<PAGE> 1
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-76789, 333-34321
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY 11, 1999
$350,000,000
FEDERATED DEPARTMENT STORES, INC.
8 1/2% Senior Notes Due 2010
------------------
The senior notes are due on June 1, 2010. Federated will pay interest on
the senior notes each June 1 and December 1. The first interest payment will be
made on December 1, 2000. Federated may redeem the senior notes at any time at
the redemption price specified herein.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS FEDERATED(1)
--------- ------------- ------------
<S> <C> <C> <C>
Per senior note...................................... 99.803% .65% 99.153%
Total................................................ $349,310,500 $2,275,000 $347,035,500
</TABLE>
(1) Plus accrued interest, if any, from June 6, 2000.
Delivery of the senior notes, in book-entry form only, will be made on or
about June 6, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
CREDIT SUISSE FIRST BOSTON
BANC OF AMERICA SECURITIES LLC
CHASE SECURITIES INC.
SALOMON SMITH BARNEY
The date of this prospectus supplement is May 31, 2000.
<PAGE> 2
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
RECENT RESULTS OF OPERATIONS DATA..... S-3
USE OF PROCEEDS....................... S-4
RATIO OF EARNINGS TO FIXED CHARGES.... S-4
DESCRIPTION OF NOTES.................. S-4
UNDERWRITING.......................... S-14
NOTICE TO CANADIAN RESIDENTS.......... S-15
EXPERTS............................... S-16
LEGAL MATTERS......................... S-16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS
ABOUT THIS PROSPECTUS................. 3
WHERE YOU CAN FIND MORE INFORMATION... 3
INCORPORATION OF DOCUMENTS BY
REFERENCE........................... 3
FEDERATED............................. 4
USE OF PROCEEDS....................... 4
RATIO OF EARNINGS TO FIXED CHARGES.... 4
CAUTIONARY STATEMENTS CONCERNING
FORWARD-LOOKING STATEMENTS.......... 5
DESCRIPTION OF DEBT SECURITIES........ 5
DESCRIPTION OF CAPITAL STOCK.......... 13
DESCRIPTION OF WARRANTS............... 20
PLAN OF DISTRIBUTION.................. 20
VALIDITY OF SECURITIES................ 21
EXPERTS............................... 21
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH FEDERATED HAS REFERRED YOU. FEDERATED HAS NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT
IS LEGAL TO SELL THE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
S-2
<PAGE> 3
RECENT RESULTS OF OPERATIONS DATA
The following tables present unaudited results of operations data for the
13 weeks ended April 29, 2000 and May 1, 1999. These data should be read in
conjunction with the consolidated financial statements (including 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 retail business, the results for the 13 weeks ended April
29, 2000 and May 1, 1999 (which do not include the Christmas season) are not
indicative of the results of operations for the entire fiscal year. Certain
reclassifications were made to prior period amounts to conform with the
classifications of such amounts for the most recent period.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(MILLIONS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------
APRIL 29, MAY 1,
2000 1999
--------- ------
<S> <C> <C>
Net Sales................................................... $4,032 $3,600
------ ------
Cost of sales (Note 1)...................................... 2,395 2,174
Selling, general and administrative expenses................ 1,384 1,201
------ ------
Operating Income............................................ 253 225
Interest expense -- net..................................... (99) (75)
------ ------
Income Before Income Taxes.................................. 154 150
Federal, state and local income tax expense................. (65) (63)
------ ------
Net Income.................................................. $ 89 $ 87
====== ======
</TABLE>
OPERATING SEGMENT DATA (UNAUDITED)
(MILLIONS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------
APRIL 29, MAY 1,
2000 1999
--------- ------
<S> <C> <C>
Net Sales
Department Stores......................................... $3,541 $3,437
Direct-to-Customer........................................ 491 163
------ ------
Total............................................. $4,032 $3,600
====== ======
Operating Income
Department Stores......................................... $ 308 $ 273
Direct-to-Customer........................................ (23) (2)
Corporate and other (Note 2).............................. (32) (46)
------ ------
Total income...................................... $ 253 $ 225
====== ======
Depreciation and amortization expense
Department Stores......................................... $ 149 $ 153
Direct-to-Customer........................................ 12 3
Corporate and other (Note 2).............................. 24 17
------ ------
Total............................................. $ 185 $ 173
====== ======
</TABLE>
---------------
1. Substantially all department store 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 cost
of sales for the 13 weeks ended April 29, 2000 or May 1, 1999.
Direct-to-customer merchandise inventories are stated at the lower of FIFO
(first-in, first-out) cost or market.
2. Corporate and other consists of the income or expense associated with the
corporate office and certain items managed on a company-wide basis (e.g.,
intangibles, financial instruments, investments, retirement benefits and
properties held for sale or disposition).
S-3
<PAGE> 4
USE OF PROCEEDS
Federated will use the net proceeds from the sale of the senior notes
offered hereby for general corporate purposes, including the repayment of
short-term borrowings. Federated estimates that, at the time of such repayment,
such borrowings will bear interest at a weighted average rate of approximately
7% per annum.
RATIO OF EARNINGS TO FIXED CHARGES
Federated's consolidated ratio of earnings to fixed charges for the fiscal
year ended January 29, 2000 and for the 13 weeks ended April 29, 2000, computed
in the manner described under "Ratio of Earnings to Fixed Charges" in the
accompanying prospectus, was 3.7x and 2.2x, respectively.
DESCRIPTION OF NOTES
The senior notes will be issued under an Indenture, dated as of September
10, 1997 (the "Indenture"), between Federated and Citibank, N.A., as Trustee
(the "Trustee"), as supplemented by a Fourth Supplemental Indenture (the
"Supplemental Indenture") relating to the senior notes. The following discussion
includes a summary description of certain material terms of the Indenture and
the Supplemental Indenture. Because this is a summary, it does not include all
of the information that is included in the Indenture or the Supplemental
Indenture, including the definitions of certain terms used below. You should
read the Indenture and the Supplemental Indenture carefully and in their
entirety. You may request copies of these documents at Federated's address set
forth under the caption "Where You Can Find More Information" in the
accompanying prospectus.
GENERAL
The senior notes are senior unsecured obligations of Federated. The senior
notes will be limited to $350,000,000 aggregate principal amount and will mature
on June 1, 2010. The senior notes will bear interest at the rate per annum shown
on the cover page of this prospectus supplement from June 6, 2000. Federated
will pay interest semiannually on June 1 and December 1 of each year commencing
December 1, 2000, to the person in whose name such senior notes (or any
predecessor note) is registered at the close of business on the May 15 or
November 15, respectively, preceding such interest payment date. Interest on the
senior notes will be calculated on the basis of a 360-day year consisting of 12
months of 30 days each.
The senior notes will be exchangeable and transfers thereof will be
registrable, at an office or agency of Federated, one of which will be
maintained for such purpose in New York, New York (which initially will be the
corporate trust office of the Trustee) or such other office or agency permitted
under the Indenture.
Federated does not intend to list the senior notes on a national securities
exchange.
Neither the Indenture nor the Supplemental Indenture contains any
provisions that would limit the ability of Federated to incur indebtedness or
require the maintenance of financial ratios or specified levels of net worth or
liquidity. However, the Supplemental Indenture does:
- provide that, subject to certain exceptions, neither Federated nor any
Restricted Subsidiary will subject its property or assets to any mortgage
or other encumbrance unless the senior notes are secured equally and
ratably with such other indebtedness thereby secured; and
- contain certain limitations on the ability of Federated and its
Restricted Subsidiaries to enter into certain sale and leaseback
arrangements.
In addition, neither the Indenture nor the Supplemental Indenture contains any
provisions that would require Federated to repurchase or redeem or otherwise
modify the terms of any of the senior notes upon a
S-4
<PAGE> 5
change in control or other events involving Federated that may adversely affect
the creditworthiness of the senior notes. See "-- Certain Covenants."
REDEMPTION
Federated, at its option, may at any time redeem all or any portion of
senior notes on not less than 30 nor more than 60 days' prior notice mailed to
the holders of senior notes to be redeemed. The senior notes will be redeemable
at a redemption price, plus accrued interest to the date of redemption, equal to
the greater of (1) 100% of the principal amount of the senior notes to be
redeemed and (2) the sum of the remaining scheduled payments of principal and
interest on the senior notes to be redeemed that would be due after the related
redemption date but for such redemption (except that, if such redemption date is
not an interest payment date with respect to the senior notes, the amount of the
next succeeding scheduled interest payment will be reduced by the amount of
interest accrued thereon to the redemption date), discounted to the redemption
date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate plus 35 basis points.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity (computed as of the
second business day immediately preceding such redemption date) of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the applicable senior notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by Federated.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such business day, (a) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest of such Reference Treasury Dealer Quotations,
or (b) if the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation, Banc of America Securities LLC, Chase Securities Inc., Salomon
Smith Barney Inc. and their respective successors and two other nationally
recognized investment banking firms that are Primary Treasury Dealers specified
from time to time by Federated, except that if any of the foregoing ceases to be
a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), Federated is required to designate as a substitute another
nationally recognized investment banking firm that is a Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer as of 3:30 p.m., New
York City time, on the third business day preceding such redemption date.
