<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO.
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- --------------------------------------------------------------------------------
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)
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<S> <C> <C>
TENNESSEE 5311 62-0331040
(State or other Jurisdiction (Primary Standard (IRS Employer
of Industrial Identification
Incorporation or Classification Code Number)
Organization) Number)
</TABLE>
------------------------
POST OFFICE BOX 9388
ALCOA, TENNESSEE 37701
(423) 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:
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<S> <C>
JAMES A. STRAIN, ESQ. BRIAN J. MARTIN, ESQ.
SOMMER & BARNARD, PC PROFFITT'S, INC.
4000 BANK ONE TOWER 3455 HIGHWAY 80 WEST
111 MONUMENT CIRCLE JACKSON, MISSISSIPPI 39209
INDIANAPOLIS, INDIANA 46204 (601) 968-5215
(317) 630-4000
</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 meeting of the stockholders of
G.R. Herberger's, 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 and associated
Preferred Stock Purchase Rights................. 4,000,000 $7.8016 $31,206,345 $9,456.47
</TABLE>
(1) Based upon the assumed maximum number of shares of common stock of the
Registrant issuable to holders of common stock of G.R. Herberger's, Inc., a
Delaware corporation ("Herberger's"), in the proposed merger of Prairie
Merger Corporation, a wholly owned subsidiary of the Registrant, with and
into Herberger's.
(2) Solely for purposes of calculating the registration fee in accordance with
Rule 457(f)(2) based on the book value of Herberger's common stock as of
November 2, 1996.
--------------------------
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.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
DATED NOVEMBER 27, 1996
PROFFITT'S, INC.
PROSPECTUS
------------------------
G.R. HERBERGER'S, INC.
PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS OF G.R. HERBERGER'S, INC.
TO BE HELD ON
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to stockholders of G.R. Herberger's, Inc., a Delaware corporation
("Herberger's"), in connection with the solicitation of proxies by the Board of
Directors of Herberger's (the "Herberger's Board") for use at the Special
Meeting of Stockholders of Herberger's scheduled to be held on
or any adjournments or postponements thereof (the "Herberger's Special
Meeting"). This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Prairie Merger Corporation, a Delaware corporation and a wholly-
owned subsidiary of Proffitt's ("Sub"), with and into Herberger's pursuant to
the Agreement and Plan of Merger, dated as of November 8, 1996 (the "Merger
Agreement"), among Proffitt's, Sub and Herberger's, with Herberger's, as the
surviving corporation in the Merger, to become a wholly-owned subsidiary of
Proffitt's.
Each outstanding share of Common Stock, par value $0.04 per share, of
Herberger's (the "Herberger's Common Stock"), will be converted in the Merger
into a number (the "Conversion Number") of validly issued, fully paid and
nonassessable shares of the common stock, $0.10 par value per share, of
Proffitt's (the "Proffitt's Common Stock") determined by multiplying one by a
fraction the numerator of which is 4,000,000 and the denominator of which is the
number of shares of Herberger's Common Stock outstanding at the effective time
of the Merger (the "Effective Time"). Based on the 8,024,678 shares of
Herberger's Common Stock outstanding on , 1996, the Conversion Number
would be approximately .4985. Cash will be paid in lieu of fractional shares of
Proffitt's Common Stock.
This Proxy Statement/Prospectus constitutes a prospectus of Proffitt's
regarding up to 4,000,000 shares of Proffitt's Common Stock issuable to
Herberger's stockholders pursuant to the Merger Agreement.
The Proffitt's Common Stock is listed for trading on the Nasdaq Stock Market
National Market ( the "Nasdaq National Market") under the symbol "PRFT." On
November 8, 1996, the last trading day prior to the announcement of the
execution of the Merger Agreement, the last sale price of Proffitt's Common
Stock on the Nasdaq National Market was $38 3/4 per share. On November 26, 1996,
the last trading day prior to the date of this Proxy Statement/Prospectus, the
last sale price of Proffitt's Common Stock as reported on the Nasdaq National
Market was $39 per share. 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 HERBERGER'S COMMON STOCK." Herberger's
stockholders are urged to obtain current market quotations for the Proffitt's
Common Stock.
This Proxy Statement/Prospectus, the accompanying forms of proxy and the
other enclosed documents are first being mailed to stockholders of Herberger's
on or about .
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 PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 1
SUMMARY.................................................................................................... 3
INTRODUCTION............................................................................................... 17
THE HERBERGER'S SPECIAL MEETING............................................................................ 17
Matters To Be Considered at the Herberger's Special Meeting.............................................. 17
Vote Required............................................................................................ 17
Voting of Proxies........................................................................................ 18
Revocability of Proxies.................................................................................. 18
Record Date; Stock Entitled To Vote; Quorum.............................................................. 18
Appraisal Rights......................................................................................... 18
Solicitation of Proxies; General......................................................................... 19
Holders of Herberger's Common Stock Should Not Send Stock Certificates................................... 20
Accountants.............................................................................................. 20
THE MERGER................................................................................................. 20
General.................................................................................................. 20
Background of the Merger................................................................................. 20
Recommendations of the Herberger's Board; Reasons for the Merger......................................... 21
Proffitt's Reasons for the Merger........................................................................ 22
Opinion of Herberger's Financial Advisor................................................................. 22
Merger Consideration..................................................................................... 27
Effective Time of the Merger............................................................................. 27
Conversion of Shares; Procedures for Exchange of Certificates............................................ 27
Governmental and Regulatory Approvals.................................................................... 29
Certain Federal Income Tax Consequences.................................................................. 29
Accounting Treatment..................................................................................... 31
Interests of Certain Persons in the Merger............................................................... 31
Nasdaq National Market Listing........................................................................... 33
THE MERGER AGREEMENT....................................................................................... 34
Terms of the Merger...................................................................................... 34
Surrender and Payment.................................................................................... 34
Fractional Shares........................................................................................ 35
Conditions to the Merger................................................................................. 35
Representations and Warranties........................................................................... 37
Conduct of Business Pending the Merger................................................................... 37
No Solicitation.......................................................................................... 39
Indemnification; Directors and Officers Insurance........................................................ 40
Termination.............................................................................................. 40
Fees and Expenses........................................................................................ 41
Conduct of Business After the Merger..................................................................... 42
Amendment................................................................................................ 43
Waiver................................................................................................... 43
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ 44
DESCRIPTION OF PROFFITT'S CAPITAL STOCK.................................................................... 53
General.................................................................................................. 53
Proffitt's Common Stock.................................................................................. 53
Proffitt's Preferred Stock............................................................................... 53
</TABLE>
i
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<TABLE>
<S> <C>
Rights Plan.............................................................................................. 54
Registration Rights...................................................................................... 54
Transfer Agent and Registrar............................................................................. 54
COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK AND
HERBERGER'S COMMON STOCK................................................................................. 54
Removal of Directors..................................................................................... 54
Number of Directors...................................................................................... 55
Special Meetings......................................................................................... 55
Required Vote for Authorization of Certain Actions....................................................... 55
Action by Written Consent................................................................................ 56
Inspection Rights........................................................................................ 56
Amendment of By-laws..................................................................................... 57
Voluntary Dissolution.................................................................................... 57
Indemnification.......................................................................................... 57
Business Combination Statute............................................................................. 58
Control Share Acquisition Act............................................................................ 58
Investor Protection Act.................................................................................. 59
Authorized Corporation Protection Act.................................................................... 59
Greenmail Act............................................................................................ 59
Dividends and Other Distributions........................................................................ 60
Dissenters' Rights....................................................................................... 60
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS............................................. 61
Proffitt's............................................................................................... 61
Herberger's.............................................................................................. 63
BUSINESS OF PROFFITT'S..................................................................................... 64
BUSINESS OF HERBERGER'S.................................................................................... 65
HERBERGER'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................................................... 66
Comparison of the Six Months Ended August 3, 1996 (1996) and July 29, 1995 (1995)........................ 66
Comparison of Fiscal Years Ended February 3, 1996 (1995) and January 28, 1995 (1994)..................... 67
Comparison of Fiscal Years Ended January 28, 1995 (1994) and January 29, 1994 (1993)..................... 67
Seasonality and Inflation................................................................................ 68
Liquidity and Capital Resources.......................................................................... 68
LEGAL OPINIONS............................................................................................. 69
EXPERTS.................................................................................................... 69
INDEX TO FINANCIAL STATEMENTS OF HERBERGER'S............................................................... F-1
</TABLE>
ANNEXES
Appendix I Agreement and Plan of Merger dated as of November 8, 1996, among
Proffitt's, Inc.,
Prairie Merger Corporation and G.R. Herberger's Inc.
Appendix II Section 262 of the Delaware General Corporation Law
Appendix III Opinion of Merrill Lynch, Pierce, Fenner and Smith Incorporated
ii
<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
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 HERBERGER'S. THIS 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 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 HERBERGER'S SINCE THE DATE HEREOF
OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Proffitt's is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files 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 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 60621. 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. In addition, the Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
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. This
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 Proxy Statement/Prospectus or in any document
incorporated in this 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) pursuant to the Exchange Act or the Securities Act are
incorporated by reference in this Proxy Statement/ Prospectus:
1. Proffitt's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996, and Amendment No. 1 thereto dated May 1, 1996;
2. Proffitt's Quarterly Reports on Form 10-Q for the quarters ended May
4, 1996 and August 3, 1996;
3. Proffitt's Current Reports on Form 8-K filed with the Commission on
February 16, 1996, April 1, 1996, July 18, 1996, August 12, 1996, August 30,
1996, October 25, 1996 (including Amendment No. 1 thereto filed December ,
1996) and November 22, 1996, respectively;
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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 Company's Share Purchase Rights Plan; and
6. The Consolidated Financial Statements of Parisian, Inc., included in
Proffitt's prospectus dated August 16, 1996, included in Proffitt's
Registration Statement on Form S-4 (Registration No. 333-09043).
All documents and reports filed by Proffitt's pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this 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 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 Proxy Statement/Prospectus.
This 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 Proxy Statement/Prospectus is delivered, on
written or oral request, within one business day of such request to Proffitt's,
Inc., P.O. Box 9388, Alcoa, Tennessee 37701 (telephone number: (423) 983-7000),
attention: Investor Relations. In order to ensure delivery of the documents
prior to the Herberger's Special Meeting, requests should be received by .
All information contained or incorporated by reference in this Proxy
Statement/Prospectus relating to Proffitt's or Sub has been supplied by
Proffitt's, and all such information relating to Herberger's has been supplied
by Herberger's.
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS 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 PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. AS USED HEREIN, UNLESS THE
CONTEXT OTHERWISE REQUIRES, "HERBERGER'S" MEANS G.R. HERBERGER'S, INC. AND ITS
CONSOLIDATED SUBSIDIARIES, "PROFFITT'S" MEANS PROFFITT'S, INC. AND ITS
CONSOLIDATED SUBSIDIARIES AND "SUB" MEANS PRAIRIE MERGER CORPORATION, A
WHOLLY-OWNED SUBSIDIARY OF PROFFITT'S.
Stockholders of Herberger's are urged to read this 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 four divisions, the Proffitt's Division with 26 stores, the McRae's
Division with 29 department stores and one specialty store, the Younkers
Division with 48 department stores and the Parisian Division with 38 department
stores. The stores operated under the Proffitt's Division are located in
Tennessee (12 stores), Virginia (8 stores), Georgia (2 stores), Kentucky (2
stores), North Carolina (1 store) and West Virginia (1 store). The McRae's
department stores are located in Alabama (14 stores), Mississippi (12 stores),
Florida (2 stores) and Louisiana (1 store). The stores operated under the
Younkers Division are located in Iowa (18 stores), Wisconsin (17 stores),
Michigan (5 stores), Nebraska (5 stores) and Illinois, Minnesota and South
Dakota (each 1 store). On October 11, 1996, Proffitt's acquired all of the
outstanding shares of Parisian, Inc. ("Parisian") by merger (the "Parisian
Acquisition"). The Parisian stores are located in Alabama (15 stores), Georgia
(6 stores), Florida (4 stores), Ohio (4 stores), South Carolina (3 stores),
Tennessee (3 stores), Indiana (2 stores) and Michigan (1 store). Proffitt's
operates separate merchandising, sales promotion and store operating divisions
for the Proffitt's, McRae's, Younkers, and Parisian 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 (423) 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 November 7, 1996, 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 (423) 983-7000.
HERBERGER'S. Herberger's is an employee-owned regional department store
company with 40 stores offering principally moderately-to-upper-moderately
priced quality apparel, accessories, cosmetics, fragrances, jewelry and shoes
for the entire family, as well as quality linens, domestics, china, gifts and
flatware for the home. Herberger's was founded by G. R. "Bob" Herberger in 1927
as a single store in St. Cloud, Minnesota. In 1972 Herberger's became
employee-owned through the acquisition of the outstanding common stock by
employees. Herberger's stores are located in ten states: Colorado (1 store),
Illinois (1 store), Iowa (2 stores), Minnesota (14 stores), Montana (6 stores),
Nebraska (5 stores), North Dakota (3 stores), South Dakota (3 stores), Wisconsin
(4 stores), and Wyoming (1 store). Most stores are located in
3
<PAGE>
local or regional malls where they serve as co-anchors. Herberger's operates a
97,625 square foot distribution center in Sartell, Minnesota, near St. Cloud,
and centrally tickets and distributes the majority of its merchandise purchases.
Herberger's has made investments to obtain and maintain computerized systems
including electronic point-of-sale and communications in each of its locations,
and mainframe-based financial, inventory reporting and payroll systems.
Herberger's is incorporated in Delaware, and its principal executive offices are
located at 600 Mall Germain, St. Cloud, Minnesota 56301, and its telephone
number is (320) 251-5351. For further information concerning Herberger's, see
"--Selected Financial and Operating Data," "BUSINESS OF HERBERGER'S",
"HERBERGER'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," and "FINANCIAL STATEMENTS OF HERBERGER'S."
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 Herberger's at
the Effective Time, and Herberger's 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 Herberger's Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into a
number of shares of Proffitt's Common Stock equal to the Conversion Number. See
"THE MERGER AGREEMENT."
The Conversion Number was determined through arms-length negotiations
between Proffitt's and Herberger's.
THE HERBERGER'S SPECIAL MEETING
TIME, DATE AND PLACE. The Herberger's Special Meeting will be held at
--.m., local time, , , .
MATTERS TO BE CONSIDERED AT THE HERBERGER'S SPECIAL MEETING. At the
Herberger's Special Meeting, holders of shares of Herberger's Common Stock will
consider and vote upon a proposal to adopt the Merger Agreement. Holders of
shares of Herberger's Common Stock entitled to vote also will consider and vote
upon any other matter that may properly come before the Herberger's Special
Meeting or at any adjournments or postponements thereof.
VOTE REQUIRED. Each holder of Herberger's 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
Herberger's Common Stock.
Participants or beneficiaries in the G. R. Herberger's, Inc. 401(k) Employee
Stock Purchase Plan and Employee Stock Ownership Plan (the "Herberger's ESOP")
are entitled to direct the voting by the trustee of the Herberger's ESOP of the
Herberger's Common Stock allocated to the account of such participants or
beneficiaries. Herberger's Common Stock held in the account of a participant for
whom no voting instructions are received by the Herberger's ESOP, and
unallocated shares held by the Herberger's ESOP, will be voted by the trustee in
the manner directed by the Herberger's Board.
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. Non-votes will have the effect of votes against the adoption of the
Merger Agreement. See "THE SPECIAL MEETING--Votes Required."
Stockholders of Herberger's 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. Herberger's may use a
stockholder's affirmative vote in favor of adoption of the Merger Agreement as a
defense to any subsequent challenge to
4
<PAGE>
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
Herberger's Common Stock entitled to notice of and to vote at the Herberger's
Special Meeting is , . On that date, there were 8,024,678 shares of
Herberger's Common Stock issued and outstanding.
SECURITY OWNERSHIP OF MANAGEMENT. As of , 1996, directors and
executive officers of Herberger's and their affiliates were beneficial owners of
an aggregate of 1,051,583 shares (approximately 13.1%) of the outstanding shares
of Herberger's Common Stock. As of , 1996, the Herberger's ESOP held an
aggregate of 5,844,977 (approximately 72.8%) of the outstanding shares of
Herberger's Common Stock, of which 4,708,185 shares (approximately 80.6%) had
been allocated to the accounts of participants and 1,136,792 shares
(approximately 19.4%) were unallocated.
THE MERGER
EFFECT OF MERGER. At the Effective Time, Sub will be merged with and into
Herberger's, which will continue as the surviving corporation in the Merger. As
a result of the Merger, Herberger's will become a wholly-owned subsidiary of
Proffitt's. In the Merger each issued and outstanding share of Herberger's
Common Stock will be converted into a number of validly issued, fully paid and
nonassessable shares of Proffitt's Common Stock equal to the Conversion Number.
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 HERBERGER'S BOARD. Herberger's Board believes that the
Merger is advisable and fair to, and is in the best interests of Herberger's and
its stockholders and unanimously recommends that the stockholders of Herberger's
vote for adoption of the Merger Agreement.
HERBERGER'S BOARD RECOMMENDS THAT THE HOLDERS OF HERBERGER'S COMMON STOCK
ADOPT THE MERGER AGREEMENT.
For additional information with respect to the determination made by, and
the recommendation of, Herberger's Board, see "THE MERGER--Recommendations of
the Herberger's Board; Reasons for the Merger."
OPINION OF HERBERGER'S FINANCIAL ADVISOR. Herberger's Board retained
Merrill Lynch, Pierce, Fenner and Smith Incorporated ("Merrill Lynch") as its
exclusive financial advisor in connection with the Merger. At a meeting of the
Herberger's Board held on November 8, 1996, Merrill Lynch delivered its written
opinion that, on the basis of and subject to the matters set forth therein, as
of such date, the Conversion Number was fair to the holders of Herberger's
Common Stock from a financial point of view. A copy of the written opinion of
Merrill Lynch is attached to this Proxy Statement/Prospectus as Appendix III and
is incorporated herein by reference. Herberger's stockholders are urged to read
Merrill Lynch's opinion in its entirety and consider it carefully. See "THE
MERGER--Opinion of Herberger's Financial Advisor" and Appendix III.
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. Three of Herberger's executive
officers have entered into employment or consulting agreements providing for
their continued involvement with Herberger's after
5
<PAGE>
the Merger. Proffitt's has also agreed to indemnify past and present directors
and officers of Herberger's for prior acts and omissions and against liability
in connection with the Merger, as well as to provide director and officer
liability insurance equivalent to that presently provided by Herberger's. See
"THE MERGER--Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER. The obligations of Proffitt's, Sub and
Herberger's to consummate the Merger are subject to various conditions,
including, among other things, obtaining the requisite stockholder approval, the
authorization for listing on the Nasdaq National Market 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 Herberger's 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 Proffitt's.
See "THE MERGER--Governmental and Regulatory Approvals" and "--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 approval, 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
Proffitt's counsel may be waived by the parties, Proffitt's and Herberger's 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 Herberger's,
(ii) by either Proffitt's or Herberger's if the Merger has not been effected
prior to the close of business on June 30, 1997, (iii) by either Proffitt's or
Herberger's if the requisite stockholder approval is not obtained, (iv) by
either Proffitt's or Herberger's in certain circumstances involving a competing
transaction, and (v) by Proffitt's if the Herberger's Board 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
Herberger's Board of its recommendation of the Merger following the occurrence
of certain events, (ii) in certain situations in which the Herberger's Board has
recommended a competing transaction with respect to Herberger's, or (iii) by
Herberger's if the Merger is not effected on or prior to the close of business
on June 30, 1997 and within twelve months thereafter Herberger's enters into or
announces that it proposes to enter into an agreement for a business combination
other than the transaction contemplated by the Merger Agreement, then
Herberger's will pay $4.25 million to Proffitt's. The Merger Agreement also
provides that in the event Herberger's terminates the Merger Agreement following
certain transactions involving Proffitt's, Proffitt's will pay a fee of $4.25
million to Herberger's. See "THE MERGER AGREEMENT--Fees and Expenses."
STOCKHOLDERS' RIGHTS OF APPRAISAL. In accordance with Section 262 of the
Delaware General Corporation Law ("DGCL") stockholders of record of Herberger's
will be entitled to have their shares of Herberger's Common Stock appraised and,
if the Merger is consummated, obtain cash in an amount equal to the fair value
of their Herberger's Common Stock, which may be more or less than the value of
the Proffitt's Common Stock they would have received in the Merger. Specific
procedures for the exercise of
6
<PAGE>
such rights must be followed. A copy of Section 262 of the DGCL is set forth in
Appendix II to this Proxy Statement/Prospectus. See "THE HERBERGER'S SPECIAL
MEETING--Appraisal Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The obligation of Herberger's to
consummate the Merger is conditioned upon the receipt of an opinion of Sommer &
Barnard, PC, counsel to Proffitt's, 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 Herberger's
stockholders upon the receipt of Proffitt's Common Stock in exchange for
Herberger's 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 Herberger's 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 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 HERBERGER'S
COMMON STOCK. SEE "COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK
AND HERBERGER'S COMMON STOCK" for a summary of the material differences between
the rights of holders of Proffitt's Common Stock and Herberger's Common Stock.
REGULATORY MATTERS. Under the HSR Act and the rules promulgated thereunder,
certain transactions, including the Merger, may not be consummated unless
certain waiting period requirements have been satisfied. Proffitt's and
Herberger's each filed a premerger notification and report form pursuant to the
HSR Act with the Federal Trade Commission and the Antitrust Division of the
Department of Justice on November 27, 1996. The waiting period under the HSR Act
terminated on . Although Proffitt's believes the Merger complies with the
antitrust laws, the Department of Justice or others could take action under the
antitrust laws with respect to the Merger, notwithstanding the expiration of the
waiting period, which action may include seeking to enjoin the consummation of
the Merger or to require divestiture of substantial assets of Proffitt's or
Herberger's. There can be no assurance that a challenge to the Merger on
antitrust grounds will not be made or, if such challenge is made, that it would
not be successful. See "THE MERGER--Governmental and Regulatory Approvals."
OTHER SIGNIFICANT CONSIDERATIONS. In determining whether to approve the
transactions contemplated by the Merger Agreement, Herberger's 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
Proxy Statement/Prospectus and at the date of the Herberger's Special Meeting.
Such variations may be the result of changes in the business, operations or
prospects of Proffitt's, 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 Herberger's Special Meeting,
there can be no assurance that the sales price of Proffitt's Common Stock on the
date of the Herberger's Special Meeting 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 $2.5 million. This includes estimated investment banking fees of
$1.5 million payable by Proffitt's and Herberger's and estimated legal,
accounting and other transaction costs of $1.0 million. These non-recurring
costs would represent a reduction in pro forma earnings per common share of
$0.09 for the year ended February 3, 1996, and $0.09 per share for the six
months ended August 3, 1996. After the deduction of these non-recurring charges,
the pro forma net loss, before extraordinary loss, would be $299,000 for the
year ended February 3, 1996, and the pro forma net income would be $4,825,000
for the six-month period ended
7
<PAGE>
August 3, 1996. After the further deduction of preferred stock dividends and
payment for early conversion of preferred stock in the six months ended August
3, 1996, the pro forma loss to common stockholders would be $2,249,000 for the
year ended February 3, 1996, and the net income available to common stockholders
would be $997,000 for the six months ended August 3, 1996. These charges do not
include any charges or benefits related to the combination of the operations of
the businesses.
Stockholders of Herberger's also should consider that the Conversion Number
is a ratio fixed by the Merger Agreement in relation to the number of shares of
Herberger's Common Stock outstanding at the Effective Time. As a result, the
Conversion Number will not be adjusted in the event of an increase or decrease
in the market price of Proffitt's Common Stock. Herberger's stockholders are
urged to obtain current market quotations for Proffitt's Common Stock.
Immediately prior to the Effective Time, there will be approximately
23,988,148 shares of Proffitt's Common Stock outstanding, assuming the absence
of any exercise of options. Immediately following the Effective Time, there will
be approximately 27,988,148 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 Herberger's pursuant to the Merger
Agreement will comprise approximately 14.3% of the total number of shares of
Proffitt's Common Stock outstanding after the Merger (and approximately 14.0% on
a fully diluted basis, assuming exercise of all options exercisable within 60
days of the record date and the conversion of all 4.75% Convertible Subordinated
Debentures due 2003 convertible within 60 days of the date of this Proxy
Statement/Prospectus).
8
<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 Herberger's, and selected unaudited pro forma
combined financial and operating data of Proffitt's, Parisian and Herberger's.
The historical data with respect to Proffitt's and Herberger's are derived from
the respective historical consolidated financial statements of Proffitt's and
Herberger's and should be read in conjunction with the consolidated financial
statements and notes of Proffitt's incorporated herein by reference and the
financial statements and notes of Herberger's appearing elsewhere herein.
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 Proxy
Statement/Prospectus. See "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS."
9
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA FOR PROFFITT'S (1)
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 Proxy Statement/
Prospectus. The selected financial and operating data as of and for the six
months ended July 29, 1995 and August 3, 1996 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 (2)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3,
1992 1993 1994 1995 1996
----------- ------------ ------------ ------------ ------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales (4)........................................... $ 435,284 $ 601,677 $ 798,779 $ 1,216,498 $ 1,333,498
Costs and expenses:
Cost of sales......................................... 273,040 362,620 520,987 795,353 873,218
Selling, general and administrative expenses.......... 112,793 158,920 192,028 284,748 324,650
Other operating expenses.............................. 34,934 44,016 66,617 97,821 105,021
Expenses related to hostile takeover defense (5)...... 3,182
Impairment of long-lived assets (6)................... 19,121
Merger, restructuring and integration costs (7)....... 20,822
Gain on sale of assets (8)............................
----------- ------------ ------------ ------------ ------------
Operating income (loss)............................. 14,517 36,121 19,147 38,576 (12,516)
Other income (expense):
Finance charge income, net of allocation to purchasers
of accounts receivable (9).......................... 15,194 15,401 19,312 27,934 31,273
Interest expense...................................... (15,102) 10) (9,445) (9,245) (20,781) (26,098)
Other income (expense), net........................... 1,817 (380) 11) 2,923 3,865 2,848
----------- ------------ ------------ ------------ ------------
Income (loss) before provision for income taxes,
extraordinary loss and cumulative effect of
accounting changes................................ 16,426 41,697 32,137 49,594 (4,493)
Provision for income taxes.............................. 7,045 15,567 12,892 19,850 1,906
----------- ------------ ------------ ------------ ------------
Income (loss) before extraordinary loss and cumulative
effect of accounting changes........................ 9,381 26,130 19,245 29,744 (6,399)
Extraordinary loss on extinguishment of debt
(net of tax).......................................... (1,088) (2,060)
Cumulative effect of accounting changes
(net of tax) (12)..................................... (1,794) 1,904
----------- ------------ ------------ ------------ ------------
Net income (loss)..................................... 9,381 24,336 20,061 29,744 (8,459)
Preferred stock dividends............................... 1,694 1,950
Payment for early conversion of preferred stock (17)....
----------- ------------ ------------ ------------ ------------
Net income (loss) available to common shareholders.... $ 9,381 $ 24,336 $ 20,061 $ 28,050 $ (10,409)
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Earnings (loss) per common share before extraordinary
loss and cumulative effect of accounting changes...... $ 1.07 $ 2.06 $ 1.09 $ 1.48 $ (0.43)
Extraordinary loss...................................... (0.06) (0.11)
Cumulative effect of accounting changes................. (0.14) 0.11
----------- ------------ ------------ ------------ ------------
Earnings (loss) per common share........................ $ 1.07 $ 1.92 $ 1.14 $ 1.48 $ (0.54)
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Weighted average common shares outstanding
(in thousands) (13)................................... 8,788 12,707 17,667 18,922 19,372
OPERATING DATA:
Comparable store net sales increases (14)............... 5% 6% 6% 1% 3%
Stores open at end of period (14)(15)................... 40 69 78 106 104
Capital expenditures (16)............................... $ 5,843 $ 39,013 $ 78,475 $ 43,289 $ 49,458
BALANCE SHEET DATA:
Working capital......................................... $ 126,026 $ 180,091 $ 286,351 $ 283,162 $ 212,122
Total assets............................................ $ 274,441 $ 455,295 $ 575,449 $ 878,393 $ 835,666
Senior long-term debt, less current portion............. $ 106,066 $ 193,555 $ 95,777 $ 190,216 $ 134,255
Subordinated debt....................................... $ 86,250 $ 100,269 $ 100,505
Shareholders' equity.................................... $ 101,229 $ 143,107 $ 290,309 $ 360,611 $ 356,852
<CAPTION>
SIX MONTHS ENDED (3)
----------------------
<S> <C> <C>
JULY 29, AUGUST 3,
1995 1996
---------- ----------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales (4)........................................... $ 565,923 $ 568,277
Costs and expenses:
Cost of sales......................................... 365,492 366,624
Selling, general and administrative expenses.......... 142,885 141,485
Other operating expenses.............................. 49,415 48,081
Expenses related to hostile takeover defense (5)...... 1,912
Impairment of long-lived assets (6)...................
Merger, restructuring and integration costs (7)....... 4,270
Gain on sale of assets (8)............................ (2,260)
---------- ----------
Operating income (loss)............................. 6,219 10,077
Other income (expense):
Finance charge income, net of allocation to purchasers
of accounts receivable (9).......................... 15,342 14,879
Interest expense...................................... (12,576) (8,608)
Other income (expense), net........................... 1,372 440
---------- ----------
Income (loss) before provision for income taxes,
extraordinary loss and cumulative effect of
accounting changes................................ 10,357 16,788
Provision for income taxes.............................. 4,230 6,995
---------- ----------
Income (loss) before extraordinary loss and cumulative
effect of accounting changes........................ 6,127 9,793
Extraordinary loss on extinguishment of debt
(net of tax)..........................................
Cumulative effect of accounting changes
(net of tax) (12).....................................
---------- ----------
Net income (loss)..................................... 6,127 9,793
Preferred stock dividends............................... 975 796
Payment for early conversion of preferred stock (17).... 3,032
---------- ----------
Net income (loss) available to common shareholders.... $ 5,152 $ 5,965
---------- ----------
---------- ----------
Earnings (loss) per common share before extraordinary
loss and cumulative effect of accounting changes...... $ 0.27 $ 0.30
Extraordinary loss......................................
Cumulative effect of accounting changes.................
