As filed with the Securities and Exchange Commission on August 29, 1996
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
SAKS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5311 52-1685667
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
</TABLE>
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12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 940-4048
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------
JOAN F. KREY
GENERAL COUNSEL
SAKS HOLDINGS, INC.
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 940-4048
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies to:
<TABLE>
<S> <C>
CHARLES K. MARQUIS PATRICIA A. CERUZZI
STEVEN R. FINLEY SULLIVAN & CROMWELL
GIBSON, DUNN & CRUTCHER LLP 125 BROAD STREET
200 PARK AVENUE NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10166 (212) 558-4000
(212) 351-4000
</TABLE>
------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
- -------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO PROPOSED MAXIMUM PROPOSED MAXIMUM
BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
REGISTERED REGISTERED UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
% Convertible Subordinated Notes due
2006................................. $230,000,000 100% $230,000,000 $79,320
Common Stock, $.01 par value........ (2) (3) (3) (3)
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933. Exclusive of
accrued interest, if any.
(2) Such indeterminate number of shares of Common Stock as shall be issuable
upon conversion of the Convertible Subordinated Notes being registered
hereunder.
(3) No additional consideration will be received for the Common Stock and,
therefore, no registration fee is required pursuant to Rule 457(i).
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996.
$200,000,000
SAKS HOLDINGS, INC.
% CONVERTIBLE SUBORDINATED NOTES
DUE , 2006
The Notes are convertible at any time prior to maturity, unless previously
redeemed or repurchased, into shares of Common Stock, par value $.01 per share
("Common Stock"), of Saks Holdings, Inc. at a conversion rate of shares
per each $1,000 principal amount of Notes (equivalent to a conversion price of
approximately $
per share), subject to adjustment in certain circumstances. On August 28, 1996,
the last reported sale price of the Common Stock, which is listed under the
symbol "SKS" on the New York Stock Exchange, was $34 3/4 per share.
Interest on the Notes is payable on and of each year,
commencing on , 1997. The Notes are redeemable in whole or in part at
Saks Holdings' option at any time on or after , 1999 at the redemption
prices set forth herein, plus accrued interest to the date of redemption. See
"Description of Notes--Optional Redemption". The Notes are not entitled to any
sinking fund. The Notes will mature on , 2006.
In the event of a Change of Control (as defined herein), each holder of the
Notes may require Saks Holdings to repurchase its Notes, in whole or in part,
for cash or, at Saks Holdings' option, Common Stock (valued at 95% of the
average closing prices for the five trading days immediately preceding and
including the third trading day prior to the repurchase date) at a repurchase
price of 100% of the principal amount of Notes to be repurchased, plus accrued
interest to the repurchase date. See "Description of Notes--Repurchase at Option
of Holders Upon a Change of Control".
The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of Saks Holdings and
are effectively subordinated in right of payment to all indebtedness and other
liabilities of its subsidiaries, including its wholly-owned subsidiary Saks &
Company. As of August 3, 1996, Saks Holdings had no outstanding Senior
Indebtedness (other than guarantees of subsidiary indebtedness). As of the same
date, on a pro forma basis after giving effect to the offering and the
application of the net proceeds therefrom, Saks Holdings' subsidiaries had
outstanding indebtedness and other liabilities of $755.3 million (excluding
intercompany obligations). See "Description of Notes--Subordination".
Saks Holdings is a holding company with no business operations of its own.
Saks Holdings' only material asset is the outstanding capital stock of Saks &
Company and Saks Holdings is therefore dependent upon payments, dividends and
distributions from Saks & Company in order to make payments of principal of and
interest on the Notes. The Notes are not guaranteed by Saks & Company. See
"Description of Notes--Subordination"
The Notes will be represented by a global note registered in the name of the
nominee of The Depositary Trust Company ("DTC"), which will act as depositary.
Beneficial interests in the global note will be shown on, and transfers thereof
will be effected only through, records maintained by DTC and its direct and
indirect participants. Except as described herein, Notes in definitive form will
not be issued. The Notes will be issued in registered form in denominations of
$1,000 and integral multiples thereof. See "Description of Notes--Book-Entry".
Concurrently with the offering of the Notes hereby, certain selling
stockholders are offering 8,000,000 shares of Common Stock by a separate
prospectus. The consummation of the Notes offering and the Common Stock offering
are not conditioned upon each other.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS
RELEVANT TO AN INVESTMENT IN THE NOTES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) SAKS HOLDINGS(1)(3)
------------------ ------------ --------------------
<S> <C> <C> <C>
Per Note.......................... % % %
Total(4).......................... $ $ $
</TABLE>
- ------------
(1) Plus accrued interest, if any, from , 1996.
(2) Saks Holdings has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $1,000,000 payable by Saks Holdings.
(4) Saks Holdings has granted the Underwriters an option for 30 days to purchase
up to an additional $30 million principal amount of Notes at the initial
public offering price per Note, less the underwriting discount, solely to
cover over-allotments. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to Saks
Holdings will be $ , $ and $ respectively. See
"Underwriting".
-------------------
Goldman, Sachs & Co. is acting as book running lead manager for the
offerings. Goldman, Sachs & Co., CS First Boston Corporation, Morgan Stanley &
Co. Incorporated and Salomon Brothers Inc are acting as co-lead managers. The
Notes offered hereby are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the Notes will be
ready for delivery in book-entry form only through the facilities of DTC in New
York, New York on or about September , 1996 against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
-------------------
The date of this Prospectus is September , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[PHOTO OF SAK'S FIFTH AVENUE STORE]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AND THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE NOTES AND THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM
RULE 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
"More than a store Saks Fifth Avenue is a brand marked by..."
"A Landmark Foundation"
[Photo of Saks' Fifth Avenue Store]
"A Nation Wide Presence"
[United States Map Showing Sak's Store Locations]
"Worldwide Recognition"
<PAGE>
"Signature Style" "Legendary Service"
"A Well-Defined Image" "A Reputation for Quality"
"An Upscale Profile"
[Assorted Photos from Marketing
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. As used in this Prospectus, "Saks
Holdings" refers to Saks Holdings, Inc. and "Saks" refers to Saks & Company, a
wholly-owned subsidiary of Saks Holdings, which does business as Saks Fifth
Avenue. The terms "fiscal year" and "fiscal" refer to Saks Holdings' 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 "fiscal 1995" is
a reference to the fiscal year ended February 3, 1996). Unless the context
otherwise requires, the information contained herein gives effect to a five-for-
one split of the Common Stock effected on April 26, 1996 in the form of a stock
dividend to all stockholders of record on April 26, 1996. In addition, unless
the context otherwise requires, the information contained in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting". In addition to the historical information contained herein,
certain statements in this Prospectus constitute "forward-looking statements"
under the Private Securities Litigation Reform Act (the "Reform Act") which
involve risks and uncertainties. Saks Holdings' actual results may differ
significantly from those discussed herein. Factors that might cause such a
difference include, but are not limited to, those discussed under the captions
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as those discussed elsewhere in this
Prospectus. See "Risk Factors-- Forward-Looking Statements".
THE COMPANY
GENERAL
Saks Fifth Avenue is recognized worldwide as a premier fashion retailer,
offering the finest quality and latest style in women's and men's apparel.
Supported by a strong commitment to personalized customer service, Saks
primarily sells better, bridge and designer apparel, shoes, accessories,
jewelry, cosmetics and fragrances for women and men, as well as gift merchandise
and children's apparel. Capitalizing on its 70-year history as a fashion
authenticator and the prominence of its landmark Fifth Avenue store in New York
City, Saks Fifth Avenue has developed one of the most recognized retailing
franchises in the world.
Saks is experiencing significant momentum in its financial performance,
reflecting the success of new business strategies developed and initially
implemented in 1994 and the significant investments in stores, inventories,
staff and systems made since 1990. Saks recorded net sales of $1.69 billion and
$868.2 million in fiscal 1995 and the six months ended August 3, 1996,
respectively, increases of 18.9% and 17.7% over fiscal 1994 and the six months
ended July 29, 1995, respectively. Comparable sales increased 10.6% and 12.4% in
fiscal 1995 and the six months ended August 3, 1996, respectively. Primarily due
to certain impairment and special charges and increased interest costs, Saks
Holdings' net loss in fiscal 1995 increased to $64.1 million from $10.6 million
in fiscal 1994. Saks Holdings' net loss decreased to $28.9 million for the six
months ended August 3, 1996 from $56.4 million for the six months ended July 29,
1995. The results for the six months ended July 29, 1995 include a special
charge of $8.9 million for the costs of integrating four former I. Magnin store
locations.
Saks' net sales are generated through three retail formats: 46 full-line and
resort stores; 23 Off 5th outlet stores; and Folio catalogs. The full-line and
resort store operations are conducted from an exceptional portfolio of mostly
owned stores in premier retail locations, including Fifth Avenue in New York
City, Wilshire Boulevard in Beverly Hills, Michigan Avenue in Chicago and Union
Square in San Francisco. Saks' rapidly growing Off 5th outlet store division
sells high quality, upscale
3
<PAGE>
branded fashion apparel at exceptional prices. Saks' Folio catalogs offer
fashionable women's apparel, accessories and home furnishings and gifts.
HISTORY
Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the landmark Fifth Avenue store offered exclusive
merchandise from around the world. In 1973, Saks & Company was acquired by a
subsidiary of B.A.T. Industries PLC ("B.A.T.") through its acquisition of Gimbel
Bros., Inc. In July 1990, affiliates of Investcorp S.A. ("Investcorp") and a
group of international investors acquired Saks from B.A.T. (the "1990
Acquisition").
BUSINESS STRATEGY
After the 1990 Acquisition, Investcorp recruited a new executive management
team to correct recognized weaknesses and develop a new business strategy
designed to capitalize on the strength of the Saks franchise. By early 1994,
management had implemented several key initiatives and developed and began
implementing comprehensive, integrated merchandising, service and marketing
strategies to position its core retail business for future growth and to extend
the Saks franchise.
These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales grew from $1.27
billion to $1.69 billion, a 32.9% increase. During this period gross margin as a
percentage of net sales increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to $64.1 million. Operating income increased by $78.9
million from a loss of $42.8 million in fiscal 1991 to income of $36.1 million
in fiscal 1995. Operating income is net of management fees paid to Investcorp
International Inc. ("III") in both fiscal 1991 and fiscal 1995 and in fiscal
1995 is net of special charges of $36.4 million. Operating income excluding
these fees and the special charges increased by $120.3 million to $79.5 million
during this period. Management fees to III were discontinued in July 1996.
Management believes that Saks' current momentum, as reflected by its recent
results of operations and comparable sales performance relative to the industry,
is directly attributable to implementation of its strategies during fiscal 1994,
fiscal 1995 and fiscal 1996. Saks' comparable sales performance* is set forth
below:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
First quarter..................................... 4.1% 10.2% 13.3%
Second quarter.................................... 5.3 11.3 11.3
Third quarter..................................... 5.9 9.9 --
Fourth quarter.................................... 6.6 11.0 --
</TABLE>
- ------------
* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open and (ii) Folio net sales. In fiscal 1995 and fiscal 1996,
comparable sales excludes the impact of the 53rd week in fiscal 1995.
Management believes that the ongoing execution and implementation of these
strategies will continue to drive performance. A summary of these strategies is
set forth below.
4
<PAGE>
TOP CUSTOMER FOCUS
Based on extensive market research, Saks has identified certain top
customers who generate a significant share of Saks' sales. The large number of
customers who comprise this group change over time and are geographically
dispersed. Management believes that Saks can capture a substantially greater
share of apparel and related expenditures by these customers and has developed
and implemented customer affinity programs designed to capitalize on the
purchasing habits of top customers by increasing the frequency and productivity
of customer contact, increasing cross-selling activities and enhancing customer
loyalty. These programs include proactive customer clienteling programs, the
Saks First Program and the Fifth Avenue Club.
DIFFERENTIATED MERCHANDISE ASSORTMENTS
In 1994, Saks began to specifically target the merchandise categories that,
based on extensive research, were determined to be most important to its top
customers. Saks is developing dominant assortments in these key merchandise
categories by increasing inventory investments, upgrading the quality and
congruency of merchandise assortments and by adding important vendors and
brands. Saks' overall merchandising strategy is to offer congruent and balanced
assortments of differentiated, upscale limited-distribution merchandise.
STORE INTENSIFICATION
Management is improving the productivity of its store portfolio through a
comprehensive and integrated store intensification program. Saks initially
concentrated its efforts and resources on those stores that represented the
highest potential for increased sales and profit margins. Pursuant to this
strategy, from the beginning of fiscal 1993 to the end of fiscal 1995 Saks made
significant investments in 14 high potential stores, including $109 million in
gross capital expenditures, $43 million in increased inventory levels, $21
million in additional annual store payroll costs and $4 million in increased
annual localized marketing spending. As a result, net sales in these stores
increased 29.5% from $698 million in fiscal 1992 to $904 million in fiscal 1995.
Saks is expanding its store intensification program to additional stores in 1996
and 1997.
STORE EXPANSION
Saks continuously evaluates opportunities for profitable expansion of its
store base. Management believes that the current retail environment,
characterized by an accelerated pace of store rationalizations, downsizings and
bankruptcies, as well as the re-tenanting of major malls, offers many attractive
opportunities for Saks to continue to expand its store portfolio.
FULL-LINE STORES. Saks currently operates 40 full-line stores. Excluding
acquisitions, Saks plans to open three new full-line stores (including a store
in Orlando, Florida in 1996) and two replacement stores and to complete nine
remodels through fiscal 1998.
RESORT STORES. Saks broadens its reach to the affluent tourist and permanent
and seasonal residents of resort markets through its resort stores. Saks
currently operates six resort stores, including a store in Charleston, South
Carolina that was opened in August 1996. Saks plans to open four new 30,000 to
50,000 gross square foot resort stores through fiscal 1998.
MAIN STREET STORES. Saks is testing a 35,000 square foot main street store
format designed for the local shopping areas of affluent suburban markets. The
first main street store is scheduled to open in Greenwich, Connecticut in
September 1996.
ACQUISITIONS. Management believes that the current retail environment will
continue to offer selected opportunities to increase Saks' presence in important
markets. For example, Saks intensified its presence on the west coast and in the
southwest by acquiring four former I. Magnin stores in February 1995.
5
<PAGE>
Similarly, Saks intends to expand its presence in the demographically
attractive Texas market. In July 1996, Saks entered into an agreement with
Dayton Hudson Corporation and certain of its affiliates to acquire three
Marshall Field store locations in Texas which would add 250,000 square feet of
store space to Saks' presence in this market, subject to certain conditions. Two
of these stores are intended to replace two smaller stores that Saks currently
operates in Houston and Dallas. Saks intends to spend approximately $100 million
in connection with the acquisition and renovation of these stores. There can be
no assurance that Saks will satisfy the conditions under the agreement and
acquire these store locations.
In addition, Saks has agreed with Japanese department store operator Isetan
Company Limited and its affiliate, Isetan of America, Inc. (collectively,
"Isetan"), which are creditors of Barneys Inc. and its affiliates (collectively,
"Barneys"), to begin exploring on a preliminary basis the financial feasibility
of co-sponsoring a plan of reorganization for Barneys, which filed for Chapter
11 bankruptcy protection in January 1996. Saks would only proceed with such a
plan if management concludes that Barneys represents an attractive investment
opportunity. There can be no assurance that Saks and Isetan will reach agreement
on the terms of a proposed plan of reorganization or that Saks and Isetan will
be successful in introducing any such plan in Barneys' bankruptcy case.
See "Business--Business Strategy--Store Expansion--Acquisitions".
FRANCHISE EXTENSION STRATEGIES
Management believes that the Saks Fifth Avenue franchise is extendable over
multiple formats and has developed the following specific growth strategies:
OFF 5TH. Through its Off 5th division, Saks extends its customer reach by
offering high quality, upscale branded fashion apparel in an outlet store
setting at 40% to 70% off original and comparable retail prices. Off 5th
provides attractive financial returns and an economically superior form of
inventory liquidation for Saks' retail stores. Saks currently operates 23 Off
5th stores and expects to open approximately 12 additional stores in the
remainder of fiscal 1996.
FOLIO. Saks extends its reach to direct response customers through its Folio
catalogs which offer fashionable women's apparel, accessories, home furnishings
and gifts and unique selections of Saks' private label merchandise. Folio mailed
29 million catalogs in fiscal 1995, an increase of 26% over fiscal 1994.
Management plans to increase Folio's sales through further development of its
customer list, increased circulation and the development of new catalogs,
including home and gift and outlet catalogs, both domestically and in
international markets.
CAPITAL EXPENDITURES
Saks is committed to expanding and improving its store portfolio. From the
beginning of fiscal 1993 to the end of fiscal 1995, Saks made capital
expenditures of approximately $148 million on new stores, remodels, replacements
and expansions and, excluding acquisitions, plans to make additional such
capital expenditures of approximately $270 million through fiscal 1998.
Management believes that cash generated from Saks' operations, funds available
under Saks' credit facility and funds available from lease financing and
developer contributions will be sufficient to satisfy Saks' cash requirements
over this period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Capital
Expenditures".
Saks Holdings is headquartered at 12 East 49th Street, New York, New York
10017, next to the flagship Saks Fifth Avenue store which occupies the entire
block on Fifth Avenue between 49th and 50th Streets in New York City, directly
across from Rockefeller Center. Its telephone number is (212) 940-4048. Saks is
a wholly-owned subsidiary of Saks Holdings.
6
<PAGE>
THE OFFERING
The following summary of certain terms of the Notes is not complete and is
qualified by all of the terms contained in the Notes and in the Indenture (as
defined). For a more detailed description of the terms of the Notes, see
"Description of Notes".
<TABLE>
<CAPTION>
<S> <C>
Securities Offered........................... $200 million aggregate principal amount of
% Convertible Subordinated Notes due 2006
(the "Notes"). Saks Holdings has granted
the Underwriters an option for 30 days to
purchase up to an additional $30 million
principal amount of Notes at the initial
public offering price per Note, less the
underwriting discount, solely to cover
over-allotments, if any.
Maturity Date................................ , 2006 unless earlier redeemed or converted.
Interest Payment Dates....................... Interest on the Notes is payable at the rate
set forth on the cover page hereof,
semi-annually on each and ,
commencing on , 1997.
Conversion................................... The Notes are convertible at any time prior
to maturity, unless previously redeemed or
repurchased, into shares of Common Stock at
a conversion rate of shares per $1,000
principal amount of Notes (equivalent to a
conversion price of approximately $ per
share), subject to adjustment in certain
circumstances as described herein. See
"Description of Notes--Conversion Rights".
Optional Redemption.......................... The Notes will be redeemable at Saks
Holdings' option, in whole or in part, at any
time on or after , 1999 at the
redemption prices set forth herein, plus
accrued interest to the date of redemption.
See "Description of Notes--Optional
Redemption".
Repurchase at Option of Holders Upon a Change
of Control................................... In the event of a Change of Control (as
defined herein), each holder of Notes may
require Saks Holdings to repurchase its
Notes, in whole or in part, for cash or, at
Saks Holdings' option, Common Stock (valued
at 95% of the average of the closing prices
for the five trading days immediately
preceding and including the third trading
day prior to the repurchase date) at a
repurchase price of 100% of the principal
amount of the Notes to be repurchased, plus
accrued interest to the repurchase date;
provided that Saks Holdings may repurchase
Notes for cash only after repayment of all
outstanding indebtedness under Saks' credit
facility. See "Description of
Notes--Repurchase at Option of Holders upon
a Change of Control".
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Subordination................................ The Notes are subordinated in right of
payment to all existing and future Senior
Indebtedness (as defined herein) of Saks
Holdings. As of August 3, 1996, Saks
Holdings had no Senior Indebtedness (other
than guarantees of subsidiary
indebtedness). The Notes also are
effectively subordinated in right of
payment to all indebtedness and other
liabilities of the subsidiaries of Saks
Holdings, including Saks. As of August 3,
1996, on a pro forma basis after giving
effect to the offering and the application
of the net proceeds therefrom, the amount
of all indebtedness and other liabilities
of Saks Holdings' subsidiaries would have
been $755.3 million (excluding intercompany
obligations). The Indenture will not
restrict the incurrence of Senior
Indebtedness or other indebtedness by Saks
Holdings or any of its subsidiaries. See
"Description of Notes--Subordination".
Saks Holdings is a holding company with no
business operations of its own. Saks
Holdings' only material asset is the
outstanding capital stock of Saks and Saks
Holdings is therefore dependent upon
payments, dividends and distributions from
Saks in order to make payments of principal
of and interest on the Notes. The Notes are
not guaranteed by Saks.
Use of proceeds.............................. Saks Holdings intends to loan substantially
all of the estimated net proceeds of $194
million to Saks to enable Saks to (i)
prepay $138 million aggregate principal
amount of term loans outstanding under
Saks' credit facility, (ii) prepay $35
million aggregate principal amount of Saks'
existing subordinated indebtedness and
(iii) use the balance for working capital
and general corporate purposes. See "Use of
Proceeds".
Listing...................................... The Notes will not be listed on any
securities exchange or quoted on Nasdaq. The
Underwriters have advised Saks Holdings
that they intend to make a market in the
Notes. The Underwriters are not obligated
to make a market in the Notes, and any such
market making may be discontinued at any
time at the sole discretion of the
Underwriters without notice.
Common Stock................................. The Common Stock is listed on the New York
Stock Exchange under the symbol "SKS".
</TABLE>
Concurrently with the offering of the Notes hereby, certain selling
stockholders of Saks Holdings are offering 8 million shares of Common Stock by a
separate prospectus (the "Secondary Offering"). Investcorp and its affiliates
are not participating in the Secondary Offering. The consummation of the Notes
offering and the Secondary Offering are not conditioned upon each other.
RISK FACTORS
See "Risk Factors" beginning on page 12 for a description of certain risks
relevant to an investment in the Notes.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data presented below for each
of the five fiscal years in the period ended February 3, 1996 have been derived
from the audited Consolidated Financial Statements. The summary historical
financial data presented below for the six months ended July 29, 1995 and August
3, 1996 were derived from Saks Holdings' unaudited Condensed Consolidated
Financial Statements which contain all accruals and adjustments (consisting only
of normal recurring adjustments) which management considers necessary for a fair
presentation of the financial information for such periods. The results of
operations for the six months ended August 3, 1996 are not necessarily
indicative of the operating results that may be expected for the full fiscal
year. This financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and Notes thereto, the unaudited Condensed
Consolidated Financial Statements and the Notes thereto and the other financial
information included elsewhere in this Prospectus.
<TABLE><CAPTION>
SIX MONTHS
ENDED
--------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales......................... $1,269.4 $1,343.5 $1,395.5 $1,418.2 $1,686.8 $ 737.8 $ 868.2
Cost of sales, including buying
and occupancy.................... (922.7) (933.1) (975.4) (979.7) (1,168.7) (525.4) (621.1 )
-------- -------- -------- -------- -------- -------- ---------
Gross margin..................... 346.7 410.4 420.1 438.5 518.1 212.4 247.1
Selling, general and
administrative expenses.......... (387.5) (396.0) (394.8) (370.4) (438.6) (209.8) (229.5 )
Management fees (1)............... (2.0) (2.0) (2.0) (2.0) (7.0) (1.0) (1.0 )
Impairment and special charges
(2)............................... -- -- (177.7) -- (36.4) (8.9) --
-------- -------- -------- -------- -------- -------- ---------
Operating income (loss).......... (42.8) 12.4 (154.4) 66.1 36.1 (7.3) 16.6
Interest expense, net............. (126.2) (89.5) (73.8) (76.2) (94.2) (43.4) (42.2 )
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before income taxes
and extraordinary charge....... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6 )
Income taxes (3).................. -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before
extraordinary charge........... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6 )
Extraordinary charge (4).......... (11.5) (8.4) (27.6) (.5) (6.0) (5.7) (3.3 )
-------- -------- -------- -------- -------- -------- ---------
Net income (loss)................ $ (180.5) $ (85.5) $ (255.8) $ (10.6) $ (64.1) $ (56.4) $ (28.9 )
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Net income (loss) per share
before extraordinary charge.... $ (5.63) $ (1.93) $ (5.07) $ (.22) $ (1.29) $ (1.13) $ (.49 )
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Net income (loss) per share...... $ (6.02) $ (2.14) $ (5.68) $ (.24) $ (1.43) $ (1.25) $ (.55 )
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Weighted average number of shares
outstanding (000s)................ 30,000 40,015 45,030 45,010 44,955 44,955 52,311
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
<CAPTION>
AUGUST 3, 1996
-----------------------------
ACTUAL AS ADJUSTED (5)
-------- ---------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Inventories....................................................... $ 389.6 $ 389.6
Property and equipment............................................ 798.4 798.4
Total assets...................................................... 1,421.6 1,424.8
Total debt (6).................................................... 652.1 658.1
Stockholders' equity.............................................. 472.3 469.5
</TABLE>
9
<PAGE>
<TABLE><CAPTION>
SIX MONTHS
ENDED
--------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ -------- ---------
(DOLLARS IN MILLIONS, EXCEPT SALES PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Change in comparable sales (7)...... (1.9%) 3.4% 1.7% 5.6% 10.6% 10.7% 12.4%
Retail sales per average square foot
(8):
Full-line and resort............... $ 251 $ 258 $ 264 $ 288 $ 311 $ 143 $ 156
Off 5th............................ $ 411 $ 452 $ 440 $ 362 $ 352 $ 171 $ 154
Gross margin rate................... 27.3% 30.5% 30.1% 30.9% 30.7% 28.8% 28.5%
Selling, general and administrative
expense rate....................... 30.5% 29.5% 28.3% 26.1% 26.0% 28.4% 26.4%
EBIT (9)............................ $(40.8) $ 14.4 $ 25.3 $ 68.1 $ 79.5 $ 2.6 $ 17.6
Depreciation and amortization....... $ 87.7 $ 89.0 $ 86.8 $ 68.0 $ 66.8 $ 32.7 $ 32.5
Capital expenditures................ $ 50.4 $ 67.5 $ 49.8 $ 71.7 $ 87.0 $ 35.6 $ 57.0
Deficiency of earnings to fixed
charges (10)........................ $169.7 $ 76.8 $227.5 $ 10.5 $ 58.6 $ 51.4 $ 25.8
Pro forma ratio of earnings to fixed
charges (11)........................ 1.29
Pro forma deficiency of earnings to
fixed charges (11)................. $ 13.8 $ 1.8
Number of stores:
Full-line and resort
--beginning of period............ 47 48 49 49 45 45 45
--opened......................... 1 1 -- 1 2 2 0
--closed......................... -- -- -- (5) (2) (1) 0
------ ------ ------ ------ ------ -------- ---------
--end of period.................. 48 49 49 45 45 46 45
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
Off 5th
--beginning of period............ 1 1 3 4 8 8 19
--opened......................... -- 2 1 4 11 1 3
------ ------ ------ ------ ------ -------- ---------
--end of period.................. 1 3 4 8 19 9 22
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
End of period gross square feet
(000s):
Full-line and resort............... 4,888 4,918 4,959 4,549 4,806 4,686 4,806
Off 5th............................ 26 83 114 227 456 239 504
CASH FLOW DATA (12):
Net cash provided by (used in)
operating activities............... $ 69.4 $(27.5) $ 15.6 $ 53.8 $ (6.1) $(18.5) $ (43.8)
Net cash provided by (used in)
investing activities............... $ 11.2 $ 42.6 $(30.3) $ (1.7) $(57.1) $(32.1) $ (48.3)
Net cash provided by (used in)
financing activities............... $(78.2) $(13.2) $ 15.1 $(47.9) $ 60.2 $ 48.7 $ 88.2
</TABLE>
- ------------
(1) Management fees represent amounts paid or payable to III, an affiliate of
Investcorp. Such fees relate to advisory services on matters that include
review of operating performance, treasury activities and other strategic
planning and real estate alternatives. Management fees to III were
discontinued in July 1996.
(2) Impairment and special charges represent costs associated with (i)
adjustments to long-lived assets, an early retirement program and store
closings and space reductions in fiscal 1993 and (ii) distribution center
exit costs, integration of former I. Magnin locations and write-off of
capitalized EDP software in fiscal 1995. See Note 3 to Consolidated
Financial Statements.
(3) At February 3, 1996 Saks had a net operating loss carryforward of $728
million which may be used to reduce taxes payable on future taxable income.
The carryforward begins to expire in 2005 if not used in full. See Note 9
to Consolidated Financial Statements.
(4) The extraordinary charge in each period relates to early extinguishment of
debt. See Note 5 to Consolidated Financial Statements and Note 2 to
unaudited Condensed Consolidated Financial Statements.
(5) Adjusted to give effect to (i) the sale of $200 million aggregate principal
amount of Notes and application of the net proceeds therefrom to repay $194
million of debt and (ii) the write-off of $2.8 million of deferred
financing costs resulting from repayment of debt.
(6) Includes obligations under capital leases. See Note 10 to Consolidated
Financial Statements.
(7) Comparable sales represents (i) net sales of stores (excluding major store
expansions) open in both reporting periods for the portion of such period
open and (ii) Folio net sales. In fiscal 1995 and fiscal 1996, comparable
sales excludes the impact of the 53rd week in fiscal 1995.
10
<PAGE>
(8) Sales per average square foot in each period represent net sales for such
period divided by the average of total gross square feet of store
buildings. The number for fiscal 1994 excludes net sales and square feet
for stores identified in the store closing and downsizing program.
(9) EBIT represents earnings before interest expense, net, income taxes,
management fees, impairment and special charges and extraordinary charges.
Saks Holdings has included information concerning EBIT because management
believes that it is a widely used comparative measure for Saks Holdings'
peer group and that, net of depreciation and amortization, it is useful
information regarding a company's ability to service and incur debt. EBIT
should not be considered in isolation or as a substitute for net income,
cash flows, operating income or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity.
(10) For purposes of this computation, earnings consist of income (loss) from
operations before income taxes and extraordinary charges plus fixed charges
excluding capitalized interest and related amortization. Fixed charges
consist of interest expense, amortization of deferred financing costs and
the interest component of rent expense.
(11) Adjusted to give effect to (i) the sale of $200 million aggregate principal
amount of Notes and the sale of 18,062,500 shares of Common Stock in Saks
Holdings' initial public offering in May 1996 and the application of the
net proceeds therefrom to repay $591 million of debt and (ii) the write-off
of $6.1 million of deferred financing costs resulting from repayment of
debt, as if each transaction had taken place at the beginning of the period
indicated.
(12) For more information regarding cash flow data, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources" and the Consolidated Financial Statements and the
unaudited Condensed Consolidated Financial Statements included elsewhere in
this Prospectus.
11
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
risk factors relating to the offering and the business of Saks Holdings,
together with the information and financial data set forth elsewhere in this
Prospectus, prior to making an investment decision. Certain statements under
this caption constitute "forward-looking statements" under the Reform Act.
See"--Forward-Looking Statements".
RELIANCE ON FIFTH AVENUE STORE
Saks' flagship Fifth Avenue store in New York City accounted for
approximately 22% of consolidated net sales in fiscal 1995 and in the six months
ended August 3, 1996 and plays a significant role in marketing the Saks Fifth
Avenue name. The loss of, or any significant impairment to the operations of,
the Fifth Avenue store could have a material adverse effect on Saks' results of
operations and financial condition. See "Business--Full-Line and Resort Stores".
INDEBTEDNESS AND LIQUIDITY
Saks Holdings is a holding company with no business operations of its own.
Saks Holdings' only material asset is the outstanding capital stock of Saks.
Saks Holdings' ability to make payments of principal of and interest on the
Notes depends upon the future financial performance of Saks, including Saks'
earnings and cash flow from operations. See "Risk Factors--Subordination" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Saks Holdings' earnings were insufficient to cover fixed charges by
$169.7 million, $76.8 million, $227.5 million, $10.5 million and $58.6 million,
respectively, in fiscal 1991, 1992, 1993, 1994 and 1995 and $51.4 million and
$25.8 million, respectively, for the six months ended July 29, 1995 and August
3, 1996. There will be no sinking fund for the repayment of the Notes.
Saks had outstanding indebtedness of $652.1 million at August 3, 1996,
bearing interest at a weighted average rate of 8.8%. Any default by Saks with
respect to its outstanding indebtedness, or any inability on the part of Saks to
obtain necessary liquidity, would have a material adverse effect on Saks
Holdings' results of operations and financial condition. At August 3, 1996,
after giving effect to the consummation of the offering and the application of
the net proceeds therefrom (after deducting the underwriting discount and
estimated expenses of the offering), the consolidated indebtedness of Saks would
have been approximately $658.1 million. Such indebtedness would have had an
average interest rate of 8.2% and Saks would have had interest expense, net, of
$26.8 million during the six months ended August 3, 1996. Although the
application of the net proceeds from the offering will result in a permanent
reduction of the principal amount of the term loans outstanding under Saks'
credit facility, it will not reduce amounts available to Saks under its
revolving credit facility. The revolving credit facility permits Saks to borrow
funds for working capital and capital expenditure purposes, including store
acquisitions. See "Use of Proceeds" and "Description of Certain Indebtedness".
The level of consolidated indebtedness of Saks also could have important
consequences to the holders of Common Stock, including the following: (i) a
substantial portion of Saks' cash flow from operations must be dedicated to the
payment of principal of and interest on its indebtedness and will not be
available for other purposes; (ii) the ability of Saks to obtain financing in
the future for working capital needs, capital expenditures, acquisitions,
investments, general corporate purposes or other purposes may be materially
limited or impaired; and (iii) Saks' level of indebtedness may reduce its
flexibility to respond to changing business and economic conditions. See
"Description of Certain Indebtedness".
SUBORDINATION
The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Indebtedness of Saks Holdings and effectively
subordinated in right of payment to all indebtedness and other liabilities of
Saks and Saks' subsidiaries. Neither the Indenture nor the
12
<PAGE>
Notes limit the ability of Saks Holdings, Saks or Saks' subsidiaries to incur
additional Senior Indebtedness or other indebtedness. As of August 3, 1996, Saks
Holdings had no outstanding indebtedness. As of the same date, on a pro forma
basis after giving effect to the offering and the application of the net
proceeds therefrom, Saks Holdings' subsidiaries, including Saks, had outstanding
indebtedness and other liabilities of $755.3 million (excluding intercompany
obligations). See "Description of Notes--Subordination". The Indenture and the
Notes do not contain any financial covenants or similar restrictions respecting
Saks Holdings or its subsidiaries and, therefore, the holders of the Notes will
have no protection (other than rights upon Events of Default as described in
"Description of Notes") from adverse changes in Saks Holdings' financial
condition. Due to the subordination of the Notes, in the event of insolvency,
bankruptcy, liquidation, reorganization, dissolution or winding up of the
business of Saks Holdings or upon a default in payment with respect to any
indebtedness of Saks Holdings or an event of default with respect to such
indebtedness resulting from the acceleration thereof, the assets of Saks
Holdings will be available to pay the amounts due on the Notes only after all
Senior Indebtedness has been paid in full.
Saks Holdings is a holding company with no business operations of its own.
Saks Holdings therefore is dependent upon payments, dividends and distributions
from Saks for funds to pay its obligations, including payment of principal of
and interest on the Notes. The Notes are not guaranteed by Saks. The ability of
Saks to make distributions to Saks Holdings is and will continue to be
restricted by, among other things, applicable provisions of state law and
contractual provisions. Saks' credit facility and existing subordinated debt
contain restrictions on Saks' ability to pay dividends or make other
distributions to Saks Holdings. Saks' credit facility and existing subordinated
debt provide that Saks may not declare any dividends or make any other payments
or distributions to Saks Holdings except for amounts necessary (i) to pay Saks
Holdings' expenses up to $4 million per fiscal year and (ii) to pay Saks
Holdings' taxes. The lenders who are party to Saks' credit facility also have
consented to the issuance of the Notes and certain payments by Saks to Saks
Holdings to permit Saks Holdings to fund payments of principal of and interest
on the Notes. See "Description of Certain Indebtedness--Credit Agreement" and
"Description of Certain Indebtedness--Subordinated Debt". Neither the Indenture
nor the Notes limit the ability of Saks to incur restrictions on Saks' ability
to declare dividends or make any other payments or distributions to Saks
Holdings in the future. The right of Saks Holdings to participate in the assets
of Saks upon liquidation of Saks (and therefore the ability of the holders of
the Notes to benefit indirectly from such assets) are generally subject to the
prior claims of creditors of Saks except to the extent that Saks Holdings is
recognized as a creditor of Saks, in which case Saks Holdings' claims would
still be subject to any security interests of other creditors of Saks.
Therefore, the Notes are effectively subordinated to creditors of Saks with
respect to the assets of Saks against which such creditors have claims.
NO DIVIDENDS
Saks Holdings currently does not intend to pay any cash dividends on the
Common Stock. Saks Holdings is a holding company with no business operations of
its own. Saks Holdings therefore is dependent upon payments, dividends and
distributions from Saks for funds to pay its expenses and to pay future cash
dividends or distributions, if any, to holders of the Common Stock. Saks
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and general corporate purposes.
Saks has no current intention of paying dividends or making other distributions
to Saks Holdings in excess of amounts necessary to pay Saks Holdings' expenses
and taxes. Saks' credit facility and existing subordinated debt contain
restrictions on Saks' ability to pay dividends or make other distributions to
Saks Holdings. See "Risk Factors--Subordination", "Dividend Policy" and
"Description of Certain Indebtedness--Credit Agreement" and "Description of
Certain Indebtedness--Subordinated Debt".
13
<PAGE>
RECENT LOSSES
Saks Holdings incurred net losses of $180.5 million, $85.5 million, $255.8
million, $10.6 million and $64.1 million, respectively, during the five year
period from fiscal 1991 through fiscal 1995. Saks Holdings incurred a net loss
of $28.9 million for the six months ended August 3, 1996. Saks Holdings also
incurred operating losses in fiscal 1991 and 1993. Saks' interest expense, net,
was $126.2 million in fiscal 1991, $89.5 million in fiscal 1992, $73.8 million
in fiscal 1993, $76.2 million in fiscal 1994, $94.2 million in fiscal 1995 and
$42.2 million for the six months ended August 3, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". There
can be no assurance that Saks will attain profitability or achieve continued
growth in operating performance.
RELOCATION OF DISTRIBUTION FACILITY
Saks plans to relocate its primary distribution center from Yonkers, New
York to a new facility in Aberdeen, Maryland, which is scheduled to open in
early 1997. The Aberdeen distribution center may be operated simultaneously with
the Yonkers distribution center for up to six months as the new facility is
brought on-line, after which time the Yonkers distribution center will be
closed. Any significant disruptions in inventory delivery, storage or
distribution during transition to the new facility could have a material adverse
effect on Saks' ability to receive inventory, deliver inventory to its stores or
locate and ship its Folio merchandise, which in turn could negatively affect
Saks' financial condition and results of operations. See "Business--Distribution
Facilities".
INTRODUCTION OF NEW MIS SYSTEM
Saks has made and continues to make substantial investments in information
systems designed to support its business strategy. Saks' capital expenditures on
information systems in fiscal 1993, fiscal 1994 and fiscal 1995 aggregated $21
million, and Saks plans additional capital expenditures of approximately $43
million through fiscal 1998 on such systems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources". New information systems are scheduled to be implemented by early
1997. The new information systems will be operated simultaneously with Saks'
present information systems for up to six months as the new systems are brought
on-line, after which time use of the existing information systems will be
terminated. Any significant disruptions in the use of Saks' information systems
resulting from the transition to the new system could have an adverse effect on
Saks' ability to conduct its operations and may adversely affect financial
condition and results of operations. See "Business--Management Information
Systems" and "Business--Business Strategy".
CONTROL BY PRINCIPAL STOCKHOLDERS
Investcorp, its affiliates and others who frequently co-invest with
Investcorp may be deemed to be the beneficial owners of approximately 77.5% of
the outstanding shares of Common Stock (65.52% if the Secondary Offering is
consummated). Until such time, if ever, that there is a significant decrease in
the percentage of outstanding shares held by such stockholders, these
stockholders will be able to control Saks Holdings through their ability to
determine the outcome of votes of stockholders regarding, among other things,
election of directors and approval of significant transactions. In particular,
Investcorp, as the beneficial owner of 16.73% of the Common Stock of Saks
Holdings and with representatives on the board of directors of Saks Holdings,
may be able to exert influence over the operations of Saks Holdings and Saks. In
addition, executive officers directors and senior management of Saks Holdings
and Saks own an aggregate of approximately 2,107,700 shares, or 3.25%, of Common
Stock on a fully-diluted basis, after giving effect to the exercise of all
outstanding options held by such officers, directors and management.
See "Principal Stockholders".
14
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The recent growth and development of Saks has been largely dependent upon
the services of Philip Miller, Chairman of Saks, Brian Kendrick, Vice Chairman
of Saks, and Rose Marie Bravo, President of Saks. The loss of Mr. Miller's, Mr.
Kendrick's or Ms. Bravo's services could have a material adverse effect on Saks.
Neither Saks Holdings nor Saks maintains any key-man or similar insurance
policies. See "Management".
SENSITIVITY TO ECONOMIC CONDITIONS; CHANGING CONSUMER PREFERENCES
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 Northeast and
other regions from which Saks derives a significant portion of its net sales,
could have a material adverse effect on Saks' results of operations and
financial condition. In addition, Saks' success depends in part upon its ability
to anticipate and respond to changing consumer preferences and fashion trends in
a timely manner. Although Saks attempts to stay abreast of emerging lifestyle
and consumer preferences affecting its merchandise, any sustained failure by
Saks to identify and respond to such trends would have a material adverse effect
on Saks' business, results of operations and financial condition.
SEASONALITY
The retail apparel industry is seasonal in nature, with a high proportion of
sales and operating income generated in November and December. During fiscal
1994 and fiscal 1995, the fourth quarter provided approximately 31% and 32%,
respectively, of Saks' net sales and the majority of its operating income. As a
result, Saks' operating results depend significantly on the holiday selling
season. Operating results usually are weakest in the second quarter of Saks'
fiscal year. Working capital requirements fluctuate during the year, increasing
substantially in October and November in anticipation of the holiday selling
season as significantly higher inventory levels are necessary. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Seasonality and Quarterly Fluctuations".
COMPETITION
All aspects of the retail industry, including attracting customers, securing
merchandise and locating appropriate retail sites, are highly competitive. Saks
competes for customers in this industry primarily with large specialty apparel
retailers, better department stores, national apparel chains, designer boutiques
and individual specialty apparel stores. Many of these competitors are larger
and have significantly greater financial resources than Saks. See
"Business--Competition".
EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS
Saks Holdings' Board of Directors is authorized, subject to certain
limitations prescribed by law, to issue up to 10 million shares of preferred
stock in one or more classes or series and to fix the designations, powers,
preferences, rights, qualifications, limitations or restrictions, including
voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of Saks
Holdings. Saks Holdings has no current plans to issue shares of preferred stock.
Saks' credit facility and subordinated indebtedness contain provisions that,
under certain circumstances, will cause such indebtedness to become due upon the
occurrence of a change of control of Saks. See "Description of Certain
Indebtedness--Credit Agreement" and "--Subordinated Debt". These provisions
could have the effect of making it more difficult for a third party to acquire
control of Saks Holdings. See "Description of Capital Stock--Preferred Stock".
15
<PAGE>
Saks Holdings is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law".
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Change of Control, each holder of Notes will have the right, at the
holder's option, to require Saks Holdings to repurchase all of or a portion of
such holder's Notes. If a Change of Control were to occur, there can be no
assurance that Saks Holdings would have sufficient funds to pay the repurchase
price for all Notes tendered by the Holders thereof. In addition, the Indenture
and the Notes provide that Saks Holdings may repurchase Notes for cash only
after repayment of all outstanding indebtedness under Saks' credit facility.
Saks Holdings also may elect to make such payment using shares of Common Stock.
In addition, Saks Holdings' repurchase of Notes as a result of the occurrence of
a Change of Control may be prohibited or limited by, or create an event of
default under, the terms of agreements related to borrowings which Saks Holdings
may enter into from time to time, including agreements relating to Senior
Indebtedness. See "Risk Factors-- Subordination" and "Description of
Notes--Repurchase at Option of Holders Upon a Change of Control".
ABSENCE OF PUBLIC MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF PRICE
Prior to the offering, there has been no public market for the Notes.
Certain of the Underwriters have advised Saks Holdings that they intend to make
a market in the Notes. The Underwriters are not obligated, however, to make a
market in the Notes and any such market making may be discontinued at any time
at the sole discretion of any such Underwriter without notice. There can be no
assurance that an active market for the Notes will develop or be sustained after
the offering or that the market price of the Notes will not decline. Various
factors such as changes in prevailing interest rates or changes in perceptions
of Saks Holdings' creditworthiness could cause the market price of the Notes to
fluctuate significantly. The trading price of the Notes also could be
significantly affected by the market price of the Common Stock, which could be
subject to wide fluctuations in response to a number of factors, including
quarterly variations of operating results, investor perceptions of Saks and
other retailers and general economic and market conditions. The Notes will not
be listed on any securities exchange or quoted on Nasdaq.
SUBSTANTIAL AMOUNT OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
As of August 28, 1996, 63,037,464 shares of Common Stock were outstanding.
Pursuant to the Secondary Offering, certain stockholders who frequently
co-invest with Investcorp currently are offering for sale 9,200,000 shares of
Common Stock (including up to 1,200,000 shares to be sold pursuant to an
over-allotment options). The 18,062,500 shares of Common Stock sold in Saks
Holdings' initial public offering in May 1996 are, and the shares sold in the
Secondary Offering will be, freely transferable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for shares
acquired in the offerings by "affiliates" of Saks Holdings as that term is
defined in Rule 144 under the Securities Act. The remaining 35,774,964
outstanding shares of Common Stock are deemed to be "restricted securities" as
that term is defined in Rule 144, all of which are eligible for sale in the
public market in compliance with Rule 144.
Saks Holdings has agreed with the Underwriters that, during the period of 90
days from the date of this Prospectus, subject to certain exceptions, it will
not issue, sell, offer or agree to sell, grant any options for the sale of
(other than employee stock options) or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable for Common Stock, other than pursuant to the offering. In addition,
certain stockholders and the selling stockholders in the Secondary Offering have
agreed with the underwriters of the Secondary
16
<PAGE>
Offering that, subject to certain exceptions, they will not offer, pledge, sell,
transfer or otherwise dispose of the 35,513,356 shares of Common Stock owned by
them for a period of 180 days after the date of the prospectus relating to the
Secondary Offering. See "Underwriting". Further, in connection with the initial
public offering, certain stockholders owning 35,766,605 shares of Common Stock
agreed with the Underwriters of the initial public offering that, subject to
certain exceptions, they will not offer, pledge, sell, transfer or otherwise
dispose of such shares of Common Stock prior to November 17, 1996. At the
expiration of the lock-up periods described above, or earlier with the written
consent of the applicable underwriters, the holders of 52,145,904 shares of
Common Stock (assuming consummation of the Secondary Offering, including shares
to be sold thereby pursuant to overallotment options) will have the right to
sell shares of Common Stock without regard to the volume or other limitations of
Rule 144 under the Securities Act.
Saks Holdings has filed a registration statement on Form S-8 under the
Securities Act to register the sale of the 6,209,045 shares of Common Stock
reserved for issuance under its Senior Management Stock Incentive Plan and 1996
Management Stock Incentive Plan. As a result, any shares issued upon exercise of
stock options granted under such plans will be available, subject to special
rules for affiliates, for resale in the public market, subject to applicable
lock-up arrangements. See "Management--Stock Incentive Plans".
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for future
sale would have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market
following the offering, or the perception that such sales could occur, could
have an adverse effect on prevailing market prices for the Common Stock. See
"Shares Eligible for Future Sale" and "Underwriting".
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes", "anticipates",
"intends", "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of Saks Holdings, Saks
or the retail industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions, both nationally and in those areas in which Saks
operates; demographic changes; prospects for the retail industry; competition;
changes in business strategy or development plans; the loss of key personnel;
the availability of capital to fund the expansion of Saks' business; and other
factors referenced in this Prospectus, including, without limitation, under the
captions "Prospectus Summary", "Risk Factors", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business". Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. Saks Holdings disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
USE OF PROCEEDS
The net proceeds to Saks Holdings from the sale of the Notes offered hereby
(after deducting the underwriting discount and estimated expenses of the
offering) are estimated to be $194 million. Saks Holdings intends to loan
substantially all of the net proceeds to Saks to enable Saks to (i) prepay $138
million aggregate principal amount of term loans outstanding under Saks' credit
facility, (ii) prepay $35 million aggregate principal amount of Saks' existing
subordinated indebtedness and (iii) use the balance for working capital and
general corporate purposes. If the offering is not completed prior to September
15, 1996, Saks intends to use funds from its revolving credit
17
<PAGE>
facility to prepay the existing subordinated debt and subsequently repay such
borrowings following the completion of the offering. Although the application of
the net proceeds will result in a permanent reduction of the principal amount of
the term loans, it will not reduce amounts available to Saks under the revolving
credit facility. The revolving credit facility permits Saks to borrow funds for
working capital and capital expenditure purposes, including store acquisitions.
Saks from time to time may consider store acquisitions as part of its business
strategy. Saks currently does not have any understandings or agreements with
respect to potential acquisitions other than those discussed under the caption
"Business--Business Strategy--Store Expansion--Acquisitions". For information on
interest rates and terms of the credit facility and Saks' existing subordinated
debt, see "Description of Certain Indebtedness--Credit Agreement", "Description
of Certain Indebtedness--Subordinated Debt" and Note 5 to Consolidated Financial
Statements.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock has been traded on the New York Stock Exchange under the
symbol "SKS" following Saks Holdings' initial public offering on May 21, 1996.
The following table sets forth, for the periods indicated, the range of high and
low sales prices for the Common Stock as reported on the New York Stock
Exchange.
<TABLE>
<CAPTION>
1996 HIGH LOW
- ------------------------------------------------------------- ---- ----
<S> <C> <C>
35 25
Second quarter (from May 22, 1996)........................... 7/8 1/2
36 32
Third quarter (through August 28, 1996)...................... 3/8 1/8
</TABLE>
On August 28, 1996, the last reported sale price of the Common Stock was $34
3/4 per share. At August 26, 1996, Saks Holdings had approximately 360
stockholders of record.
Saks Holdings currently does not intend to pay any cash dividends on the
Common Stock.
Saks Holdings is a holding company with no business operations of its own.
Saks Holdings therefore is dependent upon payments, dividends and distributions
from Saks for funds to pay dividends to stockholders of Saks Holdings. Saks
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and other general corporate
purposes. Saks has no current intention of paying dividends or making other
distributions to Saks Holdings in excess of amounts necessary to pay Saks
Holdings' expenses up to $4 million per fiscal year, obligations under the Notes
and taxes. Saks' credit facility and existing subordinated debt contain
restrictions on Saks' ability to pay dividends or make payments or other
distributions to Saks Holdings. See "Risk Factors--No Dividends", "Description
of Certain Indebtedness--Credit Agreement" and "Description of Certain
Indebtedness--Subordinated Debt".
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Saks
Holdings at August 3, 1996 and as adjusted as of such date to give effect to the
issuance and sale of the Notes offered hereby (after deducting the underwriting
discount and estimated expenses of the offering) and the application of the net
proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto the unaudited Condensed
Consolidated Financial Statements and the Notes thereto and other financial
information included elsewhere in this Prospectus.
<TABLE><CAPTION>
AUGUST 3, 1996
-------------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current maturities)................... $ 17,317 $ 4,749
---------- -----------
Long-term debt
Senior credit facility (2)..................................... $ 150,950 $ 4,518
Subordinated debt (2).......................................... 50,000 15,000
REMIC certificates (2)......................................... 330,841 330,841
Obligations under capital leases (3)........................... 102,995 102,995
% Convertible Subordinated Notes due 2006...................... -- 200,000
---------- -----------
Total long-term debt......................................... $ 634,786 $ 653,354
---------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share; 10 million shares
authorized, no shares issued and outstanding..................... -- --
Common Stock, par value $.01 per share; 150 million shares
authorized, 63,049,315 issued and 63,034,489 shares
outstanding (4).................................................. 631 631
Additional paid-in capital (4)................................. 1,340,017 1,340,017
Accumulated deficit (5)........................................ (868,064) (870,859 )
Treasury stock, at cost (4).................................... (297) (297 )
---------- -----------
Total stockholders' equity................................... 472,287 469,492
---------- -----------
Total capitalization......................................... $1,124,390 $1,127,595
---------- -----------
---------- -----------
</TABLE>
- ------------
(1) As of August 28, 1996, the amount of indebtedness to be repaid with the
estimated net proceeds of the offering would be approximately $194 million.
(2) See Note 5 to Consolidated Financial Statements.
(3) See Note 10 to Consolidated Financial Statements.
(4) See Notes 6 and 15 to Consolidated Financial Statements.