On and after any redemption date, interest will cease to accrue on the
senior notes called for redemption. On or prior to any redemption date,
Federated is required to deposit with a paying agent money sufficient to pay the
redemption price of and accrued interest on the senior notes to be redeemed on
such date. If Federated is going to redeem less than all the senior notes, the
Trustee must select the
S-5
<PAGE> 6
senior notes to be redeemed by such method as the Trustee deems fair and
appropriate in accordance with methods generally used at the time of selection
by fiduciaries in similar circumstances.
BOOK-ENTRY SYSTEM
The senior notes will initially be issued in the form of a global security
held in book-entry form. Accordingly, The Depository Trust Company ("DTC") or
its nominee will be the sole registered holder of the senior notes for all
purposes under the Indenture and the Supplemental Indenture. DTC has advised
Federated 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 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 -- Global Securities" in the
accompanying prospectus.
PAYMENT
The payment of principal of and any premium and interest on senior notes
represented by a global security will be made in accordance with the applicable
requirements of the depositary for the global security. The payment of principal
of and any premium and interest on any other senior note will be made at the
office or agency of Federated maintained for that purpose or, at Federated's
option, by mailing a check to such holder's registered address.
CERTAIN RESTRICTIVE COVENANTS
The Supplemental Indenture will contain the following restrictive
covenants.
LIMITATION ON LIENS. Federated 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 senior notes are
secured by an equal and ratable lien on the same assets. The terms of other
existing and future indebtedness of Federated may require that such other
indebtedness be similarly secured by an equal and ratable lien on such assets.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. Federated 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 from such sale and leaseback transaction
that have not been reinvested in the business of Federated or its Subsidiaries
or used to reduce Senior Indebtedness of Federated or its Subsidiaries within 12
months of the receipt of such proceeds exceeds $100.0 million ("Excess Sale
Proceeds") from time to time, such Excess Sale Proceeds will be used to offer to
repurchase the senior notes (on a pro rata basis with any other Senior
Indebtedness of Federated 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 their principal amount, plus accrued interest, and to pay related costs and
expenses.
To the extent that the aggregate purchase price for the senior notes or
other Senior Indebtedness tendered pursuant to such an offer to purchase is less
than the aggregate purchase price offered in such offer, an amount of Excess
Sale Proceeds equal to such shortfall will cease to be Excess Sale Proceeds and
may thereafter be used for general corporate purposes. If the aggregate purchase
price for the senior notes or other Senior Indebtedness tendered pursuant to
such an offer to purchase exceeds the amount of such
S-6
<PAGE> 7
Excess Sale Proceeds, the Trustee will select the senior notes or other Senior
Indebtedness to be purchased by such method as the Trustee deems fair and
appropriate.
The net cash proceeds from any sale or leaseback transaction will be
determined net of the following:
- 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;
- all payments made on any Indebtedness that is secured by assets subject
to a sale and leaseback transaction; and
- all distributions and other payments made to minority interest holders in
Subsidiaries of Federated or joint ventures as a result of a sale and
leaseback transaction.
Cash Equivalents will be 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 will be deemed to be proceeds upon receipt of such payments.
If an offer to purchase the senior notes is made, Federated will comply
with all tender offer rules, including but not limited to Section 14(e) of the
Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer
to purchase.
EVENTS OF DEFAULT
The following are "Events of Default" with respect to the senior notes:
(1) failure to pay principal of or premium, if any, on any senior note
when due;
(2) failure to pay any interest on any senior note when due, which
failure continues for 30 calendar days;
(3) failure to perform any other covenant of Federated 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 senior notes), which failure continues for 60 calendar days after
written notice as provided in the Indenture or the Supplemental Indenture;
(4) any nonpayment at maturity or other default (beyond any applicable
grace period) under any agreement or instrument relating to any other
Indebtedness of Federated 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;
(5) the entry of any final judgments or orders against Federated or
any of its Restricted Subsidiaries in excess of $100.0 million individually
or in the aggregate (not covered by insurance) that is not paid, discharged
or otherwise stayed (by appeal or otherwise) within 60 calendar days after
the entry of such judgments or orders; and
(6) specified events of bankruptcy, insolvency or reorganization of
Federated or any Significant Subsidiary or any group of Subsidiaries of
Federated that, if considered in the aggregate, would be a Significant
Subsidiary.
Federated will be required to provide the Trustee with notice of any uncured
Event of Default within 10 calendar days after any responsible officer of
Federated 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
S-7
<PAGE> 8
default in respect of the senior notes, to give to the holders of the senior
notes 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 (3) above, no such notice to holders of
the senior notes will be given until at least 30 calendar days after the
occurrence of such default; and
- in the case of a default of the character contemplated in clause (1) or
(2) above, 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 senior notes.
If an Event of Default described in clause (6) above occurs with respect to
Federated, the principal of, premium, if any, and accrued interest on the senior
notes will become immediately due and payable without any declaration or other
act on the part of the Trustee or any holder of the senior notes. If any other
Event of Default with respect to the senior notes occurs and is continuing,
either the Trustee or the holders of at least 25% in principal amount of the
senior notes, by notice as provided in the Indenture, may declare the principal
amount of the senior notes to be due and payable immediately. However, at any
time after a declaration of acceleration with respect to the senior notes 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 senior notes may,
under certain circumstances, rescind and annul such acceleration.
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 of the senior notes 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 senior notes 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 senior notes.
No holder of a senior note will have any right to institute any proceeding
with respect to the Indenture or the Supplemental Indenture or for any remedy
thereunder unless:
- such holder shall have previously given to the Trustee written notice of
a continuing Event of Default;
- the holders of at least 25% in aggregate principal amount of the
outstanding senior notes have also made such a written request;
- such holder or holders have offered reasonable indemnity to the Trustee
to institute such proceeding as trustee;
- the Trustee has not received from the holders of a majority in aggregate
principal amount of the outstanding senior notes a direction inconsistent
with such request; and
- the Trustee has failed to institute such proceeding within 60 calendar
days.
However, such limitations do not apply to a suit instituted by a holder of
senior notes for enforcement of payment of the principal of and interest on such
senior notes on or after the respective due dates expressed in such senior
notes.
Federated is required to furnish to the Trustee annually a statement as to
the performance by Federated of its obligations under the Indenture and as to
any default in such performance.
S-8
<PAGE> 9
DEFEASANCE
Except as described below, upon compliance with the applicable requirements
described below, Federated:
(1) will be deemed to have been discharged from its obligations with
respect to the senior notes; or
(2) will be released from its obligations to comply with the covenants
in the Indenture and the Supplemental Indenture with respect to the senior
notes, and the occurrence of an event described in any of clauses (3), (4)
and (5) under "-- Events of Default" above will no longer be an Event of
Default with respect to the senior notes,
except to the limited extent described below.
Following any defeasance described in clause (1) or (2) above, Federated
will continue to have specified obligations under the Indenture and the
Supplemental Indenture, including obligations to register the transfer or
exchange of the senior notes; replace destroyed, stolen, lost, or mutilated
senior notes; maintain an office or agency in respect of the senior notes; and
hold funds for payment to holders of senior notes in trust. In the case of any
defeasance described in clause (2) above, any failure by Federated to comply
with its continuing obligations may constitute an Event of Default with respect
to the senior notes as described in clause (3) under "-- Events of Defaults"
above.
In order to effect any defeasance described in clause (1) or (2) above,
Federated must irrevocably deposit with the trustee, in trust, money or
specified government obligations (or depositary receipts therefor) that through
the payment of principal and interest in accordance with their terms will
provide money in an amount sufficient to pay all of the principal of and any
interest on the senior notes on the dates such payments are due in accordance
with the terms of the senior notes. In addition, the following conditions must
be satisfied:
- 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 with respect to the senior notes shall have
occurred and be continuing on the date of such deposit;
- no Event of Default described under clause (6) under "Events of Default"
above with respect to Federated or event that with the giving of notice
or lapse of time, or both, would become such an Event of Default shall
have occurred and be continuing at any time on or prior to the 124th
calendar day following such date of deposit;
- in the event of defeasance under clause (1) above, Federated shall have
delivered an opinion of counsel stating that (a) Federated has received
from, or there has been published by, the Internal Revenue Service a
ruling or (b) there has been a change in applicable federal law, in
either case to the effect that, among other things, the holders of the
senior notes 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 of defeasance under clause (2) above, Federated shall have
delivered an opinion of counsel to the effect that, among other things,
the holders of the senior notes 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;
- Federated shall have delivered to the Trustee an opinion of a nationally
recognized independent public accounting firm certifying the sufficiency
of the amount of any moneys or government obligations placed on deposit
to pay, without regard to any reinvestment, the accrued interest,
principal, interest and premium, if any, on the senior notes; and
S-9
<PAGE> 10
- such defeasance must not result in a breach or violation of, or
constitute a default under, any other agreement to which Federated is a
party or violate any law to which Federated is subject.
