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<SEC-DOCUMENT>/in/edgar/work/20000612/0000006885-00-000027/0000006885-00-000027.txt : 20000919
<SEC-HEADER>0000006885-00-000027.hdr.sgml : 20000919
ACCESSION NUMBER: 0000006885-00-000027
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 18
CONFORMED PERIOD OF REPORT: 20000129
FILED AS OF DATE: 20000612
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: STAGE STORES INC
CENTRAL INDEX KEY: 0000006885
STANDARD INDUSTRIAL CLASSIFICATION: [5311
] IRS NUMBER: 760407711
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0130
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-14035
FILM NUMBER: 652958
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 10201 MAIN ST
CITY: HOUSTON
STATE: TX
ZIP: 77025
BUSINESS PHONE: 7136675601
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: 10201 MAIN STREET
CITY: HOUSTON
STATE: TX
ZIP: 77025
</MAIL-ADDRESS>
FORMER COMPANY:
FORMER CONFORMED NAME: APPAREL RETAILERS INC
DATE OF NAME CHANGE: 19930908
</FORMER-COMPANY>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<TEXT>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 001-14035
Stage Stores, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0407711
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
10201 MAIN STREET, HOUSTON, 77025
TEXAS (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (800)
579-2302
Securities registered pursuant to Section 12(b) of the
Act: NONE
Securities registered pursuant
to Section 12(g) of the Act:
Name of each exchange on which
Title of each class registered
Common Stock ($0.01 par value) New York Stock Exchange
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes No X
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held
by non-affiliates as of May 30, 2000 was $3,768,436.
At May 30, 2000, there were 26,850,223 shares of Common
Stock and 1,250,584 shares of Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
References to a particular year are to the Company's fiscal
year which is the 52 or 53 week period ending on the Saturday
closest to January 31 of the following calendar year (e.g., a
reference to "1999" is a reference to the fiscal year ended
January 29, 2000).
ITEM 1. BUSINESS
Recent Developments
As a result of the Company's poor financial performance,
lack of adequate trade support to fund its inventory working
capital requirements, lack of sufficient financial flexibility
and liquidity, and violations under certain covenants under its
various debt agreements, the Company filed for protection under
Chapter 11 of Title 11 of the United States Bankruptcy Code
("Chapter 11") on June 1, 2000 in the United States Bankruptcy
Court for the Southern District of Texas ( the "Court"). The
Company has negotiated a $450.0 million debtor-in-possession
financing agreement (the "DIP Financing") with a lender to
finance the Company's working capital requirements during Chapter
11 reorganization proceedings. On June 2, 2000, the Court
approved among other things, the proposed DIP Financing subject
to certain conditions. Under the Court's Interim Order, the Court
limited the amount available under the DIP Financing to $385.0
million pending a Final Order. Proceeds under the DIP Financing
will be used to retire the Company's existing Accounts
Receivable Program and Senior Revolving Credit Facility (defined
herein) and for general working capital purposes.
Under Chapter 11, the Company will operate its business as
debtor-in-possession, subject to the approval of the Bankruptcy
Court for certain proposed actions. Additionally, one or more
creditor committees will be formed and would have the right to
review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
General
Stage Stores, Inc. (the "Company" or "Stage Stores")
operates family apparel stores offering moderately priced,
nationally recognized brand name apparel, accessories, cosmetics
and footwear in approximately 500 small towns and communities
throughout the United States. Stage Stores was formed in 1988
when the management of Palais Royal, together with several
venture capital firms, acquired the family-owned Bealls and
Palais Royal chains which were originally founded in the 1920's.
The Company has developed a franchise focused on small markets
offering a broad range of brand name merchandise with a high
level of customer service in convenient locations.
As a result of its small market focus, Stage Stores
generally faces less competition for brand name apparel because
consumers in small markets generally are able to shop for branded
merchandise only in regional malls. In those small markets where
the Company does compete for brand name apparel sales, such
competition generally comes from local retailers, small regional
chains and, to a lesser extent, national department stores. The
Company believes it has a competitive advantage over local
retailers and smaller regional chains due to its: (i) economies
of scale, (ii) historically good vendor relationships and (iii)
proprietary credit card program. The Company believes it has a
competitive advantage in small markets over national department
stores due to its experience with smaller markets. In addition,
due to minimal merchandise overlap, Stage Stores generally does
not directly compete for branded apparel sales with national
discounters such as Wal-Mart.
At January 29, 2000, the Company, through its wholly-owned
subsidiary Specialty Retailers, Inc. ("SRI"), operated 648 stores
(averaging approximately 16,000 selling square feet) in thirty-
three states throughout the United States. Although the Company's
stores may be operated under its "Stage", "Bealls" and "Palais
Royal" trade names depending on the geographical market, the
Company operates the vast majority of the stores under one
concept and strategy. Approximately 70% of these stores are
located in small markets and communities with populations at or
below 30,000. The remainder of the Company's stores operate in
metropolitan areas, such as Houston, Texas.
The Company's merchandising strategy focuses on the
traditionally higher margin categories of women's, men's and
children's branded apparel, accessories, cosmetics and footwear.
Merchandise mix may vary from store to store to accommodate
differing demographic factors. The Company currently purchases
merchandise from a vendor base of approximately six hundred and
fifty vendors. Over 85% of 1999 sales consisted of branded
merchandise, including nationally recognized brands such as Levi
Strauss, Liz Claiborne, Chaps/Ralph Lauren, Calvin Klein, Sag
Harbor, Hanes, Nike, Reebok and Haggar Apparel. Levi accounted
for approximately 6.4% of the Company's 1999 retail purchases.
No other vendor accounted for more than 5%. In addition, the
Company, through its membership in Associated Merchandising
Corporation ("AMC"), a cooperative buying service, purchases
imported merchandise for its private label program. The
membership provides the Company with synergistic purchasing
opportunities allowing it to augment its branded merchandise
assortments. Private label merchandise purchased through AMC
accounted for approximately 5% of the Company's total retail
purchases for 1999.
The Company offers a carefully chosen but broad selection of
moderately-priced, branded merchandise which is divided into
distinct departments as follows (percentages represent each
department's contribution to Company sales):
Department 1999 1998
Men's/Young Men 19% 20%
Misses Sportswear 15 15
Shoes 12 11
Juniors 10 10
Children 8 9
Accessories & Gifts 8 8
Special Sizes 6 6
Cosmetics 5 5
Intimate 4 4
Dresses & Suits 3 3
Boys 3 3
Activewear 3 2
Junior Dresses 2 2
Coats 2 2
100% 100%
Employees
During 1999, the Company employed an average of 15,686 full
and part-time employees at all of its locations, of which 1,948
were salaried and 13,738 were hourly. The Company's central
office (which includes corporate, credit and distribution center
offices) employed an average of 607 salaried and 1,036 hourly
employees during 1999. In its stores during 1999, the Company
employed an average of 1,341 salaried and 12,702 hourly
employees. Such averages will vary during the year as the
Company traditionally hires additional employees and increases
the hours of part-time employees during peak seasonal selling
periods. There are no collective bargaining agreements in effect
with respect to any of the Company's employees. The Company
believes that relationships with its employees are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in a 130,000
square foot building in Houston, Texas. The Company leases the
building and most of the land at its Houston facility. The
Company owns a 450,000 square foot distribution center and a
credit department facility, both located in Jacksonville, Texas.
The Jacksonville distribution center and credit department
facility collateralizes the Company's Credit Facility (as defined
herein). See Note 6 to the Consolidated Financial Statements.
At January 29, 2000, the Company operated 648 stores located in
thirty-three states as follows:
Number
of
State Stores
Alabama 4
Arizona 4
Arkansas 28
Colorado 7
Florida 2
Georgia 1
Illinois 15
Indiana 16
Iowa 13
Kansas 25
Louisiana 50
Maryland 1
Michigan 7
Minnesota 11
Mississippi 17
Missouri 22
Montana 6
Nebraska 4
Nevada 3
New Mexico 25
New York 2
Ohio 25
Oklahoma 66
Oregon 8
Pennsylvania 2
South Carolina 1
South Dakota 6
Texas 263
Virginia 1
Washington 4
West Virgina 1
Wisconsin 3
Wyoming 5
Total 648
Full line stores range in size from approximately 4,100 to
68,000 selling square feet, with the average being approximately
16,000 selling square feet. The Company's stores are primarily
located in strip shopping centers. All store locations are
leased except for three Bealls stores and one Stage store,
aggregating 138,000 selling square feet, which are owned. The
majority of leases provide for a base rent plus contingent
rentals, generally based upon a percentage of net sales.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are
involved in various litigation matters arising in the ordinary
course of their business.
On March 30, 1999, a class action lawsuit was filed against
the Company and certain of its officers, directors and
stockholders in the United States District Court for the Southern
District of Texas by John C. Weld, Jr., a stockholder who
purchased 125 shares of the Company's common stock on August 3,
1998, alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder (the "Weld Suit"). The Company believed that the
allegations of the Weld Suit are without merit, and on July 23,
1999, the Company filed a motion to dismiss. United States
District Judge Kenneth Hoyt entered an order on December 8, 1999
dismissing the Weld Suit. The order has been appealed by Mr.
Weld.
On March 28, 2000, the Company filed a lawsuit against Carl
Tooker, the Company's former Chairman, Chief Executive Officer
and President in the District Court of Harris County, Texas. The
lawsuit is an action for damages arising from transactions
Mr. Tooker engaged in or directed while serving as President,
Chief Executive Officer and Chairman of the Board of Directors of
the Company which transactions benefited him personally or were
otherwise contrary to his duties as an officer and director. (See
Form 8-K dated March 9, 2000). The suit also seeks recovery of
debt owed by Mr. Tooker to the Company pursuant to loans and
promissory notes Mr. Tooker caused the Company to make to him
while serving in those capacities, and for conversion of stock
collateral pledged to the Company to secure his indebtedness.
The Company also seeks a mandatory injunction requiring
Mr. Tooker to deposit into the registry of the Court all
remaining stock collateral in his possession, and for a
declaratory judgment that Mr. Tooker was properly terminated "for
cause" under the terms of his employment agreement. The Company
seeks to recover not less than an aggregate of $2,755,672,
accrued interest, punitive damages, costs and reasonable
attorneys' fees.
On or about April 27, 2000 Mr. Tooker filed an Answer and
Counterclaim against the Company and a Third Part Petition
against the Company's Interim President, Chief Executive Officer
and Chairman of the Board, John J. Wiesner, Martin Stringer,
counsel to the Special Committee, and the law firm of McKinney &
Stringer, P.C. The answer generally denies all allegations made
by the Company. Mr. Tooker seeks damages from the Company of
approximately $3.9 million, plus attorney's fees, interest, and
costs for breach of his employment contract, and a like amount,
including punitive damages, from the third-party defendants for
alleged tortious interference with his employment contract. Mr.
Tooker also seeks to impose a constructive trust on the $300,000
in the Company's possession for certain contractual benefits he
claims to be due under his employment agreement. The remaining
claims seek damages against the Company and in part against the
third-party defendants, totaling $18 million, plus punitive
damages, fees, interest and costs, on theories of defamation,
civil conspiracy, breach of fiduciary duty and breach of duty of
good faith and fair dealing. The case is in its initial
development, prior to any discovery. The Company and the third-
party defendants dispute his allegations and intend to vigorously
defend all of Mr. Tooker's claims.
In March 2000, eleven former employees of SRI d/b/a Palais
Royal, filed two separate suits in the United States District
Court for the Southern District of Texas against the Company, SRI
and Mary Elizabeth Pena, arising out of alleged conduct occurring
over an unspecified time while the plaintiffs were working at one
or more Palais Royal stores in the Houston, Texas area. The
plaintiffs allege that on separate occasions they were falsely
accused of stealing merchandise and other company property and
giving discounts for purchases against company policy. The suits
accuse the defendants of defamation, false imprisonment,
intentional infliction of mental distress, assault and violation
of the Racketeer Influenced and Corrupt Organizations (RICO) Act.
The claims seek unspecified damages for mental anguish, lost
earnings, exemplary damages, treble damages, interest, attorneys'
fees and costs. The Company denies the allegations and intends
to vigorously defend the claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-
HOLDERS
No matters were submitted to a vote of security holders
during the quarter ended January 29, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's authorized common equity securities consist of
par value $0.01 per share common stock ("Common Stock") and par
value $0.01 per share Class B common stock ("Class B Common
Stock"). Prior to April 16, 1998, the Common Stock was quoted on
the NASDAQ National Market System under the symbol "STGE".
Beginning April 16, 1998, the Company's Common Stock started
trading on the New York Stock Exchange under the symbol "SGE".
As of May 30, 2000, there was one holder of Class B Common Stock
and 299 holders of record of Common Stock. The following table
sets forth, for the periods indicated, the high, low and closing
prices for the Common Stock as reported by the New York Stock
Exchange:
Common Stock Prices
High Low Close
Quarter ended May 2, 1998 $53.00 $35.75 $51.13
Quarter ended August 1, 1998 53.75 25.00 25.44
Quarter ended October 31, 1998 26.13 8.75 13.25
Quarter ended January 30, 1999 15.00 6.75 8.00
Quarter ended May 1, 1999 9.25 5.00 6.44
Quarter ended July 31, 1999 8.13 5.06 6.44
Quarter ended October 30, 1999 9.75 4.81 4.81
Quarter ended January 29, 2000 5.00 1.38 1.38
The Company has not declared or paid any cash dividends on
its Common Stock since its initial public offering and does not
expect to pay cash dividends for the foreseeable future. The
Company anticipates that, for the foreseeable future, earnings
will be reinvested in the business and used to service
indebtedness. The Company's existing indebtedness limits its
ability to pay dividends. The declaration and payment of
dividends by the Company are subject to the discretion of the
Board. Any future determination to pay dividends will depend on
the Company's results of operations, financial condition, capital
requirements, contractual restrictions under its current
indebtedness and other factors deemed relevant by the Board.
On June 6, 2000, the New York Stock Exchange informed the
Company that the trading of the Company's stock will be suspended
immediately. Following the suspension, application will be made
by the New York Stock Exchange to the Securities and Exchange
Commission to delist the Company's stock.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial
data for the periods indicated. The selected consolidated
financial data were derived from, and should be read in
conjunction with, the Company's Consolidated Financial
Statements. All dollar amounts are stated in thousands, except
for per share data.
Fiscal Year
1999 1998
Statement of operations data:
Net sales $1,121,567 1,173,547
Cost of sales and related
buying, occupancy and
distribution expenses 897,117 839,238
Gross profit 224,450 (2) 334,309
Selling, general and
Administrative expenses 387,816 (3) 271,477
Store opening and closure
program costs 44,986 (4) 10,192
Operating income (loss) (208,352) 52,640
Interest, net 48,634 46,471
Income (loss) before income
tax, extraordinary item and
cumulative effect of change
in accounting principle (256,986) 6,169
Income tax expense 20,217 (5) 2,455
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle (277,203) 3,714
Extraordinary item, net of
tax, early retirement of debt (749) --
Cumulative effect of change in
accounting principle, net of tax,
reporting costs of start-up
activities (3,938) --
Net income (loss) $(281,890) 3,714
Basic earnings per common
share before extraordinary item
and cumulative effect of change
in accounting principle $(9.89) $0.13
Basic earnings (loss) per
common share $(10.06) $0.13
Basic weighted average common
shares outstanding 28,028 27,885
Diluted earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $(9.89) $0.13
Diluted earnings (loss)
per common share $(10.06) $0.13
Diluted weighted average
common shares outstanding 28,028 28,428
Margin and other data:
Gross profit margin 20.0% 28.5%
Selling, general and
administrative expense rate 34.6% 23.1%
Operating income (loss) margin (18.6%) 4.5%
Store data:
Comparable store sales growth (7.0%) (3.0%)
Store Openings 10 86
Store Closings 41 14
Number of stores open at
end of period 648 679
Total selling area square
footage (thousands) 10,290 10,548
Balance sheet data (at end of period):
Working capital $(258,281) $368,138
Total assets 554,687 857,680
Long-term debt -- 487,968
Stockholders' equity (deficit) (74,967) 204,392
Fiscal Year
1997 1996
Statement of operations data:
Net sales $1,073,316 $776,550
Cost of sales and related
buying, occupancy and
distribution expenses 730,179 532,563
Gross profit 343,137 243,987
Selling, general and
Administrative expenses 240,011 172,579
Store opening and closure
program costs 8,686 2,838
Operating income (loss) 94,440 68,570
Interest, net 38,277 45,954
Income (loss) before income
tax, extraordinary item and
cumulative effect of change
in accounting principle 56,163 22,616
Income tax expense 21,623 8,594
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle 34,540 14,022
Extraordinary item, net of tax,
early retirement of debt (18,295) (16,081)
Cumulative effect of change in
accounting principle, net of tax,
reporting costs of start-up
activities -- --
Net income (loss) $16,245 $(2,059)
Basic earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $1.34 $0.91
Basic earnings (loss) per
common share $0.63 $(0.13)
Basic weighted average common
shares outstanding 25,808 15,394
Diluted earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $1.30 $0.88
Diluted earnings (loss) per
common share $0.61 $(0.13)
Diluted weighted average common
shares outstanding 26,483 15,927
Margin and other data:
Gross profit margin 32.0% 31.4%
Selling, general and
administrative expense rate 22.4% 22.2%
Operating income (loss) margin 8.8% 8.8%
Store data:
Comparable store sales growth 4.1% 3.3%
Store Openings 301 (6) 69
Store Closings 9 10
Number of stores open at
end of period 607 315
Total selling area square
footage (thousands) 9,557 5,670
Balance sheet data (at end of period):
Working capital $318,064 $235,219
Total assets 759,396 509,283
Long-term debt 395,248 298,453
Stockholders' equity (deficit) 205,078 92,266
Fiscal Year
1995 (1)
Statement of operations data:
Net sales $682,624
Cost of sales and related buying,
occupancy and distribution expenses 468,347
Gross profit 214,277
Selling, general and
Administrative expenses 149,102
Store opening and closure
program costs 3,689
Operating income (loss) 61,486
Interest, net 43,989
Income (loss) before income tax,
extraordinary item and cumulative
effect of change in accounting
principle 17,497
Income tax expense 6,767
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle 10,730
Extraordinary item, net of tax,
early retirement of debt --
Cumulative effect of change in
accounting principle, net of tax,
reporting costs of start-up
activities --
Net income (loss) $10,730
Basic earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $0.88
Basic earnings (loss) per
common share $0.88
Basic weighted average
common shares outstanding 12,255
Diluted earnings per common
share before extraordinary item
and cumulative effect of change
in accounting principle $0.86
Diluted earnings (loss)
per common share $0.86
Diluted weighted average
common shares outstanding 12,483
Margin and other data:
Gross profit margin 31.4%
Selling, general and
administrative expense rate 21.8%
Operating income (loss) margin 9.0%
Store data:
Comparable store sales growth 0.8%
Store Openings 68
Store Closings 0
Number of stores open at
end of period 256
Total selling area square
footage (thousands) 4,886
Balance sheet data (at end of period):
Working capital $170,108
Total assets 408,254
Long-term debt 380,039
Stockholders' equity (deficit) (72,314)
________________________
(1) 1995 includes 53 weeks. Comparable store sales growth for
1995 has been determined based on a comparable 52 week
period.
(2) Includes $69.3 million of unusual charges related to store
closings, lower of cost or market reserves for seasonal inventory
and LIFO inventory reserves. See Item 7 "Significant Events"
below.
(3) Includes $115.9 million of unusual charges related to the
write down of long-lived assets, including goodwill, and certain
other charges. See Item 7 "Significant Events" below.
(4) Includes $44.2 million of costs associated with the
Company's 1999 and 2000 store closure programs. See Item 7
"Significant Events" below.
(5) Includes a $89.5 million valuation allowance provided for
certain deferred tax assets. See Item 7 "Significant Events"
below.
(6) Includes 104 stores acquired from C. R. Anthony Company in
1997 which were not converted to the Company's format and
trade names until 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
Certain items discussed or incorporated by reference herein
contain forward-looking statements that involve risks and
uncertainties including, but not limited to, the ability to
obtain financing on terms reasonably satisfactory to the Company,
the ability of the Company to obtain normal trade terms from its
vendors, the ability of the Company to comply with the various
covenant requirements contained in the Company's debt agreements
and the demand for apparel. The demand for apparel can be
affected by weather patterns, levels of competition, competitors'
marketing strategies, changes in fashion trends, availability of
product on normal payment terms and the failure to achieve the
expected results of the Company's merchandising and marketing
plans as well as its store opening and closing plans. The
occurrence of any of the above have had and can continue to have
a material and adverse impact on the Company's operating results.
See "Risk Factors" below. Certain information herein contains
estimates which represent management's best judgment as of the
date hereof based on information currently available; however,
the Company does not intend to update this information to reflect
developments or information obtained after the date hereof and
disclaims any legal obligation to the contrary.
General
Overview. The Company operates family apparel stores
offering moderately-priced, nationally recognized brand name
apparel, accessories, cosmetics and footwear in approximately 500
small towns and communities throughout the United States. The
Company has recognized the high level of brand awareness and
demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and
underserved niche. The Company has developed a franchise focused
on small markets offering a broad range of brand name merchandise
with a high level of customer service in convenient locations.
At January 29, 2000, the Company, through its wholly-owned
subsidiary Specialty Retailers, Inc., operated 648 stores
(averaging approximately 16,000 selling square feet) in thirty-
three states throughout the United States. Although the
Company's stores may be operated primarily under its "Stage",
"Bealls" and "Palais Royal" trade names depending on the
geographical market, the Company operates the vast majority of
the stores under one concept and strategy. Approximately 70% of
these stores are located in small markets and communities with
populations at or below 30,000. The remainder of the Company's
stores operate in metropolitan areas, such as suburban Houston,
Texas.
Significant Events. As a result of the Company's poor
financial performance, lack of adequate trade support to fund its
inventory working capital requirements, lack of sufficient
financial flexibility and liquidity, and violations under certain
covenants under its various debt agreements, the Company filed
for protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code ("Chapter 11") on June 1, 2000 in the United
States Bankruptcy Court for the Southern District of Texas ( the
"Court"). The Company has negotiated a $450.0 million debtor-in-
possession financing agreement (the "DIP Financing") with a
lender to finance the Company's working capital requirements
during Chapter 11 reorganization proceedings. On June 2, 2000,
the Court approved among other things, the proposed DIP Financing
subject to certain conditions. Under the Court's Interim Order,
the Court limited the amount available under the DIP Financing to
$385.0 million pending a Final Order. Proceeds under the DIP
Financing will be used to retire the Company's existing
Accounts Receivable Program and Senior Revolving Credit Facility
(defined herein) and for general working capital purposes.
Under Chapter 11, the Company will operate its business as
debtor-in-possession, subject to the approval of the Bankruptcy
Court for certain proposed actions. Additionally, one or more
creditor committees will be formed and would have the right to
review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
As a result of the Company's poor financial performance for
1999, the Company performed a cash flow analysis as required
under Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of" and Accounting Principles Board
Opinion No. 17. This analysis resulted in the Company recording
an impairment loss of $41.7 million in 1999, consisting of $26.0
million in incremental depreciation and amortization related to
property, equipment and leasehold improvements associated with
underperforming stores and $15.7 million related to goodwill. The
impairment loss is included in selling, general and
administrative expense in the accompanying statement of
operations. As a result of the impact of the Company's Bankruptcy
Filing on June 1, 2000 on estimated future cash flows, the
Company reevaluated the recoverability of its remaining goodwill.
Based upon this re-evaluation, the Company wrote-off the
remaining balance of goodwill amounting to $67.9 million and
other intangible assets amounting to $1.0 million during 1999.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity
of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and circumstances relating to
this event, including the Company's highly leveraged financial
structure and recurring losses from operations as reflected in
the consolidated financial statements, such realization of assets
and liquidation of liabilities is subject to uncertainty.
Further, a plan of reorganization could materially change the
amounts reported in the consolidated financial statements, which
do not give effect to any adjustments to the carrying value of
assets or amounts of liabilities that might be necessary as a
consequence of a plan of reorganization. Additionally, there will
likely be additional store closures as part of the reorganization
process which would result in additional adjustments. The ability
of the Company to continue as a going concern is dependent upon,
among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to comply with debtor-
in-possession agreements and the ability to generate sufficient
cash from operations and financing sources to meet obligations.
Additionally, the accompanying consolidated financial statements
do not include any adjustments that would be required if the
Company were in liquidation.
Substantially all of the Company's liabilities are subject
to settlement under reorganization proceedings. The Company's
debt to banks and bondholders is in default of the terms of the
applicable loan agreements, notes and debentures. For financial
reporting purposes, those liabilities and obligations have been
classified as current liabilities. The ultimate adequacy of
security for any secured debt obligations and settlement of all
liabilities and obligations cannot be determined until a plan of
reorganization is confirmed.
On March 9, 2000, the Company announced that it had completed a
new $35.0 million senior revolving credit facility. The new
facility increased the current borrowing capacity of the Company
to $235.0 million when combined with its existing $200.0 million
revolving credit facility. Both facilities will expire on June
14, 2002. The new $35.0 million facility is secured by a
perfected first priority security interest on the inventory of
the Company. Additionally, the Company granted the lenders under
the existing $200.0 million revolving credit facility a secondary
lien on $50.0 million of inventory as well as a first lien on
store furniture and fixtures and certain other assets. The $50.0
million secondary lien will be reduced by any amounts outstanding
under the new $35.0 million senior revolving credit facility.
Therefore, the maximum lien on the Company's inventory is $50.0
million under the combined facilities. Under the terms of the
new credit facility, the Company will issue warrants to the
lenders to purchase 7.5% of the Company's outstanding common
stock. The exercise price under the warrants will be determined
based upon the average closing price of the Company's stock for
the 30 days following the date of commitment. The warrants will
expire on March 6, 2003. The Company repaid amounts outstanding
under the Senior Revolving Credit Facility with proceeds from its
DIP Financing. See "Liquidity and Capital Resources" below as
well as Note 6 to the Consolidated Financial Statements.
On February 22, 2000, the Company announced the departure of
Carl Tooker who was Chairman, Chief Executive Officer and
President of the Company. The Company stated that Mr. Tooker's
departure was the result of an inquiry conducted by a special
committee consisting of all of the non-management members of the
Board of Directors, which reviewed transactions between the
Company and Mr. Tooker. The effect of the transactions has been
included in the Company's results for prior periods and are not
material to the financial condition or operations of the Company;
however, these transactions had not been properly reported to the
Company's Board of Directors. With Mr. Tooker's departure, the
Board will oversee operations and coordinate the search for a new
Chief Executive Officer. The Board has appointed Director John
J. (Jack) Wiesner Chairman, Interim Chief Executive Officer and
President. The other members of the Board have agreed to assist
Mr. Wiesner as necessary. The Company is actively conducting a
search for a new Chief Executive Officer. In addition, certain
other members of senior management have resigned from the
Company. The duties of these members of senior management have
been reassigned to existing members of management.
On February 3, 2000, the Company announced that its bank lending
group had amended certain provisions contained within its $200.0
million Credit Facility Agreement. The amendment, which was
effective as of that date, waived the Company's compliance with
the financial covenants contained in the credit agreement for the
fourth quarter of 1999. In addition, the amendment revised the
financial covenants for the first three quarters of 2000 as well
as the requirements under the clean down provision.
During the fourth quarter of 1999, the Company recorded
certain significant pretax charges aggregating $205.7 million.
Of the total, $62.0 million was charged to cost of sales, $115.9
million was charged to selling, general and administrative
("SG&A") expenses while the balance of $27.8 million was charged
to store opening and closure program costs. With respect to the
charge to cost of sales, $54.0 million related to a lower of cost
or market reserve for excess fall clearance inventory and
inventory to be liquidated in connection with the store closure
program announced on February 3, 2000 (see below) while $8.0
million was a LIFO charge resulting from an overall decrease in
the level of inventory at year end. The charge to SG&A expenses
for the fourth quarter is comprised of a $110.6 million write
down of long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121 and Accounting Principles
Board Opinion No. 17 (of this amount, $84.6 million relates to
goodwill and other intangibles and the remaining amount relates
to other long-lived assets), a $2.8 million provision against
certain miscellaneous receivables, $0.6 million associated with
severance for the Company's work force reduction program and $1.9
million associated with certain costs related to the refinancing
of the Company's accounts receivable program completed in
November 1999. The store opening and closure costs of $27.8
million for the fourth quarter reflect the costs associated with
additional store closures announced on February 3, 2000. In
addition, income tax expense includes an $89.5 million valuation
allowance recorded during the fourth quarter related to certain
deferred tax assets (see Note 11 - Income Taxes to the
Consolidated Financial Statements).
On November 9, 1999, the Company completed a refinancing of the
existing term and revolving certificates outstanding under its
Accounts Receivable Program (see Note 4 to the Company's
Consolidated Financial Statements). In connection with the
refinancing, the Company's special purpose off-balance sheet
trust (the "Trust") replaced the previously existing term and
revolving certificates with new term and revolving certificates
(the "New Certificates"). The New Certificates provided the
Company with a maximum availability of $329.9 million, subject to
the amount of receivables held in the Trust. Based upon the
amount of receivables in the Trust at the time of closing, the
Company received approximately $292.4 million of proceeds. Of
this amount, approximately $259.3 million was used to retire the
outstanding balances under the previously existing Trust
certificates, which were scheduled to begin amortizing in
December of 1999. The remainder of the proceeds were used to
redeem the previously existing $30.0 million aggregate principle
amount of SRI Receivables Purchase Co., Inc. ("SRPC") 12.5% Trust
certificate-backed notes and to pay for other costs associated
with the refinancing. In connection with the refinancing, the
Company recorded an after-tax extraordinary charge of
approximately $0.7 million in the fourth quarter of 1999 related
to the early retirement of debt. The Company also recorded an
additional $1.9 million of pretax costs in selling, general and
administrative ("SG&A") expenses associated with the refinancing
during the fourth quarter of 1999. The Company redeemed the New
Certificates with proceeds from its DIP Financing.
During the second quarter of 1999, the Company announced a store
closure program under which the Company closed approximately 35
under performing stores during the last three quarters of the
year. In connection with the store closure program, the Company
recorded a total of $23.7 million of pretax costs during the
second and third quarters of 1999, of which $7.3 million is
included in cost of sales while the remaining $16.4 million is
included in store opening and closure program costs. Of the
total $23.7 million of costs, approximately $2.5 million
represented severance and lease termination costs, approximately
$2.5 million represented operating costs for the stores in the
closure program during the second and third quarters of 1999,
approximately $7.3 million represented a lower of cost or market
reserve related to the inventory to be liquidated in the stores
in the closure program while the balance related primarily to the
write-off of fixed assets and intangibles associated with the
stores in the closure program.
The financial information, discussion and analysis that follow
should be read in conjunction with the Company's Consolidated
Financial Statements included elsewhere herein.
Results of Operations
The following sets forth the results of operations as a
percentage of sales for the periods indicated:
Fiscal Year
1999 1998 1997
Net sales 100.0% 100.0% 100.0%
Cost of sales and related
buying, occupancy and
distribution expenses 80.0 71.5 68.0
Gross profit margin 20.0 28.5 32.0
Selling, general and
administrative expenses 34.6 23.1 22.4
Store opening and closure
program costs 4.0 0.9 0.8
Operating income (loss)
margin (18.6) 4.5 8.8
Net interest expense 4.3 4.0 3.6
Income (loss) before
income tax, extraordinary
item and cumulative
effect of change in
accounting principle (22.9)% 0.5% 5.2%
1999 Compared to 1998
Sales for the year ended January 29, 2000 decreased 4.4% to
$1,121.6 million from $1,173.5 million for the year ended January
30, 1999. The decrease in sales for 1999 reflects, among other
things, the net reduction of 31 stores during the year and a 7.0%
decline in comparable store sales. Management believes the
majority of the decline in comparable store sales was
attributable to (i) the impact on the first quarter of the
aggressive management of the Company's inventory levels
throughout the 1998 fall selling season, (ii) the impact on the
second and third quarters of the Company's more conservative
promotional cadence throughout the two periods and (iii) the
impact on the fourth quarter of the softness in the Company's
sales during the Christmas selling period.
The Company's aggressive inventory management activities
that were put into place during the 1998 fall selling season
negatively impacted the Company's merchandise mix and, to a
lesser extent, the Company's customer base. As a result, the
Company began the first quarter with significantly lower levels
of inventory on a comparable store basis as compared to the prior
year's first quarter levels, particularly with respect to
clearance merchandise. The lower levels of clearance inventory,
as well as the continued aggressive pricing on this clearance
merchandise throughout February, was a significant contributor to
the decline in comparable store sales for the first quarter. In
addition, sales for the Easter selling period were softer than
expected as a result of lower than planned inventory levels
during the period.
Sales results for the second and third quarters were
negatively impacted by a reduction in the number of promotional
events and a lower level of price discounting as compared to the
same periods in the prior year. While the Company anticipated
that this strategy would negatively impact sales, the more
conservative promotional cadence was designed to improve
merchandise margins by increasing the sell-through of regular
priced goods. In addition, comparable store sales for the third
quarter were negatively impacted by a reduction in the level of
clearance activities during the early part of the quarter as
compared to last year. Due to inventory management initiatives
that the Company put into place during the early part of 1999,
the level of seasonal clearance merchandise on hand at the
beginning of the third quarter of 1999 was significantly below
last year's level and, therefore, sales for the third quarter of
1999 were negatively impacted as compared to the third quarter of
1998.
Finally, management believes that the weakness in sales over
the Christmas holiday period reflects an increased level of
competitive promotional activity during the period as well as
inventory management issues during the fourth quarter of 1999.
As a result, the Company ended the year with an abnormally high
portion of its inventory in fall clearance product which has
required significant markdowns to sell during the first quarter
of 2000. As a result, the Company recorded a lower of cost or
market reserve for this seasonal inventry during the fourth
quarter (see Item 7 "Significant Events" above and further
discussion below).
Gross profit decreased 32.8% to $224.5 million for 1999 from
$334.3 million for 1998. Gross profit, as a percent of sales,
decreased to 20.0% for the current year from 28.5% for the prior
year. The lower gross profit percentage for 1999 reflects, among
other things, (i) the impact of the increased level of
promotional activity utilized during the fourth quarter of 1999,
(ii) the negative sales leverage associated with the Company's
fixed buying, occupancy and distribution expenses which are
included in cost of goods sold, (iii) lower vendor discounts on
new store inventory purchases and reduced levels of store grand
opening sales, which typically carry a higher level of gross
margin, as a result of the reduction in the number of new stores
opened during 1999 as compared to 1998, (iv) the recording of
lower of cost or market reserves during the second and fourth
quarters aggregating $61.3 million, (v) an $8.0 million LIFO
charge relating to an overall decrease in inventories which
resulted in the liquidation of certain high cost historical
inventory layers and (vi) higher than anticipated net shrinkage
expense. The lower of cost or market reserves recorded during
these two periods relate to inventory to be liquidated in
conjunction with store closures and the excess Christmas
clearance inventory as discussed above. The decline in the gross
profit percentage was partially offset by higher merchandise
margins during the second and third quarters of the current year
resulting from a reduction in the level of clearance sales and a
more conservative promotional cadence followed during these
periods.
SG&A expenses for 1999 increased 42.8% to $387.8 million
from $271.5 million in the comparable period of 1998 and, as a
percent of sales, increased to 34.6% from 23.1% in the comparable
period last year. SG&A expenses for 1999 reflect, among other
things, a $110.6 million write down of long-lived assets in
accordance with Statement of Financial Accounting Standards No.
121 and Accounting Principles Board Opinion No. 17 consisting of
increased depreciation and amortization of $26.0 million related
to property, equipment and leasehold improvements associated with
underperforming stores and associated goodwill and other
intangibles of $84.6 million, a $2.8 million provision against
certain miscellaneous receivables, $0.6 million of severance for
workforce reduction programs and $1.9 million associated with
certain costs related to the refinancing of the Company's
Accounts Receivable Program which was completed in November 1999.
SG&A expenses for the current year benefited from an increase in
the fair value of the Company's retained interest in its accounts
receivable trust, the result of which is included in SG&A
expenses, reduced payroll and payroll related costs and the
Company's continuing efforts in controlling SG&A expenses. The
reduction in payroll related costs was primarily associated with
reduced vacation expense resulting from a change in the Company's
employee benefit program during the first quarter of this year.
The current year SG&A expenses also benefited from a reduction in
operating costs associated with the stores included in the store
closure program which was implemented during the second quarter
of 1999.
Store opening and closure program costs for 1999 of $45.0
million reflect $0.8 million of costs associated with 10 new
stores opened during 1999, as well as costs associated with the
Company's store closure programs.
As a result of the factors discussed above, the Company had
an operating loss of $208.4 million for 1999 as compared to
operating income of $52.6 million for the comparable period in
1998.
Net interest expense for 1999 increased 4.5% to $48.6
million from $46.5 million for the comparable period in 1998 due
to a higher level of average borrowings outstanding and an
increase in overall borrowing rates.
Income tax expense for 1999 of $20.3 million includes an
$89.5 million valuation allowance provided for certain deferred
tax assets.
As a result of the foregoing, the Company's net loss, before
extraordinary item and the cumulative effect of change in
accounting principle, for the year ended January 29, 2000 was
$277.2 million as compared to net income of $3.7 million for the
year ended January 30, 1999.
In connection with the adoption of SOP 98-5, the Company
recorded the cumulative effect of change in accounting principle,
net of tax, of $3.9 million during the first quarter of 1999. The
charge reflects the write-off of the unamortized organizational
costs associated with the Company's accounts receivable trust and
credit card bank. During the fourth quarter of 1999, the Company
recorded an extraordinary item, net of tax, of $0.7 million in
connection with the early retirement in November 1999 of the
$30.0 million aggregate principal amount of SRPC 12.5% Trust
certificate-backed notes.
1998 Compared to 1997
Sales for the year ended January 30, 1999 increased 9.3% to
$1,173.5 million from $1,073.3 million for the year ended January
31, 1998. The increase in sales was primarily due to an
approximately $132.8 million increase in sales from stores opened
or acquired during 1998 and 1997 which are not included in
comparable store sales, partly offset by a 3.0% decline in
comparable store sales. Management believes the majority of the
decline in comparable store sales was attributable to (i) the
extreme hot weather and drought conditions during the second
quarter of 1998 in a substantial portion of the Company's market
area, (ii) the unseasonably warm weather which existed throughout
the majority of the 1998 Christmas selling period, (iii) the
implementation of a "value pricing" program on selected private
label merchandise and (iv) the aggressive but prudent management
of the Company's inventory levels throughout the fall selling
season.
The extreme weather conditions which impacted the majority
of the Company's markets during late June and July 1998 resulted
in reduced customer traffic and changed customers' spending
patterns during this period. As a result, comparable store sales
for the second quarter decreased 5.0%. Unseasonably warm weather
conditions in most markets in the third and fourth quarters of
1998 negatively impacted the sales of the traditional cold
weather categories of merchandise. In response, the Company
accelerated its promotional activities during this period by
increasing the level of permanent and promotional markdowns on
its seasonal merchandise. This strategy lowered the average
retail unit price of merchandise sold during the fall selling
season which negatively impacted net sales. As a result of these
factors and those discussed below, comparable store sales for the
fall selling season decreased 4.3%.
In order to mitigate any potential economic impact that the
record summer heat and drought conditions had on the small market
communities in which the Company operates, the Company
implemented a value pricing strategy on a small portion of its
private label merchandise. Under the value pricing strategy, the
Company reduced the price point on certain key private label
basic items for the fall season. The program was designed to
generate sufficient additional unit sales to offset the reduction
in the average unit selling price. Due to the increased
promotional activities discussed above during the fourth quarter,
the program did not accomplish its goals. For 1999, based upon
the results of this program, the Company eliminated the value
pricing strategy from its merchandise mix.
Finally, the Company aggressively managed its inventory
levels throughout the fall selling season due to the softness in
overall sales. Actions taken to control inventory levels
included a significant reduction in the aggregate amount of
merchandise receipts for the fall selling season as well as the
acceleration of the Company's promotional activities discussed
above. The significant reduction in the receipt flow for the
fall selling season negatively impacted the freshness and content
of certain of the Company's merchandise offerings thereby further
depressing sales levels. However, as a result of its aggressive
promotional activities and prudent management of its inventory
levels, retail inventory per square foot on a comparable store
basis at year-end 1998 was approximately 8% lower than the
corresponding 1997 level. Management believes it has identified
the content issues within its merchandise offerings created
during 1998 and has put plans in place to address these issues in
1999.
Gross profit decreased 2.6% to $334.3 million in 1998 from
$343.1 million in 1997. Gross profit as a percent of sales
decreased to 28.5% in 1998 from 32.0% in 1997. Contributing to
the decline in gross profit were the higher levels of markdowns
designed to stimulate traffic during the adverse weather
conditions in the second quarter and the aggressive discounting
and promotional activity during the second half of the year
designed to drive unit sales and liquidate seasonal merchandise.
In addition, the lower gross profit percentage reflects the
impact of fixed buying, occupancy, and distribution expense
components included in cost of goods sold in relation to lower
sales levels as well as higher shrinkage expense.
Selling, general and administrative expenses increased 13.1%
to $271.5 million in 1998 from $240.0 million in 1997. Selling,
general and administrative expenses as a percent of sales for
1998 increased to 23.1% from 22.4% in 1997. Factors contributing
to the increase in selling, general and administrative expenses
as a percent of sales were the negative leverage resulting from
the reduced sales level and the increased promotional expense
associated with the aggressive management of the Company's
inventory level discussed above. Advertising expenses as a
percentage of sales were 4.3% in 1998 as compared to 3.7% in
1997. Offsetting these increases were approximately $5.6 million
of certain duplicative and one-time costs associated with the CR
Anthony acquisition which were incurred in 1997 as well as the
positive impact of the Company's newly formed credit card bank
which has allowed the Company to charge its customers a service
charge and late fee rate structure consistent with other national
apparel retailers.
Store opening and closure costs for 1998 increased to $10.2
million from $8.7 million for the same period in 1997 due to an
increase in the number of stores opened during 1998 as compared
to 1997.
Operating income for 1998 decreased to $52.6 million from $94.4
million in 1997 due to the factors discussed above. Operating
income as a percent of sales for 1998 was 4.5% as compared to
8.8% in 1997.
Net interest expense for 1998 increased 21.4% to $46.5
million from $38.3 million in 1997 due to higher levels of
borrowings under the Credit Facilities resulting from the
Company's expansion program.
The Company's net income before extraordinary items for 1998
decreased to $3.7 million as compared to $34.5 million in 1997
due to the impact of the factors discussed above.
Seasonality and Inflation
The Company's business is seasonal and sales traditionally
are lower during the first nine months of the year (February
through October) and higher during the last three months of the
year (November through January). Working capital requirements
fluctuate during the year and generally reach their highest
levels during the third and fourth quarters.
Fiscal Year 1999
Q1 Q2 Q3 Q4
Net sales $262,591 $269,848 $264,327 $324,801
Gross profit 70,359 74,021 77,203 2,867
Operating inc. (loss) 8,391 (8,332) 12,560 (220,971)
Quarters' operating
income as a pecent
of annual N/A N/A N/A N/A
Income (loss) before
extraordinary item
and cummulative
effect of a change in
accounting principle (2,269) (15,091) 224 (260,067)
Net income (loss) (4,671) (15,091) 224 (262,352)
Fiscal Year 1998
Q1 Q2 Q3 Q4
Net sales $272,788 $271,805 $271,605 $357,349
Gross profit 87,225 82,239 75,252 89,593
Operating inc. (loss) 25,278 12,678 7,226 7,458
Quarters'operating
income as a percent
of annual 48% 24% 14% 14%
Income (loss) before
extraordinary item and
cummulative effect of
change in accounting
principle 9,035 765 (3,152) (2,934)
Net income (loss) 9,035 765 (3,152) (2,934)
The Company does not believe that inflation had a material
effect on its results of operations during the past two years.
However, there can be no assurance that the Company's business
will not be affected by inflation in the future.
Liquidity and Capital Resources
As a result of the Company's poor financial performance,
lack of adequate trade support to fund its inventory working
capital requirements, lack of sufficient financial flexibility
and liquidity, and violations under certain covenants under its
various debt agreements, the Company filed for protection under
Chapter 11 of Title 11 of the United States Bankruptcy Code
("Chapter 11") on June 1, 2000 in the United States Bankruptcy
Court for the Southern District of Texas ( the "Court"). The
Company has negotiated a $450.0 million debtor-in-possession
financing agreement (the "DIP Financing") with a lender to
finance the Company's working capital requirements during Chapter
11 reorganization proceedings. On June 2, 2000, the Court
approved among other things, the proposed DIP Financing subject
to certain conditions. Under the Court's Interim Order, the Court
limited the amount available under the DIP Financing to $385.0
million pending a Final Order. Proceeds under the DIP Financing
will be used to retire the Company's existing Accounts
Receivable Program and Senior Revolving Credit Facility and for
general working capital purposes.
If the Company receives a Final Order approving the DIP
Financing as proposed, management believes there should be
sufficient liquidity to fund the Company's working capital
requirements during the reorganization proceedings; however there
can be no assurances the entire $450.0 million DIP Financing will
be approved by the Court.
