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Delaware | 5311 | 13-3324058 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Lyle G. Ganske, Esq. Christopher J. Hewitt, Esq. Jones Day 901 Lakeside Avenue Cleveland, Ohio 44114-1190 (216) 586-3939 | Alan E. Charlson, Esq. Senior Vice President and General Counsel The May Department Stores Company 611 Olive Street St. Louis, Missouri 63101 (314) 342-6300 | J. Michael Schell, Esq. Neil P. Stronski, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 |
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The information in this joint proxy statement/ prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement/ prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Terry J. Lundgren Chairman, President and Chief Executive Officer Federated Department Stores, Inc. | John L. Dunham Chairman, President and Chief Executive Officer The May Department Stores Company |
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1. To approve and adopt the Agreement and Plan of Merger, dated as of February 27, 2005, by and among May, Federated Department Stores, Inc. and Milan Acquisition LLC, a wholly owned subsidiary of Federated, and the transactions contemplated by the merger agreement, including the merger, pursuant to which May will merge with Milan Acquisition LLC, on the terms and subject to the conditions contained in the merger agreement, and each outstanding share of May common stock would be converted into the right to receive $17.75 in cash and 0.3115 shares of Federated common stock. A copy of the merger agreement is attached asAnnex A to the accompanying joint proxy statement/ prospectus; | |
2. To elect four members of May’s board of directors; | |
3. To adopt an amendment to May’s amended and restated certificate of incorporation to provide for the annual election of directors; | |
4. To ratify the appointment of Deloitte & Touche LLP as May’s independent registered public accounting firm for the fiscal year ending January 28, 2006; | |
5. To approve adjournments or postponements of the May annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the May annual meeting to approve the above proposals; and | |
6. To consider and take action upon any other business that may properly come before the May annual meeting or any reconvened meeting following an adjournment or postponement of the May annual meeting. |
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By order of the board of directors, | |
Richard A. Brickson | |
Secretary and Senior Counsel |
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1. To authorize the issuance of Federated common stock pursuant to the terms of the Agreement and Plan of Merger, dated as of February 27, 2005, by and among The May Department Stores Company, Federated and Milan Acquisition LLC, a wholly owned subsidiary of Federated, pursuant to which May will merge with Milan Acquisition LLC on the terms and subject to the conditions contained in the merger agreement. A copy of the merger agreement is attached asAnnex A to the accompanying joint proxy statement/ prospectus; | |
2. To elect three Class II members of Federated’s board of directors; | |
3. To adopt an amendment to Federated’s certificate of incorporation to provide for the annual election of directors; | |
4. To ratify the appointment of KPMG LLP as Federated’s independent registered public accounting firm for the fiscal year ending January 28, 2006; | |
5. To approve adjournments or postponements of the Federated annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Federated annual meeting to approve the above proposals; and | |
6. To consider and take action upon any other business that may properly come before the Federated annual meeting or any reconvened meeting following an adjournment or postponement of the Federated annual meeting. |
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By order of the board of directors, | |
Dennis J. Broderick | |
Senior Vice President, General Counsel and Secretary |
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Exhibit 5.1 Opinion of Dennis J. Broderick | ||||||||
Exhibit 8.1 Opinion of Jones Day | ||||||||
Exhibit 8.2 Opinion of Skadden Arps | ||||||||
Exhibit 23.1 Consent KPMG | ||||||||
Exhibit 23.2 Consent Deloitte & Touche | ||||||||
Exhibit 99.4 Consent Morgan Stanley & Co Inc | ||||||||
Exhibit 99.5 Consent Peter J. Solomon Company, L.P. | ||||||||
Exhibit 99.6 Consent Goldman, Sachs & Co. |
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Q: | Why am I receiving this joint proxy statement/ prospectus? | |
A: | May and Federated have agreed to the acquisition of May by Federated under the terms of a merger agreement that is described in this joint proxy statement/ prospectus. A copy of the merger agreement is attached to this joint proxy statement/ prospectus asAnnex A. | |
In order to complete the merger, Federated stockholders must vote to approve the issuance of shares of Federated common stock in the merger and May stockholders must approve and adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger. May and Federated will hold separate meetings of their respective stockholders to obtain these approvals, as well as to consider various other proposals unrelated to the transaction. | ||
This joint proxy statement/ prospectus contains important information about the merger, the merger agreement and the annual meetings of the respective stockholders of May and Federated, which you should read carefully. The enclosed voting materials allow you to vote your shares without attending your respective company’s annual meeting. | ||
Your vote is very important. We encourage you to vote as soon as possible. | ||
Q: | What is the proposed transaction for which I am being asked to vote? | |
A: | May stockholders are being asked to approve and adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger. The approval of this proposal by May stockholders is a condition to the effectiveness of the merger. See “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 113 and “Summary — Conditions to Completion of the Merger” beginning on page 14. | |
Federated stockholders are being asked to authorize the issuance of Federated common stock pursuant to the terms of the merger agreement at the Federated annual meeting. The approval of this proposal by the Federated stockholders is a condition to the effectiveness of the merger. See “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 113 and “Summary — Conditions to Completion of the Merger” beginning on page 14. | ||
Q: | What are the positions of the May and Federated boards of directors regarding the merger? | |
A: | Both boards of directors have approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and determined that the transactions contemplated by the merger agreement are advisable and fair to, and in the best interests of, their respective company and stockholders. The May board of directors recommends that the May stockholders vote FOR the proposal to adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the May annual meeting. The Federated board of directors recommends that the Federated stockholders vote FOR the proposal to authorize the issuance of Federated common stock pursuant to the terms of the merger agreement at the Federated annual meeting. See “The Merger — Federated’s Reasons for the Merger and Recommendation of Federated’s Board of Directors” beginning on page 58 and “The Merger — May’s Reasons for the Merger and Recommendation of May’s Board of Directors” beginning on page 54. | |
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Q: | What vote is needed by May stockholders to approve and adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the May annual meeting? | |
A: | The approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, requires the approval of a majority of the outstanding shares of May common stock and May Employee Stock Ownership Plan preference stock, which are referred to as ESOP preference shares, entitled to vote, voting together as one class. If a May stockholder does not vote, it will have the same effect as a vote against the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger. See “The May Annual Meeting — Quorum and Voting Rights” beginning on page 35. | |
Q: | What vote is needed by Federated stockholders to authorize the issuance of Federated common stock pursuant to the terms of the merger agreement at the Federated annual meeting? | |
A: | The authorization of the issuance of Federated common stock pursuant to the terms of the merger agreement requires the affirmative vote of at least a majority of the votes cast by the holders of outstanding shares of Federated common stock present (in person or by proxy) at the Federated annual meeting, where the holders of at least a majority of all outstanding shares of Federated common stock vote on the proposal. If a Federated stockholder does not vote, it will not have the same effect as a vote against the merger agreement. However, it can negatively affect the vote on such proposal if their failure to be counted results in less than a majority in interest of all outstanding shares of Federated common stock being voted on such proposal. See “The Federated Annual Meeting — Quorum and Voting Rights” beginning on page 42. | |
Q: | Where does Federated common stock trade? | |
A: | Shares of Federated common stock trade on the New York Stock Exchange under the symbol “FD.” | |
Q: | When do you expect to complete the merger? | |
A: | If the merger agreement and the transactions contemplated by the merger agreement, including the merger, are approved and adopted at the May annual meeting and the issuance of Federated common stock is authorized at the Federated annual meeting, we expect to complete the merger as soon as possible after the satisfaction of the other conditions to the merger. There may be a substantial period of time between the approval of the proposals by stockholders at the annual meetings of May’s and Federated’s stockholders and the effectiveness of the merger. We currently anticipate that the merger will be completed in the third quarter of 2005. See “The Merger Agreement — The Merger; Closing” on page 99. | |
Q: | Should I send in my stock certificates now? | |
A: | No. If the merger is completed, Federated will send May stockholders written instructions for sending in their stock certificates. See “The May Annual Meeting — Proxy Solicitations” on page 40 and “The Merger Agreement — Exchange of Shares” on page 101. Federated stockholders will not need to send in their stock certificates. | |
Q: | Who can answer my questions about the merger? | |
A: | If you have any questions about the merger or your annual meeting, need assistance in voting your shares, or need additional copies of this joint proxy statement/ prospectus or the enclosed proxy card(s) or voting instructions, you should contact: |
Federated Department Stores, Inc. | |
7 West Seventh Street | |
Cincinnati, Ohio 45202 | |
Attention: Investor Relations | |
Telephone: (513) 579-7780 | |
or |
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The May Department Stores Company | |
611 Olive Street | |
St. Louis, Missouri 63101 | |
Attention: Investor Relations | |
Telephone: (314) 342-6300 |
Q: | On what other proposals am I being asked to vote at the Federated annual meeting? | |
A: | At Federated’s annual meeting, in addition to voting upon the issuance of Federated stock pursuant to the merger agreement, Federated stockholders will be asked: | |
• To elect three Class II members of Federated’s board of directors; | ||
• To adopt an amendment to Federated’s Certificate of Incorporation to provide for the annual election of directors; | ||
• To ratify the appointment of KPMG LLP as Federated’s independent registered public accounting firm for the fiscal year ending January 28, 2006; | ||
• To approve adjournments or postponements of the Federated annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Federated annual meeting to approve the above proposals; and | ||
• To consider and take action upon any other business that may properly come before the Federated annual meeting (or any reconvened meeting) following an adjournment or postponement of the Federated annual meeting. | ||
See “The Federated Annual Meeting — Purposes of the Federated Annual Meeting” on page 41. | ||
Q: | What vote is necessary to approve the other proposals at the Federated annual meeting? | |
A: | The election of three Class II members of Federated’s board of directors requires the affirmative vote of a plurality of the shares of Federated common stock present in person or represented by proxy at the Federated annual meeting and entitled to vote. | |
The proposal to amend Federated’s certificate of incorporation to adopt a system for the annual election of all Federated directors requires the affirmative vote of a majority of all outstanding shares of Federated common stock to take effect in accordance with the schedule more fully described in the proposal. | ||
The ratification of the appointment of KPMG LLP as Federated’s independent registered public accounting firm for the fiscal year ending January 28, 2006, requires the affirmative vote of the holders of a majority of Federated common stock present in person or represented by proxy entitled to vote and actually voted at the Federated annual meeting. | ||
A proposal to approve adjournments or postponements of the Federated annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Federated annual meeting to approve the above proposals requires the affirmative vote of the holders of a majority of Federated common stock present in person or represented by proxy entitled to vote and actually voted at the Federated annual meeting. |
Q: | On what other proposals am I being asked to vote at the May annual meeting? | |
A: | At May’s annual meeting, in addition to voting upon the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger. May stockholders will be asked: | |
• To elect four members of May’s board of directors; |
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• To adopt an amendment to May’s amended and restated certificate of incorporation to provide for the annual election of directors; | ||
• To ratify the appointment of Deloitte & Touche LLP as May’s independent registered public accounting firm for the fiscal year ending January 28, 2006; | ||
• To approve adjournments or postponements of the May annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the May annual meeting to approve the above proposals; and | ||
• To consider and take action upon any other business that may properly come before the May annual meeting (or any reconvened meeting) following an adjournment or postponement of the May annual meeting. | ||
See “The May Annual Meeting — Purposes of the May Annual Meeting” on page 35. | ||
Q: | What vote is necessary to approve the other proposals at the May annual meeting? | |
A: | The election of the four members of May’s board of directors requires the affirmative vote of a plurality of the shares of May common stock and ESOP preference shares, voting together as one class, present in person or represented by proxy at the May annual meeting and entitled to vote. | |
The proposal to amend May’s amended and restated certificate of incorporation requires the affirmative vote of a majority of the outstanding shares of May common stock and ESOP preference shares, voting together as one class. | ||
Ratification of the appointment of Deloitte & Touche LLP as May’s independent registered public accounting firm for the fiscal year ending January 28, 2006, requires the affirmative vote of the holders of a majority of the shares of May common stock and ESOP preference shares, voting together as one class, present in person or represented by proxy and entitled to vote at the May annual meeting. | ||
A proposal to approve adjournments or postponements of the May annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the May annual meeting to approve the above proposals requires the affirmative vote of a majority of the shares of May common stock and ESOP preference shares, voting together as one class, present in person or represented by proxy and entitled to vote at the May annual meeting. |
Q: | When and where are the annual meetings? | |
A: | The May annual meeting will be held at the [ ], New York, New York [ ], on [ ], 2005. | |
The Federated annual meeting will be held at Federated’s corporate offices, 7 West Seventh Street, Cincinnati, Ohio 45202, on [ ], 2005. | ||
Q: | What should I do now? | |
A: | You should read this joint proxy statement/ prospectus carefully, including the annexes, and return your completed, signed and dated proxy card(s) or voting instruction card(s) by mail in the enclosed postage-paid envelope or, if available, by submitting your proxy by telephone or over the Internet as soon as possible so that your shares will be represented and voted at your annual meeting. | |
Q: | If I am going to attend my annual meeting, should I return my proxy card(s) or voting instruction card(s)? | |
A: | Yes. Returning your signed and dated proxy card(s) or voting instruction card(s) or voting by telephone or over the Internet, if available, ensures that your shares will be represented and voted at your annual meeting. See “The May Annual Meeting — How to Vote” on page 39 and “The Federated Annual Meeting — How to Vote” beginning on page 46. | |
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Q: | What does it mean if I receive multiple proxy cards? | |
A: | Your shares may be registered in more than one account, such as brokerage accounts and 401(k) accounts. It is important that you complete, sign, date and return each proxy card or voting instruction card you receive, or, if available, vote using the telephone or the Internet as described in the instructions included with your proxy card(s) or voting instruction card(s). | |
Q: | Where can I find more information about Federated and May? | |
A: | You can find more information about Federated and May from various sources described under “Where You Can Find More Information” beginning on page 187. | |
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General |
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Merger Consideration |
• | $17.75 in cash, without interest; and | |
• | 0.3115 fully paid, nonassessable shares of Federated common stock. |
Corresponding Value of | Corresponding Value | |||||||||||
Hypothetical Trading Price of Federated’s | 0.3115 Shares of | of Merger | ||||||||||
Common Stock | Federated’s Common Stock | Cash Consideration | Consideration | |||||||||
$61.98 | $ | 19.31 | $ | 17.75 | $ | 37.06 | ||||||
$60.98 | $ | 19.00 | $ | 17.75 | $ | 36.75 | ||||||
$59.98 | $ | 18.68 | $ | 17.75 | $ | 36.43 | ||||||
$58.98 | $ | 18.37 | $ | 17.75 | $ | 36.12 | ||||||
$57.98 | $ | 18.06 | $ | 17.75 | $ | 35.81 | ||||||
$56.98 | $ | 17.75 | $ | 17.75 | $ | 35.50 | ||||||
$55.98 | $ | 17.44 | $ | 17.75 | $ | 35.19 | ||||||
$54.98 | $ | 17.13 | $ | 17.75 | $ | 34.88 | ||||||
$53.98 | $ | 16.81 | $ | 17.75 | $ | 34.56 | ||||||
$52.98 | $ | 16.50 | $ | 17.75 | $ | 34.25 | ||||||
$51.98 | $ | 16.19 | $ | 17.75 | $ | 33.94 |
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May Equity Awards |
May ESOP Preference Shares |
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General |
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How Proxies Will Be Voted |
• | For May stockholders, your shares will be voted FOR the approval and adoption of the merger agreement, FOR the election of the members of the board of directors, FOR the ratification of the independent registered public accounting firm and FOR the amendment to the certificate of incorporation. If you vote FOR the adoption of the merger agreement at the May annual meeting, you will lose the appraisal rights to which you would otherwise be entitled. See “Summary — Appraisal Rights” beginning on page 14, “The May Annual Meeting — How to Vote” beginning on page 39 and “The Merger — Appraisal Rights of May Stockholders” beginning on page 92. | |
• | For Federated stockholders, your shares will be voted FOR the issuance of Federated common stock, FOR the election of the members of the board of directors, FOR the ratification of the independent registered public accounting firm and FOR the amendment to the certificate of incorporation. See “The Federated Annual Meeting — How to Vote” on page 46. | |
Changing Your Vote |
• | sending a written notice to the corporate secretary of the company in which you hold shares that is received prior to your annual meeting and states that you revoke your proxy; | |
• | signing and delivering a new proxy card(s) or voting instruction card(s) bearing a later date; | |
• | if available, voting again by telephone or over the Internet and submitting your proxy so that it is received prior to your annual meeting; or | |
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• | attending your annual meeting and voting in person, although your attendance alone will not revoke your proxy. |
Voting Shares Held by Brokers |
May Stockholders |
Federated Stockholders |
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Abstaining from Voting |
• | Abstentions will have the same effect as a vote against the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger. | |
• | Abstentions will have the same effect as a vote against the approval of the amendment to May’s amended and restated certificate of incorporation. | |
• | Abstentions will not be counted for determining the election of the board of directors. As a result, abstentions will not have an effect on the outcome of the election of the board of directors. | |
• | An abstention has the effect of voting against the ratification of the appointment of the independent registered public accounting firm and the approval of adjournments or postponements of the May annual meeting. See “The May Annual Meeting — Voting; Proxies” beginning on page 38. | |
• | Abstentions will not be counted for determining whether the share issuance proposal has been approved. However, an abstention can negatively affect the vote on the Federated share issuance proposal if their failure to be counted results in less than a majority of all outstanding shares of Federated common stock being voted. | |
• | Abstentions will have the same effect as a vote against the approval of the amendment to Federated’s certificate of incorporation. | |
• | Abstentions will not be counted for determining the election of the board of directors. As a result, abstentions will not have an effect on the outcome of the election of the board of directors. | |
• | An abstention will not be counted for the ratification of the appointment of the independent registered public accounting firm or the approval of adjournments or postponements of the Federated annual meeting. See “The Federated Annual Meeting — Voting; Proxies” beginning on page 45. | |
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170 for May)
• | payments under employment agreements and severance agreements which, in either case, may be triggered if the executive officer’s employment is terminated under certain circumstances following the merger — for May’s 12 current executive officers, the aggregate of these payments could be up to approximately $44.6 million; | |
• | potential appointment of two members of May’s board of directors to the Federated board of directors following the merger; | |
• | potentially becoming executive officers, employees or consultants of Federated after the transaction; | |
• | accelerated vesting and exercisability of May stock options and restricted stock issued under May’s equity compensation plans — May’s 12 current executive officers and 8 current non-management directors currently hold, in the aggregate, 518,780 and 49,990 shares of restricted stock, respectively, and May’s 12 current executive officers hold 758,450 unvested stock options with a weighted average exercise price of $28.187 per share; | |
• | continued benefits under May plans for one year following the effective date of the merger, as well as continued compensation and benefits from one year following the effective date of the merger through the third year following the effective date of the merger that are in the aggregate substantially comparable to that provided by May immediately prior to the effective time of the merger; | |
• | accelerated payment of previously vested amounts credited under May’s deferred compensation programs — May’s 12 current executive officers currently have credited to their accounts an aggregate of approximately $5.45 million and 207,691 stock units and May’s 8 non-management directors currently have credited to their accounts an aggregate of approximately $300,000 and 171,285 stock units; and | |
• | Federated’s agreement to indemnify each present and former May officer and director against liabilities arising out of that person’s services as an officer or director, and maintain directors’ and officers’ | |
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liability insurance for a period of six years after closing to cover May directors and officers, subject to certain limitations. |
• | approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the May annual meeting by the May stockholders; |
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• | authorization of the issuance of Federated common stock pursuant to the terms of the merger agreement at the Federated annual meeting by the Federated stockholders; | |
• | absence of any order or injunction of any governmental authority that would prohibit the consummation of the merger; | |
• | approval for listing of Federated common stock to be issued in the merger on the New York Stock Exchange upon official notice of issuance; | |
• | the waiting period (including any extension thereof) applicable to the consummation of the merger under the Hart-Scott-Rodino Act, which is referred to as the HSR Act, must have expired or been terminated; | |
• | continued effectiveness of the registration statement of which this joint proxy statement/ prospectus is a part and the absence of a stop order or proceeding seeking a stop order by the SEC suspending the effectiveness of the registration statement; | |
• | accuracy of each party’s representations and warranties in the merger agreement, except as would not have a material adverse effect on the party making the representations; | |
• | performance in all material respects of each party’s covenants in the merger agreement, and performance of each party’s pre-closing operating covenants in the merger agreement, except as would not have a material adverse effect on the party from whom performance is due; and | |
• | delivery by both parties of customary officer’s certificates and tax opinions. |
Antitrust Clearance |
• | no requirement for non-action, a waiver, consent or approval of the FTC, the Antitrust Division, any State Attorney General or other governmental entity; |
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• | no decree, judgment, injunction, temporary restraining order or any other order in any suit or proceeding; and | |
• | no other matter relating to any antitrust or competition law or regulation, |
• | by the mutual written consent of Federated and May; | |
• | by either Federated or May if: |
• | the parties fail to consummate the merger on or before the outside date of October 3, 2005, or such later date, if any, as Federated and May may agree, unless the failure to consummate the merger by the outside date is the result of a breach of the merger agreement by the party seeking the termination; provided that the outside date will be extended to August 31, 2006, if all conditions to the closing have been fulfilled other than the absence of an order or injunction by a governmental entity prohibiting completion of the merger or the expiration or termination of the waiting period under HSR; | |
• | the Federated annual meeting has concluded and the authorization of the issuance of shares of Federated common stock pursuant to the merger agreement by the Federated stockholders was not obtained; | |
• | the May annual meeting has concluded and the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, by the May stockholders was not obtained; or | |
• | any governmental entity issues an order or injunction that permanently prohibits the merger and such order or injunction has become final and non-appealable unless the order or injunction results from a breach of the merger agreement by the party seeking the termination; |
• | by May if: |
• | Federated or Merger Sub breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied and such breach or failure to perform is not cured within 60 days after the receipt of written notice thereof or is incapable of being cured by the outside date; | |
• | prior to the receipt of its stockholder approval, May (i) receives a superior proposal, (ii) provides Federated with a written notice that the board of directors has determined, in good faith, after consultation with outside counsel, that it is necessary for the proper discharge of its fiduciary duties under applicable law and (iii) thereafter satisfies the conditions for withdrawing (or modifying in a manner adverse to Federated) the recommendation by its board of directors of the merger or recommending such superior proposal; provided that May pays a $350 million termination fee to Federated and is not in material breach of its non-solicitation obligations under the merger agreement; or | |
• | the Federated board of directors or any committee thereof withdraws or modifies or publicly proposes to withdraw or modify its recommendation that Federated’s stockholders authorize the issuance of Federated common stock in the merger; |
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• | by Federated if: |
• | May breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied, provided such breach or failure to perform is not cured within 60 days after receipt of a written notice thereof or is incapable of being cured by the outside date; or | |
• | the May board of directors or any committee thereof (i) withdraws or adversely modifies or publicly proposes to withdraw or adversely modify, its recommendation of the merger agreement and the transactions contemplated by the merger agreement, including the merger; or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve a takeover proposal other than the merger agreement. |
May |
• | by Federated if the May board of directors or any committee thereof (i) withdraws or adversely modifies or publicly proposes to withdraw or adversely modify, its recommendation of the merger agreement and the transactions contemplated by the merger agreement, including the merger, or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve a takeover proposal other than the merger agreement; | |
• | by May if, prior to the receipt of its stockholder approval, May (i) receives a superior proposal, (ii) provides Federated with a written notice that the board of directors has determined, in good faith, after consultation with outside counsel, that it is necessary for the proper discharge of its fiduciary duties under applicable law and (iii) thereafter satisfies the conditions for withdrawing (or modifying in a manner adverse to Federated) the recommendation by its board of directors of the merger or recommending such superior proposal; provided that May is not in material breach of its non-solicitation obligations under the merger agreement; or | |
• | (i) because (x) the merger has not been consummated by the outside date; (y) the May annual meeting has concluded and the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, by the May stockholders was not obtained; or (z) May breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied, provided such breach or failure to perform is not cured within 60 days after receipt of a written notice thereof or is incapable of being cured by the outside date; (ii) at the time of such termination, Federated is not in breach in any material respect of any of its representations, warranties or covenants contained in the merger agreement; (iii) prior to such termination, any person publicly announces an alternative takeover proposal relating to May that has not been withdrawn; and (iv) within 12 months of such termination May enters into a definitive agreement with respect to, or consummates, an alternative takeover proposal relating to May. |
Federated |
• | of $350 million if the merger agreement is terminated by May because the Federated board of directors or any committee thereof has withdrawn or modified, or publicly proposed to withdraw or modify, its recommendation that Federated stockholders authorize the issuance of Federated common stock in the merger; |
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• | of $350 million if the merger agreement is terminated by either party because the merger was not consummated by the outside date and at the time of the termination all of the conditions precedent to the obligations of the parties to consummate the merger agreement had been satisfied except for: |
• | the condition that none of the parties shall be subject to any order or injunction of any government entity that prohibits the consummation of the merger, and the condition that the waiting period applicable to the consummation of the merger under the HSR Act shall have expired or been terminated; | |
• | the condition that the shares of Federated common stock issuable to May’s stockholders as contemplated in the merger agreement shall have been approved for listing on the NYSE, if such condition is capable of being satisfied at the time of termination, or the condition that Federated shall have received from Jones Day, an opinion dated as of the closing date, to the effect that the merger will constitute a reorganization within the meaning of Section 368(a) of the Code, if such condition is capable of being satisfied at the time of termination; and | |
• | any other conditions that are capable of being satisfied on the date of termination but by their terms cannot be satisfied until the closing date. |
• | equal to the product of $20 million and the quotient (rounded to the nearest fourth decimal point) determined by dividing the number of calendar days between the date of the agreement and the date of the termination by 30, provided however that the amount of the fee will not be less than $150 million or more than $350 million, if the merger agreement is terminated by either party because any government entity issues an order or injunction that permanently prohibits the merger, such order or injunction becomes final and non-appealable, and at the time of the termination all of the conditions precedent to the obligation to consummate the merger agreement had been satisfied except for: |
• | the condition that none of the parties shall be subject to any order or injunction of any government entity that prohibits the consummation of the merger, and the condition that the waiting period applicable to the consummation of the merger under the HSR Act shall have expired or been terminated; and | |
• | the condition that the shares of Federated common stock issuable to May’s stockholders as contemplated in the merger agreement shall have been approved for listing on the NYSE, if such condition is capable of being satisfied at the time of termination, or the condition that Federated shall have received from Jones Day, an opinion dated as of the closing date, to the effect that the merger will constitute a reorganization within the meaning of Section 368(a) of the Code, if such condition is capable of being satisfied at the time of termination; and | |
• | any other conditions that are capable of being satisfied on the date of termination but by their terms cannot be satisfied until the closing date. |
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Federated | May | |
Tom Cole, Vice Chair | John Dunham, Chairman, President and Chief Executive Officer | |
Dennis Broderick, Senior Vice President, General Counsel and Secretary | Alan Charlson, Senior Vice President and General Counsel | |
David Clark, Senior Vice President, Human Resources | John Danahy, Chairman, May Merchandising Company and May Department Stores International | |
Jim Gray, President and Chief Operating Officer, Macy’s East | Tom Fingleton, Executive Vice President and Chief Financial Officer | |
Karen Hoguet, Senior Vice President and Chief Financial Officer | Brian Keck, Senior Vice President, Human Resources | |
Len Marcus, President and Chief Operating Officer, Macy’s Merchandising Group | ||
Peter Sachse, President and Chief Marketing Officer, Macy’s Corporate Marketing |
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Price Range of | |||||||||
Common Stock | |||||||||
Fiscal Year Ended | High | Low | |||||||
February 1, 2003: | |||||||||
First Quarter | $ | 44.26 | $ | 36.83 | |||||
Second Quarter | 44.10 | 31.39 | |||||||
Third Quarter | 38.13 | 23.59 | |||||||
Fourth Quarter | 34.75 | 25.50 | |||||||
January 31, 2004: | |||||||||
First Quarter | 30.91 | 23.51 | |||||||
Second Quarter | 40.90 | 29.93 | |||||||
Third Quarter | 47.93 | 38.50 | |||||||
Fourth Quarter | 50.60 | 42.54 | |||||||
January 29, 2005: | |||||||||
First Quarter | 55.06 | 46.95 | |||||||
Second Quarter | 51.07 | 44.07 | |||||||
Third Quarter | 51.10 | 42.80 | |||||||
Fourth Quarter | 59.40 | 49.33 | |||||||
January 28, 2006: | |||||||||
First Quarter | 65.08 | 54.90 | |||||||
Second Quarter (through May 6, 2005) | 63.98 | 57.69 |
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Price Range of | |||||||||
Common Stock | |||||||||
Fiscal Year Ended | High | Low | |||||||
February 1, 2003: | |||||||||
First Quarter | $ | 37.75 | $ | 33.04 | |||||
Second Quarter | 37.08 | 25.74 | |||||||
Third Quarter | 30.50 | 20.10 | |||||||
Fourth Quarter | 26.10 | 20.08 | |||||||
January 31, 2004: | |||||||||
First Quarter | 21.72 | 17.81 | |||||||
Second Quarter | 25.34 | 20.02 | |||||||
Third Quarter | 28.20 | 23.70 | |||||||
Fourth Quarter | 34.06 | 26.37 | |||||||
January 29, 2005: | |||||||||
First Quarter | 36.48 | 29.84 | |||||||
Second Quarter | 30.80 | 24.62 | |||||||
Third Quarter | 26.79 | 23.04 | |||||||
Fourth Quarter | 36.45 | 25.63 | |||||||
January 28, 2006: | |||||||||
First Quarter | 37.46 | 30.55 | |||||||
Second Quarter (through May 6, 2005) | 37.15 | 35.15 |
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Year Ended, | |||||||||||||||||||||
January 29, | January 31, | February 1, | February 2, | February 3, | |||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||
(In millions, except per share data) | |||||||||||||||||||||
Consolidated Statement of Operations Data: | |||||||||||||||||||||
Net Sales | $ | 15,630 | $ | 15,264 | $ | 15,435 | $ | 15,651 | $ | 16,638 | |||||||||||
Cost of sales | 9,297 | 9,099 | 9,255 | 9,584 | 9,955 | ||||||||||||||||
Gross margin | 6,333 | 6,165 | 6,180 | 6,067 | 6,683 | ||||||||||||||||
Selling, general and administrative expenses | 4,933 | 4,824 | 4,837 | 4,801 | 4,912 | ||||||||||||||||