If Federated fails to comply with its remaining obligations under the
Indenture and the Supplemental Indenture after a defeasance with respect to the
senior notes as described under clause (2) above and the senior notes are
declared due and payable because of the occurrence of any undefeased Event of
Default, the amount of money and government obligations (or depositary receipts
therefor) on deposit with the Trustee may be insufficient to pay amounts due on
the senior notes at the time of the acceleration resulting from such Event of
Default. However, Federated 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 Federated, certain financial institutions,
Citibank, N.A., as administrative agent and paying agent, The Chase Manhattan
Bank, as administrative agent, Fleet National Bank (as successor in interest to
BankBoston, N.A.), as syndication agent, and Bank of America National Trust &
Savings Association, as documentation agent, as the same may be amended,
supplemented, or otherwise modified from time to time.
"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 (1) all
current liabilities and (2) 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 Federated and its consolidated
Subsidiaries and computed in accordance with GAAP.
"Existing Indebtedness" means all Indebtedness under or evidenced by:
- the senior notes;
- Federated's 6.30% Senior Notes Due 2009;
- Federated's 6.90% Senior Notes Due 2029;
- Federated's 6.125% Term Enhanced ReMarketable Securities;
- Federated's 7% Senior Debentures Due 2028;
- Federated's 7.45% Senior Debentures Due 2017;
- Federated's 6.79% Senior Debentures Due 2027;
- Federated's 10% Senior Notes Due 2001;
- Federated's 8.125% Senior Notes Due 2002;
- Federated's 8.5% Senior Notes Due 2003;
- capital lease obligations of Federated and the Restricted Subsidiaries
existing on the date of issuance of the senior notes; and
- the other secured Indebtedness of Federated or secured or unsecured
Indebtedness of the Restricted Subsidiaries existing on the date of
issuance of the senior notes.
S-10
<PAGE> 11
"Indebtedness" means, as applied to any Person, without duplication:
(1) all obligations of such Person for borrowed money;
(2) 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);
(3) all obligations of such Person evidenced by notes, bonds,
debentures, mandatorily redeemable preferred stock or other similar
instruments (other than performance, surety and appeals bonds arising in
the ordinary course of business);
(4) 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);
(5) any capital lease obligation of such Person;
(6) 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);
(7) 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 (1) through (6) above; and
(8) all obligations referred to in clauses (1) through (6) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage or security
interest in property (including without limitation accounts, contract
rights and general intangibles) owned by such Person and as to which such
Person has not assumed or become liable for the payment of such obligations
other than to the extent of the property subject to such mortgage or
security interest;
except that Indebtedness of the type referred to in clauses (7) and (8) 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 (1) through (6) above; (b) in the case of clause (7), the
limit on recoveries, if any, from such Person under obligations of the type
referred to in clause (7) above, and (c) in the case of clause (8), the
aggregate value (as determined in good faith by Federated's board of directors)
of the security for such Indebtedness.
"Permitted Liens" means:
(1) liens (other than liens on inventory) securing
(a) Existing Indebtedness;
(b) 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 Federated 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 (1)(i) 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 (1)(i) below), except that under no circumstances will the
total allowable indebtedness under this clause (1)(b) be less than
$1,250.0 million (subject to increase from and after the date of
issuance of the senior notes at a rate, compounded annually, equal to 3%
per annum) if incurred for the purpose of providing Federated and its
Subsidiaries with working capital
S-11
<PAGE> 12
(including bankers' acceptances, letters of credit and similar
assurances of payment whether as part of the Bank Facilities or
otherwise);
(c) Indebtedness existing as of the date of issuance of the senior
notes of any Subsidiary of Federated engaged primarily in the business
of owning or leasing real property;
(d) Indebtedness incurred for the purpose of financing store
construction and remodeling or other capital expenditures;
(e) Indebtedness in respect of the deferred purchase price of
property or arising under any conditional sale or other title retention
agreement;
(f) Indebtedness of a Person acquired by Federated or a Subsidiary
of Federated at the time of such acquisition;
(g) 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);
(h) other Indebtedness in outstanding amounts not to exceed, in the
aggregate, the greater of $750.0 million and 12.5% of Consolidated Net
Tangible Assets of Federated and the Restricted Subsidiaries at any
particular time; and
(i) 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 Federated or the Restricted
Subsidiaries; provided 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);
(2) 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;
(3) liens securing performance, surety and appeal bonds and other
obligations of like nature incurred in the ordinary course of business;
(4) liens on goods and documents securing trade letters of credit;
(5) 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;
(6) liens securing the payment of taxes, assessments and governmental
charges or levies (a) either (1) not delinquent or (2) being contested in
good faith by appropriate legal or administrative proceedings and (b) as to
which adequate reserves shall have been established on the books of the
relevant corporation in conformity with GAAP;
(7) 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 Federated and its Subsidiaries or the value of
such property for the purpose of such business;
(8) liens on property existing at the time such property is acquired;
S-12
<PAGE> 13
(9) 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;
(10) liens on the assets of any Subsidiary of Federated at the time
such Subsidiary is acquired;
(11) liens with respect to obligations in outstanding amounts not to
exceed $100.0 million at any particular time and that (a) 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 (b) do not
in the aggregate interfere in any material respect with the ordinary
conduct of the business of Federated and its Subsidiaries; and
(12) without limiting the ability of Federated 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, 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 Federated to be not materially greater than
the value of the property or assets for which the substitute property or
assets are substituted.
"Person" means any individual, partnership, corporation (including without
limitation a business trust), joint stock company, business trust, trust,
unincorporated association, joint venture or other entity, or a government or
political subdivision or agency thereof.
"Restricted Subsidiary" means any Subsidiary of Federated other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means any Indebtedness of Federated or its
Subsidiaries other than Subordinated Indebtedness.
"Significant Subsidiary" means any Subsidiary that accounts for (1) 10% or
more of the total consolidated assets of Federated and its Subsidiaries as of
any date of determination or (2) 10% or more of the total consolidated revenues
of Federated and its Subsidiaries for the most recently concluded fiscal
quarter.
"Subordinated Indebtedness" means any Indebtedness of Federated which is
expressly subordinated in right of payment to the senior notes.
"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 (1) in the
Supplemental Indenture (including Federated's existing receivables finance
Subsidiaries, FDS National Bank, FACS Group, Inc., Prime Credit Card Master
Trust (to the extent that it is deemed to be a Subsidiary of Federated), Prime
Credit Card Master Trust II (to the extent it is deemed to be a Subsidiary of
Federated), 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 of Federated), Macy Financial, Inc., R.H. Macy
Overseas Finance, N.V., Macy Credit Corp., Macy's Data and Credit Services
Corp., Fingerhut Receivables, Inc., PCP Receivables Corp., Fingerhut Master
Trust (to the extent it is deemed to be a Subsidiary of Federated), Axsys
National Bank, PCP Master Trust (to the extent it is deemed to be a Subsidiary
of Federated) and Fingerhut Funding Co.) or (2) by Federated's board of
directors, provided that such entity is a special purpose entity formed for
financing purposes.
S-13
<PAGE> 14
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated May 31, 2000, Federated has agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation is acting as
representative, the following respective principal amounts of the senior notes:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
Credit Suisse First Boston Corporation...................... $192,500,000
Banc of America Securities LLC.............................. 52,500,000
Chase Securities Inc. ...................................... 52,500,000
Salomon Smith Barney Inc. .................................. 52,500,000
------------
Total............................................. $350,000,000
============
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the senior notes if any are purchased. The underwriting
agreement provides that if an underwriter defaults the purchase commitments of
non-defaulting underwriters may be increased or the offering of senior notes may
be terminated.
The underwriters propose to offer the senior notes initially at the public
offering price on the cover page of this prospectus supplement and to selling
group members at that price less a concession of .40% of the principal amount
per senior note. The underwriters and selling group members may allow a discount
of .25% of such principal amount per senior note on sales to other
broker/dealers. After the initial public offering, the public offering price and
concession and discount to broker/dealers may be changed by the representative.
Federated estimates that its out of pocket expenses for this offering will
be approximately $225,000.
