<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended February 1, 1997
Commission file number 001-14346
SAKS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1685667
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
12 East 49th Street, New York, New York 10017
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 940-4048
Securities pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered:
Common Stock, par value $.01 per share New York Stock Exchange
- -------------------------------------- -----------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
5-1/2% Convertible Subordinated Notes due September 15, 2006
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
1) Yes /X/ No / /
2) Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at April 5, 1997 was $1,691,382,450. The aggregate market value was
computed by reference to the closing price as of that date. (For purposes of
calculating this amount only, all directors, executive officers and greater than
10% shareholders of the Registrant are treated as affiliates.)
The number of shares outstanding of the Registrants only class of common stock
as of April 5, 1997 was 63,400,313.
Documents Incorporated by Reference
Portions of the Registrant's annual shareholders report for the year ended
February 1, 1997 are incorporated into Part II.
Portions of the Registrant's definitive Proxy Statement for its annual
shareholders meeting to be held on June 16, 1997 are incorporated by reference
into Part III.
<PAGE>
Part I
Item 1. Business
GENERAL
Saks Holdings, Inc. is the parent company of Saks & Company,
which does business as Saks Fifth Avenue, OFF 5TH and Folio.
Saks Fifth Avenue is recognized worldwide as a premier fashion
retailer, offering the finest quality and latest style in
women's and men's apparel. Supported by a strong commitment to
personalized customer service, Saks primarily sells better,
bridge and designer apparel, shoes, accessories, jewelry,
cosmetics and fragrances for women and men, as well as gift
merchandise and children's apparel. Capitalizing on its
70-year history as a fashion authenticator and the prominence
of its landmark Fifth Avenue store in New York City, Saks
Fifth Avenue has developed one of the most recognized
retailing franchises in the world.
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 through its acquisition
of Gimbel Bros., Inc. In July 1990, affiliates of Investcorp
S.A. and a group of international investors acquired Saks &
Company from B.A.T. Industries, PLC.
Sales are generated through four retail store formats:
Full-line; resort stores; Main Street stores; OFF 5TH stores;
and, Folio catalogs. As of February 1, 1997, there were 40
Full-line stores, seven Resort stores, three Main Street
stores and 33 OFF 5TH outlet stores. The full-line, resort and
main street store operations are conducted from premier retail
locations and sell merchandise which has been determined to be
most important to its top customers. The OFF 5TH outlet
division sells high quality, upscale branded fashion apparel
and home furnishings at exceptional prices. The Folio catalogs
primarily offer fashionable women's apparel, accessories and
home furnishings and gifts.
In addition to the preceding discussion, a description of each
retail format included in the annual shareholders report for
the year ended February 1, 1997 is incorporated herein by
reference.
TRADEMARKS AND SERVICE MARKS
The Company owns its principal trademarks and service marks,
including "Saks Fifth Avenue", "SFA" and "S5A" marks. Other
important trademarks and service marks include "OFF 5TH",
"Folio", "Real Clothes", "The Works" and "The Fifth Avenue
Club". The Company's trademarks and service marks are
registered in the
<PAGE>
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.
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 1996, fiscal 1995 and fiscal 1994,
the fourth quarter provided approximately 31%, 32% and 31%,
respectively, of the Company's net sales and the majority of
its operating income. As a result, the Company's operating
results depend significantly on the holiday selling season.
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.
RELIANCE ON FIFTH AVENUE STORE
The Company's flagship Fifth Avenue store in New York City
accounted for approximately 21%, 22% and 24% of consolidated
net sales in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively and plays a significant role in marketing the
Saks Fifth Avenue name.
COMPETITION
All aspects of the retail industry, including attracting
customers, securing merchandise and locating appropriate
retail sites, are highly competitive. The Company 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. Although management
believes it will be able to continue to compete on the basis
of quality, service and reputation, there can be no assurance
that it will maintain or improve the Company's competitive
position.
EMPLOYEES
At February 1, 1997, the Company employed approximately 838
people at its headquarters and buying offices and 14,506 in
its stores, two distribution centers and data center. The
Company's 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 147 of the Company's
employees are covered by collective bargaining
<PAGE>
agreements. The Company has never been subject to a strike and
believes that its relationship with its employees and the
unions is good.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document as well as those
items incorporated by reference, 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
document as well as those items incorporated by reference.
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.
CAPITAL EXPENDITURES; LIQUIDITY; SOURCES OF SUPPLY; REVENUES
BY RETAIL FORMAT
For information on capital expenditures, liquidity, sources of
supply and revenues by retail format, Management's Discussion
and Analysis of Financial Condition and Results of Operations
included in the annual shareholders report for the year ended
February 1, 1997 is incorporated herein by reference.
<PAGE>
Item 2. Properties
The following table summarizes the property ownership of
stores as of February 1, 1997:
<TABLE>
<CAPTION>
Number Gross % of Gross
of Square Square
Stores Footage Footage
<S> <C> <C> <C>
Full-Line, Resort and Main Street Stores:
Owned store on owned land ..................... 7 1,380,000 23 %
Owned on leased land .......................... 20 1,949,700 36
Leased store on leased land ................... 23 1,757,200 27
=========== ============= ===========
50 5,086,900 86
OFF 5TH Stores:
Leased store on leased land ................... 32 772,600 13
Owned on leased land .......................... 1 27,100 1
----------- ------------- -----------
33 799,700 14
----------- ------------- -----------
Total ............................................ 83 5,886,600 100 %
=========== ============= ===========
</TABLE>
In addition to the preceding table, a listing of all retail
properties included in the annual shareholders report for the
year ended February 1, 1997 is incorporated herein by
reference.
The Company currently operates two distribution centers
located in Yonkers, N.Y. and Ontario, CA. A new
state-of-the-art distribution center in Aberdeen, MD is being
constructed to replace the Yonkers, NY facility. The Company
expects to make the transition to this new facility in 1997.
The Company also leases its home office space in New York, NY.
Item 3. Legal Proceedings
There are no material legal proceedings, other than ordinary
routine litigation incidental to the business, to which the
Company or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its
security holders during the fourth quarter of fiscal 1996.
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Common Stock Market Prices and Common Stock Information
included in the annual shareholders report for the year ended
February 1, 1997 is incorporated herein by reference.
The Company's common stock is traded on the New York Stock
Exchange (ticker symbol SKS). The approximate number of record
holders of the Company's common stock at February 1, 1997 was
354.
The Company currently does not pay any cash dividends on
common stock. Saks Holdings is a holding company with no
business operations of its own. Saks Holdings is therefore
dependent upon payments, dividends and distributions from Saks
& Company for funds to pay its expenses and to pay future cash
dividends or
<PAGE>
distributions, if any, to holders of the common stock. The
Company currently retains any earnings for support of its
working capital, repayment of indebtedness, capital
expenditures and general corporate purposes. Saks & Company
has no current intention of paying dividends or making other
distributions to the Company in excess of amounts necessary to
pay the Company's expenses and taxes. Saks & Company's credit
facility contains restrictions on the ability to pay dividends
or make other distributions to the Company.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------
(In Millions, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales ................................ $1,945 $1,687 $1,418 $1,396 $1,344
Management fees .......................... (1) (7) (2) (2) (2)
Impairment and special charges ........... - (36) - (178) -
Operating income (loss) ................. 109 36 66 (154) 12
Income (loss) before
extraordinary charge ................... 37 (58) (10) (228) (77)
Net income (loss) ........................ 24 (64) (11) (256) (86)
Total assets ............................. 1,573 1,366 1,289 1,306 1,471
Long-term debt and capital lease
obligations ......................... 709 976 874 892 862
Per common share:
Income (loss) before
extraordinary charge .............. 0.63 (1.29) (0.22) (5.07) (1.93)
Net income (loss) ................... 0.41 (1.43) (0.24) (5.68) (2.14)
</TABLE>
All per share data have been retroactively adjusted to reflect
the five-for-one stock split in fiscal 1996 of the Company's
common stock effected in the form of share distributions
("stock dividends").
Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the annual shareholders
report for the year ended February 1, 1997 is incorporated
herein by reference.
Impairment and special charges of $36.4 million were recorded
in fiscal 1995. The charges recorded consist of exit costs of
its Yonkers distribution center, the integration costs of
former I. Magnin locations and write-down of capitalized EDP
software and amounted to $10,015, $8,900 and $8,500,
respectively.
Impairment and special charges of $177.7 million were recorded
in fiscal 1993. These charges consisted of $118.0 million to
reduce the carrying value of property and equipment, goodwill
and intangible assets, $40.2 million related 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.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the annual shareholders
report for the year ended February 1, 1997 is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The report of independent accountants and consolidated
financial statements included in the annual shareholders
report for the year ended February 1, 1997 is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Officers of the Registrant
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to directors and
executive officers of the Company, is incorporated herein by
reference in response to this item.
Item 11. Executive Compensation
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to executive
compensation and transactions, is incorporated herein by
reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to security
ownership of certain beneficial owners and management, is
incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to certain
relationships and related transactions, is incorporated herein
by reference in response to this item.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a-1) The following consolidated financial statements of Saks
Holdings, Inc. included in the annual report to shareholders for
the year ended February 1, 1997, are incorporated by reference in
Item 8:
Consolidated Balance Sheets - February 1, 1997 and February 3,
1996
Consolidated Statements of Operations - Fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995.
Consolidated Statements of Shareholders' Equity - Fiscal years
ended February 1, 1997, February 3, 1996 and January 28, 1995.
Consolidated Statements of Cash Flows - Fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
(a-2) The following consolidated financial statement schedules of
Saks Holdings, Inc. and subsidiaries are included in Item 14(d):
Schedule I Condensed financial information of registrant.
Report of Independent Accountants on Schedule I.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
(a-3) Listing of Exhibits
Exhibit No.
-----------
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* - See Exhibits 3.01 and 3.02 as to the rights of holders
of Saks Holdings' Common Stock.
4.02* - Form of Stock Certificate of the Common Stock of
Saks Holdings.
4.03.1- Credit Agreement, dated as of October 8, 1996,
among Saks, the several lenders form time to time party
thereto and The Chase Manhattan Bank as administrative agent
(the "Credit Facility").
4.04.2- Consent No. 1 to the Credit Facility, dated as of
January 17, 1997.
4.05* - 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").
4.06* - Trust and Servicing Agreement dated as of
May 12, 1995 among FACT, Bankers Trust Company, as
servicer, and Marine Midland Bank, as trustee.