---------- ----------
Earnings (loss) per common share........................ $ 0.27 $ 0.30
---------- ----------
---------- ----------
Weighted average common shares outstanding
(in thousands) (13)................................... 19,316 20,186
OPERATING DATA:
Comparable store net sales increases (14)............... 3% 4%
Stores open at end of period (14)(15)................... 107 103
Capital expenditures (16)............................... $ 23,188 $ 23,898
BALANCE SHEET DATA:
Working capital......................................... $ 204,467
Total assets............................................ $ 827,186
Senior long-term debt, less current portion............. $ 120,822
Subordinated debt....................................... $ 100,634
Shareholders' equity.................................... $ 365,120
</TABLE>
10
<PAGE>
NOTES TO SELECTED FINANCIAL AND OPERATING DATA FOR PROFFITT'S (IN THOUSANDS)
(1) Effective February 3, 1996, Proffitt's combined its business with Younkers,
Inc., ("Younkers") a publicly-owned retail department store chain. The
combination was structured as a tax-free transaction and has been accounted
for as a pooling of interests and accordingly, the financial statements were
restated for all periods to include the results of operations and financial
position of Younkers. Each share of Younkers. Common Stock was converted
into ninety eight one-hundredths (.98) shares of Proffitt's Common Stock,
with approximately 8,800 shares issued in the transaction.
(2) Proffitt's fiscal year ends on the Saturday nearest January 31. Fiscal
years presented consisted of 52 weeks except for the fiscal year ended
February 3, 1996 which consisted of 53 weeks (except for the period ended
January 30, 1993 which includes 53 weeks for Younkers).
(3) 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.
(4) Net Sales include leased department sales, which represent sales by retail
vendors that lease store space. Leased department sales accounted for
approximately 5 to 7% of net sales for all periods presented.
(5) Expenses incurred were related to the defense of the attempted hostile
takeover of Younkers by Carson Pirie Scott & Co.
(6) Proffitt's adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" in the fourth quarter of the year
ended February 3, 1996. As a result of adopting this new accounting standard
and as a result of closing certain stores and warehouses, Proffitt's
incurred impairment charges related to the write-down in carrying value of
six operating stores due to poor operating results, abandonment of duplicate
warehouse and leasehold improvements related to the Parks-Belk acquisition
and the Younkers merger, and a loss on abandonment of leasehold improvements
related to closed stores.
(7) In connection with the merger of Proffitt's and Younkers, the two companies
incurred certain costs to effect the merger and other costs to restructure
and integrate the combined operating companies. The costs incurred were
comprised of merger transaction costs, severance and related benefits,
abandonment of duplicate administrative office space and property and
duplicate data processing equipment and software (including leases), and
other costs.
During the six-month period ended August 3, 1996, Proffitt's incurred
additional merger, restructuring and integration costs primarily related to
the termination of the Younkers pension plan, continued conversion of
systems and consolidation of administrative functions.
(8) During the six-month period ended August 3, 1996, Younkers sold land,
buildings and fixtures related to two stores to Carson Pirie Scott & Co.
(9) On April 1, 1994, Proffitt's began selling an undivided ownership interest
in accounts receivable of its Proffitt's and McRae's stores. The ownership
interest which may be transferred to the purchaser is limited to $175,000
and is further restricted on a basis of the level of eligible receivables
and a minimum ownership interest to be maintained by Proffitt's.
Effective with the February 3, 1996 merger, Younkers replaced amounts
borrowed under its separate securitization program with the sale of (i) a
fixed ownership interest of $75,000 and (ii) a variable ownership interest
of up to $50,000 in its trade receivables.
(10) Includes accruals for interest expense of $1,400 resulting from an Internal
Revenue Service audit of Younkers.
(11) Includes nonrecurring start-up costs of $1,210 connected with the
acquisition of the Prange stores by Younkers.
(12) Effective as of the beginning of the fiscal year ended January 30, 1993,
Younkers recognized a cumulative effect adjustment of $1,794 (net of income
taxes of $1,225) due to the adoption of SFAS 106, under which employers
recognize the cost of retiree health and life insurance benefits over the
employees' period of service. 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 was to increase net income $2,273 (net
of income taxes of $1,532).
Effective January 31, 1993, Proffitt's also changed its method of accounting
for store preopening costs to expensing such costs when incurred. The
cumulative effect of this change was to decrease net income $369 (net of
income taxes of $236). Previously, these costs were amortized over the
twelve months immediately following the individual store openings. Younkers
has historically expensed such costs as incurred.
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 the year ended January 30, 1993 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 a substantial portion
of its inventories. Previously, all inventories were valued using the
first-in, first-out (FIFO) method. Younkers has historically valued its
inventories under the LIFO method. The cumulative effect of this change is
not presented because it is not determinable.
(13) In January 1992, April 1992, March 1993 and April 1993, Proffitt's and
Younkers completed public offerings of 2,645, 6,047, 2,395, and 2,371 shares
of Common Stock, respectively, the proceeds of which were utilized, in part,
to reduce long-term debt and fund capital expenditures related to the
renovation, acquisition and opening of new stores. In October 1993,
Proffitt's completed a public offering of $86,250 of Convertible
Subordinated Debentures, the proceeds of which were used to reduce
11
<PAGE>
outstanding bank debt, fund capital expenditures related to the renovation
and expansion of stores, and for working capital and general corporate
purposes.
(14) Comparable store data for a fiscal year or period within a fiscal year are
adjusted so that all 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. Renovated, expanded or relocated stores are
classified as comparable stores and not as new stores. Where operations
within a particular shopping mall are divided among two or more buildings,
the combined operation is counted as one store.
(15) Younkers purchased the merchandise inventories, properties and certain
other assets of the Prange department store division of H.C. Prange Company
in September 1992. Additionally, Proffitt's purchased 19 former Hess
Department Store properties: eight in October 1992, nine in January 1993 (of
which one was subsequently closed) and two in July 1993. During June 1993,
Younkers completed the sale and lease back of the eight owned store
properties acquired from Prange with net proceeds of approximately $31,000,
incurring no gain or loss in the transaction.
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 $212,000.
In March and April 1995, Proffitt's acquired Parks-Belk Company, the owner
and operator of four department stores of which one was subsequently closed.
(16) Excludes amounts expended in connection with the purchase of the Prange
stores in September 1992, Macco Investments, Inc. in March 1994, and
Parks-Belk Company in March and April of 1995.
(17) On June 28, 1996 the holder of Proffitt's preferred stock converted its 600
shares of Series A Preferred Stock into 1,422 shares of Proffitt's Common
Stock. Proffitt's paid $3,032 to such holder as an inducement to the
conversion.
12
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA FOR HERBERGER'S
The selected financial and operating data below should be read in
conjunction with Financial Statements and Notes thereto of Herberger's and with
Herberger's Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Proxy Statement/Prospectus. The
selected financial and operating data as of and for the six months ended July
29, 1995 and August 3, 1996 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>
SIX MONTHS
FISCAL YEAR ENDED(1) ENDED(2)
--------------------------------------------------------------- -----------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29,
1992 1993 1994 1995 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
Net sales................................... $227,321 $257,077 $264,709 $296,946 $327,558 $139,305
Costs and expenses:
Cost of sales............................. 142,540 160,824 169,096 190,902 214,389 91,816
Selling, general and administrative
expenses................................ 55,737 61,969 63,828 67,700 74,349 33,959
Other operating expenses.................. 16,663 20,141 22,175 24,593 25,568 12,470
----------- ----------- ----------- ----------- ----------- -----------
Operating Income........................ 12,381 14,143 9,610 13,751 13,252 1,060
Other income (expense):
Finance charge income..................... 1,019 750 -- -- -- --
Interest expense.......................... (2,360) (2,256) (2,041) (2,505) (3,290) (1,615)
Other income, net......................... 612 613 1,140 961 1,202 314
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes........................ 11,652 13,250 8,709 12,207 11,164 (241)
Provision (benefit) for income taxes........ 4,432 5,064 3,230 4,538 4,135 (96)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)......................... $7,220 $8,186 $5,479 $7,669 $7,029 $(145)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) per common share............ $0.75 $0.87 $0.61 $0.93 $0.93 $(0.02)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding
(in thousands)............................ 9,653 9,407 9,028 8,272 7,590 7,762
Dividends per share $0.13 $0.15 $0.12 $0.14 $0.14 --
OPERATING DATA:
Comparable store net sales increases (3).... 7% 10% 1% 7% 7% 14%
Stores open at end of period................ 37 37 37 40 40 40
Capital Expenditures........................ $9,192 $9,252 $7,717 $10,004 $2,011 $1,129
BALANCE SHEET DATA:
Working capital............................. $23,766 $24,583 $21,199 $18,805 $23,758
Total assets................................ 75,704 80,856 77,779 88,822 82,914
Long-term debt, less current portion........ 24,433 23,430 21,811 23,697 23,836
Stock held in ESOP (4)...................... 42,630 50,855 45,492 52,645 58,881
Stockholders' deficit....................... (16,983) (19,793) (14,473) (22,907) (28,795)
<CAPTION>
AUGUST 3,
1996
-----------
<S> <C>
STATEMENT OF INCOME DATA:
Net sales................................... $140,260
Costs and expenses:
Cost of sales............................. 91,565
Selling, general and administrative
expenses................................ 35,056
Other operating expenses.................. 12,552
-----------
Operating Income........................ 1,087
Other income (expense):
Finance charge income..................... --
Interest expense.......................... (1,303)
Other income, net......................... 303
-----------
Income (loss) before provision (benefit)
for income taxes........................ 87
Provision (benefit) for income taxes........ 35
-----------
Net income (loss)......................... $52
-----------
-----------
Earnings (loss) per common share............ $0.01
-----------
-----------
Weighted average common shares outstanding
(in thousands)............................ 7,389
Dividends per share --
OPERATING DATA:
Comparable store net sales increases (3).... 1%
Stores open at end of period................ 40
Capital Expenditures........................ $1,054
BALANCE SHEET DATA:
Working capital............................. $22,809
Total assets................................ 94,551
Long-term debt, less current portion........ 22,148
Stock held in ESOP (4)...................... 59,456
Stockholders' deficit....................... (30,794)
</TABLE>
NOTES TO SELECTED FINANCIAL AND OPERATING DATA FOR HERBERGER'S
(1) Herberger's fiscal year ends on the Saturday nearest January 31. All fiscal
years presented consisted of 52 weeks except for the fiscal year ended
February 3, 1996 which consisted of 53 weeks.
(2) The business of Herberger'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) Comparable store data for a fiscal year or a six-month period within a
fiscal year (i) reflects stores open throughout such fiscal year or
six-month period and throughout the prior fiscal year or corresponding
six-month period of the prior fiscal year, and (ii) are adjusted so that all
annual amounts related 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.
(4) Shares in the Herberger's ESOP may be put to Herberger's at fair value for
cash under certain conditions, as defined. As such, the shares are reflected
on the balance sheet as an obligation at the fair value of the redeemable
shares.
13
<PAGE>
SELECTED PRO FORMA FINANCIAL AND OPERATING DATA
The selected pro forma financial and operating data below have been prepared
on a consolidated basis based upon the historical financial statements of
Proffitt's and Herberger's for all periods and also on the historical financial
statements for Parisian for the year ended February 3, 1996 and for the
six-month periods ended July 29, 1995 and August 3, 1996. The pro forma combined
information gives effect to the Merger accounted for as a pooling of interests.
See "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------- ----------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
Net Sales..................................... $ 1,063,488 $ 1,513,444 $ 2,324,884 $ 993,780 $ 1,016,491
Costs and expenses:
Cost of sales................................. 690,147 986,028 1,507,075 634,354 651,234
Selling, general and administrative
expenses.................................... 255,856 352,448 563,236 252,859 256,586
Other operating expenses...................... 88,792 122,414 188,041 89,146 89,065
Expenses related to hostile takeover
defense..................................... 3,182 1,912
Impairment of long-lived assets............... 19,121
Merger, restructuring and integration costs... 20,822 4,270
Gain on sale of assets........................ (2,260)
----------- ----------- ----------- --------- -----------
Operating Income.............................. 28,693 52,554 23,407 15,509 17,596
Other income (expense):
Finance charge income, net of allocation to
purchasers of accounts receivable......... 19,312 27,934 38,398 18,872 19,076
Interest expense............................ (11,286) (23,286) (55,840) (27,468) (22,817)
Other income, net........................... 4,063 4,826 6,457 2,869 1,020
----------- ----------- ----------- --------- -----------
Income before provision for income taxes and
extraordinary loss.......................... 40,782 62,028 12,422 9,782 14,875
Provision for income taxes.................... 16,096 24,479 10,221 5,099 7,550
----------- ----------- ----------- --------- -----------
Income before extraordinary loss.............. 24,686 37,549 2,201 4,683 7,325
Preferred stock dividends..................... 1,694 1,950 975 796
Payment for early conversion of preferred
stock....................................... 3,032
----------- ----------- ----------- --------- -----------
Income available to common shareholders before
extraordinary loss after preferred stock
dividends................................... $ 24,686 $ 35,855 $ 251 $ 3,708 $ 3,497
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
Earnings per common share before extraordinary
loss........................................ $ 1.11 $ 1.56 $ 0.01 $ 0.14 $ 0.13
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
Weighted average common shares outstanding (in
thousands).................................. 22,167 23,046 26,303 26,332 26,967
DIVIDENDS PER SHARE........................... $ 0.05 $ 0.05 $ 0.04 -- --
OPERATING DATA:
Comparable store net sales increases.......... 5% 2% 2% 2% 3%
Stores open at end of period.................. 115 146 181 183 181
Capital expenditures.......................... $ 86,192 $ 53,293 $ 62,204 $ 24,993 $ 28,378
BALANCE SHEET DATA:
Working capital............................... $ 328,914
Total assets.................................. $ 1,442,673
Senior long-term debt, less current portion... $ 291,950
Subordinated debt............................. $ 225,634
Shareholders' equity.......................... $ 500,552
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are income from continuing operations and book value per
common share data of Proffitt's and Herberger's on both an historical and a pro
forma combined basis. Proffitt's has not paid any dividends on its common stock.
Proffitt's presently follows the policy of retaining earnings to provide funds
for the operation and expansion of the business and has no present intention to
declare cash dividends in the foreseeable future. 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 30, 1993, combining the results of Proffitt's and Herberger's for the
periods presented. The equivalent pro forma combined data for Herberger's is
based upon the Conversion Number as provided in the Merger Agreement. Book
values per share for Herberger's and for the pro forma combined presentation are
based upon outstanding common shares (including shares held by the Herberger's
ESOP), 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 Parisian
incorporated by reference in this Proxy Statement/ Prospectus and the audited
and unaudited financial statements of Herberger's appearing elsewhere herein and
the "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
EQUIVALENT PRO
PROFFITT'S/ FORMA COMBINED
PROFFITT'S HERBERGER'S PER SHARE OF
HISTORICAL HERBERGER'S PRO FORMA HERBERGER'S
(1) HISTORICAL COMBINED(1) COMMON STOCK
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
INCOME FROM CONTINUING
OPERATIONS:
January 29, 1994..................................... $ 1.09 $ .061 $ 1.11 $ 0.55
January 28, 1995..................................... $ 1.48 $ 0.93 $ 1.56 $ 0.78
February 3, 1996..................................... $ (0.43)(2) $ 0.93 $ 0.01(2) $ 0.00
August 3, 1996 (six months).......................... $ 0.30(3) $ 0.01 $ 0.13(3) $ 0.06
DIVIDENDS:
January 28, 1994..................................... $ 0.12 $ 0.05 $ 0.02
January 29, 1995..................................... $ 0.14 $ 0.05 $ 0.02
February 3, 1996..................................... $ 0.14 $ 0.04 $ 0.02
August 3, 1996 (six months)..........................
BOOK VALUE (AT END OF
PERIOD):
February 3, 1996..................................... $ 17.15 $3.67 $17.77 $8.86
August 3, 1996....................................... $ 17.67 $ 3.57 $ 18.13 $ 9.04
</TABLE>
- ------------------------
(1) See Note 6 to the Notes to Pro Forma Condensed Combined Income Statements
under "Unaudited Pro Forma Condensed Combined Financial Statements."
(2) See Notes 5, 6, and 7 to the Notes to Selected Financial and Operating Data
for Proffit's.
(3) See Notes 7 and 8 to the Notes to Selected Financial and Operating Data for
Proffit's.
15
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
The Proffitt's Common Stock is listed and traded on the Nasdaq National
Market (Symbol: PRFT). The following table sets forth for the periods indicated
the reported high and low bid quotations for Proffitt's 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. Proffitt's has not declared or paid any dividends on its common
stock.
<TABLE>
<CAPTION>
SALES PRICE
--------------------
<S> <C> <C>
PROFFITT'S COMMON STOCK HIGH LOW
- ------------------------------------------------------------------------------------------------- --------- ---------
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.................................................................................. 34 1/4 23 1/8
Fourth Quarter................................................................................. 29 21 1/2
1996
First Quarter.................................................................................. 33 3/4 23 1/2
Second Quarter................................................................................. 40 31 1/2
Third Quarter.................................................................................. 42 35 1/2
Fourth Quarter (prior to Merger announcement on November 8, 1996).............................. 40 1/4 37 3/4
Fourth Quarter (after Merger announcement on November 8, 1996 through November 26, 1996)....... 40 37 1/2
</TABLE>
There is no established trading market for the Herberger's Common Stock.
16
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to stockholders of
Herberger's in connection with the solicitation of proxies by the Herberger's
Board for use at the Herberger's Special Meeting to be held .m., local
time, and at any adjournments or postponements thereof.
At the Herberger's Special Meeting, stockholders of Herberger's will be
asked to adopt the Merger Agreement. A conformed copy of the Merger Agreement
appears as Appendix I to this Proxy Statement/ Prospectus.
This Proxy Statement/Prospectus constitutes a prospectus of Proffitt's with
respect to up to 4,000,000 shares of Proffitt's Common Stock issuable to
Herberger's stockholders pursuant to the Merger Agreement.
THE HERBERGER'S SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE HERBERGER'S SPECIAL MEETING
At the Herberger's Special Meeting, holders of shares of Herberger's Common
Stock will consider and vote upon a proposal to adopt the Merger Agreement.
Holders of shares of Herberger's Common Stock entitled to vote also will
consider and vote upon any other matter that may properly come before the
Herberger's Special Meeting or at any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF HERBERGER'S 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 HERBERGER'S BOARD; REASONS
FOR THE MERGER."
In the Merger, each issued and outstanding share of Herberger's Common Stock
will be converted into a number of validly issued, fully paid and nonassessable
shares of Proffitt's Common Stock equal to the Conversion Number. 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."
VOTE REQUIRED
Each holder of Herberger's 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 Herberger's Common
Stock.
Abstentions will be counted as shares present for purposes of determining a
quorum. See "--Record Date; Stock Entitled to Vote; Quorum." Abstentions will
have the effect of votes against adoption of the Merger Agreement. Non-votes
will have the effect of votes against adoption of the Merger Agreement.
Stockholders of Herberger's 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. Herberger's 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.
As of , 1996, directors and executive officers of Herberger's and
their affiliates were beneficial owners of an aggregate of approximately
1,051,583 shares (approximately 13.1%) of the outstanding shares of Herberger's
Common Stock. As of , the Herberger's ESOP held an aggregate of 5,844,977
(approximately 72.8%) of the outstanding shares of Herberger's Common Stock, of
which 4,708,185 shares
17
<PAGE>
(approximately 80.6%) had been allocated to the accounts of participants and
1,136,792 shares (approximately 19.4%) were unallocated.
VOTING OF PROXIES
Shares represented by properly executed proxies received in time for the
Herberger's Special Meeting and which have not been revoked will be voted at
such meeting 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
Proxy Statement/Prospectus will be brought before the Herberger's Special
Meeting. 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 Herberger's 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 Herberger's a duly executed
revocation, or by voting in person at the Herberger's Special Meeting.
Attendance at the Herberger's Special Meeting will not in and of itself
constitute a revocation of a proxy.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Herberger's Common Stock at the close of business
on , (the "Herberger's Record Date") will be entitled to receive
notice of and to vote at the Herberger's Special Meeting. On the Herberger's
Record Date, there were shares of Herberger's Common Stock outstanding.
The holders of Herberger's Common Stock are entitled to one vote per share on
each matter submitted to a vote at the Herberger's Special Meeting. The holders
of a majority of the shares of Herberger's Common Stock entitled to vote must be
present in person or by proxy at the Herberger's Special Meeting in order for a
quorum to be present. Shares of Herberger'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 on all matters.
Participants or beneficiaries in the Herberger's ESOP are entitled to direct
the voting by the trustee of the Herberger's ESOP of the Herberger's Common
Stock allocated to the account of such participants or beneficiaries.
Herberger's Common Stock held in the account of the participant or beneficiary
for which no voting instructions are received by the trustee, and unallocated
shares held by the Herberger's ESOP, will be voted by the trustee in the manner
directed by the Herberger's Board.
In the event a quorum is not present in person or by proxy at the
Herberger's Special Meeting, the Herberger's 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
Herberger's Special Meeting by the persons named therein as proxies.
APPRAISAL RIGHTS
Any holder of record of Herberger's Common Stock who follows the procedures
specified in Section 262 of the DGCL (the "Appraisal Provisions") is entitled to
receive payment of the "fair value" of such shares in lieu of shares of
Proffitt's Common Stock. Reference is made to the Appraisal Provisions, a copy
of which is attached to this Proxy Statement/Prospectus as Appendix II, for a
complete statement of the appraisal rights of stockholders.
18
<PAGE>
Unless waived by Proffitt's, it is a condition to the obligation of
Proffitt's to consummate the Merger that holders of no more than 7.5% of the
outstanding shares of Herberger's Common Stock shall have delivered to
Herberger's written demands for appraisal in accordance with the Appraisal
Provisions.
The following information is qualified in its entirety by reference to the
Appraisal Provisions:
If a holder of record of Herberger's Common stock elects to exercise such
stockholder's right to an appraisal under the Appraisal Provisions, such
stockholders must satisfy BOTH of the following conditions:
(a) such stockholder must not vote in favor of the Merger nor consent
thereto in writing; and
(b) such stockholder must deliver to Herberger's before the taking of
the vote on the Merger, a written demand for appraisal of his or her shares,
such demand to be sufficient if it reasonably informs Herberger's of the
identity of the stockholder and that the stockholder intends thereby to
demand appraisal of his or her shares.
Within 10 days after the Effective Time, Herberger's must notify each
stockholder who has delivered a demand for appraisal and has not voted in favor
of or consented to the Merger, of the Effective Time. Within 10 days after the
Effective Time, Herberger's or any stockholder who has delivered a written
demand and has not voted in favor of or consented to the Merger may file a
petition in the Delaware Court of Chancery (the "Chancery Court") demanding a
determination of the value of the stock of all such stockholders.
After a hearing on a petition, the Chancery Court will determine which
stockholders have complied with the Appraisal Provisions and have become
entitled to appraisal rights. The Chancery Court may require such stockholders
to submit their stock certificates to the Register in Chancery for notation
thereon of the pending appraisal proceedings and if any stockholder fails to
submit his or her certificates, the Chancery Court may dismiss the proceedings
as to such stockholder.
After determining the stockholders entitled to an appraisal, the Chancery
Court will appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest to be paid thereon. In determining such
fair value the Chancery Court will take into account all relevant factors.
Herberger's and each stockholder entitled to appraisal may apply to participate
in the appraisal proceeding, and the Chancery Court may, in its discretion,
permit discovery and other pretrial proceedings.
The Chancery Court will direct payment of the fair value of the shares,
together with interest, if any, by Herberger's to the stockholders entitled
thereto. The Chancery Court may tax the costs of the appraisal proceedings as it
deems equitable. Upon application of a stockholder, the Chancery Court may order
all or a portion of the expenses incurred by any stockholder, including, without
limitation, reasonable attorney's fees and expenses of experts, to be charged
pro rata against the value of all the shares entitled to an appraisal.
With respect to shares of Herberger's Common Stock held by the Herberger's
ESOP, participants or beneficiaries in the Herberger's ESOP are not record
holders, and are not eligible to elect an appraisal with regard to such stock.
SOLICITATION OF PROXIES; GENERAL
Subject to the Merger Agreement, Herberger's will bear the cost of the
solicitation of proxies from its stockholders, except that Proffitt's and
Herberger's will share equally the cost of printing and mailing this Proxy
Statement/Prospectus, including related filing fees. In addition to solicitation
by mail, the directors, officers and employees of Herberger's may solicit
proxies from stockholders of Herberger's 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.
19
<PAGE>
HOLDERS OF HERBERGER'S COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES
If the requisite stockholder approvals are obtained and the Merger is
consummated, materials for submitting Herberger's stock certificates in exchange
for Proffitt's stock certificates will be provided to the Herberger's
stockholders. DO NOT SEND IN YOUR HERBERGER'S STOCK CERTIFICATES AT THIS TIME.
ACCOUNTANTS
Representatives of Arthur Andersen LLP are expected to be present at the
Herberger's Special Meeting 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
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 Proxy
Statement/Prospectus and is incorporated herein by reference.
GENERAL
Proffitt's, Sub and Herberger's 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 Herberger's, and Herberger's will be the
surviving corporation and a wholly-owned subsidiary of Proffitt's. Not later
than two days after the satisfaction or waiver (where permissible) of the
conditions under the Merger Agreement, the closing of the Merger (the "Closing")
will occur, and on the date of the Closing 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
For some time, the Executive Committee of Herberger's Board (the "Executive
Committee") explored alternative ways of expanding and furthering Herberger's
business, including acquisitions of additional stores and methods of financing,
such as public securities offerings and debt financing, and also possible
business combinations. The Executive Committee also conferred with various
financial and investment advisers on potential strategic alternatives. In early
September 1996, the Executive Committee concluded that growth through the
acquisition of additional stores was restricted by the limited debt and equity
financing available to Herberger's.
In mid-September 1996, Herberger's Chairman and Chief Executive Officer,
Robert J. Sullivan, contacted R. Brad Martin, Chairman of the Board and Chief
Executive Officer of Proffitt's, to initiate exploratory discussions regarding
the possibility of a business combination between Herberger's and Proffitt's. On
September 30, 1996, the Executive Committee authorized Herberger's to enter into
a Confidentiality Agreement with Proffitt's to permit the exchange, on a
confidential basis, of various information intended to permit each party to
evaluate the potential benefits of a business combination.
On October 14, 1996, the Executive Committee caused to be negotiated and
approved an engagement letter between Herberger's and Merrill Lynch, pursuant to
which Merrill Lynch has acted as exclusive financial advisor to Herberger's in
connection with any proposed business combination involving Herberger's.
Herberger's and Proffitt's held discussions regarding a possible merger of
Herberger's and a subsidiary of Proffitt's, with a view toward achieving, among
other benefits, economies of scale in an increasingly competitive retail
environment. Herberger's and Proffitt's exchanged financial and other
information,
20
<PAGE>
conducted extensive due diligence, and held extensive discussions regarding a
possible business combination. These activities culminated with the negotiation
of the terms of a merger of a newly formed subsidiary of Proffitt's with and
into Herberger's. The terms of the Merger and the Merger Agreement were
presented to Herberger's Board at a special meeting held on November 7 and
November 8, 1996. The Merger Agreement was unanimously approved and adopted by
Herberger's Board on November 8, 1996 and was authorized to be submitted to
Herberger's stockholders for approval. The Proffitt's Board approved execution
of the Merger Agreement the same day.
Herberger's and Proffitt's entered into the definitive Merger Agreement on
November 8, 1996. On the same day, the parties issued a joint press release
announcing that they had entered into the Merger Agreement.
RECOMMENDATIONS OF THE HERBERGER'S BOARD; REASONS FOR THE MERGER
Herberger's Board believes that the Merger is advisable and fair to, and in
the best interests of, Herberger's and its stockholders. Herberger's Board
recommends that Herberger's stockholders vote for the adoption of the Merger
Agreement. Herberger's Board believes that the Merger is consistent with
Herberger's long-term business strategy and that it offers Herberger's
stockholders the ability to participate in the growth prospects of a
fast-growing department store company with a proven performance record.
In making its determination to approve and adopt the Merger Agreement,
Herberger's Board considered, with the assistance of management and its legal
and financial advisors, the following material factors:
(i) that the Conversion Number represented a substantial premium to
Herberger's stockholders;
(ii) the belief of Herberger's Board that increasingly competitive
market conditions will favor larger retailers, and that Herberger's will be
able to compete more effectively in the retail industry through the greater
economies of scale resulting from the Merger;
(iii) management's projections showing the likely financial performance
and condition of Herberger's after the Merger as compared to its likely
performance and condition as a separate entity;
(iv) the assessment by Herberger's Board of various strategic
alternatives, including remaining an independent company, engaging in
acquisitions, merging with other parties or conducting a public offering;
(v) the belief of Herberger's Board in the compatibility of Herberger's
and Proffitt's management philosophies, business practices and
organizational structure, and the opportunity for Herberger's to continue to
operate as a separate subsidiary of Proffitt's;
(vi) the presentation of Herberger's financial advisor, Merrill Lynch,
and the delivery of its written opinion dated November 8, 1996 that, on the
basis of and subject to the matters set forth therein, as of such date, the
Conversion Number was fair to the holders of Herberger's Common Stock from a
financial point of view (a copy of which opinion of Merrill Lynch is
attached to this Proxy Statement/Prospectus as Appendix III and is
incorporated herein by reference); and
(vii) the expectation of Herberger's Board that the Merger would be
accounted for as a "pooling of interests" for financial reporting purposes
and would be a tax-free transaction to Herberger's stockholders.
Herberger's Board did not quantify or assign relative values to the various
factors considered in reaching its determination.
HERBERGER'S BOARD RECOMMENDS THAT THE HOLDERS OF HERBERGER'S COMMON STOCK
ADOPT THE MERGER AGREEMENT.
21
<PAGE>
PROFFITT'S REASONS FOR THE MERGER
The Proffitt's Board believes that the Merger will further the long-term
business strategy of Proffitt's and that the terms of the Merger Agreement
provide the appropriate financial protection for Proffitt's shareholders. The
Board believes, therefore, that the Merger is in the best interests of
Proffitt's and its shareholders. Herberger's has demonstrated regional market
leadership in retailing and the locations of its stores fill in some parts of
the north central and midwestern United States not currently served by
Proffitt's. Moreover, with only moderate synergies, the transaction should
provide accretion to the Proffitt's stockholders. The Board, therefore, approved
the Merger Agreement.
In arriving at its determination, the Proffitt's Board considered a number
of material factors:
(i) The Merger Agreement allows Proffitt's to use its stock as a
currency for the transaction without unduly diluting the interests of the
current Proffitt's shareholders;
(ii) The Proffitt's Board's view that larger retailers are increasingly
necessary to compete in the retail industry and that the combined company
will have greater economies of scale to provide it with the resources
required to compete both in buying and marketing;
(iii) The merchandising similarities between Proffitt's and Herberger's
should provide for an easy transition;
(iv) The operating cost savings and synergies that the combined company
expects to achieve through the adoption of "best practices" and economies of
scale;
(v) The Proffitt's Board's belief that Proffitt's and Herberger's have
compatible organizational structures and management philosophies; and
(vi) The Proffitt's Board's belief that with only moderate synergies the
transaction should be accretive to Proffitt's shareholders.
The Proffitt's Board neither quantified nor attempted to assign relative
weights to the specific factors it considered in reaching its determination to
approve the Merger Agreement and the Merger.
