<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PROFFITT'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TENNESSEE 5311 62-0331040
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER
</TABLE>
------------------------
750 LAKESHORE PARKWAY
BIRMINGHAM, ALABAMA 35211
(205) 940-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------------
R. BRAD MARTIN
750 LAKESHORE PARKWAY
BIRMINGHAM, ALABAMA 35211
(205) 940-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES A. STRAIN, ESQ. BRIAN J. MARTIN, ESQ.
Sommer & Barnard, PC Proffitt's, Inc.
4000 Bank One Tower 750 Lakeshore Parkway
111 Monument Circle Birmingham, Alabama 35211
Indianapolis, Indiana 46204 (205) 940-4890
(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 this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.10 par value............... 62,338,958(1) N.A. $1,883,947,943 $555,765
Preferred Stock Purchase Rights............ (3) (3) (3) (3)
</TABLE>
(1) Based on the number of shares of common stock, par value $.01 per share
("Saks Common Stock"), of Saks Holdings, Inc., a Delaware corporation
("Saks"), to be exchanged in the merger (the "Merger") of Fifth Merger
Corporation ("Sub"), a wholly owned subsidiary of Proffitt's, Inc., a
Tennessee corporation ("Proffitt's"), with and into Saks pursuant to the
Agreement and Plan of Merger, dated as of July 4, 1998, among Proffitt's,
Sub and Saks, assuming (i) the exercise of all outstanding options to
purchase shares of Saks Common Stock and (ii) the prior conversion into
shares of Saks Common Stock of all of Saks outstanding 5 1/2% Convertible
Notes due September 15, 2006 (the "Notes"), multiplied by .82 of a share of
common stock, $.10 par value, of Proffitt's ("Proffitt's Common Stock"), the
per share consideration to be paid to stockholders of Saks in the Merger.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f) under the Securities
Act by multiplying $24.78125, the average of the high and low sale prices of
Saks Common Stock on July 27, 1998, as reported on the New York Stock
Exchange, Inc. Composite Transactions Tape, by 76,023,120, the number of
shares of Saks Common Stock to be exchanged in the Merger, assuming the
exercise of all outstanding options to purchase shares of Saks Common Stock
and the prior conversion into Saks Common Stock of all of the outstanding
Notes.
(3) No additional consideration will be paid for the Preferred Stock Purchase
Rights.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
, 1998
Dear Proffitt's, Inc. Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Proffitt's, Inc. ("Proffitt's") to be held at a.m.
local time on , , 1998, at Proffitt's executive offices, 750
Lakeshore Parkway, Birmingham, Alabama 35211.
Proffitt's has entered into an Agreement and Plan of Merger, dated as of
July 4, 1998 (the "Merger Agreement"), with Fifth Merger Corporation, a
wholly-owned subsidiary of Proffitt's ("Sub"), and Saks Holdings, Inc. ("Saks").
The Merger Agreement provides for, among other things, the merger of Sub with
and into Saks (the "Merger"), which will result in Saks becoming a wholly-owned
subsidiary of Proffitt's. Pursuant to the terms of the Merger Agreement, at the
effective time of the Merger, each outstanding share of common stock of Saks
will be converted into .82 (the "Conversion Number") of a share of Proffitt's
common stock. At the Special Meeting, you will be asked to consider and vote
upon proposals to approve, among other things, the Merger Agreement and the
issuance of shares of Proffitt's common stock pursuant to the Merger Agreement
(the "Stock Issuance").
Approvals of the Merger Agreement and the Stock Issuance by Proffitt's
shareholders are conditions to consummation of the Merger. The Merger is
described in the accompanying Joint Proxy Statement/ Prospectus, which includes
a summary of the terms of the Merger and certain other information relating to
the proposed transaction.
Salomon Smith Barney, Proffitt's financial adviser, has delivered its
written opinion dated July 4, 1998 to the effect that, as of that date, the
Conversion Number was fair to Proffitt's from a financial point of view.
THE BOARD OF DIRECTORS OF PROFFITT'S (THE "BOARD") HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS IN FURTHERANCE OF AND CONSISTENT WITH PROFFITT'S
LONG-TERM BUSINESS STRATEGIES AND IS ADVISABLE AND FAIR TO AND IN THE BEST
INTERESTS OF THE HOLDERS OF SHARES OF PROFFITT'S COMMON STOCK. ACCORDINGLY, THE
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE STOCK ISSUANCE, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT
AND THE STOCK ISSUANCE AT THE SPECIAL MEETING.
At the Special Meeting, you also will be asked to consider and vote upon a
proposal to approve an amendment to Proffitt's Amended and Restated Charter (the
"Charter") to increase the number of shares of Proffitt's common stock
authorized for issuance under the Charter and to change the corporate name of
Proffitt's to "Saks Incorporated" (together, the "Charter Amendment"). You also
will be asked at the Special Meeting to consider and vote upon a proposal to
approve an amendment to the Charter to increase the maximum number of members of
the Board to 18 (the "Board Amendment"). Approvals by Proffitt's shareholders of
the Charter Amendment and the Board Amendment are NOT conditions to the
consummation of the Merger.
THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE CHARTER AMENDMENT AND THE
BOARD AMENDMENT ARE ADVISABLE AND FAIR TO AND IN THE BEST INTERESTS OF HOLDERS
OF SHARES OF PROFFITT'S COMMON STOCK. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY
APPROVED THE CHARTER AMENDMENT AND THE BOARD AMENDMENT AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE CHARTER AMENDMENT AND THE BOARD
AMENDMENT AT THE SPECIAL MEETING.
A Notice of the Special Meeting and a Joint Proxy Statement/Prospectus
containing detailed information concerning the Merger and related transactions
accompany this letter. We urge you to read this material carefully. Your vote is
very important. Please mark, date, sign and return the enclosed proxy in the
enclosed postage prepaid envelope as soon as possible, even if you plan to
attend the Special Meeting. If you have any questions regarding the proposed
transactions, please call Investor Relations at (423) 983-7000. We look forward
to seeing you at the Special Meeting.
Very truly yours,
R. Brad Martin
Chairman of the Board and
Chief Executive Officer
<PAGE>
PROFFITT'S, INC.
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
ON , 1998
------------------------
Dear Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of Proffitt's,
Inc. ("Proffitt's") will be held at Proffitt's executive offices, 750 Lakeshore
Parkway, Birmingham, Alabama 35211, at a.m. local time on , 1998 to
consider and vote upon proposals to approve the following matters:
(1) the Agreement and Plan of Merger, dated as of July 4, 1998 (the
"Merger Agreement"), which is included as Appendix I to the accompanying
Joint Proxy Statement/Prospectus, providing for the merger (the "Merger") of
Fifth Merger Corporation, a wholly-owned subsidiary of Proffitt's, with and
into Saks Holdings, Inc. ("Saks");
(2) the issuance of shares of common stock, par value $.10 per share
("Proffitt's Common Stock"), of Proffitt's pursuant to the Merger Agreement
(the "Stock Issuance");
(3) an amendment to Proffitt's Amended and Restated Charter to increase
the number of shares of Proffitt's Common Stock authorized for issuance
under Proffitt's Amended and Restated Charter and to change the corporate
name of Proffitt's to "Saks Incorporated" (the "Charter Amendment");
(4) an amendment to Proffitt's Amended and Restated Charter to increase
the maximum number of members of Proffitt's Board of Directors to 18 (the
"Board Amendment"); and
(5) the transaction of such other business, if any, as may properly come
before the Special Meeting or at any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF PROFFITT'S HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE STOCK ISSUANCE, THE CHARTER AMENDMENT AND THE BOARD AMENDMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT,
THE STOCK ISSUANCE, THE CHARTER AMENDMENT AND THE BOARD AMENDMENT AT THE SPECIAL
MEETING.
The Board of Directors of Proffitt's has fixed the close of business on
, 1998 as the record date for the determination of Proffitt's
shareholders entitled to notice of and to vote at the Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the votes eligible to be cast on the proposal. Approval
of the Stock Issuance requires the affirmative vote of the holders of a majority
of the votes cast provided that the total number of votes cast represents at
least 50% of the total number of outstanding shares of Proffitt's Common Stock.
Approval of the Charter Amendment requires that votes cast in favor of the
Charter Amendment exceed votes cast against the Charter Amendment, provided a
quorum is present. Approval of the Board Amendment requires the affirmative vote
of the holders of at least 80% of the shares of Proffitt's Common Stock eligible
to vote. APPROVALS OF THE MERGER AGREEMENT AND THE STOCK ISSUANCE BY PROFFITT'S
SHAREHOLDERS ARE CONDITIONS TO THE CONSUMMATION OF THE MERGER. Approvals of the
Charter Amendment and the Board Amendment by Proffitt's shareholders are NOT
conditions to the consummation of the Merger.
YOUR VOTE IS VERY IMPORTANT. PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID RETURN ENVELOPE,
EVEN IF YOU EXPECT TO ATTEND THE SPECIAL MEETING. IF YOU SIGN AND RETURN YOUR
PROXY CARD WITHOUT SPECIFYING THE MANNER IN WHICH YOU WOULD LIKE YOUR SHARES TO
BE VOTED, IT WILL BE UNDERSTOOD THAT YOU WISH TO HAVE YOUR SHARES VOTED FOR THE
APPROVAL OF THE MERGER AGREEMENT, THE STOCK ISSUANCE, THE CHARTER AMENDMENT AND
THE BOARD AMENDMENT. YOU MAY REVOKE YOUR PROXY BY SIGNING AND RETURNING A LATER
DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH THE SECRETARY OF
PROFFITT'S A DULY EXECUTED REVOCATION, OR BY ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON (ALTHOUGH ATTENDANCE AT THE SPECIAL MEETING WILL NOT IN AND OF
ITSELF CONSTITUTE A REVOCATION OF YOUR PROXY).
By Order of the Board of Directors,
Julia A. Bentley, Secretary
, 1998
<PAGE>
[SAKS LETTERHEAD]
, 1998
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Saks Holdings, Inc. ("Saks") to be held at ,
at a.m., local time, on , 1998.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of July
4, 1998 (the "Merger Agreement"), among Proffitt's, Inc. ("Proffitt's"), Fifth
Merger Corporation ("Sub"), a wholly owned subsidiary of Proffitt's, and Saks.
Pursuant to the Merger Agreement, Sub will be merged with and into Saks (the
"Merger"), with Saks continuing as the surviving corporation and a wholly owned
subsidiary of Proffitt's. As a result of the Merger, each outstanding share of
common stock, par value $.01 per share ("Saks Common Stock"), of Saks will be
converted into the right to receive .82 (the "Conversion Number") of a share of
common stock, par value $.10 per share ("Proffitt's Common Stock"), of
Proffitt's. Cash will be distributed in lieu of any fractional shares of
Proffitt's Common Stock.
THE BOARD OF DIRECTORS OF SAKS HAS DETERMINED THAT THE MERGER AGREEMENT IS
ADVISABLE AND IN THE BEST INTERESTS OF SAKS AND ITS STOCKHOLDERS. ACCORDINGLY,
THE BOARD OF DIRECTORS OF SAKS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SAKS COMMON STOCK VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
Goldman, Sachs & Co. ("Goldman Sachs") and Merrill Lynch & Co. ("Merrill
Lynch") have acted as financial advisors to Saks in connection with the Merger
and have delivered to the Saks Board their written opinions each dated as of
July 4, 1998 to the effect that, as of that date, the Conversion Number was fair
to the holders of the outstanding shares of Saks Common Stock from a financial
point of view.
The attached Joint Proxy Statement/Prospectus explains in detail the terms
of the proposed Merger and related matters. Please carefully review and consider
all of this information.
In connection with the execution of the Merger Agreement, certain affiliates
of Investcorp S.A., which hold in the aggregate approximately 15.2% of the
outstanding shares of Saks Common Stock (the "Investcorp Affiliates"), entered
into a Stockholders' Agreement (the "Stockholders' Agreement"), dated as of July
4, 1998, with Proffitt's. Pursuant to the Stockholders' Agreement, the
Investcorp Affiliates have agreed, among other things, to vote the shares of
Saks Common Stock owned by them in favor of the approval and adoption of the
Merger Agreement.
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including approval of the Merger Agreement and certain other
matters in connection with the Merger by the requisite vote of both the holders
of Saks Common Stock and the holders of Proffitt's Common Stock.
It is very important that your shares are represented at the Special
Meeting, whether or not you plan to attend in person. THE AFFIRMATIVE VOTE OF
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF SAKS COMMON STOCK IS
REQUIRED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. ACCORDINGLY, YOUR
FAILURE TO VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. In
order to ensure that your vote is represented at the Special Meeting, please
sign, date and mail the proxy card in the enclosed envelope. You are, of course,
welcome to attend the meeting and to vote your shares in person.
I look forward to seeing you at the Special Meeting.
Sincerely yours,
Philip B. Miller
Chairman of the Board and
Chief Executive Officer
<PAGE>
SAKS HOLDINGS, INC.
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
------------------------
Dear Stockholder:
A Special Meeting of Stockholders (the "Special Meeting") of Saks Holdings,
Inc., a Delaware corporation ("Saks"), will be held at , at
a.m., local time, on , 1998, for the following purpose:
To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of July 4, 1998 (the "Merger Agreement"),
among Proffitt's, Inc., a Tennessee corporation ("Proffitt's"), Fifth
Merger Corporation ("Sub"), a Delaware corporation and a wholly owned
subsidiary of Proffitt's, and Saks pursuant to which Sub will be merged
with and into Saks, with Saks continuing as the surviving corporation and
a wholly owned subsidiary of Proffitt's. A copy of the Merger Agreement
is included as an appendix to the accompanying Joint Proxy
Statement/Prospectus.
Only holders of record of common stock, par value $.01 per share (the "Saks
Common Stock"), of Saks, at the close of business on , 1998, are
entitled to notice of and to vote at the Special Meeting or any adjournments or
postponements thereof. The affirmative vote of the holders of a majority of the
outstanding shares of Saks Common Stock is required for approval and adoption of
the Merger Agreement.
By Order of the Board of Directors,
Joan F. Krey
Senior Vice President, General Counsel
and Corporate Secretary
, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU SIGN AND RETURN YOUR
PROXY CARD WITHOUT SPECIFYING THE MANNER IN WHICH YOU WOULD LIKE
YOUR SHARES TO BE VOTED, YOUR SHARES WILL BE VOTED FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE BOARD OF DIRECTORS OF SAKS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF SAKS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
<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>
JOINT PROXY STATEMENT
<TABLE>
<S> <C>
PROFFITT'S, INC. SAKS HOLDINGS, INC.
SPECIAL MEETING OF SHAREHOLDERS SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998 TO BE HELD ON , 1998
</TABLE>
------------------------
PROFFITT'S, INC.
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus (this "Joint Proxy
Statement/Prospectus") is being furnished to holders of shares of common stock,
par value $.10 per share ("Proffitt's Common Stock"), of Proffitt's, Inc., a
Tennessee corporation ("Proffitt's"), in connection with the solicitation of
proxies by the Board of Directors of Proffitt's (the "Proffitt's Board") for use
at the Special Meeting of Shareholders of Proffitt's to be held on , 1998,
including any adjournments or postponements thereof (the "Proffitt's Special
Meeting"). At the Proffitt's Special Meeting, shareholders of Proffitt's will be
asked to consider and vote upon: (i) the Agreement and Plan of Merger, dated as
of July 4, 1998 (the "Merger Agreement"), among Proffitt's, Fifth Merger
Corporation, a Delaware corporation and a wholly-owned subsidiary of Proffitt's
("Sub"), and Saks Holdings, Inc., a Delaware corporation ("Saks"), pursuant to
which Sub will be merged (the "Merger") with and into Saks, with Saks continuing
as the surviving corporation in the Merger and a wholly-owned subsidiary of
Proffitt's; (ii) the issuance (the "Stock Issuance") of Proffitt's Common Stock
in connection with the Merger; (iii) a proposed amendment (the "Charter
Amendment") to Proffitt's Amended and Restated Charter (the "Proffitt's
Charter") to increase the authorized number of shares of Proffitt's Common Stock
and to change the corporate name of Proffitt's to "Saks Incorporated"; and (iv)
a proposed amendment (the "Board Amendment") to the Proffitt's Charter to
increase the maximum number of members of the Proffitt's Board to 18. APPROVALS
OF THE MERGER AGREEMENT AND THE STOCK ISSUANCE BY PROFFITT'S SHAREHOLDERS ARE
CONDITIONS TO THE CONSUMMATION OF THE MERGER. Approvals of the Charter Amendment
and the Board Amendment by Proffitt's shareholders are NOT conditions to the
consummation of the Merger.
This Joint Proxy Statement/Prospectus also is being furnished to holders of
shares of common stock, par value $.01 per share ("Saks Common Stock"), of Saks
in connection with the solicitation of proxies by the Board of Directors of Saks
(the "Saks Board") for use at the Special Meeting of Stockholders of Saks,
including any adjournments or postponements thereof (the "Saks Special Meeting"
and together with the Proffitt's Special Meeting, the "Special Meetings"). At
the Saks Special Meeting, stockholders of Saks will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement. APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT BY SAKS STOCKHOLDERS IS A CONDITION TO THE
CONSUMMATION OF THE MERGER.
At the effective time of the Merger (the "Effective Time"), each outstanding
share of Saks Common Stock will be converted into .82 (the "Conversion Number")
of a validly issued, fully paid and nonassessable share of Proffitt's Common
Stock. Cash will be paid in lieu of any fractional shares of Proffitt's Common
Stock. Based upon information available as of the date hereof, holders of Saks
Common Stock are expected to hold approximately __% of the outstanding shares of
Proffitt's Common Stock on a fully diluted basis immediately after the Merger.
Each share of Proffitt's Common Stock outstanding immediately prior to the
Merger will continue to be outstanding after the Effective Time.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Proffitt's regarding up to 62,338,958 shares of Proffitt's Common Stock issuable
to Saks stockholders pursuant to the Merger, and in connection with outstanding
stock options of Saks to be converted into options to purchase Proffitt's Common
Stock in accordance with the Merger Agreement.
The Proffitt's Common Stock is listed for trading on the New York Stock
Exchange, Inc. (the "NYSE") under the symbol "PFT." On July 2, 1998, the last
trading day prior to the announcement of the execution of the Merger Agreement,
the last sales price of Proffitt's Common Stock as reported on the NYSE was
$40.6875 per share.
The Saks Common Stock is listed for trading on the NYSE under the symbol
"SKS." On July 2, 1998, the last trading day prior to the announcement of the
execution of the Merger Agreement, the last sales price of Saks Common Stock as
reported on the NYSE was $29.00 per share.
On , the last trading day prior to the date of this Joint Proxy
Statement/Prospectus, the last sales price of Proffitt's Common Stock as
reported on the NYSE was $ per share and the last sales price of Saks
Common Stock as reported on the NYSE was $ per share. Both holders of
Proffitt's Common Stock and holders of Saks Common Stock are urged to obtain
current market quotations for Proffitt's Common Stock and Saks Common Stock.
HOLDERS OF PROFFITT'S COMMON STOCK AND SAKS COMMON STOCK SHOULD CONSIDER
CAREFULLY THE INFORMATION CONTAINED HEREIN UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 15.
This Joint Proxy Statement/Prospectus, the accompanying forms of proxy and
the other enclosed documents are first being mailed to both holders of
Proffitt's Common Stock and holders of Saks Common Stock on or about
, 1998.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS.......................................... iii
SUMMARY............................................... 1
The Companies....................................... 1
The Proffitt's Special Meeting...................... 2
The Saks Special Meeting............................ 3
The Merger.......................................... 3
Selected Historical Financial and Operating Data of
Proffitt's........................................ 7
Selected Historical Financial and Operating Data of
Saks.............................................. 9
Selected Unaudited Pro Forma Combined Financial and
Operating Data.................................... 11
Comparative Per Share Data.......................... 13
Comparative Stock Prices and Dividends.............. 14
RISK FACTORS.......................................... 15
Fixed Merger Consideration Despite Changes in
Relative Stock Prices............................. 15
Uncertainties in Achieving Operating Efficiencies
and Synergies..................................... 15
Integration of Operations........................... 15
Dependence on Certain Executive Officers............ 16
Future Sale of Proffitt's Stock Held by the
Investcorp Affiliates............................. 16
THE SPECIAL MEETINGS.................................. 17
The Proffitt's Special Meeting...................... 17
The Saks Special Meeting............................ 18
Voting of Proxies................................... 18
Revocability of Proxies............................. 19
Appraisal Rights.................................... 20
Solicitation of Proxies............................. 20
Holders of Saks Common Stock Should Not Send Stock
Certificates...................................... 20
THE MERGER............................................ 21
General............................................. 21
Background of the Merger............................ 21
Reasons of Proffitt's for the Merger................ 24
Recommendations of the Proffitt's Board............. 27
Reasons of Saks for the Merger...................... 28
Recommendation of the Saks Board.................... 30
Opinion of Proffitt's Financial Advisor............. 30
Opinions of the Saks Financial Advisors............. 34
Merger Consideration................................ 43
Effective Time of the Merger........................ 43
Conversion of Shares; Procedures for Exchange of
Certificates...................................... 44
Governmental and Regulatory Approvals............... 45
Certain Federal Income Tax Consequences............. 46
Accounting Treatment................................ 47
Interests of Certain Persons in the Merger.......... 47
MANAGEMENT AND OPERATIONS AFTER THE MERGER............ 50
THE MERGER AGREEMENT.................................. 52
Terms of the Merger................................. 52
Merger Consideration; Conversion Number............. 52
Fractional Shares................................... 52
Conditions to the Merger............................ 53
Representations and Warranties...................... 54
Conduct of Business Pending the Merger.............. 55
<CAPTION>
PAGE
-----
<S> <C>
Saks Stock Options and Employee Benefits............ 57
Composition of Proffitt's Board..................... 59
Saks Convertible Subordinated Notes................. 59
No Solicitation by Saks............................. 59
Third Party Standstill Agreements................... 60
Indemnification; Directors and Officers Insurance... 60
Certain Other Covenants............................. 61
Termination......................................... 61
Fees and Expenses................................... 62
Amendment........................................... 63
Waiver.............................................. 63
OTHER AGREEMENTS...................................... 64
Registration Rights Agreement....................... 64
Stockholders' Agreement............................. 64
Miller Employment Agreement......................... 64
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS.......................................... 66
DESCRIPTION OF PROFFITT'S CAPITAL STOCK............... 74
General............................................. 74
Proffitt's Common Stock............................. 74
Proffitt's Preferred Stock.......................... 74
Rights Agreement.................................... 75
Effect of Anti-Takeover Provisions.................. 75
Transfer Agent and Registrar........................ 76
COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON
STOCK AND SAKS COMMON STOCK......................... 77
Authorized Capital.................................. 77
Number of Directors................................. 77
Classified Board of Directors....................... 77
Removal of Directors................................ 78
Special Meetings.................................... 78
Required Vote for Authorization of Certain
Actions........................................... 78
Action by Written Consent........................... 79
Inspection Rights................................... 79
Amendment of Bylaws................................. 80
Voluntary Dissolution............................... 80
Indemnification..................................... 80
Corporate Constituencies............................ 81
Business Combination Statute........................ 81
Fair Price Provisions............................... 82
Control Share Acquisition Act....................... 83
Investor Protection Act............................. 83
Greenmail Act....................................... 84
Dividends and Other Distributions................... 84
Rights Agreement.................................... 84
PROPOSED AMENDMENTS TO PROFFITT'S AMENDED AND RESTATED
CHARTER............................................. 85
The Charter Amendment............................... 85
The Board Amendment................................. 85
BUSINESS OF PROFFITT'S................................ 86
BUSINESS OF SAKS...................................... 88
LEGAL OPINIONS........................................ 88
EXPERTS............................................... 88
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..... 89
AVAILABLE INFORMATION................................. 89
OTHER INFORMATION AND SHAREHOLDER PROPOSALS........... 90
</TABLE>
APPENDICES
<TABLE>
<S> <C>
Appendix I Agreement and Plan of Merger, dated as of July 4, 1998, among Proffitt's,
Inc., Fifth Merger Corporation and Saks Holdings, Inc.
Appendix II Opinion of Salomon Smith Barney
Appendix III Opinion of Goldman, Sachs & Co.
Appendix IV Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
</TABLE>
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THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES INFORMATION BY REFERENCE
WHICH IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. SUCH INFORMATION
(OTHER THAN EXHIBITS TO INCORPORATED DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) IS AVAILABLE, WITHOUT CHARGE, TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST, WITHIN ONE
BUSINESS DAY OF SUCH REQUEST, IN THE CASE OF INFORMATION RELATING TO PROFFITT'S,
TO PROFFITT'S, INC., 115 CALDERWOOD, ALCOA, TENNESSEE 37701 (TELEPHONE NUMBER:
(423) 983-7000), ATTENTION: INVESTOR RELATIONS, OR, IN THE CASE OF INFORMATION
RELATING TO SAKS, TO SAKS HOLDINGS, INC., 12 EAST 49TH STREET, NEW YORK, NEW
YORK 10017 (TELEPHONE NUMBER: (212) 940-4048), ATTN: CORPORATE SECRETARY. IN
ORDER TO ENSURE DELIVERY OF THE INFORMATION PRIOR TO THE APPLICABLE SPECIAL
MEETING, REQUESTS SHOULD BE RECEIVED BY .
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROFFITT'S OR SAKS. THIS
JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PROFFITT'S OR SAKS SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS JOINT PROXY STATEMENT/PROSPECTUS (INCLUDING THE
INFORMATION INCORPORATED HEREIN BY REFERENCE) CONSTITUTE "FORWARD-LOOKING
STATEMENTS" FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF PROFFITT'S, SAKS OR THE COMBINED COMPANY TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, THE WORDS "BELIEVE," "ANTICIPATE," "ESTIMATE,"
"PROJECT," "INTEND," "EXPECT" AND SIMILAR EXPRESSIONS, WHEN USED IN CONNECTION
WITH PROFFITT'S, SAKS OR THE COMBINED COMPANY, INCLUDING THEIR RESPECTIVE
MANAGEMENTS, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED
UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS
WITH RESPECT TO PROFFITT'S OR SAKS INCLUDE, BUT ARE NOT LIMITED TO: (I) GENERAL
ECONOMIC AND BUSINESS CONDITIONS, BOTH NATIONALLY AND IN THOSE MARKET AREAS IN
WHICH PROFFITT'S OR SAKS OPERATES; (II) CHANGES IN MERCHANDISE MIXES, SITE
SELECTION AND RELATED TRAFFIC AND DEMOGRAPHIC PATTERNS; (III) PROSPECTS FOR THE
RETAIL INDUSTRY; (IV) THE LEVEL OF CONSUMER SPENDING FOR APPAREL AND OTHER
CONSUMER GOODS; (V) LEVELS OF CONSUMER DEBT AND BANKRUPTCIES; (VI) CHANGES IN
INTEREST RATES; (VII) CHANGES IN BUYING, CHARGING AND PAYMENT BEHAVIOR AMONG THE
CUSTOMERS OF PROFFITT'S OR SAKS; (VIII) THE EFFECTS OF WEATHER CONDITIONS ON
SEASONAL SALES IN THE MARKET AREAS SERVED BY PROFFITT'S OR SAKS; (IX)
COMPETITION AMONG DEPARTMENT AND SPECIALTY STORES AND OTHER RETAILERS, INCLUDING
LUXURY GOODS RETAILERS, GENERAL MERCHANDISE STORES, MAIL ORDER RETAILERS AND
OFF-PRICE AND DISCOUNT STORES; (X) THE COMPETITIVE PRICING ENVIRONMENT WITHIN
THE DEPARTMENT AND SPECIALTY STORE INDUSTRIES; (XI) THE EFFECTIVENESS OF PLANNED
ADVERTISING, MARKETING AND PROMOTIONAL CAMPAIGNS; (XII) THE SPEED AND
EFFECTIVENESS OF IDENTIFICATION AND IMPLEMENTATION OF BEST PRACTICES; (XIII) THE
ABILITY TO DETERMINE AND IMPLEMENT APPROPRIATE MERCHANDISING STRATEGIES,
MERCHANDISE FLOW AND INVENTORY TURNOVER LEVELS; (XIV) REALIZATION OF PLANNED
SYNERGIES AND COST SAVINGS IN EXISTING OPERATIONS AND IN RECENT AND FUTURE
ACQUISITIONS; (XV) THE ABILITY TO INTEGRATE ACQUIRED BUSINESSES; (XVI) ANY
ADVERSE EFFECTS OF THE YEAR 2000 PROBLEM ON PROFFITT'S OR SAKS, ESPECIALLY AS A
RESULT OF SUCH PROBLEMS AT THIRD PARTIES WITH WHICH PROFFITT'S OR SAKS DOES
BUSINESS; (XVII) EFFECTIVE COST CONTAINMENT; (XVIII) CHANGES IN BUSINESS
STRATEGY OR DEVELOPMENT PLANS; (XIX) THE LOSS OF KEY PERSONNEL; (XX) THE
AVAILABILITY OF CAPITAL TO FUND THE EXPANSION OF PROFFITT'S OR SAKS BUSINESSES;
AND (XXI) OTHER FACTORS REFERENCED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AS
WELL AS THE INFORMATION INCORPORATED HEREIN BY REFERENCE. OTHER FACTORS AND
ASSUMPTIONS NOT IDENTIFIED ABOVE ALSO WERE INVOLVED IN THE DERIVATION OF THESE
FORWARD-LOOKING STATEMENTS, AND THE FAILURE OF SUCH OTHER ASSUMPTIONS TO BE
REALIZED AS WELL AS OTHER FACTORS MAY ALSO CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED.
NEITHER PROFFITT'S NOR SAKS ASSUMES ANY OBLIGATION TO UPDATE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS OR
CHANGES IN OTHER FACTORS AFFECTING SUCH FORWARD-LOOKING STATEMENTS. ALL WRITTEN
OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO PROFFITT'S OR SAKS ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE FOREGOING CAUTIONARY STATEMENT.
READERS ARE CAUTIONED NOT TO RELY ON THE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE OF THIS JOINT PROXY/STATEMENT PROSPECTUS. NEITHER PROFFITT'S
NOR SAKS ASSUMES ANY OBLIGATION TO UPDATE OR TO PUBLICLY ANNOUNCE THE RESULTS OF
ANY REVISIONS TO ANY OF THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL
RESULTS, FUTURE EVENTS OR DEVELOPMENTS, CHANGES IN ASSUMPTIONS OR CHANGES IN
OTHER FACTORS AFFECTING SUCH FORWARD-LOOKING STATEMENTS.
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<PAGE>
SUMMARY
SET FORTH BELOW IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND ITS APPENDICES OR INCORPORATED HEREIN BY
REFERENCE. AS USED HEREIN, UNLESS THE CONTEXT OTHERWISE REQUIRES, "SAKS" MEANS
SAKS HOLDINGS, INC. AND ITS CONSOLIDATED SUBSIDIARIES, "PROFFITT'S" MEANS
PROFFITT'S, INC. AND ITS CONSOLIDATED SUBSIDIARIES AND "SUB" MEANS FIFTH MERGER
CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF PROFFITT'S. AS USED HEREIN,
"PROFFITT'S COMMON STOCK" MEANS THE COMMON STOCK, PAR VALUE $0.10 PER SHARE, OF
PROFFITT'S AND THE ASSOCIATED STOCK PURCHASE RIGHTS AS DESCRIBED UNDER
"DESCRIPTION OF PROFFITT'S CAPITAL STOCK--RIGHTS AGREEMENT." ALL STOCK PRICE AND
PER SHARE INFORMATION WITH RESPECT TO PROFFITT'S GIVES EFFECT TO THE OCTOBER
1997 TWO-FOR-ONE STOCK SPLIT.
PROFFITT'S AND SAKS URGE HOLDERS OF THEIR RESPECTIVE COMMON STOCK TO READ
CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO, AS
WELL AS THE ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE. SEE
"AVAILABLE INFORMATION" AND "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
HOLDERS OF PROFFITT'S COMMON STOCK AND HOLDERS OF SAKS COMMON STOCK ALSO SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH BELOW UNDER THE HEADING "RISK
FACTORS."
THE COMPANIES
PROFFITT'S. Proffitt's is a leading department store retailer that, as of
the date of this Joint Proxy Statement/Prospectus, operates 234 department
stores in 24 states, primarily in the Southeast and Midwest. Proffitt's is the
fourth largest traditional department store company in the United States.
Proffitt's stores operate under the Proffitt's, Herberger's, McRae's, Parisian,
Younkers, Carson Pirie Scott, Bergner's and Boston Store trade names. In
addition to its department stores, Proffitt's also operates four furniture
stores under the names Carson Pirie Scott (3 stores) and Boston Store (1 store).
Proffitt's was founded in 1919. Since becoming a public company in 1987,
Proffitt's has grown from its base of five stores in metropolitan Knoxville,
Tennessee and approximately $46 million in annual sales to 234 stores in
twenty-four states and annual sales exceeding $3.5 billion. This growth was
primarily achieved through a series of acquisitions, including the acquisition
of Lovemans in 1988, several Hess's, Inc. locations in 1992 and 1993, McRae's,
Inc. in 1994, Parks-Belk Company in 1995, Younkers, Inc. in 1996, Parisian, Inc.
in 1996, G.R. Herberger's, Inc. in 1997, Carson Pirie Scott & Company in 1998,
and Brody Brothers Dry Goods Company, Inc. in 1998.
The principal executive office address of Proffitt's is 750 Lakeshore
Parkway, Birmingham, Alabama 35211 (telephone number: (205) 940-4000).
SUB. Sub was organized as a Delaware corporation on July 1, 1998 solely 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.
The principal executive office address of Sub is 750 Lakeshore Parkway,
Birmingham, Alabama 35211 (telephone number: (205) 940-4000).
SAKS. Saks is the holding company of Saks & Company which does business as
Saks Fifth Avenue, Off 5th and Folio. Saks Fifth Avenue is recognized worldwide
as a premier fashion retailer, offering the finest quality and latest style in
women's and men's apparel. Supported by a strong commitment to personalized
customer service, Saks primarily sells better, bridge and designer apparel,
shoes, accessories, jewelry, cosmetics and fragrances for women and men, as well
as gift merchandise and children's apparel. Capitalizing on its landmark Fifth
Avenue store in New York City, Saks Fifth Avenue has developed one of the most
recognized retailing franchises in the world. The Off 5th outlet division sells
high quality, upscale branded fashion apparel and home furnishings at
exceptional prices. The Folio catalogs primarily offer fashionable women's
apparel, accessories and home furnishings and gifts.
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<PAGE>
Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the Fifth Avenue store offered exclusive merchandise from
around the world. In 1973, Saks & Company was acquired by a subsidiary of B.A.T.
Industries PLC ("B.A.T.") through its acquisition of Gimbel Bros., Inc. In July
1990, certain affiliates of Investcorp S.A., a Luxembourg corporation
("Investcorp"), which hold in the aggregate approximately 15.2% of the
outstanding shares of Saks Common Stock (the "Investcorp Affiliates"), and other
international investors who often co-invest with Investcorp ("International
Investors") acquired Saks & Company from B.A.T. and formed Saks as the holding
company of Saks & Company. In 1992, Saks effected a private equity offering in
which additional shares of Saks Common Stock were sold to certain of the
International Investors and to certain other investors. In May 1996, Saks
completed an initial public offering and, in October 1996, certain of the
International Investors sold shares of Saks Common Stock in a secondary
offering. Presently, Saks believes that the International Investors own between
30% and 36% of the outstanding Saks Common Stock.
The principal executive office address of Saks is 12 East 49th Street, New
York, New York 10017 (telephone: (212) 940-4048).
THE PROFFITT'S SPECIAL MEETING
TIME, DATE AND PLACE. The Proffitt's Special Meeting will be held at
a.m., local time, on , 1998, at Proffitt's executive offices, 750
Lakeshore Parkway, Birmingham, Alabama 35211.
MATTERS TO BE CONSIDERED AT THE PROFFITT'S SPECIAL MEETING. At the
Proffitt's Special Meeting, holders of Proffitt's Common Stock will be asked to
consider and vote upon proposals to approve: (i) the Merger Agreement; (ii) the
Stock Issuance; (iii) the Charter Amendment and (iv) the Board Amendment.
APPROVALS OF THE MERGER AGREEMENT AND THE STOCK ISSUANCE BY PROFFITT'S
SHAREHOLDERS ARE CONDITIONS TO THE CONSUMMATION OF THE MERGER. Approvals of the
Charter Amendment and the Board Amendment by Proffitt's shareholders are NOT
conditions to the consummation of the Merger. Holders of shares of Proffitt's
Common Stock entitled to vote at the Proffitt's Special Meeting also will be
asked to consider and vote upon any other matter that may properly come before
the Proffitt's Special Meeting.
RECORD DATE. The record date for the determination of holders of Proffitt's
Common Stock entitled to notice of and to vote at the Proffitt's Special Meeting
is , 1998 (the "Proffitt's Record Date"). On that date, there were
shares of Proffitt's Common Stock outstanding.
VOTES REQUIRED. Each holder of Proffitt's Common Stock (other than direct
or indirect subsidiaries of Proffitt's) is entitled to one vote per share held
of record on the Proffitt's Record Date. The approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the votes eligible
to be cast on the proposal. Approval of the Stock Issuance requires the
affirmative vote of the holders of a majority of the votes cast provided that
the total number of votes cast represents at least 50% of the total number of
outstanding shares of Proffitt's Common Stock. Approval of the Charter Amendment
requires that votes cast in favor of the Charter Amendment exceed votes cast
against the Charter Amendment, provided a quorum is present. Approval of the
Board Amendment requires the affirmative vote of the holders of at least 80% of
the shares of Proffitt's Common Stock eligible to vote.
SECURITY OWNERSHIP OF MANAGEMENT. As of the Proffitt's Record Date,
directors and executive officers of Proffitt's and their affiliates held an
aggregate of shares of Proffitt's Common Stock, equivalent to
approximately % of the votes entitled to be cast at the Proffitt's Special
Meeting.
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THE SAKS SPECIAL MEETING
TIME, DATE AND PLACE. The Saks Special Meeting will be held at a.m.,
local time, on , 1998, at .
MATTERS TO BE CONSIDERED AT THE SAKS SPECIAL MEETING. At the Saks Special
Meeting, holders of Saks Common Stock will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement. APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT BY THE STOCKHOLDERS OF SAKS IS A CONDITION TO THE CONSUMMATION
OF THE MERGER.
RECORD DATE. The record date for the determination of the stockholders of
Saks entitled to notice of and to vote at the Saks Special Meeting is ,
1998 (the "Saks Record Date"). On that date, there were shares of Saks Common
Stock outstanding.
VOTE REQUIRED. Each share of Saks Common Stock entitles the holder thereof
to one vote, and the affirmative vote of the holders of a majority of the
outstanding shares of Saks Common Stock is required to approve and adopt the
Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT. As of the Saks Record Date, directors and
executive officers of Saks and their affiliates held shares of Saks
Common Stock, equivalent to approximately % of the votes entitled to be cast
at the Saks Special Meeting. Furthermore, Investcorp Affiliates, which hold in
the aggregate approximately 15.2% of the outstanding shares of Saks Common Stock
and have three designees on the Saks Board, have entered into the Stockholders'
Agreement pursuant to which they have agreed to vote the shares of Saks Common
Stock owned by them in favor of the Merger.
THE MERGER
GENERAL. Upon the terms and subject to the conditions contained in the
Merger Agreement, at the Effective Time, Sub will be merged with and into Saks,
with Saks continuing as the surviving corporation and a wholly-owned subsidiary
of Proffitt's. As a result of the Merger, each share of Saks Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares held
in the treasury of Saks) will be converted into .82 of a validly issued, fully
paid and nonassessable share of Proffitt's Common Stock. Cash will be paid in
lieu of any fractional shares of Proffitt's Common Stock. The Merger Agreement
is included as Appendix I to this Joint Proxy Statement/Prospectus.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS. The Proffitt's Board has
determined that the Merger is in furtherance of and consistent with Proffitt's
long-term business strategies and is advisable and fair to and in the best
interests of the holders of shares of Proffitt's Common Stock. Accordingly, the
Proffitt's Board has unanimously approved the Merger Agreement, the Stock
Issuance, the Charter Amendment and the Board Amendment and unanimously
recommends that Proffitt's shareholders vote FOR approval of the Merger
Agreement, the Stock Issuance, the Charter Amendment and the Board Amendment at
the Proffitt's Special Meeting.
The Saks Board has determined that the Merger Agreement is advisable and
fair to and in the best interests of Saks and its stockholders. Accordingly, the
Saks Board has unanimously approved the Merger Agreement and unanimously
recommends that Saks stockholders vote FOR approval and adoption of the Merger
Agreement.
OPINIONS OF FINANCIAL ADVISORS. Salomon Smith Barney ("Salomon") has acted
as financial advisor to Proffitt's in connection with the Merger and has
delivered its written opinion, dated as of July 4, 1998, to the Proffitt's
Board, to the effect that, as of that date, the Conversion Number was fair from
a financial point of view to Proffitt's. The full text of the written opinion of
Salomon, which sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with such opinion, is
included as Appendix II to this Joint Proxy Statement/Prospectus and
incorporated herein by reference.
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The opinion of Salomon does not constitute a recommendation as to how any holder
of Proffitt's Common Stock should vote with respect to the Merger Agreement, the
Stock Issuance, the Charter Amendment or the Board Amendment or how any holder
of Saks Common Stock should vote with respect to approval and adoption of the
Merger Agreement or any other matter. Holders of Proffitt's Common Stock should
read such opinion in its entirety. See "THE MERGER--Opinion of Proffitt's
Financial Advisor."
Each of Goldman, Sachs & Co. ("Goldman Sachs") and Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch" and, together with Goldman Sachs,
the "Saks Financial Advisors") has acted as financial advisor to Saks in
connection with the Merger and has delivered its written opinion, dated as of
July 4, 1998, to the Saks Board to the effect that, as of that date, the
Conversion Number was fair from a financial point of view to the holders of the
Saks Common Stock. The full texts of the written opinions of the Saks Financial
Advisors, each of which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with such opinions, are
included as Appendix III and Appendix IV, respectively, to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. The opinions of the
Saks Financial Advisors do not constitute recommendations as to how any holder
of Saks Common Stock should vote with respect to approval and adoption of the
Merger Agreement or any other matter. Holders of Saks Common Stock should read
each such opinion in its entirety. See "THE MERGER--Opinions of the Saks
Financial Advisors."
STOCKHOLDERS' AGREEMENT. In connection with the execution of the Merger
Agreement, the Investcorp Affiliates, which hold in the aggregate approximately
15.2% of the outstanding shares of Saks Common Stock, and Proffitt's entered
into the Stockholders' Agreement pursuant to which the Investcorp Affiliates
have agreed to vote the shares of Saks Common Stock owned by them in favor of
the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER. In considering the
recommendation of the Saks Board with respect to the Merger, stockholders of
Saks should be aware that certain persons, including certain members of Saks
management and members of the Saks Board, may have interests in the Merger that
are different from, or in addition to, the interests of stockholders of Saks
generally. In connection with the Merger: (i) three designees of Saks will be
appointed to the Proffitt's Board, one of whom is expected to be a
representative of Investcorp; (ii) Proffitt's has agreed to enter into an
employment agreement with Mr. Philip B. Miller, Saks Chairman and Chief
Executive Officer (the "Miller Employment Agreement"); (iii) Proffitt's is in
discussions regarding an employment agreement with Mr. Brian E. Kendrick, Saks
Vice Chairman and Chief Operating Officer; (iv) Proffitt's has agreed to provide
indemnification to certain current and former executive officers and directors
of Saks; (v) Saks has agreed to pay to its three outside directors cash
compensation in amounts to be determined in consideration for services rendered
in connection with the exploration by Saks of strategic alternatives and in
connection with the Merger; (vi) Proffitt's has agreed to adopt a severance
policy for the benefit of certain officers of Saks; (vii) Proffitt's has agreed
to provide certain severance benefits to active employees of Saks who continue
to be employed by Saks as of the Effective Time; (viii) each outstanding option
to purchase shares of Saks Common Stock will be converted on the basis of the
Conversion Number into an option to purchase shares of Proffitt's Common Stock;
(ix) the Investcorp Affiliates, which have three designees on the Saks Board,
and Proffitt's entered into a registration rights agreement, dated as of July 4,
1998 (the "Registration Rights Agreement"), pursuant to which the Investcorp
Affiliates were granted certain rights to have the shares of Proffitt's Common
Stock received by them in the Merger registered for resale by the Investcorp
Affiliates; and (x) the Investcorp Affiliates and Proffitt's entered into the
Stockholders' Agreement.
CONDITIONS TO THE MERGER. The obligations of Proffitt's, Sub and Saks to
consummate the Merger are subject to the satisfaction or waiver (where
permissible) of various conditions, including, among other things:
- the approval and adoption of the Merger Agreement by the requisite vote of
the stockholders of Saks and the approval of the Merger Agreement and the
Stock Issuance by the requisite vote of the shareholders of Proffitt's;
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<PAGE>
- the expiration or termination of the applicable waiting period under the
antitrust laws;
- Proffitt's receipt of a letter from its independent accountants, in
customary form, to the effect that no conditions exist which would
preclude accounting for the Merger as a "pooling of interests";
- Saks receipt of a letter from its independent accountants, in customary
form, to the effect that no conditions exist with respect to Saks which
would preclude accounting for the Merger as a "pooling of interests"; and
- Saks receipt of an opinion from its counsel as to the tax-free nature of
the Merger.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be
terminated, as set forth below, upon the occurrence of certain events,
including, among other things:
- by either Proffitt's or Saks if the Merger has not been effected by the
close of business on March 31, 1999;
- by Saks concurrent with the execution of an agreement with respect to a
competing takeover proposal for at least a majority of Saks that the Saks
Board has determined is more favorable to stockholders of Saks than the
Merger;
- by Saks, if the Proffitt's Board withdraws or modifies its recommendation
of the Merger or the Stock Issuance, or recommends a competing
transaction;
- by Proffitt's, if the Saks Board withdraws or modifies its recommendation
of the Merger or recommends a competing transaction;
- by Proffitt's or Saks if the shareholders of Proffitt's do not approve the
Merger Agreement or the Stock Issuance at the Proffitt's Special Meeting
or the stockholders of Saks do not approve the Merger Agreement at the
Saks Special Meeting; and
- by Saks, if the average daily closing price of Proffitt's Common Stock for
the 15-day period ending on the third trading day before the Saks Special
Meeting is less than $30.52 per share.
TERMINATION FEES. The Merger Agreement provides that Saks will pay to
Proffitt's a termination fee of $80 million in the event that the Merger
Agreement is terminated: (i) by Saks in connection with the acceptance by Saks
of a competing takeover proposal for at least a majority of Saks that the Saks
Board has determined is more favorable to stockholders of Saks than the Merger;
(ii) by Proffitt's in response to the Saks Board's withdrawal or modification of
its recommendation of the Merger Agreement or recommendation of a competing
transaction; or (iii) by Saks or Proffitt's because of the failure of the
stockholders of Saks to approve and adopt the Merger Agreement, provided that a
competing takeover proposal for Saks has been proposed and not withdrawn prior
to the Saks Special Meeting and within six months of the date of the Saks
Special Meeting, Saks enters into a definitive agreement with respect to or
consummates a competing transaction.
The Merger Agreement provides that Proffitt's will pay to Saks a termination
fee of $80 million in the event that the Merger Agreement is terminated: (i) by
Saks in response to the Proffitt's Board's withdrawal or modification of its
recommendation of the Merger Agreement, the Stock Issuance, the Charter
Amendment or the Board Amendment or recommendation of a competing transaction;
or (ii) by Saks or Proffitt's because of the failure of the shareholders of
Proffitt's to approve the Merger Agreement or the Stock Issuance, provided that
a competing takeover proposal for Proffitt's has been proposed and not withdrawn
prior to the Proffitt's Special Meeting and within six months of the date of the
Proffitt's Special Meeting, Proffitt's enters into a definitive agreement with
respect to or consummates a competing transaction.
APPRAISAL RIGHTS. In accordance with the Tennessee Business Corporation Act
(the "TBCA"), shareholders of Proffitt's will not be entitled to appraisal
rights in connection with any of the proposals to be
5
<PAGE>
acted on at the Proffitt's Special Meeting. In accordance with Section 262 of
the General Corporation Law of the State of Delaware (the "DGCL"), stockholders
of Saks will not be entitled to appraisal rights in connection with the approval
and adoption of the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The obligation of Saks to
consummate the Merger is conditioned upon Saks receipt of an opinion of its
counsel, to the effect, among other things, that the Merger will be treated for
United States 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 Proffitt's or Saks as a result of
the Merger, or by stockholders of Saks upon the receipt of Proffitt's Common
Stock in the Merger (except with respect to cash received in lieu of fractional
shares of Proffitt's Common Stock).
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; accordingly, the consolidated financial statements of Proffitt's
after the Merger will be restated to include the assets, liabilities,
stockholders' equity and results of operations of Saks at their historical cost.
The obligations of Proffitt's, Sub and Saks to consummate the Merger are subject
to Proffitt's receipt of a letter from its independent accountants,
PricewaterhouseCoopers LLP, in customary form, to the effect that no conditions
exist which would preclude accounting for the Merger as a pooling of interests,
and Saks receipt of a letter from its independent accountants,
PricewaterhouseCoopers LLP, in customary form, to the effect that no conditions
exist with respect to Saks which would preclude accounting for the Merger as a
pooling of interests.
OWNERSHIP OF PROFFITT'S COMMON STOCK BY SAKS STOCKHOLDERS AFTER THE
MERGER. Immediately prior to the Effective Time, there will be approximately
shares of Proffitt's Common Stock outstanding, without giving effect to
the exercise of any outstanding options to acquire shares of Proffitt's Common
Stock. Immediately following the Effective Time, there will be approximately
shares of Proffitt's Common Stock outstanding, without giving effect to
the exercise of any outstanding options to acquire shares of Proffitt's Common
Stock. The shares of Proffitt's Common Stock issued to stockholders of Saks
pursuant to the Merger will represent approximately % of the total number of
shares of Proffitt's Common Stock outstanding after the Merger (and
approximately % on a fully diluted basis, assuming exercise of all outstanding
options to acquire shares of Proffitt's Common Stock or shares of Saks Common
Stock exercisable within 60 days of the Proffitt's Record Date and Saks Record
Date, respectively).