Under Chapter 11, the Company will operate its business as
debtor-in-possession, subject to the approval of the Bankruptcy
Court for certain proposed actions. Additionally, one or more
creditor committees will be formed and would have the right to
review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
Total working capital decreased $626.4 million to a deficit
of $258.3 million at January 29, 2000 from $368.1 million at
January 30, 1999. The most significant changes in working
capital were: (i) a decrease of $80.2 million in inventories
associated with the net reduction of 31 stores during 1999 as
well as certain significant charges and reserves recorded during
the fourth quarter of 1999 aggregating $62.0 million, as
discussed in "Results of Operations" above, and (ii) a reduction
of $28.2 million in undivided interest in accounts receivable
trust due to a higher level of borrowings outstanding under the
Company's Accounts Receivable Program, of which $30.0 million of
the increase represents borrowings related to the retirement of
the SRPC notes in November 1999, and (iii) the reclassification
of long-term debt of $492.4 million to current as a result of
certain covenant violations under the respective debt agreements.
The Company's primary capital requirements are for working
capital, debt service and capital expenditures. Cash interest
payments were $45.5 million in 1999. Capital expenditures are
generally for new store openings, remodeling of existing stores
and facilities, customary store maintenance and operating system
enhancements and upgrades. Capital expenditures were $22.0
million during 1999 as compared to $88.7 million in 1998.
Capital expenditures during 1999 were primarily related to 10 new
store openings, remodeling of existing stores and the
implementation of a new merchandising system. Management
estimates that capital expenditures will be approximately $15.0
million for 2000. As discussed above, all of the Company debt
has been classified as current in the accompanying financial
statements.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which requires
that all derivative financial instruments be recorded in the
financial statements. SFAS No. 133 is effective for the Company
in the first quarter of 2001, and the Company is in the process
of ascertaining the impact this new standard will have on its
financial statements. In March 2000, the FASB issued
interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation which provides guidance for certain
issues arising from the application of APB Opinion No. 25; the
Company is currently evaluating the impact of application of this
interpretation on its financial statements.
Risk Factors
Current Bankruptcy Proceeding: As a result of the Company's
poor financial performance, lack of adequate trade support to
fund its inventory working capital requirements, lack of
sufficient financial flexibility and liquidity, and violations
under certain covenants under its various debt agreements, the
Company filed for protection under Chapter 11 of Title 11 of the
United States Bankruptcy Code on June 1, 2000 in the United
States Bankruptcy Court for the Southern District of Texas. Under
Chapter 11, the Company will operate its business as debtor-in-
possession, subject to the approval of the Bankruptcy Court for
certain proposed actions. Additionally, one or more creditor
committees will be formed and would have the right to review and
object to any non-ordinary course of business transactions and
participate in the formulation of any plan or plans of
reorganization. There can be no assurances that the Company will
be successful in reorganizing under Chapter 11 which could result
in liquidation.
Leverage and Restrictive Covenants: Due to the level of the
Company's indebtedness under the DIP Financing, any material or
adverse development affecting the business of the Company could
significantly limit its ability to withstand competitive
pressures or adverse economic conditions, to take advantage of
expansion opportunities or other significant business
opportunities that may arise, to meet its obligations as they
become due or to comply with the various covenant requirements
contained in the Company's DIP Financing. In addition, the
Company's DIP Financing imposes operating and financial
restrictions on the Company and certain of its subsidiaries.
Such restrictions limit the Company's ability to incur additional
indebtedness, to make dividend payments and to make capital
expenditures in excess of authorized amounts.
Availability of Merchandise Product on Normal Trade Terms:
The Company is highly dependent on obtaining merchandise product
on normal trade terms. Due to the Company's recent financial
performance, some of the Company's key vendors have become more
restrictive in granting trade credit through either reducing the
Company's credit lines or shortening payment terms. In addition,
the majority of the Company's factors have required letters of
credit to partially secure the credit lines that these factors
have provided to the Company. The tightening of credit from the
vendor or factor community has had a material adverse impact on
the Company's business and financial condition.
Economic and Market Conditions: A substantial portion of the
Company's operations are located in the central United States.
In addition, many of the Company's stores are situated in small
towns and rural environments that are substantially dependent
upon the local economy. The retail apparel business is dependent
upon the level of consumer spending, which may be adversely
affected by an economic downturn or a decline in consumer
confidence. An economic downturn, particularly in the central
United States and any state (such as Texas) from which the
Company derives a significant portion of its net sales, could
have a material and adverse effect on the Company's business and
financial condition.
The Company's success depends, in part, upon its ability to
anticipate and respond to changing consumer preferences and
fashion trends in a timely manner. Although the Company attempts
to stay abreast of emerging lifestyle and consumer preferences
affecting its merchandise, any sustained failure by the Company
to identify and respond to such trends could have a material and
adverse effect on the Company's business and financial condition.
The Company's business is seasonal and its quarterly sales
and profits traditionally have been lower during the first three
fiscal quarters of the year (February through October) and higher
during the fourth fiscal quarter (November through January). In
addition, working capital requirements fluctuate throughout the
year, increasing substantially in October and November in
anticipation of the holiday season due to requirements for
significantly higher inventory levels. Any substantial decrease
in sales for the last three months of the year could have a
material and adverse effect on the Company's business and
financial condition.
The Company's business depends, in part, on normal weather
patterns across its markets. Any unusual weather patterns in the
Company's markets can have a material and adverse impact on the
Company's business and financial condition.
Competition: The retail apparel business is highly
competitive. Although competition varies widely from market to
market, the Company faces substantial competition, particularly
in its Houston area markets, from national, regional and local
department and specialty stores. Some of the Company's
competitors are considerably larger than the Company and have
substantially greater financial and other resources. Although
the Company currently offers branded merchandise not available at
certain other retailers (including large national discounters) in
its small market stores, there can be no assurance that existing
or new competitors will not carry similar branded merchandise in
the future, which could have a material and adverse effect on the
Company's business and financial condition.
Dependence on Key Personnel: The success of the Company
depends to a large extent on its management team. Certain members
of senior management, including the former Chief Executive
Officer, the Chief Financial Officer, the Chief Merchandising
Officer and the Chief Information Officer have departed from the
Company. Although the responsibilities of these individuals have
been reassigned to other members of management, their departure
could have a material adverse effect on the Company's business
and financial condition.
Consumer Credit Risks - Private Label Credit Card Portfolio:
Sales under the Company's private label credit card program
represent a significant portion of the Company's business. In
recent years, some retailers have experienced substantial
increases in the rate of charge-offs in their credit card
portfolios. Any significant deterioration in the quality of the
Company's accounts receivable portfolio or any adverse changes in
laws regulating the granting or servicing of credit (including
late fees and the finance charge applied to outstanding balances)
could have a material and adverse effect on the Company's
business and financial condition.
Interest Rate Risk: Borrowings under the Company's DIP
Financing bear a floating rate of interest. If market rates of
interest increase, the Company's financial results could be
materially and adversely affected. See "Liquidity and Capital
Resources."
Centralized Operations: The Company's buying, credit,
distribution and other corporate operations are highly
centralized in three main locations. The Company's operations
could be materially affected if a catastrophic event (such as,
but not limited to, fire, hurricanes or floods) impacts use of
these facilities. There can be no assurances that the Company
would be successful in obtaining alternative servicing facilities
in a timely manner if such a catastrophic event should occur.
Year 2000 Compliance: The Company is currently not aware of
any Year 2000 problems with its information systems or peripheral
systems and hardware. However, the success to date of the
Company's Year 2000 efforts cannot guarantee that a Year 2000
problem affecting its systems or those of its major third party
vendors will not become apparent in the future. In the event
that the Company or any of its major third party vendors does
encounter any Year 2000 problems, the Company's business or
operations could be adversely affected.
The aggregate cost that was paid to third parties who
assisted in the Company's Year 2000 efforts was approximately
$2.5 million. These costs were expensed as incurred. These
amounts did not include any costs associated with the
implementation of contingency plans or the costs associated with
the replacement of information systems, hardware or equipment,
substantially all of which was capitalized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See: "Risk Factors", above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Schedules" included
on page 31 for information required under this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and all positions
held by the directors and executive officers of Stage Stores as
of June 1, 2000:
Name Age Position
John Wiesner 62 Chairman, Interim Chief Executive Officer
and President
Ernest Cruse 49 Senior Vice President Director of Stores
Barry Gold 57 Executive Vice President Administration
and Assistant to CEO
Ron Lucas 52 Executive Vice President, Human Resources
Charles Sledge 34 Senior Vice President Finance, Treasurer
and Corporate Secretary
Jack Bush 65 Director
Harold Compton 52 Director
Robert Huth 54 Director
Richard Jolosky 65 Director
Carl Tooker 52 Director
Mr. Wiesner, who had been a Director since July 1997, was
appointed Chairman, Interim Chief Executive Officer and President
in February 2000 upon the departure of Carl Tooker, the Company's
former Chairman, Chief Executive Officer and President. Prior to
joining the Company, Mr. Wiesner held varying positions at CR
Anthony, including Chairman of the Board, Chief Executive Officer
from 1987 to 1997. Mr. Wiesner is also a Director of Lamonts,
Elder-Beerman, Inc. and Loewen Group, Inc. and an advisory
director of Fiesta Foods, Inc.
Mr. Cruse has been with the Company since 1966 and is
currently Senior Vice President, Director of Stores. Prior to
assuming this position, Mr. Cruse was Senior Vice President of
Planning and Allocation from February 1999 to February 2000,
Senior Vice President, Territorial Manager of Stores from
February 1997 to February 1999, Vice President, Regional Manager
of Stores from September 1995 to February 1997, and Vice
President, District Manager of Stores from February 1984 to
September 1995.
Mr. Gold joined the Company in March 2000 as Executive Vice
President, Administration and Assistant to the Chief Executive
Officer. Prior to joining the Company, Mr. Gold was Executive
Vice President of Operations, Logistics and Loss Prevention since
March 1998 for Jumbo Sports. Jumbo Sports filed a voluntary
Chapter 11 Petition under the Federal bankruptcy laws on January
1, 1999. Mr. Gold previously served as Executive Vice President
of Stores and Operations for L. Luria and Son, a specialty
retailer, from 1996 to 1998. L. Luria and Son filed for
protection under Chapter 11 of the Bankruptcy Code on August 13,
1997. Prior to that he served as Chief Financial Officer of The
Flax Art and Design Company, Inc. and Vice Chairman/Chief
Operating Officer of Fisher Big Wheel.
Mr. Lucas joined the Company in July 1995 as Senior Vice
President, Human Resources and was promoted to Executive Vice
President, Human Resources in March 1998. Between 1987 and 1995,
Mr. Lucas served as Vice President, Human Resources at two
different divisions of Limited, Inc., the Limited Stores Division
and Lane Bryant. Previously, he spent seventeen years at the
Venture Stores Division of May Co. where from 1985 to 1987 he was
Vice President, Organization Development.
Mr. Sledge joined the Company in April 1996 as Vice
President, Controller and was promoted to Senior Vice President
Finance and Treasurer in April 1999. Prior to joining the
Company, Mr. Sledge was a Senior Audit Manager with
PricewaterhouseCoopers, LLP, where he was employed since 1989.
Mr. Bush has been a Director since December 1997. Mr. Bush
is also President of Raintree Partners, Inc., a management
consulting firm where he has served since 1995. He served as
Chairman, Director and Chief Executive Officer of Jumbo Sports
from December 1997 to March 1999. Jumbo Sports filed a voluntary
Chapter 11 Petition under the Federal bankruptcy laws on
January 1, 1999. He also serves as a Director of TeleQuip
Company and Chairman of the Strategic Board of Directors of the
College of Business and Public Administration at the University
of Missouri. From August 1991 to August 1995, Mr. Bush was
President, a Director and a consultant to Michaels Stores, Inc.
From April 1996 to April 1999, he served as Chief Concept Officer
of Aaron Bros. Holding Company. Mr. Bush is also Chairman of an
internet company, IdeaForest.com.
Mr. Compton has been a Director since March 1997. Mr.
Compton is currently Chief Executive Officer of CompUSA, Inc.
From September 1994 to March 2000, Mr. Compton was President of
CompUSA Stores and from August 1994 to February 2000, he served
as Executive Vice President of CompUSA, Inc. Mr. Compton served
as President and Chief Operating Officer of Central Electric Inc.
from December 1993 to August 1994 and as Executive Vice President-
Operations & Human Resources of HomeBase, Inc. from 1989 to 1993.
Mr. Compton is also a Director of Linens `N Things, Inc.
Mr. Huth has been a Director since March 1997. Mr. Huth is
currently Director, Chief Executive Officer and President of
David's Bridal where he has served since May 1999. Previously,
he served as Director, President and Chief Operating Officer of
David's Bridal from 1995 to May 1999. Prior to joining David's
Bridal, Mr. Huth served as Director, Executive Vice President and
Chief Financial Officer of Melville Corporation from 1987 to
1995.
Mr. Jolosky has been a Director since March 1997. From
January 1996 until his retirement in October 1999, Mr. Jolosky
was President and Vice Chairman of Payless ShoeSource, Inc. Mr.
Jolosky served as President and Chief Executive Officer of
Silverman Jewelry Company from 1995 to 1996 and as Chief
Executive Officer of the Richard Allen Company from 1992 to 1995.
Although Mr. Tooker was terminated as President and Chief
Executive Officer and ceased serving as Chairman of the Board of
Directors on February 21, 2000, he continues to serve as a
Director until the expiration of his term at the Company's annual
shareholders meeting which is unscheduled as of June 1, 2000.
DIRECTOR AND OFFICER AND TEN PERCENT STOCKHOLDER SECURITIES
REPORTS
Federal securities laws require the Company's directors and
officers, and persons who own more than ten percent of the
Company's Common Stock, to file with the Securities and Exchange
Commission, the New York Stock Exchange and the Secretary of the
Company initial reports of ownership and reports of changes in
ownership of the Common Stock of the Company.
To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports are required, during 1999,
all of the Company's officers, directors and greater-than-ten-
percent beneficial owners made all required filings except the
following: the Form 4 for the March 1999 period for Ron Lucas and
the former executives of the Company, Carl Tooker, James Marcum,
Stephen Lovell, Jim Bodemuller and Gregg Kennedy, were not filed
on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Directors who are full-time employees or affiliates of the
Company, including John Wiesner subsequent to his appointment on
February 21, 2000 as Chairman, Interim Chief Executive Officer
and President, receive no additional compensation for serving on
the Board of Directors. Directors who are not full-time employees
or affiliates of the Company, namely Messrs. Bush, Compton, Huth,
Jolosky and Wiesner (prior to February 21, 2000), receive
quarterly cash compensation of $5,000 for services rendered as
Director and $1,000 for each committee meeting the Director
attends. In addition, such Directors are eligible for annual
option grants which vest over a four year period. During 1999,
such directors did not receive any option grants. Mr. Wiesner
also received monthly compensation under a preexisting severance
agreement he had with C. R. Anthony Co., which the Company
acquired in 1997.
Summary Compensation Table
The following summarizes, for the fiscal years indicated,
the principal components of compensation for the Company's Chief
Executive Officer (the "CEO") and the four highest compensated
executive officers (collectively, the "named executive officers")
as of January 29, 2000. Sections omitted are not applicable.
Annual Compensation
Other
Annual
Fiscal Salary Bonus Compensation
Name and Principal Position Year ($) ($)(1) ($)
Carl Tooker, (4) 1999 795,000 -- 510,950 (5)
Former Chairman, Chief 1998 758,333 -- 137,658 (6)
Executive Officer and President 1997 683,438 645,000 119,341 (7)
James Marcum, (20) 1999 437,500 -- 36,812 (8)
Former Director, Vice Chairman 1998 420,833 -- 62,539 (9)
and Chief Financial Officer 1997 377,563 322,000 110,945 (10)
Stephen Lovell, (11) 1999 437,500 -- 34,201 (12)
Former Vice Chairman and 1998 420,833 -- 62,404 (13)
Chief Field Operations Officer 1997 363,044 322,000 527,017 (14)
Gregg Kennedy, (21) 1999 325,000 -- 15,169 (15)
Former Executive VP and 1998 99,375 15,000 20,921 (16)
Chief Merchandising Officer 1997 -- -- --
Jim Bodemuller, (21) 1999 308,333 -- 32,025 (17)
Former Executive VP and 1998 292,624 -- 16,485 (18)
Chief Information Officer 1997 188,493 187,000 23,679 (19)
Long-term
Compensation
Awards
Securities
Restricted Underlying All Other
Fiscal Stock Options/ Comp.
Name and Principal Position Year ($)(2) SARs (#) ($)(3)
Carl Tooker, (4) 1999 212,500 45,000 4,448
Former Chairman, Chief 1998 744,750 35,000 9,282
Executive Officer and President 1997 3,225,000 50,000 9,282
James Marcum, (20) 1999 93,750 20,000 1,934
Former Director, Vice Chairman 1998 372,375 42,000 2,127
and Chief Financial Officer 1997 806,250 15,000 1,483
Stephen Lovell, (11) 1999 93,750 20,000 1,934
Former Vice Chairman and 1998 372,375 42,000 3,232
Chief Field Operations Officer 1997 806,250 15,000 2,332
Gregg Kennedy, (21) 1999 93,750 40,000 2,819
Former Executive VP and 1998 -- 12,000 1,140
Chief Merchandising Officer 1997 -- -- --
Jim Bodemuller, (21) 1999 62,500 12,500 4,448
Former Executive VP and 1998 211,013 25,000 6,781
Chief Information Officer 1997 161,250 35,000 1,832
_______________________________
(1) Amounts reflect bonuses earned during the fiscal year covered
(and paid during the subsequent fiscal year).
(2) Represents the restricted stock awards to the named
executives multiplied by the market price of the underlying
common stock as of the grant date. These shares are subject
to various vesting requirements.
(3) Amounts reflect premiums paid for life insurance coverage.
(4) Mr. Tooker's employment with the Company was terminated on
February 21, 2000.
(5) Amount shown reflects the value realized upon the exercise of
options for common stock of $460,899 during 1999. Value
realized is based upon the fair market value of the stock at
the exercise date minus the exercise price. Amount shown
also reflects the value realized upon the issuance of common
stock pursuant to vested restricted stock awards of $34,313
during 1999. Value realized is based upon the fair market
value of the stock at the date of vesting. Amount shown also
reflects automobile allowance of $12,000 and health insurance
benefits of $3,739 paid to Mr. Tooker during 1999.
(6) Amount shown reflects imputed interest on executive loans of
$78,263, a distribution related to options vested of $38,000,
housing allowance of $5,000, automobile allowance of $12,000
and health insurance benefits of $4,395 paid to Mr. Tooker
during 1998.
(7) Amounts shown reflects imputed interest on executive loans of
$45,685, a distribution related to options vested of $38,000,
housing and automobile allowances of $32,000 and health
insurance benefits of $3,656 paid to Mr. Tooker during 1997.
(8) Amount shown reflects the value realized upon the issuance of
common stock pursuant to vested restricted stock awards of
$17,156 during 1999. Value realized is based upon the fair
market value of the stock at the date of vesting. Amount
shown also reflects housing allowance of $2,011, automobile
allowance of $12,000 and health insurance benefits of $5,645
paid to Mr. Marcum during 1999.
(9) Amount shown reflects imputed interest on executive
loans of $24,977, housing allowance of $18,777, automobile
allowance of $12,000 and health insurance benefits of $6,785
paid to Mr. Marcum during 1998.
(10) Amount shown reflects moving expenses of $74,490,
imputed interest on executive loans of $20,485, housing and
automobile allowances of $12,000 and health insurance
benefits of $3,970 paid to Mr. Marcum during 1997.
(11) Mr. Lovell ceased serving as Chief Field Operations
Officer on February 22, 2000 and left the Company on March
31, 2000.
(12) Amount shown reflects the value realized upon the
issuance of common stock pursuant to vested restricted stock
awards of $17,156 during 1999. Value realized is based upon
the fair market value of the stock at the date of vesting.
Amount shown also reflects automobile allowance of $12,000
and health insurance benefits of $5,045 paid to Mr. Lovell
during 1999.
(13) Amount shown reflects imputed interest on executive
loans of $42,880, automobile allowance of $12,000 and health
insurance benefits of $7,524 paid to Mr. Lovell during 1998.
(14) Amount shown reflects the value realized by Mr. Lovell
upon the exercise of options for common stock of $485,941
during 1997. Value realized is based upon the fair market
value of the stock at the exercise date minus the exercise
price. Amount shown also reflects imputed interest on
executive loans of $25,015, housing and automobile allowances
of $12,000, and health insurance benefits of $4,061 paid to
Mr. Lovell during 1997.
(15) Amount shown reflects moving expenses of $240,
automobile allowance of $12,000 and health insurance benefits
of $2,929 paid to Mr. Kennedy during 1999.
(16) Amount shown reflects moving expenses of $20,921 paid to Mr.
Kennedy during 1998.
(17) Amount shown reflects the value realized upon the
issuance of common stock pursuant to vested restricted stock
awards of $9,722 during 1999. Value realized is based upon
the fair market value of the stock at the date of vesting.
Amount shown also reflects moving expense of $7,118,
automobile allowance of $12,000 and health insurance benefits
of $3,185 paid to Mr. Bodemuller during 1999.
(18) Amount shown reflects automobile allowance of $12,000 and
health insurance benefits of $4,485 paid to Mr.
Bodemuller during 1998.
(19) Amount reflects moving expenses of $20,270, housing and
automobile allowances of $2,000 and health insurance benefits of
$1,409 paid to Mr. Bodemuller during 1997.
(20) Mr. Marcum resigned from the Company effective May 1, 2000.
(21) Messers. Bodemuller and Kennedy resigned from the Company
effective May 26, 2000.
Option/SAR Grants During 1999
The following discloses options granted during 1999 to the
named executive officers:
Individual Grants
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to
SAR's Employees
Granted in Fiscal Exercise or Expiration
Name (#)(1) Year (%) Base Price ($) Date
Carl Tooker 45,000 9.04 7.25 3/31/09
James Marcum 20,000 4.02 7.25 3/31/09
Stephen Lovell 20,000 4.02 7.25 3/31/09
Gregg Kennedy 40,000 8.04 7.56 2/12/09
Jim Bodemuller 12,500 2.51 7.25 3/31/09
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
for Option Term
5% 10%
Annual Annual
Growth Growth
Name Rate ($) Rate ($)
Carl Tooker 205,177 519,958
James Marcum 91,190 231,093
Stephen Lovell 91,190 231,093
Gregg Kennedy 190,241 482,107
Jim Bodemuller 56,994 144,433
___________________
(1) All of such options were granted under the 1996 Incentive
Plan. The options granted under the Stock Option Plan are subject
to vesting.
Aggregated Option/SAR Exercises During 1999 and 1999 Year-End
Option/SAR Values
The following summarizes exercises of stock options (granted
in prior years) by the named executive officers during 1999, as
well as the number and value of all unexercised options held by
the named executive officers at the end of 1999:
Shares
Acquired on Value
Name Exercise (#) Realized ($)(1)
Carl Tooker 75,782 460,899
James Marcum -- --
Stephen Lovell -- --
Gregg Kennedy -- --
Jim Bodemuller -- --
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) FY-End ($)(2)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
Carl Tooker 133,211/238,341 --/--
James Marcum 117,463/106,364 --/--
Stephen Lovell 70,096/115,836 --/--
Gregg Kennedy 3,000/49,000 --/--
Jim Bodemuller 23,750/48,750 --/--
___________
(1) Value realized is based upon the fair market value of the
stock at the exercise date minus the exercise price.
(2) Value is based upon the closing price of the Common Stock
on January 28, 2000 of $1.38 minus the exercise price.
Employment Agreements
At year-end, the named executive officers had employment
agreements with the Company which provided for their initial base
salaries as well as annual incentive bonuses as agreed to with
the Compensation Committee. The employment agreements also
provide for annual performance reviews, salary increases at the
discretion of the Compensation Committee and participation in all
other bonus and benefit plans available to executive officers of
the Company. The employment agreements in effect for the named
executive officers for the fiscal year ended January 29, 2000 may
vary slightly from officer to officer. The details are contained
in copies of the various agreements referenced as exhibits
attached to the Form 10-K.
Generally, the employment agreements provide that if the
Company terminates an officer other than for good cause (as
defined in the respective employment agreements), the officer
would be entitled to two times his base salary. In addition, the
officer would be entitled to his targeted bonus amounts, any
accrued or unpaid bonus, salary and deferred compensation, any
expense allowances and any earned but unpaid benefits under the
Company's benefit plans (the "Additional Payments"). In addition,
any unvested stock options and restricted stock awards would
continue to vest during this two year period. (In the case of
Mr. Tooker, his employment agreement provided for three times
base salary and the Additional Payments described above if
terminated without cause. Since both Mr. Tooker and Mr. Lovell
were terminated for cause on February 21, 2000 and March 31, 2000
respectively, they are not entitled to payments under their
respective employment agreements nor do their vesting rights
extend past the date of termination). In the event the Company
elects not to permit the automatic renewal of an officer's
employment contract at the end of a term (one year), or in the
event an officer is terminated or resigns for good reason (as
defined in the respective employment agreements) following a
change of control, the employment agreements provide that the
respective individual would be entitled to three times his base
salary plus the Additional Payments described above. In the
event of a change of control of the Company in which the Company
does not survive, all unvested options for the purchase of Common
Stock and restricted stock held by the aforementioned individuals
would vest immediately and the respective individual would also
be entitled to certain other payments as specified in the
employment agreements. The employment agreements also contain
certain non-compete and confidentiality provisions. Each of the
employment agreements renews annually in accordance with its
terms. As a result of his dismissal from the Company for cause,
the Company is not obligated to make any payments to Mr. Tooker
under his employment agreement. Additionally, as a result of
their resignation from the Company after year-end, the employment
agreements for Messrs. Marcum, Bodemuller and Kennedy terminated.
Company Retirement Plans
Retirement Plan
The Stage Stores, Inc. Retirement Plan (the "Plan") is a
qualified defined benefit plan. Benefits under the Plan are
administered through a trust arrangement providing benefits in
the form of monthly payments or a single lump sum payment. The
Plan covers substantially all employees who have completed one
year of service with 1,000 hours of service as of June 30, 1998.
Effective June 30, 1998, the Plan was frozen. There were no
future benefit accruals after that date. Any service after that
date will continue toward vesting and eligibility for normal and
early retirement.
The Plan is administered by the retirement plan committee (the
"Retirement Committee"), and the Company appoints its three to
five members. All determinations of the Retirement Committee are
made in accordance with the provisions of the Plan in a uniform
and nondiscriminatory manner.
Generally, a participant is eligible for a benefit on his/her
normal retirement date, which is the later of age 65 or the fifth
anniversary of the date of hire. A participant may elect an early
retirement benefit if he/she is at least 55 years old, has
ten (10) Years of Service (as defined below) and retires from
active employment with the Company. Early retirement benefits are
reduced according to a formula established in the Plan based upon
each full month that the participant's age is less than 65 on the
date the payments commence. If a participant who is vested
terminates employment, he/she is entitled to a deferred benefit
payable at his/her normal retirement date or an earlier date, if
requested, but not before age 55.
The amount of a participant's retirement benefit is based on
each Year of Credited Service (as defined below) and on his/her
earnings for that year. The individual yearly benefits are then
totaled to determine the annual benefit at age 65. The annual
amount of the participant's normal retirement benefit is derived,
subject to certain limitations, by adding (i) 1% of earnings up
to $30,600 plus 1-1/2% of the excess of such earnings over
$30,600 for each Year of Credited Service earned on or after July
1, 1989 through December 31, 1991, (ii) 1% of earnings up to
$31,800 plus 1-1/2% of the excess of such earnings over $31,800
for each Year of Credited Service earned after December 31, 1991
and (iii) 1% of earnings up to $42,500 plus 1-1/2% of the excess
of such earnings over $42,500 for each Year of Credited Service
earned after December 31, 1994 through June 30, 1998. The normal
retirement benefit formula produces an annual benefit which is
paid to the participant in equal monthly installments. The
standard form of payment for a single participant is a monthly
benefit payable for the participant's life only. The standard
form of payment for a married participant is a 50% joint and
survivor benefit, which provides a reduced monthly benefit to the
participant during his/her lifetime, and 50% of that benefit to
the participant's spouse for his/her lifetime in the event of the
participant's death. Other forms of the payment are also provided
including lump sum payouts, but they require participant
election. In addition, the Retirement Committee may elect to pay
the benefit equivalent of a benefit payable at normal retirement
date in the form of a lump sum payment, if the lump sum payment
does not exceed $5,000.
Any participant who is credited with 1,000 or more hours of
service in a calendar year receives a "Year of Service", while
any participant who is credited with 1,284 or more hours of
service in a calendar year receives a "Year of Credited Service".
Years of Service determine a participant's eligibility for
benefits under the Plan, and the percentage vested in those
benefits. After five Years of Service, a participant is 100%
vested.
The Plan is funded entirely by Company contributions that are
held by a trustee for the exclusive benefit of the participants.
The Company voluntarily agreed to contribute the amounts
necessary to provide the assets required to meet the future
benefits payable to Plan participants. Under the Retirement Plan,
contributions are not specifically allocated to individual
participants.
The Benefit Equalization Plan
The Specialty Retailers, Inc. Benefit Equalization Plan (the
"Equalization Plan") is a non-qualified defined benefit plan
which is intended to replace the benefits that cannot be provided
under the terms of the Retirement Plan on account of certain
limitations imposed under the Internal Revenue Code (for example,
the Retirement Plan cannot consider compensation for a
participant which is in excess of $160,000 when determining the
participant's benefit). Effective June 30, 1998, the
Equalization Plan was frozen. There were no future benefit
accruals after that date. Any service after that date will
continue toward vesting and eligibility for normal and early
retirement. The Equalization Plan is unfunded. However, upon a
change of control as defined in the Equalization Plan, the
Company is required to deposit into a rabbi trust sufficient
funds to cover all obligations then accrued under the
Equalization Plan. The Equalization Plan was terminated May 31,
2000.
Supplemental Employee Retirement Plan
In 1996, the Company adopted the Specialty Retailers, Inc.
Supplemental Executive Retirement Plan (the "SERP"). The SERP
provides for supplemental retirement benefits for certain key
executives of the Company upon retirement at or after age 65 with
at least fifteen (15) years of credited service with the Company.
The SERP provides for annual retirement compensation of 50% of
the retiree's average annual base salary for the three years
preceding retirement, less amounts received under the Company's
defined benefit retirement plans. Participants in the SERP may
elect to receive reduced early retirement benefits at or after
age 55 with at least fifteen (15) years of credited service.
Upon a change in control as defined in the SERP, the Company is
required to deposit into a rabbi trust, sufficient funds to cover
all obligations then accrued under the SERP. If a participant's
employment is terminated after a change in control by the Company
without cause or by the participant for good reason, the
participant will be fully vested in the benefit that would have
been payable at age 55. This amount will be paid to the
participant in a lump sum upon termination of employment.
The SERP was terminated by the Board of Directors on March 7,
2000. At the time of termination, there were no participants
eligible for benefits under this plan.
Company Deferred Compensation Plan
The Specialty Retailers, Inc. Deferred Compensation Plan (the
"Deferred Compensation Plan") provides executive officers and
other key employees of the Company with the opportunity to
participate in an unfunded, deferred compensation program that is
not qualified under the Code. Generally, the Code and the
Employee Retirement Income Security Act of 1974, as amended,
restrict contributions to a 401(k) plan by highly compensated
employees. The Deferred Compensation Plan is intended to allow
participants to defer income at the same rates as those employees
not restricted by such regulations. Under the Deferred
Compensation Plan, participants may defer up to 15% of their
salary and bonus (not otherwise covered by the Company's 401(k)
plan) and earn a rate of return based on select indices chosen by
each participant. The Company may, but is not obligated to,
establish a grantor trust for the purposes of holding assets to
provide benefits to the participants. The Company will match 50%
of the first 6% of each participant's contributions to the
Deferred Compensation Plan not otherwise covered by the Company's
401(k) plan. Company contributions vest over five years of
service.
The Deferred Compensation Plan was terminated by the Board of
Directors on March 7, 2000. The Company paid the participants
their appropriate account balances during April 2000.
Compensation Committee Report
The Compensation Committee of the Board of Directors is
responsible for administering and making recommendations to the
Board of Directors the amount of compensation of senior
executives of the Company. During 1999, the Compensation
Committee consisted of Messrs. Compton and Jolosky.
The Company's executive compensation programs are designed to
align the interests of senior management with those of the
Company's stockholders. There are three key components of
executive compensation: base salary, pay for performance (bonus
plan), and long-term performance incentive. It is the intent of
these programs to attract, motivate and retain senior executives.
It is the philosophy of the Compensation Committee to allocate a
significant portion of cash compensation to variable performance-
based compensation in order to reward executives for high
achievement.
Base Salary
The salaries for senior executives are based upon a combination
of factors including past individual performance, competitive
salary levels, and an individual's potential for making
significant contributions to future Company performance.
Bonus Plan
Each of the named executive officers and certain other key
personnel of the Company participate in an executive/management
bonus plan (the "Bonus Plan") The Bonus Plan provides for annual
bonus awards based upon individual performance and actual
operating results compared to planned operating results. Bonus
payments are subject to modification at the discretion of the
Compensation Committee. Due to the Company's poor 1999
performance, no bonuses were paid to the named executive officers
for such year. In addition, during 1999, the Compensation
Committee recommended and the Board of Directors approved a
special bonus plan designed to retain certain key executives. No
bonuses were paid to the named executive officers under this
bonus plan.
Stock Options and Restricted Stock
Stock options and restricted stock are an important component
of senior executive compensation. The 1993 Stock Option Plan and
the 1996 Equity Incentive Plan were designed to motivate senior
executives and other key employees to contribute to the long-term
growth of stockholder value. Generally, options granted under
such plans have been, and are expected to be, granted with a
price equal to the market price of the Common Stock on the date
of the grant and vest over four years. This approach is designed
to encourage the creation of long-term stockholder value since
the full benefit of such options cannot be realized unless the
stock price exceeds the exercise price. Restricted stock is
generally issued with long-term vesting schedules. This approach
provides a retention incentive for the recipient as well as the
creation of long-term stockholder value. Pursuant to the 1996
Equity Incentive Plan, the Compensation Committee recommended,
and the Board of Directors approved, an award of restricted stock
to the named executive officers during 1999 as follows: Mr.
Tooker - 34,000 shares; Mr. Marcum - 15,000 shares; Mr. Lovell -
15,000 shares; Mr. Kennedy - 15,000 shares; and Mr. Bodemuller -
10,000 shares. These awards vest 25% per year on each of the
first through fourth anniversaries of the grant date. The
vesting rights applicable to grants made to Mr. Tooker and Mr.
Lovell are limited by virtue of their termination.
Chief Executive Officer
The compensation policies described above applied as well to
the compensation of Mr. Tooker. The Compensation Committee was
directly responsible for making recommendations to the Board of
Directors for approval of Mr. Tooker's salary level and all awards
and grants to Mr. Tooker under incentive components of the
compensation program. The overall compensation package of Mr.
Tooker was designed to recognize the fact that he bore primary
responsibility for increasing the value of stockholders'
investments. Accordingly, a substantial portion of Mr. Tooker's
compensation was incentive-based, providing greater compensation
as direct and indirect financial measures of stockholder value
increase. Mr. Tooker's compensation was thus structured and
administered to motivate and reward the successful exercise of
these qualities.
Mr. Tooker's base compensation for 1999 was directly related to
the Company's overall performance for 1998, as measured by
financial and other criteria such as: (i) the financial
performance of the Company, (ii) the performance of the senior
management team and (iii) other related qualitative factors. Due
to the Company's poor 1999 performance, no bonus was paid to Mr.
Tooker for such year. As previously discussed, Mr. Tooker left
employment with the Company on February 22, 2000.
Conclusion
Through the programs described above, a significant portion of
the Company's executive compensation is linked directly to
corporate performance and stock price appreciation. The
Compensation Committee believes that existing compensation
policies and programs are competitive and effectively align
executive compensation with the Company's goal of maximizing the
return to stockholders.
The Compensation Committee has determined that it is unlikely
that the Company would pay amounts during 2000 that would result
in the loss of a federal income tax deduction under Section
162(m) of the Code, and accordingly, had not recommended that any
special actions be taken or that any plans or programs be revised
at this time in light of such provision.
Harold Compton and Richard Jolosky, Compensation Committee
PERFORMANCE GRAPH
The following graph compares the value of $100.00 invested on
October 25, 1996 (the date of the initial public offering ("IPO")
of the Company) through January 28, 2000 (the last day of public
trading in fiscal 1999 at the closing price on the New York Stock
Exchange ("NYSE")) in the Common Stock, the S&P 500 and the S&P
500 Retail. The return of the indices is calculated assuming
reinvestment of dividends during the period presented. The
Company has not paid any dividends since its IPO. The stock
price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG STAGE STORES, INC.,
S&P 500 AND S&P 500 RETAIL
-- Line Graph Showing Comparison of Cummulative Total Return --
-- Among Stage Stores, Inc., S&P 500 and S&P 500 Retail --
Date Stage Stores, Inc. S&P 500 Retail S&P 500
10/25/96 $100.00 $100.00 $100.00
1/31/97 $105.30 $94.86 $112.16
1/30/98 $235.04 $139.19 $139.86
1/29/99 $48.48 $221.45 $182.62
1/28/00 $8.33 $237.77 $194.05
Prior to April 16, 1998, the Company's Common Stock was
quoted on the NASDAQ National Market System under the symbol
"STGE". Beginning April 16, 1998, the Company's Common Stock
started trading on the NYSE under the symbol "SGE".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The table below sets forth certain information regarding
ownership of Common Stock as of either May 30, 2000 or based on
the latest filings made under Section 13 (d) and 13 (g) of the
Securities Exchange Act of 1934 and assuming exercise of options
exercisable within sixty days of May 30, 2000 by (i) each person
or entity who owns of record or beneficially 5% or more of the
Common Stock, (ii) each director and named executive officer and
(iii) all directors and named executive officers as a group. Each
such stockholder is assumed to have sole voting and investment
power as to the shares shown. Known exceptions are noted. As of
May 30, 2000, 1,250,584 shares of Class B Common Stock were
outstanding, all of which is owned by Court Square Capital
Limited, a subsidiary of Citigroup Inc.
Number of Percentage
Shares of Shares of
Name Common Stock Common Stock
5% Stockholders
Brookside Capital Partners 3,980,472 14.2%
Fund, L.P.
Two Copley Place
Boston, MA 02116
AXA Financial, Inc. 2,646,900 9.4%
1290 Avenue of the Americas
New York, NY 10104
Citigroup Inc. (1) 2,549,548 9.1%
153 East 53rd Street
New York, NY 10043
Lord, Abbett & Co. 2,451,689 8.7%
90 Hudson Street
Jersey City, NJ 07302
Thomson Horstman & Bryant, 2,250,400 8.0%
Inc.
Park 80 West, Plaza Two
Saddle Brook, NJ 07663
The Bear Stearns Companies 2,228,800 7.9%
Inc.
245 Park Avenue
New York, NY 10167
Wellington Management 2,062,800 7.3%
Company, LLP.
75 State Street
Boston, MA 02109
Directors and Executive Officers
John Wiesner 6,750 *
Ernest Cruse 12,954 *
Barry Gold 0 *
Ron Lucas 60,054 *
Charles Sledge 16,200 *
Jack E. Bush 8,750 *
Harold Compton 5,000 *
Robert Huth 9,000 *
Richard Jolosky 5,000 *
All executive officers and
directors as a group (9 persons) 126,208 .45%
_____________________________________
* Less than 1%.
(1) Citigroup Inc. beneficially owns shares (including Class B
Common Stock) through its subsidiaries Citicorp Venture Capital,
Court Square Capital Limited and other subsidiaries. Citicorp
Venture Capital owns 600,296 shares of Common Stock, Court Square
owns 370,068 shares of Common Stock and 1,250,584 shares of non-
voting Class B Common Stock and other subsidiaries of Citigroup
Inc. own 328,600 shares of Common Stock. Each share of non-
voting Class B Common Stock is convertible, subject to certain
restrictions, into shares of Common Stock.
(2) Messrs. Tooker, Marcum, Lovell, Kennedy and Bodemuller are
no longer officers of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans
The Company had loans outstanding at January 29, 2000 to
certain executive officers of the Company in the aggregate
principal amount of $2,974,686.
As of January 29, 2000, Mr. Tooker had six loans from the
Company outstanding. Mr. Tooker owed the Company $1,109,692 in
principal and accrued interest on the loans, which was the
largest aggregate amount of indebtedness outstanding owed by
Mr. Tooker to the Company at any time during the 1999 fiscal
year. The principal balances and rates of interest on the loans
are $140,000 (5.70%), $203,200 (5.70%), $175,000 (5.88% up to
7/15/99; 12.0% thereafter), $125,000 (5.74% up to 9/15/99; 12.0%
thereafter), $200,000 (8.50%) and $200,000 (9.0%). On February
20, 2000, the Special Committee of the Board determined that a
loan in the principal amount of $300,000 was part of the "Ranch
Transaction" as described below in "Other Transactions" and
should be reflected on the books of the Company as a loan
repayment when Mr. Tooker caused the Company to purchase this
property and pay him an amount he claimed as his equity in such
property. The Company is seeking from Mr. Tooker the full amount
of its loss in connection with this transaction, including the
amount credited to payment of this loan and has filed suit to
recover such amounts.
As of January 29, 2000, Mr. Marcum had five loans from the
Company outstanding. Mr. Marcum owed the Company $498,125 in
principal and accrued interest on these loans, which was the
largest aggregate amount of indebtedness outstanding owed by
Mr. Marcum to the Company at any time during the 1999 fiscal
year. The principal balances and rates of interest on the loans
are $115,000 (5.70%), $75,000 (5.70%), $165,000 (5.88% up to
7/15/99; 12.0% thereafter), $12,500 (8.50%) and $100,000 (9.0%).
A News Release regarding Mr. Marcum's resignation was issued by
the Company May 24, 2000. As of June 1, 2000, Mr. Marcum's loans
with the Company had been repaid in full.
As of January 29, 2000, Mr. Lovell had six loans from the
Company outstanding. Mr. Lovell owed the Company $565,544 in
principal and accrued interest on the loans, which was the
largest aggregate amount of indebtedness outstanding owed by
Mr. Lovell to the Company at any time during the 1999 fiscal
year. The principal balances and rates of interest on the loans
are $150,000 (6.30%), $125,000 (5.87%), $142,679 (5.93%), $25,000
(8.50%), $20,000 (9.0%) and $71,815 (9.0%). On may 31, 2000, the
Company and Mr. Lovell entered into a settlement agreement which
resolved all outstanding loans and other issues between the Company
and Mr. Lovell.
As of January 29, 2000, Mr. Lucas had three loans from the
Company outstanding. Mr. Lucas owed the Company $683,043 in
principal and accrued interest on the loans, which was the
largest aggregate amount of indebtedness owed by Mr. Lucas to the
Company at any time during the 1999 fiscal year. The principal
balances and rates of interest on the loans are $377,195 (5.98%
up to 4/29/99; 12.0% thereafter), $145,000 (8.5%) and $107,298
(9.0%). Arrangements have been made with Mr. Lucas to repay the
remaining balances outstanding under his loans.
Consulting Services
Beginning in March 2000, Mr. Bush began providing certain
consulting services to the Company. Under his consulting
agreement with the Company, Mr. Bush receives a specified daily
consulting rate plus reimbursement of any expenses he incurs
while performing such consulting services.
Other Transactions
Mr. Tooker's departure as President and Chief Executive
Officer follows an inquiry conducted by a Special Committee
consisting of all of the non-management members of the Board of
Directors, which reviewed certain transactions between the
Company and Mr. Tooker. The effects of the transactions reviewed
have been reflected in the Company's results for prior periods,
and the Committee believes they are not material to the financial
condition or operations of the Company. However, these
transactions had not been properly reported to the Company's
Board of Directors.
Specifically, the Special Committee determined that the
Company purchased Mr. Tooker's personal residence in 1997 at a
price specified by him, and assumed all liability for the
property, including upkeep and existing debt payments, until it
was sold in 1999 (the "Ranch Transaction"). The Company
sustained a loss of $806,556 as a result of this transaction.
Although the payment of these funds has been reflected in the
Company's books and records, this transaction was not previously
disclosed in prior filings with the SEC, nor was it approved by
the Board of Directors.
In another transaction, it was determined that in May, 1997
the Company entered into a severance agreement and a separate
consulting contract in connection with the separation of an
employee who shortly thereafter became Mr. Tooker's spouse. The
Company recorded in its books and records payments to or for the
benefit of his spouse beginning in May, 1997, and ending in
August 1998, totaling $608,317.48, without the knowledge or
approval of the Board of Directors. Additionally, these
transactions were not previously disclosed in prior filings with
the SEC. The Special Committee also determined that while
employed by the Company in 1996 and 1997, this employee entered
into transactions with a company with whom her sister was
believed to be affiliated, in which the Company paid a total of
$313,260 for purchases of clothing inventory. The Special
Committee did not find any overcharges with respect to the
inventory purchases.
Demand has been made upon Mr. Tooker to reimburse the Company
for the unauthorized payments regarding his personal residence
and the severance paid to his spouse. In addition, the Company
has demanded repayment by Mr. Tooker of outstanding loans he
obtained from the Company, with interest thereon, totaling
approximately $1.1 million. Some of these loans are secured by
collateral which includes securities of the Company.
The Special Committee further determined that during the years
1997 through 1999, the Company maintained a contractual
relationship with Stage Planning and Design, Inc. ("SPAD"),
believed to be a wholly-owned subsidiary of U.S. Builders, Inc.,
to manage the construction of store openings and remodeling.