OPINION OF HERBERGER'S FINANCIAL ADVISOR
At the special meeting of the Herberger's Board held on November 8, 1996,
Merrill Lynch delivered its written opinion dated November 8, 1996 that, as of
such date, the Conversion Number was fair from a financial point of view to the
holders of Herberger's Common Stock.
A COPY OF THE OPINION OF MERRILL LYNCH DATED NOVEMBER 8, 1996, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX III TO THIS PROXY STATEMENT/PROSPECTUS AND
IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE OPINION OF MERRILL LYNCH
SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. STOCKHOLDERS OF HERBERGER'S ARE
URGED TO READ CAREFULLY THE OPINION IN ITS ENTIRETY.
Merrill Lynch's opinion is directed only to the fairness from a financial
point of view of the Conversion Number to the holders of Herberger's Common
Stock and does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the Merger. The Conversion Number was determined
through negotiations between Herberger's and Proffitt's and was unanimously
approved by the Herberger's Board. Merrill Lynch did not express any opinion as
to the prices at which Proffitt's Common Stock will trade following the
consummation of the Merger or the prices at which Proffitt's Common Stock will
trade between the announcement and the consummation of the Merger.
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In arriving at its opinion, Merrill Lynch, among other things: (i) reviewed
the audited financial information of Herberger's for the five fiscal years ended
February 3, 1996 and the unaudited financial information of Herberger's for the
six-month period ended August 3, 1996, in each case furnished to it by
Herberger's; (ii) reviewed the Annual Reports, Forms 10-K and related financial
information of Proffitt's for the five fiscal years ended February 3, 1996,
Forms 10-Q and related unaudited financial information of Proffitt's for the
quarterly periods ended May 4, 1996 and August 3, 1996 and the Form 8-K of
Proffitt's dated October 24, 1996; (iii) reviewed the Form S-4 filed by
Proffitt's with the Commission on July 29, 1996, Amendment No. 1 thereto filed
on August 16, 1996 and the Prospectus of even date therewith contained therein
and Post-Effective Amendment No. 1 thereto filed with the Commission on October
28, 1996; (iv) reviewed the Annual Report and Form 10-K and related financial
information of Parisian, Inc. ("Parisian") for the fiscal year ended February 3,
1996 and Parisian's Forms 10-Q and related unaudited financial information for
the quarterly periods ended May 4, 1996 and August 3, 1996; (v) reviewed certain
information, including financial forecasts, relating to the business, earnings,
cash flow, assets and prospects of Herberger's and Proffitt's, furnished to it
by Herberger's and Proffitt's, as well as the synergies and cost savings and
related expenses expected to result from the Merger (the "Merger Synergies"),
furnished to it by Herberger's; (vi) conducted discussions with members of
senior management of Herberger's and Proffitt's concerning their respective
businesses and prospects, as well as the Merger Synergies; (vii) reviewed the
historical market prices and trading activity for Proffitt's Common Stock and
compared them with that of certain publicly traded companies which Merrill Lynch
deemed to be reasonably similar to Proffitt's; (viii) compared the results of
operations of Herberger's and Proffitt's with that of certain companies which
Merrill Lynch deemed to be reasonably similar to Herberger's and Proffitt's,
respectively; (ix) compared the proposed financial terms of the Merger with the
financial terms of certain other mergers and acquisitions which Merrill Lynch
deemed to be relevant; (x) reviewed the Merger Agreement; and (xi) reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed necessary,
including the assessment by Merrill Lynch of general economic, market and
monetary conditions.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
Herberger's and Proffitt's, and Merrill Lynch did not independently verify such
information or undertake an independent appraisal of the assets or liabilities
of Herberger's or Proffitt's nor was furnished with any such evaluation or
appraisal. In addition, with the consent of Herberger's, Merrill Lynch did not
make any physical inspection of the properties or assets of Herberger's or
Proffitt's. With respect to the financial forecasts furnished by Herberger's and
Proffitt's and the information regarding the Merger Synergies, Merrill Lynch
assumed that they were reasonably prepared and reflected the best currently
available estimates and judgment of the managements of Herberger's and
Proffitt's as to the expected future financial performance of Herberger's or
Proffitt's, as the case may be, as well as the Merger Synergies. Merrill Lynch
further assumed that the Merger will qualify for pooling-of-interests accounting
treatment in accordance with generally accepted accounting principles and as a
reorganization within the meaning of the Code. Merrill Lynch's opinion was
necessarily based upon market, economic, financial and other conditions as they
existed and could be evaluated as of the date of such opinion.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by Herberger's or the Herberger's Board to solicit, nor did Merrill
Lynch solicit, third-party indications of interest for the acquisition of all or
any part of Herberger's. Moreover, in giving its opinion, Merrill Lynch did not
express any view regarding other strategic alternatives that may be available to
Herberger's. Merrill Lynch also was not requested to, and did not, express any
view with respect to the fairness or adequacy of the Conversion Number to the
participants in the Herberger's ESOP.
The following is a brief summary of the analyses performed by Merrill Lynch
in connection with its opinion, which it discussed with the Herberger's Board at
its meetings held on November 7 and 8, 1996.
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HISTORICAL STOCK PRICE ANALYSIS. Merrill Lynch reviewed the per share
closing market prices of Proffitt's Common Stock over the period from November
1, 1991 through November 4, 1996. During such period, the high and low closing
market prices of Proffitt's Common Stock were $41.75 and $9.00, respectively.
For the period from November 3, 1995 through November 4, 1996, Merrill Lynch
compared the performance of the Proffitt's Common Stock with the performance of
the Standard & Poor's 400 Index and with a composite index of certain
multi-regional department store companies (specifically, Dayton Hudson
Corporation, Dillard Department Stores, Inc., Federated Department Stores, Inc.,
The May Department Stores Company, Mercantile Stores Company, Inc., The Neiman
Marcus Group, Inc., Nordstrom Inc., J.C. Penney Co., Inc., Saks Holding, Inc.,
and Sears Roebuck & Co. (the "Selected Multi-Regional Companies")). For the same
period, Merrill Lynch also compared the performance of the Proffitt's Common
Stock with a composite index of certain regional department store companies
(specifically, The Bon-Ton Stores, Inc., Gottschalks, Inc., Jacobson Stores
Inc., Goody's Family Clothing, Inc. and Carson Pirie Scott & Co. (the "Selected
Regional Companies")).
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Merrill Lynch
compared certain publicly available financial data and estimates of future
financial performance of the Selected Regional Companies (based on estimates
generated internally by Merrill Lynch equity research or compiled by First Call
Corporation or the Institutional Brokers Estimate System) with similar financial
data and projections of future financial performance of Herberger's (based on
estimates provided by the management of Herberger's). With respect to each
Selected Regional Company, Merrill Lynch calculated the ratio of market
capitalization (defined as market value plus preferred equity at liquidation
value plus short- and long-term debt plus minority interest less cash and
marketable securities) to the latest twelve months' ("LTM") sales and earnings
before interest, taxes, depreciation and amortization ("EBITDA"). Based on such
analysis, Merrill Lynch selected multiple ranges of 0.40x to 0.50x and 5.0x to
7.0x, respectively. With respect to each Selected Regional Company, Merrill
Lynch also calculated the ratio of market value to the projected net income for
the fiscal years ending January 31, 1997 and January 31, 1998. Based on such
analysis, Merrill Lynch selected multiple ranges of 10.0x to 12.0x and 9.0x to
11.0x, respectively. Merrill Lynch applied these multiple ranges to the
corresponding financial data and estimates of future financial performance of
Herberger's and, in the case of sales and EBITDA valuation calculations,
subtracted net debt as of August 3, 1996. This analysis resulted in a summary
valuation range of $11.00 to $15.00 per share of Herberger's Common Stock on a
fully diluted basis. With respect to each Selected Multi-Regional Company,
Merrill Lynch calculated the ratio of market capitalization to LTM sales, EBITDA
and earnings before interest and taxes ("EBIT") and the ratio of market value to
projected net income for the fiscal years ending January 31, 1997 and January
31, 1998. Utilizing these calculations, Merrill Lynch determined that the
Proffitt's Common Stock traded in line with the Selected Multi-Regional
Companies.
Merrill Lynch calculated Herberger's LTM EBITDA and projected net income for
the fiscal years ending January 31, 1997 and January 31, 1998 before any
contributions to the Herberger's ESOP and adjusted the numbers for normalized
estimated retirement benefit expense of $1.0 million in the LTM period and for
the fiscal year ending January 31, 1997 and $1.1 million for the fiscal year
ending January 31, 1998. In the case of Herberger's projected net income, the
amounts reflect interest expense related to the ESOP debt (the methodologies and
adjustments described in the paragraph are referred to herein as the "ESOP
Adjustment").
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Merrill Lynch
also reviewed certain publicly available information on certain transactions in
the department store industry that were announced between December 1985 and July
1996. Such transactions (the "Selected Transactions") were: the acquisition of
Parisian by Proffitt's, the acquisition of certain stores of Strawbridge &
Clothier by The May Department Stores Company, the acquisition of Younkers by
Proffitt's, the acquisition of Broadway Stores, Inc. by Federated Department
Stores, Inc., the acquisition of Woodward & Lothrop Inc. by an investor group
(The May Department Stores Company and J.C. Penney Co., Inc.), the acquisition
of the Southwest division of Broadway Stores, Inc. by The May Department Stores
Company (rejected), the acquisition of
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Peebles, Inc. by an investor group, the acquisition of certain stores of Carson
Pirie Scott & Co., by Dayton Hudson Corporation, the acquisition of R.H. Macy &
Co., Inc. by Federated Department Stores, Inc., the acquisition of Adam Meldrum
& Anderson, Inc. by The Bon-Ton Stores, Inc., the acquisition of Joseph Horne
Co., Inc. by Federated Department Stores, Inc., the acquisition of McRae's, Inc.
by Proffitt's, the acquisition of Lechmere Inc. by Montgomery Ward Holding
Corp., the acquisition of certain stores of Alexander's, Inc. by The Caldor
Corporation, the acquisition of a division of H.C. Prange Co. by Younkers, Inc.,
the acquisition of Gee Bee Department Stores by Value City Department Stores,
Inc., the acquisition of Maison Blanche, Inc. by Mercantile Stores Company,
Inc., the acquisition of certain stores of Allied Stores Corporation by
Mervyn's, the acquisition of certain stores of Maison Blanche, Inc. by Dillard
Department Stores, Inc., the acquisition of General Cinema Corporation by The
Neiman Marcus Group, Inc., the acquisition of Thalhimer Brothers, Inc. by The
May Department Stores Company, the acquisition of J.B. Ivey & Co. by Dillard
Department Stores, Inc., the acquisition of Saks Fifth Avenue by Investcorp, the
proposed acquisition of Saks Fifth Avenue by a party other than Investcorp, the
acquisition of Marshall Field & Company by Dayton Hudson Corporation, the
acquisition of Carson Pirie Scott & Co. by P.A. Bergner & Co., the acquisition
of Ann Taylor Inc. by Merrill Lynch Capital Partners, the acquisition of Eddie
Bauer by Spiegel Inc., the acquisition of The Talbots, Inc. by Jusco Co., Ltd.,
the acquisition of Bullock's/I. Magnin by R.H. Macy & Co., Inc., the acquisition
of Filene's/Foley's by The May Department Stores Company, the acquisition of
Federated Department Stores, Inc. by Campeau Corporation, the acquisition of The
Elder-Beerman Stores by a management group, the acquisition of Allied Stores
Corporation by Campeau Corporation, the acquisition of Associated Dry Goods
Corp. by The May Department Stores Company, and the acquisition of R.H. Macy &
Co., Inc. by a management group. An analysis of the ratio of the transaction
value (defined as offer value plus total debt plus non-convertible preferred
stock plus minority interest less cash equivalents and option proceeds) of the
Selected Transactions to LTM sales, EBITDA and EBIT yielded multiple ranges of
0.50x to 0.70x, 6.0x to 8.0x, and 8.0x to 11.0x, respectively. Applying these
multiple ranges to the corresponding financial data for Herberger's (including
the ESOP Adjustment in the EBITDA and EBIT calculation and after subtracting net
debt as of August 3, 1996) resulted in a summary valuation range of $14.00 to
$21.00 per share of Herberger's Common Stock on a fully diluted basis.
DISCOUNTED CASH FLOW ANALYSIS OF HERBERGER'S. Merrill Lynch performed a
discounted cash flow analysis of Herberger's on a stand-alone basis based upon
estimates of projected financial performance prepared by the management of
Herberger's. Utilizing these projections, Merrill Lynch calculated a range of
implied per share equity values based upon the discounted net present value of
the sum of: (a) the projected stream of unlevered free cash flows (including the
ESOP Adjustment) of Herberger's for the five fiscal years ending January 31,
2002 and (b) the projected terminal value at 2002 based upon a range of
multiples of projected EBITDA (including the ESOP Adjustment) and subtracted
from such sum the projected net debt outstanding as of January 31, 1997
(adjusted to reflect average seasonal borrowings). Merrill Lynch applied several
discount rates (ranging from 11% to 13%) and terminal multiples of projected
EBITDA (ranging from 5.0x to 6.0x). Utilizing this methodology, the value per
share of Herberger's Common Stock ranged from $16.00 to $21.00 on a fully
diluted basis.
COMPARATIVE DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch utilized a
discounted cash flow methodology to calculate implied conversion numbers derived
from the relative ranges of value for Herberger's and Proffitt's based upon
estimates of projected financial performance prepared by the respective
managements of Herberger's and Proffitt's. Utilizing these projections, Merrill
Lynch calculated a range of implied per share equity values for each of
Herberger's and Proffitt's based upon the discounted net present value sum of:
(a) the projected stream of unlevered free cash flows (including, with respect
to Herberger's, the ESOP Adjustment) of each of Herberger's and Proffitt's for
the five fiscal years ending January 31, 2002 and (b) the projected terminal
value at 2002 of each of Herberger's and Proffitt's based upon a range of
multiples of projected EBITDA (including, with respect to Herberger's, the ESOP
Adjustment) and subtracted from each such sum projected net debt outstanding as
of January 31, 1997 for
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Herberger's or Proffitt's, as applicable (in each case, adjusted to reflect
seasonal borrowings). Merrill Lynch applied several discount rates (ranging from
11% to 13%) and terminal multiples of projected EBITDA (ranging from 5.0x to
6.0x with respect to Herberger's and from 7.5x to 8.5x with respect to
Proffitt's). Utilizing these valuation ranges for each of Herberger's and
Proffitt's, Merrill Lynch then derived a range of implied conversion numbers by
dividing each per share value within the range for Herberger's Common Stock by
the corresponding per share value of Proffitt's Common Stock. This analysis
yielded a range of implied conversion numbers of 0.45 to 0.49.
PRO FORMA CONTRIBUTION ANALYSIS. Merrill Lynch compared the relative equity
ownership interest, on a fully diluted basis and based on a Conversion Number of
0.4984, of the stockholders of Herberger's and the stockholders of Proffitt's in
the pro forma combined company of 12.6% and 87.4%, respectively, to the relative
contributions of each of Herberger's and Proffitt's to net income plus
depreciation and amortization and to net income of the pro forma combined
company for the fiscal years ended February 3, 1996 through January 31, 2002 and
for the twelve-month period ended August 3, 1996. For purposes of this analysis,
Merrill Lynch did not consider the impact of the Merger Synergies or transaction
adjustments. The analysis was based on estimates prepared by the managements of
Herberger's and Proffitt's. The analysis indicated that Herberger's would have
contributed approximately 13.9%, 13.3%, 11.8%, 11.7%, 11.0%, 10.7% and 10.4% of
net income plus depreciation and amortization for the fiscal years ended
February 3, 1996 through January 31, 2002, respectively, and 13.4% thereof for
the twelve-month period ended August 3, 1996. The analysis also indicated that
Herberger's would have contributed approximately 16.1%, 11.8%, 10.6%, 10.7%,
9.9%, 9.4% and 9.0% of net income for the fiscal years ended February 3, 1996
through January 31, 2002, respectively, and 15.3% thereof for the twelve-month
period ended August 3, 1996.
PRO FORMA MERGER CONSEQUENCES ANALYSIS. Merrill Lynch analyzed the
potential impact of the Merger on the estimated earnings per share ("EPS")
accruing to the Herberger's stockholders for the fiscal years ending January 31,
1998 through January 31, 2000. Such analysis was based on projections provided
by the respective managements of Herberger's and Proffitt's and a Conversion
Number of 0.4984. The analysis indicated that the EPS could be accretive to the
Herberger's stockholders by 9.9%, 5.1% and 10.8% for the fiscal years ending
January 31, 1998, January 31, 1999 and January 31, 2000, respectively (without
giving effect to the Merger Synergies) and by 12.2%, 9.0% and 14.4 % for the
fiscal years ended January 31, 1998, January 31, 1999 and January 31, 2000,
respectively (assuming the realization of the Merger Synergies).
Merrill Lynch also analyzed the potential impact of the Merger on the EPS
accruing to Proffitt's stockholders for the fiscal years ending January 31, 1998
through January 31, 2000. Such analysis was based on projections provided by the
respective managements of Herberger's and Proffitt's and a Conversion Number of
0.4984. The analysis indicated that the EPS accruing to the Proffitt's
stockholders could be dilutive to the Proffitt's stockholders by 1.3%, 1.0% and
1.7% for the fiscal years ending January 31, 1998, January 31, 1999 and January
31, 2000 (without giving effect to the Merger Synergies) and could be accretive
to the Proffitt's stockholders by 0.8%, 2.7% and 1.6% for the fiscal years
ending January 31, 1998, January 31, 1999, and January 31, 2000 (assuming the
realization of the Merger Synergies).
The summary set forth above does not purport to be a complete description of
the analyses conducted by Merrill Lynch or Merrill Lynch's presentation to the
Herberger's Board. Merrill Lynch believes that its analyses must be considered
as a whole and that selecting portions of its analysis and the factors
considered by it, without considering all factors and analyses, could create an
incomplete view of the process underlying its opinions. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. In performing its analyses, Merrill
Lynch made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of Herberger's or Proffitt's. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such
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analyses. In addition, analyses relating to the value of the businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Because such estimates are inherently subject to uncertainty,
neither Herberger's, Proffitt's, Merrill Lynch nor any other person assumes
responsibility for their accuracy.
Merrill Lynch is an internationally recognized investment banking firm
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and for other purposes. Herberger's selected Merrill
Lynch to act as its financial advisor in connection with the Merger because it
is an internationally recognized investment banking firm and has substantial
experience in transactions similar to the Merger.
In connection with Merrill Lynch's services as financial advisor to
Herberger's, Herberger's has agreed to pay Merrill Lynch a fee in the amount of
$750,000. Herberger's has also agreed to reimburse Merrill Lynch for certain
out-of-pocket expenses incurred in connection with the Merger (including fees
and expenses of its legal counsel) and to indemnify Merrill Lynch and certain
related persons against certain liabilities and expenses in connection with the
Merger, including certain liabilities under the federal securities laws. In the
ordinary course of Merrill Lynch's business, it may actively trade the
securities of Proffitt's for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
MERGER CONSIDERATION
Upon consummation of the Merger each issued and outstanding share of
Herberger's Common Stock will be converted into a number of validly issued,
fully paid and nonassessable shares of Proffitt's Common Stock equal to the
Conversion Number.
Fractional shares of Proffitt's Common Stock will not be issued in the
Merger. Holders of Herberger's 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 Herberger's. A maximum of 4,000,000 shares of Proffitt's
Common Stock may be issued in respect of shares of Herberger's Common Stock in
the Merger.
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 Herberger's Common Stock into Proffitt's Common Stock will
occur at the Effective Time. Each certificate for Herberger's 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. At the Closing
Proffitt's will deliver to 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 Herberger's Common Stock (the
"Certificates") a certificate or certificates representing the shares of
Proffitt's Common Stock issuable in exchange
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for outstanding shares of Herberger's Common Stock and, as soon as practicable
after the Effective Time, 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 canceled.
HERBERGER'S STOCKHOLDERS SHOULD NOT FORWARD THEIR 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 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 Herberger's 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
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Herberger's Common Stock in respect of which such deduction and withholding was
made by Proffitt's or the Exchange Agent.
Certificates representing shares of Herberger's Common Stock surrendered for
exchange by an "affiliate" of Herberger's for purposes of Rule 145(c) under 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" (including the
Herberger's ESOP) will not be transferable until the financial results covering
at least 30 days of combined operations of Proffitt's and Herberger's 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 Herberger's
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 27, 1996, Proffitt's and Herberger's filed notification and report
forms under the HSR Act with the FTC and the Antitrust Division. On ,
, the waiting period under the HSR Act was terminated.
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 they deem
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 Herberger's. 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 Herberger's. 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 Herberger's 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 Herberger's would prevail or would not be required to
accept certain adverse conditions in order to consummate the Merger. The
obligations of Proffitt's and Herberger's 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.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to holders of Herberger's 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 Herberger's 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 Herberger's Common Stock pursuant to an exercise of
employee stock options or rights or otherwise as compensation and persons who
hold shares of Herberger's 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 Proxy Statement/Prospectus and
the opinion of Sommer & Barnard, PC. 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 Sommer & Barnard, PC 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 Herberger's.
In the opinion of Sommer & Barnard, PC, the following will be the material
federal income tax consequences of the Merger to U.S. Holders of Herberger's
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 Herberger's 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) received by a U.S. Holder will be
the same as the aggregate adjusted tax basis of the shares of Herberger's
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
Herberger's Common Stock exchanged therefor; and
(iv) a U.S. Holder of Herberger's 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 Herberger's to consummate the Merger is subject to the
receipt of the opinion of tax counsel outlined below. Neither Herberger's nor
Proffitt's has requested or will request a ruling from the Internal Revenue
Service as to the tax consequences of the Merger.
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The obligation of Herberger's to consummate the Merger is conditioned on the
receipt by Herberger's of an opinion of Proffitt's counsel, Sommer & Barnard,
PC, in form and substance satisfactory to Herberger's, 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 Herberger's, 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 Herberger's as a result of the
Merger; (iii) no gain or loss will be recognized by stockholders of Herberger's
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
Herberger's 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 Herberger's Common Stock; (v) the holding
period of the shares of Proffitt's Common Stock received in exchange for shares
of Herberger's Common Stock pursuant to the Merger will include the holding
period for such shares of Herberger's Common Stock, provided that such shares
were held as capital assets as of the Effective Time; and (vi) a stockholder of
Herberger's 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 opinions 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, Sommer & Barnard, PC
anticipate that they will render the above-described tax opinions.
EACH STOCKHOLDER OF HERBERGER'S IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
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 Herberger's will be carried forward to
the combined corporation at their recorded amounts, income of the combined
corporation will include income of Proffitt's and Herberger's 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 Herberger's 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 Herberger's, 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
EMPLOYMENT AGREEMENTS. The Merger Agreement contemplates Herberger's
entering into a Bonus Agreement and a Consulting Agreement with Robert J.
Sullivan, its Chairman and Chief Executive Officer, and an Employment Agreement
with Barry T. Ross, its President and Chief Operating Officer. Separately,
Proffitt's has entered into an Employment Agreement with John B. Brownson,
Herberger's Executive Vice President and Chief Financial Officer. Each of the
agreements, except the Bonus Agreement, is conditioned upon the occurrence of
the Merger and each of such agreements is described more fully below.
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The Consulting Agreement with Mr. Sullivan provides that during the four
year period commencing on the day of the Effective Time of the Merger, Mr.
Sullivan will consult with Herberger's on at least a part-time basis. The
agreement includes a non-competition covenant. As a consulting fee and in
consideration of the non-competition covenant, Mr. Sullivan will receive, during
each year of the four year consulting period, the following amounts: $500,000
for the first year, $400,000 for the second year, $350,000 for the third year,
and $300,000 for the fourth year. As additional consideration for Mr. Sullivan's
consulting services, Herberger's will forgive a loan of $94,500, and will
provide medical insurance, the two automobiles presently provided to Mr.
Sullivan, and reimbursement for reasonable business expenses. The consulting
relationship under the agreement will terminate immediately upon receipt by
either party of a written notice of termination from the other party, upon Mr.
Sullivan's permanent disability or death, or upon the expiration of the
four-year consulting period. Upon certain of such early termination events, the
above payments and benefits are reduced. The Bonus Agreement with Mr. Sullivan
provides for the payment of a bonus of $600,000 to him on or before December 31,
1996, in recognition of his 43 years of service to Herberger's.
The Employment Agreement with Mr. Ross provides that Mr. Ross will be
employed by Herberger's in the position of President and Chief Operating Officer
for a period of two years commencing on the date of the Effective Time of the
Merger. As compensation for his services during the two years of the employment
term, Mr. Ross will receive an annual base salary of $175,000. Mr. Ross's
employment under the agreement will terminate at any time (i) by written notice
of termination by Herberger's, without cause; (ii) by written notice of
termination by Mr. Ross, without cause, given at any time following the first 90
days after the Effective Time of the Merger; (iii) by the mutual written
agreement of Herberger's and Mr. Ross; (iv) upon Mr. Ross's death; or (v) upon
written notice from Herberger's to Mr. Ross upon Mr. Ross's disability for a
period of 90 days or more. In the event that Mr. Ross's employment is terminated
under either clause (i) or (ii) above, Mr. Ross will be entitled to receive a
severance payment equal to $300,000, less the aggregate amount of base salary
paid to date. Upon termination of the agreement for any reason, Mr. Ross will be
entitled to receive only the base salary and other benefits earned prior to
termination, and, if applicable, the severance payment.
The Employment Agreement between Mr. Brownson and Proffitt's provides for
the employment of Mr. Brownson as a senior executive of Herberger's, with such
title and duties as determined by Proffitt's Board or Chief Executive Officer.
The term of the agreement is for three years, beginning at the Effective Time of
the Merger. Mr. Brownson will receive an initial bonus of $50,000 immediately
following the Effective Time of the Merger. His minimum base salary will be not
less than $200,000 per year beginning at the Effective Time through fiscal year
1997, $250,000 for fiscal year 1998, and $260,000 for each fiscal year through
the remaining term of the agreement. Mr. Brownson will be eligible for yearly
cash bonuses of up to 50% of his base salary, based on performance objectives
set by Proffitt's Board. At the Effective Time, Mr. Brownson will be granted an
option under Proffitt's 1994 Long Term Incentive Plan to purchase 20,000 shares
of Proffitt's common stock at an exercise price equal to the closing price of
such stock on the first day the market is open after the Effective Time. The
option will expire ten years from the date of grant and first becomes
exercisable with respect to 20% of the option shares six months from the date of
grant, with an additional 20% of the option shares becoming exercisable on the
first through fourth anniversaries of the date of grant. Herberger's will also
forgive, over a period of three years, a loan of $102,500 previously made to Mr.
Brownson. The agreement also contains non-competition and non-disclosure
covenants. The agreement may be terminated by Proffitt's at any time upon 30
days' prior written notice or by Mr. Brownson at any time for "good reason" (as
defined in the agreement). Upon termination under either circumstance, Mr.
Brownson will be entitled to receive a base salary through the remainder of the
three year term and the balance of his loan will be immediately forgiven. Mr.
Brownson will be entitled to reduced compensation in the event of termination
due to disability. If the agreement is terminated due to Mr. Brownson's death or
by Proffitt's for "cause" (as defined in the agreement), no salary or bonus will
be paid after the date of such termination. In the event of a change in control
of Proffitt's, Mr. Brownson will
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receive his base salary for a period of two years or through the end of the
three year term of the agreement, whichever is longer.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. From and after the Effective
Time, Proffitt's has agreed to, and to cause Herberger's to, indemnify and hold
harmless all past and present officers and directors of Herberger's to the
maximum extent permitted by the DGCL, including, but not limited to, for acts or
omissions occurring in connection with the approval of the Merger Agreement, the
preparation of the Registration Statement and the consummation of the
transactions contemplated by the Merger Agreement. Proffitt's has also agreed to
cause Herberger's to provide Herberger's current directors and officers, for an
aggregate period of not less than two years from the Effective Time, with
coverage for events occurring prior to the Effective Time under an insurance and
indemnification policy that is no less favorable than Herberger's existing
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage. Herberger's will not be required, however, to pay an
annual premium for such coverage in excess of 200% of the last annual premium
paid prior to the date of the Merger Agreement, which was approximately $11,000.
NASDAQ NATIONAL MARKET 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,
subject to official notice of issuance.
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THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT,
WHICH APPEARS AS APPENDIX I TO THIS 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 adoption of the Merger Agreement by
the holders of Herberger's Common Stock, Sub will be merged with and into
Herberger's at the Effective Time, and Herberger's will continue as the
surviving corporation.
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
Herberger's Common Stock that are held in the treasury of Herberger's will be
canceled and no capital stock of Proffitt's or other consideration will be
delivered in exchange therefor.
Each issued and outstanding share of common stock of Sub, par value $1.00
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
Herberger's Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled) will be converted into a
number of validly issued, fully paid and nonassessable shares of Proffitt's
Common Stock equal to the Conversion Number. All such shares of Herberger's
Common Stock, when so converted, will no longer be outstanding and will
automatically be canceled 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), 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. At the Closing Proffitt's will deliver to the Exchange Agent, in trust
for the holders of shares of Herberger's Common Stock converted in the Merger, a
certificate or certificates representing the shares of Proffitt's Common Stock
issuable pursuant to the Merger Agreement in exchange for outstanding shares of
Herberger's Common Stock and, as soon as practicable after the Effective Time,
cash, as required to make payments in
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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
Herberger's 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 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 canceled.
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
Herberger's 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 Herberger's 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 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 on
such date, the first date of trading of the Proffitt's Common Stock on the
Nasdaq National Market after the Effective Time).
CONDITIONS TO THE MERGER
The respective obligations of Proffitt's, Herberger's 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 Herberger's; (b) the authorization for listing
on the Nasdaq National Market subject to official notice of issuance, of the
shares of Proffitt's Common Stock issuable in the Merger; (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
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issued by the Commission and no proceedings for that purpose shall have been
initiated or, to the knowledge of Proffitt's or Herberger's, threatened by the
Commission; (g) no court or other governmental entity having jurisdiction over
Herberger's 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 trustee of the Herberger's ESOP and the
Herberger's ESOP committee have taken all necessary action for the approval of,
and shall have approved the transactions contemplated by the Merger Agreement.
See "THE MERGER--Governmental and Regulatory Approvals."
The obligations of Herberger's 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 Herberger's shall have received from Proffitt's and
Sub a certificate to that effect; (b) Herberger's shall have received an opinion
of Sommer & Barnard, PC, 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) Herberger's shall have received an opinion of Sommer
& Barnard, PC 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 Herberger's 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 Herberger's (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 Herberger's 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 Herberger's a certificate to that effect; (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 Sommer & Barnard, PC, would have a material adverse effect on Proffitt's
(assuming that the Merger had occurred); (c) Proffitt's shall have received an
opinion from Kelly, Hannaford & Battles, P.A., counsel to the Herberger's ESOP,
to the effect that all requisite steps have been taken for approval by the
Herberger's ESOP and its participants of the transactions contemplated by the
Merger Agreement; and (d) holders of no more than 7.5% of the issued and
outstanding shares of Herberger's Common Stock shall have delivered to
Herberger's written demands for appraisal of their shares in accordance with
Section 262 of the DGCL. See "THE HERBERGER'S SPECIAL MEETING--Appraisal
Rights."
