As filed with the Securities and Exchange Commission on February 7, 1995
Registration No. 33-_____
- -------------------------------------------------------------------------------
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION Washington, D.C.ON
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LA-Z-BOY CHAIR COMPANY
(Exact Name of Registrant as Specified in Its Charter)INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN (State or Other Jurisdiction of Incorporation or Organization)
25122510 38-0751137
(Primary Standard Industrial(STATE OR OTHER (PRIMARY STANDARD (I.R.S. Employer Identification No.)
Classification Code Number)EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION) 1284 NORTH TELEGRAPH ROAD
MONROE, MICHIGAN 48161
(313) 242-1444
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)(734) 241-4414
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
FREDERICK H. JACKSON
Copies to:
VICE PRESIDENT FINANCE DAVID D. JOSWICK, ESQ.
LA-Z-BOY CHAIR COMPANY MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.INCORPORATED
1284 NORTH TELEGRAPH ROAD
MONROE, MICHIGAN 48161
(734) 241-4414
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
copies to:
KENT E. SHAFER FRED L. SCHUERMANN, JR. ROBERT E. ESLEECK
MILLER, CANFIELD, PADDOCK LADD FURNITURE, INC. KILPATRICK STOCKTON LLP
AND STONE, P.L.C. 4620 GRANDOVER PARKWAY 1001 WEST FOURTH STREET
150 WEST JEFFERSON SUITE 2500
MONROE, MICHIGAN 48161AVENUE GREENSBORO, NORTH WINSTON-SALEM, NORTH
DETROIT, MICHIGAN 48226 (313) 242-1444CAROLINA 27407 CAROLINA 27101
(313) 963-6420 (Name, Address, Including
Zip Code, and Telephone
Number, Including Area Code,(336) 294-5233 (336) 607-7377
Approximate Date of Agent for Service)
Approximate dateCommencement of commencement of proposed sale of securitiesProposed Sale to public:the Public: As soon
as practicable after registration statement becomes effective.the effectiveness of this Registration Statement and the
effective time of the merger of a wholly-owned subsidiary of the Registrant
with and into LADD Furniture, Inc. as described in the Agreement and Plan of
Merger dated as of September 28, 1999, as amended.
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
===============================================================================================================
Title of Each Class of Amount to Be Proposed Maximum Proposed Maximum Amount of
Securities to Be Registered Registered Offering Price Per Aggregate Offering Registration
Security Price Fee
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE REGISTRATION
REGISTERED REGISTERED OFFERING PRICE PER UNIT OFFERING PRICE FEE
---------------------- ------------ ----------------------- --------------- ------------
Common Stock, $1.00 par
value 2,000,000 shares(1) $6.21(2) $12,422,000(2) $4,283.48(3)
8% Unsecured
Promissory Notes
due 1999 $10,000,000 38.1%(4) $3,813,354(4) (3)
Performance Units 297,330 units (5) (5) (3)(5)
===============================================================================================================
(1) Maximum number of shares which may be issued in merger. Includes shares to
be issued as part of initial merger consideration and additional shares, if
any, which may be issued in settlement of Performance Units.
(2) Estimated solely for purposes of calculating registration fee; assumes
entire merger consideration is paid in such shares. The proposed maximum
offering price per share was determined by dividing the proposed maximum
aggregate offering price for all securities offered by the maximum amount of
such securities which may be issued. Pursuant to Rule 457(f)(2), the maximum
aggregate offering price is based on the book value of all outstanding
shares of common stock of England/Corsair, Inc. at September 30, 1994.
(3) Fee based on maximum aggregate consideration to be received for all
securities registered, calculated as set forth in note (2).
(4) Estimated solely for purposes of calculating registration fee; assumes
maximum portion of initial merger consideration is paid in such notes. The
proposed maximum offering price per note was determined by dividing the
proposed maximum aggregate offering price for all notes offered by the
maximum principal amount of notes which may be issued. The maximum aggregate
offering price was calculated by multiplying the book value of all
England/Corsair, Inc. shares (see note (2)) by the maximum fraction
(10,000,000/32,575,000) of such shares which may be exchanged for notes.
(5) No additional consideration will be received for the Performance Units.value.................. 10,323,861(1) $16.684322(2) $172,246,621.21 $45,473.11(3)
- --------
(1) The maximum number of shares of La-Z-Boy common stock issuable in
connection with the merger in exchange for shares of LADD common stock,
based on (i) the maximum number of shares of LADD common stock exchangeable
in the merger (8,749,035 shares) and (ii) the exchange ratio applicable in
the merger (1.18 shares of La-Z-Boy common stock for each share of LADD
common stock).
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act, based
on the market value of the LADD shares to be received by Laz-Z-Boy in the
merger as established by the average of the high and low sales prices of
LADD common stock on December 10, 1999 on the consolidated tape, which was
$19.6875.
(3) This fee has been calculated pursuant to Section 6(b) of the Securities
Act, as 0.0264 of one percent of $172,246,621.56. In accordance with Rule
457 under the Securities Act, the fee of $36,801 paid by LADD pursuant to
Rule 14a-6(i)(1) under the Securities Exchange Act upon the filing of its
preliminary proxy material relating to the merger has been credited against
the registration fee payable in connection with this filing. The balance of
the fee payable with this filing is therefore $8,672.11.
----------------
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 thethis Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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[Logo of LADD Furniture, Inc.]
December , 1999
Dear Shareholder:
You are invited to attend a special meeting of shareholders of LADD
Furniture, Inc. The meeting will be held at 10:00 a.m., Eastern time, on
, January , 2000, at Grandover Resort and Conference Center, One Thousand
Club Road, Greensboro, North Carolina. At the meeting, LADD shareholders will
be asked to vote on the adoption of a merger agreement between LADD and La-Z-
Boy Incorporated.
In the merger, LADD shareholders will receive 1.18 shares of La-Z-Boy
common stock for each share of LADD common stock they own. We estimate that, on
completion of the merger, former LADD shareholders will receive approximately
9.2 million shares of La-Z-Boy common stock representing approximately 15% of
the outstanding shares of La-Z-Boy common stock.
In light of the importance of the proposed merger, we urge you to attend
the special meeting in person or to participate by proxy. The accompanying
materials contain detailed information on how to vote. If you have any
questions, require additional material or need assistance in voting your proxy,
please call our proxy solicitor, D.F. King & Co., Inc., toll-free at (800) 290-
6424. PLEASE DO NOT SEND YOUR LADD COMMON STOCK CERTIFICATES WITH THE ENCLOSED
PROXY.
/s/ Fred L. Schuermann, Jr.
Fred L. Schuermann, Jr.
Chairman of the Board, President and
Chief Executive Officer
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING
ON PAGE 11 OF THIS PROXY STATEMENT/PROSPECTUS BEFORE VOTING.
La-Z-Boy's common stock is listed on the New York Stock Exchange and the
Pacific Exchange under the symbol LZB, and LADD's common stock is traded on the
Nasdaq Stock Market under the symbol LADF.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OR THE LA-Z-BOY COMMON STOCK TO BE ISSUED IN THE MERGER OR
DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated December , 1999 and is first
being mailed to LADD shareholders on or about December , 1999.
TABLE OF CONTENTS
LA-Z-BOY CHAIR COMPANY
Cross-Reference Sheet Between Items in
Form S-4 and Proxy Statement/Prospectus Pursuant to
Item 501(b) of Regulation S-K
Item No. Form S-4 Caption Heading in Prospectus
- ---------- ----------------------------- --------------------------------------------------------PAGE
----
A. INFORMATIONREFERENCES TO ADDITIONAL INFORMATION...................................... 1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Item 1. ForepartMERGER.................................... 2
SUMMARY................................................................... 3
The Companies........................................................... 3
The Merger.............................................................. 3
What You Will Receive in the Merger..................................... 3
Federal Income Tax Consequences......................................... 4
Ownership of Registration Cover PageLa-Z-Boy Following the Merger.............................. 4
Merger Recommendation to LADD's Shareholders............................ 4
LADD'S Reasons for the Merger........................................... 4
Interests of Registration Statement; Cross Reference
StatementLADD's Officers and Outside Front Sheet; Outside Front Cover PageDirectors in the Merger................ 4
Opinion of Proxy
Cover Page of Statement/Prospectus
Prospectus
Item 2. Inside Front and Outside Back Table of Contents; Available Information; Incorporation
Cover Pages of Prospectus of Certain Information By Reference
Item 3. Risk Factors, Ratio of Earnings Introduction; Summary;LADD's Financial Advisor..................................... 4
Comparative Per Share Market Price Information.......................... 5
Accounting Treatment.................................................... 5
The Merger and Related
to Fixed Charges and Other Transactions; Pro Forma Condensed Combined Financial
Information Information; The Companies; England/Corsair, Inc.
Item 4. Terms of the Transaction Introduction; Summary; The Meeting; The Merger and
Related Transactions; ManagementAgreement....................................... 5
Regulatory Approval..................................................... 6
Special Meeting......................................................... 6
Vote Required to Approve the Merger..................................... 6
No Dissenters' Rights................................................... 6
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 7
Selected Historical Financial Data of La-Z-Boy.......................... 7
Selected Historical Financial Data of LADD.............................. 8
Selected Unaudited Pro Forma Consolidated Financial Data................ 9
Unaudited Comparative Per Share Data.................................... 9
RISK FACTORS.............................................................. 11
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 12
THE MERGER TRANSACTION.................................................... 14
Background of the Surviving
Corporation AfterMerger................................................ 14
LADD's Reasons for the Merger; Description of La-Z-Boy
Capital Stock; DescriptionMerger........................................... 17
Factors Considered by, and Recommendations of, the La-Z-Boy Notes;
DescriptionLADD Board........... 19
Certain Financial Projections of Indenture; Description of the Performance
Units; Comparison of Shareholder RightsLADD................................... 20
Accounting Treatment.................................................... 22
Material Federal Income Tax Consequences................................ 22
Regulatory Matters...................................................... 24
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION............... 25
Market Prices and Charter
Documents; Pro Forma Condensed Combined Financial
Information; England/Corsair, Inc.
Item 5. Pro Forma Financial Summary; Pro Forma Condensed Combined Financial
Information Information
Item 6. Material Contacts with the Summary; The Merger and Related Transactions;
Company Being Acquired England/Corsair, Inc.
Item 7. Additional Information *
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters
Item 8. Interests of Named Experts and England/Corsair, Inc.; Legal Matters
Counsel
Item 9. Disclosure of Commission *
Position on Indemnification for
Securities Act Liabilities
B.Dividends............................................. 25
Dividend Policy......................................................... 25
INFORMATION ABOUT THE
REGISTRANT
Item 10. Information with Respect to Pro Forma Condensed Combined Financial Information;
S-3 Registrants England/Corsair, Inc. Financial Statements
Item 11. Incorporation of Certain Incorporation of Certain Information by Reference
Information by Reference
Item 12. Information with Respect to *
S-2 or S-3 Registrants
Item 13. Incorporation of Certain *
Information by Reference
Item 14. Information with Respect to *
Registrants Other than S-2 or
S-3 Registrants
C.LADD.................................................... 26
INFORMATION ABOUT THE
COMPANY BEING ACQUIRED
Item 15. Information with Respect to *
S-3 Companies
Item 16. Information with Respect to *
S-2 or S-3 Companies
Item 17. Information with Respect to England/Corsair, Inc.; Management of the Surviving
Companies Other than S-2 or Corporation After the Merger; Pro Forma Condensed Combined
S-3 Companies Financial Information; England/Corsair, Inc. -- Selected
Financial Data, --LA-Z-BOY................................................ 26
La-Z-Boy Management's Discussion and Analysis of Financial Condition and
Results of Operations, -- Business and Properties, --Operations.................................................. 27
Unaudited Quarterly Financial Information............................... 34
Business................................................................ 34
Properties.............................................................. 38
Legal Proceedings....................................................... 40
Share Ownership of Certain Beneficial Owners............................ 40
Management and Related Matters, -- Principal Shareholders
D. VOTING AND MANAGEMENT
INFORMATION
Item 18. Information If Proxies, Introduction; Summary; England/Corsair, Inc.; The
Consents or Authorizations Are Meeting; TheMatters.......................................... 41
Compensation Committee Interlocks and Insider Participation............. 49
i
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION.......... 50
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL
INFORMATION.............................................................. 54
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 56
Employment Agreements................................................... 56
Executive Benefit Plans................................................. 57
Additional Benefits to Executive Officers Under the Merger Agreement.... 58
Maintenance of Benefits for LADD Employees.............................. 58
Indemnification and Related Transactions; Certain
to Be Solicited Relationships and Related Transactions; ManagementInsurance........................................... 58
OPINION OF LADD'S FINANCIAL ADVISOR....................................... 59
MATERIAL TERMS OF THE MERGER AGREEMENT.................................... 64
Structure of the Surviving Corporation AfterMerger................................................. 64
Timing of Closing....................................................... 64
Merger Consideration.................................................... 64
Treatment of LADD Stock Options; Other LADD Stock-Based Awards.......... 64
Exchange of Shares...................................................... 64
LADD Board.............................................................. 65
Certain Covenants....................................................... 65
Representations and Warranties.......................................... 67
Conditions to the Merger;
England/Corsair, Inc. -- Principal Shareholders
Item 19. Information if Proxies, *
Consents or Authorizations Are
NotCompletion of the Merger.............................. 67
Termination of the Merger Agreement..................................... 68
Amendments; Waivers..................................................... 69
THE SPECIAL MEETING....................................................... 70
Date, Time and Place.................................................... 70
Purpose of the Special Meeting.......................................... 70
Record Date; Stock Entitled to be Solicited, or in an
Exchange Offer
- ------------------------
* Omitted because inapplicable or answer is inVote; Quorum............................. 70
Vote Necessary to Approve the negative.Merger.................................... 70
Shares Benefically Owned by Management.................................. 70
Shares Held by LADD's 401(k) Savings Plan............................... 71
Representatives of KPMG LLP............................................. 71
Voting of Proxies....................................................... 71
Other Business; Adjournment............................................. 72
FEDERAL SECURITIES LAW CONSEQUENCES; STOCK TRANSFER RESTRICTIONS.......... 72
DESCRIPTION OF LA-Z-BOY CAPITAL STOCK..................................... 72
General................................................................. 73
Common Stock............................................................ 73
Preferred Stock......................................................... 73
Provisions that May Discourage Takeovers................................ 73
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 76
WHERE YOU CAN FIND MORE INFORMATION....................................... 80
EXPERTS................................................................... 81
LEGAL MATTERS............................................................. 82
SUBMISSION OF SHAREHOLDER PROPOSALS....................................... 82
INDEX TO FINANCIAL STATEMENTS............................................. F-1
ANNEXES
ANNEX A Agreement and Plan of Merger (conformed to reflect Amendment No.
1 dated as of December 13, 1999)
ANNEX B Opinion of Mann, Armistead & Epperson, Ltd.
ii
ENGLAND/CORSAIR, INC.
402 OLD KNOXVILLE HIGHWAY
NEW TAZEWELL, TENNESSEE 37825
_________________, 1995
Dear Shareholder:
You are cordially invited to attend a Special MeetingREFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about LADD from documents LADD has filed with the SEC that we have not included
in or delivered with this document. LADD will provide you with copies of Shareholdersthis
information, without charge, upon written or oral request to:
LADD Furniture, Inc.
4620 Grandover Parkway
P. O. Box 26777
Greensboro, North Carolina 27417-6777
Attention: William S. Creekmuir, Secretary
Telephone Number: (336) 294-5233
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN JANUARY , 2000.
1
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. When and where is the special meeting of England/Corsair, Inc.shareholders?
A. The meeting of LADD's shareholders will take place on January , a Tennessee corporation ("E/C"), which2000, at
10:00 a.m. The meeting will be held at 402 Old Knoxville Highway, New Tazewell, Tennessee at ______ _.m., local
time, on ______________, __________________, 1995 (the "Meeting"). The Meeting
will be a joint meeting of holders of E/C's Class A Common Stock, without par
value,Grandover Resort and its Class B Common Stock, without par value (collectively, the "E/C
Stock").
At the Meeting, E/C shareholders will be asked to consider and vote
upon a proposal (the "Proposal") to approve: (a) the Amended and Restated
Reorganization Agreement dated as of January 13, 1995 (the "Reorganization
Agreement") among E/C, La-Z-Boy Chair Company, a Michigan corporation
("La-Z-Boy"), and LZB Acquisition, Inc., a newly formed Michigan corporation
and a wholly owned subsidiary of La-Z-Boy ("LZB Acquisition"); (b) the Amended
and Restated Plan of Merger dated as of January 13, 1995 among E/C, La-Z-Boy,
and LZB Acquisition (the "Plan of Merger"); and (c) all of the transactions
contemplated by the Reorganization Agreement and the Plan of Merger, including
(without limitation)Conference Center,
One Thousand Club Road, Greensboro, North Carolina.
Q. When do you expect the merger of E/C with and into LZB Acquisition (the
"Merger"). The Proposal is further described in the accompanying Proxy
Statement/Prospectus.
LZB Acquisition will be the surviving corporation of the Merger. Upon
consummation of the Merger: (i) E/C will cease to exist as a separate
corporation, and all of the assets and liabilities of E/C will become assets
and liabilities of LZB Acquisition, which will continue to be completed?
A. We are working towards completing the merger as quickly as possible. We
currently expect to complete the merger within a wholly owned
subsidiary of La-Z-Boy; (ii) holders of E/C Stock of either class will receive,
at their election, either shares of La-Z-Boy's Common Stock, $1.00 par value,
La-Z-Boy's 8% Unsecured Promissory Notes Due 1999, cash, or any combination offew days after the foregoing, all in the amounts and subject to the terms and limitations
described in the accompanying Proxy Statement/Prospectus; and (iii) holders of
E/C Stock of either class will also receive Performance Units, the terms of
which are described in the accompanying Proxy Statement/Prospectus.
The Board of Directors of E/C (the "E/C Board") has determinedmeeting.
However, we cannot assure you that the Proposal is in the best interests of E/C and its shareholders. ACCORDINGLY, THE
E/C BOARD UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMENDS THAT YOU VOTE FOR
THE PROPOSAL AT THE MEETING.
Conditionsmerger will occur or when it will occur.
Q. What do I need to the consummation of the Merger include, among other
things, the approval of E/C's shareholders. Such approval requires the
affirmative vote of the holders of a majority of the total shares of E/C Stock
of both classes (voting together as a single voting group) outstanding as of
the record date for the Meeting.
The accompanying Proxy Statement/Prospectus sets forth the voting
rights of the E/C Stock with respectdo now?
A. After you have carefully read this document, just indicate on your proxy
card how you want to these matters and describes the matters
to be acted upon at the Meeting. It also contains important information
concerning E/C, La-Z-Boy, and their respective subsidiaries, a detailed
description of the Proposal, its terms and conditions, and the transactions
contemplated thereby, certain tax matters that should be considered, management
and operation of E/C following consummation of the Merger, and other matters.
Shareholders are urged to review carefully the accompanying Proxy
Statement/Prospectus. Because of the significance of the proposed transactions
to E/C, your participation in the Meeting, in person or by proxy, is especially
important. In any event, you must complete and submit the enclosed Election
Form prior to the commencement of the Meeting. Baker, Donelson, Bearman &
Caldwell and Dennis C. Valkanoff have been acting as legal counsel on behalf
of E/C and BDO Seidman and Otis S. Sawyer have been providing accounting
services to E/C. Individual shareholders are advised, if they so desire,
to seek the advice of independent accounting and/or legal
counsel.
We hope you will attend the Meeting. Whether or not you are able to
attend the Meeting in person, it is important that your shares be represented.
Accordingly, whether or not you plan to attend the Meeting, pleasevote. Complete, sign, date and mail the enclosed proxy promptlycard in the
postage-paidenclosed return envelope as soon as possible. In order to assure that your vote
is obtained, please give your proxy as instructed on your proxy card even if
you currently plan to attend the special meeting in person.
Q. If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A. If you do not provide your broker with instructions on how to vote your
shares held in "street name," your broker will not be permitted to vote them on
the merger. You should therefore be sure to provide your broker with
instructions on how to vote your shares.
Q. What do I do if I want to change my vote?
A. If you hold your shares of record, you may change your vote:
. by sending a written notice to LADD's Secretary prior to the special
meeting stating that you would like to revoke your proxy;
. by completing, signing and dating another proxy card and returning it
by mail prior to the special meeting; or
. by attending the special meeting and voting in person
If you hold your shares in street name, you should give new instructions
to your broker.
Q. Should I send in my stock certificate at this time?
A. No. If the merger is completed, we will send you written instructions for
exchanging your stock certificates.
Q. Whom should I call if I have questions about the special meeting of
shareholders or the merger?
A. You may call 1-800-290-6424.
2
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. For a more complete description of the legal terms of the
merger, you should carefully read the rest of this document and the other
documents we refer to. See "Where You Can Find More Information" on page 80. We
have included page references directing you to a more complete description of
each item presented in this summary.
THE COMPANIES (SEE PAGE 26)
LADD FURNITURE, INC.
4620 Grandover Parkway
Greensboro, North Carolina 27407
(336) 294-5233
website: http://www.laddfurniture.com
LADD is one of North America's largest residential furniture
manufacturers, as well as one of the leading suppliers of residential furniture
for the hospitality, assisted-living and governmental markets. LADD markets a
wide range of bedroom, dining room, occasional and upholstered furniture under
the brand names American Drew, Barclay, Clayton Marcus, HickoryMark, Lea,
Pennsylvania House and Pilliod. LADD's contract sales group markets its
furniture under the American of Martinsville brand name. Its corporate
headquarters is located in Greensboro, North Carolina. LADD employs
approximately 6,700 people and operates 22 manufacturing facilities in eight
states.
LA-Z-BOY INCORPORATED
1284 N. Telegraph Road
Monroe, Michigan 48162
(734) 241-4414
website: http://www.la-z-boy.com
The successor to a business founded more than 70 years ago in Monroe,
Michigan, La-Z-Boy is one of the nation's leading manufacturers of upholstered
seating and the third largest manufacturer of residential furniture. With
approximately 14,000 employees in 35 manufacturing facilities in the United
States, Canada, England, Mexico and Thailand, La-Z-Boy manufactures and sells a
wide variety of upholstered and casegoods furniture under the brand names La-Z-
Boy, Hammary, Kincaid, England/Corsair, Sam Moore, Bauhaus and Centurion.
THE MERGER
If the merger is approved, LADD will operate as a wholly-owned subsidiary
of La-Z-Boy, and LADD shareholders will become shareholders of La-Z-Boy.
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGE 64)
If the merger is approved, you will receive 1.18 shares of common stock of
La-Z-Boy in exchange for each share of LADD common stock that you own. No
fractional shares will be issued. Shareholders otherwise entitled to receive a
fractional share will receive a check in an amount equal to the average of the
closing prices for the shares of La-Z-Boy's common stock reported on the New
York Stock Exchange over the five business days before the completion of the
merger multiplied by the fraction represented by that fractional share.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL WE
INSTRUCT YOU TO DO SO AFTER WE COMPLETE THE MERGER.
3
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 22)
In general, you will not recognize any gain or loss on the exchange of
your LADD shares for shares of La-Z-Boy, except for any gain or loss recognized
in connection with cash received for a fractional share of La-Z-Boy's common
stock. As a condition to the merger, each company must receive an opinion from
outside legal counsel confirming that federal income tax treatment.
OWNERSHIP OF LA-Z-BOY FOLLOWING THE MERGER
Based on the number of outstanding shares of LADD common stock on the
record date, we anticipate that holders of LADD common stock will receive
approximately 9.2 million shares of La-Z-Boy common stock in the merger. Based
on that number and the number of outstanding shares of La-Z-Boy common stock on
the record date, following the merger, former LADD shareholders will own
approximately 15% of the outstanding shares of La-Z-Boy common stock.
MERGER RECOMMENDATION TO LADD'S SHAREHOLDERS (SEE PAGE 19)
LADD's board of directors believes that the merger is fair to you and in
your best interests and recommends that you vote FOR the approval and adoption
of the merger agreement and the merger. When you consider this recommendation,
you should be aware that members of LADD's board may have an interest in the
merger that may be different from, or in addition to your interest as a
shareholder. See "Interests of Certain Persons in the Merger" on page 56.
LADD'S REASONS FOR THE MERGER (SEE PAGE 17)
LADD believes the merger offers an excellent opportunity to create value
for its shareholders by combining two of the country's largest publicly-traded
residential furniture companies to create a company:
. with increased opportunities for long-term growth, particularly as a
result of the financial strength of the combined companies;
. which is more diverse through the combination of LADD's broad product
and market segment penetration with La-Z-Boy's strong brand name and
national distribution; and
. which may realize operating efficiencies and sales enhancements.
The merger will also provide you with a more liquid, dividend-paying
security in a larger, less leveraged and more diversified company.
INTERESTS OF LADD'S OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 56)
When you consider LADD's board of directors' recommendation that you vote
in favor of the merger, you should be aware that a number of its executive
officers and directors may have interests in the merger that may be different
from, or in addition to, your interest as a shareholder. As an example, LADD's
existing employment contracts with its executive officers will be assumed and
honored by La-Z-Boy upon the consummation of the merger. Certain other
compensation and retirement plans LADD currently has for these executives will
also be assumed by La-Z-Boy after the merger has been providedcompleted.
OPINION OF LADD'S FINANCIAL ADVISOR (SEE PAGE 59)
In deciding to approve the merger, LADD's board of directors considered,
among other things, the opinion of LADD's financial advisor, Mann, Armistead &
Epperson, Ltd., that the merger consideration is fair, from a financial point
of view, to you. This opinion is attached to this proxy statement/prospectus as
Annex B. We encourage you to read this opinion carefully.
4
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 25)
LADD common stock trades on the Nasdaq Stock Market, while La-Z-Boy's
common stock is traded on the New York Stock Exchange and the Pacific Exchange.
On September 27, 1999, the day before the merger was announced, the closing
price for your convenience. If you wish to voteLADD common stock reported on the Nasdaq market was $20.25 and the
closing price for La-Z-Boy common stock reported on the NYSE Composite
Transaction Reporting System was $20.94. On December , 1999, LADD common
stock closed at $ and La-Z-Boy common stock closed at $ .
ACCOUNTING TREATMENT (SEE PAGE 22)
La-Z-Boy will account for the merger as a purchase in accordance with
generally accepted accounting principles.
THE TERMS OF THE MERGER AGREEMENT (SEE PAGE 64)
We have attached the recommendationsmerger agreement as Annex A to this proxy
statement/prospectus. We encourage you to review the merger agreement as it is
the legal document that governs the merger. Some of the E/C Board, itmore important terms of
the merger agreement are:
Conditions to the Completion of the Merger
LADD and La-Z-Boy will not complete the merger unless a number of
conditions are satisfied or waived by the parties. These include:
. approval of the merger by LADD's shareholders;
. absence of any law, regulation or court order prohibiting the merger;
. absence of an event, occurrence or development that would result in a
material adverse effect on either of the companies; and
. receipt of opinions of La-Z-Boy's and LADD's counsel that the merger
will qualify as a tax-free reorganization. (This condition cannot be
waived.)
Termination of the Merger Agreement
Either LADD or La-Z-Boy may terminate the merger agreement if any of the
following occurs:
. the merger is not completed by March 31, 2000; however, that deadline
will be extended to June 30, 2000 if the only reason the merger is not
completed by March 31, 2000 is that we have not received all necessary
regulatory and legal approvals;
. LADD's shareholders do not approve the merger; or
. a law or court order permanently prohibits the completion of the
merger.
In addition, La-Z-Boy may terminate the merger agreement if LADD's board
of directors changes, in a manner adverse to specify your
choices; youLa-Z-Boy, its recommendation of
the merger. An adverse change would include the board's withdrawing or
qualifying its recommendation or changing its recommendation to support another
transaction. LADD may merely sign, date,terminate the merger agreement if its board of directors
authorizes LADD to enter into a binding written agreement with a party other
than La-Z-Boy and returnLADD pays La-Z-Boy a termination fee.
Finally, LADD and La-Z-Boy may mutually agree to terminate the enclosed proxy.
Thank you,merger
agreement with approval of both boards of directors.
5
Termination Fees and we look forwardExpense Reimbursement
LADD will be required to seeing youpay La-Z-Boy a termination payment of $7 million,
plus reimburse La-Z-Boy for its transaction costs, if the merger agreement is
terminated:
. by La-Z-Boy because LADD's board of directors has failed to recommend
or has changed its recommendation of the merger in a manner adverse to
La-Z-Boy;
. by either La-Z-Boy or LADD if the following occur:
. at the Meeting.
Sincerely,
Rodney D. England
Chairmantime of the Board, President,shareholder vote, there is an offer from a
third party to acquire LADD;
. LADD's shareholders do not approve the merger; and
Chief Executive Officer
England/Corsair, Inc.
ENGLAND/CORSAIR, INC.
402 OLD KNOXVILLE HIGHWAY
NEW TAZEWELL, TENNESSEE 37825
NOTICE IS HEREBY GIVEN. within 12 months of the termination of the merger agreement, LADD
enters into an agreement in which a third party agrees to acquire
LADD at a value greater than that proposed by La-Z-Boy; or
. by LADD because its board of directors recommends another acquisition
transaction proposed by a Special Meetingthird party.
REGULATORY APPROVAL (SEE PAGE 24)
We are prohibited by United States antitrust laws from completing the
merger until after both companies have furnished certain information and
materials to the Antitrust Division of Shareholdersthe Department of England/Corsair, Inc.,Justice and the
Federal Trade Commission and a Tennessee corporation ("E/C"),required waiting period has ended. LADD and
La-Z-Boy each filed the required notification and report forms with the
Antitrust Division and the Federal Trade Commission on October 26, 1999, and
early termination of the waiting period was received on November 16, 1999. As
with any merger in the United States, the Department of Justice and the Federal
Trade Commission have the authority to challenge the merger on antitrust
grounds before or after the merger is completed.
SPECIAL MEETING (SEE PAGE 70)
You will be held at 402 Old
Knoxville Highway, New Tazewell, Tennessee at ______ _.m., local time, on
______________, __________________, 1995 (the "Meeting"). The Meeting, which
will be a joint meeting of holders of E/C's Class A Common Stock, without par
value, and its Class B Common Stock, without par value (collectively, the "E/C
Stock"), will be held for the following purposes, which are more fully
described in the accompanying Proxy Statement/Prospectus:
1. To consider and vote upon a proposal (the "Proposal") to approve:
(a) the Amended and Restated Reorganization Agreement dated as
of January 13, 1995 (the "Reorganization Agreement") among E/C,
La-Z-Boy Chair Company, a Michigan corporation ("La-Z-Boy"),
and LZB Acquisition, Inc., a newly formed Michigan corporation
and a wholly owned subsidiary of La-Z-Boy ("LZB Acquisition");
(b) the Amended and Restated Plan of Merger dated as of January
13, 1995 among E/C, La- Z-Boy, and LZB Acquisition (the "Plan
of Merger"); and (c) all of the transactions contemplated by the
Reorganization Agreement and the Plan of Merger, including
(without limitation) the merger of E/C with and into LZB
Acquisition (the "Merger").
The transactions contemplated by the Reorganization Agreement,
the Plan of Merger, and certain related instruments and
agreements executed, or to be executed, in connection with the
Reorganization Agreement and the Plan of Merger are intended to
result in the acquisition of E/C by La-Z-Boy through the
Merger. LZB Acquisition will be the surviving corporation of
the Merger. Upon consummation of the Merger: (i) E/C will cease
to exist as a separate corporation, and all of the assets and
liabilities of E/C will become assets and liabilities of LZB
Acquisition, which will continue to be a wholly owned subsidiary
of La-Z-Boy; (ii) holders of E/C Stock of either class will
receive, at their election, either shares of La-Z-Boy's Common
Stock, $1.00 par value, La-Z-Boy's 8% Unsecured Promissory
Notes Due 1999, cash, or any combination of the foregoing, all
in the amounts and subject to the terms and limitations
described in the accompanying Proxy Statement/Prospectus; and
(iii) holders of E/C Stock of either class will also receive
Performance Units, the terms of which are described in the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
The Board of Directors of E/C has fixed the close of business on
____________, 1995 as the record date for determination of shareholders
entitled to notice of andasked to vote on the proposed merger at the Meeting and any adjournments or
postponements thereof. Only shareholdersa special meeting
scheduled for January , 2000. If you are a LADD shareholder of record at the
close of business on such date are entitled to notice of and toNovember 19, 1999, you may vote at the Meeting and any
adjournments or postponements thereof. A list of E/C shareholders entitled to
vote at the Meeting will be subject to inspection at the Meeting.
E/C Stock constitutes the only security of E/C whose holders are
entitled to vote at the Meeting.this special meeting.
VOTE REQUIRED TO APPROVE THE MERGER (SEE PAGE 70)
Approval of the Proposalmerger requires the affirmative vote of the holders of a majority of the
total shares of E/C Stock
of both classes (voting together as a single voting group)LADD common stock outstanding as ofon the record datedate. You will have one
vote for the Meeting, with each share entitled to one vote.
Pursuant to Chapter 23 of LADD common stock that you own on the Tennessee Business Corporation Act, as
amended (the "TBCA"), holders of shares of E/C Common Stockrecord date.
NO DISSENTERS' RIGHTS
Under North Carolina law, you do not have the right to dissent from the
proposed merger and to be paiddemand payment in cash of the fair value of theiryour shares in
connectionthe event the merger takes place.
6
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF LA-Z-BOY
La-Z-Boy derived the selected historical financial data set out below for
each of the fiscal years 1995 through 1999 from La-Z-Boy's audited consolidated
financial statements for those years and derived the selected historical
financial data set out below for each of the six months ended October 23, 1999
and October 24, 1998 from La-Z-Boy's unaudited consolidated financial
statements for those periods. This information is only a summary and should be
read together with La-Z-Boy's historical financial statements and related notes
which are included in this proxy statement/prospectus beginning on page F-1.
(in thousands, except per share data)
SIX
MONTHS ENDED
----------------------- FISCAL YEARS ENDED IN APRIL,
OCTOBER 23, OCTOBER 24, --------------------------------------------------
1999(1) 1998 1999 1998(2) 1997 1996(3) 1995
----------- ----------- ---------- ---------- ---------- -------- --------
STATEMENT OF OPERATIONS
DATA:
Sales.................. $709,395 $603,711 $1,287,645 $1,108,038 $1,005,825 $947,263 $850,271
Net income............. $ 36,563 $ 25,631 $ 66,142 $ 49,920 $ 45,297 $ 39,253 $ 36,302
Diluted average
shares(4)............. 52,610 53,543 53,148 53,821 54,575 55,596 54,303
Diluted earnings per
share(4).............. $ 0.69 $ 0.48 $ 1.24 $ 0.93 $ 0.83 $ 0.71 $ 0.67
Basic average
shares(4)............. 52,305 53,250 52,890 53,654 54,324 55,494 54,132
Basic earnings per
share(4).............. $ 0.70 $ 0.48 $ 1.25 $ 0.93 $ 0.83 $ 0.71 $ 0.67
Dividends per
share(4).............. $ 0.16 $ 0.15 $ 0.31 $ 0.28 $ 0.26 $ 0.25 $ 0.23
BALANCE SHEET DATA
(AS OF PERIOD END):
Total assets........... $720,164 $601,738 $ 629,792 $ 580,351 $ 528,407 $517,546 $503,818
Long-term debt......... $119,594 $ 63,319 $ 62,469 $ 66,434 $ 52,449 $ 57,075 $ 71,149
Total shareholders'
equity................ $437,749 $391,796 $ 414,915 $ 388,209 $ 359,338 $343,376 $323,640
- -------
(1) Bauhaus U.S.A., Inc. is included in the consolidated results from its
acquisition date of June 1, 1999.
(2) Sam Moore Furniture Industries, Incorporated is included in the
consolidated results from its acquisition date of April 1, 1998.
(3) England/Corsair, Inc. is included in the consolidated results from its
acquisition date of April 25, 1995.
(4) Restated to reflect a three-for-one stock split, in the form of a 200%
stock dividend, effective September 1998.
7
SELECTED HISTORICAL FINANCIAL DATA OF LADD
LADD derived the selected historical financial data set out below for each
of the fiscal years 1994 through 1998 from LADD's audited consolidated
financial statements for those years and derived the selected historical
financial data set out below for each of the nine months ended October 2, 1999
and October 3, 1998 from LADD's unaudited consolidated financial statements for
those periods. This information is only a summary and should be read together
with LADD's historical financial statements and related notes contained in the
annual report and quarterly reports incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" on page 80.
(in thousands, except per share data)
NINE MONTHS ENDED FISCAL YEARS
--------------------- -------------------------------------------------------
OCTOBER 2, OCTOBER 3, 1998 1997 1996(1) 1995(2) 1994(3)
1999 1998 (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ---------- ---------- ----------- ---------- ----------
STATEMENT OF OPERATIONS
DATA:
Sales.................. $460,810 $425,810 $571,063 $525,500 $497,457 $599,203 $576,549
Net income (loss)(4)... $ 12,398 $ 8,548 $ 12,259 $ 6,312 $ (2,435) $(25,190) $ 4,360
Diluted average
shares(5)............. 7,979 8,074 8,017 7,839 7,722 7,721 7,705
Diluted earnings per
share(5).............. $ 1.55 $ 1.06 $ 1.53 $ 0.81 $ (0.32) $ (3.26) $ 0.57
Basic average
shares(5)............. 7,834 7,801 7,808 7,744 7,722 7,721 7,697
Basic earnings per
share(5).............. $ 1.58 $ 1.10 $ 1.57 $ 0.81 $ (0.32) $ (3.26) $ 0.57
Dividends per
share(5).............. -- -- -- -- -- $ 0.27 $ 0.36
BALANCE SHEET DATA (AS OF PERIOD
END):
Total assets........... $350,318 $345,519 $336,965 $329,190 $315,031 $313,775 $380,137
Long-term debt......... $ 95,365 $109,540 $104,585 $118,586 $125,859 $112,598 $143,584
Total shareholders'
equity................ $156,961 $140,723 $144,521 $130,925 $123,900 $125,986 $152,695
- -------
(1) Fiscal 1996 reflects the sale of Fournier Furniture, Inc. effective
February 26, 1996 and the liquidation of Daystrom Furniture beginning June
28, 1996.
(2) Fiscal 1995 reflects the sales of Brown Jordan Company and Lea Lumber &
Plywood effective December 29, 1995.
(3) Pilliod Furniture, Inc. is included in consolidated results from its
acquisition date of January 31, 1994.
(4) Net income includes pretax restructuring charges of $3,431 and $25,120 for
1996 and 1995, respectively. These charges relate to the divestitures of
four operating companies, closure of four company-owned retail stores, and
reorganization of the remaining companies.
(5) Restated to reflect a one-for-three reverse stock split effective May 1995.
8
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma consolidated statement of
operations data and selected unaudited pro forma consolidated balance sheet
data give effect to the acquisition by La-Z-Boy of LADD in a transaction to be
accounted for as a purchase. The selected unaudited pro forma consolidated
balance sheet data reflect the acquisition by La-Z-Boy of LADD by combining La-
Z-Boy's balance sheet data as of October 23, 1999 with that of LADD as of
October 2, 1999. The selected unaudited pro forma consolidated statement of
operations data treat the acquisition as if it had occurred as of the beginning
of the earliest period presented (April 26, 1998) and combine the results of
operations data of La-Z-Boy for the year ended April 24, 1999 and for the six
months ended October 23, 1999 (unaudited) with the results of operations data
of LADD for the year ended April 3, 1999 (unaudited) and the six months ended
October 2, 1999 (unaudited), respectively. The unaudited results of operations
data for LADD's year ended April 3, 1999 were derived by subtracting unaudited
financial data for the quarter ended April 4, 1998 from financial data derived
from LADD's audited financial statements for the year ended January 2, 1999 and
adding unaudited financial data for the quarter ended April 3, 1999.
The selected unaudited pro forma consolidated financial data are presented
for illustrative purposes only and are not necessarily indicative of the
consolidated financial position or results of operations of future periods or
the results that actually would have been realized had La-Z-Boy and LADD been a
consolidated company during the specified periods. The selected unaudited pro
forma consolidated financial data should be read in conjunction with the
unaudited pro forma consolidated condensed financial information included in
this proxy statement/prospectus beginning on page F-17 and with the historical
consolidated financial statements and the related notes of La-Z-Boy, which are
included in this proxy statement/prospectus beginning on page F-1, and with the
historical consolidated financial statements and the related notes of LADD,
which are incorporated by reference in this proxy statement/prospectus. See
"Where You Can Find More Information" on page 80.
(in thousands, except per share data)
YEAR
SIX MONTHS ENDED
ENDED OCTOBER 23, APRIL 24,
1999 1999
----------------- ----------
STATEMENT OF OPERATIONS DATA:
Sales..................................... $1,013,061 $1,868,443
Net income................................ $ 44,928 $ 78,766
Diluted average shares.................... 62,039 62,649
Diluted earnings per share................ $ 0.72 $ 1.26
Basic average shares...................... 61,546 62,128
Basic earnings per share.................. $ 0.73 $ 1.27
Dividends per share....................... $ 0.16 $ 0.31
AS OF
OCTOBER 23, 1999
-----------------
BALANCE SHEET DATA:
Total assets.............................. $1,096,003
Long-term debt............................ $ 214,959
Total shareholders' equity................ $ 622,404
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for La-Z-Boy common stock and LADD common
stock, for the periods indicated, historical per share data and the
corresponding unaudited pro forma equivalent per share amounts after giving
effect to La-Z-Boy's acquisition of LADD accounted for as a purchase.
9
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of per share amounts for future periods
or of the per share amounts that actually would have been realized had La-Z-Boy
and LADD been a consolidated company during the specified periods.
The information presented in this table should be read in conjunction with
the unaudited pro forma consolidated condensed financial information included
in this proxy statement/prospectus beginning on page F-19, and the separate
historical consolidated financial statements and the related notes of La-Z-Boy
included in this proxy statement/prospectus beginning on page F-1, and the
separate historical financial statements and the related notes of LADD
incorporated by reference in this proxy statement/prospectus.
LA-Z-BOY LADD
--------------------- -----------------
SIX SIX YEAR
MONTHS YEAR MONTHS ENDED
ENDED ENDED ENDED APRIL
OCTOBER 23, APRIL 24, OCTOBER 2, 3,
1999 1999 1999 1999
----------- --------- ---------- ------
Historical earnings per share - La-Z-
Boy and LADD
Diluted............................. $ 0.69 $1.24 $ 1.10 $ 1.68
Basic............................... $ 0.70 $1.25 $ 1.12 $ 1.72
Pro forma earnings per share - La-Z-
Boy
Diluted............................. $ 0.72 $1.26
Basic............................... $ 0.73 $1.27
Equivalent pro forma earnings per
share - LADD
Diluted (1)......................... $ 0.85 $ 1.49
Pro forma (1)....................... $ 0.86 $ 1.50
Dividends per share - La-Z-Boy
Historical.......................... $ 0.16 $0.31
Pro forma (2)....................... $ 0.16 $0.31
Equivalent pro forma - LADD (3)....... $ 0.19 $ 0.37
Book value (as of period end) - La-Z-
Boy
Historical.......................... $ 8.40 $7.93
Pro forma........................... $10.14 $9.71
Book value (as of period end) - LADD
Historical.......................... $20.04 $18.91
Equivalent pro forma (4)............ $11.97 $11.46
- -------
(1) Pro forma amounts for La-Z-Boy multiplied by 1.18 (the ratio of exchange).
(2) Same as historical since a change in La-Z-Boy's dividend policy is not
expected as a result of the mattersmerger.
(3) Historical amounts for La-Z-Boy multiplied by 1.18 (the ratio of exchange).
(4) Pro forma book value for La-Z-Boy multiplied by 1.18 (the ratio of
exchange).
10
RISK FACTORS
You should carefully read and consider the following factors in evaluating
whether to be acted upon atapprove the Meeting.proposed merger.
MANAGEMENT AND FINANCIAL RESOURCES OF LA-Z-BOY MAY BE DIVERTED FROM
OPERATING ITS BUSINESS DUE TO THE CHALLENGES OF INTEGRATING LADD AND OTHER
ACQUISITIONS, AND SUCH DISSENTERS'
RIGHTSDIVERSION COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS
REVENUES, EXPENSES AND OPERATING RESULTS AND ON THE VALUE OF ITS STOCK.
La-Z-Boy acquired Sam Moore Furniture Industries, Incorporated on April 1,
1998 and Bauhaus U.S.A., Inc. on June 1, 1999 and expects to acquire Alexvale
Furniture, Inc, during the current quarter. The integration and consolidation
of these companies, the proposed merger with LADD and any future acquisitions
have required and will continue to require substantial management and financial
resources. The diversion of these resources may make it more difficult for La-
Z-Boy to operate its business as it has in the past and could have a material
adverse effect on its revenues, expenses and operating results and on the value
of its stock.
LADD SHAREHOLDERS WILL BE LOST, HOWEVER,RECEIVE MERGER CONSIDERATION WITH A LOWER MARKET
VALUE IF THE PROCEDURAL REQUIREMENTSMARKET PRICE OF THE TBCA ARE
NOT FULLY AND PRECISELY SATISFIED. Such dissenters' rights are more fully
explained in the accompanying Proxy Statement/Prospectus. A copy of Chapter 23
of the TBCA is included in the accompanying Proxy Statement/Prospectus.
Your vote is important regardless ofLA-Z-BOY COMMON STOCK DECLINES.
Because the number of shares you own. Each
shareholder, even though he or she now plans to attend the Meeting, is
requested to sign, date, and return the enclosed proxy without delayof La-Z-Boy common stock that LADD
shareholders will receive in the enclosed postage-paid envelope. Youmerger is fixed at 1.18 shares of La-Z-Boy
common stock for each share of LADD common stock, the market value of the
consideration you will receive in the merger will depend on the market price of
La-Z-Boy common stock when the merger becomes effective. The price of La-Z-Boy
common stock when the merger becomes effective may revoke your proxy at any time prior tovary from its exercise. Any shareholder of record presentprice at the
Meetingdate of this proxy statement/prospectus or on the date of the special meeting
because of various factors, including:
. general market, industry and economic conditions;
. changes in the business, operations or prospects of La-Z-Boy and LADD;
and
. market assessments of the timing and probability of achieving
operating efficiencies and sales enhancements after the merger.
Neither La-Z-Boy nor LADD will have the right to terminate the merger
agreement as a result of changes in La-Z-Boy's common stock price. You should
obtain current market quotations for La-Z-Boy common stock.
ANTITAKEOVER PROVISIONS IN LA-Z-BOY'S GOVERNING DOCUMENTS AND MICHIGAN LAW
COULD DISCOURAGE SOME POTENTIAL BUYERS OF THE LA-Z-BOY STOCK YOU WILL RECEIVE
IN THE MERGER.
Michigan law and La-Z-Boy's articles of incorporation and bylaws contain
provisions that may have the effect of discouraging transactions involving an
actual or threatened change of control. These provisions could tend to entrench
La-Z-Boy's directors and management and possibly deprive shareholders of an
opportunity to sell their shares of common stock at prices higher than the
prevailing market prices. LADD's governing documents do not contain any
adjournmentssignificant antitakeover provisions, and the antitakeover provisions of North
Carolina law currently do not apply to LADD.
11
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document and in documents
that are incorporated by reference in this document that are subject to risks
and uncertainties. Generally, forward-looking statements include information
concerning possible or postponements thereofassumed future actions, events or results of operations
of La-Z-Boy if the merger occurs or of LADD if the merger does not occur. More
specifically, forward-looking statements include the information in this
document regarding:
operating efficiencies future economic performance
sales enhancements the combined company
income and margins the timetable for completing the
growth merger
adequacy and cost of financial future acquisitions
resources management plans, including
product line diversification financing plans
the future price of La-Z-Boy industry trends
stock year 2000 readiness
future La-Z-Boy dividends environmental matters
future repurchases of La-Z-Boy financial projections
stock
Forward-looking statements also include those preceded or followed by the
words "anticipates," "believes," "estimates," "hopes," "plans," "intends" and
"expects" or similar expressions. With respect to all forward-looking
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You should understand that the following important factors, in addition to
those discussed in "Risk Factors" above and elsewhere in this document and in
the documents that are incorporated by reference, could affect the future
results of La-Z-Boy or LADD and could cause those results or other outcomes to
differ materially from those expressed or implied in our forward-looking
statements:
Economic and Industry Conditions
. materially adverse changes in economic and industry conditions and
customer demand generally or in the markets served by our companies
. changes in interest rates
. supply and demand for and pricing of supplies and components
. availability of qualified labor
. changes in demographics and consumer preferences or demands for La-Z-
Boy's and LADD's products
. the impact of e-commerce on the distribution of the companies'
products
. changes in the availability or cost of capital
Competitive Factors
. the competitiveness of foreign-made products
. the actions of competitors
. new manufacturing technologies
. industry consolidation
Operating Factors
. supply, labor or distribution disruptions
. technical difficulties, including the inability of material customers
and suppliers to replace, modify or upgrade computer programs in order
to adequately address year 2000 concerns
12
. acquisitions or divestitures
. changes in operating conditions and costs
. changes in regulatory environment
Transaction Factors
. the challenges inherent in diverting management's focus and resources
from other strategic opportunities and from operational matters during
the integration process
. experienced employees leaving for other positions
13
THE MERGER TRANSACTION
We are furnishing you this proxy statement/prospectus in connection with
solicitation of proxies by LADD's board of directors for use at the special
meeting. At the special meeting, you will be asked to vote to approve and adopt
the merger agreement and the merger.
BACKGROUND OF THE MERGER
LADD's board of directors and management continually review LADD's
results of operations and competitive position. In connection with these
reviews, LADD's board of directors and management evaluate and consider a range
of strategic options that might be available to LADD to sustain its recent past
level of growth and further enhance shareholder value, including acquisitions
and dispositions of assets, possible partnerships and joint ventures, and other
strategic corporate transactions.
The following describes significant events leading to execution of the
merger agreement by LADD and La-Z-Boy.
On February 10, 1999, Fred L. Schuermann, Jr., Chairman, President and
Chief Executive Officer of LADD, met with the principals of Mann Armistead. In
discussing the furniture industry, they agreed that LADD and La-Z-Boy would fit
very well together because of their complementary product lines, La-Z-Boy's
opportunity to enhance its casegoods business and increase its exposure in the
market, and the compatibility of management. With Mr. Schuermann's consent,
principals of Mann Armistead traveled to La-Z-Boy's headquarters in Monroe,
Michigan on March 29, 1999 to meet with Patrick H. Norton, Chairman of the
Board of La-Z-Boy, Gerald L. Kiser, its President and Chief Operating Officer,
and Frederick H. Jackson, its Executive Vice President Finance and Chief
Financial Officer, to discuss LADD's history, its recent operating results and
to introduce the idea of a merger. At the conclusion of the meeting, Mr. Norton
was invited to meet with Mr. Schuermann, and Mr. Norton accepted.
On April 12, 1999, Mr. Schuermann, Mr. Norton, and principals of Mann
Armistead met in Greensboro, North Carolina to discuss the possibility of
exploring strategic options involving LADD and La-Z-Boy. They discussed
benefits that might result from a merger of the two companies, and both Mr.
Schuermann and Mr. Norton expressed interest in pursuing the matter further. On
April 13, 1999, Mann Armistead discussed with La-Z-Boy's senior management
general parameters of price, structure and terms for a possible transaction.
On April 29, 1999, at a regular meeting of LADD's board of directors, Mr.
Schuermann advised the board of his meeting with Mr. Norton and informed the
board that he planned to meet the following day with La-Z-Boy's senior
management. On April 30, 1999, Mr. Schuermann met at La-Z-Boy headquarters in
Monroe, Michigan with Messrs. Norton, Kiser and Jackson. They discussed the
mutual benefits that a merger of the two companies could bring to both
companies and the relative strengths of each company and its management.
On June 10, 1999, William S. Creekmuir, LADD's Executive Vice President
and Chief Financial Officer, met with Mr. Jackson in LADD's offices. They
discussed reasons that a combination might produce an entity stronger than the
two companies operating individually. At La-Z-Boy's request, LADD provided
information regarding its management and compensation structure. Mr. Schuermann
joined the meeting to discuss the earnings potential of the combined companies.
Messrs. Creekmuir and Jackson agreed that the two companies would enter into a
confidentiality agreement regarding information exchanged in the merger
discussions, and the companies signed such an agreement on June 17, 1999.
On July 6, 1999, Mr. Schuermann and Mr. Kiser spoke by telephone to
arrange visits by La-Z-Boy personnel to various LADD manufacturing facilities.
On July 13, 1999, at a special meeting of LADD's board of directors, Mr.
Schuermann reviewed the discussions that had taken place and the possible
benefits that may revokebe expected for LADD and its shareholders in a merger. The
board approved LADD's engagement of Mann Armistead as financial advisor to LADD
for the potential transaction. The
14
board discussed its fiduciary responsibilities in consideration of merger or
acquisition proposals. On July 19, 20, and 21, La-Z-Boy personnel visited
several of LADD's manufacturing facilities.
On August 3, 1999, Messrs. Schuermann and Creekmuir, along with
representatives of Mann Armistead, met at La-Z-Boy headquarters with La-Z-Boy
management and representatives of La-Z-Boy's financial advisor, Merrill Lynch &
Co. The parties reviewed the potential benefits of a merger to the shareholders
of both companies. Mr. Schuermann also reviewed with La-Z-Boy's management the
change in control provisions in LADD's benefit plans and executive officer
employment contracts, which provisions would be triggered by a merger. La-Z-Boy
suggested that a merger be based on an exchange ratio of 1 share of La-Z-Boy
stock for each share of LADD stock, but Mr. Schuermann expressed his or her proxybelief
that a 1 to 1 exchange ratio would be unacceptable to LADD's board. The parties
agreed to continue discussions and vote
personallyto exchange due diligence information.
On August 5, 1999, La-Z-Boy provided LADD with the first of several due
diligence requests and due diligence continued throughout the period of
negotiations. During the course of the numerous discussions and due diligence
investigations, LADD provided La-Z-Boy extensive public and non-public
information and data relating to areas such as manufacturing facilities and
operations, marketing and sales, historical and projected financial results,
tax matters, employee and employee benefits matters, environmental and other
regulatory compliance, pending litigation and management information systems.
On August 11, 1999, Mr. Creekmuir and LADD's Assistant Corporate
Controller delivered due diligence materials to PricewaterhouseCoopers LLP,
which had been engaged to assist La-Z-Boy with its financial due diligence. In
a meeting with representatives of PricewaterhouseCoopers, Merrill Lynch and La-
Z-Boy, LADD representatives provided an overview of LADD and responded to
questions concerning the due diligence materials. On August 16, 17, and 18,
PricewaterhouseCoopers performed financial due diligence in Greensboro, North
Carolina, and interviewed Messrs. Schuermann and Creekmuir.
On August 19, 1999, LADD's board of directors held a regular meeting at
which Mr. Schuermann discussed numerous matters relating to the potential
transaction, including recent discussions with La-Z-Boy, due diligence, the
likely structure of a merger, and the timing of draft merger documents. Mr.
Schuermann reviewed the strategic issues facing LADD and the potential benefits
of the proposed transaction to LADD and its shareholders, including additional
market liquidity and an improved price-to-earnings ratio that might exist
following the transaction. The board was joined by the three principals of
Mann Armistead, who provided an extensive review of the furniture industry and
the potential stock performance of the merged entity. The board discussed with
Mann Armistead possible valuation ranges for the transaction. The board engaged
in lengthy discussions of the merits and other aspects of the merger, including
the pricing of the transaction. Mr. Schuermann called on each matter brought beforeof LADD's four
Executive Vice Presidents to provide the Meeting.board his views on the potential
merger, and each spoke in support of the merger.
On August 24, 1999, La-Z-Boy circulated a draft of a merger agreement.
LADD provided an alternative draft on August 30, 1999. On September 8, 1999,
La-Z-Boy circulated a third draft.
On August 30, 1999, Mr. Schuermann again met with La-Z-Boy management at
La-Z-Boy headquarters. La-Z-Boy management advised Mr. Schuermann that if the
companies merged, LADD would operate as a separate subsidiary under the
direction of current management. On September 2, 1999 Merrill Lynch, on behalf
of La-Z-Boy, proposed to Mann Armistead a variable exchange ratio with a cap
and floor based on the value of La-Z-Boy stock. On September 3, 1999,
Mr. Schuermann, through Mann Armistead, rejected this proposed exchange ratio
structure.
Also on September 2 and 3, 1999, Mr. Creekmuir and members of LADD
management visited La-Z-Boy headquarters, reviewed documents provided by
La-Z-Boy in response to LADD's due diligence requests and interviewed various
members of La-Z-Boy management. This due diligence material, while
comprehensive, was not as extensive or detailed as the information LADD
provided to La-Z-Boy. On September 2 and 3, LADD personnel and representatives
of Mann Armistead visited several of
15
____________________________La-Z-Boy's manufacturing facilities. On September 3, representatives of KPMG
LLP performed additional accounting due diligence at LADD's request at the
Toledo, Ohio office of PricewaterhouseCoopers.
On September 7 and 8, 1999, Messrs. Norton, Kiser, and Jackson, Gene M.
Hardy, La-Z-Boy's Secretary _______________, 1995
THE BOARD OF DIRECTORS OF E/C RECOMMENDS THAT
YOU VOTEand Treasurer, and representatives of
Mann Armistead and Merrill Lynch met with various members of LADD's executive
and operating management, including Messrs. Schuermann and Creekmuir, to
conduct due diligence and engage in in-depth discussions regarding the
structure and operation of the merged entities. On September 8, Messrs.
Schuermann and Creekmuir also discussed issues relating to price and structure
terms of the merger with La-Z-Boy senior management. At the conclusion of the
meetings, Mr. Schuermann again reiterated LADD's opposition to the variable
exchange ratio structure proposed by Merrill Lynch on September 2.
On September 7, 1999, LADD's board of directors held a special meeting at
which Mr. Schuermann and LADD's legal advisors gave a brief update on the
status of negotiations with La-Z-Boy. The board voted, with Mr. Schuermann
abstaining, to amend the executive officer employment contracts and LADD's
various benefit plans in anticipation of and conditioned upon the merger with
La-Z-Boy. These amended employment contracts and plans were subsequently
revised further and superseded by board action on September 28, 1999. See
"Interests of Certain Persons in the Merger" on page 56.
On September 13, 1999, Mr. Schuermann advised La-Z-Boy that LADD was
terminating negotiations because of issues that had arisen during negotiations
that made it appear that reaching mutually acceptable terms would be unlikely.
On the evening of September 13, 1999, Mr. Schuermann and Mr. Norton spoke by
telephone for an extended period and agreed to meet to determine if there
existed a basis to go forward with negotiations. On September 17, 1999, Mr.
Schuermann met with La-Z-Boy management at La-Z-Boy headquarters and reviewed
the state of the negotiations, previous discussions as to price, and management
issues.
On September 22 and 23, 1999, Mr. Schuermann, representatives of LADD's
legal advisors and Mann Armistead, La-Z-Boy's senior management,
representatives of La-Z-Boy's legal advisors and Merrill Lynch, and counsel to
Merrill Lynch, met at La-Z-Boy headquarters. The parties reached agreement,
subject to approval by each company's board of directors, on the major
transactional terms of the merger agreement except for the exchange ratio. The
parties agreed that they would not place a cap on the exchange of stock in the
merger but reached no agreement on the exchange ratio.
On September 26, 1999, Merrill Lynch conveyed to Mann Armistead La-Z-
Boy's offer of an exchange ratio of 1.175. Discussions between the parties or
their representatives continued until late in the day on September 27, 1999, at
which time management of each company agreed, subject to board approval, to an
exchange ratio of 1.18.
On the morning of September 28, 1999, LADD's board of directors held a
special meeting in LADD's offices in Greensboro to review the terms and
conditions of the proposed merger agreement. All of LADD's senior management
and representatives of Mann Armistead and LADD's legal advisors also attended
the meeting. Mr. Schuermann reviewed the recent negotiations. Mann Armistead
gave its opinion, confirmed in writing, that, as of the market close on the
previous day, the consideration to be paid by La-Z-Boy in the proposed merger
was fair from a financial point of view to LADD's shareholders. LADD's legal
advisors reviewed with the board each section of the proposed merger agreement.
Members of senior management expressed their support of the merger. After a
separate meeting among the outside directors and following further discussion
by the entire board and advisors, the board, with Mr. Schuermann abstaining,
unanimously approved the merger agreement and voted to recommend that LADD's
shareholders approve and adopt the merger agreement and the merger. In
anticipation of the merger, the board, with Mr. Schuermann abstaining, took
additional action concerning LADD's executive employment contracts and its
benefit plans in ways agreed to by La-Z-Boy during the merger negotiations. See
"Interests of Certain Persons in the Merger" on page 56.
16
In the afternoon of September 28, 1999, La-Z-Boy's board of directors met
in a special meeting and unanimously approved the merger agreement. In the late
afternoon, following the approval of LADD's and La-Z-Boy's respective boards of
directors, the parties executed the merger agreement. That evening, a press
release was issued announcing the merger agreement.
LADD'S REASONS FOR THE ABOVE PROPOSAL.
PLEASE SIGNMERGER
LADD was formed in 1981 by executives of The Sperry Hutchinson Company.
These executives bought the three furniture companies they managed: Lea,
American Drew and Daystrom.
From 1984 to 1994, LADD grew aggressively by buying Clayton Marcus
(1984); Barclay Furniture (1985); American of Martinsville (1986); Maytag
Corporation's furniture group, including Pennsylvania House (1989); Fournier
Furniture (1992); and Pilliod Furniture (1994). To fund these acquisitions,
LADD incurred long-term debt that was at one time in excess of $200 million.
The recession of the early 1990s, in combination with our heavy debt
level, had serious negative consequences for LADD. Our net profit margins
declined from 8.7% in the mid-1980s to less than 1% in the early 1990s. Our
stock price, adjusted for a reverse split in 1995, went from a high of $74 in
1987 to less than $10 in 1996. In June of 1995, LADD had $148 million of total
debt with a debt-to-capitalization ratio of 54.3%.
Beginning in mid-1995, LADD began an extensive restructuring process.
Over the next 18 months, it sold or liquidated four operating units: Daystrom,
Lea Lumber & Plywood, Fournier and Brown Jordan. In connection with this
restructuring, LADD focused on increasing sales and improving profitability of
its core brands of American Drew, Barclay, Clayton Marcus, Lea, Pennsylvania
House, Pilliod and American of Martinsville, and on reducing debt. During this
process, LADD was reorganized into three operating groups: residential
casegoods, residential upholstery, and contract sales. By the end of June 1999,
total debt stood at $102 million, representing a debt-to-capitalization ratio
of 40.0%, and net profit margins were 2.8%.
Despite LADD's consistently improving performance since the end of 1995,
LADD shareholders have not been rewarded in the marketplace with corresponding
increases in shareholder value. In the 52-week period ended September 27, 1999,
LADD shares traded to a high of $23.50 and to a low of $13.38. During the
second quarter of calender 1999, LADD shares traded in a range of $16.88 to
$22.88, reflecting an average price-to-earnings multiple of approximately 11.5.
LADD's management and its board of directors have become convinced that because
of LADD's relatively small market capitalization of approximately $165 million,
LADD's operating performance is not likely to be rewarded adequately in the
marketplace, and LADD's shareholders are not likely to receive a multiple of
earnings commensurate with companies, such as La-Z-Boy, that have significantly
larger market capitalization. During the second quarter of calendar 1999, La-Z-
Boy, with a market capitalization of approximately $1 billion, traded in a
range of $19.50 to $24.56, reflecting an average price-to-earnings multiple of
approximately 16.6.
Simply becoming part of a larger company is not a sufficient reason for
LADD to merge. To create shareholder value in a stock-for-stock merger, the two
companies must operate together better than they would operate separately. As
explained in more detail below, LADD's board believes that combining the
businesses of LADD and La-Z-Boy can increase profits and returns and provide
LADD shareholders with a more liquid, dividend-paying security in a diversified
company for which continued improvement and performance will be better
recognized by the marketplace. As a subsidiary of La-Z-Boy, LADD will also have
greater financial resources with which to invest in LADD brands and continue to
grow its business by pursuing business opportunities as they present
themselves.
The benefits of the merger fall broadly into four categories: operating
efficiencies, long-term growth, diverse business portfolio and financial
strength/market capitalization.
17
Operating Efficiencies. LADD's board believes that LADD and La-Z-Boy
together can operate more efficiently than either company can operate on its
own. We expect that after the merger the combined company will be able to
achieve operating efficiencies from increases in production and sales,
decreases in corporate overhead expense, and other benefits possible by
combining complementary operations and better utilizing manufacturing
capacities. We hope to achieve efficiencies in purchasing and transportation by
utilizing the combined companies' capabilities.
While we expect that we will be able to realize these operating
efficiencies, we can give no assurance that we will actually be able to do so.
Long-Term Growth. LADD's board believes that, together, La-Z-Boy and LADD
will also be in a position to achieve accelerated growth by utilizing its
financial strength to fund capital investments and pursue business
opportunities as they occur. We believe that the furniture industry is
beginning to enter a period of significant consolidation. As acquisition
opportunities that would be beneficial to the combined company and its
shareholders present themselves, we will be in a position to pursue those
opportunities aggressively due to La-Z-Boy's financial strength and its ability
to use a highly marketable public security, the La-Z-Boy common stock.
Diverse Business Portfolio. The merger of LADD and La-Z-Boy will create a
combined company with a diverse business portfolio representing many of the
premier brand names in the furniture industry, led by the most widely-
recognized brand name in the industry, La-Z-Boy. Upon completion of the merger,
the combined company will operate the following major furniture business units:
LADD LA-Z-BOY
---- --------
American Drew (casegoods) Bauhaus U.S.A., Inc. (upholstery)
American of Martinsville (contract) Centurion (upholstery)
Barclay Furniture (upholstery) England/Corsair (upholstery)
Clayton Marcus (upholstery) Hammary (casegoods)
Lea Industries (casegoods) Kincaid (casegoods)
Pennsylvania House La-Z-Boy Business Furniture Group (contract)
(casegoods and upholstery) La-Z-Boy Residential (upholstery)
Pilliod Furniture (casegoods) Sam Moore (upholstery)
Alexvale (upholstery) (closing expected
by end of 1999)
The strategic combination of LADD's strength in residential casegoods and
contract sales and La-Z-Boy's strength in upholstery will give the combined
company breadth and coverage of virtually the entire spectrum of residential
furniture.
Financial Strength/Market Capitalization. Because of the heavy debt
burden LADD has carried during much of the 1990s, debt reduction has been a
major financial focus of its management. La-Z-Boy, by contrast, currently has
low leverage (21.7% debt-to-capitalization as of October 23, 1999). La-Z-Boy's
financial strength will enable the combined company to fund future capital
expenditures and make opportunistic acquisitions that would be difficult or
impossible for a company with LADD's current leverage.
Further, following the merger, La-Z-Boy's expected market capitalization
of approximately $1.2 billion will provide former LADD shareholders with a more
liquid common stock. We believe that the combination of the two shareholder
groups will provide the combined company a diversified and dynamic shareholder
group, since the majority of LADD's shares have traditionally been owned by
institutions, and the majority of La-Z-Boy's shares have traditionally been
owned by individuals. Finally, in exchanging their LADD shares, which do not
pay dividends, for La-Z-Boy shares, LADD shareholders will begin to receive a
cash dividend, which is currently being paid at the quarterly rate of $.08 per
share. The continuance and amount of dividends paid on La-Z-Boy shares in the
future will be at the discretion of the La-Z-Boy board.
18
FACTORS CONSIDERED BY, AND DATERECOMMENDATION OF, THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.LADD BOARD
At its September 28, 1999 meeting, the LADD board, with Mr. Schuermann
abstaining, unanimously determined that the merger agreement and the terms of
the merger are fair to and in the best interest of LADD and LADD's
shareholders. Accordingly, the LADD board has adopted the merger agreement,
with Mr. Schuermann abstaining, and the LADD board, including Mr. Schuermann,
recommends that LADD's shareholders vote "FOR" approval of the merger agreement
and the merger. When you consider this recommendation, you should be aware that
members of LADD's board may have an interest in the merger that may be
different from, or in addition to your interests as a shareholder. See
"Interests of Certain Persons in the Merger" on page 56.
In the course of reaching its decision to adopt the merger agreement, the
LADD board consulted with LADD's management, as well as its outside legal
counsel and its financial advisor, and considered the following material
factors:
. all of the reasons described above under "LADD's Reasons for the
Merger," including operating efficiencies, long-term growth, diverse
business portfolio, and financial strength/market capitalization;
. the risks and benefits associated with, as an alternative to the
merger, continuing to execute LADD's strategic plan as an independent
entity;
. Mann Armistead's written opinion to the effect that as of September
28, 1999, and subject to the various conditions set forth in its
opinion, the merger consideration is fair from a financial point of
view to LADD's shareholders (See "Opinion of LADD's Financial
Advisor" beginning on page 59);
. that LADD's shareholders will own approximately 15% of the
outstanding stock of La-Z-Boy after the merger;
. the merger's expected qualification as a reorganization under the
Internal Revenue Code, in which LADD shareholders generally will not
recognize any gain or loss except for any gain or loss recognized in
connection with cash received for a fractional share of La-Z-Boy
common stock;
. LADD's ability, pursuant to the merger agreement, to conduct its
business in the ordinary course pending closing and the
reasonableness of the restrictions placed on LADD's conduct during
that period;
. the board's ability, pursuant to the merger agreement, to provide
information to and engage in negotiations with any third party that
makes a superior proposal (as described in "The Merger Agreement--
Termination of the Merger Agreement" on page 68);
. that while the termination payment provisions of the merger agreement
could have the effect of discouraging alternative proposals for a
business combination with LADD, these provisions would not prevent
bona fide alternative proposals, and that the size of the termination
fee was reasonable in relation to the size and benefits of the
transaction;
. all aspects of Mann Armistead's analysis, both those portions
supporting the adequacy of the proposed merger consideration and
those portions suggesting that the proposed merger consideration was
not adequate (See "Opinion of LADD's Financial Advisor" beginning on
page 59);
. the strategic fit of LADD and La-Z-Boy, including the combination of
their respective businesses and brand names;
. the expectation that the combined company will produce greater
shareholder returns for LADD shareholders due to La-Z-Boy's market
capitalization, the liquidity of its shares and its payment of cash
dividends;
. LADD management's and its board's knowledge of the furniture industry
in which LADD competes and their belief that greater size and
resources are important to the long-term future of LADD;
19
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.
Subject. the opportunity for LADD's shareholders to completion, dated February 7, 1995.
LA-Z-BOY CHAIR COMPANY
PROSPECTUS
2,000,000 SHARES OF COMMON STOCK, $1.00 PAR VALUE
$10,000,000 8% UNSECURED PROMISSORY NOTES DUE 1999
297,330 PERFORMANCE UNITS
----------------------------------------
ENGLAND/CORSAIR, INC.
PROXY STATEMENT
----------------------------------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnishedreceive a meaningful
premium over the trading value of LADD common stock, while at the
same time participating in a larger and more diversified company and
benefiting from any future growth of the combined company;
. the interest that executive officers and directors of LADD may have
with respect to the merger in addition to their interest as
shareholders of England/Corsair, Inc.,LADD generally (See "Interest of Certain Persons in
the Merger" on page 56);
. the fact that LADD's corporate headquarters will continue to be
located in Greensboro, North Carolina;
. the fact that for at least one year following the effective date of
the merger, La-Z-Boy will continue to provide LADD's employees with
employee benefits that, in the aggregate, are no less favorable than
those provided to the employees of LADD at the time of the merger;
and
. that no members of LADD's board are expected to serve on the combined
company's board and that LADD's executives' role will be limited to
managing the operations of LADD as a Tennessee corporation
("E/C"),division of La-Z-Boy.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, the LADD board
did not find it useful to and did not attempt to quantify, rank or otherwise
assign relative weights to these factors. In considering the factors described
above, individual members of the board may have given different weight to
different factors. The board relied on, among other things, the experience and
expertise of Mann Armistead, its financial advisor, for quantitative analysis
of the financial terms of the merger. The board recognized that certain aspects
of the quantitative analysis prepared by Mann Armistead, primarily those
calculations based on LADD's shareholders' equity, may have suggested that the
proposed merger consideration was not adequate, but it also understood that
these calculations were impacted by LADD's relatively large intangible assets
balance. The board weighed these calculations, together with the other
calculations based on LADD's net income, EBITDA and EBIT, and believed that all
aspects of the quantitative analysis of the financial terms of the merger
presented in Mann Armistead's report, taken as a whole, supported the board's
decision to approve the merger. See "Opinion of LADD's Financial Advisor"
beginning on page 59. The LADD board considered all these factors as a whole
and, over all, considered the factors to be favorable to, and support, its
determination. The general view of the LADD board, however, was that the
factors listed as the second, the eighth, portions of the ninth, the fourteenth
and the seventeenth bullets were uncertainties or risks relating to the
transaction. The other reasons and factors described above were generally
considered favorable.
CERTAIN FINANCIAL PROJECTIONS OF LADD
This section contains financial projections prepared by LADD in September
1999 and provided by it to La-Z-Boy and/or Mann Armistead. The information set
forth below is based on assumptions concerning LADD's business prospects for
fiscal years 1999 and 2000. Information of this type is based on estimates and
assumptions that are inherently subject to significant economic and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond LADD's control. Accordingly, there can be no assurance that
the projected results will be realized or that actual results will not be
significantly higher or lower than those set forth below. The projections do
not reflect any of the effects of the merger or other changes that may in the
future be deemed appropriate concerning LADD and its assets, business,
operations, properties, policies, corporate structure, capitalization and
management in light of the circumstances then existing.
In addition, the projections set forth below were not prepared with a
view to public disclosure or compliance with published guidelines of the SEC or
the guidelines established by the American Institute of Certified Public
Accountants regarding projections and forecasts. LADD does not as a matter of
course publicly disclose internal budgets, plans, estimates, forecasts or
projections as to future revenues, earnings or other financial information. The
projections included in this proxy statement/prospectus are provided solely
because such information was made available to La-Z-Boy during its due
diligence review and to Mann Armistead, who relied on such information in
connection with the solicitationpreparation of proxies by its Boardopinion. See
20
"Opinion of Directors for use at its Special Meeting of Shareholders (includingLADD's Financial Advisor" beginning on page 59.
Neither LADD's independent auditors, nor any adjournmentsother independent
accountants, have compiled, examined or postponements thereof, the "Meeting") to be held on
_____________, 1995.
This Proxy Statement/Prospectus constitutes a prospectus of La-Z-Boy Chair
Company, a Michigan corporation ("La-Z-Boy"),performed any procedures with respect
to the following:
(i) up to 2,000,000 shares of the common stock, $1.00 par value per share, of
La-Z-Boy (the "La-Z-Boy Common Stock") to be issued to shareholders of E/C as
part of the consideration for the "Merger" (as hereinafter defined), including
shares which may be issued in settlement of the Performance Units described
below; (ii) up to $10,000,000 principal amount of La-Z-Boy's 8% Unsecured
Promissory Notes Due 1999 (the "La-Z-Boy Notes") to be issued to shareholders
of E/C as part of the consideration for the Merger; and (iii) 297,330
"Performance Units" to be issued to shareholders of E/C as part of the
consideration for the Merger, each of which constitutes La-Z-Boy's promise to
pay additional consideration in respect of the Merger, in La-Z-Boy Common
Stock as hereinafter described, the amount of which will be contingent
upon the performance of the business now conducted by E/C during the two years
following consummation of the Merger. Upon consummation of the Merger, each
outstanding share of E/C's Class A Common Stock, without par value, and Class B
Common Stock, without par value (collectively, "E/C Stock"), will be converted
into the right to receive, at the holder's election but subject to the terms
and limitations hereinafter set forth, cash, La-Z-Boy Common Stock, or La-Z-Boy
Notesprospective financial information contained in the amounts herein set forth and, in addition, into one Performance
Unit.
THESE SECURITIES HAVE NOT BEEN APPROVEDprojections, nor have
they expressed any opinion or given any form of assurance on such information
or its achievability.
NO PARTY BY OR DISAPPROVED BYTO WHOM THE SECURITIES AND
EXCHANGE COMMISSION ORPROJECTIONS WERE PROVIDED CAN GIVE ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPONASSURANCES AS TO THE ACCURACY OF ANY SUCH PROJECTIONS OR ADEQUACYTHEIR UNDERLYING
ASSUMPTIONS. THE PROJECTIONS ARE NOT GUARANTEES OF THIS PROSPECTUS. ANY REPRESENTATION TOPERFORMANCE. THEY INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE CONTRARY IS
A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to shareholders of E/C on or about _________________, 1995.
The date of this Proxy Statement/Prospectus is _________________, 1995.
TABLEFUTURE RESULTS AND SHAREHOLDER VALUE
OF CONTENTS
PAGE
AVAILABLE INFORMATION........................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............... 2
INTRODUCTION.................................................... 3
SUMMARY......................................................... 5
The Companies............................................... 5
The Meeting................................................. 6
Vote Required............................................... 6
Record Date, Shares Entitled to Vote........................ 6
The Merger.................................................. 6
Dissenters' Rights.......................................... 9
Management of the Surviving Corporation After the Merger.... 9
Summary Condensed Historical Financial Data of E/C.......... 10
Summary Condensed Consolidated Historical Financial Data
of La-Z-Boy.............................................. 12
Summary Unaudited Pro Forma Condensed Combined Financial
Data of La-Z-Boy After Giving Effect to the Merger....... 13
Capitalization of E/C and La-Z-Boy.......................... 14
Comparative Per Share Data.................................. 16
Comparative Stock Prices.................................... 17LADD MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE COMPANIES................................................... 18
England/Corsair, Inc........................................ 18
La-Z-Boy Chair Company...................................... 18
LZB Acquisition, Inc........................................ 18
THE MEETING..................................................... 18
Matters to Be Considered at the Meeting..................... 18
Vote Required............................................... 18
Voting of Proxies........................................... 19
Revocability of Proxies..................................... 19
Record Date; Shares Entitled to Vote; Quorum................ 19
Dissenters' Rights.......................................... 19
Solicitation of Proxies..................................... 21
THE MERGER AND RELATED TRANSACTIONS............................. 21
The Merger.................................................. 21
Background of the Merger; Recommendation of the Board of
Directors of E/C; and Reasons for the Merger............. 21
Effective Time of the Merger................................ 22
Operations After the Merger................................. 22
Consideration for Shares.................................... 22
Performance Units........................................... 23
Limitations................................................. 23
Election Procedures......................................... 24
Allocation of Cash, Shares and Notes........................ 24
Cash in Lieu of Fractional Shares........................... 25
Payment for Shares.......................................... 25
The Reorganization Agreement................................ 26
Distributions Prior to Closing.............................. 27
Conditions to the Merger.................................... 27
Termination; Liquidated Damages; Termination Fee............ 30
Expenses.................................................... 32
Amendment; Waiver........................................... 32
Certain Federal Income Tax Consequences..................... 32
Tax Lock-up Letters......................................... 35
Resale of La-Z-Boy Common Stock; Restrictions on Transfer... 35
Stock Listing............................................... 36
MANAGEMENTPROJECTIONS. MANY OF
THE SURVIVING CORPORATION AFTERFACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND LADD'S
ABILITY TO CONTROL OR PREDICT. SHAREHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THE MERGER........ 36
PRO FORMA CONDENSED COMBINEDPROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS
WILL BE REALIZED OR THAT LADD'S FUTURE FINANCIAL INFORMATION.............. 36
ENGLAND/CORSAIR, INC............................................ 41
Selected Financial Data..................................... 41
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 43
Business and Properties..................................... 47
Market Price of Stock and Dividends......................... 47
Management and Related Matters.............................. 47
Principal Shareholders...................................... 50
Certain Relationships and Related Transactions.............. 51
LA-Z-BOY CHAIR COMPANY.......................................... 51
DESCRIPTION OF LA-Z-BOY CAPITAL STOCK........................... 51
General..................................................... 51
La-Z-Boy Preferred Stock.................................... 52
La-Z-Boy Common Stock....................................... 52
Certain Articles Provisions................................. 53
Certain MBCA Provisions..................................... 53
Certain Potential Anti-Takeover Effects..................... 55
COMPARISON OF SHAREHOLDER RIGHTS AND CHARTER DOCUMENTS.......... 55
Capital Structure........................................... 56
Board of Directors; Removal; Vacancies...................... 56
Dissenters' Rights.......................................... 57
Certain Differences Concerning Shareholder Voting and
Extraordinary Transactions............................... 57
Derivative Proceedings...................................... 58
Director Liability; Indemnification........................ 58
Other Matters............................................... 59
DESCRIPTION OFRESULTS WILL NOT MATERIALLY
VARY FROM THE LA-Z-BOY NOTES............................... 60
General..................................................... 60
Interest Rate and Payment................................... 60
Scheduled Principal Payments................................ 60
Optional Prepayment......................................... 60
Ranking..................................................... 60
Limited Transferability..................................... 60
DESCRIPTION OF INDENTURE........................................ 61
General..................................................... 61
Certain Covenants of La-Z-Boy............................... 61
Redemption Provisions....................................... 62
Merger and Consolidation.................................... 62
Events of Default........................................... 62
Defeasance.................................................. 63
Modification of the Indenture............................... 63
The Designated Representative............................... 64
DESCRIPTION OF THE PERFORMANCE UNITS............................ 64
LEGAL MATTERS................................................... 64
EXPERTS......................................................... 64
ENGLAND/CORSAIR, INC. FINANCIAL STATEMENTS......................F-1
INDEX TO FINANCIAL STATEMENTS...................................F-1
ANNEXES
A. Reorganization Agreement
B. Plan of Merger
C. Chapter 23 of TBCA
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LA-Z-BOY, LZB ACQUISITION, OR
E/C. THIS PROXY STATEMENT/PROSPECTUSPROJECTIONS. WHILE LADD REGULARLY UPDATES ITS PROJECTIONS FOR
INTERNAL PLANNING PURPOSES, IT DOES NOT CONSTITUTE AN OFFERINTEND TO SELL,PUBLISH ANY UPDATED OR
A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF LA- Z-BOY, LZB ACQUISITION, OR E/C SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECTREVISED PROJECTIONS EXCEPT AS OF ANY TIME SUBSEQUENT
TO SUCH DATE. ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
RELATING TO LA-Z-BOY AND ITS SUBSIDIARIES HAS BEEN SUPPLIEDREQUIRED BY LA-Z-BOY, AND
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO E/C
HAS BEEN SUPPLIED BY E/C.
AVAILABLE INFORMATION
La-Z-Boy is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission").LAW.
The reports, proxy
statements, and other information filed by La-Z-Boy with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, material filed by La-Z-Boy can be inspected at
the offices of the New York Stock Exchange, Inc. (the "NYSE"), 11 Wall Street,
New York, New York 10005, and of the Pacific Stock Exchange (the "PSE"),
233 South Beaudry Ave., Los Angeles, California 90012.
La-Z-Boy has filed with the Commission a Registration Statement on
Form S-4 (registration no. 33-__________, together with any amendments thereto,
the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the following: (i) 2,000,000 shares of the
common stock, $1.00 par value per share, of La-Z-Boy (the "La-Z-Boy Common
Stock"); (ii) $10,000,000 principal amount of La-Z-Boy's 8% Unsecured
Promissory Notes Due 1999 (the "La-Z-Boy Notes"); and (iii) 297,330 performance
units, the terms of which are more fully described herein (the "Performance
Units"). This Proxy Statement/Prospectus does not contain all the information set forth inbelow should be read together with the
Registration Statement and the exhibits thereto. Such
additional information may be inspected and copied as set forth above.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, previously filed by La-Z-Boy with the Commission,
are incorporated into this Proxy Statement/Prospectus by reference:
1.LADD's Annual Report on Form 10-K for the fiscal year ended
April 30, 1994;
2.January 2, 1999, LADD's most recent Quarterly ReportsReport on Form 10-Q for the
quartersquarter ended July 30, 1994 and October 29, 1994;
3. Current Reports on Form 8-K dated June 2, 1994,
January 13, 1995, January 27, 1995 and February 6, 1995; and
4. The description of the La-Z-Boy Common Stock
contained in the Registration Statement on Form 8A dated August
5, 1987.
