
Effective Time, as the case may be, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
3.10, since the Company Balance Sheet Date, the Company and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of the
Company or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the
Company or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Company or
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any of its Subsidiaries of any contract or other right, in either case,
material to the Company and its Subsidiaries taken as a whole, other than
transactions, commitments, contracts, agreements or settlements (including
without limitation settlements of litigation and tax proceedings) in the
ordinary course of business consistent with past practice, those contemplated
by this Agreement, or as agreed to in writing by Acquiror;
(e) any change in any method of accounting or accounting practice by the
Company or any of its Subsidiaries, except for any such change which is not
significant or which is required by reason of a concurrent change in United
States generally accepted accounting principles ("GAAP"); or
(f) any (i) grant of any severance or termination pay to (or amendment to
any such existing arrangement with) any director or officer of the Company or
any of its Subsidiaries, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director or officer of the Company or any of its
Subsidiaries, (iii) increase in benefits payable under any existing severance
or termination pay policies or employment agreements or (iv) increase in (or
amendments to the terms of) compensation, bonus or other benefits payable to
directors or officers of the Company or any of its Subsidiaries, other than as
permitted by this Agreement, or as agreed to in writing by Acquiror.
SECTION 3.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities of the Company or any Subsidiary of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities disclosed or provided for in the Company Balance Sheet or
in the notes thereto;
(b) liabilities incurred since the date of the Company Balance Sheet in
the ordinary course of business;
(c) liabilities disclosed in the Company SEC Documents filed prior to the
date hereof or set forth in Schedule 3.11(c);
(d) liabilities under this Agreement; and
(e) liabilities which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company
SECTION 3.12. LITIGATION. Except as disclosed in the Company SEC
Documents filed prior to the date hereof, or as otherwise set forth in Schedule
3.12, there is no action, suit, investigation or proceeding pending against, or
to the knowledge of the Company threatened against or affecting, the Company or
any of its Subsidiaries or any of their respective properties before any court
or arbitrator or any governmental body, agency or official which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
SECTION 3.13. TAXES. Except as set forth in the Company Balance Sheet
(including the notes thereto) or as otherwise set forth in Schedule 3.13, (i)
all Company Tax Returns required to be filed with any taxing authority by, or
with respect to, the Company and its Subsidiaries have been filed in accordance
with all applicable laws; (ii) the Company and its Subsidiaries have timely
paid all Taxes shown as due and payable on the Company Tax Returns that have
been so filed, and, as of the time of filing, the Company Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities and the status of the Company and its Subsidiaries (other than Taxes
which are being contested in good faith and for which adequate reserves are
reflected on the Company Balance Sheet); (iii) the Company and its Subsidiaries
have made provision for all Taxes payable by the Company and its Subsidiaries
for which no Company Tax Return has yet been filed; (iv) the charges, accruals
and reserves for Taxes with respect to the Company and its Subsidiaries
reflected on the Company Balance Sheet are adequate under GAAP to cover the Tax
liabilities accruing through the date thereof; (v) there is no action, suit,
proceeding, audit or claim now proposed or pending against or with respect to
the Company or any of its Subsidiaries in respect of any Tax where there is a
reasonable possibility of a
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material adverse determination; and (vi) to the best of the Company's knowledge
and belief, neither the Company nor any of its Subsidiaries is liable for any
Tax imposed on any entity other than such Person, except as the result of the
application of Treas. Reg. Section 1.1502-6 (and any comparable provision of
the tax laws of any state, local or foreign jurisdiction) to the affiliated
group of which the Company is the common parent. For purposes of this
Agreement, "Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, excise, stamp, real or personal property, ad valorem, withholding,
social security (or similar), unemployment, occupation, use, service, service
use, license, net worth, payroll, franchise, severance, transfer, recording,
employment, premium, windfall profits, customs duties, capital stock, profits,
disability, sales, registration, value added, alternative or add-on minimum,
estimated or other taxes, assessments or charges imposed by any federal, state,
local or foreign governmental entity and any interest, penalties, or additions
to tax attributable thereto. For purposes of this Agreement, "Tax Returns"
shall mean any return, report, form or similar statement required to be filed
with respect to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
SECTION 3.14. EMPLOYEE BENEFIT PLANS. (a) Prior to the date hereof, the
Company has provided Acquiror with a list (set forth on Schedule 3.14)
identifying each material "employee benefit plan," as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), each material
employment, severance or similar contract, plan, arrangement or policy
applicable to any director, former director, employee or former employee of the
Company and each material plan or arrangement (written or oral), providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered or contributed to by the Company and covers
any employee or director or former employee or director of the Company, or
under which the Company has any liability. Such plans (excluding any such plan
that is a "multiemployer plan," as defined in Section 3(37) of ERISA) are
referred to collectively herein as the "Company Employee Plans."
(b) Each Company Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(c) Except as scheduled on Schedule 3.14 with respect to multiemployer
plans, neither the Company nor any affiliate of the Company has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any affiliate
of the Company of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from federal income tax pursuant to Section 501(a) of the Code.
(e) Except as set forth in Schedule 3.14, no director or officer or other
employee of the Company or any of its Subsidiaries will become entitled to any
retirement, severance or similar benefit or enhanced or accelerated benefit
(including any acceleration of vesting or lapse of repurchase rights or
obligations with respect to any employee stock option or other benefit under
any stock option plan or compensation plan or arrangement of the Company)
solely as a result of the transactions contemplated hereby.
(f) Except as set forth in Schedule 3.14, no Company Employee Plan
provides post-retirement health and medical, life or other insurance benefits
for retired employees of the Company or any of its Subsidiaries.
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(g) Except as set forth in Schedule 3.14, there has been no amendment to,
written interpretation or announcement (whether or not written) by the Company
or any of its affiliates relating to, or change in employee participation or
coverage under, any Company Employee Plan which would increase materially the
expense of maintaining such Company Employee Plan above the level of the
expense incurred in respect thereof for the 12 months ended on the Company
Balance Sheet Date.
SECTION 3.15. COMPLIANCE WITH LAWS. To the best of the knowledge of any
of Messrs. Kenneth E. Church, William S. Creekmuir, Michael P. Haley, Donald L.
Mitchell, and Fred L. Schuermann, Jr. (the "Executives"), neither the Company
nor any of its Subsidiaries is in violation of, or has since January 2, 1999
violated, any applicable provisions of any laws, statutes, ordinances or
regulations, except for any violations that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on the
Company.
SECTION 3.16. FINDERS' OR ADVISORS' FEES. Except for Mann, Armistead &
Epperson, Ltd. a copy of whose engagement agreement has been provided to
Acquiror, there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of the Company or
any of its Subsidiaries who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
SECTION 3.17. ENVIRONMENTAL MATTERS. (a) Except as set forth in the
Company SEC Documents filed prior to the date hereof or as set forth on
Schedule 3.17, (i) the Company has delivered to Acquiror copies of each written
notice, notification, demand, request for information, citation, summons,
complaint or order that, to the best knowledge of its Vice President of Risk
and Facilities Engineering after reasonable inquiry, the Company has received
in the last twelve months; (ii) to the best knowledge of the Company's Vice
President of Risk and Facilities Engineering after reasonable inquiry, there is
no investigation, action, claim, suit, proceeding or review pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened by any Person
against, the Company or any of its Subsidiaries, and during the past twelve
months no penalty has been assessed against the Company or any of its
Subsidiaries that has not been disclosed to Acquiror in writing, in each case,
with respect to any matters relating to or arising out of any Environmental
Law; (iii) the Company and its Subsidiaries are and have been in material
compliance with all Environmental Laws; (iv) there are no material liabilities
of or relating to the Company or any of its Subsidiaries relating to or arising
out of any Environmental Law of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability; and (v) since December 31, 1995, there
has been no environmental investigation, study, audit, test, review or other
analysis commonly referred to as a "Phase I" or "Phase II" report of which any
of the Executives or the Vice President of Risk and Facility Engineering of the
Company has knowledge in relation to the current or prior business of the
Company or any of its Subsidiaries or any property or facility now or
previously owned, leased or operated by the Company or any of its Subsidiaries
which is in the possession of the Company and which was not delivered to
Acquiror prior to the date hereof.
(b) For purposes of this Section 3.17 and Section 4.17, the term
"Environmental Laws" means any federal, state, local and foreign statutes, laws
(including, without limitation, common law), judicial decisions, regulations,
ordinances, rules, judgments, orders, codes, injunctions, permits, governmental
agreements or governmental restrictions relating to human health and safety,
the environment or to pollutants, contaminants, wastes, or chemicals.
SECTION 3.18. OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Mann, Armistead & Epperson, Ltd. to the effect that, as of the date
of such opinion, the Merger is fair from a financial point of view to the
holders of Shares (other than Acquiror or any of its Subsidiaries or
affiliates), and, as of the date hereof, such opinion has not been withdrawn.
SECTION 3.19. TAX TREATMENT. Neither the Company nor any of its
affiliates has taken or agreed to take any action or is aware of any fact or
circumstance that would prevent the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code (a "368 Reorganization").
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SECTION 3.20. TAKEOVER STATUTES. The Board of Directors of the Company
has taken the necessary action to make inapplicable the application of Article
9 and Article 9A of the North Carolina law, any other applicable antitakeover
or similar statute, regulation or the provision of the Company's certificate of
incorporation or bylaws to this Agreement and the transactions contemplated
hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each of Acquiror and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except for those
the absence of which would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror. Acquiror is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror. Since the date of its incorporation,
Merger Subsidiary has not engaged in any activities other than in connection
with or as contemplated by this Agreement. Acquiror has heretofore delivered to
the Company true and complete copies of Acquiror's and Merger Subsidiary's
certificate of incorporation and bylaws as currently in effect.
SECTION 4.02. CORPORATE AUTHORIZATION. (a) The execution, delivery and
performance by Acquiror and Merger Subsidiary of this Agreement, and the
consummation by Acquiror and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Acquiror and Merger Subsidiary and
have been duly authorized by all necessary corporate action. Assuming due
authorization, execution and delivery of this Agreement by the Company, this
Agreement constitutes a valid and binding agreement of each of Acquiror and
Merger Subsidiary, enforceable against such party in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The shares of Acquiror
Common Stock issued pursuant to the Merger, when issued in accordance with the
terms hereof, will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(b) Acquiror's Board of Directors, at a meeting duly called and held, has
approved this Agreement and the transactions contemplated hereby (including the
Merger).
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Acquiror and Merger Subsidiary of this Agreement and the
consummation by Acquiror and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) the filing of a certificate
of merger in accordance with North Carolina law and Michigan law, (b)
compliance with any applicable requirements of the HSR Act, (c) compliance with
any applicable requirements of the Exchange Act, (d) compliance with any
applicable requirements of the 1933 Act and (e) other actions or filings which
if not taken or made would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror.
SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and performance
by Acquiror and Merger Subsidiary of this Agreement and the consummation by
Acquiror and Merger Subsidiary of the transactions contemplated hereby do not
and will not (a) assuming compliance with the matters referred to in Section
4.02, contravene or conflict with the certificate of incorporation or bylaws of
Acquiror or Merger Subsidiary, (b) assuming compliance with the matters
referred to in Section 4.03, contravene or conflict with any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to Acquiror or any of its Subsidiaries, (c) constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Acquiror or any
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of its Subsidiaries or to a loss of any benefit to which Acquiror or any of its
Subsidiaries is entitled under any provision of any material agreement,
contract or other instrument binding upon Acquiror or any of its Subsidiaries
or any license, franchise, permit or other similar authorization held by
Acquiror or any of its Subsidiaries or (d) result in the creation or imposition
of any Lien on any asset of Acquiror or any of its Subsidiaries. Neither
Acquiror nor any Subsidiary of Acquiror is a party to any agreement that
expressly limits the ability of Acquiror or any Subsidiary of Acquiror to
compete in or conduct any line of business or compete with any Person or in any
geographic area or during any period of time.
SECTION 4.05. CAPITALIZATION. (a) The authorized capital stock of
Acquiror consists of 150,000,000 shares of Acquiror Common Stock and 5,000,000
shares of preferred stock (the "Acquiror Preferred Stock"). As of the close of
business on July 24, 1999, there were outstanding 52,233,696 shares of Acquiror
Common Stock, and employee stock options to purchase an aggregate of 1,298,226
shares of Acquiror Common Stock (of which options to purchase an aggregate of
415,985 shares of Acquiror Common Stock were exercisable), and no shares of
Acquiror Preferred Stock nor options with respect thereto were outstanding. All
outstanding shares of capital stock of Acquiror have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in
this Section and except for changes since the close of business on July 24,
1999 resulting from the exercise of employee stock options outstanding on such
date or options or other stock-based awards and except for the shares to be
issued in connection with the Merger, as of the date hereof there are
outstanding (a) no shares of capital stock or other voting securities of
Acquiror, (b) no securities of Acquiror convertible into or exchangeable for
shares of capital stock or voting securities of Acquiror, and (c) except for
its obligations to make matching contributions under the terms of its 401(k)
plan, no options, warrants or other rights to acquire from Acquiror, and no
preemptive or similar rights, subscription or other rights, convertible
securities, agreements, arrangements, or commitments of any character, relating
to the capital stock of Acquiror, obligating Acquiror to issue, transfer or
sell any capital stock, voting security or securities convertible into or
exchangeable for capital stock or voting securities of Acquiror or obligating
Acquiror to grant, extend or enter into any such option, warrant, subscription
or other right, convertible security, agreement, arrangement or commitment (the
items in clauses 4.05(a), 4.05(b) and 4.05(c) being referred to collectively as
the "Acquiror Securities"). There are no outstanding obligations of Acquiror or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any Acquiror
Securities other than pursuant to the terms of its stock-based compensation
plans.
(b) The authorized capital stock of Merger Subsidiary consists of 60,000
shares of common stock, of which 1,000 shares are outstanding. Merger
Subsidiary's common stock is the only class of its capital stock entitled to
vote. The number of shares of Merger Subsidiary's common stock is not subject
to change before the Effective Time. All outstanding shares of capital stock of
Merger Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable.
SECTION 4.06. SUBSIDIARIES. (a) Each Subsidiary of Acquiror is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those the absence of which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Acquiror. Each Subsidiary of Acquiror is duly qualified to do
business and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualifications necessary, except for those jurisdictions where failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect on Acquiror. All Significant Subsidiaries of Acquiror as of the date
hereof and their respective jurisdictions of incorporation are identified in
Acquiror's annual report on Form 10-K for the fiscal year ended April 24, 1999,
as amended ("Acquiror 10-K").
(b) Except for directors' qualifying shares and except as set forth in
the Acquiror 10-K, all of the outstanding capital stock of, or other ownership
interests in, each Significant Subsidiary of Acquiror is owned by Acquiror,
directly or indirectly, free and clear of any material Lien and free of any
other material limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Acquiror or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or other voting
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securities or ownership interests in any Significant Subsidiary of Acquiror,
and (ii) options, warrants or other rights to acquire from Acquiror or any of
its Significant Subsidiaries, and no preemptive or similar rights,
subscriptions or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of any
Significant Subsidiary of Acquiror, obligating Acquiror or any of its
Significant Subsidiaries to issue, transfer or sell, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, any Significant Subsidiary of Acquiror or obligating Acquiror or any
Significant Subsidiary of Acquiror to grant, extend or enter into any such
option, warrant, subscription or other right, convertible security, agreement,
arrangement or commitment except, in any such case under clause (i) or (ii), to
the extent relating to an insignificant equity interest in any Significant
Subsidiary (items in clauses 4.06(b)(i) and 4.06(b)(ii) being referred to
collectively as the "Acquiror Subsidiary Securities"). There are no outstanding
obligations of Acquiror or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any outstanding Acquiror Subsidiary Securities.
SECTION 4.07. SEC FILINGS. (a) Acquiror has delivered to the Company (i)
its annual reports on Form 10-K for its fiscal years ended April 26, 1997,
April 25, 1998 and April 24, 1999, (ii) its proxy or information statements
relating to meetings, of, or actions taken without a meeting by, the
stockholders of Acquiror held since December 31, 1998, and (iii) all of its
other reports, statements, schedules and registration statements filed with the
SEC since April 24, 1999 (the documents referred to in this Section 4.07(a)
being referred to collectively as the "Acquiror SEC Documents").
(b) As of its filing date (or if later amended, as of the date of the
amendment), each Acquiror SEC Document complied as to form in all material
respects with the applicable requirements of the Exchange Act and the 1933 Act.
(c) As of its filing date, each Acquiror SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each such registration statement as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 4.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Acquiror
(including any related notes and schedules) included in the annual reports on
Form 10-K and the quarterly reports on Form 10-Q referred to in Section 4.07
fairly present in all material respects, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of Acquiror and its
consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements). For purposes of this Agreement,
"Acquiror Balance Sheet" means the consolidated balance sheet of Acquiror as of
April 24, 1999 set forth in the Acquiror 10-K and "Acquiror Balance Sheet Date"
means April 24, 1999.
SECTION 4.09. DISCLOSURE DOCUMENTS. (a) The Registration Statement on
Form S-4 of Acquiror (the "Form S-4") to be filed under the 1933 Act relating
to the issuance of Acquiror Common Stock in the Merger, required to be filed
with the SEC in connection with the issuance of shares of Acquiror Common Stock
pursuant to the Merger and any amendments or supplements thereto, will, when
filed, subject to the last sentence of Section 4.09(b), comply as to form in
all material respects with the applicable requirements of the 1933 Act.
(b) Neither the Form S-4 nor any amendment or supplement thereto will at
the time it becomes effective under the 1933 Act or at the Effective Time
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not
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misleading. No representation or warranty is made by Acquiror in this Section
4.09 with respect to statements made or incorporated by reference therein
based on information supplied by the Company for inclusion or incorporation by
reference in the Form S-4.
(c) None of the information supplied or to be supplied by Acquiror for
inclusion or incorporation by reference in the Company Proxy Statement or any
amendment or supplement thereto will, at the date the Company Proxy Statement
or any amendment or supplement thereto is first mailed to stockholders of
Company or at the time such stockholders vote on the adoption and approval of
this Agreement and the transactions contemplated hereby, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 4.10. ABSENCE OF CERTAIN CHANGES. Since the Acquiror Balance
Sheet Date, Acquiror and its Subsidiaries have conducted their business in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or
in the aggregate, a Material Adverse Effect on Acquiror;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Acquiror (other
than quarterly cash dividends payable by Acquiror consistent with past
practice or any repurchase, redemption or other acquisition by Acquiror or any
of its Subsidiaries of any outstanding shares of capital stock or other equity
securities of, or other ownership interests in, Acquiror (other than any such
repurchases prior to the date hereof pursuant to Acquiror's publicly announced
stock buyback program); or
(c) any change prior to the date hereof in any method of accounting or
accounting practice (other than any change for tax purposes) by Acquiror or
any of its Subsidiaries, except for any such change which is not significant
or which is required by reason of a concurrent change in GAAP.
SECTION 4.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities of the Acquiror or any Subsidiary of the Acquiror of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities disclosed or provided for in the Acquiror Balance Sheet
or in the notes thereto;
(b) liabilities incurred since the date of the Acquiror Balance Sheet in
the ordinary course of business;
(c) liabilities disclosed in the Acquiror SEC Documents filed prior to
the date hereof or set forth in Schedule 4.11(c);
(d) liabilities under this Agreement; and
(e) liabilities which, individually or in the aggregate, would not have
a Material Adverse Effect on the Acquiror.
SECTION 4.12. LITIGATION. Except as disclosed in the Acquiror SEC
Documents filed prior to the date hereof, or in Schedule 4.12, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of Acquiror threatened against or affecting, Acquiror or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official which would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Acquiror.