Asset impairment and restructuring charges | — | — | — | 162 | 80 | ||||||||||||||||
Operating income | 1,400 | 1,341 | 1,343 | 1,104 | 1,691 | ||||||||||||||||
Interest expense | (299 | ) | (266 | ) | (311 | ) | (347 | ) | (327 | ) | |||||||||||
Interest income | 15 | 9 | 16 | 7 | 6 | ||||||||||||||||
Income from continuing operations before income taxes | 1,116 | 1,084 | 1,048 | 764 | 1,370 | ||||||||||||||||
Federal, state and local income tax expense | (427 | ) | (391 | ) | (410 | ) | (256 | ) | (549 | ) | |||||||||||
Income from continuing operations | 689 | 693 | 638 | 508 | 821 | ||||||||||||||||
Discontinued operations | — | — | 180 | (784 | ) | (1,005 | ) | ||||||||||||||
Net income (loss) | $ | 689 | $ | 693 | $ | 818 | $ | (276 | ) | $ | (184 | ) | |||||||||
Basic earnings (loss) per share: | |||||||||||||||||||||
Income from continuing operations | $ | 3.93 | $ | 3.76 | $ | 3.23 | $ | 2.60 | $ | 4.01 | |||||||||||
Net income (loss) | 3.93 | 3.76 | 4.15 | (1.41 | ) | (.90 | ) | ||||||||||||||
Diluted earnings (loss) per share: | |||||||||||||||||||||
Income from continuing operations | $ | 3.86 | $ | 3.71 | $ | 3.21 | $ | 2.54 | $ | 3.97 | |||||||||||
Net income (loss) | 3.86 | 3.71 | 4.12 | (1.38 | ) | (.89 | ) | ||||||||||||||
Average number of diluted shares outstanding | 174.5 | 183.8 | 196.6 | 195.1 | 204.3 | ||||||||||||||||
Cash dividends paid per share | $ | .53 | $ | .375 | $ | — | $ | — | $ | — | |||||||||||
Depreciation and amortization | $ | 737 | $ | 710 | $ | 680 | $ | 689 | $ | 651 | |||||||||||
Capital expenditures | $ | 548 | $ | 568 | $ | 627 | $ | 651 | $ | 786 | |||||||||||
Balance Sheet Data (at year end): | |||||||||||||||||||||
Cash and cash equivalents | $ | 868 | $ | 925 | $ | 716 | $ | 636 | $ | 222 | |||||||||||
Total assets | 14,885 | 14,550 | 14,441 | 16,112 | 17,012 | ||||||||||||||||
Short-term debt | 1,242 | 908 | 946 | 1,012 | 1,117 | ||||||||||||||||
Long-term debt | 2,637 | 3,151 | 3,408 | 3,859 | 3,845 | ||||||||||||||||
Shareholders’ equity | 6,167 | 5,940 | 5,762 | 5,564 | 5,822 |
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Year Ended, | |||||||||||||||||||||
January 29, | January 31, | February 1, | February 2, | February 3, | |||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||
(In millions, except per share data) | |||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||
Net sales | $ | 14,441 | $ | 13,343 | $ | 13,491 | $ | 13,883 | $ | 14,210 | |||||||||||
Net Earnings | 524 | 434 | 542 | 703 | 858 | ||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||||
Total assets | $ | 15,163 | $ | 12,122 | $ | 12,030 | $ | 11,964 | $ | 11,574 | |||||||||||
Long-term debt and preference stock | 5,873 | 4,032 | 4,300 | 4,689 | 4,833 | ||||||||||||||||
Shareowners’ equity | 4,475 | 4,191 | 4,035 | 3,841 | 3,855 | ||||||||||||||||
Other Data: | |||||||||||||||||||||
Earnings per share — diluted: | |||||||||||||||||||||
Net earnings per share — diluted | $ | 1.70 | $ | 1.41 | $ | 1.76 | $ | 2.21 | $ | 2.62 | |||||||||||
Dividends per common share | $ | .97 | $ | .96 | $ | .95 | $ | .94 | $ | .93 |
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Year Ended | ||||
January 29, 2005 | ||||
(In millions, | ||||
except per share | ||||
data) | ||||
Results of Operations Data: | ||||
Net sales | $ | 31,064 | ||
Net income | 1,019 | |||
Diluted earnings per share | 3.70 |
At | |||||
January 29, | |||||
2005 | |||||
(In millions) | |||||
Balance Sheet Data: | |||||
Total assets | $ | 36,965 | |||
Short-term debt | 3,520 | ||||
Long-term debt | 12,289 | ||||
Total debt | 15,809 | ||||
Total shareholders’ equity | 11,935 |
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Pro Forma Combined | |||||||||||||||||
Federated | Pro Forma Combined | Data per May | |||||||||||||||
Historical per | May Historical | Data per Federated | Equivalent | ||||||||||||||
Share Data | per Share Data | Common Share | Common Share | ||||||||||||||
At or for the Year Ended January 29, 2005: | |||||||||||||||||
Income from continuing operations per common share: | |||||||||||||||||
Basic | $ | 3.93 | $ | 1.74 | $ | 3.96 | $ | 1.23 | |||||||||
Diluted | 3.86 | 1.70 | 3.90 | 1.21 | |||||||||||||
Cash dividends declared per common share | .53 | .97 | 1.00 | .31 | |||||||||||||
Book value per common share | 36.89 | 15.27 | 45.37 | 14.13 |
• | the closing prices per share and aggregate market value of Federated common stock and May common stock, in each case based on closing prices for those shares on the New York Stock Exchange, on February 25, 2005, the last trading day prior to the public announcement of the proposed merger, and May 6, 2005, the last trading day for which this information could be calculated prior to the date of this joint proxy statement/ prospectus; and | |
• | the equivalent price per share and equivalent market value of shares of May common stock, based on the exchange ratio of 0.3115 and the closing price for Federated common stock on the New York Stock Exchange on May 6, 2005. | |
Federated | May | May | |||||||||||
Historical | Historical | Equivalent(1) | |||||||||||
February 25, 2005 | |||||||||||||
Closing price per common share | $ | 56.79 | $ | 35.35 | $ | 35.44 | |||||||
Market value of common shares (in billions)(2) | $ | 9.52 | $ | 10.88 | |||||||||
May 6, 2005 | |||||||||||||
Closing price per common share | $ | 63.18 | $ | 36.92 | $ | 37.43 | |||||||
Market value of common shares (in billions)(3) | $ | 10.72 | $ | 11.49 |
(1) | The May equivalent price per share reflects the fluctuating value of Federated common stock that May stockholders would receive for each share of May common stock if the merger was completed on either February 25, 2005, or May 6, 2005. The May equivalent price per share is equal to the sum of (i) $17.75 and (ii) the closing price of Federated common stock on the applicable date multiplied by 0.3115. |
(2) | Based on 167,598,278 shares of Federated common stock and 293,834,196 shares of May common stock outstanding and May ESOP preference shares convertible into 14,036,843 shares of May common stock as of February 25, 2005. |
(3) | Based on 169,636,863 shares of Federated common stock and 298,480,349 shares of May common stock outstanding and May ESOP preference shares convertible into 12,792,895 shares of May common stock as of May 6, 2005. |
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Federated’s failure to integrate May successfully and on a timely basis into Federated’s operations could reduce Federated’s profitability. |
The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed, which may cause the market price of Federated common stock or May common stock to decline. |
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Whether or not the merger is completed, the announcement and pendency of the merger could cause disruptions in the businesses of Federated and May, which could have an adverse effect on their business and financial results. |
• | current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect Federated and May’s ability to retain key managers and other employees; and | |
• | the attention of management of each of Federated and May may be directed toward the completion of the merger. |
Certain directors and executive officers of May have interests and arrangements that are different from, or in addition to, May stockholders. |
• | payments under employment agreements and severance agreements which, in either case, may be triggered if the executive officer’s employment is terminated under certain circumstances following the merger — for May’s 12 current executive officers, the aggregate of these payments could be up to approximately $44.6 million; | |
• | potential appointment of two members of May’s board of directors to the Federated board of directors following the merger; | |
• | potentially becoming executive officers, employees or consultants of Federated after the transaction; | |
• | accelerated vesting and exercisability of May stock options and restricted stock issued under May’s equity compensation plans — May’s 12 current executive officers and 8 current non-management directors currently hold, in the aggregate, 518,780 and 49,990 shares of restricted stock, respectively, and May’s 12 current executive officers hold 758,450 unvested stock options with a weighted average exercise price of $28.187 per share; | |
• | continued benefits under May plans for one year following the effective date of the merger, as well as continued compensation and benefits from one year following the effective date of the merger through the third year following the effective date of the merger that are in the aggregate substantially comparable to that provided by May immediately prior to the effective time of the merger; | |
• | accelerated payment of previously vested amounts credited under May’s deferred compensation programs — May’s 12 current executive officers currently have credited to their accounts an aggregate of approximately $5.45 million and 207,691 stock units and May’s 8 non-management directors currently have credited to their accounts an aggregate of approximately $300,000 and 171,285 stock units; and | |
• | Federated’s agreement to indemnify each present and former May officer and director against liabilities arising out of that person’s services as an officer or director, and maintain directors’ and officers’ liability insurance for a period of six years after closing to cover May directors and officers, subject to certain limitations. | |
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The unaudited pro forma financial data included in this joint proxy statement/ prospectus are preliminary and Federated’s actual financial position and results of operations may differ materially from the unaudited pro forma financial data included in this joint proxy statement/ prospectus. |
The value of the Federated common stock that May stockholders receive in the merger may be less than the value of such Federated common stock when the merger was publicly announced. Further, at the May annual meeting, May stockholders will not know the exact value of Federated common stock that will be issued in the merger. |
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If the total value of the Federated common stock to be received falls below 40% of the total consideration, May stockholders could be required to accept $18.75 per share in cash and 0.3115 shares of Federated common stock in a transaction that is currently taxable to such May stockholders. |
Federated may be required under the merger agreement to dispose of assets that account for up to $4 billion in annual net sales if required by governmental entities to obtain antitrust clearance for the merger. |
The market price for shares of Federated common stock may be affected by factors different from, or in addition to, those affecting shares of May common stock, and the market value of Federated common stock may decrease after the closing date of the merger. |
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The price of Federated common stock has been volatile and may continue to fluctuate significantly, which may cause you to lose a significant portion of your investment. |
• | competitive conditions in retail and related services industries; | |
• | changes in consumer confidence, tastes, preferences, fashion trends and spending; | |
• | the availability and level of consumer debt; | |
• | anticipated cash flow and the ability of Federated to maintain sufficient operating cash flow and liquidity; | |
• | the possibility that new business and strategic options for one or more business segments will be identified, potentially including selective acquisitions, dispositions, restructurings, joint ventures and partnerships; | |
• | trade restrictions, tariffs and other factors potentially affecting the ability to find qualified vendors and access products in an efficient manner; | |
• | the ability to successfully implement initiatives to improve inventory management capabilities; | |
• | changes in interest rates; | |
• | social and political conditions such as war, political unrest and terrorism or natural disasters; | |
• | volatility in financial markets; | |
• | changes in debt ratings, credit spreads and cost of funds; | |
• | the possibility of interruptions in systematically accessing the public debt markets; | |
• | the impact of seasonal buying patterns, which are difficult to forecast with certainty; and | |
• | general economic conditions and normal business uncertainty. |
Anti-takeover provisions could delay, deter or prevent a change in control of Federated even if the change in control would be beneficial to Federated stockholders. |
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Federated faces significant competition in the retail industry. |
Federated’s sales and operating results depend on consumer preferences and fashion trends. |
Federated is subject to global economic and political conditions. |
Federated depends upon the success of its advertising and marketing programs. |
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• | the ability of Federated to integrate the May businesses with Federated’s businesses and achieve the expected synergies from the merger; | |
• | the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the May annual meeting; | |
• | the approval of the issuance of Federated common stock in connection with the merger at the Federated annual meeting; | |
• | the timing of the completion of the merger; | |
• | the actual financial position and results of operations of Federated following the merger, which may differ significantly from the pro forma financial data contained in this joint proxy statement/ prospectus; | |
• | the impact of competitive products and pricing; | |
• | general market conditions in the retail industry; | |
• | the level of capital resources required for future acquisitions and operations; and | |
• | changes in laws and regulations. |
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• | To approve and adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger; | |
• | To elect four members of May’s board of directors; | |
• | To adopt an amendment to May’s amended and restated certificate of incorporation to provide for the annual election of directors; | |
• | To ratify the appointment of Deloitte & Touche LLP as May’s independent registered public accounting firm for the fiscal year ending January 28, 2006; | |
• | To approve adjournments or postponements of the May annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the May annual meeting to approve the above proposals; and | |
• | To consider and take action upon any other business that may properly come before the May annual meeting, or any reconvened meeting, following an adjournment or postponement of the May annual meeting. |
• | Approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, requires the approval of a majority of the outstanding shares of May common stock and ESOP preference shares entitled to vote, voting together as one class. Abstentions and broker non-votes will have the same effect as a vote against the proposal. |
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• | The election of four members of May’s board of directors requires the affirmative vote of a plurality of the shares of May common stock and ESOP preference shares, voting together as one class, present in person or represented by proxy at the May annual meeting and entitled to vote. Abstentions and broker non-votes are not counted and will not affect the outcome of the vote. | |
• | Approval of the amendment to May’s amended and restated certificate of incorporation to provide for the annual election of directors requires the affirmative vote of a majority of the outstanding shares of May common stock and ESOP preference shares, voting together as one class. Abstentions and broker non-votes will have the same effect as a vote against the proposal. | |
• | Ratification of the appointment of Deloitte & Touche LLP as May’s independent registered public accounting firm for fiscal year ending January 28, 2006, requires the affirmative vote of the holders of a majority of the shares of May common stock and ESOP preference shares, voting together as one class, present in person or represented by proxy and entitled to vote at the May annual meeting. An abstention has the same effect as a vote against the proposal. A broker non-vote is not counted and will not affect the outcome of the vote. | |
• | Approval of adjournments or postponements of the May annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the May annual meeting to approve the above proposals, requires the affirmative vote of a majority of the shares of May common stock and ESOP preference shares, voting together as one class, present in person or represented by proxy and entitled to vote at the May annual meeting. An abstention has the same effect as a vote against the proposal. A broker non-vote is not counted and will not affect the outcome of the vote. |
• | FOR the proposal to approve and adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the May annual meeting. See “May’s Reasons for the Merger and Recommendation of May’s Board of Directors” beginning on page 54; and | |
• | FOR each of the other proposals presented at the May annual meeting. |
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• | All directors elected at the 2005 annual meeting or thereafter would be elected for one-year terms; | |
• | Directors assigned to the class of 2006, who were previously elected at earlier annual meetings, would stand for election in 2006 and would be elected for one-year terms thereafter; | |
• | Directors assigned to the class of 2007, who were previously elected at an earlier annual meeting, would stand for election in 2007 and would be elected for one-year terms thereafter; and | |
• | Vacancies that occur during the year would continue to be filled by the board of directors to serve only until the next annual meeting. |
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2004 | 2003 | |||||||
Audit Fees | $ | 4.3 | $ | 2.6 | ||||
Audit-Related Fees(1) | 0.3 | 0.3 | ||||||
Tax Fees(2) | 0.2 | 0.2 | ||||||
All Other Fees(3) | 0.3 | 0.0 | ||||||
Total fees | $ | 5.1 | $ | 3.1 |
(1) | Audit-Related Fees include fees related to benefit plans, foundation and trust audits. |
(2) | Tax Fees consist of tax compliance services. |
(3) | All Other Fees include acquisition financial due diligence and purchase accounting services. |
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• | Internet: You can vote over the Internet at the Web address shown on your proxy card or voting instruction card (www.proxyvote.com). Internet voting is available 24 hours a day. If you vote over the Internet, do not return your proxy card(s) or voting instruction card(s). | |
• | Telephone: You can vote by telephone by calling the toll-free number on your proxy card(s) or voting instruction card(s). Telephone voting is available 24 hours a day. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote by telephone, do not return your proxy card(s) or voting instruction card(s). | |
• | Mail: You can vote by mail by simply signing, dating and mailing your proxy card(s) or voting instruction card(s) in the postage-paid envelope included with this joint proxy statement/ prospectus. |
• | sending a written notice to the Corporate Secretary of May, at 611 Olive Street, St. Louis, Missouri 63101, bearing a date later than the date of the proxy, that is received prior to the May annual meeting and states that you revoke your proxy; | |
• | voting again over the Internet or by telephone; |
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• | signing another proxy card(s) or voting instruction card(s) bearing a later date and mailing it so that it is received prior to the annual meeting; or | |
• | attending the annual meeting and voting in person, although attendance at the annual meeting will not, by itself, revoke a proxy. |
Voting in Person |
Electronic Access to Proxy Materials |
People with Disabilities |
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• | to authorize the issuance of Federated common stock pursuant to the terms of the merger agreement; | |
• | to elect three Class II members of Federated’s board of directors; | |
• | to amend Federated’s certificate of incorporation to adopt a system for the annual election of all of Federated’s directors; | |
• | to ratify the appointment of KPMG LLP as Federated’s independent registered public accounting firm for the fiscal year ending January 28, 2006; | |
• | to approve adjournments or postponements of the Federated annual meeting, if necessary to permit further solicitation of proxies if at the time of the Federated annual meeting to approve the above proposals; and | |
• | to consider and take action upon any other business that may properly come before the Federated annual meeting or any reconvened meeting following an adjournment or postponement of the Federated annual meeting. |
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• | if required by applicable law; | |
• | to persons engaged in the receipt, counting, tabulation or solicitation of proxies who have agreed to maintain stockholder confidentiality as provided in the policy; | |
• | in those instances in which stockholders write comments on their proxy cards or otherwise consent to the disclosure of their vote to Federated’s management; | |
• | in the event of a proxy contest or a solicitation of proxies in opposition to the voting recommendations of the board; | |
• | in respect of a stockholder proposal that Federated’s Nominating and Corporate Governance Committee, after having allowed the proponent of the proposal an opportunity to present its views, determines is not in the best interests of Federated and its stockholders; and | |
• | in the event that representatives of Federated determine in good faith that a bona fide dispute exists as to the authenticity or tabulation of voting materials. |
• | The authorization of the issuance of Federated common stock pursuant to the terms of the merger agreement requires the approval of at least a majority of the votes cast by the holders of outstanding shares of Federated common stock present (in person or by proxy) at the Federated annual meeting, where the holders of at least a majority of all outstanding shares of Federated common stock vote on the proposal. Abstentions and broker non-votes will be treated as shares not voted on the issuance of stock pursuant to the merger agreement. Accordingly, an abstention or broker non-vote can negatively affect the vote on the Federated share issuance proposal if their failure to be counted results in less than a majority of all outstanding shares of Federated common stock being voted. | |
• | The election of three Class II members of Federated’s board of directors requires the affirmative vote of a plurality of the shares of Federated common stock present in person or represented by proxy at the Federated annual meeting and entitled to vote. Abstentions and broker non-votes are not counted and will not affect the outcome of the vote. |
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• | In order to take effect in accordance with the schedule more fully described in the proposal, the proposal to amend Federated’s certificate of incorporation to adopt a system for the annual election of all Federated directors requires the affirmative vote of a majority of all outstanding shares of Federated common stock. Abstentions and broker non-votes have the same effect as votes against the proposal. | |
• | Ratification of the appointment of KPMG LLP as Federated’s independent registered public accounting firm for the fiscal year ending January 28, 2006, requires the affirmative vote of the holders of a majority of Federated common stock present in person or represented by proxy entitled to vote and actually voted at the Federated annual meeting. Abstentions and broker non-votes are not counted and will not affect the outcome of the vote. | |
• | Approval of adjournments or postponements of the Federated annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Federated annual meeting to approve the above proposals, requires the affirmative vote of the holders of a majority of Federated common stock present in person or represented by proxy entitled to vote and actually voted at the Federated annual meeting. Abstentions and broker non-votes are not counted and will not affect the outcome of the vote. |
• | FOR the issuance of Federated common stock pursuant to the merger agreement. | |
• | FOR the other proposals presented at the Federated annual meeting. |
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Fees Paid to Independent Registered Public Accounting Firm |
Year | Audit ($) | Audit-Related ($) | Tax ($) | All Other ($) | Total ($) | |||||||||||||||
2004 | 3,723,000 | 830,500 | 309,747 | 0 | 4,863,247 | |||||||||||||||
2003 | 2,325,650 | 787,400 | 162,000 | 69,000 | 3,344,050 |
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• | Internet: You can vote over the Internet at the Web address shown on your proxy card(s). Internet voting is available 24 hours a day. If you vote over the Internet, do not return your proxy card(s) or voting instruction card(s). | |
• | Telephone: You can vote by telephone by calling the toll-free number on your proxy card(s) or voting instruction card(s). Telephone voting is available 24 hours a day. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote by telephone, do not return your proxy card(s) or voting instruction card(s). | |
• | Mail: You can vote by mail by simply signing, dating and mailing your proxy card(s) or voting instruction card(s) in the postage-paid envelope included with this joint proxy statement/ prospectus. |
• | sending a written notice to the Corporate Secretary of Federated, at 7 West Seventh Street, Cincinnati, Ohio 45202, bearing a date later than the date of the proxy that is received prior to the Federated annual meeting and states that you revoke your proxy; | |
• | voting again over the Internet or by telephone; |
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• | signing another proxy card(s) or voting instruction card(s) bearing a later date and mailing it so that it is received prior to the annual meeting; or | |
• | attending the annual meeting and voting in person, although attendance at the annual meeting will not, by itself, revoke a proxy. |
Voting in Person |
Electronic Access to Proxy Material |
People with Disabilities |
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Based on the information currently available to us, Federated is prepared to offer $33.25 per share for all the outstanding common stock of May. This price represents a premium of approximately 20% to both the closing price of May’s stock on January 13, 2005 and to the 3-year average price prior to that date. We are contemplating a cash and stock transaction involving 40% cash and 60% stock, assuming a fixed number of Federated shares. | |
Our projected financial plan anticipates raising the current Federated dividend significantly to $1.00 per share after closing. | |
The capital structure of the new company contemplates that there will be significant share repurchases in the future, while at the same time preserving the company’s investment grade rating. | |
In order to ensure that there is some continuity of the May perspective in the boardroom, we are willing to discuss adding two existing May directors to the Federated Board should there be an interest in doing so. | |
The Federated Board of Directors has been fully briefed on this proposal and is very excited about the prospect of putting our two companies together. We are prepared to act quickly to execute a definitive agreement and consummate a transaction as soon as possible. Our team and advisors are available to complete our due diligence immediately. As we explained to [Mr. Dunham and Mr. McNamara] last week, we do not anticipate any delays in our ability to expeditiously complete a transaction and we are prepared to provide your Board with a strong contractual commitment to close the acquisition. | |
This proposal should be considered non-binding and is subject to, among other things, the satisfactory completion of our due diligence and the negotiation and execution of a mutually satisfactory merger agreement. We would expect the definitive documentation to contain customary representations and warranties, closing conditions and no-shop and deal protection provisions. |
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Federated is prepared to increase its offer by $1.00 to $34.25 per share. In an effort to pay our best price, we are also shifting the mix of consideration to 50% cash and 50% stock. In light of Morgan Stanley’s clear guidance that the upfront purchase price is a priority for May directors, this change was necessary to deliver maximum value to your shareholders. As we indicated in our letter of January 31, 2005, we are contemplating offering a unit to May’s shareholders made up of cash and stock and the number of Federated shares will be fixed upon acceptance of this proposal. | |
I want to emphasize to you that in formulating this revised offer we are “putting our best foot forward.” The price of 34.25 per share represents a premium in excess of 23% to the closing price of May’s stock on January 13, 2005 and it represents an attractive premium to May’s one, three and five year average stock price. In addition, I want to reiterate that we are prepared to enter into a definitive merger agreement quickly, and we are willing to provide your Board with a strong contractual commitment to close. |
I am writing to convey the terms of a revised and final proposal whereby Federated would acquire all of the common stock of May. |
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Federated is prepared to increase its offer by $1.00 to $35.25 per share in a transaction comprised of 50% cash and 50% stock. As indicated in our letter of February 7, 2005, we are offering May shareholders consideration in the form of a unit made up of cash and stock where the number of Federated shares will be fixed based on our closing price of $57.39 on February 16, 2005.(1) | |
I believe both our companies need to promptly resolve the matter of the potential merger. The leaks and rumors about a possible transaction have been damaging to both Federated and May. Under the circumstances, we are prepared to immediately commence our due diligence and simultaneously negotiate a definitive merger agreement. If at all possible, it would be our intention to announce a transaction concurrent with the release of our year end financials on Tuesday, February 22, 2005. Therefore, in the spirit of trying to bring our respective efforts to negotiate a transaction to a swift conclusion, this proposal will remain open until 12:00 noon (EST) on Friday, February 18, 2005. | |
I look forward to hearing back from you as soon as possible. |
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• | the strategic nature of the transaction, which will combine May’s and Federated’s respective businesses to create one of the largest national retail store chains in the United States, with pro forma combined sales expected to exceed $30 billion, all of which should provide the combined company with a strong foundation for improved performance; | |
• | the May board of directors’ analysis and understanding of management’s “stand-alone” plans for May in the context of the increasingly competitive conditions in the retail industry generally, including pressures from both discount and high-end retailers, and the board’s analysis of the business, operations, financial performance, financial condition, earnings and prospects of May on a stand-alone basis, particularly in view of May’s recent financial performance in comparison to May’s peers, and the board’s belief, based on its analysis and understanding, that the combined company, with its greater size and scale, would be better positioned to succeed in light of the risks and potential rewards associated with May continuing to operate on a stand-alone basis and other alternatives reasonably available to May, including growth through acquisition of assets or other companies and disposition of non-strategic assets; | |
• | the value to be received by holders of May common stock in the merger, including the fact that, based on the closing price of May’s common stock on January 14, 2005 (the last full trading day before the announcement of the resignation of Chairman and CEO Gene Kahn and rumors of a possible business combination transaction between May and Federated were reported by several national news organizations), the value of the merger consideration represented: |
• | a premium of approximately 27.5% over the closing price of May common stock on the NYSE on January 14, 2005; | |
• | a premium of approximately 23.7%, 35.5% and 24.3% over the median closing price of May common stock on the NYSE for the thirty-day, six-month and twelve-month trading periods, respectively, ending with January 14, 2005; |
• | the fact that the initial 50/50 split of stock and cash in the merger consideration affords May stockholders both the opportunity to participate in the growth and opportunities of the combined company through the stock component of the merger consideration and to receive cash for the value of their shares through the cash component of the merger consideration; | |
• | the fact that May stockholders as a group will own, on a fully-diluted basis, approximately 35% of the outstanding Federated common stock immediately following the merger; | |
• | because the stock portion of the merger consideration is a fixed number of shares of Federated common stock, the opportunity for May stockholders to benefit from any increase in the trading price of Federated common stock between the announcement of the merger and the completion of the merger, as well as any increase after completion of the merger; | |
• | the fact the Federated agreed to increase its quarterly dividend to $0.25 following completion of the merger; | |
• | the May board of directors’ understanding of the historical information concerning May’s and Federated’s respective businesses, financial performance and condition, operations, management, competitive positions, prospects and stock performance, including the report of May’s management on the results of May’s due diligence review of Federated, which confirmed the otherwise publicly available information regarding Federated and supported the board’s determination that the combined company should have a strong foundation for growth and improved performance; | |
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• | anticipated cost savings and operating synergies available to the combined company from the merger through consolidation of central functions, division integrations and the continuation across the combined company of the best practices and traditions of May and Federated following completion of the merger which is expected to positively enhance the combined company’s earnings and create value for stockholders; | |
• | the potential ability of the combined company to maintain and strengthen relationships with a broader base of suppliers and mall operators through improved operational efficiencies in such areas as marketing and supply chain management; | |
• | the fact that the business combination with Federated provides the combined company with additional unique and differentiated products that should enable the combined company to better differentiate itself from other retailers and expand the points of distribution for its private labels in key geographic areas; | |
• | Morgan Stanley’s opinion described in the section entitled “— Opinions of May’s Financial Advisors” beginning on page 61, including its analysis rendered orally on and confirmed in writing as of February 27, 2005, to the effect that, as of February 27, 2005, and based on and subject to various assumptions made, matters considered and limitations described in its written opinion, the consideration proposed to be received by holders of May common stock in the merger agreement was fair, from a financial point of view, to such holders; | |
• | Peter J. Solomon Company’s opinion described in the section entitled “— Opinions of May’s Financial Advisors” beginning on page 61, including its analysis rendered orally on and confirmed in writing as of February 27, 2005, to the effect that, as of February 27, 2005, and based on and subject to various assumptions made, matters considered and limitations described in its written opinion, the consideration proposed to be received by holders of May common stock in the merger was fair, from a financial point of view, to such holders; | |
• | the fact that the May board of directors had not received any indications of interest from other parties regarding a potential business combination despite public speculation and commentary regarding a potential business combination transaction involving May; | |
• | the fact that May stockholders who dissent from the merger will have appraisal rights, as described in the section entitled “— Appraisal Rights of May Stockholders” beginning on page 92; | |
• | the expected qualification of the merger as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, resulting in the common stock portion of the merger consideration to be received by May stockholders not being subject to federal income tax, as described in the section entitled “Material United States Federal Income Tax Consequences” beginning on page 96; | |
• | the May board’s belief, in light of the commitments made by Federated in the merger agreement, that, based on available information, the transaction should not present an unacceptable risk of non-consummation due to antitrust concerns; and | |
• | the terms and conditions of the merger agreement, including: |
• | the fact that the terms of the merger agreement provide that, under certain circumstances, and subject to certain conditions more fully described in the section entitled “The Merger Agreement — Covenants and Agreements — No Solicitation by May” beginning on page 106, May can furnish information to and conduct negotiations with a third party in connection with an unsolicited proposal for a business combination or acquisition of May that is likely to lead to a superior proposal and the May board of directors can terminate the merger agreement for a superior proposal or change its recommendation prior to stockholder approval of the merger agreement; | |
• | the fact that there are limited circumstances in which the board of directors of Federated may change or modify its recommendation to its stockholders to approve the issuance of shares of Federated common stock in the merger, and that Federated agreed to pay a termination fee of |
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$350 million to May in the event that the board of directors of Federated changes or modifies its recommendation, as described in the section entitled “The Merger Agreement — Termination Fees” beginning on page 116; | ||