All documents filed by La-Z-Boy with the Commission after the date of this
Proxy Statement/Prospectus and prior to the date of the Meeting pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Exchange Act shall be deemed to be
incorporated by reference into this Proxy Statement/Prospectus and made a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS REFERENCES DOCUMENTS WHICH ARE NOT
PRESENTED OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE AVAILABLE, WITHOUT CHARGE,
TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST TO GENE M. HARDY,
SECRETARY, LA-Z-BOY CHAIR COMPANY, 1284 NORTH TELEGRAPH ROAD, MONROE, MICHIGAN
48161, TELEPHONE (313) 242-1444. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY ___________________,
_____________________, 1995.
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of E/C
in connection with the solicitation of proxies by the Board of Directors of E/C
for use at E/C's Special Meeting of Shareholders (including any adjournments or
postponements thereof, the "Meeting") on ____________________, 1995.
At the Meeting, the shareholders of E/C will be asked to approve: (i) the
Amended and Restated Reorganization Agreement dated as of January 13, 1995 (the
"Reorganization Agreement") among E/C, La-Z-Boy Chair Company, a Michigan
corporation ("La-Z-Boy"), and LZB Acquisition, Inc., a newly formed Michigan
corporation and a wholly owned subsidiary of La-Z-Boy ("LZB Acquisition");
(ii) the Amended and Restated Plan of Merger dated as of January 13, 1995 (the
"Plan of Merger") among E/C, La-Z-Boy, and LZB Acquisition; and (iii) all of
the transactions contemplated by the Reorganization Agreement1999 and the Plan of
Merger. The transactions contemplated by the Reorganization Agreement and the
Plan of Merger and certain related instruments and agreements executed, or to
be executed, in connection with the Reorganization Agreement and the Plan of
Merger are intended to result in the acquisition of E/C by La-Z-Boy through the
merger of E/C with and into LZB Acquisition (the "Merger"). LZB Acquisition
will be the surviving corporation of the Merger. LZB Acquisition, in its
capacity as the surviving corporation of the Merger, is sometimes referred to
in this Proxy Statement/Prospectus as the "Surviving Corporation."
Upon consummation of the Reorganization, among other things, the following
will occur:
(i) E/C will cease to exist as a separate corporation, and all
of the assets and liabilities of E/C will become assets and liabilities
of LZB Acquisition, which will continue to be a wholly owned subsidiary
of La-Z-Boy;
(ii) holders of E/C Stock of either class will receive, at their
election, either shares of La-Z-Boy Common Stock, La-Z-Boy Notes, cash,
or any combination of the foregoing ("Initial Merger Consideration"),
all in the amounts and subject to the terms and limitations described
in this Proxy Statement/Prospectus; and
(iii) holders of E/C Stock of either class will also receive
Performance Units, the terms of which are described in this Proxy
Statement/Prospectus.
Copies of the Reorganization Agreement (without exhibits or schedules) and
the Plan of Merger are attached as Annexes A and B, respectively, to this Proxy
Statement/Prospectus.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. As this summary is necessarily incomplete,
reference is made to, and this summary is qualified in its entirety by, the
more detailed information containedincluded or
incorporated by reference in this Proxy
Statement/Prospectusproxy statement/prospectus.
Major Assumptions
1999 ASSUMPTIONS
The LADD forecasted financial information for 1999 took into
consideration the actual operating results for the eight months ended August
28, 1999. Assumptions utilized in preparing the forecasted information for the
balance of 1999 were numerous, the most significant of which were:
. Sales growth rate in the second half of 1999 of 1.1% over the first
six months of 1999;
. No significant increases in raw material prices or decreases in raw
material availability;
. Adequate labor supply to meet manufacturing demands;
. Selling, general and administrative expenses in the Annexes hereto. Shareholders are urged to read
this Proxy Statement/Prospectusrange of 14% -
14.5%;
. Capital spending of approximately $10.0 million for the year;
. Interest rate for long-term debt of approximately 6.7% and average
outstanding borrowings of approximately $104 million;
. An effective income tax rate for the Annexes heretoyear of 37%; and
. 8,000,000 shares outstanding.
2000 ASSUMPTIONS
Assumptions utilized in their entirety.
Certain capitalized terms which arepreparing the forecasted financial information
for 2000 were more general than those used but not defined in this summary are
defined elsewhere in this Proxy Statement/Prospectus.
THE COMPANIES
England/Corsair, Inc.
E/C was incorporated underpreparing the laws1999 forecast. The
most significant of the State2000 assumptions were:
. Sales growth rate of Tennesseeapproximately 4%;
. Increase in 1964gross margins as a percent of net sales of 0.6% in 2000
over 1999; and
is headquartered in the State. 8,000,000 shares outstanding.
21
Summary of Tennessee. E/C is engaged primarily in the
manufacture of upholstered furniture. E/C's principal office is located at 402
Old Knoxville Highway, New Tazewell, Tennessee 37825, and its telephone number
is (800) 251-9125. For additional information regarding E/C, see
"England/Corsair, Inc."
La-Z-Boy Chair Company
La-Z-Boy was incorporated under the laws of the State of Michigan in 1941
and is headquartered in the State of Michigan. La-Z-Boy is engaged primarily in
the manufacture of furniture. La-Z-Boy's principal office is located at 1284
North Telegraph Road, Monroe, Michigan 48161, and its telephone number is (313)
242-1444. For additional information regarding La-Z-Boy and its operations, see
"La-Z-Boy Chair Company" and the documents described therein.
LZB Acquisition, Inc.
LZB Acquisition was incorporated under the laws of the State of Michigan
in 1995 and is headquartered in the State of Michigan. LZB Acquisition was
formed for the purpose of serving as the Surviving Corporation of the Merger
and does not engage in any business at this time. Its principal office is
located at 1284 North Telegraph Road, Monroe, Michigan 48161, and its telephone
number is (313) 242-1444.
THE MEETING
A Special Meeting of Shareholders of E/CProjected Financial Information
(in thousands, except per share data)
FISCAL YEAR ---
1999 2000
-------- --------
Net sales.............................................. _623,794$_650,000$
EBITDA................................................. __49,401 __55,500
Net income............................................. __17,343 __20,853
Earnings per share..................................... ____2.17 ____2.61
ACCOUNTING TREATMENT
The merger will be held at 402 Old Knoxville
Highway, New Tazewell, Tennessee at ______ _.m., local time, on ______________,
__________________, 1995 (together with any adjournments or postponements
thereof, the "Meeting"). The Meetingaccounted for by La-Z-Boy as a purchase of a business.
Under this method of accounting, LADD's assets and liabilities will be a joint meetingrecorded
at their fair value, and any excess of holdersLa-Z-Boy's purchase price over the fair
value of E/C's Class A Common Stock, without par value ("E/C Class A Stock"), and its
Class B Common Stock, without par value ("E/C Class B Stock"). In this Proxy
Statement/Prospectus, the E/C Class A Stock and the E/C Class B Stock are
sometimes referred to collectively as the "E/C Stock." See "The Meeting."
At the Meeting, E/C shareholdersLADD's net assets will be asked to considerrecorded as goodwill. LADD's revenues and
vote upon a
proposal (the "Proposal") to approve: (a)expenses will be included in La-Z-Boy's consolidated financial statements from
the Amended and Restated
Reorganization Agreement dated as of January 13, 1995 (the "Reorganization
Agreement") among E/C, La-Z-Boy, and LZB Acquisition; (b) the Amended and
Restated Plan of Merger dated as of January 13, 1995 among E/C, La-Z-Boy, and
LZB Acquisition (the "Plan of Merger"); and (c) all of the transactions
contemplated by the Reorganization Agreement and the Plan of Merger, including
(without limitation)date the merger of E/C with and into LZB Acquisition (the
"Merger"). See "The Meeting -- Matters to Be Considered at the Meeting."
VOTE REQUIRED
Approval of the Proposal requires the affirmative votes of the holders of
a majority of all outstanding shares of E/C Stock of both classes (voting
together as a single voting group), with each such share entitled to one vote.
Approval of the Proposal by the requisite vote of E/C shareholders is a
condition to, andcompleted.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion below is required for, consummation of the Merger. As of
______________, approximately 51.8% of the shares of E/C Stock outstanding and
entitled to vote on the Proposal was held by members of the Board of
Directors, executive officers, and their affiliates. No vote of La-Z-Boy
shareholders is required in connection with the Merger. See "The Meeting --
Vote Required."
RECORD DATE; SHARES ENTITLED TO VOTE
The record date for the Meeting is __________________, 1995. Only E/C
shareholders at the close of business on such date are entitled to notice of,
and to vote at, the Meeting. See "The Meeting -- Record Date; Shares Entitled
to Vote; Quorum."
THE MERGER
In the Merger, E/C will be merged with and into LZB Acquisition, which is
a wholly owned subsidiary of La-Z-Boy and which will be the Surviving
Corporation of the Merger. Upon consummation of the Merger, the Surviving
Corporation will succeed to all the rights and obligations of E/C and will
continue to be a wholly owned subsidiary of La-Z-Boy.
Consideration for Shares
Upon the Merger becoming effective, each share of E/C Stock will be
converted into the right to receive cash, La-Z-Boy Notes, or shares of La-Z-Boy
Common Stock, or a combination thereof, as described below, based on total
merger consideration (excluding the Performance Units) of $32,575,000 and a
value of $30.00 per share of La-Z-Boy Common Stock. Each share of E/C Stock
owned by shareholders who comply with the election procedures set forth in the
Plan of Merger and described herein will be converted into, at their option
(but subject to the limitations set forth in the Plan of Merger and described
under the captions "The Merger and Related Transactions -- Limitations" and
"The Merger and Related Transactions -- Allocation of Cash, Shares and
Notes"), either: $109.558403121 in cash; $109.558403121 principal amount
of La-Z-Boy Notes; or 3.6519467707 shares of La-Z-Boy Common Stock. Each
share of E/C Stock, regardless of, and in addition to, the election made by
the holder thereof, will also be converted into one Performance Unit.
Performance Units will entitle the holders thereof to receive
additional shares of La-Z-Boy Common Stock based on the Pre-Tax Income
(as defined inopinions of Miller,
Canfield, Paddock and determined in accordance with the Plan of Merger) of E/C
during each of the two successive twelve month periods immediately following
the effective time of the Merger. See "The Merger and Related Transactions --
Performance Units" and "Description of Performance Units."
Recommendation of the Board of Directors of E/C; Reasons for the Merger
The Board of Directors of E/C (the "E/C Board") has concluded that the
terms of the Merger are fairStone, P.L.C., counsel to E/C shareholders and that consummation of the
Merger is in the best interests of E/C and its shareholders. In reaching these
conclusions, the E/C Board has considered, among other things, the price being
offered in the Merger in relation to the book value and earnings per share of
E/C Stock. The E/C Board has also considered a number of additional factors
in approving and recommending the terms of the Merger, including, without
limitation, information concerning the financial condition, earnings and
dividend records, and prospects of E/C and La-Z-Boy; the ability of the
combined entity to compete in relevant markets; the compatibility of the
managements of the two organizations; the anticipated tax-free nature of
the Merger to E/C shareholders to the extent they receive La-Z-Boy Common
Stock in exchange for their shares of E/C Stock; and the financial terms of
other recent business combinations in the furniture industry. See "The Merger
and Related Transactions -- Background of the Merger; Recommendation
of the Board of Directors of E/C; Reasons for the Merger."
THE E/C BOARD RECOMMENDS UNANIMOUSLY THAT SHAREHOLDERS VOTE FOR ADOPTION
AND APPROVAL OF THE REORGANIZATION AGREEMENT, PLAN OF MERGER, AND THE MERGER.
Effective Time of the Merger
If the Reorganization Agreement, Plan of Merger, and the Merger are
approved by the E/C shareholders at the Meeting, and assuming that all
other conditions have then been satisfied (see "The Merger and Related
Transactions -- Amendments, Conditions, and Termination"), it is expected that
the Merger will become effective at 5:00 p.m., Detroit, Michigan time, on the
day of the Meeting or as promptly as practicable thereafter. The Merger
will become effective on the date and at the time that appropriate certificate
and articles of merger are filed and have become effective with the Secretary
of State of Tennessee and the Michigan Corporation Bureau, respectively (the
"Effective Time"). See "The Merger and Related Transactions -- Effective Time."
Distributions Prior to Closing
As provided in the Reorganization Agreement, neither La-Z-Boy nor E/C may
either declare or pay any dividends on or make any distributions in respect of
their capital shares prior to the Effective Time, except:
(1) La-Z-Boy may declare and pay dividends on the La-Z-Boy Common Stock in
accordance with its prior practice; and
(2) E/C may (i) pay to its shareholders the cash dividend previously
declared in the amount of 60% of its taxable income for the period of July 1,
1994 to December 31, 1994; (ii) declare and pay to its shareholders dividends
in an amount equal to 40% of its taxable income for the period of January 1,
1995 to the day before the Effective Time; and (iii) declare and pay to its
shareholders dividends in an amount equal to 50% of the net proceeds receivable
by E/C under any policies owned by E/C on the life of Arnold Dwight England.
Conditions to the Merger; Termination
The obligation of La-Z-Boy, and E/C to consummate the Merger is subject to
certain conditions, including the requisite approval by the E/C shareholders,
the continuing truth of the parties' representations and warranties in all
material respects, receipt of certain legal opinions ofKilpatrick
Stockton LLP, counsel to E/CLADD, and La-Z-Boy (including, insummarizes the case of La-Z-Boy's counsel, an opinion in respect
of certainmaterial United States
federal income tax consequences of the Merger),merger. The opinions of counsel are
included as exhibits to La-Z-Boy's registration statement of which this proxy
statement/prospectus forms a part. This discussion is not a comprehensive
description of all of the tax consequences that may be relevant to any given
shareholder. This discussion, and receiptcounsels' opinions, are based upon the
Internal Revenue Code, the regulations of an
opinion from BDO Seidman, the independent accountantsUnited States Treasury
Department, and court and administrative rulings and decisions in effect on the
date of E/C,this proxy statement/prospectus. These authorities may change, possibly
retroactively, and any change could affect the continuing validity of counsels'
opinions and of this discussion.
This discussion, and counsels' opinions, are also based upon:
. representations made by La-Z-Boy and LADD contained in the tax
representation letters attached to the opinions included as exhibits
to E/C's
statusLa-Z-Boy's registration statement; and
. the assumptions that the merger will be effected pursuant to
applicable state law and otherwise completed according to the terms
of the merger agreement and as an "S corporation" fordescribed in this proxy
statement/prospectus.
This discussion, and counsels' opinions, assume that LADD shareholders
hold their shares of LADD common stock as capital assets and do not address the
tax consequences that may be relevant to a particular shareholder receiving
special treatment under some United States federal income tax purposes. See "The Mergerlaws.
Shareholders receiving this special treatment include:
. banks;
. tax-exempt organizations;
. insurance companies;
. dealers in securities or foreign currencies;
. LADD shareholders who received their LADD common stock through the
exercise of employee stock options or otherwise as compensation;
22
. LADD shareholders who are not U.S. persons; and
Related Transactions -- Conditions to. LADD shareholders who hold shares of LADD common stock as part of a
hedge, straddle or conversion transaction.
Neither counsel's opinion addresses any consequences arising under the
Merger."
In certain circumstances,laws of any state, locality or foreign jurisdiction, nor does this discussion.
Based on the Reorganization Agreementassumptions and representations discussed above, it is the Planopinion
of Merger,Miller, Canfield, Paddock and Stone, P.L.C. and Kilpatrick Stockton LLP that
the transactions contemplated thereby, may be terminated at any
time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the shareholders of E/C. In
certain limited circumstances, a termination fee may be payable to one of the
parties by the other party if the Reorganization Agreement is terminated. See
"The Merger and Related Transactions -- Termination; Liquidated Damages;
Termination Fee."
Certain Federal Income Tax Consequences
For a description of the anticipatedmaterial United States federal income tax consequences of the Merger to E/C shareholders, see "The Merger and Related Transactions --
Certain Federal Income Tax Consequences."
Consummation ofmerger are as
follows:
. the Merger is conditioned upon there being delivered an
opinion of La-Z-Boy's counsel to the effect that, (i) the Mergermerger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
. each of La-Z-Boy, LADD and LZB Acquisition Corp., the subsidiary of
La-Z-Boy that will merge with and into LADD, will be a party to the
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code;
. no gain or loss will be recognized by La-Z-Boy, LADD or LZB
Acquisition Corp. as a result of the merger;
. no gain or loss will be recognized by a shareholder of LADD who
exchanges shares of LADD common stock solely for shares of La-Z-Boy
common stock, except with respect to cash received instead of a
fractional share of common stock;
. the aggregate tax basis of the shares of common stock received by a
LADD shareholder who exchanges all of the shareholders' shares of
LADD common stock for shares of La-Z-Boy common stock in the merger
will be the same as the aggregate tax basis of the shares of LADD
common stock surrendered in exchange (reduced by any amount allocable
to a fractional share of common stock for which cash is received);
. the holding period of the shares of La-Z-Boy common stock received by
a LADD shareholder will include the holding period of shares of LADD
common stock surrendered in exchange;
. a LADD shareholder who receives cash instead of a fractional share of
La-Z-Boy's common stock will, in general, recognize capital gain or
loss equal to the difference between the cash amount received and the
portion of the shareholder's tax basis in shares of LADD common stock
allocable to the fractional share; and
. the gain or loss recognized on receipt of cash for a fractional share
will be long-term capital gain or loss for United States federal
income tax purposes if the shareholder's holding period in the shares
of LADD common stock exchanged for the fractional share is more than
one year, and the gain or loss recognized by a dissenting LADD
shareholder will be long-term capital gain or loss if the dissenter's
holding period in his or her shares of LADD common stock is more than
one year.
It is a non-waivable condition to the merger that each of La-Z-Boy and
LADD receive another tax opinion of counsel, prior to completing the merger,
identical in all material respects to their opinions described above. If the
merger is completed, La-Z-Boy will file these new opinions as exhibits to the
registration statement of which this proxy statement/prospectus is a part, by
means of a post-effective amendment to the registration statement. Opinions of
counsel are not binding upon the Internal Revenue Service or the courts.
Neither La-Z-Boy nor LADD has requested or will request an advance ruling from
the Internal Revenue Service as to the tax consequences of the merger.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER
TO EACH LADD SHAREHOLDER WILL DEPEND ON THE FACTS OF THAT SHAREHOLDER'S
SITUATION. LADD SHAREHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER.
23
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the
merger cannot take place until:
. both of us have given to the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice:
. notification that La-Z-Boy and LADD desire to merge; and
. certain information relating to the competitive nature of
the businesses and industries in which La-Z-Boy and LADD
operate; and
. the waiting period expires or is terminated.
We have filed all the notification and report forms required under the
Hart-Scott-Rodino Act, and we received early termination of the waiting period
on November 16, 1999. However, even though the waiting period has been
terminated, the Federal Trade Commission and the Antitrust Division retain the
authority to challenge the merger on antitrust grounds and may seek to enjoin
the completion of the merger, rescind the merger or approve the merger
conditioned on the divestiture of substantial assets of La-Z-Boy, LADD or both.
It also is possible that other state, local or foreign governmental
entities or third parties may seek to challenge the merger. In addition, it is
possible that governmental entities having jurisdiction over La-Z-Boy and LADD
may seek regulatory concessions as conditions for granting approval of the
merger. Under the merger agreement, both of us have agreed to use our
reasonable best efforts to take all actions to obtain all necessary regulatory
and governmental approvals necessary to complete the merger and to address
concerns of regulators and governmental officials. Addressing these concerns
could require that we sell portions of our businesses. While we do not expect
the closing of the merger to be prevented or materially delayed by any
challenge by regulatory authorities within or outside the United States, we can
give no assurance that the required regulatory approvals will be obtained on
terms that satisfy the conditions to completion of the merger or within the
time frame contemplated by La-Z-Boy or LADD. See "Material Terms of the Merger
Agreement--Conditions to the Completion of the Merger" on page 67.
24
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICES AND DIVIDENDS
La-Z-Boy common stock is listed on the New York and Pacific stock
exchanges under the symbol LZB. LADD common stock is traded on the Nasdaq Stock
Market under the symbol LADF.
The table below sets forth, for the periods indicated, the high and low
sale prices of the shares of La-Z-Boy common stock as reported on the NYSE
Composite Transaction Reporting System and of LADD common stock on the Nasdaq
Stock Market and the cash dividends declared on La-Z-Boy common stock. No cash
dividends were declared on LADD common stock during these periods.
La-Z-Boy's common stock prices and the cash dividend amounts in the
following table have been adjusted to reflect La-Z-Boy's three-for-one stock
split effective September 1998.
LA-Z-BOY COMMON STOCK LADD COMMON STOCK
- ----------------------------------------------- -------------------------------------------------------
QUARTER ENDED HIGH LOW DIVIDEND QUARTER ENDED HIGH LOW DIVIDEND
- ----------------------- ------ ------ -------- -------------------------------- ------ ------ --------
April 26, 1997 $12.29 $10.25 $0.07 March 29, 1997 $16.13 $14.38 --
July 26, 1997 12.64 10.59 0.07 June 28, 1997 15.25 12.25 --
October 25, 1997 12.98 11.42 0.07 September 27, 1997 19.38 13.63 --
January 24, 1998 14.94 12.40 0.07 January 3, 1998 18.25 14.50 --
April 25, 1998 17.83 14.31 0.07 April 4, 1998 25.00 14.63 --
July 25, 1998 19.46 16.33 0.07 July 4, 1998 30.50 21.00 --
October 24, 1998 22.50 15.63 0.08 October 3, 1998 31.50 13.63 --
January 23, 1999 20.44 15.25 0.08 January 2, 1999 20.25 13.38 --
April 24, 1999 22.25 17.00 0.08 April 3, 1999 23.25 15.81 --
July 25, 1999 24.56 19.50 0.08 July 3, 1999 22.88 16.88 --
October 23, 1999 24.44 17.94 0.08 October 2, 1999 23.50 17.50 --
Current quarter through Current quarter through December
December , 1999 0.08 , 1999 --
On September 27, 1999, the last full trading day prior to the signing of
the merger agreement, the closing price of La-Z-Boy common stock reported on
the NYSE Composite Transaction Reporting System and the closing price of LADD
common stock on the Nasdaq Stock Market were $20.94 per share and $20.25 per
share, respectively. On December , 1999, the last trading day prior to the
printing of this proxy statement/prospectus for which it was practicable to
include prices, the closing price of La-Z-Boy common stock reported on the NYSE
Composite Transaction Reporting System and the closing price of LADD common
stock on the Nasdaq Stock Market were $ per share and $ per
share, respectively. WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO
MAKING ANY DECISION WITH RESPECT TO THE MERGER.
Following the merger, La-Z-Boy's common stock will continue to be traded
on the New York and Pacific stock exchanges under the symbol LZB.
DIVIDEND POLICY
The merger agreement permits La-Z-Boy to pay regular quarterly cash
dividends to its shareholders prior to completing the merger, and La-Z-Boy
expects to continue to pay dividends on its common stock after the merger.
However, the payment of dividends will be at the discretion of the La-Z-Boy
board of directors and will be determined after consideration of various
factors, including the earnings and financial condition of the post-merger La-
Z-Boy and its subsidiaries. The merger agreement prohibits any dividend
declarations or payments by LADD pending the merger.
25
INFORMATION ABOUT LADD
LADD is one of the largest publicly-traded residential furniture
manufacturers in the United States. It is also one of the world's premier
suppliers of residential furniture for the hospitality, assisted-living and
government markets. In the United States, LADD markets its wide range of
bedroom, living room, occasional and upholstered furniture under the major
brand names American Drew, Barclay, Clayton Marcus, HickoryMark, Lea,
Pennsylvania House and Pilliod. These brands are also exported through LADD
International to more than 50 foreign countries. LADD's products cover most
major price points in both residential casegoods and upholstery. It currently
sells to approximately 6,100 customers, including retail furniture chains,
national general retailers, department stores and independent furniture
retailers.
LADD's contract sales group markets its furniture under the American of
Martinsville brand name to major hotel chains and other institutional
customers. LADD also owns and operates LADD Transportation, a full service
trucking company. LADD is headquartered in Greensboro, North Carolina and
employs approximately 6,700 people. It operates 22 manufacturing facilities in
eight states.
LADD's stock trades on the Nasdaq Stock Market under the symbol LADF.
Other information about LADD is incorporated by reference into this proxy
statement/prospectus as described under "Where You Can Find More Information"
on page 80. Internet users can obtain more information about LADD at
http://www.laddfurniture.com.
INFORMATION ABOUT LA-Z-BOY
The successor to a business founded more than 70 years ago in Monroe,
Michigan, La-Z-Boy is the nation's leading manufacturer of upholstered seating,
and the third largest manufacturer of residential furniture. With approximately
14,000 employees in 35 manufacturing facilities in the United States, Canada,
England, Mexico and Thailand, La-Z-Boy manufactures and sells a wide variety of
upholstered and casegoods furniture under the brand names La-Z-Boy, Hammary,
Kincaid, England/Corsair, Sam Moore, Bauhaus and Centurion.
La-Z-Boy reports its divisions' operations under two segments:
. Residential upholstery. Operating divisions in this segment primarily
manufacture and sell upholstered furniture to dealers. Upholstered
furniture includes recliners, sofas, occasional chairs and reclining
sofas that are mostly or fully covered with fabric, leather or vinyl.
La-Z-Boy's major operating divisions in the residential upholstery
segment are La-Z-Boy Residential, England/Corsair, Sam Moore, Bauhaus
and Centurion.
. Residential casegoods. Operating divisions in this segment primarily
manufacture and sell hardwood or hardwood veneer furniture to
dealers. Casegoods furniture includes dining room tables and chairs,
bed frames and bed boards, dressers, coffee tables and end tables.
La-Z-Boy's operating divisions in the residential casegoods segment
are Kincaid and Hammary.
La-Z-Boy's common stock trades on the New York Stock Exchange and the
Pacific Exchange under the symbol LZB. Internet users can obtain more
information about La-Z-Boy at http://www.la-z-boy.com.
La-Z-Boy was incorporated as a Michigan corporation on May 1, 1941. The
address of its principal executive office is 1284 N. Telegraph Road, Monroe,
Michigan 48162, and its telephone number is (734) 241-4414.
26
LA-Z-BOY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the information in this section in conjunction with the
financial statements and related information that begins on page F-1.
Recent and Pending Acquisitions
Bauhaus's operations are included in La-Z-Boy's results for the entire
quarter ended October 23, 1999 and for approximately five of the six months
ended on that date but not in the comparable periods of the prior year.
After the consummation of the merger, La-Z-Boy will have three reportable
segments: residential upholstery, residential casegoods and contract sales.
Except where expressly stated otherwise, the discussion that follows does not
include any anticipated results of the merger with LADD or the pending
acquisition of Alexvale.
Analysis of Operations
Year Ended April 24, 1999 (1999 compared with 1998)
1999 sales of $1.3 billion were 16% greater than in 1998. About 80% of
the increase was due to internal growth of existing divisions, and the
remainder was due to acquisitions. La-Z-Boy believes that its 1999 internal
growth rate of about 13% exceeded the U.S. industry average for comparable time
periods. Selling price increases per unit were small, but a product mix that
favored higher priced products did yield a favorable impact of approximately 3-
4%. La-Z-Boy did not introduce any major new product lines in 1999 but did
introduce new styles and new collections of styles across all divisions
throughout the year. Of particular note was the joint introduction of the
Thomas Kinkade Home Furnishings Collection by the La-Z-Boy Residential and
Kincaid divisions. In addition, La-Z-Boy added new fabrics to replace slower
moving fabrics throughout the year. La-Z-Boy did not add any major new dealers
in 1999 and did not drop any significant dealers.
Gross profit margin (gross profit dollars as a percent of sales dollars)
increased to 26.5% in 1999 from 25.5% in 1998. An approximate 11% increase in
unit volume had a favorable impact on the gross margin percentage by enabling
absorption of fixed manufacturing costs more efficiently than in the prior
year. The absence of hardwood and plywood supply chain disruptions and
casegoods manufacturing plant consolidations also favorably affected the gross
profit margin percentage. Currency exchange impacts associated with inventory
movements between supply center plants and Residential division plants in the
U.S. to a Residential division plant in Canada had a negative impact on the
gross profit margin percentage. As in 1998, labor wage rates rose moderately,
and purchased material prices were generally flat as decreased prices for
cardboard, batting and polyurethane foam were offset by increased prices for
other materials.
Selling, general and administrative expense decreased to 18.2% of sales
in 1999 from 18.5% in 1998. Bonus related expense was significantly higher in
1999 as compared to 1998 in addition to increased information technology
expenses. The increase in information technology expenses was mainly due to
year 2000 related issues. However, these increases were more than offset by
selling and advertising expenses being lower as a percent of sales.
Fiscal 1999 included 52 weeks, while fiscal 2000 will contain 53. This
increase in the length of the fiscal year will affect sales and other financial
comparisons from year to year.
Year Ended April 25, 1998 (1998 compared with 1997)
1998 sales of $1.1 billion were 10% greater than in 1997. Internal growth
of existing divisions accounted for about 85% of the increase, and the
remainder was due to acquisitions. Internal division growth rates ranged from a
low of 6% to a high of 19%. La-Z-Boy experienced strong sales in almost all
product lines within each division. La-Z-Boy believes that its 1998 internal
growth rate of about 8.5% slightly exceeded the U.S. industry average for
comparable time periods. Selling price increases per unit were small, and there
were no significant shifts to higher or lower priced products. La-Z-Boy did not
introduce any major new product lines in 1998, but it did add new styles and
new collections of styles
27
across all divisions throughout the year. In addition, it added new fabrics to
replace slower moving fabrics throughout the year. La-Z-Boy did not add any
major new dealers in 1998 and did not drop any significant dealers. No one
dealer accounted for 3% or more of sales in 1998.
Gross profit margin declined to 25.5% in 1998 from 26.0% in 1997.
Hardwood and plywood parts production and delivery problems and related
assembly site production disruptions adversely affected gross margins, as did
the elimination of three manufacturing assembly sites. La-Z-Boy also
encountered cost problems at multiple sites trying to gear up quickly to meet
unexpectedly high product demand primarily in the second half of the year.
These items mostly affected plant overhead costs and unfavorable plant labor
variances. 1998 labor wage rates rose a moderate 2%. Purchased materials prices
were about flat compared to 1997 prices. Increased sales volumes, increased
selling prices and lower frame parts costs favorably impacted gross margins.
Selling, general and administrative expense decreased to 18.5% of sales
in 1998 from 18.6% in 1997. A decline in bonus expense and small increases in
some selling expenses more than offset increased (greater than the rate of
sales) professional related expenses, bad debts and information technology
expenses, which include year 2000 costs.
Income tax expense as a percent of pretax income declined to 37.0% in
1998 from 38.7% in 1997, reflecting a favorable shift of earnings to entities
with lower effective tax rates and the settlement of an IRS audit.
Quarter Ended October 23, 1999 Compared to Quarter Ended October 24, 1998
Sales in the second quarter of fiscal year 2000 were up 16% over the
prior year's second quarter. Roughly half of the increase was caused by the
acquisition of Bauhaus, and most of the remaining increase was also in the
upholstery segment. Casegoods sales increased 3% compared to last year. Sales
growth in casegoods was less than in the upholstery segment, primarily due to
product availability problems and some order weakness. Other sales increased
17%, primarily due to stronger sales at La-Z-Boy retail outlets.
Excluding effects of the Bauhaus acquisition, the current quarter's
results to date and incoming sales orders indicate that third quarter sales
should increase over the prior year, but at a slower rate than in the second
quarter. This continues a trend from the first quarter, and the trend is
expected to continue into the fourth quarter as well. This trend of declining
sales increases is in part due to very strong prior year sales performance and
in part because of slowing growth of U.S. furniture sales generally.
Gross profit margin decreased to 26.1% of sales from 26.8% of sales in
last year's second quarter on a 16% increase in sales and a 14% increase in
unit volume. Higher labor and overhead costs were incurred during the quarter
as a result of improving plant floor layouts to accommodate additional product
lines and to implement lean manufacturing processes. While causing short-term
disruptions and increased plant labor and overhead costs, these changes are
expected to generate long-term production capacity without the need for
additional facilities. In addition, significant employee training costs were
incurred for new hires, especially in sewing and upholstery. It has become
increasingly difficult to acquire and retain labor in a low unemployment
environment. These labor and overhead cost trends are expected to continue into
the third quarter, but at a lesser degree than experienced in the second
quarter.
Gross profit margin was also somewhat impacted by increased costs for
plywood and cardboard packaging during the second quarter, which were only
partially offset by decreased costs for leather. Costs for plywood in the third
quarter are expected to decrease, but costs for cardboard packaging are
expected to continue to increase. Foam (polyurethane) costs could rise during
calendar year 2000 if oil prices continue to rise. Fabric prices also could be
impacted by higher oil prices, although no increases are presently being
experienced. La-Z-Boy typically renegotiates its foam contracts in December on
a calendar year basis. Fabric prices are typically negotiated throughout the
year. Foam and fabric comprise about 5% and 20%, respectively of total costs in
the upholstery segment.
28
Second quarter selling, general and administrative expenses decreased to
16.2% of sales from 17.8% last year. Information technology, bad debt and
selling expenses as a percent of sales were below the prior year. This
favorable trend is expected to continue throughout fiscal year 2000.
Operating profit as a percent of sales improved from 5.2% to 8.4% in the
casegoods segment and from 10.6% to 11.0% in the upholstery segment. This
continues a trend from the first quarter where casegoods profitability has
increased at a rate faster than upholstery, although casegoods' absolute level
of profitability is still less than upholstery. The primary reasons for the
improvement in second quarter profitability in the casegoods segment were a
lower level of selling price incentives and reductions in selling, general and
administrative expenses.
Interest expense as a percent of sales increased from 0.3% last year to
0.5% due to financing obtained in the first quarter for the acquisition of
Bauhaus.
Income tax expense as a percent of pretax income declined to 38.7% from
39.4% last year. Canadian operating results for the second quarter were
favorable compared to last year's second quarter. Since La-Z-Boy's Canadian
operation has net operating loss carryforwards to offset income, this resulted
in a decrease to the second quarter effective tax rate.
Six Months Ended October 23, 1999 Compared to Six Months Ended October 24,
1998
Sales in the six months ended October 23, 1999 were up 18% over the prior
year. Roughly 6% of the 18% sales increase was caused by the acquisition of
Bauhaus, which occurred in June, 1999. Most of the remaining increase was in
the upholstery segment. Casegoods sales increased 6% compared to last year.
Gross profit margin increased to 25.6% of sales from 25.4% of sales in
the first six months of the last fiscal year on an 18% increase in sales and a
17% increase in unit volume. The favorable fixed cost absorption was offset in
part by higher labor and overhead costs as a result of improving plant floor
layouts to accommodate additional product lines and implement lean
manufacturing processes. The gross profit margin was also somewhat impacted by
increased costs for plywood, which were only partially offset by decreased
costs for leather.
For the six months ended October 23, 1999, selling, general and
administrative expenses decreased to 17.1% of sales from 18.4% last year.
Information technology, bad debt and selling expenses as a percent of sales
were below the prior year.
Operating profit as a percent of sales improved from 5.4% to 9.3% in the
casegoods segment and 8.4% to 9.3% in the upholstery segment.
Interest expense as a percent of sales increased from 0.4% last year to
0.5% due to financing obtained in the first quarter for the acquisition of
Bauhaus.
Income tax expense as a percent of pretax income declined to 38.6% from
39.5% last year caused by the favorable Canadian operating results previously
discussed.
Liquidity and Capital Resources
Cash flows from operations amounted to $82 million in fiscal 1999.
Capital expenditures, dividends and stock repurchases totaled approximately
$72.2 million. Cash flows from operations amounted to $20.5 million in the
first six months of fiscal year 2000 compared to $30.2 million in the prior
year. Capital expenditures, dividends and stock repurchases totaled
approximately $41 million during the six-month period, while cash and cash
equivalents decreased by $20.8 million.
Total FIFO inventory at April 24, 1999 was 4% higher than at the end of
fiscal 1998, with raw materials increasing 8%, work-in-process decreasing 8%
and finished goods increasing 16%. The absence of last year's hardwood and
plywood supply chain disruptions permitted a significant reduction in work-in-
process inventory. Finished goods inventory levels were higher primarily due to
increased daily
29
production volumes resulting in more finished product being staged for
shipment. Total FIFO inventory at October 23, 1999 was 20% higher than at the
end of fiscal 1999 and 17% higher than at the end of last year's second
quarter. Of this increase, 6% was due to the acquisition of Bauhaus, 6% was an
increase in finished goods to support additional sales volumes and the
remainder was primarily a raw material and work-in process increase for the
start up of a new upholstery plant.
La-Z-Boy's financial strength is reflected in two commonly used ratios,
the current ratio (current assets divided by current liabilities) and the debt-
to-capital ratio (total debt divided by shareholders' equity plus total debt).
Total debt is defined as current portion of long-term debt plus current portion
of capital leases plus long-term debt plus capital leases. La-Z-Boy's current
ratio was 3.2 to 1 at October 23, 1999 and at the end of fiscal 1999 and 3.1 to
1 at the end of last year's second quarter. At October 23, 1999, the debt to
capital ratio was 22%, compared to 14% at the end of fiscal 1999 and 15% at the
end of last year's second quarter.
As of October 23, 1999, La-Z-Boy had $113 million of unused lines of
credit available under several credit arrangements. Its primary credit
arrangement is a $75 million unsecured revolving credit line currently
scheduled to expire in August 2002. The credit agreement includes covenants
requiring maintenance of certain financial statement ratios. La-Z-Boy is in
compliance with all of the agreement's requirements. To finance the acquisition
of Bauhaus on June 1, 1999, La-Z-Boy borrowed $57 million, which is expected to
be replaced on December 29,1999 by a borrowing under its $75 million revolving
credit line.
The Alexvale acquisition will require approximately $2.2 million for the
cash portion of the purchase price, which La-Z-Boy intends to finance by
borrowing under one of its credit lines or from cash flow from operations.
Alexvale has approximately $4 million of outstanding debt.
LADD has a $175 million asset-based credit facility maturing on July 12,
2001. As of October 2, 1999, LADD's outstanding borrowings under this credit
facility were $97.5 million, and its remaining availability under its borrowing
base formula was $41.2 million. La-Z-Boy intends to terminate the $175 million
LADD credit facility at the closing of the merger and pay off all borrowings
under this facility by borrowing under a new unsecured $150 million bridge loan
that would mature June 29, 2001. La-Z-Boy has obtained a commitment letter for
the new bridge loan and is in the process of negotiating definitive documents.
At October 2, 1999 LADD's total debt was approximately $102 million. In
addition, LADD finances a significant amount of machinery and equipment through
operating lease lines.
La-Z-Boy's capital expenditures were $25.3 million in fiscal 1999 and $22
million during the six months ended October 23, 1999. Without regard to the
pending LADD and Alexvale acquisitions, La-Z-Boy would expect to make capital
expenditures of approximately $8 to $12 million during the remainder of fiscal
year 2000 and approximately $25 to $35 million in fiscal year 2001. Taking the
capital expenditure needs of LADD and Alexvale into account, La-Z-Boy expects
to spend approximately $14 to $18 million during the remainder of fiscal year
2000 and approximately $45 to $55 million in fiscal year 2001. La-Z-Boy does
not currently have any material commitments for capital expenditures.
La-Z-Boy's board of directors has authorized a stock repurchase program,
under which it acquired 1,643,000 shares in 1999, 1,253,000 shares in 1998 and
1,941,000 shares in 1997. Due to repurchases during fiscal 1999, La-Z-Boy was
able to increase diluted earnings per share by $0.02 for the fiscal year. As of
December 9, 1999, 601,243 of the shares authorized for repurchase were still
available for purchase. La-Z-Boy stopped repurchasing shares before LADD sent
this proxy statement/prospectus to you, but after the merger becomes effective,
it expects to be in the market for its shares from time to time as changes in
its stock price and other factors present appropriate opportunities. October
through January are typically part of La-Z-Boy's cyclical lower cash on hand
part of the year. La-Z-Boy is prepared to borrow funds in order to repurchase
shares during this period if necessary. Such borrowings would be expected to be
from La-Z-Boy's credit lines and would be expected to be repaid from cash flow
from operations after the cyclical low period is over.
La-Z-Boy expects to meet its cash needs for pending acquisitions, capital
expenditures, stock repurchases and dividends during the remainder of the
fiscal year 2000 and fiscal year 2001 from cash generated by operations and
borrowings under available lines of credit.
30
La-Z-Boy does not expect continuing compliance with existing federal,
state and local provisions dealing with protection of the environment to have a
material effect on capital expenditures, earnings, competitive position or
liquidity. La-Z-Boy will continue its program of conducting voluntary
compliance audits at its facilities. It has also taken steps to assure
compliance with provisions of Titles III and V of the 1990 Clean Air Act
Amendments. You can find more information about the effect of environmental
matters on La-Z-Boy's financial condition and results of operations in note 12
of the notes to consolidated financial statements on page F-18.
Effect of Merger Accounting Treatment on Future Earnings
La-Z-Boy will account for the LADD merger as a purchase, which requires
allocating the purchase price among the assets acquired and liabilities assumed
from LADD. The final allocations have not been completed. Since various types
of assets have different useful lives for purposes of calculating depreciation
and amortization expense, La-Z-Boy's future earnings will be affected to some
extent by the final allocation. For more information about this subject,
including an example of how a change in the allocation would affect pro forma
earnings, see note (f) under "Unaudited Pro Forma Consolidated Condensed
Financial Information" beginning on page 50.
Year 2000
The year 2000 issue arises from the use of two-digit date fields in
computer programs, which may cause problems as the year changes from 1999 to
2000. These problems could cause disruptions of operations or processing of
transactions.
To address the year 2000 challenge, La-Z-Boy established a year 2000
program office guided by a steering committee consisting of senior executive
management. This office serves as the central coordination point for all year
2000 compliance efforts. The scope of La-Z-Boy's year 2000 project includes
information technology systems and non-information technology systems as well
as third party readiness. La-Z-Boy is on schedule with regard to its internal
plan and believes it is taking the steps necessary to minimize the impact of
the year 2000 challenge.
La-Z-Boy's process for addressing the year 2000 consisted of a five-step
approach. The inventory phase was a comprehensive survey and collection of
information technology and non-information technology systems potentially
affected by the year 2000 issue. The assessment phase was a detailed analysis
and review of each identified system to determine whether or not the year 2000
issue may impact the system. The remediation phase included repair, replacement
or retirement of systems to eliminate year 2000 issues identified in the
assessment phase. The testing phase validated that each system functioned
properly using future date scenarios. The implementation phase consisted of
migrating remediated systems into production usage.
To date, La-Z-Boy has not experienced any significant material mishaps
attributed to the year 2000 issue. Failure dates were identified for
information technology and non-information technology systems and these have
been used as year 2000 project deadlines. As projects have progressed, plans
have been adjusted accordingly taking into consideration failure dates.
The challenges La-Z-Boy faces with regard to its information technology
systems include upgrading of operating systems, hardware and software and
modifying order entry and invoicing programs. La-Z-Boy has taken all reasonable
steps necessary to ensure critical information technology systems are compliant
and compatible. La-Z-Boy has completed the inventory, assessment, remediation,
testing and implementation phases for information technology systems that
handle approximately 97% of consolidated sales. For the remaining information
technology systems, it has completed the inventory, assessment and remediation
phases and substantially completed the testing and implementation phases.
However, additional testing is needed to confirm the year 2000 readiness of
these systems, and it may not be possible to complete this testing by calendar
year end. Contingency plans have been created for these systems. These plans
include manual processes and calculations, alternative back-up systems and
alternative payroll calculations. La-Z-Boy intends to continue testing for
specific date impacts through the end of calendar year 1999.
The primary challenges La-Z-Boy faced with regard to its non-information
technology systems related to plant floor machinery and facility related items.
For these systems, the inventory, assessment, remediation, testing and
implementation phases have been completed. La-Z-Boy believes these systems to
be compliant and compatible.
31
The table that follows provides more information about these systems.
LA-Z-BOY INCORPORATED YEAR 2000 IT AND NON-IT CRITICAL SYSTEMS AND PHASE
COMPLETION DETAIL
DIVISION PHASE
IT AND NON-IT SYSTEM INVENTORY ASSESMENT REMEDIATION TESTING IMPLEMENTATION
-------------------- --------- --------- ----------- ---------- --------------
LA-Z-BOY--RESIDENTIAL,
BUSINESS FURNITURE
GROUP
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Local Area Network...... C C C C C
Mainframe System........ C C C C C
Plant Floor Equipment... C C C C C
Manufacturing Execution
System................. C C C C C
HAMMARY
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Local Area Network...... C C C C C
Mainframe System........ C C C C C
Plant Floor Equipment... C C C C C
KINCAID
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
AS/400 System........... C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
ENGLAND/CORSAIR
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Mainframe System........ C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
SAM MOORE
Order
Processing/Invoicing... C C C 12-31-1999* 12-31-1999*
Inventory
Management/Purchasing--
Upholstery............. C C C 12-31-1999* 12-31-1999*
Inventory Management--
Frame.................. C C C 12-31-1999** 12-31-1999**
Payroll/Human
Resources--Upholstery.. C C C 12-31-1999* 12-31-1999*
Time and
Attendance/Payroll--
Frame.................. C C C 12-31-1999** 12-31-1999**
Financials (AR, Cash,
AP, GL, FA)............ C C C 12-31-1999* 12-31-1999*
Mid-Range Computer
System................. C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
BAUHAUS U.S.A., INC.
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
AS/400 System........... C C C C C
Plant Floor Equipment... C C C C C
CENTURION
Order
Processing/Invoicing... C C C C C
Inventory
Management/Purchasing.. C C C C C
Payroll/Human
Resources.............. C C C C C
Financials (AR, Cash,
AP, GL, FA)............ C C C C C
Local Area Network...... C C C C C
Plant Floor Equipment... C C C C C
- --------
C-- Phase has been completed as of the date of filing.
* -- Original target completion date 11-30-1999.
** -- Original target completion date 12-10-1999.
32
With respect to third party readiness, La-Z-Boy is continuing to work
with customers, suppliers and service providers to prevent disruption of
business activities. La-Z-Boy is using multiple approaches to determine
compliance, such as written communication, oral communication and website
disclosure reviews, based on the priority assigned to the third party. For
critical third parties, oral communications have been the primary means to
obtain compliance information. Based on communications with these third
parties, La-Z-Boy believes that all critical third parties will be sufficiently
prepared for the year 2000 or La-Z-Boy has made or is in the process of making
alternative plans.
While La-Z-Boy believes it is preparing adequately for all year 2000
concerns, the year 2000 computer date changeover will be a unique event that by
its nature involves many unknowns. Internal or external system failures may
still occur, and it is possible that some of them could have a material adverse
effect on La-Z-Boy's results of operations, liquidity and financial condition.
La-Z-Boy is continuing to assess the operational risks related to the year 2000
issue. La-Z-Boy believes that the most likely worst case scenario would be
business interruptions caused by third party failures. La-Z-Boy has developed
contingency plans for issues of concern relating to critical third party
providers. These plans include building inventory levels and/or using
alternative sources. La-Z-Boy also has developed contingency plans for its own
information technology and non-information technology systems. For the
information technology systems, these plans include advance printing of
production information, alternative back-up systems, possible delays in monthly
closing cycles and rolling back of dates. For non-information technology
systems, specifically plant floor equipment, the contingency plans include
forward advancement of dates and/or rolling back of dates. La-Z-Boy intends to
refine its contingency plans through the end of calendar year 1999.
La-Z-Boy estimates that total year 2000 related costs will be between $11
and $12 million. To date, La-Z-Boy has spent approximately $10.5 million. Total
estimated expenditures include both remediation and, in some cases, enhancement
or improvement related costs that cannot easily be separated from remediation
costs. La-Z-Boy had previously planned some of these enhancements or
improvements and merely accelerated them as a means to address year 2000
challenges.
Accounting for Derivative Instruments and Hedging Activities
In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which will
be effective for La-Z-Boy's fiscal year 2002. SFAS No. 133 requires a company
to recognize all derivative instruments as assets or liabilities in its balance
sheet and measure them at fair value. La-Z-Boy has not yet determined when it
will implement SFAS No. 133 or what impact implementation will have on its
financial position or results of operations.
33
UNAUDITED QUARTERLY FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
QUARTERS ENDED
----------------------------------- FISCAL YEAR
7/25/98 10/24/98 1/23/99 4/24/99 1999
-------- -------- -------- -------- -----------
Sales......................... $268,880 $334,831 $318,105 $365,829 $1,287,645
Cost of sales................. 205,431 245,062 230,923 265,315 946,731
-------- -------- -------- -------- ----------
Gross profit................ 63,449 89,769 87,182 100,514 340,914
Selling, general and
administrative............... 51,288 59,510 58,758 64,519 234,075
-------- -------- -------- -------- ----------
Operating profit............ 12,161 30,259 28,424 35,995 106,839
Interest expense.............. 1,187 1,164 1,110 979 4,440
Interest income............... 577 471 430 703 2,181
Other income.................. 355 865 962 476 2,658
-------- -------- -------- -------- ----------
Pretax income............... 11,906 30,431 28,706 36,195 107,238
Income tax expense............ 4,722 11,984 10,978 13,412 41,096
-------- -------- -------- -------- ----------
Net income................ $ 7,184 $ 18,447 $ 17,728 $ 22,783 $ 66,142
======== ======== ======== ======== ==========
Diluted earnings per share.. $ 0.13 $ 0.35 $ 0.34 $ 0.43 $ 1.24
======== ======== ======== ======== ==========
FISCAL YEAR
7/26/97 10/25/97 1/24/98 4/25/98 1998
-------- -------- -------- -------- -----------
Sales......................... $212,326 $293,208 $280,520 $321,984 $1,108,038
Cost of sales................. 164,184 215,370 211,688 234,070 825,312
-------- -------- -------- -------- ----------
Gross profit................ 48,142 77,838 68,832 87,914 282,726
Selling, general and
administrative............... 45,357 50,400 50,189 59,577 205,523
-------- -------- -------- -------- ----------
Operating profit............ 2,785 27,438 18,643 28,337 77,203
Interest expense.............. 1,024 1,027 1,048 1,058 4,157
Interest income............... 482 512 568 459 2,021
Other income.................. 750 527 240 2,690 4,207
-------- -------- -------- -------- ----------
Pretax income............... 2,993 27,450 18,403 30,428 79,274
Income tax expense............ 1,267 10,628 6,944 10,515 29,354
-------- -------- -------- -------- ----------
Net income................ $ 1,726 $ 16,822 $ 11,459 $ 19,913 $ 49,920
======== ======== ======== ======== ==========
Diluted earnings per share.. $ 0.03 $ 0.31 $ 0.21 $ 0.37 $ 0.93
======== ======== ======== ======== ==========
Some of the data in the table above is restated to reflect a three-for-
one stock split that was effective in September 1998.
BUSINESS
Principal Products
La-Z-Boy is the third largest residential furniture maker in the U.S.,
one of the largest reclining chair manufacturers in the world and the nation's
leading manufacturer of upholstered seating. It reports its operations under
two segments: residential upholstery and residential casegoods. You can find
more information about La-Z-Boy's segments, including segment financial data,
in note 11 to the audited financial statements beginning on page F-16.
The primary difference between the upholstery and the casegoods segments
is in the manufacturing area. In general, upholstery manufacturing requires
lower capital expenditures per dollar of sales than casegoods but higher labor
costs. Equipment needs and manufacturing processes are different in many key
areas, and product costs reflect these significant differences. Upholstery
typically uses plywood or other "frame" (not exposed) wood, which requires less
detailing and uses some different manufacturing methods than casegoods wood
processing. Casegoods require more extensive automated equipment for drying,
processing, cutting, sanding and finishing exposed hardwood and veneer
products. Wood and related wood processing costs for upholstery (or total frame
costs) are a much smaller
34
percentage of total unit costs in upholstery than casegoods. Upholstery's
largest costs are related to the purchased cost of fabric (or leather, vinyl,
etc.), cutting fabric, sewing the fabric and upholstering the fabric and other
materials to the frame. Casegoods manufacturing typically has none of these
costs or processes. Upholstery also extensively uses filler materials such as
polyurethane foam for cushioning and appearance whereas casegoods manufacturing
typically has none of these costs or processes. Also, in "motion" upholstery
products, such as the La-Z-Boy recliner chair, which are a large portion of
La-Z-Boy's total upholstery sales, there are metal mechanism processes and
costs versus none in casegoods.
La-Z-Boy has recently begun contracting with suppliers in the Far East,
Mexico and Central America to produce some of its casegoods products. During
fiscal 1999, these imported products accounted for about 2% of total
consolidated sales.
In addition to the divisions operating in its two principal business
segments, La-Z-Boy has other operating divisions that are reviewed for
performance by management, including business furniture operations, logistics
operations, financing, retail and other operations.
The largest division is La-Z-Boy Residential, which accounts for the
majority of the upholstery segment. Sales by dealer type during the last three
fiscal years were as follows:
LA-Z-BOY RESIDENTIAL DIVISION 1999 1998 1997
----------------------------- ---- ---- ----
Galleries/proprietary................................... 53% 51% 51%
General dealers......................................... 34 35 36
Department stores/chains................................ 13 14 13
--- --- ---
100% 100% 100%
=== === ===
Recent Acquisitions
On April 29, 1995, La-Z-Boy acquired all of the capital stock of
England/Corsair, Inc., a manufacturer of upholstered furniture. For the twelve
months ended April, 1995, its sales were $103.2 million and income before
income tax expense was $3.9 million.
La-Z-Boy acquired 75% of the ordinary share capital of Centurion
Furniture plc, a furniture manufacturer located in England, during fiscal year
1997 and acquired the remaining 25% during fiscal year 1998. Centurion's sales
for its year ended March 31, 1997 were $12 million.
During fiscal year 1998, La-Z-Boy acquired Distincion Muebles, a
furniture manufacturer located in Mexico. Its sales for its year ended March
30, 1998 were $1.9 million.
On April 1, 1998, La-Z-Boy acquired all of the stock of Sam Moore
Furniture Industries, Incorporated, a manufacturer of upholstered furniture.
For its year ended December 31, 1997, Sam Moore Furniture Industries' sales
were $33 million.
La-Z-Boy acquired Bauhaus U.S.A., Inc., a manufacturer of upholstered
furniture primarily marketed to department stores, on June 1, 1999. Bauhaus's
sales for its fiscal year ended August 31, 1998 were approximately $85 million.
On November 11, 1999, La-Z-Boy signed a definitive agreement to acquire
Alexvale Furniture, Inc., a manufacturer of medium priced upholstered
furniture. Alexvale's sales for its fiscal year ended April 30, 1999 were
approximately $61 million.
Raw Materials
The principal raw materials La-Z-Boy uses are:
. hardwoods for solid wood dining room and bedroom furniture,
casegoods, occasional tables and for the frame components of
seating units
35
. plywood and chipwood for internal parts
. veneers for wall units and occasional tables
. water-based and liquid finishes (stains, sealant, lacquers) for
external wood
. steel for the mechanisms
. leather, cotton, wool, synthetic and vinyl fabrics for covers
. polyester batting and non-chlorofluorocarbonated polyurethane foam
for cushioning and padding
La-Z-Boy generally purchases steel and wood products from a number of
sources, usually in the vicinity of the particular plant. It purchases product-
covering fabrics and polyurethane from a substantial number of sources on a
mostly centralized basis. It fabricates many of the parts in its products,
largely because quality parts made to its exact specifications are not
obtainable at reasonable cost from outside sources.
Raw material costs historically have been about 38% of sales in
upholstery operations and a somewhat higher percentage in casegoods operations.
Purchased fabric (which includes leather) is the largest single raw material
cost, representing about 41% of total upholstery product material costs.
Polyurethane foam and lumber are La-Z-Boy's next two largest types of
upholstery raw material costs. Polyurethane is sensitive to changes in the
price of oil. Price increases for raw materials have been slightly lower than
the inflation rate in recent years.
Lumber and plywood historically have had measurable changes in prices
over the short term and long term. La-Z-Boy usually is not as affected by these
changes as much as many other furniture manufacturers due to the large
percentage of upholstered goods it manufactures that do not require as much
wood as casegoods. Also, wood substitutes, (for example, steel and plastic) can
be used to some degree in upholstered products.
Patents
La-Z-Boy has no material licenses, franchises or concessions. It
currently holds approximately 90 U.S. and 200 foreign patents, and it has
pending applications for approximately 20 U.S. and 130 foreign patents. Most of
La-Z-Boy's patents and pending patent applications are directed to mechanisms
and improvements for its motion furniture products, including its reclining
chair and rocking chair mechanisms. In addition, some of the patents are
directed to furniture designs. Three of La-Z-Boy's U.S. patents and 19 of its
foreign patents are due to expire within the next three years. These patents
are directed to mechanisms for particular furniture products no longer produced
by La-Z-Boy.
La-Z-Boy's original U.S. patents on its mechanisms expired many years
ago. Its management believes that patents were important to its original
success and significantly helped establish its present competitive position and
that its practice of continuing to patent mechanisms and improvements gives it
certain competitive advantages. However, it also believes that, since it is now
so firmly established in the industry, the loss of any single patent or small
group of patents, including the group scheduled to expire in the next three
years, would not materially affect its business.
Seasonal Business
La-Z-Boy generally experiences its lowest level of sales during the first
quarter. When possible, it designs production schedules to maintain generally
uniform manufacturing activity throughout the year, except for mid-summer plant
shutdowns to coincide with slower sales.
Practices Regarding Working Capital Items
La-Z-Boy does not carry significant amounts of upholstered finished goods
inventory. La-Z-Boy builds most casegoods for inventory to provide for quicker
delivery requirements of customers, which results in higher levels of finished
product on hand at any given point in time than is the case with upholstered
products. The Kincaid and Hammary divisions primarily sell casegood products.
La-Z-Boy also sells casegoods through its Business Furniture Group.
Normal customer terms provide for one payment due within 45 days with a
1% discount for payment within 30 days. La-Z-Boy often offers extended payment
terms on sales promotions.
36
Customers
La-Z-Boy distributes to over 20,000 locations. It did not have any
customer whose sales amounted to 3% or more of consolidated sales for fiscal
year 1999.
In fiscal 1999, the approximate dealer mix was 43% proprietary, 16% to
major dealers (Montgomery Ward and other department stores) and 41% to general
dealers. Proprietary dealers are stores either dedicated to the sale of La-Z-
Boy products or with a La-Z-Boy gallery within the store. Dedicated stores
include La-Z-Boy Furniture Galleries stores and Showcase Shoppes. Customers
have established in-store dedicated galleries for many of La-Z-Boy's divisions.
Orders and Backlog
The majority of Residential division orders are for dealer stock, with
approximately 39% of orders being requested directly by customers. About 7% of
the units produced at all divisions are for inventory. The rest are built to
order for dealers.
As of September 26, 1999, backlog was approximately $134 million,
compared to approximately $119 million at September 26, 1998. These amounts
represent less than five weeks of sales. On average, La-Z-Boy ships orders in
approximately five weeks. The measure of backlog at a point in time may not be
indicative of future sales performance. La-Z-Boy does not rely entirely on
backlogs to predict future sales since the sales cycle is only five weeks and
backlog can change from week to week.
La-Z-Boy's general cancellation policy is that an order cannot be
canceled after it has been selected for production. Orders from prebuilt stock,
though, may be canceled up to the time of shipment.
Competitive Conditions
La-Z-Boy believes it ranks third in the U.S. in dollar volume of sales
within the residential furniture industry, which includes manufacturers of
bedroom, dining room and living room furniture. Some of the larger companies
that compete with the residential side of La-Z-Boy are Bassett Furniture, Ethan
Allen, Furniture Brands International, LADD, Lifestyle Furnishings
International and Natuzzi.
La-Z-Boy competes primarily by emphasizing the quality of its products,
dealer support, brand name and a lifetime warranty on its reclining and leg
rest mechanisms.
La-Z-Boy has approximately 15 major competitors in the U.S. reclining or
motion chair field and a substantially larger number of competitors in the
upholstery business as a whole, as well as in the casegoods and business
furniture businesses.
Research and Development Activities
During the last three fiscal years, La-Z-Boy spent the amounts shown in
the chart below for new product development, existing product improvement,
quality control, improvement of current manufacturing operations and research
into the use of new materials in the construction of its products. Customers
generally do not engage in research with respect to La-Z-Boy products.
FISCAL YEAR EXPENSE
----------- ------------
1999................................................. $8.4 million
1998................................................. 9.5 million
1997................................................. 8.3 million
Compliance with Environmental Regulations
La-Z-Boy has been named as a potentially responsible party at six
environmental clean-up sites. Based on a review of all currently known facts
and experience with previous environmental clean-up sites, management does not
anticipate that future expenditures for environmental clean-up sites will have
a material adverse effect on financial condition or results of operations.
37
Number of Employees
La-Z-Boy and its subsidiaries employed 14,061 persons as of November 27,
1999, 12,796 persons as of April 24, 1999 and 12,155 persons as of April 25,
1998.
Export and International Sales
About 1% of total sales are exports. La-Z-Boy sells upholstered furniture
to Canadian customers through its Canadian subsidiary, La-Z-Boy Canada Limited,
and to European customers through its United Kingdom subsidiary, Centurion
Furniture plc. It also derives a small amount of royalty revenues from selling
and licensing its trademarks, trade names and patents to foreign manufacturers.
PROPERTIES
La-Z-Boy operates 35 manufacturing plants, most with warehousing space
and several with divisional offices, an automated fabric-processing center,
five supply centers, and a corporate and divisional office. The table below
shows the location of the plants, the approximate floor space, the principal
operations conducted and the average age of the facility. Some locations listed
in the table have more than one plant.
FLOOR SPACE FACILITIES'
LOCATION (SQUARE FEET) OPERATIONS CONDUCTED AVERAGE AGE
---------------------------------------- ------------- ------------------------ -----------
Bedford, Virginia....................... 285,431 Manufacturing and 40
(Sam Moore) assembly of upholstery
Clearfield, Utah........................ 48,000 Upholstering and 8
(England/Corsair) assembly of upholstery
Dayton, Tennessee....................... 910,880 Manufacturing, assembly 16
(Residential) and warehousing of
upholstery and research
and development
Florence, South Carolina................ 416,249 Manufacturing, assembly 29
(Residential) and warehousing of
upholstery
Florence, South Carolina................ 48,400 Fabric processing center 22
(Residential)
Hudson area, North Carolina............. 1,072,745 Manufacturing, assembly 32
(Kincaid) and warehousing of
casegoods and division
office
Irapuato, Mexico........................ 30,000 Manufacturing of 21
(Distincion Muebles) upholstery
Leland, Mississippi..................... 311,990 Manufacturing, assembly 23
(Contract) and warehousing of
upholstery and
warehousing of Business
Furniture casegoods
Lenoir area, North Carolina............. 654,688 Manufacturing, assembly 31
(Hammary) and warehousing of
primarily casegoods and
some upholstered
products and division
office
Leyland, England, County of Lancashire.. 200,000 Manufacturing and 33
(Centurion) warehousing of
upholstery and division
offices
38
FLOOR SPACE FACILITIES'
LOCATION (SQUARE FEET) OPERATIONS CONDUCTED AVERAGE AGE
---------------------------------- ------------- ------------------------ -----------
Lincolnton, North Carolina........ 375,823 Manufacturing, 31
(Residential and Contract) warehousing and assembly
of upholstery and
casegoods
Monroe, Michigan.................. 242,235 Corporate office, 48
Residential and Business
Furniture Group division
offices
Morristown, Tennessee............. 15,000 Manufacturing of 11
(England/Corsair) upholstery
Neosho, Missouri.................. 560,640 Manufacturing, assembly 23
(Residential) and warehousing of
upholstery
New Tazewell, Tennessee........... 737,978 Manufacturing, assembly 6
(England/Corsair) and warehousing of
primarily upholstery and
division office
Newton, Mississippi............... 742,255 Manufacturing, assembly, 19
(Residential) leather cutting, plywood
cutting and warehousing
of upholstery
Paoli, Indiana.................... 15,000 Manufacturing of 30
(England/Corsair) upholstery
Redlands, California.............. 189,125 Upholstering, assembly 29
(Residential) and warehousing of
upholstery
Siloam Springs, Arkansas.......... 399,616 Upholstering, 4
(Residential) warehousing and assembly
of upholstery
Tremonton, Utah................... 672,770 Manufacturing, assembly 14
(Residential) and warehousing of
upholstery
Waterloo, Ontario................. 257,340 Assembly and warehousing 29
(Residential) of upholstery and
division office
Northeastern Mississippi.......... 479,000 Manufacturing and 22
(Bauhaus) warehousing of
upholstery and division
office
Booneville, Mississippi .......... 190,000 Manufacturing of 10
(England/Corsair) upholstery
Stockton, California.............. 138,000 Manufacturing of 12
(England/Corsair) upholstery
Phanatnikom, Chon Buri, Thailand.. 70,000 Manufacturing of 10
(La-Z-Boy Thailand) upholstery
---------
9,063,165
=========
La-Z-Boy owns its Monroe, Michigan headquarters. It also owns the
Redlands, California; Dayton, Tennessee; Waterloo, Ontario, Canada; Lincolnton,
North Carolina; Lenoir, North Carolina; Hudson, North Carolina; New Tazewell,
Tennessee; Morristown, Tennessee; Bedford, Virginia; Leyland, England,
Booneville, Mississippi and Newton, Mississippi plants and one of the Bauhaus
facilities.
The Florence, South Carolina; Neosho, Missouri; Newton, Mississippi;
Siloam Springs, Arkansas and Tremonton, Utah plant as well as the automated
Fabric Processing Center were financed by the issuance of industrial revenue
bonds and are occupied under long-term leases with government authorities. The
Leland, Mississippi plant is occupied under a long-term lease from the Board of
Supervisors of Washington County, Mississippi. These leases are capitalized by
La-Z-Boy. It also occupies the Clearfield, Utah; Paoli, Indiana, Stockton,
California and Irapuato, Mexico plants and the other three Bauhaus facilities
under long-term leases. The facility in Thailand is leased on a month-to-month
basis.
In the Alexvale transaction, La-Z-Boy will acquire 2 upholstery plants,
totaling approximately 330,000 square feet, a 91,000 square foot frame plant
and an assembly/warehouse facility of 95,000 square feet. The facilities are
located in and around Taylorsville, North Carolina.
39
La-Z-Boy believes that its plants are well maintained, in good operating
condition and will be adequate to meet its present and near future business
requirements.
LEGAL PROCEEDINGS
La-Z-Boy has been named as a defendant in various lawsuits arising in the
ordinary course of business. It is not possible at the present time to estimate
the ultimate outcome of these actions. However, management believes that the
resultant liability, if any, will not be material based on its previous
experience with lawsuits of these types.
La-Z-Boy has been named as a potentially responsible party at six
environmental clean-up sites. Based on a review of all currently known facts
and experience with previous environmental clean-up sites, management does not
anticipate that future expenditures for environmental clean-up sites will have
a material adverse effect on La-Z-Boy's financial condition or results of
operations.
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Table I below identifies each person known to La-Z-Boy to be a beneficial
owner of more than 5% of its common stock, the number and percentage of shares
owned by that person on November 30, 1999, and the merger's effect on that
percentage, and Table II below provides information about the common stock
beneficially owned as of that date by each director and executive officer of
La-Z-Boy and all directors and executive officers as a group. The share
ownership data in the tables concerning a given individual or entity in each
case was provided by that person. Unless otherwise indicated, each person named
in a table has sole voting and investment power over the shares shown for him.
Shares reported in Table II for more than one named individual are
included only once in the total for all directors and executive officers as a
group.
TABLE I
PERCENT OF
CLASS
---------------
NUMBER OF BEFORE AFTER
NAME AND ADDRESS SHARES MERGER MERGER
---------------- ---------- ------- -------
Monroe Bank & Trust, Monroe, Michigan 48161.......... 11,916,772 22.976% 19.501%
The shares shown in Table I are held in various trusts of which Monroe
Bank & Trust is the trustee or a co-trustee. In those capacities, Monroe Bank &
Trust has sole or shared investment and/or voting power over these shares and
accordingly is deemed a beneficial owner of all of them. One of the trusts of
which Monroe Bank & Trust is trustee is a trust for the benefit of participants
in La-Z-Boy's profit sharing plan. As trustee, Monroe Bank & Trust has sole
voting and investment power over the 406,500 shares held in that trust, which
are included in the total shown above.
TABLE II
PERCENT OF
CLASS
-------------
NUMBER
OF BEFORE AFTER
NAME SHARES MERGER MERGER
---- ------- ------ ------
Gerald L. Kiser................................. 98,147 * *
Patrick H. Norton............................... 304,960 * *
Frederick H. Jackson............................ 487,401 * *
Lorne G. Stevens................................ 38,619 * *
Gene M. Hardy................................... 121,254 * *
H. George Levy.................................. 7,200 * *
David K. Hehl................................... 24,972 * *
John F. Weaver.................................. 58,500 * *
Rocque E. Lipford............................... 12,900 * *
40
PERCENT OF
CLASS
--------------
NUMBER OF BEFORE AFTER
NAME SHARES MERGER MERGER
---- --------- ------ ------
James W. Johnston..................... 957,610 1.846% 1.567%
All directors and executive officers
as a group (10 persons).............. 2,111,563 4.071% 3.456%
--------
*less than 1%
For purposes of calculating the percentage of ownership of the group, all
shares subject to options held by any group member that either were exercisable
on, or would become exercisable within 60 days after, the date as of which the
information is given are treated as outstanding, but for purposes of
calculating the percentage of ownership of any individual group member, only
the optioned shares held by that group member are treated as outstanding. Table
II includes the following numbers of optioned shares:
SHARES
COVERED
PERSON BY OPTIONS
------ ----------
Mr. Kiser................ 45,750
Mr. Norton............... 72,301
Mr. Jackson.............. 72,301
Mr. Hardy................ 21,576
Table II also includes the following numbers of shares owned by a named
person's wife, the beneficial ownership of which in each case is disclaimed by
the named person:
SHARES OWNED
PERSON BY WIFE
------ ------------
Mr. Norton.................. 32,540
Mr. Jackson................. 2,400
Mr. Hardy................... 51,330
Mr. Hehl.................... 5,616
Mr. Weaver.................. 46,800
Mr. Lipford................. 2,400
Mr. Johnston................ 162,210
The shares shown in Table II for each of Mr. Jackson, Mr. Hardy and Mr.
Weaver do not include the 406,500 shares held in the trust for La-Z-Boy's
profit sharing plan. These gentlemen act as an informal committee that from
time to time has made investment recommendations to Monroe Bank & Trust, the
trustee. The trustee has sole voting and investment power over the shares in
the trust, and while it has followed the informal committee's recommendations
in the past, it has no obligation to do so.
MANAGEMENT AND RELATED MATTERS
Directors and Executive Officers
La-Z-Boy's board of directors is divided into three classes, two
consisting of three directors and one consisting of four directors. Directors
serve for three-year, staggered terms, such that the terms of office of
directors comprising one of the classes expires each year. The table that
follows provides background information concerning each of the directors and
executive officers:
41
DIRECTORS WITH TERMS EXPIRING IN 2000
DIRECTOR BUSINESS EXPERIENCE AND OTHER
NAME AGE SINCE DIRECTORSHIPS
---- --- -------- -----------------------------
Lorne G. Stevens....... 72 1972 On April 30, 1988, Mr. Stevens retired
from La-Z-Boy as Vice President of
Manufacturing, a position he had held for
more than five years.
*Patrick H. Norton..... 77 1981 In October 1997, Mr. Norton was appointed
Chairman of the Board. Previously, he
served as Senior Vice President, Sales
and Marketing of La-Z-Boy for more than
five years. Mr. Norton is a director of
Culp, Inc.
*Frederick H. Jackson.. 72 1971 Mr. Jackson was appointed Executive Vice
President Finance of La-Z-Boy in October
1997, after holding the position of Vice
President Finance for more than five
years.
DIRECTORS WITH TERMS EXPIRING IN 2001
DIRECTOR BUSINESS EXPERIENCE AND OTHER
NAME AGE SINCE DIRECTORSHIPS
---- --- -------- -----------------------------
*Gene M. Hardy......... 62 1982 Mr. Hardy has been Secretary and
Treasurer of La-Z-Boy for more than five
years.
David K. Hehl.......... 53 1977 Mr. Hehl has been a member in the public
accounting firm of Cooley Hehl Wohlgamuth
& Carlton P.L.L.C. since January 1995 and
previously was a partner of Cooley Hehl
Wohlgamuth & Carlton for more than five
years.
Rocque E. Lipford...... 61 1979 Mr. Lipford has been a senior member in
the law firm of Miller, Canfield, Paddock
and Stone, P.L.C., since January 1994 and
previously was a partner of Miller,
Canfield, Paddock and Stone for more than
five years. Mr. Lipford is a director of
Monroe Bank & Trust.
DIRECTORS WITH TERMS EXPIRING IN 2002
DIRECTOR BUSINESS EXPERIENCE AND OTHER
NAME AGE SINCE DIRECTORSHIPS
---- --- -------- -----------------------------
John F. Weaver......... 83 1971 Mr. Weaver was elected Vice Chairman of
the Board of Monroe Bank & Trust in April
1997 and previously was Executive Vice
President and a director of Monroe Bank &
Trust for more than five years.
James W. Johnston...... 60 1991 Mr. Johnston has been a self-employed
financial and business consultant and
private investor for more than five
years.
H. George Levy, M.D. 50 1997 Dr. Levy has been a Doctor of
Otolaryngology for more than five years.
*Gerald L. Kiser....... 52 1997 Mr. Kiser became Executive Vice President
and Chief Operating Officer of La-Z-Boy
in April 1997. He was promoted to
President and Chief Operating Officer in
October 1997. Previously, he served as
La-Z-Boy's Vice President--Operations
(May 1996-April 1997), as its Vice
President of Engineering and Development
for one year and as Senior Vice President
of Operations of Kincaid Furniture
Company for more than five years.
- --------
*Executive officer
42
Non-employee directors receive annual retainers of $20,000 and a fee of
$750 for each board meeting and each board committee or subcommittee meeting
attended, including telephonic meetings. Employee directors receive no fees for
attendance at meetings.
In addition, pursuant to the restricted stock plan for non-employee
directors, each director who is not an employee director receives an initial
grant of 30-day options on 4,500 common shares upon first becoming a director
and a subsequent grant of 30-day options on 600 common shares at the beginning
of each fiscal year while he continues as a director. The plan contemplates a
present sale of the optioned shares at 25% of market value but provides
restrictions on the transfer or other disposition of the shares by the grantee
during the restricted time, which expires upon the earliest to occur of the
following events: death or disability, retirement from the board, change of
control, or termination of the grantee's service as a director with the consent
of a majority of La-Z-Boy's employee directors, all as defined in the plan.
Executive Compensation
Summary Information
The following table sets forth summary information for fiscal 1999 and
the preceding two fiscal years with respect to the compensation paid to or
earned by each of La-Z-Boy's executive officers:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- ------------------------------------------------------------- ------------------------------
AWARDS PAYOUTS
--------- ----------
OTHER INCENTIVE LONG-TERM ALL
ANNUAL STOCK INCENTIVE OTHER
COMPEN- OPTION PLAN COMPEN-
NAME AND PRINCIPAL SALARY(1) BONUS(1) SATION(2) GRANTS(3) PAYOUTS(4) SATION(5)
POSITION YEAR $ $ $ # $ $
------------------ ---- --------- -------- --------- --------- ---------- ---------
Gerald L. Kiser......... 1999 336,200 290,907(6) (7) 27,600 122,119 40,331(8,9)
President (since
October 1998 294,524 133,139(6) (7) 28,800 54,133 66,751(8,9)
1997; previously
Executive 1997 190,469 90,022 15,600 17,490 39,053
Vice President) and
Chief
Operating Officer
Patrick H. Norton....... 1999 303,848 262,322 27,600 234,844 78,280
Chairman of the Board
(since 1998 292,499 131,318 28,800 121,569 71,189
October 1997;
previously, 1997 291,496 153,778 30,000 63,600 67,219
Senior Vice President
Sales & Marketing)
Frederick H. Jackson.... 1999 303,852 262,322 27,600 234,844 78,354
Executive Vice
President 1998 292,453 131,318 28,000 121,569 71,246
Finance and Chief
Financial 1997 291,496 153,778 30,000 63,600 66,951
Officer
Gene M. Hardy........... 1999 158,900 95,473(6) (7) 9,000 67,635 46,387(8)
Secretary and Treasurer 1998 156,300 54,060(6) (7) 9,750 33,259 45,358(8)
1997 141,486 57,543 8,790 17,490 36,424
- --------
(1) Includes, where applicable, amounts electively deferred by a named
executive under La-Z-Boy's 401(k) plan and directors' fees paid to a named
executive for attendance at board of directors' meetings.
(2) As permitted by SEC rules, does not include La-Z-Boy's cost of providing
perquisites or other personal benefits to named executives, which in each
case and for each fiscal year did not exceed the lesser of $50,000 or 10%
of the named executive's total salary and bonus for the year.
43
(3) All reported option grants have been adjusted to reflect the three-for-one
split of La-Z-Boy's common shares that occurred on September 14, 1998.
(4) All amounts reported in this column relate to performance awards under La-
Z-Boy's performance plan, which is more fully discussed below under "Long-
Term Incentive Compensation Target Awards." As explained there, all
performance awards under that plan are made as grants of common shares or
of discounted 30-day options to purchase common shares. The dollar amounts
reported in this table have been determined by multiplying the number of
shares or options granted by the NYSE closing price for a common share on
the pertinent grant date, reduced, where applicable, by the option exercise
price.
(5) Totals in this column include amounts allocated for named executives to La-
Z-Boy's supplemental executive retirement plan and/or the profit sharing
plan, earnings credited to them under the supplemental executive retirement
plan, and the cash value at date of contribution of matching contributions
made for their accounts under the matched retirement savings plan, which
were made in the form of common shares. Set forth below is a breakdown of
these amounts for fiscal 1999. For information concerning other 1999
amounts included in this column for certain executives, see note (8).
AMOUNTS ALLOCATED TO THE SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
AND OR THE PROFIT SHARING PLAN
------------------------------------
Gerald L. Kiser.......... $ -0-
Patrick H. Norton........ $ 45,150
Frederick H. Jackson..... 45,150
Gene M. Hardy............ -0-
EARNINGS CREDITED ON SUPPLEMENTAL
RETIREMENT BALANCES UNDER THE
SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN
- ---------------------------------
Gerald L. Kiser.......... $ 8,653
Patrick H. Norton........ 31,660
Frederick H. Jackson..... 31,496
Gene M. Hardy............ 11,943
CONTRIBUTIONS UNDER THE MATCHED
RETIREMENT SAVINGS PLAN
-----------------------------------
Gerald L. Kiser......... $1,474
Patrick H. Norton....... 1,470
Frederick H. Jackson.... 1,708
Gene M. Hardy........... 1,444
(6) Does not include a bonus paid to the executive due to his participation
during the year in La-Z-Boy's personal executive life insurance program,
which bonus is included for him under "All Other Compensation" and further
discussed in note (8).
(7) Does not include an amount akin to a partial tax gross up that the
executive received due to his participation in the insurance program, which
amount is included for him under "All Other Compensation" and further
discussed in note (8).
(8) The fiscal 1999 and prior year totals reported for Messrs. Kiser and Hardy
also include certain amounts related to their participation in the
insurance program. Under the insurance program, a participating employee
receives supplemental life insurance intended to provide benefits to the
employee after his retirement and/or to his spouse or other beneficiary
upon his death. An employee participating in the insurance program is not
eligible to receive further contributions for his account under the profit
sharing plan or the supplemental executive retirement plan (which
contributions are not currently taxable to the employee) but does receive
an annual bonus (which is currently taxable) in an amount equal to the
amount of premiums payable by him during the year on his insurance policy
under the program plus an additional 32% of that premium amount, which has
the effect of a partial gross up to the employee for the taxes payable on
the bonus. The program-related bonuses (including tax gross ups) for
Messrs. Kiser and Hardy were $30,204 and $33,000, respectively, in fiscal
1999. Under certain limited circumstances, some or all of the tax gross up
portions of the program-related bonuses paid to a participating employee
would be repayable to La-Z-Boy out of policy proceeds, but La-Z-Boy
considers such repayment in most cases to be a remote possibility at best.
44
(9) In addition to the bonus payments described in note (8), in most cases
(including Mr. Kiser's case but not including Mr. Hardy's case), during the
early years of an insurance program participant's policy, a portion of the
premiums on the policy are paid by La-Z-Boy. The full amount of these
employer-paid premiums is repayable to La-Z-Boy--generally upon the later
of seven years after purchase of the participant's policy or his or her
retirement, but also upon his or her death or other termination of
employment if that were to occur earlier. For purposes of this table,
$19,295 has been included in this column for Mr. Kiser as the estimated
value to him of the premiums paid by La-Z-Boy during fiscal 1999, and the
fiscal 1998 total shown for him in this column also includes an estimated
amount for the value to him of premiums so paid. The fiscal 1999 amount has
been calculated as if the payments were advanced to Mr. Kiser on an
interest-free basis from the time they were paid until May 2004 (the
seventh anniversary of the policy issuance date), and the fiscal 1998
amount was similarly calculated. Depending on the time at which Mr. Kiser
actually leaves La-Z-Boy's employ, the actual value he ultimately receives
from these premium payments may be significantly less or significantly more
than the amounts that have been estimated.
Options
The following table shows all stock options granted to named executives
during fiscal 1999 and the potential realizable value of those grants, assuming
stock price appreciation rates of 5% and 10% annually over the five-year term
of the options. All amounts reported in this table reflect the September 1998
stock split.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERMS ($)(2)
---------------------------------------
INDIVIDUAL GRANTS(1) 5% PER YEAR 10% PER YEAR
---------------------------------------------- ------------------- -------------------
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE OR PRICE AGGREGATE PRICE AGGREGATE
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION PER SHARE VALUE PER SHARE VALUE
NAME (#) FISCAL YEAR ($/SH) DATE ($/SH) ($) ($/SH) ($)
---- ------- --------------- ----------- ---------- --------- --------- --------- ---------
Gerald L. Kiser......... 27,600 6.54 17.5833 7/26/03 4.86 134,079 10.73 296,278
Patrick H. Norton....... 27,600 6.54 17.5833 7/26/03 4.86 134,079 10.73 296,278
Frederick H. Jackson. 27,600 6.54 17.5833 7/26/03 4.86 134,079 10.73 296,278
Gene M. Hardy........... 9,000 2.13 17.5833 7/26/03 4.86 43,722 10.73 96,613
- --------
(1) All of the above options are options to purchase shares of La-Z-Boy common
stock that were granted under La-Z-Boy's 1997 incentive stock option plan.