4.07* - Amended and Restated Trust Agreement, dated as of
May 12, 1995, among Saks, HNY, INc. and Wilmington Trust
Company, as owner trustee.
4.08* - Registration Rights Agreement, dated as of August
16, 1996, among Saks Holdings and certain stockholders of
Saks.
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 Receivables Purchase
Agreement, dated as of November 5, 1992.
10.02.3* Second Amendment to the 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.
10.03.4* Third Amendment to the 1991-2 Supplement, dated as
of November 5, 1992.
<PAGE>
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 Chemcial
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.
11.01 - Statement Re: Computation of Per Share Earnings
13.01 - Common Stock Market Prices and Common Stock
Information, incorporated into Part II, Item 5 of this Form
10-K by reference to the Registrant's annual shareholders
report for the year ended February 1, 1997 (the "1997 Annual
Report").
13.02 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, incorporated into Part
II, Item 6 and Item 7 of this Form 10-K by reference to the
1997 Annual Report.
13.03 - Report of Independent Accountants and Consolidated
Financial Statements, incorporated into Part II, Item 8 of
this Form 10-K by reference to the 1997 Annual Report.
21.01 - Subsidiaries of the Registrant
22.01 - Proxy Statement, incorporated herein by reference to
Registrants' definitive Proxy Statement for its annual
shareholders meeting to be held on June 16, 1997
(File No. 001-14346), filed on May 2, 1997.
23.01 - Consent of Independent Accountants
27.01 - Financial Data Schedule
<PAGE>
Exhibit No.
-----------
99.01 - Press Release - Saks announces preliminary first
quarter results
99.02 - Press Release - Saks Holding, Inc. and Isetan
Company Limited agree to a joint reorganization plan for
Barney's Inc.
- ----------------
* Incorporated herein by reference to Saks Holdings' registration statement
on Form S-1 (File No. 333-2426)
(b) Reports on Form 8-K filed in the fourth quarter of fiscal
1996:
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SAKS HOLDINGS, INC.
/s/ Mark E. Hood
-----------------
Mark E. Hood
Senior Vice President - Finance
Chief Accounting Officer
May 2, 1997
-----------
Date
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Philip B. Miller
- --------------------------------------- Chairman of the Board and May 2, 1997
Philip B. Miller Chief Executive Officer
(Principal Executive Officer)
/s/ Brian E. Kendrick
- --------------------------------------- Vice Chairman of the Board and May 2, 1997
Brian E. Kendrick Chief Operating Officer
/s/ Rose Marie Bravo
- -------------------------------------- President and Director May 2, 1997
Rose Marie Bravo
/s/ Richard F. Zannino
- -------------------------------------- Executive Vice President, May 2, 1997
Richard F. Zannino Chief Financial Officer and
Treasurer (Principal Financial
Officer)
/s/ Savio W. Tung
- ---------------------------------------- Director May 2, 1997
Savio W. Tung
/s/ Jon P. Hedley
- ------------------------------------------ Director May 2, 1997
Jon P. Hedley
/s/ E. Garrett Bewkes III
- -------------------------------------- Director May 2, 1997
E. Garrett Bewkes III
/s/ Charles J. Philippin
- ---------------------------------------- Director May 2, 1997
Charles J. Philippin
/s/ Stephen I. Sadove
- ---------------------------------------- Director May 2, 1997
Stephen I. Sadove
/s/ Brian Ruder
- ---------------------------------------- Director May 2, 1997
Brian Ruder
/s/ Mark E. Hood
- ----------------------------------------- Senior Vice President - Finance May 2, 1997
Mark E. Hood (Principal Accounting Officer)
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Saks Holdings, Inc.
Our report on the consolidated financial statements of Saks Holdings, Inc. has
been incorporated by reference in this Form 10-K from the Annual Shareholders
Report of Saks Holdings, Inc. In connection with our audits of such consolidated
financial statements, we have also audited the related financial statement
schedule listed in item 14(a-2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 4, 1997
<PAGE>
Schedule I - Condensed Financial Information of Registrant
Saks Holdings, Inc.
(Parent Company)
Condensed Balance Sheets
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
-------------------- ---------------------
(In Thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................ $ 5,159 $ -
Interest receivable from subsidiary .................. 5,429 -
-------------------- ---------------------
Total current assets ............................ 10,588 -
Note receivable from subsidiary .......................... 276,000 -
Deferred financing costs, net ............................ 7,907 -
Investment in subsidiary ................................. 515,604 83,175
-------------------- ---------------------
Total assets ................................... $ 810,099 $ 83,175
==================== =====================
Liabilities and shareholders' equity
Current liabilities ...................................... $ 5,429 $ -
Long-term debt ........................................... 276,000 -
Shareholders' equity:
Common stock ........................................ 633 450
Other shareholders' equity .......................... 528,037 82,725
-------------------- ---------------------
Total shareholders' equity ............................... 528,670 83,175
-------------------- ---------------------
Total liabilities and shareholders' equity ............... $ 810,099 $ 83,175
==================== =====================
</TABLE>
The accompanying Notes are an integral part of the condensed financial
statements
<PAGE>
Schedule I - Condensed Financial Information of Registrant - Continued
Saks Holdings, Inc.
(Parent Company)
Condensed Statements of Operations
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
------------------ ----------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Interest income .................................. $ 5,468 $ - $ -
Interest expense ................................. 5,722 - -
------------------ ----------------- ------------------
Income (loss) before income taxes and equity
in net income (loss) of subsidiaries ........ (254) - -
Income taxes ..................................... - - -
------------------ ----------------- ------------------
(254) - -
Equity in net income (loss) of subsidiaries ...... 24,398 (64,095) (10,618)
------------------ ----------------- ------------------
Net income (loss) ................................ $ 24,144 $ (64,095) $ (10,618)
================== ================= ==================
</TABLE>
The accompanying Notes are an integral part of the condensed financial
statements
<PAGE>
Schedule I - Condensed Financial Information of Registrant - Continued
Saks Holdings, Inc.
(Parent Company)
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
---------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Net cash provided by operating activities ............... $ 16,477 $ 0 $ 0
---------------- --------------- ---------------
Investing activities:
Advances to subsidiary ............................. (276,000) - -
Investment in subsidiary ........................... (424,469) - -
---------------- --------------- ---------------
Net cash (used in) investing activities ................. (700,469) 0 0
---------------- --------------- ---------------
Financing activities:
Proceeds from initial public offering .............. (416,969) - -
Proceeds from exercise of stock options ............ 4,325 - -
Proceeds from issuance of Notes .................... 276,000 - -
Financing costs .................................... (8,200) - -
Other .............................................. 57 - -
---------------- --------------- ---------------
Net cash provided by financing activities ............... 689,151 0 0
---------------- --------------- ---------------
Increase in cash and cash equivalents ................... 5,159 $ 0 $ 0
---------------- --------------- ---------------
Cash at end of year ..................................... $ 5,159 $ 0 $ 0
================ =============== ===============
</TABLE>
The accompanying Notes are an integral part of the condensed financial
statements
<PAGE>
Schedule I - Condensed Financial Information of Registrant - Continued
Saks Holdings, Inc.
(Parent Company)
Notes to Condensed Financial Statements
1. Basis of Presentation
Saks Holdings, Inc.'s investment in subsidiaries is accounted for under the
equity method and is stated at cost plus (minus) equity in undistributed
earnings (losses) since the date of acquisition, less dividends received from
subsidiaries. Parent company-only financial statements are not the primary
financial statements of the registrant and should be read in conjunction with
the Company's consolidated financial statements included in the Saks Holdings,
Inc. consolidated annual report to shareholders.
2. Note Receivable from Subsidiary
The terms and provisions of this note correspond to those of the convertible
subordinated notes disclosed in the Saks Holdings, Inc. consolidated financial
statements.
<PAGE>
Exhibit Index
Exhibit No. Page No.
- ----------- --------
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* - See Exhibits 3.01 and 3.02 as to the rights of holders of Saks
Holdings' Common Stock.
4.02* - Form of Stock Certificate of the Common Stock of Saks Holdings.
4.03.1- Credit Agreement, dated as of October 8, 1996, among Saks, the several
lenders form time to time party thereto and The Chase Manhattan Bank as
administrative agent (the "Credit Facility").
4.04.2- Consent No. 1 to the Credit Facility, dated as of January 17, 1997.
4.05* - 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").
4.06* - Trust and Servicing Agreement dated as of May 12, 1995 among FACT,
Bankers Trust Company, as servicer, and Marine Midland Bank, as trustee.
4.07* - Amended and Restated Trust Agreement, dated as of May 12, 1995, among
Saks, HNY, Inc. and Wilmington Trust Company, as owner trustee.
4.08* - Registration Rights Agreement, dated as of August 16, 1996, among Saks
Holdings and certain stockholders of Saks.
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 Receivables Purchase Agreement, dated as
of November 5, 1992.
10.02.3* Second Amendment to the 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.
10.03.4* Third Amendment to the 1991-2 Supplement, dated as of November 5, 1992.
<PAGE>
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 Chemcial 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.
11.01 - Statement Re: Computation of Per Share Earnings
13.01 - Common Stock Market Prices and Common Stock Information,
incorporated into Part II, Item 5 of this Form 10-K by
reference to the Registrant's annual shareholders report for
the year ended Feburary 1, 1997 (the "1997 Annual Report").
13.02 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, incorporated into Part II, Item 6
and Item 7 of this Form 10-K by reference to the 1997 Annual
Report.
13.03 - Report of Independent Accountants and Consolidated Financial
Statements, incorporated into Part II, Item 8 of this Form
10-K by reference to the 1997 Annual Report.
21.01 - Subsidiaries of the Registrant
22.01 - Proxy Statement, incorporated herein by reference to
Registrants' definitive Proxy Statement for its annual
shareholder meeting to be held on June 16, 1997
(File No. 001-14346), filed on May 2, 1997.
23.01 - Consent of Independent Accountants
27.01 - Financial Data Schedule
99.01 - Press Release - Saks announces preliminary first quarter
results
99.02 - Press Release - Saks Holding, Inc. and Isetan Company Limited
agree to a joint reorganization plan for Barney's Inc.