(5) Reflects the write-off of $2.8 million of deferred financing costs resulting
from the repayment of the term loans under the credit facility with the net
proceeds of the offering.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
five fiscal years in the period ended February 3, 1996 have been derived from
the audited Consolidated Financial Statements. The selected historical financial
data presented below for the six months ended July 29, 1995 and August 3, 1996
were derived from Saks Holdings' unaudited Condensed Consolidated Financial
Statements which contain all accruals and adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a fair
presentation of the financial information for such periods. The results of
operations for the six months ended August 3, 1996 are not necessarily
indicative of the operating results that may be expected for the full fiscal
year. The financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and Notes thereto, the unaudited Condensed
Consolidated Financial Statements and the Notes thereto and the other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
----------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $1,269.4 $1,343.5 $1,395.5 $1,418.2 $1,686.8 $ 737.8 $ 868.2
Cost of sales, including buying and
occupancy................................. (922.7) (933.1) (975.4) (979.7) (1,168.7) (525.4) (621.1)
-------- -------- -------- -------- -------- -------- ----------
Gross margin............................. 346.7 410.4 420.1 438.5 518.1 212.4 247.1
Selling, general and administrative
expenses.................................. (387.5) (396.0) (394.8) (370.4) (438.6) (209.8) (229.5)
Management fees (1)....................... (2.0) (2.0) (2.0) (2.0) (7.0) (1.0) (1.0)
Impairment and special charges (2)........ -- -- (177.7) -- (36.4) (8.9) --
-------- -------- -------- -------- -------- -------- ----------
Operating income (loss)................... (42.8) 12.4 (154.4) 66.1 36.1 (7.3) 16.6
Interest expense, net..................... (126.2) (89.5) (73.8) (76.2) (94.2) (43.4) (42.2)
-------- -------- -------- -------- -------- -------- ----------
Income (loss) before income taxes and
extraordinary charge...................... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6)
Income taxes (3).......................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ----------
Income (loss) before extraordinary
charge.................................... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6)
Extraordinary charge (4).................. (11.5) (8.4) (27.6) (.5) (6.0) (5.7) (3.3)
-------- -------- -------- -------- -------- -------- ----------
Net income (loss)........................ $ (180.5) $ (85.5) $ (255.8) $ (10.6) $ (64.1) $ (56.4) $ (28.9)
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Net income (loss) per share before
extraordinary charge................... $ (5.63) $ (1.93) $ (5.07) $ (.22) $ (1.29) $ (1.13) $ (.49)
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Net income (loss) per share............... $ (6.02) $ (2.14) $ (5.68) $ (.24) $ (1.43) $ (1.25) $ (.55)
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Weighted average number of shares
outstanding (000s)....................... 30,000 40,015 45,030 45,010 44,955 44,955 52,311
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
<CAPTION>
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28 FEBRUARY 3, AUGUST 3,
1992 1993 1994 1995 1996 1996
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
BALANCE SHEET DATA:
Inventories....................... $ 198.6 $ 236.1 $ 253.2 $ 271.9 $ 339.7 $ 389.6
Total assets...................... 2,541.7 1,471.0 1,305.9 1,289.2 1,366.2 1,421.6
Total debt (5).................... 1,146.0 861.7 891.5 874.4 975.9 652.1
Stockholders' equity.............. 197.1 411.4 159.1 147.2 83.2 472.3
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
---------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ -------- ---------
(DOLLARS IN MILLIONS, EXCEPT SALES PER
SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Change in comparable sales (6)................. (1.9%) 3.4% 1.7% 5.6% 10.6% 10.7% 12.4%
Retail sales per average square foot (7):
Full-line and resort.......................... $ 251 $ 258 $ 264 $ 288 $ 311 $ 143 $ 156
Off 5th....................................... $ 411 $ 452 $ 440 $ 362 $ 352 $ 171 $ 154
Gross margin rate.............................. 27.3% 30.5% 30.1% 30.9% 30.7% 28.8% 28.5%
Selling, general and administrative expense
rate........................................... 30.5% 29.5% 28.3% 26.1% 26.0% 28.4% 26.4%
EBIT (8)....................................... $(40.8) $ 14.4 $ 25.3 $ 68.1 $ 79.5 $ 2.6 $ 17.6
Depreciation and amortization.................. $ 87.7 $ 89.0 $ 86.8 $ 68.0 $ 66.8 $ 32.7 $ 32.5
Capital expenditures........................... $ 50.4 $ 67.5 $ 49.8 $ 71.7 $ 87.0 $ 35.6 $ 57.0
Deficiency of earnings to fixed charges (9).... $169.7 $ 76.8 $227.5 $ 10.5 $ 58.6 $ 51.4 $ 25.8
Pro forma ratio of earnings to fixed charges
(10)........................................... 1.29
Pro forma deficiency of earnings to fixed
charges (10)................................... $ 13.8 $ 1.8
Number of stores:
Full-line and resort
--beginning of period....................... 47 48 49 49 45 45 45
--opened.................................... 1 1 -- 1 2 2 0
--closed.................................... -- -- -- (5) (2) (1) 0
------ ------ ------ ------ ------ -------- ---------
--end of period............................. 48 49 49 45 45 46 45
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
Off 5th
--beginning of period....................... 1 1 3 4 8 8 19
--opened.................................... -- 2 1 4 11 1 3
------ ------ ------ ------ ------ -------- ---------
--end of period............................. 1 3 4 8 19 9 22
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
End of period gross square feet (000s):
Full-line and resort.......................... 4,888 4,918 4,791 4,549 4,806 4,686 4,806
Off 5th....................................... 26 83 114 227 456 239 504
CASH FLOW DATA (11):
Net cash provided by (used in) operating
activities..................................... $ 69.4 $(27.5) $ 15.6 $ 53.8 $ (6.1) $(18.5) $ (43.8)
Net cash provided by (used in) investing
activities..................................... $ 11.2 $ 42.6 $(30.3) $ (1.7) $(57.1) $(32.1) $ (48.3)
Net cash provided by (used in) financing
activities..................................... $(78.2) $(13.2) $ 15.1 $(47.9) $ 60.2 $ 48.7 $ 88.2
</TABLE>
- ------------
(1) Management fees represent amounts paid or payable to III. Such fees relate
to advisory services on matters that include review of operating
performance, treasury activities and other strategic planning and real
estate alternatives. Management fees to III were discontinued in July 1996.
(2) Impairment and special charges represent costs associated with (i)
adjustments to long-lived assets, an early retirement program and store
closings and space reductions in fiscal 1993 and (ii) distribution center
exit costs, integration of former I. Magnin locations and write-off of
capitalized EDP software in fiscal 1995. See Note 3 to Consolidated
Financial Statements.
(3) At February 3, 1996 Saks had a net operating loss carryforward of $728
million which may be used to reduce taxes payable on future taxable income.
The carryforward begins to expire in 2005 if not used in full. See Note 9
to Consolidated Financial Statements.
(4) The extraordinary charge in each period relates to early extinguishment of
debt. See Note 5 to Consolidated Financial Statements and Note 2 to
unaudited Condensed Consolidated Financial Statements.
(5) Includes obligations under capital leases. See Note 10 to Consolidated
Financial Statements.
(6) Comparable sales represents (i) net sales of stores (excluding major store
expansions) open in both reporting periods for the portion of such period
open and (ii) Folio net sales. In fiscal 1995 and fiscal 1996, comparable
sales excludes the impact of the 53rd week in fiscal 1995.
(7) Sales per average square foot in each period represents net sales for such
period divided by the average of total gross square feet of store
buildings. The number for the year ended January 28, 1995 excludes net
sales and square feet for stores identified in the store closing and
downsizing program.
(8) EBIT represents earnings before interest expense, net, income taxes,
management fees, impairment and special charges and extraordinary charges.
Saks Holdings has included information concerning EBIT because management
believes that it is a widely used comparative measure for Saks Holdings'
peer group and that, net of depreciation and amortization, it is useful
information regarding a company's ability to service and incur debt. EBIT
should not be considered in isolation or as a substitute for net income,
cash flows, operating income or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity.
(9) For purposes of this computation, earnings consist of income (loss) from
operations before income taxes and extraordinary charge plus fixed charges
excluding capitalized interest and related amortization. Fixed charges
consist of interest expense, amortization of deferred financing costs and
the interest component of rent expense.
(10) Adjusted to give effect to (i) the sale of $200 million aggregate principal
amount of Notes and the sale of 18,062,500 shares of Common Stock in Saks
Holdings' initial public offering in May 1996 and the application of the
net proceeds there from to repay $591 million of debt and (ii) the
write-off of $6.1 million of deferred financing costs resulting from
repayment of debt, as if each transaction had taken place at the beginning
of the period indicated.
(11) For more information regarding cash flow data, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources" and the Consolidated Financial Statements and the
unaudited Condensed Consolidated Financial Statements included elsewhere in
this Prospectus.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" under the Reform Act which involve risks and uncertainties. Saks
Holdings' actual results may differ significantly from the results discussed in
such forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under the caption "Risk
Factors".
GENERAL
OVERVIEW
After the 1990 Acquisition, Investcorp recruited a new executive management
team to correct recognized weaknesses and develop a new business strategy
designed to capitalize on the strength of the Saks franchise. New management
began to implement several key initiatives, including: (i) rebuilding Saks'
senior corporate, merchandising and store management teams; (ii) creating a more
efficient cost structure; (iii) upgrading and differentiating merchandise
assortments; (iv) improving the quality of the store portfolio through
expansions and renovations and by closing underperforming stores; (v) investing
in incremental growth formats including the Off 5th outlet store and Folio
catalog businesses; and (vi) developing management information systems to
support these activities. By early 1994, management had implemented these
important initiatives and developed and began implementing comprehensive,
integrated merchandising, service and marketing strategies to position its core
retail business for future growth and extend the Saks franchise.
These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales increased by
$417.4 million, or 32.9%, to $1,686.8 million from $1,269.4 million. During this
period gross margin increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to $64.1 million. Operating income increased by $78.9
million from a loss of $42.8 million in fiscal 1991 to income of $36.1 million
in fiscal 1995. Operating income is net of management fees paid to III in both
fiscal 1991 and fiscal 1995 and in fiscal 1995 is net of special charges of
$36.4 million. Operating income excluding these fees and the special charges
increased by $120.3 million during this period to $79.5 million. Management fees
to III were discontinued in July 1996. These results were achieved in a retail
environment generally characterized by weak consumer spending and intensifying
competition. Management believes that Saks' current momentum, as demonstrated in
its recent results of operations and comparable sales performance, is directly
attributable to the implementation of these merchandising, service and marketing
strategies during fiscal 1994, fiscal 1995 and fiscal 1996. Saks' comparable
sales performance is set forth below.
CHANGE IN COMPARABLE SALES*
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
First quarter................................................. 4.1% 10.2% 13.3%
Second quarter................................................ 5.3 11.3 11.3
Third quarter................................................. 5.9 9.9 --
Fourth quarter................................................ 6.6 11.0 --
</TABLE>
- ------------
* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open, and (ii) Folio net sales. In fiscal 1995 and fiscal 1996,
comparable sales excludes the impact of the 53rd week in fiscal 1995.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial data
expressed as a percent of total net sales for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1993(1) 1994(1) 1995(1) 1995 1996
------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including
buying and occupancy........ (69.9) (69.1) (69.3) (71.2) (71.5)
------- ------- ------- -------- ---------
Gross margin.............. 30.1 30.9 30.7 28.8 28.5
Selling, general and
administrative expenses....... (28.3) (26.1) (26.0) (28.4) (26.4)
Management fees............... (0.1) (0.1) (0.4) (0.1) (0.1)
Impairment and special
charges....................... (12.7) (0.0) (2.2) (1.2) --
------- ------- ------- -------- ---------
Operating income (loss)... (11.0) 4.7 2.1 (0.9) 2.0
Interest expense, net......... (5.3) (5.4) (5.6) (5.9) (4.9)
------- ------- ------- -------- ---------
Income (loss) from
operations before income
taxes and extraordinary
charge........................ (16.3) (0.7) (3.5) (6.8) (2.9)
Income taxes.................. 0.0 0.0 0.0 -- --
Extraordinary charge.......... (2.0) 0.0 (0.3) (0.8) (0.4)
------- ------- ------- -------- ---------
Net income (loss)......... (18.3)% (0.7)% (3.8)% (7.6)% (3.3)%
------- ------- ------- -------- ---------
------- ------- ------- -------- ---------
</TABLE>
- ------------
(1) Fiscal 1995 consisted of 53 weeks. Fiscal 1993 and fiscal 1994 each
consisted of 52 weeks.
SIX MONTHS ENDED AUGUST 3, 1996 COMPARED TO SIX MONTHS ENDED JULY 29, 1995
NET SALES. Net sales for the six months ended August 3, 1996 were $868.2
million, an increase of $130.4 million, or 17.7%, over net sales of $737.8
million for the six months ended July 29, 1995. Comparable sales increased 12.9%
from the fiscal 1995 period. Because fiscal 1995 included 53 weeks, the six
month periods in fiscal 1995 and 1996 are not comparable. Adjusting for the week
difference in the calendar, the increases in net sales and comparable sales were
16.9% and 12.4%, respectively. Full-line and resort store net sales increased
$86.6 million, or 13.0%, from $665.5 million for the six months ended July 29,
1995 to $752.1 million for the six months ended August 3, 1996. Comparable sales
for full-line and resort stores increased 12.0% from the comparable calendar
period in fiscal 1995. Off 5th store net sales for the six months ended August
3, 1996 increased $37.4 million, or 92.9%, from $40.2 million for the six months
ended July 29, 1995 to $77.6 million, primarily as a result of the opening of
fourteen new stores in the fall of 1995 and the spring of 1996. Comparable sales
for Off 5th stores increased 12.3% from the comparable calendar period in fiscal
1995. Folio catalog net sales for the six months ended August 3, 1996 increased
by $6.4 million, or 20.0%, from $32.1 million for the six months ended July 29,
1995 to $38.5 million.
COST OF SALES. Cost of sales includes the cost of merchandise and buying and
occupancy costs. Costs of sales increased $95.8 million, or 18.2%, during the
six months ended August 3, 1996 compared to the six months ended July 29, 1995.
As a percentage of net sales, cost of sales, including buying and occupancy
costs, was 71.5% for the six months ended August 3, 1996 compared to 71.2% for
the six months ended July 29, 1995. The increase in the cost of sales rate for
the six months ended August 3, 1996 was primarily due to the increased
penetration of lower margin Off 5th sales and an increase in the Folio cost of
sales rate.
23
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $19.7 million, or 9.4%, to $230.5 million
for the six months ended August 3, 1996 from the comparable period in fiscal
1995, primarily due to higher sales volume related costs. As a percentage of net
sales, selling, general and administrative expenses were 26.4% for the six
months ended August 3, 1996 compared to 28.8% for the six months ended July 29,
1995. The improvement in the selling, general and administrative expense rate
resulted primarily from expense leverage associated with the sales growth.
MANAGEMENT FEES. Saks paid management fees of $1 million to III in the first
six months of both fiscal 1996 and fiscal 1995. Such fees relate to advisory
services on matters that include the review of operating performance, treasury
activities and other strategic planning and real estate alternatives. Management
fees to III were discontinued in July 1996.
SPECIAL CHARGES. Special charges of $8.9 million ($.20 per share) were
recorded for the six months ended July 29, 1995. These charges represent costs
associated with the integration of four former I. Magnin store locations.
OPERATING INCOME. Operating income was $16.6 million for the six months
ended August 3, 1996, an increase of $23.9 million from the six months ended
July 29, 1995. Excluding the special charges incurred in the six months ended
July 29, 1995, operating income increased by $15 million.
INTEREST EXPENSE. Interest expense decreased by 2.8% to $42.2 million for
the six months ended August 3, 1996 compared to the six months ended July 29,
1995, primarily due to reduced debt levels following Saks Holdings' initial
public offering.
INCOME TAXES. Saks Holdings anticipates that the income tax provision for
the full year will not be material, therefore no tax benefit or provision has
been reflected in the six month period ended August 3, 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales for fiscal 1995 increased by $268.6 million, or 18.9%,
to $1,686.8 million from $1,418.2 million in fiscal 1994. Comparable sales
increased by 10.6%. Full-line and resort store net sales increased $193.7
million, or 14.9%, from $1,302.3 million to $1,496.0 million with significant
increases resulting from Saks' west coast intensification through the
acquisition of four former I. Magnin stores and its strategic focus on its top
customer segments, target merchandise categories and high-potential stores. All
of Saks' geographic regions experienced increased net sales. The net sales of
Off 5th outlet stores increased by $50.8 million, or 88.8%, from $57.2 million
to $108.0 million primarily as a result of the addition of 11 new stores. Folio
catalog net sales increased by $24.1 million, or 41.1%, from $58.7 million to
$82.8 million reflecting increased mailings, new catalog titles and an increase
in the average order in fiscal 1995 compared to fiscal 1994.
COST OF SALES. Cost of sales includes the cost of merchandise sold and
buying and occupancy costs. Cost of sales increased from $979.7 million, or
69.1% of net sales, in fiscal 1994 to $1,168.7 million, or 69.3% of net sales in
fiscal 1995. This increase as a percentage of net sales resulted from the
increased penetration of lower margin Off 5th sales, which increased the cost of
sales rate by .7%, partially offset by slightly higher retail and Folio gross
margins, which decreased the cost of sales rate by .2%, and improved leverage of
buying and occupancy costs, which decreased the cost of sales rate by .3%. The
change in mix of merchandise assortments featured in full-line and resort stores
did not have a significant impact on cost of sales. The inclusion of leased
department sales in net sales and the portion of such sales remitted to the
leased department operator in cost of sales increased the cost of sales rate by
.6% and .7% in fiscal 1994 and fiscal 1995, respectively.
24
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $370.4 million, or 26.1% of net sales, in
fiscal 1994 to $438.6 million, or 26.0% of net sales, in fiscal 1995. This
decrease as a percentage of net sales was achieved as a result of lower
depreciation and amortization and improved store expense leverage, which
decreased the selling, general and administrative expense rate by 1.7%, offset
in part by slightly lower finance charge income net of securitization costs and
higher bad debt charges, which increased the selling, general and administrative
expense rate by .6%, as well as investments in Saks' central organization
(management information systems, merchandising, training and communications and
planning) to better position Saks for future growth, which increased the
selling, general and administrative expense rate by 1.0%. Selling, general and
administrative expenses are net of gross finance charge income of $56.6 million
and $69.1 million in fiscal 1994 and fiscal 1995, respectively. Finance charge
income net of accounts receivable securitization costs was $34.4 million and
$37.1 million in fiscal 1994 and fiscal 1995, respectively.
MANAGEMENT FEES. Management fees paid to III, an affiliate of Investcorp,
increased from $2 million in fiscal 1994 to $7 million in fiscal 1995. This
increase reflected the payment of fees for additional advisory services relating
to strategic planning and real estate alternatives rendered in fiscal 1995.
Management fees to III were discontinued in July 1996.
IMPAIRMENT AND SPECIAL CHARGES. Impairment and special charges of $36.4
million were recorded in fiscal 1995. These charges consist of $19.0 million
relating to exit costs associated with the Yonkers distribution facility
(write-down to net realizable value, severance and occupancy costs following
exit), $8.9 million of costs to integrate four former I. Magnin store locations
and $8.5 million to write-down capitalized EDP software which became obsolete.
The anticipated costs of relocating distribution activities to the Aberdeen
distribution facility have not been accrued and are not expected to materially
impact future results. Additionally, Saks will receive incentive payments from
various government agencies which are expected to approximate these costs.
OPERATING INCOME. Operating income decreased to $36.1 million in fiscal 1995
from $66.1 million in fiscal 1994. This decrease was a result of the $5 million
increase in management fees and the $36.4 million of special charges discussed
above. Excluding these items, operating income increased to $77.5 million in
fiscal 1995, an increase of $11.4 million or 17.3%.
INTEREST EXPENSE. Interest expense increased by $18.0 million in fiscal 1995
to $94.2 million from $76.2 million in fiscal 1994. The increase resulted
primarily from a general increase in short-term interest rates and increased
costs associated with the refinancing in May 1995 of Euronotes with REMIC
certificates, as well as increased borrowing levels to support Saks' working
capital growth and capital expenditures.
FISCAL 1994 COMPARED TO FISCAL 1993
NET SALES. Net sales for fiscal 1994 were $1,418.2 million, an increase of
$22.6 million, or 1.6%, from net sales of $1,395.5 million in fiscal 1993.
Comparable sales increased 5.6%. Full-line and resort store net sales increased
by $2.7 million. This increase resulted from significant net sales gains at the
New York Fifth Avenue store and recently remodeled stores offset by the closure
of five stores and by weak net sales in the Florida markets. The net sales of
Off 5th stores increased by $14.3 million, or 33.3% from $42.9 million to $57.2
million, primarily as a result of opening four stores. Folio catalog net sales
increased by $6.7 million, or 13.0%, from $51.6 million to $58.3 million.
COST OF SALES. Cost of sales increased from $975.4 million, or 69.9% of net
sales, in fiscal 1993 to $979.7 million, or 69.1% of net sales, in fiscal 1994.
This decrease as a percentage of net sales was primarily due to lower net
markdowns, which decreased the cost of sales rate by .5%, and improved leverage
of buying and occupancy costs, which decreased the cost of sales rate by
25
<PAGE>
.5%, and occurred despite an increase in penetration of lower margin Off 5th
sales, which increased the cost of sales rate by .2%. The inclusion of leased
department sales in net sales and the portion of such sales remitted to the
leased department operator in cost of sales increased the cost of sales rate by
.6% and .6% in fiscal 1993 and fiscal 1994, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $394.8 million, or 28.3% of net sales, in
fiscal 1993 to $370.4 million, or 26.1% of net sales, in fiscal 1994. The
decrease as a percentage of net sales is primarily due to lower depreciation and
amortization in fiscal 1994 resulting from the impairment and special charges
recorded in fiscal 1993. Additionally, selling, general and administrative
expenses in fiscal 1994 versus fiscal 1993 were reduced by higher finance charge
income net of accounts receivable securitization costs and bad debt charges,
which decreased the selling, general and administrative expense rate by .5%. The
higher finance charge income resulted from higher receivable balances associated
with the change in payment terms on Saks' proprietary credit card program.
Selling, general and administrative expenses are net of gross finance charge
income of $45.8 million and $56.6 million in fiscal 1993 and fiscal 1994,
respectively. Finance charge income net of accounts receivable securitization
costs was $30.4 million and $34.4 million in fiscal 1993 and fiscal 1994,
respectively.
MANAGEMENT FEES. Saks paid management fees of $2 million to III in both
fiscal 1993 and fiscal 1994. Such fees relate to advisory services on matters
that include review of operating performance, treasury activities and other
strategic planning and real estate alternatives.
IMPAIRMENT AND SPECIAL CHARGES. Impairment and special charges of $177.7
million were recorded in fiscal 1993. These charges consist of $118.0 million to
reduce the carrying value of property and equipment, goodwill and intangible
assets, $40.2 million relating to store closings and downsizings (write-down of
property and equipment to net realizable value, lease related costs, inventory
liquidations and severance) and $19.5 million related to an early retirement
program.
OPERATING INCOME. Operating income increased to $66.1 million in fiscal 1994
from an operating loss of $154.4 million in fiscal 1993. This increase was
partially a result of the $177.7 million impairment and special charge recorded
in fiscal 1993. Excluding this charge, fiscal 1994 operating income increased by
$42.8 million, or 183.7%, from $23.3 million in fiscal 1993.
INTEREST EXPENSE. Interest expense for fiscal 1994 increased by $2.3 million
to $76.2 million from $73.8 million in fiscal 1993 due primarily to higher
interest rates on Saks' floating rate debt, which increase was partially offset
by the refinancing and repayment of certain high cost debt.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Saks' business is highly seasonal, with a substantial percentage of net
sales and operating income occurring in the fourth quarter, which includes the
holiday selling season. Saks incurred a net loss in the first three quarters of
both fiscal 1994 and fiscal 1995 and in the six months ended August 3, 1996.
Seasonality also affects Saks' working capital requirements and cash flow as
26
<PAGE>
inventories peak in October and November in anticipation of the holiday selling
season. The following table illustrates this seasonality:
<TABLE>
<CAPTION>
PERCENTAGE NET INCOME
NET SALES OF FULL YEAR (LOSS) (1)
------------- ------------ -------------
<S> <C> <C> <C>
(IN MILLIONS) (IN MILLIONS)
FISCAL 1995
First quarter..................................... $ 384.6 23% $ (16.6)
Second quarter.................................... 353.2 21 (39.8)
Third quarter..................................... 408.0 24 (35.3)
Fourth quarter.................................... 541.0 32 27.6
FISCAL 1994
First quarter..................................... $ 333.6 24% $ (9.3)
Second quarter.................................... 298.5 21 (26.3)
Third quarter..................................... 343.4 24 (5.4)
Fourth quarter.................................... 442.7 31 30.4
</TABLE>
- ------------
(1) Saks recorded special charges of $8.9 million and $27.5 million in the first
and third quarters, respectively, of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Saks' principal sources of liquidity are cash on hand, cash from operations,
borrowings under its credit facility and sale of its accounts receivable through
its securitization agreements.
In May 1996, Saks Holdings sold 18,062,500 shares of Common Stock pursuant
to an initial public offering. The net proceeds of $417.8 million from the
initial public offering were used primarily to prepay term loan borrowings under
Saks' credit facility and to repay outstanding balances on the revolving loan
portion of the credit facility.
Saks' net cash provided by (used in) operating activities was $15.6 million,
$53.8 million and $(6.1) million in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. The increase in cash flow from operating activities in fiscal 1994
is primarily due to increased operating income. The decrease in cash flow from
operating activities in fiscal 1995 is primarily due to Saks' investment in
additional inventory to drive its merchandise and west coast intensification
programs and reduced net income. Net cash used in operating activities was $43.8
million during the six months ended August 3, 1996 compared to $18.5 million in
the six months ended July 29, 1995. This increase was primarily attributable to
increased use of working capital in the 1996 period. The primary items affecting
working capital in the 1996 period were a decrease in accrued liabilities of
$25.9 million due to the timing of payments and the timing of redemptions
against the liability established for customer affinity programs and a net
increase in merchandise inventories of $22.3 million due to a seasonal increase
and an increase to support sales growth.
Saks' net cash used in investing activities was $30.3 million, $1.7 million
and $57.1 million in fiscal 1993, fiscal 1994 and fiscal 1995, respectively. The
decrease in fiscal 1994 is primarily due to the sale and leaseback of one of
Saks' store locations and the sale of subordinated certificates under Saks
accounts receivable securitization program. The increase in fiscal 1995 results
primarily from increased capital expenditures, net of construction allowances,
to fund the remodeling of former I. Magnin stores and the opening of 11 Off 5th
stores. In fiscal 1995, Saks engaged in fewer asset sales. Net cash used in
investing activities was $48.3 million during the six months ended August 3,
1996 compared to $32.1 million in the six months ended July 29, 1995. Capital
expenditures were $47.3 million, net of construction allowances, during the six
months ended
27
<PAGE>
August 3, 1996 and consisted principally of construction of new stores. Capital
expenditures, net of construction allowances in the six months ended July 29,
1995 were $35.4 million. Saks plans to open five new full-line and resort stores
and 13 Off 5th stores in the fall of 1996.
Saks' net cash (used in) provided by financing activities was $15.1 million,
$(47.9) million and $60.2 million in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. The decrease in fiscal 1994 resulted from repayments of debt. The
increase in fiscal 1995 is primarily due to increased term loan borrowings to
support the acquisition and remodeling of four former I. Magnin stores and
working capital growth. In addition, in fiscal 1995, Saks incurred greater
financing costs in connection with its increased borrowings under the credit
facility and the refinancing of its real estate borrowings.
Net cash provided from financings during the six months ended August 3, 1996
were $88.2 million compared to $48.7 million in the six months ended July 29,
1995. The 1996 amount reflects the proceeds from Saks Holdings' May 1996 initial
public offering, net of debt repayments. The 1995 amount reflects increased
borrowings used to acquire four former I. Magnin locations, net of financing
costs related to the refinancing of real estate borrowings.
FINANCING FACILITIES
Saks has a credit facility with a syndicate of banks and financial
institutions. See "Description of Certain Indebtedness--Credit Agreement". The
facility consists of a $322 million two-tiered revolving loan and a two-tiered
term loan. At August 3, 1996, there was approximately $25 million outstanding
under the Tranche A term loan and approximately $113 million outstanding under
the Tranche B term loan. Tranche A has scheduled repayments which began in 1993
and end in 1998 and Tranche B has scheduled repayments which begin in 1997 and
end in the year 2000. Saks intends to prepay the outstanding balance of the term
loans with the proceeds from the offering. At August 3, 1996, borrowing
availability under the revolving loan was $291 million. The credit facility
contains restrictive covenants which include, among others, limitations on
capital expenditures, limitations on indebtedness, and specified minimum levels
of consolidated net worth and minimum consolidated operating profit levels as
well as maintaining specified levels of interest coverage, all as defined in the
credit facility, and which restrict payment of dividends on capital stock.
Saks may borrow up to $20 million in aggregate principal amount of swingline
loans which bear interest at the Alternate Base Rate (as defined in the credit
facility) plus an applicable margin ranging from 0.0% to 1.0% depending on the
Interest Coverage Ratio (as defined in the credit facility). All other loans
under the credit facility bear interest at a rate equal to, at Saks' option, (a)
the Alternate Base Rate plus a percentage ranging from 0.0% to 1.5% depending on
the Interest Coverage Ratio or (b) the Eurodollar Rate (as defined in the credit
facility) plus a percentage ranging from 1.0% to 2.5% depending on the Interest
Coverage Ratio. Eurodollar Rate loans can have maturities of one-, two-, three-
or six-month periods. Interest is payable on these loans on the last day of the
applicable interest period, except for six-month period loans, which provide for
interest to be payable quarterly. Interest on Alternate Base Rate loans is
payable quarterly.
Saks and its lenders currently are reviewing Saks' revolving loan facility
and intend to modify the terms of the facility to reflect Saks' improved
creditworthiness.
RECEIVABLES SECURITIZATION
Saks also has an accounts receivable securitization program. The program
includes a $225 million floating rate Euronote series, a $413 million floating
rate medium term note series and a $121 million variable principal amount
series. The floating rate Euronote series matures in November 1996. The medium
term note series and the variable principal amount series mature in
28
<PAGE>
April 1999. See "Description of Certain Indebtedness" for a further description
of Saks' indebtedness.
DERIVATIVES ACTIVITY
Saks utilizes interest rate caps to manage its interest rate exposure. See
Note 11 to Consolidated Financial Statements. Saks' policy is to use financial
derivatives only to reduce risk in conjunction with specific business
transactions. In August 1996, Saks entered into $250 million notional amount of
fixed interest rate swap agreements to reduce its exposure to changes in
prevailing market interest rates.
LOSS CARRYFORWARDS
At February 3, 1996 Saks had a net operating loss carryforward of $728
million which is available to offset taxes otherwise payable on Saks' future
taxable income. The carryforwards begin to expire, unless used, in fiscal 2005.
Although the Secondary Offering may result in an "ownership change" (as defined
in Section 382 of the Internal Revenue Code of 1986, as amended) that limits the
amount of future taxable income that Saks may offset against pre-ownership
change losses in any year, Saks expects that any such limitation would not have
a material impact on Saks' utilization of operating loss carryforwards.
CAPITAL EXPENDITURES
Excluding acquisitions, Saks plans to make capital expenditures of
approximately $150 million in fiscal 1996 and to make additional capital
expenditures of approximately $225 million in fiscal 1997 and fiscal 1998. These
expenditures include amounts relating to its store intensification, store
expansion and franchise extension strategies, as well as operations including
MIS systems. Management believes that cash generated from Saks' operations,
funds available under Saks' credit facility and funds available from lease
financing and developer contributions will be sufficient to satisfy Saks' cash
requirements in each of the periods. Management believes that cash generated
from operations will be sufficient to fund expenses and working capital
requirements for its top customer focus and store intensification strategies, as
well as store operations.
In connection with the possible acquisition and renovation of three Marshall
Field store locations in Texas, Saks intends to spend approximately $100
million. See "Business--Business Strategy--Store Expansion--Acquisitions".
A new distribution center in Aberdeen, Maryland currently is under
construction and is expected to be completed in early 1997. Saks will receive
incentive payments from various government agencies which are expected to
approximate the costs of relocating its processing activities to the new
facility. Saks will occupy the facility pursuant to a lease, with the net
present value of future rental payments equal to approximately $23 million. Saks
expects to sell its Yonkers facility after exiting it in early 1997. Saks
recorded a charge in fiscal 1995 to reduce the carrying value of the Yonkers
facility to its net realizable value. If Saks or a purchaser is successful in
obtaining rezoning for the use of the property, a gain on sale could be
realized. Management is unable to determine if rezoning will occur.
EFFECTS OF INFLATION
Management does not believe inflation had a material impact on the financial
statements for the periods presented.
29
<PAGE>
BUSINESS
In addition to the historical information contained herein, certain
statement under this caption constitute "forward-looking statements" under the
Reform Act which involve risks and uncertainties. Saks Holdings' actual results
may differ significantly from those discussed herein. Factors that might cause
such a difference include, but are not limited to, those discussed under the
captions "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as those discussed elsewhere in
this Prospectus.
GENERAL
OVERVIEW
Saks Fifth Avenue is recognized worldwide as a premier fashion retailer
offering the finest quality and latest style in women's and men's apparel.
Supported by a strong commitment to personalized customer service, Saks
primarily sells better, bridge and designer apparel, shoes, accessories,
jewelry, cosmetics and fragrances for women and men, as well as gift merchandise
and children's apparel. Capitalizing on its 70-year history as a fashion
authenticator and the prominence of its landmark Fifth Avenue store in New York
City, Saks Fifth Avenue has developed one of the most recognized retailing
franchises in the world.
Saks is experiencing significant momentum in its financial performance,
reflecting the success of new business strategies developed and initially
implemented in 1994 and the significant investments in stores, inventories,
staff and systems made since 1990. Saks recorded net sales of $1.69 billion and
$868.2 million in fiscal 1995 and the six months ended August 3, 1996,
respectively, increases of 18.9% and 17.7% over fiscal 1994 and the six months
ended July 29, 1995, respectively. Comparable sales increased 10.6% and 12.4% in
fiscal 1995 and the six months ended August 3, 1996, respectively. Primarily due
to certain impairment and special charges and increased interest costs, Saks
Holdings' net loss in fiscal 1995 increased to $64.1 million from $10.6 million
in fiscal 1994. Saks Holdings' net loss decreased to $28.9 million for the six
months ended August 3, 1996 from $56.4 million for the six months ended July 29,
1995. The results for the six months ended July 29, 1995 include a special
charge of $8.9 million for the costs of integrating four former I. Magnin store
locations.
Saks' net sales are generated through three retail formats: 46 full-line and
resort stores; 23 Off 5th outlet stores; and Folio catalogs. The full-line and
resort store operations are conducted from an exceptional portfolio of mostly
owned stores in premier retail locations, including Fifth Avenue in New York
City, Wilshire Boulevard in Beverly Hills, Michigan Avenue in Chicago and Union
Square in San Francisco. Saks' rapidly growing Off 5th outlet store division
sells high quality, upscale branded fashion apparel at exceptional prices. Saks'
Folio catalogs offer fashionable women's apparel, accessories and home
furnishings and gifts. The following table provides net sales and percent of
total sales information for each of these formats.
<TABLE><CAPTION>
FISCAL 1993 FISCAL 1994 FISCAL 1995
------------------ ------------------ ------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN MILLIONS)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Full-line and resort stores.......... $1,231.2 88% $1,288.5 91% $1,486.0 88%
Off 5th outlet stores................ 42.9 3 57.2 4 108.0 6
Folio catalog........................ 51.6 4 58.3 4 82.8 5
Closed stores........................ 69.8 5 14.2 1 10.0 1
-------- ------- -------- ------- -------- -------
Total............................ $1,395.5 100% 1,418.2 100% 1,686.8 100%
-------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- -------
</TABLE>
30
<PAGE>
HISTORY
Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the landmark Fifth Avenue store offered exclusive
merchandise from around the world. In 1926, Adam Gimbel, son of Bernard, became
President of Saks and set out to create a Saks Fifth Avenue network of
high-fashion retail stores throughout the United States as a division of Gimbel
Bros. Inc. By the time Adam Gimbel retired in 1969, Saks & Company owned and
operated 28 stores in 16 states. In 1973, Saks & Company was acquired by B.A.T.
through its acquisition of Gimbel Bros., Inc. In July 1990, affiliates of
Investcorp and a group of international investors acquired Saks from B.A.T.
INDUSTRY
Industry sources indicate that the market for better, bridge and designer
apparel and other luxury goods is substantial. Saks is positioned to capitalize
on the following trends affecting this market:
DEMOGRAPHICS. The female population aged 45 to 54, which includes Saks' core
customers, is expected to be the fastest growing population segment over the
next five years. The population aged 45 to 54 has the highest average household
income among all demographic groups.
LUXURY GOODS. Management believes that certain luxury goods brands have
experienced substantial sales growth in the last few years. Because bridge and
designer merchandise, generally considered luxury goods, comprises a significant
portion of Saks' merchandise assortments, Saks is positioned to benefit from any
continuation of this trend.
RETAIL ENVIRONMENT. The current retail environment is characterized by (i)
the continuing consolidation of department store and national apparel chains,
(ii) a de-emphasis by department stores on bridge and designer merchandise,
(iii) bankruptcies and restructurings of several competing providers of upscale
merchandise and (iv) the re-tenanting of many major malls. Management believes
that this environment will present significant opportunities for acquisitions
and other market share gains.
BUSINESS STRATEGY
After the 1990 Acquisition, Investcorp recruited a new executive management
team to correct recognized weaknesses and develop a new business strategy
designed to capitalize on the strength of the Saks franchise. New management
began to implement several key initiatives, including: (i) rebuilding Saks'
senior corporate, merchandising and store management teams; (ii) creating a more
efficient cost structure; (iii) upgrading and differentiating merchandise
assortments; (iv) improving the quality of the store portfolio through
expansions and renovations and by closing underperforming stores; (v) investing
in incremental growth formats including the Off 5th outlet store and Folio
catalog businesses; and (vi) developing management information systems to
support these activities. By early 1994, management had implemented these
important initiatives and developed and began implementing comprehensive,
integrated merchandising, service and marketing strategies to position its core
retail business for future growth and to extend the Saks franchise.
These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales grew from $1.27
billion to $1.69 billion, a 32.9% increase. During this period gross margin as a
percentage of net sales increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to
31
<PAGE>
$64.1 million. Operating income increased by $78.9 million from a loss of $42.8
million in fiscal 1991 to income of $36.1 million in fiscal 1995. Operating
income is net of management fees paid to III in both fiscal 1991 and fiscal 1995
and in fiscal 1995 is net of special charges of $36.4 million. Operating income
excluding these fees and the special charges increased by $120.3 million to
$79.5 million during this period. Management fees to III were discontinued in
July 1996. Management believes that Saks' current momentum, as reflected by its
recent results of operations and comparable sales performance relative to the
industry, is directly attributable to the implementation of its strategies
during fiscal 1994, fiscal 1995 and fiscal 1996.
Saks' comparable sales performance* is set forth below:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
First quarter..................................... 4.1% 10.2% 13.3%
Second quarter.................................... 5.3 11.3 11.3
Third quarter..................................... 5.9 9.9 --
Fourth quarter.................................... 6.6 11.0 --
</TABLE>
- ------------
* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open and (ii) Folio net sales. In fiscal 1995 and fiscal 1996,
comparable sales excludes the impact of the 53rd week in fiscal 1995.
Management believes that the ongoing execution and implementation of these
strategies will continue to drive performance. A summary of these strategies is
set forth below.
TOP CUSTOMER FOCUS
Based on extensive market research, Saks has identified certain top
customers who generate a significant share of Saks' sales. The large number of
customers who comprise this group change over time and are geographically
dispersed. Management believes that Saks can capture a substantially greater
share of apparel and related expenditures by these customers and has developed
and implemented customer affinity programs designed to capitalize on the
purchasing habits of top customers by increasing the frequency and productivity
of customer contact, increasing cross-selling activities and enhancing customer
loyalty. These programs include proactive customer clienteling programs, the
Saks First Program and the Fifth Avenue Club.
DIFFERENTIATED MERCHANDISE ASSORTMENTS
In 1994, Saks began to specifically target the merchandise categories that,
based on extensive research, were determined to be most important to its top
customers. Saks is developing dominant assortments in these key merchandise
categories by increasing inventory investments, upgrading the quality and
congruency of merchandise assortments and by adding important vendors and
brands. Saks' overall merchandising strategy is to offer congruent and balanced
assortments of differentiated, upscale limited-distribution merchandise. Saks
achieves differentiation through disciplined merchandise purchasing, development
of high visibility vendor relationships, dominant designer assortments and
exclusive product offerings, Saks' private label apparel collections and the
continual editing of its merchandise to reflect the forefront of fashion. In
addition, Saks customizes its merchandise assortments at the store level to take
advantage of differences in store size, local competitive offerings, fashion
tastes, seasonality and lifestyles.
STORE INTENSIFICATION
Management is improving the productivity of its store portfolio through a
comprehensive and integrated store intensification program. Saks initially
concentrated its efforts and resources on those stores that represented the
highest potential for increased sales and profit margins.
32
<PAGE>
Pursuant to this strategy, from the beginning of fiscal 1993 to the end of
fiscal 1995 Saks made significant investments in 14 high potential stores,
including $109 million in gross capital expenditures, $43 million in increased
inventory levels, $21 million in additional annual store payroll costs and $4
million in increased annual localized marketing spending. As a result, net sales
in these stores increased 29.5% from $698 million in fiscal 1992 to $904 million
in fiscal 1995. Saks is expanding its store intensification program to
additional stores in 1996 and 1997.
STORE EXPANSION
Saks continuously evaluates opportunities for profitable expansion of its
store base. Management believes that the current retail environment,
characterized by an accelerated pace of store rationalizations, downsizings and
bankruptcies, as well as the re-tenanting of major malls, offers many attractive
opportunities for Saks to continue to expand its store portfolio.
FULL-LINE STORES. Saks currently operates 40 full-line stores. Excluding
acquisitions, Saks plans to open three new full-line stores (including a store
in Orlando, Florida in 1996) and two replacement stores, and to complete nine
remodels through fiscal 1998.
RESORT STORES. Saks broadens its reach to the affluent tourist and permanent
and seasonal residents of resort markets through its resort stores. Saks
currently operates six resort stores, including a store in Charleston, South
Carolina that was opened in August 1996. Saks plans to open four new 30,000 to
50,000 gross square foot resort stores through fiscal 1998.
MAIN STREET STORES. Saks is testing a 35,000 square foot main street store
format designed for the local shopping areas of affluent suburban markets. The
first main street store is scheduled to open in Greenwich, Connecticut in
September 1996.
ACQUISITIONS. Management believes that the current retail environment will
continue to offer selected opportunities to increase Saks' presence in important
markets. For example, Saks intensified its presence on the west coast and in the
southwest by acquiring four former I. Magnin stores in February 1995.
Similarly, Saks intends to expand its presence in the demographically
attractive Texas market. In July 1996, Saks entered into an agreement with
Dayton Hudson Corporation and certain of its affiliates to acquire three
Marshall Field store locations in Texas which would add 250,000 square feet of
store space to Saks' presence in this market, subject to certain conditions. Two
of these stores are intended to replace two smaller stores that Saks currently
operates in Houston and Dallas. Saks intends to spend approximately $100 million
in connection with the acquisition and renovation of these stores. There can be
no assurance that Saks will satisfy the conditions under the agreement and
acquire these store locations. In addition, Saks is exploring other markets in
Texas.
In July 1996, Saks agreed with Japanese department store operator Isetan, a
creditor of Barneys, to begin exploring the financial feasibility of
co-sponsoring a plan of reorganization for Barneys, which filed for Chapter 11
bankruptcy protection in January 1996. The preliminary terms presently being
discussed would result in Saks obtaining control of Barneys and Isetan leasing
the Barneys store locations in Chicago, Beverly Hills and on Madison Avenue in
New York to the reorganized Barneys. However, Saks has only partially completed
its financial and business assessment of Barneys and is currently without access
to confidential information concerning Barneys. Saks would only proceed with
such a plan if management concludes that Barneys represents an attractive
investment opportunity. There can be no assurance that Saks and Isetan will
reach agreement on the terms of a proposed plan of reorganization. Even if Saks
and Isetan were to agree on the terms of such a plan, they could not file a plan
at this time without the support of Barneys, which currently retains the
exclusive right to file a plan of reorganization in its bankruptcy case. Barneys
has publicly opposed the cooperation between Saks and Isetan.
33
<PAGE>
FRANCHISE EXTENSION STRATEGIES
Management believes that the Saks Fifth Avenue franchise is extendible over
multiple formats and has developed the following specific growth strategies:
OFF 5TH. Through its Off 5th division, Saks extends its customer reach by
offering high quality, upscale branded fashion apparel in an outlet store
setting at 40% to 70% off original and comparable retail prices. Off 5th
provides attractive financial returns and an economically superior form of
inventory liquidation for Saks' retail stores. Saks currently operates 23 Off
5th stores and expects to open approximately 12 additional stores in the
remainder of fiscal 1996.
FOLIO. Saks extends its reach to direct response customers through its Folio
catalogs which offer fashionable women's apparel, accessories, home furnishings
and gifts and unique selections of Saks' private label merchandise. Folio mailed
29 million catalogs in fiscal 1995, an increase of 26% over fiscal 1994.
Management plans to increase Folio's sales through further development of its
customer list, increased circulation and the development of new catalogs,
including home and gift and outlet catalogs, both domestically and in
international markets.
INTERNATIONAL. Although Saks currently does not have significant sales
abroad, management believes that Saks' worldwide reputation and international
customer base offer attractive opportunities for future international growth.
Saks is exploring outreach programs in Japan, with selected catalog mailings and
the sale of Saks' private label merchandise to an established Japanese
department store, and in Latin America, through trunk shows and special events.
None of Saks' current intentions with respect to international expansion would
involve any material capital expenditures.
CAPITAL EXPENDITURES
Saks is committed to expanding and improving its store portfolio. From the
beginning of fiscal 1993 to the end of fiscal 1995 Saks made capital
expenditures of approximately $148 million on new stores, remodels, replacements
and expansions and, excluding acquisitions, plans to make additional such
capital expenditures of approximately $270 million through fiscal 1998.
Management believes that cash generated from Saks' operations, funds available
from Saks' credit facility and funds available from lease financing and
developer contributions will be sufficient to satisfy Saks' cash requirements
over this period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
FULL-LINE AND RESORT STORES
GENERAL
Saks operates a nationwide portfolio of 40 full-line stores and six resort
stores under the Saks Fifth Avenue name. The store portfolio includes premier
retail locations such as Fifth Avenue in New York City, Wilshire Boulevard in
Beverly Hills, Michigan Avenue in Chicago and Union Square in San Francisco. In
fiscal 1995, the percentage of total full-line and resort store net sales by
region were 41% in the Northeast, 20% in the Midwest, 15% in the Southeast and
24% in the West. Saks enjoys strong competitive positions in a number of the
most important retail markets in the United States, including New York City,
Florida and California.
34
<PAGE>
Unlike many of its competitors, Saks owns, rather than leases, a large
portion of its retail gross square footage, including its landmark Fifth Avenue
store. The following table sets forth certain information regarding Saks' real
estate portfolio at February 3, 1996.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL GROSS
SQUARE FOOTAGE
--------------
<S> <C>
Own building and own land............................... 30%
Own building and lease land............................. 48
Lease building and lease land........................... 22
</TABLE>
FULL-LINE STORES. Saks' 40 full-line stores are located in major markets in
the United States and range from 60,000 to 646,000 gross square feet. Since the
beginning of 1990, Saks has opened four new stores, replaced three stores,
expanded and remodeled 11 stores and closed four stores. Excluding acquisitions,
Saks plans to open three new full-line stores (including a store in Orlando,
Florida in 1996) and two replacement stores and to complete nine remodels
through fiscal 1998.
As part of a strategy to enhance its presence in California, in February
1995 Saks acquired four former I. Magnin store locations in Beverly Hills, San
Diego, Phoenix and Carmel. Saks converted three of these stores to its format
within two months, and the Beverly Hills store within six months, of
acquisition. This transaction resulted in additions to Saks' Beverly Hills and
Carmel stores, replacement of its Phoenix store and a new store in San Diego. In
addition to adding 234,000 gross square feet of store space, the I. Magnin
transaction permitted Saks to gain access to exclusive merchandise arrangements
previously unavailable to Saks in that part of the United States. Prior to the
acquisition, Saks had closed four underperforming stores located in non-
strategic areas of this market. Management believes that the current retail
environment will provide other opportunities for expansion through acquisition.
RESORT STORES. Saks' resort stores are located in markets characterized by
affluent vacationers and permanent and seasonal residents. The resort store
format allows Saks to capture sales from customers who are increasingly
migrating to resort areas during parts of the year. Saks' resort stores average
34,000 gross square feet. Since the 1990 Acquisition, Saks has opened two new
stores, expanded and remodeled two stores and closed one store. Saks currently
operates six resort stores including a store in Charleston, South Carolina that
was opened in August 1996. Saks plans to open four new resort stores through
fiscal 1998.
MAIN STREET STORES. Saks is testing a 35,000 square foot main street format
store designed for the local shopping areas of affluent suburban markets. The
first of these main street stores is scheduled to open in Greenwich, Connecticut
in September 1996. If successful, this format will be tested in similar
communities.
CAPITAL INVESTMENT. Management has committed substantial capital to upgrade
the size and shopping environment of many of its stores. From the 1990
Acquisition through fiscal 1995, Saks spent in excess of $183 million on new
stores, remodels, replacements and expansions. These investments have yielded
strong financial returns. As a result of these investments, over 60% of Saks'
selling space is either new or remodeled since the 1990 Acquisition.
Management continually evaluates the performance of Saks' assets. During
fiscal 1993, through a strategic review of Saks' existing stores and asset base,
management developed a plan to close underperforming stores and redeploy their
assets. Accordingly, in fiscal 1994 Saks closed three full-line stores, one
resort store, its 17 specialty stores (2,000 to 4,000 square foot mall shops
operated under designer names) and Saks' service center in New York City. In
fiscal 1995 Saks closed its full-line store in Owings Mills, Maryland and
announced the relocation of its primary
35
<PAGE>
distribution center from Yonkers, New York to a new, state-of-the-art facility
in Aberdeen, Maryland. See "Distribution Facilities".
The evolution of Saks' full-line and resort store portfolio since fiscal
1991 is set forth below:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
TOTAL STORES:
Beginning of period................................ 47 48 49 49 45
Closures........................................... 0 0 0 (5 ) (2 )
Openings........................................... 1 1 0 1 2
------ ------ ------ ------ ------
End of period...................................... 48 49 49 45 45
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL SQUARE FOOTAGE (in thousands):
Beginning of period................................ 4,813 4,888 4,918 4,959 4,549
Closures........................................... -- -- -- (523 ) (154 )
Openings........................................... 75 30 -- 106 272
Expansions......................................... -- -- 41 7 139
------ ------ ------ ------ ------
End of period...................................... 4,888 4,918 4,959 4,549 4,806
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
At August 29, 1996, Saks operates 46 full-line and resort stores.
Saks' store management is comprised of a general manager and an assistant
general manager of administration in charge of operations and human resources
and a manager of sales and service training. In larger stores, management is
augmented by one or more assistant general managers for merchandising, an
assistant general manager of operations and a human resources director. General
managers are accountable for sales training, service standards, customer
relationships, merchandising, operations and profitability of their stores. A
typical Saks store also has ten to 15 department managers, depending on the
store size, who have responsibility for customer development, sales associate
management, specific merchandise areas, and approximately five managers
overseeing support functions including shipping, receiving and security.
MERCHANDISING
Over its 70 year history, Saks Fifth Avenue has developed a reputation as a
leading fashion authenticator. Saks' position is strengthened by its
relationships with internationally acclaimed fashion design houses such as
Giorgio Armani, Bill Blass, Chanel, Escada, Salvatore Ferragamo, Gucci, Donna
Karan, Calvin Klein, Ralph Lauren, Judith Leiber, Prada, Oscar de la Renta, Jil
Sander, St. John, Yves St. Laurent, Ellen Tracy, Emanuel Ungaro and Ermenegildo
Zegna. These design houses establish trends and create product from which Saks
develops its merchandise mix. In turn, Saks enhances the image of these vendors
by presenting their merchandise in elegant shopping environments and, in many
cases, in-store shops. Management believes that Saks is a significant, if not
the largest, customer of many of these vendors. As a result, Saks is
advantageously positioned to obtain exclusive merchandise assortments, new
product introductions and financial incentives from these vendors.
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<PAGE>
Saks' merchandise strategy is to offer congruent and balanced assortments of
differentiated, upscale merchandise. Saks offers a predominantly better, bridge
and designer assortment of fashionable apparel, shoes, accessories, cosmetics
and fragrances for women and men, as well as gift merchandise and children's
apparel. Within these merchandise categories, Saks focuses on vendors and
merchandise offerings that are distinctive and differentiated and that
contribute to profit growth. The following table sets forth the percentage of
retail sales by merchandise category for fiscal 1995:
PERCENTAGE OF
FISCAL 1995
MERCHANDISE CATEGORY RETAIL SALES
- ---------------------------------------------------------- -------------
Women's designer apparel.................................. 14%
Women's sportswear........................................ 32
Men's apparel............................................. 16
Shoes, jewelry, handbags and other accessories............ 22
Fragrances and cosmetics.................................. 14
Other..................................................... 2
Saks achieves differentiation through its focus on upscale merchandise, its
preferred vendor relationships which provide access to product that is sold
exclusively through Saks, Saks' private label collections, special size apparel
offerings and the continual editing of its merchandise to reflect the forefront
of fashion. Saks has exited lower price point and broadly distributed
merchandise categories where it cannot differentiate its assortments. In fiscal
1995, Saks no longer offered certain vendors' merchandise which, in fiscal 1992,
comprised net sales of $85 million.
Capitalizing on its status as a leading fashion authenticator, Saks has
created a private label business, with a differentiated product offering and
relatively lower price points, that allows it to serve a broader customer base
interested in fashion. Saks offers private label apparel in most merchandise
categories. Saks' merchandising staff, with the assistance of freelance
designers, creates exclusive designs and oversees production through contract
manufacturers. Saks' leading private labels are Saks Fifth Avenue Collections
(women's bridge sportswear), Real Clothes (casual/active sportswear for women),
The Works (career coordinates for women) and Saks Fifth Avenue Mens Collection
(sportswear and furnishings for men). Saks continually seeks opportunities to
expand its private label business. Recent additions include the Como Sport for
Cobra Golf line of golf apparel for men and women. Private label merchandise
comprised 8% of consolidated net sales in fiscal 1995.
In order to extend its customer base and to differentiate its merchandise,
Saks has devoted considerable efforts to the development of its special size
apparel categories: petites and, for the larger woman, "Salon Z". Saks has
invested in inventory and selling space, and has prompted a number of its
vendors to create designs for its Salon Z merchandise that are consistent with
Saks' strategy of offering distinctive, high quality fashion merchandise. These
special size categories comprised 5% of consolidated net sales in fiscal 1995.
Net sales of these categories in fiscal 1995 increased 24% from fiscal 1994.
Although Saks draws its customers from a broad group, women in the 40 to 55
year old age bracket comprise a core component of Saks' customer base. In 1994,
Saks began to specifically target the merchandise categories that, based on
extensive research, were determined to be most important to these top customers.
Saks is increasingly developing dominant assortments in these categories by
increasing inventory allocation, upgrading the quality and congruency of
merchandise and increasing the number of important vendors and brands.
In developing Saks' merchandise assortments, management monitors the
relationship between merchandise mix and profitability. Saks balances a complex
mix of merchandise at different price
37
<PAGE>
points and profitability levels, using appropriate quantities of designer
apparel to build image, create merchandise excitement and drive sales of higher
margin merchandise in order to increase profits.
Management believes that the success of Saks' resort stores is driven to a
significant degree by Saks' ability to tailor assortments to local climate,
preferences and social events. Similarly, Saks anticipates selling merchandise
assortments in its main street stores that are customized to local market
conditions.
