- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PROFFITT'S, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
TENNESSEE 5311 62-0331040
(State or other Jurisdiction of (Primary Standard Industrial IRS Employer
Incorporation or Organization) Classification Code Number) Identification Number
</TABLE>
-------------------
POST OFFICE BOX 9388
ALCOA, TENNESSEE 37701
(615) 983-7000
(Address, including zip code, and telephone number,
including area code of Registrant's Principal Executive Office)
-------------------
R. BRAD MARTIN
5810 SHELBY OAKS DRIVE
MEMPHIS, TENNESSEE 38134
(901) 372-4300
(Name, Address, including zip code, and telephone number,
including area code of Agent for Service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES A. STRAIN, ESQ. BRIAN J. MARTIN, ESQ.
BARNES & THORNBURG PROFFITT'S, INC.
1313 MERCHANTS BANK BUILDING 3455 HIGHWAY 80 WEST
11 SOUTH MERIDIAN STREET JACKSON, MISSISSIPPI 39209
INDIANAPOLIS, INDIANA 46204 (601) 968-5215
(317) 231-7233
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: as soon as practicable after the effective date of the Registration
Statement, but not earlier than the date of the meetings of the stockholders of
Proffitt's, Inc. and Younkers, Inc., referred to herein.
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.10 Par Value 8,816,215 $25.125 $221,507,401.90 $76,381.86(3)
</TABLE>
(1) Based upon the assumed maximum number of shares of common stock of the
Registrant issuable to holders of common stock of Younkers, Inc., a Delaware
corporation ("Younkers"), in the proposed merger of Baltic Merger
Corporation, a wholly owned subsidiary of the Registrant, with and into
Younkers.
(2) Solely for purposes of calculating the registration fee with Rule 457(f)(1)
as of December 27, 1995, being within 5 days of the filing of this
Registration Statement.
(3) The Registrant paid $47,793.00 allocable to the registration fee in
connection with its filing of preliminary proxy materials under Schedule 14A
on November 17, 1995.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROFFITT'S, INC.
CROSS REFERENCE SHEET
(PURSUANT TO RULE 495 OF REGULATION C
UNDER THE SECURITIES ACT OF 1933)
RELATING TO ITEMS REQUIRED BY FORM S-4
<TABLE><CAPTION>
ITEM LOCATION OR
NUMBER CAPTION PROSPECTUS CAPTION
- ------ ----------------------------------------- -----------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed "Summary"; "Summary-- The Merger-- Other
Charges and Other Information Significant Considerations"; "-- Selected
Financial and Operating Data";
"--Comparative Per Share Data"; "--
Comparative Stock Prices and Dividends";
"The Merger"; "Business of Proffitt's";
"Business of Younkers"
4. Terms of the Transaction "Summary"; "The Merger"; "The Merger
Agreement"; "Description of Proffitt's
Capital Stock"; "Comparison of Rights of
Holders of Proffitt's Common Stock and
Younkers Common Stock"
5. Pro Forma Financial Information "Unaudited Pro Forma Condensed Combined
Financial Statements"
6. Material Contacts with the Company Being "The Merger"; "The Merger Agreement"
Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts and Counsel "Legal Opinions"; "Experts"
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
10. Information With Respect to S-3 "Available Information"; "Incorporation
Registrants of Certain Documents by Reference"
11. Incorporation of Certain Information by "Incorporation of Certain Documents by
Reference Reference"
12. Information With Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information With Respect to Registrants Not Applicable
Other Than S-3 or S-2 Registrants
15. Information With Respect to S-3 Companies "Available Information"; "Incorporation
of Certain Documents by Reference"
16. Information With Respect to S-3 or S-2 Not Applicable
Companies
17. Information With Respect to Companies Not Applicable
Other Than S-3 or S-2 Companies
18. Information if Proxies, Consents or "The Special Meetings"; "The Merger"
Authorizations Are to be Solicited
19. Information if Proxies, Consents or Not Applicable
Authorizations Are Not to be Solicited or
in an Exchange Offer
</TABLE>
<PAGE>
PROFFITT'S, INC.
AND
YOUNKERS, INC.
JOINT PROXY STATEMENT
--------------
PROFFITT'S, INC.
PROSPECTUS
--------------
SPECIAL MEETING OF STOCKHOLDERS OF PROFFITT'S, INC.
TO BE HELD ON JANUARY 31, 1996
SPECIAL MEETING OF STOCKHOLDERS OF YOUNKERS, INC.
TO BE HELD ON JANUARY 31, 1996
This Joint Proxy Statement/Prospectus ("Joint Proxy Statement/Prospectus")
is being furnished to stockholders of Proffitt's, Inc., a Tennessee corporation
("Proffitt's"), and to stockholders of Younkers, Inc., a Delaware corporation
("Younkers"), in connection with the solicitation of proxies by the Board of
Directors of each corporation for use at the Special Meeting of Stockholders of
Proffitt's (the "Proffitt's Special Meeting") and the Special Meeting of
Stockholders of Younkers (the "Younkers Special Meeting" and, together with the
Proffitt's Special Meeting, the "Special Meetings"), respectively, in each case
including any adjournments or postponements thereof. The Special Meetings are
both scheduled to be held on January 31, 1996. This Joint Proxy
Statement/Prospectus relates to (i) the proposed merger (the "Merger") of Baltic
Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of
Proffitt's ("Sub"), with and into Younkers pursuant to the Agreement and Plan of
Merger, dated as of October 22, 1995 (the "Merger Agreement"), among Proffitt's,
Sub and Younkers, with Younkers, as the surviving corporation in the Merger, to
become a wholly-owned subsidiary of Proffitt's; and (ii) the issuance of shares
(the "Stock Issuance") of Proffitt's Common Stock (as defined below) in
connection with the Merger. In addition, this Joint Proxy Statement/Prospectus
describes a proposed amendment (the "Incentive Plan Amendment") to Proffitt's
1994 Long-Term Incentive Plan (the "Incentive Plan") to be considered at the
Proffitt's Special Meeting. APPROVAL OF THE STOCK ISSUANCE AND THE INCENTIVE
PLAN AMENDMENT ARE CONDITIONS TO THE CONSUMMATION OF THE MERGER.
Subject to certain provisions described herein with respect to certain
shares owned by Proffitt's, Younkers and their respective wholly-owned
subsidiaries, each outstanding share of Common Stock, par value $0.01 per share,
of Younkers (the "Younkers Common Stock"), will be converted in the Merger into
0.98 validly issued, fully paid and nonassessable shares of Common Stock, par
value $0.10 per share, of Proffitt's (the "Proffitt's Common Stock"). Cash will
be paid in lieu of fractional shares of Proffitt's Common Stock.
This Joint Proxy Statement/Prospectus constitutes a prospectus of Proffitt's
regarding up to 8,816,215 shares of Proffitt's Common Stock issuable to Younkers
stockholders pursuant to the Merger Agreement, assuming the exercise of all
currently outstanding stock options of Younkers.
The Proffitt's Common Stock is listed for trading on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") National Market
System under the symbol "PRFT," and the Younkers Common Stock is listed for
trading on the NASDAQ National Market System under the symbol "YONK." On October
20, 1995, the last trading day prior to the announcement of the execution of the
Merger Agreement, the last sales prices of Proffitt's Common Stock and Younkers
Common Stock as reported on the NASDAQ National Market System were $28 3/4 and
$19 1/16 per share, respectively. On January 2, 1996, the last trading day
prior to the date of this Joint Proxy Statement/Prospectus, the last sales
prices of Proffitt's Common Stock and Younkers Common Stock as reported on the
NASDAQ National Market System were $26.00 and $25.00 per share, respectively.
For a description of Proffitt's Common Stock, see "DESCRIPTION OF PROFFITT'S
CAPITAL STOCK" and "COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK
AND YOUNKERS COMMON STOCK." Proffitt's and Younkers stockholders are urged to
obtain current market quotations for the Proffitt's Common Stock and the
Younkers Common Stock.
This Joint Proxy Statement/Prospectus, the accompanying forms of proxy and
the other enclosed documents are first being mailed to stockholders of
Proffitt's and Younkers on or about January 4, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Joint Proxy Statement/Prospectus is January 3, 1996.
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION...................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.................................. 3
SUMMARY.................................... 5
The Companies............................ 5
The Merger Agreement..................... 6
The Special Meetings..................... 6
Time, Date and Place................... 6
Matters To Be Considered at the Special
Meetings............................. 6
Votes Required......................... 6
Record Date............................ 7
Security Ownership of Management....... 7
The Merger............................... 8
Effect of Merger....................... 8
Recommendations of the Boards of
Directors............................ 8
Opinions of Financial Advisors......... 8
Effective Time of the Merger........... 9
Interests of Certain Persons in the
Merger............................... 9
Conditions to the Merger............... 9
Termination of the Merger Agreement.... 10
No Stockholders' Rights of Appraisal... 10
Certain Federal Income Tax
Consequences......................... 10
Accounting Treatment of the Merger..... 10
Comparison of Rights of Holders of
Proffitt's Common Stock and Younkers
Common Stock......................... 11
Other Significant Considerations....... 11
Selected Financial and Operating Data.... 12
Comparative Per Share Data............... 18
Comparative Stock Prices and Dividends... 19
INTRODUCTION............................... 20
THE SPECIAL MEETINGS....................... 20
Matters To Be Considered at the Special
Meetings............................... 20
Votes Required........................... 21
Voting of Proxies........................ 22
Revocability of Proxies.................. 22
Record Dates; Stock Entitled to Vote;
Quorum................................. 22
Appraisal Rights......................... 23
Solicitation of Proxies; General......... 23
Holders of Younkers Common Stock Should
Not Send Stock Certificates............ 24
Accountants.............................. 24
THE MERGER................................. 24
General.................................. 24
Background of the Merger................. 24
PAGE
----
Recommendations of the Board of
Directors; Reasons for the Merger...... 26
Opinions of Financial Advisors........... 29
Merger Consideration..................... 36
Effective Time of the Merger............. 37
Conversion of Shares; Procedures for
Exchange of Long-Term Certificates..... 37
Governmental and Regulatory Approvals.... 38
Certain Federal Income Tax Consequences.. 39
Accounting Treatment..................... 41
Interests of Certain Persons in the
Merger................................. 41
NASDAQ National Market System Listing.... 43
THE MERGER AGREEMENT....................... 43
Terms of the Merger........................ 43
Surrender and Payment.................... 44
Fractional Shares........................ 45
Conditions to the Merger................. 45
Representations and Warranties........... 46
Conduct of Business Pending the Merger... 47
Younkers Stock Options................... 49
Composition of Proffitt's Board of
Directors Post-Merger.................. 49
No Solicitation.......................... 49
Indemnification; Directors and Officers
Insurance.............................. 50
Termination.............................. 50
Fees and Expenses........................ 51
Amendment................................ 53
Waiver................................... 53
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS....................... 54
DESCRIPTION OF PROFFITT'S CAPITAL STOCK.... 62
COMPARISON OF RIGHTS OF HOLDERS OF
PROFFITT'S COMMON STOCK AND YOUNKERS
COMMON STOCK............................. 64
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS................ 70
PROPOSED AMENDMENT TO PROFFITT'S 1994
LONG-TERM INCENTIVE PLAN................. 73
BUSINESS OF PROFFITT'S..................... 75
BUSINESS OF YOUNKERS....................... 76
LEGAL OPINIONS............................. 77
EXPERTS.................................... 77
OTHER INFORMATION AND STOCKHOLDER
PROPOSALS.................................. 77
<TABLE><CAPTION>
Annexes
<S> <C>
Appendix I Agreement and Plan of Merger dated as October 22, 1995, among Proffitt's, Inc., Baltic
Merger Corporation and Younkers, Inc.
Appendix II Opinion of Smith Barney Inc.
Appendix III Opinion of Goldman, Sachs & Co.
Appendix IV Form of Proffitt's 1994 Incentive Plan as proposed to be amended
</TABLE>
2
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROFFITT'S OR YOUNKERS. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PROFFITT'S OR YOUNKERS SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
AVAILABLE INFORMATION
Proffitt's and Younkers are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Proffitt's and Younkers with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available at the Commission's Regional Offices at 7
World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
Proffitt's has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Proffitt's Common Stock to be issued in connection with the Merger
Agreement. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated in this Joint Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Proffitt's (Commission
File No. 0-15907) and Younkers (Commission File No. 0-19947) pursuant to the
Exchange Act are incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. Proffitt's Annual Report on Form 10-K for the fiscal year ended
January 28, 1995 (the "Proffitt's 1995 10-K");
2. Proffitt's Quarterly Reports on Form 10-Q for the quarters ended
April 29, July 29, and October 28, 1995;
3. Proffitt's Current Reports on Form 8-K reporting events occurring on
October 23, 1995 and November 1, 1995;
3
<PAGE>
4. The description of Proffitt's Common Stock contained in Proffitt's
Registration Statement on Form 8-A dated May 27, 1987 and Proffitt's
Registration Statement on Form S-3 dated October 19, 1993 (Registration No.
33-70000);
5. Proffitt's Registration Statement on Form 8-A dated April 3, 1995 in
respect of the Proffitt's Share Purchase Rights Plan;
6. Younkers' Annual Report on Form 10-K for the fiscal year ended
January 28, 1995 (the "Younkers' 1995 10-K");
7. Younkers' Quarterly Reports on Form 10-Q for the quarters ended April
29, July 29 (as amended), and October 28, 1995;
8. Younkers' Current Report on Form 8-K dated October 24, 1995;
9. The description of Younkers' Common Stock contained in Younkers'
Registration Statement on Form 8-A dated March 13, 1992; and
10. Younkers' Registration Statement on Form 8-A dated November 3, 1994
and Registration Statement on Form 8-A/A dated November 1, 1995 in respect
of the Younkers Rights Plan (as defined below).
All documents and reports filed by Proffitt's and Younkers pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the Special Meetings
shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such document so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, WITHIN ONE BUSINESS DAY OF SUCH REQUEST, IN THE CASE OF
DOCUMENTS RELATING TO PROFFITT'S, TO PROFFITT'S, INC., P.O. BOX 9388, ALCOA,
TENNESSEE 37701 (TELEPHONE NUMBER: (615) 983-7000), ATTENTION: INVESTOR
RELATIONS; OR, IN THE CASE OF DOCUMENTS RELATING TO YOUNKERS, TO YOUNKERS, INC.,
7TH AND WALNUT STREETS, DES MOINES, IOWA 50397 (TELEPHONE NUMBER: (515)
244-1112), ATTENTION: CHIEF FINANCIAL OFFICER. IN ORDER TO ENSURE DELIVERY OF
THE DOCUMENTS PRIOR TO THE APPLICABLE SPECIAL MEETING, REQUESTS SHOULD BE
RECEIVED BY JANUARY 22, 1996.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Proffitt's or Sub has been supplied by
Proffitt's, and all such information relating to Younkers has been supplied by
Younkers.
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Joint Proxy Statement/Prospectus. Reference is
made to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus and the Appendices hereto. As used herein, unless the
context otherwise requires, "Younkers" means Younkers, Inc. and its consolidated
subsidiaries, "Proffitt's" means Proffitt's, Inc. and its consolidated
subsidiaries and "Sub" means Baltic Merger Corporation, a wholly-owned
subsidiary of Proffitt's.
Stockholders of Proffitt's and Younkers are urged to read this Joint Proxy
Statement/Prospectus and the Appendices hereto in their entirety. Stockholders
should carefully consider the information set forth below under the heading
"Other Significant Considerations."
THE COMPANIES
Proffitt's and Sub. Founded in 1919, Proffitt's is a leading regional
specialty department store company offering a wide selection of fashion apparel,
accessories, cosmetics, and decorative home furnishings, featuring assortments
of premier brands and unique specialty merchandise. Proffitt's stores are
primarily anchor stores in leading regional malls. Proffitt's currently operates
under two divisions, the Proffitt's Division with 26 stores and the McRae's
Division with 28 department stores and one specialty store. The stores operated
under the Proffitt's Division are located in Tennessee (13 stores), Virginia (8
stores), Georgia (2 stores), Kentucky (2 stores) and North Carolina (1 store).
The McRae's department stores are located in Alabama (13 stores), Mississippi
(12 stores), Florida (2 stores) and Louisiana (1 store). Proffitt's operates
separate merchandising, sales promotion and store operating divisions for the
Proffitt's and McRae's Divisions, but operates centralized administrative and
support functions, such as accounting, information systems and credit.
Proffitt's is incorporated in Tennessee, its principal executive offices are
located at 115 North Calderwood, Alcoa, Tennessee 37701, and its telephone
number is (615) 983-7000. For further information concerning Proffitt's, see
"--Selected Financial and Operating Data," "BUSINESS OF PROFFITT'S," "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Sub was organized as a Delaware corporation on October 20, 1995 for the
purpose of consummating the Merger and the other transactions contemplated by
the Merger Agreement. Sub has no assets or business and has not carried on any
activities to date other than those incident to its formation and in connection
with the Merger and the other transactions contemplated by the Merger Agreement.
Sub's principal executive offices are located at 115 North Calderwood, Alcoa,
Tennessee 37701, and its telephone number is (615) 983-7000.
Younkers. Younkers is a leading fashion department store chain in Iowa,
Nebraska and Wisconsin. Younkers operates 53 stores in those three states and
the contiguous states of Michigan, Illinois, Minnesota and South Dakota.
Younkers' stores are generally located in mid-sized to smaller cities where
Younkers is one of the primary department stores and competition is more limited
than in major metropolitan areas. Younkers' stores are full-line department
stores which offer basic apparel for the entire family. In addition to apparel,
these stores carry major cosmetic and fragrance lines, as well as a wide
selection of housewares, china, linens, gift items and other merchandise.
Younkers also sells furniture and operates restaurants in certain of its stores.
Younkers is incorporated in Delaware, its principal executive offices are
located at 7th and Walnut Streets, Des Moines, Iowa 50397, and its telephone
number is (515) 244-1112. For further information concerning Younkers, see
"--Selected Financial and Operating Data," "BUSINESS OF YOUNKERS," "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
5
<PAGE>
THE MERGER AGREEMENT
The Merger Agreement provides that, upon the terms and subject to the
conditions contained therein, Sub will be merged with and into Younkers at the
effective time of the Merger (the "Effective Time"), and Younkers will continue
as the surviving corporation and a wholly-owned subsidiary of Proffitt's.
Subject to the terms and conditions of the Merger Agreement, each share of
Younkers Common Stock issued and outstanding immediately prior to the Effective
Time (other than certain shares held by Proffitt's, Younkers or their respective
subsidiaries) will be converted into .98 (the "Conversion Number" or the
"Exchange Ratio") shares of Proffitt's Common Stock. See "THE MERGER AGREEMENT."
The Conversion Number was determined through arms-length negotiations
between Proffitt's and Younkers.
THE SPECIAL MEETINGS
Time, Date and Place. The Proffitt's Special Meeting will be held at 10:00
a.m., local time, on January 31, 1996, at Proffitt's corporate offices, Midland
Shopping Center, 115 North Calderwood, Alcoa, Tennessee. The Younkers Special
Meeting will be held at 9:00 a.m., local time, January 31, 1996, in the Younkers
Tea Room, 7th and Walnut Streets, Des Moines, Iowa.
Matters to be Considered at the Special Meetings.
Proffitt's Special Meeting. At the Proffitt's Special Meeting, holders of
Proffitt's Common Stock will consider and vote upon proposals to (i) approve the
Merger Agreement, a conformed copy of which appears as Appendix I to this Joint
Proxy Statement/Prospectus; (ii) approve the issuance of shares of Proffitt's
Common Stock in connection with the Merger Agreement, including the issuance of
shares of Proffitt's Common Stock in the Merger, and upon exercise of stock
options of Younkers which, pursuant to the terms of the related stock option
plans, following the Merger, will constitute options to purchase shares of
Proffitt's Common Stock upon the terms set forth in such stock options plans and
the Merger Agreement (collectively, the "Stock Issuance"); and (iii) approve an
amendment to Proffitt's 1994 Long-Term Incentive Plan to increase the number of
shares of Proffitt's Common Stock authorized for issuance under such plan (the
"Incentive Plan Amendment"), a copy of which Incentive Plan, as proposed to be
amended, appears as Appendix IV to this Joint Proxy Statement/Prospectus.
APPROVAL OF THE MERGER AGREEMENT, THE STOCK ISSUANCE AND THE INCENTIVE PLAN
AMENDMENT (COLLECTIVELY, THE "PROFFITT'S STOCKHOLDER APPROVALS") ARE ALL
CONDITIONS TO THE CONSUMMATION OF THE MERGER. Holders of shares of Proffitt's
Common Stock entitled to vote also will consider and vote upon any other matter
that may properly come before the Proffitt's Special Meeting or any adjournments
and postponements thereof.
Younkers Special Meeting. At the Younkers Special Meeting, holders of shares
of Younkers Common Stock will consider and vote upon a proposal to adopt the
Merger Agreement. Holders of shares of Younkers Common Stock entitled to vote
also will consider and vote upon any other matter that may properly come before
the Younkers Special Meeting or at any adjournments or postponements thereof.
Votes Required
Proffitt's. Each holder of Proffitt's Common Stock is entitled to one vote
per share held of record on the record date. The approval of the Merger
Agreement requires the affirmative vote of a majority of the votes eligible to
be cast on the proposal. The affirmative vote of a majority of the votes cast in
person or by proxy is required to approve each of the Stock Issuance and the
Incentive Plan Amendment, provided a quorum is present.
6
<PAGE>
Abstentions will be counted as shares present for purposes of determining
the presence of a quorum at the Proffitt's Special Meeting. Abstentions with
respect to the Merger Agreement will have the effect of votes against the
approval of such matter. In addition, brokers who hold shares of Proffitt's
Common Stock as nominees will not have discretionary authority to vote shares of
Proffitt's Common Stock in the absence of instructions from the beneficial
owners thereof. Votes which are not cast for this reason ("broker non-votes")
will have the effect of a vote against the Merger Agreement. Neither abstentions
nor broker non-votes with respect to the Stock Issuance and the Incentive Plan
Amendment will have the effect of a vote for or against the matter. See "THE
SPECIAL MEETINGS--Votes Required-- Proffitt's."
Stockholders of Proffitt's should be aware that a stockholder who votes to
approve the Merger Agreement and the Stock Issuance may be deemed to have
ratified the terms of the Merger and the Stock Issuance, including the fairness
thereof, and, under certain circumstances, such stockholder may be precluded
from challenging the fairness of the Merger and the Stock Issuance in a
subsequent legal proceeding. Proffitt's may use a stockholder's affirmative vote
in favor of the Merger Agreement and the Stock Issuance as a defense to any
subsequent challenge to the Merger and the Stock Issuance. An abstention, in and
of itself, will not be considered such a ratification; however, no assurance can
be given as to the effect that such an abstention would have on the
stockholder's rights to challenge the Merger and the Stock Issuance.
Younkers. Each holder of Younkers Common Stock is entitled to one vote per
share held of record on the record date. The Merger Agreement must be adopted by
the affirmative vote of a majority of the outstanding shares of Younkers Common
Stock.
Abstentions will be counted as shares present for purposes of determining a
quorum. Abstentions will have the effect of votes against adoption of the Merger
Agreement. In addition, brokers who hold shares of Younkers Common Stock as
nominees will not have discretionary authority to votes shares of Younkers
Common Stock in the absence of instructions from the beneficial owners thereof.
Broker non-votes will have the effect of votes against the adoption of the
Merger Agreement. See "THE SPECIAL MEETINGS--Votes Required--Younkers."
Stockholders of Younkers should be aware that, under Delaware law, a
stockholder who votes to adopt the Merger Agreement may be deemed to have
ratified the terms of the Merger, including the fairness thereof, and, under
certain circumstances, such stockholder may be precluded from challenging the
fairness of the Merger in a subsequent legal proceeding. Younkers may use a
stockholder's affirmative vote in favor of adoption of the Merger Agreement as a
defense to any subsequent challenge to the Merger. An abstention, in and of
itself, will not be considered such a ratification; however, no assurance can be
given as to the effect that such an abstention would have on the stockholder's
rights to challenge the Merger.
Record Date. The record date for the determination of holders of Proffitt's
Common Stock and Younkers Common Stock entitled to notice of and to vote at the
Special Meetings is December 22, 1995. On that date, there were 10,257,055
shares of Proffitt's Common Stock issued and outstanding, and there were
8,996,138 shares of Younkers Common Stock issued and outstanding.
Security Ownership of Management. As of December 22, 1995, directors and
executive officers of Proffitt's and their affiliates were beneficial owners of
an aggregate of 2,572,929 shares (approximately 24.4%) of the outstanding shares
of Proffitt's Common Stock (including 309,681 shares subject to options
exercisable within 60 days). As of December 22, 1995, directors and executive
officers of Younkers and their affiliates were beneficial owners of an aggregate
of 535,051 shares (approximately 5.72%) of the outstanding shares of Younkers
Common Stock (including 355,663 shares subject to options exercisable within 60
days).
7
<PAGE>
THE MERGER
Effect of Merger. At the Effective Time, Sub will be merged with and into
Younkers, which will continue as the surviving corporation in the Merger. As a
result of the Merger, Younkers will become a wholly-owned subsidiary of
Proffitt's. Subject to certain provisions described herein with respect to
certain shares owned by Proffitt's, Younkers and the respective subsidiaries of
Proffitt's and Younkers, in the Merger each issued and outstanding share of
Younkers Common Stock will be converted into .98 validly issued, fully paid and
nonassessable shares of Proffitt's Common Stock. Cash will be paid in lieu of
fractional shares of Proffitt's Common Stock. See "THE MERGER--Merger
Consideration" and "THE MERGER AGREEMENT--Fractional Shares."
Recommendations of the Board of Directors. The Board of Directors of
Proffitt's has determined that the Merger is in furtherance of and consistent
with its long-term business strategies and is in the best interests of the
holders of shares of Proffitt's Common Stock. Accordingly, the Board has
unanimously approved the Merger Agreement and the Merger, including the Stock
Issuance, and recommends that Proffitt's stockholders vote in favor of the
Merger Agreement and the Stock Issuance at the Proffitt's Special Meeting. The
Board of Directors of Younkers believes that the terms of the Merger Agreement
are consistent with and in furtherance of Younkers' long-term business strategy,
and in the best interests of Younkers and its stockholders of Younkers and
unanimously recommends that the stockholders of Younkers vote for adoption of
the Merger Agreement.
Carson Agreement. On January 2, 1996, Carson, Pirie Scott & Co.
("Carson"), Younkers and Proffitt's entered into an agreement pursuant to which,
in exchange for Proffitt's granting registration rights to Carson for the
Proffitt's shares it will own after the Merger, Carson has agreed to (1)
publicly announce its support, and vote all of its Younkers shares in favor, of
the Merger; (2) dismiss its lawsuit against Younkers without prejudice; and (3)
without the prior approval of the Younkers board, not make a competing bid for
Younkers so long as Carson is obligated to vote its shares in favor of the
Merger. In addition, Carson signed a separate agreement with Younkers pursuant
to which Younkers has agreed to sell two Younkers stores located in Rockford,
Illinois to Carson for an aggregate consideration of $5 million. For a further
discussion regarding the January 2, 1996 agreement with Carson, see "THE
MERGER--Background of the Merger--Carson Agreement".
THE BOARD OF DIRECTORS OF PROFFITT'S RECOMMENDS THAT THE HOLDERS OF
PROFFITT'S COMMON STOCK APPROVE THE MERGER AGREEMENT AND THE RELATED STOCK
ISSUANCE.
THE BOARD OF DIRECTORS OF YOUNKERS RECOMMENDS THAT THE HOLDERS OF YOUNKERS
COMMON STOCK ADOPT THE MERGER AGREEMENT.
For additional information with respect to the determinations made by, and
the recommendations of, the Proffitt's and Younkers Boards of Directors, see
"THE MERGER--Recommendations of the Boards of Directors; Reasons for the
Merger."
Opinions of Financial Advisors. Smith Barney Inc. ("Smith Barney") has acted
as financial advisor to Proffitt's in connection with the Merger and has
delivered a written opinion, dated October 22, 1995, to the Board of Directors
of Proffitt's to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the Conversion Number was fair,
from a financial point of view, to Proffitt's. The full text of the written
opinion of Smith Barney dated October 22, 1995, which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
hereto as Appendix II to this Joint Proxy Statement/Prospectus and should be
read carefully in its entirety. Smith Barney's opinion is directed only to the
fairness of the Conversion Number from a financial point of view to Proffitt's,
does not address any other aspect of the Merger or related transaction and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote at the Proffitt's Special Meeting. See "THE MERGER--Opinions of
Financial Advisors-- Smith Barney Opinion to the Proffitt's Board of Directors."
Goldman, Sachs & Co. ("Goldman Sachs") delivered its written opinion, dated
October 22, 1995, to the Younkers Board of Directors that the Exchange Ratio was
fair to the holders of Younkers Common Stock. The full text of the written
opinion of Goldman Sachs, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached hereto as
Appendix III to this Joint Proxy Statement/Prospectus and should be read
carefully in its entirety. Goldman Sachs' opinion is directed only to the
Exchange Ratio and does not constitute a recommendation to any stockholder of
Younkers as to how such stockholder should vote at the Younkers Special Meeting.
See "THE MERGER--Opinions of Financial Advisors--Goldman Sachs Opinion to the
Younkers Board of Directors."
8
<PAGE>
Effective Time of the Merger. The Merger will become effective upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware or such later date as is specified in such Certificate. The filing of
the Certificate of Merger will occur as soon as practicable following the
satisfaction or waiver of the conditions set forth in the Merger Agreement. See
"THE MERGER AGREEMENT-- Conditions to the Merger."
Interests of Certain Persons in the Merger. Certain members of Younkers'
management and Board of Directors have interests in the Merger in addition to
their interests solely as stockholders of Younkers. Each of W. Thomas Gould,
Chairman and Chief Executive Officer of Younkers, and Robert M. Mosco, President
and Chief Operating Officer of Younkers, has entered into an Employment
Agreement with Proffitt's dated as of October 22, 1995 (each, an "Employment
Agreement" and together, the "Employment Agreements"). Pursuant to the
Employment Agreements, as of the Effective Time Mr. Gould will serve as Vice
Chairman of Proffitt's and Chairman of the Younkers Division, and Mr. Mosco will
serve as President and Chief Executive Officer of the Younkers Division. See
"THE MERGER--Interests of Certain Persons in the Merger."
Mr. Gould has entered into a five-year Employment Agreement with Proffitt's
pursuant to which he will receive a minimum base salary of $750,000 and be
granted options on 100,000 shares of Proffitt's Common Stock unless Proffitt's
and Mr. Gould agree to an alternative arrangement with respect to incentive
compensation. This Employment Agreement is terminable by either party upon
thirty days' notice at any time after one year after the Effective Time, and
unless the termination is due to conviction by Mr. Gould of certain felonies,
the base salary and medical and life insurance provisions will continue during
the remaining term of the Employment Agreement.
Mr. Mosco has entered into a three-year Employment Agreement with a minimum
base salary of $450,000 which provides for the grant of options to purchase
50,000 shares of Proffitt's Common Stock. If Mr. Mosco is terminated without
Cause or quits for Good Reason (as each is defined in Mr. Mosco's Employment
Agreement), he will receive three times his highest annual salary in the prior
12 months and three times his average bonus in the preceding three fiscal years.
The Merger Agreement provides that at the Effective Time four members of
Younkers' current Executive Committee of the Board will be appointed to
Proffitt's Board of Directors to serve until Proffitt's next regularly scheduled
annual meeting of stockholders. The Merger Agreement further provides that for
Proffitt's three annual meetings following the Effective Time, Proffitt's will
use its reasonable best efforts to cause three or more current members of
Younkers Executive Committee to be nominated for election as members of
Proffitt's Board of Directors. See "THE MERGER AGREEMENT--Composition of
Proffitt's Board of Directors Post-Merger."
Conditions to the Merger. The obligations of Proffitt's, Sub and Younkers to
consummate the Merger are subject to various conditions, including, among other
things, obtaining the requisite stockholder approvals (including approval of the
Incentive Plan Amendment), the authorization for listing on the NASDAQ National
Market System of the shares of Proffitt's Common Stock issuable pursuant to the
Merger Agreement, the expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the receipt of an opinion dated as of the Effective Time from
Coopers & Lybrand L.L.P. that the Merger will qualify for pooling of interests
accounting treatment, the effectiveness of the Registration Statement and the
absence of any order or other legal restraint or prohibition preventing the
consummation of the Merger. The obligation of Proffitt's to consummate the
Merger is subject to the fulfillment of various additional conditions,
including, among other things, that there shall not be instituted or pending any
action or proceeding by anyone as a result of the Merger Agreement which in the
opinion of counsel to Proffitt's would have a material adverse effect on
Proffitt's (assuming the Merger is consummated). The obligation of Younkers to
consummate the Merger is subject to the fulfillment of various additional
conditions, including, among other things, the receipt of certain tax opinions
from counsel to Younkers.
9
<PAGE>
See "THE MERGER-- Governmental and Regulatory Approvals," "--Interests of
Certain Persons in the Merger" and "THE MERGER AGREEMENT --Conditions to the
Merger."
Certain of the foregoing conditions may not be waived by the parties,
including stockholder approvals, the effectiveness of the Registration Statement
and the absence of any order or legal restraint. Although the receipt of the
accounting opinion of Coopers & Lybrand L.L.P. and the tax opinions of Younkers'
counsel may be waived by the parties, Proffitt's and Younkers do not intend to
consummate the Merger in the event either of such opinions are not or cannot be
delivered.
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time under certain circumstances, including,
among other things, (i) by mutual written consent of Proffitt's and Younkers,
(ii) by either Proffitt's or Younkers if the Merger has not been effected prior
to the close of business on June 30, 1996, (iii) by either Proffitt's or
Younkers if the requisite stockholder approvals are not obtained, (iv) by either
Proffitt's or Younkers in certain circumstances involving a competing
transaction, and (v) by either Proffitt's or Younkers if the other party's Board
of Directors withdraws or modifies its recommendation of the Merger, recommends
a competing transaction or fails to recommend against a tender or exchange offer
by a third party. See "THE MERGER AGREEMENT--Termination." The Merger Agreement
provides that if the Merger Agreement is terminated (i) following the
modification or withdrawal by the Younkers Board of Directors of its
recommendation of the Merger, (ii) in certain situations in which the Younkers
Board of Directors has recommended a competing transaction with respect to
Younkers, or (iii) in certain situations involving a tender or exchange offer
for Younkers Common Stock or certain acquisitions of Younkers Common Stock, and
the Younkers stockholders did not approve the Merger prior to such termination,
then Younkers will pay $6 million to Proffitt's. The Merger Agreement also
provides that in the event that Younkers terminates the Merger Agreement
pursuant to clause (ii) in the first sentence of this paragraph and a superior
business combination transaction occurs with another person within twelve months
following such termination, Proffitt's will receive a fee of $6 million. In
addition, if the Merger Agreement is terminated (i) following the modification
or withdrawal by Proffitt's Board of Directors of its recommendation for the
Proffitt's Stockholder Approvals, (ii) in certain situations in which Proffitt's
enters into certain business combination transactions with another person or
(iii) in certain situations involving a tender or exchange offer for Proffitt's
Common Stock or certain acquisitions of Proffitt's Common Stock, and the
Proffitt's stockholders did not approve the Merger prior to such termination,
then Proffitt's will pay $6 million to Younkers.
No Stockholders' Rights of Appraisal. In accordance with the Tennessee
Business Corporation Act, stockholders of Proffitt's will not be entitled to
appraisal rights in connection with the Merger. In accordance with the General
Corporation Law of the State of Delaware, stockholders of Younkers will not be
entitled to appraisal rights in connection with the Merger. See "THE SPECIAL
MEETINGS-- Appraisal Rights."
Certain Federal Income Tax Consequences. The obligation of Younkers to
consummate the Merger is conditioned upon the receipt of an opinion of Sullivan
& Cromwell, counsel to Younkers, to the effect, among other things, that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that no gain or loss will be recognized by Younkers
stockholders upon the receipt of Proffitt's Common Stock in exchange for
Younkers Common Stock (except with respect to cash received in lieu of
fractional shares of Proffitt's Common Stock). See "THE MERGER--Certain Federal
Income Tax Consequences."
Accounting Treatment of the Merger. The Merger is expected to be accounted
for as a "pooling of interests" in accordance with generally accepted accounting
principles. The obligations of Proffitt's, Sub and Younkers to consummate the
Merger are subject to the receipt by Proffitt's of an opinion dated as of the
Effective Time from Coopers & Lybrand L.L.P. that the Merger will qualify for
pooling of interests
10
<PAGE>
accounting treatment. See "THE MERGER--Accounting Treatment" and "THE MERGER
AGREEMENT--Conditions to the Merger."
Comparison of Rights of Holders of Proffitt's Common Stock and Younkers
Common Stock. See "COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK
AND YOUNKERS COMMON STOCK" for a summary of the material differences between the
rights of holders of Proffitt's Common Stock and Younkers Common Stock.
Other Significant Considerations. In determining whether to approve the
transactions contemplated by the Merger Agreement, Proffitt's and Younkers
stockholders should consider that the price of Proffitt's Common Stock may vary
from the price at the Effective Time, as well as from the prices at the date of
this Joint Proxy Statement/Prospectus and at the date of the Special Meetings.
Such variations may be the result of changes in the business, operations or
prospects of Proffitt's or Younkers, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, regulatory
considerations, general market and economic considerations and other factors.
Because the Effective Time may occur at a later date than the date of the
Special Meetings, there can be no assurance that the sales price of Proffitt's
Common Stock on the date of the Special Meetings will be indicative of the sales
price of Proffitt's Common Stock at the Effective Time or thereafter.
Anticipated non-recurring charges related to direct costs of the Merger are
estimated at $12.6 million. This includes estimated investment banking fees of
$6.3 million payable by Proffitt's and Younkers, estimated legal, accounting and
other transaction costs of $1.8 million, and estimated severance costs resulting
from the Merger of $4.5 million. These non-recurring costs would represent a
reduction in pro forma earnings per common share of $0.66 for the year ended
January 28, 1995, and $0.65 per share for the nine months ended October 28,
1995. After the deduction of these non-recurring charges, pro forma net income
would be $18,840,000 for the year ended January 28, 1995, and $449,000 for the
nine-month period ended October 28, 1995. After the further deduction of
preferred stock dividends, pro forma net income available to common stockholders
would be $16,779,000 for the year ended January 28, 1995, and the net loss to
common stockholders would be $1,013,000 for the nine months ended October 28,
1995. These charges do not include any charges or benefits related to the
combination of the operations of the businesses.
Stockholders of Proffitt's and Younkers also should consider that the
Conversion Number is a fixed ratio in the Merger Agreement. As a result, the
Conversion Number will not be adjusted in the event of an increase or decrease
in the market price of either Proffitt's Common Stock or Younkers Common Stock,
or both. Proffitt's and Younkers stockholders are urged to obtain current market
quotations for the Proffitt's Common Stock and the Younkers Common Stock.
Immediately prior to the Effective Time, there will be approximately
10,257,055 shares of Proffitt's Common Stock outstanding, assuming the absence
of any exercise of options. Immediately following the Effective Time, there will
be approximately 19,073,270 shares of Proffitt's Common Stock outstanding,
assuming the absence of any exercise of stock options. The shares of Proffitt's
Common Stock issued to stockholders of Younkers pursuant to the Merger Agreement
will comprise approximately 46.2% of the total number of shares of Proffitt's
Common Stock outstanding after the Merger (and approximately 39.2% on a fully
diluted basis, assuming exercise of all options exercisable within 60 days of
the record date for the Proffitt's Special Meeting and the conversion of all
Series A Preferred Stock and all 4.75% Convertible Subordinated Debentures due
2003 convertible within 60 days of the record date for the Proffitt's Special
Meeting).
11
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
AND
PRO FORMA SELECTED FINANCIAL AND OPERATING DATA
Set forth on the following pages are selected historical financial and
operating data of Proffitt's and Younkers, and selected unaudited pro forma
combined financial and operating data of Proffitt's and Younkers. The historical
data with respect to Proffitt's and Younkers is derived from the respective
historical financial statements of Proffitt's and Younkers and should be read in
conjunction with the financial statements and notes of Proffitt's and Younkers,
respectively, incorporated herein by reference.
The selected unaudited pro forma combined financial and operating data
should be read in conjunction with the unaudited pro forma financial statements,
including the notes thereto, appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
12
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA FOR PROFFITT'S
The selected financial and operating data below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of
Proffitt's and with Management's Discussion and Analysis of Financial Condition
and Results of Operations incorporated by reference in this Joint Proxy
Statement/Prospectus. The selected financial and operating data as of and for
the nine months ended October 29, 1994 and October 28, 1995 are derived from
unaudited financial statements as of such dates and for such periods, but in the
opinion of management, include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of such data.
<TABLE><CAPTION>
NINE MONTHS
FISCAL YEAR ENDED(1) ENDED(2)
---------------------------------------------------------------------- -----------
2/2/91 2/1/92(3) 1/30/93(4)(5) 1/29/94(4)(6)(7) 1/28/95(5)(8) 10/29/94(8)
-------- -------- ------------- ---------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales(10)................. $ 98,767 $104,873 $ 128,262 $200,884 $ 617,363 $ 392,158
Costs and expenses:
Cost of sales(5)............. 60,878 64,673 78,225 129,679 400,605 253,802
Selling, general and
administrative
expenses(5)................... 26,213 27,539 31,834 49,851 145,560 99,738
Other operating expenses..... 7,109 7,303 8,793 15,754 43,711 30,949
-------- -------- ------------- ---------- ------------- -----------
Operating income........... 4,567 5,358 9,410 5,600 27,487 7,669
Other income (expense):
Finance charge income, net of
allocation to purchase of
accounts receivable(11).... 4,005 4,030 4,457 5,964 13,653 10,058
Interest expense............. (5,404) (4,616) (2,881) (2,976) (15,655) (11,353)
Other income (expense) net... 194 92 (109) 805 1,109 777
-------- -------- ------------- ---------- ------------- -----------
Income before provision for
income taxes and
cumulative effect of
accounting changes............ 3,362 4,864 10,877 9,393 26,594 7,151
Provision for income taxes.... 1,297 1,851 4,130 3,663 10,466 2,971
-------- -------- ------------- ---------- ------------- -----------
Income before cumulative
effect of accounting
changes....................... 2,065 3,013 6,747 5,730 16,128 4,180
Cumulative effect of
accounting changes (net of
tax)(5)....................... 333
-------- -------- ------------- ---------- ------------- -----------
Net income................. 2,065 3,013 6,747 6,063 16,128 4,180
Preferred stock dividends..... 1,694 1,206
-------- -------- ------------- ---------- ------------- -----------
Net income available to
common shares............ $ 2,065 $ 3,013 $ 6,747 $ 6,063 $ 14,434 $ 2,974
-------- -------- ------------- ---------- ------------- -----------
-------- -------- ------------- ---------- ------------- -----------
Earnings per common share
before cumulative effect of
accounting changes........... $ 0.55 $ 0.78 $ 1.02 $ 0.62 $ 1.46 $ 0.30
Cumulative effect of
accounting changes (net of
tax)(5)....................... 0.04
-------- -------- ------------- ---------- ------------- -----------
Earnings per common share..... $ 0.55 $ 0.78 $ 1.02 $ 0.66 $ 1.46 $ 0.30
-------- -------- ------------- ---------- ------------- -----------
-------- -------- ------------- ---------- ------------- -----------
Weighted average common shares
outstanding (in thousands).... 3,787 3,858 6,591 9,236 9,912 9,858
OPERATING DATA:
Comparable store net sales
increases(12)................. 6% 7% 13% 14% 3% 5%
Stores open at end of
period(13).................... 11 11 15 25 53 53
Capital expenditures.......... $ 814 $ 1,239 $ 24,735 $ 64,095 $ 24,505 $ 11,575
BALANCE SHEET DATA:
Working capital............... $ 34,621 $ 47,019 $ 48,538 $121,357 $ 103,139 $ 113,812
Total assets.................. 88,657 97,941 133,502 259,881 540,055 610,075
Senior Long-term debt, less
current portion.............. 49,068 27,215 43,086 24,968 125,421 143,201
Subordinated debt due
2003-2004..................... 86,250 100,269 100,214
Stockholders' equity.......... 22,204 54,467 61,627 124,043 180,676 169,308
<CAPTION>
10/28/95(9)
-----------
<S> <C>
STATEMENT OF INCOME DATA:
Net Sales(10)................. $ 482,594
Costs and expenses:
Cost of sales(5)............. 306,856
Selling, general and
administrative
expenses(5)................... 124,369
Other operating expenses..... 36,074
-----------
Operating income........... 15,295
Other income (expense):
Finance charge income, net of
allocation to purchase of
accounts receivable(11).... 11,032
Interest expense............. (14,473)
Other income (expense) net... 575
-----------
Income before provision for
income taxes and
cumulative effect of
accounting changes............ 12,429
Provision for income taxes.... 5,104
-----------
Income before cumulative
effect of accounting
changes....................... 7,325
Cumulative effect of
accounting changes (net of
tax)(5).......................
-----------
Net income................. 7,325
Preferred stock dividends..... 1,462
-----------
Net income available to
common shares............ $ 5,863
-----------
-----------
Earnings per common share
before cumulative effect of
accounting changes........... $ 0.57
Cumulative effect of
accounting changes (net of
tax)(5).......................
-----------
Earnings per common share..... $ 0.57
-----------
-----------
Weighted average common shares
outstanding (in thousands).... 10,335
OPERATING DATA:
Comparable store net sales
increases(12)................. 4%
Stores open at end of
period(13).................... 54
Capital expenditures.......... $ 29,037
BALANCE SHEET DATA:
Working capital............... $ 134,881
Total assets.................. 664,212
Senior Long-term debt, less
current portion.............. 171,616
Subordinated debt due
2003-2004..................... 100,444
Stockholders' equity.......... 191,637
</TABLE>
13
<PAGE>
NOTES TO SELECTED FINANCIAL AND OPERATING DATA FOR PROFFITT'S (IN THOUSANDS)
(1) Proffitt's fiscal year ends on the Saturday nearest January 31. All fiscal
years presented consisted of 52 weeks.
(2) The business of Proffitt's is seasonal, and results for any period within a
fiscal year are not necessarily indicative of the results that may be
achieved for a full fiscal year.
(3) Proffitt's completed a public offering of 2,645 shares of Common Stock in
January 1992, the proceeds of which were utilized, in part, to reduce
long-term debt.
(4) Proffitt's purchased nineteen Hess Department Stores: eight in October 1992
for approximately $15.0 million, nine in January 1993 (of which one was
subsequently closed) for approximately $7.4 million and two in July 1993
for approximately $1.6 million.
(5) Effective January 31, 1993, Proffitt's changed its method of accounting for
inventory to include certain purchasing and distribution costs. Previously,
these costs were charged to expense in the period incurred rather than in
the period in which the merchandise was sold. The cumulative effect of this
change for periods prior to January 31, 1993 of $702 (net of income taxes
of $449) is shown separately in the consolidated statement of income.
Effective January 31, 1993, Proffitt's also changed its method of
accounting for store pre-opening costs to expensing such costs when
incurred. Previously, these costs were amortized over the 12 months
immediately following the individual store openings. The cumulative effect
of this change for periods prior to January 31, 1993 of $369 (net of income
taxes of $236) is shown separately in the consolidated statement of income.
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income
Taxes, which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Proffitt's adopted the new
accounting standard effective January 31, 1993. Adoption of the new
standard had no effect on Proffitt's financial position or results of
operations. There would have been no impact on 1992 had the standard been
applied retroactively.
Effective January 30, 1994, Proffitt's changed its method of accounting for
inventory to the last-in, first-out (LIFO) method for approximately 76% of
its inventories. Previously, all inventories were valued using the
first-in, first-out (FIFO) method. At January 28, 1995 and at October 28,
1995 inventories costed under LIFO approximated FIFO. The cumulative effect
of this change is not presented because it is not determinable.
(6) Proffitt's completed a public offering of 2,395 shares of common stock in
March 1993, the proceeds of which were utilized to reduce outstanding bank
debt and fund capital expenditures related to the renovation, acquisition
and opening of new stores.
(7) In October 1993, Proffitt's completed a public offering of $86,250 of 4.75%
Convertible Subordinated Debentures, due November 1, 2003, the proceeds of
which were utilized to reduce Proffitt's outstanding bank debt, fund
capital expenditures related to the renovation and expansion of stores, and
for working capital and general corporate purposes.
(8) On March 31, 1994, Proffitt's acquired all of the common stock of Macco
Investments, Inc. ("Macco"), a privately held corporation and the parent
company of McRae's, Inc. ("McRae's"), the owner and operator of 28
department stores in Alabama, Florida, Louisiana and Mississippi, for a
total acquisition price of approximately $212 million.
(9) In March and April 1995 Proffitt's acquired Parks-Belk Company, the owner
and operator of four department stores in northeast Tennessee for
consideration paid in Proffitt's Common Stock and cash (aggregated less
than $20 million).
(10) Net sales include leased departments sales, which represent sales by retail
vendors that lease store space. Leased department sales accounted for
approximately 1 to 2% of net sales in the fiscal years ended February 2,
1991, February 1, 1992, January 30, 1993 and January 29, 1994, and
approximately 4% in subsequent periods.
(11) On April 1, 1994, Proffitt's sold an ownership interest in its accounts
receivable, recognizing no gain or loss on the transaction. Under the
agreement with the purchaser, which expires March 1997, the ownership
interest which may be transferred to the purchaser is limited to $175
million and is further restricted on the basis of the level of eligible
receivables and a minimum ownership interest to be maintained by
Proffitt's. The ownership interest held by the purchaser, which is
reflected as a reduction of accounts receivable, was $138,740 at January
28, 1995 and $131,109 at October 28, 1995.
Finance charges allocated to the purchaser were $5,567 in the year ended
January 28, 1995, and they were $3,485 and $6,316 in the nine-month periods
ended October 29, 1994 and October 28, 1995, respectively.
(12) Comparable store data for a fiscal year or a nine-month period within a
fiscal year (i) reflects stores open throughout such fiscal year or
nine-month period and throughout the prior fiscal year or corresponding
nine-month period of the prior fiscal year, and (ii) are adjusted so that
all annual amounts relate to a 52-week year. New stores become comparable
stores in the first full month following the anniversary of the opening of
those stores. For purposes of this calculation, renovated and expanded
stores are classified as comparable stores and not as new stores.
(13) Where Proffitt's operations within a particular shopping mall are divided
among two or more buildings, the combined operation is counted as one
store.
14
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA FOR YOUNKERS
The selected financial and operating data below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of the
Company and with Management's Discussion and Analysis of Financial Condition and
Results of Operations incorporated by reference in this Joint Proxy
Statement/Prospectus. The selected financial and operating data as of and for
the nine months ended October 29, 1994 and October 28, 1995 are derived from
unaudited financial statements as of such dates and for such periods, but in the
opinion of management, include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of such data.