- ----------------
* Incorporated herein by reference to Saks Holdings' registration statement
on Form S-1 (File No. 333-2426)
<PAGE>
Exhibit 4.03.1
- --------------------------------------------------------------------------------
SAKS & COMPANY
---------------------------------------
CREDIT AGREEMENT
dated as of October 8, 1996
---------------------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS....................................................... 1
1.1 Defined Terms.................................................. 1
1.2 Other Definitional Provisions..................................17
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS..................17
2.1 Revolving Credit Commitments...................................17
2.2 Swing Line Commitment..........................................18
2.3 Commitment Fee.................................................20
2.4 Proceeds of Revolving Credit Loans.............................20
2.5 Issuance of Letters of Credit..................................20
2.6 Participating Interests........................................21
2.7 Procedure for Opening Letters of Credit........................21
2.8 Payments in Respect of Letters of Credit.......................21
2.9 Letter of Credit Fees..........................................22
2.10 Letter of Credit Reserves.....................................22
2.11 Further Assurances............................................23
2.12 Obligations Absolute..........................................23
2.13 Assignments...................................................24
2.14 Participations................................................24
2.15 Repayment of Loans............................................24
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS............................25
3.1 Procedure for Borrowing........................................25
3.2 Conversion Options.............................................26
3.3 Changes of Commitment Amounts..................................26
3.4 Optional Prepayments...........................................27
3.5 Interest Rates and Payment Dates...............................27
3.6 Computation of Interest and Fees...............................28
3.7 Certain Fees...................................................28
3.8 Inability to Determine Interest Rate...........................28
3.9 Pro Rata Treatment and Payments................................29
3.10 Illegality....................................................30
3.11 Requirements of Law...........................................31
3.12 Indemnity.....................................................33
3.13 Replacement of Banks..........................................34
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................34
4.1 Financial Condition............................................34
4.2 Corporate Existence; Compliance with Law.......................35
4.3 Corporate Power; Authorization.................................36
4.4 Enforceable Obligations........................................36
4.5 No Legal Bar...................................................36
4.6 No Material Litigation.........................................36
-i-
<PAGE>
Page
----
4.7 Investment Company Act.........................................37
4.8 Federal Regulation.............................................37
4.9 No Default.....................................................37
4.10 Taxes.........................................................37
4.11 Subsidiaries..................................................37
4.12 Ownership of Property; Liens..................................37
4.13 ERISA.........................................................38
4.14 Collateral Documents..........................................39
4.15 Patents, Copyrights, Permits and Trademarks, Licenses and
Leases........................................................40
SECTION 5. CONDITIONS PRECEDENT..............................................40
5.1 Conditions to Effectiveness....................................40
5.2 Conditions to All Loans and Letters of Credit..................42
SECTION 6. AFFIRMATIVE COVENANTS.............................................42
6.1 Financial Statements...........................................42
6.2 Certificates; Other Information................................44
6.3 Payment of Obligations.........................................44
6.4 Conduct of Business and Maintenance of Existence...............45
6.5 Maintenance of Property; Insurance.............................45
6.6 Inspection of Property; Books and Records; Discussions.........45
6.7 Notices........................................................46
6.8 Dividends by Real Estate Holding Subsidiaries..................47
SECTION 7. NEGATIVE COVENANTS................................................47
7.1 Real Estate Financings; Other Letters of Credit................47
7.2 Limitation on Liens............................................48
7.3 Limitation on Contingent Obligations...........................49
7.4 Prohibition of Fundamental Changes.............................50
7.5 Prohibition on Sale of Assets..................................51
7.6 Limitation on Investments, Loans and Advances..................52
7.7 Capital Expenditures...........................................54
7.8 Interest Coverage..............................................55
7.9 Total Indebtedness to Total Capitalization.....................55
7.10 Limitation on Dividends.......................................56
7.11 Transactions with Affiliates..................................57
7.12 Foreign Exchange Contracts....................................58
7.13 Prepayments and Amendments of Subordinated Debt and Real
Estate Indebtedness...........................................58
7.14 Restrictions on Holdings......................................58
SECTION 8. EVENTS OF DEFAULT.................................................59
SECTION 9. THE ADMINISTRATIVE AGENT; CHASE AS ISSUER.........................62
-ii-
<PAGE>
Page
----
9.1 Appointment....................................................62
9.2 Delegation of Duties...........................................62
9.3 Exculpatory Provisions.........................................62
9.4 Reliance by Administrative Agent...............................62
9.5 Notice of Default..............................................63
9.6 Non-Reliance on Administrative Agent and Other Banks...........63
9.7 Indemnification................................................64
9.8 The Administrative Agent in Its Individual Capacity............64
9.9 Successor Administrative Agent.................................64
9.10 Chase as Issuer of Letters of Credit..........................65
SECTION 10. MISCELLANEOUS....................................................65
10.1 Amendments and Waivers........................................65
10.2 Notices.......................................................66
10.3 No Waiver; Cumulative Remedies................................67
10.4 Survival of Representations and Warranties....................67
10.5 Payment of Expenses and Taxes.................................67
10.6 Successors and Assigns; Participations; Purchasing Banks......68
10.7 Permitted Payments............................................71
10.8 Adjustments; Set-off..........................................71
10.9 Counterparts..................................................72
10.10 Governing Law; No Third Party Rights.........................72
10.11 Submission to Jurisdiction; Waivers..........................73
10.12 Release of Collateral........................................73
10.13 Termination of Holdings Guarantee............................73
SCHEDULES
Schedule I Commitment Fee
Schedule III Domestic Subsidiaries
Schedule IV Foreign Subsidiaries
Schedule VI Liens and Contingent Obligations
Schedule VIII Filing Jurisdictions
Schedule X Existing Letters of Credit
Schedule XII Intellectual Property
-iii-
<PAGE>
Page
----
EXHIBITS
EXHIBIT A-1 Revolving Credit Note
EXHIBIT A-2 Swing Line Note
EXHIBIT B Opinion of Gibson, Dunn & Crutcher
EXHIBIT C-1 Holdings Closing Certificate
EXHIBIT C-2 Company Closing Certificate
EXHIBIT D L/C Participation Certificate
EXHIBIT E Commitment Transfer Supplement
EXHIBIT F Swing Line Loan Participation Certificate
EXHIBIT G Acknowledgment, Consent and Amendment
EXHIBIT H Form of Intercompany Note
-iv-
<PAGE>
CREDIT AGREEMENT, dated as of October 8, 1996, among SAKS & COMPANY,
a New York corporation (the "Company"), the several lenders from time to time
parties hereto (the "Banks") and THE CHASE MANHATTAN BANK, a New York banking
corporation, 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, the banks parties thereto on the date hereof
(the "Existing Lenders") and the Administrative Agent are parties to the Amended
and Restated Credit Agreement, dated as of July 1, 1993 (as amended,
supplemented or otherwise modified to the date hereof, the "Existing Credit
Agreement"); and
WHEREAS, the Company has requested the Banks parties hereto on the
date hereof (such Banks which are not Existing Lenders, the "New Lenders") and
the Administrative Agent to amend and restate the Existing Credit Agreement as
of the Effective Date (as herein defined) to provide for, inter alia, (i) the
New Lenders to become parties to this Agreement, (ii) increasing to $350,000,000
the revolving credit commitments of the Banks and (iii) extending to October 30,
2001 the maturity of the revolving credit commitments under the Existing Credit
Agreement; and
WHEREAS, the Banks and the Administrative Agent are so willing to
amend and restate the Existing Credit Agreement as of the Effective Date, but
only on, and subject to, the terms and conditions hereof and, as of the
Effective Date, this Agreement shall supersede the Existing Credit Agreement in
all respects;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company, the Banks and the Administrative Agent
hereby amend and restate the Existing Credit Agreement, effective as of the
Effective Date but not before, as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms defined in
the caption or in the "Whereas" clauses hereto shall have the meanings set forth
therein, and the following terms have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in
effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
For purposes hereof: "Prime Rate" shall mean the rate of interest per
annum publicly announced from time to time by the Administrative Agent as
its prime rate in effect at its principal office in New York City (the
Prime Rate not being intended to be the lowest rate of interest charged by
The Chase Manhattan Bank in connection with extensions of credit to
debtors); "Base
<PAGE>
2
CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the C/D Reserve Percentage and (b)
the C/D Assessment Rate; "Three-Month Secondary CD Rate" shall mean, for
any day, the secondary market rate for three-month certificates of deposit
reported as being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board of Governors
of the Federal Reserve System (the "Board") through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New
York City received at approximately 10:00 A.M., New York City time, on
such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing
selected by it; and "Federal Funds Effective Rate" shall mean, for any
day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for the
day of such transactions received by the Administrative Agent from three
federal funds brokers of recognized standing selected by it. If for any
reason the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to ascertain
the Base CD Rate or the Federal Funds Effective Rate, or both, for any
reason, including the inability or failure of the Administrative Agent to
obtain sufficient quotations in accordance with the terms thereof, the ABR
shall be determined without regard to clause (b) or (c), or both, of the
first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the ABR due
to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
"Accounts Receivable Financing": The sale, encumbrance or other
disposition, at any time or from time to time, of all or a portion of the
accounts receivable of the Company or any of its Subsidiaries, whether
existing on the date of this Agreement or hereafter arising.
"Adjustment Date": (a) the second Business Day following receipt by
the Administrative Agent of both (i) the financial statements required to
be delivered pursuant to subsections 6.1(a) or 6.1(b) for the most
recently completed fiscal period and (ii) the compliance certificate
required pursuant to subsection 6.2(b) with respect
<PAGE>
3
to such financial statements or (b) if such compliance certificate and
financial statements have not been delivered in a timely manner, the
latest date upon which the compliance certificate required to be delivered
pursuant to subsection 6.2(b) for the most recently completed fiscal
period was due; provided, however, that in the event that the Adjustment
Date is determined in accordance with the provisions of clause (b) of this
definition, then the date which is two Business Days following the date of
receipt of the financial statements and compliance certificate referenced
in clause (a) of this definition also shall be deemed to constitute an
"Adjustment Date".
"Affiliate": of any Person (a) any Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is
under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect,
(i) to vote 25% or more of the securities having ordinary voting power for
the election of directors of such Person, whether by ownership of
securities, contract, proxy or otherwise, or (ii) to direct or cause the
direction of the management and policies of such Person, whether by
ownership of securities, contract, proxy or otherwise.