• | the fact that Federated agreed to pay a termination fee to May ranging from $150 million to $350 million in the event that the merger agreement is terminated due to a failure to obtain necessary antitrust clearance; | |
• | the fact that the completion of the merger is not conditioned on Federated’s obtaining financing; | |
• | the fact that the conditions required to be satisfied prior to completion of the merger are customary and can be expected to be fulfilled in the ordinary course and the corresponding likelihood that the merger will be consummated; | |
• | the fact that two members of the May board of directors are expected to be appointed to the Federated board of directors, which is expected to provide a degree of continuity and involvement by May directors in the combined company following the merger; | |
• | the fact that Federated agreed to continue all of May’s employee benefit plans in accordance with their terms in effect immediately prior to the effective time of the merger for one year after the merger and, for the second and third years after the merger, Federated agreed to provide a substantially comparable level of compensation and employee benefits (excluding equity-based awards) to all continuing May employees (other than those subject to collective bargaining obligations or agreements); | |
• | the fact that Federated agreed to maintain a major division headquarters, as well as certain regional corporate support functions, in St. Louis, which the May board of directors considered important in light of May’s importance to the St. Louis area and the effect on employees; and | |
• | the fact that Federated agreed to honor May’s existing charitable contribution commitments and fund future charitable contributions (subject to certain agreed parameters). |
• | the risk that, notwithstanding the likelihood of the merger’s being completed, the merger might not be completed, including the effect of the pendency of the merger and such failure to be completed may have on: |
• | the trading price of May common stock; | |
• | May’s operating results, including the costs incurred in connection with the transaction; | |
• | May’s ability to attract and retain key personnel; and | |
• | May’s ability to retain customers and maintain sales; |
• | the possibility of significant costs and delays resulting from seeking antitrust clearance necessary for completion of the proposed merger; | |
• | because the stock portion of the merger consideration is a fixed number of shares of Federated common stock, May stockholders could be adversely affected by a decrease in the trading price of Federated common stock after the date of execution of the merger agreement, and the merger agreement does not provide May with a price-based termination right or other similar protection for May or its stockholders (other than in order to protect the tax-free nature of the transaction to the extent of the stock consideration to be received by May stockholders in the merger, as discussed in “The Merger Agreement — Merger Consideration” beginning on page 100); | |
• | the limitations imposed in the merger agreement that restrict, among other things, May’s ability prior to the completion of the merger to solicit or enter into any agreement relating to an alternative business combination, or enter into any discussions of any proposals that may lead to an alternative business | |
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combination, as more fully described in the section entitled “The Merger Agreement — No Solicitation by May” beginning on page 106; | ||
• | the requirement that May must pay to Federated a termination fee of $350 million if the merger agreement is terminated under circumstances specified in the merger agreement, as described in the section entitled “The Merger Agreement — Termination Fees” beginning on page 116; | |
• | the challenges inherent in combining the businesses, operations and workforces of two large companies, including the possibility that management may be distracted from regular business concerns by (1) unforeseen difficulties in integrating operations and systems and (2) possible employee uncertainty in the face of potential workforce reductions and difficulties in assimilating employees; | |
• | the likelihood of realizing and the risks of not realizing the expected operating synergies and cost savings; and | |
• | the risks described in the section entitled “Risk Factors” beginning on page 28. | |
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• | The merger is expected to create a more efficient, competitive national retailer, with approximately $30 billion in annual revenues and significantly broader geographic coverage, with a total of approximately 1,650 stores (including approximately 700 bridal and formalwear stores) in 49 states, Guam, Puerto Rico and the District of Columbia. The combined companies will own and operate stores in 64 of the nation’s top 65 geographic areas with relatively little overlap. | |
• | The merger with May will provide the combined companies with an opportunity to compete more effectively in the highly competitive, broad-based retail environment, including with national retailers such as Sears/ K-Mart, J.C. Penney’s, Target, Wal-Mart, The Limited, Linens ‘n Things, Bed, Bath & Beyond, Nordstrom’s, Kohl’s, Neiman Marcus, Saks Fifth Avenue and others. | |
• | Federated’s board of directors also considered management’s view that the combined companies should produce cost synergies of approximately $175 million in 2006 and approximately $450 million in 2007, resulting from purchasing efficiencies, the ability to advertise nationally, the consolidation of corporate services and headquarters functions, reductions in distribution and marketing costs, and the adoption of best practices across the combined companies, all of which will increase competition and benefit consumers. These benefits are expected to be realized by the end of 2007, and the merger is expected to be accretive to Federated’s per share earnings in 2007. While these synergies reflect management’s estimates, the Federated board recognized there could be no assurance that they would be achieved. In addition, the potential to realize greater synergies represents an additional factor considered by Federated’s board. | |
• | Federated’s board also considered the possibility of achieving higher comparable store sales growth as a result of leveraging the combined companies’ best people, products and practices and enhanced ability to compete in the retail industry on a national scale. | |
• | Federated’s board considered the opportunities and benefits of extending its business into additional geographic areas as a result of the merger. May has a strong list of retail store assets located in the midwest and elsewhere, including Famous-Barr, Filene’s, Foley’s, Hecht’s, Kaufmann’s, Lord & Taylor, L.S. Ayers, Marshall Field’s, Meier & Frank, Robinsons-May, Strawbridge’s and The Jones Store, which complement Federated’s current geographic footprint. | |
• | Federated’s board considered that Federated will be able to augment its talent pool with the most capable managers from May. |
• | historical information concerning May’s and Federated’s respective businesses, financial performance and condition, operations, management, competitive positions and stock performance, which comparisons generally informed the board’s determination as to the relative values of Federated, May and the combined companies, enabling Federated to increase the value of the merger consideration; | |
• | management’s strategy of potentially re-branding many May stores as Macy’s, which re-branding strategy management believes will be successful based on the success of the co-branding strategy with respect to Federated’s regional stores; | |
• | the results of the due diligence review of May’s businesses and operations, which indicated that there were no material risks associated with acquiring May; | |
• | management’s assessment that the proposed merger was likely to meet certain criteria they deemed necessary for a successful merger — strategic fit, acceptable execution risk, and financial benefits to Federated and Federated’s stockholders; |
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• | the financial analyses and presentations of Federated’s financial advisor and its opinion that, as of February 27, 2005, the consideration to be paid to the May stockholders in the merger was fair, from a financial point of view, to Federated (the written opinion of Goldman Sachs is attached asAnnex D to this joint proxy statement/ prospectus and discussed in detail under “— Opinion of Federated’s Financial Advisor” beginning on page 78); | |
• | the terms and conditions of the merger agreement, including: |
• | the limited number and nature of the conditions to May’s obligation to consummate the merger and the limited risk of non-satisfaction of such conditions; and | |
• | that Federated may be entitled to receive a $350 million termination fee from May if the merger is not consummated for certain reasons; |
• | the determination that an exchange ratio that is fixed, subject to adjustment in certain circumstances in Federated’s discretion, is appropriate to reflect the strategic purpose of the merger and consistent with market practice for mergers of this type and that a fixed exchange ratio avoids fluctuations caused by near-term market volatility; and | |
• | the likelihood that the merger will be completed on a timely basis, including the likelihood that the merger will receive all necessary antitrust and other regulatory approvals without unacceptable conditions on a timely basis. |
• | the challenges of combining the operations of two major retail businesses and effecting certain cultural changes; | |
• | the possible disruptions from certain anticipated workforce reductions to be implemented as part of the merger integration plan; | |
• | the risk that anticipated operating profit synergies and cost savings will not be achieved (or the risk that certain cost savings will adversely affect operating profits); | |
• | the one-time costs of the acquisition and integration, which management estimated at approximately $1 billion spread over a three-year period; | |
• | the risk that Federated may be required under the merger agreement to commit to dispose of assets of the combined companies valued at up to $4 billion if required by any governmental entity in order to obtain antitrust clearance for the merger; | |
• | the risk that Federated will have to pay May a fee of up to $350 million if the merger agreement is terminated under certain circumstances; | |
• | the potential dilution to Federated’s stockholders; and | |
• | the risk of diverting management’s attention from other strategic priorities to implement merger integration efforts. |
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Morgan Stanley |
• | reviewed certain publicly available financial statements and other business and financial information of May and Federated, respectively; | |
• | reviewed certain internal financial statements and other financial and operating data concerning May prepared by the management of May; | |
• | reviewed certain financial projections prepared by the management of May; | |
• | discussed the past and current operations and financial condition and the prospects of May, with senior executives of May; | |
• | discussed the past and current operations and financial condition and the prospects of Federated, with senior executives of Federated; | |
• | discussed certain limited financial projections for Federated with the management of Federated; | |
• | discussed limited pro forma financial projections, including information relating to strategic, financial and operational benefits and issues anticipated from the merger, with senior executives of Federated; | |
• | discussed the strategic rationale of the merger with the management of May and Federated; | |
• | reviewed the pro forma impact of the merger on Federated’s publicly available operating statistics, consolidated capitalization and financial ratios; | |
• | reviewed the reported prices and trading activity for May common stock and Federated common stock; | |
• | compared the financial performance of May and Federated and the prices and trading activity of May common stock and Federated common stock with that of certain other comparable publicly-traded companies and their securities; | |
• | reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; |
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• | participated in discussions and negotiations among representatives of May, Federated and their financial and legal advisors; | |
• | reviewed the draft merger agreement, dated February 27, 2005 and certain related documents; and | |
• | considered such other factors and performed such other analyses as Morgan Stanley deemed appropriate. |
Historical Common Stock Performance |
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May |
Average | ||||
May Common Stock Average Share Price(1)(2) | per Share | |||
for Period Ending February 25, 2005 | Price ($) | |||
6 Months | 28.31 | |||
1 Year | 28.94 | |||
2 Years | 27.22 | |||
3 Years | 27.68 | |||
5 Years | 29.05 | |||
10 Years | 31.38 |
(1) | Represents unweighted average |
(2) | Represents split-adjusted prices |
May Common Stock — Historical Trading Range | Low | High | ||||||
for Period Ending February 25, 2005 | ($) | ($) | ||||||
6 Months | 24 | 35 | ||||||
1 Year | 24 | 36 | ||||||
3 Years | 18 | 38 |
Federated |
Federated Common Stock — Historical Trading Range | Low | High | ||||||
for Period Ending February 25, 2005 | ($) | ($) | ||||||
6 Months | 43 | 59 | ||||||
1 Year | 43 | 59 | ||||||
3 Years | 24 | 59 |
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Historical Relative Stock Price Analysis |
Implied | ||||||||
Historical | May Common | |||||||
Relative Stock | Stock Price | |||||||
Period Ending February 25, 2005 | Price (x) | per Share ($)(2) | ||||||
February 25, 2005 | 0.622 | 35.35 | ||||||
January 14, 2005(1) | 0.477 | 27.84 | ||||||
Last 6 Months | 0.541 | 30.72 | ||||||
Last 1 Year | 0.571 | 32.43 | ||||||
Last 2 Years | 0.607 | 34.47 | ||||||
Last 3 Years | 0.675 | 38.36 | ||||||
Last 5 Years | 0.749 | 42.53 |
(1) | Last trading day prior to reports appearing in the popular press regarding a potential transaction |
(2) | Calculated by multiplying the historical relative stock price for a given period by Federated’s closing share price of $56.79 as of February 25, 2005, with the exception of the January 14, 2005 implied price which was based on Federated’s closing share price of $58.37 as of that date |
Historical Forward P/ E Ratio Analysis |
P/E Ratios | ||||||||||||
May | ||||||||||||
Period Ending February 25, 2005 | May | Federated | Premium | |||||||||
February 25, 2005 | 15.6x | 12.4x | 26.4 | % | ||||||||
January 14, 2005 | 12.2x | 12.7x | (4.2 | )% | ||||||||
Last 6 Months | 12.1x | 11.8x | 3.0 | % | ||||||||
Last 1 Year | 12.4x | 11.9x | 4.1 | % | ||||||||
Last 2 Years | 12.7x | 11.7x | 8.6 | % | ||||||||
Last 3 Years | 12.2x | 10.9x | 11.5 | % | ||||||||
Last 5 Years | 11.6x | 10.3x | 13.6 | % | ||||||||
All-Time High (during the last 5 years) | 16.9x | (1) | 14.1x | (2) | 19.9 | % |
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(1) | As of February 18, 2004 |
(2) | As of March 4, 2004 |
Selected Precedent Transaction Analysis |
• | GPU Inc./ FirstEnergy | |
• | Banacci/ Citigroup | |
• | Sears Roebuck/ KMart Holding Corp | |
• | Guidant/ Johnson & Johnson | |
• | Times Mirror/ Tribune | |
• | Aventis/ Sanofi-Synthelabo | |
• | Caesars Entertainment/ Harrah’s Entertainment | |
• | Credit Commercial de France/ HSBC |
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Present Value of Equity Research Analyst Targets |
May |
Federated |
Future Stock Price Present Value |
May |
Implied per Share | ||||
Value of May | ||||
Common Stock | ||||
Research Case | $ | 22 - $31 | ||
Management Case A(1) | $ | 25 - $34 | ||
Management Case B(2) | $ | 26 - $35 | ||
Management Case C(3) | $ | 28 - $38 | ||
Management Case D(4) | $ | 29 - $40 |
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(1) | May management internal five-year projections |
(2) | May management internal five-year projections including share repurchases and debt refinancing |
(3) | May management internal five-year projections including share repurchases and debt refinancing and the benefits of divisional consolidation |
(4) | May management internal five-year projections including share repurchases and debt refinancing, the benefits of divisional consolidations and sale of the credit card receivables |
Federated |
Implied per Share | ||||
Value of Federated | ||||
Common Stock | ||||
2005E EPS of $4.60 | $ | 55 - $60 | ||
2006E EPS of $4.98 | $ | 45 - $63 | ||
2007E EPS of $5.43 | $ | 45 - $63 |
Discounted Cash Flow Analysis |
May |
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• | Research Case: $22 – $27 per share | |
• | Management Case A: $29 – $35 per share | |
• | Management Case C: $33 – $39 per share |
Federated |
Present Value Analysis of the Merger |
• | Pro Forma Scenario A: no sale of Federated’s credit card receivables. | |
• | Pro Forma Scenario B: sale of Federated’s credit card receivables at par, with Federated retaining 75% of the operating income of the portfolio and using the proceeds from the receivables sale over two years to pay down debt and buy back shares. |
• | Pro Forma Scenario A: $38 – $41 per share | |
• | Pro Forma Scenario B: $42 – $46 per share |
• | Pro Forma Scenario A: $38 – $40 per share | |
• | Pro Forma Scenario B: $45 – $47 per share |
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Peter J. Solomon Company |
(i) Reviewed certain publicly available financial statements and other information of May and Federated; | |
(ii) Reviewed certain internal financial statements and other financial and operating data concerning May prepared by the management of May; | |
(iii) Reviewed certain financial projections for May prepared by the management of May; | |
(iv) Reviewed financial forecasts and estimates for Federated prepared by independent research analysts contained in publicly available research reports regarding the future financial performance of Federated and discussed such forecasts and estimates with the management of Federated; | |
(v) Discussed the past and current operations, financial condition and prospects of May with the management of May; | |
(vi) Discussed the past and current operations, financial condition and prospects of Federated, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with the management of Federated; | |
(vii) Reviewed the reported prices and trading activity of May common stock and Federated common stock; | |
(viii) Compared the financial performance and condition of May and Federated and the reported prices and trading activity of May common stock and Federated common stock with that of certain other comparable publicly traded companies; | |
(ix) Reviewed publicly available information regarding the financial terms of certain transactions comparable, in whole or in part, to the merger; | |
(x) Reviewed the draft merger agreement dated as of February 25, 2005; and | |
(xi) Performed such other analyses as PJSC deemed appropriate. | |
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Historical Share Price Analysis — May |
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Offer Price | ||||
Premium to Median | ||||
Time Periods Prior to Jan. 14, 2005: | ||||
7 Days Prior | 27.6 | % | ||
30 Days Prior | 23.7 | |||
60 Days Prior | 23.6 | |||
90 Days Prior | 24.6 | |||
180 Days Prior | 35.5 | |||
Last 1 Year Prior | 24.3 | |||
Last 3 Years Prior | 28.9 | |||
Last 5 Years Prior | 23.9 | |||
Time Periods Prior to Feb. 25, 2005: | ||||
7 Days Prior | 4.3 | |||
30 Days Prior | 6.3 | |||
60 Days Prior | 11.0 | |||
90 Days Prior | 20.9 | |||
180 Days Prior | 25.6 | |||
Last 1 Year Prior | 24.3 | |||
Last 3 Years Prior | 28.9 | |||
Last 5 Years Prior | 23.5 |
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Analysis of Selected Publicly Traded Comparable Companies |
• | Federated, | |
• | Dillard’s, Inc., | |
• | J.C. Penney Company, Inc., | |
• | Kohl’s Corporation, | |
• | Nordstrom, Inc., | |
• | The Neiman Marcus Group, Inc. and | |
• | Saks Incorporated. | |
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Range of | |||||||||||||
Trading | |||||||||||||
Multiples | |||||||||||||
Trailing Data for Last Twelve Months ended January 31, 2005 | |||||||||||||
Enterprise Value as a Ratio of: | |||||||||||||
Net Sales | 60.0 | % | - | 115.0 | % | ||||||||
EBITDA | 6.0 | x | - | 8.0 | x | ||||||||
EBIT | 9.0 | x | - | 14.0 | x | ||||||||
Equity Value as a Ratio of: | |||||||||||||
Net Income | 22.0 | x | - | 14.0 | x | ||||||||
Projected Data | |||||||||||||
Equity Value as a Ratio of: | |||||||||||||
2005 Net Income | 12.0 | x | - | 20.0 | x | ||||||||
2006 Net Income | 11.0 | x | - | 16.0 | x |
Analysis of Selected Comparable Transactions |
(i) Kmart Holding Corporation/ Sears Roebuck & Co. | |
(ii) Jones Apparel Group/ Barneys, Inc. | |
(iii) May/ Marshall Field’s and nine Mervyn’s stores | |
(iv) Proffitt’s Inc./ Saks Holdings, Inc. | |
(v) Dillard’s Inc./ Mercantile Stores Co. Inc. | |
(vi) Proffitt’s Inc./ Carson Pirie Scott & Co. | |
(vii) Proffitt’s Inc./ Parisian, Inc. |
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(viii) May/ Strawbridge & Clothier | |
(ix) Federated/ Broadway Stores Inc. | |
(x) Federated/ R.H. Macy & Co., Inc. |
Range of | |||||||||||||
Multiples | |||||||||||||
Enterprise Value as a Ratio of: | |||||||||||||
Net Sales | 65.0 | % | - | 125.0 | % | ||||||||
EBITDA | 8.0 | x | - | 14.5 | x | ||||||||
EBIT | 11.0 | x | - | 19.0 | x |
Discounted Cash Flow Analysis |
Historical Share Price Analysis — Federated |
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Relative Contribution Analysis |
Historical Exchange Ratio Analysis |
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Pro Forma Merger Analysis |
Miscellaneous |
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• | the merger agreement; | |
• | annual reports to stockholders and Annual Reports on Form 10-K of Federated and May for the five fiscal years ended January 31, 2004; | |
• | certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Federated and May; | |
• | certain other communications from Federated and May to their respective stockholders; | |
• | certain internal financial analyses and forecasts for Federated prepared by its management; and |
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• | certain financial analyses and forecasts for May prepared by the management of Federated which are referred to as the Forecasts, including certain cost savings and operating synergies projected by the management of Federated to result from the merger, which are referred to as the synergies. |
• | reviewed the reported price and trading activity for the shares of Federated common stock and the shares of May common stock; | |
• | compared certain financial and stock market information for Federated and May with similar information for certain other companies the securities of which are publicly traded; | |
• | reviewed the financial terms of certain recent business combinations in the department store and retail industry specifically and in other industries generally; and | |
• | performed such other studies and analyses, and considered such other factors, as Goldman Sachs considered appropriate. |
Transaction Premium Analysis |
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• | the closing price of $27.73 on January 13, 2005 (the last full trading day prior to any speculation regarding the resignation of May’s chief executive officer and a potential transaction between Federated and May); | |
• | the average trading price of $29.03 over the one-year period prior to January 13, 2005; and | |
• | the twelve-month high trading price of $36.31. |
Implied Premium Based | ||||
on Implied Transaction | ||||
May Stock Price on: | Price per Share of $35.50 | |||
January 13, 2005 | 28.0 | % | ||
One-year average | 22.3 | % | ||
Twelve-month High | (2.2 | )% |
Implied Transaction Multiples |
• | 2004 net sales based on publicly available information; | |
• | Federated management’s estimates of May net sales for 2005 and 2006; | |
• | 2004 EBITDA based on publicly available information; | |
• | Federated management’s estimates of May EBITDA for 2005 and 2006; | |
• | 2004 earnings before interest and taxation, or EBIT, based on publicly available information; and | |
• | Federated management’s estimates of May EBIT for 2005 and 2006. |
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Implied Transaction | ||||
Fully Diluted Equity Consideration as a Multiple of: | Price per Share: | |||
2005 estimated net income | 17.4x | |||
2006 estimated net income | 15.0x | |||
Enterprise Value as a Multiple of: | ||||
2004 net sales | 1.1x | |||
2005 estimated net sales | 1.1x | |||
2006 estimated net sales | 1.0x | |||
2004 EBITDA | 8.5x | |||
2005 estimated EBITDA | 7.9x | |||
2006 estimated EBITDA | 7.5x | |||
2004 EBIT | 13.1x | |||
2005 estimated EBIT | 11.8x | |||
2006 estimated EBIT | 10.9x |
Discounted Cash Flow Analysis |
Pro Forma EPS Analysis |
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Unlevered Internal Rate of Return Analysis |
Selected Companies Analysis |
• | Dillard’s, Inc. | |
• | Federated Department Stores, Inc. | |
• | Nordstrom, Inc. | |
• | The Neiman Marcus Group, Inc. | |
• | J.C. Penney Company, Inc. | |
• | Saks Incorporated |
• | the February 25, 2005, closing stock price as a percentage of the 52-week high stock price; | |
• | enterprise value as a multiple of (1) sales for the twelve-month period completed as of the end of the quarter most recently completed prior to the announcement of the transaction, referred to as the LTM Period, (2) EBITDA for the LTM Period, (3) EBITDA for 2005, (4) EBITDA for 2006, and (5) EBIT for the LTM Period; | |
• | the February 25, 2005, closing stock price as a multiple of estimated 2005 and 2006 EPS, referred to as the 2005 and 2006 P/ E; | |
• | five-year EPS compounded annual growth rate, referred to as the 5-Year EPS CAGR, based on IBES median estimates; |
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• | the 2006 P/ E multiple as a multiple of 5-Year EPS CAGR; | |
• | EBITDA and EBIT margins for the LTM Period; and | |
• | dividend yield. |
May | ||||||||||||||||||||
Selected Companies | Based on Implied | |||||||||||||||||||
Transaction Price per | ||||||||||||||||||||
High | Low | Mean | Median | Share of $35.50 | ||||||||||||||||
February 25, 2005 closing stock price as a percentage of the 52-week high stock price (except as noted for May) | 100 | % | 87 | % | 95 | % | 97 | % | 98 | % | ||||||||||
Enterprise value to LTM Period Sales | 1.2 | x | 0.5 | x | 0.8 | x | 0.8 | x | 1.1 | x | ||||||||||
Enterprise value to LTM Period EBITDA | 9.5 | x | 5.9 | x | 7.8 | x | 7.9 | x | 8.6 | x | ||||||||||
Enterprise value to 2005 EBITDA | 8.6 | x | 5.9 | x | 7.3 | x | 7.1 | x | 8.1 | x | ||||||||||
Enterprise value to 2006 EBITDA | 8.1 | x | 5.9 | x | 6.8 | x | 6.5 | x | 7.4 | x | ||||||||||
Enterprise value to LTM Period EBIT | 16.2 | x | 8.7 | x | 12.3 | x | 11.5 | x | 13.2 | x | ||||||||||
2005 P/ E | 24.5 | x | 12.3 | x | 17.0 | x | 15.2 | x | 17.3 | x | ||||||||||
2006 P/ E | 20.2 | x | 11.4 | x | 14.7 | x | 13.5 | x | 15.4 | x | ||||||||||
5-Year EPS CAGR | 13.0 | % | 5.0 | % | 9.3 | % | 9.6 | % | 7.0 | % | ||||||||||
2006 P/ E to 5-Year EPS CAGR | 4.0 | x | 1.1 | x | 1.8 | x | 1.2 | x | 2.2 | x | ||||||||||
LTM Period EBITDA margin | 14.3 | % | 7.2 | % | 10.5 | % | 10.7 | % | 12.6 | % | ||||||||||
LTM Period EBIT margin | 10.4 | % | 3.2 | % | 7.2 | % | 8.1 | % | 8.2 | % | ||||||||||
Dividend yield | 1.1 | % | 0.0 | % | 0.8 | % | 0.9 | % | 2.8 | % |
Exchange Ratio Analysis |
Exchange Ratio | ||||||||
May Stock Price Over or on: | 100% Stock | 50% Stock | ||||||
3 Year Average | 0.68x | 0.34x | ||||||
1 Year Average | 0.57x | 0.29x | ||||||
January 13, 2005 | 0.48x | 0.24x |
Selected Transactions Analysis |
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• | Jones Apparel Group, Inc./ Barney’s New York, Inc. (November 2004) | |
• | K-Mart Holding Corporation/ Sears, Roebuck and Co. (November 2004) | |
• | Investor Group consisting of Sun Capital Partners, Inc., Cerberus Capital Management, L.P., Lubert-Adler Real Estate Fund IV, L.P. and Klaff Partners, L.P./ Mervyn’s LLC (July 2004) | |
• | The May Department Stores Company/ Marshall Field’s division of Target Corporation (June 2004) | |
• | Proffitt’s, Inc./ Saks Holdings, Inc. (July 1998) | |
• | Dillard’s, Inc./ Mercantile Stores Company, Inc. (May 1998) | |
• | Proffitt’s, Inc./ Carson Pirie Scott & Co. (October 1997) | |
• | Proffitt’s, Inc./ G.R. Herberger’s, Inc. (November 1996) | |
• | Proffitt’s, Inc./ Parisian, Inc. (July 1996) | |
• | Proffitt’s, Inc./ Younkers, Inc. (October 1995) | |
• | Federated Department Stores, Inc./ Broadway Stores, Inc. (August 1995) | |
• | Federated Department Stores, Inc./ R.H. Macy’s & Co., Inc. (December 1994) |
(1) an implied transaction price of $35.25 per share of May common stock, derived from (i) the closing price of $57.39 of Federated common shares on February 16, 2005; (ii) a fixed exchange ratio of 0.3070 Federated shares for each share of May common stock; and (iii) fixed cash consideration of $17.63 per share of May common stock; | |
(2) a number of fully diluted outstanding May common shares, which takes into account the number of outstanding common shares issuable upon conversion of all May ESOP preference shares and upon the exercise of all in-the-money May options; and | |
(3) net debt of May equal to approximately $5,925 million as of July 31, 2005, the expected closing date of the proposed merger, as estimated by Federated management. |
Selected Transactions | ||||||||||||||||||||
Enterprise Value as a Multiple of: | High | Low | Mean | Median | Proposed Transaction | |||||||||||||||
EBITDA | 20.1x | 5.9x | 10.7x | 9.4x | 8.5x | |||||||||||||||
Sales | 1.5x | 0.4x | 0.8x | 0.7x | 1.1x |
Premium Analysis of Selected Transactions |
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• | The Procter & Gamble Company/ The Gillette Company (January 28, 2005) | |
• | Johnson & Johnson/ Guidant Corporation (December 15, 2004) | |
• | Sanofi-Synthelabo/ Aventis (January 26, 2004) | |
• | Anthem Inc./ WellPoint Health Networks Inc. (October 27, 2003) | |
• | Allianz Aktiengesellschaft/ Dresdner Bank AG (April 1, 2001) | |
• | DB Investments consisting of Anglo American, the Oppenheimer Family and the Botswana Government/ De Beers Consolidated Mines (February 15, 2001) | |
• | Deutsche Telekom AG/ VoiceStream Wireless Corporation (July 24, 2000) | |
• | HSBC Holdings PLC/ Credit Commercial de France (April 1, 2000) | |
• | Tribune Company/ The Times Mirror Company (March 13, 2000) |
Selected Transaction | ||||||||||||||||||||
Transaction | Percent | 1 Day Prior to | 1 Week Prior to | 4 Weeks Prior to | ||||||||||||||||
Value | Cash | Announcement | Announcement | Announcement | ||||||||||||||||
(In millions) | ||||||||||||||||||||
High | $ | 65,657 | 40.0 | % | 98.2 | % | 84.2 | % | 68.9 | % | ||||||||||
Low | $ | 10,984 | 25.9 | % | 0.3 | % | 3.1 | % | 13.1 | % | ||||||||||
Mean | $ | 28,007 | 32.9 | % | 23.7 | % | 26.3 | % | 35.1 | % | ||||||||||
Median | $ | 19,656 | 33.7 | % | 17.6 | % | 21.3 | % | 32.4 | % |
Proposed Transaction | ||||||||||||||||||||
Transaction | Percent | |||||||||||||||||||
Value | Cash | 1 Day Prior to: | 1 Week Prior to: | 4 Weeks Prior to: | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Undisturbed Price | $ | 16,821 | 50.0 | % | 27.1 | % | 24.9 | % | 24.7 | % | ||||||||||
Market Price | $ | 16,821 | 50.0 | % | 3.4 | % | 11.8 | % | 6.3 | % |
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Federated Board of Directors After the Merger |
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Executive Employment and Severance Agreements |
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Cash Severance | ||||
and Non-Compete | ||||
Name | Payment | |||
Mr. Dunham | $ | 9,372,500 | ||
Mr. Wolfe | $ | 6,120,000 | ||
Mr. McNamara | $ | 5,678,000 | ||
Mr. Fingleton | $ | 5,202,000 | ||
Mr. Levitt | $ | 4,726,000 | ||
All executive officers as a group (12 persons) | $ | 44,585,400 |
Equity-Based Awards |
Number of Shares | Weighted Average | |||||||||||
Subject to | Exercise Price of | Number of | ||||||||||
Name | Unvested Options | Unvested Options | Restricted Shares | |||||||||
Mr. Dunham | 252,500 | $ | 28.042 | 100,000 | ||||||||
Mr. Wolfe | 86,250 | $ | 28.255 | 65,000 | ||||||||
Mr. McNamara | 105,000 | $ | 28.259 | 100,000 | ||||||||
Mr. Fingleton | 86,250 | $ | 28.255 | 80,000 | ||||||||
Mr. Levitt | 87,500 | $ | 28.277 | 45,000 | ||||||||
All executive officers as a group (12 persons) | 758,450 | $ | 28.187 | 470,805 | ||||||||
All non-management directors as a group (8 persons) | N/A | N/A | 49,990 |
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Bonuses; Profit Sharing Plan |
Other Severance Arrangements |
Retirement Benefits |
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Name | Cash Account | Stock Units | ||||||
Mr. Dunham | $ | 366,839 | 70,978 | |||||
Mr. Wolfe | $ | 0 | 0 | |||||
Mr. McNamara | $ | 1,895,970 | 43,092 | |||||
Mr. Fingleton | $ | 1,046,540 | 18,109 | |||||
Mr. Levitt | $ | 1,409,311 | 52,423 | |||||
All executive officers as a group (12 persons) | $ | 5,819,901 | 217,055 | |||||
All non-management directors as a group (8 persons) | $ | 298,325 | 171,285 |
• | a “change in control” under the plan will occur at the effective time of the merger, rather than at the time May’s stockholders approve the merger agreement; | |
• | any plan participant who is employed with May or one of its subsidiaries immediately prior to the effective time of the merger, who has completed five or more years of service and who is more than five years away from qualifying for benefits will be fully vested in the Annual Minimum Benefit that the participant has accrued as of the effective time of the merger; | |
• | eligibility for change in control-related benefits under the plan will be extended to plan participants who (i) as of the effective time of the merger have attained age 50 with five or more years of service, (ii) otherwise qualify for change in control related benefits, but whose employment terminates after the effective time of the merger because of death, or (iii) otherwise qualify for change in control-related benefits, but whose employment terminates because of death between the date on which May’s |
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stockholders approve the merger agreement and the closing date of the merger, provided that the merger is consummated; | ||
• | as of the effective time of the merger, any plan participant who has not then completed five years of service will become vested in the participant’s Annual Minimum Benefit accrued as of the effective time of the merger, which vesting will occur upon the completion of five years of service or upon the participant’s termination of employment within 18 months following the effective time of the merger, if the termination of employment is at the initiative of Federated or an affiliate of Federated (including May and its subsidiaries) other than for “cause”; and | |
• | benefits under the plan may commence on an actuarially reduced basis prior to the date currently provided under the plan, but in no event prior to age 55 (except in the case of survivor benefits payable in respect of a deceased participant). |
• | Federated and its affiliates (including May and its subsidiaries) will continue to provide to each May employee who is currently retired and each May employee who retires on or before the closing date of the merger (and eligible dependents), all benefits to which the individual (and eligible dependents) is entitled under May’s retiree welfare benefit plans (e.g., post-retirement medical and life), without adverse modifications, in each case for the life of the retiree and the retiree’s spouse; | |
• | specified active May employees (including each of the May named executive officers, one other executive officer and an additional 19 executives) who, immediately prior to the effective time of the merger, are eligible for retiree welfare benefits under a May retiree welfare benefit plan will qualify for retiree welfare benefits upon termination of employment for any reason following the effective time of the merger, provided that these benefits will generally not commence until the employee reaches age 55, and Federated and its affiliates (including May and its subsidiaries) will not adversely alter or modify the requirement that May’s retiree welfare benefits be provided for the life of any such retired May employee and any such employee’s spouse, or require any premium payments by any such retired May employee or any such employee’s eligible dependents; and | |
• | the level of excess medical benefits to be provided to or on behalf of the active May employees described above will not be reduced from that currently provided under the applicable May plan, and the level of medical benefits to which these May employees become entitled will be no less favorable than is provided from time to time to similarly situated employees of Federated and its affiliates. |
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• | an order declaring that the action is properly maintainable as a class action; | |
• | an order declaring that the merger agreement was entered into in breach of the fiduciary duties of the defendants; | |
• | an order enjoining the defendants from consummating the merger as planned; | |
• | an order directing that the defendants exercise their fiduciary duties to obtain a transaction which is in the best interests of May stockholders; | |
• | an order rescinding the merger to the extent already implemented; | |
• | an award of costs and disbursements, including reasonable attorneys’ and experts’ fees; and | |
• | such other and further equitable relief as the court may deem just and proper. |
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• | a citizen or resident of the United States; | |
• | a corporation created or organized under the laws of the United States or any of its political subdivisions; | |
• | a trust that (i) is subject to the supervision of a court within the United States and the control of one or more United States persons or (ii) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person; or | |
• | an estate that is subject to United States federal income tax on its income regardless of its source. |
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Federal income tax consequences to Federated stockholders who do not hold any May common stock |
Federal income tax consequences to May stockholders if the merger is consummated as currently anticipated |