<TABLE><CAPTION>
FISCAL YEAR ENDED(1) NINE MONTHS ENDED(2)
--------------------------------------------------------------- -----------------------
1/26/91(3) 1/25/92 1/30/93(4)(6) 1/29/94(5) 1/28/95 10/29/94 10/28/95(9)
-------- -------- ---------- -------- -------- -------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales(7)....................... $318,673 $330,411 $473,415 $597,895 $599,135 $397,241 $ 406,301
Costs and expenses:
Cost of sales..................... 200,949 208,367 284,395 379,911 385,791 255,483 262,140
Selling, general and
administrative expenses............ 82,408 85,254 127,086 153,852 148,312 105,522 104,406
Other operating expenses.......... 27,441 27,631 35,223 50,863 54,110 39,460 38,907
Operating income................ 7,875 9,159 26,711 13,269 10,922 (3,224) 848
-------- -------- ---------- -------- -------- -------- -----------
Other income (expense):
Finance charge income............. 10,965 11,164 10,944 13,348 14,281 10,599 11,431
Interest expense.................. (12,580)(8) (10,486)(8) (6,564) (6,269) (5,126) (3,412) (4,538)
Other income (expense) net........ 1,043 1,725 (271)(9) 2,118 2,756 2,267 1,434
-------- -------- ---------- -------- -------- -------- -----------
Income before provision for
income taxes....................... 7,303 11,562 30,820 22,466 22,833 6,230 9,175
Provision for income taxes......... 4,639 5,194 11,437 9,116 9,316 2,542 3,524
Income before extraordinary loss
and cumulative effect of
accounting changes................. 2,664 6,368 19,383 13,350 13,517 3,688 5,651
Extraordinary loss--loss on
extinguishment of debt (net of
tax)............................... (516) (1,088)
Income before cumulative effect of
accounting changes.............. 2,148 6,368 19,383 12,262 13,517 3,688 5,651
Cumulative effect of accounting
changes (net of tax).............. 6,226(10) (1,794)(11)
-------- -------- ---------- -------- -------- -------- -----------
Net income...................... $ 8,374 $ 6,368 $ 17,589 $ 12,262 $ 13,517 $ 3,688 $ 5,651
-------- -------- ---------- -------- -------- -------- -----------
-------- -------- ---------- -------- -------- -------- -----------
Earnings per common share before
extraordinary loss and cumulative
effect of accounting changes...... $ 0.52 $ 1.27 $ 3.11 $ 1.55 $ 1.47 $ 0.40 $ 0.61
Extraordinary loss-loss on
extinguishment of debt (net of
tax)............................... (0.10) (0.12)
Cumulative effect of accounting
changes (net of tax).............. 1.23 (0.29)
-------- -------- ---------- -------- -------- -------- -----------
Earnings per common share.......... $ 1.65 $ 1.27 $ 2.82 $ 1.43 $ 1.47 $ 0.40 $ 0.61
-------- -------- ---------- -------- -------- -------- -----------
-------- -------- ---------- -------- -------- -------- -----------
Weighted average common shares
outstanding (in thousands)........ 5,074 5,031 6,241 8,603 9,194 9,196 9,202
OPERATING DATA:
Comparable store net sales
increases (decreases)(12)......... 2% 4% 5% 5% 0% (3)% 2%
Stores open at end of period....... 34 29 54 53 53 53 53
Capital expenditures............... $ 5,755 $ 4,604 $ 14,278(13) $ 14,380 $ 18,920 $ 12,902 $ 16,599
BALANCE SHEET DATA:
Working capital.................... $ 81,259 $ 79,771 $132,317 $164,022 $178,952 $179,112 $ 182,462
Total assets....................... 186,328 177,790 323,083 313,926 336,700 353,322 368,845
Long-term debt, less current
portion............................ 91,702 78,851 150,469 70,809 76,114 80,000 80,644
Stockholders' equity............... 42,318 47,526 82,244 165,294 178,864 168,924 184,915
</TABLE>
15
<PAGE>
NOTES TO SELECTED FINANCIAL AND OPERATING DATA FOR YOUNKERS (IN THOUSANDS)
(1) In conjunction with its initial public offering in April 1992, Younkers
changed to a fiscal year ending on the Saturday nearest January 31. Prior
fiscal years have been restated, and all fiscal years presented consisted
of 52 weeks except for the fiscal year ended January 30, 1993 which
consisted of 53 weeks.
(2) The business of Younkers is seasonal, and results for any period within a
fiscal year are not necessarily indicative of the results that may be
achieved for a full fiscal year.
(3) As a result of financial restructuring, Younkers made a capital
distribution of a $36,000 note to its parent company in the year ended
January 26, 1991.
(4) Younkers completed a public offering of 6,170 shares of common stock in
April 1992, the proceeds of which were used to repay debt.
(5) Younkers completed a public offering of 2,419 shares of common stock in
April 1993, the proceeds of which were used to repay debt.
(6) In September 1992, Younkers purchased the merchandise inventories,
properties and certain other assets of the Prange department store division
of H.C. Prange Company for approximately $68 million in cash and $6 million
in assumptions of net liabilities. During June 1993, Younkers completed the
sale and lease back of the eight owned store properties acquired from
Prange with net proceeds of approximately $31 million, incurring no gain or
loss in the transaction.
(7) Net sales include leased departments sales, which represent sales by retail
vendors that lease store space. Leased department sales accounted for
approximately 8% of net sales.
(8) Includes accruals for interest expense of $1,050 and $1,400 in the years
ended January 26, 1991 and January 25, 1992 resulting from an Internal
Revenue Service audit.
(9) Includes nonrecurring start-up costs of $1,210 connected with the acquired
Prange stores.
(10) Reflects a cumulative effect adjustment which increased net earnings by
$6,226, due to Younkers' adoption of SFAS 109 (Accounting for Income
Taxes).
(11) Reflects a cumulative effect adjustment of $1,794, net of income taxes of
$1,225 due to Younkers' adoption of SFAS 106, under which employers
recognize the cost of retiree health and life insurance benefits over the
employees' period of service.
(12) The comparable store sales growth calculation is based upon stores operated
by Younkers for the entire preceding year, including stores which were
relocated or remodeled, and are adjusted so that all annual amounts relate
to a 52 week year.
(13) Excludes amounts expended in connection with the purchase of the Northern
Region stores in September 1992.
16
<PAGE>
SELECTED PRO FORMA FINANCIAL AND OPERATING DATA
The pro forma selected financial and operating data below have been prepared
on a consolidated basis based upon the historical financial statements of
Proffitt's and Younkers. The pro forma combined information gives effect to the
Merger accounted for as pooling of interests, based on the Conversion Number of
0.98 shares of Proffitt's Common Stock for each share of Younkers Common Stock.
See "Unaudited Pro Forma Condensed Combined Financial Statements."
<TABLE><CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------ ---------------------
1/30/93 1/29/94 1/28/95 10/29/94 10/28/95
-------- ---------- ---------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales.......................... $601,677 $1,217,560 $1,279,540 $852,441 $ 888,895
Costs and expenses:
Cost of sales.................... 362,620 786,241 835,553 556,093 574,319
Selling, general and
administrative expenses........ 158,920 293,405 300,397 214,147 223,328
Other operating expenses......... 44,016 94,603 102,026 74,614 74,981
-------- ---------- ---------- -------- ---------
Operating income................. 36,121 43,311 41,564 7,587 16,267
Other income (expense):
Finance charge income, net of
allocation to purchaser of
accounts receivable................ 15,401 29,031 29,692 22,415 22,463
Interest expense................. (9,445) (19,702) (22,720) (16,704) (19,011)
Other income (expense), net...... (380) 3,967 3,913 3,092 2,009
-------- ---------- ---------- -------- ---------
Income before provision for
income taxes................... 41,697 56,607 52,449 16,390 21,728
Provision for income taxes......... 15,567 22,545 21,009 6,735 8,679
-------- ---------- ---------- -------- ---------
Income before extraordinary loss
and cumulative effect of
accounting changes................. 26,130 34,062 31,440 9,655 13,049
Preferred stock dividends.......... 2,061 2,061 1,573 1,462
-------- ---------- ---------- -------- ---------
Income before extraordinary loss
and cumulative effect of
accounting changes after
preferred stock dividends.......... $ 26,130 $ 32,001 $ 29,379 $ 8,082 $ 11,587
-------- ---------- ---------- -------- ---------
-------- ---------- ---------- -------- ---------
Earnings per common share before
extraordinary loss and cumulative
effect of accounting changes....... $2.06 $1.76 $1.55 $0.43 $0.60
Weighted average common shares
outstanding (in thousands)......... 12,707 18,190 18,994 18,966 19,353
OPERATING DATA:
Comparable store net sales
increases.......................... 6% 6% 1% 1% 3%
Stores open at end of period....... 69 78 106 106 107
Capital expenditures............... $ 39,013 $ 78,475 $ 43,425 $ 24,477 $ 45,636
BALANCE SHEET DATA:
Working capital.................... $180,855 $ 287,207 $ 284,097 $294,870 $ 319,302
Total assets....................... 456,585 576,853 879,683 966,640 1,036,330
Senior Long-term debt, less current
portion............................ 193,555 95,777 201,535 223,201 252,260
Subordinated debt due 2003-2004.... 86,250 100,269 100,214 100,444
Stockholders' equity............... 143,871 291,165 361,375 340,178 378,511
</TABLE>
17
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are income from continuing operations and book value per
common share data of Proffitt's and Younkers on both historical and pro forma
combined basis. Neither Proffitt's nor Younkers have paid any dividends on their
common stock. Pro forma combined income from continuing operations per share is
derived from the pro forma combined information presented elsewhere herein,
which gives effect to the Merger under the pooling of interests method of
accounting as if the Merger had occurred at January 31, 1992, combining the
results of Proffitt's and Younkers for the periods presented. The equivalent pro
forma combined data for Younkers is based upon the Conversion Number of .98
shares of Proffitt's Common Stock for each share of Younkers Common Stock as
provided in the Merger Agreement. Book values per share for Younkers and for the
pro forma combined presentation is based upon outstanding common shares,
adjusted in the case of the pro forma combined presentation to include the
shares of Proffitt's Common Stock to be issued in the Merger. The information
set forth below should be read in conjunction with the respective audited and
unaudited financial statements of Proffitt's and Younkers incorporated by
reference in this Joint Proxy Statement/Prospectus and the "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS."
<TABLE><CAPTION>
EQUIVALENT PRO
PROFFITT'S/ FORMA COMBINED
YOUNKERS PER SHARE OF
PROFFITT'S PRO FORMA YOUNKERS YOUNKERS COMMON
HISTORICAL COMBINED(2) HISTORICAL STOCK
---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS:
January 30, 1993.............................. $ 1.02 $ 2.06 $ 3.11 $ 2.02
January 29, 1994.............................. 0.62 1.76 1.55 1.72
January 28, 1995.............................. 1.46 1.55 1.47 1.52
October 28, 1995.............................. 0.57 0.60(1) 0.61(1) 0.59
BOOK VALUE (AT END OF PERIOD):
January 28, 1995.............................. $15.23 $17.73 $19.94 $ 17.38
October 28, 1995.............................. 15.89 18.35 20.58 17.98
</TABLE>
- ------------
(1) See Note 12 to the Notes to Pro Forma Condensed Combined Income Statements
under "Unaudited Pro Forma Condensed Combined Financial Statements."
(2) See Note 5 to the Notes to Pro Forma Condensed Combined Income Statements
under "Unaudited Pro Forma Condensed Combined Financial Statements."
18
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
The Proffitt's Common Stock and the Younkers Common Stock are listed and
traded on the NASDAQ Stock Market (Symbols: PRFT and YONK, respectively). The
following table sets forth for the periods indicated the reported high and low
bid quotations for Proffitt's Common Stock and Younkers Common Stock. The source
of these quotations is the Monthly Statistical Report of the National
Association of Securities Dealers, Inc. These quotations represent inter-dealer
prices for actual transactions, without adjustment for retail markup, markdown
or commission. Neither Proffitt's nor Younkers have declared or paid any
dividends on their common stock.
<TABLE><CAPTION>
SALES PRICE
----------------
PROFFITT'S COMMON STOCK HIGH LOW
- -------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
1993
First Quarter..................................................... $26 1/2 $21 1/2
Second Quarter.................................................... 27 1/4 21 3/4
Third Quarter..................................................... 36 3/4 23 1/2
Fourth Quarter.................................................... 35 1/2 18 1/4
1994
First Quarter..................................................... 25 3/4 16 1/2
Second Quarter.................................................... 19 3/4 14 3/4
Third Quarter..................................................... 21 3/4 14 3/4
Fourth Quarter.................................................... 25 1/4 17 3/4
1995
First Quarter..................................................... 26 1/2 20 3/4
Second Quarter.................................................... 33 24
Third Quarter (prior to Merger announcement on October 23,
1995)........................................................... 34 1/4 24
Third Quarter (after Merger announcement on October 23, 1995)..... 27 3/4 23 1/8
Fourth Quarter (through January 2, 1996).......................... 29 23 3/8
<CAPTION>
SALES PRICE
----------------
YOUNKERS COMMON STOCK HIGH LOW
- -------------------------------------------------------------------- -------------- --------------
<S> <C> <C> <C> <C>
1993
First Quarter..................................................... $35 $26
Second Quarter.................................................... 33 1/2 21 1/4
Third Quarter..................................................... 28 1/8 19 1/4
Fourth Quarter.................................................... 26 1/4 19 1/2
1994
First Quarter..................................................... 20 1/2 15 1/2
Second Quarter.................................................... 16 12 1/4
Third Quarter..................................................... 19 3/4 13 3/4
Fourth Quarter.................................................... 19 3/4 15 1/2
1995
First Quarter..................................................... 19 1/4 17 3/8
Second Quarter.................................................... 19 16 1/8
Third Quarter (prior to Merger announcement on October 23,
1995)........................................................... 19 3/8 15 7/8
Third Quarter (after Merger announcement on October 23, 1995)..... 23 3/4 21 3/4
Fourth Quarter (through January 2, 1996).......................... 27 1/8 21 3/4
</TABLE>
19
<PAGE>
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Proffitt's in connection with the solicitation of proxies by the Proffitt's
Board of Directors for use at the Proffitt's Special Meeting to be held at
Midland Shopping Center, 115 North Calderwood, Alcoa, Tennessee, on January 31,
1996, at 10:00 a.m., local time, and at any adjournments or postponements
thereof.
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Younkers in connection with the solicitation of proxies by the Younkers Board of
Directors for use at the Younkers Special Meeting to be held in the Younkers Tea
Room, 7th and Walnut Streets, Des Moines, Iowa, on January 31, 1996, at 9:00
a.m., local time, and at any adjournments or postponements thereof.
At the Proffitt's Special Meeting, stockholders of Proffitt's will be asked
to approve the Merger Agreement, the Stock Issuance in connection with the
consummation of the transactions pursuant thereto and the Incentive Plan
Amendment. RECEIPT OF ALL THREE PROFFITT'S STOCKHOLDERS APPROVALS ARE CONDITIONS
TO THE CONSUMMATION OF THE MERGER. At the Younkers Special Meeting, stockholders
of Younkers will be asked to adopt the Merger Agreement. A conformed copy of the
Merger Agreement and a copy of the Incentive Plan appear as Appendix I and
Appendix IV, respectively, to this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus constitutes a prospectus of Proffitt's
with respect to up to 8,816,215 shares of Proffitt's Common Stock issuable to
Younkers stockholders pursuant to the Merger Agreement, assuming the exercise of
all currently outstanding stock options of Younkers.
THE SPECIAL MEETINGS
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
Proffitt's Special Meeting. At the Proffitt's Special Meeting, holders of
shares of Proffitt's Common Stock will consider and vote upon proposals to
approve the Merger Agreement, the Stock Issuance and the Incentive Plan
Amendment. Holders of shares of Proffitt's Common Stock entitled to vote also
will consider and vote upon any other matter that may properly come before the
Proffitt's Special Meeting or at any adjournments or postponements thereof.
RECEIPT OF ALL THREE PROFFITT'S STOCKHOLDERS APPROVALS ARE CONDITIONS TO THE
CONSUMMATION OF THE MERGER.
THE BOARD OF DIRECTORS OF PROFFITT'S HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING
THE STOCK ISSUANCE, AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT AND THE STOCK ISSUANCE. SEE "THE MERGER --RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS; REASONS FOR THE MERGER." THE BOARD OF DIRECTORS OF
PROFFITT'S HAS ALSO UNANIMOUSLY APPROVED THE INCENTIVE PLAN AMENDMENT AND
RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL RELATING THERETO. SEE
"PROPOSED AMENDMENT TO PROFFITT'S 1994 LONG-TERM INCENTIVE PLAN."
Younkers Special Meeting. At the Younkers Special Meeting, holders of shares
of Younkers Common Stock will consider and vote upon a proposal to adopt the
Merger Agreement. Holders of shares of Younkers Common Stock entitled to vote
also will consider and vote upon any other matter that may properly come before
the Younkers Special Meeting or at any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF YOUNKERS HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT, AND RECOMMENDS A VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT. SEE "THE MERGER--RECOMMENDATIONS OF THE BOARDS OF DIRECTORS; REASONS
FOR THE MERGER."
20
<PAGE>
Subject to certain provisions described herein with respect to certain
shares owned by Younkers, Proffitt's, and their respective subsidiaries, in the
Merger each issued and outstanding share of Younkers Common Stock will be
converted into 0.98 validly issued, fully paid and nonassessable shares of
Proffitt's Common Stock. Cash will be paid in lieu of fractional shares of
Proffitt's Common Stock. See "THE MERGER--Merger Consideration" and "THE MERGER
AGREEMENT --Fractional Shares."
VOTES REQUIRED
Proffitt's. Each holder of Proffitt's Common Stock is entitled to one vote
per share held of record on the record date. The approval of the Merger
Agreement requires the affirmative vote of a majority of the votes eligible to
be cast on the proposal. The approval of the Stock Issuance and the Incentive
Plan Amendment require the affirmative vote of a majority of the votes cast,
provided a quorum is present.
Abstentions will be counted as shares present for purposes of determining
the presence of a quorum at the Proffitt's Special Meeting. See "--Record Dates;
Stock Entitled to Vote; Quorum." Abstentions with respect to the Merger
Agreement will have the effect of votes against the approval of such matter. In
addition, brokers who hold shares of Proffitt's Common Stock as nominees will
not have discretionary authority to votes shares of Proffitt's Common Stock in
the absence of instructions from the beneficial owners thereof. Votes which are
not cast for this reason ("broker non-votes") will have the effect of a vote
against the Merger Agreement. Neither abstentions nor broker non-votes with
respect to the Stock Issuance and the Incentive Plan Amendment will have the
effect of a vote for or against the matter.
Stockholders of Proffitt's should be aware that a stockholder who votes to
approve the Merger Agreement and the Stock Issuance may be deemed to have
ratified the terms of the Merger and the Stock Issuance, including the fairness
thereof, and, under certain circumstances, such stockholder may be precluded
from challenging the fairness of the Merger and the Stock Issuance in a
subsequent legal proceeding. Proffitt's may use a stockholder's affirmative vote
in favor of the Merger Agreement and the Stock Issuance as a defense to any
subsequent challenge to the Merger and the Stock Issuance. An abstention, in and
of itself, will not be considered such a ratification; however, no assurance can
be given as to the effect that such an abstention would have on the
stockholder's rights to challenge the Merger and the Stock Issuance.
As of December 22, 1995, directors and executive officers of Proffitt's and
their affiliates were beneficial owners of an aggregate of approximately
2,572,929 shares (approximately 24.4%) of the outstanding shares of Proffitt's
Common Stock (including 309,681 shares subject to options exercisable within 60
days).
Younkers. Each holder of Younkers Common Stock is entitled to one vote per
share held of record on the record date. The Merger Agreement must be adopted by
the affirmative vote of a majority of the outstanding shares of Younkers Common
Stock.
Abstentions will be counted as shares present for purposes of determining a
quorum. See "-- Record Dates; Stock Entitled to Vote; Quorum." Abstentions will
have the effect of votes against adoption of the Merger Agreement. In addition,
brokers who hold shares of Younkers Common Stock as nominees will not have
discretionary authority to vote shares of Younkers Common Stock in the absence
of instructions from the beneficial owners thereof. Broker non-votes will have
the effect of votes against adoption of the Merger Agreement.
Stockholders of Younkers should be aware that, under Delaware law, a
stockholder who votes to adopt the Merger Agreement may be deemed to have
ratified the terms of the Merger, including the fairness thereof, and, under
certain circumstances, such stockholder may be precluded from challenging the
fairness of the Merger in a subsequent legal proceeding. Younkers may use a
stockholder's affirmative vote in favor of adoption of the Merger Agreement as a
defense to any subsequent challenge
21
<PAGE>
to the Merger. An abstention, in and of itself, will not be considered such a
ratification; however, no assurance can be given as to the effect that such an
abstention would have on the stockholder's rights to challenge the Merger.
As of December 22, 1995, directors and executive officers of Younkers and
their affiliates were beneficial owners of an aggregate of approximately 535,051
shares (approximately 5.72%) of the outstanding shares of Younkers Common Stock
(including 355,663 shares subject to options exercisable within 60 days).
VOTING OF PROXIES
Shares represented by properly executed proxies received in time for the
Special Meetings and which have not been revoked will be voted at such meetings
in the manner specified by the holders thereof. Proxies which do not contain an
instruction to vote for or against or to abstain from voting on a particular
matter described in the proxy will be voted in favor of such matter.
It is not expected that any matter other than those referred to in this
Joint Proxy Statement/Prospectus will be brought before either of the Special
Meetings. If, however, other matters are properly presented, the persons named
as proxies will vote in accordance with their judgment with respect to such
matters, unless authority to do so is withheld in the proxy.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Proffitt's or Younkers form of proxy
does not preclude a stockholder from voting in person. A stockholder may revoke
a proxy at any time prior to its exercise by submitting a later dated proxy with
respect to the same shares, by filing with the Secretary of Proffitt's (in the
case of a Proffitt's stockholder) or the Secretary of Younkers (in the case of a
Younkers stockholder) a duly executed revocation, or by voting in person at the
respective Special Meeting. Attendance at the relevant Special Meeting will not
in and of itself constitute a revocation of a proxy.
RECORD DATES; STOCK ENTITLED TO VOTE; QUORUM
Proffitt's. Only holders of records of Proffitt's Common Stock at the close
of business on December 22, 1995 (the "Proffitt's Record Date") will be entitled
to receive notice of and to vote at the Proffitt's Special Meeting. On the
Proffitt's Record Date, Proffitt's had outstanding 10,257,055 shares of
Proffitt's Common Stock. The holders of Proffitt's Common Stock are entitled to
one vote per share on each matter submitted to a vote at the Proffitt's Special
Meeting. The holders of a majority of the shares of Proffitt's Common Stock
entitled to vote must be present in person or by proxy at the Proffitt's Special
Meeting in order for a quorum to be present. Shares of Proffitt's Common Stock
represented by proxies which are marked "abstain" or which are not marked as to
any particular matter or matters will be counted as shares present for purposes
of determining the presence of a quorum at the Proffitt's Special Meeting.
Proxies relating to "street name" shares that are voted by brokers will be
counted as shares present for purposes of determining the presence of a quorum
but will not be treated as shares having voted at the Proffitt's Special Meeting
as to any proposal as to which authority to vote is withheld by the broker.
In the event a quorum is not present in person or by proxy at the Proffitt's
Special Meeting, the Proffitt's Special Meeting is expected to be adjourned or
postponed; provided, however, that proxies directing votes AGAINST the Merger
will not be used to vote FOR adjournment of the Proffitt's Special Meeting by
the persons named therein as proxies.
Younkers. Only holders of records of Younkers Common Stock at the close of
business on December 22, 1995 (the "Younkers Record Date") will be entitled to
receive notice of and to vote at the
22
<PAGE>
Younkers Special Meeting. On the Younkers Record Date, Younkers had outstanding
8,996,138 shares of Younkers Common Stock. The holders of Younkers Common Stock
are entitled to one vote per share on each matter submitted to a vote at the
Younkers Special Meeting. The holders of a majority of the shares of Younkers
Common Stock entitled to vote must be present in person or by proxy at the
Younkers Special Meeting in order for a quorum to be present. Shares of Younkers
Common Stock represented by proxies which are marked "abstain" or which are not
marked as to any particular matter or matters will be counted as shares present
for purposes of determining the presence of a quorum on all matters. Proxies
relating to "street name" shares that are voted by brokers will be counted as
shares present for purposes of determining the presence of a quorum on all
matters but will not be treated as shares having voted at the Younkers Special
Meeting as to any proposal as to which authority to vote is withheld by the
broker.
In the event a quorum is not present in person or by proxy at the Younkers
Special Meeting, the Younkers Special Meeting is expected to be adjourned or
postponed; provided, however, that proxies directing votes AGAINST adoption of
the Merger Agreement will not be used to vote FOR adjournment of the Younkers
Special Meeting by the persons named therein as proxies.
APPRAISAL RIGHTS
At the Proffitt's Special Meeting, holders of shares of Proffitt's Common
Stock will consider and vote upon proposals to approve the Merger Agreement, the
Stock Issuance, and the Incentive Plan Amendment. Because shares of Proffitt's
Common Stock are listed on the NASDAQ National Market System, holders of
Proffitt's Common Stock will not be entitled to appraisal rights under the
Tennessee Business Corporation Act. Because shares of Younkers Common Stock are
listed on the NASDAQ National Market System and holders of Younkers Common Stock
will receive stock listed on the NASDAQ National Market System pursuant to the
Merger Agreement, holders of shares of Younkers Common Stock are not entitled to
appraisal rights under the Delaware General Corporation Law. See "COMPARISON OF
RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK AND YOUNKERS COMMON
STOCK--Appraisal Rights."
SOLICITATION OF PROXIES; GENERAL
Subject to the Merger Agreement, each of Proffitt's and Younkers will bear
the cost of the solicitation of proxies from its own stockholders, except that
Proffitt's and Younkers will share equally the cost of printing and mailing this
Joint Proxy Statement/Prospectus, including related filing fees. In addition to
solicitation by mail, the directors, officers and employees of each corporation
and its subsidiaries may solicit proxies from stockholders of such corporation
by telephone, in person or by other means. These directors, officers and
employees will not be additionally compensated for such solicitation but may be
reimbursed for out-of-pocket expenses in connection therewith. Arrangements also
will be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of shares held of record by such persons, and Proffitt's and Younkers will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection therewith.
Younkers has retained D.F. King & Co., Inc. ("D.F. King") for solicitation
and advisory services in connection with the solicitation, for which D.F. King
is to receive a fee estimated at $10,000, together with reimbursement for its
reasonable out-of-pocket expenses. Younkers has also agreed to indemnify D.F.
King against certain liabilities and expenses, including liabilities under the
federal securities laws. It is anticipated that D.F. King will employ
approximately 35 persons to solicit stockholders for the Younkers Special
Meeting.
23
<PAGE>
HOLDERS OF YOUNKERS COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES.
If the requisite stockholder approvals are obtained and the Merger is
consummated, materials for submitting Younkers stock certificates in exchange
for Proffitt's stock certificates will be provided to the Younkers stockholders.
DO NOT SEND IN YOUR YOUNKERS STOCK CERTIFICATES AT THIS TIME.
ACCOUNTANTS
Representatives of Coopers & Lybrand L.L.P. and Deloitte & Touche LLP are
expected to be present at the Proffitt's Special Meeting and the Younkers
Special Meeting, respectively, where they will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
THE MERGER
The description of the Merger and the Merger Agreement contained in this
Joint Proxy Statement/Prospectus is qualified in its entirety by reference to
the Merger Agreement, a copy of which is included as Appendix I to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference.
GENERAL
Proffitt's, Sub and Younkers have entered into the Merger Agreement, which
provides that, subject to the satisfaction or waiver (where permissible) of the
conditions set forth therein (see "THE MERGER AGREEMENT--Conditions to the
Merger"), Sub will be merged into Younkers, and Younkers will be the surviving
corporation and a wholly-owned subsidiary of Proffitt's. As soon as practicable
after the satisfaction or waiver (where permissible) of the conditions under the
Merger Agreement, the Certificate of Merger will be filed with the Secretary of
State of the State of Delaware, and the time of such filing will be the
Effective Time unless otherwise provided in the Certificate of Merger.
BACKGROUND OF THE MERGER
The Carson Proposals. On October 27, 1994 Carson Pirie Scott & Co.
("Carson") made an unsolicited proposal to Younkers that it acquire Younkers by
means of a merger in which each share of Younkers Common Stock would be
exchanged for $17 in cash (the "October Proposal"). Carson subsequently filed a
Schedule 13D reflecting that it had acquired 11.7% of the outstanding shares of
Younkers Common Stock in October 1994 at prices ranging from $18 to $13 1/2, and
that it was filing under the Hart-Scott-Rodino Antitrust Improvements Act to
acquire in excess of 50% of the outstanding shares of Younkers Common Stock.
On October 30, 1994, the Younkers Board adopted a Stockholder Protection
Rights Plan (the "Younkers Rights Plan") to enable Younkers to consider the
October Proposal without the threat of further stock accumulation and ultimately
to ensure that stockholders are not deprived of the full value of their
investment. The rights plan is similar in purpose and effect to those adopted by
more than 1,500 corporations, including Carson and Proffitt's. See "DESCRIPTION
OF PROFFITT'S CAPITAL STOCK--Rights Plan".
On November 7, 1994, the Younkers Board, based upon the factors specified
below with respect to its actions on January 8 (other than Younkers' November
and December results) and the advice of its financial advisors, Goldman Sachs,
which had been formally retained on November 4, 1994, that a price of $17 per
share of Younkers Common Stock was inadequate, rejected the October Proposal.
Goldman
24
<PAGE>
Sachs reviewed with the Board many of the factors referred to in the previous
sentence, as well as other financial criteria used in assessing an offer. In a
press release, Younkers stated that its goal was to build on its "valuable
franchise" and to focus on the "all-important upcoming holiday season."
On January 5, 1995, a subsidiary of Carson commenced a cash tender offer for
all outstanding shares of Younkers Common Stock at $17 in cash per share of
Younkers Common Stock (the "$17 Offer") and Carson announced its intention to
solicit proxies to elect three nominees to replace the Younkers directors who
were up for reelection at the Annual Meeting and to approve a non-binding
stockholder resolution urging the Younkers Board to arrange for the sale of
Younkers to the highest bidder and, if no higher bids were received, to permit
Carson's tender offer to proceed.
On January 8, 1995, the Younkers Board determined that the $17 Offer was
grossly inadequate, and recommended that stockholders reject it. In reaching
this conclusion, the Younkers Board took into account numerous factors,
including, but not limited to, the Younkers Board's familiarity with the
business, financial condition, prospects and current business strategy of
Younkers, the nature of the business in which Younkers operates and the Younkers
Board's belief that the $17 Offer did not reflect the long-term values inherent
in Younkers. In this regard, the Younkers Board particularly considered:
(i) Younkers' recent return to a more aggressive posture on promotions
and advertising had resulted in a positive effect on operating trends,
including a 6.8% increase in comparable store growth for the November and
December 1994 holiday season;
(ii) Younkers had completed several operating and merchandising
initiatives in 1994 that would benefit the operating profitability of
Younkers in 1995;
(iii) Younkers was undertaking a series of specific steps to improve
Younkers' operating efficiency and profitability in the near term; and
(iv) Younkers should have acquisition opportunities in an increasingly
concentrated retail industry, especially given Younkers' previously
announced policy of expansion.
The Younkers Board stated that the interests of the stockholders would be
best served by Younkers' continued pursuit of its strategic plan, and that the
Board did not intend to seek to sell Younkers to Carson or any other buyer, but
rather to continue the business of Younkers as an independent entity. At its
January 8 meeting, the Board also approved the adoption of enhanced severance
payments in the event employment is terminated following a "change in control".
See "--Interests of Certain Persons in the Merger."
On March 9, 1995, Carson increased the price in the tender offer to $19 per
share (the "$19 Offer"). On March 15, 1995, the Younkers Board, based on the
same factors as in January and Younkers' continuing favorable results, as well
as the advice of Goldman Sachs that a price of $19 per share was inadequate,
determined that the $19 Offer was grossly inadequate and recommended that
stockholders reject the $19 Offer.
The Younkers Board opposed the election of the Carson nominees (John Burden,
Alan Cooper and Chaim Edelstein) on the grounds that given Younkers' turnaround,
it was not the time to sell Younkers and election of Carson's slate would prove
disruptive to continuing the turnaround. Messrs. Burden, Cooper and Edelstein
were elected at the 1995 Annual Meeting, which was held on May 17 and adjourned
to June 2, and the non-binding stockholder resolution was adopted. Following the
seating of Messrs. Burden, Cooper and Edelstein as Younkers directors on June 2,
1995, two of the Younkers directors tendered their resignations, effective upon
the election of their successors, the Board was expanded by one seat, and W.
Thomas Gould, Chairman and Chief Executive Officer, G. David Hurd, and Ferd O.
Lawson, Jr., the three nominees who had been defeated at the 1995 meeting, were
elected (with Messrs. Burden, Cooper and Edelstein dissenting) to the Board. In
addition, the Younkers Board (with Messrs. Burden, Cooper and Edelstein
dissenting) voted not to put Younkers up for sale.
25
<PAGE>
Carson has sued, and a preported class action lawsuit has been brought in
Delaware Chancery Court, seeking to invalidate the June 2 elections. Younkers
believes that these actions were taken in the best interests of Younkers
stockholders, to provide the strongest, most retail-oriented Board in order to
continue Younkers' turnaround, and in full compliance with Younkers' charter
and by-laws and Delaware law. Carson has agreed to dismiss its litigation.
Whatever the outcome of this litigation, however, it should have no effect on
the Merger Agreement, because all the persons who could conceivably have been
directors of Younkers on October 22, 1995 were given notice of, and attended
the board meeting at which the Merger Agreement was approved and all such
persons, including Messrs. Burden, Cooper and Edelstein, voted to approve the
Merger Agreement.
On June 15, 1995, Carson proposed to Younkers raising its price to $20 per
share if Younkers would enter into an acquisition agreement that would close by
September 1, 1995. The Younkers Board, with Messrs. Burden, Cooper and Edelstein
abstaining, based upon the same factors previously considered, including the
opinion of Goldman Sachs that a price of $20 per share was inadequate, rejected
this proposal. On June 30, 1995, the $19 Offer expired without any shares of
Younkers Common Stock being purchased. Carson also requested Younkers to raise
the threshold under the Younkers Rights Plan to 20% so that Carson could acquire
additional shares of Younkers Common Stock, which request the Younkers Board,
with Messrs. Burden, Cooper and Edelstein dissenting, rejected.
Proffitt's. Due to industry associations and their membership in a retail
merchandising organization for department stores, Mr. Gould has known R. Brad
Martin, Chairman of the Board and Chief Executive Officer of Proffitt's, for a
number of years, and, in the past, has discussed with him the need for
consolidation in the retail industry.
During the pendency of the Carson proposals, Mr. Martin called Mr. Gould on
a number of occasions to express an interest in a business combination with
Younkers. At those times, Mr. Gould declined to enter into negotiations. In late
August, when it became apparent that acquisition opportunities that Younkers had
been pursuing were unlikely to come to fruition, and that the range of premiums
that Mr. Martin had suggested in his earlier calls were likely to exceed the
value that Younkers could achieve on an independent basis in the foreseeable
future, Mr. Gould agreed to meet with Mr. Martin. Moreover, because Proffitt's
was proposing a stock merger, rather than a sale for cash, Younkers'
stockholders would continue to be able to participate in the benefits of
Younkers' turnaround. On August 30, 1995, Younkers and Proffitt's signed
confidentiality agreements and Proffitt's retained Smith Barney on September 1,
1995. Over the next month and a half, the parties performed extensive due
diligence and on October 22, 1995, the Merger Agreement was executed. Younkers
did not receive any other offer for Younkers.
Carson Agreement. On January 2, 1996, Carson, Younkers and Proffitt's
entered into an agreement pursuant to which, in exchange for Proffitt's granting
registration rights to Carson for the Proffitt's shares it will own after the
Merger, Carson has agreed to (1) publicly announce its support, and vote all of
its Younkers shares in favor, of the Merger, unless (A) there is a pending offer
to acquire Younkers on terms more favorable than those of the Merger which the
Younkers' board has not announced to be grossly inadequate, (B) there is a
Material Adverse Change (as defined in the Merger Agreement) with respect to
Proffitt's or Younkers, (C) Proffitt's or Younkers breaches the agreement with
Carson which has a material adverse effect on Carson or (D) the Merger does not
qualify for pooling of interests accounting treatment for reasons other than the
failure of Carson to perform its agreements; (2) dismiss its lawsuit against
Younkers without prejudice; and (3) without the prior approval of the Younkers
board, not make a competing bid for Younkers so long as Carson is obligated to
vote its shares in favor of the Merger. In the agreement, Carson agreed not to
transfer Younkers or Proffitt's common stock if, in the reasonable opinion of
Proffitt's accountants, the transfer would materially adversely affect the
pooling of interests accounting treatment. In addition, Carson signed a separate
agreement with Younkers pursuant to which Younkers has agreed to sell two
Younkers stores located in Rockford, Illinois to Carson for an aggregate
consideration of $5 million.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
Recommendations of the Proffitt's Board of Directors; Reasons for the
Merger. At a special meeting held on October 20, 1995, the Board of Directors of
Proffitt's by unanimous vote determined that the Merger is in furtherance of and
consistent with Proffitt's long-term business strategies and is in the best
interests of the holders of shares of Proffitt's Common Stock, approved the
Merger Agreement, the Merger and the other transactions contemplated thereby and
resolved to recommend that the holders of shares of Proffitt's Common Stock vote
in favor of the Merger Agreement and the Stock Issuance.
In reaching these conclusions, the Proffitt's Board of Directors considered,
with the assistance of management and its legal and financial advisors, the
following material factors:
(i) information concerning the financial performance and condition,
business operations, assets, liabilities and prospects of Proffitt's and
Younkers and their respective projected future values and prospects as
separate entities and on a combined basis;
26
<PAGE>
(ii) the possible strategic growth opportunities that might be available
to Proffitt's absent the Merger, including possible future acquisitions of
specialty retail department stores;
(iii) the strategic fit between Proffitt's and Younkers and the
complementary nature of their respective businesses;
(iv) potential operating synergies and cost savings, estimated on a
preliminary basis to be a minimum of approximately $3 million in the first
year and $6 million in the second year post merger, including possible
synergies and cost savings with respect to (a) the consolidation of
corporate, administrative and support functions, (b) the elimination of
public reporting obligations of Younkers, and (c) other unspecified
opportunities (it being recognized that such opportunities were likely in a
combination of large complementary businesses but that, until the Merger was
completed or nearly completed, many of those opportunities could not be
identified with specificity);
(v) current industry, economic and market conditions, including the
consolidation in the retail department store industry;
(vi) the structure of the transaction, including the expected accounting
treatment of the Merger as a pooling of interests (thereby avoiding the
reduction in earnings due to the amortization of goodwill which would result
under purchase accounting);
(vii) the terms of the Merger Agreement, including the amount and the
form of consideration, the parties' representations, warranties, covenants
and agreements, and the conditions to their respective obligations set forth
in the Merger Agreement;
(viii) the increased number of shares of Proffitt's Common Stock that
would be held by public stockholders after the Merger;
(ix) the analyses and recommendation of the transaction by Proffitt's
management; and
(x) the financial analyses of its financial advisor, Smith Barney, and
the opinion of Smith Barney as to the fairness to Proffitt's of the
Conversion Number from a financial point of view (see "--Opinions of
Financial Advisors--Smith Barney Opinion to the Proffitt's Board of
Directors").
The foregoing discussion of the information and factors considered and given
weight by the Proffitt's Board of Directors is not intended to be exhaustive. In
addition, no assurance can be given that the operating synergies and cost
savings described in (iv) above will be achieved. In view of the variety of
factors considered in connection with its evaluation of the Merger, the
Proffitt's Board of Directors did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Proffitt's
Board of Directors may have given different weights to different factors.
THE PROFFITT'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
PROFFITT'S COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE STOCK
ISSUANCE.
Recommendation of the Younkers Board of Directors; Reasons for the
Merger. The Younkers Board believes that the terms of the Merger Agreement are
consistent with and in furtherance of Younkers' long-term business strategy, and
in the best interests of Younkers and its stockholders and unanimously
recommends that the stockholders of Younkers vote FOR adoption of the Merger
Agreement. The Younkers Board believes that the Merger offers the Younkers
stockholders an interest in a solid, rapidly growing company with high
performance standards and a proven track record, while the Exchange Ratio
provides them a substantial premium over recent Younkers stock prices and the
Carson $19 Offer. Based on closing stock prices on October 20, 1995 and
January 2, 1996, .98 of a share of Proffitt's Common Stock was worth $28.18
and $25.48, respectively, on such
27
<PAGE>
dates. In addition, the Proffitt's organizational structure and management
philosophy will allow the Younkers organization to operate as a separate
division within Proffitt's, and at the same time, enjoy the benefits of shared
resources and economies of scale.
In arriving at its determination, the Younkers Board considered a number of
factors, including the opinion of Goldman Sachs, financial advisor to Younkers,
described herein. See "--Fairness Opinions." In addition, the Younkers Board
considered the following material factors:
(i) The Exchange Ratio provides a substantial premium to holders of
shares of Younkers Common Stock;
(ii) The Younkers Board's view that in the future larger retailers will
be better able to compete in the retail industry and that the combined
company will have greater efficiencies of scale to provide it with the
resources that are likely to be critical to growth and success in the retail
industry;
(iii) The Younkers Board's view that the combined company will have the
ability to pursue strategic acquisitions which should become available in a
consolidating retail industry;
(iv) The operating cost savings and synergies that the combined company
expects to achieve through the elimination of corporate overhead, adoption
of "best practices", and efficiencies of scale;
(v) The Younkers management's projections concerning the probable
financial performance and condition, business operations and prospects of
Younkers as a separate entity and the analysis of combined company on a pro
forma basis;
(vi) The Younkers Board's belief in the compatibility of Younkers' and
Proffitt's organizational structure and management philosophy;
(vii) The fact that the Younkers stockholders will hold approximately
46.5% (43.2% on a fully diluted basis, excluding shares issuable upon
conversion of Proffitt's 4.75% Convertible Debentures and 38.8%, including
shares issuable upon the conversion of such Debentures) of the equity in
the combined company;
(viii) The role that Younkers management and Younkers directors are
expected to play in the management of the combined company;
(ix) The Younkers Board's expectation that the Merger will be accounted
for as a "pooling of interests" for financial reporting purposes and will be
a tax free transaction to Younkers stockholders;
(x) The Younkers Board's assessment of Younkers strategic alternatives
to the Merger, including remaining an independent company, conducting
acquisitions, and merging or consolidating with a party or parties other
than Proffitt's;
(xi) The presentations of Younkers financial advisor, Goldman Sachs, and
the delivery of its written opinion, that, as of October 22, 1995, the
Exchange Ratio was fair to the holders of Younkers Common Stock; and
(xii) The fact that no gain or loss will be recognized by Younkers,
Proffitt's or the Merger Sub for United States federal income tax purposes.
The Younkers Board did not quantify or attempt to assign relative weights to
the specific factors considered in reaching its determination.
THE YOUNKERS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
OUTSTANDING SHARES OF YOUNKERS COMMON STOCK VOTE FOR ADOPTION OF THE MERGER
AGREEMENT.
28
<PAGE>
OPINIONS OF FINANCIAL ADVISORS
Smith Barney Opinion to the Proffitt's Board of Directors.
Smith Barney was retained by Proffitt's to act as its financial advisor in
connection with the Merger. In connection with such engagement, Proffitt's
requested that Smith Barney evaluate the fairness, from a financial point of
view, to Proffitt's of the consideration to be paid by Proffitt's in the Merger.
On October 20, 1995, at a meeting of the Board of Directors of Proffitt's held
to evaluate the proposed Merger, Smith Barney rendered an oral opinion
(subsequently confirmed by delivery of a written opinion dated October 22, 1995)
to the Board of Directors of Proffitt's to the effect that, as of such date and
based upon and subject to certain matters stated in such opinion, the Conversion
Number was fair, from a financial point of view, to Proffitt's.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of Proffitt's and certain senior officers and other
representatives and advisors of Younkers concerning the businesses, operations
and prospects of Proffitt's and Younkers. Smith Barney examined certain publicly
available business and financial information relating to Proffitt's and Younkers
as well as certain financial forecasts and other data for Proffitt's and
Younkers which were provided to Smith Barney by or otherwise discussed with the
respective managements of Proffitt's and Younkers, including information
relating to certain strategic implications and operational benefits anticipated
from the Merger. Smith Barney reviewed the financial terms of the Merger as set
forth in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of Proffitt's Common Stock and
Younkers Common Stock; the historical and projected earnings and operating data
of Proffitt's and Younkers; and the capitalization and financial condition of
Proffitt's and Younkers. Smith Barney considered, to the extent publicly
available, the financial terms of certain other similar transactions recently
effected which Smith Barney considered relevant in evaluating the Merger and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose businesses Smith
Barney considered relevant in evaluating those of Proffitt's and Younkers. Smith
Barney also evaluated the potential pro forma financial impact of the Merger on
Proffitt's. In addition to the foregoing, Smith Barney conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Smith Barney deemed appropriate to arrive at its opinion.
Smith Barney noted that its opinion was necessarily based upon information
available, and financial, stock market and other conditions and circumstances
existing and disclosed, to Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with Smith Barney. With respect to financial forecasts and other
information provided to or otherwise reviewed by or discussed with Smith Barney,
the managements of Proffitt's and Younkers advised Smith Barney that such
forecasts and other information were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of Proffitt's and Younkers as to the future financial performance of Proffitt's
and Younkers and the strategic implications and operational benefits anticipated
from the Merger. Smith Barney assumed, with the consent of the Board of
Directors of Proffitt's, that the Merger will be treated as a pooling of
interests in accordance with generally accepted accounting principles and as a
tax-free reorganization for federal income tax purposes. Smith Barney's opinion
relates to the relative values of Proffitt's and Younkers. Smith Barney did not
express any opinion as to what the value of the Proffitt's Common Stock actually
will be when issued pursuant to the Merger or the price at which the Proffitt's
Common Stock will trade subsequent to the Merger. In addition, Smith Barney did
not make or obtain an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Proffitt's or Younkers nor did Smith
Barney make any physical inspection of the properties or assets of Proffitt's or
Younkers. Smith Barney was not asked to consider, and its opinion does not
address, the relative
29
<PAGE>
merits of the Merger as compared to any alternative business strategies that
might exist for Proffitt's or the effect of any other transaction in which
Proffitt's might engage. In arriving at its opinion, Smith Barney took into
account the views of management of Proffitt's that, consistent with Proffitt's
established strategy of growth through acquisitions, the Merger represents a
significant strategic opportunity for Proffitt's to further enhance its growth
prospects and ability to participate in future industry consolidation. In
addition, although Smith Barney evaluated the Conversion Number from a financial
point of view, Smith Barney was not asked to and did not recommend the specific
consideration payable in the Merger, which was determined by Proffitt's and
Younkers through arms-length negotiations. No other limitations were imposed by
Proffitt's on Smith Barney with respect to the investigations made or procedures
followed by Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED OCTOBER 22, 1995,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX II AND IS INCORPORATED HEREIN
BY REFERENCE. PROFFITT'S STOCKHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY
IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
CONVERSION NUMBER FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
PROFFITT'S SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH
IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of Proffitt's, Smith
Barney performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses does not purport to be a
complete description of the analyses underlying Smith Barney's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Smith Barney believes that its analyses must
be considered as a whole and that selecting portions of its analyses and
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying such analyses and its opinion. In
its analyses, Smith Barney made numerous assumptions with respect to Proffitt's,
Younkers, industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Proffitt's
and Younkers. The estimates contained in such analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
The following is a summary of the material analyses performed by Smith
Barney in connection with its oral opinion rendered to the Proffitt's Board of
Directors on October 20, 1995:
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
Proffitt's, Younkers and the following selected regional department store
companies: Carson Pirie Scott & Co.; Gottschalks Inc.; Jacobson Stores Inc.;
Strawbridge & Clothier; and The Bon-Ton Stores, Inc. (the "Selected Companies").
Smith Barney compared market values as multiples of, among other things, latest
12 months and estimated net income, and adjusted market values (equity market
value, plus total debt, less cash) as multiples of latest 12 months net revenue,
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
earnings before interest and taxes ("EBIT"), and compared these multiples
against the multiples for Younkers implied by the Conversion Number. Net income
and EPS projections for the Selected Companies were based on estimates of
selected investment banking firms, and net income and EPS projections for
Proffitt's and Younkers were based both on estimates of selected investment
banking firms and internal estimates of the management of Proffitt's and
Younkers. All multiples were based on
30
<PAGE>
closing stock prices as of October 19, 1995. The ranges of multiples of latest
12 months net revenue, EBITDA and EBIT and latest 12 months and estimated 1995
and 1996 net income of the Selected Companies (excluding multiples which
appeared to be affected by company specific circumstances) were as follows: (i)
latest 12 months net revenue: 0.33x to 0.69x (with a mean of 0.44x); (ii) latest
12 months EBITDA: 5.0x to 7.7x (with a mean of 6.5x); (iii) latest 12 months
EBIT: 5.6x to 9.9x (with a mean of 8.3x); (iv) latest 12 months net income: 8.8x
to 17.8x (with a mean of 13.7x); and (v) estimated 1995 and 1996 net income:
8.5x to 17.3x (with a mean of 12.9x) and 6.0x to 11.8x (with a mean of 9.8x),
respectively. The multiples of latest 12 months revenues, EBITDA and EBIT and
latest 12 months and estimated 1995 and 1996 net income of Proffitt's were
0.69x, 6.2x, 8.4x, 17.8x, 15.0x and 11.8x, respectively. The multiples of latest
12 months revenues, EBITDA and EBIT and latest 12 months and estimated 1995 and
1996 net income of Younkers were 0.35x, 4.6x, 6.9x, 11.9x, 10.5x and 9.7x,
respectively. Based on a closing sale price of Proffitt's Common Stock on
October 19, 1995 (the last trading day prior to approval of the Merger by the
Proffitt's Board) of $28.25, the Conversion Number equated to implied multiples
of latest 12 months revenues, EBITDA and EBIT and latest 12 months and estimated
1995 and 1996 net income for Younkers of 0.48x, 6.4x, 9.5x, 17.0x, 13.5x and
11.6x, respectively.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase price and implied
transaction multiples paid or proposed to be paid in the following selected
transactions involving regional department store companies (acquiror/target):
Federated Department Stores, Inc./Broadway Stores, Inc. (8/95); The Bon-Ton
Stores, Inc./Hess Department Stores, Inc. (8/94); The May Department Stores
Company/Hess Department Stores, Inc. (8/94); Federated Department Stores,
Inc./R.H. Macy & Company, Inc. (7/94); The Bon-Ton Stores, Inc./Adam, Meldrum &
Anderson Co., Inc. (5/94); Federated Department Stores, Inc./Joseph Horne Co.,
Inc. (4/94); Proffitt's/McRae's, Inc. (3/94); Younkers/HC Prange Company
Department Store (7/92); Mercantile Stores Co., Inc./Maison Blanche, Inc.