Normally, options granted under this plan first become exercisable with
respect to one-fourth of the optioned shares on each of the first, second,
third, and fourth anniversaries of the date of the grant and, once
exercisable, remain exercisable until after the fifth anniversary of the
date of grant. However, under the terms of the plan, in the event of a
grantee's death or his or her retirement at or after age 65 (or earlier
with La-Z-Boy's consent), each of his or her then outstanding options would
become immediately exercisable in full and continue to be exercisable for
one year thereafter or, if earlier, the option's scheduled expiration date.
In addition, pursuant to the agreements described on page 45 under "Certain
Agreements," if a change of control were to occur, each then outstanding
option granted to a named executive also would become exercisable in full.
Termination of a named executive's employment under any circumstances other
than those described above would cause all of his then outstanding options
to terminate immediately.
(2) Calculations at the 5% and 10% rates of appreciation used in this table are
required by rules of the SEC. These calculations are not intended to
forecast possible future actual appreciation, if any, in La-Z-Boy's stock
prices. It is important to note that options have potential value for a
named executive only if the common stock price advances beyond the exercise
price shown in the table during the effective five-year option period.
45
The following table provides information as to stock options exercised by
named executives in fiscal 1999 and the value of the remaining options held by
them at the end of that fiscal year. Information in the table on option
exercises that occurred before the September 1998 stock split has been adjusted
to reflect that stock split.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END(2)
SHARES -------------------- --------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME # $(1) # $
- ---- ----------- -------- -------------------- --------------------
Gerald L. Kiser......... 8,280 73,830 31,702/60,188 265,664/260,161
Patrick H. Norton....... 28,800 289,200 69,495/71,325 620,812/357,938
Frederick H. Jackson.... 54,720 548,220 43,575/71,325 361,612/357,938
Gene M. Hardy........... 15,420 154,344 12,726/22,674 104,584/110,775
- --------
(1) Based on the NYSE closing market price of La-Z-Boy's common stock on the
date of exercise, minus the exercise price. An individual, upon exercise of
an option, does not receive cash equal to the amount contained in the Value
Realized column of this table. No cash is realized until the shares
received upon exercise of an option are sold.
(2) Based on the NYSE closing market price of La-Z-Boy's common stock at the
end of fiscal 1999 ($19.00), minus the exercise price.
Long-Term Incentive Compensation Target Awards
Under La-Z-Boy's 1993 performance-based stock plan, as currently in
effect, prior to or early in each fiscal year employees selected by the board
committee or subcommittee then charged with administering the performance plan
(which since 1997 has been a subcommittee of the Compensation Committee of La-
Z-Boy's board and prior to that time was the Compensation Committee) may be
granted contingent target awards the potential payouts on which are linked to
achievement, by the end of a three-year cycle consisting of that and the next
two fiscal years, of performance goals established by the administrative
committee when the target awards are granted. All performance awards under this
plan are structured as options to purchase, or outright grants of, La-Z-Boy
common stock. For each recipient of a target award for a given performance
cycle, his maximum performance award potential, which is awarded after the end
of the cycle if all performance goals are achieved, is a grant of shares equal
to four times the base number of shares established by the administrative
committee with respect to that target award. The minimum potential performance
award, for achievement of only one performance goal during the cycle, is a 30-
day option to purchase the base number of shares at 50% of their fair market
value at date of grant of the target award.
Early in fiscal 1999, the administrative committee granted target awards
to certain employees, including all named executives, for the performance cycle
ending April 28, 2001. As has been the case since the first grant of target
awards under the performance plan, for the 2001 cycle the administrative
committee established four uniform financial goals for all target award
recipients, each relating to the operating performance of La-Z-Boy and its
subsidiaries for that cycle. One of these goals relates to sales growth, the
second to earnings before income taxes, the third to operating profit margin
and the fourth to return on total capital.
The table that follows provides information concerning the target awards
that were granted to named executives. All reported numbers have been adjusted
to reflect the September 1998 stock split.
46
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
PERFORMANCE
NUMBER OF PERIOD
PERFORMANCE UNTIL
SHARES MATURATION THRESHOLD TARGET MAXIMUM
NAME #(1) OR PAYOUT #(2) #(3) #(4)
---- ----------- ----------- --------- ------ -------
Gerald L. Kiser................ 3,278 (5) 3,278 6,555 13,110
Patrick H. Norton.............. 3,278 (5) 3,278 6,555 13,110
Frederick H. Jackson........... 3,278 (5) 3,278 6,555 13,110
Gene M. Hardy.................. 1,163 (5) 1,163 2,325 4,650
- --------
(1) Numbers reported are the base numbers of shares subject to target awards
granted.
(2) Numbers reported are the numbers of shares that would become subject to 30-
day option if only one performance goal is achieved. The per share exercise
price for any such option would be 50% of the fair market value of a share
of La-Z-Boy common stock at the date of grant of the target awards.
(3) Numbers reported are the numbers of shares that would become subject to 30-
day option if two performance goals are achieved. The per share exercise
price for each option would be 25% of fair market value of a share of La-Z-
Boy common stock at the date of grant of the target awards. For achievement
of three performance goals, an outright grant of 150% of the same number of
shares would be made. Under the terms of the performance plan, if a target
award grantee's employment terminates due to death, or if termination is
due to disability or retirement with the consent of La-Z-Boy and the
terminated employee subsequently dies before the end of the performance
cycle, his estate administrator may elect to receive a performance award
prior to the end of the cycle. If the election is made, the estate would
receive either a 30-day option on the number of shares shown in this
column, as if two performance goals had been met, or an outright grant of
that number of shares, depending upon whether employment termination
occurred during the first or second half of the performance cycle.
Termination of the grantee's employment due to death, disability or
consensual retirement otherwise has no effect on any outstanding target
awards of the grantee, but termination for any other reason automatically
cancels those awards.
(4) Numbers reported are the numbers of shares that would be awarded, in the
form of an outright grant, if all performance goals are achieved. Under the
terms of the performance plan, the holder of a target award also will be
deemed automatically to have earned and been granted the same performance
award if a person or group becomes an acquiring person (as defined in the
performance plan) or certain changes in the composition of the board of
directors occur while the target award is outstanding. The same effect upon
then-outstanding target awards also will result, if, while there is an
acquiring person, any of certain other significant transactions involving
La-Z-Boy should occur, unless the transaction has been approved by a
majority of directors who were board members before the acquiring person
became an acquiring person.
(5) The performance cycle until maturation or payout is the three-year period
ending April 28, 2001.
Certain Agreements
La-Z-Boy recognizes that establishing and maintaining a strong management
team are essential to protecting and enhancing the interests of La-Z-Boy and
its shareholders. In order to assure management stability and the continuity of
key management personnel, it has entered into change in control agreements with
certain key employees including, among others, all executive officers named in
the Summary Compensation Table. The employees eligible for change in control
agreements are those selected by the Compensation Committee. Each of these
agreements, all of which were unanimously approved by the board of directors,
provides that if the employee is terminated, other than for cause, disability,
death or retirement, within three years after a change in control of La-Z-Boy,
the employee will be entitled to receive a lump sum severance payment equal to
three times the sum of his annualized salary and average bonus over the
previous three years, as well as certain other payments and benefits, including
continuation of employee welfare benefit payments, and reimbursement of certain
legal fees and expenses incurred by the employee in connection with enforcing
the agreement following a change in
47
control. In consideration of the foregoing, the employee has agreed to remain
in the employ of La-Z-Boy during the pendency of any proposal for a change in
control. The agreements expire December 31, 2000 and are automatically renewed
for additional one-year periods unless either party gives 90 days' notice that
it does not wish to extend the agreement. In the event of a change in control,
the agreements are automatically extended for 36 months.
Certain Transactions
Palm Beach Furniture Company, which has been a La-Z-Boy dealer since
1991, currently operates three La-Z-Boy Furniture Galleries in southeast
Florida. Since December 1996, Palm Beach Furniture has been 100% owned by
Frederick H. Jackson's wife, Jeanne C. Jackson, and before that time, it was
50% owned by their son, Frederick H. Jackson III. The younger Mr. Jackson has
managed Palm Beach Furniture since it commenced operations. Before the current
fiscal year, except for providing inventory financing on normal trade terms,
La-Z-Boy never provided any financial assistance to Palm Beach Furniture.
Last July, La-Z-Boy, for credit reasons, terminated its dealer
arrangements with another, unrelated dealer that had operated three other La-Z-
Boy Furniture Galleries in southeast Florida--one on leased premises owned by a
subsidiary of La-Z-Boy and two on premises leased from third parties. In
connection with the dealer termination, the lease from the La-Z-Boy subsidiary
also was terminated, and La-Z-Boy subsidiaries took over the operations of all
three stores pending identification of an acceptable substitute dealer and,
pursuant to La-Z-Boy's then-existing credit arrangements with the former
dealer, also took over the inventory and other assets of the business,
including the former dealer's lessee interests in the properties leased from
third parties.
One of these leases calls for rental payments of $100,000 per year. The
term of that lease expires on December 31, 2011. La-Z-Boy has expended
approximately $300,000 for leasehold improvements since taking over that lease.
The other lease expired at the end of July 1999. La-Z-Boy has leased a larger,
substitute facility in a more desirable location. The new lease is a triple net
lease for a 5 1/2-year lease term, commencing August 1, 1999, with options to
renew for up to 15 more years. Base rent under that lease is $242,800 per year
for the initial term, with higher subsequent rent if the options are exercised.
La-Z-Boy anticipates that approximately $300,000 in leasehold improvements will
be needed in connection with commencing retail operations at that facility.
La-Z-Boy's management believes that the southeast Florida market has
growth potential for La-Z-Boy's products but that this potential would improve
if dealer operations were more consolidated, which would permit dealer
advertising costs and other fixed dealer costs to be spread over a larger
volume of business. Accordingly, in May 1999, La-Z-Boy's board approved in
principle a proposal for Palm Beach Furniture to take over the operations
formerly conducted by the terminated southeast Florida dealer.
Final documentation of this transfer of operations has not yet been
completed, and some features of the transactions involved remain to be decided.
Currently, the two leased stores are sublet to Palm Beach Furniture on a pass-
through basis. La-Z-Boy will finance the cost of the expected leasehold
improvements to the new leased property, taking back an 8-year promissory note
from Palm Beach Furniture bearing simple interest at 7% per year with payments
of principal and interest due annually, and Palm Beach Furniture also will
agree to repay La-Z-Boy its costs for the leasehold improvements already made
to the other leased property, providing another 8-year promissory note for that
obligation on the same terms.
In addition, the owned property has been leased to Palm Beach Furniture
on the same terms as to the prior tenant. Palm Beach Furniture has an option to
purchase this property (with La-Z-Boy retaining a right of first refusal with
respect to any subsequent sale) for fair market value as determined by an
independent appraiser. If the property is purchased and if requested by Palm
Beach Furniture, La-Z-Boy will finance the purchase over 10 years, taking back
an 8% simple interest promissory note,
48
with principal payments amortized over 20 years and a balloon payment at the
end of the 10-year term, and a first mortgage on the property.
All of the foregoing is subject to board approval of the finalized terms
of the documentation for the transactions involved including documentation
providing normal security and cross-collateralization for all indebtedness now
or in the future owed by Palm Beach Furniture to La-Z-Boy, prohibiting the
incurrence of other mortgages or liens against any of Palm Beach Furniture's
property without La-Z-Boy's consent, and prohibiting the transfer of any
ownership of Palm Beach Furniture other than to the younger Mr. Jackson.
Kevin Norton, the son of Patrick H. Norton, is an independent sales
representative for La-Z-Boy residential products under an agreement providing
for the payment of commissions at various rates. The terms of his agreement,
including the commission rates, are identical to those of La-Z-Boy's agreements
with all of its approximately 90 other residential sales representatives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the La-Z-Boy board
are Mr. Hehl, Dr. Levy and Messrs. Lipford and Weaver, and the current members
of its Compensation Subcommittee are Mr. Hehl and Dr. Levy. No one other than
the current members served on either the Compensation Committee or the
Compensation Subcommittee at any time during fiscal 1999.
The law firm of Miller, Canfield, Paddock and Stone, P.L.C., of which
Rocque E. Lipford is a principal, provides legal services to La-Z-Boy and has
done so for the past 18 years.
49
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to
the acquisition by La-Z-Boy of LADD in a transaction to be accounted for as a
purchase. Under this method of accounting, LADD's assets and liabilities are
recorded at their fair value, and any excess of La-Z-Boy's purchase price over
the fair value of LADD's net assets acquired is recorded as goodwill. The
allocation of the LADD purchase price is based on preliminary estimates of the
fair value of the assets acquired and liabilities assumed. Final determination
of the allocation of the purchase price has not been made. Accordingly, final
amounts could differ from those used in these statements. However, we do not
expect that the impact of any differences would have a material effect on this
pro forma financial information.
The unaudited pro forma consolidated condensed balance sheet reflects the
acquisition by La-Z-Boy of LADD by combining La-Z-Boy's balance sheet as of
October 23, 1999 with that of LADD as of October 2, 1999. The unaudited pro
forma consolidated condensed statements of income treat the acquisition as if
it had occurred as of the beginning of the earliest period presented (April 26,
1998) and combine the results of operations of La-Z-Boy for the year ended
April 24, 1999 and for the six months ended October 23, 1999 (unaudited) with
the results of operations of LADD for the year ended April 3, 1999 (unaudited)
and the six months ended October 2, 1999 (unaudited), respectively. The
unaudited results of operations for LADD's year ended April 3, 1999 were
derived by subtracting unaudited results of operations for the quarter ended
April 4, 1998 from LADD's audited financial statements for the year ended
January 2, 1999, and adding the unaudited results of operations for the quarter
ended April 3, 1999.
The unaudited pro forma consolidated condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the consolidated financial position or results of operations of future periods
or the results that actually would have been realized had La-Z-Boy and LADD
been a consolidated company during the specified periods. This unaudited pro
forma financial information should be read in conjunction with the historical
consolidated financial statements and related notes of both La-Z-Boy and LADD.
La-Z-Boy's historical financial statements and the related notes are included
in this proxy statement/prospectus beginning on page F-1; LADD's are
incorporated into this proxy statement/prospectus by reference. Certain
reclassifications have been made to LADD's historical consolidated financial
statements to conform with the presentation of La-Z-Boy's historical
consolidated financial statements.
50
LA-Z-BOY INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
LA-Z-BOY LADD PRO FORMA
OCTOBER 23, OCTOBER 2, -------------------------
1999 1999 ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
Current assets
Cash and equivalents....... $ 12,769 $ 137 $ (6,000)(a) $ 6,906
Receivables, net........... 281,651 96,113 377,764
Inventories................ 119,578 106,400 10,000 (b) 246,478
10,500 (c)
Deferred income taxes...... 22,660 -- (7,790)(d) 9,597
(5,273)(e)
Other current assets....... 11,510 9,609 21,119
-------- -------- --------- ----------
Total current
assets.............. 448,168 212,259 1,437 661,864
Property, plant and
equipment, net.............. 143,006 66,828 209,834
Goodwill and unallocated
purchase price, net......... 89,271 43,438 24,084 (f) 156,793
Other intangibles, net....... -- 21,467 21,467
Other long-term assets, net.. 39,719 6,326 46,045
-------- -------- --------- ----------
Total assets......... $720,164 $350,318 $ 25,521 $1,096,003
======== ======== ========= ==========
Current liabilities
Current portion--long-term
debt...................... $ 1,585 $ 6,590 $ 8,175
Current portion--capital
leases.................... 844 -- 844
Accounts payable........... 59,506 36,202 95,708
Payroll/other
compensation.............. 44,641 19,131 63,772
Income taxes............... 5,818 7,786 13,604
Deferred taxes............. -- 5,273 $ (5,273)(e) --
Other current liabilities.. 29,393 10,489 39,882
-------- -------- --------- ----------
Total current
liabilities......... 141,787 85,471 (5,273) 221,985
Long-term debt............... 119,594 95,365 214,959
Capital leases............... 1,485 -- 1,485
Deferred income taxes........ 4,995 6,942 (1,900)(d) 10,037
Other long-term liabilities.. 14,554 5,579 5,000 (g) 25,133
Commitments and
contingencies...............
Shareholders' equity
Common shares.............. 52,143 2,350 9,241 (f) 61,384
(2,350)(h)
Capital in excess of par... 32,543 51,459 (51,459)(h) 207,957
176,414 (f)
(1,000)(i)
Retained earnings.......... 354,795 103,152 (103,152)(h) 354,795
Currency translation....... (1,732) -- (1,732)
-------- -------- --------- ----------
Total shareholders'
equity.............. 437,749 156,961 27,694 622,404
-------- -------- --------- ----------
Total liabilities and
shareholders'
equity.............. $720,164 $350,318 $ 25,521 $1,096,003
======== ======== ========= ==========
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial information.
51
LA-Z-BOY INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
----------------------
OCTOBER 23, PRO FORMA
1999 OCTOBER 2, -----------------------
LA-Z-BOY 1999 LADD ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
Sales.......................... $709,395 $303,666 $1,013,061
Cost of sales.................. 527,546 242,794 770,340
-------- -------- ----------
Gross profit................. 181,849 60,872 242,721
Selling, general and
administrative................ 121,896 43,554 $ 436 (j) 165,886
-------- -------- ----- ----------
Operating profit............. 59,953 17,318 (436) 76,835
Interest expense............... 3,305 3,522 6,827
Interest income................ 1,206 40 1,246
Other income................... 1,708 42 1,750
-------- -------- ----- ----------
Pretax income................ 59,562 13,878 (436) 73,004
Income tax expense............. 22,999 5,077 28,076
-------- -------- ----- ----------
Net income................... $ 36,563 $ 8,801 $(436) $ 44,928
======== ======== ===== ==========
Diluted average shares......... 52,610 7,991 62,039
Diluted earnings per share
(k)........................... $ 0.69 $ 1.10 $ 0.72
Basic average shares........... 52,305 7,831 61,546
Basic earnings per share (k)... $ 0.70 $ 1.12 $ 0.73
Dividends per share............ $ 0.16 $ 0.00 $ 0.16
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial information.
52
LA-Z-BOY INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED
-------------------
APRIL 24, APRIL 3, PRO FORMA
1999 1999 ----------------------
LA-Z-BOY LADD ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
Sales............................. $1,287,645 $580,798 $1,868,443
Cost of sales..................... 946,731 467,019 1,413,750
---------- -------- ----------
Gross profit.................... 340,914 113,779 454,693
Selling, general and
administrative................... 234,075 82,721 $ 872(j) 317,668
---------- -------- ----- ----------
Operating profit................ 106,839 31,058 (872) 137,025
Interest expense.................. 4,440 8,762 13,202
Interest income................... 2,181 112 2,293
Other income...................... 2,658 (378) 2,280
---------- -------- ----- ----------
Pretax income................... 107,238 22,030 (872) 128,396
Income tax expense................ 41,096 8,534 49,630
---------- -------- ----- ----------
Net income...................... $ 66,142 $ 13,496 $(872) $ 78,766
========== ======== ===== ==========
Diluted average shares............ 53,148 8,052 62,649
Diluted earnings per share (k).... $ 1.24 $ 1.68 $ 1.26
Basic average shares.............. 52,890 7,829 62,128
Basic earnings per share (k)...... $ 1.25 $ 1.72 $ 1.27
Dividends per share............... $ 0.31 $ 0.00 $ 0.31
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial information.
53
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Adjustment to record acquisition costs of $5,000 and stock issuance costs
of $1,000 to be incurred by La-Z-Boy.
(b) To record inventory at the estimated selling price less cost of disposal
and a profit allowance for the selling effort following the acquisition.
(c) Adjustment to record inventory at fair value by eliminating LADD's LIFO
reserve.
(d) Deferred tax effects of relevant pro forma adjustments at an estimated
effective tax rate of 38%.
(e) Adjustment to reclassify LADD's current deferred tax liability to reflect
the fact that the combined entity has a net current deferred tax asset.
(f) Additional unallocated purchase price arising from the acquisition is
calculated as follows:
Fair value of common stock exchanged (LADD shares of 7,831 at the
exchange ratio of 1.18 resulting in 9,241 shares of La-Z-Boy at
a price per share of $19.442 (1))............................... $ 179,655
Fair value of La-Z-Boy stock options exchanged for those of
LADD............................................................ 6,000
Acquisition costs................................................ 5,000
---------
Consideration.................................................... 190,655
Less: Fair value of LADD's net assets excluding existing goodwill
(2)............................................................. (123,133)
---------
Unallocated purchase price....................................... 67,522
Less: LADD's existing goodwill................................... (43,438)
---------
Additional unallocated purchase price........................ $ 24,084
=========
The allocation of the LADD purchase price is based on preliminary
estimates of the fair value of the assets acquired and liabilities assumed.
Final determination of the allocation of the purchase price has not been
made. Accordingly, final amounts could differ from those used in this pro
forma financial information. However, we do not expect that the impact of
any differences would have a material effect on this pro forma financial
information. A weighted average life of 30 years has been assumed for the
unallocated purchase price for purposes of the pro forma financial
information. If the average life of the unallocated purchase price
decreases by 10 years as a result of the final purchase price allocation,
amortization and depreciation expense would increase in aggregate by
approximately $1,125 per year and pro forma net income would decrease by
approximately $0.02 and $0.009 per diluted share for the year ended April
24, 1999 and for the six months ended October 23, 1999, respectively.
(1) Price per share calculated based on the daily weighted average trade
price for La-Z-Boy stock from September 24,through October 1, 1999,
weighted by the respective day's trading volume.
(2) Net assets of LADD at October 2, 1999........................ $156,961
Less: existing goodwill........................................ (43,438)
--------
113,523
Purchase accounting adjustments:
LADD's LIFO reserve (c)........................................ 10,500
Inventory adjustment to fair market value (b).................. 10,000
Change in control liabilities (g).............................. (5,000)
Deferred taxes at 38% (d)...................................... (5,890)
--------
Preliminary fair value of LADD's net assets.................. $123,133
========
54
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(g) Recognition of additional retirement benefit obligations due to change
in control features in LADD's executive benefit plans.
(h) Elimination of LADD's common shares, capital in excess of par and
retained earnings.
(i) Estimated stock issuance costs in connection with the acquisition.
(j) Adjustment to reflect amortization of goodwill and unallocated purchase
price of $24,084 over 30 years, the approximate period of expected
benefit. See (f) above.
(k) The basic pro forma earnings per share of common stock is based on pro
forma net income and the weighted average number of outstanding common
shares. Diluted pro forma earnings per share of common stock is based
on net income and the weighted average number of outstanding common
shares and the dilutive effect of stock options and restricted stock
units. The combined weighted average number of outstanding common
shares has been adjusted to reflect the exchange ratio of 1.18 shares
of common stock of the combined company for each share of LADD common
stock. The pro forma combined dividends per share reflect the dividends
paid by La-Z-Boy as La-Z-Boy management intends to continue to pay
dividends at the current per-share levels following the acquisition of
LADD. LADD paid no dividends during the pro forma period presented.
55
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of LADD's board of directors with
respect to the merger, you should be aware that certain members of LADD's
management and board of directors have interests in the merger that may be
different from, or in addition to, the interests of your interests as a
shareholder of LADD.
In anticipation of the merger, LADD's board of directors approved
amendments to executive employment agreements and other executive benefit plans
as described below. These amendments were made with the consent of La-Z-Boy.
The amendments described below were intended to have the effect of serving as
an additional inducement to LADD's executive officers to remain in the employ
of LADD during the transition period between the signing of the merger
agreement and the closing of the transaction, and after the completion of the
merger. La-Z-Boy currently intends to retain LADD's executive officers after
the completion of the merger.
EMPLOYMENT AGREEMENTS
LADD has existing employment agreements with the following executive
officers:
. Fred L. Schuermann, Jr., Chairman of the Board, President and Chief
Executive Officer
. Kenneth E. Church, Executive Vice President
. William S. Creekmuir, Executive Vice President and Chief Financial
Officer
. Michael P. Haley, Executive Vice President
. Donald L. Mitchell, Executive Vice President
The employment agreements (all of which are substantially similar) have a
one-year term, which is automatically extended for successive one-year periods
until terminated by either party. The agreements provide that if the executive
officer's employment is terminated at any time during the term of the
employment agreement for any reason other than "for cause" (as defined in the
employment agreement), or if the agreement is not renewed by LADD, the
executive officer shall be entitled to receive in 24 equal monthly payments an
amount equal to two times the sum of (i) his then current base salary and (ii)
the average annual incentive payments to the executive officer during the
preceding three years.
The employment agreements also provide for the payment of severance
benefits to an executive officer if he terminates his employment for "good
reason" during the 12 months immediately preceding or following the effective
date of a change in control of LADD. This proposed merger with La-Z-Boy would
qualify as a change in control under the employment agreements. La-Z-Boy has
agreed to assume and honor these employment agreements following the completion
of the merger.
In anticipation of the merger LADD's board of directors approved
amendments to the employment agreements as follows:
. the definition of "good reason" was changed to exclude the following
as good reason:
. the executive's failure to be elected to or to remain on the
board of directors of LADD or any of its subsidiaries;
. a change in the executive's status or the scope of his assigned
duties and responsibilities resulting from LADD's ceasing to be a
"reporting company" under the provisions of the Securities
Exchange Act of 1934; and
. the insertion of an additional layer of management or a change in
the individual to whom the executive reports, provided there is
not a material change in the scope of personnel or operations
reporting to the executive;
. the definition of "good reason" was changed to provide that no
reduction in incentive compensation shall be deemed to occur if the
executive is offered the same incentive
56
compensation offered to similarly situated executive officers of the
subsidiaries of La-Z-Boy with duties and responsibilities comparable
to those of the executive;
. the definition of "good reason" was changed to provide that good
reason would exist if the executive were required to spend more than
two days per week on a regular basis at a business location not
within 50 miles of the executive's primary business location as of
the change in control;
. upon a change in control, all outstanding stock options shall become
100% vested and immediately exercisable, regardless of whether the
executive terminates employment;
. the executive shall not be obligated in any way to mitigate the
company's obligation to make severance payments to him, and any
amounts the executive earns subsequent to his termination shall not
serve as an offset to the severance payments; and
. terms of all of the employment agreements were changed to expire on
September 28, 2000, subject to the renewal provisions described
above.
EXECUTIVE BENEFIT PLANS
Stock Option Plan
Pursuant to their employment agreements, the outstanding options held by
Messrs. Schuermann, Church, Creekmuir, Haley and Mitchell under LADD's stock
option plan will become 100% vested and immediately exercisable at the
completion of the merger, regardless of whether the executives remain employed
with the combined company. In addition, all previously unvested stock options
held by directors will become 100% vested and exercisable upon completion of
the merger. La-Z-Boy has agreed to allow the director options to continue to
be exercisable over the remainder of their outstanding terms.
Executive Retirement Plan
LADD currently has a nonqualified supplemental retirement plan that
provides supplemental retirement income to key executive officers. Messrs.
Schuermann, Church, Creekmuir, Haley and Mitchell are participants in this
executive retirement plan. La-Z-Boy has agreed to assume and honor the
obligations to the participants under this plan after the completion of the
merger.
In anticipation of the merger with La-Z-Boy, LADD's board of directors
approved the following amendments to the executive retirement plan:
. the plan provided that upon a change in control, all benefits accrued
to a participant under this plan become immediately due and payable;
this provision was amended to exclude the proposed merger with La-Z-
Boy from the provision's definition of a change in control, with the
result that no benefits will be due and payable to the participants
in the plan upon the completion of the merger with La-Z-Boy;
. in the event the executive terminates employment for "good reason"
due to a change in control within one year of the change in control
or is terminated "without cause", the executive's years of service
for purposes of calculating the benefit due him under the plan shall
be made by assuming that the executive remained employed and
continued to earn years of service credit until his 55th birthday;
. all participants under the plan become 100% vested;
. normal retirement age under the plan was reduced from age 65 to age
55, thereby eliminating any discount for payout for payment prior to
age 65;
. the funding of the existing "rabbi trust" for payment of benefits
under the plan shall be completed by January 2002, and supplemental
contributions to maintain the funding shall be made annually
thereafter; and
57
. the participants must consent to any future amendment to the plan.
Other Benefit Plans
In anticipation of the merger with La-Z-Boy (and with La-Z-Boy's
consent), the board of directors amended the 1999 Management Incentive Plan,
1997 Long-Term Incentive Plan, the 1998 Long-Term Incentive Plan and the 1999
Long-Term Incentive Plan to permit acceleration of the payment of performance
bonuses to plan participants on or before the completion of the merger with La-
Z-Boy, and to provide that the entire award would be in cash. In addition, the
1998 and 1999 Long-Term Incentive Plans were further amended to facilitate the
accelerated payment schedule to provide that, if the merger occurs, performance
bonuses under the plans would be determined using a certain percentage (75% for
1998 and 50% for 1999) of each participant's target performance bonus. All
plans were amended to exclude any special expenses related to the proposed
merger with La-Z-Boy from the calculation of the performance bonuses to be
paid. Messrs. Schuermann, Church, Creekmuir, Haley and Mitchell are
participants in these plans.
ADDITIONAL BENEFITS TO EXECUTIVE OFFICERS UNDER THE MERGER AGREEMENT
Pursuant to the merger agreement, should any payment made to one of
LADD's executive officers in connection with the merger be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, La-Z-Boy has
agreed to pay an additional amount sufficient to make the executive officer
whole with respect to the excise tax imposed by Section 4999 and any other
taxes imposed on such additional payment.
MAINTENANCE OF BENEFITS FOR LADD EMPLOYEES
La-Z-Boy has agreed, for a period of one year following the completion of
the merger, to provide LADD employees at the effective time of the merger
employee benefits that, in the aggregate, are no less favorable than the
benefits LADD provides to employees prior to the completion of the merger. La-
Z-Boy has also agreed to recognize:
. for purposes of eligibility, vesting, benefit accrual and
determination of the level of benefits under La-Z-Boy's benefit
plants (other than defined befefit plans), credit for employees'
service with LADD to the same extent LADD recognized it prior to the
completion of the merger; and
. credit for any appropriate out-of-pocket expenses of employees for
purposes of determining their deductible or co-payment expenses under
La-Z-Boy medical plans.
In addition, La-Z-Boy will waive pre-existing condition limitations under any
La-Z-Boy welfare benefit plan in which our employees will be eligible to
participate following the merger's completion to the extent the pre-existing
condition limitation was waived or satisfied under LADD's comparable plans.
INDEMNIFICATION AND INSURANCE
Under the merger agreement, La-Z-Boy will:
. for six years after the completion of the merger, indemnify and hold
harmless LADD's present and former officers, directors and employees
with respect to all acts or omissions by them in their capacities as
such at any time prior to the completion of the merger to the extent
provided under LADD's current charter and bylaws; and
. for six years after the completion of the merger, provide officers'
and directors' liability insurance and employee practices insurance
covering acts or omissions occurring prior to the completion of the
merger by each such person currently covered by LADD's insurance
policies, except that La-Z-Boy is obligated to pay in the aggregate
no more than 200% of the annual premium paid by LADD for such
insurance as of September 28, 1999.
58
OPINION OF LADD'S FINANCIAL ADVISOR
Mann Armistead was engaged by the board of directors of LADD on July 16,
1999. Mann Armistead is a recognized investment banking firm regularly engaged
in the valuation of private and public businesses and their securities in
connection with mergers and acquisitions, competitive biddings and valuations
for estate, corporate and other purposes and acting as financial advisor in
connection with other forms of strategic corporate transactions. Mann Armistead
is actively involved in securities research on the furniture industry. LADD
selected Mann Armistead as its financial advisor because it is a nationally
known investment banking firm with expertise in the furniture industry, its
experience in transactions similar to the merger and because it is familiar
with LADD and its business.
At the September 28, 1999 meeting of the LADD board of directors, Mann
Armistead delivered its opinion to the effect that, as of the date thereof, and
subject to the assumptions, qualifications and limitations set forth therein,
the merger consideration as defined in the merger agreement was fair, from a
financial point of view, to the shareholders of LADD.
We have attached as Annex B to this document the full text of Mann
Armistead's written opinion and urge you to read the opinion in its entirety.
This opinion sets forth the assumptions made, matters considered and
qualifications and limitations on the review undertaken by Mann Armistead and
is incorporated herein by reference. THE SUMMARY OF MANN ARMISTEAD'S OPINION
SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION WHICH IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS. In
reading the discussion of the fairness opinion set forth below, LADD
shareholders should be aware that Mann Armistead's opinion:
. was provided to the LADD board of directors for its use and benefit;
. did not address LADD's underlying business decision to effect the
merger;
. did not constitute a recommendation to the LADD board of directors in
connection with the merger; and
. does not constitute a recommendation to any LADD shareholder as to
how to vote in connection with the merger agreement.
Although Mann Armistead evaluated the fairness, from a financial point of
view, of the merger consideration to the shareholders of LADD, the merger
consideration itself was determined by LADD and La-Z-Boy through arm's-length
negotiations. Mann Armistead provided advice to LADD during the course of such
negotiations. LADD did not provide specific instructions to, or place any
limitations on, Mann Armistead with respect to the procedures to be followed or
factors to be considered by it in performing its analyses or providing its
opinion.
In arriving at its opinion, Mann Armistead, among other things:
. reviewed the merger agreement;
. reviewed the audited financial statements of LADD for the fiscal
years ended January 2, 1999 and January 3, 1998 and for La-Z-Boy for
the fiscal years ended April 24, 1999 and April 25, 1998;
. reviewed the unaudited financial statements of LADD and La-Z-Boy for
the current interim periods ended July 3, 1999 and July 24, 1999,
respectively;
. reviewed operating and financial information, including projections,
provided to it by management of LADD, as well as securities analysts'
expectations, relating to its business and prospects;
. reviewed operating and financial information, including fiscal year
2000 earnings per share estimates, provided to it by management of
La-Z-Boy, as well as securities analysts' expectations, relating to
its business and prospects;
. visited several of the LADD and La-Z-Boy facilities;
59
. met with members of LADD's and La-Z-Boy's senior management to
discuss their companies' operations, historical financial statements,
future prospects and the potential benefits of the merger;
. reviewed the historical prices and trading volume of the common
shares of LADD and La-Z-Boy;
. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which Mann Armistead
deemed generally comparable to LADD and La-Z-Boy;
. reviewed the terms of recent acquisitions of companies which it
deemed generally comparable to the merger; and
. conducted other studies, analyses, inquiries and investigation as it
deemed appropriate.
In preparing its opinion, Mann Armistead relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including projections, provided to, discussed with, or
reviewed by or for it by LADD or otherwise publicly available. With respect to
LADD's projected financial results, Mann Armistead assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgment of the senior management of LADD as to the expected future
performance of LADD. Mann Armistead did not assume any responsibility for the
independent verification of any information or of the projections, and relied
upon the assurances of the senior management of LADD that they were unaware of
any facts that would make the information provided to Mann Armistead incomplete
or misleading. In preparing its opinion, Mann Armistead also relied upon the
accuracy and completeness of all financial and other information furnished to
it by, or on behalf of, La-Z-Boy and did not assume any responsibility for
independent verification of that information.
Mann Armistead also assumed with the consent of LADD that the merger will
(a) qualify as a reorganization for United States federal income tax purposes,
(b) be accounted for under the purchase method of accounting and (c) otherwise
be consummated in accordance with the terms described in the merger agreement,
without the waiver of any material condition and with all necessary material
consents and approvals having been obtained without any limitations,
restrictions, conditions, amendments or modifications that collectively would
be material to Mann Armistead's analysis. In arriving at its opinion, Mann
Armistead did not perform or obtain any independent appraisal of the assets or
liabilities of LADD and La-Z-Boy, nor was it furnished with any appraisals. In
rendering its opinion, Mann Armistead did not solicit, and was not authorized
to solicit, third party acquisition interest in LADD. In addition, Mann
Armistead did not express any opinion as to the price or range of prices at
which LADD common stock or La-Z-Boy common stock may trade subsequent to the
announcement or consummation of the merger. Mann Armistead's opinion is
necessarily based on economic market and other conditions, and the information
made available to Mann Armistead, as of the date of its opinion.
The following is a brief summary of the material valuation and financial
and comparative analyses considered by Mann Armistead in connection with the
rendering of the Mann Armistead opinion. This summary is qualified in its
entirety by reference to the full text of the Mann Armistead opinion.
In performing these analyses, Mann Armistead made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Mann Armistead, LADD and La-Z-Boy. Any estimates contained in the analysis
performed by Mann Armistead are not necessarily indicative of actual values of
future results, which may be significantly more or less favorable than
suggested by this analysis. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities may actually be sold. Accordingly, these analyses
and estimates are inherently subject to substantial uncertainty. In addition,
as described above, Mann Armistead's opinion was among several factors taken
into consideration by the LADD board of directors in making its determination
to approve the merger agreement.
60
The following is a summary of the material analyses performed by Mann
Armistead in connection with its opinion expressed herein:
(A) Comparable Company Analysis. Mann Armistead compared certain operating,
financial, trading and 368(a)(2)valuation information for LADD to certain publicly
available operating, financial, trading and valuation information for
nine selected companies, which, in Mann Armistead's judgment, were
comparable to LADD for purposes of this analysis. More specifically, in
determining LADD's public comparables, Mann Armistead considered LADD's
composition of shipments between residential casegoods, residential
upholstery and contract furnishings when reviewing the total universe of
public furniture companies. Given the lack of exact comparable public
companies, the companies chosen represent, in Mann Armistead's judgment,
reasonable comparables given LADD's different market segments, products
and company size. These companies included:
. Bassett Furniture Industries, Inc. . La-Z-Boy Incorporated
. Chromcraft Revington, Inc. . Pulaski Furniture Corp.
. Falcon Products, Inc. . The Rowe Companies
. Furniture Brands, Inc. . Stanley Furniture, Inc.
. Flexsteel Industries, Inc.
Mann Armistead compared market values of, among other things, current
equity value and enterprise value (equity value, plus total debt, less
cash and cash equivalents) as multiples of the latest twelve months net
income, earnings before interest, taxes, depreciation and amortization
(EBITDA), earnings before interest and taxes (EBIT) and shareholders'
equity. Based on the above described analysis, Mann Armistead determined
the selected companies (based on a closing stock price date of September
22, 1999) rendered on average a multiple range of 9.69 times net income,
5.80 times EBITDA, 7.21 times EBIT and 1.65 times shareholders' equity.
When compared to the merger consideration (and based solely on the
closing price of La-Z-Boy stock on September 27, 1999 of $20.94), Mann
Armistead determined, based on LADD's financial results for the trailing
twelve months ended July 3, 1999, the offer to equate to 13.64 times net
income, 6.55 times EBITDA, 9.44 times EBIT and 1.34 times shareholder
equity. When comparing the above mentioned multiples to multiples
generated from the merger consideration, the following premiums
(discounts) were realized:
SELECTED
TRANSACTION COMPANIES PREMIUM
MULTIPLE MULTIPLE (DISCOUNT)
----------- --------- ---------
Net Income............................ 13.64x 9.69x 40.8%
EBITDA................................ 6.55x 5.80x 12.9%
EBIT.................................. 9.44x 7.21x 30.9%
Shareholders' Equity.................. 1.34x 1.65x (18.8%)
(B) Premium Analysis. Mann Armistead reviewed the merger consideration and
based solely on the closing price of La-Z-Boy stock on September 27, 1999
of $20.94, determined such offer to represent a premium based on market
closing prices for LADD for the following dates noted: 42.2% as of March
29, 1999 (based on $17.38 per share), the date six months prior to the
announcement; 29.2% as of August 27, 1999 (based on $19.13 per share),
the date one month prior to the announcement; and 22.0% as of September
27, 1999 (based on $20.25 per share), the day prior to the announcement.
(C) Merger and Acquisition Analysis. Mann Armistead reviewed and analyzed the
publicly available financial terms of six recently announced and/or
completed merger and acquisition transactions in the furniture industry,
which, in Mann Armistead's judgment were reasonably comparable to the
merger, and compared the financial terms of the transaction to those of
the merger. While the
61
selected transactions do not necessarily reflect the exact terms of the
merger, these transactions are recent furniture transactions and reflect
current market valuations. The six transactions included:
STATUS AT
TIME OF
TARGET ACQUIROR OPINION
------ -------- ---------
Cort Business Services, Inc. Management Buyout Pending*
Knoll Furniture, Inc. Management Buyout Pending*
O'Sullivan Industries, Inc. Management Buyout Pending*
Meadowcraft, Inc. Management Buyout Completed
Shelby Williams Industries, Inc. Falcon Products, Inc. Completed
WinsLoew Furniture, Inc. Management Buyout Completed
--------
* The pending transactions were excluded from the quantitative analysis
due to possible changes in pricing and/or the possibility of
termination or abandonment before closing.
An analysis of the Meadowcraft, Shelby Williams and WinsLoew
transactions (the pending transactions being excluded for the reasons
noted above) rendered an average multiple range of 12.13 times net
income, 7.15 times EBITDA, 8.25 times EBIT and 3.21 times shareholders'
equity. When comparing the above mentioned multiples to multiples
generated from the merger consideration (based solely on the closing
price of La-Z-Boy stock on September 27, 1999 of $20.94), the following
premiums (discounts) were realized:
PREMIUM
(DISCOUNT)
TRANSACTION M&A TO M&A
FINANCIAL RESULT MULTIPLE COMPS. ANALYSIS
---------------- ----------- ------ ----------
Net Income.................................. 13.64x 12.13x 12.4%
EBITDA...................................... 6.55x 7.15x (8.4)%
EBIT........................................ 9.44x 8.25x 14.4%
Shareholders' Equity........................ 1.34x 3.21x (58.3)%
(D) Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Mann Armistead estimated the net present value of the future streams of
after-tax cash flow that LADD could produce on a stand alone basis for
the fiscal year end periods 1999-2002 and a terminal multiple was
utilized to determine value. For this analysis, Mann Armistead
considered various scenarios for the performance of the LADD common
stock using:
. the sales revenue, net income and cash flow projections as supplied by
LADD's senior management;
. a range of 8.0 times to 12.0 times earnings as the terminal value of
LADD's stock (a range determined by using the approximate midpoint of
the selected companies net income multiple analysis); and
. a range of discount rates from 9.0% to 11.0%.
The estimates and ranges used in this analysis were chosen based upon
what Mann Armistead, in its judgment, considered to be appropriate
taking into account, among other things, LADD's past and current
financial performance, the general level of inflation, and rates of
return generally required in the marketplace for companies with similar
risk profiles. This analysis produced a range of per share values of
from $11.49 to $21.67, which represented a premium of 115% and 14%,
respectively, when compared to the merger consideration.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. The opinions are therefore not readily
susceptible to partial analysis or summary description, and taking portions of
the analyses set out
above, without considering the analysis as a whole, would, in the view of Mann
Armistead, create an incomplete and misleading picture of the processes
underlying the analysis considered in rendering its
62
opinion. Mann Armistead did not form an opinion as to whether any individual
analysis or factor (positive or negative), considered in isolation, supported
or failed to support its opinion. In arriving at its opinion, Mann Armistead
considered the results of its separate analysis and did not attribute
particular weight to any one analysis or factor. The analyses performed by Mann
Armistead, particularly those based on estimates and projections, are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by these analyses. These
analyses were performed solely as part of the Mann Armistead analysis of the
fairness, from a financial point of view, of the merger consideration to the
shareholders of LADD.
Pursuant to the terms of its engagement letter with Mann Armistead, LADD
has agreed to pay Mann Armistead a fee based upon the value received by LADD
shareholders. As of the issuance of the Mann Armistead opinion on September 28,
1999, that fee was estimated to be $1.4 million. As of the date of this proxy
statement/prospectus, LADD has paid Mann Armistead approximately $180,000. In
addition, LADD has agreed to reimburse Mann Armistead for all reasonable out-
of-pocket expenses incurred by Mann Armistead in connection with the merger.
LADD has also agreed to indemnify Mann Armistead against certain liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws.
In the ordinary course of business, Mann Armistead has provided
securities research coverage of LADD. Mann Armistead has ceased such coverage
since its engagement by LADD in connection with the merger. In addition,
neither Mann Armistead nor any of its affiliates has performed any investment
banking or other financial services for, or had any material financial
relationship with, LADD during the two years preceding the date of this proxy
statement/prospectus.
63
MATERIAL TERMS OF THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference
to the complete text of the merger agreement, which is incorporated by
reference and attached as Annex A.
STRUCTURE OF THE MERGER
Under the merger agreement, a La-Z-Boy subsidiary will merge into LADD so
that LADD becomes a wholly-owned subsidiary of La-Z-Boy.
TIMING OF CLOSING
The closing will occur within three business days after the day on which
the last of the conditions set forth in the merger agreement has been satisfied
or waived, unless La-Z-Boy and LADD agree to a different date. We expect that,
immediately upon the closing of the merger, we will file merger certificates
with the Michigan Department of Consumer and Industry Services and the
Secretary of State of North Carolina, at which time the merger will be
effective.
MERGER CONSIDERATION
The merger agreement provides that each share of LADD common stock
outstanding immediately prior to the effective time will at the effective time
be converted into the right to receive 1.18 shares of La-Z-Boy common stock.
However, any shares of LADD common stock owned by La-Z-Boy or any subsidiary of
La-Z-Boy will be canceled without any payment for those shares.
TREATMENT OF LADD STOCK OPTIONS; OTHER LADD STOCK-BASED AWARDS
At the effective time, each outstanding option granted by LADD to
purchase shares of LADD common stock will be converted into an option to
acquire La-Z-Boy common stock having the same terms and conditions as the LADD
stock option had before the effective time except for the changes in directors'
options described under "Interests of Certain Persons in the Merger--Executive
Benefit Plans" on page 57. The number of shares that the new La-Z-Boy option
will be exercisable for and the exercise price of the new La-Z-Boy option will
reflect the exchange ratio in the merger.
Each other stock-based award granted by LADD under its employee or
director plans or arrangements maintained as of September 28, 1999 will be
converted, as of the effective time, into a similar La-Z-Boy stock-based award,
adjusted as appropriate to preserve the award's inherent value. You can find
more information about LADD stock-based awards under "Interests of Certain
Persons in the Merger" on page 56.
EXCHANGE OF SHARES
La-Z-Boy will appoint an exchange agent to handle the exchange of LADD
stock certificates in the merger for La-Z-Boy stock and the payment of cash for
fractional shares of LADD stock. Soon after the closing, the exchange agent
will send to each holder of LADD stock a letter of transmittal for use in the
exchange and instructions explaining how to surrender LADD stock certificates
to the exchange agent. Holders of LADD stock that surrender their certificates
to the exchange agent, together with a properly completed letter of
transmittal, will receive the appropriate merger consideration. Holders of
unexchanged shares of LADD stock will not be entitled to receive any dividends
or other distributions payable by La-Z-Boy after the closing until their
certificates are surrendered.
La-Z-Boy will not issue any fractional shares in the merger. Holders of
LADD common stock will receive a cash payment in lieu of their fractional
shares.
64
LADD BOARD
When the merger becomes effective, the directors of La-Z-Boy's
acquisition subsidiary, all of whom are La-Z-Boy employees, will become the
directors of LADD.
CERTAIN COVENANTS
Each of La-Z-Boy and LADD has undertaken certain covenants in the merger
agreement. The following summarizes the more significant of these covenants.
No Solicitation by LADD. LADD has agreed that it and its subsidiaries and
their officers, directors, employees and advisers will not take action to
solicit or encourage an offer for an alternative acquisition transaction
involving LADD of a nature defined in the merger agreement. Restricted actions
include engaging in discussions or negotiations with any potential bidder, or
disclosing non-public information relating to LADD or its subsidiaries or
affording access to their properties, books or records to a potential bidder.
These actions are permitted in response to an unsolicited bona fide offer so
long as prior to doing so:
. the LADD board determines in its good faith judgment that it is
necessary to do so to comply with its fiduciary duty to shareholders,
after receiving the advice of outside legal counsel, and
. LADD receives from such person an executed confidentiality agreement
with terms no less favorable to LADD than those contained in the
existing confidentiality agreement between La-Z-Boy and LADD.
LADD must keep La-Z-Boy informed of the identity of any potential bidder
and the terms and status of any offer.
LADD Board's Covenant to Recommend. The LADD board has agreed to
recommend the approval and adoption of the merger agreement to LADD's
shareholders. However, the LADD board is permitted not to make this
recommendation, to withdraw it or to modify it in a manner adverse to La-Z-Boy
if:
. the LADD board by a majority vote determines in its good faith
judgment that it is necessary to do so to comply with its fiduciary
duty to shareholders under applicable law, after receiving the advice
of outside legal counsel, and
. LADD and the senior officers and directors of LADD have substantially
complied with their obligations under the no-solicitation covenant
described above under "--No Solicitation by LADD."
When you consider the board's recommendation, you should be aware that
members of LADD's board may have an interest in the merger that may be
different from, or in addition to, your interest as a shareholder. See
"Interests of Certain Persons in the Merger" on page 56.
Interim Operations of La-Z-Boy and LADD. Each of La-Z-Boy and LADD has
undertaken a separate covenant that places restrictions on it and its
subsidiaries until either the effective time or the merger agreement is
terminated. In general, La-Z-Boy and its subsidiaries and LADD and its
subsidiaries are required to conduct their business in the ordinary course
consistent with past practice and to use their reasonable best efforts to
preserve intact their business organizations and relationships with third
parties. The companies also have agreed to some specific restrictions which are
subject to exceptions described in the merger agreement. The following table
summarizes the more significant of these restrictions undertaken by each
company:
RESTRICTION LA-Z-BOY LADD
----------- -------- ----
Amending its organizational documents............................ *
Entering into any merger, liquidation or other significant
transaction..................................................... *
Issuing or disposing of equity securities, options or other
securities convertible into or exercisable for equity
securities, except to a limited extent to employees or
directors....................................................... *
65
RESTRICTION LA-Z-BOY LADD
----------- -------- ----
Splitting, combining or reclassifying its capital stock.......... *
Declaring dividends.............................................. *
Redeeming or repurchasing its capital stock, except in limited
instances....................................................... * *
Amending the terms of any outstanding stock options.............. *
Making capital expenditures, subject to scheduled exceptions..... *
Increasing employee compensation or benefits except for normal
ordinary course increases consistent with past practice......... *
Acquiring or disposing of material assets, except for permitted
capital expenditures and disposing of assets pursuant to
existing commitments............................................ *
Changing its accounting policies................................. * *
Entering into any material joint venture or partnership.......... *
Taking any other action that would make any representation or
warranty by it inaccurate in any material respect............... * *
Best Efforts Covenant. La-Z-Boy and LADD have agreed to cooperate with
each other and use their best efforts to take all actions and do all things
necessary or advisable under the merger agreement and applicable laws to
complete the merger and the other transactions contemplated by the merger
agreement.
Employee Matters. In the merger agreement, La-Z-Boy and LADD have agreed
to the following:
. after completion of the merger, La-Z-Boy will cause LADD to honor all
of its obligations under its executive retirement plan, its
management deferred compensation plan, its executive employment
agreements and, subject to certain limitations, its other employee
plans;
. the merger will result in a change in control of LADD under
applicable LADD's stock option plans, executive employment agreements
and supplemental retirement income plan for salaried employees;
. for one year after completion of the merger, LADD employees who
continue their employment will receive benefits, other than salary or
incentive compensation, which, in the aggregate, are no less
favorable than what they currently receive as employees of LADD;
. with certain exceptions, LADD employees who continue their employment
will receive full credit for eligibility, vesting, benefit accrual
and determination of the level of benefits for their LADD service
under the employee benefit plans of La-Z-Boy and its subsidiaries in
which they participate following the merger to the extent that LADD
recognized their service for these purposes before the merger;
. if any payment made to a LADD employee or plan participant is subject
to the excise tax the Internal Revenue Code imposes on "golden
parachute" payments, La-Z-Boy will make an additional payment to that
person in an amount equal to the total of (a) the excise tax, (b) any
related interest or penalty and (c) all income taxes, any excise tax,
and any related interest or penalty the person incurs because of
having received the additional payment.
Please see "Interests of Certain Persons in the Merger," beginning on
page 56 for additional information on employee benefits matters covered in the
merger agreement.
Indemnification and Insurance of LADD Directors and Officers. La-Z-Boy
has agreed that:
. For six years after closing, it will indemnify former LADD directors,
officers and employees for liabilities from their acts or omissions
in those capacities occurring prior to closing to the extent provided
under LADD's articles of incorporation and bylaws as in effect on
September 28, 1999.
. It will cause LADD to honor all indemnification agreements with its
former directors, officers and employees in effect as of September
28, 1999.
66
. For six years after closing, it will provide officers' and directors'
liability insurance and employee practices insurance covering acts or
omissions occurring prior to closing by each person currently covered
by LADD's insurance policies. These La-Z-Boy policies must be no less
favorable than the LADD policies in effect on September 28, 1999,
except that La-Z-Boy will only be obligated to pay up to 200% of the
annual premium paid by LADD for such insurance as of September 28,
1999.
Certain Other Covenants. The merger agreement contains mutual covenants
of the parties, the most significant of which is that each party agrees not to
jeopardize the intended tax treatment of the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations
and warranties made by La-Z-Boy and LADD to each other. The most significant of
these relate to:
. corporate authorization to enter into the contemplated transaction;
. governmental approvals required in connection with the contemplated
transaction;
. absence of any breach of organizational documents, law or material
agreements as a result of the contemplated transaction;
. capitalization;
. ownership of subsidiaries;
. accuracy of filings with the SEC;
. financial statement information provided by it for inclusion in this
proxy statement/prospectus;
. absence of material changes;
. absence of undisclosed material liabilities;
. absence of undisclosed material litigation;
. tax matters;
. employee benefits matters;
. compliance with laws;
. finders' or advisors' fees;
. environmental matters; and
. absence of circumstances inconsistent with the intended tax treatment
of the merger.
In addition, LADD represents and warrants to La-Z-Boy as to other
matters, including the shareholder vote required to approve the contemplated
transaction and the inapplicability of the North Carolina antitakeover
statutes. For information about the antitakeover statutes, see "Comparison of
Shareholder Rights" on pages 76-79.
The representations and warranties in the merger agreement do not survive
the closing or termination of the merger agreement.
CONDITIONS TO THE COMPLETION OF THE MERGER
Mutual Closing Conditions. The obligations of La-Z-Boy and LADD to
complete the merger are subject to the satisfaction or, to the extent legally
permissible, waiver of the following conditions:
. approval by the LADD shareholders;
. absence of legal prohibition on completion of the merger;
67
. La-Z-Boy's registration statement on Form S-4, which includes this
proxy statement/prospectus, being effective and not subject to any
stop order by the SEC;
. approval for the listing on the NYSE of the shares of La-Z-Boy common
stock to be issued in the merger;
. receipt of opinions of La-Z-Boy's and LADD's counsel that the merger
will qualify as a tax-free reorganization (not waivable);
. absence of a material adverse effect or any reasonable expectation of
a material adverse effect on the other company during the period from
September 28, 1999 until closing;
. accuracy as of closing of the representations and warranties made by
the other party to the extent specified in the merger agreement; and
. performance in all material respects by the other party of the
obligations required to be performed by it at or prior to closing.
Additional Closing Conditions for La-Z-Boy's Benefit. La-Z-Boy's
obligation to complete the merger is subject to the following additional
conditions:
. there being no proceeding seeking to limit La-Z-Boy's ownership of
LADD or to compel divestiture of assets, in either case to an extent
that could reasonably be expected to result in a substantial
detriment to La-Z-Boy and LADD taken as a whole;
. there being no statute, regulation or order reasonably likely to
result in such a substantial detriment;
. all regulatory approvals for the merger being obtained on terms that
are not reasonably likely to result in such a substantial detriment;
. receipt of specified third-party consents; and
. receipt of the letters from LADD's affiliates described under
"Federal Securities Law Consequences; Stock Transfer Restrictions" on
page 72.
TERMINATION OF THE MERGER AGREEMENT
Right to Terminate. The merger agreement may be terminated at any time
prior to the closing in any of the following ways:
(a) La-Z-Boy and LADD may terminate the merger agreement by mutual
written consent.
(b) Either La-Z-Boy or LADD may terminate the merger agreement if:
. the merger has not been completed by March 31, 2000. However,
that date becomes June 30, 2000 if the reason for not closing by
March 31, 2000 is that we have not received all necessary
regulatory and legal approvals by that date, except that LADD or
La-Z-Boy may not terminate the agreement on the foregoing dates
if the cause of the merger not being completed is its failure to
fulfill its obligations;
. LADD shareholders do not approve the merger; or
. a law or court order permanently prohibits the completion of the
merger.
(c) La-Z-Boy may terminate the merger agreement if the LADD board
withdraws or modifies in a manner adverse to La-Z-Boy its approval
or recommendation of the merger, breaches its agreement to call the
LADD meeting or recommends a superior offer.
(d) The merger agreement may be terminated by LADD if:
. the LADD board authorizes LADD, subject to complying with the
merger agreement, to enter into a binding written agreement
concerning an acquisition proposal for at least a majority of the
LADD stock on terms the LADD board determines, in good
68
faith after consultation with its financial advisors, are more
favorable to LADD shareholders than the merger, and LADD notifies
La-Z-Boy in writing that it intends to enter into such an
agreement, attaching the most current version of the agreement or
a description of all its material terms and conditions;
. La-Z-Boy does not make an offer, within three business days after
receiving the notice, that the LADD board determines, in good
faith after consultation with its financial advisors, is at least
as favorable to the LADD shareholders as the superior proposal;
and
. LADD has paid La-Z-Boy the cash termination fee described under
"--Termination Fees Payable by LADD" below.
If the merger agreement is validly terminated, the agreement will become
void without any liability on the part of any party unless the party has
willfully breached the agreement. However, the provisions of the merger
agreement relating to expenses and termination fees, as well as the
confidentiality agreement entered into between La-Z-Boy and LADD, will continue
in effect notwithstanding termination of the merger agreement.
Termination Fees Payable by LADD. LADD has agreed to pay La-Z-Boy $7
million in cash in any of the following circumstances:
(a) LADD terminates the merger agreement as described in paragraph (d)
under "--Right to Terminate" above;
(b) La-Z-Boy terminates the merger agreement as described in paragraph
(c) under "--Right to Terminate" above, unless at the relevant time
La-Z-Boy is in material breach in the manner described in the merger
agreement; or
(c) either La-Z-Boy or LADD terminates the merger agreement in
circumstances where the following three conditions are met:
. LADD's shareholders do not vote in favor of the merger,
. a third party has made a proposal for an alternative transaction,
and
. within twelve months of the termination of the merger agreement
LADD enters into an agreement for an alternative transaction with
that third party, or with another third party, at a value per
LADD share higher than $20.20.
In addition, if La-Z-Boy terminates the merger agreement as described in
paragraph (c) under "--Right to Terminate" above or because LADD willfully
breaches the agreement, or if La-Z-Boy becomes entitled to the fees described
in paragraph (b) above, then LADD must pay all costs and expenses incurred by
La-Z-Boy in connection with the merger agreement and the proposed merger.
LADD's obligation to reimburse La-Z-Boy's expenses is not subject to any
ceiling as to amount.
AMENDMENTS; WAIVERS
Any provision of the merger agreement may be amended or waived prior to
closing if the amendment or waiver is in writing and signed, in the case of an
amendment, by LADD, La-Z-Boy and the merger subsidiary or, in the case of a
waiver, by the party against whom the waiver is to be effective. After the
approval of the merger agreement by the shareholders of LADD, no amendment or
waiver that by law requires further approval by shareholders may be made
without the further approval of such shareholders.
69
THE SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting will be held on January , 2000 at 10:00 a.m.,
Eastern Standard Time, at Grandover Resort and Conference Center, One Thousand
Club Road, Greensboro, North Carolina.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to approve and adopt the merger
agreement and the merger. See "The Merger Transaction" beginning on page 14 and
"Material Terms of the Merger Agreement" beginning on page 64.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Shareholders of record at the close of business on November 19, 1999, the
record date for the special meeting, are entitled to receive notice of and to
vote at the special meeting. On the record date, 7,833,518 shares of our common
stock were issued and outstanding.
A quorum is necessary to have a valid meeting of shareholders. A majority
of the shares of our common stock issued and outstanding and entitled to vote
on the record date must be represented in person or by proxy at the special
meeting in order for a quorum to be established. Abstentions and broker "non-
votes" count as present for establishing a quorum. A broker non-vote occurs on
an item when a broker is not permitted to vote on that item without instruction
from the beneficial owner of the shares and no instruction is given. If a
quorum is not present at the special meeting, we would expect the meeting to be
adjourned or postponed to permit us to solicit additional proxies.
Shareholders of record of our common stock on the record date are each
entitled to one vote per share on the approval and adoption of the merger
agreement and the merger.
VOTE NECESSARY TO APPROVE THE MERGER
The approval of the merger agreement and the merger requires the
affirmative vote of a majority of our shares of common stock outstanding on the
record date. An abstention or a broker "non-vote" will have the same effect as
a vote against the proposal to approve or adopt the merger agreement and the
merger. Please note that if your broker holds your shares in street name, your
broker may not be able to vote your shares on the merger proposal without
instructions from you. You should contact your broker to determine the proper
procedure for voting your shares held in street name. Without your
instructions, a broker non-vote will occur on the merger proposal and will have
the same effect as a vote against the approval and adoption of the merger
agreement and the merger.
The board of directors recommends that you vote FOR the merger proposal.
When you consider this recommendation, you should be aware that members of
LADD's board may have an interest in the merger that may be different from, or
in addition to, your interest as a shareholder. See "Interests of Certain
Persons in the Merger" on page 56.
SHARES BENEFICIALLY OWNED BY MANAGEMENT
At the close of business on the record date, our directors and executive
officers and their affiliates beneficially owned and were entitled to vote
shares of our common stock, which represented approximately %
of the shares of our common stock outstanding on that date. Each of those
directors and executive officers has indicated his present intention to vote,
or cause to be voted, the shares of our common stock owned by him FOR the
approval and adoption of the merger agreement and the merger.
70
SHARES HELD BY LADD'S 401(K) SAVINGS PLAN
As of the record date, 163,541 shares of LADD's common stock were held by
the LADD 401(k) savings plan. Pursuant to the terms of the plan, the trustee of
the plan, Putnam Investments is entitled to vote the shares held by the plan as
directed by the Corporate Benefits Committee appointed by LADD. The committee
is composed of Messrs. Schuermann, Church, Creekmuir, Haley, Mitchell, Victor
D. Dyer and R. Rand Tucker. Because the committee is composed largely of LADD
executive officers, it has engaged an independent fiduciary to consider the
merger proposal. The independent fiduciary will direct the trustee to vote on
the merger proposal in accordance with the fiduciary's judgment.
REPRESENTATIVES OF KPMG LLP
Representatives of KPMG LLP are expected to be present at the meeting.
These representatives will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
VOTING OF PROXIES
Voting Your Proxy
You may vote in person at the special meeting or by proxy. We recommend
you vote by proxy even though you plan to attend the special meeting. You can
always change your vote at the meeting. Voting instructions are included on
your proxy card. If you properly give your proxy and submit it to us in time to
vote, one of the individuals named as your proxy will vote your shares as you
have directed.
How to Vote By Proxy
You may vote by proxy by completing signing, dating and returning your
proxy card in the enclosed envelope.
Revoking Your Proxy
You may revoke your proxy before it is voted by:
. sending in a new proxy with a later date;
. notifying our Secretary in writing before the meeting that you have
revoked your proxy; or
. voting in person at the special meeting.
Any written notice of a revocation of a proxy must be sent so as to be
delivered before the taking of the vote at the special meeting as follows:
4620 Grandover Parkway
P.O. Box 26777
Greensboro, North Carolina 27417-6777
Telecopy: (336) 315-4399
Attention: William S. Creekmuir, Secretary
Voting in Person
If you plan to attend the special meeting and wish to vote in person, we
will give you a ballot at the meeting. However, if your shares are held in the
name of your broker, bank or other nominee, you must bring a proxy from your
nominee authorizing you to vote the "street name" shares you owned on November
19, 1999, the record date for voting.
Confidential Voting
Independent inspectors count the votes. Your individual vote is kept
confidential from us except in the event of a contested proxy solicitation or
as may be required by law. We may be informed whether
71
a particular shareholder has voted and we will have access to any comment
written on a proxy, ballot or other material and the identity of the commenting
shareholder.
Proxy Solicitation
LADD will pay the costs of soliciting proxies. In addition to
solicitation by mail, its directors, officers and employees may also solicit
proxies from shareholders by telephone, electronically or in person. LADD will
also make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy materials to beneficial owners.
LADD has retained D.F. King & Co., Inc. to aid in the solicitation of
proxies and to verify certain records related to the solicitation. It will pay
D.F. King & Co., Inc. a fee of $6,500 as compensation for its services and will
reimburse it for its related out-of-pocket costs.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS. SHORTLY
AFTER THE MERGER, THE EXCHANGE AGENT WILL SEND YOU TRANSMITTAL FORMS WITH
INSTRUCTIONS FOR THE SURRENDER OF CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK.
OTHER BUSINESS; ADJOURNMENT
Under LADD's bylaws and North Carolina law, no other business may be
brought before the special meeting.
Adjournments of the special meeting may be made for the purpose of, among
other things, soliciting additional proxies. Any adjournment may be made at any
time by shareholders representing a majority of the votes present or by proxy
at the special meeting, regardless of whether a quorum exists, without further
notice other than by an announcement made at the meeting. We do not currently
intend to seek an adjournment of this special meeting.
FEDERAL SECURITIES LAW CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
All shares of La-Z-Boy common stock received by LADD shareholders in the
merger will be freely transferable, except that shares of La-Z-Boy common stock
received by persons who are deemed to be "affiliates" of LADD under the
Securities Act of 1933 at the time of the meeting may be resold by them only in
transactions permitted by Rule 145 under the 1933 Act or as otherwise permitted
under the 1933 Act. Persons who may be deemed to be affiliates of LADD for such
purposes generally include individuals or entities that control, are controlled
by or are under common control with LADD and include directors and executive
officers of LADD. The merger agreement requires LADD to use its reasonable best
efforts to cause each of its affiliates to execute a written agreement to the
effect that they will not offer, sell or otherwise dispose of any of the shares
of La-Z-Boy common stock issued to them in the merger in violation of the 1933
Act or the related SEC rules.
DESCRIPTION OF LA-Z-BOY CAPITAL STOCK
The following is a summary of the material terms of the capital stock of
La-Z-Boy and the provisions of its articles of incorporation and bylaws. It
also summarizes relevant provisions of the Michigan Business Corporation Act,
which we refer to as Michigan law. Since the terms of the articles of
incorporation, bylaws and Michigan law are more detailed than the general
information provided below, we urge you to read the actual provisions of those
documents and Michigan law. The following summary of the capital stock of La-Z-
Boy is subject in all respects to applicable Michigan law, La-Z-Boy's articles
of incorporation and its bylaws. If you would like to read La-Z-Boy's articles
of incorporation or bylaws, these documents are on file with the SEC, as
described under the heading "Where You Can Find More
72
Information" beginning on page 80. Additional information regarding the
capital stock of La-Z-Boy is contained under the heading "Comparison of
Shareholders Rights" beginning on page 76.
GENERAL
The authorized capital stock of La-Z-Boy consists of 150,000,000 shares
of common stock and 5,000,000 shares of preferred stock. As of November 30,
1999, there were 51,866,204 shares of La-Z-Boy common stock outstanding, and
no shares of La-Z-Boy preferred stock were issued and outstanding.
COMMON STOCK
All of the outstanding shares of La-Z-Boy common stock are fully paid
and nonassessable.
Voting Rights. Each holder of common stock is entitled to cast one vote
for each share held of record on all matters submitted to a vote of
shareholders, including the election of directors. Holders of common stock
have no cumulative voting rights.
Dividends. Holders of common stock are entitled to receive dividends or
other distributions declared by the board of directors. The right of the board
of directors to declare dividends, however, is subject to the rights of any
holders of preferred stock of La-Z-Boy and the availability of sufficient
funds under Michigan law to pay dividends.
Liquidation Rights. In the event of the dissolution of La-Z-Boy, La-Z-
Boy common shareholders will share ratably in the distribution of all assets
that remain after it pays all of its liabilities and satisfies its obligations
to the holders of any preferred stock.
Preemptive and Other Rights. Holders of common stock have no preemptive
rights to purchase or subscribe for any stock or other securities of La-Z-Boy.
In addition, there are no conversion rights or redemption or sinking fund
provisions with respect to the common stock.
Transfer Agent. The transfer agent and registrar for the common stock is
American Stock Transfer and Trust Company, 40 Wall Street, 46th Floor, New
York, New York 10005.
PREFERRED STOCK
The board of directors is authorized to issue shares of preferred stock
at any time, without shareholder approval. It has the authority to determine
all aspects of those shares, including the following:
. the designation and number of shares;
. the dividend rate and preferences, if any, which dividends on that
series of preferred stock will have compared to any other class or
series of capital stock of La-Z-Boy;
. the voting rights, if any;
. the conversion or exchange privileges, if any, applicable to that
series;
. the redemption price or prices and the other terms of redemption, if
any, applicable to that series; and
. any purchase, retirement or sinking fund provisions applicable to
that series.
Any of these terms could have an adverse effect on the availability of
earnings for distribution to the holders of La-Z-Boy common stock or for other
corporate purposes.
PROVISIONS THAT MAY DISCOURAGE TAKEOVERS
Michigan law and La-Z-Boy's articles of incorporation and bylaws contain
provisions that may have the effect of discouraging transactions involving an
actual or threatened change of control. These provisions could protect the
continuity of La-Z-Boy's directors and management and possibly deprive
73
shareholders of an opportunity to sell their shares of common stock at prices
higher than the prevailing market prices. The following description is subject
in its entirety to applicable Michigan law and La-Z-Boy's articles of
incorporation and bylaws.
Availability of Authorized but Unissued Shares. All of La-Z-Boy's
preferred stock and a substantial amount of its common stock is, and after the
merger will continue to be, authorized but unissued and not reserved for any
particular purpose. The La-Z-Boy board of directors may issue shares of
authorized common or preferred stock without shareholder approval. If they
decide to issue shares to persons friendly to current management, they could
render more difficult or discourage an attempt to obtain control of La-Z-Boy by
means of a merger, tender offer, proxy contest or otherwise. Authorized but
unissued shares also could be used to dilute the stock ownership of persons
seeking to obtain control of La-Z-Boy, including dilution through a shareholder
rights plan of the type commonly known as a "poison pill," which the board of
directors could adopt without a shareholder vote.
In addition, the board of directors could issue preferred shares having
voting rights that adversely affect the voting power of common shareholders,
which could have the effect of delaying, deferring or impeding a change of
control of La-Z-Boy.
Election of Directors; Filling Vacancies. La-Z-Boy's bylaws provide for a
board of directors divided into two classes of three directors each and one
class of four directors. Directors are elected by class for three-year,
staggered terms. The bylaws delegate to incumbent directors the power to fill
any vacancies on the board by a vote of two-thirds of the remaining directors.
A person appointed to fill a vacancy holds office for the unexpired portion of
the term of the director whose place was filled.
Under Michigan law, shareholders do not have cumulative voting rights for
the election of directors unless the articles of incorporation so provide. The
La-Z-Boy articles of incorporation do not provide for cumulative voting.
Limitations on Nomination of Directors. Under La-Z-Boy's bylaws, in order
for a shareholder to nominate a candidate for director, notice of the
nomination must be given to La-Z-Boy not less than 90 days before the first
anniversary of the preceding year's annual meeting. The shareholder submitting
the notice of nomination must describe various matters as specified in the
bylaws, including the name, age and address of each proposed nominee, his or
her occupation, the number of shares held by the nominee and any other
information that would be required under SEC rules in a proxy statement
soliciting proxies for the election of the nominee.
Limitation on Calling Special Meetings of Shareholders. Michigan law
allows the board of directors or officers, directors or shareholders authorized
in the corporation's bylaws to call special meetings of shareholders. The La-Z-
Boy bylaws provide that a special meeting may be called by the La-Z-Boy board
of directors or the President or Chairman of the Board of La-Z-Boy, and shall
be called by the directors, President or Chairman of the Board of La-Z-Boy at
the request of holders of not less than 75% of the capital stock entitled to
vote at the proposed special meeting. Shareholders requesting a special meeting
must state the purpose or purposes for which the meeting is to be held.
Business Combination Restrictions in Articles. Under La-Z-Boy's articles
of incorporation, La-Z-Boy may not consummate a business combination involving
any entity that beneficially owns 10% or more of La-Z-Boy's common stock
without the approval of holders of at least 67% of the outstanding stock
entitled to vote in the election of directors, unless:
. the business combination satisfies certain "fair price" and related
conditions specified in the articles of incorporation;
. a majority of the La-Z-Boy directors approved a memorandum of
understanding concerning the business combination before the other
party acquired 10% or more of La-Z-Boy's stock;
. after the other party acquired 10% or more of La-Z-Boy's stock, the
business combination is approved by a majority of continuing
directors; or
74
. the business combination relates to or is with a majority owned
subsidiary of La-Z-Boy and will not change the proportionate voting
and equity interests of La-Z-Boy's shareholders.
A "business combination" includes:
. a merger;
. a sale, exchange or lease of all or any substantial part of La-Z-
Boy's assets; or
. the issuance of voting securities of La-Z-Boy or rights to acquire
voting securities if issued for any sort of consideration.
A "continuing director" is:
. any La-Z-Boy director who was a member of its board on the date these
provisions of the articles of incorporation were adopted by La-Z-
Boy's shareholders;
. any other La-Z-Boy director elected by the La-Z-Boy shareholders
prior to the time that the other entity involved in the proposed
business combination became a 10%-or-more shareholder or who, if
elected after that time, was elected on the recommendation of a
majority of the continuing directors then in office to succeed
another continuing director.
High Vote Required to Amend Articles or Bylaws. La-Z-Boy's articles of
incorporation provide that the business combination provisions described above
may not be amended or repealed except by the vote of at least 67% of all shares
of stock entitled to vote on the amendment, unless the amendment or repeal is
approved and recommended to the shareholders by a majority of those members of
the board who would then qualify as continuing directors. The articles of
incorporation also require the vote of at least 67% of all shares entitled to
vote in the election of directors for any amendment of La-Z-Boy's bylaws by its
shareholders.
Business Combination Statute. Chapter 7A of the Michigan Business
Corporation Act provides that a business combination between a covered Michigan
corporation and a 10%-or-more beneficial owner of voting shares may not take
place for at least five years after the other party to the proposed business
combination became a 10% shareholder, or at any later time unless certain price
and other conditions are also satisfied, without approval:
. by 90% of the votes of each class of stock entitled to be cast by the
corporation's shareholders; and
. by 2/3 of the votes of each class entitled to be cast, excluding
shares beneficially owned by the other party to the proposed business
combination.
Chapter 7A "business combinations" include mergers, significant asset
transfers, disproportionate issuances of shares, disproportionate
reclassifications and recapitalizations and the adoption of a plan of
liquidation or dissolution in which the other party would receive anything
other than cash.
Currently, Chapter 7A does not apply to La-Z-Boy. However, although its
board has no present intention to take such an action, the chapter would permit
the board at any time, by resolution and without a shareholder vote, to cause
La-Z-Boy to become subject to the supermajority vote requirements of the
chapter.
Control Share Acquisition Statute. Chapter 7B of the Michigan Business
Corporation Act takes away the normal voting rights of any shares of a covered
Michigan corporation that are acquired in a control share acquisition unless,
before or after the acquisition, the shareholders of the corporation approve
those rights. Two votes are required for approval:
. a majority of votes cast by all holders of shares entitled to vote;
and
75
. a majority of all such votes cast, excluding shares controlled for
voting purposes by the person that made or proposes to make the
control share acquisition.
Generally, a "control share acquisition" is an acquisition of outstanding
voting shares of the corporation or the right to direct the vote of those
shares which, when added to shares previously owned or controlled for voting
purposes, would entitle the person, alone or as part of a group, to exercise or
direct the exercise of voting power in the election of the corporation's
directors within any of the following ranges of voting power:
. over 1/5 but less than 1/3,
. over 1/3 but less than a majority, or
. a majority.
Chapter 7B applies to La-Z-Boy but permits a covered corporation to opt
out of coverage by means of an amendment to its articles of incorporation or
bylaws, including by a bylaw amendment adopted by directors. La-Z-Boy has not
elected to be excluded from coverage. If it were to make that election in the
future, it would be effective only for control share acquisitions occurring
after the amendment making the election.
Under Chapter 7B, unless otherwise provided in the articles of
incorporation or bylaws of a covered corporation before a control share
acquisition has occurred, if the corporation's shareholders approve full voting
rights for the shares acquired in the acquisition and the acquiring person has
acquired a majority of all voting power of the corporation, the corporation's
shareholders other than the acquiring person would have dissenters' rights to
receive the fair value of their shares from the corporation. In addition, if
authorized in the covered corporation's articles of incorporation or bylaws
before a control share acquisition has occurred, shares acquired in a control
share acquisition are redeemable for their fair value at the option of the
corporation during certain periods specified in the chapter. For each of these
purposes, "fair value" is defined in the chapter as a value not less than the
highest per share price paid by the acquiring person in the control share
acquisition. Currently, neither La-Z-Boy's articles of incorporation nor its
bylaws includes any provision that would eliminate dissenters' rights or would
permit redemption of an acquiring person's shares in the circumstances
described in this paragraph.
"Anti-Greenmail" Statute. Michigan law prohibits a corporation that has
shares registered on a national securities exchange, such as La-Z-Boy, from
privately purchasing any of those shares at a per share price in excess of the
average market price per share for the 30 business days prior to the date of
purchase from any person holding more than 3% of its shares, if the person has
owned the listed shares for less than two years, unless the purchase:
. has been authorized in advance by the holders of the corporation's
shares entitled to vote;
. meets the requirements of a provision in the corporation's articles
of incorporation permitting the purchase; or
. is otherwise authorized by Michigan law.
La-Z-Boy's articles of incorporation do not contain any provisions
relevant to this provision of Michigan law.
COMPARISON OF SHAREHOLDER RIGHTS
Upon the completion of the merger, LADD shareholders will become owners
of La-Z-Boy common stock, and their rights will be governed by the Michigan
Business Corporation Act, which we refer to as Michigan law, and La-Z-Boy's
articles of incorporation and bylaws. The rights of LADD shareholders are
governed by the North Carolina Business Corporation Act, which we refer to as
North Carolina law, and LADD's articles of incorporation and bylaws. In many
respects the rights of the
76
owners of shares of La-Z-Boy common stock are similar to those of owners of
shares of LADD common stock, but there are some differences between those
rights. The following is a summary of the material differences between those
rights, but it does not purport to be a complete statement of all of those
differences. For a more complete understanding of those differences, you should
read carefully the relevant provisions of Michigan law, North Carolina law, La-
Z-Boy's articles of incorporation and bylaws and LADD's articles of
incorporation and bylaws. See "Where You Can Find More Information" on page 80.
77
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF OWNERS OF LA-Z-BOY
COMMON STOCK AND RIGHTS OF OWNERS OF LADD COMMON STOCK
LA-Z-BOY LADD
------------------------------- -------------------------------
Authorized Capital The authorized capital stock of The authorized capital stock of
Stock: La-Z-Boy is described under LADD consists of 50,000,000
"Description of La-Z-Boy shares of common stock and
Capital Stock--General" on page 500,000 shares of preferred
73. stock.
Number of Directors: La-Z-Boy's bylaws set the total LADD's articles of
number of directors at ten. incorporation provide that the
number of directors may not be
fewer than three. Its bylaws
permit any number of directors
from three through nine.
Currently, LADD's board has
seven directors.
Structure of Board: La-Z-Boy has a classified LADD does not have a classified
board. See "Description of La- board. All directors are
Z-Boy Capital Stock--Provisions elected for a one-year term at
that May Discourage Takeovers-- each annual meeting of LADD
Election of Directors; Filling shareholders.
Vacancies" on page 74 .
Term of Director Chosen See "Description of La-Z-Boy Even if LADD's board were
to Fill a Vacancy on the Capital Stock--Provisions That changed to a classified board
Board: May Discourage Takeovers-- the term of office of a
Election of Directors; Filling director chosen to fill a
Vacancies" on page 74. vacancy in any class would
continue only until the next
annual meeting of shareholders.
Special Meetings of See "Description of La-Z-Boy Under LADD's bylaws, a special
Shareholders: Capital Stock--Provisions that meeting of shareholders may be
May Discourage Takeovers-- called at any time by the
Limitations on Calling Special Chairman, the President, the
Meetings of Shareholders" on Secretary or the board. The
page 74. bylaws do not require calling a
special meeting under any
circumstances.
Advance Notice: La-Z-Boy's advance notice No special procedures for
requirements are described shareholder nominations of
under "Description of La-Z-Boy prospective directors are
Capital Stock--Provisions that specified in LADD's bylaws or
May Discourage Takeovers-- in its articles of
Limitations on Nomination of incorporation.
Directors" on page 74.
Restrictions on Business Both La-Z-Boy's articles of LADD's articles of
Combinations: incorporation and Chapter 7A of incorporation and bylaws do not
the Michigan law (which impose any high vote
currently does not apply to La- requirements for business
Z-Boy) impose high vote combinations. North Carolina
requirements and other law has a provision requiring a
restrictions on business high vote for business
combinations with 10% combinations in some
shareholders. See "Description circumstances, but LADD has
of La-Z-Boy Common Stock-- elected not to be subject to
Provisions that May Discourage that provision.
Takeovers--Business Combination
Statute" on page 75.
78
LA-Z-BOY LADD
------------------------------- -------------------------------
Control Share La-Z-Boy is subject to Michigan North Carolina law has a
Acquisitions: law provisions on control share provision substantially similar
acquisitions. See "Description to the Michigan law provision,
of La-Z-Boy Capital Stock-- but LADD has elected not to be
Provisions that May Discourage subject to it.
Takeovers--Control Share
Acquisition Statute" on page
75.
"Anti-Greenmail": The "anti-greenmail" provisions North Carolina law contains no
of Michigan law apply to La-Z- comparable provision nor do
Boy. See "Description of La-Z- LADD's articles of
Boy Capital Stock--Provisions incorporation or bylaws.
that May Discourage Takeovers--
"Anti-Greenmail' Statute" on
page 76.
Indemnification: La-Z-Boy's articles of LADD's articles of
incorporation mandate incorporation mandate
indemnification of its indemnification of its
directors and officers and directors, officers, employees
advancement of their defense and agents and advancement of
expenses to the fullest extent their defense expenses to the
permitted by Michigan law. fullest extent permitted by
North Carolina law.
Derivative Proceedings: Michigan law and North Carolina North Carolina law contains
law are substantially the same specified limitations on the
except as noted in the next ability of a shareholder of a
column. public company to bring a
derivative action and
authorizes the court to require
the shareholder to post a bond
before proceeding.
Dissenters' Rights: Shareholders of a Michigan Although LADD shareholders do
corporation like La-Z-Boy, not have dissenters' rights
whose shares are traded on a with respect to the proposed
national securities exchange, merger, they would have these
do not have dissenters' rights rights under North Carolina law
unless the corporation with respect to a merger or
voluntarily grants them. statutory share exchange in
which they would receive any
consideration other than cash
or widely traded shares.
79
WHERE YOU CAN FIND MORE INFORMATION
La-Z-Boy has filed with the SEC a registration statement under the
Securities Act that registers the distribution of shares of its common stock to
LADD shareholders in the merger. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
La-Z-Boy and LADD. The rules and regulations of the SEC allow us to omit some
information included in the registration statement from this document.