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Federal income tax consequences to May stockholders if the transaction is restructured because tax deferred exchange treatment cannot be obtained |
Backup withholding |
• | is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or | |
• | provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and that such holder is a U.S. person (including a U.S. resident alien) and otherwise complies with applicable requirements of the backup withholding rules. |
Reporting requirements |
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• | First, all of the representations and warranties that deal with the business and operations of Federated and May are qualified to the extent that any inaccuracy would not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on the party making the representation and warranty. | |
• | Second, none of the representations or warranties will survive the closing of the merger and they will therefore have no legal effect among the parties to the merger agreement after the closing, nor will the parties be able to assert the inaccuracy of the representations and warranties as a basis for refusing to close unless all such inaccuracies as a whole would reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on the party that made the representations and warranties. Otherwise, for purposes of the merger agreement, the representations and warranties will be deemed to have been sufficiently accurate to require a closing. | |
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• | $17.75 in cash, without interest; and | |
• | 0.3115 fully paid, nonassessable shares of Federated common stock. |
Treatment of ESOP Preference Shares |
Fractional Shares |
Dissenters’ Shares |
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• | pays any transfer or other taxes required because the payment is made to a person other than the registered holder of the May stock certificate; or | |
• | establishes to the satisfaction of the exchange agent that any transfer or other taxes described above have been paid or are not applicable. |
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• | due organization, good standing and the requisite corporate power and authority to carry on their respective businesses; | |
• | ownership of subsidiaries; | |
• | capital structure and equity securities; | |
• | corporate power and authority to enter into the merger agreement and due execution, delivery and enforceability of the merger agreement; | |
• | board of directors approval; | |
• | absence of conflicts with charter documents, breaches of contracts and agreements, liens upon assets and violations of applicable law resulting from the execution and delivery of the merger agreement and consummation of the transactions contemplated by the merger agreement; | |
• | absence of required governmental or other third party consents in connection with execution and delivery of the merger agreement and consummation of the transactions contemplated by the merger agreement other than governmental filings specified in the merger agreement, such as filing premerger notification under the HSR Act; |
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• | timely filing of required documents with the SEC, material compliance with the requirements of the Securities Act and the Exchange Act and the absence of untrue statements of material facts or omissions of material facts in those documents; | |
• | material compliance of financial statements as to form with applicable accounting requirements and SEC rules and regulations and preparation in accordance with U.S. generally accepted accounting principles; | |
• | absence of misleading information contained or incorporated into this joint proxy statement/ prospectus or the registration statement of which this joint proxy statement/ prospectus forms a part; | |
• | absence of specified changes or events and that the conduct of its business has been in the ordinary course since January 31, 2004; | |
• | compliance with applicable laws and holding of all necessary permits; | |
• | employee benefits matters and ERISA compliance; | |
• | tax matters; | |
• | environmental matters and compliance with environmental laws; | |
• | the stockholder votes required to approve and adopt the merger agreement and authorize the issuance of Federated common stock; | |
• | receipt of a fairness opinion from each company’s financial advisors; and | |
• | brokers’ or finders’ fees. |
Operating Covenants |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, except, among other things, for quarterly cash dividends not in excess of $0.245 per share, and any dividends required under the terms of the ESOP preference shares; | |
• | split, combine or reclassify any of its capital stock; | |
• | except as required in connection with the ESOP preference shares or May’s stock plans, purchase, redeem or otherwise acquire any shares of its or its subsidiaries’ capital stock or any other securities of May or any of its subsidiaries or any rights, warrants or options to acquire any of those shares or other securities; |
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• | issue or authorize the issuance of, deliver or sell any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, other than in connection with May’s stock plans or the ESOP preference shares; | |
• | amend its certificate of incorporation or by-laws, other than amendments or changes to any such documents of May’s subsidiaries in the ordinary course of business; | |
• | sell, lease, license, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any of its material properties or assets, other than in the ordinary course of business; | |
• | incur any material long or short-term indebtedness other than in the ordinary course of business or under existing lines of credit; | |
• | other than in the ordinary course of business, grant any increase in the compensation or benefits payable or to become payable by May or any of its subsidiaries to any current or former director, officer, employee or consultant; | |
• | other than in the ordinary course of business, adopt, enter into, amend or otherwise increase, reprice or accelerate the payment or vesting of the amounts, benefits or rights payable or accrued or to become payable or accrued under any of May’s or its subsidiaries’ employee benefit plans; | |
• | other than in the ordinary course of business, enter into or amend any employment, bonus, severance, change-in-control, retention agreement or any similar agreement or any collective bargaining agreement, or grant any severance, bonus, termination or retention pay to any officer, director, employee or consultant; | |
• | other than in the ordinary course of business, pay or award any pension, retirement, allowance or other non-equity incentive awards, or other employee or director benefit not required by any outstanding May employee benefit plans; | |
• | change the accounting principles used by it unless required by applicable generally accepted accounting principles or by any government entity; | |
• | acquire by merging or consolidating with, by purchasing any substantial equity interest in or a substantial portion of the assets of, or by any other manner, any significant business or any corporation, partnership, association or other business organization or division of that entity, or otherwise acquire any assets that are material to May and its subsidiaries, taken as a whole, other than; (i) the purchase of assets from suppliers or vendors in the ordinary course of business, (ii) items reflected in the capital plan of May previously made available to Federated, or (iii) acquisitions of businesses or assets involving consideration up to an aggregate amount not to exceed $50 million; | |
• | except in the ordinary course of business, make or rescind any material express or deemed election or settle or compromise any material claim or action relating to taxes, or materially change any of its methods of accounting or of reporting income or deductions for tax purposes; | |
• | satisfy any material claims or liabilities, other than satisfaction in the ordinary course of business or in accordance with their terms; | |
• | make any loans, advances or capital contributions to, or investments in, any other person in excess of $25 million in the aggregate, except for (i) loans, advances, capital contributions or investments between any wholly owned May subsidiary and May or another wholly owned May subsidiary, (ii) employee advances for expenses in the ordinary course of business or (iii) ordinary course proprietary credit card transactions; | |
• | other than in the ordinary course of business and other than contracts that may be terminated within one year or amendments renewing, on substantially similar terms, any contract existing on the date of the merger agreement, terminate or adversely modify or amend any contract having a duration of more than one year and total payment obligations of May in excess of $25 million; |
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• | other than in the ordinary course of business, waive, release, relinquish or assign any right or claim of material value to May; | |
• | other than in the ordinary course of business, cancel or forgive any material indebtedness owed to May or any of its subsidiaries; or | |
• | authorize, or commit or agree to take, any of the foregoing actions. |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, except, among other things, for quarterly cash dividends of $0.14 per share; | |
• | split, combine or reclassify any of its capital stock; | |
• | except pursuant to agreements entered into with respect to Federated stock plans that are in effect as of the close of business on the date of the merger agreement, purchase, redeem or otherwise acquire any shares of capital stock of Federated or any of its subsidiaries or any other securities of Federated or any of its subsidiaries or any rights, warrants or options to acquire any of those shares or other securities; | |
• | issue or authorize the issuance of, deliver, or sell any shares of its capital stock, or any other securities in respect of, in lieu of, or in substitution for, shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any of such shares, voting securities or convertible securities, other than in connection with Federated’s stock plans; | |
• | amend its certificate of incorporation or by-laws, other than amendments or changes to any such documents of Federated’s subsidiaries in the ordinary course of business; | |
• | sell, lease, license, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any of its material properties or assets other than in the ordinary course of business; | |
• | change the accounting principles used by it unless required by applicable generally accepted accounting principles or by any government entity; | |
• | acquire by merging or consolidating with, by purchasing any substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division of that entity, or otherwise acquire assets that are material to Federated and its subsidiaries, taken as a whole, other than; (i) the purchase of assets from suppliers or vendors in the ordinary course of business, (ii) items reflected in the capital plan of Federated previously made available to May, or (iii) acquisitions of businesses or assets involving consideration up to an aggregate amount not to exceed $50 million; | |
• | except in the ordinary course of business, make or rescind any material express or deemed election or settle or compromise any material claim or action relating to taxes, or materially change any of its methods of accounting or of reporting income or deductions for tax purposes; | |
• | satisfy any material claims or liabilities, other than in the ordinary course of business or in accordance with their terms; | |
• | other than in the ordinary course of business and other than contracts that may be terminated within one year or amendments renewing, on substantially similar terms, any contract existing on the date of the merger agreement, terminate or adversely modify or amend any contract having a duration of more than one year and total payment obligations of Federated in excess of $25 million; | |
• | other than in the ordinary course of business, waive, release, relinquish or assign any right or claim of material value to Federated; |
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• | other than in the ordinary course of business, cancel or forgive any material indebtedness owed to Federated or any of its subsidiaries; or | |
• | authorize, or commit or agree to take, any of the foregoing actions. |
No Solicitation by May |
• | direct or indirect acquisition or purchase of a business that constitutes 50% or more of the net revenues, net income or the assets of May and its subsidiaries, taken as a whole; | |
• | direct or indirect acquisition or purchase of 50% or more of the combined voting power of May; | |
• | any tender offer or exchange offer that if consummated would result in any person beneficially owning 50% or more of the combined voting power of May; or | |
• | any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving May, other than the transactions contemplated by the merger agreement. |
• | solicit, initiate or knowingly encourage the making of a company takeover proposal; | |
• | enter into any agreement, arrangement or understanding with respect to any company takeover proposal; or | |
• | other than informing persons of the existence of the non-solicitation provision, participate in any discussions or negotiations regarding, or furnish or disclose to any person (other than to Federated) any non-public information with respect to May in connection with any inquiries or the making of any proposal that constitutes, or would reasonably be expected to lead to, any company takeover proposal. |
• | furnish information with respect to May to the person making the company takeover proposal (and its representatives) pursuant to a customary confidentiality agreement not less restrictive of the person than the existing confidentiality agreement between May and Federated, provided that all the information is, in substance, simultaneously provided to Federated; and | |
• | participate in discussions or negotiations with the person making the company takeover proposal (and its representatives) regarding the company takeover proposal. |
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• | would be more favorable from a financial point of view to the stockholders of May than the transactions contemplated by the merger agreement (including any adjustment to the terms and conditions proposed by Federated in response to such company takeover proposal), and | |
• | for which financing, to the extent required, is then committed or may reasonably be expected to be committed. |
• | cause a “company adverse recommendation change” (as defined below); or | |
• | approve or recommend, or allow May or any of its subsidiaries to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement constituting or related to any company takeover proposal. |
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Federated Annual Meeting |
Access to Information; Confidentiality |
Regulatory and Antitrust Approvals and Clearances |
• | obtaining all necessary actions or nonactions, waivers, consents and approvals from governmental entities and making all necessary registrations and filings and taking all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entity; | |
• | the avoidance of impediments under any antitrust, merger control, competition or trade regulation law that may be asserted by any governmental entity; | |
• | obtaining all necessary consents, approvals or waivers from third parties; | |
• | defending any lawsuits or other legal proceedings challenging the merger agreement or the transactions contemplated by the merger agreement, including seeking to have any stay or temporary restraining order vacated or reversed; and |
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• | executing and delivering any additional instruments necessary to complete the merger and the other transactions contemplated by the merger agreement and to fully carry out the purposes of the merger agreement. |
• | no requirement for non-action, a waiver, consent or approval of the FTC, the Antitrust Division, any State Attorney General or other governmental entity; | |
• | no decree, judgment, injunction, temporary restraining order or any other order in any suit or proceeding; and | |
• | no other matter relating to any antitrust or competition law or regulation; |
• | file as soon as practicable (after the execution and delivery of the merger agreement) a Notification and Report Form under the HSR Act with the FTC and the Antitrust Division, which Notification and Report Form was filed on March 8, 2005; | |
• | respond as promptly as practicable under the circumstances to any inquiries received from the FTC or the Antitrust Division for additional information or documentation and to all inquiries and requests received from any State Attorney General or other governmental entity in connection with antitrust matters; | |
• | not extend any waiting period under the HSR Act or enter into any agreement with the FTC or the Antitrust Division not to complete the transactions contemplated by the merger agreement; | |
• | subject to applicable laws and except as may be prohibited by any representative of any governmental entity, promptly notify the other party of any written communication to that party from the FTC, the Antitrust Division, any State Attorney General or any other governmental entity, and permit the other party to review in advance any proposed written communication to any of the foregoing; | |
• | subject to applicable laws and except as may be prohibited by any representative of any governmental entity, not agree to participate in any substantive meeting or discussion with any governmental entity regarding any filings, investigation or inquiry concerning the merger agreement or the merger unless it consults with the other party in advance and, to the extent permitted by the governmental entity, gives the other party the opportunity to attend and participate in the meeting; and | |
• | subject to applicable laws and except as may be prohibited by any representative of any governmental entity, furnish the other party with copies of all correspondence, filings, and written communications, including summary memoranda, between it and its affiliates and their respective representatives on the one hand, and any governmental entity or members or their respective staffs on the other hand, with respect to the merger agreement and the merger. |
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May Stock Options |
May Options | Conversion Calculation | Federated Options | ||||||||||||||||||
Options | 1,000 | × | .3115 + ($17.75/$60) = .3115 + .2958 = .6073 | = | 607 options | |||||||||||||||
Exercise price per share | $ | 20 per share | ÷ | .6073 | = | $ | 32.9326 per share | |||||||||||||
Aggregate exercise price | $ | 20,000.00 | $ | 19,990.09* |
* | Aggregate exercise values fluctuate due to fractional share rounding and rounding of exercise price. |
Indemnification and Insurance |
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Employee Benefits Matters |
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Federated Dividends |
St. Louis Operations |
Community Involvement |
Stockholder Litigation |
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Additional Agreements |
• | preparation of the Form S-4 and this joint proxy statement/ prospectus; | |
• | tax treatment of the merger, and cooperation with respect to obtaining opinions from outside counsel that the merger will constitute a reorganization within the meaning of Section 368(a) of the Code; | |
• | consultations regarding public announcements; | |
• | delivery of a letter identifying all persons who are affiliates of May; | |
• | use of reasonable best efforts to cause the shares of Federated common stock to be issued to be approved for listing on the NYSE; and | |
• | ensure exemption under Rule 16b-3 of the Exchange Act. |
• | the requisite stockholder approval from May and Federated stockholders (the satisfaction of which cannot be determined until the respective stockholders meetings); | |
• | the absence of any order or injunction of any governmental entity of competent jurisdiction that prohibits the consummation of the merger; provided, however, that prior to asserting this condition each of the parties shall have used its reasonable best efforts to prevent the entry of any such order or injunction and to appeal as promptly as possible any such order or injunction that may be entered (as of the date of this joint proxy statement/prospectus, no such order or injunction is in effect); | |
• | the registration statement of which this joint proxy statement/ prospectus forms a part must not be subject to any stop order or proceedings seeking a stop order (as of the date of this joint proxy statement/prospectus, no such stop orders or proceedings is in effect or ongoing); | |
• | the waiting period applicable to the consummation of the merger under the HSR Act shall have expired or been terminated (as of the date of this joint proxy statement/prospectus, such waiting period has not expired or been terminated and the parties have received a request for additional information from the FTC); and | |
• | the shares of Federated common stock issuable to May’s stockholders as contemplated by the merger agreement must have been approved for listing on the New York Stock Exchange, subject to official notice of issuance (as of the date of this joint proxy statement/prospectus, this condition is not yet satisfied). | |
• | the representations and warranties of May set forth in the merger agreement must be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained in them) both when made and at and as of the closing date of the merger, as if made at and as of the closing date of the merger (except to the extent expressly made as of an earlier date, in which case as of that date), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on May; |
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• | May must have performed (i) in all material respects all of its obligations, except for the pre-closing conduct of business covenant described above, required to be performed by it under the merger agreement at or prior to the closing date of the merger and (ii) in all respects all of its obligations required to be performed by it under the pre-closing conduct of business covenant described above, except where the failure to do so would not have or result in, individually or in the aggregate, a material adverse effect on May; | |
• | May must have furnished Federated with a certificate dated the closing date of the merger signed on its behalf by an executive officer to the effect that the conditions set forth above in the two immediately preceding bullets have been satisfied; and | |
• | Federated shall have received from Jones Day, its counsel, an opinion dated as of the closing date of the merger, to the effect that the merger will constitute a reorganization within the meeting of Section 368(a) of the Code. |
• | the representations and warranties of Federated and Merger Sub set forth in the merger agreement must be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained in them) both when made and at and as of the closing date of the merger, as if made at and as of the closing date of the merger (except to the extent expressly made as of an earlier date, in which case as of that date), except where the failure of the representations and warranties to be so true and correct would not have or result in, individually or in the aggregate, a material adverse effect on Federated and Merger Sub; | |
• | Federated and Merger Sub must have performed (i) in all material respects all of its obligations, except for the pre-closing conduct of business covenant described above, required to be performed by it under the merger agreement at or prior to the closing date of the merger and (ii) in all respects all of its obligations required to be performed by it under the pre-closing conduct of business covenant described above, except where the failure to do so would not have or result in, individually or in the aggregate, a material adverse effect; | |
• | Federated and Merger Sub must have each furnished May with a certificate dated the closing date of the merger signed on its behalf by an executive officer to the effect that the conditions set forth above in the two immediately preceding bullets have been satisfied; and | |
• | May shall have received from Skadden, Arps, Slate, Meagher, & Flom LLP, its counsel, an opinion dated as of the closing date, to the effect that the merger will constitute a reorganization within the meeting of Section 368(a) of the Code. |
• | the economy or financial markets in general, to the extent that they do not disproportionately affect the referenced company relative to the other participants in the industries in which the referenced company operates; | |
• | the industry in which the referenced company and its subsidiaries operate in general, to the extent that they do not disproportionately affect the referenced company relative to the other participants in the industries in which the referenced company operates; | |
• | the negotiation and entry into the merger agreement, the announcement of the merger agreement or the undertaking and performance or observance of the obligations contemplated by the merger agreement or necessary to consummate the transactions contemplated by the merger agreement |
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(including adverse effects on results of operations attributable to the uncertainties associated with the period between the date of the merger agreement and the closing date of the merger); | ||
• | the effect of incurring and paying expenses in connection with negotiating, entering into, performing and consummating the transactions contemplated by the merger agreement; | |
• | changes in applicable laws after the date of the merger agreement; and | |
• | changes in GAAP after the date of the merger agreement. |
• | by the mutual written consent of Federated and May; | |
• | by either Federated or May if: |
• | the parties fail to consummate the merger on or before the outside date of October 3, 2005, or such later date, if any, as Federated and May may agree, unless the failure to consummate the merger by the outside date is the result of a breach of the merger agreement by the party seeking the termination; provided that the outside date will be extended to August 31, 2006, if all conditions to the closing have been fulfilled other than the absence of an order or injunction by a governmental entity prohibiting completion of the merger or the expiration or termination of the waiting period under HSR; | |
• | the Federated annual meeting has concluded and the authorization of the issuance of shares of Federated common stock pursuant to the merger agreement by the Federated stockholders was not obtained; | |
• | the May annual meeting has concluded and the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, by the May stockholders was not obtained; or | |
• | any governmental entity issues an order or injunction that permanently prohibits the merger and such order or injunction has become final and non-appealable unless the order or injunction results from a breach of the merger agreement by the party seeking the termination; |
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• | by May if: |
• | Federated or Merger Sub breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied and such breach or failure to perform is not cured within 60 days after the receipt of written notice thereof or is incapable of being cured by the outside date; | |
• | prior to the receipt of its stockholder approval, May (i) receives a superior proposal, (ii) provides Federated with a written notice that the board of directors has determined, in good faith, after consultation with outside counsel, that it is necessary for the proper discharge of its fiduciary duties under applicable law and (iii) thereafter satisfies the conditions for withdrawing (or modifying in a manner adverse to Federated) the recommendation by its board of directors of the merger or recommending such superior proposal; provided that May pays a $350 million termination fee to Federated and is not in material breach of its non-solicitation obligations under the merger agreement; or | |
• | the Federated board of directors or any committee thereof withdraws or modifies or publicly proposes to withdraw or modify its recommendation that Federated’s stockholders authorize the issuance of Federated common stock in the merger; |
• | by Federated if: |
• | May breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied, provided such breach or failure to perform is not cured within 60 days after receipt of a written notice thereof or is incapable of being cured by the outside date; or | |
• | the May board of directors or any committee thereof (i) withdraws or adversely modifies or publicly proposes to withdraw or adversely modify, its recommendation of the merger agreement and the transactions contemplated by the merger agreement, including the merger; or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve a takeover proposal other than the merger agreement. |
May |
• | by Federated if the May board of directors or any committee thereof (i) withdraws or adversely modifies or publicly proposes to withdraw or adversely modify, its recommendation of the merger agreement and the transactions contemplated by the merger agreement, including the merger; or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve a takeover proposal other than the merger agreement; | |
• | by May if, prior to the receipt of its stockholder approval, May (i) receives a superior proposal, (ii) provides Federated with a written notice that the board of directors has determined, in good faith, after consultation with outside counsel, that it is necessary for the proper discharge of its fiduciary duties under applicable law and (iii) thereafter satisfies the conditions for withdrawing (or modifying in a manner adverse to Federated) the recommendation by its board of directors of the merger or recommending such superior proposal; provided that May is not in material breach of its non-solicitation obligations under the merger agreement; or | |
• | (i) because (x) the merger has not been consummated by the outside date; (y) the May annual meeting has concluded and the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, by the May stockholders was not |
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obtained; or (z) May breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied, provided such breach or failure to perform is not cured within 60 days after receipt of a written notice thereof or is incapable of being cured by the outside date; (ii) at the time of such termination, Federated is not in breach in any material respect of any of its representations, warranties or covenants contained in the merger agreement; (iii) prior to such termination, any person publicly announces an alternative takeover proposal relating to May that has not been withdrawn; and (iv) within 12 months of such termination May enters into a definitive agreement with respect to, or consummates, an alternative takeover proposal relating to May. |
Federated |
• | of $350 million if the merger agreement is terminated by May because the Federated board of directors or any committee thereof has withdrawn or modified, or publicly proposed to withdraw or modify, its recommendation that Federated stockholders authorize the issuance of Federated common stock in the merger; | |
• | of $350 million if the merger agreement is terminated by either party because the merger was not consummated by the outside date and at the time of the termination all of the conditions precedent to the obligations of the parties to consummate the merger agreement had been satisfied except for: |
• | the condition that none of the parties shall be subject to any order or injunction of any government entity that prohibits the consummation of the merger, and the condition that the waiting period applicable to the consummation of the merger under the HSR Act shall have expired or been terminated; | |
• | the condition that the shares of Federated common stock issuable to May’s stockholders as contemplated in the merger agreement shall have been approved for listing on the NYSE, if such condition is capable of being satisfied at the time of termination, or the condition that Federated shall have received from Jones Day, an opinion dated as of the closing date, to the effect that the merger will constitute a reorganization within the meaning of Section 368(a) of the Code, if such condition is capable of being satisfied at the time of termination; and | |
• | any other conditions that are capable of being satisfied on the date of termination but by their terms cannot be satisfied until the closing date. |
• | equal to the product of $20 million and the quotient (rounded to the nearest fourth decimal point) determined by dividing the number of calendar days between the date of the agreement and the date of the termination by 30, provided however that the amount of the fee will not be less than $150 million or more than $350 million, if the merger agreement is terminated by either party because any government entity issues an order or injunction that permanently prohibits the merger, such order or injunction becomes final and non-appealable, and at the time of the termination all of the conditions precedent to the obligation to consummate the merger agreement had been satisfied except for: |
• | the condition that none of the parties shall be subject to any order or injunction of any government entity that prohibits the consummation of the merger, and the condition that the waiting period applicable to the consummation of the merger under the HSR Act shall have expired or been terminated; and | |
• | the condition that the shares of Federated common stock issuable to May’s stockholders as contemplated in the merger agreement shall have been approved for listing on the NYSE, if such condition is capable of being satisfied at the time of termination, or the condition that Federated shall have received from Jones Day, an opinion dated as of the closing date, to the effect that the |
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merger will constitute a reorganization within the meaning of Section 368(a) of the Code, if such condition is capable of being satisfied at the time of termination; and | ||
• | any other conditions that are capable of being satisfied on the date of termination but by their terms cannot be satisfied until the closing date. |
Amendments |
Extensions and Waivers |
• | extend the time for the performance of any of the obligations or other acts of the other parties; | |
• | waive any inaccuracies in the representations and warranties of the other parties contained in the merger agreement or in any document delivered pursuant to the merger agreement; or | |
• | waive compliance by the other parties with any of the agreements or conditions contained in the merger agreement except as limited by the provisions of the merger agreement described above in the section “— Amendments.” |
General |
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• | Federated’s financial, administrative and credit services subsidiary, FACS Group, Inc., referred to as FACS, provides credit processing, collections, customer service and credit marketing services for the proprietary credit programs of Federated’s retail operating divisions in respect of all proprietary and non-proprietary credit card accounts owned by Federated and credit processing, customer service and credit marketing for those accounts owned by GE Money Bank, referred to as GE Bank. GE Bank owns all of the “Macy’s” credit card accounts originated prior to December 19, 1994, when R.H. Macy & Co., Inc. was acquired pursuant to a merger, and an allocated portion of the “Macy’s” credit card accounts originated subsequent to such merger. In addition, FACS provides payroll and benefits services to Federated’s retail operating and service divisions. As of the date of this joint proxy statement/ prospectus, Federated is exploring various alternatives with respect to its and May’s credit card related assets, including the possible purchase of the portion of the Macy’s accounts currently owned by GE Bank, the possible sale of all or a portion of Federated-owned accounts and related assets or possible entry into modified arrangements with GE Bank or another third party with respect thereto. | |
• | Federated’s data processing subsidiary, Federated Systems Group, Inc., referred to as FSG, provides (directly and pursuant to outsourcing arrangements with third parties) operational electronic data processing and management information services to each of Federated’s retail operating and service divisions. | |
• | Macy’s Merchandising Group, LLC, referred to as MMG, a wholly owned indirect subsidiary of Federated and successor in interest to Federated Merchandising Group, helps Federated to centrally develop and execute consistent merchandise strategies while retaining the ability to tailor merchandise assortments and strategies to the particular character and customer base of Federated’s various department store franchises. MMG is also responsible for all of the private label development of Federated’s retail operating divisions. However, Bloomingdale’s sources some of its private label merchandise through Associated Merchandising Corporation. | |
• | Federated Logistics and Operations, referred to as FLO, a division of a subsidiary of Federated, provides warehousing and merchandise distribution services, store design and construction services and certain supply purchasing services for Federated’s retail operating divisions. | |
• | Since April 2004, Macy’s Home Store, LLC, a wholly owned indirect subsidiary of Federated, has been responsible for the overall strategy, merchandising and marketing of home-related categories of business in all of Federated’s retail operating stores, except stores operated under the “Bloomingdale’s” name. | |
• | A specialized staff maintained in Federated’s corporate offices provides services for all divisions of Federated in such areas as accounting, legal, marketing, real estate and insurance, as well as various other corporate office functions. |
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Employees |
Seasonality |
Purchasing |
Competition |
Credit Sales |
Nominees for Election as Class II Directors — Term expires at the 2008 annual meeting |
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Class III Directors — Term expires at the 2006 annual meeting |
Class I Directors — Term expires at the 2007 annual meeting |