"Aggregate Extensions of Revolving Credit": at any particular time,
the sum of (a) the aggregate then outstanding principal amount of the
Revolving Credit Loans and Swing Line Loans, (b) the aggregate amount then
available to be drawn under all outstanding Letters of Credit and (c) the
aggregate unpaid amount of L/C Obligations.
"Agreement": the Existing Credit Agreement as amended and restated
by this Credit Agreement, as the same may be further amended, supplemented
or modified from time to time.
"APB 16": Accounting Principles Board Opinion No. 16 as in effect on
the date hereof.
"Applicable Margin": for any date for each Type of Loan, if the
applicable Interest Coverage Ratio is:
(i) greater than or equal to 5.0, the rate per annum set forth
under the relevant column heading below:
ABR Loans Eurodollar Loans
--------- ----------------
0.00% 0.50%
(ii) greater than or equal to 4.0 but less than 5.0, the rate
per annum set forth under the relevant column heading below:
ABR Loans Eurodollar Loans
--------- ----------------
<PAGE>
4
0.00% 0.75%
(iii) greater than or equal to 3.0 but less than 4.0, the rate
per annum set forth under the relevant column heading below:
ABR Loans Eurodollar Loans
--------- ----------------
0.00% 1.00%
(iv) greater than or equal to 2.5 but less than 3.0, the rate
per annum set forth under the relevant column heading below:
ABR Loans Eurodollar Loans
--------- ----------------
0.25% 1.25%
(v) less than 2.5, the rate per annum set forth under the
relevant column heading below:
ABR Loans Eurodollar Loans
--------- ----------------
0.50% 1.50%
The Applicable Margin for the period commencing with each Adjustment Date and
ending on the next succeeding Adjustment Date, shall be determined by reference
to the Interest Coverage Ratio of the Company set forth on the certificate most
recently required to be delivered to the Banks pursuant to subsection 6.2(b);
provided, that, (a) until the first Adjustment Date, the Applicable Margin shall
be 0.00% for ABR Loans and 1.00% for Eurodollar Loans and (b) if for any reason
the certificate required by subsection 6.2(b) is not timely delivered to the
Banks, the Interest Coverage Ratio shall be (i) during the period from the date
upon which such certificate was required to be delivered until the date upon
which it actually is delivered, the Applicable Margin in effect immediately
prior to the date such financial statements were due, and (ii) if such
certificate, when actually delivered, would have required an increase in the
Applicable Margin over the Applicable Margin in effect immediately prior to the
date such certificate was due, the Company shall promptly following the delivery
of such certificate pay to the Banks and the Administrative Agent any additional
amounts of interest or fees which would have been payable on any previous
Interest Payment Date had such higher Applicable Margin been in effect from the
date such certificate was required to be delivered; and provided, further, that
any change in the Applicable Margin as a result of a change in the Interest
Coverage Ratio shall apply to all Loans for each day during the period
commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change in Applicable
Margin.
<PAGE>
5
"Available Revolving Credit Commitment": as to any Bank, at a
particular time, an amount equal to (a) the amount of such Bank's
Revolving Credit Commitment at such time less (b) the sum of (i) the
aggregate unpaid principal amount at such time of all Revolving Credit
Loans made by such Bank pursuant to subsection 2.1, (ii) such Bank's L/C
Participating Interest in the aggregate amount available to be drawn at
such time under all outstanding Letters of Credit, (iii) such Bank's
Revolving Credit Commitment Percentage of the aggregate unpaid principal
amount at such time of all Swing Line Loans, provided that for purposes of
calculating the Available Revolving Credit Commitment under subsection 2.3
such amount shall be zero and (iv) such Bank's Revolving Credit Commitment
Percentage of the aggregate outstanding amount of L/C Obligations;
collectively, as to all the Banks, the "Available Revolving Credit
Commitments".
"Banks": as defined in the recitals hereto.
"Borrowing Date": any Business Day, or, in the case of Eurodollar
Loans, Working Day, specified in a notice pursuant to (a) subsection 2.2
or 3.1 as a date on which the Company requests the Banks to make Loans
hereunder or (b) subsection 2.5 as a date on which the Company requests
Chase to issue a Letter of Credit hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"Capital Expenditures": for any period, all amounts which would, in
accordance with GAAP, be set forth as capital expenditures (other than
amounts expended with proceeds of loans, advances and contributions made
pursuant to subsection 7.6(l) to the extent such loans, advances or
contributions have previously been treated as Capital Expenditures)
(exclusive of any amount attributable to capitalized interest) on the
consolidated statement of changes in financial position or other similar
statement of the Company and its Subsidiaries for such period; provided
that any Capital Expenditures financed with the proceeds of any
Indebtedness permitted hereunder (other than Indebtedness incurred
hereunder or Subordinated Debt or Indebtedness incurred pursuant to
Subsection 7.6(l)) shall be deemed to be a Capital Expenditure only in the
period in which, and by the amount which, any principal of such
Indebtedness is repaid.
"Cash Equivalents": (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than twelve months
from the date of acquisition, (ii) certificates of deposit and eurodollar
time deposits with maturities of twelve months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding twelve
months and overnight bank deposits, in each case with any Bank or with any
domestic commercial bank having capital and surplus in excess of
$300,000,000, (iii) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (i)
and (ii) entered into with any financial institution meeting the
qualifications specified in clause (ii) above, (iv) commercial paper (x)
issued by any Bank or the parent corporation of any Bank, or (y) rated A-1
<PAGE>
6
or the equivalent thereof by S&P or P-1 or the equivalent thereof by
Moody's and in each case maturing within twelve months after the date of
acquisition and (v) shares of money market mutual funds or similar funds
which invest exclusively in assets satisfying the requirements of clauses
(i) through (iv) of this definition.
"C/D Assessment Rate": for any day the net annual assessment rate
(rounded upwards, if necessary, to the next 1/100 of 1%) determined by the
Administrative Agent to be payable on such day to the Federal Deposit
Insurance Corporation or any successor ("FDIC") for FDIC's insuring time
deposits made in Dollars at offices of the Administrative Agent in the
United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan,
that percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board of Governors of the Federal Reserve System (or
any successor) (the "Board"), for determining the maximum reserve
requirement for a Depositary Institution (as defined in Regulation D of
the Board) in respect of new non-personal time deposits in Dollars having
a maturity of 30 days or more.
"Change in Law": with respect to any Bank, the adoption of any law,
rule, regulation, policy, guideline or directive (whether or not having
the force of law) or any change therein or in the interpretation or
application thereof by any Governmental Authority having jurisdiction over
such Bank, in each case after the Effective Date.
"Change in Control': shall be considered to have occurred if any
Person (other than INVESTCORP S.A., any of its Affiliates or Subsidiaries,
any Person that is a member of the senior management of the Company or
Holdings, any entity the majority of the equity ownership interests of
which is owned by such senior management of the Company or Holdings or any
Person acting in the capacity of an underwriter), whether singly or in
concert with one or more Persons, shall, directly or indirectly, have
acquired, or acquired the power to vote or direct the voting of, 25% or
more, on a fully diluted basis, of the outstanding common stock of the
Company or of the common stock of Holdings.
"Chase": The Chase Manhattan Bank.
"Closing Date": July 2, 1990.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commercial L/C": a commercial documentary letter of credit under
which Chase agrees to make payments in Dollars for the account of the
Company, on behalf of the Company or a Subsidiary thereof, in respect of
obligations of the Company or such Subsidiary in connection with the
purchase of goods in the ordinary course of business.
<PAGE>
7
"Commitment Transfer Supplement": the supplement substantially in
the form of Exhibit E.
"Commitments": the collective reference to the Revolving Credit
Commitments and the Swing Line Commitment; individually, a "Commitment".
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Company within the
meaning of Section 414(b) or (c) of the Code.
"Company Pledge Agreement": the Pledge Agreement, dated as of July
2, 1990, made by the Company in favor of the Administrative Agent for the
ratable benefit of the Banks, as the same has been and may be further
amended, modified or supplemented from time to time.
"Company Security Agreement": the Collateral Security Agreement,
dated as of July 2, 1990, made by the Company in favor of the
Administrative Agent for the ratable benefit of the Banks, as the same has
been and may be further amended, modified or supplemented from time to
time.
"Consolidated EBITDA": for any period, the consolidated net income
of Holdings and its Subsidiaries for such period, plus, without
duplication and to the extent reflected as a charge in the statement of
such consolidated net income for such period, the sum of (i) taxes
measured by income or net worth, (ii) interest expense, amortization
(including amortization of interest rate cap costs) or writeoff of debt
discount and debt issuance costs and commissions, discounts and other fees
and charges associated with Indebtedness, (iii) depreciation and
amortization expense, (iv) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (v) any increase in the LIFO
reserve, (vi) any premiums or penalties paid by Holdings or any of its
Subsidiaries upon repurchase or redemption of any Indebtedness, (vii)
management fees, (ix) transaction costs incurred in connection with
Accounts Receivable Financing and (x) other non-recurring or extraordinary
charges, all as determined in accordance with GAAP.
"Consolidated Net Worth": at a particular date, all amounts which
would, in conformity with GAAP, be included under shareholders' equity on
a consolidated balance sheet of Holdings and its Subsidiaries as at such
date.
"Contingent Obligation": as to any Person, any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or
not contingent (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property,
<PAGE>
8
securities or services primarily for the purpose of assuring the owner of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Contingent Obligation shall not
include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Contingent Obligation shall
be deemed to be an amount equal to the stated or determinable amount
(based on the maximum reasonably anticipated net liability in respect
thereof as determined by the Company in good faith) of the primary
obligation or portion thereof in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated net liability in respect thereof (assuming such
Person is required to perform thereunder) as determined by the Company in
good faith.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of the
property owned by it is bound.
"Convertible Subordinated Notes": the 5.5% convertible subordinated
notes of Holdings due September 15, 2006.
"Credit Documents": the collective reference to this Agreement, the
Notes, the Company Pledge Agreement, the Holdings Pledge Agreement, the
Security Agreements, the Subsidiary Guarantee, the Mortgages and the
Supplemental Agreement.
"Credit Parties": the collective reference to Holdings, the Company
and each Subsidiary of the Company.
"Default": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Domestic Subsidiary": any Subsidiary of the Company other than a
Foreign Subsidiary.
"Effective Date": as defined in subsection 5.1.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Loans": Loans at such time as they are made and/or being
maintained at a rate of interest based upon a Eurodollar Rate.