In addition, La-Z-Boy and LADD each files reports, proxy statements and
other information with the SEC under the Exchange Act. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. You may
read and copy this information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-
24511
You also may obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet World Wide
Web site that contains reports, proxy statements and other information about
issuers, including La-Z-Boy and LADD, who file electronically with the SEC. The
address of that site is http://www.sec.gov. You also can inspect reports, proxy
statements and other information about La-Z-Boy at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows LADD to incorporate information by reference into this
document. This means that LADD can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that
LADD previously has filed with the SEC. They contain important information
about LADD and its financial condition.
DESCRIPTION, PERIOD OR
LADD'S SEC FILINGS (FILE NO. 0-11577) DATE
---------------------------------------------------- -------------------------
Year ended January 2,
Annual Report on Form 10-K 1999
Quarter ended April 3,
Quarterly Report on Form 10-Q 1999
Quarter ended July 3,
Quarterly Report on Form 10-Q 1999
Quarter ended October 2,
Quarterly Report on Form 10-Q 1999
Form 10-Q/A-1 filed December 13, 1999 Amends Form 10-Q for
quarter ended October 2,
1999
Current Report on Form 8-K, filed April 14, 1999 Discloses LADD's
financial results for
the first quarter
Current Report on Form 8-K, filed July 15, 1999 Discloses LADD's
financial results for
the second quarter and
first half of 1999
Current Report on Form 8-K, filed September 30, 1999 Discloses entering into
the merger agreement and
related matters
80
DESCRIPTION, PERIOD OR
LADD'S SEC FILINGS (FILE NO. 0-11577) DATE
--------------------------------------------------- --------------------------
Current Report on Form 8-K, filed October 14, 1999 Discloses LADD's financial
results for the third
quarter and first nine
months of 1999
Current Report on Form 8-K, filed December 14, 1999 Discloses entering into
Amendment No. 1 to the
merger agreement.
Definitive Proxy Statement on Schedule 14A Definitive proxy statement
relating to 1999 annual
meeting of LADD's
shareholders (filed on
March 26, 1999)
We incorporate by reference additional documents that LADD may file with
the SEC between the date of this document and the date of the special meeting.
These documents include periodic reports, which may include Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through LADD or from the SEC through the SEC's web site at the
address provided above. Documents incorporated by reference are available from
LADD without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this
document. You can obtain documents incorporated by reference in this document
by requesting them in writing or by telephone from LADD at the following
addresses:
LADD Furniture, Inc.
4620 Grandover Parkway
P.O. Box 26777
Greensboro, North Carolina 27417-6777
Attention: William S. Creekmuir, Secretary
Telephone No.: (336) 294-5233
If you would like to request documents, please do so by January , 2000
to receive them before the special meeting. If you request any incorporated
documents, LADD will mail them to you by first class mail, or another equally
prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger of our companies that differs from, or adds to,
the information in this document or in LADD's documents that are publicly filed
with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
document or to ask for proxies, or if you are a person to whom it is unlawful
to direct these activities, then the offer presented by this document does not
extend to you.
Information in this document about La-Z-Boy has been supplied by La-Z-
Boy, and information about LADD has been supplied by LADD.
EXPERTS
The consolidated financial statements of La-Z-Boy as of April 24, 1999
and April 25, 1998 and for each of the three years in the period ended April
24, 1999 included in this proxy statement/prospectus, and the financial
statement schedule included in the registration statement, have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements and the related financial statement
schedule of LADD that are incorporated in this proxy statement/prospectus by
reference to LADD's Annual Report on
81
Form 10-K for the year ended January 2, 1999 have been so incorporated in
reliance on the report of KPMG LLP, independent certified public accountants,
also incorporated by reference in this proxy statement/prospectus, and on the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the common stock
offered by this proxy statement/prospectus and relating to federal income tax
matters concerning the merger will be passed upon for La-Z-Boy by Miller,
Canfield, Paddock and Stone, P.L.C., Detroit, Michigan. Rocque E. Lipford, a
director of La-Z-Boy, is a principal in Miller, Canfield, Paddock and Stone,
P.L.C. Certain legal matters relating to federal income tax matters concerning
the merger will be passed upon for LADD by Kilpatrick Stockton LLP, Winston-
Salem, North Carolina.
SUBMISSION OF SHAREHOLDER PROPOSALS
LADD will hold an annual meeting in the year 2000 only if the merger has
not already been completed. The deadline for receipt of a proposal to be
considered for inclusion in the proxy statement for the 2000 annual meeting
pursuant to SEC Rule 14a-8 was December 2, 1999. No shareholder proposals had
been received as of that date. A shareholder planning to submit a proposal at
the 2000 annual meeting outside the processes of Rule 14a-8 must give notice of
the proposal to LADD no later than February 11, 2000 in order for the notice to
be considered timely under the SEC's rules. If notice of such a proposal is not
timely given, proxies for the meeting that are solicited by LADD's board will
confer discretionary authority to vote on the proposal whether or not the
proposal is specifically mentioned in the proxy. Any shareholder proposal
should be directed to the attention of LADD's Secretary at LADD Furniture,
Inc., Post Office Box 26777, Greensboro, North Carolina, 27417-6777.
82
INDEX TO FINANCIAL STATEMENTS
LA-Z-BOY INCORPORATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED APRIL 24, 1999
Report of Independent Accountants--La-Z-Boy Incorporated.................. F-2
Consolidated Balance Sheet of La-Z-Boy at April 24, 1999 and April 25,
1998..................................................................... F-3
Consolidated Statement of Income of La-Z-Boy for the years ended April 24,
1999, April 25, 1998 and April 26, 1997.................................. F-4
Consolidated Statement of Cash Flows of La-Z-Boy for the years ended April
24, 1999,
April 25, 1998 and April 26, 1997........................................ F-5
Consolidated Statement of Changes in Shareholders' Equity of La-Z-Boy for
the years ended
April 24, 1999, April 25, 1998 and April 26, 1997........................ F-6
Notes to Consolidated Financial Statements................................ F-7
UNAUDITED INTERIM FINANCIAL DATA
Condensed Consolidated Balance Sheet of La-Z-Boy at April 24, 1999,
October 23, 1999
and October 24, 1998..................................................... F-19
Condensed Consolidated Statement of Income of La-Z-Boy for the three
months ended
October 23, 1999 and October 24, 1998; and the six months ended October
24, 1998................................................................. F-20
Condensed Consolidated Statement of Cash Flows of La-Z-Boy for the three
months ended October 23, 1999 and October 24, 1998; and the Six months
ended October 23, 1999
and October 24, 1998 .................................................... F-21
Notes to Condensed Consolidated Financial Statements...................... F-22
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of cash flows and of changes in
shareholders' equity, including pages F-3 through F-18, present fairly, in all
material respects, the financial position of La-Z-Boy Incorporated and its
subsidiaries (the "Company") at April 24, 1999 and April 25, 1998, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended April 24, 1999 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Toledo, Ohio
May 20, 1999, except for Note
13, which is as of November
11, 1999
F-2
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
AS OF
------------------------
4/24/99 4/25/98
----------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT PAR VALUE)
ASSETS
Current assets
Cash and equivalents................................ $ 33,550 $ 28,700
Receivables, less allowance of $19,550 in 1999 and
$16,605 in 1998.................................... 265,157 238,260
Inventories
Raw materials...................................... 47,197 43,883
Work-in-process.................................... 37,447 40,640
Finished goods..................................... 34,920 30,193
----------- -----------
FIFO inventories ................................. 119,564 114,716
Excess of FIFO over LIFO.......................... (23,053) (22,812)
----------- -----------
Total inventories................................ 96,511 91,904
Deferred income taxes............................... 20,028 16,679
Income taxes........................................ -- 936
Other current assets................................ 10,342 6,549
----------- -----------
Total current assets ............................ 425,588 383,028
Property, plant and equipment, net................... 125,989 121,762
Goodwill, less accumulated amortization of $13,583 in
1999 and
$11,523 in 1998..................................... 46,985 49,413
Other long-term assets, less allowance of $6,077 in
1999 and $4,034 in 1998............................. 31,230 26,148
----------- -----------
Total assets .................................... $ 629,792 $ 580,351
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt................... $ 2,001 $ 4,822
Current portion of capital leases................... 784 1,383
Accounts payable.................................... 45,419 36,703
Payroll/other compensation.......................... 53,697 39,617
Income taxes........................................ 4,103 --
Other current liabilities........................... 26,424 25,764
----------- -----------
Total current liabilities........................ 132,428 108,289
Long-term debt....................................... 62,469 66,434
Capital leases....................................... 219 819
Deferred income taxes................................ 5,697 5,478
Other long-term liabilities.......................... 14,064 11,122
Commitments and contingencies........................
Shareholders' equity
Preferred shares--5,000 authorized; 0 issued........ -- --
Common shares, $1 par value--150,000 authorized;
52,340 issued in 1999 and 53,551 in 1998*.......... 52,340 53,551
Capital in excess of par value...................... 31,582 29,262
Retained earnings*.................................. 332,934 306,445
Currency translation adjustments.................... (1,941) (1,049)
----------- -----------
Total shareholders' equity....................... 414,915 388,209
----------- -----------
Total liabilities and shareholders' equity....... $ 629,792 $ 580,351
=========== ===========
- --------
*Restated to reflect a three-for-one stock split, in the form of a 200% stock
dividend, effective September, 1998.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
FISCAL YEAR ENDED
----------------------------------
4/24/99 4/25/98 4/26/97
---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales....................................... $1,287,645 $1,108,038 $1,005,825
Cost of sales............................... 946,731 825,312 744,662
---------- ---------- ----------
Gross profit.............................. 340,914 282,726 261,163
Selling, general and administrative......... 234,075 205,523 187,230
---------- ---------- ----------
Operating profit.......................... 106,839 77,203 73,933
Interest expense............................ 4,440 4,157 4,376
Interest income............................. 2,181 2,021 1,770
Other income................................ 2,658 4,207 2,508
---------- ---------- ----------
Pretax income............................. 107,238 79,274 73,835
Income tax expense
Federal--current.......................... 41,286 28,467 26,247
--deferred............................. (4,727) (2,046) (1,699)
State--current.......................... 5,114 3,287 4,304
--deferred............................. (577) (354) (314)
---------- ---------- ----------
Total tax expense........................... 41,096 29,354 28,538
---------- ---------- ----------
Net income.................................. $ 66,142 $ 49,920 $ 45,297
========== ========== ==========
Diluted weighted average shares* ........... 53,148 53,821 54,575
Diluted net income per share*............... $ 1.24 $ 0.93 $ 0.83
Basic average shares*....................... 52,890 53,654 54,324
Basic net income per share*................. $ 1.25 $ 0.93 $ 0.83
- --------
*Restated to reflect a three-for-one stock split, in the form of a 200% stock
dividend, effective September, 1998.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED
----------------------------
4/24/99 4/25/98 4/26/97
-------- -------- --------
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities
Net income..................................... $ 66,142 $ 49,920 $ 45,297
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................ 22,081 21,021 20,382
Change in receivables........................ (26,875) (14,090) (8,178)
Change in inventories........................ (4,607) (6,918) 421
Change in other assets and liabilities....... 28,287 2,374 4,254
Change in deferred taxes..................... (3,130) 3,177 (2,014)
-------- -------- --------
Total adjustments.......................... 15,756 5,564 14,865
-------- -------- --------
Cash provided by operating activities...... 81,898 55,484 60,162
Cash flows from investing activities
Proceeds from disposals of assets.............. 401 1,585 1,527
Capital expenditures........................... (25,316) (22,016) (17,778)
Change in other investments.................... (4,895) (16,066) (8,596)
-------- -------- --------
Cash used for investing activities......... (29,810) (36,497) (24,847)
Cash flows from financing activities
Long-term debt................................. -- 35,000 --
Retirements of debt ........................... (6,786) (24,653) (5,640)
Capital leases................................. 204 -- --
Capital lease principal payments............... (1,403) (2,017) (2,114)
Stock for stock option plans................... 6,431 5,748 4,213
Stock for 401(k) employee plans................ 1,902 1,704 1,568
Purchases of La-Z-Boy stock ................... (30,460) (16,391) (20,751)
Payment of cash dividends ..................... (16,417) (15,029) (14,142)
-------- -------- --------
Cash used for financing activities .......... (46,529) (15,638) (36,866)
Effect of exchange rate changes on cash.......... (709) (31) (127)
-------- -------- --------
Net change in cash and equivalents............... 4,850 3,318 (1,678)
Cash and equivalents at beginning of the year.... 28,700 25,382 27,060
-------- -------- --------
Cash and equivalents at end of the year.......... $ 33,550 $ 28,700 $ 25,382
======== ======== ========
Cash paid during the year
--Income taxes................................. $ 44,842 $ 29,025 $ 28,670
--Interest..................................... $ 4,340 $ 4,235 $ 4,437
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
CAPITAL CURRENCY
IN TRANS-
EXCESS LATION
COMMON OF PAR RETAINED ADJUST-
SHARES VALUE EARNINGS MENTS TOTAL
-------- ------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
At April 27, 1996......... $ 18,385 $28,016 $297,750 $( 775) $343,376
Purchases of La-Z-Boy
stock.................. (693) (20,058) (20,751)
Currency translation.... (223) (223)
Stock options/401(k).... 216 (319) 5,884 5,781
Dividends paid.......... (14,142) (14,142)
Net income.............. 45,297 45,297
-------- ------- -------- ------- --------
At April 26, 1997......... 17,908 27,697 314,731 (998) 359,338
Purchases of La-Z-Boy
stock ................. (484) (15,907) (16,391)
Currency translation.... (51) (51)
Stock options/401(k).... 333 1,110 6,008 7,451
Acquisition related..... 93 455 2,423 2,971
Dividends paid.......... (15,029) (15,029)
Net income.............. 49,920 49,920
-------- ------- -------- ------- --------
At April 25, 1998......... 17,850 29,262 342,146 (1,049) 388,209
Three-for-one stock
split.................. 35,700 (35,700) --
Purchases of La-Z-Boy
stock ................. (1,700) (28,760) (30,460)
Currency translation.... (892) (892)
Stock options/401(k).... 490 2,320 5,523 8,333
Dividends paid.......... (16,417) (16,417)
Net income.............. 66,142 66,142
-------- ------- -------- ------- --------
At April 24, 1999......... $ 52,340 $31,582 $332,934 $(1,941) $414,915
======== ======= ======== ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACCOUNTING POLICIES
The Company operates primarily in the U.S. furniture industry. The
following is a summary of significant accounting policies followed in the
preparation of these financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of La-Z-Boy
Incorporated and its subsidiaries. All significant intercompany transactions
have been eliminated. Certain non-U.S. subsidiaries are consolidated on a one-
month lag.
Risks and Uncertainties
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, sales and expenses for the reporting periods. Actual results could
differ from those estimates.
Cash and Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
on the last-in, first-out (LIFO) basis.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing
facilities, are recorded at cost. Depreciation is computed using primarily
accelerated methods over the estimated useful lives of the assets.
Goodwill
The excess of the cost of operating companies acquired over the value of
their net tangible assets is amortized on a straight-line basis over 30 years
from the date of acquisition.
Goodwill is evaluated periodically as events or circumstances indicate a
possible inability to recover its carrying amount. Such evaluation is based on
profitability projections and cash flow analysis. If future expected
undiscounted cash flows are insufficient to recover the carrying amount of the
asset, then the asset is written down to fair value.
Revenue Recognition
Revenue is recognized upon shipment of product.
Income Taxes
Income tax expense is provided on all revenue and expense items included
in the consolidated statement of income, regardless of the period such items
are recognized for income tax purposes.
F-7
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings per Share
Basic net income per share is computed using the weighted-average number
of shares outstanding during the period. Diluted net income per share uses the
weighted-average number of shares outstanding during the period plus the
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. This includes employee stock options.
The information below has been restated for a three-for-one stock split.
FISCAL YEAR ENDED
-----------------------
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS)
Weighted average common shares outstanding
(Basic)......................................... 52,890 53,654 54,324
Effect of options................................ 258 167 251
------ ------ ------
Weighted average common shares outstanding
(Diluted)..................................... 53,148 53,821 54,575
====== ====== ======
NOTE 2: ACQUISITIONS
On April 1, 1998, the Company acquired all of the capital stock of Sam
Moore Furniture Industries, Incorporated, a manufacturer of upholstered
furniture. For the year ended December 31, 1997, Sam Moore Furniture
Industries' sales were $33 million.
During fiscal year 1998, La-Z-Boy acquired the remaining 25% of the
ordinary share capital of Centurion Furniture plc, a furniture manufacturer
located in England. Sales for their year ended March 31, 1997 were $12 million.
The consolidated April 1998 financial statements include the operations
of Distincion Muebles, a furniture manufacturer located in Mexico. Annual sales
for the year ended March 30, 1998 were $1.9 million.
NOTE 3: CASH AND EQUIVALENTS
4/24/99 4/25/98
----------- -----------
(AMOUNTS IN THOUSANDS)
Certificates of deposit.......................... $ 19,900 $ 13,000
Cash in bank..................................... 10,704 10,714
Commercial paper................................. 1,878 3,963
Marketable securities............................ 1,068 1,023
----------- -----------
Total cash and equivalents..................... $ 33,550 $ 28,700
=========== ===========
The Company invests in certificates of deposit with a bank whose board of
directors includes two members of the Company's board of directors. At the end
of fiscal years 1999 and 1998, $15 million and $13 million, respectively, was
invested in this bank's certificates.
F-8
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
LIFE
IN DEPRECIATION
YEARS METHOD 4/24/99 4/25/98
----- ------------ -------- --------
(AMOUNTS IN THOUSANDS)
Machinery and equipment................... 10 200%DB $124,835 $114,502
Buildings and building fixtures........... 15-30 150%DB 116,601 116,145
Information systems....................... 3-5 150-200%DB 23,228 20,738
Transportation equipment.................. 5 SL 15,685 15,606
Land and land improvements................ 0-20 150%DB 13,514 12,937
Network and production tracking systems... 5-10 SL 4,881 2,407
Other..................................... 3-10 Various 23,923 18,048
-------- --------
322,667 300,383
Less: accumulated depreciation.......... 196,678 178,621
-------- --------
Property, plant and equipment, net.... $125,989 $121,762
======== ========
DB= Declining Balance SL = Straight Line
NOTE 5: DEBT AND CAPITAL LEASE OBLIGATIONS
INTEREST
RATES MATURITIES 4/24/99 4/25/98
--------- ---------- ------- -------
(AMOUNTS IN THOUSANDS)
Private placement........................ 6.5%-8.8% 1999-08 $36,875 $38,750
Industrial revenue bonds................. 3.1%-3.9% 2000-14 27,400 28,500
La-Z-Boy notes........................... -- -- -- 2,492
Other debt............................... 5.0%-7.0% 1999-00 195 1,514
--------- ------- ------- -------
Total debt............................... 64,470 71,256
Less: current portion.................. 2,001 4,822
------- -------
Long-term debt...................... $62,469 $66,434
======= =======
Weighted average interest rate........... 5.3% 5.8%
Fair value of debt....................... $65,522 $71,352
The Company has a $75 million unsecured revolving credit line through
August 2002, requiring interest only payments through August 2002 and requiring
principal payment in August 2002. The credit agreement also includes covenants
that, among other things, require the Company to maintain certain financial
statement ratios. There were no draws outstanding at April 24, 1999 and April
25, 1998.
On April 22, 1998, the Company obtained $35 million through the sale of
unsecured senior notes in a private placement. The principal on the notes is
payable at the end of 10 years and has an interest rate of 6.47%. The agreement
also includes covenants that, among other things, require the Company to
maintain certain financial statement ratios.
Proceeds from industrial revenue bonds were used to finance the
construction of manufacturing facilities. These arrangements require the
Company to insure and maintain the facilities and make annual payments that
include interest. The bonds are secured by the facilities constructed from the
bond proceeds.
The Company leases equipment (primarily trucks used as transportation
equipment) under capital leases expiring at various dates through fiscal year
2004. The majority of the leases include bargain purchase options.
F-9
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of debt and lease obligations for the five years subsequent to
April 24, 1999 are $3 million, $1 million, $5 million, $0 and $0, respectively.
As of April 24, 1999, the Company had remaining unused lines of credit and
commitments of $113 million under several credit arrangements.
NOTE 6: FINANCIAL GUARANTEES
La-Z-Boy has provided financial guarantees relating to loans and leases
in connection with some proprietary stores. The amounts of the unsecured
guarantees are shown in the following table. Because almost all guarantees are
expected to retire without being funded, the contract amounts are not estimates
of future cash flows.
4/24/99 4/25/98
------- -------
(CONTRACT
AMOUNTS IN
THOUSANDS)
Loan guarantees........................................... $17,193 $23,567
Lease guarantees.......................................... $ 5,649 $ 5,122
Most guarantees require periodic payments to the Company in exchange for
the guarantee. Terms of current guarantees generally range from one to five
years.
The guarantees have off-balance-sheet credit risk because only the
periodic payments and accruals for probable losses are recognized until the
guarantee expires. Credit risk represents the accounting loss that would be
recognized at the reporting date if counter-parties failed to perform
completely as contracted. The credit risk amounts are equal to the contractual
amounts, assuming that the amounts are fully advanced and that no amounts could
be recovered from other parties.
NOTE 7: STOCK OPTION PLANS
The Company's shareholders adopted an employee Incentive Stock Option
Plan that provides grants to certain employees to purchase common shares of the
Company at not less than their fair market value at the date of grant. Options
are for five years and become exercisable at 25% per year beginning one year
from the date of grant. The Company is authorized to grant options for up to
7,500,000 common shares.
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at April 27,
1996................... 1,597,650 $ 9.01
Granted................. -- --
Exercised............... (362,142) 7.61
Expired or cancelled.... (10,977) 9.04
---------
Outstanding at April 26,
1997................... 1,224,531 9.43
Granted................. 860,865 11.60
Exercised............... (677,316) 9.36
Expired or cancelled.... (67,521) 10.42
---------
Outstanding at April 25,
1998................... 1,340,559 10.87
Granted................. 422,220 17.58
Exercised............... (314,814) 9.86
Expired or cancelled.... (43,779) 13.82
---------
Outstanding at April 24,
1999................... 1,404,186 13.02
=========
Exercisable at April 24,
1999................... 499,761 $10.51
Shares available for
grants at April 24,
1999................... 6,132,000
F-10
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The options outstanding at April 24, 1999 have exercise prices ranging
from $9.00-$13.23 for 996,726 shares and $17.58 for 407,460 shares and a
weighted-average remaining contractual life of 2.9 years.
The Company's shareholders have also adopted Restricted Share Plans.
Under one plan, the Compensation Committee of the Board of Directors is
authorized to offer for sale up to an aggregate of 750,000 common shares to
certain employees. Under a second plan, up to an aggregate of 150,000 common
shares are authorized for sale to non-employee directors. Under the Restricted
Share Plans, shares are offered at 25% of the fair market value at the date of
grant. The plans require that all shares be held in an escrow account for a
period of three years in the case of an employee, or until the participant's
service as a director ceases in the case of a director. In the event of an
employee's termination during the escrow period, the shares must be sold back
to the Company at the employee's cost.
Shares aggregating 3,000 were granted and issued during both fiscal year
1999 and 1998, under the directors' plan. Shares remaining for future grants
under the directors' plans amounted to 96,000 at April 24, 1999. Shares
aggregating 67,350 and 69,180 were granted and issued during the fiscal years
1999 and 1998, respectively, under the employee Restricted Share Plan. Shares
remaining for future grants under the above plan amounted to 613,470 at April
24, 1999.
The Company's shareholders have also adopted a Performance-Based
Restricted Stock Plan. This plan authorizes the Compensation Committee of the
Board of Directors to award up to an aggregate of 1,200,000 shares to key
employees. Grants of shares are based on achievement of goals over a three-year
performance period. Any award made under the plan will be at the sole
discretion of the committee after judging all relevant factors. At April 24,
1999, performance awards were outstanding pursuant to which up to approximately
327,000 shares may be issued in fiscal years 2000 through 2002 for the three
outstanding target awards, depending on the extent to which certain specified
performance objectives are met. The cost of performance awards are expensed
over the performance period. In 1999, 48,945 shares were issued.
As permitted by Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," the Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Had the Company elected to recognize compensation cost for incentive
stock options based on the fair value method of accounting prescribed by SFAS
No. 123, the after tax expense relating to the stock options would have been
$0.7 million in 1999, $0.3 million in 1998 and $0.2 million in 1997. Pro forma
net income and earnings per share would have been as follows:
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income....................................... $65,424 $49,575 $45,104
Diluted net income per share..................... $ 1.23 $ 0.92 $ 0.83
Basic net income per share ...................... $ 1.24 $ 0.92 $ 0.83
The pro forma effect on net income is not representative of the pro forma
effect on net income that will be disclosed in future years as required by SFAS
No. 123 because it does not take into consideration pro forma compensation
expense relating to grants made prior to 1996.
F-11
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:
4/24/99 4/25/98 4/26/97
------- ------- -------
Risk free interest rate........................... 5.15% 5.6% 6.4%
Dividend rate..................................... 1.6% 1.6% 2.4%
Expected life in years............................ 4.4 4.6 4.6
Stock price volatility............................ 39% 23% 25%
NOTE 8: RETIREMENT/WELFARE
The Company has contributory and non-contributory retirement plans
covering substantially all factory employees.
Eligible salaried employees are covered under a trusteed profit sharing
retirement plan. Cash contributions to a trust are made annually based on
profits.
The Company has established a non-qualified deferred compensation plan
for eligible highly compensated employees called a SERP (Supplemental
Executive Retirement Plan).
The Company provides executive life insurance to certain highly
compensated employees. Such employees are not eligible for current
contributions to the profit sharing plan or the SERP.
The Company offers voluntary 401(k) retirement plans to eligible
employees within U.S. operating divisions. Currently over 60% of eligible
employees are participating in the plans. The Company makes matching
contributions based on specific formulas. For most divisions, this match is
made in La-Z-Boy stock.
The Company maintains defined benefit pension plans for eligible factory
hourly employees.
F-12
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the pension was as follows (for the fiscal years
ended):
4/24/99 4/25/98
------- -------
(AMOUNTS IN
THOUSANDS)
Change in benefit obligation
Benefit obligation at beginning of year............... $39,948 $32,011
Service cost........................................ 2,785 1,903
Interest cost....................................... 3,739 2,508
Amendments and new plans............................ 5,889 474
Benefits paid....................................... (2,051) (1,663)
Acquisition of Sam Moore............................ -- 4,715
------- -------
Benefit obligation at end of year................. 50,310 39,948
Change in plan assets
Fair value of plan assets at beginning of year........ 53,545 41,568
Actual return on plan assets........................ 5,458 9,439
Employer contribution............................... 1,214 --
Benefits paid....................................... (2,051) (1,663)
Acquisition of Sam Moore............................ -- 4,201
------- -------
Fair value of plan assets at end of year.......... 58,166 53,545
Funded status........................................... 7,856 13,597
Unrecognized actuarial gain........................... (3,133) (9,218)
Unamortized prior service cost........................ 795 724
------- -------
Prepaid benefit cost................................ $ 5,518 $ 5,103
======= =======
The actuarially determined net periodic pension cost and retirement costs
are computed as follows (for the fiscal years ended):
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS)
Service cost................................... $ 2,785 $1,903 $1,767
Interest cost.................................. 3,739 2,508 2,270
Actual return on plan assets................... (5,458) (9,439) (5,475)
Net amortization and deferral.................. (278) 5,843 2,381
------- ------ ------
Net periodic pension cost.................... 788 815 943
Profit sharing/SERP............................ 6,851 6,035 5,999
401(k)......................................... 2,174 1,661 1,625
Other.......................................... 652 968 882
------- ------ ------
Total retirement costs....................... $10,465 $9,479 $9,449
======= ====== ======
The expected long-term rate of return on plan assets was 8.0% for fiscal
years 1999, 1998 and 1997. The weighted-average discount rate used in
determining the actuarial present value of projected benefit obligations was
6.8% for fiscal year 1999 and 7.5% for fiscal years 1998 and 1997. Vested
benefits included in the projected benefit obligation were $40 million and $32
million at April 24, 1999 and April 25, 1998, respectively. Plan assets are
invested in a diversified portfolio that consists primarily of debt and equity
securities.
The Company's pension plan funding policy is to contribute annually at
least the amount necessary so that the plan assets exceed the projected benefit
obligation.
F-13
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
While in total the Company is overfunded, at April 24, 1999, there are
two plans with pension benefit obligations of $6.7 million and pension plan
assets of $5.5 million which are included in the tables shown.
NOTE 9: HEALTH CARE
The Company offers eligible employees an opportunity to participate in
group health plans. Participating employees make required premium payments
through pretax payroll deductions. Health-care expenses were as follows (for
the fiscal years ended):
4/24/99 4/25/98 4/26/97
------- ------- -------
(AMOUNTS IN THOUSANDS)
Gross health care.............................. $37,698 $32,020 $30,831
Participant payments........................... (9,406) (7,531) (6,393)
------- ------- -------
Net health care.............................. $28,292 $24,489 $24,438
======= ======= =======
The Company makes annual provisions for any current and future retirement
health-care costs which may not be covered by retirees' collected premiums.
F-14
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: INCOME TAXES
The primary components of the Company's deferred tax assets and
liabilities were as follows:
4/24/99 4/25/98
----------- -----------
(AMOUNTS IN THOUSANDS)
Current
Deferred income tax assets/(liabilities)
Bad debt............................................ $ 10,942 $ 9,393
Warranty............................................ 6,054 4,938
Workers' compensation............................... 1,662 1,838
SERP/other.......................................... 1,626 1,794
Inventory........................................... 1,429 1,795
State income tax.................................... 1,366 926
Stock options....................................... 1,653 1,069
Receivables--mark to market......................... (7,904) (8,700)
Other............................................... 3,382 3,813
Valuation allowance................................. (182) (187)
----------- -----------
Total current deferred tax assets................. 20,028 16,679
Noncurrent
Deferred income tax assets/(liabilities)
Pension ............................................ (2,985) (2,506)
Property, plant and equipment....................... (2,943) (3,110)
Net operating losses................................ 907 842
Other............................................... 360 246
Valuation allowance................................. (1,036) (950)
----------- -----------
Total noncurrent deferred tax liabilities......... (5,697) (5,478)
----------- -----------
Net deferred tax asset.......................... $ 14,331 $ 11,201
=========== ===========
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate are as follows (for the fiscal
years ended):
4/24/99 4/25/98 4/26/97
------- ------- -------
(% OF PRETAX INCOME)
Statutory tax rate...................................... 35.0% 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State income taxes net of federal benefit............. 2.7 2.4 3.5
Tax credits........................................... (0.1) (0.2) (0.4)
Goodwill.............................................. 0.7 0.8 0.9
Unutilized loss carryforwards......................... 0.1 (0.5) 0.1
Miscellaneous items................................... (0.1) (0.5) (0.4)
---- ---- ----
Effective tax rate.................................... 38.3% 37.0% 38.7%
==== ==== ====
F-15
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11: SEGMENTS
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective April 26, 1998. Following the
provisions of SFAS No. 131, La-Z-Boy Incorporated is reporting segment sales
and operating income in the same format reviewed by the Company's management
(the "management approach"). La-Z-Boy Incorporated has two reportable segments:
Residential upholstery and Residential casegoods.
The Residential upholstery segment is comprised of operating divisions
that primarily manufacture and sell upholstered furniture to dealers.
Upholstered furniture includes recliners, sofas, occasional chairs and
reclining sofas that are mostly or fully covered with fabric, leather or vinyl.
The operating divisions included in the Residential upholstery segment are La-
Z-Boy Residential, England/Corsair, Sam Moore, Centurion and Distincion
Muebles.
The Residential casegoods segment is comprised of operating divisions
that primarily manufacture and sell hardwood or hardwood veneer furniture to
dealers. Casegoods furniture includes dining room tables and chairs, bed frames
and bed boards, dressers, coffee tables and end tables that are mostly
constructed of hardwoods or veneers. The operating divisions included in the
Residential casegoods segment are Kincaid and Hammary.
The primary difference between the upholstery and the casegoods segments
is in the manufacturing area. In general, upholstery manufacturing requires
lower capital expenditures per dollar of sales than casegoods but higher labor
costs. Equipment needs and manufacturing processes are different in many key
areas and product costs reflect these significant differences. Upholstery
typically uses plywood or other "frame" (not exposed) wood which requires less
detailing and uses some different manufacturing methods than casegoods wood
processing. Casegoods requires more extensive automated equipment for drying,
processing, cutting, sanding and finishing exposed hardwood and veneer
products. Wood and related wood processing costs for upholstery (or total frame
costs) are a much smaller percentage of total unit costs in upholstery than
casegoods. Upholstery's largest costs are related to the purchased cost of
fabric (or leather, vinyl, etc.), cutting fabric, sewing the fabric and
upholstering the fabric and other materials to the frame; whereas casegoods
manufacturing typically has none of these costs or processes. Upholstery also
extensively uses filler materials such as polyurethane foam for cushioning and
appearance whereas casegoods manufacturing typically has none of these costs or
processes. Also, in "motion" upholstery products, which are a large portion of
La-Z-Boy's total upholstery sales, there are metal mechanism processes and
costs vs. none in casegoods.
The Other category is comprised of additional operating divisions
reviewed for performance by management including business furniture operations,
logistics operations, financing, retail and other operations.
The Company's largest customer is less than 3% of consolidated sales.
F-16
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accounting policies of the operating segments are the same as those
described in Note 1. Segment operating profit is based on profit or loss from
operations before interest income and expense, other income and income taxes.
Certain corporate costs are allocated to the segments based on revenues and
identifiable assets. Identifiable assets are cash and cash equivalents, notes
and accounts receivable, FIFO inventories and net property, plant and
equipment. Segment information used to evaluate segments is as follows (for the
fiscal years ended):
4/24/99 4/25/98 4/26/97
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
Net revenues
Residential upholstery................... $1,015,162 $ 850,495 $ 772,049
Residential casegoods.................... 198,969 186,968 170,561
Other.................................... 150,435 90,849 78,670
Eliminations............................. (76,921) (20,274) (15,455)
---------- ---------- ----------
Consolidated........................... 1,287,645 1,108,038 1,005,825
========== ========== ==========
Operating profit
Residential upholstery................... 99,542 70,462 63,872
Residential casegoods.................... 11,787 7,425 8,143
Other.................................... (802) 2,754 2,883
Unallocated corporate costs &
eliminations............................ (3,688) (3,438) (965)
---------- ---------- ----------
Consolidated........................... 106,839 77,203 73,933
========== ========== ==========
Depreciation and amortization
Residential upholstery................... 13,995 12,196 11,465
Residential casegoods.................... 3,806 3,992 3,925
Other.................................... 2,999 3,334 3,383
Corporate & eliminations................. 1,281 1,499 1,609
---------- ---------- ----------
Consolidated........................... 22,081 21,021 20,382
========== ========== ==========
Capital expenditures
Residential upholstery................... 19,388 16,556 10,714
Residential casegoods.................... 4,248 3,420 6,032
Other.................................... 3,609 2,263 1,032
Corporate & eliminations................. (1,929) (223) --
---------- ---------- ----------
Consolidated........................... 25,316 22,016 17,778
========== ========== ==========
Assets
Residential upholstery................... 399,803 363,160 313,492
Residential casegoods.................... 97,804 94,019 96,064
Other.................................... 54,900 48,839 45,670
Corporate & eliminations................. (8,252) (2,580) (164)
Unallocated assets....................... 85,537 76,913 73,345
---------- ---------- ----------
Consolidated........................... $ 629,792 $ 580,351 $ 528,407
========== ========== ==========
Sales by country
United States............................ 93% 94% 94%
Canada and other......................... 7% 6% 6%
---------- ---------- ----------
100% 100% 100%
========== ========== ==========
F-17
LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: CONTINGENCIES
The Company has been named as a defendant in various lawsuits arising in
the ordinary course of business. It is not possible at the present time to
estimate the ultimate outcome of these actions; however, management believes
that the resultant liability, if any, will not be material based on the
Company's previous experience with lawsuits of these types.
The Company has been named as a potentially responsible party (PRP) at
six environmental clean-up sites. Based on a review of all currently known
facts and the Company's experience with previous environmental clean-up sites,
management does not anticipate that future expenditures for environmental
clean-up sites will have a material adverse effect on the Company.
NOTE 13: SUBSEQUENT EVENTS
The Company acquired Bauhaus U.S.A., Inc., a manufacturer of upholstered
furniture primarily marketed to department stores, on June 1, 1999 for
approximately $57 million in cash. Bauhaus' sales for its fiscal year ended
August 31, 1998 were approximately $85 million. Bauhaus' operations are
included in the Company's results of operations since the acquisition date.
On September 28, 1999, the Company signed a definitive agreement to
acquire LADD Furniture, Inc., a publicly traded furniture manufacturer, in a
stock-for-stock merger in which LADD shareholders would receive approximately
9.2 million shares of La-Z-Boy common stock (excluding shares issuable on the
exercise of LADD employee stock options) valued at approximately $191 million
as of that date. LADD's sales for its fiscal year ended January 2, 1999 were
approximately $571 million. The transaction will be accounted for as a
purchase. It is subject to approval by LADD's shareholders.
On November 11, 1999, the Company signed a definitive agreement to
acquire Alexvale Furniture, Inc., a manufacturer of medium priced upholstered
furniture, for approximately $17 million in cash and La-Z-Boy common stock.
Alexvale's sales for its fiscal year ended April 30, 1999 were approximately
$61 million. The transaction will be accounted for as a purchase.
F-18
LA-Z-BOY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE)
UNAUDITED AUDITED
----------------------- ---------
OCTOBER 23, OCTOBER 24, APRIL 24,
1999 1998 1999
----------- ----------- ---------
Current assets
Cash and equivalents........................ $ 12,769 $ 22,721 $ 33,550
Receivables................................. 281,651 256,328 265,157
Inventories
Raw materials............................. 56,139 47,847 47,197
Work-in-process........................... 43,354 39,118 37,447
Finished goods............................ 43,388 35,627 34,920
-------- -------- --------
FIFO inventories.......................... 142,881 122,592 119,564
Excess of FIFO over LIFO.................. (23,303) (22,712) (23,053)
-------- -------- --------
Total inventories....................... 119,578 99,880 96,511
Deferred income taxes....................... 22,660 19,396 20,028
Other current assets........................ 11,510 5,889 10,342
-------- -------- --------
Total current assets...................... 448,168 404,214 425,588
Property, plant and equipment, net........... 143,006 119,660 125,989
Goodwill..................................... 89,271 48,017 46,985
Other long-term assets....................... 39,719 29,847 31,230
-------- -------- --------
Total assets.............................. $720,164 $601,738 $629,792
======== ======== ========
Current liabilities
Current portion--long-term debt............. $ 1,585 $ 4,726 $ 2,001
Current portion--capital leases............. 844 1,099 784
Accounts payable............................ 59,506 50,693 45,419
Payroll/other compensation.................. 44,641 39,063 53,697
Income taxes................................ 5,818 6,885 4,103
Other current liabilities................... 29,393 26,491 26,424
-------- -------- --------
Total current liabilities................. 141,787 128,957 132,428
Long-term debt............................... 119,594 63,319 62,469
Capital leases............................... 1,485 300 219
Deferred income taxes........................ 4,995 5,454 5,697
Other long-term liabilities.................. 14,554 11,912 14,064
Commitments and contingencies................
Shareholders' equity
Common shares, $1 par ...................... 52,143 52,909 52,340
Capital in excess of par.................... 32,543 30,328 31,582
Retained earnings .......................... 354,795 310,417 332,934
Currency translation........................ (1,732) (1,858) (1,941)
-------- -------- --------
Total shareholders' equity................ 437,749 391,796 414,915
-------- -------- --------
Total liabilities and shareholders'
equity................................... $720,164 $601,738 $629,792
======== ======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-19
LA-Z-BOY INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS
ENDED ENDED
----------------- -----------------
(UNAUDITED) (UNAUDITED)
----------------- -----------------
OCT. 23, OCT. 24, OCT 23, OCT. 24,
1999 1998 1999 1998
-------- -------- -------- --------
Sales...................................... $387,736 $334,831 $709,395 $603,711
Cost of sales.............................. 286,520 245,062 527,546 450,493
-------- -------- -------- --------
Gross profit............................. 101,216 89,769 181,849 153,218
Selling, general and administrative........ 62,920 59,510 121,896 110,798
-------- -------- -------- --------
Operating profit......................... 38,296 30,259 59,953 42,420
Interest expense........................... 1,866 1,164 3,305 2,351
Interest income............................ 610 471 1,206 1,048
Other income............................... 927 865 1,708 1,220
-------- -------- -------- --------
Pretax income............................ 37,967 30,431 59,562 42,337
Income tax expense......................... 14,697 11,984 22,999 16,706
-------- -------- -------- --------
Net income............................... $ 23,270 $ 18,447 $ 36,563 $ 25,631
======== ======== ======== ========
Diluted average shares..................... 52,625 53,425 52,610 53,543
Diluted earnings per share................. $ 0.44 $ 0.35 $ 0.69 $ 0.48
Basic earnings per share................... $ 0.44 $ 0.35 $ 0.70 $ 0.48
Dividends per share........................ $ 0.08 $ 0.08 $ 0.16 $ 0.15
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-20
LA-Z-BOY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS.)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
OCTOBER 23, OCTOBER 24, OCTOBER 23, OCTOBER 24,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Cash Flows from Operating
Activities
Net income................... $23,270 $ 18,447 $ 36,563 $ 25,631
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and
amortization.............. 6,348 5,936 12,128 11,353
Change in receivables...... (57,931) (60,025) (7,931) (17,454)
Change in inventories...... (6,365) 1,393 (17,979) (7,975)
Change in other assets and
liabilities............... 17,657 31,233 261 21,424
Change in deferred taxes... (2,575) (2,815) (2,554) (2,742)
------- -------- -------- --------
Total adjustments........ (42,866) (24,278) (16,075) 4,606
------- -------- -------- --------
Cash Provided/(Used) by
Operating Activities.... (19,596) (5,831) 20,488 30,237
Cash Flows from Investing
Activities
Proceeds from disposals of
assets...................... 483 88 550 293
Capital expenditures......... (8,384) (4,128) (21,952) (8,233)
Acquisition of operating
division, net of cash
acquired.................... (365) -- (58,681) --
Change in other investments.. (2,147) (537) (2,313) (2,427)
------- -------- -------- --------
Cash Used for Investing
Activities.............. (10,413) (4,577) (82,396) (10,367)
Cash Flows from Financing
Activities
Long-term debt............... -- -- 57,000 --
Retirements of debt.......... (102) (120) (2,806) (3,211)
Capital leases............... 935 -- 935 --
Capital lease principal
payments.................... (116) (361) (202) (803)
Stock for stock option
plans....................... 2,012 3,237 4,183 4,688
Stock for 401(k) employee
plans....................... 512 458 1,199 837
Purchase of La-Z-Boy stock... (4,804) (11,160) (10,946) (18,763)
Payment of cash dividends.... (4,189) (4,263) (8,374) (8,006)
------- -------- -------- --------
Cash Provided/(Used) for
Financing Activities.... (5,752) (12,209) 40,989 (25,258)
Effect of exchange rate changes
on cash....................... 426 (281) 138 (591)
------- -------- -------- --------
Net change in cash and
equivalents................... (35,335) (22,898) (20,781) (5,979)
Cash and equivalents at
beginning of period........... 48,104 45,619 33,550 28,700
------- -------- -------- --------
Cash and equivalents at end of
period........................ $12,769 $ 22,721 $ 12,769 $ 22,721
======= ======== ======== ========
Cash paid during period--Income
taxes $21,018 $ 7,403 $ 23,307 $ 7,878
--Interest.......... $ 2,180 $ 588 $ 2,666 $ 1,131
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-21
LA-Z-BOY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial information is prepared in
conformity with generally accepted accounting principles and such principles
are applied on a basis consistent with those reflected in the Company's 1999
Annual Report on Form 10-K, as amended, filed with the Securities and Exchange
Commission. The financial information included herein, other than the condensed
consolidated balance sheet as of April 24, 1999, has been prepared by
management without audit by independent certified public accountants. The
condensed consolidated balance sheet as of July 24, 1999 has been prepared on a
basis consistent with, but does not include all the disclosures contained, in
the audited consolidated financial statements for the year ended April 24,
1999. The information furnished includes all adjustments and accruals
consisting only of normal recurring accrual adjustments which are, in the
opinion of management, necessary for a fair presentation of results for the
interim period.
2. INTERIM RESULTS
The foregoing interim results are not necessarily indicative of the
results of operations for the full fiscal year ending April 29, 2000.
3. EARNINGS PER SHARE
Basic earnings per share is computed using the weighted-average number of
shares outstanding during the period. Diluted earnings per share uses the
weighted-average number of shares outstanding during the period plus the
additional common shares that would be outstanding if the dilutive potential
common shares issuable under employee stock options were issued.
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
OCTOBER 23, OCTOBER 24, OCTOBER 23, OCTOBER 24,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
Weighted average common shares
outstanding (basic).......... 52,324 53,121 52,305 53,250
Effect of options............. 301 304 305 293
------ ------ ------ ------
Weighted average common shares
outstanding (diluted)........ 52,625 53,425 52,610 53,543
====== ====== ====== ======
F-22
LA-Z-BOY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SEGMENT INFORMATION
The Company's reportable operating segments are Residential upholstery
and Residential casegoods. Financial results of the Company's operating
segments for the three and six months ended October 23, 1999 and October 24,
1998 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ---------------------
OCTOBER 23, OCTOBER 24, OCTOBER 23, OCTOBER
1999 1998 1999 24, 1998
----------- ----------- ----------- ---------
(AMOUNTS IN THOUSANDS)
Net revenues
Residential
upholstery............ $314,186 $262,727 $569,274 $ 469,361
Residential casegoods.. 53,810 52,314 104,063 97,889
Other.................. 45,023 38,595 83,600 68,089
Eliminations........... (25,283) (18,805) (47,542) (31,628)
-------- -------- -------- ---------
Consolidated......... $387,736 $334,831 $709,395 $603,711
======== ======== ======== =========
Operating profit
Residential
upholstery............ $ 34,483 $ 27,862 $ 53,075 $ 39,553
Residential casegoods.. 4,533 2,741 9,627 5,321
Other.................. 734 1,054 1,164 277
Unallocated corporate
costs and
eliminations.......... (1,454) (1,398) (3,913) (2,731)
-------- -------- -------- ---------
Consolidated......... $ 38,296 $ 30,259 $ 59,953 $ 42,420
======== ======== ======== =========
F-23
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
September 28, 1999
among
LADD FURNITURE, INC.
and
LA-Z-BOY INCORPORATED
and
LZB ACQUISITION CORP.
(CONFORMED TO REFLECT AMENDMENT NO. 1 DATED AS OF DECEMBER 13, 1999)
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 THE MERGER...................................................... A-1
SECTION 1.01. The Merger.................................................. A-1
SECTION 1.02. Conversion of Shares........................................ A-1
SECTION 1.03. Surrender and Payment....................................... A-2
SECTION 1.04. Stock Options............................................... A-3
SECTION 1.05. Adjustments................................................. A-4
SECTION 1.06. Fractional Shares........................................... A-4
SECTION 1.07. Withholding Rights.......................................... A-4
SECTION 1.08. Lost Certificates........................................... A-4
SECTION 1.09. Shares Held by Company Affiliates........................... A-4
ARTICLE 2 CERTAIN GOVERNANCE MATTERS...................................... A-5
SECTION 2.01. Articles of Incorporation of the Surviving Corporation...... A-5
SECTION 2.02. Bylaws of the Surviving Corporation......................... A-5
SECTION 2.03. Directors and Officers of the Surviving Corporation......... A-5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... A-5
SECTION 3.01. Corporate Existence and Power............................... A-5
SECTION 3.02. Corporate Authorization..................................... A-5
SECTION 3.03. Governmental Authorization.................................. A-6
SECTION 3.04. Non-Contravention........................................... A-6
SECTION 3.05. Capitalization of the Company............................... A-6
SECTION 3.06. Subsidiaries................................................ A-7
SECTION 3.07. SEC Filings................................................. A-7
SECTION 3.08. Financial Statements........................................ A-8
SECTION 3.09. Disclosure Documents........................................ A-8
SECTION 3.10. Absence of Certain Changes.................................. A-8
SECTION 3.11. No Undisclosed Material Liabilities......................... A-9
SECTION 3.12. Litigation.................................................. A-9
SECTION 3.13. Taxes....................................................... A-9
SECTION 3.14. Employee Benefit Plans...................................... A-10
SECTION 3.15. Compliance with Laws........................................ A-11
SECTION 3.16. Finders' or Advisors' Fees.................................. A-11
SECTION 3.17. Environmental Matters....................................... A-11
SECTION 3.18. Opinion of Financial Advisor................................ A-11
SECTION 3.19. Tax Treatment............................................... A-11
SECTION 3.20. Takeover Statutes........................................... A-12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ACQUIROR...................... A-12
SECTION 4.01 Corporate Existence and Power................................ A-12
SECTION 4.02. Corporate Authorization..................................... A-12
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
SECTION 4.03. Governmental Authorization................................... A-12
SECTION 4.04. Non-Contravention............................................ A-12
SECTION 4.05. Capitalization............................................... A-13
SECTION 4.06. Subsidiaries................................................. A-13
SECTION 4.07. SEC Filings.................................................. A-14
SECTION 4.08. Financial Statements......................................... A-14
SECTION 4.09. Disclosure Documents......................................... A-14
SECTION 4.10. Absence of Certain Changes................................... A-15
SECTION 4.11. No Undisclosed Material Liabilities.......................... A-15
SECTION 4.12. Litigation................................................... A-15
SECTION 4.13. Taxes........................................................ A-15
SECTION 4.14. Employee Benefit Plans....................................... A-16
SECTION 4.15. Compliance with Laws......................................... A-16
SECTION 4.16. Finders' or Advisors' Fees................................... A-16
SECTION 4.17. Environmental Matters........................................ A-16
SECTION 4.18. Tax Treatment................................................ A-17
ARTICLE 5 COVENANTS OF THE COMPANY......................................... A-17
SECTION 5.01. Conduct of the Company....................................... A-17
SECTION 5.02. Company Stockholder Meeting; Proxy Material.................. A-19
SECTION 5.03. Other Offers................................................. A-19
ARTICLE 6 COVENANTS OF ACQUIROR............................................ A-20
SECTION 6.01. Conduct of Acquiror.......................................... A-20
SECTION 6.02. Obligations of Merger Subsidiary............................. A-21
SECTION 6.03. Form S-4..................................................... A-21
SECTION 6.04. Stock Exchange Listing....................................... A-21
SECTION 6.05. Director, Officer and Employee Liability..................... A-21
SECTION 6.06. Employee Benefits............................................ A-21
ARTICLE 7 COVENANTS OF ACQUIROR AND THE COMPANY............................ A-23
SECTION 7.01. Reasonable Best Efforts...................................... A-23
SECTION 7.02. Certain Filings.............................................. A-23
SECTION 7.03. Access to Information........................................ A-23
SECTION 7.04. Public Announcements......................................... A-24
SECTION 7.05. Further Assurances........................................... A-24
SECTION 7.06. Notices of Certain Events.................................... A-24
SECTION 7.07. Affiliates................................................... A-24
SECTION 7.08. Tax Treatment................................................ A-24
ARTICLE 8 CONDITIONS TO THE MERGER......................................... A-25
SECTION 8.01. Conditions to the Obligations of Each Party.................. A-25
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
SECTION 8.02. Conditions to the Obligations of Acquiror and Merger
Subsidiary.............................................................. A-25
SECTION 8.03. Conditions to the Obligations of the Company............... A-26
ARTICLE 9. TERMINATION................................................... A-27
SECTION 9.01. Termination................................................ A-27
SECTION 9.02. Effect of Termination...................................... A-27
ARTICLE 10 MISCELLANEOUS................................................. A-28
SECTION 10.01. Notices................................................... A-28
SECTION 10.02. Non-Survival of Representations and Warranties............ A-28
SECTION 10.03. Amendments; No Waivers.................................... A-28
SECTION 10.04. Expenses.................................................. A-29
SECTION 10.05. Successors and Assigns.................................... A-29
SECTION 10.06. Governing Law............................................. A-29
SECTION 10.07. Jurisdiction.............................................. A-30
SECTION 10.08. Waiver of Jury Trial...................................... A-30
SECTION 10.09. Counterparts; Effectiveness............................... A-30
SECTION 10.10. Entire Agreement.......................................... A-30
SECTION 10.11. Captions; Construction of Certain Contract Provisions..... A-30
SECTION 10.12. Severability.............................................. A-30
EXHIBITS (omitted)
A -- Form of Affiliate's Letter
B-1 -- Form of La-Z-Boy Representation Letter
B-2 -- Form of LADD Representation Letter
AGREEMENT AND PLAN OF MERGER
(CONFORMED TO REFLECT AMENDMENT NO. 1 DATED AS OF DECEMBER 13, 1999)
AGREEMENT AND PLAN OF MERGER dated as of September 28, 1999 among LADD
FURNITURE, INC., a North Carolina corporation (the "Company"), LA-Z-BOY
INCORPORATED, a Michigan corporation ("Acquiror"), and LZB ACQUISITION CORP., a
newly-formed Michigan corporation and a wholly-owned first-tier subsidiary of
Acquiror ("Merger Subsidiary").
WHEREAS, the respective Boards of Directors of Acquiror, Merger
Subsidiary and the Company have approved this Agreement, and deem it advisable
and in the best interests of their respective stockholders to consummate the
merger of Merger Subsidiary with and into the Company on the terms and
conditions set forth herein;
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger contemplated by this Agreement qualify as a "reorganization"
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations promulgated thereunder;
NOW, THEREFORE, in consideration of the promises and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01. THE MERGER. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "Merger") with and into the Company in accordance with the
requirements of the laws of the States of North Carolina and Michigan,
whereupon the separate existence of Merger Subsidiary shall cease, and the
Company shall be the surviving corporation in the Merger (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger
Subsidiary will file a certificate of merger with the appropriate officials and
offices of the States of North Carolina and Michigan and make all other filings
or recordings required by law in connection with the Merger. The Merger shall
become effective at such time as the certificate of merger is duly filed or at
such later time as is specified in the certificate of merger (the "Effective
Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger
Subsidiary, all as provided under applicable law.
(d) The closing of the Merger (the "Closing") shall take place (i) at the
offices of Miller, Canfield, Paddock and Stone, P.L.C., 150 West Jefferson,
Suite 2500, Detroit, Michigan, as soon as practicable, but in any event within
three business days after the day on which the last to be fulfilled or waived
of the conditions set forth in Article 8 (other than those conditions that by
their nature are to be fulfilled at the Closing, but subject to the fulfillment
or waiver of such conditions) shall be fulfilled or waived in accordance with
this Agreement or (ii) at such other place and time or on such other date as
the Company and Acquiror may agree in writing (the "Closing Date").
SECTION 1.02. CONVERSION OF SHARES. (a) At the Effective Time by virtue
of the Merger and without any action on the part of the holder thereof:
(i) each share of common stock, par value $0.30 per share, of the
Company (the "Shares") held by the Company as treasury stock or owned by
Acquiror or any subsidiary of Acquiror immediately prior to the
Effective Time shall be canceled, and no gainpayment shall be made with
respect thereto;
(ii) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and
become one share of common stock of the Surviving Corporation with the
same rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation;
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(iii) each Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 1.02(a)(i), be
converted into the right to receive 1.18 (the "Exchange Ratio") shares
of fully paid and nonassessable common stock, $1.00 par value, of
Acquiror ("Acquiror Common Stock").
(b) All Acquiror Common Stock issued as provided in this Section 1.02
shall be of the same class and shall have the same terms as the currently
outstanding Acquiror Common Stock.
(c) From and after the Effective Time, all Shares converted in accordance
with Section 1.02(a)(iii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration (as
defined below), as applicable, and any dividends payable pursuant to Section
1.03(f). From and after the Effective Time, all certificates representing the
common stock of Merger Subsidiary shall be deemed for all purposes to represent
the number of shares of common stock of the Surviving Corporation into which
they were converted in accordance with Section 1.02(a)(ii).
(d) The Acquiror Common Stock to be received as consideration pursuant to
the Merger by each holder of Shares (together with cash in lieu of fractional
shares of Acquiror Common Stock as specified below) is referred to herein as
the "Merger Consideration."
(e) For purposes of this Agreement, the word "Subsidiary" when used with
respect to any Person means any other Person, whether incorporated or
unincorporated, of which (i) more than fifty percent of the securities or other
ownership interests or (ii) securities or other interests having by their terms
ordinary voting power to elect more than fifty percent of the board of
directors or others performing similar functions with respect to such
corporation or other organization, is directly owned or controlled by such
Person or by any one or more of its Subsidiaries. For purposes of this
Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
SECTION 1.03. SURRENDER AND PAYMENT. (a) Prior to the Effective Time,
Acquiror shall appoint an agent reasonably acceptable to the Company (the
"Exchange Agent") for the purpose of exchanging certificates representing
Shares (the "Certificates") for the Merger Consideration. Acquiror will make
available to the Exchange Agent, as needed, the Merger Consideration to be paid
in respect of the Shares. Promptly after the Effective Time, Acquiror will
send, or will cause the Exchange Agent to send, to each holder of record at the
Effective Time of Shares, a letter of transmittal for use in such exchange
(which shall specify that the delivery shall be effected, and risk of loss and
title shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) in such form as the Company and Acquiror may reasonably agree, for use
in effecting delivery of Shares to the Exchange Agent.
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
Certificate, together with a properly completed letter of transmittal, will be
recognizedentitled to receive the Merger Consideration in respect of the Shares
represented by an E/C shareholdersuch Certificate. Until so surrendered, each such Certificate
shall, after the Effective Time, represent for all purposes only the right to
receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the Certificate is registered, it shall be
a condition to such payment that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, Certificates are presented
to the Surviving Corporation, they shall be canceled and
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exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by the
holders of Shares one year after the Effective Time shall be returned to
Acquiror, upon receiptdemand, and any such holder who has not exchanged his Shares for
the Merger Consideration in accordance with this Section prior to that time
shall thereafter look only to Acquiror for payment of La-Z-Boythe Merger Consideration
in respect of his Shares. Notwithstanding the foregoing, Acquiror shall not be
liable to any holder of Shares for any amount paid to a public official
pursuant to applicable abandoned property laws. Any amounts remaining unclaimed
by holders of Shares three years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of Acquiror free and clear of any claims or
interest of any Person previously entitled thereto.
(f) No dividends or other distributions with respect to Acquiror Common
Stock solelyissued in the Merger shall be paid to the holder of any unsurrendered
Certificates until such Certificates are surrendered as provided in this
Section. Subject to the effect of applicable laws, following such surrender,
there shall be paid, without interest, to the record holder of the Acquiror
Common Stock issued in exchange therefor (i) at the time of such surrender, all
dividends and other distributions payable in respect of such Acquiror Common
Stock with a record date after the Effective Time and a payment date on or
prior to the date of such surrender and not previously paid and (ii) at the
appropriate payment date, the dividends or other distributions payable with
respect to such Acquiror Common Stock with a record date after the Effective
Time but with a payment date subsequent to such surrender. For purposes of
dividends or other distributions in respect of Acquiror Common Stock, all
Acquiror Common Stock to be issued pursuant to the Merger (but not options
therefor issued pursuant to Section 1.04 unless actually exercised at the
Effective Time) shall be entitled to dividends pursuant to the immediately
preceding sentence as if issued and outstanding as of the Effective Time.
SECTION 1.04. STOCK OPTIONS. (a) At the Effective Time, each outstanding
option to purchase Shares (a "Company Stock Option") granted under the
Company's plans identified in Schedule 1.04 (collectively, the "Company Stock
Option Plans"), whether vested or not vested, shall be deemed assumed by
Acquiror and shall thereafter be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such Company Stock
Option prior to the Effective Time, the number (rounded up to the nearest whole
number) of shares of Acquiror Common Stock determined by multiplying (x) the
number of Shares subject to such Company Stock Option immediately prior to the
Effective Time by (y) the Exchange Ratio, at a price per share of Acquiror
Common Stock (rounded up to the nearest whole cent) equal to (A) the exercise
price per Share otherwise purchasable pursuant to such Company Stock Option
divided by (B) the Exchange Ratio; provided, however, that in the case of any
Company Stock Option to which Section 422 of the Code applies, the adjustments
provided for in this Section shall be effected in a manner consistent with the
requirements of Section 424(a) of the Code. In addition, prior to the Effective
Time, the Company will make any amendments to the terms of such stock option or
compensation plans or arrangements that are necessary to give effect to the
transactions contemplated by this Section. The Company represents that no
consents are necessary to give effect to the transactions contemplated by this
Section.
(b) Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquiror Common Stock for delivery
pursuant to the terms set forth in this Section 1.04.
(c) At the Effective Time, each award or account (including stock
equivalents and stock units, but excluding Company Stock Options) outstanding
as of the date hereof ("Company Award") that has been established, made or
granted under any employee incentive or benefit plans, programs or arrangements
and non-employee director plans maintained by the Company on or prior to the
date hereof which provide for grants of equity-based awards or equity-based
accounts shall be amended or converted into a similar instrument of Acquiror,
in each case with such adjustments to the terms and conditions of such Company
Awards as are appropriate to preserve the value inherent in such Company Awards
with
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no detrimental effects on the holders thereof. The other terms and conditions
of each Company Award, and the plans or agreements under which they were
issued, shall continue to apply in accordance with their terms and conditions,
including any provisions for acceleration or vesting. The Company represents
that there are no Company Awards or Company Stock Options other than those
reflected in Section 3.05.
(d) At the Effective Time, Acquiror shall file with the Securities and
Exchange Commission (the "SEC") a registration statement on an appropriate form
or a post-effective amendment to a previously filed registration statement
under the Securities Act of 1933, as amended (the "1933 Act"), with respect to
the Acquiror Common Stock subject to options and other equity-based awards
issued pursuant to this Section 1.04, and shall use its reasonable best efforts
to maintain the current status of the prospectus contained therein, as well as
comply with any applicable state securities or "blue sky" laws, for so long as
such options or other equity-based awards remain outstanding.
(e) Acquiror shall take such actions as may be necessary so that, from
and after the Effective Time, each option on Acquiror Common Stock issued
pursuant to this Section 1.04 in respect of a Company Stock Option that was
issued under the Company's stock option plan for non-employee directors will be
subject to a plan that provides the holder of such option with substantially
the same rights and benefits as he had under the Company's plan. Such actions
may include amending an existing Acquiror stock option plan or adopting a new
stock option plan to accommodate such options.
SECTION 1.05. ADJUSTMENTS. If at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
shares of capital stock of Acquiror or the Company shall occur by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any similar transaction, or any stock dividend
thereon with a record date during such period, the Merger Consideration shall
be appropriately adjusted to provide the holders of Shares with the same
economic effect as contemplated by this Agreement prior to such event.
SECTION 1.06. FRACTIONAL SHARES. No fractional shares of Acquiror Common
Stock shall be issued in the Merger, but in lieu thereof each holder of Shares
otherwise entitled to a fractional share of Acquiror Common Stock will be
entitled to receive, from the Exchange Agent in accordance with the provisions
of this Section 1.06, a cash payment, without interest, in lieu of such
fractional share of Acquiror Common Stock (after taking into account all
Certificates delivered by such holder) in an amount equal to such fractional
part of a share of Acquiror Common Stock multiplied by the average of the
closing prices of Acquiror's Common Stock on the New York Stock Exchange (the
"NYSE") on the five business days immediately preceding the Closing Date.
SECTION 1.07. WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Acquiror shall be entitled to deduct and withhold from the consideration
otherwise payable to any person pursuant to this Article such amounts as it is
required to deduct and withhold with respect to the making of such payment
under any provision of federal, state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Acquiror, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by the Surviving Corporation or
Acquiror, as the case may be.
SECTION 1.08. LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for E/C Stock.
Consummationsuch lost, stolen or destroyed
Certificate the Merger Consideration to be paid in respect of the Reorganization is conditioned upon there being
executed and delivered "tax lock-up letters"Shares
represented by allsuch Certificates as contemplated by this Article.
SECTION 1.09. SHARES HELD BY COMPANY AFFILIATES. Anything to the contrary
herein notwithstanding, any shares of Acquiror Common Stock (or certificates
therefor) issued to affiliates of the holdersCompany pursuant to Section 1.03 shall be
subject to the restrictions described in Exhibit A, and such shares (or
certificates therefor) shall bear a legend describing such restrictions.
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ARTICLE 2
CERTAIN GOVERNANCE MATTERS
SECTION 2.01. ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
articles of E/C Stock who will receive sharesincorporation of La-Z-Boy Common Stockthe Company in effect at the Effective Time shall
be the articles of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 2.02. BYLAWS OF THE SURVIVING CORPORATION. The bylaws of Merger
Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable law.
SECTION 2.03. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From
and after the Effective Time, until successors are duly elected or appointed
and qualified in accordance with applicable law, (a) the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation, and (b) the officers of the Company at the Effective Time shall be
the officers of the Surviving Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquiror that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of North Carolina, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted, except for those the absence of which would not,
individually or in the Merger. These
tax lock-up letters essentially prohibit sales or dispositionsaggregate, have a Material Adverse Effect on the
Company. The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the
sharesproperty owned or leased by it or the nature of La-Z-Boy Common Stock subject thereto priorits activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. For purposes of this Agreement, a "Material
Adverse Effect" with respect to any Person means a material adverse effect on
the financial condition, business, liabilities, properties, assets or results
of operations, taken as a whole, of such Person and its Subsidiaries, taken as
a whole, but excluding the effects of any events or states of facts relating to
the second anniversaryfurniture industry in general and not relating specifically to the business
of the Company or Acquiror, as the case may be. The Company has heretofore
delivered to Acquiror true and complete copies of the Company's certificate of
incorporation and bylaws as currently in effect.
SECTION 3.02. CORPORATE AUTHORIZATION. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Company's
corporate powers and, except for any required approval by the Company's
stockholders in connection with the consummation of the Merger, have been duly
authorized by all necessary corporate action. The affirmative vote of holders
of the outstanding Shares having votes representing a majority of the votes of
all Shares is the only vote of the holders of any of the Company's capital
stock necessary in connection with consummation of the Merger. Assuming due
authorization, execution and delivery of this Agreement by Acquiror and Merger
Subsidiary, this Agreement constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(b) The Company's Board of Directors, at a meeting duly called and held,
has (i) determined that this Agreement and the transactions contemplated hereby
(including the Merger) are fair to and in the best interests of the Company's
stockholders, (ii) approved and adopted this Agreement and approved the
consummation by the Company of the transactions contemplated hereby (including
the Merger), and
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(iii) resolved (subject to Section 5.02) to recommend approval and adoption of
this Agreement and approval of the Merger by its stockholders.
SECTION 3.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with North Carolina law and Michigan law,
(b) compliance with any applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (c) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Exchange Act"), (d)
compliance with any applicable requirements of the 1933 Act and (e) other
actions or filings which if not taken or made would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
SECTION 3.04. NON-CONTRAVENTION. Except as set forth in Schedule 3.04,
the execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated hereby do not
and will not (a) assuming compliance with the matters referred to in Section
3.02, contravene or conflict with the certificate of incorporation or bylaws of
the Company, (b) assuming compliance with the matters referred to in Section
3.03, contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company or any of its Subsidiaries, (c) constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of the Company or any of its Subsidiaries or to a loss
of any benefit to which the Company or any of its Subsidiaries is entitled
under any provision of any material agreement, contract or other instrument
binding upon the Company or any of its Subsidiaries or any license, franchise,
permit or other similar authorization held by the Company or any of its
Subsidiaries, or (d) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
other than any such mortgage, lien, pledge, charge, security interest or
encumbrance (i) for Taxes (as defined in Section 3.13) not yet due or being
contested in good faith (and for which adequate accruals or reserves have been
established on the Acquiror Balance Sheet or the Company Balance Sheet, as the
case may be) or (ii) which is a carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like lien arising in the ordinary course of
business. Except as disclosed in Schedule 3.04, neither the Company nor any
Subsidiary of the Company is a party to any agreement that expressly limits the
ability of the Company or any Subsidiary of the Company, or would limit
Acquiror or any Subsidiary of Acquiror after the Effective Time, to compete in
or conduct any line of business or compete with any Person or in any geographic
area or during any period of time.
SECTION 3.05. CAPITALIZATION OF THE COMPANY. The authorized capital stock
of the Company consists of 50,000,000 Shares and 500,000 shares of $100 par
value preferred stock (the "Company Preferred Stock"). As of the close of
business on July 3, 1999, there were outstanding 7,825,783 Shares, and employee
stock options to purchase an aggregate of 903,252 Shares (of which options to
purchase an aggregate of 434,950 Shares were exercisable) and Company Awards
(other than outstanding restricted stock) with respect to an aggregate of
4,762.0383 Shares, and no shares of Company Preferred Stock nor options with
respect thereto were outstanding. The Shares are the only class of the
Company's capital stock entitled to vote. The number of outstanding Shares is
subject to change before the Effective Time through the exercise of currently
outstanding stock options. All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section and except for changes since
the close of business on July 3, 1999 resulting from the exercise of employee
stock options outstanding on such date or options or stock-based awards granted
as permitted by Section 5.01, there are outstanding (a) no shares of capital
stock or other voting securities of the Company, (b) no securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (c) except for its obligations to make matching
contributions under the terms of its 401(k) plan, no options, warrants or other
rights to acquire from the Company, and no preemptive or similar rights,
subscription or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of the Company,
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obligating the Company to issue, transfer or sell, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company or obligating the Company to grant, extend or
enter into any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in clauses 3.05(a),
3.05(b) and 3.05(c) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
SECTION 3.06. SUBSIDIARIES. (a) Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except for those the absence of which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. Each Subsidiary of the Company is duly qualified to do business and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. All "significant subsidiaries," as such term is defined in Section
1-02 of Regulation S-X under the Exchange Act (each, a "Significant
Subsidiary") of the Company and their respective jurisdictions of incorporation
are identified in the Company's annual report on Form 10-K for the fiscal year
ended January 2, 1999 (the "Company 10-K") or in Schedule 3.06(a).
(b) Except as set forth in the Company 10-K, all of the outstanding
capital stock of, or other ownership interests in, each Significant Subsidiary
of the Company is owned by the Company, directly or indirectly, free and clear
(except as set forth in Schedule 3.06(b)) of any material Lien and free of any
other material limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of the Company or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Significant
Subsidiary of the Company or (ii) options, warrants or other rights to acquire
from the Company or any of its Significant Subsidiaries, and no preemptive or
similar rights, subscription or other rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the
capital stock of any Significant Subsidiary of the Company, obligating the
Company or any of its Significant Subsidiaries to issue, transfer or sell, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Significant Subsidiary of the Company
or obligating the Company or any Significant Subsidiary of the Company to
grant, extend or enter into any such option, warrant, subscription or other
right, convertible security, agreement, arrangement or commitment except, in
any such case under clause (i) or (ii), to the extent relating to an
insignificant equity interest in any Significant Subsidiary (the items in
clauses 3.06(b)(i) and 3.06(b)(ii) being referred to collectively as the
"Company Subsidiary Securities"). Except as set forth on Schedule 3.06(b),
there are no outstanding obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any outstanding Company Subsidiary
Securities.
SECTION 3.07. SEC FILINGS. (a) The Company has delivered to Acquiror (i)
its annual reports on Form 10-K for its fiscal years ended December 28, 1996,
January 3, 1998 and January 2, 1999, (ii) its quarterly reports on Form 10-Q
for its fiscal quarters ended after January 2, 1999, (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company held since January 2, 1999, and
(iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since January 2, 1999 (the documents referred to
in this Section 3.07(a) being referred to collectively as the "Company SEC
Documents").
(b) As of its filing date, each Company SEC Document complied as to form
in all material respects with the applicable requirements of the Exchange Act
and the 1933 Act.
(c) As of its filing date, each Company SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
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(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 3.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company (including any related notes and schedules) included in its annual
reports on Form 10-K and the quarterly reports on Form 10-Q referred to in
Section 3.07 fairly present in all material respects, in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto), the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and cash flows for the periods then
ended (subject to normal year-end adjustments and the absence of notes in the
case of any unaudited interim financial statements). For purposes of this
Agreement, "Company Balance Sheet" means the consolidated balance sheet of the
Company as of January 2, 1999 set forth in the Company 10-K and "Company
Balance Sheet Date" means January 2, 1999.
SECTION 3.09. DISCLOSURE DOCUMENTS. (a) Neither the proxy statement of
the Company (the "Company Proxy Statement") to be filed with the SEC in
connection with the Merger, nor any amendment or supplement thereto, will, at
the date the Company Proxy Statement or any such amendment or supplement is
first mailed to stockholders of the Company or at the time such stockholders
vote on the adoption and approval of this Agreement and the transactions
contemplated hereby, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Company Proxy Statement will, when filed, comply as to form in all material
respects with the requirements of the Exchange Act. No representation or
warranty is made by the Company in this Section 3.09 with respect to statements
made or incorporated by reference therein based on information supplied by
Acquiror or Merger Subsidiary for inclusion or incorporation by reference in
the Company Proxy Statement.
(b) None of the information supplied or to be supplied by Company for
inclusion or incorporation by reference in the Form S-4 (as defined in Section
4.09) or any amendment or supplement thereto will at the time the Form S-4 or
any such amendment or supplement becomes effective under the 1933 Act or at the
Effective Time, as the case may be, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
3.10, since the Company Balance Sheet Date, the Company and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of the
Company or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the
Company or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Company or
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any of its Subsidiaries of any contract or other right, in either case,
material to the Company and its Subsidiaries taken as a whole, other than
transactions, commitments, contracts, agreements or settlements (including
without limitation settlements of litigation and tax proceedings) in the
ordinary course of business consistent with past practice, those contemplated
by this Agreement, or as agreed to in writing by Acquiror;
(e) any change in any method of accounting or accounting practice by the
Company or any of its Subsidiaries, except for any such change which is not
significant or which is required by reason of a concurrent change in United
States generally accepted accounting principles ("GAAP"); or
(f) any (i) grant of any severance or termination pay to (or amendment to
any such existing arrangement with) any director or officer of the Company or
any of its Subsidiaries, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director or officer of the Company or any of its
Subsidiaries, (iii) increase in benefits payable under any existing severance
or termination pay policies or employment agreements or (iv) increase in (or
amendments to the terms of) compensation, bonus or other benefits payable to
directors or officers of the Company or any of its Subsidiaries, other than as
permitted by this Agreement, or as agreed to in writing by Acquiror.
SECTION 3.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities of the Company or any Subsidiary of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities disclosed or provided for in the Company Balance Sheet or
in the notes thereto;
(b) liabilities incurred since the date of the Company Balance Sheet in
the ordinary course of business;
(c) liabilities disclosed in the Company SEC Documents filed prior to the
date hereof or set forth in Schedule 3.11(c);
(d) liabilities under this Agreement; and
(e) liabilities which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company
SECTION 3.12. LITIGATION. Except as disclosed in the Company SEC
Documents filed prior to the date hereof, or as otherwise set forth in Schedule
3.12, there is no action, suit, investigation or proceeding pending against, or
to the knowledge of the Company threatened against or affecting, the Company or
any of its Subsidiaries or any of their respective properties before any court
or arbitrator or any governmental body, agency or official which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
SECTION 3.13. TAXES. Except as set forth in the Company Balance Sheet
(including the notes thereto) or as otherwise set forth in Schedule 3.13, (i)
all Company Tax Returns required to be filed with any taxing authority by, or
with respect to, the Company and its Subsidiaries have been filed in accordance
with all applicable laws; (ii) the Company and its Subsidiaries have timely
paid all Taxes shown as due and payable on the Company Tax Returns that have
been so filed, and, as of the time of filing, the Company Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities and the status of the Company and its Subsidiaries (other than Taxes
which are being contested in good faith and for which adequate reserves are
reflected on the Company Balance Sheet); (iii) the Company and its Subsidiaries
have made provision for all Taxes payable by the Company and its Subsidiaries
for which no Company Tax Return has yet been filed; (iv) the charges, accruals
and reserves for Taxes with respect to the Company and its Subsidiaries
reflected on the Company Balance Sheet are adequate under GAAP to cover the Tax
liabilities accruing through the date thereof; (v) there is no action, suit,
proceeding, audit or claim now proposed or pending against or with respect to
the Company or any of its Subsidiaries in respect of any Tax where there is a
reasonable possibility of a
A-9
material adverse determination; and (vi) to the best of the Company's knowledge
and belief, neither the Company nor any of its Subsidiaries is liable for any
Tax imposed on any entity other than such Person, except as the result of the
application of Treas. Reg. Section 1.1502-6 (and any comparable provision of
the tax laws of any state, local or foreign jurisdiction) to the affiliated
group of which the Company is the common parent. For purposes of this
Agreement, "Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, excise, stamp, real or personal property, ad valorem, withholding,
social security (or similar), unemployment, occupation, use, service, service
use, license, net worth, payroll, franchise, severance, transfer, recording,
employment, premium, windfall profits, customs duties, capital stock, profits,
disability, sales, registration, value added, alternative or add-on minimum,
estimated or other taxes, assessments or charges imposed by any federal, state,
local or foreign governmental entity and any interest, penalties, or additions
to tax attributable thereto. For purposes of this Agreement, "Tax Returns"
shall mean any return, report, form 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 3.14. EMPLOYEE BENEFIT PLANS. (a) Prior to the date hereof, the
Company has provided Acquiror with a list (set forth on Schedule 3.14)
identifying each material "employee benefit plan," as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), each material
employment, severance or similar contract, plan, arrangement or policy
applicable to any director, former director, employee or former employee of the
Company and each material plan or arrangement (written or oral), providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered or contributed to by the Company and covers
any employee or director or former employee or director of the Company, or
under which the Company has any liability. Such plans (excluding any such plan
that is a "multiemployer plan," as defined in Section 3(37) of ERISA) are
referred to collectively herein as the "Company Employee Plans."
(b) Each Company Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(c) Except as scheduled on Schedule 3.14 with respect to multiemployer
plans, neither the Company nor any affiliate of the Company has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any affiliate
of the Company of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from federal income tax pursuant to Section 501(a) of the Code.
(e) Except as set forth in Schedule 3.14, no director or officer or other
employee of the Company or any of its Subsidiaries will become entitled to any
retirement, severance or similar benefit or enhanced or accelerated benefit
(including any acceleration of vesting or lapse of repurchase rights or
obligations with respect to any employee stock option or other benefit under
any stock option plan or compensation plan or arrangement of the Company)
solely as a result of the transactions contemplated hereby.
(f) Except as set forth in Schedule 3.14, no Company Employee Plan
provides post-retirement health and medical, life or other insurance benefits
for retired employees of the Company or any of its Subsidiaries.
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(g) Except as set forth in Schedule 3.14, there has been no amendment to,
written interpretation or announcement (whether or not written) by the Company
or any of its affiliates relating to, or change in employee participation or
coverage under, any Company Employee Plan which would increase materially the
expense of maintaining such Company Employee Plan above the level of the
expense incurred in respect thereof for the 12 months ended on the Company
Balance Sheet Date.
SECTION 3.15. COMPLIANCE WITH LAWS. To the best of the knowledge of any
of Messrs. Kenneth E. Church, William S. Creekmuir, Michael P. Haley, Donald L.
Mitchell, and Fred L. Schuermann, Jr. (the "Executives"), neither the Company
nor any of its Subsidiaries is in violation of, or has since January 2, 1999
violated, any applicable provisions of any laws, statutes, ordinances or
regulations, except for any violations that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on the
Company.
SECTION 3.16. FINDERS' OR ADVISORS' FEES. Except for Mann, Armistead &
Epperson, Ltd. a copy of whose engagement agreement has been provided to
Acquiror, there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of the Company or
any of its Subsidiaries who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
SECTION 3.17. ENVIRONMENTAL MATTERS. (a) Except as set forth in the
Company SEC Documents filed prior to the date hereof or as set forth on
Schedule 3.17, (i) the Company has delivered to Acquiror copies of each written
notice, notification, demand, request for information, citation, summons,
complaint or order that, to the best knowledge of its Vice President of Risk
and Facilities Engineering after reasonable inquiry, the Company has received
in the last twelve months; (ii) to the best knowledge of the Company's Vice
President of Risk and Facilities Engineering after reasonable inquiry, there is
no investigation, action, claim, suit, proceeding or review pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened by any Person
against, the Company or any of its Subsidiaries, and during the past twelve
months no penalty has been assessed against the Company or any of its
Subsidiaries that has not been disclosed to Acquiror in writing, in each case,
with respect to any matters relating to or arising out of any Environmental
Law; (iii) the Company and its Subsidiaries are and have been in material
compliance with all Environmental Laws; (iv) there are no material liabilities
of or relating to the Company or any of its Subsidiaries relating to or arising
out of any Environmental Law of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability; and (v) since December 31, 1995, there
has been no environmental investigation, study, audit, test, review or other
analysis commonly referred to as a "Phase I" or "Phase II" report of which any
of the Executives or the Vice President of Risk and Facility Engineering of the
Company has knowledge in relation to the current or prior business of the
Company or any of its Subsidiaries or any property or facility now or
previously owned, leased or operated by the Company or any of its Subsidiaries
which is in the possession of the Company and which was not delivered to
Acquiror prior to the date hereof.
(b) For purposes of this Section 3.17 and Section 4.17, the term
"Environmental Laws" means any federal, state, local and foreign statutes, laws
(including, without limitation, common law), judicial decisions, regulations,
ordinances, rules, judgments, orders, codes, injunctions, permits, governmental
agreements or governmental restrictions relating to human health and safety,
the environment or to pollutants, contaminants, wastes, or chemicals.
SECTION 3.18. OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Mann, Armistead & Epperson, Ltd. to the effect that, as of the date
of such opinion, the Merger is fair from a financial point of view to the
holders of Shares (other than Acquiror or any of its Subsidiaries or
affiliates), and, as of the date hereof, such opinion has not been withdrawn.
SECTION 3.19. TAX TREATMENT. Neither the Company nor any of its
affiliates has taken or agreed to take any action or is aware of any fact or
circumstance that would prevent the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code (a "368 Reorganization").
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SECTION 3.20. TAKEOVER STATUTES. The Board of Directors of the Company
has taken the necessary action to make inapplicable the application of Article
9 and Article 9A of the North Carolina law, any other applicable antitakeover
or similar statute, regulation or the provision of the Company's certificate of
incorporation or bylaws to this Agreement and the transactions contemplated
hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each of Acquiror and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except for those
the absence of which would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror. Acquiror is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror. Since the date of its incorporation,
Merger Subsidiary has not engaged in any activities other than in connection
with or as contemplated by this Agreement. Acquiror has heretofore delivered to
the Company true and complete copies of Acquiror's and Merger Subsidiary's
certificate of incorporation and bylaws as currently in effect.
SECTION 4.02. CORPORATE AUTHORIZATION. (a) The execution, delivery and
performance by Acquiror and Merger Subsidiary of this Agreement, and the
consummation by Acquiror and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Acquiror and Merger Subsidiary and
have been duly authorized by all necessary corporate action. Assuming due
authorization, execution and delivery of this Agreement by the Company, this
Agreement constitutes a valid and binding agreement of each of Acquiror and
Merger Subsidiary, enforceable against such party in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The shares of Acquiror
Common Stock issued pursuant to the Merger, when issued in accordance with the
terms hereof, will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(b) Acquiror's Board of Directors, at a meeting duly called and held, has
approved this Agreement and the transactions contemplated hereby (including the
Merger).
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Acquiror and Merger Subsidiary of this Agreement and the
consummation by Acquiror and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) the filing of a certificate
of merger in accordance with North Carolina law and Michigan law, (b)
compliance with any applicable requirements of the HSR Act, (c) compliance with
any applicable requirements of the Exchange Act, (d) compliance with any
applicable requirements of the 1933 Act and (e) other actions or filings which
if not taken or made would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror.
SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and performance
by Acquiror and Merger Subsidiary of this Agreement and the consummation by
Acquiror and Merger Subsidiary of the transactions contemplated hereby do not
and will not (a) assuming compliance with the matters referred to in Section
4.02, contravene or conflict with the certificate of incorporation or bylaws of
Acquiror or Merger Subsidiary, (b) assuming compliance with the matters
referred to in Section 4.03, contravene or conflict with any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to Acquiror or any of its Subsidiaries, (c) constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Acquiror or any
A-12
of its Subsidiaries or to a loss of any benefit to which Acquiror or any of its
Subsidiaries is entitled under any provision of any material agreement,
contract or other instrument binding upon Acquiror or any of its Subsidiaries
or any license, franchise, permit or other similar authorization held by
Acquiror or any of its Subsidiaries or (d) result in the creation or imposition
of any Lien on any asset of Acquiror or any of its Subsidiaries. Neither
Acquiror nor any Subsidiary of Acquiror is a party to any agreement that
expressly limits the ability of Acquiror or any Subsidiary of Acquiror to
compete in or conduct any line of business or compete with any Person or in any
geographic area or during any period of time.
SECTION 4.05. CAPITALIZATION. (a) The authorized capital stock of
Acquiror consists of 150,000,000 shares of Acquiror Common Stock and 5,000,000
shares of preferred stock (the "Acquiror Preferred Stock"). As of the close of
business on July 24, 1999, there were outstanding 52,233,696 shares of Acquiror
Common Stock, and employee stock options to purchase an aggregate of 1,298,226
shares of Acquiror Common Stock (of which options to purchase an aggregate of
415,985 shares of Acquiror Common Stock were exercisable), and no shares of
Acquiror Preferred Stock nor options with respect thereto were outstanding. All
outstanding shares of capital stock of Acquiror have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in
this Section and except for changes since the close of business on July 24,
1999 resulting from the exercise of employee stock options outstanding on such
date or options or other stock-based awards and except for the shares to be
issued in connection with the Merger, as of the date hereof there are
outstanding (a) no shares of capital stock or other voting securities of
Acquiror, (b) no securities of Acquiror convertible into or exchangeable for
shares of capital stock or voting securities of Acquiror, and (c) except for
its obligations to make matching contributions under the terms of its 401(k)
plan, no options, warrants or other rights to acquire from Acquiror, and no
preemptive or similar rights, subscription or other rights, convertible
securities, agreements, arrangements, or commitments of any character, relating
to the capital stock of Acquiror, obligating Acquiror to issue, transfer or
sell any capital stock, voting security or securities convertible into or
exchangeable for capital stock or voting securities of Acquiror or obligating
Acquiror to grant, extend or enter into any such option, warrant, subscription
or other right, convertible security, agreement, arrangement or commitment (the
items in clauses 4.05(a), 4.05(b) and 4.05(c) being referred to collectively as
the "Acquiror Securities"). There are no outstanding obligations of Acquiror or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any Acquiror
Securities other than pursuant to "permitted transfers." See
"Thethe terms of its stock-based compensation
plans.
(b) The authorized capital stock of Merger Subsidiary consists of 60,000
shares of common stock, of which 1,000 shares are outstanding. Merger
Subsidiary's common stock is the only class of its capital stock entitled to
vote. The number of shares of Merger Subsidiary's common stock is not subject
to change before the Effective Time. All outstanding shares of capital stock of
Merger Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable.
SECTION 4.06. SUBSIDIARIES. (a) Each Subsidiary of Acquiror is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those the absence of which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Acquiror. Each Subsidiary of Acquiror is duly qualified to do
business and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualifications necessary, except for those jurisdictions where failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect on Acquiror. All Significant Subsidiaries of Acquiror as of the date
hereof and their respective jurisdictions of incorporation are identified in
Acquiror's annual report on Form 10-K for the fiscal year ended April 24, 1999,
as amended ("Acquiror 10-K").
(b) Except for directors' qualifying shares and except as set forth in
the Acquiror 10-K, all of the outstanding capital stock of, or other ownership
interests in, each Significant Subsidiary of Acquiror is owned by Acquiror,
directly or indirectly, free and clear of any material Lien and free of any
other material limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Acquiror or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or other voting
A-13
securities or ownership interests in any Significant Subsidiary of Acquiror,
and (ii) options, warrants or other rights to acquire from Acquiror or any of
its Significant Subsidiaries, and no preemptive or similar rights,
subscriptions or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of any
Significant Subsidiary of Acquiror, obligating Acquiror or any of its
Significant Subsidiaries to issue, transfer or sell, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, any Significant Subsidiary of Acquiror or obligating Acquiror or any
Significant Subsidiary of Acquiror to grant, extend or enter into any such
option, warrant, subscription or other right, convertible security, agreement,
arrangement or commitment except, in any such case under clause (i) or (ii), to
the extent relating to an insignificant equity interest in any Significant
Subsidiary (items in clauses 4.06(b)(i) and 4.06(b)(ii) being referred to
collectively as the "Acquiror Subsidiary Securities"). There are no outstanding
obligations of Acquiror or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any outstanding Acquiror Subsidiary Securities.
SECTION 4.07. SEC FILINGS. (a) Acquiror has delivered to the Company (i)
its annual reports on Form 10-K for its fiscal years ended April 26, 1997,
April 25, 1998 and April 24, 1999, (ii) its proxy or information statements
relating to meetings, of, or actions taken without a meeting by, the
stockholders of Acquiror held since December 31, 1998, and (iii) all of its
other reports, statements, schedules and registration statements filed with the
SEC since April 24, 1999 (the documents referred to in this Section 4.07(a)
being referred to collectively as the "Acquiror SEC Documents").
(b) As of its filing date (or if later amended, as of the date of the
amendment), each Acquiror SEC Document complied as to form in all material
respects with the applicable requirements of the Exchange Act and the 1933 Act.
(c) As of its filing date, each Acquiror SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each such registration statement as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 4.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Acquiror
(including any related notes and schedules) included in the annual reports on
Form 10-K and the quarterly reports on Form 10-Q referred to in Section 4.07
fairly present in all material respects, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of Acquiror and its
consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements). For purposes of this Agreement,
"Acquiror Balance Sheet" means the consolidated balance sheet of Acquiror as of
April 24, 1999 set forth in the Acquiror 10-K and "Acquiror Balance Sheet Date"
means April 24, 1999.
SECTION 4.09. DISCLOSURE DOCUMENTS. (a) The Registration Statement on
Form S-4 of Acquiror (the "Form S-4") to be filed under the 1933 Act relating
to the issuance of Acquiror Common Stock in the Merger, required to be filed
with the SEC in connection with the issuance of shares of Acquiror Common Stock
pursuant to the Merger and Related Transactions -- Tax Lock-Up Letters."
Resaleany amendments or supplements thereto, will, when
filed, subject to the last sentence of La-Z-Boy Common Stock; RestrictionsSection 4.09(b), comply as to form in
all material respects with the applicable requirements of the 1933 Act.
(b) Neither the Form S-4 nor any amendment or supplement thereto will at
the time it becomes effective under the 1933 Act or at the Effective Time
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not
A-14
misleading. No representation or warranty is made by Acquiror in this Section
4.09 with respect to statements made or incorporated by reference therein
based on Transfer
Theinformation supplied by the Company for inclusion or incorporation by
reference in the Form S-4.
(c) None of the information supplied or to be supplied by Acquiror for
inclusion or incorporation by reference in the Company Proxy Statement or any
amendment or supplement thereto will, at the date the Company Proxy Statement
or any amendment or supplement thereto is first mailed to stockholders of
Company or at the time such stockholders vote on the adoption and approval of
this Agreement and the transactions contemplated hereby, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 4.10. ABSENCE OF CERTAIN CHANGES. Since the Acquiror Balance
Sheet Date, Acquiror and its Subsidiaries have conducted their business in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or
in the aggregate, a Material Adverse Effect on Acquiror;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of La-Z-Boycapital stock of Acquiror (other
than quarterly cash dividends payable by Acquiror consistent with past
practice or any repurchase, redemption or other acquisition by Acquiror or any
of its Subsidiaries of any outstanding shares of capital stock or other equity
securities of, or other ownership interests in, Acquiror (other than any such
repurchases prior to the date hereof pursuant to Acquiror's publicly announced
stock buyback program); or
(c) any change prior to the date hereof in any method of accounting or
accounting practice (other than any change for tax purposes) by Acquiror or
any of its Subsidiaries, except for any such change which is not significant
or which is required by reason of a concurrent change in GAAP.
SECTION 4.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities of the Acquiror or any Subsidiary of the Acquiror of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities disclosed or provided for in the Acquiror Balance Sheet
or in the notes thereto;
(b) liabilities incurred since the date of the Acquiror Balance Sheet in
the ordinary course of business;
(c) liabilities disclosed in the Acquiror SEC Documents filed prior to
the date hereof or set forth in Schedule 4.11(c);
(d) liabilities under this Agreement; and
(e) liabilities which, individually or in the aggregate, would not have
a Material Adverse Effect on the Acquiror.
SECTION 4.12. LITIGATION. Except as disclosed in the Acquiror SEC
Documents filed prior to the date hereof, or in Schedule 4.12, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of Acquiror threatened against or affecting, Acquiror or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official which would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Acquiror.
SECTION 4.13. TAXES. Except as set forth in the Acquiror Balance Sheet
(including the notes thereto) or as otherwise set forth on Schedule 4.13 (i)
all Acquiror Tax Returns required to be filed with any taxing authority by, or
with respect to, Acquiror and its Subsidiaries have been filed in accordance
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with all applicable laws; (ii) Acquiror and its Subsidiaries have timely paid
all Taxes shown as due and payable on Acquiror Tax Returns that have been so
filed, and, as of the time of filing, Acquiror Tax Returns correctly reflected
the facts regarding the income, business, assets, operations, activities and
the status of Acquiror and its Subsidiaries (other than Taxes which are being
contested in good faith and for which adequate reserves are reflected on the
Acquiror Balance Sheet); (iii) Acquiror and its Subsidiaries have made
provision for all Taxes payable by Acquiror and its Subsidiaries for which no
Acquiror Tax Return has yet been filed; (iv) the charges, accruals and reserves
for Taxes with respect to Acquiror and its Subsidiaries reflected on the
Acquiror Balance Sheet are adequate under GAAP to cover the Tax liabilities
accruing through the date thereof; (v) there is no action, suit, proceeding,
audit or claim now proposed or pending against or with respect to Acquiror or
any of its Subsidiaries in respect of any Tax where there is a reasonable
possibility of a material adverse determination; and (vi) to the best of
Acquiror's knowledge and belief, neither Acquiror nor any of its Subsidiaries
is liable for any Tax imposed on any entity other than such Person, except as
the result of the application of Treas. Reg. Section 1.1502-6 (and any
comparable provision of the tax laws of any state, local or foreign
jurisdiction) to the affiliated group of which Acquiror is the common parent.
SECTION 4.14. EMPLOYEE BENEFIT PLANS. (a) Prior to the date hereof,
Acquiror has provided the Company with a list (set forth on Schedule 4.14)
identifying each material "employee benefit plan," as defined in Section 3(3)
of ERISA, each material employment, severance or similar contract, plan,
arrangement or policy applicable to any director, or employee of Acquiror and
each material plan or arrangement (written or oral), providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered or contributed to by Acquiror and covers any
employee or director of Acquiror. Such plans (excluding any such plan that is a
multiemployer plan) are referred to collectively herein as the "Acquiror
Employee Plans."
(b) Each Acquiror Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on the
Acquiror.
(c) Neither the Acquiror nor any affiliate of the Acquiror has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Acquiror or any affiliate
of the Acquiror of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) Each Acquiror Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from federal income tax pursuant to Section 501(a) of the Code.
SECTION 4.15. COMPLIANCE WITH LAWS. To the best of the knowledge of any
of Acquiror's Chairman, Chief Operating Officer, or Chief Financial Officer,
neither Acquiror nor any of its Subsidiaries is in violation of, or has since
January 1, 1999 violated, any applicable provisions of any laws, statutes,
ordinances or regulations except for any violations that, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Acquiror.
SECTION 4.16. FINDERS' OR ADVISORS' FEES. Except for Merrill Lynch & Co.,
whose fees will be paid by Acquiror, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Acquiror or any of its Subsidiaries who might be entitled to any
fee or commission in connection with the transactions contemplated by this
Agreement.
SECTION 4.17. ENVIRONMENTAL MATTERS. Except as set forth in the Acquiror
SEC Documents filed prior to the date hereof and with such exceptions as,
individually or in the aggregate, have not had,
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and would not reasonably be expected to have, a Material Adverse Effect on
Acquiror, (i) no written notice, notification, demand, request for information,
citation, summons, complaint or order has been received by, and no
investigation, action, claim, suit, proceeding or review is pending or, to the
knowledge of Acquiror or any of its Subsidiaries, threatened by any Person
against, Acquiror or any of its Subsidiaries, and no penalty has been assessed
against Acquiror or any of its Subsidiaries, in each case, with respect to any
matters relating to or arising out of any Environmental Law; (ii) Acquiror and
its Subsidiaries are and have been in compliance with all Environmental Laws;
and (iii) there are no liabilities of or relating to Acquiror or any of its
Subsidiaries relating to or arising out of any Environmental Law of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability.
SECTION 4.18. TAX TREATMENT. Neither Acquiror nor any of its affiliates
has taken or agreed to take any action or is aware of any fact or circumstance
that would prevent the Merger from qualifying as a 368 Reorganization.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. CONDUCT OF THE COMPANY. From the date hereof until the
Effective Time, the Company and its Subsidiaries shall conduct their business
in the ordinary course consistent with past practice and shall use their
reasonable best efforts to preserve intact their business organizations and
relationships with third parties. Without limiting the generality of the
foregoing, except with the prior written consent of Acquiror (which consent
shall not be unreasonably withheld or delayed) or as contemplated by this
Agreement, from the date hereof until the Effective Time:
(a) the Company will not, and will not permit any of its Subsidiaries to,
adopt or propose any change in its certificate of incorporation or bylaws;
(b) the Company will not, and will not permit any Subsidiary of the
Company to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
material reorganization of the Company or any of its Significant Subsidiaries
(other than a merger or consolidation between its wholly-owned Subsidiaries);
(c) the Company will not, and will not permit any Subsidiary of the
Company to, issue, sell, transfer, pledge, dispose of or encumber any shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class or series of the Company or its Subsidiaries other than (i)
issuances pursuant to the exercise of convertible securities outstanding on the
date hereof or issuances pursuant to stock based awards or options that are
outstanding on the date hereof and are reflected in Section 3.05 or are granted
in accordance with clause (ii) below and (ii) additional options or stock-based
awards to acquire Shares granted under the terms of any Company Stock Option
Plan as in effect on the date hereof in the ordinary course consistent with
past practice, but in no event covering more than 20,000 Shares in the
aggregate;
(d) the Company will not, and will not permit any Subsidiary of the
Company to, (i) split, combine, subdivide or reclassify its outstanding shares
of capital stock, or (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock other than dividends paid by any Subsidiary of the Company to the Company
or any wholly-owned Subsidiary of the Company;
(e) the Company will not, and will not permit any Subsidiary of the
Company to, redeem, purchase or otherwise acquire directly or indirectly any of
the Company's capital stock, except for repurchases, redemptions or
acquisitions (x) required by the terms of its capital stock or any securities
outstanding on the date hereof, (y) required by or in connection with the
respective terms, as of the date
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hereof, of any Company Employee Plan or any dividend reinvestment plan as in
effect on the date hereof in the ordinary course of the operations of such plan
consistent with past practice or (z) effected in the ordinary course consistent
with past practice;
(f) the Company will not amend the terms (including the terms relating to
accelerating the vesting or lapse of repurchase rights or obligations) of any
outstanding options to purchase Shares, suspend or terminate or amend the terms
of any existing Company Employee Plan, or adopt any new Company Employee Plan,
except that the Company shall, on or before the Closing Date:
(1) amend the 1999 Management Incentive Plan (the "MIP") and the
Company's Long-Term Incentive Plans for the periods 1997-1999 (the "1997
LTIP"), 1998-2000 (the "1998 LTIP"), and 1999-2001 (the "1999 LTIP")
(collectively, the "LTIPs") so that the provisions thereof governing
time of payment will permit the Company to pay out all amounts payable
thereunder on or before the Closing Date; provided, however, that the
Company covenants that if the Closing Date is not on or before December
31, 1999, it will not make any payments under the MIP or any of the
LTIPs on or before December 31, 1999 without Acquiror's prior written
consent; and
(2) amend its Management Deferred Compensation Plan to provide
that (A) from and after the Effective Time, no subaccount shall be
maintained thereunder that is denominated in or the amount of which is
computed by reference to notional shares of any class of equity
securities of the Company or Acquiror, and (B) effective as of the
Effective Time, the balance in any such subaccount shall be computed in
dollars (giving effect to Section 1.04 of this Agreement and valuing the
resulting notional Acquiror Common Stock at the average of the closing
prices of Acquiror's Common Stock on the NYSE on the five business days
immediately preceding the Closing Date) and transferred to the other
subaccount maintained thereunder (i.e., the subaccount the amount of
which is computed by reference to the prime rate of interest);
(g) the Company will not, and will not permit any Subsidiary of the
Company to, make or commit to make any capital expenditure other than those set
forth on the schedule of planned capital expenditures previously delivered to
the Acquiror by the Company;
(h) except as disclosed in Schedule 5.01, the Company will not, and will
not permit any Subsidiary of the Company to, increase the compensation or
benefits of any director, officer or employee, except for normal increases in
the ordinary course of business consistent with past practice or as required
under applicable law or any existing agreement or commitment;
(i) the Company will not, and will not permit any of its Subsidiaries to,
acquire (by purchase or lease) a material amount of assets (as measured with
respect to the consolidated assets of the Company and its Subsidiaries taken as
a whole) of any other Person except for capital expenditures permitted under
Section 5.01(g);
(j) the Company will not, and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise dispose of any material assets or property
except pursuant to existing contracts or commitments;
(k) except for any such change which is required by reason of a
concurrent change in GAAP or a rule or release promulgated by the SEC, the
Company will not, and will not permit any Subsidiary of the Company to, change
any method of accounting or accounting practice (other than any change for tax
purposes) used by it;
(l) the Company will not, and will not permit any Subsidiary of the
Company to, enter into any joint venture, partnership or other similar
arrangement;
(m) the Company will not, and will not permit any of its Subsidiaries to,
take any action that would make any representation or warranty of the Company
hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time; and
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(n) the Company will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
SECTION 5.02. COMPANY STOCKHOLDER MEETING; PROXY MATERIAL. The Company
shall cause a meeting of its stockholders (the "Company Stockholder Meeting")
to be duly called and held as soon as reasonably practicable, on a date
reasonably acceptable to Acquiror, for the purpose of voting on the approval
and adoption of this Agreement and the Merger (the "Company Stockholder
Approval"). Except as provided in the next sentence, the Board of Directors of
the Company shall recommend approval and adoption of this Agreement by the
Company's stockholders. The Board of Directors of the Company shall be
permitted to (i) not recommend to the Company's stockholders that they give the
Company Stockholder Approval or (ii) withdraw or modify in a manner adverse to
Acquiror its recommendation to the Company's stockholders that they give the
Company Stockholder Approval, only (x) if the Board of Directors of the Company
determines in its good faith judgment that it is necessary to so withdraw or
modify its recommendation to comply with its fiduciary duty to stockholders
under applicable law, after receiving the advice of outside legal counsel, and
(y) if the Company and the senior officers and directors of the Company have
complied with their obligations set forth in Section 5.03. In connection with
the Company Stockholder Meeting, the Company (x) will promptly prepare and file
with the SEC, will use its reasonable best efforts to have cleared by the SEC
and will thereafter mail to its stockholders as promptly as practicable the
Company Proxy Statement and all other proxy materials for the Company
Stockholder Meeting, (y) will use its reasonable best efforts, subject to the
immediately preceding sentence, to obtain the Company Stockholder Approval and
(z) will otherwise comply with all legal requirements applicable to the Company
Stockholder Meeting.
SECTION 5.03. OTHER OFFERS. The Company and its Subsidiaries will not,
and will not permit any of its subsidiaries, or any of its or their officers,
directors, management employees, or consultants or any investment banker,
attorney or accountant retained by the Company or any of its Subsidiaries
(collectively, "Representatives") to, directly or indirectly, take any action
to solicit, initiate, encourage or facilitate the making of any Acquisition
Proposal (as defined below) or any inquiry with respect thereto or engage in
discussions or negotiations with any Person with respect thereto, or disclose
any non-public information relating to the Company or any Subsidiary of the
Company or afford access to the properties, books or records of the Company or
any Subsidiary of the Company to, any Person that has made, or that the
Company, any of its Subsidiaries or any of its or any of its Subsidiaries'
Representatives has reason to believe, is considering making, any Acquisition
Proposal; provided that nothing contained in this Section 5.03 shall prohibit
the Board of Directors of the Company from furnishing information to, or
entering into discussions or negotiations with, or affording access to the
properties, books or records of the Company or its Subsidiaries to, any Person
in connection with an unsolicited bona fide Acquisition Proposal received from
such Person so long as prior to furnishing information to, or entering into
discussions or negotiations with, such Person, (i) the Board of Directors of
the Company determines in its good faith judgment that it is necessary to do so
to comply with its fiduciary duty to stockholders under applicable law, after
receiving the advice of outside legal counsel, and (ii) the Company receives
from such Person an executed confidentiality agreement with terms no less
favorable to the Company than those contained in the Confidentiality Agreement
(as defined in Section 7.03). Nothing contained in this Agreement shall prevent
the Board of Directors of the Company from complying with Rule 14e-2 under the
Exchange Act with regard to an Acquisition Proposal; provided that the Board of
Directors of the Company shall not recommend that the stockholders of the
Company tender their shares in connection with a tender offer except to the
extent the Board of Directors of the Company determines in its good faith
judgment (after consultation with its financial advisors and receiving the
advice of outside legal counsel) that such a recommendation is required to
comply with the fiduciary duties of the Board of Directors of the Company to
the Company's stockholders under applicable law. The Company will (a) promptly
(and in no event later than 24 hours after receipt of any Acquisition Proposal)
notify (which notice shall be provided orally and in writing and shall identify
the Person making such Acquisition Proposal and set forth the material terms
thereof) Acquiror after receipt of any Acquisition Proposal, of any indication
giving the Company any of its Subsidiaries or any of its or any of its
Subsidiaries' Representatives that any Person is considering making an
Acquisition Proposal and any request for non-public information relating to the
Company or any Subsidiary of the Company or for access to the
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properties, books or records of the Company or any Subsidiary of the Company by
any Person that has made, or that the Company, any of its Subsidiaries or any
of its or any of its Subsidiaries' Representatives has reason to believe may be
considering making, an Acquisition Proposal, and (b) will keep Acquiror
informed of the status and material terms of any such Acquisition Proposal or
request. The Company will, and will cause its Subsidiaries and its and their
Representatives to, immediately cease and cause to be terminated all
discussions and negotiations, if any, that have taken place prior to the date
hereof with any Persons (other than Acquiror and its affiliates) with respect
to any Acquisition Proposal.
For purposes of this Agreement, "Acquisition Proposal" means any offer or
proposal for, or any indication of interest in, any (i) direct or indirect
acquisition or purchase of a business or assets that constitute 10% or more of
the net revenues, net income or the assets of the Company and its Subsidiaries,
taken as a whole, (ii) direct or indirect acquisition or purchase of 10% or
more of any class of equity securities of the Company or any of its
Subsidiaries whose business constitutes 10% or more of the net revenues, net
income, operating income (before taxes) or assets of the Company and its
Subsidiaries, taken as a whole, (iii) tender offer or exchange offer that if
consummated would result in any person beneficially owning 10% or more of any
class of equity securities of the Company or any of its Subsidiaries whose
business constitutes 10% or more the net revenues, net income, operating income
(before taxes) or assets of the Company and its Subsidiaries, taken as a whole,
or (iv) merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries whose business constitutes 10% or more of the net revenue, net
income, operating income (before taxes) or assets of the Company and its
Subsidiaries, taken as a whole, other than the transactions contemplated by
this Agreement. For purposes of this Agreement, "Superior Proposal" means any
bona fide Acquisition Proposal for or in respect of at least a majority of the
outstanding Shares on terms that the Board of Directors of the Company
determines in its good faith judgment (after consultation with a financial
advisor of nationally recognized reputation, taking into account all the terms
and conditions of the Acquisition Proposal, including any break-up fees,
expense reimbursement provisions and conditions to consummation) are more
favorable to all of the Company's stockholders than the Merger.
ARTICLE 6
COVENANTS OF ACQUIROR
Acquiror agrees that:
SECTION 6.01. CONDUCT OF ACQUIROR. From the date hereof until the
Effective Time, Acquiror and its Subsidiaries shall conduct their business in
the ordinary course consistent with past practice and shall use their
reasonable best efforts to preserve intact their business organizations and
relationships with third parties. Without limiting the generality of the
foregoing, and except with the prior written consent of the Company (which
consents shall not be unreasonably withheld or delayed) or as contemplated by
this Agreement, from the date hereof until the Effective Time:
(a) Acquiror will not adopt a plan or agreement of complete or partial
liquidation, dissolution, restructuring, recapitalization or other material
reorganization of Acquiror;
(b) Acquiror will not, and will not permit any Subsidiary of the Acquiror
to, redeem, purchase or otherwise acquire directly or indirectly any of the
Acquiror's capital stock, except for repurchases, redemptions or acquisitions
(x) required by the terms of its capital stock or any securities outstanding on
the date hereof, (y) required by or in connection with the respective terms, as
of the date hereof, of any Acquiror Employee Plan, or any dividend reinvestment
plan as in effect on the date hereof in the ordinary course of the operations
of such plan consistent with past practice or (z) effected in the ordinary
course consistent with past practice;
(c) except for any such change which is required by reason of a
concurrent change in GAAP or a rule or release promulgated by the SEC, the
Acquiror will not, and will not permit any Subsidiary of the Acquiror to,
change any method of accounting or accounting practice (other than any change
for tax purposes) used by it;
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(d) Acquiror will not, and will not permit any of its Subsidiaries to,
take any action that would make any representation or warranty of Acquiror
hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time; and
(e) Acquiror will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
SECTION 6.02. OBLIGATIONS OF MERGER SUBSIDIARY. Acquiror will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 6.03. FORM S-4. Subject to the terms and conditions of this
Agreement Acquiror shall prepare and file with the SEC under the 1933 Act the
Form S-4, and shall use its reasonable best efforts to cause the Form S-4 to be
declared effective by the SEC as promptly as practicable. Acquiror shall
promptly take any action required to be taken under foreign or state securities
or Blue Sky laws in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
SECTION 6.04. STOCK EXCHANGE LISTING. Acquiror shall use its reasonable
best efforts to cause the shares of Acquiror Common Stock to be issued in
connection with the Merger to be listed on the NYSE, subject to official notice
of issuance.
SECTION 6.05. DIRECTOR, OFFICER AND EMPLOYEE LIABILITY. (a) For six years
after the Effective Time, Acquiror shall indemnify and hold harmless the
individuals who on or prior to the Effective Time were officers, directors and
employees of the Company or its Subsidiaries (collectively, the "Indemnitees")
with respect to all acts or omissions by them in their capacities as such or
taken at the request the Company or any of its Subsidiaries at any time prior
to the Effective Time to the extent provided under the Company's certificate of
incorporation and bylaws in effect on the date hereof. Acquiror shall cause the
Surviving Corporation to honor all indemnification agreements with Indemnitees
(including under the Company's bylaws) in effect as of the date hereof in
accordance with the terms thereof. To the best knowledge of the Company, the
Company has disclosed to Acquiror all such indemnification agreements prior to
the date hereof.
(b) For six years after the Effective Time, Acquiror shall procure the
provision of officers' and directors' liability insurance and employee
practices insurance in respect of acts or omissions occurring prior to the
Effective Time covering each such Person currently covered by the Company's
officers' and directors' liability insurance policy and employee practices
insurance policy on terms with respect to coverage and in amounts no less
favorable than those of such policies in effect on the date hereof; provided,
that if the aggregate annual premiums for such insurance at any time during
such period shall exceed 200% of the per annum rate of premium paid by the
Company and its Subsidiaries as of the date hereof for such insurance, then
Acquiror shall, or shall cause its Subsidiaries to, provide only such coverage
as shall then be available at an annual premium equal to 200% of such rate.
(c) The obligations of Acquiror under this Section 6.05 shall not be
terminated or modified in such a manner as to adversely affect any Indemnitee
to whom this Section 6.05 applies without the consent of such affected
Indemnitee (it being expressly agreed that the Indemnitees to whom this Section
6.05 applies shall be third party beneficiaries of this Section 6.05).
SECTION 6.06. EMPLOYEE BENEFITS. (a) From and after the Effective Time,
Acquiror shall cause the Surviving Corporation to honor in accordance with
their terms all benefits and obligations under the LADD Furniture, Inc.
Executive Retirement Plan (the "ERP"), the Management Deferred Compensation
Plan and the employment agreements between the Company and certain Executives
and, subject to Section 6.06(b), the other Company Employee Plans, each as in
effect on the date hereof (or as amended as permitted by Section 5.01(f) or
with the prior written consent of Acquiror, which consent shall not be
unreasonably withheld or delayed), to the extent that entitlements or rights
exist in respect thereof as of the Effective Time. Acquiror and the Company
hereby agree that the consummation of the Merger shall constitute a "Change in
Control" for purposes of the Company Option Plans, the
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employment agreements between the Company and certain Executives, and the
Supplemental Retirement Income Plan for Salaried Employees of LADD Furniture,
Inc. (the "SERP"), pursuant to the terms of such plans in effect on the date
hereof. Except as provided in Section 6.06(f), no provision of this Section
6.06(a) shall be construed as a limitation on the right of Acquiror to amend or
terminate any Company
Employee Plans which the Company would otherwise have under the terms of such
Company Employee Plan, and no provision of this Section 6.06(a) shall be
construed to create a right in any employee or beneficiary of such employee
under a Company Employee Plan that such employee or beneficiary would not
otherwise have under the terms of such Company Employee Plan.
(b) Except for any changes required by law or initiated by insurance
carriers, for one year following the Effective Time, Acquiror shall continue to
provide to individuals who are employed by the Company and its Subsidiaries as
of the Effective Time who remain employed with Acquiror or any Subsidiary of
Acquiror ("Affected Employees"), for so long as such Affected Employees remain
employed by Acquiror or any Subsidiary of Acquiror, employee benefits (other
than salary or incentive compensation) which, in the aggregate, are no less
favorable than those provided to employees of the Company prior to the
Effective Time pursuant to the Company Employee Plans as provided to such
employees immediately prior to the Effective Time.
(c) Acquiror will, or will cause the Surviving Corporation to, give
Affected Employees full credit for purposes of eligibility, vesting, benefit
accrual (including benefits accrued under any defined benefit pension plans)
and determination of the level of benefits under any employee benefit plans or
arrangements maintained by Acquiror or any Subsidiary of Acquiror for such
Affected 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; provided, however, that (i) in the case of a qualified defined benefit
plan maintained by Acquiror or its Subsidiaries, service prior to 1997 shall
not be recognized; (ii) in the case of a non-qualified defined benefit plan of
Acquiror or any of its Subsidiaries, pre-Effective Time service of an Affected
Employee with the Company or any of its Subsidiaries for benefit accrual
purposes for such period of time as an Affected Employee is credited with
service for benefit accrual purposes under the ERP, as in effect on the date
hereof, shall not be recognized; and (iii) in the case of a qualified or non-
qualified defined contribution plan of Acquiror or any of its Subsidiaries,
Acquiror shall be required only to recognize pre-Effective Time participation
of an Affected Employee in a qualified or non-qualified defined contribution
plan of the Company or any of its Subsidiaries for purposes of determining
eligibility for matching or other contributions and the level of such
contributions.
(d) Acquiror will, or will cause the Surviving Corporation to, (i) waive
all limitations as to pre-existing conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the
Affected Employees under any welfare benefit plans 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 Affected Employees immediately prior to the Effective Time,
and (ii) provide each Affected 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.
(e) Acquiror agrees to cause the benefits payable pursuant to the terms
of the SERP to be paid to the beneficiaries of the SERP promptly following the
Effective Time.
(f) Acquiror agrees that the ERP and the Management Deferred Compensation
Plan shall be administered in accordance with the past practices and
interpretations of the Company's Board of Directors and the Corporate Benefits
Committee (the "Committee") (including those past practices and interpretations
previously disclosed by the Company to Acquiror) with respect to eligibility,
vesting, term and payment, among other matters. Any question regarding the past
practices and interpretations of the Company's Board of Directors and the
Committee and the application thereof to the type of facts and circumstances in
a given case shall be referred to the Committee for a final decision with
respect thereto, which decision shall not be inconsistent with the intention of
this Agreement and the Merger.
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(g) If it is determined that any payment or distribution of any type to
or for the benefit of an Affected Employee or any participant in a Company
Employee Plan (the "Recipient") made by the Company, the Acquiror, or any
Subsidiary of the Company or the Acquiror, or by any affiliate of such Person,
whether paid or payable or distributed or distributable pursuant to the terms
of a Company Employee Plan or otherwise (the "Total Payments"), would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalty with respect to such excise tax (such excise tax, together with any
such interest or penalty, are collectively referred to as the "Excise Tax"),
then the Recipient shall be entitled to receive an additional payment (an
"Excise Tax Restoration Payment") in an amount that shall fund the payment by
the Recipient of any Excise Tax on the total payments, as well as all income
taxes imposed on the Excise Tax Restoration Payment, any excise tax imposed on
the Excise Tax Restoration Payment, and any interest or penalties imposed with
respect to taxes on the Excise Tax Restoration or any Excise Tax.
ARTICLE 7
COVENANTS OF ACQUIROR AND THE COMPANY
The parties hereto agree that:
SECTION 7.01. REASONABLE BEST EFFORTS. The Company and Acquiror shall
each cooperate with the other and use (and shall use reasonable best efforts to
cause their respective Subsidiaries to use) their respective reasonable best
efforts to promptly (i) take or cause to be taken all actions, and do or cause
to be done all things, necessary, proper or advisable under this Agreement and
applicable laws to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as practicable, including,
without limitation, preparing and filing as promptly as practicable all
documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents and
(ii) obtain all approvals, consents, registrations, permits, authorizations and
other confirmations required to be obtained from any third party necessary,
proper or advisable to consummate the Merger and the other transactions
contemplated by this Agreement. Subject to applicable laws relating to the
exchange of information, the Company and Acquiror shall have the right to
review in advance, and to the extent practicable each will consult the other
on, all the information relating to the Company and its Subsidiaries or
Acquiror and its Subsidiaries, as the case may be, that appears in any filing
made with, or written materials submitted to, any third party and/or any
governmental authority in connection with the Merger and the other transactions
contemplated by this Agreement.
SECTION 7.02. CERTAIN FILINGS. The Company and Acquiror shall cooperate
with one another (a) in connection with the preparation of the Company Proxy
Statement and the Form S-4, (b) in determining whether any action by or in
respect of, or filing with, any governmental body, agency or official, or
authority is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in connection
with the consummation of the transactions contemplated by this Agreement and
(c) in seeking any such actions, consents, approvals or waivers or making any
such filings, furnishing information required in connection therewith or with
the Company Proxy Statement or the Form S-4 and seeking timely to obtain any
such actions, consents, approvals or waivers.
SECTION 7.03. ACCESS TO INFORMATION. From the date hereof until the
Effective Time, to the extent permitted by applicable law, the Company and
Acquiror will give the other party, its counsel, financial advisors, auditors
and other authorized representatives reasonable access to the offices,
properties, books and records of such party and its Subsidiaries during normal
business hours, furnish to the other party, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
its own employees, counsel and financial advisors to cooperate with the other
party in its investigation of the business of the Company or Acquiror, as the
case may be; provided that no investigation of the other party's business shall
affect any representation or warranty given by either party hereunder. All
information obtained by Acquiror or the Company pursuant to this Section shall
be kept confidential in
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accordance with, and shall otherwise be subject to the terms of, the
Confidentiality Agreement dated June 17, 1999 between Acquiror and the Company
(the "Confidentiality Agreement").
SECTION 7.04. PUBLIC ANNOUNCEMENTS. Acquiror and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and
shall not issue any such press release or make any such public statement
without the prior consent of the other party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, any such press
release or public statement as may be required by applicable law or any listing
agreement with any national securities exchange may be issued prior to such
consultation, if the party making such release or statement has used its
reasonable efforts to consult with the other party.
SECTION 7.05. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
SECTION 7.06. NOTICES OF CERTAIN EVENTS. (a) Each of the Company and
Acquiror shall promptly notify the other party of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement.
(b) The Company and Acquiror shall promptly notify the other party of any
actions, suits, claims, investigations or proceedings commenced or, to the best
of its knowledge threatened against, relating to or involving or otherwise
affecting such party or any of its Subsidiaries which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 7.07. AFFILIATES. (a) The Company shall use its reasonable best
efforts to deliver to Acquiror, within 15 days of the date hereof, a letter
agreement substantially in the form of Exhibit A hereto executed by each Person
listed on Schedule 7.07(a).
(b) Prior to the Effective Time, the Company shall cause to be delivered
to Acquiror a letter identifying, to the best of the Company's knowledge, all
Persons who are, at the time of the Company Stockholder Meeting, "affiliates"
of the Company for purposes of Rule 145 under the 1933 Act. The Company shall
furnish such information and documents as Acquiror may reasonably request for
the purpose of reviewing such list. The Company shall use its reasonable best
efforts to cause each Person who is so identified as an affiliate to deliver to
Acquiror on or prior to the Effective Time a letter agreement substantially in
the form of Exhibit A to this Agreement.
SECTION 7.08. TAX TREATMENT. (a) Each of Acquiror and the Company shall
not take any action and shall not fail to take any action which action or
failure to act would prevent, or would be reasonably likely to prevent, the
Merger from qualifying as a 368 Reorganization.
(b) Acquiror shall use its reasonable best efforts to provide to Miller,
Canfield, Paddock and Stone, p.l.c. and to Kilpatrick Stockton llp a
certificate substantially in the form attached hereto as Exhibit B-1. The
Company shall use its reasonable best efforts to provide to Miller, Canfield,
Paddock and Stone, p.l.c. and to Kilpatrick Stockton llp a certificate
substantially in the form attached hereto as Exhibit B-2.
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ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, Acquiror and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or, to the extent legally permissible,
waiver) of the following conditions:
(a) this Agreement and the Merger shall have been approved by the
stockholders of the Company in accordance with North Carolina law;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Merger;
(d) the Form S-4 shall have been declared effective under the 1933 Act
and no stop order suspending the effectiveness of the Form S-4 shall be in
effect and no proceedings for such purpose shall be pending before or
threatened by the SEC; and
(e) the shares of Acquiror Common Stock to be issued in the Merger willshall
have been approved for listing on the NYSE, subject to official notice of
issuance.
SECTION 8.02. CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND MERGER
SUBSIDIARY. The obligations of Acquiror and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or, to the extent legally permissible,
waiver, except that the condition specified in subsection (e) may not be
registeredwaived) of the following further conditions:
(a) (i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company
contained in this Agreement and in any certificate or other writing delivered
by the Company pursuant hereto shall be true and correct (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) at and as of the Effective Time as if made at and as of such time
(except to the extent expressly made as of an earlier date), except where the
failure of such representations and warranties to be true and correct (without
giving effect to any limitation as to "materiality" or "Material Adverse
Effect" set forth therein) would not, individually or in the aggregate, have a
Material Adverse Effect on the Company and (iii) Acquiror shall have received a
certificate signed by a the Chief Executive Officer and the Chief Financial
Officer of the Company to the foregoing effect;
(b) there shall not be instituted or pending any action or proceeding by
any governmental authority (whether domestic, foreign or supranational) before
any court or governmental authority or agency, domestic, foreign or
supranational, (i) seeking to restrain, prohibit or otherwise interfere with
the ownership or operation by Acquiror or any Subsidiary of Acquiror of all or
any portion of the business of the Company or any of its Subsidiaries or of
Acquiror or any of its Subsidiaries or to compel Acquiror or any Subsidiary of
Acquiror to dispose of or hold separate all or any portion of the business or
assets of the Company or any of its Subsidiaries or of Acquiror or any of its
Subsidiaries, (ii) seeking to impose or confirm limitations on the ability of
Acquiror or any Subsidiary of Acquiror effectively to exercise full rights of
ownership of the Shares (or shares of stock of the Surviving Corporation)
including, without limitation, the right to vote any Shares (or shares of stock
of the Surviving Corporation) on any matters properly presented to stockholders
or (iii) seeking to require divestiture by Acquiror or any Subsidiary of
Acquiror of any Shares (or shares of stock of the Surviving Corporation) if any
such matter referred to in clause (i), (ii) or (iii) hereof could reasonably be
expected to result in a substantial detriment to the Acquiror and its
Subsidiaries (including the Company and its Subsidiaries), taken as a whole
(any such substantial detriment being referred to in this Agreement as a
"Substantial Detriment");
(c) there shall not be any statute, rule, regulation, injunction, order
or decree, enacted, enforced, promulgated, entered, issued or deemed applicable
to the Merger and the other transactions contemplated
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hereby (or in the case of any statute, rule or regulation, awaiting signature
or reasonably expected to become law), by any court, government or governmental
authority or agency or legislative body, domestic, foreign or supranational,
that is reasonably likely, directly or indirectly, to result in a Substantial
Detriment;
(d) (i) all required approvals or consents of any governmental authority
(whether domestic, foreign or supranational) in connection with the Merger and
the consummation of the other transactions contemplated hereby shall have been
obtained (and all relevant statutory, regulatory or other governmental waiting
periods, whether domestic, foreign or supranational, shall have expired) unless
the failure to receive any such approval or consent would not be reasonably
likely, directly or indirectly, to result in a Substantial Detriment and (ii)
all such approvals and consents which have been obtained shall be on terms that
are not reasonably likely, directly or indirectly, to result in a Substantial
Detriment;
(e) Acquiror shall have received an opinion of Miller, Canfield, Paddock
and Stone, p.l.c. as to federal income tax matters that is identical in all
material respects to the opinion of that firm which is described in the proxy
statement/prospectus included in the Form S-4 at the time the Form S-4 becomes
effective. In rendering such opinion, such counsel shall be entitled to rely
upon certain representations of officers of Acquiror and the Company reasonably
requested by counsel, including without limitation those contained in
certificates substantially in the form attached as Exhibits B-1 and B-2;
(f) since the date of this Agreement, there shall not have been any
event, occurrence, development or state of circumstances which, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on the Company;
(g) the parties shall have received all required approvals and third
party consents under the Securities Actcontracts listed on Schedule 3.04(e); and
will be transferable under the
Securities Act, except for shares issued to any shareholder(h) Affiliate Agreements in form of Exhibit A, executed by each Person
who maycould reasonably be deemed to be an "affiliate" of E/C for purposes ofthe Company (as that
term is used in Rule 145 under the Securities Act.
Affiliates may not sell shares1933 Act), shall have been delivered to
Acquiror and shall be in full force and effect.
SECTION 8.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of La-Z-Boy Common Stock acquired in connection
withthe Company to consummate the Merger except pursuantis subject to an effective registration statement under
the
Securities Act covering such shares or in compliance with Rule 145 or
another applicable exemption from the registration requirements of the
Securities Act. In addition, all shareholders of E/C receiving La-Z-Boy Common
Stock in the Merger will be required to deliver "tax lock-up letters"
restricting the disposition of such shares. See "The Merger and Related
Transactions -- Tax Lock-up Letters."
Non-Transferability of La-Z-Boy Notes and Performance Units
The La-Z-Boy Notes will not be transferrable except upon the death of the
holder thereof. See "Description of the La-Z-Boy Notes -- Limited
Transferability." Performance Units will not be transferable exceptsatisfaction (or, to the extent required by applicable law. See "Descriptionlegally permissible, waiver, except that the
condition specified in subsection (b) may not be waived) of Performance Units."
Stock Listing
The sharesthe following
further conditions:
(a) (i) Acquiror shall have performed in all material respects all of La-Z-Boy Common Stockits
obligations hereunder required to be issuedperformed by it at or prior to the
Effective Time, (ii) the representations and warranties of Acquiror contained
in this Agreement and in any certificate or other writing delivered by Acquiror
pursuant hereto shall be true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein)
at and as of the Effective Time as if made at and as of such time (except to
the extent expressly made as of an earlier date), except where the failure of
such representations and warranties to be true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect" set
forth therein) would not, individually or in the aggregate, have a Material
Adverse Effect on the Acquiror and (iii) the Company shall have received a
certificate signed by an executive officer of Acquiror to the foregoing effect;
(b) the Company shall have received an opinion of Kilpatrick Stockton llp
as to federal income tax matters that is identical in all material respects to
the opinion of that firm which is described in the proxy statement/prospectus
included in the Form S-4 at the time the Form S-4 becomes effective. In
rendering such opinion, such counsel shall be entitled to rely upon certain
representations of officers of Acquiror and the Company reasonably requested by
counsel, including without limitation those contained in certificates
substantially in the form attached as Exhibits B-1 and B-2; and
(c) since the date of this Agreement, there shall not have been any
event, occurrence, development or state of circumstances which, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on Acquiror.
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ARTICLE 9
TERMINATION
SECTION 9.01. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written consent of the Company and Acquiror;
(b) by either the Company or Acquiror,
(i) if the Merger has not been consummated by March 31, 2000 (the
"End Date"); provided that if (x) the Effective Time has not occurred by
such date by reason of non-satisfaction of any of the conditions set
forth in Sections 8.01(b), 8.01(d), 8.02(b), 8.02(c) or 8.02(d) and (y)
all other conditions in Article 8 have theretofore been satisfied or (to
the extent legally permissible) waived or are then capable of being
satisfied, the End Date will be approved for listing onJune 30, 2000; provided further that the
NYSE andright to terminate this Agreement under this Section 9.01(b)(i) shall
not be available to any party whose failure to fulfill in any material
respect any obligation under this Agreement has caused or resulted in
the PSE subject to official notice of
issuance and to the approval by the shareholders of E/Cfailure of the Merger.
DISSENTERS' RIGHTS
Holders of shares of E/C Stock willEffective Time to occur on or before the End Date; or
(ii) if the Company Stockholder Approval shall not have dissenters' rights under Chapter
23been
obtained by reason of the Tennessee Business Corporation Act, as amended (the "TBCA"), in
connection with,failure to obtain the required vote at a duly
held meeting of stockholders or as a result of,any adjournment thereof.
(c) by either the matters toCompany or Acquiror, if there shall be acted upon at the
Meeting. SUCH DISSENTERS' RIGHTS WILL BE LOST, HOWEVER, IF THE PROCEDURAL
REQUIREMENTS OF THE TBCA ARE NOT FULLY AND PRECISELY SATISFIED. See "The Merger
and Related Transactions -- Dissenters' Rights."
A copy of Chapter 23 of the TBCA is attached as Annex C to this Proxy
Statement/Prospectus.
It is a condition toany law or
regulation that makes consummation of the Merger that La-Z-Boy's counsel
deliver an opinion as to certain tax matters,illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining Acquiror
or the Company from consummating the Merger is entered and such counsel will not be able
to deliver such opinionjudgment,
injunction, order or decree shall become final and nonappealable;
(d) by Acquiror, if holders of more than 50% of the outstanding shares
of E/C Stock perfect their dissenters' rights. See "The Reorganization
Agreement -- Conditions to the Merger" and "The Merger and Related Transactions
- -- Certain Federal Income Tax Consequences."
MANAGEMENT OF THE SURVIVING CORPORATION AFTER THE MERGER
It is anticipated that, upon consummation of the Merger, the Board of Directors of the Company shall have
failed to recommend or withdrawn or modified or changed in a manner adverse to
Acquiror its approval or recommendation of this Agreement or the Merger or
shall have failed to call the Company Stockholder Meeting in accordance with
Section 5.02, or shall have recommended a Superior Proposal (or the Board of
Directors of the Company resolves to do any of the foregoing);
(e) by the Company, if (i) the Board of Directors of the Company
authorizes the Company, subject to complying with the terms of this Agreement,
to enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company notifies Acquiror in writing
that it intends to enter into such an agreement, attaching the most current
version of such agreement (or a description of all material terms and
conditions thereof) to such notice, (ii) Acquiror does not make, within three
business days of receipt of the Company's written notification of its intention
to enter into a binding agreement for a Superior Proposal, an offer that the
Board of Directors of the Company determines, in good faith after consultation
with its financial advisors, is at least as favorable to the stockholders of
the Company as the Superior Proposal, it being understood that the Company
shall not enter into any such binding agreement during such three-day period
and (iii) the Company prior to such termination pursuant to this clause (e)
pays to Acquiror in immediately available funds the fees required to be paid
pursuant to Section 10.04. The Company agrees to notify Acquiror promptly if
its intention to enter into a written agreement referred to in its notification
shall change at any time after giving such notification.
The party desiring to terminate this Agreement pursuant to clause (b),
(c), (d) or (e) of this Section 9.01 shall give written notice of such
termination to the other party in accordance with Section 10.01, specifying the
provision hereof pursuant to which such termination is effected.
SECTION 9.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect
with no liability on the part of any party hereto,
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except that (a) the agreements contained in this Section 9.02, in Section
10.04, and in the Confidentiality Agreement shall survive the termination
hereof and (b) no such termination shall relieve any party of any liability or
damages resulting from any willful breach by that party of this Agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given,
if to Acquiror or Merger Subsidiary, to:
La-Z-Boy Incorporated
1284 North Telegraph Road
Monroe, Michigan 48162
Attention: President
Fax: 734-457-2005
with a copy to:
Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson Avenue, Suite 2500
Detroit, Michigan 48226
Attention: David D. Joswick
Fax: 313-496-8451
if to the Company, to:
LADD Furniture, Inc.
4620 Grandover Parkway
Greensboro, North Carolina 27407
Attention: President
Fax: 336-315-4399
with a copy to:
Kilpatrick Stockton LLP
1001 West Fourth Street
Winston-Salem, North Carolina 27101
Attention: Robert E. Esleeck
Fax: 336-607-7505
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if given by facsimile,
when such facsimile is transmitted to the facsimile number specified in this
Section and the appropriate facsimile confirmation is received or (b) if given
by any other means, when delivered at the address specified in this Section.
SECTION 10.02. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
SECTION 10.03. AMENDMENTS; NO WAIVERS. (a) Any provision of this
Agreement (including the Exhibits and Schedules hereto) may be amended or
waived prior to the Effective Time if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by the Company, Acquiror
and Merger Subsidiary, or in the case of a waiver, by the party against whom
the waiver is to be effective; provided that after the adoption of this
Agreement by the stockholders of the Company, no
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such amendment or waiver shall, without the further approval of such
stockholders, alter or change (i) the amount or kind of consideration to be
received in exchange for any shares of capital stock of the Company, (ii) any
term of the certificate of incorporation of the Surviving Corporation will consist of four persons, one of
whom will be Mr. Rodney D. England, the current Chairmanor (iii)
any of the Board,
President,terms or conditions of this Agreement if such alteration or change
would adversely affect the holders of any shares of capital stock of the
Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and Chief Executive Officerremedies herein
provided shall be cumulative and not exclusive of E/C,any rights or remedies
provided by law.
SECTION 10.04. EXPENSES. (a) Except as otherwise specified in this
Section 10.04 or agreed in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the remainder of whom willtransactions contemplated by
this Agreement shall be current officers of La-Z-Boy. In addition, followingpaid by the party incurring such cost or expense;
provided, however, that if this Agreement is terminated by Acquiror without
consummation of the Merger it is expected thatpursuant to Section 9.01(d) or as a result of any
willful breach by the Company of its obligations under this Agreement, or
Acquiror becomes entitled to the fees provided for in Section 10.04(b)(ii),
then all costs and expenses incurred by Acquiror shall be paid by the Company.
(b) If:
(i) Mr. England will becomeAcquiror shall terminate this Agreement pursuant to Section
9.01(d), unless at the President and Chief
Executive Officertime of such failure to recommend, withdrawal or
adverse modification or change, failure to call the Company Stockholder
Meeting or recommendation of a Superior Proposal any of the Surviving Corporation,conditions
set forth in Section 8.03(a) or 8.03(c) would not have been satisfied as
of such date and would not be reasonably capable of being satisfied,
(ii) Mr. Otis S. Sawyer,either the current Vice President FinanceCompany or Acquiror shall terminate this Agreement
pursuant to Section 9.01(b)(ii) in circumstances where the Company
Stockholder Approval has not been obtained and prior to the Company
Stockholder Meeting an Acquisition Proposal is made by any Person and if
the Company enters into a definitive agreement within twelve months
after termination of E/C, will become Vice President Financethis Agreement either (1) in respect of any
Acquisition Proposal with such Person or any of its affiliates or (2) in
respect of any Acquisition Proposal with any other Person (other than
Acquiror or any affiliate of Acquiror) providing, in the case of this
clause (2), greater value per Share than an amount equal to the product
of the Surviving Corporation, (iii) Mr. Dennis C. Valkanoff,Exchange Ratio and the current Vice
President Business Development of E/C, will become a Vice Presidentaverage of the Surviving Corporation, (iv) Mr. James L. Price,closing prices per share of
Acquiror Common Stock on the current Vice President
ManufacturingNYSE on the five business days immediately
preceding the date of E/C, will become Vice President Manufacturingthis Agreement, or
(iii) the Company shall terminate this Agreement pursuant to
Section 9.01(e),
then in any case as described in clause (i), (ii) or (iii) (each such case of
termination being referred to as a "Trigger Event") the Company shall pay to
Acquiror (by wire transfer of immediately available funds not later than the
date of termination of this Agreement or, in the case of clause (ii), the date
of such definitive agreement) an amount equal to $7,000,000. Acceptance by
Acquiror of the Surviving
Corporation,payment referred to in the foregoing sentence shall constitute
conclusive evidence that this Agreement has been validly terminated and (v)upon
acceptance of payment of such amount the remaining officersCompany shall be fully released and
discharged from any liability or obligation resulting from or under this
Agreement other than as provided in Sections 9.02 and 10.04.
SECTION 10.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the Surviving Corporation will
consistparties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of current officers of La-Z-Boy. See "Managementits rights or obligations under this Agreement
without the consent of the Surviving
Corporation Afterother parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more
of its affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations hereunder.
SECTION 10.06. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the Merger"law of the State of Michigan, without
regard to principles of conflicts of law.
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SECTION 10.07. JURISDICTION. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in any federal or state court located in the State of Michigan, and
"Theeach of the parties hereby consents to the jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 10.01 shall
be deemed effective service of process on such party.
SECTION 10.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 10.09. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 10.10. ENTIRE AGREEMENT. This Agreement (including the Exhibits
and Schedules hereto) and the Confidentiality Agreement constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof. This Agreement shall be binding upon and inure solely to the benefit
of each party hereto and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under this Agreement. Notwithstanding the foregoing and any other
provision of this Agreement to the contrary, any of the Indemnitees (as defined
in Section 6.05 hereof) and the Executives and Company's officers pursuant to
Section 6.06 shall be entitled to enforce the provisions of Sections 6.05 or
6.06 hereof. Acquiror shall pay, at the time they are incurred, all reasonable
costs, fees and expenses of one firm of counsel of the Indemnitees, the
Executives or the Company's officers incurred in connection with the assertion
of any rights on behalf of the Person set forth above pursuant to this Section
10.10.
SECTION 10.11. CAPTIONS; CONSTRUCTION OF CERTAIN CONTRACT PROVISIONS. The
captions herein are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof. For purposes of this
Agreement, the parties agree that: (a) any provision of any contract to which
the Company or any Subsidiary is a party to the effect that the contract may
not be assigned by the Company or Subsidiary without the other party's consent
shall be construed not to require such consent in connection with the
consummation of the Merger, unless the provision specifically requires consent
in connection with a merger; and Related Transactions --
Operations After(b) any provision of any contract to which any
Subsidiary of the Company is a party that provides for termination or a change
in its terms upon the occurrence of a change of control of the Subsidiary shall
be construed not to require such consent in connection with the consummation of
the Merger."
SECTION 10.12. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, 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 an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent
possible.
A-30
SUMMARY CONDENSED HISTORICAL FINANCIAL DATA OF E/C
The following table sets forthIN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
LADD FURNITURE, INC.
By /s/ Fred L. Schuermann, Jr.
Its Chairman, President & CEO
LA-Z-BOY INCORPORATED
By /s/ Gerald L. Kiser
Its President & Chief
Operating Officer
LZB ACQUISITION CORP.
By /s/ Gene M. Hardy
Its Treasurer
A-31
ANNEX B
MANN, ARMISTEAD & EPPERSON, LTD.
INVESTMENT BANKERS and ADVISORS
September 28, 1999
Board of Directors
LADD Furniture, Inc.
4620 Grandover Parkway
Greensboro, North Carolina 27417
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of LADD Furniture Inc. (the "Company") of the
Merger Consideration, as defined below, in the proposed merger (the "Merger")
of the Company with and into La-Z-Boy Acquisition Subsidiary (the "Merger
Subsidiary") which is wholly-owned subsidiary of La-Z-Boy, Incorporated ("La-Z-
Boy"). Pursuant to the Agreement and Plan of Merger dated September 28, 1999
(the "Agreement"), the Merger Subsidiary shall be merged with and into the
Company and each share of the Company's common stock, par value $0.30 per
share, shall be converted into the right to receive 1.18 shares of La-Z-Boy
common stock, together with cash in lieu of fractional shares of La-Z-Boy
common stock, (the "Merger Consideration").
In arriving at our opinion, we, among other things: (i) reviewed the
Agreement; (ii) met with directors, officers and certain condensedmembers of management
of the Company to discuss the respective business, financial condition,
operating results and future prospects for the Company; (iii) reviewed the
Company's Annual Reports to Shareholders, Annual Reports on Form 10-K and
related financial information for the two years ended January 2, 1999; (iv)
reviewed the Company's quarterly reports on Form 10-Q for the quarterly periods
ended April 3, 1999 and July 3, 1999, (v) reviewed La-Z-Boy's Annual Reports to
Shareholders, Annual Reports on Form 10-K and related financial information for
the two years ended April 24, 1999; (vi) reviewed La-Z-Boy's Quarterly Report
on Form 10-Q and related financial information for the quarterly period ended
July 24, 1999; (vii) met with directors, officers and certain members of
management of La-Z-Boy to discuss the respective business, financial condition,
operating results and future prospects for La-Z-Boy; (viii) visited several of
La-Z-Boy's operating factilities; (ix) reviewed certain publicly available
information with respect to historical market prices and trading activities for
the Company's common stock, La-Z-Boy's common stock and for certain publicly
traded furniture companies which we deemed relevant; (x) reviewed certain other
merger and acquisition transactions in the furniture industry which we deemed
relevant; and (xi) reviewed certain published research reports for both the
Company and La-Z-Boy and considered such other financial datastudies, analyses,
inquiries and other matters as we deemed reasonable and appropriate.
In rendering this opinion, we have relied upon the accuracy and
completeness of E/Call financial and other information furnished to us by, or on
behalf of, the Company and La-Z-Boy, and other information that we considered
in our review and we have not assumed any responsibility for independent
verification of such information. We have relied upon the Company's management
as to the reasonableness and acheivability of its financial and operational
forecasts and projections, and the assumptions and bases thereof and assumed
that such forecasts and projections reflect the best currently available
estimates and judgements of the Company's management and that such forecasts
and projections will be realized in the amounts and in the time periods
currently estimated. Our opinion herein is based on the circumstances existing
and known to us as the date hereof. We did not undertake any independent
valuation or
121 SHOCKOE SLIP, RICHMOND, VA 23219 (804)644-1200 FAX (804)644-1226
B-1
appraisal of the real estate owned by the Company, nor were we furnished with
any such evaluations or appraisals. Consequently, we do not express any opinion
regarding the value of any of the Company's specific individual assets. We have
relied as to certain legal matters on advice from counsel to the Board of
Directors of the Company.
Our opinion is necessarily based on economic, market, financial statementsand other
conditions as they exist on, and on the information made available to us as of,
E/C, including the notes
thereto,date of this letter. Although subsequent developments may affect this
opinion, we do not have any obligation to update or revise this opinion.
Furthermore, we are not expressing any opinion herein as to the range of value
or prices at which appear elsewhereLa-Z-Boy's common stock will trade in the public markets
subsequent to the consummation of the Merger.
Mann, Armistead & Epperson, Ltd., as part of its investment banking
services, is regularly engaged in the valuation of private and public
businesses and their securities in connection with mergers and acquisitions,
competitive biddings and valuations for estate, corporate and other purposes,
and acting as financial advisor in connections with others forms of strategic
corporate transactions. Pursuant to our engagement in connection with this
Proxy Statement/Prospectusfairness opinion, we will receive a fee for our services in rendering said
opinion, a substantial portion of which is contingent upon the consummation of
the Merger. We are familiar with LADD having performed certain valuations of
the Company's divisions in connection with a restructuring of the Company's
senior credit facility and should
be read in conjunction therewith. See "England/Corsair, Inc. Financial
Statements." Interim unaudited datahaving provided investment research on the Company.
The opinion expressed herein is provided for the three months endedbenefit of the Board of
Directors of the Company and the opinion, and any suppporting analyses or other
material supplied by us may not be quoted, referred to, or used in any public
filing or in any written document or for any other purpose without the prior
written approval of Mann, Armistead & Epperson, Ltd. Mann, Armistead &
Epperson, Ltd. consents to the use of this opinion in its entirety in any proxy
statement or other communication from LADD to its shareholders.
Based upon the foregoing considerations, it is our opinion that as of
September 30,
199428, 1999 the Merger Consideration to be received by the stockholders
of the Company upon consummation of the Merger is fair, from a financial point
of view, to the stockholders of the Company.
Truly yours,
MANN, ARMISTEAD & EPPERSON, LTD.
B-2
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As noted in Part I, La-Z-Boy Incorporated is a Michigan business
corporation, The Michigan Business Corporation Act, which governs La-Z-Boy,
permits it to indemnify any person who was, is or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and 1993 reflect,whether formal or
informal, other than an action, suit or proceeding by or in the opinionright of managementthe
La-Z-Boy, by reason of E/C, all adjustments
(consisting onlythe fact that he or she is or was a director, officer,
employee or agent of normal recurring adjustments) necessaryLa-Z-Boy, or is or was serving at its request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including any employee
benefit plan) against expenses (including attorney fees) and judgments,
penalties, fines and amounts paid in settlement that are actually and
reasonably incurred by him or her in connection with the action, suit or
proceeding, if the indemnified person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of La-Z-
Boy or its shareholders, and with respect to a criminal action or proceeding,
if he or she had no reasonable cause to believe his or her conduct was
unlawful. The Michigan Business Corporation Act also permits La-Z-Boy to
indemnify any person who is or was a party or is threatened to be made a party
to any action, suit or proceeding by or in the right of La-Z-Boy by reason of
that fact that he or she is or was a director, officer, employee or agent of
La-Z-Boy (or is or was serving at its request in one of the other capacities
described above) against expenses (including attorney's fees) and amounts paid
in settlement that are actually and reasonably incurred by him or her in
connection with the action, suit or proceeding, if the indemnified person acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of La-Z-Boy or its shareholders, except that no
indemnification may be made for a fair
presentation of such data. Resultsclaim, issue, or matter in which the
indemnified person has been found liable to the La-Z-Boy except for the three months ended September 30,
1994 and 1993 are not necessarily indicative of resultsany
indemnification against expenses that may be expectedordered by the court.
Under these provisions of the Michigan Business Corporation Act, unless
ordered by a court, any indemnification described above may be made only as
authorized in the specific case upon a determination (made in one of the ways
described in Section 564a(1) of the Act) that indemnification of the pertinent
party is proper because he or she has met the applicable standard of conduct
and upon an evaluation of the reasonableness of expenses and amounts paid in
settlement. Section 564b of the Act permits payment or reimbursement of the
reasonable expenses incurred by an indemnified person in advance of final
disposition of an action, suit or proceeding, only if the person furnishes La-
Z-Boy with a written affirmation of his or her good faith belief that he or she
has met the applicable standard of conduct for indemnification and a written
undertaking to repay the advance if it ultimately is determined that he or she
did not meet the standard and only if a determination is made (in one of the
ways described in Section 564a(1)) that the facts then known to those making
the determination would not preclude indemnification under the Act. However,
Section 565 of the Michigan Business Corporation Act further provides that its
provisions concerning indemnification and advancement of expenses are not
exclusive of other rights to which a person seeking indemnification or
advancement of expenses may be entitled under a corporation's articles of
incorporation, its bylaws or a contractual arrangement.
Section 2 of Article IX of La-Z-Boy's articles of incorporation provides
for mandatory indemnification of its directors and officers and permits
indemnification of other parties, as follows:
SECTION 2. INDEMNIFICATION. The corporation shall indemnify any of
its directors and officers and may indemnify any of its employees and
agents (in each case including such person's heirs, executors,
administrators and legal representatives) who are made or threatened to
be made a party to an action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that
such person is or was a director, officer, employee or agent of the
corporation or serves or served at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, whether for profit or not, to the fullest extent
authorized or permitted under the [Michigan Business
II-1
Corporation] Act or other applicable law, as the same presently exist or
may hereafter be amended, but in the case of any such amendment, only to
the extent that such amendment permits the corporation to provide
broader indemnification rights than authorized or permitted before such
amendment. Without limiting the generality of the foregoing, the
following provisions, except to the extent they limit the indemnity
which may be provided pursuant to the foregoing, shall apply:
2.1--INDEMNIFICATION OF DIRECTORS AND OFFICERS: CLAIMS BY
THIRD PARTIES. The corporation shall to the fullest extent
authorized or permitted by the Act or other applicable law, as the
same presently exist or may hereafter may be amended, but, in the
case of any such amendment, only to the extent such amendment
permits the corporation to provide broader indemnification rights
than before such amendment, indemnify a director or officer (the
"Indemnitee") who was or is a party or is threatened to be made a
party to a threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal, other than an action
by or in the right of the corporation, by reason of the fact that
he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or
not, against expenses, including attorneys' fees, judgments,
penalties, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action,
suit or proceeding, if the Indemnitee acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation or its shareholders, and
with respect to a criminal action or proceeding, if the Indemnitee
had no reasonable cause to believe his or her conduct was
unlawful. The termination of an action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a
presumption that the Indemnitee did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed
to the best interests of the corporation or its shareholders, and,
with respect to a criminal action or proceeding, has reasonable
cause to believe that his or her conduct was unlawful.
2.2--INDEMNIFICATION OF DIRECTORS AND OFFICERS: CLAIMS
BROUGHT BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall, to the fullest extent authorized or permitted by the Act or
other applicable law, as the same presently exist or may hereafter
be amended, but, in the case of any such amendment, only to the
extent such amendment permits the corporation to provide broader
indemnification right than before such amendment, indemnify a
director or officer (the "Indemnitee") who was or is a party to or
is threatened to be made a party to a threatened, pending, or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or
not, against expenses, including actual and reasonable attorneys'
fees, and amounts paid in settlement incurred by the Indemnitee in
connection with the action or suit, if the Indemnitee acted in
good faith and in a manner the Indemnitee reasonably believed to
be in or not opposed to the best interests of the corporation or
its shareholders. However, indemnification shall not be made under
this subsection 2.2 for a claim, issue, or matter in which the
Indemnitee has been found liable to the corporation unless and
only to the extent that the court in which the action or suit was
brought has determined upon application that, despite the
adjudication of liability but in view of all circumstances of the
case, the Indemnitee is fairly and reasonably entitled to
indemnification for the expenses which the court considers proper.
2.3--ACTIONS BROUGHT BY THE INDEMNITEE. Notwithstanding the
provisions of subsections 2.1 and 2.2, the corporation shall not
be required to indemnify an Indemnitee in
II-2
connection with an action, suit, proceeding or claim (or part
thereof) brought or made by such Indemnitee, unless such action,
suit, proceeding or claim (or part thereof): (i) was authorized by
the Board of Directors of the corporation; or (ii) was brought or
made to enforce this Section 2 and the Indemnitee has been
successful in such action, suit, proceeding or claim (or part
thereof).
2.4--APPROVAL OF INDEMNIFICATION. An indemnification under
subsections 2.1 or 2.2 hereof, unless ordered by a court, shall be
made by the corporation only as authorized in the specific case
upon a determination that indemnification of the Indemnitee is
proper in the circumstances because such Indemnitee has met the
applicable standard of conduct set forth in subsections 2.1 or 2.2
as the case may be. This determination shall be made in any of the
following ways:
(a) By a majority vote of a quorum of the Board
consisting of directors who were not parties to the action,
suit, or proceeding.
(b) If the quorum described in subdivision (a) is not
obtainable, then by a majority vote of a committee of
directors who are not parties to the action. The committee
shall consist of not less than three (3) disinterested
directors.
(c) By independent legal counsel in a written opinion.
(d) By the shareholders.
2.5--ADVANCEMENT OF EXPENSES. Expenses incurred in defending
a civil or criminal action, suit, or proceeding described in
subsections 2.1 or 2.2 above shall be paid by the corporation in
advance of the final disposition of the action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the
Indemnitee to repay the expenses if it is ultimately determined
that the Indemnitee is not entitled to be indemnified by the
corporation. The undertaking shall be by unlimited general
obligation of the person on whose behalf advances are made but
need not be secured.
2.6--PARTIAL INDEMNIFICATION. If an Indemnitee is entitled
to indemnification under subsections 2.1 or 2.2 for a portion of
expenses including attorneys' fees, judgments, penalties, fines,
and amounts paid in settlement, but not for the total amount
thereof, the corporation shall indemnify the Indemnitee for the
portion of the expenses, judgments, penalties, fines, or amounts
paid in settlement for which the Indemnitee is entitled to be
indemnified.
2.7--INDEMNIFICATION OF EMPLOYEES AND AGENTS. Any person who
is not covered by the foregoing provisions of this Section 2 and
who is or was an employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not, may be indemnified to the
fullest extent authorized or permitted by the Act or other
applicable law, as the same exist or may hereafter be amended,
but, in the case of any such amendment, only to the extent such
amendment permits the corporation to provide broader
indemnification rights than before such amendment, but in any
event only to the extent authorized at any time or from time to
time by the Board of Directors.
2.8--OTHER RIGHTS OF INDEMNIFICATION. The indemnification or
advancement of expenses provided under subsections 2.1 through 2.7
is not exclusive of other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the Articles of Incorporation or Bylaws, or an agreement. However,
the total amount of expenses advanced or indemnified from all
sources combined shall not exceed the amount of actual
II-3
expenses incurred by the person seeking indemnification or
advancement of expenses. The indemnification provided for in
subsections 2.1 through 2.7 continues as to a person who ceases to
be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of the person.
2.9--DEFINITIONS. "Other enterprise" shall include employee
benefit plans: "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and "serving at
the request of the corporation" shall include any service as a
director, officer, employee, or agent of the corporation which
imposes duties on, or involves services by, the director, officer,
employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good
faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be considered to have acted in a manner "not
opposed to the best interests of the corporation or its
shareholders" as referred to in subsections 2.1 and 2.2
2.10--LIABILITY INSURANCE. The corporation shall have the
power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, whether for profit or not, against any liability
asserted against and incurred by such person in any such capacity
or arising out of such person's status as such, regardless of
whether or not the corporation would have the power to indemnify
such person against such liability under the pertinent provisions
of the Act.
2.11--ENFORCEMENT. If a claim under this Section 2 is not
paid in full by the corporation within thirty days after a written
claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover
the unpaid amount of the claim, and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is
required, has been tendered to the corporation) that the claimant
has not met the standards of conduct which makes it permissible
under the Act for the corporation to indemnify the claimant for
the amount claimed, but the burden of providing such defense shall
be on the corporation. Neither the failure of the corporation
(including the Board of Directors, a committee thereof,
independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because such claimant has met the applicable standard of conduct
set forth in the Act nor an actual determination by the
corporation (including its Board of Directors, a committee
thereof, independent legal counsel or its shareholders) that the
claimant has not met such applicable standard of conduct, shall be
a defense to the action or create a presumption that the claimant
has not met the applicable standard of conduct.
2.12--CONTRACT WITH THE CORPORATION. The right to
indemnification conferred in this Section 2 shall be deemed to be
a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this
Section 2 is in effect and any repeal or modification of this
Section 2 shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or
any action, suit, proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
2.13--APPLICATION TO A RESULTING OR SURVIVING CORPORATION OR
CONSTITUENT CORPORATION. The definition for "corporation" found in
Section 569 of the Act, as the same
II-4
exists or may hereafter be amended is, and shall be, specifically
excluded from application to this Section 2. The indemnification
and other obligations set forth in this Section 2 of the
corporation shall be binding upon any resulting or surviving
corporation after any merger or consolidation with the
corporation. Notwithstanding anything to the contrary contained
herein or in Section 569 of the Act, no person shall be entitled
to the indemnification and other rights set forth in this Section
2 for acting as a director or officer of another corporation prior
to such other corporation entering into a merger or consolidation
with the corporation.
2.14--SEVERABILITY. Each and every paragraph, sentence, term
and provision of this Section 2 shall be considered severable in
that, in the event that a court finds any paragraph, sentence,
term or provision to be invalid or unenforceable, the validity and
enforceability, operation, or effect of the remaining paragraphs,
sentences, terms or provisions shall not be affected, and this
Section 2 shall be construed in all respects as if such invalid or
unenforceable matter had been omitted.
La-Z-Boy also has entered into indemnification agreements with all of its
directors and executive officers. Those agreements require it to maintain
directors' and officers' liability insurance for their benefit or a substitute
for such insurance to the extent reasonably available, or to indemnify them to
the full extent of the insurance coverage that otherwise would be provided to
them. The agreements contemplate indemnification broader than that expressly
provided for in the Michigan Business Corporation Act, in that they
contemplate, when certain conditions are met, indemnification against judgments
and fines (as well as settlement costs) incurred in proceedings brought by or
in the right of La-Z-Boy.
Section 209(c) of the Michigan Business Corporation Act also provides
that the articles of incorporation of a Michigan business corporation may
contain a provision providing that a director of the corporation is not
personally liable to the corporation or its shareholders for monetary damages
for a breach of the director's fiduciary duty, except that such a provision may
not eliminate or limit the liability of a director for any other interim periodbreach of the
director's duty of loyalty to the corporation or forits shareholders; acts or
omissions not in good faith or that involve intentional misconduct or knowing
violation of law; a violation of Section 551(1) of the fiscal yearMichigan Business
Corporation Act (which relates to unauthorized dividends or distributions to
shareholders and unauthorized loans); or any transaction from which the
director derived an improper personal benefit. At the 1987 Annual Meeting of
its shareholders, La-Z-Boy's shareholders approved an amendment to its Articles
of Incorporation to include such a provision, as well as the above-quoted
provisions of Section 2, Article IX.
On a whole.regular basis (and not specifically in connection with this
offering), La-Z-Boy also maintains insurance against liabilities arising on the
part of any of its directors or officers out of their performance in those
capacities or arising on La-Z-Boy's part out of the foregoing indemnification
provisions, subject to certain exclusions and to the policy limits.
II-5
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following exhibits are filed as part of this
Registration Statement on Form S-4:
(In thousands except per share data)
(unaudited)
Three Months
Ended September 30, Fiscal Years Ended June 30,
---------------------- -------------------------------------------------------------
Statement of 1994 1993 1994 1993 1992 1991 1990
Operations Data:
Net sales $ 23,063 $ 24,602 $ 105,781 $ 99,435 $ 86,175 $ 72,729 $ 65,242
Cost of sales 18,924 20,072 87,288 79,905 69,107 60,157 53,947
Gross profit 4,139 4,530 18,493 19,530 17,068 12,572 11,295
Selling, general, and
administrative
expenses(3) 2,979 3,097 14,484 12,632 10,040 8,422 7,707
Operating profit 1,160 1,433 4,009 6,898 7,028 4,150 3,588
Interest expense - net 358 299 1,318 1,073 1,305 1,833 1,421
Miscellaneous income 24 16 10 57 70 187 57
Pre-tax income 826 1,150 2,701 5,882 5,793 2,504 2,224
Income taxes(1) 35 24 122 (499) 2,100 930 820
Net income $ 791 $ 1,126 $ 2,579 $ 6,381 $ 3,693 $ 1,574 $ 1,404
Pro forma income taxes 305 423 994 2,165
Pro forma net income $ 521 $ 727 $ 1,707 $ 3,717
Weighted average shares
used in per share
calculations 297 298 297 298 298 322 339
Net income per share -
historical $ 12.39 $ 4.90 $ 4.14
Pro forma net income per
share $ 1.75 $ 2.44 $ 5.75 $ 12.47
Dividends per share(2) $ .48 $ 2.18 $ 15.88 $ 8.81 $ 2.00 -0- -0-
(unaudited)
As of September 30, As of June 30,
----------------------- --------------------------------------------------------------
Balance Sheet Data: 1994 1994 1993 1992 1991 1990
Total assets $36,600 $ 34,367 $ 28,416 $ 23,335 $ 24,923 $ 24,724
Long-term debt,
including current
portion $14,782 $ 14,094 $ 7,619 $ 7,057 $ 9,225 $ 9,909
Total liabilities $24,178 $ 22,593 $ 14,499 $ 13,080 $ 17,765 $ 17,778
Shareholders' equity $12,422 $ 11,774 $ 13,917 $ 10,255 $ 7,158 $ 6,946
- ---------------------------
(1) Beginning July 1, 1992, E/C elected to be treated as an "S
corporation" for federal income tax purposes and accordingly was not
subject to federal or certain state income tax at the corporate level.
The 1994 and 1993 fiscal periods contain an illustration of "pro forma
income taxes" which includes an additional estimated provision for income
taxes based on pre-tax income as if E/C had not been an S corporation.
E/C, for the 1993 fiscal year elected to adopt Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes"
(FAS 109), and the pro forma provisions for income taxes for periods
ending 1994 and 1993 have been reported in accordance with FAS 109.
The adoption of FAS 109 did not have a material effect on E/C's results
of operations.
(2) Dividends for the fiscal year ended June 30, 1994 include a non-recurring
distribution of AAA earnings (previously undistributed taxable earnings
since the S corporation election) in connection with a change in E/C's
debt arrangements and in management structure.
(3) During the fourth quarter of fiscal 1994, E/C recorded a charge of
$600,000 in connection with a one-time bonus paid to its former chief
executive officer.
SUMMARY CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA OF LA-Z-BOY
The following table sets forth certain condensed consolidated historical
financial data of La-Z-Boy and is based on the financial statements of
La-Z-Boy, including the respective notes thereto, which are incorporated by
reference into this Proxy Statement/Prospectus and should be read in
conjunction therewith. See "Available Information" and "Incorporation of
Certain Documents by Reference." Interim unaudited data for the six months
ended October 29, 1994 and October 23, 1993 reflect, in the opinion of
management of La-Z-Boy, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the six months ended October 29, 1994 and October 23, 1993 are not
necessarily indicative of results that may be expected for any other interim
period or for the fiscal year as a whole.
(In thousands except per share data)
(unaudited)
Six Months Ended Fiscal Years Ended in April,
-------------------- -----------------------------------------------------
Statement of Oct. 29, Oct. 23, 1994 1993 1992 1991 1990
Operations Data: 1994 1993 (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
Sales $404,973 $371,140 $804,898 $684,122 $619,471 $608,032 $592,273
Cost of sales 300,470 275,207 593,890 506,435 453,055 449,502 430,383
Gross profit 104,503 95,933 211,008 177,687 166,416 158,530 161,890
Selling, general,
and administrative
expenses 76,051 71,453 150,700 130,855 122,888 115,239 111,613
Operating profit 28,452 24,480 60,308 46,832 43,528 43,291 50,277
Interest expense 1,414 1,496 2,822 3,260 5,305 6,374 7,239
Other income 887 868 669 1,727 1,682 1,453 2,497
Pre-tax income 27,925 23,852 58,155 45,299 39,905 38,370 45,535
Income taxes 11,577 9,463 23,438 18,015 14,805 15,009 17,282
Income before
accounting
change 16,348 14,389 34,717 27,284 25,100 23,361 28,253
Accounting change(1) -- 3,352 3,352 -- -- -- --
Net income $ 16,348 $ 17,741 $ 38,069 $ 27,284 $ 25,100 $ 23,361 $ 28,253
Average shares 18,140 18,236 18,268 18,172 18,064 17,941 17,868
Net income per
share before
accounting change $ 0.90 $ 0.79 $ 1.90 $ 1.50 $ 1.39 $ 1.30 $ 1.58
Accounting change(1) -- 0.18 0.18 -- -- -- --
Net income per share $ 0.90 $ 0.97 $ 2.08 $ 1.50 $ 1.39 $ 1.30 $ 1.58
Dividends per share $ 0.34 $ 0.30 $ 0.64 $ 0.60 $ 0.58 $ 0.56 $ 0.54
Ratio of earnings
to fixed
charges 15.4 16.4 11.7 7.4 6.2 6.6
(unaudited)
As of October 29, As of Fiscal Year-End in April,
------------------ ------------------------------------------------------
Balance Sheet Data: 1994 1994 1993 1992 1991 1990
Total assets $442,514 $430,253 $401,064 $376,722 $363,085 $361,856
Long-term debt,
including
current portion $ 58,120 $ 55,370 $ 55,912 $ 60,726 $ 70,867 $ 78,036
Total liabilities $151,445 $139,342 $137,678 $130,363 $133,868 $147,271
Shareholders' equity $291,069 $290,911 $263,386 $246,359 $229,217 $214,585
- ----------------
(1) Effective April 25, 1993, La-Z-Boy adopted the provisions of Financial
Accounting Standards Board Statement No. 109.
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA OF LA-Z-BOY
AFTER GIVING EFFECT TO THE MERGER
The following table sets forth certain unaudited pro forma condensed
combined financial data for La-Z-Boy after giving effect to the Merger as if
it had occurred as of the beginning of the fiscal year ended April 30, 1994
for the statement of operations data and as of October 29, 1994 for the
balance sheet data. The Merger will be accounted for as a purchase, and,
accordingly, E/C assets acquired and liabilities assumed will be recorded
at their estimated fair values, based upon net realizable values or other
analysis, with appropriate recognition given to the effect of current interest
rates and income taxes. Because the pro forma fair values used herein are
preliminary and subject to further refinement, the purchase accounting
adjustments shown herein are preliminary and subject to change. This
information should be read in conjunction with the historical financial
statements of E/C and La-Z-Boy, including the respective notes thereto,
which appear or are incorporated by reference in this Proxy
Statement/Prospectus, and in conjunction with the other pro forma financial
information, including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "England/Corsair, Inc. Financial Statements" and
"Pro Forma Condensed Combined Financial Information." The pro forma financial
data are not necessarily indicative of the results that actually would have
occurred had the Merger been consummated on the dates indicated or that may
be obtained in the future.