To support its merchandising strategy, Saks has increased capital
expenditures, inventory and marketing support to improve merchandise assortments
and presentation and to increase customer awareness. In addition, Saks has
modified its training and incentive compensation programs to improve product
knowledge and selling efforts and cross-selling among merchandise categories.
At August 3, 1996, Saks employed approximately 280 people in its
merchandising and buying offices. Saks' largest supplier in fiscal 1995
accounted for less than 4% of total merchandise purchases. Saks believes that
the loss of any one of its vendors would not have a material adverse effect on
Saks' business.
MERCHANDISE PLANNING AND MONITORING
In 1995, Saks completed a comprehensive review of its merchandise planning
process. The review evaluated Saks' existing organization and processes as well
as retail industry best practices. Saks redesigned its planning process and
organization and established the framework of a store-level merchandise planning
process to drive sales and gross margin performance by store. The key elements
of the process include the development and maintenance of store profiles which
identify, among other things, important store characteristics such as customer
demographics, physical plant, competitive environment, seasonality and local
events. This information is used by the buying and planning organizations to
tailor merchandise assortments and flows by store.
The planning process involves the interactive development of total company
merchandise plans by department and merchandise groups as well as on a
store-by-store basis. The planning organization is structured to work as a
partnership with the merchandise buying organization with a ratio of one planner
for every two buyers. The merchants are focused on top-side merchandise issues
including merchandising guidelines, strategic vendor alliances, assortment
planning, shopping the market, negotiating with vendors and meeting financial
targets. The planners are focused on development of store specific congruent
merchandise assortments and meeting financial targets. The planners also
function as the "controllers" for buying responsibilities and monitor the
ongoing execution of the plan and open-to-buy on a by-store basis throughout the
season. This process includes semi-monthly review of results and forecasts with
senior merchants, store management and finance groups. Management believes that
the new planning process is essential to improving sales and gross margin and
Saks' productivity of its inventory investment.
CUSTOMER AFFINITY PROGRAMS
Management believes its strong customer service and marketing abilities,
supported by its sophisticated client data base, are key competitive advantages.
Saks is enhancing the quality of its customer service through improved
recruiting and training of sales associates, implementation of performance-based
compensation policies, increased accountability for performance of both sales
associates and managers, increased clienteling and data base marketing
activities and increased selling payroll.
38
<PAGE>
In keeping with its top customer focus, management developed several
programs designed to increase sales to its top customers. These initiatives have
resulted in increased average dollar amounts spent by these customers at Saks
each year and retention of such customers from year to year.
CUSTOMER CLIENTELING. Through its customer clienteling program, Saks' top
customers are identified for each store and individually assigned to sales
associates who have been trained in sophisticated sales, service and
relationship-building techniques. Saks currently is implementing The Link, its
state-of-the-art automated client book, to assist sales associates in their
clienteling efforts through better understanding of the purchasing behavior and
merchandise preferences of their customers. Management expects that this system
will enable sales associates to further personalize selling efforts and thereby
generate increased sales per customer.
SAKS FIRST PROGRAM. To foster customer loyalty and increase sales, in late
1994 Saks improved the benefits of its Saks First Program, an affinity program
directed to customers who charge in excess of $2,000 annually on their Saks
credit card. Saks First customers are rewarded with points convertible into Saks
gift certificates based on spending levels. Saks First customers also receive
fashion newsletters, invitations to one-of-a-kind special events, such as
fashion shows, movie premiers and celebrity dining, and advance notice of sale
events.
THE FIFTH AVENUE CLUB. Fifth Avenue Club membership offers participants
service-intensive private shopping environments within Saks' stores.
Historically, the Fifth Avenue Club has accounted for a significant portion of
Saks' full price designer sales. Based upon performance in selected markets,
management believes that the Fifth Avenue Club is underpenetrated in the
majority of its stores. In order to enhance the attractiveness of, and
participation in, the Fifth Avenue Club, management recently increased marketing
support to broaden customer awareness, improved the quality and quantity of club
staff, upgraded club facilities and heightened accountability on the part of
store general managers for the program.
MARKETING
Saks' marketing program supports its focus on top customers, target
merchandise groups and high potential stores while maintaining a high profile,
consistently visible image on both national and local levels. These programs are
designed to reinforce Saks' position as one of the world's premier fashion
retailers, to increase awareness of Saks' merchandise range and customer service
standards and to reaffirm Saks' cachet and reputation.
All marketing activities, including advertising, in-store special events and
window display, are developed and managed by Saks' in-house marketing and visual
departments on a centralized basis. Although Saks markets through a variety of
media, including direct mail, newspaper, public relations, magazines, radio and
television, customer outreach programs and other means, Saks focuses its efforts
on those media that effectively reaffirm Saks' position as a leading fashion
authenticator and efficiently reach Saks' top customer group. Saks actively
pursues vendor co-operative advertising, substantially increasing the
advertising resources available to Saks. Saks promotes its image as a fashion
leader primarily through regular advertisements in authoritative fashion and
life-style magazines, such as Vogue, W, Gourmet and Town and Country, store
events hosted by designers such as Calvin Klein, Isaac Mizrahi and Oscar de la
Renta, and sponsorship of fashion oriented charity events. Saks continually
evaluates and adjusts its marketing programs to efficiently drive sales.
OFF 5TH STORES
Through its Off 5th division, Saks extends its customer reach by offering
high quality branded fashion apparel in an outlet store setting at prices that
are 40% to 70% off original and comparable
39
<PAGE>
retail prices. Off 5th opened its first store in Franklin Mills, Pennsylvania in
1990 to provide a more efficient means of liquidating end-of-season merchandise
from Saks' retail stores. The concept gained immediate consumer acceptance due
to Off 5th's exceptional prices, high quality fashion merchandise and pleasant
shopping environment in combination with the Saks Fifth Avenue name. Based upon
this initial success, management continued to develop Off 5th's supporting
infrastructure, and Saks today operates 23 Off 5th stores in 15 states.
Off 5th occupies a unique market position with its multi-brand assortment of
exceptionally priced, high quality fashion merchandise, including better, bridge
and designer apparel. Management believes that Off 5th possesses the following
important competitive advantages: (i) access to end-of-season merchandise from
Saks' retail stores; (ii) Saks' strong vendor relationships that provide access
to high quality merchandise; (iii) vendor willingness to clear overstocks with,
and extend production runs for, Off 5th; and (iv) the broad aspirational appeal
to customers of the Saks Fifth Avenue brand name. In addition, Off 5th offers an
economically superior form of inventory liquidation for Saks' retail stores.
Off 5th's merchandise strategy is to offer women's and men's apparel
consistent with the level of quality and fashion found in Saks' retail stores.
In fiscal 1995, Off 5th purchased approximately 40% of its inventory from Saks
with the balance purchased directly from vendors. Management expects to purchase
a greater percentage of its merchandise directly from vendors as the number of
Off 5th stores increases.
Located primarily in outlet malls, Off 5th stores average approximately
23,000 square feet. Management believes that the stores maintain fixturing,
visual presentation and service standards superior to those generally associated
with outlet stores.
Off 5th generates attractive economic returns resulting from its relatively
high sales productivity, favorable lease economics (due to Off 5th's status as a
desirable anchor tenant), and low corporate overhead (as Off 5th shares in the
economies of scale of Saks' corporate and logistics structures). Management
plans to substantially increase its store base by opening new stores in selected
outlet malls and off-price centers throughout the United States. Saks expects to
open approximately 12 additional Off 5th stores in the remainder of fiscal 1996.
Information regarding Off 5th's historical growth is set forth below.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales (in millions)........................ $ 10.6 $ 27.9 $ 42.9 $ 57.2 $108.0
Net sales per average square foot.............. $ 411 $ 452 $ 440 $ 362 $ 352
Number of stores at period end................. 1 3 4 8 19
</TABLE>
FOLIO CATALOGS
Saks offers designer fashion brands and unique selections of Saks Fifth
Avenue private label merchandise to direct response customers through its Folio
catalogs. Folio enjoys a strong position in the relatively underserved catalog
market for upscale designer merchandise. Folio's merchandise is of a quality and
fashion consistent with that carried in Saks' retail stores, with an emphasis on
classic styling.
Folio began operations in 1972 when it mailed its first holiday catalog. For
the next 20 years, Folio operated as both a marketing vehicle for Saks' retail
stores and a direct response business. In 1993 management began to establish
Folio as an independent operating division with a catalog format and merchandise
offerings tailored to the direct response customer. In 1994, Folio recruited its
own merchandise and marketing staff. In 1995, Folio installed a new
state-of-the-art customized
40
<PAGE>
catalog management information system. Also in 1995, Folio successfully
introduced two new merchandise concepts, Folio Designs For The Home, a catalog
offering upscale home and gift merchandise, and Folio Outlet By Mail, an
off-price catalog marketing upscale branded fashion merchandise at a discount.
In addition, Folio initiated international mailings, primarily to Japan.
Folio has developed a highly productive customer list primarily derived from
Saks' retail stores customer data base and prior customer purchases from Folio.
In addition, Folio utilizes a variety of sources to acquire new names, including
list rentals and exchanges with other catalogs and credit card companies. Names
of the most active of Folio's customers are maintained in a 12-month buyer file
which lists those customers who have purchased from Folio in the past 12 months.
As of July 1996, Saks' 12-month buyer list included 335,000 names, an increase
of approximately 27% over July 1995.
Folio mailed a total of 23 catalogs with a total circulation of 29 million
in fiscal 1995. This compares to a total of 20 catalogs with a total circulation
of 23 million in fiscal 1994. Folio generated net sales in fiscal 1995 of $82.8
million, a 42% increase over fiscal 1994. Based upon the success of its
initiatives in fiscal 1995, management has added catalogs and increased the
circulation of its new titles and international mailings in fiscal 1996.
Orders for merchandise are received by telephone, fax and mail at Folio's
telemarketing and fulfillment facility located within Saks' Yonkers, New York
distribution center. Management expects the recent installation of a dedicated
catalog management information system for use by its telemarketing agents to
improve customer service and increase the productivity of its catalog
operations. Folio's telemarketing and fulfillment capabilities will be
transferred to Saks' new Aberdeen, Maryland facility upon the relocation of
Saks' Yonkers distribution center.
The economies of scale available to Folio through the use of Saks'
merchandising, corporate and logistics infrastructure contribute to Folio's
relatively strong profit margins. In turn, Folio facilitates the testing of new
products and markets, which Saks may then capitalize on through its retail
stores.
SAKS FIFTH AVENUE PROPRIETARY CREDIT CARD
Established over 40 years ago, Saks' proprietary credit card accounted for
approximately half of Saks' net sales in fiscal 1995. As of February 3, 1996,
Saks had approximately 1.4 million credit card customers that had made a
purchase within 24 months.
The proprietary credit card provides Saks with valuable customer information
and an excellent marketing and communications tool for its customers. During
fiscal 1995, Saks mailed approximately 500,000 statements per month to its
credit card holders. Saks is able to analyze its customer data by purchasing
patterns, including frequency, amount spent and merchandise category. Saks uses
this information to more effectively target merchandise information, special
events and promotions to its customers. Folio utilizes the Saks credit card
customer lists to develop new customers for its direct marketing mailings. The
Saks First Program also is linked directly to the credit card. In addition,
management believes that Saks' proprietary credit card promotes customer
affinity and loyalty because these customers on average generate greater sales
per transaction than the average customer.
Saks outsources its credit card operations to a third party, while
maintaining control over credit policy decisions and customer service standards.
Customers who apply for the Saks credit card are approved for credit based on a
satisfactory evaluation of a credit bureau report along with employment and bank
information.
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<PAGE>
MANAGEMENT INFORMATION SYSTEMS
Saks has made substantial investments in information systems designed to
support its strategies. Saks made capital expenditures of approximately $21
million on information systems in fiscal 1993 through fiscal 1995 and plans to
make additional capital expenditures of approximately $43 million on such
systems through fiscal 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources".
To increase sales and assist selling personnel, Saks has implemented an
industry-leading automated client book and a merchandise locator. The automated
client book enables sales associates throughout Saks to access from any POS
register a database of the purchasing preferences of their top customers. The
merchandise locator allows a sales associate to locate merchandise on a
real-time basis in any Saks store and arrange for that merchandise to be
promptly shipped to a customer. In addition, Saks' POS terminals utilize bar
code scanning technology to enhance customer service and inventory management.
In support of Saks' merchandising operations and new merchandise planning
processes, Saks continues to invest in further developing existing and new
systems. Saks' newest system is "Merchants Workbench", which provides detailed
information on merchandise sales by store utilizing a relational database and
client server technologies. Saks' inventory management is supported by quick
response electronic data interchange systems and by an automatic replenishment
system that utilizes actual sales, sales forecasts and seasonal selling profiles
down to the SKU level to replenish certain merchandise categories automatically,
resulting in improved assortments, in-stock position and sales. Saks has
implemented the automatic replenishment system in categories such as dress
shirts, hosiery, leather belts and accessories.
STORE PROPERTIES
The following table sets forth the location, mall name or street address,
year opened and gross square footage of each full-line, resort and Off 5th store
open as of August 29, 1996:
FULL-LINE STORES
<TABLE><CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- -------------------------------- ---------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
NEW YORK CITY
New York, NY................ 611 Fifth Avenue 1924 646
NORTHEAST REGION
Stamford, CT................ Stamford Town Center 1983 78
Boston, MA.................. Prudential Center 1971 110
Chevy Chase, MD............. 555 Wisconsin Avenue 1964 108
Hackensack, NJ.............. Riverside Square 1977 107
Short Hills, NJ............. Short Hills Mall 1994 106
Garden City, NY............. 1300 Franklin Avenue 1962 106
White Plains, NY............ Bloomingdale Road 1954 128
Bala Cynwyd, PA............. No. 2 Decker Square 1969 102
McLean, VA.................. The Galleria at Tyson's II 1988 120
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- -------------------------------- ---------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
SOUTHEAST REGION
Boca Raton, FL.............. Town Center 1986 75
Ft. Lauderdale, FL.......... Galleria Mall 1980 74
Bal Harbour, FL............. Bal Harbour Mall 1976 104
Miami, FL................... Dadeland Mall 1984 78
Palm Beach Gardens, FL...... The Gardens 1991 75
Atlanta, GA................. Phipps Plaza 1968 130
MIDWEST REGION
Chicago, IL................. 700 North Michigan, Chicago Place 1990 150
Oakbrook, IL................ Oakbrook Shopping Center 1981 90
Skokie, IL.................. Old Orchard Mall 1978 105
New Orleans, LA............. Canal Place 1983 75
Dearborn, MI................ Fairlane Town Center 1980 91
Troy, MI.................... Somerset Mall 1967 121
Minneapolis, MN............. Nicollett Mall 1989 120
Frontenac, MO............... Plaza Frontenac 1973 123
Kansas City, MO............. Country Club Plaza 1982 73
Beachwood, OH............... Beachwood Place 1978 102
Cincinnati, OH.............. Fifth and Race Streets 1984 76
Tulsa, OK................... Utica Square 1986 62
Pittsburgh, PA.............. 513 Smithfield Street 1977 86
WESTERN REGION
Phoenix, AZ................. Biltmore Fashion Park 1995 90
Beverly Hills, CA........... 9600/9634 Wilshire Blvd 1938/95 175/100
Costa Mesa, CA.............. South Coast Plaza 1979 105
San Diego, CA............... Fashion Valley 1995 80
San Francisco, CA........... Union Square 1981 136
Denver, CO.................. Cherry Creek Mall 1990 90
Las Vegas, NV............... The Fashion Show 1981 68
Portland, OR................ Pioneer Place 1990 60
Dallas, TX.................. Dallas Galleria 1982 117
Houston, TX................. Pavilion/Post Oak 1974 125
San Antonio, TX............. 650 North Star Mall 1985 84
RESORT STORES
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- -------------------------------- ---------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
NORTHEAST REGION
Southampton, NY............. 8-12 Main Street 1987 8
SOUTHEAST REGION
Naples, FL.................. Westside Shops Pelican Bay 1992 30
Palm Beach, FL.............. The Esplanade 1979 37
Charleston, SC.............. Majestic Square 1996 30
WESTERN REGION
Carmel-by-the-Sea, CA....... Carmel Plaza 1986/95 24/24
Palm Springs, CA............ Desert Fashion Plaza 1985 50
</TABLE>
43
<PAGE>
OFF 5TH STORES
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- ------------------------------- --------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
NORTHEAST REGION
Clinton, CT................ Clinton Crossing Factory Outlets 1996 18
Danvers, MA................ Liberty Tree Mall 1996 19
Worcester, MA.............. Worcester Common Fashion Outlets 1994 29
Niagara Falls, NY.......... Factory Outlet Mall 1995 20
Franklin Mills Circle, Franklin Mills 1990 28
PA.............................
SOUTHEAST REGION
Orlando, FL................ International Designer Outlet 1994 22
Center
Sunrise, FL................ Sawgrass Mills 1992 46
Dawsonville, GA............ North Georgia Premium Outlets 1996 20
Raleigh, NC................ Triangle Factory Shops 1996 20
Myrtle Beach, SC........... Myrtle Beach Factory Stores 1995 15
Nashville, TN.............. Oaks Shopping Center 1995 25
Woodbridge, VA............. Potomac Mills 1992 28
MIDWEST REGION
Gurnee, IL................. Gurnee Mills 1993 29
Aurora, OH................. Aurora Farms 1995 15
Jeffersonville, OH......... Jeffersonville Outlet Mall 1994 15
WESTERN REGION
Phoenix, AZ................ Arizona Factory Stores 1995 16
Camarillo, CA.............. Camarillo Factory Stores 1995 16
Milpitas, CA............... The Great Mall of the Bay Area 1995 25
Petaluma, CA............... Petaluma Village Factory Outlet 1995 15
Honolulu, HI............... Waikele Center 1994 30
Hillsboro, TX.............. Southwest Outlet Center 1995 15
San Marcos, TX............. San Marcos Factory Shops 1995 22
Auburn, WA................. Supermall of the Great Northwest 1995 25
</TABLE>
DISTRIBUTION FACILITIES
Saks operates two distribution centers that service Saks' full-line, resort
and Off 5th stores, as well as Folio. Saks owns a 509,000 square foot
distribution center in Yonkers, New York that serves as Saks' primary
distribution facility and handles 85% of Saks' retail store distribution, all
Folio catalog telemarketing and fulfillment and Off 5th merchandise processing.
Saks also leases an 88,000 square foot distribution center in Ontario,
California that handles the balance of Saks' retail distribution. The
distribution centers employ state-of-the-art bar code scanning and tracing
technology, as well as integrated purchase-order tracking capabilities that
assist in merchandise planning. During fiscal 1995, the two distribution centers
processed approximately 15 million pieces of merchandise.
Saks recently announced plans to relocate the processing activity of its
Yonkers facility to a new, state-of-the-art facility in Aberdeen, Maryland. This
600,000 gross square foot facility, which will be leased by Saks, is expected to
open in early 1997. In order to ensure an effective transition, Saks will
operate both facilities for up to six months following the opening of the
Aberdeen facility, after which period the Yonkers facility will be closed. The
relocation is anticipated to result in lower processing costs as well as more
rapid delivery of merchandise to the sales floor to maximize full-price sales
and improve fulfillment rates for the Folio catalog division.
44
<PAGE>
Saks will receive incentive payments from various government agencies which
are expected to approximate the costs of relocating its processing activities to
the new facility. Saks will occupy the facility pursuant to a lease, with the
net present value of future rental payments equal to $23 million. Saks expects
to sell its Yonkers facility after exiting it in early 1997. Saks recorded a
charge in fiscal 1995 to reduce the carrying value of the Yonkers facility to
its net realizable value. If Saks or a purchaser is successful in obtaining
rezoning for the use of the property, a gain on sale could be realized.
Management is unable to determine if rezoning will occur.
In the area of logistics, Saks has implemented various programs designed to
improve processing productivity in order to speed the flow of merchandise from
vendors through Saks distribution facilities to the selling floor. These include
size and color marking and tracking, increased vendor pre-marking, a variety of
pre-distribution services, integrated universal product code (UPC)
identification methods, radio frequency (RF) scanning and electronic data
interchange (EDI) technologies. Saks uses contract carriage for approximately
73% of its merchandise. Saks uses air cargo for transcontinental merchandise
shipments, as well as for shipping to particular markets during peak demand
periods. When appropriate, Saks arranges for vendors to ship directly to stores.
COMPETITION
All aspects of the retail industry, including attracting customers, securing
merchandise and locating appropriate retail sites, are highly competitive. Saks
competes for customers in this industry with retailers in the following five
categories: large specialty apparel retailers; better department stores;
national specialty apparel chains; designer boutiques; and individual specialty
apparel stores. The type of individual competitor in each of these groups
differs from region to region and from store to store. Many of these competitors
are larger and have greater financial resources than Saks.
LARGE SPECIALTY APPAREL RETAILERS. These retailers usually operate stores in
key regional or national markets and primarily offer apparel, cosmetics and
accessory products. Main competitors in this category are Barneys, Bergdorf
Goodman, Brooks Brothers, Jacobson's, Lord & Taylor, Neiman Marcus and
Nordstrom. Store sizes vary widely.
BETTER DEPARTMENT STORES. This group is best categorized as offering a broad
merchandise assortment, including apparel and accessories, as well as, in some
cases, furniture, electronics and fine china, often in large stores of 200,000
selling square feet or more. This group includes stores operated by Dayton
Hudson Department Stores, Dillard Department Stores, Federated Department
Stores, The May Department Stores Company and Mercantile Stores.
NATIONAL SPECIALTY APPAREL CHAINS. This competitor group is characterized by
a large number of smaller stores nationwide, usually between 5,000 and 10,000
selling square feet, and a limited and focused merchandise assortment. This
group includes AnnTaylor, Banana Republic and Talbots.
DESIGNER BOUTIQUES. These stores are usually between 5,000 and 10,000
selling square feet and frequently are limited to major cities. Merchandise
offered by designer boutiques is highly focused and generally limited to the
product lines of one designer.
INDIVIDUAL SPECIALTY APPAREL STORES. These stores are comparable to designer
boutiques in size but carry product lines of more than one designer.
Off 5th competes with designer factory outlet stores, specialty outlet
stores and other off-price formats and the moderate department store sector.
Folio competes with diversified general merchandise catalogs, department store
catalogs and specialty catalogs.
45
<PAGE>
TRADEMARKS AND SERVICE MARKS
Saks owns its principal trademarks and service marks, including the "Saks
Fifth Avenue", "SFA" "[SFA LOGO]" marks. Other important trademarks and service
marks include "Off 5th", "Folio", "Real Clothes", "The Works" and "The Fifth
Avenue Club". Saks' trademarks and service marks are registered in the United
States Patent and Trademark Office. The term of these registrations is
generally ten years, and they are renewable for additional ten year periods
indefinitely, so long as the marks are still in use at the time of renewal.
Saks is not aware of any claims of infringement or other challenges to its
right to register or use its marks in the United States.
EMPLOYEES
At August 3, 1996, Saks employed approximately 870 people at its
headquarters and buying offices and 10,800 in its stores, two distribution
centers and data center. Saks' staffing requirements fluctuate during the year
as a result of the seasonality of the retail apparel industry, adding
approximately 1,200 to 1,500 more seasonal employees in the fourth quarter.
Approximately 100 of Saks' employees are covered by collective bargaining
agreements. Saks has never been subject to a strike and believes that its
relationship with its employees and the unions is good.
LITIGATION
Saks is a defendant in a suit pending in the Supreme Court of the State of
New York, County of New York, in which the plaintiff, a former Saks employee,
contends, among other things, that Saks was negligent in hiring a co-worker who
allegedly assaulted the plaintiff. The plaintiff is seeking $10 million in
damages. Saks has moved to dismiss the action. Saks believes that, subject to a
self-insured retention, the claim is covered by Saks' insurance. In connection
with the suit, Saks also is in litigation with one of its insurance providers
regarding the provider's duties and obligations under its insurance contract
with Saks. Saks does not believe that the resolution of these suits will have a
material adverse impact on its financial position or results of operations.
Saks also is from time to time involved in routine litigation incidental to
the conduct of its business. Management believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
financial position or results of operations.
46
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of Saks Holdings. In March 1996, the executive
officers of Saks were given the same titles at Saks Holdings as they held at
Saks. Each director of Saks Holdings will hold office until the next annual
meeting of stockholders of Saks Holdings or until his or her successor has been
elected and qualified. Officers of Saks Holdings are elected by the Board of
Directors of Saks Holdings and serve at the discretion of such Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Philip B. Miller............... 57 Chairman and Chief Executive Officer and Director
Brian E. Kendrick.............. 42 Vice Chairman and Chief Operating Officer and
Director
Rose Marie Bravo............... 44 President and Director
Owen E. Dorsey................. 45 Executive Vice President
Richard F. Zannino............. 37 Executive Vice President and Chief Financial Officer
and Treasurer
Christina Johnson.............. 46 Executive Vice President
Mark E. Hood................... 44 Senior Vice President and Chief Accounting Officer
Joan F. Krey................... 51 Vice President and Secretary
Savio W. Tung.................. 44 Director
Jon P. Hedley.................. 35 Director
E. Garrett Bewkes III.......... 45 Director
Charles J. Philippin........... 45 Director
Stephen I. Sadove.............. 45 Director
Brian Ruder.................... 42 Director
</TABLE>
PHILIP B. MILLER became Chairman and Chief Executive Officer of Saks in June
1993. Mr. Miller joined Saks in August 1990 as Vice Chairman and became Chief
Operating Officer in 1992. Mr. Miller became Vice Chairman and a director of
Saks Holdings in August 1990 and a Vice President of Saks Holdings in January
1991. Mr. Miller formerly was Chairman and Chief Executive Officer of Marshall
Field's, joining that company in 1983 from Neiman Marcus, where he had been
President since 1977.
BRIAN E. KENDRICK became Vice Chairman of Saks in November 1994 and Chief
Operating Officer of Saks and Saks Holdings in August 1996. He joined Saks as
Senior Vice President and Chief Financial Officer in April 1991. Mr. Kendrick
became Vice President of Saks Holdings in April 1993 and a director of Saks
Holdings in February 1994. From 1981 to 1991 Mr. Kendrick was the Chief
Financial Officer of Maison Blanche/Goudchaux, Inc. in Baton Rouge, Louisiana.
In 1987 and 1988 he took a leave of absence to become the Chief Administrative
Officer for the State of Louisiana.
ROSE MARIE BRAVO became President of Saks in September 1992 and a director
of Saks in October 1992. Ms. Bravo became a Vice President and a director of
Saks Holdings in September and October of 1992, respectively. Ms. Bravo formerly
was the Chairman and Chief Executive Officer of I. Magnin, a specialty division
of the R.H. Macy Company, a position she held since 1987. In February 1992 R.H.
Macy & Co., I. Magnin's parent company, entered bankruptcy protection.
OWEN E. DORSEY became an Executive Vice President of Saks in November 1994.
In November 1993 Mr. Dorsey joined Saks as Senior Vice President, Human
Resources. Mr. Dorsey became a Vice President of Saks Holdings in January 1994.
Mr. Dorsey formerly was with the Ritz Carlton Hotel Company, where he held the
position of Vice President, Human Resources from 1988 to 1993.
47
<PAGE>
RICHARD F. ZANNINO became Executive Vice President, Chief Financial Officer
of Saks and Saks Holdings and Treasurer of Saks Holdings in August 1996. Mr.
Zannino served as Senior Vice President of Saks from May 1994 to July 1996. Mr.
Zannino joined Saks in January 1993 as Vice President and Treasurer. From March
1992 to November 1992, Mr. Zannino was Vice President of Finance for JWP Inc., a
multinational technical services company. In December 1993, JWP Inc. entered
bankruptcy protection. From 1986 to 1992 Mr. Zannino was with Peter Kiewit Sons,
Inc., a privately-held, multi-industry company in a finance and business
development role.
CHRISTINA JOHNSON became Executive Vice President of Saks and Saks Holdings
in August 1996. From 1992 to July 1996, Ms. Johnson served Saks as Senior Vice
President and Director of Stores in the Northeast Region. Ms. Johnson joined
Saks in 1991 from Marshall Field where she was a Senior Vice President and a
General Merchandise Manager.
MARK E. HOOD became Senior Vice President and Chief Accounting Officer of
Saks and Saks Holdings in August 1996. Mr. Hood joined Saks in June 1995 as Vice
President. From 1991 to June 1995, Mr. Hood served as Vice President and
Controller for Foley's Department Stores, a division of the May Department
Stores Company.
JOAN F. KREY became Vice President and Secretary of Saks Holdings in August
1996. Ms. Krey has served as General Counsel, Vice President and Secretary of
Saks since August 1985.
SAVIO W. TUNG became a director of Saks Holdings in April 1990. He has been
an executive of Investcorp, its predecessor or one or more of its wholly-owned
subsidiaries since September 1984. Mr. Tung is a director of Star Markets, Inc.
JON P. HEDLEY became a director of Saks and Saks Holdings in October 1995.
Mr. Hedley served as Secretary and Treasurer of Saks Holdings from September
1992 to August 1996. He has been an executive of Investcorp, its predecessor or
one or more of its wholly-owned subsidiaries since April 1990.
E. GARRETT BEWKES III became a director of Saks and Saks Holdings in June
1994. He is co-founder of GarMark Advisors, LLC. He was an executive of
Investcorp, its predecessor or one or more of its wholly-owned subsidiaries from
March 1994 to November 1995. Prior to joining Investcorp, Mr. Bewkes was Vice
Chairman and Co-head of the Investment Banking Department at Bear, Stearns & Co.
Inc. Mr. Bewkes also held the position of Senior Managing Director. He is a
director of The Bear Stearns Companies Inc.
CHARLES J. PHILIPPIN became a director of Saks and Saks Holdings in January
1995. He has been an executive of Investcorp, its predecessor or one or more of
its wholly-owned subsidiaries since October 1994. Prior to joining Investcorp,
Mr. Philippin was a partner with Coopers & Lybrand L.L.P. Mr. Philippin is a
director of Prime Holdings, Inc.
STEPHEN I. SADOVE became a director of Saks Holdings in August 1996. Since
1991, Mr. Sadove has served as President Worldwide of Clairol, Inc. Mr. Sadove
currently sits on the board of directors of Alpine Lace Brands, Inc.
BRIAN RUDER became a director of Saks Holdings in August 1996. Since 1995,
Mr. Ruder has served as President of Heinz U.S.A. Retail Products, a division of
H.J. Heinz Company. Mr. Ruder has held various executive positions at H.J. Heinz
or one of its operating divisions since 1988.
COMMITTEES OF THE BOARD OF DIRECTORS
In March 1996, Saks Holdings created a compensation committee, an audit
committee and a stock option and stock purchase plan committee. Messrs. Bewkes,
Tung, Philippin and Hedley were appointed to the compensation committee, Messr.
Bewkes was appointed to the audit committee and Messrs. Bewkes, Tung, Philippin
and Hedley were appointed to the stock option and stock
48
<PAGE>
purchase plan committee. In August 1996, Messrs. Sadove and Ruder were appointed
to the audit, compensation and stock option and stock purchase plan committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to March 1996, Saks Holdings did not have a compensation committee.
Messrs. Bewkes, Philippin, Hedley and Tung participated in deliberations
concerning compensation of executive officers of Saks during 1995. None of the
executive officers of Saks Holdings served on the Board of Directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the compensation committee of Saks Holdings.
NON-EMPLOYEE DIRECTORS COMPENSATION
Directors who are employees of Saks Holdings or executives of Investcorp
receive no separate compensation other than stock options for serving as
directors. Other directors receive an annual retainer of $22,000, stock options
and reimbursement of out-of-pocket expenses incurred in attending meetings of
the Board of Directors and any committees of the Board on which they serve, as
well as payments of $1,500 per meeting attended in person and $500 per
telephonic meeting.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Saks Holdings is a holding company which conducts all of its activities
through its operating subsidiary, Saks, and the subsidiaries of Saks. The
officers of Saks Holdings receive no compensation in their capacities as
officers of Saks Holdings. Accordingly, the following table sets forth
information concerning the annual and long-term compensation earned by Saks'
chief executive officer and each of the four other most highly compensated
executive officers of Saks whose annual salary and bonus during the fiscal years
presented exceeded $100,000 (the "Named Officers").
<TABLE><CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION (2)(3)(4) ------------
------------------------- SECURITIES
NAME AND FISCAL ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION (2)
- ------------------------ ------ ---------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Philip B. Miller........ 1995 $1,100,000 $360,000 0 $ 59,567(5)
Chairman and Chief
Executive Officer
Brian E. Kendrick....... 1995 666,667 225,000 0 8,347(6)
Vice Chairman and Chief
Operating Officer
Rose Marie Bravo........ 1995 666,667 225,000 0 18,515(7)
President
Owen E. Dorsey.......... 1995 357,500 40,000 0 113,009(8)
Executive Vice President
Richard F. Zannino...... 1995 290,000 90,000 39,110 6,845(9)
Executive Vice
President, Chief
Financial Officer and
Treasurer
</TABLE>
- ------------
(1) The principal position given for each of the Named Officers is as the date
of this Prospectus and does not necessarily reflect the position held during
fiscal 1995.
(2) The amounts indicated reflect compensation paid by Saks unless otherwise
specified.
(Footnotes continued on following page)
49
<PAGE>
(Footnotes continued from preceding page)
(3) Other annual compensation did not exceed $50,000 or 10% of the total salary
and bonus for any of the Named Officers.
(4) Does not include retirement benefits covered under Saks' Pension Plan and
Supplemental Plan. See the pension plan table and "Pension Plans".
(5) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770, $3,359 and $9,940 with respect to supplementary medical benefits,
long-term disability benefits and term life insurance, respectively, for the
benefit of Mr. Miller, (ii) $2,498 of matching benefits paid by Saks under
the Retirement Savings Plan and (iii) $40,000 paid by Saks for
business-related clothing expenses.
(6) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $2,079 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Mr. Kendrick and (ii)
$2,498 of matching benefits paid by Saks under the Retirement Savings Plan.
(7) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $2,079 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Ms. Bravo, (ii) $2,498 of
matching benefits paid by Saks under the Retirement Savings Plan, (iii)
$2,067 paid by Saks with respect to relocation expenses and (iv) $10,168
paid by Saks for business related clothing discounts.
(8) Reflects (i) the value of insurance premiums paid by Saks in the amount of
$3,770 and $1,158 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Mr. Dorsey, (ii) $2,432 of
matching benefits paid by Saks under the Retirement Savings Plan and (iii)
$105,649 paid by Saks with respect to relocation expenses.
(9) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $940 with respect to supplementary medical benefits and term life
insurance, respectively, for the benefit of Mr. Zannino and (ii) $2,135 of
matching benefits paid by Saks under the Retirement Savings Plan.
The following table contains further information concerning the stock option
grants made to each of the Named Officers during fiscal 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
----------------------------------------------------- OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR OPTION
UNDERLYING GRANTED TO TERM (2)
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR BASE PRICE DATE 5% 10%
- ------------------- ----------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip B. Miller... -- -- -- -- -- --
Brian E. Kendrick.. -- -- -- -- -- --
Rose Marie Bravo... -- -- -- -- -- --
Owen E. Dorsey..... -- -- -- -- -- --
Richard F.
Zannino............ 39,110 15.4% $ 20(3) 2005 $491,926 $1,246,625
</TABLE>
- ------------
(1) The option agreements provide that options have vested and will vest to the
extent of one-third of the options granted as of the date of Saks Holdings'
initial public offering, one-third on the first anniversary thereof and
one-third on the second anniversary thereof. In the event of an Approved
Sale (as defined in the option agreement), all options vest in their
entirety.
(2) These amounts are based on compounded annual rates of stock price
appreciation of 5% and 10% over the ten-year term of the options, are
mandated by the rules of the Securities and Exchange Commission and are not
indicative of expected stock price performance. Actual gains, if any, on
stock option exercises are dependent on future performance of the Common
Stock, overall market conditions, as well as the option holders' continued
employment throughout the vesting period. The amounts reflected in this
table may not necessarily be achieved or
(Footnotes continued on following page)
50
<PAGE>
(Footnotes continued from preceding page)
may be exceeded. The indicated amounts are net of the option exercise price
but before taxes that may be payable upon exercise.
(3) All stock options were granted with exercise prices equal to fair market
value, as determined by the Board of Directors, on the grant date. In
January 1996, the Board of Directors repriced the stock options from $20
(the price paid for shares at the time of the 1990 Acquisition and also in
connection with significant third party purchases of Common Stock in 1993,
which price per share was routinely used in connection with option grants
from the 1990 Acquisition through 1995) to $16 to reflect the estimated fair
market value of the Common Stock. Toward the end of 1995, management of Saks
Holdings decided to evaluate whether a $20 per share price reflected fair
market value and, therefore, whether options granted with a $20 per share
exercise price, which might have been higher than fair value, properly
incentivized management. Based on management's internal analysis, as well as
advice from third party advisors, Saks Holdings determined that as of the
end of fiscal 1995 the fair market value of the Common Stock was $16 per
share and authorized repricing the options at $16 per share.
The following table sets forth certain information regarding options to
purchase Common Stock held as of February 3, 1996 by each of the Named Officers.
None of such Named Officers exercised any options during fiscal 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (1)
---------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE (2)
- ------------------------ ----------- ------------- --------------- -----------------
<CAPTION>
<S> <C> <C> <C> <C>
Philip B. Miller........ -- 324,330 -- $ 0
Brian E. Kendrick....... -- 225,050 -- 0
Rose Marie Bravo........ -- 223,750 -- 0
Owen E. Dorsey.......... -- 35,700 -- 0
Richard F. Zannino...... -- 65,060 -- 0
</TABLE>
- ------------
(1) Calculated on the basis of $16 per share, the fair market value of the
Common Stock at February 3, 1996, as determined by the Board of Directors,
less the exercise price payable for such shares.
(2) On February 23, 1996 the exercise price with respect to the stock options
was reduced from $20 per share to $16 per share.
Saks maintains a pension plan (the "Pension Plan"), which covers
substantially all of the employees of Saks and its affiliates. Saks also
maintains a supplemental pension plan (the "Supplemental Plan") which covers
certain senior executives of Saks. See "Pension Plans". The following table sets
forth estimated annual benefits payable upon retirement with regard to the
Supplemental Plan.
<TABLE>
<CAPTION>
YEARS OF
SERVICE(1)
REMUNERATION(2) 15 20 25 30 35
- --------------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
25$0,000...... $ 75,000 $100,000 $125,000 $125,000 $125,000
300,000...... 90,000 120,000 150,000 150,000 150,000
400,000...... 130,000 160,000 200,000 200,000 200,000
500,000...... 150,000 200,000 250,000 250,000 250,000
750,000...... 225,000 300,000 375,000 375,000 375,000
1,000,000.... 300,000 400,000 500,000 500,000 500,000
1,320,000.... 396,000 528,000 660,000 660,000 660,000
</TABLE>
(Footnotes on following page)
51
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Mr. Miller has an estimated 18 credited years of service (13 of which were
granted to him pursuant to his employment agreement). Mr. Kendrick has an
estimated five credited years of service. Ms. Bravo and Mr. Zannino each
have three years of credited service and Mr. Dorsey has two.
(2) The compensation covered by the Supplemental Plan includes base salary only,
and not bonus or other amounts. For each of the Named Officers, the current
compensation covered by the Supplemental Plan does not differ by more than
10% from the amount listed in the "Salary" column of the Summary
Compensation table. The amount of the supplemental pension to which a
participant is entitled is an annual amount computed in the form of single
life annuity equal to 2% of his or her Average Final Earnings multiplied by
his or her years of credited service up to a maximum of 25 years, reduced by
any amounts received due to the Pension Plan, primary Social Security
benefits or matching amounts under the Retirement Savings Plan. "Average
Final Earnings" for purposes of the Supplemental Plan is the average rate of
the participant's salary for the last 36 calendar months of his or her
credited service.
EMPLOYMENT AGREEMENTS
Saks has employment agreements with each of Mr. Miller, Mr. Kendrick, Ms.
Bravo and Mr. Dorsey. Each agreement requires the executive officer to devote
his or her full time and best efforts to Saks during the term of the agreement.
PHILIP B. MILLER. The employment agreement with Mr. Miller commenced in
March 1996 and continues until terminated by either party as provided therein.
The agreement provides for an annual salary of $1.2 million plus increases based
on the percentage increase, if any, in the Consumer Price Index, or by a greater
amount, at the discretion of the Board of Directors of Saks. In addition, the
agreement provides for the payment of an annual bonus as determined by the Board
of Directors of Saks.
If Saks terminates Mr. Miller's employment for any reason other than for
death, disability, retirement or cause, Mr. Miller shall be entitled to receive
an amount equal to three times his base salary then in effect ($3.6 million at
his current salary) and Standard Termination Amounts. Mr. Miller is entitled to
receive an identical amount if he voluntarily terminates his employment at any
time when he is not a member of the Boards of Directors of both Saks Holdings
and Saks. If Saks terminates Mr. Miller for "cause" (as defined in the
agreement) or if Mr. Miller voluntarily terminates his employment except as
described in the preceding sentence, Mr. Miller is entitled to receive Standard
Termination Amounts. "Standard Termination Amounts" consist of pro-rated earned
but unpaid salary, bonus, deferred compensation, certain expense allowances and
unpaid or unreimbursed benefits under applicable benefits plans and programs.
BRIAN E. KENDRICK, ROSE MARIE BRAVO AND OWEN E. DORSEY. Saks' employment
agreements with Mr. Kendrick, Ms. Bravo and Mr. Dorsey commenced in March 1996
and continue until terminated. The agreements provide for annual salaries of
$750,000, $750,000 and $360,000 respectively, and a bonus of up to 50% of Mr.
Kendrick's, Ms. Bravo's or Mr. Dorsey's salary, as applicable. The agreements
further provide for annual performance and salary reviews, and for participation
in all other bonus and benefit plans applicable to other similarly situated
officers.
If Saks terminates Mr. Kendrick's or Ms. Bravo's employment for any reason
other than for death, disability, retirement or cause, Mr. Kendrick or Ms.
Bravo, as applicable, is entitled to receive an amount equal to two times his or
her base salary then in effect ($1.5 million at their current salaries) and
Standard Termination Amounts. If Saks terminates Mr. Dorsey's employment for any
reason other than for death, disability, retirement or cause, Mr. Dorsey is
entitled to receive an amount in cash equal to his base salary then in effect,
Standard Termination Amounts and benefits for one year following termination. If
Saks terminates Mr. Kendrick's, Ms. Bravo's or Mr.
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Dorsey's employment for "cause" (as defined in each agreement) or if such
employee voluntarily terminates his or her employment, such employee shall be
entitled to receive Standard Termination Amounts.
All other officers are appointed by and serve at the discretion of the Board
of Directors of Saks.
STOCK INCENTIVE PLANS
In October 1990, Saks Holdings adopted a Senior Management Stock Incentive
Plan (the "Old Incentive Plan"), and in February 1996, Saks Holdings adopted a
1996 Management Stock Incentive Plan (the "New Incentive Plan", and together
with the Old Incentive Plan, the "Incentive Plans"), for members of senior
management and certain other officers and employees of Saks Holdings and of
Saks. As of August 28, 1996 there were options to purchase 26,720 shares of
Common Stock outstanding under the Old Incentive Plan, all of which vested upon
the closing of Saks Holdings initial public offering, and options to purchase
3,045,315 shares of Common Stock outstanding under the New Incentive Plan. The
vesting of options under the New Incentive Plan is described below. No
additional options will be granted under the Old Incentive Plan. The maximum
number of shares of Common Stock issuable pursuant to the Incentive Plans is
6,209,045, subject to adjustment to reflect stock splits, stock dividends and
similar stock transactions.
The Incentive Plans provide for the grant of options that qualify as
incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code"), as well as options that do not qualify as ISOs
("Non-qualified Options") (collectively referred to as the "Options"), and also
provide for the grant of stock appreciation rights and for the sale or grant of
restricted stock. Options to purchase shares of Common Stock may extend for ten
years for ISOs and ten years and 30 days for Non-qualified Options from the date
of grant. Options may not be granted and restricted stock may not be sold or
granted after October 17, 2000. The granting of Options is conditioned upon
active employment with Saks Holdings, Saks or any of its direct or indirect
subsidiaries. In the event an employee ceases to be employed by Saks Holdings,
Saks or any of its direct or indirect subsidiaries, for any reason, Saks
Holdings may repurchase at fair market value, as determined annually by the
Board of Directors, any shares of Common Stock acquired by such employee
pursuant to the exercise of an Option granted under the Incentive Plans.
The Incentive Plans are administered by the stock option and stock purchase
plan committee (the "Incentive Plans Committee"), each member of which is
required to be "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act. The Incentive Plans Committee has the authority to interpret the
Incentive Plans, to determine the terms and conditions of Options and other
grants under the Incentive Plans and to make all other determinations necessary
or advisable for the administration of the Incentive Plans. The Incentive Plans
Committee may determine the number of shares subject to grants or sales and the
terms thereof. The terms upon which options and stock appreciation rights are
granted and restricted stock is sold or granted are to be evidenced by a written
agreement executed by Saks Holdings and the relevant employee.
Saks Holdings has entered into individual Stock Option Agreements with
members of management with respect to 3,045,315 options outstanding under the
New Incentive Plan, pursuant to which each such employee's right to exercise
such Options has vested and will vest to the extent of one-third of the Options
granted as of the date of Saks Holdings' initial public offering, one-third on
the first anniversary thereof and one-third on the second anniversary thereof.
In the event of an Approved Sale (as defined in the agreement), all options vest
in their entirety. The Stock Option Agreements further provide for the
termination of the vested portions of any Options upon the tenth anniversary of
such Stock Option Agreement, and for acceleration of termination if the employee
ceases to be employed by Saks Holdings or a subsidiary.
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RETIREMENT SAVINGS PLAN (401(K))
In July 1990 Saks adopted a Retirement Savings Plan (the "Retirement Savings
Plan"), a savings and investment plan intended to be qualified under Section 401
of the Code. All employees of Saks and its affiliates (including officers and
directors who are employees) who are at least 21 years of age may participate in
the plan after one year of service with Saks or such affiliate. Participating
employees may make pre-tax and after-tax contributions, subject to limitations
under the Code, of a percentage (not to exceed 16%) of their total compensation,
and such amounts (and the earnings thereon) are fully vested at all times. Saks
makes matching contributions in an amount equal to one-fourth of the first 6% of
an employee's contribution. Any such matching contributions (and the investment
earnings thereon) will vest 25% after two years of service and an additional 25%
per year of service thereafter until fully vested after five years of service,
provided that such contributions become 100% vested upon the employee's death,
disability or retirement.
PENSION PLANS
Saks' Pension Plan covers substantially all of the employees of Saks and its
affiliates. Benefits are based primarily on years of service and the employees'
compensation, subject to limitations under the Code. The compensation covered by
the Pension Plan includes base salary only, and not bonus or other amounts.
Saks' policy is to fund the plan to satisfy the requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Generally, an employee is
entitled upon retirement to annual payments for each year of service in the
amount of 1% of his or her covered compensation received for that year of
service. The estimated benefits payable upon retirement at normal retirement age
for each Named Officer as of February 3, 1996 is $21,869 (Mr. Miller), $44,369
(Mr. Kendrick), $35,903 (Ms. Bravo), $33,000 (Mr. Dorsey) and $46,910 (Mr.
Zannino).
Saks also maintains an unfunded supplemental retirement plan (the
"Supplemental Plan") covering the Chairman, Vice Chairman, President, Executive
Vice Presidents and Senior Vice Presidents of Saks (the "Covered Employees").
The Supplemental Plan is maintained primarily for the purpose of providing
deferred compensation for a select group of management and highly compensated
employees in accordance with the provisions of ERISA. The Covered Employees have
a nonforfeitable right to receive a supplemental pension upon five years of
service in the covered position. Generally, the amount of the supplemental
pension for a Covered Employee is an annual amount computed in the form of a
single life annuity equal to 2% of the Final Average Earnings (as defined in the
Supplemental Plan) multiplied by his or her years of service up to a maximum of
25 years, subject to deduction for Social Security benefits and for amounts
received from Saks or its affiliates under any other qualified or unqualified,
formal or informal plan, including the Pension Plan.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 28, 1996, by (i) each person who is
known by Saks Holdings to own beneficially more than 5% of the outstanding
shares of the Common Stock; (ii) each director and Named Officer and (iii) all
executive officers and directors as a group. Unless otherwise indicated, to Saks
Holdings' knowledge each person has sole voting power and investment power with
respect to the shares attributed to them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------
NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT
- --------------------------------------------------------------------- ---------- -------
<S> <C> <C>
Investcorp (1)....................................................... 10,547,715 16.73%
SIPCO Limited (2).................................................... 10,533,715 16.71
His Royal Highness Prince Al Waleed Bin Talal Bin Abdulaziz (3)...... 4,450,000 7.06
Philip B. Miller (4)................................................. 351,048 *
Brian E. Kendrick (4)................................................ 143,763 *
Rose Marie Bravo (4)................................................. 157,273 *
Richard F. Zannino (4)............................................... 40,457 *
Owen E. Dorsey (4)................................................... 30,387 *
Savio W. Tung (5).................................................... 99,325 *
Jon P. Hedley (6).................................................... 45,000 *
E. Garrett Bewkes III................................................ -- --
Charles J. Philippin................................................. 15,000 *
Stephen I. Sadove.................................................... -- --
Brian Ruder.......................................................... -- --
All directors and executive officers as a group (14 people) (7)...... 931,798 1.46
</TABLE>
- ------------
* Less than 1%.
(1) Investcorp does not directly own any shares of Common Stock. The number of
shares shown as owned by Investcorp includes all of the shares owned by SFA
Folio Limited, SFA Label Limited, SFA Collection Limited, SFA Designer
Limited, Saks Fifth Avenue Holdings II Limited, Saks Fifth Avenue
Investments II Limited, Flair Limited, SFA Capital Limited, Ballet Limited,
Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger
Limited, Quill Limited, Radial Limited, Shoreline Limited, Zinnia Limited,
and Chemical Nominees (Guernsey) Limited. Other than Flair Limited and SFA
Capital Limited, which are indirect wholly-owned subsidiaries of
Investcorp, Investcorp owns no stock in such entities. Investcorp may be
deemed to share beneficial ownership of the shares of Common Stock held by
such entities because such entities or their shareholders or principals
have entered into revocable management services or similar agreements with
an affiliate of Investcorp pursuant to which each such entity has granted
such affiliate the authority to direct the voting and disposition of the
stock owned by such entity for so long as such agreement is in effect.
Investcorp is a Luxembourg corporation, with its registered address at 37
rue Notre-Dame, Luxembourg.
(2) SIPCO Limited ("SIPCO") does not directly own any Common Stock. The number
of shares shown as owned by SIPCO consists of the shares Investcorp is
deemed to beneficially own. SIPCO may be deemed to control Investcorp
through its ownership of a majority of the stock of a company which
indirectly owns a majority of Investcorp's outstanding stock. SIPCO is a
Cayman Islands corporation with its address at P.O. Box 1111, West Wind
Building, George Town, Grand Cayman, Cayman Islands, British West Indies.
(Footnotes continued on following page)
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(Footnotes continued from preceding page)
(3) His Royal Highness Prince Al Waleed Bin Talal Bin Abdulaziz does not
directly own any Common Stock. The number of shares shown as owned by him
include all of the shares held by SFA Saudi Holdings Limited (which intends
to sell 1,084,816 shares (including up to 141,498 shares to be sold
pursuant to an overallotment options) in the Secondary Offering), of which
he owns a majority of the outstanding stock. The business address of His
Royal Highness Prince Al Waleed Bin Talal Bin Abdulaziz is c/o Kingdom
Establishment Trading and Contracting, P.O. Box 8653, Riyadh 11492, Saudi
Arabia.
(4) Includes the following shares of Common Stock, purchasable within 60 days
of August 28, 1996, upon exercise of stock options by the following
individuals: Mr. Miller (211,404 shares), Mr. Kendrick (135,008 shares),
Ms. Bravo (134,023 shares), Mr. Zannino (39,156 shares) and Mr. Dorsey
(26,601 shares).
(5) Includes 50,000 shares that Mr. Tung has the right to acquire within 60
days of August 28, 1996.
(6) Includes 5,000 shares that Mr. Hedley has the right to acquire within 60
days of August 28, 1996.
(7) Includes an aggregate of 587,953 shares of Common Stock purchasable within
60 days of August 28, 1996 upon exercise of stock options.
A portion of the shares owned by the principal stockholders described above
may be available for resale in the public market without restriction or
registration under the Securities Act. See "Shares Eligible for Future Sale".
Except as described in footnote (3) above, none of the principal stockholders
listed in the table above will sell shares in the Secondary Offering.
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CERTAIN TRANSACTIONS
RELATED TRANSACTIONS
Saks incurred fees of $8 million payable to III, an affiliate of Investcorp,
for certain management, consulting and advisory services rendered in fiscal 1995
and the first half of fiscal 1996. Of these expenses, $7 million are reflected
in Saks' operating results for fiscal 1995 and $1 million is reflected in Saks'
operating results for the six months ended August 3, 1996. Fees of $2 million
also were paid to III in each of fiscal 1991, 1992, 1993 and 1994. Saks believes
that the terms of its management, advisory and consulting arrangements with III
were no less favorable to Saks than terms that may have been available from
independent third parties. Management fees to III were discontinued in July
1996. Saks expects that there will be no further remuneration for consulting
services between Saks or Saks Holdings and Investcorp or any of its affiliates.
Prior to April 3, 1996 Investcorp and its affiliates had an ownership
interest in and controlled a majority of the voting stock of Gucci Group N.V.
and its affiliates ("Gucci"), an Italian designer, manufacturer and distributor
of women's and men's luxury apparel and accessories. Investcorp affiliates
continue to represent a majority of the members of the Supervisory Board of
Gucci. In addition, Investcorp and its affiliates have an ownership interest in,
control a majority of the voting stock of, and have directors serving on the
board of directors of Ebel S.A. ("Ebel"), a Swiss manufacturer and distributor
of watches, and Chaumet International S.A. ("Chaumet"), a French retailer of
jewelry, gems and other luxury products. Saks distributes the products of Gucci,
Ebel and Chaumet through its stores. Saks believes that the terms of these
arrangements are on arms' length bases. Except for these arrangements, Saks has
no business relationships with Investcorp or any of its affiliates or related
parties.
Gucci designs and sells lines of women's and men's apparel that compete with
Saks' private label apparel business. Saks believes that competition with Gucci
is limited because Saks' private label merchandise generally is sold at
different price points and targets different market segments.