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Attendance at Board Meetings |
Director Attendance at Annual Meetings |
Communications with the Board |
Director Independence |
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Non-Management Directors’ Meetings |
Committees of the Board |
• | Reviewing the professional services provided by Federated’s independent registered public accounting firm and the independence of such firm; | |
• | Reviewing the scope of the audit by Federated’s independent registered public accounting firm; | |
• | Reviewing any proposed non-audit services by Federated’s independent registered public accounting firm to determine if the provision of such services is compatible with the maintenance of their independence, and approval of same; | |
• | Reviewing Federated’s annual financial statements, systems of internal accounting controls, material legal developments relating thereto, and legal compliance policies and procedures; | |
• | Reviewing matters with respect to the legal, accounting, auditing and financial reporting practices and procedures of Federated as it may find appropriate or as may be brought to its attention, including Federated’s compliance with applicable laws and regulations; | |
• | Reviewing with members of Federated’s internal audit staff the internal audit department’s staffing, responsibilities and performance, including its audit plans, audit results and actions taken with respect to those results; and | |
• | Establishing procedures for the Audit Committee to receive, review and respond to complaints regarding accounting, internal accounting controls, and auditing matters, as well as confidential, anonymous submissions by employees of concerns related to questionable accounting or auditing matters. |
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• | Reviewing and approving any proposed employment agreement with, and any proposed severance, termination or retention plans, agreements or payments applicable to, any executive officer of Federated; | |
• | Reviewing and approving the salaries of the chief executive officer and other executive officers of Federated; | |
• | Administering the bonus, incentive and stock option plans of Federated, including (i) establishing any annual or long-term performance goals and objectives and maximum annual or long-term incentive awards for the chief executive officer and the other executives, (ii) determining whether and the extent to which annual and/or long-term performance goals and objectives have been achieved, and (iii) determining related annual and/or long-term incentive awards for the chief executive officer and the other executives; | |
• | Reviewing and approving the benefits of the chief executive officer and the other executive officers of Federated; | |
• | Advising and consulting with Federated’s management regarding pension, benefit and compensation plans, policies and practices of Federated; | |
• | Establishing chief executive officer and key executive succession plans, including plans in the event of an emergency, resignation or retirement; and | |
• | Reviewing management development plans for key executives. |
• | Reviews with the appropriate officers of Federated the financial considerations relating to acquisitions and dispositions of businesses and operations involving projected costs or income above $15 million and below $25 million and approves all such transactions, and makes recommendations to the Federated board on all such transactions involving projected costs or income of $25 million and above; | |
• | Reports to the Federated board on potential transactions affecting Federated’s capital structure, such as financings, refinancings and the issuance, redemption or repurchase of Federated’s debt or equity securities; | |
• | Reports to the Federated board on potential changes in Federated’s financial policy which could have a material financial impact on Federated; | |
• | Reviews capital projects and other financial commitments and approves such projects and commitments above $15 million and below $25 million, and makes recommendations to the Federated board on all such projects and commitments of $25 million and above; and | |
• | Reviews investment performance of pension and savings plans. |
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• | Identifying and screening candidates for future board membership; | |
• | Proposing candidates to the board to fill vacancies as they occur, and proposing nominees to the board for election by the stockholders at annual meetings; | |
• | Reviewing Federated’s Corporate Governance Principles and Practices and recommending to the board any modifications that the NCG Committee deems appropriate; | |
• | Overseeing the evaluation of and reporting to the board on the performance and effectiveness of the board and its committees, and other issues of corporate governance and recommending to the board any changes concerning the composition, size, structure and activities of the board and the committees of the board as the NCG Committee deems appropriate based on its evaluations; | |
• | Reviewing and reporting to the board with respect to director compensation and benefits and make recommendations to the board as the Committee deems appropriate; and | |
• | Considering possible conflicts of interest of board members and management and making recommendations to prevent, minimize, or eliminate such conflicts of interest. |
• | Personal qualities and characteristics, accomplishments and reputation in the business community; | |
• | Knowledge of the communities in which Federated does business and Federated’s industry or other industries relevant to Federated’s business; | |
• | Relevant experience and background that would benefit Federated; | |
• | Ability and willingness to commit adequate time to Federated board and committee matters; | |
• | The fit of the individual’s skills and personality with those of other directors and potential directors in building a board that is effective, collegial and responsive to the needs of Federated; and | |
• | Diversity of viewpoints, background, experience and demographics. |
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• | Establishing, when necessary or appropriate, polices involving Federated’s role as a corporate citizen; | |
• | Reviewing, evaluating and monitoring the policies, programs and practices in public policy areas; | |
• | Maintaining an awareness of public affairs developments and trends; and | |
• | Reviewing and making recommendations to the Federated board on stockholder proposals relating to various matters. |
Director Nomination Procedures |
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Corporate Governance Guidelines and Code of Business Conduct and Ethics |
Director Compensation |
Type of Fee | Amount of Fee | |||
Base Retainer | $40,000 annually* | |||
Board or Board Committee Meeting | $2,000 for each meeting attended and for each review session with one or more members of management. | |||
Committee Chairperson | $10,000 annually |
* | Since January 1, 1999, the annual base retainer fee (including the fee payable to a committee chair) and the meeting fee payable to non-management directors is being paid 50% (or such greater percentage, in ten percent increments, as any individual director may have elected) in credits representing the right to receive shares of common stock, with the balance being paid in cash. Such stock credits will be settled in shares of common stock three years following the issuance of such stock credits (or at such later time as any individual director’s service on the Federated board ends, if such individual director has elected to defer compensation under the directors’ deferred compensation plan). |
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Certain Relationships and Related Transactions |
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List of Officers |
Name | Age | Positions and Offices | ||||
Terry J. Lundgren | 53 | Chairman, President and Chief Executive Officer; Director | ||||
Thomas G. Cody | 63 | Vice Chair | ||||
Thomas L. Cole | 56 | Vice Chair | ||||
Janet E. Grove | 53 | Vice Chair | ||||
Susan D. Kronick | 53 | Vice Chair | ||||
Ronald W. Tysoe | 52 | Vice Chair | ||||
Dennis J. Broderick | 56 | Senior Vice President, General Counsel and Secretary | ||||
Karen M. Hoguet | 48 | Senior Vice President and Chief Financial Officer | ||||
Joel A. Belsky | 51 | Vice President, Principal Accounting Officer and Controller |
Brief History of Officers |
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Three-Year Compensation Summary |
Annual Compensation | Long-Term Compensation | ||||||||||||||||||||||||||||||||
Awards | Payouts | ||||||||||||||||||||||||||||||||
Restricted | Securities | ||||||||||||||||||||||||||||||||
Other | Stock | Underlying | All Other | ||||||||||||||||||||||||||||||
Annual | Award(s) | Options/ | LTIP | Compensation | |||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Compensation ($) | ($)(1) | SARs (#) | Payouts ($) | ($)(2) | |||||||||||||||||||||||||
T. Lundgren | 2004 | 1,252,917 | 3,309,400 | 92,710 | (3) | 0 | 137,500 | 0 | 1,979,049 | (4) | |||||||||||||||||||||||
Chairman, President | 2003 | 1,195,606 | 2,493,800 | 93,791 | 1,241,000 | 250,000 | 0 | 5,059 | |||||||||||||||||||||||||
and Chief Executive | 2002 | 1,100,000 | 837,300 | 60,413 | 0 | 250,000 | 0 | 6,029 | |||||||||||||||||||||||||
Officer | |||||||||||||||||||||||||||||||||
T. Cody | 2004 | 752,917 | 995,500 | 152,316 | (5) | 0 | 32,500 | 0 | 738,416 | (6) | |||||||||||||||||||||||
Vice Chair | 2003 | 746,667 | 748,100 | 134,489 | 0 | 65,000 | 0 | 5,059 | |||||||||||||||||||||||||
2002 | 730,000 | 388,500 | 118,740 | 0 | 50,000 | 0 | 6,029 | ||||||||||||||||||||||||||
T. Cole | 2004 | 752,917 | 995,500 | 79,016 | (7) | 0 | 32,500 | 0 | 738,416 | (6) | |||||||||||||||||||||||
Vice Chair | 2003 | 745,000 | 1,506,600 | 74,115 | 0 | 65,000 | 0 | 5,059 | |||||||||||||||||||||||||
2002 | 720,000 | 459,400 | 84,416 | 0 | 36,000 | 0 | 6,029 | ||||||||||||||||||||||||||
J. Grove | 2004 | 752,917 | 995,500 | 53,473 | (8) | 50,500 | 32,500 | 0 | 738,416 | (6) | |||||||||||||||||||||||
Vice Chair | 2003 | 741,667 | 1,418,000 | — | 0 | 65,000 | 0 | 5,059 | |||||||||||||||||||||||||
2002 | 700,000 | 608,000 | 99,658 | 0 | 36,000 | 0 | 6,029 | ||||||||||||||||||||||||||
S. Kronick | 2004 | 1,002,917 | 1,325,100 | 52,763 | (9) | 0 | 32,500 | 0 | 738,416 | (6) | |||||||||||||||||||||||
Vice Chair | 2003 | 983,333 | 1,843,500 | — | 0 | 65,000 | 0 | 5,059 | |||||||||||||||||||||||||
2002 | 887,500 | 386,100 | — | 0 | 36,000 | 0 | 6,029 | ||||||||||||||||||||||||||
R. Tysoe | 2004 | 827,917 | 1,094,400 | 159,332 | (10) | 0 | 32,500 | 0 | 738,416 | (6) | |||||||||||||||||||||||
Vice Chair | 2003 | 825,000 | 822,900 | 130,617 | 0 | 65,000 | 0 | 5,059 | |||||||||||||||||||||||||
2002 | 825,000 | 439,100 | 125,419 | 0 | 50,000 | 0 | 4,019 |
(1) | At January 29, 2005, the aggregate number of shares of restricted stock held by each of the Federated Named Executives and the aggregate value thereof (based on the closing market price of the common stock on January 28, 2005) were as follows: Mr. Lundgren: 101,163 shares, $5,586,221; Mr. Cody: 33,953 shares, $1,874,885; Mr. Cole: 16,744 shares, $924,604; Ms. Grove: 17,279 shares, $954,146; Ms. Kronick: 19,186 shares, $1,059,451; and Mr. Tysoe: 38,372 shares, $2,118,902. Dividends are paid in cash on these shares at the same rate as the dividends received by other Federated stockholders. | |
(2) | Consists of: |
(a) | stock credits awarded under a stock credit plan that was implemented in March 2004 as a long-term incentive program, referred to as the Stock Credit Plan, and valued at the closing market price of Federated common stock on March 26, 2004, the date of the award; and | |
(b) | contributions under Federated’s Profit Sharing 401(k) Investment Plan, referred to as the 401(k) plan. |
See “— Fiscal 2004 Long-Term Incentive Plan Award Opportunities — Stock Credit Plan” for additional information regarding the stock credit program and “— Retirement Program” for additional information regarding the 401(k) plan. |
(3) | For fiscal 2004, the amount shown includes $43,805 for executive discount on merchandise purchases and the applicable tax gross up amount. | |
(4) | For fiscal 2004, the amount shown includes $1,973,742 representing the value of stock credits awarded under the Stock Credit Plan and $5,307 of contributions under the 401(k) plan. | |
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(5) | For fiscal 2004, the amount shown includes $82,323 for executive discount on merchandise purchases and the applicable tax gross up amount. | |
(6) | For fiscal 2004, the amount shown includes $733,109 representing the value of stock credits awarded under the Stock Credit Plan and $5,307 of contributions under the 401(k) plan. | |
(7) | For fiscal 2004, the amount shown includes $33,971 for executive discount on merchandise purchases and the applicable tax gross up amount. | |
(8) | For fiscal 2004, the amount shown includes $20,954 for executive discount on merchandise purchases and the applicable tax gross up amount and $15,867 for financial counseling. | |
(9) | For fiscal 2004, the amount shown includes $15,813 for executive discount on merchandise purchases and the applicable tax gross up amount, $15,200 for financial counseling and $13,802 for use of automobile. |
(10) | For fiscal 2004, the amount shown includes $101,220 for executive discount on merchandise purchases and the applicable tax gross up amount. |
Fiscal 2004 Stock Option Grants |
Individual Grants | Potential Realizable | |||||||||||||||||||||||||||||||
Value of Assumed Annual | ||||||||||||||||||||||||||||||||
Securities | % of Total | Rates of Stock Price | ||||||||||||||||||||||||||||||
Underlying | Options Granted | Market Price | Appreciation for Option Term | |||||||||||||||||||||||||||||
Options Granted | to Employees in | Price | on Grant Date | Expiration | ||||||||||||||||||||||||||||
Name | (#)(2) | Fiscal Year(%) | ($)/ Share | $/Share(1) | Date | 0% ($) | 5% ($) | 10% ($) | ||||||||||||||||||||||||
T. Lundgren | 137,500 | 6.6 | 50.01 | 50.01 | 3/26/14 | 0 | 4,324,515 | 10,959,171 | ||||||||||||||||||||||||
T. Cody | 32,500 | 1.56 | 50.01 | 50.01 | 3/26/14 | 0 | 1,022,158 | 2,590,349 | ||||||||||||||||||||||||
T. Cole | 32,500 | 1.56 | 50.01 | 50.01 | 3/26/14 | 0 | 1,022,158 | 2,590,349 | ||||||||||||||||||||||||
J. Grove | 32,500 | 1.56 | 50.01 | 50.01 | 3/26/14 | 0 | 1,022,158 | 2,590,349 | ||||||||||||||||||||||||
S. Kronick | 32,500 | 1.56 | 50.01 | 50.01 | 3/26/14 | 0 | 1,022,158 | 2,590,349 | ||||||||||||||||||||||||
R. Tysoe | 32,500 | 1.56 | 50.01 | 50.01 | 3/26/14 | 0 | 1,022,158 | 2,590,349 |
(1) | The “market price” is the closing price for shares of common stock on the NYSE on the business day immediately preceding the grant date. |
(2) | Twenty-five percent of the option award vested on March 26, 2005, referred to as the option vesting date, and twenty-five percent will vest on each of the first, second and third anniversaries of the option vesting date. |
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Fiscal Year-End Option Values |
Number of | ||||||||||||||||
Securities | ||||||||||||||||
Underlying | Value of Unexercised | |||||||||||||||
Unexercised Options | In-the-Money Options at | |||||||||||||||
at Fiscal Year-End | Fiscal Year-End | |||||||||||||||
Shares Acquired on | Value | (#) Exercisable/ | ($) Exercisable/ | |||||||||||||
Name | Exercise (#) | Realized ($) | Unexercisable | Unexercisable(1) | ||||||||||||
T. Lundgren | 0 | 0 | 731,250/ 603,488 | 13,445,094/ 9,716,998 | ||||||||||||
T. Cody | 75,000 | 1,679,188 | 198,750/ 220,610 | 1,686,838/ 3,181,367 | ||||||||||||
T. Cole | 64,000 | 1,408,435 | 205,750/ 186,215 | 3,669,288/ 2,757,620 | ||||||||||||
J. Grove | 22,750 | 517,882 | 182,750/ 183,424 | 3,199,790/ 2,723,514 | ||||||||||||
S. Kronick | 31,000 | 702,976 | 218,250/ 211,866 | 3,230,000/ 3,071,750 | ||||||||||||
R. Tysoe | 100,000 | 2,417,630 | 488,750/ 233,866 | 2,349,563/ 3,343,355 |
(1) | In-the-money options are options having a per share exercise price below the closing price of shares of common stock on the NYSE on January 28, 2005 (the last trading day in fiscal 2004). The dollar amounts shown represent the amount by which the product of such closing price and the number of shares purchasable upon the exercise of such in-the-money options exceeds the aggregate exercise price payable upon such exercise. |
Fiscal 2004 Long-Term Incentive Plan Award Opportunities — Stock Credit Plan |
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�� | ||||||||||||||||||||
Estimated Future Payouts | ||||||||||||||||||||
Number of Shares, | Performance or | Under Non-Stock Price Based Plans(1) | ||||||||||||||||||
Units or Other | Other Period Until | |||||||||||||||||||
Name | Rights (#) | Maturation or Payout | Threshold (#) | Target (#)(2) | Maximum (#) | |||||||||||||||
T. Lundgren | 19,250 | 2004-2005 | 0 | — | 19,250 | |||||||||||||||
T. Cody | 7,150 | 2004-2005 | 0 | — | 7,150 | |||||||||||||||
T. Cole | 7,150 | 2004-2005 | 0 | — | 7,150 | |||||||||||||||
J. Grove | 7,150 | 2004-2005 | 0 | — | 7,150 | |||||||||||||||
S. Kronick | 7,150 | 2004-2005 | 0 | — | 7,150 | |||||||||||||||
R. Tysoe | 7,150 | 2004-2005 | 0 | — | 7,150 |
(1) | The actual number of units earned will be based on quantitative and qualitative performance relating to achievement of Federated’s Four Priorities (Merchandise Assortments, Price Simplification, The Shopping Experience, and Marketing). The CMD Committee retains the discretion to determine the number of units earned. It is possible that none of the units will be earned following the performance period. The maximum number of units that could be earned is the number of units awarded at the beginning of the performance period. |
(2) | There is no specified targeted level of performance and it is not possible to provide a representative amount based on the previous fiscal year’s performance. |
Change-in-Control Agreements |
Retirement Program |
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Years of Service | ||||||||||||||||||||
Final Average Compensation | 15 | 20 | 25 | 30 | 35 | |||||||||||||||
$ 250,000 | $ | 47,817 | $ | 63,756 | $ | 79,695 | $ | 95,634 | $ | 95,634 | ||||||||||
300,000 | 59,067 | 78,756 | 98,445 | 118,134 | 118,134 | |||||||||||||||
350,000 | 70,317 | 93,756 | 117,195 | 140,634 | 140,634 | |||||||||||||||
400,000 | 81,567 | 108,756 | 135,945 | 163,134 | 163,134 | |||||||||||||||
450,000 | 92,817 | 123,756 | 154,695 | 185,634 | 185,634 | |||||||||||||||
500,000 | 104,067 | 138,756 | 173,445 | 208,134 | 208,134 | |||||||||||||||
750,000 | 160,317 | 213,756 | 267,195 | 320,634 | 320,634 | |||||||||||||||
1,000,000 | 216,567 | 288,756 | 360,945 | 433,134 | 433,134 | |||||||||||||||
1,250,000 | 272,817 | 363,756 | 454,695 | 545,634 | 545,634 | |||||||||||||||
1,500,000 | 329,067 | 438,756 | 548,445 | 658,134 | 658,134 |
Role of the CMD Committee |
• | as “independent” under the applicable listing standards of the New York Stock Exchange; | |
• | as “non-employee directors” under Rule 16b-3 of the Securities Exchange Act of 1934; and | |
• | as “outside directors” under Section 162(m) of the Internal Revenue Code of 1986. |
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Compensation Philosophy |
• | Providing Competitive and Reasonable Compensation Opportunities |
• | Focusing on Results and Strategic Initiatives |
• | Fostering a Pay for Performance Culture |
• | Attracting and Retaining Key Executives |
• | Providing a Strong Link to the Stockholders’ Interests |
Base Pay |
• | The individual’s current and historical performance and contribution to Federated; | |
• | The individual’s future potential with Federated; | |
• | The individual’s role and unique skills; | |
• | Consideration of external market data for similar positions, adjusted for Federated’s size, the scope of responsibilities and the uniqueness of the role. |
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Annual Cash Incentive Plan |
Bonus Component | % of Bonus | How Bonus is Earned | Bonus Payout for 2004 | |||||
EBIT $ | 60 | % | • Bonus begins to be earned when the pre-determined threshold result is achieved. | Earned payout for performance above target. | ||||
• This component has no maximum; bonus continues to be earned as the EBIT result increases. | ||||||||
Sales $ | 20 | % | • Bonus begins to be earned when the pre-determined target result is achieved. | Earned payout for performance between target and maximum. | ||||
• No bonus is earned for performance below target and there is a maximum result above which no additional bonus is earned for this component. | ||||||||
Cash Flow $ | 20 | % | • Bonus is earned when the pre- determined threshold result is achieved. | Earned maximum payout. | ||||
• There is a maximum result above which no additional bonus is earned for this component. | Performance exceeded the requirement for a maximum payout. |
Equity Compensation — 1995 Equity Incentive Plan |
Stock Options |
• | The term of the grants does not exceed 10 years; | |
• | The grant price is not less than the market price; | |
• | Grants do not include “reload” provisions; and | |
• | The repricing of options is prohibited, unless approved by the stockholders. |
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• | Stock options align the interests of executives with those of the stockholders, support a pay-for-performance culture, foster employee ownership, and focus the management team on increasing value for the stockholder; | |
• | Stock options are performance based. All the value received by the recipient of a stock option is based on the growth of the stock price above the option price; | |
• | Stock options offer a balance to the compensation program — the annual incentive plan focuses on financial objectives; the stock credit plan focuses on longer-term financial and operational performance; and the stock options focus on increases in stockholder value; and | |
• | Stock options have retentive value and provide a long-term focus. |
Stock Credit Plan |
Restricted Stock |
• | If the grant is performance based, the restrictions may lapse after one year; and | |
• | If the grant is not performance based, the restrictions may lapse after three years. |
Compensation of Chairman, President and CEO |
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• | The performance of Federated versus the established annual objectives and the significant role Mr. Lundgren plays in the achievement of the overall objectives; | |
• | The ability to develop long-term strategic initiatives that will provide competitive advantages; and | |
• | The ability to provide exceptional leadership that results in a focus on essential business elements including integrity within the organization, succession planning to ensure a strong talent base, and an organization that understands the importance of delivering results and exceeding expectations. |
Employment Agreements |
• | willful and material breaches of duties; | |
• | habitual neglect of duties; or | |
• | the final conviction of a felony. |
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• | assignment to Mr. Lundgren of any duties materially inconsistent with his position, authority, duties or responsibilities as contemplated in the agreement, or any other action by Federated which results in a material diminution in such position, authority, duties or responsibilities; | |
• | any material failure by Federated to comply with any of the provisions of the agreement; | |
• | failure of Mr. Lundgren to be reelected Chairman of the Board of Federated or to be reelected to membership on the board; or | |
• | any purported termination by Federated of Mr. Lundgren’s employment otherwise than as expressly permitted by the agreement. |
Executive | Annual Base Salary | |||
Mr. Cody | 755,000 | |||
Mr. Cole | 755,000 | |||
Ms. Grove | 755,000 | |||
Ms. Kronick | 1,005,000 | |||
Mr. Tysoe | 830,000 |
Conclusion |
Respectfully submitted, | |
Meyer Feldberg, Chairperson | |
Sara Levinson | |
Joseph Neubauer | |
Joseph A. Pichler |
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Respectfully submitted, | |
Marna C. Whittington, Chairperson | |
Earl G. Graves, Sr. | |
Joseph Neubauer | |
Karl M. von der Heyden |
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2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||
FD | $ | 100 | $ | 107 | $ | 100 | $ | 63 | $ | 114 | $ | 136 | ||||||||||||
S&P 500 | $ | 100 | $ | 99 | $ | 83 | $ | 64 | $ | 86 | $ | 91 | ||||||||||||
S&P Retail Department Stores | $ | 100 | $ | 129 | $ | 140 | $ | 93 | $ | 125 | $ | 148 |
(1) | Constituents include Dillard’s, Federated, Kohl’s, May, Nordstrom, J.C. Penney and Sears. |
Number of | Percent of | |||||||||
Name and Address | Shares | Class | ||||||||
1. | AXA Financial, Inc. | 13,372,202 | 7.90 | % | ||||||
(referred to as AXA Financial) | ||||||||||
1290 Avenue of the Americas | ||||||||||
New York, NY 10104 | ||||||||||
2. | Barclays Global Investors Japan Trust and Banking Company Limited | 13,205,043 | 7.81 | % | ||||||
Barclays Global Investors, N.A. | ||||||||||
Barclays Global Fund Advisors | ||||||||||
Barclays Global Investors, LTD | ||||||||||
Barclays Life Assurance Company, Limited | ||||||||||
(and other affiliates) | ||||||||||
(collectively, referred to as Barclays) | ||||||||||
45 Fremont Street | ||||||||||
San Francisco, CA 94105 | ||||||||||
3. | Private Capital Management | 12,101,959 | 7.20 | % | ||||||
Bruce S. Sherman | ||||||||||
Gregg J. Powers | ||||||||||
(collectively, referred to as Private Capital) | ||||||||||
8889 Pelican Bay Boulevard | ||||||||||
Naples, FL 34108 |
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• | Alliance has (i) sole power to vote 603,402 shares described in clause (a) above, (ii) shared power to vote 938,753 of such shares, and (iii) sole power to dispose of 11,576,963 of such shares; | |
• | Equitable has sole power to vote 3,300 shares described in clause (b) above, and (ii) sole power to dispose of 7,844 of such shares; | |
• | Advest has sole power to vote and the sole power to dispose of 1,700 shares described in clause (c) above; | |
• | AXA Konzern has sole power to vote and the sole power to dispose of 30,400 shares described in clause (d) above; | |
• | AXA Investment Managers has sole power to vote and the sole power to dispose of 3,524 shares described in clause (e) above; and | |
• | AXA Rosenberg has (i) sole power to vote 148,689 shares described in clause (f) above, and (ii) shared power to dispose of 751,771 of such shares. |
• | BGI has (i) sole power to vote 8,268,838 of the shares described in clause (a) above, and (ii) the sole power to dispose of 9,539,148 shares described in clause (a) above; | |
• | BGFA has (i) sole power to vote 725,137 of the shares described in clause (b) above, and (ii) the sole power to dispose of 802,090 shares described in clause (b) above; | |
• | BGIL has (i) sole power to vote 2,698,737 of the shares described in clause (c) above, and (ii) the sole power to dispose of 2,709,137 of such shares; | |
• | BGIJTBC has sole power to vote and the sole power to dispose of 145,298 shares described in clause (d) above; and | |
• | BLAC has sole power to vote and the sole power to dispose of 9,370 shares described in clause (e) above. |
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Name | ||||||||||||
Percent of | ||||||||||||
Number of Shares | Class | |||||||||||
(1) | (2) | |||||||||||
Meyer Feldberg | 32,534.00 | 27,800.00 | less than 1 | % | ||||||||
Earl G. Graves, Sr. | 36,069.00 | 28,723.00 | less than 1 | % | ||||||||
Sara Levinson | 28,061.00 | 26,500.00 | less than 1 | % | ||||||||
Joseph Neubauer | 43,020.00 | 28,233.00 | less than 1 | % | ||||||||
Joseph A. Pichler | 26,900.00 | 23,000.00 | less than 1 | % | ||||||||
Karl M. von der Heyden | 35,200.00 | 26,500.00 | less than 1 | % | ||||||||
Craig E. Weatherup | 30,073.00 | 27,073.00 | less than 1 | % | ||||||||
Marna C. Whittington | 34,537.00 | 27,800.00 | less than 1 | % | ||||||||
Terry J. Lundgren | 1,190,597.94 | 1,044,113.00 | less than 1 | % | ||||||||
Thomas G. Cody | 391,858.11 | 349,985.00 | less than 1 | % | ||||||||
Thomas L. Cole | 336,114.00 | 309,840.00 | less than 1 | % | ||||||||
Janet E. Grove | 318,017.00 | 300,299.00 | less than 1 | % | ||||||||
Susan D. Kronick | 388,389.00 | 364,241.00 | less than 1 | % | ||||||||
Ronald W. Tysoe | 723,633.52 | 653,241.00 | less than 1 | % | ||||||||
All directors and executive officers as a group | 3,988,082.11 | 3,564,317.00 | 2.35 | % |
(1) | Aggregate number of shares of common stock currently held and which may be acquired within 60 days after May 5, 2005, through the exercise of options granted under the 1995 Executive Equity Incentive Plan as amended, referred to as the 1995 Equity Incentive Plan. |
(2) | Number of shares of common stock which may be acquired within 60 days after May 5, 2005, through the exercise of options granted under the 1995 Equity Plan. |
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Number of Securities | ||||||||||||
Remaining Available | ||||||||||||
for Future Issuance | ||||||||||||
Number of Securities | Under Equity | |||||||||||
to be Issued Upon | Weighted-Average | Compensation Plans | ||||||||||
Exercise of | Exercise Price of | (Excluding | ||||||||||
Outstanding Options, | Outstanding Options, | Securities Reflected | ||||||||||
Plan Category | Warrants and Rights | Warrants and Rights ($) | in Column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 19,579,974 | 40.93 | 6,278,218 | |||||||||
Equity compensation plans not approved by security holders | 5,400 | 37.85 | 0 |
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General |
Department Stores |
• | Lord & Taylor serves 21 geographic areas, including New York/ New Jersey Metro; Chicago; Boston; Philadelphia Metro; Washington, D.C. Metro; and Detroit. | |
• | Marshall Field’s serves 26 geographic areas, including Chicago, Detroit, and Minneapolis. | |
• | Filene’s and Kaufmann’s serve 40 geographic areas, including Boston Metro, Pittsburgh, Cleveland, Southern Connecticut, Providence Metro, Hartford, Buffalo, Rochester, and Columbus. | |
• | Robinsons-May and Meier & Frank serve 16 geographic areas, including Los Angeles/ Orange County, Riverside/ San Bernardino, Phoenix, San Diego, Las Vegas, Portland/ Vancouver Metro, and Salt Lake City. | |
• | Hecht’s and Strawbridge’s serve 21 geographic areas, including Washington, D.C. Metro; Philadelphia Metro; Baltimore; Norfolk; Nashville; Richmond; Charlotte; Greensboro; and Raleigh-Durham. | |
• | Foley’s serves 22 geographic areas, including Houston, Dallas/ Fort Worth, Denver, San Antonio, Austin, and Oklahoma City. | |
• | Famous-Barr, L.S. Ayres and The Jones Store serve 23 geographic areas, including St. Louis Metro, Kansas City Metro, and Indianapolis. |
Bridal Group |
Employees |
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Competition |
Credit Sales |
May Merchandising Company/ May Department Stores International, Inc. |
Nominees for Election — Term expires at the 2008 annual meeting (term will expire at the 2006 annual meeting if stockholders approve the proposed amendment to May’s certificate of incorporation) |
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Continuing Directors — Term expires at the 2006 annual meeting |
Continuing Directors — Term expires at the 2007 annual meeting |
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Attendance at Meetings |
• | board meetings held during the period for which the director held office; and | |
• | meetings held by all board committees on which the director served during the period that the director served. |
Director Attendance at Annual Meetings |
Communications with the Board |
Director Compensation |
• | a $40,000 annual fee, plus an additional $5,000 fee if the director is a committee chairman ($10,000 for the audit committee chairman); | |
• | $3,000 for each board meeting attended; and | |
• | $2,000 for each committee meeting attended. |
• | a one-time grant of 3,000 shares of restricted common stock upon first being elected to the board. These shares are subject to forfeiture for five years and to restrictions on transferability while the director serves on the board; and | |
• | an annual grant equivalent to $80,000 of restricted common stock, which is not transferable while the director serves on the board. Instead of shares of restricted stock, a director may elect to have $80,000 of deferred stock units credited to his or her account under the deferred compensation plan, and a |
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director who has received three annual grants may choose to receive this component of compensation in the form of cash. |
Director Independence |
• | ownership, by itself, of a significant amount of May common stock; or | |
• | employment by the director as an executive officer: |
• | with a company or firm doing business with May during a fiscal year, when that business does not exceed the greater of $1 million or 2% of the company’s or firm’s consolidated gross revenues during the year; or | |
• | with an organization to which May makes charitable contributions during a fiscal year, when May’s contributions do not exceed the greater of $1 million or 2% of the consolidated gross revenues of that organization during the year; or | |
• | with an entity to which May makes payments for property or services, when the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common carrier or public utility, at rates or charges fixed in conformity with law or governmental authority; or |
• | payments during a fiscal year by May to a law firm with which the director is affiliated (as partner or of counsel) for legal services provided to May, so long as: |
• | May does not pay fees to the firm for legal services performed by the director or his or her immediate family for May; and | |
• | the fees paid by May to the firm do not exceed the greater of $1 million or 2% of the firm’s gross revenues for the fiscal year. |
Other Provisions |
• | no non-management director shall serve as a director after the annual meeting following the director’s 72nd birthday; | |
• | any non-management director who experiences a significant change in occupation, a chief executive officer who leaves the position of chief executive officer, or a director who violates any of May’s business and ethics policies should tender a resignation from the board for consideration by the nominating and governance committee; | |
• | any management director, other than the chief executive officer, shall retire from the board when he or she ceases to be employed by May; | |
• | the board may hire outside consultants and experts as it deems necessary; | |
• | the chief executive officer is encouraged to bring members of management to board meetings from time to time to provide management insight into items being discussed at a meeting, make |
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presentations on matters that involve the manager, and bring managers with significant potential into contact with the board; | ||
• | the board will establish committees to assist the board in overseeing the company’s affairs; | |
• | with respect to the chief executive officer succession, the board will establish such procedures as it deems necessary or appropriate from time to time, including establishing an ad hoc committee; | |
• | the board will monitor and review management development efforts; | |
• | all new directors will participate in May’s orientation program for new directors; | |
• | each director will participate in continuing education to maintain the necessary level of expertise to perform his or her responsibilities as a director; | |
• | the board will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively; and | |
• | the board will adopt a code of business conduct and ethics for directors, officers, and employees (including the chief executive officer, chief financial officer, and chief accounting officer) addressing conflicts of interest; corporate opportunities; confidentiality; fair dealing; protection and proper use of company assets; compliance with laws, rules, and regulations; and encouraging the reporting of any illegal or unethical behavior. The board will approve all waivers of the code for executive officers and directors; and any such waivers will be disclosed to shareowners. |
Non-Management Directors’ Meetings |
Committees of the Board |
Nominating and | ||||||||||||||||
Name | Audit | ECDC** | Finance | Governance | ||||||||||||
Mrs. Evans | x | x | ||||||||||||||
Mrs. Kaplan | x | * | x | |||||||||||||
Mr. Kilts | x | * | x | |||||||||||||
Mr. Palmer | x | * | x | |||||||||||||
Mr. Quinlan | x | x | ||||||||||||||
Mr. Rickard | x | x | ||||||||||||||
Ms. Roché | x | x | ||||||||||||||
Mr. Stiritz | x | x | * | |||||||||||||
Fiscal 2004 meetings | 6 | 6 | 2 | 3 | ||||||||||||
* | Chairman |
** | Executive Compensation and Development Committee |
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The Audit Committee: |
• | appoints or replaces the independent auditor, subject to shareowner ratification, and is directly responsible for the compensation and oversight of the work of the independent auditor; | |
• | preapproves all auditing services and all non-audit services permitted by applicable law to be performed for the company by the independent auditor; | |
• | reviews the results of the company’s quarterly reviews and year-end audit; | |
• | reviews and discusses with management and the independent auditor (i) the annual audited financial statements, and recommends to the board whether the audited financial statements should be included in the company’s annual report on Form 10-K, and (ii) the quarterly financial statements prior to the filing of the company’s quarterly report on Form 10-Q; | |
• | discusses with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the company’s financial statements; | |
• | reviews and discusses reports from the independent auditor on all critical accounting policies and practices to be used; all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management; ramifications of the use of such alternative disclosures and treatments; and the treatment preferred by the independent auditor; and other material written communications to management, such as any management letter or schedule of unadjusted differences; | |
• | discusses with management the company’s (i) earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, and (ii) major financial risk exposures and the steps management has taken to monitor and control such exposures; | |
• | discusses with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance-sheet structures on our financial statements; | |
• | discusses with the independent auditor the matters required to be discussed by Statement of Auditing Standards No. 61 relating to the conduct of the audit; | |