<PAGE>
9
"Eurodollar Rate": with respect to any Interest Period for any
Eurodollar Loan, the rate per annum equal to the quotient of (a) the
average (rounded upwards to the nearest whole multiple of one sixteenth of
one percent) of the respective rates notified to the Administrative Agent
by the Reference Banks as the rate at which each of such Reference Banks
is offered Dollar deposits at or about 10:00 a.m. New York City time two
Working Days prior to the beginning of such Interest Period in the
interbank eurodollar market where the foreign currency and exchange
operations in respect of its Eurodollar Loans are then being conducted for
delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of the
Eurodollar Loan of such Reference Bank to be outstanding during such
Interest Period, divided by (b) a number equal to 1.00 minus the aggregate
(without duplication) of the rates (expressed as a decimal fraction) of
reserve requirements current on the date two Working Days prior to the
beginning of such Interest Period (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other Governmental
Authority having jurisdiction with respect thereto), as now and from time
to time hereafter in effect, dealing with reserve requirements prescribed
for Eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) maintained by a member bank of
such System (such Eurodollar Rate to be rounded upwards, if necessary, to
the next higher 1/100 of one percent).
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, event or act has been satisfied.
"Foreign Subsidiary": any Subsidiary of the Company which is
organized under the laws of any jurisdiction outside the United States of
America or under the laws of the U.S. Virgin Islands.
"GAAP": generally accepted accounting principles in the United
States of America as in effect on the Effective Date.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Holdings": Saks Holdings, Inc. (f/k/a/ Windows Holdings, Inc.), a
Delaware corporation and the parent of the Company.
"Holdings Pledge Agreement": the Pledge Agreement, dated as of July
2, 1990, made by Holdings in favor of the Administrative Agent for the
ratable benefit of the Banks, as the same may be amended, modified or
supplemented from time to time.
"Indebtedness": of a Person, at a particular date, without
duplication, (a) all indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services, (b) the undrawn face
amount of all letters of credit issued for the
<PAGE>
10
account of such Person and, without duplication, all drafts drawn
thereunder and unpaid reimbursement obligations with respect thereto, (c)
all liabilities (limited to the value of the assets encumbered) (other
than Lease Obligations) secured by any Lien on any property owned by such
Person, to the extent attributable to such Person's interest in such
property, even though such Person has not assumed or become liable for the
payment thereof, (d) lease obligations of such Person which, in accordance
with GAAP, should be capitalized and (e) all indebtedness of such Person
arising under acceptance facilities; but excluding (x) accruals for
outstanding gift certificates in the ordinary course of business, (y)
customer deposits and interest payable thereon in the ordinary course of
business and (z) trade and other accounts and accrued expenses payable in
the ordinary course of business in accordance with customary trade terms
and, in the case of both clauses (y) and (z) above, which are not overdue
for a period of more than 90 days or, if overdue for more than 90 days, as
to which a dispute exists and adequate reserves in conformity with GAAP
have been established on the books of such Person.
"Initial Public Offering": the first offering of the common stock of
Holdings to the public pursuant to the prospectus dated May 21, 1996.
"Insolvency": with respect to a Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of such term as used in
Section 4245 of ERISA.
"Intercompany Note": the subordinated note or notes issued by the
Company to Holdings in an aggregate principal amount equal to the
aggregate principal amount of the Convertible Subordinated Notes,
substantially in the form of Exhibit H.
"Interest Coverage Ratio": on the last day of any fiscal quarter,
the ratio of (a) Consolidated EBITDA to (b) cash interest expense
(including fees payable on account of Letters of Credit but excluding
capitalized interest expense) net of interest income (excluding
amortization of debt discount (including discount of liabilities and
reserves established under APB 16), amortization of interest rate cap
costs, amortization of debt issuance costs and interest expense on
customer deposits), in each case for the period of four fiscal quarters
ending on such day on a consolidated basis for Holdings and its
Subsidiaries, as determined in accordance with GAAP, provided that for any
calculation period that includes the fourth 1995 fiscal quarter or the
first, second or third 1996 fiscal quarters cash interest expense shall be
deemed to be cash interest expense on a pro forma basis assuming the
Initial Public Offering had occurred on the first day of the calculation
period and the proceeds thereof were applied in accordance with the
Existing Credit Agreement on such day, and provided further that for any
calculation period that includes the fourth 1995 fiscal quarter or the
first, second or third 1996 fiscal quarters cash interest expense shall be
deemed to be cash interest expense on a pro forma basis assuming the
Refinancing had occurred on the first day of the calculation period and
the proceeds thereof were applied in accordance with the Credit Agreement
on such day.
<PAGE>
11
"Interest Payment Date": (a) as to ABR Loans, the last day of each
March, June, September and December, commencing on the first such day to
occur after any ABR Loans are made or any Eurodollar Loans are converted
to ABR Loans, (b) as to any Eurodollar Loan in respect of which the
Company has selected an Interest Period of one, two or three months, the
last day of such Interest Period and (c) as to any Eurodollar Loan in
respect of which the Company has selected an Interest Period of six, nine
or twelve months, the last day of each March, June, September and
December, commencing on the first such day to occur after such Eurodollar
Loan is made or an ABR Loan is converted to such a Eurodollar Loan, and
the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on, as the case may be,
the Borrowing Date or conversion date with respect to such
Eurodollar Loan and ending one, two, three, six, nine or, if
available to all of the Banks, twelve months thereafter as selected
by the Company in its notice of borrowing as provided in subsection
3.1 or its notice of conversion as provided in subsection 3.2; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan
and ending one, two, three or six, nine or, if available to all of
the Banks, twelve months thereafter as selected by the Company by
irrevocable notice to the Administrative Agent not less than three
Working Days prior to the last day of the then current Interest
Period with respect to such Eurodollar Loan;
provided that the foregoing provisions relating to Interest Periods are subject
to the following:
(A) if any Interest Period would otherwise end on a day which
is not a Working Day, that Interest Period shall be extended to the
next succeeding Working Day, unless the result of such extension
would be to carry such Interest Period into another calendar month,
in which event such Interest Period shall end on the immediately
preceding Working Day;
(B) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date, or if the
Termination Date shall not be a Working Day, on the next preceding
Working Day;
(C) if the Company shall fail to give notice as provided above
in clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an ABR Loan (which conversion shall occur
automatically and without need for compliance with the conditions
for conversion set forth in subsection 3.2); and
<PAGE>
12
(D) any Interest Period that begins on the last day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Working Day of a calendar month.
"International Rights": the rights to use the trade names and
trademarks of the Company and its Subsidiaries and to merchandise their
proprietary goods outside the United States of America and any franchise
or similar rights with respect thereto.
"L/C Application": as defined in subsection 2.5(a).
"L/C Obligations": the obligations of the Company to reimburse Chase
for any payments made by Chase under any Letter of Credit that have not
been reimbursed by the Company pursuant to subsection 2.8(a).
"L/C Participating Interest": an undivided participating interest in
the face amount of each issued and outstanding Letter of Credit and the
L/C Application relating thereto.
"L/C Participation Certificate": the certificate in substantially
the form of Exhibit D.
"Lease Obligations": of the Company and its Subsidiaries, as of the
date of any determination thereof, the rental commitments of the Company
and its Subsidiaries determined on a consolidated basis, if any, under
leases for real and/or personal property (net of rental commitments from
sub-leases thereof), excluding however, obligations under leases which are
classified as Indebtedness under clause (d) of the definition of
Indebtedness.
"Letters of Credit": the collective reference to the Commercial L/Cs
and the Standby L/Cs; individually, a "Letter of Credit".
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing
except for the filing of financing statements in connection with Lease
Obligations incurred by the Company or its Subsidiaries to the extent that
such financing statements relate to the property subject to such Lease
Obligations).
"Loans": the collective reference to the Revolving Credit Loans and
the Swing Line Loans; individually, a "Loan".
<PAGE>
13
"Moody's": Moody's Investors Service, Inc., or any successor
thereto.
"Mortgages": the collective reference to (a) the Mortgages and Deeds
of Trust on the Company's property located in Phoenix, Arizona and the
Company's store located in Boca Raton, Florida dated April 5, 1995, made
by the Company in favor of the Administrative Agent, for the ratable
benefit of the Banks, as collateral security for the Company's obligations
hereunder and the other Credit Documents and (b) the Mortgage on the
Company's property located in Greenwich, Connecticut, dated October 24,
1995, made by Saks Fifth Avenue -Stamford, Inc. in favor of the
Administrative Agent, for the ratable benefit of the Banks, as collateral
security for the Company's obligations hereunder and the other Credit
Documents, in each case as the same are amended, supplemented or otherwise
modified from time to time.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Notes": the collective reference to the Revolving Credit Notes and
the Swing Line Note; one of the Notes, a "Note".
"Participating Bank": any Bank (other than Chase) with respect to
its L/C Participating Interest in each Letter of Credit.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Liens": Liens permitted to exist under subsection 7.2.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": any pension plan which is covered by Title IV of ERISA and
in respect of which the Company or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.
"Pledge Agreements": the collective reference to the Holdings Pledge
Agreement and the Company Pledge Agreement; individually, a "Pledge
Agreement".
"Pro Forma Balance Sheet": as defined in subsection 4.1.
"Real Estate Financing": the outstanding principal balance of
Commercial Mortgage Pass-Through Certificates issued by the Fifth Avenue
Capital Trust on May 12, 1995 and any financing or financings in the
nature of Indebtedness secured by the interest in real property and/or
equipment of the Company and its Subsidiaries (other than any Indebtedness
incurred hereunder) and any refinancings of any of the foregoing.
<PAGE>
14
"Real Estate Holding Subsidiary": a special-purpose direct or
indirect wholly-owned Subsidiary of the Company (i) that is engaged in no
business activity other than (A) holding fee or leasehold interests in
real property at which the Company and/or one or more Subsidiaries of the
Company conduct business and (B) leasing or subleasing such property to
the Company and/or one or more Subsidiaries of the Company, (ii) whose
principal assets are the interests in real property referred to in clause
(i), and (iii) that has incurred or will incur Indebtedness in connection
with the Real Estate Financing.
"Reference Banks": Chase and Bankers Trust Company.
"Refinancing": as defined in subsection 4.1.
"Refunded Swing Line Loans": as defined in subsection 2.2.
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System, as from time to time in effect.
"Related Document": any agreement, certificate, document or
instrument relating to a Letter of Credit.