6
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF PROFFITT'S (A)
(AMOUNTS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
The following selected historical financial and operating data of Proffitt's
for each fiscal year in the five-year period ended January 31, 1998 and for the
three-month periods ended May 2, 1998 and May 3, 1997, respectively, have been
derived from the consolidated financial statements of Proffitt's. The balance
sheet data as of January 31, 1998, February 1, 1997, May 2, 1998 and May 3, 1997
and the income statement data for each fiscal year in the three-year period
ended January 31, 1998 and for the unaudited three-month periods ended May 2,
1998 and May 3, 1997 are included in information incorporated by reference in
this Joint Proxy Statement/Prospectus. The balance sheet data as of February 3,
1996, January 28, 1995, January 29, 1994 and the income statement data for each
fiscal year in the two-year period ended January 28, 1995 have been derived from
the audited consolidated financial statements of Proffitt's. The selected
historical financial and operating data should be read in conjunction with the
consolidated financial statements and notes thereto of Proffitt's, audited by
PricewaterhouseCoopers LLP, independent accountants, and with Proffitt's
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(B) FISCAL YEAR ENDED (C)
-------------------- --------------------------------------------------
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1998 1997 1998 1997 1996 1995
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................................ $ 833.1 $ 784.5 $ 3,544.7 $ 2,992.6 $ 2,744.9 $ 2,675.1
Cost of sales.................................... 537.4 509.4 2,296.3 1,952.9 1,811.6 1,755.4
Selling, general and administrative expenses..... 206.1 195.6 832.1 716.3 664.1 622.9
Other operating expenses......................... 66.0 63.0 258.9 208.0 191.4 183.5
Merger, restructuring and integration costs (d).. 2.0 1.5 43.5 15.9 20.8
Year 2000 expense................................ 1.5 0.6 6.6
Expenses of Younkers takeover attempt (e)........ 10.0
Long-lived assets (gains) losses (f)............. (0.1) 1.4 (36.0)
ESOP expenses (g)................................ 0.7 9.5 3.9 2.9 2.8
--------- --------- ----------- ----------- ----------- -----------
Operating income............................. 20.1 13.7 97.9 94.2 80.1 110.5
Other income (expense):
Finance charge income, net..................... 22.7 23.7 92.7 78.0 77.1 71.7
Interest expense............................... (7.9) (15.0) (55.1) (42.6) (47.4) (40.9)
Reorganization items (h).......................
Other income (expense), net.................... 0.1 0.1 2.3 (11.8) 4.1 4.8
--------- --------- ----------- ----------- ----------- -----------
Income before provision for income taxes and
extraordinary items and cumulative effect of
changes in accounting methods.................. 35.0 22.5 137.8 117.8 113.9 146.1
Provision for income taxes....................... 14.1 9.3 65.8 50.7 48.9 58.1
--------- --------- ----------- ----------- ----------- -----------
Income before extraordinary items and cumulative
effect of changes in accounting methods........ 20.9 13.2 72.0 67.1 65.0 88.0
Extraordinary loss on debt, net of tax (i)....... (9.3) (2.1)
Extraordinary gain on reorganization,
net of tax (h).................................
Cumulative effect of changes in accounting
methods, net of tax (j)........................
--------- --------- ----------- ----------- ----------- -----------
Net income....................................... 20.9 13.2 62.7 67.1 62.9 88.0
Preferred stock payments......................... 3.8 1.9 1.7
--------- --------- ----------- ----------- ----------- -----------
Net income available to common shareholders...... $ 20.9 $ 13.2 $ 62.7 $ 63.3 $ 61.0 $ 86.3
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
Basic earnings per common share.................. $ 0.23 $ 0.16 $ 0.73 $ 0.81 $ 0.81 $ 1.07
Diluted earnings per common share before
extraordinary item and cumulative effect....... $ 0.22 $ 0.15 $ 0.81 $ 0.78 $ 0.81 $ 1.03
Diluted earnings per common share................ $ 0.22 $ 0.15 $ 0.71 $ 0.78 $ 0.78 $ 1.03
Weighted average common shares
Basic.......................................... 89,506 83,310 85,532 77,724 75,111 80,309
Diluted........................................ 93,411 85,793 91,086 84,334 83,330 88,106
SELECTED STORE DATA:
Comparable store net sales increase (k).......... 5% 4% 4% 3% 3% 3%
Stores open at end of period..................... 237 231 233 230 198 207
Capital expenditures............................. $ 37.6 $ 38.4 $ 167.8 $ 113.9 $ 90.1 $ 108.0
<CAPTION>
JANUARY 29,
1994
-----------
<S> <C>
Net sales........................................ $ 2,211.9
Cost of sales.................................... 1,447.0
Selling, general and administrative expenses..... 540.4
Other operating expenses......................... 177.7
Merger, restructuring and integration costs (d)..
Year 2000 expense................................
Expenses of Younkers takeover attempt (e)........
Long-lived assets (gains) losses (f).............
ESOP expenses (g)................................ 2.9
-----------
Operating income............................. 43.9
Other income (expense):
Finance charge income, net..................... 61.6
Interest expense............................... (25.4)
Reorganization items (h)....................... (219.9)
Other income (expense), net.................... 4.1
-----------
Income before provision for income taxes and
extraordinary items and cumulative effect of
changes in accounting methods.................. (135.7)
Provision for income taxes....................... 34.4
-----------
Income before extraordinary items and cumulative
effect of changes in accounting methods........ (170.1)
Extraordinary loss on debt, net of tax (i)....... (1.1)
Extraordinary gain on reorganization,
net of tax (h)................................. 212.1
Cumulative effect of changes in accounting
methods, net of tax (j)........................ (12.1)
-----------
Net income....................................... 28.8
Preferred stock payments.........................
-----------
Net income available to common shareholders...... $ 28.8
-----------
-----------
Basic earnings per common share.................. $ 0.36
Diluted earnings per common share before
extraordinary item and cumulative effect....... $ (2.14)
Diluted earnings per common share................ $ 0.36
Weighted average common shares
Basic.......................................... 79,665
Diluted........................................ 79,665
SELECTED STORE DATA:
Comparable store net sales increase (k).......... 3%
Stores open at end of period..................... 174
Capital expenditures............................. $ 131.1
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------------
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1998 1997 1998 1997 1996 1995
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................. $ 483.9 $ 698.7 $ 697.9 $ 684.6 $ 574.5 $ 665.8
Total assets..................................... $ 2,111.7 $ 2,152.5 $ 2,224.9 $ 2,085.7 $ 1,551.3 $ 1,632.5
Long-term debt, less current portion............. $ 353.9 $ 658.4 $ 552.6 $ 662.2 $ 462.1 $ 562.9
Shareholders' equity............................. $ 1,120.7 $ 912.2 $ 1,094.6 $ 897.6 $ 625.8 $ 606.1
<CAPTION>
JANUARY 29,
1994
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................. $ 704.6
Total assets..................................... $ 1,300.8
Long-term debt, less current portion............. $ 454.9
Shareholders' equity............................. $ 508.0
</TABLE>
7
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF PROFFITT'S
(a) Proffitt's acquired Carson Pirie Scott effective January 31, 1998,
Herberger's effective February 1, 1997, and Younkers effective February 3,
1996. Such acquisitions were accounted for as poolings of interests.
Accordingly, Proffitt's financial statements were restated for all periods
presented to include the results of operations and financial position of
Carson Pirie Scott, Herberger's and Younkers. Proffitt's acquired Parisian
effective October 11, 1996 and McRae's effective March 31, 1994. The
Parisian and McRae's acquisitions were accounted for under the purchase
accounting method. Accordingly, Proffitt's financial statements include the
results of Parisian and McRae's from their respective dates of acquisition.
(b) 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 in a full fiscal year.
(c) Proffitt's fiscal year ends on the Saturday nearest to January 31. Fiscal
years presented consisted of 52 weeks except for the fiscal year ended
February 3, 1996, which consisted of 53 weeks.
(d) In connection with the acquisitions of Carson Pirie Scott, Herberger's,
Parisian and Younkers, Proffitt's incurred certain merger, restructuring and
integration costs, including transaction costs, costs associated with
severance and related benefits, abandonment and elimination of duplicate
administrative office space, property, data processing equipment and
software and other costs.
(e) Prior to Proffitt's acquisition of Younkers and Carson Pirie Scott, Carson
Pirie Scott engaged in an attempted hostile takeover attempt of Younkers.
Younkers incurred costs aggregating $3.2 million in defense against the
takeover attempt. Carson Pirie Scott incurred costs aggregating $6.8 million
in pursuing the hostile takeover attempt.
(f) Effective in fiscal 1995, Proffitt's adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." As a result
of adopting the new standard, Proffitt's incurred impairment charges of
$19.1 million related to the write-down of certain long-lived assets
primarily consisting of stores, duplicate warehouses and leasehold
improvements. In fiscal 1995, Carson Pirie Scott also sold eight of its nine
Minnesota stores for net proceeds of $70.8 million and recorded a gain,
after closing costs, of $55.2 million.
(g) In December 1997, Proffitt's terminated Herberger's employee stock ownership
plan resulting in a one-time charge of approximately $7.9 million.
(h) Carson Pirie Scott and its subsidiaries filed for and emerged from Chapter
11 bankruptcy protection in fiscal 1993. In connection with the bankruptcy
reorganization, Carson Pirie Scott recognized a loss on reorganization of
$219.9 million and an extraordinary gain on reorganization of $212.1
million, net of tax.
(i) In conjunction with Proffitt's acquisitions, Proffitt's has replaced debt
and other financing facilities resulting in extraordinary losses on early
extinguishment of debt.
(j) Effective with fiscal 1993, Proffitt's changed its method of accounting for
inventories, store pre-opening costs and pensions. The adjustments to
reflect these changes resulted in a net charge of $12.1 million. The most
significant component was a charge with respect to pensions of $14.0
million, net of tax.
(k) A new store becomes a comparable store in the first full month following the
first anniversary of the opening of such store. Renovated, expanded or
relocated stores are classified as comparable stores and not as new stores.
Where operations of a store group are divided among two or more buildings in
the same mall, the combined operations are treated as one comparable store.
8
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF SAKS
(DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
The following selected historical financial and operating data of Saks for
each fiscal year in the five-year period ended January 31, 1998 and for the
three-month periods ended May 2, 1998 and May 3, 1997, respectively, have been
derived from the consolidated financial statements of Saks. The balance sheet
data as of January 31, 1998, February 1, 1997, May 2, 1998 and May 3, 1997 and
the income statement data for each fiscal year in the three-year period ended
January 31, 1998 and for the unaudited three-month periods ended May 2, 1998 and
May 3, 1997 are included in information incorporated by reference in this Joint
Proxy Statement/Prospectus. The balance sheet data as of February 3, 1996,
January 28, 1995 and January 29, 1994 and the income statement data for each
fiscal year in the two-year period ended January 28, 1995 have been derived from
the audited consolidated financial statements of Saks previously filed with the
Securities and Exchange Commission (the "Commission"), but not incorporated
herein by reference. The selected historical financial and operating data should
be read in conjunction with the consolidated financial statements and notes
thereto of Saks, audited by PricewaterhouseCoopers LLP, independent accountants,
and with Saks Management's Discussion and Analysis of Financial Condition and
Results of Operations incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(A) FISCAL YEAR ENDED (B)
-------------------- --------------------------------------------------
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1998 1997 1998 1997 1996 1995
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................................ $ 582.9 $ 520.4 $ 2,192.7 $ 1,944.9 $ 1,686.8 $ 1,418.2
Cost of sales.................................... 417.0 366.7 1,533.4 1,347.7 1,168.5 979.7
Selling, general and administrative expenses..... 134.4 127.3 506.1 486.8 438.6 370.4
Special charges (c).............................. 1.0 43.4 2.0
--------- --------- ----------- ----------- ----------- -----------
Operating income............................... 31.5 26.4 153.2 109.4 36.3 66.1
Interest expense................................. 16.9 13.6 58.6 72.2 94.4 76.2
--------- --------- ----------- ----------- ----------- -----------
Income (loss) before provision for income taxes
and extraordinary item and cumulative effect of
change in accounting method.................... 14.6 12.8 94.6 37.2 (58.1) (10.1)
Provision (benefit) for taxes (d)................ 5.9 0.2 (251.2) 0.3
--------- --------- ----------- ----------- ----------- -----------
Income before extraordinary item and cumulative
effect of change in accounting method.......... 8.7 12.6 345.8 36.9 (58.1) (10.1)
Extraordinary loss on debt, net of tax (e)....... (3.3) (2.0) (12.8) (6.0) (0.5)
Cumulative effect of change in accounting method
(f)............................................ (5.3)
--------- --------- ----------- ----------- ----------- -----------
Net income (loss)................................ $ 3.4 $ 9.3 $ 343.8 $ 24.1 $ (64.1) $ (10.6)
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
Basic earnings (loss) per share.................. $ 0.06 $ 0.15 $ 5.42 $ 0.42 $ (1.43) $ (0.24)
Diluted earnings (loss) per share before
extraordinary item and cumulative effect....... $ 0.14 $ 0.20 $ 5.02 $ 0.63 $ (1.29) $ (0.22)
Diluted earnings (loss) per share................ $ 0.06 $ 0.14 $ 4.99 $ 0.41 $ (1.43) $ (0.24)
Weighted average common shares (g)
Basic.......................................... 63,695 63,344 63,483 57,722 44,955 45,010
Diluted........................................ 64,082 64,330 70,730 58,840 44,955 45,010
SELECTED STORE DATA:
Comparable store net sales increase (h).......... 5% 3% 4% 10% 11% 6%
Stores open at end of period..................... 96 87 97 85 65 53
Capital expenditures............................. $ 39.9 $ 31.0 $ 179.1 $ 133.9 $ 82.6 $ 55.7
<CAPTION>
AS OF
------------------------------------------------------------------------
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1998 1997 1998 1997 1996 1995
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................. $ 424.6 $ 332.8 $ 383.5 $ 295.4 $ 153.9 $ 125.1
Total assets..................................... $ 2,164.4 $ 1,619.2 $ 2,102.4 $ 1,572.9 $ 1,366.2 $ 1,289.2
Long-term debt, less current portion............. $ 885.5 $ 754.5 $ 828.1 $ 703.0 $ 944.7 $ 850.5
Stockholders' equity (g)......................... $ 884.2 $ 540.9 $ 879.9 $ 528.7 $ 83.2 $ 147.2
<CAPTION>
JANUARY 29,
1994
-----------
<S> <C>
Net sales........................................ $ 1,395.5
Cost of sales.................................... 975.4
Selling, general and administrative expenses..... 394.8
Special charges (c).............................. 179.7
-----------
Operating income............................... (154.4)
Interest expense................................. 73.8
-----------
Income (loss) before provision for income taxes
and extraordinary item and cumulative effect of
change in accounting method.................... (228.2)
Provision (benefit) for taxes (d)................
-----------
Income before extraordinary item and cumulative
effect of change in accounting method.......... (228.2)
Extraordinary loss on debt, net of tax (e)....... (27.6)
Cumulative effect of change in accounting method
(f)............................................
-----------
Net income (loss)................................ $ (255.8)
-----------
-----------
Basic earnings (loss) per share.................. $ (5.68)
Diluted earnings (loss) per share before
extraordinary item and cumulative effect....... $ (5.07)
Diluted earnings (loss) per share................ $ (5.68)
Weighted average common shares (g)
Basic.......................................... 45,030
Diluted........................................ 45,030
SELECTED STORE DATA:
Comparable store net sales increase (h).......... 2%
Stores open at end of period..................... 53
Capital expenditures............................. $ 34.4
JANUARY 29,
1994
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................. $ 106.0
Total assets..................................... $ 1,305.9
Long-term debt, less current portion............. $ 853.2
Stockholders' equity (g)......................... $ 159.1
</TABLE>
9
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF SAKS
(a) The business of Saks is seasonal, and results for any period within a fiscal
year are not necessarily indicative of the results that may be achieved in a
full fiscal year.
(b) Saks fiscal year ends on the Saturday nearest to January 31. Fiscal years
presented consisted of 52 weeks except for the fiscal year ended February 3,
1996, which consisted of 53 weeks.
(c) Saks incurred certain non-recurring and special charges in connection with
(i) the closing of the Yonkers, New York distribution center, integration of
former I. Magnin locations and write-off of certain capitalized EDP software
in fiscal 1995; (ii) the write down of certain long-lived assets, an early
retirement program and store closings and space reductions in fiscal 1993
and; (iii) management fees paid to an affiliate during fiscal 1993 through
1996.
(d) In the fourth quarter of fiscal 1997, based on Saks improved operating
profits and estimates of future profitability, Saks recorded a tax benefit
of $290 million reflecting the elimination of a valuation allowance against
deferred tax assets recorded principally from previous net operating losses.
In the fourth quarter of fiscal 1997, Saks began recording an income tax
provision using a 41% annual effective tax rate.
(e) Extraordinary items in all periods represent losses on early extinguishment
of debt.
(f) In the first quarter of fiscal 1998, Saks implemented Statement of Position
98-5, "Reporting on the Costs of Start-up Activities." This statement
requires companies to expense start-up costs, such as store pre-opening
expenses, as incurred. Saks prior accounting policy expensed such costs over
a twelve-month period following store opening.
(g) In fiscal 1996, Saks completed an initial public offering of approximately
18.0 million shares of Saks Common Stock at an initial public offering price
of $25 per share. The net proceeds from the offering were $417.8 million.
Effective with the initial public offering, all then outstanding shares of
Class A, Class B, Class C and Class D Stock were converted into shares of
Saks Common Stock on a one-for-one basis.
(h) A new store becomes a comparable store in the first full month following the
first anniversary of the opening of such store. Significantly renovated,
expanded or relocated stores are excluded as comparable stores and are
treated as new stores.
10
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
(AMOUNTS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
The following unaudited pro forma combined financial and operating data have
been presented to reflect the pro forma effect of the Merger accounted for as a
pooling of interests. Accordingly, the consolidated financial statements of
Proffitt's have been restated for all periods presented to include the assets,
liabilities, stockholders' equity and results of operations of Saks. The
selected unaudited pro forma combined financial and operating data are presented
for illustrative purposes only and are not necessarily indicative of the
operating results or financial condition of the combined company that would have
occurred had the Merger occurred as of the date indicated, nor are the selected
unaudited pro forma combined financial and operating data necessarily indicative
of future operating results or financial position of the combined company. The
unaudited pro forma combined financial and operating data (i) have been derived
from and should be read in conjunction with the Unaudited Pro Forma Condensed
Combined Financial Statements and the notes thereto included elsewhere in this
Joint Proxy Statement/ Prospectus and (ii) should be read in conjunction with
the consolidated financial statements of Saks and Proffitt's incorporated by
reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED (A) FISCAL YEAR ENDED (A)
-------------------- -----------------------------------------
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1998 1997 1996
--------- --------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $ 1,412.6 $ 1,302.1 $ 5,726.3 $ 4,926.9 $ 4,422.1
Cost of sales...................................... 933.9 861.5 3,763.3 3,248.2 2,936.4
Selling, general and administrative expenses....... 285.2 268.6 1,119.8 1,015.4 923.0
Other operating expenses........................... 117.6 106.1 444.3 367.4 330.8
Merger and special charges......................... 2.0 1.5 43.4 18.3 28.2
Year 2000 expenses................................. 1.5 0.6 6.5
Expenses of Younkers takeover attempt.............. 10.0
ESOP expenses...................................... 0.7 9.5 3.9 2.9
--------- --------- ----------- --------------- -----------
Operating income............................... 72.4 63.1 339.5 273.7 190.8
Other income (expense):
Interest expense................................. (24.8) (28.5) (113.7) (114.9) (141.7)
Other income (expense), net...................... 0.1 0.1 2.3 (11.8) 4.1
--------- --------- ----------- --------------- -----------
Income before provision for income
taxes and extraordinary items.................... 47.7 34.7 228.1 147.0 53.2
Provision (benefit) for income taxes (b)........... 19.3 9.5 (187.9) 51.0 48.9
--------- --------- ----------- --------------- -----------
Income before extraordinary items.................. $ 28.4 $ 25.2 $ 416.0 $ 96.0 $ 4.3
--------- --------- ----------- --------------- -----------
--------- --------- ----------- --------------- -----------
Basic earnings per common share before
extraordinary item (b)........................... $ 0.20 $ 0.19 $ 3.02 $ 0.74 $ 0.02
Diluted earnings per common share before
extraordinary item (b)(c)........................ $ 0.19 $ 0.18 $ 2.86 $ 0.71 $ 0.02
Weighted Average Common Shares
Basic........................................ 141,736 135,252 137,588 125,056 111,974
Diluted...................................... 145,958 142,584 149,085 132,583 113,309
SELECTED STORE DATA:
Comparable store net sales increase (d)............ 6%
Stores open at end of period....................... 333
Capital expenditures............................... $ 77.5
</TABLE>
<TABLE>
<CAPTION>
AS OF
MAY 2,
1998
---------
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital....................................... $ 893.1
Total assets.......................................... $ 4,260.3
Long-term debt, less current portion.................. $ 1,239.4
Shareholders' equity.................................. $ 1,989.1
</TABLE>
11
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
(a) The Selected Unaudited Pro Forma Combined Financial and Operating Data of
Proffitt's do not reflect expenses anticipated to be incurred or the effects
of potential increased revenues or operating synergies and cost savings
anticipated to result from the Merger. See "THE MERGER--Reasons of
Proffitt's for the Merger--Anticipated Cost Savings and Operating
Synergies."
(b) Saks recorded an income tax benefit of $290 million, in the fourth quarter
of 1997, relating to the reduction in the valuation allowance associated
with certain deferred tax assets. Had Saks recorded income taxes at 41% on a
historical basis, pro forma combined diluted earnings per common share
before extraordinary item would have been $.88.
(c) Anticipated non-recurring charges related to direct costs of the Merger are
estimated at $50 million. These costs include estimated investment banking
fees of $30 million payable by Proffitt's and Saks and estimated legal,
accounting and other transaction costs of $20 million. These non-recurring
charges would represent a reduction in pro forma diluted earnings per share
of the Proffitt's Common Stock of $.34 for the year ended January 31, 1998,
and $.34 per share for the three months ended May 2, 1998. These charges do
not include any costs related to the integration of the operations of the
businesses of Proffitt's and Saks.
(d) Saks methodology of calculating comparable store sales was changed to
conform to Proffitt's methodology whereby renovated, expanded and relocated
stores are classified as comparable stores.
12
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are data of Proffitt's and Saks with regard to income (loss)
from continuing operations and before extraordinary items and cumulative effect
of change in accounting methods and book value per common share on both an
historical and a pro forma combined basis. Neither Proffitt's nor Saks has
declared or paid any dividends on its common stock. Pro forma combined income
(loss) from continuing operations and before extraordinary items and cumulative
effect of change in accounting methods per common share is derived from the
unaudited pro forma condensed combined financial statements presented elsewhere
herein, which give effect to the Merger under the pooling of interests method of
accounting as if the Merger had occurred at the beginning of the periods
presented. The equivalent pro forma combined data for Saks is calculated by
multiplying the respective pro forma combined amounts by the Conversion Number.
Book values per share for Saks and for the pro forma combined presentation are
based upon outstanding common shares as of the date presented, 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 Saks incorporated by reference in this Joint Proxy
Statement/ Prospectus and those presented herein under the heading "UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
EQUIVALENT
PRO FORMA
COMBINED
PER SHARE
OF
SAKS
PROFFITT'S SAKS PRO FORMA COMMON
HISTORICAL HISTORICAL COMBINED STOCK
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME (LOSS) FROM CONTINUING OPERATIONS AND BEFORE
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHODS:
February 3, 1996........................................ $ .81 $ (1.29) $ .02 $ .02
February 1, 1997........................................ $ .78 $ .63 $ .71 $ .58
January 31, 1998........................................ $ .81 $ 5.02(1) $ 2.86(1) $ 2.35(1)
May 2, 1998 (three months).............................. $ .22 $ .14 $ .19 $ .16
BOOK VALUE (AT END OF PERIOD):
January 31, 1998........................................ $ 12.26 $ 13.82 $ 13.82 $ 11.33
May 2, 1998............................................. $ 12.49 $ 13.88 $ 14.01 $ 11.49
</TABLE>
- ------------------------
(1) Saks recorded a $290 million income tax benefit or $4.10 per share in 1997,
relating to the reduction in the valuation allowance associated with certain
deferred tax assets. Had Saks recorded income taxes at 41% on a historical
basis, income from continuing operations and before extraordinary items and
cumulative effect of change in accounting methods for Saks on an historical
basis would have been $.87, on a pro forma combined basis would have been
$.88 and on a pro forma combined per share equivalent basis would have been
$.72.
13
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
The Proffitt's Common Stock (Symbol: "PFT") and the Saks Common Stock
(Symbol: "SKS") are listed and traded on the NYSE. Proffitt's Common Stock was
traded on the Nasdaq National Market under the symbol "PRFT" prior to July 7,
1997. The following table sets forth for the periods indicated the reported high
and low sales prices of Proffitt's Common Stock and Saks Common Stock,
respectively. The source of these quotations is the New York Stock Exchange
Composite Transactions Tape, and for Proffitt's Common Stock prior to July 7,
1997, the Monthly Statistical Report of the National Association of Securities
Dealers, Inc. With respect to Proffitt's Common Stock prior to July 7, 1997,
such quotations represent inter-dealer prices for actual transactions, without
adjustment for retail markup, markdown or commission. Prices of Proffitt's
Common Stock have been adjusted to give effect to the October 1997 two-for-one
stock split.
<TABLE>
<CAPTION>
SALES PRICE
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
PROFFITT'S COMMON STOCK
1996
First Quarter.................................................................................... 16 11 3/4
Second Quarter................................................................................... 20 15 3/4
Third Quarter.................................................................................... 21 17 3/4
Fourth Quarter................................................................................... 21 16 5/16
1997
First Quarter.................................................................................... 20 11/16 15
Second Quarter................................................................................... 26 27/32 18 7/8
Third Quarter.................................................................................... 30 5/8 24 7/8
Fourth Quarter................................................................................... 32 7/16 25
1998
First Quarter.................................................................................... 40 3/4 29 3/8
Second Quarter (prior to July 4, 1998)........................................................... 44 7/16 36 15/16
Second Quarter (from and after July 4, 1998, through , 1998).................................
</TABLE>
<TABLE>
<CAPTION>
SALES PRICE
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
SAKS COMMON STOCK
1996
First Quarter.................................................................................... NA NA
Second Quarter................................................................................... 35 7/8 25 1/2
Third Quarter.................................................................................... 41 1/4 32 1/8
Fourth Quarter................................................................................... 37 7/8 25 1/2
1997
First Quarter.................................................................................... 36 1/4 18 5/8
Second Quarter................................................................................... 25 3/8 19
Third Quarter.................................................................................... 27 1/4 20
Fourth Quarter................................................................................... 25 1/4 18 5/8
1998
First Quarter.................................................................................... 26 3/8 21
Second Quarter (prior to July 4, 1998)........................................................... 29 1/8 21 5/16
Second Quarter (from and after July 4, 1998, through , 1998).................................
</TABLE>
Neither Proffitt's nor Saks has declared or paid any dividends on its common
stock. Proffitt's and Saks presently follow the policy of retaining earnings to
provide funds for the operation and expansion of the business and have no
present intention to declare cash dividends in the foreseeable future.
Proffitt's currently intends that after the Merger, the combined company also
will follow this policy and will not pay dividends on its common stock.
14
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, HOLDERS OF PROFFITT'S COMMON STOCK AND HOLDERS OF SAKS
COMMON STOCK SHOULD CONSIDER CAREFULLY THE RISK FACTORS DESCRIBED BELOW.
FIXED MERGER CONSIDERATION DESPITE CHANGES IN RELATIVE STOCK PRICES
At the Effective Time, each share of Saks Common Stock (other than shares
held in the treasury of Saks) will be converted into .82 of a share of
Proffitt's Common Stock. This Conversion Number is fixed in the Merger Agreement
and will not be adjusted in the event of an increase or decrease in the market
prices of either Saks Common Stock or Proffitt's Common Stock. However, Saks may
terminate the Merger Agreement prior to the Saks Special Meeting if the average
of the daily per share closing prices of Proffitt's Common Stock on the NYSE for
the fifteen (15) consecutive trading day period ending on the third trading day
prior to the Saks Special Meeting is less than $30.52.
The prices of Saks Common Stock and Proffitt's Common Stock at the Effective
Time may vary from their prices at the date of this Joint Proxy
Statement/Prospectus and at the date of the Saks Special Meeting and the
Proffitt's Special Meeting. See "SUMMARY--Comparative Stock Prices and
Dividends." Such variations may be the result of changes in the business,
operations or prospects of Saks or Proffitt's, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, general
market and economic conditions and other factors. If the completion of the
Merger occurs at a date later than the date of the Saks Special Meeting and the
Proffitt's Special Meeting, at the time of the Saks Special Meeting, Saks
stockholders will not know the exact value of the Proffitt's Common Stock they
will receive when the Merger is completed. However, Saks and Proffitt's have
agreed in the Merger Agreement that the Saks Special Meeting and the Proffitt's
Special Meeting will be held, if practicable, on the same day and that the
closing of the Merger will take place immediately following the time at which
the last of the conditions to the consummation of the Merger (including the
receipt of the requisite approvals of the holders of Proffitt's Common Stock and
the holders of Saks Common Stock) has been fulfilled.
Holders of Saks Common Stock and Proffitt's Common Stock are urged to obtain
current market quotations for Saks Common Stock and Proffitt's Common Stock.
UNCERTAINTIES IN ACHIEVING OPERATING EFFICIENCIES AND SYNERGIES
In approving and recommending the Merger, each of the Proffitt's Board and
the Saks Board considered the cost savings, operating efficiencies and other
synergies expected to result from the combination of the two companies. See "THE
MERGER--Reasons of Proffitt's for the Merger" and
"--Reasons of Saks for the Merger." While Proffitt's has in the past been
successful at achieving operating efficiencies and synergies as a result of such
acquisitions, there can be no assurance that the targeted cost savings and other
benefits expected to be realized as a result of the Merger will be achieved.
INTEGRATION OF OPERATIONS
The Merger involves the integration of two retailing companies that
previously have operated independently and that target different customers and
geographic areas. Saks is a premier fashion retailer operating nationwide;
Proffitt's primarily operates department store businesses located in the Midwest
and Southeast regions of the United States. Although Saks will continue to be
run primarily by current Saks management, the integration of Saks business with
Proffitt's business will place new challenges on Proffitt's management and there
can be no assurance that such integration will be successfully implemented. In
addition, the Merger constitutes the largest acquisition undertaken by
Proffitt's. While Proffitt's has in the past been successful at effectively
integrating the operations of acquired businesses, there can be no assurance
that Proffitt's will be able to successfully integrate a business as large as
Saks, which in fiscal 1997 had net sales of approximately $2.2 billion.
15
<PAGE>
As part of its business strategy, Proffitt's has consummated a series of
acquisitions over the past several years, including the acquisition of Carson
Pirie Scott & Co. ("Carson Pirie Scott") effective January 31, 1998, and,
following the Merger, Proffitt's intends to continue to regularly evaluate
acquisition opportunities. Proffitt's future operations and earnings will be
affected by its ability to successfully integrate the operations of any
businesses acquired in the future. Material issues could arise in connection
with integrating these acquired businesses, and there can be no assurance that
Proffitt's will continue to be able to successfully integrate such businesses.
The failure to successfully integrate any acquired businesses could have a
material adverse effect on Proffitt's results of operations and financial
position and could adversely affect the value of the Proffitt's Common Stock.
In addition, each of Proffitt's and Saks has undertaken efforts to address
the Year 2000 problem with respect to such company's information systems.
Integration after the Merger of the two companies' efforts to become Year 2000
compliant may present significant operational challenges. Failure to timely
integrate these efforts could delay the realization of certain synergies
expected to result from the Merger.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS
The recent growth and development of Proffitt's has been significantly
dependent upon the services of Mr. R. Brad Martin, Chairman and Chief Executive
Officer of Proffitt's. Following the Merger, Mr. Martin will serve as Chairman
and Chief Executive Officer of the combined company pursuant to a five-year
employment contract expiring in February 2003. The loss of the services of Mr.
Martin could have a material adverse effect on the business, results of
operations or financial position of Proffitt's or the combined company.
The recent growth and development of Saks has been significantly largely
dependent upon the services of Mr. Philip B. Miller, Chairman and Chief
Executive Officer of Saks. Mr. Miller has agreed to enter into an employment
agreement with Proffitt's and will continue in his current position with Saks
following the Merger. See "OTHER AGREEMENTS--Miller Employment Agreement."
However, the loss of the services of Mr. Miller could have a material adverse
effect on the business, results of operations or financial position of Saks or
the combined company.
FUTURE SALE OF PROFFITT'S STOCK HELD BY THE INVESTCORP AFFILIATES
Following the Merger, the Investcorp Affiliates will hold in the aggregate
approximately 7.9 million shares of Proffitt's Common Stock, representing
approximately 5.7% of the outstanding shares of Proffitt's Common Stock as of
the Effective Time. Pursuant to the Registration Rights Agreement, at any time
following publication by Proffitt's of financial results covering at least
thirty (30) days of post-Merger combined operations, the Investcorp Affiliates
have the right, subject to certain limitations, to request that Proffitt's
register for resale shares of Proffitt's Common Stock held by them. The
Investcorp Affiliates also may sell Proffitt's Common Stock in the open market,
subject to the volume limitations imposed by Rule 145 under the Securities Act.
No prediction can be made as to the likelihood of future sales of shares of
Proffitt's Common Stock by the Investcorp Affiliates or the effect, if any, that
such sales would have on the market price of Proffitt's Common Stock prevailing
from time to time.
16
<PAGE>
THE SPECIAL MEETINGS
THE PROFFITT'S SPECIAL MEETING
MATTERS TO BE CONSIDERED. At the Proffitt's Special Meeting, holders of
shares of Proffitt's Common Stock will be asked to consider and vote upon
proposals to approve the Merger Agreement, the Stock Issuance, the Charter
Amendment and the Board Amendment. Holders of shares of Proffitt's Common Stock
entitled to vote at the Proffitt's Special Meeting also will be asked to
consider and vote upon any other matter that may properly come before the
Proffitt's Special Meeting. APPROVALS OF THE MERGER AGREEMENT AND THE STOCK
ISSUANCE BY PROFFITT'S SHAREHOLDERS ARE CONDITIONS TO THE CONSUMMATION OF THE
MERGER. Approvals of the Charter Amendment and the Board Amendment by Proffitt's
shareholders are NOT conditions to the consummation of the Merger.
The NYSE requires shareholder approval of the Stock Issuance because the
number of shares of Proffitt's Common Stock to be issued in the Merger is
expected to exceed 20% of the shares of Proffitt's Common Stock outstanding
immediately prior to the Effective Time. In addition, because Proffitt's Common
Stock is being issued in the Merger, the TBCA requires that the Merger Agreement
be approved by shareholders of Proffitt's, notwithstanding that Proffitt's is
not a constituent corporation to the Merger. For a discussion of the reasons for
the submission to shareholders of Proffitt's of the Charter Amendment and the
Board Amendment, see "PROPOSED AMENDMENTS TO PROFFITT'S AMENDED AND RESTATED
CHARTER." Holders of Proffitt's Common Stock also could be asked to vote upon a
proposal to adjourn the Proffitt's Special Meeting, which adjournment could be
used for the purpose, among others, of allowing additional time for the
soliciting of additional votes to approve and adopt the Merger Agreement, the
Stock Issuance, the Charter Amendment and the Board Amendment.
VOTE REQUIRED. Each holder of Proffitt's Common Stock (other than direct or
indirect subsidiaries of Proffitt's) is entitled to one vote per share held of
record on the Proffitt's Record Date. The approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the votes eligible
to be cast on the proposal. Approval of the Stock Issuance requires the
affirmative vote of the holders of a majority of the votes cast provided that
the total number of votes cast represents at least 50% of the total number of
outstanding shares of Proffitt's Common Stock. Approval of the Charter Amendment
requires that votes cast in favor of the Charter Amendment exceed votes cast
against the Charter Amendment, provided a quorum is present. Approval of the
Board Amendment requires the affirmative vote of the holders of at least 80% of
the shares of Proffitt's Common Stock eligible to vote.
Abstentions will be counted as shares present for purposes of determining
the presence of a quorum at the Proffitt's Special Meeting. See "--Record Date;
Stock Entitled to Vote; Quorum." Abstentions with respect to the Merger
Agreement and the Board Amendment, respectively, will have the effect of votes
against the approval of each such matter. In addition, brokers who hold shares
of Proffitt's Common Stock as nominees will not have discretionary authority to
vote shares of Proffitt's Common Stock in the absence of instructions from the
beneficial owners thereof. Votes which are not cast for this reason ("broker
non-votes") will have the effect of votes against the Merger Agreement and the
Board Amendment. Abstentions and broker non-votes with respect to the Stock
Issuance and the Charter Amendment will not have the effect of either votes for
or votes against the matter.
As of the Proffitt's Record Date, directors and executive officers of
Proffitt's and their affiliates held an aggregate of shares of Proffitt's
Common Stock, equivalent to approximately % of the votes entitled to be cast
at the Proffitt's Special Meeting
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM. Only holders of record of
Proffitt's Common Stock at the close of business on the Proffitt's Record Date
will be entitled to receive notice of and to vote at the Proffitt's Special
Meeting. On the Proffitt's Record Date, Proffitt's had outstanding shares
of Proffitt's Common Stock. The holders of Proffitt's Common Stock are entitled
to one vote per share on each matter submitted to a vote at the Proffitt's
Special Meeting. The holders of a majority of the shares of
17
<PAGE>
Proffitt's Common Stock entitled to vote must be present in person or by proxy
at the Proffitt's Special Meeting in order for a quorum to be present. Shares of
Proffitt's Common Stock represented by proxies which are marked "abstain" or
which are not marked as to any particular matter or matters will be counted as
shares present for purposes of determining the presence of a quorum at the
Proffitt's Special Meeting. Proxies relating to "street name" shares that are
voted by brokers will be counted as shares present for purposes of determining
the presence of a quorum but will not be treated as shares having voted at the
Proffitt's Special Meeting as to any proposal as to which authority to vote is
withheld from the broker.
In the event a quorum is not present in person or by proxy at the Proffitt's
Special Meeting, the Proffitt's Special Meeting is expected to be adjourned or
postponed.
RECOMMENDATIONS OF THE PROFFITT'S BOARD. THE PROFFITT'S BOARD HAS
DETERMINED THAT THE MERGER IS IN FURTHERANCE OF AND CONSISTENT WITH PROFFITT'S
LONG-TERM BUSINESS STRATEGIES AND IS ADVISABLE AND FAIR TO AND IN THE BEST
INTERESTS OF THE HOLDERS OF SHARES OF PROFFITT'S COMMON STOCK. ACCORDINGLY, THE
PROFFITT'S BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE STOCK
ISSUANCE, THE CHARTER AMENDMENT AND THE BOARD AMENDMENT AND UNANIMOUSLY
RECOMMENDS THAT PROFFITT'S SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT, THE STOCK ISSUANCE, THE CHARTER AMENDMENT AND THE BOARD AMENDMENT.
SEE "THE MERGER--RECOMMENDATIONS OF THE PROFFITT'S BOARD" AND "PROPOSED
AMENDMENTS TO PROFFITT'S AMENDED AND RESTATED CHARTER."
THE SAKS SPECIAL MEETING
MATTERS TO BE CONSIDERED. At the Saks Special Meeting, holders of Saks
Common Stock will be asked to consider and vote upon a proposal to approve and
adopt the Merger Agreement. The holders of Saks Common Stock also could be asked
to vote upon a proposal to adjourn the Saks Special Meeting, which adjournment
could be used for the purpose, among others, of allowing additional time for the
soliciting of additional votes to approve and adopt the Merger Agreement.
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF SAKS IS A
CONDITION TO THE CONSUMMATION OF THE MERGER.
VOTE REQUIRED. Each share of Saks Common Stock entitles the holder thereof
to one vote on each matter properly submitted to a vote of the stockholders of
Saks at the Saks Special Meeting. The affirmative vote of the holders of a
majority of the outstanding shares of Saks Common Stock is required to approve
and adopt the Merger Agreement at the Saks Special Meeting. Abstentions from
voting and broker non-votes will not be deemed to have been cast either "for" or
"against" approval and adoption of the Merger Agreement and, since approval and
adoption of the Merger Agreement requires the affirmative vote of the holders of
a majority of the outstanding shares of Saks Common Stock, abstentions and
broker non-votes will have the same effect as votes cast against approval and
adoption of the Merger Agreement. See--"Record Date; Stock Entitled to Vote;
Quorum." Accordingly, the Saks Board urges holders of Saks Common Stock to
complete, date and sign the accompanying proxy and return it promptly in the
enclosed postage-paid envelope.
As of the Saks Record Date, directors and executive officers of Saks and
their affiliates held shares of Saks Common Stock, equivalent to
approximately of the votes entitled to be cast at the Saks Special Meeting.
Furthermore, the Investcorp Affiliates, which hold in the aggregate
approximately 15.2% of the outstanding shares of Saks Common Stock, have entered
into the Stockholders' Agreement pursuant to which they have agreed to vote the
shares of Saks Common Stock owned by them in favor of approval and adoption of
the Merger Agreement. See "OTHER AGREEMENTS--Stockholders' Agreement."
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM. Only holders of Saks Common
Stock on the Saks Record Date will be entitled to notice of and to vote at the
Saks Special Meeting. On the Saks Record Date, Saks had outstanding
shares of Saks Common Stock. The holders of a majority of the shares of Saks
Common Stock entitled to vote at the Saks Special Meeting must be present in
person or by
18
<PAGE>
properly executed proxy at the Saks Special Meeting for a quorum to be present.
In accordance with DGCL, abstentions from voting will be counted for purposes of
determining whether a quorum exists at the Saks Special Meeting. Furthermore,
shares represented by proxies returned by broker holding such shares in nominee
or "street" name, including broker non-votes, will be counted for purposes of
determining whether a quorum exists. In the event a quorum is not present in
person or by proxy at the Saks Special Meeting, the Saks Special Meeting is
expected to be adjourned or postponed.
RECOMMENDATION OF THE SAKS BOARD. THE SAKS BOARD HAS DETERMINED THAT THE MERGER
AGREEMENT IS ADVISABLE AND FAIR TO AND IN THE BEST INTERESTS OF SAKS AND ITS
STOCKHOLDERS. ACCORDINGLY, THE SAKS BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SAKS STOCKHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT. SEE "THE MERGER--RECOMMENDATION OF THE
SAKS BOARD."
VOTING OF PROXIES
Shares represented by properly executed proxies received in time for the
Proffitt's Special Meeting or the Saks Special Meeting, as applicable, and which
have not been revoked will be voted at the Proffitt's Special Meeting or the
Saks Special Meeting, as applicable, 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 either proxy will be
voted in favor of such matter. It is not expected that any matter other than
those referred to in this Joint Proxy Statement/Prospectus will be brought
before the Proffitt's Special Meeting. If, however, other matters are properly
presented at the Proffitt's Special Meeting, 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. Pursuant to the DGCL, only matters
specified in the Notice of Special Meeting of Stockholders may be submitted to a
vote of stockholders at the Saks Special Meeting. Accordingly, no matters other
than those specified in the Notice of Special Meeting of Stockholders will be
submitted to a vote of Saks stockholders at the Saks Special Meeting.
REVOCABILITY OF PROXIES
PROFFITT'S. The accompanying form of Proffitt's proxy is for the use at the
Proffitt's Special Meeting if a holder of Proffitt's Common Stock is unable to
attend the Proffitt's Special Meeting in person or wishes to have his or her
shares voted by proxy even if such shareholder does attend the Proffitt's
Special Meeting. Any proxy may be revoked by the shareholder granting such proxy
at any time before it is exercised, either by submitting to the Corporate
Secretary of Proffitt's written notice of revocation or a properly executed
proxy of a later date or by attending the Proffitt's Special Meeting and
electing to vote in person. Attendance at the Proffitt's Special Meeting will
not in and of itself constitute a revocation of a proxy. Written notices of
revocation and other communications with respect to the revocation of Proffitt's
proxies should be addressed to Proffitt's, Inc., 115 Calderwood, Alcoa,
Tennessee 37701, Attention: Corporate Secretary.
SAKS. The accompanying form of Saks proxy is for use at the Saks Special
Meeting if a holder of Saks Common Stock is unable to attend the Saks Special
Meeting in person or wishes to have his or her shares voted by proxy even if
such stockholder does attend the Saks Special Meeting. Any proxy may be revoked
by the stockholder granting such proxy at any time before it is exercised,
either by submitting to the Corporate Secretary of Saks written notice of
revocation or a properly executed proxy of a later date or by attending the Saks
Special Meeting and electing to vote in person. Attendance at the Saks Special
Meeting will not in and of itself constitute a revocation of a proxy. Written
notices of revocation and other communications with respect to the revocation of
Saks proxies should be addressed to Saks Holdings, Inc., 12 East 49th Street,
New York, New York, 10017, Attention: Corporate Secretary.
19
<PAGE>
APPRAISAL RIGHTS
Under the TBCA, holders of Proffitt's Common Stock will not be entitled to
appraisal rights in connection with any of the proposals to be acted on at the
Proffitt's Special Meeting. Under the DGCL, holders of Saks Common Stock will
not be entitled to appraisal rights in connection with the approval and adoption
of the Merger Agreement at the Saks Special Meeting.
SOLICITATION OF PROXIES
Subject to the terms of the Merger Agreement, each of Proffitt's and Saks
will bear the cost of the solicitation of proxies from the holders of Proffitt's
Common Stock and the holders of Saks Common Stock, respectively, except that
Proffitt's and Saks will share equally the cost of printing this Joint Proxy
Statement/Prospectus. In addition to solicitation by mail, the directors,
officers and employees of each of Proffitt's and Saks and their respective
subsidiaries may solicit proxies from the holders of Proffitt's Common Stock and
the holders of Saks Common Stock, respectively, by telephone, in person or by
other means. These directors, officers and employees will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses in connection therewith. Arrangements also will be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of shares held of record by such
persons, and Proffitt's and Saks will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection therewith.
Proffitt's has retained Georgeson and Company, Inc. ("Georgeson") for
solicitation and advisory services in connection with the solicitation, for
which Georgeson is to receive a fee estimated at $ , together with
reimbursement for its reasonable out-of-pocket expenses. Proffitt's also has
agreed to indemnify Georgeson against certain liabilities and expenses,
including liabilities under the federal securities laws. It is anticipated that
Georgeson will employ approximately persons to solicit shareholders for the
Proffitt's Special Meeting.
Saks also has retained Georgeson for solicitation and advisory services in
connection with the solicitation, for which Georgeson is to receive a fee
estimated at $ , together with reimbursement for its reasonable
out-of-pocket expenses. Saks also has agreed to indemnify Georgeson against
certain liabilities and expenses, including liabilities under the federal
securities laws. It is anticipated that Georgeson will employ approximately
persons to solicit stockholders for the Saks Special Meeting.
HOLDERS OF SAKS COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES
If the requisite approvals of both the holders of Proffitt's Common Stock
and the holders of Saks Common Stock are obtained and all other conditions to
the Merger are satisfied or (where permissible) waived and the Merger is
consummated, materials for submitting Saks stock certificates in exchange for
Proffitt's stock certificates will be provided to Saks stockholders. DO NOT SEND
IN YOUR SAKS STOCK CERTIFICATES AT THIS TIME.
20
<PAGE>
THE MERGER
THE DESCRIPTION OF THE MERGER AND THE MERGER AGREEMENT CONTAINED IN THIS
JOINT PROXY STATEMENT/ PROSPECTUS DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT,
A COPY OF WHICH IS INCLUDED AS APPENDIX I TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
GENERAL
Proffitt's, Sub and Saks 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 with and into Saks, with Saks continuing as the
surviving corporation and a wholly-owned subsidiary of Proffitt's. In the
Merger, each share of Saks Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares held in the treasury of Saks) will be
converted into .82 of a share of Proffitt's Common Stock. Cash will be paid in
lieu of any fractional shares of Proffitt's Common Stock.
BACKGROUND OF THE MERGER
In May 1998, representatives of Investcorp met with Mr. Philip B. Miller,
Chairman and Chief Executive Officer of Saks, to discuss the possibility of a
strategic transaction involving Saks. Investcorp's representatives informed Mr.
Miller that the Saks Financial Advisors had advised Investcorp that, due to Saks
improved financial performance and the overall strength of the stock market, it
was an opportune time for Saks to engage in a value-enhancing transaction for
all of Saks stockholders. During the course of the ensuing discussion, the
Investcorp representatives indicated that, if an attractive strategic partner
would be interested in pursuing a transaction for less than 100% of Saks, the
Investcorp Affiliates would be willing to consider a sale of the Saks Common
Stock owned by them.
Shortly thereafter, management of Saks met with the Saks Financial Advisors
to discuss the feasibility of a strategic transaction for Saks at that time,
including a potential sale of Saks or a business combination with another
company. In advance of a Saks Board meeting that was scheduled for May 16, 1998,
management of Saks and representatives of Investcorp held various meetings with
the Saks Financial Advisors to further discuss these matters and prepare for a
presentation to the Saks Board.
On May 16, 1998, the Saks Board met with the Saks Financial Advisors and
Saks legal counsel, Skadden, Arps, Slate, Meagher & Flom LLP, to discuss
alternatives for a value-enhancing strategic transaction that would benefit all
Saks stockholders, as well as the implications for Saks of the interests of the
Investcorp Affiliates with regard to their investment in Saks. Following
presentations by Saks advisors, the Saks Board determined that it was in the
best interests of Saks and its stockholders to explore strategic alternatives
for a transaction that would maximize potential value for all stockholders of
Saks. The Saks Board then authorized the Saks Financial Advisors to pursue on
behalf of Saks such strategic alternatives, including a potential sale of Saks
or a business combination transaction. The Saks Board directed the Saks
Financial Advisors to explore such a transaction in a manner that would minimize
the disruption of Saks ongoing business operations.
Pursuant to this authorization, the Saks Financial Advisors contacted
approximately ten potential strategic partners (including Proffitt's) that had
been identified by them as possessing a strategic rationale for and the
financial capability to pursue a strategic business combination with Saks. As a
result of these contacts, meetings were held during the period from May 29 to
June 24, 1998 with senior representatives of six of the potential strategic
partners at which management of Saks made a presentation regarding, among other
things, Saks historic financial results and strategies for future growth.
Certain of these meetings were followed up by further discussions. Saks entered
into confidentiality agreements with a number of parties that had demonstrated
an interest in engaging in a strategic transaction with Saks at that time and
gave those parties access to extensive information pertaining to Saks.
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One of these meetings was held on June 2, 1998 with Mr. R. Brad Martin,
Chairman and Chief Executive Officer of Proffitt's, and Mr. Douglas E. Coltharp,
Executive Vice President and Chief Financial Officer of Proffitt's. During this
meeting, Mr. Miller and Mr. Brian E. Kendrick, Vice Chairman and Chief Operating
Officer of Saks, provided an overview of the historical operating and financial
performance of Saks and also described their views as to possible areas for
growth and expansion of the Saks franchise. Messrs. Brad Martin, Coltharp,
Miller and Kendrick also discussed the opportunity to achieve synergies in a
combination of Proffitt's and Saks, as well as their views as to trends in
retailing. Based on this meeting, Proffitt's retained Salomon as its financial
advisor to explore a possible transaction with Saks.