(1/92); Dillard Department Stores, Inc./Maison Blanche, Inc. (eight department
stores) (6/91); The May Department Stores Company/Thalhimer Brothers, Inc.
(10/90); Dillard Department Stores, Inc./JB Ivey & Co. (5/90); Investcorp./Saks
Fifth Avenue (BAT Industries PLC) (4/90); Dayton Hudson Corp./Marshall Field &
Co. (4/90); CAL Holdings Inc./Caldor Corp. (10/89); Management-led investor
group/Parisian Inc. (L.G. Hooker) (6/89); PA Bergner & Co./Carson Pirie Scott &
Co. (4/89); PBL Acquisition Corp./Peebles Holdings, Inc. (1/89); Dillard
Department Stores, Inc./DH Holmes Co., Ltd. (11/88); R.H. Macy & Company,
Inc./I. Magnin, Bullock's (Federated) (5/88); (Federated) The May Department
Stores Company/Foley's, Filene's Department Stores (5/88); Campeau
Corp./Federated Department Stores, Inc. (1/88); Parisian Acquisition
Corp./Parisian Inc. (7/87); Dillard Department Stores, Inc./Joske's Cain-Sloan
(5/87); E-B Acquisition Corp./The Elder-Beerman Stores Corp. (3/87); Campeau
Acquisition Corp./Allied Stores Corp. (9/86); and The May Department Stores
Company/Associated Dry Goods Corp. (6/86) (the "Selected Transactions"), and
compared these multiples with the multiples implied by the Conversion Number
described above under "--Selected Company Analysis." Smith Barney compared the
purchase prices in such transactions as a multiple of, among other things,
latest 12 months net income and transaction values as a multiple of latest 12
months sales, EBITDA and EBIT. All multiples for the Selected Transactions were
based on information available at the time of announcement of the transaction.
The ranges of multiples of latest 12 months sales, EBITDA, EBIT and net income
of the Selected Transactions (excluding outliers) were as follows: (i) latest 12
months sales: 0.3x to 1.3x (with a mean of 0.7x); (ii) latest 12 months EBITDA:
6.0x to 11.4x (with a mean of 8.6x); (iii) latest 12 months EBIT: 7.5x to 14.8x
(with a mean of 11.7x); and (iv) latest 12 months net income: 9.8x to 44.3x
(with a mean of 23.6x). Based on a closing sale price of Proffitt's Common Stock
on October 19, 1995 (the last trading day prior to approval of the Merger by the
Proffitt's Board) of $28.25, the Conversion Number equated to implied multiples
of latest 12 months sales, EBITDA, EBIT and net income for Younkers of 0.48x,
6.4x, 9.5x and 17.0x, respectively.
31
<PAGE>
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to Proffitt's, Younkers or the Merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the Selected Companies, Selected Transactions
or the business segment, company or transaction to which they are being
compared.
Contribution Analysis. Smith Barney analyzed the respective contributions of
Proffitt's and Younkers to the revenue, EBITDA, EBIT and net income of the
combined company for fiscal years 1995 through 1997 (with particular focus on
fiscal years 1995 and 1996) based on internal estimates provided by the
respective managements of Proffitt's and Younkers. This analysis indicated that
(i) in fiscal year 1995, Proffitt's would contribute approximately 54.4% of
revenue, 62.7% of EBITDA, 64.7% of EBIT and 55.6% of net income, and Younkers
would contribute approximately 45.6% of revenue, 37.3% of EBITDA, 35.3% of EBIT
and 44.4% of net income and (ii) in fiscal year 1996, Proffitt's would
contribute approximately 55.3% of revenue, 63.1% of EBITDA, 64.5% of EBIT and
58.1% of net income, and Younkers would contribute approximately 44.7% of
revenue, 36.9% of EBITDA, 35.5% of EBIT and 41.9% of net income. Immediately
following consummation of the Merger, stockholders of Proffitt's and Younkers
would own approximately 61.2% and 38.8%, respectively, of the combined company
on a fully diluted basis.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash flow
analysis of the projected free cash flow (EBIT, plus depreciation, less income
taxes, capital expenditures and investment in working capital) of Younkers for
the fiscal years 1995 through 1998 based on internal estimates provided by the
management of Younkers and assuming, among other things, discount rates of 12%,
14% and 16% and terminal multiples of EBITDA of 5.0x to 6.5x. This analysis
resulted in equity reference ranges for Younkers of approximately $25.50 to
$37.28 per share assuming no cost savings and other potential synergies
anticipated from the Merger were achieved, and approximately $27.33 to $39.77
per share assuming certain cost savings and other potential synergies
anticipated from the Merger were achieved.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on the projected EPS, and debt to capitalization and debt to equity
ratios, of Proffitt's for the fiscal years ended 1996 through 1998, based on EPS
and growth rate estimates of selected investment banking firms. The results of
the pro forma merger analysis suggested that the Merger would be accretive to
Proffitt's EPS in fiscal years 1996, 1997 and 1998 by approximately 4.8%, 6.4%
and 8.1%, respectively, on a primary share basis, and approximately 9.6%, 10.2%
and 11.0%, respectively, on a fully diluted share basis, assuming certain cost
savings and other potential synergies anticipated from the Merger were achieved
and excluding the anticipated non-recurring charges related to direct costs of
the Merger. This analysis also suggested that, on a pro forma basis, the total
debt to capitalization ratio of Proffitt's would be reduced from approximately
58.5% to 48.4% and the total debt to equity ratio of Proffitt's would be reduced
from approximately 140.8% to 93.9%. The actual results achieved by the combined
company may vary from projected results and the variations may be material.
Other Factors Considered. In rendering its opinion, Smith Barney considered
certain other factors and conducted certain other comparative analyses,
including, among other things, a review of (i) Proffitt's and Younkers
historical and projected financial results; (ii) the history of trading prices
for Proffitt's Common Stock and Younkers Common Stock, the common stock of the
Selected Companies and movements in the S&P 400 index; (iii) identifiable cost
savings and other potential synergies anticipated from the Merger; (iv) the
premiums paid in selected stock-for-stock transactions with transaction values
in excess of $250 million; and (v) the pro forma ownership of the combined
company.
32
<PAGE>
Pursuant to the terms of Smith Barney's engagement, Proffitt's has agreed to
pay Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee of $2.5 million. Proffitt's also has agreed to reimburse
Smith Barney for travel and other out-of-pocket expenses incurred by Smith
Barney in performing its services, including the fees and expenses of its legal
counsel, and to indemnify Smith Barney and related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney's engagement.
Smith Barney has advised Proffitt's that, in the ordinary course of
business, Smith Barney and its affiliates may actively trade the securities of
Proffitt's and Younkers for its own account or for the account of its customers
and, accordingly, may at any time hold a long or short position in such
securities. Smith Barney has in the past provided financial advisory and
investment banking services to Proffitt's unrelated to the Merger, for which
services Smith Barney has received compensation. In addition, Smith Barney and
its affiliates (including Travelers Group, Inc. and its affiliates) may maintain
relationships with Proffitt's and Younkers.
Smith Barney is a nationally recognized investment banking firm and was
selected by Proffitt's based on Smith Barney's experience, expertise and
familiarity with Proffitt's and its business. Smith Barney regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Goldman Sachs Opinion to the Younkers Board of Directors.
Younkers retained Goldman Sachs to act as Younkers' financial advisor in
connection with the Merger and related matters based upon its qualifications,
expertise and reputation, as well as Goldman Sachs' prior investment banking
relationship and familiarity with Younkers, described herein. On October 22,
1995, Goldman Sachs delivered its written opinion to the Younkers Board that, as
of the date of such opinion, the Exchange Ratio was fair to the holders of
Younkers Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED AS OF OCTOBER
22, 1995, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
APPENDIX III TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. YOUNKERS STOCKHOLDERS SHOULD READ SUCH OPINION IN ITS ENTIRETY.
GOLDMAN SACHS' OPINION IS DIRECTED ONLY TO THE EXCHANGE RATIO AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF YOUNKERS AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE YOUNKERS SPECIAL MEETING. THE SUMMARY OF THE
OPINION OF GOLDMAN SACHS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports to Stockholders and Annual
Reports on Form 10-K of Younkers and Proffitt's for the five fiscal years ended
January 31, 1995; (iii) certain interim reports to stockholders and Quarterly
Reports on Form 10-Q for Younkers and Proffitt's; (iv) certain other
communications from Younkers and Proffitt's to their respective stockholders;
and (v) certain internal financial analyses and forecasts for Younkers and
Proffitt's prepared by their respective management teams. Goldman Sachs also
held discussions with members of the senior management of Younkers and
Proffitt's regarding the past and current business operations, financial
condition and future prospects of their respective companies and as combined
pursuant to the Merger Agreement. In addition, Goldman Sachs reviewed the
reported price and trading activity for the shares of Younkers Common Stock and
the Proffitt's Common Stock, compared certain financial and stock market
information for Younkers and Proffitt's with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the retail industry
specifically and in other industries generally and performed such other studies
and analyses as it considered appropriate.
33
<PAGE>
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of Younkers or Proffitt's
or any of their respective subsidiaries and Goldman Sachs has not been furnished
with any such evaluation or appraisal. Goldman Sachs assumed with Younkers'
consent that the Merger will be recorded as a pooling of interests under
generally accepted accounting principles.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to Younkers' Board of
Directors on October 22, 1995.
Historical Stock Trading Analysis. Goldman Sachs examined the history of the
trading prices for the shares of Younkers Common Stock and the Proffitt's Common
Stock in relation to each other and to the Large Cap Retailers and Small Cap
Retailers (defined below) for the past year.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to Younkers to corresponding financial
information, ratios and public market multiples for certain large market
capitalization retailers, consisting of Dayton-Hudson Corporation, Dillard
Department Stores, Inc., Federated Department Stores, Inc., The May Department
Stores Company, Mercantile Stores Company, Inc., Nordstrom, Inc. and JC Penney
Company, Inc. (the "Large Cap Retailers") and certain smaller market
capitalization retailers, consisting of The Bon-Ton Stores, Inc., Carson, Pirie
Scott & Co., Gottschalks, Inc., Jacobson Stores, Inc., Kohl's Corporation and
Strawbridge & Clothier (the "Small Cap Retailers" and together with the Large
Cap Retailers, the "Selected Companies"). The Selected Companies were chosen
because they are publicly-traded companies with operations that for purposes of
analysis may be considered similar to Younkers. No company in either the Large
Cap Retailer category or in the Small Cap Retailer category is identical to
Younkers or Proffitt's (including after the Merger). Accordingly, any analysis
of the results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors affecting the companies being compared.
Goldman Sachs calculated and compared various financial multiples and ratios for
Younkers and each of the Selected Companies based on the most recent publicly
available information. Goldman Sachs considered for the Selected Companies
estimated fiscal year 1995 and 1996 price/earnings multiples (based on October
20, 1995 stock prices), which ranged from 11.9x to 16.1x for 1995 and 10.6x to
13.6x for 1996 for Large Cap Retailers and 9.2x to 34.4x for 1995 and 5.9x to
20.8x for 1996 for Small Cap Retailers compared to 10.8x in 1995 and 9.9x in
1996, respectively, for Younkers. All of these estimates were based on First
Call earnings estimates. Goldman Sachs also considered Levered Market
Capitalization (i.e., market value of common equity plus preferred equity and
book value of debt less cash and marketable securities) as a multiple of the
latest twelve months ("LTM") sales, as a multiple of LTM earnings before
interest, taxes and depreciation ("EBITD") and as a multiple of LTM earnings
before interest and taxes ("EBIT"). Goldman Sachs' analyses of the Selected
Companies indicated entity multiples of LTM sales, which ranged from 0.49x to
1.08x (with median of 0.84x) for Large Cap Retailers and from 0.40x to 1.15x
(with a median of 0.43x) for Small Cap Retailers, LTM EBITD, which ranged from
4.2x to 9.9x (with a median of 6.7x) for Large Cap Retailers and from 4.5x to
11.8x (with a median of 8.0x) for Small Cap Retailers, and LTM EBIT, which
ranged from 5.4x to 17.4x (with a median of 9.5x) for Large Cap Retailers and
from 5.4x to 22.6x (with a median of 12.0x) for Small Cap Retailers, compared to
multiples of 0.35x, 5.0x and 7.6x, respectively, for Younkers.
Discounted Future Stock Price Analysis. Goldman Sachs performed a discounted
future stock price analysis using a base case of 3% growth as well as Younkers
management's higher growth projections. Goldman Sachs calculated Younkers' stock
price in the year 1998 based on multiples ranging from 9x to 14x projected
earnings. These future stock prices were then discounted to present value using
discount rates from 9% to 15%. Based upon the foregoing discounted future stock
price analysis, the net present value per share of Younkers Common Stock ranged
from $12.34 to $22.96 in the 3% growth case and $17.23 to $32.04 in the
management case.
34
<PAGE>
Selected Combination Analysis. Goldman Sachs analyzed certain information
relating to selected transactions in the retail industry since 1986 (the
"Selected Combinations"). Such analysis indicated that for the Selected
Combinations the median of the price paid as a multiple of LTM sales was 0.56
for the transactions in 1992-1995, and 0.72 for the transactions in 1986-1995,
with the Younkers multiple at 0.50 (based on the closing price for Proffitt's
Common Stock on October 20, 1995), the median of the price paid as a multiple of
LTM EBIT was 11.9 for the 1992-1995 transactions and 11.8 for the 1986-1995
transactions, with the Younkers multiple at 10.8, the median of the price paid
on LTM earnings per share was 10.7 for 1992-1995 transactions, 21.1 for
1986-1995 transactions, and 17.8 for Younkers and the median of the price paid
per levered square foot was $45.80 for 1992-1995 transactions, $107 for
1986-1995 transactions and $68.68 for Younkers. No company or transaction used
in the above analyses as a comparison is identical to Younkers, Proffitt's or
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which they are being compared.
Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information for Younkers and Proffitt's
based on Younkers and Proffitt's managements' forecasts for their respective
companies for the years 1995 and 1996. Goldman Sachs' analysis of the relative
income statement contributions of Younkers and Proffitt's on a pro forma basis
did not take into account any of the synergies that may be realized following
the Merger. The foregoing pro forma analysis would indicate that in 1995
Younkers would contribute 45.5% to combined revenue, 41.6% to combined EBITDAR
(earnings before interest, taxes, depreciation, amortization and rentals), 33.8%
to combined EBIT, and 46.7% to net income available to common stockholders. The
analysis described above also indicated that in 1996 Younkers would contribute
44.1% to combined revenues, 41.7% to combined EBITDAR, 36.0% to combined EBIT
and 44.7% to net income available to common stockholders.
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of the
financial impact on Proffitt's of the Merger. Using earnings and synergies
estimates for Younkers and Proffitt's prepared by their respective managements
(which in Younkers' case excluded Carson-related takeover expenses in 1995), as
well as publicly available research analysts' earnings estimates for the years
1995 and 1996, the analysis showed that the proposed transaction would be
accretive to Proffitt's stockholders on an EPS basis in the years 1995 and 1996
under both management and analysts' estimates.
Leveraged Buy-out Analysis. Goldman Sachs also performed a leveraged buy-out
analysis which indicated that under the criteria normally used to finance a
leveraged buy-out, a leveraged buy-out could not be financed or consummated at
per share values competitive with the Exchange Ratio.
The foregoing summary does not purport to be a complete description of the
analyses performed by Goldman Sachs. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or of the summary set
forth above, without considering the analyses as a whole, could create an
incomplete view of the processes underlying Goldman Sachs' opinion. In arriving
at its fairness determination, Goldman Sachs considered the results of all such
analyses. No company or transaction used in the above analyses as a comparison
is identical to Younkers or Proffitt's or the Merger. The analyses were prepared
exclusively for purposes of Goldman Sachs' rendering its opinion to the Younkers
Board as to the fairness of the Exchange Ratio and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
Younkers, Proffitt's, Sub, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
35
<PAGE>
As noted in "THE MERGER--Reasons for the Merger and Younkers Board
Recommendation," Goldman Sachs' opinion to the Younkers Board was only one of
many factors taken into consideration by the Younkers Board in making its
determination to approve the Merger Agreement. The foregoing summary is
qualified by reference to the written opinion of Goldman Sachs set forth in
Appendix III hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Younkers selected
Goldman Sachs as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger. Goldman Sachs has provided certain
investment banking services to Younkers from time to time, including acting as
managing underwriter of a public offering of 6,170,000 shares of Younkers Common
Stock in April, 1992 and a public offering of 2,419,000 shares of Younkers
Common Stock in April 1993, and as financial advisor in connection with the
Carson proposals.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Younkers and/or Proffitt's for its own account and for the account
of customers. As of the close of business on October 20, 1995, Goldman Sachs had
accumulated a long position of 90 shares of Younkers Common Stock and a short
position of 6,500 shares of Younkers Common Stock.
Pursuant to the terms of an engagement letter dated November 4, 1994, if the
Merger is consummated Younkers is obligated to pay Goldman Sachs, a fee of 1.5%
of the aggregate value of shares of Proffitt's Common Stock issuable in the
Merger (including pursuant to options), based on the average price of Proffitt's
Common Stock for the five trading days ending five days prior to the Effective
Time, for acting as financial advisor in connection with the proposed Merger,
including rendering the fairness opinion described above if the Merger is
consummated. Younkers has already paid Goldman Sachs a fee of $150,000. Whether
or not the proposed Merger is consummated, Younkers has also agreed to reimburse
Goldman Sachs for its reasonable out-of-pocket expenses, including fees and
disbursements of counsel, and to indemnify Goldman Sachs and certain related
persons against certain liabilities relating to or arising out of its
engagement, including certain liabilities under the Federal securities laws.
MERGER CONSIDERATION
Subject to certain provisions described herein with respect to certain
shares of Younkers Common Stock owned by Proffitt's, Younkers or any subsidiary
of Proffitt's or Younkers, upon consummation of the Merger each issued and
outstanding share of Younkers Common Stock will be converted into .98 (the
"Conversion Number" or the "Exchange Ratio") validly issued, fully paid and
nonassessable shares of Proffitt's Common Stock.
Fractional shares of Proffitt's Common Stock will not be issued in the
Merger. Holders of Younkers Common Stock otherwise entitled to a fractional
share of Proffitt's Common Stock will be paid cash in lieu of such fractional
shares determined and paid as described in "THE MERGER AGREEMENT-- Fractional
Shares" below.
The Conversion Number was determined through arms-length negotiations
between Proffitt's and Younkers. Based on the number of shares of Younkers
Common Stock and the number of Younkers stock options outstanding on the
Younkers Record Date, a maximum of 8,816,215 shares of Proffitt's Common Stock
may be issued in respect of shares of Younkers Common Stock in the Merger.
36
<PAGE>
The shares of Younkers Common Stock held in treasury to fund the deferred
compensation plans of W. Thomas Gould and Robert M. Mosco will be converted into
the right to receive on the same terms and conditions as provided in such plans
authorized but unissued shares of Proffitt's Common Stock calculated by
multiplying such number of shares by the Conversion Number. Such shares and any
other shares of Younkers Common Stock owned by Younkers or any of its
subsidiaries or by Proffitt's, Sub or any other subsidiary of Proffitt's will
automatically be cancelled at the Effective Time and will cease to exist and no
capital stock of Proffitt's or other consideration will be delivered in exchange
therefor.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or such later date
as is specified in such Certificate. The filing of the Certificate of Merger
will occur as soon as practicable following the satisfaction or waiver (where
permissible) of the conditions set forth in the Merger Agreement. See "THE
MERGER AGREEMENT-- Conditions to the Merger."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of Younkers Common Stock into Proffitt's Common Stock will
occur at the Effective Time. Each certificate for Younkers Common Stock shall,
from and after the Effective Time until surrendered in exchange for Proffitt's
Common Stock, for all purposes be deemed to represent the number of shares of
Proffitt's Common Stock calculated by multiplying the number of shares
represented by the certificate by the Conversion Number. As soon as practicable
after the Effective Time, Proffitt's will deposit with Union Planters National
Bank, as exchange agent (the "Exchange Agent"), in trust for the holders of
certificates which immediately prior to the Effective Time represented shares of
Younkers Common Stock (the "Certificates") certificates representing the shares
of Proffitt's Common Stock issuable in exchange for outstanding shares of
Younkers Common Stock and cash as required to make payments in lieu of any
fractional shares of Proffitt's Common Stock (such cash and shares of Proffitt's
Common Stock, together with any dividends or distributions with respect thereto
payable as described below, being hereinafter referred to as the "Exchange
Fund").
As soon as practicable after the Effective Time, Proffitt's will cause the
Exchange Agent to mail to each holder of record of a Certificate whose shares
are converted into shares of Proffitt's Common Stock a letter of transmittal
(which will be in customary form, specifying that delivery will be effected, and
risk of loss and title to the Certificates will pass, only upon actual delivery
of the Certificates to the Exchange Agent and will contain instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Proffitt's Common Stock and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate will be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Proffitt's Common Stock into which
the shares represented by the surrendered Certificate have been converted at the
Effective Time pursuant to the Merger, and cash in lieu of fractional shares and
certain dividends and other distributions as described below, and the
Certificate so surrendered will be cancelled.
YOUNKERS STOCKHOLDERS SHOULD NOT FORWARD THE CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
No dividends or other distributions that are declared on or after the
Effective Time on Proffitt's Common Stock, or are payable to the holders of
record thereof on or after the Effective Time, will be paid to any person
entitled by reason of the Merger to receive a certificate representing
Proffitt's Common Stock until such person surrenders the related Certificate or
Certificates, as provided above, and no cash payment in lieu of fractional
shares will be paid to any such person until such person shall so surrender the
related Certificate or Certificates. Subject to the effect of applicable law,
there will be
37
<PAGE>
paid to each record holder of a new certificate representing such Proffitt's
Common Stock: (i) at the time of such surrender or as promptly as practicable
thereafter, the amount of any dividends or other distributions theretofore paid
with respect to the shares of Proffitt's Common Stock represented by such new
certificate and having a record date on or after the Effective Time and a
payment date prior to such surrender; (ii) at the appropriate payment date or as
promptly as practicable thereafter, the amount of any dividends or other
distributions payable with respect to such shares of Proffitt's Common Stock and
having a record date on or after the Effective Time but prior to such surrender
and a payment date on or subsequent to such surrender; and (iii) at the time of
such surrender or as promptly as practicable thereafter, the amount of any cash
payable with respect to a fractional share of Proffitt's Common Stock to which
such holder is entitled. In no event shall the person entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any cash or certificate representing shares
of Proffitt's Common Stock is to be paid to or issued in a name other than that
in which the Certificate surrendered in exchange therefor is registered, it will
be a condition of such exchange that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Proffitt's Common Stock in a name other than that of the registered holder of
the Certificate surrendered, or will establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
Proffitt's or the Exchange Agent will be entitled to deduct and withhold
from the consideration otherwise payable pursuant to the Merger Agreement to any
holder of shares of Younkers Common Stock such amounts as Proffitt's or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under the Code or under any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by Proffitt's or the
Exchange Agent, such withheld amounts shall be treated for all purposes of the
Merger Agreement as having been paid to the holder of the shares of Younkers
Common Stock in respect of which such deduction and withholding was made by
Proffitt's or the Exchange Agent.
Certificates representing shares of Younkers Common Stock surrendered for
exchange by an "affiliate" of Younkers for purposes of Rule 145(c) of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, will not be exchanged until Proffitt's
receives an affiliate letter from such affiliate. Shares of Proffitt's Common
Stock issued to "affiliates" will not be transferable until the financial
results covering at least 30 days of combined operations of Proffitt's and
Younkers have been published in the manner provided by Commission policies
regardless of whether the affiliate has provided an affiliate letter to
Proffitt's, except to the extent permitted by generally accepted accounting
principles. Shares of Proffitt's Common Stock shall not be transferable,
regardless of whether the affiliate has provided an affiliate letter to
Proffitt's, if such transfer, either alone or in the aggregate with other
transfers by the affiliate, would preclude Proffitt's ability to account for the
Merger as a pooling of interests.
GOVERNMENTAL AND REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Certain aspects of the Merger will require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where Proffitt's and Younkers currently
operate.
HSR Act. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been terminated. On
November 17, 1995, Proffitt's and Younkers filed notification and report forms
under the HSR Act with the FTC and the Antitrust Division. On December 18, 1995,
the waiting period under the HSR expired.
38
<PAGE>
At any time before or after consummation of the Merger, notwithstanding that the
waiting period under the HSR Act has been terminated, the Antitrust Division or
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of substantial assets of Proffitt's or
Younkers. At any time before or after the Effective Time, and notwithstanding
that the waiting period under the HSR Act has been terminated, any state could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of substantial assets of
Proffitt's and Younkers. Private parties may also seek to take legal action
under the antitrust laws under certain circumstances.
Based on information available to them, Proffitt's and Younkers believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Proffitt's and Younkers would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger. The obligations of
Proffitt's and Younkers to consummate the Merger are subject to the condition
that there shall be no preliminary or permanent injunction or other order by any
court or governmental or regulatory authority making the Merger or any of the
transactions contemplated by the Merger Agreement illegal. Each party has agreed
to use its reasonable best efforts to defend any such challenge or order and to
seek to have any such order vacated or reversed.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to holders of Younkers Common Stock who or which hold
their shares as capital assets. This discussion deals only with holders who or
which are (i) citizens or residents of the United States; (ii) domestic
corporations; or (iii) otherwise subject to United States federal income tax on
a net income basis in respect of shares of Younkers Common Stock ("U.S.
Holders"). This discussion may not be applicable to certain classes of
taxpayers, including, without limitation, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, foreign persons,
persons who acquired Younkers Common Stock pursuant to an exercise of employee
stock options or rights or otherwise as compensation and persons who hold shares
of Younkers Common Stock as part of a straddle or conversion transaction. The
discussion also does not address state, local or foreign tax consequences of the
Merger. Consequently, each holder should consult such holder's own tax advisor
as to the specific tax consequences of the Merger to such holder.
This discussion is based on current laws, regulations, rulings, practice and
judicial decisions in effect on the date of this Joint Proxy
Statement/Prospectus and the opinion of Sullivan & Cromwell. Legislative,
judicial or administrative changes or interpretations may, however, be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes may or may not be retroactive and could affect the tax
consequences to U.S. Holders described herein. The opinion of Sullivan &
Cromwell set forth in this discussion is based, among other things, on
assumptions relating to certain facts and circumstances of, and the intentions
of the parties to, the Merger, which assumptions have been made with the consent
of Proffitt's and Younkers.
In the opinion of Sullivan & Cromwell, the following will be the material
federal income tax consequences of the Merger to U.S. Holders of Younkers Common
Stock:
(i) no gain or loss will be recognized by U.S. Holders, except as
described below with respect to U.S. Holders of Younkers Common Stock who
receive cash in lieu of fractional shares of Proffitt's Common Stock;
(ii) the aggregate adjusted tax basis of shares of Proffitt's Common
Stock (including fractional shares of Proffitt's Common Stock deemed
received and redeemed as described below)
39
<PAGE>
received by a U.S. Holder will be the same as the aggregate adjusted tax
basis of the shares of Younkers Common Stock exchanged therefor;
(iii) the holding period of the shares of Proffitt's Common Stock
(including the holding period of fractional shares of Proffitt's Common
Stock) received by a U.S. Holder will include the holding period of the
Younkers Common Stock exchanged therefor; and
(iv) a U.S. Holder of Younkers Common Stock who receives cash in the
Merger in lieu of fractional shares of Proffitt's Common Stock will be
treated as having received such factional shares and then as having received
such cash in redemption of such fractional shares. Under Section 302 of the
Code, provided that such deemed distribution is "substantially
disproportionate" with respect to such U.S. Holder or is "not essentially
equivalent to a dividend" after giving effect to the constructive ownership
rules of the Code, the U.S. Holder will generally recognize capital gain or
loss equal to the difference between the amount of cash received and the
U.S. Holder's adjusted tax basis in the fractional share interest in
Proffitt's Common Stock. Such capital gain or loss will be long-term capital
gain or loss if the U.S. Holder's holding period in the fractional shares is
more than one year.
The obligation of Younkers to consummate the Merger is subject to the
receipt of the opinion of tax counsel outlined below. Neither Younkers nor
Proffitt's has requested or will request a ruling from the Internal Revenue
Service as to the tax consequences of the Merger.
The obligation of Younkers to consummate the Merger is conditioned on the
receipt by Younkers of an opinion of its counsel, Sullivan & Cromwell, in form
and substance satisfactory to Younkers, dated immediately prior to the Effective
Time, to the effect that for federal income tax purposes (i) the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code,
and Younkers, Sub and Proffitt's will each be a party to that reorganization
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by Proffitt's or Younkers as a result of the Merger; (iii) no gain or
loss will be recognized by stockholders of Younkers upon the conversion of their
shares into shares of Proffitt's Common Stock (except cash received in lieu of
fractional shares); (iv) the aggregate tax basis of shares of Proffitt's Common
Stock received in exchange for shares of Younkers Common Stock pursuant to the
Merger (including fractional shares of Proffitt's Common Stock for which cash is
received) will be the same as the aggregate tax basis of such shares of Younkers
Common Stock; (v) the holding period of the shares of Proffitt's Common Stock
received in exchange for shares of Younkers Common Stock pursuant to the Merger
will include the holding period for such shares of Younkers Common Stock,
provided that such shares were held as capital assets as of the Effective Time;
and (vi) a stockholder of Younkers who receives cash in lieu of a fractional
share of Proffitt's Common Stock will recognize gain or loss equal to the
difference, if any, between such stockholder's basis in the fractional share and
the amount of cash received. See "THE MERGER AGREEMENT--Conditions of the
Merger."
The above-described tax opinion will be based upon certain customary
representations and assumptions which are consistent with the state of facts
existing as of the Effective Time to be referred to in the opinion letters.
Subject to the receipt of such customary representations, Sullivan & Cromwell
anticipate that they will render the above-described tax opinions.
EACH STOCKHOLDER OF YOUNKERS IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
40
<PAGE>
ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Proffitt's and Younkers will be carried forward to the
combined corporation at their recorded amounts, income of the combined
corporation will include income of Proffitt's and Younkers for the entire fiscal
year in which the combination occurs, and the reported income of the separate
corporations for prior periods will be combined and restated as income of the
combined corporation.
The obligations of Proffitt's, Sub and Younkers to consummate the Merger is
subject to the receipt by Proffitt's of an opinion dated as of the Effective
Time from Coopers & Lybrand L.L.P. in form and substance reasonably satisfactory
to Proffitt's and Younkers, that the Merger will qualify for pooling of
interests accounting treatment under generally accepted accounting principles if
closed and consummated in accordance with the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Younkers' management and Board of Directors have
interests in the Merger in addition to their interests solely as stockholders of
Younkers. Each of W. Thomas Gould, Chairman and Chief Executive Officer of
Younkers, and Robert M. Mosco, President and Chief Operating Officer of
Younkers, has entered into an Employment Agreement with Proffitt's dated as of
October 22, 1995 (each, an "Employment Agreement" and together, the "Employment
Agreements"). Pursuant to the Employment Agreements, as of the Effective Time
Mr. Gould will serve as Vice Chairman of Proffitt's and Chairman of the Younkers
Division, and Mr. Mosco will serve as President and Chief Executive Officer of
the Younkers Division. Mr. Gould's Employment Agreement also provides that
Proffitt's will appoint Mr. Gould to the Boards of Directors of each of
Proffitt's and the Younkers Division to serve until the next annual meeting of
each respective company. During the five-year term of Mr. Gould's Employment
Agreement Proffitt's will also use its best efforts to cause Mr. Gould to be
nominated for reelection to the Boards of Directors of Proffitt's and the
Younkers Division.
Mr. Gould's Employment Agreement has a five year term and provides that Mr.
Gould will be paid a minimum annual base salary of $750,000 and be eligible to
participate, in the sole discretion of Proffitt's Compensation Committee, in
Proffitt's bonus and other similar incentive plans for senior management of
Proffitt's. Mr. Gould's Employment Agreement also provides for the grant to Mr.
Gould on the Effective Date of options to purchase 100,000 shares of Proffitt's
Common Stock pursuant to Proffitt's 1994 Long-Term Incentive Plan, unless
Proffitt's and Mr. Gould agree to an alternative arrangement to compensate Mr.
Gould. Each of Proffitt's and Mr. Gould may terminate Mr. Gould's Employment
Agreement prior to its expiration upon thirty days' prior written notice;
provided, however, that such notice may not be provided for at least one year
from the Effective Time. If Mr. Gould's employment with Proffitt's terminates
before expiration of the Employment Agreement other than by Proffitt's upon a
conviction of Mr. Gould of certain felonies, Proffitt's will continue to pay Mr.
Gould his annual salary and continue to provide Mr. Gould with medical and life
insurance coverage during the remaining term of the Employment Agreement. In the
event Mr. Gould's payments are subject to an excise tax under Section 4999 of
the Internal Revenue Code (the "Code"), he will receive a reimbursement payment
to offset such tax. Mr. Gould's rights under his current employment agreement
and severance agreement terminate when the Employment Agreement becomes
effective.
Mr. Mosco's Employment Agreement has a three year term and provides that Mr.
Mosco will be paid a minimum annual base salary of $450,000 and be eligible to
participate in Proffitt's bonus and other similar incentive plans for senior
management of Proffitt's. Mr. Mosco's Employment Agreement also provides for the
grant to Mr. Mosco on the Effective Date of options to purchase 50,000 shares of
Proffitt's Common Stock pursuant to Proffitt's 1994 Long-Term Incentive Plan.
Proffitt's may terminate Mr. Mosco's employment for Cause (as defined in the
Employment Agreement) or without Cause. If Proffitt's terminates Mr. Mosco's
employment other than for Cause or as a result of his death or
41
<PAGE>
disability, or Mr. Mosco terminates his employment for Good Reason (as defined
in the Employment Agreement), Proffitt's will pay Mr. Mosco a lump-sum severance
payment in an amount equal to (i) salary through the date of termination and pro
rata bonus for the then-current year (based upon the his three-year average
bonus or 50% of his target bonus for the then-current year), (ii) three times
Mr. Mosco's highest annual salary in effect during the 12-month period prior to
termination and three times the greater of Mr. Mosco's average bonus in respect
of the three immediately preceding fiscal years or 50% of target bonus, (iii)
any unvested benefit under Younkers' defined benefit pension plan, and (iv) any
unvested employer contributions under Younkers' defined contribution plan.
Proffitt's will also continue to provide Mr. Mosco with medical and life
insurance coverage for a period of three years. Mr. Mosco's payments are limited
to avoid imposition of excise tax under Section 4999 of the Code. Mr. Mosco's
rights under his current employment agreement and severance agreement terminate
when the Employment Agreement becomes effective.
Younkers has Control Severance Agreements ("Severance Agreements") with ten
executive officers (excluding those of Messrs. Gould and Mosco which will
terminate when the Employment Agreements become effective at the Effective
Time). The Severance Agreements for the ten executive officers other than
Messrs. Gould and Mosco provide for the following benefits if employment is
terminated by Younkers without "Cause" (as defined in the Severance Agreement)
or by the employees for "Good Reason" (as described below) during the two-year
period following a "Change in Control" of Younkers (as described below): (i) a
lump sum cash amount equal to the sum of (x) a bonus payment in an amount at
least equal to the greatest of (A) the average bonus paid or payable to the
employee in respect of the three fiscal years immediately preceding the fiscal
year in which the Change in Control occurs, (B) 50% of the employee's target
bonus for the fiscal year in which the Change in Control occurs, or (C) 50% of
the employee's target bonus for the fiscal year in which his date of termination
occurs (the greatest of (A), (B), and (C) is hereafter the "Bonus Payment")
multiplied by (D) a fraction, the numerator of which is the number of days in
the fiscal year in which the employee's employment terminates through his date
of termination, and the denominator of which is 365 or 366, plus (y) any
compensation previously deferred (other than pursuant to a tax-qualified plan)
and any accrued vacation pay, to the extent unpaid; (ii) a lump sum cash amount
equal to the sum of (x) two times the employee's highest annual base salary
during the twelve-month period preceding the date of termination, plus (y) two
times the Bonus Payment; (iii) a lump sum cash amount equal to the actuarial
equivalent, determined as of the date of termination, of any unvested accrued
benefit under Younkers' defined benefit pension plan ("Pension Plan"); (iv) a
lump sum cash amount equal to the value of any unvested portion of employer
contributions made on behalf of the employee to any defined contribution plan of
Younkers; and (v) two years of continued coverage under the Younkers' medical,
accident, disability, and life insurance plans, provided that all payments are
limited such that no payments would be subject to the imposition of any excise
tax under Section 4999 of the Code. The payments set forth in clauses (i) and
(ii) above would be paid in lieu of any other severance payments with respect to
salary and bonus compensation to be paid under other employment agreements or
severance agreements or plans of Younkers. The employee would also be reimbursed
for all legal fees and expenses incurred with respect to any disputes arising in
connection with his Severance Agreement.
Under the Severance Agreements, the executives cannot voluntarily terminate
employment (without Good Reason) during the period of an attempted Change in
Control or the ninety-day period following a Change in Control. In the event
that prior to a Change in Control, an executive is terminated without Cause at
the request of a third party who has indicated an intention or taken steps
reasonably calculated to effectuate a Change in Control (and subsequently
effectuates a Change in Control) or Good Reason occurs prior to a Change in
Control at the request of such a third party, the executive would receive
payments under his or her Severance Agreement as if such events had occurred
following a Change in Control.
A Change in Control is defined in the Severance Agreements as generally: (i)
the acquisition of 25% or more of the outstanding Common Stock or voting
securities of Younkers by any person or group
42
<PAGE>
(other than Younkers, an employee benefit plan sponsored or maintained by
Younkers or any corporation controlled by Younkers, any corporation pursuant to
a reorganization, merger or consolidation involving Younkers in which the
conditions listed in subclauses (A), (B) and (C) in clause (iii) below apply, or
the executive); (ii) a change in the majority of the Board (other than changes
approved by a majority of the members of the incumbent Board as of the date of
the Severance Agreement); (iii) stockholder approval of a reorganization, merger
or consolidation of the Younkers (unless immediately after such transaction, (A)
the Younkers' stockholders continue to own both more than 50% of the outstanding
Common Stock and more than 50% of the outstanding voting securities of Younkers,
(B) after the reorganization, merger or consolidation, no person (other than
Younkers, an employee benefit plan sponsored or maintained by Younkers or any
corporation controlled by Younkers, or any person who beneficially owned 25% or
more of the outstanding Common Stock or voting securities of the Younkers
immediately prior to the reorganization, merger or consolidation) beneficially
owns either 25% or more of the outstanding Common Stock or 25% or more of the
outstanding voting securities of the resulting corporation, and (C) a majority
of the Board of Directors has not changed); or (iv) stockholder approval of a
plan of complete liquidation or dissolution of Younkers, or the sale or other
disposition of all or substantially all of the assets of Younkers (other than
pursuant to a transaction with respect to which the conditions listed in
subclauses (A), (B) and (C) in clause (iii) above apply).
For purposes of the Severance Agreements, "Good Reason" means generally a
material adverse change in position, duties, responsibilities, title, offices or
status, failure to be re-elected to any position held immediately prior to the
Change in Control, a reduction in base salary, a relocation of the employee or
substantially more burdensome travel requirements, a reduction in or failure to
maintain any employee benefit or compensation plan (without the substitution of
a comparable plan) or a failure of Younkers to require a successor to assume the
Severance Agreement. If all ten (10) executives were terminated following the
Merger, approximately $4.5 million would be payable to such executives in the
aggregate.
Younkers also has a Severance Plan under which vice presidents and
divisional vice presidents would receive twelve months salary and directors,
buyers, certain persons in information services and certain store managers would
receive six months salary (plus incidental benefits in both cases) following a
termination without Cause or a termination by the employee for Good Reason
within two years after a Change in Control.
NASDAQ NATIONAL MARKET SYSTEM LISTING
It is a condition to the parties' obligations under the Merger Agreement
that the shares of Proffitt's Common Stock issuable pursuant to the Merger
Agreement shall have been approved for listing on the NASDAQ National Market
System, subject to official notice of issuance.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement,
which appears as Appendix I to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. The following summary includes the material
terms of such agreement but is not necessarily complete and is qualified in its
entirety by reference to the Merger Agreement.
TERMS OF THE MERGER
The Merger Agreement provides that, upon the terms and subject to the
conditions contained therein, including the approval of the Merger Agreement,
the Stock Issuance and the Incentive Plan Amendment (collectively, the
"Proffitt's Stockholders' Approvals") by the holders of Proffitt's Common Stock
and adoption of the Merger Agreement by the holders of Younkers Common Stock,
Sub will be merged with and into Younkers at the Effective Time, and Younkers
will continue as the surviving corporation.
43
<PAGE>
After the conditions precedent to the Merger have been fulfilled or waived
(where permissible), the filing of a duly executed Certificate of Merger will be
made with the Secretary of State of the State of Delaware and the Merger will
become effective at the Effective Time, which will occur upon the filing thereof
or such later time established by the Certificate of Merger (provided that such
later date is not more than 30 days after the Certificate of Merger is filed).
Pursuant to the Merger Agreement, as of the Effective Time, all shares of
Younkers Common Stock that are held in the treasury of Younkers or by any
wholly-owned subsidiary of Younkers, and any shares of Younkers Common Stock
owned by Proffitt's or by any wholly-owned subsidiary of Proffitt's will be
cancelled and no capital stock of Proffitt's or other consideration will be
delivered in exchange therefor; provided, however, that shares of Younkers
Common Stock held in treasury to fund the deferred compensation plans of W.
Thomas Gould and Robert M. Mosco (the "Deferred Comp Shares") will be converted
into the right to receive on the same terms and conditions as provided in such
plans authorized but unissued shares of Proffitt's Common Stock calculated by
multiplying the Conversion Number times the number of Deferred Comp Shares.
Each issued and outstanding share of common stock of Sub, par value $.01 per
share, will be converted into one validly issued, fully paid and nonassessable
share of common stock of the surviving corporation.
Subject to the terms and conditions of the Merger Agreement, each share of
Younkers Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be cancelled) will be converted into 0.98 validly
issued, fully paid and nonassessable shares of Proffitt's Common Stock. All such
shares of Younkers Common Stock, when so converted, will no longer be
outstanding and will automatically be cancelled and retired, and each holder of
a Certificate representing any such shares will cease to have any rights with
respect thereto, except the right to receive certain dividends and other
distributions, certificates representing the shares of Proffitt's Common Stock
into which such shares are converted and any cash, without interest, in lieu of
fractional shares to be issued or paid in consideration therefor upon the
surrender of such Certificate.
In the event of any reclassification, stock split or stock dividend with
respect to Proffitt's Common Stock, any change or conversion of Proffitt's
Common Stock into other securities or any other dividend or distribution with
respect to Proffitt's Common Stock other than normal quarterly cash dividends as
the same may be adjusted from time to time pursuant to the terms of the Merger
Agreement (or if a record date with respect to any of the foregoing should
occur) prior to the Effective Time or any issuance of securities (other than
rights pursuant to Proffitt's Rights Plan (as defined below) or Younkers Rights
Plan, appropriate and proportionate adjustments, if any, will be made to the
Conversion Number, and all references to the Conversion Number in the Merger
Agreement will be deemed to be to the Conversion Number as so adjusted.
SURRENDER AND PAYMENT
Proffitt's has authorized Union Planters National Bank to act as Exchange
Agent. As soon as practicable after the Effective Time, Proffitt's will deposit
with the Exchange Agent, in trust for the holders of shares of Younkers Common
Stock converted in the Merger, certificates representing the shares of
Proffitt's Common Stock issuable pursuant to the Merger Agreement in exchange
for outstanding shares of Younkers Common Stock and cash, as required to make
payments in lieu of any fractional shares (such cash and shares of Proffitt's
Common Stock, together with any dividends or distributions with respect thereto,
being the "Exchange Fund"). The Exchange Agent will deliver the Proffitt's
Common Stock issuable pursuant to the Merger Agreement out of the Exchange Fund.
As soon as practicable after the Effective Time, Proffitt's will cause the
Exchange Agent to mail to each record holder of a Certificate or Certificates
which immediately prior to the Effective Time represented outstanding shares of
Younkers Common Stock converted in the Merger a letter of transmittal (which
will be in customary form, will specify that delivery will be effected, and risk
of loss
44
<PAGE>
and title to the Certificates will pass only upon actual delivery of the
Certificates to the Exchange Agent, and will contain instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Proffitt's Common Stock and cash in lieu of fractional
shares). Upon surrender for cancellation to the Exchange Agent of a Certificate,
together with such duly executed letter of transmittal, the holder of such
Certificate will be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Proffitt's Common Stock into which
the shares represented by the surrendered Certificate will have been converted
at the Effective Time, cash in lieu of any fractional shares, and certain
dividends and other distributions in accordance with the Merger Agreement, and
any Certificate so surrendered will forthwith be cancelled.
All shares of Proffitt's Common Stock issued upon the surrender for exchange
of Certificates in accordance with the terms of the Merger Agreement (including
any cash paid pursuant to the Merger Agreement) will be deemed to have been
issued in full satisfaction of all rights pertaining to the shares of Younkers
Common Stock represented by such Certificates.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Proffitt's Common
Stock will be issued upon the surrender for exchange of Certificates, and no
Proffitt's dividend or other distribution or stock split will relate to any
fractional share, and no fractional share will entitle the owner thereof to vote
or to any other rights of a security holder of Proffitt's. In lieu of any such
fractional share, each holder of Younkers Common Stock who would otherwise have
been entitled to a fraction of a share of Proffitt's Common Stock upon surrender
of Certificates for exchange will receive cash (without interest) in an amount
equal to the product of such fractional part of a share of Proffitt's Common
Stock multiplied by the per share closing price on the NASDAQ National Market
System of Proffitt's Common Stock on the date of the Effective Time (or, if the
shares of Proffitt's Common Stock do not trade on the NASDAQ National Market
System on such date, the first date of trading of the Proffitt's Common Stock on
the NASDAQ National Market System after the Effective Time).
CONDITIONS TO THE MERGER
The respective obligations of Proffitt's, Younkers and Sub to effect the
Merger will be subject to the fulfillment of certain conditions at or prior to
the Effective Time, including: (a) adoption of the Merger Agreement by the
requisite vote of stockholders of Younkers, and the obtaining of the Proffitt's
Stockholders Approvals by the requisite vote of the stockholders of Proffitt's;
(b) the authorization for listing on the NASDAQ National Market System subject
to official notice of issuance, of the shares of Proffitt's Common Stock
issuable in the Merger and upon exercise of Younkers stock options; (c)
expiration or termination of the waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act; (d) all
authorizations, consents, orders, declarations or approvals of, or filings with,
or terminations or expirations of waiting periods imposed by, any governmental
entity, which the failure to obtain, make or occur would have the effect of
making the Merger or any of the transactions contemplated by the Merger
Agreement illegal or would have a material adverse effect on Proffitt's
(assuming the Merger had taken place), will have been obtained, will have been
made or will have occurred; (e) receipt, by Proffitt's, of an opinion dated as
of the Effective Time of Coopers & Lybrand L.L.P., that the Merger will qualify
for pooling of interests accounting treatment under generally accepted
accounting principles if closed and consummated in accordance with the Merger
Agreement; (f) no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceedings for that
purpose shall have been initiated or, to the knowledge of Proffitt's or
Younkers, threatened by the Commission; (g) no court or other governmental
entity having jurisdiction over Younkers or Proffitt's, or any of their
respective subsidiaries, shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or other
order which is then in effect and has the effect of making the Merger or any of
the transactions contemplated by the Merger Agreement illegal and (h) the
45
<PAGE>
Employment Agreements shall have remained in full force and effect without
breach thereof. See "THE MERGER--Governmental and Regulatory Approvals."
The obligations of Younkers to effect the Merger are also subject to the
satisfaction of certain conditions at or prior to the Effective Time, including:
(a) each of the representations and warranties of Proffitt's and Sub in the
Merger Agreement that is qualified by materiality shall be true and correct on
and as of the Effective Time as if made on and as of the Effective Time (except
to the extent they relate to a particular date), and each of the representations
and warranties of Proffitt's and Sub that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of the Effective Time (except to the extent they relate to a particular
date) and each of Proffitt's and Sub shall have performed in all material
respects each of its agreements contained in the Merger Agreement required to be
performed on or prior to the Effective Time, except as contemplated or permitted
by the Merger Agreement; and Younkers shall have received from Proffitt's and
Sub a certificate to that effect; (b) Younkers shall have received an opinion of
Barnes & Thornburg, counsel to Proffitt's, to the effect that the Proffitt's
Common Stock issued in the Merger is duly authorized, validly issued and
nonassessable; and (c) Younkers shall have received an opinion of Sullivan &
Cromwell relating to certain tax matters. See "THE MERGER-- Certain Federal
Income Tax Consequences."
The obligations of Proffitt's and Sub to effect the Merger are subject to
the satisfaction of certain conditions at or prior to the Effective Time,
including: (a) each of the representations and warranties of Younkers in the
Merger Agreement that is qualified by materiality shall be true and correct on
and as of the Effective Time as if made on and as of the Effective Time (except
to the extent they relate to a particular date), and each of the representations
and warranties of Younkers (except as specified) that is not so qualified shall
be true and correct in all material respects on and as of the Effective Time as
if made on and as of the Effective Time (except to the extent they relate to a
particular date) and Younkers shall have performed in all material respects each
of its agreements contained in the Merger Agreement required to be performed on
or prior to the Effective Time, except as contemplated or permitted by the
Merger Agreement; and Proffitt's shall have received from Younkers a certificate
to that effect; and (b) there shall not be instituted or pending any suit,
action or proceeding as a result of the Merger Agreement or any of the
transactions contemplated therein which, in the opinion of Barnes & Thornburg,
would have a material adverse effect on Proffitt's (assuming that the Merger had
occurred).
Certain of the foregoing conditions may not be waived by the parties,
including stockholder approvals, the effectiveness of the Registration Statement
and the absence of any order or legal restraint. Although the receipt of the
accounting opinion of Coopers & Lybrand L.L.P. and the tax opinion of Younkers'
counsel may be waived by the parties, Proffitt's and Younkers do not intend to
consummate the Merger in the event either of such opinions are not or cannot be
delivered.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
Proffitt's and Sub, including, among other things; (a) that the documents filed
by Proffitt's with the Commission since January 1, 1993 did not contain any
material misstatements or omissions at the time they were filed; (b) that the
information supplied by Proffitt's and Sub to be included herein and in the
Registration Statement in connection with the Merger will be free from material
misstatements and omissions; (c) that there has been no material adverse change
with respect to Proffitt's since January 28, 1995 except as disclosed in its
documents filed with the Commission prior to the date of the Merger Agreement;
(d) as to governmental licenses and permits, and compliance with laws; (e) as to
compliance with relevant tax laws; (f) with respect to actions and proceedings
pending against or involving Proffitt's; (g) as to employee benefit plans and
labor matters; (h) as to compliance with worker safety laws and environmental
laws; (i) as to intellectual property; (j) as to actions taken or not taken that
would jeopardize the contemplated tax and accounting treatment of the Merger;
(k) as to certain liabilities; (l) as to the receipt of a fairness opinion from
Smith Barney and (m) as to brokers. In addition, the Merger
46
<PAGE>
Agreement contains representations and warranties by each of Proffitt's and Sub
as to, among other things, its organization, capital structure, authority to
enter into the Merger Agreement and the binding effect of the Merger Agreement.