The senior notes are a new issue of securities with no established trading
market. One or more of the underwriters intends to make a secondary market for
the senior notes. However, they are not obligated to do so and may discontinue
making a secondary market for the senior notes at any time without notice. No
assurance can be given as to how liquid the trading market for the senior notes
will be.
Federated has agreed to indemnify the underwriters against certain
liabilities under the Securities Act, or contribute to payments which the
underwriters may be required to make in respect thereof.
The underwriters and their respective affiliates have provided investment
banking and/or commercial banking services to Federated from time to time. The
underwriters and their respective affiliates have received customary fees in
connection with providing these services. Salomon Smith Barney Inc., one of the
underwriters, is an affiliate of the Trustee.
The representative, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
- 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 senior notes in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the senior notes originally sold by such
syndicate member are purchased in a stabilizing transaction or syndicate
covering transaction to cover syndicate short positions.
S-14
<PAGE> 15
Such stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the senior notes to be higher than it would otherwise be
in the absence of such transactions. These transactions, if commenced, may be
discontinued at any time.
Federated expects that delivery of the senior notes will be made against
payment therefor on or about the closing date specified on the cover page of
this Prospectus Supplement, which will be the fourth business day following the
date of pricing of the senior notes. 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 senior notes on the date hereof will be required, by virtue of the fact
that the senior notes initially will settle in T+4, to specify an alternate
settlement cycle at the time of any such trade to prevent a failed settlement.
Purchasers of senior notes who wish to trade senior notes on the date hereof
should consult their own advisor.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the senior notes in Canada is being made only on a
private placement basis exempt from the requirement that Federated prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of senior notes are effected. Accordingly, any resale of the senior
notes 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 senior notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the senior notes in Canada who receives a purchase
confirmation will be deemed to represent to Federated and the dealer from whom
such purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such senior notes without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that such purchaser is purchasing as principal and not as agent and (3)
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
Ontario securities law. 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 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 senior notes 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
S-15
<PAGE> 16
days of the sale of any senior notes 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 Federated. Only one such report must be filed in respect of senior notes
acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of senior notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the senior
notes in their particular circumstances and with respect to the eligibility of
the senior notes for investment by the purchaser under relevant Canadian
legislation.
EXPERTS
The consolidated financial statements of Federated as of January 29, 2000
and January 30, 1999, and for the 52-week periods ended January 29, 2000,
January 30, 1999 and January 31, 1998 have been incorporated by reference in the
accompanying prospectus in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the senior notes offered hereby will be passed upon for
Federated by Jones, Day, Reavis & Pogue. Certain legal matters will be passed
upon for the underwriters by Simpson Thacher & Bartlett.
S-16
<PAGE> 17
PROSPECTUS
FEDERATED DEPARTMENT STORES, INC.
$1,350,000,000
DEBT SECURITIES
COMMON STOCK
PREFERRED STOCK
WARRANTS
---------------------
Federated may offer up to $1,350,000,000 of these securities from time to
time separately or in any combination. Federated will determine the type and
amount of securities offered and the price and other terms of any offering on
the basis of market conditions and other factors existing at the time of the
offering. Federated will disclose the specific terms of any offering in a
supplement to this prospectus.
The terms of each offering of these securities will be set forth in a
prospectus supplement. You should read this prospectus and the accompanying
prospectus supplement carefully before you invest.
Federated's common stock is listed for trading on the New York Stock
Exchange under the symbol "FD."
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
This prospectus is dated May 11, 1999.
<PAGE> 18
TABLE OF CONTENTS
<TABLE>
<S> <C>
ABOUT THIS PROSPECTUS....................................... 3
WHERE YOU CAN FIND MORE INFORMATION......................... 3
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 3
FEDERATED................................................... 4
USE OF PROCEEDS............................................. 4
RATIO OF EARNINGS TO FIXED CHARGES.......................... 4
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 5
DESCRIPTION OF DEBT SECURITIES.............................. 5
DESCRIPTION OF CAPITAL STOCK................................ 13
DESCRIPTION OF WARRANTS..................................... 20
PLAN OF DISTRIBUTION........................................ 20
VALIDITY OF SECURITIES...................................... 21
EXPERTS..................................................... 21
</TABLE>
2
<PAGE> 19
ABOUT THIS PROSPECTUS
This prospectus is part of two registration statements that Federated filed
with the Securities and Exchange Commission to register the distribution of the
securities described in this prospectus under the Securities Act of 1933.
Federated may from time to time sell the securities in one or more offerings up
to a total dollar amount of $1,350,000,000 or the equivalent of this amount in
foreign currencies or foreign currency units.
This prospectus provides you with a general description of the securities.
Each time Federated offers the securities, Federated will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also supplement, modify, or supersede
other information contained in this prospectus. You should read both this
prospectus and any prospectus supplement together with the information
incorporated by reference as described below under the heading "Incorporation of
Documents by Reference."
You should rely only on the information provided in this prospectus and in
any prospectus supplement, including the information incorporated by reference.
Federated has not authorized anyone to provide you with different information.
Federated is not offering the securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus, or any
supplement to this prospectus, is accurate at any date other than the date
indicated on the cover page of these documents.
WHERE YOU CAN FIND MORE INFORMATION
Federated files reports, proxy statements, and other documents with the
Securities and Exchange Commission in accordance with the requirements of the
Securities Exchange Act of 1934. Federated's SEC filings are available to the
public over the Internet at the Commission's web site at http://www.sec.gov. You
may also read and copy any document Federated files at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information regarding the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. In addition, you may read reports, proxy
statements, and other documents relating to Federated at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005.
Additional information regarding Federated and the securities offered
hereby is contained in the registration statements of which this prospectus is a
part, including the exhibits thereto. The statements contained in this
prospectus regarding the provisions of any other document are not necessarily
complete. Accordingly, each such statement is qualified in its entirety by
reference to the copy of such document filed as an exhibit to the registration
statements or otherwise filed with the Commission.
INCORPORATION OF DOCUMENTS BY REFERENCE
The documents specified below, which have been or are to be filed by
Federated with the Commission,
are incorporated by reference into this prospectus. The information contained in
those documents is considered to be part of this prospectus, except that the
information contained in later-dated documents will supplement, modify, or
supersede, as applicable, the information contained in earlier-dated documents.
Federated incorporates by reference into this prospectus the documents
listed below and all documents filed by Federated with the Commission under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus and prior to the time that the offering made hereby
is completed.
- Federated's annual report on Form 10-K for the fiscal year ended January
30, 1999;
- Federated's current report on Form 8-K dated March 18, 1999.
You may obtain without charge a copy of any of the documents incorporated
by reference herein, except for any exhibits to those documents that are not
expressly incorporated by reference in those documents, by writing or
telephoning Federated Department Stores, Inc., 7 West Seventh Street,
Cincinnati, Ohio 45202, Attention: Investor Relations (telephone: (513)
579-7780).
3
<PAGE> 20
FEDERATED
Federated is one of the leading operators of full-line department stores in
the United States with over 400 department stores in 33 states as of January 30,
1999. Federated'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. Federated's department stores are
diversified by size of store, merchandising character, and character of
community served. Federated's department stores are located at urban or suburban
sites, principally in densely populated areas across the United States.
Federated operates its department stores under the names "Macy's,"
"Bloomingdale's," "The Bon Marche," "Burdines," "Goldsmith's," "Lazarus,"
"Rich's," and "Stern's." Federated also operates direct mail catalog businesses
under the names "Bloomingdale's By Mail" and "Macy's By Mail" and an electronic
commerce catalog business under the name "macys.com."
On March 18, 1999, Federated acquired Fingerhut Companies, Inc. Fingerhut
is a leading database marketing company that sells a broad range of products and
services through catalogs, direct marketing, and the Internet. In addition to
the core Fingerhut catalog business, Fingerhut owns:
- Figi's, a specialty food and gift catalog business;
- Arizona Mail Order and Bedford Fair, both apparel catalog businesses; and
- Popular Club, a membership-based general merchandise catalog business.
Fingerhut also offers a broad range of business services to third parties,
including telemarketing, direct marketing, information management, warehousing,
product fulfillment and distribution, order and returns processing, and customer
service, and has investments in several providers of Internet-based merchandise
and services.
Federated's principal executive offices are located at 151 West 34th
Street, New York, New York 10001, and 7 West Seventh Street, Cincinnati, Ohio
45202. Federated's telephone numbers at its offices are (212) 494-1601 and (513)
579-7000, respectively.
USE OF PROCEEDS
Unless otherwise specified in the accompanying prospectus supplement,
Federated will use the net proceeds from the sale of the securities offered
hereby 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.