Although the agreement for management and advisory services expired in July
1996, Investcorp, as the beneficial owner of 17.30% of the Common Stock of Saks
Holdings and with representatives on the board of directors of Saks Holdings,
may be able to exert influence over the operations of Saks Holdings and Saks.
LOANS TO CERTAIN OFFICERS AND DIRECTORS
From time to time, Saks extends loans to certain officers and directors in
connection with stock purchase transactions.
In January 1992, Mr. Kendrick executed a note in favor of Saks in the
principal amount of $175,100. The note matures in January 1997, bears interest
at an annual rate of 8% and is secured by a pledge of Common Stock. In March
1996, Mr. Kendrick executed a note in favor of Saks in the principal amount of
$250,000, the proceeds of which were used to refinance an earlier note executed
by Mr. Kendrick. The note matures in March 1999, bears interest at an annual
rate of 8% and is secured by a pledge of Common Stock. At Saks' option, the
principal of, and accrued interest on, each of the notes described above becomes
immediately due upon the occurrence of certain events, including the termination
of Mr. Kendrick's employment by Saks for any reason.
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DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of
, 1996 (the "Indenture"), between Saks Holdings and Bankers Trust
Company, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to
the Registration Statement. Wherever particular defined terms of the Indenture
(including the Notes) are referred to, such defined terms are incorporated
herein by reference (the Notes and various terms relating to the Notes being
referred to in the Indenture as "Securities"). The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the detailed
provisions of the Notes and the Indenture, including the definitions therein of
certain terms. Section references below are references to Sections of the
Indenture.
GENERAL
The Notes will be unsecured subordinated obligations of Saks Holdings, will
be limited to U.S. $200,000,000 aggregate principal amount (plus such additional
amount as may be issued under the Underwriters' over-allotment option), and will
mature on , 2006. The Notes will bear interest at the rate per
annum shown on the front cover of this Prospectus from , 1996,
payable semiannually on and of each year, commencing
on , 1997. Interest payable per $1,000 principal amount of Notes
for the period from , 1996 to , 1997 will be $ .
(Sec.Sec. 301 and 307)
The Notes will be convertible into Common Stock initially at the conversion
rate stated on the cover page hereof, subject to adjustment upon the occurrence
of certain events described under "--Conversion Rights," at any time on or after
, 1999 and prior to the close of business on the maturity date,
unless previously redeemed or repurchased. (Sec. 1301)
The Notes are redeemable under the circumstances and at the redemption
prices set forth below under "--Optional Redemption", plus accrued interest to
the redemption date. (Sec. 202)
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. (Sec. 302) No service
charge will be made for any registration of transfer or exchange of Notes, but
Saks Holdings may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Sec. 305)
CONVERSION RIGHTS
The Holder of any Note will have the right, at the Holder's option, to
convert any portion of the principal amount of a Note that is an integral
multiple of $1,000 into shares of Common Stock at any time prior to the close of
business on the maturity date, unless previously redeemed or repurchased, at a
conversion rate of shares of Common Stock per U.S. $1,000 principal
amount of Notes (the "Conversion Rate") (equivalent to a conversion price of
$ per share of Common Stock) (subject to adjustment as described below).
The right to convert a Note called for redemption or delivered for repurchase
will terminate at the close of business on the Redemption Date for such Note or
the Repurchase Date, as the case may be. (Sec. 1301)
The right of conversion attaching to any Note may be exercised by the Holder
by delivering the Note at the specified office of the Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of which
may be obtained from the Trustee. The conversion date will be the date on which
the Note and the duly signed and completed notice of conversion are so
delivered. As promptly as practicable on or after the conversion date, Saks
Holdings will issue and deliver to the Trustee a certificate or certificates for
the number of full shares of Common Stock issuable upon conversion, together
with payment in lieu of any fraction of a share; such certificate
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will be sent by the Trustee to the Conversion Agent (if other than the Trustee)
for delivery to the Holder. Such shares of Common Stock issuable upon conversion
of the Notes, in accordance with the provisions of the Indenture, will be fully
paid and nonassessable and will rank pari passu with the other shares of Common
Stock of Saks Holdings outstanding from time to time. Any Note surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date (except Notes (or portions thereof) called for redemption
on a Redemption Date or which are repurchasable on a Repurchase Date occurring,
in either case, within such period) must be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of Notes being surrendered for conversion. The interest so payable on
such Interest Payment Date with respect to any Note (or portion thereof, if
applicable) which has been called for redemption on a Redemption Date, or which
may be repurchased on a Repurchase Date, occurring, in either case, during the
period from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date,
which Note (or portion thereof, if applicable) is surrendered for conversion
during such period, shall be paid to the Holder of such Note being converted in
an amount equal to the interest that would have been payable on such Note if
such Note had been converted as of the close of business on such Interest
Payment Date. The interest so payable on such Interest Payment Date in respect
of any Note (or portion thereof, as the case may be) which has not been called
for redemption on a Redemption Date, or is not eligible for repurchase on a
Repurchase Date, occurring, in either case, during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date, which Note (or portion
thereof, as the case may be) is surrendered for conversion during such period,
shall be paid to the Holder of such Note as of such Regular Record Date.
Interest payable in respect of any Note surrendered for conversion or repurchase
on or after an Interest Payment Date shall be paid to the Holder of such Note as
of the next preceding Regular Record Date, notwithstanding the exercise of the
right of conversion or repurchase. As a result of the foregoing provisions,
except as provided above, Holders that surrender Notes for conversion on a date
that is not an Interest Payment Date will not receive any interest for the
period from the Interest Payment Date next preceding the date of conversion to
the date of conversion or for any later period, even if the Notes are
surrendered for conversion after a notice of redemption (except for the payment
of interest on Notes called for redemption on a Redemption Date or to be
repurchased on a Repurchase Date between a Regular Record Date and the Interest
Payment Date to which it relates, as provided above). No other payment or
adjustment for interest, or for any dividends in respect of Common Stock, will
be made upon conversion. Holders of Common Stock issued upon conversion will not
be entitled to receive any dividends payable to holders of Common Stock as of
any record time or date before the close of business on the conversion date. No
fractional shares will be issued upon conversion but, in lieu thereof, Saks
Holdings will pay an appropriate amount in cash based on the market price of
Common Stock at the close of business on the day of conversion. (Sec.Sec. 101,
203, 307, 1302 and 1303)
A Holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless all taxes and
duties, if any, payable by the Holder have been paid. (Sec.Sec. 1302 and 1308)
The Conversion Rate is subject to adjustment in certain events, including,
without duplication: (a) dividends (and other distributions) payable in Common
Stock, (b) the issuance to all holders of Common Stock of rights, options or
warrants entitling them to subscribe for or purchase Common Stock at less than
the then Current Market Price of such Common Stock (determined as provided in
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the Indenture) as of the record date for shareholders entitled to receive such
rights, options or warrants, (c) subdivisions, combinations and
reclassifications of Common Stock, (d) distributions to all holders of Common
Stock of evidences of indebtedness of Saks Holdings, shares of capital stock,
cash or assets (including securities, but excluding those dividends, rights,
options, warrants and distributions referred to above, dividends and
distributions paid exclusively in cash and in mergers and consolidations to
which the next succeeding paragraph applies), (e) distributions consisting
exclusively of cash (excluding any cash portion of distributions referred to in
(d) above, or cash distributed upon a merger or consolidation to which the next
succeeding paragraph applies) to all holders of Common Stock in an aggregate
amount that, combined together with (i) other such all-cash distributions made
within the preceding 12 months in respect of which no adjustment has been made
and (ii) any cash and the fair market value of other consideration payable in
respect of any tender offer by Saks Holdings or any of its subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 10% of Saks Holdings' market capitalization
(being the product of the then Current Market Price per share of the Common
Stock and the number of shares of Common Stock then outstanding) on the record
date for such distribution, and (f) the successful completion of a tender offer
made by Saks Holdings or any of its subsidiaries for Common Stock which involves
an aggregate consideration that, together with (i) any cash and other
consideration payable in a tender offer by Saks Holdings or any of its
subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender offer in respect of which no adjustment has been made
and (ii) the aggregate amount of any such all-cash distributions referred to in
(e) above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of Saks Holdings' market capitalization on the expiration of
such tender offer. Saks Holdings reserves the right to make such increases in
the Conversion Rate in addition to those required in the foregoing provisions as
it considers to be advisable in order that any event treated for federal income
tax purposes as a dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock will not be taxable to the
recipients. No adjustment of the Conversion Rate will be required to be made
until the cumulative adjustments amount to 1.0% or more of the Conversion Rate.
(Sec. 1304) Saks Holdings shall compute any adjustments to the Conversion Rate
pursuant to this paragraph and will give notice to the Holders of the Notes of
any adjustments. (Sec. 1305)
In case of any consolidation or merger of Saks Holdings with or into another
Person or any merger of another Person into Saks Holdings (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of Saks Holdings, each Note then outstanding
will, without the consent of the Holder of any Note, become convertible only
into the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock into which such Note was convertible immediately prior thereto
(assuming such holder of Common Stock failed to exercise any rights of election
and that such Note was then convertible). (Sec. 1311)
If at any time Saks Holdings makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of Saks Holdings, but generally not stock dividends on
Common Stock or rights to subscribe for Common Stock) and, pursuant to the anti-
dilution provisions of the Indenture, the number of shares into which Notes are
convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to Holders of Notes. See
"Certain Tax Considerations."
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SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the Notes
will be subordinated in right of payment, to the extent set forth in the
Indenture, to the prior payment in full of the principal of, premium, if any,
interest and other amounts in respect of all Senior Indebtedness of Saks
Holdings. Senior Indebtedness is defined in the Indenture to mean the principal
of (and premium, if any) and interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowable as a claim in any such
proceeding) on, and all fees and other amounts payable in connection with, the
following, whether absolute or contingent, secured or unsecured, due or to
become due, outstanding on the date of the Indenture or thereafter created,
incurred or assumed: (a) indebtedness of Saks Holdings to banks, insurance
companies and other financial institutions evidenced by credit or loan
agreements, notes or other written obligations, (b) all other indebtedness of
Saks Holdings (including indebtedness of others guaranteed by the Company) other
than the Notes, whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, which is (i) for money borrowed or (ii) evidenced
by a note or similar instrument given in connection with the acquisition of any
businesses, properties or assets of any kind, (c) obligations of Saks Holdings
as lessee under leases required to be capitalized on the balance sheet of the
lessee under generally accepted accounting principles, (d) obligations of Saks
Holdings under interest rate and currency swaps, caps, floors, collars or
similar agreements or arrangements intended to protect Saks Holdings against
fluctuations in interest or currency exchange rates and (e) renewals,
extensions, modifications, restatements and refundings of, or any indebtedness
or obligation issued in exchange for, any such indebtedness or obligation
described in clauses (a) through (d) of this paragraph; provided, however, that
Senior Indebtedness shall not include any such indebtedness or obligation (i) if
the terms of such indebtedness or obligation (or the terms of the instrument
under which, or pursuant to which, it is issued) expressly provide that such
indebtedness or obligation is not superior in right of payment to the Notes or
expressly provide that such indebtedness or obligation is "parri passu" with or
"junior" to the Notes (ii) if such indebtedness or obligation is non-recourse to
Saks Holdings or (iii) if such indebtedness or obligation is a conditional sale
contract or an account payable or is created or assumed by Saks Holdings in the
ordinary course of business in connection with the obtaining of materials,
inventories or services. So long as there is any indebtedness outstanding under
Saks' credit facility, neither the subordination provisions of the Indenture nor
the definition of Senior Indebtedness under the Indenture may be modified in a
manner materially adverse to the lenders under the Sak's credit facility.
(Sec.Sec. 101, 1201, 1202 and 1216) As of August 3, 1996, Saks Holdings had no
outstanding Senior Indebtedness (other than guarantees of subsidiary
indebtedness).
No payment on account of principal, premium, if any, or interest on, the
Notes may be made by Saks Holdings if there shall have occurred (i) a default in
the payment of principal, premium, if any, or interest (including a default
under any repurchase or redemption obligation) with respect to any Senior
Indebtedness or (ii) any other event of default with respect to any Senior
Indebtedness, permitting the holders thereof to accelerate the maturity thereof,
and such event of default shall not have been cured or waived or shall not have
ceased to exist after written notice of such event of default shall have been
given to Saks Holdings and the Trustee by any holder of Senior Indebtedness.
Upon any acceleration of the principal due on the Notes or payment or
distribution of assets of Saks Holdings to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other similar proceedings of Saks
Holdings, all principal, premium, if any, and interest or other amounts due on
all Senior Indebtedness must be paid in full before the Holders of the Notes are
entitled to receive any payment. By reason of such subordination, in the event
of insolvency, creditors of Saks Holdings who are holders of Senior Indebtedness
are likely to recover more, ratably, than the Holders of the Notes, and such
subordination may result in a reduction or elimination of payments to the
Holders of the Notes. (Sec. 1202, 1203 and 1204)
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In addition, the Notes will be structurally subordinated to all indebtedness
and other liabilities (including trade payables and lease obligations) of Saks
Holdings' subsidiaries, as any right of Saks Holdings to receive any assets of
its subsidiaries upon their liquidation or reorganization (and the consequent
right of the Holders of the Notes to participate in those assets) will be
effectively subordinated to the claims of that subsidiary's creditors (including
trade creditors), except to the extent that Saks Holdings itself is recognized
as a creditor of such subsidiary, in which case the claims of Saks Holdings
would still be subordinate to any security interest in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that held by Saks
Holdings. As of August 3, 1996, on a pro forma basis after giving effect to the
offering of the Notes made hereby and the application of the proceeds therefrom,
the amount of indebtedness and other liabilities of Saks Holdings' subsidiaries
to which the Notes are subordinated would have been $755.3 million (excluding
intercompany obligations).
The Indenture does not limit Saks Holdings' ability to incur Senior
Indebtedness or any other indebtedness.
OPTIONAL REDEMPTION
The Notes may not be redeemed prior to , 1999. Thereafter, the
Notes may be redeemed, in whole or in part, at the option of Saks Holdings, upon
not less than 30 nor more than 60 days' prior notice as provided under
"--Notices" below, at the redemption prices set forth below.
The redemption prices (expressed as a percentage of principal amount) are as
follows for the 12-month period beginning on of the following years:
REDEMPTION
PRICE
----------
YEAR %
- ----
1999
2000
2001
2002
2003
2004
and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date of redemption. (Sec.Sec.
203, Article Eleven)
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control (as defined) occurs, each Holder of Notes shall have
the right, at the Holder's option, to require Saks Holdings to repurchase all of
such Holder's Notes, or any portion of the principal amount thereof that is
equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the date
(the "Repurchase Date") that is 45 days after the date of the Company Notice (as
defined), at a price equal to 100% of the principal amount of the Notes to be
repurchased, together with interest accrued to the Repurchase Date (the
"Repurchase Price"). (Sec. 1401)
Saks Holdings may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued 95% of the average of the
closing prices of the Common Stock for the five consecutive trading days ending
on and including the third trading day preceding the Repurchase Date; provided
that Saks Holdings may repurchase Notes for cash only
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after repayment of all indebtedness under Saks' credit facility. Additionally,
payment may not be made in Common Stock unless Saks Holdings satisfies certain
conditions with respect to such payment as provided in the Indenture. (Sec.Sec.
1401 and 1402)
Within 30 days after the occurrence of a Change in Control, Saks Holdings is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change in Control
and of the repurchase right arising as a result thereof, or, at the request of
Saks Holdings on or before the 15th day after such occurrence, the Trustee shall
give the Company Notice. Saks Holdings must also deliver a copy of the Company
Notice to the Trustee and to the office of each Paying Agent. To exercise the
repurchase right, a Holder of Notes must deliver on or before the 30th day after
the date of the Company Notice irrevocable written notice to the Trustee or any
Paying Agent of the Holder's exercise of such right, together with the Notes
with respect to which the right is being exercised. (Sec. 1403)
A Change in Control shall be deemed to have occurred at such time after the
original issuance of the Notes as there shall occur:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of Saks Holdings entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of Saks Holdings
entitled to vote generally in elections of directors, other than any such
acquisition by Saks Holdings, any subsidiary of Saks Holdings or any
employee benefit plan of Saks Holdings; or
(ii) any consolidation or merger of Saks Holdings with or into any other
Person, any merger of another Person with or into Saks Holdings, or any
conveyance, sale, transfer or lease of all or substantially all of the
assets of Saks Holdings to another Person (other than (a) any such
transaction (x) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock and (y)
pursuant to which holders of Common Stock immediately prior to such
transaction have the entitlement to exercise, directly or indirectly, 50% or
more of the total voting power of all shares of capital stock entitled to
vote generally in the election of directors of the continuing or surviving
person immediately after such transaction and (b) any merger which is
effected solely to change the jurisdiction of incorporation of Saks Holdings
and results in a reclassification, conversion or exchange of outstanding
shares of Common Stock into solely shares of common stock);
provided, however, that a Change in Control shall not be deemed to have occurred
if the closing price per share of the Common Stock for any five Trading Days
within the period of 10 consecutive Trading Days ending immediately after the
later of the Change in Control or the public announcement of the Change in
Control (in the case of a Change in Control under clause (i) above) or ending
immediately before the Change in Control (in the case of a Change in Control
under clause (ii) above) shall equal or exceed 105% of the Conversion Price of
the Notes in effect on each such Trading Day. The "Conversion Price" is equal to
$1,000 divided by the Conversion Rate. "Beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act,
as in effect on the date of original execution of the Indenture. (Sec. 1404)
Any repurchase in connection with a Change in Control could, depending on
the circumstances and absent a waiver from the holders of Senior Indebtedness,
be blocked by the subordination provisions of the Notes. See "--Subordination."
Failure by Saks Holdings to repurchase the Notes when required may result in an
Event of Default with respect to the Notes whether or not such repurchase is
permitted by the subordination provisions. See "--Events of Default."
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Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. Saks Holdings will comply with this rule to the extent applicable at
that time.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving Saks
Holdings that may adversely affect Holders.
MERGERS AND SALES OF ASSETS BY SAKS HOLDINGS
Saks Holdings may not consolidate or merge with or into any other Person or,
directly, or indirectly, convey, transfer, sell, lease or otherwise dispose of
its properties and assets substantially as an entirety to any Person, and Saks
Holdings may not permit any Person to consolidate or merge with or into Saks
Holdings or convey, transfer, sell, lease or otherwise dispose such Person's
properties and assets substantially as an entirety to Saks Holdings, unless (a)
the Person formed by such consolidation or into or with which Saks Holdings is
merged or the Person to which the properties and assets of Saks Holdings are so
conveyed, transferred, sold, leased or otherwise disposed of is a corporation,
limited liability company, partnership or trust organized and existing under the
laws of the United States, any State thereof or the District of Columbia and has
expressly assumed the due and punctual payment of the principal of, premium, if
any, and interest on the Notes and the performance of the other covenants of
Saks Holdings under the Indenture, (b) immediately after giving effect to such
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing, and (c) Saks Holdings has provided to the Trustee an Officer's
Certificate and Opinion of Counsel as provided in the Indenture. (Sec. 801)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal or Redemption Price of any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (c) default in Saks Holdings' obligation to provide a Company Notice
of a Change in Control; (d) failure to perform any other covenant of Saks
Holdings in the Indenture, continuing for 60 days after written notice as
provided in the Indenture; (e) default in respect of any indebtedness for money
borrowed by Saks Holdings or Saks at final maturity thereof or that results in
acceleration of the maturity of an amount in each case in excess of $5,000,000
of indebtedness if such indebtedness is not discharged, or such acceleration is
not annulled, within 30 days after written notice as provided in the Indenture;
and (f) certain events of bankruptcy, insolvency or reorganization. (Sec. 501)
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable indemnity. (Sec. 603) Subject to such
provisions for the indemnification of the Trustee, the Holders of a majority in
aggregate principal amount of the Outstanding Notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. (Sec. 512)
If an Event of Default (other than an Event of Default specified in
subsections (a), (b), and (f) above) occurs and is continuing, either the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes, may by notice in writing to Saks Holdings, declare the
principal of all the Notes to be due and payable immediately, and upon any such
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declaration such principal and any accrued interest thereon will become
immediately due and payable. If an Event of Default specified in subsections (a)
or (b) occurs and is continuing, the Holder of any Outstanding Note may, by
notice in writing to Saks Holdings (with a copy to the Trustee), declare the
principal of such Note to be due and payable immediately, and upon any such
declaration such principal and (subject to Indenture) any accrued interest will
become immediately due and payable. If an Event of Default specified in
subsection (f) occurs and is continuing, the principal and any accrued interest
on all of the then Outstanding Notes shall ipso facto become due and payable
immediately without any declaration or other Act on the part of the Trustee or
any Holder. (Sec. 502)
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of Outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the nonpayment
of accelerated principal and interest have been cured or waived as provided in
the Indenture. (Sec. 502)
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (Sec. 507) However, such limitations do not apply to a suit instituted by
a Holder of a Note for the enforcement of payment of the principal of, premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Note or of the right to convert such Note in accordance with the
Indenture. (Sec. 508)
Saks Holdings will be required to furnish to the Trustee annually a
statement as to the performance by Saks Holdings of certain of its obligations
under the Indenture and as to any default in such performance. (Sec. 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made, and certain past
defaults by Saks Holdings may be waived with the written consent of the Holders
of not less than a majority in aggregate principal amount of the Notes at the
time Outstanding. However, no such modification or amendment may, without the
consent of the Holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Note, (b) reduce the principal amount of, or the premium, if any, or rate of
interest on, any Note, (c) reduce the amount payable upon redemption or
repurchase, (d) modify the provisions with respect to the repurchase right of
the Holders in a manner adverse to the Holders, (e) change the place or currency
of payment of principal of, premium, if any, or interest on, any Note, (f)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Note (including any payment of the Repurchase Right in respect of
such Note), (g) modify the obligation of Saks Holdings to maintain an office or
agency in New York City, (h) except as otherwise permitted or contemplated by
provisions concerning consolidation, merger, conveyance, transfer, sale or lease
of all or substantially all of the property and assets of Saks Holdings,
adversely affect the right of Holders to convert any of the Notes or to require
Saks Holdings to repurchase any Note other than as provided in the Indenture,
(i) modify the subordination provisions in a manner adverse to the Holders of
the Notes, (j) reduce the above-stated percentage of Outstanding Notes necessary
to modify or amend the Indenture, or (k) reduce the percentage of aggregate
principal amount of Outstanding Notes necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults. (Sec.Sec.
902 and 513)
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The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by Saks Holdings with certain restrictive provisions
of the Indenture. (Sec. 1011) The Holders of a majority in aggregate principal
amount of the Outstanding Notes also may waive any past default under the
Indenture, except a default in the payment of principal, premium, if any, or
interest. (Sec. 513)
TRANSFER AND EXCHANGE
Saks Holdings has initially appointed the Trustee as security registrar and
transfer agent, acting through its Corporate Trust Office in the City of New
York. Saks Holdings reserves the right to vary or terminate the appointment of
the security registrar or of any transfer agent or to appoint additional or
other transfer agents or to approve any change in the office through which any
security registrar or any transfer agent acts. (Sec.Sec. 305 and 1002)
PURCHASE AND CANCELLATION
Saks Holdings or any subsidiary may at any time and from time to time
purchase Notes at any price in the open market or otherwise.
All Notes surrendered for payment, redemption, repurchase, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Notes so delivered to the
Trustee shall be cancelled promptly by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
the Indenture. Unless otherwise requested by Saks Holdings and confirmed in
writing, the Trustee shall, from time to time but not less than once annually,
destroy all cancelled Notes and deliver to Saks Holdings a certificate of
destruction, which certificate shall specify the number, principal amount and,
in the case of Notes the form of each cancelled Note so destroyed. (Sec. 309)
TITLE
Saks Holdings and the Trustee may treat the registered owner (as reflected
in the Security Register) of any Note as the absolute owner thereof (whether or
not such Note shall be overdue) for the purpose of making payment and for all
other purposes.
NOTICES
Notice to Holders of the Notes will be given by mail to the addresses of
such Holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of the first such publication or on the
date of such mailing, as the case may be. (Sec.Sec. 101 and 105)
Notice of a redemption of Notes will be given at least once not less than 30
nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
Saks Holdings at the expense of the Holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to Saks Holdings and the Trustee. In the case of a lost, stolen or
destroyed Note indemnity satisfactory to the Trustee and Saks Holdings may be
required at the expense of the Holder of such Note before a replacement Note
will be issued. (Sec. 306)
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SATISFACTION AND DISCHARGE
Saks Holdings may discharge its payment obligations under the Indenture
while Notes remain outstanding if (a) all outstanding Notes have become due and
payable or will become due and payable at their scheduled maturity within one
year or (b) all outstanding Notes are scheduled for redemption within one year
and in the case of (a) or (b) above, Saks Holdings has deposited with the
Trustee an amount sufficient to pay and discharge the entire indebtedness on all
outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption. (Sec. 401)
PAYMENT OF STAMP AND OTHER TAXES
Saks Holdings shall pay all stamp and other duties, if any, which may be
imposed by the United States or any political subdivision thereof or taxing
authority thereof or therein with respect to the issuance of the Notes. Saks
Holdings will not be required to make any payment with respect to any other tax,
assessment or governmental charge imposed by any government or any political
subdivision thereof or taxing authority therein.
GOVERNING LAW
The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York. (Sec. 1112)
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee security or indemnity
satisfactory to it. (Sec.Sec. 601 and 603)
BOOK-ENTRY
The Notes will be issued in the form of a global note or notes (together,
the "Global Note") deposited with, or on behalf of, The Depository Trust Company
("DTC") and registered in the name of Cede & Co. as DTC's nominee. Owners of
beneficial interests in the Notes represented by the Global Note will hold such
interests pursuant to the procedures and practices of DTC and must exercise any
rights in respect of their interests (including any right to convert or require
repurchase of their interests) in accordance with those procedures and
practices. Such beneficial owners will not be Holders, and will not be entitled
to any rights under the Global Note or the Indenture, with respect to the Global
Note and Saks Holdings and the Trustee, and any of their respective agents, may
treat DTC as the sole Holder and owner of the Global Note.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers (including Goldman,
Sachs & Co.), banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its direct participants and by the
New York Stock Exchange,
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Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the Securities and Exchange Commission.
Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form as set forth below, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC
to DTC or another nominee of DTC.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if (i) DTC is at any time unwilling, unable or
ineligible to continue as depositary or (ii) there shall have occurred and be
continuing an Event of Default with respect to the Notes represented by the
Global Note, Saks Holdings will issue individual Notes in definitive form in
exchange for the Global Note. In addition, Saks Holdings may at any time and in
its sole discretion determine not to have a Global Note, and, in such event,
will issue individual Notes in definitive form in exchange for the Global Note
previously representing all such Notes. In such instances, an owner of a
beneficial interest in a Global Note will be entitled to physical delivery of
Notes in definitive form equal in principal amount to such beneficial interest
and to have such Notes registered in its name. Individual Notes so issued in
definitive form will be issued in denominations of $1,000 and any larger amount
that is an integral multiple of $1,000 and will be issued in registered from
only, without coupons.
Payments of principal of and interest on the Notes will be made by Saks
Holdings through the Trustee to DTC or its nominee, as the case may be, as the
registered owner of the Global Note. Neither Saks Holdings nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. Saks Holdings expects that DTC, upon receipt of
any payment of principal or interest in respect of the Global Note, will credit
the accounts of the related participants with payment in amounts proportionate
to their respective holdings in principal amount of beneficial interest in the
Global Note as shown on the records of DTC. Saks Holdings also expects that
payments by participants to owners of beneficial interests in the Global Note
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
participants.
So long as the Notes are represented by a Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
Holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by participants or by owners of beneficial interests in a
Global Note held through such participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to participants. In order to
ensure that DTC's nominee will timely exercise a right to repayment, or the
right of conversion, with respect to a particular Note, the beneficial owner of
such Notes must instruct the broker or other participant through which it holds
an interest in such Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to DTC.
Saks Holdings will not be liable for any delay in delivery of such notice to
DTC.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Saks Holdings' authorized capital stock consists of 10 million shares of
preferred stock, of which no shares are issued and outstanding, and 150 million
shares of Common Stock, $.01 par value per share, of which 63,049,315 shares are
issued and 63,037,464 shares are outstanding as of August 28, 1996. The material
terms of Saks Holdings' certificate of incorporation and bylaws are discussed
below.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to vote cumulatively
for the election of directors. Holders of Common Stock have no redemption,
conversion, preemptive or other subscription rights. There are no sinking fund
provisions relating to the Common Stock. In the event of the liquidation,
dissolution or winding up of Saks Holdings, holders of Common Stock are entitled
to share ratably in all of the assets of Saks Holdings, if any, remaining after
satisfaction of the debts and liabilities of Saks Holdings. The outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, upon payment therefor as contemplated herein, validly issued, fully paid and
nonassessable.
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors of Saks Holdings out of funds legally
available therefor. Saks Holdings does not anticipate paying cash dividends on
the Common Stock in the foreseeable future. See "Dividend Policy".
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, to issue the preferred stock in one or more classes or series
and to fix the designations, powers, preferences, rights, qualifications,
limitations or restrictions of any such class or series. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of Saks Holdings. Saks Holdings has no
current plans to issue shares of preferred stock.
CERTAIN PROVISIONS OF DELAWARE LAW
Saks Holdings was incorporated in 1990 under the Delaware General
Corporation Law (the "DGCL"). Saks Holdings is subject to Section 203 of the
DGCL, which restricts certain transactions and "business combinations" between a
Delaware corporation and an "interested stockholder" (in general, a stockholder
owning 15% or more of the corporation's outstanding voting stock) or an
affiliate or associate of an interested stockholder, for a period of three years
from the date the stockholder becomes an interested stockholder. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
unless the transaction is approved by the Board of Directors and the holders of
at least 66 2/3% of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder), Section 203 prohibits significant
business transactions such as a merger with, disposition of assets to or receipt
of disproportionate financial benefits by the interested stockholder, or any
other transaction that would increase the interested stockholder's proportionate
ownership of any class or series of the corporation's stock. The
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statutory ban does not apply if, upon consummation of the transaction in which
any person becomes an interested stockholder, the interested stockholder owns at
least 85% of the outstanding voting stock of the corporation (excluding shares
held by persons who are both directors and officers or by certain employee stock
plans).
Saks Holdings' Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The Certificate
of Incorporation provides that, to the fullest extent permitted by the DGCL, no
director of Saks Holdings will be liable to Saks Holdings or its stockholders
for monetary damages for breach of fiduciary duty as a director. The Certificate
of Incorporation and Bylaws of Saks Holdings also contain provisions
indemnifying the directors and officers of Saks Holdings to the fullest extent
permitted by the DGCL.
Section 203 and the provisions of Saks Holdings' Certificate of
Incorporation and Bylaws described above may make it more difficult for a third
party to acquire, or discourage acquisition bids for, Saks Holdings. Section 203
and these provisions could have the effect of inhibiting attempts to change the
membership of the Board of Directors of Saks Holdings. In addition, the limited
liability provisions in the Certificate of Incorporation and the indemnification
provisions in the Certificate of Incorporation and Bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct) and
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefited Saks Holdings and its stockholders. Furthermore, a
stockholder's investment in Saks Holdings may be adversely affected to the
extent Saks Holdings pays the costs of settlement and damage awards against
directors and officers of Saks Holdings pursuant to the indemnification
provisions in Saks Holdings' Bylaws. The limited liability provisions in the
Certificate of Incorporation will not limit the liability of directors under
federal securities laws.
SHARES RESERVED FOR ISSUANCE
Saks Holdings has 6,209,045 shares of Common Stock reserved for issuance
upon the exercise of options granted or to be granted under the Incentive Plans.
As of August 28, 1996, options for the purchase of 3,072,035 shares were
outstanding. As of August 28, 1996 options for the purchase of 1,041,158 shares
of Common Stock have fully vested.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.
LISTING
The Common Stock is listed on the New York Stock Exchange under the symbol
"SKS".
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CERTAIN TAX CONSIDERATIONS
In the opinion of Saks Holdings' counsel, Gibson, Dunn & Crutcher LLP, the
following is a summary of certain anticipated material United States federal
income tax consequences of holding and disposing of the Notes and any Common
Stock issued upon conversion of Notes. This discussion is based on existing
provisions of the United States Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations promulgated thereunder, judicial decisions and
administrative rulings, all of which are subject to change or alternative
construction with possible retroactive effect. This summary does not give a
detailed discussion of any state, local or foreign tax considerations, nor does
it purport to deal with all federal income tax consequences applicable to all
categories of investors, some of which may be subject to special rules, such as
foreign persons, banks, tax-exempt organizations, insurance companies, persons
that hold Notes or Common Stock that are a hedge or that are hedged against
currency risks or that are part of a straddle or conversion transaction, persons
whose functional currency is not the U.S. dollar and dealers in stocks and
securities. In addition, the summary is generally limited to Notes and the
Common Stock into which the Notes are convertible which are held as "capital
assets" within the meaning of Section 1221 of the Code by persons who are (i)
citizens or residents of the United States, (ii) domestic corporations, or (iii)
otherwise subject to United States federal income taxation on a net income basis
in respect of a Note or Common Stock. No rulings will be sought from the
Internal Revenue Service (the "IRS") with respect to the federal income tax
consequences of holding and disposing of the Notes.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO PURCHASE THE NOTES.
EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION
OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION
BEFORE DETERMINING WHETHER TO PURCHASE THE NOTES.
NOTES
Interest. Holders of Notes will be required to include interest on the Notes
in gross income as ordinary income at the time such interest is accrued or
received in accordance with their usual methods of accounting for federal income
tax purposes.
DISPOSITION. In general, a holder of a Note will recognize gain or loss upon
the sale, exchange, redemption or other disposition (excluding conversion) of
the Note measured by the difference between (i) the amount of cash and the fair
market value of property received and (ii) the U.S. holder's adjusted tax basis
in the Note (except to the extent that the amount realized is attributable to
accrued interest on the Notes which has not previously been included in income,
which amount will be subject to the rules generally applicable to interest). Any
such gain or loss will generally be long-term capital gain or loss, provided the
Note had been held for more than one year at the time of the sale, exchange or
other disposition.
CONVERSION. A holder of a Note will not recognize gain or loss on the
conversion of a Note solely into Common Stock except with respect to cash in
lieu of fractional shares and except to the extent that the Common Stock issued
upon conversion is treated as attributable to accrued interest on the Notes. To
the extent that Common Stock is received by a holder of a Note without
recognition of gain or loss, the holding period of the Common Stock received
upon conversion of the Note will include the period during which the Note was
held, and the holder's aggregate basis in the Common Stock received upon
conversion of the Note will be equal to the holder's aggregate basis in the Note
exchanged therefor (less a portion thereof allocable to any fractional share). A
holder of a Note will recognize gain or loss for federal income tax purposes on
the receipt of cash in lieu of a fractional share of Common Stock in an amount
equal to the difference between the amount
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of cash received and such holder's basis in such fractional share. Except as
described above, such gain or loss will be capital gain or loss, and will be
long-term capital gain or loss if the fractional share has been deemed held for
more than one year. The fair market value of Common Stock received which is
attributable to accrued interest will be taxable as ordinary interest income.
CONSTRUCTIVE DIVIDEND. If at any time Saks Holdings makes a distribution of
property to stockholders which would be taxable to such stockholders as a
dividend (for example, distributions of evidences of indebtedness or assets of
Saks Holdings, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the anti-dilution provisions, the conversion
price of the Notes is adjusted, such adjustment may result in constructive
distributions to holders of Notes that could be taxable to them as dividends
pursuant to Section 305 of the Code. Therefore, holders of Notes could have an
amount included in gross income as a result of an event pursuant to which they
received no cash or property that could be used to pay any related tax.
Similarly, a failure to adjust the conversion price of the Notes to reflect a
stock dividend or other event increasing the proportionate interest of the
holders of outstanding stock can in some circumstantances be deemed dividend
income to holders of such stock.
COMMON STOCK
The following summary of certain United States federal income tax
consequences of the ownership and disposition of Common Stock into which the
Notes are convertible does not take into account or discuss the tax laws of any
country other than the United States, or state and local tax considerations
within the United States and is not a comprehensive description of all United
States federal income tax considerations that may be relevant to a decision to
own Common Stock. Prospective holders of Common Stock should consult their own
tax advisors as to United States or other tax consequences of the ownership and
disposition of Common Stock, including the possible application of the "personal
holding company" rules.
For United States federal income tax purposes, the gross amount of dividends
paid, if any, with respect to Common Stock out of earnings and profits of Saks
Holdings to a holder of such Common Stock generally will be treated as ordinary
income to such holder. To the extent a distribution exceeds the earnings and
profits of Saks Holdings, it will be treated first as a return of capital to the
extent of the holder's basis in the Common Stock, and then as gain from the sale
of a capital asset.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current United States federal income tax law, holders of Notes or
Common Stock will be subject to information reporting and may be subject to,
under certain circumstances, "backup withholding" at the rate of 31% in respect
of cash payments of interest or OID on the Notes, or in respect of dividends
payable with respect to the stock into which the Notes may be converted. This
withholding generally applies if the holder (i) fails to furnish the payor of
the interest or dividends with its taxpayer identification number ("TIN"); (ii)
furnishes such payor an incorrect TIN; (iii) is notified by the IRS that it has
failed to properly report interest, dividends or other "reportable payments" as
defined in the Code; or (iv) under certain circumstances, fails to provide such
payor or the holder's securities broker with a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and that the
holder is not subject to backup withholding. Any amount withheld from a payment
to a holder under the backup withholding rules is allowable as a credit against
such holder's federal income tax liability, provided that the required
information is furnished to the IRS. Backup withholding will not apply with
respect to payments made to certain holders of Notes, including payments to
certain exempt recipients (such as corporations and exempt organizations).
Holders of Notes should consult their tax advisors as to their qualification for
exemption from the backup withholding requirements.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The material terms of certain indebtedness of Saks are described below. Each
of the following summaries is subject to and qualified in its entirety by
reference to the detailed provisions of the respective agreements and
instruments to which each summary relates. Copies of such agreements and
instruments have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.
CREDIT AGREEMENT
In July 1993, Saks entered into an Amended and Restated Credit Agreement
with certain lenders (the "Lenders") which provided for $200 million in term
loans ("Term Loans"), $225 million in base revolving credit loans ("Base
Revolving Loans") and $100 million in working capital revolving credit loans
("Working Capital Revolving Loans"). The Term Loans, Base Revolving Loans and
Working Capital Revolving Loans collectively are referred to as the "Credit
Facility". The Term Loans consist of two tranches: the tranche A term loan (the
"Tranche A Loan") and the tranche B term loan (the "Tranche B Loan"), each
initially in the amount of $100 million. In March 1995, Saks and the Lenders
amended the Credit Facility to increase the principal amount of the Tranche B
Loan by $75 million for the primary purpose of financing the acquisition of four
stores previously operated by I. Magnin. In October 1995, Saks and the Lenders
amended the Credit Facility to (a) increase the principal amount of the Tranche
B Loan by $50 million, and (b) permit Saks to retain up to $25 million of net
proceeds from asset sales that otherwise would have been subject to mandatory
prepayment under the Credit Facility, each for the purpose of financing capital
expenditures relating to the remodeling, replacement and construction of retail
stores and a distribution center. For information regarding installment payments
due on the Tranche A Loan and the Tranche B Loan, see Note 5 to Consolidated
Financial Statements. As of August 3, 1996, there was approximately $25 million
and $113 million outstanding under the Tranche A and Tranche B Loans,
respectively.
In March 1996, Saks and the Lenders amended the Credit Facility, among other
things, to (i) permit Saks Holdings' initial public offering, (ii) exclude up to
$45 million in special charges from the calculation of certain restrictive
financial covenants and (iii) require that (a) at least one-third of the net
proceeds from Saks Holdings' initial public offering be used to prepay Term
Loans and (b) the remainder of such net proceeds be used to prepay first the
Working Capital Revolving Loans and then the Base Revolving Loans without
permanent reductions of availability. In April 1996, Saks and the Lenders
amended the Credit Facility, among other things, to (i) allow certain of the
proceeds of the Base Revolving Loans and Working Capital Revolving Loans to be
used to make permitted acquisitions and permitted capital expenditures, (ii) add
a covenant specifying a maximum ratio of outstanding loans to consolidated
adjusted operating profit tested annually and (iii) amend the method of
calculating interest rates under the Credit Facility as set forth below. In
April 1996, Saks and the Lenders amended the Credit Facility to allow Saks to
make payments, dividends or distributions with respect to operating costs
incurred by Saks Holdings in amounts not to exceed $4.0 million per fiscal year.
In August 1996, the Lenders consented to the issuance of the Notes and
certain payments from Saks to Saks Holdings pursuant to an intercompany note
(the "Intercompany Note") to permit Saks Holdings to fund payments of principal
of and interest on the Notes. The Lenders also consented to the prepayment of
Saks' existing subordinated debt. Saks is required to prepay the outstanding
balance of the term loans with the proceeds from the Intercompany Note.
As of August 3, 1996, an aggregate principal amount of approximately $291
million was available for borrowing under the Working Capital Revolving Loans
and the Base Revolving Loans, which amount is net of approximately $24.7 million
in borrowings and $6.6 million in standby letters
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of credit issued and outstanding under the Credit Facility. The Lenders'
commitments to make the Working Capital Revolving Loans and the Base Revolving
Loans expire on the earlier of June 30, 1998 and the termination of the
commitments under the Credit Facility. Saks and the Lenders currently are
reviewing Saks' Revolving Loans and intends to modify the terms of the Revolving
Loans to reflect Saks' improved credit worthiness.
Saks may borrow up to $20 million in aggregate principal amount of swingline
loans which bear interest at the Alternate Base Rate (as defined in the Credit
Facility) plus an applicable margin ranging from 0.0% to 1.0% depending on the
type of loan and the Interest Coverage Ratio (as defined in the Credit
Facility). All other loans under the Credit Facility bear interest at a rate
equal to, at Saks' option, (a) the Alternate Base Rate plus a percentage ranging
from 0.0% to 1.5% depending on the Interest Coverage Ratio or (b) the Eurodollar
Rate (as defined in the Credit Facility) plus a percentage ranging from 1.0% to
2.5% depending on the Interest Coverage Ratio. Saks has purchased three interest
rate cap agreements which limit the maximum interest rate on $400 million of
borrowings through September 2, 1996 to 5.5%.
The Credit Facility imposes certain covenants and other requirements on Saks
and its subsidiaries. In general, the affirmative covenants include standard
operating covenants requiring Saks, among other things, to: periodically and
upon the occurrence of certain events furnish certain financial information and
certificates to the administrative agent; pay obligations when due; continue to
engage in a business of the same general type as conducted on the date of the
Credit Facility; maintain property in good working order; maintain insurance
coverage on all property; keep proper books and records; promptly give notice
upon the occurrence of certain events; cause each Real Estate Holding Subsidiary
(as defined in the Credit Facility) to make certain distributions to Saks or a
subsidiary; grant a security interest to the administrative agent in certain new
leaseholds; and use reasonable best efforts to cause each such new leasehold to
be mortgageable and assignable. The Credit Facility also contains certain
negative covenants and restrictions that, among other things, restrict: (i) the
incurrence of indebtedness (as described below); (ii) the incurrence of liens or
other encumbrances; (iii) the incurrence of contingent obligations; (iv) the
sale, lease, assignment, transfer or other disposition of assets other than in
the ordinary course of business; (v) fundamental corporate changes including
acquisitions, mergers, consolidations, liquidations or material changes in Saks'
current method of conducting business or engaging in any type of business other
than the same general type presently conducted; (vi) investments, loans and
advances; (vii) capital expenditures; (viii) certain payments of dividends (see
"Risk Factors--No Dividends"); (ix) transactions with affiliates including
purchases, sales, leases, exchanges of property or rendering of any service with
any affiliate; (x) entering into certain foreign currency exchange contracts
other than for the purpose of hedging payments received in a foreign currency in
the ordinary course of business; (xi) changes in significant credit or
collection policies; (xii) prepayments and amendments of subordinated debt and
debt incurred pursuant to the REMIC Financing; (xiii) certain amendments of
leases of operating properties; and (xiv) waiver of surviving rights and causes
of action under the stock purchase agreement pursuant to which the stock of Saks
was acquired in 1990 and the I. Magnin acquisition agreement in 1994. Financial
covenants in the Credit Facility specify that consolidated net worth tested
quarterly may not be below the net proceeds from Saks Holdings' initial public
offering (approximately $418 million) plus $650 million and that consolidated
adjusted operating profit tested annually may not be below $155 million during
fiscal 1996 increasing to $225 million in fiscal 1999. Financial covenants in
the Credit Facility also require maintenance of the Interest Coverage Ratio
tested quarterly with respect to the immediately preceding four quarters which
increase from 1.90 to 1.00 for the third quarter of fiscal 1996, to 3.00 to 1.00
for the second quarter of fiscal 2000 and specify that the ratio of outstanding
loans to consolidated adjusted operating profit tested annually may not exceed a
certain level which decreases from 2.75 to 1.00 in fiscal 1996 to 1.75 to 1.00
in fiscal 1999.
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Saks and its subsidiaries may not create, incur, assume or suffer to exist
any indebtedness except: (i) indebtedness outstanding on the date of the Credit
Facility that was specifically scheduled, excluding the refinancing of such
indebtedness; (ii) indebtedness arising under the Credit Facility;
(iii) indebtedness incurred after the date of the Credit Facility for industrial
revenue bonds, capitalized lease obligations or the deferred purchase price of
newly acquired property not exceeding an aggregate at any one time outstanding
of $140 million plus amounts outstanding under certain capitalized leases;
(iv) intercompany indebtedness; (v) indebtedness evidenced by the Subordinated
Notes, subject to certain conditions; (vi) indebtedness pursuant to the REMIC
Financing; (vii) unsecured indebtedness not exceeding an aggregate principal
amount at any one time outstanding of $50 million; (viii) indebtedness in
respect of foreign currency exchange contracts otherwise permitted in the Credit
Facility; (ix) indebtedness in respect of the Accounts Receivable Financing (as
defined in the Credit Facility, which includes the transactions described under
"Receivables Securitization"); (x) unsecured indebtedness in respect of letters
of credit issued under other credit facilities, subject to a $25 million limit
in the aggregate; and (xi) indebtedness relating to certain specifically
scheduled store transactions.
Saks from time to time has amended covenants contained in the Credit
Facility in anticipation of changes in its results of operations and in economic
conditions generally.
Events of default under the Credit Facility include, among other things: (i)
the failure to pay any principal when due or any interest within five days of
being due; (ii) any representation or warranty in documents delivered in
connection with the Credit Facility which is proven to be materially incorrect
as of the date made; (iii) a failure by Saks, Saks Holdings or any subsidiary to
comply with or perform certain obligations under the Credit Facility or certain
documents delivered in connection therewith; (iv) a default by Saks or any
subsidiary in the payment when due of certain indebtedness or conditions or
agreements relating to such indebtedness, provided that the aggregate principal
amount of liabilities involved is at least $1 million; (v) certain insolvency
events; (vi) certain prohibited ERISA events; (vii) judgments or decrees entered
against Saks or any subsidiary involving an aggregate of $1 million or more
(excluding amounts covered by insurance) not stayed, discharged, vacated or
bonded within the applicable time for such action; (viii) the ineffectiveness or
unenforceability of documents delivered in connection with the Credit Facility;
(ix) a change of control, which is deemed to occur if any person (other than
Investcorp, any of its Affiliates or subsidiaries, any person who is senior
management of Saks or Saks Holdings, any entity that is majority-owned by such
senior management of Saks or Saks Holdings, or any person acting in the capacity
of an underwriter), whether singly or in concert with one or more persons,
directly or indirectly acquires the power to vote or direct the voting of 25% or
more, on a fully diluted basis, of the outstanding common stock of Saks or of
the Common Stock; and (x) any amendment or other modification of the
Subordinated Note Indenture or Subordinated Notes made without all required
written consents.
The Credit Facility is secured by substantially all of the assets of Saks
and its subsidiaries other than (i) a significant number of the real estate
properties owned or leased by Saks or its subsidiaries which are subject to the
REMIC Financing, (ii) certain accounts receivable of Saks which are subject to
sale under the accounts receivable financing discussed below, (iii) the
inventory of Saks and its subsidiaries and (iv) the capital stock of Saks' real
estate subsidiaries and accounts receivable subsidiaries. Saks Holdings has
guaranteed payment of the obligations of Saks under the Credit Facility and has
secured this guarantee with a pledge of all of the issued and outstanding
capital stock of Saks.
In addition, as of August 3, 1996, approximately $4.9 million in letters of
credit were outstanding under a separate $10 million letter of credit facility
between Saks and The Bank of Tokyo.
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SUBORDINATED DEBT
On July 1, 1993, Saks issued and sold in a private placement $50 million
principal amount of 9% Subordinated Notes due 2001 (the "Subordinated Notes").
The Subordinated Notes bear interest at 9% per year, payable semiannually in
arrears on each June 30 and December 31, and mature on May 31, 2001. The
Subordinated Notes are unsecured obligations of Saks and are subordinated in
right of payment to all existing and future Senior Indebtedness (as defined in
the indenture pursuant to which the Subordinated Notes were issued (the
"Subordinated Note Indenture")).
The Subordinated Notes may be redeemed at the option of Saks in whole or in
part at (a) 101% of the principal amount redeemed prior to November 30, 1996,
(b) 100.5% of the principal amount redeemed on or after November 30, 1996 but
prior to May 31, 1997 or (c) 100% of the principal amount redeemed on or after
May 31, 1997 through maturity, in each case plus accrued and unpaid interest, if
any. Saks intends to redeem $35 million aggregate principal amount of the
Subordinated Notes with the proceeds from the Intercompany Note. Upon a "Change
of Control," Saks is obligated to make an offer to repurchase all outstanding
Subordinated Notes at the optional redemption prices set forth above, plus
accrued and unpaid interest, if any, to and including the Change of Control
Payment Date (as defined in the Subordinated Note Indenture). A "Change of
Control" will be deemed to occur if any person (other than Investcorp, an
Affiliate of Investcorp, a person who is senior management of Saks, any entity
majority-owned by such senior management of Saks or any person acting in the
capacity of an underwriter), whether singly or in concert with one or more
persons, directly or indirectly, shall have acquired 20% or more, on a fully
diluted basis, of the outstanding Common Stock.
The Subordinated Note Indenture contains various restrictive covenants that,
among other things, limit: (i) the incurrence of certain additional indebtedness
by Saks or its subsidiaries; (ii) the creation of Senior Indebtedness of Saks
which is, by its terms, subordinated in right of payment to other indebtedness
of Saks; and (iii) the payment of dividends on capital stock of Saks (see "Risk
Factors--No Dividends"). Affirmative covenants include, among others, an
obligation to pay principal, interest and premium, if any, when due, hold funds
for note payments in trust, maintain its corporate existence, maintain its
properties in good condition, pay taxes when due, furnish to the trustee copies
of certain financial information, and certify as to whether Saks is in default
within 90 days after the end of each fiscal quarter of Saks. Events of default
under the Subordinated Note Indenture include, among other things: (i) a default
in the payment of any interest on any Note when due, which default continues for
30 days; (ii) a default in the payment of any principal of or premium, if any,
on any Note when due; (iii) a default in the deposit of any payment when due
pursuant to a Change of Control or redemption of any Note; (iv) the failure by
Saks to comply with any agreement or covenant in the Subordinated Note Indenture
with respect to the payment of dividends on capital stock, which failure
continues for ten business days; (v) the failure by Saks to comply with any
other agreement or covenant in the Subordinated Note Indenture, which failure
continues for 60 days after a Notice of Default (as defined in the Subordinated
Note Indenture) is given; (vi) the rendering of a final judgment in excess of
$20 million (excluding amounts covered by insurance) not discharged, waived or
stayed for 45 days after the date on which the right to final appeal expires,
which default continues for 30 days after a Notice of Default is given; (vii)
certain defaults under a bond, debenture, note or other indebtedness of Saks or
any Significant Subsidiary (as defined in the Subordinated Note Indenture), or
under a mortgage, indenture or other instrument under which there may be issued
or by which there may be secured or evidenced indebtedness for money borrowed by
Saks or such Significant Subsidiary, which indebtedness has a principal amount
of over $20 million; and (viii) certain events of bankruptcy, insolvency or
reorganization of Saks or any Significant Subsidiary.
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REMIC FINANCING
In May 1995, Fifth Avenue Capital Trust, a special purpose Delaware business
trust (the "Depositor") of which the primary beneficiary is Saks, made 27
commercial mortgage loans (the "Mortgage Loans") in the aggregate principal
amount of $335 million (the "REMIC Financing") to eight special purpose Delaware
corporations and one special purpose Delaware business trust (the "REMIC
Borrowers") which owned 28 properties operated as Saks stores (including the
Fifth Avenue store) and the Yonkers distribution center (the "REMIC
Properties"). The eight corporate REMIC Borrowers are direct or indirect
wholly-owned subsidiaries of Saks. All of the beneficial interests in the one
REMIC Borrower that is a business trust are owned indirectly by Saks.
The Mortgage Loans were deposited by the Depositor in a trust fund (the
"Trust Fund") created by the Depositor pursuant to a trust and servicing
agreement among the Depositor, Bankers Trust Company, as servicer (the
"Servicer"), and Marine Midland Bank, as trustee. Commercial Mortgage
Pass-Through Certificates in the aggregate principal amount of $335 million
representing beneficial ownership interests in the Trust Fund (the "REMIC
Certificates") were offered and sold in transactions exempt from registration
under the Securities Act pursuant to Rule 144A or Regulation S under the
Securities Act. The Depositor holds the REMIC Certificate representing the
residual interest in the Trust Fund. An election was made to treat the Trust
Fund as a REMIC for federal income tax purposes. The Depositor used the proceeds
of the sale of the REMIC Certificates to repay an existing $335 million
financing secured by certain of the REMIC Properties and certain other Saks
stores. For information regarding aggregate principal amounts of the various
series of REMIC Certificates, and the rates of interest payable thereon, see
Note 5 to Consolidated Financial Statements.
There is no scheduled principal amortization on the Mortgage Loans prior to
May 12, 2002. The unpaid principal balance of each Mortgage Loan is due in a
single balloon payment on that date.