Under the terms of this agreement, the Company was required to
and did reimburse or pay direct all of SPAD's costs, including
all payroll expenses. In 1997, the Company paid SPAD in excess
of $2.4 million, and in 1998 in excess of $9.9 million. Until
late 1999, Mr. Tooker's son-in-law was an officer and project
manager for SPAD, whose compensation was included as a
reimbursable expense billed to the Company during this time.
Although the expenditures were recorded on the Company's books
and records for the years in which they were accrued, the
relationship involving Mr. Tooker's son-in-law was not approved
by the Board of Directors.
News Releases regarding Mr. Tooker's departure and certain
other matters were issued by the Company on February 22, 2000 and
March 9, 2000.
In connection with the aforementioned matters, the Company has
received and responded to an information request as part of an
informal inquiry by the Securities and Exchange Commission.
Transactions with Stockholders
Registration Rights Agreement
The Company is party to a Registration Agreement (the
"Registration Agreement") with Court Square pursuant to which
such stockholder has the right to cause the Company to register
shares of Common Stock (the "registrable securities") under the
Securities Act. As of May 30, 2000, 1,620,652 outstanding shares
of Common Stock constitute registrable securities and therefore
will be eligible for registration pursuant to the Registration
Agreement. Under the terms of the Registration Agreement, the
holders of at least a majority of the registrable securities can
require the Company, subject to certain limitations, to file up
to three "long-form" registration statements under the Securities
Act covering all or part of the registrable securities, and,
subject to certain limitations, to file an unlimited number of
"short-form" registration statements under the Securities Act
covering all or part of the registrable securities. The Company
is obligated to pay all registration expenses (other than
underwriting discounts and commissions and subject to certain
limitations) incurred in connection with the demand
registrations. In addition, the Registration Statement provides
the Court Square with "piggyback" registration rights, subject to
certain limitations, whenever the Company files a registration
statement on a registration form that can be used to register
registrable securities.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) and (d) Financial Statements
See "Index to Financial Statements and
Schedules" on Page 31.
(b) Reports on Form 8-K filed during the last quarter of the
period covered by this report.
The Company filed a News Release on Form 8-K dated
November 4, 1999 related to Stage Stores, Inc.
announcing third quarter 1999 sales.
The Company filed a News Release on Form 8-K dated
November 12, 1999 related to Stage Stores, Inc.
announcing the completion of the refinancing of the
Company's accounts receivable program.
The Company filed a News Release on Form 8-K dated
November 18, 1999 related to Stage Stores, Inc.
announcing third quarter 1999 results.
The Company filed a News Release on Form 8-K dated
December 10, 1999 related to Stage Stores, Inc.
announcing the dismissal of the class action lawsuit.
The Company filed a News Release on Form 8-K dated
January 6, 2000 related to Stage Stores, Inc.
announcing 1999 holiday period sales.
The Company filed a News Release on Form 8-K dated
February 3, 2000 related to Stage Stores, Inc.
announcing an amendment to the credit agreement,
discussing the Company's cost reduction program and
reporting fourth quarter 1999 sales.
The Company filed a copy of the Fifth Amendment
Agreement to the Credit Agreement, dated as of February
3, 2000, on Form 8-K dated February 7, 2000.
The Company filed a News Release on Form 8-K dated
February 23, 2000 related to Stage Stores, Inc.
announcing the departure of the Company's President and
Chief Executive Officer and a commitment to increase
the Company's working capital facility.
The Company filed a News Release on Form 8-K dated
March 9, 2000 related to Stage Stores, Inc. announcing
fourth quarter and full year 1999 results. The Company
also provided additional details on the departure of
the Company's President and Chief Executive Officer as
announced in a News Release on Form 8-K dated February
23, 2000.
The Company filed a News Release on Form 8-K dated May
1, 2000 related to Stage Stores Inc. announcing the
departure of the Company's Vice Chairman and Chief
Financial Officer.
The Company filed a News Release on Form 8-K dated
June 1, 2000 related to Stage Stores Inc. announcing a
major restructuring under Chapter 11 of the United
States Bankruptcy Code and commencement of its
reorganization proceedings in the United States
Bankruptcy Court in Houston, Texas.
(c) Exhibits - See "Exhibit Index" at X-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STAGE STORES, INC.
/s/ John J. Wiesner June 6, 2000
John J. Wiesner
Chairman, Chief Executive
Officer and President
(principal executive officer)
STAGE STORES, INC.
/s/ Charles M. Sledge June 6, 2000
Charles M. Sledge
Senior VP Finance, Treasurer and Secretary
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
/s/ John J. Wiesner Chairman of the Board June 6, 2000
John J. Wiesner of Directors
/s/ Jack Bush Director June 6, 2000
Jack Bush
/s/ Robert Huth Director June 6, 2000
Robert Huth
/s/ Richard Jolosky Director June 6, 2000
Richard Jolosky
/s/ Harold Compton Director June 6, 2000
Harold Compton
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Number
Financial Statements
Report of Independent Accountants F-1
Consolidated Balance Sheet at January 29, 2000 and January 30, 1999 F-2
Consolidated Statement of Operations for 1999, 1998 and 1997 F-3
Consolidated Statement of Cash Flows for 1999, 1998 and 1997 F-4
Consolidated Statement of Stockholders' Equity for 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
Schedules
All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
EXHIBIT INDEX
The following documents are the exhibits to the Form 10-K.
For convenient reference, each exhibit is listed according to the
Exhibit Table of Regulation S-K.
Exhibit
Number Exhibit
*2.1 Agreement and Plan of Merger, dated as of
March 5, 1997, between Stage Stores, Inc. and C.R.
Anthony Company (Incorporated by Reference to Exhibit
2.1 of Registration No. 333-27809 on Form S-4).
*2.2 First Amendment to Agreement and Plan of
Merger, dated as of May 20, 1997, between Stage Stores,
Inc. and C. R. Anthony Company (Incorporated by
Reference to Exhibit 2.2 of Registration No. 333-27809
on Form S-4).
*3.1 Amended and Restated Certificate of
Incorporation of Stage Stores, Inc. (Incorporated by
Reference to Exhibit 3.3 of Registration No. 333-5855
on Form S-1).
*3.2 Amended and Restated By-Laws of Stage Stores,
Inc. (Incorporated by Reference to Exhibit 3.4 of
Registration No. 333-5855 on Form S-1).
*3.3 Restated Articles Certificate of
Incorporation of Specialty Retailers, Inc.
(Incorporated by Reference to Exhibit 3.3 of
Registration No. 333-32695 on Form S-4).
*3.4 Amended and Restated Bylaws of Specialty
Retailers, Inc. (Incorporated by Reference to Exhibit
3.4 of Registration No. 333-32695 on Form S-4).
*3.5 Certificate of Incorporation of
Specialty Retailers, Inc. (NV) (Incorporated by
Reference to Exhibit 3.5 of Registration No. 333-32695
on Form S-4).
*3.6 Bylaws of Specialty Retailers, Inc. (NV)
(Incorporated by Reference to Exhibit 3.6 of
Registration No. 333-32695 on Form S-4).
*3.7 Rights Agreement dated as of
November 11, 1998 between Stage Stores, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights
Agent (Incorporated by Reference to Exhibit 1 of Form 8-
K of Stage Stores, Inc., dated November 12, 1998).
*4.1 Credit Agreement dated as of June
17, 1997 by and among Specialty Retailers, Inc., Stage
Stores, Inc., the banks named therein and Credit Suisse
First Boston (Incorporated by Reference to Exhibit 4.1
of Registration No. 333-32695 on Form S-4).
*4.2 Amendment Agreement dated as of June 26, 1997
by and among Specialty Retailers, Inc., Stage Stores,
Inc., the banks named therein and Credit Suisse First
Boston to the Credit Agreement dated as of June 17,
1997 (Incorporated by Reference to Exhibit 4.2 on Form
10-K of Stage Stores, Inc., for fiscal year ended
January 30, 1999).
*4.3 Second Amendment Agreement dated as of October 1,
1997 by and among Specialty Retailers, Inc., Stage
Stores, Inc., the banks named therein and Credit
Suisse First Boston to the Credit Agreement dated as
of June 17, 1997 (Incorporated by Reference to Exhibit
4.3 on Form 10-K of Stage Stores, Inc., for fiscal
year ended January 30, 1999).
*4.4 Third Amendment Agreement dated as of October 6, 1998
by and among Specialty Retailers, Inc., Stage Stores,
Inc., the banks named therein and Credit Suisse First
Boston to the Credit Agreement dated as of June 17,
1997. (Incorporated by Reference to Exhibit 4.1 on Form
10-Q of Stage Stores, Inc., dated October 31, 1998).
EXHIBIT INDEX
(Continued)
Exhibit
Number Exhibit
*4.5 Fourth Amendment Agreement dated as
of January 27, 1999 by and among Specialty Retailers,
Inc., Stage Stores, Inc., the banks named therein and
Credit Suisse First Boston to the Credit Agreement
dated as of June 17, 1997. (Incorporated by Reference
to Form 8-K of Stage Stores, Inc., dated January 28,
1999).
*4.6 Fifth Amendment Agreement dated as
of February 3, 2000 by and among Specialty Retailers,
Inc., Stage Stores, Inc., the banks named therein and
Credit Suisse First Boston to the Credit Agreement
dated as of June 17, 1997. (Incorporated by Reference
to Form 8-K of Stage Stores, Inc., dated February 7,
2000).
**4.7 Sixth Amendment Agreement dated as of
February 18, 2000 by and among Specialty Retailers,
Inc., Stage Stores, Inc., the banks named therein and
Credit Suisse First Boston to the Credit Agreement
dated as of June 17, 1997.
**4.8 Credit Agreement dated as of March 6,
2000 by and among Specialty Retailers, Inc., Stage
Stores, Inc., the banks named therein and Credit Suisse
First Boston.
*4.9 Indenture dated as of June 17, 1997 relating
to the $200,000,000 aggregate principal amount of 81/2%
Senior Notes due 2005 among Specialty Retailers, Inc.,
Stage Stores, Inc. and State Street Bank and Trust
Company, and First Supplemental Indenture dated as of
July 2, 1997 (Incorporated by Reference to Exhibit 4.2
of Registration No. 333-32695 on Form S-4).
*4.10 Indenture dated as of June 17, 1997 relating
to the $100,000,000 aggregate principal amount of 9%
Senior Subordinated Notes due 2007 among Specialty
Retailers, Inc., Stage Stores, Inc. and State Street
Bank and Trust Company, and First Supplemental
Indenture dated as of July 2, 1997 (Incorporated by
Reference to Exhibit 4.3 of Registration No. 333-32695
on Form S-4).
*4.11 Indenture between 3 Bealls Holding
Corporation and Bankers Trust Company, as Trustee,
relating to 3 Bealls Holding Corporation's 9%
Subordinated Debentures due 2002 (Incorporated by
Reference to Exhibit 4.2 of Registration No. 33-24571
on Form S-4) and First Supplemental Indenture dated
August 2, 1993 (Incorporated by Reference to Exhibit
4.4 of Registration No. 33-68258 on Form S-4).
*4.12 Indenture between 3 Bealls Holding
Corporation and IBJ Schroder Bank and Trust Company, as
Trustee, relating to 3 Bealls Holding Corporation's 7%
Junior Subordinated Debentures due 2002 (Incorporated
by Reference to Exhibit 4.3 of Registration No. 33-
24571 on Form S-4) and First Supplemental Indenture
dated August 2, 1993 (Incorporated by Reference to
Exhibit 4.5 of Registration No. 33-68258 on Form S-4).
**4.13 Second Amended and Restated Pooling and
Servicing Agreement by and among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc., and
Bankers Trust (Delaware) dated November 1, 1999.
**4.14 Amendment and Consent to the Second Amended
and Restated Pooling and Servicing Agreement by and
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., and Bankers Trust (Delaware) dated
December 9, 1999.
*4.15 Amended and Restated Receivables
Purchase Agreement among SRI Receivables Purchase Co.,
Inc. and Originators dated May 30, 1996 (Incorporated
by Reference to Exhibit 4.7 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
EXHIBIT INDEX
(Continued)
Exhibit
Number Exhibit
*4.16 First Amendment to the Amended and
Restated Receivables Purchase Agreement among SRI
Receivables Purchase Co., Inc. and Originators dated
August 1, 1998 (Incorporated by Reference to Exhibit
4.14 on Form 10-K of SRI Receivables Purchase Co.,
Inc., for fiscal year ended January 30, 1999).
**4.17 Second Amendment to the Amended and Restated
Receivables Purchase Agreement among SRI Receivables
Purchase Co., Inc. and Originators dated November 9,
1999.
*4.18 Receivables Transfer Agreement
among Specialty Retailers, Inc., and Granite National
Bank, N.A. dated as of August 1, 1998 (Incorporated by
Reference to Exhibit 4.15 on Form 10-K of SRI
Receivables Purchase Co., Inc., for fiscal year ended
January 30, 1999).
**4.19 First Amendment to the Receivables
Transfer Agreement among Specialty Retailers, Inc., and
Granite National Bank, N.A. dated as of November 9,
1999.
**4.20 Series 1999-1 Supplement to the Second
Amended and Restated Pooling and Servicing Agreement
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust "Delaware", dated as
of November 9, 1999, including amendments as of
December 9, 1999.
**4.21 Issuance Supplement I to the Series 1999-1
Supplement to the Second Amended and Restated Pooling
and Servicing Agreement among SRI Receivables Purchase
Co., Inc., Specialty Retailers, Inc. and Bankers Trust
"Delaware", dated as of November 9, 1999.
**4.22 Issuance and Indemnity Agreement among
Specialty Retailers, Inc., SRI Receivables Purchase
Co., Inc., Bankers Trust "Delaware" and R.V.I. Guaranty
Co. Ltd, dated as of December 9, 1999.
**4.23 Class A-1 Certificate Purchase Agreement
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., the Class A-1 Purchasers parties
thereto and Credit Suisse First Boston, dated as of
November 9, 1999.
**4.24 Class A-2 Certificate Purchase Agreement
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., the Class A-2 Purchasers parties
thereto and Credit Suisse First Boston, dated as of
November 9, 1999.
**4.25 Class B Certificate Purchase Agreement among
SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., the Class B Purchasers parties thereto
and Credit Suisse First Boston, dated as of November 9,
1999.
**4.26 Class C and Class D Certificate Purchase
Agreement among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc., and Credit Suisse First
Boston, dated as of November 9, 1999.
*10.1 Registration Agreement by and among Specialty
Retailers, Inc., Tyler Capital Fund, L.P. Tyler
Massachusetts, L.P., Tyler International, L.P.-I, Tyler
International, L.P.-II, Bain Venture Capital, Citicorp
Capital Investors, Ltd., Acadia Partners, L.P., Drexel
Burnham Lambert Incorporated, and certain other
Purchasers, dated December 29, 1988 (Incorporated by
Reference to Exhibit 10.10 of Registration No. 33-27714
on Form S-1) and Amendment to Registration Agreement
dated August 2, 1993 (Incorporated by Reference to
Exhibit 10.5 of Registration No. 33-68258 on Form S-4).
*10.2 Apparel Retailers, Inc. Stock Option Plan
(Incorporated by Reference to Exhibit 10.13 of
Registration No. 33-68258 on Form S-4).
EXHIBIT INDEX
(Continued)
Exhibit
Number Exhibit
*10.3 Employment Agreement between Stage Stores,
Inc. and Carl E. Tooker dated April 1, 1998.
(Incorporated by Reference to Exhibit 10.3 on Form 10-K
of Stage Stores, Inc., dated January 31, 1998).
*10.4 Stock Option Agreement between Specialty
Retailers, Inc. and Carl E. Tooker dated June 9, 1993
(Incorporated by Reference to Exhibit 10.18 of
Registration No. 33-68258 on Form S-4).
*10.5 Employment Agreement between James Marcum and
Stage Stores, Inc. dated April 1, 1998. (Incorporated
by Reference to Exhibit 10.6 on Form 10-K of Stage
Stores, Inc., dated January 31, 1998).
*10.6 Employment Agreement between Stephen Lovell
and Stage Stores, Inc. dated April 1, 1998.
(Incorporated by Reference to Exhibit 10.7 on Form 10-K
of Stage Stores, Inc., dated January 31, 1998).
*10.7 Employment Agreement between Ron Lucas and
Stage Stores, Inc. dated April 1, 1998. (Incorporated
by Reference to Exhibit 10.8 on Form 10-K of Stage
Stores, Inc., dated January 31, 1998).
*10.8 Employment Agreement between Jim Bodemuller
and Stage Stores, Inc. dated April 1, 1998.
(Incorporated by Reference to Exhibit 10.9 on Form 10-K
of Stage Stores, Inc., dated January 31, 1998).
**10.9 Employment Agreement between John J. Wiesner
and Stage Stores, Inc. dated February 22, 2000.
**10.10 First Amendment to Employment Agreement
between John J. Wiesner and Stage Stores, Inc. dated
May 5, 2000.
*10.11 Securities Purchase Agreement among
Palais Royal, Inc. and certain selling stockholders of
Uhlmans, dated May 9, 1996 (Incorporated by Reference
to Exhibit 10.1 on Form 10-Q of Stage Stores, Inc.,
dated June 12, 1996).
*10.12 Stage Stores, Inc. Amended and Restated 1996
Equity Incentive Plan (Incorporated by Reference to
Exhibit A of the Proxy Statement for the annual meeting
of stockholders of Stage Stores, Inc., dated April 13,
1999).
*21.1 List of Registrant's Subsidiaries.
**23.1 Consent of PricewaterhouseCoopers LLP.
**27.1 Financial Data Schedule.
________
* Previously Filed
** Filed Herewith
Report of Independent Accountants
To the Board of Directors and Stockholders of
Stage Stores, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, stockholders'
equity and cash flows present fairly, in all material respects,
the financial position of Stage Stores, Inc. and its subsidiaries
(the "Company") at January 29, 2000 and January 30, 1999, and the
results of their operations and their cash flows for each of the
three years in the period ended January 29, 2000, in conformity
with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
incurred a net loss of $281.9 million for the year ended January
29, 2000 and had a working capital deficit and stockholders'
deficit of $258.2 million and $75.0 million, respectively, at
January 29, 2000. As described in Note 2 to the financial
statements, the Company's financial performance to date for the
year ending February 3, 2001 has resulted in restrictions on the
credit terms for the purchase of merchandise inventory.
Additionally, the Company is in violation of certain terms of its
loan agreements. As a result, on June 1, 2000 the Company, filed
for protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2 to
the financial statements. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 1 to the financial statements, the Company
adopted Statement of Position 98-5, "Reporting on Cost of Start-
Up Activities," during the year ended January 29, 2000.
PricewaterhouseCoopers LLP
Houston, Texas
March 9, 2000, except as to Notes 2, 6, 11, 13 and 14 to the
financial statements, which are as of June 1, 2000
Stage Stores, Inc.
Consolidated Balance Sheet
(in thousands, except par values)
January 29, 2000 January 30, 1999
ASSETS
Cash and cash equivalents $20,179 $12,832
Undivided interest in accounts
receivable trust 41,600 69,816
Merchandise inventories, net 261,104 341,316
Prepaid expenses 7,945 24,981
Other current assets 26,246 34,436
Deferred income taxes -- 25,056
Total current assets 357,074 508,437
Property, equipment and leasehold
improvements, net 181,834 233,263
Goodwill, net -- 92,551
Other assets 15,779 23,429
Total assets $554,687 $857,680
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Accounts payable $40,955 $82,779
Accrued expenses and other
current liabilities 72,177 52,706
Current portion of long-term debt 9,830 4,814
Long-term debt classified as current 492,393 --
Total current liabilities 615,355 140,299
Long-term debt including credit
facilities -- 487,968
Other long-term liabilities 14,299 21,175
Deferred income taxes -- 3,846
Total liabilities 629,654 653,288
Preferred stock, par value $1.00, non-
voting, 3 shares authorized, no shares
issued or outstanding -- --
Common stock, par value $0.01, 75,000
shares authorized, 26,834 and 26,718
shares issued and outstanding,
respectively 268 267
Class B common stock, par value $0.01,
convertible non-voting, 3,000 shares
authorized, 1,250 shares issued and
outstanding 13 13
Additional paid-in capital 266,590 265,716
Accumulated deficit (337,500) (55,610)
Accumulated other comprehensive income (4,338) (5,994)
Stockholders' equity (deficit) (74,967) 204,392
Commitments and contingencies -- --
Total liabilities and
stockholders' equity (deficit) $554,687 $857,680
Stage Stores, Inc.
Consolidated Statement of Operations
(in thousands, except earnings per share)
Fiscal Year
1999 1998 1997
Net sales $1,121,567 $1,173,547 $1,073,316
Cost of sales and related
buying, occupancy and
distribution expenses 897,117 839,238 730,179
Gross profit 224,450 334,309 343,137
Selling, general and
administrative expenses 387,816 271,477 240,011
Store opening and closure
program costs 44,986 10,192 8,686
Operating income (loss) (208,352) 52,640 94,440
Interest, net 48,634 46,471 38,277
Income (loss) before income
tax, extraordinary item and
cumulative effect of change
in accounting principle (256,986) 6,169 56,163
Income tax expense 20,217 2,455 21,623
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle (277,203) 3,714 34,540
Extraordinary item, net of
tax -- early retirement of debt (749) -- (18,295)
Cumulative effect of change in
accounting principle, net of
tax - reporting costs
of start-up activities (3,938) -- --
Net income (loss) $(281,890) $3,714 $16,245
Basic earnings (loss) per
common share data:
Basic earnings per common share
before extraordinary item and
cumulative effect of change
in accounting principle $(9.89) 0.13 $1.34
Extraordinary item, net of
tax -- early retirement of debt (0.03) -- (0.71)
Cumulative effect of change in
accounting principle, net of tax -
reporting costs of start-up
activities (0.14) -- --
Basic earnings (loss) per
common share $(10.06) $0.13 $0.63
Basic weighted average common
shares outstanding 28,028 27,885 25,808
Diluted earnings (loss) per
common share data:
Diluted earnings per common share
before extraordinary item and
cumulative effect of change
in accounting principle $(9.89) $0.13 $1.30
Extraordinary item, net of tax --
early retirement of debt (0.03) -- (0.69)
Cumulative effect of change in
accounting principle, net of tax -
reporting costs of start-up
activities (0.14) -- --
Diluted earnings (loss) per
common share $(10.06) $0.13 $0.61
Diluted weighted average common
shares outstanding 28,028 28,428 26,483
Stage Stores, Inc.
Consolidated Statement of Cash Flows
(in thousands)
Fiscal Year
1999 1998 1997
Cash flows from operating activities:
Net income (loss) $(281,890) $3,714 $16,245
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 173,631 33,474 19,828
Deferred income taxes 20,151 2,371 27,438
Accretion of discount 1,254 1,138 1,231
Amortization of debt issue costs 2,930 2,577 2,274
Loss on early retirement of debt 749 -- 18,295
Cumulative effect of change in
accounting principle 3,938 -- --
Changes in operating assets and
liabilities:
Decrease (increase) in undivided
interest in accounts receivable
trust 28,216 (8,605) 22,777
Decrease (increase) in
merchandise inventories 80,212 (38,201) (76,451)
Decrease (increase) in other
assets 24,629 (2,637) (26,970)
Increase (decrease) in accounts
payable and accrued liabilities (29,919) (9,341) 14,167
Total adjustments 305,791 (19,224) 2,589
Net cash provided by (used in)
operating activities 23,901 (15,510) 18,834
Cash flows from investing activities:
Additions to property, equipment and
leasehold improvements (22,037) (88,719) (64,859)
Acquisitions, net of cash acquired -- -- (4,946)
Net cash used in investing
activities (22,037) (88,719) (69,805)
Cash flows from financing activities:
Proceeds from:
Credit facilities 43,000 96,300 45,700
Long-term debt -- -- 299,718
Common stock 128 955 22,522
Payments on:
Long-term debt (34,813) (2,596) (299,533)
Additions to debt issue costs (2,832) (913) (12,407)
Net cash provided by financing
activities 5,483 93,746 56,000
Net increase (decrease) in cash and
cash equivalents 7,347 (10,483) 5,029
Cash and cash equivalents:
Beginning of year 12,832 23,315 18,286
End of year $20,179 $12,832 $23,315
Supplemental disclosures:
Cash flow information:
Interest paid $45,528 $43,015 $45,988
Income taxes paid (refunded) $197 $(2,872) $(14,436)
Non-cash investing and financing
activities:
In connection with various
acquisitions, liabilities were
assumed as follows:
Fair value allocated to assets
acquired $-- $-- $120,665
Cash paid for assets acquired,
including acquisition expenses -- -- (4,946)
Value of Common Stock exchanged -- -- (72,284)
Liabilities assumed $-- $-- $43,435
Stage Stores, Inc.
Consolidated Statement of Stockholders' Equity (Deficit)
(in thousands)
Fiscal Year
1999 1998 1997
Shares Outstanding
Shares of common stock issued:
Beginning balance 26,718 26,500 22,033
Issuance of stock 116 218 4,467
Ending balance 26,834 26,718 26,500
Shares of Class B stock issued:
Beginning balance 1,250 1,250 1,250
Ending balance 1,250 1,250 1,250
Stockholders' Equity (Deficit)
Common stock issued:
Beginning balance $267 $265 $220
Issuance of stock 1 2 45
Ending balance 268 267 265
Class B stock issued:
Beginning balance 13 13 13
Ending balance 13 13 13
Additional Paid-in Capital:
Beginning balance 265,716 264,679 169,811
Issuance of stock 874 953 94,761
Vested compensatory stock
options -- 84 107
Ending balance 266,590 265,716 264,679
Accumulated deficit and
accumulated other
comprehensive income:
Beginning balance (61,604) (59,879) (77,778)
Comprehensive income (loss):
Net income (loss) (281,890) 3,714 16,245
Other comprehensive
income (loss) 1,656 (5,439) 1,654
Total comprehensive
income (loss) (280,234) (1,725) 17,899
Ending balance (341,838) (61,604) (59,879)
Total Stockholders' Equity
(Deficit) $(74,967) $204,392 $205,078
Accumulated other comprehensive
income:
Beginning balance $(5,994) $(555) $(2,209)
Comprehensive income
(loss) - Minimum pension
liability adjustment,
net of tax 1,656 (5,439) 1,654
Ending balance $(4,338) $(5,994) $(555)
Stage Stores, Inc.
Notes to Consolidated Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
Description of Business: Stage Stores, Inc. ("Stage Stores"
or the "Company"), through its wholly-owned subsidiary, Specialty
Retailers, Inc. ("SRI"), operates family apparel stores primarily
under the names "Bealls", "Palais Royal" and "Stage" offering
nationally recognized brand name family apparel, accessories,
cosmetics and footwear. As of January 29, 2000, the Company
operated 648 stores in thirty-three states located throughout the
United States.
Principles of Consolidation: The consolidated financial
statements include the accounts of Stage Stores and its wholly-
owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
Fiscal Year: References to a particular year are to the
Company's fiscal year which is the 52 or 53 week period ending on
the Saturday closest to January 31 of the following calendar year
(e.g., a reference to "1999" is a reference to the fiscal year
ended January 29, 2000).
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Company considers highly
liquid investments with initial maturities of less than three
months to be cash equivalents in its statement of cash flows.
Accounts Receivable Securitization: The Company securitizes
substantially all of its trade accounts receivable through a
wholly-owned special purpose entity, SRI Receivables Purchase
Co., Inc. ("SRPC"). SRPC holds a retained interest in the
securitization vehicle (the "Retained Interest"), a special
purpose trust (the "Trust"). The Company accounts for the
Retained Interest in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115, the
Retained Interest is accounted for as an investment in debt
securities and classified as trading securities. Accordingly, the
Retained Interest is recorded at fair value in the accompanying
balance sheet with any change in fair value reflected currently
in income. The unrealized gain recorded to income in 1999, 1998
and 1997 was $7.3 million, $3.2 million and $0.7 million,
respectively.
Merchandise Inventories: The Company states its merchandise
inventories at the lower of cost or market based upon the retail
method of accounting, cost being determined using the last-in,
first-out ("LIFO") method. Market is estimated on a pool-by-pool
basis. The Company believes that the LIFO method, which charges
the most recent merchandise costs to the results of current
operations, provides a better matching of current costs with
current revenues in the determination of operating results.
During 1999 inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried at
higher costs prevailing in prior years as compared with the cost
of 1999 purchases, the effect of which increased cost of goods
sold by approximately $8.8 million and increased net loss by
approximately $8.8 million or $0.31 dollars per share.
Property, Equipment and Leasehold Improvements: Property,
equipment and leasehold improvements are stated at cost and
depreciated over their estimated useful lives using the straight-
line method. The estimated useful lives of leasehold
improvements do not exceed the term of the related lease,
including renewal options. The estimated useful lives in years
are generally as follows:
Buildings 20-25
Store and office fixtures and equipment 5-12
Warehouse equipment 5-15
Leasehold improvements 5-30
Goodwill and Other Intangibles: The Company amortizes
goodwill and intangible assets on a straight-line basis over the
estimated future periods benefited, not to exceed forty years.
Amortization periods for goodwill and other intangibles
associated with acquisitions are currently five to forty years.
Each year, the Company evaluates the remaining useful life
associated with goodwill based upon, among other things,
historical and expected long-term results of operations.
Accumulated amortization of goodwill was $10.3 million at January
30, 1999.
Debt Issue Costs: Debt issue costs are accounted for as a
deferred charge and amortized on a straight-line basis over the
term of the related issue. Amortization of debt issue costs were
$2.9 million, $2.6 million and $2.3 million for 1999, 1998 and
1997, respectively.
Accrued Expenses and Other Current Liabilities: Accrued
expenses and other current liabilities include accrued payroll
and related payroll taxes of $8.3 million and $7.3 million at
January 29, 2000 and January 30, 1999, respectively.
Financial Instruments: Except for the Retained Interest, the
Company records all financial instruments at cost. The cost of
all financial instruments, except long-term debt and the Retained
Interest, approximates fair value.
Comprehensive income: Other comprehensive income refers to
revenues, expenses, gains and losses that under generally
accepted accounting principles are recorded directly as an
adjustment to stockholders' equity. Minimum pension liability
adjustment is the Company's only component of comprehensive
income. The minimum pension liability adjustments recorded in
the accompanying statement of stockholders' equity are net of tax
expense (benefit) of ($1.7) million, $3.5 million and ($1.1)
million in 1999, 1998 and 1997, respectively.
Store Pre-Opening Expenses: Costs related to the opening of
new stores are expensed as incurred.
Advertising Expenses: Advertising costs are charged to
operations when the related advertising first takes place.
Advertising costs were $52.5 million, $50.4 million and $39.5
million for 1999, 1998 and 1997, respectively. Prepaid
advertising costs were $1.3 million and $2.7 million at January
29, 2000 and January 30, 1999, respectively.
Impairment of Assets: The Company reviews for the impairment
of long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash
flows expected to result from the use of the asset and its
eventual disposition are less than its carrying amount.
Income Taxes: The provision for income taxes is computed
based on the pretax income included in the Consolidated Statement
of Operations. The asset and liability approach is used to
recognize deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax
basis of assets and liabilities. A valuation allowance is to be
established if it is more likely than not that some portion of
the deferred tax asset will not be realized.
Earnings per Share: Basic earnings per share is computed
using the weighted average number of common shares outstanding
during the periods. Diluted earnings per share is computed using
the weighted average number of common shares as well as all
potentially dilutive common share equivalents outstanding. Stock
options and restricted stock are the only potentially dilutive
share equivalents the Company has outstanding for the periods
presented. Incremental shares of 543 thousand and 675 thousand
in 1998 and 1997, respectively, were used in the calculation of
diluted earnings per common share. All common share equivalents
were excluded from the computation of diluted earnings per share
in 1999, as they were anti-dilutive. Common share equivalents of
408 thousand and 245 thousand in 1998 and 1997, respectively,
were not included in the computation of diluted earnings per
share as they were anti-dilutive.
Start-up Costs: In April 1998, the Accounting Standards
Executive Committee issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"),
effective for fiscal years beginning after December 15, 1998.
SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred.
Initial adoption of SOP 98-5 is to be reported as the cumulative
effect of a change in accounting principle. The Company adopted
SOP 98-5 in the first quarter of 1999 which resulted in a net of
tax charge of $3.9 million.
Reclassifications: The accompanying Consolidated Financial
Statements include reclassifications from financial statements
issued in previous years.
New Accounting Pronouncements: In June 1998 the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which requires that all derivative financial
instruments be recorded in the financial statements. SFAS No.
133 is effective for the Company in the first quarter of 2001,
and the Company is in the process of ascertaining the impact this
new standard will have on its financial statements. In March
2000, the FASB issued interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation which provides
guidance for certain issues arising from the application of APB
Opinion No. 25; the Company is currently evaluating the impact of
application of this interpretation on its financial statements.
NOTE 2 - LIQUIDITY AND MANAGEMENT PLANS
The Company incurred a net loss of $281.9 million for the
year ended January 29, 2000; the Company also had working capital
deficit and stockholders' deficit of $258.3 million and $75.0
million respectively, at January 29, 2000.
The Company is highly leveraged and depends on adequate
trade support to fund its inventory working capital requirements.
As a result of the Company's poor financial performance to date
for the year ending February 3, 2001, the vendor community has
significantly restricted the Company's access to normal trade
terms. As a result, the Company can not currently believe it has
sufficient liquidity to fund its working capital requirements
As of June 1, 2000, the Company was in violation of certain
covenants under its various debt agreements. As a result,
substantially all of the Company's debt has been classified as
current in the accompanying balance sheet at January 29, 2000.
These violations of the terms of its debt agreements could allow
lenders to take actions to accelerate the repayment schedule of
these debt instruments. The Company would be unable to pay
amounts becoming due as a result of any acceleration of repayment
terms.
As a result of the foregoing, the Company filed for
protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code ("Chapter 11") on June 1, 2000. Under Chapter
11, the Company is seeking approval to operate as a debtor-in-
possession. The Company is currently negotiating with a lender
to finance the Company's working capital requirements during
Chapter 11 reorganization proceedings, however there can be no
assurances the financing will be obtained or approved by the
Court.
Under Chapter 11, the Company would intend to operate its
business as debtor-in-possession, subject to the approval of the
Bankruptcy Court for certain proposed actions. Additionally, one
or more creditor committees would be formed and would have the
right to review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
As a result of the foregoing matters, the estimate of
expected future cash flows of stores was lowered. The Company
recorded an impairment loss of $41.7 million in 1999, consisting
of increased depreciation and amortization of $26.0 million
related to property, equipment and leasehold improvements
associated with underperforming stores and associated goodwill of
$15.7 million. The impairment loss is included in selling,
general and administrative expense in the accompanying statement
of operations. Additionally, because of the foregoing matters the
Company reevaluated the recoverability of its remaining goodwill;
as a result the Company wrote-off the remaining balance amounting
to $67.9 million and other intangible assets amounting to $1.0
million during 1999.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity
of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and circumstances relating to
this event, including the Company's highly leveraged financial
structure and recurring losses from operations as reflected in
the consolidated financial statements, such realization of assets
and liquidation of liabilities is subject to uncertainty.
Further, a plan of reorganization could materially change the
amounts reported in the consolidated financial statements, which
do not give effect to any adjustments to the carrying value of
assets or amounts of liabilities that might be necessary as a
consequence of a plan of reorganization. Additionally, there will
likely be additional store closures as part of the reorganization
process which would result in additional adjustments. The ability
of the Company to continue as a going concern is dependent upon,
among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to comply with debtor-
in-possession agreements and the ability to generate sufficient
cash from operations and financing sources to meet obligations.
Additionally, the accompanying consolidated financial statements
do not include any adjustments that would be required if the
Company were in liquidation.
Substantially all of the Company's liabilities are subject
to settlement under reorganization proceedings. The Company's
debt to banks and bondholders is in default of the terms of the
applicable loan agreements, notes and debentures. For financial
reporting purposes, those liabilities and obligations have been
classified as current liabilities. The ultimate adequacy of
security for any secured debt obligations and settlement of all
liabilities and obligations cannot be determined until a plan of
reorganization is confirmed.
NOTE 3 - STORE CLOSURE PROGRAM
During the second quarter of 1999, the Company implemented a
store closure program under which the Company closed 35
underperforming stores during the last three quarters of 1999.
During the fourth quarter of 1999, the Company implemented a
store closure program to close an additional 64 stores. As of
January 29, 2000, 5 of the stores have been closed while the
remaining 59 stores are expected to be closed by the end of the
third quarter of 2000.
In connection with these closures, the Company recorded
$59.0 million of pretax costs, of which $14.8 million is included
in cost of sales while the remaining $44.2 million is included in
store opening and closure program costs. Of the $59.0 million of
costs, approximately $9.4 million represents severance and lease
termination costs, approximately $2.8 million represents a
reserve for uncollectible accounts receivable associated with the
Company's private label credit card program, approximately $3.4
million represents write-off of prepaid supplies and signage,
approximately $14.8 million represents a lower of cost or market
reserve related to the inventory being liquidated in the stores
in the store closure program, while the balance relates primarily
to the write-off of fixed assets and intangibles associated with
these stores. As of January 29, 2000, the accompanying balance
sheet includes a lower of cost or market reserve of $6.2 million
related to the inventory remaining to be liquidated in the stores
in the closure program and $8.2 million for estimated severance
and lease termination costs to be paid.
The stores included in the store closure program had the
following operating results prior to store closure charges:
1999 1998 1997
Net sales $56,062 $72,929 $61,281
Gross margin 17,380 26,196 21,292
Direct operating expense 21,942 29,424 20,683
Contribution before
corporate allocations $(4,562) $(3,228) $609
NOTE 4 - ACCOUNTS RECEIVABLE SECURITIZATION
Pursuant to the accounts receivable securitization (the
"Accounts Receivable Program"), the Company sells substantially
all of the accounts receivable generated by the holders of the
Company's private label credit card accounts to SRPC on a daily
basis in exchange for cash or an increase in the Company's
interest. SRPC is a separate limited-purpose subsidiary that is
operated in a fashion intended to ensure that its assets and
liabilities are distinct from those of the Company and its other
affiliates as SRPC's creditors have a claim on its assets prior
to becoming available to any creditor of the Company. On November
9, 1999, the Company completed a refinancing of the existing term
and revolving certificates outstanding under its Accounts
Receivable Program. In connection with the refinancing, the
previously existing term and revolving certificates were replaced
with new term and revolving certificates (the "New
Certificates"). The New Certificates provide the Company with a
maximum availability of $329.9 million, subject to the amount of
receivables held in the Trust. The New Certificates consists of
$283.5 million of revolving certificates and $46.4 million of
term certificates. The revolving certificates consist of Class A
and Class B Variable Funding Certificates and the term
certificates consist of Class C and Class D Floating Rate Asset
Backed Certificates. In addition, the trust has issued Class E
Certificates, which are subordinate to all of the other
certificates. The amount of the outstanding balance under the
revolving certificates will vary based upon a number of factors
which include, among others, the level of receivables in the
Trust and the working capital needs of the Company. The
commitment period for the revolving certificates expires in
November 2000 and is subject to annual renewal with consent from
the holders of the revolving certificates. The term certificates
begin to amortize during September 2002. Under certain
circumstances, collections on the accounts receivable portfolio
which would have otherwise been available to the Company, may be
retained within the Trust to be unavailable to the Company until
the satisfaction of certain conditions. As of January 29, 2000,
$1.2 million was being retained in the Trust. In addition,
certain conditions could cause an early amortization event in the
Trust. If such an event occurs, the amortization period for all
the certificates would begin immediately. The filing of
protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code would trigger an early amortization event, which
results in the acceleration of principle payments to certain
classes of certificate holders. Additionally, an amortization
event could result in write down in the recorded amount of the
undivided interest in the accounts receivable trusts included in
the accompanying balance sheet.
Based upon the amount of receivables in the Trust at the
time of closing, the Company received $292.4 million of proceeds.
Of this amount, $259.3 million was used to retire the outstanding
balances under the previously existing Trust certificates, which
were scheduled to begin amortizing in December of 1999. The
remainder of the proceeds were used to redeem the previously
existing $30.0 million aggregate principle amount of SRPC 12.5%
Trust certificate-backed notes and other costs associated with
the refinancing. In connection with the refinancing, the Company
recorded an after-tax extraordinary charge of approximately $0.7
million in the fourth quarter of 1999 related to the early
retirement of debt.
Amounts outstanding under the New Certificates are funded by
the issuance of commercial paper in the open market through a
facility agent at various rates and maturities. If the
commercial paper market is unavailable, amounts outstanding under
the revolving component of the New Certificates will be funded by
a liquidity provider. If accounts receivable balances in the
Trust fall below the level required to support the term
certificates and revolving certificates, certain principal
collections may be retained in the Trust until such time as the
receivable balances exceed the certificates then outstanding and
the required Company's interest. The Trust may issue additional
series of certificates from time to time. Terms of any future
series will be determined at the time of issuance. The
outstanding balances of the term certificates totaled $46.4
million and $165.0 million at January 29, 2000 and January 30,
1999, respectively. There was $270.7 million and $115.6 million
outstanding under the revolving certificates at January 29, 2000
and January 30, 1999, respectively.
Total accounts receivable transferred to the Trust during
1999, 1998 and 1997 were $567.1 million, $585.3 million and
$508.9 million, respectively. The cash flows generated from the
accounts receivable in the Trust are dedicated to: (i) the
purchase of new accounts receivable generated by the Company;
(ii) payment of a return on the certificates; and (iii) the
payment of a servicing fee to SRI. Any remaining cash flows are
remitted to SRPC. The New Certificates entitle the holders to
receive a return, based upon the London Interbank Offered Rate
("LIBOR"), plus a specified margin. At January 29, 2000, the
blended rate of return on the New Certificates was 6.5%.
Accounts receivable sold to SRPC that subsequently become
defaulted are allocated to each certificate class by order of
preference. Class A Certificates are senior to all of the other
certificates and Class E Certificates are subordinate to all the
other certificates. The Class E Certificates are held by the
Company and comprise the Company's undivided interest in the
Trust. This amount represents the Company's total risk exposure
with respect to the Accounts Receivable Program.
NOTE 5 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as
follows (in thousands):
January 29, 2000 January 30, 1999
Land $3,074 $3,074
Buildings 16,980 16,980
Fixtures and equipment 206,632 198,588
Leasehold improvements 132,843 130,870
359,529 349,512
Accumulated depreciation 177,695 116,249
$181,834 $233,263
Depreciation expense was $73.9 million, $25.9 million and
$16.8 million for 1999, 1998 and 1997, respectively. Depreciation
expense for 1999 includes impairment charges of $26.0 million
related to property, equipment and leasehold improvements
associated with underperforming stores and $17.3 million of
writedown related to stores included in the store closure
program. Gains and losses on retirement or disposition of fixed
assets are recognized when incurred and are included in income
(loss) from operations. See Note 2 to financial statements.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
January 29, 2000 Janaury 30, 1999
Senior Notes $200,000 $200,000
Senior Subordinated Notes,
net of discount 99,721 99,696
Credit Facility 185,000 142,000
SRPC Notes -- 30,000
Other long-term debt 17,502 21,086
502,223 492,782
Less debt classified as current 492,393 --
Less current maturities 9,830 4,814
$-- $487,968
As of June 1, the Company was in violation of certain of its
covenants under its various debt agreements. These violations of
the terms of its debt agreements could allow lenders to take
actions to accelerate the repayment schedule of these debt
instruments. Therefore, the Company's debt has been classified as
current.
The Senior Notes were issued during June 1997 by SRI with a
principal amount of $200.0 million, bear interest at 8.5% payable
semi-annually on January 15 and July 15, and mature July 15,
2005. The Senior Notes are general unsecured obligations and
rank senior to all subordinated debt of SRI including the Senior
Subordinated Notes.
The Senior Subordinated Notes were issued during June 1997
by SRI with a principal amount of $100.0 million and at a
discount which results in a combined effective interest rate of
9.03%. The Senior Subordinated Notes bear interest at 9% payable
semi-annually on January 15 and July 15 and mature July 15, 2007.
The Senior Subordinated Notes are subordinated to the obligations
under the Senior Notes.
Concurrently with the issuance of the Senior Notes and
Senior Subordinated Notes, SRI entered into a new credit facility
with a group of lenders (the "Credit Facility") which replaced
the Company's existing $75.0 million credit facility. The Credit
Facility provides for: (i) a $100.0 million working capital and
letter of credit facility (the "Working Capital Facility")
pursuant to which SRI shall have the right at any time prior to
June 17, 2000 to solicit one or more lenders and/or new financial
institutions to provide up to $25 million in additional
commitments to increase the Working Capital Facility to an amount
not to exceed $125 million in the aggregate, subject to certain
conditions, of which up to $50 million may be used for letters of
credit; and (ii) a $100.0 million expansion facility (the
"Expansion Facility"). The Credit Facility matures on June 14,
2002 provided that in addition to certain mandatory reductions in
commitments, the commitments under the Expansion Facility will be
reduced on the fourth anniversary of the signing of the Credit
Facility by the amount, if any, necessary so that total
reductions in the amount of the commitments under the Expansion
Facility (taking into account all mandatory reductions) will have
been at least $25 million. A commitment fee on the unused
commitments of each of the Working Capital Facility and Expansion
Facility is payable quarterly in arrears. The amount of the
commitment fee is determined based on the Adjusted Leverage Ratio
(as defined in the Credit Facility), and ranges from 0.25% to
0.50% per annum. Advances under the Working Capital Facility and
Expansion Facility bear interest at the Company's option, at the
Base Rate plus the applicable Margin Percentage or at the
Eurodollar Rate plus the applicable Margin Percentage (each as
defined in the Credit Facility). The Margin Percentage is
determined from time to time based on the Adjusted Leverage Ratio
and was 2.25% for the Base Rate and 3.25% for the Eurodollar Rate
at January 29, 2000. The effective interest rate for borrowings
outstanding under the Credit Facility was 8.8% at January 29,
2000.
