<PAGE> 1
Filed Pursuant to 424b(5)
File No. 333-34321
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 11, 1997.
$350,000,000
FEDERATED DEPARTMENT STORES, INC.
6 1/8% Term Enhanced ReMarketable Securities(SM) ("TERMS(SM)")
Interest payable March 1 and September 1
------------------
The annual interest rate on the 6 1/8% Term Enhanced ReMarketable Securities(SM)
("TERMS(SM)") of Federated Department Stores, Inc. (the "Company") to September
1, 2001 (the "Initial Investor Maturity Date") is 6 1/8%. The TERMS are
subject to mandatory tender to Credit Suisse First Boston Corporation, as
Remarketing Dealer (the "Remarketing Dealer"), on each of (i) the Initial
Investor Maturity Date and (ii) if, as described herein under "Description
of the TERMS -- Tender of the TERMS; Remarketing -- Remarketing Dates,"
the Initial Investor Maturity Date is designated as a Window Period
Remarketing Date (as defined herein), the Additional Remarketing Date (as
defined herein) thereafter. Each of the Initial Investor Maturity Date
and the Additional Remarketing Date, if any, are referred to herein as
a "Remarketing Date." The final maturity date (the "Maturity Date") is
scheduled to occur on September 1, 2011 (the "Scheduled Maturity
Date") but may be adjusted as described herein due to the occurrence,
if any, of the Additional Remarketing Date. If the Remarketing Dealer
for any reason does not purchase all of the TERMS on a Remarketing
Date, the Company will be required to repurchase the TERMS on such
date from the record holders ("Holders") thereof at 100% of the
principal amount thereof plus accrued and unpaid interest, if any.
As a result, whether or not the Initial Investor Maturity Date is
a Window Period Remarketing Date, any person holding a TERMS (or
a beneficial interest therein) on the Initial Investor Maturity
Date will, in all cases, (i) be entitled to receive 100% of the
principal amount of the TERMS plus accrued and unpaid
interest, if any, and (ii) be obligated to surrender the
TERMS, in each case on the Initial Investor Maturity Date. In
addition, if the Initial Investor Maturity Date is
designated as a Window Period Remarketing Date, any person
holding a TERMS (or a beneficial interest therein) on the
Additional Remarketing Date will, in all cases, (i) be
entitled to receive 100% of the principal amount of the
TERMS plus accrued and unpaid interest, if any, and (ii)
be obligated to surrender the TERMS, in each case on the
Additional Remarketing Date.
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS COMPANY(1)(2)(3)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per TERMS..................................... 99.873% .35% 99.523%
Total......................................... $349,555,500 $1,225,000 $348,330,500
</TABLE>
(1) Plus accrued interest, if any, from August 26, 1998.
(2) Before deduction of expenses payable by the Company estimated at $250,000.
(3) Does not include consideration received for the right to remarket the TERMS.
See "Underwriting."
The TERMS are offered by the several Underwriters when, as and if
issued by the Company, delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the TERMS in book-entry form will be made through the facilities of
The Depository Trust Company ("DTC") on or about August 26, 1998, against
payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS CITICORP SECURITIES, INC.
Prospectus Supplement dated August 19, 1998.
- ------------------
"Term Enhanced ReMarketable Securities(SM)" and "TERMS(SM)" are service marks
owned by Credit Suisse First Boston Corporation.
<PAGE> 2
(continued from previous page)
Interest on the TERMS accruing during the period from and including August
26, 1998 (the "Issue Date") to but excluding the Initial Investor Maturity Date
will be payable semiannually on March 1 and September 1 of each year, commencing
March 1, 1999. Interest on the TERMS accruing from the Initial Investor Maturity
Date (if such date is not a Window Period Remarketing Date) or the Additional
Remarketing Date (if the Initial Investor Maturity Date is a Window Period
Remarketing Date) will be paid semiannually on each day that is a six-month
anniversary of such date. Interest on the TERMS accruing during the period from
and including the Initial Investor Maturity Date (if the Initial Investor
Maturity Date is a Window Period Remarketing Date) to but excluding the
Additional Remarketing Date (the "Window Period"), if applicable, will be
payable on the Additional Remarketing Date. Each day on which interest is
scheduled to be paid is hereinafter referred to as an "Interest Payment Date."
Interest payable on any Interest Payment Date will be payable to the persons in
whose name the TERMS are registered at the close of business on the fifteenth
calendar day (whether or not a Business Day (as defined herein)) immediately
preceding the related Interest Payment Date, except that, in the case of the
Interest Payment Date relating to the Window Period, interest will be payable to
the persons to whom principal shall be payable on the Additional Remarketing
Date.
The TERMS are not subject to a sinking fund and are not redeemable by the
holders thereof upon the occurrence of a change in control or the Company's
completion of a highly leveraged transaction, regardless of whether a rating
decline results therefrom. See "Description of the TERMS -- Absence of Event
Risk Protections."
The TERMS will be represented by one or more Global Securities (as defined
herein) registered in the name of the nominee of The Depository Trust Company.
Except as provided herein and in the accompanying Prospectus, TERMS in
definitive form will not be issued. See "Description of the TERMS -- Book-Entry
System."
It is expected that delivery of the TERMS will be made against payment
therefor on or about that date specified in the last paragraph of the cover page
of this Prospectus Supplement, which is the fifth Business Day following the
date of pricing of the TERMS (such settlement cycle being herein referred to as
"T+5"). Purchasers of the TERMS should note that trading of the TERMS on the
date of pricing and the next five succeeding Business Days may be affected by
the T+5 settlement. See "Underwriting."
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
---------------------
RECENT DEVELOPMENTS
RECENT RESULTS OF OPERATIONS DATA
The following table presents unaudited results of operations data for the
13 and 26 weeks ended August 1, 1998 and August 2, 1997, which data should be
read in conjunction with the consolidated financial statements, the notes
thereto and the other information contained or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus. Because of the seasonal
nature of the department store business, the results of operations for the 13
and 26 weeks ended August 1, 1998 and August 2, 1997 (which do not include the
Christmas season) are not indicative of the results of operations for the entire
fiscal year.
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
--------------------- ---------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
--------- --------- --------- ---------
(ALL AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Net Sales............................................. $3,523 $3,453 $6,979 $6,862
------ ------ ------ ------
Cost of sales(1)...................................... 2,101 2,099 4,207 4,186
Selling, general and administrative expenses(2)....... 1,155 1,142 2,324 2,316
------ ------ ------ ------
Operating Income...................................... 267 212 448 360
Interest expense -- net............................... (74) (99) (151) (203)
------ ------ ------ ------
Income Before Income Taxes and Extraordinary Item..... 193 113 297 157
Federal, state and local income tax expense........... (86) (46) (130) (66)
------ ------ ------ ------
Income Before Extraordinary Item...................... 107 67 167 91
Extraordinary Item -- loss on early extinguishment of
debt, net of tax effect............................. -- (39) -- (39)
------ ------ ------ ------
Net Income............................................ $ 107 $ 28 $ 167 $ 52
====== ====== ====== ======
</TABLE>
- ---------------
(1) Substantially all merchandise inventories are valued by the retail method
and stated on the LIFO (last-in, first-out) basis, which is generally lower
than market. Application of this method did not impact the 13 and 26 weeks
ended August 1, 1998 or August 2, 1997.
(2) Includes depreciation and amortization expense of $156 million and $145
million for the 13 weeks ended August 1, 1998 and August 2, 1997,
respectively, and $311 million and $291 million for the 26 weeks ended
August 1, 1998 and August 2, 1997, respectively.
OTHER RECENT DEVELOPMENTS
On August 18, 1998, the Company completed a tender offer (the "Tender
Offer") pursuant to which it purchased approximately $341 million aggregate
principal amount of its 10% Senior Notes Due 2001, leaving approximately $109
million aggregate principal amount of such notes outstanding. The Company's
purchases of notes pursuant to the Tender Offer were financed, pending the sale
of the TERMS offered hereby, through a combination of cash on hand and the
issuance of commercial paper.
USE OF PROCEEDS
The net proceeds from the offering are expected to be used by the Company
to repurchase outstanding commercial paper used to finance the Tender Offer
(which, as of the date of this Prospectus Supplement, bore interest at the rate
of 5.85% per annum) and for general corporate purposes.
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<PAGE> 4
RATIO OF EARNINGS TO FIXED CHARGES
The Company's consolidated ratio of earnings to fixed charges for the
fiscal year ended January 31, 1998 and for the 26 weeks ended August 1, 1998,
computed in the manner described under "Ratio of Earnings to Fixed Charges" in
the accompanying Prospectus, was 2.77:1 and 2.34:1, respectively.
DESCRIPTION OF THE TERMS
The TERMS will be issued under the Indenture as supplemented by a Second
Supplemental Indenture (the "Supplemental Indenture"). The following discussion
includes a summary description of material terms of the Supplemental Indenture
and the TERMS (which represent a series of, and are referred to in the
accompanying Prospectus as, "Debt Securities"). The following description of the
TERMS supplements, and to the extent inconsistent therewith replaces, the
description of the general terms of the Debt Securities set forth in the
accompanying Prospectus. The following summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Indenture and the Supplemental Indenture.
GENERAL
The TERMS will be unsecured obligations of the Company and will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Company.
The Maturity Date of the TERMS is scheduled to be September 1, 2011 (the
"Scheduled Maturity Date") but may be adjusted due to the occurrence, if any, of
the Window Period. See "Tender of Terms; Remarketing -- Remarketing Dates."
Except in the limited circumstances described herein, the TERMS are not subject
to redemption by the Company prior to the Maturity Date. See "Redemption."
The TERMS will bear interest at the annual interest rate of 6 1/8% to
September 1, 2001 (the "Initial Investor Maturity Date"). The Initial Investor
Maturity Date and, if the Initial Investor Maturity Date is designated as a
Window Period Remarketing Date as described below under "Tender of TERMS;
Remarketing -- Remarketing Dates," the Additional Remarketing Date thereafter,
will be the Remarketing Dates for the TERMS. If the Remarketing Dealer elects to
remarket the TERMS on a Remarketing Date, except in the limited circumstances
described herein, (i) the TERMS will be subject to mandatory tender to the
Remarketing Dealer at 100% of the principal amount thereof for remarketing on
each such date, on the terms and subject to the conditions described herein, and
(ii) on and after such Remarketing Date, the TERMS will bear interest at the
rate determined by the Remarketing Dealer in accordance with the procedures set
forth below. See "Tender of TERMS; Remarketing."
Under the circumstances described below, the TERMS are subject to
redemption by the Company from the Remarketing Dealer on any Remarketing Date.
See "Redemption." If the Remarketing Dealer for any reason does not purchase all
of the TERMS on any Remarketing Date, or elects not to remarket the TERMS, or in
certain other limited circumstances described herein, the Company will be
required to repurchase the TERMS from the Holders thereof on such Remarketing
Date at 100% of the principal amount thereof plus accrued and unpaid interest,
if any. See "Repurchase."
Interest on the TERMS accruing during the period from and including the
Issue Date to but excluding the Initial Investor Maturity Date will be payable
semiannually on March 1 and September 1 of each year, commencing March 1, 1999.
Interest on the TERMS accruing from the Initial Investor Maturity Date (if such
date is not a Window Period Remarketing Date) or the Additional Remarketing Date
(if the Initial Investor Maturity Date is a Window Period Remarketing Date) will
be paid semiannually on each day that is a six-month anniversary of such date.
Interest on the TERMS accruing during the Window Period, if applicable, will be
payable on the Additional Remarketing Date. Interest payable on any Interest
Payment Date will be payable to the persons in whose names the TERMS are
registered at the close of business on the fifteenth calendar day (whether or
not a Business Day) immediately preceding such Interest Payment Date, except
that, in the case of the Interest Payment Date relating to the Window Period,
interest will be payable to the persons to whom principal is payable on the
Additional Remarketing Date. Interest on the TERMS will be
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<PAGE> 5
computed on the basis of a 360-day year of twelve 30-day months, except that
interest accruing during the Window Period will be computed on the basis of the
actual number of days in such period over a 360-day year. "Business Day" means
any day on which commercial banks are open for business (including dealings in
foreign exchange and foreign currency deposits) in the City of New York and, in
the case of the determination of the Reference Rate (as defined herein) that is
based upon U.S. Dollar Deposits in London, the City of London.
Interest payable on any Interest Payment Date and at the Maturity Date or
date of earlier redemption or repurchase will be the amount of interest accrued
from and including the most recent Interest Payment Date to which interest has
been paid or duly provided for (or from and including the Issue Date if no
interest has been paid or duly provided for with respect to the TERMS) to but
excluding such Interest Payment Date or the Maturity Date or date of redemption
or repurchase, as the case may be. If any Interest Payment Date or the Maturity
Date or date of earlier redemption or repurchase of TERMS falls on a day that is
not a Business Day, the payment otherwise then due will be made on the next
Business Day with the same force and effect as if it were made on the date such
payment was due and no interest will accrue on the amount so payable for the
period from and after such Interest Payment Date or the Maturity Date or date of
redemption or repurchase, as the case may be.
The TERMS will be issued in denominations of $1,000 and integral multiples
thereof.
TENDER OF TERMS; REMARKETING
The following description summarizes the terms and conditions of the
remarketing of the TERMS, in the event that the Remarketing Dealer elects to
purchase the TERMS and remarkets the TERMS on the Initial Investor Maturity
Date.
Mandatory Tender. Provided that the Remarketing Dealer gives notice to the
Company and the Trustee on a Business Day not earlier than 15 nor later than
five Business Days prior to the Initial Investor Maturity Date of its intention
to purchase the TERMS (the "Notification Date"), each TERMS will be
automatically tendered, or deemed tendered, to the Remarketing Dealer for
purchase on each of (i) the Initial Investor Maturity Date and (ii) if the
Initial Investor Maturity Date is designated as a Window Period Remarketing Date
as described under "-- Remarketing Dates," the Additional Remarketing Date
thereafter, except in the circumstances described under "Repurchase" or
"Redemption." The purchase price for the TERMS to be paid by the Remarketing
Dealer on each Remarketing Date will equal 100% of the principal amount thereof.