Certain of the foregoing conditions may not be waived by the parties,
including stockholder approval, 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 Proffitt's
counsel may be waived by the parties, Proffitt's and Herberger's do not intend
to consummate the Merger in the event either of such opinions are not or cannot
be delivered.
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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 February 3, 1996, 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; and (l) as to brokers. In addition, the Merger
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 Herberger's, as well as additional representations and warranties,
including, among other things: (a) as to the receipt of a fairness opinion from
Merrill Lynch; and (b) that as of the Effective Time, Herberger's will have
amended the Herberger's ESOP (1) to eliminate Herberger's obligation to
repurchase shares from participants, (2) to eliminate the Herberger's ESOP fair
market value committee, (3) to eliminate the obligation of the trustee of the
Herberger's ESOP to purchase stock for the 401(k) plan of the Herberger's ESOP
from Herberger's and to require the trustee to purchase Proffitt's Common Stock
on the open market and (4) any other amendments necessary to accomplish the
transactions contemplated by the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Proffitt's and Herberger's 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 Herberger'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 (other
than 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
37
<PAGE>
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"); (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; and (4) in
connection with mergers permitted as described in clause (d)(2) of this
paragraph; (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 acquisitions, mergers, consolidations or
purchases, the equity value of which does not exceed $50 million in the
aggregate; (e) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than (1) transactions in the
ordinary course of business consistent with past practice or not material to
Proffitt's and its subsidiaries taken as a whole, (2) as may be required by any
governmental entity, (3) subject to the terms of the Merger Agreement,
dispositions involving an aggregate consideration not in excess of $50 million,
or (4) transactions between Proffitt's and any of its subsidiaries; (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 HERBERGER'S. Without limiting the generality of the foregoing,
and except as otherwise expressly contemplated by the Merger Agreement,
Herberger's 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 (except dividends in the amount of no more than $0.14 per share may be
declared and paid consistent with past procedures), (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 Herberger's or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities (except Herberger's may terminate any and all options
pursuant to which it has the right to repurchase shares of Herberger's Common
Stock); (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 the issuance of shares of Herberger's Common Stock as necessary to
satisfy participant elections under the 401(k) plan of the Herberger's ESOP; (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
38
<PAGE>
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 Herberger's 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
Herberger's and any of its wholly owned subsidiaries or between any of such
wholly owned subsidiaries; (g) alter the corporate structure or ownership of
Herberger's or any subsidiary; (h) enter into or adopt, or amend any existing,
severance plan, agreement or arrangement or enter into or amend any Herberger's
benefit plan, including the Herberger's ESOP (with respect to which consent
shall not be unreasonably withheld by Proffitt's), or employment or consulting
agreement other than as required by law (except Herberger's may enter into
certain agreements with Mr. Sullivan and Mr. Ross. See "THE MERGER-- Interests
of Certain Persons in the Merger"); (i) increase the compensation payable or to
become payable to its officers or employees, except for increases (including
bonuses and incentive payments) in the ordinary course of business consistent
with past practice in salaries or wages of officers or employees of Herberger's,
or grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director or officer of Herberger's 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 (except that Herberger's may make a discretionary
contribution to the Herberger's ESOP of the fiscal year ending February 1, 1997,
in an amount consistent with past practices and not to exceed 10% of eligible
employee compensation); (j) 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;
(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); (1) 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.
NO SOLICITATION
Pursuant to the Merger Agreement, from and after the date of the Merger
Agreement, neither Proffitt's nor Herberger's 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 Herberger's 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
Herberger's 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
Herberger's 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 Herberger's' 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 Herberger's 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 Herberger's or any of their respective
subsidiaries.
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<PAGE>
During the period from the date of the Merger Agreement through the
Effective Time, Herberger's will not terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement to which Herberger's or
any of its subsidiaries is a party (other than any involving Proffitt's), unless
the Board of Directors of Herberger's 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 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 Herberger's and of
its subsidiaries to the maximum extent permitted by the DGCL (including
advancing fees and expenses incurred before the final disposition of a
proceeding upon receipt of an undertaking by such officer or director to repay
such amount if it shall ultimately determine that he or she is not entitled to
indemnification under the DGCL) including, but not limited to acts or omissions
occurring in connection with the preparation of the Registration Statement and
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, Herberger's 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 Herberger's 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 Herberger's: (a) by mutual
written consent of Herberger's and Proffitt's; (b) by either Proffitt's or
Herberger's 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
nonbreaching party may not terminate the Merger Agreement pursuant to this
clause; (c) by either Proffitt's or Herberger's 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 or except as contemplated or
permitted by the Merger Agreement; 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 Herberger's if
the Merger has not been effected on or prior to the close of business on June
30, 1997 (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
Herberger's if the stockholders of Herberger's do not adopt the Merger Agreement
at the Herberger's Special Meeting; (f) by Proffitt's or Herberger's if the
Board of Directors of Herberger's
40
<PAGE>
reasonably determines that a Takeover Proposal constitutes a Superior Proposal
(as defined below); provided, however, that Herberger's 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 Herberger's, 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; (g) by Proffitt's if (1)
the Board of Directors of Herberger's 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 Herberger's and its stockholders, or has resolved to do so,
(2) the Board of Directors of Herberger's has recommended to the stockholders of
Herberger's 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 Herberger's is commenced, and, after ten business days, the Board of
Directors of Herberger's 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); (h) by Herberger's (1) if the event referred to in clause (D) of
the definition of Proffitt's Third Party Acquisition Event below (the
"Herberger's Clause D Event") has occurred, or (2) 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 Herberger's 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 Herberger's on terms which a majority of the members of the
Board of Directors of Herberger's determines in its good faith reasonable
judgment (based on the advice of independent financial advisors) to be more
favorable to Herberger's 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 Herberger's.
Notwithstanding the foregoing, Herberger's will pay to Proffitt's a fee of
$4.25 million in cash if (A) the Merger Agreement is terminated by Herberger's
pursuant to clause (d) under "--Termination" above, and within twelve months
after such a termination a Superior Herberger's Acquisition Transaction (as
hereinafter defined) occurs; (B) the Merger Agreement is terminated by
Herberger's or Proffitt's pursuant to clause (f) under "--Termination" above; or
(C) the Merger Agreement is terminated by Proffitt's pursuant to clause (g)
under "--Termination" above, following the occurrence of a Herberger's Third
Party Acquisition Event.
Notwithstanding the foregoing Proffitt's will pay to Herberger's a fee of
$4.25 million in cash if the Merger Agreement is terminated by Herberger's
pursuant to clause (h) under "--Termination" above following the occurrence of a
Proffitt's Third Party Acquisition Event.
For purposes of the Merger Agreement, a "Herberger's 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 Herberger's Common Stock; (B) any new group is formed
which, at the time of formation, beneficially owns 30% or more of the
outstanding shares of Herberger's Common Stock, other than a group which
includes or may be reasonably deemed to include
41
<PAGE>
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 Herberger's Common Stock or publicly proposed any bona
fide merger, consolidation or acquisition of all or substantially all the assets
of Herberger's or other similar business combination involving Herberger's; (D)
Herberger'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 Herberger's or the
acquisition of a substantial interest in, or a substantial portion of the
assets, business or operations of, Herberger's (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 Herberger's Common Stock which, together with all
shares of Herberger's 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 Herberger's Common Stock;. or (F) there is a public
announcement with respect to a plan or intention by Herberger's or any person,
other than Proffitt's and its affiliates, to effect any of the foregoing
transactions.
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 (in
either case, except as expressly permitted under the Merger Agreement); or (E)
there is a 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 Herberger's Acquisition
Transaction" means the event referred to in clause (D) of Herberger's 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 Herberger's stockholders than the financial and other terms of
the Merger.
CONDUCT OF BUSINESS AFTER THE MERGER
The Merger Agreement provides that Proffitt's will cause Herberger's to
maintain its St. Cloud, Minnesota, headquarters offices for a period of not less
than two years following the Effective Time, and will use its reasonable best
efforts, consistent with good business practices, to keep the merchandising and
sales promotion presence in such headquarters, along with other support
functions deemed appropriate by Proffitt's to support the merchandising and
sales promotion functions. Proffitt's is required to use its reasonable best
efforts to cause Herberger's to either maintain its employee benefits at the
same levels and in the same form as of the date of the Merger Agreement or to
bring Herberger's employees into Proffitt's employee benefit plans.
The Merger Agreement requires Proffitt's to use its reasonable best efforts
to file a registration statement on Form S-8 with the Commission relating to the
interests and underlying shares for the Herberger's ESOP as soon as reasonably
practicable following the Effective Time and to use its reasonable best efforts
to maintain the effectiveness of such registration statement until the
termination of the Herberger's ESOP.
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<PAGE>
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 Herberger's, 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.
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<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 Herberger's under the pooling of
interests method of accounting. These pro forma financial statements have been
prepared by the managements of Proffitt's and Herberger's based upon their
respective 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 an estimated Conversion Number of .4985 shares of
Proffitt's Common Stock for each share of Herberger's 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 Proffitt's Annual Report on Form 10-K for the year ended
February 3, 1996, and Quarterly Reports on Form 10-Q for the periods ended May
4, 1996 and August 3, 1996, incorporated by reference herein, the consolidated
financial statements and notes thereto of Parisian in Proffitt's prospectus
dated August 16, 1996, included in Proffitt's Registration Statement on Form S-4
(Registration No. 333-09043), and Amendment No. 1 filed December , 1996 to
Proffitt's Current Report on Form 8-K filed October 25, 1996, incorporated by
reference herein, and the financial statements and notes thereto of Herberger's
included elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
44
<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
MERGER PRO FORMA
PROFFITT'S(5)(6) HERBERGER'S(1) ADJUSTMENTS(7) TOTAL
------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Net sales........................................... $ 798,779 $ 264,709 $ 1,063,488
Costs and expenses:
Cost of sales..................................... 520,987 169,096 64(3) $ 690,147
Selling, general, and administrative expenses..... 192,028 63,828 255,856
Other operating expenses.......................... 66,617 22,175 88,792
------------- ------------- ------ ------------
Operating income.................................... 19,147 9,610 (64) 28,693
Other Income (expense):
Finance charge income, net of allocation to
purchasers of accounts receivables.............. 19,312 19,312
Interest expense.................................. (9,245) (2,041) (11,286)
Other Income, net................................. 2,923 1,140 4,063
------------- ------------- ------ ------------
Income before provision for income taxes,
extraordinary loss and cumulative effect of
changes in accounting methods..................... 32,137 8,709 (64) 40,782
Provision for income taxes.......................... 12,892 3,230 (26)(4) 16,096
------------- ------------- ------ ------------
Net income before extraordinary loss and cumulative
effect of changes in accounting methods........... $ 19,245 $ 5,479 $ (38) $ 24,686
------------- ------------- ------ ------------
------------- ------------- ------ ------------
Earnings per common share before extraordinary loss
and cumulative effect of changes in accounting
methods........................................... $ 1.09 $ 1.11
------------- ------------
------------- ------------
Weighted average common shares...................... 17,667 4,500(2) 22,167
------------- ------ ------------
------------- ------ ------------
</TABLE>
See Notes to Pro Forma Condensed Combined Income Statements
45
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED JANUARY 28, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PROFFITT'S HERBERGER'S MERGER PRO FORMA
(5)(6) (1) ADJUSTMENTS (7) TOTAL
-------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Net Sales........................................ $ 1,216,498 $ 296,946 $ 1,513,444
Cost and expenses:
Cost of sales.................................. 795,353 190,902 (227)(3) 986,028
Selling, general, and administrative
expenses..................................... 284,748 67,700 352,448
Other operating expenses....................... 97,821 24,593 122,414
-------------- -------------- ------ ------------
Operating income........................... 38,576 13,751 227 52,554
Other Income (expense):
Finance charge income, net of allocation to
purchasers of accounts receivable............ 27,934 27,934
Interest expense............................... (20,781) (2,505) (23,286)
Other Income, net.............................. 3,865 961 4,826
-------------- -------------- ------ ------------
Income before provision for income taxes....... 49,594 12,207 227 $ 62,028
Provision for income taxes....................... 19,850 4,538 91(4) 24,479
-------------- -------------- ------ ------------
Net income..................................... 29,744 7,669 136 37,549
Preferred stock dividends........................ 1,694 1,694
-------------- -------------- ------ ------------
Net Income available to common shareholders.... $ 28,050 $ 7,669 $ 136 $ 35,855
-------------- -------------- ------ ------------
-------------- -------------- ------ ------------
Earnings per common share........................ $ 1.48 $ 1.56
-------------- ------------
-------------- ------------
Weighted average common shares................... 18,922 4,124(2) 23,046
-------------- ------ ------------
-------------- ------ ------------
</TABLE>
See Notes to Pro Forma Condensed Combined Income Statements
46
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED FEBRUARY 3, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PROFFITT'S/ PRO FORMA
HERBERGER'S MERGER HERBERGER'S ACQUISITION PRO FORMA
PROFFITT'S(6) (1) ADJUSTMENTS(7) PRO FORMA PARISIAN ADJUSTMENTS(13) TOTAL
----------- ----------- ----------------- ----------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $1,333,498 $ 327,558 $1,661,056 $663,828 $2,324,884
Costs and expenses:
Cost of sales.................. 873,218 214,389 12(3) 1,087,619 419,056 400(8) 1,507,075
Selling, general, and
administrative expenses...... 324,650 74,349 398,999 165,237 (1,000)(8) 563,236
Other operating expenses....... 105,021 25,568 130,589 56,252 (1,000)(9) 188,041
2,200 (12
Expenses related to hostile
takeover defense............. 3,182 3,182 3,182
Impairment of long-lived
assets....................... 19,121 19,121 19,121
Merger, restructuring and
integration costs............ 20,822 20,822 20,822
----------- ----------- ----- ----------- --------- ------- -----------
Operating income (loss)...... (12,516) 13,252 (12) 724 23,283 (600) 23,407
Other income (expense):
Finance charge income, net of
allocation to purchasers of
accounts receivable.......... 31,273 31,273 7,125 38,398
Interest expense............... (26,098) (3,290) (29,388) (17,652) (8,800)(10) (55,840)
Other income, net.............. 2,848 1,202 4,050 2,407 6,457
----------- ----------- ----- ----------- --------- ------- -----------
Income (loss) before provision
for income taxes and
extraordinary loss........... (4,493) 11,164 (12) 6,659 15,163 (9,400) 12,422
Provision for income taxes..... 1,906 4,135 (5)(4) 6,036 6,385 (2,200)(4) 10,221
----------- ----------- ----- ----------- --------- ------- -----------
Net income (loss) before
extraordinary loss......... (6,399) 7,029 (7) 623 8,778 (7,200) 2,201
Preferred stock dividends...... 1,950 1,950 1,950
----------- ----------- ----- ----------- --------- ------- -----------
Net income (loss) available to
common shareholders before
extraordinary loss........... $ (8,349) $ 7,029 $ (7) $ (1,327) $ 8,778 $ (7,200) $ 251
----------- ----------- ----- ----------- --------- ------- -----------
----------- ----------- ----- ----------- --------- ------- -----------
Earnings (loss) per common share
before extraordinary loss...... $ (0.43) $ (.06) $ 0.01
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares... 19,372 3,784(2) 23,156 3,147 (11 26,303
----------- ----- ----------- ------- -----------
----------- ----- ----------- ------- -----------
</TABLE>
See Notes to Pro Forma Condensed Combined Income Statements
47
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JULY 29, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PROFFITT'S/ ACQUISITION
PROFFITT'S HERBERGER'S MERGER HERBERGER'S ADJUSTMENTS
(6) (1) ADJUSTMENTS (7) PRO FORMA PARISIAN (13)
----------- ------------- --------------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... $ 565,923 $ 139,305 $ 705,228 $ 288,552
Costs and expenses:
Cost of sales............................... 365,492 91,816 6(3) 457,314 176,540 500(8)
Selling, general, and administrative
expenses.................................. 142,885 33,959 176,844 76,815 (800)(8)
Other operating expenses.................... 49,415 12,470 61,885 27,361 (1,200)(9)
1,100(12)
Expenses related to hostile takeover
defense................................... 1,912 1,912
----------- ------------- --------------- ----------- --------- -------
Operating income............................ 6,219 1,060 (6) 7,273 7,836 400
Other income (expense):
Finance charge income, net of allocation to
purchasers of accounts receivable......... 15,342 15,342 3,530
Interest expense............................ (12,576) (1,615) (14,191) (8,877) (4,400)(10)
Other income, net........................... 1,372 314 1,686 1,183
----------- ------------- --------------- ----------- --------- -------
Income (loss) before provision for income
taxes..................................... 10,357 (241) (6) 10,110 3,672 (4,000)
Provision for income taxes.................. 4,230 (96) (2)(4) 4,132 1,767 (800)(4)
----------- ------------- --------------- ----------- --------- -------
Net income (loss)........................... 6,127 (145) (4) 5,978 1,905 (3,200)
Preferred stock dividends................... 975 975
----------- ------------- --------------- ----------- --------- -------
Net income (loss) available to common
shareholders.............................. $ 5,152 ($ 145) ($ 4) $ 5,003 $ 1,905 ($ 3,200)
----------- ------------- --------------- ----------- --------- -------
----------- ------------- --------------- ----------- --------- -------
Earnings per common share................... $ 0.27 $ 0.22
----------- -----------
----------- -----------
Weighted average common shares.............. 19,316 3,869(2) 23,185 3,147(11)
----------- --------------- ----------- -------
----------- --------------- ----------- -------
<CAPTION>
PRO FORMA
TOTAL
-----------
<S> <C>
Net sales................................... $ 993,780
Costs and expenses:
Cost of sales............................... 634,354
Selling, general, and administrative
expenses.................................. 252,859
Other operating expenses.................... 89,146
Expenses related to hostile takeover
defense................................... 1,912
-----------
Operating income............................ 15,509
Other income (expense):
Finance charge income, net of allocation to
purchasers of accounts receivable......... 18,872
Interest expense............................ (27,468)
Other income, net........................... 2,869
-----------
Income (loss) before provision for income
taxes..................................... 9,782
Provision for income taxes.................. 5,099
-----------
Net income (loss)........................... 4,683
Preferred stock dividends................... 975
-----------
Net income (loss) available to common
shareholders.............................. $ 3,708
-----------
-----------
Earnings per common share................... $ 0.14
-----------
-----------
Weighted average common shares.............. 26,332
-----------
-----------
</TABLE>
See Notes to Pro Forma Condensed Combined Income Statements
48
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED AUGUST 3, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PROFFITT'S/ PRO FORMA
MERGER HERBERGER'S ACQUISITION
PROFFITT'S(6) HERBERGER'S(1) ADJUSTMENTS(7) PRO FORMA PARISIAN ADJUSTMENTS(13)
----------- ------------- -------------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 568,277 $ 140,260 $ 708,537 $ 307,954
Costs and expenses:
Cost of sales.................... 366,624 91,565 (15)(3) 458,174 192,560 500(8)
Selling, general, and
administrative expenses........ 141,485 35,056 176,541 80,745 (700)(8)
Other operating expenses......... 48,081 12,552 60,633 28,232 (900)(9)
1,100(12)
Merger, restructuring, and
integration costs.............. 4,270 4,270
Gain of sale of assets........... (2,260) (2,260)
----------- ------------- -------------- ------------ --------- -------
Operating income................... 10,077 1,087 15 11,179 6,417
Other income (expense):
Finance charge income, net of
allocation to purchasers of
accounts receivable.......... 14,879 14,879 4,197
Interest expense............... (8,608) (1,303) (9,911) (8,506) (4,400)(10)
Other income, net.............. 440 303 743 277
----------- ------------- -------------- ------------ --------- -------
Income before provision for
income taxes................... 16,788 87 15 16,890 2,385 (4,400)
Provision for income taxes......... 6,995 35 6(4) 7,036 1,414 (900)(4)
----------- ------------- -------------- ------------ --------- -------
Net income....................... 9,793 52 9 9,854 971 (3,500)
Preferred stock dividends.......... 796 796
Payment for early conversion of
preferred stock.................. 3,032 3,032
----------- ------------- -------------- ------------ --------- -------
Net income available to common
shareholders................... $ 5,965 $ 52 $ 9 $ 6,026 $ 971 $ (3,500)
----------- ------------- -------------- ------------ --------- -------
----------- ------------- -------------- ------------ --------- -------
Earnings per common share.......... $ 0.30 $ 0.25
----------- ------------
----------- ------------
Weighted average common shares..... 20,186 3,634(2) 23,820
3,147(11)
----------- -------------- ------------
----------- -------------- ------------
-------
-------
<CAPTION>
PRO FORMA
TOTAL
-----------
<S> <C>
Net sales..........................
$1,016,491
Costs and expenses:
Cost of sales.................... 651,234
Selling, general, and
administrative expenses........ 256,586
Other operating expenses......... 89,065
Merger, restructuring, and
integration costs..............
4,270
Gain of sale of assets...........
(2,260)
-----------
Operating income...................
17,596
Other income (expense):
Finance charge income, net of
allocation to purchasers of
accounts receivable..........
19,076
Interest expense............... (22,817)
Other income, net..............
1,020
-----------
Income before provision for
income taxes................... 14,875
Provision for income taxes......... 7,550
-----------
Net income....................... 7,325
Preferred stock dividends..........
796
Payment for early conversion of
preferred stock..................
3,032
-----------
Net income available to common
shareholders................... $ 3,497
-----------
-----------
Earnings per common share..........
$ 0.13
-----------
-----------
Weighted average common shares.....
26,967
-----------
-----------
</TABLE>
See Notes to Pro Forma Condensed Combined Income Statements
49
<PAGE>
PROFFITT'S, INC.
NOTES TO PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
(IN THOUSANDS)
(1) Certain reclassifications have been made to Herberger's income statements to
conform to Proffitt's presentation.
(2) To reflect the weighted average common shares of Proffitt's that would have
been held by Herberger's stockholders, based on the Conversion Number of
.4985 shares of Proffitt's Common Stock for each share of Herberger's Common
Stock.
(3) To conform Herberger's direct cost method of accounting for inventory to the
full cost method used by Proffitt's.
(4) To reflect the income tax impact of the pro forma merger and acquisition
adjustments using an effective rate of 40%.
(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.
(6) The historical income statements of Proffitt's do not reflect the operating
results of Parisian prior to Proffitt's acquisition of Parisian on October
11, 1996. Therefore, Parisian's historical income statements for the year
ended February 3, 1996 and for the six months periods ended July 29, 1995
and August 3, 1996 have been included in the Pro Forma Condensed Combined
Income Statements for those periods. The pro forma adjustments for the
Parisian acquisition reflect the impact of "push down accounting" on the
historical results of Parisian.
(7) Pro forma merger adjustments do not reflect certain anticipated
non-recurring charges of approximately $2,500 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 of Proffitt's and
Herberger's.
(8) To conform Parisian's direct cost method of accounting for inventory to the
full cost method used by Proffitt's and to conform Parisian's presentation
of certain expenses with that of Proffitt's.
(9) To conform Parisian's accounting method for store preopening costs of
deferral and amortization over twelve months to Proffitt's accounting method
of expensing such costs as incurred.
(10) To reflect interest expense on Parisian acquisition debt of approximately
$118,900 at 7.4% for the periods ended February 3, 1996, July 29, 1995 and
August 3, 1996, assuming that the debt was outstanding throughout the
periods.
(11) To reflect the Proffitt's Common Stock and Equivalents issued to the
Parisian shareholders.
(12) To reflect the increase in depreciation and amortization resulting from the
preliminary purchase price allocation for the Parisian acquisition.
(13) Pro forma adjustments do not include any charges or benefits related to the
integration of the operations of the businesses of Proffitt's and Parisian.
50
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
AUGUST 3, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PROFFITT'S/ PRO FORMA
MERGER HERBERGER'S ACQUISITION PRO FORMA
PROFFITT'S HERBERGER'S ADJUSTMENTS PRO FORMA PARISIAN ADJUSTMENTS TOTAL
----------- ------------- ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents.............. $ 2,022 $ 3,097 $ 5,119 $ 997 $ 6,116
Restricted cash and short
term investments......... 1,860 1,860
Net trade accounts
receivable, less
receivables sold to third
parties.................. 25,817 3,271 29,088 31,934 500(1) 61,522
Merchandise inventories.... 307,806 55,358 781(3) 363,945 147,083 (14,800)(1) 496,228
Other current assets....... 21,685 3,133 24,818 11,982 (500)(1) 36,300
Deferred income taxes...... 8,755 814 (312)(3) 9,257 3,669 17,600(1) 30,526
----------- ------------- ----------- ------------ --------- ----------- -----------
Total current assets... 366,085 65,673 469 432,227 197,525 2,800 632,552
Property and equipment,
net........................ 387,774 26,255 414,029 72,176 9,100(1) 495,305
Goodwill..................... 52,063 52,063 59,334 175,899(1) 287,296
Other assets................. 21,264 2,668 23,932 15,233 (11,600)(1) 27,565
----------- ------------- ----------- ------------ --------- ----------- -----------
$ 827,186 $ 94,596 $ 469 $ 922,251 $ 344,268 $ 176,199 $1,442,718
----------- ------------- ----------- ------------ --------- ----------- -----------
----------- ------------- ----------- ------------ --------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable..... $ 79,628 $ 20,763 $ 100,391 $ 44,041 $ 144,432
Accrued expenses........... 65,041 8,624 73,665 19,083 33,000(1) 125,748
Current portion of
long-term debt and
capital lease
obligations.............. 16,949 13,583 30,532 3,032 33,564
----------- ------------- ----------- ------------ --------- ----------- -----------
Total current
liabilities.......... 161,618 42,970 204,588 66,156 33,000 303,744
Real estate and mortgage
notes........................ 83,234 22,148 105,382 33,180 138,562
Notes payable................ 37,588 37,588 115,800(2) 153,388
Capital lease obligations.... 10,584 10,584 10,584
Deferred income taxes........ 53,657 816 54,473 8,287 (3,000)(1) 59,760
Other long-term
liabilities.................. 14,751 14,751 30,744 5,000(1) 50,495
Subordinated debt............ 100,634 100,634 125,000 225,634
Stock held in ESOP........... 59,456 (59,456)(4)
Shareholders' equity
(deficit).................... 365,120 (30,794) 59,456(4) 394,251 80,901 (80,901)(1) 500,551
469(3) 106,300(1)
----------- ------------- ----------- ------------ --------- ----------- -----------
$ 827,186 $ 94,596 $ 469 $ 922,251 $ 344,268 $ 176,199 $1,442,718
----------- ------------- ----------- ------------ --------- ----------- -----------
----------- ------------- ----------- ------------ --------- ----------- -----------
</TABLE>
See Notes to Pro Forma Condensed Combined Balance Sheets
51
<PAGE>
PROFFITT'S, INC.
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
(1) The acquisition of Parisian will be accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations." The purchase price is being allocated first to tangible and
identifiable assets and liabilities of Parisian based on preliminary
estimates of their fair values, with the remainder allocated to goodwill and
other assets to be identified. The preliminary purchase price and the
purchase price allocation are as follows:
<TABLE>
<S> <C>
Cash consideration paid........................................... $ 110,340
Common Stock and Common Stock Equivalents......................... 106,300
Transaction Expenses.............................................. 5,460
---------
Purchase Price.................................................. 222,100
Historical book value of net assets acquired...................... (80,901)
---------
Excess of purchase price over historical book value of asset
acquired........................................................ $ 141,199
---------
---------
Allocation of excess purchase price:
Adjust trade accounts receivable to fair value.................. 500
Decrease inventories to preliminary estimate of fair value...... (14,800)
Adjust miscellaneous current assets to fair value............... (500)
Increase property and equipment to fair value................... 9,100
Increase in goodwill and other assets to be identified.......... 175,899
Write-off duplicate assets to be abandoned and existing deferred
store preopening costs, and decrease other assets to fair
value......................................................... (11,600)
Accrue preliminary estimate of merger and integration costs..... (33,000)
Adjust lease commitments to fair value.......................... (5,000)
Changes in deferred income taxes for tax effect of the
aforementioned adjustments:
Increase in deferred tax assets--current...................... 17,600
Decrease in deferred tax liabilities--noncurrent.............. 3,000
---------
$ 141,199
---------
---------
</TABLE>
(2) To reflect Parisian acquisition debt.
(3) To conform the Herberger's inventory valuation to the Proffitt's method of
valuing inventory which includes certain purchasing and distribution costs,
and to adjust current deferred income taxes accordingly.
(4) To reflect proposed modification to the Herberger's ESOP to eliminate
Herberger's obligation to repurchase shares from participants.
52
<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 November 4, 1996, 23,988,148 shares of Proffitt's Common Stock
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 November 4, 1996, 500,000 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.
53
<PAGE>
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 Herberger's 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 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.
REGISTRATION RIGHTS
Apollo Specialty Retail Partners, L.P. and certain former shareholders of
Parisian have the right, subject to certain conditions, to require Proffitt's to
use its best efforts to register for sale under the Securities Act the shares of
Proffitt's Common Stock issued to such shareholders in the acquisition of
McRae's and the Parisian Acquisition, respectively (a "Demand Registration").
Such shareholders also have the right, subject to certain conditions, to require
Proffitt's to include their Proffitt's Common Stock in a registration statement
relating to any securities proposed to be registered by Proffitt's, whether on
its own behalf or on behalf of another holder of Proffitt's Common Stock (a
"Piggyback Registration"). Generally, the former Parisian shareholders
requesting a registration will be required to pay, pro rata, the expenses of a
Demand Registration and the incremental expenses of including their shares in a
Piggyback Registration.
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 HERBERGER'S 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 Herberger's stockholders under the
Delaware General Corporation Law and the Herberger's 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"). Herberger's is a Delaware
corporation subject to the provisions of the Delaware General Corporation Law
(the "DGCL"). Stockholders of Herberger's, whose rights are governed by
Herberger's' 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 Herberger's 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 Herberger's. Certain topics discussed
below are also subject to federal law and the regulations promulgated
thereunder.
REMOVAL OF DIRECTORS
Herberger's' Restated Certificate of Incorporation provides that any
director may be removed by the stockholders for any cause to be deemed by them
sufficient at any annual or special meeting by vote of the
54
<PAGE>
majority of the stockholders. Herberger's By-Laws further provide that any
director may be removed with or without cause at any time by the affirmative
vote of a majority in interest of the stockholders of record entitled to vote at
a special meeting called for that purpose.
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 Herberger's Board may be increased or decreased
from time to time by either the Herberger's Board or stockholders through an
amendment to the Bylaws; PROVIDED, HOWEVER, that an adoption of such an
amendment by the Herberger's Board requires a vote of the majority of the entire
Herberger's Board, and an adoption of such an amendment by stockholders requires
a vote of the majority of outstanding shares of Herberger's entitled to vote in
respect thereof.