RATIO OF EARNINGS TO FIXED CHARGES
Federated's 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 consolidated financial statements, including the notes
thereto, and other information set forth in the reports filed by Federated with
the Commission.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to
fixed charges (unaudited)........... 3.8x 2.8x 1.7x 1.3x 2.0x
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes and
extraordinary items plus fixed charges (excluding capitalized interest). Fixed
charges consist of interest incurred on indebtedness, amortization of debt
expense, and the portion of rental expense under operating leases deemed to be
the equivalent of interest.
4
<PAGE> 21
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference, and the
accompanying prospectus supplement may contain, forward-looking statements.
Forward-looking statements are based upon the beliefs and assumptions of, and on
information available to, the management of Federated.
Forward-looking statements include statements regarding possible future
results of operations, competitive position, and growth opportunities of
Federated. In addition, the following statements are or may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995: (1) statements preceded by, followed by or that
include the words "may," "will," "could," "should," "believe," "expect,"
"future," "potential," "anticipate," "intend," "plan," "estimate," or "continue"
or the negative or other variations thereof and (2) other statements regarding
matters that are not historical facts. Forward-looking statements are subject to
various risks and uncertainties, including the following:
- risks and uncertainties relating to the possible invalidity of the
underlying beliefs and assumptions;
- possible changes or developments in social, economic, business, industry,
market, legal, and regulatory circumstances and conditions; and
- actions taken or omitted to be taken by third parties, including
customers, suppliers, business partners, competitors, and legislative,
regulatory, judicial, and other governmental authorities and officials.
In addition to the foregoing and any risks and uncertainties specifically
identified in the text surrounding forward-looking statements, any statements in
this prospectus, the accompanying prospectus supplement, or the reports, proxy
statements, and other documents referred to in "Where You Can Find More
Information" that warn of risks or uncertainties associated with future results,
events, or circumstances may identify important factors that could cause actual
results, events, and circumstances to differ materially from those reflected in
forward-looking statements.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The debt securities that may be offered by this prospectus consist of
unsecured notes, debentures, or other evidences of indebtedness of Federated.
Federated may issue the debt securities, in one or more series, under an
indenture, dated as of September 10, 1997, between Federated and Citibank, N.A.,
as trustee. A copy of the indenture is set forth as Exhibit 4.4 to each of the
registration statements and incorporated herein by reference. Except as
otherwise defined herein, capitalized terms used herein have the meanings given
to them in the indenture.
The provisions of the indenture will generally be applicable to all of the
debt securities. Selected provisions of the indenture are described in this
prospectus. Additional or different provisions that are applicable to a
particular series of debt securities will, if material, be described in a
prospectus supplement relating to the offering of debt securities of that
series. These provisions may include, among other things and to the extent
applicable, the following:
- the title of the debt securities;
- any limit on the aggregate principal amount of the debt securities;
- the persons to whom any interest on the debt securities will be payable,
if other than the registered holders thereof on the regular record date
therefor;
- the date or dates on which the principal of the debt securities will be
payable;
5
<PAGE> 22
- the rate or rates at which the debt securities will bear interest, if
any, and the date or dates from which interest will accrue;
- the dates on which interest will be payable and the regular record dates
for interest payment dates;
- the place or places where the principal of and any premium and interest
on the debt securities will be payable;
- the period or periods, if any, within which, and the price or prices at
which, the debt securities may be redeemed, in whole or in part, at the
option of Federated;
- the obligation, if any, of Federated to redeem or purchase the debt
securities pursuant to sinking fund or analogous provisions and the terms
and conditions of any such redemption or purchase;
- the denominations in which the debt securities will be issuable, if other
than denominations of $1,000 and any integral multiple thereof;
- 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 the debt securities will be payable, and the
terms and conditions of any elections that may be made available with
respect thereto;
- any index or formula used to determine the amount of payments of
principal of and any premium or interest on the debt securities;
- whether the debt securities are to be issued in whole or in part in the
form of one or more global securities and, if so, the identity of the
depositary, if any, for the global securities;
- the terms and conditions, if any, pursuant to which the debt securities
are convertible into or exchangeable for common stock or other securities
of Federated or any other person;
- the principal amount (or any portion of the principal amount) of the debt
securities which will be payable upon any declaration of acceleration of
the maturity of the debt securities pursuant to an event of default; and
- the applicability to the debt securities of the provisions described in
"-- Defeasance" below.
Federated may issue debt securities at a discount from their stated
principal amount. 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 series of the debt securities is payable in a
foreign currency or currency unit or if the principal of or any premium or
interest on any series of the debt securities is payable in a foreign currency
or currency unit, the restrictions, elections, general tax considerations,
specific terms, and other information with respect to the debt securities and
the applicable foreign currency or currency unit will be set forth in an
applicable prospectus supplement.
Unless otherwise indicated in an applicable prospectus supplement:
- the debt securities will be issued only in fully registered form (without
coupons) in denominations of $1,000 or integral multiples thereof; and
- 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
Federated maintained for those purposes and at any other office or agency
maintained for those purposes. No service charge will be made for any
registration of transfer or exchange of the debt securities, but
Federated may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
6
<PAGE> 23
GLOBAL 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 or its nominee identified in an applicable prospectus
supplement. 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:
- by the depositary to a nominee of the depositary;
- by a nominee of the depositary to the depositary or another nominee of
the depositary;
- by the depositary or any nominee of the depositary to a successor
depositary or a nominee of the successor depositary; or
- 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. Federated expects that
the following provisions will apply to depositary arrangements.
Unless otherwise specified in an applicable prospectus supplement, any
global security that represents debt securities will be registered in the name
of the depositary or its nominee. Upon the deposit of a global security with or
on behalf of the depositary for the global security, the depositary will credit,
on its book-entry registration and transfer system, the respective principal
amounts of the debt securities represented by the global security to the
accounts of institutions that are participants in such system. The accounts to
be credited will be designated by the underwriters or agents of the debt
securities or by Federated, if the debt securities are offered and sold directly
by Federated.
Ownership of beneficial interests in debt securities represented by a
global security will be limited to participants in the book-entry registration
and transfer system of the applicable depositary or persons that may hold
interests through such participants. Ownership of such beneficial interests by
such participants will be shown on, and the transfer of such ownership will be
effected only through, records maintained by the depositary or its nominee for
such global security. Ownership of such beneficial interests by persons that
hold through such participants will be shown on, and the transfer of such
ownership will be effected only through, records maintained by such
participants. The laws of some jurisdictions require that specified purchasers
of securities take physical delivery of their securities in definitive form.
These laws may impair your 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 the global security, the depositary or the nominee, as the
case may be, will be considered the sole owner or holder of the debt securities
represented by the global security for all purposes under the indenture. Unless
otherwise specified in an applicable prospectus supplement, owners of beneficial
interests in the global security will not be entitled to have any of the debt
securities represented by the global security registered in their names, will
not receive or be entitled to receive physical delivery of any such debt
securities in certificated form, and will not be considered the owners or
holders of such debt securities for any purpose under the indenture.
Accordingly, each person owning a beneficial interest in debt securities
represented by a global security must rely on the procedures of the applicable
depositary and, if the person is not a participant in the book-entry
registration and transfer system of the applicable depositary, on the procedures
of the participant through which the person owns its interest, to exercise any
rights of an owner or holder of debt securities under the indenture.
7
<PAGE> 24
Federated understands that, under existing industry practices, if an owner
of a beneficial interest in debt securities represented by a global security
desires to give any notice or take any action that an owner or holder of debt
securities is entitled to give or take under indenture:
- the applicable depositary would authorize its participants to give the
notice or take the action; and
- the participants would authorize persons owning the beneficial interests
through the participants to give the notice or take the action or would
otherwise act upon the instructions of the persons owning the beneficial
interests.
Principal of and any premium and interest on debt securities represented by
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,
such debt securities will be made to the applicable 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 Federated, 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 debt securities represented by a global
security or for maintaining, supervising, or reviewing any records relating to
such beneficial ownership interests.
COVENANTS OF FEDERATED
Maintenance of Office or Agency. Federated 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 Federated 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 to payment a
sum sufficient to pay the amount due and to notify the trustee promptly of its
action or failure to act. If Federated 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 be required to deposit
with a paying agent a sum sufficient to pay the amount due and, unless the
paying agent is the trustee, to promptly notify the trustee of its action or
failure to act. All moneys paid by Federated to a paying agent for the payment
of principal of or 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 Federated, and thereafter the holder of such debt securities may look only to
Federated for payment thereof.
Payment of Taxes and Other Claims. Federated will be required to pay and
discharge, before the same become delinquent:
- all taxes, assessments, and governmental charges levied or imposed upon
Federated or any subsidiary of Federated or their properties; and
- 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 Federated and its subsidiaries,
taken as a whole (a "Material Adverse Effect");
unless, in either case, the same are being contested by proper proceedings.