See "-- Notification of Results; Settlement." When the TERMS are tendered to the
Remarketing Dealer on a Remarketing Date, the Remarketing Dealer may remarket
the TERMS for its own account at varying prices to be determined by the
Remarketing Dealer at the time of each sale. From and after the Initial Investor
Maturity Date (if such date is not a Window Period Remarketing Date) or the
Additional Remarketing Date (if the Initial Investor Maturity Date is a Window
Period Remarketing Date), the TERMS will bear interest at the Interest Rate to
Maturity (as defined herein), determined as set forth under "-- Determination of
Applicable Interest Rate." During the Window Period, if any, the TERMS will bear
interest at the Window Period Interest Rate (as defined herein) determined as
set forth under "-- Determination of Applicable Interest Rate." If the
Remarketing Dealer elects to purchase the TERMS, the obligation of the
Remarketing Dealer to purchase the TERMS on the applicable Remarketing Date is
subject to, among other things, the condition that no "Termination Event" under
the Remarketing Agreement shall have occurred. Termination Events under the
Remarketing Agreement include, among other events, (i) a material adverse change
after the Notification Date in the financial condition or results of operations
of the Company and its subsidiaries that the Remarketing Dealer, in its
reasonable judgment, determines would materially and adversely affect the
remarketing of the TERMS and (ii) the occurrence of an Event of Default under
the Indenture that relates to the TERMS or the occurrence of an event which,
with the giving of notice or passage of time or both, would constitute such an
Event of Default. If for any reason the Remarketing Dealer does not purchase all
of the TERMS on the applicable Remarketing Date, the Company will be required to
repurchase the TERMS from the Holders thereof at a price equal to the principal
amount thereof plus all accrued and unpaid interest, if any, on the TERMS to
such Remarketing Date. See "Repurchase."
S-5
<PAGE> 6
Remarketing Dates. If the Remarketing Dealer elects to purchase the TERMS
on the Initial Investor Maturity Date, then not later than 4:00 p.m., New York
City time, on the fourth Business Day prior to the Initial Investor Maturity
Date, the Company may notify the Remarketing Dealer, the Trustee and DTC by
telephone, confirmed in writing that it elects the Initial Investor Maturity
Date to be a Window Period Remarketing Date (the "Window Period Remarketing
Date"). The Company will be eligible to make such notification if at such time
its senior unsecured debt is rated at least "Baa3" by Moody's Investors Service
and "BBB-" by Standard & Poor's Ratings Group or the equivalent thereof by such
rating agency at the time of such notification or if the Remarketing Dealer
waives this requirement at its sole discretion. If the Company does not provide
such notification, the Initial Investor Maturity Date will be the only
Remarketing Date and the Maturity Date will be the Scheduled Maturity Date. If
the Company provides such notification, then (i) the Additional Remarketing Date
will be one of the 52 following one-week anniversary dates of the Initial
Investor Maturity Date (or if any such day is not a Business Day, the next
following Business Day) designated by the Company not later than the fifth
Business Day prior to such one-week anniversary date (the "Additional
Remarketing Date") except that, if the Company fails to so designate the
Additional Remarketing Date, the Additional Remarketing Date will be the date
that is 52 weeks after the Initial Investor Maturity Date (or if such day is not
a Business Day, the next following Business Day) and (ii) the Maturity Date of
the TERMS will be the date that is the tenth anniversary of the Additional
Remarketing Date (whether or not a Business Day).
Determination of Applicable Interest Rate. From and including the Initial
Investor Maturity Date (if such date is not a Window Period Remarketing Date) or
the Additional Remarketing Date (if the Initial Investor Maturity Date is a
Window Period Remarketing Date), to but excluding the Maturity Date, the TERMS
will bear interest at the Interest Rate to Maturity (as defined below). From and
including the Initial Investor Maturity Date, if such date is a Window Period
Remarketing Date, to but excluding the Additional Remarketing Date (the "Window
Period"), the TERMS will bear interest at the Window Period Interest Rate (as
defined below).
The "Interest Rate to Maturity" will be determined by the Remarketing
Dealer by 3:30 p.m., New York City time, on the third Business Day immediately
preceding the Initial Investor Maturity Date (if such date is not a Window
Period Remarketing Date) or the Additional Remarketing Date (if the Initial
Investor Maturity Date is a Window Period Remarketing Date) (the "Re-pricing
Date"), to the nearest one hundred-thousandth (0.00001) of one percent per
annum, and will be equal to the sum of the Base Rate (as defined below) plus the
Applicable Spread (as defined below).
"Base Rate" means 5.64% per annum.
The "Applicable Spread" will be the lowest bid indication, expressed as a
spread (in the form of a percentage or number of basis points) above the Base
Rate, obtained by the Remarketing Dealer on the Re-pricing Date from the bids
quoted by five Reference Corporate Dealers (as defined below) for the full
aggregate principal amount of the TERMS at the Dollar Price, but assuming (i) an
issue date of the Initial Investor Maturity Date (if such date is not a Window
Period Remarketing Date) or the Additional Remarketing Date (if the Initial
Investor Maturity Date is a Window Period Remarketing Date) with settlement on
such date without accrued interest, (ii) a maturity date equal to the Maturity
Date of the TERMS, and (iii) a stated annual interest rate, payable
semiannually, equal to the Base Rate plus the spread bid by the applicable
Reference Corporate Dealer.
"Dollar Price" means, with respect to the TERMS, the present value, as of
the Initial Investor Maturity Date, of the Remaining Scheduled Payments
discounted to the Initial Investor Maturity Date, on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months), at the Treasury
Rate (as defined below), except that (i) in the case of the Additional
Remarketing Date, the Dollar Price will be the Accreted Dollar Price (as defined
below) and (ii) the Dollar Price in the case of the Initial Investor Maturity
Date or the Additional Remarketing Date may be any other amount agreed to in
writing by the Remarketing Dealer and the Company.
"Accreted Dollar Price" means, with respect to the Additional Remarketing
Date, the Dollar Price as of the Initial Investor Maturity Date (determined by
the Remarketing Dealer on the Notification Date) plus the
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<PAGE> 7
product of (i) such Dollar Price less the aggregate principal amount of TERMS
outstanding as of the Initial Investor Maturity Date, (ii) the weighted average
per annum Window Period Interest Rate for the Window Period, and (iii) the
number of days in the Window Period divided by 360.
"Reference Corporate Dealers" means leading dealers of publicly traded debt
securities of the Company in the City of New York (no more than one of which may
be the Remarketing Dealer or an affiliate thereof) selected by the Company.
"Remaining Scheduled Payments" means, with respect to the TERMS, the
remaining scheduled payments of the principal thereof and interest thereon,
calculated at the Base Rate only and assuming (i) a maturity date of September
1, 2011 (whether or not a Business Day) and (ii) that the Company did not elect
the Initial Investor Maturity Date to be a Window Period Remarketing Date.
"Treasury Rate" means the yield to maturity of the offered-side quote for
the then current 10-Year US Treasury Bond shown on Telerate page 500 (or any
successor page), as of 11:00 a.m., New York City time, on the Notification Date
(or, if such 10-year US Treasury Bond is not available, the interpolated yield
using then current US Treasury Bonds). In the event that the offered-side quote
for the then current 10-Year US Treasury Bond is no longer shown on Telerate
page 500 and there is no successor page, the Treasury Rate will be calculated by
the Remarketing Dealer and will be a yield to maturity equal to the arithmetic
mean of the secondary market bid rates, as of approximately 11:00 a.m., New York
City time, on the Notification Date, of five leading primary United States
government securities dealers (no more than one of which may be the Remarketing
Dealer or an affiliate of the Remarketing Dealer) selected by the Remarketing
Dealer, excluding the highest and lowest of such bids, for an aggregate
principal amount of the then current 10-Year US Treasury Bond equal to the
aggregate principal amount of the TERMS (or, if such 10-year US Treasury Bond is
not available, the interpolated yield using then current US Treasury Bonds). If
fewer than three such United States government securities dealers provide bids,
the Treasury Rate shall be the average of such bids. If only one such United
States government securities dealer provides such a bid, then the Treasury Rate
will be equal to such bid.
The interest rate for the Window Period will be reset on each Interest
Reset Date (as defined below) during the Window Period and will be equal to the
Reference Rate in respect of the applicable Interest Reset Date plus the Basic
Spread, in each case as calculated by the Remarketing Dealer (the "Window Period
Interest Rate"). The Wednesday of each week during the Window Period will be an
"Interest Reset Date." The "Interest Determination Date" applicable to an
Interest Reset Date will be the second Business Day preceding such Interest
Reset Date. The interest rate in effect from and including the Window Period
Remarketing Date (which is the first day of the Window Period) to but excluding
the first Interest Reset Date during such Window Period will be determined as if
the Window Period Remarketing Date were an Interest Reset Date and the Interest
Determination Date for such Interest Reset Date were the second Business Day
prior to the Window Period Remarketing Date.
The "Reference Rate" means, with respect to the Window Period, one of the
following reference rates selected by the Company and notified to the
Remarketing Dealer no later than four Business Days prior to the Window Period
Remarketing Date: (i) the per annum rate for deposits in U.S. dollars for a
period of one week shown on Telerate page 3750 (or any successor page) at 11:00
a.m., London time, on the applicable Interest Determination Date, (ii) the per
annum rate equal to the average of the federal funds rates shown on Telerate
page 5 (or any successor page) as of 11:00 a.m., New York City time, on the
applicable Interest Determination Date and each of the four Business Days prior
to such Interest Determination Date, or (iii) the one-week "AA" non-financial
commercial paper rate shown on the Internet world wide web page of the Board of
Governors of the Federal Reserve System at www.bog.frb.fed.us/releases/CP/ (or
any successor page) as of 11:00 a.m., New York City time, on the applicable
Interest Determination Date.
The "Basic Spread" will be the lowest bid indication, expressed as a spread
(in the form of a percentage or number of basis points) above the Reference
Rate, obtained by the Remarketing Dealer on the third Business Day prior to the
Window Period Remarketing Date from the bids quoted from five Reference Money
Market Dealers (as defined below) on such date for the full aggregate principal
amount of the TERMS at a dollar price equal to par, but assuming (i) an issue
date of the Window Period Remarketing Date, with
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settlement on such date without accrued interest, (ii) a maturity date equal to
the day that is 52 weeks from the Window Period Remarketing Date, (iii) that the
TERMS are callable by the Remarketing Dealer on a weekly basis after the Window
Period Remarketing Date, (iv) that the TERMS will be repurchased by the Company
at par on the day that is 52 weeks from the Window Period Remarketing Date if
not previously called by the Remarketing Dealer, and (v) a stated annual
interest rate, payable on the Additional Remarketing Date, equal to the
Reference Rate plus the spread bid by the applicable Reference Money Market
Dealer.
"Reference Money Market Dealers" means leading dealers, selected by the
Company, of publicly traded debt securities of the Company in the City of New
York (no more than one of which may be the Remarketing Dealer or an affiliate
thereof) who are also leading dealers in money market instruments. The Company
will notify the Remarketing Dealer of the identity of such Reference Money
Market Dealers no later than four Business Days prior to the Window Period
Remarketing Date.
Notification of Results; Settlement. Provided that the Remarketing Dealer
has previously notified the Company and the Trustee on the Notification Date of
its intention to purchase all of the TERMS on the Initial Investor Maturity
Date, the Remarketing Dealer will notify the Company, the Trustee and DTC by
telephone, confirmed in writing, by 4:00 p.m., New York City time, on the third
Business Day prior to the Initial Investor Maturity Date (if such date is not a
Window Period Remarketing Date) or the Additional Remarketing Date (if the
Initial Investor Maturity Date is a Window Period Remarketing Date), of the
Interest Rate to Maturity. If the Initial Investor Maturity Date is a Window
Period Remarketing Date, the Remarketing Dealer will provide the Company, the
Trustee and DTC notice in accordance with the preceding sentence, on the second
Business Day prior to the Initial Investor Maturity Date, of the Window Period
Interest Rate which will initially be in effect.
On each Remarketing Date, all of the TERMS will be automatically delivered
to the account of the Trustee by book-entry through DTC pending payment of the
purchase or redemption price therefor as described in the following paragraph.
In the event that the Remarketing Dealer purchases the TERMS on a
Remarketing Date, the Remarketing Dealer will make or cause the Trustee to make
payment to the DTC participant (each, a "DTC Participant") of each Holder of
TERMS by book-entry through DTC by the close of business on such date against
delivery through DTC of such Holder's TERMS, of 100% of the principal amount of
the TERMS that shall have been purchased by the Remarketing Dealer. If the
Remarketing Dealer does not purchase all of the TERMS on a Remarketing Date, the
Company will make or cause to be made such payment for the TERMS, as described
under "Repurchase." In any case, the Company will make or cause the Trustee to
make payment of interest to each Holder of TERMS due on a Remarketing Date by
book-entry through DTC by the close of business on such date. In the event that
the Company elects to redeem the TERMS from the Remarketing Dealer on a
Remarketing Date (following the Remarketing Dealer's purchase of the TERMS from
the Holders on such Remarketing Date), the Company will make or cause the
Trustee to make payment to the Remarketing Dealer by book-entry to DTC by the
close of business on such date against delivery through DTC of such TERMS.
The transactions described above will be executed through DTC in accordance
with the procedures of DTC, and the accounts of the respective DTC Participants
will be debited and credited and the TERMS delivered by book-entry as necessary
to effect the purchases and sales thereof.
Transactions involving the sale and purchase of TERMS remarketed by the
Remarketing Dealer on a Remarketing Date will settle in immediately available
funds through DTC.
The tender and settlement procedures described above, including provisions
for payment by purchasers of TERMS in the remarketing or for payment to selling
Holders of TERMS, may be modified to the extent required by DTC or to the extent
required to facilitate the tender and remarketing of TERMS in certificated form,
if the book-entry system is no longer available for the TERMS at the time of the
remarketing. In addition, the Remarketing Dealer may, in accordance with the
terms of the Indenture, modify the tender and settlement procedures set forth
above in order to facilitate the tender and settlement process.
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As long as DTC's nominee holds the certificates representing any TERMS in
the book-entry system of DTC, no certificates for such TERMS will be delivered
by any selling Holder to reflect any transfer of such TERMS. In addition, under
the terms of the TERMS and the Remarketing Agreement (described below), the
Company has agreed that, notwithstanding any provision to the contrary set forth
in the Indenture, it will (i) use its reasonable best efforts to maintain the
TERMS in book-entry form with DTC or any successor thereto and to appoint a
successor depositary to the extent necessary to maintain the TERMS in book-entry
form and (ii) waive any discretionary right it otherwise has under the Indenture
to cause the TERMS to be issued in certificated form.
For further information with respect to transfers and settlement through
DTC, see " Book Entry System" below and "Description of Debt
Securities -- Book-Entry Debt Securities" in the accompanying Prospectus.
The Remarketing Dealer. The Company and the Remarketing Dealer are entering
into a Remarketing Agreement which contains, in addition to provisions
consistent with the foregoing description of the TERMS and the matters described
under "Repurchase" and "Redemption" and certain other provisions, the provisions
summarized below.