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. Currently, the Proffitt's Board of Directors may be comprised of up to
fifteen members.
SPECIAL MEETINGS
Herberger's By-laws authorize the President and the Herberger's Board to
call a special meeting of stockholders. The By-Laws also provide that a special
meeting of stockholders shall be called upon the written request of stockholders
holding one-fifth (1/5) of the stock entitled to vote at such meeting. Any such
call shall state the purpose or purposes of the proposed special meeting.
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 Herberger's Board and the
approval of a majority of the outstanding shares of Herberger's 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
Herberger's in most instances, and (iii) to sell, lease or exchange all or
substantially all of Herberger's assets. With respect to a merger, no vote of
the Herberger's stockholders would be required if Herberger's were the surviving
corporation and (i) the related agreement of merger did not amend Herberger's
Restated Certificate of Incorporation, (ii) each share of Herberger's Common
Stock outstanding immediately before the merger were an identical outstanding or
treasury share of Herberger's Common Stock after the merger and (iii) the number
of shares of Herberger's 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 Herberger's Common Stock outstanding
immediately before the merger. Notwithstanding the foregoing, the stockholders
of Herberger's have Appraisal Rights with respect to a merger. (For detailed
discussion of these Appraisal Rights. See "THE HERBERGER'S SPECIAL
MEETING--Appraisal Rights."
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
55
<PAGE>
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 Herberger's Restated Certificate of Incorporation prohibits action by
written consent. The TBCA provides that action may be taken without a
stockholder meeting and vote if all stockholders entitled to vote on the action
consent to taking such action without a meeting. Proffitt's Charter prohibits
action by written consent.
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 Herberger's records during Herberger's 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." Herberger's By-Laws contain a provision which parallels the DGCL
except that it requires the purpose be "germane" to the stockholder's status as
such and not for a purpose hostile to the interests of Herberger's or other
stockholders.
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 or her demand at least five business days before the date on which he or
she 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 or her purpose and the records he or she desires to inspect,
and if the records are directly connected with this purpose, may also, upon five
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
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<PAGE>
meeting of the stockholders, and (v) records of action taken by the stockholders
or Board of Directors without a meeting.
AMENDMENT OF BY-LAWS
Herberger's By-Laws may be modified, altered or repealed and new By-Laws may
be adopted by the affirmative vote of the holders of a majority of the
outstanding stock entitled to vote thereon or by a majority vote of the entire
Herberger's Board.
Proffitt's 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 Herberger's may be dissolved by the approval of the
Herberger's Board and a majority of the outstanding shares of Herberger's stock
entitled to vote thereon. The DGCL also allows all the stockholders of
Herberger's acting unanimously in writing to effect a dissolution of Herberger's
without the approval of the Herberger's Board.
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 or her liability (1) 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.
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. Herberger's has adopted such a provision which eliminates director
liability to Herberger's and its stockholders for damages for breach of
fiduciary duty to the fullest extent permitted by the DGCL. The TBCA does not
contain a similar provision.
Herberger's By-Laws contain a provision requiring Herberger's to indemnify
its directors and officers against any cost and expense incurred in connection
with any claim, action, suit or proceeding in which he may be involved by reason
of his capacity as a director or officer except in relation to matters as to
which the director or officer is adjudged to be liable because of dereliction,
negligence or misconduct in the performance of his duties as a director or
officer. See "THE MERGER--Interests of Certain Persons in the Merger."
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<PAGE>
BUSINESS COMBINATION STATUTE
The DGCL prohibits certain business combinations such as mergers,
consolidations, asset purchases and other transactions between a corporation
subject to the provisions thereof and certain interested stockholders.
Herberger's is not subject to the restrictions contained in the business
combinations statute because its securities are not listed on the national
securities exchange, are not authorized for quotation on the Nasdaq Stock Market
and Herberger's has fewer than 2,000 stockholders of record.
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 1/3 of the noninterested 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 bylaw
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.
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
Herberger's).
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 a
corporation that has 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 has held that the
TCSAA is unconstitutional as it applies to target corporations organized under
the laws of states other than Tennessee (such as Herberger's).
The DGCL contains no similar provisions with respect to control share
acquisitions.
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<PAGE>
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.
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 Herberger's).
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 two of certain tests including having their 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 Herberger's).
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
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<PAGE>
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 two 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
Herberger's or, if there is no surplus, out of the net profits of Herberger's
for the current fiscal year and the prior fiscal year.
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. See "DESCRIPTION OF PROFFITT'S
CAPITAL STOCK--Proffitt's Preferred Stock."
DISSENTERS' RIGHTS
The DGCL provides appraisal rights for certain mergers and consolidations.
See "THE HERBERGER'S SPECIAL MEETING--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.
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<PAGE>
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 November 14, 1996, 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
(1)
---------------------
<S> <C> <C>
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------------------------- ---------- ---------
Apollo Specialty Retail Partners, L.P................................................. 1,341,801 5.61%
Two Manhattanville Road
Purchase, New York
Fidelity Management and Research Corp................................................. 2,011,209(2) 8.30%
82 Devonshire Street
Boston, Massachusetts
Lehman Brothers Holdings Inc.......................................................... 1,425,076(3) 5.96%
3 World Financial Center
New York, New York
R. Brad Martin........................................................................ 1,294,748(4) 5.38%
115 North Calderwood
Alcoa, Tennessee
</TABLE>
- ------------------------
(1) Based solely on information provided by the beneficial owner.
(2) Includes 317,983 shares issuable upon conversion of Proffitt's, Inc. 4.75%
Convertible Debentures ($13.578 million face value).
(3) Includes 515,277 shares owned by Lehman Brothers Merchant Banking Portfolio
Partnership L.P., 420,210 shares owned by Lehman Brothers Offshore
Investment Partnership-Japan L.P., 139,272 shares owned by Lehman Brothers
Offshore Investment Partnership L.P., and 350,317 shares owned by Lehman
Brothers Capital Partners II L.P. (collectively referred to herein as the
"Investment Partnerships"). LB I Group Inc. ("LBG") and Lehman Brothers
Holdings Inc. ("Lehman Holdings") are the general partners of Lehman
Brothers Merchant Banking Portfolio Partnership L.P. and Lehman Brothers
Capital Partners II L.P., respectively, and Lehman Brothers Offshore
Partners Ltd. is the general partner of each of Lehman Brothers Offshore
Investment Partnership-Japan L.P. and Lehman Brothers Offshore Investment
Partnership L.P. Each such general partner may be deemed to own beneficially
the shares directly owned by the entity of which it is the general partner.
Lehman Brothers Offshore Partners Ltd. is a wholly owned subsidiary of LBG,
which is an indirect wholly owned subsidiary of Lehman Holdings. The parent
companies of the general partners may be deemed to own beneficially all of
the shares directly held by the Investment Partnerships.
(4) Includes: (i) 150,000 shares that Mr. Martin has a right to acquire within
sixty days after November 14, 1996 through the exercise of stock options,
(ii) 2,000 shares held by Mr. Martin as custodian for his minor children,
(iii) 1,900 shares owned by RBM Venture Company, a company of which Mr.
Martin is the sole shareholder, (iv) 75,000 shares held by R. Brad Martin
1994-1, 1995-1, and 1996-1 Qualified Annuity Trusts, (v) 25,000 shares held
by R. Brad Martin 1996-2 Grantor Retained Annuity Trust, (vi) 3,099 shares
owned by the R. Brad and Jean L. Martin Family Foundation, (vii) 13,000
shares of restricted stock which will vest on February 12, 1997, and (viii)
25,000 shares of restricted stock the restrictions on which will lapse based
on performance measurements and length of service.
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<PAGE>
PROFFITT'S COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS. The
following table sets forth, as of November 14, 1996, 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 1, 1996 and all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP % OF OUTSTANDING
NAME (1) COMMON STOCK
- --------------------------------------------------------------------- ------------------------- -----------------
<S> <C> <C>
R. Brad Martin....................................................... 1,294,748(2) 5.38%
James A. Coggin...................................................... 63,500 *
James E. Glasscock................................................... 5,000 *
Gary L. Howard....................................................... 32,000 *
Frederick J. Mershad................................................. 29,000 *
Bernard E. Bernstein................................................. 16,401(3) *
Edmond D. Cicala..................................................... 18,089 *
Ronald de Waal....................................................... 1,000,713 4.18%
Gerard K. Donnelly................................................... 4,849 *
Donald F. Dunn....................................................... 8,750 *
W. Thomas Gould...................................................... 332,434(4) 1.38%
Michael S. Gross..................................................... 2,200(5) *
Donald E. Hess....................................................... 617,664(6) 2.58%
G. David Hurd........................................................ 6,643 *
Richard D. McRae..................................................... 57,607 *
C. Warren Neel....................................................... 7,450 *
Harwell W. Proffitt.................................................. 7,200 *
Marguerite W. Sallee................................................. 2,300 *
Gerald Tsai, Jr...................................................... 5,200 *
All directors and executive officers as a group
(24 persons) 3,724,667 15.15%
</TABLE>
- ------------------------
* Owns less than 1% of the total outstanding Common Stock of Proffitt's.
(1) Includes shares that the following persons have a right to acquire within
sixty days after November 14, 1996 through the exercise of stock options:
Martin (150,000). Coggin (44,000), Glasscock (2,500), Howard (30,000),
Mershad (27,000), Bernstein (3,200), Cicala (2,200), de Waal (2,200),
Donnelly (1,870), Dunn (1,870), Gould (233,323), Gross (1,200), Hurd
(1,870), McRae (1,200), Neel (3,200), Proffitt (3,200), Sallee (200), and
Tsai (2,200).
(2) Includes: (i) 2,000 shares held by Mr. Martin as custodian for his minor
children, (ii) 1,900 shares owned by RBM Venture Company, a company of which
Mr. Martin is sole shareholder, (iii) 75,000 shares held by R. Brad Martin
1994-1, 1995-1, and 1996-1 Qualified Annuity Trusts, (iv) 25,000 shares held
by R. Brad Martin 1996-2 Grantor Retained Annuity Trust, (v) 3,099 shares
owned by the R. Brad and Jean L. Martin Family Foundation, (vi) 13,000
shares of restricted stock which will vest on February 12, 1997 and (vii)
25,000 shares of restricted stock the restrictions on which will lapse based
on performance measurements and length of service.
(3) Includes 3,000 shares owned by the Bernard E. Bernstein Defined Benefit
Pension Plan.
(4) Includes 3,577 shares owned by Mr. Gould's wife as to which he disclaims
beneficial ownership. Also includes 17,512 shares held in a profit sharing
and savings plan for the account of Mr. Gould. Excludes 84,735 shares
reserved for issuance to Mr. Gould with respect to a deferred compensation
arrangement.
(5) 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.
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<PAGE>
(6) Includes 262,919 shares owned directly by Mr. Hess, 280,266 shares held by
him as trustee or cotrustee for his children, and 74,379 shares held by him
as trustee for the children of his sister, Jo Ann H. Morrison. Does not
include 2,590 shares owned directly by his wife, 7,330 shares held by his
wife as co-trustee for one of their children, and 88,058 shares held by
another individual as trustee for Mr. Hess' children, with respect to which
shares Mr. Hess disclaims beneficial ownership.
HERBERGER'S
PRINCIPAL OWNERS OF HERBERGER'S COMMON STOCK. The following table sets
forth, based on the number of shares outstanding as of , 1996 the
percentage of ownership of Herberger's Common Stock by the persons believed by
Herberger's to own beneficially more than 5% of Herberger's Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE % OF
OF BENEFICIAL OUTSTANDING
NAME AND ADDRESS OF BENEFICIARY OWNERSHIP COMMON STOCK
- ------------------------------------------------------ ------------------ -----------------------
<S> <C> <C>
Norwest Bank Minnesota, N.A. Trustee of the G.R.
Herberger's, Inc. 401(k) Employee Stock Purchase
Plan and Employee Stock Ownership Plan.............. 5,844,977 72.4%
</TABLE>
HERBERGER'S COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS. The
following table sets forth, as of , 1996, the beneficial ownership of
Herberger's Common Stock by all directors, person serving as Chief Executive
Officer in the last fiscal year, the next four highest paid executive officers
of Herberger's, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE % OF
OF BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
- ------------------------------------------------------------------------ ------------------ ---------------------
<S> <C> <C>
Robert J. Sullivan...................................................... 0 0%
Barry T. Ross........................................................... 274,501 3.42%
John B. Brownson........................................................ 33,615 *
Gary L. Pralle.......................................................... 33,355 *
Mari J. Johnson......................................................... 85,370 1.11%
G. Stephen Lindgren..................................................... 88,959 1.11%
John A. Gau............................................................. 103,199 1.30%
William C. Lewis........................................................ 35,029 *
Joseph W. Thebert....................................................... 5,358 *
Dean M. Berend.......................................................... 18,454 *
Teresa L. Emery......................................................... 8,527 *
Neal R. Engelman........................................................ 51,944 *
Donald P. Frank......................................................... 27,342 *
Sharon D.S. Lager....................................................... 38,821 *
Denise D. Lind.......................................................... 6,314 *
Gordon R. Lindblad...................................................... 63,209 *
Stuart E. Lonning....................................................... 59,691 *
Robert C. McCoy......................................................... 10,922 *
Donald B. Meyer......................................................... 8,990 *
Tammy K. Ohland......................................................... 8,141 *
Gregory A. Perky........................................................ 27,164 *
Barbara J. Young........................................................ 19,263 *
Allan L. Zolin.......................................................... 43,415 *
All directors and officers as a group (23 persons)...................... 1,051,583 13.10%
</TABLE>
- ------------------------
* Less than 1%.
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<PAGE>
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the regulations
of the Securities and Exchange Commission and accordingly, may include
securities owned by or for, among others, the spouse, children or certain
other relatives of such person as well as other securities as to which the
person has or shares voting or investment power or has the right to acquire
within 60 days. The same shares may be beneficially owned by more than one
person. Shares reported as owned by the ESOP Trustee are also reported as
beneficially owned by the directors and officers to the extent that shares
have been allocated to the ESOP accounts of the named person. As of ,
1996 a total of 493,854 shares were allocated to the ESOP accounts of the
directors and officers named in the table. Allocated shares are voted by the
ESOP Trustee in accordance with the direction of ESOP participants.
Generally, unallocated shares and allocated shares as to which no direction
is made by the participants are voted by the ESOP Trustee at the direction
of the Herbergers's Board.
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 1992. 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 remaining interest in Parks-Belk in April
1995 and subsequently converted three stores to Proffitt's stores and closed
one.
In February 1996, Proffitt's acquired by merger all of the outstanding
capital stock of Younkers, Inc., a publicly held department store chain with 49
stores headquartered in Des Moines, Iowa.
On October 11, 1996, Proffitt's acquired by merger all of the outstanding
common stock of Parisian, a privately-owned specialty department store chain
with 38 department stores headquartered in Birmingham, Alabama.
Proffitt's stores are primarily anchor stores in leading regional malls.
Proffitt's currently operates under four divisions, the Proffitt's Division with
26 stores, the McRae's Division with 29 department stores and one specialty
store, the Younkers Division with 48 department stores and the Parisian Division
with 38 department stores. The stores operated under the Proffitt's Division are
located in Tennessee (12 stores), Virginia (8 stores), Georgia (2 stores),
Kentucky (2 stores), North Carolina (l store) and West Virginia (1 store). The
McRae's department stores are located in Alabama (14 stores), Mississippi (12
stores), Florida (2 stores) and Louisiana (1 store). The stores operated under
the Younkers Division are located in Iowa (18 stores), Wisconsin (17 stores),
Michigan (5 stores), Nebraska (5 stores) and Illinois, Minnesota and South
Dakota (each 1 store). The Parisian Division stores are located in Alabama (15
stores), Georgia (6 stores), Florida (4 stores), Ohio (4 stores), South Carolina
(3 stores), Tennessee (3 stores), Indiana (2 stores) and Michigan (1 store).
Proffitt's operates separate merchandising, sales promotion and store
operating divisions for the Proffitt's, McRae's, Younkers and Parisian
Divisions, but operates centralized administrative and support
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<PAGE>
functions, such as accounting, information systems and credit, into which the
functions of Younkers and Parisian are presently being integrated.
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 (423) 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 HERBERGER'S
Herberger's is an employee-owned regional department store company with 40
stores offering principally moderately-to-upper-moderately priced quality
apparel, accessories, cosmetics, fragrances, jewelry and shoes for the entire
family, as well as quality linens, domestics, china, gifts and flatware for the
home. Herberger's was founded by G. R. "Bob" Herberger in 1927 as a single store
in St. Cloud, Minnesota and was incorporated in 1943 in the State of Delaware.
In 1972 Herberger's became employee-owned through the acquisition of the
outstanding common stock by employees. A profit sharing plan, established in
1967, was converted in 1989 to the Herberger's ESOP.
Herberger's and its employees place significant emphasis on a high standard
of customer service which Herberger's believes is recognized throughout its many
trade areas and has contributed to its historical profitability. Management
receives confidential feedback from all employees on an annual basis, offering
suggestions for improving all areas of operations. Herberger's believes this
feedback has contributed to an improved work environment for employees and a
better shopping environment for customers.
Herberger's marketing strategy is multifaceted, but centers around a highly
promotional, value-oriented offering of popular branded lines of fashion
merchandise. Newspaper advertising and circulars are the principal promotional
medium, although some direct mail and radio strategies are also used. Most
Herberger's stores are located in rural population centers where Herberger's is
generally the dominant fashion name-brand department store. Such cities
typically encompass a retail trade area ranging in size from approximately
50,000 to 300,000 people, although certain locations exist in larger markets
where Herberger's believes it successfully fulfills the customer's desire for a
"neighborhood" department store.
Herberger's 40 stores are located in ten states; Colorado (1 store),
Illinois (1 store), Iowa (2 stores), Minnesota (14 stores), Montana (6 stores),
Nebraska (5 stores), North Dakota (3 stores), South Dakota (3 stores), Wisconsin
(4 stores) and Wyoming (1 store). Most stores are located in local or regional
malls where they serve as co-anchors. All of Herberger's locations are leased,
except for the St. Cloud, Minnesota property, which serves as a combination
store, corporate office, and local mall. Herberger's recently announced its
intention to close its downtown Billings, Montana store around the end of the
current fiscal year.
Herberger's operates a 97,625 square foot distribution center in Sartell,
Minnesota, near St. Cloud, and centrally tickets and distributes the majority of
its merchandise purchases. Herberger's has made significant investments to
obtain and maintain advanced computerized systems including electronic point-
of-sale and communications in each of its locations, and mainframe based
financial, inventory reporting and payroll systems.
Herberger's purchases merchandise from approximately 3,000 different
resources. A portion of its purchases are made or coordinated through an
international merchandising and product development
65
<PAGE>
organization, Frederick Atkins, Inc., of which Herberger's is a member
stockholder. No resource accounts for more than 10% of Herberger's purchases.
Herberger's executive offices are located at 600 Mall Germain, St. Cloud,
Minnesota 56301, and its telephone number is (320) 251-5351.
HERBERGER'S MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical financial condition and
results of operations of Herberger's for the six month periods ended August 3,
1996 and July 29, 1995, and for each of the three fiscal years in the period
ended February 3, 1996. The financial information and discussion and analysis
which follow are based upon and should be read in conjunction with the
Consolidated Financial Statements and the notes thereto. Herberger's fiscal year
ends on the Saturday closest to January 31 of the following year and consisted
of 53 weeks in the year ended February 3, 1996 and 52 weeks in the year ended
January 28, 1995. Accordingly, unless otherwise indicated, reference to a year
in this section means the fiscal year commencing in the calendar year to which
reference is made. For example, references to "1995" mean the fiscal year which
commenced on January 29, 1995 and ended on February 3, 1996.
COMPARISON OF THE SIX MONTHS ENDED AUGUST 3, 1996 (1996) AND JULY 29, 1995
(1995)
NET SALES. Net sales for the six month period ended August 3, 1996
increased less than one percent over the prior year period. The increase
represents both total store and comparable stores sales. A comparable store is
one which has been open throughout each fiscal year and throughout the prior
fiscal year being reported, or in the case of an interim period, has been open
throughout the interim period and throughout the comparable interim period in
the prior year. Annual amounts are adjusted so that all annual amounts reflect a
52 week year. New stores become comparable stores in the first full month
following the anniversary of the opening of these new stores. For purposes of
this calculation, renovated and expanded stores are classified as comparable
stores and not as new stores. No new stores were opened during either of these
two periods. Total store sales includes the effect of the expansion of one
existing store in March of 1996 and the expansion of another existing store in
May of 1995. Due to the large number of separate items of merchandise sold and
because pricing is periodically adjusted, Herberger's is not able to quantify
accurately the percentage of sales change resulting from changes in unit volume
compared to changes in price.
GROSS MARGIN. Gross margin as a percent of sales during the six month
period ended August 3, 1996 increased to 34.7% from 34.1% during the comparable
prior year period principally due to an increase in the initial markup on
merchandise sold during the period. The level of merchandise markdowns were
substantially unchanged between the two periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") as a percent of sales were 25.0% in the six
month period ended August 3, 1996 and 24.4% in the comparable prior year period.
The increase in SG&A was attributable principally to the effect of increases in
payroll rates in relationship to generally flat sales and an increase in accrued
Employee Stock Ownership Plan ("ESOP") expense.
OTHER OPERATING EXPENSES. Other operating expenses, consisting principally
of occupancy costs, depreciation and amortization and taxes other than income
taxes, were substantially unchanged at 8.9% of sales in the six months ended
August 3, 1996 and 9.0% in the comparable prior year period.
INTEREST EXPENSE. Interest expense for the six month period ended August 3,
1996 was approximately $1.3 million compared to approximately $1.6 million
during the comparable prior period. The decrease in interest expense was
principally attributable to a lower average outstanding balance on Herberger's
revolving line of credit due to lower average inventory levels during the
period.
66
<PAGE>
INCOME TAXES. Income taxes for the six month period ended August 3, 1996
and the income tax benefit for the comparable prior year period were estimated
at approximately 40% of income before tax. The differences between the estimated
effective tax rates and statutory rates were primarily due to state income
taxes.
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 1996 (1995) AND JANUARY 29, 1995
(1994)
NET SALES. Net sales in 1995 increased 10.3% over 1994, from approximately
$296.9 million to approximately $327.6 million. The increase includes a
comparable store sales increase of 7.3%. Two new stores were opened in Fall 1994
and one new store was opened during March 1994. One existing store was expanded
during Spring 1995, and three existing stores were expanded during Spring 1994.
The increase in comparable store sales was attributable principally to increased
promotional activity during the year, primarily during the Spring selling
season. The increase in total sales is attributable to this increased
promotional activity, as well as the effect of the new stores and store
expansions.
GROSS MARGIN. Gross margin as a percent of sales in 1995 decreased to 34.5%
of sales from 35.7% of sales during 1994. The decrease was principally due to an
increase in the level of merchandise markdowns related to the increased
promotional activity during the year, offset in part by an increase in the
initial markup on merchandise sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percent of sales were substantially unchanged at
22.7% in 1995 and 22.8% in 1994.
OTHER OPERATING EXPENSES. Other operating expenses as a percent of sales
decreased to 7.8% in 1995 from 8.3% in 1994. The decrease was due principally to
certain fixed assets becoming fully depreciated resulting in a decrease in
depreciation and amortization expense.
INTEREST EXPENSE. Interest expense for 1995 was approximately $3.3 million
compared to approximately $2.5 million in 1994. The increase in interest expense
was principally attributable to a higher average outstanding balance on
Herberger's revolving line of credit due to an increase in average inventories
during the period, and the additional interest expense on ESOP loans made in May
1995 and May 1994.
INCOME TAXES. Income taxes in 1995 were 37.0% of income before tax and in
1994 were 37.2% of income before tax. The differences between the effective tax
rates and statutory rates were primarily due to state income taxes.
COMPARISON OF FISCAL YEARS ENDED JANUARY 28, 1995 (1994) AND JANUARY 29, 1994
(1993)
NET SALES. Net sales in 1994 increased 12.2% over 1993, from approximately
$264.7 million to approximately $296.9 million. The increase consists of total
store sales and a comparable store sales increase of 6.7%. The increase in
comparable store sales was primarily attributable to increased promotional
activity initiated in Fall 1994. The increase in total store sales was primarily
attributable to this increased promotional activity and the effect of new store
openings and expansions of existing stores. Two new stores were opened in Fall
1994, one new store was opened in March 1994 and one new store was opened in
Fall 1993. One store was closed in January 1994. Three existing stores were
expanded in Spring 1994, one existing store was expanded in Fall 1993 and two
existing stores were expanded in Spring 1993.
GROSS MARGIN. Gross margin as a percent of sales in 1994 decreased to 35.7%
from 36.1% in 1993. The decrease was principally due to an increase in the level
of merchandise markdowns related to the increased promotional activity during
Fall 1994, offset in part by an increase in initial markup on merchandise sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percent of sales decreased to 22.8% in 1994 from
24.1% in 1993. This decrease was principally attributable to direct selling
costs increasing at a rate lower than the rate of sales increase, and the
elimination of
67
<PAGE>
certain non-essential corporate and store level functions as part of a cost
reduction program initiated during Fall 1993.
OTHER OPERATING EXPENSES. Other operating expenses as a percent of sales
were substantially unchanged at 8.3% in 1994 and 8.4% in 1993.
INTEREST EXPENSE. Interest expense in 1994 was approximately $2.5 million
compared to approximately $2.0 million in 1993. The increase in interest expense
was principally attributable to an increase in the average outstanding balance
on the revolving line of credit due to higher average inventory levels during
the period.
INCOME TAXES. Income taxes in 1994 were 37.2% of income before tax and in
1993 were 37.1% of income before tax. The differences between the effective tax
rates and statutory rates were primarily due to state income taxes.
SEASONALITY AND INFLATION
Herberger's considers its business, like most retailers, to be seasonal in
that a substantial percentage of its sales and net income occur during the
fourth quarter which includes the Christmas selling season. Working capital and
cash flow requirements fluctuate during the year, generally reaching their
highest levels during the fourth quarter preceding the Christmas selling season,
and their lowest level in the post-Christmas period of January. Generally, SG&A
expenses as a percent of sales are higher in the first three quarters of the
year as a consequence of this seasonality. Herberger's has been able to fund its
seasonal cash flow needs through operations and borrowings under its revolving
line of credit. Inflation affects the cost of merchandise Herberger's purchases,
as well as most SG&A expenses. Although Herberger's attempts to pass the effects
of such cost increases along in the pricing of its merchandise, it is limited to
a certain degree by competitive forces.
LIQUIDITY AND CAPITAL RESOURCES
Herberger's principal needs for liquidity are to provide working capital for
operations, to fund capital expenditures for new stores and the expansion of
existing stores, for repayment of long-term debt and, on a historical basis, to
fund the payment of dividends and purchases of common shares into treasury from
terminated or retired employee-stockholders. The principal sources of liquidity
are cash from operations and short-term borrowings under a revolving line of
credit.
During the six month period ended August 3, 1996, net cash used in
operations was approximately $4.6 million compared to $11.2 million in the
comparable prior year period. Due to the seasonal nature of Herberger's business
(see Seasonality and Inflation), it is common for cash to be used in operations,
principally due to the increase in merchandise inventories, during this period.
The reduction in net cash used in operations in 1996 was principally
attributable to a reduction in inventory compared to the prior year and an
increase in the portion of such inventory which was funded by trade accounts
payable. Net cash used in investing activities for the period ended August 3,
1996 was approximately $1.2 million, substantially unchanged from the comparable
prior year period, and was principally attributable to capital expenditures. Net
cash provided by financing activities during the period ended August 3, 1996 was
approximately $5.8 million compared to approximately $11.1 million in the
comparable prior year period. Net cash provided by financing activities
principally consists of changes in the revolving line of credit, reduced by cash
used for repayment of long-term debt, the purchases of treasury shares and cash
dividends. The reduction in 1996 was principally attributable to lower
borrowings under the revolving line of credit due to lower inventories, lower
repayment of debt requirements during this period, and lower treasury share
purchases.
Net cash provided by operating activities in 1995 was approximately $12.1
million, substantially unchanged from 1994. Net cash used in financing
activities in 1995 was approximately $2.6 million compared to approximately
$10.5 million in 1994. The reduction in 1995 from 1994 was principally
68
<PAGE>
attributable to reduced capital expenditures resulting from no new stores being
opened during 1995. Net cash used in financing activities in 1995 was
approximately $8.9 million compared to approximately $6.0 million in 1994. The
increase in 1995 was principally attributable to increased repayment of
long-term debt.
Future capital expenditure needs will be based principally upon the addition
of new stores or the expansion of existing stores. Herberger's is not
contemplating any new stores in fiscal 1996, nor has it signed leases for any
new stores in 1997. One lease has been amended to provide for the expansion of
an existing store in 1997, and discussions are continuing for the expansion and
addition of other stores. There can be no assurance of the outcome of any of
these discussions.
Herberger's contemplates that cash provided by operations will continue to
be adequate to meet its capital expenditure and other working capital needs, and
that the availability of its revolving line of credit will be sufficient to meet
its seasonal cash needs. The revolving line of credit is with two participating
banks, is an annual commitment currently expiring on September 30, 1997 and is
in the amount of $30.0 million. As of August 3, 1996, availability under the
revolving line of credit was approximately $19.3 million.
Certain debt covenants exist under the revolving line of credit and under
each of the term and other long-term debt notes. Herberger's was in compliance
with all such covenants as of August 3, 1996. As of the Effective Time, certain
provisions and covenants of the notes will require modification. Herberger's
believes that the required modifications will be obtained from the respective
lenders or, in the event that such modifications are not obtained, that adequate
alternative lending resources will be available to Herberger's for refinancing
of existing debt obligations.
LEGAL OPINIONS
The validity of the Proffitt's Common Stock being offered hereby is being
passed upon for Proffitt's by Sommer & Barnard, PC, special counsel to
Proffitt's.
Sommer & Barnard, PC will also deliver an opinion concerning certain federal
income tax consequences of the Merger. See "THE MERGER--Certain Federal Income
Tax Consequences."
EXPERTS
The consolidated financial statements appearing in Proffitt's Form 10-K as
of February 3, 1996 and January 28, 1995 and for each of the three years in the
period ended February 3, 1996, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon and included
therein and incorporated by reference herein. Such report, as it relates to the
amounts included for Younkers, Inc., for the years ended January 28, 1995 and
January 29, 1994, is based solely on the reports of Deloitte & Touche, LLP, and
Ernst and Young, LLP, independent accountants, respectively, included in such
Form 10-K and incorporated herein by reference. Such consolidated financial
statements are incorporated by reference herein in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.