On June 4, 1998, Proffitt's management met with Salomon to discuss the
possible structure of a combination with Saks and other financial aspects of a
potential transaction. Following that meeting Proffitt's continued to work with
Salomon and Proffitt's legal advisors, Cravath, Swaine & Moore and Sommer &
Barnard, PC, on the terms of a possible combination and related legal and other
issues.
Between June 4, 1998 and June 15, 1998, Messrs. Brad Martin, Douglas
Coltharp and Brian Martin, Executive Vice President of Law and General Counsel
of Proffitt's, had numerous discussions with the Proffitt's legal advisors and
Salomon regarding the basis for valuation of Saks, the projected pro forma
financial results of a combined company, and the alternative combination
structures.
On June 15, 1998, Salomon met again with Mr. Brad Martin to further discuss
a possible combination with Saks and the appropriate method for presentation of
such a combination to Saks management.
On June 16, 1998, Mr. Brad Martin met with Mr. Charles Philippin and Mr.
Savio Tung, representatives of Investcorp and members of the Saks Board. At that
meeting, Mr. Martin expressed his interest in pursuing a transaction with Saks
and described the benefits he saw in a combination of Proffitt's and Saks.
Messrs. Philippin and Tung suggested that Mr. Martin submit a proposal to Saks
management.
On June 17, 1998, Proffitt's delivered a letter to Mr. Miller which
contained an offer by Proffitt's to pursue a merger transaction with Saks
pursuant to which Saks stockholders would receive on a tax-free basis .78 of a
share of Proffitt's Common Stock for each share of Saks Common Stock which,
based on the closing share price of Proffitt's Common Stock on June 15, 1998,
had an implied value of $30.42 per share of Saks Common Stock and represented a
premium of approximately 34.8% over Saks closing price per share on June 15,
1998. The letter provided that the proposal was to remain open until June 26,
1998 and was accompanied by drafts of a merger agreement and ancillary
agreements setting forth the terms of the proposal. Representatives of Saks
responded that Saks was interested in engaging in discussions with Proffitt's,
but that such discussions would have to be pursued in a manner consistent with
the process in which Saks was then engaged. Saks also continued its discussions
with other potential strategic partners.
On June 22, 1998, the financial advisors to each of Saks and Proffitt's held
a telephonic meeting to discuss a time frame for negotiating a potential
combination.
On June 25, 1998, in response to market rumors and an upcoming newspaper
article regarding the exploration by Saks of strategic alternatives, Saks issued
a press release announcing its decision to explore the possibility of a
strategic transaction.
During the period from June 26, 1998, through June 30, 1998, Proffitt's
continued its due diligence investigation of Saks, Saks commenced a due
diligence investigation of Proffitt's and the parties commenced negotiations of
Proffitt's June 17th proposal. Also during this period, management of Saks and
Proffitt's and their respective legal and financial advisers held numerous
meetings during which they shared extensive information about their historical
operating results and plans for future growth as well as other detailed
information concerning the companies. They also discussed each organization's
operating processes and identified areas of potential synergies which might
result from a combination of Proffitt's and Saks.
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On June 27, 1998, Mr. Brad Martin and other members of Proffitt's management
made an in-depth presentation to Saks management and certain members of the Saks
Board with regard to Proffitt's, its proposal to Saks and Proffitt's views of
the prospects for a combined company.
On June 28, 1998, the Saks Board met with its financial and legal advisors
and received presentations on the Proffitt's proposal, the status of due
diligence being conducted with interested parties and the then-current state of
the negotiations. The Saks Financial Advisors also reported on discussions they
had had with other interested parties and unsolicited inquiries which had been
received and noted that one other party had indicated that it would likely
submit a proposal to Saks at that time. The Saks Financial Advisors made a
presentation to the Saks Board on such other party and the nature of the
transaction that might be pursued by that party. The Saks Board discussed the
importance of advancing the process, particularly in light of the issuance of
the press release on June 25 and statements of representatives of Proffitt's
that Proffitt's would not remain interested in pursuing a transaction over a
lengthy period of time. After further discussion and questions by the Saks Board
to such advisors and to Saks management, the Saks Board authorized two Board
members, Messrs. Philippin and E. Garrett Bewkes III, to act as the Saks
Negotiating Committee, and, along with Saks legal advisors, to continue to
negotiate with Proffitt's on substantially the terms discussed and to discuss a
potential transaction with such other party if a proposal was made by that
party.
On June 29, 1998, the other interested party communicated to representatives
of Saks that it would not be in a position to make a definitive proposal on
competitive terms.
On June 30, 1998, the financial advisors of each of Saks and Proffitt's met
in the morning to discuss the terms of a potential transaction. Later that
afternoon, the Saks Negotiating Committee and management and financial advisors
of each of Saks and Proffitt's met to further discuss a potential transaction
and negotiate the proposed terms thereof. Following extensive negotiations,
representatives of Proffitt's proposed that, subject to agreement on unresolved
issues and negotiation of the final form of the Merger Agreement and related
documentation, a combination of the two companies be pursued on the basis of a
tax-free stock-for-stock merger transaction pursuant to which Saks stockholders
would receive .82 of a share of Proffitt's Common Stock for each share of Saks
Common Stock.
On July 1, 1998, Mr. Brian Martin and Mr. Coltharp met with Messrs. Miller
and Kendrick to discuss the terms of the Merger Agreement relating to officers
and employees of Saks. Such matters also were the subject of discussions between
Mr. Brad Martin and each of Mr. Miller and Mr. Kendrick.
On July 2, 1998, the Saks Board met with its financial and legal advisors to
discuss the revised Proffitt's proposal. Following presentations by its
financial and legal advisors and after discussion and questions by the Saks
Board to Saks management and advisors, the Saks Board authorized the Saks
Negotiating Committee and Saks legal advisors to finalize the Merger Agreement
and related documentation on substantially the terms discussed.
Also on July 2, 1998, the Proffitt's Board met with its financial and legal
advisors to discuss the proposed transaction. Following presentations by its
financial and legal advisors and after discussion and questions by the
Proffitt's Board to Proffitt's management and advisors, the Proffitt's Board
unanimously determined that it was advisable and fair to and in the best
interests of Proffitt's and its shareholders and in furtherance of and
consistent with Proffitt's long-term business strategies to combine its
operations with Saks by means of the Merger. The members of the Proffitt's Board
then voted unanimously to approve the Merger on the terms discussed and
authorized Proffitt's management to finalize the Merger Agreement and related
documentation within the parameters discussed.
On July 4, 1998, the Saks Board held a telephonic meeting with its advisors
to review the final terms of the transaction. After discussion of developments
since the prior Saks Board meeting and review of the terms of the transaction,
the Saks Board unanimously determined that it was advisable and fair to and in
the best interests of Saks and its stockholders that Saks combine its operations
with Proffitt's by means of
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the Merger. The members of the Saks Board then voted unanimously to approve the
Merger on the terms and subject to the conditions set forth in the form of the
Merger Agreement. The Saks Board also approved the Stockholders' Agreement for
purposes of Section 203 of the DGCL.
Shortly following the conclusion of the July 4 Saks Board meeting, Saks and
Proffitt's entered into the Merger Agreement. A joint press release announcing
the execution of the Merger Agreement was issued on July 5, 1998.
REASONS OF PROFFITT'S FOR THE MERGER
GENERAL. Proffitt's has experienced significant growth since 1994,
primarily through a series of acquisitions. Proffitt's currently operates the
following store groups:
<TABLE>
<CAPTION>
FISCAL 1997
CURRENT NUMBER NET SALES
NAME HEADQUARTERS OF STORES (IN MILLIONS) LOCATIONS DATE ACQUIRED
- ------------------------ ------------------- ------------------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
Proffitt's.............. Alcoa, TN 24 $ 244 Midwest N.A.
McRae's................. Jackson, MS 29 490 Southeast March 31, 1994
Younkers................ Des Moines, IA 50 633 Midwest February 3, 1996
Parisian................ Birmingham, AL 39 691 Southeast/Midwest October 11, 1996
Herberger's............. St. Cloud, MN 37 316 Midwest February 1, 1997
Carson Pirie Scott,
Boston Store and
Bergner's............. Milwaukee, WI 55 1,170 Midwest January 31, 1998
------------------- --- ------ --------------------- -------------------
Totals.............. 234 $ 3,544
--- ------
--- ------
</TABLE>
Proffitt's successful integration of the acquired companies is the result of
a systematic process which includes: (i) retaining key management personnel of
the acquired entity with Proffitt's providing the management oversight and
controls; (ii) maintaining store identity and store level associates to ensure
the transaction is transparent to the customers; (iii) maintaining the
merchandising organization to tailor assortments to customer preferences; (iv)
engaging in benchmarking and best practices processes to improve performance
across all operations; (v) coordinating merchandise planning centrally to ensure
effective controls and to maximize the value of vendor relationships; (vi)
centralizing certain back-office support functions to reduce expenses, improve
productivity and efficiency and improve the focus of operating management on
merchandising and customer service initiatives; (vii) centralizing the capital
budgeting process to ensure the allocation of Proffitt's capital to the most
profitable and strategically important projects across all store groups; and
(viii) centralizing cash management and adopting capital structure measures to
ensure appropriate liquidity and to reduce financing costs.
In evaluating strategic acquisition opportunities, Proffitt's emphasizes,
among other things: (i) strength of franchise identity and customer loyalty;
(ii) quality of real estate; (iii) attractiveness of geographic markets; (iv)
historical and projected financial performance; (v) expected realization of cost
savings through synergies and the implementation of benchmarking and best
practices; and (vi) the ability to generate accretion to earnings per share and
shareholder value.
In evaluating the proposed transaction with Saks, management of Proffitt's,
as well as the Proffitt's Board, concluded that Saks satisfied each of the
foregoing criteria. Moreover, the Proffitt's Board believes that the Merger will
create a combined company that will have significant opportunities for growth,
both in its core businesses and in new retail formats.
REASONS FOR THE MERGER. In reaching its determination to approve and
recommend the Merger Agreement, the Proffitt's Board consulted with Proffitt's
management and financial and legal advisors, and considered a number of factors,
including, without limitation, the following:
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<PAGE>
- - information concerning the financial performance and condition, business
operations, assets and liabilities of Proffitt's and Saks and their
respective projected future values and prospects as separate entities and on
a combined basis;
- - the analyses and recommendation of the Merger by Proffitt's management and
the financial analyses of its financial advisor, Salomon, including the
opinion of Salomon as to the fairness to Proffitt's of the Conversion Number
from a financial point of view (see "--Opinion of Proffitt's Financial
Advisor");
- - the belief that fashion expertise provided by Saks could be leveraged across
the entire organization and that the resulting enhanced fashion direction
would further differentiate Proffitt's existing store groups from their
competitors;
- - the belief that Saks well-developed expertise in customer service, customer
database marketing and customer affinity programs could be leveraged across
the entire organization thereby improving the profitability and lifetime
income stream generated from the combined company's customer base;
- - the fact that the addition of Saks premier retail store locations and
multiple store formats to the Proffitt's real estate portfolio (i)
significantly broadens Proffitt's geographic reach from primarily the
Midwest and Southeast to the highly populated states of California, Texas,
New York and Florida, where Saks conducts the majority of its business and
(ii) provides enhanced opportunities to gain access to new or redeveloping
retail centers as well as to rationalize some elements of the real estate
portfolio of the combined company through the conversion of certain
underperforming units to another store group that is better suited for that
particular geographic, demographic and competitive environment;
- - the belief that opportunities for growth exist in the different, yet
complementary, nature of the customer base of each of the companies, since
the Proffitt's store groups primarily serve a customer base for moderate and
upper moderate merchandise and Saks has a leadership position serving a
customer base for better, bridge and designer merchandise; in this regard,
the Proffitt's Board considered that the combined company would appeal to a
broad spectrum of the consumer population, thereby facilitating
cross-marketing opportunities and promoting migration of customers from one
of the store groups to another, as customers' income profiles and/or
geographic locations change over time, and as a result could expand the
total customer base served and capture a greater percentage of the lifetime
retail expenditures of the combined customer base;
- - the expectation that, through Saks direct mail catalog business, FOLIO, and
the associated telemarketing and distribution infrastructure, there would be
an opportunity for the combined company to expand the direct mail business
by accessing the expanded customer base and by pursuing strategic
acquisitions of other catalog retailers, such as Saks pending acquisition of
Bullock & Jones, a direct mail marketer of fine men's wear;
- - the expectation that the combined company would have the opportunity to use
the highly recognized SAKS FIFTH AVENUE and SAKS brand names to develop new
store concepts as part of a brand extension strategy, including, for
example, a cosmetics and fragrances boutique; in this regard, the Proffitt's
Board considered that the SAKS FIFTH AVENUE name and the internationally
registered SAKS FIFTH AVENUE trademarks and service marks are widely
recognized in international markets such as Europe, Asia and South America,
and that this name recognition could present future expansion opportunities
into these markets via store openings, in-store merchandise boutiques,
direct mail or the formation of strategic alliances;
- - the belief that the combined company would generate cash flow sufficient to
fund Saks growth opportunities; in this regard, the Proffitt's Board noted
that, during 1997, the pro forma cash flow of the combined company would
have been sufficient to fund the combined capital expenditure programs (and
related incremental working capital requirements) with only modest reliance
on external
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<PAGE>
financing sources, and that management expected that this trend would
continue in the future (without giving effect to other acquisitions);
- - the expectation that the rationalization of the combined balance sheet
provides refinancing opportunities which may reduce annual debt service,
lower the weighted average cost of capital, further enhance liquidity and
provide continued access to multiple sources of capital; in this regard, the
Proffitt's Board noted that, after consummation of the Merger, Proffitt's
total debt to total capital ratio would approximate 38%, which should
provide ample flexibility and the appropriate capital structure to support
future growth;
- - the expectation that the combination of the two companies would produce
significant cost savings and operating synergies through the elimination of
duplicate corporate expenses, the consolidation of certain administrative
functions, the implementation of best practices and the purchasing power of
increased scale;
- - the expectation that, after realization of the anticipated synergies, but
before nonrecurring items, the transaction would be accretive to diluted
earnings per share beginning in the fourth quarter of 1998; and
- - the structure of the transaction, including the expected accounting treatment
of the Merger as a pooling of interests and the terms of the Merger
Agreement, including the amount and the form of consideration, the parties'
representations, warranties, covenants and agreements, and the conditions to
their respective obligations set forth in the Merger Agreement.
ANTICIPATED COST SAVINGS AND OPERATING SYNERGIES. Proffitt's believes that
the combined company will be well positioned to realize significant cost savings
and operating synergies. The majority of these cost savings and synergies will
result from the integration of certain Saks administrative and store support
functions into the existing Proffitt's infrastructure. Proffitt's believes that
the integration of these functions also will allow Saks management to focus on
merchandising, marketing and store operations, contributing to enhanced
execution of strategies at the individual store level and improved customer
service and operating profits.
Proffitt's management believes that, after the Merger, the combined company
will achieve cost savings and synergies of approximately $10 million to $12
million in fiscal 1998, $60 million to $70 million in fiscal 1999, and $75
million to $85 million in fiscal 2000 (compared to the cost structure of
Proffitt's and Saks on an independent basis for each such fiscal year).
Proffitt's believes that the projected synergies primarily would be derived from
the following areas of operation of the combined company:
- - increased income from credit card operations are expected to be attained
through the transfer of Saks proprietary credit card portfolio to the
National Bank of the Great Lakes, a wholly-owned subsidiary of Proffitt's
that serves as a captive credit card bank, and cost savings are expected to
result from processing Saks credit card transactions in-house;
- - synergies in the area of distribution and logistics are expected to arise
primarily as a result of the application of certain logistical processes and
best practices across the whole organization;
- - efficiencies with regard to information technology are anticipated to result
from the consolidation of financial reporting systems, store operating data
systems and other management information systems as well as avoidance of
duplicate systems development expenditures;
- - cost savings in the area of non-merchandise supply and services purchasing
are expected to arise primarily from the elimination of redundancies, the
increased purchasing leverage associated with the larger operations of the
combined company and the implementation of best practices;
- - reduced interest costs are expected to be realized as Proffitt's uses its
higher credit rating to refinance all or a portion of Saks debt on more
favorable terms;
26
<PAGE>
- - the integration of certain back office functions are expected to generate
cost savings by eliminating redundancies, leveraging human resources over a
larger operation and implementing best practices;
- - cost savings in the area of media purchasing are expected to arise primarily
from increased purchasing leverage;
- - the coordination of the Proffitt's and Saks private label merchandise teams
is expected to, among other things, result in reduced private label
merchandise sourcing costs and a further differentiation of the merchandise
offering in the existing Proffitt's stores from that of their competitors;
and
- - other synergies are expected to include, among other things, increased
revenue of the FOLIO catalog operations, leveraging of direct response
(direct mail and electronic marketing) infrastructure, real estate portfolio
rationalization, risk management and treasury management fees and
elimination of duplicate professional service fees.
The foregoing discussion of the information and factors considered and given
weight by the Proffitt's Board is not intended to be exhaustive. In addition, no
assurance can be given that the operating synergies and cost savings described
above will be achieved. See "CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS" and "RISK FACTORS." In view of the variety of factors considered in
connection with its evaluation of the Merger, the Proffitt's Board did not find
it practicable to and did not quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Proffitt's Board may have given different weights to
different factors.
RECOMMENDATIONS OF THE PROFFITT'S BOARD
THE PROFFITT'S BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
STOCK ISSUANCE, THE CHARTER AMENDMENT AND THE BOARD AMENDMENT AND UNANIMOUSLY
RECOMMENDS THAT THE HOLDERS OF PROFFITT'S COMMON STOCK VOTE FOR THE APPROVAL OF
THE MERGER AGREEMENT, THE STOCK ISSUANCE, THE CHARTER AMENDMENT AND THE BOARD
AMENDMENT.
27
<PAGE>
REASONS OF SAKS FOR THE MERGER
The Merger will provide holders of Saks Common Stock with the opportunity to
participate as shareholders in a combined retail company that the Saks Board
believes will be one of the leading department store retailers in the United
States. In addition, the Conversion Number will provide Saks stockholders with a
significant premium in comparison to trading prices for the Saks Common Stock
during the period prior to the announcement of a possible transaction.
In reaching its determination to approve and recommend the Merger Agreement,
the Saks Board consulted with Saks management and Saks financial and legal
advisors, and considered a number of factors, including, without limitation, the
following:
- - the Saks Board's understanding of Saks business, operations, financial
condition and earnings on an historical and a prospective basis;
- - the Saks Board's knowledge and review, based in part on presentations by its
financial advisors and Saks management and the participation of several
directors in the June 27th Proffitt's management presentation, of (a) the
business, operations, financial condition and earnings of Proffitt's on an
historical and a prospective basis and of the combined company on a pro
forma basis, (b) the historical stock price performance of the Proffitt's
Common Stock and (c) the resulting relative interests of holders of Saks
Common Stock and holders of Proffitt's Common Stock in the common equity of
the combined company;
- - the recommendation of Saks management and the presentations of Goldman Sachs
and Merrill Lynch to the Saks Board at its meetings on June 28, July 2, and
July 4, 1998;
- - the opinions of the Saks Financial Advisors, each rendered orally on July 2,
1998 and confirmed orally and in writing as of July 4, 1998, that, as of
each such date, the Conversion Number was fair from a financial point of
view to the holders of the outstanding shares of Saks Common Stock (see
"--Opinions of the Saks Financial Advisors");
- - the process conducted by Saks management and the Saks Financial Advisors in
exploring and determining the potential value that could be realized by Saks
stockholders in a sale or business combination transaction, including: (a)
the contacts between the Saks Financial Advisors and, in many instances, its
management and the selected companies which were determined, based on the
advice of the Saks Financial Advisors, to be the most likely companies to be
interested strategically in and financially and otherwise capable of
engaging in a business combination transaction with Saks, (b) the fact that
each of such selected companies was afforded an opportunity to obtain
information regarding Saks and to pursue a proposal for a transaction with
Saks, and (c) the fact that the June 25th press release put all other
potential parties on notice that Saks was engaged in a process to pursue a
strategic transaction (see "--Background of the Merger");
- - the terms of the Merger and the Merger Agreement; in this regard, the Saks
Board noted the financial benefits to be received by Saks stockholders in
the Merger, including the fact that the Conversion Number implied a value of
$33.11 per share of Saks Common Stock (based upon the closing price of the
Proffitt's Common Stock of $40.38 on June 30, 1998), representing a 14%
premium for the holders of Saks Common Stock based on the closing price of
the Saks Common Stock of $29.00 on July 2, 1998, the last trading day prior
to the day on which the Saks Board approved the Proffitt's proposal, and a
33.4% premium for the holders of Saks Common Stock (based upon the closing
price of the Saks Common Stock of $24.81 on June 24, 1998, the last trading
day prior to the June 25th press release); the Board further noted, however,
that the fixed Conversion Number contained in the Merger Agreement created
the risk that the value of the consideration to be received by Saks
stockholders could be reduced by a decline in the price per share of
Proffitt's Common Stock, subject to Saks right to terminate the Merger
Agreement if the average price per share of Proffitt's Common Stock over an
agreed upon period drops below $30.52, but determined, based in part upon
the advice
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<PAGE>
of the Saks Financial Advisors, that a fixed conversion number would be the
preferable pricing mechanism (see "--Terms of the Merger Agreement" and
"RISK FACTORS--Fixed Merger Consideration Despite Changes in Relative Stock
Prices");
- - the current and prospective economic and competitive environment facing the
retailing industry generally, and Saks in particular; in this regard, the
Saks Board noted that the combined company resulting from the Merger would
have a national presence with 330 stores in 38 states and pro forma combined
revenues expected to exceed $6 billion, and that the combined company would
have a broader spectrum of customers and a wider array of merchandise;
- - the anticipated cost savings and operating synergies available to the
combined company from the Merger, including cost savings related to
financing, combining credit functions, unifying information systems and,
where applicable, maximizing vendor leverage, and operating synergies
relating to purchasing, logistics and distribution functions and
rationalization of the combined real estate portfolio;
- - the experience of the senior management of Proffitt's in the consummation of
significant acquisition transactions and its proven record of achieving cost
savings, operating efficiencies and revenue enhancements in connection with
the integration of acquired companies; in particular, the Saks Board took
into account the fact that, under the leadership of Mr. Brad Martin,
Proffitt's current management team has successfully integrated several
significant acquisitions in recent years;
- - the opportunities for revenue enhancement that would result from the coming
together of two growth-oriented retailers that target different customers
and geographic areas of the retail industry; in this regard, the Saks Board
considered that the combination would provide numerous growth opportunities,
including the potential to leverage Saks superior skills with regard to
merchandising, fashion direction and customer relations and affinity
programs to Proffitt's other businesses, to expand Saks catalog
infrastructure to Proffitt's customer base, to leverage the SAKS FIFTH
AVENUE and SAKS brand names, to engage in electronic commerce and to explore
new store formats and international expansion;
- - the belief that the cash flow and financial capacity of Proffitt's should be
able to fund the numerous growth opportunities available to the combined
company, and that Proffitt's operating strength and support infrastructure
will allow management of Saks to focus on its unique core competencies of
merchandising, marketing and customer service;
- - the facts that Saks would have three designees on the Proffitt's Board
following the Merger, and that many of Saks top executive officers and key
employees would have the opportunity to remain with Saks after the Merger
(see "MANAGEMENT AND OPERATIONS AFTER THE MERGER");
- - the expectation that the Merger will be tax-free for U.S. federal income tax
purposes to Saks and the holders of Saks Common Stock and will qualify as a
pooling of interests for accounting and financial reporting purposes (see
"--Certain Federal Income Tax Consequences" and "--Accounting Treatment");
- - the Saks Board's assessment, with the assistance of counsel, that based on
available information the transaction is unlikely to present significant
antitrust concerns (see "--Governmental and Regulatory Approvals");
- - the fact that the Investcorp Affiliates had expressed an interest in pursuing
a sale of their Saks Common Stock if Saks was not to pursue a strategic
transaction for the entire company and that this interest could have a
negative impact on the appreciation of the market price of the Saks Common
Stock and create uncertainty in the market regarding Saks long-term business
strategy; but that the Investcorp Affiliates' reduced percentage interest in
the combined company would not create the
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<PAGE>
same level of uncertainty for Proffitt's after the Merger (see "RISK
FACTORS--Future Sale of Proffitt's Stock Held by the Investcorp
Affiliates");
- - the fact that the process undertaken by the Saks Board was designed to elicit
interest from parties likely to be interested in a transaction, and that,
subject to the terms of the Merger Agreement, the Saks Board may, in the
exercise of its fiduciary duties, consider, negotiate and accept certain
unsolicited proposals from other parties; and
- - the fact that the Stockholders' Agreement and the termination fee payable
under the Merger Agreement were both conditions to Proffitt's willingness to
enter into the Merger Agreement and, as such, were deemed appropriate terms
of the Merger Agreement notwithstanding that, under certain circumstances,
the termination fee could discourage third parties from offering to engage
in a strategic transaction with Saks.
The foregoing discussion of the information and factors considered by the
Saks Board is not intended to be exhaustive but is believed to include the
material factors considered by the Saks Board. In reaching its determination to
approve and recommend the Merger Agreement, the Saks Board did not assign any
relative or specific weights to the factors considered in reaching such
determination, and individual directors may have given differing weights to
different factors.
RECOMMENDATION OF THE SAKS BOARD
THE SAKS BOARD HAS DETERMINED THAT THE MERGER IS ADVISABLE AND FAIR TO AND
IN THE BEST INTERESTS OF SAKS AND ITS STOCKHOLDERS. ACCORDINGLY, THE SAKS BOARD
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
SAKS STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF PROFFITT'S FINANCIAL ADVISOR
At the meeting of the Proffitt's Board held on July 2, 1998, Salomon
delivered its oral opinion, which opinion was subsequently confirmed in a
written opinion, dated as of July 4, 1998 (the "Salomon Opinion"), to the effect
that, as of such date, the Conversion Number was fair to Proffitt's from a
financial point of view.
PROFFITT'S SHAREHOLDERS ARE URGED TO READ THE SALOMON OPINION IN ITS
ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED, ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY SALOMON IN
RENDERING THE SALOMON OPINION. REFERENCES TO THE SALOMON OPINION HEREIN AND THE
SUMMARY OF THE SALOMON OPINION SET FORTH BELOW ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE SALOMON OPINION, WHICH IS INCLUDED AS
APPENDIX II TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE SALOMON OPINION DOES
NOT CONSTITUTE A RECOMMENDATION CONCERNING (I) HOW HOLDERS OF PROFFITT'S COMMON
STOCK SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT, THE STOCK ISSUANCE, THE
CHARTER AMENDMENT OR THE BOARD AMENDMENT OR (II) HOW HOLDERS OF SAKS COMMON
STOCK SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT.
In connection with rendering the Salomon Opinion, Salomon reviewed certain
publicly available information concerning Proffitt's and Saks and certain other
financial information concerning Proffitt's and Saks, including financial
forecasts (including the parties' estimates of the cost savings and operating
synergies anticipated to be achieved as a result of the Merger) that were
provided to Salomon by Proffitt's and Saks, respectively. Salomon discussed the
past and current business operations, financial condition and prospects of
Proffitt's and Saks with certain officers and employees of Proffitt's and Saks,
respectively. Salomon also considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that it
deemed relevant.
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In its review and analysis and in arriving at its opinion, Salomon assumed
and relied upon the accuracy and completeness of the information reviewed by it
for purposes of the Salomon Opinion, and Salomon did not assume any
responsibility for independent verification of such information. With respect to
the financial forecasts (including the parties' estimates of the cost savings
and operating synergies anticipated to be achieved as a result of the Merger)
prepared by Proffitt's and Saks, Salomon was advised by the respective
managements of Proffitt's and Saks that such forecasts were reasonably prepared
on bases reflecting their best currently available estimates and judgments, and
Salomon expressed no opinion with respect to such forecasts or the assumptions
on which they were based. Salomon did not assume any responsibility for any
independent evaluation or appraisal of any of the assets (including properties
and facilities) or liabilities of Proffitt's or Saks. Salomon assumed that the
Merger would be accounted for as a pooling of interests in accordance with
generally accepted accounting principles pursuant to Accounting Principles Board
Opinion Number 16.
The Salomon Opinion is necessarily based upon conditions as they existed and
could be evaluated on the date of such opinion. The Salomon Opinion does not
imply any conclusion as to the likely trading range for Proffitt's Common Stock
following the consummation of the Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities. The Salomon Opinion does not address Proffitt's underlying
business decision to effect the Merger, and is directed only to the fairness,
from a financial point of view, to Proffitt's of the Conversion Number.
The following is a summary of the report (the "Salomon Report") presented on
July 2, 1998 by Salomon to the Proffitt's Board in connection with the rendering
of its oral opinion:
STOCK PRICE PERFORMANCE. Salomon reviewed the relative price performance of
Saks Common Stock for the period from May 22, 1996 (the time of the Saks initial
public offering) through June 29, 1998, as compared to the performance of: (i) a
"Department Store Index" comprised of Proffitt's, Federated Department Stores
Inc. ("Federated"), Dillard's, Inc. ("Dillard"), JC Penney Company, Inc. ("JC
Penney"), Dayton Hudson Corporation ("Dayton Hudson") and The May Department
Stores Company ("May" and, collectively with the foregoing, the "Selected
Department Store Companies"); (ii) a "High End Store Index" comprised of The
Neiman Marcus Group, Inc. ("Neiman Marcus") and Nordstrom, Inc. ("Nordstrom"
and, collectively with Neiman Marcus, the "Selected High End Department Store
Companies"); and (iii) the S&P 400 Index. Salomon also reviewed the price and
volume history of Saks Common Stock for the period from May 22, 1996 to June 30,
1998, and of Proffitt's Common Stock for the period from June 28, 1996 to June
26, 1998.
COMPARABLE COMPANY ANALYSIS. Salomon compared the operating results of Saks
with that of the Selected Department Store Companies and the Selected High End
Department Store Companies. Salomon reviewed: (i) for the fiscal year ended
("FYE") January 31, 1998, revenue per gross selling square foot; (ii) for the
FYE January 31, 1998, comparable store sales growth; (iii) for the first quarter
of 1998, comparable store sales growth; (iv) capital expenditures for the last
twelve months ("LTM") ending May 2, 1998 as a percentage of LTM revenues during
the same period (collectively the "LTM-CapEx margin"); (v) earnings before
interest, taxes, depreciation and amortization ("EBITDA") as a percentage of
revenues for the LTM ending May 2, 1998 (collectively the "LTM-EBITDA margin");
and (vi) earnings before interest and taxes ("EBIT") as a percentage of revenues
for the LTM ending May 2, 1998 (collectively the "LTM-EBIT margin").
This analysis showed: (i) FYE January 31, 1998 revenue per gross selling
square foot ranging from $140 to $222 for the Selected Department Store
Companies (median of $176), and $384 and $392 for Nordstrom and Neiman Marcus,
respectively, as compared to $351 for Saks and $140 for Proffitt's; (ii) FYE
January 1, 1998 comparable store sales growth rates ranging from (0.3)% to 5.0%
for the Selected Department Store Companies (median of 3.2%), and 3.8% and 7.2%
for Nordstrom and Neiman Marcus, respectively, as compared to 3.8% for Saks and
4.0% for Proffitt's; (iii) first quarter 1998 comparable store
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sales growth ranging from 1.9% to 7.0% for the Selected Department Store
Companies (median of 4.8%), and 0.2% and 5.6% for Nordstrom and Neiman Marcus,
respectively, as compared to 5.0% for Saks and 5.0% for Proffitt's; (iv)
LTM-CapEx margins ranging from 2.6% to 5.9% for the Selected Department Store
Companies (median of 4.5%), and 4.9% and 3.2% for Nordstrom and Neiman Marcus,
respectively, as compared to 8.4% for Saks and 4.6% for Proffitt's; (v)
LTM-EBITDA margins of 8.9% to 16.0% for the Selected Department Store Companies
(median of 11.2%), and 10.5% and 11.1% for Nordstrom and Neiman Marcus,
respectively, as compared to 11.1% for Saks and 9.7% for Proffitt's; and (vi)
LTM-EBIT margins of 6.4% to 12.7% for the Selected Department Store Companies,
and 7.2% and 8.4% for Nordstrom and Neiman Marcus, respectively, as compared to
7.9% for Saks and 7.9% for Proffitt's.
Salomon also compared the financial and market performance of Proffitt's and
Saks (based on June 30, 1998 share prices) with that of the Selected Department
Store Companies and Selected High End Store Companies (based on June 30, 1998
share prices), including: (i) the projected five year growth in earnings per
share ("EPS"); (ii) the multiple of current stock prices per share to estimated
EPS ("P/E Multiple") for the FYE January 30, 1999; (iii) the P/E Multiple for
the FYE January 29, 2000; (iv) the multiple of market capitalization plus total
debt, preferred stock and minority interests less cash (collectively, the "Firm
Value") to LTM revenues; (v) the multiple of Firm Value to EBITDA; and (vi) the
multiple of Firm Value to EBIT.
This analysis showed: (i) projected five year growth in EPS of 11% to 20%
for the Selected Department Store Companies (median of 14%), and 16% and 14% for
Nordstrom and Neiman Marcus, respectively, as compared to 23% for Saks and 20%
for Proffitt's; (ii) P/E Multiples for FYE January 30, 1999 ranging from 15.9x
to 25.3x for the Selected Department Store Companies (median of 18.7x), and
28.0x and 19.1x for Nordstrom and Neiman Marcus, respectively, as compared to
24.9x for Saks and 22.9x for Proffitt's; (iii) P/E Multiples for FYE January 29,
2000 ranging from 14.3x to 21.9x for the Selected Department Store Companies
(median of 16.5x), and 23.8x and 18.1x for Nordstrom and Neiman Marcus,
respectively, as compared to 20.5x for Saks and 19.1x for Proffitt's; (iv)
multiples of Firm Value to LTM revenues ranging from 0.9x to 1.5x for the
Selected Department Store Companies (median of 1.0x), and 1.4x and 1.2x for
Nordstrom and Neiman Marcus, respectively, as compared to 1.3x for Saks and 1.3x
for Proffitt's; (v) multiples of Firm Value to EBITDA ranging from 6.3x to 13.6x
for the Selected Department Store Companies (median of 9.8x), and 13.0x and
10.5x for Nordstrom and Neiman Marcus, respectively, compared to 11.6x for Saks
and 13.6x for Proffitt's; and (vi) multiples of Firm Value to EBIT ranging from
7.9x to 16.8x for the Selected Department Store Companies (median of 12.2x), and
19.0x and 13.9x for Nordstrom and Neiman Marcus, respectively, as compared to
16.4x for Saks and 16.8x for Proffitt's. The analysis above suggested ranges of
public trading prices for Saks equal to: 11.0x to 13.0x LTM-EBITDA or $25.22 to
$32.61 per share of Saks Common Stock; 15.0x to 17.0x LTM-EBIT or $24.04 to
$29.33 per share of Saks Common Stock; 23.0x to 28.0x FYE January 30, 1999 EPS
or $25.33 to $31.08 per share of Saks Common Stock; and 19.0x to 24.0x FYE
January 29, 2000 EPS or $25.46 to $32.16 per share of Saks Common Stock. Salomon
noted that these prices did not reflect a change of control premium. The
analysis above also suggested ranges of public trading prices for Proffitt's
Common Stock equal to: 21.0x to 25.0x FYE January 30, 1999 EPS or $36.96 to
$44.00 per share of Proffitt's Common Stock and 18.0x to 22.0x FYE January 29,
2000 EPS or $37.98 to $46.42 per share of Proffitt's Common Stock.
PRECEDENT TRANSACTION REVIEW. Salomon also reviewed publicly available
information regarding thirteen recent department store industry acquisitions:
Dillard pending acquisition of Mercantile Stores Company, Inc. ("Mercantile
Stores") (1998); Proffitt's acquisition of Carson Pirie Scott (1997); Proffitt's
acquisition of G.R. Herberger's, Inc. ("Herbergers") (1996); Proffitt's
acquisition of Parisian, Inc. ("Parisian") (1996); JC Penney's terminated offer
to acquire Dayton Hudson (1996); May's acquisition of Strawbridge and Clothier
(1996); Proffitt's acquisition of Younkers, Inc. ("Younkers") (1995);
Federated's acquisition of Broadway Stores (1995); the combined JC Penney and
May acquisition of Woodward & Lothrop (1995); Carson Pirie Scott's terminated
offer to acquire Younkers (1995); Federated's acquisition of R.H. Macy & Co.
Inc. ("Macy's") (1994); Federated's acquisition of Joseph Horne Co. (1994); and
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Proffitt's acquisition of McRae's, Inc. ("McRae's") (1994). Salomon noted that
Saks higher EBITDA growth and margin made a direct comparison of the Merger to
the foregoing precedent transactions difficult.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow ("DCF")
methodology, Salomon calculated the present value of the projected future cash
flows for each of Saks and Proffitt's (without giving effect to the Merger or
any synergy estimates expected to be realized as a result of the Merger). The
DCF analysis of Saks was based on plans prepared by Saks management through 2000
and the projections of Proffitt's management for 2001 and 2002. The Proffitt's
DCF analysis was based on the plan prepared by Proffitt's management. In
addition, Salomon analyzed a sensitivity case which reflected changes to
management's assumptions for Saks regarding revenue growth and capital
expenditures (the "Sensitivity Case"). For each entity and under each case,
Salomon aggregated (x) the present value of the free cash flows over the
applicable forecast period with (y) the present value of the range of terminal
values described below. As part of the DCF analysis, Salomon used discount rates
ranging from 10.0% to 12.0% for each of Saks and Proffitt's. The range of
terminal values were generally calculated by applying multiples (ranging from
9.0x-11.0x for each entity's EBITDA) for the last year of the forecast period.
The Saks DCF analysis resulted in values ranging from $26.00 to $32.50 per share
of Saks Common Stock (versus $23.00 to $29.00 per share of Saks Common Stock
based on the Sensitivity Case). The Proffitt's DCF analysis resulted in values
ranging from $38.00 to $45.00 per share of Proffitt's Common Stock.
SYNERGY VALUATION. Salomon reviewed synergy estimates provided by
Proffitt's management and valued these estimates using a range of discount rates
(10.0% to 12.0%) and a range of terminal multiples of 2002 EBITDA (9.0x-11.0x).
Based on this analysis Salomon valued the synergy estimates at $7.00 to $8.00
per share of Saks Common Stock.
IMPLIED EXCHANGE RATIO. Based on the analysis above, Salomon arrived at
valuation reference ranges for Saks and Proffitt's. Salomon arrived at a Saks
reference range of $25.00 to $30.00 per share of Saks Common Stock on a
stand-alone basis. Salomon then added 65% (based on Proffitt's approximate
percentage ownership of the post-Merger entity) of the per share value of the
synergies, which equaled $4.50 to $5.00 per share of Saks Common Stock, to
arrive at a reference range of $29.50 to $35.00 per share of Saks Common Stock.
Salomon arrived at a Proffitt's reference range of $38.00 to $45.00 per share of
Proffitt's Common Stock on a stand-alone basis. Based on these reference ranges,
Salomon arrived at a range of implied exchange ratios equal to .70 to .90.
Salomon noted that the high, low and average exchange ratio as measured by the
ratio of Proffitt's Common Stock price per share to Saks Common Stock price per
share over the last two years was 2.14, .53 and 1.22, respectively.
CONTRIBUTION ANALYSIS. Salomon reviewed the relative revenue, EBITDA and
net income contribution, taking into account certain leverage adjustments, from
each of Saks and Proffitt's. The analysis was based on historical and projected
results between the period beginning with fiscal year 1997 and ending with
fiscal year 2002 (using the same projections for Saks and Proffitt's as those
described under "Discounted Cash Flow Analysis"). The Saks contribution was
between 30% to 37% in each case (after adjusting for leverage), which was
consistent with the pro forma post-Merger ownership interest of Saks
shareholders in Proffitt's (36%-37%).
PRO FORMA MERGER CONSEQUENCES. Salomon analyzed certain pro forma effects
on Proffitt's resulting from the Merger for the fiscal years 1998 through 2002.
This analysis showed accretion to the shareholders of Proffitt's in EPS
(including the synergy estimates) for each of the fiscal years from 1999 to
2002.
The preparation of a fairness opinion is not susceptible to a partial
analysis or summary description. Salomon believes that its analysis and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the process
underlying the analysis set forth in the Salomon Opinion and the Salomon Report.
The ranges of valuations resulting from any particular analysis described above
should not be taken to be the view of Salomon of the actual value of Proffitt's
or Saks.
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In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of Proffitt's
and Saks. The analyses which Salomon performed are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of Salomon's analysis of the fairness, from a financial point of
view, of the Conversion Number to Proffitt's. These analyses do not purport to
be an appraisal or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at the present time or at
any time in the future.
In the ordinary course of its business, Salomon and its affiliates may
actively trade the securities of Proffitt's and Saks for their own accounts and
the accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities. In addition, Salomon and its affiliates have
previously rendered certain investment banking and financial advisory services
to Proffitt's and to Saks for which they have received customary compensation.
Salomon and its affiliates (including Travelers Group Inc.) may have had other
business relationships with Proffitt's or Saks in the ordinary course of their
businesses. Pursuant to an engagement letter, Proffitt's agreed to pay Salomon
for its services in connection with the Merger an advisory fee equal to $1.0
million due upon signing a definitive agreement relating to the Merger and $9.5
million due upon consummation of the Merger. Proffitt's also agreed to indemnify
Salomon and certain related persons against certain liabilities, including
liabilities under the federal securities laws, relating to or arising out of
Proffitt's engagement of Salomon.
Proffitt's retained Salomon to act as its financial advisor in connection
with the Merger. Salomon is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes. Proffitt's retained Salomon because of its reputation, expertise in
the valuation of companies and substantial experience in transactions such as
the Merger.
OPINIONS OF THE SAKS FINANCIAL ADVISORS
The Saks Board retained the Saks Financial Advisors in connection with its
exploration of a strategic transaction for Saks. The Saks Financial Advisors
were selected based upon their qualifications, expertise and reputations as well
as upon their investment banking relationships with Saks.
GOLDMAN SACHS OPINION AND FINANCIAL ANALYSES. On July 2, 1998, Goldman
Sachs delivered its oral opinion to the Saks Board to the effect that, as of
such date, the Conversion Number was fair from a financial point of view to the
holders of the outstanding shares of Saks Common Stock. Goldman Sachs
subsequently confirmed its opinion orally at the July 4th meeting of the Saks
Board and by delivery of its written opinion dated as of July 4, 1998 (the
"Goldman Sachs Opinion").
THE FULL TEXT OF THE GOLDMAN SACHS OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION
WITH SUCH OPINION, IS INCLUDED AS APPENDIX III TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF SAKS
COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. THE
FOLLOWING SUMMARY OF THE GOLDMAN SACHS OPINION AND RELATED FINANCIAL ANALYSES IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with the Goldman Sachs Opinion, Goldman Sachs reviewed, among
other things, (i) the Merger Agreement; (ii) the Annual Reports to Stockholders
and Annual Reports on Form 10-K of Saks for each of the last two fiscal years;
(iii) the Registration Statement on Form S-1 of Saks dated May 21, 1996; (iv)
Annual Reports to Shareholders and Annual Reports on Form 10-K of Proffitt's for
the last five fiscal years; (v) the Joint Proxy Statement/Prospectus on Form S-4
of Proffitt's and Carson Pirie Scott dated December 5, 1997; (vi) certain
interim reports to holders of Saks Common Stock and Proffitt's Common Stock and
Quarterly Reports on Form 10-Q of Saks and Proffitt's; (vii) certain other
communications from Saks and Proffitt's to their respective stockholders; (viii)
certain internal financial analyses and
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forecasts for Saks and Proffitt's prepared by their respective managements (the
"Forecasts"); and (ix) estimates of cost savings and operating synergies
expected to result from the transactions contemplated by the Merger Agreement
prepared by the managements of Saks and Proffitt's (the "Synergy Estimates").
Goldman Sachs also held discussions with members of the senior management of
Saks and Proffitt's regarding the strategic rationale for, and the potential
benefits of, the transactions contemplated by the Merger Agreement and the past
and current business operations, financial condition, and future prospects of
their respective companies. In addition, Goldman Sachs reviewed the reported
price and trading activity for the Saks Common Stock and the Proffitt's Common
Stock, compared certain financial and stock market information for Saks and
Proffitt's with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the department store and retail industries
specifically, and in other industries generally, and performed such other
studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering such opinion. In that regard, Goldman
Sachs assumed that the Forecasts and the Synergy Estimates were reasonably
prepared on bases reflecting the best available estimates and judgments of the
respective managements of Saks and Proffitt's as to the expected future
performance of Saks and Proffitt's, respectively. In addition, Goldman Sachs
assumed that the transactions contemplated by the Merger Agreement will be
accounted for as a pooling of interests under generally accepted accounting
principles. In addition, Goldman Sachs did not make an independent evaluation or
appraisal of the assets and liabilities of Saks or Proffitt's or any of their
subsidiaries. THE GOLDMAN SACHS OPINION WAS PROVIDED FOR THE INFORMATION AND
ASSISTANCE OF THE SAKS BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE MERGER
AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW ANY HOLDER OF SAKS
COMMON STOCK SHOULD VOTE WITH RESPECT TO APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT OR ANY OTHER MATTER.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman, Sachs is
familiar with Saks, having acted as its financial advisor in connection with,
and having participated in, certain of the negotiations leading to the execution
of the Merger Agreement. Goldman Sachs also provided certain investment banking
services to Saks from time to time, including having acted as lead managing
underwriter of Saks initial public offering of Saks Common Stock in May 1996,
and as lead managing underwriter of a concurrent secondary public offering of
Saks Common Stock and an offering by Saks of Saks Convertible Notes in September
1996. Goldman Sachs also has provided certain investment banking services to
Proffitt's from time to time, including having acted as co-managing underwriter
of Proffitt's public offering of 8.125% Senior Unsecured Notes in May 1997, and
may provide investment banking services to Proffitt's in the future.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing the Goldman Sachs Opinion to the Saks
Board.
(i) HISTORICAL STOCK TRADING ANALYSIS. Goldman Sachs reviewed the
historical trading prices and volumes for the Saks Common Stock and
Proffitt's Common Stock. In addition, Goldman Sachs analyzed the
consideration to be received by holders of Saks Common Stock pursuant to the
Merger Agreement in relation to the market price of the Saks Common Stock.
Such analysis indicated that the Conversion Number represented a premium of
34.9% based on the market price of Proffitt's Common Stock at the close of
business on the NYSE on July 1, 1998 of $40.81 per share and the market
price of the Saks Common Stock at the close of business on the NYSE on June
24, 1998 of $24.81 per share, which price represented the last closing price
prior to the issuance by Saks of the press release stating that it had
retained the Saks Financial Advisors to assist Saks in exploring strategic
alternatives (the "June 24 Price").
(ii) HISTORICAL EXCHANGE RATIO ANALYSIS. Goldman Sachs compared the
Conversion Number to the ratio implied by dividing the Saks Common Stock
closing price by the Proffitt's Common Stock
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closing price. The time periods (each ending on July 1, 1998) selected for
the analysis were: the last twelve months, last six months, last three
months and last month. The median ratios for such time periods were 0.75,
0.64, 0.59 and 0.58, respectively.
(iii) SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared
certain financial information, multiples and ratios relating to Saks to
corresponding financial information, ratios and multiples for (i) eight
publicly traded department store companies: Dayton Hudson, Dillard,
Federated, May, Mercantile Stores, JC Penney, Sears, Roebuck & Co., and
Proffitt's (the "Selected Department Stores"), and (ii) five high-end
retailers: Neiman Marcus, Nordstrom, Saks, Tiffany & Co. and
Williams-Sonoma, Inc. (the "Selected High-End Retailers" and together with
the Selected Department Stores, the "Goldman Sachs Selected Companies"). The
Goldman, Sachs Selected Companies were chosen because they are publicly
traded companies with operations which may, in certain respects, be
considered similar to the operations of Saks. Goldman Sachs calculated and
compared various financial multiples and ratios for Saks and the Goldman
Sachs Selected Companies. The financial multiples and ratios for Saks were
calculated using the June 24 Price, and were based on information provided
to Goldman Sachs by Saks management. The financial multiples and ratios for
each of the Goldman Sachs Selected Companies were based on the most recent
publicly available information, including the most recently available
Goldman, Sachs equity research. Goldman Sachs' analyses of the Goldman Sachs
Selected Companies compared levered market capitalization (i.e., market
value of common equity plus estimated market value of debt less cash) as a
multiple of estimated 1998 sales, which ranged from 0.9x to 1.5x for the
Selected Department Stores and from 0.9x to 1.6x for the Selected High-End
Retailers, and levered market capitalization as a multiple of estimated 1998
EBITDA, which ranged from 8.0x to 10.7x for the Selected Department Stores
and 8.3x to 14.7x for the Selected High-End Retailers, to a levered multiple
of estimated 1998 sales of 1.0x and a levered multiple of estimated 1998
EBITDA of 9.5x for Saks. Goldman Sachs also compared the Goldman Sachs
Selected Companies' estimated calendar year 1998 and 1999 P/E ratios
(provided by Institutional Brokers Estimate System ("IBES")), which ranged
from 16.2x to 26.0x for the Selected Department Stores and 17.9x to 35.3x
for the Selected High-End Retailers for 1998 and 14.4x to 22.7x for the
Selected Department Stores and 15.5x to 27.9x for the Selected High-End
Retailers for 1999, to Saks estimated 1998 and 1999 P/E ratios (based on
Saks management projections) of 22.6x and 18.0x, respectively. In addition,
Goldman Sachs compared five-year estimated EPS growth rates (provided by
IBES), ranging from 10.0% to 20.0% for the Selected Department Stores and
14.0% to 25.0% for the Selected High-End Retailers, to the five-year
estimated EPS growth rate for Saks of 25.0%. Goldman Sachs compared the
ratios of estimated 1998 and 1999 P/E ratios to five-year EPS growth rates,
ranging from 1.1x to 2.7x for the Selected Department Stores and 0.9x to
2.0x for the Selected High-End Retailers for 1998 and 0.9x to 2.5x for the
Selected Department Stores and 0.7x to 1.7x for the Selected High-End
Retailers for 1999, to the ratios of estimated 1998 and 1999 P/E ratios to
five-year EPS growth rates of Saks of 0.9x and 0.7x, respectively. In
addition, Goldman Sachs compared the estimated 1998 EBITDA margins of the
Goldman Sachs Selected Companies, which ranged from 8.7% to 16.2% for the
Selected Department Stores and 10.3% to 11.3% for the Selected High-End
Retailers to 10.6% for Saks; the estimated 1998 net income margins of the
Goldman Sachs Selected Companies, which ranged from 2.7% to 6.1% for the
Selected Department Stores and 2.9% to 6.8% for the Selected High-End
Retailers, to 2.9% for Saks.