The Merger Agreement also contains similar customary representations and
warranties of Younkers, as well as additional representations and warranties,
including, among other things: (a) as to the receipt of a fairness opinion from
Goldman Sachs; and (b) that the Board of Directors has taken all action
necessary to exempt Younkers, its subsidiaries and affiliates, the Merger, the
Merger Agreement and the transactions contemplated thereby from certain state
takeover statutes.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Proffitt's and Younkers has agreed
that, during the period from the date of the Merger Agreement through the
Effective Time (except as otherwise expressly permitted by the terms of the
Merger Agreement), it will, and it will cause its respective subsidiaries to, in
all material respects, carry on their respective businesses in the ordinary
course as conducted as of the date of the Merger Agreement and, to the extent
consistent therewith, use reasonable best efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with them to the end that their
goodwill and ongoing businesses will be unimpaired at the Effective Time.
Actions by Proffitt's. Without limiting the generality of the foregoing, and
except as otherwise expressly contemplated by the Merger Agreement, Proffitt's
will not, and will not permit any of its subsidiaries to, without the prior
written consent of Younkers: (a) (1) declare, set aside or pay any dividends on,
or make any other distributions in respect of, any of its capital stock, or
otherwise make any payments to its stockholders in their capacity as such (other
than (A) regular semi-annual dividends of not more than $1.625 per share on
Proffitt's Series A Preferred Stock declared and paid on dates consistent with
past practice, and (B) dividends and other distributions by subsidiaries), (2)
other than in the case of any subsidiary, split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or (3)
subject to the limitations of the Merger Agreement, purchase, redeem or
otherwise acquire any shares of capital stock of Proffitt's or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; (b) issue, deliver, sell,
pledge, dispose of or otherwise encumber any shares of its capital stock, any
other voting securities or equity equivalent or any securities convertible into,
or any rights, warrants or options to acquire any such shares, voting
securities, equity equivalent or convertible securities, other than (1) the
issuance of stock options and shares of Proffitt's Common Stock to employees of
Proffitt's in the ordinary course of business consistent with past practice; (2)
the issuance of Proffitt's securities pursuant to the Rights Agreement dated
March 28, 1995 between Proffitt's and Union Planters National Bank (the
"Proffitt's Rights Agreement"); and (3) the issuance by any wholly-owned
subsidiary of Proffitt's of its capital stock to Proffitt's or another
wholly-owned subsidiary of Proffitt's; (c) amend its Charter or By-laws, other
than to increase its authorized capital stock; (d) acquire or agree to acquire
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets, unless (1) the entering into a definitive agreement relating to or the
consummation of such acquisition would not (A) impose any material delay in the
obtaining of, or significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any governmental
entity necessary to consummate the Merger or the expiration or termination of
any applicable waiting period, (B) significantly increase the risk of any
governmental entity entering an order prohibiting the consummation of the Merger
or (C) significantly increase the risk of not being able to remove any such
order on appeal or otherwise, and (2) in the case of any individual acquisition,
merger, consolidation or purchase, the equity value of which does not exceed $50
million; (e) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its
47
<PAGE>
assets, other than (1) transactions in the ordinary course of business
consistent with past practice and not material to Proffitt's and its
subsidiaries taken as a whole, (2) as may be required by any governmental
entity, or (3) subject to the terms of the Merger Agreement, dispositions
involving an aggregate consideration not in excess of $50 million; (f) incur any
indebtedness for borrowed money, guarantee any such indebtedness or make any
loans, advances or capital contributions to, or other investments in, any other
person, other than (1) in the ordinary course of business consistent with past
practice, and (2) indebtedness, loans, advances, capital contributions and
investments between Proffitt's and any of its wholly-owned subsidiaries or
between any of such wholly-owned subsidiaries; (g) knowingly violate or
knowingly fail to perform any material obligation or duty imposed upon it or any
subsidiary by any applicable material federal, state or local law, rule,
regulation, guideline or ordinance; (h) take any action, other than reasonable
and usual actions in the ordinary course of business consistent with past
practice, with respect to accounting policies or procedures (other than actions
required to be taken by generally accepted accounting principles); or (i)
authorize, recommend or announce an intention to do any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing.
Actions by Younkers. Without limiting the generality of the foregoing, and
except as otherwise expressly contemplated by the Merger Agreement, Younkers
will not, and will not permit any of its subsidiaries to, without the prior
written consent of Proffitt's: (a)(1) declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital stock, or
otherwise make any payments to its stockholders in their capacity as such, (2)
other than in the case of any subsidiary, split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(3) purchase, redeem or otherwise acquire any shares of capital stock of
Younkers or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities; (b) issue, deliver, sell, pledge,
dispose of or otherwise encumber any shares of its capital stock, any other
voting securities or equity equivalent or any securities convertible into, or
any rights, warrants or options to acquire any such shares, voting securities,
equity equivalent or convertible securities, other than (1) the issuance of
shares of Younkers Common Stock upon the exercise of Younkers stock options
outstanding on the date of the Merger Agreement in accordance with their then
current terms, and (2) the issuance of Younkers securities pursuant to the
Younkers Rights Plan; (c) amend its Charter or By-laws; (d) acquire or agree to
acquire any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets other than transactions that are in the ordinary course of
business consistent with past practice and that are not material; (e) sell,
lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of,
any of its assets, except for (1) transactions in the ordinary course of
business consistent with past practice and not material to Younkers taken as a
whole, and (2) as may be required by any governmental entity; (f) incur any
indebtedness for borrowed money, guarantee any such indebtedness or make any
loans, advances or capital contributions to, or other investments in, any other
person, other than (1) in the ordinary course of business consistent with past
practices, and (2) indebtedness, loans, advances, capital contributions and
investments between Younkers and any of its wholly owned subsidiaries or between
any of such wholly owned subsidiaries; (g) alter the corporate structure or
ownership of Younkers or any subsidiary; (h) enter into or adopt, or amend any
existing, severance plan, agreement or arrangement or enter into or amend any
Younkers benefit plan or employment or consulting agreement other than as
required by law; (i) increase the compensation payable or to become payable to
its officers or employees, except for increases in the ordinary course of
business consistent with past practice in salaries or wages of employees of
Younkers or any of its subsidiaries who are not officers of Younkers or any of
its subsidiaries, or grant any severance or termination pay to, or enter into
any employment or severance agreement with, any director or officer of Younkers
or any of its subsidiaries, or establish, adopt, enter into, or, except as may
be required to comply with applicable law, amend or take action to enhance or
accelerate any rights or benefits under, any plan or arrangement for the benefit
of any director, officer or employee; (j) knowingly violate or knowingly fail to
perform any material obligation or duty imposed
48
<PAGE>
upon it or any subsidiary by any applicable material federal, state or local
law, rule, regulation, guideline or ordinance; (k) take any action, other than
reasonable and usual actions in the ordinary course of business consistent with
past practice, with respect to accounting policies or procedures (other than
actions required to be taken by generally accepted accounting principles); (l)
make any tax election or settle or compromise any material federal, state, local
or foreign income tax liability; or (m) authorize, recommend, propose or
announce an intention to do any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
YOUNKERS STOCK OPTIONS
At the Effective Time, each Younkers stock option will be assumed by
Proffitt's. All references to Younkers in the Younkers stock option plans, the
applicable stock option or other awards agreements issued thereunder and in any
other Younkers stock options will be deemed to refer to Proffitt's. Each
Younkers stock option will be converted into a stock option to purchase a number
of shares of Proffitt's Common Stock equal to the number of shares of Younkers
Common Stock that could have been purchased under such Younkers stock option
multiplied by the Conversion Number, at an exercise price per share of
Proffitt's Common Stock equal to the per share option exercise price specified
in the Younkers stock option divided by the Conversion Number. Pursuant to their
original terms, all Younkers stock options will become fully vested as of the
Effective Time.
COMPOSITION OF PROFFITT'S BOARD OF DIRECTORS POST-MERGER
The Merger Agreement provides that at the Effective Time Proffitt's will
cause the four members of Younkers' current Executive Committee (W. Thomas
Gould, Gerard K. Donnelly, G. David Hurd and Donald F. Dunn) to be appointed to
Proffitt's Board of Directors to serve until the next regularly scheduled
meeting of Proffitt's stockholders. The Merger Agreement further provides that
for the three annual meetings of Proffitt's stockholders after the Effective
Time, Proffitt's will use its reasonable best efforts to cause three or more
members of Younkers' Executive Committee to be nominated for election to
Proffitt's Board of Directors, subject to all fiduciary obligations imposed on
Proffitt's under applicable law.
NO SOLICITATION
Pursuant to the Merger Agreement, from and after the date of the Merger
Agreement, neither Proffitt's nor Younkers will, and each will use its best
efforts to cause any of its officers, directors, employees, attorneys, financial
advisors, agents or other representatives or those of any of its subsidiaries
not to, directly or indirectly, solicit, initiate or encourage (including by way
of furnishing information) any Takeover Proposal (as defined below) or offer
from any person, or engage in or continue discussions or negotiations relating
thereto; provided, however, that either Proffitt's or Younkers may engage in
discussions or negotiations with, or furnish information concerning itself and
its subsidiaries, business, properties or assets to, any third party which makes
a Takeover Proposal if the Board of Directors of either Proffitt's or Younkers
concludes in good faith on the basis of the advice of its outside counsel that
the failure to take such action would violate the fiduciary obligations of such
Board under applicable law. Each of Proffitt's and Younkers will promptly (but
in no case later than 24 hours) notify the other of any Takeover Proposal,
including the material terms and conditions thereof. As used in the Merger
Agreement, "Takeover Proposal" means any proposal or offer, or any expression of
interest by any third party relating to Proffitt's or Younkers' willingness or
ability to receive or discuss a proposal or offer, other than a proposal or
offer by Proffitt's or any of its subsidiaries or as permitted under the Merger
Agreement, for a tender or exchange offer, a merger, consolidation or other
business combination involving either Proffitt's or Younkers or any of their
respective subsidiaries or any proposal to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, either Proffitt's
or Younkers or any of their respective subsidiaries.
49
<PAGE>
During the period from the date of the Merger Agreement through the
Effective Time, Younkers will not terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement to which Younkers or
any of its subsidiaries is a party (other than any involving Proffitt's), unless
the Board of Directors of Younkers concludes in good faith on the basis of the
advice of its outside counsel that the failure to do so would violate the
fiduciary obligations of the Board.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
The Merger Agreement provides that for three years from and after the
Effective Time, Proffitt's agrees to, and to cause the surviving corporation to,
indemnify and hold harmless all past and present officers and directors of
Younkers and of its subsidiaries to the full extent such persons may be
indemnified as of the date of the Merger Agreement by Younkers pursuant to
Younkers' Restated Certificate of Incorporation and By-laws and indemnification
agreements in existence on the date of the Merger Agreement with any officers
and directors of Younkers and its subsidiaries for acts or omissions occurring
at or prior to the Effective Time; provided, however, that Proffitt's agrees to,
and to cause the surviving corporation to, indemnify and hold harmless such
persons to the fullest extent permitted by law for acts or omissions occurring
in connection with the approval of the Merger Agreement and the consummation of
the transactions contemplated thereby. In addition, Proffitt's will cause the
surviving corporation to provide, for an aggregate period of not less than two
years from the Effective Time, Younkers' current directors and officers with an
insurance and indemnification policy that provides coverage for events occurring
at or prior to the Effective Time that is no less favorable than Younkers'
existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, the surviving
corporation will not be required to pay an annual premium for such insurance in
excess of 200 percent of the last annual premium paid prior to the date of the
Merger Agreement.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any approval of the matters presented in
connection with the Merger by the stockholders of Younkers or Proffitt's: (a) by
mutual written consent of Younkers and Proffitt's; (b) by either Proffitt's or
Younkers if the other party shall have failed to comply in any material respect
with any of its covenants or agreements contained in the Merger Agreement
required to be complied with prior to the date of such termination, which
failure to comply has not been cured within five business days following receipt
by such other party of written notice of such failure to comply; provided,
however, that if any such breach is curable by the breaching party through the
exercise of the breaching party's best efforts and for so long as the breaching
party shall be so using its best efforts to cure such breach, the non-breaching
party may not terminate the Merger Agreement pursuant to this clause; (c) by
either Proffitt's or Younkers if there has been (1) a breach by the other party
(in the case of Proffitt's, including any material breach by Sub) of any
representation or warranty that is not qualified as to materiality which has the
effect of making such representation or warranty not true and correct in all
material respects, or (2) a breach by the other party (in the case of
Proffitt's, including any material breach by Sub) of any representation or
warranty that is qualified as to materiality, which breach in either (c)(1) or
(c)(2) has not been cured within five business days following receipt by the
breaching party of written notice of the breach; provided, however, that if any
such breach is curable by the breaching party through the exercise of the
breaching party's best efforts and for so long as the breaching party shall be
so using its best efforts to cure such breach, the non-breaching party may not
terminate the Merger Agreement pursuant to this clause; (d) by Proffitt's or
Younkers if the Merger has not been effected on or prior to the close of
business on June 30, 1996 (the "Termination Date"); provided, however, that the
right to terminate the Merger Agreement pursuant to this clause will not be
available to any party whose failure to fulfill any of its obligations contained
in the Merger Agreement has been the cause of, or resulted in, the failure of
the Merger to have occurred on or prior to the aforesaid date; (e) by Proffitt's
or Younkers if the stockholders of Younkers do not adopt the Merger
50
<PAGE>
Agreement at the Younkers Special Meeting; (f) by Proffitt's or Younkers if the
Proffitt's Stockholders Approvals are not obtained at the Proffitt's Special
Meeting; (g) by Proffitt's or Younkers if the Board of Directors of Younkers
reasonably determines that a Takeover Proposal constitutes a Superior Proposal
(as defined below); provided, however, that Younkers may not terminate the
Merger Agreement pursuant to this clause unless and until three business days
have elapsed following delivery to Proffitt's of a written notice of such
determination by the Board of Directors of Younkers, which notice shall inform
Proffitt's of the material terms and conditions of the Takeover Proposal but
need not identify the identity of such third party; (h) by Proffitt's if (1) the
Board of Directors of Younkers has not recommended, or has resolved not to
recommend, or has modified or withdrawn its recommendation of adoption of the
Merger Agreement or declaration that the Merger is advisable and fair to and in
the best interest of Younkers and its stockholders, or has resolved to do so,
(2) the Board of Directors of Younkers has recommended to the stockholders of
the Younkers any Takeover Proposal or has resolved to do so, or (3) a tender
offer or exchange offer for 30% or more of the outstanding shares of capital
stock of Younkers is commenced, and, after ten business days, the Board of
Directors of Younkers fails to recommend against acceptance of such tender offer
or exchange offer by its stockholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
stockholders); (i) by Younkers if (1) the Board of Directors of Proffitt's has
not recommended, or has modified or withdrawn its recommendation of the
Proffitt's Stockholders Approvals or declaration that the Merger is advisable
and fair to and in the best interests of Proffitt's and its stockholders, or has
resolved to do so, (2) the event referred to in clause (D) of the definition of
Proffitt's Third Party Acquisition Event below (the "Younkers Clause D Event")
has occurred, or (3) an offer of the type described in clause (C) of the
definition of Proffitt's Third Party Acquisition Event below is commenced, and,
after ten business days, the Board of Directors of Proffitt's fails to recommend
against acceptance of such offer by its stockholders (including by taking no
position with respect to the acceptance of such offer by its stockholders).
"Superior Proposal" means a bona fide proposal or offer made by a third
party to acquire Younkers pursuant to a tender or exchange offer, a merger,
consolidation or other business combination or a sale of all or substantially
all of the assets of Younkers on terms which a majority of the members of the
Board of Directors of Younkers determines in its good faith reasonable judgment
(based on the advice of independent financial advisors) to be more favorable to
Younkers and to its stockholders than the transactions contemplated by the
Merger Agreement, provided that in making such determination the Board considers
the likelihood that such third party is able to consummate such proposed
transaction.
FEES AND EXPENSES
Regardless of whether the Merger is consummated, except as described below
upon certain events of termination of the Merger Agreement and with respect to
certain real estate transfer and gains taxes, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs and expenses; provided that all
printing expenses and filing fees shall be divided equally between Proffitt's
and Younkers.
Notwithstanding the foregoing, Younkers will pay to Proffitt's a fee of $6.0
million in cash (i) if any event referred to in clause (h) under "--Termination"
above occurs, the Merger Agreement is terminated thereafter by Younkers or
Proffitt's (whether or not pursuant to such clause) and prior to such
termination the stockholders of Younkers did not approve the Merger Agreement,
or (ii) if (A) the Merger Agreement is terminated by Younkers pursuant to clause
(d) under "--Termination" above, and within twelve months after such a
termination a Superior Younkers Acquisition Transaction (as hereinafter defined)
occurs; (B) (1) the Merger Agreement is terminated by Younkers or Proffitt's at
a time when Proffitt's is entitled to terminate the Merger Agreement pursuant to
clause (e) under "--Termination" above, (2) prior to the Younkers Special
Meeting but after the date of the Merger Agreement a Younkers Third Party
Acquisition Event (as hereinafter defined) has occurred and (3) by reason
thereof or otherwise a Younkers Clause D Event occurs after the date hereof but
prior to the first
51
<PAGE>
anniversary of such termination; (C) the Merger Agreement is terminated by
Younkers or Proffitt's pursuant to clause (g) under "--Termination" above; or
(D) the Merger Agreement is terminated by Proffitt's pursuant to clause (h)
under "--Termination" above, following the occurrence of a Younkers Third Party
Acquisition Event.
Notwithstanding the foregoing Proffitt's will pay to Younkers a fee of $6.0
million in cash (i) if any event referred to in Clause (i) under "--Termination"
above occurs, the Merger Agreement is terminated thereafter by Younkers or
Proffitt's (whether or not pursuant to such clause) and prior to such
termination the stockholders of Proffitt's did not approve the Merger Agreement;
(ii) if (A) the Merger Agreement is terminated by Younkers or Proffitt's when
Younkers is entitled to terminate the Merger Agreement pursuant to clause (f)
under "--Termination" above, (B) prior to the Proffitt's Special Meeting but
after the date of the Merger Agreement a Proffitt's Third Party Acquisition
Event has occurred and (C) by reason thereof or otherwise the event referred to
in clause (D) of the definition of Proffitt's Third Party Acquisition Event
occurs after the date of the Merger Agreement but prior to the first anniversary
of such termination, or (iii) if the Merger Agreement is terminated by Younkers
pursuant to clause (i) under "--Termination" above following the occurrence of a
Proffitt's Third Party Acquisition Event.
For purposes of the Merger Agreement, a "Younkers Third Party Acquisition
Event" means any of the following events: (A) any person, other than Proffitt's
or its affiliates, acquires or becomes the beneficial owner of 30% or more of
the outstanding shares of Younkers Common Stock; (B) any new group is formed
which, at the time of formation, beneficially owns 30% or more of the
outstanding shares of Younkers Common Stock, other than a group which includes
or may be reasonably deemed to include Proffitt's or its affiliates; (C) any
person, other than Proffitt's or its affiliates, has commenced a tender or
exchange offer for 30% or more of the then outstanding shares of Younkers Common
Stock or publicly proposed any bona fide merger, consolidation or acquisition of
all or substantially all the assets of Younkers or other similar business
combination involving Younkers; (D) Younkers enters into, or announces that it
proposes to enter into, an agreement, including, without limitation, an
agreement in principle, providing for a merger or other business combination
involving Younkers or the acquisition of a substantial interest in, or a
substantial portion of the assets, business or operations of, Younkers (other
than the transactions contemplated by the Merger Agreement); (E) any person,
other than Proffitt's or its affiliates, is granted an option or right to
acquire or otherwise become the beneficial owner of shares of Younkers Common
Stock which, together with all shares of Younkers Common Stock beneficially
owned by such person, results or would result in such person being the
beneficial owner of 30% or more of the outstanding shares of Younkers Common
Stock; or (F) there is a public announcement with respect to a plan or intention
by Younkers or any person, other than Proffitt's and its affiliates, to effect
any of the foregoing transactions. For the purposes of this Fees and Expenses
section, the terms "group" and "beneficial owner" are defined by reference to
Section 13(d) of the Exchange Act.
For purposes of the Merger Agreement, a "Proffitt's Third Party Acquisition
Event" means any of the following events: (A) any person acquires or becomes the
beneficial owner of 30% or more of the outstanding shares of Proffitt's Common
Stock (other than by reason of an issuance of shares of Proffitt's Common Stock
pursuant to the Merger Agreement); (B) any new group is formed which, at the
time of formation, beneficially owns 30% or more of the outstanding shares of
Proffitt's Common Stock (other than a group which includes or may be reasonably
deemed to include Proffitt's or any of its affiliates); (C) any person shall
have commenced a tender or exchange offer for 30% or more of the then
outstanding shares of Proffitt's Common Stock or publicly proposed any bona fide
merger, consolidation or acquisition of all or substantially all the assets of
Proffitt's, or other similar business combination involving Proffitt's; (D)
Proffitt's enters into, or announces that it proposes to enter into, an
agreement, including, without limitation, an agreement in principle, providing
for a merger or other business combination involving Proffitt's (other than the
Merger Agreement) or the acquisition of a substantial interest in, or a
substantial portion of the assets, business or operations of, Proffitt's; or (E)
there is a
52
<PAGE>
public announcement with respect to a plan or intention by any person to effect
any of the foregoing transactions.
For purposes of the Merger Agreement, a "Superior Younkers Acquisition
Transaction" means the event referred to in clause (D) of Younkers Third Party
Acquisition Event above, provided that the financial and other terms of the
transaction referred to therein are, when considered in the aggregate, more
favorable to the Younkers stockholders than the financial and other terms of the
Merger.
AMENDMENT
The Merger Agreement may be amended by the parties thereto, by or pursuant
to action taken by their respective Boards of Directors, at any time before or
after approval of the Merger Agreement and the transactions contemplated thereby
by the stockholders of Proffitt's and Younkers, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval.
WAIVER
The Merger Agreement provides that, at any time prior to the Effective Time,
the parties thereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties thereto, (b) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained therein which may legally be waived.
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Merger of Proffitt's and Younkers under the pooling of
interests method of accounting. These pro forma financial statements have been
prepared by the managements of Proffitt's and Younkers based upon their
respective consolidated financial statements, as well as available information
and certain assumptions which the managements believe are reasonable. Pro forma
combined per share amounts are based on the Conversion Number of 0.98 shares of
Proffitt's Common Stock for each share of Younkers Common Stock. The unaudited
pro forma condensed combined income statements, which include results of
operations as if the Merger had been consummated, do not reflect Merger expenses
anticipated to be incurred or the effects of potential increased revenues or
operating synergies and cost savings anticipated to result from the Merger.
These pro forma financial statements are presented for illustrative purposes
only, and therefore are not necessarily indicative of the operating results and
financial position that might have been achieved had the Merger occurred as of
an earlier date, nor are they necessarily indicative of operating results and
financial position which may occur in the future.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
notes thereto in the companies' separate Annual Reports on Form 10-K for the
year ended January 28, 1995 and Quarterly Reports on Form 10-Q for the periods
ended April 29, 1995, July 29, 1995 and October 28, 1995, incorporated by
reference herein. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
54
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED JANUARY 30, 1993
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
PRO FORMA
MERGER
PROFFITT'S YOUNKERS (1) ADJUSTMENTS
---------- ------------ -----------
<S> <C> <C> <C>
Net Sales.................................................. $ 128,262 $473,415 $ 601,677
Other expenses:
Cost of sales.............................................. 78,225 284,395 362,620
Selling, general, and administrative expenses.............. 31,834 127,086 158,920
Other operating expenses................................... 8,793 35,223 44,016
---------- ------------ -----------
Operating Income........................................... 9,410 26,711 36,121
Other income (expense):
Finance charge income...................................... 4,457 10,944 15,401
Interest expense........................................... (2,881) (6,564) (9,445)
Other income (expense), net................................ (109) (271) (380)
---------- ------------ -----------
Income before provision for income taxes and cumulative
effect of accounting change.............................. 10,877 30,820 41,697
Provision for income taxes................................. 4,130 11,437 15,567
---------- ------------ -----------
Net income before cumulative effect of accounting change... $ 6,747 $ 19,383 $ 26,130
---------- ------------ -----------
---------- ------------ -----------
Earnings per common share before cumulative effect of
change in accounting for postretirement benefits......... $ 1.02 $ 2.06
---------- ------------ -----------
---------- ------------ -----------
Weighted average common shares............................. 6,591 6,116(2) 12,707
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
See Notes to Pro Forma Condensed Combined Income Statements.
55
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED JANUARY 29, 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
PRO FORMA
PRO FORMA PROFFITT'S/ MACCO
MERGER YOUNKERS PURCHASE PRO FORMA
PROFFITT'S(5) YOUNKERS(1) ADJUSTMENTS(13) PRO FORMA MACCO (5) ADJUSTMENTS(5) TOTAL
------------- ----------- --------------- --------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales.................. $ 200,884 $ 597,895 $798,779 $ 418,781 $ 1,217,560
Other expenses:
Cost of sales............. 129,679 379,911 11,397(3) 520,987 265,254 786,241
Selling, general, and
administrative expenses.... 49,851 153,852 (11,675)(3) 192,028 101,377 293,405
Other operating
expenses................... 15,754 50,863 66,617 25,714 (161)(6) 94,603
------------- ----------- --------------- --------- ---------- ------ ------------
Operating Income 5,600 13,269 278 19,147 26,436 (2,272) 43,311
Other income (expense):
Finance charge income, net
of allocation to
purchaser of accounts
receivable................. 5,964 13,348 19,312 12,073 (2,354)(8) 29,031
Interest expense.......... (2,976) (6,269) (9,245 ) (7,104) (3,353)(9) (19,702)
Other income (expense),
net........................ 805 2,118 2,923 1,044 3,967
------------- ----------- --------------- --------- ---------- ------ ------------
Income before provision
for income taxes........ 9,393 22,466 278 32,137 32,449 (7,979) 56,607
Provision for income
taxes...................... 3,663 9,116 113(4) 12,892 12,817 (3,164)(10) 22,545
------------- ----------- --------------- --------- ---------- ------ ------------
Net income before
extraordinary loss and
cumulative effect of
changes in accounting
methods.................... 5,730 13,350 165 19,245 19,632 (4,815) 34,062
Preferred stock
dividends.................. 2,061(9) 2,061
------------- ----------- --------------- --------- ---------- ------ ------------
Net income before
extraordinary loss and
cumulative effect of
changes in accounting
methods after preferred
stock dividends............ $ 5,730 $ 13,350 $ 165 $ 19,245 $ 19,632 $ (6,876) $ 32,001
------------- ----------- --------------- --------- ---------- ------ ------------
------------- ----------- --------------- --------- ---------- ------ ------------
Earnings per common share
before extraordinary loss
and cumulative effect of
changes in accounting
methods.................... $ 0.62 $ 1.09 $ 1.76
------------- --------- ------------
------------- --------- ------------
Weighted average common
shares..................... 9,236 8,431(2) 17,667 523(11) 18,190
------------- --------------- --------- ------ ------------
------------- --------------- --------- ------ ------------
</TABLE>
56
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED JANUARY 28, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
MACCO PRO FORMA
PRO FORMA PROFFITT'S/ TWO MONTHS MACCO
MERGER YOUNKERS ENDED PURCHASE
PROFFITT'S(5) YOUNKERS(1) ADJUSTMENTS(13) PRO FORMA 03/31/94(5) ADJUSTMENTS(5)
------------- ----------- --------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales........................ $ 617,583 $ 599,135 $ 1,216,498 $ 63,042
Cost and expenses:
Cost of sales................... 400,805 385,791 8,957(3) 795,353 40,200
Selling, general, and
administrative expenses....... 145,560 148,312 (9,124)(3) 284,748 15,649
Other operating expenses........ 43,711 54,110 97,821 3,818 (21)(6)
408(7)
------------- ----------- ------ ----------- ----------- ------
Operating Income................ 27,487 10,922 167 38,576 3,375 (387)
Other income (expense):
Finance charge income, net of
allocation to purchaser of
accounts receivable........... 13,653 14,281 27,934 2,169 (411)(8)
Interest expense................ (15,655) (5,126) (20,781) (1,210) (729)(9)
Other income (expense), net...... 1,109 2,756 3,865 48
------------- ----------- ------ ----------- ----------- ------
Income before provision for
income taxes.................. 26,594 22,833 167 49,594 4,382 (1,527)
Provision for income taxes....... 10,466 9,316 68(4) 19,850 1,744 (585)(10)
------------- ----------- ------ ----------- ----------- ------
NET INCOME...................... 16,128 13,517 99 29,744 2,638 (942)
Preferred stock dividends........ 1,694 1,694 367(9)
------------- ----------- ------ ----------- ----------- ------
Net income available to common
stockholders..................... $ 14,434 $ 13,517 $ 99 $ 28,050 $ 2,638 $ (1,309)
------------- ----------- ------ ----------- ----------- ------
------------- ----------- ------ ----------- ----------- ------
Earnings per common share........ $ 1.46 $ 1.48
------------- -----------
------------- -----------
Weighted average common shares... 9,912 9,010(2) 18,922 72(11)
------------- ------ ----------- ------
------------- ------ ----------- ------
<CAPTION>
PRO FORMA
TOTAL
----------
<S> <C>
Net Sales........................ $1,279,540
Cost and expenses:
Cost of sales................... 835,553
Selling, general, and
administrative expenses....... 300,397
Other operating expenses........ 102,026
----------
Operating Income................ 41,564
Other income (expense):
Finance charge income, net of
allocation to purchaser of
accounts receivable........... 29,692
Interest expense................ (22,720)
Other income (expense), net...... 3,913
----------
Income before provision for
income taxes.................. 52,449
Provision for income taxes....... 21,009
----------
NET INCOME...................... 31,440
Preferred stock dividends........ 2,061
----------
Net income available to common
stockholders..................... $ 29,379
----------
----------
Earnings per common share........ $ 1.55
----------
----------
Weighted average common shares... 18,994
----------
----------
</TABLE>
57
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 29, 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
MACCO PRO FORMA
PRO FORMA PROFFITT'S/ TWO MONTHS MACCO
MERGER YOUNKERS ENDED PURCHASE PRO FORMA
PROFFITT'S(5) YOUNKERS(1) ADJUSTMENTS(13) PRO FORMA 03/31/94(5) ADJUSTMENTS(5) TOTAL
------------- ----------- --------------- ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales.................. $ 392,158 $ 397,241 $ 789,399 $ 63,042 $852,441
Cost and expenses:
Cost of sales............. 253,802 255,483 6,608(3) 515,893 40,200 556,093
Selling, general, and
administrative expenses.... 99,738 105,522 (6,762)(3) 198,498 15,649 214,147
Other operating
expenses................... 30,949 39,460 70,409 3,818 (21)(6) 74,614
408(7)
------------- ----------- ------ ----------- ----------- ------ ---------
Operating Income.......... 7,669 (3,224) 154 4,599 3,375 (387) 7,587
Other income (expense):
Finance charge income, net
of allocation to
purchaser of accounts
receivable................. 10,058 10,599 20,657 2,169 (411)(8) 22,415
Interest expense.......... (11,353) (3,412) (14,765) (1,210) (729)(9) (16,704 )
Other income (expense),
net........................ 777 2,267 3,044 48 3,092
------------- ----------- ------ ----------- ----------- ------ ---------
Income before provision
for income taxes........ 7,151 6,230 154 13,535 4,382 (1,527) 16,390
Provision for income
taxes...................... 2,971 2,542 63(4) 5,576 1,744 (585)(10) 6,735
------------- ----------- ------ ----------- ----------- ------ ---------
NET INCOME.............. 4,180 3,688 91 7,959 2,638 (942) 9,655
Preferred stock
dividends.................. 1,206 1,206 367(9) 1,573
------------- ----------- ------ ----------- ----------- ------ ---------
Net income available to
common stockholders........ $ 2,974 $ 3,688 $ 91 $ 6,753 $ 2,638 $ (1,309) $ 8,082
------------- ----------- ------ ----------- ----------- ------ ---------
------------- ----------- ------ ----------- ----------- ------ ---------
Earnings per common
share...................... $ 0.30 $ 0.36 $ 0.43
------------- ----------- ---------
------------- ----------- ---------
Weighted average common
shares..................... 9,858 9,012(2) 18,870 96(11) 18,966
------------- ------ ----------- ------ ---------
------------- ------ ----------- ------ ---------
</TABLE>
58
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 28, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
PRO
MERGER FORMA
PROFFITT'S YOUNKERS(1) ADJUSTMENTS(13) TOTAL
---------- ------------ --------------- --------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 482,594 $406,301 $888,895
Costs and expenses:
Cost of sales........................................ 306,856 262,140 5,323(4) 574,319
Selling, general, and administrative expenses........ 124,369 104,406 (5,447)(4) 223,328
Other operating expenses............................. 36,074 38,907 74,981
---------- ------------ ------- --------
Operating Income..................................... 15,295 848 124 16,267
Other income (expense):
Finance charge income, net of allocation to purchaser
of accounts receivable............................. 11,032 11,431 22,463
Interest expense..................................... (14,473) (4,538) (19,011)
Other income (expense), net.......................... 575 1,434 2,009
---------- ------------ ------- --------
Income before provision for income taxes............. 12,429 9,175 124 21,728
Provision for income taxes............................. 5,104 3,524 51(5) 8,679
---------- ------------ ------- --------
NET INCOME........................................... 7,325 5,651 73 13,049
Preferred stock dividends.............................. 1,462 1,462
---------- ------------ ------- --------
Net income available to common stockholders.......... $ 5,863 $ 5,651 $ 73 $ 11,587
---------- ------------ ------- --------
---------- ------------ ------- --------
Earnings per common share.............................. $ 0.57 $ 0.60
---------- --------
---------- --------
Weighted average common shares......................... 10,335 9,018(2) 19,353
---------- ------- --------
---------- ------- --------
</TABLE>
59
<PAGE>
PROFFITT'S, INC.
NOTES TO PRO FORMA CONDENSED COMBINED
INCOME STATEMENTS
(IN THOUSANDS)
(1) Certain reclassifications have been made to Younkers income statements to
conform to Proffitt's presentation. Finance charge income and "other
operating expenses" (property and equipment rentals, depreciation and
amortization, and taxes other than income taxes) which have been included
in Younkers historical financial statements as selling, general and
administrative expenses, are reported separately in the pro forma financial
statements.
(2) To reflect the weighted average common shares of Proffitt's that would have
been held by Younkers stockholders, based on the Conversion Number of 0.98
shares of Proffitt's Common Stock for each share of Younkers Common Stock.
(3) To conform Younkers' method of accounting for inventory to the method used
by Proffitt's consistent with the method change effective January 31, 1993.
(4) To reflect the income tax impact of the pro forma merger adjustments.
(5) The historical income statements of Proffitt's do not reflect the operating
results of Macco prior to Proffitt's acquisition of Macco on March 31,
1994. Therefore, Macco's historical income statement for year ended January
29, 1994 and for the two months ended March 31, 1994 have been included in
the Pro Forma Condensed Combined Income Statements for the years ended
January 29, 1994 and January 28, 1995, and for the nine-month period ended
October 29, 1994. The Pro Forma Macco Purchase Adjustments represent the
impact of the application of "push down accounting" on the historical
results of Macco.
(6) To reflect the impact of the purchase of certain stores owned by the
controlling shareholders of Macco.
(7) To reflect the increase in depreciation and amortization resulting from the
increased carrying value of the acquired Macco assets after the application
of push down accounting.
(8) To reflect the finance charges allocated to a third party purchaser of an
interest in trade accounts receivable, assuming that this financing
facility was fully utilized during the year.
(9) To recognize interest expense on debt of approximately $89 million and
dividends on preferred stock issued related to the purchase of Macco,
assuming that the debt and Series A Preferred Stock were outstanding during
the entire year, and that the Series B Preferred Stock was converted to
common stock in 1994 on the date corresponding to its actual conversion in
1995.
(10) To reflect the income tax impact of the pro forma Macco purchase
adjustments.
(11) To reflect the increase in weighted average common shares of Proffitt's
that would have occurred if Proffitt's had acquired Macco as of the
beginning of the fiscal year.
(12) During the nine months ended October 28, 1995, Younkers incurred expenses
of $2,900 in the defense of a hostile takeover attempt. These expenses
adversely affect Pro Forma net income by $1,786 and earnings per common
share by $.09.
(13) Pro Forma merger adjustments do not reflect certain anticipated
non-recurring charges of approximately $12,600 related to direct costs of
the merger transaction, nor do they include any charges or benefits related
to the combination of the operations of the businesses.
Additionally, the pro forma merger adjustments do not reflect the impact
of the proposed sale of two Younkers stores to Carson. The two stores
have contributed approximately $19.0 million to Younkers' annual net
sales and $0.5 million to annual net income on a pre-tax basis.
60
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
OCTOBER 28, 1995
(IN THOUSANDS)
<TABLE><CAPTION>
PRO FORMA
MERGER PRO FORMA
PROFFITT'S YOUNKERS(1) ADJUSTMENTS TOTAL
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $ 1,173 $ 12,537 $ 13,710
Net trade accounts receivable, less
receivables sold to third party........... 15,229 106,051 121,280
Merchandise inventories..................... 242,061 149,113 3,273(2) 394,447
Other current assets........................ 17,011 5,828 22,839
---------- ------------ ----------- ----------
Total current assets...................... 275,474 273,529 3,273 552,276
Property and equipment, net................... 322,552 82,488 405,040
Goodwill...................................... 50,987 50,987
Other assets.................................. 15,199 12,828 28,027
---------- ------------ ----------- ----------
$ 664,212 $368,845 $ 3,273 $1,036,330
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable...................... $ 91,603 $ 58,375 $ 149,978
Other accounts payable...................... 32,462 32,692 1,314(2) 66,468
Current portion of long-term debt and
capital lease obligations................. 16,528 16,528
---------- ------------ ----------- ----------
Total current liabilities................. 140,593 91,067 1,314 232,974
Real estate and mortgage notes................ 69,410 69,410
Notes payable................................. 91,242 80,644 171,886
Capital lease obligations..................... 10,964 10,964
Deferred income taxes......................... 56,755 3,820 60,575
Other long-term liabilities................... 3,167 8,399 11,566
Subordinated debentures....................... 100,444 100,444
Stockholders' equity.......................... 191,637 184,915 1,959(2) 378,511
---------- ------------ ----------- ----------
$ 664,212 $368,845 $ 3,273 $1,036,330
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
</TABLE>
PROFFITT'S, INC.
NOTES TO PRO FORMA CONDENSED COMBINED
BALANCE SHEETS
(1) Certain reclassifications have been made to the Younkers balance sheets to
conform to Proffitt's presentation with no impact on total assets, total
liabilities or total shareholders' equity.
(2) To conform the Younkers inventory valuation method to the Proffitt's method
of valuing inventory which includes certain purchasing and distribution
costs, and to adjust current deferred income taxes accordingly.
61
<PAGE>
DESCRIPTION OF PROFFITT'S CAPITAL STOCK
GENERAL
As of the date hereof, Proffitt's authorized capital stock consists of
100,000,000 shares of Common Stock, par value $0.10 per share, and 10,000,000
shares of preferred stock, par value $1.00 per share (the "Proffitt's Preferred
Stock"). As of December 22, 1995, 10,257,055 shares of Proffitt's Common Stock
and 600,000 shares of Proffitt's Series A Preferred Stock (as defined below)
were issued and outstanding. The following summary description of the capital
stock of Proffitt's does not purport to be complete and is qualified in its
entirety by reference to Proffitt's Charter and to the Tennessee Business
Corporation Act. See "AVAILABLE INFORMATION."
PROFFITT'S COMMON STOCK
Holders of Proffitt's Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders of Proffitt's and do not
have cumulative voting rights. Accordingly, holders of a majority of the shares
of Proffitt's Common Stock entitled to vote in any election of directors of
Proffitt's may elect all of the directors standing for election. Holders of
Proffitt's Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors of Proffitt's out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
Proffitt's Preferred Stock. See "SUMMARY--Comparative Stock Prices and
Dividends." Upon the liquidation, dissolution or winding up of Proffitt's, the
holders of Proffitt's Common Stock are entitled to receive ratably the net
assets of Proffitt's available after payment of all debts and other liabilities
and subject to the prior rights of outstanding Proffitt's Preferred Stock.
Holders of Proffitt's Common Stock have no preemptive, subscription, redemption
or conversion rights. All outstanding shares of Proffitt's Common Stock are duly
authorized, validly issued fully paid and nonassessable. The rights, preferences
and privileges of holders of Proffitt's Common Stock are subject to, and may be
adversely affected by, the rights of the holders of any series of Proffitt's
Preferred Stock, whether currently outstanding or designated and issued in the
future.
PROFFITT'S PREFERRED STOCK
The Board of Directors of Proffitt's has the authority to issue the
Proffitt's Preferred Stock in one or more classes or series and to fix the
designations, powers, preferences and rights of the shares of each class or
series, including dividend rates, conversion rights, voting rights, terms of
redemption and liquidation preferences and the number of shares constituting
each such class or series, without any further vote or action by the
stockholders of Proffitt's. The ability of the Board of Directors of Proffitt's
to issue Proffitt's Preferred Stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of
Proffitt's.
As of the date hereof, Proffitt's had outstanding 600,000 shares of Series A
Cumulative Convertible Exchangeable Preferred Stock, $1.00 par value per share
(the "Series A Preferred Stock"). The holders of Series A Preferred Stock are
entitled to receive dividends at the rate of $3.25 per share per annum, payable
semi-annually in arrears (the date on which such dividends are payable, the
"Dividend Payment Date"). Dividends for Series A Preferred Stock are cumulative.
The holders of Series A Preferred Stock do not have voting rights, except in
certain limited circumstances and as required by applicable law. In the event of
any liquidation, dissolution or winding up of Proffitt's, the holders of Series
A Preferred Stock shall receive a liquidation preference of $50.00 per share,
plus any accrued and unpaid dividends (the "Liquidation Preference"), prior to
any distribution to holders of Proffitt's Common Stock.
Proffitt's has the right to redeem, in whole or from time to time in part,
Series A Preferred Stock at any time after the expiration of the two-year period
commencing on the issue date of the Series A
62
<PAGE>
Preferred Stock (the "Issue Date"); provided, however, that Proffitt's may not
redeem Series A Preferred Stock prior to four years after the Issue Date unless
certain pricing conditions are satisfied. Holders of outstanding shares of
Series A Preferred Stock are entitled to receive on the date of redemption (the
"Redemption Date") (i) $52.50 per outstanding share of Series A Preferred Stock,
plus (ii) all accrued and unpaid dividends on the date of redemption. Unless the
full cumulative dividends on all outstanding Series A Preferred Stock have been
paid or are contemporaneously declared and paid for all past dividend periods,
no shares of Series A Preferred Stock may be redeemed unless all outstanding
shares of Series A Preferred Stock are redeemed.
Proffitt's has the right to exchange all, but not less than all, outstanding
shares of Series A Preferred Stock for Proffitt's 6.50% Convertible Subordinated
Debentures due 2006 (the "Exchange Debentures"). Holders of outstanding shares
of Series A Preferred Stock are entitled to receive on the date of exchange (the
"Exchange Date") (i) Exchange Debentures having an aggregate principal amount
equal to $50.00 for each outstanding share of Series A Preferred Stock, plus
(ii) all accrued and unpaid dividends through, but not including, the date of
exchange.
Each holder of Series A Preferred Stock may convert such shares into
Proffitt's Common Stock at any time before the close of business on the business
day preceding a Redemption Date or an Exchange Date. For purposes of the
conversion, each holder of Series A Preferred Stock converting shall be entitled
to a number of shares of Proffitt's Common Stock determined by dividing the
Liquidation Preference by the conversion price (as determined in the manner
described in the Articles of Amendment to the Charter of Proffitt's filed with
the Secretary of State for the State of Tennessee on March 31, 1994).
On March 31, 1995, Proffitt's issued 32,982 shares of Series B Cumulative
Junior Perpetual Preferred Stock ("Series B Preferred Stock") to the former
stockholders of McRae's. On July 12, 1994, all outstanding shares of Series B
Preferred Stock were redeemed by Proffitt's by the issuance of 156,218 shares of
Proffitt's Common Stock. Such shares of Series B Preferred Stock were restored
to the status of unauthorized and unissued shares of preferred stock, without
designation as to series, and may thereafter be reissued as shares of any series
of preferred stock other than shares of Series A Preferred Stock.
As of March 28, 1995, 200,000 shares of the preferred stock were designated
as Series C Junior Preferred Stock ("Series C Preferred Stock") to be issued
under certain circumstances involving a potential change in control of
Proffitt's. See "--Rights Plan." Each share of the Series C Preferred Stock, if
issued, would bear a dividend rate of 100 times the aggregate amount per share
of any dividend declared on Proffitt's Common Stock. Each share of Series C
Preferred Stock would entitle the holder to 100 votes on all matters submitted
to a vote of the stockholders of Proffitt's. Such shares provide for a
liquidation preference of the greater of $100 per share or an aggregate amount
per share equal to 100 times the aggregate amount to be distributed per share to
holders of Proffitt's Common Stock. No shares of Series C Preferred Stock have
been issued, and management is aware of no facts suggesting that issuance of
such shares may be imminent. In connection with the Merger, Proffitt's will
increase the number of authorized shares of Series C Preferred Stock to 500,000.
RIGHTS PLAN
On March 28, 1995, the Board of Directors of Proffitt's declared a dividend
distribution of one right (a "Right") for each share of Proffitt's Common Stock.
Each Right entitles the holder to purchase from Proffitt's one one-hundredth
(1/100) of a share of Series C Preferred Stock at a price of $85 per one
one-hundredth (1/100) of a share. See "--Preferred Stock." Such Rights will
attach to shares of Proffitt's Common Stock issued to Younkers stockholders in
connection with the Merger. Initially, the Rights will not be exercisable, but
will become exercisable upon the acquisition by any person of, or the
announcement of the intention of any person to commence a tender or exchange
offer upon the
63
<PAGE>
successful consummation of which such person would be the beneficial owner of,
20% or more of the shares of Proffitt's Common Stock then outstanding, without
the prior approval of the Proffitt's Board of Directors. The Rights are
generally designed to deter coercive takeover tactics and to encourage all
persons interested in potentially acquiring control of Proffitt's to treat each
stockholder on a fair and equal basis.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Proffitt's Common Stock is Union
Planters National Bank.
COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK
AND YOUNKERS COMMON STOCK
The following summary compares certain rights of Proffitt's stockholders
under the Tennessee Business Corporation Act and Proffitt's Charter and Amended
and Restated By-laws with the rights of Younkers stockholders under the Delaware
General Corporation Law and the Younkers Restated Certificate of Incorporation
and By-laws.
Proffitt's is a Tennessee corporation subject to the provisions of the
Tennessee Business Corporation Act (The "TBCA"). Younkers is a Delaware
corporation subject to the provisions of the Delaware General Corporation Law
(the "DGCL"). Stockholders of Younkers, whose rights are governed by Younkers'
Restated Certificate of Incorporation and By-laws and by the DGCL, will, upon
consummation of the Merger, become stockholders of Proffitt's whose rights will
then be governed by the Charter and By-laws of Proffitt's and by the TBCA. The
following is a summary of the material differences in the rights of stockholders
of Proffitt's and Younkers and is qualified in its entirety by reference to the
governing law and the Certificate of Incorporation or Charter and By-laws of
each of Proffitt's and Younkers. Certain topics discussed below are also subject
to federal law and the regulations promulgated thereunder.
REMOVAL OF DIRECTORS
Younkers' Restated Certificate of Incorporation provides that any director
may be removed only for cause by the vote of the holders of a majority of the
outstanding shares of Younkers voting stock.
Proffitt's Charter and By-laws provide that any or all directors may be
removed only for cause (as defined in the TBCA) by a vote of a majority of the
stockholders entitled to vote on such proposal.
NUMBER OF DIRECTORS
The number of members of the Younkers Board of Directors may be increased or
decreased from time to time by a vote of the majority of the entire Younkers
Board of Directors, but may not exceed thirteen nor be less than seven, except
as permitted by law or Younkers' By-laws.
The number of members of the Proffitt's Board of Directors may be increased
or decreased by the Proffitt's Board of Directors through an amendment to the
By-laws; provided, however, that the adoption of such an amendment by the
Proffitt's Board of Directors requires the vote of a majority of the entire
Board. The Proffitt's Board of Directors may be comprised of up to fifteen
members.
SPECIAL MEETINGS
Younkers' By-laws authorize the Chairman of the Board or a majority of the
Younkers Board of Directors to call a special meeting of stockholders. Such a
call shall state the purpose or purposes of the proposed special meeting and no
other business may be considered at such meeting.
64
<PAGE>
Proffitt's By-laws authorize the Chairman of the Board, the President and
the Board of Directors to call a special meeting of stockholders. The Charter
and By-laws also provide that a special meeting of stockholders shall be called
at the written request of at least 25% of the outstanding shares of Proffitt's
entitled to vote at the special meeting.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The DGCL provides that the recommendation of the Younkers Board of Directors
and the approval of a majority of the outstanding shares of Younkers Common
Stock entitled to vote thereon is required to effect (i) a merger or
consolidation in certain cases, (ii) an amendment to the Restated Certificate of
Incorporation of Younkers in most instances, and (iii) to sell, lease or
exchange all or substantially all of Younkers' assets. With respect to a merger,
no vote of the Younkers stockholders would be required if Younkers were the
surviving corporation and (i) the related agreement of merger did not amend
Younkers' Restated Certificate of Incorporation, (ii) each share of Younkers
Common Stock outstanding immediately before the merger were an identical
outstanding or treasury share of Younkers Common Stock after the merger and
(iii) the number of shares of Younkers Common Stock to be issued in the merger
(or to be issuable upon conversion of any convertible instruments to be issued
in the merger) did not exceed 20% of the shares of Younkers Common Stock
outstanding immediately before the merger.
The TBCA provides that the approval of the Proffitt's Board of Directors and
of a majority of the outstanding shares of Proffitt's Common Stock entitled to
vote thereon would also generally be required to approve a merger or to sell,
lease, exchange or otherwise dispose of substantially all of Proffitt's assets.
In accordance with the TBCA, submission by the Proffitt's Board of Directors of
any such action may be conditioned on any basis, including without limitation,
conditions regarding a super-majority voting requirement or that no more than a
certain number of shares indicate that they will seek dissenters' rights, if
such rights are otherwise available.