In connection with the remarketing of the TERMS bearing the Interest Rate
to Maturity, the Remarketing Dealer will sell the TERMS for distribution to the
Reference Corporate Dealer that provides the lowest bid indication with respect
to the determination of the Applicable Spread. The Remarketing Agreement
provides the Remarketing Dealer with the right to match the lowest bid
indication received from the Reference Corporate Dealers with respect to the
determination of the Interest Rate to Maturity and to thereby have the right to
distribute the TERMS.
The Company will agree to indemnify the Remarketing Dealer against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), arising out of or in connection with the transactions
contemplated by the Remarketing Agreement, or to contribute to payments that the
Remarketing Dealer may be required to make in respect thereof.
In the event that the Remarketing Dealer elects to purchase the TERMS as
described herein, the obligation of the Remarketing Dealer to purchase TERMS
from Holders of TERMS will be subject to, among other things, the condition that
no "Termination Event" under the Remarketing Agreement shall have occurred. In
addition, the Remarketing Agreement will provide for the termination thereof on
or before a Remarketing Date upon the occurrence of certain events specified in
the Remarketing Agreement.
No Holder of any TERMS will be entitled to any rights or claims under the
Remarketing Agreement or against the Remarketing Dealer as a result of the
Remarketing Dealer not purchasing such TERMS.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign at any time prior to the twentieth Business Day prior to the Initial
Investor Maturity Date, such resignation to be effective 10 days after the
delivery to the Company and the Trustee of notice of such resignation. The
Company may also terminate the Remarketing Dealer in certain circumstances. In
either such case, the Remarketing Dealer will be entitled to select its
successor from a group of five broker-dealers of national standing identified by
the Company who, subject to certain conditions, may assume the Remarketing
Dealer's rights and obligations under the Remarketing Agreement.
The Remarketing Dealer may buy, sell, make a market in, hold and deal in
any of the TERMS. The Remarketing Dealer may exercise any vote or join in any
action which any Holder of TERMS may be entitled to exercise or take with like
effect as if it were not a party to the Remarketing Agreement. The Remarketing
Dealer may also engage in or have an interest in any financial or other
transaction with the Company as freely as if it were not a party to the
Remarketing Agreement.
REPURCHASE
In the event that (i) the Remarketing Dealer for any reason does not notify
the Company of the Interest Rate to Maturity or the Window Period Interest Rate
by (a) in the case of the Interest Rate to Maturity, 4:00 p.m., New York City
time, on the third Business Day prior to the Initial Investor Maturity Date (if
the
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Initial Investor Maturity Date is not a Window Period Remarketing Date) or the
Additional Remarketing Date (if the Initial Investor Maturity Date is a Window
Period Remarketing Date), or (b) in the case of the Window Period Interest Rate,
4:00 p.m., New York City time, on the second Business Day prior to the Initial
Investor Maturity Date, (ii) prior to the Notification Date, the Remarketing
Dealer has resigned or been terminated and no successor has been appointed on or
before the third Business Day immediately preceding the Initial Investor
Maturity Date, (iii) a "Termination Event" under the Remarketing Agreement shall
have occurred, (iv) the Remarketing Dealer for any reason elects not to purchase
the TERMS on a Remarketing Date, or (v) the Remarketing Dealer for any reason
does not purchase all tendered TERMS on the applicable Remarketing Date, the
Company will repurchase the TERMS as a whole on such Remarketing Date at a price
equal to 100% of the principal amount of the TERMS plus all accrued and unpaid
interest, if any, on the TERMS to such Remarketing Date. In any such case,
payment will be made by the Company to the DTC Participant of each Holder of
TERMS by book-entry through DTC by the close of business on the Remarketing Date
against delivery through DTC of such Holder's TERMS.
REDEMPTION
If the Remarketing Dealer elects to purchase the TERMS on a Remarketing
Date, the TERMS will be subject to mandatory tender to the Remarketing Dealer
for purchase on such date, in each case subject to the conditions described
under "Tender of TERMS; Remarketing" and "Repurchase" and to the Company's right
to redeem the TERMS from the Remarketing Dealer as described in the next
sentence. The Company will notify the Remarketing Dealer and the Trustee, not
later than the fourth Business Day immediately preceding the applicable
Remarketing Date, if the Company irrevocably elects to exercise its right to
redeem the TERMS from the Remarketing Dealer, in whole but not in part, on such
date at the Optional Redemption Price. In any such case, payment will be made by
the Company to the Remarketing Dealer by book-entry transfer through DTC by the
close of business on such Remarketing Date against delivery through DTC of the
TERMS.
The "Optional Redemption Price" will be the sum of (i) the greater of (a)
100% of the full aggregate principal amount of the TERMS and (b) the Dollar
Price as of the applicable Remarketing Date (which, if the applicable
Remarketing Date is the Additional Remarketing Date, will equal the Accreted
Dollar Price) plus (ii) in the case of either (a) or (b) above, accrued and
unpaid interest to the applicable Remarketing Date.
ABSENCE OF EVENT RISK PROTECTIONS
Neither the Indenture (as supplemented by the Supplemental Indenture) nor
the TERMS contain provisions permitting the holders of the TERMS to require
prepayment in the event of a change in control of the Company, or in the event
the Company enters into one or more highly leveraged transactions, regardless of
whether a rating decline results therefrom, nor are any such events deemed to be
events of default under the terms of the Indenture, the Supplemental Indenture
or the TERMS. The terms of the Company's bank credit facilities, however,
designate certain changes in control of the Company as events of default.
BOOK-ENTRY SYSTEM
The TERMS will initially be issued in the form of a Global Security held in
book-entry form. Accordingly, DTC or its nominee will be the sole registered
holder of the TERMS for all purposes under the Supplemental Indenture. DTC has
advised the Company that DTC is a limited-purpose trust company organized under
the Banking Law of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered under the Exchange Act. DTC
was created to hold the securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations, and
certain other organizations some of whom (and/or their representatives) own DTC.
Access to DTC's book-entry system is also available
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to others, such as banks, brokers, dealers, and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly. See "Description of Debt Securities -- Book Entry Debt
Securities" in the accompanying Prospectus.
CERTAIN RESTRICTIVE COVENANTS
The Supplemental Indenture will provide that the following restrictive
covenants will be applicable to the Company.
Limitation on Liens. The Company and the Restricted Subsidiaries will not
be permitted to create, incur, assume, or suffer to exist any liens upon any of
their respective assets, other than Permitted Liens, unless the TERMS are
secured by an equal and ratable lien on the same assets.
Limitation on Sale and Leaseback Transactions. The Company and the
Restricted Subsidiaries may not enter into any sale and leaseback transaction
unless the net cash proceeds therefrom are applied as follows: to the extent
that the aggregate amount of net cash proceeds (net of all fees and expenses
incurred and all taxes and reserves required to be accrued as a liability as a
consequence of such a sale and leaseback transaction, net of all payments made
on any Indebtedness that is secured by assets subject to a sale and leaseback
transaction, and net of all distributions and other payments made to minority
interest holders in Subsidiaries of the Company or joint ventures as a result of
a sale and leaseback transaction) from such sale and leaseback transaction that
have not been reinvested in the business of the Company or its Subsidiaries or
used to reduce Senior Indebtedness of the Company or its Subsidiaries within 12
months of the receipt of such proceeds (with Cash Equivalents being deemed to be
proceeds upon receipt of such Cash Equivalents and cash payments under
promissory notes secured by letters of credit or similar assurances of payment
issued by commercial banks of recognized standing being deemed to be proceeds
upon receipt of such payments) exceed $100.0 million ("Excess Sale Proceeds")
from time to time, such Excess Sale Proceeds will be used to offer to repurchase
the TERMS (on a pro rata basis with any other Senior Indebtedness of the Company
or its Subsidiaries required by the terms of such Indebtedness to be repurchased
with such Excess Sale Proceeds, based on the principal amount of such Senior
Indebtedness required to be repurchased) at 100% of principal amount, plus
accrued interest, and to pay related costs and expenses. To the extent that the
aggregate purchase price for the TERMS or other Senior Indebtedness tendered
pursuant to such an offer to purchase is less than the aggregate purchase price
offered in such offer, an amount of Excess Sale Proceeds equal to such shortfall
will cease to be Excess Sale Proceeds and may thereafter be used for general
corporate purposes. If the aggregate purchase price for the TERMS or other
Senior Indebtedness tendered pursuant to such an offer to purchase exceeds the
amount of such Excess Sale Proceeds, the Trustee will select the TERMS or other
Senior Indebtedness to be purchased by such method as the Trustee deems fair and
appropriate.
If an offer to purchase the TERMS is made, the Company shall comply with
all tender offer rules including but not limited to Section 14(e) under the
Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer
to purchase.
Limitation on Merger and Certain Other Transactions. The Company, in a
single transaction or through a series of related transactions, will not be
permitted to consolidate with or merge with or into any other Person, or
transfer (by lease, assignment, sale, or otherwise) all or substantially all of
its properties and assets to another Person unless: (i) either (a) the Company
is the continuing Person in such a consolidation or merger or (b) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company are transferred (the Company or such other Person being referred to
as the "Surviving Person") is a corporation organized and validly existing under
the laws of the United States, any state thereof, or the District of Columbia,
and expressly assumes, by an indenture supplement, all the obligations of the
Company under the TERMS, the Indenture, and the Supplemental Indenture and the
Trustee receives a favorable written opinion of counsel with respect to
satisfaction of the foregoing conditions; and (ii) immediately before and
immediately after and giving effect to such transaction and the assumption of
the obligations as set forth in clause (i) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, no Event of Default has occurred and is continuing.
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EVENTS OF DEFAULT
The following are "Events of Default" with respect to the TERMS: (i)
failure to pay principal of or premium, if any, on any TERMS when due; (ii) the
failure to repurchase the TERMS when required pursuant to the Indenture or the
Supplemental Indenture; (iii) failure to pay any interest on any TERMS when due,
which failure continues for 30 calendar days; (iv) failure to perform any other
covenant of the Company in the Indenture or the Supplemental Indenture (other
than a covenant included therein solely for the benefit of a series of Debt
Securities other than the TERMS), which failure continues for 60 calendar days
after written notice as provided in the Indenture or the Supplemental Indenture;
(v) any nonpayment at maturity or other default (beyond any applicable grace
period) under any agreement or instrument relating to any other Indebtedness of
the Company or any Restricted Subsidiary (the unpaid principal amount of which
is not less than $100.0 million), which default results in the acceleration of
the maturity of such Indebtedness prior to its stated maturity or occurs at the
final maturity thereof; (vi) certain events of bankruptcy, insolvency, or
reorganization of the Company or any Significant Subsidiary or any group of
Subsidiaries of the Company that, if considered in the aggregate, would be a
Significant Subsidiary; and (vii) the entry of any final judgments or orders
against the Company or any of its Subsidiaries in excess of $100.0 million
individually or in the aggregate (not covered in full by insurance) that is not
paid, discharged, or otherwise stayed (by appeal or otherwise) for 60 calendar
days after the entry of such judgments or orders. The Company will be required
to provide the Trustee with notice of any uncured Event of Default within 10
calendar days after any responsible officer of the Company becomes aware of or
receives actual notice of the occurrence thereof. The Trustee will be required,
within 90 calendar days after the occurrence of a default in respect of the
TERMS, to give to the holders of the TERMS notice of all such uncured defaults
known to it (except that, in the case of a default in the performance of any
covenant of the character contemplated in clause (iii) of the preceding
sentence, no such notice to holders of the TERMS will be given until at least 30
calendar days after the occurrence thereof); provided, however, that, except in
the case of a default of the character contemplated in clause (i) or (ii) of the
preceding sentence, the Trustee may withhold such notice if and so long as it in
good faith determines that the withholding of such notice is in the interests of
the holders of the TERMS.
If an Event of Default with respect to the TERMS occurs and is continuing,
either the Trustee or the holders of at least 25% in principal amount of the
TERMS, by notice as provided in the Indenture, may declare the principal amount
of the TERMS to be due and payable immediately. However, at any time after a
declaration of acceleration with respect to the TERMS has been made, but before
a judgment or decree based on such acceleration has been obtained, the holders
of a majority in principal amount of the TERMS may, under certain circumstances,
rescind and annul such acceleration. See "Description of Debt Securities --
Modification and Waiver" in the accompanying Prospectus. If an Event of Default
under clause (vi) above occurs with respect to the Company, the principal of,
premium, if any, on and accrued interest on the TERMS will become immediately
due and payable without any declaration or other act on the part of the Trustee
or any holder of the TERMS.
DEFEASANCE
The Company, at its option, (i) will be deemed to have been discharged from
its obligations with respect to the TERMS (except for certain obligations,
including obligations to register the transfer or exchange of the TERMS, to
replace destroyed, stolen, lost, or mutilated TERMS, and to maintain an office
or agency in respect of the TERMS and hold moneys for payment in trust) or (ii)
will be released from its obligations to comply with the restrictive covenants
described above with respect to the TERMS, and the occurrence of an event
described in clause (iv) under "Events of Default" above with respect to any
defeased covenant will no longer be an Event of Default if, in either case, the
Company irrevocably deposits with the Trustee, in trust, (a) money or (b) (1)
direct obligations of the United States of America for the payment of which the
full faith and credit of the United States of America is pledged or obligations
of an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, that, in either case, are not callable at the issuer's
option or (2) certain depositary receipts with respect to any obligation of the
type specified in the preceding clause
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(1) ("U.S. Government Obligations") that through the payment of interest thereon
and principal thereof in accordance with their terms will provide money in an
amount sufficient to pay all the principal of and any interest on the TERMS on
the dates such payments are due and the Company shall have given the Trustee
irrevocable instructions satisfactory to the Trustee to give notice to holders
of the TERMS of the defeasance of the TERMS, all in accordance with the terms of
such the TERMS. Such defeasance may be effected only if, among other things: (A)
no Event of Default or event that, with the giving of notice or lapse of time,
or both, would become an Event of Default under the Indenture or the
Supplemental Indenture has occurred and is continuing on the date of such
deposit; (B) no Event of Default described under clause (vi) under "Events of
Default" above or event that with the giving of notice or lapse of time, or
both, would become an Event of Default described under such clause (vi) has
occurred and is continuing at any time on or prior to the 124th calendar day
following such date of deposit; (C) in the event of defeasance under clause (i)
above, the Company has delivered an opinion of counsel stating that (x) the
Company has received from, or there has been published by, the Internal Revenue
Service ("IRS") a ruling or (y) since the date of the Indenture there has been a
change in applicable federal law, in either case to the effect that, among other
things, the holders of the applicable TERMS will not recognize gain or loss for
United States federal income tax purposes as a result of such deposit or
defeasance and will be subject to United States federal income tax in the same
manner as if such defeasance had not occurred; (D) in the event of defeasance
under clause (ii) above, the Company has delivered an opinion of counsel to the
effect that, among other things, the holders of the applicable TERMS should not
recognize gain or loss for United States federal income tax purposes as a result
of such deposit or defeasance and will be subject to United States federal
income tax in the same manner as if such defeasance had not occurred; (E) the
Company has delivered to the Trustee an opinion of a nationally recognized
independent public accounting firm certifying the sufficiency of the amount of
any U.S. Government Obligations placed on deposit to pay, without regard to any
reinvestment of any accrued interest, principal, interest, and premium, if any,
on the TERMS no later than one day prior to when due; and (F) such defeasance
will not result in a breach or violation of, or constitute a default under, any
other agreement to which the Company is a party or violate any law to which the
Company is subject. In the event the Company fails to comply with its remaining
obligations under the Indenture and the Supplemental Indenture after a
defeasance of the Indenture and the Supplemental Indenture with respect to the
TERMS as described under clause (ii) of the first sentence of this paragraph and
the TERMS are declared due and payable because of the occurrence of any
undefeased Event of Default, the amount of money and U.S. Government Obligations
on deposit with the Trustee may be insufficient to pay amounts due on the TERMS
at the time of the acceleration resulting from such Event of Default. The
Company, however, will remain liable in respect of such payments.