(iv) SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs reviewed and
analyzed publicly available information relating to approximately fifty
selected transactions in the department store industry that it deemed
relevant (the "Goldman Sachs Selected Transactions"). Such analysis
indicated that for the Goldman Sachs Selected Transactions, (i) the multiple
of levered consideration to LTM sales ranged from 0.19x to 1.34x (with a
median and mean of 0.70x), (ii) levered consideration as a multiple of
LTM-EBITDA ranged from 4.0 to 24.3 (with a median of 9.8x and a mean of
10.8x), (iii) levered consideration as a multiple of LTM-EBIT ranged from
4.9x to 75.1x (with a median of 11.9x and a mean of 17.7x), and (iv) equity
consideration as a multiple of LTM net income ranged from 10.7x to 52.6x
(with a median of 20.0x and a mean of 22.7x).
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(v) DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a DCF
analysis using earnings estimates prepared by management (the "Management
Case") for Saks. Goldman Sachs aggregated (i) the present value of the free
cash flows for the years 1998 through 2002 with (ii) the present value of a
range of terminal values. The range of terminal values represented the value
of Saks free cash flows beyond 2002. This range of terminal values was
calculated by applying a range of selected EBITDA multiples between 6.0x and
10.0x, such range of multiples being consistent with those exhibited by the
Goldman Sachs Selected Companies and the Goldman Sachs Selected
Transactions, to Saks estimated 2002 EBITDA. As part of the DCF analysis,
Goldman Sachs used discount rates between 9.0% and 11.0% reflecting a
theoretical weighted average cost of capital. This analysis indicated an
implied per share value range of $14.66 to $36.22. Including the discounted
value of Saks net operating loss carry forward ("NOL"), this analysis
indicated an implied per share value range of $17.78 to $39.52. Goldman,
Sachs also performed a DCF analysis for Proffitt's using Proffitt's
management projections. The DCF analysis for Proffitt's was performed using
the same range of discount rates and terminal values. The DCF analyses
(without giving effect to any potential synergies related to the Merger)
indicated an implied exchange ratio range of 0.54x to 0.70x. Including the
discounted value of Saks NOL, the DCF analyses (without giving effect to any
potential synergies related to the Merger) indicated an implied exchange
ratio range of 0.65x to 0.76x.
(vi) PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger. Using the Management Case
and using earnings estimates for Saks and Proffitt's derived from consensus
estimates of certain "Wall Street" financial analysts (the "Street Merger
Case"), Goldman Sachs compared the EPS of the Proffitt's Common Stock, on a
standalone basis, to the EPS of the common stock of the combined company on
a pro forma basis. Based on such analyses, Goldman Sachs determined that the
proposed transaction would be accretive to Proffitt's shareholders on an EPS
basis in each of the years 1999 and 2000 under each of the Street Merger
Case and the Management Case where pretax synergies exceed $60,000,000.
(vii) CONTRIBUTION ANALYSES. Goldman Sachs reviewed certain historical
and estimated future operating and financial information (including, among
other things, revenues; EBITDA; and net income) for Saks, Proffitt's and the
combined company resulting from the Merger based on Saks and Proffitt's
managements' financial forecasts for each of Saks and Proffitt's. Goldman
Sachs analyzed the relative income statement contribution of Saks and
Proffitt's to the combined company on a pro forma basis based on actual 1997
and estimated years 1998 and 1999, based on the financial data and on the
assumptions provided to Goldman Sachs by Saks and Proffitt's managements.
This analysis indicated that for the year 1997, and the estimated years 1998
and 1999, that Saks would contribute 38.2%, 39.4% and 40.9% of combined
revenue; 40.0% 39.9% and 39.0% of combined EBITDA; and 29.8%, 28.5% and
29.0% of combined net income, respectively. From these figures, Goldman
Sachs calculated implied exchange ratios for fiscal year 1997 of 0.65 for
combined net sales; 0.66 for combined EBITDA and 0.50 for combined EBIT. For
estimated fiscal year 1998, Goldman Sachs calculated implied exchange ratios
of 0.70 for combined net sales; 0.61 for combined EBITDA and 0.48 for
combined EBIT.
MERRILL LYNCH OPINION AND FINANCIAL ANALYSES. On July 2, 1998, Merrill
Lynch delivered its oral opinion to the Saks Board to the effect that, as of the
date of such opinion, the Conversion Number was fair from a financial point of
view to the holders of the outstanding shares of Saks Common Stock. Merrill
Lynch subsequently confirmed its opinion orally at the July 4th meeting of the
Saks Board and by delivery of its written opinion, dated as of July 4, 1998 (the
"Merrill Lynch Opinion").
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION
WITH SUCH OPINION, IS INCLUDED AS APPENDIX IV TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF SAKS
COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. THE
FOLLOWING SUMMARY OF THE MERRILL LYNCH OPINION AND RELATED FINANCIAL ANALYSES IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE
MERRILL LYNCH OPINION WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE
SAKS BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE MERGER AGREEMENT AND DOES
NOT CONSTITUTE A RECOMMENDATION AS TO
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HOW ANY HOLDER OF SAKS COMMON STOCK SHOULD VOTE WITH RESPECT TO APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT OR ANY OTHER MATTER.
In connection with the Merrill Lynch Opinion, Merrill Lynch, among other
things, (i) reviewed certain publicly available business and financial
information relating to Saks and Proffitt's that it deemed to be relevant; (ii)
reviewed certain information, including the Forecasts and the Synergy Estimates,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of Saks and Proffitt's, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger furnished to
it by Saks and Proffitt's, respectively; (iii) conducted discussions with
members of senior management and representatives of Saks and Proffitt's
concerning the matters described in clauses (i) and (ii) of this paragraph, as
well as their respective businesses and prospects before and after giving effect
to the Merger and the Synergy Estimates; (iv) reviewed the market prices and
valuation multiples for the Saks Common Stock and the Proffitt's Common Stock
and compared them with those of certain publicly traded companies that it deemed
to be relevant; (v) reviewed the results of operations of Saks and Proffitt's
compared with those of certain publicly traded companies that it deemed to be
relevant; (vi) compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that it deemed to be relevant;
(vii) participated in certain discussions and negotiations among representatives
of Saks and Proffitt's and their financial and legal advisors; (viii) reviewed
the potential pro forma impact of the Merger; (ix) reviewed a draft, dated June
30, 1998, of the Merger Agreement; and (x) reviewed such other financial studies
and analyses and took into account such other matters as it deemed necessary,
including its assessment of general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch did not assume any responsibility for
independently verifying such information and has not undertaken an independent
evaluation or appraisal of any of the assets or liabilities of Saks or
Proffitt's or been furnished with any such evaluation or appraisal. In addition,
Merrill Lynch did not assume any obligation to conduct any physical inspection
of the properties or facilities of Saks or Proffitt's. With respect to the
financial forecast information and the Synergy Estimates furnished to or
discussed with Merrill Lynch by Saks or Proffitt's, Merrill Lynch assumed that
they were reasonably prepared and reflected the best currently available
estimates and judgment of Saks or Proffitt's management as to the expected
future financial performance of Saks or Proffitt's, as the case may be, and the
Synergy Estimates. Merrill Lynch also assumed that the Merger will be accounted
for as a pooling of interests under generally accepted accounting principles and
that it will qualify as a tax-free reorganization for United States federal
income tax purposes. Merrill Lynch assumed that the final form of the Merger
Agreement would be substantially similar to the last draft it reviewed.
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of such opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. Merrill Lynch, as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
Merrill Lynch did not express any opinion as to the prices at which the Saks
Common Stock or the Proffitt's Common Stock will trade following the
announcement or consummation of the Merger.
Merrill Lynch is currently providing, and has in the past provided,
financial advisory and financing services to Saks and Proffitt's and/or its or
their affiliates and may continue to do so, and has received, and may receive,
fees for the rendering of such services. In addition, in the ordinary course of
its business, Merrill Lynch may actively trade Saks Common Stock and other
securities of Saks, as well as Proffitt's
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Common Stock and other securities of Proffitt's, for its account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
The following is a summary of the material financial analyses used by
Merrill Lynch in connection with providing the Merrill Lynch Opinion to the Saks
Board.
(i) IMPLIED PREMIUM ANALYSIS. Merrill Lynch reviewed the historical
trading prices and volumes for the Saks Common Stock and Proffitt's Common
Stock. In addition, Merrill Lynch analyzed the consideration to be received
by holders of Saks Common Stock pursuant to the Merger Agreement in relation
to the market price of the Saks Common Stock. Such analysis indicated that
the Conversion Number represented a premium of 33.4% based on the market
price of Proffitt's Common Stock at the close of business on the NYSE on
June 30, 1998 of $40.38 per share and the June 24 Price. In addition,
Merrill Lynch analyzed the Conversion Number in relation to the latest
one-month, three-month and six-month average market prices of the Saks
Common Stock and LTM high, low and average market prices of the Saks Common
Stock. The latter analysis indicated that, based on the market price per
share of Proffitt's Common Stock at the close of business on the NYSE as of
June 30, 1998 of $40.38, the Conversion Number represented an implied
premium of 38.8% based on the latest one-month average market price of
$23.86 per share of Saks Common Stock, 41.1% based on the latest three-month
average market price of $23.46 per share of Saks Common Stock, 41.7% based
on the latest six-month average market price of $23.36 per share of Saks
Common Stock, 21.5% based on the LTM high market price of $27.25 per share
of Saks Common Stock, 77.8% based on the LTM low market price of $18.63 per
share of Saks Common Stock and 42.3% based on the LTM average market price
of $23.26 per share of Saks Common Stock.
(ii) OPERATING PERFORMANCE COMPARISON AND SELECTED COMPANIES
ANALYSIS. Merrill Lynch reviewed and compared certain financial
information, multiples and ratios relating to Saks and Proffitt's to
corresponding financial information, ratios and multiples for seven publicly
traded corporations: Dayton Hudson, Dillard, Federated, May, JC Penney,
Neiman Marcus, and Nordstrom (the "Merrill Lynch Selected Companies"). The
Merrill Lynch Selected Companies were chosen because they are publicly
traded companies with operations that for purposes of analysis may be
considered similar to the operations of Saks and Proffitt's. Merrill Lynch
calculated and compared various financial multiples and ratios for Saks,
Proffitt's and the Merrill Lynch Selected Companies. The financial multiples
and ratios for Saks were calculated using the June 24 Price, and were based
on information provided to Merrill Lynch by Saks management. The financial
multiples and ratios for each of the Merrill Lynch Selected Companies and
Proffitt's were based on the most recent publicly available information.
Merrill Lynch compared 1997 sales growth rates for the Merrill Lynch
Selected Companies ("Comparable Store Sales Growth Rates"), which ranged
from 2.3% to 9.4%, and LTM-EBITDA margins for the Merrill Lynch Selected
Companies, which ranged from 8.7% to 16.8%, to the 1997 sales growth rate
and LTM-EBITDA margin of Saks, which were 12.7% and 10.2%, respectively and
to the 1997 sales growth rate and LTM-EBITDA margin of Proffitt's, which
were 18.4% and 10.3%, respectively. Merrill Lynch also compared the 1997
Comparable Store Sales Growth Rates for the Merrill Lynch Selected
Companies, which ranged from -.3% to 4.7%, and LTM net income margins for
the Merrill Lynch Selected Companies, which ranged from 1.9% to 6.2%, to the
1997 sales growth rate and LTM net income margin for Saks, which were 3.8%
and 2.3%, respectively and to the 1997 sales growth rate and LTM net income
margin for Proffitt's, which were 4.0% and 3.9%, respectively. In addition,
Merrill Lynch considered estimated P/E multiples for calendar year 1999
(based on EPS estimates provided by First Call), which ranged from 14.1x to
23.8x, with a mean of 18.0x, for the Merrill Lynch Selected Companies, to
Saks estimated P/E multiples for fiscal year 1999 (each Saks fiscal year
ends in January of the following year) of 18.1x and Proffitt's estimated P/E
multiples for fiscal year 1999 (each Proffitt's fiscal year ends in January
of the following year) of 18.6x; five-year estimated EPS growth rate for the
fiscal years 1998 through 2002 (provided by First Call), ranging from 11.0%
to 15.0%, with a mean of 13.3%, for the Merrill Lynch Selected Companies,
compared to 25.0% for Saks and 20.0% for Proffitt's; and the ratios of the
estimated 1999 P/E ratio to five-year estimated EPS growth rates for the
Merrill Lynch Selected Companies, ranging
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from 1.05x to 1.59x, with a mean of 1.36x, compared to 0.72x for Saks and
0.93x for Proffitt's. Merrill Lynch also compared the ratios of market
capitalization to estimated fiscal 1998 sales for the Merrill Lynch Selected
Companies, which ranged from 0.87x to 1.42x, with a mean of 1.05x, and the
ratios of market capitalization to estimated fiscal 1998 EBITDA for the
Merrill Lynch Selected Companies, which ranged from 7.3x to 14.4x, with a
mean of 10.1x, compared to 1.01x and 9.4x, respectively, for Saks and 1.06x
and 9.3x, respectively, for Proffitt's.
(iii) ANALYSIS OF RECENT ACQUISITION TRANSACTIONS. Merrill Lynch
analyzed certain information relating to selected transactions in the
department store industry since 1994. Merrill Lynch considered the
acquisition of: Macy's by Federated; Mercantile Stores by Dillard;
Herberger's by Proffitt's; Carson Pirie Scott by Proffitt's; Parisian by
Proffitt's; Younkers by Proffitt's; McRae's by Proffitt's and Peebles, Inc.
("Peebles") by an investor group (collectively, the "Merrill Lynch Selected
Transactions"). Such analysis indicated that for the Merrill Lynch Selected
Transactions (i) total transaction value as a multiple of LTM sales ranged
from 0.46x to 0.96x, with a mean of 0.73x, compared to Saks total
transaction value as a multiple of sales for 1997, and estimated for fiscal
year 1998 of 1.38x, and 1.24x, respectively, and (ii) the multiple of
LTM-EBITDA ranged from 5.5x to 12.1x, with a mean of 8.3x, compared to Saks
total transaction value as a multiple of EBITDA for fiscal year 1997 and
estimated for fiscal year 1998 of 13.5x, and 11.5x, respectively.
(iv) CONTRIBUTION ANALYSIS. Merrill Lynch reviewed certain historical
and estimated future operating and financial information (including, among
other things, net sales; EBITDA; EBIT and net income) for Saks, Proffitt's
and the combined company resulting from the Merger based on Saks and
Proffitt's managements' financial forecasts for each of Saks, Proffitt's and
the combined company. Merrill Lynch also analyzed the relative income
statement contribution of Saks and Proffitt's to the combined company on a
pro forma basis based on actual fiscal year 1997 and estimated fiscal year
1998, based on financial data and on the assumptions provided to Merrill
Lynch by Saks and Proffitt's managements. Merrill Lynch's analyses indicated
that in fiscal year 1997 Saks would have contributed 38.2% to combined net
sales, 38.4% to combined EBITDA, 34.3% to combined EBIT and 29.8% to
combined net income. Merrill Lynch estimated that Saks will contribute 39.4%
to combined net sales, 37.4% to combined EBITDA, 33.8% to combined EBIT, and
28.5% to combined net income in estimated fiscal 1998. From these figures,
Merrill Lynch calculated implied exchange ratios and implied exchange ratios
including the Saks NOL (valued at $3.26 per share of Saks Common Stock) for
fiscal year 1997 of 0.65 and 0.73, respectively, for combined net sales,
0.66 and 0.74, respectively, for combined EBITDA, 0.50 and 0.58,
respectively, for combined EBIT and 0.61 and 0.69, respectively, for
combined net income all as compared to the Conversion Number of 0.82. For
estimated fiscal year 1998, Merrill Lynch calculated implied exchange ratios
and implied exchange ratios including the present value of the Saks NOL of
0.70 and 0.78, respectively, for combined net sales, 0.61 and 0.69,
respectively, for combined EBITDA, 0.48 and 0.56, respectively, for combined
EBIT and 0.58 and 0.66, respectively, for combined net income all as
compared to the Conversion Number of 0.82.
(v) DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch performed a DCF
analysis using the Management Case for Saks. Merrill Lynch calculated a net
present value of unlevered free cash flows for the estimated fiscal years
1998 through 2002 using discount rates ranging from 10.0% to 12.0%. Merrill
Lynch calculated Saks terminal values in fiscal year 2002 based on multiples
ranging from 8.0x EBITDA to 10.0x EBITDA. These terminal values were
discounted to present value using discount rates from 10.0% to 12.0%. The
various ranges for discount rates were chosen to reflect theoretical
analyses of cost of capital. The resulting implied per share values for Saks
including the present value of the Saks NOL ranged from $24.38 to $36.16.
Merrill Lynch also performed a DCF analysis using the Management Case
for Proffitt's and using projections based on consensus estimates of
Proffitt's by certain "Wall Street" financial analysts (the "Street Case").
Merrill Lynch calculated a net present value of unlevered free cash flows
for the estimated fiscal years 1998 through 2002 using discount rates
ranging from 10.0% to 12.0%. Merrill Lynch calculated Proffitt's terminal
values in fiscal year 2002 based on multiples ranging from 8.0x
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EBITDA to 10.0x EBITDA. These terminal values were discounted to present
value using discount rates from 10.0% to 12.0%. The various ranges for
discount rates were chosen to reflect theoretical analyses of cost of
capital. The resulting implied per share values for Proffitt's ranged from
$43.07 to $57.61 using the Management Case for Proffitt's and $36.88 to
49.41 using the Street Case for Proffitt's.
(vi) RELATIVE VALUATION ANALYSIS. Merrill Lynch analyzed the
historical implied exchange ratio between Saks Common Stock and Proffitt's
Common Stock between June 24, 1997 and June 24, 1998. The analysis indicated
that the LTM high exchange ratio was 1.140, the LTM low exchange ratio was
0.526, and the LTM average exchange ratio was 0.756, compared to the
Conversion Number of 0.82. Merrill Lynch also calculated the implied
exchange ratio by comparing the theoretical values of Saks Common Stock
including the present value of the Saks NOL and Proffitt's Common Stock (i)
determined by applying the P/E multiples of the Merrill Lynch Selected
Companies to the EPS of Saks and Proffitt's (the "Public Comparables
Analysis"), (ii) calculated by applying the ratio of the P/E multiple to the
growth rate of the Merrill Lynch Selected Companies to the growth rate of
Saks and Proffitt's (the "P/E to Growth Rate Analysis"), (iii) determined by
applying the EBITDA multiples of the Merrill Lynch Selected Transactions to
the EBITDA of Saks and Proffitt's (the "Acquisition Comparables Analysis"),
and (iv) determined from the DCF analyses described earlier. The Public
Comparables Analysis implied a range of values of $28.11 to $32.22 per share
of Saks Common Stock and $39.06 to $45.57 per share of Proffitt's Common
Stock, with an exchange ratio ranging from 0.62 to 0.82 with a median of
0.71. The P/E to Growth Rate Analysis implied a range of values of $37.70 to
$44.55 per share of Saks Common Stock and $43.40 to $52.08 per share of
Proffitt's Common Stock with an implied exchange ratio ranging from 0.72 to
1.03 with a median of 0.86. The Acquisitions Comparables Analysis implied a
range of values of $22.09 to $28.95 per share of Saks Common Stock and
$32.18 to $39.86 per share of Proffitt's Common Stock with an implied
exchange ratio ranging from 0.55 to 0.90 with a median of 0.71. Merrill
Lynch determined implied exchange ratios under a DCF analysis by (i)
comparing the Saks Management Case to the Proffitt's Management Case and
(ii) comparing the Saks Management Case to the Proffitt's Street Case. The
discounted cash flow analysis implied a range of values of $24.38 to $36.16
per share of Saks Common Stock under the Saks Management Case and $43.07 to
$57.61 per share of Proffitt's Common Stock under the Proffitt's Management
Case and $36.88 to $49.41 per share of Proffitt's Common Stock under the
Proffitt's Street Case. The implied exchange ratio using DCF analysis ranged
from 0.42 to 0.84 with a median of 0.70 using the Saks Management Case and
Proffitt's Management Case and 0.49 to 0.98, with a median of 0.60, using
the Saks Management Case and Proffitt's Street Case.
(vii) PRO FORMA MERGER ANALYSIS. Merrill Lynch prepared pro forma
analyses of the financial impact of the Merger. Using the Management Case
and the Street Merger Case, Merrill Lynch compared the EPS of the Proffitt's
Common Stock, on a standalone basis, to the EPS of the common stock of the
combined company on a pro forma basis. Based on such analyses, Merrill Lynch
determined that, assuming $60,000,000 in pro forma pretax synergies in each
year, the proposed transaction would be accretive to Saks stockholders on an
EPS basis under each of the Street Merger Case and the Management Case in
each of fiscal years 1999 and 2000.
IMPORTANT NOTICE CONCERNING FINANCIAL ANALYSES. The preparation of a
fairness opinion is a complex process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the opinions of the Saks Financial Advisors. In arriving at its
respective fairness determination, each Saks Financial Advisor considered the
results of all such analyses and did not attribute any particular weight to any
factor or analysis considered by it; rather, such Saks Financial Advisor made
its determination as to fairness on the basis of its experience and professional
judgment after considering the results of all such analyses. In addition, in
performing its analyses, each Saks Financial Advisor made numerous assumptions
with respect to industry performance, general business, economic, market and
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financial conditions and other matters. No company or transaction used in the
above analyses as a comparison is directly comparable to Saks or Proffitt's or
the contemplated transaction. The analyses were prepared solely for purposes of
the Saks Financial Advisors' providing their respective opinions to the Saks
Board as to the fairness to the stockholders of Saks from a financial point of
view of the Conversion Number and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of Saks, Proffitt's, Goldman
Sachs, Merrill Lynch or any other person assumes responsibility if future
results are materially different from those forecast. As described above, the
Saks Financial Advisors' opinions to the Saks Board were among many factors
taken into consideration by the Saks Board in making its determination to
approve the Merger Agreement.
FEE ARRANGEMENTS. Pursuant to a letter agreement dated May 9, 1998 (the
"Goldman Sachs Engagement Letter"), Saks engaged Goldman Sachs to act as its
financial advisor in connection with the possible merger, sale or other
strategic transaction involving all or a portion of Saks. Pursuant to the terms
of the Goldman Sachs Engagement Letter, Saks has agreed to pay Goldman Sachs a
transaction fee based on the outcome of the Merger (the "Goldman Sachs
Transaction Fee") of 0.40% of the aggregate consideration paid in the Merger.
The aggregate consideration for purposes of calculating the Goldman Sachs
Transaction Fee is the total consideration paid for such securities (including
amounts paid to holders of options, warrants and convertible securities), plus
the principal amount of all indebtedness for borrowed money as set forth on the
most recent consolidated balance sheet of Saks prior to the consummation of such
sale, exchange or purchase (provided that for such purposes the principal amount
of indebtedness outstanding under Saks existing revolving bank credit facility
shall be deemed to be the average principal amount outstanding thereunder at the
end of each of the then most recent twelve full calendar months) less cash, if
any, that is set forth on such balance sheet but is not necessary for the
operation of Saks, or, if such sale, exchange or purchase of Saks equity
securities is for less than 50% of the Saks Common Stock, an amount of such
indebtedness for borrowed money proportionate to the percentage of such stock so
sold, exchanged or purchased. Saks has agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including attorney's fees, and to indemnify
Goldman, Sachs against certain liabilities, including certain liabilities under
the federal securities laws.
Pursuant to a letter agreement dated May 6, 1998 (the "Merrill Lynch
Engagement Letter"), Saks engaged Merrill Lynch to act as its financial advisor
in connection with the possible merger, sale or other strategic transaction
involving all or a part of Saks. Pursuant to the terms of the Merrill Lynch
Engagement Letter, Saks has agreed to pay Merrill Lynch a transaction fee based
on the outcome of the Merger (the "Merrill Lynch Transaction Fee") of 0.20% of
the aggregate consideration paid in the Merger. The aggregate consideration for
purposes of calculating the Merrill Lynch Transaction Fee is the total
consideration paid for such securities (including amounts paid to holders of
options, warrants and convertible securities), plus the principal amount of all
indebtedness for borrowed money as set forth on the most recent consolidated
balance sheet of Saks prior to the consummation of such sale, exchange or
purchase (provided that for such purposes the principal amount of indebtedness
outstanding under Saks existing revolving bank credit facility shall be deemed
to be the average principal amount outstanding thereunder at the end of each of
the then most recent twelve full calendar months) less cash, if any, that is set
forth on such balance sheet but is not necessary for the operation of Saks. Saks
has agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses,
including attorney's fees, and to indemnify Merrill Lynch against certain
liabilities, including certain liabilities under the federal securities laws.
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MERGER CONSIDERATION
Pursuant to the Merger Agreement, at the Effective Time each issued and
outstanding share of Saks Common Stock (other than shares of Saks Common Stock
held in the treasury of Saks) will be converted into .82 of a share of
Proffitt's Common Stock. See "THE MERGER AGREEMENT--Terms of the Merger" and
"--Merger Consideration; Conversion Number" and "DESCRIPTION OF PROFFITT'S
CAPITAL STOCK--Rights Agreement." All shares of Saks Common Stock that are held
in the treasury of Saks will automatically be canceled at the Effective Time and
will cease to exist, and no capital stock of Proffitt's or other consideration
will be delivered in exchange therefor.
Fractional shares of Proffitt's Common Stock will not be issued in the
Merger. Holders of Saks Common Stock otherwise entitled to receive a fractional
share of Proffitt's Common Stock will be paid cash in lieu of such fractional
share determined and paid as described herein under the caption "THE MERGER
AGREEMENT--Fractional Shares."
Based on the number of shares of Saks Common Stock, the number of options to
acquire shares of Saks Common Stock and the number of shares issuable upon
conversion of Saks Convertible Notes outstanding on the Saks Record Date, a
maximum of 62,338,958 shares of Proffitt's Common Stock may be issued in respect
of shares of Saks Common Stock in the Merger or in connection with outstanding
options to be converted into options to purchase shares of Proffitt's Common
Stock pursuant to the Merger Agreement.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later date or
time upon which the parties may agree and which is set forth in the Certificate
of Merger. The filing of the Certificate of Merger will occur as promptly as
practicable following the satisfaction or waiver (where permissible) of the
conditions set forth in the Merger Agreement and the closing of the transactions
contemplated by the Merger Agreement (the "Closing" and the date such Closing
occurs, the "Closing Date"). See "--General" and "THE MERGER AGREEMENT--Terms of
the Merger" and "--Conditions to the Merger."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
CONVERSION OF SHARES. The conversion of Saks Common Stock into Proffitt's
Common Stock will occur at the Effective Time. Each certificate which
immediately prior to the Effective Time represented shares of Saks Common Stock
converted in the Merger (a "Saks Certificate") shall, from and after the
Effective Time until surrendered in exchange for a certificate representing
shares of Proffitt's Common Stock (a "Proffitt's Certificate"), for all purposes
be deemed to represent the number of shares of Proffitt's Common Stock
calculated by multiplying the number of shares of Saks Common Stock represented
by the Saks Certificate by the Conversion Number. As soon as practicable after
the Effective Time, Proffitt's will deposit with Union Planters, N.A. (formerly
Union Planters National Bank)("Union Planters"), as exchange agent (the
"Exchange Agent"), in trust for the holders of Saks Certificates, Proffitt's
Certificates issuable in exchange for outstanding shares of Saks Common Stock
and cash as required to make payments in lieu of any fractional shares of
Proffitt's Common Stock (such cash and shares of Proffitt's Common Stock,
together with any dividends or distributions with respect thereto payable as
described below, being hereinafter referred to as the "Exchange Fund").
EXCHANGE PROCEDURE. As soon as practicable after the Effective Time,
Proffitt's will cause the Exchange Agent to mail to each holder of record of a
Saks 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 Saks Certificates
will pass, only upon actual delivery of the Saks Certificates held by such
holder to the Exchange Agent and will contain instructions
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for use in effecting the surrender of the Saks Certificates in exchange for
Proffitt's Certificates representing shares of Proffitt's Common Stock and cash
in lieu of any fractional shares). Upon surrender of a Saks Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the holder of such Saks Certificate will be entitled to receive
in exchange therefor a Proffitt's Certificate representing that number of whole
shares of Proffitt's Common Stock into which the shares represented by the
surrendered Saks Certificate have been converted at the Effective Time pursuant
to the Merger, and cash in lieu of any fractional shares and certain dividends
and other distributions payable as described below, and the Saks Certificate so
surrendered will be canceled.
SAKS STOCKHOLDERS SHOULD NOT FORWARD THEIR SAKS CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
DIVIDENDS; TRANSFER TAXES; WITHHOLDING. 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
Proffitt's Certificate until such person surrenders the related Saks
Certificate, as provided above, and no cash payment in lieu of fractional shares
will be paid to any such person until such person surrenders the related Saks
Certificate. Subject to the effect of applicable law, there will be paid to each
record holder of a new Proffitt's Certificate: (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 Proffitt's 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 any
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 Proffitt's Certificate is to be paid to or issued
in a name other than that in which the Saks Certificate surrendered in exchange
therefor is registered, it will be a condition of such exchange that the Saks
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
Proffitt's Certificates in a name other than that of the registered holder of
the Saks Certificate surrendered, or will establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
In addition to transfer taxes which shall be paid by Proffitt's, 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 Saks 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 Saks Common Stock in respect of
which such deduction and withholding was made by Proffitt's or the Exchange
Agent.
LOST CERTIFICATES. If any Saks Certificate has been lost, stolen or
destroyed, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Saks Certificate, a Proffitt's Certificate, the shares of Proffitt's
Common Stock, any cash in lieu of fractional shares of Proffitt's Common Stock
to which such holder is entitled and any dividends or other distributions to
which such holder is entitled if the person claiming ownership of such lost,
stolen or destroyed Saks Certificate (i) presents an affidavit of that fact and
(ii) if reasonably required by the surviving corporation, the person posts a
bond, in such reasonable amount determined by the surviving corporation, as
indemnity against any claim, if any, made against the surviving corporation with
respect to such Saks Certificate.
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AFFILIATE LETTERS. Saks Certificates surrendered for exchange by an
"affiliate" of Saks for purposes of Rule 145(c) under the Securities Act, and
the rules and regulations promulgated thereunder and for purposes of applicable
interpretations regarding pooling of interests accounting, will not be exchanged
until Proffitt's receives a letter from such affiliate (an "Affiliate Letter")
representing to Proffitt's that such affiliate: (i) will not sell the shares of
Proffitt's Common Stock received by such affiliate until after the publication
of financial results covering at least 30 days of combined operations of
Proffitt's and Saks and (ii) will comply with the volume limitations and other
restrictions on resale imposed by Rule 145 under the Securities Act. Similarly,
shares of Proffitt's Common Stock issued to or held by affiliates of Saks will
not be transferable until the financial results covering at least 30 days of
combined operations of Proffitt's and Saks have been published in the manner
provided by policies of the Commission regardless of whether the affiliate has
provided an Affiliate Letter to Proffitt's. 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. Pursuant to the
Merger Agreement, Proffitt's has agreed to publish such financial results within
45 days after the end of the first full fiscal month following the Closing.
GOVERNMENTAL AND REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"). Certain aspects of the Merger may require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where Proffitt's and Saks 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
July 20, 1998, Proffitt's and Saks filed notification and report forms under the
HSR Act with the FTC and the Antitrust Division. The waiting period under the
HSR Act will expire on August 19, 1998 unless additional information is
requested by the FTC or the Antitrust Division. 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 federal antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the consummation of the Merger
or seeking divestiture of substantial assets of Proffitt's or Saks. 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 Saks. 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 Saks 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 Saks would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger. The obligations of
Proffitt's and Saks 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
GENERAL. The following discussion is a summary of the material U.S. federal
income tax consequences of the Merger to a stockholder of Saks. The discussion
which follows is based on the Code, Treasury regulations promulgated thereunder,
administrative rulings and pronouncements and judicial decisions as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
The discussion below is for general information only and does not address the
effects of any state, local or foreign tax laws. The tax treatment of a Saks
stockholder may vary depending upon his or her particular situation, and certain
stockholders (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, persons who do not hold Saks Common Stock as
capital assets within the meaning of Section 1221 of the Code, and individuals
who received Saks Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation) may be subject to special rules not
discussed below.
As used in this section, a "U.S. Holder" is any holder of Saks Common Stock
that is for U.S. federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation or partnership organized under the laws of the
United States or any state, (iii) an estate, the income of which is subject to
U.S. federal income tax without regard to its source or (iv) a trust, if a court
within the United States is able to exercise primary supervision over the
administration of the trust, and one or more United States persons have the
authority to control all substantial decisions of the trust. A "Non-U.S. Holder"
is any holder of Saks Common Stock that is not a U.S. Holder.
CONSEQUENCES OF THE MERGER. Consummation of the Merger is conditioned upon
the receipt by Saks of an opinion from Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to Saks (the "Skadden Tax Opinion"), dated the date of this
Joint Proxy Statement/Prospectus and reaffirmed on the date on which the Merger
is consummated, that the Merger will qualify under Section 368(a) of the Code as
a "reorganization" for U.S. federal income tax purposes, Proffitt's and Saks
each will be a party to that reorganization within the meaning of Section 368(b)
of the Code, and other matters. Such opinion of counsel is based on certain
representations as to factual matters made by, among others, Proffitt's and
Saks. Such representations, if incorrect in certain material respects, could
jeopardize the conclusions reached in the opinion. Neither Proffitt's nor Saks
is currently aware of any facts or circumstances which would cause any such
representations made to counsel to be untrue or incorrect in any material
respect. Any opinion of counsel is not binding on the Internal Revenue Service
(the "IRS") or the courts.
Based on the opinion discussed above, the material U.S. federal income tax
consequences that will result from the Merger are as follows:
(i) The Merger will qualify as a "reorganization" under Section 368(a)
of the Code.
(ii) Proffitt's, Sub and Saks each will be a party to that
reorganization within the meaning of Section 368(b) of the Code.
(iii) No income, gain or loss will be recognized by Proffitt's or Saks
as a result of the Merger.
(iv) A Saks stockholder will not recognize any income, gain or loss as a
result of the receipt of Proffitt's Common Stock pursuant to the Merger,
except with respect to cash received in lieu of fractional shares of
Proffitt's Common Stock.
(v) A Saks stockholder's tax basis for the Proffitt's Common Stock
received pursuant to the Merger, including any fractional share interest of
Proffitt's Common Stock for which cash is received, will equal such Saks
stockholder's tax basis in the Saks Common Stock exchanged therefor.
(vi) A Saks stockholder's holding period for the Proffitt's Common Stock
received pursuant to the Merger will include the holding period of the Saks
Common Stock surrendered in exchange therefor.
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(vii) A Saks stockholder that is a U.S. Holder and that receives cash in
lieu of a fractional share interest in Proffitt's Common Stock pursuant to
the Merger will be treated as having received such cash in exchange for such
fractional share interest and generally will recognize gain or loss on such
deemed exchange in an amount equal to the difference between the amount of
cash received and the basis of the Saks Common Stock allocable to such
fractional share. In general, such gain or loss will constitute capital gain
or loss if the Saks Common Stock was held as a capital asset at the
Effective Time. The tax rate applicable to capital gain of a non-corporate
U.S. Holder varies depending on such holder's holding period for the shares.
In the case of a non-corporate U.S. Holder, any such capital gain will be
subject to a maximum U.S. federal income tax rate of 20% if such holder's
holding period in such stock is more than one year but not more than 18
months on the date of the Effective Time. An individual's gain on the sale
of capital assets held for one year or less is subject to tax as ordinary
income at the maximum rate of 39.6%.
(viii) A Non-U.S. Holder that receives cash in lieu of fractional shares
in Saks Common Stock will not be subject to United States income or
withholding tax unless either (x) such income or gain is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business in
the United States or (y) in the case of gain realized by an individual
Non-U.S. Holder, the Non-U.S. Holder is present in the United States for 183
days or more in the taxable year of the exchange and certain other
conditions are met.
TRANSFER TAXES. Proffitt's will pay any and all transfer taxes that are
imposed on Saks stockholders as a result of the Merger, directly to state and
local taxing authorities. Any such payments may be treated for U.S. federal
income tax purposes as having been paid on behalf of Saks stockholders as
additional consideration for their shares. In that event, gain realized on the
transaction could be recognized (i.e., subject to tax), but not in excess of the
transfer taxes deemed paid. Additionally, a Saks stockholder may be able to
offset the amount of any such transfer taxes deemed paid on his account against
any income or gain recognized pursuant to the Merger.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, SAKS STOCKHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE EFFECT OF U.S. FEDERAL, STATE AND LOCAL, AND FOREIGN AND
OTHER TAX RULES, AND THE EFFECT OF POSSIBLE CHANGES IN 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 Saks will be carried forward to the
combined company at their recorded amounts, income of the combined company will
include income of Proffitt's and Saks 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 company.
The obligations of Proffitt's, Sub and Saks to consummate the Merger are subject
to Proffitt's receipt of a letter from its independent accountants,
PricewaterhouseCoopers LLP, in customary form, to the effect that no conditions
exist which would preclude accounting for the Merger as a pooling of interests,
and Saks receipt of a letter from its independent accountants,
PricewaterhouseCoopers LLP, in customary form, to the effect that no conditions
exist with respect to Saks which would preclude accounting for the Merger as a
pooling of interests. See "THE MERGER AGREEMENT--Conditions to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. In considering the recommendation of the Saks Board with respect
to the Merger, stockholders of Saks should be aware that certain persons,
including certain members of Saks management and members of the Saks Board, have
interests, as described below, in the Merger that are different from, or in
addition to, those of the stockholders of Saks. The Saks Board was aware of
these interests and
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considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
COMPOSITION OF THE PROFFITT'S BOARD AFTER THE MERGER. Pursuant to the
Merger Agreement, three designees of Saks will be appointed to the Proffitt's
Board as of the Effective Time. See "THE MERGER AGREEMENT--Composition of
Proffitt's Board." It is expected that Mr. Philip B. Miller, Chairman and Chief
Executive Officer of Saks, and Mr. Charles J. Philippin, a director of Saks and
a representative of Investcorp, will be two of the three Saks designees to the
Proffitt's Board. If Mr. Brian E. Kendrick, Vice Chairman and Chief Operating
Officer of Saks, enters into an employment agreement with Proffitt's, it is
expected that he will be the third Saks designee to the Proffitt's Board. It has
not yet been determined who will serve as the third designee if it is not Mr.
Kendrick.
Each such designee will serve until Proffitt's 1999 Annual Meeting of
Shareholders and until his successor is duly elected and qualified. Proffitt's
will nominate the three designees as part of management's slate of nominees at
Proffitt's 1999 Annual Meeting of Shareholders. If re-elected at such meeting,
Mr. Miller will be assigned to the class of Proffitt's directors whose terms
expire in 2002, the third designee will be assigned to the class of Proffitt's
directors whose terms expire in 2001, and Mr. Philippin will be assigned to the
class of Proffitt's directors whose terms expire in 2000.
NEW EMPLOYMENT AND CONSULTING ARRANGEMENTS WITH CERTAIN SAKS
EXECUTIVES. Pursuant to the Merger Agreement, Proffitt's has agreed to enter
into the Miller Employment Agreement with Mr. Miller under which Mr. Miller will
remain Chief Executive Officer of Saks until June 2001 and as a consultant to
Proffitt's for each of the next two years thereafter. Mr. Miller's employment
can be terminated by Proffitt's at any time subject to the payment of certain
severance benefits. Pursuant to the terms of the Miller Employment Agreement,
Mr. Miller will be appointed to the Proffitt's Board to serve until the
Proffitt's 1999 Annual Meeting of Shareholders, at which time Proffitt's has
agreed to include Mr. Miller as part of management's slate for re-election. If
re-elected, Mr. Miller will be assigned to the class of Proffitt's directors
whose terms expire in 2002. See "OTHER AGREEMENTS--Miller Employment Agreement."
Pursuant to the Merger Agreement, Proffitt's also has agreed to negotiate an
employment agreement with Mr. Kendrick. It is expected that Mr. Kendrick will
remain in his current position with Saks through a transition period following
the Merger. Proffitt's and Mr. Kendrick are continuing to discuss an ongoing
role that Mr. Kendrick may play in the management of Proffitt's following the
Merger, but no agreement has been reached with respect to any role he may play
in the management of the combined company.
Proffitt's also has expressed its intention to provide other executives of
Saks with opportunities to continue with the combined company. See "MANAGEMENT
AND OPERATIONS AFTER THE MERGER."
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that, for not
less than six years from and after the Effective Time, Proffitt's will indemnify
and hold harmless for acts or omissions occurring at or prior to the Effective
Time all past and present directors, officers and employees of Saks to the same
extent such persons are indemnified by Saks as of the date of the Merger
Agreement pursuant to the Amended and Restated Certificate of Incorporation of
Saks (the "Saks Restated Certificate"), the Bylaws of Saks (the "Saks Bylaws")
or any indemnification agreements with such persons. Proffitt's has further
agreed to indemnify and hold harmless such persons to the fullest extent
permitted by law for acts or omissions occurring in connection with the approval
of the Merger Agreement and the consummation of the transactions contemplated
thereby. For an aggregate period of not less than six years from the Effective
Time, Proffitt's has also agreed to provide Saks 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
Saks existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage. In no event, however, will Proffitt's
be required to pay an annual premium for the D&O Insurance in excess of 200% of
the last annual premium paid prior to the
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date of the Merger Agreement, which premium Saks has represented and warranted
to be approximately $450,000.
COMPENSATION TO CERTAIN SAKS OUTSIDE DIRECTORS. In consideration for
services rendered in connection with exploration by Saks of strategic
alternatives and in connection with the Merger, Saks will pay to the outside
directors of Saks, E. Garrett Bewkes III, Stephen I. Sadove and Brian Ruder,
cash compensation in an amount to be determined.
SEVERANCE ARRANGEMENTS. In addition to Messrs. Miller and Kendrick, three
Executive Vice Presidents ("EVPs") also have employment agreements with Saks.
Saks and Proffitt's have agreed to adopt a severance policy (the "Severance
Policy") for the benefit of EVPs, Senior Vice Presidents ("SVPs") and selected
Vice Presidents ("Select VPs"). The Severance Policy provides, among other
things, for severance payments in the event of involuntary termination without
Cause (as defined therein). Severance benefits under the Severance Policy
consist principally of, with respect to EVPs, two times the sum of the EVP's
salary and target bonus, two years of continued participation in all welfare
benefit plans and additional retirement accruals. With respect to SVPs,
compensation will include one and a half (1.5) times the sum of the SVP's salary
and target bonus, one and a half (1.5) years of continued participation in all
welfare benefit plans and additional retirement accruals. With respect to Select
VPs, compensation will include one times the sum of the Select VP's salary and
target bonus and one year of continued participation in all welfare benefit
plans. All three groups will receive outplacement services for one year,
reimbursement of legal fees in the event of a dispute (if the executive
prevails) and a reduction in severance benefits to avoid excise taxes. This
Severance Policy will commence immediately following the Closing and will expire
in the year 2000. The Severance Policy is intended to augment the severance
provisions contained in the employment agreements of certain Saks executives who
elect not to enter into new employment agreements with Proffitt's.
SAKS STOCK OPTIONS AND OTHER EQUITY BASED AWARDS. Pursuant to the terms of
the Merger Agreement, each outstanding option to purchase shares of Saks Common
Stock (a "Saks Stock Option") automatically will be converted into an option (a
"Proffitt's Stock Option") to purchase a number of shares of Proffitt's Common
Stock equal to the number of shares that could have been purchased under such
Saks Stock Option multiplied by .82, at a price per share of Proffitt's Common
Stock equal to the per share option exercise price specified in the Saks Stock
Option, divided by .82. Such Proffitt's Stock Option shall otherwise be subject
to the same terms and conditions as such Saks Stock Option. Each restricted
stock award of Saks shall be assumed by Proffitt's and automatically shall be
converted into an identical award with respect to Proffitt's Common Stock,
multiplied by .82 and otherwise subject to the same terms and conditions as the
related Saks restricted stock award. See "THE MERGER AGREEMENT--Saks Stock
Options and Employee Benefits."
REGISTRATION RIGHTS AGREEMENT. In connection with the Merger, in response
to the Investcorp Affiliates' status as affiliates of Saks subject to the
restrictions on resale imposed by Rule 145 under the Securities Act, Proffitt's
and the Investcorp Affiliates, which hold in the aggregate approximately 15.2%
of the outstanding shares of Saks Common Stock and have three designees on the
Saks Board, entered into the Registration Rights Agreement pursuant to which the
Investcorp Affiliates were granted certain rights to have the shares of
Proffitt's Common Stock received by them in the Merger registered for resale by
them. See "OTHER AGREEMENTS--Registration Rights Agreement."
STOCKHOLDERS' AGREEMENT. In connection with the Merger, Proffitt's and the
Investcorp Affiliates also entered into the Stockholders' Agreement pursuant to
which, among other things, the Investcorp Affiliates have agreed to vote the
shares of Saks Common Stock held by them in favor of approval and adoption of
the Merger Agreement. See "OTHER AGREEMENTS--Stockholders' Agreement."
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MANAGEMENT AND OPERATIONS AFTER THE MERGER
NEW CORPORATE NAME. Following the Merger, subject to aproval of the Charter
Amendment by Proffitt's shareholders, Proffitt's corporate name will be changed
to "Saks Incorporated." This name change will reflect the fact that Saks Fifth
Avenue will be the largest store group in the combined company. In light of the
widespread recognition of the SAKS FIFTH AVENUE name, the new corporate name is
expected to enhance the combined company's recruiting efforts and certain
supplier relationships. Proffitt's also believes that the recognition of the
SAKS FIFTH AVENUE name will give the combined company greater visibility in both
domestic and foreign investment communities.
MANAGEMENT OF SAKS. Following the Merger, Proffitt's intends to centralize
certain administrative and store support functions of Saks and to integrate them
with those of Proffitt's. However, Saks unique core competencies, including
merchandising, marketing, store operations and related support functions, will
continue to be managed by Saks Fifth Avenue's management in New York.
Pursuant to the Merger Agreement, Proffitt's has agreed to retain Mr. Philip
B. Miller, Chairman and Chief Executive Officer of Saks, in his current position
with Saks until 2001 and as a consultant to Proffitt's for each of the next two
years thereafter. See "OTHER AGREEMENTS--Miller Employment Agreement." Pursuant
to the Merger Agreement, Proffitt's also has agreed to negotiate an employment
agreement with Mr. Brian E. Kendrick, Vice Chairman and Chief Operating Officer
of Saks. It is expected that Mr. Kendrick will remain in his current position
with Saks through a transition period following the Merger. Proffitt's and Mr.
Kendrick are continuing to discuss an ongoing role that Mr. Kendrick may play in
the management of Proffitt's following the Merger, but no agreement has been
reached with respect to any role he may play in the management of the combined
company.
BUSINESS PLANNING, CAPITAL ALLOCATION, AND BEST PRACTICES. Proffitt's has
developed certain operating disciplines and business practices that it uses in
making and executing business plans. These disciplines and practices, which
apply throughout all store groups within Proffitt's, will be implemented by Saks
Fifth Avenue. Proffitt's corporate officials, along with Saks management, will
be responsible for implementing these disciplines and practices, which are
intended to increase profitability.
After the Merger, Proffitt's senior corporate executives will be responsible
for the approval of Proffitt's capital budget for projects across all store
groups, including Saks Fifth Avenue. Proffitt's anticipates that all such
projects will be evaluated in light of Proffitt's current stated objective of
generating an after-tax return on investment in excess of 16%. Proffitt's
anticipates that future capital expenditures will be allocated to the
construction of new stores, the expansion and remodeling of existing stores, and
the enhancement of the combined company's operating infrastructure.
In line with past acquisitions, Proffitt's intends to identify and then
implement the best practices of Proffitt's and Saks across the combined company.
For example, Saks fashion and customer service expertise can be used to enhance
the offerings and service across all store groups. Likewise, Proffitt's
administrative infrastructure, inventory-planning processes, and financial
controls can be used to enhance the profitable execution of the growth
strategies of Saks Fifth Avenue.
PRIVATE LABEL MERCHANDISING. Proffitt's and Saks currently supplement their
respective branded merchandise offerings with private label merchandise. Private
label merchandise typically generates a higher gross margin than does similar
branded merchandise, and may be used to offer unique value to the broadest
customer segment, which engenders additional customer loyalty. Proffitt's
private label sales currently constitute approximately 8% of Proffitt's total
sales, and Saks private label sales currently constitute approximately 9% of
Saks total sales. Within Proffitt's Merchandising Group, Proffitt's has built a
private label development and sourcing team for the purpose of creating a
broader array of higher quality, lower cost, private label merchandise. The
expertise of the Saks private label product development and sourcing team brings
fashion leadership and knowledge of global sourcing of high-end merchandise.
Proffitt's believes that the coordination of Proffitt's private label team with
the Saks team will improve
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quality control, cost structures, fashion direction and sourcing capabilities of
each store group's offerings and will further differentiate the merchandise
offering in Proffitt's existing stores from that of their competitors.
DIRECT MAIL BUSINESS. Saks currently operates a direct mail catalog
business under the name FOLIO. Proffitt's expects that, through FOLIO and the
associated telemarketing and distribution infrastructure, there will be an
opportunity for the combined company to expand the direct mail business by (i)
accessing the expanded customer base, including Proffitt's approximately five
million credit card holders, and (ii) pursuing strategic acquisitions of other
catalog retailers, such as Saks pending acquisition of Bullock & Jones, a direct
mail marketer of fine men's wear. In addition, Proffitt's believes that Saks
experience in developing direct mail, and the SAKS FIFTH AVENUE brand name, will
be valuable in the development of an electronic commerce program.
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THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT,
WHICH IS INCLUDED AS APPENDIX I TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY IS NOT NECESSARILY
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT.
TERMS OF THE MERGER
The Merger Agreement provides that, upon the terms and subject to the
conditions contained therein, including the approval of the Merger Agreement and
the Stock Issuance by the holders of Proffitt's Common Stock and approval of the
Merger Agreement by the holders of Saks Common Stock, Sub will be merged with
and into Saks at the Effective Time, with Saks continuing as the Surviving
Corporation and a wholly-owned subsidiary of Proffitt's.