Each REMIC Borrower has guaranteed the Mortgage Loans of each other REMIC
Borrower. Each REMIC Borrower has secured its obligations with respect to its
Mortgage Loans and its guaranty of each other REMIC Borrower's Mortgage Loans by
a first priority mortgage lien on each fee or leasehold interest of each REMIC
Borrower in its REMIC Properties and an assignment of leases, rents and lease
guarantees relating to all leases on each such REMIC Property, primarily
consisting of an operating lease (an "Operating Lease") with Saks or a direct or
indirect wholly-owned operating subsidiary of Saks (an "Operating Lessee"). The
Mortgage Loans also contain covenants limiting the ability of each REMIC
Borrower to incur certain additional indebtedness. In addition, a REMIC Borrower
may not renovate a REMIC Property if such renovation would cause the related
store to be closed for ten days or more or if the modification would cost more
than $5 million per REMIC Property or $15 million in the aggregate for all REMIC
Properties, subject to certain specific exceptions for renovation projects
scheduled in the related documents. The REMIC Borrowers are subject to covenants
which require them to maintain their businesses separate and apart from Saks and
restrict their ability to engage in any activity or business not directly
related to the REMIC Properties. Saks guarantees the obligations under all
Operating Leases with Operating Lessees other than Saks. Under the terms of the
Operating Leases, the Operating Lessees are required to pay as additional rent
all taxes, assessments, utility charges and similar fees and charges. The
Operating Lessees are also responsible for paying all operating expenses and
insurance premiums and paying all utilities, and cannot reduce or set off any
rent (except, in certain circumstances, in the case of a condemnation), nor can
they terminate the Operating Leases for any reason, including condemnation,
casualty or structural defects. The Operating Lessees are required to bear the
cost of all repairs (including structural repairs) to the REMIC properties.
Events of default under the Mortgage Loans include the following: (i) a
default in the payment of any portion of the principal of or interest or
premium, if any, on any Mortgage Loan when due; (ii) a default in the payment of
any other amounts due and payable under any REMIC Certificate or
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related Mortgage Loan document, which continues for a period of ten days after
written demand; (iii) an "Event of Default" as defined in any document
evidencing or securing the Mortgage Loans which has not been cured within any
applicable cure or grace period; (iv) a default by the REMIC Borrowers under any
ground lease, operating lease or reciprocal easement agreement and such default
shall not be cured prior to the expiration of any applicable grace period; and
(v) the failure of Saks to be the sole direct or indirect owner of any REMIC
Borrower that has not paid in full its REMIC Certificates.
The Mortgage Loans may be prepaid, as described in Note 5 to Consolidated
Financial Statements. In connection with any sale of the Yonkers facility, Saks
must prepay the Mortgage Loan with respect to such facility. The Mortgage Loan
with respect to the Owings Mills, Maryland store was prepaid in January 1996 in
connection with the closing of the store at that location and the disposition of
that REMIC Property. The aggregate outstanding principal amount of the Mortgage
Loans at August 28, 1996 was $330,840,901.
RECEIVABLES SECURITIZATION
Since 1991, Saks has sold its proprietary credit card receivables (the
"Receivables") to SFA Finance Company ("Finco"), a Delaware corporation and a
wholly owned subsidiary of Saks established solely for the purpose of purchasing
Receivables from Saks. Finco subsequently transferred the Receivables, in
exchange for cash and subordinated certificates of beneficial interests, to the
SFA Master Trust (the "Original Receivables Trust") established pursuant to a
pooling and servicing agreement among Finco, Saks, as servicer, and Bankers
Trust Company, as trustee (the "Original A/R Trustee"), which is consolidated by
Saks. Saks receives a fee for servicing the Receivables for the Original
Receivables Trust.
The Original Receivables Trust has sold two series of certificates of
beneficial interest in the Original Receivables Trust to third parties. These
certificates represent undivided interests in the receivables generated from
time to time by Saks by a portfolio of accounts meeting the designated
eligibility requirements. Series 1991-2 is a medium term series that matures in
November 1996. In May 1996, principal collections of Receivables allocable to
Series 1991-2 began to be accumulated in a bank account maintained by the
Original A/R Trustee in order to make the November 1996 principal repayment and
are not available to pay for new Receivables transferred by Finco. Class A of
Series 1991-2 at August 3, 1996 had an outstanding principal balance of $200
million and bore interest at LIBOR plus .45%. The Class A Certificates were sold
in transactions exempt from registration under the Securities Act pursuant to
Rule 144A or Regulation S under the Securities Act.
In April 1996 the Saks Master Trust (the "New Receivables Trust") was formed
pursuant to a pooling and servicing agreement among Finco, Saks, as servicer,
and Bankers Trust Company, as trustee (the "New A/R Trustee"). The assets of the
New Receivables Trust currently consist principally of a certificate evidencing
the entire interest in the Transition Certificate, Series 1996-1 (the
"Transition Certificate"), which is the second outstanding series issued by the
Original Receivables Trust. The Transition Certificate represents the interest
in the assets of the Original Receivables Trust not represented by Series 1991-2
and has a principal amount which will fluctuate from time to time according to
the level of receivables in the Original Receivables Trust in excess of the
amount required to support the Series 1991-2 Certificates. On the date on which
Series 1991-2 has been fully liquidated (the "Existing Trust Termination Date"),
the assets of the Original Receivables Trust will be transferred to the New
Receivables Trust in exchange for the cancellation of the Transition
Certificate. After the Existing Trust Termination Date, Saks will receive a fee
for servicing the Receivables for the New Receivables Trust.
78
<PAGE>
In April 1996 the New Receivables Trust sold two series of certificates of
beneficial interests. These certificates represent undivided interests in the
receivables generated from time to time by Saks by a portfolio of accounts
meeting the designated eligibility requirements. Series 1996-1 is a medium term
series that matures in April 1999. Approximately $297 million of Class A Series
1996-1 Certificates and $53 million of Class B Series 1996-1 Certificates were
sold in transactions exempt from registration under the Securities Act pursuant
to Rule 144A thereunder. Approximately $47 million of subordinated Series 1996-1
Certificates were privately placed at the same time. All such certificates bear
interest at fixed spreads over one-month LIBOR. Finco retains approximately
$16.5 million of subordinated Series 1996-1 Certificates. Series 1996-1 has a
substantial prefunded amount, which will be invested in Receivables (via the
Transition Certificate) as cash allocable to Series 1991-2 is no longer
reinvested in Receivables, but instead is accumulated in order to make the
principal payment due with respect thereto in November 1996.
Series 1996-2 is a series with a variable principal amount. The Class A
Series 1996-1 Certificates have a maximum outstanding principal balance of $100
million and have been privately placed. Subordinated Series 1996-2 Certificates,
with an aggregate maximum outstanding principal balance of approximately $16.0
million, also were privately placed. All Series 1996-2 Certificates bear
interest at fixed spreads over one-month LIBOR. Finco will retain up to
approximately $5.0 million of subordinated Series 1996-2 Certificates. The
principal balance of Series 1996-2 is currently zero.
Saks is obligated to repurchase Receivables related to customer credits such
as merchandise returns and other receivable defects. Saks has no obligation to
reimburse Finco, the Original Receivables Trust, the New Receivables Trust or
the purchasers of the certificates of beneficial interests for credit losses;
however, the subordinated certificates of beneficial interest in, and deposits
with, the Original Receivables Trust, and the New Receivables Trust which are
assets of Finco, and the discount on the sale of Receivables to Finco, if any,
are available to cover such losses.
Saks continues to provide for losses related to the receivables pursuant to
the recourse provisions of the relevant agreements in determining its allowance
for doubtful accounts.
Finco is subject to covenants which require it to maintain its business
separate and apart from Saks and restrict its ability to engage in any activity
or business not directly related to acquiring the Receivables and transferring
them to the trusts.
For additional information, see Note 4 to Consolidated Financial Statements.
79
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of August 28, 1996, 63,037,464 shares of Common Stock were outstanding.
Pursuant to the Secondary Offering, certain stockholders are offering for sale
up to 9,200,000 shares of Common Stock (including up to 1,200,000 shares to be
sold pursuant to an over-allotment option). The 18,062,500 shares of Common
Stock sold in Saks Holdings' initial public offering in May 1996 are, and the
shares sold in the Secondary Offering will be, available for resale in the
public market without restriction or further registration under the Securities
Act, except for shares acquired in the offerings by "affiliates" of Saks
Holdings (in general, any person who has a control relationship with Saks
Holdings), which shares may be resold only if registered under the Securities
Act or if transferred pursuant to an exemption from registration, including
resales pursuant to Rule 144 and Regulation S under the Securities Act. The
remaining 35,774,964 outstanding shares of Common Stock are deemed to be
"restricted securities" as that term is defined in Rule 144, all of which are
eligible for sale in the public market in compliance with Rule 144 and
28,169,215 of which have been held for at least three years by persons Saks
Holdings believes are not affiliates.
Saks Holdings has agreed with the Underwriters that, during the period of 90
days from the date of this Prospectus, subject to certain exceptions, it will
not issue, sell, offer or agree to sell, grant any options for the sale of
(other than employee stock options) or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable for Common Stock, other than pursuant to the offering. In addition,
certain stockholders and the selling stockholders in the Secondary Offering have
agreed with the underwriters of the Secondary Offering that, subject to certain
exceptions, they will not offer, pledge, sell, transfer or otherwise dispose of
35,513,356 shares of Common Stock in connection with the Secondary Offering for
a period of 180 days after the date of the prospectus relating to the Secondary
Offering. Further, in connection with the initial public offering, certain
stockholders owning 35,766,605 shares of Common Stock agreed with the
underwriters of the initial public offering that, subject to certain exceptions,
they will not offer, pledge, sell, transfer or otherwise dispose of such shares
of Common Stock prior to November 17, 1996. At the expiration of the lock-up
periods described above, or earlier with the written consent of the applicable
underwriters, the holders of 52,145,904 shares of Common Stock (assuming
consummation of the Secondary Offering, including shares to be sold thereby
pursuant to over-allotment options) will have the right to sell shares of Common
Stock without regard to the volume or other limitations of Rule 144 under the
Securities Act.
In addition, up to 3,072,035 shares of Common Stock may be issued upon
exercise of certain employee stock options that Saks Holdings has granted, of
which options to purchase 1,041,158 shares of Common Stock were exercisable as
of August 28, 1996. Saks Holdings has filed a registration statement on Form S-8
under the Securities Act to register the 6,209,045 shares of Common Stock
reserved for issuance under the Incentive Plans. As a result, any shares issued
upon exercise of stock options granted under such plans are available, subject
to special rules for affiliates, for resale in the public market, subject to
applicable lock-up arrangements. See "Underwriting" and "Management--Stock
Incentive Plans".
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years is entitled to sell, within any three-month period, a number of restricted
securities which does not exceed the greater of 1% of the then-outstanding
shares of Saks Holdings' Common Stock (630,374 shares as of August 28, 1996) or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 also may be subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about Saks Holdings. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of Saks Holdings at any
time during the three months preceding a sale, and who has beneficially owned
shares within the definition of "restricted
80
<PAGE>
securities" under Rule 144 for at least three years, is entitled to sell such
shares under Rule 144(k) without regard to the volume limitation, manner of sale
provisions, public information requirements or notice requirements. Regulation S
permits the sale by affiliates and others of shares in an "offshore transaction"
(as defined in Regulation S), subject to certain other conditions including the
requirement that the purchaser not resell the shares to a U.S. person during a
40 day restricted period.
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities or the availability of
such shares will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair Saks Holdings' future ability to
raise capital through an offering of equity securities.
The Company is undertaking the Secondary Offering pursuant to certain
registration rights granted to the stockholders participating therein.
VALIDITY OF NOTES
The validity of the Notes offered hereby will be passed upon for Saks
Holdings by Gibson, Dunn & Crutcher LLP, New York, New York, and for the
Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated balance sheets of Saks Holdings as of January 28, 1995 and
February 3, 1996 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
3, 1996, included in this Prospectus, have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Saks Holdings is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C., 20549, and at the Commission's
Regional Offices at Citicorp Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Reports, proxy and information statements and other information
concerning the Company may also be inspected at the offices of the New York
Stock Exchange, Inc. 20 Broad Street, New York, New York 10005, on which Saks
Holdings' Common Stock is listed.
Saks Holdings has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Notes offered hereby. This Prospectus does not contain all of the
information set forth in the Registration
81
<PAGE>
Statement and the exhibits and schedules thereto, certain portions having been
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to Saks Holdings and the Notes, reference is
hereby made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, although the material
terms thereof are described in this Prospectus, and, in each instance, reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified by such reference to
such exhibits. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from such
office upon payment of the fees prescribed by the Commission.
82
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets at January 28, 1995 and February 3, 1996................ F-3
Consolidated Statements of Operations for the fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 29, 1994, January 28, 1995 and February 3, 1996........................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................. F-6
Notes to Consolidated Financial Statements for fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................... F-7
Condensed Consolidated Balance Sheets at July 29, 1995 and August 3, 1996
(unaudited)....................................................................... F-26
Condensed Consolidated Statements of Operations for the six months ended July 29,
1995 and August 3, 1996 (unaudited)................................................. F-27
Condensed Consolidated Statements of Cash Flows for the six months ended July 29,
1995 and August 3, 1996 (unaudited)................................................. F-28
Notes to Condensed Consolidated Financial Statements for the six months ended July
29, 1995 and August 3, 1996 (unaudited)............................................. F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Saks Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Saks
Holdings, Inc. and Subsidiaries as of January 28, 1995 and February 3, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended February 3,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Saks Holdings, Inc. and Subsidiaries as of January 28, 1995 and February 3,
1996, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended February 3, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
March 13, 1996 except as to
the information regarding the amendments
to the Credit Facility in April 1996
presented in Note 5 for which the date is
April 18, 1996 and the information presented
in Note 15, for which the date is
April 26, 1996.
F-2
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 9,628 $ 6,627
Accounts receivable (net of allowances of $9,313 and
$11,160)........................................................ 43,797 37,426
Inventories................................................... 271,875 339,723
Other current assets.......................................... 44,820 55,420
Restricted cash............................................... 5,392 6,118
----------- -----------
Total current assets.................................... 375,512 445,314
----------- -----------
Property and equipment:
Land.......................................................... 192,053 188,157
Buildings and building improvements........................... 385,927 421,693
Furniture, fixtures and equipment............................. 252,694 229,276
Beneficial leasehold interests................................ 54,161 54,161
Construction in progress...................................... 17,156 5,088
Leased property under capital leases.......................... 95,875 107,008
Assets held for sale.......................................... 8,750 --
----------- -----------
1,006,616 1,005,383
Less, Accumulated depreciation and amortization............. (225,380 ) (225,119 )
----------- -----------
781,236 780,264
Goodwill (net of accumulated amortization of
$12,669 and $15,374).......................................... 95,828 93,123
Other intangibles (net of accumulated amortization of
$4,665 and $5,679)............................................ 9,547 8,533
Other noncurrent assets......................................... 27,074 38,953
----------- -----------
Total assets............................................ $1,289,197 $1,366,187
----------- -----------
----------- -----------
LIABILITIES:
Current liabilities:
Accounts payable, trade....................................... $ 96,577 $ 119,399
Accrued liabilities........................................... 92,756 108,491
Taxes other than income taxes................................. 31,561 21,456
Accrued interest.............................................. 5,504 10,821
Current portion of long-term debt............................. 19,825 26,463
Other......................................................... 4,167 4,772
----------- -----------
Total current liabilities............................... 250,390 291,402
Long term debt.................................................. 755,270 840,239
Obligations under capital leases................................ 95,240 104,468
Other noncurrent liabilities.................................... 41,103 46,903
----------- -----------
Total liabilities....................................... 1,142,003 1,283,012
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share, 10,000 shares
authorized, no shares issued and outstanding.................... -- --
Common Stock, $.01 par value per share, 150,000 shares
authorized, 45,089 issued and 44,958 outstanding................ 450 450
Additional paid-in capital...................................... 923,368 922,424
Accumulated deficit............................................. (775,022 ) (839,117 )
Treasury stock, at cost......................................... (1,602 ) (582 )
----------- -----------
Total stockholders' equity.............................. 147,194 83,175
----------- -----------
Total liabilities and stockholders' equity.............. $1,289,197 $1,366,187
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................ $1,395,536 $1,418,163 $1,686,787
Cost of sales, including buying and occupancy........ (975,360) (979,650) (1,168,692)
---------- ---------- ----------
Gross margin....................................... 420,176 438,513 518,095
Selling, general and administrative expenses......... (394,828) (370,441) (438,603)
Management fees...................................... (2,000) (2,000) (7,000)
Impairment and special charges....................... (177,731) -- (36,415)
---------- ---------- ----------
Operating income (loss).......................... (154,383) 66,072 36,077
Interest, net........................................ (73,822) (76,155) (94,181)
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary charge................................. (228,205) (10,083) (58,104)
Income taxes......................................... -- -- --
---------- ---------- ----------
Income (loss) before extraordinary charge........ (228,205) (10,083) (58,104)
Extraordinary charge--loss on early extinguishment of
debt................................................. (27,640) (535) (5,991)
---------- ---------- ----------
Net income (loss)................................ $ (255,845) $ (10,618) $ (64,095)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share before extraordinary
charge............................................... $ (5.07) $ (.22) $ (1.29)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share...................... $ (5.68) $ (.24) $ (1.43)
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding.............. 45,030 45,010 44,955
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
CAPITAL STOCK
------------------- ADDITIONAL TREASURY TOTAL
SHARES PAR PAID-IN ACCUMULATED STOCK, STOCKHOLDERS'
OUTSTANDING VALUE CAPITAL DEFICIT AT COST EQUITY
----------- ----- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 30,
1993........................ 45,025 $450 $919,757 $(508,559) $ (247 ) $ 411,401
Purchase of treasury
stock....................... (2) (36 ) (36)
Reissuance of treasury
stock....................... 4 88 88
Payment of stock
subscriptions receivable... 34 34
Earned compensation......... 167 167
Gain on sale to affiliate... 3,250 3,250
1993 net loss............... (255,845) (255,845)
----------- ----- ---------- ----------- -------- -------------
Balance at January 29,
1994........................ 45,027 450 923,208 (764,404) (195 ) 159,059
----------- ----- ---------- ----------- -------- -------------
Purchase of treasury
stock....................... (70) (1,393 ) (1,393)
Reissuance of treasury
stock....................... 3 62 62
Employee stock subscriptions
receivable.................. (62) (62)
Surrender of unvested stock
grants...................... (3) 76 (76 ) 0
Earned compensation......... 146 146
1994 net loss............... (10,618) (10,618)
----------- ----- ---------- ----------- -------- -------------
Balance at January 28,
1995........................ 44,957 450 923,368 (775,022) (1,602 ) 147,194
----------- ----- ---------- ----------- -------- -------------
Purchase of treasury
stock....................... (1) (26 ) (26)
Reissuance of treasury
stock....................... 2 46 46
Conversion of stock......... (1,000) 1,000 0
Earned compensation......... 56 56
1995 net loss............... (64,095) (64,095)
----------- ----- ---------- ----------- -------- -------------
Balance at February 3,
1996........................ 44,958 $450 $922,424 $(839,117) $ (582 ) $ 83,175
----------- ----- ---------- ----------- -------- -------------
----------- ----- ---------- ----------- -------- -------------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(255,845) $ (10,618) $ (64,095)
Adjustments to reconcile net loss to cash provided by
operating activities:
Extraordinary charge..................................... 27,640 535 5,991
Impairment and special charges........................... 177,731 -- 36,415
Depreciation and amortization............................ 86,812 67,974 66,766
Amortization of deferred financing costs................. 13,891 12,731 10,009
Non-cash interest, net................................... 738 (946) 462
Other items, net......................................... (15,395) (7,651) (1,045)
--------- --------- ---------
Net cash provided by operating activities before
changes in operating assets and liabilities.......... 35,572 62,025 54,503
Change in operating assets and liabilities:
Accounts receivable...................................... (35,976) (67,705) (62,583)
Proceeds from sale of accounts receivable................ 722,027 739,851 805,158
Origination of accounts receivable....................... (692,364) (673,202) (751,478)
Inventories.............................................. (15,045) (18,006) (70,974)
Accounts payable......................................... 7,363 21,265 27,322
Accrued liabilities...................................... (2,221) (12,634) 12,257
Accrued interest......................................... (690) 1,294 5,317
Taxes other than income taxes............................ 385 1,108 (10,105)
Other assets and liabilities............................. (3,468) (205) (15,522)
--------- --------- ---------
Net cash provided by (used in) operating activities.... 15,583 53,791 (6,105)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale and sale-leaseback of assets............ -- 31,150 12,806
Capital expenditures....................................... (49,752) (71,713) (87,028)
Construction allowances received from third parties........ 15,393 15,990 4,449
Change in restricted cash.................................. 4,105 9,327 (726)
Proceeds from the sale of subordinated certificates........ 13,500 13,427
--------- --------- ---------
Net cash used in investing activities.................. (30,254) (1,746) (57,072)
--------- --------- ---------
Cash flows from financing activities:
Payments under revolving credit loans and notes, net....... (27,500) (832) (13,566)
Proceeds from term loan.................................... 200,000 -- 125,000
Proceeds from commercial mortgage pass-through
certificates................................................ -- -- 335,000
Payment of Euronotes....................................... (11,000) (26,000) (335,000)
Payment of subordinated debt............................... (130,313) -- --
Premiums paid on early retirement of debt.................. (3,606) -- --
Payment of term loans...................................... (5,000) (16,573) (19,826)
Financing costs............................................ (18,087) (571) (27,064)
Proceeds on sale to affiliate.............................. 11,903 -- --
Principal payments under capital leases.................... (1,331) (2,483) (3,739)
Other...................................................... 32 (1,447) (629)
--------- --------- ---------
Net cash provided by (used in) financing activities.... 15,098 (47,906) 60,176
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 427 4,139 (3,001)
Cash and cash equivalents, beginning of period.............. 5,062 5,489 9,628
--------- --------- ---------
Cash and cash equivalents, end of period............... $ 5,489 $ 9,628 $ 6,627
--------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 60,582 $ 54,416 $ 69,504
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of non-cash investing and financing
activities:
Capital leases............................................. $ 4,947 $ 28,867 $ 13,626
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
1. BASIS OF PRESENTATION
Saks Holdings, Inc. ("Saks Holdings"), through its wholly-owned subsidiary
Saks & Company, which does business as Saks Fifth Avenue ("Saks", and together
with Saks Holdings, the "Company") is a premier fashion retailer, offering the
finest quality and latest style in women's and men's apparel. The consolidated
financial statements include the accounts of Saks Holdings and its direct and
indirect subsidiaries, and Fifth Avenue Capital Trust, an entity formed to
effect Saks' real estate financing (See Note 5). Saks Holdings' only asset is
its investment in Saks; it has no other operations or cash flows. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR:
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
1995 contains 53 weeks and ended on February 3, 1996. Fiscal 1994 and fiscal
1993 contain 52 weeks and ended on January 28, 1995 and January 29, 1994,
respectively.
NET SALES:
Net sales include sales of merchandise and sales of leased departments, net
of returns. Sales of leased departments were $55,608, $56,416 and $70,940 in
fiscal 1993, fiscal 1994 and fiscal 1995, respectively.
SAKS FIRST PROGRAM:
The Company maintains a customer loyalty program which rewards customers who
spend more than two thousand dollars annually on their Saks credit card. The
rewards range from 2% to 6% of the customers' spending and are in the form of
gift checks redeemable at Saks. The cost associated with future redemptions is
recorded as a charge to cost of goods sold in the period in which the rewards
are earned.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use, and have
maturities, when purchased, of three months or less. Cash equivalents are stated
at cost which approximates market. Restricted cash consists of $1.5 million
payable to the Trust under the Company's accounts receivable securitization
program in both fiscal 1994 and fiscal 1995. Additionally, restricted cash
includes, in fiscal 1994 and fiscal 1995, $3.9 and $.4 million, respectively,
required under the Company's real estate financing and, in fiscal 1995, a $4.2
million real estate financing prepayment related to the sale of the Owings Mills
store location.
F-7
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
ACCOUNTS RECEIVABLE AND FINANCE CHARGE INCOME:
In accordance with industry practice, installments on deferred payment
accounts receivable maturing in more than one year have been included in current
assets.
The Company provides credit to its customers and performs ongoing credit
evaluations of its customers. Concentration of credit risk is limited because of
the large number of customers and their dispersion throughout the United States
and other countries. The Company maintains an allowance for potential credit
losses which, when realized, has been within the range of management's
expectations.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Allowance for uncollectable receivables--beginning of
period........................................................ $11,251 $10,892 $ 9,313
Bad debt expense.............................................. 14,444 11,400 20,628
Write-offs, net of recoveries................................. (14,803) (12,979) (18,781)
------- ------- -------
Allowance for uncollectable accounts--end of period........... $10,892 $ 9,313 $11,160
------- ------- -------
------- ------- -------
</TABLE>
The Company has an ongoing program to sell certain of its proprietary credit
card receivables (the "Receivables"). See Note 4. The Company's credit
operations generate finance charge income and service fee income which is
recognized as income when earned. Finance charge income, net of certain costs
associated with the securitization of accounts receivable is included as a
reduction of selling, general and administrative expenses in the consolidated
statements of operations and was $30,414, $34,424 and $37,084 in fiscal 1993,
fiscal 1994 and fiscal 1995, respectively. Service fee income was $5,420, $6,544
and $7,745 in fiscal 1993, fiscal 1994, and fiscal 1995, respectively. As noted
above, the Company's credit operations are an integral part of its business,
accordingly its records are not maintained to report credit as a separate line
of business.
MERCHANDISE INVENTORIES:
Merchandise inventories are stated at the lower of cost or market, as
determined by the retail method. Consignment merchandise on hand of $59,105 and
$72,720 at January 28, 1995 and February 3, 1996, respectively, are not
reflected in the consolidated balance sheets.
ADVERTISING:
Direct response advertising costs are deferred and amortized over the period
of expected benefit. Direct response advertising consists primarily of costs
associated with the production and distribution of the Company's catalogs. Such
costs are amortized within a three-month period following mailing. All other
advertising costs are expensed in the period incurred. Advertising expenses were
$26,842, $30,566 and $42,956, in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. Direct response advertising amounts included in Other current
assets in the consolidated balance sheets at January 28, 1995 and February 3,
1996 were $3,739 and $6,972, respectively.
STORE PREOPENING COSTS:
Costs associated with the opening of a new store are deferred and amortized
over the 12 months following the store opening.
F-8
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. The cost of property and
equipment placed in service prior to July 1990 was revalued at the acquisition
of Saks in 1990 (the "Acquisition"). Property and equipment are depreciated on a
straight-line basis over their estimated useful lives. In fiscal 1993 the
Company reviewed the carrying value of its store assets. See Note 3.
Leasehold improvements included in buildings and building improvements are
amortized over the shorter of their estimated useful lives or related lease
terms. Beneficial leasehold interests are being amortized on a straight-line
basis over 15 years.
The Company capitalizes both internally developed and purchased computer
software. The cost of such computer software is amortized on a straight-line
basis using its five-year estimated useful life. See Note 3. Capitalized
software costs included in the consolidated balance sheets at January 28, 1995
and February 3, 1996 were $15,095 and $8,062, respectively.
NONCURRENT ASSET IMPAIRMENT:
The Company assesses whether an asset has been impaired whenever factors
indicate that the carrying amount of a store's asset base may not be
recoverable. Significant factors considered include long-term economic downturns
in a market in which a store operates, a reduction of customer traffic due to
the opening of a new mall and the introduction of new competition to the
marketplace. These factors are used to assess whether the store's forecasted
operating results will recover the store's asset base over the remaining
depreciation and amortization periods.
DEFERRED FINANCING COSTS:
Financing costs are amortized over the life of the related debt. Such costs
are included in Other noncurrent assets in the consolidated balance sheets and
amortization is included in interest expense in the consolidated statements of
operations.
DERIVATIVES POLICY:
The Company's policy is to use financial derivatives only to reduce risk in
conjunction with specific business transactions.
The Company purchased interest rate cap agreements to limit its exposure to
adverse movements in interest rates related to the Credit Facility and the real
estate financing (See Note 5). The financial institutions associated with these
agreements are considered to be major, well-known institutions. The premiums
paid were capitalized and are being amortized over the term of the related
agreements.
GOODWILL:
Goodwill is amortized over 40 years by the straight-line method. Goodwill is
allocated to individual stores on the basis of their projected cash flows at
their acquisition date.
OTHER INTANGIBLES:
Other intangibles include computer software and customer lists acquired at
the Acquisition which are being amortized on a straight-line basis over their
useful lives of three and 14 years, respectively. Computer software costs became
fully amortized in July 1993.
F-9
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax assets and liabilities on the basis of the
difference between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect for the years in which the
differences are expected to reverse (See Note 9).
RECENT ACCOUNTING PRONOUNCEMENTS:
In March 1995 and October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" (SFAS 121), and Statement of Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
respectively. SFAS 121 is effective for fiscal years beginning after December
31, 1995, and addresses the accounting for potential impairment of long-lived
assets. The effect of implementing SFAS 121 is not expected to be material to
the Company's financial position or results of operations. SFAS 123 is effective
for fiscal years beginning after December 15, 1996 and introduces a fair-value
based method of accounting for stock-based compensation. SFAS 123 encourages but
does not require companies to adopt the fair-value based method. Management does
not intend to adopt the recognition provisions of SFAS 123.
3. IMPAIRMENT AND SPECIAL CHARGES
In fiscal 1993 the Company recorded a charge of $177,731 related to asset
impairment and other special charges. The impairment charges which totaled
$118,015 reduced the carrying value of property and equipment, goodwill and
intangible assets of certain stores and an idle service center to their net
realizable values. The Company determined the net realizable values of these
assets by assessing the discounted cash flows it estimated would be generated in
the future. The writedown of property and equipment, goodwill and intangible
assets amounted to $81,481, $33,295, and $3,239 respectively.
The other special charges in fiscal 1993 consisted of $40,166 for store
closings and downsizing and $19,550 related to an early retirement program. The
store closings and downsizing charge related to the closing of five of its
full-line or resort stores and all of its specialty store operations. The
principal components of the charge consisted of reducing certain property and
equipment to net realizable value, lease related costs, cost of inventory
liquidations, and severance.
The non-cash impact of the asset impairment and store closings charges was
$134,671. The cash impact of the change in fiscal 1993 was $19,550. The
remaining items in the store closings and downsizings charge totaling $23,510
were settled in fiscal 1994 and fiscal 1995 in the range of management's
expectations.
In fiscal 1995 the Company recorded special charges totaling $36,415. The
charges recorded consist of exit costs of its Yonkers distribution center, the
integration costs of former I. Magnin locations and writedown of capitalized EDP
software and amounted to $19,015, $8,900 and $8,500, respectively.
Exit costs include the writedown of the Yonkers distribution center to net
realizable value. The writedown was necessary as a result of the Company's
decision to exit this facility in early 1997 and relocate distribution
activities to a facility currently under construction in Aberdeen, Maryland.
This writedown and the costs associated with exiting this facility totaled
$19,015. The costs of
F-10
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
exiting the Yonkers facility include the Company's estimate of the severance
costs, related to vacating the facility, and certain occupancy costs during the
period prior to the sale of the facility. The closing of this facility will
involve the termination of approximately 530 associates. The liability for these
costs is included in accrued liabilities in the consolidated balance sheet at
February 3, 1996. Amounts paid and charged against the liability and other
adjustments to the liability during fiscal 1995 were not material. The
anticipated costs of relocating its distribution activities to the Aberdeen
distribution facility have not been accrued and are not expected to materially
impact future results. Additionally, Saks will receive incentive payments from
various government agencies which are expected to approximate these costs.
Integration costs consist of costs to integrate the former I. Magnin store
locations into the Company's west coast locations. These costs include customer
acquisition costs, training and travel costs and remerchandising and other
costs.
The Company began implementation of a new core retail information processing
system in fiscal 1995. As a result certain of its capitalized software became
obsolete and was written off.
4. ACCOUNTS RECEIVABLE SALE
Saks has entered into agreements to securitize most of its Receivables.
The securitization of receivables involves the sale of Receivables with
limited recourse through a subsidiary to a trust in exchange for cash and
subordinated certificates representing undivided interests in the pool of
Receivables, and the subsequent sale by the trust of certificates of beneficial
interests, also representing undivided interests in the Receivables, to
investors. Saks is obligated to repurchase Receivables related to customer
credits such as merchandise returns and other receivable defects. Saks has no
obligation to reimburse the trust or the purchasers of beneficial interests for
credit losses; however, the subordinated certificates and deposits with the
trust and the discount on the sale of Receivables are available to cover such
losses.
Saks continues to service all receivables for the trust for a normal
servicing fee for similar types of transactions. Saks has agreements with third
parties to provide certain credit card processing and related credit services.
During fiscal 1994 and fiscal 1995, a portion of the subordinated
certificates were sold for $13,500 and $13,427, respectively. The Company
continues to hold the remaining subordinated certificates, which, subject to
approval of the trust, can be placed with third parties.
The reinvestment period of the securitization facility is scheduled to
terminate in May 1996. Upon expiration of the reinvestment period, subsequent
principal collections will be allocated on a pro rata basis to each
certificateholder. The Company expects to replace this facility in April 1996.
The Company's interest in subordinated certificates representing its equity
in the trust totaled $23,437 and $11,182, at January 28, 1995 and February 3,
1996, respectively, and is included in accounts receivable in the consolidated
balance sheets. At January 28, 1995 and February 3, 1996, $344,650 and $398,330,
respectively, of the Receivables sold to the trust on behalf of investors remain
outstanding.
Under the terms of the securitization agreements, the Company provides
enhancements for the protection of purchasers of the certificates of beneficial
interest against loss. A deposit with the trust of $7,602 and $8,447, at January
28, 1995 and February 3, 1996, respectively, is also available for credit loss
and is included in other noncurrent assets in the consolidated balance
F-11
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
sheets. The Company's obligation to repurchase Receivables subject to customer
credit adjustments is collateralized by letters of credit in the amount of
$8,621 and $1,459 at January 28, 1995 and February 3, 1996, respectively. The
Company provides for losses related to the Receivables in determining the
allowance for doubtful accounts.
5. LONG TERM DEBT
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
Total Credit Facility:
Term Loans:
Tranche A.................................. $ 79,300 $ 59,475
Tranche B.................................. 99,127 224,127
Base Revolving Loans......................... 211,668 198,100
----------- -----------
390,095 481,702
----------- -----------
Total Real Estate Financing:
Euronotes.................................... 335,000 --
REMIC Certificates........................... -- 335,000
----------- -----------
335,000 335,000
----------- -----------
Subordinated Notes............................. 50,000 50,000
----------- -----------
775,095 866,702
Less current portion of long term debt......... 19,825 26,463
----------- -----------
$ 755,270 $ 840,239
----------- -----------
----------- -----------
CREDIT FACILITY
In July 1993, Saks entered into a $525,000 amended and restated bank credit
facility (the "Credit Facility") which provided for $200,000 in term loans (the
"Term Loans"), $225,000 in base revolving credit loans (the "Base Revolving
Loans"), and $100,000 in working capital revolving credit loans (the "Working
Capital Revolving Loans"). The principal changes to the previous facility were
the establishment of the Term Loans and the extension of maturity dates on the
revolvers. Proceeds from the Term Loans were principally used to prepay 13%
Subordinated Debt. Deferred financing costs of $7.5 million relating to the
prior senior credit agreement were written off as an extraordinary charge in
fiscal 1993. The Term Loans consist of two tranches: the tranche A term loan
(the "Tranche A Loan") and the Tranche B term loan (the "Tranche B Loan"), each
initially in the amount of $100,000.
In March 1995, Saks and the lenders party to the Credit Facility (the
"Lenders") amended the Credit Facility to increase the principal amount of the
Tranche B Loan by $75,000, primarily for the purpose of financing the
acquisition and conversion of four stores previously operated by I. Magnin. In
October 1995, Saks and the Lenders amended the Credit Facility to (a) increase
the principal amount of the Tranche B Loan by $50,000 and (b) permit Saks to
retain up to $25,000 of net proceeds from asset sales that otherwise would have
been subject to mandatory prepayment under the Credit Facility, each for the
purpose of financing capital expenditures relating to the remodeling,
replacement and construction of retail stores and a distribution center.
F-12
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
In March 1996, Saks and the Lenders amended the Credit Facility to, among
other things, (i) permit the initial public offering of the shares of Common
Stock of Saks Holdings (the "Offerings") (see Note 15) provided that the gross
proceeds received by Saks Holdings from the Offerings exceed $200 million and
the net proceeds received by Saks Holdings from the Offerings are immediately
contributed to Saks, (ii) exclude up to $45 million in special charges from the
calculation of certain restrictive financial covenants and (iii) require that
(a) at least one-third of the net proceeds from the Offerings be used to prepay
Term Loans and (b) the remainder of such net proceeds be used to prepay first
the Working Capital Revolving Loans and then the Base Revolving Loans. In April
1996, Saks and the Lenders amended the Credit Facility to, among other things,
(i) allow certain of the proceeds of the Base Revolving Loans and Working
Capital Revolving Loans to be used to make permitted acquisitions and permitted
capital expenditures, (ii) add a covenant specifying a maximum ratio of
outstanding loans to consolidated adjusted operating profit tested annually and
(iii) amend the method of calculating interest rates under the Credit Facility
as set forth below. In April 1996, Saks and the Lenders amended the Credit
Facility to allow Saks to make payments, dividends or distributions with respect
to operating costs incurred by Saks Holdings in amounts not to exceed $4.0
million per fiscal year.
The Company, from time to time, may request standby or commercial letters of
credit which reduce amounts available under the Working Capital Revolving Loans.
At January 28, 1995 and February 3, 1996, approximately $9,242 and $6,694,
respectively, of letters of credit were outstanding.
The remaining principal amount of the Tranche A Loan is payable in five
consecutive semiannual installments, that increase over time from approximately
$9,900 to $12,400, commencing June 1996. The remaining principal amount of the
Tranche B Loan is payable in six consecutive semiannual installments, commencing
December 1997, ranging from approximately $5,600 for the first two installments
to approximately $56,000 for the last two installments.
Under the terms of the Credit Facility, the maximum borrowings under each
facility are reduced, on a pro rata basis, upon the incurrence of any
indebtedness not specifically permitted under the agreement or the consummation
of a sale, sale-leaseback or other disposition of the Company's property or
assets, as defined in the Credit Facility, except with respect to the REMIC
Financing described below and certain other sales of property or assets. As of
February 3, 1996 the maximum borrowings allowable under the Term Loans, Base
Revolving Loans and Working Capital Revolving Loans were $283,602, $225,000 and
$97,163, respectively.
As of January 28, 1995 and February 3, 1996, total available credit under
the Credit Facility was $101,253 and $117,369, respectively. During fiscal 1994
and fiscal 1995, the weighted average interest rate was approximately 7.33% and
9.0%, respectively, for all debt under the Credit Facility.
Prior to consummation of the Offerings, Saks may borrow up to $20 million in
aggregate principal amount of swingline loans which bear interest at the
Alternate Base Rate (as defined in the Credit Facility) plus 1 1/2%. All other
loans under the Credit Facility bear interest prior to the closing of the
Offerings at a rate equal to, at Saks' option, (a) the Alternate Base Rate plus
2% for the Tranche B Loan or 1 1/2% for all other loans, or (b) the Eurodollar
Rate (as defined in the Credit Facility) plus 3% for the Tranche B Loan or 2
1/2% for all other loans. Following the consummation of the Offerings, Saks may
borrow up to $20 million in aggregate principal amount of swingline loans which
bear interest at the Alternate Base Rate plus an applicable margin ranging from
0.0% to 1.0% depending on the Interest Coverage Ratio (as defined in the Credit
Facility). All other loans under
F-13
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
the Credit Facility following the closing of the Offerings will bear interest at
a rate equal to, at Saks' option, (a) the Alternate Base Rate plus a percentage
ranging from 0.0% to 1.5% depending on the Interest Coverage Ratio or (b) the
Eurodollar Rate plus a percentage ranging from 1.0% to 2.5% depending on the
Interest Coverage Ratio. Eurodollar loans can have maturities of one-, two-,
three- or six-month periods. Interest is payable on these loans at the maturity
dates, except for six-month period loans, which provide for interest to be
payable quarterly. Interest on Alternate Base Rate loans is payable quarterly.
During fiscal 1993 and fiscal 1994, the Company consummated the sale and
sale-leaseback of certain properties. In fiscal 1994, the net proceeds of such
sales were used to reduce the Tranche A, Tranche B and Working Capital Revolving
Loans by $10,700, $873 and $2,837, respectively.
The Credit Facility contains restrictive covenants, which include
limitations on capital expenditures, specified minimum levels of consolidated
net worth and minimum consolidated adjusted operating profit, as well as
maintenance of specified ratios, including an interest coverage ratio, as
defined. In addition, the Credit Facility contains restrictions on Saks' ability
to pay dividends or make other distributions to Saks Holdings. Saks Holdings is
a holding company with no business operations of its own. Saks Holdings
therefore is dependent upon payments, dividends and distributions from Saks for
funds to pay its expenses and to pay future cash dividends or distributions, if
any, to holders of the Common Stock. The Credit Facility provides that Saks may
not declare any dividends or make any other payments or distributions to Saks
Holdings except for amounts necessary (i) to pay Saks Holdings' operating
expenses up to $4 million per fiscal year and (ii) to pay Saks Holdings' taxes.
With respect to the impairment and special charges described in Note 3, the
Company received consent from the banks, in May 1994 and March 1996, which
excluded such charges from the aforementioned restrictive covenants. Amounts
outstanding under the Credit Facility are collateralized by the assets of Saks
and its subsidiaries, except for the real estate properties included in the real
estate financing described below, the accounts receivable described in Note 4,
inventories and the capital stock of Saks' real estate subsidiaries and the
capital stock of the subsidiaries established to effect the accounts receivable
sale. Saks Holdings has guaranteed the payment of principal and interest by Saks
and has collateralized this guarantee with a pledge of the capital stock of
Saks.
The occurrence of the Offerings will not trigger the change of control
provision under the Credit Facility.
REAL ESTATE FINANCING:
In December 1990, the Company issued $500,000 of Euronotes (the "Notes") in
connection with the completion of a major real estate financing. During fiscal
1993 and fiscal 1994, early repayment of Notes, arising from the sale and
closing of certain properties and the reversion of escrow amounts aggregated
$11,000 and $26,000, respectively. The sale of properties resulted in gains of
$3,250 and $2,115 in fiscal 1993 and fiscal 1994, respectively. (See Note 12.)
The Notes accrued interest at .75% over the three-month LIBOR with interest
payable on a quarterly basis. These Notes were refinanced in May 1995.
In May 1995, the Company through a subsidiary trust completed a real estate
financing, aggregating $335,000, through the issuance of mortgage loans
collateralized by intercompany leases. Mortgage certificates in the principal
amount of $175,000 bear interest at variable rates based on three-month LIBOR,
payable quarterly. The remaining $160,000 in certificates, which are
F-14
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
subordinated to the other certificates, bear interest at annual fixed rates
ranging from 8.98% to 12.36%, payable semiannually. All of the mortgage
certificates are scheduled to mature in May 2002. The debt related to individual
properties is prepayable at premiums ranging from stated value to 150% of stated
value. The various properties collateralizing the mortgage certificates are
cross guaranteed. Saks guarantees the obligations under all intercompany leases.
In January 1996, the Company sold one of its stores and prepaid the mortgage
loan associated with this property aggregating $4,159. The proceeds were used to
prepay the related mortgage certificate in February 1996 (see Note 2). The sale
of the Yonkers distribution center (See Notes 3 and 13) would require the
prepayment of mortgage certificates totaling $9,074.
SUBORDINATED NOTES:
In fiscal 1993, the Company issued $50,000 of Subordinated Notes due May
2001. Interest is payable at 9% per annum on a semiannual basis. The notes are
subject to optional redemption from time to time at specified prices ranging
from 104% to 100%. These notes are subordinated to other indebtedness of the
Company.
Proceeds from the issuance of the Term Loans and the 9% Subordinated Notes
were used to prepay the remaining 13% subordinated debt issued at the
Acquisition, which consisted of principal of $180,313, accrued interest of
$11,720, and redemption premiums of $3,606. Deferred financing costs of $16,155
related to the repaid subordinated debt and the aforementioned redemption
premiums are reflected as an extraordinary charge to operations in 1993.
The Subordinated Notes may be redeemed at the option of Saks in whole or in
part at any time before maturity. Upon a "Change of Control," as defined, Saks
is obligated to make an offer to repurchase all outstanding Subordinated Notes
at the optional redemption prices set forth above, plus accrued and unpaid
interest. The occurrence of the Offerings will not trigger a change of control.
The subordinated note indenture provides that Saks may not declare any dividends
or make any other distributions on any shares of its capital stock other than
dividends to Saks Holdings in amounts required for Saks Holdings to pay
franchise taxes and other fees required to maintain its corporate existence and
to pay Federal, state and local income taxes.
The Company has purchased various interest rate caps to minimize its
exposure to interest rate fluctuations (See Note 11).
In addition as of February 3, 1996 approximately $5.3 million in letters of
credit were outstanding under a $10 million letter of credit facility.
The Company's expected aggregate principal payments as of February 3, 1996
for all indebtedness, excluding capital leases (See Note 10), are as follows:
1996............................................................ $ 26,463
1997............................................................ 30,384
1998............................................................ 266,522
1999............................................................ 106,460
2000............................................................ 56,032
Thereafter...................................................... 380,841
--------
$866,702
--------
--------
F-15
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
6. STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)
CAPITALIZATION:
The following is a summary of the capitalization of the Company at January
28, 1995 and February 3, 1996:
<TABLE>
<CAPTION>
<S> <C>
Class A Stock: 37,500 shares authorized, issued and outstanding.
Class B Stock: 2,250 shares authorized, issued and outstanding.
Class C Stock: 25,050 shares authorized; 5,187 and 5,239 shares issued and 5,107 and
5,158 shares outstanding, respectively, at January 28, 1995 and February
3, 1996. Additionally, treasury stock aggregated 80 and 29 shares as of
January 28, 1995 and February 3, 1996, respectively.
Class D Stock: 100 shares authorized and issued at January 28, 1995 and February 3, 1996;
100 and 50 shares outstanding at January 28, 1995 and February 3, 1996,
respectively.
Common Stock: 150,000 shares authorized; none issued and outstanding.
</TABLE>
All of the stock has a $.01 par value per share. The transfer of any shares
of stock is restricted as specified in the Company's Certificate of Designation
(the "Certificate").
Under the Senior Management Stock Incentive Plan and the 1996 Stock
Incentive Plan, an aggregate of, 6,209 shares of Class C Stock have been
reserved. In addition to the options described in Note 7, certain officers and
employees of the Company held 171.3 and 172.3 shares of restricted Class C
Shares as of January 28, 1995 and February 3, 1996, respectively.
CONVERSION OF STOCK:
In the event of an initial public offering or sale of the Company, as
defined in the Certificate, all issued and outstanding shares of Class A, Class
B, Class C and Class D Stock not otherwise redeemed by the Company shall
automatically convert into shares of Common Stock on a one-for-one basis.
VOTING RIGHTS:
Holders of shares of Class D Stock and Common Stock are entitled to one vote
for each share of such stock held. Until a change of control of the Company, as
defined in the Certificate, holders of Class A, Class B and Class C Stock have
no voting rights, except that the holders of these shares shall have the right
to one vote for each share held as to the approval of any change to the
Certificate of Incorporation that would increase or decrease the par value of
such stock, or change the powers, preferences or special rights of such stock so
as to have a material adverse effect on such holders.
Effective upon a change of control, holders of shares of Class A, Class B
and Class C Stock shall be entitled to one vote for each share of stock held.
Currently, affiliates of Investcorp S.A. ("Investcorp") own all of the
outstanding voting stock of the Company. Investcorp owns no voting stock and
less than 10% of the Company's total outstanding stock.
F-16
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
LIQUIDATION RIGHTS:
In the event of liquidation of the Company, each holder of Class A, Class B
and Class C Stock shall be entitled to receive $.001 per share before any
payment or distribution shall be made or set aside for payment on the Class D
Stock or Common Stock. Any remaining assets or proceeds therefrom are to be
distributed to all stockholders on a pro rata basis.
DIVIDEND RIGHTS:
Dividends are payable to all stockholders on a pro rata basis upon
declaration of such dividends by the Board of Directors.
7. STOCK INCENTIVE PLANS (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNT)
In October 1990, Saks Holdings adopted a Senior Management Stock Incentive
Plan (the "Old Incentive Plan"), and in February 1996, Saks Holdings adopted a
1996 Management Stock Incentive Plan (the "New Incentive Plan" and together with
the Old Incentive Plan, the "Incentive Plans"), for members of senior management
and certain other officers and employees of the Company. As of February 3, 1996
there were options to purchase 1,455.2 shares of Common Stock outstanding under
the Old Incentive Plan, and no options outstanding under the New Incentive Plan.
No additional options will be granted under the Old Incentive Plan. The maximum
number of shares of Common Stock issuable pursuant to the Incentive Plans is
6,209, subject to adjustment to reflect stock splits, stock dividends and
similar stock transactions.
The Incentive Plans provide for the grant of options that qualify as
incentive stock options ("ISOs") under the Internal Revenue Code, as amended, as
well as options that do not qualify as ISOs ("Non-qualified Options")
(collectively referred to as the "Options"), and also provide for the grant of
stock appreciation rights and for the sale or grant of restricted stock. Options
to purchase shares of Common Stock may extend for ten years for ISOs and ten
years and 30 days for Non-qualified Options from the date of grant. Options may
not be granted and restricted stock may not be sold or granted under the
Incentive Plans after October 17, 2000. The exercise of Options is conditioned
upon active employment with the Company. In the event an employee ceases to be
employed by the Company, for any reason, the Company may repurchase at fair
market value, as determined annually by the Board of Directors, any shares of
Class C Stock acquired by such employee pursuant to exercise of an Option
granted under the Incentive Plans.
F-17
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
The following table summarizes the activity in Options:
COMPANY-
OTHER PERFORMANCE
OPTIONS OPTIONS
------- -----------
[S] [C] [C]
Outstanding at January 29, 1994................... 155.4 1,330.5
Granted......................................... -- 147.2
Canceled........................................ (25.4) (301.1)
------- -----------
Outstanding at January 28, 1995................... 130.0 1,176.6
Granted......................................... 172.1 80.9
Canceled........................................ (16.1) (88.3)
------- -----------
Outstanding at February 3, 1996................... 286.0 1,169.2
------- -----------
------- -----------
The exercise price of all Options granted is $20.00 per share, representing
the estimated fair market value at the time of grant.
In accordance with an exchange approved by the Board of Directors of the
Company on January 19, 1996, on February 28, 1996, Options to acquire 1,620.9
shares of Common Stock issued under the Old Plan were surrendered to the Company
in exchange for the issuance of Options to purchase an identical number of
shares under the New Incentive Plan. The exercise price of the new Options is
$16.00 per share. The individual Stock Option Agreements pursuant to which
Options are granted under the New Incentive Plan provide that Options vest to
the extent of one-third of the shares underlying the Options granted as of the
closing of the Offerings, one-third on the first anniversary thereof and
one-third on the second anniversary thereof. In the event of an Approved Sale
(as defined in the agreement), all options vest in their entirety. The Stock
Option Agreements further provide for the termination of the vested portions of
any Options upon the tenth anniversary of such Stock Option Agreement, and for
acceleration of termination if the employee ceases to be employed by Saks
Holdings or a subsidiary.
8. POSTEMPLOYMENT BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. Benefits are based upon years of service
and compensation prior to retirement. As a result of the Company's special
retirement initiative in fiscal 1993 and funding limitations, the plan refunded
the Company $4,574 in fiscal 1994. The Company did not make a contribution in
fiscal 1994 or fiscal 1995. The Company's policy is to fund the plan to satisfy
the requirements of the Employee Retirement Income Security Act of 1974
("ERISA"). Pension Plan assets consist primarily of short term investments,
bonds, various equities and real estate interests.
F-18
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
The net periodic pension expense consisted of the following components:
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
Service cost.................................. $ 4,815 $ 4,250 $ 3,527
Interest cost................................. 6,137 6,226 5,778
Loss (return) on plan assets.................. (9,450) 3,085 (9,095)
Net (deferral) amortization................... 2,318 (8,600) 4,906
------- ------- -------
Net pension expense....................... $ 3,820 $ 4,961 $ 5,116
------- ------- -------
------- ------- -------
The following table sets forth the Pension Plan's funded status and the
present value of benefit obligations:
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
Accumulated benefit obligation:
Vested....................................... $ (62,169) $ (77,266)
Nonvested.................................... (3,618) (4,838)
----------- -----------
(65,787) (82,104)
Effect of projected future salary increases.... (2,776) (4,562)
----------- -----------
Projected benefit obligation................... (68,563) (86,666)
Plan assets at fair value...................... 48,598 53,058
----------- -----------
Plan assets (less than) projected benefit
obligation..................................... (19,965) (33,608)
Unrecognized net (gain) loss................... (4,108) 4,415
Unrecognized prior service cost................ (60) (56)
----------- -----------
(Accrued) pension cost..................... $ (24,133) $ (29,249)
----------- -----------
----------- -----------
The Company also maintains an unfunded supplemental retirement plan which
provides for benefits in addition to those provided by the Pension Plan.
Expenses related to the supplemental plan were $591, $487 and $502 in fiscal
1993, fiscal 1994 and fiscal 1995, respectively. Payments from the supplemental
plan were $336 and $279 for fiscal 1994 and fiscal 1995, respectively. The
accrued liability for this plan at January 28, 1995 and February 3, 1996 was
$7,037 and $7,260, respectively.
The actuarial present value of the projected benefit obligations for both
the Pension Plan and supplemental plan was determined at a weighted-average
assumed discount rate and an assumed rate of increase in future compensation of
9.0% and 3.0%, respectively, for fiscal 1994 and 7.35% and 3.0%, respectively,
for fiscal 1995. The assumed long-term rate of return on plan assets was 9.0%
for both fiscal 1994 and fiscal 1995. A 1% change in the assumed discount rate
would change the accumulated benefit obligation by approximately $10 million.
The Company also maintains a 401(k) Plan which covers substantially all of
its employees. The plan is a defined contribution plan and is subject to the
provisions of ERISA. The assets of the plan can be invested in a fixed income
fund and six mutual funds. Eligible employees may contribute up to 16% of their
compensation, as defined. The Company contributes an amount equal to 1/4 of the
F-19
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
first 6% of an employee's contribution. The Company's expense was $1,914, $1,912
and $2,098, for fiscal 1993, fiscal 1994 and fiscal 1995, respectively.
As of the date of the Acquisition, the Company recorded an actuarially
determined liability representing the present value of certain postemployment
health care and life insurance benefit obligations for certain retirees as well
as active employees. In fiscal 1993, the Board approved changes to such benefits
which substantially reduced these benefits and resulted in aggregate reductions
in the accrued liability and employee benefit expenses of $6,452.