CERTAIN DEFINED TERMS
Capitalized terms used but not defined herein have the meanings given to
such terms in the Indenture and the Supplemental Indenture. In addition, for
purposes of the Indenture and the Supplemental Indenture, the following
definitions apply:
"Bank Facilities" means the financing provided for by (a) the 364-Day
Credit Agreement and (b) the Five-Year Credit Agreement, each dated as of July
28, 1997 and each by and among the Company, certain financial institutions,
Citibank, N.A., as administrative agent and paying agent, The Chase Manhattan
Bank, as administrative agent, BankBoston, N.A., as syndication agent, and The
Bank of America, National Trust & Savings Association, as documentation agent,
as the same may be amended, supplemented, or otherwise modified from time to
time.
"Cash Equivalent" means (i) obligations issued or unconditionally
guaranteed as to principal and interest by the United States of America or by
any agency or authority controlled or supervised by and acting as an
instrumentality of the United States of America; (ii) obligations (including,
but not limited to, demand or time deposits, bankers' acceptances, and
certificates of deposit) issued by a depository institution or trust company or
a wholly owned Subsidiary or branch office of any depository institution or
trust company, provided that (a) such depository institution or trust company
has, at the time of the Company's or any Restricted Subsidiary's Investment
therein or contractual commitment providing for such Investment, capital,
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surplus, or undivided profits (as of the date of such institution's most
recently published financial statements) in excess of $100.0 million and (b) the
commercial payer of such depository institution or trust company, at the time of
the Company's or any Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment, is rated at least A1 by S&P or P-1 by
Moody's; (iii) debt obligations (including, but not limited to, commercial paper
and medium term notes) issued or unconditionally guaranteed as to principal and
interest by any corporation, state or municipal government or agency or
instrumentality thereof, or foreign sovereignty, if the commercial paper of such
corporation, state or municipal government, or foreign sovereignty, at the time
of the Company's or any Restricted Subsidiary's Investment therein or
contractual commitment providing for such Investment, is rated at least A1 by
S&P or P-1 by Moody's; (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the type described above entered into
with a depository institution or trust company meeting the qualifications
described in clause (ii) above; and (v) Investments in money market or mutual
funds that invest predominantly in Cash Equivalents of the type described in
clauses (i), (ii), (iii), and (iv) above; provided, however, that, in the case
of the clauses (i) through (iii) above, each such Investment has a maturity of
one year or less from the date of acquisition thereof.
"Consolidated Net Tangible Assets" means total assets (less depreciation
and valuation reserves and other reserves and items deductible from gross book
value of specific asset accounts under GAAP) after deducting therefrom (i) all
current liabilities and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount, organization expenses and other like intangibles, all
as set forth on the most recent balance sheet of the Company and its
consolidated Subsidiaries and computed in accordance with GAAP.
"Existing Indebtedness" means all Indebtedness under or evidenced by: (i)
the TERMS, (ii) the Company's 7% Senior Debentures Due 2028; (iii) the Company's
7.45% Senior Debentures Due 2017; (iv) the Company's 6.79% Senior Debentures Due
2027; (v) the Company's 10% Senior Notes Due 2001; (vi) the Company's 8.125%
Senior Notes Due 2002; (vii) the Company's 8.5% Senior Notes Due 2003; (viii)
the Company's 5% Convertible Subordinated Notes Due 2003; (ix) the outstanding
principal amount of notes issued pursuant to the Mortgage Note Agreement between
Macy's Primary Real Estate, Inc. and Federated Noteholding Corporation; (x) the
outstanding principal amount of notes issued pursuant to the Loan Agreement
among Lazarus PA, Inc., PNC Bank Ohio, National Association, as agent, and the
financial institutions party thereto; (xi) capital lease obligations of the
Company and the Restricted Subsidiaries existing on the date of issuance of the
Debentures; and (xii) the other secured Indebtedness of the Company or secured
or unsecured Indebtedness of the Restricted Subsidiaries existing on the date of
issuance of the Debentures.
"Indebtedness" means, as applied to any Person, without duplication: (i)
all obligations of such Person for borrowed money; (ii) all obligations of such
Person for the deferred purchase price of property or services (other than
property and services purchased, and expense accruals and deferred compensation
items arising, in the ordinary course of business); (iii) all obligations of
such Person evidenced by notes, bonds, debentures, redeemable preferred stock,
or other similar instruments (other than performance, surety, and appeals bonds
arising in the ordinary course of business); (iv) all payment obligations
created or arising under any conditional sale, deferred price, or other title
retention agreement with respect to property acquired by such Person (unless the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property); (v) any capital
lease obligation of such Person; (vi) all reimbursement, payment, or similar
obligations, contingent or otherwise, of such Person under acceptance, letter of
credit, or similar facilities (other than letters of credit in support of trade
obligations or incurred in connection with public liability insurance, workers'
compensation, unemployment insurance, old-age pensions, and other social
security benefits other than in respect of employee benefit plans subject to
ERISA); (vii) all obligations of such Person, contingent or otherwise, under any
guarantee by such Person of the obligations of another Person of the type
referred to in clauses (i) through (vi) above; and (viii) all obligations
referred to in clauses (i) through (vi) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any mortgage or security interest in property (including without
limitation accounts, contract rights, and general intangibles) owned by such
Person and as to which such Person has not assumed or become liable for the
payment of such obligations other than to the extent of the
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property subject to such mortgage or security interest; provided, however, that
Indebtedness of the type referred to in clauses (vii) and (viii) above will be
included within the definition of "Indebtedness" only to the extent of the least
of: (a) the amount of the underlying Indebtedness referred to in the applicable
clause (i) through (vi) above; (b) in the case of clause (vii), the limit on
recovery, if any, from such Person under obligations of the type referred to in
clause (vii) above; and (c) in the case of clause (viii), the aggregate value
(as determined in good faith by the Board) of the security for such
Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any capital stock, bonds, notes, debentures, or other securities
or evidences of Indebtedness issued by any other Person. The amount of any
Investment shall be the original cost thereof, plus the cost of all additions
thereto, without any adjustments for increases or decreases in value, write-ups,
write-downs, or write-offs with respect to such Investment.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Permitted Liens" means: (a) liens (other than liens on inventory) securing
(i) Existing Indebtedness; (ii) Indebtedness under the Bank Facilities in an
aggregate principal amount at any one time not to exceed $2,800.0 million, less
(1) principal payments actually made by the Company on any term loan facility
under such Bank Facilities (other than principal payments made in connection
with or pursuant to a refinancing of the Bank Facilities in compliance with
clause (a)(ix) below) and (2) any amounts by which any revolving credit facility
commitments under the Bank Facilities are permanently reduced (other than
permanent reductions made in connection with or pursuant to a refinancing of the
Bank Facilities in compliance with clause (a)(ix) below) except that under no
circumstances will the total allowable indebtedness under this clause (a)(ii) be
less than $1,250.0 million (subject to increase from and after the date of
issuance of the TERMS at a rate, compounded annually, equal to 3% per annum) if
incurred for the purpose of providing the Company and its Subsidiaries with
working capital including bankers' acceptances, letters of credit, and similar
assurances of payment whether as part of the Bank Facilities or otherwise; (iii)
Indebtedness existing as of the date of issuance of the TERMS of any Subsidiary
of the Company engaged primarily in the business of owning or leasing real
property; (iv) Indebtedness incurred for the purpose of financing store
construction and remodeling or other capital expenditures; (v) Indebtedness in
respect of the deferred purchase price of property or arising under any
conditional sale or other title retention agreement; (vi) Indebtedness of a
Person acquired by the Company or a Subsidiary of the Company at the time of
such acquisition; (vii) to the extent deemed to be "Indebtedness," obligations
under swap agreements, cap agreements, collar agreements, insurance agreements,
or any other agreement or arrangement, in each case designed to provide
protection against fluctuations in interest rates, the cost of currency, or the
cost of goods (other than inventory); (viii) other Indebtedness in outstanding
amounts not to exceed the greater of $750.0 million and 12.5% of Consolidated
Net Tangible Assets in the aggregate incurred by the Company and the Restricted
Subsidiaries at any particular time; and (ix) Indebtedness incurred in
connection with any extension, renewal, refinancing, replacement, or refunding
(including successive extensions, renewals, refinancings, replacements, or
refundings), in whole or in part, of any Indebtedness of the Company or the
Restricted Subsidiaries; provided, however, that the principal amount of the
Indebtedness so incurred does not exceed the sum of the principal amount of the
Indebtedness so extended, renewed, refinanced, replaced, or refunded, plus all
interest accrued thereon and all related fees and expenses (including any
payments made in connection with procuring any required lender or similar
consents); (b) liens incurred and pledges and deposits made in the ordinary
course of business in connection with liability insurance, workers'
compensation, unemployment insurance, old-age pensions, and other social
security benefits other than in respect of employee benefit plans subject to
ERISA; (c) liens securing performance, surety, and appeal bonds and other
obligations of like nature incurred in the ordinary course of business; (d)
liens on goods and documents securing trade letters of credit; (e) liens imposed
by law, such as carriers', warehousemen's, mechanics', materialmen's, and
vendors' liens, incurred in the ordinary course of business and securing
obligations which are not yet due or which are being contested in good faith by
appropriate proceedings; (f) liens securing the payment of taxes, assessments,
and governmental charges or levies (1) either (x) not delinquent or (y) being
contested in good faith by appropriate legal or
S-15
<PAGE> 16
administrative proceedings and (2) as to which adequate reserves shall have been
established on the books of the relevant corporation in conformity with GAAP;
(g) zoning restrictions, easements, rights of way, reciprocal easement
agreements, operating agreements, covenants, conditions, or restrictions on the
use of any parcel of property that are routinely granted in real estate
transactions or do not interfere in any material respect with the ordinary
conduct of the business of the Company and its Subsidiaries or the value of such
property for the purpose of such business; (h) liens on property existing at the
time such property is acquired; (i) purchase money liens upon or in any property
acquired or held in the ordinary course of business to secure Indebtedness
incurred solely for the purpose of financing the acquisition of such property;
(j) liens on the assets of any Subsidiary of the Company at the time such
Subsidiary is acquired; (k) liens with respect to obligations in outstanding
amounts not to exceed $100.0 million at any particular time and that (1) are not
incurred in connection with the borrowing of money or obtaining advances or
credit (other than trade credit in the ordinary course of business) and (2) do
not in the aggregate interfere in any material respect with the ordinary conduct
of the business of the Company and its Subsidiaries; and (l) without limiting
the ability of the Company or any Restricted Subsidiary to create, incur,
assume, or suffer to exist any lien otherwise permitted under any of the
foregoing clauses, any extension, renewal, or replacement, in whole or in part,
of any lien described in the foregoing clauses; provided, however, that any such
extension, renewal, or replacement lien is limited to the property or assets
covered by the lien extended, renewed, or replaced or substitute property or
assets, the value of which is determined by the Board of Directors of the
Company to be not materially greater than the value of the property or assets
for which the substitute property or assets are substituted.
"Person" means an individual, partnership, corporation (including without
limitation a business trust), joint stock company, trust, unincorporated
association, joint venture, or other entity, or a government or any political
subdivision or agency thereof.
"Restricted Subsidiary" means any direct or indirect Subsidiary (as that
term is defined in Regulation S-X promulgated by the Commission) other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc., or any successor to the rating agency business thereof.
"Senior Indebtedness" means any Indebtedness of the Company or its
Subsidiaries other than Subordinated Indebtedness.
"Significant Subsidiary" means any Subsidiary that accounts for (i) 10% or
more of the total consolidated assets of the Company and its Subsidiaries as of
any date of determination or (ii) 10% or more of the total consolidated revenues
of the Company and its Subsidiaries for the most recently concluded fiscal
quarter.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the TERMS.
"Subsidiary" means, as applied, with respect to any Person, any
corporation, partnership, or other business entity of which, in the case of a
corporation, more than 50% of the issued and outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation has or might have voting power upon the
occurrence of any contingency), or, in the case of any partnership or other
legal entity, more than 50% of the ordinary equity capital interests, is at the
time directly or indirectly owned or controlled by such Person, by such Person
and one or more of its other Subsidiaries, or by one or more of such Person's
other Subsidiaries.
"Unrestricted Subsidiary" means any entity designated as such in the
Supplemental Indenture (including the Company's existing receivables finance
Subsidiaries, FDS National Bank, FACS Group, Inc., Federated Credit Holdings
Corporation, Prime Credit Card Master Trust (to the extent that it is deemed to
be a Subsidiary), Prime Credit Card Master Trust II (to the extent it is deemed
to be a Subsidiary) Prime Receivables Corporation, Prime II Receivables
Corporation, Seven Hills Funding Corporation, Ridge Capital Trust II (to the
extent that it is deemed to be a Subsidiary), Macy Financial, Inc., R.H. Macy
Overseas
S-16
<PAGE> 17
Finance, N.V., Macy Credit Corp., and Macy's Data and Credit Services Corp.) or
by the Board, provided that such entity is a special purpose entity formed for
financing purposes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the TERMS is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with such consequences to persons who purchase
the TERMS offered hereby and who hold such TERMS as capital assets, and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, tax-exempt entities, regulated investment
companies, dealers in securities or currencies, persons holding TERMS as a hedge
against currency risk or as a position in a "straddle" for tax purposes, or
persons whose functional currency is not the U.S. dollar. In addition, this
discussion addresses only the United States federal income tax consequences of
the TERMS until the Initial Investor Maturity Date. PERSONS CONSIDERING THE
PURCHASE OF THE TERMS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE TERMS ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
As used herein, the term "U.S. Holder" means a Holder of a TERMS that is
for United States federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury Regulations), (iii) an estate whose
income is subject to United States federal income tax regardless of its source,
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust, or
(v) any other person whose income or gain in respect of a TERMS is effectively
connected with the conduct of a United States trade or business. Notwithstanding
the preceding sentence, to the extent provided in Treasury Regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons also will be "U.S. Holders." As used herein, the term "non-U.S. Holder"
means a Holder of a TERMS that is not a U.S. Holder.