SECTION 4.13. TAXES. Except as set forth in the Acquiror Balance Sheet
(including the notes thereto) or as otherwise set forth on Schedule 4.13 (i)
all Acquiror Tax Returns required to be filed with any taxing authority by, or
with respect to, Acquiror and its Subsidiaries have been filed in accordance
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with all applicable laws; (ii) Acquiror and its Subsidiaries have timely paid
all Taxes shown as due and payable on Acquiror Tax Returns that have been so
filed, and, as of the time of filing, Acquiror Tax Returns correctly reflected
the facts regarding the income, business, assets, operations, activities and
the status of Acquiror and its Subsidiaries (other than Taxes which are being
contested in good faith and for which adequate reserves are reflected on the
Acquiror Balance Sheet); (iii) Acquiror and its Subsidiaries have made
provision for all Taxes payable by Acquiror and its Subsidiaries for which no
Acquiror Tax Return has yet been filed; (iv) the charges, accruals and reserves
for Taxes with respect to Acquiror and its Subsidiaries reflected on the
Acquiror Balance Sheet are adequate under GAAP to cover the Tax liabilities
accruing through the date thereof; (v) there is no action, suit, proceeding,
audit or claim now proposed or pending against or with respect to Acquiror or
any of its Subsidiaries in respect of any Tax where there is a reasonable
possibility of a material adverse determination; and (vi) to the best of
Acquiror's knowledge and belief, neither Acquiror nor any of its Subsidiaries
is liable for any Tax imposed on any entity other than such Person, except as
the result of the application of Treas. Reg. Section 1.1502-6 (and any
comparable provision of the tax laws of any state, local or foreign
jurisdiction) to the affiliated group of which Acquiror is the common parent.
SECTION 4.14. EMPLOYEE BENEFIT PLANS. (a) Prior to the date hereof,
Acquiror has provided the Company with a list (set forth on Schedule 4.14)
identifying each material "employee benefit plan," as defined in Section 3(3)
of ERISA, each material employment, severance or similar contract, plan,
arrangement or policy applicable to any director, or employee of Acquiror and
each material plan or arrangement (written or oral), providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered or contributed to by Acquiror and covers any
employee or director of Acquiror. Such plans (excluding any such plan that is a
multiemployer plan) are referred to collectively herein as the "Acquiror
Employee Plans."
(b) Each Acquiror Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on the
Acquiror.
(c) Neither the Acquiror nor any affiliate of the Acquiror has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Acquiror or any affiliate
of the Acquiror of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) Each Acquiror Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from federal income tax pursuant to Section 501(a) of the Code.
SECTION 4.15. COMPLIANCE WITH LAWS. To the best of the knowledge of any
of Acquiror's Chairman, Chief Operating Officer, or Chief Financial Officer,
neither Acquiror nor any of its Subsidiaries is in violation of, or has since
January 1, 1999 violated, any applicable provisions of any laws, statutes,
ordinances or regulations except for any violations that, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Acquiror.
SECTION 4.16. FINDERS' OR ADVISORS' FEES. Except for Merrill Lynch & Co.,
whose fees will be paid by Acquiror, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Acquiror or any of its Subsidiaries who might be entitled to any
fee or commission in connection with the transactions contemplated by this
Agreement.
SECTION 4.17. ENVIRONMENTAL MATTERS. Except as set forth in the Acquiror
SEC Documents filed prior to the date hereof and with such exceptions as,
individually or in the aggregate, have not had,
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and would not reasonably be expected to have, a Material Adverse Effect on
Acquiror, (i) no written notice, notification, demand, request for information,
citation, summons, complaint or order has been received by, and no
investigation, action, claim, suit, proceeding or review is pending or, to the
knowledge of Acquiror or any of its Subsidiaries, threatened by any Person
against, Acquiror or any of its Subsidiaries, and no penalty has been assessed
against Acquiror or any of its Subsidiaries, in each case, with respect to any
matters relating to or arising out of any Environmental Law; (ii) Acquiror and
its Subsidiaries are and have been in compliance with all Environmental Laws;
and (iii) there are no liabilities of or relating to Acquiror or any of its
Subsidiaries relating to or arising out of any Environmental Law of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability.
SECTION 4.18. TAX TREATMENT. Neither Acquiror nor any of its affiliates
has taken or agreed to take any action or is aware of any fact or circumstance
that would prevent the Merger from qualifying as a 368 Reorganization.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. CONDUCT OF THE COMPANY. From the date hereof until the
Effective Time, the Company and its Subsidiaries shall conduct their business
in the ordinary course consistent with past practice and shall use their
reasonable best efforts to preserve intact their business organizations and
relationships with third parties. Without limiting the generality of the
foregoing, except with the prior written consent of Acquiror (which consent
shall not be unreasonably withheld or delayed) or as contemplated by this
Agreement, from the date hereof until the Effective Time:
(a) the Company will not, and will not permit any of its Subsidiaries to,
adopt or propose any change in its certificate of incorporation or bylaws;
(b) the Company will not, and will not permit any Subsidiary of the
Company to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
material reorganization of the Company or any of its Significant Subsidiaries
(other than a merger or consolidation between its wholly-owned Subsidiaries);
(c) the Company will not, and will not permit any Subsidiary of the
Company to, issue, sell, transfer, pledge, dispose of or encumber any shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class or series of the Company or its Subsidiaries other than (i)
issuances pursuant to the exercise of convertible securities outstanding on the
date hereof or issuances pursuant to stock based awards or options that are
outstanding on the date hereof and are reflected in Section 3.05 or are granted
in accordance with clause (ii) below and (ii) additional options or stock-based
awards to acquire Shares granted under the terms of any Company Stock Option
Plan as in effect on the date hereof in the ordinary course consistent with
past practice, but in no event covering more than 20,000 Shares in the
aggregate;
(d) the Company will not, and will not permit any Subsidiary of the
Company to, (i) split, combine, subdivide or reclassify its outstanding shares
of capital stock, or (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock other than dividends paid by any Subsidiary of the Company to the Company
or any wholly-owned Subsidiary of the Company;
(e) the Company will not, and will not permit any Subsidiary of the
Company to, redeem, purchase or otherwise acquire directly or indirectly any of
the Company's capital stock, except for repurchases, redemptions or
acquisitions (x) required by the terms of its capital stock or any securities
outstanding on the date hereof, (y) required by or in connection with the
respective terms, as of the date
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hereof, of any Company Employee Plan or any dividend reinvestment plan as in
effect on the date hereof in the ordinary course of the operations of such plan
consistent with past practice or (z) effected in the ordinary course consistent
with past practice;
(f) the Company will not amend the terms (including the terms relating to
accelerating the vesting or lapse of repurchase rights or obligations) of any
outstanding options to purchase Shares, suspend or terminate or amend the terms
of any existing Company Employee Plan, or adopt any new Company Employee Plan,
except that the Company shall, on or before the Closing Date:
(1) amend the 1999 Management Incentive Plan (the "MIP") and the
Company's Long-Term Incentive Plans for the periods 1997-1999 (the "1997
LTIP"), 1998-2000 (the "1998 LTIP"), and 1999-2001 (the "1999 LTIP")
(collectively, the "LTIPs") so that the provisions thereof governing
time of payment will permit the Company to pay out all amounts payable
thereunder on or before the Closing Date; provided, however, that the
Company covenants that if the Closing Date is not on or before December
31, 1999, it will not make any payments under the MIP or any of the
LTIPs on or before December 31, 1999 without Acquiror's prior written
consent; and
(2) amend its Management Deferred Compensation Plan to provide
that (A) from and after the Effective Time, no subaccount shall be
maintained thereunder that is denominated in or the amount of which is
computed by reference to notional shares of any class of equity
securities of the Company or Acquiror, and (B) effective as of the
Effective Time, the balance in any such subaccount shall be computed in
dollars (giving effect to Section 1.04 of this Agreement and valuing the
resulting notional Acquiror Common Stock at the average of the closing
prices of Acquiror's Common Stock on the NYSE on the five business days
immediately preceding the Closing Date) and transferred to the other
subaccount maintained thereunder (i.e., the subaccount the amount of
which is computed by reference to the prime rate of interest);
(g) the Company will not, and will not permit any Subsidiary of the
Company to, make or commit to make any capital expenditure other than those set
forth on the schedule of planned capital expenditures previously delivered to
the Acquiror by the Company;
(h) except as disclosed in Schedule 5.01, the Company will not, and will
not permit any Subsidiary of the Company to, increase the compensation or
benefits of any director, officer or employee, except for normal increases in
the ordinary course of business consistent with past practice or as required
under applicable law or any existing agreement or commitment;
(i) the Company will not, and will not permit any of its Subsidiaries to,
acquire (by purchase or lease) a material amount of assets (as measured with
respect to the consolidated assets of the Company and its Subsidiaries taken as
a whole) of any other Person except for capital expenditures permitted under
Section 5.01(g);
(j) the Company will not, and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise dispose of any material assets or property
except pursuant to existing contracts or commitments;
(k) except for any such change which is required by reason of a
concurrent change in GAAP or a rule or release promulgated by the SEC, the
Company will not, and will not permit any Subsidiary of the Company to, change
any method of accounting or accounting practice (other than any change for tax
purposes) used by it;
(l) the Company will not, and will not permit any Subsidiary of the
Company to, enter into any joint venture, partnership or other similar
arrangement;
(m) the Company will not, and will not permit any of its Subsidiaries to,
take any action that would make any representation or warranty of the Company
hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time; and
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(n) the Company will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
SECTION 5.02. COMPANY STOCKHOLDER MEETING; PROXY MATERIAL. The Company
shall cause a meeting of its stockholders (the "Company Stockholder Meeting")
to be duly called and held as soon as reasonably practicable, on a date
reasonably acceptable to Acquiror, for the purpose of voting on the approval
and adoption of this Agreement and the Merger (the "Company Stockholder
Approval"). Except as provided in the next sentence, the Board of Directors of
the Company shall recommend approval and adoption of this Agreement by the
Company's stockholders. The Board of Directors of the Company shall be
permitted to (i) not recommend to the Company's stockholders that they give the
Company Stockholder Approval or (ii) withdraw or modify in a manner adverse to
Acquiror its recommendation to the Company's stockholders that they give the
Company Stockholder Approval, only (x) if the Board of Directors of the Company
determines in its good faith judgment that it is necessary to so withdraw or
modify its recommendation to comply with its fiduciary duty to stockholders
under applicable law, after receiving the advice of outside legal counsel, and
(y) if the Company and the senior officers and directors of the Company have
complied with their obligations set forth in Section 5.03. In connection with
the Company Stockholder Meeting, the Company (x) will promptly prepare and file
with the SEC, will use its reasonable best efforts to have cleared by the SEC
and will thereafter mail to its stockholders as promptly as practicable the
Company Proxy Statement and all other proxy materials for the Company
Stockholder Meeting, (y) will use its reasonable best efforts, subject to the
immediately preceding sentence, to obtain the Company Stockholder Approval and
(z) will otherwise comply with all legal requirements applicable to the Company
Stockholder Meeting.
SECTION 5.03. OTHER OFFERS. The Company and its Subsidiaries will not,
and will not permit any of its subsidiaries, or any of its or their officers,
directors, management employees, or consultants or any investment banker,
attorney or accountant retained by the Company or any of its Subsidiaries
(collectively, "Representatives") to, directly or indirectly, take any action
to solicit, initiate, encourage or facilitate the making of any Acquisition
Proposal (as defined below) or any inquiry with respect thereto or engage in
discussions or negotiations with any Person with respect thereto, or disclose
any non-public information relating to the Company or any Subsidiary of the
Company or afford access to the properties, books or records of the Company or
any Subsidiary of the Company to, any Person that has made, or that the
Company, any of its Subsidiaries or any of its or any of its Subsidiaries'
Representatives has reason to believe, is considering making, any Acquisition
Proposal; provided that nothing contained in this Section 5.03 shall prohibit
the Board of Directors of the Company from furnishing information to, or
entering into discussions or negotiations with, or affording access to the
properties, books or records of the Company or its Subsidiaries to, any Person
in connection with an unsolicited bona fide Acquisition Proposal received from
such Person so long as prior to furnishing information to, or entering into
discussions or negotiations with, such Person, (i) the Board of Directors of
the Company determines in its good faith judgment that it is necessary to do so
to comply with its fiduciary duty to stockholders under applicable law, after
receiving the advice of outside legal counsel, and (ii) the Company receives
from such Person an executed confidentiality agreement with terms no less
favorable to the Company than those contained in the Confidentiality Agreement
(as defined in Section 7.03). Nothing contained in this Agreement shall prevent
the Board of Directors of the Company from complying with Rule 14e-2 under the
Exchange Act with regard to an Acquisition Proposal; provided that the Board of
Directors of the Company shall not recommend that the stockholders of the
Company tender their shares in connection with a tender offer except to the
extent the Board of Directors of the Company determines in its good faith
judgment (after consultation with its financial advisors and receiving the
advice of outside legal counsel) that such a recommendation is required to
comply with the fiduciary duties of the Board of Directors of the Company to
the Company's stockholders under applicable law. The Company will (a) promptly
(and in no event later than 24 hours after receipt of any Acquisition Proposal)
notify (which notice shall be provided orally and in writing and shall identify
the Person making such Acquisition Proposal and set forth the material terms
thereof) Acquiror after receipt of any Acquisition Proposal, of any indication
giving the Company any of its Subsidiaries or any of its or any of its
Subsidiaries' Representatives that any Person is considering making an
Acquisition Proposal and any request for non-public information relating to the
Company or any Subsidiary of the Company or for access to the
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properties, books or records of the Company or any Subsidiary of the Company by
any Person that has made, or that the Company, any of its Subsidiaries or any
of its or any of its Subsidiaries' Representatives has reason to believe may be
considering making, an Acquisition Proposal, and (b) will keep Acquiror
informed of the status and material terms of any such Acquisition Proposal or
request. The Company will, and will cause its Subsidiaries and its and their
Representatives to, immediately cease and cause to be terminated all
discussions and negotiations, if any, that have taken place prior to the date
hereof with any Persons (other than Acquiror and its affiliates) with respect
to any Acquisition Proposal.
For purposes of this Agreement, "Acquisition Proposal" means any offer or
proposal for, or any indication of interest in, any (i) direct or indirect
acquisition or purchase of a business or assets that constitute 10% or more of
the net revenues, net income or the assets of the Company and its Subsidiaries,
taken as a whole, (ii) direct or indirect acquisition or purchase of 10% or
more of any class of equity securities of the Company or any of its
Subsidiaries whose business constitutes 10% or more of the net revenues, net
income, operating income (before taxes) or assets of the Company and its
Subsidiaries, taken as a whole, (iii) tender offer or exchange offer that if
consummated would result in any person beneficially owning 10% or more of any
class of equity securities of the Company or any of its Subsidiaries whose
business constitutes 10% or more the net revenues, net income, operating income
(before taxes) or assets of the Company and its Subsidiaries, taken as a whole,
or (iv) merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries whose business constitutes 10% or more of the net revenue, net
income, operating income (before taxes) or assets of the Company and its
Subsidiaries, taken as a whole, other than the transactions contemplated by
this Agreement. For purposes of this Agreement, "Superior Proposal" means any
bona fide Acquisition Proposal for or in respect of at least a majority of the
outstanding Shares on terms that the Board of Directors of the Company
determines in its good faith judgment (after consultation with a financial
advisor of nationally recognized reputation, taking into account all the terms
and conditions of the Acquisition Proposal, including any break-up fees,
expense reimbursement provisions and conditions to consummation) are more
favorable to all of the Company's stockholders than the Merger.
ARTICLE 6
COVENANTS OF ACQUIROR
Acquiror agrees that:
SECTION 6.01. CONDUCT OF ACQUIROR. From the date hereof until the
Effective Time, Acquiror and its Subsidiaries shall conduct their business in
the ordinary course consistent with past practice and shall use their
reasonable best efforts to preserve intact their business organizations and
relationships with third parties. Without limiting the generality of the
foregoing, and except with the prior written consent of the Company (which
consents shall not be unreasonably withheld or delayed) or as contemplated by
this Agreement, from the date hereof until the Effective Time:
(a) Acquiror will not adopt a plan or agreement of complete or partial
liquidation, dissolution, restructuring, recapitalization or other material
reorganization of Acquiror;
(b) Acquiror will not, and will not permit any Subsidiary of the Acquiror
to, redeem, purchase or otherwise acquire directly or indirectly any of the
Acquiror's capital stock, except for repurchases, redemptions or acquisitions
(x) required by the terms of its capital stock or any securities outstanding on
the date hereof, (y) required by or in connection with the respective terms, as
of the date hereof, of any Acquiror Employee Plan, or any dividend reinvestment
plan as in effect on the date hereof in the ordinary course of the operations
of such plan consistent with past practice or (z) effected in the ordinary
course consistent with past practice;
(c) except for any such change which is required by reason of a
concurrent change in GAAP or a rule or release promulgated by the SEC, the
Acquiror will not, and will not permit any Subsidiary of the Acquiror to,
change any method of accounting or accounting practice (other than any change
for tax purposes) used by it;
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(d) Acquiror will not, and will not permit any of its Subsidiaries to,
take any action that would make any representation or warranty of Acquiror
hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time; and
(e) Acquiror will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
SECTION 6.02. OBLIGATIONS OF MERGER SUBSIDIARY. Acquiror will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 6.03. FORM S-4. Subject to the terms and conditions of this
Agreement Acquiror shall prepare and file with the SEC under the 1933 Act the
Form S-4, and shall use its reasonable best efforts to cause the Form S-4 to be
declared effective by the SEC as promptly as practicable. Acquiror shall
promptly take any action required to be taken under foreign or state securities
or Blue Sky laws in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
SECTION 6.04. STOCK EXCHANGE LISTING. Acquiror shall use its reasonable
best efforts to cause the shares of Acquiror Common Stock to be issued in
connection with the Merger to be listed on the NYSE, subject to official notice
of issuance.
SECTION 6.05. DIRECTOR, OFFICER AND EMPLOYEE LIABILITY. (a) For six years
after the Effective Time, Acquiror shall indemnify and hold harmless the
individuals who on or prior to the Effective Time were officers, directors and
employees of the Company or its Subsidiaries (collectively, the "Indemnitees")
with respect to all acts or omissions by them in their capacities as such or
taken at the request the Company or any of its Subsidiaries at any time prior
to the Effective Time to the extent provided under the Company's certificate of
incorporation and bylaws in effect on the date hereof. Acquiror shall cause the
Surviving Corporation to honor all indemnification agreements with Indemnitees
(including under the Company's bylaws) in effect as of the date hereof in
accordance with the terms thereof. To the best knowledge of the Company, the
Company has disclosed to Acquiror all such indemnification agreements prior to
the date hereof.
(b) For six years after the Effective Time, Acquiror shall procure the
provision of officers' and directors' liability insurance and employee
practices insurance in respect of acts or omissions occurring prior to the
Effective Time covering each such Person currently covered by the Company's
officers' and directors' liability insurance policy and employee practices
insurance policy on terms with respect to coverage and in amounts no less
favorable than those of such policies in effect on the date hereof; provided,
that if the aggregate annual premiums for such insurance at any time during
such period shall exceed 200% of the per annum rate of premium paid by the
Company and its Subsidiaries as of the date hereof for such insurance, then
Acquiror shall, or shall cause its Subsidiaries to, provide only such coverage
as shall then be available at an annual premium equal to 200% of such rate.
(c) The obligations of Acquiror under this Section 6.05 shall not be
terminated or modified in such a manner as to adversely affect any Indemnitee
to whom this Section 6.05 applies without the consent of such affected
Indemnitee (it being expressly agreed that the Indemnitees to whom this Section
6.05 applies shall be third party beneficiaries of this Section 6.05).
SECTION 6.06. EMPLOYEE BENEFITS. (a) From and after the Effective Time,
Acquiror shall cause the Surviving Corporation to honor in accordance with
their terms all benefits and obligations under the LADD Furniture, Inc.