The Credit Facility contains covenants which, among other things,
restrict the: (i) incurrence of additional debt; (ii) incurrence
of capitalized lease obligations; (iii) payment of dividends;
(iv) formation of certain business combinations; (v) acquisition
of subordinated debt; (vi) use of proceeds received under the
agreement; (vii) aggregate amount of capital expenditures; (viii)
transactions with related parties; and (ix) changes in lines of
business. In addition, the Credit Facility requires the Company
to maintain compliance with certain specified financial
covenants, including covenants relating to minimum interest
coverage, minimum fixed charge coverage and maximum leverage
ratios. The Credit Facility also limits the amount which can be
outstanding for a specified length of time each year. A portion
of the Credit Facility is collateralized by SRI's distribution
center located in Jacksonville, Texas, including equipment
located therein and a pledge of SRPC stock. The net book value
of the distribution center was approximately $5.4 million at
January 29, 2000.
On March 9, 2000, SRI entered into a new $35.0 million
senior revolving credit facility (the "Senior Revolving Credit
Facility") with certain of the lenders participating in the
Credit Facility. The Senior Revolving Credit Facility matures
June 14, 2002 and provides for working capital borrowings and is
collateralized by a perfected first priority security interest on
$50.0 million of inventory. Advances under the Senior Revolving
Credit Facility will bear interest at the Company's option, at
the Base Rate plus the applicable Margin Percentage or at the
Eurodollar Rate plus the applicable Margin Percentage (each as
defined in the Senior Revolving Credit Facility). SRI will pay a
commitment fee on the unused commitment of 0.50% per annum
payable quarterly in arrears. In connection with the Senior
Revolving Credit Facility, the Credit Facility was amended to
provide (a) a first priority lien on the Company's corporate
concentration cash account (b) a second priority lien on
inventory equal to $50.0 million less borrowings outstanding
under the Senior Revolving Credit Facility (c) a first priority
lien on all tangible personal property, including furniture,
fixtures and equipment (excluding inventory except to the amount
described in (b) above). In addition, the amendment limits the
amount of readily available cash or cash equivalents in the
Company's corporate concentration cash account to $20.0 million
after giving effect to any borrowings under the Credit Facility.
Under the terms of the new credit facility, the Company will
issue warrants to the lenders to purchase 7.5% of the Company's
outstanding common stock. The exercise price under the warrants
will be determined based upon the average closing price of the
Company's stock for the 30 days following the date of commitment.
The warrants will expire on March 6, 2003.
The Company had $2.8 million of availability under the
Credit Facility at January 29, 2000. In addition, the Company
had cash and cash equivalents on hand of $20.2 million at January
29, 2000. The Company had $6.0 million of availability under the
combined credit facilities at May 25, 2000.
During November 1999, the Company retired the $30.0 million
aggregate principle amount of SRPC 12.5% Trust Certificate-Backed
Notes in connection with the refinancing related to the Accounts
Receivable Program (see note 4).
In connection with various acquisitions, the Company has
indebtedness which bear interest between 7% and 12% and maturity
dates between 2000 through 2004.
Aggregate maturities of long-term debt excluding the Credit
Facility for the next five years are: 2000 - $4.8 million; 2001 -
$2.6 million; 2002 - $2.7 million; 2003 - $14.2 million and 2004
- - $0.2 million.
Management estimates the fair value of its long-term debt to
be $325.7 million and $482.4 million at January 29, 2000 and
January 30, 1999, respectively. In developing its estimates,
management considered quoted market prices for each instrument,
if available, current market interest rates in relation to the
coupon interest rates of each instrument, the relative
subordination of each instrument and the relative liquidity of
the instrument as indicated by the presence or lack of an active
market. Given the matters discussed in Note 2, the current market
value of the Company's long-term debt would be substantially
below the aforementioned amounts.
NOTE 7 - STOCKHOLDERS' EQUITY
The Company's authorized common equity securities consist of
par value $0.01 per share common stock ("Common Stock") and par
value $0.01 per share Class B common stock ("Class B Common
Stock"). Except as otherwise described herein, all shares of
Common Stock and Class B Common Stock are identical and entitle
the holders thereof to the same rights and privileges (except
with respect to voting privileges). Holders of Class B Common
Stock may elect at any time to convert any or all of such shares
into Common Stock, on a share-for-share basis, to the extent the
holder thereof is not prohibited from owning additional voting
securities by virtue of regulatory restrictions. The holders of
Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Except as required by law,
holders of Class B Common Stock do not have the right to vote on
any matters to be voted upon by the stockholders.
During September 1997, the Company completed an offering of
approximately 7.1 million shares of common stock, 6.4 million
shares of which were secondary shares representing the shares
owned by two venture capital firms. The remaining 650,000 shares
were issued as primary shares, a result of an over-allotment
provision. The shares sold by the Company resulted in net
proceeds to the Company of approximately $20.7 million, which
were used to reduce borrowings outstanding under the Company's
Credit Facility.
In November 1998, the Company adopted a Stockholder Rights
Plan designed to protect Company stockholders in the event of
takeover activity that would deny them the full value of their
investment. Terms of this plan provide for a dividend
distribution of one right for each share of Common Stock of the
Company to holders of record at the close of business on November
13, 1998. The rights will become exercisable only in the event,
with certain exceptions, a person or group of affiliated or
associated persons accumulates 15% or more of the Company's
voting stock, or if a person or group announces an offer to
acquire 15% or more. The rights will expire on November 10,
2008. Each right will entitle the holder to buy one one-hundred
thousandth of a share of a new series of preferred stock at a
price of $60. In addition, upon the occurrence of certain
events, holders of the rights would be entitled to purchase
either Company stock or shares in an "acquiring entity" at half
of market value. Further, at any time after a person or group
acquires 15% or more (but less than 50%) of the Company's
outstanding voting stock, the Board of Directors may, at its
option, exchange part or all of the Rights (other than Rights
held by the acquiring person or group, which would become void)
for shares of the Company's common stock on a one-for-one basis.
The Company generally will be entitled to redeem the rights at
$0.01 per right at any time until the tenth day following the
acquisition of a 15% position in its voting stock.
NOTE 8 - STOCK OPTION PLANS
In 1993, the Company adopted the Third Amended and Restated
Stock Option Plan (the "1993 Stock Option Plan") designed to
provide incentives to present and future executive, managerial
and other key employees and advisors to the Company (the
"Participants") as selected by the Board of Directors or the
compensation committee of the Board of Directors (the "Board").
All options granted under the 1993 Stock Option Plan were non-
qualified within the meaning of Section 422A of the Internal
Revenue Code. The number of shares of common stock which could
be granted under the 1993 Stock Option Plan was 1,894,540 shares.
As of January 29, 2000, there were 906,124 options outstanding
under the 1993 Stock Option Plan.
During 1996, the Company adopted the 1996 Equity Incentive
Plan (the "Incentive Plan"). The Incentive Plan provides for the
granting of the following types of awards: stock options, stock
appreciation rights ("SARs"), restricted stock, performance
units, performance grants and other types of awards that the
Board deems to be consistent with the purposes of the Incentive
Plan. An aggregate of 3,500,000 shares of common stock have been
reserved for issuance under the Incentive Plan. No Participant
shall be entitled to receive grants of common stock, stock
options or SARs with respect to common stock, in any calendar
year in excess of 400,000 shares in the aggregate. As of January
29, 2000, there were 1,204,483 options and 378,525 shares of
restricted stock outstanding under the Incentive Plan.
The Board will have exclusive discretion to select the
Participants and to determine the type, size and terms of each
award, to modify the terms of awards, to determine when awards
will be granted and paid, and to make all other determinations
which it deems necessary or desirable in the interpretation and
administration of the Incentive Plan. The Incentive Plan is
scheduled to terminate ten years from the date that the Incentive
Plan was initially approved and adopted by the stockholders of
the Company, unless extended for up to an additional five years
by action of the Board. With limited exceptions, including
termination of employment as a result of death, disability or
retirement, or except as otherwise determined by the Board,
rights to these forms of contingent compensation are forfeited if
a recipient's employment or performance of services terminates
within a specified period following the award. Generally, a
Participant's rights and interest under the Incentive Plan will
not be transferable except by will or by the laws of descent and
distribution.
Options are rights to purchase a specified number of shares
of common stock at a price fixed by the Board. The option price
may be equal to or greater than the fair market value of the
underlying shares of common stock, but in no event less than the
fair market value on the date of grant. Options granted under
the 1993 Stock Option Plan generally become exercisable in
installments of 20% per year on each of the first through the
fifth anniversaries of the grant date and have a maximum term of
ten years. Options granted under the Incentive Plan generally
become exercisable in installments of 25% per year on each of the
first through fourth anniversaries of the grant date and have a
maximum term of ten years.
A summary of the option activity under the various plans
follows:
Number of Weighted
Outstanding Average
Options Option
Price
Options outstanding at
February 1, 1997 1,475,581 6.61
Granted 570,550 23.84
Surrendered (124,015) 13.31
Exercised (208,023) 2.22
Options outstanding at
January 31, 1998 1,714,093 12.39
Granted 505,200 38.08
Surrendered (147,185) 26.35
Exercised (217,218) 4.57
Options outstanding at
January 30, 1999 1,854,890 19.15
Granted 497,608 6.80
Surrendered (144,107) 25.94
Exercised (97,784) 0.84
Options outstanding at
January 29, 2000 2,220,607 16.62
Exercisable options under the various plans at January 30, 1999
and January 31, 1998 were 526,752 and 333,159 with a weighted
average exercise price of $7.88 and $2.87, respectively. A
summary of outstanding and exercisable options as of January 29,
2000 follows:
Number of Weighted Weighted Average
Option Outstanding Average Remaining
Price Options Exercise Price Contractual Life
$0.00 - $0.12 5,542 $0.11 2.8
2.42 - 3.75 306,011 2.94 5.7
5.00 - 8.00 729,531 6.36 7.9
9.00 - 13.88 180,635 10.53 8.7
17.00 - 21.15 245,400 20.90 6.5
22.00 - 30.00 346,888 22.82 7.2
33.75 - 42.13 27,000 37.17 7.8
49.75 - 51.88 269,600 51.61 8.2
2,110,607 16.78 7.4
Number of
Option Exercisable Weighted Average
Price Options Exercise Price
$0.00 - $0.12 5,542 $0.11
2.42 - 3.75 229,722 2.79
5.00 - 8.00 174,858 5.28
9.00 - 13.88 47,053 10.53
17.00 - 21.15 17,500 19.81
22.00 - 30.00 194,125 22.95
33.75 - 42.13 13,000 37.15
49.75 - 51.88 69,689 51.61
751,489 14.56
A summary of the restricted stock activity under the various
plans follows:
Number of Weighted
Shares Average Grant
Date
Fair Value
Unvested restricted stock grants
outstanding at February 1, 1997 -- --
Granted 220,000 32.04
Surrendered -- --
Vested -- --
Unvested restricted stock grants
outstanding at January 31, 1998 220,000 32.04
Granted 73,300 41.48
Surrendered -- --
Vested -- --
Unvested restricted stock grants
outstanding at January 30, 1999 293,300 34.40
Granted 123,750 6.45
Surrendered (20,475) 35.00
Vested (18,050) 41.38
Unvested restricted stock grants
outstanding at January 29, 2000 378,525 24.90
The 1999 and 1998 grants vest 25% per year on each of the
first through fourth anniversary dates of the grant date and
contain certain accelerated vesting provisions. The 1997 grants
vest at the end of three year period and contain certain
accelerated vesting provisions. The issuance of shares which have
vested has been recorded as non-cash increase in stockholders
equity.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its
plans. Compensation expense was $3.1 million, $3.2 million and
$0.5 million in 1999, 1998 and 1997, respectively. The following
pro forma data is calculated as if compensation cost for the
Company's stock option plans were determined based upon the fair
value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation":
Fiscal Year
1999 1998 1997
Pro forma net income (loss) (in thousands) $(283,396) $1,106 $15,407
Pro forma basic earnings (loss)
per common share (10.11) 0.04 0.60
Pro forma diluted earnings (loss)
per common share (10.11) 0.04 0.58
Weighted average grant-date value
of options granted 5.63 22.30 13.96
The fair value of the options granted is estimated using the
Black-Scholes option-pricing model with the following assumptions
for 1999: no dividend yield; volatility of 88.95%; risk-free
interest rate of 6.7%; assumed forfeiture rate at 100.00% and an
expected life of 7.86 years. For 1998, the following assumptions
were used: no dividend yield; volatility of 47.32%; risk-free
interest rate of 4.9%; assumed forfeiture rate of 71.27% and an
expected life of 7.8 years. For 1997, the following assumptions
were used: no dividend yield; volatility of 47.32%; risk-free
interest rate of 5.5%; assumed forfeiture rate of 76.92% and an
expected life of 7.42 years. The pro forma amounts above are not
likely to be representative of future years because options vest
over several years and additional awards generally are made each
year.
NOTE 9 - EMPLOYEE BENEFIT PLANS
Pension benefits for employees are provided under the SSI
Restated Retirement Plan (the "Retirement Plan"), a qualified
defined benefit plan. Benefits are administered through a trust
arrangement which provides monthly payments or lump sum
distributions. The Retirement Plan covers substantially all
employees who have completed one year of service with 1,000 hours
of service as of June 30, 1998. Benefits under the plan are
based upon a percentage of the participant's earnings during each
year of credited service. Supplemental pension benefits for
certain key executives are provided under the SRI Supplemental
Executive Retirement Plan (the "Supplemental Retirement Plan"), a
non-qualified defined benefit plan.
Information regarding the Retirement Plan and the Supplemental
Retirement Plan is as follows (in thousands):
January 29, 2000 January 30, 1999
Change in benefit obligation:
Benefit obligation at beginning of year $31,639 $34,716
Service cost 731 917
Interest cost 2,109 2,191
Actuarial (gain) loss (2,860) 3,056
Plan disbursements (2,449) (3,913)
Plan curtailment -- (5,991)
Plan settlement -- 663
Projected benefit obligation at end
of year 29,170 31,639
Change in plan assets:
Fair value of plan assets at
beginning of year 21,711 26,624
Actual return on plan assets 1,089 (1,550)
Employer contributions 2,880 550
Plan disbursements (2,449) (3,913)
Fair value of plan assets at end of year 23,231 21,711
Funded status (5,939) (9,928)
Unrecognized prior service cost 306 326
Unrecognized net actuarial (gain) loss 7,317 9,890
Net amount recognized $1,684 $288
Amounts recognized in the consolidated
balance sheet consist of:
Accrued benefit liability $(5,427) $(9,538)
Accumulated other comprehensive income 7,111 9,826
Net amount recognized $1,684 $288
January 29, 2000 January 30, 1999
Weighted-average assumptions as of
year end:
Discount rate 7.0% 6.5%
Expected long-term rate of return
on plan assets 9.0% 9.0%
Rate of annual compensation increase 5.0% N/A
Rate of increase in maximum benefit
and compensation limits N/A 3.5%
Assumed rate of increase in taxable
wage base N/A N/A
The components of pension cost for the Retirement Plan and
the Supplemental Retirement Plan were as follows (in thousands):
Fiscal Year
1999 1998 1997
Net periodic pension cost for the fiscal year ended:
Service cost $731 $917 $1,738
Interest cost 2,109 2,191 2,328
Expected return on plan assets (1,888) (2,367) (2,521)
Amortization of prior service cost 20 18 (6)
Recognized actuarial loss 512 127 507
Net periodic pension cost $1,484 $886 $2,046
Included in accrued expenses and other accrued liabilities
is $6.3 million for estimated contributions to the Retirement
Plan in 2000.
The Company's funding policy for the Retirement Plan is to
contribute the minimum amount required by applicable regulations.
Retirement Plan assets include 100,000 shares of Stage Stores
common stock purchased during the Company's initial public
offering.
Effective June 30, 1998, the Retirement Plan was frozen.
There will be no future benefit accruals after that date. Any
service after that date will continue to count toward vesting and
eligibility for normal and early retirement. The Company
recorded a gain in 1998 of $2.0 million associated with the plan
curtailment.
The Company has a contributory 401(k) savings plan covering
substantially all qualifying employees. Under the 401(k),
participants may contribute up to 15% of their qualifying
earnings, subject to certain restrictions. The Company currently
matches 50% of each participant's contributions, limited to 6% of
each participant's salary. The Company's matching contributions
were approximately $1.0 million for 1999, $0.8 million for 1998
and $0.4 million for 1997.
NOTE 10 - OPERATING LEASES
The Company leases stores, service center facilities, the
corporate headquarters and equipment under operating leases. A
number of store leases provide for escalating minimum rent.
Rental expense is recognized on a straight-line basis over the
life of such leases. The majority of the Company's store leases
provide for contingent rentals, generally based upon a percentage
of net sales. The Company has renewal options for most of its
store leases; such leases generally require that the Company pay
for utilities, taxes and maintenance expense. A summary of
rental expense associated with operating leases follows (in
thousands):
Fiscal Year
1999 1998 1997
Minimum rentals $51,926 $48,022 $37,601
Contingent rentals 3,838 3,993 4,545
Equipment rentals 4,544 3,854 1,240
$60,308 $55,869 $43,386
Minimum rental commitments on long-term operating leases at
January 29, 2000, net of sub-leases, are as follows (in
thousands):
Fiscal Year:
2000 $52,435
2001 47,641
2002 41,197
2003 34,246
2004 27,619
Thereafter 112,888
$316,026
NOTE 11 - INCOME TAXES
All Company operations are domestic. Income tax expense
charged to continuing operations consisted of the following (in
thousands):
Fiscal Year
1999 1998 1997
Federal income tax expense (benefit):
Current $-- $(66) $11,012
Deferred 28,617 3,246 8,413
28,617 3,180 19,425
State income tax expense (benefit):
Current 66 150 193
Deferred (8,466) (875) 2,005
(8,400) (725) 2,198
$20,217 $2,455 $21,623
A reconciliation between the federal income tax expense
charged to continuing operations computed at statutory tax rates
and the actual income tax expense recorded follows (in
thousands):
Fiscal Year
1999 1998 1997
Federal income tax expense at
the statutory rate $(91,585) $2,159 $19,657
State income taxes, net (5,460) (471) 1,428
Goodwill amortization 26,040 742 388
Permanent differences, net 1,674 25 150
Valuation reserve 89,548 -- --
$20,217 $2,455 $21,623
In connection with the early retirement of various indebtedness,
the Company recorded extraordinary charges of $0.7 million and
$18.3 million in 1999 and 1997, respectively, net of applicable
income taxes of $0.0 and $11.5 million in 1999 and 1997,
respectively. The 1997 income tax benefit relating to the
extraordinary items is comprised of a $9.9 million deferred
federal tax benefit and a $1.6 million deferred state tax
benefit. During 1999, the Company recorded a charge of $3.9
million in connection with the cumulative effect of a change in
accounting principle reporting costs of start-up activities, net
of applicable income taxes of $0.0 million.
Deferred tax liabilities (assets) consist of the following (in
thousands):
January 29, 2000 January 30, 1999
Gross deferred tax liabilities:
Depreciation and amortization $-- $14,790
State income taxes 5,183 1,838
Other 5,711 7,786
10,894 24,414
Gross deferred tax assets:
Retained Certificates (3,033) (2,460)
Net operating loss carryforwards (74,747) (25,160)
AMT tax credit carryforward (2,686) (3,040)
Depreciation and amortization (2,860) --
Accrued expenses (5,109) (4,558)
Pensions (2,599) (4,231)
Escalating leases (5,884) (1,802)
Accrued payroll costs -- (1,445)
Inventory reserves (2,841) (2,546)
Other (683) (382)
(100,442) (45,624)
Valuation allowance 89,548 --
Net deferred tax assets $-- $(21,210)
The net change in the valuation allowance for deferred tax
assets was an increase of $89.5 million in 1999, which, relates
to federal and state net operating loss carryforwards. Based on
the projected earnings of the Company and matters set forth in
Note 2, management believes it is more likely than not that the
net deferred tax assets will not be realized and has, therefore,
provided a full valuation allowance against the net deferred tax
assets.
The Company has net operating loss carryforwards for federal
income tax purposes of approximately $178.9 million, which if not
utilized will expire in varying amounts between 2007 and 2021.
The Company has net operating loss carryforwards for state income
tax purposes of approximately $230.0 million, which if not
utilized, will expire in varying amounts between 2002 and 2021.
The Company's ability to utilize net operating loss carryforwards
may be limited if certain changes in ownership occur or as a
result of the bankruptcy process.
NOTE 12 - QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly financial data is summarized as follows
(in thousands):
Fiscal Year 1999
Q1 Q2 Q3 Q4
Net sales $262,591 $269,848 $264,327 $324,801
Gross profit 70,359 74,021 77,203 2,867
Operating income (loss) 8,391 (8,332) 12,560 (220,971)
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle (2,269) (15,091) 224 (260,067)
Extraordinary item, net
of tax - early
retirement of debt -- -- -- (749)
Cumulative effect of
change in accounting
principle, net of tax -
reporting costs of
start-up activities (2,402) -- -- (1,536)
Net income (loss) (4,671) (15,091) 224 (262,352)
Basic earnings (loss)
per common share data:
Basic earnings per common
share before
extraordinary item and
cumulative effect of
change in accounting
principle (0.08) (0.54) 0.01 (9.26)
Extraordinary item -
early retirement of
debt, net of tax -- -- -- (0.03)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax (0.09) -- -- (0.05)
Basic earnings (loss) per
common share (0.17) (0.54) 0.01 (9.34)
Diluted earnings (loss)
per common share data:
Diluted earnings per
common share before
extraordinary item
cumulative effect of
change in accounting
principle (0.08) (0.54) 0.01 (9.26)
Extraordinary item -
early retirement of
debt, net of tax -- -- -- (0.03)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax (0.09) -- -- (0.05)
Diluted earnings (loss)
per common share (0.17) (0.54) 0.01 (9.34)
During the fourth quarter of 1999, the Company recorded
certain one-time pretax charges aggregating $205.7 million.
Fiscal Year 1998
Q1 Q2 Q3 Q4
Net sales $272,788 $271,805 $271,605 $357,349
Gross profit 87,225 82,239 75,252 89,593
Operating income 25,278 12,678 7,226 7,458
Net income (loss) 9,035 765 (3,152) (2,934)
Basic earnings (loss)
per common share 0.33 0.03 (0.11) (0.10)
Diluted earnings (loss)
per common share 0.32 0.03 (0.11) (0.10)
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company has made loans, in an aggregate principal amount
of $2.7 million and $2.1 million at January 29, 2000 and January
30, 1999, respectively, to certain present and former executive
officers of the Company. These loans are full recourse loans and
are secured by a pledge of the shares of common stock owned by
such executive officers. The loans provide for interest from 5.7%
to 9.0% and mature no later than November 3, 2000. At January 29,
2000, the Company has recorded a reserve of $1.6 million related
to these loans for potential uncollectibility.
On February 22, 2000, Carl Tooker left employment with the
Company, effective that date. Mr. Tooker was Chairman, Chief
Executive Officer and President of the Company. Mr. Tooker's
departure follows an inquiry conducted by a Special Committee
consisting of all of the non-management members of the Board of
Directors, which reviewed certain transactions between the
Company and Mr. Tooker. The effects of the transactions reviewed
have been reflected in the Company's results for prior periods,
and the Committee believes they are not material to the financial
condition or operations of the Company. However, these
transactions had not been properly reported to the Company's
Board of Directors.
The Company purchased Mr. Tooker's personal residence in
1997 at a price specified by him, and assumed all liability for
the property, including upkeep and existing debt payments, until
it was sold in 1999. The Company sustained a loss of $806,556 as
a result of this transaction.
In May, 1997 the Company entered into a severance agreement
and a separate consulting contract in connection with the
separation of an employee who shortly thereafter became Mr.
Tooker's spouse. The Company recorded in its books and records
payments to or for the benefit of his spouse beginning in May,
1997, and ending in August 1998, totaling $608,317. The Special
Committee also determined that while employed by the Company in
1996 and 1997, this employee entered into transactions with a
company with whom her sister was believed to be affiliated, in
which the Company paid a total of $313,260 for purchases of
clothing inventory. The Special Committee did not find any
overcharges with respect to the inventory purchases.
Demand has been made upon Mr. Tooker to reimburse the
Company for the unauthorized payments regarding his personal
residence and the severance paid to his spouse. In addition, the
Company has demanded repayment by Mr. Tooker of outstanding loans
he obtained from the Company, with interest thereon, totaling
approximately $1.1 million. Some of these loans are secured by
collateral which includes securities of the Company. Mr. Tooker
has not responded to the Company's demands.
The Special Committee further determined that during the years
1997 through 1999, the Company maintained a contractual
relationship with Stage Planning and Design, Inc. ("SPAD"),
believed to be a wholly owned subsidiary of U.S. Builders, Inc.,
to manage the construction of store remodeling. Under the terms
of this agreement, the Company was required to and did reimburse
or pay direct all of SPAD's costs, including all payroll
expenses. In 1997, the Company paid SPAD in excess of $2.4
million, and in 1998 in excess of $9.9 million. Until late 1999,
Mr. Tooker's son-in-law was an officer and project manager for
SPAD, whose compensation was included as a reimbursable expense
billed to the Company during this time. Although the
expenditures were recorded on the Company's books and records for
the years in which they were accrued, the relationship involving
Mr. Tooker's son-in-law was not previously discussed with and
approved by the Board of Directors.
In connection with the aforementioned matters, the Company
has received and responded to an information request as part of
an informal inquiry by the Securities and Exchange Commission.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Litigation: From time to time, the Company and its
subsidiaries are involved in various litigation matters arising
in the ordinary course of its business.
On March 30, 1999, a class action lawsuit was filed against
the Company and certain of its officers, directors and
stockholders in the United States District Court for the Southern
District of Texas by John C. Weld, Jr., a stockholder who
purchased 125 shares of the Company's common stock on August 3,
1998, alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder (the "Weld Suit"). The Company believed that the
allegations of the Weld Suit are without merit, and on July 23,
1999, the Company filed a motion to dismiss. United States
District Judge Kenneth Hoyt entered an order on December 8, 1999
dismissing the Weld Suit. The order has been appealed by Mr.
Weld.
On March 28, 2000, the Company filed a lawsuit against Carl
Tooker. The lawsuit was filed in the District Court of Harris
County, Texas, 333 District Court, Case No. 2000-15666. The
lawsuit is an action for damages arising from transactions
Mr. Tooker engaged in or directed while serving as President,
Chief Executive Officer and Chairman of the Board of Directors of
the Company which transactions benefited him personally or were
otherwise contrary to his duties as an officer and director. The
suit also seeks recovery of debt owed by Mr. Tooker to the
Company pursuant to loans and promissory notes Mr. Tooker caused
the Company to make to him while serving in those capacities, and
for conversion of stock collateral pledged to the Company to
secure his indebtedness. The Company also seeks a mandatory
injunction requiring Mr. Tooker to deposit into the registry of
the Court all remaining stock collateral in his possession, and
for a declaratory judgment that Mr. Tooker was properly
terminated "for cause" under the terms of his employment
agreement. The Company seeks to recover not less than an
aggregate of $2,755,672, accrued interest, punitive damages,
costs and reasonable attorneys' fees. On or about April 27, 2000
Mr. Tooker filed an Answer and Counterclaim against the Company
and a Third Part Petition against the Company's Chairman, Interim
Chief Executive Officer and President, John J. Wiesner, Martin
Stringer, the Company's counsel and counsel to the Special
Committee, and the law firm of McKinney & Stringer, P.C. The
answer generally denies all allegations made by the Company. Mr.
Tooker seeks damages from the Company of approximately $3.9
million, plus attorney's fees, interest, and costs for breach of
his employment contract, and a like amount, including punitive
damages, from the third-party defendants for alleged tortious
interference with his employment contract. Mr. Tooker also seeks
to impose a constructive trust on the $300,000 in the Company's
possession for certain contractual benefits he claims to be due
under his employment agreement. The remaining claims seek
damages against the Company and in part against the third-party
defendants, totaling $18 million, plus punitive damages, fees,
interest and costs, on theories of defamation, civil conspiracy,
breach of fiduciary duty and breach of duty of good faith and
fair dealing. The case is in its initial development, prior to
any discovery. The Company and the third-party defendants
dispute his allegations and intend to vigorously defend all of
Mr. Tooker's claims.
In March 2000, eleven former employees of SRI d/b/a Palais
Royal, filed two separate suits in the United States District
Court for the Southern District of Texas against the Company, SRI
and Mary Elizabeth Pena, arising out of alleged conduct occurring
over an unspecified time while the plaintiffs were working at one
or more Palais Royal stores in the Houston, Texas area. The
plaintiffs allege that on separate occasions they were falsely
accused of stealing merchandise and other company property and
giving discounts for purchases against company policy. The suits
accuse the defendants of defamation, false imprisonment,
intentional infliction of mental distress, assault and violation
of the Racketeer Influenced and Corrupt Organizations (RICO) Act.
The claims seek unspecified damages for mental anguish, lost
earnings, exemplary damages, treble damages, interest, attorneys'
fees and costs. The Company denies the allegations and intends
to vigorously defend the claims.
Letters of Credit: The Company issues letters of credit to
support certain merchandise purchases which are required to be
collateralized. The Company had outstanding letters of credit
totaling approximately $12.2 million at January 29, 2000, all of
which were collateralized by the Credit Facility (see Note 6).
These letters of credit expire within twelve months of issuance.
Concentration of Credit Risk: Financial instruments which
potentially subject the Company to concentrations of credit risk
are primarily cash, short-term investments and the accounts
receivable transferred to the Trust (see Note 4). The Company's
cash management and investment policies restrict investments to
low-risk, highly-liquid securities and the Company performs
periodic evaluations of the relative credit standing of the
financial institutions with which it deals. The credit risk
associated with the accounts receivable transferred to the Trust
is limited by the large number of customers in the Company's
customer base. The Company's customers primarily reside in the
central United States.
NOTE 15 - C. R. ANTHONY COMPANY ACQUISITION
During June 1997, the Company acquired C.R. Anthony Company ("CR
Anthony") which operated 246 family apparel stores in small
markets throughout the central and midwestern United States under
the names "Anthony's" and "Anthony's Limited". The Company
issued 3,607,044 shares in exchange for the outstanding common
stock of CR Anthony. The purchase price for CR Anthony
(including the common stock issued by the Company) was
approximately $77.2 million, including acquisition costs and net
of cash acquired. CR Anthony had net sales of $288.4 million and
net income of $4.8 million for the year ended February 1, 1997.
The following unaudited pro forma information gives effect
to the acquisition of CR Anthony as if the transaction had
occurred at the beginning of the periods presented (in thousands,
except per common share data):
Fiscal
1997
(unaudited)
Net sales $1,181,816
Income before extraordinary items $33,482
Net income $15,187
Basic earnings per common
share before extraordinary items $1.23
Basic earnings per common share $0.56
Diluted earnings per common
share before extraordinary items $1.20
Diluted earnings per common share $0.54
The above amounts are based on certain estimates and
assumptions which the Company believes are reasonable. The pro
forma results do not purport to be indicative of the results
which would have occurred if the acquisition or refinancing had
actually taken place at the beginning of the periods presented,
nor are they necessarily indicative of the results of any future
periods.
The acquisition of CR Anthony was accounted for under the
purchase method of accounting. Accordingly, the total
acquisition cost was allocated to the assets acquired and
liabilities assumed at their estimated fair values based upon
information currently available to the Company. The excess of
the purchase price over the estimated fair value of such assets
and liabilities was recognized as goodwill and is being amortized
on a straight-line basis over forty years.
NOTE 16 - CONSOLIDATING FINANCIAL STATEMENTS
SRI is the primary obligor under the long-term indebtedness
issued in connection with the Note Offering (see Note 64). Stage
Stores and Specialty Retailers, Inc. (NV), a wholly-owned
subsidiary of Stage Stores (which was incorporated during June,
1997), are guarantors under such indebtedness. The consolidating
condensed financial information for Stage Stores and its wholly-
owned subsidiaries are presented below. The financial data for
SRI Receivables Purchase Co. does not reflect the total
consolidated operating performance of the Company's Accounts
Receivable Program. For a summary of the total consolidated
operating performance of the Company's Accounts Receivable
Program, see Note 4.
Consolidating Condensed Balance Sheet
January 29, 2000
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
ASSETS
Cash and cash equivalents $18,077 $-- $-- $18,077
Undivided interest in
accounts receivable trust (13,101) 54,701 -- 41,600
Merchandise
inventories, net 261,104 -- -- 261,104
Prepaid expenses 7,725 220 -- 7,945
Other current assets 17,755 8,491 -- 26,246
Total current assets 291,560 63,412 -- 354,972
Property, equipment and
leasehold improvements,
net 180,761 -- -- 180,761
Other assets 13,111 2,608 -- 15,719
Investment in subsidiaries 36,690 -- (36,690) --
Total assets $522,122 $66,020 $(36,690) $551,452
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable $40,955 $-- $-- $40,955
Accrued expenses and
other current liabilities 69,385 2,770 -- 72,155
Current portion
of long-term debt 9,830 -- -- 9,830
Long-term debt
classified as current 492,393 -- -- 492,393
Total current liabilities 612,563 2,770 -- 615,333
Long-term debt -- -- -- --
Other long-term
liabilities 14,299 -- -- 14,299
Intercompany
notes/advances 160,719 26,560 -- 187,279
Investment in subsidiaries -- -- -- --
Total liabilities 787,581 29,330 -- 816,911
Preferred stock -- -- -- --
Common stock -- -- -- --
Class B common stock -- -- -- --
Additional paid-
in capital 3,317 33,908 (33,908) 3,317
Accumulated earnings
(deficit) (264,438) 2,782 (2,782) (264,438)
Accumulated other
comprehensive income (4,338) -- -- (4,338)
Stockholders' equity
(deficit) (265,459) 36,690 (36,690) (265,459)
Total liabilities and
stockholders' equity
(deficit) $522,122 $66,020 $(36,690) $551,452
Consolidating Condensed Balance Sheet
January 29, 2000
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
ASSETS
Cash and cash equivalents $102 $2,000 $-- $20,179
Undivided interest in
accounts receivable trust -- -- -- 41,600
Merchandise
inventories, net -- -- -- 261,104
Prepaid expenses -- -- -- 7,945
Other current assets -- -- -- 26,246
Total current assets 102 2,000 -- 357,074
Property, equipment and
leasehold improvements, net -- 1,073 -- 181,834
Other assets -- 60 -- 15,779
Investment in subsidiaries -- -- -- --
Total assets $102 $3,133 $-- $554,687
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable $-- $-- $-- $40,955
Accrued expenses and other
current liabilities 22 -- -- 72,177
Current portion
of long-term debt -- -- -- 9,830
Long-term debt
classified as current -- -- -- 492,393
Total current liabilities 22 -- -- 615,355
Long-term debt -- -- -- --
Other long-term liabilities -- -- -- 14,299
Intercompany notes/advances 18 (187,297) -- --
Investment in subsidiaries 75,029 -- (75,029) --
Total liabilities 75,069 (187,297) (75,029) 629,654
Preferred stock -- -- -- --
Common stock 268 -- -- 268
Class B common stock 13 -- -- 13
Additional paid-in capital 266,590 160,915 (164,232) 266,590
Accumulated
earnings (deficit) (337,500) 29,515 234,923 (337,500)
Accumulated other 4,338
comprehensive income (4,338) -- 4,338 (4,338)
Stockholders'
equity (deficit) (74,967) 190,430 75,029 (74,967)
Total liabilities and
stockholders' equity
(deficit) $102 $3,133 $-- $554,687
Consolidating Condensed Balance Sheet
January 30, 1999
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
ASSETS
Cash and cash equivalents $10,882 $ -- $-- $10,882
Undivided interest in
accounts receivable trust (13,228) 83,044 -- 69,816
Merchandise inventories,
net 341,316 -- -- 341,316
Prepaid expenses 24,082 899 -- 24,981
Other current assets 53,566 5,926 -- 59,492
Total current assets 416,618 89,869 -- 506,487
Property, equipment and
leasehold improvements,
net 231,499 -- -- 231,499
Goodwill, net 92,551 -- -- 92,551
Other assets 18,967 4,402 -- 23,369
Investment in
subsidiaries 37,886 -- (37,886) --
Total assets $797,521 $94,271 $(37,886) 853,906
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $82,779 $-- $-- $82,779
Accrued expenses
and other current
liabilities 49,726 2,888 -- 52,614
Current portion
of long-term debt 4,814 -- -- 4,814
Total current
liabilities 137,319 2,888 -- 140,207
Long-term debt 457,968 30,000 -- 487,968
Other long-term
liabilities 25,021 -- -- 25,021
Intercompany
notes/advances 151,273 23,497 -- 174,770
Total liabilities 771,581 56,385 -- 827,966
Preferred stock -- -- -- --
Common stock -- -- -- --
Class B common stock -- -- -- --
Additional paid-in
capital 3,317 32,130 (32,130) 3,317
Accumulated
earnings (deficit) 28,617 5,756 (5,756) 28,617
Accumulated other
comprehensive income (5,994) -- -- (5,994)
Stockholders' equity 25,940 37,886 (37,886) 25,940
Total liabilities and
stockholders' equity $797,521 $94,271 $(37,886) $853,906
Consolidating Condensed Balance Sheet
January 30, 1999
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
ASSETS
Cash and cash equivalents $2 $1,948 $-- $12,832
Undivided interest in
accounts receivable trust -- -- -- 69,816
Merchandise inventories, net -- -- -- 341,316
Prepaid expenses -- -- -- 24,981
Other current assets -- -- -- 59,492
Total current assets 2 1,948 -- 508,437
Property, equipment and
leasehold improvements, net -- 1,764 -- 233,263
Goodwill, net -- -- -- 92,551
Other assets -- 60 -- 23,429
Investment in subsidiaries 204,349 -- (204,349) --
Total assets $204,351 $3,772 $(204,349) $857,680
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $-- $-- $-- $82,779
Accrued expenses and
other current liabilities 92 -- -- 52,706
Current portion of
long-term debt -- -- -- 4,814
Total current liabilities 92 -- -- 140,299
Long-term debt -- -- -- 487,968
Other long-term liabilities -- -- -- 25,021
Intercompany notes/advances (133) (174,637) -- --
Total liabilities (41) (174,637) -- 653,288
Preferred stock -- -- -- --
Common stock 267 -- -- 267
Class B common stock 13 -- -- 13
Additional paid-in capital 265,716 160,040 (163,357) 265,716
Accumulated
earnings (deficit) (55,610) 18,369 (46,986) (55,610)
Accumulated other
comprehensive income (5,994) -- 5,994 (5,994)
Stockholders' equity 204,392 178,409 (204,349) 204,392
Total liabilities and
stockholders' equity $204,351 $3,772 $(204,349) $857,680
Consolidating Condensed Statement of Operations
Fiscal Year ended January 29, 2000
(in thousands)
Specialty SRI Receivables SRI SRI
Retailes, Inc. Purchase Co. Eliminations Consolidated
Net sales $1,121,567 $-- $-- $1,121,567
Cost of sales and
related buying,
occupancy and
distribution expenses 897,117 -- -- 897,117
Gross profit 224,450 -- -- 224,450
Selling, general and
administrative expenses 389,873 (1,597) -- 388,276
Store opening and
closure program costs 44,986 -- -- 44,986
Operating income (210,409) 1,597 -- (208,812)
Interest expense, net 61,894 3,457 -- 65,351
Income (loss) before
income taxes, equity in
net earnings of
subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (272,303) (1,860) -- (274,163)
Income tax
expense (benefit) 14,842 (637) -- 14,205
Income (loss) before
equity in net earnings
of subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (287,145) (1,223) -- (288,368)
Equity in net earnings
of subsidiaries (2,974) -- 2,974 --
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle (290,119) (1,223) 2,974 (288,368)
Extraordinary item -
early retirement of
debt, net of tax (204) (545) -- (749)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax (2,732) (1,206) -- (3,938)
Net income (loss) $(293,055) $(2,974) $2,974 $(293,055)
Consolidating Condensed Statement of Operations
Fiscal Year ended January 29, 2000
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Net sales $-- $-- $-- $1,121,567
Cost of sales and related
buying, occupancy and
distribution expenses -- -- -- 897,117
Gross profit -- -- -- 224,450
Selling, general and
administrative expenses 125 (585) -- 387,816
Store opening and program
closure costs -- -- -- 44,986
Operating income (125) 585 -- (208,352)
Interest expense, net -- (16,717) -- 48,634
Income (loss)
before income taxes,
equity in net earnings
of subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (125) 17,302 -- (256,986)
Income tax
expense (benefit) (44) 6,056 -- 20,217
Income (loss) before
equity in net earnings
of subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (81) 11,246 -- (277,203)
Equity in net earnings
of subsidiaries (281,809) -- 281,809 --
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle (281,809) 11,246 281,809 (277,203)
Extraordinary item -
early retirement of
debt, net of tax -- -- -- (749)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax -- -- -- (3,938)
Net income (loss) $(281,890) $11,246 $281,809 $(281,890)
Consolidating Condensed Statement of Operations
Fiscal Year ended January 30, 1999
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Elimination Consolidated
Net sales $1,173,547 $ -- $ -- $1,173,547
Cost of sales and
related buying,
occupancy and
distribution expenses 839,238 -- -- 839,238
Gross profit 334,309 -- -- 334,309
Selling, general and
administrative expenses 277,523 (1,467) -- 276,056
Store opening and
closure costs 10,192 -- -- 10,192
Operating income 46,594 1,467 -- 48,061
Interest expense, net 65,345 (3,435) -- 61,910
Income (loss) before
income taxes (18,751) 4,902 -- (13,849)
Income tax expense
(benefit) (6,377) 1,826 -- (4,551)
Income (loss) before
equity in net earnings
of subsidiaries (12,374) 3,076 -- (9,298)
Equity in net earnings
of subsidiaries 3,076 -- (3,076) --
Net income (loss) $(9,298) $3,076 $(3,076) $(9,298)
Consolidating Condensed Statement of Operations
Fiscal Year ended January 30, 1999
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Elimiations Consolidated
Net sales $ -- $ -- $ -- $1,173,547
Cost of sales and related
buying, occupancy and
distribution expenses -- -- -- 839,238
Gross profit -- -- -- 334,309
Selling, general and
administrative expenses 93 (4,672) -- 271,477
Store opening and
closure costs -- -- -- 10,192
Operating income (93) 4,672 -- 52,640
Interest expense, net -- (15,439) -- 46,471
Income (loss) before
income taxes (93) 20,111 -- 6,169
Income tax expense (benefit) (33) 7,039 -- 2,455
Income (loss) before equity
in net earnings
of subsidiaries (60) 13,072 -- 3,714
Equity in net earnings
of subsidiaries 3,774 -- (3,774) --
Net income (loss) $3,714 $13,072 $(3,774) $3,714
Consolidating Condensed Statement of Operations
Fiscal Year ended January 31, 1998
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
Net sales $1,073,316 $-- $-- $1,073,316
Cost of sales and related
buying, occupancy and
distribution expenses 730,179 -- -- 730,179
Gross profit 343,137 -- -- 343,137
Selling, general and
administrative expenses 242,843 (2,865) -- 239,978
Store opening and
closure costs 8,686 -- -- 8,686
Operating income 91,608 2,865 -- 94,473
Interest expense, net 47,746 (1,164) -- 46,582
Income (loss) before
income taxes 43,862 4,029 -- 47,891
Income tax expense
(benefit) 17,234 1,483 -- 18,717
Income (loss) before
equity in net earnings
of subsidiaries and
extraordinary item 26,628 2,546 -- 29,174
Equity in net earnings
of subsidiaries 1,904 -- (1,904) --
Income (loss) before
extraordinary item 28,532 2,546 (1,904) 29,174
Extraordinary item -
early retirement of debt (17,653) (642) -- (18,295)
Net income (loss) $10,879 $1,904 $(1,904) $10,879
Consolidating Condensed Statement of Operations
Fiscal Year ended January 31, 1998
(in thousands)
Specialty
Stage Retailer, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Net sales $-- $-- $-- $1,073,316
Cost of sales and related
buying, occupancy and
distribution expenses -- -- -- 730,177
Gross profit -- -- -- 343,137
Selling, general and
administrative expenses 30 3 -- 240,011
Store opening and
closure costs -- -- -- 8,686
Operating income (30) (3) -- 94,440
Interest expense, net -- (8,305) -- 38,277
Income (loss) before
income taxes (30) 8,302 -- 56,163
Income tax expense (benefit) -- 2,906 -- 21,623
Income (loss) before equity
in net earnings of
subsidiaries and
extraordinary item (30) 5,396 -- 34,540
Equity in net earnings
of subsidiaries 16,275 -- (16,275) --
Income (loss) before
extraordinary item 16,245 5,396 (16,275) 34,540
Extraordinary item -
early retirement of debt -- -- -- (18,295)
Net income (loss) $16,245 $5,396 $(16,275) $16,245
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 29, 2000
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by
(used in) operating
activities $28,755 $(4,878) $-- $23,877
Cash flows from
investing activities:
Investment in subsidiaries -- -- -- --
Additions to property,
equipment and leasehold
improvements (22,037) -- -- (22,037)
Proceeds from the sales
of accounts receivable,
net (34,878) 34,878 -- --
Dividend from subsidiary -- -- -- --
Net cash used in
investing activities (56,915) 34,878 -- (22,037)
Cash flows from
financing activities:
Proceeds from working
capital facility 43,000 -- -- 43,000
Proceeds from issuance
of commom stock -- -- -- --
Proceeds from capital
contribution -- -- -- --
Payments on long-term
debt (4,813) (30,000) -- (34,813)
Additions to debt
issue costs (2,832) -- -- (2,832)
Dividend paid -- -- -- --
Net cash provided by
(used in) financing
activities 35,355 (30,000) -- 5,355
Net increase (decrease)
in cash and cash
equivalents 7,195 -- -- 7,195
Cash and cash equivalents:
Beginning of period 10,882 -- -- 10,882
End of period $18,077 $ -- $ -- $18,077
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 29, 2000
(in thousands)
Specialty
Stage Retailers Stage Stores
Stores, Inc. Inc. (NV) Elimiations Consolidated
Cash flows from
operating activities:
Net cash provided by (used
in) operating activities $ -- $24 $-- $23,901
Cash flows from
investing activities:
Investment in subsidiaries (128) -- 128 --
Additions to property,
equipment and leasehold
improvements -- -- -- (22,037)
Proceeds from the sales of
accounts receivable, net -- -- -- --
Dividend from subsidiary 100 -- (100) --
Net cash used in investing
activities (28) -- 28 (22,037)
Cash flows from
financing activities:
Proceeds from working
capital facility -- -- -- 43,000
Proceeds from issuance
of common stock 128 -- -- 128
Proceeds from capital
contribution -- 128 (128) --
Payments on long-term debt -- -- -- (34,813)
Additions to debt issue costs -- -- -- (2,832)
Dividend paid -- (100) 100 --
Net cash provided by (used
in) financing activities 128 28 (28) 5,483
Net increase (decrease) in
cash and cash equivalents 100 52 -- 7,347
Cash and cash equivalents:
Beginning of period 2 1,948 -- 12,832
End of period $102 $2,000 $ -- $20,179
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 30, 1999
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Elimination Consolidated
Cash flows from
operating activities:
Net cash provided by
(used in) operating
activities $(28,747) $11,586 $-- $(17,161)
Cash flows from
investing activities:
Investment in subsidiaries -- -- -- --
Additions to property,
equipment and leasehold
improvements (88,047) -- -- (88,047)
Proceeds from the sales
of accounts receivable,
net 2,504 (2,504) -- --
Dividend from subsidiary 9,082 -- (9,082) --
Net cash used in investing
activities (76,461) (2,504) (9,082) (88,047)
Cash flows from
financing activities:
Proceeds from working
capital facility 96,300 -- -- 96,300
Proceeds from issuance of
common stock -- -- -- --
Proceeds from capital
contribution -- -- -- --
Payments on long-term debt (2,596) -- -- (2,596)
Additions to debt issue
costs (913) -- -- (913)
Dividends paid -- (9,082) 9,082 --
Net cash provided by
(used in) financing
activities 92,791 (9,082) 9,082 92,791
Net increase (decrease)
in cash and cash
equivalents (12,417) -- -- (12,417)
Cash and cash equivalents:
Beginning of period 23,299 -- -- 23,299
End of period $10,882 $-- $-- $10,882
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 30, 1999
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by (used
in) operating activities $(31) $1,682 $-- $(15,510)
Cash flows from
investing activities:
Investment in subsidiaries (1,038) -- 1,038 --
Additions to property,
equipment and leasehold
improvements -- (672) -- (88,719)
Proceeds from the sales of
accounts receivable, net -- -- -- --
Dividend from subsidiary 100 -- (100) --
Net cash used in investing
activities (938) (672) 938 (88,719)
Cash flows from
financing activities:
Proceeds from working
capital facility -- -- -- 96,300
Proceeds from issuance of
common stock 955 -- -- 955
Proceeds from capital
contribution -- 1,038 (1,038) --
Payments on long-term debt -- -- -- (2,596)
Additions to det issue costs -- -- -- (913)
Dividend paid -- (100) 100 --
Net cash provided by (used
in) financing activities 955 938 (938) 93,746
Net increase (decrease) in
cash and cash equivalents (14) 1,948 -- (10,483)
Cash and cash equivalents:
Beginning of period 16 -- -- 23,315
End of period $2 $1,948 $-- $12,832
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended
January 31, 1998
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by
(used in) operating
activities $36,822 $(17,988) $-- $18,834
Cash flows from
investing activities:
Acquisitions, net of
cash acquired (4,946) -- -- (4,946)
Investment in subsidiaries 21,243 -- -- 21,243
Intercompany notes/advances 22,522 -- -- 22,522
Additions to property,
equipment and leasehold
improvements (64,859) -- -- (64,859)
Proceeds from the sales
of accounts receivable,
net (19,962) 19,962 -- --
Dividend from subsidiary 1,904 -- (1,904) --
Net cash used in
investing activities (44,098) 19,962 (1,904) (26,040)
Cash flows from
financing activities:
Proceeds from working
capital facility 45,700 -- -- 45,700
Proceeds from issuance
of long-term debt 299,718 -- -- 299,718
Proceeds from issuance
of common stock -- -- -- --
Proceeds from capital
contribution (21,243) -- -- (21,243)
Payments on long-term
debt (299,533) -- -- (299,533)
Additions to debt
issue costs (12,337) (70) -- (12,407)
Dividend paid -- (1,904) 1,904 --
Net cash provided by
(used in) financing
activities 12,305 (1,974) 1,904 12,235
Net indecrease in cash
and cash equivalents 5,029 -- -- 5,029
Cash and cash equivalents:
Beginning of period 18,270 -- -- 18,270
End of period $23,299 $-- $-- $23,299
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 31, 1998
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by (used
in) operating activities $-- $-- $-- $18,834
Cash flows from
investing activities:
Acquisitions, net of
cash acquired -- -- -- (4,946)
Investment in subsidiaries (21,243) -- -- --
Intercompany
notes/advances (1,279) (21,243) -- --
Additions to property,
equipment and leasehold
improvements -- -- -- (64,859)
Proceeds from the sales of
accounts receivable, net -- -- -- --
Dividend from subsidiary -- -- -- --
Net cash used in investing
activities (22,522) (21,243) -- (69,805)
Cash flows from
financing activities:
Proceeds from working
capital facility -- -- -- 45,700
Proceeds from issuance of
long-term debt -- -- -- 299,718
Proceeds from issuance of
common stock 22,522 -- -- 22,522
Proceeds from capital
contributions -- 21,243 -- --
Payments on long-term debt -- -- -- (299,533)
Additions to debt issue costs -- -- -- (12,407)
Dividend paid -- -- -- --
Net cash provided by
(used in) financing
activities 22,522 21,243 -- 56,000
Net increase in cash and
cash equivalents -- -- -- 5,029
Cash and cash equivalents:
Beginning of period 16 -- -- 18,286
End of period $16 $-- $-- $23,315
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.7
<SEQUENCE>2
<FILENAME>0002.txt
<TEXT>
Exhibit 4.7
SIXTH AMENDMENT AGREEMENT
This SIXTH AMENDMENT AGREEMENT, dated as of February
18, 2000 (the "Agreement"), is among Specialty Retailers, Inc.