"Remaining Strategic Capital Amount": at any time, (a) $140,000,000
minus (b) the sum of (i) the aggregate amount of acquisitions made in
accordance with subsection 7.6(m) and (ii) the aggregate amount of Capital
Expenditures made in accordance with the last sentence of subsection 7.7.
"Reorganization": with respect to a Multiemployer Plan, the
condition that such Plan is in reorganization as such term is used in
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b)
of ERISA or the regulations thereunder.
"Required Banks": at a particular time, the holders of at least 51%
of the sum of the aggregate Revolving Credit Commitments or if such
Commitments are terminated the aggregate unpaid principal amount of
Revolving Credit Loans.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive officer or the chief
operating officer of the Company or, with respect to financial matters,
the chief financial officer, treasurer or the senior vice president of
finance of the Company.
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15
"Revolving Credit Commitment": as to any Bank, its obligations to
make Revolving Credit Loans to the Company pursuant to subsection 2.1, and
to purchase its L/C Participating Interest in any Letter of Credit, in an
aggregate amount not to exceed the amount set forth on such Bank's
signature page hereto opposite the heading "Revolving Credit Commitment"
as the same may be reduced from time to time pursuant to subsection 3.3;
collectively, as to all the Banks, the "Revolving Credit Commitments".
"Revolving Credit Commitment Percentage": as to any Bank, the
percentage of the aggregate Revolving Credit Commitments constituted by
such Bank's Revolving Credit Commitment (or if the Revolving Credit
Commitments are terminated, such Bank's percentage of the Aggregate
Extensions of Revolving Credit).
"Revolving Credit Commitment Period": the period from and including
the Effective Date to but not including the Termination Date.
"Revolving Credit Loan" and "Revolving Credit Loans": as defined in
subsection 2.1(a).
"Revolving Credit Note" and "Revolving Credit Notes": as defined in
subsection 2.1.
"S&P": Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"Security Agreements": the collective reference to the Company
Security Agreement and the Subsidiary Security Agreements.
"Single Employer Plan": any Plan which is not a Multiemployer Plan.
"Standby L/C": an irrevocable letter of credit under which Chase
agrees to make payments in Dollars for the account of the Company, on
behalf of the Company or any Subsidiary thereof in respect of obligations
of the Company or such Subsidiary incurred pursuant to contracts made or
performances undertaken or to be undertaken or like matters relating to
contracts to which the Company or such Subsidiary is or proposes to become
a party in the ordinary course of the Company's or such Subsidiary's
business, including, without limiting the foregoing, for insurance
purposes or in respect of advance payments or as bid or performance bonds
or for any other purpose for which a standby letter of credit might
customarily be issued.
"Subordinated Debt Indenture": the Indenture, dated as of July 1,
1993 between the Company and AIBC Services, N.V. as trustee for the
Subordinated Notes, as amended, supplemented or otherwise modified from
time to time in accordance with the provisions hereof.
"Subordinated Notes": subordinated notes of the Company issued
pursuant to the Subordinated Debt Indenture.
<PAGE>
16
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned directly or
indirectly through one or more intermediaries, or both, by such Person. A
Subsidiary shall be deemed wholly owned by a Person if such Person owns
all of the shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such Subsidiary.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of Holdings, including, without limitation, the Company.
"Subsidiary Guarantee": the Subsidiary Guarantee, dated as of July
2, 1990, made by the Subsidiaries of the Company party thereto in favor of
the Administrative Agent for the ratable benefit of the Banks, as amended,
modified or supplemented from time to time.
"Subsidiary Security Agreement": the Collateral Security Agreement,
dated as of July 2, 1990, made by the Subsidiaries of the Company party
thereto in favor of the Administrative Agent for the ratable benefit of
the Banks, as amended, modified or supplemented from time to time.
"Supplemental Agreement": the agreement, dated the date hereof,
between Holdings and the Banks.
"Swing Line Commitment": Chase's obligation to make Swing Line Loans
pursuant to subsection 2.2.
"Swing Line Loan Participation Certificate": a certificate in
substantially the form of Exhibit F.
"Swing Line Loans": as defined in subsection 2.2(a).
"Swing Line Note": as defined in subsection 2.2(b).
"Termination Date": October 30, 2001.
"Total Indebtedness": at any date the sum of all Indebtedness of
Holdings and its Subsidiaries at such date on a consolidated basis (other
than Indebtedness with respect to the undrawn face amount of all letters
of credit issued for the account of Holdings or any of its Subsidiaries).
"Total Capitalization": the sum of (a) Total Indebtedness at such
date plus (b) Consolidated Net Worth of Holdings at such date.
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17
"Type": as to any Loan, its nature as an ABR Loan or Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, and any amendments thereof.
"Working Day": any day on which dealings in foreign currencies and
exchange between banks may be carried on in London, England and in New
York, New York.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, any other Credit Document or any certificate or other
document made or delivered pursuant hereto.
(b) As used herein and in the Notes, any other Credit Document and
any certificate or other document made or delivered pursuant hereto, accounting
terms relating to the Company and its Subsidiaries not defined in subsection 1.1
and accounting terms partly defined in subsection 1.1 to the extent not defined,
shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Bank agrees to continue to extend credit to the Company
from time to time on any Borrowing Date during the Revolving Credit Commitment
Period (i) by making loans in Dollars (individually, a "Revolving Credit Loan",
and collectively the "Revolving Credit Loans") to the Company from time to time
and (ii) by purchasing an L/C Participating Interest in each Letter of Credit
issued by Chase. The aggregate amount of the undrawn Letters of Credit and L/C
Obligations at any time shall not exceed in the aggregate $100,000,000.
Notwithstanding the above, in no event shall (i) any Revolving Credit Loan be
made, or Letter of Credit be issued if, after giving effect to such making or
issuance and the use of proceeds thereof as irrevocably directed by the Company,
the sum of the Aggregate Extensions of Revolving Credit would exceed the
aggregate Revolving Credit Commitments or (ii) any Revolving Credit Loan be
made, or Letter of Credit be issued, if the amount of such Loan to be made by
any Bank or L/C Participating Interest to be acquired by any Bank in connection
with such issuance would exceed the Available Revolving Credit Commitment
<PAGE>
18
of such Bank. During the Revolving Credit Commitment Period the Company may use
the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof, and/or by having Chase issue Letters of Credit, having such
Letter of Credit expire undrawn upon or if drawn upon, reimbursing Chase for
such drawing, and having Chase issue new Letters of Credit.
(b) Each borrowing of Revolving Credit Loans pursuant to the
Revolving Credit Commitments shall be in an aggregate principal amount of the
lesser of (i) $3,000,000 or a whole multiple of $1,000,000 in excess thereof and
(ii) the Available Revolving Credit Commitments except that any borrowing of
Revolving Credit Loans to be used solely to pay a like amount of Swing Line
Loans may be in the aggregate principal amount of such Swing Line Loans.
(c) The Revolving Credit Loans made by each Bank shall, if such Bank
shall so request on or prior to the Effective Date or any purchaser in
connection with any assignment pursuant to subsection 10.6 shall so request, be
evidenced by a promissory note of the Company, substantially in the form of
Exhibit A (a "Revolving Credit Note") with appropriate insertions, payable to
the order of such Bank and representing the obligation of the Company to pay the
lesser of (a) the amount of the initial Revolving Credit Commitment of such Bank
and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made
by such Bank, with interest thereon as prescribed in subsection 3.5. Each Bank
is hereby authorized to record its outstanding Revolving Credit Loans
outstanding on the Effective Date, the Borrowing Date, Type and amount of each
Revolving Credit Loan made by such Bank, the date and amount of each payment or
prepayment of principal thereof, the date of each interest rate conversion
pursuant to subsection 3.2 and the principal amount subject thereto on the
schedule annexed to and constituting a part of its Revolving Credit Note and, in
the absence of manifest error, any such recordation shall constitute prima facie
evidence of the accuracy of the information so recorded, provided that the
failure of any Bank to make such recordation (or any error in such recordation)
shall not affect the obligations of the Company hereunder or under such Note.
Each Revolving Credit Note shall (i) be dated the Effective Date, (ii) be stated
to mature on the Termination Date and (iii) bear interest for the period from
the date thereof on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum determined as provided in
subsections 3.5(a), (b) and (c). Interest on each Revolving Credit Note shall be
payable on the dates specified in subsection 3.5(d).
2.2 Swing Line Commitment. (a) Subject to the terms and conditions
hereof, Chase agrees to make swing line loans (individually, a "Swing Line
Loan"; collectively, the "Swing Line Loans") to the Company from time to time
during the Revolving Credit Commitment Period in an aggregate principal amount
at any one time outstanding not to exceed $30,000,000, provided that at no time
may the sum of the aggregate outstanding principal amount of the Aggregate
Extensions of Revolving Credit exceed the Revolving Credit Commitments. Amounts
borrowed by the Company under this subsection 2.2 may be repaid and, through but
excluding the Termination Date, reborrowed. All Swing Line Loans shall be made
as ABR Loans and shall not be entitled to be converted into Eurodollar Loans.
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The Company shall give Chase irrevocable notice (which notice must be received
by Chase prior to 1:00 p.m., New York City time) on the requested Borrowing Date
specifying the amount of each requested Swing Line Loan, which shall be in an
aggregate minimum amount of $250,000 or a whole multiple of $100,000 in excess
thereof. The proceeds of each Swing Line Loan will be made available by Chase to
the Company by crediting the account of the Company at Chase with such proceeds.
The proceeds of Swing Line Loans may be used solely for the purposes referred to
in subsection 2.4.
(b) The Swing Line Loans shall be evidenced by a promissory note of
the Company substantially in the form of Exhibit A-2, with appropriate
insertions (the "Swing Line Note"), payable to the order of Chase and
representing the obligation of the Company to pay the aggregate unpaid principal
amount of the Swing Line Loans, with interest thereon as prescribed in
subsection 3.5. Chase is hereby authorized to record the Borrowing Date, the
amount of each Swing Line Loan and the date and amount of each payment or
prepayment of principal thereof, on the schedule annexed to and constituting a
part of the Swing Line Note and, in the absence of manifest error, any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded, provided that the failure of Chase to make such
recordation (or any error in such recordation) shall not affect the obligations
of the Company hereunder or under such Note. The Swing Line Note shall (a) be
dated the Effective Date, (b) be stated to mature on the Termination Date and
(c) bear interest for the period from the date thereof on the unpaid principal
amount thereof from time to time outstanding at the applicable interest rate per
annum determined as provided in, and payable as specified in, subsection 3.5.