Executive Retirement Plan (the "ERP"), the Management Deferred Compensation
Plan and the employment agreements between the Company and certain Executives
and, subject to Section 6.06(b), the other Company Employee Plans, each as in
effect on the date hereof (or as amended as permitted by Section 5.01(f) or
with the prior written consent of Acquiror, which consent shall not be
unreasonably withheld or delayed), to the extent that entitlements or rights
exist in respect thereof as of the Effective Time. Acquiror and the Company
hereby agree that the consummation of the Merger shall constitute a "Change in
Control" for purposes of the Company Option Plans, the
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employment agreements between the Company and certain Executives, and the
Supplemental Retirement Income Plan for Salaried Employees of LADD Furniture,
Inc. (the "SERP"), pursuant to the terms of such plans in effect on the date
hereof. Except as provided in Section 6.06(f), no provision of this Section
6.06(a) shall be construed as a limitation on the right of Acquiror to amend or
terminate any Company
Employee Plans which the Company would otherwise have under the terms of such
Company Employee Plan, and no provision of this Section 6.06(a) shall be
construed to create a right in any employee or beneficiary of such employee
under a Company Employee Plan that such employee or beneficiary would not
otherwise have under the terms of such Company Employee Plan.
(b) Except for any changes required by law or initiated by insurance
carriers, for one year following the Effective Time, Acquiror shall continue to
provide to individuals who are employed by the Company and its Subsidiaries as
of the Effective Time who remain employed with Acquiror or any Subsidiary of
Acquiror ("Affected Employees"), for so long as such Affected Employees remain
employed by Acquiror or any Subsidiary of Acquiror, employee benefits (other
than salary or incentive compensation) which, in the aggregate, are no less
favorable than those provided to employees of the Company prior to the
Effective Time pursuant to the Company Employee Plans as provided to such
employees immediately prior to the Effective Time.
(c) Acquiror will, or will cause the Surviving Corporation to, give
Affected Employees full credit for purposes of eligibility, vesting, benefit
accrual (including benefits accrued under any defined benefit pension plans)
and determination of the level of benefits under any employee benefit plans or
arrangements maintained by Acquiror or any Subsidiary of Acquiror for such
Affected Employees' service with the Company or any Subsidiary of the Company
to the same extent recognized by the Company immediately prior to the Effective
Time; provided, however, that (i) in the case of a qualified defined benefit
plan maintained by Acquiror or its Subsidiaries, service prior to 1997 shall
not be recognized; (ii) in the case of a non-qualified defined benefit plan of
Acquiror or any of its Subsidiaries, pre-Effective Time service of an Affected
Employee with the Company or any of its Subsidiaries for benefit accrual
purposes for such period of time as an Affected Employee is credited with
service for benefit accrual purposes under the ERP, as in effect on the date
hereof, shall not be recognized; and (iii) in the case of a qualified or non-
qualified defined contribution plan of Acquiror or any of its Subsidiaries,
Acquiror shall be required only to recognize pre-Effective Time participation
of an Affected Employee in a qualified or non-qualified defined contribution
plan of the Company or any of its Subsidiaries for purposes of determining
eligibility for matching or other contributions and the level of such
contributions.
(d) Acquiror will, or will cause the Surviving Corporation to, (i) waive
all limitations as to pre-existing conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the
Affected Employees under any welfare benefit plans that such employees may be
eligible to participate in after the Effective Time, other than limitations or
waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any welfare plan
maintained for the Affected Employees immediately prior to the Effective Time,
and (ii) provide each Affected Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time.
(e) Acquiror agrees to cause the benefits payable pursuant to the terms
of the SERP to be paid to the beneficiaries of the SERP promptly following the
Effective Time.
(f) Acquiror agrees that the ERP and the Management Deferred Compensation
Plan shall be administered in accordance with the past practices and
interpretations of the Company's Board of Directors and the Corporate Benefits
Committee (the "Committee") (including those past practices and interpretations
previously disclosed by the Company to Acquiror) with respect to eligibility,
vesting, term and payment, among other matters. Any question regarding the past
practices and interpretations of the Company's Board of Directors and the
Committee and the application thereof to the type of facts and circumstances in
a given case shall be referred to the Committee for a final decision with
respect thereto, which decision shall not be inconsistent with the intention of
this Agreement and the Merger.
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(g) If it is determined that any payment or distribution of any type to
or for the benefit of an Affected Employee or any participant in a Company
Employee Plan (the "Recipient") made by the Company, the Acquiror, or any
Subsidiary of the Company or the Acquiror, or by any affiliate of such Person,
whether paid or payable or distributed or distributable pursuant to the terms
of a Company Employee Plan or otherwise (the "Total Payments"), would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalty with respect to such excise tax (such excise tax, together with any
such interest or penalty, are collectively referred to as the "Excise Tax"),
then the Recipient shall be entitled to receive an additional payment (an
"Excise Tax Restoration Payment") in an amount that shall fund the payment by
the Recipient of any Excise Tax on the total payments, as well as all income
taxes imposed on the Excise Tax Restoration Payment, any excise tax imposed on
the Excise Tax Restoration Payment, and any interest or penalties imposed with
respect to taxes on the Excise Tax Restoration or any Excise Tax.
ARTICLE 7
COVENANTS OF ACQUIROR AND THE COMPANY
The parties hereto agree that:
SECTION 7.01. REASONABLE BEST EFFORTS. The Company and Acquiror shall
each cooperate with the other and use (and shall use reasonable best efforts to
cause their respective Subsidiaries to use) their respective reasonable best
efforts to promptly (i) take or cause to be taken all actions, and do or cause
to be done all things, necessary, proper or advisable under this Agreement and
applicable laws to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as practicable, including,
without limitation, preparing and filing as promptly as practicable all
documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents and
(ii) obtain all approvals, consents, registrations, permits, authorizations and
other confirmations required to be obtained from any third party necessary,
proper or advisable to consummate the Merger and the other transactions
contemplated by this Agreement. Subject to applicable laws relating to the
exchange of information, the Company and Acquiror shall have the right to
review in advance, and to the extent practicable each will consult the other
on, all the information relating to the Company and its Subsidiaries or
Acquiror and its Subsidiaries, as the case may be, that appears in any filing
made with, or written materials submitted to, any third party and/or any
governmental authority in connection with the Merger and the other transactions
contemplated by this Agreement.
SECTION 7.02. CERTAIN FILINGS. The Company and Acquiror shall cooperate
with one another (a) in connection with the preparation of the Company Proxy
Statement and the Form S-4, (b) in determining whether any action by or in
respect of, or filing with, any governmental body, agency or official, or
authority is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in connection
with the consummation of the transactions contemplated by this Agreement and
(c) in seeking any such actions, consents, approvals or waivers or making any
such filings, furnishing information required in connection therewith or with
the Company Proxy Statement or the Form S-4 and seeking timely to obtain any
such actions, consents, approvals or waivers.
SECTION 7.03. ACCESS TO INFORMATION. From the date hereof until the
Effective Time, to the extent permitted by applicable law, the Company and
Acquiror will give the other party, its counsel, financial advisors, auditors
and other authorized representatives reasonable access to the offices,
properties, books and records of such party and its Subsidiaries during normal
business hours, furnish to the other party, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
its own employees, counsel and financial advisors to cooperate with the other
party in its investigation of the business of the Company or Acquiror, as the
case may be; provided that no investigation of the other party's business shall
affect any representation or warranty given by either party hereunder. All
information obtained by Acquiror or the Company pursuant to this Section shall
be kept confidential in
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accordance with, and shall otherwise be subject to the terms of, the
Confidentiality Agreement dated June 17, 1999 between Acquiror and the Company
(the "Confidentiality Agreement").
SECTION 7.04. PUBLIC ANNOUNCEMENTS. Acquiror and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and
shall not issue any such press release or make any such public statement
without the prior consent of the other party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, any such press
release or public statement as may be required by applicable law or any listing
agreement with any national securities exchange may be issued prior to such
consultation, if the party making such release or statement has used its
reasonable efforts to consult with the other party.
SECTION 7.05. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
SECTION 7.06. NOTICES OF CERTAIN EVENTS. (a) Each of the Company and
Acquiror shall promptly notify the other party of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement.
(b) The Company and Acquiror shall promptly notify the other party of any
actions, suits, claims, investigations or proceedings commenced or, to the best
of its knowledge threatened against, relating to or involving or otherwise
affecting such party or any of its Subsidiaries which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 7.07. AFFILIATES. (a) The Company shall use its reasonable best
efforts to deliver to Acquiror, within 15 days of the date hereof, a letter
agreement substantially in the form of Exhibit A hereto executed by each Person
listed on Schedule 7.07(a).
(b) Prior to the Effective Time, the Company shall cause to be delivered
to Acquiror a letter identifying, to the best of the Company's knowledge, all
Persons who are, at the time of the Company Stockholder Meeting, "affiliates"
of the Company for purposes of Rule 145 under the 1933 Act. The Company shall
furnish such information and documents as Acquiror may reasonably request for
the purpose of reviewing such list. The Company shall use its reasonable best
efforts to cause each Person who is so identified as an affiliate to deliver to
Acquiror on or prior to the Effective Time a letter agreement substantially in
the form of Exhibit A to this Agreement.
SECTION 7.08. TAX TREATMENT. (a) Each of Acquiror and the Company shall
not take any action and shall not fail to take any action which action or
failure to act would prevent, or would be reasonably likely to prevent, the
Merger from qualifying as a 368 Reorganization.
(b) Acquiror shall use its reasonable best efforts to provide to Miller,
Canfield, Paddock and Stone, p.l.c. and to Kilpatrick Stockton llp a
certificate substantially in the form attached hereto as Exhibit B-1. The
Company shall use its reasonable best efforts to provide to Miller, Canfield,
Paddock and Stone, p.l.c. and to Kilpatrick Stockton llp a certificate
substantially in the form attached hereto as Exhibit B-2.
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ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, Acquiror and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or, to the extent legally permissible,
waiver) of the following conditions:
(a) this Agreement and the Merger shall have been approved by the
stockholders of the Company in accordance with North Carolina law;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Merger;
(d) the Form S-4 shall have been declared effective under the 1933 Act
and no stop order suspending the effectiveness of the Form S-4 shall be in
effect and no proceedings for such purpose shall be pending before or
threatened by the SEC; and
(e) the shares of Acquiror Common Stock to be issued in the Merger shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
SECTION 8.02. CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND MERGER
SUBSIDIARY. The obligations of Acquiror and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or, to the extent legally permissible,
waiver, except that the condition specified in subsection (e) may not be
waived) of the following further conditions:
(a) (i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company
contained in this Agreement and in any certificate or other writing delivered
by the Company pursuant hereto shall be true and correct (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) at and as of the Effective Time as if made at and as of such time
(except to the extent expressly made as of an earlier date), except where the
failure of such representations and warranties to be true and correct (without
giving effect to any limitation as to "materiality" or "Material Adverse
Effect" set forth therein) would not, individually or in the aggregate, have a
Material Adverse Effect on the Company and (iii) Acquiror shall have received a
certificate signed by a the Chief Executive Officer and the Chief Financial
Officer of the Company to the foregoing effect;
(b) there shall not be instituted or pending any action or proceeding by
any governmental authority (whether domestic, foreign or supranational) before
any court or governmental authority or agency, domestic, foreign or
supranational, (i) seeking to restrain, prohibit or otherwise interfere with
the ownership or operation by Acquiror or any Subsidiary of Acquiror of all or
any portion of the business of the Company or any of its Subsidiaries or of
Acquiror or any of its Subsidiaries or to compel Acquiror or any Subsidiary of
Acquiror to dispose of or hold separate all or any portion of the business or
assets of the Company or any of its Subsidiaries or of Acquiror or any of its
Subsidiaries, (ii) seeking to impose or confirm limitations on the ability of
Acquiror or any Subsidiary of Acquiror effectively to exercise full rights of
ownership of the Shares (or shares of stock of the Surviving Corporation)
including, without limitation, the right to vote any Shares (or shares of stock
of the Surviving Corporation) on any matters properly presented to stockholders
or (iii) seeking to require divestiture by Acquiror or any Subsidiary of
Acquiror of any Shares (or shares of stock of the Surviving Corporation) if any
such matter referred to in clause (i), (ii) or (iii) hereof could reasonably be
expected to result in a substantial detriment to the Acquiror and its
Subsidiaries (including the Company and its Subsidiaries), taken as a whole
(any such substantial detriment being referred to in this Agreement as a
"Substantial Detriment");
(c) there shall not be any statute, rule, regulation, injunction, order
or decree, enacted, enforced, promulgated, entered, issued or deemed applicable
to the Merger and the other transactions contemplated
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hereby (or in the case of any statute, rule or regulation, awaiting signature
or reasonably expected to become law), by any court, government or governmental
authority or agency or legislative body, domestic, foreign or supranational,
that is reasonably likely, directly or indirectly, to result in a Substantial
Detriment;
(d) (i) all required approvals or consents of any governmental authority
(whether domestic, foreign or supranational) in connection with the Merger and
the consummation of the other transactions contemplated hereby shall have been
obtained (and all relevant statutory, regulatory or other governmental waiting
periods, whether domestic, foreign or supranational, shall have expired) unless
the failure to receive any such approval or consent would not be reasonably
likely, directly or indirectly, to result in a Substantial Detriment and (ii)
all such approvals and consents which have been obtained shall be on terms that
are not reasonably likely, directly or indirectly, to result in a Substantial
Detriment;
(e) Acquiror shall have received an opinion of Miller, Canfield, Paddock
and Stone, p.l.c. as to federal income tax matters that is identical in all
material respects to the opinion of that firm which is described in the proxy
statement/prospectus included in the Form S-4 at the time the Form S-4 becomes
effective. In rendering such opinion, such counsel shall be entitled to rely
upon certain representations of officers of Acquiror and the Company reasonably
requested by counsel, including without limitation those contained in
certificates substantially in the form attached as Exhibits B-1 and B-2;
(f) since the date of this Agreement, there shall not have been any
event, occurrence, development or state of circumstances which, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on the Company;
(g) the parties shall have received all required approvals and third
party consents under the contracts listed on Schedule 3.04(e); and
(h) Affiliate Agreements in form of Exhibit A, executed by each Person
who could reasonably be deemed to be an "affiliate" of the Company (as that
term is used in Rule 145 under the 1933 Act), shall have been delivered to
Acquiror and shall be in full force and effect.
SECTION 8.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to consummate the Merger is subject to the
satisfaction (or, to the extent legally permissible, waiver, except that the
condition specified in subsection (b) may not be waived) of the following
further conditions:
(a) (i) Acquiror shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of Acquiror contained
in this Agreement and in any certificate or other writing delivered by Acquiror
pursuant hereto shall be true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein)
at and as of the Effective Time as if made at and as of such time (except to
the extent expressly made as of an earlier date), except where the failure of
such representations and warranties to be true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect" set
forth therein) would not, individually or in the aggregate, have a Material
Adverse Effect on the Acquiror and (iii) the Company shall have received a
certificate signed by an executive officer of Acquiror to the foregoing effect;
(b) the Company shall have received an opinion of Kilpatrick Stockton llp
as to federal income tax matters that is identical in all material respects to
the opinion of that firm which is described in the proxy statement/prospectus
included in the Form S-4 at the time the Form S-4 becomes effective. In
rendering such opinion, such counsel shall be entitled to rely upon certain
representations of officers of Acquiror and the Company reasonably requested by
counsel, including without limitation those contained in certificates
substantially in the form attached as Exhibits B-1 and B-2; and
(c) since the date of this Agreement, there shall not have been any
event, occurrence, development or state of circumstances which, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on Acquiror.
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<PAGE>
ARTICLE 9
TERMINATION
SECTION 9.01. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written consent of the Company and Acquiror;
(b) by either the Company or Acquiror,
(i) if the Merger has not been consummated by March 31, 2000 (the
"End Date"); provided that if (x) the Effective Time has not occurred by
such date by reason of non-satisfaction of any of the conditions set
forth in Sections 8.01(b), 8.01(d), 8.02(b), 8.02(c) or 8.02(d) and (y)
all other conditions in Article 8 have theretofore been satisfied or (to
the extent legally permissible) waived or are then capable of being
satisfied, the End Date will be June 30, 2000; provided further that the
right to terminate this Agreement under this Section 9.01(b)(i) shall
not be available to any party whose failure to fulfill in any material
respect any obligation under this Agreement has caused or resulted in
the failure of the Effective Time to occur on or before the End Date; or
(ii) if the Company Stockholder Approval shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or any adjournment thereof.
(c) by either the Company or Acquiror, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining Acquiror
or the Company from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and nonappealable;
(d) by Acquiror, if the Board of Directors of the Company shall have
failed to recommend or withdrawn or modified or changed in a manner adverse to
Acquiror its approval or recommendation of this Agreement or the Merger or
shall have failed to call the Company Stockholder Meeting in accordance with
Section 5.02, or shall have recommended a Superior Proposal (or the Board of
Directors of the Company resolves to do any of the foregoing);
(e) by the Company, if (i) the Board of Directors of the Company
authorizes the Company, subject to complying with the terms of this Agreement,
to enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company notifies Acquiror in writing
that it intends to enter into such an agreement, attaching the most current
version of such agreement (or a description of all material terms and
conditions thereof) to such notice, (ii) Acquiror does not make, within three
business days of receipt of the Company's written notification of its intention
to enter into a binding agreement for a Superior Proposal, an offer that the
Board of Directors of the Company determines, in good faith after consultation
with its financial advisors, is at least as favorable to the stockholders of
the Company as the Superior Proposal, it being understood that the Company
shall not enter into any such binding agreement during such three-day period
and (iii) the Company prior to such termination pursuant to this clause (e)
pays to Acquiror in immediately available funds the fees required to be paid
pursuant to Section 10.04. The Company agrees to notify Acquiror promptly if
its intention to enter into a written agreement referred to in its notification
shall change at any time after giving such notification.
The party desiring to terminate this Agreement pursuant to clause (b),
(c), (d) or (e) of this Section 9.01 shall give written notice of such
termination to the other party in accordance with Section 10.01, specifying the
provision hereof pursuant to which such termination is effected.
SECTION 9.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect
with no liability on the part of any party hereto,
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except that (a) the agreements contained in this Section 9.02, in Section
10.04, and in the Confidentiality Agreement shall survive the termination
hereof and (b) no such termination shall relieve any party of any liability or
damages resulting from any willful breach by that party of this Agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given,
if to Acquiror or Merger Subsidiary, to:
La-Z-Boy Incorporated
1284 North Telegraph Road
Monroe, Michigan 48162
Attention: President
Fax: 734-457-2005
with a copy to:
Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson Avenue, Suite 2500
Detroit, Michigan 48226
Attention: David D. Joswick
Fax: 313-496-8451
if to the Company, to:
LADD Furniture, Inc.
4620 Grandover Parkway
Greensboro, North Carolina 27407
Attention: President
Fax: 336-315-4399
with a copy to:
Kilpatrick Stockton LLP
1001 West Fourth Street
Winston-Salem, North Carolina 27101
Attention: Robert E. Esleeck
Fax: 336-607-7505
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if given by facsimile,
when such facsimile is transmitted to the facsimile number specified in this
Section and the appropriate facsimile confirmation is received or (b) if given
by any other means, when delivered at the address specified in this Section.
SECTION 10.02. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
SECTION 10.03. AMENDMENTS; NO WAIVERS. (a) Any provision of this
Agreement (including the Exhibits and Schedules hereto) may be amended or
waived prior to the Effective Time if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by the Company, Acquiror
and Merger Subsidiary, or in the case of a waiver, by the party against whom
the waiver is to be effective; provided that after the adoption of this
Agreement by the stockholders of the Company, no
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such amendment or waiver shall, without the further approval of such
stockholders, alter or change (i) the amount or kind of consideration to be
received in exchange for any shares of capital stock of the Company, (ii) any
term of the certificate of incorporation of the Surviving Corporation or (iii)
any of the terms or conditions of this Agreement if such alteration or change
would adversely affect the holders of any shares of capital stock of the
Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.04. EXPENSES. (a) Except as otherwise specified in this
Section 10.04 or agreed in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such cost or expense;
provided, however, that if this Agreement is terminated by Acquiror without
consummation of the Merger pursuant to Section 9.01(d) or as a result of any
willful breach by the Company of its obligations under this Agreement, or
Acquiror becomes entitled to the fees provided for in Section 10.04(b)(ii),
then all costs and expenses incurred by Acquiror shall be paid by the Company.