MERGER CONSIDERATION; CONVERSION NUMBER
Subject to the terms and conditions of the Merger Agreement, each share of
Saks Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Saks Common Stock that are held in the treasury of Saks
which will be canceled) will be converted into .82 of a validly issued, fully
paid and nonassessable share of Proffitt's Common Stock. See "THE MERGER--Merger
Consideration." All such shares of Saks Common Stock, when so converted, no
longer will be outstanding and automatically will be canceled and retired, and
each holder of a Saks Certificate will cease to have any rights with respect
thereto, except the right to receive certain dividends and other distributions,
Proffitt's Certificate representing the shares of Proffitt's Common Stock into
which such shares are converted and any cash, without interest, in lieu of any
fractional shares to be issued or paid in consideration therefor upon the
surrender of such Saks Certificate.
In the event of any reclassification, recapitalization, stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Proffitt's Common Stock) or subdivision 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 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 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.
Proffitt's has issued one Right for each outstanding share of Proffitt's
Common Stock pursuant to the Proffitt's Rights Agreement (as defined herein).
Each Right entitles the holder thereof to purchase from Proffitt's one
two-hundredth (1/200) of a share of Series C Junior Preferred Stock at a price
of $278 per one one-hundredth (1/100) of a share, subject to adjustment in
certain circumstances. Pursuant to the Proffitt's Rights Agreement, such Rights
will attach to shares of Proffitt's Common Stock issued to Saks stockholders in
connection with the Merger. See "DESCRIPTION OF PROFFITT'S COMMON STOCK--Rights
Agreement".
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Proffitt's Common
Stock will be issued upon the surrender for exchange of Saks 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 Saks Common Stock who would otherwise have been
entitled to a fraction of a share of Proffitt's Common Stock upon surrender of
Saks Certificates for exchange will receive cash (without interest) rounded to
the nearest cent, in an amount equal to the average per share Closing Price (as
defined herein) on the NYSE of Proffitt's Common Stock determined by multiplying
(i) the average per share Closing Price on the
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NYSE of Proffitt's Common Stock for the ten most recent Trading Days (as defined
herein) ending on the Trading Day immediately preceding the Closing Date by (ii)
the fractional interest to which such holder would otherwise be entitled.
"Closing Price" means the last reported selling price as reported on the NYSE
Transaction Tape for a given date, and "Trading Day" means a day on which
securities are traded on the NYSE.
CONDITIONS TO THE MERGER
The respective obligations of each of Proffitt's, Saks and Sub to effect the
Merger are subject to the fulfillment at or prior to the Effective Time of the
following conditions: (a) adoption of the Merger Agreement by the requisite vote
of stockholders of Saks, and approval of the Merger Agreement and the Stock
Issuance of by the requisite vote of the shareholders of Proffitt's; (b)
authorization for listing on the NYSE, 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) Proffitt's receipt of the
letter from its independent accountants, PricewaterhouseCoopers LLP, in
customary form, to the effect that no conditions exist which would preclude
accounting for the Merger as a pooling of interests; (e) Saks receipt of a
letter from its independent accountants, PricewaterhouseCoopers LLP, in
customary form, to the effect that no conditions exist with respect to Saks
which would preclude accounting for the Merger as a pooling of interests; (f)
effectiveness of the Registration Statement, of which the prospectus included as
a part of this Joint Proxy Statement/Prospectus is a part, filed with the
Commission by Proffitt's for the purpose of registering under the Securities Act
the shares of Proffitt's 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"), no stop order suspending the
effectiveness of the Registration Statement having been issued by the Commission
and no proceedings for that purpose having been initiated or, to the knowledge
of Proffitt's or Saks, threatened by the Commission and all necessary state
securities or blue sky authorizations having been received; and (g) no pending
action, suit or proceeding brought by any court or other governmental entity
seeking to enjoin or challenge the Merger or any transaction contemplated by the
Merger Agreement, nor any court or governmental entity having jurisdiction over
Saks or Proffitt's or any of their respective subsidiaries, having 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. See "THE MERGER--Governmental and Regulatory
Approvals."
The obligations of Saks to effect the Merger also are subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions: (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 covenants and agreements
contained in the Merger Agreement required to be performed on or prior to the
Effective Time, in each case, except as contemplated or permitted by the Merger
Agreement, or except where such failure of a representation or warranty to be
true and correct or the failure of Proffitt's or Sub to perform a covenant or
agreement would not have a material adverse effect on the assets, liabilities,
results of operations or financial condition of Proffitt's and its subsidiaries
taken as a whole (disregarding for this purpose any materiality qualification
contained in such representations, warranties, covenants and agreements and
excluding from the scope of such exception actions done with actual prior
knowledge of the Proffitt's Board or certain executive officers of Proffitt's,
certain actions pending the Merger with respect to its capital stock or
amendment of its charter and bylaws (see "--Conduct of Business Pending the
Merger--Actions by Proffitt's")), and Saks shall have received an officers'
certificate to that effect; (b) Saks shall have received
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an opinion of Proffitt's counsel, Sommer & Barnard, PC, in form and substance
reasonably satisfactory to Saks, dated as of the Closing Date, to the effect
that the Proffitt's Common Stock to be issued in the Merger is duly authorized,
validly issued, fully paid and nonassessable; and (c) Saks shall have received
the Skadden Tax Opinion. See "THE MERGER--Certain Federal Income Tax
Consequences."
The obligations of Proffitt's and Sub to effect the Merger also are subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions: (a) each of the representations and warranties of Saks 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 Saks 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 Saks 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 or except where such failure of a representation or warranty to be
true and correct or the failure of Saks to perform a covenant or agreement would
not have a material adverse effect on the assets, liabilities, results of
operations or financial condition of Saks and its subsidiaries taken as a whole
(disregarding for this purpose any materiality qualification contained in such
representations, warranties, covenants and agreements and excluding from the
scope of such exception actions done with actual prior knowledge of the Saks
Board or certain executive officers of Saks or certain actions pending the
Merger with respect to its capital stock, amendment of its charter and bylaws,
adoption or amendment of any severance or employee benefit plan other than
required by law or expressly contemplated by the Merger Agreement or increases
in officer, director or employee compensation, subject to certain exceptions
(see "--Conduct of Business Pending the Merger--Actions by Saks')) and
Proffitt's shall have received an officers' certificate to that effect; and (b)
Affiliate Letters shall have been delivered. See "THE MERGER--Conversion of
Shares; Procedures for Exchange of Certificates--Affiliate Letters."
Certain of the conditions to the Merger may not legally be waived by the
parties, including approvals of both holders of Proffitt's Common Stock and
holders of Saks Common Stock, clearance under the antitrust laws, the
effectiveness of the Registration Statement and the absence of any order or
legal restraint. Although Proffitt's may waive its receipt of the pooling letter
from PricewaterhouseCoopers LLP, Proffitt's does not intend to consummate the
Merger in the event that the pooling letter is not or cannot be delivered.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
Saks, and each of Proffitt's and Sub, as to, among other things: (a) due
organization and good standing; (b) capitalization; (c) corporate authorization
to enter into the contemplated transactions and binding effect of the Merger
Agreement; (d) governmental approvals required in connection with the
contemplated transactions and the absence of conflicts, violations and defaults
under its charter and bylaws, certain other agreements and documents and certain
judgments and orders or laws as a result of the contemplated transactions; (e)
filings with the Commission; (f) information to be included in this Joint Proxy
Statement/Prospectus; (g) no material adverse changes or effect (other than
changes or effects resulting from the Merger Agreement, the transactions
contemplated thereby or the announcement thereof or changes in economic, market,
regulatory or political conditions or changes in conditions generally applicable
to the industries in which it is involved) since January 31, 1998, except as
disclosed in its documents filed with the Commission prior to the date of the
Merger Agreement; (h) governmental licenses and permits and compliance with
laws; (i) tax matters and compliance with relevant tax laws; (j) actions and
proceedings pending against it or involving it; (k) employee benefit plans; (l)
compliance with worker safety laws, environmental laws and consumer credit laws;
(m) intellectual property; (n) labor matters; (o) actions taken or not taken
that
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would jeopardize the contemplated tax and accounting treatment of the Merger;
(p) undisclosed liabilities; and (q) brokers.
In addition, the Merger Agreement contains representations and warranties by
each of Proffitt's and Sub as to, among other things: (a) the required vote of
Proffitt's shareholders; (b) operations of Sub and ownership of Saks Common
Stock; (c) applicability to Proffitt's and Sub of state takeover statutes and
applicability of the Proffitt's Rights Agreement; and (d) receipt of a fairness
opinion from Salomon.
In addition, the Merger Agreement contains representations and warranties by
Saks, as to, among other things: (a) the required vote of Saks stockholders; (b)
ownership of Proffitt's Common Stock; (c) actions of the Saks Board to exempt
Saks, its subsidiaries and affiliates, the Merger, the Merger Agreement and the
transactions contemplated thereby from Section 203 of the DGCL; and (d) the
receipt of fairness opinions from each of the Saks Financial Advisors.
The representations and warranties in the Merger Agreement or in any
instrument delivered pursuant to the Merger Agreement shall terminate at the
Effective Time or upon termination of the Merger Agreement. See "--Termination."
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Proffitt's and Saks 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 its respective business 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 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 will be unimpaired at the Effective Time.
ACTIONS BY PROFFITT'S. Except as otherwise expressly contemplated by the
Merger Agreement, and subject to certain limited exceptions, from the date of
the Merger Agreement through the Effective Time, Proffitt's will not, and will
not permit any of its subsidiaries to, without the prior written consent of
Saks: (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 shareholders 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, (3) purchase, redeem or otherwise
acquire any shares of capital stock of Proffitt's or any shares of capital stock
of its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities other than redemption of
the certain 9 7/8% Senior Subordinated Notes due 2003 of Parisian or (4)
institute any share repurchase program; (b) issue, deliver, sell, pledge,
dispose of, grant, transfer or otherwise encumber any shares of its capital
stock, any other voting securities or equity equivalent or any securities
convertible or exchangeable into, or any rights, warrants or options to acquire
any such shares, voting securities, equity equivalent or convertible securities,
other than (1) subject to treatment of the Merger as a pooling of interests for
accounting purposes and as a reorganization within the meaning of Section 368(a)
of the Code for tax purposes, the issuance of stock options and shares of
Proffitt's Common Stock to employees of Proffitt's in the ordinary course of
business consistent with past practice, (2) the issuance of Proffitt's
securities pursuant to the Proffitt's Rights Agreement and (3) the issuance by
any wholly-owned subsidiary of Proffitt's of its capital stock to Proffitt's or
another wholly-owned subsidiary of Proffitt's; (c) amend the Proffitt's Charter
or the Amended and Restated Bylaws of Proffitt's (the "Proffitt's Bylaws"); (d)
except for certain possible acquisitions and except for inventory, merchandise,
finished goods and accounts receivable acquired in the ordinary course of
business, acquire or agree to acquire any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise
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acquire or agree to acquire any assets, other than assets in the ordinary course
of business consistent with past practice, 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) increase the
risk of any governmental entity entering an order prohibiting the consummation
of the Merger or (C) increase the risk of not being able to remove any such
order on appeal or otherwise, and (2) in the case of any individual acquisition,
the value of which does not exceed $750 million; (e) sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its assets,
other than (1) sales of inventory, merchandise and finished goods in the
ordinary course of business, (2) transactions in the ordinary course of business
consistent with past practice and not material to Proffitt's and its
subsidiaries taken as a whole, (3) as may be required by any governmental entity
or (4) subject to treatment of the Merger as a pooling of interests for
accounting purposes and as a reorganization within the meaning of Section 368(a)
of the Code for tax purposes, dispositions involving an aggregate consideration
not in excess of $500 million; (f) incur any indebtedness for borrowed money,
guarantee any such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other person, other than (1)
indebtedness incurred in the ordinary course of business consistent with past
practice, (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 and (3) the issuance of up to $300
million in senior notes and (4) such indebtedness as may be necessary to fund
certain actions allowed under clause (d) above; (g) knowingly violate or
knowingly fail to perform any material obligation or duty imposed upon it or any
subsidiary by any applicable 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 SAKS. Except as otherwise expressly contemplated by the Merger
Agreement and subject to certain limited exceptions, from the date of the Merger
Agreement through the Effective Time, Saks will not, and will not permit any of
its subsidiaries to, without the prior written consent of Proffitt's: (a)(1)
declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of its capital stock, or otherwise make any payments to its
stockholders in their capacity as such, (2) other than in the case of any
subsidiary, split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, (3) except for the repurchase of
Saks REMIC Class C Certificates, purchase, redeem or otherwise acquire any
shares of its capital stock or any other securities thereof or the capital stock
of any of its subsidiaries or any rights, warrants or options to acquire any
such shares or other securities or (4) institute any share repurchase program;
(b) issue, deliver, sell, pledge, dispose of, grant, transfer 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 Saks Common Stock
upon the exercise of Saks Stock Options outstanding on the date of the Merger
Agreement in accordance with their then current terms; (c) amend the Saks
Restated Certificate or Saks Bylaws; (d) except for certain currently
contemplated transactions and except for inventory, merchandise, finished goods
and accounts receivable acquired in the ordinary course of business, 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 acquisitions of assets in the ordinary course of
its business consistent with past practice the value of which do not exceed $50
million in the aggregate; (e) except for certain currently contemplated
transactions, sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, except for (1) sales of inventory,
merchandise and finished goods in the ordinary
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course of business, (2) transactions in the ordinary course of business
consistent with past practice, not material to Saks and its subsidiaries taken
as a whole, and in an aggregate amount greater than $50 million, and (3) as may
be required by any governmental entity; (f) except for certain currently
contemplated transactions, 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) indebtedness incurred
in the ordinary course of business consistent with past practice and (2)
indebtedness, loans, advances, capital contributions and investments between
Saks and any of its wholly-owned subsidiaries or between any of such
wholly-owned subsidiaries; (g) alter its corporate structure; (h) enter into or
adopt, or amend any existing, severance plan, agreement or arrangement or enter
into or amend any Saks benefit plan or employment or consulting agreement other
than as required by law, or as expressly contemplated by the Merger Agreement;
(i) increase the compensation payable or to become payable to its officers,
directors or employees, except for increases in the ordinary course of business
consistent with past practice in salaries or wages of its employees who are not
officers, or grant any additional rights to severance or termination pay to, or
enter into any employment or severance agreement with, any of its directors or
officers, or establish, adopt, enter into, or, subject to certain exceptions or
as otherwise required to comply with applicable law, amend or take action to
enhance or accelerate any rights or benefits under, any plan, policy or
arrangement for the benefit of any director, officer or employee; (j) knowingly
violate or knowingly fail to perform any material obligation or duty imposed
upon it or any subsidiary by any applicable federal, state or local law, rule,
regulation, guideline or ordinance; (k) take any action, other than reasonable
and usual actions in the ordinary course of business consistent with past
practice, with respect to accounting policies or procedures (other than actions
required to be taken by generally accepted accounting principles); (l) make any
tax election or settle or compromise any material federal, state, local or
foreign income tax liability or refund involving taxes in excess of $1 million;
(m) except for certain currently contemplated transactions, enter into any
contract (other than for inventory, merchandise or finished goods) that cannot
be canceled on 30 days' notice pursuant to which it is obligated in an amount in
excess of $1 million; (n) other than as required by law, make any material
changes to terms and conditions of its credit cards issued, or change in any
material respect the underwriting standards therefor; (o) make any capital
expenditure in the aggregate in excess of $2 million, other than expenditures
(and contracts for such expenditures) set forth in Saks current capital budget;
or (p) 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.
In addition, Saks and Proffitt's will not, and will not permit any of their
respective subsidiaries to, take any action that would, or that could reasonably
be expected to, result in (i) any of the representations and warranties of such
party set forth in the Merger Agreement that is qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that is not so
qualified becoming untrue in any material respect or (iii) except as otherwise
permitted with regard to Saks in connection with a Saks Takeover Proposal (as
defined hereinafter), any condition precedent to the Merger not being satisfied.
See "--Conditions to the Merger" and "--No Solicitation by Saks."
SAKS STOCK OPTIONS AND EMPLOYEE BENEFITS
SAKS STOCK OPTIONS AND OTHER EQUITY BASED AWARDS. Pursuant to the Merger
Agreement, at the Effective Time, each outstanding Saks Stock Option will
automatically be converted into a Proffitt's Stock Option. All references to
Saks in the Saks Stock Option plans, the applicable stock option or other awards
agreements issued thereunder and in any other Saks Stock Options will be deemed
to refer to Proffitt's. Each Saks Stock Option will be converted into a
Proffitt's Stock Option to purchase a number of shares of Proffitt's Common
Stock equal to the number of shares of Saks Common Stock that could have been
purchased under such Saks Stock Option multiplied by the Conversion Number, at
an exercise price per share of Proffitt's Common Stock equal to the per share
option exercise price specified in the Saks Stock Option divided by the
Conversion Number. The Proffitt's Stock Options will otherwise be subject to the
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same terms and conditions as the Saks Stock Options. See "THE MERGER--Interests
of Certain Persons in the Merger--Saks Stock Options and Other Equity Based
Awards."
Pursuant to the Merger Agreement, Proffitt's also has agreed (i) to file a
registration statement under the Securities Act with respect to the shares of
Proffitt's Common Stock underlying such Saks Stock Options converted into
Proffitt's Stock Options pursuant to the Merger, (ii) to reserve a number of
shares of Proffitt's Common Stock equal to the number of shares of Proffitt's
Common Stock issuable upon exercise of such Saks Stock Options and (iii) that it
will not, after the date of execution of the Merger Agreement, grant any stock
options, restricted stock, stock appreciation rights or limited stock
appreciation rights and will not permit cash payments to holders of Saks Stock
Options in lieu of the substitution therefor of Proffitt's Stock Options, as
described in the immediately preceding paragraph.
Pursuant to the terms of the Merger Agreement, at the Effective Time, by
virtue of the Merger and without any further action on the part of Saks or the
holder thereof, each restricted stock award of Saks (a "Saks Equity Based
Award") shall be assumed by Proffitt's and shall be automatically converted into
an identical award with respect to Proffitt's Common Stock adjusted based on the
Conversion Number, and otherwise subject to the same terms and conditions as the
related Saks Equity Based Award.
EMPLOYEE MATTERS. Except to the extent necessary to avoid duplication of
benefits, Proffitt's will, or will cause the surviving corporation and its
subsidiaries to, give all active employees of Saks who continue to be employed
by Saks as of the Effective Time ("Continuing Employees") full credit for
purposes of eligibility, vesting and determination of the level of benefits
under any employee benefit plans, programs or arrangements maintained by
Proffitt's, the surviving corporation or any subsidiaries of Proffitt's or the
surviving corporation to the same extent as recognized by Saks prior to the
Effective Time. In addition, for a period commencing on the Closing Date and
ending on July 4, 2000, Proffitt's will cause the surviving corporation and its
subsidiaries to provide to all Continuing Employees coverage under the benefit
plans, arrangements and policies (including, but not limited to, those relating
to severance pay (except with respect to certain Continuing Employees otherwise
eligible to receive severance pay) and excluding any equity-based compensation
or bonus program) maintained by Saks for the benefit of those employees
immediately prior to the Closing Date (collectively, the "Benefit
Arrangements"). Further, any changes to the Benefit Arrangements, during the
period commencing on the Closing Date and ending on July 4, 2000 shall be
subject to the determination of the Chief Executive Officer of Saks Fifth
Avenue. Also, from the date of the Closing until December 31, 1998, Continuing
Employees will be eligible to receive options to acquire shares of Proffitt's
Common Stock on a basis no less favorable than similarly situated employees of
Proffitt's (or on a basis relative to other Continuing Employees which is
substantially consistent with Saks past practice). Following the Closing,
Proffitt's will provide annual bonus programs to Continuing Employees which are
substantially similar to the annual bonus programs currently being provided for
such employees by Saks and, following December 31, 1998, Continuing Employees
will be eligible to participate in Proffitt's annual bonus program on the same
basis as similarly situated employees of Proffitt's.
EQUITY GRANTS, SEVERANCE PAY AND EMPLOYMENT ARRANGEMENTS. Pursuant to the
Merger Agreement, as soon as practicable following, and effective as of, the
Closing Date, in consideration of future services to be performed by such
employees, Proffitt's shall cause to be granted to those Continuing Employees
selected by prior mutual agreement of Proffitt's and the current Chief Executive
Officer of Saks, an aggregate of 89,500 restricted shares of Proffitt's Common
Stock. The shares shall vest at the rate of one-third on the second anniversary
and the remaining two-thirds on the third anniversary of the Closing Date. The
grant of such restricted shares shall contain other customary terms and
conditions.
In addition, the Merger Agreement provides that Proffitt's and Saks agree to
work together to adopt the Severance Policy for the benefit of certain Saks
employees, and to enter into the Miller Employment Agreement with Mr. Philip B.
Miller, the Chairman and Chief Executive Officer of Saks, and to negotiate an
employment agreement with Mr. Brian E. Kendrick, the Vice Chairman and Chief
Operating Officer of Saks. See "THE MERGER--Interests of Certain Persons in the
Merger--New Employment and Consulting Arrangements With Certain Saks Executives"
and "--Severance Arrangements" and OTHER AGREEMENTS--Miller Employment
Agreement."
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COMPOSITION OF PROFFITT'S BOARD
The Merger Agreement provides that at the Effective Time, Proffitt's shall
take all actions necessary to cause three designees of Saks (two of whom shall
be members of senior management of Saks) to be appointed to the Proffitt's Board
(and, if Proffitt's has any discretion in the matter, in such classes, as shall
be mutually agreed by Proffitt's and Saks prior to the Closing Date of the
Merger), to serve until their terms expire or until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Proffitt's Charter or Proffitt's
Bylaws. It is expected that Mr. Miller and Mr. Philippin, a director of Saks and
a representative of Investcorp, will be two of the three Saks designees to the
Proffitt's Board. If Mr. Kendrick enters into an employment agreement with
Proffitt's, it is expected that he will be the third designee on the Proffitt's
Board. It has not yet been determined who will serve as the third designee if it
is not Mr. Kendrick. See "THE MERGER-- Interests of Certain Persons in the
Merger."
SAKS CONVERTIBLE SUBORDINATED NOTES
Pursuant to the Merger Agreement, at the Effective Time, by virtue of the
Merger and without any further action on the part of Saks or the holder thereof,
the Saks Convertible Notes outstanding at the Effective Time shall become
obligations of the surviving corporation and shall remain outstanding
thereafter. From and after the Effective Time, the holders of the Saks
Convertible Notes shall have the right to convert such Saks Convertible Notes
into such number of shares of Proffitt's Common Stock and such amount of cash in
lieu of fractional shares received in the Merger by a holder of the number of
shares of Saks Common Stock into which such Saks Convertible Notes were
convertible immediately prior to the Effective Time.
NO SOLICITATION BY SAKS
Pursuant to the Merger Agreement, from and after the date of the Merger
Agreement, Saks will not, and will not permit any of its subsidiaries, nor will
it authorize any officer, director or employee of, or any investment banker,
attorney or other advisor or representative of, itself or any of its
subsidiaries to: (i) directly or indirectly solicit, initiate or encourage the
submission of, any Saks Takeover Proposal (as defined herein), (ii) enter into
or (other than the execution by Saks of an agreement with respect to a Superior
Takeover Proposal (as defined herein) that the Saks Board has determined in good
faith in the exercise of its fiduciary duties after receipt of advice from
counsel and after consultation with its financial advisors, is more favorable to
Saks stockholders than the Merger) approve any agreement with respect to any
Saks Takeover Proposal or (iii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Saks Takeover Proposal; provided, however, that, prior to the approval
of the Merger Agreement by the stockholders of Saks, Saks (A) following receipt
of a Saks Takeover Proposal from a third party, may participate in any
discussions or negotiations (including, as a part thereof, making any
counterproposal) with such third party or its agents or representatives, or
furnish information with respect to Saks to such third party or its agents or
representatives pursuant to a customary confidentiality agreement, or take any
such other action otherwise prohibited by clause (i) or (ii) above with respect
to such third party or its agents or representatives with respect to any Saks
Takeover Proposal if the Saks Board determines in good faith, after receipt of
advice from counsel, that the failure to participate in such discussions or
negotiations or to furnish such information, or take such other action, may
constitute a breach of its fiduciary duties under, or otherwise violate,
applicable law, provided that Saks shall not be permitted to take any such
actions with respect to any proponent of a Saks Takeover Proposal after the
thirtieth day following the date on which the Saks Board first makes such
determination with respect to such proponent (it being understood that Saks will
notify Proffitt's promptly as to any such date), and (B) shall be permitted to
(x) take and disclose to Saks stockholders a position or make a recommendation
with respect to any Saks
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Takeover Proposal or amend or withdraw such position or amend or withdraw its
position with respect to the Merger, including pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act, or (y) make appropriate disclosure to Saks
stockholders, in each case, if the Saks Board determines in good faith, after
receipt of advice from counsel, that the failure to take such action may
constitute a breach of its fiduciary duties under, or otherwise violate,
applicable law.
For purposes of the Merger Agreement and as used herein, "Saks Takeover
Proposal" means any proposal for a merger or other business combination
involving Saks and its subsidiaries or the acquisition or purchase of more than
25% of any class of equity securities of Saks or any of its Significant
Subsidiaries (as defined herein), or any tender offer (including self-tenders)
or exchange offer that, if consummated, would result in any person beneficially
owning more than 25% of any class of equity securities of Saks or any of its
Significant Subsidiaries, or a majority of the assets of Saks or any of its
Significant Subsidiaries, other than the transactions contemplated by the Merger
Agreement.
For purposes of the Merger Agreement and as used herein, "Significant
Subsidiary" has the meaning ascribed to it in Rule 1-02 of Regulation S-X
promulgated under the Exchange Act.
Neither the Saks Board nor any committee thereof shall withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Proffitt's or Sub, the
approval or recommendation by the Saks Board or any such committee, of the
Merger Agreement or the Merger, or approve or recommend, or propose to approve
or recommend, any Saks Takeover Proposal, unless (i) the Saks Board of Directors
determines in good faith, after receipt of advice from counsel, that the failure
to do so may constitute a breach of its fiduciary duties under, or otherwise
violate, applicable law, and (ii) any of the following is true: (A) a Saks
Takeover Proposal has been made and not withdrawn, (B) Saks then has the right
to terminate the Merger Agreement because the average of the daily per share
Closing Price of Proffitt's Common Stock for the fifteen consecutive Trading
Days ending on the third Trading Day before the Saks Special Meeting (the
"Average Proffitt's Stock Price") is below $30.52 or (C) Saks then has the right
to terminate the Merger Agreement because Proffitt's has failed to comply in any
material respect with any of its covenants and agreements or has breached any of
its representations and warranties. See "--Termination."
Saks promptly shall advise Proffitt's orally and in writing of its receipt
of any Saks Takeover Proposal, the identity of the person making any such Saks
Takeover Proposal, the material terms of any such Saks Takeover Proposal and any
changes to such material terms. Saks shall provide to Proffitt's, as soon as
practicable after receipt or delivery thereof, copies of any written Saks
Takeover Proposal and documents reflecting any changes to such material terms.
THIRD PARTY STANDSTILL AGREEMENTS
During the period from the date of the Merger Agreement through the
Effective Time, neither Proffitt's nor Saks without the prior consent of the
other will terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which Saks or Proffitt's or any of
their respective subsidiaries is a party (other than any such agreements
involving the other party), unless the Proffitt's Board or the Saks Board, as
the case may be, concludes in good faith after receipt of advice from counsel
that the failure to do so may constitute a breach of its fiduciary duties under,
or otherwise violate, applicable law.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
The Merger Agreement provides that for not less than six years from and
after the Effective Time, the surviving corporation shall indemnify all past and
present directors, officers and employees of Saks and its subsidiaries and
provide Saks current directors and officers with D&O Insurance. See "THE
MERGER-- Interests of Certain Persons in the Merger--Indemnification and
Insurance."
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CERTAIN OTHER COVENANTS
The Merger Agreement contains certain mutual covenants of the parties,
including covenants relating to: obtaining shareholder approvals; cooperation in
the preparation of the Registration Statement and this Joint Proxy
Statement/Prospectus; actions which would jeopardize treatment of the Merger as
a pooling of interests for accounting purposes or as a reorganization within the
meaning of Section 368(a) of the Code for tax purposes; delivery of tax
representation letters for purposes of the Skadden Tax Opinion; preparation,
execution and filing of transfer tax returns; access to information; delivery of
lists of affiliates and Affiliate Letters; payment of fees and expenses; public
announcements; notification of certain matters; actions to minimize the effect
of any applicable state takeover statute; and cooperation in connection with
certain governmental and regulatory filings and in obtaining consents and
approvals, including antitrust matters.
In addition, each party has agreed to use reasonable 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 the Merger
Agreement and not to take any action, or enter into any transaction, which would
cause any of its representations or warranties contained in the Merger Agreement
to be untrue in any material respect or result in a material breach of any
covenant made by it in the Merger Agreement.
The Merger Agreement also contains certain covenants of Proffitt's,
including covenants requiring Proffitt's to use its reasonable best efforts to
have authorized for listing on the NYSE, subject to official notice of issuance,
the shares of Proffitt's Common Stock to be issued in connection with the Merger
and to pay all transfer taxes which become payable in connection with the
Merger.
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 shareholders of Saks or Proffitt's: (a) by
mutual written consent of Proffitt's and Saks; (b) by either Proffitt's or Saks
(provided such party is not then in material breach) 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 had or would have a
material adverse effect on the other party and its subsidiaries taken as a whole
(disregarding for this purpose any materiality qualification contained in such
covenants and agreements) or is a result of certain actions done with the actual
prior knowledge of the Board of Directors or certain executive officers of the
other party or certain actions which the other party has covenanted not to take
pending the Merger (see "--Conduct of Business Pending the Merger"), and has not
been cured within ten business days following receipt by the other party of
written notice of such failure to comply; provided, however, that if any such
breach is curable by the breaching party through the exercise of the breaching
party's best efforts and for so long as the breaching party shall be so using
its best efforts to cure such breach, the non-breaching party may not terminate
the Merger Agreement pursuant to this provision; (c) by either Proffitt's or
Saks (provided such party is not then in material breach) if there has been a
breach by the other party (in the case of Proffitt's, including any breach by
Sub) of any representation or warranty of such other party contained in the
Merger Agreement, which breach has had or would have a material adverse effect
on the other party and its subsidiaries taken as a whole (disregarding for this
purpose any materiality qualification contained in such representation or
warranty) or is a result of certain actions done with the actual prior knowledge
of the Board of Directors or certain executive officers of the other party or
certain actions which the other party has covenanted not to take pending the
Merger (see "--Conduct of Business Pending the Merger"), and which breach has
not been cured within ten business days following receipt by the breaching party
of written notice of the breach; provided, however, that if any such breach is
curable by the breaching party through the exercise of the breaching party's
best efforts and for so long as the
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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
provision; (d) by Proffitt's or Saks (1) if any governmental entity issues an
order, decree or ruling or takes any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree or ruling
shall have become final and nonappealable; or (2) if the Merger has not been
effected on or prior to the close of business on March 31, 1999; provided,
however, that the right to terminate the Merger Agreement pursuant to this
provision shall 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 Saks if the stockholders of Saks do not
approve the Merger Agreement at the Saks Special Meeting; (f) by Proffitt's or
Saks if approval of the Merger Agreement and the Stock Issuance are not obtained
at the Proffitt's Special Meeting; (g) by Saks in connection with the concurrent
execution by Saks of an agreement with respect to a Superior Takeover Proposal
(as defined herein) that the Saks Board has determined, in good faith, in the
exercise of its fiduciary duties after receipt of advice from counsel and after
consultation with its financial advisors, is more favorable to Saks stockholders
than the Merger; (h) by Proffitt's if (1) the Saks Board shall not have
recommended, or shall have resolved not to recommend, or shall have modified or
withdrawn in a manner adverse to Proffitt's its recommendation of the Merger, or
(2) the Saks Board shall have recommended to the stockholders of Saks any Saks
Takeover Proposal or shall have resolved to do so; (i) by Saks if (1) the
Proffitt's Board shall not have recommended, or shall have resolved not to
recommend or shall have modified or withdrawn its recommendation in a manner
adverse to Saks of the Merger Agreement, the Stock Issuance, the Charter
Amendment or the Board Amendment, (2) the Proffitt's Board shall have
recommended to the shareholders of Proffitt's any Proffitt's Takeover Proposal
(as defined herein) or shall have resolved to do so; and (j) by Saks prior to
the Saks Special Meeting if the Average Proffitt's Stock Price is less than
$30.52. For purposes of the Merger Agreement and as used herein, a "Superior
Takeover Proposal" means a Saks Takeover Proposal for more than 50% of any class
of equity securities of Saks or any of its significant subsidiaries, or any
tender offer (including self-tenders) or exchange offer than, if consummated,
would result in any person beneficially owning more than 50% of any class of
equity securities of Saks or any of its Significant Subsidiaries, or a majority
of the assets of, Saks or any of its Significant Subsidiaries. For purposes of
the Merger Agreement and as used herein, a "Proffitt's Takeover Proposal" means
any proposal for a merger or other business combination involving Proffitt's and
its subsidiaries or the acquisition or purchase of more than 25% of any class of
equity securities of Proffitt's or any of its Significant Subsidiaries, or any
tender offer (including self-tenders) or exchange offer that, if consummated,
would result in any person beneficially owning more than 25% of any class of
equity securities of Proffitt's or any of its Significant Subsidiaries, or a
majority of the assets of Proffitt's or any of its Significant Subsidiaries,
other than the transactions contemplated by the Merger Agreement.
The right of any party to the Merger Agreement to terminate the Merger
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party thereto, any person controlling
any such party or any of their respective officers or directors, whether prior
to or after the execution of the Merger Agreement.
In the event of termination of the Merger Agreement by either Saks or
Proffitt's as described above, no provision thereof shall survive (other than
certain provisions relating to the effect of investigations and access to
information, fees and expenses and certain general provisions of the Merger
Agreement), and such termination shall be without liability other than the
liability of any party for breach of a representation, warranty or covenant
contained in the Merger Agreement.
FEES AND EXPENSES
Regardless of whether the Merger is consummated, except as described below
upon certain events of termination of the Merger Agreement, all costs and
expenses incurred in connection with the Merger
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Agreement and the transactions contemplated thereby 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 for this Joint Proxy Statement/Prospectus
shall be divided equally between Proffitt's and Saks.
Pursuant to the Merger Agreement,
(a) Saks shall pay to Proffitt's a termination fee of $80 million if: (i) Saks
terminates the Merger Agreement in connection with the concurrent execution
by Saks of an agreement with respect to a Superior Takeover Proposal; (ii)
Proffitt's terminates the Merger Agreement because the Saks Board shall not
have recommended, or shall have resolved not to recommend, or shall have
modified or withdrawn in a manner adverse to Proffitt's its recommendation
of the Merger, or shall have recommended to Saks stockholders any Saks
Takeover Proposal or shall have resolved to do so; or (iii) any person makes
a Saks Takeover Proposal that is not withdrawn by the date of the Saks
Special Meeting and, thereafter, the Merger Agreement is terminated by Saks
or Proffitt's because the Saks stockholders did not approve the Merger
Agreement at the Saks Special Meeting, and, within six months of the date of
the Saks Special Meeting, Saks enters into a definitive agreement with
respect to, or consummates, a Saks Takeover Proposal.
(b) Proffitt's shall pay to Saks a termination fee of $80 million if: (i) Saks
terminates the Merger Agreement because the Proffitt's Board shall not have
recommended, or shall have resolved not to recommend, or shall have modified
or withdrawn in a manner adverse to Saks its recommendation of the Merger
Agreement, the Stock Issuance, the Charter Amendment or the Board Amendment,
or shall have recommended to Proffitt's stockholders any Proffitt's Takeover
Proposal or shall have resolved to do so; or (ii) any person makes a
Proffitt's Takeover Proposal that is not withdrawn by the date of the
Proffitt's Special Meeting and, thereafter, the Merger Agreement is
terminated by Saks or Proffitt's because Proffitt's shareholders did not
approve the Merger Agreement and the Stock Issuance at the Proffitt's
Special Meeting, and within six months of the date of the Proffitt's Special
Meeting, Proffitt's enters into a definitive agreement with respect to, or
consummates, a Proffitt's Takeover Proposal.
(c) Any fee payable under the Merger Agreement pursuant to the provisions
described in the immediately preceding paragraphs (a) and (b) shall be paid
by wire transfer of same-day funds on the date of termination of the Merger
Agreement or, in the case of termination as a result of the events referred
to in paragraphs (a)(iii) or (b)(ii) above, on the date of execution and
delivery by Saks or Proffitt's, as the case may be, of the definitive
agreement referred to therein or, if later, the termination of the Merger
Agreement.
AMENDMENT
The Merger Agreement may be amended by the parties thereto at any time
before or after approval of the matters presented in connection with the Merger
by the holders of Proffitt's Common Stock and the holders of Saks Common Stock;
provided, however, after any such approval, no amendment shall be made which by
law requires further approval by such holders without such further approval. The
Merger Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties thereto.
WAIVER
The Merger Agreement provides that, at any time prior to the Effective Time,
the parties thereto 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 in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement and
(iii) waive compliance with any of the agreements or conditions which may
legally be waived; provided, however, that at any time after approval
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of the matters presented in connection with the Merger by the holders of
Proffitt's Common Stock and the holders of Saks Common Stock, no waiver shall be
given which by law requires further approval by such holders without such
further approval. Any agreement on the part of a party to the Merger Agreement
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
To be effective, termination, amendment or an extension or waiver of a
provision of the Merger Agreement by Proffitt's, Sub or Saks will require action
by its Board of Directors or the duly authorized designees of its Board of
Directors.
OTHER AGREEMENTS
REGISTRATION RIGHTS AGREEMENT
Concurrently and in connection with the execution of the Merger Agreement,
in response to the Investcorp Affiliates' status as affiliates of Saks subject
to the restrictions on resale imposed by Rule 145 under the Securities Act,
Proffitt's and the Investcorp Affiliates executed the Registration Rights
Agreement. The Registration Rights Agreement gives the Investcorp Affiliates (i)
certain "demand" registration rights pursuant to which, subject to certain
restrictions, the Investcorp Affiliates have the right to require Proffitt's to
register for resale under the Securities Act, the shares of Proffitt's Common
Stock into which the shares of Saks Common Stock held by the Investcorp
Affiliates are converted at the Effective Time and (ii) certain "piggyback"
registration rights pursuant to which the Investcorp Affiliates have the right,
subject to certain restrictions, to include such shares in certain types of
registrations of Proffitt's Common Stock or other common equity securities of
Proffitt's that may be initiated by Proffitt's. The Investcorp Affiliates may
exercise their demand registration rights at any time after the publication by
Proffitt's of financial results covering at least 30 days of post-Merger
combined operations and may exercise their piggyback registration rights at any
time at which Proffitt's proposes to register for sale to the public for cash
under the Securities Act any shares of Proffitt's Common Stock or other equity
securities. Proffitt's has agreed to pay the expenses of the Investcorp
Affiliates incurred in the exercise of their registration rights, other than
underwriting commissions and expenses.
STOCKHOLDERS' AGREEMENT
Concurrently and in connection with the execution of the Merger Agreement,
Proffitt's and the Investcorp Affiliates entered into the Stockholders'
Agreement. Pursuant to the Stockholders' Agreement, the Investcorp Affiliates
agreed to vote their shares of Saks Common Stock in favor of the approval and
adoption of the Merger Agreement. The Investcorp Affiliates also agreed in the
Stockholders' Agreement not to initiate or solicit any Saks Takeover Proposal,
and agreed to notify Proffitt's if they receive any communication relating to a
Saks Takeover Proposal. In addition, under the terms of the Stockholders'
Agreement, the Investcorp Affiliates may sell, transfer, pledge, assign or
otherwise dispose of their shares of Saks Common Stock as long as the proposed
purchaser or other transferee agrees to be bound by the terms of the
Stockholders' Agreement.
The Stockholders' Agreement terminates upon the earliest of (i) the
Effective Time, (ii) the termination of the Merger Agreement in accordance with
its terms or (iii) March 31, 1999.
A total of 9,731,980 shares of Saks Common Stock, representing in the
aggregate approximately 15.2% of the outstanding shares of Saks Common Stock,
are subject to the Stockholders' Agreement.
MILLER EMPLOYMENT AGREEMENT
Pursuant to the Merger Agreement, Proffitt's has agreed to enter into an
employment agreement with Mr. Philip B. Miller, Chairman and Chief Executive
Officer of Saks, under which Mr. Miller will remain Chief Executive Officer of
Saks until June 30, 2001 and thereafter will serve as a consultant to Proffitt's
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and a member of the Proffitt's Board until June 30, 2003. Pursuant to the terms
of the Miller Employment Agreement, Mr. Miller will be appointed to serve until
the Proffitt's 1999 Annual Meeting of Shareholders, at which time Proffitt's has
agreed to include Mr. Miller as a part of management's slate for re-election. If
re-elected, Mr. Miller will be assigned to the class of Proffitt's directors
whose terms expire in 2002.
Pursuant to the Miller Employment Agreement, during his term as Chief
Executive Officer of Saks, Mr. Miller will receive (i) an annual salary of
$1,350,000, (ii) the opportunity to earn an annual bonus, (iii) annual option
grants at comparable levels to Proffitt's other senior executives, (iv) the
right to participate in all employee benefit plans of Proffitt's and (v) certain
other perquisites for work-related travel and expenses. Pursuant to the Miller
Employment Agreement and in connection with Mr. Miller's employment with the
combined company, Proffitt's also has agreed to grant Mr. Miller, as of the
Closing, an option to purchase 160,000 shares of Proffitt's Common Stock, which
option will become exercisable at a rate of one-third of the shares of
Proffitt's Common Stock subject thereto on each of the first and second
anniversary of the Closing and on June 30, 2001. Pursuant to the Miller
Employment Agreement, during his term as a consultant to Proffitt's, Mr. Miller
will receive (i) an annual salary of $1,350,000, (ii) the right to participate
in all employee benefit plans of Proffitt's and (iii) a guaranteed minimum of 26
years of SERP and pension credits at the end of such term. Proffitt's may
terminate the Miller Employment Agreement at any time subject to the payment of
certain severance benefits.
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UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Merger under the pooling of interests method of accounting.
These unaudited pro forma condensed combined financial statements have been
prepared by the managements of Proffitt's and Saks 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 the Conversion Number. 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 unaudited pro forma
condensed combined financial statements are presented for illustrative purposes
only, and therefore are not necessarily indicative of the operating results and
financial position that might have been achieved had the Merger occurred as of
an earlier date, nor are they necessarily indicative of operating results and
financial position which may occur in the future.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
notes thereto in the companies' separate Annual Reports on Form 10-K for the
year ended January 31, 1998 and Quarterly Reports on Form 10-Q for the period
ended May 2, 1998, incorporated by reference herein. See "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
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PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED FEBRUARY 3, 1996
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MERGER PRO FORMA
PROFFITT'S SAKS ADJUSTMENTS (A) TOTAL
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 2,744,868 $ 1,686,787 $ (9,548)(b) $ 4,422,107
Cost of sales...................................... 1,811,622 1,168,490 (45,403)(b) 2,936,405
1,696(c)
Selling, general and administrative expenses....... 664,059 438,624 (77,073)(d) 923,028
(101,705)(b)
(877)(e)
Other operating expenses........................... 191,380 137,560(b) 330,634
1,694(e)
Expenses of Younkers takeover attempt.............. 10,017 10,017
Merger and special charges......................... (15,236) 43,415 28,179
ESOP expenses...................................... 2,931 2,931
------------ ------------ --------------- ------------
Operating Income................................. 80,095 36,258 74,560 190,913
Other income (expense):
Finance charge income, net....................... 77,073 (77,073)(d)
Interest expense................................. (47,363) (94,362) (141,725)
Other income (expense), net...................... 4,051 4,051
------------ ------------ --------------- ------------
Income (loss) before provision for income taxes
and extraordinary items........................ 113,856 (58,104) (2,513) 53,239
Provision for income taxes(g)...................... 48,914 48,914
------------ ------------ --------------- ------------
Income (loss) before extraordinary items(g)........ $ 64,942 $ (58,104) $ (2,513) $ 4,325
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
Basic earnings per common share before
extraordinary item(g)............................ $ 0.84 $ 0.02
Diluted earnings per common share before
extraordinary item(g)............................ $ 0.81 $ 0.02
Weighted average common shares
Basic............................................ 75,111 36,863(i) 111,974
Diluted.......................................... 83,330 29,979(i) 113,309
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
67
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED FEBRUARY 1, 1997
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MERGER PRO FORMA
PROFFITT'S SAKS ADJUSTMENTS (A) TOTAL
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales............................................. $ 2,992,606 $ 1,944,862 $ (10,606)(b) $ 4,926,862
Cost of sales......................................... 1,952,896 1,347,653 (54,708)(b) $ 3,248,239
2,398(c)
Selling, general and administrative expenses.......... 716,313 486,829 (78,039)(d) 1,015,434
(104,879)(b)
(4,790)(e)
Other operating expenses.............................. 207,942 148,981(b) 367,247
10,324(e)
Merger and special charges............................ 17,335 1,000 18,335
ESOP expenses......................................... 3,910 3,910
------------ ------------ ----------- ------------
Operating Income...................................... 94,210 109,380 70,107 273,697
Other income (expense):
Finance charge income, net........................ 78,039 (78,039)(d)
Interest expense.................................. (42,666) (72,215) (114,881)
Other income (expense), net....................... (11,780) (11,780)
------------ ------------ ----------- ------------
Income before provision for income taxes and
extraordinary items............................. 117,803 37,165 (7,932) 147,036
Provision for income taxes(g)......................... 50,723 275 50,998
------------ ------------ ----------- ------------
Income before extraordinary items(g).................. $ 67,080 $ 36,890 $ (7,932) $ 96,038
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Basic earnings per common share before extraordinary
item(g)............................................. $ 0.81 $ 0.74
Diluted earnings per common share before extraordinary
item(g)............................................. $ 0.78 $ 0.71
Weighted average common shares........................
Basic............................................... 77,724 47,332(i) 125,056
Diluted............................................. 84,334 48,249(i) 132,583
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
68
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED JANUARY 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MERGER PRO FORMA
PROFFITT'S SAKS ADJUSTMENTS(A) TOTAL
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Net sales............................................. $ 3,544,656 $ 2,192,747 $ (11,057)(b) $ 5,726,346
Cost of sales......................................... 2,296,262 1,533,465 (69,081)(b) 3,763,332
2,686(c)
Selling, general and administrative expenses.......... 832,058 506,129 (92,677)(d) 1,119,779
(114,463)(b)
(11,268)(e)
Other operating expenses.............................. 258,893 172,487(b) 444,276
12,896(e)
Merger and special charges............................ 43,390 43,390
Year 2000 expenses.................................... 6,590 6,590
ESOP expenses......................................... 9,513 9,513
------------ ------------ -------------- ------------
Operating Income.................................... 97,950 153,153 88,363 339,466
Other income (expense):
Finance charge income, net.......................... 92,677 (92,677)(d)
Interest expense.................................... (55,077) (58,608) (113,685)
Other income, net................................... 2,330 2,330
------------ ------------ -------------- ------------
Income before provision for income taxes and
extraordinary items............................... 137,880 94,545 (4,314) 228,111
Provision (benefit) for income taxes(g)............... 65,798 (251,237) (2,454)(f) (187,893)
------------ ------------ -------------- ------------
Income before extraordinary items(g).................. $ 72,082 $ 345,782 $ (1,860) $ 416,004
------------ ------------ -------------- ------------
------------ ------------ -------------- ------------
Basic earnings per common share before extraordinary
item(g)............................................. $ 0.84 $ 3.02
Diluted earnings per common share before extraordinary
item(g)(h).......................................... $ 0.81 $ 2.86
Weighted average common shares
Basic............................................... 85,532 52,056(i) 137,588
Diluted............................................. 91,086 57,999(i) 149,085
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
69
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 2, 1998
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MERGER PRO FORMA
PROFFITT'S SAKS ADJUSTMENTS (A) TOTAL
---------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Net Sales................................................. $ 833,149 $ 582,885 $ (3,432)(b) $ 1,412,602
Cost of Sales............................................. 537,439 417,021 (22,425)(b) 933,937
1,902(c)
Selling, general and administrative expenses.............. 206,111 134,394 (22,730)(d) 285,242
(32,533)(b)
Other operating expenses.................................. 66,030 51,526(b) 117,556
Merger and special charges................................ 1,953 1,953
Year 2000 expenses........................................ 1,525 1,525
---------- ---------- --------------- ------------
Operating Income........................................ 20,091 31,470 20,828 72,389
Other income (expense):
Finance charge income, net.............................. 22,730 (22,730)(d)
Interest expense........................................ (7,942) (16,852) (24,794)
Other income (expense), net............................. 128 128
---------- ---------- --------------- ------------
Income before provision for income taxes and cumulative
effect of change in accounting method................. 35,007 14,618 (1,902) 47,723
Provision (benefit) for income taxes...................... 14,144 5,919 (742)(f) 19,321
---------- ---------- --------------- ------------
Income before cumulative effect of change in accounting
method.................................................. $ 20,863 $ 8,699 $ (1,160) $ 28,402
---------- ---------- --------------- ------------
---------- ---------- --------------- ------------
Basic earnings per common share before change in
accounting method....................................... $ 0.23 $ 0.20
Diluted earnings per common share before change in
accounting method(h).................................... $ 0.22 $ 0.19
Weighted average common shares:
Basic................................................... 89,506 52,230(i) 141,736
Diluted................................................. 93,411 52,547(i) 145,958
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
70
<PAGE>
PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 3, 1997
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MERGER PRO FORMA
PROFFITT'S SAKS ADJUSTMENTS(A) TOTAL
---------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Net Sales............................................... $ 784,504 $ 520,417 $ (2,803)(b) $ 1,302,118
Cost of sales........................................... 509,426 366,696 (16,154)(b) 861,461
1,493(c)
Selling, general and administrative expenses............ 195,574 127,344 (23,711)(d) 268,518
(28,099)(b)
(2,590)(e)
Other operating expenses................................ 63,020 41,450(b) 106,189
1,719(e)
Merger and special charges.............................. 1,495 1,495
Year 2000 expenses...................................... 617 617
ESOP expenses........................................... 726 726
---------- ---------- -------------- ------------
Operating Income.................................... 13,646 26,377 23,089 63,112
Other income (expense):
Finance charge income, net............................ 23,711 (23,711)(d)
Interest expense...................................... (14,955) (13,570) (28,525)
Other income (expense), net........................... 136 136
---------- ---------- -------------- ------------
Income before provision for income taxes and
extraordinary items............................... 22,538 12,807 (622) 34,723
Provision for income taxes(g)........................... 9,325 200 9,525
---------- ---------- -------------- ------------
Income before extraordinary items(g).................... $ 13,213 $ 12,607 $ (622) $ 25,198
---------- ---------- -------------- ------------
---------- ---------- -------------- ------------
Basic earnings per common share before extraordinary
item (g).............................................. $ 0.16 $ 0.19
Diluted earnings per common share before extraordinary
item(g)............................................... $ 0.15 $ 0.18
Weighted average common shares:
Basic................................................. 83,310 51,942(i) 135,252
Diluted............................................... 85,793 56,791(i) 142,584
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
71
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
MAY 2, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MERGER PRO FORMA
PROFFITT'S SAKS ADJUSTMENTS(A) TOTAL
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................. $ 27,808 $ 14,676 $ 42,484
Net trade accounts receivables......................... 111,206 71,414 182,620
Merchandise inventories................................ 803,927 619,196 $ (15,480)(j) 1,407,643
Other current assets................................... 30,911 71,538 102,449
Deferred income taxes.................................. 23,970 23,970
------------ ------------ ----------- ------------
Total current assets..................................... 997,822 776,824 (15,480) 1,759,166
Property and equipment, net of depreciation.............. 792,924 961,016 1,753,940
Deferred income tax assets............................... 321,491 (6,325)(k) 321,203
6,037(j)
Goodwill and tradenames, net of amortization............. 281,832 53,038 334,870
Other assets............................................. 39,155 51,997 91,152
------------ ------------ ----------- ------------
TOTAL ASSETS............................................. $ 2,111,733 $ 2,164,366 $ (15,768) $ 4,260,331
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable................................. $ 215,120 $ 223,100 $ 438,220
Accrued expenses and other current liabilities......... 290,037 124,630 414,667
Current portion of long-term debt...................... 8,750 4,458 13,208
------------ ------------ ----------- ------------
Total current liabilities................................ 513,907 352,188 866,095
Senior debt.............................................. 342,915 609,470 952,385
Deferred income taxes.................................... 18,016 18,016
Other long-term liabilities.............................. 105,245 42,544 147,789
Subordinated debt........................................ 10,964 276,000 286,964
Shareholders' equity..................................... 1,120,686 884,164 $ (6,325)(k) 1,989,082
(9,443)(j)
------------ ------------ ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 2,111,733 $ 2,164,366 $ (15,768) $ 4,260,331
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
72
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Pro forma merger adjustments do not reflect certain anticipated
non-recurring charges estimated to be approximately $50.0 million related to
direct costs of the Merger, nor do they include any charges related to the
integration of the operation of the businesses of Proffitt's and Saks.