(c) Chase at any time in its sole and absolute discretion may, and
on the fifteenth day (or if such day is not a Business Day, the next Business
Day) and last Business Day of each month shall, on behalf of the Company (which
hereby irrevocably directs Chase to act on its behalf) request each Bank,
including Chase, to make a Revolving Credit Loan in an amount equal to such
Bank's Revolving Credit Commitment Percentage of the amount of the Swing Line
Loans (the "Refunded Swing Line Loans") outstanding on the date such notice is
given. Unless any of the events described in paragraph (f) of Section 8 shall
have occurred with respect to the Company (in which event the procedures of
paragraph (d) of this subsection 2.2 shall apply) each Bank shall make the
proceeds of its Revolving Credit Loan available to Chase for the account of
Chase at the address for notice set forth in subsection 10.2 prior to 12:00 Noon
(New York City time) in funds immediately available on the Business Day next
succeeding the date such notice is given. The proceeds of such Revolving Credit
Loans shall be immediately applied to repay the Refunded Swing Line Loans.
(d) If prior to the making of a Revolving Credit Loan pursuant to
paragraph (c) of subsection 2.2 one of the events described in paragraph (f) of
Section 8 shall have occurred with respect to the Company, each Bank will, on
the date such Loan was to have been made, purchase an undivided participating
interest in the Refunded Swing Line Loan in an amount equal to its Revolving
Credit Commitment Percentage of such Refunded Swing Line Loan. Each Bank will
immediately transfer to Chase, in immediately available funds, the amount of its
participation and upon receipt thereof Chase will deliver to such Bank a Swing
Line Loan Participation Certificate dated the date of receipt of such funds and
in such amount.
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20
(e) Whenever, at any time after Chase has received from any Bank
such Bank's participating interest in a Refunded Swing Line Loan, Chase receives
any payment on account thereof, Chase will distribute to such Bank its
participating interest in such amount (appropriately adjusted, in the case of
interest payments, to reflect the period of time during which such Bank's
participating interest was outstanding and funded) in like funds as received;
provided, however, that in the event that such payment received by Chase is
required to be returned, such Bank will return to Chase any portion thereof
previously distributed by Chase to it in like funds as such payment is required
to be returned by Chase.
(f) Each Bank's obligation to purchase participating interests
pursuant to subsection 2.2(d) shall be absolute and unconditional and shall not
be affected by any circumstance, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense or other right which such Bank may have
against Chase, the Company, Holdings or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of an Event of Default; (iii) any
adverse change in the condition (financial or otherwise) of the Company; (iv)
any breach of this Agreement by the Company or any other Bank; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
2.3 Commitment Fee. The Company agrees to pay to the Administrative
Agent for the account of each Bank a commitment fee from and including the
Effective Date to and including the Termination Date, computed at the rate per
annum set forth on Schedule I on the average daily amount of the Available
Revolving Credit Commitment of such Bank during the period for which payment is
made (whether or not the Company shall have satisfied the applicable conditions
to borrowing or issuance of a Letter of Credit set forth in Section 5); provided
that from the Effective Date until the first Adjustment Date, the commitment fee
shall be 0.275% per annum. Such commitment fee shall be payable quarterly in
arrears on the last day of each March, June, September and December and on the
Termination Date, commencing on December 31, 1996.
2.4 Proceeds of Revolving Credit Loans. The Company shall use the
proceeds of Revolving Credit Loans made on or after the Effective Date solely
for the purposes of financing general corporate purposes of the Company or any
of its Subsidiaries in accordance with the terms hereof.
2.5 Issuance of Letters of Credit. (a) The Company may from time to
time request Chase to issue a Standby L/C or a Commercial L/C by delivering to
Chase, a letter of credit application in Chase's then customary form (the "L/C
Application") completed to the satisfaction of Chase, together with the proposed
form of such Letter of Credit (which shall comply with the applicable
requirements of paragraph (b) below) and such other certificates, documents and
other papers and information as Chase may reasonably request; provided that if
Chase informs the Company that it is for any reason unable to open such Letter
of Credit, the Company may request any Bank to open such Letter of Credit upon
the same terms offered to Chase and each reference to Chase for purposes of
subsections 2.5 through 2.14, and subsection 5.2 shall be deemed to be a
reference to such issuing Bank. As of the Effective Date, the letters of credit
listed on Schedule X shall be deemed to be Letters of Credit issued hereunder on
the Effective Date.
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21
(b) Each Standby L/C and Commercial L/C issued hereunder shall,
among other things, (i) be in such form requested by the Company as shall be
acceptable to Chase in its sole discretion, (ii) in the case of each Standby
L/C, have an expiry date occurring not later than one year after the date of
issuance, except that each Standby L/C may provide for the renewal thereof for
additional periods not to exceed one year, (iii) in the case of each Commercial
L/C, have an expiry date occurring not later than six months after the date of
issuance of such Commercial L/C and (iv), in all cases, have an expiry date
occurring not later than five Business Days prior to the Termination Date. Each
L/C Application and each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
2.6 Participating Interests. (a) Effective as of the Effective Date,
Chase hereby repurchases from each Existing Lender, and each Existing Lender
sells to Chase, its L/C Participating Interest in each existing Letter of Credit
listed on Schedule X.
(b) Effective in the case of each Standby L/C and Commercial L/C as
of the date of the opening thereof (or, in the case of each existing letter of
credit listed on Schedule X, the Effective Date), Chase agrees to allot and does
allot, to itself and each other Bank, and each Bank severally and irrevocably
agrees to take and does take in such Letter of Credit and the related L/C
Application, an L/C Participating Interest in a percentage equal to such Bank's
Revolving Credit Commitment Percentage.
2.7 Procedure for Opening Letters of Credit. Chase will notify each
Bank after the end of each calendar quarter of any L/C Applications received by
Chase from the Company during such quarter. Upon receipt of any L/C Application
from the Company, Chase will process such L/C Application, and the other
certificates, documents and other papers delivered to Chase in connection
therewith, in accordance with its customary procedures and, subject to the terms
and conditions hereof, shall promptly open such Letter of Credit by issuing the
original of such Letter of Credit to the beneficiary thereof and by furnishing a
copy thereof to the Company and, after the end of the quarter in which such
Letter of Credit was opened, to the other Banks, provided that no such Letter of
Credit shall be issued if subsection 2.1 would be violated thereby.
2.8 Payments in Respect of Letters of Credit. (a) The Company agrees
forthwith upon demand by Chase and otherwise in accordance with the terms of the
L/C Application relating thereto, (i) to reimburse Chase for any payment made by
Chase under any Letter of Credit and (ii) to pay interest on any unreimbursed
portion of any such payment from the date of such payment until reimbursement in
full thereof at a rate per annum equal to (A) prior to the date which is one
Business Day after the day on which Chase demands reimbursement from the Company
for such payment, the ABR plus the Applicable Margin and (B) on such date and
thereafter, the ABR plus the Applicable Margin for ABR Loans plus 2% per annum.
(b) In the event that Chase makes a payment under any Letter of
Credit and is not reimbursed in full therefor forthwith upon demand of Chase,
and otherwise in accordance with the terms of the L/C Application relating to
such Letter of Credit, Chase will promptly notify each other Bank. Forthwith
upon its receipt of any such notice, each other Bank will
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22
transfer to Chase, in immediately available funds, an amount equal to such other
Bank's pro rata share of the L/C Obligation arising from such unreimbursed
payment. Upon its receipt from such other Bank of such amount, Chase will
complete, execute and deliver to such other Bank an L/C Participation
Certificate dated the date of such receipt and in such amount.
(c) Whenever, at any time after Chase has made a payment under any
Letter of Credit and has received from any other Bank such other Bank's pro rata
share of the L/C Obligation arising therefrom, Chase receives any reimbursement
on account of such L/C Obligation or any payment of interest on account thereof,
Chase will distribute to such other Bank its pro rata share thereof in like
funds as received; provided, however, that in the event that the receipt by
Chase of such reimbursement or such payment of interest (as the case may be) is
required to be returned, such other Bank will return to Chase any portion
thereof previously distributed by Chase to it in like funds as such
reimbursement or payment is required to be returned by Chase.
2.9 Letter of Credit Fees. (a) In lieu of any letter of credit
commissions and fees provided for in any L/C Application relating to Letters of
Credit (other than standard issuance, amendment and negotiation fees), the
Company agrees to pay the Administrative Agent, for the account of Chase and the
Participating Banks, with respect to each Letter of Credit, a Letter of Credit
fee at a rate per annum equal to the Applicable Margin for Eurodollar Loans (of
which Chase shall retain for its own account, as the issuing bank and not on
account of its L/C Participating Interest therein, 1/4 of 1% per annum) on the
daily average amount available to be drawn under each Letter of Credit payable,
in arrears, on the last day of each fiscal quarter of the Company.
(b) For purposes of any payment of fees required pursuant to this
subsection 2.9, the Administrative Agent agrees to provide to the Company a
statement of any such fees to be so paid; provided that the failure by the
Administrative Agent to provide the Company with any such invoice shall not
relieve the Company of its obligation to pay such fees.
2.10 Letter of Credit Reserves. (a) If any change after the
Effective Date in any law or regulation or in the interpretation or application
thereof by any court or other Governmental Authority charged with the
administration thereof shall either (i) impose, modify, deem or make applicable
any reserve, special deposit, assessment or similar requirement against letters
of credit issued by Chase or (ii) impose on Chase any other condition regarding
this Agreement or any Letter of Credit, and the result of any event referred to
in clause (i) or (ii) above shall be to increase the cost of Chase of issuing or
maintaining any Letter of Credit (which increase in cost shall be the result of
Chase's reasonable allocation of the aggregate of such cost increases resulting
from such events), then, upon demand by Chase, the Company shall immediately pay
to Chase, from time to time as specified by Chase, additional amounts which
shall be sufficient to compensate Chase for such increased cost, together with
interest on each such amount from the date demanded until payment in full
thereof at a rate per annum equal to the ABR plus the Applicable Margin for ABR
Loans. A certificate, setting forth in reasonable detail the calculation of the
amounts involved, submitted by Chase to the Company concurrently with any such
demand by Chase, shall be conclusive, absent manifest error, as to the amount
thereof.