With respect to a merger, no vote of the stockholders of Proffitt's would be
required if Proffitt's were the surviving corporation and (i) Proffitt's Charter
would remain unchanged after the merger, subject to certain exceptions, (ii)
each stockholder of Proffitt's immediately before the merger would hold an
identical number of shares, with identical rights and preferences, after the
merger, (iii) the number of voting shares outstanding immediately after the
merger plus the number of voting shares issuable as a result of the merger
(either by conversion of securities issued pursuant to the merger or the
exercise of rights and warrants issued pursuant to the merger), will not exceed
by more than 20% the number of voting shares of the surviving corporation
outstanding immediately before the merger; and (iv) the number of participating
shares outstanding immediately after the merger, plus the number of
participating shares issuable as a result of the merger (either by conversion of
securities issued pursuant to the merger or the exercise of rights and warrants
issued pursuant to the merger), will not exceed by more than 20% the total
number of participating shares outstanding immediately before the merger.
With respect to a sale, lease, exchange or other disposition of
substantially all the assets of Proffitt's, no vote of the stockholders of
Proffitt's would be required if such transfer were conducted in the regular
course of business or if such transfer were made to a wholly-owned subsidiary of
Proffitt's.
ACTION BY WRITTEN CONSENT
The DGCL provides, unless otherwise prohibited by the certificate of
incorporation, for action without stockholder meetings, without prior notice and
without a vote, if a written consent or consents setting forth the action to be
taken is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. The Younkers Restated Certificate of Incorporation prohibits action by
written consent. The TBCA provides that action may be taken without
65
<PAGE>
a stockholder meeting and vote if all stockholders entitled to vote on the
action consent to taking such action without a meeting. Action by written
consent of the Proffitt's stockholders is impracticable given the number of
holders of Proffitt's Common Stock.
INSPECTION RIGHTS
Both the TBCA and the DGCL contain provisions granting stockholders the
right to inspect certain records of each corporation. Under the DGCL, any
stockholder of record, either in person or by attorney or other agent, upon
written demand under oath stating the purpose thereof, has the right to inspect
certain of Younkers' records during Younkers' usual business hours. This right
is limited, however, to inspection for "a proper purpose," which is defined as
"a purpose reasonably related to such person's interest as a stockholder."
Under the TBCA, Proffitt's stockholders are also entitled to inspect and
copy, during regular business hours at Proffitt's principal office, the minutes
of stockholder meetings, charter, by-laws, annual reports, and certain other
records of Proffitt's, provided the stockholder gives Proffitt's written notice
of his demand at least 5 business days before the date on which he wishes to
inspect and copy the records. In addition, a stockholder who makes a demand in
good faith, for a proper purpose, and describes with reasonable particularity
his purpose and the records he desires to inspect, and if the records are
directly connected with his purpose, may also, upon 5 days' written notice,
inspect and copy: (i) accounting records of Proffitt's, (ii) the records of
stockholders and excerpts from minutes of any meeting of Proffitt's Board of
Directors, (iii) records of any action of a committee of Proffitt's Board of
Directors while acting in place of the board of directors on behalf of the
corporation, (iv) minutes of any meeting of the stockholders, and (v) records of
action taken by the stockholders or Board of Directors without a meeting.
AMENDMENT OF BY-LAWS
Proffitt's and Younkers By-laws may be modified, altered or repealed and new
By-laws may be adopted by the vote of a majority of all stockholders or by the
majority vote of the Board of Directors.
VOLUNTARY DISSOLUTION
The DGCL provides that Younkers may be dissolved by the approval of the
Younkers Board of Directors and a majority of the outstanding shares of Younkers
stock entitled to vote thereon. The DGCL also allows all the stockholders of
Younkers acting unanimously in writing to effect a dissolution of Younkers
without the approval of the Younkers Board of Directors.
The TBCA provides that Proffitt's may be dissolved if the Proffitt's Board
of Directors proposes dissolution and a majority of the outstanding shares of
Proffitt's stock entitled to vote thereon approves. In accordance with the TBCA
the Proffitt's Board of Directors may condition its submission of a proposal for
dissolution on any basis, including a greater stockholder vote requirement.
INDEMNIFICATION
Both the DGCL and the TBCA provide in certain situations for mandatory and
permissive indemnification of directors and officers in substantially the same
manner. Both the DGCL and the TBCA provide that statutory indemnification is not
to be deemed exclusive of any other rights to which a director or officer
seeking indemnification may be entitled; provided, however, that the TBCA states
that no indemnification may be made if a final adjudication adverse to the
director or officer establishes his liability (l) for any breach of loyalty to
the corporation or its stockholders; (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; or (3)
for unlawful distributions.
66
<PAGE>
The DGCL permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. Younkers has adopted such a provision in its Restated Certificate of
Incorporation.
BUSINESS COMBINATION STATUTE
The DGCL prohibits business combinations for a period of three years such as
mergers, consolidations, asset purchases and other transactions where the
transaction is with a corporation subject to the provisions thereof, such as
Younkers, and where the acquiror became an "interested stockholder" of the
corporation before the date of the transaction unless (i) prior to the date of
the transaction the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, or (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by persons who
are directors and also officers and employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to the date of the transaction the business combination
is approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder."
In this context, an "interested stockholder" is any person (other than the
corporation and any direct or indirect majority-owned subsidiary of the
corporation) who directly or indirectly, alone or in concert with others,
beneficially owns or controls 15% or more of the voting stock of the
corporation. The DGCL prohibits business combinations with an unapproved
interested stockholder for a period of three years after the date on which the
person became an interested stockholder. The DGCL is very broad in its scope but
it does not apply to corporations whose certificate of incorporation or by-laws
contain a provision not to be covered by this section. Neither Younkers'
Restated Certificate of Incorporation nor By-laws contain such a provision.
Tennessee's Business Combination Act (the "Business Combination Act")
provides that a party owning 10% or more of stock in a "resident domestic
corporation" (such party is called an "interested stockholder") cannot engage in
a business combination with the resident domestic corporation unless the
combination (i) takes place at least five years after the interested stockholder
first acquired 10% or more of the resident domestic corporation, and (ii) either
(A) is approved by at least 2/3 of the non-interested voting shares of the
resident domestic corporation or (B) satisfies certain fairness conditions
specified in the Business Combination Act.
These provisions apply unless one of two events occurs. A business
combination with an entity can proceed without delay when approved by the target
corporation's board of directors before that entity becomes an interested
stockholder, or the resident corporation may enact a charter amendment or by-law
to remove itself entirely from the Business Combination Act. This charter
amendment or by-law must be approved by a majority of the stockholders who have
held shares for more than one year prior to the vote. It may not take effect for
at least two years after the vote. Proffitt's has not adopted a provision in its
Charter or By-laws removing Proffitt's from coverage under the Business
Combination Act.
67
<PAGE>
The Business Combination Act further provides an exemption from liability
for officers and directors of resident domestic corporations who do not approve
proposed business combinations or charter amendments and by-laws removing their
corporations from the Business Combination Act's coverage as long as the
officers and directors act in "good faith belief" that the proposed business
combination would adversely affect their corporation's employees, customers,
suppliers, or the communities in which their corporation operates and such
factors are permitted to be considered by the board of directors under the
charter.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Business Combination Act is unconstitutional as it applies to target
corporations organized under the laws of states other than Tennessee (such as
Younkers).
CONTROL SHARE ACQUISITION ACT
The Tennessee Control Share Acquisition Act ("TCSAA") strips a purchaser's
shares of voting rights any time an acquisition of shares in a covered Tennessee
corporation brings the purchaser's voting power to one-fifth, one-third or a
majority of all voting power. The purchaser's voting rights can be established
only by a majority vote of the other stockholders. The purchaser may demand a
special meeting of stockholders to conduct such a vote. The purchaser can demand
such a meeting before acquiring a control share only if it holds at least 10% of
outstanding shares and announces a good faith intention to make the control
share acquisition. A target corporation may or may not redeem the purchaser's
shares if the shares are not granted voting rights. The TCSAA applies only to
corporation's that have adopted a provision in its Charter or By-laws expressly
declaring that the TCSAA will apply. Proffitt's has not adopted any provision in
its Charter or By-laws electing protection under the TCSAA.
The United States Court of Appeals for the Sixth Circuit, however, has held
that the TCSAA is unconstitutional as it applies to target corporations
organized under the laws of states other than Tennessee (such as Younkers).
The DGCL contains no similar provisions with respect to control share
acquisitions.
INVESTOR PROTECTION ACT
Tennessee's Investor Protection Act ("TIPA") applies to tender offers
directed at corporations (called "offeree companies") that have "substantial
assets" in Tennessee and that are either incorporated in or have a principal
office in Tennessee. The TIPA requires an offeror making a tender offer for an
offeree company to file with the Commissioner of Commerce and Insurance (the
"Commissioner") a registration statement. When the offeror intends to gain
control of the offeree company, the registration statement must indicate any
plans the offeror has for the offeree. The Commissioner may require additional
information material to the takeover offer and may call for hearings. The TIPA
does not apply to an offer that the offeree company's board of directors
recommends to stockholders.
In addition to requiring the offeror to file a registration statement with
the Commissioner, the TIPA requires the offeror and the offeree company to
deliver to the Commissioner all solicitation materials used in connection with
the tender offer. The TIPA prohibits "fraudulent, deceptive, or manipulative
acts or practices" by either side, and gives the Commissioner standing to apply
for equitable relief to the Chancery Court of Davidson County, Tennessee, or to
any other chancery court having jurisdiction whenever it appears to the
Commissioner that the offeror, the offeree company, or any of its respective
affiliates has engaged in or is about to engage in a violation of the TIPA. Upon
proper showing, the Chancery Court may grant injunctive relief. The TIPA further
provides civil and criminal penalties for violations.
68
<PAGE>
The United States Court of Appeals for the Sixth Circuit has held that the
TIPA violates the commerce clause of the United States Constitution to the
extent that it applies to target corporations organized under the laws of states
other than Tennessee (such as Younkers).
The DGCL contains no similar provisions with respect to investor protection.
AUTHORIZED CORPORATION PROTECTION ACT
The Tennessee Authorized Corporation Protection Act ("TACPA") is the vehicle
through which the Tennessee statutes attempt to permit the Business Combination
Act and the TCSAA to govern foreign corporations. The TACPA provides that an
authorized corporation can adopt a by-law or a charter provision electing to be
subject to the operative provisions of the Business Combination Act and the
TCSAA, which then become applicable "to the same extent as such provisions apply
to a resident domestic corporation." Authorized corporations are those that are
required to obtain a Certificate of Authority from the Tennessee Secretary of
State and that satisfy any 2 of certain tests including having its principal
place of business located in Tennessee; having a significant subsidiary located
in Tennessee; having a majority of such corporation's fixed assets located in
Tennessee; having more than 10% of the beneficial owners of the voting stock or
more than 10% of such corporation's shares of voting stock beneficially owned by
residents of Tennessee; employing more than 250 individuals in Tennessee or
having an annual payroll paid to residents of Tennessee that is in excess of
$5,000,000; producing goods and/or services in Tennessee that result in annual
gross receipts in excess of $10,000,000; or having physical assets and/or
deposits located within Tennessee that exceed $10,000,000 in value.
The United States Court of Appeals for the Sixth Circuit, however, has held
the TACPA unconstitutional as it applies to target corporations organized under
the laws of states other than Tennessee (such as Younkers).
The DGCL contains no similar provisions with respect to authorized
corporation protection.
GREENMAIL ACT
The Tennessee Greenmail Act ("TGA") applies to any corporation chartered
under the laws of Tennessee which has a class of voting stock registered or
traded on a national securities exchange or registered with the Commission
pursuant to Section 12(g) of the Exchange Act. The TGA provides that it is
unlawful for any corporation or subsidiary to purchase, either directly or
indirectly, any of its shares at a price above the market value, as defined in
the TGA, from any person who holds more than 3% of the class of the securities
purchased if such person has held such shares for less than 2 years, unless
either the purchase is first approved by the affirmative vote of a majority of
the outstanding shares of each class of voting stock issued or the corporation
makes an offer of at least equal value per share to all holders of shares of
such class.
The DGCL contains no similar provision with respect to greenmail.
DIVIDENDS AND OTHER DISTRIBUTIONS
The DGCL generally allows dividends to be paid out of "surplus" of Younkers
or, if there is no surplus, out of the net profits of Younkers for the current
fiscal year and/or the prior fiscal year. No dividends may be paid if they would
result in the capital of Younkers being less than the capital represented by the
preferred stock of Younkers. There are no shares of Younkers preferred stock
outstanding.
The TBCA provides that Proffitt's generally may make dividends or other
distributions to its stockholders unless after the distribution either (i)
Proffitt's would not be able to pay its debts as they become due in the usual
course of business or (ii) Proffitt's assets would be less than the sum of its
liabilities plus the amount that would be needed to satisfy the preferential
dissolution rights of its preferred stock. Outstanding shares of Proffitt's
Series A Preferred Stock (as defined below) have preferential dissolution
rights. See "DESCRIPTION OF PROFFITT'S CAPITAL STOCK--Proffitt's Preferred
Stock."
69
<PAGE>
DISSENTERS' RIGHTS
The DGCL provides appraisal rights for certain mergers and consolidations.
Appraisal rights are not available to holders of (i) shares listed on a national
securities exchange or a national market system or held of record by more than
2,000 stockholders or (ii) shares of the surviving corporation of the merger, if
the merger did not require the approval of the stockholders of such corporation,
unless in either case, the holders of such stock are required pursuant to the
merger to accept anything other than (A) shares of stock of the surviving
corporation, (B) shares of stock of another corporation which are also listed on
a national securities exchange or held by more than 2,000 holders, or (C) cash
in lieu of fractional shares of such stock, or any combination thereof. Given
that the Younkers Common Stock is listed on the NASDAQ National Market System
and holders of Younkers Common Stock are required by the terms of the Merger
Agreement to accept in exchange for their shares of Younkers Common Stock only
shares of Proffitt's Common Stock and cash in lieu of fractional shares,
appraisal rights are not available to Younkers stockholders with respect to the
Merger. See "THE SPECIAL MEETINGS--Appraisal Rights."
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require stockholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect rights in respect
of a dissenter's shares. Dissenters' rights are not available as to any shares
which are listed on an exchange registered under Section 6 of the Exchange Act
or are "national market system" securities as defined in rules promulgated
pursuant to the Exchange Act. Proffitt's Common Stock is listed on the NASDAQ
National Market System and dissenters' rights are not available to Proffitt's
stockholders with respect to the Merger.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
PROFFITT'S
Principal Owners of Proffitt's Common Stock. The following table sets forth,
based on the number of shares outstanding as of December 22, 1995 (except as
noted below), the percentage of ownership of the Proffitt's Common Stock by the
persons believed by Proffitt's to own beneficially more than 5% of the
Proffitt's Common Stock based upon recent Schedule 13G filings and information
provided by the beneficial owners.
<TABLE><CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY OWNED
NAME AND ADDRESS ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------- --------- -------
<S> <C> <C>
Apollo Specialty Retail Partners, L.P............................... 1,421,801(1) 12.17%
Two Manhattanville Road
Purchase, New York
Ronald de Waal...................................................... 1,000,113(2) 9.75%
Terbekehofdreef 75
B-2610 Wilrijk, Belgium
R. Brad Martin...................................................... 1,211,199(3) 11.69%
5810 Shelby Oaks Drive
Memphis, Tennessee
Fidelity Investments................................................ 1,405,630(4) 12.92%
(Fidelity Management & Research,
Fidelity Management Trust
Company, and Fidelity International Limited)
82 Devonshire Street
Boston, Massachusetts 02109
RCM Capital Management.............................................. 1,024,200 9.99%
Four Embarcadero Center
San Francisco, California
</TABLE>
70
<PAGE>
<TABLE><CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY OWNED
NAME AND ADDRESS ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------- --------- -------
<S> <C> <C>
Stein Roe & Farnham................................................. 881,243(5) 8.48%
One South Wacker Drive
Chicago, Illinois
</TABLE>
- ------------
(1) Represents shares issuable upon conversion of Proffitt's Series A Preferred
Stock.
(2) Includes options to purchase 1,600 shares of Proffitt's Common Stock.
(3) Includes (i) 2,000 shares held by Mr. Martin as custodian for his minor
children, (ii) 1,300 shares owned by RBM Venture Company, a company of which
Mr. Martin is sole shareholder, (iii) 75,000 shares held by the R. Brad
Martin 1994-1 and 1995-1 Qualified Annuity Trusts, (iv) 4,050 shares owned
by the R. Brad and Jean L. Martin Family Foundation, and (v) options to
purchase 107,000 shares of Proffitt's Common Stock.
(4) As of November 13, 1995. Includes 622,430 shares issuable upon conversion of
Proffitt's 4.75% Convertible Debentures ($26.6 million face value).
(5) Includes 134,543 shares issuable upon conversion of Proffitt's 4.75%
Convertible Debentures ($5.745 million face value).
Proffitt's Common Stock Ownership by Directors and Executive Officers. The
following table sets forth, as of December 22, 1995, the beneficial ownership of
Proffitt's Common Stock by all directors, each of the executive officers named
in the Summary Compensation Table contained in the Proffitt's Proxy Statement
dated May 2, 1995 and all directors and executive officers as a group.
<TABLE><CAPTION>
AMOUNT AND NATURE % OF OUTSTANDING
NAME OF BENEFICIAL OWNERSHIP COMMON STOCK
- ---------------------------------------------------- ----------------------- ----------------
<S> <C> <C>
R. Brad Martin...................................... 1,211,199(1) 11.69%
James A. Coggin..................................... 31,000(2) *
James E. Glasscock.................................. 19,500(2) *
Gary L. Howard...................................... 22,000(2) *
Frederick J. Mershad................................ 19,000(2) *
Bernard E. Bernstein................................ 14,801(3) *
Edmond Cicala....................................... 17,489(2) *
Ronald de Waal...................................... 1,000,113(2) 9.75%
Michael S. Gross.................................... 1,600(2)(4) *
Richard D. McRae.................................... 57,007(2) *
C. Warren Neel...................................... 5,850(2) *
Harwell W. Proffitt................................. 7,100(2) *
Gerald Tsai, Jr..................................... 4,600(2) *
All directors and executive officers as a group (19
persons)............................................ 2,572,929 24.35%
</TABLE>
- ------------
* Owns less than 1% of the total outstanding Common Stock of Proffitt's.
(1) Includes (i) 2,000 shares held by Mr. Martin as custodian for his minor
children, (ii) 1,300 shares owned by RBM Venture Company, a company of which
Mr. Martin is sole shareholder, (iii) 75,000 shares held by the R. Brad
Martin 1994-1 and 1995-1 Qualified Annuity Trusts, (iv) 4,050 shares owned
by the R. Brad and Jean L. Martin Family Foundation, and (v) options to
purchase 220,000 shares of Proffitt's Common Stock.
(2) Includes 28,000, 17,000, 20,000, 17,000, 1,600, 1,600, 600, 600, 3,100,
4,100, and 1,600 shares subject to options with respect to Coggin,
Glasscock, Howard, Mershad, Cicala, de Waal, Gross, McRae, Neel, Proffitt,
and Tsai, respectively.
(3) Includes options to purchase 3,100 shares of Proffitt's Common Stock and
3,000 shares owned by the Bernard E. Bernstein Defined Benefit Pension Plan.
(4) Does not include shares held by Apollo Specialty Retail Partners, L.P.
("Apollo Specialty"). Mr. Gross is one of the founding principals of Apollo
Advisors, L.P., the managing general partner of Apollo Investment Fund,
L.P., the general partner of Apollo Specialty. Mr. Gross disclaims
beneficial ownership of all securities held by Apollo Specialty.
71
<PAGE>
YOUNKERS
Principal Owners of Younkers Common Stock. The following table sets forth,
based on the number of shares outstanding as of December 22, 1995, the
percentage of ownership of the Younkers Common Stock by the persons believed by
Younkers to own beneficially more than 5% of the Younkers Common Stock based
upon information filed with the Commission pursuant to Section 13 of the
Exchange Act as of December 22, 1995.
<TABLE><CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY OWNED
NAME AND ADDRESS ------------------------
OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------- --------- -------
<S> <C> <C>
Carson Pirie Scott & Co. ........................................... 1,047,500 11.6%
331 West Wisconsin Avenue
Milwaukee, Wisconsin 53203
State of Wisconsin Investment Board................................. 534,000 5.9%
Post Office Box 7842
Madison, Wisconsin 53707
Sanford C. Bernstein & Co........................................... 583,400 6.5%
767 5th Avenue
New York, New York 10153
Fidelity Managment and Research Corporation......................... 469,300 5.2%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
Younkers Common Stock Ownership by Directors and Executive Officers. The
following table sets forth, as of December 22, 1995, the beneficial ownership of
Younkers Common Stock by all directors of Younkers during the past year, each of
the executive officers named in the Summary Compensation Table contained in
Younkers' Proxy Statement dated April 7, 1995 and all such directors and
executive officers as a group.
<TABLE><CAPTION>
AMOUNT AND NATURE % OF OUTSTANDING
NAME OF BENEFICIAL OWNERSHIP (1) COMMON STOCK
- ------------------------------------------------------ --------------------------- ----------------
<S> <C> <C>
W. Thomas Gould (2)................................... 329,629 3.52%
Robert M. Mosco....................................... 75,648 *
Alan R. Raxter........................................ 18,663 *
Daniel C. Smith....................................... 7,830 *
JoAnn R. Sauvageau.................................... 11,860 *
Jon F. Hrabe.......................................... 9,079 *
James A. Autry........................................ 5,400 *
Donald F. Dunn........................................ 6,500 *
Gerard K. Donnelly (3)................................ 2,520 *
G. David Hurd......................................... 4,350 *
Ferd O. Lawson, Jr. (4)............................... 2,767 *
John W. Burden III.................................... -- --
Chaim Y. Edelstein.................................... -- --
Alan S. Cooper........................................ -- --
Susan A. Willetts..................................... 500 *
William C. Knapp...................................... 500 *
All directors and executive officers as a group (23
persons).............................................. 535,051 5.72%
</TABLE>
- ------------
* Less than 1%
(1) Amounts include shares acquirable within 60 days of December 22, 1995
pursuant to the exercise of currently outstanding options as follows: Mr.
Gould (228,600); Mr. Mosco (57, 436); Mr. Raxter (14,483); Mr. Smith
(1,000); Ms. Sauvageau (11,078); Mr. Hrabe (3,000); Mr. Autry (500); Mr.
Dunn (500); Mr. Donnelly (500); Mr. Hurd (500); Mr. Lawson (167); Ms.
Willetts (500); Mr. Knapp (500); and all directors and executive officers as
a group (355, 663). Also includes shares held by Younkers' profit sharing
and savings plan for the account of Mr. Gould (17,764); Mr. Mosco (3,147);
Mr. Raxter (2,300); Ms. Sauvageau (782); Mr. Hrabe (179); and all directors
and executive officers as a group (33,253). Also includes 1,400 shares and
500 shares held in an
(Footnotes continued on following page)
72
<PAGE>
(Footnotes continued from preceding page)
IRA by Mr. Mosco and Mr. Hrabe, respectively. Excludes
86,465 shares and 16,615 shares held by Younkers on behalf of Mr. Gould and
Mr. Mosco, respectively, with respect to deferred compensation arrangements.
(2) Amount includes 3,650 shares owned by Mr. Gould's wife as to which he
disclaims beneficial ownership.
(3) Amount includes 20 shares held by Mr. Donnelly's children as to which he
disclaims beneficial ownership.
(4) Amount includes 1,600 shares owned by Mr. Lawson's wife as to which he
disclaims beneficial ownership.
PROPOSED AMENDMENT TO PROFFITT'S
1994 LONG-TERM INCENTIVE PLAN
At the Proffitt's Special Meeting, stockholders of Proffitt's will be asked
to approve and adopt an amendment to Proffitt's 1994 Long-Term Incentive Plan
(the "Incentive Plan") to increase the number of shares of Proffitt's Common
Stock issuable thereunder.
THE BOARD OF DIRECTORS OF PROFFITT'S UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF AND ADOPTION OF THE INCENTIVE PLAN AMENDMENT. APPROVAL AND ADOPTION
OF THE INCENTIVE PLAN AMENDMENT BY PROFFITT'S STOCKHOLDERS ARE CONDITIONS TO
CONSUMMATION OF THE MERGER AND STOCK ISSUANCE PURSUANT TO THE MERGER AGREEMENT.
Proffitt's long-term success depends upon its ability to attract, retain and
encourage dedicated, competent and resourceful key employees. To further these
goals, the Proffitt's Board of Directors adopted the Incentive Plan on March 1,
1994, and the stockholders approved the Incentive Plan at Proffitt's Annual
Meeting of the Stockholders held on June 16, 1994.
The purpose of the Incentive Plan is to direct the attention and efforts of
participating employees to the long-term performance of Proffitt's and its
subsidiaries, by relating incentive compensation to the achievement of long-term
corporate economic objectives. The Incentive Plan is also designed to retain,
reward and motivate participating employees by providing an opportunity for
investment in Proffitt's and the advantages inherent in stock ownership in
Proffitt's.
PROPOSED INCENTIVE PLAN AMENDMENT
The total number of shares of Proffitt's Common Stock currently authorized
for issuance under the Incentive Plan is 1,200,000. As of December 22, 1995,
options to purchase 996,300 shares of Proffitt's Common Stock had been granted
(32,100 of which have been forfeited), 29,731 shares of restricted Proffitt's
Common Stock had been granted, and 107,500 shares of Proffitt's Common Stock had
been reserved for specific future awards under the Incentive Plan. Thus, as of
December 22, 1995, 98,569 shares of Proffitt's Common Stock remain available for
issuance under the Incentive Plan. The Incentive Plan Amendment would increase
the number of shares of Proffitt's Common Stock authorized for issuance under
the Incentive Plan by 1,711,000 shares from 1,200,000 shares to 2,911,000
shares, 711,000 shares of which are reserved for issuance upon exercise of
options to purchase Younkers Common Stock which, following the Merger, will
constitute options to purchase Proffitt's Common Stock. The Incentive Plan
Amendment also authorizes 1,000,000 additional shares of Proffitt's Common Stock
for future issuance pursuant to options and awards under the Incentive Plan. A
copy of the Incentive Plan, as proposed to be amended, is attached as Appendix
IV to this Joint Proxy Statement/Prospectus and is incorporated by reference
herein.
73
<PAGE>
The Proffitt's Board of Directors believes that the Incentive Plan Amendment
is necessary in order to recruit and retain a pool of skilled and experienced
employees. In particular, the Stock Option Committee of the Proffitt's Board of
Directors (the "Committee") expects that if the proposed amendment is approved
by stockholders, a portion of the additional shares of Proffitt's Common Stock
authorized for issuance under the Incentive Plan would be made available
following the consummation of the Merger for grants and awards to key employees
of Younkers.
On October 20, 1995, the Proffitt's Board of Directors approved the proposed
amendment and recommended that it be submitted to Proffitt's stockholders for
approval.
SUMMARY OF INCENTIVE PLAN
The following is a description of the principal features of the Incentive
Plan, as amended. This description is qualified in its entirety by reference to
the Incentive Plan, as amended, attached as Appendix IV to this Joint Proxy
Statement/Prospectus.
The Incentive Plan provides for the grant to directors, executive officers,
and key employees of Proffitt's and its subsidiaries ("Participants") the
following types of incentive awards: stock options, stock appreciation rights,
restricted stock, and performance units. As of December 22, 1995, Proffitt's has
granted options under the Incentive Plan to 159 employees and directors.
The Committee has the exclusive discretion to select the Participants and to
determine the type, size, and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all other
determinations which it deems necessary or desirable in the interpretation and
administration of the Incentive Plan. The Incentive Plan remains in effect until
all awards under the Incentive Plan have been satisfied by the issuance of
shares of Proffitt's Common Stock or the payment of cash or have expired or
otherwise terminated; provided, however, that no awards may be granted more than
ten years after the date of the Incentive Plan's approval. Generally, a
Participant's rights and interest under the Incentive Plan will not be
transferable except by will or by the laws of the descent and distribution.
Options, which include non-qualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Proffitt's
Common Stock at a price fixed by the Committee. The exercise price for stock
options issued under the Incentive Plan that qualify as incentive stock options
within the meaning of Section 422(b) of the Code shall not be less than 100% of
the fair market value as of the date of grant. The option exercise price may be
satisfied in cash or by exchanging shares of Proffitt's Common Stock owned by
the optionee, or a combination of cash and shares. If the exercise price is paid
by tendering shares of Proffitt's Common Stock, the Committee, in its
discretion, may grant the optionee a new stock option for the number of shares
used to pay the exercise price. The Committee has broad discretion as to the
terms and conditions upon which options granted shall be exercised. Option have
a maximum term of ten years from the date of grant. Options granted to date
generally have a ten-year term and become exercisable on a cumulative basis in
annual installments over a four-year period.
Stock Appreciation Rights ("SAR") are rights to receive cash or shares, or a
combination thereof, as the Committee may determine, in an amount equal to the
excess of (i) the fair market value of the shares with respect to which the SAR
is exercised over (ii) a specified price which must not be less than 100% of the
fair market value of the shares at the time the SAR is granted, or, if the SAR
is granted in connection with a previously issued stock option, not less than
100% of the fair market value of shares at the time such option is granted.
SAR's may be granted in connection with a previously or contemporaneously
granted stock option or independently. If a SAR is granted in relation to a
stock option, (i) the SAR will be exercisable only at such times and by such
persons as the related option is exercisable, and (ii) the grantee's right to
74
<PAGE>
exercise either the related option or the SAR will be cancelled to the extent
that the other is exercised. No SAR may be exercised earlier than six months or
later than ten years after the date of grant. The Committee may provide in the
SAR agreement circumstances under which SAR's will become immediately
exercisable and may, not withstanding the foregoing restriction on time of
exercise, accelerate the exerciseability of any SAR at any time. No SAR's have
been granted to date under the Incentive Plan.
Awards of restricted shares under the Incentive Plan may be made at the
discretion of the Committee and consist of shares of stock granted to a
participant and subject to a stock restriction agreement. The Incentive Plan
also provides for the automatic grant of restricted stock to outside directors
of Proffitt's. At the time of an award, a Participant may have the benefits of
ownership in respect of such shares, including the right to vote such shares and
receive dividends thereon and other distributions subject to the restrictions
set forth in the Incentive Plan and in the stock restriction agreement. Any
shares of Proffitt's Common Stock issued as restricted shares are legended and
may not be sold, transferred, or disposed of until such restrictions have
elapsed. Upon the expiration, lapse, or removal of restrictions, shares free of
restrictive legend will be granted to the grantee. The Committee has broad
discretion as to the specific terms and conditions of each award, including
applicable rights upon certain terminations of employment. 29,731 shares of
restricted stock have been issued to date.
Performance unit awards entitle grantees to future payments based upon the
achievement of pre-established long-term performance objectives. A performance
unit agreement will establish with respect to each unit award (i) a performance
period of not fewer than two years, (ii) a value for each unit which will not
thereafter change, or which may vary thereafter pursuant to criteria specified
by the Committee, and (iii) maximum and minimum performance targets to be
achieved during the applicable performance period. Under each agreement, the
grantee will be entitle to full value of a unit award for achievement of maximum
targets and a portion of a unit award for performance exceeding minimum targets
but less than maximum targets. The Committee has discretion to determine the
Participants to whom performance unit awards are to be made, the times in which
such awards are to be made, the size of such awards, and all other conditions of
such awards, including any restriction, deferral periods, or performance
requirements. No performance unit awards have been awarded to date under the
Incentive Plan.
BUSINESS OF PROFFITT'S
Founded in 1919, Proffitt's is a leading regional specialty department store
company offering a wide selection of fashion apparel, accessories, cosmetics,
and decorative home furnishings, featuring assortments of premier brands and
unique specialty merchandise. Proffitt's objective is to be the dominant
specialty department store chain in its region through a strategy which combines
fashion leadership with opening or acquiring new stores and expanding and
renovating existing stores.
Proffitt's has experienced significant growth since 1991. During 1992 and
1993, Proffitt's acquired certain real and personal property and assumed certain
operating leases of eighteen store locations from Hess Department Stores, Inc.
and Crown American Corporation. The acquired locations were in Tennessee,
Virginia, Georgia and Kentucky. These stores were renovated and placed in
service as Proffitt's stores in 1992 and 1993.
In March 1994, Proffitt's acquired all of the outstanding common stock of
Macco Investments, Inc., a holding company for McRae's, Inc., a privately-owned
retail department store chain with 28 department stores headquartered in
Jackson, Mississippi.
In March 1995, Proffitt's purchased a majority interest in Parks-Belk
Company, the owner/operator of four Parks-Belk stores located in northeast
Tennessee. Proffitt's purchased the
75
<PAGE>
remaining interest in Parks-Belk in April 1995 and subsequently converted three
stores to Proffitt's stores and closed one.
Proffitt's stores are primarily anchor stores in leading regional malls.
Proffitt's currently operates under two divisions, the Proffitt's Division with
26 stores and the McRae's Division with 28 department stores and one specialty
store. The stores operated under the Proffitt's Division are located in
Tennessee (13 stores), Virginia (8 stores), Georgia (2 stores), Kentucky (2
stores) and North Carolina (1 store). The McRae's department stores are located
in Alabama (13 stores), Mississippi (12 stores), Florida (2 stores) and
Louisiana (1 store).
Proffitt's operates separate merchandising, sales promotion and store
operating divisions for the Proffitt's and McRae's Divisions, but operates
centralized administrative and support functions, such as accounting,
information systems and credit.
Proffitt's regularly considers acquisition opportunities as well as other
forms of business combinations. Proffitt's continues to evaluate and pursue
transaction opportunities as they arise. In evaluating opportunities for future
expansion, Proffitt's targets markets in which it believes it can achieve and
sustain a strong competitive position. No assurance can be given with respect to
the timing, likelihood or the financial or business effect of any possible
transaction.
Proffitt's principal executive offices are located at 115 North Calderwood,
Alcoa, Tennessee 37701, and its telephone number is (615) 983-7000.
For further information concerning Proffitt's, see "--Selected Financial and
Operating Data," "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
BUSINESS OF YOUNKERS
Younkers is a leading fashion department store chain in Iowa, Nebraska and
Wisconsin. Younkers operates 53 stores in those three states and the contiguous
states of Michigan, Illinois, Minnesota and South Dakota. Younkers' stores are
generally located in mid-sized to smaller cities where Younkers is one of the
primary department stores and competition is more limited than in major
metropolitan areas. Younkers' stores are full-line department stores which offer
basic apparel for the entire family. In addition to apparel, these stores carry
major cosmetic and fragrance lines, as well as a wide selection of housewares,
china, linens, gift items and other merchandise. Younkers also sells furniture
and operates restaurants in certain of its stores.
Acquisitions are a key element of Younkers' growth strategy. In 1987,
Younkers purchased the Brandeis stores located in Nebraska and Iowa. Younkers
did not make another acquisition until after its initial public offering in
April 1992, largely because its financial resources were limited by the
substantial dividends it was paying to its then parent company. Younkers'
initial public offering (in which its former parent sold its entire interest in
Younkers) eliminated the need to pay such dividends and enabled Younkers
management to actively pursue acquisition opportunities. Acquisitions may enable
Younkers to achieve economics of scale and increase its purchasing power.
In September 1992, Younkers completed the acquisition of the department
store division of the H.C. Prange Company ("Prange"), consisting of 25 full-line
department stores (18 in Wisconsin, five in Michigan and two in Illinois),
together with related inventory and a furniture warehouse facility for a
purchase price of approximately $68.0 million in cash and approximately $6.1
million in the assumption of liabilities financed through term loan and
revolving credit borrowings. The acquisition of these stores (the "Northern
Region stores") gave Younkers a leading position in Wisconsin and a strong entry
into the Michigan market and increased Younkers' square footage of selling space
by approximately 1.9 million square feet to 4.3 million. With the exception of
the Milwaukee stores, the Northern Region stores are located in mid-sized to
smaller cities.
76
<PAGE>
Younkers principal executive offices are located at 7th and Walnut Streets,
Des Moines, Iowa 50397, and its telephone number is (515) 244-1112.
For further information concerning Younkers, see "--Selected Financial and
Operating Data," "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
LEGAL OPINIONS
The validity of the Proffitt's Common Stock being offered hereby is being
passed upon for Proffitt's by Barnes & Thornburg, special counsel to Proffitt's.
Sullivan and Cromwell, counsel to Younkers, will deliver an opinion
concerning certain federal income tax consequences of the Merger. See "THE
MERGER"--Certain Federal Income Tax Consequences."
EXPERTS
The financial statements and schedules appearing in Proffitt's Form 10-K for
the fiscal year ended January 28, 1995 have been audited by Coopers & Lybrand
L.L.P., independent auditors, as set forth in their report thereon and included
therein and incorporated by reference herein. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Younkers incorporated in this Joint
Proxy Statement/Prospectus by reference from the Annual Report on Form 10-K for
the fiscal year ended January 28, 1995 have been audited by Deloitte & Touche
LLP, independent auditors, as set forth in their report which is incorporated
herein by reference, and have been incorporated herein by reference in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements and schedule of Younkers at January
29, 1994, and for each of the two years in the period ended January 29, 1994
incorporated by reference in this Joint Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included in the Annual Report on Form 10-K for the fiscal year ended
January 28, 1995, and are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
The Proffitt's management and the Younkers management know of no other
matters that may properly be, or which are likely to be, brought before the
Proffitt's Special Meeting or the Younkers Special Meeting, respectively.
However, if any other matters are properly brought before such Special Meetings,
the persons named in the enclosed proxy or their substitutes will vote the
proxies in accordance with the recommendations of management, unless such
authority is withheld.
In order to be considered for inclusion in the Proxy Statement for the next
annual meeting of stockholders of Younkers, any stockholder proposal intended to
be presented at the meeting must have been received by Younkers on or before
December 8, 1995. The annual meeting will be held only if the Merger is not
consummated.
In order to be considered for inclusion in the Proxy Statement for the next
annual meeting of stockholders of Proffitt's, any stockholder proposal intended
to be presented at the meeting must have been received by Proffitt's on or
before January 2, 1996.
77
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF MERGER
AMONG
PROFFITT'S, INC.,
BALTIC MERGER CORPORATION
AND
YOUNKERS, INC.
DATED AS OF OCTOBER 22, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE><CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER........................................................ 1
Section 1.1 The Merger........................................................ 1
Section 1.2 Effective Time.................................................... 1
Section 1.3 Effects of the Merger............................................. 1
Section 1.4 Charter and By-laws............................................... 2
Section 1.5 Conversion of Securities.......................................... 2
Section 1.6 Parent to Make Certificates Available............................. 2
Section 1.7 Dividends; Transfer Taxes; Withholding............................ 3
Section 1.8 No Fractional Securities.......................................... 4
Section 1.9 Return of Exchange Fund........................................... 4
Section 1.10 Adjustment of Conversion Number................................... 4
Section 1.11 No Further Ownership Rights in Company Common Stock............... 4
Section 1.12 Closing of Company Transfer Books................................. 4
Section 1.13 Lost Certificates................................................. 5
Section 1.14 Affiliates........................................................ 5
Section 1.15 Dissenters' Rights................................................ 5
Section 1.16 Further Assurances................................................ 5
Section 1.17 Closing........................................................... 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
PARENT AND SUB.................................................... 5
Section 2.1 Organization, Standing and Power.................................. 5
Section 2.2 Capital Structure................................................. 6
Section 2.3 Authority......................................................... 6
Section 2.4 Consents and Approvals; No Violation.............................. 7
Section 2.5 SEC Documents and Other Reports................................... 8
Section 2.6 Registration Statement and Joint Proxy Statement.................. 8
Section 2.7 Absence of Certain Changes or Events.............................. 8
Section 2.8 Permits and Compliance............................................ 9
Section 2.9 Tax Matters....................................................... 9
Section 2.10 Actions and Proceedings........................................... 10
Section 2.11 Certain Agreements................................................ 10
Section 2.12 ERISA............................................................. 10
Section 2.13 Compliance with Certain Laws...................................... 11
Section 2.14 Liabilities....................................................... 11
Section 2.15 Labor Matters..................................................... 11
Section 2.16 Intellectual Property............................................. 12
Section 2.17 Opinion of Financial Advisor...................................... 12
Section 2.18 Pooling of Interests; Reorganization.............................. 12
Section 2.19 Required Vote of Parent Stockholders.............................. 12
Section 2.20 Ownership of Shares............................................... 12
</TABLE>
i
<PAGE>
<TABLE><CAPTION>
PAGE
----
<S> <C> <C>
Section 2.21 Operations of Sub................................................. 12
Section 2.22 Brokers........................................................... 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE COMPANY....................................................... 12
Section 3.1 Organization, Standing and Power.................................. 12
Section 3.2 Capital Structure................................................. 13
Section 3.3 Authority......................................................... 13
Section 3.4 Consents and Approvals; No Violation.............................. 13
Section 3.5 SEC Documents and Other Reports................................... 14
Section 3.6 Registration Statement and Joint Proxy Statement.................. 15
Section 3.7 Absence of Certain Changes or Events.............................. 15
Section 3.8 Permits and Compliance............................................ 15
Section 3.9 Tax Matters....................................................... 16
Section 3.10 Actions and Proceedings........................................... 16
Section 3.11 Certain Agreements................................................ 16
Section 3.12 ERISA............................................................. 17
Section 3.13 Compliance with Certain Laws...................................... 18
Section 3.14 Liabilities....................................................... 18
Section 3.15 Labor Matters..................................................... 18
Section 3.16 Intellectual Property............................................. 18
Section 3.17 Opinion of Financial Advisor...................................... 19
Section 3.18 State Takeover Statutes and Shareholder Rights Plan............... 19
Section 3.19 Required Vote of Company Stockholders............................. 19
Section 3.20 Pooling of Interests; Reorganization.............................. 19
Section 3.21 Brokers........................................................... 19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS......................... 19
Section 4.1 Conduct of Business Pending the Merger............................ 19
Section 4.2 No Solicitation................................................... 22
Section 4.3 Third Party Standstill Agreements................................. 23
Section 4.4 Pooling of Interests; Reorganization.............................. 23
ARTICLE V ADDITIONAL AGREEMENTS............................................. 23
Section 5.1 Stockholder Meetings.............................................. 23
Section 5.2 Preparation of the Registration Statement and the Joint
Proxy Statement................................................... 23
Section 5.3 Access to Information............................................. 24
Section 5.4 Compliance with the Securities Act; Pooling Period................ 24
Section 5.5 NASDAQ Listing.................................................... 25
Section 5.6 Fees and Expenses................................................. 25
Section 5.7 Company Stock Options; Stock Purchase Plan........................ 27
Section 5.8 Reasonable Best Efforts; Pooling of Interests..................... 28
Section 5.9 Public Announcements.............................................. 29
</TABLE>
ii
<PAGE>
<TABLE><CAPTION>
PAGE
----
<S> <C> <C>
Section 5.10 Real Estate Transfer and Gains Tax................................ 29
Section 5.11 State Takeover Laws............................................... 29
Section 5.12 Indemnification; Directors and Officers Insurance................. 29
Section 5.13 Notification of Certain Matters................................... 30
Section 5.14 Directors......................................................... 30
Section 5.15 Designation of Directors.......................................... 30
ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER................................ 30
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger........ 30
Section 6.2 Conditions to Obligation of the Company to Effect the Merger...... 31
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger............................................................ 32
ARTICLE VII TERMINATION. AMENDMENT AND WAIVER................................. 33
Section 7.1 Termination....................................................... 33
Section 7.2 Effect of Termination............................................. 34
Section 7.3 Amendment......................................................... 34
Section 7.4 Waiver............................................................ 34
ARTICLE VIII GENERAL PROVISIONS................................................ 35
Section 8.1 Non-Survival of Representations, Warranties and Agreements........ 35
Section 8.2 Notices........................................................... 35
Section 8.3 Interpretation.................................................... 35
Section 8.4 Counterparts...................................................... 36
Section 8.5 Entire Agreement; No Third-Party Beneficiaries.................... 36
Section 8.6 Governing Law..................................................... 36
Section 8.7 Assignment........................................................ 36
Section 8.8 Severability...................................................... 36
Section 8.9 Enforcement of this Agreement..................................... 36
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 22, 1995 (this
"Agreement"), among PROFFITT'S, INC., a Tennessee corporation ("Parent"), BALTIC
MERGER CORPORATION, a Delaware corporation and a wholly-owned subsidiary of
Parent ("Sub"), and YOUNKERS, INC., a Delaware corporation (the "Company") (Sub
and the Company being hereinafter collectively referred to as the "Constituent
Corporations").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved and declared advisable the merger of Sub and the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of Common Stock, par value $0.01 per
share, of the Company ("Company Common Stock") not owned directly or indirectly
by Parent or the Company will be converted into shares of Parent Common Stock,
par value $.10 per share ("Parent Common Stock");
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is in the best interest of their
respective stockholders;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the Delaware General Corporation Law (the "Del.C."), Sub
shall be merged with and into the Company at the Effective Time (as hereinafter
defined). Following the Merger, the separate corporate existence of Sub shall
cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the Del.C.
Section 1.2 Effective Time. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the Del.C., is filed with the Secretary of State of
the State of Delaware; provided, however, that, upon mutual consent of the
Constituent Corporations, the Certificate of Merger may provide for a later date
of effectiveness of the Merger not more than 30 days after the date the
Certificate of Merger is filed. When used in this Agreement, the term "Effective
Time" shall mean the later of the date and time at which the Certificate of
Merger is filed or such later time established by the Certificate of Merger. The
filing of the Certificate of Merger shall be made on the date of the Closing (as
defined in Section 1.17), or as promptly thereafter as practicable.
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the Del.C.
<PAGE>
Section 1.4 Charter and By-laws. At the Effective Time, the Restated
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be amended so that Article Fourth of such Restated
Certificate of Incorporation reads in its entirety as follows: "The total number
of shares of all classes of capital stock which the Corporation shall have
authority to issue is 100 shares of Common Stock, par value $.01 per share." As
so amended, such Restated Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law. At the Effective Time, the
By-laws of the Company, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by the Certificate of Incorporation of the
Surviving Corporation or by applicable law.
Section 1.5 Conversion of Securities. As of the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or the holders
of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value $.01 per
share, of Sub shall be converted into one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) All shares of Company Common Stock that are held in the treasury of the
Company or by any wholly-owned Subsidiary of the Company and any shares of
Company Common Stock owned by Parent or by any wholly-owned Subsidiary of Parent
shall be cancelled and no capital stock of Parent or other consideration shall
be delivered in exchange therefor; provided, however, that shares of Company
Common Stock held in the treasury to fund the deferred compensation plans of W.
Thomas Gould and Robert M. Mosco (the "Deferred Comp Shares") will be converted
into the right to receive on the same terms and conditions as provided in such
plans authorized but unissued shares of Parent Common Stock calculated by
multiplying the Conversion Number (as hereafter defined) times the number of
Deferred Comp Shares.
(c) Subject to the provisions of Section 1.10 hereof, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares to be cancelled in accordance with Section 1.5(b)) shall be
converted into .98 (such number being the "Conversion Number") validly issued,
fully paid and nonassessable shares of Parent Common Stock. All such shares of
Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be cancelled and retired and each holder of a certificate
formerly representing any such shares shall cease to have any rights with
respect thereto, except the right to receive any dividends and other
distributions in accordance with Section 1.7, certificates representing the
shares of Parent Common Stock into which such shares are converted and any cash,
without interest, in lieu of fractional shares to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance with
Section 1.6. Each certificate shall, from and after the Effective Time until
surrendered in exchange for Parent Common Stock, for all purposes be deemed to
represent the number of shares of Parent Common Stock calculated by taking the
number of shares represented by the certificate times the Conversion Number.
Section 1.6 Parent to Make Certificates Available.
(a) Exchange of Certificates. Parent shall authorize a commercial bank
reasonably acceptable to the Company (or such other person or persons as shall
be acceptable to Parent and the Company) to act as Exchange Agent hereunder (the
"Exchange Agent"). As soon as practicable after the Effective Time, Parent shall
deposit with the Exchange Agent, in trust for the holders of shares of Company
Common Stock converted in the Merger, certificates representing the shares of
Parent Common Stock issued pursuant to Section 1.5(c) in exchange for
outstanding certificates representing shares of Company Common Stock and cash,
as required to make payments in lieu of any fractional shares pursuant to
Section 1.8 (such cash and shares of Parent Common Stock, together with any
dividends or
2
<PAGE>
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the certificates representing the Parent Common Stock
contemplated to be delivered pursuant to Section 1.5(c) out of the Exchange
Fund. Except as contemplated by Sections 1.6, 1.8 and 1.9, the Exchange Fund
shall not be used for any other purpose.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock converted in the Merger
(the "Certificates") a letter of transmittal (which shall be in customary form,
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Exchange Agent, and shall contain instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock and cash in lieu of fractional shares). Upon surrender
for cancellation to the Exchange Agent of a Certificate, together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Parent Common Stock into which the shares represented by the
surrendered Certificate shall have been converted at the Effective Time pursuant
to this Article I, cash in lieu of any fractional share in accordance with
Section 1.8 and certain dividends and other distributions in accordance with
Section 1.7, and any Certificate so surrendered shall forthwith be cancelled.
Section 1.7 Dividends; Transfer Taxes; Withholding. No dividends or other
distributions that are declared on or after the Effective Time on Parent Common
Stock, or are payable to the holders of record thereof on or after the Effective
Time, will be paid to any person entitled by reason of the Merger to receive a
certificate representing Parent Common Stock and no cash payment in lieu of
fractional shares will be paid to any such person pursuant to Section 1.8 until
such person surrenders the related Certificate or Certificates, as provided in
Section 1.6. Subject to the effect of applicable law, there shall be paid to
each record holder of a new certificate representing such Parent Common Stock:
(i) at the time of such surrender or as promptly as practicable thereafter, the
amount of any dividends or other distributions theretofore paid with respect to
the shares of Parent Common Stock represented by such new certificate and having
a record date on or after the Effective Time and a payment date prior to such
surrender; (ii) at the appropriate payment date or as promptly as practicable
thereafter, the amount of any dividends or other distributions payable with
respect to such shares of Parent Common Stock and having a record date on or
after the Effective Time but prior to such surrender and a payment date on or
subsequent to such surrender; and (iii) at the time of such surrender or as
promptly as practicable thereafter, the amount of any cash payable with respect
to a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.8. In no event shall the person entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any cash or certificate representing shares
of Parent Common Stock is to be paid to or issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Parent Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Parent or the Exchange
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Parent or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the Code or under any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
3
<PAGE>
shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent or the Exchange Agent.
Section 1.8 No Fractional Securities. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to this Article I, and no Parent dividend or
other distribution or stock split shall relate to any fractional share, and no
fractional share shall entitle the owner thereof to vote or to any other rights
of a security holder of Parent. In lieu of any such fractional share, each
holder of Company Common Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock upon surrender of Certificates for
exchange pursuant to this Article I will be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the per
share closing price on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") of Parent Common Stock on the date of the Effective
Time (or, if the shares of Parent Common Stock do not trade on NASDAQ on such
date, the first date of trading of shares of Parent Common Stock on NASDAQ after
the Effective Time) by (ii) the fractional interest to which such holder would
otherwise be entitled. As promptly as practicable after the determination of the
amount of cash, if any, to be paid to holders of fractional share interests, the
Exchange Agent shall so notify the Parent, and the Parent shall deposit such
amount with the Exchange Agent and shall cause the Exchange Agent to forward
payments to such holders of fractional share interests subject to and in
accordance with the terms of Section 1.7 and this Section 1.8.