• | reviews disclosures made to the committee by the CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein, and any fraud involving management or other employees who have a significant role in our internal controls; | |
• | reviews and evaluates (i) the lead partner of the independent auditor engagement team and (ii) the qualifications, performance, and independence of the independent auditor; | |
• | obtains and reviews a report from the independent auditor at least annually regarding the independent auditor’s internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, any steps taken to deal with any such issues, and all relationships between the independent auditor and the company; | |
• | ensures the rotation of audit partners as required by law, and considers whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent audit firm on a regular basis; | |
• | reviews and recommends to the board the company’s policies for hiring employees or former employees of the independent auditor who participated in any capacity in the audit of the company; | |
• | discusses with the independent auditor the financial reporting issues and matters of audit quality and consistency on which they consulted their national office; | |
• | meets with the independent auditor prior to the audit to discuss the planning and staffing of the audit; |
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• | oversees our internal audit function; | |
• | obtains from the independent auditor assurance that Section 10A(b) of the 1934 Act has not been violated; | |
• | reviews procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; | |
• | discusses with management and the independent auditor any correspondence with regulators or governmental agencies and any published reports which raise material issues regarding the company’s financial statements or accounting policies; | |
• | meets with the general counsel, and outside counsel when appropriate, to review legal and regulatory matters, if any, that may have a material impact on the company’s financial statements or compliance procedures; and | |
• | reviews annually our policies concerning sensitive payments and conflicts of interest. |
The Executive Compensation and Development Committee: |
• | reviews and approves the goals and objectives relevant to CEO compensation, evaluates the CEO’s performance, and sets the CEO’s compensation level; | |
• | recommends to the board matters relating to incentive compensation plans and equity-based plans, including reviewing and approving any changes in any stock related plan; | |
• | reviews and recommends to the board May’s overall compensation programs; | |
• | assures that the board is updated at least annually on management development efforts to ensure development of a pool for adequate and orderly management succession; | |
• | recommends to the board nominees for all executive officers and for all members of the profit sharing plan committee, the retirement committees, and the long-term disability plan committee; and | |
• | serves as the “committee” under May’s stock option plans, stock appreciation rights plan, executive incentive compensation plan for corporate executives, executive incentive compensation plan for company principals (with power to delegate certain powers to a management committee thereunder in accordance with the terms of the plan), deferred compensation plan, and restricted stock plan for management employees. |
The Finance Committee reviews and recommends to the board: |
• | our financial policies, our long-range financial plans and targets, our capital expenditure program, specific debt and equity placement activities, and financial aspects of proposed acquisitions or divestitures; | |
• | our external financial relationships and financial public relations and communication programs; and | |
• | the retirement and profit sharing plans’ funding, our investments, and insurance and risk management programs. |
The Nominating and Governance Committee: |
• | recommends to the board nominees for directors and for chairmen and members of committees of the board, including developing criteria for the selection of non-management directors and procedures to solicit and review potential nominees; |
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• | advises the board with respect to criteria relating to director tenure and non-management director compensation; | |
• | oversees the performance of the board and all directors; and | |
• | takes a leadership role in shaping the corporate governance of the company by developing and reviewing periodically the Board’s Governance Guidelines and considering any other corporate governance issues that arise from time to time and developing appropriate recommendations for the board. |
Director Nomination Procedures |
• | outstanding and recognized competence in general management, as well as possible specialization in one or more of the following fields: advertising, ecology, economics, finance, management development, marketing, public affairs, science or the professions; | |
• | an age at the time of first election to the board which generally would permit such person to serve May for not less than seven years prior to retirement pursuant to the board’s retirement policy; | |
• | a willingness and availability to commit the time and energies necessary to satisfy the requirements of the board and committee memberships; and | |
• | a commitment to represent May stockholders as a whole, without any particular constituency among the stockholders. |
Corporate Governance Guidelines and Code of Business Conduct and Ethics |
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Stockholder Access |
List of Officers |
Name | Age | Position and Officers | ||||
John L. Dunham | 58 | Chairman, President and Chief Executive Officer | ||||
William P. McNamara | 54 | Vice Chairman | ||||
Thomas D. Fingleton | 57 | Executive Vice President and Chief Financial Officer | ||||
Jay H. Levitt | 47 | Chief Executive Officer and President, May Merchandising Company and May Department Stores International | ||||
R. Dean Wolfe | 60 | Executive Vice President | ||||
Alan E. Charlson | 56 | Senior Vice President and General Counsel | ||||
Martin M. Doerr | 50 | Senior Vice President | ||||
Lonny J. Jay | 62 | Senior Vice President | ||||
Jan R. Kniffen | 56 | Senior Vice President | ||||
Gregory A. Ott | 45 | Senior Vice President | ||||
Richard A. Brickson | 57 | Secretary and Senior Counsel | ||||
J. Per Brodin | 43 | Vice President |
Brief History of Officers |
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Three Year Compensation Summary |
Annual Compensation(2) | Long-Term Compensation | ||||||||||||||||||||||||||||
Awards(3)(4) | Payouts | ||||||||||||||||||||||||||||
Restricted | Long-Term | ||||||||||||||||||||||||||||
Stock | Stock | Incentive | All Other | ||||||||||||||||||||||||||
Name and Principal Position | Year | Salary(5) | Bonus(6) | Awards | Options | Payouts(2)(7) | Compensation(2)(8) | ||||||||||||||||||||||
J. L. Dunham | 2004 | $ | 1,041,677 | $ | 0 | $ | 3,388,000 | 165,000 | $ | 78,841 | $ | 509,667 | |||||||||||||||||
Chairman, President and | 2003 | $ | 950,000 | $ | 267,188 | $ | 0 | 60,000 | $ | 51,846 | $ | 9,145 | |||||||||||||||||
Chief Executive Officer(1) | 2002 | $ | 931,250 | $ | 89,063 | $ | 346,800 | 60,000 | $ | 39,551 | $ | 4,643 | |||||||||||||||||
R. D. Wolfe | 2004 | $ | 897,500 | $ | 0 | $ | 616,000 | 37,500 | $ | 40,074 | $ | 259,667 | |||||||||||||||||
Executive Vice President | 2003 | $ | 865,000 | $ | 195,750 | $ | 429,500 | 32,500 | $ | 37,848 | $ | 9,145 | |||||||||||||||||
2002 | $ | 837,500 | $ | 63,750 | $ | 0 | 32,500 | $ | 29,578 | $ | 4,643 | ||||||||||||||||||
W. P. McNamara | 2004 | $ | 828,750 | $ | 0 | $ | 2,156,000 | 45,000 | $ | 36,838 | $ | 259,667 | |||||||||||||||||
Vice Chairman | 2003 | $ | 801,250 | $ | 182,250 | $ | 0 | 40,000 | $ | 34,447 | $ | 9,145 | |||||||||||||||||
2002 | $ | 760,000 | $ | 58,125 | $ | 1,213,800 | 40,000 | $ | 26,750 | $ | 4,643 | ||||||||||||||||||
T. D. Fingleton | 2004 | $ | 758,750 | $ | 0 | $ | 2,156,000 | 37,500 | $ | 34,006 | $ | 259,667 | |||||||||||||||||
Executive Vice President | 2003 | $ | 735,000 | $ | 166,500 | $ | 0 | 32,500 | $ | 108,500 | $ | 9,145 | |||||||||||||||||
and Chief Financial Officer | 2002 | $ | 712,500 | $ | 187,455 | $ | 0 | 32,500 | $ | 87,545 | $ | 4,643 | |||||||||||||||||
J. H. Levitt | 2004 | $ | 690,000 | $ | 0 | $ | 847,000 | 35,000 | $ | 31,058 | $ | 9,667 | |||||||||||||||||
President and CEO — May | 2003 | $ | 671,250 | $ | 151,875 | $ | 0 | 35,000 | $ | 28,968 | $ | 9,145 | |||||||||||||||||
Merchandising Company | 2002 | $ | 653,750 | $ | 49,500 | $ | 0 | 35,000 | $ | 23,522 | $ | 4,643 | |||||||||||||||||
E. S. Kahn | 2004 | $ | 1,500,000 | $ | 0 | $ | 0 | 85,000 | $ | 0 | $ | 9,667 | |||||||||||||||||
Former Chairman and | 2003 | $ | 1,500,000 | $ | 675,000 | $ | 0 | 85,000 | $ | 132,494 | $ | 9,145 | |||||||||||||||||
Chief Executive Officer(1) | 2002 | $ | 1,487,500 | $ | 225,000 | $ | 7,088,000 | 585,000 | $ | 103,646 | $ | 4,643 |
(1) | Eugene S. Kahn resigned from his position as Chairman and Chief Executive Officer on January 14, 2005. The board of directors named John L. Dunham as Chairman and Chief Executive Officer in addition to his duties as President. See discussion of the separation arrangements for Mr. Kahn in “Report of the Executive Compensation and Development Committee” on page 163. |
(2) | Total Cash Compensation. As supplemental information, the following table shows the total cash compensation (Salary, Bonus and Long-term Incentive Payouts, and, for 2004, the 2004 special bonus paid for the acquisition and assimilation of Marshall Field’s included in All Other Compensation) paid to the May Named Executives for the fiscal year listed. |
Year | Mr. Dunham | Mr. Wolfe | Mr. McNamara | Mr. Fingleton | Mr. Levitt | Mr. Kahn | ||||||||||||||||||
2004 | $ | 1,620,508 | $ | 1,187,574 | $ | 1,115,588 | $ | 1,042,756 | $ | 721,058 | $ | 1,500,000 | ||||||||||||
2003 | $ | 1,269,034 | $ | 1,098,598 | $ | 1,017,947 | $ | 1,010,000 | $ | 852,093 | $ | 2,307,494 | ||||||||||||
2002 | $ | 1,059,864 | $ | 930,828 | $ | 844,875 | $ | 987,500 | $ | 726,772 | $ | 1,816,146 |
(3) | “Restricted Stock” in the Summary Compensation Table is valued at the closing price of May common stock on the date the shares were granted. Each grant is subject to performance-based or time-based restrictions. Restrictions on performance-based awards are released only if May meets certain earnings performance standards; shares are forfeited in whole or on a pro rata basis if the standards are not achieved. Restrictions on time-based awards are released after specified time periods if the executive continues to be employed by May. |
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As of January 29, 2005, the value (at $33.40 per share) of all the performance-based and time-based restricted stock held by the May Named Executives was as follows: |
Mr. Dunham | Mr. Wolfe | Mr. McNamara | Mr. Fingleton | Mr. Levitt | Mr. Kahn | ||||||||||||||||||||
Shares | 140,000 | 45,000 | 110,000 | 90,000 | 44,500 | 150,000 | |||||||||||||||||||
Value (from) | $ | 2,505,000 | $ | 83,500 | $ | 0 | $ | 0 | $ | 0 | $ | 2,505,000 | |||||||||||||
(to) | $ | 4,676,000 | $ | 1,503,000 | $ | 3,674,000 | $ | 3,006,000 | $ | 1,486,300 | $ | 5,010,000 |
Each grant described in the Summary Compensation Table consisted of performance-based restricted stock or a combination of performance-based and time-based restricted stock. Mr. Dunham’s 2004 grant may vest 10,000 shares in 2005, 50,000 shares in 2006 and 50,000 shares in 2007; Mr. Dunham’s 2002 grant may vest 5,000 shares in each of 2003 and 2004; Mr. Wolfe’s 2004 grant may vest 20,000 shares in 2006; Mr. Wolfe’s 2003 grant may vest 15,000 shares in 2005 and 5,000 shares in 2006; Mr. McNamara’s 2004 grant may vest 10,000 shares in 2006, 30,000 shares in each of 2007 and 2008; Mr. McNamara’s 2002 grant may vest 5,000 shares in each of 2003 to 2005 and 15,000 shares in 2006; Mr. Fingleton’s 2004 grant may vest 20,000 shares in 2006 and 25,000 shares in each of 2007 and 2008; Mr. Levitt’s 2004 grant may vest 3,500 shares in 2006 and 12,000 shares in each of 2007 and 2008; Mr. Kahn’s 2002 grant may vest 50,000 shares in each of 2004-2007. | |
Each May Named Executive forfeited all of their shares of performance-based restricted stock that would otherwise have vested in each of 2003 through 2005. | |
Dividends are paid in cash on these shares at the same rate as the dividends received by all May stockholders. The plan under which these shares were granted provides that restricted stock grants become fully vested and all restrictions are waived when a change in control, as defined in the plan, occurs. |
(4) | “Stock Options” represent non-qualified 10-year options under May’s 1994 Stock Incentive Plan. The plan provides that all outstanding options become fully exercisable upon the occurrence of a change in control, as defined in the plans. |
(5) | The table reflects salary paid or deferred during the respective fiscal years shown. Annual salary changes normally occur on May 1 of each year. |
(6) | “Bonus” reflects the annual portion of the bonus payable under May’s executive incentive compensation plan for corporate executives. The bonuses were either paid or were deferred under May’s deferred compensation plan. All deferrals would be distributed to participants in lump sum cash payments immediately following a change in control, as defined in the plan. |
(7) | “Long-term Incentive Payouts” represent the long-term portion of the bonus payable under the executive incentive compensation plan for corporate executives. Such amounts were either paid or deferred under May’s deferred compensation plan. |
(8) | “All Other Compensation” represents the effective matching allocation to the named individual’s accounts in May’s profit sharing plan. In addition, for 2004, the amount includes a special bonus paid for the acquisition and assimilation of Marshall Field’s for Mr. Dunham ($500,000), Mr. Wolfe ($250,000), Mr. McNamara ($250,000) and Mr. Fingleton ($250,000). |
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Fiscal 2004 Stock Option Grants |
Percent of | ||||||||||||||||||||
Options | Total | Exercise or Base | Grant Date | |||||||||||||||||
Name | Granted(1) | Options Granted | Price(2) | Expiration Date | Present Value(3) | |||||||||||||||
John L. Dunham | 75,000 | 1.7 | % | $ | 27.8900 | 5/12/2014 | $ | 573,000 | ||||||||||||
90,000 | 2.1 | % | $ | 27.8900 | 5/12/2014 | $ | 687,600 | |||||||||||||
R. Dean Wolfe | 37,500 | 0.9 | % | $ | 27.8900 | 5/12/2014 | $ | 286,500 | ||||||||||||
William P. McNamara | 45,000 | 1.0 | % | $ | 27.8900 | 5/12/2014 | $ | 343,800 | ||||||||||||
Thomas D. Fingleton | 37,500 | 0.9 | % | $ | 27.8900 | 5/12/2014 | $ | 286,500 | ||||||||||||
Jay H. Levitt | 35,000 | 0.8 | % | $ | 27.8900 | 5/12/2014 | $ | 267,400 | ||||||||||||
Eugene S. Kahn | 85,000 | 2.0 | % | $ | 27.8900 | 5/12/2014 | $ | 649,400 |
(1) | With the exception of Mr. Dunham’s 90,000 share grant, one-fourth of the options become exercisable on May 12 in each of 2005, 2006, 2007 and 2008. One-third of the options of Mr. Dunham’s 90,000 share grant became exercisable on April 30, 2005, and one-third become exercisable on April 30 in each of 2006 and 2007. |
(2) | The exercise price is the market price on the date the options were granted. |
(3) | The Grant Date Present Values were determined using the Black-Scholes option pricing model. The estimated values under the model are based on assumptions as to variables such as option term, interest rates, stock price volatility, and dividend yield. The actual value, if any, the option holder may realize will depend on the excess of the actual market price of the stock over the exercise price on the date the option is exercised. The Grant Date Present Value calculation is presented in accordance with SEC proxy disclosure requirements, and May has no way to determine whether the Black-Scholes model can properly determine the value of an option. There is no assurance that the value that may be realized by the option holder will be at or near the value estimated by the Black-Scholes model. The model assumes: (a) an option term of 10 years, which represents the length of time between the grant date of options under May’s plans and the latest possible exercise date by the May Named Executives; (b) an interest rate that represents the interest rate on a U.S. Treasury Bond with a maturity date corresponding to that of the option’s term; (c) stock price volatility calculated based on daily stock price changes during the year prior to the grant date; and (d) dividends at the rate of $0.97 per share, the annual dividend rate with respect to a share of stock on the grant date. |
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Fiscal Year-End Option Values |
Shares | Total Number of Unexercised Options Held | |||||||||||||||||||||||
Acquired | Total Gain | |||||||||||||||||||||||
Name | on Exercise | Realized(1) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
John L. Dunham | 5,603 | $ | 65,029 | 315,929 | 252,500 | $ | 1,034,270 | $ | 1,441,500 | |||||||||||||||
R. Dean Wolfe | 12,431 | $ | 147,135 | 280,045 | 86,250 | $ | 1,121,737 | $ | 494,981 | |||||||||||||||
William P. McNamara | 4,143 | $ | 31,862 | 223,288 | 105,000 | $ | 687,723 | $ | 602,850 | |||||||||||||||
Thomas D. Fingleton | 11,603 | $ | 151,194 | 175,390 | 86,250 | $ | 523,301 | $ | 494,981 | |||||||||||||||
Jay H. Levitt | 32,050 | $ | 290,510 | 94,322 | 87,500 | $ | 13,824 | $ | 503,388 | |||||||||||||||
Eugene S. Kahn | 20,718 | $ | 98,640 | 989,635 | 462,500 | $ | 2,273,603 | $ | 1,222,513 |
(1) | The amounts “realized” reflect the appreciation on the date of exercise (based on the excess of the fair market value of the shares on the date of exercise over the exercise price). However, because the May Named Executives may keep the shares they acquired upon the exercise of the option (or sell them at different prices), these amounts do not reflect cash realized upon the sale of those shares. |
(2) | “In-the-Money Options” are options outstanding at the end of the fiscal year for which the fair market value of the company’s common stock at the end of the last fiscal year ($33.40 per share) exceeded the exercise price of the options. |
Executive Stock Ownership Guidelines |
Ownership Guideline | ||||
Executive Level | (Multiple of Base Salary) | |||
Chief Executive Officer | 5.0 times | |||
Corporate Senior Management Committee(1) | 3.5 times | |||
Presidents, Chairmen and Vice Chairmen of Operating Divisions | 2.5 times | |||
Corporate Executive Vice Presidents and Senior Vice Presidents and the Senior Management Committees of Operating Divisions | 1.5 times |
(1) | Includes five executive officers. The chief executive officer, who is also a member of the senior management committee, is covered by the CEO guideline above. |
Change-in-Control Agreements |
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Employment Agreements |
Executive | Salary | Contract Term | ||||||
Mr. Dunham | $ | 1,150,000 | 4/30/07 | |||||
Mr. Wolfe | $ | 900,000 | 5/31/07 | |||||
Mr. McNamara | $ | 835,000 | 4/30/07 | |||||
Mr. Fingleton | $ | 765,000 | 4/30/08 | |||||
Mr. Levitt | $ | 695,000 | 4/30/07 |
Retirement Plans |
• | 2% of the average of the participant’s highest three out of five fiscal years of final annual salary and bonus multiplied by their years of service, up to a maximum of 25 years; reduced by | |
• | primary Social Security benefits, company-provided benefits under May’s retirement and profit sharing plans, and, if appropriate, amounts to reflect early retirement. |
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Years of Service | ||||||||||||||||||||
Average Annual Earnings | 15 | 20 | 25 | 30 | 35 | |||||||||||||||
$1,000,000 | $ | 245,680 | $ | 320,991 | $ | 375,854 | $ | 286,258 | $ | 301,089 | ||||||||||
1,200,000 | $ | 302,348 | $ | 396,491 | $ | 462,706 | $ | 355,184 | $ | 370,436 | ||||||||||
1,300,000 | $ | 330,682 | $ | 434,269 | $ | 507,231 | $ | 390,754 | $ | 406,211 | ||||||||||
1,600,000 | $ | 415,684 | $ | 547,605 | $ | 642,372 | $ | 499,011 | $ | 515,098 | ||||||||||
1,900,000 | $ | 500,686 | $ | 660,941 | $ | 777,510 | $ | 607,274 | $ | 623,983 | ||||||||||
2,200,000 | $ | 585,687 | $ | 774,276 | $ | 912,652 | $ | 715,535 | $ | 732,870 | ||||||||||
2,500,000 | $ | 670,689 | $ | 887,612 | $ | 1,047,792 | $ | 823,796 | $ | 841,756 | ||||||||||
2,800,000 | $ | 755,691 | $ | 1,000,948 | $ | 1,182,933 | $ | 932,055 | $ | 950,644 | ||||||||||
3,000,000 | $ | 812,359 | $ | 1,076,505 | $ | 1,273,026 | $ | 1,004,230 | $ | 1,023,234 |
Profit Sharing Plan |
Bonus Program |
Performance or Other | Estimated Maximum Future | |||||||
Period Until Maturation | Payouts Under Non-Stock- | |||||||
Name | or Payout | Price-Based Plan(1) | ||||||
John L. Dunham | 2004-2006 | $ | 879,681 | |||||
R. Dean Wolfe | 2004-2006 | $ | 408,675 | |||||
William P. McNamara | 2004-2006 | $ | 378,525 | |||||
Thomas D. Fingleton | 2004-2006 | $ | 346,800 | |||||
Jay H. Levitt | 2004-2006 | $ | 315,150 | |||||
Eugene S. Kahn | 2004-2006 | $ | 1,350,000 |
(1) | Payouts may range from $0 to the award values shown above. The estimate above assumes that the individual remains eligible to participate throughout the three-year period, that the maximum performance goals have been met, and that the stock price has increased sufficiently to result in the maximum stock price adjustment. |
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2004 Compensation Review and 2005 Changes to Senior Executive Compensation Program |
Review Process and Findings |
• | allow the ECD Committee to set and change specific details of the program (e.g., measures, weightings and award opportunities) over time to respond to business needs and ensure appropriate sensitivity to stockholder’s interests; | |
• | design a plan that would be easier for participants to understand; and | |
• | include a higher percentage of annual compensation that is performance based. |
• | base salaries were generally above the competitive market median; | |
• | May’s program had lower than competitive annual incentive opportunities as a percent of base salary; | |
• | May’s program had a more limited range of payouts around target performance; | |
• | May’s program had a narrower range of performance that is considered for performance-based awards; | |
• | May uses more performance restricted stock (as compared to time restricted stock) than the competitive market; and | |
• | May used three long-term vehicles, while most of the competitive market used two. |
Updated Compensation Philosophy |
• | increased emphasis on annual results; | |
• | increased intensity to achieve both store-for-store sales and earnings growth; and | |
• | greater buy-in by executives in the divisions to more competitive and aggressive store-for-store sales growth strategies. |
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• | Pay Prominence |
• | Incentive pay will be highly prominent in May’s executive compensation design, allowing for significantly increased payouts when performance exceeds internal targets and peer performance and significantly reduced payouts when performance is poorer. |
• | Performance schedules will allow for a broad range of performance and payouts around target. | |
• | Performance measures and goals will be explicit and controllable by participants. |
• | Annual incentive pay will be more prominent for division principals than for the corporate senior management committee, whose compensation will have more balance between annual and longer-term performance. | |
• | May’s performance-based compensation program will complement other reasons executives stay at May, including the company’s reputation and financial stability, the work environment and career opportunities. |
• | Comparative framework |
• | May will use a broad group of retail comparators to benchmark pay levels (department store peers and prominent specialty retailers). | |
• | May will place more emphasis on its key retail comparators when comparing design practices and company performance. |
• | Pay positioning and mix |
• | Base salaries and total pay opportunities will be targeted at the median of the retail peer group for positions with similar responsibility. Mix of annual and long-term incentive opportunities may be adjusted based on business needs. | |
• | When performance is above or below target, pay will be sufficiently variable to result in pay levels commensurately above or below median. |
• | Stock ownership |
• | May expects executives to hold stock in order to sustain a long-term link between executive and shareowner interests. May’s executive compensation program will include: |
• | explicit ownership guidelines for executives; | |
• | annual communication about actual stock ownership versus the guidelines; and | |
• | equity programs intended to build stock ownership over time. |
• | Performance measurement |
• | Performance measures within May’s variable pay components will reflect the business priorities and have the following characteristics: |
• | reinforce strong balances growth in revenue, earnings and stock market performance; and | |
• | represent a balanced emphasis on key financial and operational drivers, growth that will result in current and future profits and ultimate shareowner value creation. |
• | The Committee and the company may also choose to reward executives for progress against agreed-upon strategic initiatives (e.g., integration of an acquisition, division combinations) through additional incentive opportunities or variations in equity grants. |
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• | Performance measurement for division principals will be based primarily on their own division’s annual performance, although they will be tied to overall corporate longer term performance through equity awards. |
• | Goal setting |
• | May’s overall approach to goal setting will encourage exceeding performance of key competitors as well as generating sustained year-over-year improvement. |
Summary of Program Changes Beginning in 2005 |
• | manage the growth of base salaries toward the competitive median range, and, over time, to 100% of the median, on average; | |
• | increase the percentage of annual compensation that is performance based, by: |
• | shifting the current long-term cash bonus opportunity into the annual cash bonus opportunity, and positioning the annual opportunities closer to the competitive median; | |
• | placing a balanced emphasis on both store-for-store sales and earnings growth when determining payouts; and | |
• | paying no award for performance below threshold; |
• | provide additional upside opportunities for superior performance, by increasing the maximum payout from 90% to 120% of salary (with higher opportunities for Mr. Dunham), noting that the 120% maximum positions the annual bonus opportunity closer to the competitive median; | |
• | shift the senior management committee’s performance restricted stock from a three-year earnings per share basis to an annual earnings per share basis; and | |
• | manage total compensation to market median. |
2004 Compensation |
Base Salary. |
• | the individual’s contribution to the company, including changes in responsibilities; | |
• | competitive pay levels; and | |
• | management’s recommendations. |
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Bonus Opportunities. |
Annual Bonus. |
• | downward, in our discretion; and | |
• | upward or downward, automatically, based on May’s performance relative to the EPS and RONA performance of a predetermined group of competitors consisting of Dillard’s, Federated Department Stores, J.C. Penney, Kohl’s, Nordstrom, Target, and Sears. For both the annual and long-term bonuses, May’s relative rank was determined based on publicly available information about the competitor group, adjusted for comparability. Our independent public accounting firm subjected the information to certain agreed upon procedures. |
• | May achieved below the threshold performance level we set for EPS; and | |
• | May achieved below the threshold performance level we set for RONA. |
Long-Term Bonus. |
• | downward, in our discretion; and | |
• | upward or downward, automatically, based on May’s performance compared to the EPS and RONA performances of the competitor group, and predetermined levels of changes in May’s common stock price over the period. |
• | May achieved below the threshold level of performance we set for compound EPS growth; | |
• | May achieved below the threshold performance level we set for average RONA, but May’s performance, relative to the average RONA performance of the competitor group, ranked fourth, so that the long-term bonus based on average RONA performance was adjusted to the threshold level; and | |
• | May’s common stock price decreased by 7.5% over the period, resulting in a 7.5% decrease in bonus. |
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Long-term Stock-related Incentives. |
Compensation Arrangement for the CEO |
Additional Information |
Executive Compensation and Development Committee: |
James M. Kilts, Chairman | |
Russell E. Palmer | |
Michael R. Quinlan |
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Audit Committee Members |
Russell E. Palmer, Chairman | |
Marsha J. Evans | |
Michael R. Quinlan | |
David B. Rickard | |
Joyce M. Roché |
Pre-Approval Policy |
• | management will not engage Deloitte & Touche to perform any service (audit or non-audit) without advance approval of the Audit Committee; subject to the de minimis exceptions allowed by Sarbanes-Oxley; | |
• | management intends to use Deloitte & Touche for performing only those non-audit services it deems are appropriate. Such services will be of a nature and extent that it would not be prohibited by law, SEC rules or professional standards, will not place Deloitte & Touche in a management role, will not impair the auditor’s capacity for objective and impartial judgment, and will be limited to those areas that management believes appropriately use Deloitte & Touche’s expertise; and | |
• | at least annually, the Audit Committee will review the fees associated with the services provided by Deloitte & Touche. This review shall include, but need not be limited to (a) the nature, scope, and magnitude of each service and the fees charged therefore, and (b) consideration of the possible effect of the performance of such services upon the independence of Deloitte & Touche. |
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1999 | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||
May | $ | 100 | 124 | 123 | 72 | 120 | 126 | ||||||||||||||||||||||||
S&P-Dept. Stores(1) | $ | 100 | 131 | 144 | 99 | 135 | 159 | ||||||||||||||||||||||||
S&P-500 | $ | 100 | 100 | 85 | 66 | 88 | 93 |
(1) | The companies included in the S&P Retail Department Stores Index are Dillard’s, Federated, J.C. Penney, Kohl’s, May, Nordstrom and Sears. |
Name and Address | Number of | % of Outstanding | % of Voting | ||||||||||
of Beneficial Owner | Shares Owned | Shares Owned(1) | Power(2) | ||||||||||
Capital Research and Management Company | 30,173,000 | 10.1 | % | 9.7 | % | ||||||||
333 South Hope Street | |||||||||||||
Los Angeles, CA 90071 | |||||||||||||
Dodge & Cox | 37,713,862 | 12.6 | % | 12.1 | % | ||||||||
One Sansome Street | |||||||||||||
35th Floor | |||||||||||||
San Francisco, CA 94104 | |||||||||||||
May’s Profit Sharing Plan | |||||||||||||
Common Stock | 10,558,399 | 3.5 | % | 3.4 | % | ||||||||
ESOP preference shares(3) | 378,628 | 100 | % | 4.1 | % |
(1) | On May 5, 2005, there were 298,456,439 shares of May common stock outstanding. |
(2) | On May 5, 2005, May’s voting securities carried 311,249,334 votes and consisted of 298,456,439 outstanding shares of common stock and 378,628 ESOP preference shares, which carry 12,792,895 votes. |
(3) | These shares carry 12,792,895 votes. |
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Options | ||||||||||||
Shares Beneficially | Exercisable within | Deferred Stock | ||||||||||
Name | Owned(1) | 60 Days | Units | |||||||||
John L. Dunham | 177,196 | 395,576 | 70,978 | |||||||||
Marsha J. Evans | 3,000 | 0 | 28,059 | |||||||||
Helene L. Kaplan | 20,889 | 0 | 19,580 | |||||||||
James M. Kilts | 5,178 | 0 | 28,601 | |||||||||
Russell E. Palmer | 8,265 | 0 | 20,132 | |||||||||
Michael R. Quinlan | 5,715 | 0 | 18,488 | |||||||||
David B. Rickard | 3,929 | 0 | 0 | |||||||||
Joyce M. Roché | 3,200 | 0 | 11,213 | |||||||||
William P. Stiritz | 11,650 | 0 | 45,212 | |||||||||
R. Dean Wolfe | 268,729 | 301,364 | 0 | |||||||||
Thomas D. Fingleton | 144,239 | 209,140 | 18,109 | |||||||||
Jay H. Levitt | 55,146 | 129,322 | 52,423 | |||||||||
William P. McNamara | 108,040 | 264,538 | 43,092 | |||||||||
Eugene S. Kahn | 374,173 | 1,178,917 | 133,470 | |||||||||
Directors and Current Executive Officers as a Group(2) | 1,012,265 | 1,555,073 | 388,340 |
(1) | The total number of shares beneficially owned by each individual and group constitutes less than 1% of the outstanding shares. For the executive officers, the total includes interests in shares owned by May’s profit sharing plan. Participants may direct the voting of the shares held by the plan and share voting and investment power with the plan’s trustee. |
(2) | Includes 20 individuals. Does not include the holdings for Mr. Kahn, who is not currently an executive officer. |
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Historical | Historical | |||||||||||||||||
Federated | May | |||||||||||||||||
January 29, | January 29, | Pro Forma | Federated | |||||||||||||||
2005 | 2005(a) | Adjustments | Pro Forma | |||||||||||||||
(All amounts in millions) | ||||||||||||||||||
ASSETS: | ||||||||||||||||||
Current Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 868 | $ | 62 | $ | (475 | )(b1) | $ | 455 | |||||||||
Accounts receivable | 3,418 | 2,294 | — | 5,712 | ||||||||||||||
Merchandise inventories | 3,120 | 3,092 | 93 | (b2) | 6,305 | |||||||||||||
Supplies and prepaid expenses | 104 | 129 | 233 | |||||||||||||||
Total Current Assets | 7,510 | 5,577 | (382 | ) | 12,705 | |||||||||||||
Property and Equipment — net | 6,018 | 6,190 | 785 | (b3) | 12,993 | |||||||||||||
Goodwill | 260 | 2,634 | (2,634 | )(b4) | 9,676 | |||||||||||||
9,416 | (b4) | |||||||||||||||||
Other Intangible Assets — net | 378 | 602 | (602 | )(b5) | 808 | |||||||||||||
430 | (b5) | |||||||||||||||||
Other Assets | 719 | 160 | (49 | )(b6) | 783 | |||||||||||||
(47 | )(b7) | |||||||||||||||||
Total Assets | $ | 14,885 | $ | 15,163 | $ | 6,917 | $ | 36,965 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||||
Current Liabilities: | ||||||||||||||||||
Short-term debt | $ | 1,242 | $ | 513 | $ | 1,765 | (b1) | $ | 3,520 | |||||||||
Accounts payable and accrued liabilities | 2,707 | 2,798 | — | 5,505 | ||||||||||||||
Income taxes | 352 | 158 | 510 | |||||||||||||||
Total current liabilities | 4,301 | 3,469 | 1,765 | 9,535 | ||||||||||||||
Long-Term Debt | 2,637 | 5,662 | 3,325 | (b1) | 12,289 | |||||||||||||
665 | (b7) | |||||||||||||||||
Deferred Income Taxes | 1,199 | 818 | (83 | )(b8) | 1,934 | |||||||||||||
Other Liabilities | 581 | 528 | 163 | (b6) | 1,272 | |||||||||||||
ESOP Preference Shares | — | 211 | (211 | )(b9) | — | |||||||||||||
Stockholders’ Equity | 6,167 | 4,475 | (4,475 | )(b10) | 11,935 | |||||||||||||
5,768 | (b10) | |||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 14,885 | $ | 15,163 | $ | 6,917 | $ | 36,965 | ||||||||||
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(a) | Certain reclassifications have been made to the historical presentation of May to conform to the presentation used in the unaudited pro forma consolidated balance sheet. |
(b) | The merger agreement provides that, in connection with the merger, May stockholders will be entitled to receive 0.3115 shares of Federated common stock and $17.75 in cash for each May share of common stock. The merger agreement further provides that, if the total value of the Federated common stock to be received in the merger falls below 40% of the total merger consideration, Federated may elect to pay more in Federated common stock to maintain the nontaxable status of the merger or, if Federated does not so elect, May may elect to increase the cash consideration received in the merger for each share of May common stock to $18.75. Under the merger agreement, there are no other circumstances in which the exchange ratio or the cash consideration increases. Federated has assumed that none of these changes to the merger consideration payable to May stockholders will occur. | |
Under the purchase method of accounting, the total consideration payable in the merger will be allocated to May’s tangible and intangible assets and liabilities based on their estimated fair values as of the date of the merger. The preliminary estimated consideration is as follows: |
Common | Additional | |||||||||||||
Stock | Paid-in Capital | Total | ||||||||||||
Issuance of Federated shares to May stockholders (95.902 shares at $58.55 per share*) | $ | 1 | $ | 5,614 | $ | 5,615 | ||||||||
Estimate of fair value of May stock options assumed | 153 | |||||||||||||
(b10) | Total equity consideration | 5,768 | ||||||||||||
Cash consideration payable to May stockholders | 5,465 | |||||||||||||
Estimated transaction costs | 100 | |||||||||||||
(b1) | Total cash consideration | 5,565 | ||||||||||||
Total consideration | $ | 11,333 | ||||||||||||
* | the average market price of Federated common stock from February 24, 2005, to March 2, 2005. |
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(b10) | May’s historical net book value | $ | 4,475 | |||
(b4) | Elimination of May’s historical goodwill | (2,634 | ) | |||
(b5) | Elimination of May’s historical identifiable intangible assets | (602 | ) | |||
(b2) | Estimate of adjustment to fair value of merchandise inventories | 93 | ||||
(b3) | Estimate of adjustment to fair value of property and equipment | 785 | ||||
(b4) | Goodwill created | 9,416 | ||||
(b5) | Estimate of adjustment to fair value of identifiable intangible assets | 430 | ||||
(b6) | Estimate of adjustment to fair value of pension and post-retirement obligations | (212 | ) | |||
(b7) | Estimate of adjustment to fair value of assumed long-term debt (including the write-off of deferred financing costs) | (712 | ) | |||
(b9) | Eliminate ESOP preference shares | 211 | ||||
(b8) | Estimate of deferred taxes on adjustments at combined rate of 38% | 83 | ||||
Total consideration allocated | $ | 11,333 | ||||
Estimated | ||||||||
Increase in | Remaining | |||||||
Asset Classification | Value | Useful Life | ||||||
Land | $ | 380 | n/a | |||||
Buildings and improvements | 405 | 15 years |
Estimated | ||||||||
Assigned | Remaining | |||||||
Asset Classification | Value | Useful Life | ||||||
Tradenames | $ | 168 | Indefinite | |||||
Tradenames | 142 | 36 | ||||||
Customer relationships | 120 | 7 |
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Pro Forma | |||||||||||||||||
Historical | Historical | Pro Forma | Federated | ||||||||||||||