(b) To conform classification differences between Proffitt's and Saks consisting
principally of the following items: depreciation and amortization, taxes
other than income taxes, non-merchandise revenues and occupancy costs
including rentals and real estate taxes.
(c) To conform Saks inventory valuation method to the method utilized by
Proffitt's.
(d) To reclassify Proffitt's net finance charge income to conform to Saks
presentation of including such income in selling, general and administrative
expenses.
(e) To reclassify and conform Saks accounting method for store preopening costs
of deferral and amortization over 12 months to Proffitt's accounting method
of expensing such costs as incurred.
(f) To reflect the income tax impact on the pro forma merger adjustments using
an effective rate of 39%, and to reduce the deferred tax benefit recorded by
Saks in 1997 to reflect the expected lower future effective income tax rate.
(g) Saks maintained a valuation allowance equal to the excess of deferred tax
assets over deferred tax liabilities until the fourth quarter of the year
ended January 31, 1998 at which time Saks recorded a $290.0 million tax
benefit. Had Saks recorded income taxes at 41% of income before income taxes
in all the periods presented, income and earnings per share would have been
as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED FISCAL YEAR ENDED
----------- -------------------------------------
<S> <C> <C> <C> <C>
MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1997 1998 1997 1996
----------- ----------- ----------- -----------
Saks income before extraordinary items.......... $ 7,556 $ 55,782 $ 21,927 $ (34,281)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Combined pro forma income before extraordinary
items......................................... $ 20,402 $ 125,318 $ 84,327 $ 29,178
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Combined pro forma basic earnings per share..... $ 0.15 $ 0.91 $ 0.64 $ 0.24
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Combined pro forma diluted earnings per share... $ 0.15 $ 0.88 $ 0.63 $ 0.24
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(h) Anticipated non-recurring charges related to direct costs of the Merger are
estimated at $50 million. These costs include estimated investment banking
fees of $30 million payable by Proffitt's and Saks and estimated legal,
accounting and other transaction costs of $20 million. These non-recurring
charges would represent a reduction in pro forma diluted earnings per share
of Proffitt's Common Stock of $.34 for the year ended January 31, 1998 and
$.34 for the three months ended May 2, 1998. These charges do not include
any costs related to the integration of the operations of the businesses of
Proffitt's and Saks.
(i) To reflect the weighted average common shares of Proffitt's that would have
been held by Saks stockholders, based on an assumed conversion factor of .82
shares of Proffitt's Common Stock for each share of Saks Common Stock.
(j) To conform Saks inventory valuation method to the method utilized by
Proffitt's and to adjust deferred income taxes accordingly.
(k) To reduce Saks deferred income tax assets to reflect the expected future
income tax rate of 39%.
73
<PAGE>
DESCRIPTION OF PROFFITT'S CAPITAL STOCK
GENERAL
As of the date hereof, Proffitt's authorized capital stock consists of
300,000,000 shares of Proffitt's Common Stock and 10,000,000 shares of preferred
stock, par value $1.00 per share (the "Proffitt's Preferred Stock"). In the
event the Charter Amendment proposed hereunder is approved, Proffitt's
authorized capital stock will consist of 500,000,000 shares of Proffitt's Common
Stock and 10,000,000 shares of Proffitt's Preferred Stock. As of the Proffitt's
Record Date, shares of Proffitt's Common Stock and no shares of Proffitt's
Preferred 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 the Proffitt's Charter and to the
TBCA. See "AVAILABLE INFORMATION."
PROFFITT'S COMMON STOCK
Holders of Proffitt's Common Stock (other than direct or indirect
subsidiaries of Proffitt's) are entitled to one vote for each share held on all
matters submitted to a vote of shareholders of Proffitt's and do not have
cumulative voting rights. Accordingly, holders of a plurality 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 Proffitt's Board 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.
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. All outstanding shares of Proffitt's Common
Stock are duly authorized, validly issued, fully paid and nonassessable.
PROFFITT'S PREFERRED STOCK
GENERAL. The Proffitt's Board has the authority to issue 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 shareholders of Proffitt's.
The ability of the Proffitt's Board 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.
SERIES C JUNIOR PREFERRED STOCK. As of March 25, 1998, 1,500,000 shares of
Proffitt's Preferred Stock were designated as Series C Junior Preferred Stock
(the "Series C Preferred Stock") to be issued under certain circumstances upon
exercise of Rights in accordance with the terms of the Proffitt's Rights
Agreement. See "--Rights Agreement."
Each share of the Series C Preferred Stock, if issued, would bear a dividend
rate per share of the greater of (i) $1.00 or (ii) 200 times the aggregate
amount per share of any dividend declared on Proffitt's Common Stock, other than
dividends payable in shares of Proffitt's Common Stock or a subdivision of the
outstanding shares of Proffitt's Common Stock. In the event Proffitt's declares
a dividend on Proffitt's Common Stock that is payable in shares of Proffitt's
Common Stock, or effects a subdivision, combination or consolidation of the
outstanding shares of Proffitt's Common Stock into a greater or lesser number of
shares of Proffitt's Common Stock, the amount of dividends to which holders of
shares of Series C
74
<PAGE>
Preferred Stock will be entitled under clause (ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Proffitt's Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Proffitt's Common Stock that were outstanding immediately prior to such event.
Each share of Series C Preferred Stock would entitle the holder to 200 votes
on all matters submitted to a vote of the shareholders of Proffitt's, subject to
similar adjustment as described above with respect to dividends. Upon any
liquidation, dissolution or winding up of Proffitt's, Proffitt's is prohibited
from making a distribution (i) to the holders of shares of stock ranking junior
to the Series C Preferred Stock unless the holders of shares of Series C
Preferred Stock have received $1.00 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon; provided that the holders of
shares of Series C Preferred Stock are entitled to receive an aggregate amount
per share equal to 200 times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (ii) to the holders of shares of stock
ranking on a parity with the Series C Preferred Stock except distributions made
ratably on the Series C Preferred Stock and all such parity stock in proportion
to the total amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up, subject to adjustment in certain
circumstances.
No shares of Series C Preferred Stock have been issued, and Proffitt's
management is aware of no facts suggesting that issuance of such shares may be
imminent. If the Charter Amendment is approved, Proffitt's will increase the
number of authorized shares of Series C Preferred Stock to 2,500,000. An
increase in the number of authorized shares of Series C Preferred Stock does not
require approval of Proffitt's shareholders under the TBCA.
RIGHTS AGREEMENT
On March 28, 1995, the Proffitt's Board declared a dividend of one right (a
"Right") for each share of Proffitt's Common Stock. Pursuant to the Rights
Agreement, dated as of March 28, 1995 (as amended, the "Proffitt's Rights
Agreement"), by and between Proffitt's and Union Planters, each Right entitles
the holder to purchase from Proffitt's one two-hundredth (1/200) of a share of
Series C Preferred Stock at a price of $278 per one one-hundredth (1/100) of a
share, subject to adjustment in certain circumstances. See "--Proffitt's
Preferred Stock--Series C Junior Preferred Stock." Pursuant to the Proffitt's
Rights Agreement, such Rights will attach to shares of Proffitt's Common Stock
issued to Saks stockholders in connection with the Merger. In general, the
Rights become exercisable upon the acquisition by any person of, or the
commencement or 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. Until
exercisable, the Rights are not transferable except together with the transfer
of the attached share of Proffitt's Common Stock. The Rights shall expire on
March 25, 2008 unless earlier redeemed or exchanged as provided in the
Proffitt's Rights Agreement. 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 shareholder on a fair and equal
basis.
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Proffitt's Rights Agreement and certain provisions of the Proffitt's
Charter may tend to discourage certain kinds of unsolicited takeover bids for
Proffitt's, including some tender offers which shareholders may feel would be in
their best interests, and may tend to perpetuate present management. See
"COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK AND SAKS COMMON
STOCK--Classified Board of Directors" and "--Removal of Directors." Certain of
the provisions of the TBCA may be deemed to have an "anti-takeover" effect.
These provisions affect shareholder rights and should be given careful
attention. They may have the effect of delaying a tender offer or takeover
attempt that a shareholder might consider in his or her best interest, including
those
75
<PAGE>
attempts that might result in a premium over the current market price for the
shares held by shareholders. See "COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S
COMMON STOCK AND SAKS COMMON STOCK--Fair Price Provisions," "--Control Share
Acquisition Act," "--Business Combination Statute," "--Investor Protection Act"
and "--Greenmail Act."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Proffitt's Common Stock is Union
Planters.
76
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF PROFFITT'S COMMON STOCK
AND SAKS COMMON STOCK
The following summary compares certain rights of Proffitt's shareholders
under the TBCA and other provisions of Tennessee law and the Proffitt's Charter
and Proffitt's Bylaws with the rights of Saks stockholders under the DGCL, the
Saks Restated Certificate and Saks Bylaws.
Proffitt's is a Tennessee corporation subject to the provisions of the TBCA.
Saks is a Delaware corporation subject to the provisions of the DGCL.
Stockholders of Saks, whose rights are governed by the Saks Restated Certificate
and Saks Bylaws and by the DGCL, will, upon consummation of the Merger, become
shareholders of Proffitt's whose rights will then be governed by the Proffitt's
Charter and Proffitt's Bylaws and by the TBCA. The following is a summary of the
material differences in the rights of shareholders of Proffitt's and
stockholders of Saks and is qualified in its entirety by reference to the
Proffitt's Charter and Proffitt's Bylaws, Saks Restated Certificate and Saks
Bylaws and the TBCA and other provisions of Tennessee law and the DGCL. Certain
topics discussed below also are subject to federal law and the regulations
promulgated thereunder.
AUTHORIZED CAPITAL
SAKS. The authorized capital stock of Saks consists of 150,000,000 shares
of Saks Common Stock, of which there were shares outstanding as of the
Saks Record Date.
PROFFITT'S. The authorized capital stock of Proffitt's is as set forth
under "DESCRIPTION OF PROFFITT'S CAPITAL STOCK--General."
NUMBER OF DIRECTORS
SAKS. The Saks Bylaws provide that the Saks Board may have no fewer than
one member and no more than ten members, as determined by the Saks Board. The
number of members of the Saks Board may be increased or decreased by an
amendment to the Bylaws. Saks currently has eight directors.
PROFFITT'S. The Proffitt's Charter and Proffitt's Bylaws provide that the
Proffitt's Board may have up to 15 members, as determined by the Board. In
addition, the number of members of the Proffitt's Board may be increased or
decreased by Proffitt's shareholders through an amendment to the Proffitt's
Charter; provided, however, that the adoption of such an amendment requires an
affirmative vote of the holders of 80% or more of the voting power of the then
outstanding shares of capital stock of Proffitt's entitled to vote in the
election of directors. Proffitt's currently has 13 directors. The maximum number
of directors will increase to 18 if the Board Amendment is approved.
CLASSIFIED BOARD OF DIRECTORS
SAKS. Neither the Saks Restated Certificate nor the Saks Bylaws provides
for a classified board of directors. Directors of Saks each serve for a term of
one year. Each of the directors of Saks holds office until his or her successor
has been duly elected and qualifies or until he or she resigns or has been
removed from office in the manner provided in the Saks Bylaws. Directors of Saks
are elected annually by the stockholders entitled to vote on the election of
directors. The persons receiving the greatest number of votes, up to the number
of directors to be elected, will be the directors. Vacancies on the Board,
including vacancies resulting from an increase in the number of directors, may
be filled by a vote of the majority of the remaining directors, although less
than a quorum. Each director chosen to fill a vacancy holds office until his or
her successor has been elected and qualifies or until he or she resigns or has
been removed from office in the manner provided in the Saks Bylaws.
PROFFITT'S. The Proffitt's Charter provides for a three-class Board of
Directors. Directors shall serve three-year terms expiring upon the election and
qualification of their successors. The classes of directors
77
<PAGE>
shall serve rolling terms; the term of one class expires at each annual
shareholders' meeting. Each director shall serve until his or her successor is
elected and qualified, or until his or her earlier resignation, removal from
office, death or incapacity. Proffitt's classified Board of Directors extends
the time required for holders of a majority of shares to make any change in the
composition of a majority of the Proffitt's Board. It would take at least two
annual meetings of Proffitt's shareholders to effect a change in the majority
control of the Board. The classified Board may tend to discourage certain
unsolicited takeover offers. See "DESCRIPTION OF PROFFITT'S CAPITAL
STOCK--Effect of Anti-Takeover Provisions." Vacancies on the Board may be filled
by a vote of the majority of the directors then in office, although the number
may be less than a quorum, or by a sole remaining director. The term of a
director elected to fill a vacancy expires at the next annual shareholders'
meeting. If the number of directors is changed, the Board shall determine to
which class of directors the increase or decrease shall be apportioned. No
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. The affirmative vote of the holders of at least 80%
of the voting power of the shares of the then outstanding voting stock, voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with the provision of Proffitt's Charter or Proffitt's
Bylaws governing the number of members of and the filling of vacancies on the
Proffitt's Board.
REMOVAL OF DIRECTORS
SAKS. The Saks Bylaws provide that any director may be removed with or
without cause at any time by the affirmative vote of stockholders holding a
majority of the outstanding shares of Saks capital stock entitled to vote at a
special meeting called for that purpose.
PROFFITT'S. The Proffitt's Charter and Proffitt's Bylaws provide that any
or all directors may be removed only for cause by a vote of a majority of the
shareholders entitled to vote on such proposal. Proffitt's shareholders are
unable to remove a director without cause and hence would have more difficulty
in forcing changes in the composition of the majority of the Proffitt's Board.
Such a provision would encourage any person who may be attempting to take over
Proffitt's, including those holding a majority of shares, to deal with the then
current Proffitt's Board. Such a provision could have the effect of discouraging
unsolicited takeover proposals for Proffitt's.
SPECIAL MEETINGS
SAKS. The Saks Bylaws authorize the Saks Board or the Chairman of the Board
to call a special meeting of Saks stockholders.
PROFFITT'S. The Proffitt's Bylaws authorize the Chairman of the Board, the
President and the Proffitt's Board to call a special meeting of shareholders.
The Proffitt's Charter and Proffitt's Bylaws also provide that a special meeting
of shareholders shall be called by at the written request of at least 25% of the
outstanding shares of Proffitt's Common Stock entitled to vote at the special
meeting.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
SAKS. The DGCL provides that the recommendation of the Saks Board and the
approval of a majority of the outstanding shares of Saks Common Stock entitled
to vote thereon is required to effect (i) a merger or consolidation in certain
cases, (ii) an amendment to the Saks Restated Certificate in most instances, and
(iii) a sale, lease or exchange all or substantially all of Saks assets. With
respect to a merger, no vote of the Saks stockholders would be required if Saks
were the surviving corporation and (i) the related agreement of merger did not
amend the Saks Restated Certificate, (ii) each share of Saks Common Stock
outstanding immediately before the merger were an identical outstanding or
treasury share of Saks Common Stock after the merger and (iii) the number of
shares of Saks 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 Saks Common Stock outstanding immediately before the
merger.
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PROFFITT'S. The TBCA provides that the approval of the Proffitt's Board 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 a sale,
lease, exchange or otherwise dispose of substantially all of Proffitt's assets.
The TBCA also provides generally that the approval of the Proffitt's Board and
the approval by more votes cast in favor of the Charter Amendment than against
the Charter Amendment, provided a quorum is present, is required to approve the
Charter Amendment. In accordance with the TBCA, submission by the Proffitt's
Board of any such action may be conditioned on any basis, including without
limitation, conditions regarding a super-majority voting requirement or that no
more than a certain number of shares indicate that they will seek dissenters'
rights, if such rights are otherwise available. The Proffitt's Charter provides
that, except under specified circumstances, the affirmative vote of the holders
of at least 80% of the voting power of the then outstanding shares of capital
stock entitled to vote in the election of directors, voting together as a single
class, is required for the approval of (i) certain mergers or consolidations,
(ii) certain sales, leases, exchanges, mortgages, pledges or other dispositions
of the assets of Proffitt's, (iii) the adoption of a plan for the liquidation of
Proffitt's, (iv) certain reclassifications of Proffitt's securities and certain
recapitalizations, (v) any agreement providing for the foregoing and (vi)
amendments to the provisions of the Proffitt's Charter relating to action by
written consent of the shareholders, the number, classification and removal of
directors, certain business combinations and the Proffitt's Bylaws. See "--Fair
Price Provisions."
ACTION BY WRITTEN CONSENT
SAKS. The Saks Restated Certificate and Saks Bylaws are silent with respect
to the consent of stockholders in lieu of a meeting. However, the DGCL provides
that unless otherwise provided in the certificate of incorporation any action
which is required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, 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.
PROFFITT'S. The TBCA provides that action may be taken without a
shareholder meeting and vote if all shareholders entitled to vote on the action
consent to taking such action without a meeting. Proffitt's Charter prohibits
shareholder action by written consent.
INSPECTION RIGHTS
The Proffitt's Charter and Proffitt's Bylaws and the Saks Restated
Certificate and Saks Bylaws are silent with respect to the right of shareholders
to inspect the books and records. However, both the TBCA and the DGCL contain
provisions granting holders of a corporation's stock the right to inspect
certain records of each corporation.
SAKS. 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 a corporation's stock ledger, a list of its
stockholders and its other books and records and to make copies or extracts
therefrom during its usual business hours. This right is limited, however, to
inspection for "any proper purpose," which is defined as "a purpose reasonably
related to such person's interest as a stockholder."
PROFFITT'S. Under the TBCA, Proffitt's shareholders are also entitled to
inspect and copy, during regular business hours at Proffitt's principal office,
the minutes of its shareholders' meetings and records of all actions taken
without a meeting, charter, bylaws, annual reports and certain other records of
Proffitt's, provided the shareholder 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 shareholder 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 such
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purpose, may also, upon at least five business days' written notice, inspect and
copy: (i) accounting records of Proffitt's, (ii) the records of shareholders and
excerpts from minutes of any meeting of the Proffitt's Board, (iii) records of
any action of a committee of the Proffitt's Board while acting in place of the
Proffitt's Board on behalf of Proffitt's, (iv) minutes of any meeting of the
shareholders, and (v) records of action taken by the shareholders or Board of
Directors without a meeting to the extent not subject to inspection under the
prior sentence.
AMENDMENT OF BYLAWS
SAKS. The Saks Bylaws may be modified, altered, amended or repealed and new
Bylaws may be made 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 Board.
Any Bylaws made or altered by the stockholders may be altered or repealed by
either the Board or the stockholders.
PROFFITT'S. The Proffitt's Bylaws may be modified, altered or repealed and
new Bylaws may be adopted by the vote of a majority of all of the shareholders
or, except as otherwise provided in the Proffitt's Charter, by the majority vote
of the Board of Directors. Any Bylaws made by the directors may be altered,
amended or repealed by the Board or by the shareholders.
VOLUNTARY DISSOLUTION
SAKS. Under the DGCL, Saks may be dissolved by the adoption of a resolution
to that effect by a majority of the Saks Board and the approval of a majority of
the outstanding shares of Saks stock entitled to vote thereon. The DGCL also
allows all the stockholders of Saks to effect a dissolution of Saks by unanimous
written consent without the approval of the Saks Board.
PROFFITT'S. The TBCA provides that Proffitt's may be dissolved if the
Proffitt's Board 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 may condition its submission of a proposal for
dissolution on any basis, including a greater shareholder 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; however, the TBCA states that no
indemnification may be made to or on behalf of any director if a final
adjudication adverse to the director establishes his or her liability (1) for
any breach of loyalty to the corporation or its shareholders; (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 and the TBCA also permit a corporation to include in its
certificate of incorporation or charter a provision eliminating or limiting the
personal liability of a director to the corporation or its shareholders 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 shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or (iii) for unlawful payment of
dividends or unlawful distributions. The DGCL also provides that liability of a
director may not be eliminated or limited for any transaction from which the
director derived an improper personal benefit. As discussed more fully in the
following paragraph, Saks has adopted such a provision.
SAKS. The Saks Bylaws contain a provision requiring Saks to indemnify any
of its directors, officers, employees and agents against any cost and expense
incurred by such persons in connection with any claim,
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action, suit or proceeding in which such person may be involved by reason of his
or her capacity as a director, officer, employee or agent if he or she acted in
good faith and in a manner he or she reasonably believed to be or not opposed to
the best interests of Saks and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his or her conduct was unlawful.
See "THE MERGER-- Interests of Certain Persons in the Merger."
The Saks Restated Certificate provides that Saks shall, to the fullest
extent permitted by the DGCL, indemnify any and all persons whom it shall have
the power to indemnify under such law from and against any and all of the
expenses, liabilities and other matters referred to in or covered by such law,
and such indemnification shall not be deemed exclusive of any other rights to
which those indemnified may be entitled, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
In addition, the Saks Restated Certificate provides that, to the fullest
extent permitted by the DGCL, a director of Saks shall not be liable to Saks or
its stockholders for monetary damages for breach of fiduciary duty.
PROFFITT'S. The Proffitt's Charter provides that Proffitt's shall have the
authority and right to indemnify and hold harmless its officers, directors,
employees and agents from and against any claim, liability, loss or expense
(including attorney's fees) with respect to which such indemnification is
permitted under the applicable provisions of the TBCA, the Proffitt's Bylaws or
any duly adopted resolution of the Proffitt's Board or the shareholders;
provided, however, that absent any limitation or modification set forth in the
Proffitt's Bylaws or any resolution, this provision of the Proffitt's Charter
requires Proffitt's to indemnify and hold harmless its officers, directors,
employees and agents to the fullest extent permitted by the applicable
provisions of the TBCA. Such indemnification shall not be deemed exclusive of
any other rights to which such director, officer, employee or agent may be
entitled. The Proffitt's Bylaws provide that notwithstanding anything in the
Proffitt's Charter to the contrary, Proffitt's is permitted but is not required
to indemnify and hold harmless any employee or agent of Proffitt's made, or
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding.
The Proffitt's Charter does not contain a provision limiting the liability
of a director.
CORPORATE CONSTITUENCIES
PROFFITT'S. The TBCA provides that under certain circumstances directors
and officers, in discharging their duties to consider the best long-term and
short-term interests of the corporation, may consider the effects of any action
(including, without limitation, actions which may involve or relate to a change
or potential change in control of the corporation) upon the corporation's
employees, suppliers and customers and upon the communities in which offices or
other establishments of the corporation are located. See
"--Business Combination Statute."
SAKS. The DGCL does not have a similar provision.
BUSINESS COMBINATION STATUTE
SAKS. Section 203 of the DGCL restricts a wide range of transactions
("business combinations") between a corporation and an interested stockholder.
An "interested stockholder" is, generally, any person who beneficially owns,
directly or indirectly, 15% or more of the corporation's outstanding voting
stock. Business combinations are broadly defined to include (i) mergers or
consolidations with (ii) sales or other dispositions of more than 10% of the
corporation's assets to, (iii) certain transactions resulting in the issuance or
transfer of any stock of the corporation or any subsidiary to, (iv) certain
transactions which would result in increasing the proportionate share of stock
of the corporation or any subsidiary owned by the corporation, or (v) receipt of
the benefit (other than proportionately as a stockholder) of any loans,
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advances or other financial benefits by, an interested stockholder. Section 203
provides that an interested stockholder may not engage in a business combination
with the corporation for a period of three years from the time of becoming an
interested stockholder unless (i) the board of directors approved either the
business combination or the transaction which resulted in the person becoming an
interested stockholder prior to the time such person became an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
person becoming an interested stockholder, that person owned at least 85% of the
corporation's voting stock (excluding shares owned by persons who are officers
and also directors and shares owned by certain employee stock plans); or (iii)
the business combination is approved by the board of directors and authorized by
the affirmative vote of at least 66 2/3% of the outstanding voting stock not
owned by the interested stockholder. The restrictions on business combinations
with interested stockholders contained in Section 203 do not apply to a
corporation whose certificate of incorporation contains a provision expressly
electing not to be governed by Section 203. The Saks Restated Certificate does
not contain a provision electing to "opt-out" of Section 203.
PROFFITT'S. Tennessee's Business Combination Act (the "Tennessee Business
Combination Act") provides that a party owning 10% or more of stock in a
"resident domestic corporation" (such party is called an "interested
shareholder") cannot engage in a business combination with the resident domestic
corporation unless the combination (i) takes place at least five years after the
interested shareholder first acquired 10% or more of the resident domestic
corporation, and (ii) either (A) is approved by at least 2/3 of the
noninterested voting shares of the resident domestic corporation or (B)
satisfies certain fairness conditions specified in the Tennessee 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
shareholder, or the resident corporation may enact a charter amendment or bylaw
to remove itself entirely from the Tennessee Business Combination Act. This
charter amendment or by-law must be approved by a majority of the shareholders
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 the Proffitt's Charter or Proffitt's Bylaws removing Proffitt's
from coverage under the Tennessee Business Combination Act.
The Tennessee 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 bylaws
removing their corporations from the Tennessee 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 the corporation's
employees, customers, suppliers, or the communities in which their corporation
operates and any other relevant factors if such factors are permitted to be
considered by the board of directors under the charter. See "--Corporate
Constituencies."
FAIR PRICE PROVISIONS
PROFFITT'S. The Proffitt's Charter contains a provision (the "Fair Price
Provision") requiring the approval of at least 80% of the combined voting power
of the outstanding shares of Proffitt's capital stock entitled to vote generally
in the election of directors: (a) to make changes to the Fair Price Provision;
(b) to effectuate certain transactions with any Interested Shareholder (as
defined herein), including certain mergers and consolidations, sales, leases,
exchanges, mortgages, pledges, transfers or other dispositions of assets having
an aggregate fair market value of at least $1 million; (c) to issue or transfer
securities of the corporation having an aggregate fair market value of at least
$1 million to any Interested Shareholder; (d) to adopt certain plans or
proposals for the liquidation or dissolution of Proffitt's; or (e) to reclassify
securities or undertake certain other transactions which have the effect of
increasing the proportionate share of Proffitt's capital stock of any class
owned by Interested Shareholders or their affiliates or associates. "Interested
Shareholders" are defined as, among other things, the beneficial owners of 10%
or more of the combined voting power of the outstanding shares of the
corporation. If a majority of the
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disinterested directors of Proffitt's approve an action listed in (b) through
(e) above or if certain price and procedure requirements and certain other
requirements are met, the 80% vote described above is not required and the
regular voting requirements of the TBCA and the provisions of the Proffitt's
Charter apply instead. The price and procedure requirements provide that the
consideration to be received by all holders of Proffitt's Common Stock shall be
at least equal to the higher of the following: (i) the highest per share price
paid by the Interested Shareholder or any affiliate or associate of the
Interested Shareholder (a) within the two-year period prior to the first public
announcement of the proposal of the business combination ("Public Announcement")
or (b) in the transaction in which it became an Interested Shareholder,
whichever is higher; (ii) the fair market value per share on the date of the
Public Announcement or on the date the Interested Shareholder became an
Interested Shareholder, whichever is higher; or (iii) the fair market value
determined under (ii) multiplied by a ratio of (a) the highest per share price
paid by the Interested Shareholder within the two-year period immediately prior
to the Public Announcement over (b) the fair market value per share on the first
day in such two-year period upon which the Interested Shareholder acquired any
common shares. In addition, all outstanding shares of any class other than
Proffitt's Common Stock must meet a test based on certain similar criteria.
SAKS. Neither the DGCL nor the Saks Restated Certificate or Saks Bylaws
have similar provisions.
CONTROL SHARE ACQUISITION ACT
PROFFITT'S. 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 and a majority of all voting power. The purchaser's voting rights can
be re-established only by a majority vote of the other shareholders. The
purchaser may demand a special meeting of shareholders 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 bylaws expressly declaring that the TCSAA will apply. Proffitt's has not
adopted any provision in the Proffitt's Charter or Proffitt's Bylaws electing
protection under the TCSAA.
SAKS. The DGCL contains no similar provisions.
INVESTOR PROTECTION ACT
PROFFITT'S. 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 shareholders.
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.
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GREENMAIL ACT
PROFFITT'S. The Tennessee Greenmail Act ("TGA") provides that it is
unlawful for Proffitt's or its subsidiaries to purchase, either directly or
indirectly, any of its shares at a price above the market value, as defined in
the TGA, from any person who holds more than 3% of the class of the securities
purchased if such person has held such shares for less than 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 Proffitt's makes
an offer of at least equal value per share to all holders of shares of such
class.
SAKS. The DGCL contains no similar provisions.
DIVIDENDS AND OTHER DISTRIBUTIONS
SAKS. The DGCL generally allows dividends to be paid out of "surplus" of
Saks computed in accordance with the DGCL or, if there is no surplus, out of the
net profits of Saks for the fiscal year in which the dividend is declared and
the prior fiscal year.
PROFFITT'S. The TBCA provides that Proffitt's generally may make dividends
or other distributions to its shareholders 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."
RIGHTS AGREEMENT
SAKS. Saks does not have a stockholder rights plan.
PROFFITT'S. Proffitt's has entered into the Proffitt's Rights Agreement
with Union Planters. See "DESCRIPTION OF PROFFITT'S CAPITAL STOCK--Rights
Agreement."
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PROPOSED AMENDMENTS TO PROFFITT'S
AMENDED AND RESTATED CHARTER
At the Proffitt's Special Meeting, shareholders of Proffitt's will be asked
to approve and adopt amendments to the Proffitt's Charter (i) to increase the
number of shares of Proffitt's Common Stock authorized for issuance thereunder
and change the corporate name of Proffitt's to "Saks Incorporated" and (ii) to
increase the maximum number of members of Proffitt's Board to 18.
THE PROFFITT'S BOARD HAS UNANIMOUSLY APPROVED THE CHARTER AMENDMENT AND THE
BOARD AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PROFFITT'S COMMON
STOCK VOTE FOR THE APPROVAL OF THE CHARTER AMENDMENT AND THE BOARD AMENDMENT.
APPROVALS OF THE BOARD AMENDMENT AND THE CHARTER AMENDMENT ARE NOT CONDITIONS TO
THE CONSUMMATION OF THE MERGER.
THE CHARTER AMENDMENT
At a special meeting held on July 2, 1998, the Proffitt's Board unanimously
approved an amendment to the Proffitt's Charter (i) increasing the total number
of authorized shares of Proffitt's capital stock from 310,000,000 to
510,000,000, increasing the number of authorized shares of Proffitt's Common
Stock from 300,000,000 to 500,000,000, and (ii) changing the corporate name of
Proffitt's to "Saks Incorporated." The increase in the number of authorized
shares is not necessary to permit the Stock Issuance, but will allow Proffitt's
additional authorized but unissued shares to accommodate future issuances,
including stock splits. No such future issuances are presently being
contemplated except pursuant to employee stock option, stock purchase and
incentive compensation plans.
The Proffitt's Board believes that the total number of authorized shares of
Proffitt's Common Stock should be increased in order to maintain shares which
are available from time to time as needed for corporate purposes approved by the
Proffitt's Board. Such corporate purposes could include the acquisition by
Proffitt's of other companies or assets, the raising of additional capital
through public offerings, the declaration of stock splits or stock dividends and
the issuance of stock under the Proffitt's stock option plans and other employee
benefit plans. Proffitt's desires to have such shares available for future
issuances as the need may arise without the delay which would be incident to
approval of any such issuance in the future for any specific transaction. If the
proposed amendment is approved, the additional shares could be issued by the
Proffitt's Board without further vote or approval of the shareholders.
The approval of the increase in the number of authorized shares of
Proffitt's Common Stock pursuant to the Charter Amendment might have the effect
of discouraging an attempt to remove incumbent management or gain control of
Proffitt's, even if such activities were perceived by shareholders of Proffitt's
to be favorable to them. The additional authorized shares could be used to
dilute the stock ownership of persons seeking to obtain control of Proffitt's.
The proposed increase in authorized capital is not designed to have an
anti-takeover effect or to dilute the stock ownership of any person seeking to
obtain control of Proffitt's, nor are there any plans to privately place any of
the shares to be added to the authorized capital by the proposed amendments.
The Charter Amendment will be effective upon the filing of Articles of
Amendment or a new Amended and Restated Charter with the Secretary of State of
the State of Tennessee. Articles of Amendment or an Amended and Restated Charter
will be filed with the Secretary of State of the State of Tennessee after
shareholder approval of the Charter Amendment and prior to the Effective Time.
THE BOARD AMENDMENT
At the July 2, 1998 Special Meeting, the Proffitt's Board also unanimously
approved an amendment to the Proffitt's Charter to increase the maximum number
of members of the Proffitt's Board to 18. The Board Amendment will permit
Proffitt's to broaden shareholder representation on its Board in light of the
increased number of shareholders resulting from the Merger. Pursuant to the
Merger Agreement, three designees of Saks will be appointed to the Proffitt's
Board. See "THE MERGER AGREEMENT-- Composition of Proffitt's Board." It is
expected that Mr. Philip B. Miller, Chairman and Chief Executive
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Officer of Saks, and Mr. Charles J. Philippin, a director of Saks and a
representative of Investcorp, will be two of the three Saks designees to the
Proffitt's Board. If Mr. Brian E. Kendrick, Vice Chairman and Chief Operating
Officer of Saks, enters into an employment agreement with Proffitt's, it is
expected that he will be the third designee to the Proffitt's Board. It has not
yet been determined who will serve as the third designee if it is not Mr.
Kendrick. See "THE MERGER--Interests of Certain Persons in the Merger."
At present, Proffitt's Charter authorizes a board of directors with a
maximum of 15 members. The Proffitt's Board currently has 13 members. If the
Board Amendment is not approved, Proffitt's intends to request that one of its
current directors resign in order to create an additional vacancy to be filled
by one of the designees named above.
The Board Amendment will be effective upon the filing of Articles of
Amendment or a new Amended and Restated Charter with the Secretary of State of
the State of Tennessee. Articles of Amendment or an Amended and Restated Charter
will be filed with the Secretary of State of the State of Tennessee after
shareholder approval of the Board Amendment and prior to the Effective Time.
BUSINESS OF PROFFITT'S
Proffitt's is a leading regional department store retailer that, as of the
date of this Joint Proxy Statement/Prospectus, operates 230 department stores in
24 states, primarily in the Southeast and Midwest, and is the fourth largest
traditional department store company in the United States. Proffitt's stores
operate under the Proffitt's, Herberger's, McRae's, Parisian, Younkers, Carson
Pirie Scott, Bergner's and Boston Store trade names. Carson Pirie Scott,
Bergner's and Boston Store are operated as a single "chain" of department stores
and the stores operating under each of the other trade names are operated as a
separate chain. Proffitt's stores are typically leading branded traditional
department stores in their communities. Most of the stores are located in
premier regional or community malls in the respective trade areas served.
Proffitt's stores offer a wide selection of fashion apparel, accessories,
cosmetics and decorative home furnishings, featuring assortments of premier
brands, private brands and specialty merchandise. Merchandising, sales promotion
and certain store operating support functions are conducted in multiple regional
locations (Alcoa, TN; Jackson, MS; Des Moines, IA; Birmingham, AL; St. Cloud,
MN; and Milwaukee, WI) in order to tailor regional assortments to the local
customer. At the same time, Proffitt's coordinates merchandising planning and
execution among the stores and consolidates certain administrative and support
functions to realize scale economies, to promote a competitive cost structure
and to increase margins. In addition to its department stores, Proffitt's also
operates four furniture stores under the names Carson Pirie Scott (3 stores) and
Boston Store (1 store).
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Proffitt's stores are located primarily in the Midwest and Southeast regions
of the United States. The distribution of Proffitt's stores by state is as
follows:
<TABLE>
<CAPTION>
PROFFITT'S STORES MCRAE'S STORES YOUNKERS STORES PARISIAN STORES
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Georgia (2) Alabama (12) Illinois (1) Alabama (14)
Kentucky (2) Florida (2) Iowa (19) Florida (4)
North Carolina (5) Louisiana (2) Michigan (5) Georgia (8)
Tennessee (12) Mississippi (13) Minnesota (1) Indiana (2)
Virginia (1) Nebraska (5) Michigan (1)
West Virginia (2) South Dakota (1) Mississippi (1)
Wisconsin (18) Ohio (3)
South Carolina (3)
Tennessee (3)
<CAPTION>
HERBERGER'S STORES CARSON PIRIE SCOTT STORES BOSTON STORE STORES BERGNER'S STORES
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Colorado (1) Illinois (27) Wisconsin (12) Illinois (13)
Illinois (1) Indiana (2)
Iowa (1) Minnesota (1)
Minnesota (14)
Montana (5)
Nebraska (5)
North Dakota (3)
South Dakota (3)
Wisconsin (3)
Wyoming (1)
</TABLE>
Proffitt's, Inc. was founded in 1919. Since becoming a public company in
1987, Proffitt's has grown from its base of five stores in metropolitan
Knoxville, Tennessee and approximately $46 million in annual sales to 234 stores
in twenty-four states and annual sales exceeding $3.5 billion. This growth was
primarily achieved through a series of acquisitions including the acquisition of
Lovemans in 1988, several Hess locations in 1992 and 1993, McRae's in 1994,
Parks-Belk in 1995, Younkers in 1996, Parisian in 1996, Herberger's in 1997,
Carson Pirie Scott in 1998, and Brody Brothers in 1998.
All of Proffitt's department stores, excluding the Parisian stores, are
considered traditional department stores. The Parisian stores are specialty
department stores and carry a more upscale and unique assortment of merchandise
than the traditional department stores. Major brands carried by Proffitt's
stores include Liz Claiborne, Calvin Klein, Jones New York, Tommy Hilfiger,
Nautica, Polo/Ralph Lauren, Estee Lauder, Clinique, Lancome, Coach, Nine West,
Enzo, Waterford and Bali. Specialty brand names carried by Parisian stores
include Sigrid Olson, Robert Talbott, Joseph Abboud, Ike Behar, MAC, Bobbi
Brown, Trish McEvoy, BCBG and Brighton.
Proffitt's principal executive offices are located at 750 Lakeshore Parkway,
Birmingham, Alabama 35211, and its telephone number is (205) 940-4000.
For further information concerning Proffitt's, see "SUMMARY--Selected
Historical Financial and Operating Data of Proffitt's," "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
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BUSINESS OF SAKS
Saks Holdings, Inc. is the holding company of Saks & Company, which does
business as Saks Fifth Avenue, Off 5th and Folio. Saks Fifth Avenue is
recognized worldwide as a premier fashion retailer, offering the finest quality
and latest style in women's and men's apparel. Supported by a strong commitment
to personalized customer service, Saks primarily sells better, bridge and
designer apparel, shoes, accessories, jewelry, cosmetics and fragrances for
women and men, as well as gift merchandise and children's apparel. Capitalizing
on its 70-year history as a fashion authenticator and the prominence of its
landmark Fifth Avenue store in New York City, Saks Fifth Avenue has developed
one of the most recognized retailing franchises in the world.
Sales are generated through multiple retail formats: Full-Line stores,
Resort stores, Main Street stores, Off 5th stores, and through Folio catalogs.
As of June 30, 1998, there were 41 Full-Line stores, eight Resort stores, seven
Main Street stores and 40 Off 5th outlet stores. The Full-Line, Resort and Main
Street store operations are conducted from premier retail locations. The Off 5th
outlet division sells high quality, upscale branded fashion apparel and home
furnishings at exceptional prices. The Folio catalogs primarily offer
fashionable women's apparel, accessories and home furnishings and gifts.
Saks owns its principal trademarks and service marks, including SAKS FIFTH
AVENUE, SFA and S5A marks. Other important trademarks and service marks include
OFF 5TH, FOLIO, REAL CLOTHES, THE WORKS, SAKSFIRST and THE 5TH AVENUE CLUB.
Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the landmark Fifth Avenue store offered exclusive
merchandise from around the world. In 1973, Saks & Company was acquired by a
subsidiary of B.A.T. through its acquisition of Gimbel Bros., Inc. In July 1990,
the Investcorp Affiliates and the International Investors acquired Saks &
Company from B.A.T. and formed Saks as the holding company of Saks & Company. In
1992, Saks effected a private equity offering in which additional shares of Saks
Common Stock were sold to certain of the International Investors and certain
other investors. In May 1996, Saks completed an initial public offering and, in
October 1996, certain of the International Investors sold shares of Saks Common
Stock in a secondary offering. Presently, Saks believes that the International
Investors own between 30% and 36% of the outstanding Saks Common Stock.
Saks principal executive offices are located at 12 East 49th Street, New
York, New York, and its telephone number is (212) 940-4048.
For further information concerning Saks, see "SUMMARY--Selected Historical
Financial and Operating Data of Saks," "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
LEGAL OPINIONS
The validity of the Proffitt's Common Stock being offered hereby is being
passed upon for Proffitt's by Sommer & Barnard, PC, Indianapolis, Indiana,
counsel to Proffitt's.
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to Saks, will
deliver an opinion to Saks concerning certain federal income tax consequences of
the Merger. See "THE MERGER--Certain Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Proffitt's as of January 31, 1998
and February 1, 1997, and for each of the three years in the period ended
January 31, 1998, are incorporated by reference herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given upon the authority
of that firm as experts in accounting and auditing.
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The consolidated financial statements of Saks as of January 31, 1998 and
February 1, 1997, and for each of the three years in the period ended January
31, 1998, are incorporated by reference herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
that firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following information filed with the Commission by Proffitt's and Saks
pursuant to the Exchange Act is incorporated by reference in this Joint Proxy
Statement/Prospectus:
PROFFITT'S INFORMATION (COMMISSION FILE NO. 1-13113)
(1) Annual Report on Form 10-K for the fiscal year ended January 31, 1998;
(2) Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 1998;
(3) Current reports on Form 8-K filed February 11, 1998, February 17, 1998,
March 26, 1998, April 13, 1998, July 8, 1998 and July 13, 1998 (as amended);
(4) Registration Statement on Form 8-A filed March 26, 1998 in respect of the
Proffitt's Rights Agreement; and
(5) The description of Proffitt's Common Stock contained in Proffitt's
Registration Statement on Form S-4, dated January 17, 1998 (Registration No.
333-17059).
SAKS INFORMATION (COMMISSION FILE NO. 1-14346)
(1) Annual Report on Form 10-K for the fiscal year ended January 31, 1998;
(2) Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 1998; and
(3) Current reports on Form 8-K filed March 10 and July 8, 1998 (as amended).
All documents and reports filed by Proffitt's and Saks pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Special Meetings shall be
deemed to be incorporated by reference in this Joint Proxy Statement/Prospectus
and to be a part hereof from the dates of filing of such documents or reports.
Any statement contained in information incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed information which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
information so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
AVAILABLE INFORMATION
The public may read and copy any materials filed by Proffitt's or Saks at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at (800) 732-0330. The Commission
maintains an Internet site (www.sec.gov) that contains reports, proxy and
information statements and other information regarding Proffitt's and Saks.
Proffitt's has filed the Registration Statement with the Commission under
the Securities Act with respect to the Proffitt's Common Stock to be issued in
connection with the Merger Agreement. This Joint Proxy Statement/Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Joint Proxy Statement/Prospectus or in any information incorporated in this
Joint Proxy Statement/Prospectus by reference as to the contents of any
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contract or other information referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other information filed as an exhibit to the Registration Statement or such
other documents, each such statement being qualified in all respects by such
reference.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Proffitt's or Sub has been supplied by
Proffitt's, and all such information relating to Saks has been supplied by Saks.
OTHER INFORMATION AND SHAREHOLDER PROPOSALS
The Proffitt's management and the Saks management know of no other matters
that may properly be, or which are likely to be, brought before the Proffitt's
Special Meeting or the Saks Special Meeting, respectively. Pursuant to the DGCL,
the only business that may be conducted at the Saks Special Meeting is business
brought before the meeting pursuant to the Notice of Special Meeting. However,
if any other matters are properly brought before such Special Meetings, the
persons named in the enclosed proxy or their substitutes will vote the proxies
in accordance with the recommendations of management, unless such authority is
withheld.
In order to be considered for inclusion in the Proxy Statement for the 1999
Annual Meeting of Stockholders of Saks, stockholder proposals intended to be
presented at such meeting and included in such Proxy Statement pursuant to Rule
14a-8 under the Exchange Act must have been received by Saks on or before
, 1999. Notice of a stockholder proposal intended to be presented at
such meeting but not included in such Proxy Statement pursuant to Rule 14a-8
under the Exchange Act must have been received by Saks on or before
, 1999. The 1999 Annual Meeting of Stockholders of Saks will be held
only if the Merger is not consummated.
In order to be considered for inclusion in the Proxy Statement for the 1999
Annual Meeting of Shareholders of Proffitt's, shareholder proposals intended to
be presented at such meeting and included in such Proxy Statement pursuant to
Rule 14a-8 under the Exchange Act and presented at such meeting must have been
received by Proffitt's on or before , 1999. Notice of a shareholder
proposal intended to be presented at such meeting but not included in such Proxy
Statement pursuant to Rule 14a-8 under the Exchange Act must have been received
by Proffitt's on or before , 1999.
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APPENDIX I
AGREEMENT AND PLAN OF MERGER
AMONG
PROFFITT'S, INC.,
FIFTH MERGER CORPORATION
AND
SAKS HOLDINGS, INC.