(the "Borrower"), Stage Stores, Inc. (the "Parent"), the banks
named therein (the "Banks") and Credit Suisse First Boston, as
Administrative Agent, Collateral Agent, Swingline Bank and L/C
Bank (the "Administrative Agent").
PRELIMINARY STATEMENT
WHEREAS, the Borrower, the Parent, the Banks and the
Administrative Agent are parties to the Credit Agreement, dated
as of June 17, 1997, as amended through the date hereof (the
"Credit Agreement");
WHEREAS, the Borrower has requested the amendment of
certain provisions set forth in the Credit Agreement;
WHEREAS, the Banks have agreed to amend the specific
provisions set forth herein under the terms and conditions set
forth herein;
NOW, THEREFORE, the parties hereto hereby agree as
follows:
SECTION 1. Defined Terms. Capitalized terms used
and not defined herein shall have the meanings assigned to such
terms in the Credit Agreement.
SECTION 2. Amendments. The Banks hereby agree to
amend the Credit Agreement as follows:
(a) The definition of "Consolidated EBITDA" in Section 1.1
of the Credit Agreement is hereby amended by adding the following
before the "." at the end thereof:
", plus (ix) any special charges relating to the
closing of any stores other than the stores listed on Schedule 1
to the Sixth Amendment Agreement, dated as of February 18, 2000.
(b) The definition of "Material Adverse Effect" in Section
1.1 of the Credit Agreement is hereby restated in its entirety as
follows:
""Material Adverse Effect" shall mean, measured from
the date of closing of the Senior Revolving Credit Facility, a
material adverse effect upon (i) the business, operations, proper
ties, assets or condition (financial or otherwise) of the Parent
and its Subsidiaries taken as a whole or (ii) the ability of any
Loan Party to perform, or of the Administrative Agent, any L/C
Bank, the Swingline Bank, the Collateral Agent or any of the
Banks to enforce, any of the Obligations."
(c) Section 1.1 of the Credit Agreement is hereby amended
by adding the following definition:
""Senior Revolving Credit Facility" shall mean the
Senior Financing as defined in that Commitment Letter dated as of
February 18, 2000, substantially in the form attached hereto as
Exhibit A."
(d) The Credit Agreement is hereby amended by adding the
following new Section 6.2(k):
"(k) Indebtedness under the Senior Revolving Credit
Facility."
(e) Section 6.3(g) of the Credit Agreement is hereby
amended by adding the following before the word "securing" in the
second line thereof:
"or pursuant to any other document"
(f) The Credit Agreement is hereby amended by adding the
following new Section 6.3(k):
"(k) Liens created by the Borrower or any Subsidiary
against inventory for the benefit of Senior Revolving Credit
Facility."
(g) The Credit Agreement is hereby amended by adding the
following new Section 2.10(d):
"(d) Simultaneously with any required prepayment of the
Revolving Loans in accordance with the provisions of Section
2.12(i) , each Bank's Total Expansion Loan Commitment shall be
permanently reduced by such Bank's Pro Rata Share of the amount
of such prepayment."
(h) The Credit Agreement is hereby amended by adding the
following new Section 2.12(i):
"(i) Store Closings. On the tenth Business Day after
the end of the fiscal month after the termination of business at
a store (other than the stores listed on Schedule 1 to the Sixth
Amendment Agreement, dated as of February __, 2000), the Borrower
shall prepay the outstanding Expansion Loans in an amount equal
to 100% of the amount of the proceeds from liquidating the
existing inventory, furniture and fixtures at such store to be
closed at the commencement of a going out of business or similar
sale, less all cash costs associated with closing such store,
including but not limited to future lease or occupancy cost
payments, severance payments, costs of conducting such going out
of business or similar sale and taxes."
(i) The Credit Agreement is hereby amended by adding the
following new Section 4.28:
"Section 4.28 Cash Balances. The aggregate amount of
readily available cash or cash equivalent in the corporate
concentration account of the Borrower and its Subsidiaries does
not exceed at any time $20 million after giving effect to any
proposed borrowing."
(j) The Credit Agreement is hereby amended by adding the
following new Section 5.12:
"Section 5.12 Cash Sweep. The Borrower hereby
covenants on each Business Day to sweep cash held at stores and
local deposit or concentration accounts to the corporate
concentration account in accordance with customary and typical
past historical practices of the Borrower."
SECTION 3. Representations and Warranties; No
Defaults. Each Loan Party hereby represents and warrants that
after giving effect to the amendments set forth in Section 2 of
this Agreement, (a) the representations and warranties contained
in the Credit Agreement and Loan Documents are correct on the
effective date of this Agreement, and (b) no Default or Event of
Default has occurred or is continuing on the date hereof and on
the effective date of this Agreement.
SECTION 4. Counterparts. This Agreement (a) may be
executed in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall
constitute one and the same instrument, (b) shall be effective
only in this specific instance for the specific purpose set forth
herein, and (c) does not allow any other or further departure
from the terms of the Credit Agreement or the Loan Documents,
which terms shall continue in full force and effect.
SECTION 5. Conditions to Effectiveness. This Agree
ment shall become effective as of the date hereof when (a) copies
hereof, when taken together, bearing the signatures of each of
the Loan Parties and the Required Banks have been received by the
Administrative Agent, (b) the Borrower has granted the Banks a
first priority lien on the corporate concentration account to
secure the Obligations under the Existing Facility, (c) the
Borrower has granted the Banks a second priority lien on all
Eligible Inventory (to be defined) of the Borrower and its
Subsidiaries to secure an amount equal to the difference between
$50 million of borrowing under the Existing Facility minus the
amount of indebtedness under the Senior Revolving Credit Facility
outstanding on the date of the occurrence of an Event of Default
(as defined in the Senior Revolving Credit Facility), (d) the
Borrower has granted the Banks a first priority lien to secure
the Obligations under the Existing Facility on all tangible
personal property, including furniture, fixtures and equipment
and (e) the Senior Revolving Credit Facility is duly executed and
becomes effective. The Borrower and Subsidiaries agree to effect
such additional documents or agreements as the Administrative
Agent may reasonably request in connection with the foregoing.
SECTION 6. Acknowledgments, Releases and Defenses.
Each Loan Party hereby (i) acknowledges and confirms that the
Administrative Agent and the Banks have performed fully all of
their respective obligations under the Credit Agreement and the
other Loan Documents and the instruments and agreements referred
to therein; (ii) releases the Administrative Agent, the Banks,
and the Administrative Agent's and Banks' respective officers,
directors, employees, agents, attorneys, affiliates, subsidiaries
and representatives from any an all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or
nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from
any action or failure to act on or prior to the date hereof;
(iii) acknowledges that it has no offsets or defenses to its
obligations under the Credit Agreement and the other Loan
Documents; and (iv) ratifies, acknowledges and affirms its
obligations under the Credit Agreement and the other Loan
Documents, including, without limitation, the amounts borrowed
thereunder. Except as otherwise specified herein, there is no
amendment of any other term, condition or provision of the Credit
Agreement all of which are hereby ratified and confirmed by the
Borrower and the Parent.
SECTION 7. Applicable Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers,
all as of the date and year first written above.
SPECIALTY RETAILERS, INC.
By: /s/ Charles M. Sledge___________________
Name: Charles M. Sledge
Title: SVP Finance & Treasurer
STAGE STORES, INC.
By: /s/ James A. Marcum __________________
Name: James A. Marcum
Title: Vice Chairman/CFO
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent, Collateral Agent,
Swingline Bank and L/C Bank
By: /s/ Jan Kofol________________________
Name: Jan Kofol
Title: Director
By: /s/ Didier Siffer_____________________
Name: Didier Siffer
Title: Vice President
BANK UNITED
By: /s/ Gordon Kovacs__________________
Name: Gordon Kovacs
Title: Vice President
BANQUE WORMS CAPITAL CORPORATION
By: __________________________
Name:
Title:
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ Albert A. Young Jr._____________
Name: Albert A. Young Jr.
Title: Director
By: /s/ Edward V. Canale______________
Name: Edward V. Canale
Title: Managing Director
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
F.K.A. Creditanstalt Corporate Finance, Inc.
By: __________________________
Name:
Title:
By: __________________________
Name:
Title:
HIBERNIA NATIONAL BANK
By: __________________________
Name:
Title:
IMPERIAL BANK, A CALIFORNIA BANKING CORPORATION
By: __________________________
Name:
Title:
ROYAL BANK OF SCOTLAND
By: /s/ Derek Bonnar_______________
Name: Derek Bonnar
Title: Vice President
THE FUJI BANK, LIMITED
By: __________________________
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Richard P. DeGrey____________
Name: Richard P. DeGrey
Title: Vice President
FIRST COMMERCIAL BANK
By: __________________________
Name:
Title:
Bankers Life & Casualty
By: /s/ Eric Johnson_____________
Name: Eric Johnson
Title: Vice President
STEIN, ROE & FARNHAM / KEYPORT LIFE
By: /s/ Jim Fellows______________
Name: Jim Fellows
Title:
_______________________________
1There is a 'blank' Footer B here to retain soft page breaks
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.8
<SEQUENCE>3
<FILENAME>0003.txt
<TEXT>
Exhibit 4.81
CREDIT AGREEMENT
among
SPECIALTY RETAILERS, INC.,
as Borrower
STAGE STORES, INC.,
as Guarantor
THE BANKS NAMED HEREIN,
and
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent and Collateral Agent
Dated as of March 6, 2000
$35,000,000
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 1
Section 1.1 Definitions 1
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES 25
Section 2.1 Revolving Loans 25
Section 2.2 Notice of Borrowing 25
Section 2.3 Disbursement of Funds 26
Section 2.4 Evidence of Indebtedness; Revolving Notes 26
Section 2.5 Interest 27
Section 2.6 Interest Periods 28
Section 2.7 Minimum Amount of Eurodollar Loans 28
Section 2.8 Conversion or Continuation 28
Section 2.9 Voluntary and Mandatory Reductions of
Commitments 29
Section 2.10 Voluntary Prepayments 29
Section 2.11 Mandatory Prepayments 29
Section 2.12 Application of Prepayments 31
Section 2.13 Method and Place of Payment 31
Section 2.14 Fees 32
Section 2.15 Interest Rate Unascertainable, Increased
Costs, Illegality 32
Section 2.16 Funding Losses 34
Section 2.17 Increased Capital 34
Section 2.18 Taxes 35
Section 2.19 Action of Affected Banks 36
Section 2.20 Use of Proceeds 36
SECTION 3. CONDITIONS PRECEDENT 36
Section 3.1 Conditions Precedent to Initial Loans 36
Section 3.2 Conditions Precedent to All Loans 39
SECTION 4. REPRESENTATIONS AND WARRANTIES 40
Section 4.1 Corporate Status 40
Section 4.2 Corporate Power and Authority 40
Section 4.3 No Violation 41
Section 4.4 Litigation 41
Section 4.5 Financial Statements; Financial Condition;
etc. 41
Section 4.6 [Intentionally left blank]. 41
Section 4.7 Projections 41
Section 4.8 Material Adverse Effect 41
Section 4.9 Use of Proceeds; Margin Regulations 42
Section 4.10 Governmental Approvals 42
Section 4.11 Security Interests and Liens 42
Section 4.12 Tax Returns and Payments 42
Section 4.13 ERISA 42
Section 4.14 Investment Company Act; Public Utility
Holding Company Act 43
Section 4.15 Representations and Warranties in Loan
Documents 43
Section 4.16 True and Complete Disclosure 43
Section 4.17 Corporate Structure; Capitalization 43
Section 4.18 Environmental Matters 44
Section 4.19 Insurance 44
Section 4.20 Patents, Trademarks, etc. 45
Section 4.21 Ownership of Property 45
Section 4.22 No Default 45
Section 4.23 Licenses, etc. 45
Section 4.24 Compliance With Law 45
Section 4.25 No Burdensome Restrictions 45
Section 4.26 Labor Matters 45
Section 4.27 Parent Business 46
Section 4.28 Cash Balances 46
SECTION 5. AFFIRMATIVE COVENANTS 46
Section 5.1 Information Covenants 46
Section 5.2 Books, Records and Inspections 50
Section 5.3 Maintenance of Insurance 50
Section 5.4 Taxes 50
Section 5.5 Corporate Franchises 51
Section 5.6 Compliance with Law 51
Section 5.7 Performance of Obligations 51
Section 5.8 Maintenance of Properties 51
Section 5.9 Further Assurances 51
Section 5.10 Receivables Program Refinancings. 52
Section 5.11 Maintenance of Corporate Separateness 52
Section 5.12 Post Closing Opinions 52
Section 5.13 Corporate Concentration Account 52
Section 5.14 Cash Sweep 53
Section 5.15 Cash Equivalents 53
Section 5.16 Projections 53
SECTION 6. NEGATIVE COVENANTS 53
Section 6.1 Financial Covenants 53
Section 6.2 Indebtedness 55
Section 6.3 Liens 56
Section 6.4 Restriction on Fundamental Changes 57
Section 6.5 Sale of Assets 57
Section 6.6 Contingent Obligations 58
Section 6.7 Dividends 58
Section 6.8 Advances, Investments and Loans 59
Section 6.9 Transactions with Affiliates 60
Section 6.10 Limitation on Voluntary Payments and
Modifications of Certain Documents 60
Section 6.11 Changes in Business 60
Section 6.12 Certain Restrictions 60
Section 6.13 Sales and Leasebacks 61
Section 6.14 Plans 61
Section 6.15 Limitation on Dispositions of Subsidiary
Stock 61
Section 6.16 Fiscal Year; Fiscal Quarter 61
Section 6.17 Receivables Program 61
SECTION 7. EVENTS OF DEFAULT 62
Section 7.1 Events of Default 62
Section 7.2 Rights and Remedies 64
SECTION 8. THE ADMINISTRATIVE AGENT AND COLLATERAL AGENT 65
Section 8.1 Appointment 65
Section 8.2 Delegation of Duties 65
Section 8.3 Exculpatory Provisions 66
Section 8.4 Reliance by Agent 66
Section 8.5 Notice of Default 66
Section 8.6 Non-Reliance on Agent and Other Banks 66
Section 8.7 Indemnification 67
Section 8.8 Agent in its Individual Capacity 67
Section 8.9 Successor Agent 67
SECTION 9. MISCELLANEOUS 68
Section 9.1 Payment of Expenses, Indemnity, etc. 68
Section 9.2 Right of Setoff 69
Section 9.3 Notices 69
Section 9.4 Successors and Assigns; Participation;
Assignments 70
Section 9.5 Amendments and Waivers 71
Section 9.6 No Waiver; Remedies Cumulative 72
Section 9.7 Sharing of Payments 72
Section 9.8 Governing Law; Submission to Jurisdiction 73
Section 9.9 Counterparts 73
Section 9.10 Effectiveness 73
Section 9.11 Headings Descriptive 73
Section 9.12 Marshalling; Recapture 73
Section 9.13 Severability 74
Section 9.14 Survival 74
Section 9.15 Domicile of Loans 74
Section 9.16 Limitation of Liability 74
Section 9.17 Calculations; Computations 74
Section 9.18 Waiver of Trial by Jury 75
Section 9.19 Nature of Borrowers' Obligations 75
SECTION 10. PARENT GUARANTY 76
Section 10.1 The Parent Guaranty 76
Section 10.2 Bankruptcy 76
Section 10.3 Nature of Liability 77
Section 10.4 Independent Obligation 77
Section 10.5 Authorization 77
Section 10.6 Reliance 78
Section 10.7 Subordination 78
Section 10.8 Waiver 78
Section 10.9 Maximum Liability 79
EXHIBITS
Exhibit A - Form of Notice of Borrowing
Exhibit B - Form of Revolving Note
Exhibit C-1 - Form of Notice of Conversion
Exhibit C-2 - Form of Notice of Continuation
Exhibit D - Form of Security Agreement
Exhibit E - Form of Subsidiary Guaranty
Exhibit F - Form of Warrant Agreement
Exhibit G - Form of Opinion of CW&T, counsel to the Loan Parties
Exhibit H - Form of Monthly Financials
Exhibit I - Form of Monthly Reports
Exhibit J - Form of Compliance Certificate
Exhibit K - Form of Excess Cash Flow Certificate
Exhibit L - Form of Transfer Supplement
Exhibit M - Form of Intercompany Note
SCHEDULES
Schedule I - Material Subsidiaries of Specialty and Stage
Schedule II - Receivables Program Documents
Schedule 4.8 - Material Adverse Changes
Schedule 4.10 - Governmental Approvals
Schedule 4.13 - ERISA
Schedule 4.17 - Corporate Structure; Capitalization
Schedule 4.18 - Environmental Matters
Schedule 4.19 - Insurance
Schedule 4.21 - Ownership of Property
Schedule 4.26 - Labor Matters
Schedule 6.2 - Existing Indebtedness
Schedule 6.3 - Existing Liens
Schedule 6.6 - Contingent Obligations
Schedule 6.9 - Leases
CREDIT AGREEMENT, dated as of March 6, 2000, among
SPECIALTY RETAILERS, INC., a Texas corporation (the "Borrower"),
STAGE STORES, INC., a Delaware corporation (the "Parent"), the
Banks (such term and each other capitalized term used herein
having the meaning assigned to such term in Section 1), and
CREDIT SUISSE FIRST BOSTON, acting in its capacity as agent for
the Banks (in such capacity, the "Administrative Agent") and in
its capacity as collateral agent for the Banks (in such capacity,
the "Collateral Agent").
The Borrower has requested that the Banks extend credit
to the Borrower to enable the Borrower to borrow on a revolving
basis Revolving Loans in an aggregate principal amount up to (but
not to exceed) $35,000,000.
The proceeds of the Revolving Loans will be used for
working capital of the Borrower and its Subsidiaries.
Accordingly, the Borrower, the Parent, the Banks, the
Administrative Agent and the Collateral Agent hereby agree as
follows:
SECTION 10 DEFINITIONS.
Section 1.1 Definitions. As used herein, the fol
lowing terms shall have the meanings herein specified unless the
context otherwise requires. Defined terms in this Agreement
shall include in the singular number the plural and in the plural
number the singular.
"Adjusted Leverage Ratio" shall mean on any day the
ratio on such day of (i) Consolidated Total Debt on such day
determined on a Pro Forma Basis to (ii) Consolidated Adjusted
EBITDA for the four consecutive quarters of the Parent (taken as
one accounting period) most recently ended.
"Administrative Agent" shall mean Credit Suisse First
Boston acting in its capacity as administrative agent for the
Banks and any successor agent appointed in accordance with
Section 8.9.
"Administrative Agent's Office" shall mean the office
of the Administrative Agent located at Eleven Madison Avenue, New
York, New York, 10010, or such other office as the Administrative
Agent may hereafter designate in writing as such to the other
parties hereto.
"Affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling (including but
not limited to all directors and officers of such Person),
controlled by, or under direct or indirect common control with
such Person. A Person shall be deemed to control a corporation
if such Person possesses, directly or indirectly, the power to
(i) vote 10% or more of the securities having ordinary voting
power for the election of directors of such corporation or (ii)
direct or cause the direction of the management and policies of
such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" shall have the meaning provided in Section 8.1.
"Agreement" shall mean this Credit Agreement as the
same may from time to time hereafter be modified, supplemented,
restated, or amended.
"Anticipated Reinvestment Amount" shall mean, with
respect to any Reinvestment Election exercised with respect to an
Eligible Asset Sale, the amount specified in the Reinvestment
Notice delivered by the Borrower in connection therewith as the
amount of the Net Cash Proceeds from the related Eligible Asset
Sale that the Borrower intends to use to purchase, construct or
otherwise acquire Reinvestment Assets.
"Asset Sale" shall mean the sale, transfer or other
disposition (whether voluntary or involuntary) by the Parent or
any of its Subsidiaries (including, without limitation, by way of
the damage, destruction or condemnation thereof) to any Person
other than any Loan Party of (a) any capital stock of any
Subsidiary of the Parent or any of its Subsidiaries; (b) substan
tially all the assets of any geographic or other division or line
of business of the Parent or any of its Subsidiaries; or (c) any
other asset or assets (excluding inventory and other assets pur
chased for sale to others in the ordinary course of business and
sales of Receivables pursuant to the Receivables Program) of the
Parent or any of its Subsidiaries, provided that (i) any asset
sale included in clause (c) above shall be deemed not to be an
"Asset Sale" until the aggregate amount of all such sales after
the Closing Date by the Parent and its Subsidiaries, taken togeth
er, that have not previously become Asset Sales under this
Agreement equals or exceeds $1,000,000, (ii) any asset sale or
series of related asset sales described in clause (c) above
having a value less than $100,000 shall not be deemed an "Asset
Sale" for purposes of this Agreement and (iii) any sale of (x)
the aircraft owned by the Borrower, (y) any asset sale or series
of asset sales related to the sale of the C.R. Anthony Company
corporate headquarters building located in Oklahoma City,
Oklahoma or the sale of equipment located at the C.R. Anthony
Company distribution center located in Oklahoma City, Oklahoma
and (z) the sale of not more than five leasehold interests per
year relating to stores closed in the ordinary course of business
(so long as the value of each such leasehold interest does not
exceed $500,000), shall be deemed not to be an "Asset Sale"
hereunder.
"Authorized Officer" shall mean with respect to any
Person such Person's Chairman, President or Principal Financial
Officer.
"Bankruptcy Code" shall mean Title 11 of the United
States Code entitled "Bankruptcy", as amended from time to time,
and any successor statute or statutes, together with all rules
promulgated in connection therewith.
"Banks" shall mean the Persons listed on Annex 1 hereto
and the Persons which from time to time become a party hereto in
accordance with Section 9.4(c).
"Base Rate" shall mean, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day
and (b) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. If for any reason the Administrative Agent shall
have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds
Effective Rate for any reason, including the inability of the
Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the Base Rate shall be deter
mined without regard to clause (b) of the first sentence of this
definition until the circumstances giving rise to such inability
no longer exist. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Prime Rate
or the Federal Funds Effective Rate, respectively, without notice
to the Borrower.
"Base Rate Loans" shall mean Loans made and/or being
maintained at a rate of interest based upon the Base Rate.
"Bealls Subordinated Notes" shall mean (i) the
$14,982,914 12% Bealls Holding Subordinated Notes due 2002, (ii)
the $14,312,959 7% Bealls Junior Subordinated Debentures due 2003
and (iii) the $4,381,185 7% FB Holdings Subordinated Notes due
2000.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrower's Share of Excess Cash Flow" shall mean the
amount of Excess Cash Flow, determined on a cumulative basis from
January 30, 2000 through the last day of the fiscal year most
recently ended prior to the date of determination, that is not
required to be applied to the prepayment of the Loans pursuant to
the Existing Credit Agreement or Section 2.11(a)(iii) minus the
amount thereof previously applied to make additional Capital
Expenditures pursuant to Section 6.1(d).
"Borrowing" shall mean the incurrence of one Type of
Loan from all the Banks on a given date (or resulting from conver
sions or continuations on a given date), having in the case of
Eurodollar Loans the same Interest Period.
"Business Day" shall mean (i) for all purposes other
than as covered by clause (ii) below, any day excluding Saturday,
Sunday and any day which shall be in New York City a legal
holiday or a day on which banking institutions are authorized or
required by law or other government actions to close and (ii)
with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar
Loans, any day which is a Business Day described in clause (i)
and which is also a day for trading by and between banks for U.S.
dollar deposits in the London Interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, the
sum of expenditures (whether paid in cash or accrued as a
liability, including the portion of Capital Leases originally
incurred during such period that is capitalized on the
consolidated balance sheet of the Parent and its Subsidiaries) by
the Parent and its Subsidiaries during such period that, in
conformity with GAAP, are included in "capital expenditures",
"additions to property, plant or equipment" or comparable items
in the consolidated financial statements of the Parent and its
Subsidiaries.
"Capital Lease" shall mean (i) any lease of property,
real or personal, the obligations under which are capitalized on
the consolidated balance sheet of the Parent and its
Subsidiaries, and (ii) any other such lease to the extent that
the then present value of the minimum rental commitment
thereunder should, in accordance with GAAP, be capitalized on a
balance sheet of the lessee.
"Capital Lease Obligations" shall mean all obligations
of the Parent and its Subsidiaries under or in respect of Capital
Leases.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is
pledged in support thereof) having maturities of not more than
365 days from the date of acquisition, (ii) time deposits and
certificates of deposit of any Bank or any domestic commercial
bank of recognized standing having capital and surplus in excess
of $500,000,000 with maturities of not more than 365 days from
the date of acquisition, (iii) fully secured repurchase
obligations with a term of not more than 7 days for underlying
securities of the types described in clause (i) entered into with
any bank meeting the qualifications specified in clause (ii)
above, and (iv) commercial paper issued by the parent corporation
of any Bank or any domestic commercial bank of recognized
standing having capital and surplus in excess of $500,000,000 and
commercial paper rated at least A-1 or the equivalent thereof by
Standard & Poor's or at least P-1 or the equivalent thereof by
Moody's and in each case maturing within 270 days after the date
of acquisition.
"Change of Control" shall mean (a) the Parent shall
cease to own, beneficially and of record, 100% of the outstanding
capital stock of the Borrower, (b) any Person or group of Persons
(within the meaning of Section 13 or 14 of the Exchange Act)
shall have acquired beneficial ownership (within the meaning of
Rule 13d-3 promulgated by the Securities and Exchange Commission
under the Exchange Act) of 35% or more of the outstanding shares
of any class of outstanding common stock of the Parent,
(c) Continuing Directors shall cease to constitute a majority of
the board of directors of the Parent. "Continuing Director"
shall mean at any date a member of the Parent's board of
directors who was either a member of such board on the Closing
Date or was nominated for election to such board by at least two-
thirds of the Continuing Directors then in office or (d) a
"Change of Control" as defined in either the Senior Note
Indenture or the Senior Subordinated Note Indenture.
"Cleanup" shall mean all actions required to: (a)
cleanup, remove, treat or remediate Materials of Environmental
Concern in the indoor or outdoor environment, (b) prevent the
Release of Materials of Environmental Concern so that they do not
migrate, endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment, (c) perform
pre-remedial studies and investigations and post-remedial
monitoring and care, or (d) respond to any government requests
for information or documents in any way relating to cleanup,
removal, treatment or remediation or potential cleanup, removal,
treatment or remediation of Materials of Environmental Concern in
the indoor or outdoor environment.
"Closing Date" shall mean the date on which the
conditions precedent set forth in Section 3.1 have been
satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, together
with all rules and regulations promulgated in connection
therewith.
"Collateral" shall mean all property and interests in
property now owned or hereafter acquired in or upon which a Lien
has been or is purported or intended to have been granted to the
Collateral Agent under any of the Security Documents.
"Collateral Agent" shall mean Credit Suisse First
Boston acting in its capacity as collateral agent for the Secured
Creditors under the Security Documents and any successor collater
al agent appointed in accordance with Section 8.9.
"Commitment" shall mean, for each Bank at any given
time, its Revolving Loan Commitment.
"Commitment Fee" shall have the meaning set forth in
Section 2.14(b).
"Commitment Letter" shall mean that certain letter
agreement among the Borrower, the Parent and each of the Banks,
dated as of February 18, 2000, relating to the Transactions.
"Compliance Certificate" shall mean a certificate of
the Principal Financial Officer of the Borrower in the form of
Exhibit J hereto and delivered pursuant to Section 5.1(h) hereto.
"Consolidated Adjusted EBITDA" shall mean, for any peri
od, the Consolidated EBITDA for such period determined on a Pro
Forma Basis.
"Consolidated Cash Interest Expense" shall mean, for
any period, Consolidated Interest Expense for such period minus
the amount of such Consolidated Interest Expense not paid or
payable in cash.
"Consolidated Current Assets" shall mean, at any time,
the current assets (other than cash and Cash Equivalents) of the
Parent and its Subsidiaries at such time, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Current Liabilities" shall mean, at any
time, the current liabilities (other than the current portion of
all long-term Indebtedness) of the Parent and its Subsidiaries at
such time, determined on a consolidated basis in accordance with
GAAP.
"Consolidated EBITDA" shall mean, for any period, the
sum, without duplication, of (i) Consolidated Net Income for such
period plus (ii) Consolidated Interest Expense for such period
plus (iii) amortization of deferred Indebtedness issuance costs
and expenses for such period plus (iv) federal and state income
taxes deducted in calculating Consolidated Net Income for such
period, plus (v) to the extent deducted in the calculation of
Consolidated Net Income for such period, depreciation and amorti
zation expense plus (vi) to the extent deducted in the
calculation of Consolidated Net Income for such period, any
noncash charges related to the issuance by the Parent or any of
its Subsidiaries of stock, warrants or options to any employee
thereof (or any exercise of any such warrants or options) or any
re-valuation of such stock, warrants or options, minus to the
extent added to the calculation of Consolidated Net Income for
such period, any noncash gain related to the issuance by the
Parent or any of its Subsidiaries of stock, warrants or options
to any employee thereof (or any exercise of any such warrants or
options) or any re-valuation of such stock, warrants or options,
all determined on a consolidated basis for the Parent and its
Subsidiaries in accordance with GAAP plus, (vii) special charges
for restructuring (consisting of store closures, downsizing and
inventory and other valuation reserves) of up to $65,000,000 in
the aggregate taken in the fourth quarter of fiscal year 1999 and
the first two fiscal quarters of fiscal year 2000 as specified on
Schedule 1 to the Fifth Amendment Agreement, dated as of February
3, 2000, to the Existing Credit Agreement, by and among the
parties thereto, or other costs, expenses or losses associated
with the termination of employment of such executives not to
exceed amounts otherwise payable under any such executive's
existing employment contract plus (viii) executive severance
payments pursuant to the current terms of existing employment
contracts, plus (ix) any special charges (to the extent such
charges affect Consolidated EBITDA) relating to the closing of
any stores other than stores listed on Schedule 1 to the Sixth
Amendment Agreement, dated as of February 18, 2000, to the
Existing Credit Agreement, by and among the parties thereto.
"Consolidated Fixed Charges" shall mean, without
duplication, for any period, the sum of (i) all Consolidated
Interest Expense for such period, plus (ii) scheduled payments
due in the next succeeding four quarters for principal of the
Expansion Loans (as defined in the Existing Credit Agreement) and
other Indebtedness (including the principal component of Capital
Leases but excluding amounts due on the Final Maturity Date),
plus (iii) Consolidated Rental Expense plus (iv) all federal and
state income taxes paid or payable in cash during such period,
all as determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Expense" shall mean, for any
fiscal period of the Parent, the total interest expense
(including, without limitation, interest expense attributable to
Capital Leases in accordance with GAAP) of the Parent and its
Subsidiaries for such period, minus all interest earnings
received by the Parent and its Subsidiaries in cash during such
period, minus amortization of deferred Indebtedness issuance
costs and expenses for such period, in each case determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" for any period, means the net
income (or loss) of the Parent and its Subsidiaries on a
consolidated basis for such period (taken as a single accounting
period) determined in accordance with GAAP provided that there
shall be excluded (a) the income (or loss) of any Person in which
any other Person (other than the Borrower or any of its wholly
owned Subsidiaries or any directors holding qualifying shares)
has a joint interest, except to the extent of the amount of divi
dends or other distributions actually paid to the Borrower or any
of its wholly owned Subsidiaries by such Person during such
period, (b) the income (or loss) of any Person accrued prior to
the date it becomes a Subsidiary or is merged into or
consolidated with the Borrower or any of its Subsidiaries or that
Person's assets are acquired by the Borrower or any of its
Subsidiaries, (c) the income of any Subsidiary to the extent that
the declaration or payment of dividends or similar distributions
by such Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary, (d) any
after tax gains or losses attributable to Asset Sales and (e) (to
the extent not included in clauses (a) through (d) above) any net
extraordinary gains or net non-cash extraordinary losses.
"Consolidated Net Tangible Assets" shall mean, at any
particular time, the aggregate amount of all assets (less
applicable reserves and other properly deductible items) after
deducting therefrom all goodwill, trade names, trademarks,
patents, unamortized debt issue costs (to the extent included in
said aggregate amount of assets) and other like intangibles, as
set forth on the most recent consolidated balance sheet of the
Parent and its Subsidiaries and computed in accordance with GAAP.
"Consolidated Rental Expense" shall mean for any period
all rents accrued during such period under operating leases under
which the Parent or any of its Subsidiaries is the lessee, as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Debt" shall mean, at any time, all
Indebtedness of the Parent and its Subsidiaries, as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Total Senior Debt" shall mean, at any
time, all Indebtedness of the Parent and its Subsidiaries other
than the Senior Subordinated Notes and Indebtedness which by its
terms is expressly subordinated to the Obligations and all other
senior obligations of the Parent and its Subsidiaries.
"Consolidated Working Capital" shall mean at any time
an amount equal to Consolidated Current Assets minus Consolidated
Current Liabilities at such time.
"Contingent Obligation" as to any Person shall mean any
obligation of such Person guaranteeing or intended to guarantee
any Indebtedness, leases, dividends or other obligations
("Primary Obligations") of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, in
cluding, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such Primary
Obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such Primary Obligation or (y) to
maintain working capital or equity capital of the Primary Obligor
or otherwise to maintain the net worth or solvency of the Primary
Obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such
Primary Obligation of the ability of the Primary Obligor to make
payment of such Primary Obligation or (iv) otherwise to assure or
hold harmless the owner of such Primary Obligation against loss
in respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the Primary
Obligation in respect of which such Contingent Obligation is made
or, if not stated or determinable, the maximum anticipated
liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.
"Corporate Concentration Account" shall mean that
certain deposit account at Chase Bank of Texas, account number
, or the Successor Corporate Concentration Account.
"Credit Exposure" shall have the meaning provided in
Section 9.4(b).
"Custodial Account" shall have the meaning provided in
Section 4.28.
"Default" shall mean any event, act or condition which
with notice or lapse of time, or both, would constitute an Event
of Default.
"Default Rate" shall have the meaning provided in
Section 2.5(c).
"Dividends" shall have the meaning provided in Section
6.7.
"Domestic Lending Office" shall mean, as to any Bank,
the office of such Bank designated as such on Annex 1, or such
other office designated by such Bank from time to time by written
notice to the Administrative Agent and the Borrower.
"Eligible Asset Sale" shall mean any Asset Sale, the
Net Cash Proceeds of which shall not exceed 5% of Consolidated
Net Tangible Assets at the time of such sale in the case of any
individual Asset Sale or 10% of Consolidated Net Tangible Assets
in the aggregate for all such Asset Sales.
"Environmental Affiliate" shall mean, with respect to
any Person, any other Person whose liability for any Environ
mental Claim such Person has or may have retained, assumed or
otherwise become liable for (contingently or otherwise), either
contractually or by operation of law.
"Environmental Approvals" shall mean any permit,
license, approval, ruling, variance, exemption or other authoriza
tion required under applicable Environmental Laws.
"Environmental Claim" shall mean, with respect to any
Person, any notice, claim, demand or similar communication
(written or oral) by any other Person alleging potential lia
bility for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages,
personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, or release into the environment,
of any Material of Environmental Concern at any location, whether
or not owned by such Person or (ii) circumstances forming the
basis of any violation, or alleged violation, of any Environ
mental Law.
"Environmental Laws" shall mean all federal, state,
local and foreign laws and regulations relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including without limitation, laws
and regulations relating to emissions, discharges, releases or
threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
"Equity Issuance" shall mean any issuance or sale by
the Parent or any of its Subsidiaries of any shares of capital
stock or other equity securities of such Person, or any
obligations convertible into or exchangeable for, or giving any
Person a right, option or warrant to acquire such securities or
such convertible or exchangeable obligations, other than (a)
sales or issuances to the Parent or any of its wholly owned
Subsidiaries and (b) sales or issuances of common stock or
options to management or employees of the Parent or any of its
Subsidiaries under any employee stock option or stock purchase
plan or plan established pursuant to Section 401(k) of the Code
in existence from time to time.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time, together with
all rules and regulations promulgated in connection therewith.
Section references to ERISA are to ERISA, as in effect at the
date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Controlled Group" means a group consisting of
any ERISA Person and all members of a controlled group of
corporations and all trades or businesses (whether or not incorpo
rated) under common control with such Person that, together with
such Person, are treated as a single employer under regulations
of the PBGC.
"ERISA Person" shall have the meaning set forth in Sec
tion 3(9) of ERISA for the term "person."
"ERISA Plan" means any Plan that (i) is a Multiemployer
Plan or (ii) has Unfunded Benefit Liabilities in excess of
$500,000.
"Eurodollar Lending Office" shall mean, as to any Bank,
the office of such Bank designated as such on Annex 1, or such
other office designated by such Bank from time to time by written
notice to the Administrative Agent and the Borrower.
"Eurodollar Loans" shall mean Loans made and/or being
maintained at a rate of interest based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean, for any Interest Period
for each Eurodollar Loan, an interest rate per annum equal to the
rate determined by the Administrative Agent at approximately
11:00 a.m. (London time) two Business Days before the first day
of such Interest Period by reference to the British Bankers'
Association Interest Settlement Rates for deposits in dollars (as
set forth by any services selected by the Administrative Agent
which has been nominated by the British Bankers' Association as
an authorized information vendor for the purpose of displaying
such rates) for a period equal to the relevant Interest Period;
provided that, to the extent that an interest rate is not
ascertainable pursuant to the foregoing provisions of this
definition, the "Eurodollar Rate" shall be the interest rate per
annum determined by the Administrative Agent to be the average
(rounded upward to the nearest whole multiple of one-sixteenth of
one percent (0.0625%) per annum, if such average is not such a
multiple) of the rates per annum at which deposits in dollars are
offered to major banks in the London interbank market in London,
England by the Reference Banks at approximately 11:00 a.m.
(London time) two Business Days before the first day of such
Interest Period for such Interest Period.
"Event of Default" shall have the meaning provided in
Section 7.