Section 1.9 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former stockholders of the Company for one year
after the Effective Time shall be delivered to Parent, upon demand of Parent,
and any such former stockholders who have not theretofore complied with this
Article I shall thereafter look only to Parent for payment of their claim for
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent Common Stock.
Neither Parent nor the Surviving Corporation shall be liable to any former
holder of Company Common Stock for any such shares of Parent Common Stock, cash
and dividends and distributions held in the Exchange Fund which is delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.10 Adjustment of Conversion Number. In the event of any
reclassification, stock split or stock dividend with respect to Parent Common
Stock, any change or conversion of Parent Common Stock into other securities,
any other dividend or distribution with respect to the Parent Common Stock other
than normal quarterly cash dividends as the same may be adjusted from time to
time pursuant to the terms of this Agreement (or if a record date with respect
to any of the foregoing should occur), or any issuance of securities (other than
rights) pursuant to either the Parent Rights Plan (as hereinafter defined) or
the Company Rights Plan (as hereinafter defined) prior to the Effective Time,
appropriate and proportionate adjustments, if any, shall be made to the
Conversion Number, and all references to the Conversion Number in this Agreement
shall be deemed to be to the Conversion Number as so adjusted.
Section 1.11 No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued pursuant to the terms hereof (including any cash
paid pursuant to Section 1.8) shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of Company Common Stock
represented by such Certificates.
Section 1.12 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, the Exchange Agent or the Parent, such Certificates shall be
cancelled and exchanged as provided in this Article I.
4
<PAGE>
Section 1.13 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct (but consistent with
the practices the Parent applies to its own stockholders), as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock, any cash in lieu of fractional
shares of Parent Common Stock to which the holders thereof are entitled pursuant
to Section 1.8 and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 1.7.
Section 1.14 Affiliates. Certificates surrendered for exchange by any
"affiliate" (as determined pursuant to Section 5.4) of the Company for purposes
of Rule 145(c) under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations promulgated thereunder, shall not be
exchanged until Parent has received a written agreement from such Person as
provided in Section 5.4 hereof.
Section 1.15 Dissenters' Rights. In accordance with Section 262 of the
Del.C., no appraisal rights shall be available to holders of the Company's
Common Stock in connection with the Merger.
Section 1.16 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
Section 1.17 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") and all actions specified in this Agreement to occur
at the Closing shall take place at the principal executive offices of Parent,
115 Calderwood Drive, Alcoa, Tennessee, at 10:00 a.m., local time, no later than
the second business day following the day on which the last of the conditions
set forth in Article VI shall have been fulfilled or waived or at such other
time and place as Parent and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
Section 2.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Tennessee, and has the requisite corporate power and authority to carry on its
business as now being conducted. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each Subsidiary of Parent is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is organized
and has the requisite corporate power and authority to carry on its
5
<PAGE>
business as now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power or authority would not,
individually or in the aggregate, have a Material Adverse Effect (as hereinafter
defined) on Parent. Parent and each of its Subsidiaries are duly qualified to do
business, and are in good standing, in each jurisdiction where the character of
their properties owned or held under lease or the nature of their activities
makes such qualification necessary, except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
Parent. For purposes of this Agreement (a) "Material Adverse Change" or
"Material Adverse Effect" means, when used with respect to Parent or the
Company, as the case may be, any change or effect that is materially adverse to
the assets, liabilities, results of operation or financial condition of Parent
and its Subsidiaries, taken as a whole, or the Company and its Subsidiaries,
taken as a whole, as the case may be, and (b) "Subsidiary" means any
corporation, partnership, joint venture or other legal entity of which Parent or
the Company, as the case may be (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation, partnership, joint venture or other legal entity.
Section 2.2 Capital Structure. As of the Effective Time, the authorized
capital stock of Parent will consist of 100,000,000 shares of Parent Common
Stock and 10,000,000 shares of Preferred Stock, par value $1.00 per share (the
"Parent Preferred Stock"). At the close of business on October 19, 1995, (i)
10,241,555 shares of Parent Common Stock were issued and outstanding, all of
which were validly issued, fully paid and nonassessable and free of preemptive
rights; (ii) 1,690,000 shares of Parent Common Stock were reserved for future
issuance pursuant to Parent's 1994 Long-Term Incentive Plan and the 1987 Stock
Option Plan; (iii) 350,000 shares of Parent Common Stock were reserved for
future issuance pursuant to Parent's 1994 Employee Stock Purchase Plan; (iv)
1,421,801 shares of Parent Common Stock were reserved for future issuance
pursuant to the terms of the Series A Cumulative Convertible Exchangeable
Preferred Stock; and (v) 2,019,906 shares of Parent Common Stock were reserved
for future issuance pursuant to the terms of the 4 3/4% Convertible Subordinated
Debentures Due 2003. Six Hundred Thousand (600,000) shares of Parent's Series A
Cumulative Convertible Exchangeable Preferred Stock were issued and outstanding.
No other shares of Preferred Stock were issued and outstanding. All of the
shares of Parent Common Stock issuable in exchange for Company Common Stock at
the Effective Time in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable and free of
preemptive rights. As of the date of this Agreement, except for (a) this
Agreement, (b) stock options covering not in excess of 1,215,000 shares of
Parent Common Stock (collectively, the "Parent Stock Options"), (c) the
conversion provision of the Series A Preferred Stock, (d) the 1994 Employee
Stock Purchase Plan, (e) the 4 3/4% Convertible Subordinated Debentures due
2003, (f) contingent stock grants of 35,000 shares of Parent Common Stock to key
executives, and (g) securities issuable pursuant to the stock purchase rights
declared as a dividend on March 28, 1995 (the "Parent Rights") and the rights
agreement dated as of March 28, 1995 between Parent and Union Planters National
Bank (the "Parent Rights Agreement") ( the Parent Rights and the Parent Rights
Agreement are collectively the "Parent Rights Plan"), there are no options,
warrants, calls, rights or agreements to which Parent or any of its Subsidiaries
is a party or by which any of them is bound obligating Parent or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Parent or any of its Subsidiaries or
obligating Parent or any of its Subsidiaries to grant, extend or enter into any
such option, warrant, call, right or agreement. Each outstanding share of
capital stock of each Subsidiary of Parent is duly authorized, validly issued,
fully paid and nonassessable and, except as disclosed in the Parent SEC
Documents (as hereinafter defined), each such share is owned by Parent or
another Subsidiary of Parent, free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
voting rights, charges and other encumbrances of any nature whatsoever.
Section 2.3 Authority. The respective Boards of Directors of Parent and Sub
have on or prior to the date of this Agreement declared the Merger advisable and
approved this Agreement in accordance
6
<PAGE>
with the applicable law. Each of Parent and Sub has all requisite corporate
power and authority to enter into this Agreement and, subject to approval by the
stockholders of Parent of this Agreement, the issuance of Parent Common Stock in
connection with the Merger (the "Share Issuance"), and the amendment of Parent's
1994 Long-Term Incentive Plan to increase the number of authorized shares
(collectively, the "Parent Stockholders' Approvals"), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub, subject to (x) approval by the stockholders of
Parent and (y) the filing of appropriate Merger documents as required by the
Del.C. This Agreement has been duly executed and delivered by Parent and Sub and
(assuming the valid authorization, execution and delivery of this Agreement by
the Company) this Agreement constitutes the valid and binding obligation of
Parent and Sub enforceable against each of them in accordance with its terms.
The Share Issuance and the filing of a registration statement on Form S-4 with
the SEC by Parent under the Securities Act of 1933, as amended (together with
the rules and regulations promulgated thereunder, the "Securities Act"), for the
purpose of registering the shares of Parent Common Stock to be issued in the
Merger (together with any amendments or supplements thereto, whether prior to or
after the effective date thereof, the "Registration Statement") have been duly
authorized by Parent's Board of Directors. The Parent Common Stock, when issued,
will be registered under the Securities Act and Exchange Act and registered or
exempt from registration under any applicable state securities or "blue sky"
laws ("Blue Sky Laws").
Section 2.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in the second
sentence of this Section 2.4 have been obtained and all filings and obligations
described in this Section 2.4 have been made, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, result in any violation of,
or default (with or without notice or lapse of time, or both) under, or give to
others a right of termination, cancellation or acceleration of any obligation or
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its Subsidiaries under, any provision of (i) the Charter or
By-laws of Parent, (ii) any provision of the comparable charter or organization
documents of any of Parent's Subsidiaries, (iii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Subsidiaries
or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clauses (ii), (iii) or (iv),
any such violations, defaults, rights, liens, security interests, charges or
encumbrances that, individually or in the aggregate, would not have a Material
Adverse Effect on Parent, or prevent or materially delay the consummation of any
of the transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state), foreign
or supranational court, commission, governmental body, regulatory agency,
authority or tribunal (a "Governmental Entity") is required by or with respect
to Parent or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by Parent or Sub or is necessary for the consummation
of the Merger and the other transactions contemplated by this Agreement, except
for (i) in connection, or in compliance, with the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act and the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act"), (ii) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware and appropriate documents with the relevant authorities
of other states in which the Company or any of its Subsidiaries is qualified to
do business, (iii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or by the
transactions contemplated by this Agreement, (iv) such filings, authorizations,
orders and approvals as may be required by state takeover laws (the "State
Takeover Approvals"), (v) such filings
7
<PAGE>
as may be required in connection with the taxes described in Section 5.11, (vi)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under the laws of any foreign country in which
the Company or any of its Subsidiaries conducts any business or owns any
property or assets, (vii) such filings and consents as may be required under any
state or foreign laws pertaining to debt collection, the issuance of payment
instruments or money transmission, (viii) applicable requirements, if any, of
Blue Sky Laws and NASDAQ, and (ix) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on Parent, or prevent or materially delay the consummation of any of the
transactions contemplated hereby.
Section 2.5 SEC Documents and Other Reports. Parent has filed all required
documents with the SEC since January 1, 1993 (the "Parent SEC Documents"). As of
their respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and, at the respective times they were filed, none of the Parent
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements (including, in each case,
any notes thereto) of Parent included in the Parent SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles (except, in the case
of the unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly presented in all material respects the
consolidated financial position of Parent and its consolidated Subsidiaries as
at the respective dates thereof and the consolidated results of their operations
and their consolidated cash flows for the periods then ended (subject, in the
case of unaudited statements, to any other adjustments described therein and
normal year-end audit adjustments). Except as disclosed in the Parent SEC
Documents or as required by generally accepted accounting principles, Parent has
not, since January 28, 1995, made any change in the accounting practices or
policies applied in the preparation of financial statements.
Section 2.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement or the joint proxy statement/prospectus
included therein (together with any amendments or supplements thereto, the
"Joint Proxy Statement") relating to the Stockholder Meetings (as defined in
Section 5.1) will (i) in the case of the Registration Statement, at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading or (ii) in the case of the Joint
Proxy Statement, at the time of the mailing of the Joint Proxy Statement, the
time of each of the Stockholder Meetings and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to Parent, its officers
and directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement, such event
shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of Parent and the Company. The Registration Statement will comply
(with respect to Parent) as to form in all material respects with the provisions
of the Securities Act, and the Joint Proxy Statement will comply (with respect
to Parent) as to form in all material respects with the provisions of the
Exchange Act.
Section 2.7 Absence of Certain Changes or Events. Except as disclosed in
Parent SEC Documents filed with the SEC prior to the date of this Agreement,
since January 28, 1995, (A) Parent and its Subsidiaries have not incurred any
material liability or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not in
the ordinary
8
<PAGE>
course of business or that would result in a Material Adverse Effect on Parent,
excluding any changes and effects resulting from changes in economic, regulatory
or political conditions or changes in conditions generally applicable to the
industries in which Parent and Subsidiaries of Parent are involved and except
for any such changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof; (B) Parent and its Subsidiaries
have not sustained any loss or interference with their business or properties
from fire, flood, windstorm, accident or other calamity (whether or not covered
by insurance) that has had a Material Adverse Effect on Parent; (C) other than
any indebtedness incurred by Parent after the date hereof as permitted by
Section 4.1(a)(vi), there has been no material change in the consolidated
indebtedness of Parent and its Subsidiaries, and no dividend or distribution of
any kind declared, paid or made by Parent on any class of its stock, except for
regular semi-annual dividends of not more than $1.625 per share on Parent Series
A Preferred Stock; and (D) there has been no event causing a Material Adverse
Effect on Parent, excluding any changes and effects resulting from changes in
economic, regulatory or political conditions or changes in conditions generally
applicable to the industries in which Parent and Subsidiaries of Parent are
involved and except for any such changes or effects resulting from this
Agreement, the transactions contemplated hereby or the announcement thereof.
Section 2.8 Permits and Compliance. Each of Parent and its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for Parent or any of its Subsidiaries to
own, lease and operate its properties or to carry on its business as it is now
being conducted (the "Parent Permits"), except where the failure to have any of
the Parent Permits would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, and, as of the date of this Agreement, no suspension
or cancellation of any of the Parent Permits is pending or, to the Knowledge of
Parent (as hereinafter defined herein), threatened, except where the suspension
or cancellation of any of the Parent Permits would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. Neither Parent nor any of
its Subsidiaries is in violation of (A) its charter, by-laws or other
organizational documents, (B) any applicable law, ordinance, administrative or
governmental rule or regulation or (C) any order, decree or judgment of any
Governmental Entity having jurisdiction over Parent or any of its Subsidiaries,
except, in the case of clauses (A), (B) and (C), for any violations that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. Except as disclosed in the Parent SEC Documents filed prior to the date
of this Agreement, there is no contract or agreement that is material to the
business, financial condition or results of operations of Parent and its
Subsidiaries, taken as a whole. Except as set forth in the Parent SEC Documents,
prior to the date of this Agreement, no event of default or event that, but for
the giving of notice or the lapse of time or both, would constitute an event of
default exists or, upon the consummation by Parent of the transactions
contemplated by this Agreement, will exist under any indenture, mortgage, loan
agreement, note or other agreement or instrument for borrowed money, any
guarantee of any agreement or instrument for borrowed money or any lease,
contractual license or other agreement or instrument to which Parent or any of
its Subsidiaries is a party or by which Parent or any such Subsidiary is bound
or to which any of the properties, assets or operations of Parent or any such
Subsidiary is subject, other than any defaults that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent. "Knowledge of
Parent" means the actual knowledge of the Chief Executive Officer and Chief
Financial Officer of the Parent.
Section 2.9 Tax Matters. Each of Parent and its Subsidiaries has filed all
Tax Returns required to have been filed (or extensions have been duly obtained)
and has paid all Taxes required to have been paid by it, except where failure to
file such Tax Returns or pay such Taxes would not, in the aggregate, have a
Material Adverse Effect on Parent. For purposes of this Agreement: (i) "Tax"
(and, with correlative meaning, "Taxes") means any federal, state, local or
foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or added minimum, ad
valorem, transfer or excise tax, or any other tax, custom, duty, governmental
fee or other
9
<PAGE>
like assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority and (ii) "Tax Return" means any
return, report or similar statement required to be filed with respect to any Tax
(including any attached schedules), including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
Section 2.10 Actions and Proceedings. Except as set forth in the Parent SEC
Documents, there are no outstanding orders, judgments, injunctions, awards or
decrees of any Governmental Entity against or involving Parent or any of its
Subsidiaries, or against or involving any of the present or former directors,
officers, employees, consultants, agents or stockholders of Parent or any of its
Subsidiaries, as such, any of its or their properties, assets or business or any
Parent Plan (as hereinafter defined) that, individually or in the aggregate,
would have a Material Adverse Effect on Parent. As of the date of this
Agreement, there are no actions, suits or claims or legal, administrative or
arbitrative proceedings or investigations pending or, to the Knowledge of
Parent, threatened against or involving Parent or any of its Subsidiaries or any
of its or their present or former directors, officers, employees, consultants,
agents or stockholders, as such, any of its or their properties, assets or
business or any Parent Plan that, individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect on Parent. As of the date
hereof, there are no actions, suits, labor disputes or other litigation, legal
or administrative proceedings or governmental investigations pending or, to the
Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries or any of its or their present or former officers, directors,
employees, consultants, agents or stockholders, as such, or any of its or their
properties, assets or business relating to the transactions contemplated by this
Agreement.
Section 2.11 Certain Agreements. As of the date of this Agreement, neither
Parent nor any of its Subsidiaries is a party to any oral or written agreement
or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
Section 2.12 ERISA. Each Parent Plan complies in all material respects with
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the
Code and all other applicable statutes and governmental rules and regulations,
including but not limited to the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA"), and (i) no "reportable event" (within the meaning
of Section 4043 of ERISA) has occurred with respect to any Parent Plan, (ii)
neither Parent nor any of its ERISA Affiliates (as hereinafter defined) has
withdrawn from any Parent Multiemployer Plan (as hereinafter defined) or
instituted, or is currently considering taking, any action to do so, except for
Proffitt's of Tri-Cities, Inc.'s withdrawal from Belk Employees' Group Life
Insurance and Medical Plan to the extent that it no longer pays retiree life
benefits (iii) no action has been taken, or is currently being considered, to
terminate any Parent Plan subject to Title IV of ERISA, and (iv) Parent and its
ERISA Affiliates have complied in all material respects with the continued
medical coverage requirements of COBRA. No Parent Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived. With respect to any Parent Plan
which is subject to Title IV of ERISA, the present value of the liabilities (as
determined on a terminated plan basis) do not exceed the fair market value of
the Plan assets as of the most recent valuation date. With respect to the Parent
Plans, no event has occurred in connection with which Parent or any ERISA
Affiliate would be subject to any liability under the terms of such Parent
Plans, ERISA, the Code or any other applicable law which would have a Material
Adverse Effect on Parent. All Parent Plans that are intended to be qualified
under Section 401(a) of the Code have been determined by the Internal Revenue
Service to be so qualified, and to the Knowledge of Parent, there is no reason
why any Parent Plan is not so qualified in operation. Neither Parent nor any of
its ERISA Affiliates has been notified by any Parent Multiemployer Plan that
such Parent Multiemployer Plan is currently in reorganization or insolvency
under and within the meaning of Section 4241 or 4245 of ERISA or that such
Parent Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of
10
<PAGE>
ERISA. Neither Parent nor any of its ERISA Affiliates has any liability or
obligation under any welfare plan to provide benefits after termination of
employment to any employee or dependent other than as required by ERISA or as
disclosed in the Parent Annual Report. As used herein, (i) "Parent Plan" means a
"pension plan" (as defined in Section 3(2) of ERISA (other than a Parent
Multiemployer Plan)) or a "welfare plan" (as defined in Section 3(l) of ERISA)
established or maintained by Parent or any of its ERISA Affiliates or as to
which Parent or any of its ERISA Affiliates has contributed or otherwise may
have any liability, (ii) "Parent Multiemployer Plan" means a "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA) to which Parent or any of its
ERISA Affiliates is or has been obligated to contribute or otherwise may have
any liability, and (iii) with respect to any person, "ERISA Affiliate" means any
trade or business (whether or not incorporated) which is under common control or
would be considered a single employer with such person pursuant to Section
414(b), (c), (m) or (o) of the Code and the regulations promulgated under those
sections or pursuant to Section 4001(b) of ERISA and the regulations promulgated
thereunder.
Section 2.13 Compliance with Certain Laws. The properties, assets and
operations of Parent and its Subsidiaries are in compliance in all material
respects with all applicable federal, state, local and foreign laws, rules and
regulations, orders, decrees, judgments, permits and licenses relating to public
and worker health and safety (collectively, "Worker Safety Laws") and the
protection and clean-up of the environment and activities or conditions related
thereto, including, without limitation, those relating to the generation,
handling, disposal, transportation or release of hazardous materials
(collectively, "Environmental Laws"), except for any violations that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. With respect to such properties, assets and operations, including any
previously owned, leased or operated properties, assets or operations, there are
no past, present or reasonably anticipated future events, conditions,
circumstances, activities, practices, incidents, actions or plans of Parent or
any of its Subsidiaries that may interfere with or prevent compliance or
continued compliance in all material respects with applicable Worker Safety Laws
and Environmental Laws, other than any such interference or prevention as would
not, individually or in the aggregate with any such other interference or
prevention, have a Material Adverse Effect on Parent. The term "hazardous
materials" shall mean those substances that are regulated by or form the basis
for liability under any applicable Environmental Laws.
Section 2.14 Liabilities. Except as fully reflected or reserved against in
the financial statements included in the Parent Annual Report, or disclosed in
the footnotes thereto, Parent and its Subsidiaries had no liabilities
(including, without limitation, tax liabilities) at the date of such financial
statements, absolute or contingent, other than liabilities that, individually or
in the aggregate, would not have a Material Adverse Effect on Parent, and had no
liabilities (including, without limitation, tax liabilities) that were not
incurred in the ordinary course of business. Except as so reflected, reserved or
disclosed, Parent and its Subsidiaries have no commitments, other than any
commitments which, individually or in the aggregate, would not have a Material
Adverse Effect on Parent.
Section 2.15 Labor Matters. Neither Parent nor any of its Subsidiaries is a
party to any collective bargaining agreement or labor contract. Neither Parent
nor any of its Subsidiaries has engaged in any unfair labor practice with
respect to any persons employed by or otherwise performing services primarily
for Parent or any of its Subsidiaries (the "Parent Business Personnel"), and
there is no unfair labor practice complaint or grievance against Parent or any
of its Subsidiaries by the National Labor Relations Board or any comparable
state agency pending or threatened in writing with respect to the Parent
Business Personnel, except where such unfair labor practice, complaint or
grievance would not have a Material Adverse Effect on Parent. There is no labor
strike, dispute, slowdown or stoppage pending or, to the Knowledge of Parent,
threatened against or affecting Parent or any of its Subsidiaries which may
interfere with the respective business activities of Parent or any of its
Subsidiaries, except where such dispute, strike or work stoppage would not have
a Material Adverse Effect on Parent.
11
<PAGE>
Section 2.16 Intellectual Property. Parent and its Subsidiaries have all
patents, trademarks, trade names, service marks, trade secrets, copyrights and
other proprietary intellectual property rights (collectively, "Intellectual
Property Rights") as are necessary in connection with the business of Parent and
its Subsidiaries, taken a whole, except where the failure to have such
Intellectual Property Rights would not have a Material Adverse Effect on Parent.
Neither Parent nor any of its Subsidiaries has infringed any Intellectual
Property Rights of any third party other than any infringements that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent.
Section 2.17 Opinion of Financial Advisor. Parent has received the written
opinion of Smith Barney Inc., dated the date hereof, to the effect that, as of
such date, the Conversion Number (as defined in such opinion) is fair to Parent
from a financial point of view, a copy of which opinion will be delivered to the
Company promptly after the date of this Agreement.
Section 2.18 Pooling of Interests; Reorganization. To the Knowledge of
Parent, neither Parent nor any of its Subsidiaries has (i) taken any action or
failed to take any action which action or failure would jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes or (ii) taken
any action or failed to take any action which action or failure would jeopardize
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 2.19 Required Vote of Parent Stockholders. The affirmative vote of a
majority of the votes eligible to be cast on the approval of this Agreement is
required to approve this Agreement. The affirmative vote of a majority of the
votes cast on the Share Issuance is required to approve the Share Issuance and
to amend Parent's 1994 Long-Term Incentive Plan, provided that the total votes
cast on each proposal represents a majority of the outstanding shares of Parent
Common Stock. No other vote of the stockholders of Parent is required by law,
the Charter or By-laws of Parent or otherwise in order for Parent to consummate
the Merger and the transactions contemplated hereby.
Section 2.20 Ownership of Shares. Neither Parent nor any of its Subsidiaries
(i) "Beneficially Owns" or is the "Beneficial Owner" of (as such terms are
defined in the Company's Rights Agreement), or (ii) "owns", as such term is
defined in Section 203 of the Del.C., any Shares of Company Common Stock.
Section 2.21 Operations of Sub. Sub is a direct, wholly-owned subsidiary of
Parent, was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
Section 2.22 Brokers. No broker, investment banker or other person, other
than Smith Barney Inc., the fees and expenses of which will be paid by Parent
(and as reflected in an agreement between Smith Barney Inc. and Parent, a copy
of which has been furnished to the Company), is entitled to any broker's,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or
12
<PAGE>
other power and authority to carry on its business as now being conducted,
except where the failure to be so organized, existing or in good standing or to
have such power or authority would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company and each of its Subsidiaries
are duly qualified to do business, and are in good standing, in each
jurisdiction where the character of their properties owned or held under lease
or the nature of their activities makes such qualification necessary, except
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
Section 3.2 Capital Structure. As of the Effective Time, the authorized
capital stock of the Company will consist of 20,000,000 shares of Company Common
Stock, par value $0.01 per share, and 1,000,000 shares of Preferred Stock, par
value $0.01 per share ("Company Preferred Stock"). At the close of business on
October 16, 1995, (i) 8,985,810 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
free of preemptive rights, (ii) 153,080 shares of Company Common Stock were held
in the treasury of the Company or by the Subsidiaries of the Company, and (iii)
not more than 738,563 shares of Company Common Stock were reserved for future
issuance pursuant to the Company's 1990 Stock Option Plan, 1991 Stock Option
Plan, the 1993 Long-Term Incentive Plan, or pursuant to any plans assumed by the
Company in connection with any acquisition, business combination or similar
transaction (collectively, the "Company Stock Option Plans"). No shares of
Company Preferred Stock are outstanding. As of the date of this Agreement,
except for stock options covering not in excess of 712,263 shares of Company
Common Stock issued under the Company Stock Option Plans (collectively, the
"Company Stock Options") and securities issuable under the Company Rights Plan
(as hereinafter defined), there are no options, warrants, calls, rights or
agreements to which the Company or any of its Subsidiaries is a party or by
which any of them is bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of the Company or any of its Subsidiaries or obligating
the Company or any of its Subsidiaries to grant, extend or enter into any such
option, warrant, call, right or agreement. Each outstanding share of capital
stock of each Subsidiary of the Company that is a corporation is duly
authorized, validly issued, fully paid and nonassessable and, except as
disclosed in the Company SEC Documents (as hereinafter defined), each such share
is owned by the Company or another Subsidiary of the Company, free and clear of
all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges and other
encumbrances of any nature whatsoever.
Section 3.3 Authority. The Board of Directors of the Company has on or prior
to the date of this Agreement (a) declared the Merger advisable and fair to and
in the best interest of the Company and its stockholders, (b) approved this
Agreement in accordance with the Del.C., (c) resolved to recommend the approval
of this Agreement by the Company's stockholders and (d) directed that this
Agreement be submitted to the Company's stockholders for approval. The Company
has all requisite corporate power and authority to enter into this Agreement
and, subject to approval by the stockholders of the Company of this Agreement
(which, for all purposes in this Agreement, shall be deemed to include any
necessary approval of amendments to the Company's stock plans), to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, subject to (x) approval of this Agreement by the
stockholders of the Company and (y) the filing of appropriate Merger documents
as required by the Del.C. This Agreement has been duly executed and delivered by
the Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub) constitutes the valid and binding obligation
of the Company enforceable against the Company in accordance with its terms. The
filing of the Joint Proxy Statement with the SEC has been duly authorized by the
Company's Board of Directors.
Section 3.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
3.4 have been obtained and all filings and obligations described in this Section
3.4 have been made, the execution and delivery of this Agreement
13
<PAGE>
do not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give to
others a right of termination, cancellation or acceleration of any obligation or
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company or any of its Subsidiaries under, any provision of (i) the
Certificate of Incorporation or By-Laws of the Company, (ii) any provision of
the comparable charter or organization documents of any of the Company's
Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its Subsidiaries or (iv) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets, other than, in the case of clauses (ii), (iii) or (iv), any such
violations, defaults, rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Company, or prevent the consummation of any of the transactions
contemplated hereby. No filing or registration with, or authorization, consent
or approval of, any Governmental Entity is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and delivery
of this Agreement by the Company or is necessary for the consummation of the
Merger and the other transactions contemplated by this Agreement, except for (i)
in connection, or in compliance, with the provisions of the HSR Act, the
Securities Act and the Exchange Act, (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company or
any of its Subsidiaries is qualified to do business, (iii) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or by the transactions contemplated by this Agreement,
(iv) such filings, authorizations, orders and approvals as may be required to
obtain the State Takeover Approvals, (v) such filings as may be required in
connection with the taxes described in Section 5.11, (vi) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under the laws of any foreign country in which the Company or
any of its Subsidiaries conducts any business or owns any property or assets,
(vii) such filings and consents as may be required under any state or foreign
laws pertaining to debt collection, the issuance of payment instruments or money
transmission, (viii) applicable requirements, if any, of Blue Sky Laws and
NASDAQ, and (ix) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
or prevent the consummation of any of the transactions contemplated hereby.
Section 3.5 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since January 1, 1993 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Company included in the
Company SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly presented in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as at the respective
dates thereof and the consolidated results of their operations and their
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC Documents
or as required by
14
<PAGE>
generally accepted accounting principles, the Company has not, since January 28,
1995, made any change in the accounting practices or policies applied in the
preparation of financial statements.
Section 3.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Joint Proxy Statement will (i) in
the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Joint Proxy Statement, at the
time of the mailing of the Joint Proxy Statement, the time of each of the
Stockholder Meetings and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement, such event
shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of Parent and the Company. The Registration Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the Securities Act, and the Joint Proxy Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the Exchange Act.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents filed with the SEC prior to the date of this Agreement,
since January 28, 1995, (A) the Company and its Subsidiaries have not incurred
any material liability or obligation (indirect, direct or contingent), or
entered into any material oral or written agreement or other transaction, that
is not in the ordinary course of business or that would result in a Material
Adverse Effect on the Company, excluding any changes and effects resulting from
changes in economic, regulatory or political conditions or changes in conditions
generally applicable to the industries in which the Company and Subsidiaries of
the Company are involved and except for any such changes or effects resulting
from this Agreement, the transactions contemplated hereby or the announcement
thereof; (B) the Company and its Subsidiaries have not sustained any loss or
interference with their business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had a
Material Adverse Effect on the Company; (C) other than any indebtedness incurred
by the Company after the date hereof as permitted by Section 4.1(b)(vi), there
has been no material change in the consolidated indebtedness of the Company and
its Subsidiaries, and no dividend or distribution of any kind declared, paid or
made by the Company on any class of its stock; and (D) there has been no event
causing a Material Adverse Effect on the Company, excluding any changes and
effects resulting from changes in economic, regulatory or political conditions
or changes in conditions generally applicable to the industries in which the
Company and Subsidiaries of the Company are involved and except for any such
changes or effects resulting from this Agreement, the transactions contemplated
hereby or the announcement thereof.
Section 3.8 Permits and Compliance. Each of the Company and its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for the Company or any of its Subsidiaries
to own, lease and operate its properties or to carry on its business as it is
now being conducted (the "Company Permits"), except where the failure to have
any of the Company Permits would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, and, as of the date of this Agreement,
no suspension or cancellation of any of the Company Permits is pending or, to
the knowledge of the Company (as hereinafter defined), threatened, except where
the suspension or cancellation of any of the Company Permits would not,
individually or in the aggregate, have a Material Adverse Effect on Company.
Neither the Company nor any of its Subsidiaries is in violation of (A) its
charter, by-laws or other organizational documents, (B) any applicable law,
ordinance, administrative
15
<PAGE>
or governmental rule or regulation or (C) any order, decree or judgment of any
Governmental Entity having jurisdiction over the Company or any of its
Subsidiaries, except, in the case of clauses (A), (B) and (C), for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement, as of the date hereof there is no
contract or agreement that is material to the business, financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole.
Except as set forth in the Company SEC Documents, prior to the date of this
Agreement, no event of default or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default exists or, upon
the consummation by the Company of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any agreement
or instrument for borrowed money or any lease, contractual license or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any such Subsidiary is bound or to which any of
the properties, assets or operations of the Company or any such Subsidiary is
subject, other than any defaults that, individually or in the aggregate, would
not have a Material Adverse Effect on the Company. Set forth in Schedule 3.8 to
this Agreement is a description of (i) all leases to which the Company or any of
its Subsidiaries is a party or by which the Company or any such Subsidiary is
bound or to which any of the properties, assets or operations of the Company or
any such Subsidiary is subject and all amendments thereto, (ii) all contractual
licenses or other agreements or instruments involving sales in the Company
stores to which the Company or any of its Subsidiaries is a party or by which
the Company or any such Subsidiary is bound or to which any of the properties,
assets or operations of the Company or any such Subsidiary is bound or to which
any of the properties, assets or operations of the Company or any such
Subsidiary is subject and all amendments thereto, and (iii) any material changes
to the amount and terms of the indebtedness of the Company and its Subsidiaries
as described in the Company Annual Report. "Knowledge of the Company" means the
actual knowledge of the Chief Executive Officer and the Chief Financial Officer.
Section 3.9 Tax Matters. Each of the Company and its Subsidiaries has filed
all Tax Returns required to have been filed (or extensions have been duly
obtained) and has paid all Taxes required to have been paid by it, except where
failure to file such Tax Returns or pay such Taxes would not, in the aggregate,
have a Material Adverse Effect on the Company.
Section 3.10 Actions and Proceedings. Except as set forth in the Company SEC
Documents, there are no outstanding orders, judgments, injunctions, awards or
decrees of any Governmental Entity against or involving the Company or any of
its Subsidiaries, or against or involving any of the present or former
directors, officers, employees, consultants, agents or stockholders of the
Company or any of its Subsidiaries, as such, any of its or their properties,
assets or business or any Company Plan (as hereinafter defined) that,
individually or in the aggregate, would have a Material Adverse Effect on the
Company. Except as set forth in the Company SEC Documents, as of the date of
this Agreement, there are no actions, suits or claims or legal, administrative
or arbitrative proceedings or investigations pending or, to the Knowledge of the
Company, threatened against or involving the Company or any of its Subsidiaries
or any of its or their present or former directors, officers, employees,
consultants, agents or stockholders, as such, or any of its or their properties,
assets or business or any Company Plan that, individually or in the aggregate,
would have a Material Adverse Effect on the Company. As of the date hereof,
there are no actions, suits, labor disputes or other litigation, legal or
administrative proceedings or governmental investigations pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of its or their present or former officers, directors,
employees, consultants, agents or stockholders, as such, or any of its or their
properties, assets or business relating to the transactions contemplated by this
Agreement.
Section 3.11 Certain Agreements. As of the date of this Agreement, neither
the Company nor any of its Subsidiaries is a party to any oral or written
agreement or plan, including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan (other than pursuant to
16
<PAGE>
provisions adopted more than two (2) years ago), any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. No holder of any option to
purchase shares of Company Common Stock, or shares of Company Common Stock
granted in connection with the performance of services for the Company or its
Subsidiaries, is or will be entitled to receive cash from the Company or any
Subsidiary in lieu of or in exchange for such option or shares as a result of
the transactions contemplated by this Agreement. Neither the Company nor any
Subsidiary is a party to any termination benefits agreement or severance
agreement or employment agreement one trigger of which would be the consummation
of the transactions contemplated by this Agreement, except as set forth in
Schedule 3.11.
Section 3.12 ERISA.
(a) With respect to each material Company Plan (as hereinafter defined), the
Company has made (or as soon as practicable will make) available to Parent a
true and correct copy of (i) the three most recent annual reports (Form 5500)
filed with the Internal Revenue Service (the "IRS"), (ii) such Company Plan,
(iii) each trust agreement, insurance contract or administration agreement
relating to such Company Plan, (iv) the most recent summary plan description of
each Company Plan for which a summary plan description is required, (v) the most
recent actuarial report or valuation relating to a Company Plan subject to Title
IV of ERISA and (vi) the most recent determination letter, if any, issued by the
IRS with respect to any Company Plan intended to be qualified under section
401(a) of the Code. Except as would not have a Material Adverse Effect on the
Company, each Company Plan complies in all material respects with ERISA, the
Code and all other applicable statutes and governmental rules and regulations,
including but not limited to the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA"), and (i) no "reportable event" (within the meaning
of Section 4043 of ERISA) has occurred with respect to any Company Plan, (ii)
neither the Company nor any of its ERISA Affiliates is a contributing employer
to a Company Multiemployer Plan (as hereinafter defined) subject to Title IV of
ERISA and for which there would be withdrawal liability if on the Effective Time
the Company or any of its ERISA Affiliates withdrew from such Company
Multiemployer Plan, and (iii) no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA, and (iv)
the Company and its ERISA Affiliates have complied in all material respects with
the continued medical coverage requirements of COBRA. Except as would not have a
Material Adverse Effect on the Company, no Company Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived. With respect to any Company Plan
which is subject to Title IV of ERISA, the present value of the liabilities (as
determined on a terminated plan basis) do not exceed the fair market value of
the Plan assets as of the most recent valuation date.
(b) With respect to the Company Plans, no event has occurred in connection
with which the Company or any ERISA Affiliate would be subject to any liability
under the terms of such Company Plans, ERISA, the Code or any other applicable
law which would have a Material Adverse Effect on the Company. All Company Plans
that are intended to be qualified under Section 401(a) of the Code have been
determined by the Internal Revenue Service to be so qualified, or a timely
application for such determination is now pending, and to the Knowledge of the
Company, there is no reason why any Company Plan is not so qualified in
operation. Neither the Company nor any of its ERISA Affiliates has been notified
by any Company Multiemployer Plan that such Company Multiemployer Plan is
currently in reorganization or insolvency under and within the meaning of
Section 4241 or 4245 of ERISA or that such Company Multiemployer Plan intends to
terminate or has been terminated under Section 4041A of ERISA. Except as
disclosed in the Company SEC Documents, neither the Company nor any of its ERISA
Affiliates has any liability or obligation under any welfare plan to provide
benefits after termination of employment to any employee or dependent other than
as required by ERISA or as disclosed in the Company Annual Report. As used
herein, (i) "Company Plan" means a "pension plan"
17
<PAGE>
(as defined in Section 3(2) of ERISA (other than a Company Multiemployer Plan))
or a "welfare plan" (as defined in Section 3(1) of ERISA) established or
maintained by the Company or any of its ERISA Affiliates or as to which the
Company or any of its ERISA Affiliates has contributed or otherwise may have any
liability, and (ii) "Company Multiemployer Plan" means a "multiemployer plan"
(as defined in Section 4001(a)(3) of ERISA) to which the Company or any of its
ERISA Affiliates is or has been obligated to contribute or otherwise may have
any liability.
(c) A copy of each material bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment, termination,
severance, compensation, medical, health or other plan, agreement, policy or
arrangement that covers employees, directors, former employees or former
directors of the Company and its Subsidiaries (the "Compensation and Benefit
Plans") and any trust agreements or insurance contracts forming a part of such
Compensation and Benefit Plans has been provided or made available to Parent
prior to the date hereof.
Section 3.13 Compliance with Certain Laws. The properties, assets and
operations of the Company and its Subsidiaries are in compliance in all material
respects with all applicable Worker Safety Laws, Environmental Laws and consumer
credit laws, except for any violations that, individually or in the aggregate,
would not have a Material Adverse Effect on the Company. With respect to such
properties, assets and operations, including any previously owned, leased or
operated properties, assets or operations, there are no past, present or
reasonably anticipated future events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Company or any of its Subsidiaries
that may interfere with or prevent compliance or continued compliance in all
material respects with applicable Worker Safety Laws and Environmental Laws,
other than any such interference or prevention as would not, individually or in
the aggregate with any such other interference or prevention, have a Material
Adverse Effect on the Company. The Company will provide such certificates and
environmental studies as Parent may reasonably request.
Section 3.14 Liabilities. Except as fully reflected or reserved against in
the financial statements included in the Company Annual Report, or disclosed in
the footnotes thereto, the Company and its Subsidiaries had no liabilities
(including, without limitation, tax liabilities and workmen's compensation
liabilities) at the date of such financial statements, absolute or contingent,
other than liabilities that, individually or in the aggregate, would not have a
Material Adverse Effect on the Company, and had no liabilities (including,
without limitation, tax liabilities) that were not incurred in the ordinary
course of business. Except as so reflected, reserved or disclosed, the Company
and its Subsidiaries have no commitments, other than any commitments which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
Section 3.15 Labor Matters. Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or labor contract, except as
set forth in Schedule 3.15. Neither the Company nor any of its Subsidiaries has
engaged in any unfair labor practice with respect to any persons employed by or
otherwise performing services primarily for the Company or any of its
Subsidiaries (the "Company Business Personnel"), and there is no unfair labor
practice complaint or grievance against the Company or any of its Subsidiaries
by the National Labor Relations Board or any comparable state agency pending or
threatened in writing with respect to the Company Business Personnel, except
where such unfair labor practice, complaint or grievance would not have a
Material Adverse Effect on the Company. There is no labor strike, dispute,
slowdown or stoppage pending or, to the Knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries which may interfere
with the respective business activities of the Company or any of its
Subsidiaries, except where such dispute, strike or work stoppage would not have
a Material Adverse Effect on the Company.
Section 3.16 Intellectual Property. The Company and its Subsidiaries have
all Intellectual Property Rights as are necessary in connection with the
business of the Company and its Subsidiaries,
18
<PAGE>
taken as a whole, except where the failure to have such Intellectual Property
Rights would not have a Material Adverse Effect on the Company. Neither the
Company nor any of its Subsidiaries has infringed any Intellectual Property
Rights of any third party other than any infringements that, individually or in
the aggregate, would not have a Material Adverse Effect on the Company.
Section 3.17 Opinion of Financial Advisor. The Company has received the
written opinion of Goldman, Sachs & Co., dated the date hereof, to the effect
that, as of the date hereof, the Exchange Ratio (as defined in such opinion) is
fair to the Company's stockholders, a copy of which opinion will be delivered to
Parent promptly after the date of this Agreement.
Section 3.18 State Takeover Statutes and Stockholder Rights Plan. (a) As of
the date hereof, assuming the accuracy of Parent's representations and
warranties contained in Section 2.19 (Ownership of Shares), the Board of
Directors of the Company has taken all action so that prior to the execution
hereof, the Board of Directors has approved the Merger pursuant to Section
203(a)(1) of the Del.C. As of the date hereof, no other state takeover statutes,
including without limitation, any business combination act, are applicable to
the Merger, this Agreement and the transactions contemplated hereby.
(b) The Company has taken all necessary action so that, as of the Effective
Time, (i) neither the Company nor Parent will have any obligations under the
rights of the Company Stockholders declared as a dividend on October 30, 1994
(the "Rights") or the Company's Rights Agreement between the Company and Norwest
Bank Minnesota, N.A. , dated as of October 30,1994 (the "Rights Agreement") (the
Rights and Rights Agreement collectively are the "Company Rights Plan") and (ii)
the holders of the Rights will have no rights under the Rights or the Rights
Agreement.
Section 3.19 Required Vote of Company Stockholders. The affirmative vote of
the holders of not less than a majority of the outstanding shares of Company
Common Stock is required to approve the transactions contemplated by this
Agreement. No other vote of the stockholders of the Company is required by law,
the Certificate of Incorporation or By-laws of the Company or otherwise in order
for the Company to consummate the Merger and the transactions contemplated
hereby.
Section 3.20 Pooling of Interests; Reorganization. To the knowledge of the
Company, neither it nor any of its Subsidiaries or Affiliates has, or will have,
(i) taken any action or failed to take any action which action or failure would
jeopardize the treatment of the Merger as a pooling of interests for accounting
purposes or (ii) taken any action or failed to take any action which action or
failure would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
Section 3.21 Brokers. No broker, investment banker or other person, other
than Goldman, Sachs & Co., the fees and expenses of which will be paid by the
Company (and are reflected in an agreement between Goldman, Sachs & Co. and the
Company, a copy of which has been furnished to Parent), is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger.
(a) Actions by Parent. Except as expressly permitted by clauses (i) through
(ix) of this Section 4.1(a), during the period from the date of this Agreement
through the Effective Time, Parent shall, and shall cause each of its
Subsidiaries to, in all material respects carry on its business in the ordinary
course of its business as currently conducted and, to the extent consistent
therewith, use reasonable best efforts
19
<PAGE>
to preserve intact its current business organizations, keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it to the end
that its goodwill and ongoing business shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, and except as otherwise
expressly contemplated by this Agreement, Parent shall not, and shall not permit
any of its Subsidiaries to, without the prior written consent of the Company:
(i) (w) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than (A) regular semi-annual dividends of not more
than $1.625 per share on Parent Series A Preferred Stock declared and paid
on dates consistent with past practice and (B) dividends and other
distributions by Subsidiaries), (x) other than in the case of any
Subsidiary, split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock or (y) subject to the
limitations of Section 4.4 and 5.9(b), purchase, redeem or otherwise acquire
any shares of capital stock of Parent or any other securities thereof or
those of any Subsidiary or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire any such shares, voting securities, equity equivalent or
convertible securities, other than (A) the issuance of stock options and
shares of Parent Common Stock to employees of Parent or any of its
Subsidiaries in the ordinary course of business consistent with past
practice, (B) the issuance of Parent securities pursuant to the Parent
Rights Plan, and (C) the issuance by any wholly-owned Subsidiary of Parent
of its capital stock to Parent or another wholly-owned Subsidiary of Parent;
(iii) amend its charter or by-laws; provided, however, that Parent may amend
its Charter to increase its authorized capital stock ;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or
agree to acquire any assets, unless (i) the entering into a definitive
agreement relating to or the consummation of such acquisition, merger,
consolidation or purchase would not (A) impose any material delay in the
obtaining of, or significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any
Governmental Entity necessary to consummate the Merger or the expiration or
termination of any applicable waiting period, (B) significantly increase the
risk of any Governmental Entity entering an order prohibiting the
consummation of the Merger or (C) significantly increase the risk of not
being able to remove any such order on appeal or otherwise, and (ii) in the
case of any individual acquisition, merger, consolidation or purchase, the
equity value of which does not exceed $50 million;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than (A) transactions that
are in the ordinary course of business consistent with past practice and not
material to Parent and its Subsidiaries taken as a whole, (B) as may be
required by any Governmental Entity and (C) subject to Sections 4.4 and
5.9(b), dispositions involving an aggregate consideration not in excess of
$50 million;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
other investments in, any other person, other than (A) in the ordinary
course of business consistent with past practice, and (B) indebtedness,
loans, advances, capital contributions and investments between Parent and
any of its wholly-owned Subsidiaries or between any of such wholly-owned
Subsidiaries;
20
<PAGE>
(vii) knowingly violate or knowingly fail to perform any material obligation
or duty imposed upon it or any Subsidiary by any applicable material
federal, state or local law, rule, regulation, guideline or ordinance;
(viii) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (other than actions required to be taken
by generally accepted accounting principles); or
(ix) authorize, recommend or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
(b) Actions by the Company. Except as expressly permitted by clauses (i)
through (xiii) of this Section 4.1(b), during the period from the date of this
Agreement through the Effective Time, the Company, subject to Section 4.2
hereof, shall, and shall cause each of its Subsidiaries to, in all material
respects, carry on its business in, the ordinary course of its business as
currently conducted and, to the extent consistent therewith, use reasonable best
efforts to preserve intact its current business organizations, keep available
the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, and except as
otherwise expressly contemplated by this Agreement, the Company, subject to
Section 4.2 hereof, shall not, and shall not permit any of its Subsidiaries to,
without the prior written consent of Parent:
(i) (w) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such, (x) other than in the case of any Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (y) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire any such shares, voting securities, equity equivalent or
convertible securities, other than the issuance of shares of Company Common
Stock upon the exercise of Company Stock Options outstanding on the date of
this Agreement in accordance with their current terms or the issuance of
Company securities pursuant to the Company Rights Plan;
(iii) amend its charter or by-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a portion of the assets of or equity in, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets other than transactions that are in the ordinary course of
business consistent with past practice and that are not material;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than (A) transactions that
are in the ordinary course of business consistent with past practice and not
material to the Company and its Subsidiaries taken as a whole and (B) as may
be required by any Governmental Entity;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
other investments in, any other person, other than (A) indebtedness for
borrowed money incurred in the ordinary course of business consistent with
past practice and (B) indebtedness, loans, advances, capital contributions
and investments between
21
<PAGE>
the Company and any of its wholly-owned Subsidiaries or between any of such
wholly-owned Subsidiaries;
(vii) alter (through merger, liquidation, reorganization, restructuring or
in any other fashion) the corporate structure or ownership of the Company or
any Subsidiary;
(viii) enter into or adopt, or amend any existing, severance plan, agreement
or arrangement or enter into or amend any Company Plan or employment or
consulting agreement, other than as required by law;
(ix) increase the compensation payable or to become payable to its officers
or employees, except for increases in the ordinary course of business
consistent with past practice in salaries or wages of employees of the
Company or any of its Subsidiaries who are not officers of the Company or
any of its Subsidiaries, or grant any severance or termination pay to, or
enter into any employment or severance agreement with, any director or
officer of the Company or any of its Subsidiaries, or establish, adopt,
enter into, or, except as may be required to comply with applicable law,
amend or take action to enhance or accelerate any rights or benefits under,
any labor, collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer
or employee;
(x) knowingly violate or knowingly fail to perform any material obligation
or duty imposed upon it or any Subsidiary by any applicable material
federal, state or local law, rule, regulation, guideline or ordinance;
(xi) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (other than actions required to be taken
by generally accepted accounting principles);
(xii) make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability; or
(xiii) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 4.2 No Solicitation. From and after the date hereof, neither Parent
nor the Company will, and each will use its best efforts to cause any of its
officers, directors, employees, attorneys, financial advisors, agents or other
representatives or those of any of its Subsidiaries not to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) any takeover proposal or offer from any person, or engage in or
continue discussions or negotiations relating thereto; provided, however, that
either Parent or the Company may engage in discussions or negotiations with, or
furnish information concerning itself and its Subsidiaries, business, properties
or assets to, any third party which makes a Takeover Proposal (as hereinafter
defined) if the Board of Directors of either Parent or the Company concludes in
good faith on the basis of the advice of its outside counsel (Barnes & Thornburg
and Sullivan & Cromwell, respectively) that the failure to take such action
would violate the fiduciary obligations of such Board under applicable law. Each
of Parent and the Company will promptly (but in no case later than 24 hours)
notify the other of any Takeover Proposal, including the material terms and
conditions thereof (provided that neither need disclose the identity of the
person or group making such Takeover Proposal). As used in this Agreement,
"Takeover Proposal" shall mean any proposal or offer, or any expression of
interest by any third party relating to Parent's or the Company's willingness or
ability to receive or discuss a proposal or offer, other than a proposal or
offer by Parent or any of its Subsidiaries or as permitted under this Agreement,
for a tender or exchange offer, a merger, consolidation or other business
combination involving either Parent or the Company or any of their respective
Subsidiaries or any proposal to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, either Parent or the
Company or any of their respective Subsidiaries.
22
<PAGE>
Section 4.3 Third Party Standstill Agreements. During the period from the
date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its Subsidiaries is a party
(other than any involving Parent), unless the Board of Directors of the Company
concludes in good faith on the basis of the advice of its outside counsel (who
may be its regularly engaged outside counsel), that the failure to terminate,
amend, modify or waive any such confidentiality or standstill agreement would
violate the fiduciary obligations of the Board under applicable law. Subject to
such fiduciary duties, during such period, the Company agrees to enforce, to the
fullest extent permitted under applicable law, the provisions of any such
agreements, including, but not limited to, obtaining injunctions to prevent any
breaches of such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States or any state thereof having
jurisdiction.