------------------------
DATED AS OF JULY 4, 1998
------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE I--THE MERGER
Section 1.1 The Merger................................................................................... 1
Section 1.2 Effective Time............................................................................... 1
Section 1.3 Effects of the Merger........................................................................ 2
Section 1.4 Directors of the Surviving Corporation....................................................... 2
Section 1.5 Officers of the Surviving Corporation........................................................ 2
Section 1.6 Charter and By Laws.......................................................................... 2
Section 1.7 Conversion of Securities..................................................................... 2
Section 1.8 Parent to Make Certificates Available........................................................ 2
Section 1.9 Dividends; Transfer Taxes; Withholding....................................................... 3
Section 1.10 No Fractional Securities.................................................................... 4
Section 1.11 Return of Exchange Fund..................................................................... 4
Section 1.12 Adjustment of Conversion Number............................................................. 4
Section 1.13 No Further Ownership Rights in Company Common Stock......................................... 4
Section 1.14 Closing of Company Transfer Books........................................................... 4
Section 1.15 Lost Certificates........................................................................... 4
Section 1.16 Affiliates.................................................................................. 5
Section 1.17 Further Assurances.......................................................................... 5
Section 1.18 Closing..................................................................................... 5
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 2.1 Organization, Standing and Power............................................................. 5
Section 2.2 Capital Structure............................................................................ 6
Section 2.3 Authority.................................................................................... 6
Section 2.4 Consents and Approvals; No Violation......................................................... 7
Section 2.5 SEC Documents and Other Reports.............................................................. 8
Section 2.6 Registration Statement and Joint Proxy Statement............................................. 8
Section 2.7 Absence of Certain Changes or Events......................................................... 8
Section 2.8 Permits and Compliance....................................................................... 9
Section 2.9 Tax Matters.................................................................................. 9
Section 2.10 Actions and Proceedings..................................................................... 10
Section 2.11 Certain Agreements.......................................................................... 10
Section 2.12 ERISA....................................................................................... 10
Section 2.13 Compliance with Certain Laws................................................................ 11
Section 2.14 Liabilities................................................................................. 12
Section 2.15 Labor Matters............................................................................... 12
Section 2.16 Intellectual Property....................................................................... 12
Section 2.17 Opinion of Financial Advisor................................................................ 12
Section 2.18 Pooling of Interests/Tax Free Treatment..................................................... 12
Section 2.19 Required Vote of Parent Shareholders........................................................ 12
Section 2.20 Ownership of Shares......................................................................... 13
Section 2.21 Operations of Sub........................................................................... 13
Section 2.22 Brokers..................................................................................... 13
Section 2.23 State Takeover Statutes and Shareholder Rights Plan......................................... 13
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power............................................................. 13
Section 3.2 Capital Structure............................................................................ 13
</TABLE>
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<TABLE>
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<S> <C>
Section 3.3 Authority.................................................................................... 14
Section 3.4 Consents and Approvals; No Violation......................................................... 14
Section 3.5 SEC Documents and Other Reports.............................................................. 15
Section 3.6 Registration Statement and Joint Proxy Statement............................................. 15
Section 3.7 Absence of Certain Changes or Events......................................................... 16
Section 3.8 Permits and Compliance....................................................................... 16
Section 3.9 Tax Matters.................................................................................. 17
Section 3.10 Actions and Proceedings..................................................................... 17
Section 3.11 Certain Agreements.......................................................................... 17
Section 3.12 ERISA....................................................................................... 18
Section 3.13 Compliance with Certain Laws................................................................ 19
Section 3.14 Liabilities................................................................................. 19
Section 3.15 Labor Matters............................................................................... 19
Section 3.16 Intellectual Property....................................................................... 19
Section 3.17 Opinion of Financial Advisor................................................................ 20
Section 3.18 Pooling of Interests/Tax Free Treatment..................................................... 20
Section 3.19 Required Vote of Company Stockholders....................................................... 20
Section 3.20 Ownership of Shares......................................................................... 20
Section 3.21 Brokers..................................................................................... 20
Section 3.22 State Takeover Statutes..................................................................... 20
ARTICLE IV--COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger....................................................... 20
Section 4.2 No Solicitation.............................................................................. 23
Section 4.3 Third Party Standstill Agreements............................................................ 25
Section 4.4 Pooling of Interests; Reorganization......................................................... 25
Section 4.5 Tax Representation Letters................................................................... 25
Section 4.6 Transfer Taxes............................................................................... 25
ARTICLE V--ADDITIONAL AGREEMENTS
Section 5.1 Shareholder Meetings......................................................................... 25
Section 5.2 Preparation of the Registration Statement and the Joint Proxy Statement...................... 26
Section 5.3 Access to Information........................................................................ 26
Section 5.4 Compliance with the Securities Act; Pooling Period........................................... 26
Section 5.5 Designation of Directors..................................................................... 27
Section 5.6 NYSE Listing................................................................................. 27
Section 5.7 Fees and Expenses............................................................................ 27
Section 5.8 Company Stock Options........................................................................ 28
Section 5.9 Convertible Subordinated Notes............................................................... 28
Section 5.10 Reasonable Efforts.......................................................................... 29
Section 5.11 Public Announcements........................................................................ 29
Section 5.12 State Takeover Laws......................................................................... 29
Section 5.13 Indemnification; Directors and Officers Insurance........................................... 29
Section 5.14 Notification of Certain Matters............................................................. 30
Section 5.15 Employee Matters............................................................................ 30
ARTICLE VI--CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger................................... 31
Section 6.2 Conditions to Obligation of the Company to Effect the Merger................................. 32
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger............................. 33
</TABLE>
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<TABLE>
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<S> <C>
ARTICLE VII--TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination.................................................................................. 34
Section 7.2 Effect of Termination........................................................................ 35
Section 7.3 Amendment.................................................................................... 35
Section 7.4 Waiver....................................................................................... 35
Section 7.5 Procedure for Termination, Amendment, Extension or Waiver.................................... 35
ARTICLE VIII--GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties............................................... 35
Section 8.2 Notices...................................................................................... 35
Section 8.3 Interpretation............................................................................... 36
Section 8.4 Counterparts................................................................................. 36
Section 8.5 Entire Agreement; No Third-Party Beneficiaries............................................... 36
Section 8.6 Governing Law................................................................................ 37
Section 8.7 Assignment................................................................................... 37
Section 8.8 Severability................................................................................. 37
Section 8.9 Enforcement of this Agreement................................................................ 37
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 4, 1998 (this "Agreement"),
among PROFFITT'S, INC., a Tennessee corporation ("Parent"), FIFTH MERGER
CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Parent
("Sub"), and SAKS HOLDINGS, 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 with and into 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 $.01 per
share, of the Company ("Company Common Stock") not owned directly or indirectly
by Parent or directly by the Company will be converted into shares of Common
Stock, par value $.10 per share, of Parent ("Parent Common Stock");
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the Merger is in the best interest of their respective
shareholders and is in furtherance of and consistent with their respective
long-term business strategies and Parent has approved this Agreement and the
Merger as the sole shareholder of Sub;
WHEREAS, simultaneously with the execution and delivery of this Agreement,
(i) Parent has entered into an agreement (the "Company Stockholders Agreement")
with certain stockholders of the Company pursuant to which such stockholders
agreed to vote the shares of Company Common Stock owned by them in favor of the
Merger and (ii) Parent has entered into an agreement (the "Registration Rights
Agreement") with certain stockholders of the Company pursuant to which Parent
grants certain rights to such stockholders regarding the registration of Parent
Common Stock to be received by them in the Merger (the Company Stockholders
Agreement, the Registration Rights Agreement and this Agreement are collectively
referred to herein as the "Transaction Agreements");
WHEREAS, for U.S. 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 treated for accounting
purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the Delaware General Corporation Law (the
"Del.C."), Sub shall be merged with and into the Company at the Effective Time
(as hereinafter defined). Following the Merger, the separate corporate existence
of Sub shall cease and the Company shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the Del.C.
Section 1.2 EFFECTIVE TIME. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), duly 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
or time of effectiveness of
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the Merger. 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 date and time established by the Certificate of Merger. The filing of
the Certificate of Merger in accordance with the Del.C. shall be made on the
date of the Closing (as hereinafter defined), or as promptly thereafter as
practicable.
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the Del.C.
Section 1.4 DIRECTORS OF THE SURVIVING CORPORATION. The directors of Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation as of the Effective Time and shall hold office until their
successors are duly appointed or elected in accordance with applicable law and
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
Section 1.5 OFFICERS OF THE SURVIVING CORPORATION. The officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation as of the Effective Time and shall hold office until their
successors are duly appointed or elected in accordance with applicable law and
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
Section 1.6 CHARTER AND BY LAWS. At the Effective Time, the Certificate of
Incorporation of the Company shall be amended so that Article Fourth thereof
reads in its entirety as follows: "The total number of shares of stock which the
Corporation shall have the authority to issue shall be 1,000 shares of common
stock, par value $.01 per share ("Common Stock"), as so amended, it shall be the
Certificate of Incorporation of the Surviving Corporation, until thereafter
changed or amended as provided therein or by applicable law. At the Effective
Time, the Bylaws of Sub, as in effect immediately prior to the Effective Time,
shall be amended to provide that the name of the corporation is "SAKS Holdings,
Inc." and, as so amended, shall be the Bylaws of the Surviving Corporation,
until thereafter changed or amended as provided therein or by the Certificate of
Incorporation of the Surviving Corporation or by applicable law.
Section 1.7 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 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 and any shares of Company Common Stock owned by Parent or Sub shall be
canceled and no capital stock of Parent or other consideration shall be
delivered in respect thereof.
(c) Subject to the provisions of Sections 1.10 and 1.12 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
1.7(b)) shall be converted into 0.82 (the "Conversion Number") of a validly
issued, fully paid and nonassessable share of Parent Common Stock. 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 1.9, certificates representing the
shares of Parent Common Stock into which such shares are converted and any cash,
without interest, in lieu of fractional shares to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance with
Section 1.8. 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 shares of Parent Common Stock into which such Company Common Stock
was converted in the Merger.
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Section 1.8 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 reasonably acceptable to Parent and the Company) to act as Exchange Agent
hereunder (the "Exchange Agent"). As soon as practicable after the Effective
Time, Parent shall deposit with the Exchange Agent, in trust for the holders of
shares of Company Common Stock converted in the Merger, certificates
representing the shares of Parent Common Stock issuable pursuant to Section
1.7(c) in exchange for outstanding certificates representing shares of Company
Common Stock and cash, as required to make payments in lieu of any fractional
shares pursuant to Section 1.10 (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"). Except as contemplated by this
Section 1.8, and Sections 1.10 and 1.11, the Exchange Fund shall not be used for
any other purpose.
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock converted in the Merger
(the "Certificates") a letter of transmittal (which shall be in customary form,
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Exchange Agent, and shall contain instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock and cash in lieu of fractional shares. Upon surrender for
cancellation to the Exchange Agent of a Certificate, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock into which the shares represented by the
surrendered Certificate shall have been converted at the Effective Time pursuant
to this Article I, cash in lieu of any fractional share in accordance with
Section 1.10 and any dividends and other distributions payable in accordance
with Section 1.9, and any Certificate so surrendered shall forthwith be
canceled.
Section 1.9 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 1.10 until
such person surrenders the related Certificate or Certificates, as provided in
Section 1.8. 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 1.10. 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. Except as otherwise
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provided in Section 4.6 of this Agreement, 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 1.10 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 1, 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 otherwise would 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 average per share Closing Price on The New York Stock Exchange ("NYSE")
of Parent Common Stock for the ten most recent Trading Days ending on the
Trading Day immediately preceding the Closing Date by (ii) the fractional
interest to which such holder would otherwise be entitled. For purposes of this
Agreement, "Closing Price" means the last reported selling price as reported on
the NYSE Transaction Tape for a given date and "Trading Day" means a day on
which securities are traded on the NYSE. 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 1.9 and this Section 1.10.
Section 1.11 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the former stockholders of the Company for one
year after the Effective Time shall be delivered to Parent, upon demand of
Parent, and any such former stockholders who have not theretofore complied with
this Article I shall thereafter look only to Parent for payment of their claim
for Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent Common Stock.
Neither Parent nor either Constituent 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 1.12 ADJUSTMENT OF CONVERSION NUMBER. In the event of any
reclassification, recapitalization, stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock) or subdivision 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 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), prior to the
Effective Time, appropriate and proportionate adjustments, 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 1.13 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 1.10) 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.
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Section 1.14 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 outstanding prior to the Effective Time 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 1.
Section 1.15 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 reasonably
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 Parent applies to its own shareholders), 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 1.10 and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 1.9.
Section 1.16 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 and for purposes of
applicable interpretations regarding pooling of interests accounting, shall not
be exchanged until Parent has received a written agreement from such Person as
provided in Section 5.4 hereof.
Section 1.17 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 (i) 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 (ii) 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 1.18 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 immediately following the time the last of the
conditions set forth in Article VI shall have been fulfilled or, where
appropriate, waived or at such other time as Parent and the Company shall agree.
The date on which the Closing occurs is referred to herein as the "Closing
Date."
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 (as hereinafter defined) 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 or other
power and authority to carry
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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 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) each of "Material
Adverse Change" or "Material Adverse Effect" means, when used with respect to
Parent or the Company, as the case may be, any change or effect that is
materially adverse to the assets, liabilities, results of operation or financial
condition of Parent and its Subsidiaries, taken as a whole, or the Company and
its Subsidiaries, taken as a whole, as the case may be, and (b) "Subsidiary"
means any corporation, partnership, joint venture or other legal entity of which
Parent or the Company, as the case may be (either alone or through or together
with any other Subsidiary), owns, directly or indirectly, 50% or more of the
stock or other equity interests the holders of which generally are 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. Parent has
heretofore delivered to the Company complete and correct copies of Parent's
certificate of incorporation ("Parent Charter") and Bylaws ("Parent Bylaws"), as
in effect on the date hereof.
Section 2.2 CAPITAL STRUCTURE. The authorized capital stock of Parent
consists of 300,000,000 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 June 30, 1998, (i) 90,751,553 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) 37,721,369 shares of
Parent Common Stock were held in the treasury of Parent or by the Subsidiaries
of Parent, (iii) 7,682,674 shares of Parent Common Stock were reserved for
future issuance pursuant to Parent's 1994 Long-Term Incentive Plan, the 1987
Stock Option Plan, the 1997 Stock-Based Incentive Plan, the Parisian Stock
Option Plans and the Carson Pirie Scott & Co. Stock Options Plan (the "Parent
Stock Plans"); (iii) 582,339 shares of Parent Common Stock were reserved for
future issuance pursuant to Parent's 1994 Employee Stock Purchase Plan; and (iv)
no shares of Parent Preferred Stock were issued or outstanding. All of the
shares of Parent Common Stock issuable in exchange for Company Common Stock at
the Effective Time in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable, free of
preemptive rights and be entitled to the benefits of the Parent Rights Plan (as
hereinafter defined) under the terms thereof. As of the date of this Agreement,
except for (a) this Agreement, (b) stock options covering not in excess of
6,999,674 shares of Parent Common Stock (collectively, the "Parent Stock
Options"), (c) the 1994 Employee Stock Purchase Plan, (d) contingent stock
grants of 683,000 shares of Parent Common Stock to key executives, and (e)
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 (as amended, the
"Parent Rights Agreement", and together with the Parent Rights, 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 securities convertible into or
exchangeable for such capital stock, or obligating Parent or any of its
Subsidiaries to grant, extend or enter into any such option, warrant call, right
or agreement. Except as disclosed in Parent SEC Documents (as hereinafter
defined) filed prior to the date hereof, since June 30, 1998, Parent has not
issued any shares of its capital stock, or securities convertible into or
exchangeable for such capital stock, other than shares issued in the ordinary
course pursuant to the Parent Stock Plans and the Parent Rights. Except as
disclosed in Parent SEC Documents filed prior to the date hereof, there are no
outstanding contractual obligations of Parent or any of Parent's Subsidiaries
(i) restricting the transfer of, (ii) affecting the voting rights of, (iii)
requiring the repurchase, redemption or disposition of, (iv) requiring the
registration for sale of, or (v) granting any preemptive or antidilutive right
with respect to, any shares of Parent Common Stock or any capital stock of any
Subsidiary
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of Parent. Each outstanding share of capital stock of each Subsidiary of Parent
that is a corporation is duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights and, except as disclosed in Parent
SEC Documents filed prior to the date hereof, 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. On or prior to the date of this Agreement, the
respective Boards of Directors of Parent and Sub have declared the Merger
advisable and in the best interest of the shareholders of Parent and Sub,
respectively, and approved this Agreement in accordance with applicable law, and
the Board of Directors of Parent has (a) resolved to recommend the approval by
Parent's shareholders of the matters covered by the Parent Shareholders'
Approvals (as hereinafter defined) and (b) directed that this Agreement and the
other matters subject to Parent Shareholders' Approvals be submitted to Parent's
shareholders for approval. Each of Parent and Sub has all requisite corporate
power and authority to enter into the Transaction Agreements to which it is a
party and, subject to approval by the shareholders of Parent of (i) this
Agreement (the "Merger Agreement Approval"), (ii) and the issuance of Parent
Common Stock in connection with the Merger (the "Share Issuance") and (iii)
amendments to the Charter of Parent to (x) increase the authorized shares of
Parent Common Stock (the "Share Increase Amendment"), (y) change the name of
Parent to Saks Incorporated (the "Name Change Amendment"), and (z) increase the
number of members of Parent's Board of Directors (the "Board Amendment" and,
collectively with the Share Increase Amendment and the Name Change Amendment,
the "Charter Amendments" and, collectively with the Share Increase Amendment,
Name Change Amendment, Merger Agreement Approval and the Share Issuance, the
"Parent Shareholders' Approvals"), to consummate the transactions contemplated
hereby and thereby. The execution and delivery by each of Parent and Sub of the
Transaction Agreements to which it is a party and the consummation by Parent and
Sub of the transactions contemplated hereby and thereby, including the Share
Issuance, have been duly authorized by all necessary corporate action on the
part of Parent and Sub, subject to (y) the Parent Shareholders' Approvals and
(z) the filing of the Certificate of Merger pursuant to the Del.C. Each of
Parent and Sub have duly executed and delivered the Transaction Agreements to
which it is a party and (assuming the valid authorization, execution and
delivery thereof by the other parties thereto) each such Transaction Agreement
constitutes the valid and binding obligation of Parent and Sub enforceable
against each of them in accordance with their terms. The Share Issuance and the
filing of a registration statement on Form S-4 with the Securities and Exchange
Commission ("SEC") by Parent under 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") and the taking of all
actions in connection therewith have been duly authorized by Parent's Board of
Directors.
Section 2.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all
consents, approvals, authorizations and other actions described in 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 the Transaction Agreements do
not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions hereof and thereof will not conflict with,
result in any violation of, or breach 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 Parent Charter or Parent Bylaws,
(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,
lease, indenture, or other contract, 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
conflicts,
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violations, breaches, 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 or thereby. No filing, notification or
registration with, or authorization, consent or approval of, any domestic
(federal and state), or foreign court, commission, governmental body, regulatory
or administrative 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 the Transaction Agreements by Parent or Sub
or is necessary for the consummation of the Merger and the other transactions
contemplated by the Transaction Agreements, 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 the filing of
the appropriate documents with the relevant authorities of other states in which
Parent 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 the
Transaction Agreements, (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 as may be required under the laws of the
State of Tennessee and other states to effectuate the Charter Amendments and
filings with other Governmental Entities in connection with the Name Change
Amendment, (vii) such filings and consents as may be required under federal and
state securities laws in connection with the Registration Rights Agreement,
(viii) applicable requirements, if any, of Blue Sky Laws and the NYSE, and (ix)
such other consents, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not, individually or
in the aggregate, have a Material Adverse Effect on Parent, or prevent or
materially delay the consummation of any of the transactions contemplated hereby
or by any other Transaction Agreement.
Section 2.5 SEC DOCUMENTS AND OTHER REPORTS. Parent has filed all required
documents with the SEC since January 1, 1995 (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 ("GAAP") (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 present in accordance with
GAAP 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 and to any other
adjustments described therein). Except as disclosed in Parent SEC Documents
filed prior to the date hereof or as required by GAAP, Parent has not, since
January 31, 1998, made any change in the accounting practices or policies
applied in the preparation of financial statements. The books and records of
Parent and its Subsidiaries have been, and are being, maintained in accordance
with GAAP and other applicable legal and accounting requirements.
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Section 2.6 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement or the joint proxy statement/prospectus
included therein (together with any amendments or supplements thereto, the
"Joint Proxy Statement") relating to the Shareholder Meetings (as hereinafter
defined) will (i) in the case of the Registration Statement, at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading or (ii) in the case of the Joint
Proxy Statement, at the time of the mailing of the Joint Proxy Statement, the
time of each of the Shareholder Meetings and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to Parent, its officers
and directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement, such event
shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
shareholders of Parent and the Company. The Registration Statement will comply
(with respect to Parent) as to form in all material respects with the provisions
of the Securities Act, and the Joint Proxy Statement will comply (with respect
to Parent) as to form in all material respects with the provisions of the
Exchange Act.
Section 2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Parent SEC Documents filed prior to the date hereof, since January 31, 1998, (A)
none of Parent or any of its Subsidiaries has 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, except for
any such changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof; (B) none of Parent or any of
its Subsidiaries has 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 would have a Material Adverse Effect on Parent;
(C) there has been no action taken by Parent or any of its Subsidiaries that, if
taken during the period from the date of this Agreement through the Effective
Time, would constitute a breach of Section 4.1(a); and (D) there has been no
event, circumstance or development that would have a Material Adverse Effect on
Parent, excluding any changes and effects resulting from changes in economic,
market, regulatory or political conditions or changes in conditions generally
applicable to the industries in which Parent and Subsidiaries of Parent are
involved and except for any such changes or effects resulting from this
Agreement, the transactions contemplated hereby or the announcement thereof.
Section 2.8 PERMITS AND COMPLIANCE. Each of Parent and its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity ("Permits") necessary for it 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), 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. None of Parent or any of
its Subsidiaries is in violation of (A) its charter, bylaws 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) and (B), for any violations that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. Except as disclosed in Parent SEC Documents filed prior to the date
hereof, as of the date hereof, 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 Parent SEC
Documents filed prior to the date hereof, no event of default or event that, but
for the giving of notice or
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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
contract, 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. As used in this Agreement,
"Knowledge of Parent" means the actual knowledge of any of the Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, General Counsel or
Principal Accounting Officer of Parent.
Section 2.9 TAX MATTERS. (a) Each of Parent and its Subsidiaries has
timely filed, or has caused to be timely filed on its behalf, all Tax Returns
required to have been filed (or extensions have been duly obtained) and has
timely paid all Taxes required to have been paid by it, except where failure to
file such Tax Returns or pay such Taxes would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(b) The most recent financial statements contained in Parent SEC Documents
reflect an adequate reserve for all Taxes payable by Parent and its Subsidiaries
for all Taxable periods and portions thereof through the date of such financial
statements. No deficiency with respect to any Taxes has been proposed, asserted
or assessed against the Parent or any of its Subsidiaries, and no requests for
waivers of the time to assess any such Taxes are pending, except to the extent
any such deficiency or request for waiver, individually or in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect on the Parent.
(c) There are no material liens for Taxes (other than for current Taxes not
yet due and payable) on the assets of Parent or any of its Subsidiaries. Neither
Parent nor any of its Subsidiaries are bound by any agreement except in the
ordinary course with respect to Taxes.
(d) Parent has no reason to believe that any conditions exist that could
reasonably be expected to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(e) 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 Parent SEC
Documents filed prior to the date hereof or on Schedule 2.10 of the disclosure
letter delivered by Parent to the Company concurrently with the execution of
this Agreement, (the "Parent Disclosure Letter") (a) there are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving Parent or any of its Subsidiaries, against or involving any
of the present directors or officers of Parent or any of its Subsidiaries, as
such, or involving any of its or their properties, assets or business that,
individually or in the aggregate, would have a Material Adverse Effect on Parent
and (b) 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 against or involving any of the present directors or officers
of Parent or any of its Subsidiaries, as such, or involving any of its or their
properties, assets or business that, individually or in the aggregate, would
have a Material Adverse Effect on Parent. As of the date hereof, there are no
actions, suits, labor disputes or other litigation, legal or administrative
proceedings or governmental investigations pending, or,
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to the Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries or any of its or their present directors or officers, as such, or
any of its or their properties, assets or business relating to the transactions
contemplated by the Transaction Agreements.
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. No holder of any option to
purchase shares of Parent Common Stock, or shares of Parent Common Stock granted
in connection with the performance of services for Parent or its Subsidiaries,
is or will be entitled to receive cash from the Parent or any Subsidiary in lieu
of or in exchange for such option or shares as a result of the transactions
contemplated by this Agreement. Neither Parent nor any Subsidiary is a party to
any termination benefits agreement or severance agreement or employment
agreement which would be triggered by the consummation of the transactions
contemplated by this Agreement.
Section 2.12 ERISA.
(a) With respect to each material Parent Plan (as hereinafter defined),
Parent has made (or as soon as practicable will make) available to the Company 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 Parent Plan,
(iii) each trust agreement, insurance contract or administration agreement
relating to such Parent Plan, (iv) the most recent summary plan description of
each Parent Plan for which a summary plan description is required, (v) the most
recent actuarial report or valuation relating to a Parent Plan subject to Title
IV of ERISA and (vi) the most recent determination letter, if any, issued by the
IRS with respect to any Parent Plan intended to be qualified under section
401(a) of the Code. Except as would not have a Material Adverse Effect on
Parent, each Parent Plan (as defined herein) complies in all material respects
with all applicable statutes and governmental rules and regulations, including
but not limited to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Code and the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA"), and (i) no "reportable event" (within the
meaning of Section 4043 of ERISA) has occurred with respect to any Parent Plan,
(ii) neither Parent nor any of its ERISA Affiliates (as hereinafter defined) has
withdrawn from any Parent Multiemployer Plan (as hereinafter defined) or
instituted, or is currently considering taking, any action to do so, (iii) no
action has been taken, or is currently being considered, to terminate any Parent
Plan subject to Title IV of ERISA, and (iv) Parent and its ERISA Affiliates have
complied in all material respects with the continued medical coverage
requirements of COBRA; other than, in each case, such events or actions that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. Except as would not have a Material Adverse Effect on Parent, 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.
(b) With respect to any Parent Plan which is subject to Title IV of ERISA,
the present value of accrued benefit obligations, as determined in accordance
with FAS 87 in accordance with the actuarial assumptions used to prepare the
most recent reports of such Parent Plan, did not exceed the fair market value of
the Plan assets as of the most recent valuation date for which an actuarial
report has been prepared and Parent has no Knowledge of any Material Adverse
Change to such status. 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. With
respect to any current or former employee or contractor of Parent or its
Subsidiaries, consummation of the transactions contemplated by this Agreement
shall not result in the payment or provision of additional compensation or
benefits or accelerate the vesting, payment or funding of any compensation or
benefits. No amounts payable or provided by Parent or its Subsidiaries related
to the transactions contemplated by this Agreement will constitute "excess
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parachute payments" within the meaning of Section 280G of the Code. All Parent
Plans that are intended to be qualified under Section 401(a) of the Code have
been determined by the Internal Revenue Service (the "IRS") to be so qualified
or a timely application for such determination is pending, and to the Knowledge
of Parent, there is no reason why any such Parent Plan is not so qualified in
operation. Neither Parent nor any of its ERISA Affiliates has been notified by
any Parent Multiemployer Plan that such Parent Multiemployer Plan is currently
in reorganization or insolvency under and within the meaning of Section 4241 or
4245 of ERISA or that such Parent Multiemployer Plan intends to terminate or has
been terminated under Section 4041A of 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
filed prior to the date hereof. There are no pending or, to the knowledge of
Parent, threatened, claims, suits, audits or investigations related to any
Parent Plan other than claims for benefits in the ordinary course and other than
claims, suits, audits or investigations that would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. As used herein, (i) "Parent
Plan" means a "pension plan" (as defined in Section 3(2) of ERISA (other than a
Parent Multiemployer Plan)) or a "welfare plan" (as defined in Section 3(l) of
ERISA) established or maintained by Parent or any of its ERISA Affiliates or as
to which Parent or any of its ERISA Affiliates has contributed or otherwise may
have any liability and all other retirement, deferred compensation, severance,
termination, change in control, stock option, restricted stock or phantom stock
plans, policies or programs of Parent or its Subsidiaries, (ii) "Parent
Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which Parent or any of its ERISA Affiliates is or has
been obligated to contribute or otherwise may have any liability, and (iii) with
respect to any person, "ERISA Affiliate" means any trade or business (whether or
not incorporated) which is under common control or would be considered a single
employer with such person pursuant to Section 414(b), (c), (m) or (o) of the
Code and the regulations promulgated under those sections or pursuant to Section
4001(b) of ERISA and the regulations promulgated thereunder, including without
limitation, each of Parent's Subsidiaries. Parent has made (or as soon as
practicable will make) available to Company the most recent summary plan
description of each Parent Plan for which a summary plan description is required
and each Parent Plan.
Section 2.13 COMPLIANCE WITH CERTAIN LAWS. The properties, assets and
operations of Parent and its Subsidiaries are in compliance in all material
respects with all applicable federal, state, local and foreign laws, rules and
regulations, orders, decrees, judgments, permits and licenses relating to public
and worker health and safety (collectively, "Worker Safety Laws"), 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") and all consumer credit laws, including,
without limitation, bankruptcy laws relating to post-petition collection
procedures (collectively, "Consumer Credit 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. Parent will make
available to the Company such certificates and environmental studies with
respect to such properties as Parent has available on the date hereof.
Section 2.14 LIABILITIES. Except as fully reflected or reserved against in
the consolidated balance sheet of Parent and its Subsidiaries as of January 31,
1998 (included in the Parent SEC Documents) or as reflected in the Parent SEC
Documents filed prior to the date hereof, Parent and its Subsidiaries have no
liabilities (including, without limitation, tax liabilities) absolute or
contingent, that would be required to be
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reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, other than liabilities incurred in the ordinary course of business or
that, individually or in the aggregate, would not have a Material Adverse Effect
on Parent.
Section 2.15 LABOR MATTERS. Except as set forth in Parent SEC Documents
filed prior to the date hereof, or on Schedule 2.15 of the Parent Disclosure
Letter, 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 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. Parent and its Subsidiaries are in material compliance with
all labor, employment and wage payment-related laws, regulations and rules.
Section 2.16 INTELLECTUAL PROPERTY. Parent and its Subsidiaries own or
possess adequate licenses or other legal rights to use, free to Parent's
Knowledge of infringement by others, all patents, trademarks, trade names, trade
dress, service marks, trade secrets, copyrights, software, mailing lists and
other proprietary intellectual property rights including all applications with
respect thereto (collectively, "Intellectual Property Rights") as are necessary
in connection with the business of Parent and its Subsidiaries as currently
conducted, taken as a whole, except where the failure to have such Intellectual
Property Rights or such infringement by others would not have a Material Adverse
Effect on Parent. To Parent's Knowledge, neither Parent nor any of its
Subsidiaries has infringed any Intellectual Property Rights of any third party
other than any infringements that, individually or in the aggregate, would not
have a Material Adverse Effect on Parent.
Section 2.17 OPINION OF FINANCIAL ADVISOR. Parent has received the written
opinion of Salomon Smith Barney, dated the date hereof, to the effect that, as
of such date, the Conversion Number is fair to Parent from a financial point of
view, a copy of which opinion will be made available to the Company promptly
after the date of this Agreement.
Section 2.18 POOLING OF INTERESTS/TAX FREE TREATMENT. Parent has made
available to PricewaterhouseCoopers LLP ("PWC") substantially all documents and
other written materials and other information relating to Parent that, based
upon the advice of PWC, Parent management believes would be material to their
conclusion that no conditions exist with respect to either company which would
preclude accounting for the Merger as a pooling of interests. Neither Parent nor
any of its Subsidiaries, nor to Parent's Knowledge, any of Parent's Affiliates,
has taken any action or failed to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
Section 2.19 REQUIRED VOTE OF PARENT SHAREHOLDERS. Under applicable
Tennessee law and the Parent Charter and Parent Bylaws, (i) the affirmative vote
of a majority of the votes eligible to be cast is required for Merger Agreement
Approval, (ii) the affirmative vote of a majority of a quorum is required to
approve the Share Issuance, the Share Increase Amendment and the Name Change
Amendment and (iii) the affirmative vote of eighty percent of the outstanding
shares of Parent Common Stock are required to approve the Board Amendment. No
other vote of the shareholders of Parent is required by law, the Parent Charter
or Parent Bylaws of Parent or otherwise in order for Parent to consummate the
Merger and the transactions contemplated hereby.
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Section 2.20 OWNERSHIP OF SHARES. Neither Parent nor any of its
Subsidiaries owns any Shares of Company Common Stock.
Section 2.21 OPERATIONS OF SUB. Sub is a direct, wholly-owned subsidiary
of Parent, was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
Section 2.22 BROKERS. No broker, investment banker or other person, other
than Salomon Smith Barney, the fees and expenses of which will be paid by Parent
(and as reflected in agreements between Salomon Smith Barney, 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.
Section 2.23 STATE TAKEOVER STATUTES AND SHAREHOLDER RIGHTS PLAN.
(a) Assuming the accuracy of the Company's representations and warranties
contained in Section 3.20 (Ownership of Shares), as of the date hereof, no state
takeover statutes or other state statutes, including any business combination
act, or any supermajority Parent Charter provisions are applicable to the
Merger, this Agreement and the transactions contemplated hereby, other than the
Board Amendment.
(b) As of the date hereof and as of the Effective Time, (i) Parent will have
no additional obligations under the Parent Rights or the Parent Rights Agreement
and (ii) the holders of the Parent Rights will have no additional rights under
the Parent Rights or the Parent Rights Agreement, in each case, as a result of
any of the transactions contemplated by this Agreement. Execution and delivery
of this Agreement does not, and compliance with the provisions hereof will not,
cause the holders of the Parent Rights to have any rights under the Parent
Rights or the Parent Rights Agreement.
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 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. The Company has
heretofore delivered to Parent complete and correct copies of the Company's
Certificate of Incorporation ("Company Charter") and Bylaws ("Company Bylaws"),
as in effect on the date hereof.
Section 3.2 CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 150,000,000 shares of Company Common Stock, par value $.0l per
share. At the close of business on July 2, 1998, (i) 64,020,413 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) 24,000
shares of Company Common Stock were held in the treasury of the Company or by
the Subsidiaries of the Company, (iii) not more than 6,235,000 shares of Company
Common Stock were reserved for future issuance pursuant to the Saks Holdings,
Inc. 1996 Management Stock Incentive Plan, (the "Company Stock Plan" (iv)
6,641,000 shares of Company Common Stock were reserved for issuance pursuant to
the Company's 5 1/2% Convertible
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Subordinated Notes due September 15, 2006 (the "Notes") and (v) 64,000 shares of
Company Common Stock were reserved for issuance pursuant to the 1997
Non-Employee Directors Plan. As of the date of this Agreement, except for stock
options covering not in excess of 5,375,000 shares of Company Common Stock
issued under the Company Stock Plans (collectively, the "Company Stock Options")
and except for the outstanding Notes, 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 securities convertible into or exchangeable for such capital
stock, or obligating the Company or any of its Subsidiaries to grant, extend or
enter into any such option, warrant, call, right or agreement. Except as
disclosed in the Company SEC Documents (as hereinafter defined) filed prior to
the date hereof, since July 2, 1998, the Company has not issued any shares of
its capital stock, or securities convertible into or exchangeable for such
capital stock, other than shares issued in the ordinary course pursuant to the
Company Stock Plans. Except as disclosed in the Company SEC Documents filed
prior to the date hereof, there are no outstanding contractual obligations of
the Company or any of the Company's Subsidiaries (i) restricting the transfer
of, (ii) affecting the voting rights of, (iii) requiring the repurchase,
redemption or disposition of, (iv) requiring the registration for sale of, or
(v) granting any preemptive or antidilutive right with respect to, any shares of
Company Common Stock or any capital stock of any Subsidiary of the Company. Each
outstanding share of capital stock of each Subsidiary of the Company that is a
corporation is duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights, and except as disclosed in the Company SEC Documents
filed prior to the date hereof, each such share is owned by the Company or
another Subsidiary of the Company, free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever.
Section 3.3 AUTHORITY. The Board of Directors of the Company has on or
prior to the date of this Agreement (a) declared the Merger advisable and in the
best interest of the Company and its stockholders and approved this Agreement in
accordance with applicable law, (b) resolved to recommend the approval of this
Agreement by the Company's stockholders and (c) 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 the Transaction Agreements
to which it is a party and, subject to approval by the stockholders of the
Company of the Merger (which approval, for all purposes in this Agreement, shall
be deemed to include any necessary approval of amendments to the Company's Stock
plans) (collectively, the "Company Shareholder Approvals"), to consummate the
transactions contemplated hereby and thereby. The execution and delivery of the
Transaction Agreements to which it is a party by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Company, subject to (x) Company Shareholder Approvals and (y) the filing of the
Certificate of Merger pursuant to the Del.C. The Transaction Agreements to which
it is a party have been duly executed and delivered by the Company and (assuming
the valid authorization, execution and delivery thereof by the other parties
thereto) each such Transaction Agreement constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with
their terms. The filing of the Joint Proxy Statement with the SEC and the taking
of all actions in connection therewith have been duly authorized by the
Company's Board of Directors.
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming 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 and except as set forth in Schedule 3.4 of the disclosure letter
delivered by the Company to Parent concurrently with the execution of this
Agreement (the "Company Disclosure Letter"), the execution and delivery of the
Transaction Agreements do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, conflict with, result in any violation of, or breach 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
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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 Company
Charter or Company Bylaws, (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, lease, indenture or other contract,
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 conflicts, violations,
breaches, 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 or materially delay the consummation of any of the
transactions contemplated hereby or thereby. No filing, notification 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 the Transaction Agreements by
the Company or is necessary for the consummation of the Merger and the other
transactions contemplated by the Transaction Agreements, 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 the filing of 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 Subsidiaries
conducts any business or owns any property or
assets, (vi) applicable requirements, if any, of Blue Sky Laws and the NYSE, and
(vii) 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 or
materially delay the consummation of any of the transactions contemplated hereby
or thereby or by any other Transaction Agreement. The execution and delivery of
the Transaction Agreements do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, conflict with, result in any violation of, or breach 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 leases, subleases, reciprocal
operating agreements or reciprocal easement agreements relating to the Company
stores listed on Schedule 3.4 of the Company Disclosure Letter.
Section 3.5 SEC DOCUMENTS AND OTHER REPORTS. The Company has filed all
required documents with the SEC since January 1, 1995 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Company included in the
Company SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with GAAP (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 present in accordance with
GAAP 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
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cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein). Except as disclosed in the Company SEC Documents or as
required by GAAP, the Company has not, since January 31, 1998, made any change
in the accounting practices or policies applied in the preparation of financial
statements. The books and records of the Company and its Subsidiaries have been,
and are being, maintained in accordance with GAAP and other applicable legal and
accounting requirements.
Section 3.6 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Joint Proxy Statement will (i) in
the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Joint Proxy Statement, at the
time of the mailing of the Joint Proxy Statement, the time of each of the
Shareholder Meetings and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement, such event
shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
shareholders of Parent and the Company. The Joint Proxy Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the Exchange Act.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Documents filed with the SEC prior to the date of this Agreement
or in Schedule 3.7 of the disclosure letter delivered by the Company to Parent
concurrently with the execution of this Agreement (the "Company Disclosure
Letter"), since January 31, 1998, (A) none of the Company or any of its
Subsidiaries has 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, except for any such changes or
effects resulting from this Agreement, the transactions contemplated hereby or
the announcement thereof; (B) the Company or any of its Subsidiaries has
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 would have a Material Adverse Effect on the Company; (C) there
has been no action taken by the Company or any of Subsidiaries, that, if taken
during the period from the date of this Agreement through the Effective Time,
would constitute a breach of Section 4.1(b); and (D) there has been no event,
circumstance or development that would have a Material Adverse Effect on the
Company, excluding any changes and effects resulting from changes in economic,
market, regulatory or political conditions or changes in conditions generally
applicable to the industries in which the Company and Subsidiaries of the
Company are involved and except for any such changes or effects resulting from
this Agreement, the transactions contemplated hereby or the announcement
thereof.
Section 3.8 PERMITS AND COMPLIANCE. Each of the Company and its
Subsidiaries is in possession of all Permits necessary for it 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 the Company. None of the Company or
any of its Subsidiaries is in violation of (A) its certificate, bylaws 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
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jurisdiction over the Company or any of its Subsidiaries, except, in the case of
clauses (A) (as to the Company's Subsidiaries only), (B) and (C), for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or in Schedule 3.8(a) of the Company
Disclosure Letter, as of the date hereof there is no contract or agreement that
is material to the business, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole. Except as set forth in the
Company SEC Documents filed prior to the date of this Agreement or in Schedule
3.8(b) of the Company Disclosure Letter, 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 contractual
license or other contract, 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. As used
in this Agreement "Knowledge of the Company" means the actual knowledge of any
of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer or the General Counsel of the Company.
Section 3.9 TAX MATTERS. (a) Each of the Company and its Subsidiaries has
timely filed, or has caused to be timely filed on its behalf, all Tax Returns
required to have been filed (or extensions have been duly obtained) and has
timely paid all Taxes required to have been paid by it, except where failure to
file such Tax Returns or pay such Taxes would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(b) The most recent financial statements contained in the Company SEC
Documents reflect an adequate reserve for all Taxes payable by the Company and
its Subsidiaries for all Taxable periods and portions thereof through the date
of such financial statements. No deficiency with respect to any Taxes has been
proposed, asserted or assessed against the Company or any of its Subsidiaries,
and no requests for waivers of the time to assess any such Taxes are pending,
except to the extent any such deficiency or request for waiver, individually or
in the aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect on the Company.
(c) There are no material liens for Taxes (other than for current Taxes not
yet due and payable) on the assets of the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries are bound by any agreement,
except for agreements entered into in the ordinary course with respect to Taxes.
(d) The Company has no reason to believe that any conditions exist that
could reasonably be expected to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
Section 3.10 ACTIONS AND PROCEEDINGS. Except as set forth in the Company
SEC Documents filed prior to the date hereof or in Schedule 3.10 of the Company
Disclosure Letter, there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity against or involving the Company or
any of its Subsidiaries, against or involving any of the present directors or
officers of the Company or any of its Subsidiaries, as such, or involving any of
its or their properties, assets or business that, individually or in the
aggregate, would have a Material Adverse Effect on the Company. Except as set
forth in the Company SEC Documents filed prior to the date hereof or on Schedule
3.10 of the Company Disclosure Letter, 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 against
or involving any of the present directors or officers, of the Company or any of
its Subsidiaries as such or involving any of its or their properties, assets or
business that, individually or in the aggregate, would have a Material Adverse
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Effect on the Company. As of the date hereof, there are no actions, suits, labor
disputes or other litigation, legal or administrative proceedings or
governmental investigations pending, or, to the Knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
its or their present directors or officers, as such, or any of its or their
properties, assets or business relating to the transactions contemplated by the
Transaction Agreements.
Section 3.11 CERTAIN AGREEMENTS. Except as set forth in Schedule 3.11 of
the Company Disclosure Letter, as of the date of this Agreement, neither the
Company nor any of its Subsidiaries is a party to any oral or written agreement
or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. No holder of any option to
purchase shares of Company Common Stock, or shares of Company Common Stock
granted in connection with the performance of services for the Company or its
Subsidiaries, is or will be entitled to receive cash from the Company or any
Subsidiary in lieu of or in exchange for such option or shares as a result of
the transactions contemplated by this Agreement (other than in lieu of
fractional shares). Neither the Company nor any Subsidiary is a party to any
termination benefits agreement or severance agreement or employment agreement
which would be triggered by the consummation of the transactions contemplated by
this Agreement, except as set forth in Schedule 3.11 of the Company Disclosure
Letter.
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 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, (i) each Company
Plan complies in all material respects with all applicable statutes and
governmental rules and regulations, including but not limited to ERISA, the Code
and COBRA, (ii) no "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred with respect to any Company Plan, (iii) neither the Company
nor any of its ERISA Affiliates has withdrawn from any Company Multiemployer
Plan (as hereinafter defined), or instituted, or is currently considering
taking, any action to do so, and (iv) no action has been taken, or is currently
being considered, to terminate any Company Plan subject to Title IV of ERISA,
and (v) the Company and its ERISA Affiliates have complied in all material
respects with the continued medical coverage requirements of COBRA, other than,
in each case, such events or actions that, individually or in the aggregate,
would not have a Material Adverse Effect on the Company. 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. Except as disclosed on
Schedule 3.12(a) of the Company Disclosure Letter, with respect to any Company
Plan which is subject to Title IV of ERISA, the present value of accrued benefit
obligations, as determined in accordance with FAS 87 in accordance with the
actuarial assumptions used to prepare the most recent reports of such Company
Plan, did not exceed the fair market value of the Plan assets as of the most
recent valuation date for which an actuarial report has been prepared, and the
Company has no Knowledge of any Material Adverse Change to such status.
(b) With respect to the Company Plans, no event has occurred in connection
with which the Company or any ERISA Affiliate would be subject to any liability
under the terms of such Company Plans, ERISA, the Code or any other applicable
law which would have a Material Adverse Effect on the Company. Except as
disclosed in the Company SEC Documents or set forth in Schedule 3.12(b) of the
Company Disclosure
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Letter, with respect to any current or former employee or contractor of the
Company or its subsidiaries, consummation of the transactions contemplated by
this Agreement shall not result in the payment or provision of additional
compensation or benefits or accelerate the vesting, payment or funding of any
compensation or benefits. Except as disclosed in the Company SEC Documents or
set forth in Schedule 3.12(b) of the Company Disclosure Letter, no amounts
payable or provided by the Company or its subsidiaries related to the
transactions contemplated by this Agreement will constitute "excess parachute
payments" within the meaning of Section 280G of the Code. Company Plans that are
intended to be qualified under Section 401(a) of the Code have been determined
by the IRS to be so qualified, or a timely application for such determination is
now pending, and to the Knowledge of the Company, there is no reason why any
Company Plan is not so qualified in operation. Neither the Company nor any of
its ERISA Affiliates has been notified by any Company Multiemployer Plan that
such Company Multiemployer Plan is currently in reorganization or insolvency
under and within the meaning of Section 4241 or 4245 of ERISA or that such
Company Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA. Except as disclosed in the Company SEC Documents filed
prior to the date hereof or set forth in Schedule 3.12(b) of the Company
Disclosure Letter, 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. There are no pending, or to
the knowledge of the Company, threatened, claims, suits, audits or
investigations related to any Company Plan other than claims for benefits in the
ordinary course and other than claims, suits, audits or investigations that
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. As used herein, (i) "Company Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Company Multiemployer Plan)) or a
"welfare plan" (as defined in Section 3(l) 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
all other retirement, deferred compensation, severance, termination, change in
control, stock option, restricted stock or phantom stock plans, policies or
programs of the Company or its Subsidiaries, (ii) "Company Multiemployer Plan"
means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to
which the Company or any of its ERISA Affiliates is or has been obligated to
contribute or otherwise may have any liability 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, including, without
limitation, each of the Company's Subsidiaries.
Section 3.13 COMPLIANCE WITH CERTAIN LAWS. Except as disclosed in Schedule
3.13 of the Company Disclosure Letter, 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. Except as disclosed in Schedule 3.13 of
the Company Disclosure Letter, 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 interference or
prevention that would not individually or in the aggregate with any other such
interference or prevention have a Material Adverse Effect on the Company. The
Company will make available to Parent such certificates and environmental
studies with respect to such properties as the Company has available on the date
hereof.
Section 3.14 LIABILITIES. Except as fully reflected or reserved against in
the consolidated balance sheet of the Company and its Subsidiaries as of January
31, 1998 (included in the Company SEC
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Documents) or as reflected in the Company SEC Documents filed prior to the date
hereof, or set forth in Schedule 3.14 of the Company Disclosure Letter, the
Company and its Subsidiaries have no liabilities (including, without limitation,
tax liabilities) absolute or contingent, that would be required to be reflected
on a balance sheet or in notes thereto prepared in accordance with GAAP, other
than liabilities incurred in the ordinary course of business or that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
Section 3.15 LABOR MATTERS. Except as set forth in Schedule 3.15 of the
Company Disclosure Letter or in the Company SEC Documents filed prior to the
date hereof, neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or labor contract. 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. The Company and its subsidiaries are
in material compliance with all labor, employment and wage payment-related laws,
regulations and rules.
Section 3.16 INTELLECTUAL PROPERTY. The Company and its Subsidiaries own
or possess adequate licenses or other legal rights to use, free to the Company's
Knowledge of infringement by others, all Intellectual Property Rights as are
necessary in connection with the business of the Company and its Subsidiaries as
currently conducted, taken as a whole, except where the failure to have such
Intellectual Property Rights or such infringement by others would not have a
Material Adverse Effect on the Company. To the Company's Knowledge, neither the
Company nor any of its Subsidiaries has infringed any Intellectual Property
Rights of any third party other than any infringements that, individually or in
the aggregate, would not have a Material Adverse Effect on the Company.
Section 3.17 OPINION OF FINANCIAL ADVISOR. The Company has received the
written opinions of Goldman, Sachs & Co. and Merrill Lynch & Co. dated the date
hereof, to the effect that, as of the date hereof, the Conversion Number is fair
to the Company's stockholders from a financial point of view, a copy of which
opinion will be made available to Parent promptly after the date of this
Agreement.
Section 3.18 POOLING OF INTERESTS/TAX FREE TREATMENT. The Company has made
available to PWC substantially all documents and other written materials and
other information relating to the Company that, based upon the advice of PWC,
the Company believes would be material to their conclusion that no conditions
exist with respect to either Company which would preclude accounting for the
Merger as a pooling of interests. Neither the Company nor to the Company's
Knowledge, any of Company's Affiliates, has 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 3.19 REQUIRED VOTE OF COMPANY STOCKHOLDERS. Under applicable
Delaware law and the Company Charter and Company Bylaws, 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 Merger. No other vote of the
stockholders of the Company is required by law, the Company Charter or Company
Bylaws or otherwise for the Company to consummate the Merger and the
transactions contemplated hereby.
Section 3.20 OWNERSHIP OF SHARES. Neither Company nor any of its
Subsidiaries owns any Shares of Parent Common Stock.
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Section 3.21 BROKERS. No broker, investment banker or other person, other
than Goldman, Sachs & Co. and Merrill Lynch & Co., the fees and expenses of
which will be paid by the Company (and are reflected in agreements between
Goldman, Sachs & Co. and Merrill Lynch & Co. and the Company, respectively,
copies of which have 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.
Section 3.22 STATE TAKEOVER STATUTES. Assuming the accuracy of Parent's
representations and warranties contained in Section 2.20 (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 and the Company
Stockholders Agreement prior to the execution hereof pursuant to Section 203 of
the Del.C. As of the date hereof, except as set forth in Section 2.23(a), no
other state takeover statutes, including without limitation, any business
combination act or supermajority Company Charter provisions are applicable to
the Merger, this Agreement and the transactions contemplated hereby.
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 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, from the date of this
Agreement to the Effective Time, 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 shareholders 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, (y) purchase, redeem or otherwise acquire any shares
of capital stock of Parent or any other securities thereof or the capital
stock of any Subsidiary or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities (other
than the redemption of the Parisian 9 7/8% Senior Subordinated Notes), or
(z) institute any share repurchase program;
(ii) issue, deliver, sell, pledge, dispose of, grant, transfer or
otherwise encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible or
exchangeable into, or exercisable for, or any rights, warrants or options to
acquire any such shares, voting securities, equity equivalent or convertible
securities, other than (A) subject to Section 4.4, the issuance of stock
options and shares of Parent Common Stock to employees of Parent or any of
its Subsidiaries in the ordinary course of business consistent with past
practice, (B) the issuance of Parent securities pursuant to the Parent
Rights Plan, and (C) the issuance by any wholly-owned Subsidiary of Parent
of its capital stock to Parent or another wholly-owned Subsidiary of Parent;
(iii) amend its charter or bylaws;
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(iv) except as set forth on Schedule 4.1 of the Parent Disclosure Letter
and except for inventory, merchandise, finished goods and accounts
receivable acquired in the ordinary course of business, 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 acquisitions of assets in the ordinary course of business consistent
with past practice, 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) increase the risk of any Governmental Entity
entering an order prohibiting the consummation of the Merger or (C) increase
the risk of not being able to remove any such order on appeal or otherwise,
and (ii) in the case of any individual acquisition, merger, consolidation or
purchase, the value of which does not exceed $750 million;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than (A) sales of inventory,
merchandise and finished goods in the ordinary course of business, (B)
transactions that are in the ordinary course of business consistent with
past practice and not material to Parent and its Subsidiaries taken as a
whole, (C) as may be required by any Governmental Entity and (D) subject to
Sections 4.4, dispositions involving an aggregate consideration not in
excess of $500 million;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
other investments in, any other person, other than (A) indebtedness in the
ordinary course of business consistent with past practice, (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, (C) the issuance of up to $300 million in senior notes and (D)
such indebtedness as may be necessary to fund actions allowed under Section
4.1(a)(iv) hereof;
(vii) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it or any Subsidiary by any applicable
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 GAAP); 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 (xvi) 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 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, from the date of this Agreement to the Effective
Time, 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:
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(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, (y) except as set forth in Schedule 4.1(b)(i) of the
Company Disclosure Letter, purchase, redeem or otherwise acquire any shares
of capital stock of the Company or any other securities thereof or the
capital stock of any Subsidiaries, or any securities thereof, or any rights,
warrants or options to acquire any such shares or other securities or (z)
institute any share repurchase program;
(ii) issue, deliver, sell, pledge, dispose of, grant, transfer or
otherwise encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible or
exchangeable into, or exercisable for, or any rights, warrants or options to
acquire any such shares, voting securities, equity equivalent or convertible
securities, other than the issuance of shares of Company Common Stock upon
the exercise of Company Stock Options outstanding on the date of this
Agreement in accordance with their current terms;
(iii) amend its charter, or bylaws;
(iv) except as set forth in Schedule 4.1(b)(iv) of the Company
Disclosure Letter and except for inventory, merchandise, finished goods and
accounts receivable acquired in the ordinary course of business, 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 acquisitions of assets in the ordinary course of business
consistent with past practice, the value of which do not exceed $50 million
in the aggregate;
(v) except as set forth in Schedule 4.1(b)(v) of the Company Disclosure
Letter, sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets other than (A) sales of inventory,
merchandise and finished goods in the ordinary course of business, (B)
transactions that are in the ordinary course of business consistent with
past practice, not material to the Company and its Subsidiaries taken as a
whole, and in an aggregate amount greater than $50 million and (C) as may be
required by any Governmental Entity;
(vi) except as set forth in Schedule 4.1(b)(vi) of the Company
Disclosure Letter, 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
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 or
employment or consulting agreement, other than (A) as required by law, or
(B) as expressly contemplated by this Agreement;
(ix) increase the compensation payable or to become payable to its
officers, employees, or directors except for increases in the ordinary
course of business consistent with past practice in salaries or wages of
employees of the Company or any of its Subsidiaries who are not officers of
the Company or any of its Subsidiaries, or grant any additional rights to
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 set forth on
Schedule 4.1(b)(ix) of
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the Company Disclosure Letter or as may be required to comply with
applicable law, amend or take action in any such case in a manner so as to
enhance or accelerate any rights or benefits under, any labor, collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee;
(x) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it or any Subsidiary by any applicable
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 GAAP);
(xii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability or refund involving
taxes in excess of $1,000,000;
(xiii) except as set forth in Schedule 4.1(b)(xiii) of the Company
Disclosure Letter, enter into any contract (other than for inventory,
merchandise or finished goods) that cannot be canceled on 30 days' notice
pursuant to which it is obligated in an amount in excess of $1,000,000;
(xiv) other than as required by law, make any material changes to terms
and conditions of its credit cards issued, or change in any material respect
the underwriting standards therefor;
(xv) make any capital expenditure in the aggregate in excess of
$2,000,000, other than expenditures (and contracts for such expenditures)
set forth in the Company's current capital budget included as Schedule
4.1(b)(xv) of the Company Disclosure Letter; or
(xvi) 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.