(b) If:
(i) Acquiror shall terminate this Agreement pursuant to Section
9.01(d), unless at the time of such failure to recommend, withdrawal or
adverse modification or change, failure to call the Company Stockholder
Meeting or recommendation of a Superior Proposal any of the conditions
set forth in Section 8.03(a) or 8.03(c) would not have been satisfied as
of such date and would not be reasonably capable of being satisfied,
(ii) either the Company or Acquiror shall terminate this Agreement
pursuant to Section 9.01(b)(ii) in circumstances where the Company
Stockholder Approval has not been obtained and prior to the Company
Stockholder Meeting an Acquisition Proposal is made by any Person and if
the Company enters into a definitive agreement within twelve months
after termination of this Agreement either (1) in respect of any
Acquisition Proposal with such Person or any of its affiliates or (2) in
respect of any Acquisition Proposal with any other Person (other than
Acquiror or any affiliate of Acquiror) providing, in the case of this
clause (2), greater value per Share than an amount equal to the product
of the Exchange Ratio and the average of the closing prices per share of
Acquiror Common Stock on the NYSE on the five business days immediately
preceding the date of this Agreement, or
(iii) the Company shall terminate this Agreement pursuant to
Section 9.01(e),
then in any case as described in clause (i), (ii) or (iii) (each such case of
termination being referred to as a "Trigger Event") the Company shall pay to
Acquiror (by wire transfer of immediately available funds not later than the
date of termination of this Agreement or, in the case of clause (ii), the date
of such definitive agreement) an amount equal to $7,000,000. Acceptance by
Acquiror of the payment referred to in the foregoing sentence shall constitute
conclusive evidence that this Agreement has been validly terminated and upon
acceptance of payment of such amount the Company shall be fully released and
discharged from any liability or obligation resulting from or under this
Agreement other than as provided in Sections 9.02 and 10.04.
SECTION 10.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more
of its affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations hereunder.
SECTION 10.06. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Michigan, without
regard to principles of conflicts of law.
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SECTION 10.07. JURISDICTION. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in any federal or state court located in the State of Michigan, and
each of the parties hereby consents to the jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 10.01 shall
be deemed effective service of process on such party.
SECTION 10.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 10.09. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 10.10. ENTIRE AGREEMENT. This Agreement (including the Exhibits
and Schedules hereto) and the Confidentiality Agreement constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof. This Agreement shall be binding upon and inure solely to the benefit
of each party hereto and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under this Agreement. Notwithstanding the foregoing and any other
provision of this Agreement to the contrary, any of the Indemnitees (as defined
in Section 6.05 hereof) and the Executives and Company's officers pursuant to
Section 6.06 shall be entitled to enforce the provisions of Sections 6.05 or
6.06 hereof. Acquiror shall pay, at the time they are incurred, all reasonable
costs, fees and expenses of one firm of counsel of the Indemnitees, the
Executives or the Company's officers incurred in connection with the assertion
of any rights on behalf of the Person set forth above pursuant to this Section
10.10.
SECTION 10.11. CAPTIONS; CONSTRUCTION OF CERTAIN CONTRACT PROVISIONS. The
captions herein are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof. For purposes of this
Agreement, the parties agree that: (a) any provision of any contract to which
the Company or any Subsidiary is a party to the effect that the contract may
not be assigned by the Company or Subsidiary without the other party's consent
shall be construed not to require such consent in connection with the
consummation of the Merger, unless the provision specifically requires consent
in connection with a merger; and (b) any provision of any contract to which any
Subsidiary of the Company is a party that provides for termination or a change
in its terms upon the occurrence of a change of control of the Subsidiary shall
be construed not to require such consent in connection with the consummation of
the Merger.
SECTION 10.12. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent
possible.
A-30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
LADD FURNITURE, INC.
By /s/ Fred L. Schuermann, Jr.
Its Chairman, President & CEO
LA-Z-BOY INCORPORATED
By /s/ Gerald L. Kiser
Its President & Chief
Operating Officer
LZB ACQUISITION CORP.
By /s/ Gene M. Hardy
Its Treasurer
A-31
<PAGE>
ANNEX B
MANN, ARMISTEAD & EPPERSON, LTD.
INVESTMENT BANKERS and ADVISORS
September 28, 1999
Board of Directors
LADD Furniture, Inc.
4620 Grandover Parkway
Greensboro, North Carolina 27417
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of LADD Furniture Inc. (the "Company") of the
Merger Consideration, as defined below, in the proposed merger (the "Merger")
of the Company with and into La-Z-Boy Acquisition Subsidiary (the "Merger
Subsidiary") which is wholly-owned subsidiary of La-Z-Boy, Incorporated ("La-Z-
Boy"). Pursuant to the Agreement and Plan of Merger dated September 28, 1999
(the "Agreement"), the Merger Subsidiary shall be merged with and into the
Company and each share of the Company's common stock, par value $0.30 per
share, shall be converted into the right to receive 1.18 shares of La-Z-Boy
common stock, together with cash in lieu of fractional shares of La-Z-Boy
common stock, (the "Merger Consideration").
In arriving at our opinion, we, among other things: (i) reviewed the
Agreement; (ii) met with directors, officers and certain members of management
of the Company to discuss the respective business, financial condition,
operating results and future prospects for the Company; (iii) reviewed the
Company's Annual Reports to Shareholders, Annual Reports on Form 10-K and
related financial information for the two years ended January 2, 1999; (iv)
reviewed the Company's quarterly reports on Form 10-Q for the quarterly periods
ended April 3, 1999 and July 3, 1999, (v) reviewed La-Z-Boy's Annual Reports to
Shareholders, Annual Reports on Form 10-K and related financial information for
the two years ended April 24, 1999; (vi) reviewed La-Z-Boy's Quarterly Report
on Form 10-Q and related financial information for the quarterly period ended
July 24, 1999; (vii) met with directors, officers and certain members of
management of La-Z-Boy to discuss the respective business, financial condition,
operating results and future prospects for La-Z-Boy; (viii) visited several of
La-Z-Boy's operating factilities; (ix) reviewed certain publicly available
information with respect to historical market prices and trading activities for
the Company's common stock, La-Z-Boy's common stock and for certain publicly
traded furniture companies which we deemed relevant; (x) reviewed certain other
merger and acquisition transactions in the furniture industry which we deemed
relevant; and (xi) reviewed certain published research reports for both the
Company and La-Z-Boy and considered such other financial studies, analyses,
inquiries and other matters as we deemed reasonable and appropriate.
In rendering this opinion, we have relied upon the accuracy and
completeness of all financial and other information furnished to us by, or on
behalf of, the Company and La-Z-Boy, and other information that we considered
in our review and we have not assumed any responsibility for independent
verification of such information. We have relied upon the Company's management
as to the reasonableness and acheivability of its financial and operational
forecasts and projections, and the assumptions and bases thereof and assumed
that such forecasts and projections reflect the best currently available
estimates and judgements of the Company's management and that such forecasts
and projections will be realized in the amounts and in the time periods
currently estimated. Our opinion herein is based on the circumstances existing
and known to us as the date hereof. We did not undertake any independent
valuation or
121 SHOCKOE SLIP, RICHMOND, VA 23219 (804)644-1200 FAX (804)644-1226
B-1
<PAGE>
appraisal of the real estate owned by the Company, nor were we furnished with
any such evaluations or appraisals. Consequently, we do not express any opinion
regarding the value of any of the Company's specific individual assets. We have
relied as to certain legal matters on advice from counsel to the Board of
Directors of the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. Although subsequent developments may affect this
opinion, we do not have any obligation to update or revise this opinion.
Furthermore, we are not expressing any opinion herein as to the range of value
or prices at which La-Z-Boy's common stock will trade in the public markets
subsequent to the consummation of the Merger.
Mann, Armistead & Epperson, Ltd., as part of its investment banking
services, is regularly engaged in the valuation of private and public
businesses and their securities in connection with mergers and acquisitions,
competitive biddings and valuations for estate, corporate and other purposes,
and acting as financial advisor in connections with others forms of strategic
corporate transactions. Pursuant to our engagement in connection with this
fairness opinion, we will receive a fee for our services in rendering said
opinion, a substantial portion of which is contingent upon the consummation of
the Merger. We are familiar with LADD having performed certain valuations of
the Company's divisions in connection with a restructuring of the Company's
senior credit facility and having provided investment research on the Company.
The opinion expressed herein is provided for the benefit of the Board of
Directors of the Company and the opinion, and any suppporting analyses or other
material supplied by us may not be quoted, referred to, or used in any public
filing or in any written document or for any other purpose without the prior
written approval of Mann, Armistead & Epperson, Ltd. Mann, Armistead &
Epperson, Ltd. consents to the use of this opinion in its entirety in any proxy
statement or other communication from LADD to its shareholders.
Based upon the foregoing considerations, it is our opinion that as of
September 28, 1999 the Merger Consideration to be received by the stockholders
of the Company upon consummation of the Merger is fair, from a financial point
of view, to the stockholders of the Company.
Truly yours,
MANN, ARMISTEAD & EPPERSON, LTD.
B-2
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As noted in Part I, La-Z-Boy Incorporated is a Michigan business
corporation, The Michigan Business Corporation Act, which governs La-Z-Boy,
permits it to indemnify any person who was, is or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal or
informal, other than an action, suit or proceeding by or in the right of the
La-Z-Boy, by reason of the fact that he or she is or was a director, officer,
employee or agent of La-Z-Boy, or is or was serving at its request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including any employee
benefit plan) against expenses (including attorney fees) and judgments,
penalties, fines and amounts paid in settlement that are actually and
reasonably incurred by him or her in connection with the action, suit or
proceeding, if the indemnified person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of La-Z-
Boy or its shareholders, and with respect to a criminal action or proceeding,
if he or she had no reasonable cause to believe his or her conduct was
unlawful. The Michigan Business Corporation Act also permits La-Z-Boy to
indemnify any person who is or was a party or is threatened to be made a party
to any action, suit or proceeding by or in the right of La-Z-Boy by reason of
that fact that he or she is or was a director, officer, employee or agent of
La-Z-Boy (or is or was serving at its request in one of the other capacities
described above) against expenses (including attorney's fees) and amounts paid
in settlement that are actually and reasonably incurred by him or her in
connection with the action, suit or proceeding, if the indemnified person acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of La-Z-Boy or its shareholders, except that no
indemnification may be made for a claim, issue, or matter in which the
indemnified person has been found liable to the La-Z-Boy except for any
indemnification against expenses that may be ordered by the court.
Under these provisions of the Michigan Business Corporation Act, unless
ordered by a court, any indemnification described above may be made only as
authorized in the specific case upon a determination (made in one of the ways
described in Section 564a(1) of the Act) that indemnification of the pertinent
party is proper because he or she has met the applicable standard of conduct
and upon an evaluation of the reasonableness of expenses and amounts paid in
settlement. Section 564b of the Act permits payment or reimbursement of the
reasonable expenses incurred by an indemnified person in advance of final
disposition of an action, suit or proceeding, only if the person furnishes La-
Z-Boy with a written affirmation of his or her good faith belief that he or she
has met the applicable standard of conduct for indemnification and a written
undertaking to repay the advance if it ultimately is determined that he or she
did not meet the standard and only if a determination is made (in one of the
ways described in Section 564a(1)) that the facts then known to those making
the determination would not preclude indemnification under the Act. However,
Section 565 of the Michigan Business Corporation Act further provides that its
provisions concerning indemnification and advancement of expenses are not
exclusive of other rights to which a person seeking indemnification or
advancement of expenses may be entitled under a corporation's articles of
incorporation, its bylaws or a contractual arrangement.
Section 2 of Article IX of La-Z-Boy's articles of incorporation provides
for mandatory indemnification of its directors and officers and permits
indemnification of other parties, as follows:
SECTION 2. INDEMNIFICATION. The corporation shall indemnify any of
its directors and officers and may indemnify any of its employees and
agents (in each case including such person's heirs, executors,
administrators and legal representatives) who are made or threatened to
be made a party to an action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that
such person is or was a director, officer, employee or agent of the
corporation or serves or served at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, whether for profit or not, to the fullest extent
authorized or permitted under the [Michigan Business
II-1
<PAGE>
Corporation] Act or other applicable law, as the same presently exist or
may hereafter be amended, but in the case of any such amendment, only to
the extent that such amendment permits the corporation to provide
broader indemnification rights than authorized or permitted before such
amendment. Without limiting the generality of the foregoing, the
following provisions, except to the extent they limit the indemnity
which may be provided pursuant to the foregoing, shall apply:
2.1--INDEMNIFICATION OF DIRECTORS AND OFFICERS: CLAIMS BY
THIRD PARTIES. The corporation shall to the fullest extent
authorized or permitted by the Act or other applicable law, as the
same presently exist or may hereafter may be amended, but, in the
case of any such amendment, only to the extent such amendment
permits the corporation to provide broader indemnification rights
than before such amendment, indemnify a director or officer (the
"Indemnitee") who was or is a party or is threatened to be made a
party to a threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal, other than an action
by or in the right of the corporation, by reason of the fact that
he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or
not, against expenses, including attorneys' fees, judgments,
penalties, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action,
suit or proceeding, if the Indemnitee acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation or its shareholders, and
with respect to a criminal action or proceeding, if the Indemnitee
had no reasonable cause to believe his or her conduct was
unlawful. The termination of an action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a
presumption that the Indemnitee did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed
to the best interests of the corporation or its shareholders, and,
with respect to a criminal action or proceeding, has reasonable
cause to believe that his or her conduct was unlawful.
2.2--INDEMNIFICATION OF DIRECTORS AND OFFICERS: CLAIMS
BROUGHT BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall, to the fullest extent authorized or permitted by the Act or
other applicable law, as the same presently exist or may hereafter
be amended, but, in the case of any such amendment, only to the
extent such amendment permits the corporation to provide broader
indemnification right than before such amendment, indemnify a
director or officer (the "Indemnitee") who was or is a party to or
is threatened to be made a party to a threatened, pending, or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or
not, against expenses, including actual and reasonable attorneys'
fees, and amounts paid in settlement incurred by the Indemnitee in
connection with the action or suit, if the Indemnitee acted in
good faith and in a manner the Indemnitee reasonably believed to
be in or not opposed to the best interests of the corporation or
its shareholders. However, indemnification shall not be made under
this subsection 2.2 for a claim, issue, or matter in which the
Indemnitee has been found liable to the corporation unless and
only to the extent that the court in which the action or suit was
brought has determined upon application that, despite the
adjudication of liability but in view of all circumstances of the
case, the Indemnitee is fairly and reasonably entitled to
indemnification for the expenses which the court considers proper.
2.3--ACTIONS BROUGHT BY THE INDEMNITEE. Notwithstanding the
provisions of subsections 2.1 and 2.2, the corporation shall not
be required to indemnify an Indemnitee in
II-2
<PAGE>
connection with an action, suit, proceeding or claim (or part
thereof) brought or made by such Indemnitee, unless such action,
suit, proceeding or claim (or part thereof): (i) was authorized by
the Board of Directors of the corporation; or (ii) was brought or
made to enforce this Section 2 and the Indemnitee has been
successful in such action, suit, proceeding or claim (or part
thereof).
2.4--APPROVAL OF INDEMNIFICATION. An indemnification under
subsections 2.1 or 2.2 hereof, unless ordered by a court, shall be
made by the corporation only as authorized in the specific case
upon a determination that indemnification of the Indemnitee is
proper in the circumstances because such Indemnitee has met the
applicable standard of conduct set forth in subsections 2.1 or 2.2
as the case may be. This determination shall be made in any of the
following ways:
(a) By a majority vote of a quorum of the Board
consisting of directors who were not parties to the action,
suit, or proceeding.
(b) If the quorum described in subdivision (a) is not
obtainable, then by a majority vote of a committee of
directors who are not parties to the action. The committee
shall consist of not less than three (3) disinterested
directors.
(c) By independent legal counsel in a written opinion.
(d) By the shareholders.
2.5--ADVANCEMENT OF EXPENSES. Expenses incurred in defending
a civil or criminal action, suit, or proceeding described in
subsections 2.1 or 2.2 above shall be paid by the corporation in
advance of the final disposition of the action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the
Indemnitee to repay the expenses if it is ultimately determined
that the Indemnitee is not entitled to be indemnified by the
corporation. The undertaking shall be by unlimited general
obligation of the person on whose behalf advances are made but
need not be secured.
2.6--PARTIAL INDEMNIFICATION. If an Indemnitee is entitled
to indemnification under subsections 2.1 or 2.2 for a portion of
expenses including attorneys' fees, judgments, penalties, fines,
and amounts paid in settlement, but not for the total amount
thereof, the corporation shall indemnify the Indemnitee for the
portion of the expenses, judgments, penalties, fines, or amounts
paid in settlement for which the Indemnitee is entitled to be
indemnified.
2.7--INDEMNIFICATION OF EMPLOYEES AND AGENTS. Any person who
is not covered by the foregoing provisions of this Section 2 and
who is or was an employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not, may be indemnified to the
fullest extent authorized or permitted by the Act or other
applicable law, as the same exist or may hereafter be amended,
but, in the case of any such amendment, only to the extent such
amendment permits the corporation to provide broader
indemnification rights than before such amendment, but in any
event only to the extent authorized at any time or from time to
time by the Board of Directors.
2.8--OTHER RIGHTS OF INDEMNIFICATION. The indemnification or
advancement of expenses provided under subsections 2.1 through 2.7
is not exclusive of other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the Articles of Incorporation or Bylaws, or an agreement. However,
the total amount of expenses advanced or indemnified from all
sources combined shall not exceed the amount of actual
II-3
<PAGE>
expenses incurred by the person seeking indemnification or
advancement of expenses. The indemnification provided for in
subsections 2.1 through 2.7 continues as to a person who ceases to
be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of the person.
2.9--DEFINITIONS. "Other enterprise" shall include employee
benefit plans: "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and "serving at
the request of the corporation" shall include any service as a
director, officer, employee, or agent of the corporation which
imposes duties on, or involves services by, the director, officer,
employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good
faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be considered to have acted in a manner "not
opposed to the best interests of the corporation or its
shareholders" as referred to in subsections 2.1 and 2.2
2.10--LIABILITY INSURANCE. The corporation shall have the
power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, whether for profit or not, against any liability
asserted against and incurred by such person in any such capacity
or arising out of such person's status as such, regardless of
whether or not the corporation would have the power to indemnify
such person against such liability under the pertinent provisions
of the Act.
2.11--ENFORCEMENT. If a claim under this Section 2 is not
paid in full by the corporation within thirty days after a written
claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover
the unpaid amount of the claim, and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is
required, has been tendered to the corporation) that the claimant
has not met the standards of conduct which makes it permissible
under the Act for the corporation to indemnify the claimant for
the amount claimed, but the burden of providing such defense shall
be on the corporation. Neither the failure of the corporation
(including the Board of Directors, a committee thereof,
independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because such claimant has met the applicable standard of conduct
set forth in the Act nor an actual determination by the
corporation (including its Board of Directors, a committee
thereof, independent legal counsel or its shareholders) that the
claimant has not met such applicable standard of conduct, shall be
a defense to the action or create a presumption that the claimant
has not met the applicable standard of conduct.
2.12--CONTRACT WITH THE CORPORATION. The right to
indemnification conferred in this Section 2 shall be deemed to be
a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this
Section 2 is in effect and any repeal or modification of this
Section 2 shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or
any action, suit, proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
2.13--APPLICATION TO A RESULTING OR SURVIVING CORPORATION OR
CONSTITUENT CORPORATION. The definition for "corporation" found in
Section 569 of the Act, as the same
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<PAGE>
exists or may hereafter be amended is, and shall be, specifically
excluded from application to this Section 2. The indemnification
and other obligations set forth in this Section 2 of the
corporation shall be binding upon any resulting or surviving
corporation after any merger or consolidation with the
corporation. Notwithstanding anything to the contrary contained
herein or in Section 569 of the Act, no person shall be entitled
to the indemnification and other rights set forth in this Section
2 for acting as a director or officer of another corporation prior
to such other corporation entering into a merger or consolidation
with the corporation.