"Excess Cash Flow" shall mean, with respect to any
fiscal period of the Borrower, an amount equal to (i)
Consolidated Net Income for such fiscal period, plus (ii)
depreciation and amortization expense to the extent deducted in
determining Consolidated Net Income for such fiscal period, plus
(iii) Consolidated Interest Expense (other than Consolidated Cash
Interest Expense) during such fiscal period plus amortization of
deferred Indebtedness issuance costs and expenses for such
period, plus (or minus) (iv) any increase (or decrease) in
deferred taxes during such fiscal period, plus (or minus) (v)
decreases (or increases) in Consolidated Working Capital from the
last day of the preceding fiscal period to the last day of such
fiscal period (excluding, however, decreases in Consolidated Work
ing Capital to the extent such decreases are attributable to
Asset Sales), minus (vi) the aggregate amount paid or payable in
cash by the Borrower and its Subsidiaries during such fiscal
period for Capital Expenditures permitted pursuant to Section
6.1(d) (except to the extent financed with Capital Leases, the
proceeds of purchase money Indebtedness, insurance proceeds,
Retained Equity Proceeds, Retained Offering Proceeds or the
Borrower's Share of Excess Cash Flow and except to the extent
already deducted in the calculation of Excess Cash Flow for any
prior period), minus (vii) all scheduled principal repayments and
voluntary prepayments of the Loans (as defined in the Existing
Credit Agreement) made during such fiscal period, but only to the
extent accompanied by a permanent reduction in the Expansion Loan
Commitment (as defined in the Existing Credit Agreement) or
Revolving Loan Commitment (as defined in the Existing Credit
Agreement), as the case may be, minus (vii) all regularly sched
uled principal payments made during such fiscal period in respect
of other Indebtedness to the extent such Indebtedness and
payments are permitted to be incurred and made hereunder minus
(viii) the aggregate amount actually paid in cash by the Parent
and its Subsidiaries for Permitted Acquisitions (except to the
extent financed with the proceeds of any Indebtedness, including
the Loans, or any Equity Issuance) minus (x) all payments made in
respect of the outstanding principal of the Bealls Subordinated
Notes to the extent permitted pursuant to Section 6.10(a)(iii).
"Excess Cash Flow Certificate" shall mean a certificate
of the Principal Financial Officer of the Borrower in the form of
Exhibit K hereto and delivered pursuant to Section 5.1(h) hereof.
"Existing Credit Agreement" shall mean the Amended and
Restated Credit Agreement, dated as of June 17, 1997, by and
among Specialty Retailers, Inc., Stage Stores, Inc., the various
lending institutions party thereto and Credit Suisse First
Boston, as Administrative Agent, Collateral Agent, Swingline
Bank, and L/C Bank, as amended and restated by the Amendment
Agreement, dated as of June 26, 1997, by and among the parties
thereto, the Second Amendment Agreement, dated as of October 1,
1997, by and among the parties thereto, the Third Amendment
Agreement, dated as of October 7, 1998, by and among the parties
thereto, the Fourth Amendment Agreement, dated as of January 27,
1999, by and among the parties thereto, the Fifth Amendment
Agreement, dated as of February 3, 2000, by and among the parties
thereto, and the Sixth Amendment Agreement, dated as of February
18, 2000, by and among the parties thereto and as amended,
modified or otherwise supplemented from time to time.
"Federal Funds Effective Rate" shall mean, for any day,
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York or, if such
rate is not so published for any day that is a Business Day, the
average of the quotations for the day of such transactions
received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Federal Reserve Board" shall mean the Board of Gover
nors of the Federal Reserve System as constituted from time to
time.
"Fees" shall mean all fees and other amounts payable
pursuant to the Loan Documents including, without limitation, the
fees payable pursuant to Section 2.14.
"Final Maturity Date" shall mean June 14, 2002.
"GAAP" shall mean United States generally accepted ac
counting principles as in effect on the date hereof and
consistent with those utilized in the preparation of the finan
cial statements referred to in Section 4.5.
"Guaranteed Creditors" shall mean and include each of
the Administrative Agent, the Collateral Agent and the Banks to
the extent such party constitutes a Secured Creditor under the
Security Documents.
"Guaranteed Obligations" shall mean (i) the full and
prompt payment when due (whether at the stated maturity, by
acceleration or otherwise) of the principal of and interest on
each Note issued by the Borrower to each Bank, and Loans made,
under this Agreement, together with all the other obligations
(including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code or any similar provision,
would become due) and liabilities (including, without limitation,
indemnities, fees and interest thereon) of the Borrower to such
Bank now existing or hereafter incurred under, arising out of or
in connection with this Agreement or any other Loan Document and
the due performance and compliance with all the terms, conditions
and agreements contained in the Loan Documents by the Borrower
and (ii) the full and prompt payment when due (whether by
acceleration or otherwise) of all obligations (including
obligations which, but for the automatic stay under Section
362(a) of the Bankruptcy Code, would become due) of each
Guarantor owing under the Parent Guaranty or the Subsidiary
Guaranty.
"Guarantor" shall mean the Parent and each Material
Subsidiary of the Borrower or the Parent specified on Schedule I
hereto and any Material Subsidiary of the Borrower or the Parent
which shall have executed and delivered a Subsidiary Guaranty
pursuant to Section 5.9(c) hereof, other than the Receivables
Subsidiary.
"Indebtedness" of any Person shall mean, without
duplication, (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services
(other than trade payables on terms of 90 days or less incurred
in the ordinary course of business of such Person), (ii) all
indebtedness of such Person evidenced by a note, bond, debenture
or similar instrument, (iii) the principal component of all
Capital Lease Obligations of such Person, (iv) the face amount of
all letters of credit issued for the account of such Person and,
without duplication, all unreimbursed amounts drawn thereunder,
(v) all indebtedness of any other Person secured by any Lien on
any property owned by such Person, whether or not such
indebtedness has been assumed, (vi) all Contingent Obligations of
such Person, (vii) all net payment obligations of such Person
under any interest rate protection agreement (including, without
limitation, any interest rate swaps, caps, floors, collars and
similar agreements) and currency swaps and similar agreements and
(viii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the
seller or lender thereunder upon a default are limited to
repossession or sale of such property) .
"Intercompany Note" shall mean a promissory note issued
by the Parent to the Borrower substantially in the form of
Exhibit M hereto evidencing the loans, if any, made by the
Borrower to the Parent pursuant to Section 6.8 (b)(ii) hereof.
"Interest Period" shall mean with respect to any
Eurodollar Loan:
(i) initially, the period commencing on the borrowing
or the conversion date, as the case may be, with respect to
such Eurodollar Loan and ending on the numerically
corresponding calendar day in the calendar month that is one
month thereafter, as selected by the Borrower in its Notice
of Borrowing, Notice of Conversion or Notice of Contin
uation, as the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one month thereafter, as selected
by the Borrower by irrevocable notice to the Administrative
Agent not less than three Business Days prior to the last
day of the then current Interest Period with respect
thereto;
provided that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
(A) if any Interest Period pertaining to a Eurodollar
Loan would otherwise end on a day that is not a Business
Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar
month in which event such Interest Period shall end on the
immediately preceding Business Day;
(B) no Interest Period shall extend beyond any date
upon which a scheduled reduction of the Revolving Loan
Commitments will be required pursuant to Section 2.9 if the
aggregate principal amount of Revolving Loans having
Interest Periods extending beyond such date will exceed the
aggregate principal amount of the Revolving Loan Commitments
after giving effect to such scheduled reduction;
(C) any Interest Period that would otherwise extend
beyond the Final Maturity Date shall end on the Final
Maturity Date; and
(D) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a
calendar month.
"Inventory" shall mean all of the Borrower's and its
Subsidiaries' inventory, including, without limitation (a) all
goods, wares and merchandise held for sale or lease or leased or
furnished or to be furnished under contracts of service; and (b)
all goods returned to, reclaimed by or repossessed by the
Borrower.
"Investment" shall have the meaning provided in Section
6.8.
"Lending Office" shall mean, with respect to any Bank,
a collective reference to such Bank's Eurodollar Lending Office
and Domestic Lending Office.
"Leverage Ratio" shall mean on any day the ratio on
such day of (i) Consolidated Total Debt on such day to (ii)
Consolidated EBITDA for the four consecutive fiscal quarters of
the Parent (taken as one accounting period) most recently ended.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, charge, lien (stat
utory or other), or preference, priority or other security
agreement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agree
ment, any financing lease having substantially the same effect as
any of the foregoing and the filing of any financing statement or
similar instrument under the Uniform Commercial Code or
comparable law of any jurisdiction, domestic or foreign.
"Loans" shall mean the Revolving Loans.
"Loan Documents" shall mean this Agreement, the
Revolving Notes, the Subsidiary Guaranty, the Warrant Agreement
and the Security Documents and any other documents or instruments
executed or delivered in connection therewith, together with all
amendments, restatements and modifications thereto or thereof.
"Loan Party" shall mean and include the Borrower, the
Parent and each Guarantor.
"Margin Percentage" shall mean at any time that
percentage (a) to be added to the Base Rate or the Eurodollar
Rate, as appropriate, pursuant to Section 2.5, for purposes of
determining the per annum rate of interest applicable from time
to time to Base Rate Loans or Eurodollar Loans and (b) to be used
in computing the Commitment Fee pursuant to Section 2.14, which
in each case on any date shall be the applicable percentage set
forth under the appropriate column below opposite the category in
which the Adjusted Leverage Ratio, determined (subject to the
last sentence hereof) as of the end of the most recent fiscal
quarter for which financial statements and Compliance
Certificates are required to have been delivered under Section
5.1(a), (b) and (h) (whether or not such financial statements and
Compliance Certificates for any subsequent quarter shall in fact
have been delivered):
Adjusted Eurodollar Base Rate
Leverage Margin Margin
Ratio
Category 1 <= 2.0 to 1.0 1.00% 0.00%
Category 2 <= 3.0 to 1.0 1.50% 0.50%
and > 2.0 to 1.0
Category 3 <= 3.50 to 1.0 1.75% 0.75%
and > 3.0 to 1.0
Category 4 <= 4.0 to 1.0 2.00% 1.00%
and > 3.50 to 1.0
Category 5 <= 4.5 to 1 2.25% 1.25%
and > 4.0 to 1
Category 6 <= 5.0 to 1 3.0% 2.0%
and > 4.5 to 1
Category 7 >5.0 to 1 3.25% 2.25%
provided that, notwithstanding the foregoing, (i) from the
Closing Date until a Compliance Certificate for the most recently
ended fiscal quarter has been received, the Margin Percentage
shall be determined by reference to Category 7 and (ii) at any
time during which the Borrower has failed to deliver the
financial statements and Compliance Certificates described in
Section 5.1(a), (b) and (h) with respect to a fiscal quarter or
fiscal year in accordance with the provisions thereof, or at any
time during which an Event of Default shall have occurred and
shall be continuing, the Margin Percentage shall be determined by
reference to Category 7. Each change in the Margin Percentage
shall be applicable with respect to the Commitment Fees and out
standing Revolving Loans on the Business Day after the date on
which the Administrative Agent shall have received the financial
statements and Compliance Certificates required to be delivered
pursuant to Section 5.1(a), (b) and (h) provided, however, that
on the effective date of any Permitted Acquisition, the Borrower
shall be required to deliver an additional Compliance Certificate
(together with pro forma financial statements) which calculates
the Adjusted Leverage Ratio as of such date after giving effect
to such Permitted Acquisition and any other Permitted Acquisition
occurring during such period and any change in the Margin Percent
age shall become effective on the Business Day after the date of
delivery of such additional Compliance Certificate.
"Margin Stock" shall have the meaning provided such
term in Regulation U and Regulation G of the Federal Reserve
Board.
"Material Adverse Effect" shall mean a material adverse
effect upon (i) the business, operations, properties, assets or
condition (financial or otherwise) of the Parent and its
Subsidiaries taken as a whole or (ii) the ability of any Loan
Party to perform, or of the Administrative Agent, the Collateral
Agent or any of the Banks to enforce, any of the Obligations.
"Materials of Environmental Concern" shall mean and
include chemicals, pollutants, contaminants, wastes, toxic
substances, petroleum and petroleum products.
"Material Subsidiary" means, as of any date, any
Subsidiary of the Parent (other than the Borrower), either alone
or together with its Subsidiaries, that has assets with a fair
market value of $250,000 or more as of the last day of the most
recently ended fiscal quarter of the Parent or annual revenues
(or annualized revenues in the case of any Person that has not
been a Subsidiary of the Parent for a full year) of $1,000,000 or
more as of the most recently ended fiscal quarter of the Parent.
"Maximum Amount" shall have the meaning set forth in
Section 6.1(d).
"Moody's" shall mean Moody's Investors Service, Inc. or
any of its successors.
"Multiemployer Plan" shall mean a Plan which is a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" shall mean (a) with respect to any
Asset Sale, the cash payments (including cash payments received
by way of insurance proceeds, deferred payment pursuant to a note
receivable or otherwise, but only as and when so received)
received therefrom, net of (i) bona fide direct costs of sale
(including payment of (x) the outstanding principal amount of,
premium or penalty, if any, and interest on any Indebtedness
(other than Loans) secured by or required to be repaid under the
terms thereof as a result of such Asset Sale and (y) reasonable
fees associated with such Asset Sale paid to Persons that are not
Affiliates of the Parent and (ii) income taxes paid or reasonably
estimated to be payable in the year such Asset Sale occurs or in
the following year as a result thereof) and (b) with respect to
any incurrence or disposition of Indebtedness or any Equity
Issuance, the cash proceeds received therefrom net of
underwriting commissions or placement fees and expenses directly
incurred in connection therewith.
"Notes" shall mean and include each Revolving Note.
"Notice of Borrowing" shall mean a notice of borrowing
in the form of Exhibit A hereto.
"Notice of Conversion" shall mean a notice of
conversion in the form of Exhibit C-1 hereto.
"Notice of Continuation" shall mean a notice of
continuation in the form of Exhibit C-2 hereto.
"Obligations" shall mean all obligations, liabilities
and indebtedness of every nature of the Borrower and the Guar
antors from time to time owing to the Administrative Agent, the
Collateral Agent or any Bank, under or in connection with this
Agreement or any other Loan Document.
"Parent" shall have the meaning provided in the first
paragraph of this Agreement.
"Parent Guaranty" shall mean the guaranty of the Parent
pursuant to Section 10.
"Participant" shall have the meaning provided in
Section 9.4(b).
"Payment Date" shall mean the last Business Day of each
March, June, September and December of each year.
"PBGC" shall mean the Pension Benefit Guaranty Corpora
tion established under ERISA, or any successor thereto.
"Permitted Acquired Indebtedness" shall mean
Indebtedness of any Subsidiary of the Parent or the Borrower
acquired pursuant to a Permitted Acquisition, which Indebtedness
existed at the time of the consummation of any such acquisition
and was not created in contemplation thereof (and the provisions
of which were not altered in contemplation thereof), so long as
(x) the Parent or the Borrower and its other respective
Subsidiaries (other than the Subsidiary being so acquired) have
no liability with respect to any such Indebtedness other than the
assumption of any such Indebtedness in connection with a merger
of such Subsidiary with, or the acquisition of all or
substantially all of the assets of such Person by, the Borrower
or any Subsidiary of the Parent or the Borrower and (y) any Liens
securing such Indebtedness apply only to assets of the Subsidiary
so acquired (and so long as additional assets of such Subsidiary
are not granted as security following, or in contemplation of,
the respective Permitted Acquisition).
"Permitted Acquisition" shall mean the acquisition by
the Parent or the Borrower of assets constituting part of or an
entire business, division or product line of any Person not
already a Subsidiary of the Parent or the Borrower, as the case
may be, or of 100% (or such lesser amount as shall be necessary
to immediately consummate a statutory "short-form" merger under
the laws of the relevant jurisdiction and which merger is
thereafter immediately consummated) of the capital stock of any
such Person, which Person shall, as a result of such acquisition,
become a Subsidiary; provided that an acquisition shall only be a
Permitted Acquisition if the following terms and conditions shall
be satisfied:
(a) (i) the consideration paid by the Parent or
the Borrower, as the case may be, consists of cash or common
stock, the issuance of Indebtedness otherwise permitted in
Section 6.2 and the assumption/acquisition of any Permitted
Acquired Indebtedness (calculated at face value) relating to
such business, division or product line of any Person which
is permitted to remain outstanding in accordance with the
requirements of Section 6.2;
(ii) the assets acquired, or the business of
the Person whose stock is acquired shall (A) be in the same
line of business or reasonably incidental thereto as the
business of the Parent or the Borrower, as the case may be,
and (B) be merged with or into the Borrower or any
Subsidiary of the Borrower or the Parent or become a direct
Subsidiary of the Borrower or any Subsidiary of the Borrower
or the Parent;
(iii) in the case of the acquisition of 100%
of the capital stock of any Person, such Person shall own no
capital stock of any other Person unless such Person owns
100% of the capital stock of such other Person or such
Investment is otherwise permitted by Section 6.8(h);
(iv) no Default or Event of Default shall be
in existence at the time of the consummation of the proposed
Permitted Acquisition or immediately after giving effect
thereto;
(v) the Parent or the Borrower, as the case
may be, shall have given the Administrative Agent at least
13 Business Days' prior written notice of any Permitted
Acquisition for which the consideration to be paid is in
excess of $25,000,000 or at least 8 Business Days' prior
written notice of any Permitted Acquisition for which the
consideration to be paid is equal to or less than
$25,000,000 (such notices to include the compliance
calculations referred to in clauses (vi) and (vii) below and
a brief business description of the Permitted Acquisition
and copies of which notices the Administrative Agent shall
promptly furnish to the Banks);
(vi) calculations are made by the Parent or
the Borrower, as the case may be, of compliance with the
covenants contained in Section 6.1 on a Pro Forma Basis for
the period of four consecutive fiscal quarters (taken as one
accounting period) most recently ended prior to the date of
such Permitted Acquisition (each, a "Calculation Period"),
as if the respective Permitted Acquisition (as well as all
other Permitted Acquisitions theretofore consummated after
the first day of such Calculation Period) had occurred on
the first day of such Calculation Period, and such
recalculations shall show that such financial covenants
would have been complied with if the Permitted Acquisition
had occurred on the first day of such Calculation Period
(for this purpose, if the first day of the respective
Calculation Period occurs prior to the Closing Date,
calculated as if the covenants contained in said Section 6.1
had been applicable from the first day of the Calculation
Period); provided that for the purposes of this clause (vi)
and clause (vii) below the Adjusted Leverage Ratio
demonstrated by such recalculations must be equal to or less
than 4.0:1 from the Closing Date until the third anniversary
of the Closing Date and must be equal to or less than 3.75:1
at any time thereafter;
(vii) based on good faith projections
prepared by the Borrower for the period from the date of the
consummation of the Permitted Acquisition to the date which
is one year thereafter, the level of financial performance
measured by the covenants set forth in Section 6.1 shall be
better than or equal to such level as would be required to
provide that no Default or Event of Default would exist
under the financial covenants contained in Section 6.1 as
compliance with such covenants would be required through the
date which is one year from the date of the consummation of
the respective Permitted Acquisition;
(viii) the Administrative Agent shall have
been satisfied in its reasonable discretion that the
proposed Permitted Acquisition could not reasonably be
expected to result in materially increased tax, ERISA,
environmental or other contingent liabilities with respect
to the Parent, the Borrower or any of their respective
Subsidiaries;
(ix) all representations and warranties
contained herein and in the other Loan Documents shall be
true and correct in all material respects with the same
effect as though such representations and warranties had
been made on and as of the date of such Permitted
Acquisition (both before and after giving effect thereto),
unless stated to relate to a specific earlier date, in which
case such representations and warranties shall be true and
correct in all material respects as of such earlier date;
(x) the Parent or the Borrower, as the case
may be, provides to the Administrative Agent as soon as
available but not later than 5 Business Days after the
execution thereof, a copy of any executed purchase agreement
or similar agreement with respect to such Permitted
Acquisition;
(xi) the Parent or the Borrower, as the case
may be, shall have delivered to the Administrative Agent an
officer's certificate executed by an Authorized Officer of
the Borrower, certifying to the best of his knowledge, com
pliance with the requirements of preceding clauses (iv)
through (vii), inclusive, (ix), and containing the calcu
lations required by the preceding clauses (vi) and (vii);
and
(xii) if the total cash purchase price
(including Indebtedness assumed) of any acquisition exceeds
$50,000,000, the Administrative Agent and the Required Banks
shall have given their prior written consent thereto.
(b) The Borrower shall cause each Material
Subsidiary which it or the Parent forms to effect, or it or the
Parent acquires pursuant to, a Permitted Acquisition to comply
with, and to execute and deliver, all of the documentation
required by, Section 5.9, to the satisfaction of the Adminis
trative Agent.
(c) The consummation of each Permitted Acqui
sition shall be deemed to be a representation and warranty by the
Parent and the Borrower that the certifications by the Borrower
(or by one or more of its Authorized Officers) required by clause
(a) above are true and correct and that all conditions thereto
have been satisfied and that such Permitted Acquisition is
permitted in accordance with the terms of this Agreement, which
representation and warranty shall be deemed to be a
representation and warranty for all purposes hereunder,
including, without limitation, Sections 3 and 7.
"Permitted Senior Debt" shall mean unsecured
Indebtedness of the Borrower if (i) such Indebtedness has no
amortization or required sinking fund payments and a final maturi
ty no earlier than, and provisions no more onerous or restrictive
on the Borrower and no less favorable to the Banks in any respect
deemed material by the Required Banks than, those terms and
provisions of the Senior Notes, (ii) the interest rate payable in
respect of such Indebtedness shall be a market interest rate as
of the time of the incurrence thereof and shall not, in case of
Indebtedness bearing interest at a floating rate, exceed the rate
of interest payable on the Loans, (iii) each of the covenants,
events of default and other provisions thereof shall be customary
for issuances of similar indebtedness by companies in a similar
financial condition to the Borrower in accordance with prevailing
market conditions in effect at the time of the issuance thereof
and in any event shall be no more onerous or restrictive on the
Borrower than those contained in the Senior Notes and (iv) the
Net Cash Proceeds thereof shall have been applied to the
prepayment of the Loans to the extent provided in the Existing
Credit Agreement or Section 2.11(a)(ii).
"Permitted Subordinated Debt" shall mean unsecured
subordinated Indebtedness of the Borrower if (i) such
Indebtedness has no amortization or required sinking fund
payments and a final maturity no earlier than, and subordination
provisions no more onerous or restrictive on the Borrower and no
less favorable to the Banks in any respect deemed material by the
Required Banks than, those terms and provisions of the Senior
Subordinated Notes, (ii) the interest rate payable in respect of
such Indebtedness shall be a market interest rate as of the time
of the incurrence thereof and shall not, in case of Indebtedness
bearing interest at a floating rate, exceed the rate of interest
payable on the Revolving Loans, (iii) each of the covenants,
events of default and other provisions thereof shall be customary
for issuances of similar indebtedness by companies in a similar
financial condition to the Borrower in accordance with prevailing
market conditions in effect at the time of the issuance thereof
and in any event shall be no more onerous or restrictive on the
Borrower than those contained in the Senior Subordinated Notes
and (iv) the Net Cash Proceeds thereof shall have been applied to
the prepayment of the Loans to the extent provided in the
Existing Credit Agreement or Section 2.11(a)(ii).
"Person" shall mean and include any individual, partner
ship, joint venture, firm, corporation, limited liability
company, association, trust or other enterprise or any government
or political subdivision or agency, department or instrumentality
thereof.
"Plan" means any employee benefit plan covered by Title
IV of ERISA, the funding requirements of which:
(a) were the responsibility of the Borrower or a
member of its ERISA Controlled Group at any time within the five
years immediately preceding the date hereof,
(b) are currently the responsibility of the
Borrower or a member of its ERISA Controlled Group, or
(c) hereafter become the responsibility of the
Borrower or a member of its ERISA Controlled Group,
including any such plans as may have been, or may hereafter be,
terminated for whatever reason.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent
as its Prime Rate in effect at its principal office in New York
City. The Prime Rate is a reference rate and is not intended to
be the lowest rate of interest charged by the Administrative
Agent in connection with extensions of credit. Each change in
the Prime Rate shall be effective on the date such change is
publicly announced as being effective without notice to the
Borrower or the Guarantors.
"Principal Financial Officer" shall mean, with respect
to any Person, such Person's Chief Financial Officer, Treasurer
or Assistant Treasurer.
"Pro Forma Basis" shall mean, in connection with any
calculation of the Adjusted Leverage Ratio, Consolidated Adjusted
EBITDA or compliance with any financial covenant or financial
term, the calculation thereof after giving effect on a pro forma
basis to (i) the incurrence of any Indebtedness to finance
Permitted Acquisitions after the first day of the relevant
Calculation Period as if such Indebtedness had been incurred (and
the proceeds thereof applied) on the first day of the relevant
Calculation Period; (ii) the permanent repayment of any
Indebtedness after the first day of the relevant Calculation
Period as if such Indebtedness had been retired or redeemed on
the first day of the relevant Calculation Period; and (iii) the
Permitted Acquisitions, if any, then being consummated as well as
any other Permitted Acquisitions consummated after the first day
of the relevant Calculation Period and on or prior to the date of
the respective Permitted Acquisitions then being effected, with
the following rules to apply in connection therewith:
(a) all such Indebtedness (x) incurred or issued
after the first day of the relevant Calculation Period shall be
deemed to have been incurred or issued (and the proceeds thereof
applied) on the first day of the respective Calculation Period
and remain outstanding through the date of determination (and
thereafter in the case of projections pursuant to clause (vii) of
the definition of Permitted Acquisition) and (y) permanently
retired or redeemed after the first day of the relevant Calcula
tion Period shall be deemed to have been retired or redeemed on
the first day of the respective Calculation Period and remain
retired through the date of determination (and thereafter in the
case of projections pursuant to clause (vii) of the definition of
Permitted Acquisition);
(b) all such Indebtedness assumed to be
outstanding pursuant to the preceding clause (i) shall be deemed
to have borne interest or dividends at (x) the rate applicable
thereto, in the case of fixed rate indebtedness or (y) the rates
which would have been applicable thereto during the respective
period when same was deemed outstanding, in the case of floating
rate Indebtedness (although interest or dividends expense with
respect to any Indebtedness actually outstanding during the
respective period shall be calculated using the actual rates
applicable thereto during such period); provided that for purpos
es of the calculations pursuant to clause (vii) of the definition
of Permitted Acquisition, all Indebtedness (whether actually out
standing or deemed outstanding) bearing interest at a floating
rate of interest shall be tested on the basis of the rates
applicable at the time the determination is made pursuant to said
provisions; and
(c) in making any determination of Consolidated
Adjusted EBITDA, (i) in the case of the acquisition of 100% of
the stock of a Person, pro forma effect shall be given to any
Permitted Acquisition for the periods described above, taking
into account, cost savings and expenses which would otherwise be
accounted for as an adjustment pursuant to Article 11 of
Regulation S-X under the Securities Act of 1933, as amended and
as in effect on the Closing Date, as if such cost savings or
expenses were realized on the first day of the relevant
Calculation Period and (ii) in the case of an asset purchase, pro
forma effect shall be given to any Permitted Acquisition for the
period described above, taking into account, cost savings and
expenses reasonably estimated to be realized based upon the good
faith estimates of management, as if such cost savings and
expenses were realized on the first day of the relevant
Calculation Period.
"Pro Rata Share" as to any Bank shall mean a fraction
(expressed as a percentage), the numerator of which shall be the
aggregate amount of such Bank's Revolving Loan Commitment and the
denominator of which shall be the Total Revolving Loan Commit
ment.
"Purchasing Banks" shall have the meaning provided in
Section 9.4(c).
"Receivables" means accounts, general intangibles or
other rights to payment from obligors arising from extensions of
credit to obligors, together with any finance charges or other
fees or charges related thereto, and any related assets which are
transferred under the Receivables Program Documents.
"Receivables Program" shall mean the receivables
securitization program conducted by the Borrower, the Receivables
Subsidiary and any other special purpose receivables Subsidiary
that may be formed or become a Subsidiary in the future pursuant
to the Receivables Program Documents as in effect from time to
time in accordance with the terms hereof.
"Receivables Program Documents" shall mean the
documents listed on Schedule II hereto, and all other
documentation, agreements and instruments entered into in
connection therewith or pursuant to any other receivables
financing program created in the future (including, without
limitation, any such program of a Person in existence at the time
such Person is acquired pursuant to a Permitted Acquisition), as
the same may hereafter be amended, modified, supplemented or
refinanced from time to time in accordance with the provisions
hereof and thereof.
"Receivables Subsidiary" shall mean the collective
reference to (i) SRI Receivables Purchase Company, Inc., a Dela
ware corporation, (ii) any other Subsidiary established by the
Parent or the Borrower in connection with the Receivables Program
and whose sole business is to implement and carry out such
Receivables Program and (iii) any Subsidiary of the Borrower that
is a bank formed for the sole purpose, and whose sole business
is, financing any credit card program implemented by the
Borrower.
"Reference Banks" shall mean Credit Suisse First Boston
and Union Bank of California.
"Regulation D" shall mean Regulation D of the Federal
Reserve Board as from time to time in effect and any successor to
all or any portion thereof.
"Regulation T" shall mean Regulation T of the Federal
Reserve Board as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Federal
Reserve Board from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Federal
Reserve Board as from time to time in effect and any successor to
all or a portion thereof.
"Reinvestment Assets" shall mean any assets to be
employed in the business of the Borrower and its Subsidiaries as
conducted on the date hereof.
"Reinvestment Election" shall have the meaning provided
in Section 2.11(a)(i).
"Reinvestment Notice" shall mean a written notice
signed by an authorized officer of the Borrower stating that the
Borrower, in good faith, intends and expects to use all or a
specified portion of the Net Cash Proceeds of an Eligible Asset
Sale to purchase, construct or otherwise acquire Reinvestment
Assets.
"Reinvestment Prepayment Amount" shall mean, with
respect to any Reinvestment Election, the amount, if any, on the
Reinvestment Prepayment Date relating thereto by which (a) the
Anticipated Reinvestment Amount in respect of such Reinvestment
Election exceeds (b) the aggregate amount thereof expended by the
Borrower and its Subsidiaries to acquire Reinvestment Assets.
"Reinvestment Prepayment Date" shall mean, with respect
to any Reinvestment Election, the earliest of (i) the date, if
any, upon which the Administrative Agent, on behalf of the
Required Banks, shall have delivered a written termination notice
to the Borrower, provided that such notice may only be given
while an Event of Default exists, (ii) the date occurring one
year after such Reinvestment Election and (iii) the date on which
the Borrower shall have determined not to, or shall have
otherwise ceased to, proceed with the purchase, construction or
other acquisition of Reinvestment Assets with the related Antici
pated Reinvestment Amount.
"Release" shall mean any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal, dis
charge, dispersal, leaching or migration into the indoor or
outdoor environment (including, without limitation, ambient air,
surface water, groundwater, and surface or subsurface strata) or
into or out of any property, including the movement of Materials
of Environmental Concern through or in the air, soil, surface
water, groundwater or property.
"Reportable Event" has the meaning set forth in Section
4043(b) of ERISA (other than a Reportable Event as to which the
provision of 30 days notice to the PBGC is waived under
applicable regulations), or is the occurrence of any of the
events described in Section 4068 or 4063(a) of ERISA.
"Required Banks" shall mean Banks holding more than 50%
of the principal amount of Loans outstanding or, if no Loans are
outstanding, more than 50% of the Total Revolving Loan Commit
ment.
"Restricted Payment" shall mean (i) the authorization,
declaration or payment of any Dividend by the Parent or any of
its Subsidiaries or (ii) the making of any payment by the
Borrower or any of its Subsidiaries to the Parent, including,
without limitation, any payments under the Tax Sharing Agreement.
"Retained Equity Proceeds" shall mean at any time the
cumulative amount of Net Cash Proceeds received by the Borrower
from Equity Issuances to the extent such Net Cash Proceeds are
not required to be applied to the prepayment of the Revolving
Loans pursuant to the Existing Credit Agreement or Section
2.11(a)(v) minus the amount thereof previously applied to make
additional Capital Expenditures pursuant to Section 6.1(d).
Notwithstanding the foregoing, only 75% of the first $50,000,000
of Net Cash Proceeds received from New Equity Issuances during
the period from September 30, 1998 and thereafter, shall be
included in Retained Equity Proceeds.
"Retained Offering Proceeds" shall mean at any time the
cumulative amount of (i) 30% of the Net Cash Proceeds received by
the Borrower from the issuance of Permitted Senior Debt and (ii)
40% of the Net Cash Proceeds received by the Borrower from the
issuance of Permitted Subordinated Debt, in each case, to the
extent such Net Cash Proceeds are not required to be applied to
the prepayment of the Revolving Loans pursuant to the Existing
Credit Agreement or Section 2.11(a)(ii) minus the amount thereof
previously applied to make additional Capital Expenditures
pursuant to Section 6.1(d).
"Revolving Loan Commitment" shall mean at any time, for
any Bank, the amount set forth opposite such Bank's name on Annex
1 hereto under the heading "Revolving Loan Commitment," as such
amount may be reduced from time to time pursuant to Sections 2.9
or 9.4(c).
"Revolving Loans" shall have the meaning provided in
Section 2.1(a).
"Revolving Note" shall have the meaning provided in
Section 2.4(b).
"Secured Creditors" shall mean the Administrative
Agent, the Collateral Agent and the Banks.
"Secured Obligations" shall mean all Obligations owed
by the Loan Parties to the Administrative Agent, the Collateral
Agent and the Banks.
"Security Agreement" shall have the meaning provided in
Section 3.1(a)(iii) hereof.
"Security Documents" shall mean and include the
Security Agreement and any agreements, documents or instruments
executed in connection therewith.
"Senior Notes" shall mean the 81/2% Notes due 2005 issued
by the Borrower pursuant to the Senior Note Indenture.
"Senior Note Documents" shall mean the Senior Note
Indenture, the Senior Notes and the Purchase Agreement, dated
June 11, 1997, among the Parent, the Borrower, Credit Suisse
First Boston Corporation, Bear, Stearns & Co. Inc, and Donaldson,
Lufkin & Jenrette Securities Corporation.
"Senior Note Indenture" shall mean the Indenture dated
as of June 17, 1997 between the Borrower and the Senior Note
Trustee pursuant to which the Borrower issued the Senior Notes.
"Senior Note Trustee" shall mean State Street Bank and
Trust Company, in its capacity as trustee under the Senior Note
Indenture.
"Senior Subordinated Notes" shall mean the 9% Notes due
2007 issued by the Borrower pursuant to the Senior Subordinated
Note Indenture.
"Senior Subordinated Note Documents" shall mean the
Senior Subordinated Note Indenture, the Senior Subordinated Notes
and the Purchase Agreement, dated June 11, 1997, among the
Parent, the Borrower, Credit Suisse First Boston Corporation,
Bear, Stearns & Co. Inc, and Donaldson, Lufkin & Jenrette
Securities Corporation.
"Senior Subordinated Note Indenture" shall mean the
Indenture dated as of June 17, 1997 between the Borrower and the
Senior Subordinated Note Trustee pursuant to which the Borrower
issued the Senior Subordinated Notes.
"Senior Subordinated Note Trustee" shall mean State
Street Bank and Trust Company in its capacity as trustee under
the Senior Subordinated Note Indenture.
"Standard & Poor's" shall mean Standard & Poor's Rating
Services, a division of the McGraw-Hill Companies, Inc. or any of
its successors.
"Subsidiary" of any Person shall mean and include (i)
any corporation 50% or more of whose stock of any class or
classes having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation (irre
spective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power
by reason of the happening of any contingency) is at the time
owned by such Person directly or indirectly through Subsidiaries
and (ii) any partnership, association, joint venture, limited
liability company or other entity in which such Person, directly
or indirectly through Subsidiaries, is either a general partner
or has a 50% or more equity interest at the time.
"Subsidiary Guaranty" shall have the meaning provided
in Section 3.1(a)(iv).
"Successor Corporate Concentration Account" shall have
the meaning provided in Section 5.13.
"Tax Sharing Agreement" shall mean a tax sharing
agreement among the Parent, the Borrower and its Subsidiaries, in
form and substance satisfactory to the Required Banks.
"Termination Event" shall mean (i) a Reportable Event,
or (ii) the initiation of any action by the Borrower, any member
of the Borrower's ERISA Controlled Group or any ERISA Plan
fiduciary to terminate an underfunded ERISA Plan (determined on a
Plan termination basis) or the treatment of an amendment to an
underfunded ERISA Plan (determined on a Plan termination basis)
as a termination under ERISA, or (iii) the institution of
proceedings by the PBGC under Section 4042 of ERISA to terminate
an ERISA Plan or to appoint a trustee to administer any ERISA
Plan.
"Total Revolving Loan Commitment" shall have the
meaning set forth in Section 2.1(a).
"Transactions" shall mean each of the transactions con
templated by the Loan Documents.
"Transferee" shall have the meaning provided in Section
9.4(d).
"Transfer Supplement" shall have the meaning provided
in Section 9.4(c).
"Type" shall mean any type of Loan determined with re
spect to the interest option applicable thereto, i.e., a Base
Rate Loan or a Eurodollar Loan.
"Unfunded Benefit Liabilities" means with respect to
any Plan at any time, the amount (if any) by which (i) the
actuarial present value of all benefit liabilities under such
Plan as defined in Section 4001(a)(16) of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent valuation date for such
Plan (on the basis of assumptions utilized by such Plan for
minimum funding purposes under ERISA).
"Warrant Agreement" shall have the meaning provided in
Section 3.1(a)(v) hereof.
"Weighted Average Life to Maturity" means, when applied
to any Indebtedness at any date, the number of years obtained by
dividing (a) the then outstanding principal amount of such
Indebtedness into (b) the total of the product obtained by
multiplying (x) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect
thereof by (y) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of
such payment.
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES.
Section 2.1 Revolving Loans. (a) Subject to and upon
the terms and conditions herein set forth, each Bank severally
and not jointly agrees, at any time and from time to time on and
after the Closing Date and prior to the Final Maturity Date, to
make revolving loans (collectively, "Revolving Loans") to the
Borrower, which Revolving Loans shall not exceed in the aggregate
principal amount at any time outstanding the Revolving Loan
Commitment of such Bank at such time; provided that no Revolving
Loan shall be made if, after giving effect thereto and the use of
the proceeds thereof, the sum of the outstanding principal amount
of Revolving Loans would exceed the sum of the Revolving Loan
Commitments of all the Banks (the "Total Revolving Loan Commit
ment"). The Total Revolving Loan Commitment on the Closing Date
shall be $35,000,000. The Revolving Loans of each Bank shall be
maintained at the option of the Borrower as Base Rate Loans
and/or Eurodollar Loans, in accordance with the provisions here
of.
(b) Revolving Loans may be voluntarily prepaid
pursuant to Section 2.10, and, subject to the other provisions of
this Agreement, any amounts so prepaid may be reborrowed. Each
Bank's Revolving Loan Commitment shall expire, and each Revolving
Loan shall mature on, the Final Maturity Date, without further
action on the part of the Banks or the Administrative Agent.
(c) Each Borrowing of Revolving Loans shall be in
the aggregate minimum amount of $2,000,000 (or in the aggregate
minimum amount of $1,000,000 if the Borrowing of $2,000,000 is
prohibited by the terms of the Senior Note Documents or the
Senior Subordinated Note Documents) or any integral multiple of
$100,000 in excess thereof.
Section 2.2 Notice of Borrowing. (a) Whenever the
Borrower desires to borrow Revolving Loans, the Borrower shall
give the Administrative Agent at the Administrative Agent's
Office prior to 11:00 a.m., (New York City time), at least one
Business Day's prior telecopy or telephonic notice (promptly
confirmed in writing) of each Base Rate Loan, and at least three
Business Days' prior telecopy or telephonic notice (promptly
confirmed in writing) of each Eurodollar Loan to be made here
under. Each such notice (a "Notice of Borrowing") shall be
irrevocable, shall be in the form of Exhibit A hereto, and in any
event shall specify (i) the aggregate principal amount of the
requested Revolving Loans, (ii) the date of Borrowing (which
shall be a Business Day), and (iii) whether such Revolving Loans
shall consist of Base Rate Loans or Eurodollar Loans and, if
Eurodollar Loans, the initial Interest Period to be applicable
thereto, provided that no Notice of Borrowing with respect to a
Eurodollar Loan shall be delivered during any period when a
Default or Event of Default shall have occurred and be
continuing.
(b) Promptly after receipt of a Notice of Borrow
ing, the Administrative Agent shall provide each Bank with the
details of the Notice of Borrowing and inform each Bank as to its
Pro Rata Share of the Loans requested thereunder.
Section 2.3 Disbursement of Funds. (a) No later than
12:00 p.m. (New York City time), on the date specified in each
Notice of Borrowing, each Bank will make available its Pro Rata
Share of the Revolving Loans requested to be made on such date,
in U.S. dollars and immediately available funds, at the
Administrative Agent's Office. Promptly after the Administrative
Agent's receipt of the proceeds of such Revolving Loans, the
Administrative Agent will make available to the Borrower by depos
iting in the Borrower's account designated in writing to the
Administrative Agent the aggregate of the amounts so made
available in the type of funds actually received.
(b) Unless the Administrative Agent shall have
been notified by any Bank prior to the date of a Borrowing that
such Bank does not intend to make available to the Administrative
Agent its portion of the Revolving Loans to be made on such date,
the Administrative Agent may assume that such Bank has made such
amount available to the Administrative Agent on such date and the
Administrative Agent in its sole discretion may, in reliance upon
such assumption, make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made avail
able to the Administrative Agent by such Bank and the
Administrative Agent has made such amount available to the
Borrower, the Administrative Agent shall be entitled to recover
such corresponding amount on demand from such Bank. If such Bank
does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent
shall promptly notify the Borrower and the Borrower shall imme
diately repay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to
recover from such Bank or the Borrower, as the case may be,
interest on such corresponding amount in respect of each day from
the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corre
sponding amount is recovered by the Administrative Agent, at a
rate per annum equal to (a) in the case of the Borrower, the then
applicable rate of interest, calculated in accordance with
Section 2.5, for the respective Revolving Loans, and (b) in the
case of any Bank, the Federal Funds Effective Rate. Nothing
herein shall be deemed to relieve any Bank from its obligation to
fulfill its commitments hereunder or to prejudice any rights
which the Borrower may have against any Bank as a result of any
default by such Bank hereunder. Notwithstanding anything
contained herein or in any other Loan Document to the contrary,
the Administrative Agent may apply all funds and proceeds of
Collateral available for the payment of any Obligations first to
repay any amount owing by any Bank to the Administrative Agent as
a result of such Bank's failure to fund its Revolving Loans
hereunder.
Section 2.4 Evidence of Indebtedness; Revolving Notes.
(a) Each Bank shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness to
such Bank and resulting from each Revolving Loan from time to
time, including the amounts of principal and interest payable and
paid to such Bank from time to time under this Agreement. The
Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Revolving Loan made hereunder, the
Type of each Revolving Loan and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each
Bank hereunder and (iii) the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Bank's
Pro Rata Share thereof. The entries made in the accounts
maintained pursuant to this Section 2.4(a) shall be prima facie
evidence of the existence and amounts of the obligations therein
recorded; provided, however, that the failure of any Bank or the
Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligations of the
Borrower to repay the Revolving Loans in accordance with their
terms.
(b) Notwithstanding the foregoing, if requested
by any Bank, the Borrower's obligation to pay the principal of,
and interest on, such Bank's Revolving Loans shall be evidenced
by a promissory note (a "Revolving Note") duly executed and
delivered by the Borrower substantially in the form of Exhibit B
hereto in a principal amount equal to such Bank's Revolving Loan
Commitment, with blanks appropriately completed in conformity
herewith. Each Revolving Note issued to a Bank shall (x) be
payable to such Bank, (y) be dated the Closing Date and (z)
mature on the Final Maturity Date.
(c) Each Bank is hereby authorized, at its
option, either (i) to endorse on the schedule attached to its
Revolving Note (or on a continuation of such schedule attached to
such Revolving Note and made a part thereof) an appropriate
notation evidencing the date and amount of each Revolving Loan
evidenced thereby and the date and amount of each principal and
interest payment in respect thereof, or (ii) to record such
Revolving Loans and such payments in its books and records. Such
schedule or such books and records, as the case may be, shall con
stitute prima facie evidence of the accuracy of the information
contained therein. Failure to make any such endorsements or
recordations or any error in any such endorsements or notations
shall not affect the Borrower's obligations in respect of any
Revolving Loan hereunder.
Section 2.5 Interest. (a) The Borrower agrees to pay
interest in respect of the unpaid principal amount of each Base
Rate Loan from the date of the making of such Base Rate Loan
until such Base Rate Loan shall be paid in full at a rate per
annum which shall be equal to the sum of the applicable Margin
Percentage plus the Base Rate in effect from time to time, such
rate to change as and when the Base Rate changes.
(b) The Borrower agrees to pay interest in
respect of the unpaid principal amount of each Eurodollar Loan
from the date of the making of such Eurodollar Loan until such
Eurodollar Loan shall be paid in full at a rate per annum which
shall be equal to the sum of the applicable Margin Percentage
plus the relevant Eurodollar Rate.
(c) In the event that, and for so long as, any
Event of Default shall have occurred and be continuing, the out
standing principal amount of all Revolving Loans and overdue
interest in respect of all Revolving Loans and interest thereon,
shall bear interest at a rate per annum (the "Default Rate")
equal to the greater of (i) the sum of (x) two percent (2%) and
(y) the Base Rate and the highest Base Rate Margin Percentage
applicable and (ii) the rate which is two percent (2%) in excess
of the interest rate otherwise applicable hereunder to such
principal amount in effect from time to time.
(d) Interest on each Revolving Loan shall accrue
from and including the date of the Borrowing thereof to but
excluding the date of any repayment thereof (provided that any
Revolving Loan borrowed and repaid on the same day shall accrue
one day's interest) and shall be payable (i) in respect of each
Base Rate Loan, quarterly in arrears on each Payment Date, (ii)
in respect of each Eurodollar Loan, on the last day of each
Interest Period applicable to such Loan, and (iii) in the case of
all Revolving Loans, on any prepayment or conversion (on the
amount prepaid or converted); provided that if such Revolving
Loans are Base Rate Loans, interest accrued on such Loans shall
be paid quarterly in arrears on each Payment Date, at maturity
(whether by acceleration or otherwise) and, after such maturity,
on demand.