9. INCOME TAXES
The Company has net operating loss carryforwards for tax purposes of
approximately $727,597 at February 3, 1996. The carryforwards begin to expire,
unless utilized, in fiscal 2005 through fiscal 2010. The Company has not
reflected any benefit in the consolidated financial statements with respect to
these carryforwards because it has provided a valuation allowance equivalent to
the net deferred tax assets.
The Company recorded certain assets and liabilities at the date of the
Acquisition for financial reporting purposes which are not similarly recognized
under income tax regulations, aggregating a tax benefit of $34,525. Subsequent
realization of this tax benefit will be accounted for as a reduction of
goodwill.
At January 28, 1995 and February 3, 1996 the Company had net deferred tax
assets of $337,803 and $345,059, respectively. The tax effects of temporary
differences that give rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforward................................... $ 253,506 $ 289,609
Accrued expenses and reserves................................. 20,962 17,722
Employee benefits............................................. 12,486 14,532
Depreciation/amortization and basis differences............... 39,702 15,575
Allowance for doubtful accounts............................... 3,707 4,442
Deferred lease payments....................................... 2,542 3,133
Other......................................................... 4,898 4,084
----------- -----------
Total deferred tax assets................................... 337,803 349,097
Deferred tax liability
Deferred financing costs...................................... 0 (4,038)
----------- -----------
Total deferred tax liability................................ 0 (4,038)
----------- -----------
Net deferred tax assets....................................... 337,803 345,059
Less valuation allowance...................................... (337,803) (345,059)
----------- -----------
Net deferred tax.............................................. $ 0 $ 0
----------- -----------
----------- -----------
</TABLE>
The reconciliation between the statutory federal income tax rate and the
effective income tax rate for the last three years is as follows:
F-20
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate.................................. 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit........... 4.8 4.8 4.8
------ ------ ------
Effective income tax rate........................................ 39.8 39.8 39.8
Generation of NOL carryforward................................... (39.8 ) (39.8 ) (39.8 )
------ ------ ------
Net effective income tax rate.................................... 0.0% 0.0% 0.0%
------ ------ ------
------ ------ ------
</TABLE>
10. LEASES
The Company leases certain land and buildings under various noncancelable
capital and operating leases. The Company's capital leases have remaining terms
of up to 29 years. Operating leases consist of land leases and land and building
leases with terms from one to 54 years. All of these leases are subject to
renewal options.
Substantially all leases provide for contingent rentals based upon sales and
require the Company to pay taxes, insurance and occupancy costs. Certain rentals
are based solely on a percentage of sales.
The Company also leases certain equipment under operating leases expiring
during the next five fiscal years.
The Company's rent expense consisted of the following:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Land and building rent:
Fixed minimum.............................. $ 8,960 $ 8,787 $11,401
Contingent rentals......................... 5,694 4,516 5,454
------- ------- -------
Total land and building rent............. 14,654 13,303 16,855
Equipment and other.......................... 4,851 4,540 3,956
------- ------- -------
Total rent expense....................... $19,505 $17,843 $20,811
------- ------- -------
------- ------- -------
</TABLE>
F-21
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
At February 3, 1996, the future minimum lease commitments under
noncancelable operating and capital leases, including equipment leases, are as
follows:
FISCAL YEARS CAPITAL OPERATING
- --------------------------------------------------- -------- ---------
1996............................................... $ 14,311 $ 17,175
1997............................................... 13,898 22,751
1998............................................... 12,131 20,454
1999............................................... 11,851 19,415
2000............................................... 12,281 19,138
Thereafter......................................... 210,198 261,477
-------- ---------
Total minimum payments........................... 274,670 $360,410
---------
---------
Less, Executory costs.............................. 629
--------
Net minimum lease payments....................... 274,041
Less, Interest..................................... 164,801
--------
Present value of net minimum lease payments...... 109,240
Less, current...................................... 4,772
--------
Noncurrent obligations under capital leases...... $104,468
--------
--------
Leased property under capital leases is summarized as follows:
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
Building and equipment......................... $ 95,875 $ 107,008
Less, Accumulated amortization............... (15,269) (20,403)
----------- -----------
$ 80,606 $ 86,605
----------- -----------
----------- -----------
The Company leases certain selling space within its stores to other
specialty retailers under contingent rental agreements. Rental income related to
these agreements was $8,988, $9,038 and $10,209 in fiscal 1993, fiscal 1994 and
fiscal 1995, respectively.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate cap agreements to reduce the
impact of increases in interest rates on the REMIC Financing and Credit
Facility. The Company is also an indirect beneficiary of interest rate cap
agreements entered into by the Receivables Trust. At February 3, 1996, there
were 18 interest rate cap agreements outstanding. Accordingly, the Company is
entitled to receive from various financial institutions the amount, if any, by
which the Company's interest payments on its debt exceeds the stated interest
rates or strike rates. Payments received as a result of the caps in the
Company's debt are recorded as a reduction of interest expense. Payments
received by the Receivables trust as a result of the caps related to the
securitization are
F-22
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
recorded by the Company as an increase in finance charge income. The following
is a summary of the interest rate cap agreements as of February 3, 1996:
<TABLE>
<CAPTION>
NOTIONAL STRIKE
AMOUNT RATE EFFECTIVE DATE EXPIRATION DATE
-------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
A/R Floating Rate Certificate
Program.......................... 150,000 (1) 9.00% December 1991 May 1999
50,000 (1) 9.00% August 1992 May 1999
250,000 7.25-9.00 March 1995 May 1996
A/R Commercial Paper Program..... 191,500 (1) 9.00 October 1993 May 1999
142,000 7.25-9.00 March 1995 November 1996
142,000 7.25 November 1996 February 1997
A/R Series 1991-2 Class C
Certificates..................... 8,841 9.00 November 1992 May 1996
A/R Series 1991-2 Class B
Certificates..................... 13,500 9.00 September 1994 May 1996
A/R Series 1991-3 Class B1
Certificates..................... 10,338 9.00 September 1995 May 1996
A/R Series 1991-3 Class C1
Certificates..................... 8,475 9.00 September 1995 May 1996
Senior credit facility........... 100,000 5.00 September 1993 September 1996
100,000 5.00 September 1993 September 1996
200,000 6.00 September 1993 September 1996
50,000 7.25 March 1995 February 1997
400,000 7.25 September 1996 February 1997
Real estate financing............ 175,000 7.25 May 1995 February 1997
87,500 9.70 February 1997 May 2002
87,500 9.70 February 1997 May 2002
</TABLE>
- ------------
(1) Effective November 1996, the strike rate increases to 10% and the notional
amount begins amortizing each month at a variable rate.
The strike rate related to the senior credit facility and real estate
financing is based on three-month LIBOR contracts. The accounts receivable
strike rate is based on one-month LIBOR contracts.
The aggregate carrying value and fair value of the Company's interest rate
cap agreements was $1,575 and $3,839 at January 28, 1995 and $2,242 and $1,828
at February 3, 1996, respectively. The fair value of interest rate cap
agreements is based on current settlement price of comparable contracts obtained
from interest rate cap providers' quotes. The majority of the Company's
long-term debt bears interest at floating rates; therefore its carrying amount
and fair value are equal.
12. RELATED PARTY TRANSACTIONS
The Company receives various consulting and advisory services from an
affiliate of Investcorp, for which it pays fees. The fees paid or payable for
such services were $2 million, $2 million and $7 million in fiscal 1993, fiscal
1994 and fiscal 1995, respectively. Additionally, the Company purchased
merchandise for sale from Gucci Group N.V., Ebel S.A., and Chaumet International
S.A., all of which also may be deemed to be affiliates of Investcorp during such
fiscal year. The amount of such purchases in fiscal 1995 were $7.3, $.6 and $.5
million, respectively. In fiscal 1993 the
F-23
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
Company sold a closed store location to an affiliate of Investcorp. The net
proceeds and gain on sale were $11.9 million and $3.3 million, respectively. The
gain on sale was recorded as paid-in-capital in the consolidated statement of
stockholder's equity.
13. CONTINGENCIES
Saks is a defendant in a suit pending in the Supreme Court of the State of
New York, County of New York, in which the plaintiff, a former Saks employee,
contends, among other things, that Saks was negligent in hiring a co-worker who
allegedly assaulted the plaintiff. The plaintiff is seeking $10 million in
damages. Saks has moved to dismiss the action. Saks believes that, subject to a
self-insured retention, the claim is covered by Saks' insurance. In connection
with the suit, Saks also is in litigation with one of its insurance providers
regarding the provider's duties and obligations under its insurance contract
with Saks. Saks does not believe that the resolution of these suits will have a
material adverse impact on its financial position or results of operations.
The Company also is involved in various other suits and claims in the
ordinary course of business. Management does not believe that the disposition of
such suits will have a material adverse effect on the financial position or
continuing operations of the Company.
Management has entered into an agreement to sell its current distribution
facility, located in Yonkers, New York. The sale is subject to the successful
rezoning of the property. If rezoned, proceeds associated with the sale would
fall within a range of $20 to $25 million. A sale of the distribution center in
this price range could result in a gain on sale of $8 to $13 million. Management
is unable to determine at this time if this transaction will be completed.
14. QUARTERLY RESULTS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL 1995
-------------------------------------------- FISCAL
FIRST SECOND THIRD FOURTH 1995
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales......................... $384,564 $353,229 $407,990 $541,004 $1,686,787
Cost of goods sold................ 262,435 262,956 275,092 368,209 1,168,692
Net income (loss) before
extraordinary charge.............. (16,553) (34,133) (35,319) 27,901 (58,104)
Net income (loss)................. (16,553) (39,817) (35,319) 27,594 (64,095)
Net income (loss) per share before
extraordinary charge.............. (.37) (.76) (.79) .62 (1.29)
Net income (loss) per share....... (.37) (.89) (.79) .61 (1.43)
</TABLE>
F-24
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
The Company recorded special charges in the first and third quarters of
$8,900 and $27,515, respectively. (See Note 3).
<TABLE>
<CAPTION>
FISCAL 1994
-------------------------------------------- FISCAL
FIRST SECOND THIRD FOURTH 1994
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $333,614 $298,455 $343,375 $442,719 $1,418,163
Cost of goods sold................ 229,104 220,920 233,818 295,808 979,650
Net income (loss) before
extraordinary charge.............. (9,211) (25,935) (5,426) 30,489 (10,083)
Net income (loss)................. (9,299) (26,341) (5,426) 30,448 (10,618)
Net income (loss) per share before
extraordinary charge.............. (.20) (.58) (.12) .68 (.22)
Net income (loss) per share....... (.21) (.59) (.12) .68 (.24)
</TABLE>
15. SUBSEQUENT EVENTS
The Company is in the process of filing an initial public offering for the
issuance of shares of common stock. This offering is expected to be completed
during the second quarter of fiscal 1996.
In April 1996, Saks Holdings effected a five-for-one split in the form of a
400% common stock dividend (the "Stock Split"). Saks Holdings has also increased
the number of authorized shares of its common stock to 150,000 and authorized
10,000 shares of preferred stock. All share and per share information has been
restated to reflect the stock split.
Since February 3, 1996, Saks Holdings has granted to members of management
options for the purchase of 449 shares of Common Stock. In addition, Saks
Holdings will grant, conditioned upon the closing of the Offerings, options for
the purchase of 1,200 shares of Common Stock.
F-25
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
AUGUST 3, JULY 29,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 2,688 $ 7,776
Accounts receivable, net........................................ 44,467 39,049
Inventories..................................................... 389,610 318,317
Other current assets and restricted cash........................ 52,149 39,889
---------- ----------
Total current assets.......................................... 488,914 405,031
---------- ----------
Property and equipment, net....................................... 798,386 784,449
Intangibles and other assets...................................... 134,259 144,646
---------- ----------
Total Assets.................................................. $1,421,559 $1,334,126
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade......................................... $ 142,312 $ 120,664
Accrued liabilities............................................. 92,365 95,382
Taxes other than income taxes................................... 13,795 33,164
Current portion of long term debt............................... 12,568 19,825
Other........................................................... 4,749 4,498
---------- ----------
Total current liabilities..................................... 265,789 273,533
Long term debt.................................................... 531,791 830,790
Other noncurrent liabilities...................................... 151,692 138,953
---------- ----------
Total liabilities............................................. 949,272 1,243,276
Stockholders' equity.............................................. 472,287 90,850
---------- ----------
Total Liabilities & Stockholders' Equity.......................... $1,421,559 $1,334,126
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes are an integral part of the
unaudited Condensed Consolidated Financial Statements.
F-26
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
AUGUST 3, JULY 29,
1996 1995
---------- ----------
<S> <C> <C>
Net sales............................................................ $ 868,245 $ 737,793
Cost of sales, including buying & occupancy.......................... (621,173) (525,391)
---------- ----------
Gross margin..................................................... 247,072 212,402
Selling, general and administrative expenses......................... (230,516) (210,796)
Impairment and special charges....................................... -- (8,900)
---------- ----------
Operating income (loss).............................................. 16,556 (7,294)
Interest expense, net................................................ (42,163) (43,392)
---------- ----------
Income (loss) before income taxes and extraordinary charge......... (25,607) (50,686)
Income taxes......................................................... -- --
Income (loss) before extraordinary charge.......................... (25,607) (50,686)
Extraordinary charge - loss on early extinguishment of debt.......... (3,340) (5,684)
---------- ----------
Net income (loss)................................................ $ (28,947) $ (56,370)
---------- ----------
---------- ----------
Net income (loss) per share before extraordinary charge.......... $ (0.49) $ (1.13)
---------- ----------
---------- ----------
Net income (loss) per share.......................................... $ (0.55) $ (1.25)
---------- ----------
---------- ----------
Weighted average shares outstanding.................................. 52,311 44,955
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes are an integral part of the
unaudited Condensed Consolidated Financial Statements.
F-27
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 3, JULY 29,
1996 1995
--------- --------
<S> <C> <C>
Net income (loss) plus depreciation and amortization............... $ 7,816 $(18,369)
Adjustments to reconcile to net cash provided by (used in)
operations:
Extraordinary charge--early extinguishment of debt............. 3,340 5,684
Impairment and special charges................................. -- 8,900
Change in operating assets and liabilities..................... (54,973) (14,701)
--------- --------
Net cash (used in) operating activities.................... (43,817) (18,486)
--------- --------
Cash flows from investing activities:
Net cash (used in) investing activities (primarily capital
expenditures)...................................................... (48,325) (32,078)
Cash flows from financing activities:
Additional paid-in-capital from initial public offering........ 417,769 --
Net revolver borrowing (payment) under senior credit
facility........................................................... (173,401) 10,433
Proceeds of commercial mortgage pass-through certificates...... -- 335,000
Payment of euronotes........................................... -- (335,000)
Borrowing (payment) of debt.................................... (148,943) 65,087
Financing costs................................................ (5,582) (25,000)
Other.......................................................... (1,640) (1,808)
--------- --------
Net cash provided by financing activities.................. 88,203 48,712
--------- --------
Increase (decrease) in cash and cash equivalents........... $ (3,939) $ (1,852)
--------- --------
--------- --------
</TABLE>
The accompanying Notes are an integral part of the
unaudited Condensed Consolidated Financial Statements.
F-28
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except where indicated)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Saks Holdings, Inc. and
its subsidiaries (the "Company") are submitted in response to the requirements
of Regulation S-X promulgated under the Securities Act and should be read in
conjunction with the annual consolidated financial statements included in this
prospectus. In the opinion of management, these statements contain all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position, the results of operations and net cash
flows for the interim periods presented. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
retail industry is seasonal in nature, and historically the results of
operations for interim periods may not be indicative of the results for the full
year.
2. INITIAL PUBLIC OFFERING
In May 1996, the Company completed an initial public offering. The Company
sold approximately 18 million shares at an initial public offering price of
$25.00 per share. The net proceeds from the offering were approximately $417.8
million. The net proceeds from the offering were primarily used to prepay term
loan borrowings under the Senior Credit Facility and repay outstanding balances
on the revolving credit portion of the facility. The Company recorded an
extraordinary charge of $3.3 million ($.06 per share) associated with the
accelerated write-off of deferred financing costs related to these pre-payments.
Effective with the offering, the Company amended its Senior Credit Facility to
reduce the spread on its variable interest rate borrowings under the Facility
and change the availability of borrowings under the facility. The Company has
$322 million of borrowing capacity available under the revolving credit portion
of the facility and has $138 million in term loan borrowings outstanding.
3. SPECIAL CHARGES
A special charge of $8.9 million ($.20 per share) was recorded in the
thirteen weeks ended April 29, 1995. This charge represented costs to integrate
four former I. Magnin store locations.
4. RECEIVABLES SECURITIZATION
SFA Finance Company ("Finco") is a wholly-owned subsidiary established for
the purpose of purchasing proprietary credit card receivables (the
"Receivables") from Saks & Company ("Saks"). In April 1996 Saks Master Trust
(the "New Receivables Trust") was formed pursuant to a pooling and servicing
agreement among Finco, Saks, as servicer, and Bankers Trust Company, as trustee
(the "New A/R Trustee"). The assets of the New Receivables Trust currently
consist principally of a certificate evidencing the entire interest in the
Transition Certificate, Series 1996-1 (the "Transition Certificate"), which is
the second outstanding series issued by SFA Master Trust. The Transition
Certificate represents the interest in the assets of the SFA Master Trust not
represented by Series 1991-2 and has a principal amount which will fluctuate
from time to time according to the level of receivables in the SFA Master Trust
in excess of the amount required to support the Series 1991-2 Certificates. On
the date on which Series 1991-2 has been fully liquidated (the "Existing Trust
Termination Date"), the assets of the SFA Master Trust will be
F-29
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--
(CONTINUED)
(in thousands, except where indicated)
4. RECEIVABLES SECURITIZATION--(CONTINUED)
transferred to the New Receivables Trust in exchange for the cancellation of the
Transition Certificate. After the Existing Trust Termination Date, Saks will
continue to receive a fee for servicing the Receivables for the New Receivables
Trust.
In April 1996 the New Receivables Trust sold two series of certificates of
beneficial interests. These certificates represent undivided interests in the
receivables generated from time to time by Saks by a portfolio of accounts
meeting the designated eligibility requirements. Series 1996-1 is a medium term
series that matures in April 1999. Approximately $297 million of Class A Series
1996-1 Certificates and $53 million of Class B Series 1996-1 Certificates were
sold in non-public transactions. Approximately $47 million of subordinated
Series 1996-1 Certificates were privately placed at the same time. All such
certificates bear interest at fixed spreads over one-month LIBOR. Finco retains
approximately $16.5 million of subordinated Series 1996-1 Certificates. Series
1996-1 has a substantial prefunded amount, which will be invested in Receivables
(via the Transition Certificate) as cash allocable to Series 1991-2 is no longer
reinvested in Receivables, but instead is accumulated in order to make the
principal payment due with respect thereto in November 1996.
Series 1996-2 is a series with a variable principal amount. The Class A
Series 1996-2 Certificates have a maximum outstanding principal balance of $100
million and have been privately placed. Subordinated Series 1996-2 Certificates,
with an aggregate maximum outstanding principal balance of approximately $16.0
million, also were privately placed. All Series 1996-2 Certificates bear
interest at fixed spreads over one-month LIBOR. Finco will retain up to
approximately $5.0 million of subordinated Series 1996-2 Certificates. The
principal balance of Series 1996-2 is currently zero.
5. CONTINGENCIES
Saks is a defendant in a suit pending in the Supreme Court of the State of
New York, County of New York, in which the plaintiff, a former Saks employee,
contends, among other things, that Saks was negligent in hiring a co-worker who
allegedly assaulted the plaintiff. The plaintiff is seeking $10 million in
damages. Saks has moved to dismiss the action. Saks believes that, subject to a
self-insured retention, the claim is covered by Saks' insurance. In connection
with the suit, Saks also is in litigation with one of its insurance providers
regarding the provider's duties and obligations under its insurance contract
with Saks. Saks does not believe that the resolution of these suits will have a
material adverse impact on its financial position or results of operations.
The Company also is involved in various other suits and claims in the
ordinary course of business. Management does not believe that the disposition of
such suits will have a material adverse effect on the financial position or
continuing operations of the Company.
The Company has entered into an agreement to sell its current distribution
facility, located in Yonkers, New York. The sale is subject to the successful
rezoning of the property. If rezoned, proceeds associated with the sale would
fall within a range of $20 to $25 million. A sale of the distribution center in
this price range could result in a gain on sale of $8 to $13 million. Management
is unable to determine at this time if this transaction will be completed.
F-30
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--
(CONTINUED)
(in thousands, except where indicated)
5. CONTINGENCIES--(CONTINUED)
The Company has entered into an agreement with Dayton Hudson Corporation and
certain of its affiliates to acquire three Marshall Field store locations in
Texas, adding 250,000 square feet of store space. Two of these stores are
intended to replace two smaller stores currently operated by Saks in Houston and
Dallas. Saks intends to spend approximately $100 million in connection with the
acquisition and renovation of these stores. Completion of the transaction is
subject to certain conditions and is expected to be completed in December 1996.
6. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
As required, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets" beginning with
fiscal 1996 reporting. SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed whenever events or changes in circumstances
indicate that recoverability is questionable. The adoption did not have a
material effect on the results of operations or financial position.
F-31
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Saks
Holdings has agreed to sell to each of the Underwriters named below, and each of
such Underwriters has severally agreed to purchase from Saks Holdings, the
respective principal amounts of the Notes set forth opposite its name below:
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
- ------------------------------------------------------------ ------------
Goldman, Sachs & Co......................................... $
CS First Boston Corporation.................................
Morgan Stanley & Co. Incorporated...........................
Salomon Brothers Inc .......................................
------------
Total..................................................... $200,000,000
------------
------------
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Notes offered hereby, if
any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the public offering price set forth on the cover page of this Prospectus, and
in part to certain securities dealers at such price less a concession of %
of the principal amount of the Notes. The Underwriters may allow, and such
dealers may reallow, a concession not to exceed % of the principal amount of
the Notes to certain brokers and dealers. After the Notes are released for sale
to the public, the offering price and the other selling terms may from time to
time be varied by the representatives.
Saks Holdings has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of $30,000,000
additional principal amount of the Notes solely to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the Underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof that the principal amount of the Notes to be
purchased by each of them, as shown in the foregoing table, bears to the
aggregate principal amount of the Notes offered hereby.
Saks Holdings has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 90 days after the date
of this Prospectus, it will not offer, sell, contract to sell or otherwise
dispose of any securities of Saks Holdings which are substantially similar to
the shares of the Common Stock or securities which are convertible or
exchangeable into securities which are substantially similar to the shares of
the Common Stock (other than any sales or dispositions of Common Stock (i) upon
conversion of the Notes, (ii) in connection with the acquisition of or merger
with any other corporation or other entity or the acquisition of any assets or
properties thereof provided that, prior to the issuance of such securities, such
corporation or entity agrees to be similarly bound or (iii) pursuant to employee
stock option, stock purchase or other employee benefit plans) without the prior
written consent of the Underwriters.
The Notes are a new issue of securities with no established trading market.
Saks Holdings has been advised by the Underwriters that they intend to make a
market in the Notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Notes.
Saks Holdings has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
U-1
<PAGE>
From time to time in the ordinary course of their businesses, affiliates of
certain of the Underwriters have engaged and may in the future engage in general
financing and banking transactions with Saks and its affiliates. Furthermore, it
is possible that more than 10% of the proceeds of the offering, not including
underwriting compensation, will be received by lenders to Saks under its credit
facility and revolving credit facility that are affiliated with members of the
National Association of Securities Dealers, Inc. ("NASD") who are participating
in the offering. As a result, the offering is being conducted in accordance with
NASD Corporate Financing Rule 2710.(c)(8) and Rule 2720.(c)(3)(A), which provide
that the minimum yield to maturity can be no lower than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this provision, Goldman, Sachs & Co. has agreed to act in such role and
will recommend a minimum yield to maturity in compliance with the requirements
of Rule 2720.(c)(3)(A). Goldman, Sachs & Co. will receive compensation from Saks
Holdings in the amount of $10,000 for serving in such role. In connection with
the offering, Goldman, Sachs & Co. in its role as qualified independent
underwriter has performed due diligence investigations and reviewed and
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part. In addition, the Underwriters
may not confirm sales to any discretionary account without the prior specific
written approval of the customer.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to Saks Holdings and its
affiliates, for which such Underwriters have received and will receive customary
fees and commissions.
U-2
<PAGE>
[SAKS FIFTH AVENUE LOGO]
<PAGE>
<TABLE>
<S>
"More than a store Saks Fifth Avenue is a Brand translating to Multiple Formats..."
<S> <C> <C>
[Photo of Resort Store] [Photo of Off 5th Store] [Photo of Sales Person]
"5 Resort Stores" "19 Outlet Stores" "40 Full-line Stores"
[Photo of International Marketing Materials] [Photo of Labels]
"International Exploration" "Private Label"
[Photo of Folio Catalogs] [Photo of Web-Site]
"Direct Response" "Technological Exploration"
<PAGE>
[Photo of Couple Holding Saks Fifth Avenue Shopping Bag]
". . . and a Patent for the Future"
<PAGE>
====================================== ========================================
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH $200,000,000
SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY SAKS HOLDINGS, INC.
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SAKS HOLDINGS SINCE THE % CONVERTIBLE SUBORDINATED
DATE HEREOF OR THAT THE INFORMATION NOTES DUE , 2006
CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
Risk Factors.......................... 12
Use of Proceeds....................... 17 ------------------
Price Range of Common Stock and
Dividend Policy....................... 18 [LOGO]
Capitalization........................ 19
Selected Consolidated Financial -------------------
Data.................................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 30
Management............................ 47
Principal Stockholders................ 55
Certain Transactions.................. 57
Description of Notes.................. 58
Description of Capital Stock.......... 69
Certain Tax Considerations............ 71
Description of Certain Indebtedness... 73 GOLDMAN, SACHS & CO.
Shares Eligible for Future Sale....... 80
Validity of Notes..................... 81 CS FIRST BOSTON
Experts............................... 81
Additional Information................ 81
Index to Consolidated Financial MORGAN STANLEY & CO.
Statements............................ F-1 INCORPORATED
Underwriting.......................... U-1
------------------- SALOMON BROTHERS INC
====================================== ========================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant's expenses in connection with the offering described in this
registration statement are set forth below. All amounts except the Securities
and Exchange Commission registration fee, the NASD filing fee and the NYSE
listing fee are estimated.
Securities and Exchange Commission registration fee........... $ 79,320
NASD filing fee............................................... 23,500
Printing expenses............................................. 250,000
Accounting fees and expenses.................................. 100,000
Legal fees and expenses....................................... 200,000
Fees and expenses (including legal fees) for qualifications
under state securities laws................................... 30,000
Trustee's fees and expenses................................... 16,500
Rating Agencies' fees and expenses............................ 130,000
Miscellaneous................................................. 170,680
----------
Total..................................................... $1,000,000
----------
----------
ITEM 14. IDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances from liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Act").
As permitted by the DGCL, the registrant's Certificate of Incorporation (the
"Charter") provides that, to the fullest extent permitted by the DGCL, no
director shall be liable to the registrant or to its stockholders for monetary
damages for breach of his fiduciary duty as a director. Delaware law does not
permit the elimination of liability (i) for any breach of the director's duty of
loyalty to the registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases, or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Charter is to
eliminate the rights of the registrant and its stockholders (through
stockholders' derivative suits on behalf of the registrant) to recover monetary
damages against a director for breach of fiduciary duty as a director thereof
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i)-(iv), inclusive, above. These
provisions will not alter the liability of directors under federal securities
laws.
The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the registrant) by reason of the fact that he is or was a director,
officer, employee or agent of the registrant or is or was serving at the request
of the registrant as a director, officer, employee or agent of any other
corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted
II-1
<PAGE>
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the registrant, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
The Bylaws also provide that the registrant may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the registrant to procure
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the registrant unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine that despite the adjudication of liability but in view of all the
circumstances of the case, such person if fairly and reasonably entitled to be
indemnified for such expenses which the Court of Chancery of the State of
Delaware or the court in which such action was brought shall deem proper.
The Bylaws also provide that to the extent a director or officer of the
registrant has been successful in the defense of any action, suit or proceeding
referred to in the previous paragraphs or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for in the Bylaws shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
registrant may purchase and maintain insurance on behalf of a director or
officer of the registrant against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the registrant would have the power to indemnify him against such liabilities
under such Bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The registrant has not issued or sold securities within the past three years
pursuant to offerings that were not registered under the Securities Act of 1933,
as amended (the "Securities Act"), except as follows:
</TABLE>
<TABLE>
<C> <S>
(a) In August 1993, Saks Holdings sold 260 of its Class C Shares to Robert Ramsden for
an aggregate of $26,000. These shares have since been repurchased by Saks Holdings.
(b) In December 1994, Saks Holdings sold 357 of its Class C Shares to Owen Dorsey for
an aggregate of $35,700.
(c) In December 1994, Saks Holdings sold 260 of its Class C Shares to Richard Zannino
for an aggregate of $26,000.
(d) In November 1995, Saks Holdings sold 97 of its Class C Shares to Stephen Bock for
an aggregate of $9,700.
(e) In December 1995, Saks Investments Limited, Saks Equity Limited and Saks Capital
Limited each converted 2,400 Class D Shares into 2,400 Class C Shares pursuant to
Section 6(d) of the Certificate of Designations of Saks Holdings.
(f) In January 1996, Saks Holdings sold 357 of its Class C Shares to Gail Pisano for an
aggregate of $35,700.
(g) In February 1996, Saks Holdings sold 357 of its Class C Shares to Dan Smith for an
aggregate of $35,700.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
(h) In February 1996, Saks Holdings sold 357 of its Class C Shares to Wayne Meichner
for an aggregate of $35,700.
(i) In February 1996, Saks Holdings sold 357 of its Class C Shares to Barbara Lynne
Ronon for an aggregate of $35,700.
(j) In February 1996, Saks Holdings sold 357 of its Class C Shares to Sheri Wilson-Gray
for an aggregate of $35,700.
(k) In February 1996, Saks Holdings sold 260 of its Class C Shares to Mark Hood for an
aggregate of $26,000.
(l) On various dates from January 30, 1993 through February 28, 1996, pursuant to the
Old Incentive Plan, Saks Holdings awarded to key employees of Saks (i)
Non-qualified Options, exercisable in whole or in part at $100.00 ($20.00 giving
effect to the stock split in the form of a dividend effected on April 26, 1996 (the
"Stock Split")) per share to purchase an aggregate of 129,313 (646,565 giving
effect to the Stock Split) Class C Shares and (ii) ISOs, exercisable in whole or in
part at $100.00 ($20.00 giving effect to the Stock Split) per share to purchase an
aggregate of 47,557 (237,785 giving effect to the Stock Split) Class C Shares.
(m) On February 28, 1996, pursuant to the New Incentive Plan, Saks Holdings issued
ISOs, exercisable in whole or in part at $80.00 ($16.00 giving effect to the Stock
Split) per share, to purchase 324,171 (1,620,855 giving effect to the Stock Split)
Class C Shares in exchange for the cancellation of Options issued pursuant to the
Old Incentive Plan to purchase an indentical number of Class C Shares.
(n) On various dates from February 29, 1996 through April 19, 1996, pursuant to the New
Incentive Plan, Saks Holdings issued ISOs, exercisable in whole or in part at
$80.00 ($16.00 giving effect to the Stock Split) per share, to purchase 51,068
(255,340 giving effect to the Stock Split) Class C Shares.
(o) On May 22, 1996, Saks Holdings granted ISOs, pursuant to the New Incentive Plan, to
purchase 1,199,750 shares of Common Stock, exercisable in whole or in part at
$25.00 per share.
</TABLE>
The transactions set forth above were undertaken in reliance upon the
exemptions from the registration requirements of the Securities Act afforded by
(i) Section 4(2) thereof and/or Regulation D promulgated thereunder, as sales
not involving a public offering, and/or (ii) Rule 701 promulgated thereunder, as
sales by an issuer to employees, directors, officers, consultants or advisors
pursuant to written compensatory benefit plans or written contracts relating to
the compensation of such persons. The purchasers of the securities described
above acquired them for their own account not with a view to any distribution
thereof to the public. The certificates evidencing the securities bear legends
stating that the shares may not be offered, sold or transferred other than
pursuant to an effective registration statement under the Securities Act or an
exemption from such registration requirements.
With respect to the transaction described in paragraphs (l) through (o)
above, on June 10, 1996, Saks Holdings registered on Form S-8 under the
Securities Act the exercise of options granted under the Plans as well as any
further grants of options granted under the New Incentive Plan.
Upon the closing of Saks Holdings' initial public offering on May 28, 1996,
all of Saks Holdings' capital stock, including all Class C Shares, was converted
into Common Stock.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------
<S> <C>
1.01** Form of Underwriting Agreement
3.01* Amended and Restated Certificate of Incorporation of Saks Holdings, as filed
with the Delaware Secretary of State on May 28, 1996
3.02* Bylaws of Saks Holdings, as adopted on August 6, 1990
4.01 Form of Indenture between Saks Holdings and Bankers Trust Company, as trustee,
with regard to % Covertible Subordinated Notes due 2006
4.02 Form of % Covertible Surbordinated Notes due 2006 (included in Exhibit 4.01)
4.03* See Exhibits 3.01 and 3.02 as to the rights of holders of Saks Holdings' Common
Stock
4.04* Form of Stock Certificate of the Common Stock of Saks Holdings
4.05.1* Amended and Restated Credit Agreement, dated as of July 1, 1993, among Saks,
Chemical Bank and Bankers Trust Company as managing agents, Chemical Bank,
Bankers Trust Company, the CIT Group/Business Credit, Inc. and Barclays Bank
PLC as co-agents, and Chemical Bank as administrative agent (the "Credit
Facility")
4.05.2* First Amendment to the Credit Facility, dated as of March 1, 1995
4.05.3* Second Amendment to the Credit Facility, dated as of October 24, 1995
4.05.4* Third Amendment to the Credit Facility, dated as of March 5, 1996
4.05.5* Fourth Amendment to the Credit Facility, dated as of April 10, 1996
4.05.6* Fifth Amendment to the Credit Facility, dated as of April 18, 1996
4.05.7 Sixth Amendement and Consent to the Credit Facility, dated as of August ,
1996
4.06* Amended and Restated Loan and Security Agreement dated as of
May 12, 1995 between Fifth Avenue Capital Trust ("FACT") and certain direct and
indirect wholly-owned subsidiaries of Saks (the "Borrowers")
4.07* Trust and Servicing Agreement dated as of May 12, 1995 among FACT, Bankers
Trust Company, as servicer, and Marine Midland Bank, as trustee
4.08* Amended and Restated Trust Agreement, dated as of May 12, 1995, among Saks,
HNY, Inc. and Wilmington Company, as owner trustee
4.09* Indenture, dated as of July 1, 1993, between Saks and AIBC Services N.V., as
trustee
4.10* First Supplemental Indenture, dated as of April 22, 1996, between Saks and AIBC
Services N.V., as trustee
4.11** Form of % Subordinated Note from Saks to Saks Holdings
5.01** Opinion of Gibson, Dunn & Crutcher LLP
10.01.1* Amended and Restated Pooling & Servicing Agreement, dated as of December 16,
1991, among SFA Finance Company, Saks and Bankers Trust Company, as trustee
(the "1991 P&S")
10.01.2* First Amendment to the 1991 P&S, dated as of November 5, 1992
10.01.3* Second Amendment to the 1991 P&S, dated as of October 26, 1993
10.02.1* Second Amended and Restated Receivables Purchase Agreement, dated as of
December 16, 1991, between Saks and SFA Finance Company (the "Receivables
Purchase Agreement")
10.02.2* First Amendment to the 1991 Receivables Purchase Agreement, dated as of
November 5, 1992
10.02.3* Second Amendment to the 1991 Receivables Purchase Agreement, dated as of
October 26, 1993
10.03.1* Series 1991-2 Supplement, dated as of December 16, 1991, among SFA Finance
Company, Saks, MHTC, as administrative agent, and Bankers Trust Company, as
trustee (the "1991-2 Supplement")
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------
<S> <C>
10.03.2* First Amendment to the 1991-2 Supplement, dated as of July 22, 1992
10.03.3* Second Amendment to the 1991-2 Supplement, dated as of August 20, 1992
10.03.4* Third Amendment to the 1991-2 Supplement, dated as of November 5, 1992
10.03.5* Fourth Amendment to the 1991-2 Supplement, dated as of May 20, 1993
10.03.6* Fifth Amendment to the 1991-2 Supplement, dated as of October 28, 1993
10.03.7* Sixth Amendment to the 1991-2 Supplement, dated as of September 30, 1994
10.04.1* Class C Supplement to Series 1991-2 Supplement, dated as of
November 5, 1992, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee (the "1991-2(C) Supplement")
10.04.2* First Amendment to the 1991-2(C) Supplement, dated as of September 30, 1994
10.05* Class B Supplement to Series 1991-2 Supplement, dated as of September 30, 1994,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.06* Series 1995-1 Supplement, dated as of November 13, 1995, among SFA Finance
Company, Saks, Swiss Bank Corporation, New York Branch, as administrative
agent, and Bankers Trust Company, as trustee
10.07* Transition Supplement to the 1991 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.08* Pooling and Servicing Agreement, dated as of April 25, 1996, among SFA Finance
Company, Saks and Bankers Trust Company, as trustee (the "1996 P&S")
10.09* Series 1996-1 Supplement to the 1996 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.10* Third Amended and Restated Receivables Purchase Agreement, dated as of April
25, 1996, between Saks and SFA Finance Company
10.11* Series 1996-2 Supplement to the 1996 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.12* Purchase Agreement, dated May 4, 1995 among Saks, FACT, the Borrowers, Goldman,
Sachs & Company and Chemical Securities, Inc., with respect to the sale of
Commercial Mortgage Pass-Through Certificates due May 12, 2002
10.13* Saks Fifth Avenue Supplemental Pension Plan, effective July 2, 1990
10.14* Saks Holdings, Inc. Senior Management Stock Incentive Plan, dated as of October
17, 1990 (the "Old Incentive Plan")
10.15* Standard Form of Stock Option Agreement Pursuant to the Old Incentive Plan
10.16.1* Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of February
1, 1996 (the "New Incentive Plan")
10.16.2* Amendment to the New Incentive Plan
10.17* Standard Form of Stock Option Agreement Pursuant to the New Incentive Plan
10.18* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Philip B. Miller
10.19* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Rose Marie Bravo
10.20* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Owen E. Dorsey
10.21* Employment Agreement, dated as of March 1, 1996, between Saks and Brian E.
Kendrick
10.22* Agreement for Management Advisory and Consulting Services, dated as of July 2,
1995, between Saks and III
10.23* Acquisitions Advisory Agreement, dated as of January 29, 1995, between Saks and
III
10.24* Public Company Expenses Agreement, dated as of April 27, 1996, between Saks
Holdings and Saks.
10.25* Form of Common Stock Purchase Agreement between Saks Holdings and Investcorp,
S.A.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------
<S> <C>
12.01 Statement regarding the computation of the ratio of earnings to fixed charges
21.01* Subsidiaries of Saks Holdings
23.01 Consent of Coopers & Lybrand L.L.P.
23.02** Consent of Gibson, Dunn & Crutcher (contained in Exhibit 5.01)
24.01** Power of Attorney (included on signature page of Registration Statement)
</TABLE>
- ------------
* Incorporated herein by reference to Saks Holdings' registration statement on
Form S-1 (Reg No. 333-2426)
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such labilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in The City of New York,
State of New York, on August 28, 1996.
SAKS HOLDINGS, INC.
By /s/ PHILIP B. MILLER
...................................
Philip B. Miller
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brian E. Kendrick and Mark E. Hood and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including,
without limitation, any registration statement filed pursuant to Rule 462 under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the capacity
indicated on August 28, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------------------------------
<S> <C>
/s/ PHILIP B. MILLER Chairman of the Board and
........................................ Chief Executive Officer
Philip B. Miller (Principal Executive Officer)
/s/ BRIAN E. KENDRICK Vice Chairman of the Board and
........................................ Chief Operating Officer
Brian E. Kendrick
/s/ ROSE MARIE BRAVO President and Director
........................................
Rose Marie Bravo
/s/ RICHARD F. ZANNINO Executive Vice President,
........................................ Chief Financial Officer and Treasurer
Richard F. Zannino (Principal Financial Officer)
/s/ SAVIO W. TUNG Director
........................................
Savio W. Tung
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------------------------------
/s/ JON P. HEDLEY Director
........................................
Jon P. Hedley
<S> <C>
/s/ E. GARRETT BEWKES III Director
........................................
E. Garrett Bewkes III
/s/ CHARLES J. PHILIPPIN Director
........................................
Charles J. Philippin
/s/ STEPHEN I. SADOVE Director
........................................
Stephen I. Sadove
/s/ BRIAN RUDER Director
........................................
Brian Ruder
/s/ MARK E. HOOD Senior Vice President--Finance
........................................ (Principal Accounting Officer)
Mark E. Hood
*By: /s/ MARK E. HOOD
...................................
Mark E. Hood
Attorney in Fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ------------------------------------------------------------------------- -----
<S> <C> <C>
1.01** Form of Underwriting Agreement
3.01* Amended and Restated Certificate of Incorporation of Saks Holdings, as
filed with the Delaware Secretary of State on May 28, 1996
3.02* Bylaws of Saks Holdings, as adopted on August 6, 1990
4.01 Form of Indenture between Saks Holdings and Bankers Trust Company, as
trustee, with regard to % Covertible Subordinated Notes due 2006
4.02 Form of % Covertible Surbordinated Notes due 2006 (included in Exhibit
4.01)
4.03* See Exhibits 3.01 and 3.02 as to the rights of holders of Saks Holdings'
Common Stock
4.04* Form of Stock Certificate of the Common Stock of Saks Holdings
4.05.1* Amended and Restated Credit Agreement, dated as of July 1, 1993, among
Saks, Chemical Bank and Bankers Trust Company as managing agents,
Chemical Bank, Bankers Trust Company, the CIT Group/Business Credit, Inc.
and Barclays Bank PLC as co-agents, and Chemical Bank as administrative
agent (the "Credit Facility")
4.05.2* First Amendment to the Credit Facility, dated as of March 1, 1995
4.05.3* Second Amendment to the Credit Facility, dated as of October 24, 1995
4.05.4* Third Amendment to the Credit Facility, dated as of March 5, 1996
4.05.5* Fourth Amendment to the Credit Facility, dated as of April 10, 1996
4.05.6* Fifth Amendment to the Credit Facility, dated as of April 18, 1996
4.05.7 Sixth Amendement and Consent to the Credit Facility, dated as of August
, 1996
4.06* Amended and Restated Loan and Security Agreement dated as of
May 12, 1995 between Fifth Avenue Capital Trust ("FACT") and certain
direct and indirect wholly-owned subsidiaries of Saks (the "Borrowers")
4.07* Trust and Servicing Agreement dated as of May 12, 1995 among FACT,
Bankers Trust Company, as servicer, and Marine Midland Bank, as trustee
4.08* Amended and Restated Trust Agreement, dated as of May 12, 1995, among
Saks, HNY, Inc. and Wilmington Company, as owner trustee
4.09* Indenture, dated as of July 1, 1993, between Saks and AIBC Services N.V.,
as trustee
4.10* First Supplemental Indenture, dated as of April 22, 1996, between Saks
and AIBC Services N.V., as trustee
4.11** Form of % Subordinated Note from Saks to Saks Holdings
5.01** Opinion of Gibson, Dunn & Crutcher LLP
10.01.1* Amended and Restated Pooling & Servicing Agreement, dated as of December
16, 1991, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee (the "1991 P&S")
10.01.2* First Amendment to the 1991 P&S, dated as of November 5, 1992
10.01.3* Second Amendment to the 1991 P&S, dated as of October 26, 1993
10.02.1* Second Amended and Restated Receivables Purchase Agreement, dated as of
December 16, 1991, between Saks and SFA Finance Company (the "Receivables
Purchase Agreement")
10.02.2* First Amendment to the 1991 Receivables Purchase Agreement, dated as of
November 5, 1992
10.02.3* Second Amendment to the 1991 Receivables Purchase Agreement, dated as of
October 26, 1993
10.03.1* Series 1991-2 Supplement, dated as of December 16, 1991, among SFA
Finance Company, Saks, MHTC, as administrative agent, and Bankers Trust
Company, as trustee (the "1991-2 Supplement")
10.03.2* First Amendment to the 1991-2 Supplement, dated as of July 22, 1992
10.03.3* Second Amendment to the 1991-2 Supplement, dated as of August 20, 1992
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ------------------------------------------------------------------------- -----
<S> <C> <C>
10.03.4* Third Amendment to the 1991-2 Supplement, dated as of November 5, 1992
10.03.5* Fourth Amendment to the 1991-2 Supplement, dated as of May 20, 1993
10.03.6* Fifth Amendment to the 1991-2 Supplement, dated as of October 28, 1993
10.03.7* Sixth Amendment to the 1991-2 Supplement, dated as of September 30, 1994
10.04.1* Class C Supplement to Series 1991-2 Supplement, dated as of
November 5, 1992, among SFA Finance Company, Saks and Bankers Trust
Company, as trustee (the "1991-2(C) Supplement")
10.04.2* First Amendment to the 1991-2(C) Supplement, dated as of September 30,
1994
10.05* Class B Supplement to Series 1991-2 Supplement, dated as of September 30,
1994, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee
10.06* Series 1995-1 Supplement, dated as of November 13, 1995, among SFA
Finance Company, Saks, Swiss Bank Corporation, New York Branch, as
administrative agent, and Bankers Trust Company, as trustee
10.07* Transition Supplement to the 1991 P&S, dated as of April 25, 1996, among
SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.08* Pooling and Servicing Agreement, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee (the "1996
P&S")
10.09* Series 1996-1 Supplement to the 1996 P&S, dated as of April 25, 1996,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.10* Third Amended and Restated Receivables Purchase Agreement, dated as of
April 25, 1996, between Saks and SFA Finance Company
10.11* Series 1996-2 Supplement to the 1996 P&S, dated as of April 25, 1996,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.12* Purchase Agreement, dated May 4, 1995 among Saks, FACT, the Borrowers,
Goldman, Sachs & Company and Chemical Securities, Inc., with respect to
the sale of Commercial Mortgage Pass-Through Certificates due May 12,
2002
10.13* Saks Fifth Avenue Supplemental Pension Plan, effective July 2, 1990
10.14* Saks Holdings, Inc. Senior Management Stock Incentive Plan, dated as of
October 17, 1990 (the "Old Incentive Plan")
10.15* Standard Form of Stock Option Agreement Pursuant to the Old Incentive
Plan
10.16.1* Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of
February 1, 1996 (the "New Incentive Plan")
10.16.2* Amendment to the New Incentive Plan
10.17* Standard Form of Stock Option Agreement Pursuant to the New Incentive
Plan
10.18* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Philip B. Miller
10.19* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Rose Marie Bravo
10.20* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Owen E. Dorsey
10.21* Employment Agreement, dated as of March 1, 1996, between Saks and Brian
E. Kendrick
10.22* Agreement for Management Advisory and Consulting Services, dated as of
July 2, 1995, between Saks and III
10.23* Acquisitions Advisory Agreement, dated as of January 29, 1995, between
Saks and III
10.24* Public Company Expenses Agreement, dated as of April 27, 1996, between
Saks Holdings and Saks.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ------------------------------------------------------------------------- -----
<S> <C> <C>
10.25* Form of Common Stock Purchase Agreement between Saks Holdings and
Investcorp, S.A.
12.01 Statement regarding the computation of the ratio of earnings to fixed
charges
21.01* Subsidiaries of Saks Holdings
23.01 Consent of Coopers & Lybrand L.L.P.
23.02** Consent of Gibson, Dunn & Crutcher (contained in Exhibit 5.01)
24.01** Power of Attorney (included on signature page of Registration Statement)
</TABLE>
- ------------
* Incorporated herein by reference to Saks Holdings' registration statement on
Form S-1 (Reg No. 333-2426)
** To be filed by amendment.
EXHIBIT 4.01
------------------------------------------------------------
SAKS HOLDINGS, INC.