2.14--SEVERABILITY. Each and every paragraph, sentence, term
and provision of this Section 2 shall be considered severable in
that, in the event that a court finds any paragraph, sentence,
term or provision to be invalid or unenforceable, the validity and
enforceability, operation, or effect of the remaining paragraphs,
sentences, terms or provisions shall not be affected, and this
Section 2 shall be construed in all respects as if such invalid or
unenforceable matter had been omitted.
La-Z-Boy also has entered into indemnification agreements with all of its
directors and executive officers. Those agreements require it to maintain
directors' and officers' liability insurance for their benefit or a substitute
for such insurance to the extent reasonably available, or to indemnify them to
the full extent of the insurance coverage that otherwise would be provided to
them. The agreements contemplate indemnification broader than that expressly
provided for in the Michigan Business Corporation Act, in that they
contemplate, when certain conditions are met, indemnification against judgments
and fines (as well as settlement costs) incurred in proceedings brought by or
in the right of La-Z-Boy.
Section 209(c) of the Michigan Business Corporation Act also provides
that the articles of incorporation of a Michigan business corporation may
contain a provision providing that a director of the corporation is not
personally liable to the corporation or its shareholders for monetary damages
for a breach of the director's fiduciary duty, except that such a provision may
not eliminate or limit the liability of a director for any breach of the
director's duty of loyalty to the corporation or its shareholders; acts or
omissions not in good faith or that involve intentional misconduct or knowing
violation of law; a violation of Section 551(1) of the Michigan Business
Corporation Act (which relates to unauthorized dividends or distributions to
shareholders and unauthorized loans); or any transaction from which the
director derived an improper personal benefit. At the 1987 Annual Meeting of
its shareholders, La-Z-Boy's shareholders approved an amendment to its Articles
of Incorporation to include such a provision, as well as the above-quoted
provisions of Section 2, Article IX.
On a regular basis (and not specifically in connection with this
offering), La-Z-Boy also maintains insurance against liabilities arising on the
part of any of its directors or officers out of their performance in those
capacities or arising on La-Z-Boy's part out of the foregoing indemnification
provisions, subject to certain exclusions and to the policy limits.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following exhibits are filed as part of this
Registration Statement on Form S-4:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT (NOTE 1)
------- -------------------------------
<C> <S>
1 Not applicable
2.1 Agreement and Plan of Merger, dated as of September 28, 1999, among
LADD Furniture, Inc., La-Z-Boy Incorporated and LZB Acquisition Corp.
and the exhibits to that agreement, followed by a list of schedules
to the agreement (Note 2) (The schedules themselves are not filed
with this amended Registration Statement, pursuant to paragraph (2)
of Regulation S-K, Item 601. La-Z-Boy Incorporated will provide a
copy of any omitted schedule to the SEC upon its request.)
2.2 Amendment No. 1 to Agreement and Plan of Merger referenced above and
certain amended exhibits (filed with original Registration Statement)
3.1 La-Z-Boy Incorporated Restated Articles of Incorporation (Note 3)
3.2 Amendment to Restated Articles of Incorporation (Note 4)
3.3 Current La-Z-Boy Incorporated By-laws (Note 5)
4 Instruments defining the rights of holders of long-term debt are not
filed with this amended Registration Statement, pursuant to paragraph
(4) (iii) of Regulation S-K, Item 601. La-Z-Boy Incorporated will
furnish any such omitted document to the SEC upon its request.
5 Opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C.
(filed with original Registration Statement)
8.1 Tax opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C.
8.2 Tax opinion and consent of Kilpatrick Stockton LLP
9 Not applicable
10.1* La-Z-Boy Incorporated Amended and Restated 1993 Performance Based
Stock Plan (Note 6)
10.2* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee Directors
(Note 7)
10.3* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description (Note 8)
10.4* La-Z-Boy Incorporated Supplemental Executive Retirement Plan (as
revised in 1995) (Note 9)
10.5* La-Z-Boy Incorporated Amended and Restated 1997 Restricted Share Plan
(Note 10)
10.6* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 10)
10.7* Form of Change in Control Agreement (Note 9) and list of employees who
are parties to Change in Control Agreements (Note 11)
10.8* Form of Indemnification Agreement (covering all directors, including
employee-directors) (Note 12)
10.9* Summary Plan Description and Partial Plan Document for the La-Z-Boy
Incorporated Personal Executive Life Insurance Program (the
"Summary") (Note 8). (With respect to directors and executive
officers, the only persons covered by this program are Gerald M.
Kiser and Gene M. Hardy. With respect to Mr. Hardy, the program
operates differently from the manner described in the Summary in two
ways: he does not benefit from Unscheduled Premium payments, and
"gross up" payments to him are not repayable to the Company out of
policy death benefits or otherwise.)
10.10* La-Z-Boy Incorporated 1986 Incentive Stock Option Plan (Note 13)
10.11* La-Z-Boy Incorporated 1989 Restricted Share Plan (Note 7)
11 Not applicable
12 Statement re computation of ratios (found on page 30 of the Proxy
Statement/Prospectus)
13 Not applicable
14 Not applicable
16 Not applicable
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
21 List of subsidiaries of La-Z-Boy Incorporated (filed with original
Registration Statement)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
23.3 Consent of Miller, Canfield, Paddock and Stone, P.L.C. (contained in
exhibits 5 and 8.1)
23.4 Consent of Kilpatrick Stockton LLP (contained in exhibit 8.2)
23.5 Consent of Mann, Armistead & Epperson, Ltd.
24 Powers of attorney (contained in the signatures pages to this
Registration Statement)
25 Not applicable
26 Not applicable
27 Financial Data Schedule (Note 14) (filed with original Registration
Statement)
Commitment letter and related term sheet concerning new bridge loan
99 facility (filed with original Registration Statement)
</TABLE>
NOTES TO EXHIBITS
* Indicates a contract or benefit plan under which one or more executive
officers or directors may receive benefits.
1. For all documents incorporated by reference, the SEC file number is 1-9656.
All exhibit description references to previous filings are references to
filings by La-Z-Boy. Unless otherwise indicated in the text of an exhibit
description, the described exhibit is being filed with this Registration
Statement.
2. Incorporated by reference to an exhibit to Form 8-K dated September 28,
1999 and filed with the SEC September 30, 1999.
3. Incorporated by reference to an exhibit to Form 10-Q for the quarter ended
October 26, 1996.
4. Incorporated by reference to an exhibit to Form 10-K/A filed September 27,
1999.
5. Incorporated by reference to an exhibit to Form 8-K dated June 11, 1999.
6. Incorporated by reference to an exhibit to definitive proxy statement dated
June 27, 1996.
7. Incorporated by reference to an exhibit to definitive proxy statement dated
July 6, 1989.
8. Incorporated by reference to an exhibit to Form 10-K for the fiscal year
ended April 26, 1997.
9. Incorporated by reference to an exhibit to Form 8-K dated February 6, 1995.
10. Incorporated by reference to an exhibit to definitive proxy statement dated
June 27, 1997.
11. Incorporated by reference to an exhibit to Form 10-K for the fiscal year
ended April 25, 1998.
12. Incorporated by reference to an exhibit to Form 8, Amendment No. 1, dated
November 3, 1989.
13. Incorporated by reference to an exhibit to definitive proxy statement dated
June 26, 1986.
14. Included in EDGAR version only.
II-7
<PAGE>
(b) Financial Statement Schedule. The following financial statement
schedule is filed as a part of this Registration Statement immediately
preceding the signature page.
<TABLE>
<S> <C>
Schedule II Valuation and Qualifying Accounts (followed by opinion of
PricewaterhouseCoopers LLP)
</TABLE>
(c) Information Pursuant to Item 4(b). Not Applicable.
ITEM 22. UNDERTAKINGS.
La-Z-Boy Incorporated hereby makes the undertakings that follow:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 20 or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of the registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The undersigned registrant undertakes that every prospectus (i) that is
filed pursuant to the paragraph immediately preceding this paragraph, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the
II-8
<PAGE>
Securities Act of 1933 and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Act of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
LA-Z-BOY INCORPORATED
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TRADE ACCOUNTS
ADDITIONS RECEIVABLE
BALANCE AT CHARGED TO "WRITTEN OFF" BALANCE
BEGINNING COSTS AND NET OF AT END OF
DESCRIPTION OF PERIOD EXPENSES RECOVERIES PERIOD
----------- ---------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
Year ended April 24, 1999:
Allowance for doubtful
accounts and long-term
notes........................ $20,639 $7,361 $2,372 $25,628
Accrued warranties............ $12,025 $2,550 $14,575
Year ended April 25, 1998:
Allowance for doubtful
accounts and long-term
notes........................ $18,931 $7,333 $5,625 $20,639
Accrued warranties............ $10,775 $1,250 $12,025
Year ended April 26, 1997:
Allowance for doubtful
accounts and long-term
notes........................ $18,033 $5,688 $4,790 $18,931
Accrued warranties............ $ 9,577 $1,198 $10,775
</TABLE>
II-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of La-Z-Boy Incorporated
Our audits of the consolidated financial statements referred to in our
report dated May 20, 1999, except for Note 13, which is as of November 11,
1999, appearing in this Registration Statement on Form S-4 of La-Z-Boy
Incorporated also included an audit of the financial statement schedule listed
in Item 21(b) of this Form S-4. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Toledo, Ohio
May 20, 1999
II-11
<PAGE>
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Monroe, State of Michigan, on
December 22, 1999.
La-Z-Boy Incorporated
/s/ Gene M. Hardy
---------------------------
By Gene M. Hardy
Secretary and Treasurer
S-1
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
amendment has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S><C>
* Dec. 22, 1999 * Dec. 22,1999
- ----------------------------- ------------- ------------------------- -------------
P.H. Norton Date J.F. Weaver Date
Chairman of the Board and Director
Director
* Dec. 22, 1999 * Dec. 22,1999
- ----------------------------- ------------- ------------------------- -------------
G.L. Kiser Date D.K. Hehl Date
President and Chief Director
Operating
Officer and Director
/s/ G.M. Hardy Dec. 22, 1999 * Dec. 22, 1999
- ----------------------------- ------------- ------------------------- --------------
G.M. Hardy R.E. Lipford
Secretary and Treasurer, Date Director Date
Principal
Accounting Officer and
Director
* Dec. 22, 1999 * Dec. 22,1999
- ----------------------------- ------------- ------------------------- -------------
F.H. Jackson H.G. Levy
Executive VP Finance, Chief Date Director Date
Financial Officer and
Director
* Dec. 22, 1999 * Dec. 22,1999
- ----------------------------- ------------- ------------------------- -------------
L.G. Stevens J.W. Johnston
Director Date Director Date
* By: /s/ Gene M. Hardy
- -----------------------------
Gene M. Hardy
Attorney-in-fact
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT (NOTE 1)
------- -------------------------------
<C> <S>
1 Not applicable
2.1 Agreement and Plan of Merger, dated as of September 28, 1999, among
LADD Furniture, Inc., La-Z-Boy Incorporated and LZB Acquisition Corp.
and the exhibits to that agreement, followed by a list of schedules
to the agreement (Note 2) (The schedules themselves are not filed
with this amended Registration Statement, pursuant to paragraph (2)
of Regulation S-K, Item 601. La-Z-Boy Incorporated will provide a
copy of any omitted schedule to the SEC upon its request.)
2.2 Amendment No.1 to Agreement and Plan of Merger referenced above and
certain amended exhibits (filed with original Registration Statement)
3.1 La-Z-Boy Incorporated Restated Articles of Incorporation (Note 3)
3.2 Amendment to Restated Articles of Incorporation (Note 4)
3.3 Current La-Z-Boy Incorporated By-laws (Note 5)
4 Instruments defining the rights of holders of long-term debt are not
filed with this amended Registration Statement, pursuant to paragraph
(4) (iii) of Regulation S-K, Item 601. La-Z-Boy Incorporated will
furnish any such omitted document to the SEC upon its request.
5 Opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C.
(filed with original Registration Statement)
8.1 Tax opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C.
8.2 Tax opinion and consent of Kilpatrick Stockton LLP
9 Not applicable
10.1* La-Z-Boy Incorporated Amended and Restated 1993 Performance Based
Stock Plan (Note 6)
10.2* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee Directors
(Note 7)
10.3* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description (Note 8)
10.4* La-Z-Boy Incorporated Supplemental Executive Retirement Plan (as
revised in 1995) (Note 9)
10.5* La-Z-Boy Incorporated Amended and Restated 1997 Restricted Share Plan
(Note 10)
10.6* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 10)
10.7* Form of Change in Control Agreement (Note 9) and list of employees who
are parties to Change in Control Agreements (Note 11)
10.8* Form of Indemnification Agreement (covering all directors, including
employee-directors) (Note 12)
10.9* Summary Plan Description and Partial Plan Document for the La-Z-Boy
Incorporated Personal Executive Life Insurance Program (the
"Summary") (Note 8). (With respect to directors and executive
officers, the only persons covered by this program are Gerald M.
Kiser and Gene M. Hardy. With respect to Mr. Hardy, the program
operates differently from the manner described in the Summary in two
ways: he does not benefit from Unscheduled Premium payments, and
"gross up" payments to him are not repayable to the Company out of
policy death benefits or otherwise.)
10.10* La-Z-Boy Incorporated 1986 Incentive Stock Option Plan (Note 13)
10.11* La-Z-Boy Incorporated 1989 Restricted Share Plan (Note 7)
11 Not applicable
12 Statement re computation of ratios (found on page 30 of the Proxy
Statement/Prospectus)
13 Not applicable
14 Not applicable
16 Not applicable
</TABLE>
<PAGE>
<TABLE>
<C> <S>
21 List of subsidiaries of La-Z-Boy Incorporated (filed with original
Registration Statement)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
23.3 Consent of Miller, Canfield, Paddock and Stone, P.L.C. (contained in
exhibits 5 and 8.1)
23.4 Consent of Kilpatrick Stockton LLP (contained in exhibit 8.2)
23.5 Consent to Mann, Armistead & Epperson, Ltd.
24 Powers of attorney (contained in the signatures pages to this
Registration Statement)
25 Not applicable
26 Not applicable
27 Financial Data Schedule (Note 14) (filed with original Registration
Statement)
Commitment letter and related term sheet concerning new bridge loan
99 facility (filed with original Registration Statement)
</TABLE>
NOTES TO EXHIBITS
* Indicates a contract or benefit plan under which one or more executive
officers or directors may receive benefits.
1. For all documents incorporated by reference, the SEC file number is 1-
9656. All exhibit description references to previous filings are
references to filings by La-Z-Boy. Unless otherwise indicated in the text
of an exhibit description, the described exhibit is being filed with this
Registration Statement.
2. Incorporated by reference to an exhibit to Form 8-K dated September 28,
1999 and filed with the SEC September 30, 1999.
3. Incorporated by reference to an exhibit to Form 10-Q for the quarter ended
October 26, 1996.
4. Incorporated by reference to an exhibit to Form 10-K/A filed September 27,
1999.
5. Incorporated by reference to an exhibit to Form 8-K dated June 11, 1999.
6. Incorporated by reference to an exhibit to definitive proxy statement
dated June 27, 1996.
7. Incorporated by reference to an exhibit to definitive proxy statement
dated July 6, 1989.
8. Incorporated by reference to an exhibit to Form 10-K for the fiscal year
ended April 26, 1997.
9. Incorporated by reference to an exhibit to Form 8-K dated February 6,
1995.
10. Incorporated by reference to an exhibit to definitive proxy statement dated
June 27, 1997.
11. Incorporated by reference to an exhibit to Form 10-K for the fiscal year
ended April 25, 1998.
12. Incorporated by reference to an exhibit to Form 8, Amendment No. 1, dated
November 3, 1989.
13. Incorporated by reference to an exhibit to definitive proxy statement dated
June 26, 1986.
14. Included in EDGAR version only.
<PAGE>
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C,
150 West Jefferson Avenue
Detroit, Michigan 48226
EXHIBIT 8.1
December 22, 1999
La-Z-Boy Incorporated
1284 North Telegraph Road
Monroe, Michigan 48162
Ladies and Gentlemen:
We have acted as counsel to La-Z-Boy Incorporated, a Michigan
corporation ("LZB"), in connection with (i) the contemplated merger (the
"Merger") pursuant to an Agreement and Plan of Merger, dated as September 28,
1999 as amended by Amendment No. 1 thereto dated as of December 13, 1999 (as so
amended, the "Merger Agreement"), among LADD Furniture, Inc., a North Carolina
corporation ("LADD"), LZB and LZB Acquisition Corp., a Michigan corporation and
a newly-formed, wholly-owned subsidiary of LZB ("Merger Subsidiary"), and (ii)
the preparation and filing of the Registration Statement on Form S-4 (the
"Registration Statement"), which includes the Proxy Statement/Prospectus (the
"Proxy Statement/Prospectus"), filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended. Unless otherwise
indicated, each capitalized term used herein has the meaning ascribed to it in
the Merger Agreement.
Our opinion is provided solely with respect to certain federal income
tax consequences of the Merger.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Merger Agreement,
the Proxy Statement/Prospectus and such other documents and corporate records as
we have deemed necessary or appropriate in order to enable us to render the
opinion below. For
<PAGE>
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
-2-
purposes of this opinion, we have assumed (i) the validity and accuracy of the
documents and corporate records that we have examined, and the facts and
representations concerning the Merger that have come to our attention during our
engagement, (ii) the legal capacity of all natural persons and the genuineness
of all signatures, (iii) that the Merger will be consummated in the manner
described in the Merger Agreement and the Proxy Statement/Prospectus, and (iv)
that the Merger will qualify as a merger under applicable state law.
In order to qualify as a tax-free reorganization, a transaction must
satisfy certain statutory requirements set forth in the Internal Revenue Code of
1986, as amended (the "Code"), and several judicially-created requirements which
have been developed through court rulings and Internal Revenue Service ("IRS")
interpretations. Based upon our review of the facts, information and the
documentation concerning the proposed Merger, we believe that these statutory
and judicial requirements will be satisfied.
Subject to the assumptions set forth above and the representations made
to us by LZB, LADD and Merger Subsidiary in the respective representation
letters dated the date hereof and attached hereto, the discussion in the Proxy
Statement/Prospectus under the heading "THE MERGER TRANSACTION - Material
Federal Income Tax Consequences," except as otherwise indicated, expresses our
opinion as to the material federal income tax consequences applicable to LADD,
LZB, Merger Subsidiary and the holders of LADD common stock.
However, our opinion does not address U.S. federal income tax
consequences which may vary with, or are contingent upon, a shareholder's
individual circumstances. In addition, our opinion does not address any
non-income tax or any foreign, state or local tax consequences of the Merger.
This opinion is delivered in accordance with the requirements of Item
601(b)(8) of Regulation S-K under the Securities Act. In rendering our opinion,
we have considered the applicable provisions of the Code, Treasury Department
regulations promulgated thereunder, pertinent judicial authorities, interpretive
rulings of the IRS and such other authorities as we have considered relevant. It
should be noted that statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time (possibly with
retroactive effect). A change in the authorities or the accuracy or completeness
of any of the information, documents, corporate records, covenants, statements,
representations or assumptions on which our opinion is based could affect our
conclusions. This opinion is expressed as of the date hereof, and we are under
no
<PAGE>
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
-3-
obligation to supplement or revise our opinion to reflect any changes
(including changes that have retroactive effect) (i) in applicable law or (ii)
in any information, document, corporate record, covenant, statement,
representation or assumption stated herein which becomes untrue or incorrect.