The consolidated financial statements of Parisian as of February 3, 1996 and
January 28, 1995, and for each of the three years in the period ended February
3, 1996, incorporated by reference in this Prospectus and the Registration
Statement have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon, incorporated by reference
herein. Such consolidated financial statements are incorporated by reference
herein and in the Registration Statement in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The audited financial statements of Herberger's as of January 28, 1995, and
February 3, 1996, and for each of the three years in the period ended February
3, 1996, included in this Proxy Statement/Prospectus and the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF HERBERGER'S
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements:
Report of Independent Public Accountants................................................................. F-2
Balance Sheets as of January 28, 1995, February 3, 1996 and August 3, 1996 (unaudited)................... F-3
Statements of Income for the fiscal years ended January 29, 1994, January 28, 1995 and
February 3, 1996 and for the twenty-six week periods ended July 29, 1995 (unaudited) and August 3, 1996
(unaudited)............................................................................................ F-4
Statements of Changes in Stockholders' Deficit for the fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996 and for the twenty-six week period ended August 3, 1996
(unaudited)............................................................................................ F-5
Statements of Cash Flows for the fiscal years ended January 29, 1994, January 28, 1995 and February 3,
1996 and for the twenty-six week periods ended July 29, 1995 (unaudited) and August 3, 1996
(unaudited)............................................................................................ F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To G. R. Herberger's, Inc.:
We have audited the accompanying balance sheets of G. R. Herberger's, Inc.
(a Delaware corporation) as of January 28, 1995 and February 3, 1996, and the
related statements of income, changes in stockholders' deficit and cash flows
for each of the three years in the period ended February 3, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of G. R. Herberger's, Inc. as
of January 28, 1995 and February 3, 1996, and the results of its operations and
cash flows for each of the three years in the period ended February 3, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 21, 1996
F-2
<PAGE>
G. R. HERBERGER'S, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 2,389,200 $ 3,020,700 $ 3,096,600
Trade and other receivables.................................... 4,066,500 2,492,300 3,270,600
Notes receivable--officers..................................... 197,000 197,000 197,000
Merchandise inventories........................................ 43,167,000 42,493,000 55,358,600
Supplies and prepaid expenses.................................. 2,348,300 2,856,800 2,936,300
Deferred income taxes.......................................... 854,400 769,400 814,400
-------------- -------------- --------------
Total current assets....................................... 53,022,400 51,829,200 65,673,500
PROPERTY AND EQUIPMENT (NOTE 1).................................. 64,627,300 64,627,800 65,002,900
Less--accumulated depreciation................................. (31,171,300) (36.210,700) (38,748,000)
-------------- -------------- --------------
Net property and equipment..................................... 33,456,000 28,417,100 26,254,900
OTHER ASSETS..................................................... 2,343,400 2,667,700 2,667,700
-------------- -------------- --------------
$ 88,821,800 $ 82,914,000 $ 94,596,100
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt........................... $ 3,618,400 $ 2,848,700 $ 2,882,800
Notes payable.................................................. -- -- 10,700,000
Accounts payable............................................... 14,496,200 11,649,500 20,763,500
Accrued payroll and other liabilities.......................... 12,473,800 10,984,200 8,442,800
Dividends payable.............................................. 1,122,600 1,147,400 --
Income taxes payable........................................... 2,506,300 1,441,600 180,900
-------------- -------------- --------------
Total current liabilities.................................. 34,217,300 28,071,400 42,970,000
LONG-TERM DEBT (NOTE 3).......................................... 23,697,100 23,835,700 22,147,900
DEFERRED INCOME TAXES............................................ 1,169,700 920,700 815,700
STOCK HELD IN ESOP (NOTE 7)...................................... 52,644,800 58,880,700 59,455,900
-------------- -------------- --------------
COMMITMENTS (NOTES 7 and 8)
STOCKHOLDERS' DEFICIT (NOTE 6):
Common stock................................................... 653,000 640,600 640,600
Additional paid-in capital..................................... 665,400 710,100 710,100
Accumulated deficit............................................ (6,788,100) (8,664,600) (8,511,800)
Common stock in treasury (NOTE 1).............................. (17,437,400) (21,480,600) (23,532,300)
-------------- -------------- --------------
(22,907,100) (28,794,500) (30,793,400)
-------------- -------------- --------------
$ 88,821,800 $ 82,914,000 $ 94,595,100
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
G. R. HERBERGER'S, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEARS ENDED WEEK PERIODS ENDED
---------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
-------------- -------------- -------------- -------------- --------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES...................... $ 264,709,200 $ 296,946,300 $ 327,557,700 $ 139,304,900 $ 140,260,200
COSTS AND EXPENSES:
Cost of sales................ 169,096,200 190,901,900 214,389,200 91,816,000 91,564,600
Selling, general and
administrative expenses.... 63,828,000 67,700,200 74,349,200 33,958,700 35,055,900
Other operating expenses..... 22,175,500 24,593,400 25,567,600 12,469,900 12,552,300
-------------- -------------- -------------- -------------- --------------
Operating Income........... 9,609,500 13,750,800 13,251,700 1,060,300 1,087,400
-------------- -------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense............. (2,041,000) (2,504,500) (3,290,000) (1,615,500) (1,303,100)
Other income (expense),
net........................ 1,140,300 961,000 1,202,000 314,200 303,600
-------------- -------------- -------------- -------------- --------------
Income (loss) before income
taxes.................... 8,708,800 12,207,300 11,163,700 (241,000) 87,900
-------------- -------------- -------------- -------------- --------------
PROVISION (BENEFIT) FOR INCOME
TAXES........................ 3,230,200 4,537,900 4,134,800 (96,400) 35,100
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS).......... $ 5,478,600 $ 7,669,400 $ 7,028,900 $ (144,600) $ 52,800
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS) PER SHARE OF
COMMON STOCK................. $ 0.61 $ 0.93 $ 0.93 $ (0.02) $ 0.01
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
G. R. HERBERGER'S, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 28, 1995 AND
FEBRUARY 3, 1996, AND FOR THE TWENTY-SIX WEEK PERIOD ENDED AUGUST 3, 1996
<TABLE>
<CAPTION>
COMMON ADDITIONAL COMMON
STOCK PAID-IN ACCUMULATED STOCK IN
SHARES AMOUNT CAPITAL DEFICIT TREASURY
------------ ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 30,1993................... 16,918,600 $ 676,700 $ 663,600 $ (12,327,900) $ (8,805,300)
Purchase of treasury stock............... -- -- -- -- (5,271,000)
Decrease in stock held in ESOP........... -- -- 6,178,100 --
Net income............................... -- -- -- 5,478,600 --
Cash dividend, $0.12 per share........... -- -- -- (1,066,000) --
------------ ---------- ---------- -------------- --------------
BALANCE, January 29, 1994.................. 16,918,600 676,700 663,600 (1,737,200) (14,076,300)
Purchase of treasury stock............... -- -- -- (3,361,100)
Increase in stock held in ESOP........... (593,500) (23,700) -- (11,594,600) --
Unrealized gain on released ESOP
shares................................. -- -- 1,800 -- --
Net income............................... -- -- -- 7,669,400 --
Cash dividend, $0.14 per share........... -- -- -- (1,125,700) --
------------ ---------- ---------- -------------- --------------
BALANCE, January 28, 1995.................. 16,325,100 653,000 665,400 (6,788,100) (17,437,400)
Purchase of treasury stock............... -- -- -- -- (4,043,200)
Increase in stock held in ESOP........... (310,100) (12,400) -- (7,860,100) --
Unrealized gain on released ESOP
shares................................. -- -- 44,700 -- --
Net income............................... -- -- -- 7,028,900 --
Cash dividend, $0.14 per share........... -- -- -- (1,045,300) --
------------ ---------- ---------- -------------- --------------
BALANCE, February 3, 1996.................. 16,015,000 640,600 710,100 (8,664,600) (21,480,600)
Purchase of treasury stock (Unaudited)... -- -- -- -- (2,051,700)
Net income (Unaudited)................... -- -- -- 52,800 --
------------ ---------- ---------- -------------- --------------
BALANCE, August 3, 1996 (Unaudited)........ 16,015,000 $ 640,600 $ 710,100 $ (8,611,800) $ (23,532,300)
------------ ---------- ---------- -------------- --------------
------------ ---------- ---------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
G. R. HERBERGER'S, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEARS ENDED WEEK PERIODS ENDED
------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
------------- ------------- ------------ ------------- -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................... $ 5,478,600 $ 7,669,400 $ 7,028,900 $ (144,600) $ 52,800
Adjustments to reconcile net income
(loss) to cash flows from
operations--
Depreciation and amortization........ 6,877,000 7,502,800 7,304,100 3,631,500 3,348,200
Deferred income taxes................ 182,400 (17,100) (164,000) (80,000) (150,000)
Amortization of deferred ESOP
compensation....................... 815,200 1,034,200 1,363,400 476,700 575,200
Unrealized gain on released ESOP
shares............................. -- 1,800 44,700 -- --
Dividends applied to unreleased ESOP
shares............................. -- 72,100 102,100 -- --
Changes in current operating items--
Trade and other receivables........ (1,344,500) (381,400) 1,574,200 9,600 (778.300)
Merchandise inventories............ 4,805,100 (11,737,300) 674,000 (15,612,100) (12,865,600)
Supplies and prepaid expenses...... 200,800 (270,000) (508,500) (385,100) (79,500)
Accounts payable and accrued
liabilities...................... (1,018,600) 7,087,100 (4,269,600) 3,244,500 6,572,700
Income taxes payable............... (191,500) 1,179,500 (1,064,700) (2,340,700) (1,260,700)
------------- ------------- ------------ ------------- -------------
15,804,500 12,141,100 12,084,600 (11,200,200) (4,585,200)
INVESTING ACTIVITIES:
Property and equipment additions..... (7,717,300) (10,004,200) (2,010,600) (1,128,600) (1,053,900)
Increase in other assets............. (1,010,500) (540,700) (578,900) (81,600) (132,200)
------------- ------------- ------------ ------------- -------------
(8,727,800) (10,544,900) (2,589,500) (1,210,200) (1,186,100)
FINANCING ACTIVITIES:
Net borrowings under line of
credit............................. -- -- -- 18,915,000 10,700,000
Repayment of long-term debt.......... (1,617,900) (1,616,600) (3,631,100) (2,539,300) (1,653,700)
Purchase of treasury stock........... (5,271,000) (3,361,100) (4,043,200) (4,041,000) (2,051,700)
Cash dividends....................... (1,401,300) (1,066,000) (1,189,300) (1,189,300) (1,147,400)
------------- ------------- ------------ ------------- -------------
(8,290,200) (6,043,700) (8,863,600) 11,145,400 5,847,200
------------- ------------- ------------ ------------- -------------
Increase (decrease) in cash and cash
equivalents.......................... (1,213,500) (4,447,500) 631,500 (1,265,000) 75,900
CASH AND CASH EQUIVALENTS:
Beginning of period.................. 8,050,200 6,836,700 2,389,200 2,389,200 3,020,700
------------- ------------- ------------ ------------- -------------
End of period........................ $ 6,836,700 $ 2,389,200 $ 3,020,700 $ 1,124,200 $ 3,096,600
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
TAXES PAID............................. $ 3,255,700 $ 3,375,500 $ 5,363,600 $ 2,324,400 $ 1,441,100
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
INTEREST PAID.......................... $ 2,090,600 $ 2,211,500 $ 3,914,900 $ 1,827,300 $ 1,408,500
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
G. R. HERBERGER'S, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
G. R. Herberger's, Inc. (the Company) operates soft goods department stores
in Colorado, Illinois, Iowa, Minnesota, Montana, Nebraska, North Dakota, South
Dakota, Wisconsin and Wyoming. The Company's outstanding common stock is owned
by its employees and the Company's employee stock ownership plan.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include highly liquid investments which are
readily convertible into known amounts of cash and have original maturities of
three months or less. Such investments consist principally of demand deposits
and money market funds.
TRADE AND OTHER RECEIVABLES:
Trade and other receivables consist principally of items awaiting settlement
on bankcard transactions, import deposits, and construction reimbursements due
from lessors.
MERCHANDISE INVENTORIES:
Merchandise inventories are valued using the retail method at the lower of
cost or market. Cost is determined using the last in, first out (LIFO) inventory
method. Inventories valued at LIFO were approximately $2,618,400 at January 28,
1995, $2,194,700 at February 3, 1996, and $2,755,700 at August 3, 1996, less
than the cost of such inventories if valued on the first in, first out (FIFO)
method.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred. Depreciation for financial reporting purposes is
provided using straight-line and accelerated methods over the estimated useful
lives of the respective assets, as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
-----------
<S> <C>
Buildings........................................................................ 5-30 years
Leasehold improvements........................................................... 5-20 years
Fixtures and equipment........................................................... 3-10 years
</TABLE>
Property and equipment consisted of the following, at cost:
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
Land............................................ $ 116,900 $ 96,900 $ 96,900
Buildings....................................... 10,198,000 9,964,800 9,974,100
Leasehold improvements.......................... 10,849,600 11,252,300 11,486,100
Fixtures and equipment.......................... 43,462,800 43,313,800 43,445,800
------------- ------------- -------------
$ 64,627,300 $ 64,627,800 $ 65,002,900
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-7
<PAGE>
G. R. HERBERGER'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS:
Other assets consist principally of computer software costs, deferred
financing and lease costs, cash surrender value of life insurance, and the
Company's investment in Frederick Atkins, Inc. (an international merchandising
and marketing services organization owned by its member stores). Computer
software costs are amortized over three to five years, and deferred financing
and-lease costs are amortized over the terms of the related agreements.
STORE PREOPENING COSTS:
Store preopening costs are charged to operations in the year in which the
store is opened.
INCOME TAXES:
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial reporting and income tax purposes
using the liability method of accounting.
STOCK HELD IN ESOP:
Shares in the ESOP may be put to the Company at fair value for cash under
certain conditions, as defined. As such, the shares are reflected in the
accompanying balance sheets as an obligation at the fair value of the redeemable
shares.
TREASURY STOCK:
Company common stock purchased and held in treasury is carried at cost.
Gains or losses resulting from the sale of treasury stock are credited or
charged to additional paid-in capital.
NET INCOME (LOSS) PER SHARE:
Net income (loss) per share is computed based on the weighted average number
of shares of common stock outstanding, as follows:
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
FISCAL YEAR ENDED PERIOD ENDED
------------------------------------------- ----------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Common stock issued................... 21,860,000 21,860,000 21,860,000 21,860,000 21,860,000
Stock held in treasury................ (12,832,000) (13,232,100) (13,581,400) (13,493,900) (13,741,500)
Unallocated stock held in ESOP........ -- (355,900) (688,600) (604,100) (729,500)
------------- ------------- ------------- ------------- -------------
9,028,000 8,272,000 7,590,000 7,762,000 7,389,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-8
<PAGE>
G. R. HERBERGER'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Ultimate
results could differ from those estimates. In the Company's opinion, differences
between ultimate results and estimated results will not materially impact the
Company's financial position or results of operations.
ACCOUNTING PRONOUNCEMENTS:
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ". This adoption had no effect on the financial
position or results of operations of the Company.
INTERIM FINANCIAL INFORMATION:
The balance sheet as of August 3, 1996 and the statements of income, changes
in stockholders' deficit and cash flows for the twenty-six week periods ended
July 29, 1995 and August 3, 1996 are unaudited. In the opinion of management,
these statements contain all adjustments necessary to present fairly the
financial position of the Company as of August 3, 1996 and the results of its
operations and its cash flows for the twenty-six week periods ended July 29,
1995 and August 3, 1996. All such adjustments are of a normal recurring nature.
The results of operations for interim periods are not necessarily indicative of
the results to be expected for the entire fiscal year.
2. LINES OF CREDIT
The Company has a line of credit available for unsecured short-term
borrowings of $30,000,000, and a line available for letters of credit in support
of merchandise purchases of $1,500,000, through their annual renewal date of
September 30, 1997. No amounts were outstanding on the line of credit at January
28, 1995 and February 3, 1996. Borrowings against the line of credit amounted to
$10,700,000 at August 3, 1996. Outstanding standby letters of credit were
approximately $204,000 at January 28, 1995, $296,000 at February 3, 1996, and
$519,900 at August 3, 1996. Borrowings under the lines bear interest at either
the bank's publicly announced reference rate, or the federal funds floating rate
plus 1.25%, or a fixed annual rate of .75% plus the bank's reserve adjusted CD
rate, at the Company's election.
F-9
<PAGE>
G. R. HERBERGER'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
3. LONG-TERM DEBT
LONG-TERM DEBT CONSISTED OF:
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
Promissory notes payable to institutional investors; 10%; principal
payable in annual installments of $979,000 through January 2002
and $363,600 thereafter through January 2005; certain notes are
collateralized by real estate..................................... $ 8,923,100 $ 6,965,000 $ 6,965,000
Promissory notes; 7.25%, principal payable in quarterly installments
from March 1995 through December 2003............................. 5,500,000 8,375,000 8,215,900
Promissory notes; 85% of prime, with a ceiling of 10.5% and a floor
of 5.9% (7.01% at February 3, 1996); principal payable in annual
installments of $815,200 through May 2000 and $265,200 thereafter
through May 2001.................................................. 5,156,500 4,341,300 3,526,100
Promissory note; variable rate based on bank CD rate (7.01% at
February 3, 1996); principal payable in annual installments of
$625,000 from March 1995 through 2002............................. 5,000,000 4,375,000 3,750,000
Industrial revenue bonds; 55% of prime plus 1.5% to 75% of prime
with a ceiling of 12.19% and a floor of 8.25% (6.05% to 8.25% at
February 2, 1996); principal payable in monthly installments
through March 2011, collateralized by certain real estate and
fixtures.......................................................... 2,735,900 2,628,100 2,573,700
------------- ------------- -------------
27,315,500 26,684,400 25,030,700
Less--current maturities............................................ 3,618,400 2,848,700 2,882,800
------------- ------------- -------------
$ 23,697,100 $ 23,835,700 $ 22,147,900
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Under the terms of the debt agreements, the Company has agreed, among other
matters, to limit the creation of liens on assets, restrict issuance of other
notes, maintain working capital of $5,250,000 at all times, limit the payment of
rent, and restrict the payment of cash dividends, redemption of common stock,
and similar payments to stockholders. The Company was in compliance with the
covenants as of August 3, 1996 and available funds for future restricted
payments, as defined, were approximately $2,860,400 at February 3, 1996 and
$835,100 at August 3, 1996.
Aggregate maturities of long-term debt for each of the five fiscal years
following February 3, 1996 are approximately $2,848,700 in 1996, $2,924,300 in
1997, $2,203,300 in 1998, $3,577,100 in 1999, and $4,951,600 in 2000.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash equivalents approximates fair value due to their
liquid nature and short maturities. The fair value of long-term debt is
estimated using discounted cash flow analysis, based on the
F-10
<PAGE>
G. R. HERBERGER'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
expected current rates for similar types of debt borrowings. At January 28, 1995
and February 3, 1996 the carrying value approximates fair value.
5. INCOME TAXES
The components of the provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Current:
Federal..................................... $ 3,047,800 $ 3,687,400 $ 3,492,100 $ (13,900) $ 157,300
State....................................... 52,700 867,600 806,700 (2,500) 27,800
Deferred...................................... 129,700 (17,100) (164,000) (80,000) (150,000)
------------ ------------ ------------ ---------- -----------
$ 3,230,200 $ 4,537,900 $ 4,134,800 $ (96,400) $ 35,100
------------ ------------ ------------ ---------- -----------
------------ ------------ ------------ ---------- -----------
</TABLE>
Deferred income taxes result principally from utilizing accelerated
depreciation methods and accrued expenses which are not yet deductible for
income tax purposes. A reconciliation of the provision (benefit) for income
taxes at the federal statutory income tax rate to the provision reported was as
follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Provision (benefit) computed at the federal
statutory rate................................ $ 2,961,000 $ 4,150,500 $ 3,795,700 $ (81,900) $ 29,800
State income taxes, net of federal benefit...... 385,500 566,000 532,500 (14,500) 5,300
Dividends paid on stock held by ESOP............ -- (44,100) (79,600) -- --
Targeted jobs tax credit........................ (43,400) (127,700) 46,600 -- --
Excess contribution deduction................... (65,700) (74,600) (89,600) -- --
Other, net...................................... (7,200) 67,800 22,400 -- --
------------ ------------ ------------ ---------- -----------
$ 3,230,200 $ 4,537,900 $ 4,134,800 $ (96,400) $ 35,100
------------ ------------ ------------ ---------- -----------
------------ ------------ ------------ ---------- -----------
</TABLE>
The components of the net deferred tax assets (liabilities) were as follows:
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET DEFERRED TAX ASSETS (LIABILITIES):
Current:
Accrued costs and expenses......................................... $ 659,300 $ 628,800 $ 673,800
Inventory.......................................................... 195,100 140,600 140,600
------------- ------------- -------------
$ 854,400 $ 769,400 $ 814,400
------------- ------------- -------------
------------- ------------- -------------
Non-Current:
Fixed assets....................................................... $ (1,243,500) $ (1,141,800) $ (1,036,800)
Unearned ESOP compensation......................................... 73,800 221,100 221,100
------------- ------------- -------------
$ (1,169,700) $ (920,700) $ (815,700)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-11
<PAGE>
G. R. HERBERGER'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
6. STOCKHOLDERS' DEFICIT
The Company is authorized to issue up to 25,000,000 shares of its $.04 par
value common stock. Shares of common stock issued and outstanding at each
balance sheet date are as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Common stock issued................... 21,860,000 21,860,000 21,860,000 21,860,000 21,860,000
Less: stock in treasury............... (12,975,500) (13,304,500) (13,663,900) (13,663,700) (13,834,800)
------------- ------------- ------------- ------------- -------------
Total stock outstanding............. 8,884,500 8,555,500 8,196,100 8,196,300 8,025,200
Less: stock held in ESOP.............. (4,941,400) (5,534,900) (5,845,000) (5,845,000) (5,845,000)
------------- ------------- ------------- ------------- -------------
Total stock held outside ESOP....... 3,943,100 3,020,600 2,351,100 2,351,300 2,180,200
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
7. EMPLOYEE STOCK OWNERSHIP PLAN
Contributions to the employee stock ownership plan (ESOP) are made at the
discretion of the Board of Directors of the Company. The Company's total ESOP
expense was approximately $2,938,500, $3,286,700 and $4,012,800 for the fiscal
years ended January 29, 1994, January 28, 1995, and February 3, 1996,
respectively. The Company's total ESOP expense was approximately $894,400 and
$1.055,900 for the twenty-six week periods ended July 29, 1995 and August 3,
1996.
Shares distributed from the ESOP may be put to the Company at fair value for
cash under certain conditions, as defined. As such, the shares are reflected on
the accompanying balance sheet as an obligation at the fair value of the
redeemable shares. The Company borrowed $5,500,000 in May 1990, $2,652,200 in
May 1991, $5,500 000 in May 1994, and $3,000,000 in May 1995, under term notes
from a bank (see Note 3) and loaned the proceeds to the ESOP to purchase shares
of the Company's common stock. The notes receivable from the ESOP have been
recorded as a reduction in the Company's obligation to redeem stock held by the
ESOP.
The Company accounts for its ESOP in accordance with Statement of Position
93-6 "Employers' Accounting for Employee Stock Ownership Plans" for shares
acquired after January 30, 1994. Accordingly, as those shares are released from
collateral, the Company reports compensation expense equal to the estimated fair
value of the shares, and the shares become outstanding for earnings-per-share
computations. Unreleased shares related to acquisitions after January 30, 1994
were 515,221 at January 28, 1995 and 729,482 at February 3, 1996 and August 3,
1996. The estimated fair value of these shares was $5,796,236 at January 28,
1995 and $8,753,784 at February 3, 1996 and August 3, 1996.
8. LEASE COMMITMENTS
Substantially all retail stores are leased under operating leases expiring
at various dates through 2016. Most leases require the Company to pay real
estate taxes and common area charges. The retail store leases generally provide
for percentage rent based on a percentage of annual retail sales in excess of
stipulated minimums.
F-12
<PAGE>
G. R. HERBERGER'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
8. LEASE COMMITMENTS (CONTINUED)
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 9,653,900
1998.......................................................... 9,473,200
1999.......................................................... 9,373,500
2000.......................................................... 9,204,800
2001.......................................................... 8,955,200
Thereafter.................................................... 61,900,400
-----------
$108,561,000
-----------
-----------
</TABLE>
Total rent expense for all leases was approximately $8,178,300, $9,106,400
and $9,837,400 for the fiscal years ended January 29, 1994, January 28, 1995 and
February 3, 1996, respectively, including percentage rentals of approximately
$526,100 in 1994, $510,300 in 1995 and $648,600 in 1996. Total rent expense for
all leases was approximately $4,697,800 and $5,017,700 for the twenty-six week
periods ended July 29, 1995 and August 3, 1996, respectively, including
percentage rentals of approximately $155,800 in 1995 and $140,800 in 1996.
F-13
<PAGE>
APPENDIX 1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 8, 1996 (this
"Agreement"), among PROFFITT'S, INC., a Tennessee corporation ("Parent"),
PRAIRIE MERGER CORPORATION, a Delaware corporation and a wholly-owned subsidiary
of Parent ("Sub"), and G. R. HERBERGER'S, 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 $0.04 per
share, of the Company ("Company Common Stock") not owned directly or indirectly
by 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). As a result of the Merger, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation").
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.
Section 1.4 CHARTER AND BY-LAWS. At the Effective Time, the Certificate of
Incorporation of the Company shall be amended and restated to read in the form
attached hereto as Exhibit A until thereafter changed or amended as provided
therein or by applicable law. At the Effective Time, the By-laws of Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until
<PAGE>
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 $.04
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 shall be
canceled and no capital stock of Parent or other consideration shall be
delivered in exchange therefor.
(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 canceled in accordance with Section
1.5(b) and Dissenting Shares (as defined in Section 1.15)) shall be
converted into such number of validly issued, fully paid and nonassessable
shares of Parent Common Stock as determined by dividing 4,000,000 by the
number of issued and outstanding shares of Company Common Stock as of the
Effective Time (the "Conversion Number"). All such shares of Company Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled 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 (collectively, the "Merger Consideration") 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"). At the Closing, Parent shall deliver to and deposit with the
Exchange Agent, in trust for the holders of shares of Company Common Stock
converted in the Merger, certificate(s) 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, as soon as practicable after
the Effective Time, 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 distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund"). At the Closing, Parent shall
deliver to the Company a true and complete copy of the Depositary Agreement
between Parent and the Exchange Agent pertaining to the Exchange Fund and an
original receipt of the Exchange Agent acknowledging receipt of the
certificate(s). The Exchange Agent shall, pursuant to irrevocable instructions,
deliver the certificate(s) and cash 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
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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 canceled.
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
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 Nasdaq Stock Market National Market
("NASDAQ") of Parent Common Stock on the date of the Effective Time (or, if the
shares of Parent
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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 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 the Parent 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
canceled and exchanged as provided in this Article I.
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.
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Section 1.15 DISSENTERS' RIGHTS.
(a) Notwithstanding any provision of this Merger Agreement to the contrary,
each outstanding share of Company Common Stock held by a holder who has demanded
and perfected his or her appraisal rights in accordance with Section 262 of the
Del.C. and who has not effectively withdrawn or lost his right to such appraisal
(a "Dissenting Share"), shall not be converted into, become exchangeable for or
represent a right to receive the Merger Consideration pursuant to Section 1.5
hereof but the holder thereof shall only be entitled to such rights as are
granted by the Del.C. and shall not be entitled to vote or to exercise any other
rights of a stockholder of the Company. Each holder of Dissenting Shares who
becomes entitled to payment therefor pursuant to the Del.C. shall receive such
payment from the Surviving Corporation in accordance with the Del.C.
(b) Notwithstanding the provisions of Section 1.15(a) hereof if any
stockholder who demands appraisal with respect to a share of his Company Common
Stock under the Del.C. shall effectively withdraw or lose (through failure to
perfect or otherwise) his right to appraisal, such share shall cease to be a
Dissenting Share and shall automatically be converted into, become exchangeable
for and represent only the right to receive the Merger Consideration, without
interest thereon, any cash in lieu of fractional shares pursuant to Section 1.8
hereof and any dividends or other distributions pursuant to Section 1.7 hereof,
upon surrender of a Certificate.
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 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
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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, business, 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 November 4, 1996, (i)
23,988,148 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) 3,957,382 shares of Parent Common Stock were reserved for future
issuance pursuant to Parent's 1994 Long-Term Incentive Plan, the 1987 Stock
Option Plan and the Parisian Stock Option Plans; (iii) 336,587 shares of Parent
Common Stock were reserved for future issuance pursuant to Parent's 1994
Employee Stock Purchase Plan; and (iv) 2,019,906 shares of Parent Common Stock
were reserved for future issuance pursuant to the terms of the Parent's 4 3/4%
Convertible Subordinated Debentures Due 2003. 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, free of preemptive rights and be entitled
to the benefits of the Parent Rights Plan under the terms thereof. As of the
date of this Agreement, except for (a) this Agreement, (b) stock options
covering not in excess of 2,700,000 shares of Parent Common Stock (collectively,
the "Parent Stock Options"), (c) the 1994 Employee Stock Purchase Plan, (d) the
4 3/4% Convertible Subordinated Debentures due 2003, (e) contingent stock grants
of 141,000 shares of Parent Common Stock to key executives, and (f) 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 with the applicable law. Each of
Parent and Sub has all requisite corporate power and authority to enter into
this Agreement and to issue Parent Common Stock in connection with the Merger
(the "Share Issuance") 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 the filing of appropriate Merger documents as required by the Del.C.
This Agreement has been duly executed and
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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 (as defined in Section 2.4) 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. Except as disclosed on
Schedule 2.4 hereto, and 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 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, (vi) 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, (vii) applicable
requirements, if any, of Blue Sky Laws and the Nasdaq Stock Market, and (viii)
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.
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Section 2.5 SEC DOCUMENTS AND OTHER REPORTS. Parent has filed all required
documents with the SEC since January 1, 1994 (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 February 3, 1996, made any change in the accounting practices or
policies applied in the preparation of financial statements.
Section 2.6 REGISTRATION STATEMENT AND 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 proxy statement of the Company
included therein (together with any amendments or supplements thereto, the
"Proxy Statement") relating to the Stockholder Meeting (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 Proxy Statement, at
the time of the mailing of the Proxy Statement, the time of the Company
Stockholder Meeting 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
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 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.
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 February 3, 1996, (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 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; and (D) there has been no event causing a Material Adverse
Effect on Parent, except for any such changes or effects resulting from this
Agreement, the transactions contemplated hereby or the announcement thereof.
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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, Chief
Financial Officer and the Senior Vice President and General Counsel of the
Parent.
Section 2.9 TAX MATTERS. Except as previously disclosed to Company, 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 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
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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 Multi-employer 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 nor has Parent or any of its ERISA Affiliates been
assessed any pension withdrawal liability or any liability for withdrawal from a
Parent multi employer welfare plan, (iii) no action has been taken, or is
currently being considered, to terminate any Parent Plan subject to Title IV of
ERISA, except for Younkers, Inc.'s termination of the Brandeis Employees Pension
Plan, 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.