TO
BANKERS TRUST COMPANY
TRUSTEE
________________
INDENTURE
Dated as of September ___ , 1996
________________
$200,000,000
_____% CONVERTIBLE SUBORDINATED NOTES
DUE 2006
------------------------------------------------------------
<PAGE>
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Section Section
--------------- ---------
Sec. 310(a)(1) . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . Not
Applicable
(a)(4) . . . . . . . . . . . . . Not
Applicable
(b) . . . . . . . . . . . . . 608
610
Sec. 311(a) . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . 613
Sec. 312(a) . . . . . . . . . . . . . 701
702(a)
(b) . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . 702(c)
Sec. 313(a) . . . . . . . . . . . . . 703(a)
(b) . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . 703(b)
Sec. 314(a) . . . . . . . . . . . . . 704
(b) . . . . . . . . . . . . . Not
Applicable
(c)(1) . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . Not
Applicable
(d) . . . . . . . . . . . . . Not
Applicable
(e) . . . . . . . . . . . . . 102
Sec. 315(a) . . . . . . . . . . . . . 601
. . . . . . . . . . . . . 603(a)
(b) . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . 514
Sec. 316(a)(1)(A) . . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . Not
Applicable
(b) . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . 104
Sec. 317(a)(1) . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . 1003
Sec. 318(a) . . . . . . . . . . . . . 107
______________
Note: This reconciliation and tie shall not, for any
purpose, be deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
Parties . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals of the Company . . . . . . . . . . . . . . . . 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions . . . . . . . . . . . . 1
-----------
Act . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . 2
Agent Member . . . . . . . . . . . . . . . . 2
Amended and Restated Credit Agreement . . . . 2
Applicable Procedures . . . . . . . . . . . . 2
Authenticating Agent . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . 2
Board Resolution . . . . . . . . . . . . . . 2
Business Day . . . . . . . . . . . . . . . . 3
Change of Control . . . . . . . . . . . . . . 3
Closing Price Per Share . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . 3
Commission . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . 3
common stock . . . . . . . . . . . . . . . . 4
Company . . . . . . . . . . . . . . . . . . . 4
Company Notice . . . . . . . . . . . . . . . 4
Company Request . . . . . . . . . . . . . . . 4
Constituent Person . . . . . . . . . . . . . 4
Conversion Agent . . . . . . . . . . . . . . 4
Conversion Price . . . . . . . . . . . . . . 4
Conversion Rate . . . . . . . . . . . . . . . 4
Corporate Trust Office . . . . . . . . . . . 4
corporation . . . . . . . . . . . . . . . . . 4
Custodian . . . . . . . . . . . . . . . . . . 4
Defaulted Interest . . . . . . . . . . . . . 5
Depositary . . . . . . . . . . . . . . . . . 5
DTC . . . . . . . . . . . . . . . . . . . . . 5
Event of Default . . . . . . . . . . . . . . 5
Exchange Act . . . . . . . . . . . . . . . . 5
Expiration Date . . . . . . . . . . . . . . . 5
Expiration Time . . . . . . . . . . . . . . . 5
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-i-
<PAGE>
Page
----
Global Security . . . . . . . . . . . . . . . 5
Holder . . . . . . . . . . . . . . . . . . . 5
Indenture . . . . . . . . . . . . . . . . . . 5
Interest Payment Date . . . . . . . . . . . . 5
Maturity . . . . . . . . . . . . . . . . . . 5
Non-electing Share . . . . . . . . . . . . . 6
Notice of Default . . . . . . . . . . . . . . 6
Officers' Certificate . . . . . . . . . . . . 6
Opinion of Counsel . . . . . . . . . . . . . 6
Outstanding . . . . . . . . . . . . . . . . . 6
Paying Agent . . . . . . . . . . . . . . . . 7
Person . . . . . . . . . . . . . . . . . . . 7
Place of Conversion . . . . . . . . . . . . . 7
Place of Payment . . . . . . . . . . . . . . 7
Predecessor Security . . . . . . . . . . . . 7
Record Date . . . . . . . . . . . . . . . . . 7
Redemption Date . . . . . . . . . . . . . . . 7
Redemption Price . . . . . . . . . . . . . . 8
Reference Date . . . . . . . . . . . . . . . 8
Regular Record Date . . . . . . . . . . . . . 8
Repurchase Date . . . . . . . . . . . . . . . 8
Repurchase Price . . . . . . . . . . . . . . 8
Responsible Officer . . . . . . . . . . . . . 8
Saks . . . . . . . . . . . . . . . . . . . . 8
Securities . . . . . . . . . . . . . . . . . 8
Securities Act . . . . . . . . . . . . . . . 8
Security Register . . . . . . . . . . . . . . 8
Senior Indebtedness . . . . . . . . . . . . . 8
Special Record Date . . . . . . . . . . . . . 9
Stated Maturity . . . . . . . . . . . . . . . 9
Subsidiary . . . . . . . . . . . . . . . . . 9
Trading Days . . . . . . . . . . . . . . . . . 9
Trustee . . . . . . . . . . . . . . . . . . . 10
Trust Indenture Act . . . . . . . . . . . . . 10
Vice President . . . . . . . . . . . . . . . 10
SECTION 102. Compliance Certificates and
---------------------------
Opinions . . . . . . . . . . . . . 10
--------
SECTION 103. Form of Documents Delivered to
------------------------------
Trustee . . . . . . . . . . . . . . 11
-------
SECTION 104. Acts of Holders; Record Dates . . . 12
-----------------------------
SECTION 105. Notices, Etc., to Trustee and
-----------------------------
Company . . . . . . . . . . . . . . 14
-------
SECTION 106. Notice to Holders; Waiver . . . . . 15
-------------------------
SECTION 107. Conflict with Trust Indenture Act . 15
---------------------------------
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-ii-
<PAGE>
Page
----
SECTION 108. Effect of Headings and Table of
-------------------------------
Contents . . . . . . . . . . . . . 15
--------
SECTION 109. Successors and Assigns . . . . . . 16
----------------------
SECTION 110. Separability Clause . . . . . . . . 16
-------------------
SECTION 111. Benefits of Indenture . . . . . . . 16
---------------------
SECTION 112. Governing Law . . . . . . . . . . . 16
-------------
SECTION 113. Legal Holidays . . . . . . . . . . 16
--------------
SECTION 114. Incorporators, Stockholders,
----------------------------
Officers and Directors of the
-----------------------------
Company Exempt from Individual
------------------------------
Liability . . . . . . . . . . . . . 17
---------
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally . . . . . . . . . . 17
---------------
SECTION 202. Form of Face of Security . . . . . 18
------------------------
SECTION 203. Form of Reverse of Security . . . . 21
---------------------------
SECTION 204. Form of Trustee's Certificate of
--------------------------------
Authentication . . . . . . . . . . 29
--------------
SECTION 205. Form of Conversion Notice . . . . . 29
-------------------------
ARTICLE THREE
The Securities
SECTION 301. Title and Terms . . . . . . . . . . 30
---------------
SECTION 302. Denominations . . . . . . . . . . . 31
-------------
SECTION 303. Execution, Authentication, Delivery
-----------------------------------
and Dating . . . . . . . . . . . . 31
----------
SECTION 304. Temporary Securities . . . . . . . 32
--------------------
SECTION 305. Registration, Registration of
-----------------------------
Transfer and Exchange . . . . . . . 32
---------------------
SECTION 306. Mutilated, Destroyed, Lost and
------------------------------
Stolen Securities . . . . . . . . . 35
-----------------
SECTION 307. Payment of Interest; Interest
-----------------------------
Rights Preserved . . . . . . . . . 35
----------------
SECTION 308. Persons Deemed Owners . . . . . . . 37
---------------------
SECTION 309. Cancellation . . . . . . . . . . . 37
------------
SECTION 310. Computation of Interest . . . . . . 38
-----------------------
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-iii-
<PAGE>
Page
----
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of
-----------------------------
Indenture . . . . . . . . . . . . . 38
---------
SECTION 402. Application of Trust Money . . . . 39
--------------------------
ARTICLE FIVE
Remedies
SECTION 501. Events of Default . . . . . . . . . 40
-----------------
SECTION 502. Acceleration of Maturity;
-------------------------
Rescission and Annulment . . . . . 42
------------------------
SECTION 503. Collection of Indebtedness and
------------------------------
Suits for Enforcement by Trustee . 43
--------------------------------
SECTION 504. Trustee May File Proofs of Claim . 44
--------------------------------
SECTION 505. Trustee May Enforce Claims Without
----------------------------------
Possession of Securities . . . . . 45
------------------------
SECTION 506. Application of Money Collected . . 45
------------------------------
SECTION 507. Limitation on Suits . . . . . . . . 46
-------------------
SECTION 508. Unconditional Right of Holders to
---------------------------------
Receive Principal, Premium and
------------------------------
Interest and to Convert . . . . . . 47
-----------------------
SECTION 509. Restoration of Rights and Remedies 47
----------------------------------
SECTION 510. Rights and Remedies Cumulative . . 47
------------------------------
SECTION 511. Delay or Omission Not Waiver . . . 47
----------------------------
SECTION 512. Control by Holders . . . . . . . . 48
------------------
SECTION 513. Waiver of Past Defaults . . . . . . 48
-----------------------
SECTION 514. Undertaking for Costs . . . . . . . 48
---------------------
SECTION 515. Waiver of Stay or Extension Laws . 49
--------------------------------
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and
------------------
Responsibilities . . . . . . . . . 49
----------------
SECTION 602. Notice of Defaults . . . . . . . . 50
------------------
SECTION 603. Certain Rights of Trustee . . . . . 51
-------------------------
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-iv-
<PAGE>
Page
----
SECTION 604. Not Responsible for Recitals or
-------------------------------
Issuance of Securities . . . . . . 52
----------------------
SECTION 605. May Hold Securities . . . . . . . . 52
-------------------
SECTION 606. Money Held in Trust . . . . . . . . 52
-------------------
SECTION 607. Compensation and Reimbursement . . 53
------------------------------
SECTION 608. Disqualification; Conflicting
-----------------------------
Interests . . . . . . . . . . . . . 54
---------
SECTION 609. Corporate Trustee Required;
---------------------------
Eligibility . . . . . . . . . . . . 54
-----------
SECTION 610. Resignation and Removal;
------------------------
Appointment of Successor . . . . . 54
------------------------
SECTION 611. Acceptance of Appointment by
----------------------------
Successor . . . . . . . . . . . . . 56
---------
SECTION 612. Merger, Conversion, Consolidation
---------------------------------
or Succession to Business . . . . . 56
-------------------------
SECTION 613. Preferential Collection of Claims
---------------------------------
Against Company . . . . . . . . . . 57
---------------
SECTION 614. Appointment of Authenticating
-----------------------------
Agent . . . . . . . . . . . . . . . 57
-----
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names
--------------------------------
and Addresses of Holders . . . . . 59
------------------------
SECTION 702. Preservation of Information;
----------------------------
Communications to Holders . . . . . 59
-------------------------
SECTION 703. Reports by Trustee . . . . . . . . 60
------------------
SECTION 704. Reports by Company . . . . . . . . 60
------------------
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only
-----------------------------------
on Certain Terms . . . . . . . . . 61
----------------
SECTION 802. Successor Substituted . . . . . . . 62
---------------------
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-v-
<PAGE>
Page
----
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without
-------------------------------
Consent of Holders . . . . . . . . 62
------------------
SECTION 902. Supplemental Indentures with
----------------------------
Consent of Holders . . . . . . . . 63
------------------
SECTION 903. Execution of Supplemental
-------------------------
Indentures . . . . . . . . . . . . 64
----------
SECTION 904. Effect of Supplemental Indentures . 64
---------------------------------
SECTION 905. Conformity with Trust Indenture
-------------------------------
Act . . . . . . . . . . . . . . . . 65
---
SECTION 906. Reference in Securities to
--------------------------
Supplemental Indentures . . . . . . 65
-----------------------
SECTION 907. Notice of Supplemental Indentures . 65
---------------------------------
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and
---------------------------------
Interest . . . . . . . . . . . . . 65
--------
SECTION 1002. Maintenance of Office or Agency . . 65
-------------------------------
SECTION 1003. Money for Security Payments to Be
---------------------------------
Held in Trust . . . . . . . . . . . 66
-------------
SECTION 1004. Statement by Officers as to
---------------------------
Default . . . . . . . . . . . . . . 68
-------
SECTION 1005. Existence . . . . . . . . . . . . . 68
---------
SECTION 1006. Maintenance of Properties . . . . . 68
-------------------------
SECTION 1007. Payment of Taxes and Other Claims . 69
---------------------------------
SECTION 1008. Book-Entry System . . . . . . . . . 69
-----------------
SECTION 1009. Waiver of Certain Covenants . . . . 69
---------------------------
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption . . . . . . . . 70
-------------------
SECTION 1102. Applicability of Article . . . . . 70
------------------------
SECTION 1103. Election to Redeem; Notice to
-----------------------------
Trustee . . . . . . . . . . . . . . 70
-------
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-vi-
<PAGE>
Page
----
SECTION 1104. Selection by Trustee of Securities
----------------------------------
to Be Redeemed . . . . . . . . . . 70
--------------
SECTION 1105. Notice of Redemption . . . . . . . 71
--------------------
SECTION 1106. Deposit of Redemption Price . . . . 72
---------------------------
SECTION 1107. Securities Payable on Redemption
--------------------------------
Date . . . . . . . . . . . . . . . 72
----
SECTION 1108. Securities Redeemed in Part . . . . 73
---------------------------
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Securities Subordinate to Senior
--------------------------------
Indebtedness . . . . . . . . . . . 73
------------
SECTION 1202. Payment Over of Proceeds Upon
-----------------------------
Dissolution, Etc. . . . . . . . . . 73
-----------------
SECTION 1203. Prior Payment to Senior
-----------------------
Indebtedness Upon Acceleration of
---------------------------------
Securities . . . . . . . . . . . . 75
----------
SECTION 1204. No Payment When Senior Indebtedness
------------------------------------
in Default . . . . . . . . . . . 75
----------
SECTION 1205. Payment Permitted If No Default . . 76
-------------------------------
SECTION 1206. Subrogation to Rights of Holders of
-----------------------------------
Senior Indebtedness . . . . . . . . 76
-------------------
SECTION 1207. Provisions Solely to Define
---------------------------
Relative Rights . . . . . . . . . . 77
---------------
SECTION 1208. Trustee to Effectuate
---------------------
Subordination . . . . . . . . . . . 77
-------------
SECTION 1209. No Waiver of Subordination
--------------------------
Provisions . . . . . . . . . . . . 77
----------
SECTION 1210. Notice to Trustee . . . . . . . . . 78
-----------------
SECTION 1211. Reliance on Judicial Order or
-----------------------------
Certificate of Liquidating Agent . 79
--------------------------------
SECTION 1212. Trustee Not Fiduciary for Holders
---------------------------------
of Senior Indebtedness . . . . . . 79
----------------------
SECTION 1213. Rights of Trustee as Holder of
------------------------------
Senior Indebtedness; Preservation
---------------------------------
of Trustee's Rights . . . . . . . . 80
-------------------
SECTION 1214. Article Applicable to Paying
----------------------------
Agents . . . . . . . . . . . . . . 80
------
SECTION 1215. Certain Conversions Deemed Payment 80
----------------------------------
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-vii-
<PAGE>
Page
----
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Privilege and Conversion
-----------------------------------
Rate . . . . . . . . . . . . . . . 81
----
SECTION 1302. Exercise of Conversion Privilege . 81
--------------------------------
SECTION 1303. Fractions of Shares . . . . . . . . 83
-------------------
SECTION 1304. Adjustment of Conversion Rate . . . 83
-----------------------------
SECTION 1305. Notice of Adjustments of Conversion
-----------------------------------
Rate . . . . . . . . . . . . . . . 88
----
SECTION 1306. Notice of Certain Corporate Action 89
----------------------------------
SECTION 1307. Company to Reserve Common Stock . . 90
-------------------------------
SECTION 1308. Taxes on Conversions . . . . . . . 90
--------------------
SECTION 1309. Covenant as to Common Stock . . . . 91
---------------------------
SECTION 1310. Cancellation of Converted
-------------------------
Securities . . . . . . . . . . . . 91
----------
SECTION 1311. Provision in Case of Consolidation,
-----------------------------------
Merger or Sale of Assets . . . . . 91
------------------------
SECTION 1312. Responsibility of Trustee for
-----------------------------
Conversion Provisions . . . . . . . 92
---------------------
ARTICLE FOURTEEN
Repurchase of Securities at the Option of the
Holder Upon a Change of Control
SECTION 1401. Right to Require Repurchase . . . . 93
---------------------------
SECTION 1402. Conditions to the Company's
---------------------------
Election to Pay the Repurchase
------------------------------
Price in Common Stock or Cash . . . 94
-----------------------------
SECTION 1403. Notices; Method of Exercising
-----------------------------
Repurchase Right, Etc. . . . . . . 94
----------------------
SECTION 1404. Certain Definitions . . . . . . . . 98
-------------------
SECTION 1405. Consolidation, Merger, Etc. . . . . 99
---------------------------
___________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-viii-
<PAGE>
INDENTURE, dated as of September __, 1996, between Saks Holdings,
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 12 East
49th Street, New York, New York 10017, and Bankers Trust Company, a New York
banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its
______% Convertible Subordinated Notes Due 2006 (herein called the "Securities")
of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done. Further, all things necessary to duly authorize the issuance of the
Common Stock of the Company issuable upon the conversion of the Securities, and
to duly reserve for issuance the number of shares of Common Stock issuable upon
such conversion, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article One have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by
-1-
<PAGE>
reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date of
such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Amended and Restated Credit Agreement" means the Amended and Restated
Credit Agreement, dated as of July 1, 1993 (as amended, supplemented, or
otherwise modified from time to time (the "Credit Agreement"), among Saks &
Company, the Lenders (as defined therein) from time to time parties thereto (the
"Banks"), and The Chase Manhattan Bank, as administrative agent for the Banks
(in such capacity, the "Administrative Agent").
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
-2-
<PAGE>
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant Secretary
of the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, shall have been
delivered to the Trustee.
"Business Day" means, with respect to any Place of Payment, Place of
Conversion or any other place, as the case may be, each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any such day on which banking
institutions in The City of New York, New York or in such particular place are
authorized or obligated by law or executive order to close.
"Change of Control" has the meaning specified in Section 1404(b).
"Closing Price Per Share" means, with respect to the Common Stock of
the Company, for any day, the reported last sales price regular way per share
or, in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case (i) on the New
York Stock Exchange or, if the Common Stock is not listed or admitted to trading
on the New York Stock Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or (ii) if not listed
on or admitted to trading on any national securities exchange then on the Nasdaq
National Market or (iii) if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on such National Market,
the average of the closing bid and asked prices in the over-the-counter market
as furnished by any New York Stock Exchange member firm selected from time to
time by the Company for that purpose.
"Code" has the meaning specified in Section 201.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means the Common Stock, par value $0.01 per share, of
the Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 1311, shares issuable on conversion or
repurchase of
-3-
<PAGE>
Securities shall include only shares of Common Stock or shares of any class or
classes of common stock resulting from any reclassification or reclassifications
thereof; provided, however, that if at any time there shall be more than one
-------- -------
such resulting class, the shares so issuable on conversion of Securities shall
include shares of all such classes, and the shares of each such class then so
issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"common stock" includes any stock of any class of capital stock which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
issuer thereof and which is not subject to redemption by the issuer thereof.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Notice" has the meaning specified in Section 1403.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Constituent Person" has the meaning specified in Section 1311.
"Conversion Agent" means any Person authorized by the Company to
convert Securities in accordance with Article Thirteen. The Company has
initially appointed the Trustee as its Conversion Agent.
"Conversion Price" has the meaning specified in Section 1404.
"Conversion Rate" has the meaning specified in Section 1301.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which office on the date hereof is located at Four Albany Street, New York, N.Y.
10006.
-4-
<PAGE>
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Custodian" means Bankers Trust Company, as custodian with respect to
any Global Security, or any successor entity thereto.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to any Global Securities, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as Depositary for such Global Securities (or any successor
securities clearing agency so registered).
"DTC" means The Depository Trust Company, a New York corporation.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the United States Securities Exchange Act of 1934
(or any successor statute), as amended from time to time.
"Expiration Date" has the meaning specified in Section 104.
"Expiration Time" has the meaning specified in Section 1304.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
-5-
<PAGE>
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, submission for repurchase or otherwise.
"Non-electing Share" has the meaning specified in Section 1311.
"Notice of Default" means a written notice of the kind specified in
Section 501(4) or 501(5).
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the President or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
------
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for payment or redemption of which money in
the necessary amount has been theretofore deposited with the Trustee
or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its
own Paying Agent) for the Holders of such Securities; provided that,
--------
if such Securities are to be redeemed, notice of such redemption has
been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by
a bona fide purchaser in
-6-
<PAGE>
whose hands such Securities are valid obligations of the Company; and
(iv) Securities converted into Common Stock pursuant to Article
Thirteen.
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Securities and that the pledgee is not the Company or
any other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Place of Conversion" has the meaning specified in Section 1302.
"Place of Payment" means any city in which a Paying Agent is located.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means any Regular Record Date or Special Record Date.
-7-
<PAGE>
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Reference Date" has the meaning specified in Section 1304.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the __________ or ________ (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 1401.
"Repurchase Price" has the meaning specified in Section 1401.
"Responsible Officer", when used with respect to the Trustee, means
any officer within the Corporate Trust Office including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary, Managing Director or
any other officer of the Trustee customarily performing functions similar to
those performed by the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
his knowledge and familiarity with the particular subject.
"Saks" means the Company or Saks & Company, a wholly-owned subsidiary
of the Company.
"Securities" has the meaning ascribed to it in the first paragraph
under the caption "Recitals of the Company".
"Securities Act" means the United States Securities Act of 1933 (or
any successor statute), as amended from time to time.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on, and all fees and
other amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become
-8-
<PAGE>
due, outstanding on the date of the Indenture or thereafter created, incurred or
assumed: (a) indebtedness of the Company to banks, insurance companies and
other financial institutions evidenced by credit or loan agreements, notes or
other written obligations, (b) all other indebtedness of the Company (including
indebtedness of others guaranteed by the Company) other than the Securities,
whether outstanding on the date of this Indenture or thereafter created,
incurred or assumed, which is (i) for money borrowed or (ii) evidenced by a
note, security, debenture, bond or similar instrument given in connection with
the acquisition of any businesses, properties or assets of any kind, (c)
obligations of the Company as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles,
(d) obligations of the Company under interest rate and currency swaps, caps,
floors, collars or similar agreements or arrangements intended to protect the
Company against fluctuations in interest or currency exchange rates, and (e)
renewals, extensions, modifications, restatements and refundings of, or any
indebtedness or obligation issued in exchange for, any such indebtedness or
obligation described in clauses (a) through (d) of this paragraph; provided,
--------
however, that Senior Indebtedness shall not include any such indebtedness or
- -------
obligation (i) if the terms of such indebtedness or obligation (or the terms of
the instrument under which, or pursuant to which, it is issued) expressly
provide that such indebtedness or obligation is not superior in right of payment
to the Securities, or expressly provide that such indebtedness or obligation is
pari passu with or junior to the Securities, (ii) if such indebtedness or
- ---- -----
obligation is non-recourse to the Company or (iii) if such indebtedness or
obligation is a conditional sale contract or any account payable or any other
indebtedness created or assumed by the Company in the ordinary course of
business in connection with the obtaining of materials, inventories or services.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors,
-9-
<PAGE>
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trading Days" means (i) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business or (ii) if the Common Stock is not
listed or admitted for trading on any national securities exchange, days on
which trades may be made on the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices on which the Common
Shares are quoted or (iii) if the Common Stock is not listed or admitted for
trading on any national securities exchange or quoted on the Nasdaq National
Market or any other system of automated dissemination of quotation of securities
prices, days on which the Common Stock is traded regular way in the over-the-
counter market and for which a closing bid and a closing asked price for the
Common Stock are available.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided, however,
-------- -------
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
-10-
<PAGE>
Every certificate (including certificates provided pursuant to
Section 1004) or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include, without limitation:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion such individual, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know,
-11-
<PAGE>
that the certificate or opinion or representations with respect to the matters
upon which such certificate or opinion is based are erroneous.
Any such certificate or opinion of counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the information with
respect to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
-----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) The Company may set any day as a record date for the purpose of
determining the Holders entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders, provided that
the Company may not set a record date for, and the provisions of this
Section 104(d) shall not apply with respect to, the giving
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<PAGE>
or making of any notice, declaration, request or direction referred to in
Section 104(e). If any record date is set pursuant to this Section 104(d), the
Holders on such record date, and only such Holders, shall be entitled to take
the relevant action, whether or not such Holders remain Holders after such
record date; provided that no such action shall be effective hereunder unless
--------
taken on or prior to the applicable Expiration Date by Holders of the requisite
principal amount of Securities on such record date. Nothing in this
Section 104(d) shall be construed to prevent the Company from setting a new
record date for any action for which a record date has previously been set
pursuant to this Section 104(d) (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this Section 104(d) shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this Section 104(d), the Company, at its own expense, shall cause notice of such
record date, the proposed action by Holders and the applicable Expiration Date
to be given to the Trustee in writing and to each Holder in the manner set forth
in Section 106.
(e) The Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in the giving or making of (i) any
Notice of Default, (ii) any declaration of acceleration referred to in
Section 502, (iii) any request to institute proceedings referred to in
Section 507(2), or (iv) any direction referred to in Section 512. If any record
date is set pursuant to this Section 104(e), the Holders on such record date,
and only such Holders, shall be entitled to join in such notice, declaration,
request or direction, whether or not such Holders remain Holders after such
record date; provided that no such action shall be effective hereunder unless
--------
taken on or prior to the applicable Expiration Date by Holders of the requisite
principal amount of Securities on such record date. Nothing in this
Section 104(e) shall be construed to prevent the Trustee from setting a new
record date for any action for which a record date has previously been set
pursuant to this Section 104(e) (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this Section 104(e) shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this Section 104(e), the Trustee, at the Company's expense, shall cause notice
of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities in the manner set forth in Section 106.
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<PAGE>
(f) With respect to any record date set pursuant to Sections 104(d)
or 104(e), the party hereto which sets such record date may designate any day as
the "Expiration Date" and from time to time may change the Expiration Date to
any earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder in the manner set forth in Section 106, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to Sections 104(d) or 104(e), the party
hereto which set such record date shall be deemed to have initially designated
the 180th day after such record date as the Expiration Date with respect
thereto, subject to its right to change the Expiration Date as provided in this
Section 104(f). Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
(h) Except as provided in Sections 512 and 513 any request, demand,
authorization, direction, notice, consent, waiver or other Act of the Holder of
any Security shall bind every future Holder of the same Security and the Holder
of every Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Market Services, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless
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<PAGE>
otherwise herein expressly provided) if in writing and mailed, first-
class postage prepaid, to the Company to the attention of the
Treasurer at the address of the Company's principal office specified
in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
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<PAGE>
SECTION 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders of Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date,
Repurchase Date or Stated Maturity of any Security or the last date on which a
Holder has the right to convert his Securities shall not be a Business Day at a
Place of Payment or Place of Conversion, as the case may be, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) or delivery for
conversion of such Security need not be made on such date, but may be made on
the next succeeding Business Day at such Place of Payment or Place of
Conversion, as the case may be, with the same force and effect as if made on the
Interest Payment Date,
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<PAGE>
Redemption Date, Repurchase Date or at the Stated Maturity, or on such last day
for conversion, provided that no interest shall accrue for the period from and
--------
after such Interest Payment Date, Redemption Date, Repurchase Date, Stated
Maturity or the last day for conversion, as the case may be, so long as payment
is made on such succeeding Business Day.
SECTION 114. Incorporators, Stockholders, Officers and Directors of the
----------------------------------------------------------
Company Exempt from Individual Liability.
----------------------------------------
No recourse under or upon any obligation, covenant or agreement in
this Indenture or any indenture supplemental hereto or of any Security, or for
any claim based thereon or otherwise in respect thereof, shall be had against
any incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person, either directly or through
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors, as such, of the Company or
of any successor Person, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom; and that any and all such personal liability of every name
and nature, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom are hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issue of
such Securities.
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<PAGE>
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
---------------
The Securities and the Trustee's certificates of authentication shall
be in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, the Internal
Revenue Code of 1986, as amended, and the regulations thereunder (the "Code"),
or as may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities.
Any definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any automated quotation system or securities
exchange on which the Securities may be quoted or listed, as the case may be,
all as determined by the officers executing such Securities, as evidenced by
their execution of such Securities.
SECTION 202. Form of Face of Security.
------------------------
[The following legend shall appear on the face of each Global Security:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND
ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.]
[The following legend shall appear on the face of each Global Security for which
The Depository Trust Company is to be the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
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<PAGE>
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED
SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED
TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OR SUCH
SUCCESSOR DEPOSITARY.]
SAKS HOLDINGS, INC.
_____% CONVERTIBLE SUBORDINATED NOTE
DUE 2006
No. __________ $________
Saks Holdings, Inc., a corporation duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to __________________, or registered assigns,
the principal sum of _____________________ Dollars ($_______) on _________,
____, and to pay interest thereon from _________, ____ or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually in arrears on ________ and _________ in each year (each, an
"Interest Payment Date"), commencing ___________ at the rate of _____% per
annum, until the principal hereof is due, and at the rate of _____% per annum on
any overdue principal and premium, if any, and, to the extent permitted by law,
on any overdue interest. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the __________ or ________ (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Except as otherwise provided in the Indenture, any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Company, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner
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<PAGE>
not inconsistent with the requirements of any automated quotation system or
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such quotation system or exchange, as the case may be, all
as more fully provided in the Indenture. Payments of principal shall be made
upon the surrender of this Security at the option of the Holder at the Corporate
Trust Office of the Trustee, or at such other office or agency of the Company as
may be designated by it for such purpose in the Borough of Manhattan, The City
of New York, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts; provided, however, that at the option of the Company payment of interest
-------- -------
may be made by check, mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register, or, upon written application
by the Holder to the Security Registrar.
Except as specifically provided in the Indenture, the Company shall
not be required to make any payment with respect to any tax, assessment or other
governmental charge imposed by any governmental or any political subdivision or
taxing authority thereof or therein.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SAKS HOLDINGS, INC.
[Corporate Seal]
By_______________________
Title:
Name:
Attest:
______________________________
Title:
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<PAGE>
SECTION 203. Form of Reverse of Security.
---------------------------
This Security is one of a duly authorized issue of Securities of the
Company designated as its ____% Convertible Subordinated Notes due 2006 (herein
called the "Securities"), limited in aggregate principal amount to $200,000,000,
as such amount may be increased, but not by an amount in excess of $30,000,000,
solely as a result of the exercise of the underwriters' over-allotment option
granted by the Company under the underwriting agreement, dated September __,
1996, among the Company, Goldman, Sachs & Co., CS First Boston, Morgan Stanley &
Co. Incorporated, and Salomon Brothers Inc, issued and to be issued under an
Indenture, dated as of September __, 1996 (herein called the "Indenture"),
between the Company and Bankers Trust Company, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The Securities are
issuable in registered form only without coupons in denominations of $1,000 and
any integral multiple thereof.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his option, at any time before the
close of business on _________, ____, or in case this Security or a portion
hereof is called for redemption or the Holder hereof has exercised his right to
require the Company to repurchase this Security or a portion hereof, then in
respect of this Security until and including, but (unless the Company defaults
in making the payment due upon redemption or repurchase, as the case may be) not
after, the close of business on the Redemption Date or Repurchase Date, as the
case may be, to convert this Security (or any portion of the principal amount
hereof that is an integral multiple of $1,000, provided that the unconverted
--------
portion of such principal amount is $1,000 or any integral multiple of $1,000 in
excess thereof) into fully paid and nonassessable shares of Common Stock of the
Company at an initial Conversion Rate of _______ shares of Common Stock for each
$1,000 principal amount of Securities (or at the then current adjusted
Conversion Rate if an adjustment has been made as provided in the Indenture) by
surrender of this Security, duly endorsed or assigned to the Company or in blank
and, in case such surrender shall be made during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date (except if this Security
has been called for redemption on a Redemption Date or is repurchasable on a
Repurchase Date
-22-
<PAGE>
occurring, in either case, during such period and is surrendered for such
conversion during such period (including any Securities or portions thereof
called for redemption on a Redemption Date that is a Regular Record Date or an
Interest Payment Date, as the case may be)), also accompanied by payment in New
York Clearing House or other funds acceptable to the Company of an amount equal
to the interest payable on such Interest Payment Date on the principal amount of
this Security then being converted, and also the conversion notice hereon duly
executed, to the Company at the Corporate Trust Office of the Trustee, or at
such other office or agency of the Company, subject to any laws or regulations
applicable thereto and subject to the right of the Company to terminate the
appointment of any Conversion Agent (as defined below) as may be designated by
it for such purpose in the Borough of Manhattan, The City of New York, or at
such other offices or agencies as the Company may designate (each a "Conversion
Agent"), provided further, that if this Security or portion hereof has been
-------- -------
called for redemption on a Redemption Date or is repurchasable on a Repurchase
Date occurring, in either case, during the period from the close of business on
any Regular Record Date next preceding any Interest Payment Date to the opening
of business on such succeeding Interest Payment Date and is surrendered for
conversion during such period, then the Holder of this Security who converts
this Security or a portion hereof during such period will be entitled to receive
the interest accruing hereon from the Interest Payment Date next preceding the
date of such conversion to such succeeding Interest Payment Date and shall not
be required to pay such interest upon surrender of this Security for conversion.
Subject to the provisions of the preceding sentence and, in the case of a
conversion after the close of business on the Regular Record Date next preceding
any Interest Payment Date and on or before the close of business on such
Interest Payment Date, to the right of the Holder of this Security (or any
Predecessor Security of record as of such Regular Record Date) to receive the
related installment of interest to the extent and under the circumstances
provided in the Indenture, no cash payment or adjustment is to be made on
conversion for interest accrued hereon from the Interest Payment Date next
preceding the day of conversion, or for dividends on the Common Stock issued on
conversion hereof. The Company shall thereafter deliver to the Holder the fixed
number of shares of Common Stock (together with any cash adjustment, as provided
in the Indenture) into which this Security is convertible and such delivery will
be deemed to satisfy the Company's obligation to pay the principal amount of
this Security. No fractions of shares or scrip representing fractions of shares
will be issued on conversion, but instead of any fractional interest (calculated
to the nearest 1/100th of a share) the Company shall pay a cash adjustment as
provided in the Indenture. The Conversion Rate is subject to adjustment as
provided in the Indenture. In addition, the Indenture provides that in the case
of certain consolidations
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<PAGE>
or mergers to which the Company is a party or the conveyance, transfer, sale or
lease of all or substantially all of the property and assets of the Company, the
Indenture shall be amended, without the consent of any Holders of Securities, so
that this Security, if then Outstanding, will be convertible thereafter, during
the period this Security shall be convertible as specified above, only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, transfer, sale or lease by a holder of the
number of shares of Common Stock of the Company into which this Security could
have been converted immediately prior to such consolidation, merger, conveyance,
transfer, sale or lease (assuming such holder of Common Stock is not a
Constituent Person, failed to exercise any rights of election and received per
share the kind and amount received per share by a plurality of Non-electing
Shares). No adjustment in the Conversion Rate will be made until such
adjustment would require an increase or decrease of at least one percent of such
Conversion Rate, provided that any adjustment that would otherwise be made will
be carried forward and taken into account in the computation of any subsequent
adjustment.
The Securities are subject to redemption upon not less than 20 nor
more than 60 days' notice by mail, at any time on or after ___________, 1999, as
a whole or in part, at the election of the Company, at the following Redemption
Prices (expressed as percentages of the principal amount): If redeemed during
the 12-month period beginning ___________ of the years indicated,
Redemption
Year Price
---- ----------
1999 ______%
2000 ______%
2001 ______%
2002 ______%
2003 ______%
2004 ______%
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date; provided,
--------
however, that interest installments whose Stated Maturity is on or prior to such
- -------
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
In the event of redemption, repurchase or conversion of this Security
in part only, a new Security or Securities for the
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<PAGE>
unredeemed, unrepurchased or unconverted portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
In any case where the due date for the payment of the principal of,
premium, if any, or interest on any Security or the last day on which a Holder
of a Security has a right to convert his Security shall be, at any Place of
Payment or Place of Conversion, as the case may be, a day on which banking
institutions at such Place of Payment or Place of Conversion are authorized or
obligated by law or executive order to close, then payment of principal,
premium, if any, or interest, or delivery for conversion of such Security need
not be made on or by such date at such place but may be made on or by the next
succeeding day at such place which is not a day on which banking institutions
are authorized or obligated by law or executive order to close, with the same
force and effect as if made on the date for such payment or the date fixed for
redemption or repurchase, or by such last day for conversion, and no interest
shall accrue on the amount so payable for the period after such date so long as
payment is made on the next succeeding day at such place which is not a day on
which banking institutions are authorized or obligated by law or executive order
to close.
If a Change of Control occurs, the Holder of this Security, at the
Holder's option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that equal to $1,000 or any integral multiple of
$1,000 in excess thereof) for cash at a Repurchase Price equal to 100% of the
principal amount thereof plus interest accrued to the Repurchase Date. At the
option of the Company, the Repurchase Price may be paid in cash or, subject to
the conditions provided in the Indenture, by delivery of shares of Common Stock
having a fair market value equal to the Repurchase Price. For purposes of this
paragraph, the fair market value of shares of Common Stock shall be determined
by the Company and shall be equal to 95% of the average of the Closing Prices
Per Share for the five consecutive Trading Days ending on and including the
third Trading Day immediately preceding the Repurchase Date. Whenever in this
Security there is a reference, in any context, to the principal of any Security
as of any time, such reference shall be deemed to include reference to the
Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Security shall not be
construed as excluding the Repurchase Price so payable in those provisions of
this Security when such express mention is not made; provided, however, that,
-------- -------
for the purposes of the next paragraph, such
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<PAGE>
reference shall be deemed to include reference to the Repurchase Price only to
the extent the Repurchase Price is payable in cash.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security on the respective Stated Maturities expressed herein
(or in the case of redemption or repurchase, on the Redemption Date or
Repurchase Date, as the case may be) or to convert this Security as provided in
the Indenture.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy
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<PAGE>
thereunder, unless such Holder shall have previously given the Trustee written
notice of a continuing Event of Default, the Holders of not less than 25% in
principal amount of the Outstanding Securities shall have made written request
to the Trustee to institute proceedings in respect of such Event of Default as
Trustee and offered the Trustee indemnity satisfactory to it and the Trustee
shall not have received from the Holders of a majority in principal amount of
the Securities Outstanding a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof, premium, if any, or interest hereon on or after the
respective due dates expressed herein or for the enforcement of the right to
convert this Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for that purpose pursuant to
Section 1002, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee, and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
ABBREVIATIONS
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<PAGE>
The following abbreviations, when used in the inscription of the face of
this Security, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT--______________
TEN ENT - as tenants by the entireties (Cust)
JT TEN - as joint tenants with right Custodian _____________ under Uniform
of survivorship and not as (Minor)
tenants in common Gifts to Minors Act ________________
(State)
Additional abbreviations may also be used
though not in the above list.
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<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 1401 of the Indenture, the
undersigned hereby elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company
to pay it or __________________ an amount in cash or, at the Company's election,
Common Stock valued as set forth in the Indenture, equal to 100% of the
principal amount to be repurchased (as set forth below), plus interest accrued
to the Repurchase Date, as provided in the Indenture.
Dated:
______________________________
______________________________
Signature(s)
Signature(s) must be guaranteed by an Eligible Guarantor
Institution with membership in an approved signature
guarantee program pursuant to Rule 17Ad-15 under the
Securities Exchange Act of 1934.
______________________________
Signature Guaranteed
Principal amount to be repurchased
(an integral multiple of $1,000): __________________________
Remaining principal amount following such repurchase: ____________________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
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<PAGE>
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
This is one of the Securities referred to in the within-mentioned
Indenture.
Bankers Trust Company,
as Trustee
By ____________________
Authorized Signatory
SECTION 205. Form of Conversion Notice.
-------------------------
The undersigned Holder of this Security hereby irrevocably exercises
the option to convert this Security, or any portion of the principal amount
hereof (which is an integral multiple of $1,000, provided that the unconverted
portion of such principal amount is $1,000 or any integral multiple of $1,000 in
excess thereof) below designated, into shares of Common Stock in accordance with
the terms of the Indenture referred to in this Security, and directs that such
shares, together with a check in payment for any fractional share and any
Securities representing any unconverted principal amount hereof, be delivered to
and be registered in the name of the undersigned unless a different name has
been indicated below. If shares of Common Stock or Securities are to be
registered in the name of a Person other than the undersigned, (a) the
undersigned will pay all transfer taxes payable with respect thereto and
(b) signature(s) must be guaranteed by an Eligible Guarantor Institution with
membership in an approved signature guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934. Any amount required to be paid by
the undersigned on account of interest accompanies this Security.
Dated:________________________ _______________________________
Fill in for registration of _______________________________
shares of Common Stock if to Signature(s)
be issued, and Securities if
to be delivered, other than
to and in the name of the
registered holder:
______________________________
(Name)
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<PAGE>
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $200,000,000, as
such amount may be increased, but not by an amount in excess of $30,000,000,
solely as a result of the purchase of additional Securities (referred to in the
Underwriting Agreement as "Additional Securities") pursuant exercise of the
underwriters' over-allotment option granted by the Company under the
underwriting agreement, dated September __, 1996 (the "Underwriting Agreement"),
among the Company, Goldman, Sachs & Co., CS First Boston, Morgan Stanley & Co.
Incorporated, and Salomon Brothers Inc (collectively, the "Underwriters"),
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906, 1108, 1302 or 1403(e).
The Securities shall be known and designated as the "____% Convertible
Subordinated Notes due 2006" of the Company. Their Stated Maturity shall be
September __, 2006, and they shall bear interest at the rate of _______% per
annum, from September __, 1996 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, as the case may be, payable
semi-annually in arrears on _________ and __________ in each year, commencing
_________, 1997, until the principal thereof is paid or made available for
payment, and, to the fullest extent permitted by law, at the rate of ____% per
annum on any overdue principal and on any overdue installment of interest.
Upon receipt by the Trustee of an Officers' Certificate stating that
the Underwriters have elected to purchase from the Company a specified aggregate
principal amount of Additional Securities not to exceed a total of $30,000,000
for all such elections in accordance with this paragraph pursuant to the
Underwriting Agreement, the Trustee shall authenticate and make available for
delivery such specified aggregate principal amount of such Additional Securities
to or upon a Company Request, and such specified aggregate principal amount of
such Additional Securities shall be considered part of the original aggregate
principal amount of the Securities.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose pursuant to Section 1002; provided, however, that at the option of the
-------- -------
Company payment of interest may be made by check mailed to the address of the
Person
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<PAGE>
entitled thereto as such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article Eleven.
The Securities are not entitled to the benefit of any sinking fund.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve.
The Securities shall be convertible as provided in Article Thirteen.
The Securities shall be subject to repurchase at the option of the
Holders upon a Change of Control as provided in Article Fourteen.
SECTION 302. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President, or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
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<PAGE>
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
For purposes of this Section 304, each Global Security shall be
considered a definitive Security.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
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registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1108, 1302 or 1403(e) not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
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<PAGE>
The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global
Security or a nominee thereof and delivered to such Depositary or a nominee
thereof or Custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered,
in the name of any Person other than the Depositary for such Global
Security or a nominee thereof unless (A) such Depositary (i) has notified
the Company that it is unwilling or unable to continue as Depositary for
such Global Security or (ii) has ceased to be a clearing agency registered
under the Exchange Act, or (B) there shall have occurred and be continuing
an Event of Default with respect to such Global Security.
(3) Subject to Clause (2) above, any exchange of a Global Security
for other Securities may be made in whole or in part, and all Securities
issued in exchange for a Global Security or any portion thereof shall be
registered in such names as the Depositary for such Global Security shall
direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Article Three or otherwise, shall
be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other
than the Depositary for such Global Security or a nominee thereof.
(5) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes
under the Indenture and the Securities, and owners of beneficial interests
in a Global Security shall hold such interests pursuant to the Applicable
Procedures. Accordingly, any such owner's beneficial interest in a Global
Security will be shown only on, and the transfer of such interest shall be
effected only through, records maintained by the Depositary or its nominee
or its Agent Members and such owners of beneficial interests in a Global
Security will not be considered the owners or holders thereof.
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<PAGE>
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any
Security and (ii) such security or indemnity as may be satisfactory to them to
save each of them and any agent of either of them harmless, then, in the absence
of notice to the Company or the Trustee that such Security has been acquired by
a bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
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<PAGE>
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix
a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to
each Holder at his address as it appears in the Security Register, not
less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to
the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice
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<PAGE>
as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted in accordance with
Section 1302 after any Regular Record Date and on or prior to the next
succeeding Interest Payment Date (other than a Security whose Maturity is prior
to such Interest Payment Date), interest whose Stated Maturity is on such
Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest (whether or not punctually
paid or duly provided for) shall be paid to the Person in whose name such
Security (or one or more Predecessor Securities) is registered at the close of
business on such Regular Record Date. Except as otherwise expressly provided in
the immediately preceding sentence or in Section 1302, in the case of any
Security which is converted, interest whose Stated Maturity is after the date of
conversion of such Security shall not be payable.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in
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<PAGE>
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of in accordance with the Trustee's normal procedures.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, or registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore
authenticated and delivered (other than
(i) Securities which have been
destroyed, lost or stolen and which have
been replaced or paid as provided in
Section 306 and (ii) Securities for
whose payment money has theretofore been
deposited in trust or segregated and
held in trust by the Company and
thereafter repaid to the Company or
discharged from such trust, as provided
in Section 1003) have been delivered to
the Trustee for cancellation; or
(B) all such Securities not
theretofore delivered to the Trustee for
cancellation
(i) have become due and
payable, or
(ii) will become due and payable
at their Stated Maturity within one
year, or
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<PAGE>
(iii) are to be called for
redemption within one year under
arrangements satisfactory to the
Trustee for the giving of notice of
redemption by the Trustee in the
name, and at the expense, of the
Company,
and the Company, in the case of (i),
(ii) or (iii) above, has deposited or
caused to be deposited with the Trustee
as trust funds in trust for the purpose
an amount sufficient to pay and
discharge the entire indebtedness on
such Securities not theretofore
delivered to the Trustee for
cancellation, for principal (and
premium, if any) and interest to the
date of such deposit (in the case of
Securities which have become due and
payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to
be paid all other sums payable hereunder by
the Company; and
(3) the Company has delivered to the
Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all
conditions precedent herein provided for
relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive. Funds held in trust pursuant to this
Section are not subject to the provisions of Article Twelve.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the
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<PAGE>
Company acting as its own Paying Agent) as the Trustee may determine, to the
Persons entitled thereto, of the principal (and premium, if any) and interest
for whose payment such money has been deposited with the Trustee. All moneys
deposited with the Trustee pursuant to Section 401 (and held by it or any Paying
Agent) for the payment of Securities subsequently converted shall be returned to
the Company upon Company Request.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal and interest that remains
unclaimed for two years. After payment to the Company, any Holder of Securities
entitled to money must look to the Company for payment of general creditors
unless an applicable abandoned property law designates another person.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Twelve or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of the principal or Redemption Price
of any Security at its Maturity whether or not such payment is
prohibited pursuant to Article Thirteen; or
(2) default in the payment of any interest upon any Security
when it becomes due and payable whether or not such payment is
prohibited pursuant to Article Thirteen, and continuance of such
default for a period of 30 days; or
(3) failure by the Company to give the Company Notice in accordance
with Section 1403; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given,
by registered or certified mail,
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<PAGE>
to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the
Outstanding Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is
a "Notice of Default" hereunder; or
(5) a default under any indebtedness of Saks for money borrowed
or under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by Saks in an aggregate outstanding
principal amount then outstanding in excess of $5,000,000, whether
such indebtedness now exists or shall hereafter be created, such
indebtedness is not paid at final maturity (either upon its stated
maturity or acceleration thereof) and such default in payment or
acceleration has not been cured or rescinded, within a period of 30
days after there shall have been given, by registered or certified
mail, to Saks by the Trustee or to Saks and the Trustee by the Holders
of at least 25% in aggregate principal amount of the Outstanding
Securities, a written notice specifying such default and requiring
Saks to cause such indebtedness to be discharged or cause such default
to be cured or waived or such acceleration to be rescinded or annulled
and stating that such notice is a "Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of Saks in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or
order adjudging Saks a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of Saks under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of Saks or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days; or
(7) the commencement by Saks of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent by it to the
entry of a decree or order for relief in respect of Saks
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in an involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by Saks to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of Saks or of any substantial part
of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
the Saks in furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(1),(2),(6) or 501(7)) occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Securities may declare the principal of all the Securities to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal and
all accrued interest thereon shall become immediately due and payable. If an
Event of Default specified in Section 502(1) or (2) occurs and is continuing,
the Holder of any Outstanding Security may, by notice in writing to the Company
(with a copy to the Trustee), declare the principal of such Security to be due
and payable immediately, and upon any such declaration such principal and
(subject to Section 307) any accrued interest thereon shall become immediately
due and payable. If an Event of Default specified in Section 501(6) or 501(7)
occurs and is continuing, the principal of and any accrued interest thereon, all
Outstanding Securities shall ipso facto become due and payable without any
---- -----
declaration or other Act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article Five provided, the Holders of a
majority in principal amount of the Outstanding Securities, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at a rate of [ ]% per annum, and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the nonpayment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission or annulment referred to above shall affect any subsequent
default or Event of Default or impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
---------------------------------------------------------------
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal
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(and premium, if any) and on any overdue interest, at a rate of [ ]% per
annum, and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or the
creditors of either, the Trustee (irrespective of whether the principal of, and
any interest on, the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue principal
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(1) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Securities
and take such other actions, including participating as a member, voting or
otherwise, of any official committee of creditors appointed in such matter,
and to file such other papers or documents, in each of the foregoing cases,
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of
the Holders of Securities allowed in such judicial proceeding, and
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(2) to collect and receive any moneys or other property payable or
deliverable on any such claim and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder of a Security in any such proceeding;
provided, however, that the Trustee may, on behalf of such Holders, vote for the
- -------- -------
election of a trustee in bankruptcy or similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
-----------------------------------------------------------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article Five shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal (or premium, if any) or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
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FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any
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right under this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
----------------------------------------------------------------
Interest and to Convert.
-----------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption or repurchase, on the
Redemption Date or Repurchase Date, as the case may be) and to convert such
Security in accordance with Article Thirteen and to institute suit for the
enforcement of any such payment and right to convert, and such rights shall not
be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
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SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article Five or
by law to the Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
SECTION 512. Control by Holders.
------------------
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
--------
(1) such direction shall not be in conflict with any rule of law
or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
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SECTION 514. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that the provisions of this Section 514 (to the extent
--------
permitted by law) shall not apply to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than ten (10) percent in principal amount of Outstanding Securities, or to
any suit instituted by any Holder of any Security for the enforcement of the
payment of the principal of, premium, if any, or interest on any Security or to
any suit for the enforcement of the right to convert any Security in accordance
with the provisions of Article Thirteen or to require the Company to repurchase
any Security in accordance with the provisions of Article Fourteen.
SECTION 515. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, usury or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default,
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(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of the Indenture; but in the
case of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform
to the requirements of this Indenture.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or indemnity satisfactory to it against such
risk or liability is not assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
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SECTION 602. Notice of Defaults.
------------------
Within 90 days after the occurrence of any default hereunder as to
which the Trustee has received written notice, the Trustee shall give to all
Holders of Securities, in the manner provided in Section 106, notice of such
default, unless such default shall have been cured or waived; provided, however,
-------- -------
that in the case of any default of the character specified in Section 501(4), no
such notice to Holders of Securities shall be given until at least 30 days after
the occurrence of such default. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
other certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior
to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, conclusively rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the
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Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney during reasonable business hours and after reasonable notice;
and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
-------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
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SECTION 606. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company in writing.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and its directors, officers,
employees and agents for, and to hold them harmless against, any loss,
liability or expense incurred without negligence or bad faith on their
part, arising out of or in connection with the acceptance or admin-
istration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
To secure the Company's payment obligations under this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee including, without limitation, all money or property
held or collected by the Trustee in trust to pay the principal of, or interest
on, or any other amounts on any Securities, and such lien shall survive the
satisfaction and discharge of the Indenture and any other termination of the
Indenture including any termination under any bankruptcy law. When the Trustee
incurs expenses or renders services in connection with an Event of Default
specified in Sections 501(6) or (7), the Holders by their acceptance of the
Securities hereby agree that such expenses and the compensation for
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such services are intended to constitute expenses of administration under
Title 11 of the United States Code or any other applicable Federal or state
bankruptcy, insolvency or similar law. "Trustee" for purposes of this
Section 607 shall include any predecessor Trustee, but the negligence or bad
faith of any Trustee shall not affect the indemnification of any other Trustee.
SECTION 608. Disqualification; Conflicting Interests.
---------------------------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such,
having a combined capital and surplus of at least $50,000,000 subject to
supervision or examination by federal or state authority, in good standing and
having an established place of business in the Borough of Manhattan, The City of
New York. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section 609, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article and a successor shall be appointed
pursuant to Section 610.
SECTION 610. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor
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Trustee to all Holders in the manner provided in Section 106. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
(g) No retiring Trustee shall be liable for the acts or omissions of
any successor Trustee hereunder.
(h) All fees, charges and expenses of the retiring Trustee shall
become immediately due and payable upon the appointment of a successor Trustee
hereunder.
SECTION 611. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the suc-
cessor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee (including the trust created by this Indenture), shall be the
successor of the Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
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authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
-----------------------------------
The Trustee may appoint an Authenticating Agent or Agents reasonably
acceptable to the Company which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon exchange,
registration of transfer, partial conversion or partial redemption or pursuant
to Section 306, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by federal or state authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any
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corporation succeeding to the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent, provided
such corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
An Authenticating Agent hereunder shall be entitled to all of the
rights, protections and immunities of the Trustee hereunder.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
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This is one of the Securities described in the within-mentioned
Indenture.
Bankers Trust Company,
As Trustee
By [Authenticating Agent]
as Authenticating Agent
By: ________________________
Authorized Signatory
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
---------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular
Record Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
provided that such list need not be furnished by the Company so long as the
- --------
Trustee is acting as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as
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provided in Section 701 and the names and addresses of Holders received by the
Trustee in its capacity as Security Registrar. The Trustee may destroy any list
furnished to it as provided in Section 701 upon receipt of a new list so
furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder, by receiving and holding the Securities, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 703. Reports by Trustee.
------------------
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 704. Reports by Company.
------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
--------
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be
filed with the Trustee within 15 days after the same is so required to be filed
with the Commission.
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ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company (a) shall not consolidate with or merge into any other
Person or, directly or indirectly, convey, transfer, sell, lease or otherwise
dispose of its properties and assets substantially as an entirety to any Person,
and (b) shall not permit any Person to consolidate or merge with or into the
Company or convey, transfer, sell, lease or otherwise dispose of such Person's
properties and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer, sell, lease or otherwise dispose
of its properties and assets substantially as an entirety to any
Person, the Person formed by such consolidation or into or with which
the Company is merged or the Person which acquires by conveyance,
transfer or sale, or which leases or otherwise acquires, the
properties and assets of the Company substantially as an entirety
shall be a corporation, limited liability company, partnership or
trust, shall be organized and validly existing under the laws of the
United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the
performance or observance of every covenant of this Indenture on the
part of the Company to be performed or observed and shall have
provided for conversion rights in accordance with Article Thirteen;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes due an obligation of the
Company at the time of such transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become an
Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such
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<PAGE>
supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation or merger of the Company with or into any other
Person, or any conveyance, transfer, sale or lease of the properties and assets
of the Company substantially as an entirety in accordance with Section 801, the
successor Person formed by such consolidation or merger or into or with which
the Company is merged or to which such conveyance, transfer, sale or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants and
obligations of the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1311 or the repurchase
obligations of the Company pursuant to the requirements of
Section 1405; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other
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provision herein, or to make any other provisions with respect to matters
or questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture, provided that such action pursuant
--------
to this Clause (5) shall not adversely affect the interests of the Holders
in any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the written consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by the Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
- -------- -------
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or the amounts payable
upon the redemption or repurchase thereof, or change the place of
payment where, or the place or currency in which, any Security or any
premium or interest thereon or any other amount in respect thereof is
payable, or impair the right to institute suit for the enforcement of
any payment in respect of any Security on or after the Stated Maturity
thereof (or, in the case of redemption or any repurchase, on or after
the Redemption Date or Repurchase Date, as the case may be), or,
except as provided by Section 1311, adversely affect the right to
convert any Security as provided in Article Thirteen, or modify the
provisions of this Indenture with respect to the subordination of the
Securities in a manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the Outstanding
Securities the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture,
or
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(3) modify the obligation of the Company to maintain an office or
agency in the Borough of Manhattan, The City of New York pursuant to
Section 1002, or
(4) modify any of the provisions of this Section, Section 513 or
Section 1009, except to increase any percentage contained herein or therein
or to provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each Outstanding
Security affected thereby; or
(5) modify the provisions of Article Twelve, Article Thirteen or
Article Fourteen in a manner adverse to the Holders.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture and an Officers'
Certificate stating that all conditions precedent to the execution of such
supplemental indenture have been fulfilled. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
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<PAGE>
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act, as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Trustee
shall give notice to all Holders of Securities of such fact, setting forth in
general terms the substance of such supplemental indenture, in the manner
provided in Section 106. Any failure of the Trustee to give such notice, or any
defect therein, shall not in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
------------------------------------------
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company hereby appoints Bankers Trust Company, as its agent in The
City of New York where Securities may be presented or surrendered for payment,
where Securities may be surrendered for registration of transfer or exchange,
where conversion notices, certificates and other items required to be delivered
to effect conversion may be delivered and where notices and demands to or
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upon the Company in respect of the Securities and this Indenture may be served.
The Company hereby also appoints the Corporate Trust Office of the Trustee
as Paying Agent for the payment of principal of and interest on the Securities
and as Conversion Agent for the Conversion of any of the Securities in
accordance with Article Thirteen, and appoints the Corporate Trust Office of the
Trustee as transfer agent where Securities may be surrendered for registration
of transfer or exchange.
The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents with or without
cause for any or all of such purposes; provided, however, that until all of the
-------- -------
Securities have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of and interest on the Securities have been made
available for payment and either paid or returned to the Company pursuant to the
provisions of Section 1003, the Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where Securities may be surrendered for
conversion and where notices and demands to or upon the Company, in respect of
the Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee, and the Trustee will give notice to Holders of
Securities in the manner specified in Section 106, of the appointment or
termination of any such agents and of the location and any change in the
location of any such office or agency.
If at any time the Company shall fail to maintain any such required office
or agency, or shall fail to furnish the Trustee with the address thereof, pre-
sentations and surrenders may be made and notices and demands may be served on
and Securities may be surrendered for conversion to the Corporate Trust Office
of the Trustee, and the Company hereby appoints the same as its agent to receive
such respective presentations, surrenders, notices and demands.
SECTION 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall act as its own Paying Agent, it will, on or
before each due date of the principal of, premium, if any, or interest on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and the Company will promptly notify
the Trustee of its action or failure so to act.
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<PAGE>
Whenever the Company shall have one or more Paying Agents, it will, on
or prior to 10:00 a.m. on each due date of the principal of, premium, if any, or
interest on any Securities, deposit with such Paying Agent(s) a sum in
immediately available funds on the payment date sufficient to pay the principal,
premium, if any, or interest so becoming due, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal, premium, if any, or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
-------- -------
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper in the
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English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
-----------------------------------
The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, an Officers' Certificate stating whether
or not to the best knowledge of the signers thereof the Company is in compliance
on such date with all conditions and covenants under the Indenture (without
regard to any period of grace or requirement of notice provided hereunder).
The Company will deliver to the Trustee, forthwith upon becoming aware
of any default or Event of Default under this Indenture, an Officers'
Certificate specifying with particularity such default or Event of Default and
further stating what action the Company has taken, is taking or proposes to take
with respect thereto. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.
Any notice required to be given under this Section 1004 shall be
delivered to the Trustee at its Corporate Trust Office.
SECTION 1005. Existence.
---------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
-------- -------
Company shall not be required to preserve any such right or franchise if the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and
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improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
-------- -------
Section shall prevent the Company from discontinuing the operation or
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 1007. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, (2) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or any Subsidiary; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1008. Book-Entry System.
-----------------
If the Securities cease to trade in DTC's book-entry settlement
system, the Company covenants and agrees that it shall use reasonable efforts to
make such other book-entry arrangements that it determines are reasonable for
the Securities.
SECTION 1009. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 1006 and 1007, inclusive, if before
the time for such compliance the Holders of not less than a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
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ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption.
-------------------
The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time on or after _________, 1999, at
the Redemption Prices specified in the form of Security hereinbefore set forth,
together with accrued interest to the Redemption Date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company, as permitted
or required by any provision of this Indenture, shall be made in accordance with
such provision and this Article Eleven.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 20 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities to be redeemed.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 30 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Trustee as Outstanding for the purpose of such selection.