This letter is furnished to you solely for use in connection with the
Merger, as described in the Merger Agreement and the Proxy Statement/Prospectus,
and is not to be used, circulated, quoted or otherwise referred to for any other
purpose without our express written permission. In accordance with the
requirements of Item 601(b)(23) of Regulation S-K under the Securities Act, we
hereby consent to the discussion of this opinion in the Proxy
Statement/Prospectus, to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the headings "THE
MERGER TRANSACTION--Material Federal Income Tax Consequences," "MATERIAL TERMS
OF THE MERGER AGREEMENT--Conditions to the Completion of the Merger" and "LEGAL
MATTERS" in the Proxy Statement/Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
<PAGE>
LA-Z-BOY INCORPORATED REPRESENTATION LETTER
December 22, 1999
Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson Avenue, Suite 2500
Detroit, Michigan 48226
Kilpatrick Stockton LLP
1001 West Fourth Street
Winston-Salem, North Carolina 27101
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections
8.02(e) and 8.03(b) of the Agreement and Plan of Merger, as amended (as so
amended, the "Agreement"),/*/ dated as of September 28, 1999, among LADD
Furniture, Inc., a North Carolina corporation ("Company"), La-Z-Boy
Incorporated, a Michigan corporation ("Parent"), and LZB Acquisition Corp., a
Michigan corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and the opinions which, pursuant to the requirements of Item
601(b)(8) of Regulation S-K under the Securities Act of 1933, as amended, will
be included in the Registration Statement on Form S-4, the undersigned officers
of Parent and Merger Subsidiary hereby certify and represent as to Parent and
Merger Subsidiary that the facts relating to the merger (the "Merger") of Merger
Subsidiary with and into Company pursuant to the Agreement, and as described in
the Proxy Statement/Prospectus of Parent and Company relating to the Merger (the
"Proxy Statement"), are true, correct and complete in all material respects as
of the date hereof and will be true, correct and complete in all material
respects at the Effective Time and that:
1. The Merger Consideration to be received in the Merger by holders of
common stock of Company ("Company Stock") was determined by arm's length
negotiations between the managements of Parent and Company and will be
approximately equal to the fair market value of the Company Stock surrendered in
exchange. In connection with the Merger, no holder of Company Stock will receive
in exchange for such stock, directly or indirectly, any consideration other than
common stock of Parent ("Parent Stock") and, in lieu of fractional shares of
Parent Stock, cash.
2. Other than cash paid in lieu of fractional shares of Parent Stock,
none of
(i) Parent (or any successor corporation),
(ii) a corporation that, immediately before or immediately
after such purchase, exchange, redemption, or other
acquisition, is a member of an Affiliated Group (as
defined herein) of which Parent (or any successor
corporation) is a member, or
(iii) a corporation in which Parent (or any successor
corporation) owns, or which owns with respect to Parent
(or any successor corporation), directly or indirectly,
immediately before or immediately after such purchase,
exchange, redemption, or other acquisition, at least 50%
of the
- -------------------
/*/ References contained in this Certificate to the Agreement include, unless
the context otherwise requires, each document attached as an exhibit or
schedule. All defined terms used herein and not otherwise defined have the
meaning ascribed to them in the Agreement.
<PAGE>
total combined voting power of all classes of stock entitled to vote or at
least 50% of the total value of shares of all classes of stock, taking into
account for purposes of this clause (iii)
. any stock owned by 5% or greater stockholders of Parent (or any
successor) or such corporation,
. a proportionate share of the stock owned by entities in which
Parent (or any successor) or such corporation owns an interest, and
. any stock which may be acquired pursuant to the exercise of options
(a "Parent Related Person") has any current plan or intention to redeem,
purchase, exchange or otherwise reacquire any of the Parent Stock to be
issued in the Merger. Parent will implement its stock repurchase plan
consistent with the resolutions adopted by the Board of Parent on October
26, 1987, February 3, 1993, October 9, 1995 and May 8, 1997. Parent
intends that all stock repurchases made pursuant to this stock repurchase
plan, or any other stock repurchase plan adopted by Parent,
(a) shall be undertaken for a corporate business purpose,
(b) shall be made in the open market for stock of the Parent which is
widely held and publicly traded, except that Parent may acquire stock
directly in block trades (provided that any such trade made within two
years after the Effective Time is not made with an entity that is known to
Parent to have acquired such stock in the Merger), and any redemptions or
repurchases of stock issued in the Merger that occur shall be incidental to
the operation of such stock repurchase plan, and
(c) shall be limited to, in the aggregate, a small percentage of each
class of stock of Parent outstanding at the time of the redemption or
repurchase.
In addition, Parent will cause all Parent Related Persons and any person
acting as an agent of Parent not to redeem, purchase, exchange or otherwise
acquire (including by derivative transactions such as an equity swap which would
have the economic effect of an acquisition), directly or indirectly (including
through partnerships or through third parties in connection with a plan to so
acquire), a number of shares of Parent Stock to be received by Company
shareholders in connection with the Merger that would reduce the Company
shareholders' ownership of Parent Stock to a number of shares having a value, as
of the Effective Time, of less than 50% of the total value of Company Stock
immediately prior to the Effective Time.
For purposes of this representation, shares of Company Stock exchanged for
cash in lieu of fractional shares of Parent Stock are treated as outstanding
shares of Company Stock at the Effective Time. Moreover, shares of Company Stock
that are redeemed or sold or otherwise transferred to Company, Parent, or any
person related to Company or Parent prior to the Merger and in contemplation of
or as part of the Merger will be taken into account for purposes of this
representation.
For purposes of this Certificate, "Affiliated Group" shall mean one or more
chains of corporations connected through stock ownership with a common parent
corporation, but only if
(x) the common parent owns directly stock that possesses at least 80%
of the total voting power, and has a value at least equal to 80% of the
total value, of the stock in at least one of the other corporations, and
-2-
<PAGE>
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in
each corporation (except the common parent) is owned directly by one or
more of the other corporations.
For purposes of the preceding sentence, "stock" does not include any stock
which
(a) is not entitled to vote,
(b) is limited and preferred as to dividends and does not participate
in corporate growth to any significant extent,
(c) has redemption and liquidation rights which do not exceed the
issue price of such stock (except for a reasonable redemption or
liquidation premium), and
(d) is not convertible into another class of stock.
3. After the Merger, Company will hold at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the gross
assets held by Merger Subsidiary immediately prior to the Merger, and at least
90% of the fair market value of the net assets and at least 70% of the fair
market value of the gross assets held by Company immediately prior to the
Merger. For purposes of this representation, assets of Merger Subsidiary or
Company held immediately prior to the Merger include amounts paid or incurred by
Merger Subsidiary or Company in connection with the Merger, including amounts
used to pay reorganization expenses or to make payments to shareholders who
receive cash or other property (including cash in lieu of fractional shares) and
all payments, redemptions and distributions (except for regular, normal
dividends, if any) made in contemplation or as part of the Merger.
4. Prior to and at the Effective Time of the Merger, Parent will be in
Control of Merger Subsidiary. Merger Subsidiary is wholly and directly owned by
Parent and has been newly formed solely in order to consummate the Merger, and
at no time has or will Merger Subsidiary conduct any business activities or
other operations of any kind other than the issuance of its stock to Parent
prior to the Effective Time. For purposes of this Certificate, "Control" with
respect to a corporation shall mean ownership of at least 80% of the total
combined voting power of all classes of stock entitled to vote and at least 80%
of the total number of shares of each other class of stock of the corporation.
5. Following the Merger, Parent has no plan or intention to cause Company
to issue additional shares of stock, or any plan or intention to take any
action, that could result in Parent losing Control of Company.
6. Parent has no plan or intention to liquidate Company, to merge Company
with or into another corporation, to sell, exchange, transfer or otherwise
dispose of any stock of Company or to cause Company to sell, exchange, transfer
or otherwise dispose of any of its assets or of any assets acquired from Merger
Subsidiary in the Merger, except for (i) dispositions made in the ordinary
course of business, (ii) transfers or successive transfers if in each case the
transferor is in Control of the transferee, or (iii) arm's length dispositions
to unrelated persons other than dispositions which would result in Parent
ceasing to use a significant portion of the Company's historic business assets
in a business.
7. In the Merger, Merger Subsidiary will have no liabilities assumed by
Company and will not transfer to Company any assets subject to liabilities.
-3-
<PAGE>
8. Following the Merger, Parent will cause Company to continue its
historic business or use a significant portion of its historic business assets
in a business. For this purpose, Parent will be treated as holding all of the
businesses and assets of its Qualified Group and Parent will be treated as
owning its proportionate share of the Company business assets used in a business
of any partnership in which members of Parent's Qualified Group either own a
significant interest or have active and substantial management functions as a
partner with respect to that partnership business. A Qualified Group is one or
more chains of corporations connected through stock ownership with Parent but
only if Parent is in Control of at least one other corporation and each of the
corporations (other than Parent) is Controlled directly by one of the other
corporations.
9. Except as provided below, Parent, Merger Subsidiary, Company and the
Company shareholders each will bear its or their own expenses, if any, incurred
in connection with or as part of the Merger or related transactions. However, to
the extent any expenses related to the Merger are to be funded directly or
indirectly by a party other than the incurring party, such expenses are solely
and directly related to the Merger, and do not include expenses incurred for
investment or estate planning advice, or expenses incurred by an individual
shareholder or group of shareholders for legal, accounting or investment advice
or counsel relating to the merger. Neither Parent nor Merger Subsidiary has paid
or will pay, directly or indirectly, any expenses (including transfer taxes)
incurred or to be incurred by any holder of Company Stock in connection with or
as part of the Merger or any related transactions; provided that any stamp
duties and stamp duty reserve taxes in connection with the issuance and creation
of Parent Stock in the Merger will be paid by Parent. Neither Parent nor Merger
Subsidiary has agreed to assume, nor will it directly or indirectly assume, any
other expense or other liability, whether fixed or contingent, of any holder of
Company Stock. To the extent that any transfer tax or other expense is a
liability of a shareholder of Company, such liability will be paid by Company or
such shareholder, but in no event by Parent.
10. There is no intercorporate indebtedness existing between Parent and
Company or between Merger Subsidiary and Company that was issued, acquired or
will be settled at a discount.
11. All shares of Parent Stock into which shares of Company Stock will be
converted pursuant to the Merger will be newly issued shares, and will be issued
by Parent directly to record holders of Company Stock pursuant to the Merger.
12. In the Merger, shares of Company Stock representing Control of Company
will be exchanged solely for voting stock of Parent and cash in lieu of
fractional shares. Under the Agreement, all shares of Company Stock will be
exchanged in the Merger for voting stock of Parent and cash in lieu of
fractional shares. For purposes of this representation, if any stock of Company
is exchanged for cash or other property originating with Parent, such stock will
be treated as outstanding stock of Company acquired by Parent at the Effective
Time. The payment of cash in lieu of fractional shares of Parent Stock to
holders of Company Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained for consideration. To the best knowledge of the management
of Parent, the total cash consideration that will be paid in the Merger to
holders of Company Stock instead of issuing fractional shares of Parent Stock
will not exceed one percent of the total consideration that will be issued to
the holders of Company Stock in the Merger.
13. In the Merger, no liabilities of shareholders of Company will be
assumed by Parent, and Parent will not assume any liabilities relating to any
Company Stock acquired by Parent in the Merger. Furthermore, there is no plan or
intention for Parent to assume any liabilities of Company except to the extent
that liabilities of Company are guaranteed by Parent in the Merger Agreement.
-4-
<PAGE>
14. Neither Parent nor Merger Subsidiary is a regulated investment company,
a real estate investment trust, or a corporation fifty percent (50%) or more of
the value of whose assets are stock and securities and eighty percent (80%) or
more of the value of whose total assets are assets held for investment (each, an
"Investment Company"). For purposes of this representation, in making the 50%
and 80% determinations under the preceding sentence, (i) stock and securities in
any subsidiary corporation shall be disregarded and the parent corporation shall
be deemed to own its ratable share of the subsidiary's assets, and (ii) a
corporation shall be considered a subsidiary if the parent owns 50% or more of
the combined voting power of all classes of stock entitled to vote or 50% or
more of the total value of shares of all classes of stock outstanding. In
determining total assets there shall be excluded cash and cash items (including
receivables), government securities, and assets acquired (through incurring
indebtedness or otherwise) for purposes of ceasing to be an Investment Company.
15. None of the employee compensation received or to be received by any
shareholder-employee of Company is or will be separate consideration for, or
allocable to, any of his shares of Company Stock to be surrendered in the
Merger. None of the shares of Parent Stock to be received by any shareholder-
employee of Company in the Merger is or will be separate consideration for, or
allocable to, any employment, consulting or similar arrangement. Any
compensation paid or to be paid to any shareholder of Company, who will be an
employee of or perform advisory services for Parent, Company, or any affiliate
thereof after the Merger, will be determined by bargaining at arm's length.
16. At the Effective Time, neither Parent nor any Parent Related Person
will own more than 100 shares of any class of stock of Company or any securities
of Company or any instrument giving the holder the right to acquire any such
stock or securities.
17. The Merger is being effected for bona fide business reasons and will be
carried out strictly in accordance with the Agreement, and as described in the
Proxy Statement, and none of the material terms and conditions therein have been
or will be waived or modified.
18. The Agreement and the documents described in the Agreement, the Proxy
Statement and the Form S-4 represent the entire understanding between or among
(i) Parent and its subsidiaries and (ii) Company and its subsidiaries and, to
the best knowledge of the management of Parent, between or among such entities
and the affiliates and shareholders of Parent and Company with respect to the
Merger and there are no written or oral agreements regarding the Merger other
than those expressly referred to in the Agreement, the Proxy Statement and the
Form S-4.
19. None of Parent, Merger Subsidiary or, after the Merger, Company will
take any position on any Federal, state, or local income or franchise tax
return, or take any other tax reporting position, that is inconsistent with the
treatment of the Merger as a tax-free reorganization or any of the foregoing
representations, unless otherwise required by a decision by the Tax Court or a
judgment, decree, or other order by any court of competent jurisdiction, which
has become final, or by applicable state or local income or franchise tax law.
We understand that Miller, Canfield, Paddock and Stone, P.L.C. and
Kilpatrick Stockton LLP will rely, without further inquiry, on this Certificate
in rendering their opinions as to certain United States Federal income tax
consequences of the Merger, and we will promptly and timely inform them if,
after signing this Certificate, we have reason to believe that any of the facts
described herein or in the Proxy Statement or any of the representations made in
this Certificate are or have become untrue, incorrect or incomplete in any
respect.
-5-
<PAGE>
Very truly yours,
LA-Z-BOY INCORPORATED
By: /s/ Gerald L. Kiser
Title: President and Chief Operating Officer
LZB ACQUISITION CORP.
By: /s/ Gene M. Hardy
Title: Treasurer
-6-
<PAGE>
LADD FURNITURE, INC. REPRESENTATION LETTER
December 22, 1999
Miller, Canfield, Paddock and Stone, P.L.C.
150 W. Jefferson Avenue, Suite 2500
Detroit, Michigan 48226
Kilpatrick Stockton LLP
1001 West Fourth Street
Winston-Salem, North Carolina 27101
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections
8.02(e) and 8.03(b) of the Agreement and Plan of Merger, as amended (as so
amended, the "Agreement"),/*/ dated as of September 28, 1999, among LADD
Furniture, Inc., a North Carolina corporation ("Company"), La-Z-Boy
Incorporated, a Michigan corporation ("Parent"), and LZB Acquisition Corp., a
Michigan corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and the opinions which, pursuant to the requirements of Item
601(b)(8) of Regulation S-K under the Securities Act of 1933, as amended, will
be included in the Registration Statement on Form S-4, the undersigned officer
of Company hereby certifies and represents as to Company that the facts relating
to the merger (the "Merger") of Merger Subsidiary with and into Company pursuant
to the Agreement and as described in the Proxy Statement/Prospectus of Parent
and Company relating to the Merger (the "Proxy Statement") are true, correct and
complete in all material respects as of the date hereof and will be true,
correct and complete in all material respects at the Effective Time and that:
1. The Merger Consideration to be received in the Merger by holders of
common stock of the Company ("Company Stock") was determined by arm's length
negotiations between the managements of Parent and Company and will be
approximately equal to the fair market value of the Company Stock surrendered in
exchange. In connection with the Merger, no holder of Company Stock will receive
in exchange for such stock, directly or indirectly, any consideration other than
common stock of Parent ("Parent Stock") and, in lieu of fractional shares of
Parent Stock, cash.
2. To the best knowledge of the management of Company, there is no
plan or intention on the part of holders of Company Stock to sell, exchange or
otherwise transfer ownership (including by derivative transactions such as an
equity swap which would have the economic effect of a transfer of ownership) to
Parent, Company or any Related Person (as defined herein) with respect to either
of them, directly or indirectly (including through partnerships or through third
parties in connection with a plan to so transfer ownership), of a number of
shares of Parent Stock to be received by Company shareholders in connection with
the Merger that would reduce the Company shareholders' ownership of Parent Stock
to a number of shares having a value, as of the Effective Time, of less than 50%
of the total value of all of the formerly outstanding stock of Company
immediately prior to the Effective Time. For purposes of this representation,
shares of Company Stock exchanged for cash in lieu of fractional shares of
Parent Stock are treated as outstanding shares of Company Stock at the Effective
Time. Moreover, shares of Company Stock and Parent Stock held by shareholders of
Company that are redeemed or sold or otherwise
- ---------------------
/*/ References contained in this Certificate to the Agreement include, unless
the context otherwise requires, each document attached as an exhibit or
schedule. All defined terms used herein and not otherwise defined have the
meaning ascribed to them in the Agreement.
<PAGE>
transferred to Company, Parent, or any Related Person of either prior or
subsequent to the Merger and in contemplation of or as part of the Merger will
be taken into account for purposes of this representation.
For purposes of this Certificate, a Related Person with respect to either
Parent or Company shall mean
(i) a corporation that, immediately before or immediately after such
purchase, exchange, redemption, or other acquisition, is a member of an
Affiliated Group (as defined herein) of which Parent or Company, as the
case may be, or any successor corporation of Parent or Company, as the case
may be, is a member, or
(ii) a corporation in which Parent or Company, as the case may be, or
any successor corporation of Parent or Company, as the case may be, owns,
or which owns with respect to Parent or Company (or any such successor
corporation), as the case may be, directly or indirectly, immediately
before or immediately after such purchase, exchange, redemption, or other
acquisition, at least 50% of the total combined voting power of all classes
of stock entitled to vote or at least 50% of the total value of shares of
all classes of stock, taking into account for purposes of this clause (ii)
any stock owned by 5% or greater stockholders of Parent or Company (or any
such successor), as the case may be, or such corporation, a proportionate
share of the stock owned by entities in which Parent or Company (or any
such successor), as the case may be, or such corporation owns an interest,
and any stock which may be acquired pursuant to the exercise of options.
For purposes of this Certificate, "Affiliated Group" shall mean one or more
chains of corporations connected through stock ownership with a common parent
corporation, but only if
(x) the common parent owns directly stock that possesses at least 80%
of the total voting power, and has a value at least equal to 80% of the
total value, of the stock in at least one of the other corporations, and
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in
each corporation (except the common parent) is owned directly by one or
more of the other corporations.
For purposes of the preceding sentence, "stock" does not include any stock which
(a) is not entitled to vote, (b) is limited and preferred as to dividends and
does not participate in corporate growth to any significant extent, (c) has
redemption and liquidation rights which do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium), and (d) is
not convertible into another class of stock.
3. After the Merger, to the knowledge of the management of Company, Company
will hold at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Merger Subsidiary
immediately prior to the Merger and at least 90% of the fair market value of the
net assets and at least 70% of the fair market value of the gross assets held by
Company immediately prior to the Merger. For purposes of this representation,
assets of Merger Subsidiary or Company held immediately prior to the Merger
include amounts paid or incurred by Merger Subsidiary or Company in connection
with the Merger, including amounts used to pay Company's reorganization expenses
or to make payments to shareholders who receive cash or other property
(including cash in lieu of fractional shares) and all payments, redemptions and
distributions (except for regular, normal dividends, if any) made in
contemplation or as part of the Merger. Any dispositions in contemplation or as
part of the Merger of assets held by Company prior to the Merger will be for
fair market value, and the proceeds thereof will be retained by the Company.
-2-
<PAGE>
4. The Company has no plan or intention to issue additional shares of
its stock that would result in Parent losing Control of the Company. For
purposes of this Certificate, "Control" with respect to a corporation shall mean
ownership of at least 80% of the total combined voting power of all classes of
stock entitled to vote and at least 80% of the total number of shares of each
other class of stock of the corporation.