Section 4.4 Pooling of Interests; Reorganization. During the period from the
date of this Agreement through the Effective Time, unless the other party shall
otherwise agree in writing, none of Parent, the Company or any of their
respective Subsidiaries or Affiliates shall (a) knowingly take or fail to take
any action which action or failure would jeopardize the treatment of the Merger
as a pooling of interests for accounting purposes or (b) knowingly take or fail
to take any action which action or failure would jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code.
Between the date of this Agreement and the Effective Time, Parent and the
Company each shall take all reasonable actions necessary to cause the
characterization of the Merger as a pooling of interests for accounting purposes
if such a characterization were jeopardized by action taken by Parent or the
Company, respectively, prior to the Effective Time. Following the Effective
Time, Parent shall not knowingly take any action, or fail to take any action,
that would jeopardize the characterization of the Merger as a "pooling of
interests" for accounting purposes.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meetings. Except to the extent legally required for
the discharge by the board of directors of its fiduciary duties as advised by
counsel, the Company and Parent each shall call a meeting of its stockholders
(respectively, the "Company Stockholder Meeting" and the "Parent Stockholder
Meeting" and, collectively, the "Stockholder Meetings") to be held as promptly
as practicable for the purpose of considering the approval of this Agreement (in
the case of the Company) and the Parent Stockholders' Approvals (in the case of
Parent). The Company and Parent will, through their respective Boards of
Directors, recommend to their respective stockholders approval of such matters
and shall not withdraw such recommendation; provided, however, that a Board of
Directors shall not be required to make, and shall be entitled to withdraw, such
recommendation if such Board concludes in good faith on the basis of the advice
of Sullivan & Cromwell in the case of the Company and Barnes & Thornburg in the
case of Parent that the making of, or the failure to withdraw, such
recommendation would violate the fiduciary obligations of such Board under
applicable law. The Boards of Directors of the Company, Parent and Sub will not
rescind their respective declarations that the Merger is advisable, fair to and
in the best interest of such company and its shareholders unless, in any such
case, any such Board concludes in good faith on the basis of the advice of
Sullivan & Cromwell in the case of the Company and Barnes & Thornburg in the
case of Parent that the failure to rescind such determination would violate the
fiduciary obligations of such Board under applicable law. The Company and Parent
shall coordinate and cooperate with respect to the timing of such meetings and
shall use their reasonable best efforts to hold such meetings on the same day.
Section 5.2 Preparation of the Registration Statement and the Joint Proxy
Statement. The Company and Parent shall promptly prepare and file with the SEC
the Joint Proxy Statement and
23
<PAGE>
Parent shall prepare and file with the SEC the Registration Statement, in which
the Joint Proxy Statement will be included as a prospectus. Each of Parent and
the Company shall use its reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing. As promptly as practicable after the Registration Statement
shall have become effective, each of Parent and the Company shall mail the Joint
Proxy Statement to its respective stockholders. Parent shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
now not so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of Parent Common Stock in the Merger, and
the Company shall furnish all information concerning the Company and the holders
of Company Common Stock as may be reasonably requested in connection with any
such action. No amendment or supplement to the Joint Proxy Statement or the
Registration Statement will be made by Parent or the Company without the prior
approval of the other party. Parent and the Company each will advise the other,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order, of the suspension of the qualification of the
Parent Common Stock issuable in connection with the Merger for offering or sale
in any jurisdiction, or of any request by the SEC for amendment of the Joint
Proxy Statement or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
Section 5.3 Access to Information. Subject to currently existing contractual
and legal restrictions applicable to Parent or to the Company or any of their
Subsidiaries, each of Parent and the Company shall, and shall cause each of its
Subsidiaries to, afford to the accountants, counsel, financial advisors and
other representatives of the other party hereto reasonable access to, and permit
them to make such inspections as they may reasonably require of, during normal
business hours during the period from the date of this Agreement through the
Effective Time, all their respective properties, books, contracts, commitments
and records (including, without limitation, the work papers of independent
accountants, if available and subject to the consent of such independent
accountants) and, during such period, Parent and the Company shall, and shall
cause each of its Subsidiaries to, furnish promptly to the other (i) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (ii) all other information concerning its business, properties and
personnel as the other may reasonably request. No investigation pursuant to this
Section 5.4 shall affect any representation or warranty in this Agreement of any
party hereto or any condition to the obligations of the parties hereto. All
information obtained by Parent or the Company pursuant to this Section 5.3 shall
be kept confidential in accordance with the Confidentiality Agreement dated
August 30, 1995 between Parent and the Company (the "Confidentiality
Agreement").
Section 5.4 Compliance with the Securities Act; Pooling Period.
(a) Prior to the Effective Time, the Company shall deliver to Parent a list
of names and addresses of those persons who were, in the opinion of the Company,
at the time of the Company Stockholder Meeting referred to in Section 5.1
"affiliates" of the Company within the meaning of Rule 145 under the Securities
Act and for the purposes of applicable interpretations regarding the
pooling-of-interests method of accounting. The Company shall provide to Parent
such information and documents as Parent shall reasonably request for purposes
of reviewing such list. There shall be added to such list the names and
addresses of any other person (within the meaning of Rule 145) which Parent
reasonably identifies (by written notice to the Company within ten business days
after Parent's receipt of such list) as being a person who may be deemed to be
an Affiliate of the Company within the meaning of Rule 145; provided, however,
that no such person identified by Parent shall be added to the list of
Affiliates of the Company if Parent shall receive from the Company, on or before
the Effective Time, an opinion of counsel reasonably satisfactory to Parent to
the effect that such person is not an Affiliate. The Company shall reasonably
exercise all reasonable efforts to deliver or cause to be delivered to Parent,
prior to the
24
<PAGE>
Effective Time, from each of such Affiliates of the Company identified in the
foregoing list, an affiliate letter in customary form dated as of the Closing
Date.
(b) If the Merger would otherwise qualify for pooling-of-interests
accounting treatment, shares of Parent Common Stock issued to such Affiliates of
the Company in exchange for Shares shall not be transferable until such time as
financial results covering at least 30 days of combined operations of Parent and
the Company have been published within the meaning of Section 201.01 of the
SEC's Codification of Financial Reporting Policies, regardless whether each such
Affiliates has provided the written agreement referred to in this Section,
except to the extent permitted by, and in accordance with, Accounting Series
Release 135 and Staff Accounting Bulletins 65 and 76. Any shares of Company
Common Stock held by such Affiliates shall not be transferable, regardless
whether each such Affiliate has provided the written agreement referred to in
this Section, if such transfer, either alone or in the aggregate with other
transfers by Affiliates, would preclude Parent's ability to account for the
business combination to be effected by the Merger as a pooling of interests. The
Company shall not register the transfer of any Certificate, unless such transfer
is made in compliance with the foregoing. Parent shall not be required to
maintain the effectiveness of the S-4 Registration Statement or any other
registration statement under the Securities Act for the purposes of resale of
Parent Common Stock by such Affiliates received in the Merger and the
certificates representing Parent Common Stock received by such Affiliates shall
bear a customary legend regarding applicable Securities Act restrictions and the
provisions of this Section.
Section 5.5 NASDAQ Listing. Parent shall use its reasonable best efforts to
list on NASDAQ, upon official notice of issuance, the shares of Parent Common
Stock to be issued in connection with the Merger.
Section 5.6 Fees and Expenses.
(a) Except as provided in this Section 5.6 and Section 5.10, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby including, without
limitation, the fees and disbursements of counsel, financial advisors and
accountants, shall be paid by the party incurring such costs and expenses,
provided that all printing expenses and filing fees shall be divided equally
between Parent and the Company.
(b) (i) If any event referred to in Section 7.1(h) occurs, this Agreement is
terminated thereafter by the Company or Parent (whether or not pursuant to such
clause) and prior to such termination the stockholders of the Company did not
approve this Agreement, then the Company shall (without prejudice to any other
rights of Parent against the Company) pay to Parent a fee of $6.0 million in
cash, such payment to be made promptly, but in no event later than the second
business day following such termination.
(ii) If:
(A) this Agreement is terminated by the Company pursuant to Section
7.1(d) and within twelve months after such a termination a Superior
Company Acquisition Transaction (as hereinafter defined) occurs;
(B) (x) this Agreement is terminated by the Company or Parent at a
time when Parent is entitled to terminate this Agreement pursuant to
Section 7.1(e), (y) prior to the Company Stockholder Meeting but after
the date of this Agreement a Company Third Party Acquisition Event has
occurred and (z) by reason thereof or otherwise the event referred to in
clause (D) of the definition of Company Third Party Acquisition Event
(the "Company Clause D Event") occurs after the date hereof but prior to
the first anniversary of such termination;
25
<PAGE>
(C) this Agreement is terminated by the Company or Parent pursuant to
Section 7.1(g); or
(D) this Agreement is terminated by Parent pursuant to Section 7.1(h)
following the occurrence of a Company Third Party Acquisition Event;
then, in each case, the Company shall (without prejudice to any other
rights of Parent against the Company) pay to Parent a fee of $6.0 million
in cash, such payment to be made promptly, but in no event later than the
second business day following, in the case of clause (A), the Superior
Company Acquisition Transaction, or, in the case of clause (B), the later
of such termination and such Company Clause D Event or, in the case of
clause (C) or (D), such termination.
A "Company Third Party Acquisition Event" means any of the following events:
(A) any Person other than Parent or its Affiliates, acquires or becomes the
beneficial owner of 30% or more of the outstanding shares of Company Common
Stock; (B) any new group is formed which, at the time of formation, beneficially
owns 30% or more of the outstanding shares of Company Common Stock (other than a
group which includes or may reasonably be deemed to include Parent or any of its
Affiliates); (C) any Person (other than Parent or its Affiliates) shall have
commenced a tender or exchange offer for 30% or more of the then outstanding
shares of Company Common Stock or publicly proposed any bona fide merger,
consolidation or acquisition of all or substantially all the assets of the
Company, or other similar business combination involving the Company; (D) the
Company enters into, or announces that it proposes to enter into, an agreement,
including, without limitation, an agreement in principle, providing for a merger
or other business combination involving the Company or the acquisition of a
substantial interest in, or a substantial portion of the assets, business or
operations of, the Company (other than the transactions contemplated by this
Agreement); (E) any Person (other than Parent or its Affiliates) is granted any
option or right, conditional or otherwise, to acquire or otherwise become the
beneficial owner of shares of Company Common Stock which, together with all
shares of Company Common Stock beneficially owned by such Person, results or
would result in such Person being the beneficial owner of 30% or more of the
outstanding shares of Company Common Stock; or (F) there is a public
announcement with respect to a plan or intention by the Company or any Person,
other than Parent and its Affiliates, to effect any of the foregoing
transactions. For purposes of this Section 5.6, the terms "group" and
"beneficial owner" shall be defined by reference to Section 13(d) of the
Exchange Act.
A "Superior Company Acquisition Transaction" means the event referred to in
clause (D) of Company Third Party Acquisition Event provided that the financial
and other terms of the transaction referred to therein are, when considered in
the aggregate, more favorable to the Company's stockholders than the financial
and other terms of the Merger.
(c) (i) If any event referred to in Section 7.1(i) occurs, this
Agreement is terminated thereafter by the Company or Parent (whether or not
pursuant to such clause) and prior to such termination the stockholders of
Parent did not approve this Agreement, then Parent shall (without prejudice
to any other rights of Company against Parent) pay to the Company a fee of
$6.0 million in cash, such payment to be made promptly, but in no event
later than the second business day following such termination.
(ii) If:
(A) (x) this Agreement is terminated by the Company or Parent at a
time when the Company is entitled to terminate this Agreement pursuant to
Section 7.1(f), (y) prior to the Parent Stockholder Meeting but after the
date of this Agreement a Parent Third Party Acquisition Event has
occurred and (z) by reason thereof or otherwise the event referred to in
clause (D) of the definition of Parent Third Party Acquisition Event (the
"Parent Clause D Event") occurs after the date hereof but prior to the
first anniversary of such termination; or
26
<PAGE>
(B) this Agreement is terminated by the Company pursuant to Section
7.1(i) following the occurrence of a Parent Third Party Acquisition Event
(as hereinafter defined); then, in each case, Parent shall (without
prejudice to any other rights of the Company against Parent) pay to the
Company a fee of $6.0 million in cash, such payment to be made promptly,
but in no event later than the second business day following, in the case
of clause (A), the later of such termination and such Parent Clause D
Event or, in the case of clause (B), such termination.
A "Parent Third Party Acquisition Event" means any of the following events:
(A) any Person acquires or becomes the beneficial owner of 30% or more of the
outstanding shares of Parent Common Stock (other than by reason of an issuance
of shares of Parent Common Stock permitted by Section 4.1(a)); (B) any new group
is formed which, at the time of formation, beneficially owns 30% or more of the
outstanding shares of Parent Common Stock (other than a group which includes or
may reasonably be deemed to include Parent or any of its Affiliates); (C) any
Person shall have commenced a tender or exchange offer for 30% or more of the
then outstanding shares of Parent Common Stock or publicly proposed any bona
fide merger, consolidation or acquisition of all or substantially all the assets
of Parent, or other similar business combination involving Parent; (D) Parent
enters into, or announces that it proposes to enter into, an agreement,
including, without limitation, an agreement in principle, providing for a merger
or other business combination involving Parent (other than this Agreement) or
the acquisition of a substantial interest in, or a substantial portion of the
assets, business or operations of, Parent (in either case, except as expressly
permitted by Section 6.1 hereof) or (E) there is a public announcement with
respect to a plan or intention by any Person to effect any of the foregoing
transactions.
(d) Parent and the Company acknowledge that the agreements contained in
Section 5.6(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Sub and the Company
would not enter into this Agreement. Accordingly, if either Parent or the
Company fails promptly to pay the amount due pursuant to Section 5.6(b), and, to
obtain such payment, Company, on the one hand, or Parent or Sub, on the other
hand, commences a suit which results in a judgment for the fee set forth in
Section 5.6(b) or 5.6(c), the Company or Parent, as the case may be, shall pay
to Parent or Sub, on the one hand, or the Company, on the other hand, its costs
and expenses (including attorneys' fees) in connection with such suit together
with interest on the amount of the fee at the prime rate of NationsBank of North
Carolina, N.A., in effect on the date such payment was required to be made.
Section 5.7 Company Stock Options; Stock Purchase Plan.
(a) At the Effective Time, by virtue of the Merger and without any further
action on the part of the Company or the holder thereof, each unexpired and
unexercised option to purchase shares of Company Common Stock (a "Company Stock
Option"), under the Company Stock Option Plans, or otherwise granted by the
Company outside of any Company Stock Option Plan, will be assumed by Parent as
hereinafter provided. At the Effective Time, by virtue of the Merger and without
any further action on the part of the Company or the holder thereof, each
Company Stock Option will be automatically converted into an option (the "Parent
Stock Option") to purchase a number of shares of Parent Common Stock equal to
the number of shares of Company Common Stock that could have been purchased
under such Company Stock Option multiplied by the Conversion Number, at a price
per share of Parent Common Stock equal to the per share option exercise price
specified in the Company Stock Option, divided by the Conversion Number. Such
Parent Stock Option shall otherwise be subject to the same terms and conditions
as such Company Stock Option. At the Effective Time, (i) all references in the
Company Stock Option Plans, the applicable stock option or other awards
agreements issued thereunder and in any other Company Stock Options to the
Company shall be deemed to refer to Parent; (ii) Parent shall assume the Company
Stock Option Plans and all of the Company's obligations with respect to the
Company Stock Options; and (iii) Parent shall issue to each holder of an
outstanding Company Stock Option a document evidencing the foregoing assumption
by Parent. It is the intention
27
<PAGE>
of the parties that, subject to applicable law, the Company Stock Options
assumed by Parent qualify, following the Effective Time, as incentive stock
options, as defined in Section 422 of the Code, to the extent that the Company
Stock Options qualified as incentive stock options prior to the Effective Time
and the adjustments referred to in this Section 5.7(a) shall be effected in a
manner which is consistent with Section 424(a) of the Code.
(b) In respect of each Company Stock Option as converted into a Parent Stock
Option pursuant to Section 5.7(a) and assumed by Parent, and the shares of
Parent Common Stock underlying such option, Parent shall file as soon as
practicable after the Effective Time with the Securities and Exchange
Commission, and keep current the effectiveness of, a registration statement on
Form S-8 or other appropriate form for as long as such options remain
outstanding (and maintain the current status of the prospectus with respect
thereto).
(c) The Company agrees that it will not grant any stock options, restricted
stock, stock appreciation rights or limited stock appreciation rights and will
not permit cash payments to holders of Company Stock Options in lieu of the
substitution therefor of Parent Stock Options, as described in this Section 5.7.
Section 5.8 Reasonable Best Efforts; Pooling of Interests.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including, but not limited to: (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from all Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity (including those in connection with the
HSR Act and State Takeover Approvals), (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement. No party to this Agreement
shall consent to any voluntary delay of the consummation of the Merger at the
behest of any Governmental Entity without the consent of the other parties to
this Agreement, which consent shall not be unreasonably withheld.
(b) Each of Parent and the Company agrees to take, together with their
respective accountants, all actions reasonably necessary in order to obtain a
favorable determination (if required) from the SEC that the Merger may be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles.
(c) Each party shall use all reasonable best efforts to not take any action,
or enter into any transaction, which would cause any of its representations or
warranties contained in this Agreement to be untrue or result in a breach of any
covenant made by it in this Agreement.
(d) Notwithstanding anything to the contrary contained in this Agreement,
(i) neither Parent nor the Company shall be obligated to use its reasonable best
efforts or to take any action pursuant to this Section 5.8 if the Board of
Directors of Parent or the Company, as the case may be, shall conclude in good
faith on the basis of the advice of Sullivan & Cromwell in the case of the
Company and Barnes & Thornburg in the case of Parent that such action would
violate the fiduciary obligations of such Board under applicable law, and (ii)
in connection with any filing or submission required or action to be taken
28
<PAGE>
by either Parent or the Company to effect the Merger and to consummate the other
transactions contemplated hereby, the Company shall not, without Parent's prior
written consent, commit to any material divestiture transaction, and neither
Parent nor any of its Affiliates shall be required to divest or hold separate or
otherwise take or commit to take any action that limits its freedom of action
with respect to, or its ability to retain, the Company or any of the material
businesses, or assets of Parent or any of its Affiliates or that otherwise would
have a Material Adverse Effect on Parent.
Section 5.9 Public Announcements. The initial press release shall be a joint
press release and thereafter the Company and Parent each shall consult with the
other prior to issuing any press releases or otherwise making public
announcements with respect to the Merger and the other transactions contemplated
by this Agreement and prior to making any filings with any third party and/or
any Governmental Entity (including any national securities interdealer quotation
service) with respect thereto, except as may be required by law or by
obligations pursuant to any listing agreement with or rules of NASDAQ.
Section 5.10 Real Estate Transfer and Gains Tax. Parent and the Company
agree that either the Company or the Surviving Corporation will pay any state or
local tax which is attributable to the transfer of the beneficial ownership of
the Company's or its Subsidiaries' real property, if any (collectively, the
"Gains Taxes"), and any penalties or interest with respect to the Gains Taxes,
payable in connection with the consummation of the Merger. The Company and
Parent agree to cooperate with the other in the filing of any returns with
respect to the Gains Taxes, including supplying in a timely manner a complete
list of all real property interests held by the Company and its Subsidiaries and
any information with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration allocable to the real
property of the Company and its Subsidiaries shall be determined by Parent in
its reasonable discretion. The stockholders of the Company shall be deemed to
have agreed to be bound by the allocation established pursuant to this Section
5.10 in the preparation of any return with respect to the Gains Taxes.
Section 5.11 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use their
reasonable best efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
minimize the effects of any such statute or regulation on the transactions
contemplated hereby.
Section 5.12 Indemnification; Directors and Officers Insurance. For three
years from and after the Effective Time, Parent agrees to, and to cause the
Surviving Corporation to, indemnify and hold harmless all past and present
officers and directors of the Company and of its Subsidiaries to the same extent
such persons are indemnified as of the date of this Agreement by the Company
pursuant to the Company's Restated Certificate of Incorporation and By-Laws and
indemnification agreements in existence on the date hereof with any officers and
directors of the Company and its Subsidiaries for acts or omissions occurring at
or prior to the Effective Time; provided, however, that Parent agrees to, and to
cause the Surviving Corporation to, indemnify and hold harmless such persons to
the fullest extent permitted by law for acts or omissions occurring in
connection with the approval of this Agreement and the consummation of the
transactions contemplated hereby. Parent shall cause the Surviving Corporation
to provide, for an aggregate period of not less than two years from the
Effective Time, the Company's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring prior to the
Effective Time (the "D&O Insurance") that is no less favorable than the
Company's existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, that the Surviving
Corporation shall not be required to pay an annual premium for the D&O Insurance
in excess of 200 percent of the last annual premium paid prior
29
<PAGE>
to the date hereof (which premium the Company represents and warrants to be
approximately $280,000.00).
Section 5.13 Notification of Certain Matters. Parent shall use its
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, of: (i)
the occurrence, or non-occurrence, of any event the occurrence, or
nonoccurrence, of which it is aware and which would be reasonably likely to
cause (x) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied in
all material respects, (ii) any failure of Parent or the Company, as the case
may be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder or (iii) any change
or event which would be reasonably likely to have a Material Adverse Effect on
Parent or the Company, as the case may be; provided, however, that the delivery
of any notice pursuant to this Section 5.13 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.14 Directors. The directors of Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and By-Laws.
Section 5.15 Designation of Directors. At the Effective Time, Parent shall
cause the four members of the Company's current Executive Committee to be
appointed to its board of directors which persons shall serve until the next
regularly scheduled annual meeting of Parent or until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Charter and By-Laws. For the three
annual meetings following the Effective Time, Parent shall use its reasonable
best efforts to cause three or more members of the Company's Executive Committee
to be nominated for election to Parent's board of directors, subject to
fiduciary obligations under applicable law.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved by
the requisite vote of stockholders of the Company in accordance with applicable
law and the Restated Certificate of Incorporation and By-laws of the Company,
and the Parent Stockholders' Approvals shall have been obtained by the requisite
vote of the stockholders of Parent in accordance with applicable rules of
NASDAQ, applicable law and the Charter and By-laws of Parent.
(b) Listing on NASDAQ. The Parent Common Stock issuable in the Merger shall
have been authorized for listing on NASDAQ, subject to official notice of
issuance.
(c) HSR and Other Approvals.
(i) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
30
<PAGE>
(ii) All authorizations, consents, orders, declarations or approvals of,
or filings with, or terminations or expirations of waiting periods imposed
by, any Governmental Entity, which the failure to obtain, make or occur
would have the effect of making the Merger or any of the transactions
contemplated hereby illegal or would have a Material Adverse Effect on
Parent (assuming the Merger had taken place), shall have been obtained,
shall have been made or shall have occurred.
(d) Accounting. Parent shall have received an opinion of Coopers & Lybrand,
LLP, dated as of the Effective Time, in form and substance reasonably
satisfactory to Parent and the Company, that the Merger will qualify for pooling
of interests accounting treatment under generally accepted accounting principles
if closed and consummated in accordance with this Agreement.
(e) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
or, to the Knowledge of Parent or the Company, threatened by the SEC. All
necessary state securities or blue sky authorizations (including State Takeover
Approvals) shall have been received.
(f) No Order. No court or other Governmental Entity having jurisdiction over
the Company or Parent, or any of their respective Subsidiaries, shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the Merger or any of the transactions contemplated hereby illegal.
(g) Certain Executive Agreements. The agreements entered into by Parent and
Mr. W. Thomas Gould and Mr. Robert M. Mosco on the date hereof shall have
remained in full force and effect without breach thereof.
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified by materiality shall be true and
correct on and as of the Effective Time as if made on and as of such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct in all
material respects as of such certain date), in each case except as contemplated
or permitted by this Agreement, and the Company shall have received a
certificate signed on behalf of each of Parent and Sub by its Chief Executive
Officer and its Chief Financial Officer to such effect.
(b) Tax Opinion. The Company shall have received an opinion of Sullivan &
Cromwell in form and substance reasonably satisfactory to the Company, dated the
Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are consistent
with the state of facts existing as of the Effective Time, for federal income
tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Company, Sub and Parent will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code;
31
<PAGE>
(ii) no gain or loss will be recognized by Parent or the Company as a
result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common Stock into
shares of Parent Common Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares of Parent Common Stock;
(iv) the aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including fractional shares of Parent Common Stock for which cash is
received) will be the same as the aggregate tax basis of such shares of
Company Common Stock;
(v) the holding period for shares of Parent Common Stock received in
exchange for shares of Company Common Stock pursuant to the Merger will
include the holder's holding period for such shares of Company Common Stock,
provided such shares of Company Common Stock were held as capital assets by
the holder at the Effective Time; and
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss equal to
the difference, if any, between such stockholder's basis in the fractional
share (as described in clause (iv) above) and the amount of cash received.
In rendering such opinion, Sullivan & Cromwell may receive and rely upon
representations from Parent, the Company, and others.
(c) The Company shall have received an opinion of Barnes & Thornburg,
counsel to Parent, in form and substance reasonably satisfactory to the Company,
dated the Closing Date, to the effect that the Parent Common Stock to be issued
in the Merger will, when issued, have been duly authorized, validly issued and
shall not be subject to further assessment. In rendering such opinion, Barnes &
Thornburg may rely upon the opinion of Tennessee counsel reasonably satisfactory
to the Company.
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. The Company
shall have performed in all material respects each of its agreements contained
in this Agreement required to be performed on or prior to the Effective Time,
each of the representations and warranties of the Company contained in this
Agreement that is qualified by materiality shall be true and correct on and as
of the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain date
which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct in all
material respects as of such certain date), in each case except as contemplated
or permitted by this Agreement, and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its Chief
Financial Officer to such effect.
(b) Litigation. There shall not be instituted or pending any suit, action or
proceeding by a Governmental Entity or any other person as a result of this
Agreement or any of the transactions contemplated herein which, in the opinion
of Barnes & Thornburg, would have a Material Adverse Effect on Parent (assuming
for purposes of this paragraph (b) that the Merger shall have occurred).
32
<PAGE>
ARTICLE VII
TERMINATION. AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any approval of the matters
presented in connection with the Merger by the stockholders of the Company or
Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the other party shall have failed to
comply in any material respect with any of its covenants or agreements contained
in this Agreement required to be complied with prior to the date of such
termination, which failure to comply has not been cured within five business
days following receipt by such other party of written notice of such failure to
comply; provided, however, that if any such breach is curable by the breaching
party through the exercise of the breaching party's best efforts and for so long
as the breaching party shall be so using its best efforts to cure such breach,
the non-breaching party may not terminate this Agreement pursuant to this
paragraph;
(c) by either Parent or the Company if there has been (i) a breach by the
other party (in the case of Parent, including any material breach by Sub) of any
representation or warranty that is not qualified as to materiality which has the
effect of making such representation or warranty not true and correct in all
material respects or (ii) a breach by the other party (in the case of Parent,
including any material breach by Sub) of any representation or warranty that is
qualified as to materiality, in each case which breach has not been cured within
five business days following receipt by the breaching party of written notice of
the breach; provided, however, that if any such breach is curable by the
breaching party through the exercise of the breaching party's best efforts and
for so long as the breaching party shall be so using its best efforts to cure
such breach, the non-breaching party may not terminate this Agreement pursuant
to this paragraph;
(d) by Parent or the Company if the Merger has not been effected on or prior
to the close of business on June 30, 1996 (the "Termination Date"); provided,
however, that the right to terminate this Agreement pursuant to this Section
7.1(d) shall not be available to any party whose failure to fulfill any of its
obligations contained in this Agreement has been the cause of, or resulted in,
the failure of the Merger to have occurred on or prior to the aforesaid date;
(e) by Parent or the Company if the stockholders of the Company do not
approve this Agreement at the Company Stockholder Meeting or any adjournment or
postponement thereof;
(f) by Parent or the Company if the Parent Stockholders' Approvals are not
obtained at the Parent Stockholder Meeting or any adjournment or postponement
thereof;
(g) by Parent or the Company if the Board of Directors of the Company
reasonably determines that a Takeover Proposal constitutes a Superior Proposal
(as hereinafter defined); provided, however, that the Company may not terminate
this Agreement pursuant to this Section 7.1(g) unless and until three business
days have elapsed following delivery to Parent of a written notice of such
determination by the Board of Directors of the Company (which written notice
shall inform Parent of the material terms and conditions of the Takeover
Proposal but need not include the identity of such third party);
(h) by Parent if (i) the Board of Directors of the Company shall not have
recommended, or shall have resolved not to recommend, or shall have modified or
withdrawn its recommendation of the Merger or declaration that the Merger is
advisable and fair to and in the best interest of the Company and its
stockholders, or shall have resolved to do so (ii) the Board of Directors of the
Company shall have recommended to the stockholders of the Company any Takeover
Proposal or shall have resolved to do so or (iii) a tender offer or exchange
offer for 30% or more of the outstanding shares of capital stock of the
33
<PAGE>
Company is commenced, and, after ten (10) business days, the Board of Directors
of the Company fails to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no position with respect
to the acceptance of such tender offer or exchange offer by its stockholders).
(i) by the Company if (i) the Board of Directors of Parent shall not have
recommended, or shall have resolved not to recommend or shall have modified or
withdrawn its recommendation of the Parent Stockholders' Approvals or
declaration that the Merger is advisable and fair to and in the best interests
of Parent and its stockholders, or shall have resolved to do so, (ii) a Parent
Clause D event shall have occurred, or (iii) an offer of the type described in
(C) of Parent Third Party Acquisition Event shall have been commenced and after
ten (10) business days, the Board of Directors of Parent fails to recommend
against acceptance of such offer by its stockholders (including taking no
position with respect to the acceptance of such offer by its stockholders).
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
"Superior Proposal" shall mean a bona fide proposal or offer made by a third
party to acquire the Company pursuant to a tender or exchange offer, a merger,
consolidation or other business combination or a sale of all or substantially
all of the assets of the Company and its Subsidiaries on terms which a majority
of the members of the Board of Directors of the Company determines in their good
faith reasonable judgment (based on the advice of independent financial
advisors) to be more favorable to the Company and to its stockholders than the
transactions contemplated hereby, provided that in making such determination the
Board considers the likelihood that such third party is able to consummate such
proposed transaction.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith terminate and there shall be no liability hereunder on
the part of the Company, Parent, Sub or their respective officers or directors
(except for the last sentence of Section 5.3 and the entirety of Section 5.6,
which shall survive the termination); provided, however, that nothing contained
in this Section 7.2 shall relieve any party hereto from any liability for any
willful breach of a representation or warranty contained in this Agreement or
the breach of any covenant contained in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Parent and the Company, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
34
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall terminate at the Effective
Time or upon the termination of this Agreement pursuant to Section 7.1, as the
case may be, except that the agreements set forth in Article I and Sections 4.4
and 5.12 and this Article VIII shall survive the Effective Time, and those set
forth in Sections 5.7 and 7.2 and this Article VIII and the Confidentiality
Agreement shall survive termination.
Section 8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a confirmatory
copy sent by overnight courier) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Proffitt's, Inc.
5810 Shelby Oaks Drive
Memphis, Tennessee 38134
Attn.: Mr. R. Brad Martin
Proffitt's, Inc.
3455 Highway 80 West
Jackson, Mississippi 39209
Attn.: Brian J. Martin, Esquire
with copies to:
James A. Strain, Esquire
Barnes & Thornburg
11 South Meridian Street, Suite 1313
Indianapolis, Indiana 46204
(b) if to the Company, to:
Younkers, Inc.
7th and Walnut Streets
Des Moines, Iowa 50397
Attn.: Mr. W. Thomas Gould
Mr. Alan R. Raxter
with copies to:
Benjamin F. Stapleton, Esquire
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Section 8.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
35
<PAGE>
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 8.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
except as provided in the last sentence of Section 5.4, constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
Section 8.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY, OR SUB IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
Section 8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
Section 8.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to any
other remedy to which any party is entitled at law or in equity. Each party
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the United States District Court located in the State
of Delaware (unless such courts assert no jurisdiction, in which case the
Company consents to the exclusive jurisdiction of the courts of the State of
Delaware) for any actions, suits or proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby (and each party hereto
agrees not to commence any action, suit or proceeding relating thereto except in
such courts), and further agrees that service of any process, summons, notice or
document by U.S. registered mail to the addresses set forth herein shall be
effective service of process for any such action, suit or proceeding brought
against the each party in such court. Each party hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby, in the United States District Courts located in the State of Delaware
(unless such courts assert no jurisdiction, in which case each party consents to
the exclusive jurisdiction of the courts of the State of
36
<PAGE>
Delaware). Each party hereby further irrevocably and unconditionally waives and
agrees not to plead or to claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
PROFFITT'S, INC.
By: /s/ R. BRAD MARTIN
---------------------------------
Name: R. Brad Martin
Title: Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ JAMES E. GLASSCOCK
----------------------------------
Name: James E. Glasscock
Title: Executive Vice President and
Chief Financial Officer
BALTIC MERGER CORPORATION
By: /s/ R. BRAD MARTIN
---------------------------------
Name: R. Brad Martin
Title: President
Attest:
By: /s/ JAMES E. GLASSCOCK
----------------------------------
Name: James E. Glasscock
Title: Treasurer
YOUNKERS, INC.
By: /s/ W. THOMAS GOULD
---------------------------------
Name: W. Thomas Gould
Title: Chairman and Chief Executive
Officer
Attest:
By /s/ ALAN R. BAXTER
-----------------------------------
Name: Alan R. Raxter
Title: Executive Vice President and
Chief Financial Officer
37
<PAGE>
APPENDIX II
[Letterhead]
October 22, 1995
The Board of Directors
Proffitt's, Inc.
115 North Calderwood
Alcoa, Tennessee 37701
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Proffitt's, Inc. ("Proffitt's") of the consideration to be paid by
Proffitt's pursuant to the terms and subject to the conditions set forth in the
Agreement and Plan of Merger, dated as of October 22, 1995 (the "Merger
Agreement"), by and among Proffitt's, Baltic Merger Corporation, a wholly owned
subsidiary of Proffitt's ("Sub"), and Younkers, Inc. ("Younkers"). As more fully
described in the Merger Agreement, (i) Sub will be merged with and into Younkers
(the "Merger") and (ii) each outstanding share of the common stock, par value
$0.01 per share, of Younkers (the "Younkers Common Stock") will be converted
into 0.98 (the "Conversion Number") of a share of the common stock, par value
$0.10 per share, of Proffitt's (the "Proffitt's Common Stock").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Proffitt's and with certain senior officers and other
representatives and advisors of Younkers concerning the businesses, operations
and prospects of Proffitt's and Younkers. We examined certain publicly available
business and financial information relating to Proffitt's and Younkers as well
as certain financial forecasts and other data for Proffitt's and Younkers which
were provided to us by or otherwise discussed with the respective managements of
Proffitt's and Younkers, including information relating to certain strategic
implications and operational benefits anticipated from the Merger. We reviewed
the financial terms of the Merger as set forth in the Merger Agreement in
relation to, among other things: current and historical market prices and
trading volumes of Proffitt's Common Stock and Younkers Common Stock; historical
and projected earnings and operating data of Proffitt's and Younkers; and the
capitalization and financial condition of Proffitt's and Younkers. We also
evaluated the potential pro forma financial impact of the Merger on Proffitt's.
We also considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which we considered
relevant in evaluating the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of
Proffitt's and Younkers. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. With respect to financial forecasts and other information and
data furnished to or otherwise reviewed by or discussed with us, we have been
advised by the respective managements of Proffitt's and Younkers that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Proffitt's and Younkers as to the future financial performance of
Proffitt's and
<PAGE>
Younkers and the potential strategic implications and operational benefits
anticipated from the Merger. We have assumed, with your consent, that the Merger
will be treated as a pooling of interests in accordance with generally accepted
accounting principles and as a tax-free reorganization for federal income tax
purposes. Our opinion, as set forth herein, relates to the relative values of
Proffitt's and Younkers. We are not expressing any opinion as to what the value
of the Proffitt's Common Stock actually will be when issued to Younkers
stockholders pursuant to the Merger or the prices at which the Proffitt's Common
Stock will trade subsequent to the Merger. We have not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Proffitt's or Younkers nor have we made any
physical inspection of the properties or assets of Proffitt's or Younkers. We
were not asked to consider, and our opinion does not address, the relative
merits of the Merger as compared to any alternative business strategies that
might exist for Proffitt's or the effect of any other transaction in which
Proffitt's might engage. In arriving at our opinion, we have taken into account
the views of management of Proffitt's that, consistent with Proffitt's
established strategy of growth through acquisitions, the Merger represents a
significant strategic opportunity for Proffitt's to further enhance its growth
prospects and ability to participate in future industry consolidation. Our
opinion is necessarily based upon information available to us, and financial,
stock market and other conditions and circumstances existing and disclosed to
us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to
Proffitt's in connection with the Merger and will receive a fee for our
services, a significant portion of which is payable upon consummation of the
Merger. We also will receive a fee upon delivery of this opinion. In the
ordinary course of business, we and our affiliates may actively trade the
securities of Proffitt's and Younkers for our own account or for the account of
our customers and, accordingly, may at any time hold a long or short position in
such securities. Smith Barney has in the past provided financial advisory and
investment banking services to Proffitt's unrelated to the Merger, and has
received compensation for such services. In addition, we and our affiliates
(including Travelers Group Inc. and its affiliates) may maintain business
relationships with Proffitt's and Younkers.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Proffitt's in evaluating the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Smith Barney be made, without our prior
written consent; provided, that our opinion may be included in its entirety in
the Joint Proxy Statement/Prospectus of Proffitt's and Younkers relating to the
proposed Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Conversion Number is fair,
from a financial point of view, to Proffitt's.
Very truly yours,
/s/ Smith Barney Inc.
SMITH BARNEY INC.
2
<PAGE>
APPENDIX III
[Letterhead]
PERSONAL AND CONFIDENTIAL
October 22, 1995
Board of Directors
Younkers, Inc.
7th and Walnut Streets
Des Moines, Iowa 50397
Members of the Board of Directors:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $0.01 per share (the "Shares"), of
Younkers, Inc. (the "Company") of the exchange ratio of 0.98 shares of Common
Stock, par value $0.10 per share, of Proffitt's, Inc. ("Proffitt's) to be
received for each Share (the "Exchange Ratio") pursuant to the Agreement and
Plan of Merger dated as of October 22, 1995 among Proffitt's, Baltic Merger
Corporation, a wholly-owned subsidiary of Proffitt's, and the Company (the
"Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distribution of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as managing underwriter of a public
offering of 6,170,000 shares of Common Stock of Younkers in April 22, 1992 and a
public offering of 2,200,000 shares of Common Stock of Younkers in April 22,
1993. We are also familiar with the Company having acted as its financial
advisor in connection with the unsolicited proposal and subsequent tender offers
from Carson Pirie Scott & Co., and having acted as financial advisor in
connection with, and having participation in certain of the negotiations
leading, to the Agreement. In the course of trading activities of Goldman, Sachs
& Co., as of the close of business on October 20, 1995, had accumulated a short
position of 6,500 Shares and a long position of 90 Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Shareholders and Annual Reports on Form 10-K of the
Company and Proffitt's for the five fiscal years ended January 31, 1995; certain
interim reports to shareholders and Quarterly Reports on Form 10-Q for the
Company and Proffitt's; certain other communications from the Company and
Proffitt's to their respective shareholders; and certain internal financial
analyses and forecasts for the Company and Proffitt's prepared by their
respective management teams. We also have held discussions with members of the
senior management of the Company and Proffitt's regarding the past and current
business operations, financial condition and future prospects of their
respective companies and as
<PAGE>
combined pursuant to the Agreement. In addition, we have reviewed the reported
price and trading activity for the Shares and Proffitt's Common Stock, compared
certain financial and stock market information for the Company and Proffitt's
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the retail industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or
Proffitt's or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal. We have assumed, with your consent, that the
transaction contemplated by the Agreement will be recorded as a pooling of
interests under generally accepted accounting principles.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
2
<PAGE>
APPENDIX IV
PROFFITT'S, INC.
1994 LONG-TERM INCENTIVE PLAN
1. PURPOSE.
The purpose of the PROFFITT'S, INC. 1994 LONG-TERM INCENTIVE PLAN (the
"Plan") is to further the earnings of PROFFITT'S, INC., a Tennessee corporation,
and its subsidiaries (collectively, the "Company") by assisting the Company in
attracting, retaining and motivating management employees and directors of high
caliber and potential. The Plan provides for the award of long-term incentives
to those officers, other key executives and directors who make substantial
contributions to the Company by their loyalty, industry and invention.
2. ADMINISTRATION.
The Plan shall be administered by a committee (the "Committee") selected by
the Board of Directors of the Company (the "Board of Directors") consisting
solely of two or more members who are "outside directors" as described in
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Except to the extent permitted under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "1934 Act") (or any successor rule of similar
import), each Committee member shall be ineligible to receive, and shall not
have been, during the one-year period prior to appointment thereto, granted or
awarded stock options, stock appreciation rights, performance units, or
restricted stock pursuant to this Plan or any other similar plan of the Company
or any affiliate of the Company. Without limiting the foregoing, the Committee
shall have full and final authority in its discretion to interpret the
provisions of the Plan and to decide all questions of fact arising in its
application. Subject to the provisions hereof, the Committee shall have full and
final authority in its discretion to determine the employees and directors to
whom awards shall be made under the Plan; to determine the type of awards to be
made and the amount, size and terms and conditions of each such award; to
determine the time when awards shall be granted; to determine the provisions of
each agreement evidencing an award; and to make all other determinations
necessary or advisable for the administration of the plan.
3. STOCK SUBJECT TO THE PLAN.
The Company may grant awards under the Plan with respect to not more than a
total of 2,911,000 shares of $.10 par value common stock of the Company (the
"Shares") (subject, however, to adjustment as provided in paragraph 20, below).
Such shares may be authorized and unissued Shares or treasury Shares. Except as
otherwise provided herein, any Shares subject to an option or right which for
any reason is surrendered before exercise or expires or is terminated
unexercised as to such Shares shall again be available for the granting of
awards under the Plan. Similarly, if any Shares granted pursuant to restricted
stock awards are forfeited, such forfeited Shares shall again be available for
the granting of awards under the Plan.
4. ELIGIBILITY TO RECEIVE AWARDS.
Persons eligible to receive awards under the Plan shall be limited to those
officers, other key employees and directors of the Company who are in positions
in which their decisions, actions and counsel have a significant impact upon the
profitability and success of the Company (but excluding members of the
Committee, except as provided in paragraphs 6(h) and 8(e)).
5. FORM OF AWARDS.
Awards may be made from time to time by the Committee in the form of stock
options to purchase Shares, stock appreciation rights, performance units,
restricted stock, or any combination of the above.
<PAGE>
Stock options may be options which are intended to qualify as incentive stock
options ("Incentive Stock Options") within the meaning of Section 422(b) of the
Code, or options which are not intended to so qualify ("Nonqualified Stock
Options").
6. STOCK OPTIONS.
Stock options for the purchase of Shares shall be evidenced by written
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time; provided that the maximum number of options which may
be granted to any one grantee during any twelve-month period is 125,000 (as
adjusted pursuant to paragraph 20, below). Such agreement shall contain the
terms and conditions applicable to the options, including in substance the
following terms and conditions:
(a) Type of Option. Each option agreement shall identify the options
represented thereby as Incentive Stock Options or Nonqualified Stock Options, as
the case may be, and shall set forth the number of Shares subject to the
options.
(b) Option Price. The option exercise price to be paid by the optionee to
the Company for each Share purchased upon the exercise of an option shall be
determined by the Committee, but shall in no event be less than the par value of
a Share.
(c) Exercise Term. Each option agreement shall state the period or periods
of time within which the option may be exercised, in whole or in part, as
determined by the Committee and subject to such terms and conditions as are
prescribed for such purpose by the Committee, provided that no option shall be
exercisable after ten years from the date of grant thereof. The Committee, in
its discretion, may provide in the option agreement circumstances under which
the option shall become immediately exercisable, in whole or in part, and,
notwithstanding the foregoing, may accelerate the exercisability of any option,
in whole or in part, at any time.
(d) Payment for shares. The purchase price of the Shares with respect to
which an option is exercised shall be payable in full at the time of exercise in
cash, shares at fair market value, or a combination thereof, as the Committee
may determine and subject to such terms and conditions as may be prescribed by
the Committee for such purpose. If the purchase price is paid by tendering
Shares, the Committee in its discretion may grant the optionee a new stock
option for the number of Shares used to pay the purchase price.
(e) Rights Upon Termination. In the event of Termination (as defined below)
of an optionee's status as an employee or director of the Company for any cause
other than Retirement (as defined below), death or Disability, (as defined
below), the optionee shall have the right to exercise the option during its term
within a period of three months after such Termination to the extent that the
option was exercisable at the time of Termination, or within such other period,
and subject to such terms and conditions, as may be specified by the Committee.
As used herein, "Termination" means, (i) in the case of an employee, the
cessation of the grantee's employment by the Company for any reason, and (ii) in
the case of a director, the cessation of the grantee's service as a director of
the Company; and "Terminates" has the corresponding meaning. As used herein,
"Retirement" means retirement from active employment (in the case of an
employee), or active service (in the case of a director) with the Company on or
after age 65, or such earlier age with the express written consent for purposes
of the Plan of the Company at or before the time of such retirement, and
"Retires" has the corresponding meaning. As used herein, "Disability" means a
condition that, in the judgment of the Committee, has rendered a grantee
completely and presumably permanently unable to perform any and every duty of
his regular occupation, and "Disabled" has the corresponding meaning. In the
event that an optionee Retires, dies or becomes Disabled prior to the expiration
of his option and without having fully exercised his option, the optionee or his
Beneficiary (as defined below) shall have the right to exercise the option
during its term within a period of (i) one year after Termination due to
Retirement, death or Disability, or (ii) one year after death if death occurs
either within one year after Termination due to Retirement or
2
<PAGE>
Disability or within three months after Termination for other reasons, to the
extent that the option was exercisable at the time of death or Termination, or
within such other period, and subject to such terms and conditions, as may be
specified by the committee. (As used herein, "Beneficiary" means the person or
persons designated in writing by the grantee as his beneficiary with respect to
an award under the Plan; or, in the absence of an effective designation or if
the designated person or persons predecease the grantee, the grantee's
Beneficiary shall be the person or persons who acquire by bequest or inheritance
the grantee's rights in respect of an award.) In order to be effective, a
grantee's designation of a Beneficiary must be on file with the Committee before
the grantee's death, but any such designation may be revoked and a new
designation substituted therefor at any time before the grantee's death.
(f) Nontransferability. Options granted under the Plan shall not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or otherwise
encumbered, other than by will or by the laws of descent and distribution.
During the lifetime of the optionee the option is exercisable only by the
optionee.
(g) Incentive Stock Options. In the case of an Incentive Stock Option, each
option shall be subject to such other terms conditions and provisions as the
Committee determines necessary or desirable in order to qualify such option as
an incentive stock option within the meaning of Section 422(b) of the Code (or
any amendment or substitute or successor thereto or regulation thereunder),
including in substance, without limitation, the following:
(i) The purchase Price of stock subject to an Incentive Stock Option
shall not be less than 100 percent of the fair market value of such stock on
the date the option is granted, as determined by the Committee.
(ii) The aggregate fair market value (determined as of the time the
option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by an optionee in any calendar
year under all plans of the Company and its subsidiary corporations (which
term, as used hereinafter, shall have the meaning ascribed thereto in
Section 424(f) of the Code or successor provision of similar import) shall
not exceed $100,000.
(iii) No Incentive Stock Option shall be granted to any employee if at
the time the option is granted the individual owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock
of the Company or of a subsidiary corporation of the Company, unless at the
time such option is granted the option price is at least 110 percent of the
fair market value (as determined by the Committee) of the stock subject to
the option and such option by its terms is not exercisable after the
expiration of five years from the date of grant.
(iv) Directors who are not employees of the Company shall not be
eligible to receive Incentive Stock Options.
(v) In the event of Termination of employment by reason of Retirement,
if an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Nonqualified Stock Option.
(h) Automatic Grant of Options to Nonemployee Directors. Notwithstanding any
other provision of the Plan, the grant of options hereunder to directors who are
not also employees of the Company ("Nonemployee Directors") shall be subject to
the following terms and conditions:
(i) Immediately following each of the nine consecutive annual meetings
of the stockholders of the Company ("Annual Meeting") beginning with the
1994 Annual Meeting, each Nonemployee Director of the Company who is then
incumbent shall be granted a Nonqualified Stock Option to purchase 1,000
Shares (as adjusted pursuant to paragraph 20, below).
3
<PAGE>
(ii) If, during the period beginning with the 1994 Annual Meeting and
ending with the 2003 Annual Meeting, a person is elected or appointed as a
Nonemployee Director of the Company other than at an Annual Meeting, such
person shall thereupon be granted a Nonqualified Stock Option to purchase
1,000 shares (as adjusted pursuant to paragraph 20, below).
(iii) The purchase price of stock subject to an option granted to
Nonemployee Directors under this paragraph 6(h) shall be equal to 100
percent of the fair market value of such stock on the date the option is
granted, as determined by the Committee.
(iv) Except as provided in paragraph 18, each option granted to
Nonemployee Directors under this paragraph 6(h) shall be exercisable to the
extent of (a) 20% of the Shares covered thereby on or after the date which
is six months after the date of grant; (b) an additional 20% of the Shares
covered thereby on or after the first anniversary of the date of grant; (c)
an additional 20% of the Shares covered thereby on or after the second
anniversary of the date of grant; (d) an additional 20% of the Shares
covered thereby on or after the third anniversary of the date of grant; and
(e) exercisable to the extent of the remaining 20% of the Shares covered
thereby on or after the fourth anniversary of the date of grant; provided,
however, that no portion of the option shall be exercisable any earlier than
the date the Plan is approved by the stockholders of the Company.
(v) Unless otherwise provided in the Plan, all provisions with respect
to the terms of Nonqualified Stock Options hereunder shall be applicable to
options granted to Nonemployee Directors under this paragraph 6(h).
(vi) The automatic grants described in this paragraph 6(h) and the
restricted stock awards under paragraph 8(e) shall constitute the only
awards under the Plan permitted to be made to Nonemployee Directors.