The Parent will grant credit to employees of the Company who continue employment
after the Effective Date for those periods of service with the Company prior to
the Effective Date for eligibility and vesting purposes (but not for benefit
accrual purposes) under any Employee Plan sponsored or maintained by the Parent
or any ERISA Affiliate under which such employees might, after the Effective
Date, be covered but for eligibility requirements. Further, coverage under a
Company-sponsored health plan shall be credited for purposes of preexisting
condition limitation periods and deductibles and out-of-pocket maximums. Neither
Parent nor any of its ERISA Affiliates has been notified by any Parent Multi
employer Plan that such Parent Multi employer Plan is currently in
reorganization or insolvency under and within the meaning of Section 4241 or
4245 of ERISA or that such Parent Multi employer Plan intends to terminate or
has been terminated under Section 4041A of 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 SEC Documents. As
used herein, (i) "Parent Plan" means a "pension plan" (as defined in Section
3(2) of ERISA (other than a Parent Multi employer 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 Multi employer
Plan" means a "multi employer 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
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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. To the Knowledge of Parent, 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 SEC Disclosure Documents, or
disclosed in the footnotes thereto, or as previously disclosed to the Company,
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. Except as set forth on Schedule 2.15 hereto,
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.
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.
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Section 2.17 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 2.18 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 2.19 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 2.20 BROKERS. No broker, investment banker or other person, other
than Salomon Brothers Inc., the fees and expenses of which will be paid by
Parent (and as reflected in an agreement between Salomon Brothers 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 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 25,000,000 shares of Company Common
Stock, par value $0.04 per share. At the close of business on October 28, 1996,
(i) 8,024,678 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) 13,835,247 shares of Company Common Stock were held in the treasury
of the Company. Except for the Company's obligation to issue shares of Company
Common Stock pursuant to the Company's 401(k) Employee Stock Purchase Plan and
Employee Stock Ownership Plan (the "ESOP") in accordance with the terms of the
ESOP (which number of shares so issued will depend on individual participant
elections), 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 Schedule 3.2
hereto, each such share is owned by the Company or
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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. At least 75% of the non-abstaining members of the
Board of Directors of the Company have 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, its stockholders and the ESOP participants with regard to their
indirect beneficial interests in Company Common Stock, (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 approval
of amendments to the Company's ESOP required under Section 3.22), 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
provision of information relating to the Company for inclusion in the Proxy
Statement has been duly authorized by the Company's Board of Directors.
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATION. Except as disclosed on
Schedule 3.4 hereto, and 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 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 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
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Subsidiaries conducts any business or owns any property or assets, (vi) 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, (vii) applicable requirements, if any, of Blue Sky Laws and
NASDAQ, and (viii) 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 REPORTS. The Company has provided Parent the items listed on
Schedule 3.5 hereto (the "Company Disclosure Documents"). As of their respective
dates, none of the Company Disclosure 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 Disclosure Documents were prepared in accordance with
generally accepted accounting principles 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 adjustments consistent with past
practices and the absence of notes thereto). Except as disclosed in the Company
Disclosure Documents or as required by generally accepted accounting principles,
the Company has not, since February 3, 1996, made any change in the accounting
practices or policies applied in the preparation of financial statements.
Section 3.6 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by the Company for inclusion in the Registration
Statement or the 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 Proxy Statement, at the time of the mailing of the Proxy
Statement, the time of the Company Stockholder Meeting (as defined in Section
5.1) 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 Proxy
Statement or the Registration Statement, such event shall be so described, and
the Company shall cooperate with Parent in preparing an appropriate amendment or
supplement shall be promptly filed with the SEC by Parent and thereafter
disseminated to the stockholders of the Company.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company Disclosure Documents and except as disclosed on Schedule 3.7 hereto,
since February 3, 1996, (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, except for any
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such changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof. Schedule 3.5 hereto includes a
schedule of indebtedness evidenced by an agreement of the Company.
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 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 Disclosure Documents provided prior to the date of this Agreement, as of
the date hereof there is no contract or agreement that is material (which, for
the purpose of this sentence, shall be limited to contracts involving $100,000
or more and not terminable on 30-days' notice and excluding purchase of
inventory in the ordinary course of business) 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 Disclosure 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 material leases (including all store
leases, commitments for store leases and commitments for the construction or
renovation of stores, which shall be deemed material for purposes of this
sentence) 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
Disclosure Documents. "Knowledge of the Company" means the actual knowledge of
the Chief Executive Officer and the Chief Financial Officer of the Company.
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
Disclosure Documents, there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity
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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. 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, are
reasonably likely to have a Material Adverse Effect on the Company. Except as
set forth on Schedule 3.10 hereto, 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, except
for Purchase Option Agreements entered by the Company in the ordinary course of
its business which grant the Company the right to repurchase certain shares of
the Company Common Stock upon the occurrence of certain events, 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 the ESOP), 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. 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 and except as permitted by this
Agreement.
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 Multi employer 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 Multi
employer 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
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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, and excluding those matters addressed
in Section 3.22, 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 Multi
employer Plan that such Company Multi employer Plan is currently in
reorganization or insolvency under and within the meaning of Section 4241 or
4245 of ERISA or that such Company Multi employer Plan intends to terminate or
has been terminated under Section 4041A of ERISA. Except as disclosed in the
Company Disclosure 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" (as defined in Section 3(2) of
ERISA (other than a Company Multi employer 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 Multi employer Plan" means a "Multi employer 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 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. To the Knowledge of the
Company, 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 Disclosure Documents or except
as disclosed on Schedule 3.14, 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
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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, 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 received notice that the Company has, and to the Knowledge of the Company,
the Company has not 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 Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated
November 8, 1996, that, as of such date, the Conversion Number is fair from a
financial point of view to the holders of the Company's Common Stock, a copy of
which opinion will be delivered to Parent promptly after the date of this
Agreement.
Section 3.18 STATE TAKEOVER STATUTES. As of the date hereof, assuming the
accuracy of Parent's representations and warranties contained in Section 2.17
(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.
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 Merrill Lynch, Pierce, Fenner & Smith Incorporated, the fees and expenses
of which will be paid by the Company (and are reflected in an agreement between
Merrill Lynch, Pierce, Fenner & Smith Incorporated 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.
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Section 3.22 ESOP. As of the Effective Time, the Company in cooperation
with Parent will have amended the ESOP (i) to eliminate the obligation of the
Company to repurchase shares, (ii) to eliminate the fair market value committee,
(iii) to eliminate the obligation of the ESOP Trustee to purchase stock for the
401(k) Employee Stock Purchase Plan from the Company and to require the purchase
of Parent Common Stock on the open market, and (iv) any other amendments
necessary to accomplish the transactions contemplated by this Agreement.
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 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 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) 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, (C) the issuance by any wholly-owned Subsidiary of Parent of
its capital stock to Parent or another wholly-owned Subsidiary of Parent,
and (D) in a transaction permitted under Section 4.1(a)(iv);
(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
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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 acquisitions, mergers, consolidations or purchases, the equity
value of which does not exceed $50 million in the aggregate;
(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 or not
material to Parent and its Subsidiaries taken as a whole, (B) as may be
required by any Governmental Entity, (C) dispositions involving an aggregate
consideration not in excess of $50 million, and (D) transactions between and
among Parent and any of its Subsidiaries;
(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;
(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)(x)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 except dividends in the amount of no more than $0.14 per
share may be declared and paid consistent with past practices, (y) 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
(z) 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 except such purchases or
redemptions that are pursuant to existing agreements to which the Company is
a party. Nothing herein shall preclude the Company from terminating any and
all options pursuant to which the Company has the right to repurchase shares
of the Company Common Stock;
(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
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securities, other than the issuance of shares of Company Common Stock as
necessary to satisfy participant elections under the Company's 401(k) aspect
of the ESOP;
(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 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, including
the ESOP (with respect to which consent shall not by unreasonably withheld
by Parent), or employment or consulting agreement, other than as required by
law, provided, however, that the Company may enter into (x) a bonus
agreement and consulting agreement with Robert J. Sullivan, in substantially
the form attached hereto as Exhibits B, respectively, and (y) an agreement
with Barry T. Ross in substantially the form attached hereto as Exhibit C;
(ix) except as set forth in Section 4.1(b)(viii), increase the
compensation payable or to become payable to its officers or employees,
except for increases (including bonuses and incentive payments) in the
ordinary course of business consistent with past practice in salaries or
wages of officers or employees of the Company, 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; provided, however, that nothing herein shall
prohibit the Company from making a discretionary contribution to the ESOP
for the Company's fiscal year ending February 1, 1997, in an amount
consistent with past practices of the Company and not to exceed 10% of
eligible employee compensation;
(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
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(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 (Sommer & Barnard,
PC and Briggs and Morgan, P.A., respectively) that the failure to take such
action would violate the fiduciary obligations of such Board under applicable
law; and provided further that, Parent and the Company may, in the initial press
release concerning the transactions contemplated hereby, state that the
consummation of the Merger is subject to several conditions, including
expiration of the waiting period under the HSR Act, an effective registration
statement, approval of the stockholders of the Company, an opinion of Coopers &
Lybrand that the Merger will qualify for pooling-of-interests accounting, and
the continued exercise of fiduciary duties by the Boards of Directors of Parent
and the Company. 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.
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.
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ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 STOCKHOLDER MEETING. Except to the extent legally required for
the discharge by the Board of Directors of its fiduciary duties as advised by
counsel, the Company shall call a meeting of its stockholders (the "Company
Stockholder Meeting") to be held as promptly as practicable for the purpose of
considering the approval of this Agreement. The Company will, through its Board
of Directors, recommend to its 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 Briggs and Morgan, P.A. that the making of, or the failure to withdraw, such
recommendation would violate the fiduciary obligations of such Board under
applicable law. The Board of Directors of the Company will not rescind its
declaration that the Merger is advisable, fair to and in the best interest of
the Company and its stockholders unless, in any such case, any such Board
concludes in good faith on the basis of the advice of Briggs and Morgan, P.A.
that the failure to rescind such determination would violate the fiduciary
obligations of such Board under applicable law.
Section 5.2 PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT. The Company and Parent shall promptly prepare and the Parent shall
file with the SEC the Registration Statement, in which a prospectus in the form
of a proxy statement will be included. 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, the Company shall mail the Proxy Statement which constitutes Parent's
prospectus (as furnished by Parent) to its 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 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 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 5.3 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
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kept confidential in accordance with the Confidentiality Agreement dated
September 30, 1996 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 exercise all
reasonable efforts to deliver or cause to be delivered to Parent, prior to the
Effective Time, from each of such Affiliates of the Company identified in the
foregoing list, an affiliate letter, in the form attached hereto as Exhibit D,
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 of
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 before the
Effective Date, 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.
(c) Parent shall use its reasonable best efforts to file a registration
statement on Form S-8 with the SEC relating to the interests and underlying
shares for the ESOP as soon as reasonably practicable following the Effective
Date and shall use its reasonable best efforts to maintain the effectiveness of
such registration statement on Form S-8 (or appropriate successor form) until
the termination of the ESOP.
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.
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(b) 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 and such Superior
Company Acquisition Transaction is thereafter consummated (whether or not
within such twelve month period);
(B) this Agreement is terminated by Parent or the Company pursuant to
Section 7.1(f); or
(C) this Agreement is terminated by Parent pursuant to Section 7.1(g)
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 $4.25 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 consummation of the Superior
Company Acquisition Transaction, or, in the case of clause (B) or (C), the
earlier of the consummation of the Company Third Party Acquisition Event or
twelve months after 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) If this Agreement is terminated by the Company pursuant to Section
7.1(h) following the occurrence of a Parent Third Party Acquisition Event (as
hereinafter defined) then Parent shall (without prejudice to any other rights of
the Company against Parent) pay to the Company a fee of $4.25 million in cash,
such payment to be made promptly, but in no event later than the second business
day following 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
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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
4.1 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 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 5.7 if the Board of
Directors of Parent or the Company, as the case may be, shall conclude in good
faith on
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the basis of the advice of Briggs and Morgan, P.A. in the case of the Company
and Sommer & Barnard, PC 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 by
either Parent or the Company to effect the Merger and to consummate the other
transactions contemplated hereby, neither the Company nor Parent shall, without
the other'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 5.8 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 the Nasdaq Stock
Market.
Section 5.9 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 5.10 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. 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 maximum extent permitted
by the Del.C. (including advancing fees and expenses incurred before the final
disposition of a proceeding upon receipt of an undertaking by such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified under the Del.C.), including, but not limited
to, for acts or omissions occurring in connection with the approval of this
Agreement, the preparation of the Registration Statement 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 to the date
hereof (which premium the Company represents and warrants to be approximately
$11,000).
Section 5.11 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
non-occurrence, 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 5.11 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
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Section 5.12 DIRECTORS AND OFFICERS. The directors and officers 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 5.13 REGIONAL MERCHANDISING CENTER. Parent will cause the Company
to maintain the St. Cloud headquarters offices for a period of not less than two
years following the Effective Time, and will use its reasonable best efforts,
consistent with good business practices, to keep the merchandising and sales
promotion presence in said headquarters, along with other support functions
deemed appropriate by Parent to support the merchandising and sales promotion
functions. Parent shall use its reasonable best efforts to cause the Surviving
Corporation to either maintain the Company's employee benefits at the same
levels and in the same form as they are currently or to bring the Company's
employees into the Parent's employee benefit plans.
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 Certificate of Incorporation and By-laws of the Company.
(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.
(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,
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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) ESOP Trustee and Committee Approval. The ESOP Trustee and the ESOP
Committee shall have taken all necessary action for the approval of, and shall
have approved, the transactions contemplated by this Agreement.
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 Sommer &
Barnard, PC 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;
(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, Sommer & Barnard, PC may receive and rely upon
representations from Parent, the Company, and others.
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(c) The Company shall have received an opinion of Sommer & Barnard, 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, Sommer &
Barnard, PC 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 Sommer & Barnard, would have a Material Adverse Effect on Parent (assuming
for purposes of this paragraph (b) that the Merger shall have occurred).
(c) Parent shall have received an opinion from Kelly, Hannaford & Battles,
P.A., counsel to the ESOP, in form and substance reasonably acceptable to Parent
to the effect that all requisite steps have been taken for approval by the ESOP
and its participants of the transactions contemplated by this Agreement.
(d) Dissenting Stockholders. Holders of no more than 7.5% of the issued and
outstanding shares of the Company shall have delivered to the Company written
demands for appraisal of their shares in accordance with Section262 of the
Del.C.
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;
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(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 or except as contemplated or permitted by this Agreement; 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, 1997 (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 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(f) 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);
(g) 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 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).
(h) by the Company if (i) a Parent Clause D event shall have occurred, or
(ii) 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.
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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 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.
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, 5.4(c), 5.10 and 5.13, this Article VIII and the representation
contained in Section 2.12 shall survive the Effective Time, and those set forth
in Sections 5.6 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
Sommer & Barnard, PC
4000 Bank One Tower
Indianapolis, Indiana 46204
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(b) if to the Company, to:
G. R. Herberger's, Inc.
600 Mall Germain
P.O. Box H-120
St. Cloud, Minnesota 56302-0120
Telecopy: (320) 654-7040
Attn: Mr. John B. Brownson
with copies to:
Joseph P. Noack
Briggs and Morgan, P.A.
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Telecopy: (612) 334-8650
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
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
(including the Confidentiality Agreement) 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.
33
<PAGE>
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 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.
34
<PAGE>
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.
<TABLE>
<S> <C>
PROFFITT'S, INC.
By:
Name: R. Brad Martin
Title: Chairman of the Board and
Chief Executive Officer
Attest:
By:
Name:
Title:
PRAIRIE MERGER CORPORATION
By:
Name: R. Brad Martin
Title: President
Attest:
By:
Name:
Title:
G. R. HERBERGER'S, INC.
By:
Name:
Title: Chairman and Chief Executive
Officer
Attest:
By:
Name:
Title:
</TABLE>
35
<PAGE>
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
G.R. HERBERGER'S, INC.
FIRST: The name of the corporation is G.R. Herberger's, Inc.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of the corporation's registered agent at such address
is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
corporation Law.
FOURTH: The total number of shares of stock which the corporation is
authorized to issue is one thousand (1,000) shares of common stock, having a par
value of one ($1.00) per share.
FIFTH: The business and affairs of the corporation shall be managed by or
under the direction of the board of directors, and the directors need not be
elected by ballot unless required by the by-laws of the corporation.
SIXTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the board of directors is expressly authorized to
make, amend and repeal the by-laws.
SEVENTH: A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (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) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. Any repeal or modification of this
provision shall not adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or modification.
EIGHTH: The corporation reserves the right to amend and repeal any provision
contained in this Certificate of Incorporation in the manner from time to time
prescribed by the laws of the State of Delaware. All rights herein conferred are
granted subject to this reservation.
1
<PAGE>
EXHIBIT B-1
[HERBERGER'S LETTERHEAD]
December , 1996
Robert J. Sullivan
512 Montrose Road
St. Cloud, Minnesota 56301
RE: LETTER AGREEMENT REGARDING BONUS
Dear Bob:
You have been an invaluable employee and officer of G.R. Herberger's, Inc.
for the past forty-three years. The Board of Directors recognizes that during
your extensive tenure with the Company your compensation has been below the
market rate of compensation for persons serving in similar capacities at
companies comparable in size to the Company. The Board of Directors of the
Company would like to recognize your dedication and sacrifice to the Company by
paying you the bonus described herein.
Accordingly, in recognition of your past service, the Company wishes to pay
you a bonus of Six Hundred Thousand Dollars ($600,000.00). The bonus will be
paid to you in cash on or before December 31, 1996, subject to customary
withholdings for FICA and Federal and State income taxes.
Please indicate your acceptance of this bonus by signing below.
Very truly yours,
G.R. HERBERGER'S, INC.
By: -----------------------------------------
Its: -----------------------------------------
ACCEPTED THIS
day of December, 1996
- ------------------------------------
Robert J. Sullivan
<PAGE>
EXHIBIT B-2
CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into as of , 1996, by and
between G.R. Herberger's, Inc., a Delaware corporation (the "Company"), and
Robert J. Sullivan ("Consultant").
WHEREAS, the Company is in the business of retail merchandising; and
WHEREAS, the Company has entered into an Agreement and Plan of Merger
("Merger Agreement") with Proffitt's, Inc., a Tennessee corporation ("Parent")
and its wholly-owned subsidiary ("Sub"); and
WHEREAS, Consultant possesses extensive knowledge and experience concerning
the business and operations of the Company; and
WHEREAS, the Company wishes to secure the commitment of Consultant to
consult with the Company and a commitment not to compete with the Company, and
Consultant desires to so consult and not compete with the Company, after the
"Effective Time" of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
undertakings specified herein, the Company and Consultant hereby agree as
follows:
1. CONSULTING SERVICES; CONSULTING AND NON-COMPETITION FEE AND BENEFITS.
(a) GENERAL SCOPE OF CONSULTING SERVICES. During the four (4) year period
commencing on the day of the Effective Time of the Merger and ending on ,
2001 (the "Consulting Period"), Consultant will consult with, report to and
advise the Company on such subjects and at such times and places as the
Consultant and the President of the Company mutually determine to be in the best
interests of the Company. In no event will Consultant be required to devote more
than 500 hours per year, or 42 hours per month, to performing such consulting
services.
(b) CONSULTING FEE AND NON-COMPETITION PAYMENT. In consideration of
Consultant's commitment to provide services to the Company as set forth in
Section 1(a) above and in consideration of his non-competition agreement set
forth in Section 4 below, the Company shall, subject to the terms and conditions
of this Consulting Agreement, pay to Consultant the following amount for each
year during the Consulting Period: (i) Five Hundred Thousand Dollars
($500,000.00) for the first year; (ii) Four Hundred Thousand Dollars
($400,000.00) for the second year; (iii) Three Hundred Fifty Thousand Dollars
($350,000.00) for the third year; and (iv) Three Hundred Thousand Dollars
($300,000.00) for the fourth year and final year of the Consulting Period. The
amount payable hereunder for each year shall be payable in equal quarterly
installments beginning on , 1997 and continuing on the first day of
each quarter thereafter. The aggregate One Million Five Hundred Fifty Thousand
Dollars ($1,550,000.00) paid to Consultant under this Section 1.(b) shall be
allocated as One Million Fifty Thousand Dollars ($1,050,000.00) for consulting
during the Consulting Period and Five Hundred Thousand Dollars ($500,000.00) for
Consultant's covenant not to compete set forth in Section 4 hereof.
(c) FORGIVENESS OF COMPANY LOAN. As additional consideration for
Consultant's services, Company shall forgive in equal installments over the
Consulting Period its Ninety-four Thousand Dollar ($94,500.00) loan previously
made to Consultant.
(d) MEDICAL INSURANCE. In consideration of Consultant's commitment to
provide services to the Company set forth in SECTION 1(A), the Company shall,
subject to the terms of this Consulting Agreement, continue to provide or
reimburse Consultant for the cost of medical insurance coverage substantially
similar to the medical insurance coverage which Company currently provides to
its executive employees generally.
(e) AUTOMOBILES. In consideration of Consultant's commitment to provide
services to the Company set forth in SECTION 1(A), the Consultant may continue
the use of the two (2) automobiles he currently uses as provided by the Company.
The Company shall, subject to the terms of this Consulting Agreement, continue
to maintain automobile insurance for such automobiles, and will continue to pay
operating, repair
<PAGE>
and maintenance expenses associated with such automobiles consistent with the
past practices of the Company.
(f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Consultant for
all reasonable business expenses incurred by Consultant in the provision of
consulting services pursuant to this Consulting Agreement. Consultant shall
request reimbursement for such expenses in writing, which request shall be
accompanied by receipt(s) or other appropriate documentation.
2. TERMINATION OF CONSULTING RELATIONSHIP. The consulting relationship
created hereby shall terminate immediately upon:
(a) receipt by the Company or the Consultant of written notice from the
other party stating that such other party is terminating the consulting
relationship;
(b) the Consultant's permanent disability;
(c) the Consultant's death; or
(d) the expiration of the Consulting Period.
3. PAYMENT OF CONSULTING FEE UPON TERMINATION.
(a) If the consulting relationship created hereby ends by reason of the
Company's termination of the consulting relationship other than for Cause, as
defined below, then the Company shall continue to pay to the Consultant the
consideration as set forth in SECTIONS 1(B) THROUGH 1(F) above throughout the
remainder of the Consulting Period.
(b) If the consulting relationship created hereby ends by reason of
Consultant's permanent disability, then the Company shall continue to pay to the
Consultant or his representatives, as the case may be, (i) the consideration as
set forth in SECTIONS 1(C) AND 1(D) throughout the remainder of the Consulting
Period and (ii) fifty percent (50%) of the consideration set forth in SECTION
1(B) for a period equal to the lesser of (1) twenty-four months or (2) the
remaining term of the Consulting Period. For purposes of this Section 3(b), the
Consultant shall be deemed to be permanently disabled if (i) he has been
declared legally incompetent by a final court decree; or (ii) he is permanently
disabled as defined under any disability income insurance policies maintained by
the Company at the time of the existence of such disability; or (iii) he has
been (1) unable to perform his consulting services for the Company for a period
of 180 consecutive days and (2) declared by a physician to be continuously
disabled and unable to perform his consulting services. In the event of
disagreement as to whether the Consultant is permanently disabled, the question
shall be decided by a licensed physician appointed by or on behalf of the
disabled Consultant and a licensed physician appointed by the Company. If the
two physicians so appointed are unable to agree, they shall mutually appoint a
third physician who shall decide the question whether the disabled Consultant's
disability is permanent within the meaning of this Section 3(b).
(c) If the consulting relationship created hereby ends by reason of
Consultant's death, the Company shall have no obligation to Consultant other
than to pay the consideration as set forth in SECTIONS 1(B) THROUGH 1(F) through
the date of the Consultant's death.
(d) If the consulting relationship created hereby is terminated by the
Consultant, other than for reason of Company's breach of this Agreement, or by
the Company for Cause, the Company shall have no obligation to Consultant other
than to pay the consideration as set forth in SECTIONS 1(B) THROUGH 1(F) through
the effective date of termination.
(e) For purposes of this Consulting Agreement, "Cause" shall mean, and shall
be limited to, commission of a felony by Consultant which directly and adversely
affects the business and operation of the Company.
2
<PAGE>
4. NONCOMPETE COVENANT.
(a) Consultant agrees that during the Consulting Period and for a period of
two (2) years commencing on the later of (i) the termination of this Agreement
or (ii) the date the last payment hereunder is made to the Consultant, he will
not within the territory currently served by the Company engage or be interested
in the retailing business. Consultant shall be deemed to be interested in a
business if he is a director, officer, employee, independent contractor, agent,
partner, individual proprietor, consultant or otherwise, but not if such
interest is limited solely to passive investments existing on the date hereof or
the ownership of 5% or fewer of the equity or debt securities of any entity
whose shares are listed for trading on a national securities exchange or traded
in the over the counter market.
(b) Consultant agrees that during the term of this Agreement and for a
period of two (2) years thereafter, Consultant will not, directly or indirectly,
assist or encourage any other person in carrying out, directly or indirectly,
any activity that would be prohibited by the provisions of Section 4(a) hereof
if the activity were carried out by Consultant directly or indirectly. In
particular, but not as a limitation, Consultant agrees that he will not,
directly or indirectly, induce any employee of the Company or any of its
Affiliates, to carry out directly or indirectly, any such activity.
(c) Consultant agrees that the covenants provided for in Sections 4(a) and
(b) hereof are ancillary to the transactions contemplated by the Merger
Agreement and are necessary and reasonable to protect Parent and the Company and
their Affiliates after the Effective Time.
5. EXCISE TAX LIMITATION.
(a) The parties agree that the payments and benefits set forth in Section 1
hereof are reasonable, in the aggregate, in relation to covenants given and the
services provided or to be provided by Consultant, and the Company and
Consultant agree to prepare and file their income tax returns and informational
returns accordingly.
(b) If, in any examination of the Company's income tax return by the
Internal Revenue Service ("IRS"), the IRS proposes to disallow a deduction for
any payment (or portion thereof) made pursuant to this Agreement (a "Challenged
Payment") on the basis that such Challenged Payment constitutes an "excess
parachute payment" as defined in Section 280G(b)(1) of the Internal Revenue Code
("Code"), the Company shall give prompt notice of such Challenged Payment to
Consultant (but in all cases within five days after receipt of a 30-day letter
containing a Challenged Payment). Consultant shall be entitled to contest such
Challenged Payment on behalf of Company, at Consultant's expense, in any IRS
administrative proceeding and may make any available appeals therefrom. The
Company shall cooperate with and provide reasonable assistance to Consultant in
contesting any such Challenged Payment, including making information concerning
the Company available to Consultant and executing such powers of attorney as may
be reasonably necessary for Consultant to contest such Challenged Payment.
(c) If it is established pursuant to a final determination of a court or an
IRS proceeding which has been finally and conclusively resolved, that Payments
have been made to, or provided for the benefit of, Consultant by the Company,
which are subject to the excise tax imposed by Section 4999 of the Code (the
"Excise Tax"), then that amount of the Payments which are necessary to avoid
having any Payments subject to the Excise Tax (hereinafter referred to as an
"Excess Payment") shall be deemed for all purposes to be a loan to Consultant
made on the date Consultant received the Excess Payment and Consultant shall
repay the Excess Payment to the Company on demand, together with interest on the
Excess Payment at the applicable federal rate (as defined in Section 1274(d) of
the Code) from the date of Consultant's receipt of such Excess Payment until the
date of such repayment. For purposes hereof, Payments shall be deemed to be
Excess Payments in inverse order of the date such Payments were made.
6. STATUS AS AN INDEPENDENT CONTRACTOR. Consultant and the Company hereby
specifically agree and acknowledge that, throughout the Consulting Period,
Consultant's relationship with the Company hereunder will be solely and
exclusively that of an independent contractor, that all services to be provided
3
<PAGE>
hereunder by Consultant will be provided strictly on an independent contractor
basis, and that in no event will Consultant be, claim to be, or be deemed to be
an employee of the Company by reason of or with respect to this Consulting
Agreement or any services provided hereunder. Without limiting the generality of
the immediately preceding sentence in any respect, the Company and Consultant
hereby agree that Consultant shall have the right to control the manner and
means of the performance of all services hereunder, and Consultant specifically
agrees (a) to conduct himself strictly as an independent contractor hereunder
with respect to the Company, (b) to comply with all applicable laws, rules and
regulations, including without limitation all laws, rules and regulations
governing payment of federal and state income taxes, self-employment taxes,
estimated taxes, sales, use and service taxes, and all other federal, state,
local and foreign taxes of any nature imposed with respect to any services
hereunder or payments therefor, and (c) to indemnify the Company and hold it
harmless from and with respect to any and all such taxes.
7. NO VIOLATION OF OTHER AGREEMENTS. Consultant hereby represents and agrees
that neither (a) his entering into this Consulting Agreement, nor (b) his
carrying out of the provisions hereof, will violate any other agreement, oral or
written, to which he is a party or by which he is bound.
8. CONFIDENTIALITY. Except as specifically provided herein and/or to the
extent reasonably necessary to perform their obligations or exercise or enforce
their rights hereunder, neither party shall provide or disclose to any third
party, or use, unless authorized in writing to do so by the other party or
properly directed or ordered to do so by public authority, any information
concerning this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Company, whether by way of
merger, consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the Company, and
any such successor or assign shall absolutely and unconditionally assume all of
the Company's obligations hereunder. This Agreement shall not be assignable by
Consultant.
10. GOVERNING LAW. This Consulting Agreement shall be construed under and
governed by the laws of the State of Minnesota. For the purpose of resolving
conflicts related to or arising out of this Consulting Agreement, the parties
expressly agree that venue shall be in the State of Minnesota only, and, in
addition, the parties consent to the jurisdiction of the federal and state
courts of the State of Minnesota.
11. SEVERABILITY. In the event that any portion of this Consulting Agreement
may be held to be invalid or unenforceable for any reason, it is hereby agreed
that such invalidity or unenforceability shall not affect the other portions of
this Consulting Agreement and that the remaining covenants, terms and conditions
or portions hereof shall remain in full force and effect, and any court of
competent jurisdiction may so modify the objectionable provision as to make it
valid, reasonable and enforceable.
12. COMPLETE AGREEMENT. This Consulting Agreement is intended to define the
full extent of the legally enforceable undertakings of the parties hereto with
respect to the consulting relationship that is the subject of this Consulting
Agreement and no promises or representations, written or oral, that are not set
forth explicitly in this Consulting Agreement are intended by any party to be
legally binding with respect to the consulting relationship that is the subject
of this Consulting Agreement and all prior agreements and understandings among
the parties with respect to such consulting relationship are hereby superseded.