5. In the Merger, to the knowledge of the management of Company,
Merger Subsidiary will have no liabilities assumed by the Company and will not
transfer to Company any assets subject to liabilities.
6. No assets of Company have been sold, transferred or otherwise
disposed of which would prevent Parent from continuing the historic business of
Company or from using a significant portion of Company's historic business
assets in a business following the Merger, and Company intends to continue its
historic business or use a significant portion of its historic business assets
in a business.
7. Except as specified below, Parent, Merger Subsidiary, Company and
the Company shareholders each will bear its or their own expenses, if any,
incurred in connection with or as part of the Merger or related transactions.
However, to the extent any expenses related to the Merger are to be funded
directly or indirectly by a party other than the incurring party, such expenses
are solely and directly related to the Merger, and do not include expenses
incurred for investment or estate planning advice, or expenses incurred by an
individual shareholder or group of shareholders for legal, accounting or
investment advice or counsel relating to the merger. Company has not paid or
will not pay, directly or indirectly, any expenses incurred by any shareholder
of Company in connection with or as part of the Merger or any related
transactions; provided that all liability for transfer taxes (except for stamp
duties and stamp duty reserve taxes to be paid by Parent in connection with the
issuance and creation of Parent Stock in the Merger) incurred by the holders of
Company Stock will be paid by Company or the Company shareholders and in no
event by Parent. Company has not agreed to assume, nor will it directly or
indirectly assume, any other expense or other liability, whether fixed or
contingent, of any holder of Company Stock.
8. There is no intercorporate indebtedness existing between Parent
and Company or between Merger Subsidiary and Company that was issued, acquired
or will be settled at a discount.
9. Company has no authorized stock other than common stock par value
$0.30 per share, and preferred stock, par value $100 per share. At the date
hereof, the only capital stock of Company issued and outstanding is Company
Stock.
10. In the Merger, Company Stock representing Control of Company will
be exchanged solely for voting stock of Parent other than cash in lieu of
fractional shares. For purposes of this representation, stock of Company
exchanged for cash or other property originating with Parent, if any, will be
treated as outstanding stock of Company acquired by Parent at the Effective
Time. The payment of cash in lieu of fractional shares of Parent stock to
holders of Company Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained for consideration. To the best knowledge of the management
of Company, the total cash consideration that will be paid in the Merger to
holders of Company Stock instead of issuing fractional shares of Parent Stock
will not exceed one percent of the total consideration that will be issued to
the holders of Company Stock in the Merger.
-3-
<PAGE>
11. There exist no options, warrants, convertible securities, equity-
linked securities or other rights to acquire Company Stock (whether settled in
stock or cash) other than as described in the Agreement, and even if such rights
were exercised or converted, it would not affect the acquisition or retention of
Control of Company.
12. To the knowledge of the management of Company, in the Merger, no
liabilities of shareholders of Company will be assumed by Parent, and Parent
will not assume any liabilities relating to any Company Stock acquired by Parent
in the Merger. Furthermore, to the knowledge of the management of Company, there
is no plan or intention for Parent to assume any liabilities of Company, except
to the extent that liabilities of Company are guaranteed by Parent in the Merger
Agreement.
13. Company is not a regulated investment company, a real estate
investment trust, or a corporation fifty percent (50%) or more of the value of
whose assets are stock and securities and eighty percent (80%) or more of the
value of whose total assets are assets held for investment (each, an "Investment
Company"). For purposes of this representation, in making the 50% and 80%
determinations under the preceding sentence, (i) stock and securities in any
subsidiary corporation shall be disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidiary's assets, and (ii) a
corporation shall be considered a subsidiary if the parent owns 50% or more of
the combined voting power of all classes of stock entitled to vote or 50% or
more of the total value of shares of all classes of stock outstanding. In
determining total assets there shall be excluded cash and cash items (including
receivables), government securities, and assets acquired (through incurring
indebtedness or otherwise) for purposes of ceasing to be an Investment Company.
14. None of the employee compensation received or to be received by
any shareholder-employee of Company is or will be separate consideration for, or
allocable to, any of his shares of Company Stock to be surrendered in the
Merger. None of the shares of Parent Stock to be received by any shareholder-
employee of Company in the Merger is or will be separate consideration for, or
allocable to, any employment, consulting or similar arrangement. Any
compensation paid or to be paid to any shareholder of Company who will be an
employee of or perform advisory services for Parent, Company, or any affiliate
thereof after the Merger, will be determined by bargaining at arm's length.
15. Since the date of the Agreement, except for the issuance of
Company Stock pursuant to the rights described in paragraph 11 hereof, Company
has not issued any additional shares of Company Stock.
16. Prior to and in connection with the Merger no Company Stock has
been (i) redeemed by Company, (ii) acquired by a Related Person with respect to
Company (except that for the purposes of this representation, clause (i) of the
definition of Related Person shall not apply) with consideration other than
stock of Company or Parent or (iii) the subject of any extraordinary
distribution by Company.
17. Company has not redeemed any of its stock, made any distributions
with respect to its stock, or disposed of any of its assets in contemplation or
as part of the Merger, excluding for purposes of this representation regular,
normal dividends and Company Stock acquired in the ordinary course of business
in connection with employee incentive and benefit programs, or other programs or
arrangements in existence on the date hereof.
18. The Merger is being effected for bona fide business reasons and
will be carried out strictly in accordance with the Agreement, and as described
in the Proxy Statement, and none of the material terms and conditions therein
has been or will be waived or modified.
-4-
<PAGE>
19. The Agreement and the documents described in the Agreement, the
Proxy Statement and the Form S-4 represent the entire understanding between or
among (i) Parent and its subsidiaries and (ii) Company and its subsidiaries and,
to the best knowledge of the management of Company, between or among such
entities and the affiliates and shareholders of Parent and Company with respect
to the Merger and there are no other written or oral agreements regarding the
Merger other than those expressly referred to in the Agreement, the Proxy
Statement and the Form S-4.
20. At the Effective Time, the fair market value of the assets of
Company will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which those assets are subject.
21. Company is not and at the Effective Time will not be under the
jurisdiction of a federal or state court in a Title 11 case or in a
receivership, foreclosure or similar proceeding.
22. None of Parent, Merger Subsidiary or, after the Merger, Company
will take any position on any Federal, state, or local income or franchise tax
return, or take any other tax reporting position, that is inconsistent with the
treatment of the Merger as a tax-free reorganization or any of the foregoing
representations, unless otherwise required by a decision by the Tax Court or a
judgment, decree, or other order by any court of competent jurisdiction, which
has become final, or by applicable state or local income or franchise tax law.
The Company understands that Miller, Canfield, Paddock and Stone,
P.L.C. and Kilpatrick Stockton LLP. will rely, without further inquiry,
on this Certificate in rendering their opinions as to certain United States
Federal income tax consequences of the Merger and will promptly and timely
inform them if, after this Certificate is signed, the Company has reason to
believe that any of the facts described herein or in the Proxy Statement or any
of the representations made in this Certificate are or have become untrue,
incorrect or incomplete in any respect.
Very truly yours,
LADD Furniture, Inc.
By: /s/ William S. Creekmuir
Name: William S. Creekmuir
Title: Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
-5-
<PAGE>
EXHIBIT 8.2
[KILPATRICK STOCKTON LLP LETTERHEAD]
December 22, 1999
LADD Furniture, Inc.
4620 Grandover Parkway
Greensboro, NC 27407
RE: AGREEMENT AND PLAN OF MERGER WITH LA-Z-BOY INCORPORATED
AND LZB ACQUISITION CORP.
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel to LADD Furniture, Inc., a North Carolina
corporation ("LADD"), in connection with (i) the proposed merger (the "Merger"),
pursuant to the terms of an Agreement and Plan of Merger, as amended, dated as
of September 28, 1999 (as so amended, the "Merger Agreement") by and among LADD,
La-Z-Boy Incorporated, a Michigan corporation ("La-Z-Boy"), and LZB Acquisition
Corp., a Michigan corporation and newly-formed, wholly-owned subsidiary of La-Z-
Boy (the "Merger Subsidiary"), and (ii) the preparation and filing of the
Registration Statement on Form S-4 (the "Registration Statement"), which
includes the Proxy Statement/Prospectus (the "Proxy Statement Prospectus"), to
be filed by La-Z-Boy with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") and the Securities Exchange Act of 1934, as amended. This opinion is being
rendered pursuant to the requirements of the Merger Agreement. All capitalized
terms, unless otherwise specified, have the meaning assigned to them in the
Merger Agreement.
Our opinion is provided solely with respect to certain federal income
tax consequences of the Merger.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Merger Agreement,
the Proxy Statement/Prospectus and such other documents and corporate records as
we have deemed necessary or appropriate in order to enable us to render the
opinion below. For purposes of this opinion, we have assumed (i) the validity
and accuracy of the documents and corporate records that we have examined, and
the facts and representations concerning the Merger that have come to our
attention during our engagement, (ii) the legal capacity of all natural persons
and the genuiness of all signatures, (iii) that the Merger will be consummated
in the
<PAGE>
LADD Furniture, Inc.
December 22, 1999
Page 2
manner described in the Merger Agreement and the Proxy Statement/Prospectus, and
(iv) that the Merger will qualify as a merger under applicable state law.
In order to qualify as a tax-free reorganization, a transaction must
satisfy certain statutory requirements set forth in the Internal Revenue Code of
1986, as amended (the "Code"), and several judicially-created requirements which
have been developed through court rulings and Internal Revenue Service ("IRS")
interpretations. Based upon our review of the facts, information and the
documentation concerning the proposed Merger, we believe that these statutory
and judicial requirements will be satisfied.
Subject to the assumptions set forth above and the representations made
to us by La-Z-Boy, LADD and Merger Subsidiary in the respective representation
letters dated the date hereof and attached hereto, the discussion in the Proxy
Statement/Prospectus under the heading "The Merger Transaction-Material Federal
Income Tax Consequences," except as otherwise indicated, expresses our opinion
as to the material federal income tax consequences applicable to LADD, La-Z-Boy,
Merger Subsidiary, and the holders of LADD common stock.
However, our opinion does not address U.S. federal income tax
consequences which may vary with, or are contingent upon, a shareholder's
individual circumstances. In addition, our opinion does not address any
non-income tax or any foreign, state or local tax consequences of the Merger.
This opinion is delivered in accordance with the requirements of Item
601(b)(8) of Regulation S-K under the Securities Act. In rendering our opinion,
we have considered the applicable provisions of the Code, Treasury Department
regulations promulgated thereunder, pertinent judicial authorities, interpretive
rulings of the IRS and such other authorities as we have considered relevant. It
should be noted that statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time (possibly with
retroactive effect). A change in the authorities or the accuracy or completeness
of any of the information, documents, corporate records, covenants, statements,
representations or assumptions on which our opinion is based could affect our
conclusions. This opinion is expressed as of the date hereof, and we are under
no obligation to supplement or revise our opinion to reflect any changes
(including changes that have retroactive effect) (i) in applicable law or (ii)
in any information, document, corporate record, covenant, statement,
representation or assumption stated herein which becomes untrue or incorrect.
<PAGE>
LADD Furniture, Inc.
December 22, 1999
Page 3
This letter is furnished to you solely for use in connection with the
Merger, as described in the Merger Agreement and the Proxy Statement/Prospectus,
and is not to be used, circulated, quoted, or otherwise referred to for any
other purpose without our express written permission. In accordance with the
requirements of Item 601(b)(23) of Regulation S-K under the Securities Act, we
hereby consent to the discussion of this opinion in the Proxy
Statement/Prospectus, to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the headings "THE
MERGER TRANSACTION--Material Federal Income Tax Consequences," "MATERIAL TERMS
OF THE MERGER AGREEMENT--Conditions to the Completion of the Merger" and "LEGAL
MATTERS" in the Proxy Statement/Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Kilpatrick Stockton LLP
<PAGE>
LA-Z-BOY INCORPORATED REPRESENTATION LETTER
December 22, 1999
Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson Avenue, Suite 2500
Detroit, Michigan 48226
Kilpatrick Stockton LLP
1001 West Fourth Street
Winston-Salem, North Carolina 27101
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections
8.02(e) and 8.03(b) of the Agreement and Plan of Merger, as amended (as so
amended, the "Agreement"),/*/ dated as of September 28, 1999, among LADD
Furniture, Inc., a North Carolina corporation ("Company"), La-Z-Boy
Incorporated, a Michigan corporation ("Parent"), and LZB Acquisition Corp., a
Michigan corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and the opinions which, pursuant to the requirements of Item
601(b)(8) of Regulation S-K under the Securities Act of 1933, as amended, will
be included in the Registration Statement on Form S-4, the undersigned officers
of Parent and Merger Subsidiary hereby certify and represent as to Parent and
Merger Subsidiary that the facts relating to the merger (the "Merger") of Merger
Subsidiary with and into Company pursuant to the Agreement, and as described in
the Proxy Statement/Prospectus of Parent and Company relating to the Merger (the
"Proxy Statement"), are true, correct and complete in all material respects as
of the date hereof and will be true, correct and complete in all material
respects at the Effective Time and that:
1. The Merger Consideration to be received in the Merger by holders of
common stock of Company ("Company Stock") was determined by arm's length
negotiations between the managements of Parent and Company and will be
approximately equal to the fair market value of the Company Stock surrendered in
exchange. In connection with the Merger, no holder of Company Stock will receive
in exchange for such stock, directly or indirectly, any consideration other than
common stock of Parent ("Parent Stock") and, in lieu of fractional shares of
Parent Stock, cash.
2. Other than cash paid in lieu of fractional shares of Parent Stock,
none of
(i) Parent (or any successor corporation),
(ii) a corporation that, immediately before or immediately
after such purchase, exchange, redemption, or other
acquisition, is a member of an Affiliated Group (as
defined herein) of which Parent (or any successor
corporation) is a member, or
(iii) a corporation in which Parent (or any successor
corporation) owns, or which owns with respect to Parent
(or any successor corporation), directly or indirectly,
immediately before or immediately after such purchase,
exchange, redemption, or other acquisition, at least 50%
of the
- -------------------
/*/ References contained in this Certificate to the Agreement include, unless
the context otherwise requires, each document attached as an exhibit or
schedule. All defined terms used herein and not otherwise defined have the
meaning ascribed to them in the Agreement.
<PAGE>
total combined voting power of all classes of stock entitled to vote or at
least 50% of the total value of shares of all classes of stock, taking into
account for purposes of this clause (iii)
. any stock owned by 5% or greater stockholders of Parent (or any
successor) or such corporation,
. a proportionate share of the stock owned by entities in which
Parent (or any successor) or such corporation owns an interest, and
. any stock which may be acquired pursuant to the exercise of options
(a "Parent Related Person") has any current plan or intention to redeem,
purchase, exchange or otherwise reacquire any of the Parent Stock to be
issued in the Merger. Parent will implement its stock repurchase plan
consistent with the resolutions adopted by the Board of Parent on October
26, 1987, February 3, 1993, October 9, 1995 and May 8, 1997. Parent
intends that all stock repurchases made pursuant to this stock repurchase
plan, or any other stock repurchase plan adopted by Parent,
(a) shall be undertaken for a corporate business purpose,
(b) shall be made in the open market for stock of the Parent which is
widely held and publicly traded, except that Parent may acquire stock
directly in block trades (provided that any such trade made within two
years after the Effective Time is not made with an entity that is known to
Parent to have acquired such stock in the Merger), and any redemptions or
repurchases of stock issued in the Merger that occur shall be incidental to
the operation of such stock repurchase plan, and
(c) shall be limited to, in the aggregate, a small percentage of each
class of stock of Parent outstanding at the time of the redemption or
repurchase.
In addition, Parent will cause all Parent Related Persons and any person
acting as an agent of Parent not to redeem, purchase, exchange or otherwise
acquire (including by derivative transactions such as an equity swap which would
have the economic effect of an acquisition), directly or indirectly (including
through partnerships or through third parties in connection with a plan to so
acquire), a number of shares of Parent Stock to be received by Company
shareholders in connection with the Merger that would reduce the Company
shareholders' ownership of Parent Stock to a number of shares having a value, as
of the Effective Time, of less than 50% of the total value of Company Stock
immediately prior to the Effective Time.
For purposes of this representation, shares of Company Stock exchanged for
cash in lieu of fractional shares of Parent Stock are treated as outstanding
shares of Company Stock at the Effective Time. Moreover, shares of Company Stock
that are redeemed or sold or otherwise transferred to Company, Parent, or any
person related to Company or Parent prior to the Merger and in contemplation of
or as part of the Merger will be taken into account for purposes of this
representation.
For purposes of this Certificate, "Affiliated Group" shall mean one or more
chains of corporations connected through stock ownership with a common parent
corporation, but only if
(x) the common parent owns directly stock that possesses at least 80%
of the total voting power, and has a value at least equal to 80% of the
total value, of the stock in at least one of the other corporations, and
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<PAGE>
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in
each corporation (except the common parent) is owned directly by one or
more of the other corporations.
For purposes of the preceding sentence, "stock" does not include any stock
which
(a) is not entitled to vote,
(b) is limited and preferred as to dividends and does not participate
in corporate growth to any significant extent,
(c) has redemption and liquidation rights which do not exceed the
issue price of such stock (except for a reasonable redemption or
liquidation premium), and
(d) is not convertible into another class of stock.
3. After the Merger, Company will hold at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the gross
assets held by Merger Subsidiary immediately prior to the Merger, and at least
90% of the fair market value of the net assets and at least 70% of the fair
market value of the gross assets held by Company immediately prior to the
Merger. For purposes of this representation, assets of Merger Subsidiary or
Company held immediately prior to the Merger include amounts paid or incurred by
Merger Subsidiary or Company in connection with the Merger, including amounts
used to pay reorganization expenses or to make payments to shareholders who
receive cash or other property (including cash in lieu of fractional shares) and
all payments, redemptions and distributions (except for regular, normal
dividends, if any) made in contemplation or as part of the Merger.
4. Prior to and at the Effective Time of the Merger, Parent will be in
Control of Merger Subsidiary. Merger Subsidiary is wholly and directly owned by
Parent and has been newly formed solely in order to consummate the Merger, and
at no time has or will Merger Subsidiary conduct any business activities or
other operations of any kind other than the issuance of its stock to Parent
prior to the Effective Time. For purposes of this Certificate, "Control" with
respect to a corporation shall mean ownership of at least 80% of the total
combined voting power of all classes of stock entitled to vote and at least 80%
of the total number of shares of each other class of stock of the corporation.
5. Following the Merger, Parent has no plan or intention to cause Company
to issue additional shares of stock, or any plan or intention to take any
action, that could result in Parent losing Control of Company.
6. Parent has no plan or intention to liquidate Company, to merge Company
with or into another corporation, to sell, exchange, transfer or otherwise
dispose of any stock of Company or to cause Company to sell, exchange, transfer
or otherwise dispose of any of its assets or of any assets acquired from Merger
Subsidiary in the Merger, except for (i) dispositions made in the ordinary
course of business, (ii) transfers or successive transfers if in each case the
transferor is in Control of the transferee, or (iii) arm's length dispositions
to unrelated persons other than dispositions which would result in Parent
ceasing to use a significant portion of the Company's historic business assets
in a business.
7. In the Merger, Merger Subsidiary will have no liabilities assumed by
Company and will not transfer to Company any assets subject to liabilities.
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8. Following the Merger, Parent will cause Company to continue its
historic business or use a significant portion of its historic business assets
in a business. For this purpose, Parent will be treated as holding all of the
businesses and assets of its Qualified Group and Parent will be treated as
owning its proportionate share of the Company business assets used in a business
of any partnership in which members of Parent's Qualified Group either own a
significant interest or have active and substantial management functions as a
partner with respect to that partnership business. A Qualified Group is one or
more chains of corporations connected through stock ownership with Parent but
only if Parent is in Control of at least one other corporation and each of the
corporations (other than Parent) is Controlled directly by one of the other
corporations.