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The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 20 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at such Holder's address
appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and accrued interest, if any,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption
of any Securities, the principal amounts) of the particular Securities
to be redeemed,
(4) that on the Redemption Date the Redemption Price and accrued
interest, if any, will become due and payable upon each such Security
to be redeemed and that interest thereon will cease to accrue on and
after said date,
(5) the Conversion Rate, the date on which the right to convert
the Securities to be redeemed will terminate and the place or places
where such Securities may be surrendered for conversion, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written request,
by the Trustee in the name and at the
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expense of the Company, and such notice, when given to the Holders, shall be
irrevocable.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Not less than one Business Day prior to any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money (which shall be in immediately
available funds on such Redemption Date) sufficient to pay the Redemption Price
of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Securities which are to be redeemed on that date
other than any Securities called for redemption on that date which have been
converted prior to the date of such deposit.
If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price, including accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
-------- -------
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at a rate of [ ]% per
annum.
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SECTION 1108. Securities Redeemed in Part.
---------------------------
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Securities Subordinate to Senior Indebtedness.
---------------------------------------------
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article Twelve (subject to the
provisions of Article Four), the indebtedness represented by the Securities and
the payment of the principal of (and premium, if any) and interest on each and
all of the Securities are hereby expressly made subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness. Whenever in
this Article Twelve there is a reference, in any context, to the principal of
any Security as of any time, such reference shall be deemed to include reference
to the Repurchase Price payable in cash or Redemption Price in respect of such
Security to the extent that such Repurchase Price payable in cash or Redemption
Price is, was or would be so payable at such time, and express mention of the
Repurchase Price and the Redemption Price in any provision of this Article
Twelve shall not be construed as excluding the Repurchase Price payable in cash
or Redemption Price in those provisions of this Article Twelve when such express
mention is not made.
SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc.
-----------------------------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not
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involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of the Company,
then and in any such event the holders of Senior Indebtedness shall be entitled
to receive payment in full of all amounts due or to become due on or in respect
of all Senior Indebtedness in cash or other immediately available funds, or pro-
vision shall be made for such payment in cash or other immediately available
funds or otherwise in a manner satisfactory to each holder of Senior
Indebtedness with respect to its indebtedness, before the Holders of the
Securities are entitled to receive any payment on account of principal of (or
premium, if any) or interest on the Securities, and to that end the holders of
Senior Indebtedness shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, which may be payable or deliverable in respect of the
Securities in any such case, proceeding, dissolution, liquidation or other
winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Indebtedness is
paid in full or payment thereof provided for, and if such fact shall, at or
prior to the time of such payment or distribution, have been made known to the
Trustee or, as the case may be, such Holder, then and in such event such payment
or distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "cash, securities or
other property" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment which shares of stock
are subordinated in right of payment to all then outstanding Senior Indebtedness
to substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article Twelve. The consolidation of
the Company with, or the merger of the Company into, another Person or the
liquidation or dissolution of the Company following the conveyance or transfer
of its properties and assets substantially as an entirety to another Person upon
the terms and conditions set forth in Article Eight shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for the benefit
of creditors or marshalling of assets and liabilities of the Company for the
purposes of
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this Section if the Person formed by such consolidation or into which the
Company is merged or which acquires by conveyance or transfer such properties
and assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance or transfer, comply with the conditions
set forth in Article Eight.
SECTION 1203. Prior Payment to Senior Indebtedness Upon Acceleration of
---------------------------------------------------------
Securities.
----------
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of the Senior
Indebtedness outstanding at the time such Securities so become due and payable
shall be entitled to receive payment in full of all amounts due or to become due
on or in respect of such Senior Indebtedness, or provision shall be made for
such payment in money or money's worth, before the Holders of the Securities are
entitled to receive any payment by the Company on account of the principal of
(or premium, if any) or interest on the Securities or on account of the purchase
or other acquisition of Securities.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1204. No Payment When Senior Indebtedness in Default.
----------------------------------------------
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on (including a default
under any redemption or repurchase obligation with respect to) any Senior
Indebtedness beyond any applicable grace period with respect thereto or in the
event that any other event of default with respect to any Senior Indebtedness
shall have occurred and be continuing which would then permit the holders of
such Senior Indebtedness to declare such Senior Indebtedness due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist after written notice to the Company and the Trustee by any
holder of such Senior Indebtedness, or (b) in the event any judicial proceeding
shall be pending with respect to any such
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default in payment or event of default, then no payment shall be made by the
Company on account of principal of (or premium, if any) or interest on the
Securities or on account of the purchase, redemption or other acquisition of
Securities.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company, in the case of the Trustee, or the Trustee,
in the case of such Holder.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1205. Payment Permitted If No Default.
-------------------------------
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other winding
up, assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 1202, or under the conditions
described in Sections 1203 and 1204, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any) or interest
on the Securities or the retention of such payment by the Holders, if, at the
time of such application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article.
SECTION 1206. Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness pursuant to the
provisions of this Article to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or
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the Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among
the Company, its creditors other than holders of Senior Indebtedness and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
SECTION 1207. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of (and premium, if any) and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
SECTION 1208. Trustee to Effectuate Subordination.
-----------------------------------
Each holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1209. No Waiver of Subordination Provisions.
-------------------------------------
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder of any Senior
Indebtedness, or by any non-compliance by the Company with the terms, provisions
and covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
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<PAGE>
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew,
increase or alter, Senior Indebtedness, or otherwise amend or supplement in any
manner Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (iii) release any Person liable in any manner for
the collection of Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 1210. Notice to Trustee.
-----------------
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee therefor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 601, shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have received
-------- -------
the notice provided for in this Section at least two Business Days prior to the
date upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (and premium, if
any) or interest on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within two Business Days prior to such date.
Notwithstanding anything in this Article Twelve to the contrary,
nothing shall prevent any payment by the Trustee to the Holders of monies
deposited with it pursuant to Section 401, and any such payment shall not be
subject to the provisions of Sections 1202, 1203 or 1204.
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Subject to the provisions of Section 601, the Trustee shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities shall be entitled to conclusively rely upon any order
or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 1212. Trustee Not Fiduciary for Holders of Senior Indebtedness.
--------------------------------------------------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Securities
or to the Company or to any other Person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
or otherwise.
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SECTION 1213. Rights of Trustee as Holder of Senior Indebtedness; Preservation
----------------------------------------------------------------
of Trustee's Rights.
-------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1214. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
--------
however, that Section 1213 shall not apply to the Company or any Affiliate of
- -------
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1215. Certain Conversions Deemed Payment.
----------------------------------
For the purposes of this Article only, (1) the issuance and delivery
of junior securities upon conversion of Securities in accordance with Article
Thirteen or upon the repurchase of Securities in accordance with Article
Fourteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash, property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of the
principal of such Security. For the purposes of this Section, the term "junior
securities" means (a) shares of any stock of any class of the Company and any
cash, securities or other property into which the Securities are convertible
pursuant to Article Thirteen and (b) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is intended to or
shall impair, as among the Company, its creditors other than
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holders of Senior Indebtedness and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article Thirteen or to exchange such Security
for Common Stock in accordance with Article Fourteen if the Company elects to
satisfy its obligation under Article Fourteen by the delivery of Common Stock.
SECTION 1216. Amendment of Subordination Provisions.
-------------------------------------
The Company agrees that so long, and only for so long, as any Committment
(as defined in the Amended and Restated Credit Agreement) shall remain
outstanding under the Amended and Restated Credit Agreement or any amounts owed
pursuant to the loans made pursuant thereto shall remain unpaid, the Company
shall not amend the provisions of this Article XII or the definition of "Senior
Indebtedness" hereunder in a manner that materially and adversely affects the
Banks without the express written consent of the Administrative Agent.
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Privilege and Conversion Rate.
----------------------------------------
Subject to and upon compliance with the provisions of this Article
Thirteen, at the option of the Holder thereof, any Security may be converted at
any time into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock of the Company at
the Conversion Rate, determined as hereinafter provided, in effect at the time
of conversion. Such conversion right shall expire at the close of business on
__________, ____, subject, in the case of conversion of any Global Security, to
any Applicable Procedures. In case a Security or portion thereof is called for
redemption at the election of the Company or the Holder thereof exercises his
right to require the Company to repurchase a Security or portion thereof, such
conversion right in respect of such Security, shall expire (a) at the close of
business on the Redemption Date, in the case of a Security called for
redemption, and (b) at the close of business on the Repurchase Date, in the case
of a Security tendered for repurchase, in each case unless the Company defaults
in making the payment due upon redemption or repurchase, as the case may be, and
in each case subject as aforesaid to any Applicable Procedures with respect to
any Global Security.
The rate at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Rate") shall be initially __________
shares of Common Stock for each $1,000 principal amount of Securities. The
Conversion Rate shall
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be adjusted in certain instances as provided in this Article Thirteen.
SECTION 1302. Exercise of Conversion Privilege.
--------------------------------
In order to exercise the conversion privilege, the Holder of any
Security to be converted shall surrender such Security, duly endorsed or
assigned to the Company or in blank, at any office or agency of the Company
maintained for that purpose pursuant to Section 1002 (any city in which any
Conversion Agent is located being called herein a "Place of Conversion"),
accompanied by a duly signed conversion notice substantially in the form set
forth in Section 205 stating that the Holder elects to convert such Security or,
if less than the entire principal amount thereof is to be converted, the portion
thereof to be converted. Each Security surrendered for conversion (in whole or
in part) during the period from the close of business on any Regular Record Date
next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date shall (except in the case of any Security or portion
thereof which has been called for redemption on a Redemption Date, or which is
repurchasable on a Repurchase Date, occurring, in either case, within such
period) be accompanied by payment in New York Clearing House funds or other
funds acceptable to the Company of an amount equal to the interest payable on
such Interest Payment Date on the principal amount of such Security (or part
thereof, as the case may be) being surrendered for conversion. The interest so
payable on such Interest Payment Date with respect to any Security (or portion
thereof, if applicable) which has been called for redemption on a Redemption
Date, or is repurchasable on a Repurchase Date, occurring, in either case,
during the period from the close of business on any Regular Record Date next
preceding any Interest Payment Date to the opening of business on such Interest
Payment Date, which Security (or portion thereof, if applicable) is surrendered
for conversion during such period, shall be paid to the Holder of such Security
being converted in an amount equal to the interest that would have been payable
on such Security if such Security had been converted as of the close of business
on such Interest Payment Date. The interest so payable on such Interest Payment
Date in respect of any Security (or portion thereof, as the case may be) which
has not been called for redemption on a Redemption Date, or is not eligible for
repurchase on a Repurchase Date, occurring, in either case, during the period
from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date,
which Security (or portion thereof, as the case may be) is surrendered for
conversion during such period, shall be paid to the Holder of such Security as
of such Regular Record Date. Interest payable in respect of any Security
surrendered for conversion on or after an Interest Payment Date shall be paid to
the Holder of such Security as of the next
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preceding Regular Record Date, notwithstanding the exercise of the right of
conversion. Except as provided in this paragraph and subject to the last
paragraph of Section 307, no cash payment or adjustment shall be made upon any
conversion on account of any interest accrued from the Interest Payment Date
next preceding the conversion date, in respect of any Security (or part thereof,
as the case may be) surrendered for conversion, or on account of any dividends
on the Common Stock issued upon conversion. The Company's delivery to the
Holder of the number of shares of Common Stock (and cash in lieu of fractions
thereof, as provided in this Indenture) into which a Security is convertible
will be deemed to satisfy the Company's obligation to pay the principal amount
of the Security.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and deliver to the Trustee, for delivery to the Holder, a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 1303.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. A Security
may be converted in part, but only if the principal amount of such Security to
be converted is any integral multiple of $1,000 and the principal amount of such
security to remain Outstanding after such conversion is equal to $1,000 or any
integral multiple of $1,000 in excess thereof.
SECTION 1303. Fractions of Shares.
-------------------
No fractional shares of Common Stock shall be issued upon conversion
of any Security or Securities. If more than one Security shall be surrendered
for conversion at one time by the same Holder, the number of full shares which
shall be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Security
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or Securities (or specified portions thereof), the Company shall calculate and
pay a cash adjustment in respect of such fraction (calculated to the nearest
1/100th of a share) in an amount equal to the same fraction of the Closing Price
Per Share at the close of business on the day of conversion.
SECTION 1304. Adjustment of Conversion Rate.
-----------------------------
The Conversion Rate shall be subject to adjustments from time to time
as follows:
(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in shares of
Common Stock, the Conversion Rate in effect at the opening of business on the
day following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the opening of
business on the day following the date fixed for such determination. For the
purposes of this paragraph (1), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury of the
Company.
(2) In case the Company shall issue rights, options or warrants to
all holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the current market price
per share (determined as provided in paragraph (8) of this Section 1304) of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants, the Conversion Rate in effect at the
opening of business on the day following the date fixed for such determination
shall be increased by dividing such Conversion Rate by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number of shares
of Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so
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offered for subscription or purchase would purchase at such current market price
and the denominator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus the number
of shares of Common Stock so offered for subscription or purchase, such increase
to become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
paragraph (2), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company will not issue any rights, options or
warrants in respect of shares of Common Stock held in the treasury of the
Company.
(3) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
(4) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock evidences of its indebtedness, shares of any
class of capital stock, or other property (including securities, but excluding
(i) any rights, options or warrants referred to in paragraph (2) of this
Section, (ii) any dividend or distribution paid exclusively in cash, (iii) any
dividend or distribution referred to in paragraph (1) of this Section and (iv)
any merger or consolidation to which Section 1411 applies), the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by dividing
the Conversion Rate in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the current market
price per share (determined as provided in paragraph (8) of this Section 1304)
of the Common Stock on the date fixed for such determination (the "Reference
Date") less the then fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board Resolution
filed with the Trustee) on the Reference Date of the portion of the assets,
shares or evidences of indebtedness so distributed applicable to one share of
Common Stock and the denominator shall be the current market price per share of
the Common Stock on the Reference Date, such adjustment to become effective
immediately prior to the opening of business on the day following the Reference
Date.
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(5) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed as
part of a distribution referred to in paragraph (4) of this Section) in an
aggregate amount that, combined together with (I) the aggregate amount of any
other cash distributions to all holders of its Common Stock made exclusively in
cash within the 12 months preceding the date of payment of such distribution and
in respect of which no adjustment pursuant to this paragraph (5) has been made
and (II) the aggregate of any cash plus the fair market value (as determined by
the Board of Directors, whose determination shall be conclusive and described in
a Board Resolution) of consideration payable in respect of any tender offer by
the Company or any of its subsidiaries for all or any portion of the Common
Stock concluded within the 12 months preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to paragraph (6) of
this Section 1304 has been made (the "combined cash and tender amount"), exceeds
10% of the product of the current market price per share (determined as provided
in paragraph (8) of this Section 1304) of the Common Stock on the date for the
determination of holders of shares of Common Stock entitled to receive such
distribution times the number of shares of Common Stock outstanding on such date
(the "aggregate current market price"), then, and in each such case, immediately
after the close of business on such date for determination, the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by dividing
the Conversion Rate in effect immediately prior to the close of business on the
date fixed for determination of the stockholders entitled to receive such
distribution by a fraction (i) the numerator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section) of the Common Stock on the date fixed for such determination less an
amount equal to the quotient of (x) the excess of such combined cash and tender
amount over 10% of such aggregate current market price divided by (y) the number
of shares of Common Stock outstanding on such date for determination and (ii)
the denominator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 1304) of the Common
Stock on such date for determination.
(6) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall expire and such tender offer or
exchange (as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the terms
of the tender offer) of Purchased Shares (as defined below)) of an aggregate
consideration having a fair market value (as determined by the Board of
Directors, whose determination shall be conclusive
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and described in a Board Resolution) that combined together with (I) the
aggregate of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer by the
Company or any Subsidiary for all or any portion of the Common Stock expiring
within the 12 months preceding the expiration of such tender or exchange offer
and in respect of which no adjustment pursuant to this paragraph (6) has been
made and (II) the aggregate amount of any cash distributions to all holders of
the Company's Common Stock within 12 months preceding the expiration of such
tender or exchange offer and in respect of which no adjustment pursuant to
paragraph (5) of this Section has been made (the "combined tender and cash
amount") exceeds 10% of the product of the current market price per share of the
Common Stock (determined as provided in paragraph (8) of this Section 1304) as
of the last time (the "Expiration Time") tenders or exchanges could have been
made pursuant to such tender or exchange offer (as it may be amended) times the
number of shares of Common Stock outstanding (including any tendered or
exchanged shares) as of the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the day after the date of the
Expiration Time, the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Conversion Rate immediately prior to
close of business on the date of the Expiration Time by a fraction (i) the
numerator of which shall be equal to (A) the product of (I) the current market
price per share of the Common Stock (determined as provided in paragraph (8) of
this Section 1304) on the date of the Expiration Time multiplied by (II) the
number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the date of the Expiration Time less (B) the combined
tender and cash amount, and (ii) the denominator of which shall be equal to the
product of (A) the current market price per share of the Common Stock
(determined as provided in paragraph (8) of this Section 1304) as of the
Expiration Time multiplied by (B) the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) as of the Expiration
Time less the number of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted up to any
such maximum, being referred to as the "Purchased Shares").
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 1311 applies) shall be deemed to involve (a) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of stockholders entitled to receive such distribution" and
"the date fixed for such determination" within the meaning of paragraph (4) of
this Section), and (b) a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately
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thereafter (and the effective date of such reclassification shall be deemed to
be "the day upon which such subdivision becomes effective" or "the day upon
which such combination becomes effective", as the case may be, and "the day upon
which such subdivision or combination becomes effective" within the meaning of
paragraph (3) of this Section 1304).
(8) For the purpose of any computation under paragraphs (2), (4), (5)
or (6) of this Section 1304, the current market price per share of Common Stock
on any date shall be calculated by the Company and be deemed to be the average
of the daily Closing Prices Per Share for the five consecutive Trading Days
selected by the Company commencing not more than 10 Trading Days before, and
ending not later than, the earlier of the day in question and the day before the
"ex" date with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "'ex' date", when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way in the applicable securities market or on the
applicable securities exchange without the right to receive such issuance or
distribution.
(9) No adjustment in the Conversion Rate shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
paragraph (9)) would require an increase or decrease of at least one percent in
such rate; provided, however, that any adjustments which by reason of this
-------- -------
paragraph (9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to those
required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 1304, as
it considers to be advisable in order to avoid or diminish any income tax to any
holders of shares of Common Stock resulting from any dividend or distribution of
stock or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes. The Company shall have
the power to resolve any ambiguity or correct any error in this paragraph (10)
and its actions in so doing shall, absent manifest error, be final and
conclusive.
SECTION 1305. Notice of Adjustments of Conversion Rate.
----------------------------------------
Whenever the Conversion Rate is adjusted as herein provided:
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(1) the Company shall compute the adjusted Conversion Rate in
accordance with Section 1304 and shall prepare a certificate signed by
the principal accounting or financial officer of the Company setting
forth the adjusted Conversion Rate and showing in reasonable detail
the facts upon which such adjustment is based, and such certificate
shall promptly be filed with the Trustee and with each Conversion
Agent; and
(2) a notice stating that the Conversion Rate has been adjusted
and setting forth the adjusted Conversion Rate shall forthwith be
prepared, and as soon as practicable after it is prepared, such notice
shall be provided by the Trustee to all Holders in accordance with
Section 106.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours.
SECTION 1306. Notice of Certain Corporate Action.
----------------------------------
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that
would require any adjustment pursuant to Section 1304; or
(b) the Company shall authorize the granting to the holders of
its Common Stock generally of rights, options or warrants to subscribe
for or purchase any shares of capital stock of any class or of any
other rights; or
(c) of any reclassification of the Common Stock of the Company,
or of any consolidation, merger or share exchange to which the Company
is a party and for which approval of any stockholders of the Company
is required, or of the conveyance, sale, transfer or lease of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the Company's
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outstanding shares of Common Stock (or shall amend any such tender
offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 1002, and the
Trustee shall cause to be provided to all Holders in accordance with Section
106, at least 20 days (or 10 days in any case specified in clause (a) or (b)
above) prior to the applicable record, expiration or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options or warrants, or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights, options or
warrants are to be determined, (y) the date on which the right to make tenders
under such tender offer expires or (z) the date on which such reclassification,
consolidation, merger, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up. Neither the
failure to give such notice or the notice referred to in the following paragraph
nor any defect therein shall affect the legality or validity of the proceedings
described in clauses (a) through (e) of this Section 1306. If at the time the
Trustee shall not be a Conversion Agent, a copy of such notice shall also
forthwith be filed by the Company with the Trustee.
The preceding paragraph to the contrary notwithstanding, the Company
shall cause to be filed at each office or agency maintained for the purpose of
conversion of Securities pursuant to Section 1002, and the Trustee shall cause
to be provided to all Holders in accordance with Section 106, notice of any
tender offer by the Company or any Subsidiary for all or any portion of the
Common Stock on or after the time that such notice of tender offer is provided
to the public generally.
SECTION 1307. Company to Reserve Common Stock.
-------------------------------
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then issuable upon the conversion of all Outstanding Securities.
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SECTION 1308. Taxes on Conversions.
--------------------
Except as provided in the next sentence, the Company will pay any and
all taxes and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of Securities pursuant hereto. The Company
shall not, however, be required to pay any tax or duty which may be payable in
respect of (i) income of the holder or (ii) any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that of the Holder
of the Security or Securities to be converted, and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax or duty, or has established to the
satisfaction of the Company that such tax or duty has been paid.
SECTION 1309. Covenant as to Common Stock.
---------------------------
The Company agrees that all shares of Common Stock which may be
delivered upon conversion of Securities will be newly issued shares and, upon
such delivery, will have been duly authorized and validly issued and will be
fully paid and nonassessable and, except as provided in Section 1308, the
Company will pay all taxes, liens and charges with respect to the issue thereof.
SECTION 1310. Cancellation of Converted Securities.
------------------------------------
All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1311. Provision in Case of Consolidation, Merger or Sale of Assets.
------------------------------------------------------------
In case of any consolidation or merger of the Company with or into any
other Person, any merger of another Person with or into the Company (other than
a merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company, the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then Outstanding shall have the right thereafter, during the
period such Security shall be convertible as specified in Section 1301, to
convert such Security only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance,
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sale, transfer or lease by a holder of the number of shares of Common Stock of
the Company into which such Security might have been converted immediately prior
to such consolidation, merger, conveyance, sale, transfer or lease, assuming
such holder of Common Stock of the Company (i) is not a Person with which the
Company consolidated or merged with or into or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be ("Constituent Person"), or an Affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, conveyance, sale, transfer or lease (provided that if the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, conveyance, sale, transfer, or lease is not the same for each share of
Common Stock of the Company held immediately prior to such consolidation,
merger, conveyance, sale, transfer or lease by others than a Constituent Person
or an Affiliate thereof and in respect of which such rights of election shall
not have been exercised ("Non-electing Share"), then for the purpose of this
Section 1311 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, sale, transfer or lease
by the holders of each Non-electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-electing Shares). Such
supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article. The above provisions of this Section 1311 shall similarly apply to
successive consolidations, mergers, conveyances, sales, transfers or leases.
Notice of the execution of such a supplemental indenture shall be given by the
Trustee to the Holder of each Security as provided in Section 106 promptly upon
such execution.
Neither the Trustee, any Paying Agent nor any Conversion Agent shall
be under any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind or
amount of shares of stock or other securities or property or cash receivable by
Holders of Securities upon the conversion of their Securities after any such
consolidation, merger, conveyance, transfer, sale or lease or to any such
adjustment, but may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, an Opinion of Counsel with
respect thereto, which the Company shall cause to be furnished to the Trustee
upon request.
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SECTION 1312. Responsibility of Trustee for Conversion Provisions.
---------------------------------------------------
The Trustee, subject to the provisions of Article Six, and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Rate, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in making the
same, or whether a supplemental indenture need be entered into. Neither the
Trustee, subject to the provisions of Article Six, nor any Conversion Agent
shall be accountable with respect to the validity or value (or the kind or
amount) of any Common Stock, or of any other securities or property or cash,
which may at any time be issued or delivered upon the conversion of any
Security; and it or they do not make any representation with respect thereto.
Neither the Trustee, subject to the provisions of Article Six, nor any
Conversion Agent shall be responsible for any failure of the Company to make or
calculate any cash payment or to issue, transfer or deliver any shares of Common
Stock or share certificates or other securities or property or cash upon the
surrender of any Security for the purpose of conversion; and the Trustee,
subject to the provisions of Article Six, and any Conversion Agent shall not be
responsible for any failure of the Company to comply with any of the covenants
of the Company contained in this Article.
ARTICLE FOURTEEN
Repurchase of Securities at the Option of the
Holder Upon a Change of Control
SECTION 1401. Right to Require Repurchase.
---------------------------
In the event that a Change of Control (as hereinafter defined) shall
occur, then each Holder shall have the right, at the Holder's option, but
subject to the provisions of Section 1402, to require the Company to repurchase,
and upon the exercise of such right the Company shall repurchase, all of such
Holder's Securities, or any portion of the principal amount thereof that is
equal to $1,000 or any integral multiple of $1,000 in excess thereof, on the
date (the "Repurchase Date") that is 45 days after the date of the Company
Notice (as defined in Section 1403) at a purchase price equal to 100% of the
principal amount of the Securities to be repurchased plus interest accrued to
the Repurchase Date (the "Repurchase Price"); provided, however, that
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installments of interest on Securities whose Stated Maturity is on or prior to
the Repurchase Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close of business on
the relevant Record Date according to their
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terms and the provisions of Section 307. Such right to require the repurchase
of the Securities shall not continue after a discharge of the Company from its
obligations with respect to the Securities in accordance with Article Four,
unless a Change of Control shall have occurred prior to such discharge. At the
option of the Company, the Repurchase Price may be paid (i) subject to the
provisions of Section 1402(B) in cash, or (ii) subject to the fulfillment by
the Company of the conditions set forth in Section 1402(A), by delivery of
shares of Common Stock having a fair market value equal to the Repurchase Price;
provided, however, that failure of the Company to pay the Repurchase Price on
- -------- -------
the Repurchase Date either in cash or by delivery of shares of Common Stock
shall constitute an Event of Default for purposes of Section 501(1) hereof
notwithstanding the Company's inability to comply with the provisions of or
satisfy any conditions set forth in Section 1402. Whenever in this Indenture
(including Sections 202, 301, 501(2) and 508) there is a reference, in any
context, to the principal of any Security as of any time, such reference shall
be deemed to include reference to the Repurchase Price payable in respect of
such Security to the extent that such Repurchase Price is, was or would be so
payable at such time, and express mention of the Repurchase Price in any
provision of this Indenture shall not be construed as excluding the Repurchase
Price in those provisions of this Indenture when such express mention is not
made; provided, however, that for the purposes of Article Twelve such reference
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shall be deemed to include reference to the Repurchase Price only to the extent
the Repurchase Price is payable in cash.
SECTION 1402. Conditions to the Company's Election to Pay the Repurchase Price
----------------------------------------------------------------
in Common Stock or Cash .
-----------------------
(A) The Company may elect to pay the Repurchase Price by delivery of
shares of Common Stock pursuant to Section 1401 if and only if the following
conditions shall have been satisfied:
(i) The shares of Common Stock deliverable in payment of the
Repurchase Price shall have a fair market value as of the Repurchase Date of not
less than the Repurchase Price. For purposes of this Section 1402, the fair
market value of shares of Common Stock shall be determined by the Company and
shall be equal to 95% of the average of the Closing Prices Per Share for the
five consecutive Trading Days ending on and including the third Trading Day
immediately preceding the Repurchase Date;
(ii) The shares of Common Stock deliverable in payment of the
Repurchase Price are, or shall have been, approved for quotation on the Nasdaq
National Market or are, or shall have been, listed on a national securities
exchange, in either case, prior to the Repurchase Date; and
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(iii) All shares of Common Stock deliverable in payment of the
Repurchase Price shall be issued out of the Company's authorized but unissued
Common Stock and, will upon issue, be duly and validly issued and fully paid and
nonassessable and free of any preemptive rights.
If all of the conditions set forth in this Section 1402(A) are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.
(B) The Company may elect to pay the Repurchase Price in cash if and only
if on or prior to the Repurchase Date there shall not remain any amounts
outstanding under the Amended and Restated Credit Agreement and all Commitments
(as defined therein) shall have terminated or expired.
SECTION 1404. Notices; Method of Exercising Repurchase Right, Etc.
----------------------------------------------------
(a) Unless the Company shall have theretofore called for redemption
all of the Outstanding Securities or unless all of the Outstanding Securities
shall have theretofore been converted in accordance with Article Thirteen, on or
before the 30th day after the occurrence of a Change of Control, the Company or,
at the request and expense of the Company on or before the 15th day after such
occurrence, the Trustee, shall give to all Holders, in the manner provided in
Section 106, notice (the "Company Notice") of the occurrence of the Change of
Control and of the repurchase right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a repurchase
right to the Trustee.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price, and whether the Repurchase Price shall be
paid by the Company in cash or by delivery of shares of Common Stock,
(4) a description of the procedure which a Holder must follow to
exercise a repurchase right, and the place or places where such Securities
are to be surrendered for payment of the Repurchase Price and accrued
interest, if any,
(5) that on the Repurchase Date the Repurchase Price, including
accrued interest, if any, will become due and payable upon each such
Security designated by the Holder to be
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repurchased, and that interest thereon shall cease to accrue on and after
said date,
(6) the Conversion Rate then in effect, the date on which the right
to convert the principal amount of the Securities to be repurchased will
terminate and the place or places where such Securities may be surrendered
for conversion, and
(7) the place or places that the form of certificate required by
Section 203 shall be delivered, and the form of such certificate.
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article
Fourteen are inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the
Trustee or any Paying Agent on or before the 30th day after the date of the
Company Notice (i) written notice of the Holder's exercise of such right, which
notice shall set forth the name of the Holder, the principal amount of the
Securities to be repurchased (and, if any Security is to be repurchased in part,
the portion of the principal amount thereof to be repurchased and the name of
the Person in which the portion thereof to remain Outstanding after such
repurchase is to be registered) and a statement that an election to exercise the
repurchase right is being made thereby, and, in the event that the Repurchase
Price shall be paid in shares of Common Stock, the name or names (with
addresses) in which the certificate or certificates for shares of Common Stock
shall be issued, and (ii) the Securities with respect to which the repurchase
right is being exercised. Such written notice shall be irrevocable, except that
the right of the Holder to convert the Securities with respect to which the
repurchase right is being exercised shall continue until the close of business
on the Repurchase Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the Trustee
or the Paying Agent the Repurchase Price in cash or shares of Common Stock, as
provided above, for payment to the Holder on the Repurchase Date or, if shares
of Common Stock are to be paid, as promptly after the Repurchase Date as
practicable, together with accrued and unpaid interest to the Repurchase Date
payable with respect to the Securities as to which the purchase right has been
exercised; provided, however, that
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installments of interest that mature on or prior to the Repurchase Date shall be
payable in cash to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Regular
Record Date according to the terms and provisions of Section 307.
(d) If any Security (or portion thereof) surrendered for repurchase
shall not be so paid on the Repurchase Date, the principal amount of such
Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
the rate of [ ] per annum, and each Security shall remain convertible into
Common Stock until the principal of such Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Security so surrendered.
(f) Any issuance of shares of Common Stock in respect of the
Repurchase Price shall be deemed to have been effected immediately prior to the
close of business on the Repurchase Date and the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such repurchase shall be deemed to have become on the Repurchase
Date the holder or holders of record of the shares represented thereby;
provided, however, that any surrender for repurchase on a date when the stock
- -------- -------
transfer books of the Company shall be closed shall constitute the Person or
Persons in whose name or names the certificate or certificates for such shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open. No payment or adjustment shall be made for dividends or
distributions on any Common Stock issued upon repurchase of any Security
declared prior to the Repurchase Date.
(g) No fractions of shares shall be issued upon repurchase of
Securities. If more than one Security shall be repurchased from the same Holder
and the Repurchase Price shall be payable in shares of Common Stock, the number
of full shares which shall be issuable upon such repurchase shall be computed on
the basis of the aggregate principal amount of the Securities so
-98-
<PAGE>
repurchased. Instead of any fractional share of Common Stock which would
otherwise be issuable on the repurchase of any Security or Securities, the
Company will deliver to the applicable Holder its check for the current market
value of such fractional share. The current market value of a fraction of a
share is determined by multiplying the current market price of a full share by
the fraction, and rounding the result to the nearest cent. For purposes of this
Section, the current market price of a share of Common Stock is the Closing
Price Per Share of the Common Stock on the Trading Day immediately preceding the
Repurchase Date.
(h) Any issuance and delivery of certificates for shares of Common
Stock on repurchase of Securities shall be made without charge to the Holder of
Securities being repurchased for such certificates or for any tax or duty in
respect of the issuance or delivery of such certificates or the securities
represented thereby; provided, however, that the Company shall not be required
-------- -------
to pay any tax or duty which may be payable in respect of (i) income of the
Holder or (ii) any transfer involved in the issuance or delivery of certificates
for shares of Common Stock in a name other than that of the Holder of the
Securities being repurchased, and no such issuance or delivery shall be made
unless and until the Person requesting such issuance or delivery has paid to the
Company the amount of any such tax or duty or has established, to the
satisfaction of the Company, that such tax or duty has been paid.
(i) All Securities delivered for repurchase shall be delivered to the
Trustee, the Paying Agent or any other agents (as shall be set forth in the
Company Notice) to be canceled by or at the direction of the Trustee, which
shall dispose of the same as provided in Section 309.
SECTION 1404. Certain Definitions.
-------------------
For purposes of this Article Fourteen,
(a) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Commission pursuant to the Exchange Act;
(b) a "Change of Control" shall be deemed to have occurred at the
time, after the original issuance of the Securities, of:
(i) the acquisition by any Person of beneficial ownership, directly
or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock
of the Company entitling such
-99-
<PAGE>
person to exercise 50% or more of the total voting power of all
shares of capital stock of the Company entitled to vote generally
in the elections of directors (any shares of voting stock of
which such person or group is the beneficial owner that are not
then outstanding being deemed outstanding for purposes of
calculating such percentage), other than any such acquisition by
the Company, any Subsidiary of the Company or any employee
benefit plan of the Company existing on the date of this
Indenture; or
(ii) any consolidation or merger of the Company with or into any other
Person, any merger of another Person into the Company, or any
conveyance, sale, transfer, or lease of all or substantially all
of the assets (other than (a) any such transaction (x) which does
not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock, and
(y) pursuant to which the holders of 50% or more of the total
voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors immediately
prior to such transaction have the entitlement to exercise,
directly or indirectly, 50% or more of the total voting power of
all shares of capital stock of the continuing or surviving
corporation entitled to vote generally in elections of directors
of the continuing or surviving corporation immediately after such
transaction and (b) a merger which is effected solely to change
the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of
Common Stock into solely shares of common stock);
provided, however, that a Change of Control shall not be deemed to have occurred
- -------- -------
if the Closing Price Per Share on any five Trading Days within the period of
10 consecutive Trading Days ending immediately after the later of the date of
the Change of Control or the date of the public announcement of the Change of
Control (in the case of a Change of Control under Clause (i) above) or the
period of 10 consecutive Trading Days ending immediately prior to the date of
the Change of Control (in the case of a Change of Control under Clause (ii)
above) shall equal or exceed 105% of the Conversion Price in effect on each such
Trading Day.
(c) the term "Conversion Price" shall equal $1,000 divided by the
Conversion Rate; and
(d) for the purposes of Section 1404(b)(i), the term "Person" shall
include any syndicate or group which would be deemed
-100-
<PAGE>
to be a "person" under Section 13(d)(3) of the Exchange Act, as in effect on the
date of the original execution of this Indenture.
SECTION 1405. Consolidation, Merger, Etc.
---------------------------
In the case of any conveyance, sale, transfer, lease, or merger, to
which Section 1311 applies, in which the Common Stock of the Company is changed
or exchanged as a result into the right to receive shares of stock and other
securities or property or assets (including cash) which includes shares of
Common Stock of the Company or common stock of another person that are, or upon
issuance will be, traded on a United States national securities exchange or
approved for trading on an established automated over-the-counter trading market
in the United States and such shares constitute at the time such change or
exchange becomes effective in excess of 50% of the aggregate fair market value
of such shares of stock and other securities, property and assets (including
cash) (as determined by the Company, which determination shall be conclusive and
binding), then the person formed by such consolidation or resulting from such
merger or combination or which acquires the properties or assets (including
cash) of the Company, as the case may be, shall execute and deliver to the
Trustee a supplemental indenture (which shall comply with the Trust Indenture
Act as in force at the date of execution of such supplemental indenture)
modifying the provisions of this Indenture relating to the right of Holders to
cause the Company to repurchase the Securities following a Change of Control,
including without limitation the applicable provisions of this Article Fourteen
and the definitions of the Common Stock and Change of Control, as appropriate,
and such other related definitions set forth herein as determined in good faith
by the Company (which determination shall be conclusive and binding), to make
such provisions apply to the common stock and the issuer thereof if different
from the Company and Common Stock of the Company (in lieu of the Company and the
Common Stock of the Company).
____________________
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
-101-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
SAKS HOLDINGS, INC.
By: ______________________
[SEAL] Name:
Title:
Attest:
__________________________
Name: BANKERS TRUST COMPANY,
Title: Trustee:
[SEAL] By: _______________________
Name:
Title:
Attest:
___________________________
Name:
Title:
-102-
<PAGE>
STATE OF NEW YORK ) ss.:
COUNTY OF )
On the _____ day of __________, 1996, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is
___________________________________________________ of SAKS HOLDINGS, INC., one
of the corporations described in and which executed the foregoing instrument;
that he/she knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that he/she signed his/her name
thereto by like authority.
______________________________
Notary Public
STATE OF NEW YORK ) ss.:
COUNTY OF )
On the _____ day of __________, 1996, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is
___________________________________________________ of BANKERS TRUST
CORPORATION, one of the corporations described in and which executed the
foregoing instrument; that he/she knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authority of the Board of Directors of said corporation, and that he/she
signed his/her name thereto by like authority.
______________________________
Notary Public
-103-
EXHIBIT 4.05(7)
SIXTH AMENDMENT AND CONSENT, dated as of August __, 1996 (this
"Amendment"), to and of the Amended and Restated Credit Agreement, dated as
of July 1, 1993 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"; terms used herein and not otherwise
defined herein are used herein as therein defined), among SAKS & COMPANY
(the "Company"), the Lenders from time to time parties thereto (the
"Banks") and THE CHASE MANHATTAN BANK, successor by merger to Chemical
Bank, as administrative agent for the Banks (in such capacity, the
"Administrative Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has requested the Banks to consent to certain matters
regarding certain provisions of the Credit Agreement; and
WHEREAS, the Banks party hereto are willing to consent to such matters and
to amend the Credit Agreement, but only on, and subject to, the terms and
conditions hereof;
NOW, THEREFORE, in consideration of the mutual premises and
mutual agreements contained herein and for other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Company,
the Banks party hereto and the Administrative Agent hereby agree as
follows:
Section 1 Consents and Waivers.
--------------------
(a) Notwithstanding anything to the contrary in the Credit
Documents, Holdings shall be permitted to issue up to an aggregate
principal amount of $300 million of unsecured convertible subordinated
notes (the "Holdings Notes") having (i) no scheduled maturity, amortization
or mandatory redemption or purchase prior to the sixth anniversary of the
date of issuance, (ii) an interest rate no greater than 7.5% per annum and
(iii) such other terms and conditions that conform in all material respects
to the terms described under cover of a letter dated August 22, 1996 from
the Company to the Administrative Agent, except as otherwise consented to
by the Administrative Agent, which consent shall not be unreasonably
withheld; provided that the net proceeds of such issuance shall be loaned
--------
to the Company in accordance with Section 1(b) hereof.
(b) Notwithstanding anything to the contrary in the Credit
Documents, the Company shall be permitted to incur unsecured, subordinated
Indebtedness to Holdings in an aggregate principal amount not to exceed the
aggregate principal amount of the Holdings Notes (the "Intercompany Debt");
provided, however, (a) that promptly upon such issuance the Company shall
- -------- -------
apply the net proceeds of the Intercompany Debt to the prepayment of the
New Term Loans in full in accordance with the terms of subsection 6.4(a) of
the Credit Agreement, except that the proviso in the first sentence thereof
prohibiting prepayments of Eurodollar Loans on other than the last day of
an Interest Period with respect thereto shall have no effect; (b) the
Intercompany Debt
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
(i) shall only be mandatorily prepayable or redeemable to the extent the
Holdings Notes are mandatorily prepayable or redeemable, (ii) shall have
the same interest rate as the Holdings Notes, and (iii) shall have other
terms and conditions reasonably satisfactory to the Administrative Agent;
and (c) the Company and its Subsidiaries shall not, without the consent of
the Required Banks, optionally prepay, redeem, purchase or defease any of
the Intercompany Debt or the Holdings Notes. The Company shall reimburse
the Banks for any costs incurred in connection with the prepayment of a
Eurodollar Loan on other than the last day of an Interest Period with
respect thereto in accordance with subsection 6.12(d) of the Credit
Agreement.
(c) Provided that no Default or Event of Default shall have
occurred and be continuing, notwithstanding anything to the contrary in the
Credit Documents, the Company shall be permitted to amend, supplement or
otherwise modify the terms of the Subordinated Debt Indenture as the
Company may deem reasonably necessary or desirable to provide for the
prepayment (optional or mandatory, in whole or in part), retirement,
redemption, purchase or defeasement of, and may so prepay, retire, redeem,
purchase or defease, the Subordinated Notes on or after the date hereof.
Section 2 Representations and Warranties. To induce the Banks
------------------------------
to enter into this Amendment, the Company hereby represents and warrants to
the Banks as of the date hereof that the representations and warranties
made by the Company in the Credit Agreement are true and correct in all
material respects on and as of the date hereof, before and after giving
effect to the effectiveness of this Amendment, as if made on and as of the
date hereof unless expressly stated to relate to and earlier date, in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date.
Section 3 Expenses. The Company agrees to pay or reimburse the
--------
Administrative Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with this Amendment and any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of
Simpson, Thacher & Bartlett, counsel to the Administrative Agent.
Section 4 Credit Document Acknowledgment. The Administrative
------------------------------
Agent shall receive from each Credit Party with respect to the Credit
Documents to which it is a party an acknowledgment and consent
substantially in the form of Exhibit A hereto to the execution, delivery
and performance of this Amendment and the transactions contemplated hereby
and that such execution, deliver and performance shall not affect such
Credit Party's obligations under any Credit Document.
Section 5 Effectiveness. This Amendment shall become effective
-------------
upon the date that the Administrative Agent shall have received
counterparts of this
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
Amendment, duly executed by the Company, the Required Banks and the
Administrative Agent.
Section 6 Continuing Effect of Credit Agreement. Except for
-------------------------------------
the amendments, consents and waivers expressly provided herein, the Credit
Agreement shall continue to be, and shall remain, in full force and effect
in accordance with its terms.
Section 7 Counterparts. This Amendment may be executed in any
------------
number of counterparts by the parties hereto, and all of said counterparts,
when taken together, shall be deemed to constitute one and the same
instrument.
Section 8 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered in New York, New York by their proper and
duly authorized officers as of the date first above written.
SAKS & COMPANY
By: /s/
----------------------------------
Title: Vice President, Treasurer
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Bank
By: /s/ NEIL R. BOYLAN
----------------------
NEIL R. BOYLAN
Title: VICE PRESIDENT
ARAB BANKING CORPORATION, as a Bank
By: /s/ Louise Billero
-----------------------
Title: Vice President
BANK OF SCOTLAND, as a Bank
By: /s/
----------------------
Title: VICE PRESIDENT
BANK OF SCOTLAND
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
THE BANK OF TOKYO -- MITSUBISHI TRUST
COMPANY, as successor by merger to The
Bank of Tokyo Trust Company, as a Bank
By:
----------------------
Title:
THE BANK OF TOKYO -- MITSUBISHI LIMITED, NEW
YORK BRANCH, as successor by merger to The
Mitsubishi Bank Ltd., as a Bank
By:
----------------------
Title:
BANQUE FRANCAISE DU COMMERCE EXTERIEUR, as a
Bank
By:
----------------------
Title:
By:
----------------------
Title:
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
BANKERS TRUST COMPANY,
as a Bank
By: /s/ MARY KAY COYLE
----------------------
MARY KAY COYLE
Title: MANAGING DIRECTOR
CANADIAN IMPERIAL BANK OF COMMERCE, as a Bank
By:
----------------------
Title:
THE CIT GROUP/BUSINESS CREDIT, INC., as a
Bank
By:
----------------------
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE,
as a Bank
By: /s/ Marcus Edward
----------------------
Marcus Edward
Title: Vice President
By: /s/ Sean Mounier
----------------------
Sean Mounier
Title: First Vice President
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
CREDIT SUISSE, as a Bank
By: CHRIS T. HORGAN JOEL GLODOV
----------------------
CHRIS T. HORGAN JOEL GLODOV
Title: ASSOCIATE MEMBER OF SENIOR
MANAGEMENT
FIRST UNION, as a Bank
By: /s/
----------------------
Title: AVP
GIROCREDIT BANK, as a Bank
By: /s/
----------------------
Title:
ING CAPITAL ADVISORS, AS AGENT FOR BANK
SYNDICATE ACCOUNT, as a Bank
By: /s/ Kathleen A. Lanarcic
----------------------
Kathleen A. Lanarcic
Title: Vice President & Portfolio Manager
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED,
NEW YORK BRANCH, as a Bank
By:
----------------------
Title:
MELLON BANK, as a Bank
By:
----------------------
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO, as a Bank
By: /s/ JOHN W. FRASER
-------------------------
JOHN W. FRASER
Title: AUTHORIZED SIGNATORY
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC., as a Bank
By: /s/ JOHN W. FRASER
----------------------
JOHN W. FRASER
Title: AUTHORIZED SIGNATORY
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
MIDLAND BANK, PLC, as a Bank
By:
----------------------
Title:
NIPPON CREDIT, as a Bank
By: /s/
----------------------
Title: Assistant Vice President
PILGRIM PRIME RATE TRUST,
as a Bank
By: /s/ HOWARD TIFFEN
----------------------
HOWARD TIFFEN
Title: Senior Vice President
POSTIPANKKI LTD., as a Bank
By:
----------------------
Title:
By:
----------------------
Title:
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
DEAN WITTER INTERCAPITAL,
as a Bank
By:
----------------------
Title:
PROTECTIVE LIFE ASSET
INSURANCE COMPANY, as a Bank
By: /s/ Mark K. Okada CFA
----------------------
Mark K. Okada CFA
Title: Principal
Protective Asset Management Co.
SOCIETE GENERALE, as a Bank
By: Karel Vasak
----------------------
Title: Karel Vasak
Vice President and
Senior relationship Director
THE SUMITOMO TRUST & BANKING CO., LTD., NY
BRANCH, as a Bank
By:
----------------------
Title:
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
SWISS BANK CORPORATION, NY BRANCH, as a Bank
By:
----------------------
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST,
as a Bank
By: /s/ JEFFREY W. MAILLET
----------------------
JEFFREY W. MAILLET
Title: Sr. Vice Pres. - Portfolio Mgr.
WELLS FARGO BANK, as a Bank
By:
----------------------
Title:
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
EXHIBIT A TO
SIXTH AMENDMENT
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned corporations hereby:
(a) acknowledges and consents to (i) the execution, delivery and
performance of the Sixth Amendment and Consent dated as of August __, 1996
(the "Amendment") to and of the Amended and Restated Credit Agreement,
---------
dated as of July 1, 1993 (as amended by the Amendment and as further
amended, supplemented or otherwise modified from time to time, the "Amended
-------
Credit Agreement"), among Saks & Company (the "Company"), the financial
- ---------------- -------
institutions from time to time parties thereto (the "Banks") and The Chase
-----
Manhattan Bank, successor by merger to Chemical Bank administrative agent
(in such capacity, the "Administrative Agent"), and (ii) the transactions
---------------------
contemplated thereby;
(b) agrees that such execution, delivery and performance shall not in
any way affect such corporation's obligations under any Credit Document (as
defined in the Amended Credit Agreement) to which such corporation is a
party or, in the case of the Company, the Trademark Security Agreement
dated as of July 2, 1990 (as amended, supplemented or otherwise modified
from time to time, the "Trademark Agreement"); and
-------------------
(c) agrees and acknowledges that all references and in any Credit
Document to which such corporation is a party or, in the case of the
Company, in the Trademark Agreement to the "Credit Agreement" are
references to the "Amended Credit Agreement."
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
<PAGE>
Dated: ________, 1996
SAKS & COMPANY
By: /s/ Robert J. Vill
----------------------------
Name: Robert J. Vill
Title: Vice President, Treasurer
SAKS HOLDINGS, INC.
By: Richard F. Zannino
----------------------------
Name: Richard F. Zannino
Title: Executive VP, CFO, Treasurer
CAFE SFA-MINNEAPOLIS, INC.
THE RESTAURANT AT SAKS FIFTH
AVENUE CORPORATION
SAKS FIFTH AVENUE FOOD
CORPORATION
By: Victoria Carter
----------------------------
Name: Victoria Carter
Title: Vice President, Secretary, Treasurer
SAKS FIFTH AVENUE, INC.
SAKS FIFTH AVENUE, ATLANTA, INC.
SAKS-CHICAGO, INC.
SAKS FIFTH AVENUE-LOUISIANA, INC.
SAKS FIFTH AVENUE OF MISSOURI, INC.
SAKS FIFTH AVENUE OF OHIO, INC.
SAKS FIFTH-AVENUE-STAMFORD, INC.
SAKS FIFTH AVENUE OF TEXAS, INC.
SAKS SPECIALTY STORES, INC.
SFA DATA PROCESSING, INC.
SFA FOLIO COLLECTIONS, INC.
SFA REAL ESTATE CO.
SFA BOCA INC.
SFA POST STREET INC.
By: Robert J. Vill
----------------------------
Name: Robert J. Vill
Title: Vice President, Treasurer
AGREED TO AND ACCEPTED
THE CHASE MANHATTAN BANK,
as Administrative Agent
By: NEIL R. BOYLAN
--------------------
Name: NEIL R. BOYLAN
Title: VICE PRESIDENT
SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------
EXHIBIT 12.1
SAKS HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(MILLIONS)
<TABLE>
<CAPTION>
26 WEEKS ENDED FISCAL YEAR ENDED
------------------- ------------------------------------------------------
AUG. 3, JULY 28, FEB. 3, JAN. 28, JAN. 29, JAN. 30, FEB. 1,
1996 1995 1996 1995 1994 1993 1992
------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Net Income..................... (28.9) (56.4) (64.1) (10.6) (255.8) (85.5) (180.5)
Add Back:
Taxes...................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Extraordinary Items........ (3.3) (5.7) (6.0) (0.5) (27.6) (8.4) (11.5)
------- -------- ------- -------- -------- -------- -------
Earnings....................... (25.6) (50.7) (58.1) (10.1) (228.2) (77.1) (169.0)
Portion of Minimum Rent
Representative of Interest... 3.0 2.3 5.1 4.4 4.6 2.5 2.0
Interest on Indebtedness....... 37.9 38.1 84.2 63.4 59.9 72.6 107.0
Add Back: Amortization of Cap
Interest....................... 0.6 0.5 1.0 1.0 1.1 1.1 1.0
Add: Amortization of Debt
Expense........................ 4.2 5.3 10.0 12.7 13.9 16.8 19.2
------- -------- ------- -------- -------- -------- -------
TOTAL EARNINGS AS ADJUSTED..... 20.1 (4.5) 42.2 71.4 (148.7) 15.9 (39.8)
------- -------- ------- -------- -------- -------- -------
Pro Forma Interest Savings--
IPO............................ (10.2) (17.0) (34.6)
Pro Forma Interest Savings--
Convertible Debt............... (1.7) (1.7) (3.5)
Pro Forma Deferred Financing
Cost Savings................... (0.1) (0.1) (0.2)
------- -------- -------
TOTAL EARNINGS AS ADJUSTED--
PRO FORMA...................... 32.1 14.3 80.5 71.4 (148.7) 15.9 (39.8)
------- -------- ------- -------- -------- -------- -------
------- -------- ------- -------- -------- -------- -------
FIXED CHARGES
Portion of Minimum Rent
Representative of Interest..... 3.0 2.3 5.1 4.4 4.6 2.5 2.0
Interest on Indebtedness....... 37.9 38.1 84.2 63.4 59.9 72.6 107.0
Add Back: Capitalized
Interest....................... 0.8 1.2 1.5 1.4 0.4 0.8 1.7
Add: Amortization of Debt
Expense........................ 4.2 5.3 10.0 12.7 13.9 16.8 19.2
------- -------- ------- -------- -------- -------- -------
TOTAL FIXED CHARGES............ 45.9 46.9 100.8 81.9 78.8 92.7 129.9
------- -------- ------- -------- -------- -------- -------
Pro Forma Interest Savings--
IPO............................ (10.2) (17.0) (34.6)
Pro Forma Interest Savings--
Convertible Debt............... (1.7) (1.7) (3.5)
Pro Forma Deferred Financing
Cost Savings................... (0.1) (0.1) (0.2)
------- -------- ------- -------- -------- -------- -------
TOTAL FIXED CHARGES--PRO
FORMA.......................... 33.9 28.1 62.6 81.9 78.8 92.7 129.9
------- -------- ------- -------- -------- -------- -------
------- -------- ------- -------- -------- -------- -------
DEFICIENCY OF FIXED CHARGES
OVER EARNINGS.................. 25.8 51.4 58.6 10.5 227.5 76.8 169.7
------- -------- ------- -------- -------- -------- -------
------- -------- ------- -------- -------- -------- -------
PRO FORMA DEFICIENCY OF FIXED
CHARGES OVER EARNINGS.......... 1.8 13.8
------- --------
------- --------
PRO FORMA RATIO OF EARNINGS TO
FIXED CHARGES.................. 1.29
-------
-------
</TABLE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-____) of our report dated March 13, 1996, except as to the information
regarding the amendments to the Credit Facility in April 1996 presented in Note
5 for which the date is April 18, 1996 and the information presented in Note 15,
for which the date is April 26, 1996, on our audits of the consolidated
financial statements of Saks Holdings, Inc. as of January 28, 1995 and February
3, 1996, and for each of the three fiscal years in the period ended February 3,
1996. We also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
New York, New York
August 29, 1996