7. STOCK APPRECIATION RIGHTS.
Stock appreciation rights (SARs) shall be evidenced by written SAR
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time; provided that the maximum number of SARs which may be
granted to any one grantee during any twelve- month period is 125,000 (as
adjusted pursuant to paragraph 20, below). Such SAR agreements shall contain the
terms and conditions applicable to the SARs, including in substance the
following terms and conditions:
(a) Award. SARs may be granted in connection with a previously or
contemporaneously granted stock option, or independently of a stock option. SARs
shall entitle the grantee, subject to such terms and conditions as may be
determined by the Committee, to receive upon exercise thereof all or a portion
of the excess of (i) the fair market value at the time of exercise, as
determined by the Committee, of a specified number of Shares with respect to
which the SAR is exercised, over (ii) a specified price which shall not be less
than 100 percent of the fair market value of the Shares at the time the SAR is
granted, or, if the SAR is granted in connection with a previously issued stock
option, not less than 100 percent of the fair market value of the Shares at the
time such option was granted. Upon exercise of a SAR, the number of Shares
reserved for issuance hereunder shall be reduced by the number of Shares covered
by the SAR. Shares covered by a SAR shall not be used more than once to
calculate the amount to be received pursuant to the exercise of the SAR.
(b) SARs Related to Stock Options. If a SAR is granted in relation to a
stock option, (i) the SAR shall be exercisable only at such times, and by such
persons, as the related option is exercisable; (ii) the grantee's right to
exercise the related option shall be canceled if and to the extent that the
Shares subject to the option are used to calculate the amount to be received
upon the exercise of the related SAR; (iii) the grantee's right to exercise the
related SAR shall be canceled if and to the extent that the Shares subject to
the SAR are purchased upon the exercise of the related option; and (iv) the SAR
shall
4
<PAGE>
not be transferable other than by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the grantee only
by him.
(c) Term. Each SAR agreement shall state the period or periods of time
within which the SAR may be exercised, in whole or in part, as determined by the
Committee and subject to such terms and conditions as are prescribed for such
purpose by the Committee, provided that no SAR shall be exercisable earlier than
six months after the date of grant or later than ten years after the date of
grant. The Committee may, in its discretion, provide in the SAR agreement
circumstances under which the SARs shall become immediately exercisable, in
whole or in part, and may, notwithstanding the foregoing, accelerate the
exercisability of any SAR, in whole or in part, at any time.
(d) Termination. SARs shall be exercisable only during the grantee's tenure
as an employee or director of the Company, except that, in the discretion of the
Committee, a SAR may be made exercisable for up to three months after the
grantee is Terminated for any reason other than Retirement, death or Disability,
and for up to one year after the grantee is Terminated because of Retirement,
death or Disability.
(e) Payment. Upon exercise of a SAR, payment shall be made in cash, in
shares at fair market value on the date of exercise, or in a combination
thereof, as the Committee may determine at the time of exercise.
(f) Other Terms. SARs shall be granted in such manner and such form, and
subject to such additional terms and conditions, as the Committee in its sole
discretion deems necessary or desirable, including without limitation: (i) if
granted in connection with an Incentive Stock Option, in order to satisfy any
requirements set forth under Section 422 of the Code; or, (ii) in order to avoid
any insider-trading liability in connection with a SAR under Section 16(b) of
the 1934 Act.
8. RESTRICTED STOCK AWARDS.
Restricted stock awards under the Plan shall consist of Shares free of any
purchase price or for such purchase price as may be established by the Committee
restricted against transfer, subject to forfeiture, and subject to such other
terms and conditions (including attainment of performance objectives) as may be
determined by the Committee. Restricted stock shall be evidenced by written
restricted stock agreements in such form not inconsistent with the Plan as the
Committee shall approve from time to time, which agreement shall contain the
terms and conditions applicable to such awards, including in substance the
following terms and conditions:
(a) Restriction Period. Restrictions shall be imposed for such period or
periods as may be determined by the Committee. The Committee, in its discretion,
may provide in the agreement circumstances under which the restricted stock
shall become immediately transferable and nonforfeitable, or under which the
restricted stock shall be forfeited, and, notwithstanding the foregoing, may
accelerate the expiration of the restriction period imposed on any Shares at any
time.
(b) Restrictions Upon Transfer. Restricted stock and the right to vote such
shares and to receive dividends thereon, may not be sold, assigned, transferred,
exchanged, pledged, hypothecated, or otherwise encumbered, except as herein
provided, during the restriction period applicable to such Shares.
Notwithstanding the foregoing, and except as otherwise provided in the Plan, the
grantee shall have all of the other rights of a stockholder, including, but not
limited to, the right to receive dividends and the right to vote such Shares.
(c) Certificates. A certificate or certificates representing the number of
restricted Shares granted shall be registered in the name of the grantee. The
Committee, in its sole discretion, shall determine when the certificate or
certificates shall be delivered to the grantee (or, in the event of the
grantee's death, to his Beneficiary), may provide for the holding of such
certificate or certificates in escrow or in
5
<PAGE>
custody by the Company or its designee pending their delivery to the grantee or
Beneficiary, and may provide for any appropriate legend to be borne by the
certificate or certificates.
(d) Lapse of Restrictions. The restricted stock agreement shall specify the
terms and conditions upon which any restriction upon restricted stock awarded
under the Plan shall expire, lapse, or be removed, as determined by the
Committee. Upon the expiration, lapse, or removal of such restrictions, Shares
free of the restrictive legend shall be issued to the grantee or his legal
representative.
(e) Automatic Award of Restricted Stock to Nonemployee Directors.
Notwithstanding any other provision of the Plan, awards of restricted stock
hereunder to Nonemployee Directors shall be subject to the following terms and
conditions:
(i) Immediately following the 1994 Annual Meeting of the stockholders of
the Company, each Nonemployee Director of the Company who is then incumbent
shall be awarded 1,000 Shares of restricted stock (as adjusted pursuant to
paragraph 20, below).
(ii) If, after the 1994 Annual Meeting and until the 2003 Annual
Meeting, a person is elected or appointed as a Nonemployee Director of the
Company other than at an Annual Meeting, such person shall thereupon be
awarded 1,000 Shares of restricted stock (as adjusted pursuant to paragraph
20, below).
(iii) The shares of restricted stock awarded pursuant to this paragraph
8(e) shall have a restriction period of ten years. The restrictions shall
lapse with respect to 10 percent of the Shares awarded hereunder on the
anniversary date of the award during each of the ten consecutive calendar
years following the date on which the award is made, but only if the grantee
has been a director of the Company continuously from the grant date of the
restricted stock award to such anniversary date; provided, however, that all
restrictions shall lapse, and the grantee of such restricted Shares shall be
entitled to the delivery of a stock certificate or certificates evidencing
the restricted Shares, upon (a) the date of the grantee's death or
Disability while serving as a director, or (b) the date on which the Board
of Directors determines that the holder will not be nominated for election
as a director by reason of Retirement. Upon any other Termination, all
shares still subject to the restrictions hereof shall be returned to or
canceled by the Company and shall be deemed to have been forfeited by the
grantee.
(iv) No Shares awarded under this paragraph 8(e) may be sold, assigned,
transferred, exchanged, pledged, hypothecated, or otherwise encumbered
unless, until and then only to the extent that the restrictions shall have
lapsed in accordance with paragraph 8(e) (iii) hereof.
(v) Stock certificates evidencing restricted Shares awarded under this
paragraph 8(e) shall be issued in the sole name of the grantee (but shall be
held by the Company until the restrictions shall have lapsed in accordance
herewith) and shall bear a legend which, in part, shall provide that such
Shares (a) are subject to the terms and restrictions of the Plan, (b) are
subject to forfeiture or cancellation under the terms of the Plan, and (c)
shall not be sold, assigned, transferred, exchanged, pledged, hypothecated,
or otherwise encumbered except pursuant to the provisions of the Plan.
(vi) Unless otherwise provided in the Plan, all provisions with respect
to the terms of restricted stock awards hereunder shall be applicable to
restricted stock awarded to Nonemployee Directors under this paragraph 8(e).
(vii) The restricted stock awards under this paragraph 8(e) and the
automatic grants described in paragraph 6(h) shall constitute the only
awards under the Plan permitted to be made to Nonemployee Directors.
6
<PAGE>
9. PERFORMANCE UNITS.
Performance unit awards under the Plan shall entitle grantees to future
payments based upon the achievements of preestablished long-term performance
objectives and shall be evidenced by written performance unit agreements in such
form not inconsistent with this Plan as the Committee shall approve from time to
time. Such agreements shall contain the terms and conditions applicable to the
performance unit awards, including in substance the following terms and
conditions:
(a) Performance Period. The Committee shall establish with respect to each
unit award a performance period of not fewer than two years.
(b) Unit Value. The Committee shall establish with respect to each unit
award value for each unit which shall not thereafter change, or which may vary
thereafter pursuant to criteria specified by the Committee.
(c) Performance Targets. The Committee shall establish with respect to each
unit award maximum and minimum performance targets to be achieved during the
applicable performance period. Achievement of maximum targets shall entitle
grantees to payment with respect to the full value of a unit award. Grantees
shall be entitled to payment with respect to a portion of a unit award according
to the level of achievement of targets as specified by the Committee for
performance which achieves or exceeds the minimum target but fails to achieve
the maximum target.
(d) Performance Measures. Performance targets established by the Committee
shall relate to corporate, subsidiary, division, or unit performance and may be
established in terms of growth in gross revenue, earnings per share, ratios of
earnings to equity or assets, or such other measures or standards as may be
determined by the Committee in its discretion. Multiple targets may be used and
may have the same or different weighing, and they may relate to absolute
performance or relative performance measured against other companies or
businesses.
(e) Adjustments. At any time prior to the payment of a unit award, the
Committee may adjust previously established performance targets or other terms
and conditions, including the Company's or other corporations' financial
performance for Plan purposes, to reflect major unforeseen events such as
changes in laws, regulations or accounting practices, mergers, acquisitions or
divestitures or other extraordinary unusual or non-recurring items or events.
(f) Payment of Unit Awards. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance targets
have been attained and any other terms and conditions satisfied for such period.
The Committee shall determine what, if any, payment is due on the unit award and
whether such payment shall be made in cash, Shares, or a combination thereof.
Payment shall be made in a lump sum or installments, as determined by the
Committee, commencing as promptly as practicable following the end of the
performance period unless deferred subject to such terms and conditions and in
such form as may be prescribed by the Committee.
(g) Termination. In the event that a grantee is Terminated as an employee or
director by the Company prior to the end of the performance period by reason of
death, Disability, or Retirement with the consent of the Company, any unit
award, to the extent earned under the applicable performance targets, shall be
payable at the end of the performance period according to the portion of the
performance period during which the grantee was employed by or served as a
director of the Company, provided that the Committee shall have the power to
provide for an appropriate settlement of a unit award before the end of the
performance period. Upon any other Termination, participation shall terminate
forthwith and all outstanding unit awards shall be canceled.
7
<PAGE>
10. LOANS AND SUPPLEMENTAL CASH.
The Committee, in its sole discretion to further the purpose of the Plan,
may provide for supplemental cash payments or loans to individuals in connection
with all or any part of an award under the Plan. Supplemental cash payments
shall be subject to such terms and conditions as shall be prescribed by the
Committee at the time of grant, provided that in no event shall the amount of
payment exceed:
(a) In the case of an option, the excess fair market value of a Share on the
date of exercise over the option price multiplied by the number of Shares for
which such option is exercised, or
(b) In the case of a SAR, performance unit, or restricted stock award, the
value of the Shares and other consideration issued in payment of such award.
Any loan shall be evidenced by a written loan agreement or other instrument in
such form and containing such terms and conditions (including, without
limitation, provisions for interest, payment schedules, collateral, forgiveness
or acceleration) as the Committee may prescribe from time to time.
11. GENERAL RESTRICTIONS.
Each award under the Plan shall be subject to the requirement that if at any
time the Company shall determine that (i) the listing, registration or
qualification of the Shares subject or related thereto upon any securities
exchange or under any state or federal law, or (ii) the consent or approval of
any regulatory body, or (iii) an agreement by the recipient of an award with
respect to the disposition of Shares, or (iv) the satisfaction of withholding
tax or other withholding liabilities is necessary or desirable as a condition of
or in connection with the granting of such award or the issuance or purchase of
Shares thereunder, such award shall not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval, agreement,
or withholding shall have been effected or obtained free of any conditions not
acceptable to the Company. Any such restriction affecting an award shall not
extend the time within which the award may be exercised; and neither the Company
nor its directors or officers nor the Committee shall have any obligation or
liability to the grantee or to a Beneficiary with respect to any Shares with
respect to which an award shall lapse or with respect to which the grant,
issuance or purchase of Shares shall not be effected, because of any such
restriction.
12. SINGLE OR MULTIPLE AGREEMENTS.
Multiple awards, multiple forms of awards, or combinations thereof may be
evidenced by a single agreement or multiple agreements, as determined by the
Committee.
L3. RIGHTS OF THE SHAREHOLDER.
The recipient of any award under the Plan, shall have no rights as a
shareholder with respect thereto unless and until certificates for Shares are
issued to him, and the issuance of Shares shall confer no retroactive right to
dividends.
14. RIGHTS TO TERMINATE.
Nothing in the Plan or in any agreement entered into pursuant to the Plan
shall confer upon any person the right to continue in the employment of the
Company or to serve as a director, or affect any right which the Company may
have to terminate the employment or directorship of such person.
8
<PAGE>
15. WITHHOLDING.
(a) Prior to the issuance or transfer of Shares under the Plan, the
recipient shall remit to the Company an amount sufficient to satisfy any
federal, state or local withholding tax requirements. The recipient may satisfy
the withholding requirement in whole or in part by electing to have the Company
withhold Shares having a value equal to the amount required to be withheld. The
value of the Shares to be withheld shall be the fair market value, as determined
by the Committee, of the stock on the date that the amount of tax to be withheld
is determined (the "Tax Date"). Such election must be made prior to the Tax
Date, must comply with all applicable securities law and other legal
requirements, as interpreted by the Committee, and may not be made unless
approved by the Committee, in its discretion.
(b) Whenever payments to a grantee in respect of an award under the Plan are
to be made in cash, such payments shall be net of the amount necessary to
satisfy any federal, state or local withholding tax requirements.
16. NON-ASSIGNABILITY.
No award under the Plan shall be sold, assigned, transferred, exchanged,
pledged, hypothecated, or otherwise encumbered, other than by will or by the
laws of descent and distribution, or by such other means as the Committee may
approve. Except as otherwise provided herein, during the life of the recipient,
such award shall be exercisable only by such person or by such person's guardian
or legal representative.
17. NON-UNIFORM DETERMINATIONS.
The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and timing of
such awards, the terms and provisions of such awards and the agreements
evidencing same, and the establishment of values and performance targets) need
not be uniform and may be made selectively among persons who receive, or are
eligible to receive, awards under the Plan, whether or not such persons are
similarly situated.
18. CHANGE IN CONTROL PROVISIONS.
(a) In the event of (1) a Change in Control (as defined) or (2) a Potential
Change in Control (as defined), but only if and to the extent so determined by
the Board of Directors at or after grant (subject to any right of approval
expressly reserved by the Board of Directors at the time of such determination),
the following acceleration and valuation provisions shall apply:
(i) Any SARs outstanding for at least six months and any stock options
awarded under the Plan not previously exercisable and vested shall become
fully exercisable and vested.
(ii) Any restrictions and deferral limitations applicable to any
restricted stock, performance units or other stock-based awards, in each
case to the extent not already vested under the Plan, shall lapse and such
shares, performance units or other stock-based awards shall be deemed fully
vested.
(iii) The value of all outstanding stock options, SARs, restricted
stock, performance units and other stock-based awards, in each case to the
extent vested, shall, unless otherwise determined by the Committee in its
sole discretion at or after grant but prior to any Change in Control, be
cashed out on the basis of the Change in Control Price (as defined) as of
the date such Change in Control or such Potential Change in Control is
determined to have occurred or such other date as the Committee may
determine prior to the Change in Control.
9
<PAGE>
(b) As used herein, the term "Change in Control" means the happening of any
of the following:
(i) Any person or entity, including a "group" as defined in Section
13(d)(3) of the 1934 Act, other than the Company, a subsidiary of the
Company, or any employee benefit plan of the Company or its subsidiaries,
becomes the beneficial owner of the Company's securities having 25 percent
or more of the combined voting power of the then outstanding securities of
the Company that may be cast for the election for directors of the Company
(other than as a result of an issuance of securities initiated by the
Company in the ordinary course of business), or
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions, less
than a majority of the combined voting power of the then outstanding
securities of the Company or any successor corporation or entity entitled to
vote generally in the election of directors of the Company or such other
corporation or entity after such transaction, are held in the aggregate by
holders of the Company's securities entitled to vote generally in the
election of directors of the Company immediately prior to such transactions;
or
(iii) During any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless the election, or
the nomination for election by the Company's stockholders, of each director
of the Company first elected during such period was approved by a vote of at
least two-thirds of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period.
(c) As used herein, the term "Potential Change in Control" means the
happening of any of the following:
(i) The approval by stockholders of an agreement by the Company, the
consummation of which would result in a Change in Control of the Company; or
(ii) The acquisition of beneficial ownership, directly or indirectly, by
any entity, person or group (other than the Company, a wholly-owned
subsidiary thereof or any employee benefit plan of the Company or its
subsidiaries, including any trustee of such plan acting as such trustee) of
securities of the Company representing 5 percent or more of the combined
voting power of the Company's outstanding securities and the adoption by the
Board of Directors of a resolution to the effect that a Potential Change in
Control of the Company has occurred for purposes of this Plan.
(d) As used herein, the term "Change in Control Price" means the highest
price per share paid in any transaction reported on the National Association of
Securities Dealers Automated Quotation System, or paid or offered in any bona
fide transaction related to a Potential or actual Change in Control of the
Company at any time during the 60 day period immediately preceding the
occurrence of the Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case determined by the Committee
except that, in the case of Incentive Stock Options and SARs relating to
Incentive Stock Options, such price shall be based only on transactions reported
for the date on which the optionee exercises such SARs or, where applicable, the
date on which a cash out occurs under Section 18(a)(iii).
19. NON-COMPETITION PROVISION.
Unless the award agreement relating to a stock option, SAR, restricted stock
or performance unit specifies otherwise, a grantee shall forfeit all
unexercised, unearned and/or unpaid awards, including, but not by way of
limitation, awards earned but not yet paid, all unpaid dividends and dividend
equivalents, and all interest, if any, accrued on the foregoing if, (i) in the
opinion of the Committee, the grantee without the written consent of the
Company, engages directly or indirectly in any manner or
10
<PAGE>
capacity as principal, agent, partner, officer, director, employee or otherwise,
in any business or activity competitive with the business conducted by the
Company or any of its subsidiaries; or (ii) the grantee performs any act or
engages in any activity which in the opinion of the Chief Executive Officer of
the Company is inimical to the best interests of the Company.
20. ADJUSTMENTS.
In the event of any change in the outstanding common stock of the Company,
by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, reorganization, split-up, combination, exchange of Shares or the
like, the Board of Directors, in its discretion, may adjust proportionately the
number of Shares which may be issued under the Plan, the number of Shares
subject to outstanding awards, and the option exercise price of each outstanding
option, and may make such other changes in outstanding options, SARs,
performance units and restricted stock awards, as it deems equitable in its
absolute discretion to prevent dilution or enlargement of the rights of
grantees, provided that any fractional Shares resulting from such adjustments
shall be eliminated.
21. AMENDMENT.
The Board of Directors may terminate, amend, modify or suspend the Plan at
any time, except that the Board shall not, without the authorization of the
holders of a majority of Company's voting securities, increase the maximum
number of Shares which may be issued under the Plan (other than increases
pursuant to paragraph 20 hereof), extend the last date on which awards may be
granted under the Plan, extend the date on which the Plan expires, change the
class of persons eligible to receive awards, or change the minimum option price.
In no event, however, shall the provisions of paragraphs 6(h) and 8(e) be
amended more often than once every six months, other than to comport with
changes in the Code, the Employment Retirement Income Security Act of 1974, as
amended, or the rules thereunder. No termination, modification, amendment or
suspension of the Plan shall adversely affect the rights of any grantee or
Beneficiary under an award previously granted, unless the grantee or Beneficiary
shall consent; but it shall be conclusively presumed that any adjustment
pursuant to paragraph 20 hereof does not adversely affect any such right.
22. EFFECT ON OTHER PLANS.
Participation in this Plan shall not affect a grantee's eligibility to
participate in any other benefit or incentive plan of the Company. Any awards
made pursuant to this Plan shall not be used in determining the benefits
provided under any other plan of the Company unless specifically provided
therein.
23. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan shall become effective when adopted by the Board of Directors,
provided that the Plan is approved by the holders of a majority of the Company's
voting securities on the date of its adoption by the Board or before the first
anniversary of that date. Unless it is sooner terminated in accordance with
paragraph 21 hereof, the Plan shall remain in effect until all awards under the
Plan have been satisfied by the issuance of Shares or payment of cash or have
expired or otherwise terminated, but no award shall be granted more than ten
years after the earlier of the date the Plan is adopted by the Board of
Directors or is approved by the holders of the Company's voting securities.
24. UNFUNDED PLAN.
The Plan shall be unfunded, except to the extent otherwise provided in
accordance with Section 8 hereof. Neither the Company nor any affiliate shall be
required to segregate any assets that may be represented by stock options, SARs,
or performance units, and neither the Company nor any affiliate shall be deemed
to be a trustee of any amounts to be paid under any stock option, SAR or
performance
11
<PAGE>
unit. Any liability of the Company or any affiliate to pay any grantee or
Beneficiary with respect to an option, SAR or performance unit shall be based
solely upon any contractual obligations created pursuant to the provisions of
the Plan; no such obligations will be deemed to be secured by a pledge or
encumbrance on any property of the Company or an affiliate.
25. GOVERNING LAW.
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the State of Tennessee except to the extent that
such laws may be superseded by any federal law.
ADOPTED BY THE BOARD OF DIRECTORS OF PROFFITT'S, INC. ON THE FIRST DAY OF MARCH,
1994.
By /s/ R. BRAD MARTIN
----------------------------------
R. Brad Martin, Chairman of the
Board of Directors
and Chief Executive Officer
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The ByLaws of Proffitt's provide that Proffitt's shall indemnify to the full
extent authorized or permitted by the Tennessee Business Corporation Act any
person made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person, or such person's testate
or intestate, is or was an officer or director of Proffitt's or serves or served
as an officer or director of any other enterprise at the request of Proffitt's.
Section 48-18-503 of the Tennessee Business Corporation Act provides for
"mandatory indemnification," unless limited by the charter, by a corporation
against reasonable expenses incurred by a director who is wholly successful, on
the merits or otherwise, in the defense of any proceeding to which the director
was a party by reason of the director being or having been a director of the
corporation. Section 48-18-504 of the Tennessee Business Corporation Act states
that a corporation may, in advance of the final disposition of a proceeding,
reimburse reasonable expenses incurred by a director who is a party to a
proceeding if the director furnishes the corporation with a written affirmation
of the director's good faith belief that the director has met the standard of
conduct required by Section 48-18-502 of the Tennessee Business Corporation Act,
that the director will repay the advance if it is ultimately determined that
such director did not meet the standard of conduct required by Section 48-18-502
of the Tennessee Business Corporation Act, and that those making the decision to
reimburse the director determine that the facts then known would not preclude
indemnification under the Tennessee Business Corporation Act. Section 48-18-507
of the Tennessee Business Corporation Act provides for mandatory
indemnification, unless limited by the charter, of officers pursuant to the
provisions of Section 48-18-503 of the Tennessee Business Corporation Act
applicable to mandatory indemnification of directors.
Proffitt's ByLaws further provide that Proffitt's may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of Proffitt's, or is or was serving at the request of
Proffitt's as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person or on such person's behalf in any such
capacity, or arising out of such person's status as such, whether or not
Proffitt's would have the power to indemnify such person against such liability
under the ByLaws, provided that such insurance is available on acceptable terms
as determined by a majority of Proffitt's Board of Directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
(a) The following exhibits are filed as part of this Registration Statement or
incorporated by reference herein:
</TABLE>
<TABLE>
<S> <C>
(2) Agreement and Plan of Merger, dated as of October 22, 1995, among
Proffitt's, Inc., Baltic Merger Corporation and Younkers, Inc. (Appendix I
to Joint Proxy Statement/Prospectus)
(3)(a) Charter, as amended, of Proffitt's, Inc. (Incorporated by reference from
Exhibits to the Form S-1 Registration Statement No. 33-13548 dated June 3,
1987)
(3)(b) Articles of Amendment to the Charter of Proffitt's, Inc. designating the
rights, preferences and limitations of its Series A Cumulative Convertible
Exchangeable Preferred Stock (Incorporated by reference from Exhibits to
the Form 8-K dated April 14, 1994)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
(3)(c) Articles of Amendment to the Charter of Proffitt's, Inc. designating the
rights, preferences and limitations of its Series B Cumulative Junior
Perpetual Preferred Stock (Incorporated by reference from Exhibits to the
Form 8-K dated April 14, 1994)
(3)(d) Articles of Amendment to the Charter of Proffitt's, Inc. designating the
rights, preferences and limitations of its Series C Junior Preferred Stock
(Incorporated by reference from Exhibits to the Form 8-K dated April 3,
1995)
(3)(e) Articles of Amendment to the Charter of Proffitt's, Inc., designating the
maximum number of shares of all classes of stock which the corporation
shall have the authority to issue (Incorporated by reference from Exhibits
to the Quarterly Report on Form 10-Q for the quarterly period ended July
29, 1995)
(3)(f) Articles of Amendment to the Charter of Proffitt's, Inc., designating
special meeting of shareholders (Incorporated by reference from Exhibits to
the Quarterly Report on Form 10-Q for the quarterly period ended July 29,
1995)
(3)(g) Amended and Restated Bylaws of Proffitt's, Inc. (Incorporated by reference
from Exhibits to the Quarterly Report on Form 10-Q for the quarterly period
ended July 29, 1995)
(4)(a) Form of 7.5% Junior Subordinated Debentures due 2004 (Incorporated by
reference from Exhibits to the Form 8-K dated April 14, 1994)
(4)(b) Form of 4.75% Convertible Subordinated Debentures due 2003 (Incorporated by
reference from Exhibits to the Form S-3 Registration Statement No. 33-70000
dated October 19, 1993)
(4)(c) Form of Rights Certificate (Incorporated by reference from Exhibits to the
Form 8-K dated April 3, 1995)
(5) Opinion of Barnes & Thornburg regarding legality
(8) Opinion of Sullivan & Cromwell regarding certain federal income tax
consequences
(23)(a) Consent of Coopers & Lybrand L.L.P.
(23)(b) Consent of Deloitte & Touche LLP
(23)(c) Consent of Ernst & Young LLP
(23)(d) Consent of KPMG Peat Marwick LLP
(23)(e) Consent of Barnes & Thornburg (in opinion regarding legality)
(23)(f) Consent of Sullivan & Cromwell (in opinion regarding certain federal income
tax consequences)
(99)(a) Form of Proxy Card for Proffitt's, Inc.
(99)(b) Form of Proxy Card for Younkers, Inc.
(99)(c) Form of Letter to Stockholders of Proffitt's, Inc. to Accompany Joint Proxy
Statement/Prospectus
(99)(d) Form of Letter to Stockholders of Younkers, Inc. to Accompany Joint Proxy
Statement/Prospectus
(99)(e) Notice of Special Meeting of Stockholders of Proffitt's, Inc.
(99)(f) Notice of Special Meeting of Stockholders of Younkers, Inc.
(99)(g) Opinion of Smith Barney Inc. (Appendix II to Joint Proxy
Statement/Prospectus)
(99)(h) Consent of Smith Barney Inc.
(99)(i) Opinion of Goldman, Sachs & Co. (Appendix III to Joint Proxy State-
ment/Prospectus)
(99)(j) Consent of Goldman, Sachs & Co.
</TABLE>
<TABLE>
<C> <S>
(b) No financial statement schedules are required to be filed herewith pursuant to Item
21(b) or (c) of this Form.
</TABLE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through the use of
a prospectus which is a part of this registration
II-2
<PAGE>
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(2) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933, as
amended, and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, as amended, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated document by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to rule 424(b) (Section 230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the
II-3
<PAGE>
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy expressed in the Securities Act of 1933, as amended, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on January 3, 1996.
PROFFITT'S, INC.
By: /s/ R. Brad Martin
..................................
R. Brad Martin
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on January 3, 1996 by the following
persons in the capacities indicated.
<TABLE><CAPTION>
NAME TITLE/POSITION
- ---------------------------------------- ------------------------------
<S> <C> <C>
/s/ R. Brad Martin
........................................ Chairman of the Board and
R. Brad Martin Chief Executive Officer
/s/ James A. Coggin
........................................ President
James A. Coggin
/s/ Bernard E. Bernstein
........................................ Director
Bernard E. Bernstein
/s/ Edmond D. Cicala
........................................ Director
Edmond D. Cicala
/s/ Ronald de Waal
........................................ Director
Ronald de Waal
/s/ Richard D. McRae
........................................ Director
Richard D. McRae
/s/ C. Warren Neel
........................................ Director
C. Warren Neel
/s/ Harwell W. Proffitt
........................................ Director
Harwell W. Proffitt
/s/ Gerald Tsai, Jr.
........................................ Director
Gerald Tsai, Jr.
/s/ Julia A. Bentley
........................................ Senior Vice President and
Julia A. Bentley Secretary
........................................ Director
Michael A. Gross
/s/ James E. Glasscock
........................................ Executive Vice President,
James E. Glasscock Chief Financial Officer and
Treasurer
</TABLE>
II-5
Exhibit 5
[Letterhead]
January 3, 1996
Proffitt's, Inc.
115 North Calderwood
Alcoa, Tennessee 37701-9388
Ladies and Gentlemen:
You have requested our opinion in connection with the Form S-4
Registration Statement which is being filed with the Securities and
Exchange Commission by Proffitt's, Inc. ("Proffitt's"), with respect to the
shares of the Common Stock, $0.10 par value, of Proffitt's (the "Shares")
to be issued to stockholders of Younkers, Inc., a Delaware corporation
("Younkers"), in the event the proposed Agreement and Plan of Merger among
Younkers, Baltic Merger Corporation and Proffitt's is approved and the
transactions contemplated therein are consummated, all as further described
in the Registration Statement.
We have examined such records and documents, and have made such
investigations of law and fact as we have deemed necessary in the
circumstances. Based on that examination and investigation, it is our
opinion that, when exchanged in the manner described in the Registration
Statement (including all exhibits thereto) and in compliance with the
Securities Act of 1933, as amended, and applicable state Blue Sky laws, the
Shares will have been duly authorized, validly issued, fully paid and not
subject to further assessment.
We consent to the use of our name under the caption "LEGAL MATTERS" in
the Proxy Statement/Prospectus included in the Registration Statement and
to the filing of this opinion as Exhibit 5 to the Registration Statement.
---------
Sincerely,
/s/ BARNES & THORNBURG
Exhibit 8
[Letterhead]
January 3, 1996
Younkers, Inc.,
7th and Walnut Streets,
P.O. Box 1495,
Des Moines, Iowa 50397.
Dear Sirs:
We have acted as your special counsel in connection with the
Registration Statement on Form S-4 of Proffitt's, Inc. filed with the
Securities and Exchange Commission on January 3, 1996 (the "Registration
Statement") and hereby confirm to you our opinion as set forth under the
heading "THE MERGER -- Certain Federal Income Tax Consequences" in the
Joint Proxy Statement/Prospectus dated January 3, 1996 and included in
such Registration Statement.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Registration Statement and
the reference to us in the Joint Proxy Statement/Prospectus under the
heading "THE MERGER -- Certain Federal Income Tax Consequences." In giving
such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
/s/ Sullivan & Cromwell
Exhibit 23(a)
Coopers Coopers & Lybrand L.L.P.
& Lybrand
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Proffitt's, Inc. on Form S-4 of our report dated March 17, 1995, on our
audits of the consolidated financial statements of Proffitt's, Inc. as of
January 28, 1995 and January 29, 1994, and for each of the three years in
the period ended January 28, 1995, and our report dated March 17, 1995 on
our audit of the financial statement schedule listed in Item 14(a)2 of Form
10-K, which reports are incorporated by reference in this Registration
Statement. We also consent to the reference to our firm under the caption
"Experts."
/s/ Coopers & Lybrand L.L.P.
Knoxville, Tennessee
December 27, 1995
Coopers & Lybrand L.L.P., a registered limited liability partnership, is a
member firm of Coopers & Lybrand (International).
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Proffitt's, Inc. on Form S-4 of our report dated March 3, 1995,
appearing in and incorporated by reference in the Annual Report on Form 10-
K of Younkers, Inc. for the year ended January 28, 1995 and to the
reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
December 29, 1995
Exhibit 23(c)
ERNST & YOUNG LLP Suite 3400 Phone: 515 243 2727
801 Grand Avenue
Des Moines, Iowa 50309-2764
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Joint Proxy Statement/Prospectus, which is a part of the Registration
Statement of Proffitt's, Inc. on Form S-4, and to the incorporation by
reference in such Registration Statement of our report dated March 3, 1994,
with respect to the consolidated financial statements and schedule of
Younkers, Inc. incorporated by reference in its Annual Report on Form 10-K
for the fiscal year ended January 28, 1995, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
December 29, 1995
Exhibit 23(d)
Independent Auditors' Consent
-----------------------------
The Board of Directors
Macco Investments, Inc.:
We consent to the use of our report dated February 25, 1994 on the
consolidated financial statements of Macco Investments, Inc. and subsidiary
as of January 29, 1994 and January 30, 1993 and for each of the years in
the three-year period ended January 29, 1994 incorporated herein by
reference.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jackson, Mississippi
January 3, 1996
Exhibit 99(a)
PROFFITT'S, INC.
MIDLAND SHOPPING CENTER
115 NORTH CALDERWOOD
ALCOA, TENNESSEE 37701
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, JANUARY 31, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R. Brad Martin and Julia A. Bentley, or either of them with full power of
substitution, are hereby authorized to represent and vote all the shares of
common stock of the undersigned at the Special Meeting of the Stockholders of
Proffitt's, Inc. to be held on January 31, 1996, at 10:00 a.m., local time, or
any adjournment thereof, with all powers which the undersigned would possess if
personally present, in the following manner:
1. Approval of the Agreement and Plan of Merger. Approval of the Agreement
and Plan of Merger, dated as of October 22, 1995 (the "Merger Agreement") among
Proffitt's, Inc. (the "Company"), Baltic Merger Corporation, a Delaware
corporation and wholly-owned subsidiary of the Company ("Sub") and Younkers,
Inc. ("Younkers"), pursuant to which Sub will merge with and into Younkers,
which will result in Younkers becoming a wholly-owned subsidiary of the Company
(the "Merger").
/ / FOR / / AGAINST / / ABSTAIN
2. Approval of the Stock Issuance. Approval of the issuance of shares of the
Company's Common Stock, par value $0.10 per share (the "Company Common Stock"),
in connection with the Merger Agreement, including the issuance of shares of
Company Common Stock in the Merger and upon the exercise of stock options of
Younkers which, pursuant to the terms of the Merger Agreement, following the
Merger will constitute options to purchase shares of Company Common Stock (the
"Younkers Options").
/ / FOR / / AGAINST / / ABSTAIN
3. Approval and Adoption of an Amendment to the Company's 1994 Long-Term
Incentive Plan. Approval and adoption of an amendment to the Company's 1994
Long-Term Incentive Plan (the "Incentive Plan") to increase the number of shares
of Company Common Stock issuable under the Incentive Plan by 1,711,000 shares
from 1,200,000 shares to 2,911,000 shares, 711,000 shares of which will be
reserved for issuance upon exercise of Younkers Options.
/ / FOR / / AGAINST / / ABSTAIN
(continued on reverse side)
<PAGE>
4. In their discretion, the Proxies are authorized to vote upon such other
business (none at the time of solicitation of this Proxy) as may properly come
before the meeting, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSITIONS. THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF A
CONTRARY DIRECTION, IT SHALL BE VOTED FOR THE PROPOSALS AND THE PROXIES MAY VOTE
IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS PROPERLY MAY COME BEFORE THE
MEETING OR ADJOURNMENT THEREOF.
The undersigned acknowledges receipt of Notice of said Special Meeting and
the accompanying Joint Proxy Statement/Prospectus, and hereby revokes all
proxies heretofore given by the undersigned for said Special Meeting.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO VOTING THEREOF.
Dated ________________________, 1996
_______________________________________
Signature of Stockholder
_______________________________________
Signature of Stockholder (if
held jointly)
PLEASE DATE THIS PROXY AND
SIGN YOUR NAME OR NAMES
EXACTLY AS SHOWN HEREON. WHEN
SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE
SIGN YOUR FULL TITLE AS SUCH.
IF THERE ARE MORE THAN ONE
TRUSTEE, OR JOINT OWNERS, ALL
MUST SIGN. PLEASE RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Exhibit 99(b)
YOUNKERS, INC.
DES MOINES, IOWA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF YOUNKERS,
INC., FOR THE SPECIAL MEETING ON JANUARY 31, 1996.
The undersigned hereby appoints W. Thomas Gould, Robert M. Mosco and Alan R.
Raxter, or any of them, proxies for the undersigned, each with full power of
substitution, to attend the Special Meeting of Stockholders of Younkers, Inc.
("Younkers"), to be held on January 31, 1996 at 9:00 a.m., Central Time, and at
any adjournments thereof, and to vote as specified in this Proxy all the shares
of stock of the Company which the undersigned would be entitled to vote if
personally present. The undersigned hereby revokes any previous proxies with
respect to the matters covered by this Proxy.
YOUNKERS' BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT
1. Adoption of the Agreement and Plan of Merger dated as of October 22, 1995,
among Younkers, Proffitt's, Inc. ("Proffitt's") and Baltic Merger
Corporation, a wholly-owned subsidiary of Proffitt's, pursuant to which
Younkers will become a wholly-owned subsidiary of Proffitt's and each
outstanding share of Younkers' Common Stock will be converted into .98
shares of Proffitt's Common Stock.
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting. This Proxy when properly
executed will be voted in the manner directed herein. If no direction is
made, this Proxy will be FOR adoption of the Merger Agreement.
(Continued on reverse side)
<PAGE>
(Continued from other side)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE PROVIDED.
Please sign exactly as your
name appears on this card.
Joint owners should each sign
personally. Corporation
proxies should be signed in
corporate name by an
authorized officer.
Executors, administrators,
trustees or guardians should
give their title when
signing.
Signature(s) _____________________________
Date __________________________________
Exhibit 99(c)
[On Proffitt's Letterhead]
January 3, 1996
Dear Proffitt's, Inc. Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Proffitt's, Inc. ("Proffitt's") to be held at 10:00 a.m. local time on
Wednesday, January 31, 1996, at Proffitt's corporate offices, Midland Shopping
Center, 115 North Calderwood, Alcoa, Tennessee.
Proffitt's has entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Baltic Merger Corporation, a wholly-owned
subsidiary of Proffitt's ("Sub"), will merge (the "Merger") with and into
Younkers, Inc. ("Younkers"), which will result in Younkers becoming a
wholly-owned subsidiary of Proffitt's. At the Special Meeting, you will be asked
to approve the Merger Agreement and the issuance of shares of Proffitt's Common
Stock pursuant to the Merger Agreement (the "Stock Issuance"). Pursuant to the
terms of the Merger Agreement, each outstanding share of Common Stock of
Younkers will be converted into ninety-eight one-hundredths (.98) shares of
Proffitt's Common Stock. Cash will be paid in lieu of fractional shares of
Proffitt's Common Stock.
NOTICE OF PROFFITT'S SPECIAL MEETING IS BEING PROVIDED TO HOLDERS OF (I)
PROFFITT'S COMMON STOCK, AND (II) SERIES A CUMULATIVE CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK (THE "SERIES A PREFERRED STOCK"); HOWEVER, ONLY HOLDERS OF
PROFFITT'S COMMON STOCK AS OF THE RECORD DATE (AS DEFINED BELOW) ARE ENTITLED TO
VOTE AT THE PROFFITT'S SPECIAL MEETING.
The effect of your approval of the Merger Agreement and the Stock Issuance
will be to enable Proffitt's to complete the Merger with Younkers. The Merger is
described in the accompanying Joint Proxy Statement/Prospectus, which includes a
summary of the terms of the Merger and certain other information relating to the
proposed transaction.
THE BOARD OF DIRECTORS OF PROFFITT'S HAS DETERMINED THAT THE MERGER IS IN
FURTHERANCE OF AND CONSISTENT WITH ITS LONG-TERM BUSINESS STRATEGIES AND IS IN
THE BEST INTERESTS OF THE HOLDERS OF SHARES OF PROFFITT'S COMMON STOCK.
ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER, INCLUDING THE STOCK ISSUANCE, AND RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE MERGER AGREEMENT AND THE STOCK ISSUANCE AT THE SPECIAL MEETING.
At the Special Meeting, you will also be asked to approve an amendment to
Proffitt's 1994 Long-Term Incentive Plan to increase the number of shares of
Proffitt's Common Stock authorized for issuance under such plan (the "Incentive
Plan Amendment"). APPROVAL OF THE INCENTIVE PLAN AMENDMENT IS A CONDITION TO THE
CONSUMMATION OF THE MERGER.
THE BOARD OF DIRECTORS OF PROFFITT'S HAS UNANIMOUSLY DETERMINED THAT THE
INCENTIVE PLAN AMENDMENT IS ADVISABLE AND FAIR TO AND IN THE BEST INTERESTS OF
PROFFITT'S STOCKHOLDERS. ACCORDINGLY, THE BOARD RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE INCENTIVE PLAN AMENDMENT AT THE SPECIAL MEETING.
A Notice of the Special Meeting and a Joint Proxy Statement/Prospectus
containing detailed information concerning the Merger and related transactions
accompany this letter. We urge you to read this material carefully.
Your vote is very important. Please mark, date, sign and return the enclosed
proxy in the enclosed postage prepaid envelope as soon as possible, even if you
plan to attend the meeting. If you have any questions regarding the proposed
transaction, please call Investor Relations at (423) 983-7000.
We look forward to seeing you at the meeting.
Sincerely,
/s/ R. Brad Martin
R. Brad Martin
Chairman of the Board and
Chief Executive Officer
Proffitt's McRAE'S
-------
Post Office Box 9388, Alcoa, TN 37701 (615)983-7000 Fax (615)981-6336
Exhibit 99(d)
[Younkers Letterhead]
January 3, 1996
Dear Fellow Stockholder:
I am pleased to report that Younkers, Inc. ("Younkers") has entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which a
wholly-owned subsidiary of Proffitt's, Inc. ("Proffitt's"), will merge into
Younkers, pursuant to which each outstanding share of Common Stock of Younkers
will be converted into .98 shares of Proffitt's Common Stock.
You are cordially invited to attend a Special Meeting of Stockholders of
Younkers to be held at 9:00 a.m. local time on Wednesday, January 31, 1996, in
the Younkers Tea Room, 7th and Walnut Streets, Des Moines, Iowa. At the Special
Meeting, you will be asked to adopt the Merger Agreement. Cash will be paid in
lieu of fractional shares of Proffitt's Common Stock. The Merger is described in
the accompanying Joint Proxy Statement/Prospectus, which includes a summary of
the terms of the Merger and certain other information relating to the proposed
transaction.
The Board of Directors of Younkers has determined that the Merger is
consistent with and in furtherance of Younkers' long-term business strategy, and
in the best interests of Younkers' and its stockholders. Accordingly, the Board
has unanimously approved the Merger Agreement, and recommends that you vote to
adopt the Merger Agreement at the Special Meeting.
A Notice of the Special Meeting and a Joint Proxy Statement/Prospectus
containing detailed information concerning the Merger and related transactions
accompany this letter We urge you to read the material carefully.
Your vote is very important. Please mark, date, sign and return the enclosed
proxy in the enclosed postage prepaid envelope as soon as possible, even if you
plan to attend the meeting. If you have any questions regarding the proposed
transaction, please call Younkers, collect at (515) 247-7112 or D.F. King & Co.,
Inc., which is assisting us, toll free at (800) 488-8075.
We look forward to seeing you at the meeting.
Sincerely,
/s/ W. Thomas Gould
W. Thomas Gould
Chairman of the Board and
Chief Executive Officer
Exhibit 99(e)
[On Proffitt's Letterhead]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OF JANUARY 31, 1996
Dear Stockholder:
A Special Meeting of Stockholders of Proffitt's, Inc. ("Proffitt's") will be
held at Proffitt's corporate offices, Midland Shopping Center, 115 North
Calderwood, Alcoa, Tennessee, at 10:00 a.m. local time, on January 31, 1996 to
consider and vote upon the following matters:
(1) the Agreement and Plan of Merger, dated as of October 22, 1995 (the
"Merger Agreement"), which appears as Appendix I to the accompanying Joint
Proxy Statement/Prospectus, providing for the merger (the "Merger") of
Baltic Merger Corporation, a wholly-owned subsidiary of Proffitt's, with and
into Younkers, Inc. ("Younkers");
(2) the issuance of shares of Proffitt's Common Stock pursuant to the
Merger Agreement (the "Stock Issuance");
(3) an amendment to Proffitt's 1994 Long-Term Incentive Plan to increase
the number of shares of Proffitt's Common Stock authorized for issuance
under such plan (the "Incentive Plan Amendment"); and
(4) the transaction of such other business, if any, as may properly come
before the Special Meeting or at any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF PROFFITT'S RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE MERGER AGREEMENT, THE STOCK ISSUANCE AND THE INCENTIVE PLAN AMENDMENT.
The Board of Directors of Proffitt's has fixed the close of business on
December 22, 1995 as the record date for the determination of Proffitt's
stockholders entitled to notice of and to vote at the Special Meeting.
The approval of the Merger Agreement requires the affirmative vote of a
majority of the votes eligible to be cast on the proposal. The approval of each
of the Stock Issuance and the Incentive Plan Amendment requires the affirmative
vote of a majority of the votes cast, provided a quorum is present. APPROVAL OF
THE MERGER AGREEMENT, THE STOCK ISSUANCE AND THE INCENTIVE PLAN AMENDMENT ARE
ALL CONDITIONS TO THE CONSUMMATION OF THE MERGER.
YOUR VOTE IS VERY IMPORTANT. PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID RETURN ENVELOPE,
EVEN IF YOU EXPECT TO ATTEND THE MEETING. IF YOU SIGN AND RETURN YOUR PROXY CARD
WITHOUT SPECIFYING THE MANNER IN WHICH YOU WOULD LIKE YOUR SHARES TO BE VOTED,
IT WILL BE UNDERSTOOD THAT YOU WISH TO HAVE YOUR SHARES VOTED FOR THE MERGER
AGREEMENT, THE STOCK ISSUANCE AND THE INCENTIVE PLAN AMENDMENT. YOU MAY REVOKE
YOUR PROXY BY SIGNING AND RETURNING A LATER DATED PROXY WITH RESPECT TO THE SAME
SHARES, BY FILING WITH THE SECRETARY OF PROFFITT'S A DULY EXECUTED REVOCATION,
OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON (ALTHOUGH ATTENDANCE AT
THE SPECIAL MEETING WILL NOT IN AND OF ITSELF CONSTITUTE A REVOCATION OF YOUR
PROXY).
By order of the Board of Directors,
/s/ Julia A. Bentley
Julia A. Bentley
Secretary
Alcoa, Tennessee
January 3, 1996
Proffitt's McRAE'S
-------
Post Office Box 9388, Alcoa, TN 37701 (615)983-7000 Fax (615)981-6336
Exhibit 99(f)
[Younkers Letterhead]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
JANUARY 31, 1996
A Special Meeting of Stockholders of Younkers, Inc. (the "Company" or
"Younkers") is scheduled to be held in the Younkers Tea Room, 7th and Walnut
Streets, Des Moines, Iowa, on January 31, 1996 at 9:00 a.m., Central Time, for
the following purpose:
1. To adopt the Agreement and Plan of Merger, dated as of October 22,
1995, among Younkers, Proffitt's, Inc. ("Proffitt's") and Baltic Merger
Corporation, a wholly-owned subsidiary of Proffitt's (the "Merger
Agreement") pursuant to which Younkers will become a wholly-owned
subsidiary of Proffitt's and each share of Younkers Common Stock will be
converted into .98 of a share of Proffitt's Common Stock.
2. To conduct such other business as may properly come before the Special
Meeting and any adjournment thereof.
The Board of Directors of Younkers unanimously recommends a vote FOR
adoption of the Merger Agreement. Stockholders of record on the close of
business on December 22, 1995, are entitled to notice of and to vote at the
Special Meeting and at any adjournment thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE SPECIAL
MEETING. Whether or not you plan to attend, please sign and date the enclosed
proxy and mail it in the accompanying envelope as promptly as possible. If you
attend the meeting, you may vote your stock in person if you wish. A proxy may
be revoked by appropriate notice to the secretary of the meeting at any time
prior to the voting thereof.
/s/ Alan R. Raxter
Alan R. Raxter
Secretary
Des Moines, Iowa
January 3, 1996
YOUR VOTE IS VERY IMPORTANT. PLEASE SIGN, DATE, MARK AND PROMPTLY MAIL YOUR
PROXY CARD IN THE RETURN ENVELOPE. IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE,
PLEASE CALL YOUNKERS AT (515) 247-7112 OR D.F. KING & CO., INC., WHICH IS
ASSISTING US, TOLL-FREE, AT 800-488-8075.
Exhibit 99(h)
CONSENT
OF
SMITH BARNEY INC.
The Board of Directors
Proffitt's, Inc.
115 North Calderwood
Alcoa, TN 37701
Members of the Board:
We hereby consent to (i) the inclusion of our opinion letter to the
Board of Directors of Proffitt's, Inc. ("Proffitt's") as Appendix II to the
Joint Proxy Statement/Prospectus of Proffitt's and Younkers, Inc.
("Younkers") relating to the proposed merger of a wholly owned subsidiary
of Proffitt's with and into Younkers and (ii) references made to our firm
and such opinion in "SUMMARY - The Merger - Opinions of Financial Advisors"
and "THE MERGER - Recommendations of the Board of Directors; Reasons for
the Merger" and "- Opinions of Financial Advisors - Smith Barney Opinion to
the Proffitt's Board of Directors." In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under, and we do not admit that we are "experts" for purposes of, the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
By: /s/ Smith Barney Inc.
-------------------------------------
SMITH BARNEY INC.
New York, New York
January 3, 1996
Exhibit 99(j)
[Letterhead]
PERSONAL AND CONFIDENTIAL
- -------------------------
January 3, 1996
Board of Directors
Younkers, Inc.
7th and Walnut Streets
Des Moines, Iowa 50397
Re: Registration Statement on Form S-4 filed by Proffitt's, Inc.
Members of the Board of Directors:
Reference is made to our opinion letter dated October 22, 1995 with respect to
the Agreement and Plan of Merger dated as of October 22, 1995 among Proffitt's,
Inc., Baltic Merger Corporation, a wholly-owned subsidiary of Proffitt's, Inc.,
and Younkers, Inc.
The foregoing opinion letter is for the information and assistance of the Board
of Directors of Younkers, Inc. in connection with its consideration of the
transaction contemplated therein and is not to be used, circulated, quoted or
otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions -- "SUMMARY - The Merger -- Opinions of Financial Advisors"
and "THE MERGER - Recommendations of the Board of Directors; Reasons for the
Merger" and " - Opinions of Financial Advisors -- Goldman Sachs Opinion to the
Younkers Board of Directors" and to the inclusion of the foregoing opinion in
the above-mentioned Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