Federated | May(a) | Adjustments | Pro Forma | ||||||||||||||
(All amounts in millions except per share figures) | |||||||||||||||||
Net Sales | $ | 15,630 | $ | 15,434 | $ | 31,064 | |||||||||||
Cost of sales | 9,297 | 8,967 | $ | 93 | (b) | 18,357 | |||||||||||
Gross margin | 6,333 | 6,467 | (93 | ) | 12,707 | ||||||||||||
Selling, general and administrative expenses | 4,933 | 5,231 | (8 | )(c) | 10,197 | ||||||||||||
27 | (d) | ||||||||||||||||
14 | (d) | ||||||||||||||||
Operating income | 1,400 | 1,236 | (126 | ) | 2,510 | ||||||||||||
Interest expense, net | (284 | ) | (450 | ) | (227 | )(e) | (903 | ) | |||||||||
58 | (f) | ||||||||||||||||
Income before income taxes | 1,116 | 786 | (295 | ) | 1,607 | ||||||||||||
Federal, state and local income tax | (427 | ) | (273 | ) | 112 | (588 | ) | ||||||||||
Net income | $ | 689 | $ | 513 | $ | (183 | ) | $ | 1,019 | ||||||||
Basic earnings per share | $ | 3.93 | $ | 3.76 | |||||||||||||
Diluted earnings per share | $ | 3.86 | $ | 3.70 | |||||||||||||
Average common shares: | |||||||||||||||||
Basic | 175.1 | 95.9 | (g) | 271.0 | |||||||||||||
Diluted | 178.2 | 95.9 | (g) | 275.7 | |||||||||||||
1.6 | (h) |
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(a) | Historical May results have been adjusted to reflect May’s acquisition of the Marshall Field’s department store group as if it had occurred as of February 1, 2004 rather than effective July 31, 2004. See “May Unaudited Pro Forma Consolidated Statement of Income for the fiscal year ended January 29, 2005” on page 178. |
(b) | Represents the increase in cost of sales resulting from the adjustment of May’s merchandise inventories to fair value as described in Note b of the Notes to Unaudited Pro Forma Consolidated Balance Sheet. | |
(c) | Represents the elimination of compensation expense for employee stock options recorded by May under Statement of Financial Accounting Standards, referred to as SFAS, No. 123, “Accounting for Stock-Based Compensation,” to conform to Federated’s accounting principles. Federated accounts for its stock-based employee compensation plan in accordance with Accounting Principles Board, referred to as APB, Opinion No. 25 and related interpretations, so that no stock-based employee compensation cost related to stock options is reflected in net income. | |
(d) | Represents an increase in depreciation and amortization expense resulting from the adjustment to May’s property and equipment and identifiable intangible assets based on the adjustment of such assets to their fair value as described in Note b of the Notes to Unaudited Pro Forma Consolidated Balance Sheet. The increase in depreciation and amortization expense has been estimated as follows: | |
Estimated | Additional Annual | |||||||||||
Increase in | Remaining | Depreciation and | ||||||||||
Value | Useful Life | Amortization | ||||||||||
Buildings and improvements | $ | 405 | 15 | $ | 27 | |||||||
Definite Lived Intangible Assets | 100 | 7 | 14 |
Additional Annual | Diluted | |||||||||||
Depreciation and | Earnings | |||||||||||
Weighted Average Life | Amortization | Net Income | per Share | |||||||||
Five years | $ | 20 | $ | (12 | ) | $ | (.04 | ) | ||||
Ten years | 10 | (6 | ) | (.02 | ) | |||||||
Twenty-five years | 4 | (3 | ) | (.01 | ) |
(e) | Represents the increase in interest expense as a result of the cash funding of the acquisition as described in Note b of the Notes to Unaudited Pro Forma Consolidated Balance Sheet. A1/8 percentage point change in the assumed interest rates would result in an adjustment to net income of $8 million before income tax effects. |
(f) | Represents the decrease in interest expense as a result of the adjustment of May’s long-term debt to its fair value as described in Note b of the Notes to Unaudited Pro Forma Consolidated Balance Sheet. The difference between the fair value and recorded value of each borrowing is amortized as a reduction to interest expense over the remaining term of the borrowing. | |
(g) | Represents the shares of Federated Common Stock to be issued to May stockholders to effect the merger as described in Note b of the Notes to Unaudited Pro Forma Consolidated Balance Sheet. | |
(h) | Represents the impact of the dilutive May stock options to be assumed by Federated as described in Note (b) of the Notes to Unaudited Pro Forma Consolidated Balance Sheet. | |
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May | Pro Forma | |||||||||||
Historical | Pro Forma | Historical | ||||||||||
May(a) | Adjustments(b) | May | ||||||||||
(All amounts in millions) | ||||||||||||
Net Sales | $ | 14,311 | $ | 1,123 | $ | 15,434 | ||||||
Cost of sales | 8,310 | 657 | 8,967 | |||||||||
Gross margin | 6,001 | 466 | 6,467 | |||||||||
Selling, general and administrative expenses | 4,812 | 419 | 5,231 | |||||||||
Operating income | 1,189 | 47 | 1,236 | |||||||||
Interest expense, net | (386 | ) | (64 | ) | (450 | ) | ||||||
Income before income taxes | 803 | (17 | ) | 786 | ||||||||
Federal, state and local income tax | (279 | ) | 6 | (273 | ) | |||||||
Net income (loss) | $ | 524 | $ | (11 | ) | $ | 513 | |||||
(a) | Certain reclassifications have been made to the historical presentation of May to conform to the presentation used in the Federated Unaudited Pro Forma Consolidated Statement of Income. May’s historical leased department income of $95 million and shipping and handling income of $35 million were reclassified from net sales to selling, general and administrative expenses. Additionally, May’s historical buying and occupancy costs of $1,902 million were reclassified from cost of sales to selling, general and administrative expenses. |
(b) | Adjustments give effect to the results of operations for the Marshall Field’s department store group for the 26 weeks ended July 31, 2004, as if May had acquired the Marshall Field’s department store group as of February 1, 2004, including pro forma adjustments to reflect depreciation and amortization using the asset values recognized after applying purchase accounting adjustments and interest expense on borrowings used to finance the acquisition. May acquired Marshall Field’s department store group effective July 31, 2004, and included Marshall Field’s results of operations in May’s consolidated financial statements only from and after that date. |
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Annual and Special Meetings |
Quorum |
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Notice of Stockholder Meetings |
Notice of Stockholder Proposals |
• | a description in reasonable detail of the business desired to be brought before the annual meeting and the reasons for conducting the business at the annual meeting; | |
• | the name and address, as they appear on the company books, of the proposing stockholder and the beneficial owner, if any, on whose behalf the proposal is made; | |
• | the class and number of shares beneficially owned by the stockholder and by the beneficial owner, if any, on whose behalf the proposal is made; | |
• | a description of the material interest in the matter of the stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and | |
• | other information required under federal securities laws. |
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• | a description in reasonable detail of the business desired to be brought before the annual meeting and the reasons for conducting the business at the annual meeting; | |
• | the name and record address of the proposing stockholder; | |
• | the class and number of shares beneficially owned by the stockholder; and | |
• | any material interest of the stockholder in such business. |
Proxy |
Actions by Written Consent |
Number |
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Quorum |
Classification of Directors |
Removal of Directors |
Vacancies of the Board |
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Rights Plans |
• | is approved by a majority of the directors who are unaffiliated with the interested stockholder and were members of May’s board of directors prior to the time the interested stockholder became an interested stockholder; or | |
• | involves the payment of consideration to the holders of May’s capital stock and complies with specific pricing and procedural conditions set forth in May’s certificate of incorporation. |
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• | you must notify Federated’s corporate secretary in writing not less than 60 days prior to the annual meeting, except where the date of the annual meeting was not publicly announced at least 75 days prior to the date of the annual meeting, in which case you must notify Federated’s corporate secretary in writing within 10 days of the date of the public announcement of the date of the annual meeting; and | |
• | your notice must contain the specific information required by the by-laws. |
• | you must notify May’s corporate secretary in writing not less than 90 days nor more than 105 days prior to the anniversary date of the 2005 annual meeting, provided that if the 2006 annual meeting is called for a date that is not within 30 days before or after such anniversary date, you must notify May’s corporate secretary in writing within 15 days of the date of the public announcement of the date of the 2006 annual meeting; and | |
• | your notice must contain the specific information required by the by-laws. |
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Commission File Number 001-13536 | Period | |
Registration Statement on Form 8-A | Filed on December 12, 1994 | |
Current Reports on Form 8-K | Filed on February 8, 2005; Filed on February 22, 2005; Filed on February 28, 2005; Filed on March 17, 2005; Filed on March 29, 2005; Filed on April 8, 2005; Filed on May 5, 2005 | |
Annual Report on Form 10-K | Year Ended January 29, 2005 (filed on March 28, 2005) |
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Commission File No. 001-00079 | Period | |
Current Reports on Form 8-K | Filed on February 10, 2005; Filed on February 11, 2005; Filed on February 28, 2005; Filed on March 2, 2005; Filed on March 23, 2005; Filed on April 8, 2005; Filed on May 9, 2005 | |
Annual Report on Form 10-K/A | Year Ended January 29, 2005 (filed on May 10, 2005) |
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* | It is intended that prior to the meetings of the stockholders of each of Federated and May, Milan Acquisition Corp. will be converted to, or otherwise become, a limited liability company under Delaware law. |
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ARTICLE I | THE MERGER | A-8 | ||||||
SECTION 1.1 | The Merger | A-8 | ||||||
SECTION 1.2 | Closing | A-8 | ||||||
SECTION 1.3 | Effective Time | A-9 | ||||||
SECTION 1.4 | Effects of the Merger | A-9 | ||||||
SECTION 1.5 | Certificate of Incorporation and By-laws | A-9 | ||||||
SECTION 1.6 | Directors and Officers of the Surviving Corporation | A-9 | ||||||
SECTION 1.7 | Tax Consequences | A-9 | ||||||
SECTION 1.8 | Adjustments to Preserve Tax Consequences | A-9 | ||||||
ARTICLE II | EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES AND PAYMENT | A-10 | ||||||
SECTION 2.1 | Effect on Capital Stock | A-10 | ||||||
SECTION 2.2 | Exchange of Certificates | A-10 | ||||||
SECTION 2.3 | Certain Adjustments | A-13 | ||||||
SECTION 2.4 | Dissenters’ Rights | A-13 | ||||||
SECTION 2.5 | Further Assurances | A-13 | ||||||
SECTION 2.6 | Withholding Rights | A-13 | ||||||
ARTICLE III | REPRESENTATIONS AND WARRANTIES | A-13 | ||||||
SECTION 3.1 | Organization, Standing and Corporate Power | A-14 | ||||||
SECTION 3.2 | Subsidiaries | A-14 | ||||||
SECTION 3.3 | Capital Structure | A-14 | ||||||
SECTION 3.4 | Authority | A-15 | ||||||
SECTION 3.5 | Non-Contravention; Consents and Approvals | A-16 | ||||||
SECTION 3.6 | SEC Reports and Financial Statements | A-16 | ||||||
SECTION 3.7 | Information Supplied | A-17 | ||||||
SECTION 3.8 | Absence of Certain Changes or Events | A-17 | ||||||
SECTION 3.9 | Compliance with Applicable Laws | A-17 | ||||||
SECTION 3.10 | Employee Benefit Plans | A-18 | ||||||
SECTION 3.11 | Taxes | A-19 | ||||||
SECTION 3.12 | Environmental Matters | A-20 | ||||||
SECTION 3.13 | Voting Requirements | A-21 | ||||||
SECTION 3.14 | State Takeover Statutes | A-21 | ||||||
SECTION 3.15 | Opinion of Financial Advisors | A-21 | ||||||
SECTION 3.16 | Brokers | A-22 | ||||||
SECTION 3.17 | The Company Rights Agreement | A-22 | ||||||
SECTION 3.18 | Financing | A-22 | ||||||
SECTION 3.19 | Merger Sub | A-22 | ||||||
ARTICLE IV | COVENANTS RELATING TO CONDUCT OF BUSINESS | A-22 | ||||||
SECTION 4.1 | Conduct of Business | A-22 | ||||||
SECTION 4.2 | No Solicitation by the Company | A-25 |
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ARTICLE V | ADDITIONAL AGREEMENTS | A-27 | ||||||
SECTION 5.1 | Preparation of the Form S-4 and the Joint Proxy Statement; Stockholders Meetings | A-27 | ||||||
SECTION 5.2 | Letters of the Company’s Accountants | A-29 | ||||||
SECTION 5.3 | Letters of Parent’s Accountants | A-29 | ||||||
SECTION 5.4 | Access to Information; Confidentiality | A-29 | ||||||
SECTION 5.5 | Reasonable Best Efforts | A-30 | ||||||
SECTION 5.6 | Company Stock Options; Stock Plans | A-31 | ||||||
SECTION 5.7 | Indemnification | A-32 | ||||||
SECTION 5.8 | Public Announcements | A-33 | ||||||
SECTION 5.9 | Affiliates | A-33 | ||||||
SECTION 5.10 | NYSE Listing | A-33 | ||||||
SECTION 5.11 | Stockholder Litigation | A-34 | ||||||
SECTION 5.12 | Tax Treatment | A-34 | ||||||
SECTION 5.13 | Section 16(b) | A-34 | ||||||
SECTION 5.14 | Employee Benefit Matters | A-34 | ||||||
SECTION 5.15 | Parent Board | A-35 | ||||||
SECTION 5.16 | Dividends | A-35 | ||||||
SECTION 5.17 | St. Louis Operations and Community Involvement | A-35 | ||||||
ARTICLE VI | CONDITIONS PRECEDENT | A-36 | ||||||
SECTION 6.1 | Conditions to Each Party’s Obligation to Effect the Merger | A-36 | ||||||
SECTION 6.2 | Conditions to Obligations of Parent and Merger Sub | A-36 | ||||||
SECTION 6.3 | Conditions to Obligations of the Company | A-37 | ||||||
SECTION 6.4 | Frustration of Closing Conditions | A-37 | ||||||
ARTICLE VII | TERMINATION | A-38 | ||||||
SECTION 7.1 | Termination | A-38 | ||||||
SECTION 7.2 | Effect of Termination | A-39 | ||||||
SECTION 7.3 | Fees and Expenses | A-39 | ||||||
ARTICLE VIII | GENERAL PROVISIONS | A-40 | ||||||
SECTION 8.1 | Nonsurvival of Representations and Warranties | A-40 | ||||||
SECTION 8.2 | Notices | A-40 | ||||||
SECTION 8.3 | Interpretation | A-41 | ||||||
SECTION 8.4 | Counterparts | A-42 | ||||||
SECTION 8.5 | Entire Agreement; No Third-Party Beneficiaries | A-42 | ||||||
SECTION 8.6 | Governing Law | A-42 | ||||||
SECTION 8.7 | Assignment | A-43 | ||||||
SECTION 8.8 | Consent to Jurisdiction; Waiver of Jury Trial | A-43 | ||||||
SECTION 8.9 | Specific Enforcement | A-43 | ||||||
SECTION 8.10 | Amendment | A-43 | ||||||
SECTION 8.11 | Extension; Waiver | A-43 | ||||||
SECTION 8.12 | Severability | A-43 | ||||||
EXHIBITS | ||||||||
EXHIBIT A | FORM OF COMPANY AFFILIATE LETTER | A-46 |
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Federated | ||||
Section 3.10 | Employee Benefits | |||
Section 3.11 | Taxes | |||
Section 4.1(b) | Conduct of Business by Parent | |||
May | ||||
Section 3.2 | Subsidiaries | |||
Section 3.5 | Non-contravention; Consents and Approvals | |||
Section 3.6 | SEC Reports and Financial Statements | |||
Section 3.8 | Absence of Certain Changes or Events | |||
Section 3.10 | Employee Benefit Plans | |||
Section 3.11 | Taxes | |||
Section 4.1 | Conduct of the Business of Company | |||
Schedule 5.14(d) | Compensation and Benefit Matters |
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Term | Page | |||
1992 EEIP | A-15 | |||
1995 EEIP | A-15 | |||
Adjusted Option | A-31 | |||
Adjustment Event | A-13 | |||
affiliate | A-41 | |||
Agreement | A-8 | |||
Antitrust Division | A-30 | |||
Antitrust Filings | A-30 | |||
Average Closing Price | A-12 | |||
Benefit Plans | A-18 | |||
Benefits Maintenance Period | A-34 | |||
Business Day | A-8 | |||
Cash Consideration | A-10 | |||
Certificate of Merger | A-9 | |||
Closing | A-8 | |||
Closing Date | A-8 | |||
Code | A-8 | |||
Company | A-8 | |||
Company Adverse Recommendation Change | A-26 | |||
Company Certificate | A-10 | |||
Company Common Stock | A-8 | |||
Company Disclosure Letter | A-13 | |||
Company Employees | A-34 | |||
Company Representatives | A-25 | |||
Company Rights | A-14 | |||
Company Rights Agreement | A-14 | |||
Company Stock Options | A-14 | |||
Company Stock Plans | A-14 | |||
Company Stockholder Approval | A-21 | |||
Company Stockholders Meeting | A-28 | |||
Company Subsidiary | A-22 | |||
Company Takeover Proposal | A-26 | |||
Confidentiality Agreement | A-29 | |||
DCP | A-14 | |||
DGCL | A-8 | |||
Directors DCP | A-14 | |||
Dissenting Shares | A-13 | |||
Dissenting Stockholder | A-13 | |||
EDCP | A-15 | |||
Effective Time | A-9 | |||
Environment | A-20 | |||
Environmental Claim | A-20 |
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Term | Page | |||
Environmental Condition | A-21 | |||
Environmental Laws | A-21 | |||
Environmental Permit | A-21 | |||
ERISA | A-18 | |||
ESOP Preference Shares | A-14 | |||
Exchange Act | A-16 | |||
Exchange Agent | A-10 | |||
Exchange Fund | A-10 | |||
Expenses | A-39 | |||
Foreign Plan | A-18 | |||
Form S-4 | A-17 | |||
FTC | A-30 | |||
GAAP | A-17 | |||
Governmental Entity | A-16 | |||
Hazardous Substance | A-21 | |||
HSR Act | A-16 | |||
HSR Filing | A-30 | |||
IBP | A-15 | |||
Indemnified Parties | A-33 | |||
Joint Proxy Statement | A-16 | |||
Junior Preference Shares | A-14 | |||
knowledge | A-41 | |||
Law | A-41 | |||
Leases | A-41 | |||
Liens | A-41 | |||
material adverse effect | A-41 | |||
Maximum Premium | A-33 | |||
Merger | A-8 | |||
Merger Consideration | A-10 | |||
Merger Sub | A-8 | |||
Multiemployer Plan | A-18 | |||
Notice of Adverse Recommendation | A-26 | |||
Outside Date | A-38 | |||
Parent | A-8 | |||
Parent Adverse Recommendation Change | A-28 | |||
Parent Common Stock | A-8 | |||
Parent Disclosure Letter | A-14 | |||
Parent Stockholder Approval | A-21 | |||
Parent Stockholders Meeting | A-28 | |||
Parent Stock Options | A-15 | |||
Parent Stock Plans | A-15 | |||
Parent Takeover Proposal | A-29 | |||
PCBs | A-21 | |||
Permits | A-17 |
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Term | Page | |||
Permitted Liens | A-42 | |||
person | A-42 | |||
Prior Plan | A-35 | |||
Release | A-21 | |||
Representing Party | A-14 | |||
Representing Party Disclosure Letter | A-14 | |||
Representing Party Entities | A-14 | |||
Representing Party Subsidiaries | A-14 | |||
SEC | A-16 | |||
SEC Documents | A-17 | |||
Securities Act | A-16 | |||
Series A Preferred Stock | A-15 | |||
SERP | A-15 | |||
SIP | A-14 | |||
Stock Consideration | A-9 | |||
subsidiary | A-42 | |||
Successor Plan | A-35 | |||
Superior Proposal | A-26 | |||
Surviving Corporation | A-8 | |||
Takeover Statute | A-21 | |||
Tax Certificates | A-31 | |||
Tax Return | A-20 | |||
Taxes | A-19 | |||
Termination Fee | A-39 | |||
Transferee | A-11 |
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(i) the Merger shall be the merger of Merger Sub with and into the Company; | |
(ii) the Company will be the Surviving Corporation; and | |
(iii) the Cash Consideration shall be $18.75. |
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(a) Merger Sub’s Common Stock. Each share of Merger Sub’s common stock, par value $0.01 per share, outstanding immediately prior to the Effective Time will be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. | |
(b) Cancellation of Treasury Stock and Parent Owned Stock. Each share of Company Common Stock that is owned by the Company, Parent or any direct or indirect majority owned subsidiary of the Company or Parent immediately prior to the Effective Time will automatically be canceled and retired and will cease to exist, and no consideration will be delivered in exchange therefor. | |
(c) Conversion of Company Common Stock. Subject toSection 2.2(e), each issued and outstanding share of Company Common Stock, other than shares of Company Common Stock to be canceled in accordance withSection 2.1(b) and Dissenting Shares, will be converted into the right to receive (i) $17.75 in cash (the“Cash Consideration”) without interest and (ii) 0.3115 fully paid, nonassessable shares of Parent Common Stock (the“Stock Consideration”and, together with the Cash Consideration, the“Merger Consideration”). | |
(d) ESOP Preference Shares. Each issued and outstanding ESOP Preference Share will be converted into the Merger Consideration on an as converted basis in the same manner as shares of Company Common Stock underSection 2.1(c). The Company shall use its reasonable best efforts to comply with the terms of the Certificate of Designation, Preferences and Rights governing the ESOP Preference Shares in order to effect the foregoing. | |
(e) Cancellation of Shares of Company Common Stock. As of the Effective Time, all shares of Company Common Stock shall no longer be outstanding and will automatically be canceled and retired and shall cease to exist, and each holder of a certificate which immediately prior to the Effective Time represented any shares of Company Common Stock (a“Company Certificate”) shall cease to have any rights with respect thereto, except either (i) the rights of Dissenting Shares contemplated inSection 2.4 or (ii) the right to receive the Merger Consideration, certain dividends or other distributions, if any, and cash in lieu of fractional shares of Parent Common Stock to be issued or paid in consideration therefor upon surrender of such Company Certificate, in each case, in accordance with thisArticle II, without interest. |
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(i) As soon as reasonably practicable after the Effective Time, the Exchange Agent will mail to each holder of record of a Company Certificate whose shares of Company Common Stock were converted into the right to receive the Merger Consideration (A) a letter of transmittal (which will specify that delivery will be effected, and risk of loss and title to the Company Certificates will pass, only upon proper delivery of the Company Certificates to the Exchange Agent and will be in such form and have such other provisions as Parent may specify consistent with this Agreement) and (B) instructions for use in effecting the surrender of the Company Certificates in exchange for the Merger Consideration. | |
(ii) After the Effective Time, upon surrender of a Company Certificate for cancellation to the Exchange Agent, together with the letter of transmittal contemplated inSection 2.2(b)(i), duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Company Certificate will be entitled to receive in exchange therefor the Merger Consideration that such holder has the right to receive pursuant to the provisions of this Article II, certain dividends or other distributions, if any, in accordance withSection 2.2(c) and cash in lieu of any fractional share of Parent Common Stock in accordance withSection 2.2(e), and the Company Certificate so surrendered will forthwith be canceled. In the event of a transfer of ownership of shares of Company Common Stock that are not registered in the transfer records of the Company, payment may be issued to a person other than the person in whose name the Company Certificate so surrendered is registered (the“Transferee”), if such Company Certificate is properly endorsed or otherwise in proper form for transfer and the Transferee pays any transfer or other Taxes required by reason of such payment to a person other than the registered holder of such Company Certificate or establishes to the satisfaction of the Exchange Agent that such Tax has been paid or is not applicable. Until surrendered as contemplated by thisSection 2.2(b), each Company Certificate will be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration that the holder thereof has the right to receive in respect of such Company Certificate pursuant to the provisions of this Article II, certain dividends or other distributions, if any, in accordance withSection 2.2(c) and cash in lieu of any fractional share of Parent Common Stock in accordance withSection 2.2(e). No interest will be paid or will accrue on any cash payable to holders of Company Certificates pursuant to the provisions of thisArticle II. |
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(i) No certificates or scrip representing fractional shares of Parent Common Stock will be issued upon the surrender for exchange of Company Certificates, no dividend or distribution of Parent will relate to such fractional share interests and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent. | |
(ii) Notwithstanding any other provision of this Agreement, each holder of shares of Company Common Stock converted pursuant to the Merger who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after taking into account all shares of Company Common Stock held at the Effective Time by such holder) shall receive, in lieu thereof, an amount in cash (without interest), rounded to the nearest cent, equal to the product obtained by multiplying (A) the fractional share interest to which such former holder would otherwise be entitled by (B) the average of the closing prices for a share of Parent Common Stock as reported on the NYSE Composite Transactions Reports (as reported in theWall Street Journal, or, if not reported thereby, any other authoritative source) for the ten trading days prior to, but not including, the Closing Date (the“Average Closing Price”). | |
(iii) As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Company Certificates formerly representing shares of Company Common Stock with respect to any fractional share interests, the Exchange Agent shall make available such amounts to such holders of Company Certificates formerly representing shares of Company Common Stock subject to and in accordance with the terms ofSection 2.2(c). |
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(i) the term“Environment”means soil, surface waters, ground water, land, stream sediment, surface and subsurface strata, ambient air, indoor air or indoor air quality; | |
(ii) the term“Environmental Claim”means any written demand, suit, action, proceeding, order, investigation or notice to any of the Representing Party Entities by any person alleging any potential liability (including potential liability for investigatory costs, risk assessment costs, cleanup costs, removal costs, remedial costs, operation and maintenance costs, governmental response costs, natural resource damages, or penalties) under any Environmental Law; |
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(iii) the term“Environmental Laws”means all Laws relating to (A) pollution or protection of the Environment, (B) emissions, discharges, Releases or threatened Releases of Hazardous Substances, (C) threats to human health or ecological resources arising from exposure to Hazardous Substances, or (D) the manufacture, generation, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Substances; | |
(iv) the term“Hazardous Substance”means any chemical, substance or waste that is regulated under any Environmental Law as toxic, hazardous or radioactive or as a pollutant or a contaminant and any substance that is or contains asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls(“PCBs”), petroleum or petroleum-derived substances or wastes, leaded paints or radon gas; | |
(v) the term“Release”means any releasing, disposing, discharging, injecting, spilling, leaking, pumping, dumping, emitting, escaping, emptying, migration, placing and the like, or otherwise entering into the Environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any Hazardous Substances); | |
(vi) the term“Environmental Condition”means any contamination, damage, injury or other condition related to Hazardous Substances and includes any present or former Hazardous Substance treatment, storage, or disposal or recycling units, underground storage tanks, wastewater treatment or management systems, wetlands, sumps, lagoons, impoundments, landfills, ponds, incinerators, wells, asbestos-containing materials, lead paint or PCB-containing materials. | |
(vii) the term“Environmental Permit”means all Permits and the timely submission of applications for Permits, as required under Environmental Laws. |
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(i) (A) other than (x) dividends and distributions by a direct or indirect wholly owned Company Subsidiary to its parent, (y) regular quarterly cash dividends with respect to Company Common Stock not in excess of $0.245 per share of Company Common Stock and (z) as required under the terms of the ESOP Preference Shares, declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, (B) split, combine or reclassify any of its capital stock or (C) except as required under the terms of the ESOP Preference Shares or pursuant to agreements entered into with respect to the Company Stock Plans that are in effect as of the close of business on the date of this Agreement, purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of the Company Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; |
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(ii) issue or authorize the issuance of, deliver or sell any shares of its capital stock (or any other securities in respect of, in lieu of, or in substitution for, shares of its capital stock), any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, other than the issuance of shares of Company Common Stock and associated Company Rights (A) upon the exercise of the Company Stock Options under the Company Stock Plans or in connection with other awards or issuances of Company Common Stock under the Company Stock Plans or (B) upon the conversion of shares of ESOP Preference Shares, in any such case, outstanding as of the date of this Agreement (or granted hereafter as permitted under this Agreement) and in accordance with their terms as in effect on the date of this Agreement (or, in the case of grants made subsequent to the date of this Agreement, in accordance with their terms as in effect on the date of grant, which terms shall be consistent with past practice); | |
(iii) amend its certificate of incorporation or by-laws (or other comparable organizational documents), other than amendments or changes to any such documents of the Company Subsidiaries in the ordinary course of business; | |
(iv) other than in the ordinary course of business, sell, lease, license, mortgage or otherwise encumber or subject to any Lien (other than Permitted Liens) or otherwise dispose of any of its material properties or material assets; | |
(v) incur any material long-term indebtedness (whether evidenced by a note or other instrument, pursuant to a financing lease, sale-leaseback transaction, or otherwise) or incur material short-term indebtedness other than indebtedness incurred in the ordinary course of business or under lines of credit existing on the date of this Agreement (or any refinancing thereof not to exceed the amount borrowable thereunder); | |
(vi) other than in the ordinary course of business: (A) grant any increase in the compensation or benefits payable or to become payable by the Company or any Company Subsidiary to any current or former director or consultant of the Company or any Company Subsidiary; (B) grant any increase in the compensation or benefits payable or to become payable by the Company or any Company Subsidiary to any officer or employee of the Company or any Company Subsidiary; (C) adopt, enter into, amend or otherwise increase, reprice or accelerate the payment or vesting of the amounts, benefits or rights payable or accrued or to become payable or accrued under any Benefit Plan or Foreign Plan of the Company; (D) enter into or amend any employment, bonus, severance, change in control, retention agreement or any similar agreement or any collective bargaining agreement or, grant any severance, bonus, termination, or retention pay to any officer, director, consultant or employee of the Company or any Company Subsidiaries; or (E) pay or award any pension, retirement, allowance or other non-equity incentive awards, or other employee or director benefit not required by any outstanding Benefit Plan or Foreign Plan of the Company;provided,however, that nothing in this Agreement, including thisSection 4.1(a)(vi) orSection 4.1(a)(ii) shall be construed as preventing the Company from taking any of the actions described inSchedule 5.14(d); | |
(vii) change the accounting principles used by it unless required by GAAP (or, if applicable with respect to foreign subsidiaries, the relevant foreign generally accepted accounting principles) or any Governmental Entity; | |
(viii) acquire by merging or consolidating with, by purchasing any substantial equity interest in or a substantial portion of the assets of, or by any other manner, any significant business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire any assets that are material, individually or in the aggregate, to the Company Entities, taken as a whole, except for (A) the purchase of assets from suppliers or vendors in the ordinary course of business, (B) items reflected in the capital plan of the Company previously made available to Parent and (C) acquisitions of businesses or assets not contemplated in clause (A) or (B) involving consideration up to an aggregate amount not to exceed $50,000,000; |
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(ix) except in the ordinary course of business, make or rescind any material express or deemed election or settle or compromise any material claim or action relating to Taxes, or change any of its methods of accounting or of reporting income or deductions for Tax purposes in any material respect; | |
(x) satisfy any material claims or liabilities, other than in the ordinary course of business or in accordance with their terms; | |
(xi) make any loans, advances or capital contributions to, or investments in, any other person in excess of $25,000,000 in the aggregate, except for (A) loans, advances, capital contributions or investments between any wholly owned Company Subsidiary and the Company or another wholly owned Company Subsidiary, (B) employee advances for expenses in the ordinary course of business or (C) ordinary course proprietary credit card transactions; | |
(xii) other than in the ordinary course of business, (A) terminate or adversely modify or amend any contract having a duration of more than one year and total payment obligations of the Company in excess of $25,000,000 (other than (1) contracts terminable within one year or (2) the renewal, on substantially similar terms, of any contract existing on the date of this Agreement), (B) waive, release, relinquish or assign any right or claim of material value to the Company, or (C) cancel or forgive any material indebtedness owed to the Company or any Company Subsidiary; or | |
(xiii) authorize, commit or agree to take any of the foregoing actions. |
(i) (A) other than (1) dividends and distributions by a direct or indirect wholly owned Parent Subsidiary to its parent and (2) regular quarterly cash dividends with respect to Parent Common Stock, which shall be $0.14 per share of Parent Common Stock, declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock or (B) split, combine or reclassify any of its capital stock or (C) except pursuant to agreements entered into with respect to the Parent Stock Plans that are in effect as of the close of business on the date of this Agreement, purchase, redeem or otherwise acquire any shares of capital stock of Parent or any of the Parent Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; | |
(ii) issue or authorize the issuance of, deliver or sell any shares of its capital stock (or any other securities in respect of, in lieu of, or in substitution for, shares of its capital stock), any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, other than the issuance of shares of Parent Common Stock upon the exercise of the Parent Stock Options under the Parent Stock Plans or in connection with other awards or issuance of Parent Common Stock under the Parent Stock Plans, in any such case, outstanding as of the date of this Agreement (or granted hereafter as permitted under this Agreement) and in accordance with their terms as in effect on the date of this Agreement (or, in the case of grants made subsequent to the date of this Agreement, in accordance with their terms as in effect on the date of grant, which terms shall be consistent with past practice); | |
(iii) amend its certificate of incorporation or by-laws (or other comparable organizational documents), other than amendments or changes to any such documents of the Parent Subsidiaries in the ordinary course of business; |
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(iv) other than in the ordinary course of business, sell, lease, license, mortgage or otherwise encumber or subject to any Lien (other than Parent Permitted Liens) or otherwise dispose of any of its material properties or material assets; | |
(v) change the accounting principles used by it unless required by GAAP (or, if applicable with respect to foreign subsidiaries, the relevant foreign generally accepted accounting principles); or any Governmental Entity; | |
(vi) acquire by merging or consolidating with, by purchasing any substantial equity interest in or a substantial portion of the assets of, or by any other manner, any significant business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire any assets that are material, individually or in the aggregate, to Parent and the Parent Subsidiaries, taken as a whole, except for (A) the purchase of assets from suppliers or vendors in the ordinary course of business, (B) items reflected in the capital plan of Parent previously provided to the Company or (C) acquisitions of businesses or assets not contemplated in clause (A) or (B) involving consideration up to an aggregate amount not to exceed $50,000,000; | |
(vii) except in the ordinary course of business, make or rescind any material express or deemed election or settle or compromise any material claim or action relating to Taxes, or change any of its methods of accounting or of reporting income or deductions for Tax purposes in any material respect; | |
(viii) satisfy any material claims or liabilities, other than in the ordinary course of business or in accordance with their terms; | |
(ix) other than in the ordinary course of business, (A) terminate or adversely modify or amend any contract having a duration of more than one year and total payment obligations of Parent in excess of $25,000,000 (other than (1) contracts terminable within one year or (2) the renewal, on substantially similar terms, of any contract existing on the date of this Agreement), (B) waive, release, relinquish or assign any right or claim of material value to Parent, or (C) cancel or forgive any material indebtedness owed to Parent or any Parent Subsidiary; or | |
(x) authorize, commit or agree to take any of the foregoing actions. |