Maintenance of Properties. Federated will be required to cause all
properties used in the business of Federated or any subsidiary of Federated to
be maintained and kept in good condition, repair, and working order and to make
any necessary renewals, replacements, and improvements to such properties,
except to the extent that the failure to do so would not have a Material Adverse
Effect.
Existence. Federated will be required to, and will be required to cause its
subsidiaries to, preserve and keep in full force and effect their existence,
charter rights, statutory rights, and franchises, except to the extent that the
failure to do so would not have a Material Adverse Effect.
8
<PAGE> 25
Compliance with Laws. Federated will be required to, and will be required
to cause its subsidiaries to, comply with all applicable laws to the extent that
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:
(1) failure to pay principal of or premium, if any, on any debt
security of that series when due;
(2) failure to pay any interest on any debt security of that series
when due, which failure continues for 30 calendar days;
(3) failure to make any sinking fund payment when and as due by the
terms of any debt security of that series;
(4) failure to perform, or breach of, any other covenant of Federated
in the indenture (other than a covenant included in the indenture solely
for the benefit of a series of debt securities other than that series),
which failure or breach continues for 60 calendar days after written notice
thereof has been given to Federated as provided in the indenture;
(5) any nonpayment at maturity or other default (beyond any applicable
grace period) under any agreement or instrument relating to any other
Indebtedness of Federated, 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;
(6) specified events of bankruptcy, insolvency, or reorganization
involving Federated; and
(7) 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 that 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 (4) above, no notice will be given until
at least 30 calendar days after the occurrence of such default; and
- other than in the case of a default of the character contemplated in
clause (1), (2), or (3) above, the trustee may withhold notice if and so
long as it in good faith determines that the withholding of notice is in
the interests of the holders of the debt securities of that series.
If an Event of Default described in clause (6) above occurs, the principal
of, premium, 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. If
any other Event of Default with respect to debt securities of any series occurs
and is continuing, either the trustee or the holders of at least 25% in
principal amount of the debt securities of that series may declare the principal
amount 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 specified circumstances,
rescind and annul such acceleration. See "-- Modification and Waiver" below.
Subject to the duty of the trustee to act with the required standard of
care during an Event of Default, the trustee will have no obligation to exercise
any of its rights or powers under the indenture at the request or direction of
the holders of debt securities, unless such holders shall have offered to the
9
<PAGE> 26
trustee reasonable security or indemnity. Subject to the provisions of the
indenture, 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:
- the holder has previously given to the trustee written notice of a
continuing Event of Default;
- the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of the same series have requested the trustee
to institute a proceeding in respect of such Event of Default;
- the holder or holders have offered reasonable indemnity to the trustee to
institute the proceeding as trustee;
- the trustee has not received from the holders of a majority in principal
amount of the outstanding debt securities of the same series a direction
inconsistent with such request; and
- the trustee has failed to institute such proceeding within 60 calendar
days.
However, the limitations described above 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 applicable due dates for such
principal and interest.
Federated is required to furnish to the trustee annually a statement as to
the performance by Federated 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.
MODIFICATION AND WAIVER
In general, modifications and amendments of the indenture may be made by
Federated and the trustee with the consent of the holders of not less than a
majority in principal amount of the debt securities of each series affected
thereby. However, no modification or amendment of the indenture may, without the
consent of the holder of each debt security affected thereby:
- change the stated maturity of, or any installment of principal of, or
interest on, any debt security;
- reduce the principal amount of, the rate of interest on, or the premium,
if any, payable upon the redemption of, any debt security;
- reduce the amount of principal of an original issue discount security
payable upon acceleration of the maturity thereof;
- change the place or currency of payment of principal of, or premium, if
any, or interest on any debt security;
- 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
- reduce the percentage in principal amount of debt securities of any
series required for modification or amendment of the 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 principal amount of the debt
securities of any series may, on behalf of the holders of all debt securities of
that series, waive compliance by Federated with specified
10
<PAGE> 27
covenants of the indenture. The holders of at least 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
- a default of a provision of the indenture that cannot be modified or
amended without the consent of the holder of each debt security of that
series.
DEFEASANCE
Unless otherwise specified in a prospectus supplement applicable to a
particular series of debt securities and except as described below, upon
compliance with the applicable requirements described below Federated:
(1) will be deemed to have been discharged from its obligations with
respect to the debt securities of that series; or
(2) will be released from its obligations to comply with the covenants
described under "-- Covenants of Federated" above with respect to the debt
securities of that series, and the occurrence of an event described in any
of clauses (3), (4), and (5) under "-- Events of Default" above will no
longer be an Event of Default with respect to the debt securities of that
series
except to the limited extent described below.
Following any defeasance described in clause (1) or (2) above, Federated
will continue to have specified obligations under the indenture, including
obligations to register the transfer or exchange of debt securities of the
applicable series; replace destroyed, stolen, lost, or mutilated debt securities
of the applicable series; maintain an office or agency in respect of the debt
securities of the applicable series; and hold funds for payment to holders of
debt securities of the applicable series in trust. In the case of any defeasance
described in clause (2) above, any failure by Federated to comply with its
continuing obligations may constitute an Event of Default with respect to the
debt securities of the applicable series as described in clause (4) under
"-- Events of Defaults" above.
In order to effect any defeasance described in clause (1) or (2) above,
Federated must irrevocably deposit with the trustee, in trust, money or
specified government obligations (or depositary receipts therefor) that through
the payment of principal and interest in accordance with their terms will
provide money in an amount sufficient to pay all of the principal and premium,
if any, and interest on the debt securities of such series on the dates such
payments are due in accordance with the terms of such debt securities. In
addition:
- no Event of Default or event which with the giving of notice or lapse of
time, or both, would become an Event of Default under the indenture shall
have occurred and be continuing on the date of such deposit;
- no Event of Default described in clause (6) 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 in such clause (6) shall have
occurred and be continuing at any time on or prior to the 90th calendar
day following the date of deposit;
- in the event of any defeasance described in clause (1) above, Federated
shall have delivered an opinion of counsel, stating that (a) Federated
has received from, or there has been published by, the IRS a ruling or
(b) 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
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
11
<PAGE> 28
- in the event of any defeasance described in clause (2) above, Federated
shall have 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.
If Federated fails to comply with its remaining obligations under the
indenture with respect to the debt securities of the applicable series following
a defeasance described in clause (2) 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 government obligations on deposit with
the trustee may be insufficient to pay amounts due on the debt securities of
that series at the time of the acceleration resulting from such Event of
Default. However, Federated will remain liable in respect of such payments.
SATISFACTION AND DISCHARGE
Federated, at its option, may satisfy and discharge the indenture (except
for specified obligations of Federated and the trustee, including, among others,
the obligations to apply money held in trust) when:
- either:
(1) all debt securities of Federated previously authenticated and
delivered under the indenture (subject to specified exceptions relating to
debt securities that have otherwise been satisfied or provided for) have
been delivered to the trustee for cancellation; or
(2) all debt securities of Federated not previously delivered to the
trustee for cancellation have become due and payable, will become due and
payable at their stated maturity within one year, or 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, and Federated has
deposited or caused to be deposited with the trustee as trust funds for
such purpose an amount sufficient to pay and discharge the entire
indebtedness on such debt securities, 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;
- Federated has paid or caused to be paid all other sums payable under the
indenture by Federated; and
- Federated 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 OTHER TRANSACTIONS
Prior to the satisfaction and discharge of the indenture, Federated 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:
- either
(1) Federated is the continuing or surviving person in the
consolidation or merger; or
(2) the person (if other than Federated) formed by the consolidation
or into which Federated is merged or to which all or substantially all of
the properties and assets of Federated are transferred 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 a
supplemental indenture, all the obligations of Federated under the debt
securities and the indenture;
- 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
12
<PAGE> 29
- an officer's certificate is delivered to the trustee to the effect that
both of the conditions set forth above have been satisfied and an opinion
of outside counsel has been delivered to the trustee to the effect that
the first condition set forth above has been satisfied.
The continuing, surviving, or successor person will succeed to and be
substituted for Federated with the same effect as if it had been named in the
indenture as a party thereto, and thereafter the predecessor person will be
relieved of all obligations and covenants under the indenture and the debt
securities.
GOVERNING LAW
The indenture and the debt securities will governed by, and construed in
accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The indenture contains specified limitations on the right of the trustee,
should it become a creditor of Federated within three months of, or subsequent
to, a default by Federated to make payment in full of principal of or interest
on any series of debt securities issued pursuant to the indenture 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 Federated 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;
- specified 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 specified
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 Federated may be a party from time to time or from
engaging in other transactions with Federated. If the trustee acquires any
conflicting interest within the meaning of the Trust Indenture Act of 1939 and
there is an Event of Default with respect to any series of debt securities, it
must eliminate the conflict or resign.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Federated's certificate of incorporation provides that the authorized
capital stock of Federated 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 any dividends as Federated's board
of directors may declare out of legally available funds. In the event of a
liquidation, dissolution, or winding up
13
<PAGE> 30
of Federated, 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. Federated
does not have any right or obligation to redeem the common stock. The common
stock is listed on the New York Stock Exchange. The transfer agent and registrar
for the common stock is The Bank of New York.