(e) The Administrative Agent shall, upon
determining the Eurodollar Rate for any Interest Period, promptly
notify the Borrower and the Banks thereof.
(f) The Reference Banks shall provide to the
Administrative Agent the information to be provided by them under
the definition of "Eurodollar Rate" in accordance with the terms
hereof.
Section 2.6 Interest Periods. (a) The Borrower
shall, in each Notice of Borrowing, Notice of Conversion or
Notice of Continuation in respect of the making of, conversion
into or continuation of a Eurodollar Loan, select the Interest
Period applicable to such Eurodollar Loan.
(b) If upon the expiration of any Interest Period
for any Eurodollar Loan, the Borrower has failed to elect a new
Interest Period to be applicable to the respective Eurodollar
Loan as provided above, the Borrower shall be deemed to have
elected to convert such Eurodollar Loans into Base Rate Loans
effective as of the expiration date of such current Interest
Period.
Section 2.7 Minimum Amount of Eurodollar Loans. All
borrowings, conversions, continuations, payments, prepayments and
selections of Interest Periods hereunder shall be made or
selected so that, after giving effect thereto, (i) the aggregate
principal amount of any Borrowing comprised of Eurodollar Loans
shall not be less than $2,000,000 (or in the aggregate minimum
amount of $1,000,000 if the Borrowing of $2,000,000 is prohibited
by the terms of the Senior Note Documents or the Senior
Subordinated Note Documents) or an integral multiple of $100,000
in excess thereof, and (ii) there shall be no more than 18
Borrowings comprised of Eurodollar Loans outstanding at any time.
Section 2.8 Conversion or Continuation. (a) Subject
to the other provisions hereof, the Borrower shall have the
option (i) to convert at any time all or any part of outstanding
Base Rate Loans which comprise part of the same Borrowing to
Eurodollar Loans, (ii) to convert all or any part of outstanding
Eurodollar Loans which comprise part of the same Borrowing to
Base Rate Loans, on the expiration date of the Interest Period
applicable thereto, or (iii) to continue all or any part of
outstanding Eurodollar Loans which comprise part of the same
Borrowing as Eurodollar Loans for an additional Interest Period,
on the expiration of the Interest Period applicable thereto;
provided that no Revolving Loan may be continued as, or converted
into, a Eurodollar Loan when any Default or Event of Default has
occurred and is continuing.
(b) In order to elect to convert or continue a
Revolving Loan under this Section 2.8, the Borrower shall deliver
an irrevocable Notice of Continuation or a Notice of Conversion
to the Administrative Agent no later than 11:00 a.m., (New York
City time), (i) at least one Business Day in advance of the
proposed conversion date in the case of a conversion to a Base
Rate Loan and (ii) at least three Business Days in advance of the
proposed conversion or continuation date in the case of a conver
sion to, or a continuation of, a Eurodollar Loan. Each Notice of
Conversion or Notice of Continuation shall be in the forms of
Exhibits C-1 and C-2 hereto and in any event shall specify (w)
the requested conversion or continuation date (which shall be a
Business Day), (x) the amount of the Revolving Loan to be
converted or continued, (y) whether a conversion or continuation
is requested, and (z) in the case of a conversion to, or a contin
uation of, a Eurodollar Loan, the requested Interest Period.
Promptly after receipt of a Notice of Conversion or Notice of
Continuation under this Section 2.8(b), the Administrative Agent
shall notify each Bank of the details thereof.
Section 2.9 Voluntary and Mandatory Reductions of
Commitments. (a) Upon at least three Business Days' prior irrevo
cable written notice (or telephonic notice promptly confirmed in
writing) to the Administrative Agent (which notice the
Administrative Agent shall promptly transmit to each of the
Banks), the Borrower shall have the right, without premium or
penalty, to permanently reduce each Bank's Pro Rata Share of all
or part of the Total Revolving Loan Commitment, provided that any
such partial reductions shall be in a minimum aggregate amount of
$1,000,000 or any integral multiple of $100,000 in excess thereof
(or any lesser amounts if the Total Revolving Loan Commitment
shall be reduced in full).
(b) Simultaneously with any required prepayment
of the Revolving Loans in accordance with the provisions of
Section 2.11 or 2.12, each Bank's Total Revolving Loan Commitment
shall be permanently reduced by such Bank's Pro Rata Share of the
amount of such prepayment.
Section 2.10 Voluntary Prepayments. The Borrower
shall have the right to prepay the Revolving Loans in whole or in
part from time to time on the following terms and conditions:
(i) the Borrower shall give the Administrative Agent written
notice (or telephonic notice promptly confirmed in writing) not
later than 10:00 a.m. (New York City time), which notice shall be
irrevocable, of its intent to prepay the Revolving Loans, at
least three Business Days prior to a prepayment of Eurodollar
Loans and at least one Business Day prior to a prepayment of Base
Rate Loans, which notice shall specify the amount of such prepay
ment and what Types of Revolving Loans are to be prepaid and, in
the case of Eurodollar Loans, the specific Borrowing(s) pursuant
to which made, and which notice the Administrative Agent shall
promptly transmit to each of the Banks, (ii) each prepayment
shall be in an aggregate principal amount of $1,000,000 or any
integral multiple of $100,000 in excess thereof (or, any lesser
amounts if all of the Loans shall be prepaid in full), and (iii)
any such prepayment shall be accompanied by any additional amount
due pursuant to Section 2.16 hereof.
Section 2.11 Mandatory Prepayments. (a) On and after
the date upon which all Obligations (as defined in the Existing
Credit Agreement) then due and payable have been paid in full or
the Existing Credit Agreement shall have been refinanced
substantially in its entirety, mandatory prepayments shall be
made hereunder with respect to the following:
(i) Asset Sales. On each Business Day
immediately after the date on which the Parent or any of its
Subsidiaries receives any Net Cash Proceeds from an Asset
Sale, the Borrower shall prepay the outstanding Revolving
Loans in an amount equal to 100% of the amount of such Net
Cash Proceeds, in accordance with the provisions of Section
2.12, provided that Net Cash Proceeds from Eligible Asset
Sales shall not be required to be used to so repay Revolving
Loans to the extent the Borrower elects, as hereinafter
provided, to cause such Net Cash Proceeds to be reinvested
in Reinvestment Assets (a "Reinvestment Election"). The
Borrower may exercise its Reinvestment Election with respect
to an Eligible Asset Sale if (x) no Default or Event of
Default exists and (y) the Borrower delivers a Reinvestment
Notice to the Administrative Agent on the Business Day after
the date of the consummation of the respective Eligible
Asset Sale, with such Reinvestment Election being effective
with respect to the Net Cash Proceeds of such Eligible Asset
Sale equal to the Anticipated Reinvestment Amount specified
in such Reinvestment Notice. Notwithstanding the foregoing,
the Borrower shall in any event prepay the Revolving Loans
to the extent necessary to avoid any requirement to make an
"Offer" under and as defined in Section 5.07 of the Senior
Note Indenture and the Senior Subordinated Note Indenture.
(ii) Issuance of Indebtedness. On each date
on which the Parent or any of its Subsidiaries receives any
Net Cash Proceeds from the issuance of any debt securities
or the incurrence of any other Indebtedness (other than
Indebtedness permitted by Section 6.2 (other than clause (g)
thereof) as in effect on the Closing Date), the Borrower
shall prepay the outstanding Revolving Loans in an amount
equal to 50% of such Net Cash Proceeds, if on such date the
Borrower's senior unsecured Indebtedness is rated less than
BBB by Standard & Poor's or Baa2 by Moody's, in accordance
with the provisions of Section 2.12. No prepayments under
this Section shall be required if the preceding sentence is
not applicable at the time such prepayment would be
otherwise required hereby.
(iii) Excess Cash Flow. On the date
occurring 90 days after the close of each fiscal year of the
Borrower (or, if earlier, the seventh day following delivery
of the financial statements referred to in Section 5.1(b) in
respect of such fiscal year) commencing with the fiscal year
ending January 30, 2000, the Borrower shall prepay the out
standing Revolving Loans in an amount equal to (i) if the
Adjusted Leverage Ratio as of the last day of such fiscal
year is greater than 3.5:1.0, 75% of the Excess Cash Flow
for such preceding fiscal year and (ii) if the Adjusted
Leverage Ratio as of the last day of such fiscal year is
less than or equal to 3.5:1.0 and greater than 2.5:1.0, 50%
of the Excess Cash Flow for such preceding fiscal year, each
in accordance with the provisions of Section 2.12. No
prepayments under this Section shall be required if neither
clause (i) or (ii) hereof is applicable at the time such
prepayment would be otherwise required hereby.
(iv) Reinvestment Prepayment Date. On the
Reinvestment Prepayment Date with respect to a Reinvestment
Election, an amount equal to the Reinvestment Prepayment
Amount, if any, for such Reinvestment Election shall be
applied as a repayment of the principal amount of the then
outstanding Revolving Loans in accordance with the
provisions of Section 2.12.
(v) Equity Issuances. On each date on which
the Parent or any of its Subsidiaries receives any Net Cash
Proceeds from any Equity Issuance (other than an Equity
Issuance substantially contemporaneous with any Permitted
Acquisition to the extent that the Net Cash Proceeds thereof
are used to finance such Permitted Acquisition), if the
Adjusted Leverage Ratio as of the last day of the fiscal
quarter most recently ended prior to such date for which
financial statements have been delivered pursuant to Section
5.1(a) or (b) is greater than 3.5:1.0, the Borrower shall
prepay the outstanding Revolving Loans in an amount equal to
50% of such Net Cash Proceeds, in accordance with the provi
sions of Section 2.12. Notwithstanding the foregoing, no
prepayment of Revolving Loans under this Section 2.11(a)(v)
shall be required for the first $50,000,000 of Net Cash
Proceeds received by the Parent or any of its Subsidiaries
from Equity Issuances other than Equity Issuances in
connection with the exercise of outstanding options,
warrants, purchase rights or conversion rights ("New Equity
Issuances"). The amount of Net Cash Proceeds received from
New Equity Issuances in excess of $50,000,000 shall be
applied in accordance with the first sentence of this
Section 2.11(a)(v).
(vi) Store Closings. On the tenth Business
Day after the end of the fiscal month after the termination
of business at a store (other than the stores listed on
Schedule 1 to the Sixth Amendment Agreement, dated as of
February 18, 2000), the Borrower shall prepay the
outstanding Revolving Loans in an amount equal to 100% of
the amount of the Net Cash Proceeds in respect of such
store.
Notwithstanding anything to the contrary contained in
this Section 2.11, no Net Cash Proceeds shall be payable under
this Agreement until all prepayments required to be prepaid under
the Existing Credit Agreement are made thereunder, or the
Existing Credit Agreement has been substantially refinanced or
the Loans (as defined in the Existing Credit Agreement) have been
paid in full.
(b) Voluntary and Mandatory Commitment
Reductions. On each day on which the Total Revolving Loan
Commitment is reduced pursuant to Section 2.9, the Borrower shall
prepay the Revolving Loans, to the extent, if any, that the
outstanding principal amount of the Revolving Loans at such time
exceeds such reduced Total Revolving Loan Commitment.
Section 2.12 Application of Prepayments. All pre
payments of the Revolving Loans required by Section 2.11 shall be
applied first to Base Rate Loans to the full extent thereof
before application to Eurodollar Loans, in each case in a manner
which minimizes the amount of any payments required to be made by
the Borrower pursuant to Section 2.16.
Section 2.13 Method and Place of Payment. (a) Except
as otherwise specifically provided herein, all payments and
prepayments under this Agreement and the Revolving Notes shall be
made to the Administrative Agent for the account of the Banks
entitled thereto not later than 12:00 p.m. (New York City time),
on the date when due and shall be made in lawful money of the
United States of America in immediately available funds at the
Administrative Agent's Office, and any funds received by the
Administrative Agent after such time shall, for all purposes
hereof (including the following sentence), be deemed to have been
paid on the next succeeding Business Day. Except as otherwise
specifically provided herein, the Administrative Agent shall
thereafter cause to be distributed on the date of receipt thereof
to each Bank in like funds its Pro Rata Share of payments so
received.
(b) Whenever any payment to be made hereunder or
under any Revolving Note shall be stated to be due on a day which
is not a Business Day, the due date thereof shall be extended to
the next succeeding Business Day and, with respect to payments of
principal, interest and Fees shall be payable at the applicable
rate during such extension.
(c) All payments made by the Borrower hereunder
and under the other Loan Documents shall be made irrespective of,
and without any reduction for, any setoff or counterclaims.
Section 2.14 Fees. (a) The Borrower agrees to pay to
the Administrative Agent for its own account and for distribution
to the Banks as separately agreed between each Bank and the
Administrative Agent the fees and expenses in the amounts and on
the dates specified in the Commitment Letter.
(b) The Borrower agrees to pay to the
Administrative Agent for the account of each Bank a commitment
fee (the "Commitment Fee"), computed at a per annum rate equal to
0.50% on the average daily unused portion of such Bank's
Revolving Loan Commitment, from and including the Closing Date to
the Final Maturity Date, payable quarterly in arrears on each
Payment Date and on the Final Maturity Date or such earlier date,
if any, on which the Total Revolving Loan Commitment shall
terminate in accordance with the terms hereof.
Section 2.15 Interest Rate Unascertainable, Increased
Costs, Illegality. (a) In the event that the Administrative
Agent, in the case of clause (i) below, or any Bank, in the case
of clauses (ii) and (iii) below, shall have determined (which
determination shall, absent manifest error, be final and con
clusive and binding upon all parties hereto):
(i) on any date for determining the Eurodol
lar Rate for any Interest Period, that by reason of any
changes arising after the date of this Agreement affecting
the interbank Eurodollar market, adequate and fair means do
not exist for ascertaining the applicable interest rate on
the basis provided for in the definition of the Eurodollar
Rate; or
(ii) at any time, that the relevant
Eurodollar Rate applicable to any of its Revolving Loans
shall not represent the effective pricing to such Bank for
funding or maintaining a Eurodollar Loan, or such Bank shall
incur increased costs or reductions in the amounts received
or receivable hereunder in respect of any Eurodollar Loan,
in any such case because of (x) any change since the date of
this Agreement in any applicable law or governmental rule,
regulation, guideline or order or any interpretation thereof
and including the introduction of any new law or govern
mental rule, regulation, guideline or order (such as for
example but not limited to a change in official reserve re
quirements, but, in all events, excluding reserves required
under Regulation D to the extent included in the computation
of the Eurodollar Rate), whether or not having the force of
law and whether or not failure to comply therewith would be
unlawful, and/or (y) other circumstances affecting such Bank
or the interbank Eurodollar market or the position of such
Bank in such market; or
(iii) at any time, that the making or
continuance by it of any Eurodollar Loan has become unlawful
by compliance by such Bank in good faith with any law or
governmental rule, regulation, guideline or order (whether
or not having the force of law and whether or not failure to
comply therewith would be unlawful) or has become impractica
ble as a result of a contingency occurring after the date of
this Agreement which materially and adversely affects the
interbank Eurodollar market;
then, and in any such event, the Administrative Agent or such
Bank shall, promptly after making such determination, give notice
(by telephone promptly confirmed in writing) to the Borrower and
(if applicable) the Administrative Agent of such determination
(which notice the Administrative Agent shall promptly transmit to
each of the other Banks). Thereafter (x) in the case of clause
(i) above, the Borrower's right to request Eurodollar Loans shall
be suspended, and any Notice of Borrowing, Notice of Conversion
or Notice of Continuation given by the Borrower with respect to
any Borrowing of Eurodollar Loans, which has not yet been made
shall be deemed cancelled and rescinded by the Borrower, (y) in
the case of clause (ii) above, the Borrower shall pay to such
Bank, upon such Bank's delivery of written demand therefor to the
Borrower, with a copy to the Administrative Agent, such addition
al amounts (in the form of an increased rate of interest, or a
different method of calculating interest, or otherwise, as such
Bank in its sole discretion shall determine) as shall be required
to compensate such Bank for such increased costs or reduction in
amounts received or receivable hereunder and (z) in the case of
clause (iii) above, the Borrower shall take one of the actions
specified in clause (b) below as promptly as possible and, in any
event, within the time period required by law. The written
demand provided for in clause (y) shall demonstrate in reasonable
detail the calculation of the amounts demanded and shall, absent
manifest error, be final and conclusive and binding upon all of
the parties hereto.
(b) In the case of any Eurodollar Loan or
requested Eurodollar Loan affected by the circumstances described
in clause (a)(ii) above, the Borrower may, and in the case of any
Eurodollar Loan affected by the circumstances described in clause
(a)(iii) above the Borrower shall, either (i) if any such
Eurodollar Loan has not yet been made but is then the subject of
a Notice of Borrowing, a Notice of Conversion or Notice of
Continuation, be deemed to have cancelled and rescinded such
notice, or (ii) if any such Eurodollar Loan is then outstanding,
require the affected Bank to convert each such Eurodollar Loan
into a Base Rate Loan at the end of the applicable Interest
Period or such earlier time as may be required by law, in each
case by giving the Administrative Agent notice (by telephone
promptly confirmed in writing) thereof on the Business Day that
the Borrower was notified by the Bank pursuant to clause (a)
above; provided, however, that all Banks whose Eurodollar Loans
are affected by the circumstances described in clause (a) above
shall be treated in the same manner under this clause (b).
(c) In the event that the Administrative Agent
determines at any time following its giving of notice based on
the conditions described in clause (a)(i) above that none of such
conditions exist, the Administrative Agent shall promptly give
notice thereof to the Borrower and the Banks, whereupon the
Borrower's right to request Eurodollar Loans from the Banks and
the Banks' obligation to make Eurodollar Loans shall be restored.
(d) In the event that a Bank determines at any
time following its giving of a notice based on the conditions
described in clause (a)(iii) above that none of such conditions
exist, such Bank shall promptly give notice thereof to the
Borrower and the Administrative Agent, whereupon the Borrower's
right to request Eurodollar Loans from such Bank and such Bank's
obligation to make Eurodollar Loans shall be restored.
(e) If any Bank determines that any applicable
law, rule, or regulation or any change therein, or any change in
the interpretation or administration thereof by any governmental
authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by such
Bank with any request or directive (whether or not having the
force of law) of any such authority, central bank, or comparable
agency shall make it unlawful or impossible for such Bank to
maintain its Commitment, then upon notice to the Administrative
Agent and the Borrower by the Bank, the Commitment of such Bank
shall terminate.
Section 2.16 Funding Losses. The Borrower shall
compensate each Bank, upon such Bank's delivery of a written
demand therefor to the Borrower, with a copy to the Adminis
trative Agent (which demand shall, absent manifest error, be
final and conclusive and binding upon all of the parties hereto),
for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by
such Bank in connection with the liquidation or reemployment of
deposits or funds required by it to make or carry its Eurodollar
Loans but excluding anticipated profits), that such Bank
sustains: (i) if for any reason (other than a default by such
Bank) a Borrowing of, or conversion from or into, or a continu
ation of, Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing, Notice of Conversion or Notice
of Continuation, (whether or not rescinded, cancelled or with
drawn or deemed rescinded, cancelled or withdrawn, pursuant to
Section 2.15(a) or 2.15(b) or otherwise), (ii) if any repayment
(including, without limitation, payment after acceleration) or
conversion of any of its Eurodollar Loans occurs on a date which
is not the last day of the Interest Period applicable thereto,
(iii) if any prepayment of any of its Eurodollar Loans is not
made on any date specified in a notice of prepayment given by the
Borrower, or (iv) as a consequence of any default by the Borrower
in repaying its Eurodollar Loans, or any other amounts owing
hereunder in respect of its Eurodollar Loans when required by the
terms of this Agreement. Calculation of all amounts payable to a
Bank under this Section 2.16 shall be made on the assumption that
such Bank has funded its relevant Eurodollar Loan through the
purchase of a Eurodollar deposit bearing interest at the Euro
dollar Rate in an amount equal to the amount of such Eurodollar
Loan with a maturity equivalent to the Interest Period applicable
to such Eurodollar Loan, and through the transfer of such
Eurodollar deposit from an offshore office of such Bank to a
domestic office of such Bank in the United States of America,
provided that each Bank may fund its Eurodollar Loans in any
manner that it in its sole discretion chooses and the foregoing
assumption shall only be made in order to calculate amounts
payable under this Section 2.16.
Section 2.17 Increased Capital. If at any time any
Bank determines that the introduction after the Closing Date of,
or any change after the Closing Date in, any applicable law or
governmental rule, regulation, order, guideline, directive or
request (whether or not having the force of law) concerning
capital adequacy, or any change after the Closing Date in
interpretation or administration thereof by any governmental
authority, central bank or comparable agency, will have the
effect of increasing the amount of capital required or expected
to be maintained by such Bank or any corporation controlling such
Bank based on the existence of such Bank's Commitments hereunder
or its obligations hereunder, or shall change the basis of
taxation of any amounts payable to any Bank under this Agreement
or the Revolving Notes in respect of any such Revolving Loans
(other than taxes imposed on the overall net income of any Bank
for any of such Loans by the jurisdiction where such Bank is
located) then the Borrower shall pay to such Bank, within 15 days
after its written demand therefor, such additional amounts as
shall be required to compensate such Bank or such other
corporation for the increased cost to such Bank or such other
corporation or the reduction in the rate of return to such Bank
or such other corporation as a result of such increase of capital
or change in basis. In determining such additional amounts, each
Bank will act reasonably and in good faith and will use averaging
and attribution methods which are reasonable, provided that such
Bank's reasonable good faith determination of compensation owing
under this Section 2.17 shall, absent manifest error, be final
and conclusive and binding on all the parties hereto. Each Bank,
upon determining that any additional amounts will be payable
pursuant to this Section 2.17, will give prompt written notice
thereof to the Borrower, which notice shall show the basis for
calculation of such additional amounts, although the failure to
give any such notice shall not release or diminish any of the
Borrower's Obligations to pay additional amounts pursuant to this
Section 2.17.
Section 2.18 Taxes. (a) All payments made by the
Borrower under this Agreement shall be made free and clear of,
and without reduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any
governmental authority excluding, in the case of the
Administrative Agent and each Bank, net income and franchise
taxes imposed on the Administrative Agent or such Bank by the
jurisdiction under the laws of which the Administrative Agent or
such Bank is organized or any political subdivision or taxing
authority thereof or therein, or by any jurisdiction in which
such Bank's Lending Office, as the case may be, is located or any
political subdivision or taxing authority thereof or therein (all
such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"). If any Taxes are
required to be withheld from any amounts payable to the
Administrative Agent or any Bank hereunder or under the Revolving
Notes, the amounts so payable to the Administrative Agent or such
Bank shall be increased to the extent necessary to yield to the
Administrative Agent or such Bank (after payment of all Taxes)
interest or any such other amounts payable hereunder at the rates
or in the amounts specified in this Agreement and the Revolving
Notes. Whenever any Taxes are payable by the Borrower, as
promptly as possible thereafter, the Borrower shall send to the
Administrative Agent for its own account or for the account of
such Bank, a certified copy of an original official receipt
received by the Borrower showing payment thereof or other
evidence of payment reasonably satisfactory to the Administrative
Agent or such Bank. If the Borrower fails to pay any Taxes when
due to the appropriate taxing authority or fails to remit to the
Administrative Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Banks for any incremental taxes,
interest or penalties that may become payable by the
Administrative Agent or any Bank as a result of any such failure.
The agreements in this Section 2.18 shall survive the termination
of this Agreement and the payment of the Revolving Notes and all
other Obligations.
(b) Each Bank (including each Purchasing Bank
that becomes a party to this Agreement pursuant to Section 9.4)
that is not incorporated under the laws of the United States of
America or a state thereof (a "Non-U.S. Bank") agrees that, prior
to the first date on which any payment is due to it hereunder, it
will deliver to the Borrower and the Administrative Agent (i) two
duly completed copies of United States Internal Revenue Service
Form W-8BEN or W-8ECI or successor applicable form, as the case
may be, certifying in each case that such Bank is entitled to
receive payments under this Agreement and the Revolving Notes
payable to it, without deduction or withholding of any United
States federal income taxes, or (ii) in the case of a Non-U.S.
Bank claiming exemption from U.S. federal withholding taxes under
Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest," an Internal Revenue Service Form W-8 or
successor applicable form, as the case may be, to establish an
exemption from United States backup withholding tax together with
a certificate to the effect that such Non-U.S. Bank is not a bank
for purposes of Section 881(c) of the Code, is not a 10 percent
shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Borrower, is not a controlled foreign corporation
related to the Borrower (within the meaning of Section 864(d)(4)
of the Code) and is entitled to a complete exemption from U.S.
federal withholding taxes. Each Bank which delivers to the
Borrower and the Administrative Agent a Form W-8BEN or W-8ECI and
Form W-8 pursuant to the preceding sentence further undertakes to
deliver to the Borrower and the Administrative Agent two further
copies of Form W-8BEN or W-8ECI and Form W-8 (together with the
accompanying certificate), or successor applicable forms, or
other manner of certification, as the case may be, on or before
the date that any such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower, and such
extensions or renewals thereof as may reasonably be requested by
the Borrower, certifying in the case of a Form W-8BEN or W-8ECI
that such Bank is entitled to receive payments under this Agree
ment without deduction or withholding of any United States
federal income taxes, unless in any such case an event (includ
ing, without limitation, any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank advises
the Borrower that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax,
and in the case of a Form W-8, establishing an exemption from
United States backup withholding tax.
Section 2.19 Action of Affected Banks. Upon the
written request of the Borrower, each Bank agrees to use
reasonable efforts (including reasonable efforts to change the
lending office for its Loans) to avoid or minimize any illegality
or any amounts which might otherwise be payable by the Borrower
pursuant to Sections 2.15 or 2.18; provided, however, that such
efforts shall not cause, in the sole determination of such Bank,
the imposition on such Bank of any additional costs or legal or
regulatory burdens and shall not be deemed by such Bank to be
otherwise contrary to its policies. In the event that such
reasonable efforts are insufficient to avoid all such illegality
or all amounts that might be payable pursuant to Sections 2.15 or
2.18, then such Bank (the "Affected Bank") shall use its
reasonable efforts to transfer to any other Bank (which itself is
not then an Affected Bank) its Loans and Commitments, subject to
the provisions of Section 9.4; provided, however, that such
transfer shall not be deemed by such Affected Bank, in its sole
discretion, to be disadvantageous to it or contrary to its
policies. In the event that the Affected Bank is unable, or
otherwise is unwilling, so to transfer its Loans and Commitments,
the Borrower may designate an alternate lender (reasonably
acceptable to the Administrative Agent) to purchase the Affected
Bank's Loans and Commitments, at par and including accrued
interest, and, subject to the provisions of Section 9.4, the
Affected Bank shall transfer its Commitments to such alternate
lender and such alternate lender shall become a Bank hereunder.
Any fee payable to the Administrative Agent pursuant to
subsection 9.4(c) in connection with such transfer shall be for
the account of the Borrower.
Section 2.20 Use of Proceeds. The proceeds of the
Revolving Loans shall be used for working capital of the Borrower
and its Subsidiaries in accordance with customary and typical
past historical practice.
SECTION 3. CONDITIONS PRECEDENT.
Section 3.1 Conditions Precedent to Initial Loans.
The obligation of each Bank to make its initial Loans, is subject
to the satisfaction on the Closing Date (unless otherwise waived
in writing by the Administrative Agent) of the following condi
tions precedent:
(a) Loan Documents.
(i) Credit Agreement. The Borrower, the
Parent and each other party to this Agreement shall have
executed and delivered this Agreement to the Administrative
Agent.
(ii) Revolving Notes. The Borrower shall
have executed and delivered to each Bank which has requested
Revolving Notes the appropriate Revolving Notes in the
amount, maturity and as otherwise provided herein.
(iii) Security Agreement. Each of the Bor
rower, the Parent and the Material Subsidiaries shall have
executed and delivered to the Collateral Agent a security
agreement substantially in the form set forth as Exhibit D
hereto (as amended, modified or supplemented from time to
time, the "Security Agreement").
(iv) Subsidiary Guaranty. Each of the
Parent and the Material Subsidiaries shall have executed and
delivered to the Collateral Agent a guaranty substantially
in the form set forth as Exhibit E hereto (as amended,
modified or supplemented from time to time, the "Subsidiary
Guaranty").
(v) Warrant Agreement. The Parent shall
have executed and delivered to the Administrative Agent
separate warrant agreements for each Bank for further
delivery to such Bank substantially in the form set forth as
Exhibit F hereto (as amended, modified or supplemented from
time to time, the "Warrant Agreement").
(b) Opinions of Counsel.
(i) The Administrative Agent shall have re
ceived a legal opinion, dated the Closing Date, from
Cadwalader, Wickersham & Taft, counsel to the Loan Parties,
substantially in the form set forth as Exhibit G hereto, and
the Borrower hereby instructs such counsel to deliver such
opinion.
(ii) The Administrative Agent shall have
received a legal opinion, dated the Closing Date, from
Skadden, Arps, Slate, Meagher & Flom (Illinois), special
counsel to the Administrative Agent.
(c) Corporate Documents. The Administrative
Agent shall have received the Articles or Certificate of
Incorporation of each of the Loan Parties as amended, modified or
supplemented to the Closing Date, certified to be true, correct
and complete by the appropriate Secretary of State as of a date
not more than five days prior to the Closing Date, together with
a good standing certificate from such Secretary of State and a
good standing certificate from the Secretaries of State (or the
equivalent thereof) of each other State in which each of them is
required to be qualified to transact business, each to be dated a
date not more than five days prior to the Closing Date.
(d) Certified Resolutions, etc. The
Administrative Agent shall have received a certificate of the
Secretary or Assistant Secretary of each of the Loan Parties and
dated the Closing Date certifying (i) the names and true
signatures of the incumbent officers of such Person authorized to
sign the applicable Loan Documents, (ii) the By-Laws of such
Person as in effect on the Closing Date, (iii) the resolutions of
such Person's Board of Directors approving and authorizing the
execution, delivery and performance of all Loan Documents
executed by such Person, and (iv) that there have been no changes
in the Articles or Certificate of Incorporation of such Person
since the date of the most recent certification thereof by the
appropriate Secretary of State.
(e) Officer's Certificate. The Administrative
Agent and the Banks shall have received a certificate of an
Authorized Officer of the Borrower, dated the Closing Date,
certifying that (i) each of the Loan Parties and, to the best of
his or her knowledge, the other parties to the Loan Documents,
have performed or complied in all material respects with all
agreements and conditions contained in such Loan Documents and
any agreements or documents referred to therein required to be
performed or complied with by each of them on or before the
Closing Date, and (ii) subject to the foregoing, neither any Loan
Party nor, to the best of his or her knowledge, any such other
party is in default in the performance or compliance with any of
the terms or provisions thereof, except to the extent that
performance thereof or compliance therewith or default has been
waived with the prior written consent of the Banks.
(f) Insurance. The Administrative Agent shall
have received a certificate of insurance demonstrating insurance
coverage in respect of each of the Loan Parties of types, in
amounts, with insurers and with other terms satisfactory to the
Banks.
(g) Lien Search Reports. The Administrative
Agent shall have received satisfactory reports of UCC and tax
lien searches conducted by a search firm acceptable to the
Administrative Agent and the Banks with respect to the Loan
Parties in such locations as the Administrative Agent may
request.
(h) UCC-1 Financing Statements. The Administra
tive Agent shall have received copies (or other evidence of fil
ing) of each UCC-1 financing statement signed by Borrower and the
other Loan Parties as debtors naming the Collateral Agent as
secured party to be filed in each of the jurisdictions set forth
on Annex C to the Security Agreement and such other locations as
the Administrative Agent may request.
(i) Financial Statements. The Administrative
Agent shall have received the audited financial statements of the
Parent and the Borrower for the fiscal years ending January 30,
1999, January 31, 1998 and February 1, 1997 and the unaudited
financial statements of the Borrower for the fiscal period ending
on October 30, 1999.
(j) Environmental Matters. The Administrative
Agent shall be satisfied that neither the Borrower, any of its
Subsidiaries nor any Loan Party is subject to any present or
contingent environmental liability which could reasonably be
expected to have a Material Adverse Effect.
(k) Fees and Expenses. The Administrative Agent
shall have received, for its account and for the account of each
Bank, as applicable, all Fees and other fees and expenses due and
payable hereunder on or before the Closing Date (if then
invoiced), including, without limitation, the fees and expenses
set forth in the Commitment Letter and the reasonable fees and
expenses accrued through the Closing Date, of Skadden, Arps,
Slate, Meagher & Flom (Illinois) and its affiliates in connection
with the Transactions.
(l) Consents, Licenses, Approvals, etc. The
Administrative Agent shall have received copies of all consents,
licenses and approvals, if any, required in connection with the
execution, delivery and performance by the Borrower, the Loan
Parties or any of their respective Subsidiaries, and the validity
and enforceability, of the Loan Documents, or in connection with
any of the Transactions, and such consents, licenses and approv
als shall be in full force and effect.
(m) Projections. The Administrative Agent shall
have received projections prepared by the Parent demonstrating
the projected consolidated financial condition and results of
operations of the Parent and its Subsidiaries after giving effect
to the Transactions, for each fiscal year for the period
commencing on the Closing Date and ending on the Final Maturity
Date and for each fiscal quarter for the fiscal year ending
February 3, 2001, which projections shall be accompanied by a
written statement of the assumptions underlying the projections,
and all of the foregoing shall be satisfactory to the Banks.
(n) [Intentionally left blank.]
(o) Amendment. The Administrative Agent shall
have received evidence that all conditions to the effectiveness
of the Sixth Amendment, dated as of February 18, 2000, to the
Existing Credit Agreement have been fully satisfied or waived by
the parties thereto.
(p) Additional Matters. The Administrative Agent
shall have received such other certificates, opinions, documents
and instruments relating to the Transactions as may have been
reasonably requested by the Administrative Agent or any Bank, and
all corporate and other proceedings and all other documents
(including, without limitation, all documents referred to herein
and not appearing as exhibits hereto) and all legal matters in
connection with the Transactions shall be satisfactory in form
and substance to the Banks.
Section 3.2 Conditions Precedent to All Loans. The
obligation of each Bank to make any Revolving Loan, including the
initial Revolving Loan on the Closing Date, is subject to the
satisfaction on the date of such Revolving Loan of the following
conditions precedent:
(a) Representations and Warranties. The repre
sentations and warranties contained herein and in the other Loan
Documents (other than representations and warranties which
expressly speak only as of a different date which representations
and warranties shall be true and correct in all material respects
as of such date) shall be true and correct in all material
respects on such date both before and after giving effect to such
Revolving Loan.
(b) No Default or Event of Default. No Default
or Event of Default shall have occurred and be continuing on such
date either before or after giving effect to such Revolving Loan.
(c) No Injunction or Litigation. No law or
regulation shall have been adopted, no order, judgment or decree
of any governmental authority shall have been issued, and no
litigation, proceeding or investigation shall be pending or
threatened, which has not been previously disclosed on or prior
to February 22, 2000 and which in the reasonable judgment of the
Banks would (i) enjoin, prohibit or restrain, or impose or result
in the imposition of any Material Adverse Effect upon, the making
or repayment of the Revolving Loans or the Transactions or (ii)
affect the legality, validity or enforceability of this
Agreement, any of the Loan Documents, the Transactions, or any
document to be executed in connection therewith and the Banks
shall be satisfied as to any other material litigation and
contingent obligations to which the Borrower or its Subsidiaries
may be subject.
(d) No Material Adverse Effect. No event, act or
condition shall have occurred from and after the Closing Date
which, in the reasonable judgment of the Required Banks, has had
or could reasonably be expected to have a Material Adverse
Effect.
(e) Notice of Borrowing. The Administrative
Agent shall have received a fully executed Notice of Borrowing in
respect of the Loans, if any, to be made on such date.
The acceptance of the proceeds of each Revolving Loan
shall constitute a representation and warranty by the Borrower to
each of the Banks that all of the conditions required to be
satisfied under this Section 3 in connection with the making of
such Revolving Loan have been satisfied.
All of the Revolving Notes, certificates, agreements,
legal opinions and other documents and papers referred to in this
Section 3, unless otherwise specified, shall be delivered to the
Administrative Agent for the account of each of the Banks and,
except for the Revolving Notes, in sufficient counterparts for
each of the Banks, and shall be satisfactory in form and
substance to each Bank in its sole discretion.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Administrative Agent, the
Collateral Agent and Banks to enter into this Agreement and to
make the Revolving Loans, each of the Parent and the Borrower
makes the following representations and warranties, which shall
survive the execution and delivery of this Agreement and the
Revolving Notes and the making of the Revolving Loans:
Section 4.1 Corporate Status. Each Loan Party (i) is
a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its incorporation,
(ii) has the corporate power and authority to own its property
and assets and to transact the business in which it is engaged or
presently proposes to engage and (iii) has duly qualified and is
authorized to do business and is in good standing as a foreign
corporation in every jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be
so qualified, except where the failure to so qualify,
individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
Section 4.2 Corporate Power and Authority. Each Loan
Party has the corporate power and authority to execute, deliver
and carry out the terms and provisions of each of the Loan
Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and
performance by it of such Loan Documents. Each Loan Party has
duly executed and delivered each such Loan Document, and each
such Loan Document constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms.
Section 4.3 No Violation. Neither the execution,
delivery or performance by any Loan Party of the Loan Documents
to which it is a party, nor compliance by it with the terms and
provisions thereof nor the consummation of the Transactions, (i)
will contravene any applicable provision of any law, statute,
rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality or (ii) will conflict or be
inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except pursuant to the
Security Documents) upon any of the property or assets of any
Loan Party pursuant to the terms of any indenture, mortgage, deed
of trust, agreement or other instrument to which such Loan Party
is a party or by which it or any of its property or assets is
bound or to which it may be subject, or (iii) will violate any
provision of the Articles or Certificate of Incorporation or
By-Laws of any Loan Party.
Section 4.4 Litigation. There are no actions, suits,
investigations or proceedings pending, or to the Parent's or the
Borrower's best knowledge, threatened which have not been
disclosed to the Administrative Agent on or before February 22,
2000 (i) with respect to any of the Loan Documents or the
Transactions or (ii) that could, individually or in the aggre
gate, reasonably be expected to result in a Material Adverse
Effect.
Section 4.5 Financial Statements; Financial Condition;
etc. Each of the financial statements delivered pursuant to
Section 3.1(i) were prepared in accordance with GAAP consistently
applied and fairly present the financial condition and the
results of operations of the entities covered thereby on the
dates and for the periods covered thereby, except as disclosed in
the notes thereto and, with respect to interim financial
statements, subject to normally recurring year-end adjustments.
As of the Closing Date, no Loan Party has any material liability
(contingent or otherwise) not reflected in such financial
statements or in the notes thereto other than as set forth on
Schedule 6.6 hereto.
Section 4.6 [Intentionally left blank.]
Section 4.7 Projections. The projections delivered
pursuant to Section 3.1(m) have been prepared on the basis of the
assumptions accompanying them, and such projections and
assumptions, as of the date of preparation thereof and as of the
Closing Date, are reasonable and represent the Parent's good
faith estimate of its future financial performance, it being
understood that nothing contained in this Section 4.7 shall con
stitute a representation or warranty that such future financial
performance or results of operations will in fact be achieved.
Section 4.8 Material Adverse Effect. Except as set
forth on Schedule 4.8, from and after the Closing Date, there has
occurred no event, act or condition which has had, or could
reasonably be expected to have, a Material Adverse Effect.
Section 4.9 Use of Proceeds; Margin Regulations. All
proceeds of each Revolving Loan will be used by the Borrower only
in accordance with the provisions of Section 2.20. No part of
the proceeds of any Revolving Loan will be used by the Borrower
to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin
Stock. Neither the making of any Revolving Loan nor the use of
the proceeds thereof will violate or be inconsistent with the
provisions of Regulations T, U or X of the Federal Reserve Board.
Section 4.10 Governmental Approvals. No order,
consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection
with (i) the execution, delivery and performance of any Loan
Document or the consummation of any of the Transactions or (ii)
the legality, validity, binding effect or enforceability of any
Loan Document, except (x) those listed on Schedule 4.10 that have
already been duly made or obtained and remain in full force and
effect and (y) the filing of UCC-1 financing statements in the
appropriate filing offices.
Section 4.11 Security Interests and Liens. The
Security Documents create, as security for the Secured Obli
gations, valid and enforceable Liens on all of the Collateral, in
favor of the Collateral Agent for the ratable benefit of the
Secured Creditors, and subject to no other Liens other than Liens
permitted by Section 6.3 hereunder. Upon the satisfaction of the
conditions precedent described in Section 3.1(h), such Liens on
the Collateral shall be superior to and prior to the rights of
all third parties (except as disclosed on Schedule 6.3), and no
further recordings or filings are or will be required in connec
tion with the creation, perfection or enforcement of such Liens,
other than the filing of continuation statements in accordance
with applicable law.
Section 4.12 Tax Returns and Payments. The Parent and
each of its Subsidiaries has filed all tax returns required to be
filed by it and has paid all taxes and assessments payable by it
which have become due, other than those not yet delinquent or
those that are reserved against in accordance with GAAP which are
being diligently contested in good faith by appropriate
proceedings.
Section 4.13 ERISA. As of the Closing Date, no Loan
Party has any Plans other than those listed on Schedule 4.13. No
accumulated funding deficiency (as defined in Section 412 of the
Code or Section 302 of ERISA) or Reportable Event has occurred
with respect to any Plan. As of the Closing Date, Unfunded
Benefit Liabilities under the Plans do not, in the aggregate,
exceed $6,000,000. As of the Closing Date, neither the Borrower
nor any member of its ERISA Controlled Group is a party to or has
any responsibility, contingent or otherwise, with respect to any
Multiemployer Plan. To the best knowledge of the Borrower and
each member of its ERISA Controlled Group, no Multiemployer Plan
is or is likely to be in reorganization (as defined in Section
4241 of ERISA or Section 418 of the Code) or is insolvent (as
defined in Section 4245 of ERISA) which reorganization or
insolvency could reasonably be expected to have a Material
Adverse Effect. No liability to the PBGC (other than required
premium payments), the Internal Revenue Service, any Plan or any
trust established under Title IV of ERISA has been, or is
expected by the Borrower or any member of its ERISA Controlled
Group to be, incurred by the Borrower or any member of its ERISA
Controlled Group which liability could reasonably be expected to
result in a Material Adverse Effect. Except as otherwise
disclosed on Schedule 4.13 hereto, neither the Borrower nor any
member of its ERISA Controlled Group has any material contingent
liability with respect to any post-retirement benefit under any
"welfare plan" (as defined in Section 3(1) of ERISA), other than
liability for continuation coverage under Part 6 of Title I of
ERISA or other similar statute. No lien under Section 412(n) of
the Code or Section 302(f) of ERISA or requirement to provide
security under Section 401(a)(29) of the Code or Section 307 of
ERISA has been or is reasonably expected by the Borrower or any
member of its ERISA Controlled Group to be imposed on the assets
of the Borrower or any member of its ERISA Controlled Group.
Section 4.14 Investment Company Act; Public Utility
Holding Company Act. No Loan Party nor any of its Subsidiaries
is (x) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment
Company Act of 1940, as amended, (y) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of
either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as
amended, or (z) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to
borrow money.
Section 4.15 Representations and Warranties in Loan
Documents. All representations and warranties made by any Loan
Party in the Loan Documents, and, to the best of the Borrower's
knowledge, all representations made by each other Person in such
Loan Documents, are true and correct in all material respects as
of the Closing Date. None of such representations and warranties
are inconsistent in any material respect with the representations
and warranties of any Loan Party made herein or in any other Loan
Document.
Section 4.16 True and Complete Disclosure. All
factual information (taken as a whole) furnished by or on behalf
of any Loan Party in writing to the Administrative Agent or any
Bank on or prior to the Closing Date, for purposes of or in
connection with this Agreement or any of the Transactions is, and
all other such factual information (taken as a whole) hereafter
furnished by or on behalf of any Loan Party in writing to the
Administrative Agent or any Bank will be, true and accurate in
all material respects on the date as of which such information is
dated or furnished and not incomplete by omitting to state any
material fact necessary to make such information (taken as a
whole) not misleading at such time. As of the Closing Date,
there are no facts, events or conditions known to the Borrower
which, individually or in the aggregate, have or could reasonably
be expected to have a Material Adverse Effect.
Section 4.17 Corporate Structure; Capitalization. As
of the Closing Date, Schedule 4.17 hereto sets forth, both before
and after giving effect to the Transactions to be consummated on
the Closing Date, the number of authorized and issued shares of
capital stock of the Parent, the Borrower and each of its
Subsidiaries, the par value thereof and, in the case of
Subsidiaries, the registered owner(s) thereof. All of such
issued stock has been duly and validly issued and is fully paid
and non-assessable. Except as set forth in such Schedule, as of
the Closing Date neither the Parent, the Borrower nor any such
Subsidiary has outstanding any securities convertible into or
exchangeable for its capital stock nor does the Parent, the
Borrower or any such Subsidiary have outstanding any rights to
subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or other
wise) of, or any calls, commitments or claims of any character
relating to, its capital stock.