(unaudited)
(In thousands except per share data)
Six Months
Ended Fiscal Year
Oct. 29, Ended
1994 April 30, 1994
(26 Weeks) (53 weeks)
Statement of
Operations Data:
Sales $454,726 $910,679
Cost of sales 341,349 681,178
Gross profit 113,377 229,501
Selling, general, and
administrative
expenses 83,409 165,184
Operating profit 29,968 64,317
Interest expense 2,478 4,730
Other income 616 50
Pre-tax income 28,106 59,637
Income taxes 11,765 24,229
Income before
accounting change $ 16,341 $ 35,408
Average shares 18,792 18,920
Income before
accounting change
per share $ 0.87 $ 1.87
(unaudited)
As of
October 29,
1994
Balance Sheet Data:
Total assets $493,542
Long-term debt,
including current
portion $ 79,417
Total liabilities $182,928
Shareholders' equity $310,614
/TABLE
CAPITALIZATION OF E/C AND LA-Z-BOY
The following table sets forth the capitalization (i) of E/C and La-Z-Boy
on an historical basis and (ii) of La-Z-Boy on a pro forma basis as adjusted to
give effect to the Merger. The information set forth below should be read in
conjunction with the historical financial statements of E/C and La-Z-Boy,
including the respective notes thereto, which appear or are incorporated by
reference in this Proxy Statement/Prospectus, and in conjunction with the other
pro forma financial information, including the notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus. See "Available Information,"
"England/Corsair, Inc. Financial Statements" and "Pro Forma Condensed Combined
Financial Information."
(Dollars in thousands)
------------------------------------------------------------
Unaudited Unaudited
La-Z-Boy E/C (unaudited)
Oct. 29, Sept. 30, Adjust- Pro Forma
1994 1994 ments Combined
----------- ------------- ---------- ------------
Long-term debt:
Credit lines $ 15,000 $ 6,417 $ 21,417
Subordinated debt to
shareholders 1,224 1,224
Capital lease obligations 6,897 6,897
Other long term notes 244 244
Private placement 11,250 11,250
Industrial revenue bonds 31,870 31,870
8% Unsecured Promissory Notes
Due 1999 $ 6,515 (a) 6,515
Total debt 58,120 14,782 6,515 79,417
Less: current portion 1,875 2,290 4,165
Total long term debt 56,245 12,492 6,515 75,252
--------- --------- --------- ---------
Shareholders' equity:
Common stock 17,975 335 317 (a) 18,627
Capital in excess of par value 10,412 0 18,893 (a) 29,305
Retained earnings 263,342 13,530 (13,530)(b) 263,342
Currency translation
adjustments (660) 0 0 (660)
Treasury stock 0 (1,443) 1,443 (b) 0
Total shareholders' equity 291,069 12,422 7,123 310,614
Total capitalization $ 347,314 $ 24,914 $ 13,638 $ 385,866
The pro forma capitalization has been prepared to reflect the acquisition
of E/C by La-Z-Boy for an estimated aggregate price of $32,575 and a value
of $30 per share of La-Z-Boy Common Stock. The Plan of Merger requires
that at least 50% of the initial consideration be paid in La-Z-Boy Common
Stock with the remainder paid in cash and/or La-Z-Boy Notes. Furthermore,
additional payments in La-Z-Boy Common Stock may be required if the Surviving
Corporation exceeds predetermined Pre-Tax Income as defined and determined in
accordance with the Plan of Merger, for the two successive twelve month periods
following the Merger. These possible additional payments have not been
included in the pro forma capitalization table. For purposes of this
pro forma, it is assumed that 60% of the payment will be made in La-Z-Boy
Common Stock, 20% is cash, and 20% is La-Z-Boy Notes. Pro forma
adjustments reflect:
(a) La-Z-Boy Notes in the amount of $6,515 and 651,500 shares of
La-Z-Boy Common Stock issued and valued at $30 per share.
(b) To eliminate E/C treasury stock and retained earnings.
COMPARATIVE PER SHARE DATA
The following table sets forth certain selected financial data on an
historical, pro forma combined and pro forma combined equivalent per share
basis giving effect to the Merger as if it had occurred at the beginning of the
earliest period shown. The information presented herein should be read in
conjunction with the other financial information, including the notes thereto,
included and incorporated by reference in this Proxy Statement/Prospectus.
Pro forma and pro forma equivalent share information is unaudited.
(Unaudited)
Six Months Ended Year Ended
October 29 (La-Z-Boy) or April 30 (La-Z-Boy) or
September 30 (E/C), 1994 June 30 (E/C), 1994
Income per share
before accounting change:
La-Z-Boy $ 0.90 $ 1.90
E/C 1.68 5.75
La-Z-Boy pro forma(1) 0.87 1.87
E/C pro forma 3.18 6.83
equivalent(2)
Dividends per share:
La-Z-Boy $ 0.34 $ 0.64
E/C 10.43 15.88
La-Z-Boy pro forma(1) 0.34 0.64
E/C pro forma 1.24 2.34
equivalent(2)
Book Value per share:
La-Z-Boy $16.19 $15.91
E/C 41.78 39.60
La-Z-Boy pro forma(1) 16.68 16.39
E/C pro forma 60.91 59.86
equivalent(2)
(1) La-Z-Boy pro forma per share data has been calculated assuming 60% of
the consideration for the Merger is paid in La-Z-Boy Common Stock,
20% in La-Z-Boy Notes, and 20% in cash. Other assumptions used in
computing the La-Z-Boy pro forma amounts are described in "Pro Forma
Combined Financial Information."
(2) E/C pro forma equivalent per share data has been computed by
multiplying the corresponding pro forma amounts for La-Z-Boy by the
number of shares (3.6519467707) of La-Z-Boy Common Stock into which each
share of E/C Stock will (as to those shares of E/C Stock which the holder
elects to have converted to La-Z-Boy Common Stock) be converted.
COMPARATIVE STOCK PRICES
E/C. E/C has been a privately held corporation since its formation, and no
trading market for E/C Stock exists. As of January 31, 1995, there were 22
holders of record of issued and outstanding E/C Stock.
La-Z-Boy. La-Z-Boy Common Stock is traded on the NYSE and the PSE under
the symbol "LZB." The closing price of the La-Z-Boy Common Stock on the NYSE on
January 12, 1995 (the date preceding the day of public announcement of the
proposed Merger) was $31-3/8 and on February __, 1995 was $__________.
THE COMPANIES
ENGLAND/CORSAIR, INC.
E/C was incorporated under the laws of the State of Tennessee in 1964 and
is headquartered in the State of Tennessee. E/C is engaged primarily in the
manufacture of upholstered furniture. E/C's principal office is located at 402
Old Knoxville Highway, New Tazewell, Tennessee 37825, and its telephone number
is (800) 251-9125.
LA-Z-BOY CHAIR COMPANY
La-Z-Boy was incorporated under the laws of the State of Michigan in 1941
and is headquartered in the State of Michigan. La-Z-Boy is engaged primarily in
the manufacture of furniture. La-Z-Boy's principal office is located at 1284
North Telegraph Road, Monroe, Michigan 48161, and its telephone number is (313)
242-1444.
LZB ACQUISITION, INC.
LZB Acquisition was incorporated under the laws of the State of Michigan
in 1995 and is headquartered in the State of Michigan. LZB Acquisition was
formed for the purpose of serving as the Surviving Corporation of the Merger
and does not engage in any business at this time. Its principal office is
located at 1284 North Telegraph Road, Monroe, Michigan 48161, and its telephone
number is (313) 242-1444.
THE MEETING
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, E/C shareholders will be asked to consider and vote upon
the Proposal, which is to approve: (a) the Reorganization Agreement; (b) the
Plan of Merger; and (c) all of the transactions contemplated by the
Reorganization Agreement and the Plan of Merger, including (without limitation)
the Merger. E/C shareholders will also consider and vote upon such other
matters, if any, as may properly be brought before the Meeting.
THE BOARD OF DIRECTORS OF E/C UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT, THE PLAN OF MERGER AND ALL OF THE TRANSACTIONS CONTEMPLATED THEREBY
AND RECOMMENDS THAT E/C SHAREHOLDERS VOTE FOR THE APPROVAL OF THE PROPOSAL.
VOTE REQUIRED
Approval of the Proposal requires the affirmative votes of the holders of
a majority of all outstanding shares of E/C Stock of both classes (voting
together as a single voting group), with each such share entitled to one vote.
As of ______________, approximately 51.8% of the shares of E/C Stock outstanding
and entitled to vote on the Proposal was held by E/C directors, executive
officers, and their affiliates. Approval of the Proposal by the requisite vote
of E/C shareholders is a condition to, and is required for, consummation of the
Merger. No vote of La-Z-Boy shareholders is required in connection with the
Merger.
VOTING OF PROXIES
Proxies. Shares of E/C Stock represented by properly executed proxies
received at or prior to the Meeting and not thereafter effectively revoked will
be voted at the Meeting in the manner specified by the holders of such shares.
Properly executed proxies which do not contain voting instructions will be
voted FOR the Proposal.
Broker Nonvotes and Abstentions. As of the record date, none of the E/C
Stock was held in the name of any broker so no proxies are expected to be
withheld due to broker nonvotes. Solely for purposes of determining whether the
Proposal has received the shareholder votes required for approval, each
abstention is functionally equivalent to a vote "against" the Proposal.
Other Matters. If any other matters are properly presented at the Meeting
for consideration, including, among other things, consideration of a motion to
adjourn the Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the form of proxy enclosed herewith and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. E/C
directors have no knowledge of any matters to be presented at the Meeting
other than the matters referred to and described in this Proxy
Statement/Prospectus.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
shareholder from voting in person or otherwise revoking a proxy. Attendance at
the Meeting will not in and of itself constitute revocation of a proxy. A
shareholder may revoke a proxy at any time prior to its exercise by filing with
the Secretary of E/C a duly executed revocation or a proxy bearing a later date
or by voting in person at the Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The record date for the Meeting is __________________, 1995. Only E/C
shareholders at the close of business on such date are entitled to notice of,
and to vote at, the Meeting. At _______________, 1995, there were issued and
outstanding 297,330 shares of E/C Stock. Shares representing a majority of the
aggregate number of outstanding shares of E/C Stock entitled to vote must be
represented in person or by proxy at the Meeting in order for a quorum to be
present at the Meeting. See "-- Voting of Proxies."
DISSENTERS' RIGHTS
Holders of the E/C Class A Stock and holders of the E/C Class B Stock may
have a right pursuant to Section 102(1)(A) of Chapter 23 of the TBCA ("Section
102") to assert dissenters' rights. A copy of Chapter 23 of the TBCA is
attached hereto as Annex C. A dissenting shareholder is entitled to obtain
payment from the Surviving Corporation of the "fair value" (as defined) of his
or her shares. "Fair value" is defined to mean the value of the shares
immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action.
To assert dissenter's rights, a holder of E/C Stock (a) must deliver to
E/C, prior to the shareholder vote on the Proposal, written notice of his or
her intent to demand payment for their shares if the proposed Merger is
effectuated and (b) must not vote their shares in favor of the Proposal.
Holders of E/C Stock who satisfy these requirements are referred to herein as
"dissenting shareholders." The Surviving Corporation will send a dissenter's
notice to all dissenting shareholders no later than 10 days after the proposed
corporate action is authorized by a vote of the shareholders. The dissenter's
notice must state where the payment demand must be sent and where and when
certificates for certificated shares must be deposited. The notice must also
inform holders of uncertificated shares to what extent transfer of the shares
will be restricted after the payment demand is received, and must specify a
date not less than one month, nor more than two months after the date of the
delivery of the dissenter's notice on which the demand for payment must be
received by the Surviving Corporation. The dissenter's notice must be
accompanied by a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the principal terms of the
proposed corporate action and requires that the dissenting shareholder verify
whether or not he acquired beneficial ownership of the shares before that date.
A shareholder who does not demand payment or deposit his or her share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his or her shares under Chapter 23 of the TBCA.
As soon as the Merger is effectuated, or upon receipt of a payment demand,
which ever is later, the Surviving Corporation must pay each dissenting
shareholder that has satisfied all requirements to assert dissenter's rights,
the amount the corporation estimates to be the fair value of his or her shares,
plus accrued interest. The payment must be accompanied by (a) the Surviving
Corporation's balance sheet as of the end of a fiscal year ending not more than
16 months before the date of payment, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any; (b) a statement of the
corporation's estimate of the fair value of the shares; (c) an explanation of
how the interest was calculated; (d) a statement of the dissenter's right to
demand payment; and (e) a copy of Chapter 23 of the TBCA, if not previously
provided. A corporation may elect to withhold payment from a dissenter unless
he was the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the principal terms of the proposed corporate action.
If the Surviving Corporation does not effectuate the proposed action that
gave rise to the dissenter's rights within two months after the date set for
demanding payment and delivering stock certificates, the Surviving Corporation
must return the stock certificates and release the transfer restriction imposed
on uncertificated shares.
A dissenter may notify the Surviving Corporation in writing of his or her
own estimate of the fair value of the shares and amount of interest due, and
demand payment of his or her estimate (less any payment made to the dissenting
shareholder for those shares), or reject the Surviving Corporation's offer and
demand payment of the fair value of the shares and interest due if (a) the
dissenting shareholder believes the amount offered or paid by the Surviving
Corporation is less than the fair value of his or her shares or that the
interest due is incorrectly calculated, (b) the proposed action has not been
effectuated within two months after the date set for demanding payment or (c)
the Surviving Corporation, having failed to effectuate the proposed action,
does not return delivered stock certificates or release transfer restrictions
imposed on uncertificated shares within two months after the date set for
demanding payment. A dissenter must notify the Surviving Corporation of his or
her demand in writing within one month after the Surviving Corporation made or
offered payment for his or her shares.
If a demand for payment remains unsettled, the Surviving Corporation must
commence a proceeding within two months after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If the Surviving Corporation fails to do so, it must pay each
dissenter whose demand remains unsettled the amount demanded. Each dissenter
made a party to the proceeding is entitled to judgment for the amount, if any,
by which the court finds the fair value of the shares, plus accrued interest,
exceeds the amount paid by the Surviving Corporation or the fair value, plus
accrued interest, of his or her after-acquired shares for which the Surviving
Corporation elected to withhold payment. Court costs and attorneys' fees will
be assessed against the Surviving Corporation, unless the court finds it
equitable to assess some of such fees against the dissenting shareholder.
SOLICITATION OF PROXIES
The Surviving Corporation will bear the cost of the solicitation of
proxies from E/C's shareholders if the Merger is consummated. It is estimated
that the costs of soliciting proxies, including the cost of printing and
mailing this Proxy Statement/Prospectus, will be approximately $5,500. In
addition to solicitation by mail, proxies may be solicited by telephone,
telegram, facsimile transmission, or in person. Proxies will be solicited on
behalf of E/C by directors, officers, and regular employees of E/C (none of
whom will receive any additional compensation for such services, but who may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation).
THE MERGER AND RELATED TRANSACTIONS
THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Reorganization Agreement, is qualified in its entirety
by reference to the Reorganization Agreement, a copy of which is attached to
this Proxy Statement/Prospectus as Appendix A. All shareholders are urged to
read the Reorganization Agreement in its entirety.
BACKGROUND OF THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF E/C;
AND REASONS FOR THE MERGER
In late 1993 and early 1994, the E/C Board began to look at
various options for the business. In November and December 1993 E/C began
preparations for an initial public offering. For various business and
economic reasons, management of E/C determined not to go forward with an
initial public offering.
Subsequently, E/C underwent a transition of management with the
retirement in June, 1994 of its founder Dwight England.
In the fall of 1994, E/C approached and was approached by several
furniture manufacturers that were interested in purchasing the assets of E/C or
merging with E/C. Some potential suitors toured E/C facilities in the fall of
1994. None of these discussions resulted in either the execution of a letter
of intent or formal agreement.
In early October 1994, E/C President and CEO, Rodney D. England, had
discussions with La-Z-Boy representatives. Subsequently, officers of La-Z-Boy
visited E/C.
In reviewing the merger potential with La-Z-Boy, the E/C Board
considered the advantages and disadvantages of the merger with La-Z-Boy and
with other suitors and determined that a merger with La-Z-Boy was in the best
long term economic interest of E/C's employees and shareholders.
The E/C Board looked at the merger price proposed by La-Z-Boy and the
potential for additional payments with the Performance Units. In addition,
unlike other potential proposals, the La-Z-Boy proposal offered to the E/C
shareholders the potential of a "tax-free reorganization," as provided in
Section 368 of the Code.
The E/C Board has concluded that the terms of the Merger are fair
to E/C shareholders and that consummation of the Merger is in the best
interests of E/C and its shareholders. In reaching these conclusions, the E/C
Board has considered, among other things, the price being offered in the
Merger in relation to the book value and earnings per share of E/C Stock.
The E/C Board has also considered a number of additional factors in approving
and recommending the terms of the Merger, including, without limitation,
information concerning the financial condition, earnings and dividend records,
and prospects of E/C and La-Z-Boy; the ability of the combined entity to
compete in relevant markets; the compatibility of the managements of the two
organizations; the anticipated tax-free nature of the Merger to E/C
shareholders to the extent they receive La-Z-Boy Common Stock in exchange
for their shares of E/C Stock; and the financial terms of other recent
business combinations in the furniture industry.
THE E/C BOARD RECOMMENDS UNANIMOUSLY THAT SHAREHOLDERS VOTE FOR
ADOPTION AND APPROVAL OF THE REORGANIZATION AGREEMENT, PLAN OF MERGER,
AND THE MERGER.
EFFECTIVE TIME OF THE MERGER
If the Reorganization Agreement, Plan of Merger, and the Merger are
approved by the E/C shareholders at the Meeting, and assuming that all
other conditions have then been satisfied (see "Amendments, Conditions, and
Termination"), it is expected that the Merger will become effective at 5:00
p.m., Detroit, Michigan time, on the day of the Meeting or as promptly
as practicable thereafter. The Merger will become effective on the date and at
the time that appropriate certificate and articles of merger are filed and have
become effective with the Secretary of State of Tennessee and the Michigan
Corporation Bureau, respectively (the "Effective Time").
In the event that the Merger has not been consummated by April 15, 1995,
the Reorganization Agreement provides that either La-Z-Boy or E/C may terminate
the Reorganization Agreement and abandon the Merger, notwithstanding the
approval previously given by the shareholders of E/C. See "Amendments,
Conditions, and Termination."
OPERATIONS AFTER THE MERGER
LZB Acquisition will be the Surviving Corporation of the Merger, and, in
connection with consummation of the Merger, LZB Acquisition will change its
name to "England/Corsair, Inc." The Board of Directors and officers of the
Surviving Corporation will be as follows:
Charle T. Knabusch -- Director and Chairman
Rodney D. England -- Director, President, and Chief Executive Officer
Frederick H. Jackson -- Director and Vice President
Gene M. Hardy -- Director, Secretary, and Treasurer
Patrick H. Norton -- Vice President
Otis S. Sawyer -- Vice President Finance
Dennis C. Valkanoff -- Vice President
James L. Price -- Vice President Manufacturing
James P. Klarr -- Assistant Secretary and Tax Counsel
CONSIDERATION FOR SHARES
Upon the Merger becoming effective, each share of E/C Stock will be
converted into the right to receive cash, La-Z-Boy Notes or shares of La-Z-Boy
Common Stock, or a combination thereof, as described below, based on total
merger consideration (excluding the Performance Units) of $32,575,000 and a
value of $30.00 per share of La-Z-Boy Common Stock. Each share of E/C Stock
owned by shareholders who comply with the election procedures set forth in the
Plan of Merger and described below will be converted into, at their option (but
subject to the limitations set forth in the Plan of Merger and described under
the captions "Limitation" and "Allocation of Cash, Shares and Notes"),
either: $109.558403121 in cash; $109.558403121 principal amount of La-Z-Boy
Notes; or 3.6519467707 shares of La-Z-Boy Common Stock. Each share of E/C
Stock, regardless of, and in addition to, the election made by the holder
thereof, will also be converted into one Performance Unit, as described below.
Each share of E/C Stock owned by a shareholder who does not duly and
timely comply with the election procedures will be converted into
$109.558403121 in cash per share, subject to the limitations described below
under the captions "Limitation" and "Allocation of Cash, Shares and Notes,"
plus one Performance Unit.
PERFORMANCE UNITS
Performance Units will entitle the holders thereof to receive
additional shares of La-Z-Boy Common Stock based on the Pre-Tax Income
(as defined in and determined in accordance with the Plan of Merger) of E/C
during each of the two successive twelve month periods immediately following
the Effective Time. The first such twelve month period is referred to herein
and in the Plan of Merger as the "1996 Performance Period" and the amount, if
any, payable with respect to each of the Performance Units for the 1996
Performance Period as the "1996 Performance Unit Amount," and the second such
twelve month period is referred to herein and in the Plan of Merger as the
"1997 Performance Period" and the amount, if any, payable with respect to each
of the Performance Units for the 1997 Performance Period as the "1997
Performance Unit Amount."
The 1996 Performance Unit Amount will be determined by, first, multiplying
the Pre-Tax Income of E/C above $6,000,000 for the 1996 Performance Period by
1.75 and, second, dividing the resulting number by the number of shares of E/C
Stock outstanding as of the Effective Time. The 1997 Performance Unit Amount
will be determined in the same manner but based on the Pre-Tax Income of E/C
for the 1997 Performance Period above $7,000,000. The total value of shares
of La-Z-Boy Common Stock issued pursuant to the Performance Units cannot
exceed $20,000,000.
Performance Units will be settled in additional shares of La-Z-Boy
Common Stock, the number of which will be determined by dividing the aggregate
1996 Performance Unit Amount and the aggregate 1997 Performance Unit Amount by
the closing price of La-Z-Boy Common Stock on the NYSE on the last day of the
1996 Performance Period and the 1997 Performance Period, as the case may be.
LIMITATIONS
The Plan of Merger provides that in the event (i) the aggregate number of
shares of La-Z-Boy Common Stock which would be issuable to those E/C
shareholders who elected to receive shares of La-Z-Boy Common Stock in the
Merger exceeds the Total Share Limitation or the Performance Unit Share
Limitation (both as defined below), or (ii) the aggregate amount of cash
and La-Z-Boy Notes which would otherwise be paid to E/C shareholders who
either elected to receive cash or whose shares were converted into cash
because of the failure to comply with the election procedures specified
in the Plan of Merger, exceeds the Total Non-Share Limitation (as defined
below), or (iii) the aggregate principal amount of La-Z-Boy Notes which would
be issuable to E/C shareholders who have elected to receive La-Z-Boy Notes
exceeds $10,000,000 (the "Note Limitation"), then the elections made by, or
allocations to, one or more of the E/C shareholders will be changed from cash
to shares of La-Z-Boy Common Stock, La-Z-Boy Notes to cash or La-Z-Boy Common
Stock to cash, as the case may be, in accordance with the procedures set forth
in the Plan of Merger and described below under the caption "Allocation of
Cash, Shares and Notes."
As a result of these limitations and the allocation procedures,
shareholders of E/C may not receive the type of consideration they elect. In
addition, as a result of such limitations, shareholders of E/C electing to
receive cash or La-Z-Boy Notes in the Merger may nevertheless receive shares
of La-Z-Boy Common Stock whose market value at the Effective Time may be less
than the $30.00 price of La-Z-Boy Common Stock upon which the exchange
ratio was determined.
The term "Total Non-Share Limitation" means the amount of consideration
other than La-Z-Boy Common Stock which, if paid in connection with the Merger,
would result in such consideration constituting 50% or more of the aggregate
consideration paid by La-Z-Boy to acquire shares of E/C Stock in connection
with the Merger, whether pursuant to the Plan of Merger, by operation of law or
in lieu of fractional shares, based in all cases on the fair market value of
the La-Z-Boy Common Stock at the Effective Time. The term "Total Share
Limitation" means that number of shares of La-Z-Boy Common Stock which, if
issued in connection with the Merger, would result in La-Z-Boy issuing more
than 2,000,000 shares of La-Z-Boy Common Stock, whether issued at time of
consummation of the Merger or in settlement of Performance Units. The term
"Performance Unit Share Limitation" means that number of shares of La-Z-Boy
Common Stock which is equal to the number of shares issued at the time of
consummation of the Merger.
ELECTION PROCEDURES
If the Plan of Merger and the Merger are approved by E/C shareholders at
the Meeting, and assuming that all other conditions have been satisfied
(see "Amendments, Conditions, and Termination"), it is expected that the Merger
will become effective on the date of the Meeting or as promptly as
practicable thereafter. A Letter of Transmittal and Election Form (a "Form of
Election") is being delivered to each E/C shareholder of record on the Record
Date ("Electing Shareholders") together with this Proxy Statement/Prospectus. A
Form of Election can only be filed with respect to all shares of E/C Stock held
by an Electing Shareholder. An election will only be proper if La-Z-Boy shall
have received a Form of Election properly completed and signed prior to the
commencement of the Meeting and the Form of Election is accompanied by the
certificate(s) representing the shares of E/C Stock to which the Form of
Election relates. Any shareholder who fails to file a Form of Election prior
to the commencement of the Meeting will be deemed to have elected to receive
cash in the Merger.
A Form of Election may be revoked by an Electing Shareholder only by
written notice received by La-Z-Boy prior to the commencement of the Meeting.
In the event that the Merger is not consummated for any reason, any
certificate(s) for shares representing E/C Stock which have been deposited
with La-Z-Boy in connection with the election procedures will be promptly
returned.
La-Z-Boy will determine the validity and timeliness of Forms of Election
submitted by E/C shareholders and whether revocations, if any, have been
properly made.
ALLOCATION OF CASH, SHARES AND NOTES
In the event that the elections made by E/C shareholders will result in
the Total Share Limitation, the Total Non-Share Limitation, the Note
Limitation, or the Performance Unit Share Limitation being exceeded, the
Plan of Merger provides that the elections made by one or more of
the E/C shareholders will be changed from cash to shares of La-Z-Boy Common
Stock, from La-Z-Boy Notes to cash or from shares of La-Z-Boy Common Stock to
cash in the order provided, and pursuant to the allocation procedures
described, below. In certain circumstances such limitations could reduce the
total consideration payable in settlement of the Performance Units.
In connection with the initial consideration payable at the time of
consummation of the Merger:
(1) If the total principal amount of La-Z-Boy Notes otherwise
issuable would exceed the Note Limitation, the principal amount of
La-Z-Boy Notes to be issued will be reduced pro rata, and cash
will be allocated instead.
(2) If the sum of the principal amount of La-Z-Boy Notes
issuable and the cash otherwise payable would exceed the Total
Non-Share Limitation, the cash to be paid will be reduced pro rata,
and La-Z-Boy Common Stock will be allocated instead.
In connection with each of the two scheduled payments of consideration
in satisfaction of Performance Units (each a "Performance Unit Payment"):
If the sum of the number of shares of La-Z-Boy Common Stock
previously issued and the number otherwise issuable in connection with
such Performance Unit Payment would exceed the Total Share Limitation,
the Performance Unit Share Limitation, or both, the amount of such
Performance Unit Payment will be reduced pro rata, to the extent
necessary to avoid violating the Total Share Limitation or the
Performance Unit Share Limitation.
La-Z-Boy will determine whether or not elections have been properly made
or revoked. If La-Z-Boy determines that any election was not properly or
timely made or was revoked and not replaced, the shares of E/C Stock subject to
such election will be treated as shares to be converted into cash.
La-Z-Boy may make equitable changes in the election procedures as may be
necessary to fully effect the elections.
As a result of these allocation procedures, shareholders of E/C may not
receive the type of consideration they elect, and shareholders who fail to make
any election may nevertheless not receive cash.
CASH IN LIEU OF FRACTIONAL SHARES
Each holder of a certificate or certificates representing E/C Stock who
would otherwise have been entitled to receive a fraction of a share of La-Z-Boy
Common Stock (after taking into account all E/C Stock represented by such
certificate(s) then delivered by such holder) upon consummation of the Merger
will receive, in lieu thereof, an amount of cash determined by multiplying
such fraction by $30.00. Each holder of Performance Units who would otherwise
have been entitled to receive a fraction of a share of La-Z-Boy Common Stock
(after taking into account all Performance Units held by such holder) in
respect of any 1996 Performance Unit Amount and/or 1997 Performance Unit
Amount will receive, in lieu thereof, cash in an amount determined by
multiplying such fraction by the closing price of La-Z-Boy Common Stock on
the NYSE on the last day of the 1996 Performance Period or the 1997
Performance Period, as the case may be.
PAYMENT FOR SHARES
La-Z-Boy will make available cash, La-Z-Boy Notes and shares of La-Z-Boy
Common Stock sufficient in amounts to make the payments to be made to E/C
shareholders in the Merger promptly following the Effective Time. The Forms of
Election accompanying this Proxy Statement/Prospectus are to be used in
surrendering certificates representing outstanding shares of E/C Stock.
Shareholders are urged to carefully review the instructions which form a part
of the Forms of Election. Promptly after the Effective Time, and upon receipt
by La-Z-Boy of such certificates, together with a duly executed letter of
transmittal, there will be issued to the persons entitled thereto (i) a check
in the amount to which such persons are entitled, after giving effect to any
tax withholdings to the extent required by applicable law; (ii) a certificate
evidencing the number of shares of La-Z-Boy Common Stock to which such persons
are entitled; and/or (iii) a La-Z-Boy Note in the principal amount to which
such persons are entitled. No interest will be paid or will accrue on the cash
amounts payable upon the surrender of any certificate representing E/C Stock.
If payment is to be made to a person other than the registered holder of the
share certificate surrendered, it is a condition of such payment or delivery
that the certificate so surrendered is properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment or delivery shall
pay any transfer or other taxes required by reason of the payment or delivery
to a person other than the registered holder of the certificate surrendered or
establish to the satisfaction of the Surviving Corporation of the Merger or
La-Z-Boy that such tax has been paid or is not applicable. Nine months
following the Effective Time, E/C shareholders who have not submitted their
certificates for exchange will be entitled to look only to La-Z-Boy with
respect to the consideration due upon surrender of their certificates.
Neither La-Z-Boy, LZB Acquisition nor E/C will be liable to any holder of
certificates formerly representing shares of E/C Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
No transfer of shares of E/C Stock will be made on the stock transfer
books of the Surviving Corporation of the Merger at or after the Effective
Time.
THE REORGANIZATION AGREEMENT
The terms of the Reorganization Agreement and Plan of Merger are the
result of the arm's-length negotiations between representatives of E/C and
La-Z-Boy. In the Reorganization Agreement, E/C and La-Z-Boy have made numerous
representations and warranties to one another with respect to, among other
things, their organization and good standing, authorized and issued capital
stock, corporate authority, required filings and financial statements. In
addition, E/C has made certain other representations and warranties to La-Z-Boy
concerning its employee benefit plans and arrangements, labor matters, pending
and threatened litigation, certain tax matters, environmental matters, title to
properties and insurance arrangements, among others.
The representations and warranties and covenants and agreements of E/C
contained in or made pursuant to the Reorganization Agreement will survive the
Merger, but the E/C shareholders will not have any personal liability or
responsibility for any breach or non-performance thereof, whether occurring
prior or subsequent to consummation of the Merger. However, the amount, if any,
the E/C shareholders are to receive in respect of Performance Units will depend
upon the level of Pre-Tax Income achieved by E/C during the two years following
the Merger, and the Computation Standards for Pre-Tax Income attached as
Exhibit A to the Plan of Merger specifically provide that payments, reserves
or accruals resulting from any breach or non-performance of any warranty or
covenant of E/C contained in the Reorganization Agreement, or any liabilities
of E/C existing at the Effective Time and not reflected in the financial
statements or disclosure schedules delivered by E/C to La-Z-Boy as provided
in the Reorganization Agreement, will be treated as deductions in computing
Pre-Tax Income.
ACCORDINGLY, BREACHES OF THE REPRESENTATIONS AND COVENANTS OF E/C
CONTAINED IN THE REORGANIZATION AGREEMENT COULD REDUCE THE AMOUNT OF
LA-Z-BOY COMMON STOCK RECEIVED BY THE E/C SHAREHOLDERS IN RESPECT OF THE
PERFORMANCE UNITS, THEREBY REDUCING THE TOTAL CONSIDERATION TO BE RECEIVED BY
THE E/C SHAREHOLDERS IN RESPECT OF THE MERGER.
E/C has agreed, pending consummation of the Merger, to give La-Z-Boy or
its representatives full access to all its premises, books, records, and
financial and operating data, and that it will continue to operate its business
in the ordinary course, except as otherwise consented to by La-Z-Boy. E/C has
also agreed that neither it nor any of its subsidiaries nor any of their
respective officers or directors will initiate or solicit any other acquisition
proposals for E/C or participate in any negotiations concerning any such
proposals.
DISTRIBUTIONS PRIOR TO CLOSING
As provided in the Reorganization Agreement, neither La-Z-Boy nor E/C may
either declare or pay any dividends on or make any distributions in respect of
their capital shares prior to the Effective Time, except:
(1) La-Z-Boy may declare and pay dividends on the La-Z-Boy Common Stock in
accordance with its prior practice; and
(2) E/C may (i) pay to its shareholders the cash dividend previously
declared in the amount of 60% of its taxable income for the period of July 1,
1994 to December 31, 1994; (ii) declare and pay to its shareholders dividends
in an amount equal to 40% of its taxable income for the period of January 1,
1995 to the day before the Effective Time; and (iii) declare and pay to its
shareholders dividends in an amount equal to 50% of the net proceeds receivable
by E/C under any policies owned by E/C on the life of Arnold Dwight England.
CONDITIONS TO THE MERGER
The obligation of La-Z-Boy and E/C to consummate the Merger is subject to
certain conditions, including (without limitation) the following:
(i) the Reorganization Agreement and Plan of Merger shall have
been approved and adopted by the requisite vote of the E/C shareholders;
(ii) the shares of La-Z-Boy Common Stock issuable in the Merger
shall have been authorized for listing on the NYSE and PSE upon official
notice of issuance;
(iii) other than the filing of the LZB Acquisition Certificate of
Merger with the Corporation and Securities Bureau of the Michigan
Department of Commerce and the filing of the E/C Articles of Merger
with the Secretary of State of the State of Tennessee, all
authorizations, consents, orders or approvals of, or declarations or
filings with, and all expirations of waiting periods imposed by, any
governmental entity (collectively, the "Consents") which are prescribed
by law as necessary for the consummation of the Merger and the other
transactions contemplated by the Reorganization Agreement, other than
immaterial Consents the failure to obtain which would have no material
adverse effect on the consummation of the Merger or the other
transactions contemplated by the Reorganization Agreement, or on the
corporation surviving the Merger, shall have been filed, occurred or been
obtained (all such authorizations, consents, orders, approvals,
declarations or filings and the lapse of all such waiting periods being
referred to as the "Requisite Regulatory Approvals"), as the case
may be and all such Requisite Regulatory Approvals shall be in full force
and effect;
(iv) the Registration Statement, of which this Proxy
Statement/Prospectus forms a part, shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened;
(v) the sale of the La-Z-Boy Common Stock shall have been
qualified or registered with the appropriate "Blue Sky" authorities of
all states in which qualification or registration is required and such
qualifications or registrations shall not have been suspended or revoked;
(vi) no order, injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger or any of the
transactions contemplated by the Reorganization Agreement shall be in
effect, nor shall any proceeding by any governmental entity seeking any
such Injunction be pending, nor shall any lawsuit or governmental
proceeding be pending or threatened against La-Z-Boy, LZB Acquisition
or E/C or any of their respective directors, seeking substantial damages
in connection with the transactions contemplated by the Reorganization
Agreement;
(vii) no statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by any
governmental entity which prohibits, restricts or makes illegal
consummation of the Merger;
(viii) there shall not be any action taken, or any law, rule,
regulation, order, judgment or decree proposed, promulgated, enacted,
entered, enforced or deemed applicable to the Merger or any of the
transactions contemplated by the Reorganization Agreement, by any
governmental entity or by any court or other tribunal, including the
entry of a preliminary injunction, which, (A) in connection with the
grant of a Requisite Regulatory Approval, imposed any condition or
restriction upon La-Z-Boy, LZB Acquisition or E/C which would so
materially adversely impact the economic or business benefits of the
transactions contemplated by the Reorganization Agreement as to render
inadvisable, in the reasonable judgment of the La-Z-Boy Board, the LZB
Acquisition Board or the E/C Board, the consummation of the Merger (a
"Materially Burdensome Condition"); or (B) in the reasonable opinion of
any party, (1) makes the Reorganization Agreement, the Plan of Merger,
the Merger, or any of the other transactions contemplated by the
Reorganization Agreement, illegal, (2) results in a material delay in the
ability of La-Z-Boy, LZB Acquisition or E/C to consummate the Merger or
any of the other transactions contemplated by the Reorganization
Agreement, (3) requires the divestiture by La-Z-Boy, LZB Acquisition or
E/C of a material portion of the business of E/C, taken as a whole, or
La-Z-Boy, taken as a whole, or (4) otherwise prohibits or restricts or
delays in a material respect consummation of the Merger or any of the
other transactions contemplated by the Reorganization Agreement or impairs
in a material respect the contemplated benefits to La-Z-Boy, LZB
Acquisition or E/C of the Reorganization Agreement, the Merger or any of
the other transactions contemplated by the Reorganization Agreement; and
(ix) the E/C shareholders designated in a schedule to the
Reorganization Agreement as affiliates of E/C shall have executed and
delivered to La-Z-Boy an agreement under Rule 145 under the Securities Act
requiring that transfers of La-Z-Boy Common Stock after the Merger comply
with the requirements of Rule 145 and other applicable provisions of the
Securities Act.
The obligation of La-Z-Boy and LZB Acquisition (sometimes referred to
collectively as the "LZB Companies") to effect the Merger is subject to the
satisfaction by E/C or waiver by the LZB Companies of certain additional
conditions, including (without limitation) the following:
(i) the representations and warranties of E/C in the
Reorganization Agreement must be true and correct in all material
respects as of the date of the Reorganization Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Effective Time as though made on and as of such time, except as
otherwise contemplated by the Reorganization Agreement;
(ii) E/C shall have performed in all material respects all
obligations required to be performed by it under the Reorganization
Agreement at or prior to the Effective Time;
(iii) E/C shall have obtained the consent or approval of each person
(other than those of certain governmental entities) whose consent or
approval shall be required in order to permit the succession by the
corporation surviving the Merger pursuant to the Plan of Merger to any
obligation, right or interest of E/C under any loan or credit agreement,
note, mortgage, indenture, lease, license or other agreement or
instrument;
(iv) the LZB Companies shall have received the opinion of Miller,
Canfield, Paddock and Stone, P.L.C., dated the effective date of the
Registration Statement and the Effective Time, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code;
(v) the LZB Companies shall have received from Baker, Donelson,
Bearman & Caldwell, counsel to E/C, (A) an appropriate letter regarding
the Registration Statement, this Proxy Statement/Prospectus and certain
related matters, and (B) an opinion as to such matters as are customary
for transactions of the type contemplated by the Reorganization Agreement,
all in form and substance reasonably acceptable to the LZB Companies.
(vi) the total debt of E/C shall not exceed $30,000,000 at the
Effective Time;
(vii) the LZB Companies shall have received the tax lock-up letters
described under "Certain Federal Income Tax Consequences" from all E/C
shareholders who have elected to receive La-Z-Boy Common Stock in the
Merger and from those E/C shareholders designated in a schedule delivered
to the LZB Companies pursuant to the Reorganization Agreement;
(viii) BDO Seidman shall have delivered to the LZB Companies its
opinion with respect to E/C's status as an electing small business
corporation under the Code, in form and content acceptable to the
LZB Companies;
(ix) each of the officers and directors of E/C shall have delivered
to the LZB Companies documents, in form and substance reasonably
satisfactory to the LZB Companies, pursuant to which such officers and
directors forever waive and release any and all claims they might
otherwise have (whether under the charter or bylaws of E/C, the articles
of incorporation or bylaws of either of the LZB Companies, by contract, or
otherwise) for indemnification or for the payment of advancing of expenses
relating in any way to any disputes which may arise between such officer
or director and either the Reorganization Agreement or the transactions
contemplated hereby; and
(x) each holder of E/C Class A Stock shall have executed and
delivered to E/C (with copies to the LZB Companies) documents, in form and
substance satisfactory to La-Z-Boy in its reasonable judgment,
acknowledging that any and all employment contracts between such person
and E/C have been terminated and releasing E/C and LZB Acquisition from
any further liability thereunder, including (but not limited to) any
liability with respect to such termination.
The obligation of E/C to effect the Merger is subject to the satisfaction
by the LZB Companies or the waiver by E/C of certain additional conditions,
including (without limitation) the following:
(i) the representations and warranties of the LZB Companies set
forth in the Reorganization Agreement shall be true and correct in
all material respects as of the date of the Reorganization Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Effective Time as though made on and as of such
time, except as otherwise contemplated by the Reorganization Agreement;
(ii) the LZB Companies shall have performed in all material
respects all obligations required to be performed by them under the
Reorganization Agreement at or prior to the Effective Time;
(iii) the LZB Companies shall have obtained the consent or approval
of each person (other than those of certain governmental entities) whose
consent or approval shall be required in connection with the transactions
contemplated by the Reorganization Agreement under any loan or credit
agreement, note, mortgage, indenture, lease, license or other agreement or
instrument to which any of the LZB Companies is a party or is otherwise
bound;
(iv) E/C shall have received the opinion of Miller, Canfield,
Paddock and Stone, P.L.C., dated the effective date of the Registration
Statement and the Effective Time, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code;
(v) E/C shall have received from Miller, Canfield, Paddock and
Stone, P.L.C., (A) an appropriate letter regarding the Registration
Statement, this Proxy Statement/Prospectus and certain related matters,
(B) an opinion, dated the Effective Time, as to such matters as are
customary for transactions of the type contemplated by the Reorganization
Agreement, all in form and substance reasonably acceptable to E/C; and
(vi) E/C shall have received the tax lock-up letters described
under "Certain Federal Income Tax Consequences."
TERMINATION; LIQUIDATED DAMAGES; TERMINATION FEE
The Reorganization Agreement and the Plan of Merger, and the transactions
contemplated thereby, may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of E/C:
(i) by mutual consent of E/C and the LZB Companies if the Board of
Directors of each so determines by a vote or a majority of the members of
the entire Board;
(ii) by E/C or either of the LZB Companies upon written notice to
the others if (A) any Requisite Regulatory Approval shall have been denied
or any Materially Burdensome Condition shall have been imposed, or (B)
any governmental entity of competent jurisdiction shall have issued a
final nonappealable order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the Reorganization;
(iii) by E/C or either of the LZB Companies upon written notice to
the others if the Merger shall not have been consummated on or before
April 15, 1995, provided that a party may not terminate under this
provision if such party is in breach in any material respect of the
Reorganization Agreement;
(iv) by E/C or either of the LZB Companies upon written notice to
the others if any approval of the shareholders of E/C required for the
consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at the Meeting;
(v) by E/C or the LZB Companies upon written notice to the others
if there shall have been a material breach of any of the representations
or warranties or covenants and agreements set forth in the Reorganization
Agreement on the part of E/C (in the case of the LZB Companies) or either
of the LZB Companies (in the case of E/C);
(vi) by either of the LZB Companies upon written notice to E/C if,
after recommending in this Proxy Statement/Prospectus that shareholders
approve the Reorganization Agreement and the Plan of Merger, the E/C
Board shall withdraw, modify, or amend such recommendation in
any respect materially adverse to the LZB Companies; or
(vii) by either of the LZB Companies upon written notice to E/C if
E/C shall have authorized, recommended, proposed, or announced an
intention to authorize, recommend, or propose, or entered into an
agreement with any person (other than any of the LZB Companies) to effect,
a "Takeover Proposal" (as defined in the Reorganization Agreement) or
shall fail to publicly oppose a tender offer or exchange offer by another
person based on a Takeover Proposal.
In the event of termination of the Reorganization Agreement by E/C or the
LZB Companies, the Reorganization Agreement will become void and have no effect
except (i) with respect to certain specified provisions of the Reorganization
Agreement relating to confidentiality, expenses, the effect of termination,
employees, liquidated damages, termination fees, third party beneficiaries and
governing law, and (ii) subject to the payment of specified liquidated damages,
no party shall be relieved or released from any liabilities or damages arising
out of the breach by such party of any provision of the Reorganization
Agreement or the Plan of Merger.
In the event that (i) at any time prior to termination of the
Reorganization Agreement E/C authorizes, recommends, publicly proposes or
publicly announces an intention to authorize, recommend or propose, or enters
into an agreement with any person (other than any of the LZB Companies) to
effect a Takeover Proposal or shall fail to publicly oppose a tender offer or
exchange offer by another person based on a Takeover Proposal, or (ii) any
approval of the shareholders of E/C required for consummation of the Merger
shall not have been obtained by reason of the failure to obtain the required
vote of shareholders, or (iii) E/C fails to hold the Meeting, or (iv)
the E/C Board shall have withdrawn, modified or amended its recommendation that
E/C shareholders approve and adopt the Reorganization Agreement and the Plan of
Merger in any respect materially adverse to the LZB Companies; or (v) the LZB
Companies, or either of them, shall terminate the Reorganization Agreement due
to a material breach of any of the covenants and agreements set forth therein
on the part of E/C, E/C shall, within 10 days after notice of the occurrence
thereof by La-Z-Boy, pay to La-Z-Boy the sum of $500,000 as liquidated damages.
In the event that E/C shall terminate the Reorganization Agreement due
to the material breach of any of the covenants and agreements set forth therein
on the part of the LZB Companies, or either of them, La-Z-Boy shall, within 10
days after notice of the occurrence thereof by E/C, pay to E/C the sum of
$500,000 as liquidated damages.
EXPENSES
If the Merger is consummated, all costs and expenses incurred in
connection with this Agreement will be paid by the Surviving Corporation, and
if the Merger is not consummated, all such costs and expenses will be paid
by the party incurring the same.
AMENDMENT; WAIVER
The Reorganization Agreement may be amended by the parties thereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of E/C, provided, that after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders, without such further approval. The Reorganization Agreement may
not be amended except in writing.
At any time prior to the Effective Time, the parties to the Reorganization
Agreement, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, (ii) waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto, and (iii)
waive compliance with any of the agreements or conditions contained therein.
Any agreement on the part of a party to the Reorganization Agreement to any
such extension or waiver must be in a written instrument.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax
consequences of the Merger. This summary is taken from the opinion delivered by
Miller, Canfield, Paddock and Stone, P.L.C., which opinion is based on certain
assumptions, matters of reliance and on representations made by La-Z-Boy and
E/C, and is subject to certain exceptions and limitations included in such
opinion. A copy of the opinion has been filed as an Exhibit to the
Registration Statement of which this Proxy Statement/Prospectus is a part. This
summary does not discuss, and the opinion does not cover, the tax consequences
that may be relevant to certain shareholders of E/C entitled to special
treatment under the Internal Revenue Code of 1986, as amended (the "Code").
This summary also does not discuss, and the opinion does not cover, the tax
consequences to E/C shareholders who acquired their shares pursuant to the
exercise of employee stock options, warrants or otherwise as compensation.
In addition, the opinion assumes the E/C shareholders hold their shares as
capital assets and does not address state, local or foreign tax consequences
of the Merger.
In the opinion of Miller, Canfield, Paddock and Stone, P.L.C., the Merger
will be treated as a reorganization within the meaning of Section 368(a)(1)(A)
and 368(a)(2)(D) of the Code, and La-Z-Boy, LZB Acquisition and E/C will each
be treated as a party to the reorganization under Section 368(b) of the Code.
In light of such opinion, E/C believes that:
(i) No gain or loss will be recognized by La-Z-Boy, LZB
Acquisition or E/C as a consequence of the Merger.
(ii) No gain or loss will be recognized by an E/C shareholder upon
the exchange of E/C Stock solely for La-Z-Boy Common Stock.
(iii) Gain or loss will be recognized by an E/C shareholder upon the
receipt of cash in lieu of a fractional interest in a share of La-Z-Boy
Common Stock to which such shareholder is entitled. The payment of cash in
lieu of fractional share interests will be treated as if the fractional
shares were distributed as part of the exchange and then were redeemed by
La-Z-Boy, and will be treated as having been received as distributions in
full payment in exchange for the stock redeemed as provided in Section
302(a) of the Code. Accordingly, any gain or loss recognized by an E/C
shareholder upon the receipt of cash in lieu of a fractional interest in a
share of E/C Stock to which such shareholder is entitled will be taxable
as a capital gain or loss (long-term or short-term, depending on whether
the shareholder had held the share of E/C Stock giving rise to such
fractional interest for more than one year at the Effective Time),
provided such E/C Stock was held as a capital asset at the Effective Time.
(iv) The Federal income tax basis of a share of La-Z-Boy Common
Stock received by an E/C shareholder receiving solely La-Z-Boy Common
Stock in exchange for his E/C Stock and recognizing no income, gain
or loss on the exchange will be approximately 27.382655% of the basis of
each share of E/C Stock exchanged therefor.
(v) The holding period of the La-Z-Boy Common Stock received by
a non-dissenting E/C shareholder will include the period during which the
E/C Stock exchanged therefor was held, provided such E/C Stock was held
as a capital asset at the Effective Time.
(vi) Income, gain or loss may be recognized by an E/C shareholder
who receives a La-Z-Boy Note and/or cash in exchange for the shareholder's
E/C Stock. Any such income or gain recognized by an E/C shareholder
upon receipt of a La-Z-Boy Note and/or cash may be characterized as
capital gain or as ordinary (dividend) income depending upon whether the
receipt of the La-Z-Boy Note and/or cash has the effect of the
distribution of a dividend as interpreted under the Code and law currently
in effect. If gain realized upon the receipt of a La-Z-Boy Note and/or
cash has the "effect of the receipt of a dividend" or is treated as
"substantially equivalent to a dividend" under the Code, then such
shareholder will include such gain in gross income as ordinary (dividend)
income to the extent of his ratable share of the undistributed earnings
and profits of E/C. The remaining gain recognized by said shareholder
will be taxable as a capital gain (long-term or short-term, depending
on whether such E/C Stock had been held for more than one year at the
Effective Time) unless such E/C Stock was not held as a capital asset
at such time. Such income, gain or loss will be recognized as of the
Effective Time, unless the exchange qualifies for deferral as an
installment sale under the Code and the shareholder does not elect to
have the installment method not apply. In determining whether such
distribution will be treated as "substantially equivalent to a
dividend," rules similar to those of Code Section 302 (discussed
in paragraph (vii) below) will generally be applicable.
(vii) An E/C shareholder who dissents to the proposed transaction
and receives only cash in exchange for shares of E/C Stock will be treated
as having received a distribution in redemption of the shareholder's
shares, and will be taxed under the rules of Code Section 302. If such
redemption is treated as a distribution in full payment for the
shareholder's E/C stock pursuant to Code Section 302(a), such gain or
loss will be taxable as a capital gain or loss (long-term or short-term,
depending on whether such E/C Stock had been held for more than one year
at the Effective Time), provided such Common Stock was held as a capital
asset at such time. Alternatively, if the payment of cash to a dissenting
E/C shareholder is not treated as in exchange for such shareholder's E/C
stock under Code Section 302(a), such payment will be treated as a
distribution to which Section 301 of the Code applies. In such event,
such shareholder generally will include such payment in gross
income as a dividend to the extent of his ratable share of the
undistributed earnings and profits, and the remainder of the payment
will generally first be applied to reduce the shareholder's basis in
his E/C Stock and the remainder will generally be taxable as a
capital gain (long-term or short-term, depending on whether such E/C
Stock had been held for more than one year at the Effective Time) unless
such E/C Stock was not held as a capital asset at such time. Such
shareholder will recognize capital gain or loss (measured by the
difference between the amount of cash received and the shareholder's tax
basis in the shares of E/C Stock exchanged) if the shareholder has
completely terminated his actual and constructive ownership interest
(described below) in E/C and in La-Z-Boy within the meaning of Section
302(b)(3). If the shareholder has not completely terminated his interest
in E/C and in La-Z-Boy under Section 302(b)(3), the amount of cash
received may be taxed as ordinary (dividend) income (and proper adjustment
of the basis in the remaining stock must be made) unless the exchange
qualifies for capital gain or loss treatment under one of the other
exceptions from dividend treatment contained in Section 302(b). These
exceptions include an exchange that is "not essentially equivalent to a
dividend" under Section 302(b)(1), or that results in a "substantially
disproportionate" reduction in a shareholder's stock interest under
Section 302(b)(2). For purposes of applying the Section 302(b) tests
described above, a shareholder of E/C will be considered to own all or a
portion of any E/C stock and of any portion of any La-Z-Boy stock owned
directly or indirectly by his or her parents, spouse, children and
grandchildren; a partner's proportionate share of any stock held by a
partnership of which the shareholder is a partner; a portion of the stock
held by a trust of which the shareholder is a beneficiary or is treated as
the owner for tax purposes; a beneficiary's share of any stock held by a
corporation in which the shareholder owns 50% or more value of the stock.
In addition, a shareholder will be considered to own stock that the
shareholder has an option to acquire. Also, a shareholder that is a
partnership, estate, trust, or corporation may be considered to own stock
owned by its partners, grantors, beneficiaries, or shareholders, as the
case may be, but there is no "double" attribution from such partnership,
trust, estate or corporation to another shareholder. Moreover, in certain
cases, an individual shareholder may be able to avoid constructive
ownership of stock owned by family members for purposes of Section
302(b)(3) by meeting the requirements of Section 302(c)(2). Any
shareholder of E/C who does not receive any La-Z-Boy Common Stock in
exchange for his stock in E/C, but whose spouse, parents, children, or
grandchildren own La-Z-Boy Common Stock directly or indirectly, is urged
to consult with his or her tax advisor about the agreement provided for
under Section 302(c)(2) and the other requirements of Code Section 302.
(viii) In addition to receiving Merger consideration received at the
Effective Time, shareholders of E/C will receive one Performance Unit for
each share of E/C Stock surrendered in the Merger. For Federal income tax
purposes, the Performance Units will be treated as "contingent
consideration" received in the Merger. The Internal Revenue Service
("IRS") has issued safeharbor guidelines set forth in Revenue Procedure
84-42, 1984-1 CB 521 applicable to the receipt of shares of capital
stock as contingent consideration in a merger qualifying under Code
Section 368. These guidelines include the requirement that the maximum
amount of contingent consideration that may be issued under the agreement
is stated and the requirement that at least fifty (50%) percent of the
maximum number of shares in the agreement, which may be issued are issued
in the initial distribution (i.e., at the Effective Time).
E/C believes that the IRS requirements regarding the receipt of
"contingent consideration" in a tax-free reorganization will be satisfied,
and that an E/C shareholder's receipt of a Performance Unit at the
Effective Time will generally not give rise to current Federal income tax.
In addition, the receipt of La-Z-Boy Common Stock under the Performance
Units will be taxed under the Code's rules applicable to "fixed period
contingent payment installment sales" set forth in Temporary Treasury
Regulation Section 15A.453-1(c)(3), as outlined below. Under these
rules, the receipt of La-Z-Boy Common Stock will not be taxable to
the E/C shareholders in the year of receipt except for the portion of the
La-Z-Boy Common Stock (the "Imputed Interest Amount") treated as interest
income under the Code. In this regard, the Imputed Interest Amount will
generally equal the excess of (a) the fair market value as of the day of
receipt of the additional La-Z-Boy Common Stock over (b) such fair market
value amount discounted back to the Effective Time using the Code's
prescribed discount rate.
It should be noted that actions taken by E/C shareholders after
consummation of the Merger in connection with the disposition of shares of
La-Z-Boy Common Stock received in the Merger could cause the Merger to fail to
satisfy the "continuity of interest" requirement under the Code and thus cause
the tax consequences described above to be different. The shareholders of
E/C have executed tax lock-up letters designated to prevent such disqualifying
dispositions. See "Tax Lock-up Letters" below.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE DISCUSSION DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE
MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE,
EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. IN ADDITION, THE DISCUSSION
REGARDING THE RECEIPT OF CONTINGENT CONSIDERATION BY THE E/C SHAREHOLDERS IS
ONLY A SUMMARY OF THE APPLICABLE RULES AND SHOULD NOT BE RELIED UPON. ALL OF
THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGES COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. EACH E/C SHAREHOLDER SHOULD CONSULT
SUCH SHAREHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL LAWS OR OTHER TAX LAWS.
TAX LOCK-UP LETTERS
Consummation of the Reorganization is conditioned upon there being
executed and delivered certain "tax lock-up letters" by all of the holders of
E/C Stock who will receive shares of La-Z-Boy Common Stock in the Merger. These
tax lock-up letters essentially prohibit sales or dispositions of the shares of
La-Z-Boy Common Stock subject thereto prior to the second anniversary of the
consummation of the Merger other than pursuant to "Permitted Transfers." For
purposes of the foregoing, a "Permitted Transfer" is (i) a disposition by will
or under the laws of descent and distribution; (ii) an offering, sale or other
disposition by any shareholder which is not a natural person to any
corporation in which the direct or indirect parent of such shareholder owns,
directly or indirectly, 100% of the outstanding capital stock of such
corporation; (iii) a transfer by operation of law; or (iv) a disposition to
any person who receives shares of La-Z-Boy Common Stock in the Merger.
RESALE OF LA-Z-BOY COMMON STOCK; RESTRICTIONS ON TRANSFER
The shares of La-Z-Boy Common Stock to be issued in the Merger will be
registered under the Securities Act and will be transferable under the
Securities Act, except for shares issued to any shareholder who may be deemed
to be an "affiliate" of E/C for purposes of Rule 145 under the Securities Act.
Affiliates may not sell shares of La-Z-Boy Common Stock acquired in connection
with the Merger except pursuant to an effective registration statement under
the Securities Act covering such shares or in compliance with Rule 145 or
another applicable exemption from the registration requirements of the
Securities Act.
In addition, shareholders of E/C executing and delivering "tax lock-up
letters" will be subject to the restrictions on disposition set forth therein.
See "Tax Lock-up Letters."
STOCK LISTING
The shares of La-Z-Boy Common Stock to be issued in the Merger will be
approved for listing on the NYSE and the PSE subject to official notice of
issuance and to the approval by the shareholders of E/C of the Merger.
MANAGEMENT OF THE SURVIVING CORPORATION AFTER THE MERGER
It is anticipated that, upon consummation of the Merger, the Board of
Directors of the Surviving Corporation will consist of four persons, one of
whom will be Mr. Rodney D. England, the current Chairman of the Board,
President, and Chief Executive Officer of E/C, and the remainder of whom will
be current officers of La-Z-Boy. In addition, following consummation of the
Merger, it is expected that (i) Mr. England will become the President and Chief
Executive Officer of the Surviving Corporation, (ii) Mr. Otis S. Sawyer, the
current Vice President Finance of E/C, will become Vice President Finance of
the Surviving Corporation, (iii) Mr. Dennis C. Valkanoff, the current Vice
President Business Development of E/C, will become a Vice President of the
Surviving Corporation, (iv) Mr. James L. Price, the current Vice President
Manufacturing of E/C, will become Vice President Manufacturing of the Surviving
Corporation, and (v) the remaining officers of the Surviving Corporation will
consist of current officers of La-Z-Boy.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
are presented to illustrate the financial statement effect of the Merger, as
described previously in this Proxy Statement/Prospectus, and should be read in
conjunction with the historical financial statements of E/C and La-Z-Boy
contained elsewhere herein and incorporated herein by reference. The pro forma
condensed combined financial statements have been prepared assuming that the
Merger will be accounted for as a purchase and, accordingly, the cost of E/C
assets acquired and liabilities assumed will be allocated at their estimated
fair values, based upon appraisals, net realizable values, or other analysis,
with appropriate recognition given to the effect of current interest rates and
income taxes. The excess of the net assets acquired over the purchase price
will be recorded as goodwill. The pro forma fair values used herein are
preliminary and subject to further refinement.
The accompanying unaudited pro forma condensed combined balance sheet
adjusts the historical balance sheets of La-Z-Boy and E/C at October 29, 1994
and September 30, 1994, respectively, as if the Merger had occurred as of that
period end.
The accompanying unaudited pro forma condensed combined statements of
operations adjust the historical statements of operations of La-Z-Boy and E/C
for their respective fiscal years ended April 30, 1994 and June 30, 1994 and
for the six month periods ended October 29, 1994 and September 30, 1994,
respectively, as if the Merger had become effective at the beginning of the
period.
The pro forma condensed combined financial statements may not be
indicative of the combined results of operations or combined financial
position that actually would have been achieved if the Merger had been in
effect as of the date and for the periods indicated or which may be obtained
in the future.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING LA-Z-BOY AFTER GIVING EFFECT TO THE MERGER
(Dollars in thousands)
Unaudited
Unaudited Unaudited Pro Forma
La-Z-Boy E/C -----------------------
10/29/94 9/30/94 Adjustments(1) Balance
Current Assets
Cash and equivalents $ 12,299 $ 367 $(6,515)(b) $ 6,151
Receivables 193,004 3,525 196,529
Inventories 75,807 10,081 85,888
Deferred income taxes 15,849 15,849
Other current assets 8,735 398 9,133
Total current assets 305,694 14,371 (6,515) 313,550
Property, plant, and equipment 96,663 21,656 118,319
Goodwill 20,307 20,943 (b) 41,250
Other long-term assets 19,850 573 20,423
Total assets $442,514 $36,600 $14,428 $493,542
Current Liabilities
Current portion of long-term
debt $ 1,875 $ 2,290 $ 4,165
Accounts payable 27,170 7,160 35,168
Other current liabilities 51,106 2,096 52,364
Total current liabilities 80,151 11,546 91,697
Long-term debt 56,245 12,492 $ 6,515 (b) 75,252
Deferred income taxes 6,763 140 790 (a) 7,693
Other long-term liabilities 8,286 0 8,286
Shareholder's equity 291,069 12,422 7,123 (b) 310,614
Total liabilities and
shareholders' equity $442,514 $36,600 $14,428 $493,542
- -----------------
(1) The pro forma condensed combined balance sheet has been prepared to
reflect the acquisition of E/C by La-Z-Boy for an estimated aggregate price
of $32,575 and a value of $30 per share of La-Z-Boy Common Stock. The
Plan of Merger requires that at least 50% of the initial consideration be paid
in La-Z-Boy Common Stock with the remainder paid in cash and/or La-Z-Boy notes.
Furthermore, additional payments in La-Z-Boy Common Stock may be required if
the Surviving Corporation exceeds predetermined Pre-Tax Income, as defined and
determined in accordance with the Plan of Merger in the two successive
twelve month periods following the Merger. These possible additional payments
have not been reflected in the pro forma condensed combined balance sheet.
For purposes of these pro forma adjustments, it is assumed that 60% of the
initial consideration will be made in La-Z-Boy Common Stock, 20% in cash,
and 20% in La-Z-Boy notes. Pro forma adjustments are made to reflect:
(a) The estimated deferred income tax liability arising upon termination
of E/C's S-corporation tax status.
(b) Consideration given in the form of cash payment of $6,515, La-Z-Boy
Notes of $6,515 at 8% for four years, and 651,500 shares of La-Z-Boy
Common Stock issued and valued at $30 per share, with the excess of
acquisition cost ($32,575) over the estimated fair market value of
net assets acquired ($11,632) resulting in $20,943 of goodwill.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS REFLECTING LA-Z-BOY
AFTER GIVING EFFECT TO THE MERGER
(in thousands, except per share data)
La-Z-Boy (Unaudited)
Year Ended E/C Pro Forma
(53 weeks) Year Ended ------------------------
4/30/94 6/30/94 Adjustments(1) Balance
Sales $ 804,898 $ 105,781 $ 910,679
Cost of sales 593,890 87,288 681,178
Gross profit 211,008 18,493 229,501
Selling, general, and
administrative expense(3) 150,700 14,484 165,184
Operating profit 60,308 4,009 64,317
Interest expense 2,822 1,387 $ 521 (a) 4,730
Other income 669 79 (698)(b) 50
Pre-tax income 58,155 2,701 (1,219) 59,637
872 (c)
Income taxes 23,438 122 (203)(d) 24,229
Income before accounting change $ 34,717 $ 2,579 $(1,888) $ 35,408
Pro forma taxes 994
Pro forma net income $ 1,707
Average shares and equivalent
shares outstanding 18,268 652(2) 18,920
Income per share before
accounting change $ 1.90 $ 1.87
- ----------------
(1) The pro forma condensed combined statement of operations has been
adjusted by the following to reflect the Merger as if it were effective at the
beginning of the period:
(a) Additional annual interest expense of $521 attributed to assumed
issuance of La-Z-Boy Notes of $6,515 at 8%.
(b) Amortization of estimated goodwill on a straight line basis over 30
years.
(c) Reflects additional income taxes on historical earnings of E/C as if
E/C was not an S corporation during the period.
(d) Reduction of income taxes related to additional expenses, excluding
non-deductible amortization, at an effective rate of 38.9%.
(2) Assumes 651,500 shares of La-Z-Boy Common Stock are issued to E/C
shareholders, as described in note 1 to the pro forma condensed combined
balance sheet.
(3) During the fourth quarter of fiscal 1994 E/C recorded a charge of
$600,000 in connection with a one-time bonus paid to its former chief
executive officer.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
REFLECTING LA-Z-BOY AFTER GIVING EFFECT TO THE MERGER
(In thousands, except per share data)
(Unaudited) (Unaudited)
La-Z-Boy E/C (Unaudited)
26 Weeks 6 Months Pro Forma
Ended Ended ------------------------
10/29/94 9/30/94(1) Adjustments(2) Balance
Sales $ 404,973 $ 49,753 $ 454,726
Cost of sales 300,470 40,879 341,349
Gross profit 104,503 8,874 113,377
Selling, general, and
administrative expenses 76,051 7,358 83,409
Operating profit 28,452 1,516 29,968
Interest expense 1,414 803 $ 261 (a) 2,478
Other income 887 78 (349)(b) 616
Pre-tax income 27,925 791 (610) 28,106
254 (c)
Income taxes 11,577 36 (102)(d) 11,765
Net income $ 16,348 $ 755 $(762) $ 16,341
Pro forma income taxes 290
Pro forma net income $ 501
Average shares and equivalent
shares outstanding 18,140 652 (3) 18,792
Income from continuing operations
per share $ 0.90 $ 0.87
- ------------------
(1) E/C's fiscal year ends on June 30; therefore, its operating results
for the six months ended September 30, 1994 include the fourth quarter of its
fiscal year ended June 30, 1994. During the fourth quarter of fiscal 1994, E/C
recorded a charge of $600,000 in connection with a one-time bonus paid to its
former chief executive officer.
(2) The pro forma income statement has been adjusted by the following to
reflect the Merger as if effective at the beginning of the period:
(a) Additional interest expense of $261 attributed to assumed issuance
of La-Z-Boy Notes of $6,515 at 8%.
(b) Amortization of estimated goodwill on a straight line basis over 30
years.
(c) Reflects additional income taxes on historical earnings of E/C as if
E/C was not an S corporation during the period.
(d) Reduction of income taxes related to additional expenses, excluding
non-deductible amortization, at an effective rate of 38.9%.
(3) Assumes 651,500 shares of La-Z-Boy Common Stock are issued to E/C
shareholders, as described in note 1 to the pro forma condensed combined
balance sheet.
ENGLAND/CORSAIR, INC.
SELECTED FINANCIAL DATA
The following table sets forth certain condensed historical financial data
of E/C and is based on the financial statements of E/C, including the notes
thereto, which appear elsewhere in this Proxy Statement/Prospectus and should
be read in conjunction therewith. See "England/Corsair, Inc. Financial
Statements." Interim unaudited data for the three months ended September 30,
1994 and 1993 reflect, in the opinion of management of E/C, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the three months ended September 30,
1994 and 1993 are not necessarily indicative of results that may be expected
for any other interim period or for the fiscal year as a whole.
(In thousands except per share data)
(unaudited)
Three Months
Ended September 30, Fiscal Years Ended June 30,
---------------------- -------------------------------------------------------------
Statement of 1994 1993 1994 1993 1992 1991 1990
Operations Data:
Net sales $ 23,063 $ 24,602 $ 105,781 $ 99,435 $ 86,175 $ 72,729 $ 65,242
Cost of sales 18,924 20,072 87,288 79,905 69,107 60,157 53,947
Gross profit 4,139 4,530 18,493 19,530 17,068 12,572 11,295
Selling, general, and
administrative
expenses(3) 2,979 3,097 14,484 12,632 10,040 8,422 7,707
Operating profit 1,160 1,433 4,009 6,898 7,028 4,150 3,588
Interest expense - net 358 299 1,318 1,073 1,305 1,833 1,421
Miscellaneous income 24 16 10 57 70 187 57
Pre-tax income 826 1,150 2,701 5,882 5,793 2,504 2,224
Income taxes(1) 35 24 122 (499) 2,100 930 820
Net income $ 791 $ 1,126 $ 2,579 $ 6,381 $ 3,693 $ 1,574 $ 1,404
Pro forma income taxes(1) 305 423 994 2,165
Pro forma net income $ 521 $ 727 $ 1,707 $ 3,717
Weighted average shares
used in per share
calculations 297 298 297 298 298 322 339
Net income per share -
historical $ 12.39 $ 4.90 $ 4.14
Pro forma net income per
share $ 1.75 $ 2.44 $ 5.75 $ 12.47
Dividends per share(2) $ .48 $ 2.18 $ 15.88 $ 8.81 $ 2.00 -0- -0-
(unaudited)
As of September 30, As of June 30,
----------------------- --------------------------------------------------------------
Balance Sheet Data: 1994 1994 1993 1992 1991 1990
Total assets $36,600 $ 34,367 $ 28,416 $ 23,335 $ 24,923 $ 24,724
Long-term debt,
including current
portion $14,782 $ 14,094 $ 7,619 $ 7,057 $ 9,225 $ 9,909
Total liabilities $24,178 $ 22,593 $ 14,499 $ 13,080 $ 17,765 $ 17,778
Shareholders' equity $12,422 $ 11,774 $ 13,917 $ 10,255 $ 7,158 $ 6,946
- ---------------------------
(1) Beginning July 1, 1992, E/C elected to be treated as an "S
corporation" for Federal income tax purposes and accordingly was not
subject to Federal or certain state income tax at the corporate level.
The 1994 and 1993 fiscal periods contain an illustration of "pro forma
income taxes" which includes an additional estimated provision for income
taxes based on pre-tax income as if E/C had not been an S corporation.
E/C, for the 1993 fiscal year elected to adopt Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes"
(FAS 109), and the pro forma provisions for income taxes for periods
ending 1994 and 1993 have been reported in accordance with FAS 109.
The adoption of FAS 109 did not have a material effect on E/C's results
of operations.
(2) Dividends for the fiscal year ended June 30, 1994 include a non-recurring
distribution of AAA earnings (previously undistributed taxable earnings
since the S corporation election) in connection with a change in E/C's
debt arrangements and in management structure.
(3) During the fourth quarter of fiscal 1994, E/C recorded a charge of
$600,000 in connection with a one-time bonus paid to its former chief
executive officer.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results Of Operations
Year Ended June 30, 1994 Versus Year Ended June 30, 1993
E/C experienced a compounded growth rate in net sales of 15% from the
period 1990 through 1993. During this same time period gross profits as a
percent of net sales averaged 18.7%, and income before taxes averaged 5.0%.
However, sales for the fiscal year ended June 30, 1994 grew at only 6.4% and
income before taxes was 2.6% of sales, as shown in the table below.
(Dollars in Thousands)
1994 1993 1992 1991 1990
Net sales $105,781 $ 99,435 $ 86,175 $ 72,729 $ 65,242
Gross profits $ 18,493 $ 19,530 $ 17,068 $ 12,572 $ 11,295
As a % to sales 17.5% 19.6% 19.8% 17.3% 17.3%
Income before
taxes $ 2,701 $ 5,882 $ 5,793 $ 2,504 $ 2,224
As a % to sales 2.6% 5.9% 6.7% 3.4% 3.4%
Management believes that the decline in the rate of sales growth can be
attributed to a decision to limit the number of new products introduced into
the market in the spring of 1993. Management's decision was based on a desire
to minimize any disruption to a new manufacturing process implemented in the
third quarter of the fiscal year ended June 30, 1993, which was undertaken in
an effort to reduce direct labor and training expenses. Management anticipated
that this manufacturing re-engineering would initially cause a reduction in
productivity and an increase in employee turnover until fully implemented.
During 1994, management noted that productivity has increased and exceeded the
levels being attained prior to the re-engineering. It is management's belief
that the new production system, which is based on group incentive pay, will
provide a higher quality product at a lower overall cost to manufacture.
Cost of goods sold for the fiscal year ended June 30, 1994 was 82.5% of
sales compared to 80.4% for the fiscal year ended June 30, 1993. Management
attributes the majority of the decrease in gross margin to the lack of new
product introduction in 1993. The segment of the market in which E/C operates
is very price sensitive. As a product ages, its profit margins tend to decline
due to material and labor cost increases unless the product is re-engineered or
replaced with a new style. At the 1994 fall furniture market, E/C made
significant introductions of new product, which began shipping in January 1995.
Margins were further depressed in fiscal 1994 by freight concessions
designed to stimulate west coast sales. In February 1994, management began the
process of phasing out these freight concessions, which has not yet been
completed.
Selling and administrative expenses as a percent of net sales were 13.7%
for the fiscal year ended June 30, 1994 compared to 12.7% for the fiscal year
ended June 30, 1993. Over half of the increase in selling and administrative
costs can be attributed to a one time $600,000 bonus paid to the former chief
executive officer.
Also, in anticipation of the former chief executive officer's retirement,
and to prepare E/C for future expansion, additional salaries and relocation
costs were incurred in adding new executive level positions in manufacturing,
marketing, and finance.
Non-recurring legal and accounting fees relating to the preparation for a
public offering (which was abandoned) further increased fiscal 1994
administrative costs. Additional legal fees were incurred in the drafting of a
plan for management succession, which required the re-drafting of corporate
bylaws.
Interest expense for the fiscal year ended June 30, 1994 increased to
1.3% of sales from 1.2%. In anticipation of the chief executive officer's
retirement, E/C borrowed the funds necessary to restructure its existing debt
and distribute substantially all undistributed S corporation earnings to the
shareholders. The increase in interest expense resulted from additional debt
incurred to finance the distributions and the increase in long term leases used
to finance additional transportation equipment purchases.
Quarter Ended September 30, 1994 Versus September 30, 1993
Sales declined $1,539,000 for the quarter ended September 30, 1994 when
compared to the quarter ended September 30, 1993. Management attributes part of
the decline in sales revenue to its decision to limit new product introductions
in the fiscal year ended June 30, 1993. Other conditions depressing sales
include the devaluation of the Canadian dollar, which depressed Canadian
sales, and soft retail conditions experienced during the quarter ended
September 30, 1994.
(Dollars in Thousands)
September 30, 1994 September 30, 1993
Net sales $23,063 $24,602
Gross profit $ 4,139 $ 4,530
As a % of Sales 17.9% 18.4%
Income before
taxes $ 826 $ 1,150
As a % of Sales 3.6% 4.7%
Gross profit as a percent of sales declined 0.5% in the quarter ended
September 30, 1994 when compared to the quarter ending September 30, 1993.
Management attributes the decline in gross margins to the lack of new product
introduction in 1993.
Selling, general and administrative expenses were 12.9% of net sales for
the quarter ended September 30, 1994 compared to 12.6% for the quarter ended
September 30, 1993. The slight increase in expenses is primarily attributable
to additional administrative compensation.
Interest expense increased from $299,000 to $358,000 due to additional
capital leases on transportation equipment and additional borrowing levels due
to the management succession plan.
Year Ended June 30, 1993 Versus June 30, 1992
Sales for the fiscal year ended June 30, 1993 grew at 15.4% over the
fiscal year ended June 30, 1992 in line with continued market penetration.
Gross margins remained in line with the prior year. Income before taxes
was 5.9% of sales, down 0.8% from the fiscal year ended June 30, 1992.
Selling, general and administrative expenses increased to 12.7% of sales
for the fiscal year ended June 30, 1993 compared to 11.7% for the fiscal year
ending June 1992. The majority of the increase was due to increases in
advertising expense, professional fees, warranty expenses, and 401(k) plan
expenses.
E/C instituted a 401(k) retirement plan for the first time in the fiscal
year ended June 1993. Professional fees increased due to consulting associated
with E/C's decision to elect S corporation status for Federal tax reporting.
An increase in warranty expense resulted from quality problems experienced
as a result of the manufacturing re-engineering instituted in the third
quarter of 1993. Management believes that quality control procedures have been
more effective since that initial period.
Liquidity And Capital Resources
Year Ended June 30, 1994 Versus June 30, 1993
Cash increased by $109,000 during the year ended June 30, 1994. During
1994, E/C generated $5,419,000 in cash from operations as compared with
$8,124,000 during 1993. Net income of $2,579,000, depreciation and amortization
totaling $2,574,000, and increases in accounts payable and accrued liabilities
of $1,577,000 provided operating cash totaling $6,730,000, which was partially
offset by an increase in accounts receivable of $1,596,000.
For the fiscal year ended June 30, 1993 E/C generated $6,381,000 in
operating cash flow from net income along with $3,172,000 in cash flow
resulting from an increase in accounts payable and depreciation of
$1,908,000. An increase in inventory caused a reduction of operating cash
flow totaling $1,529,000.
For the fiscal year ended June 30, 1994 E/C raised additional capital by
issuing long-term debt in the amount of $3,375,000 net of repayments.
In 1994, a primary use of investing cash flows was $3,272,000 used to
purchase plant and equipment (including a new 120,000 square foot
manufacturing facility) compared to $2,965,000 in 1993. In both 1993 and
1994, transportation equipment additions were financed with long term capital
leases. For the fiscal year ended June 30, 1994 dividends totaling $4,722,000
were paid to shareholders as part of the plan for management succession.
Dividend distributions for 1993 totaled $3,234,000. In 1994, certain
shareholders also loaned approximately $1,288,000 to E/C in the
form of subordinated debt.
To accomplish the 1994 plan of succession and to restructure its existing
debt, E/C negotiated a new loan agreement which provides a credit facility of
$7,500,000, including a $3,750,000 term loan at 6.95% with the remainder as a
revolving credit bearing interest at the prime lending rate less 1/2%. The bank
loan agreement requires no principal payments for a period of three years at
which time the entire facility becomes a term note payable over four years with
a ten year amortization and a balloon payment at the end of the seventh year.
Quarter Ended September 30, 1994 Versus September 30, 1993
Cash increased by $149,000 for the quarter ended September 30, 1994.
During this quarter, E/C generated $1,280,000 in cash from operations as
compared to $1,000,000 for the quarter ending September 30, 1993. In the
quarter ended September 30, 1994 net income of $791,000, depreciation and
amortization totaling $813,000, and an increase in accounts payable of
$897,000 provided cash totaling $2,501,000, which was partially offset by
an increase in accounts receivable of $563,000 and an increase in inventories
of $530,000.
For the quarter ended September 30, 1993 net income of $1,126,000,
depreciation and amortization totaling $592,000, and a decline in accounts
receivable of $185,000 provided cash from operations totaling $1,903,000, which
was partially offset by an increase in inventories of $805,000 and an increase
in prepaid expenses of $126,000.
For the quarter ended September 30, 1994, $544,000 was used to purchase
machinery and equipment compared to $243,000 for the quarter ended September
30, 1993.
Dividends distributed for the quarter ending September 30, 1994 were
$143,000 as compared to $648,000 for September 30, 1993.
As of September 30, 1994 E/C had $6,469,000 outstanding against the
loan agreement. A portion of the $2,478,000 proceeds received during the
three months ended September 30, 1994 were used to retire debt with another
bank and other lenders whose loans had been collateralized by real property
owned by E/C.
Year Ended June 30, 1993 Versus June 30, 1992
Cash increased by $12,000 for the fiscal year ended June 30, 1993. For the
year ended June 30, 1993 E/C generated $8,124,000 in cash from operations
compared to $4,679,000 for the year ended June 30, 1992. In 1993 net income of
$6,381,000, depreciation and amortization of $1,908,000, and increases in
payables and accrued expenses totaling $3,172,000 less the reduction in
deferred income taxes of $784,000 provided cash totaling $10,677,000. The
primary use of operating cash flows in 1993 was to fund an increase in
inventories of $1,529,000 and to reduce income taxes payable by $934,000.
In 1992, net income of $3,693,000, depreciation and amortization of
$1,802,000, and a decrease in inventories totaling $1,093,000 provided cash
totaling $6,588,000. The primary use of operating cash flows in 1992 was to
reduce payables and accrued expenses totaling $2,290,000.
For the year ended June 30, 1993, cash in the amount of $2,965,000 was used
to purchase plant and equipment, compared to capital expenditures totaling
$983,000 in 1992. Transportation equipment was financed with long-term capital
leases in both 1993 and 1992. In 1993, dividends totaling $3,234,000 were paid
to shareholders.
Management believes that cash provided by operating activities, the bank
loan agreement, and the availability of favorable transportation equipment
leases will be sufficient to fund anticipated growth and to meet E/C's
capital requirements through fiscal 1995 and for the foreseeable future.
BUSINESS AND PROPERTIES
E/C is a manufacturer of upholstered furniture which is targeted at
moderate price points and sold under the England/Corsair brand name. E/C's
products include motion and stationary upholstered furniture consisting of
sofas, love seats, sleepers, matching chairs, recliners and accent chairs
and occasional tables. E/C offers imported occasional table products
manufactured from oak, maple and pine veneers which are designed to be
coordinated with the upholstered products.
Based on reported sales, E/C is in the top 40 largest U.S. residential
furniture manufacturers according to Furniture Today. E/C's current product
offerings include 45 separate style collections, each of which is comprised
of pieces available in various combinations of colors, fabrics and styles,
including colonial, traditional, contemporary, country and transitional styles.
E/C's products are sold through independent sales representatives
primarily to independent furniture retailers and specialty retailers, as well
as to certain regional and national chains. E/C maintains approximately 2,000
active accounts located in all 50 states, most of which are independent
furniture retailers.
E/C produces its products to order at its six manufacturing facilities
located in New Tazewell, Tennessee. E/C's present facilities comprise
approximately 685,000 square feet of manufacturing space.
MARKET PRICE OF STOCK AND DIVIDENDS
E/C has been a privately held corporation since its formation, and no
trading market for E/C Stock exists. E/C declared cash dividends of $0.48 per
share in the first quarter of the current fiscal year, $2.18, $3.75, $0.00, and
$9.95, respectively, in the first through fourth quarters of the fiscal year
ended June 30, 1994, and $0.00, $6.25, $0.00, and $2.56, respectively, in the
first through fourth quarters of the fiscal year ended June 30, 1993.
MANAGEMENT AND RELATED MATTERS
Directors and Executive Officers
YRS. OF
DIRECTOR CO.
NAME AGE SINCE SERVICE BUSINESS EXPERIENCE
Rodney D. England 43 1987 26 He has been employed with
President, CEO and E/C continuously since 1966,
Chairman of the Board except for military service
from 1970-1972.
H. Wayne England 60 1969 25 He has direct responsibility
Executive Vice President, for the outside sales force
Sales and Marketing and assists in merchandising
and marketing.
Richard D. England 37 1989 22 He has held several positions
Vice President from Plant Manager to Vice
Administration President of Manufacturing to
Vice President of
Administration.
James L. Price 50 1994 1 He has been in the
Vice President of furniture industry for 25
Manufacturing years. He served as Vice
President of Manufacturing
for Goode Manufacturing
from 1992 to 1993, General
Manager of Schnadig
Corporation from 1991 to
1992, and Vice President
Manufacturing of T.P.I. from
1989 to 1991, all of which
are engaged in the furniture
business.
Otis S. Sawyer 37 1994 1 He was Controller of
Vice President Finance Council Craftsmen, Inc.
(casegoods) from 1988 to
1993. He holds an MBA
degree and is a certified
public accountant.
Walter Winding 54 1994 1 He has been an independent
consultant since 1994.
He was a Partner and
Director of H.M. Graphics
since 1993. He was
President and CEO of
Schweiger Industries
(furniture) from 1983 to
1993.
Executive Compensation
The following table provides information for each of E/C's last three
completed fiscal years concerning the compensation of its Chief Executive
Officer and of each other executive officer who served as such during the
fiscal year ended June 30, 1994 and whose total salary and bonus for such year
exceeded $100,000.