All parties acknowledge that in deciding to enter into this Consulting Agreement
they have not relied upon any statements or representations, written or oral,
other than those explicitly set forth in this Consulting Agreement.
13. HEADINGS. The descriptive headings of the sections and subsections
hereof are inserted for convenience only and do not constitute a part of this
Consulting Agreement.
14. COUNTERPARTS. This Consulting Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute but
one instrument.
4
<PAGE>
15. MISCELLANEOUS. All notices hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the party to
receive the same at the address set forth besides the signature of such party or
at such other address as may have been furnished to the sender by notice
hereunder. All notices shall be deemed given on the date on which delivered or,
if mailed, on the date postmarked. No provision of this Consulting Agreement may
be altered, amended, modified, waived, or discharged in any way whatsoever
except by written agreement executed by both parties. No delay or failure of
either party to insist, in any one or more instances, upon performance of any of
the terms and conditions of this Agreement or to exercise any rights or remedies
hereunder shall of itself constitute a waiver or a relinquishment of such rights
or remedies or any other rights or remedies hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date and year first above written.
Addresses COMPANY:
- ------------------------------
G.R. Herberger's G.R. Herberger's, Inc.
600 Mall Germain
P.O. Box H-120
St. Cloud, Minnesota 56302 By -----------------------------------------
Its -----------------------------------------
Robert J. Sullivan CONSULTANT:
512 Montrose Road
St. Cloud, Minnesota 56301 ---------------------------------------------
Robert J. Sullivan
5
<PAGE>
EXHIBIT C
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the day of 1997, by
and between G.R. Herberger's, Inc., a Delaware corporation (the "Company") and
Barry T. Ross ("Executive").
RECITALS
1. Executive currently is employed as the President of the Company.
2. Company has entered into an Agreement and Plan of Merger ("Merger
Agreement") with Proffitt's, Inc., a Tennessee corporation ("Parent") and its
wholly-owned subsidiary ("Sub").
3. Company desires to continue the employment of Executive as an executive
officer, and Executive desires to be so employed by the Company, after the
"Effective Time" of the "Merger" contemplated by the Merger Agreement.
4. For their mutual benefit, the Company and Executive desire to set forth
herein the terms and conditions of Executive's future employment after the
Effective Time of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises, and the terms and
conditions set forth herein, the parties hereto mutually agree as follows:
SECTION 1
EMPLOYMENT
1.1 EMPLOYMENT. The Company hereby employs Executive in the position
described in Exhibit A attached hereto with all such authority and powers
customarily accorded such position and Executive hereby accepts such employment.
The duties of Executive shall consist of the duties described in Exhibit A and
such additional duties consistent with Executive's position and duties as may be
assigned to him from time to time by the Company's Board of Directors ("Board"),
Chief Executive Officer or President.
1.2 TERM OF EMPLOYMENT. The commencement date of Executive's employment
hereunder shall be day of the Effective Time of the Merger ("Commencement
Date"), and shall continue thereafter for a period of twenty-four months ("Term
of Employment"). Beginning on the second anniversary of the Commencement Date,
this Agreement shall, unless the parties agree in writing otherwise, be treated
as an Agreement for the employment of Executive on an at-will basis.
1.3 FULL-TIME EMPLOYMENT. Except for vacation permitted hereunder, illness,
incapacity or as otherwise provided herein, Executive shall devote substantially
his full time and attention to the performance of his duties for the Company.
SECTION 2
COMPENSATION AND EMPLOYEE BENEFITS
2.1 BASE SALARY. As compensation for his services to the Company during the
two years of the Employment Term, Executive shall receive from the Company an
annual base salary in the amount of $175,000, payable in installments consistent
with Company's executive payment policies ("Base Salary").
2.2 BONUS. In addition to Base Salary, Executive may receive such bonuses
as the Board, in its sole discretion, may award Executive.
2.3 FRINGE BENEFITS. Company shall allow Executive to participate in each
employee benefit plan and to receive each executive benefit that Company
provides for senior executives at the level of Executive's position.
<PAGE>
SECTION 3
TERMINATION
3.1 TERMINATION. Executive's employment hereunder shall terminate prior to
the end of the Employment Term upon the happening of any of the following
events:
(a) by the unilateral written notice of termination by either Company or
Executive at any time after 180 days following the Effective Time of the
Merger;
(b) by the mutual written agreement of the Company and Executive;
(c) upon the death of Executive; or
(d) upon written notice from the Company to Executive upon the
disability of Executive (as defined below) for a period of ninety (90) days
or more.
"DISABILITY" The term "Disability of Executive" shall refer to a
determination that Executive is, or has been, unable, due to injury or sickness,
to perform the major duties of his employment for a period of ninety (90) days
or more. Such determination shall be made in good faith by the Board, excluding
any vote of Executive, or by a special committee thereof. Executive agrees to
submit to such physical examinations as may be reasonably requested by the
Company. Such examinations shall be conducted by a physician or physicians
designated by the Company at the expense of the Company.
3.2 EFFECT OF TERMINATION. In the event the employment of Executive is
terminated pursuant to Section 3.1, no further payments of benefits shall be
required to be paid or provided by the Company to Executive under Section 2 or
any other provision hereof, except for (i) Executive's salary and other benefits
earned prior to such termination, and (ii) if applicable, the severance benefits
and payments provided in Section 3.3 hereof.
3.3 SEVERANCE BENEFITS. In the event that either party exercises its right
to unilaterally terminate the Executive's employment in accordance with Section
3.1(a), the Executive shall be entitled to receive a severance payment equal to
$300,000, less the aggregate amount of Base Salary paid to date.
SECTION 4
MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota. Any conflict of laws rules
which may have the effect of applying another state's laws shall not apply.
4.2 NOTICES. Any notice, demand, request, waiver or other communication
under this Agreement shall be in writing and shall be deemed to have been duly
given (i) on the date of delivery if delivered to the address of the party
specified below (including delivery by courier), or (ii) on the fifth day after
mailing if mailed to the party to whom notice is to be given to the address
specified below, by first class mail, certified or registered, return receipt
requested, postage prepaid:
<TABLE>
<CAPTION>
IF TO COMPANY: IF TO EXECUTIVE:
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
G.R. Herberger's, Inc. Barry T. Ross
518 Mall Germain 318 Montrose Road
St. Cloud, MN 56302 St. Cloud, MN 56301
Attention: President
</TABLE>
Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no such
change shall be deemed to have been given until it is actually received by the
party sought to be charged with its contents.
2
<PAGE>
4.3 COMPLETE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to Executive's employment with Company. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to Executive's employment.
4.4 AMENDMENTS. This Agreement may be amended or superseded only by an
agreement in writing between the Company and Executive.
4.5 WAIVER. No delay or failure by a party to exercise any right under this
Agreement, and no partial or single exercise of that right, shall constitute a
waiver of that or any other right, unless otherwise expressly provided herein.
4.6 SURVIVAL. Notwithstanding any termination of Executive's employment
hereunder or any other termination of this Agreement, the provisions of Section
3.2 hereof shall survive termination of this Agreement and termination of
Executive's employment hereunder.
4.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the Parent and Sub, or any other successors and assigns of the
Company, whether by way of merger, consolidation, operation of law, assignment,
purchase or other acquisition of substantially all of the assets or business of
the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder. This
Agreement shall not be assignable by Executive.
4.8 SEVERABILITY. Any term of this Agreement that is illegal or
unenforceable at law or in equity shall be deemed to be void and of no force and
effect to the extent necessary to bring such term within the provisions of any
such applicable law or laws, and such terms as so modified and the balance of
the terms of this Agreement shall be fully enforceable.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
G.R. HERBERGER'S, INC.
By____________________________________
Its_________________________________
EXECUTIVE:
______________________________________
Barry T. Ross
3
<PAGE>
EXHIBIT D
Proffitt's, Inc.
Midland Shopping Center
115 North Calderwood
Alcoa, Tennessee 37701
Ladies and Gentlemen:
I have been advised that as of the date of this letter, I may be deemed to
be an "affiliate" of G.R. Herberger's, Inc., a Delaware corporation (the
"Company"), as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as
, 1996 (the "Merger Agreement") among Proffitt's, Inc., a Tennessee
corporation ("Parent"), Prairie Merger Corporation, a Delaware corporation
("Merger Sub"), and the Company, Merger Sub will be merged with and into the
Company (the "Merger"). Capitalized terms used in this letter without definition
shall have the meanings assigned to them in the Merger Agreement.
As a result of the Merger, I may receive shares of common stock, par value
$.10 per share, of Parent (the "Parent Shares"). I would receive such Parent
Shares in exchange for shares ,owned by me of common stock, par value $.01 per
share, of the Company (the "Company Shares").
1. I represent, warrant and covenant to Parent that in the event I receive
any Parent Shares as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Parent Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Parent Shares, to the extent I felt necessary, with my counsel or counsel
for the Company.
C. I have been advised that the issuance of the Parent Shares to me
pursuant to the Merger has been or will be registered with the Commission
under the Act on a Registration Statement on Form S-4. However, I have also
been advised that, because at the time the Merger is submitted for a vote of
the shareholders of the Company, (a) I may be deemed to be an affiliate of
the Company and (b) the distribution by me of the Parent Shares has not been
registered under the Act, I may not sell, transfer or otherwise dispose of
the Parent Shares issued in the Merger unless (i) such sale, transfer or
other disposition is made in conformity with the volume and other
limitations of Rule 145 promulgated by the Commission under the Act, (ii)
such sale, transfer or other disposition has been registered under the Act
or (iii) in the opinion of counsel reasonably acceptable to Parent, such
sale, transfer or other disposition is otherwise exempt from registration
under the Act.
D. I understand that Parent is under no obligation to register the sale,
transfer or other disposition of the Parent Shares by me or on my behalf
under the Act or, except as provided in paragraph 2(A) below, to take any
other action necessary in order to make compliance with an exemption from
such registration available.
E. I also understand that there will be placed on the certificates for
the Parent Shares issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
<PAGE>
TERMS OF AN AGREEMENT DATED , 1996, BETWEEN THE
REGISTERED HOLDER HEREOF AND PROFFITT'S, INC., A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF PROFFITT'S, INC."
F. I also understand that, unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Parent reserves the right to put the following legend on
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A
VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933."
G. I further represent to, and covenant with, Parent that I will not,
during the 30 days prior to the effective time (as defined in the Merger
Agreement), sell, transfer or otherwise dispose of or reduce my risk (as
contemplated by SEC Accounting Series Release No. 135) with respect to the
Company Shares or shares of the capital stock of Parent that I may hold, and
furthermore, that I will not sell, transfer or otherwise dispose of or
reduce my risk (as contemplated by SEC Accounting Series Release No. 135)
with respect to the Parent Shares received in the Merger or any other shares
of the capital stock of Parent until after such time as results covering at
least 30 days of combined operations of the Company and Parent have been
published by Parent, in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes the combined results of operations (the two time
periods together being the "Pooling Period"). Parent shall notify the
"affiliates" of the publication of such results. Notwithstanding the
foregoing, I understand that, during the Pooling Period, subject to
providing written notice to Parent, I will not be prohibited from selling up
to 10% of the Parent Shares (the "10% Shares") received by me or the Company
Shares owned by me or making charitable contributions or bona fide gifts of
the Parent Shares received by me or the Company Shares owned by me, provided
that my donee takes such shares subject to the restrictions hereof. The 10%
Shares shall be calculated in accordance with SEC Accounting Series Release
No. 135, as amended by Staff Accounting Bulletin No. 76. I covenant with
Parent that I will not sell, transfer or otherwise dispose of any 10% Shares
during the period commencing from the Effective Time and ending on the last
day of the Pooling Period, except in compliance with Rule 145(d)(i) under
the Securities act or pursuant to charitable contributions or bona fide
gifts.
H. Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to object
to any claim that I am such an affiliate on or after the date of this
letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with me as
follows:
A. For so long as and to the extent necessary to permit me to sell the
Parent Shares pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, Parent shall (a) use its reasonable best efforts to (i) file,
on a timely basis, all reports and data required to be filed with the
Commission by it pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and (ii) furnish to me upon request a
written statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale of the Parent
Shares by me
<PAGE>
under Rule 145, and (b) otherwise use its reasonable best efforts to permit
such sales pursuant to Rule 145 and Rule 144. Parent has filed all reports
required to be filed with the Commission under Section 13 of the 1934 Act
during the preceding 12 months.
B. It is understood and agreed that this agreement will terminate and
be of no further force and effect and the legends set forth in paragraphs E
and F above will be removed by delivery of substitute certificates without
such legends, and the related transfer restrictions shall be lifted
forthwith, if the Pooling Period has passed and (i) the Parent Shares shall
have been registered under the Act for sale, transfer or other disposition
by me or on my behalf, (ii) I am not at the time an "affiliate" of the
Parent and have held the Parent Shares for at least two years (or such other
period as may be prescribed by the Act and the rules and regulations
thereunder) and Parent has filed with the Commission all of the reports it
is required to file under the 1934 Act during the preceding 12 months, (iii)
I am not and have not been for at least three months an "affiliate" of
Parent and I have held the Parent Shares for at least three years, or (iv)
Parent shall have received a "no-action" letter from the staff of the
Commission, or an opinion of counsel acceptable to Parent, to the effect
that the stock transfer restrictions and the legends are not required.
--------------------------------------
Name:
Agreed and accepted this day of , 1996, by
PROFFITT'S, INC.
By:
- ------------------------------------
Name:
Title:
<PAGE>
APPENDIX II
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to SectionSection251, 252, 254,
257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of
<PAGE>
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section228 or
Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series o stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise
2
<PAGE>
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be
3
<PAGE>
enforced as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
4
<PAGE>
APPENDIX III
OPINION OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
November 8, 1996
Board of Directors
G.R. Herberger's, Inc.
600 Mall Germain
St. Cloud, MN 56302
Members of the Board:
G.R. Herberger's, Inc. (the "Company"), Proffitt's, Inc. ("Parent") and
Prairie Merger Corporation, a wholly owned subsidiary of Parent ("Sub"), propose
to enter into an agreement (the "Agreement") pursuant to which Sub will be
merged with and into the Company in a transaction (the "Merger") in which each
share of outstanding common stock, par value $0.04 per share (the "Company
Common Stock"), of the Company will be converted into such number of shares of
the common stock, par value $0.10 per share (the "Parent Common Stock"), of
Parent, as determined by dividing 4,000,000 by the number of issued and
outstanding shares of Company Common Stock as of the Effective Time (as defined
in the Agreement) (the "Conversion Number").
You have asked us whether, in our opinion, the Conversion Number is fair to
the holders of the Company Common Stock from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's audited financial information for the five fiscal
years ended February 3, 1996 and the Company's unaudited financial
information for the six-month period ended August 3, 1996, in each case
furnished to us by the Company;
(2) Reviewed Parent's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended February 3, 1996, Parent's
Forms 10-Q and related unaudited financial information for the quarterly
periods ended May 4, 1996 and August 3, 1996 and Parent's Form 8-K dated
October 24, 1996;
(3) Reviewed Parent's Form S-4 filed with the Securities and Exchange
Commission (the "SEC") on July 29, 1996, Amendment No. 1 thereto filed on
August 16, 1996 and the Prospectus of even date therewith contained
therein and Post-Effective Amendment No. 1 thereto filed with the SEC on
October 28, 1996;
(4) Reviewed the Annual Report and Form 10-K and related financial
information of Parisian, Inc. ("Parisian") for the fiscal year ended
February 3, 1996 and Parisian's Forms 10-Q and related unaudited
financial information for the quarterly periods ended May 4, 1996 and
August 3,1996;
(5) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company
and Parent, furnished to us by the Company and Parent, as well as the
synergies and cost savings and related expenses expected to result from
the Merger (the "Merger Synergies"), furnished to us by the Company;
(6) Conducted discussions with members of senior management of the Company
and Parent concerning their respective businesses and prospects, as well
as the Merger Synergies;
(7) Reviewed the historical market prices and trading activity for the
Parent Common Stock and compared them with that of certain publicly
traded companies which we deemed to be reasonably similar to Parent;
<PAGE>
(8) Compared the results of operations of the Company and Parent with that
of certain companies which we deemed to be reasonably similar to the
Company and Parent, respectively;
(9) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(10) Reviewed the Agreement; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
Parent, and we have not independently verified such information or undertaken an
independent appraisal of the assets or liabilities of the Company or Parent or
been furnished with any such evaluation or appraisal. In addition, with your
consent we have not made any physical inspection of the properties or assets of
the Company or Parent. With respect to the financial forecasts furnished by the
Company and Parent and the information regarding the Merger Synergies, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the managements of the Company and Parent as
to the expected future financial performance of the Company or Parent, as the
case may be, as well as the Merger Synergies. We have further assumed that the
Merger will qualify for pooling-of-interest accounting treatment in accordance
with generally accepted accounting principles and as a reorganization within the
meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company, or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company. Moreover, in giving this opinion, we are not expressing any
view regarding other strategic alternatives that may be available to the
Company. We also have not been requested to, and do not, express any view with
respect to the fairness or adequacy of the Conversion Number to the participants
in the Company's employees stock ownership plan.
In the ordinary course of our business, we may actively trade the Parent
Common Stock for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is addressed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder as to how such shareholder
should vote on the Merger. We also are not expressing any opinion herein as to
the prices at which the Parent Common Stock will trade following the
consummation of the Merger or the prices at which the Parent Common Stock will
trade between the announcement of and the consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the Conversion Number is fair to the holders of the Company Common Stock from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:
--------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws 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 By-Laws 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 By-Laws, 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.
(a) The following exhibits are filed as part of this Registration Statement
or incorporated by reference herein:
<TABLE>
<CAPTION>
(2) Agreement and Plan of Merger, dated as of November 8, 1996, among Proffitt's, Inc.,
Prairie Merger Corp. and G.R. Herberger's, Inc. (Appendix I to Proxy
Statement/Prospectus)
<S> <C>
(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)
(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)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
(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 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) Articles of Amendment to the Charter of Proffitt's, Inc. increasing the number of
shares of Series C Junior Preferred Stock (Incorporated by reference from Exhibits
to Form 10-K dated May 1, 1996)
(3)(h) Articles of Amendment to the Charter of Proffitt's, Inc. increasing the number of
authorized shares of Series C Junior Preferred stock (Incorporated by reference
from Exhibits to Form 10-K dated May 1, 1996)
(3)(h) 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)
(4)(d) Form of Supplemental Indenture among Proffitt's, Inc., Parisian, Inc. and AmSouth
Bank of Alabama, as trustee (Incorporated by reference from Exhibits to Form S-3
Registration Statement No. 333-09941 dated August 23, 1996)
(5) Opinion of Sommer & Barnard, Attorneys at Law, PC regarding legality
(8)* Opinion of Sommer & Barnard, PC regarding certain federal income tax consequences
(23)(a) Consent of Coopers & Lybrand L.L.P. (re: Proffitt's)
(23)(b) Consent of Deloitte & Touche LLP
(23)(c) Consent of Ernst & Young LLP
(23)(d) Consent of Coopers & Lybrand L.L.P. (re: Parisian)
(23)(e) Consent of Arthur Andersen LLP
(23)(f) Consent of Sommer & Barnard (included in Exhibits 5 and 8)
(23)(g) Consent of Merrill Lynch, Pierce, Fenner and Smith Incorporated
(24) Power of Attorney (included on signature page of registration statement)
(99)(a) Form of Proxy Card for G.R. Herberger's, Inc.
(99)(b) Form of Letter to Stockholders of G.R. Herberger's, Inc. to accompany Proxy
Statement/ Prospectus
(99)(c) Notice of Special Meeting of Stockholders of G.R. Herberger's, Inc.
</TABLE>
- ------------------------
* To be filed by amendment
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) or (c) of this Form.
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
II-3
<PAGE>
amendment any of the securities being registered which remain unsold at the
termination of the offering.
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 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, in the city of Alcoa, State of
Tennessee, on November 27, 1996.
PROFFITT'S, INC.
By: /s/ R. BRAD MARTIN
-----------------------------------------
R. Brad Martin
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brian J. Martin and Julia A. Bentley, and each of
them, his or her true and lawful attorney-in-fact and agent with full power of
substitution for him or her in his or her name, place and stead, in any and all
capacities to sign any and all amendments (including pre-effective and
post-effective amendments) to this registration statement, and to file the same
with all exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, grants unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as to all
intents and purposes as he or she might or could do in person, and hereby
ratifies and confirms all that said attorneys-in-fact and agents or their or his
or her substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on November 27, 1996 by the following
persons in the capacities indicated.
/s/ R. BRAD MARTIN
- ------------------------------ Chairman of the Board and
R. Brad Martin Chief Executive Officer
/s/ W. THOMAS GOULD
- ------------------------------ Vice Chairman of the Board
W. Thomas Gould
/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
II-5
<PAGE>
<TABLE>
<C> <S>
/s/ GERARD K. DONNELLY
- ------------------------------ Director
Gerard K. Donnelly
/s/ DONALD F. DUNN
- ------------------------------ Director
Donald F. Dunn
/s/ DONALD E. HESS
- ------------------------------ Director
Donald E. Hess
/s/ G. DAVID HURD
- ------------------------------ Director
G. David Hurd
/s/ MICHAEL S. GROSS
- ------------------------------ Director
Michael S. Gross
/s/ RICHARD D. MCRAE
- ------------------------------ Director
Richard D. Mcrae
- ------------------------------ Director
C. Warren Neel
/s/ HARWELL W. PROFFITT
- ------------------------------ Director
Harwell W. Proffitt
/s/ MARGUERITE W. SALLEE
- ------------------------------ Director
Marguerite W. Sallee
/s/ GERALD TSAI, JR.
- ------------------------------ Director
Gerald Tsai, Jr.
/s/ JULIA A. BENTLEY
- ------------------------------ Senior Vice President and
Julia A. Bentley Secretary
/s/ DOUGLAS COLTHARP Executive Vice President
- ------------------------------ and Chief Financial
Douglas Coltharp Officer
</TABLE>
II-6
<PAGE>
Exhibit 5
[SOMMER & BARNARD LETTERHEAD]
November 27, 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 G.R. Herberger's, Inc., a Delaware corporation
("Herberger's"), in the event the Agreement and Plan of Merger among
Proffitt's, Prairie Merger Corporation and Herberger'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 Prospectus included in the Registration Statement and to the filing of
this opinion as EXHIBIT 5 to the Registration Statement.
Sincerely,
SOMMER & BARNARD, PC
<PAGE>
EXHIBIT (23)(A)
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 15, 1996, on our
audits of the consolidated financial statements and financial statement
schedules of Proffitt's, Inc. as of February 3, 1996 and January 28, 1995, and
for each of three years in the period ended February 3, 1996 which report is
incorporated by reference herein. We also consent to the reference to our firm
under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
November 25, 1996
<PAGE>
EX 23(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Proffitt's, Inc. on Form S-4 our report dated March 3, 1995 of Younkers,
Inc., appearing in and incorporated by reference in the Annual Report on Form
10-K of Proffitt's Inc. for the year ended February 3, 1996 and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
Deloitte & Touche LLP
Des Moines, Iowa
November 26, 1996
<PAGE>
EXHIBIT 23(C)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of Proffitt's, Inc. pertaining to the proposed
merger with G. R. Herberger's, Inc. and to the incorporation by reference
therein of our report dated March 3, 1994 (with respect to the consolidated
statements of earnings, shareholders' equity, and cash flows of Younkers, Inc.
for the year ended January 29, 1994, not separately presented), appearing in the
Annual Report (Form 10-K) of Proffitt's, Inc. for the year ended February 3,
1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Des Moines, Iowa
November 27, 1996
ERNEST & YOUNG LLP IS A MEMBER OF ERNST & YOUNG INTERNATIONAL, LTD.
<PAGE>
EXHIBIT 23(D)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report, dated March 22, 1996, on our audits of the consolidated financial
statements of Parisian, Inc. as of January 28, 1995 and February 3, 1996, and
for the years ended January 29, 1994, January 28, 1995, and February 3, 1996. We
also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
November 26, 1996
<PAGE>
EXHIBIT (23)(E)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
November 26, 1996
<PAGE>
EXHIBIT 23(G)
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter included as Appendix III
to the Proxy Statement/ Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Prairie Merger
Corporation, a wholly owned subsidiary of Proffitt's, Inc., with and into G.R.
Herberger's, Inc. and to the references to such opinion in such Proxy
Statement/Prospectus under the captions "Summary--The Merger--Opinion of
Herberger's Financial Advisor", "The Merger--Recommendations of the Herberger's
Board; Reasons for the Merger", "The Merger--Opinion of Herberger's Financial
Advisor" and "The Merger Agreement--Representations and Warranties".
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
November 27, 1996
<PAGE>
G.R. HERBERGER'S, INC.
600 MALL GERMAIN
ST. CLOUD, MN 56301
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Special Meeting and the
Proxy Statement/Prospectus dated January __, 1996, hereby appoints Robert J.
Sullivan and Barry T. Ross as proxies (each with the power to act alone and with
the power of substitution and revocation), to represent the undersigned and to
vote, as designated below, all shares of Common Stock of G.R. Herberger's, Inc.
held of record by the undersigned on December __, 1996, at the special meeting
of stockholders to be held on __________, January __, 1997, at 600 Mall Germain,
St. Cloud, Minnesota at __:__ a.m., and at any adjournments thereof.
1. PROPOSAL TO ADOPT THE MERGER AGREEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON
THE PROXY BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.
Please sign exactly as name appears on this card. When shares are held by
joint tenants, both should sign. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
Dated:
----------------------------------------
----------------------------------------------
----------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
G.R. HERBERGER'S, INC.
600 MALL GERMAIN
ST. CLOUD, MN 56301
Dear Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
G.R. Herberger's, Inc. ("Herberger's"), to be held on ______, January __, 1997
at __:__ a.m., Central Standard Time, at 600 Mall Germain, St. Cloud, Minnesota.
At this important meeting, you will be asked to consider and vote upon a
proposal to adopt an Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which a wholly-owned subsidiary of Proffitt's, Inc. ("Proffitt's")
will be merged with and into Herberger's (the "Merger"). As a result of the
Merger, each outstanding share of Herberger's Common Stock will be converted
into a number (the "Conversion Number") of shares of Proffitt's Common Stock
determined by multiplying one by a fraction, the numerator of which is 4,000,000
and the denominator of which is the number of shares of Herberger's Common Stock
outstanding at the effective time of the Merger. Based on the 8,024,678 shares
of Herberger's Common Stock outstanding on ___________ __, 1996, the Conversion
Number would be approximately .4985. Upon consummation of the Merger, the
equity interest in Herberger's of its stockholders will cease and Herberger's
will become a wholly-owned subsidiary of Proffitt's.
The accompanying Notice and Proxy Statement/Prospectus provide a detailed
description of the proposed transaction and its effects on the stockholders of
Herberger's. Please give this information your careful attention.
The affirmative vote of the holders of a majority of the outstanding shares
of Herberger's Common Stock is required to adopt the Merger Agreement.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Herberger's financial
advisor, has delivered its written opinion dated November 8, 1996 that, as of
that date, the Conversion Number was fair to Herberger's stockholders from a
financial point of view.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, HERBERGER'S AND ITS STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY
APPROVED THE TERMS OF THE MERGER AND RECOMMENDS THAT YOU VOTE TO ADOPT THE
MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Special
Meeting, please complete, date and sign your proxy card and promptly return it
in the enclosed envelope (which requires no postage if mailed in the United
States). If you attend the meeting you may withdraw your proxy and vote in
person.
Sincerely,
/s/ Robert J. Sullivan
Robert J. Sullivan
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
<PAGE>
G.R. HERBERGER'S, INC.
600 MALL GERMAIN
ST. CLOUD, MN 56301
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY __, 1997
To the Stockholders of G.R. Herberger's, Inc.
A Special Meeting of Stockholders (the "Herberger's Special Meeting") of
G.R. Herberger's, Inc., a Delaware corporation ("Herberger's"), will be held on
_________, January __, 1997, at 600 Mall Germain, St. Cloud, Minnesota, at __:__
a.m., Central Standard Time, to consider and vote upon a proposal to adopt an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Prairie
Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of
Proffitt's, Inc., a Tennessee corporation ("Proffitt's"), will be merged with
and into Herberger's (the "Merger"), and the stockholders of Herberger's (other
than stockholders who perfect appraisal rights under Delaware law) will receive
shares of Proffitt's Common Stock. As a result of the Merger, each outstanding
share of Herberger's Common Stock will be converted into a number (the
"Conversion Number") of shares of Proffitt's Common Stock determined by
multiplying one by a fraction, the numerator of which is 4,000,000 and the
denominator of which is the number of shares of Herberger's Common Stock
outstanding at the effective time of the Merger. Based on the 8,024,678 shares
of Herberger's Common Stock outstanding on _____________ __, 1996, the
Conversion Number would be approximately .4985. Upon consummation of the
Merger, the equity interest in Herberger's of its stockholders will cease and
Herberger's will become a wholly-owned subsidiary of Proffitt's.
The attached Proxy Statement/Prospectus, which forms a part of this Notice,
describes in full detail the terms and conditions of the Merger. The text of
the Merger Agreement is annexed as Appendix I to the Proxy Statement/Prospectus.
No other matters are expected to be presented at the Herberger's Special
Meeting.
Holders of record of Herberger's Common Stock at the close of business on
December __, 1996 are entitled to notice of and to vote at the Herberger's
Special Meeting and any adjournments and postponements thereof.
THE BOARD OF DIRECTORS OF HERBERGER'S HAS RECEIVED AN OPINION DATED
NOVEMBER 8, 1996 FROM MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
HERBERGER'S FINANCIAL ADVISOR, THAT, AS OF THAT DATE THE CONVERSION NUMBER WAS
FAIR TO HERBERGER'S STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. THE BOARD OF
DIRECTORS OF HERBERGER'S UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO
ADOPT THE MERGER AGREEMENT.
IF THE MERGER IS CONSUMMATED, EACH HERBERGER'S STOCKHOLDER WILL BE BOUND BY
ITS TERMS UNLESS HE OR SHE PERFECTS APPRAISAL RIGHTS UNDER DELAWARE LAW. SEE
"THE HERBERGER'S SPECIAL MEETING - APPRAISAL RIGHTS" IN THE ATTACHED PROXY
STATEMENT/PROSPECTUS.
PLEASE READ THE ATTACHED PROXY STATEMENT/PROSPECTUS CAREFULLY.
It is important that your shares be represented at the Herberger's Special
Meeting. THEREFORE, WHETHER OR NOT YOU EXPECT TO ATTEND THE HERBERGER'S
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SPECIAL MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY. If you later find that you can be present or desire to
revoke your proxy for any reason, you may revoke your proxy at any time before
voting or attend the Herberger's Special Meeting and vote in person.
By Order of the Board of Directors
John A. Gau, SECRETARY
St. Cloud, Minnesota
January __, 1997
It is anticipated that the Proxy Statement/Prospectus and the accompanying
Herberger's proxy card will be mailed to Herberger's stockholders on or about
January __, 1997.