(c) OTHER ACTIONS. The Company and Parent shall not, and shall not permit
any of their respective Subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that is qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that is not so qualified becoming untrue in any material respect or (iii) except
as otherwise permitted by Section 4.2 with regard to the Company, any condition
to the Merger set forth in Article VI not being satisfied.
Section 4.2 NO SOLICITATION. The Company shall not, nor shall it permit
any Subsidiary of the Company to, nor shall it authorize any officer, director
or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any Subsidiary of the Company to, (i) directly
or indirectly solicit, initiate or encourage the submission of, any Company
Takeover Proposal (as hereinafter defined), (ii) enter into or, other than in
connection with a termination of this Agreement pursuant to Section 7.1(g),
approve any agreement with respect to any Company Takeover Proposal or (iii)
directly or indirectly participate in any discussions or negotiations regarding,
or furnish to any person any information with respect to or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Company Takeover
Proposal; provided, however, that prior to the approval of this Agreement by the
stockholders of the Company, the Company (A) following receipt of a Company
Takeover Proposal from a third party, may participate in any discussions or
negotiations (including, as a part thereof, making any counterproposal) with
such third party or its agents or representatives, or furnish information with
respect to the Company to such third party or its agents or representatives
pursuant to a customary confidentiality agreement, or take any such other action
otherwise prohibited by clause (i) or (ii) above with respect to such third
party or its agents or representatives with respect to any Company Takeover
Proposal if the Company's Board of Directors determines in good faith, after
receipt of advice from counsel, that the failure to participate in such
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discussions or negotiations or to furnish such information, or take such other
action, may constitute a breach of its fiduciary duties under, or otherwise
violate, applicable law, provided that the Company shall not be permitted to
take any such actions with respect to any proponent of a Company Takeover
Proposal after the thirtieth day following the date on which the Company's Board
of Directors first makes such determination with respect to such proponent (it
being understood that the Company will notify Parent promptly as to any such
date), and (B) shall be permitted to (x) take and disclose to the Company's
stockholders a position or make a recommendation with respect to any Company
Takeover Proposal or amend or withdraw such position or amend or withdraw its
position with respect to the Merger, including pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act, or (y) make appropriate disclosure to the
Company's stockholders, in each case, if the Company's Board of Directors
determines in good faith, after receipt of advice from counsel, that the failure
to take such action may constitute a breach of its fiduciary duties under, or
otherwise violate, applicable law. For purposes of this Agreement, "Company
Takeover Proposal" means any proposal for a merger or other business combination
involving the Company and its Subsidiaries or the acquisition or purchase of
more than 25% of any class of equity securities of the Company or any of its
Significant Subsidiaries (as hereinafter defined), or any tender offer
(including self-tenders) or exchange offer that, if consummated, would result in
any person beneficially owning more than 25% of any class of equity securities
of the Company or any of its Significant Subsidiaries, or a majority of the
assets of the Company or any of its Significant Subsidiaries, other than the
transactions contemplated by this Agreement. For purposes of this Agreement,
"Parent Takeover Proposal" means any proposal for a merger or other business
combination involving Parent and its Subsidiaries or the acquisition or purchase
of more than 25% of any class of equity securities of Parent or any of its
Significant Subsidiaries, or any tender offer (including self-tenders) or
exchange offer that, if consummated, would result in any person beneficially
owning more than 25% of any class of equity securities of Parent or any of its
Significant Subsidiaries, or a majority of the assets of Parent or any of its
Significant Subsidiaries, other than the transactions contemplated by this
Agreement. For purposes of this Agreement, "Significant Subsidiary" shall have
the meaning ascribed to it in Rule 1-02 of Regulation S-X promulgated under the
Exchange Act.
(a) Neither the Board of Directors of the Company nor any committee thereof
shall withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Parent or Sub, the approval or recommendation by the Board of Directors of
the Company or any such committee of this Agreement or the Merger, or approve or
recommend, or propose to approve or recommend, any Company Takeover Proposal,
unless (i) the Board of Directors of the Company determines in good faith, after
receipt of advice from counsel, that the failure to do so may constitute a
breach of its fiduciary duties under, or otherwise violate, applicable law, and
(ii) any of the following is true: (A) a Company Takeover Proposal has been made
and not withdrawn, (B) the Company then has the right to terminate this
Agreement pursuant to Section 7.1(j) or (C) the Company then has the right to
terminate this Agreement pursuant to Section 7.1(b) or (c).
(b) The Company promptly shall advise Parent orally and in writing of its
receipt of any Company Takeover Proposal, the identity of the person making any
such Company Takeover Proposal, the material terms of any such Company Takeover
Proposal and any changes to such material terms. The Company shall provide to
Parent, as soon as practicable after receipt or delivery thereof, copies of any
written Company Takeover Proposal and documents reflecting any changes to such
material terms.
Section 4.3 THIRD PARTY STANDSTILL AGREEMENTS. During the period from the
date of this Agreement through the Effective Time, neither the Parent nor the
Company, without the prior written consent of the other party, shall terminate,
amend, modify or waive any provision of any confidentiality or standstill
agreement to which Parent or the Company or any of their respective Subsidiaries
is a party and which relates to a Parent or Company Takeover Proposal (other
than any involving the other party hereto), unless the Board of Directors of
Parent or the Company, as the case may be, determines in good faith after
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receipt of advice from counsel, that the failure to terminate, amend, modify or
waive any such confidentiality or standstill agreement may constitute a breach
of its fiduciary duties under, or otherwise violate, applicable law. Subject to
such fiduciary duties, during such period, each of Parent and the Company agrees
to enforce, to the fullest extent permitted under applicable law, the provisions
of any such agreements, including, but not limited to, seeking to obtain
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 (including taking all reasonable
actions with respect to seeking consents from third parties) 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; provided, however
that nothing contained herein shall require either party to take any actions
without receipt of appropriate or desirable consents from third parties.
Section 4.5 TAX REPRESENTATION LETTERS. For purposes of the tax opinions
described in Section 6.2(b) of this Agreement, Parent and the Company shall
provide representation letters reasonably customary in scope and substance,
dated as of the date that is two business days prior to the date the Joint Proxy
Statement is mailed to shareholders of the Company and reissued as of the date
of Closing.
Section 4.6 TRANSFER TAXES. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, applications or other
documents regarding any real Property transfer, stamp, recording, documentary or
other taxes and any other fees and other similar taxes which become payable in
connection with the Merger (collectively, "Transfer Taxes"). Parent shall pay or
cause to be paid, without deduction or withholding from any amounts payable to
the holders of the Company Common Stock, all Transfer Taxes.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 SHAREHOLDER MEETINGS. Provided that the Board of Directors of
the Company has not publicly withdrawn or modified its approval or
recommendation of the Merger Agreement or the Merger in accordance with Section
4.2(b), the Company and Parent each shall call a meeting of its shareholders
(respectively, the "Company Stockholder Meeting" and the "Parent Shareholder
Meeting" and, collectively, the "Shareholder Meetings") to be held, if
practicable, on the same day and as promptly as practicable after the date on
which the Registration Statement becomes effective for the purpose of
considering the approval of this Agreement (in the case of the Company) and the
Parent Shareholders' Approvals (in the case of Parent). Subject to Section 4.2,
the Company and Parent will, through their respective Boards of Directors,
recommend to their respective shareholders approval of such matters. Without
limiting the generality of the foregoing, subject to Section 4.2, the Company
and Parent agree that their obligations pursuant to the first sentence of this
Section 5.1 shall not be affected by the commencement, public proposal, public
disclosure or communication to either party of any Company Takeover Proposal.
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Section 5.2 PREPARATION OF THE REGISTRATION STATEMENT AND THE JOINT PROXY
STATEMENT. The Company and Parent shall promptly prepare and file with the SEC
the Joint Proxy Statement and Parent shall prepare and file with the SEC the
Registration Statement, in which the Joint Proxy Statement will be included as a
prospectus. Each of Parent and the Company shall use its reasonable best efforts
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing. As promptly as practicable after
the Registration Statement shall have become effective, each of Parent and the
Company shall mail the Joint Proxy Statement to its respective shareholders.
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. Notwithstanding any
other provision of this Agreement to the contrary (but without limiting the
parties respective termination rights under Section 7.1(h) or (i)), the Company
and Parent may make any disclosure to their respective shareholders if their
respective Boards of Directors determine in good faith, after receipt of advice
from counsel, that the failure to make such disclosure may constitute a breach
of their fiduciary duties under, or otherwise violate, applicable law. Subject
to the foregoing, no amendment or supplement to the Joint Proxy Statement or the
Registration Statement will be made by Parent or the Company without the prior
approval of the other party. Parent and the Company each will advise the other,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order, of the suspension of the qualification of the
Parent Common Stock issuable in connection with the Merger for offering or sale
in any jurisdiction, or of any request by the SEC for amendment of the Joint
Proxy Statement or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
Section 5.3 ACCESS TO INFORMATION. Subject to currently existing
contractual and legal restrictions applicable to Parent or to the Company or any
of their respective 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.
Section 5.4 COMPLIANCE WITH THE SECURITIES ACT; POOLING PERIOD.
(a) Prior to mailing the Joint Proxy Statement, the Company shall deliver to
Parent and Parent shall deliver to the Company a list of names and addresses of
those persons who, in the opinion of the Company or Parent, as the case may be,
may, at the time of the Company Stockholders Meeting or the Parent Shareholder
Meeting, as the case may be, be deemed to be "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 ("Affiliates"). The Company shall provide to Parent and Parent shall
provide to the Company such information and documents as each shall reasonably
request for purposes of reviewing such lists. There shall be added to such lists
the names and addresses of any other person which Parent or the Company, as the
case may be, reasonably identifies (by written notice to the other party within
ten business days after receipt of such list) as being a person who may be
deemed to be an Affiliate of the Company or Parent, as the case may be;
provided, however, that no such person
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identified by Parent or the Company, as the case may be, shall be added to the
list of Affiliates of the other party if Parent or the Company, as the case may
be, receives from such other party, on or before the Effective Time, a
reasonably satisfactory opinion of counsel to the effect that such person is not
an Affiliate. Each party shall exercise all reasonable efforts to deliver or
cause to be delivered to the other party, not later than 30 days prior to the
Effective Time, from each of such Affiliates of such party identified in the
foregoing list, an affiliate letter in the form attached hereto as Exhibit A-1
or A-2 respectively.
(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 of Company Common Stock 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 (the "Pooling Financial Results"), regardless whether each such
Affiliate has provided the written agreement referred to in this Section 5.4.
Parent agrees to publish the Pooling Financial Results within 45 days after the
end of the first full fiscal month following the Closing. Except as set forth in
the Registration Rights Agreement, 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 received in the Merger by such Affiliates 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 5.4.
Section 5.5 DESIGNATION OF DIRECTORS. At the Effective Time, Parent shall
take all actions necessary to cause three designees of the Company (two of whom
shall be members of senior management of the Company) to be appointed to its
Board of Directors (and, if Parent has any discretion in the matter, in such
classes, as shall be mutually agreed by Parent and the Company prior to the
Closing Date), to serve until their terms expire or until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Parent Charter or Parent Bylaws.
Section 5.6 NYSE LISTING. Parent shall use its reasonable best efforts to
have authorized for listing on the NYSE, subject to official notice of issuance,
the shares of Parent Common Stock to be issued in connection with the Merger.
Section 5.7 FEES AND EXPENSES.
(a) Except as provided in this Section 5.7, 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 for the Joint Proxy Statement shall be divided equally between Parent
and the Company.
(b) The Company shall pay to Parent a fee of $80 million if: (i) the Company
terminates this Agreement pursuant to Section 7.1(g); (ii) Parent terminates
this Agreement pursuant to Section 7.1(h); or (iii) any person makes a Company
Takeover Proposal that was not withdrawn by the date of the Company Stockholders
Meeting and, thereafter, this Agreement is terminated pursuant to Section 7.1(e)
and, within six months of the date of the Company Stockholders Meeting, the
Company enters into a definitive agreement with respect to, or consummates, a
Company Takeover Proposal.
(c) Parent shall pay to the Company a fee of $80 million if (i) the Company
terminates this Agreement pursuant to Section 7.1(i); or (ii) any person makes a
Parent Takeover Proposal that was not withdrawn by the date of the Parent
Shareholders Meeting and, thereafter, this Agreement is terminated pursuant to
Section 7.1(f) and within six months of the date of the Parent Shareholders
Meeting, Parent enters into a definitive agreement with respect to, or
consummates, a Parent Takeover Proposal.
(d) Any fee payable under Section 5.7(b) or (c) shall be paid by wire
transfer of same-day funds on the date of termination of this Agreement or, in
the case of clause (iii) of Section 5.7(b) or clause (ii) of
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Section 5.7(c), on the date of execution and delivery by the Company or Parent,
as the case may be, of the definitive agreement referred to therein or, if
later, the date of termination of this Agreement.
Section 5.8 COMPANY STOCK OPTIONS AND OTHER EQUITY BASED AWARDS.
(a) At the Effective Time, by virtue of the Merger and without any further
action on the part of the Company or the holder thereof, each unexpired and
unexercised option to purchase shares of Company Common Stock (a "Company Stock
Option"), under the Company Stock Plans, or otherwise granted by the Company
outside of any Company Stock Plan, will be assumed by Parent as hereinafter
provided. At the Effective Time, by virtue of the Merger and without any further
action on the part of the Company or the holder thereof, each Company Stock
Option will be automatically converted into an option (the "Parent Stock
Option") to purchase a number of shares of Parent Common Stock equal to the
number of shares of Company Common Stock that could have been purchased under
such Company Stock Option multiplied by the Conversion Number, at a price per
share of Parent Common Stock equal to the per share option exercise price
specified in the Company Stock Option, divided by the Conversion Number. Such
Parent Stock Option shall otherwise be subject to the same terms and conditions
as such Company Stock Option. At the Effective Time, (i) all references in the
Company Stock Plans, the applicable stock option or other awards agreements
issued thereunder and in any other Company Stock Options to the Company shall be
deemed to refer to Parent; and (ii) Parent shall assume the Company Stock Plans
and all of the Company's obligations with respect to the Company Stock Options.
(b) At the Effective Time, by virtue of the Merger and without any further
action on the part of the Company or the holder thereof, each restricted stock
award of the Company ("Company Equity Based Award") shall be assumed by the
Parent and shall be automatically converted into an identical award with respect
to Parent Common Stock ("Parent Equity Based Award"), adjusted based on the
Conversion Number, and otherwise subject to the same terms and conditions as the
related Company Equity Based Award.
(c) In respect of each Company Stock Option as converted into a Parent Stock
Option pursuant to Section 5.8(a) and assumed by Parent, and the shares of
Parent Common Stock underlying such option, Parent shall file as soon as
practicable after the Effective Time with the Securities and Exchange
Commission, and keep current the effectiveness of, a registration statement on
Form S-8 (which may be accomplished by amendment of the registration statement
on Form S-4) or other appropriate form for as long as such options or equity
based awards remain outstanding (and maintain the current status of the
prospectus with respect thereto). Parent agrees to reserve a number of shares of
Parent Common Stock equal to the number of shares of Parent Common Stock
issuable upon the exercise of such Company Stock Options.
(d) The Company agrees that it will not grant any stock options, restricted
stock, stock appreciation rights or limited stock appreciation rights and will
not permit cash payments to holders of Company Stock Options in lieu of the
substitution therefor of Parent Stock Options, as described in this Section 5.8.
Section 5.9 CONVERTIBLE SUBORDINATED NOTES.
At the Effective Time, by virtue of the Merger and without any further
action on the part of the Company or the Holder thereof, the Saks Holdings, Inc.
5 1/2% Convertible Subordinated Notes due September 15, 2006 (the "Convertible
Notes") outstanding at the Effective Time shall become obligations of the
Surviving Corporation and shall remain outstanding thereafter; and from and
after the Effective Time, the holders of the Convertible Notes shall have the
right to convert such Convertible Notes into such number of shares of Parent
Common Stock and such amount of cash in lieu of fractional shares received in
the Merger by a holder of the number of shares of Company Common Stock into
which such Convertible Notes were convertible immediately prior to the Effective
Time.
Section 5.10 REASONABLE EFFORTS.
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(a) Upon the terms and subject to the conditions set forth in this
Agreement, including, with regard to the Company, Section 4.2, each of the
parties agrees to use reasonable 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. Parent and the Company shall cooperate with each other in
connection with the making of such filings, including providing copies of all
such documents to the non-filing party and its advisors prior to filing and, if
requested, accepting all reasonable suggestions in connection therewith.
(b) The parties hereto will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or in behalf of any party hereto in connection
with proceedings under or relating to the HSR Act or any other federal, state or
foreign antitrust or fair trade law. Each party shall promptly notify the other
party of any communication to that party from any Governmental Entity in
connection with any required filing with, or approval or review by, such
Governmental Entity in connection with the Merger and permit the other party to
review in advance any such proposed communication to any Governmental Entity.
Neither party shall agree to participate in any meeting with any Governmental
Entity in respect of any such filings, investigation or other inquiry unless it
consults with the other party in advance and, to the extent permitted by such
Governmental Entity, gives the other party the opportunity to attend and
participate thereat.
(c) Each party shall use all reasonable 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 in any material respect or
result in a material breach of any covenant made by it in this Agreement.
Section 5.11 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 exchange or
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
NYSE.
Section 5.12 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 5.13 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. For not
less than six (6) years from and after the Effective Time, Parent agrees to, and
to cause the Surviving Corporation to, indemnify and hold harmless all past and
present directors, officers and employees of the Company and of its Subsidiaries
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to the same extent such persons are indemnified as of the date of this Agreement
by the Company pursuant to the Company Charter and Company Bylaws and
indemnification agreements, if any, in existence on the date hereof with any
directors, officers and employees of the Company and its Subsidiaries for acts
or omissions occurring at or prior to the Effective Time; provided, however,
that Parent agrees to, and to cause the Surviving Corporation to, indemnify and
hold harmless such persons to the fullest extent permitted by law for acts or
omissions occurring in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby. Parent shall cause the
Surviving Corporation to provide, for an aggregate period of not less than six
(6) 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 $450,000.
Section 5.14 NOTIFICATION OF CERTAIN MATTERS. Parent shall use its
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, of: (i)
the occurrence, or non-occurrence, of any event the occurrence, or
nonoccurrence, of which it is aware and which would be reasonably likely to
cause (x) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied in
all material respects, (ii) any failure of Parent or the Company, as the case
may be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, (iii) any material
litigation or material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or (iv) 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 5.14 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.15 EMPLOYEE MATTERS.
(a) For a period commencing on the date of the Closing and ending on the
date which is the second anniversary of the date of the signing of this
Agreement (the "Benefit Continuation Period"), the Parent agrees to cause the
Surviving Corporation and its Subsidiaries to provide to all active employees of
the Company who continue to be employed by the Company as of the Effective Time
("Continuing Employees") coverage under those benefit plans, arrangements and
policies (including, but not limited to, those relating to severance pay, except
with respect to those Continuing Employees who are eligible to receive severance
in accordance with Exhibit B attached hereto) that are maintained for the
benefit of such employees by the Company immediately prior to the date of the
Closing (collectively, the "Benefit Arrangements"); provided, however, that the
foregoing shall not apply to any equity-based compensation program or annual
bonus program. Parent further agrees that (1) no changes to any of the Benefit
Arrangements shall be made during the Benefit Continuation Period without the
prior approval of the chief executive officer of Saks Fifth Avenue; (2)
following the date of the Closing until December 31, 1998, Continuing Employees
shall be eligible to be granted options to acquire shares of Parent Common Stock
on a basis no less favorable than similarly situated employees of Parent (or, in
the event a similarly situated employee of Parent is not currently eligible to
be granted options to acquire Parent Common Stock, on a basis relative to other
Continuing Employees which is substantially consistent with the Company's past
practice); and (3) following the date of the Closing, Parent shall provide
annual bonus programs to Continuing Employees which are substantially similar to
the annual bonus programs currently being provided for such employees by the
Company. Following December 31, 1998, the Continuing Employees shall participate
in annual bonus programs on the same basis as similarly situated employees of
Parent.
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(b) Except to the extent necessary to avoid the duplication of benefits,
Parent will, or will cause the Surviving Corporation and its Subsidiaries to,
give Continuing Employees full credit for purposes of eligibility, vesting and
determination of the level of benefits under any employee benefit plans or
arrangements maintained by Parent, the Surviving Corporation or any Subsidiary
of Parent or the Surviving Corporation in which such Continuing Employee is
eligible to participate for such Continuing Employees' service with the Company
or any Subsidiary of the Company to the same extent recognized by the Company
immediately prior to the Effective Time. Parent will, or will cause the
Surviving Corporation and its Subsidiaries to, (i) waive all limitations as to
preexisting conditions exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Continuing Employees
under any welfare plan that such employees may be eligible to participate in
after the Effective Time, other than limitations or waiting periods that are
already in effect with respect to such employees and that have not been
satisfied as of the Effective Time under any welfare plan maintained for the
Continuing Employees immediately prior to the Effective Time, and (ii) provide
each Continuing Employee with credit for any co-payments and deductibles paid
prior to the Effective Time in satisfying any applicable deductible or out-of-
pocket requirements under any welfare plans that such employees are eligible to
participate in after the Effective Time.
(c) As soon as practicable following and effective as of the date of the
Closing in consideration of future services to be performed by such employees,
Parent shall cause to be granted to those Continuing Employees selected by prior
mutual agreement of Parent and the current Chief Executive Officer of the
Company, an aggregate of 89,500 restricted shares of Parent Common Stock. Such
shares shall vest at the rate of one third on the second anniversary and the
remaining two thirds on the third anniversary of the Closing Date. The grant of
such restricted shares shall contain other customary terms and conditions.
(d) Parent and the Company agree to work together as expeditiously as
possible after the date hereof to adopt a Severance Policy for the benefit of
certain Company employees and to enter into Employment Agreements with certain
executive officers of the Company, substantially in accordance with the term
sheets annexed hereto as Exhibits C and D, respectively.
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) SHAREHOLDER APPROVAL. This Agreement shall have been duly approved by
the requisite vote of stockholders of the Company in accordance with applicable
law and the Company Charter and Company Bylaws, and the Merger Agreement
Approval and the approval of the Share Issuance shall have been obtained by the
requisite vote of the shareholders of Parent in accordance with applicable rules
of the NYSE, applicable law, and the Parent Charter and Parent Bylaws.
(b) LISTING ON THE NYSE. The Parent Common Stock issuable in the Merger
shall have been authorized for listing on the NYSE, subject to official notice
of issuance.
(c) HSR. The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) ACCOUNTING. Parent shall have received a letter from PWC, dated as of
the Effective Time, in customary form, to the effect that no conditions exist
which would preclude accounting for the Merger as a pooling of interests. The
Company shall have received a letter from PWC, dated as of the Effective Time,
in customary form, to the effect that, as to the Company, no conditions exist
which would preclude accounting for the Merger as a pooling of interests.
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(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 knowledge of Company, threatened by the
SEC. All necessary state securities or blue sky authorizations (including State
Takeover Approvals) shall have been received.
(f) NO GOVERNMENTAL ACTION/ORDER. There shall not be pending any action,
suit or proceeding brought by any Governmental Entity which challenges or seeks
to enjoin the Merger or the other transactions contemplated hereby. No court or
other Governmental Entity having jurisdiction over the Company or Parent, or any
of their respective Subsidiaries, shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
then in effect and has the effect of making the Merger or any of the
transactions contemplated hereby illegal.
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
covenants and 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;
provided, that, for purposes of determining whether the condition set forth in
this Section 6.2(a) has been satisfied, no representation, warranty, covenant or
agreement of Parent and Sub shall be deemed untrue, incorrect, not complied with
or not performed as a consequence of the existence or absence of any fact,
circumstance or event unless such fact, circumstance or event, individually or
when taken together with all other facts, circumstances or events inconsistent
with the representations, warranties, covenants or agreements of Parent and Sub
has had or would have a Material Adverse Effect on Parent and its Subsidiaries
taken as a whole (disregarding for this purpose any materiality qualification
contained in such representations, warranties, covenants and agreements);
provided, further, however that the foregoing proviso shall not apply with
respect to (x) actions done with the actual prior knowledge of the Board of
Directors of Parent or any of the executive officers of Parent set forth in
Section 3.8 or (y) actions set forth in subsections (i), (ii) or (iii) of
Section 4.1(a).
(b) TAX OPINION. The Company shall have received an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP 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
U.S. 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
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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 shareholder 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 shareholder's basis in the fractional
share (as described in clause (iv) above) and the amount of cash received.
In rendering such opinion, and Skadden, Arps, Slate, Meagher & Flom LLP may
receive and rely upon representations from Parent, the Company, and others,
including the representation letters referred to in Section 4.5.
(c) The Company shall have received an opinion of Sommer & Barnard, PC,
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,
fully paid and not subject to further assessment. In rendering such opinion,
Sommer & Barnard, PC may rely upon the opinion of State 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
condition:
(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; provided, that, for purposes of determining
whether the condition set forth in this Section 6.3(a) has been satisfied, no
representation, warranty, covenant or agreement of the Company shall be deemed
untrue, incorrect, not complied with or not performed as a consequence of the
existence or absence of any fact, circumstance or event unless such fact,
circumstance or event, individually or when taken together with all other facts,
circumstances or events inconsistent with the representations, warranties,
covenants or agreements of the Company, has had or would have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole (disregarding for
this purpose any materiality qualification contained in such representations or
warranties); provided, further, however that the foregoing proviso shall not
apply with respect to (x) actions done with the actual prior knowledge of the
Board of Directors of the Company or any of the executive officers of the
Company set forth in Section 2.8 or (y) actions set forth in subsections (i),
(ii), (iii), (viii) and (ix) of Section 4.1(b).
(b) AFFILIATE LETTERS. The letters from Affiliates required by Section 5.4
shall have been delivered.
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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 shareholders of the Company or
Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company (provided such party is not then in
material breach) 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 the effect set forth in the proviso to Section 6.2(a) or
Section 6.3(a), as applicable, and has not been cured within ten business days
following receipt by such other party of written notice of such failure to
comply; provided, however, that if any such breach is curable by the breaching
party through the exercise of the breaching party's best efforts and for so long
as the breaching party shall be so using its best efforts to cure such breach,
the non-breaching party may not terminate this Agreement pursuant to this
paragraph;
(c) by either Parent or the Company (provided such party is not then in
material breach) if there has been a breach by the other party (in the case of
Parent, including any breach by Sub) of any representation or warranty of such
other party contained in this Agreement, which breach has the effect set forth
in the proviso to Section 6.2(a) or Section 6.3(a), as applicable, and which
breach has not been cured within ten business days following receipt by the
breaching party of written notice of the breach; provided, however, that if any
such breach is curable by the breaching party through the exercise of the
breaching party's best efforts and for so long as the breaching party shall be
so using its best efforts to cure such breach, the non-breaching party may not
terminate this Agreement pursuant to this paragraph;
(d) by Parent or the Company
(i) if any governmental entity issues an order, decree or ruling or
takes any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree or ruling shall have become
final and nonappealable; or
(ii) if the Merger has not been effected on or prior to the close of
business on March 31, 1999 (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 Stockholders Meeting or any adjournment or
postponement thereof,
(f) by Parent or the Company if the Merger Agreement Approval and approval
of the Share Issuance are not obtained at the Parent Shareholder Meeting or any
adjournment or postponement thereof;
(g) by the Company in connection with the concurrent execution by the
Company of an agreement with respect to a Superior Takeover Proposal that the
Board of Directors of the Company has determined, in good faith, in the exercise
of its fiduciary duties after receipt of advice from counsel and after
consultation with its financial advisors, is more favorable to the Company's
stockholders than the Merger. As used herein, a "Superior Takeover Proposal"
means a Company Takeover Proposal for more than 50% of any class of equity
securities of the Company or any of its Significant Subsidiaries, or any tender
offer (including self-tenders) or exchange offer than, if consummated, would
result in any person beneficially owning more than 50% of any class of equity
securities of the Company or any of its Significant Subsidiaries, or a majority
of the assets of, the Company or any of its Significant Subsidiaries;
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(h) by Parent if (i) the Board of Directors of the Company shall not have
recommended, or shall have resolved not to recommend, or shall have modified or
withdrawn in a manner adverse to Parent its recommendation of the Merger, or
(ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company any Company Takeover Proposal or shall have resolved
to do so;
(i) by the Company if (i) the Board of Directors of Parent shall not have
recommended, or shall have resolved not to recommend or shall have modified or
withdrawn its recommendation in a manner adverse to the Company of the Parent
Shareholders' Approvals, or (ii) the Board of Directors of Parent shall have
recommended to the shareholders of the Parent any Parent Takeover Proposal or
shall have resolved to do so; and
(j) by the Company prior to the Company Stockholders Meeting if the Average
Parent Stock Price is less than $30.52. As used in this Agreement, (i) "Average
Parent Stock Price" means the average of the daily per share Closing Price of
Parent Common Stock for the fifteen (15) consecutive Trading Days ending on the
third Trading Day prior to the Company Stockholders Meeting.
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.
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, the entirety of Section 5.7, and
Article VIII 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
at any time before or after approval of the matters presented in connection with
the Merger by the shareholders of Parent and the Company; provided, however,
after any such approval, no amendment shall be made which by law requires
further approval by such shareholders 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) subject to the proviso of Section 7.3, 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.
Section 7.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, to be effective, require in the case of Parent, Sub or the Company,
action by its Board of Directors or the duly authorized designee of its Board of
Directors.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties 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.
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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.
750 Lakeshore Parkway
Birmingham, Alabama 35211
Attn.: Mr. R. Brad Martin
Proffitt's, Inc.
750 Lakeshore Parkway
Birmingham, Alabama 35211
Attn.: Brian J. Martin, Esquire
with copies to:
James A. Strain, Esquire
Sommer & Barnard, PC
4000 Bank One Tower
Indianapolis, Indiana 46204
Richard Hall, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
(b) if to the Company, to:
Saks Holdings, Inc.
12 East 49th Street, 19th Floor
New York, NY 10017
Attn: Joan F. Krey
with copies to:
Eileen Nugent Simon, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10019
Charles K. Marquis, Esq.
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
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.
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Section 8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. Except for the
Confidentiality Agreement between the parties dated June 24, 1998, this
Agreement is the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. Other than Section 5.8, the second sentence of Section
5.4(b) and Section 5.15(d), this Agreement is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
Section 8.6 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY, OR SUB IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
Section 8.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
Section 8.8 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
Section 8.9 ENFORCEMENT OF THIS AGREEMENT. The parties acknowledge and
agree that any payment made pursuant to Section 5.6 does not relieve either
party from any liability it otherwise may have for breach of this Agreement.
(a) 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
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.
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IN WITNESS WHEREOF, the parties hereto 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> <C>
PROFFITT'S INC.
By: /s/ R. BRAD MARTIN
-----------------------------------------
Name: R. Brad Martin
Title: Chief Executive Officer
FIFTH MERGER CORPORATION
By: /s/ BRIAN J. MARTIN
-----------------------------------------
Name: Brian J. Martin
Title: Vice President and Secretary
SAKS HOLDINGS, INC.
By: /s/ PHILIP B. MILLER
-----------------------------------------
Name: Philip B. Miller
Title: Chairman of the Board
and Chief Executive Officer
</TABLE>
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<PAGE>
APPENDIX II
OPINION
OF
SALOMON SMITH BARNEY
<PAGE>
APPENDIX III
OPINION
OF
GOLDMAN, SACHS & CO.
<PAGE>
APPENDIX IV
OPINION
OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Bylaws of Proffitt's provide that Proffitt's shall indemnify to the full
extent authorized or permitted by the TBCA 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 testator 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 TBCA 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 TBCA 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 TBCA, 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 TBCA, and that
those making the decision to reimburse the director determine that the facts
then known would not preclude indemnification under the TBCA. Section 48-18-507
of the TBCA provides for mandatory indemnification, unless limited by the
charter, of officers pursuant to the provisions of Section 48-18-503 of the TBCA
applicable to mandatory indemnification of directors.
Proffitt's Bylaws further provide that Proffitt's may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of Proffitt's, or is or was serving at the request of
Proffitt's as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person or on such person's behalf in any such
capacity, or arising out of such person's status as such, whether or not
Proffitt's would have the power to indemnify such person against such liability
under the Bylaws, provided that such insurance is available on acceptable terms
as determined by a majority of Proffitt's Board of Directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration Statement
or incorporated by reference herein:
<TABLE>
<S> <C>
(2) Agreement and Plan of Merger, dated as of July 4, 1998, among Proffitt's,
Inc., Fifth Merger Corporation and Saks Holdings, Inc. (Appendix I to the
Joint Proxy Statement/ Prospectus)
(4)(a) Amended and Restated Charter of Proffitt's, Inc. (incorporated by reference to
Exhibit 4.2 to Proffitt's Current Report on Form 8-K filed February 11, 1998)
(4)(b) Amended and Restated Bylaws of Proffitt's, Inc. (incorporated by reference to
Exhibit 4(1) to Proffitt's Registration Statement on Form S-4 (Reg. No.
333-41563))
</TABLE>
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<TABLE>
<S> <C>
(4)(c) Registration Rights Agreement, dated as of July 4, 1998, among Proffitt's,
Inc., Saks Fifth Avenue Holdings II Ltd., Saks Fifth Avenue Investments II
Ltd., SFA Folio Limited, SFA Label Limited, SFA Collection Limited, SFA
Designer Limited, Flair Limited, Chase Nominees (Guernsey) Ltd., Saks
Investments Limited, Saks Equity Limited, SFA Capital Limited, Ballet Limited,
Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger
Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited
(incorporated by reference to Exhibit 4.1 to Proffitt's Current Report on Form
8-K filed July 8, 1998).
(4)(d) Stockholders' Agreement, dated as of July 4, 1998, among Proffitt's, Inc.,
Saks Fifth Avenue Holdings II Ltd., Saks Fifth Avenue Investments II Ltd., SFA
Folio Limited, SFA Label Limited, SFA Collection Limited, SFA Designer
Limited, Flair Limited, Chase Nominees (Guernsey) Ltd., Saks Investments
Limited, Saks Equity Limited, SFA Capital Limited, Ballet Limited, Denary
Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited,
Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited
(incorporated by reference to Exhibit 4.2 to Proffitt's Current Report on Form
8-K filed July 8, 1998).
(4)(e) Rights Agreement, dated as of March 28, 1995, by and between Proffitt's, Inc.
and Union Planters National Bank, as Rights Agent (incorporated by reference
to Exhibit 10.4 to Proffitt's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998).
(4)(f) Amendment No. 1, dated as of March 25, 1998, to the Rights Agreement, dated as
of March 28, 1995, by and between Proffitt's, Inc. and Union Planters National
Bank, as Rights Agent (incorporated by reference to Proffitt's Current Report
on Form 8-K filed March 26, 1998).
(5) Form of Opinion of Sommer & Barnard, PC
(8)* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain federal
income tax consequences
(23)(a) Consent of PricewaterhouseCoopers LLP (re: Proffitt's)
(23)(b) Consent of PricewaterhouseCoopers LLP (re: Saks)
(23)(c) Consent of Sommer & Barnard, PC (in Exhibit 5)
(23)(d)* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (in Exhibit 8)
(24) Power of Attorney (included as part of the signature page)
(99)(a) Form of Proxy Card for Proffitt's, Inc.
(99)(b) Form of Proxy Card for Saks Holdings, Inc.
(99)(c) Form of Letter to Shareholders of Proffitt's, Inc. to Accompany Joint Proxy
Statement/ Prospectus (included in the Joint Proxy Statement/Prospectus)
(99)(d) Form of Letter to Stockholders of Saks Holdings, Inc. to Accompany Joint Proxy
Statement/Prospectus (included in the Joint Proxy Statement/Prospectus)
(99)(e) Notice of Special Meeting of Shareholders of Proffitt's, Inc. (included in
Joint Proxy Statement/Prospectus)
(99)(f) Notice of Special Meeting of Stockholders of Saks Holdings, Inc. (included in
Joint Proxy Statement/Prospectus)
(99)(g)* Opinion of Salomon Smith Barney (Appendix II to the Joint Proxy
Statement/Prospectus)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
(99)(h)* Consent of Salomon Smith Barney
(99)(i)* Opinion of Goldman, Sachs & Co. (Appendix III to the Joint Proxy
Statement/Prospectus)
(99)(j)* Consent of Goldman, Sachs & Co.
(99)(k)* Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Appendix IV to
the Joint Proxy Statement/Prospectus)
(99)(l)* Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
</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.
(a) The undersigned Registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. 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) if, in the aggregate, the changes in volume and
price represent no more than 20 percent 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;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (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) 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.
(g) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration
II-3
<PAGE>
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant hereby undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reoffering by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The 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 Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to this registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the 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 Act,
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.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Birmingham, State of
Alabama, on the 28th day of July, 1998.
PROFFITT'S, INC.
By: /s/ BRIAN J. MARTIN
-----------------------------------------
Brian J. Martin
EXECUTIVE VICE PRESIDENT
OF LAW AND GENERAL COUNSEL
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, including
any Registration Statement filed pursuant to Rule 462(b) under the Securities
Act of 1933, 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.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on July 28, 1998 by the following persons
in the capacities indicated.
SIGNATURE TITLE
- ------------------------------ ---------------------------
Chairman of the Board and
/s/ R. BRAD MARTIN Chief Executive Officer
- ------------------------------ (Principal Executive
R. Brad Martin Officer)
Vice Chairman and Director
- ------------------------------
Ronald De Waal
Executive Vice President
/s/ DOUGLAS E. COLTHARP and Chief Financial
- ------------------------------ Officer (Principal
Douglas E. Coltharp Financial Officer)
Senior Vice President of
/s/ DONALD E. WRIGHT Finance and Accounting
- ------------------------------ (Principal Accounting
Donald E. Wright Officer)
/s/ BERNARD E. BERNSTEIN Director
- ------------------------------
Bernard E. Bernstein
/s/ STANTON J. BLUESTONE Director
- ------------------------------
Stanton J. Bluestone
/s/ JOHN W. BURDEN, III Director
- ------------------------------
John W. Burden, III
/s/ EDMOND D. CICALA Director
- ------------------------------
Edmond D. Cicala
Director
- ------------------------------
Julius Erving
/s/ MICHAEL S. GROSS Director
- ------------------------------
Michael S. Gross
/s/ DONALD E. HESS Director
- ------------------------------
Donald E. Hess
/s/ G. DAVID HURD Director
- ------------------------------
G. David Hurd
/s/ C. WARREN NEEL Director
- ------------------------------
C. Warren Neel
/s/ MARGUERITE W. SALLEE Director
- ------------------------------
Marguerite W. Sallee
/s/ GERALD TSAI, JR. Director
- ------------------------------
Gerald Tsai, Jr.
II-6
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ------------- ------------------------------------------------------------------------------------------- ------
<S> <C> <C>
(2) Agreement and Plan of Merger, dated as of July 4, 1998, among Proffitt's, Inc., Fifth
Merger Corporation and Saks Holdings, Inc. (Appendix I to the Joint Proxy
Statement/Prospectus)
(4)(a) Amended and Restated Charter of Proffitt's, Inc. (incorporated by reference to Exhibit 4.2
to Proffitt's Current Report on Form 8-K filed February 11, 1998)
(4)(b) Amended and Restated Bylaws of Proffitt's, Inc. (incorporated by reference to Exhibit 4(1)
to Proffitt's Registration Statement on Form S-4 (Reg. No. 333-41563))
(4)(c) Registration Rights Agreement, dated as of July 4, 1998, among Proffitt's, Inc., Saks Fifth
Avenue Holdings II Ltd., Saks Fifth Avenue Investments II Ltd., SFA Folio Limited, SFA
Label Limited, SFA Collection Limited, SFA Designer Limited, Flair Limited, Chase Nominees
(Guernsey) Ltd., Saks Investments Limited, Saks Equity Limited, SFA Capital Limited, Ballet
Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger
Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited (incorporated
by reference to Exhibit 4.1 to Proffitt's Current Report on Form 8-K filed July 8, 1998).
(4)(d) Stockholders' Agreement, dated July 4, 1998, among Proffitt's, Inc., Saks Fifth Avenue
Holdings II Ltd., Saks Fifth Avenue Investments II Ltd., SFA Folio Limited, SFA Label
Limited, SFA Collection Limited, SFA Designer Limited, Flair Limited, Chase Nominees
(Guernsey) Ltd., Saks Investments Limited, Saks Equity Limited, SFA Capital Limited, Ballet
Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger
Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited (incorporated
by reference to Exhibit 4.2 to Proffitt's Current Report on Form 8-K filed July 8, 1998).
(4)(e) Rights Agreement, dated as of March 28, 1995, by and between Proffitt's, Inc. and Union
Planters National Bank, as Rights Agent (incorporated by reference to Exhibit 10.4 to
Proffitt's Annual Report on Form 10-K for the fiscal year ended January 31, 1998).
(4)(f) Amendment No. 1, dated as of March 25, 1998, to the Rights Agreement, dated as of March 28,
1995, by and between Proffitt's, Inc. and Union Planters National Bank, as Rights Agent
(incorporated by reference to Proffitt's Current Report on Form 8-K filed March 26, 1998).
(5) Form of Opinion of Sommer & Barnard, PC
(8)* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain federal income tax
consequences
(23)(a) Consent of PricewaterhouseCoopers LLP (re: Proffitt's)
(23)(b) Consent of PricewaterhouseCoopers LLP (re: Saks)
(23)(c) Consent of Sommer & Barnard, PC (in Exhibit 5)
(23)(d)* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (in Exhibit 8)
(24) Power of Attorney (included as part of the signature page)
(99)(a) Form of Proxy Card for Proffitt's, Inc.
(99)(b) Form of Proxy Card for Saks Holdings, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ------------- ------------------------------------------------------------------------------------------- ------
<S> <C> <C>
(99)(c) Form of Letter to Shareholders of Proffitt's, Inc. to Accompany Joint Proxy
Statement/Prospectus (included in the Joint Proxy Statement/Prospectus)
(99)(d) Form of Letter to Stockholders of Saks Holdings, Inc. to Accompany Joint Proxy
Statement/Prospectus (included in the Joint Proxy Statement/Prospectus)
(99)(e) Notice of Special Meeting of Shareholders of Proffitt's, Inc. (included in the Joint Proxy
Statement/Prospectus)
(99)(f) Notice of Special Meeting of Stockholders of Saks Holdings, Inc. (included in the Joint
Proxy Statement/Prospectus)
(99)(g)* Opinion of Salomon Smith Barney (Appendix II to the Joint Proxy Statement/ Prospectus)
(99)(h)* Consent of Salomon Smith Barney
(99)(i)* Opinion of Goldman, Sachs & Co. (Appendix III to the Joint Proxy Statement/ Prospectus)
(99)(j)* Consent of Goldman, Sachs & Co.
(99)(k)* Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Appendix IV to the Joint
Proxy Statement/Prospectus)
(99)(l)* Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
Exhibit 5
FORM OF OPINION OF SOMMER & BARNARD
-----------------------------------
July __, 1998
Proffitt's, Inc.
750 Lakeshore Parkway
Birmingham, Alabama 35211
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
Saks Holdings, Inc. ("Saks"), in the event the Agreement and Plan of Merger
among Proffitt's, Fifth Merger Corporation and Saks 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
converted 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 this registration statement
on Form S-4 of our report dated March 19, 1998, except for Note 12, as to
which the date is March 26, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Proffitt's, Inc. and
Subsidiaries. We also consent to the references to our firm under the
captions "Experts" and "Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
Birmingham, Alabama
July 27, 1998
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this registration statement
on Form S-4 of our report dated March 4, 1998, on our audits of the
consolidated financial statements and financial statement schedule of Saks
Holdings, Inc. as of January 31, 1998 and February 1, 1997, and for each of the
three fiscal years in the period ended January 31, 1998, which report appears
as Exhibit 13.03 to the Annual Report on Form 10-K filed on May 1, 1998.
We also consent to the references to our name under the captions "Experts" and
"Selected Financial Data".
/s/ PricewaterhouseCoopers LLP
New York, New York
July 28, 1998
<PAGE>
PROFFITT'S, INC.
750 LAKESHORE PARKWAY
BIRMINGHAM, ALABAMA 35211
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS , 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R. Brad Martin and Julia A. Bentley, or either of them with full power of
substitution, are hereby authorized to represent and vote all the shares of
common stock of the undersigned at the Special Meeting of Shareholders of
Proffitt's, Inc. to be held on , 1998, at local time, or any
adjournment thereof, with all powers which the undersigned would possess if
personally present, in the following manner:
1. APPROVAL OF AGREEMENT AND PLAN OF MERGER. Approval of the Agreement and
Plan of Merger, dated as of July 4, 1998 (the "Merger Agreement"),
providing for the merger of Fifth Merger Corporation, a wholly-owned
subsidiary of the Company, with and into Saks Holdings, Inc.
/ / FOR / / AGAINST / / ABSTAIN
2. APPROVAL OF THE STOCK ISSUANCE. Approval of the issuance of shares of
the Company's common stock, par value $.10 per share (the "Company Common
Stock") pursuant to the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
3. APPROVAL AND ADOPTION OF AN AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED CHARTER. Approval and adoption of an amendment to the Company's
Amended and Restated Charter to increase the number of shares of Company
Common Stock authorized for issuance under the Amended and Restated
Charter and to change the corporate name of the Company from Proffitt's,
Inc. to "Saks Incorporated."
/ / FOR / / AGAINST / / ABSTAIN
4. APPROVAL AND ADOPTION OF AN AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED CHARTER. Approval and adoption of an amendment to the Company's
Amended and Restated Charter to increase the maximum number of members of
Proffitt's Board of Directors to 18.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business (none at the time of solicitation of this Proxy) as may properly
come before the meeting, or any adjournment thereof.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSITIONS. THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF A
CONTRARY DIRECTION, IT SHALL BE VOTED FOR THE PROPOSALS AND THE PROXIES MAY VOTE
IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS PROPERLY MAY COME BEFORE THE
MEETING OR ADJOURNMENT THEREOF.
The undersigned acknowledge receipt of Notice of said Special Meeting and
the accompanying Joint Proxy Statement/Prospectus, and hereby revokes all
proxies heretofore given by the undersigned for said Special Meeting.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO VOTING THEREOF.
Dated: ________________________1998
___________________________________
Signature of Shareholder
___________________________________
Signature of Shareholder (if held
jointly)
PLEASE DATE THIS PROXY AND SIGN
YOUR NAME OR NAMES EXACTLY AS SHOWN
HEREON, WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE SIGN
YOUR FULL TITLE AS SUCH, IF THERE
ARE MORE THAN ONE TRUSTEE, OR JOINT
OWNERS, ALL MUST SIGN, PLEASE
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
<PAGE>
Exhibit 99(b)
SAKS HOLDINGS, INC.
PROXY
Proxy for the Special Meeting of Stockholders ____ a.m. New York City time
The undersigned appoints __________ and __________ and each of them, with
full power of substitution, as proxies, to vote all shares of common stock, par
value $.01 per share, of Saks Holdings, Inc. ("Saks") that the undersigned is
entitled in any capacity to vote at the Special Meeting of Stockholders of Saks
(the "Special Meeting") to be held on __________, 1998 at _____ a.m., local
time, at _______________, and at any and all adjournments or postponements
thereof, on the matters set forth on the reverse side hereof and on such other
matters as may properly come before the meeting. This proxy revokes all prior
proxies given by the undersigned.
All properly executed proxies will be voted as directed on the reverse side
of this proxy card. If no instructions are indicated on a properly executed
proxy, such proxy will be voted FOR the proposals set forth on the reverse side
hereof. All ABSTAIN votes will be counted in determining the existence of a
quorum at the Special Meeting, but will not be deemed to have been cast either
"for" or "against" the proposals.
This Proxy solicited on behalf of the Board of Directors of Saks Holding,Inc.
Receipt of the Notice of Meeting and the Joint Proxy Statement/Prospectus, dated
__________, 1998 (the "Proxy Statement"), is hereby acknowledged.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND MAIL THIS
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
SEE REVERSE SIDE
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark /X/
your votes as
indicated in
this example
clear area
The Board of Directors of Saks recommends a vote FOR the following proposal:
For Against Abstain
1. To approve and adopt the / / / / / /
Agreement and Plan of Merger,
dated as of July 4, 1998, among
Saks Holdings, Inc., Proffitt's, Inc.
and Fifth Merger Corporation, as
described in the accompanying
Joint Proxy Statement/Prospectus.
Signature(s) Dated , 1997
-------------------------------------- ---------
NOTE:Please sign exactly as name appears hereon. If a joint account, each joint
owner must sign. If signing for a corporation or partnership or as agent,
attorney or fiduciary, indicate the capacity in which your are signing.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