PREFERRED STOCK
Federated's board of directors has the authority, without any vote or
action by the stockholders, to issue up to 125 million shares of preferred stock
in one or more series. Federated's board of directors may fix the designations,
relative powers, preferences, limitations, and restrictions of all shares of
each such series, including dividend rates, conversion rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, and the number
of shares constituting each series. The issuance of preferred stock could:
- decrease the amount of earnings and assets available for distribution to
holders of common stock;
- adversely affect the rights and powers, including voting rights, of the
holders of common stock; or
- delay, defer, or prevent a change in control of Federated.
Federated's board of directors 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 applicable prospectus
supplement will describe the terms of any preferred stock offered and the
applicable certificate of designation. The prospectus supplement will also set
forth the transfer agent and registrar for the preferred stock.
PREFERRED SHARE PURCHASE RIGHTS
General. Each outstanding share of common stock is accompanied by one right
(a "Right") issued pursuant to a share purchase rights agreement between
Federated and The Bank of New York, as rights agent. Each Right entitles its
registered holder to purchase 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 Federated at a price of $62.50 per one one-hundredth of a
Series A Preferred Share. The type and amount of securities purchasable upon the
exercise of a Right, and the purchase price therefor, are subject to adjustment
as described below.
The Rights will expire on December 19, 2004 unless earlier redeemed or
exchanged by Federated as described below. Until the Rights Distribution Date
(defined below), the Rights will not be exercisable, will not be evidenced
separately from the common stock, and will not be transferable separately from
the common stock. Until a Right is exercised, it will not entitle the holder
thereof to any rights as a stockholder of Federated.
Until the Rights Distribution Date (or the earlier redemption or expiration
of the Rights):
- any certificate evidencing shares of common stock issued upon the
transfer or new issuance of common stock will contain a notation
incorporating the share purchase rights agreement by reference; and
- the surrender for transfer of any certificates evidencing common stock
will also constitute the transfer of the Rights associated with those
certificates.
Rights Distribution Date. The "Rights Distribution Date" will be the
earliest of:
- the close of business on the tenth business day (or a later date that is
specified by the board of directors of Federated) following the first
date on which Federated publicly announces that a person (other than
Federated or a subsidiary or employee benefit or stock ownership plan of
Federated),
14
<PAGE> 31
together with its affiliates and associates, has acquired, or obtained
the right to acquire, beneficial ownership of 20% or more of Federated's
outstanding common stock (any such person being an "Acquiring Person");
- the close of business on the tenth business day (or a later date that is
specified by the board of directors of Federated) following the
commencement of a tender offer or exchange offer by a person (other than
Federated or a subsidiary or employee benefit or stock ownership plan of
Federated), the consummation of which would result in beneficial
ownership by that person of 20% or more of Federated's outstanding common
stock; and
- the close of business on the tenth business day following the first date
on which Federated publicly announces that a Flip-in Event or a Flip-over
Event (as those terms are defined below) has occurred.
As soon as practicable following the Rights Distribution Date, separate
certificates evidencing the Rights will be mailed to holders of record of common
stock as of the close of business on the Rights Distribution Date. Thereafter,
the separate Rights certificates alone will evidence the Rights.
Flip-in Events and Flip-over Events. A "Flip-in Event" will occur if:
- any person, together with its affiliates and associates, becomes the
beneficial owner of 20% or more of the outstanding common stock;
- any Acquiring Person merges into or combines with Federated and Federated
is the surviving corporation or any Acquiring Person effects certain
other transactions with Federated, as described in the Share Purchase
Rights Agreement; or
- during any time when there is an Acquiring Person, there is any
reclassification of securities or recapitalization or reorganization of
Federated which has the effect of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity
securities of Federated or any of its subsidiaries beneficially owned by
the Acquiring Person.
Upon the occurrence of a Flip-in Event, the Rights will no longer be
exercisable to purchase Series A Preferred Shares. Instead, the Rights (except
those held by an Acquiring Person) will thereafter be exercisable to purchase
that number of shares of Federated's common stock (or, under certain
circumstances, an economically equivalent security or securities of Federated)
that have a market value of two times the exercise price of the Right. From and
after the later of the Rights Distribution Date and the date of a Flip-in Event,
any Rights beneficially owned by the Acquiring Person will be void.
A "Flip-over Event" will occur if, after the first date on which Federated
publicly announces that a person has become an Acquiring Person:
- Federated merges with or into any person and Federated is not the
surviving corporation;
- any person merges with or into Federated and Federated is the surviving
corporation, but all or part of Federated's common stock is changed or
exchanged; or
- 50% or more of Federated's assets or earning power, including without
limitation securities creating obligations of Federated, are sold.
Upon the occurrence of a Flip-over Event, the Rights will no longer be
exercisable to purchase Series A Preferred Shares. Instead, the Rights will be
exercisable to purchase that number of shares of common stock (or, under certain
circumstances, an economically equivalent security or securities) of that other
person that have a market value of two times the exercise price of the Right.
A Rights Distribution Date resulting from the commencement of a tender
offer or exchange offer could result in the Rights becoming exercisable prior to
the occurrence of a Flip-in Event or Flip-over Event, and thus could result in
the Rights being exercisable to purchase Series A Preferred Shares.
15
<PAGE> 32
However, it may not be economic to exercise any Rights prior to the occurrence
of a Flip-in Event or a Flip-over Event.
Following the occurrence of any Flip-in Event or Flip-over Event, Rights
(except those that have become void) may be exercised 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, that holder will be entitled to receive securities having
a market value equal to the difference between the aggregate market value of the
securities issuable upon exercise of the Rights and the aggregate exercise price
of the Rights.
Other Adjustments to Rights. If Federated declares a stock dividend on the
common stock that is payable in shares of common stock or subdivides, combines,
or reclassifies the common stock prior to the Rights Distribution Date,
Federated will be required to adjust the number of outstanding Rights and the
number of one one-hundredths of a Series A Preferred Share issuable upon
exercise of each Right.
Federated will also be required to adjust the purchase price payable, and
the number of Series A Preferred Shares or other securities issuable, upon
exercise of the Rights to prevent dilution in the following circumstances:
- in the event of a stock dividend on, or a subdivision, combination, or
reclassification of, the Series A Preferred Shares;
- 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
- 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).
Subject to certain exceptions, Federated is not required to adjust the
purchase price payable upon exercise of the Rights unless and until a cumulative
adjustment in the purchase price of at least 1% is required. Federated 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)
or fractional shares of common stock or other securities issuable upon the
exercise of Rights. In lieu of issuing such securities, Federated may make a
cash payment, as provided in the Share Purchase Rights Agreement. Federated may
also elect to cause fractions of Series A Preferred Shares in integral multiples
of one one-hundredth of a Series A Preferred Share to be evidenced by depositary
receipts.
Redemption of Rights. Federated may redeem the Rights in whole, but not in
part, at a price of $0.03 per Right, subject to adjustment, at any time prior to
the close of business on the later of the Rights Distribution Date and the first
date on which Federated publicly announces 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 at $0.03 per Right. If any loan agreements or indentures to
which Federated is a party prohibit Federated from paying the redemption price,
Federated may defer payment of the redemption price until Federated is no longer
prohibited from paying the redemption price.
Exchange of Rights. 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 Federated's outstanding common stock, Federated 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 Federated common stock per Right (subject to
adjustment as provided in the share purchase right agreement).
16
<PAGE> 33
Series A Preferred Shares. Federated may not redeem the Series A Preferred
Shares issuable upon exercise of the Rights. Each Series A Preferred Share will
be entitled to a minimum preferential quarterly dividend payment equal to the
greater of $1.00 per share and an amount equal to 100 times the aggregate
dividends declared per share of common stock during the related quarter. In the
event of any liquidation of Federated, the holders of the Series A Preferred
Shares will be entitled to a preferential liquidation payment equal to the
greater of $100 per share and an amount equal to 100 times the liquidation
payment made per share of common stock. Each Series A Preferred Share will
entitle the holder thereof to 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 entitle the
holder thereof 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.
Amendment of Share Purchase Rights Agreement. Federated may amend the share
purchase rights agreement without the approval of any holders of Rights as
provided in the Share Purchase Rights Agreement, 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 and amendments which modify procedures relating to the redemption of
the Rights. Federated may not, however, amend the Share Purchase Rights
Agreement to decrease the stated Redemption Price to an amount less than $0.01
per Right, decrease the period of time remaining until the expiration date of
the Rights, or modify a time period relating to when the Rights may be redeemed
if the Rights are not then redeemable.