SUMMARY COMPENSATION TABLE
====================================================================================
Annual Compensation
--------------------------------------
(a) (b) (c) (d) (e) (f)
Name and Principal Other Annual All Other
Position Year Salary($) Bonus($) Compensation($) Compensation($)
- ------------------------------------------------------------------------------------
Rodney D. England 1994 142,196 8,695 1,181 2,498
CEO/President 1993 96,937 16,628 1,665 2,398
1992 77,820 30,431 1,485 925
H. Wayne England 1994 120,406 8,516 5,891 5,921
Vice President 1993 107,640 21,249 5,157 6,717
Marketing 1992 101,430 37,848 3,005 3,690
====================================================================================
PRINCIPAL SHAREHOLDERS
The following table sets forth information provided by the persons
indicated with respect to the beneficial ownership (as defined under applicable
rules of the Commission) of shares of E/C Stock as of _____________, 1995 by
(i) each person known by E/C to be the owner of more than 5% of the outstanding
shares of E/C Stock, (ii) each director of E/C and executive officer named in
the Summary Compensation Table, and (iii) all directors and executive officers
of E/C as a group:
PERCENTAGE OF
NAME AND ADDRESS(1)EXHIBIT
NUMBER OF SHARES BENEFICIAL OWNERSHIP(2)
Rodney D. England(2)(3) 52,284 17.6%
H. Wayne England(2) 41,657 14.0%
Richard D. England(2)(4) 60,125 20.2%
Christopher C. England(2)(5) 55,511 18.7%
James O. England(2) 33,934 11.4%
Linda E. Duff(2)(6) 41,295 13.9%
James L. Price 0 0.0%
Otis S. Sawyer 0 0.0%
Walter Winding 0 0.0%
All directors and executive officers
as a group (seven persons) 154,066 51.8%
- ----------------
(1) Unless otherwise noted, E/C believes that all persons named in the above
table have (i) sole voting and investment power with respect to all shares
of E/C Stock owned by them, except to the extent that authority is shared
by spouses under applicable law, and (ii) record and beneficial ownership
of such shares. Each such person has an address at 402 Old Knoxville
Highway, New Tazewell, Tennessee 37825.
(2) Rodney, Richard, Christopher, and James England and Linda Duff are
children of the late Arnold Dwight England, the founder of E/C. H. Wayne
England was Arnold England's brother and is the uncle of the above named
shareholders.
(3) Includes (i) 46,576 shares (15.7% of E/C Stock) held by Mr. Rodney England
individually and (ii) 5,708 shares (1.9%) held as trustee with sole voting
and investment power.
(4) Includes (i) 33,934 shares (11.4% of E/C Stock) held by Mr. Richard
England individually, (ii) 9,228 shares (3.1%) held as trustee with sole
voting and investment power, and (iii) 16,963 shares (5.7%) held as
co-trustee with shared voting and investment power.
(5) Includes (i) 31,795 shares (10.7% of E/C Stock) held by Mr. Christopher
England individually, (ii) 8,562 shares (2.9%) held as trustee with sole
voting and investment power, and (iii) 15,154 shares (5.1%) held as
co-trustee with shared voting and investment power.
(6) Includes (i) 30,924 shares (10.4% of the E/C Stock) held by Ms. Duff
individually, (ii) 8,562 shares (2.9%) held as trustee with sole voting
and investment power, and (iii) 1,809 shares (less than 1%) held as
co-trustee with shared voting and investment power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 1, 1994 in connection with the reorganization of E/C, certain
shareholders of E/C loaned E/C approximately $1,288,000. The following persons
individually loaned E/C the amounts set forth opposite their names:
Rodney D. England $ 285,290
Richard D. England 178,106
James O. England 178,106
Christopher C. England 159,973
Linda E. Duff 152,589
The Lisa Epperson Trust 80,392
----------
$1,034,456
==========
In addition, various related trusts, for which the individuals named
above serve as trustees or co-trustees, loaned an aggregate amount of
approximately $253,784. The loans are evidenced by unsecured promissory notes
dated June 1, 1994. These notes bear interest at an annual rate of 7% and
mature in 1999. The proceeds of the notes were used for working capital. At
December 31, 1994 the outstanding balance of these notes was $1,159,415.
LA-Z-BOY CHAIR COMPANY
La-Z-Boy was incorporated under the laws of the State of Michigan in 1941
and is headquartered in the State of Michigan. La-Z-Boy is engaged primarily in
the manufacture of furniture. La-Z-Boy's principal office is located at 1284
North Telegraph Road, Monroe, Michigan 48161, and its telephone number is (313)
242-1444. For additional information regarding La-Z-Boy and its operations, see
"Incorporation of Certain Documents by Reference" and the documents described
therein. DESCRIPTION OF LA-Z-BOY CAPITAL STOCK
The following description of the capital stock of La-Z-Boy does not
purport to be completeEXHIBIT (NOTE 1)
------- -------------------------------
1 Not applicable
2.1 Agreement and is subject to and qualified in its entirety by
reference to the full texts of La-Z-Boy's Articles of Incorporation, as amended
(the "La-Z-Boy Articles"), and its By-Laws (the "La-Z-Boy Bylaws" and together
with the La-Z-Boy Articles, the "La-Z-Boy Charter Documents"), which are
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
is a part and are incorporated herein by reference. The summaries provided
herein of certain provisions of the Michigan Business Corporation Act, as
amended (the "MBCA"), also do not purport to be comprehensive and are qualified
in their entirety by reference to the full text of such statutory provisions.
See also "Comparison of Shareholder Rights and Charter Documents" below.
GENERAL
La-Z-Boy's total authorized capital stock consists of: (a) 40,000,000
shares of La-Z-Boy Common Stock, of which approximately 17,969,000 shares were
issued and outstanding as of January 28, 1995 and approximately 3,855,000
shares are reserved for future issuance (including in the Merger), and (b)
5,000,000 shares of Preferred Stock (the "La-Z-Boy Preferred Stock"), none of
which shares have been issued or are currently reserved for future issuance.
Except as otherwise required by the La-Z-Boy Articles or the MBCA, authorized
but unissued shares of either class may be issued at the discretion of the
La-Z-Boy Board without need for any further action by the shareholders of
La-Z-Boy.
LA-Z-BOY PREFERRED STOCK
As permitted by the MBCA, the La-Z-Boy Articles authorize the La-Z-Boy
Board at any time, and from time to time, to divide the La-Z-Boy Preferred
Stock into one or more series, having such voting powers, full, limited, or
none, such designations, preferences, privileges, powers, and relative,
participating, optional, or other special rights, and such qualifications,
limitations, and restrictions thereon as shall be stated and expressed in the
resolutions of the La-Z-Boy Board providing for the issuance thereof. With
respect to any series designated by the La-Z-Boy Board, it also is authorized
to, among other things, specify the number of shares comprising such series,
the dividend rate or rates on the shares of such series and the preference or
relation which such dividends shall bear to any other class or series of
La-Z-Boy stock, and the redemption rights, if any, any purchase, retirement, or
sinking fund, any conversion rights, and any special voting rights relating to
such series.
Shares of any series of La-Z-Boy Preferred Stock hereafter designated and
issued and which subsequently are redeemed or otherwise acquired by La-Z-Boy
would return to the status of authorized and unissued shares of La-Z-Boy
Preferred Stock, without designation as to series, and thereafter may be
reissued by the La-Z-Boy Board.
It is possible for La-Z-Boy Preferred Stock (or additional shares of
La-Z-Boy Common Stock) to be issued for the purpose of making an acquisition by
an unwanted suitor of a controlling interest in La-Z-Boy more difficult,
time-consuming, or costly or to otherwise discourage an attempt to acquire
control of La-Z-Boy. Under such circumstances, the availability of authorized
and unissued shares of La-Z-Boy Preferred Stock and La-Z-Boy Common Stock may
make it more difficult for shareholders to obtain a premium for their shares.
Such authorized and unissued shares could be used to create voting or other
impediments or to frustrate a person seeking to obtain control of La-Z-Boy by
means of a merger, tender offer, proxy contest, or other means. Such shares
could be privately placed with purchasers who might cooperate with the La-Z-Boy
Board in opposing such an attempt by a third party to gain control of La-Z-Boy.
The issuance of new shares of La-Z-Boy Preferred Stock or La-Z-Boy Common Stock
also could be used to dilute ownership of a person or entity seeking to obtain
control of La-Z-Boy. Although La-Z-Boy does not currently contemplate taking
such action, shares of La-Z-Boy Common Stock or one or more series of La-Z-Boy
Preferred Stock could be issued for the purposes and effects described above
and the La-Z-Boy Board reserves its rights (consistent with its fiduciary
responsibilities) to issue such stock for such purposes.
LA-Z-BOY COMMON STOCK
Subject to the rights and preferences, if any, of any then outstanding
shares of La-Z-Boy Preferred Stock, the holders of La-Z-Boy Common Stock are
entitled to receive such dividends as may from time to time be lawfully
declared by the La-Z-Boy Board. With respect to every issue submitted to them
as La-Z-Boy shareholders at a meeting of shareholders or otherwise (including,
without limitation, the election of directors), such holders are entitled to
one vote per share of La-Z-Boy Common Stock. In the event of liquidation they
are entitled, after payment in full of the liquidation preference, if any, on
any then outstanding shares of La-Z-Boy Preferred Stock, to share ratably in
all assets of La-Z-Boy available for distribution to holders of shares of
La-Z-Boy Common Stock. Holders of shares of La-Z-Boy Common Stock do not have
preemptive rights and are not entitled to cumulate votes in the election of
La-Z-Boy directors. All shares of La-Z-Boy Common Stock now issued and
outstanding are, and all such shares to be issued in the Merger will be, fully
paid and nonassessable.
The registrar and transfer agent for the La-Z-Boy Common Stock is American
Stock Transfer & Trust Company.
CERTAIN ARTICLES PROVISIONS
Under Article VIII of the La-Z-Boy Articles, La-Z-Boy may not consummate a
"Business Combination" involving any corporation, person, or other entity that
is a 10%-or-more "beneficial owner" (as therein broadly defined) of shares of
La-Z-Boy stock entitled to vote in the election of La-Z-Boy directors (a
"Related Entity"), without the approval of the Business Combination by the
affirmative vote of the holders of at least 67% of the outstanding shares
entitled to vote in the election of La-Z-Boy directors, unless: (a) certain
"fair price" and related conditions specified in paragraph (2)(a) of Article
VIII are satisfied; (b) a memorandum of understanding concerning the Business
Combination was approved by a majority of the La-Z-Boy directors before the
Related Entity became such; (c) after the Related Entity became such, the
Business Combination has been approved by a majority of "Continuing Directors;"
or (d) the Business Combination relates to or is with a corporation a majority
of the outstanding shares of each class of equity of which is owned by La-Z-Boy
and following consummation of the Business Combination La-Z-Boy shareholders
(other than the Related Entity) will retain their proportionate voting and
equity interests in La-Z-Boy or the resulting combined entity.
For purposes of Article VIII, a "Business Combination" includes any merger
or consolidation of La-Z-Boy with or into a Related Entity; sale, exchange, or
lease of all or any substantial part of the assets of La-Z-Boy to a Related
Entity; or issuance or transfer by La-Z-Boy of voting securities of La-Z-Boy or
rights to acquire such voting securities if issued or exchanged with a Related
Entity for any sort of consideration. As defined in that article, any La-Z-Boy
director who was a member of the La-Z-Boy Board on the date Article VIII was
adopted by the La-Z-Boy shareholders and any other La-Z-Boy director who has
been elected by the La-Z-Boy shareholders prior to the time that the Related
Entity involved in the proposed Business Combination became a Related Entity,
or who, if so elected following the time the Related Entity became such, was
elected upon the recommendation of a majority of the then Continuing Directors
in office to succeed a Continuing Director.
Article X of the La-Z-Boy Articles provides that Article VIII (and Article
X itself) may not be amended or repealed except by the affirmative vote of at
least 67% of all shares of La-Z-Boy stock entitled to vote with respect
thereto, unless such amendment or repeal is approved and recommended to the
La-Z-Boy shareholders by a majority of those members of the La-Z-Boy Board who
would then qualify as Continuing Directors. Article X also requires the
affirmative vote of at least 67% of all La-Z-Boy shares entitled to vote in the
election of directors for any amendment of the La-Z-Boy Bylaws by La-Z-Boy
shareholders.
CERTAIN MBCA PROVISIONS
Chapter 7A of the MBCA provides that a "business combination" (as therein
defined) between a covered Michigan corporation or any of its subsidiaries and
an "interested shareholder" (generally, a 10%-or-more beneficial owner of
voting shares) or any affiliate thereof may not be consummated for at least
five years after the interested shareholder became such (or at any time
thereafter unless certain price and other conditions are also satisfied)
without approval (a) by 90% of the votes of each class of stock entitled to be
cast by the corporation's shareholders, and (b) by 2/3 of the votes of each
class entitled to be cast, excluding shares beneficially owned by the
interested shareholder, its affiliates and associates. Chapter 7A "business
combinations" include, among other transactions, mergers, significant asset
transfers, certain disproportionate issuances of shares to an interested
shareholder, certain reclassifications and recapitalizations disproportionately
favorable to such a shareholder, and the adoption of a plan of liquidation or
dissolution in which such a shareholder would receive anything other than cash,
but do not include purchases of shares from other shareholders in the open
market, a tender offer, or otherwise.
Currently, Chapter 7A does not apply to La-Z-Boy. However, although the
La-Z-Boy Board has no present plans or intentions to take such an action, the
chapter permits the La-Z-Boy Board at any time, by resolution and without a
shareholder vote, to cause La-Z-Boy to become subject, with respect to
specifically identified or unidentified interested shareholders, to the
supermajority vote requirements of the chapter.
Chapter 7B of the MBCA divests of their normal voting rights any shares of
a covered Michigan corporation that are acquired in a "control share
acquisition" (as defined in that chapter) unless, before or after the
acquisition, the shareholders of the corporation approve those rights. Two
votes are required for approval: (a) a majority of votes cast by all holders of
shares entitled to vote (voting by class in certain circumstances), and (b) a
majority of all such votes cast, excluding "interested shares" (i.e., in
general, shares controlled for voting purposes by the person that has made or
proposes to make the control share acquisition, any member of a group with that
person concerning the acquisition, or any officer or employee-director of the
corporation). Subject to certain exceptions (including acquisitions by gift or
inheritance, in satisfaction of a good faith security interest, or pursuant to
a merger agreement to which the corporation is a party), a "control share
acquisition" is an acquisition of outstanding voting shares of the corporation
or the right to direct the vote of such shares which, when added to shares
previously owned or controlled for voting purposes by any person, would entitle
the person, alone or as part of a group, to exercise or direct the exercise of
voting power in the election of the corporation's directors within any of the
following ranges of voting power: over 1/5 but less than 1/3, over 1/3 but less
than a majority, or a majority.
In addition to applying to certain other Michigan corporations, Chapter 7B
applies to any Michigan corporation which, like La-Z-Boy: (a) has its principal
place of business in Michigan, (b) has 100 or more shareholders of record,
excluding certain types of holders specified in the chapter ("excluded
holders"), and (c) without giving effect to any excluded holders, has over 10%
of its shares held of record by, or over 10% of its record shareholders who
are, Michigan residents. Chapter 7B permits a covered corporation to opt out of
coverage by means of an amendment to its articles of incorporation or bylaws
(including by a bylaw amendment adopted by directors), but La-Z-Boy has not
elected to be excluded from coverage. If such an election were made in the
future, it would be effective only with respect to a control share acquisition
occurring after the amendment making such election and before any subsequent
repeal of such amendment.
Under Chapter 7B, unless otherwise provided in the articles of
incorporation or bylaws of a covered corporation before a control share
acquisition has occurred, in the event that the corporation's shareholders
approve full voting rights for the shares acquired in such an acquisition and
the acquiring person has acquired a majority of all voting power of the
corporation, the corporation's shareholders (other than the acquiring person)
would have dissenters' rights to receive the "fair value" of their shares from
the corporation. In addition, if authorized in the covered corporation's
articles of incorporation or bylaws before a control share acquisition has
occurred, shares acquired in a control share acquisition are redeemable for
their fair value at the option of the corporation during certain periods
specified in the chapter. For each of these purposes, "fair value" is defined
in the chapter as a value not less than the highest per share price paid by the
acquiring person in the control share acquisition. Currently, neither of the
La-Z-Boy Charter Documents includes any provisions which would eliminate
dissenters' rights, or would permit redemption of an acquiring person's shares,
under the circumstances described above.
Section 368 of the MBCA prohibits a corporation that has shares registered
on a national securities exchange, such as La-Z-Boy, from privately purchasing
any of such listed shares at a per share price in excess of the average market
price per share for the 30 business days prior to the date of purchase from any
person holding more than 3% of its shares, if such person has owned the listed
shares for less than two years, unless the purchase has been authorized in
advance by the holders of the corporation's shares entitled to vote thereon,
meets the requirements of a provision in the corporation's articles of
incorporation permitting such a purchase, or is otherwise authorized by the
MBCA. The La-Z-Boy Articles do not contain any provision relevant to Section
368. If the redemption provisions of Chapter 7B discussed above were to be made
applicable to La-Z-Boy, as could occur through an amendment of the La-Z-Boy
Bylaws by the La-Z-Boy Board, the shareholder vote requirement of Section 368
would not apply to any redemption pursuant to Chapter 7B. However, the La-Z-Boy
Board has no present plans or intentions to adopt any such bylaw amendment.
CERTAIN POTENTIAL ANTI-TAKEOVER EFFECTS
The supermajority vote requirements of Articles VIII and X of the La-Z-Boy
Articles and the provisions of MBCA Chapter 7A (which, while not currently
applicable to La-Z-Boy, can be made applicable at any time by resolution of the
La-Z-Boy Board) do not prevent the acquisition of a significant or even
controlling voting interest in La-Z-Boy through the purchase of shares in the
open market, a tender offer, or otherwise. However, if the prospective
acquiror's acquisition terms are unacceptable to the La-Z-Boy Board, such
provisions can present substantial impediments to actions, such as a follow-up
merger, that a party obtaining such a voting interest may wish or need to take
in order to accomplish its acquisition goals. In addition, MBCA Chapter 7B
presents substantial direct impediments to the acquisition of a significant or
controlling interest in La-Z-Boy on terms unacceptable to the La-Z-Boy Board.
Such provisions of the La-Z-Boy Articles and the MBCA, therefore, may prevent,
hamper, or discourage persons unwilling or unable to negotiate acceptable
acquisition terms with the La-Z-Boy Board from undertaking or succeeding in an
"unfriendly" takeover attempt. The broad authority of the La-Z-Boy Board
concerning the terms of any series of La-Z-Boy Preferred Stock and its general
authority to issue shares of such series, additional shares of La-Z-Boy Common
Stock, and rights (including so-called "poison pill" rights) to acquire shares
of either class of capital stock, as well as the classified structure of the
La-Z-Boy Board discussed in the next section of this Proxy
Statement/Prospectus, also may have such anti-takeover effects.
COMPARISON OF SHAREHOLDER RIGHTS AND CHARTER DOCUMENTS
In the event the proposed Merger is consummated and E/C merges into LZB
Acquisition, shareholders of E/C whose shares of E/C Stock are converted into
shares of La-Z-Boy Common Stock will become shareholders of La-Z-Boy. Upon the
consummation of the Merger, the rights of La-Z-Boy shareholders will be
governed by the provisions of the La-Z-Boy Charter Documents and the MBCA.
Currently, the rights of E/C shareholders are governed by E/C's Restated
Charter (the "E/C Charter"), its Amended and Restated Bylaws (the "E/C Bylaws"
and, together with the E/C Charter, the "E/C Charter Documents"), the
Tennessee Business Corporation Act ("TBCA"), and, where applicable, certain
other Tennessee statutes.
There are differences between the La-Z-Boy Charter Documents and the E/C
Charter Documents. Moreover, although the MBCA and the TBCA are similar in many
respects, there are differences between the Michigan and Tennessee statutes
which may affect shareholders' rights.
Certain differences between the rights of holders of La-Z-Boy Common Stock
and the rights of holders of E/C Stock are summarized below. The following
discussion is not meant to be relied upon as an exhaustive list or detailed
description of such differences and is not intended to constitute a detailed
comparison or description of the provisions of the La-Z-Boy Charter Documents,
the E/C Charter Documents, the MBCA, the TBCA, or any other Tennessee statutes.
The following discussion is qualified in its entirety by reference to the
La-Z-Boy Charter Documents, the E/C Charter Documents, and the laws of the
State of Michigan and of the State of Tennessee, and holders of E/C Stock are
referred to the complete texts of such documents and laws. Additional
information concerning the La-Z-Boy Common Stock also is provided above under
"Description of La-Z-Boy Capital Stock."
CAPITAL STRUCTURE
Unlike La-Z-Boy, which has only one authorized class of common stock,
there are two classes of E/C Stock: the E/C Class A Stock, and the E/C Class B
Stock. The voting rights of holders of the E/C Class A Stock are comparable to
those of holders of La-Z-Boy Common Stock discussed above. Shares of E/C Class
B Stock have no voting rights with respect to election of E/C directors and
have no other voting rights, except in certain special cases set forth in the
E/C Charter or the TBCA.
Under certain circumstances specified in the E/C Charter, all outstanding
shares of E/C Class B Stock automatically would convert into shares of E/C
Class A Stock, and the E/C Charter also provides for automatic conversion of
shares of one class into shares of the other depending on whether the shares
are held by persons who then hold certain specified positions with E/C. No
comparable conversion provisions apply to shares of La-Z-Boy Common Stock.
As further discussed above, La-Z-Boy also has an authorized class of
Preferred Stock, whereas the only authorized classes of capital stock of E/C
are the E/C Class A Stock and the E/C Class B Stock.
BOARD OF DIRECTORS; REMOVAL; VACANCIES
The La-Z-Boy Bylaws provide for a board of directors divided into two
classes of four directors each and one class of three directors. As
contemplated by the La-Z-Boy Bylaws, La-Z-Boy directors are elected by class
for three-year, staggered terms. The E/C Bylaws provide for nine directors to
constitute the entire board, five of which directors are required to be the
following five officers of E/C: Chief Executive Officer, Executive Vice
President, Vice President Administration, Vice President Manufacturing, Vice
President Finance. Under the TBCA, all directors of a corporation are to be
elected annually, unless the corporation's charter provides for a longer term.
The E/C Charter does not contain any such provisions.
As permitted by the TBCA, the E/C Charter Documents provide that any E/C
director may be removed for cause by vote of a majority of the entire E/C
Board. The MBCA does not authorize the removal of directors by directors. Any
E/C director also may be removed at any time, with or without cause, by the
holders of E/C shares entitled to vote thereon; the same is true with respect
to removal of any La-Z-Boy director by the shareholders of La-Z-Boy.
The La-Z-Boy Bylaws delegate to incumbent directors the power to fill any
vacancies on the La-Z-Boy Board, however occurring, by the affirmative vote of
two-thirds of the remaining directors though less than a quorum. Any person so
appointed to fill a vacancy would hold office for the unexpired portion of the
term of the director whose place was filled. The E/C Bylaws do not permit any
E/C Board action to fill any vacancy on the E/C Board caused by a vote of E/C
shareholders, but any other vacancy may be filled by the E/C Board until the
next annual meeting of E/C shareholders. Where E/C Board action to fill a
vacancy is permitted, the affirmative vote of a simple majority of directors
remaining on the E/C Board is all that is required.
DISSENTERS' RIGHTS
Under the MBCA, shareholders that otherwise would be entitled to exercise
dissenters' rights with respect to an articles or charter amendment, a merger,
disposition of assets, or other extraordinary transaction do not have any
dissenters' rights if (a) the stock affected is either listed on a national
securities exchange or held of record by at least 2,000 shareholders or (b) the
holders of such stock are to receive cash or shares (or any combination
thereof) and such shares, if any, are either listed on a national securities
exchange or held of record by more than 2,000 shareholders. Under the TBCA,
shareholders that otherwise would be entitled to exercise dissenters' rights do
not have such rights if the stock affected is listed on a national securities
exchange or is a national market system security, but the type of consideration
to be received for such stock does not affect the availability of dissenters'
rights. The E/C Stock is neither listed on a national securities exchange nor a
national market system security. Except as noted in the next subsection of this
Proxy Statement/Prospectus or in the discussion of Chapter 7B of the MBCA under
"Description of La-Z-Boy Capital Stock," the matters with respect to which
shareholders of a Michigan corporation such as La-Z-Boy and shareholders of a
Tennessee corporation such as E/C may have dissenters' rights are generally
comparable. The procedural provisions of the MBCA and applicable Tennessee law
relating to dissenters' rights also do not differ significantly.
CERTAIN DIFFERENCES CONCERNING SHAREHOLDER VOTING AND EXTRAORDINARY
TRANSACTIONS
Both under MBCA, and under the TBCA and other Tennessee statutes, the
amendment of a corporation's articles of incorporation or charter, and, in
circumstances in which a shareholder vote is required for approval of a merger,
disposition of assets, or other extraordinary corporate transaction, such a
transaction, requires the affirmative vote of a majority of the outstanding
stock entitled to vote, and a majority of the outstanding stock of any class,
series, or similar category entitled to vote separately, subject, in each case,
to such "supermajority" voting requirements as may be provided for in the
corporation's articles of incorporation or charter and to such special
supermajority or other unusual voting requirements as are imposed by statute.
As more fully discussed under "Description of La-Z-Boy Capital Stock,"
Article VIII of the La-Z-Boy Articles under some circumstances requires a
supermajority shareholder vote for approval of certain Business Combinations
(as therein defined), and, although Chapter 7A of the MBCA does not currently
apply to La-Z-Boy, to the extent (if ever) that the La-Z-Boy Board may at some
time in the future determine to make the chapter applicable, Chapter 7A also
would impose supermajority voting requirements for certain business
combinations (as therein defined). Absent such requirements, some Article VIII
Business Combinations and Chapter 7A business combinations would require
majority shareholder approval and no shareholder approval would be required for
others. As also further discussed above, any amendment of Article VIII of the
La-Z-Boy Articles not recommended by Continuing Directors (as therein defined)
and any shareholder amendment of the La-Z-Boy Bylaws also requires a
supermajority vote.
The E/C Charter does not contain any supermajority shareholder voting
requirements. In addition, although the Tennessee Business Combination Act
contains provisions generally similar to Chapter 7A of the MBCA, that statute
does not apply to a non-public corporation (like E/C) absent an express
election to be covered in the corporation's charter, and the E/C Charter does
not contain such an election.
In addition, as also discussed under "Description of La-Z-Boy Capital
Stock," Chapter 7B would divest voting shares of La-Z-Boy acquired in a control
share acquisition (as therein defined) of their normal voting rights unless and
until approved by the shareholder votes specified in the chapter, and Section
368 of the MBCA in some cases would require shareholder approval for an
above-market purchase by La-Z-Boy of shares of La-Z-Boy Common Stock. The
Tennessee Control Share Acquisition Act contains provisions comparable to those
of Chapter 7B of the MBCA, and the TBCA contains provisions comparable to those
of Section 368 of the MBCA, but such Tennessee statutory provisions do not
apply to a closely-held, non-public corporation like E/C.
The MBCA contains a provision, for which there is no counterpart under
Tennessee law, that affords voting rights (as well as dissenters' rights) to
shareholders of an acquiring corporation concerning a merger with or an
acquisition of shares or assets of another entity where the consideration for
the merger or acquisition is to be shares of the acquiring corporation's common
stock (or convertibles) and the merger or acquisition would have a specified
substantial dilutive effect. Except in that respect and as otherwise indicated
above, the MBCA and the La-Z-Boy Charter Documents, and the applicable
Tennessee statutes and the E/C Charter Documents, respectively, provide similar
shareholder voting rights with respect to mergers, asset dispositions, and
other extraordinary transactions, as well as concerning amendments to the
respective Charter Documents of La-Z-Boy and E/C.
DERIVATIVE PROCEEDINGS
The MBCA provides that a shareholder of a corporation may commence and
maintain a derivative proceeding (i.e., a lawsuit brought in the right of the
corporation to recover damages or other relief for the benefit of the
corporation) only if the shareholder was a shareholder of the corporation at
the time of the act or omission complained of (or is a successor by operation
of law to one who was a shareholder at that time); the shareholder fairly and
adequately represents the interests of the corporation in enforcing the
corporation's right; the shareholder continues to be a shareholder until the
time of judgment, unless the failure to continue to be a shareholder is the
result of corporate action in which he did not acquiesce and the derivative
proceeding was commenced prior to the termination of his status as a
shareholder; and, prior to commencing the proceeding, the shareholder has made
a written demand upon the corporation to take suitable action and certain other
conditions concerning such demand have been satisfied. The TBCA also permits a
corporate shareholder to commence a derivative proceeding if the shareholder
was a shareholder of the corporation when the transaction complained of
occurred (or a successor to one who was), but does not expressly require the
shareholder to continue being a shareholder after that time or expressly impose
any other conditions comparable to those in the MBCA for commencement or
maintenance of such a proceeding.
DIRECTOR LIABILITY; INDEMNIFICATION
The MBCA authorizes a corporation to provide in its articles of
incorporation that a director will not be personally liable to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, subject to certain exclusions. The TBCA authorizes a corporation to
provide for a similar limitation on directors' liability in its charter. The
La-Z-Boy Articles and the E/C Charter each contain such a liability limiting
provision. Under both the MBCA and the TBCA, such a provision does not
eliminate or limit a director's liability for breach of the duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, the unlawful payment of dividends or distributions,
or for any transaction from which the director derived an improper personal
benefit.
Both the MBCA and the TBCA require a corporation to indemnify its
directors, officers, employees, and agents under certain circumstances (in the
case of the TBCA, subject to any charter provisions to the contrary) and permit
broader indemnification of such persons under other circumstances relating to
derivative or other proceedings brought against such a person by virtue of such
person having served in such a capacity with or at the request of the
corporation. Both statutes also permit the advancement of expenses relating to
such proceedings under certain conditions.
Both the La-Z-Boy Charter Documents and the E/C Charter Documents require
indemnification of directors and officers to the fullest extent permitted by
applicable law. The La-Z-Boy Charter Documents also provide for mandatory
advancement of expenses of such an indemnitee under certain circumstances,
whereas advancement of expenses is not mandatory in any case with respect to
E/C indemnitees.
OTHER MATTERS
The La-Z-Boy Bylaws require that La-Z-Boy call a special meeting of
the shareholders whenever requested by shareholders owning, in the
aggregate, at least 75% of the entire capital stock of the corporation
entitled to vote at such special meeting. While the TBCA requires that a
special meeting of shareholders be held upon the demand of the holders of
at least 10% of all the votes entitled to be cast on any issue proposed to
be considered at the meeting (and the E/C Bylaws also so provide), the MBCA
does not have such a requirement. It does provide, however, that upon the
application of at least 10% of all the shares entitled to vote at a meeting
and for good cause shown, a court may order a special meeting of
shareholders to be called and held, for the transaction of such business as
the court may designate.
Any of the La-Z-Boy Bylaws (other than a provision in Article VIII(a)
of the La-Z-Boy Bylaws that corresponds to the provision in the La-Z-Boy
Articles requiring a supermajority vote for shareholder action to amend or
repeal the La-Z-Boy Bylaws) may be amended or repealed, and new bylaws may
be adopted, by the affirmative vote of a majority of the La-Z-Boy Board.
The E/C Bylaws authorize their amendment or alteration, and the adoption of
new bylaws, by majority vote of all of the voting stock of E/C issued and
outstanding. In the absence of any contrary provisions in the E/C Charter
Documents, the TBCA also authorizes the E/C Board to amend the E/C Bylaws,
acting by a majority of a quorum.
Tennessee has a statute, designated as the Tennessee Investor
Protection Act ("TIPA"), regulating certain tender offers (defined therein
as "takeover offers") for equity securities of an "offeree company"
(defined in TIPA to include, any Tennessee corporation involved in a
takeover offer for its equity securities and which has substantial assets
located in Tennessee). Among other exclusions from its definition of
"takeover offer," any offer made on substantially equal terms to the
holders of any class of equity of an offeree company is excluded, if the
number of holders does not exceed 50 at the time of the offer. Also
excluded is an offer made on substantially equal terms to all shareholders
of an offeree company and recommended by that company's board of directors,
if the terms of the offer, including any inducements to officers or
directors not available to all shareholders, have been disclosed to the
shareholders. Where applicable, TIPA requires the filing of a registration
statement by the offeror with the Tennessee Commissioner of Insurance and
Commerce (the "Tennessee Commissioner") and delivery to the Tennessee
Commissioner by both offeror and offeree company of all solicitation
materials used in connection with the takeover offer. It also prohibits
"fraudulent, deceptive, or manipulative acts or practices" by either side
in connection with the offer.
There is no Michigan statute comparable to TIPA and, although TIPA by
its terms purports to govern takeover offers for certain corporations not
organized under the laws of Tennessee, the U.S. Court of Appeals for the
Sixth Circuit has held TIPA to be unconstitutional as so applied. The
Sixth Circuit Court of Appeals also has held provisions of The Tennessee
Control Share Acquisition Act which purports to extend the scope of the
Tennessee counterparts of MBCA Chapters 7A and 7B to certain non-Tennessee
corporations unconstitutional as so applied.
DESCRIPTION OF THE LA-Z-BOY NOTES
GENERAL
The La-Z-Boy Notes, known as the "La-Z-Boy Chair Company 8% Unsecured
Promissory Notes Due 1999," are unsecured obligations of La-Z-Boy to be issued
under the Indenture. The aggregate principal amount of the Notes outstanding at
any time under the Indenture is limited to $10,000,000. The Notes will be
substantially in the form set forth in the Indenture. See "Description of the
Indenture" for a summary of the provisions of the Indenture.
INTEREST RATE AND PAYMENT
The La-Z-Boy Notes will provide for 8% simple interest per annum on the
unpaid principal balance, payable annually.
SCHEDULED PRINCIPAL PAYMENTS
The principal of the La-Z-Boy Notes will be payable in four equal annual
installments.
OPTIONAL PREPAYMENT
The La-Z-Boy Notes will be subject to prepayment, in whole or in part,
without penalty or premium, at the option of La-Z-Boy, at any time after
issuance. The prepayment price will be an amount equal to the sum of the
outstanding principal balance plus all accrued and unpaid interest thereon.
RANKING
The La-Z-Boy Notes will be unsecured indebtedness of La-Z-Boy. With
respect to any assets of La-Z-Boy deposited, in trust, for the equal and pro
rata benefit of the holders of the La-Z-Boy Notes, such holders will have a
lien of first priority against such assets. With respect to those assets of
La-Z-Boy assigned to other creditors of La-Z-Boy as collateral for credit
extended to La-Z-Boy by such other creditors, the rights of the holders of the
La-Z-Boy Notes will be subordinate to the rights of such creditors. With
respect to the remaining assets of La-Z-Boy, the rights of the holders of the
La-Z-Boy Notes will rank equally with those of other general creditors of
La-Z-Boy.
LIMITED TRANSFERABILITY
There is currently no trading market for the La-Z-Boy Notes and it is
unlikely that any such market will develop. La-Z-Boy does not intend to take
any steps to facilitate the development of a trading market for the La-Z-Boy
Notes. The La-Z-Boy Notes will be transferable only upon the death of the
holder.
DESCRIPTION OF INDENTURE
The following is a summary of certain provisions of the Indenture. The
following summary does not purport to be complete and is subject to, and
qualified in its entirety by, all the provisions of the Indenture. Where
reference is made to particular provisions of the Indenture, such provision,
including definitions of certain terms, are incorporated herein by reference. A
copy of the executed Indenture may be obtained by writing La-Z-Boy at 1284
North Telegraph Road, Monroe, Michigan 48161.
GENERAL
The Indenture provides that the principal of and the interest on the
La-Z-Boy Notes will be payable at an office of La-Z-Boy maintained for such
purpose in the City of Monroe, State of Michigan; provided, however, that at
the option of La-Z-Boy, the principal of and interest on the La-Z-Boy Notes may
be paid by check mailed to the registered holders of the La-Z-Boy Notes
(Section 301). The Notes are to be issued as registered Notes in any
denomination as La-Z-Boy may determine. (Section 302). The La-Z-Boy Notes may
be transferred only upon the death of the Holder pursuant to the applicable
laws of descent, such permitted transfer will be without service charge other
than any tax or other governmental charge imposed in connection therewith,
subject to the limitations provided in the Indenture. (Section 304).
The Indenture limits the aggregate principal amount of the La-Z-Boy Notes
that may be outstanding at any time to $10,000,000 (Section 301). The Indenture
also provides that the La-Z-Boy Notes will mature on the fourth anniversary of
the Effective Time and bear 8% simple interest, and will have such other terms
and provisions, as provided in the Indenture.
The Indenture provides that the La-Z-Boy Notes are solely obligations of
La-Z-Boy and that no personal liability whatever, under any circumstances or
conditions, shall attach to or be incurred by the incorporators, shareholders,
officers or directors of La-Z-Boy because of the incurring of the indebtedness
authorized by the Indenture, or by reason of any of the obligations, covenants
or agreements, express or implied, in the Indenture or in any of the La-Z-Boy
Notes (Article Twelve).
CERTAIN COVENANTS OF LA-Z-BOY
The Indenture requires La-Z-Boy to (i) duly and punctually pay the
principal of and interest on the La-Z-Boy Notes and comply with all other
terms, agreements and conditions contained therein, or made in the Indenture
for the benefit of the La-Z-Boy Notes; (ii) maintain an office where the
La-Z-Boy Notes may be presented, surrendered for payment, transferred or
exchanged and where notices upon La-Z-Boy may be served; (iii) under certain
conditions segregate and hold in trust for the benefit of the persons entitled
thereto a sum sufficient to pay the principal or interest becoming due on the
La-Z-Boy Notes; (iv) deliver to the Designated Representative, within 120 days
after the end of each fiscal year a written statement to the effect that
La-Z-Boy has fulfilled all its obligations under the Indenture throughout such
year; and (v) preserve its corporate existence (Sections 1001, 1002, 1003 and
1005).
La-Z-Boy is required to maintain a list indicating the names and addresses
of the holders of the La-Z-Boy Notes, the aggregate amount of the La-Z-Boy
Notes outstanding and the amount of each La-Z-Boy Note outstanding. If, and so
long as La-Z-Boy acts as its own Paying Agent, the list maintained by La-Z-Boy
must indicate (i) whether there has been any default in the payment of any sums
due and payable under any of the La-Z-Boy Notes outstanding (a "Payment
Default"); (ii) if there has been such a Payment Default, the date of such
Payment Default; (iii) if there has been such a Payment Default, whether such
Payment Default has been cured; and (iv) if such a Payment Default has been
cured, the date of such cure (Section 701).
REDEMPTION PROVISIONS
The La-Z-Boy Notes will be redeemable, at any time, in whole or in part,
at the option of La-Z-Boy, at one hundred percent (100%) of their principal
amount together with accrued interest to the redemption date (Article Eleven).
MERGER AND CONSOLIDATION
The Indenture will permit, without the consent of Holders of the La-Z-Boy
Notes, the consolidation or merger of La-Z-Boy with or into any other
corporation, if (i) La-Z-Boy is the continuing corporation or if the successor
corporation is incorporated under the laws of the United States, any State
thereof or the District of Columbia and expressly assumes the obligations of
La-Z-Boy under the Indenture; and (ii) immediately after giving effect to such
transactions, no Event of Default shall have happened and be continuing
(Section 801).
EVENTS OF DEFAULT
Each of the following events is defined as an Event of Default under the
Indenture with respect to the La-Z-Boy Notes: (i) default in the payment of any
principal and interest on the La-Z-Boy Notes, when due, continued for 30
days (a "Payment Default"); (ii) failure to observe or perform any other
covenant contained in the Indenture for the benefit of the La-Z-Boy Note
Holders continued for 60 days after written notice from the Designated
Representative or the Holders of at least fifty percent (50%) in principal
amount of the outstanding La-Z-Boy Notes; or (iii) certain events of
bankruptcy, insolvency or reorganization (Section 101).
The Indenture provides that if an Event of Default, other than a Payment
Default, shall have occurred and be continuing, the Designated Representative
and the Holders of not less than fifty percent (50%) in principal amount of the
La-Z-Boy Notes outstanding may declare the principal and the interest accrued
thereon, if any, to be due and payable immediately. Upon certain conditions
such declarations may be annulled and past defaults (except for Payment
Defaults or defaults in compliance with certain covenants) may be waived by the
Holders of a majority in principal amount of the La-Z-Boy Notes outstanding
(Sections 501 and 513).
The Indenture provides that if a Payment Default shall have occurred and
be continuing any Holder may notify La-Z-Boy in writing of the occurrence of an
Event of Default with respect to such Holder's La-Z-Boy Note(s) only and may
declare the principal and the interest accrued thereon, if any, to be due and
payable immediately.
Under the Indenture La-Z-Boy must give to the Designated Representative
and the Holders of the La-Z-Boy Notes notice of all uncured defaults, other
than a Payment Default, known to it with respect to the La-Z-Boy Notes
within 90 days after such a default occurs (the term "default" includes the
events specified above without notice of grace periods) (Section 602).
No Holder of any Note may institute any action under the Indenture unless
(i) such Holder gives La-Z-Boy written notice of a continuing Payment Default;
(ii) the Holders of not less than fifty percent (50%) in the aggregate
principal amount of the La-Z-Boy Notes outstanding requests the Designated
Representative to institute proceedings in respect of an Event of Default;
(iii) such Holder or Holders offer the Designated Representative such
reasonable indemnity as the Designated Representative may require; (iv) the
Designated Representative fails to institute an action for 60 days thereafter;
and (v) no inconsistent direction is given to the Designated Representative
during such 60-day period by the Holders of a majority in aggregate principal
amount of the La-Z-Boy Notes outstanding (Section 506).
The Holders of a majority in aggregate principal amount of the La-Z-Boy
Notes outstanding have the right, subject to certain exceptions, to waive an
Event of Default, direct the time, method and place of conducting any
proceeding for any remedy available to the Designated Representative, or
exercising any power conferred on the Designated Representative with respect
to the La-Z-Boy Notes (Section 511).
The Indenture provides that, in case an Event of Default (other than a
Payment Default) shall occur and be continuing, the Designated Representative,
in exercising its rights and powers under the Indenture, will be required to
use the degree of care of a prudent man in the conduct of his own affairs
(Section 601). The Indenture further provides that the Designated
Representative shall not be required to expend or risk his own funds or
otherwise incur any financial liability in the performance of any of his duties
under the Indenture unless it has reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
reasonably assured to it (Section 601).
La-Z-Boy must furnish to the Designated Representative within 120 days
after the end of each fiscal year a statement signed by certain officers of
La-Z-Boy to the effect that a review of the activities of La-Z-Boy during such
year and of its performance under the Indenture and the terms of the La-Z-Boy
Notes has been made, and to the best of the knowledge of the signatories based
on such review, La-Z-Boy is not in default in the performance and observance of
the terms of the Indenture, or, if La-Z-Boy is in default, specifying such
default (Section 1004).
DEFEASANCE
Under the terms of the Indenture, La-Z-Boy, at its option, (i) will be
"Discharged" (defined herein as in the Indenture) from any and all obligations
in respect of the La-Z-Boy Notes (except in each case for certain obligations
to register the transfer of La-Z-Boy Notes, replace stolen, lost or mutilated
La-Z-Boy Notes, or hold moneys for payment in trust) or (ii) need not comply
with certain restrictive covenants of the Indenture (including those described
above under "Certain Covenants of La-Z-Boy"), if La-Z-Boy deposits in trust for
the benefit of the Holders, money or U.S. Government Obligations which passes
through the payment of interest thereon and principal thereof which will
provide for the payment of the principal of and interest on the La-Z-Boy Notes
on the dates such payments are due in accordance with the terms of the La-Z-Boy
Notes.
MODIFICATION OF THE INDENTURE
Under limited circumstances, the Indenture may be modified by La-Z-Boy and
the Designated Representative without the consent of the Holders of any
La-Z-Boy Notes. In addition, with certain exceptions, the Indenture or the
rights of the Holders of the La-Z-Boy Notes may be modified by La-Z-Boy and the
Designated Representative with the consent of the Holders of a majority in
aggregate principal amount of the La-Z-Boy Notes affected by such modification
then outstanding, but no such modification may be made which would (i) change
the maturity of any payment of principal of, or any premium on, or any
installment of interest on, any La-Z-Boy Note, or reduce the principal amount
thereof or the interest thereon, or change the method of computing the amount
of principal thereof or interest thereon on any date or change any place of
payment where, or the coin or currency in which, any La-Z-Boy Note or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the maturity thereof;
(ii) reduce the percentage in principal amount of the outstanding La-Z-Boy
Notes, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver
of compliance with certain provisions of the Indenture or certain
defaults thereunder and their consequences, provided for in the Indenture;
or (iii) modify any of the provisions of certain Sections of the
Indenture including the provisions summarized in this paragraph, except to
increase any such percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding La-Z-Boy Note affected thereby (Section 902).
THE DESIGNATED REPRESENTATIVE
Mr. Rodney D. England, having offices at 402 Old Knoxville Highway, New
Tazewell, Tennessee 37825, will act as Designated Representative under the
Indenture.
DESCRIPTION OF THE PERFORMANCE UNITS
The Performance Units will constitute general unsecured obligations of
La-Z-Boy to issue additional shares of La-Z-Boy Common Stock to former E/C
shareholders in respect of the Merger. For a description of the terms of the
Performance Units, see "The Merger and Related Transactions -- Performance
Units." The Performance Units will be non-transferable and will not be listed
on any exchange; there is therefore no expectation that any trading market
will be established for the Performance Units.
LEGAL MATTERS
The legality of the La-Z-Boy Common Stock, the La-Z-Boy Notes, and the
Performance Units will be passed upon for La-Z-Boy by its counsel, Miller,
Canfield, Paddock and Stone, P.L.C., 150 West Jefferson, Suite 2500, Detroit,
Michigan 48226. Rocque E. Lipford, the sole shareholder of Rocque E. Lipford,
P.C., which is a principal of Miller, Canfield, Paddock and Stone, P.L.C., is a
director of La-Z-Boy.
Certain legal matters will be passed upon for E/C by its counsel, Baker,
Donelson, Bearman & Caldwell, 2200 Riverview Tower, Knoxville, Tennessee 37902.
EXPERTS
The financial statements of E/C included in this Proxy
Statement/Prospectus and in the Registration Statement have been audited by BDO
Seidman, independent certified public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of that firm as experts in auditing and accounting in giving said
reports.
The financial statements incorporated in this Proxy Statement/Prospectus
by reference to the Annual Report on Form 10-K of La-Z-Boy for the fiscal year
ended April 30, 1994, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
A representative of BDO Seidman is expected to be present at the Meeting.
This representative will have an opportunity to make statements if he or she so
desires and will be available to respond to appropriate questions.
F-1
ENGLAND/CORSAIR, INC.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants..................... F-2
Balance Sheets as of June 30, 1994 and 1993............................ F-3
Statements of Income for Each of the Three Years in the Period
Ended June 30, 1994................................................... F-5
Statements of Stockholders' Equity for Each of the Three Years in the
Period Ended June 30, 1994............................................ F-6
Statements of Cash Flows for Each of the Three Years in the Period
Ended June 30, 1994................................................... F-7
Summary of Accounting Policies......................................... F-9
Notes to Financial Statements.......................................... F-11
Balance Sheets as of September 30, 1994 and June 30, 1994 (Unaudited).. F-18
Statements of Income for the Three Months Ended September 30, 1994 and
September 30, 1993 (Unaudited)........................................ F-19
Statements of Cash Flows for the Three Months Ended September 30, 1994
and September 30, 1993 (Unaudited).................................... F-20
Notes to Financial Statements (Unaudited).............................. F-21
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
England/Corsair, Inc.
Tazewell, Tennessee
We have audited the accompanying balance sheets of England/Corsair, Inc.
as of June 30, 1994 and 1993, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of England/Corsair, Inc. at
June 30, 1994 and 1993, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1994, in conformity
with generally accepted accounting principles.
High Point, North Carolina BDO SEIDMAN
August 12, 1994
F-3
ENGLAND/CORSAIR, INC.
BALANCE SHEETS
(IN THOUSANDS)
June 30, 1994 1993
- ----------------------------------------------------------------------------------------------
ASSETS
Current
Cash $ 218 $ 109
Receivables:
Trade, less allowance of $68 for possible losses 833 397
Factors (Note 1) 2,129 986
Inventories (Note 2) 9,551 10,004
Other, including prepaid expenses 326 129
TOTAL CURRENT ASSETS 13,057 11,625
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization (Notes 3, 5 and 6) 20,795 16,325
OTHER, including cash surrender value of insurance
(face amount $3,050) on officers' lives, less
loans of $40 515 466
$34,367 $ 28,416
F-4
ENGLAND/CORSAIR, INC.
BALANCE SHEETS (CONCLUDED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
June 30, 1994 1993
- ----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 6,397 $ 5,294
Accruals:
Compensation 1,577 1,158
Employee benefits (Note 6) 241 202
Income taxes 58 66
Interest 86 70
Current maturities of long-term debt (Note 5) 860 780
Current maturities of capital lease obligations (Note 6) 1,826 1,190
TOTAL CURRENT LIABILITIES 11,045 8,760
LONG-TERM DEBT, less current maturities (Note 5) 6,885 3,590
CAPITAL LEASE OBLIGATIONS, less current maturities (Note 6) 4,523 2,059
DEFERRED INCOME TAXES (Note 7) 140 90
TOTAL LIABILITIES 22,593 14,499
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY
Common stock (Notes 6 and 9):
Class A, without par value - shares authorized, 500,000;
issued 262,252 262 --
Class B, without par value - shares authorized, 500,000;
issued 72,678 73 --
Common stock, $1 par - shares authorized, 500,000;
issued 334,930 -- 335
Retained earnings 12,882 15,025
Treasury stock, at cost, 37,600 shares of Class A
Common stock (1,443) (1,443)
TOTAL STOCKHOLDERS' EQUITY 11,774 13,917
$34,367 $ 28,416
See accompanying summary of accounting policies and notes to financial
statements.
F-5
ENGLAND/CORSAIR, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
Year ended June 30, 1994 1993 1992
- ----------------------------------------------------------------------------------------------
NET SALES $105,781 $ 99,435 $ 86,175
COST OF SALES 87,288 79,905 69,107
GROSS PROFIT ON SALES 18,493 19,530 17,068
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 14,484 12,632 10,040
OPERATING INCOME 4,009 6,898 7,028
OTHER INCOME (EXPENSE)
Interest expense (1,387) (1,139) (1,359)
Interest income 69 66 54
Miscellaneous - net 10 57 70
TOTAL OTHER INCOME (EXPENSE) (1,308) (1,016) (1,235)
INCOME BEFORE TAXES ON INCOME 2,701 5,882 5,793
TAXES ON INCOME (BENEFIT) (Note 7) 122 (499) 2,100
NET INCOME $ 2,579 $ 6,381 $ 3,693
PRO FORMA AMOUNTS (Note 9)
INCOME BEFORE TAXES $ 2,701 $ 5,882
INCOME TAXES AT 36.8% 994 2,165
NET INCOME $ 1,707 $ 3,717
PRO FORMA INCOME PER SHARE 5.75 12.47
See accompanying summary of accounting policies and notes to financial
statements.
F-6
ENGLAND/CORSAIR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Common Stock Treasury Stock
------------------ ------------------ Retained
Shares Amount Shares Amount earnings
- ----------------------------------------------------------------------------------------------
BALANCE, July 1, 1991 307,800 $308 36,500 $ 1,361 $ 8,212
ADD - net income for the year - - - - 3,693
DEDUCT:
S Corporation distributions - - - - (597)
10% stock dividend 27,130 27 - - (27)
BALANCE, June 30, 1992 334,930 335 36,500 1,361 11,281
ADD - net income for the year - - - - 6,381
DEDUCT:
S Corporation distributions - - - - (2,637)
Purchase of treasury stock - - 1,100 82 -
BALANCE, June 30, 1993 334,930 335 37,600 1,443 15,025
ADD - net income for the year - - - - 2,579
DEDUCT - S Corporation distributions - - - - (4,722)
BALANCE, June 30, 1994 334,930 $335 37,600 $ 1,443 $ 12,882
See accompanying summary of accounting policies and notes to financial
statements.
F-7
ENGLAND/CORSAIR, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year ended June 30, 1994 1993 1992
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 104,185 $ 108,455 $ 93,995
Cash paid to suppliers and employees (97,395) (98,137) (86,662)
Interest paid (1,370) (1,098) (1,377)
Interest received 69 66 54
Income taxes paid, net of refunds received (80) (1,219) (1,424)
Other receipts 10 57 93
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,419 8,124 4,679
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions to stockholders (4,722) (3,234) -
Capital expenditures (3,272) (2,965) (983)
Increase in cash surrender value of insurance (19) (11) (25)
Purchase of treasury stock - (82) -
NET CASH USED IN INVESTING ACTIVITIES (8,013) (6,292) (1,008)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 5,170 - (1,500)
Principal payments on long-term debt (1,795) (790) (1,159)
Principal payments under capital lease obligations (672) (1,030) (1,009)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,703 (1,820) (3,668)
NET INCREASE IN CASH 109 12 3
CASH, at beginning of year 109 97 94
CASH, at end of year $ 218 $ 109 $ 97
See accompanying summary of accounting policies and notes to financial
statements.
F-8
ENGLAND/CORSAIR, INC.
STATEMENTS OF CASH FLOWS (CONCLUDED)
(IN THOUSANDS)
Year ended June 30, 1994 1993 1992
- ----------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $ 2,579 $6,381 $ 3,693
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,574 1,908 1,802
Deferred income taxes 50 (784) (116)
Provision for losses on accounts receivable 17 64 33
Loss on disposition of assets - - 22
Change in assets and liabilities:
Decrease (increase) in accounts receivable (1,596) 94 (325)
Decrease (increase) in inventories 453 (1,529) 1,093
Decrease (increase) in prepaid expenses and
other assets (227) (248) (25)
Increase (decrease) in payables and accrued
expenses 1,577 3,172 (2,290)
Increase (decrease) in income taxes payable (8) (934) 792
Total adjustments 2,840 1,743 986
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,419 $8,124 $ 4,679
See accompanying summary of accounting policies and notes to financial
statements.
F-9
ENGLAND/CORSAIR, INC.
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS The Company was incorporated in Tennessee
in 1964 and is engaged primarily in the
design, manufacture and sale of upholstered
residential furniture. In addition, the
Company imports and sells occasional tables.
SALES RECOGNITION AND
CREDIT RISK Sales are made to the retail furniture
industry primarily in the United States and
Canada. Sales are recognized when delivered
and accepted by the customer. The Company
uses factoring arrangements to minimize the
risk on accounts receivable. The Company has
no concentrated sales or credit risk with any
individual customer.
INVENTORIES Inventories are valued at the lower of cost
(first-in, first-out) or market. Routine
maintenance, operating and office supplies
are not inventoried.
PROPERTY, EQUIPMENT AND
DEPRECIATION Property and equipment are stated at cost.
Depreciation is computed using straight-line
and accelerated methods for financial
reporting purposes over the following
estimated useful lives:
Years
Buildings and land
improvements 5 - 30
Machinery and equipment 5 - 10
Furniture, fixtures and office
equipment 3 - 10
Transportation equipment 3 - 7
Other vehicles 3 - 7
For income tax reporting purposes,
depreciation is computed under the same
methods used for financial reporting purposes
except for additions after June 30, 1986 for
which the straight-line method is used for
financial reporting purposes and accelerated
methods are used for income tax reporting
purposes.
PRO FORMA DATA Pro forma adjustments are presented to
reflect a provision for income taxes based
upon pro forma income before taxes as if the
Company had not been an S Corporation for
the years ended June 30, 1994 and 1993.
See accompanying notes to financial statements.
F-10
ENGLAND/CORSAIR, INC.
SUMMARY OF ACCOUNTING POLICIES
(CONCLUDED)
TAXES ON INCOME In July 1992, the Company elected S
Corporation status for federal income tax
purposes (see Note 7).
For the year ended June 30, 1993, the Company
elected early adoption of the method for
accounting for income taxes pursuant to the
Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" (SFAS
109). SFAS 109, effective for fiscal years
beginning after December 15, 1992, requires,
among other things, a liability approach to
calculating deferred income taxes. This
change had no material effect on earnings for
the year ended June 30, 1993.
Deferred income taxes are provided on the
difference in earnings determined for tax and
financial reporting purposes. Since July 1,
1992 deferred taxes are provided for certain
state income taxes only, as these states do
not recognize the S Corporation election.
EMPLOYEE BENEFITS The Company does not provide post-employment
or retirement benefits to its employees.
Accordingly, the provisions of the Financial
Accounting Standards Board's Statements of
Financial Accounting Standards No. 106
"Employers' Accounting for Post-retirement
Benefits other than Pensions" and No. 112
"Employers' Accounting for Postemployment
Benefits" do not have an effect on the
financial condition or results of operations
of the Company.
STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows,
the Company considers investments purchased
with a maturity of three months or less to be
cash equivalents. There were no cash
equivalents at June 30, 1994 or 1993.
FREIGHT REVENUES AND COSTS Freight revenues are classified as an offset
against freight costs which are classified as
a cost of sales.
See accompanying notes to financial statements.
F-11
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ACCOUNTS RECEIVABLE
AND FACTORING
AGREEMENT The Company factors most of its customer
accounts receivable with two factors. Of the
receivable invoices factored, most are
factored without recourse. Under the terms of
the agreement, the Company may receive
advances prior to the due dates of the
factored invoices. Such advances, available
from ninety to one hundred percent of the
factored receivables, bear interest at the
prime rate.
2. INVENTORIES Inventories are summarized as follows:
1994 1993
- -----------------------------------------------------------------------------
Finished products, including tables $ 2,784 $ 3,713
Work-in-process 516 631
Raw materials 6,251 5,660
Total inventories $ 9,551 $10,004
3. PROPERTY AND
EQUIPMENT Major classes of property and equipment
consist of the following:
1994 1993
- ------------------------------------------------------------------------------
Land $ 987 $ 987
Buildings and improvements 12,021 10,330
Machinery and equipment (Note 5) 4,558 4,341
Furniture, fixtures and office equipment 2,436 1,746
Transportation equipment (Note 5) 10,268 6,452
Other vehicles 1,465 1,255
Totals 31,735 25,111
Less accumulated depreciation
and amortization (10,940) (8,786)
Net property and equipment $20,795 $ 16,325
4. NOTES PAYABLE In July 1994, the Company entered into an
agreement with a bank which provides for a
line of credit up to a maximum of $3,750
with interest at the lesser of the prime rate
less .5 percent or the LIBOR rate plus 1.2
percent.
F-12
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. NOTES PAYABLE
(CONCLUDED) Any amounts outstanding under this line of credit
at September 1, 1997 will convert to a term loan
with monthly payments beginning in September 1997
with the remaining balance to be paid in August
2001. The payments will be based upon an
amortization period of ten years.
In addition to the line of credit, the agreement
also provides for borrowings of an additional
$3,750. Under a bridge loan provided by the
bank, $3,750 was outstanding at June 30, 1994
(see note 5).
5. LONG-TERM DEBT Long-term debt consists of:
1994 1993
- -----------------------------------------------------------------
Note to bank payable $43 per
month, including interest at
6.95%, beginning September
1997, with the remaining
balance of approximately
$2,600 due August 2001,
collateralized by property
and equipment (see Note 4) $3,750 $ --
Notes to shareholders payable $64
per quarter, plus interest at 7%
beginning August 1994 through
May 1999 (subordinated) 1,288 --
Note to bank payable $47 per
quarter, plus interest at the
prime rate plus 1% through
November 1995 with the remaining
balance due November 1995,
collateralized by property 265 1,443
Note to bank payable $50 per
quarter, plus interest at the
prime rate plus .75%, through
August 1995 with the remaining
balance due November 1995,
collateralized by property 1,145 1,345
F-13
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
5. LONG-TERM DEBT
(CONCLUDED)
Industrial revenue bond
payable $13 per quarter,
plus interest at 90% of the
prime rate through
September 2008 with a
final payment due October
2008, collateralized by
property 725 775
Note payable $4 per month,
including interest at 10%
through February 2002,
collateralized by property
and guaranteed by a
stockholder 276 299
Other, collateralized by property
and transportation equipment 296 508
Totals 7,745 4,370
Less current maturities 860 780
Total long-term debt $6,885 $3,590
At June 30, 1994, the approximate aggregate
amounts of long-term debt maturing in each of the
next five years are as follows: 1995 - $860;
1996 - $1,370; 1997 - $355; 1998 - $570;
and 1999 - $640. Certain of the above
loan agreements contain covenants with
respect to working capital, total indebtedness,
capital expenditures, stockholders' equity,
earnings and dividends. At June 30, 1994, the
Company was in compliance with the provisions
of the agreements.
6. COMMITMENTS Leases
The Company leases showroom facilities, a
manufacturing facility, a research facility,
equipment and delivery equipment under operating
leases that expire over the next five years.
In most cases, management expects that in the
normal course of business, leases will be renewed
or replaced with other leases. Rent expense was
approximately $520, $685 and $490 for
years ended June 30, 1994, 1993 and 1992,
respectively. In addition, the Company leases
equipment (primarily trucks used as
transportation equipment) under capital leases
expiring at various dates through May, 1998.
F-14
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
6. COMMITMENTS
(CONTINUED) Following is an analysis of leased property
under capital leases by major classes:
Asset balances at June 30, 1994 1993
- --------------------------------------------------------------
Transportation equipment $9,590 $6,191
Machinery and equipment 306 306
9,896 6,497
Less accumulated amortization 4,415 3,477
Net leased property under
capital leases $5,481 $3,020
As of June 30, 1994, future net minimum lease
payments under capital leases and future
minimum rental payments required under
operating leases that have initial or
remaining noncancelable terms in excess of
one year are as follows:
Capital Operating
leases leases
- ----------------------------------------------------------------
1995 $2,170 $ 150
1996 1,785 20
1997 1,430 20
1998 1,190 10
1999 389 --
Thereafter 176 --
Total minimum lease payments 7,140 $ 200
Less amount representing interest,
calculated at the Company's
incremental borrowing rate (791)
Present value of net minimum
lease payments $6,349
F-15
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. COMMITMENTS
(CONCLUDED) EMPLOYEE BENEFITS
The Company maintains a self-insurance
program for that portion of health care costs
not covered by insurance. The Company is
liable for claims up to $60 per
participant annually, and aggregate claims up
to $2,170 annually. Self-insurance costs
are accrued based upon the aggregate of the
liability for reported claims and an
estimated liability for claims incurred but
not reported.
WORKMEN'S COMPENSATION
In July 1992, the Company began a
self-insurance plan for workmen's
compensation coverage. The Company is liable
for claims up to $250 per employee and
aggregate claims up to $1,100 annually.
Self insurance costs are accrued based upon
the aggregate of the expected liability for
claims filed which have not been paid. The
plan requires the Company to maintain
$1,000 of letters of credit as security
to cover potential claims.
STOCKHOLDERS' AGREEMENTS
The Company has agreements with its
stockholders whereby the Company agrees to
purchase all shares of a stockholder upon
death at an amount established by the Board
of Directors (currently $61 per share). The
amount may be paid in cash or with notes to
be repaid over a period not to exceed 60
months with interest at 5%.
RETIREMENT PLAN
In August 1992, the Company adopted a
tax-qualified employee benefit plan which
meets the criteria of Section 401(k) of the
Internal Revenue Code. Under the Plan,
participants may elect to defer from 1% to
25% of their compensation into the Plan up to
specified limits per year ($9 during
1994). The Company contributes an additional
amount equal to 25% of the employee
contributions, limited to $1 per
employee. Participants become fully vested in
contributions made by the Company on a
graduated scale defined in the Plan document.
Company contributions were approximately
$147 and $149 in the years ended June 30,
1994 and 1993, respectively.
F-16
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
7. TAXES ON INCOME (BENEFIT) Provisions for federal and state income
taxes in the statements of income are made
up of the following components:
Year ended June 30, 1994 1993 1992
- ----------------------------------------------------------------
Current:
Federal $ - $ - $1,925
State 72 285 245
72 285 2,170
Deferred taxes (benefit):
Federal - (764) (60)
State 50 (20) (10)
50 (784) (70)
Total taxes on income
(benefit) $122 $(499) $2,100
The absence of a provision for federal
income taxes for the years ended June 30,
1994 and 1993 is due to the election by the
Company, and consent by its stockholders to
include their respective shares of taxable
income of the Company in individual federal
tax returns (S Corporation election). As
a result of the election, federal deferred
taxes were eliminated and included in income
for the year ended June 30, 1993.
The following summary reconciles income
taxes at the maximum federal statutory rate
with the effective rate.
1994 1993 1992
% % %
Provision for Federal income taxes
at the statutory rate - - 34.0
Increase (decrease) due to:
State income taxes 4.5 4.5 2.8
Federal income taxes eliminated
due to S corporation election - (13.0) -
Other - - (.5)
Taxes on income (benefit) 4.5 (8.5) 36.3
F-17
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(IN THOUSANDS)
7. TAXES ON INCOME (BENEFIT)
(CONCLUDED) The components of the deferred income taxes
at June 30, 1994 and 1993 are as follows:
1994 1993
- ----------------------------------------------------------------
Deferred tax assets:
Inventories $ 3 $ 9
Allowance for doubtful accounts 3 3
Accrued expenses 31 8
Total deferred tax assets 37 20
Deferred tax liability - depreciation 177 110
Total net deferred tax liability $140 $ 90
8. SUPPLEMENTAL CASH
FLOW INFORMATION Capital lease obligations of approximately
$3,772 and $2,382 were incurred when
the Company entered into leases for delivery
vehicles and equipment in the years ended
June 30, 1994 and 1993, respectively. The
Company did not enter into capital lease
obligations during the year ended June 30,
1992.
9. COMMON STOCK During the year ended June 30, 1994, the
Company entered into a plan whereby its
existing common stock was exchanged for
newly created Class A common stock and
Class B common stock. The Class A common
stock is voting stock which can only be held
by individuals actively involved in the
management of the Company. The Class B
common stock is non-voting stock. The
relative rights, preferences and limitations
of the shares are otherwise the same.
F-18
ENGLAND/CORSAIR, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARES)
September 30, June 30,
1994 1994
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 367 $ 218
Accounts Receivable less allowance for losses
of $68 1,096 833
Accounts Receivable from factors 2,429 2,129
Inventories (Note 3) 10,081 9,551
Prepaid Expense 398 326
Total Current Assets 14,371 13,057
Net Property and Equipment 21,656 20,795
Other Assets 573 515
$ 36,600 $ 20,795
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 7,160 $ 6,397
Current Portion of Long Term Debt 2,290 2,686
Accrued Liabilities 2,096 1,962
Total current liabilities 11,546 11,045
Long Term Debt
Long Term Notes Payable 6,661 6,457
Long Term Notes Payable to Shareholders 1,224 1,288
Obligations under long term capital leases 6,897 6,349
Less Current Portion (2,290) (2,686)
Long Term Debt 12,492 11,408
Deferred Taxes 140 140
Total Long Term Liabilities 12,632 11,548
Total Liabilities 24,178 22,593
Commitments (Note 4)
Stockholders Equity:
Common stock (Notes 6 and 9):
Class A, without par value - shares authorized,
500,000; issued 262,252 262 --
Class B, without par value - shares authorized,
500,000; issued 72,678 73 --
Common stock, $1 par - shares authorized,
500,000; issued 334,930 -- 335
Retained Earnings 13,530 12,882
Less Treasury Stock at cost, 37,600 shares
of Class A common stock (1,443) (1,443)
Total Stockholders Equity 12,422 11,774
$ 36,600 $ 34,367
See accompanying notes to unaudited financial statements.
F-19
ENGLAND/CORSAIR, INC.
INCOME STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended
September 30, September 30,
1994 1993
-------- ---------
Net Sales $ 23,063 $ 24,602
Cost of Sales 18,924 20,072
Gross Profit 4,139 4,530
Selling, general and administrative
expenses 2,979 3,097
Operating Profit 1,160 1,433
Interest Expense (374) (318)
Interest Income 16 19
Miscellaneous Income 24 16
Income before taxes 826 1,150
Income Taxes 35 24
Net Income $ 791 $ 1,126
Pro forma income taxes $ 305 $ 423
Pro forma net income $ 521 $ 727
Average Shares 297 298
Pro forma net income
Per Share $ 1.75 $ 2.44
Dividends Per Share $ 0.48 $ 2.18
See accompanying notes to unaudited financial statements.
F-20
ENGLAND/CORSAIR, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended
September 30, September 30,
1994 1993
Cash flows from operating activities:
Net income $ 791 $1,126
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 813 592
Decrease (increase) in accounts receivable (563) 185
Decrease (increase) in inventories (530) (805)
Decrease (increase) in prepaid and other (128) (126)
(Decrease) increase in payables and other 897 28
Total adjustments 489 (126)
Cash provided by operating activities: 1,280 1,000
Cash flows from investing activities:
Distributions to shareholders (143) (648)
Capital expenditures (544) (243)
Increase in cash surrender value (2) (31)
Net cash used in investing activities: (689) (922)
Cash flows from financing activities:
Proceeds from issuance of long term debt 2,478 806
Principal payments on long term debt (2,253) (362)
Principal payments under capital leases (667) (446)
Net cash used in financing activities (442) (2)
Net increase in cash 149 76
Cash, beginning of period 218 109
Cash, ending of period $ 367 $ 185
Supplemental disclosures:
Cash paid during period - income taxes* $ 3 $ 1
Cash paid during period - interest $ 440 $ 302
*E/C is an S corporation for tax purposes. All federal taxes are paid by
the shareholders.
See accompanying notes to unaudited financial statements.
F-21
ENGLAND/CORSAIR, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of
September 30, 1994 and the results of operations and cash flows
for the three months ended September 30, 1994 and September 30, 1993.
Note 2 - The results of operations for the three months ended September 30,
1994 are not necessarily indicative of the results to be expected for the full
year.
Note 3 - Inventories are summarized as follows:
(in Thousands)
September 30, 1994 June 30, 1994
Finished products, including tables $ 3,229 $2,784
Work-in-process 599 516
Raw materials 6,253 6,251
Total Inventories $10,081 $9,551
Note 4 - On January 13, 1995, the Company, La-Z-Boy Chair Company ("La-Z-Boy")
and LZB Acquisition, Inc. ("LZB"), a wholly-owned subsidiary of La-Z-Boy,
executed an agreement which provides for the acquisition of the Company by
LZB pursuant to the terms of the Amended and Restated Reorganization
Agreement, on the effective date, holders of the Company's stock will receive,
at their election, either shares of La-Z-Boy's common stock, La-Z-Boy's 8%
Unsecured Promissory Notes due 1999 and/or cash. Holders of the Company's
stock will also receive Performance Units which will provide for additional
considerations in respect of the Merger if certain defined performance goals
are achieved by the Company subsequent to the Merger.
ANNEX A
AMENDED AND RESTATED
REORGANIZATION AGREEMENT
dated as of January 13, 1995
among
La-Z-Boy Chair Company
LZB Acquisition, Inc.
and
England/Corsair, Inc.
TABLE OF CONTENTS
Page
PREMISES................................................................... 1
1. DEFINITIONS AND RULES OF CONSTRUCTION................................ 2
1.1. Definitions.................................................. 2
"Acquisition Event".......................................... 2
"Agreement".................................................. 2
"Alpha" .................................................... 2
"CERCLA" .................................................... 2
"Closing".................................................... 2
"Closing Date"............................................... 2
"Code" .................................................... 2
"Debt" .................................................... 2
"E/C" .................................................... 3
"E/C Agreement".............................................. 3
"E/C Balance Sheet Date"..................................... 3
"E/C Benefit Plans".......................................... 3
"E/C Class A Stock".......................................... 4
"E/C Class B Stock".......................................... 4
"E/C Disclosure Schedule".................................... 4
"E/C Financial Statements"................................... 4
"E/C Formerly Owned Property"................................ 4
"E/C Intellectual Property".................................. 4
"E/C Leased Personal Property"............................... 4
"E/C Permits"................................................ 4
"E/C Property"............................................... 5
"E/C Real Estate"............................................ 5
"E/C Real Estate Documents".................................. 5
"E/C Stock".................................................. 5
"E/C Shareholder Meeting".................................... 5
"Effective Time"............................................. 5
"Encumbrance"................................................ 5
"Environmental Laws"......................................... 5
"ERISA" .................................................... 6
"Exchange Act"............................................... 6
"Exchanges".................................................. 6
"GAAP" .................................................... 6
"Governmental Entity"........................................ 6
"Guaranties"................................................. 6
"Hart-Scott-Rodino Act"...................................... 6
"Hart-Scott-Rodino Filings".................................. 6
"Hazardous Substance(s)"..................................... 7
"ICC" .................................................... 7
"Indenture".................................................. 7
"IRS" .................................................... 7
"LZB" .................................................... 7
"LZB Acquisition"............................................ 7
"LZB Common Stock"........................................... 7
"LZB Company"................................................ 7
"LZB Disclosure Schedule".................................... 7
"LZB Notes".................................................. 7
"LZB Preferred Stock"........................................ 7
"LZB SEC Documents".......................................... 7
"Material"................................................... 8
"Material adverse effect".................................... 8
"Materially Burdensome Condition"............................ 8
"MBCA" .................................................... 8
"Merger" .................................................... 8
"Merger Consideration"....................................... 9
"Michigan Certificate of Merger"............................. 9
"Michigan Corporation Bureau"................................ 9
"Merger Securities".......................................... 9
"PBGC" .................................................... 9
"Performance Units".......................................... 9
"Person" .................................................... 9
"Plan of Merger"............................................. 9
"Proxy Statement/Prospectus"................................. 9
"RCRA" .................................................... 9
"Registration Statement"..................................... 9
"Requisite Regulatory Approvals"............................. 10
"Returns".................................................... 10
"SEC" .................................................... 10
"Securities Act"............................................. 10
"Subsidiary"................................................. 10
"Surviving Corporation"...................................... 10
"Takeover Proposal".......................................... 10
"Taxes" .................................................... 10
"TBCA" .................................................... 11
"Tennessee Articles of Merger"............................... 11
"Violation".................................................. 11
"Voting Debt"................................................ 11
1.2. Plurals...................................................... 11
1.3. Gender....................................................... 11
2. THE MERGER AND RELATED TRANSACTIONS.................................. 11
2.1. Plan of Merger............................................... 11
2.2. E/C Shareholder Meeting...................................... 12
2.3. LZB Acquisition Shareholder Action........................... 12
2.4. Articles and Certificate of Merger; Effective
Time......................................................... 12
3. THE CLOSING.......................................................... 12
3.1. Closing Date................................................. 12
3.2. Sales and Transfer Taxes..................................... 13
3.3. Further Assurances........................................... 13
4. REPRESENTATIONS AND WARRANTIES....................................... 13
4.1. Representations and Warranties of E/C........................ 13
4.1.1. Organization, Standing, and Power................... 13
4.1.2. Capital Structure................................... 13
4.1.3. Authority........................................... 14
4.1.4. E/C Financial Statements............................ 15
4.1.5. Registration Statement.............................. 16
4.1.6. Compliance with Applicable Laws..................... 16
4.1.7. Litigation.......................................... 17
4.1.8. Taxes............................................... 17
4.1.9. Certain Agreements.................................. 19
4.1.10. Employee Benefit Plans.............................. 19
4.1.11. Subsidiaries........................................ 21
4.1.12. Absence of Certain Changes or Events................ 22
4.1.13. Antitakeover Provisions............................. 22
4.1.14. Environmental Matters............................... 22
4.1.15. Approvals........................................... 24
4.1.16. Brokers and Finders................................. 24
4.1.17. Labor Matters....................................... 24
4.1.18. Undisclosed Liabilities............................. 25
4.1.19. Illegal Payments.................................... 26
4.1.20. Bank Accounts....................................... 26
4.1.21. Insurance Matters................................... 26
4.1.22. Intellectual Property............................... 27
4.1.23. Conduct of Business................................. 27
4.1.24. Title to Assets..................................... 29
4.1.25. Real Property....................................... 30
4.1.26. Leased Personal Property............................ 31
4.1.27. E/C Tangible Personal Property...................... 32
4.1.28. Accounts Receivable................................. 32
4.1.29. Inventory........................................... 32
4.2. Representations and Warranties of the LZB
Companies.................................................... 32
4.2.1. Organization, Standing, and Power................... 32
4.2.2. Capital Structure................................... 33
4.2.3. Authority........................................... 33
4.2.4. The Merger Securities............................... 35
4.2.4. LZB SEC Documents................................... 35
4.2.5. Registration Statement.............................. 36
4.2.6. Approvals........................................... 36
4.2.7. Brokers and Finders................................. 36
4.2.8. No Material Adverse Change.......................... 36
5. COVENANTS............................................................ 37
5.1. Covenants of E/C............................................. 37
5.1.1. Ordinary Course..................................... 37
5.1.2. Dividends and Distributions......................... 37
5.1.3. Charter and Bylaw Amendments........................ 37
5.1.4. Other Actions....................................... 37
5.1.5. Advice of Changes; Government Filings............... 38
5.1.6. Accounting Methods.................................. 38
5.1.7. S Corporation Status................................ 38
5.1.8. Affiliate Transactions.............................. 38
5.1.9. Other Actions....................................... 38
5.1.10. No Solicitations.................................... 38
5.1.11. Acquisitions........................................ 39
5.1.12. Dispositions........................................ 39
5.1.13. Debt................................................ 39
5.1.14. Benefit Plans....................................... 39
5.1.15. Discharge of Claims; Capital
Expenditures........................................ 40
5.1.16. Access to Information............................... 40
5.2. Covenants of LZB Companies................................... 40
5.2.1. Dividends and Distributions......................... 40
5.2.2. Charter and Bylaw Amendments........................ 40
5.2.3. Other Actions....................................... 40
5.2.4. Advice of Changes; Government Filings............... 41
5.2.5. Other Actions....................................... 41
6. ADDITIONAL AGREEMENTS................................................ 41
6.1. Regulatory Matters........................................... 41
6.1.1. Registration Statement.............................. 41
6.1.2. Hart-Scott-Rodino Filings........................... 41
6.1.3. General............................................. 41
6.2. Opinions of Counsel.......................................... 42
6.3. Legal Conditions to Mergers.................................. 43
6.4. Affiliates................................................... 43
6.5. Expenses..................................................... 43
6.6. Additional Agreements; Best Efforts.......................... 44
6.7. Plan of Merger............................................... 44
6.8. Letter of E/C's Accountants.................................. 44
6.9. Letter of LZB's Accountants.................................. 44
6.10. E/C Disclosure Schedule...................................... 45
7. CONDITIONS PRECEDENT................................................. 45
7.1. Conditions to Each Party's Obligation To Effect
the Merger................................................... 45
7.1.1. Shareholder Approval................................ 45
7.1.2. Listing on Exchanges................................ 45
7.1.3. Requisite Regulatory Approvals...................... 45
7.1.4. Registration Statement.............................. 45
7.1.5. Blue Sky Matters.................................... 45
7.1.6. No Restrictions or Restraints;
Illegality.......................................... 45
7.1.7. No Materially Burdensome Condition.................. 46
7.1.8. Governmental Action................................. 46
7.1.9. Affiliates' Agreements.............................. 46
7.1.10. LZB Notes and Indenture............................. 46
7.2. Conditions to Obligations of the LZB Companies............... 46
7.2.1. Representations and Warranties...................... 46
7.2.2. Performance of Obligations of E/C................... 47
7.2.3. Consents Under Agreements........................... 47
7.2.4. Tax Opinions........................................ 47
7.2.5. Legal Opinions...................................... 47
7.2.6. Debt................................................ 47
7.2.7. Accountants' Letters................................ 47
7.2.8. Tax Lock-Up Letters................................. 47
7.2.9. S Corporation Opinion............................... 48
7.2.10. Waivers of Indemnification Rights................... 48
7.2.11. Termination of Employment Agreements................ 48
7.3. Conditions to Obligations of E/C............................. 48
7.3.1. Representations and Warranties...................... 48
7.3.2. Performance of Obligations of E/C................... 48
7.3.3. Consents Under Agreements........................... 49
7.3.4. Tax Opinions........................................ 49
7.3.5. Legal Opinions...................................... 49
7.3.6. Accountants' Letters................................ 49
7.3.7. Tax Lock-Up Letters................................. 49
8. TERMINATION AND AMENDMENT............................................ 49
8.1. Termination.................................................. 49
8.2. Effect of Termination........................................ 51
8.3. Amendment.................................................... 51
8.4. Extension; Waiver............................................ 51
8.5. Liquidated Damages; Termination Fee.......................... 52
9. GENERAL PROVISIONS................................................... 52
9.1. Survival of Agreements....................................... 52
9.2. Notices...................................................... 52
9.3. Interpretation............................................... 53
9.4. Counterparts................................................. 53
9.5. Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership.......................................... 54
9.6. Governing Law................................................ 54
9.7. Enforcement of Agreement..................................... 54
9.8. Severability................................................. 54
9.9. Publicity.................................................... 54
9.10. Assignment................................................... 54
EXHIBITS
1. Plan of Merger
2. Outline of Terms of LZB Notes
AMENDED AND RESTATED
REORGANIZATION AGREEMENT
THIS AMENDED AND RESTATED REORGANIZATION AGREEMENT (this
"Agreement") is entered into as of January 13, 1995, by and among
La-Z-Boy Chair Company, a Michigan corporation ("LZB"); LZB
Acquisition, Inc., a Michigan corporation ("LZB Acquisition"); and
England/Corsair, Inc., a Tennessee corporation ("E/C").
PREMISES:
A. The parties have executed and delivered a Reorganization
Agreement dated as of January 13, 1995 (the "Original Agreement")
and a Plan of Merger, dated as of January 13, 1995 (the "Original
Plan").
B. The parties desire to amendSeptember 28, 1999, among
LADD Furniture, Inc., La-Z-Boy Incorporated and restate the Original
AgreementLZB Acquisition Corp.
and the Original Plan in their entirety as set forth inexhibits to that agreement, followed by a list of schedules
to the agreement (Note 2) (The schedules themselves are not filed
with this Registration Statement, pursuant to paragraph (2) of
Regulation S-K, Item 601. La-Z-Boy Incorporated will provide a copy
of any omitted schedule to the SEC upon its request.)
2.2 Amendment No. 1 to Agreement and the Amended and Restated Plan of Merger attached
hereto as Exhibit 1referenced above and
made a part hereof (the "Plan of Merger").
C. This Agreement, together with the Plan of Merger, sets
forth the terms and conditions of the reorganization of the E/C and
the LZB Companies through the Merger, in which E/C will be merged
with and into LZB Acquisition, LZB Acquisition (the surviving
corporation of the Merger) will continue to be a wholly owned
subsidiary of LZB, holders of E/C Stock will exchange their shares
of E/C Stock for Merger Consideration pursuant to conversion
formulas and procedures set forth in the Plan of Merger.
D. The Plan of Merger is being executed and delivered by the
parties thereto contemporaneously with the execution and delivery
of this Agreement.
E. The respective Boards of Directors of E/C, LZB, and LZB
Acquisition have determined that it is in the best interests of
E/C, LZB, and LZB Acquisition and their respective shareholders for
E/C to be merged with and into LZB Acquisition upon the terms and
subject to the conditions set forth in this Agreement and the Plan
of Merger and in accordance with the TBCA and the MBCA.
F. The respective Boards of Directors of E/C, LZB, and LZB
Acquisition have adopted resolutions approving this Agreement, the
Plan of Merger, and the Merger, and the Board of Directors of E/C
has resolved to recommend approval of this Agreement, the Plan of
Merger, and the Merger to its shareholders.