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(i) The Company shall, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its stockholders (the“Company Stockholders Meeting”) in accordance with applicable Law, the Company’s Amended and Restated Certificate of Incorporation and by-laws for the purpose of obtaining the Company Stockholder Approval and shall, subject toSection 4.2(c), (A) through the Board of Directors of the Company, recommend to its stockholders the approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby and include in the Joint Proxy Statement such recommendation and (B) use its reasonable best efforts to solicit and obtain such approval and adoption. | |
(ii) Parent shall, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its stockholders (the“Parent Stockholders Meeting”) in accordance with applicable Law, Parent’s Second Restated Certificate of Incorporation and by-laws for the purpose of obtaining the Parent Stockholder Approval and shall (A) through the Board of Directors of Parent, recommend to its stockholders the approval of the issuance of Parent Common Stock pursuant to this Agreement and include in the Joint Proxy Statement such recommendation and (B) use its reasonable best efforts to solicit and obtain such approval and (C) not withdraw or modify, or publicly propose to withdraw or modify, the recommendation contemplated by clause (A) (any such action being referred to as a“Parent Adverse Recommendation Change”);provided,however, that, notwithstanding the foregoing, Parent may make a Parent Adverse Recommendation Change if, prior to obtaining the Parent Stockholder Approval, (v) Parent receives a Parent Takeover Proposal, (w) the Board of Directors of |
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Parent shall have determined in good faith, after consultation with outside counsel, that it is necessary for the proper discharge of its fiduciary duties under applicable Law, (x) Parent provides written notice“Notice of Adverse Recommendation”advising the Company that the Board of Directors of Parent has made the determination described in clause (w) above, (y) for a period of three calendar days (at least one of which shall be a Business Day) following the Company’s receipt of such notice, Parent negotiates with the Company in good faith to make such adjustments to the terms and conditions of this Agreement as would enable Parent to proceed with its recommendation of this Agreement and the Merger and not withdraw or modify such recommendation and (z) at the end of such three-day period the Board of Directors of Parent maintains its determination described in clause (w) above (after taking into account such proposed adjustments to the terms and conditions of this Agreement). For purposes of this Agreement“Parent Takeover Proposal”means any bona fide written proposal or offer from any person relating to any (A) direct or indirect acquisition or purchase of a business that constitutes 50% or more of the net revenues, net income or the assets of Parent and the Parent Subsidiaries, taken as a whole, (B) direct or indirect acquisition or purchase of equity securities of Parent representing 50% or more of the combined voting power of Parent, (C) any tender offer or exchange offer that if consummated would result in any person beneficially owning equity securities of Parent representing 50% or more of the combined voting power of Parent, or (D) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Parent. | |
(iii) Each of Parent and the Company agrees to use its reasonable best efforts to hold the Parent Stockholders Meeting and the Company Stockholders Meeting on the same day. |
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(i) assume the terms of all Benefit Plans and Foreign Plans of the Company and honor and pay or provide the benefits required thereunder in accordance with their terms, recognizing that the consummation of the transactions contemplated hereby or approval of this Agreement by the Company’s stockholders, as the case may be, will constitute a “change in control” for purposes of such Benefit Plans that include a definition of “change in control”; | |
(ii) until the first anniversary of the Effective Time, except as may be required by applicable Law, continue the terms of all Benefit Plans and Foreign Plans of the Company in accordance with their terms in effect as of immediately prior to the Effective Time; and | |
(iii) from the first anniversary of the Effective Time until the third anniversary of the Effective Time (the“Benefits Maintenance Period”), with respect to employees of the Company and the Company Subsidiaries as of the Effective Time (collectively, the“Company Employees”) (other than those subject to collective bargaining obligations or agreements), (x) provide a level of aggregate employee benefits and compensation (excluding equity based awards), taking into account all Benefit Plans of the Company and other programs sponsored or maintained by the Company and the Company Subsidiaries (other than equity based plans) immediately prior to the Effective Time (including amendments thereto that are permitted or contemplated by this Agreement, including those described onSchedule 5.14(d)), that is substantially comparable in the aggregate to the aggregate employee benefits |
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and compensation provided, with respect to service to the Company or any of the Company Subsidiaries, to Company Employees immediately prior to the Effective Time and (y) consider Company Employees for equity based award grants on the same basis that similarly situated employees of Parent are considered for such grants. |
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(a) Stockholder Approvals. Each of the Company Stockholder Approval and the Parent Stockholder Approval shall have been obtained. | |
(b) No Orders or Injunctions. None of the parties hereto shall be subject to any order or injunction of any Governmental Entity of competent jurisdiction that prohibits the consummation of the Merger; provided, however, that prior to asserting this condition, each of the parties shall have used its reasonable best efforts to prevent the entry of any such order or injunction and to appeal as promptly as possible any such order or injunction that may be entered. | |
(c) Form S-4. The Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order. | |
(d) HSR. The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. | |
(e) NYSE Listing. The shares of Parent Common Stock issuable to the Company’s stockholders as contemplated by this Agreement must shall have been approved for listing on the NYSE, subject to official notice of issuance. |
(a) Representations and Warranties. The representations and warranties of the Company set forth herein shall be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained therein) both when made and at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on the Company. | |
(b) Performance of Obligations of the Company. The Company shall have performed (i) in all material respects all of its obligations (other than pursuant toSection 4.1(a)) required to be performed by it under this Agreement at or prior to the Closing Date and (ii) in all respects all of its obligations required to be performed by it underSection 4.1(a) at or prior to the Closing Date, except where the failure to perform such obligations would not reasonably be expected to have or result in, individually or |
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in the aggregate, a material adverse effect on the Company. Notwithstanding the foregoing, the delivery of the comfort letters by Deloitte & Touche contemplated bySection 5.2 is not a condition to Parent’s obligation to effect the Merger. | |
(c) Officer’s Certificate. The Company shall have furnished Parent with a certificate dated the Closing Date signed on its behalf by an executive officer to the effect that the conditions set forth inSections 6.2(a) and6.2(b) have been satisfied. | |
(d) Tax Opinion. Parent shall have received from Jones Day, counsel to Parent, an opinion dated as of the Closing Date, to the effect that the Merger will constitute a “reorganization” within the meaning of Section 368(a) of the Code, and Parent and the Company will each be a party to such reorganization within the meaning of Section 368(b) of the Code. In rendering such opinion, counsel for Parent may require delivery of, and rely upon, the Tax Certificates. |
(a) Representations and Warranties. The representations and warranties of Parent and Merger Sub set forth herein shall be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained therein) both when made and at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on Parent and Merger Sub. | |
(b) Performance of Obligations of Parent and Merger Sub. Each of Parent and Merger Sub shall have performed (i) in all material respects all obligations (other than pursuant toSection 4.1(b)) required to be performed by it under this Agreement at or prior to the Closing Date and (ii) in all respects all of its obligations required to be performed by it underSection 4.1(b) at or prior to the Closing Date, except where the failure to perform such obligations would not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on Parent. Notwithstanding the foregoing, the delivery of the comfort letters by KPMG contemplated bySection 5.3 is not a condition to the Company’s obligation to effect the Merger. | |
(c) Officer’s Certificate. Each of Parent and Merger Sub shall have furnished the Company with a certificate dated the Closing Date signed on its behalf by an executive officer to the effect that the conditions set forth inSections 6.3(a) and6.3(b) have been satisfied. | |
(d) Tax Opinion. The Company shall have received from Skadden, Arps, Slate, Meagher, & Flom LLP, counsel to the Company, an opinion dated as of the Closing Date, to the effect that the Merger will constitute a “reorganization” within the meaning of Section 368(a) of the Code, and Parent and the Company will each be a party to such reorganization within the meaning of Section 368(b) of the Code. In rendering such opinion, counsel for the Company may require delivery of, and rely upon, the Tax Certificates. |
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(i) if the Merger has not been consummated by October 3, 2005, or such later date, if any, as Parent and the Company agree upon in writing (as such date may be extended, the“Outside Date”);provided,however, that the right to terminate this Agreement pursuant to thisSection 7.1(b)(i) is not available to any party whose breach of any provision of this Agreement results in or causes the failure of the Merger to be consummated by such time;provided further,however, that if on the Outside Date the conditions to the Closing set forth inSections 6.1(b) or6.1(d) shall not have been fulfilled (andSection 7.1(b)(iv) is not applicable) but all other conditions to the Closing either have been fulfilled or are then capable of being fulfilled, then the Outside Date shall, without any action on the part of the parties hereto, be extended to August 31, 2006, and such date shall become the Outside Date for purposes of this Agreement; | |
(ii) if the Company Stockholders Meeting (including any adjournment or postponement thereof) has concluded, the Company’s stockholders have voted and the Company Stockholder Approval was not obtained; or | |
(iii) if the Parent Stockholders Meeting (including any adjournment or postponement thereof) has concluded, Parent’s stockholders have voted and the Parent Stockholder Approval was not obtained; or | |
(iv) if any Governmental Entity of competent jurisdiction issues an order or injunction that permanently prohibits the Merger and such order or injunction has become final and non-appealable;provided,however, that the right to terminate this Agreement pursuant to thisSection 7.1(b)(iv) is not available to any party whose breach of any provision of this Agreement results in or causes such order or injunction or who has not used its reasonable best efforts to prevent the entry of such order or injunction or to appeal or lift such order or injunction. |
(i) if the Company (A) has breached or failed to perform any of its covenants or other agreements contained in this Agreement to be complied with by the Company such that the closing condition set forth inSection 6.2(b) would not be satisfied or (B) there exists a breach of any representation or warranty of the Company contained in this Agreement such that the closing condition set forth inSection 6.2(a) would not be satisfied and, in the case of both (A) and (B), such breach or failure to perform (1) is not cured within 60 days after receipt of written notice thereof or (2) is incapable of being cured by the Company by the Outside Date; or | |
(ii) if the Board of Directors of the Company or any committee thereof has made a Company Adverse Recommendation Change. |
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(i) if either Parent or Merger Sub (A) has breached or failed to perform any of its covenants or other agreements contained in this Agreement to be complied with by Parent or Merger Sub such that the closing condition set forth inSection 6.3(b) would not be satisfied, or (B) there exists a breach of any representation or warranty of Parent or Merger Sub contained in this Agreement such that the closing condition set forth inSection 6.3(a) would not be satisfied and, in the case of both (A) and (B), such breach or failure to perform (1) is not cured within 60 days after receipt of written notice thereof or (2) is incapable of being cured by Parent by the Outside Date; | |
(ii) if, prior to receipt of the Company Stockholder Approval, the Company (A) receives a Superior Proposal, (B) shall have given Parent a Notice of Adverse Recommendation, and (C) shall have thereafter satisfied the conditions for making a Company Adverse Recommendation Change in accordance withSection 4.2(c);provided,however, that such termination shall not be effective until such time as payment of the Termination Fee required bySection 7.3(b) shall have been made by the Company;provided further,however, that the Company’s right to terminate this Agreement under thisSection 7.1(d)(ii) shall not be available if the Company is then in material breach ofSection 4.2; | |
(iii) if the Board of Directors of Parent or any committee thereof has made a Parent Adverse Recommendation Change. |
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The May Department Stores Company | |
611 Olive Street | |
St. Louis, Missouri 63101 | |
Telecopy No.: (314) 342-3040 | |
Attention: Alan Charlson |
Skadden, Arps, Slate, Meagher, & Flom LLP | |
Four Times Square | |
New York, New York 10036-6522 | |
Telecopy No.: (212) 735-2000 | |
Attention: J. Michael Schell, Esq. | |
Margaret L. Wolff, Esq. |
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Federated Departments Stores, Inc. | |
7 West Seventh Street | |
Cincinnati, Ohio 45202 | |
Telecopy No.: (513) 579-7354 | |
Attention: Dennis Broderick |
Jones Day | |
North Point | |
901 Lakeside Avenue | |
Cleveland, Ohio 44114 | |
Telecopy No.: (216) 579-0212 | |
Attention: Lyle G. Ganske |
(a) “affiliate”of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person, where “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract or otherwise; | |
(b) “knowledge”of any person that is not a natural person means the actual knowledge of such person’s executive officers; | |
(c) “Law”means any foreign, federal, state or local law, statute, code, ordinance, regulation, legally binding rule or other legally enforceable obligation imposed by a court or other Governmental Entity; | |
(d) “Leases”means all leases of real property leased by the Company or any of its subsidiaries; | |
(e) “Liens”means all pledges, claims, liens, options, charges, mortgages, easements, restrictions, covenants, conditions of record, encroachments, encumbrances and security interests of any kind or nature whatsoever; | |
(f) “material adverse change”or“material adverse effect”means, when used in connection with the Company or Parent (including references to the “Representing Party”), as the case may be, any change, effect, event, occurrence or state of facts that is, or would reasonably be expected to be, materially |
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adverse to the business, financial condition, or results of operations of such party and its subsidiaries taken as a whole, other than any changes, effects, events, occurrences or state of facts relating to (i) the economy or financial markets in general, (ii) the industry in which such party and its subsidiaries operate in general, (iii) negotiation and entry into this Agreement, the announcement of this Agreement or the undertaking and performance or observance of the obligations contemplated by this Agreement or necessary to consummate the transactions contemplated hereby (including adverse effects on results of operations attributable to the uncertainties associated with the period between the date hereof and the Closing Date), (iv) the effect of incurring and paying Expenses in connection with negotiating, entering into, performing and consummating the transactions contemplated by this Agreement, (v) changes in applicable Laws after the date hereof and (vi) changes in GAAP after the date hereof;provided, that with respect to clauses (i) and (ii) such changes, effects, events, occurrences or state of facts do not disproportionately affect such persons relative to the other participants in the industries in which such persons operate;provided,further, that, for the avoidance of doubt, compliance with (and the consequences thereof) the terms of this Agreement (includingSection 5.5) shall not be taken into account in determining whether a material adverse change or material adverse effect shall have occurred or shall be expected to occur for any and all purposes of this Agreement; andprovided,further, that it is understood and agreed that the terms “material” and “materially” have correlative meanings; | |
(g) “Permitted Liens”means (i) mechanics’, carriers’, workmen’s, repairmen’s or other like Liens arising or incurred in the ordinary course of business relating to obligations that are not delinquent or that are being contested in good faith by the relevant party or any subsidiary of it and for which the relevant party or a subsidiary of it has established adequate reserves, (ii) Liens for Taxes that are not due and payable, that are being contested in good faith by appropriate proceedings or that may thereafter be paid without interest or penalty, (iii) Liens that are reflected as liabilities on the balance sheet of the relevant party and its consolidated subsidiaries as of October 30, 2004, contained in its SEC Documents or the existence of which is referred to in the notes to such balance sheet and (iv) Liens that, individually or in the aggregate, do not materially impair, and would not reasonably be expected materially to impair, the value or the continued use and operation of the assets to which they relate; | |
(h) “person”means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Entity or other entity (including its permitted successors and assigns); and | |
(i) a“subsidiary”of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interest of which) is owned directly or indirectly by such first person. |
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THE MAY DEPARTMENT STORES COMPANY |
By: | /s/ John L. Dunham |
Name: John L. Dunham |
Title: | President and Acting Chairman and CEO |
FEDERATED DEPARTMENT STORES, INC. |
By: | /s/ Terry J. Lundgren |
Name: Terry J. Lundgren |
Title: | Chairman, President and CEO |
MILAN ACQUISITION CORP. |
By: | /s/ Dennis J. Broderick |
Name: Dennis J. Broderick |
Title: | Senior Vice President and Secretary |
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Very truly yours, | |
[Name] | |
Agreed to and accepted | |
Federated Department Stores, Inc. |
By: |
Name: | |
Title: |
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Very truly yours, | |
[Name] |
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i) reviewed certain publicly available financial statements and other business and financial information of the Company and Federated, respectively; | |
ii) reviewed certain internal financial statements and other financial and operating data concerning the Company prepared by the management of the Company; | |
iii) reviewed certain financial projections prepared by the management of the Company; | |
iv) discussed the past and current operations and financial condition and the prospects of the Company, with senior executives of the Company; | |
v) discussed the past and current operations and financial condition and the prospects of Federated, with senior executives of Federated; | |
vi) discussed certain limited financial projections for Federated with the management of Federated; | |
vii) discussed limited pro forma financial projections, including information relating to strategic, financial and operational benefits and issues anticipated from the Merger, with senior executives of Federated; | |
viii) discussed the strategic rationale of the Merger with the management of May and Federated; | |
ix) reviewed the pro forma impact of the Merger on Federated’s publicly available operating statistics, consolidated capitalization and financial ratios; | |
x) reviewed the reported prices and trading activity for Company Common Stock and Federated Common Stock; |
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xi) compared the financial performance of the Company and Federated and the prices and trading activity of the Company Common Stock and Federated Common Stock with that of certain other comparable publicly-traded companies and their securities; | |
xii) reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; | |
xiii) participated in discussions and negotiations among representatives of the Company, Federated and their financial and legal advisors; | |
xiv) reviewed the draft Merger Agreement, dated February 27, 2005 and certain related documents; and | |
xv) considered such other factors and performed such other analyses as we have deemed appropriate. |
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Very truly yours, | |
MORGAN STANLEY & CO. INCORPORATED |
By: | /s/ Mark D. Eichorn |
Mark D. Eichorn | |
Managing Director |
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(i) reviewed certain publicly available financial statements and other information of May and Federated; | |
(ii) reviewed certain internal financial statements and other financial and operating data concerning May prepared by the management of May; | |
(iii) reviewed certain financial projections for May prepared by the management of May; | |
(iv) reviewed financial forecasts and estimates for Federated prepared by independent research analysts contained in publicly available research reports regarding the future financial performance of Federated and discussed such forecasts and estimates with the management of Federated; | |
(v) discussed the past and current operations, financial condition and prospects of May with the management of May; | |
(vi) discussed the past and current operations, financial condition and prospects of Federated, including information relating to certain strategic, financial and operational benefits anticipated from the Merger, with the management of Federated; | |
(vii) reviewed the reported prices and trading activity of May Common Stock and Federated Common Stock; | |
(viii) compared the financial performance and condition of May and Federated and the reported prices and trading activity of May Common Stock and Federated Common Stock with that of certain other comparable publicly traded companies; | |
(ix) reviewed publicly available information regarding the financial terms of certain transactions comparable, in whole or in part, to the Merger; | |
(x) reviewed the draft Agreement dated as of February 25, 2005; and | |
(xi) performed such other analyses as we have deemed appropriate. |
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Very truly yours, | |
PETER J. SOLOMON COMPANY, L.P. | |
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ANNEX D |
PERSONAL AND CONFIDENTIAL | |
February 27, 2005 | |
Board of Directors | |
Federated Department Stores, Inc. | |
7 West Seventh Street | |
Cincinnati, OH 45202 | |
Ladies and Gentlemen: |
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Very truly yours, | |
/s/GOLDMAN, SACHS & CO. | |
(GOLDMAN, SACHS & CO.) |
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(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of § 251 of this title. | |
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: |
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; | |
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; | |
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or | |
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. |
(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. |
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(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder’s shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or | |
(2) If the merger or consolidation was approved pursuant to § 228 or § 253 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder’s shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. |
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A. | Independence Standards |
B. | Rules of Application |
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I. | Authority to Approve Non-Audit Services |
1. the aggregate amount of any such Permitted NAS constitutes no more than five percent (5%) of the total revenues paid by Federated to its auditors during the fiscal year in which the Permitted NAS are provided; | |
2. the Permitted NAS were not recognized at the time of the auditor’s engagement to be a Permitted NAS (i.e., either a service indicated as an audit service at the time of the engagement evolves over the course of the engagement to become a non-audit service, or a non-audit service not contemplated at all at the time of the engagement is preformed by the outside auditor after the engagement is approved); and | |
3. the Permitted NAS are promptly brought to the attention of the Committee (or its delegee) by management and approved prior to the completion of the audit. |
II. | Disclosure of Permitted Non-Audit Services in Outside Auditor’s Engagement Letter |
• | Whether the service is being performed principally for the Audit Review Committee; | |
• | The effects of the service, if any, on audit effectiveness or on the quality and timeliness of Federated’s financial reporting process; |
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• | Whether the service would be performed by specialists (e.g., technology specialists) who ordinarily also provide recurring audit support; | |
• | Whether the service would be performed by outside audit personnel and, if so, whether it will enhance their knowledge of Federated’s business and operations; | |
• | Whether the role of those performing the service (e.g., a role where neutrality, impartiality and auditor skepticism are likely to be subverted) would be inconsistent with the outside auditor’s role; | |
• | Whether the outside audit firm’s personnel would be assuming a management role or creating a mutuality of interest with Federated’s management; | |
• | Whether the outside auditors, in effect, would be auditing their own numbers; | |
• | Whether the project must be started and completed very quickly; | |
• | Whether the outside audit firm has unique expertise in the service; | |
• | Whether the service entails the outside auditor serving in an advocacy role for Federated; and | |
• | The size of the fee(s) for the non-audit service(s). |
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• | Go towww.proxyvote.com. | |
• | Have this proxy card in hand. | |
• | Follow the simple instructions. |
• | Using a touch-tone telephone, dial1-800-690-6903. | |
• | Have this proxy card in hand. | |
• | Follow the simple recorded instructions. |
• | Mark and sign the proxy card below. | |
• | Detach the proxy card. | |
• | Return the proxy card in the postage-paid envelope provided. |
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Proposal 2 — Election of Directors. The nominees are: (1) Marsha J. Evans | For All / / | Withhold All / / | For All Except / / | To withhold authority to vote for a nominee(s), mark “For All Except” and write in the nominee’s number on the line below. | ||||||||||||
(2) David B. Rickard | ||||||||||||||||
(3) Joyce M. Roché | ||||||||||||||||
(4) R. Dean Wolfe | ||||||||||||||||
Proposal 1:Approve and adopt the Agreement and Plan of Merger, dated as of February 27, 2005, by and among The May Department Stores Company, Federated Department Stores, Inc. and Milan Acquisition LLC, a wholly owned subsidiary of Federated Department Stores, Inc., and the transactions contemplated by the merger agreement, including the merger. | For / / | Against / / | Abstain / / | |||||||||||||
Proposal 3:Adopt an amendment to May’s Certificate of Incorporation to provide for annual election of directors. | / / | / / | / / | |||||||||||||
Proposal 4:Ratification of the appointment of independent registered public accounting firm. | / / | / / | / / | |||||||||||||
Proposal 5:Approve adjournments or postponements of the May annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the May annual meeting to approve the above proposals. | / / | / / | / / |
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• | FOR election of all listed director nominees, and | |
• | FOR proposals (1), (3), (4) and (5) | |
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• | Go towww.proxyvote.com. | |
• | Have this voting instruction card in hand. | |
• | Follow the simple instructions. |
• | Using a touch-tone telephone, dial 1-800-690-6903. | |
• | Have this voting instruction card in hand. | |
• | Follow the simple recorded instructions. |
• | Mark and sign the voting instruction card below. | |
• | Detach the voting instruction card. | |
• | Return the voting instruction card in the postage-paid envelope provided. |
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Proposal 2 — Election of Directors. The nominees are: (1) Marsha J. Evans | For All / / | Withhold All / / | For All Except / / | To withhold authority to vote for a nominee(s), mark “For All Except” and write in the nominee’s number on the line below. | ||||||||||||
(2) David B. Rickard | ||||||||||||||||
(3) Joyce M. Roché | ||||||||||||||||
(4) R. Dean Wolfe | ||||||||||||||||
Proposal 1:Approve and adopt the Agreement and Plan of Merger, dated as of February 27, 2005, by and among The May Department Stores Company, Federated Department Stores, Inc. and Milan Acquisition LLC, a wholly owned subsidiary of Federated Department Stores, Inc., and the transactions contemplated by the merger agreement, including the merger. | For / / | Against / / | Abstain / / | |||||||||||||
Proposal 3:Adopt an amendment to May’s Certificate of Incorporation to provide for annual election of directors. | / / | / / | / / | |||||||||||||
Proposal 4:Ratification of the appointment of independent registered public accounting firm. | / / | / / | / / | |||||||||||||
Proposal 5:Approve adjournments or postponements of the May annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the May annual meeting to approve the above proposals. | / / | / / | / / |
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• | FOR election of all listed director nominees, and | |
• | FOR proposals (1), (3), (4) and (5) | |
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• By Telephone(using a touch-tone phone) | • Through the Internet(using a browser) | • By Mail(traditional method) |
• | On a touch tone telephone, callTOLL FREE 877-381-4019, 24 hours a day, 7 days a week. | |
• | EnterONLYthe Control Number shown below. | |
• | Have your proxy card ready, then follow the instructions. | |
• | Your vote will be confirmed and cast as you directed. | |
• | The deadline for casting your vote is 5:00 p.m., Eastern Daylight Savings Time on [ ]. | |
• | Visit our Internet voting website at http://proxy.georgeson.com and have your proxy card ready. | |
• | Enter Federated’s Company NumberANDthe Control Number shown below and follow the instructions on your screen. | |
• | You will incur only your usual Internet charges. | |
• | The deadline for casting your vote is 5:00 p.m., Eastern Daylight Savings Time on [ ]. | |
• | Simply mark, sign and date your proxy card and return it in the postage-paid envelope. | |
• | Federated must receive your executed proxy card by 5:00 p.m., Eastern Daylight Savings Time, on [ ]. | |
• | If you are voting by telephone or the Internet, please do not mail your proxy card. |
COMPANY NUMBER | CONTROL NUMBER |
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FORall nominees | o | WITHHOLD AUTHORITYto vote | o | |||
*EXCEPTIONS | o | |||||
listed below | for all nominees listed below. |
Dated: | , 2005 | |||||
Signature of Stockholder | ||||||
Signature of Stockholder |
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• By Telephone(using a touch-tone phone) | • Through the Internet(using a browser) | • By Mail(traditional method) |
• | On a touch tone telephone, callTOLL FREE 877-381-4019, 24 hours a day, 7 days a week. | |
• | EnterONLYthe Control Number shown below. | |
• | Have your proxy card ready, then follow the instructions. | |
• | Your vote will be confirmed and cast as you directed. | |
• | The deadline for casting your vote is 5:00 p.m., Eastern Daylight Savings Time on [ ]. | |
• | Visit our Internet voting website at http://www.fds.com/vote and have your proxy card ready. | |
• | Enter Federated’s Company NumberANDthe Control Number shown below and follow the instructions on your screen. | |
• | You will incur only your usual Internet charges. | |
• | The deadline for casting your vote is 5:00 p.m., Eastern Daylight Savings Time on [ ]. | |
• | Simply mark, sign and date your proxy card and return it in the postage-paid envelope. | |
• | Federated must receive your executed proxy card by 5:00 p.m., Eastern Daylight Savings Time, on [ ]. | |
• | If you are voting by telephone or the Internet, please do not mail your proxy card. |
COMPANY NUMBER | CONTROL NUMBER |
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FORall nominees | o | WITHHOLD AUTHORITYto vote | o | |||
*EXCEPTIONS | o | |||||
listed below | for all nominees listed below. |
Dated: | , 2005 | |||||
Signature of Participant |
3. The tabulator is: | Georgeson Shareholders Communications, Inc. c/o Proxyco P.O. Box 1100 New York, NY 10269-0224 |
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To: | J.P. Morgan Chase Bank, as Trustee for the Federated Department Stores, Inc. |
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Item 20. | Indemnification of Directors and Officers. |
Item 21. | Exhibits and Financial Statement Schedules. |
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Item 22. | Undertakings. |
(a) | (1) | The undersigned registrant hereby undertakes to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. | ||
(2) | The undersigned registrant hereby undertakes that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof. | |||
(3) | The undersigned registrant hereby undertakes to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | |||
(b) | The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof. | |||
(g) | (1) | The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. | ||
(2) | The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof. | |||
(h) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. |
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FEDERATED DEPARTMENT STORES, INC. | |
(Registrant) |
By: | /s/ Dennis J. Broderick |
Dennis J. Broderick | |
Senior Vice President, General Counsel and | |
Secretary | |
Signature | Title | Date | ||||
* | Chairman, President and Chief Executive Officer, and Director (Principal Executive Officer) | May 10, 2005 | ||||
* | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | May 10, 2005 | ||||
* | Vice President and Controller (Principal Accounting Officer) | May 10, 2005 | ||||
* | Director | May 10, 2005 | ||||
* | Director | May 10, 2005 | ||||
Director | , 2005 | |||||
* | Director | May 10, 2005 | ||||
* | Director | May 10, 2005 | ||||
* | Director | May 10, 2005 | ||||
* | Director | May 10, 2005 |
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Signature | Title | Date | ||||
| Director | , 2005 | ||||
Director | , 2005 |
* | The undersigned, by signing his name hereto, does sign and execute this Amendment No. 1 pursuant to the Powers of Attorney executed by the above-named persons. |
By: | /s/ Dennis J. Broderick Attorney-in-fact |
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Exhibit | ||||
No. | Exhibit Description | |||
2 | .1 | Agreement and Plan of Merger, dated as of February 27, 2005, by and among Federated, May and Merger Sub (included as Annex A to the joint proxy statement/ prospectus forming a part of this registration statement). The registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. A list identifying the contents of the omitted schedules is included in the table of contents to Annex A. | ||
5 | .1 | Opinion of Dennis J. Broderick, Senior Vice President, General Counsel and Secretary of Federated, regarding the validity of the Federated common shares being registered hereby. | ||
8 | .1 | Form of Opinion of Jones Day regarding certain U.S. federal income tax aspects of the merger. | ||
8 | .2 | Form of Opinion of Skadden, Arps, Slate, Meagher & Flom regarding certain U.S. federal income tax aspects of the merger. | ||
23 | .1 | Consent of KPMG LLP, independent registered public accounting firm for Federated. | ||
23 | .2 | Consent of Deloitte & Touche, LLP, independent registered public accounting firm for May. | ||
23 | .3 | Consent of Dennis J. Broderick (included in Exhibit 5.1 and incorporated herein by reference). | ||
23 | .4 | Consent of Jones Day (included as part of its opinion filed as Exhibit 8.1). | ||
23 | .5 | Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of its opinion filed as Exhibit 8.2). | ||
24 | .1† | Power of Attorney of directors and officers of Federated (included in the signature page to this registration statement filed on March 30, 2005). | ||
99 | .1 | Opinion of Morgan Stanley & Co. Incorporated (included as Annex B to the joint proxy statement/ prospectus forming a part of this registration statement). | ||
99 | .2 | Opinion of Peter J. Solomon Company, L.P. (included as Annex C to the joint proxy statement/ prospectus forming a part of this registration statement). | ||
99 | .3 | Opinion of Goldman, Sachs & Co. (included as Annex D to the joint proxy statement/ prospectus forming a part of this registration statement). | ||
99 | .4 | Consent of Morgan Stanley & Co. Incorporated. | ||
99 | .5 | Consent of Peter J. Solomon Company, L.P. | ||
99 | .6 | Consent of Goldman, Sachs & Co. |
† | Previously filed. |
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