CERTAIN CORPORATE GOVERNANCE MATTERS
Federated's certificate of incorporation and by-laws provide that the
directors of Federated 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
Federated will be added to a particular class of directors to be determined at
the time of election. The number of directors in each class will be identical or
as nearly identical as possible in light of the total number of directors then
in office.
Federated's by-laws provide that nominations for election of directors by
the stockholders will be made by the board of directors of Federated or by any
stockholder entitled to vote in the election of directors generally. Federated's
by-laws require that stockholders intending to nominate candidates for election
as directors deliver written notice thereof to the Secretary of Federated not
later than 60 calendar days in advance of the meeting of stockholders. However,
if Federated does not publicly announce the date of the meeting more than 75
calendar days prior to the meeting, the stockholder must deliver notice to the
Secretary of Federated not later than the close of business on the tenth day
following the date on which Federated announces the date of the meeting.
Federated's by-laws further require that the stockholder's notice set forth
certain information concerning the stockholder and the stockholder's nominees,
including the following:
- their names and addresses;
- a representation that the stockholder is entitled to vote at the 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;
- other information that would be required to be included in a proxy
statement soliciting proxies for the election of the nominees of the
stockholder; and
- the consent of each nominee to serve as a director of Federated if
elected.
17
<PAGE> 34
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 Federated's
board of directors and the director nomination procedures described above,
Federated's certificate of incorporation and by-laws provide, in general, that:
- the number of directors of Federated will be fixed, within a specified
range, by a majority of the total number of Federated's directors
(assuming no vacancies) or by the holders of at least 80% of Federated's
voting stock;
- the directors of Federated in office from time to time will fill any
vacancy or newly created directorship on the board of directors of
Federated;
- directors of Federated may be removed only for cause and only by the
holders of at least 80% of Federated's voting stock;
- stockholder action can be taken only at an annual or special meeting of
stockholders and not by written consent in lieu of a meeting;
- except as described below, special meetings of stockholders may be called
only by Federated's Chief Executive Officer or by a majority of the total
number of directors of Federated (assuming no vacancies) and the business
permitted to be conducted at any special meeting is limited to that
brought before the meeting by Federated's Chief Executive Officer or by a
majority of the total number of directors of Federated (assuming no
vacancies); and
- subject to certain exceptions, the board of directors of Federated may
postpone and reschedule any previously scheduled annual or special
meeting of stockholders.
Federated'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 Federated not later than 60 calendar days in advance of the
meeting of stockholders. However, if Federated does not publicly announce the
date of the meeting at least 75 calendar days prior to the meeting, the
stockholder must deliver notice to the Secretary of Federated not later than the
close of business on the tenth calendar day following the day on which Federated
announces the date of the meeting. Federated's by-laws further require that the
notice by the stockholder set forth a description of the business to be brought
before the meeting, the reasons for conducting that business at the meeting, and
certain information concerning the stockholder proposing that business and the
beneficial owner, if any, on whose behalf the proposal is made, including the
following:
- their names and addresses;
- the class and number of shares of Federated 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 Federated's
voting stock, the board of directors of Federated must call a meeting of
stockholders for the purpose specified in the written request and fix a record
date for the determination of stockholders entitled to notice of and to vote at
the meeting. The record date may not be later than 60 calendar days after the
date of receipt of notice of the meeting. If the board of directors of Federated
calls an annual or special meeting of stockholders to be held not later than 90
calendar days after receipt of any written request, no separate special meeting
of stockholders will be required to be convened if the purposes of the meeting
called by the board of directors of Federated include the purposes specified in
the written request of the stockholders.
Under Delaware corporation law, the approval of a company's board of
directors, in addition to stockholder approval, is required to adopt any
amendment to the company's certificate of incorporation. A
18
<PAGE> 35
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.
Federated's certificate of incorporation provides that the affirmative vote of
the holders of at least 80% of Federated's voting stock, voting together as a
single class, is required to amend, or to adopt a provision inconsistent with,
the provisions of its certificate of incorporation or its by-laws relating to
the following:
- the number and classification of Federated's board of directors,
- the director nominating procedures,
- the filling of vacancies on Federated's board of directors,
- the removal of directors,
- the calling of special meetings of the stockholders,
- the procedures for stockholders to bring business before an annual
meeting of stockholders, and
- the requirement that stockholder action be taken at a meeting of
stockholders rather than by a written consent in lieu of a meeting.
However, if any other approvals required by law have been obtained and the
holders of a majority, but less than 80%, of Federated's voting stock approve
any such action (other than 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), the action will be effective one year from the
date of adoption. Federated's certificate of incorporation and by-laws provide
that Federated'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 Federated's board of
directors without stockholder approval.
Federated is subject to Section 203 of the General Corporation Law of the
State of Delaware, which restricts the consummation of certain business
combination transactions in certain circumstances. In addition, Federated's
certificate of incorporation contains provisions that are substantially similar
to those contained in Section 203 of the General Corporation Law of the State of
Delaware. In general, those provisions restrict business combination
transactions with any person or group that acquires beneficial ownership of 15%
or more of the voting stock of Federated.
The foregoing provisions of Federated'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 may discourage or make
it more difficult to acquire control of Federated by means of a tender offer,
open market purchase, proxy contest, or otherwise. These provisions are intended
to discourage, and may have the effect of discouraging certain types of coercive
takeover practices and inadequate takeover bids. They are also intended to
encourage persons who want to acquire control of Federated to first negotiate
with Federated. Federated'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
Federated's potential ability to negotiate with the proponent of an unfriendly
or unsolicited proposal to acquire or restructure Federated. Federated believes
that these benefits outweigh the disadvantages of discouraging these proposals
because, among other things, negotiating the proposals could improve their
terms.
19
<PAGE> 36
DESCRIPTION OF WARRANTS
Federated may issue warrants for the purchase of debt securities, common
stock, preferred stock, depositary shares, or any combination thereof. Warrants
may be issued independently or together with any other securities offered by a
prospectus supplement. Warrants may be attached to or separate from such
securities. Warrants may be issued under warrant agreements to be entered into
between Federated and a warrant agent specified in the applicable prospectus
supplement. The warrant agent will act solely as an agent of Federated 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 applicable prospectus supplement will describe the terms of the
warrants in respect of which this prospectus is being delivered, including,
where applicable, the following:
- the title of the warrants;
- the aggregate number of the warrants;
- the price or prices at which the warrants will be issued;
- the designation, number and terms of the debt securities, common stock,
preferred stock, and/or depositary shares purchasable upon exercise of
the warrants;
- the designation and terms of the other securities, if any, with which the
warrants are issued and the number of warrants issued with each security;
- the date, if any, on and after which the warrants and the related
underlying securities will be separately transferable;
- the price at which each underlying security purchasable upon exercise of
the warrants may be purchased;
- the date on which the right to exercise the warrants will commence and
the date on which that right will expire;
- the minimum amount of the warrants that may be exercised at any one time;
- information with respect to book-entry procedures, if any;
- a discussion of any material federal income tax considerations; and
- any other terms of the warrants, including terms, procedures, and
limitations relating to the transferability, exchange, and exercise of
the warrants.
PLAN OF DISTRIBUTION
Federated may sell the securities in any one or more of the following ways:
- through one or more underwriters;
- through one or more dealers or agents; or
- directly to one or more purchasers.
Federated may effect the distribution of the securities 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 sales of the securities, underwriters, dealers, and agents may
receive compensation from Federated 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 Federated
and any profit on the resale of securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933. Any
underwriter, dealer, or agent will be identified and any
20
<PAGE> 37
compensation received from Federated 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 Federated may enter into, underwriters, dealers, and
agents who participate in the distribution of the securities may be entitled to
indemnification by Federated against certain liabilities, including under the
Securities Act of 1933, or contribution from Federated 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, Federated in the ordinary course of business.
All securities offered will be a new issue of securities with no
established trading market, other than the common stock, which is listed on the
New York Stock Exchange. Any common stock sold pursuant to a prospectus
supplement will be listed on the New York Stock Exchange, subject to official
notice of issuance. Any underwriters to whom Federated sells securities for
public offering and sale may make a market in those securities, but the
underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. Federated cannot give any assurance 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 Federated by Jones, Day, Reavis & Pogue.
EXPERTS
The financial statements of Federated, from Federated's annual report on
Form 10-K for the fiscal year ended January 30, 1999 and Fingerhut, from
Federated's current report on Form 8-K, dated March 18, 1999, have been
incorporated by reference herein in reliance upon the reports of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
21
<PAGE> 38
FEDERATED
DEPARTMENT STORES, INC.