G. For federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under the provisions of
Section 368 of the Code.
H. E/C and the LZB Companies desire to make certain representations, warranties, and agreements in connection with the
transactions contemplated herein and also to prescribe various
conditions to the consummation of such transactions.
NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, and agreements
set forth herein, and intending to be legally bound hereby, the
parties agree as follows:
1. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1. Definitions. As used in this Agreement, the following
terms have the following meanings:
"Acquisition Event" means that E/C shall have
authorized, recommended, proposed, or announced an
intention to authorize, recommend, or propose, or entered
into an agreement with any person (other than either of
the LZB Companies) to effect a Takeover Proposal or shall
have failed to publicly oppose a tender offer or exchange
offer by another person based on a Takeover Proposal.
"Agreement" means this Agreement, as the same may
from time to time be amended or supplemented.
"Alpha" means Alpha Aviation, Inc., a Tennessee
corporation.
"CERCLA" means the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C.
sections 9601 et seq.
"Closing" means the consummation of the transactions
which this Agreement provides are to occur on the Closing
Date.
"Closing Date" is defined in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Debt" means the following to the extent any item is
not duplicative of another item: (a) all items of
borrowing which in accordance with GAAP would be included
in determining total liabilities as shown on the
liability side of a balance sheet as of the date at which
Debt is to be determined; (b) all Guaranties, letters of
credit, and endorsements (other than of notes, bills, and
checks presented to banks for collection or deposit in
the ordinary course of business); and (c) all items of
-2-
borrowing secured by any Encumbrance existing on any
property owned by the person whose Debt is to be
determined, whether or not the borrowings secured thereby
shall have been incurred or assumed by such person.
"E/C" means England/Corsair, Inc., a Tennessee
corporation.
"E/C Agreement" means any of the following, whether
oral or written, to which E/C or any Subsidiary is a
party: (a) any consulting agreement not terminable on 60
days or less notice; (b) any union, guild, or collective
bargaining agreement; (c) any agreement with any officer
or other key employee of E/C or any Subsidiary the
benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a
transaction involving E/C of the nature contemplated by
this Agreement; (d) any agreement with respect to any
officer of E/C or any Subsidiary providing any term of
employment or compensation guarantee; (e) any 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; (f) any noncompetition or similar agreement
which restricts the conduct of any business by E/C or any
Subsidiary; (g) any loan or line of credit agreement,
note, or other credit facility of E/C or any Subsidiary
or any guarantees by E/C or any Subsidiary of the
indebtedness of any other person; (h) any agreement
providing for the payment or receipt by E/C or any
Subsidiary of $100,000 or more in any twelve-month
period; or (i) any agreement between E/C and any
Subsidiary.
"E/C Balance Sheet Date" means November 25, 1994.
"E/C Benefit Plans" means all plans, contracts,
programs, and arrangements for the benefit of the
employees of E/C or any of its Subsidiaries, including
(but not limited to) employment agreements, collective
bargaining agreements, pensions, profit sharing
arrangements, bonuses, deferred compensation, retirement,
stock option, severance, hospitalization, insurance,
salary continuation, vacation, day care, scholarship, and
other employee benefit plans, programs, or arrangements
now maintained by E/C or any Subsidiary or under which
-3-
E/C or any Subsidiary has any obligations in respect of
any current or former employee.
"E/C Class A Stock" means the Class A Common Stock,
without par value, of E/C.
"E/C Class B Stock" means the Class B Common Stock,
without par value, of E/C.
"E/C Disclosure Schedule" means the disclosure
schedule to be delivered to the LZB Companies by E/C
pursuant to Section 6.10.
"E/C Financial Statements" means: (a) the balance
sheet as of June 30, 1994, the related statements of
income, retained earnings, and changes in cash flows of
E/C for the year ended June 30, 1994, the notes thereto
and the audit report prepared in connection therewith by
its independent certified public accountants; and (b) the
balance sheet as of November 25, 1994, the related
statements of income, retained earnings, and changes in
cash flows of E/C for the period from July 1, 1994 to
November 25, 1994, and the notes thereto.
"E/C Formerly Owned Property" means all E/C Property
owned or leased by E/C or any Subsidiary at any time in
the past but not owned or leased as of the Effective
Time.
"E/C Intellectual Property" means all intellectual
property of E/C or any Subsidiary including, without
limitation, all copyrights, patents, invention
disclosures, trade secrets, trademarks, trade names, and
service marks, whether registered or common law, and all
applications therefor that are pending or in the process
of preparation in the United States and in foreign
countries, that are directly or indirectly owned,
licensed, used, required for use, or controlled in whole
or in part by E/C or any Subsidiary.
"E/C Leased Personal Property" means all personal
property that is currently being leased by E/C or any
Subsidiary.
"E/C Permits" means all permits, licenses,
variances, exemptions, orders, and approvals of all
Governmental Entities which are necessary for the
operation of the business of E/C or any Subsidiary or the
use, operation, or ownership of any of the E/C Real
Estate.
-4-
"E/C Property" means any parcel of real estate now
or heretofore owned by E/C or any Subsidiary or in which
E/C or any Subsidiary has or had any interest, including
any lessee's interest or any interest held as security
for an obligation, and all E/C Formerly Owned Property.
"E/C Real Estate" means all real property that is
owned, leased, or subleased by E/C or any of its
Subsidiaries or as to which any of them has any interest
of any kind including, without limitation, all office,
manufacturing, and warehouse facilities and ground
leases.
"E/C Real Estate Documents" means all deeds, leases,
subleases, and other agreements and instruments relating
to any of the E/C Real Estate.
"E/C Stock" means either or both of the E/C Class A
Stock and the E/C Class B Stock.
"E/C Shareholder Meeting" means a meeting of E/C's
shareholders to be held for the purpose of voting upon
the approval of this Agreement, the Plan of Merger, and
the Merger.
"Effective Time" is defined in Section 2.4.
"Encumbrance" means any pledge, lien, security
interest, encumbrance, mortgage, claim, proxy, voting
trust, voting agreement, obligation, option, equity
interest, demand, lease, sublease, tenancy, license,
easement, or rights of occupancy or use by another person
or any other interest whatsoever.
"Environmental Laws" means: (a) the Toxic Substance
Control Act, 15 U.S.C. sections 2601 et seq.; (b) the National
Historic Preservation Act, 16 U.S.C. sections 470 et seq.;
(c) the Coastal Zone Management Zone Act of 1972, 16
U.S.C. sections 1451 et seq.; (d) the Rivers and Harbors Act of
1899, 33 U.S.C. sections 401 et seq.; (e) the Clean Water Act,
33 U.S.C. sections 1251 et seq.; (f) the Flood Disaster
Protection Act, 42 U.S.C. sections 4001 et seq.; (g) the
National Environmental Policy Act, 42 U.S.C. sections 4321 et
seq.; (h) RCRA; (i) the Clean Air Act, 42 U.S.C. sections 7401
et seq.; (j) CERCLA; (k) the Hazardous Materials
Transportation Act, 49 U.S.C. sections 1801 et seq.; (l) the
Safe Drinking Water Act, 42 U.S.C. sections 300f et seq.;
(m) the Emergency Planning and Community Right-to-Know
Act, 42 U.S.C. sections 11001 et seq.; (n) the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
sections 136 et seq.; (o) the Occupational Safety and Hygiene
-5-
Act, 29 U.S.C. sections 685 et seq.; and (p) all other federal,
state, county, municipal, local, foreign, and other
statutes, laws, regulations, and ordinances which relate
to or deal with protection of human health or the
environment; all as may be from time to time amended.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exchanges" means the New York Stock Exchange and
the Pacific Stock Exchange.
"GAAP" means generally accepted accounting
principles consistently applied.
"Governmental Entity" means any court, commission,
administrative agency, or other governmental authority or
instrumentality, whether federal, state, or local, and
whether domestic or foreign.
"Guaranties" means all obligations (other than
endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) of a
person guaranteeing any Debt of any other person in any
manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an
agreement, contingent, or otherwise, by such Person:
(a) to purchase such Debt or obligation or any property
or assets constituting security therefor; (b) to advance
or supply funds (i) for the purchase or payment of such
Debt or obligation, (ii) to maintain working capital or
other balance sheet conditions or otherwise to advance or
make available funds for the purchase or payment of such
Debt or obligation; (c) to lease property or to purchase
securities or other property or services primarily for
the purpose of assuring the owner of such Debt or
obligation; or (d) otherwise to assure the owner of the
Debt or obligation against loss in respect thereof.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, being Section 7A of
the Clayton Act, as amended.
"Hart-Scott-Rodino Filings" means the filing by E/C
and LZB of appropriate premerger notification forms with
respect to the Merger with the Federal Trade Commission
on the Justice Department pursuant to the Hart-Scott-
Rodino Act.
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"Hazardous Substance(s)" means: (a) any flammable or
combustible substance, explosive, and/or radioactive
material, hazardous waste, toxic substance, pollutant,
contaminant, and/or any related materials or substance
identified in and/or regulated by any of the
Environmental Laws; and (b) asbestos, polychlorinated
biphenyls, urea formaldehyde, chemicals and/or chemical
wastes, explosives, known carcinogens, petroleum products
and by-products (including fractions thereof), and radon.
"ICC" means the Interstate Commerce Commission.
"Indenture" means the Indenture pursuant to which
the LZB Notes will be issued, which shall be in form and
substance satisfactory to E/C and LZB.
"IRS" means the United States Internal Revenue
Service.
"LZB" meansexhibits
3.1 La-Z-Boy Chair Company, a Michigan
corporation.
"LZB Acquisition" means LZB Acquisition, Inc., a
Michigan corporation and a wholly owned subsidiary of
LZB.
"LZB Common Stock" means the Common Stock, $1.00 par
value, of LZB.
"LZB Company" means either LZB or LZB Acquisition.
"LZB Disclosure Schedule" means the disclosure
schedule delivered to E/C by the LZB Companies prior to
the execution of this Agreement.
"LZB Notes" means 8% Unsecured Promissory Notes Due
1999 of LZB issued pursuant to the Indenture, which shall
be in form and substance satisfactory to E/C and LZB and
which shall be consistent with the outline of the terms
thereof set forth in Exhibit 2.
"LZB Preferred Stock" means the Preferred Stock of
LZB.
"LZB SEC Documents" means the following documents
heretofore filed with or furnished to the SEC by LZB
(including, in each case, all documents incorporated by
reference therein): (a) Annual Report on Form 10-K for
the fiscal year ended April 30, 1994; (b) Quarterly
Reports on Form 10-Q for the fiscal quarters ended July
30, 1994 and October 29, 1994; (c) Current Report on Form
-7-
8-K dated June 2, 1994; (d) Annual Report to Shareholders
for the fiscal year ended April 30, 1994; and (e)
definitive Proxy Statement for the annual meeting of
shareholders held on July 25, 1994.
"Material" (whether or not capitalized), when used
with any reference to any event, change, or effect with
respect to a specified person, means an event, change, or
effect which is material in relation to the condition
(financial or otherwise), assets, liabilities,
businesses, results of operations, or prospects of such
person (and its Subsidiaries, if any) taken as a whole.
In addition to the foregoing, when used with reference to
E/C, an event, change, or effect is "material" if any
resulting cost or loss of profits to E/C or the Surviving
Corporation exceeds or may exceed $25,000 (prior to
giving effect to any Tax consequences thereof).
"Material adverse effect" (whether or not
capitalized), when used with respect to a specified
person, means a material adverse effect on either (a) the
business, assets, liabilities, results of operations,
condition (financial or otherwise), or prospects of such
person (and its Subsidiaries, if any) taken as a whole,
or (b) the ability of any of such person to perform its
obligations hereunder or to consummate the transactions
contemplated hereby. In addition to the foregoing, when
used with reference to E/C, "material adverse effect"
means any cost or loss of profits to E/C or the Surviving
Corporation in an amount exceeding $100,000 (prior to
giving effect to any Tax consequences thereof).
"Materially Burdensome Condition" means any action
taken, or any statute, rule, regulation, or order
enacted, entered, enforced, or deemed applicable to the
Merger or any of the transactions contemplated hereby, by
any Governmental Entity which, in connection with the
grant of a Requisite Regulatory Approval, imposes any
condition or restriction upon E/C, either of the LZB
Companies, or the Surviving Corporation which would so
materially adversely impact the economic or business
benefits of the transactions contemplated by this
Agreement as to render inadvisable, in the reasonable
judgment of the Board of Directors of E/C or either LZB
Company, the consummation of the Merger.
"MBCA" means the Business Corporation Act of the
State of Michigan, as amended.
"Merger" means the merger of E/C with and into LZB
Acquisition pursuant to the Plan of Merger and this
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Agreement.
"Merger Consideration" means any one or more of the
following: (a) LZB Common Stock; (b) LZB Notes; (c) cash;
and (d) Performance Units.
"Michigan Certificate of Merger" means a certificate
of merger with respect to the Merger, to be filed with
the Michigan Corporation Bureau in accordance with the
MBCA.
"Michigan Corporation Bureau" means the Corporation
and Securities Bureau of the Michigan Department of
Commerce.
"Merger Securities" means: (a) the LZB Common Stock
to be issued as part of the Merger Consideration; (b) LZB
Notes to be issued as part of the Merger Consideration;
(c) the Performance Units; and (d) the LZB Common Stock
to be issued in payment of the Performance Units.
"PBGC" means the Pension Benefit Guaranty
Corporation.
"Performance Units" is defined in the Plan of
Merger.
"Person" (whether or not capitalized) means any
entity, whether a natural person, trustee, corporation,
partnership, limited liability company, joint stock
company, trust, unincorporated organization, business
association or firm, joint venture, government or agency,
instrumentality, or public subdivision thereof, court, or
otherwise.
"Plan of Merger" means the Amended andIncorporated Restated Plan
of Merger dated as of January 13, 1995 between E/C and
LZB Acquisition, in the form of Exhibit 1.
"Proxy Statement/Prospectus" means the proxy
statement/prospectus constituting part of the
Registration Statement.
"RCRA" means the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. sections 6901 et seq.
"Registration Statement" means a Registration
Statement on Form S-4 to be filed with the SEC pursuant
to the Securities Act by LZB in connection with its
issuance of the Merger Securities.
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"Requisite Regulatory Approvals" means all
authorizations, consents, orders, or approvals of, all
declarations or filings with, and the expiration or early
termination of all waiting periods by, any Governmental
Entity which are prescribed by law as necessary for the
consummation of the Merger and the other transactions
contemplated hereby (including, but not limited to,
expiration or early termination of the applicable waiting
period under the Hart-Scott-Rodino Act and all required
filings with and actions by the ICC), other than the
filing of the Tennessee Articles of Merger and the
Michigan Certificate of Merger.
"Returns" means all returns, declarations, reports,
statements, and other documents requiredIncorporation (Note 3)
3.2 Amendment to be filed in
respect of Taxes.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933,
as amended.
"Subsidiary" means, when used in respect of any
person, any corporation or other organization, whether
incorporated or unincorporated, of which such person
directly or indirectly owns or controls securities or
other interests having by their terms ordinary voting
power to elect 50 percent or more of the board of
directors or others performing similar functions with
respect to such corporation or other organization, or any
organization in which such person is a general partner.
"Surviving Corporation" means LZB Acquisition as the
surviving corporation of the Merger.
"Takeover Proposal" means any tender or exchange
offer, proposal for a merger, consolidation, or other
business combination involving E/C, or any proposal or
offer to acquire in any manner 10 percent or more of any
class of E/C's capital stock or 10 percent or more of
E/C's assets, other than the transactions contemplated by
this Agreement.
"Taxes" means all federal, state, local, foreign,
and other net income, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise,
profits, license, lease, service, service use,
withholding, payroll, employment, unemployment and
payroll related, excise, severance, stamp, occupation,
premium, property, or windfall profits taxes, customs,
duties, or other taxes, fees, assessments, or charges of
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any kind whatever, together with any interest and any
penalties, additions to tax, or additional amounts with
respect thereto.
"TBCA" means the Tennessee Business Corporation Act,
as amended.
"TennesseeRestated Articles of Merger" means articles of
merger with respect to the Merger, to be filed with the
Tennessee Secretary of State in accordance with the TBCA.
"Violation" means, with respect to any document, any
event or condition which conflicts with, gives rise to or
results in any violation of or default (with or without
notice or lapse of time, or both) under, or gives rise to
a right of termination, cancellation, or acceleration of
any obligation or the loss of a material benefit under,
or the creation of an Encumbrance on assets pursuant to,
any provision of such document.
"Voting Debt" means bonds, debentures, notes, or
other indebtedness the holders of which have the right to
vote (or convertible into or exercisable for securities
having the right to vote) with the shareholders of the
issuer thereof on any matter.
1.2. Plurals. Any defined term used in this Agreement in the
plural form shall be deemed to include all members of the relevant
class.
1.3. Gender. Any masculine, feminine, or neuter word or term
used in this Agreement shall be deemed also to include the other
genders.
2. THE MERGER AND RELATED TRANSACTIONS.
2.1. Plan of Merger. The Plan of Merger sets forth: (a) the
name of each corporation planning to merge, the name of the
Surviving Corporation, and the name of each corporation whose
securities will be issued in connection with the Merger; (b) as to
each of E/C and LZB Acquisition, the designation and number of
outstanding shares of each class, specifying the classes entitled
to vote, and the manner (if any) in which the number of shares is
subject to change before the Effective Time; (c) the terms and
conditions of the Merger; (d) the manner and basis of converting
the outstanding shares of E/C Stock into Merger Consideration;
(e) a statement that no amendment to or restatement of the articles
of incorporation of the Surviving Corporation will be effected by
the Merger; and (f) certain other details and provisions applicable
to the Merger. LZB Acquisition shall be the Surviving Corporation.
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The Plan of Merger is intended to constitute the "plan of merger"
contemplated by Section 48-21-102 of the TBCA and the "plan of
merger" contemplated by Section 701 of the MBCA.
2.2. E/C Shareholder Meeting. E/C shall take all steps
necessary to duly call, give notice of, convene, and hold the E/C
Shareholder Meeting as soon as is reasonable after the date on
which the Registration Statement becomes effective, and E/C will,
through its Board of Directors, recommend to its shareholders
approval of this Agreement, the Plan of Merger, and the Merger
(unless, in the written opinion of E/C's independent counsel, such
recommendation is not consistent with the fiduciary duties of E/C's
Board of Directors).
2.3. LZB Acquisition Shareholder Action. Prior to the
Effective Time, LZB, as the sole shareholder of LZB Acquisition,
shall take all action proper or convenient for the consummation of
the Merger by LZB Acquisition.
2.4. Articles and Certificate of Merger; Effective Time.
Subject to the provisions of this Agreement, as soon as practicable
on the Closing Date: (a) the Tennessee Articles of Merger shall be
duly prepared, executed, and acknowledged by the Surviving
Corporation and thereafter delivered for filing to the Secretary of
State of the State of Tennessee, as provided in the TBCA; and
(b) the Michigan Certificate of Merger shall be duly prepared,
executed, and acknowledged by the Surviving Corporation and
thereafter delivered for filing to the Michigan Corporation Bureau,
as provided in the MBCA. "Effective Time" means the later of:
(i) the time at which the Merger becomes effective under the laws
of the State of Tennessee; or (ii) the time at which the Merger
becomes effective under the laws of the State of Michigan. It is
contemplated that E/C, LZB, and LZB Acquisition will agree in
writing to provide in the Tennessee Articles of Merger and the
Michigan Certificate of Merger for identical effective times under
the laws of both states.
3. THE CLOSING.
3.1. Closing Date. Subject to the terms and conditions
hereof, the Closing will take place at 10:00 a.m., Detroit,
Michigan time, on the third business day following the satisfaction
(or waiver, subject to applicable law) of the last to be satisfied
(or waived) of the conditions set forth in Sections 7.1, 7.2.3, and
7.3.3 or such other time and date as the parties agree to in
writing (the "Closing Date") at the offices of Miller, Canfield,
Paddock and Stone, P.L.C., Detroit, Michigan. All transactions
occurring and all documents executed and/or delivered at the
Closing shall be deemed to occur simultaneously, and no transaction
shall be deemed to have occurred and no document shall be deemed to
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have been executed or delivered unless all transactions shall have
occurred and all such documents shall have been executed and
delivered.
3.2. Sales and Transfer Taxes. All applicable sales,
transfer, stamp, documentary, and other similar taxes and
governmental fees, if any, which may be due or payable as a result
of the Merger shall be borne and paid by the Surviving Corporation
if the Merger is consummated and otherwise shall be borne and paid
by the party incurring the same.
3.3. Further Assurances. From time to time subsequent to the
Closing Date, E/C and LZB Acquisition shall at the request of LZB
execute and deliver such additional documents, instruments,
certifications, papers, and other assurances as may be requested by
LZB as necessary, appropriate, convenient, useful, or desirable to
effectively carry out the intent of this Agreement and/or the Plan
of Merger.
4. REPRESENTATIONS AND WARRANTIES.
4.1. Representations and Warranties of E/C. E/C represents
and warrants to the LZB Companies as follows:
4.1.1. Organization, Standing, and Power. E/C is a
corporation duly incorporated, validly existing, and in good
standing under the laws of its jurisdiction of incorporation,
has all requisite power and authority (corporate and other) to
own, lease, and operate its properties and to carry on its
business as now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its
properties makes such qualification necessary other than in
such jurisdictions where the failure to so qualify would not
have a material adverse effect on E/C. Section 4.1.1 of the
E/C Disclosure Schedule will correctly set forth the
jurisdictions in which E/C is qualified to do business. True
and complete copies of the charter and bylaws of E/C as
currently in effect have been delivered to LZB.
4.1.2. Capital Structure.
(a) The authorized capital stock of E/C consists solely
of 500,000 shares of E/C Class A Stock and 500,000 shares of
E/C Class B Stock. As of the date of this Agreement, 224,652
shares of E/C Class A Stock are issued and outstanding, and
72,678 shares of E/C Class B Stock are issued and outstanding.
All outstanding shares of E/C Stock have been duly authorized
and validly issued and are fully paid and nonassessable and
not subject to any preemptive rights. 37,600 shares of E/C
-13-
Class A Stock and no shares of E/C Class B Stock are held by
E/C as treasury shares. No shares of any class of E/C's
capital stock are reserved for issuance for any purpose.
(b) E/C owns 50 percent of the issued and outstanding
shares of capital stock of Alpha. All such shares of capital
stock of Alpha have been duly authorized and validly issued,
are fully paid and nonassessable, and are owned by E/C free
and clear of any Encumbrance except as will be set forth in
Section 4.1.2(b) of the E/C Disclosure Schedule. Section
4.1.2(b) of the E/C Disclosure Schedule will set forth the
name, address, telephone number, and number of shares held
with respect to each other shareholder of Alpha.
(c) E/C has no outstanding Voting Debt.
(d) Except for this Agreement and the Plan of Merger,
E/C has no outstanding options, warrants, calls, rights,
commitments, or agreements of any character to which it is a
party or is bound obligating it to issue, deliver, or sell, or
to cause to be issued, delivered, or sold, additional shares
of capital stock, any Voting Debt, or any other security with
voting rights in E/C or obligating E/C to grant, extend, or
enter into any such option, warrant, call, right, commitment,
or agreement. On and immediately following the Effective
Time, there will be no option, warrant, call, right, or
agreement obligating E/C to issue, deliver, or sell, or to
cause to be issued, delivered, or sold, any shares of capital
stock, any Voting Debt, or any other security with voting
rights in E/C or obligating E/C to grant, extend, or enter
into any such option, warrant, call, right, or agreement.
There are no outstanding contractual obligations of E/C to
repurchase, redeem, or otherwise acquire any shares of its
capital stock. E/C is not required to, and no shareholder of
E/C has any right to require E/C to, redeem, repurchase, or
otherwise acquire or to offer to redeem, repurchase, or
otherwise acquire any shares of its capital stock in
connection with or as a result of the Merger or the other
transactions contemplated in this Agreement.
4.1.3. Authority.
(a) E/C has all requisite corporate power and authority
to enter into this Agreement and the Plan of Merger and,
subject to approval of this Agreement and the Plan of Merger
by the shareholders of E/C, to consummate the transactions
contemplated hereby and thereby. The execution and delivery
of this Agreement and the Plan of Merger and the consummation
of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part
of E/C, subject to the approval of this Agreement and the Plan
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of Merger by the shareholders of E/C. No approval or adoption
of the shareholders of E/C is required to consummate the
Merger and the other transactions contemplated hereby other
than specifically set forth in Section 7.1.1. This Agreement
and the Plan of Merger have been duly executed and delivered
by E/C and constitute legal, valid, and binding obligations of
E/C, enforceable against E/C in accordance with their terms,
except as enforceability may be limited by general principles
of equity, whether considered at law or in equity, and
bankruptcy, insolvency, and similar laws affecting creditors'
rights and remedies generally.
(b) The execution and delivery of this Agreement and the
Plan of Merger and the consummation of the transactions
contemplated hereby and thereby will not be, give rise to, or
result in any Violation of the charter or bylaws of E/C or
(subject to obtaining or making the consents, approvals,
orders, authorizations, registrations, declarations, and
filings referred to in paragraph (c) below, and except as will
be set forth in Section 4.1.3(b) of the E/C Disclosure
Schedule) be, give rise to, or result in any Violation of, or
require the consent of any other person that is a party to,
any loan or credit agreement, note, mortgage, indenture,
lease, sublease, E/C Benefit Plan, or other agreement,
obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance,
rule, or regulation applicable to E/C or its properties or
assets.
(c) No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental
Entity is required by or with respect to E/C in connection
with the execution and delivery of this Agreement or the Plan
of Merger by E/C or the consummation by E/C of the
transactions contemplated hereby or thereby, except for:
(i) the filing of the Tennessee Articles of Merger with the
Secretary of State of the State of Tennessee; (ii) the filing
of the Certificate of Merger with the Michigan Corporation
Bureau; (iii) the filing of appropriate documents with the
relevant authorities of other states in which E/C is qualified
to do business; (iv) E/C's Hart-Scott-Rodino Filing and
expiration or early termination of the waiting period under
the Hart-Scott-Rodino Act; (v) the filings with and actions by
the ICC which will be described in Section 4.1.3(c) of the E/C
Disclosure Schedule; and (vi) such other matters, if any, as
will be set forth in Section 4.1.3(c) of the E/C Disclosure
Schedule.
4.1.4. E/C Financial Statements. E/C has delivered to
the LZB Companies true and complete copies of the E/C
Financial Statements. The E/C Financial Statements have been
-15-
prepared in accordance with GAAP and fairly present the
financial position of E/C as at the dates thereof and the
results of its operations and cash flows or changes in
financial position for the periods then ended.
4.1.5. Registration Statement. None of the
information supplied or to be supplied by E/C for inclusion in
(a) the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(b) the Proxy Statement/Prospectus or any amendment or
supplement thereto will, at the date of mailing to
shareholders and at the time of the E/C Shareholder Meeting,
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 were made, not misleading.
The Proxy Statement/Prospectus (except for such portions
thereof that relate only to the LZB Companies) will comply in
all material respects with the laws of the State of Tennessee
and with any applicable provisions of the Exchange Act and the
rules and regulations thereunder, and the Registration
Statement (except for portions thereof that relate only to the
LZB Companies) will comply in all material respects with the
provisions of the Securities Act and the rules and regulations
thereunder.
4.1.6. Compliance with Applicable Laws. E/C holds all
E/C Permits, except for E/C Permits the lack of which does not
and will not, individually or in the aggregate, have a
material adverse effect on E/C. A list of the material E/C
Permits held by E/C will be set forth in Section 4.1.6 of the
E/C Disclosure Schedule, and each of the E/C Permits so listed
is in full force and effect. E/C is in compliance in all
material respects with the terms of the E/C Permits and all
applicable laws and regulations, except for possible
violations which, individually or in the aggregate, do not and
will not have a material adverse effect on E/C. The
businesses of E/C and its Subsidiaries are not being
conducted, and have not been conducted during the past five
years, in violation of any law, ordinance, regulation, order,
writ, rule, or decree of any Governmental Entity except for
possible violations which, individually or in the aggregate,
do not and will not have a material adverse effect on E/C. No
investigation by any Governmental Entity with respect to E/C
or any Subsidiary is pending or, to the best knowledge of E/C,
threatened. None of the E/C Companies is required, or has
ever been required, to be registered under the Investment
Company Act of 1940, as amended.
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4.1.7. Litigation. Except as will be set forth in
Section 4.1.7 of the E/C Disclosure Schedule, there is no
claim, suit, action, arbitration, or governmental proceeding
or investigation pending or, to the best knowledge of E/C,
threatened against or affecting E/C or any Subsidiary which,
if adversely determined, would, individually or in the
aggregate, have a material adverse effect on E/C, nor is there
any reasonable basis for any such claim, suit, action,
arbitration, or governmental proceeding or investigation.
Except as will be set forth in Section 4.1.7 of the E/C
Disclosure Schedule, there is no judgment, decree, injunction,
rule, or order of any Governmental Entity or arbitrator
outstanding against E/C or any Subsidiary. Section 4.1.7 of
the E/C Disclosure Schedule will list all consents, orders,
decrees, and other compliance agreements with any Governmental
Entity under which E/C or any Subsidiary is operating or by
which any of their assets are bound and, to the best knowledge
of E/C, all investigations commenced by any Governmental
Entity against E/C or any Subsidiary during the past five
years.
4.1.8. Taxes.
(a) There have been properly completed in all material
respects and filed on a timely basis, and in correct form in
all material respects, all Returns required to be filed by E/C
or any Subsidiary. All taxes owing by E/C or any Subsidiary
for all periods ended on or prior to the date of the latest of
the E/C Financial Statements have either been paid or
adequately accrued in accordance with GAAP in such E/C
Financial Statements.
(b) Except as will be described in Section 4.1.8 of the
E/C Disclosure Schedule, within the last five years: (i) there
has not been any review or audit by any taxing authority of
any Taxes of E/C or any Subsidiary; (ii) neither E/C nor any
Subsidiary has received notice of any pending or threatened
audit by the IRS or any other Governmental Entity related to
any Returns or Tax liability of E/C or any Subsidiary for any
period; and (iii) no claim for assessment or collection of
Taxes has been asserted against E/C or any Subsidiary.
Neither E/C nor any Subsidiary has any unpaid deficiency
assessed by the IRS or any other Governmental Entity with
respect to any of Returns of E/C or any Subsidiary, nor is
there reason to believe that any deficiency will be assessed.
There are no actions, suits, proceedings, investigations, or
claims now pending or, to the best knowledge of E/C,
threatened against E/C or any Subsidiary in respect of Taxes,
nor are there any matters under discussion with any
Governmental Entity relating to Taxes.
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(c) No agreements have been made or are currently being
negotiated by or on behalf of E/C or any Subsidiary for any
waiver or for the extension of any statute of limitations
governing the time of assessment or collection of any Taxes,
and no closing agreements or compromises are currently pending
or have been entered into by E/C or any Subsidiary.
(d) E/C and each Subsidiary has withheld in connection
with the amount paid to any officer, director, employee,
independent contractor, creditor, shareholder, or other third
party the amount of all Taxes and other amounts required to be
withheld therefrom by applicable law and has paid the same to
the proper Governmental Entities or other receiving officers
within the time required under applicable law.
(e) There are no liens for Taxes (other than for current
Taxes not yet due and payable) on any of the assets of E/C or
any Subsidiary.
(f) None of the assets of E/C or any Subsidiary is
property that is required to be treated as being owned by any
other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code.
(g) None of the assets of E/C or any Subsidiary directly
or indirectly secures any debt the interest on which is tax-
exempt under Section 103(a) of the Code.
(h) Neither E/C nor any Subsidiary: (i) has filed a
consent under Section 341(f) of the Code; (ii) has made any
payments or is obligated to make any payments, or is a party
to any compensatory agreement with respect to the performance
of services that under certain circumstances could obligate it
to make any payments, that may not be deductible under Section
280G of the Code; (iii) is a new loss corporation within the
meaning of Section 382(k)(3) of the Code; (iv) is or has been
a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code; (v) (A) has been a
member of an affiliated group of corporations that filed a
consolidated return with respect to the federal corporate
income tax for any taxable year in lieu of separate returns
(other than a group the common parent of which was E/C),
(B) has been a member of an affiliated group of corporations
that was considered by authorities in any jurisdiction to
conduct a unitary business the combined income of which was
subject to Tax in such jurisdiction, or (C) to the best
knowledge of the E/C Companies, has any liability for the
Taxes of any person under Section 1.1502-6 of the Treasury
Regulations (or any similar provision of state, local, or
foreign law) as a transferee or successor, by contract, or
otherwise; (vi) is a party to any safe harbor lease within the
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meaning of Section 168(f)(8) of the Internal Revenue Code of
1954 (as in effect prior to enactment of the Tax Equity and
Fiscal Responsibility Act of 1982); (vii) owns any asset that
is tax-exempt use property within the meaning of Section
168(h) of the Code; (viii) has agreed, or is required, to make
any adjustment under Section 481(a) of the Code by reason of
a change in accounting method; or (ix) has ever computed its
taxable income for federal income tax purposes using the cash
receipts and disbursements method of accounting.
(i) Section 4.1.8(i) of the E/C Disclosure Schedule will
set forth the following information with respect to E/C and
each Subsidiary as of the most recent practicable date (which
date is specified therein): (i) the tax basis of any stock
owned by such company in any Subsidiary of E/C (or the amount
of such company's excess loss account with respect to such
stock); (ii) the amount of any net operating loss, capital
loss, unused investment or other credit, or excess charitable
contribution; and (iii) the amount of any gain or loss on
deferred intercompany transactions that has been deferred by
such company under Section 1.1502-13 of the Treasury
Regulations and the character and source of such gain or loss.
(j) There is no tax-sharing agreement or similar
agreement with respect to or involving E/C or any Subsidiary.
(k) No new elections with respect to Taxes or any
changes in current elections with respect to Taxes affecting
E/C or any Subsidiary will be made after the date of this
Agreement without the prior written consent of LZB.
4.1.9. Certain Agreements. Except for this Agreement
and the Plan of Merger, all E/C Agreements will be listed in
Section 4.1.9 of the E/C Disclosure Schedule. There are no
defaults or events which with the passage of time or the
giving of notice would constitute defaults under any of the
E/C Agreements on the part of any person that is a party to
any of the E/C Agreements. Section 4.1.9 of the E/C
Disclosure Schedule will contain a true and complete
description of all transactions with management and others,
business relationships, indebtedness of management, and
transactions with promoters that would be required to be
disclosed pursuant to Item 404 of Regulation S-K promulgated
by the SEC for the current and last two fiscal years of E/C.
4.1.10. Employee Benefit Plans.
(a) Section 4.1.10 of the E/C Disclosure Schedule will
contain a true and complete list of all E/C Benefit Plans.
True and complete copies of all current and prior documents,
including all amendments, with respect to each E/C Benefit
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Plan and related trust or other funding vehicle to be listed
in Section 4.1(j)(i) of the E/C Disclosure Schedule will be
provided to the LZB Companies with the E/C Disclosure
Schedule. With respect to each "employee benefit plan,"
within the meaning of Section 3(3) of the ERISA, all of which
will be listed in Section 4.1.10 of the E/C Disclosure
Schedule, E/C will provide the LZB Companies (at the same time
it provides the E/C Disclosure Schedule) with true and
complete copies of (i) the three most recent annual actuarial
valuation reports, if any, (ii) the five most recently filed
Form 5500s or 5500-Cs and Schedules A and B thereto, (iii) all
IRS rulings, if any, (iv) the most recent IRS determination
letter, if any, and (v) each form 5310 and any related
documents filed with the IRS or with the PBGC with respect to
any E/C Benefit Plan during the most recent six full plan
years.
(b) With respect to any and all of the E/C Benefit
Plans: (i) none of the E/C Benefit Plans is an "employee
pension benefit plan," as defined in Section 3(2) of ERISA;
(ii) E/C and its Subsidiaries have performed all obligations
required to be performed by them under the E/C Benefit Plans
and are not in default under or in violation of, and have no
knowledge of any other person's default under or violation of,
any E/C Benefit Plan; (iii) each such plan is in compliance
with the requirements prescribed by any and all statutes,
orders, or governmental rules or regulations applicable to
such plan, including but not limited to ERISA and the Code;
(iv) neither E/C, any Subsidiary, nor any other "disqualified
Person" or "party in interest," within the meanings of Section
4975 of the Code or Section 3(14) of ERISA, respectively, has
engaged in any "prohibited transaction," as such term is
defined in Section 4975 of the Code or Section 406 of ERISA,
which could, following the Effective Time, subject any plan
(or its related trust), E/C, any Subsidiary of E/C, either of
the LZB Companies, or any officer, director, or employee of
any of such entities, to any tax or penalty imposed under the
Code or ERISA; (v) there are no actions, suits, or claims
pending (other than routine claims for benefits) or threatened
against any E/C Benefit Plan or against the assets of any E/C
Benefit Plan; (vi) no E/C Benefit Plan is subject to Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the Code;
(vii) each "plan official," within the meaning of Section 412
of ERISA, of each Plan is bonded to the extent required by
said Section 412; (viii) no proceeding has been initiated to
terminate any E/C Benefit Plan, and no "reportable event,"
within the meanings of Section 4043(b) or 4063(a) of ERISA,
has occurred with respect to any E/C Benefit Plan (other than
those which may result from the transactions contemplated
hereby); (ix) E/C and its Subsidiaries have complied in all
material respects with the reporting and disclosure
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requirements of ERISA, and all filings and reports as to each
E/C Benefit Plan required to have been made on or before the
Effective Time to the IRS, the PBGC, or the Department of
Labor have been or will be made on or before the Effective
Time; (x) all insurance premiums incurred or accrued up to and
including the Effective Time to the PBGC have been timely paid
by the E/C Companies; and (xi) there are no leased employees
that must be taken into account under any E/C Benefit Plan
pursuant to Code Section 414(n)(3).
(c) No E/C Benefit Plan is subject to Title IV of ERISA.
(d) With respect to each E/C Benefit Plan that is a
defined contribution plan within the meaning of Section 3(34)
of ERISA, to the extent required by the terms of such E/C
Benefit Plan, E/C and its Subsidiaries have paid all
contributions on behalf of prior plan years and any salary
deferrals and employer contributions, including matching
contributions, that have accrued for the current plan year.
(e) Neither E/C nor any Subsidiary maintains or
participates in, or has ever maintained or participated in, a
plan which is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(f) Except as will be specifically set forth in Section
4.1.10(f) of the E/C Disclosure Schedule, with respect to each
E/C Benefit Plan that is an "employer welfare benefit plan"
within the meaning of Section 3(1) of ERISA: (i) each such E/C
Benefit Plan which is intended to meet the requirements for
tax-favored treatment under Subchapter B of Chapter 1 of the
Code meets such requirements; (ii) there is no disqualified
benefit (as such term is defined in Section 4976(b) of the
Code) which would subject E/C, any of its Subsidiaries, or
either of the LZB Companies to a tax under Section 4976(a) of
the Code; (iii) each such E/C Benefit Plan that is a "group
health plan" as such term is defined in Section 5000(b)(i) of
the Code satisfies and has satisfied the applicable
requirements of Sections 601 through 608 of ERISA, Section
162(k) of the Code (through December 31, 1988), and Section
4980B of Code (commencing on January 1, 1989); and (iv) each
such E/C Benefit Plan that covers former employees of E/C or
any Subsidiary may be amended or terminated by E/C or such
Subsidiary on or at any time after the Effective Time, and all
of the liabilities to such former employees (and future former
employees) under such E/C Benefit Plan have been reflected in
the E/C Financial Statement in a manner satisfying the
requirements of FAS 106.
4.1.11. Subsidiaries. E/C has no Subsidiaries other
than Alpha.
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4.1.12. Absence of Certain Changes or Events. Except
as will be disclosed in Section 4.1.12 of the E/C Disclosure
Schedule, since the E/C Balance Sheet Date neither E/C nor any
Subsidiary has incurred any material liability except in the
ordinary course of its business consistent with its past
practices, nor has there been any change, or any event
involving a prospective change, in the business, assets,
liabilities, condition (financial or otherwise), results of
operations, or prospects of E/C or any Subsidiary which has
had, or is reasonably likely to have, a material adverse
effect on E/C.
4.1.13. Antitakeover Provisions. None of the
provisions of the Tennessee Investor Protection Act, the
Tennessee Business Combination Act, or the Tennessee Control
Share Acquisition Act apply or will apply to the transactions
contemplated by this Agreement.
4.1.14. Environmental Matters.
(a) A true and correct list of all E/C Property and all
E/C Formerly Owned Property, including the address and the
county in which such property is located, will be set forth in
Section 4.1.14(a) of the E/C Disclosure Schedule.
(b) Except as will be described in Section 4.1.14(b) of
the E/C Disclosure Schedule, E/C and each of its Subsidiaries
is now and has at all times been in compliance with all
Environmental Laws except for any violations which,
individually or in the aggregate, would not have a material
adverse effect on E/C. Except as will be described in Section
4.1.14(b) of the E/C Disclosure Schedule, no Hazardous
Substances have been stored, treated, released, emitted, or
disposed of, or otherwise deposited, on or in the E/C Property
in violation of any Environmental Law except any of the
foregoing as would not, individually or in the aggregate, have
a material adverse effect on E/C. A true and correct list of
all Hazardous Substances now or heretofore used or generated
by E/C or any Subsidiary will be set forth in Section
4.1.14(b) of the E/C Disclosure Schedule. All Hazardous
Substances to be disclosed in Section 4.1.14(b) of the E/C
Disclosure Schedule have been used, generated, stored,
treated, released, emitted, and disposed of, or otherwise
deposited, on or in the E/C Property in compliance with all
Environmental Laws except for any violations which,
individually or in the aggregate, would not have a material
adverse effect on E/C.
(c) Except as will be described in Section 4.1.14(c) of
the E/C Disclosure Schedule, no activity has been undertaken
on any E/C Property that would cause or contribute to:
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(i) such E/C Property becoming a treatment, storage, or
disposal facility within the meaning of RCRA or any similar
state law or local ordinance; (ii) a release or threatened
release of any Hazardous Substances; or (iii) the discharge of
pollutants or effluents into any water source or system or
into the air, or the dredging or filling of any waters, that
would require a permit under the Federal Water Pollution
Control Act, 33 U.S.C. sections 1251 et seq., the Clean Air Act, as
amended, 42 U.S.C. sections 7401 et seq., or any similar foreign or
state law or local ordinance.
(d) Except as will be described in Section 4.1.14(d) of
the E/C Disclosure Schedule, there are no substances or
conditions in or on any of the E/C Property or any operations
conducted in or on any of the E/C Property that may support a
claim or cause of action or imposition of any liability under
any Environmental Law against E/C or any Subsidiary, except
for any claim, cause of action, or liability which would not,
individually or in the aggregate, have a material adverse
effect on E/C.
(e) Except as will be described in Section 4.1.14(e) of
the E/C Disclosure Schedule, there are not and never have been
any underground storage tanks located in or under any E/C
Property.
(f) E/C and its Subsidiaries have obtained all permits
required by all applicable Environmental Laws, and all such
permits are in full force and effect, except for any such
permits the lack of which would not, individually or in the
aggregate, have a material adverse effect on E/C. Except as
will be described in Section 4.1.14(f) of the E/C Disclosure
Schedule, E/C and its Subsidiaries are and have at all times
been in compliance with all such permits, except for any
violations which, individually or in the aggregate, would not
have a material adverse effect on E/C.
(g) Except as will be described in Section 4.1.14(g) of
the E/C Disclosure Schedule, neither E/C, any of its
Subsidiaries, nor any of their respective directors, officers,
employees, or agents have generated or transported any
Hazardous Substances at any time which have been transported
to or disposed of in any landfill, waste processing facility,
or other facility, which transportation or disposal could
create liability to any unit of government or any third
person, except for any such liability which, individually or
in the aggregate, would not have a material adverse effect on
E/C. Neither E/C nor any Subsidiary has received any request
for response action, administrative or other order (or request
therefor), judgment, complaint, claim, investigation, request
for information, or other request for relief in any form
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relating to any facility where Hazardous Substances generated
or transported by E/C or any Subsidiary have been disposed of,
placed, or located. No later than the time it delivers the
E/C Disclosure Schedule, E/C will provide the LZB Companies
with true and complete copies of, or access to, all manifests
and records maintained by E/C or any Subsidiary relating to
such transporters, landfills, and other facilities.
(h) Except as will be described in Section 4.1.14(h) of
the E/C Disclosure Schedule, there are no pending or, to the
best knowledge of E/C, threatened claims, investigations,
administrative proceedings, litigation, regulatory hearings,
or requests or demands for remedial or response actions or for
compensation with respect to any E/C Property, alleging
noncompliance with or violation of any Environmental Law, or
seeking relief under any Environmental Law, nor, to the best
knowledge of E/C, is there any reasonable basis therefor.
(i) Except as will be described in Section 4.1.14(i) of
the E/C Disclosure Schedule, none of the E/C Property is or
ever has been listed on the United States Environmental
Protection Agency's National Priorities List of Hazardous
Waste Sites or any other list, schedule, log, inventory, or
record of hazardous waste sites maintained by any federal,
state, or local agency.
(j) E/C has disclosed and delivered to the LZB Companies
all environmental reports and investigations which E/C or any
Subsidiary has obtained or ordered with respect to any E/C
Property during the past ten years.
4.1.15. Approvals. E/C knows of no reason why all
Requisite Regulatory Approvals should not be obtained without
the imposition of any Materially Burdensome Condition.
4.1.16. Brokers and Finders. Neither E/C nor any of
its directors, officers, or employees has employed any broker
or finder or incurred any liability for any financial advisory
fees, brokerage fees, commissions, or similar payments in
connection with the transactions contemplated by this
Agreement.
4.1.17. Labor Matters.
(a) Neither E/C nor any of its Subsidiaries is or ever
has been a party to any collective bargaining agreement or
labor union contract. Except as will be listed in Section
4.1.17(a) of the E/C Disclosure Schedule, no grievance
procedure, arbitration proceeding or other labor controversy
is pending against any E/C or any Subsidiary that would result
in a material liability. E/C and its Subsidiaries have
-24-
complied in all material respects with all laws relating to
the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, equal employment,
safety, collective bargaining, and the payment of social
security and similar Taxes, and neither E/C nor any Subsidiary
is liable for any arrears of wages or any Taxes or penalties
for failure to comply with any of the foregoing. Except as
will be disclosed in Section 4.1.17(a) of the E/C Disclosure
Schedule, there is no unfair labor practice or similar
complaint against E/C or any Subsidiary pending before the
National Labor Relations Board or any similar authority or any
strike, dispute, slowdown, work stoppage, or lockout pending
or threatened against E/C or any Subsidiary or any compliant
pending before the Equal Employment Opportunity Commission or
any comparable federal, state, or local fair employment
practices agency and none has existed during the past five
years.
(b) Section 4.1.17(b) of the E/C Disclosure Schedule
will contain a true and complete list of the following with
respect to E/C and each Subsidiary: the names, positions, and
compensation of each director, each officer, and each employee
who received during 1994, or who is expected to receive during
1995, $100,000 or more, together with a statement of the
annual salary payable to such person, summaries of bonus
arrangements, and descriptions of agreements for commissions
or additional compensation and other like benefits, if any,
paid or payable to each such person. Except as will be listed
in Section 4.1.17(b) of the E/C Disclosure Schedule, all
employees of E/C and its Subsidiaries are employees-at-will,
may be terminated at any time for any lawful reason or for no
reason, and have no entitlement to employment by virtue of any
oral or written contract, employer policy, or otherwise.
(c) There are no retired employees of E/C or any
Subsidiary who are receiving or are entitled to receive any
payments or any health or other benefits from E/C or any
Subsidiary.
4.1.18. Undisclosed Liabilities. Neither E/C nor any
Subsidiary has any liabilities or obligations, accrued,
contingent, or otherwise, that are material to E/C that do not
satisfy one of the following: (a) such liabilities or
obligations have been reflected or disclosed in the E/C
Financial Statements; (b) such liabilities or obligations have
been incurred since the E/C Balance Sheet Date in the ordinary
course of business; or (c) such liabilities or obligations
will be disclosed in Section 4.1.18 of the E/C Disclosure
Schedule. E/C knows of no basis for the assertion against it
or against any Subsidiary of any liability, obligation, or
claim (including, without limitation, that of any Governmental
-25-
Entity) that is likely to result in or have a material adverse
effect on E/C that is not fairly reflected in the E/C
Financial Statements.
4.1.19. Illegal Payments. Neither E/C, any of its
Subsidiaries, nor any of their directors, officers, agents, or
employees, or any other person acting on behalf of any of them
has, directly or indirectly: (a) used any corporate funds of
E/C or any Subsidiary for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to
political activity; (b) made any unlawful payments on behalf
of E/C or any Subsidiary to foreign or domestic government
officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; (c) violated any
provision of the Foreign Corrupt Practices Act of 1977, as
amended; (d) knowingly made any false or fictitious entry on
the books or records of E/C or any Subsidiary; or (e) made any
bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment on behalf of E/C or any Subsidiary.
4.1.20. Bank Accounts. Section 4.1.20 of the E/C
Disclosure Schedule will contain a true and complete list of
the names and locations of all banks or other financial
institutions which are depositories of funds of any of E/C or
any Subsidiary, the names of all persons authorized to draw or
sign checks or drafts upon such accounts, the numbers of such
accounts, and the names and locations of any institutions in
which E/C or any Subsidiary has safe deposit boxes and the
names of the individuals having access thereto. Neither E/C
nor any Subsidiary has any outstanding powers of attorney.
4.1.21. Insurance Matters. All policies of insurance
covering any of E/C's or any Subsidiary's real and personal
property or providing for business interruption, personal or
product liability coverage, and other insurance will be
described in Section 4.1.21 of the E/C Disclosure Schedule
(specifying the insurer, the policy number, type of insurance,
and any pending claims thereunder). Such insurance is in
amounts deemed by E/C to be sufficient with respect to its and
its Subsidiaries' assets, properties, business, operations,
products, and services as the same are presently owned or
conducted. All such policies are in full force and effect,
and the premiums have been paid when due. Except as will be
described in Section 4.1.21 of the E/C Disclosure Schedule,
other than claims made under the policies in the ordinary
course and which are not material in amount, there are no
claims, actions, suits, or proceedings arising out of or based
upon any of such policies of insurance, and, to the best
knowledge of E/C, no reasonable basis for any such claim,
action, suit, or proceeding exists. Neither E/C nor any
Subsidiary is in default with respect to any provisions
-26-
contained in any such insurance policies, and none of them has
failed to give any notice or to present any material claim
under any such insurance policy in due and timely fashion.
4.1.22. Intellectual Property. Section 4.1.22 of the
E/C Disclosure Schedule will list all E/C Intellectual
Property and material licenses and other agreements allowing
E/C or any Subsidiary to use the intellectual property of
third parties in the United States or foreign countries.
Except as will be set forth in Section 4.1.22 of the E/C
Disclosure Schedule, E/C or one of its Subsidiaries is the
sole and exclusive owner of each item of E/C Intellectual
Property free and clear of all Encumbrances, and no
governmental registration of any of the E/C Intellectual
Property has lapsed, expired, or been abandoned, opposed,
canceled, or the subject of a re-examination request. There
are no claims or any reasonable basis for challenging the
scope, validity, or enforceability of any of the copyrights,
patents, trademarks, trade names, or service marks which are
a part of the E/C Intellectual Property. None of the E/C
Intellectual Property infringes the intellectual property of
any other person, and no activity of any other person
infringes upon any of the E/C Intellectual Property. E/C and
each of its Subsidiaries has been and is now conducting its
business in a manner which has not been and is not now in
violation of any intellectual property rights of any other
person and so as not to require a license or other proprietary
right to so operate its business other than as will be
described in Section 4.1.22 of the E/C Disclosure Schedule.
The manufacturing and engineering drawings, process sheets,
specifications, bills of material, trade secrets, "know-how,"
and other like data of E/C and its Subsidiaries are in such
form and of such quality that they can, following the
Effective Time, be used in the process of designing,
producing, manufacturing, assembling, and selling the products
and providing the services heretofore provided by them so that
such products and services meet applicable specifications and
conform with the quality standards heretofore met or required
to be met by them.
4.1.23. Conduct of Business. Except as will be
otherwise disclosed in Section 4.1.23 of the E/C Disclosure
Schedule, since the E/C Balance Sheet Date, neither E/C nor
any Subsidiary has:
(a) Issued any capital stock or other securities
convertible into or exchangeable or exercisable for capital
stock or having voting rights or declared or paid any dividend
or made any other payment from capital or surplus or other
distribution of any nature, or directly or indirectly
redeemed, purchased, or otherwise acquired or recapitalized or
-27-
reclassified any of its capital stock or liquidated in whole
or in part.
(b) Merged or consolidated with any other person.
(c) Altered or amended its charter or bylaws.
(d) Entered into, materially amended, or terminated any
material agreement, license or permit, except in the ordinary
course of business consistent with past practices.
(e) Experienced any labor disturbance.
(f) Incurred or become subject to any obligation or
liability (absolute, accrued, contingent or otherwise),
except: (i) obligations incurred in the ordinary course of
business consistent with past practice, which did not involve
borrowing money, and which have not caused and will not cause
a material adverse effect on E/C; and (ii) obligations in
connection with the performance of this Agreement.
(g) Discharged or satisfied any Encumbrance or paid or
satisfied any obligation or liability (absolute, accrued,
contingent, or otherwise) other than: (i) liabilities shown or
reflected in the E/C Financial Statements; or (ii) liabilities
incurred since the E/C Balance Sheet Date in the ordinary
course of business consistent with past practice which were
not material in amount.
(h) Mortgaged, pledged, or subjected to any Encumbrance
any of its assets, properties, or business.
(i) Sold or transferred or agreed to sell or transfer
any material asset, property, or business, canceled or agreed
to cancel any material debt or claim, or waived any right,
except in any such event in the ordinary course of business
consistent with past practice.
(j) Disposed of or permitted to lapse any E/C
Intellectual Property.
(k) Granted any increase in the rates of pay of
employees or any increases in salary or compensation payable
or to become payable to any officer, employee, consultant, or
agent, or changed or increased the compensation payable to any
officer, director, or employee, or (by means of any bonus or
pension plan, contract, or other commitment) increased the
compensation of any officer, director, employee, consultant,
or agent, or hired any new officer, employee, consultant, or
agent.
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(l) Since January 1, 1994, made or authorized any
capital expenditures for additions to plant or equipment
accounts in excess of $500,000 in the aggregate.
(m) Experienced any material damage, destruction, or
loss (whether or not covered by insurance) affecting its
properties, assets, or business.
(n) Instituted or settled any litigation, action, or
proceeding before any court or other Governmental Entity
relating to it or its property involving a controversy in
excess of $10,000.
(o) Made any change in any method of accounting or any
accounting practice or suffered any deterioration in
accounting controls.
(p) Varied, canceled, or allowed to expire any insurance
coverage, other than renewals in the ordinary course of
business consistent with past practice.
(q) Entered into any other material transaction other
than in the ordinary course of business consistent with past
practice.
(r) Agreed or committed to do any of the foregoing.
4.1.24. Title to Assets.
(a) E/C and its Subsidiaries are the sole and absolute
owners of all of the assets (real and personal, tangible and
intangible) reflected in the latest E/C Financial Statements
as owned by them, other than assets which are leased under
leases capitalized in accordance with GAAP and assets which
have been disposed of since the date of such financial
statements, and have good and marketable title to all such
assets free and clear of any and all Encumbrances, except for
the Encumbrances, if any, which will be listed in Section
4.1.24(a) of the E/C Disclosure Schedule. E/C and its
Subsidiaries have valid leasehold interests in all assets
(real and personal, tangible and intangible) leased by them.
(b) No person has any written or oral agreement, option,
understanding, or commitment, or any right or privilege
capable of becoming an agreement, for the purchase from E/C or
any Subsidiary of any of the assets owned or leased by any of
them other than pursuant to purchase orders for inventory
accepted in the ordinary course of business consistent with
past practice.
(c) Section 4.1.24(c) of the E/C Disclosure Schedule
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will list or describe all consigned property and other
property which is owned by or an interest in which is claimed
by any other person (whether a customer, supplier, or other
person) for which E/C or any Subsidiary is responsible (and
true and complete copies of all agreements relating thereto
will be delivered to the LZB Companies with the E/C Disclosure
Schedule). All such property is used or held for use in the
conduct of the business of E/C or a Subsidiary and is in such
condition that upon return to its owner, they will not be
liable to such owner.
4.1.25. Real Property.
(a) Section 4.1.25(a) of the E/C Disclosure Schedule
will contain a true and complete list of: (i) all E/C Real
Estate; and (ii) all E/C Real Estate Documents (true and
complete copies of all of which will delivered to the LZB
Companies with the E/C Disclosure Schedule). All buildings
and other improvements on the E/C Real Estate are located
within the boundaries of each particular parcel of E/C Real
Estate and do not encroach upon such boundaries, except to the
extent such encroachment would not have a material adverse
effect on E/C. No building or other improvement situated on
any adjacent real estate is encroaching upon any of the
boundaries of the E/C Real Estate, except to the extent such
encroachment would not have a material adverse effect on E/C.
(b) Except as will be described in Section 4.1.25(b) of
the E/C Disclosure Schedule, the use of the E/C Real Estate by
E/C and its Subsidiaries and the conduct therein of their
respective businesses have not violated, and are not expected
to violate, any federal, state, or local law, ordinance, rule,
or regulation. The E/C Real Estate has an adequate water
supply and sewage and waste disposal, or facilities therefor,
and adequate utility connections and capacity as are
sufficient for the operation of existing business of E/C and
its Subsidiaries.
(c) The E/C Real Estate, including, without limitation,
the buildings and improvements located thereon, and the
ownership, operations, and maintenance thereof as now owned,
operated, and maintained, do not: (i) violate any ordinances,
statutes, regulations, covenants, or deed restrictions,
including, without limitation, those relating to zoning,
building use, air or water pollution, waste disposal,
sanitation, and noise control; or (ii) violate any provision
of federal, state, or local law. Consummation of the
transactions contemplated herein will not cause the zoning for
any of the E/C Real Estate to become non-complying by virtue
of elimination of a grandfather clause or for any other
reason.
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(d) The buildings and other improvements on the E/C Real
Estate, including, without limitation, the plumbing, heating,
air-conditioning, electrical, mechanical, water, water
pumping, and sewage systems, are in working order and not in
violation of any applicable governmental rule or regulation or
any other legal requirements, including, without limitation,
health and fire codes and other similar regulations.
(e) There exists no pending or, to the best knowledge of
E/C, threatened condemnation or similar proceeding with
respect to, or which could affect, the E/C Real Estate in any
respect.
(f) Except as will be described in Section 4.1.25(f) of
the E/C Disclosure Schedule, neither E/C nor any Subsidiary
has contracted for the furnishing of labor or materials to the
E/C Real Estate which will not be paid in full prior to the
Effective Time.
(g) Each of the E/C Real Estate Documents is in full
force and effect, and there are no existing defaults or events
of default thereunder, real or claimed, or events which with
notice or lapse of time or both would constitute defaults
thereunder by E/C or any Subsidiary or, to the best knowledge
of E/C, any other person.
(h) The E/C Real Estate has sufficient and adequate
vehicular and pedestrian access rights to and from public
streets and rights-of-way contiguous to the E/C Real Estate,
and adequate parking for each property comprising the E/C Real
Estate is available and in compliance with all applicable
zoning ordinances and laws.
(i) The buildings on the E/C Real Estate are fully
constructed and are free from structural defects.
4.1.26. Leased Personal Property. Section 4.1.26 of
the E/C Disclosure Schedule will describe all E/C Leased
Personal Property. True and complete copies of all leases to
which E/C or any Subsidiary is a party relating to the E/C
Leased Personal Property will be delivered to the LZB
Companies with the E/C Disclosure Schedule. All E/C Leased
Personal Property is in such condition that upon the return of
such E/C Leased Personal Property in its present condition to
its owner, neither E/C nor any Subsidiary will be liable to
such owner. All E/C Leased Personal Property is situated at
the E/C Real Estate and is used by E/C or a Subsidiary in the
operation of its business. Each of the leases relating to the
E/C Leased Personal Property is in full force and effect, and
there are no existing defaults or events of default, real or
claimed, or events which with notice or lapse of time or both
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would constitute defaults by E/C or any Subsidiary or, to the
best knowledge of E/C, any other person.
4.1.27. E/C Tangible Personal Property. Except as will
be described in Section 4.1.27 of the E/C Disclosure Schedule,
all of the machinery, equipment, vehicles, and other tangible
personal property that is used or useful in or necessary for
the conduct of the businesses E/C and its Subsidiaries, except
items with an aggregate book value of less than $50,000, is in
working condition and repair and is capable of and has the
capacity to produce products in the amount and of the quality
required by any purchase order accepted by E/C or any
Subsidiary and outstanding at the Effective Time.
4.1.28. Accounts Receivable. All accounts and notes
receivable reflected on the latest balance sheet included in
the E/C Financial Statements, or arising since the E/C Balance
Sheet Date (net of related reserves or, if reserves have not
been established, net of an amount which if so established
would be consistent with the established reserve policies of
E/C), have been collected, or are and will be good and
collectible, in each case at the aggregate recorded amounts
thereof without right of recourse, defense, deduction, return
of goods, counterclaim, or set off on the part of the obligor
and, if not collected, can reasonably be anticipated to be
paid within 90 days of the date incurred.
4.1.29. Inventory. Except as will be disclosed in
Section 4.1.29 of the E/C Disclosure Schedule, the inventory
of raw materials and work in process of E/C and its
Subsidiaries is usable in all material respects, and all
inventory of finished goods is good and marketable on a normal
basis in the existing product lines of E/C and its
Subsidiaries. Such inventories do not represent more than a
twelve-month supply measured by the volume of sales or use for
the most recent complete fiscal year covered by the E/C
Financial Statements.
4.2. Representations and Warranties of the LZB Companies. The
LZB Companies, jointly and severally, represent and warrant to E/C
as follows:
4.2.1. Organization, Standing, and Power. Each of the
LZB Companies is a corporation duly incorporated, validly
existing, and in good standing under the laws of its
jurisdiction of incorporation. True and complete copies of
the articles of incorporation and bylaws of each of the LZB
Companies as currently in effect have been delivered to E/C
with the LZB Disclosure Schedule.
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4.2.2. Capital Structure.
(a) The authorized capital stock of LZB consists solely
of 40,000,000 shares of LZB Common Stock and 5,000,000 shares
of LZB Preferred Stock. As of December 31, 1994, 17,961,476
shares of LZB Common Stock were issued and outstanding, and no
shares of LZB Preferred Stock were issued and outstanding.
All outstanding shares of LZB Common Stock have been duly
authorized and validly issued and are fully paid and
nonassessable and not subject to any preemptive rights. No
shares of any class of LZB's capital stock are held by LZB as
treasury shares.
(b) The authorized capital stock of LZB Acquisition
consists solely of 1,000 shares of common stock. As of the
date of this Agreement, one share of LZB Acquisition's common
stock is issued and outstanding, which is owned by LZB. All
outstanding shares of LZB Acquisition's common stock have been
duly authorized and validly issued and are fully paid and
nonassessable and not subject to any preemptive rights. No
shares of any class of LZB Acquisition's capital stock are
held by LZB Acquisition as treasury shares.
(c) Neither of the LZB Companies has outstanding any
Voting Debt.
(d) Except for this Agreement and the Plan of Merger,
and except as disclosed in the LZB SEC Documents or in Section
4.2.2(d) of the LZB Disclosure Schedule, LZB has no
outstanding options, warrants, calls, rights, commitments, or
agreements of any character to which it is a party or is bound
obligating it to issue, deliver, or sell, or to cause to be
issued, delivered, or sold, additional shares of capital
stock, any Voting Debt, or any other security with voting
rights in LZB or obligating LZB to grant, extend, or enter
into any such option, warrant, call, right, commitment, or
agreement. There are no outstanding contractual obligations
of LZB to repurchase, redeem, or otherwise acquire any shares
of its capital stock. LZB is not required to, and no
shareholder of LZB has any right to require LZB to, redeem,
repurchase, or otherwise acquire or to offer to redeem,
repurchase, or otherwise acquire any shares of its capital
stock in connection with or as a result of the Merger or the
other transactions contemplated in this Agreement.
4.2.3. Authority.
(a) The LZB Companies have all requisite corporate power
and authority to enter into this Agreement and the Plan of
Merger and, subject to approval of this Agreement and the Plan
of Merger by the shareholders of E/C, to consummate the
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transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Plan of Merger and the
consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate
action on the part of the LZB Companies. No approval or
adoption by the shareholders of LZB is required to consummate
the Merger and the other transactions contemplated hereby.
This Agreement and the Plan of Merger have been duly executed
and delivered by the LZB Companies and constitute legal,
valid, and binding obligations of the LZB Companies,
enforceable against the LZB Companies in accordance with their
terms, except as enforceability may be limited by general
principles of equity, whether considered at law or in equity,
and bankruptcy, insolvency, and similar laws affecting
creditors' rights and remedies generally.
(b) The execution and delivery of this Agreement and the
Plan of Merger and the consummation of the transactions
contemplated hereby and thereby will not be, give rise to, or
result in any Violation of the articles of incorporation or
bylaws of either of the LZB Companies or (subject to obtaining
or making the consents, approvals, orders, authorizations,
registrations, declarations, and filings referred to in
paragraph (c) below, and except as set forth in Section
4.2.3(b) of the LZB Disclosure Schedule) be, give rise to, or
result in any Violation of, or require the consent of any
other person that is a party to, any loan or credit agreement,
note, mortgage, indenture, lease, sublease, or other
agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law,
ordinance, rule, or regulation applicable to either of the LZB
Companies or its properties or assets.
(c) No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental
Entity is required by or with respect to either of the LZB
Companies in connection with the execution and delivery of
this Agreement or the Plan of Merger by the LZB Companies or
the consummation by the LZB Companies of the transactions
contemplated hereby or thereby, except for: (i) the filing of
the Tennessee Articles of Merger with the Secretary of State
of the State of Tennessee; (ii) the filing of the Certificate
of Merger with the Michigan Corporation Bureau; (iii) the
filing of appropriate documents with the relevant authorities
of other states in which E/C is qualified to do business;
(iv) LZB's Hart-Scott-Rodino Filing and expiration or early
termination of the waiting period under the Hart-Scott-Rodino
Act; (v) the filing of the Registration Statement and any
appropriate amendments thereto with the SEC and the
effectiveness thereof under the Securities Act; (vi) any
filings or other actions required to register the Merger
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Securities under the securities laws of any state or to obtain
exemptions from the requirement for such registration; and
(vii) the listing of the LZB Common Stock to be issued as part
of the Merger Consideration upon notice of issuance with the
Exchanges.
4.2.4. The Merger Securities.
(a) The LZB Common Stock to be issued as part of the
Merger Consideration and the additional LZB Common Stock which
may become issuable under the terms of the Performance Units
has been duly authorized and, when issued in accordance with
the Plan of Merger, will be validly issued, fully paid, and
nonassessable.
(b) When the Indenture has been duly authorized,
executed, and delivered by LZB, the Indenture will constitute
the legal, valid, and binding obligation of LZB, enforceable
against LZB in accordance with its terms, except as
enforceability may be limited by general principles of equity,
whether considered at law or in equity, and bankruptcy,
insolvency, and similar laws affecting creditors' rights and
remedies generally.
(c) When the Notes have been duly authorized, executed,
and delivered in accordance with the Plan of Merger and the
Indenture, the Notes will constitute the legal, valid, and
binding obligations of LZB, enforceable against LZB in
accordance with their terms, except as enforceability may be
limited by general principles of equity, whether considered at
law or in equity, and bankruptcy, insolvency, and similar laws
affecting creditors' rights and remedies generally.
4.2.4. LZB SEC Documents. LZB has provided to E/C
with the LZB Disclosure Schedule true and complete copies of
each of the LZB SEC Documents (including those exhibits copies
of which were requested by E/C, but excluding the other
exhibits thereto). As of their respective dates, the LZB SEC
Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations
of the SEC thereunder applicable to such LZB SEC Documents,
and none of the E/C 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 financial statements of
LZB included in the LZB SEC Documents comply in all material
respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP, except as
may be indicated in the notes thereto or, in the case of
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unaudited statements, as permitted by Form 10-Q of the SEC,
and fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature
and amount) the consolidated financial position of LZB as at
the dates thereof and the consolidated results of its
operations and cash flows or changes in financial position for
the periods then ended.
4.2.5. Registration Statement. None of the
information supplied or to be supplied by either of the LZB
Companies for inclusion or incorporation by reference in
(a) the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(b) the Proxy Statement/Prospectus or any amendment or
supplement thereto will, at the date of mailing to
shareholders and at the time of the E/C Shareholder Meeting,
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 were made, not misleading.
The Proxy Statement/Prospectus (except for such portions
thereof that relate only to E/C or its Subsidiaries) will
comply in all material respects with any applicable provisions
of the Exchange Act and the rules and regulations thereunder,
and the Registration Statement (except for portions thereof
that relate only to E/C or its Subsidiaries) will comply in
all material respects with the provisions of the Securities
Act and the rules and regulations thereunder.
4.2.6. Approvals. The LZB Companies know of no reason
why all Requisite Regulatory Approvals should not be obtained
without the imposition of any Materially Burdensome Condition.
4.2.7. Brokers and Finders. Neither of the LZB
Companies nor any of their directors, officers, or employees
has employed any broker or finder or incurred any liability
for any financial advisory fees, brokerage fees, commissions,
or similar payments in connection with the transactions
contemplated by this Agreement.
4.2.8. No Material Adverse Change. Except as
disclosed in Section 4.2.8 of the LZB Disclosure Schedule,
there has been no material adverse change in the condition
(financial or otherwise), business, or prospects of LZB since
the date of the latest balance sheet included in the LZB SEC
Documents.
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5. COVENANTS.
5.1. Covenants of E/C. During the period from the date of
this Agreement and continuing until the Closing Date, E/C agrees
that, except as expressly contemplated or permitted by this
Agreement or to the extent that LZB shall otherwise consent in
writing:
5.1.1. Ordinary Course. E/C and each Subsidiary shall
carry on its respective business in, and only in, the usual,
regular, and ordinary course in substantially the same manner
as heretofore conducted and use all reasonable efforts to
preserve intact its present business organizations, maintain
its rights and franchises, and preserve its relationships with
customers, suppliers, and others having business dealings with
it to the end that its goodwill and ongoing business shall not
be impaired, and will not enter into any transaction not in
the ordinary course of business.
5.1.2. Dividends and Distributions. Neither E/C nor
any Subsidiary shall, or shall propose to: (a) declare or pay
any dividends on or make other distributions in respect of any
of its capital stock except for (i) payment by E/C to its
shareholders of the dividend previously declared in an amount
equal to 60 percent of its taxable income for the period of
July 1, 1994 to December 31, 1994, (ii) declaration and
payment by E/C of dividends to its shareholders in an amount
equal to 40 percent of its taxable income for the period of
January 1, 1995 to the day before the Effective Time (or, if
earlier, the date on which E/C ceases to be a small business
corporation (as defined in Section 1361(a) of the Code)), as
estimated by it in good faith), and (iii) declaration and
payment by E/C of dividends to its shareholders in an amount
equal to 50 percent of the proceeds (net of any loans and
other deductions or offsets) receivable by E/C under insurance
policies owned by E/C on the life of Arnold Dwight England;
(b) split, combine, or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for
shares of its capital stock; or (c) repurchase, redeem, or
otherwise acquire, or permit any Subsidiary to purchase or
otherwise acquire, any shares of its capital stock or any
securities convertible into or exercisable for any shares of
its capital stock.
5.1.3. Charter and Bylaw Amendments. Neither E/C nor
any Subsidiary shall amend its charter or bylaws.
5.1.4. Other Actions. Neither E/C nor any Subsidiary
shall take any action that is intended to result in any of its
representations and warranties set forth in this Agreement
-37-
being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Section 7 not being
satisfied or in a violation of any provision of this Agreement
or which would adversely affect the ability of E/C to obtain
any of the Requisite Regulatory Approvals without imposition
of a Materially Burdensome Condition except, in every case, as
may be required by applicable law.
5.1.5. Advice of Changes; Government Filings. E/C
shall promptly advise the LZB Companies orally and in writing
of any change or event having, or which, insofar as can
reasonably be foreseen, could have, a material adverse effect
on E/C or which would cause or constitute a material breach of
any of the representations, warranties, or covenants of E/C
contained herein, or which, insofar as can be reasonably
foreseen, would result in a condition set forth in Section 7
not being satisfied as of the Closing Date.
5.1.6. Accounting Methods. E/C shall not change its
methods of accounting in effect at the E/C Balance Sheet Date,
except as required by changes in generally accepted accounting
principles as concurred in by such party's independent
auditors, or change its fiscal year.
5.1.7. S Corporation Status. E/C shall use its best
efforts to maintain its status as an S Corporation for federal
income tax purposes.
5.1.8. Affiliate Transactions. Neither E/C nor any
Subsidiary shall engage in any new transaction with any of its
"affiliates" (as defined in Rule 145 under the Securities
Act).
5.1.9. Other Actions. Neither E/C nor any Subsidiary
will issue, deliver, or sell, or authorize or propose the
issuance, delivery, or sale of, any shares of its capital
stock of any class, any Voting Debt, or any securities
convertible into or exercisable for, or any rights, warrants,
or options to acquire any such shares or Voting Debt, or other
securities with voting rights or enter into any agreement with
respect to any of the foregoing.
5.1.10. No Solicitations. E/C will not, and will not
authorize or permit any of its officers, directors, or
employees or any investment banker, financial advisor,
attorney, accountant, or other representative or agent
retained by it to, solicit or encourage the making of any
Takeover Proposal or (unless, in the written opinion of E/C's
independent counsel, such action is required by the fiduciary
duties of the Board of Directors of E/C) agree to or endorse
any Takeover Proposal, or participate in any negotiations, or
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provide third parties with any information relating to any
such proposal. E/C will promptly advise LZB orally and in
writing of any such proposals.
5.1.11. Acquisitions. Neither E/C nor any Subsidiary
will acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or in 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 which are material,
individually or in the aggregate, to E/C.
5.1.12. Dispositions. Other than sales of inventory in
the ordinary course of business consistent with prior
practice, neither E/C nor any Subsidiary will sell, lease,
encumber, or otherwise dispose of, or agree to sell, lease,
encumber, or otherwise dispose of, any material portion of its
assets.
5.1.13. Debt. Other than in the ordinary course of
business consistent with past practice, neither E/C nor any
Subsidiary will incur any Debt, assume, guarantee, endorse or
otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other
entity, or make any loan or advance other than in the ordinary
course of business consistent with past practice; provided,
however, that in no event shall E/C incur Debt which would
result in it having total Debt as of the Closing Date in
excess of $24,000,000.
5.1.14. Benefit Plans. Neither E/C nor any Subsidiary
will, without the prior written consent of LZB: (a) enter
into, adopt, amend, or terminate any E/C Benefit Plan or any
other employee benefit plan or any agreement, arrangement,
plan, or policy between such party and one or more of its
directors or officers; (b) increase in any manner the
compensation or fringe benefits of any director, officer, or
employee or pay any benefit not required by any plan or
arrangement as in effect as of the date hereof (including,
without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units,
or performance units or shares) or enter into any contract,
agreement, commitment, or arrangement to do any of the
foregoing; or (c) enter into or renew any contract, agreement,
commitment, or arrangement providing for the payment to any
director, officer, or employee of such party of compensation
or benefits contingent, or the terms of which are materially
altered, upon the occurrence of any of the transactions
contemplated by this Agreement.
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5.1.15. Discharge of Claims; Capital Expenditures.
Neither E/C nor any Subsidiary will: (a) pay, discharge, or
satisfy any claim, liability, or obligation of any nature
other than in the ordinary course of business consistent with
past practice; or (b) make any capital expenditures or
commitments other than those which have been approved by LZB.
5.1.16. Access to Information. Upon reasonable notice
and subject to applicable laws relating to the exchange of
information, E/C shall each afford to the officers, employees,
accountants, counsel, and other representatives of LZB access,
during normal business hours during the period prior to the
Closing Date, to all its properties, books, contracts,
commitments and records and, during such period, E/C shall
make available to LZB all other information concerning its
business, properties, and personnel as LZB may reasonably
request. No investigation by or on behalf of a LZB Company
shall affect the representations and warranties of E/C set
forth herein.
5.2. Covenants of LZB Companies. During the period from the
date of this Agreement and continuing until the Closing Date, the
LZB Companies agree that, except as expressly contemplated or
permitted by this Agreement or to the extent that E/C shall
otherwise consent in writing:
5.2.1. Dividends and Distributions. LZB shall not,
and shall not propose to: (a) declare or pay any dividends on
or make other distributions in respect of the LZB Common Stock
other than cash dividends in amounts determined in accordance
with prior practice; or (b) split, combine, or reclassify the
LZB Common Stock or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of, or in
substitution for shares of the LZB Common Stock.
5.2.2. Charter and Bylaw Amendments. Neither of the
LZB Companies shall amend its articles of incorporation or
bylaws so as to adversely affectIncorporation (Note 4)
3.3 Current La-Z-Boy Incorporated By-laws (Note 5)
4 Instruments defining the rights of holders of LZB
Common Stock.
5.2.3. Other Actions. Neither of the LZB Companies
shall take any action that is intended to result in any of its
representations and warranties set forth in this Agreement
being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Section 7long-term debt are not
being
satisfied or in a violation of any provision of this Agreement
or which would adversely affect the ability of the LZB
Companies to obtain any of the Requisite Regulatory Approvals
without imposition of a Materially Burdensome Condition
except, in every case, as may be required by applicable law.
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5.2.4. Advice of Changes; Government Filings. LZB
shall promptly advise E/C orally and in writing of any change
or event having, or which, insofar as can reasonably be
foreseen, could have, a material adverse effect on LZB or
which would cause or constitute a material breach of any of
the representations, warranties, or covenants of the LZB
Companies contained herein, or which, insofar as can be
reasonably foreseen, would result in a condition set forth in
Section 7 not being satisfied as of the Closing Date.
5.2.5. Other Actions. LZB will not issue any shares
of LZB Common Stock for less than fair value except pursuant
to employee stock option plans described in the LZB SEC
Documents or in Section 5.2.5 of the LZB Disclosure Schedule.
6. ADDITIONAL AGREEMENTS.
6.1. Regulatory Matters.
6.1.1. Registration Statement. E/C and LZB shall
promptly prepare and file with the SEC the Registration
Statement, in which the Proxy Statement/Prospectus will be
included. Each of LZB and E/C shall use all reasonable
efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such
filing and after receipt of the tax lock-up letters referred
to in Section 7.2.8, and E/C shall thereafter mail the Proxy
Statement to its shareholders. E/C and the LZB Companies
shall also use their respective best efforts to obtain all
necessary state securities law or "blue sky" permits and
approvals required to carry out the transactions contemplated
by this Agreement, and E/C and the LZB Companies, as
applicable, shall furnish all information concerning LZB, E/C,
and the holders of E/C Stock as may be reasonably requested in
connection with any such action.
6.1.2. Hart-Scott-Rodino Filings. E/C and LZB shall
each promptly prepare and file their respective Hart-Scott-
Rodino Filings and shall use their best efforts to cause the
applicable waiting period under the Hart-Scott-Rodino Act to
expire or be terminated.
6.1.3. General.
(a) The parties hereto shall cooperate with each other
and use their best efforts to promptly prepare and file all
necessary documentation, to effect all necessary applications,
notices, petitions, filings, and other documents, to obtain as
promptly as practicable all necessary permits, consents,
approvals, and authorizations of all other persons and
-41-
Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement. E/C and LZB
shall have the right to review in advance, and to the extent
practicable each will consult the other on, in each case
subject to applicable laws relating to the exchange of
information, all the information relating to E/C or the LZB
Companies, which appears in any filing made with, or written
materials submitted to, any third party or any Governmental
Entity in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of
the parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will consult
with each other with respect to the obtaining of all permits,
consents, approvals, and authorizations of all third parties
and Governmental Entities necessary or advisable to consummate
the transactions contemplated by this Agreement, and each
party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated
herein.
(b) E/C and each of the LZB Companies shall, upon
request, use their best efforts to furnish each other with all
information concerning themselves, their directors, officers,
and shareholders, all financial information or other
information, including accountant comfort letters relating
thereto, certificates, and consents, and such other matters as
may be reasonably necessary or advisable in connection with
the Registration Statement, the Hart-Scott-Rodino Filings, or
any other statement, filing, notice, or application made by or
on behalf of any of E/C or either of the LZB Companies to any
Governmental Entity or any other person in connection with the
Merger and the other transactions contemplated by this
Agreement and the Plan of Merger.
(c) E/C and each of the LZB Companies shall promptly
furnish each other with copies of written communications
received by any of them or any of their respective affiliates
or associates (as such terms are defined in Rule 12b-2 under
the Exchange Act as in effect on the date hereof) from, or
delivered by any of the foregoing to, any Governmental Entity
in respect of the transactions contemplated hereby.
6.2. Opinions of Counsel. Each party shall use its best efforts to cause
to be delivered to the other opinions of its independent counsel, dated the
effective date of the Registration Statement and the date of the E/C
Shareholder Meeting, to the effect that the Registration Statement and the
Proxy Statement/Prospectus and any amendment and supplements thereto (except
for information with respect to the other parties and except for the financial
statements and notes thereto and other financial, statistical, and accounting
data included in, incorporated by
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reference in, or which should have been included in or incorporated by
reference in the Registration Statement or the Proxy Statement/Prospectus, as
to all of which they need express no opinion) comply as to form in all material
respects with the applicable requirements of the Securities Act and rules and
regulations of the SEC promulgated thereunder. Each party shall also use its
best efforts to cause to be delivered to the other letters of its counsel dated
the same dates as the opinions described above to the effect that nothing has
come to such counsel's attention that has caused such counsel to believe that
the Registration Statement or the Proxy Statement/Prospectus, at the time the
Registration Statement became effective, 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 (except for information with respect
to the other parties and except for financial statements and notes thereto and
other financial, statistical, and accounting data included in, incorporated by
reference in, or which should have been included in or incorporated by
reference in the Registration Statement or the Proxy Statement/Prospectus, as
to all of which they need make no statement).
6.3. Legal Conditions to Mergers. Each of E/C and the LZB
Companies shall use their best efforts: (a) to take, or cause to be
taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party with respect to the
Merger and, subject to the conditions set forth in Section 7, to
consummate the transactions contemplated by this Agreement and the
Plan of Merger; and (b) to obtain (and to cooperate with the other
party to obtain) any consent, authorization, order, or approval of,
or any exemption by, any Governmental Entity and any other public
or private person which is required to be obtained or made by such
party in connection with the Merger and the transactions
contemplated by this Agreement and the Plan of Merger. Each of the
parties will promptly cooperate with and furnish information to the
other in connection with any such condition or restriction suffered
by, or requirement imposed upon, any of them in connection with the
foregoing.
6.4. Affiliates. E/C shall use its best efforts to cause each
director, officer, and other person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act) of E/C to deliver to
LZB, on or prior to the Closing Date, a written agreement, in form
and substance satisfactory to LZB in its reasonable judgment, to
comply with the applicable provisions of Rule 145 in connection
with any resales of Merger Securities. Section 6.4 of the E/C
Disclosure Schedule will contain a list of the persons considered
by E/C to be an affiliate for such purpose.
6.5. Expenses. If the Merger is consummated, all costs and
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