Section 4.18 Environmental Matters. (a) Except as
set forth in Schedule 4.18, (i) each Loan Party and its
Subsidiaries are in compliance with all applicable Environmental
Laws, (ii) each Loan Party and its Subsidiaries have all Environ
mental Approvals required to operate their businesses as pres
ently conducted or as reasonably anticipated to be conducted, all
such Environmental Approvals are in effect, no appeal or other
action is pending to revoke any such Environmental Approval, and
each Loan Party and each of its Subsidiaries are in full compli
ance with all terms and conditions of such Environmental Approv
als, (iii) no Loan Party, its Subsidiaries nor any of their Envi
ronmental Affiliates has received any communication (written or
oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that a Loan Party or such
Subsidiary or Environmental Affiliate is not in full compliance
with all Environmental Laws, and (iv) to the Parent's and the
Borrower's best knowledge after due inquiry, there are no circum
stances that may prevent or interfere with such full compliance
in the future.
(b) Except as set forth in Schedule 4.18, there
is no Environmental Claim pending or threatened against any Loan
Party, any of its Subsidiaries or any Environmental Affiliate.
(c) Except as set forth in Schedule 4.18, there
are no past or present actions, activities, circumstances, condi
tions, events or incidents, including, without limitation, the
release, emission, discharge or disposal of any Material of
Environmental Concern, that could form the basis of any Envi
ronmental Claims against any Loan Party, any of its Subsidiaries
or any of their Environmental Affiliates, which Environmental
Claims, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(d) No Release or Cleanup has occurred at any
property currently or formerly owned or leased by any Loan Party
or its Subsidiaries that could reasonably be expected to result
in the assertion or creation of a Lien on said property by any
governmental body or agency with respect thereto, nor has any
such assertion of a Lien been made by any governmental body or
agency with respect thereto.
(e) The Borrower has heretofore delivered true
and correct copies of all environmental studies, assessments or
reports conducted of the Parent or any of its Subsidiaries and of
each property currently or formerly owned or operated by the
Parent or any of its Subsidiaries, including but not necessarily
limited to Phase I or Phase II environmental assessments, under
ground storage tank investigation reports, or asbestos surveys,
that were prepared within the last five years, except that such
time limitation shall not apply to asbestos surveys.
(f) Without in any way limiting the generality of
the foregoing, except as disclosed in Schedule 4.18, (i) there
are no underground storage tanks located on property owned or
leased by any Loan Party or any of its Subsidiaries and (ii) no
polychlorinated biphenyls (PCB's) are used or stored at any
property owned or leased by the Borrower or any of its Subsidiar
ies.
Section 4.19 Insurance. Schedule 4.19 sets forth a
complete and accurate description of all policies of insurance
maintained by the Parent and its Subsidiaries as of the Closing
Date. The Borrower has paid all premiums due on or prior to the
Closing Date in respect of such policies and all such policies
are in full force and effect.
Section 4.20 Patents, Trademarks, etc. Each Loan
Party and its Subsidiaries has obtained and holds in full force
and effect all patents, trademarks, servicemarks, trade names,
copyrights and other such rights, free from burdensome
restrictions, which are reasonably necessary for the operation of
its business as presently conducted. No material product,
process, method, substance, part or other material presently sold
by or employed by any Loan Party or any of its Subsidiaries in
connection with such business infringes any patent, trademark,
service mark, trade name, copyright, license or other right owned
by any other Person. There is not pending or overtly threatened
any claim or litigation against or affecting any Loan Party or
any of its Subsidiaries contesting its right to sell or use any
such product, process, method, substance, part or other material
which would be reasonably likely to have a Material Adverse
Effect.
Section 4.21 Ownership of Property. Schedule 4.21
sets forth all the real property owned or leased by the Parent or
any of its Subsidiaries as of the Closing Date and identifies the
street address, whether such property is leased or owned and, if
owned, the current owner thereof. The Parent and its
Subsidiaries have good and marketable fee simple title to or
valid leasehold interests in all of such real property and good
title or valid leasehold interests to all of their personal
property subject to no Lien of any kind except Liens permitted
hereby. The Parent and its Subsidiaries enjoy peaceful and undis
turbed possession under all of their respective leases, except
where the failure would not reasonably be expected to have a
Material Adverse Effect.
Section 4.22 No Default. No Loan Party nor any of its
Subsidiaries is in default under or with respect to Loan Document
or any other agreement, instrument or undertaking to which it is
a party or by which it or any of its property is bound in any re
spect which could reasonably be expected to result in a Material
Adverse Effect. No Default or Event of Default exists.
Section 4.23 Licenses, etc. Each Loan Party and its
Subsidiaries have obtained and hold in full force and effect, all
material franchises, licenses, permits, certificates, authoriza
tions, qualifications, easements, rights of way and other rights,
consents and approvals which are reasonably necessary for the
operation of their respective businesses as presently conducted.
Section 4.24 Compliance With Law. Each Loan Party and
each of its Subsidiaries is in compliance with all laws, rules,
regulations, orders, judgments, writs and decrees except where
such non-compliance, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
Section 4.25 No Burdensome Restrictions. No Loan
Party nor any of its Subsidiaries is a party to any agreement or
instrument or subject to any other obligation or any charter or
corporate restriction or any provision of any applicable law,
rule or regulation which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
Section 4.26 Labor Matters. Except as set forth on
Schedule 4.26, as of the Closing Date there are no collective
bargaining agreements or Multiemployer Plans covering the em
ployees of any Loan Party or any of its Subsidiaries. None of
the Loan Parties has suffered any strikes, walkouts, work
stoppages or other material labor difficulty within the last five
years and to the best knowledge of such Persons, there are none
now threatened.
Section 4.27 Parent Business. As of the Closing Date,
the Parent conducts no business other than the ownership of 100%
of the capital stock of the Borrower and has no assets or
liabilities other than those reflected in the financial
statements previously delivered to the Banks. At any time after
the Closing Date, the Parent conducts no business other than that
expressly permitted by the terms of this Agreement, including,
without limitation, the consummation of, and ownership of
Subsidiaries purchased or created pursuant to, Permitted
Acquisitions.
Section 4.28 Cash Balances. The aggregate amount of
readily available cash or Cash Equivalent in the Corporate
Concentration Account of the Borrower and its Subsidiaries shall
not at any time in the aggregate exceed $20 million, including at
all such times, after giving effect to any proposed Borrowing.
SECTION 5. AFFIRMATIVE COVENANTS.
The Parent and the Borrower covenant and agree that on
and after the Closing Date and until the Total Revolving Loan
Commitment has terminated, and the Obligations are paid in full:
Section 5.1 Information Covenants. With respect to
the information required to be delivered pursuant to clauses (a)
through (d) below, the Borrower shall furnish to the
Administrative Agent sufficient copies of such information for
the Administrative Agent to promptly furnish such information to
the Banks and with respect to the information required to be
delivered in clauses (e) through (k), the Borrower shall furnish
to each Bank and to the Administrative Agent:
(a) Quarterly Financial Statements. Within 45
days after the close of each quarterly accounting period in each
fiscal year of the Parent (other than the fourth quarterly
accounting period), the consolidated and consolidating balance
sheet of the Parent and its Subsidiaries as at the end of such
quarterly period and the related consolidated statements of
income, cash flow and shareholders' equity and consolidating
statements of income, for such quarterly period and for the
elapsed portion of the fiscal year ended with the last day of
such quarterly period, and in the case of such consolidated
statements of income setting forth comparative figures for the
related periods in the prior fiscal year.
(b) Annual Financial Statements. Within 90 days
after the close of each fiscal year of the Parent, the consoli
dated and consolidating balance sheet of the Parent and its
Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income, cash flow and shareholders'
equity and consolidating statements of income for such fiscal
year, setting forth, in the case of such consolidated financial
statements, comparative figures for the preceding fiscal year
and, with respect to such consolidated financial statements,
certified without qualification by Price Waterhouse or any other
independent certified public accountants of recognized national
standing reasonably acceptable to the Required Banks, in each
case together with a report of such accounting firm stating that
in the course of its regular audit of the consolidated financial
statements of the Borrower, which audit was conducted in
accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any Default or Event
of Default under Section 6.1, or if in the opinion of such
accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof.
(c) Monthly Financial Statements. Within 30 days
after the end of each monthly reporting period following the
Closing Date, the consolidated and consolidating balance sheet of
the Parent and its Subsidiaries as at the end of such monthly
reporting period and the related consolidated and consolidating
statements of income for such monthly reporting period and for
the elapsed portion of current fiscal year ended on the last day
of such monthly reporting period, and in each case setting forth,
in the case of such consolidated financial statements, compara
tive figures for the related periods in the prior fiscal year,
including, without limitation, a division sales analysis in the
form of Exhibit H attached hereto.
(d) Monthly Reporting. Within 30 days after the
end of each month a monthly report and officer's certificate in
the form of Exhibit I attached hereto.
(e) Weekly Cash Flow Reports. Within 3 business
days after the close of each calendar week, a cash flow report
for the preceding week and a cash flow projection for not less
than the next five weeks thereafter, in each case in form,
substance and detail reasonably satisfactory to the Required
Banks.
(f) Management Letters. Promptly after the
Borrower's or the Parent's receipt thereof, a copy of any
"management letter" or other material report received by the
Borrower or the Parent from its certified public accountants.
(g) Budgets. Within 45 days after the first day
of each fiscal year of the Parent, a quarterly budget and
quarterly financial forecast of results of operations and sources
and uses of cash (in form satisfactory to the Required Banks) for
the Parent and its Subsidiaries and for the Borrower and its
Subsidiaries prepared by the Parent for such fiscal year, accompa
nied by a written statement of the assumptions used in connection
therewith, together with a certificate of the Principal Financial
Officer of the Parent to the effect that such budget and finan
cial forecast and assumptions are reasonable and represent the
Borrower's good faith estimate of its future financial
requirements and performance. The financial statements required
to be delivered pursuant to clauses (a), (b) and (c) above shall
be accompanied by a comparison of the actual financial results
set forth in such financial statements to those contained in the
forecasts delivered pursuant to this clause (e) together with an
explanation of any material variations from the results
anticipated in such forecasts.
(h) Officer's Certificates. At the time of the
delivery of the financial statements under clauses (a), (b) and
(c) above, a compliance certificate of the Principal Financial
Officer of the Borrower in the form of Exhibit J (a "Compliance
Certificate") which certifies that such financial statements
fairly present the financial condition and the results of opera
tions of the Parent and the Borrower and their respective Subsid
iaries on the dates and for the periods indicated, subject, in
the case of interim financial statements, to normally recurring
year-end adjustments and at the time of delivery of the financial
statements under clauses (a) and (b) above, such Compliance
Certificate shall certify that such officer has reviewed the
terms of the Loan Documents and has made, or caused to be made
under his or her supervision, a review in reasonable detail of
the business and condition of the Parent and the Borrower and
their respective Subsidiaries during the accounting period
covered by such financial statements, and that as a result of
such review such officer has concluded that no Default or Event
of Default has occurred during the period commencing at the
beginning of the accounting period covered by the financial
statements accompanied by such certificate and ending on the date
of such certificate or, if any Default or Event of Default has
occurred, specifying the nature and extent thereof and, if
continuing, the action the Borrower has taken or proposes to take
in respect thereof. The Compliance Certificate delivered
pursuant to the financial statements delivered under clauses (a)
and (b) above shall also set forth the calculations as required
to establish (i) whether the Parent was in compliance with the
provisions of Section 6.1 during and as at the end of the
accounting period covered by the financial statements accompanied
by such certificate, (ii) the Adjusted Leverage Ratio as in
effect on the date of such statements for purposes of determining
the Margin Percentage, and (iii) the amount of the Borrower's
Share of Excess Cash Flow and Retained Equity Proceeds as of the
date of such statements. At the time of delivery of the finan
cial statements delivered pursuant to clause (b) above, the
Borrower shall furnish a certificate in the form of Exhibit K
hereto (the "Excess Cash Flow Certificate") of the Principal
Financial Officer of the Borrower setting forth the calculation
of the amount of Excess Cash Flow for the relevant fiscal year.
(i) Notice of Default or Litigation. Promptly
and in any event within three Business Days after any Loan Party
obtains knowledge thereof, notice of (i) the occurrence of any
Default or Event of Default, (ii) any litigation or governmental
proceeding pending or threatened against any Loan Party which
could reasonably be expected to result in a Material Adverse
Effect and (iii) any other event, act or condition which could
reasonably be expected to result in a Material Adverse Effect.
(j) ERISA.
(i) As soon as possible and in any event
within 10 days after any Loan Party or any member of its
ERISA Controlled Group knows, that:
(A) any Termination Event has occurred
or will occur, or
(B) any condition exists with respect
to a Plan which, in the case of an ERISA Plan, presents a
material risk of termination of the ERISA Plan and, in the
case of any Plan, presents a material risk of the imposition
of a material excise tax or other liability on any Loan
Party or any member of its ERISA Controlled Group, or
(C) any Loan Party or any member of its
ERISA Controlled Group has applied for a waiver of the mini
mum funding standard under Section 412 of the Code or
Section 302 of ERISA, or
(D) any Loan Party or any member of its
ERISA Controlled Group has engaged in a "prohibited transac
tion," as defined in Section 4975 of the Code or as
described in Section 406 of ERISA, that is not exempt under
Section 4975 of the Code and Section 408 of ERISA where such
transaction could reasonably be expected to have a Material
Adverse Effect, or
(E) the aggregate present value of the
Unfunded Benefit Liabilities under all Plans has in any year
increased to an amount in excess of $10,000,000, or
(F) any condition exists with respect
to a Multiemployer Plan which presents a material risk of a
partial or complete withdrawal (as described in Section 4203
or 4205 of ERISA) by any Loan Party or any member of its
ERISA Controlled Group from a Multiemployer Plan that would
have a Material Adverse Effect, or
(G) any Loan Party or any member of its
ERISA Controlled Group is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan, or
(H) a Multiemployer Plan is in
"reorganization" (as defined in Section 418 of the Code or
Section 4241 of ERISA) or is "insolvent" (as defined in
Section 4245 of ERISA), or
(I) the potential withdrawal liability
(as determined in accordance with Title IV of ERISA) of any
Loan Party and the members of its ERISA Controlled Group
with respect to all Multiemployer Plans has in any year in
creased to an amount in excess of $5,000,000, or
(J) there is an action brought against
any Loan Party or any member of its ERISA Controlled Group
under Section 502 of ERISA with respect to its failure to
comply with Section 515 of ERISA,
a certificate of an Authorized Officer of the
Borrower setting forth the details of each of the
events described in clauses (A) through (F) above
as applicable and the action which the Borrower or
the applicable member of its ERISA Controlled
Group has taken or proposes to take with respect
thereto, together with a copy of any notice or
filing from the PBGC or which may be required by
the PBGC or other agency of the United States
government with respect to each of the events de
scribed in clauses (A) through (J) above, as appli
cable.
(ii) As soon as possible and in any event
(i) within three Business Days after the receipt by any Loan
Party or (ii) within ten Business Days after the receipt by
any member of its ERISA Controlled Group of a demand letter
from the PBGC notifying such Loan Party or such member of
its ERISA Controlled Group of its final decision finding
liability and the date by which such liability must be paid,
a copy of such letter, together with a certificate of the
president or Principal Financial Officer of the Borrower
setting forth the action which such Loan Party or such
member of its ERISA Controlled Group has taken or proposes
to take with respect thereto.
(k) SEC Filings. Promptly upon transmission
thereof, copies of all regular and periodic financial informa
tion, proxy materials and other information and reports, if any,
which any Loan Party shall file with the Securities and Exchange
Commission or any governmental agencies substituted therefore or
which any Loan Party shall send to its stockholders.
(l) Environmental. Promptly and in any event
within two Business Days after the existence of any of the
following conditions, a certificate of an Authorized Officer of
the Borrower specifying in detail the nature of such condition
and the applicable Loan Party's proposed response thereto: (i)
the receipt by any Loan Party of any communication (written or
oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that such Loan Party or an
Environmental Affiliate is not in compliance with applicable
Environmental Laws, or (ii) any Loan Party shall obtain actual
knowledge that there exists any Environmental Claim pending or
threatened against such Loan Party or Environmental Affiliate.
(m) Other Information. From time to time, such
other information or documents (financial or otherwise) as the
Administrative Agent or any Bank may reasonably request.
Section 5.2 Books, Records and Inspections. Each Loan
Party shall, and shall cause each of its Subsidiaries to, keep
proper books of record and account in which full, true and
correct entries in conformity with GAAP and all requirements of
law shall be made of all dealings and transactions in relation to
its business and activities. Each Loan Party shall, and shall
cause each of its Subsidiaries to, permit officers and designated
representatives of any Bank to visit and inspect any of its
properties, and to examine its books of record and account, and
discuss the affairs, finances and accounts of each Loan Party or
any of its Subsidiaries with, and be advised as to the same by,
its and their officers and independent accountants, all upon
reasonable notice and at such reasonable times as such Bank may
desire. Nothing contained in this Section 5.2 shall preclude any
Loan Party from attending any meeting with such Loan Party's
independent accountants.
Section 5.3 Maintenance of Insurance. Each Loan Party
shall, and shall cause each of its Subsidiaries to, maintain with
financially sound and reputable insurance companies insurance on
itself and its properties in at least such amounts and against at
least such risks as are customarily insured against in the same
general area by companies engaged in the same or a similar
business, which insurance shall in any event not provide for
materially less coverage than the insurance in effect on the
Closing Date as set forth on Schedule 4.19.
Section 5.4 Taxes. (a) Each Loan Party shall pay or
cause to be paid, and shall cause each of its Subsidiaries to pay
or cause to be paid, when due, all taxes, charges and assessments
and all other lawful claims required to be paid by such Loan
Party or such Subsidiaries, except as contested in good faith and
by appropriate proceedings diligently conducted, if adequate
reserves have been established with respect thereto in accordance
with GAAP.
(b) No Loan Party shall, and shall not permit any
of its Subsidiaries to, file or consent to the filing of any
consolidated tax return with any Person (other than the Borrower
and its Subsidiaries and the Parent).
Section 5.5 Corporate Franchises. Each Loan Party
shall, and shall cause each of its Subsidiaries to, do or cause
to be done, all things necessary to preserve and keep in full
force and effect its existence and its patents, trademarks,
servicemarks, tradenames, copyrights, franchises, licenses,
permits, certificates, authorizations, qualifications,
accreditation, easements, rights of way and other rights,
consents and approvals except where the failure to so preserve
any of the foregoing (other than existence) could not, individu
ally or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
Section 5.6 Compliance with Law. Each Loan Party
shall, and shall cause each of its Subsidiaries to, comply with
all applicable laws, rules, statutes, regulations, decrees and
orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the
conduct of their business and the ownership of their property,
including, without limitation, all Environmental Laws, except
such non-compliance as could not, individually or in the aggre
gate, reasonably be expected to result in a Material Adverse
Effect.
Section 5.7 Performance of Obligations. Each Loan
Party shall, and shall cause each of its Subsidiaries to, perform
all of its obligations under the terms of each mortgage, inden
ture, security agreement, debt instrument, lease, undertaking and
contract by which it or any of its properties is bound or to
which it is a party if the failure to so perform, individually or
in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.
Section 5.8 Maintenance of Properties. Each Loan
Party shall, and shall cause each of its Subsidiaries to, ensure
that its properties reasonably necessary to its business are kept
in good repair, working order and condition, normal wear and tear
excepted, except to the extent no Material Adverse Effect could
result therefrom.
Section 5.9 Further Assurances. (a) The Parent
shall, and shall cause each Loan Party to, execute any and all
further documents, financing statements, agreements and
instruments, and take all further action (including filing
Uniform Commercial Code and other financing statements, mortgages
and deeds of trust), that may be required under applicable law or
which the Required Banks, the Administrative Agent or the
Collateral Agent may reasonably request, in order to effectuate
the Transactions and in order to grant, preserve, protect and
perfect the validity and first priority of the Liens created or
intended to be created by the Security Documents.
(b) In addition, from time to time, each Loan
Party, at its own cost and expense, will promptly secure the
Secured Obligations by pledging or creating, or causing to be
pledged or created, perfected Liens with respect to its assets
and properties (and the assets and properties of its Subsidiar
ies) of a nature similar to the Collateral as of the Closing Date
as the Administrative Agent or the Required Banks shall
reasonably request (it being understood that it is the intent of
the parties that the Secured Obligations shall be secured by
substantially all such assets of the Loan Parties granted
pursuant to the Security Documents (including those acquired
subsequent to the Closing Date)). Such Liens will be created
under the Security Documents or such other security agreements,
mortgages, deeds of trust and other instruments and documents as
are satisfactory to the Collateral Agent, and each Loan Party
shall deliver or cause to be delivered to the Administrative
Agent all such instruments and documents (including legal
opinions, title insurance policies, surveys and lien searches) as
the Collateral Agent shall reasonably request to evidence
compliance with this Section 5.9. The Borrower agrees to provide
such evidence as the Collateral Agent or the Required Banks shall
reasonably request as to the perfection and priority status of
each such Lien.
(c) The Parent shall cause each Material Subsid
iary incorporated or organized after the Closing Date (other than
a Receivables Subsidiary) to promptly execute and deliver a
counterpart of the Subsidiary Guaranty, the Security Agreement
and any other instruments or documents related thereto as the
Collateral Agent shall reasonably request.
Section 5.10 Receivables Program Refinancings. On or
prior to 45 days before the maturity date of the Receivables
Program, the Borrower shall furnish evidence reasonably
satisfactory to the Required Banks demonstrating either (x) that
the Borrower has refinanced, extended, renewed or replaced the
Receivables Program, or has written binding commitments therefor,
in either case in such amounts and pursuant to such terms and
provisions as are sufficient to provide the Borrower with
sufficient liquidity for the twelve months following such date or
(y) that on a Pro Forma Basis, it shall have sufficient liquidity
for such twelve month period without the renewal, refinancing,
extension or replacement of the Receivables Program.
Section 5.11 Maintenance of Corporate Separateness.
The Parent will, and will cause each of its Subsidiaries to,
satisfy customary corporate formalities, including the holding of
regular board of directors' and shareholders' meetings or action
by directors or shareholders without a meeting and the
maintenance of corporate offices and records. Other than
pursuant to any Parent Guaranty or Subsidiary Guaranty entered
into pursuant to this Agreement, neither the Parent nor any of
its Subsidiaries shall make any payment to a creditor of any
other Subsidiary in respect of any liability of any such Subsid
iary, and no bank account of any Subsidiary shall be commingled
with any bank account of the Parent or any other Subsidiary. Any
financial statements distributed to any creditors of any Subsid
iary shall clearly establish or indicate the corporate
separateness of such Subsidiary from the Parent and its other
Subsidiaries. Finally, neither the Parent nor any of its
Subsidiaries shall take any action, or conduct its affairs in a
manner, which is likely to result in the corporate existence of
the Parent or any of its Subsidiaries being ignored, or in the
assets and liabilities of the Parent or any of its Subsidiaries
being substantively consolidated with those of any other such
Person in a bankruptcy, reorganization or other insolvency
proceeding.
Section 5.12 Post Closing Opinions. On or before 10
Business Days following the Closing Date, the Administrative
Agent shall have received favorable legal opinions from local
counsel satisfactory to the Administrative Agent in Texas,
Oklahoma, Louisiana and Arkansas with respect to the perfection
of security interests in the Collateral.
Section 5.13 Corporate Concentration Account. On or
before 45 days following the Closing Date, the Borrower shall
transfer the cash in the Corporate Concentration Account to a
bank account in either California or Illinois (the "Successor
Corporate Concentration Account") and shall grant the Banks (as
defined in the Existing Credit Agreement) a first priority lien
in the Successor Corporate Concentration Account.
Section 5.14 Cash Sweep. The Borrower hereby
covenants on each Business Day to sweep cash held at stores and
local deposit or concentration accounts to the Corporate
Concentration Account in accordance with customary and typical
past historical practices of the Borrower.
Section 5.15 Cash Equivalents. The Borrower and its
Subsidiaries shall hold, directly or beneficially, Cash
Equivalents only in a custodial account in which the Banks (as
defined in the Existing Credit Agreement) have a perfected
security interest held at the same institution as the Corporate
Concentration Account (the "Custodial Account") and in no other
account.
Section 5.16 Projections. On or before 30 days
following the Closing Date, the Borrower shall deliver to the
Administrative Agent projections for each fiscal quarter for the
fiscal year ending closest to December 31, 2001 in a form
satisfactory to the Administrative Agent.
SECTION 6. NEGATIVE COVENANTS.
Each of the Parent and the Borrower covenants and
agrees that on and after the Closing Date until the Total
Revolving Loan Commitment has terminated, and the Obligations are
paid in full:
Section 6.1 Financial Covenants.
(a) Leverage Ratios. (i) From February 3, 2001
and thereafter, the Parent shall not permit the Adjusted Leverage
Ratio, as of the last day of each four consecutive fiscal quarter
period then ended (taken as one accounting period), to exceed the
ratio of 4.5:1.
(ii) From February 3, 2001 and thereafter,
the Parent shall not permit the ratio of Consolidated Total
Senior Debt to Consolidated Adjusted EBITDA, as of the last day
of each four consecutive fiscal quarter period then ended (taken
as one accounting period) to exceed the ratio of 4.0:1.
(b) Interest Coverage Ratio. The Parent shall
not permit the ratio of Consolidated EBITDA to Consolidated
Interest Expense for each four consecutive fiscal quarter period
ended during the time periods set forth below (taken as one
accounting period), to be less than the ratio set forth below:
Four Fiscal
Quarters Ending on Ratio
February 3, 2001 2.24:1
From May 5, 2001 2.25:1
and thereafter
(c) Fixed Charge Coverage Ratio. From February
3, 2001 and thereafter, the Parent shall not permit the ratio of
(x) the sum of (i) Consolidated EBITDA plus (ii) Consolidated
Rental Expense to (y) Consolidated Fixed Charges for each four
consecutive fiscal quarter period (taken as one accounting
period), ending on or after the Closing Date to be less than the
ratio of 1.25:1.
(d) Capital Expenditures. The Parent and the
Borrower shall not make or incur (or commit to make or incur) and
shall not permit any of its Subsidiaries to make or incur (or
commit to make or incur) any Capital Expenditures, except Capital
Expenditures of the Parent and its Subsidiaries in any fiscal
year of the Borrower set forth below not in excess, in the
aggregate of the amount (the "Maximum Amount") set forth below
opposite such fiscal year:
Fiscal Year Ending
Closest to December 31 Maximum Amount
2000 $15,000,000
2001 $20,000,000 plus 2/3 of the
Retained Equity Proceeds
not to exceed $76,000,000
2002 $20,000,000 plus 2/3 of the
Retained Equity Proceeds
not to exceed $84,000,000
provided that (a) up to $15,000,000 of any Capital Expenditures
permitted to be incurred during any fiscal year and not made in
such fiscal year may be carried over and expended during the next
succeeding fiscal year (it being understood and agreed that any
Capital Expenditures made during such next succeeding fiscal year
shall count, first, against the amount permitted to be carried
over to such next succeeding fiscal year pursuant to this proviso
and, second, against any amounts permitted to be made during such
next succeeding fiscal year as set forth in the table above) and
(b) the amount of Capital Expenditures permitted to be incurred
during any fiscal year may be increased to the extent of the then
available Retained Equity Proceeds and Retained Offering Proceeds
and the Borrower's Share of Excess Cash Flow. Any Permitted
Acquisition that would otherwise constitute a Capital Expenditure
in accordance with GAAP shall not be included in the computation
of the amount of Capital Expenditures permitted under this
Section 6.1(d). Upon the occurrence of a Permitted Acquisition
(the Banks hereby agree that the Maximum Amount for the fiscal
year in which such Permitted Acquisition occurs (the "Subject
Year") and each fiscal year thereafter will increase by $20,000
per store (net of any stores scheduled to be closed as a result
of such Permitted Acquisition) being acquired pursuant to such
Permitted Acquisition, with the amount of such increase for the
Subject Year to be proportionately decreased by multiplying such
amount by a fraction where the numerator equals the remaining
number of full months remaining in the Subject Year and the
denominator is twelve.
(e) Minimum Consolidated EBITDA. The Parent
shall not permit the Consolidated EBITDA as determined on a
cumulative basis for the periods beginning on January 30, 2000,
and ending on the last day of each fiscal quarter ending on a
date set forth below (in each case taken as one accounting
period), to be less than the amount set forth opposite such date:
Minimum Consolidated
Date EBITDA
First Quarter $8,000,000
Second Quarter $20,000,000
Third Quarter $36,000,000
Section 6.2 Indebtedness. The Parent shall not, and
shall not permit any of its Subsidiaries to, create, incur, as
sume, suffer to exist or otherwise become or remain directly or
indirectly liable with respect to, any Indebtedness, other than:
(a) Indebtedness hereunder and under the other
Loan Documents and any Indebtedness, if any, in relation to the
Receivables Program;
(b) Indebtedness outstanding on the Closing Date
and set forth on Schedule 6.2 hereto and (without duplication)
Indebtedness (whether or not outstanding) under the Existing
Credit Agreement (including, without limitation and without
duplication, with respect to the Existing Credit Agreement, the
Senior Notes and the Senior Subordinated Notes, including the
guarantees thereof by the Parent, in the aggregate principal
amount not in excess of $500,000,000);
(c) Indebtedness of the Borrower or any of its
Subsidiaries permitted under Section 6.6;
(d) Indebtedness of the Borrower or any of its
Subsidiaries with respect to Capital Leases and other purchase
money Indebtedness, in each case incurred to finance Capital
Expenditures permitted under Section 6.1(d), not in excess of
$6,000,000 in the aggregate at any one time outstanding; provided
that any such Indebtedness shall not exceed the purchase price or
the fair market value of the asset so financed;
(e) Indebtedness owed by (x) Subsidiaries of the
Borrower to the Borrower or (y) by any Loan Party to any other
Loan Party;
(f) Unsecured letters of credit in an aggregate
stated amount equal to the L/C Sublimit (as defined in the
Existing Credit Agreement) minus the Letters of Credit
Outstanding (as defined in the Existing Credit Agreement);
(g) Permitted Acquired Indebtedness;
(h) Any other unsecured Indebtedness of the
Parent and its Subsidiaries in an aggregate outstanding principal
amount not to exceed at any time $1,000,000;
(i) Indebtedness of the Borrower resulting from
the refinancing of Indebtedness permitted by Sections (b) through
(i) above; provided, however, that (i) the principal amount of
any such refinancing Indebtedness (as determined as of the date
of the incurrence of such refinancing Indebtedness in accordance
with GAAP) does not exceed the principal or face amount of the
Indebtedness refinanced thereby on such date; (ii) the Weighted
Average Life to Maturity of such Indebtedness is not decreased;
(iii) the covenants, defaults and similar provisions applicable
to such refinancing Indebtedness or obligations are no more
restrictive in any material respect than the Indebtedness being
refinanced and do not conflict in any material respect with the
provisions of this Agreement and (iv) such refinancing
Indebtedness is otherwise upon terms and conditions no more
onerous or restrictive in any material respect (as determined by
the Required Banks) on the Borrower than the Indebtedness being
refinanced; and
(j) Indebtedness consisting of trade payables on
terms of more than 90 days incurred in the ordinary course of
business to the extent that such Indebtedness is being contested
in good faith and by proper proceedings and appropriate reserves
are being maintained with respect thereto; provided, however, the
aggregate amount of such Indebtedness outstanding at any one time
shall not exceed $2.5 million.
Section 6.3 Liens. The Parent shall not, and shall
not permit any of its Subsidiaries to, create, incur, assume or
suffer to exist, directly or indirectly, any Lien on any of its
property now owned or hereafter acquired, other than:
(a) Liens existing on the Closing Date and set
forth on Schedule 6.3 hereto;
(b) Liens created or contemplated by the Re
ceivables Program Documents on the Receivables of the Borrower
and its Subsidiaries transferred to the Receivables Subsidiary
pursuant thereto;
(c) inchoate Liens for taxes, assessments or
governmental charges not yet due or which are being contested in
good faith by appropriate proceedings diligently conducted and
with respect to which adequate reserves are being maintained in
accordance with GAAP;
(d) Statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens
imposed by law (other than any Lien imposed by ERISA or pursuant
to any Environmental Law) or created in the ordinary course of
business for amounts not yet due or which are being contested in
good faith by appropriate proceedings diligently conducted and
with respect to which adequate bonds have been posted or which
are solely informational in nature and do not, and do not purport
to, create a security interest;
(e) Liens (other than any Lien imposed by ERISA
or pursuant to any Environmental Law) incurred or deposits made
in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);
(f) Easements (including construction, operating
and reciprocal easement agreements), rights-of-way, zoning and
similar restrictions and other similar charges, covenants or
encumbrances not interfering with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries and which do
not detract materially from the value of the property to which
they attach or impair materially the use thereof by the Borrower
or any of its Subsidiaries or materially adversely affect the
Liens of the Collateral Agent or the Banks therein;
(g) Liens granted to the Collateral Agent for the
benefit of the Secured Creditors pursuant to the Security
Documents securing the Secured Obligations;
(h) Judgment Liens so long as the claims secured
thereby do not exceed $10,000,000 in the aggregate and are being
contested in good faith pursuant to appropriate proceedings;
(i) Liens created pursuant to Capital Leases and
to secure other purchase-money Indebtedness permitted pursuant to
Section 6.2(d), provided that such Liens are only in respect of
the property or assets subject to, and secure only, the
respective Capital Lease or other purchase-money Indebtedness;
(j) Liens in addition to those listed above
provided that the obligations secured thereby shall not exceed
$50,000 for any such Lien or $1,000,000 in the aggregate for all
such Liens; and
(k) Liens under the Existing Credit Agreement.
Section 6.4 Restriction on Fundamental Changes.
(a) The Parent shall not, and shall not permit
any of its Subsidiaries to, enter into any merger or
consolidation, or liquidate, wind-up or dissolve (or suffer any
liquidation or dissolution), discontinue its business or convey,
lease, sell, transfer or otherwise dispose of, in one transaction
or series of transactions, all or any substantial part of its
business or property, whether now or hereafter acquired, except
(i) as otherwise permitted under Section 6.5, and (ii) any
wholly-owned Subsidiary of the Borrower may merge into or convey,
sell, lease or transfer all or substantially all of its assets
to, the Borrower or any other wholly-owned Subsidiary of the
Borrower.
(b) The Parent shall not and shall not permit any
of its Subsidiaries to, amend its certificate of incorporation or
by-laws to the extent such amendment is adverse to the Banks in
any respect.
Section 6.5 Sale of Assets. The Parent shall not, and
shall not permit any of its Subsidiaries to, convey, lease, sell,
transfer or otherwise dispose of (or agree to do so at any future
time) all or any part of its property or assets, except (i) sales
of inventory in the ordinary course of business; (ii) sales in
the ordinary course of business of furniture, fixtures, leasehold
improvements and equipment which, consistent with past practice,
is uneconomic, obsolete or no longer useful in its business;
(iii) sales of Receivables pursuant to and in accordance with the
provisions of the Receivables Program Documents; (iv) sales in
connection with store closings provided that such party complies
with the Existing Credit Agreement and Section 2.11(a)(vi)
hereof; (v) sale of the Hawker 400 corporate aircraft for a fair
value provided the parties comply with the Existing Credit
Agreement and sales permitted under Section 6.13 hereof and (vi)
sales of other assets of the Borrower and its Subsidiaries
provided that (x) at least 80% of the aggregate consideration
therefor shall be in the form of cash or Cash Equivalents, (y)
the aggregate Net Cash Proceeds or net book value, whichever is
greater, of all assets sold or otherwise disposed of pursuant to
this clause (vi) shall not exceed 5% of Consolidated Net Tangible
Assets during any fiscal year of the Borrower and (z) the Net
Cash Proceeds of each such sale are applied in accordance with
the provisions of the Existing Credit Agreement or Section
2.11(a).
Section 6.6 Contingent Obligations. The Parent shall
not, and shall not permit any of its Subsidiaries to, create or
become or be liable with respect to any Contingent Obligation,
except:
(a) pursuant to the Parent Guaranty, Subsidiary
Guaranty, the Security Documents or the Receivables Program
Documents; and
(b) Contingent Obligations which are in existence
on the Closing Date and which are set forth on Schedule 6.6,
including, without limitation, the guarantees, if any, by the
Borrower of the obligations under the Existing Credit Agreement,
of the Senior Notes and of the Senior Subordinated Notes.
Section 6.7 Dividends. The Parent shall not, and
shall not permit any of its Subsidiaries to (x) make any
Restricted Payment or (y) declare or pay any dividends (other
than dividends payable solely in common stock), or return any
capital to, its stockholders or authorize or make any other
distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise ac
quire, directly or indirectly, any shares of any class of its
capital stock now or hereafter outstanding (or any options or
warrants issued with respect to its capital stock), or set aside
any funds for any of the foregoing purposes (all the foregoing
"Dividends"), except that
(a) Dividends may be made to the Borrower or any
of its Subsidiaries by any of its wholly-owned Subsidiaries;
(b) so long as there shall exist no Default or
Event of Default (both before and after giving effect to the
payment thereof) the Borrower may make Restricted Payments to the
Parent, so long as the proceeds thereof are promptly used by the
Parent to pay operating and administrative expenses in the
ordinary course of business and other similar corporate overhead
costs and expenses; provided that the maximum amount of
Restricted Payments made pursuant to this clause (b) in any
fiscal year of the Borrower shall not exceed $500,000 in the
aggregate and shall only be made if there exists no Default or
Event of Default (both before and after giving effect to the
payment thereof);
(c) so long as the Borrower is a member of the
same consolidated group as the Parent for federal income tax
purposes, payments required by such Person pursuant to the Tax
Sharing Agreement as in effect on the Closing Date shall be
permitted; and
(d) the Parent may make, and the Borrower may pay
cash Restricted Payments to the Parent to enable the Parent to
make, payments to repurchase the Parent's common stock and/or
options to purchase the Parent's common stock held by directors,
executive officers, member of management or employees of the
Parent or any of its Affiliates upon the death, disability,
retirement or termination of such director, executive officers,
member of management or employee, so long as (x) no Default or
Event of Default then exists or would exist after giving effect
thereto and (y) the aggregate net amount of cash expended by the
Borrower and the Parent pursuant to this clause (d) in any fiscal
year shall not exceed $2,000,000.
Section 6.8 Advances, Investments and Loans. The
Parent shall not, and shall not permit any of its Subsidiaries
to, lend money or credit or make advances to any Person, or di
rectly or indirectly purchase or acquire any stock, obligations
or securities of, or any other interest in, or purchase all or
substantially all of the assets of, or make any capital contribu
tion to any Person (each an "Investment"), except that the
following shall be permitted:
(a) accounts receivable owned by the Parent and
its Subsidiaries, if created in the ordinary course of the
business of the Parent and its Subsidiaries and payable or
dischargeable in accordance with customary trade terms;
(b) (i) intercompany loans and advances permitted
by Section 6.2(e) and (ii) loans by the Borrower to the Parent
to finance the cash portion of Permitted Acquisitions, the
proceeds of which shall be used within one Business Day directly
or indirectly by the Parent to consummate such Permitted
Acquisition, which loans shall be evidenced by an Intercompany
Note pledged by the Borrower to the Collateral Agent;
(c) loans and advances by the Borrower and its
Subsidiaries to their employees in the ordinary course of its
business not exceeding $5,000,000 in the aggregate at any one
time outstanding;
(d) Investments by the Borrower in the Re
ceivables Subsidiary to the extent contemplated by the
Receivables Program;
(e) evidences of Indebtedness issued by the pur
chaser of assets and received by the Borrower or any of its
Subsidiaries in connection with asset sales to the extent
permitted by Section 6.5(vi);
(f) extensions of credit to the customers of the
Parent or its Subsidiaries in the ordinary course of the business
of the Parent or such Subsidiary pursuant to any credit card
programs to enable such customer to purchase inventory from the
Parent or any of its Subsidiaries;
(g) Investments by the Parent or the Borrower
constituting a Permitted Acquisition and related Investments by
the Parent or the Borrower in one or more of their Subsidiaries
in connection with, and substantially contemporaneously with,
such Permitted Acquisition; provided that the Parent and the
Borrower shall have complied with all of the terms and conditions
set forth in the definition of Permitted Acquisition;
(h) other Investments by the Parent, the Borrower
or any Subsidiary not to exceed $5,000,000 in any fiscal year of
the Borrower;
(i) Investments in customers of the Parent or its
Subsidiaries received in the ordinary course of business in
exchange for receivables owed by such customer to the Parent or
such Subsidiary as a result of the workout of such receivable or
the bankruptcy of such customer; and
(j) the Borrower and its Subsidiaries may acquire
and hold Cash Equivalents held in the Custodial Account.
Section 6.9 Transactions with Affiliates. The Parent
shall not, and shall not permit any of its Subsidiaries to, enter
into any transaction or series of related transactions, whether
or not in the ordinary course of business, with any Affiliate
(other than a Loan Party), other than (i) on terms and conditions
substantially as favorable to the Parent or such Subsidiary as
would be obtainable at the time in a comparable arm's-length
transaction with a Person other than an Affiliate, (ii) pursuant
to the Receivables Program, (iii) Restricted Payments permitted
to be paid to the extent provided in Section 6.7, (iv) leases in
existence on the date hereof entered into with PR Investments and
described on Schedule 6.9 hereto, (v) the consulting agreement
dated as of February 1, 1997, by and among the Parent and Bernie
Fuchs and described on Schedule 6.9 hereto and (vi) those
Investments permitted pursuant to Section 6.8.
Section 6.10 Limitation on Voluntary Payments and
Modifications of Certain Documents. The Parent shall not, and
shall not permit any of its Subsidiaries to, (a) make any vol
untary or optional payment or prepayment on or redemption or
acquisition for value of (including, without limitation, by way
of depositing with the trustee with respect thereto money or
securities before due for the purpose of paying when due) or ex
change of any Indebtedness other than (i) the Indebtedness
hereunder and under the other Loan Documents, (ii) so long as no
Default or Event of Default has occurred and is continuing, any
Indebtedness outstanding under the Existing Credit Agreement and
the Loan Documents (as defined in the Existing Credit Agreement),
(b) amend, modify, supplement, or waive, or permit the amendment,
modification, supplementation, or waiver of, any provision of any
Transaction Document (as defined in the Existing Credit
Agreement) provided, however, that any such Transaction Document
may be amended, modified, supplemented or waived in a manner not
materially adverse to the Administrative Agent or the Banks or
(c) resign as Servicer under the Receivables Program.
Section 6.11 Changes in Business. The Parent shall
not, and shall not permit any of its Subsidiaries to, enter into
any business which is substantially different from, or not
reasonably incidental to, that conducted by the Parent or such
Subsidiary, as the case may be, on the Closing Date after giving
effect to the Transactions; provided that the Parent shall not
incur, and shall not become liable with respect to, any
Indebtedness other than as expressly permitted pursuant to
Section 6.2.
Section 6.12 Certain Restrictions. The Parent shall
not, and shall not permit any of its Subsidiaries or any Person
controlling the Borrower to, enter into any agreement (other than
the Loan Documents and agreements evidencing Indebtedness
outstanding on the Closing Date, in each case as in effect on the
Closing Date) which restricts the ability of the Parent or any of
its Subsidiaries (other than the Receivables Subsidiary) to (a)
enter into amendments, modifications or waivers of the Loan Docu
ments, (b) sell, transfer or otherwise dispose of its assets
(other than the Receivables), (c) create, incur, assume or suffer
to exist any Lien upon any of its property (other than the
Receivables), (d) create, incur, assume, suffer to exist or
otherwise become liable with respect to any Indebtedness, or (e)
pay any Dividend, provided that Capital Leases or agreements
governing purchase money Indebtedness which contain restrictions
of the types referred to in clauses (b) or (c) with respect to
the property covered thereby shall be permitted. The Parent
shall not, and shall not permit any of its Subsidiaries or any
Person controlling the Borrower to, enter into any amendment of
the Receivables Program Documents as in effect on the Closing
Date or any refinancing of the Receivables Program that would
materially and adversely affect any Loan Party's ability to
perform its Obligations under this Agreement or any other Loan
Document.
Section 6.13 Sales and Leasebacks. The Parent shall
not, and shall not permit any of its Subsidiaries to, become lia
ble, directly or indirectly, with respect to any lease, whether
an operating lease or a Capital Lease, of any property (whether
real or personal or mixed) whether now owned or hereafter
acquired, (i) which the Parent or such Subsidiary has sold or
transferred or is to sell or transfer to any other Person, or
(ii) which the Parent or such Subsidiary intends to use for sub
stantially the same purposes as any other property which has been
or is to be sold or transferred by the Borrower or such
Subsidiary to any other Person in connection with such Lease,
other than such transactions the Net Cash Proceeds of which in
the aggregate do not exceed $10,000,000 plus the Net Cash
Proceeds from any sale, transfer or assignment of the
Jacksonville Distribution Center; provided, however,
notwithstanding anything contained in this Agreement, the Parent
and any of its Subsidiaries may sell, transfer or assign the
Jacksonville Distribution Center provided that the Net Cash
Proceeds resulting therefrom are used to prepay the loans under
the Existing Credit Agreement in accordance with that certain
letter dated February 3, 2000.
Section 6.14 Plans. The Parent shall not, nor shall
it permit any member of its ERISA Controlled Group to, take any
action which would increase the aggregate present value of the
Unfunded Benefit Liabilities under all Plans to an amount in
excess of $15,000,000.
Section 6.15 Limitation on Dispositions of Subsidiary
Stock. The Parent shall not, nor shall it permit any of its
Subsidiaries to, directly or indirectly sell, assign, pledge or
otherwise encumber or dispose of, or issue or permit any of its
Subsidiaries to issue to any other Person, any shares of capital
stock or other equity securities of (or warrants,