The United States federal income tax treatment of debt obligations such as
the TERMS is not entirely certain. Because the TERMS are subject to mandatory
tender on the Initial Investor Maturity Date, the Company intends to treat the
TERMS, for United States federal income tax purposes, as maturing on the Initial
Investor Maturity Date and, should the Remarketing Dealer remarket the TERMS, as
being reissued on the Initial Investor Maturity Date. By purchasing the TERMS,
each U.S. Holder agrees to such treatment for United States federal income tax
purposes. Based on such treatment, interest on the TERMS will constitute
"qualified stated interest" and generally will be taxable to a U.S. Holder as
ordinary interest income at the time such payments are accrued or received (in
accordance with the U.S. Holder's regular method of tax accounting).
It is expected that the TERMS will be issued without having original issue
discount. If, however, the TERMS are issued at a discount greater than the
statutory de minimis amount (generally 1/4 of 1% of the TERMS' stated redemption
price at the Initial Investor Maturity Date multiplied by the number of complete
years to the Initial Investor Maturity Date from its issue date), a Holder would
be required to include original issue discount in income as ordinary interest
income for United States federal income tax purposes as it accrues under a
constant yield method in advance of receipt of the cash payments attributable to
such income, regardless of the Holder's regular method of tax accounting.
Upon the sale, exchange or retirement of a TERMS, a U.S. Holder generally
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (other than amounts representing
accrued and unpaid interest) and such U.S. Holder's adjusted tax basis in the
TERMS. A U.S. Holder's adjusted tax basis in a TERMS generally will equal such
U.S. Holder's initial investment in
S-17
<PAGE> 18
the TERMS increased by any original issue discount included in income and
decreased by the amount of any payments, other than qualified stated interest
payments, received and amortizable bond premium taken with respect to such
TERMS. Such gain or loss will generally be long-term capital gain or loss if the
TERMS were held for more than one year. Long-term capital gain recognized by
non-corporate Holders is subject to a reduced tax rate of 20%. The deductibility
of capital losses is subject to limitations.
There can be no assurance that the Internal Revenue Service ("IRS") will
agree with the manner in which the Company intends to treat the TERMS for United
States federal income tax purposes. Among other possibilities, the IRS could
seek to treat the TERMS as maturing on the Maturity Date, in which event (i) the
TERMS would be subject to the Treasury Regulations governing debt instruments
that provide for contingent payments (the "Contingent Payment Regulations"),
(ii) the issue price of the TERMS would be treated as including the value of the
mandatory tender right, (iii) the Company would be required to construct a
projected payment schedule for the TERMS based upon the Company's current
borrowing costs for comparable debt instruments of the Company, from which an
estimated yield on the TERMS would be calculated. In addition, a U.S. Holder
would be required to include in income original issue discount in an amount
equal to the product of the adjusted issue price of the TERMS at the beginning
of each interest accrual period and the estimated yield of the TERMS. In
general, for these purposes, a TERMS' adjusted issue price would equal the
TERMS' issue price increased by the interest previously accrued on the TERMS,
and reduced by all payments made on the TERMS. As a result of the application of
the Contingent Payment Regulations, it is possible that a U.S. Holder would be
required to include interest in income in excess of actual cash payments
received for certain taxable years.
The character of any gain or loss, upon the sale or exchange of a TERMS
(including a sale pursuant to the mandatory tender on the Initial Investor
Maturity Date) by a U.S. Holder, would likely differ if the TERMS were treated
as contingent payment obligations. Any such taxable gain generally would be
treated as ordinary income. Any such taxable loss generally would be ordinary to
the extent of previously accrued original issue discount, and any excess would
generally be treated as capital loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a TERMS (i) unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company or a bank receiving interest described in
section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), or (ii) unless and to the extent that any such payments are treated as
contingent interest under the Code. To qualify for exemption from taxation, the
last United States payor in the chain of payment prior to payment to a non-U.S.
beneficial owner (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial owner
of the TERMS under penalties of perjury, (ii) certifies that such owner is not a
U.S. Holder, and (iii) provides the name and address of the beneficial owner.
The statement may be made on an IRS Form W-8 or a substantially similar form,
and the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a TERMS is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. Under applicable Treasury
Regulations, the statement requirement referred to above may also be satisfied
with other documentary evidence for interest paid after December 31, 1999 with
respect to an offshore account or through certain foreign intermediaries.
Generally, a non-U.S. Holder will not be subject to United States federal
income taxes on any amount which constitutes gain upon retirement or disposition
of a TERMS unless (i) the gain is effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder or (ii) in the
case of an individual non-U.S. Holder, such individual is present in the United
States for 183 or more days in the tax
S-18
<PAGE> 19
year of disposition and certain other conditions are satisfied. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The TERMS will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the Company
or, at the time of such individual's death, payments in respect of the TERMS
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the TERMS to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the TERMS to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or otherwise establishes an exemption.
Compliance with the identification procedures described in the preceding section
would establish an exemption from backup withholding for those non-U.S. Holders
who are not exempt recipients.
In addition, upon the sale of a TERMS to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
Holder would be allowed as a refund or a credit against such Holder's United
States federal income tax provided the required information is furnished to the
IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
S-19
<PAGE> 20
UNDERWRITING
Under the terms and conditions contained in an Underwriting Agreement dated
August 19, 1998 (the "Underwriting Agreement"), the Underwriters named below
(the "Underwriters"), have severally but not jointly agreed to purchase from the
Company the following respective principal amounts of the TERMS:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
Credit Suisse First Boston Corporation...................... $148,750,000
Goldman, Sachs & Co......................................... 148,750,000
Chase Securities Inc........................................ 35,000,000
BancAmerica Robertson Stephens.............................. 8,750,000
Citicorp Securities, Inc. .................................. 8,750,000
------------
Total............................................. $350,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the TERMS, if any are purchased.
The Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances, the purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the TERMS to the public initially at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain dealers
at such price less a concession of .20% of the principal amount per TERMS and
the Underwriters and such dealers may allow a discount of .125% of such
principal amount per TERMS on sales to certain other dealers. After the initial
public offering, the public offering price and concession and discount to
dealers may be changed by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities, under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the TERMS in the open
market. Penalty bids permit the Underwriters to reclaim a selling concession
from a syndicate member when the TERMS originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the TERMS to be higher than it would
otherwise be in the absence of such transactions. These transactions, if
commenced, may be discontinued at any time.
The TERMS are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the TERMS but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the TERMS. In addition, there can be no
assurance that an active or liquid market for the TERMS will develop or, if any
such market develops, that it will continue to exist.
Following a Remarketing Date, the TERMS may be remarketed to or through the
Remarketing Dealer, directly to purchasers, to dealers or otherwise. Such
transactions may be effected from time to time at a fixed price or prices, or at
market prices prevailing at the time of sales at prices related to such
prevailing market prices or at negotiated prices. If required at any time, this
Prospectus Supplement and the accompanying Prospectus, as amended or
supplemented, or a new Prospectus may be used in connection with remarketing the
TERMS. The TERMS may also be remarketed following a Remarketing Date in one or
more private transactions, including pursuant to Rule 144A under the Securities
Act.
S-20
<PAGE> 21
The Underwriters and their respective affiliates have provided investment
banking and/or commercial banking services to the Company from time to time. The
Underwriters have received customary fees in connection with providing these
services. The Remarketing Dealer has paid the Company $9.1 million in
consideration for the right to remarket the TERMS as described herein.
This offering is being made pursuant to the provisions of Conduct Rule
2710(c)(8) of the National Association of Securities Dealers, Inc.
George V. Grune, a director of the Company, is also a director of The Chase
Manhattan Corporation and The Chase Manhattan Bank, affiliates of Chase
Securities Inc.
It is expected that delivery of the TERMS will be made against payment
therefor on or about the date specified in the last paragraph of the cover page
of this Prospectus Supplement, which is the fifth business day following the
date of pricing of the TERMS. Under Rule 15c6-1 of the U.S. Securities and
Exchange Commission under the Exchange Act, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade TERMS on the date of pricing or the next five succeeding Business Days
will be required, by virtue of the fact that the TERMS initially will settle in
T+5, to specify an alternate settlement cycle at the time of any such trade to
prevent a failed settlement. Purchasers of TERMS who wish to trade TERMS on the
date of pricing or the next five succeeding Business Days should consult their
own advisor.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the TERMS in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities' regulatory authorities in each province where
trades of TERMS are effected. Accordingly, any resale of the TERMS in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the TERMS.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the TERMS in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such TERMS without the benefit
of a prospectus qualified under such securities laws, (ii) where required by
law, that such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the
S-21
<PAGE> 22
issuer or such persons in Canada or to enforce a judgment obtained in Canadian
courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of TERMS to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any TERMS acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of TERMS acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of TERMS should consult their own legal and tax
advisors with respect to the tax consequence of an investment in the TERMS in
their particular circumstances and with respect to the eligibility of the TERMS
for investment by the purchaser under relevant Canadian legislation.
EXPERTS
The consolidated financial statements of the Company as of January 31, 1998
and February 1, 1997, and for the 52-week periods ended January 31, 1998 and
February 1, 1997 and the 53-week period ended February 3, 1996 have been
incorporated by reference in this Prospectus Supplement in reliance upon the
report, incorporated by reference herein, of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the TERMS offered hereby will be passed upon for the
Company by Jones, Day, Reavis & Pogue. Certain legal matters will be passed upon
for the Underwriters by Simpson Thacher & Bartlett.
S-22
<PAGE> 23
PROSPECTUS
$1,000,000,000
FEDERATED DEPARTMENT STORES, INC.
DEBT SECURITIES
COMMON STOCK
PREFERRED STOCK
WARRANTS
------------------------------
Federated Department Stores, Inc. (the "Company") may offer from time to
time, together or separately, (i) debt securities ("Debt Securities") consisting
of notes, debentures, or other evidences of indebtedness in one or more series,
(ii) shares of its Common Stock, par value $.01 per share (the "Common Stock"),
(iii) shares of its Preferred Stock, par value $.01 per share (the "Preferred
Stock"), and (iv) warrants to purchase Debt Securities, Common Stock, or
Preferred Stock, or any combination thereof, as may be designated by the Company
at the time of the offering (the "Warrants") in amounts, at prices, and on terms
to be determined at the time of the offering. The Debt Securities, Common Stock,
Preferred Stock, and Warrants are collectively called the "Securities".
The Securities may be offered in separate series or issuances at an
aggregate initial public offering price not to exceed $1,000,000,000 or, if
applicable, the equivalent thereof in other currencies, at prices, and on terms
to be determined at the time or times of offering.
The specific terms of the Securities with respect to which this Prospectus
is being delivered are set forth in the accompanying Prospectus Supplement and
include, where applicable, (i) in the case of Debt Securities, the specific
designation, aggregate principal amount, purchase price, maturity, rate (or
method of calculation thereof) and time of payment of interest, if any, any
conversion or exchange provisions, any redemption provisions, any subordination
provisions, and any other specific terms of the Debt Securities offered hereby
not set forth herein under the caption "Description of Debt Securities" in this
Prospectus, and any listing thereof on a securities exchange; (ii) in the case
of Common Stock, the number of shares and any initial public offering price;
(iii) in the case of Preferred Stock, the number of shares, the specific title,
the aggregate amount, any dividend (including the method of calculating payment
of dividends), seniority, liquidation, redemption, voting and other rights, any
terms for any conversion or exchange into other Securities, any listing on a
securities exchange, the initial public offering price, and any other terms; and
(iv) in the case of Warrants, the designation and number, the exercise price,
any listing of the Warrants or the underlying Securities on a securities
exchange, and any other terms in connection with the offering, sale and exercise
of the Warrants.
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the trading symbol "FD." Any Common Stock sold pursuant to a
Prospectus Supplement will be listed on the NYSE, subject to official notice of
issuance.
Any statement contained in this Prospectus will be deemed to be modified or
superseded by any inconsistent statement contained in the accompanying
Prospectus Supplement.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
The Securities will be sold either through underwriters, dealers, or agents
or directly by the Company. The accompanying Prospectus Supplement sets forth
the names of any underwriters, dealers, or agents involved in the sale of the
Securities in respect of which this Prospectus is being delivered, the proposed
amounts, if any, to be purchased by underwriters, and the compensation, if any,
of such underwriters, dealers, or agents.
------------------------------
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
------------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 11, 1997.
<PAGE> 24
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
DESCRIBED HEREIN OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), ARE
CONTAINED IN, OR INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS OR THE
ACCOMPANYING PROSPECTUS SUPPLEMENT. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S
CONTROL. FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS
"BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," AND SIMILAR
EXPRESSIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING
GENERAL ECONOMIC CONDITIONS AND CONDITIONS IN THE RETAIL INDUSTRY, COMPETITIVE
CONSIDERATIONS, AND OTHER FACTORS. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT
THE RESULTS AND EVENTS CONTEMPLATED BY SUCH FORWARD-LOOKING INFORMATION WILL IN
FACT OCCUR, AND READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO
UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.
------------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements, and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's Regional Offices located at 7 World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock and certain other
securities of the Company are listed on the NYSE. Reports and other information
concerning the Company may also be inspected and copied at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement, which may be inspected and copied at, or obtained from,
the Commission or the NYSE in the manner described above.
------------------------------
2
<PAGE> 25
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended February
1, 1997 (File No. 1-13536) (the "1996 Form 10-K"), the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 3, 1997 (the "First Quarter
Form 10-Q"), the Company's Current Report on Form 8-K dated July 15, 1997, and
all reports and other documents filed by the Company pursuant to Sections 13(a),
13(c), 14, and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities
pursuant hereto are incorporated herein by reference.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified will not be deemed to
constitute a part of this Prospectus, except as so modified, and any statement
so superseded will not be deemed to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
Federated Department Stores, Inc., 7 West Seventh Street, Cincinnati, Ohio
45202, Attention: Investor Relations (telephone: (513) 579-7780).