9. Except as provided below, Parent, Merger Subsidiary, Company and the
Company shareholders each will bear its or their own expenses, if any, incurred
in connection with or as part of the Merger or related transactions. However, to
the extent any expenses related to the Merger are to be funded directly or
indirectly by a party other than the incurring party, such expenses are solely
and directly related to the Merger, and do not include expenses incurred for
investment or estate planning advice, or expenses incurred by an individual
shareholder or group of shareholders for legal, accounting or investment advice
or counsel relating to the merger. Neither Parent nor Merger Subsidiary has paid
or will pay, directly or indirectly, any expenses (including transfer taxes)
incurred or to be incurred by any holder of Company Stock in connection with or
as part of the Merger or any related transactions; provided that any stamp
duties and stamp duty reserve taxes in connection with the issuance and creation
of Parent Stock in the Merger will be paid by Parent. Neither Parent nor Merger
Subsidiary has agreed to assume, nor will it directly or indirectly assume, any
other expense or other liability, whether fixed or contingent, of any holder of
Company Stock. To the extent that any transfer tax or other expense is a
liability of a shareholder of Company, such liability will be paid by Company or
such shareholder, but in no event by Parent.
10. There is no intercorporate indebtedness existing between Parent and
Company or between Merger Subsidiary and Company that was issued, acquired or
will be settled at a discount.
11. All shares of Parent Stock into which shares of Company Stock will be
converted pursuant to the Merger will be newly issued shares, and will be issued
by Parent directly to record holders of Company Stock pursuant to the Merger.
12. In the Merger, shares of Company Stock representing Control of Company
will be exchanged solely for voting stock of Parent and cash in lieu of
fractional shares. Under the Agreement, all shares of Company Stock will be
exchanged in the Merger for voting stock of Parent and cash in lieu of
fractional shares. For purposes of this representation, if any stock of Company
is exchanged for cash or other property originating with Parent, such stock will
be treated as outstanding stock of Company acquired by Parent at the Effective
Time. The payment of cash in lieu of fractional shares of Parent Stock to
holders of Company Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained for consideration. To the best knowledge of the management
of Parent, the total cash consideration that will be paid in the Merger to
holders of Company Stock instead of issuing fractional shares of Parent Stock
will not exceed one percent of the total consideration that will be issued to
the holders of Company Stock in the Merger.
13. In the Merger, no liabilities of shareholders of Company will be
assumed by Parent, and Parent will not assume any liabilities relating to any
Company Stock acquired by Parent in the Merger. Furthermore, there is no plan or
intention for Parent to assume any liabilities of Company except to the extent
that liabilities of Company are guaranteed by Parent in the Merger Agreement.
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<PAGE>
14. Neither Parent nor Merger Subsidiary is a regulated investment company,
a real estate investment trust, or a corporation fifty percent (50%) or more of
the value of whose assets are stock and securities and eighty percent (80%) or
more of the value of whose total assets are assets held for investment (each, an
"Investment Company"). For purposes of this representation, in making the 50%
and 80% determinations under the preceding sentence, (i) stock and securities in
any subsidiary corporation shall be disregarded and the parent corporation shall
be deemed to own its ratable share of the subsidiary's assets, and (ii) a
corporation shall be considered a subsidiary if the parent owns 50% or more of
the combined voting power of all classes of stock entitled to vote or 50% or
more of the total value of shares of all classes of stock outstanding. In
determining total assets there shall be excluded cash and cash items (including
receivables), government securities, and assets acquired (through incurring
indebtedness or otherwise) for purposes of ceasing to be an Investment Company.
15. None of the employee compensation received or to be received by any
shareholder-employee of Company is or will be separate consideration for, or
allocable to, any of his shares of Company Stock to be surrendered in the
Merger. None of the shares of Parent Stock to be received by any shareholder-
employee of Company in the Merger is or will be separate consideration for, or
allocable to, any employment, consulting or similar arrangement. Any
compensation paid or to be paid to any shareholder of Company, who will be an
employee of or perform advisory services for Parent, Company, or any affiliate
thereof after the Merger, will be determined by bargaining at arm's length.
16. At the Effective Time, neither Parent nor any Parent Related Person
will own more than 100 shares of any class of stock of Company or any securities
of Company or any instrument giving the holder the right to acquire any such
stock or securities.
17. The Merger is being effected for bona fide business reasons and will be
carried out strictly in accordance with the Agreement, and as described in the
Proxy Statement, and none of the material terms and conditions therein have been
or will be waived or modified.
18. The Agreement and the documents described in the Agreement, the Proxy
Statement and the Form S-4 represent the entire understanding between or among
(i) Parent and its subsidiaries and (ii) Company and its subsidiaries and, to
the best knowledge of the management of Parent, between or among such entities
and the affiliates and shareholders of Parent and Company with respect to the
Merger and there are no written or oral agreements regarding the Merger other
than those expressly referred to in the Agreement, the Proxy Statement and the
Form S-4.
19. None of Parent, Merger Subsidiary or, after the Merger, Company will
take any position on any Federal, state, or local income or franchise tax
return, or take any other tax reporting position, that is inconsistent with the
treatment of the Merger as a tax-free reorganization or any of the foregoing
representations, unless otherwise required by a decision by the Tax Court or a
judgment, decree, or other order by any court of competent jurisdiction, which
has become final, or by applicable state or local income or franchise tax law.
We understand that Miller, Canfield, Paddock and Stone, P.L.C. and
Kilpatrick Stockton LLP will rely, without further inquiry, on this Certificate
in rendering their opinions as to certain United States Federal income tax
consequences of the Merger, and we will promptly and timely inform them if,
after signing this Certificate, we have reason to believe that any of the facts
described herein or in the Proxy Statement or any of the representations made in
this Certificate are or have become untrue, incorrect or incomplete in any
respect.
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<PAGE>
Very truly yours,
LA-Z-BOY INCORPORATED
By: /s/ Gerald L. Kiser
Title: President and Chief Operating Officer
LZB ACQUISITION CORP.
By: /s/ Gene M. Hardy
Title: Treasurer
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LADD FURNITURE, INC. REPRESENTATION LETTER
December 22, 1999
Miller, Canfield, Paddock and Stone, P.L.C.
150 W. Jefferson Avenue, Suite 2500
Detroit, Michigan 48226
Kilpatrick Stockton LLP
1001 West Fourth Street
Winston-Salem, North Carolina 27101
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections
8.02(e) and 8.03(b) of the Agreement and Plan of Merger, as amended (as so
amended, the "Agreement"),/*/ dated as of September 28, 1999, among LADD
Furniture, Inc., a North Carolina corporation ("Company"), La-Z-Boy
Incorporated, a Michigan corporation ("Parent"), and LZB Acquisition Corp., a
Michigan corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and the opinions which, pursuant to the requirements of Item
601(b)(8) of Regulation S-K under the Securities Act of 1933, as amended, will
be included in the Registration Statement on Form S-4, the undersigned officer
of Company hereby certifies and represents as to Company that the facts relating
to the merger (the "Merger") of Merger Subsidiary with and into Company pursuant
to the Agreement and as described in the Proxy Statement/Prospectus of Parent
and Company relating to the Merger (the "Proxy Statement") are true, correct and
complete in all material respects as of the date hereof and will be true,
correct and complete in all material respects at the Effective Time and that:
1. The Merger Consideration to be received in the Merger by holders of
common stock of the Company ("Company Stock") was determined by arm's length
negotiations between the managements of Parent and Company and will be
approximately equal to the fair market value of the Company Stock surrendered in
exchange. In connection with the Merger, no holder of Company Stock will receive
in exchange for such stock, directly or indirectly, any consideration other than
common stock of Parent ("Parent Stock") and, in lieu of fractional shares of
Parent Stock, cash.
2. To the best knowledge of the management of Company, there is no
plan or intention on the part of holders of Company Stock to sell, exchange or
otherwise transfer ownership (including by derivative transactions such as an
equity swap which would have the economic effect of a transfer of ownership) to
Parent, Company or any Related Person (as defined herein) with respect to either
of them, directly or indirectly (including through partnerships or through third
parties in connection with a plan to so transfer ownership), of a number of
shares of Parent Stock to be received by Company shareholders in connection with
the Merger that would reduce the Company shareholders' ownership of Parent Stock
to a number of shares having a value, as of the Effective Time, of less than 50%
of the total value of all of the formerly outstanding stock of Company
immediately prior to the Effective Time. For purposes of this representation,
shares of Company Stock exchanged for cash in lieu of fractional shares of
Parent Stock are treated as outstanding shares of Company Stock at the Effective
Time. Moreover, shares of Company Stock and Parent Stock held by shareholders of
Company that are redeemed or sold or otherwise
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/*/ References contained in this Certificate to the Agreement include, unless
the context otherwise requires, each document attached as an exhibit or
schedule. All defined terms used herein and not otherwise defined have the
meaning ascribed to them in the Agreement.
<PAGE>
transferred to Company, Parent, or any Related Person of either prior or
subsequent to the Merger and in contemplation of or as part of the Merger will
be taken into account for purposes of this representation.
For purposes of this Certificate, a Related Person with respect to either
Parent or Company shall mean
(i) a corporation that, immediately before or immediately after such
purchase, exchange, redemption, or other acquisition, is a member of an
Affiliated Group (as defined herein) of which Parent or Company, as the
case may be, or any successor corporation of Parent or Company, as the case
may be, is a member, or
(ii) a corporation in which Parent or Company, as the case may be, or
any successor corporation of Parent or Company, as the case may be, owns,
or which owns with respect to Parent or Company (or any such successor
corporation), as the case may be, directly or indirectly, immediately
before or immediately after such purchase, exchange, redemption, or other
acquisition, at least 50% of the total combined voting power of all classes
of stock entitled to vote or at least 50% of the total value of shares of
all classes of stock, taking into account for purposes of this clause (ii)
any stock owned by 5% or greater stockholders of Parent or Company (or any
such successor), as the case may be, or such corporation, a proportionate
share of the stock owned by entities in which Parent or Company (or any
such successor), as the case may be, or such corporation owns an interest,
and any stock which may be acquired pursuant to the exercise of options.
For purposes of this Certificate, "Affiliated Group" shall mean one or more
chains of corporations connected through stock ownership with a common parent
corporation, but only if
(x) the common parent owns directly stock that possesses at least 80%
of the total voting power, and has a value at least equal to 80% of the
total value, of the stock in at least one of the other corporations, and
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in
each corporation (except the common parent) is owned directly by one or
more of the other corporations.
For purposes of the preceding sentence, "stock" does not include any stock which
(a) is not entitled to vote, (b) is limited and preferred as to dividends and
does not participate in corporate growth to any significant extent, (c) has
redemption and liquidation rights which do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium), and (d) is
not convertible into another class of stock.
3. After the Merger, to the knowledge of the management of Company, Company
will hold at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Merger Subsidiary
immediately prior to the Merger and at least 90% of the fair market value of the
net assets and at least 70% of the fair market value of the gross assets held by
Company immediately prior to the Merger. For purposes of this representation,
assets of Merger Subsidiary or Company held immediately prior to the Merger
include amounts paid or incurred by Merger Subsidiary or Company in connection
with the Merger, including amounts used to pay Company's reorganization expenses
or to make payments to shareholders who receive cash or other property
(including cash in lieu of fractional shares) and all payments, redemptions and
distributions (except for regular, normal dividends, if any) made in
contemplation or as part of the Merger. Any dispositions in contemplation or as
part of the Merger of assets held by Company prior to the Merger will be for
fair market value, and the proceeds thereof will be retained by the Company.
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<PAGE>
4. The Company has no plan or intention to issue additional shares of
its stock that would result in Parent losing Control of the Company. For
purposes of this Certificate, "Control" with respect to a corporation shall mean
ownership of at least 80% of the total combined voting power of all classes of
stock entitled to vote and at least 80% of the total number of shares of each
other class of stock of the corporation.
5. In the Merger, to the knowledge of the management of Company,
Merger Subsidiary will have no liabilities assumed by the Company and will not
transfer to Company any assets subject to liabilities.
6. No assets of Company have been sold, transferred or otherwise
disposed of which would prevent Parent from continuing the historic business of
Company or from using a significant portion of Company's historic business
assets in a business following the Merger, and Company intends to continue its
historic business or use a significant portion of its historic business assets
in a business.
7. Except as specified below, Parent, Merger Subsidiary, Company and
the Company shareholders each will bear its or their own expenses, if any,
incurred in connection with or as part of the Merger or related transactions.
However, to the extent any expenses related to the Merger are to be funded
directly or indirectly by a party other than the incurring party, such expenses
are solely and directly related to the Merger, and do not include expenses
incurred for investment or estate planning advice, or expenses incurred by an
individual shareholder or group of shareholders for legal, accounting or
investment advice or counsel relating to the merger. Company has not paid or
will not pay, directly or indirectly, any expenses incurred by any shareholder
of Company in connection with or as part of the Merger or any related
transactions; provided that all liability for transfer taxes (except for stamp
duties and stamp duty reserve taxes to be paid by Parent in connection with the
issuance and creation of Parent Stock in the Merger) incurred by the holders of
Company Stock will be paid by Company or the Company shareholders and in no
event by Parent. Company has not agreed to assume, nor will it directly or
indirectly assume, any other expense or other liability, whether fixed or
contingent, of any holder of Company Stock.
8. There is no intercorporate indebtedness existing between Parent
and Company or between Merger Subsidiary and Company that was issued, acquired
or will be settled at a discount.
9. Company has no authorized stock other than common stock par value
$0.30 per share, and preferred stock, par value $100 per share. At the date
hereof, the only capital stock of Company issued and outstanding is Company
Stock.
10. In the Merger, Company Stock representing Control of Company will
be exchanged solely for voting stock of Parent other than cash in lieu of
fractional shares. For purposes of this representation, stock of Company
exchanged for cash or other property originating with Parent, if any, will be
treated as outstanding stock of Company acquired by Parent at the Effective
Time. The payment of cash in lieu of fractional shares of Parent stock to
holders of Company Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained for consideration. To the best knowledge of the management
of Company, the total cash consideration that will be paid in the Merger to
holders of Company Stock instead of issuing fractional shares of Parent Stock
will not exceed one percent of the total consideration that will be issued to
the holders of Company Stock in the Merger.
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<PAGE>
11. There exist no options, warrants, convertible securities, equity-
linked securities or other rights to acquire Company Stock (whether settled in
stock or cash) other than as described in the Agreement, and even if such rights
were exercised or converted, it would not affect the acquisition or retention of
Control of Company.
12. To the knowledge of the management of Company, in the Merger, no
liabilities of shareholders of Company will be assumed by Parent, and Parent
will not assume any liabilities relating to any Company Stock acquired by Parent
in the Merger. Furthermore, to the knowledge of the management of Company, there
is no plan or intention for Parent to assume any liabilities of Company, except
to the extent that liabilities of Company are guaranteed by Parent in the Merger
Agreement.
13. Company is not a regulated investment company, a real estate
investment trust, or a corporation fifty percent (50%) or more of the value of
whose assets are stock and securities and eighty percent (80%) or more of the
value of whose total assets are assets held for investment (each, an "Investment
Company"). For purposes of this representation, in making the 50% and 80%
determinations under the preceding sentence, (i) stock and securities in any
subsidiary corporation shall be disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidiary's assets, and (ii) a
corporation shall be considered a subsidiary if the parent owns 50% or more of
the combined voting power of all classes of stock entitled to vote or 50% or
more of the total value of shares of all classes of stock outstanding. In
determining total assets there shall be excluded cash and cash items (including
receivables), government securities, and assets acquired (through incurring
indebtedness or otherwise) for purposes of ceasing to be an Investment Company.
14. None of the employee compensation received or to be received by
any shareholder-employee of Company is or will be separate consideration for, or
allocable to, any of his shares of Company Stock to be surrendered in the
Merger. None of the shares of Parent Stock to be received by any shareholder-
employee of Company in the Merger is or will be separate consideration for, or
allocable to, any employment, consulting or similar arrangement. Any
compensation paid or to be paid to any shareholder of Company who will be an
employee of or perform advisory services for Parent, Company, or any affiliate
thereof after the Merger, will be determined by bargaining at arm's length.
15. Since the date of the Agreement, except for the issuance of
Company Stock pursuant to the rights described in paragraph 11 hereof, Company
has not issued any additional shares of Company Stock.
16. Prior to and in connection with the Merger no Company Stock has
been (i) redeemed by Company, (ii) acquired by a Related Person with respect to
Company (except that for the purposes of this representation, clause (i) of the
definition of Related Person shall not apply) with consideration other than
stock of Company or Parent or (iii) the subject of any extraordinary
distribution by Company.
17. Company has not redeemed any of its stock, made any distributions
with respect to its stock, or disposed of any of its assets in contemplation or
as part of the Merger, excluding for purposes of this representation regular,
normal dividends and Company Stock acquired in the ordinary course of business
in connection with employee incentive and benefit programs, or other programs or
arrangements in existence on the date hereof.
18. The Merger is being effected for bona fide business reasons and
will be carried out strictly in accordance with the Agreement, and as described
in the Proxy Statement, and none of the material terms and conditions therein
has been or will be waived or modified.
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<PAGE>
19. The Agreement and the documents described in the Agreement, the
Proxy Statement and the Form S-4 represent the entire understanding between or
among (i) Parent and its subsidiaries and (ii) Company and its subsidiaries and,
to the best knowledge of the management of Company, between or among such
entities and the affiliates and shareholders of Parent and Company with respect
to the Merger and there are no other written or oral agreements regarding the
Merger other than those expressly referred to in the Agreement, the Proxy
Statement and the Form S-4.
20. At the Effective Time, the fair market value of the assets of
Company will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which those assets are subject.
21. Company is not and at the Effective Time will not be under the
jurisdiction of a federal or state court in a Title 11 case or in a
receivership, foreclosure or similar proceeding.
22. None of Parent, Merger Subsidiary or, after the Merger, Company
will take any position on any Federal, state, or local income or franchise tax
return, or take any other tax reporting position, that is inconsistent with the
treatment of the Merger as a tax-free reorganization or any of the foregoing
representations, unless otherwise required by a decision by the Tax Court or a
judgment, decree, or other order by any court of competent jurisdiction, which
has become final, or by applicable state or local income or franchise tax law.
The Company understands that Miller, Canfield, Paddock and Stone,
P.L.C. and Kilpatrick Stockton LLP. will rely, without further inquiry,
on this Certificate in rendering their opinions as to certain United States
Federal income tax consequences of the Merger and will promptly and timely
inform them if, after this Certificate is signed, the Company has reason to
believe that any of the facts described herein or in the Proxy Statement or any
of the representations made in this Certificate are or have become untrue,
incorrect or incomplete in any respect.
Very truly yours,
LADD Furniture, Inc.
By: /s/ William S. Creekmuir
Name: William S. Creekmuir
Title: Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
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<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of La-
Z-Boy Incorporated of our report dated May 20, 1999, except for Note 13, which
is as of November 11, 1999, relating to the consolidated financial statements
of La-Z-Boy Incorporated which appears in such Registration Statement. We also
consent to the use of our report dated May 20, 1999 on the financial statement
schedule in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Toledo, Ohio
December 22, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 5, 1999, incorporated by
reference in the January 2, 1999 annual report on Form 10-K of LADD Furniture,
Inc. and subsidiaries incorporated herein by reference and to the reference to
our firm under the heading "Experts" in this Registration Statement on Form S-4
of La-Z-Boy Incorporated.
KPMG LLP
Greensboro, North Carolina
December 22, 1999
<PAGE>
Exhibit 23.5
MANN, ARMISTEAD & EPPERSON, LTD.
INVESTMENT BANKERS and ADVISORS
CONSENT OF FINANCIAL ADVISOR
December 22, 1999
We hereby consent to the use in this Registration Statement on Form S-4 of La-
Z-Boy Incorporated of our fairness opinion addressed to the Board of Directors
of LADD Furniture, Inc. dated September 28, 1999.
Sincerely,
MANN, ARMISTEAD & EPPERSON, LTD.
/s/ Mann, Armistead & Epperson, Ltd.