3
<PAGE> 26
THE COMPANY
The Company is one of the leading operators of full-line department stores
in the United States with over 400 department stores in 36 states. The Company's
department stores sell a wide range of merchandise, including men's, women's,
and children's apparel and accessories, cosmetics, home furnishings, and other
consumer goods, and are diversified by size of store, merchandising character,
and character of community served. The Company's department stores are located
at urban or suburban sites, principally in densely populated areas across the
United States. As of the date of this Prospectus, the Company also operates
approximately 150 specialty stores under the names "Aeropostale" and "Charter
Club," and a mail order catalog business under the name "Bloomingdale's By
Mail."
The Company's principal executive offices are located at 151 West 34th
Street, New York, New York 10001, and 7 West Seventh Street, Cincinnati, Ohio
45202. The Company's telephone numbers at such offices are (212) 695-4400 and
(513) 579-7000, respectively.
USE OF PROCEEDS
The principal reason for this offering is to make funds available for
general corporate purposes, which may include the repayment of indebtedness
outstanding from time to time, acquisitions, new store construction, store
expansions, and further investments in technology. Other reasons, if any, for
this offering are set forth in the accompanying Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods set forth
below has been computed on a consolidated basis and should be read in
conjunction with the Company's Consolidated Financial Statements (including the
notes thereto) set forth in the 1996 Form 10-K and the First Quarter Form 10-Q.
As a result of substantial acquisition transactions, the Company's results of
operations for its fiscal year ended January 28, 1995 and subsequent periods are
not directly comparable to its results of operations for prior periods.
<TABLE>
<CAPTION>
13 WEEKS FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MAY 3, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1997 1996 1995 1994 1993
-------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated ratio of earnings
to fixed charges
(unaudited)(1).............. 1.30x 1.71x 1.31x 1.99x 2.33x 1.72x
</TABLE>
- ------------------------------
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges (excluding capitalized interest). Fixed charges represent interest
incurred, amortization of debt expense, and that portion of rental expense
on operating leases deemed to be the equivalent of interest.
4
<PAGE> 27
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be issued under an Indenture, dated as of
September 10, 1997 (the "Indenture"), between the Company and Citibank, N.A., as
Trustee (the "Trustee"). The statements under this caption are brief summaries
of the material provisions of the Indenture, do not purport to be complete, and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Indenture. Except as otherwise defined herein, capitalized
terms used herein have the meanings given to them in the Indenture.
The Indenture does not limit the aggregate amount of Debt Securities which
may be issued thereunder. The Debt Securities may be issued from time to time in
one or more series. Reference is made to the accompanying Prospectus Supplement
for the following terms and other information with respect to the Debt
Securities being offered hereby: (i) the title of such Debt Securities; (ii) any
limit on the aggregate principal amount of such Debt Securities; (iii) the
persons to whom any interest on such Debt Securities will be payable, if other
than the registered holders thereof on the Regular Record Date therefor; (iv)
the date or dates (or manner of determining the same) on which the principal of
such Debt Securities will be payable; (v) the rate or rates (or manner of
determining the same) at which such Debt Securities will bear interest, if any,
and the date or dates from which such interest will accrue; (vi) the dates (or
manner of determining the same) on which such interest will be payable and the
Regular Record Dates for such Interest Payment Dates; (vii) the place or places
where the principal of and any premium and interest on such Debt Securities will
be payable; (viii) the period or periods, if any, within which, and the price or
prices at which, such Debt Securities may be redeemed, in whole or in part, at
the option of the Company; (ix) any mandatory or optional sinking fund or
analogous provisions; (x) the denominations in which any Debt Securities will be
issuable if other than denominations of $1,000 and any integral multiple
thereof; (xi) the currency or currencies or currency units, if other than
currency of the United States of America, in which payment of the principal of
and any premium or interest on such Debt Securities will be payable, and the
terms and conditions of any elections that may be made available with respect
thereto; (xii) any index or formula used to determine the amount of payments of
principal of and any premium or interest on such Debt Securities; (xiii) whether
the Debt Securities are to be issued in whole or in part in the form of one or
more global securities ("Global Securities"), and, if so, the identity of the
depositary, if any, for such Global Security or Securities; (xiv) the terms and
conditions, if any, pursuant to which such Debt Securities are convertible into
or exchangeable for Common Stock or other securities of the Company or other
issuers (provided, however, that any such securities issuable upon conversion or
exchange of Debt Securities will be subject to registration under the Securities
Act or an applicable exemption therefrom); (xv) the applicability of the
provisions described in "-- Defeasance"; (xvi) any subordination provisions
applicable to such Debt Securities; and (xvii) any other terms of the Debt
Securities.
Debt Securities may be issued at a discount from their stated principal
amount. Certain federal income tax considerations and other special
considerations applicable to any Debt Security issued with original issue
discount (an "Original Issue Discount Security") may be described in an
applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
the restrictions, elections, general tax considerations, specific terms, and
other information with respect to such issue of Debt Securities and such foreign
currency or currencies or foreign currency unit or units will be set forth in an
applicable Prospectus Supplement.
Unless otherwise indicated in an applicable Prospectus Supplement, (i) the
Debt Securities will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof and (ii) payment of principal, premium (if
any), and interest on the Debt Securities will be payable, and the exchange,
conversion, and transfer of Debt Securities will be registerable, at the office
or agency of the Company maintained for such purposes and at any other office or
agency maintained for such purpose. No service charge will be made for
5
<PAGE> 28
any registration of transfer or exchange of the Debt Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (a "Depositary") or its nominee identified in an applicable
Prospectus Supplement. In such a case, one or more Global Securities will be
issued in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of Debt Securities of the series to be represented by
such Global Security or Securities. Unless and until it is exchanged in whole or
in part for Debt Securities in registered form, a Global Security may not be
registered for transfer or exchange except as a whole by the Depositary for such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any nominee to a successor Depositary or a nominee of such
successor Depositary and except in any other circumstances described in an
applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in an applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements.
Unless otherwise specified in an applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such depositary or its nominee
("Participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in such Global Securities will be limited to Participants or Persons
that may hold interests through Participants. Ownership of beneficial interests
by Participants in such Global Security will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depositary or its nominee for such Global Security. Ownership of beneficial
interests in such Global Security by Persons that hold through Participants will
be shown on, and the transfer of that ownership interest within such Participant
will be effected only through, records maintained by such Participants. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in an applicable Prospectus Supplement,
owners of beneficial interests in such Global Securities will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certificated form, and will not be
considered the owners or Holders thereof for any purpose under the Indenture.
Accordingly, each Person owning a beneficial interest in such Global Security
must rely on the procedures of the Depositary and, if such Person is not a
Participant, on the procedures of the Participant through which such Person owns
its interest, to exercise any rights of a Holder under the Indenture. The
Company understands that, under existing industry practices, if the Company
requests any action of Holders or an owner of a beneficial interest in such
Global Security desires to give any notice or take any action a Holder is
entitled to give or take under Indenture, the Depositary would authorize the
Participants to give such notice or take such action, and Participants would
authorize beneficial owners owning through such Participants to give such notice
or take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
6
<PAGE> 29
Principal of and any premium and interest on a Global Security will be
payable in the manner described in an applicable Prospectus Supplement. Payment
of principal of, and any premium or interest on, Debt Securities registered in
the name of or held by a Depository or its nominee will be made to the
Depository or its nominee, as the case may be, as the registered owner or the
holder of the Global Security representing such Debt Securities. None of the
Company, the Trustee, any Paying Agent, or the Registrar for such Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security for such Debt Securities or for maintaining,
supervising, or reviewing any records relating to such beneficial ownership
interests.
CERTAIN COVENANTS
Maintenance of Office or Agency. The Company will be required to maintain
an office or agency in each place of payment for each series of Debt Securities
for notice and demand purposes and for the purposes of presenting or
surrendering Debt Securities for payment, registration of transfer, or exchange.
Paying Agents, Etc. If the Company acts as its own paying agent with
respect to any series of Debt Securities, on or before each due date of the
principal of, or interest on any of the Debt Securities of that series, it will
be required to segregate and hold in trust for the benefit of the persons
entitled thereto a sum sufficient to pay such amount due and to notify the
Trustee promptly of its action or failure so to act. If the Company has one or
more paying agents for any series of Debt Securities, prior to each due date of
the principal of or interest on any Debt Securities of that series, it will
deposit with a paying agent a sum sufficient to pay such amount, and the Company
will promptly notify the Trustee of its action or failure so to act (unless such
paying agent is the Trustee). All moneys paid by the Company to a paying agent
for the payment of principal of and interest on any Debt Securities that remain
unclaimed for two years after such principal or interest has become due and
payable may be repaid to the Company, and thereafter the holder of such Debt
Securities may look only to the Company for payment thereof.
Payment of Taxes and Other Claims. The Company will be required to pay and
discharge, before the same become delinquent, (i) all taxes, assessments, and
governmental charges levied or imposed upon the Company or any Subsidiary of the
Company or their properties and (ii) all claims that if unpaid would result in a
lien on their property and have a material adverse effect on the business,
assets, financial condition, or results of operations of the Company and its
Subsidiaries, taken as a whole (a "Material Adverse Effect"), unless the same is
being contested by proper proceedings.
Maintenance of Properties. The Company will be required to cause all
properties used in the business of the Company or any Subsidiary of the Company
to be maintained and kept in good condition, repair, and working order, except
to the extent that the failure to do so would not have a Material Adverse
Effect.
Existence. The Company will be required to, and also will be required to
cause its Subsidiaries to, preserve and keep in full force their existence,
charter rights, statutory rights, and franchises, except to the extent that
failure to do so would not have a Material Adverse Effect.
Compliance with Laws. The Company will be required to and to cause its
Subsidiaries to comply with all applicable laws to the extent the failure to do
so would have a Material Adverse Effect.
Restrictive Covenants. Any restrictive covenants applicable to any series
of Debt Securities will be described in an applicable Prospectus Supplement.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to
Debt Securities of any series: (i) default in the payment of the principal of
(or premium, if any, on) any Debt Security of that series when it becomes due
and payable; (ii) default in the payment of any interest on any Debt Security of
that series when it becomes due and payable, and continuance of such default for
a period of 30 calendar days; (iii) default in the making of any sinking fund
payment as and when due by the terms of any Debt Security of that series; (iv)
default in the performance, or breach, of any other covenant or warranty of the
Company in the Indenture (other than a covenant included in the Indenture solely
for the benefit of a series of Debt Securities other than
7
<PAGE> 30
that series) and continuance of such default for a period of 60 calendar days
after written notice thereof has been given to the Company as provided in the
Indenture; (v) any nonpayment at maturity or other default (beyond any
applicable grace period) under any agreement or instrument relating to any other
indebtedness of the Company the principal amount of which is not less than $100
million, which default results in such indebtedness becoming due prior to its
stated maturity or occurs at the final maturity thereof; (vi) certain events of
bankruptcy, insolvency, or reorganization involving the Company; and (vii) any
other Event of Default provided with respect to Debt Securities of that series.
Pursuant to the Trust Indenture Act, the Trustee is required, within 90 calendar
days after the occurrence of a default in respect of any series of Debt
Securities, to give to the Holders of the Debt Securities of such series notice
of all such uncured defaults known to it (except that, in the case of a default
in the performance of any covenant of the character contemplated in clause (iv)
of the preceding sentence, no such notice to Holders of the Debt Securities of
such series will be given until at least 30 calendar days after the occurrence
thereof), except that, other than in the case of a default of the character
contemplated in clause (i), (ii), or (iii) of the preceding sentence, the
Trustee may withhold such notice if and so long as it in good faith determines
that the withholding of such notice is in the interests of the Holders of the
Debt Securities of such series.
If an Event of Default with respect to Debt Securities occurs and is
continuing, either the Trustee or the Holders of at least 25% in principal
amount of the Debt Securities of that series by notice as provided in the
Indenture may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all Debt Securities
of that series to be due and payable immediately. However, at any time after a
declaration of acceleration with respect to Debt Securities of any series has
been made, but before a judgment or decree based on such acceleration has been
obtained, the Holders of a majority in principal amount of the Debt Securities
of that series may, under certain circumstances, rescind and annul such
acceleration. See "-- Modification and Waiver" below. If an Event of Default
under clause (vi) of the immediately preceding paragraph occurs, then the
principal of, premium on, if any, and accrued interest on the Debt Securities of
that series will become immediately due and payable without any declaration or
other act on the part of the Trustee of any holder of the Debt Securities of
that series.
The Indenture provides that, subject to the duty of the Trustee thereunder
during an Event of Default to act with the required standard of care, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions, including those requiring security or
indemnification of the Trustee, the Holders of a majority in principal amount of
the Debt Securities of any series will have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, with respect
to the Debt Securities of that series.
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default and unless the Holders of at least 25% in aggregate
principal amount of the outstanding Debt Securities of the same series have also
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee has received from the
Holders of a majority in aggregate principal amount of the outstanding Debt
Securities of the same series a direction inconsistent with such request and has
failed to institute such proceeding within 60 calendar days. However, such
limitations do not apply to a suit instituted by a Holder of a Debt Security for
enforcement of payment of the principal of and interest on such Debt Security on
or after the respective due dates expressed in such Debt Security.
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of its obligations under the Indenture and as
to any default in such performance.
Any additional Events of Default with respect to any series of Debt
Securities, and any variations from the foregoing Events of Default applicable
to any series of Debt Securities, will be described in an applicable Prospectus
Supplement.
8
<PAGE> 31
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the Debt Securities of each series affected
thereby, except that no such modification or amendment may, without the consent
of the Holder of each Debt Security affected thereby, (i) change the Stated
Maturity of, or any installment of principal of, or interest on, any Debt
Security; (ii) reduce the principal amount of, the rate of interest on, or the
premium, if any, payable upon the redemption of, any Debt Security; (iii) reduce
the amount of principal of an Original Issue Discount Security payable upon
acceleration of the Maturity thereof; (iv) change the place or currency of
payment of principal of, or premium, if any, or interest on any Debt Security;
(v) impair the right to institute suit for the enforcement of any payment on or
with respect to any Debt Security on or after the Stated Maturity or Prepayment
Date thereof; or (vi) reduce the percentage in principal amount of Debt
Securities of any series, the consent of the Holders of which is required for
modification or amendment of the applicable Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
The Holders of at least a majority in aggregate principal amount of the
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with certain covenants of the Indenture. The Holders of not less
than a majority in principal amount of the Debt Securities of any series may, on
behalf of the Holders of all Debt Securities of that series, waive any past
default under the Indenture with respect to that series, except a default in the
payment of the principal of, or premium, if any, or interest on, any Debt
Security of that series or in respect of a provision which under the Indenture
cannot be modified or amended without the consent of the Holder of each Debt
Security of that series affected thereby.
DEFEASANCE
Unless otherwise specified in a Prospectus Supplement applicable to a
particular series of Debt Securities, the Company, at its option, (i) will be
deemed to have been discharged from its obligations with respect to the Debt
Securities of such series (except for certain obligations, including obligations
to register the transfer or exchange of Debt Securities of such series, to
replace destroyed, stolen, lost, or mutilated Debt Securities of such series,
and to maintain an office or agency in respect of the Debt Securities and hold
moneys for payment in trust) or (ii) will be released from its obligations to
comply with the covenants that are under "Certain Covenants" above with respect
to the Debt Securities of such series, and the occurrence of an event described
in clause (iv) under "Events of Default" above with respect to any defeased
covenant and clauses (iii), (v), and (vii) of the "Events of Default" above will
no longer be an Event of Default if, in either case, the Company irrevocably
deposits with the Trustee, in trust, money or direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged or obligations of an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable at the issuer's
option ("U.S. Government Obligations") or certain depositary receipts therefor
that through the payment of interest thereon and principal thereof in accordance
with their terms will provide money in an amount sufficient to pay all the
principal of (and premium, if any) and any interest on the Debt Securities of
such series on the dates such payments are due in accordance with the terms of
such Debt Securities. Such defeasance may be effected only if, among other
things, (a) no Event of Default or event which with the giving of notice or
lapse or time, or both, would become an Event of Default under the Indenture
shall have occurred and be continuing on the date of such deposit, (b) no Event
of Default described under clause (vi) under "-- Events of Default" above or
event that with the giving of notice or lapse of time, or both, would become an
Event of Default described under such clause (vi) shall have occurred and be
continuing at any time on or prior to the 90th calendar day following such date
of deposit, (c) in the event of defeasance under clause (i) above, the Company
has delivered an Opinion of Counsel, stating that (1) the Company has received
from, or there has been published by, the IRS a ruling or (2) since the date of
the Indenture there has been a change in applicable federal law, in either case
to the effect that, among other things, the holders of the Debt Securities of
such series will not recognize gain or loss for United States federal
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income tax purposes as a result of such deposit or defeasance and will be
subject to United States federal income tax in the same manner as if such
defeasance had not occurred, and (d) in the event of defeasance under clause
(ii) above, the Company has delivered an Opinion of Counsel to the effect that,
among other things, the Holders of the Debt Securities of such series will not
recognize gain or loss for United States federal income tax purposes as a result
of such deposit or defeasance and will be subject to United States federal
income tax in the same manner as if such defeasance had not occurred. In the
event the Company fails to comply with its remaining obligations under the
applicable Indenture after a defeasance of such Indenture with respect to the
Debt Securities of any series as described under clause (ii) above and the Debt
Securities of such series are declared due and payable because of the occurrence
of any undefeased Event of Default, the amount of money and U.S. Government
Obligations on deposit with the Trustee may be insufficient to pay amounts due
on the Debt Securities of such series at the time of the acceleration resulting
from such Event of Default. However, the Company will remain liable in respect
of such payments.
SATISFACTION AND DISCHARGE
The Company, at its option, may satisfy and discharge the Indenture (except
for certain obligations of the Company and the Trustee, including, among others,
the obligations to apply money held in trust) when (i) either (a) all Debt
Securities previously authenticated and delivered (other than (1) Debt
Securities that were destroyed, lost, or stolen and that have been replaced or
paid and (2) Debt Securities for the payment of which money has been deposited
in trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust) have been delivered to the Trustee
for cancellation or (b) all such Debt Securities not theretofore delivered to
the Trustee for cancellation (1) have become due and payable, (2) will become
due and payable at their Stated Maturity within one year, or (3) are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name and at
the expense of the Company, and the Company has deposited or caused to be
deposited with the Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire indebtedness on such Debt Securities
not previously delivered to the Trustee for cancellation, for principal and any
premium and interest to the date of such deposit (in the case of Debt Securities
which have become due and payable) or to the stated maturity or redemption date,
as the case may be, (ii) the Company has paid or caused to be paid all other
sums payable under the Indenture by the Company, and (iii) the Company has
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel,
each to the effect that all conditions precedent relating to the satisfaction
and discharge of the Indenture have been satisfied.
LIMITATIONS ON MERGER AND CERTAIN OTHER TRANSACTIONS
Prior to the satisfaction and discharge of the Indenture, the Company may
not consolidate with or merge with or into any other person, or transfer all or
substantially all of its properties and assets to another person unless (i)
either (a) the Company is the continuing or surviving person in such a
consolidation or merger or (b) the person (if other than the Company) formed by
such consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company are transferred
(the Company or such other person being referred to as the "Surviving Person")
is a corporation organized and validly existing under the laws of the United
States, any state thereof, or the District of Columbia, and expressly assumes,
by an indenture supplement, all the obligations of the Company under the Debt
Securities and the Indenture, (ii) immediately after the transaction and the
incurrence or anticipated incurrence of any indebtedness to be incurred in
connection therewith, no Event of Default exists, and (iii) an officer's
certificate is delivered to the Trustee to the effect that the conditions set
forth in the preceding clauses (i) and (ii) have been satisfied and an opinion
of counsel has been delivered to the Trustee to the effect that the conditions
set forth in the preceding clause (i) have been satisfied. The Surviving Person
will succeed to and be substituted for the Company with the same effect as if it
has been named in the Indenture as a party thereto, and thereafter the
predecessor corporation will be relieved of all obligations and covenants under
the Indenture and the Debt Securities.
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GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company within three months of, or subsequent
to, a default by the Company to make payment in full of principal of or interest
on any series of Debt Securities when and as the same becomes due and payable,
to obtain payment of claims, or to realize for its own account on property
received in respect of any such claim as security or otherwise, unless and until
such default is cured. However, the Trustee's rights as a creditor of the
Company will not be limited if the creditor relationship arises from, among
other things, the ownership or acquisition of securities issued under any
indenture or having a maturity of one year or more at the time of acquisition by
the Trustee; certain advances authorized by a receivership or bankruptcy court
of competent jurisdiction or by the Indenture; disbursements made in the
ordinary course of business in its capacity as indenture trustee, transfer
agent, registrar, custodian, or paying agent or in any other similar capacity;
indebtedness created as a result of goods or securities sold in a cash
transaction or services rendered or premises rented; or the acquisition,
ownership, acceptance, or negotiation of certain drafts, bills of exchange,
acceptances, or other obligations. The Indenture does not prohibit the Trustee
from serving as trustee under any other indenture to which the Company may be a
party from time to time or from engaging in other transactions with the Company.
If the Trustee acquires any conflicting interest and there is an Event of
Default with respect to any series of Debt Securities, it must eliminate such
conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's Certificate of Incorporation provides that the authorized
capital stock of the Company consists of 500.0 million shares of Common Stock
and 125.0 million shares of Preferred Stock.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferential rights that may be applicable to any Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors of the Company out of funds legally available
therefor. In the event of a liquidation, dissolution, or winding up of the
Company, holders of Common Stock will be entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
Preferred Stock. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities, and there are no
redemption provisions with respect to such shares. The Common Stock is listed on
the NYSE. The transfer agent and registrar for the Common Stock is The Bank of
New York.
PREFERRED STOCK
The Board of Directors of the Company has the authority to issue 125
million shares of Preferred Stock in one or more series and to fix the
designations, relative powers, preferences, limitations, and restrictions of all
shares of each such series, including without limitation dividend rates,
conversion rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, and the number of shares constituting each such series,
without any further vote or action by the stockholders. The issuance of the
Preferred Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock or adversely affect the rights and
powers, including voting rights, of the holders of Common Stock. The issuance of
the Preferred Stock could have the effect of delaying, deferring, or preventing
a change in control of the Company without further action by the stockholders.
The Board of Directors of the Company has not taken any action to designate
or issue any series of Preferred Stock, other than the Series A Junior
Participating Preferred Stock described below. The terms of any Preferred Stock
offered and the applicable Certificate of Designation, as well as the transfer
agent and registrar therefor, will be set forth in the applicable Prospectus
Supplement.
PREFERRED SHARE PURCHASE RIGHTS
Each outstanding share of Common Stock issued is accompanied by one right
(a "Right") issued pursuant to a share purchase rights agreement between the
Company and The Bank of New York, as rights agent (the "Share Purchase Rights
Agreement"). Each Right entitles the registered holder thereof to purchase from
the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share (the "Series A Preferred Shares"), of
the Company at a price (the "Purchase Price") of $62.50 per one one-hundredth of
a Series A Preferred Share, subject to adjustment.
Until the earliest to occur of the following dates (the earliest of such
dates being hereinafter called the "Rights Distribution Date"), the Rights will
be evidenced by the certificates evidencing shares of Common Stock: (i) the
close of business on the tenth business day (or such later date as may be
specified by the Board of Directors of the Company) following the first date of
public announcement by the Company that a person (other than the Company or a
subsidiary or employee benefit or stock ownership plan of the Company), together
with its affiliates and associates, has acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding Common Stock
(any such person being hereinafter called an "Acquiring Person"), (ii) the close
of business on the tenth business day (or such later date as may be specified by
the Board of Directors of the Company) following the commencement of a tender
offer or exchange offer by a person (other than the Company or a subsidiary or
employee benefit or stock ownership plan of the Company), the consummation of
which would result in beneficial ownership by such person of 20% or more of
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the outstanding Common Stock, and (iii) the close of business on the tenth
business day following the first date of public announcement by the Company that
a Flip-in Event or a Flip-over Event (as such terms are hereinafter defined) has
occurred.
The Share Purchase Rights Agreement provides that, until the Rights
Distribution Date, the Rights may be transferred with and only with the Common
Stock. Until the Rights Distribution Date (or earlier redemption or expiration
of the Rights), any certificate evidencing shares of Common Stock issued upon
transfer or new issuance of Common Stock will contain a notation incorporating
the Share Purchase Rights Agreement by reference. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates evidencing Common Stock will also constitute the
transfer of the Rights associated with such certificates. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Rights ("Rights Certificates") will be mailed to holders of record of Common
Stock as of the close of business on the Rights Distribution Date and such
separate Rights Certificates alone will evidence the Rights. No Right is
exercisable at any time prior to the Rights Distribution Date. The Rights will
expire on December 19, 2004 (the "Final Expiration Date") unless earlier
redeemed or exchanged by the Company as described below. Until a Right is
exercised, the holder thereof, as such, will have no rights as a stockholder of
the Company, including without limitation the right to vote or to receive
dividends.
The Purchase Price payable, and the number of Series A Preferred Shares or
other securities issuable, upon exercise of the Rights are subject to adjustment
from time to time to prevent dilution (i) in the event of a stock dividend on,
or a subdivision, combination, or reclassification of, the Series A Preferred
Shares, (ii) upon the grant to holders of the Series A Preferred Shares of
certain rights or warrants to subscribe for or purchase Series A Preferred
Shares at a price, or securities convertible into Series A Preferred Shares with
a conversion price, less than the then-current market price of the Series A
Preferred Shares, or (iii) upon the distribution to holders of the Series A
Preferred Shares of evidences of indebtedness or cash (excluding regular
periodic cash dividends), assets, or stock (excluding dividends payable in
Series A Preferred Shares) or of subscription rights or warrants (other than
those referred to above). The number of outstanding Rights and the number of one
one-hundredths of a Series A Preferred Share issuable upon exercise of each
Right also is subject to adjustment in the event of a stock dividend on the
Common Stock payable in shares of Common Stock or a subdivision, combination, or
reclassification of the Common Stock occurring, in any such case, prior to the
Rights Distribution Date.
The Series A Preferred Shares issuable upon exercise of the Rights will not
be redeemable. Each Series A Preferred Share will be entitled to a minimum
preferential quarterly dividend payment equal to the greater of (i) $1.00 per
share and (ii) an amount equal to 100 times the aggregate dividends declared per
share of Common Stock during the related quarter. In the event of liquidation,
the holders of the Series A Preferred Shares will be entitled to a preferential
liquidation payment equal to the greater of (a) $100 per share and (b) an amount
equal to 100 times the liquidation payment made per share of Common Stock. Each
Series A Preferred Share will have 100 votes, voting together with the Common
Stock. In the event of any merger, consolidation, or other transaction in which
shares of Common Stock are exchanged, each Series A Preferred Share will be
entitled to receive 100 times the amount received per share of Common Stock.
These rights will be protected by customary antidilution provisions. Because of
the nature of the Series A Preferred Shares' dividend, voting and liquidation
rights, the value of the one one-hundredth interest in a Series A Preferred
Share purchasable upon exercise of each Right should approximate the value of
one share of Common Stock.
Rights may be exercised to purchase Series A Preferred Shares only after
the Rights Distribution Date occurs and prior to the occurrence of a Flip-in
Event or Flip-over Event. A Rights Distribution Date resulting from the
commencement of a tender offer or exchange offer described in clause (ii) of the
definition of "Rights Distribution Date" could precede the occurrence of a
Flip-in Event or Flip-over Event and thus result in the Rights being exercisable
to purchase Series A Preferred Shares. A Rights Distribution Date resulting from
any occurrence described in clause (i) or clause (iii) of the definition of
"Rights Distribution Date" would necessarily follow the occurrence of a Flip-in
Event or Flip-over Event and thus result in the Rights being exercisable to
purchase shares of Common Stock or other securities as described below.
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In the event (a "Flip-in Event") that (i) any person, together with its
affiliates and associates, becomes the beneficial owner of 20% or more of the
outstanding Common Stock, (ii) any Acquiring Person merges into or combines with
the Company and the Company is the surviving corporation or any Acquiring Person
effects certain other transactions with the Company, as described in the Share
Purchase Rights Agreement, or (iii) during such time as there is an Acquiring
Person, there is any reclassification of securities or recapitalization or
reorganization of the Company which has the effect of increasing by more than 1%
the proportionate share of the outstanding shares of any class of equity
securities of the Company or any of its subsidiaries beneficially owned by the
Acquiring Person, proper provision will be made so that each holder of a Right,
other than Rights that are or were owned beneficially by the Acquiring Person
(which, from and after the later of the Rights Distribution Date and the date of
the earliest of any such events, will be void), will thereafter have the right
to receive upon exercise thereof at the then-current exercise price of the
Right, that number of shares of Common Stock (or, under certain circumstances,
an economically equivalent security or securities of the Company) that have a
market value of two times the exercise price of the Right.
In the event (a "Flip-over Event") that, following the first date of public
announcement by the Company that a person has become an Acquiring Person, (i)
the Company merges with or into any person and the Company is not the surviving
corporation, (ii) any person merges with or into the Company and the Company is
the surviving corporation, but all or part of the Common Stock is changed or
exchanged, or (iii) 50% or more of the company's assets or earning power,
including without limitation securities creating obligations of the Company, are
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the Right, that number of shares of common stock
(or, under certain circumstances, an economically equivalent security or
securities) of such other person which at the time of such transaction would
have a market value of two times the exercise price of the Right.
Following the occurrence of any Flip-in Event or Flip-over Event, Rights
(other than any Rights which have become void) may be exercised as described
above, upon payment of the exercise price or, at the option of the holder
thereof, without the payment of the exercise price that would otherwise be
payable. If a holder of Rights elects to exercise Rights without the payment of
the exercise price that would otherwise be payable, such holder will be entitled
to receive upon the exercise of such Rights securities having a market value
equal to the exercise price of the Rights. In addition, at any time after the
later of the Rights Distribution Date and the first occurrence of a Flip-in
Event or a Flip-over Event and prior to the acquisition by any person or group
of affiliated or associated persons of 50% or more of the outstanding Common
Stock, the Company may exchange the Rights (other than any Rights which have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock per Right (subject to adjustment).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment in the Purchase
Price of at least 1%. The Company is not required to issue fractional Series A
Preferred Shares (other than fractions that are integral multiples of one
one-hundredth of a Series A Preferred Share, which may, at the option of the
Company, be evidenced by depositary receipts) or fractional shares of Common
Stock or other securities issuable upon the exercise of Rights. In lieu of
issuing such securities, the Company may make a cash payment, as provided in the
Share Purchase Rights Agreement.
The Company may redeem the Rights in whole, but not in part, at a price of
$0.03 per Right, subject to adjustment and, in the event that the payment of
such amount would be prohibited by loan agreements or indentures to which the
Company is a party, deferral (the "Redemption Price"), at any time prior to the
close of business on the later of (i) the Rights Distribution Date and (ii) the
first date of public announcement that a person has become an Acquiring Person.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the holders will have only the right to receive the
Redemption Price.
The Share Purchase Rights Agreement may be amended by the Company without
the approval of any holders of Rights, including amendments which add other
events requiring adjustment to the Purchase Price payable and the number of
Series A Preferred Shares or other securities issuable upon the exercise of the
Rights which modify procedures relating to the redemption of the Rights,
provided that no amendment may
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be made which decreases the stated Redemption Price to an amount less than $0.01
per Right, decreases the period of time remaining until the Final Expiration
Date, or modifies a time period relating to when the Rights may be redeemed at
such time as the Rights are not then redeemable.
CERTAIN CORPORATE GOVERNANCE MATTERS
The Company's Certificate of Incorporation and By-Laws provide that the
directors of the Company are to be classified into three classes, with the
directors in each class serving for three-year terms and until their successors
are elected. Any additional person elected to the Board of Directors of the
Company will be added to a particular class of directors to be determined at the
time of such election, although in accordance with the Company's Certificate of
Incorporation and By-Laws, the number of directors in each class will be
identical or as nearly as practicable thereto based on the total number of
directors then serving as such.
The Company's By-Laws provide that nominations for election of directors by
the stockholders will be made by the Board of Directors of the Company or by any
stockholder entitled to vote in the election of directors generally. The
Company's By-Laws require that stockholders intending to nominate candidates for
election as directors deliver written notice thereof to the Secretary of the
Company not later than 60 calendar days in advance of the meeting of
stockholders; provided, however, that in the event that the date of the meeting
is not publicly announced by the Company by inclusion in a report filed with the
Commission or furnished to stockholders, or by mail, press release, or otherwise
more than 75 calendar days prior to the meeting, notice by the stockholder to be
timely must be delivered to the Secretary of the Company not later than the
close of business on the tenth day following the date on which such announcement
of the date of the meeting was so communicated. The Company's By-Laws further
require that the notice by the stockholder set forth certain information
concerning such stockholder and the stockholder's nominees, including their
names and addresses, a representation that the stockholder is entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, a description of all
arrangements or understandings between the stockholders and each nominee, such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the nominees of such stockholder, and the
consent of each nominee to serve as a director of the Company if so elected. The
chairman of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with these requirements.
In addition to the provisions relating to the classification of the Board
of Directors and the director nomination procedures described above, the
Company's Certificate of Incorporation and By-Laws provide, in general, that (i)
the number of directors of the Company will be fixed, within a specified range,
by a majority of the total number of the Company's directors (assuming no
vacancies) or by the holders of at least 80% of the Company's voting stock, (ii)
the directors of the Company in office from time to time will fill any vacancy
or newly created directorship on the Board of Directors of the Company with any
new director to serve in the class of directors to which he or she is so
elected, (iii) directors of the Company may be removed only for cause by the
holders of at least 80% of the Company's voting stock, (iv) stockholder action
can be taken only at an annual or special meeting of stockholders and not by
written consent in lieu of a meeting, (v) except as described below, special
meetings of stockholders may be called only by the Company's Chief Executive
Officer or by a majority of the total number of directors of the Company
(assuming no vacancies) and the business permitted to be conducted at any such
meeting is limited to that brought before the meeting by the Company's Chief
Executive Officer or by a majority of the total number of directors of the
Company (assuming no vacancies), and (vi) subject to certain exceptions, the
Board of Directors of the Company may postpone and reschedule any previously
scheduled annual or special meeting of stockholders. The Company's By-Laws also
require that stockholders desiring to bring any business before an annual
meeting of stockholders deliver written notice thereof to the Secretary of the
Company not later than 60 calendar days in advance of the meeting of
stockholders; provided, however, that in the event that the date of the meeting
is not publicly announced by the Company by press release or inclusion in a
report filed with the Commission or furnished to stockholders more than 75
calendar days prior to the meeting, notice by the stockholders to be timely must
be delivered to the Secretary of the Company not later than the close of
business on the tenth calendar day following the day on which such announcement
of the date of the meeting was so communicated. The
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Company's By-Laws further require that the notice by the stockholder set forth a
description of the business to be brought before the meeting and the reasons for
conducting such business at the meeting and certain information concerning the
stockholder proposing such business and the beneficial owner, if any, on whose
behalf the proposal is made including their names and addresses, the class and
number of shares of the Company, that are owned beneficially and of record by
each of them, and any material interest of either of them in the business
proposed to be brought before the meeting. Upon the written request of the
holders of not less than 15% of the Company's voting stock, the Board of
Directors of the Company will be required to call a meeting of stockholders for
the purpose specified in such written request and fix a record date for the
determination of stockholders entitled to notice of and to vote at such meeting
(which record date may not be later than 60 calendar days after the date of
receipt of notice of such meeting), provided that in the event that the Board of
Directors of the Company calls an annual or special meeting of stockholders to
be held not later than 90 calendar days after receipt of any such written
request, no separate special meeting of stockholders as so requested will be
required to be convened provided that the purposes of such annual or special
meeting called by the Board of Directors of the Company include (among others)
the purposes specified in such written request of the stockholders.
Under applicable provisions of Delaware law, the approval of a Delaware
company's board of directors, in addition to stockholder approval, is required
to adopt any amendment to the company's certificate of incorporation, but a
company's by-laws may be amended either by action of its stockholders or, if the
company's certificate of incorporation so provides, its board of directors. The
Company's Certificate of Incorporation and By-Laws provide that (i) except as
described below, the provisions summarized above and the provisions relating to
the classification of the Company's Board of Directors and nominating procedures
may not be amended by the stockholders, nor may any provision inconsistent
therewith be adopted by the stockholders, without the affirmative vote of the
holders of at least 80% of the Company's voting stock, voting together as single
class, except that if any such action (other than any direct or indirect
amendments to the provision requiring that stockholder action be taken at a
meeting of stockholders rather than by written consent in lieu of a meeting) is
approved by the holders of a majority, but less than 80%, of the then-
outstanding voting stock (in addition to any other approvals require by law,
including approval by the Board of Directors of the Company with respect to any
amendment to the Company's Certificate of Incorporation), such action will be
effective as of one year from the date of adoption, or (ii) the Company's By-Law
provisions relating to the right of stockholders to cause special meetings of
stockholders to be called and to the composition of certain directorate
committees may not be amended by the Company's Board of Directors without
stockholder approval.
The Company is subject to Section 203 of the General Corporation Law of the
State of Delaware (the "DGCL"), which restricts the consummation of certain
business combination transactions in certain circumstances. In addition, the
Company's certificate of incorporation contains provisions that are
substantially similar to those contained in Section 203 of the DGCL that
restrict business combination transactions with (i) any person or group that
became or is deemed to have become the beneficial owner of 15% or more of the
voting stock of the Company as a result of its receipt of Common Stock or
warrants pursuant to Macy's plan of reorganization that thereafter becomes the
beneficial owner of an additional 1% or more of the voting stock of the Company
and (ii) any other person or group that becomes the beneficial owner of 15% more
of the voting stock of the Company.
The foregoing provisions of the Company's Certificate of Incorporation, the
provisions of its By-Laws relating to advance notice of stockholder nominations,
and the provisions of the Share Purchase Rights Agreement (see "-- Preferred
Share Purchase Rights") may discourage or make more difficult the acquisition of
control of the Company by means of a tender offer, open market purchase, proxy
contest, or otherwise. These provisions are intended to discourage or may have
the effect of discouraging certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company first to negotiate with the Company. The Company's management
believes that the foregoing measures, many of which are substantially similar to
the takeover-related measures in effect for many other publicly held companies,
provide benefits by enhancing the Company's potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to take over or
restructure the Company that outweigh the
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disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities, Common
Stock, Preferred Stock, Depositary Shares, or any combination thereof. Warrants
may be issued independently, together with any other Securities offered by a
Prospectus Supplement, and may be attached to or separate from such Securities.
Warrants may be issued under warrant agreements (each, a "Warrant Agreement") to
be entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of a
particular series and will not assume any obligation or relationship of agency
or trust for or with any holders or beneficial owners of Warrants. The following
sets forth certain general terms and provisions of the Warrants offered hereby.
Further terms of the Warrants and the applicable Warrant Agreement will be set
forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (i) the title of such Warrants; (ii) the
aggregate number of such Warrants; (iii) the price or prices at which such
Warrants will be issued; (iv) the designation, number and terms of the Debt
Securities, Common Stock, Preferred Stock, Depositary Shares, or combination
thereof, purchasable upon exercise of such Warrants; (v) the designation and
terms of the other Securities, if any, with which such Warrants are issued and
the number of such Warrants issued with each such Security; (vi) the date, if
any, on and after which such Warrants and the related underlying Securities will
be separately transferable; (vii) the price at which each underlying Security
purchasable upon exercise of such Warrants may be purchased; (viii) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (ix) the minimum amount of such Warrants which may be
exercised at any one time; (x) information with respect to book-entry
procedures, if any; (xi) a discussion of any applicable federal income tax
considerations; and (xii) any other terms of such Warrants, including terms,
procedures and limitations relating to the transferability, exchange and
exercise of such Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Securities in any one or more of the following
ways: (i) through one or more underwriters, (ii) through one or more dealers or
agents (which may include one or more underwriters), or (iii) directly to one or
more purchasers.
The distribution of the Securities may be effected from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. In
connection with the sale of the Securities, underwriters, dealers, and agents
may receive compensation from the Company or from purchasers of the Securities
in the form of discounts, concessions, or commissions. Underwriters, dealers,
and agents who participate in the distribution of the Securities may be deemed
to be underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of Securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter, dealer, or agent will be identified and any such compensation
received from the Company will be described in an applicable Prospectus
Supplement. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Under agreements which may be entered into by the Company, underwriters,
dealers, and agents who participate in the distribution of the Securities may be
entitled to indemnification by the Company against certain liabilities,
including under the Securities Act, or contribution from the Company to payments
which the underwriters, dealers, or agents may be required to make in respect
thereof. The underwriters, dealers, and agents may engage in transactions with,
or perform services for, the Company in the ordinary course of business.
17
<PAGE> 40
All Securities will be a new issue of securities with no established
trading market, other than the Common Stock, which is listed on the NYSE. Any
Common Stock sold pursuant to a Prospectus Supplement will be listed on the
NYSE, subject to official notice of issuance. Any underwriters to whom
Securities are sold by the Company for public offering and sale may make a
market in such Securities, but such underwriters will not be obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of the secondary market for any Securities.
VALIDITY OF SECURITIES
Unless otherwise indicated in an applicable Prospectus Supplement relating
to the Securities, the validity of the Securities offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of February 1, 1997
and February 3, 1996, and for the 52 week period ended February 1, 1997, the 53
week period ended February 3, 1996, and the 52 week period ended January 28,
1995, have been incorporated by reference in this Prospectus in reliance upon
the report, incorporated by reference herein, of KPMG Peat Marwick LLP,
independent certified public accountants and upon the authority of that firm as
experts in accounting and auditing.
The financial statements incorporated herein by reference to reports and
documents subsequently filed by the Company pursuant to Sections 13(a), 13(c),
14, and 15(d) of the Exchange Act prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold, or
which deregisters all securities then remaining unsold, are or will be so
incorporated in reliance upon the reports of KPMG Peat Marwick LLP, or any other
independent public accountants, relating to such financial statements and upon
the authority of such independent public accountants as experts in accounting
and auditing in giving such reports to the extent that the particular firm has
audited such financial statements and consented to the use of their reports
thereon.
18
<PAGE> 41
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Recent Developments................... S-3
Use of Proceeds....................... S-3
Ratio of Earnings to Fixed Charges.... S-4
Description of the TERMS.............. S-4
Certain United States Federal Income
Tax Considerations.................. S-17
Underwriting.......................... S-20
Notice to Canadian Residents.......... S-21
Experts............................... S-22
Legal Matters......................... S-22
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 3
The Company........................... 4
Use of Proceeds....................... 4
Ratio of Earnings to Fixed Charges.... 4
Description of Debt Securities........ 5
Description of Capital Stock.......... 12
Description of Warrants............... 17
Plan of Distribution.................. 17
Validity of Securities................ 18
Experts............................... 18
</TABLE>
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- ------------------------------------------------------
FEDERATED DEPARTMENT STORES, INC.
$350,000,000
6 1/8% Term Enhanced ReMarketable
Securities(SM) ("TERMS(SM)")
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
CITICORP SECURITIES, INC.
- ------------------------------------------------------