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23
(b) In the event that at any time after the Effective Date any Change in
Law with respect to Chase shall, in the opinion of Chase, require that any
obligation under any Letter of Credit be treated as an asset or otherwise be
included for purposes of calculating the appropriate amount of capital to be
maintained by Chase or any corporation controlling Chase, and such Change in Law
shall have the effect of reducing the rate of return on Chase's or such
corporation's capital, as the case may be, as a consequence of Chase's
obligations under such Letter of Credit to a level below that which Chase or
such corporation, as the case may be, could have achieved but for such Change in
Law (taking into account Chase's or such corporation's policies, as the case may
be, with respect to capital adequacy) by an amount deemed by Chase to be
material, then from time to time following notice by Chase to the Company of
such Change in Law, within 15 days after demand by Chase, the Company shall pay
to Chase such additional amount or amounts as will compensate Chase or such
corporation, as the case may be, for such reduction. If Chase becomes entitled
to claim any additional amounts pursuant to this subsection 2.10(b), it shall
promptly notify the Company of the event by reason of which it has become so
entitled. A certificate, in reasonable detail setting forth the calculation of
the amounts involved, submitted by Chase to the Company concurrently with any
such demand by Chase, shall be conclusive, absent manifest error, as to the
amount thereof.
(c) The Company agrees that the provisions of the foregoing paragraphs (a)
and (b) and the provisions of each L/C Application providing for reimbursement
or payment to Chase in the event of the imposition or implementation of, or
increase in, any reserve, special deposit, capital adequacy or similar
requirement in respect of the Letter of Credit relating thereto shall apply
equally to each Participating Bank in respect of its L/C Participating Interest
in such Letter of Credit, as if the references in such paragraphs and provisions
referred to, where applicable, such Participating Bank or any corporation
controlling such Participating Bank.
2.11 Further Assurances. The Company hereby agrees, from time to time, to
do and perform any and all acts and to execute any and all further instruments
reasonably requested by Chase more fully to effect the purposes of this
Agreement and the issuance of Letters of Credit hereunder.
2.12 Obligations Absolute. The payment obligations of the Company under
this Agreement with respect to the Letters of Credit shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:
(i) the existence of any claim, set-off, defense or other right
which the Company or any of its Subsidiaries may have at any time against
any beneficiary, or any transferee, of any Letter of Credit (or any
Persons for whom any such beneficiary or any such transferee may be
acting), Chase, the Administrative Agent or any Bank, or any other Person,
whether in connection with this Agreement, the Related Documents, any
Credit Documents, the transactions contemplated herein, or any unrelated
transaction;
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24
(ii) any statement or any other document presented under any Letter
of Credit proving to be forged, fraudulent or invalid or any statement
therein being untrue or inaccurate in any respect;
(iii) payment by Chase under any Letter of Credit against
presentation of a draft or certificate which does not comply with the
terms of such Letter of Credit or is insufficient in any respect, except
where such payment constitutes gross negligence or willful misconduct on
the part of Chase; or
(iv) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing, except for any such circumstances or
happening constituting gross negligence or willful misconduct on the part
of Chase.
2.13 Assignments. No Participating Bank's participation in any Letter of
Credit or any of its rights or duties hereunder shall be subdivided, assigned or
transferred (other than in connection with a transfer of part or all of such
Participating Bank's Revolving Credit Commitment in accordance with subsection
10.6(c)) without the prior written consent of Chase, which consent will not be
unreasonably withheld. Such consent may be given or withheld without the consent
or agreement of any other Participating Bank. On the date that any Purchasing
Bank (as defined in subsection 10.6) acquires any Revolving Credit Commitments
in accordance with subsection 10.6, participating interests in any outstanding
Letters of Credit held by the transferor Bank from which such Purchasing Bank
acquired its interest hereunder shall be proportionately reallotted between such
Purchasing Bank and such transferor Bank. Notwithstanding the foregoing, a
Participating Bank may subparticipate its L/C Participating Interest without
obtaining the prior written consent of Chase.
2.14 Participations. Each Bank's obligation to purchase participating
interests pursuant to subsection 2.6 shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i)
any set-off, counterclaim, recoupment, defense or other right which such Bank
may have against Chase, the Company, Holdings or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of an Event of Default; (iii) any
adverse change in the condition (financial or otherwise) of the Company; (iv)
any breach of this Agreement by the Company or any other Bank; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
2.15 Repayment of Loans. (a) The Company hereby unconditionally promises
to pay to the Administrative Agent for the account of: (i) each Bank, the then
unpaid principal amount of each Revolving Credit Loan of such Bank made to the
Company, on the Termination Date (or such earlier date on which the Revolving
Credit Loans become due and payable pursuant to Section 8) and (ii) Chase, the
then unpaid principal amount of the Swing Line Loans made to the Company, on the
Termination Date (or such earlier date on which the Swing Line Loans become due
and payable pursuant to Section 8). The Company hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 3.5.
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25
(b) Each Bank shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Company to such Bank
resulting from each Loan of such Bank from time to time, including the amounts
of principal and interest payable and paid to such Bank from time to time under
this Agreement; provided, however, that the failure of such Bank to maintain
such account or accounts, or any error therein, shall not in any manner affect
the obligation of the Company to repay (with applicable interest) the Loans made
to the Company in accordance with the terms of this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 10.6(d), and a subaccount therein for each Bank, in which shall be
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period, if any, applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Company to each
Bank hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Company and each Bank's share thereof.
(d) The entries made in the Register shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Company therein recorded; provided, however, that the failure
of the Administrative Agent to maintain the Register, or any error therein,
shall not in any manner affect the obligation of the Company to repay (with
applicable interest) the Loans made to the Company in accordance with the terms
of this Agreement.
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS
3.1 Procedure for Borrowing. (a) The Company may borrow under the
Revolving Credit Commitments on any Working Day, if the borrowing is of
Eurodollar Loans, or on any Business Day, if the borrowing is of ABR Loans,
provided that, with respect to any borrowings, the Company shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 noon, New York City time, (i) three Working
Days prior to the requested Borrowing Date if all or any part of the Revolving
Credit Loans are to be Eurodollar Loans and (ii) one Business Day prior to the
requested Borrowing Date if the borrowing is to be solely of ABR Loans) and
specifying (A) the amount of the borrowing, (B) whether such Revolving Credit
Loans are initially to be Eurodollar Loans or ABR Loans or a combination thereof
and (C) if the borrowing is to be entirely or partly Eurodollar Loans, the
length of the Interest Period for such Eurodollar Loans. Upon receipt of such
notice the Administrative Agent shall promptly notify each Bank. Not later than
12:00 noon, New York City time, on the Borrowing Date specified in such notice,
each Bank shall make available to the Administrative Agent at the office of the
Administrative Agent specified in subsection 10.2 (or at such other location as
the Administrative Agent may direct) an amount in immediately available funds
equal to the amount of the Revolving Credit Loan(s) to be made by such Bank.
Revolving Credit Loan proceeds received by the Administrative Agent hereunder
shall promptly be made available to the Company by the Administrative Agent's
crediting the account of the Company, at the office of the Administrative Agent
specified in subsection 10.2, with the aggregate amount actually received by the
Administrative Agent from the Banks and in like funds as received by the
Administrative Agent.
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(b) Any borrowing of Eurodollar Loans hereunder shall be in such amounts
and be made pursuant to such elections so that, after giving effect thereto, (i)
the aggregate principal amount of all Eurodollar Loans having the same Interest
Period shall not be less than $5,000,000 or a whole multiple of $1,000,000 in
excess thereof and (ii) no more than fifteen Interest Periods shall be in effect
at any one time.
3.2 Conversion Options. The Company may elect from time to time to convert
Eurodollar Loans into ABR Loans by giving the Administrative Agent irrevocable
notice of such election, to be received by the Administrative Agent prior to
12:00 noon, New York City time, at least three Working Days prior to the
proposed conversion date, provided that any such conversion of Eurodollar Loans
shall only be made on the last day of an Interest Period with respect thereto.
The Company may elect from time to time to convert all or a portion of the ABR
Loans (other than Swing Line Loans) then outstanding to Eurodollar Loans by
giving the Administrative Agent irrevocable notice of such election, to be
received by the Administrative Agent prior to 12:00 noon, New York City time, at
least three Working Days prior to the proposed conversion date, specifying the
Interest Period selected therefor, and, if no Default or Event of Default has
occurred and is continuing such conversion shall be made on the requested
conversion date or, if such requested conversion date is not a Working Day, on
the next succeeding Working Day. Upon receipt of any notice pursuant to this
subsection 3.2, the Administrative Agent shall promptly notify each Bank
thereof. All or any part of the outstanding Loans (other than Swing Line Loans)
may be converted as provided herein, provided that partial conversions of ABR
Loans shall be in the aggregate principal amount of $5,000,000 or a whole
multiple of $1,000,000 in excess thereof and the aggregate principal amount of
the resulting Eurodollar Loans outstanding in respect of any one Interest Period
shall be at least $5,000,000 or a whole multiple of $1,000,000 in excess
thereof.
3.3 Changes of Commitment Amounts. (a) The Company shall have the right,
upon not less than three Business Days' notice to the Administrative Agent, to
terminate or, from time to time, permanently reduce the Commitments, subject to
the provisions of this subsection 3.3.
(b) To the extent, if any, that the sum of the amount of the Revolving
Credit Loans, L/C Obligations and Swing Line Loans then outstanding and the
amounts available to be drawn under outstanding Letters of Credit exceeds the
amount of the Revolving Credit Commitments as then in effect, the Company shall
be required to make a prepayment equal to such excess amount, the proceeds of
which shall be applied first, to payment of the Swing Line Loans then
outstanding, second, to payment of the Revolving Credit Loans then outstanding,
third, to payment of any L/C Obligations then outstanding, and last, to cash
collateralize any outstanding Letters of Credit on terms reasonably satisfactory
to the Administrative Agent. Any termination of the Revolving Credit Commitments
shall be accompanied by prepayment in full of the Revolving Credit Loans, Swing
Line Loans and L/C Obligations then outstanding and by cash collateralization of
any outstanding Letters of Credit on terms reasonably satisfactory to the
Administrative Agent. Upon termination of the Revolving Credit Commitments, any
Letter of Credit then outstanding which has been so cash collateralized shall no
longer be considered a "Letter of Credit" as defined in subsection 1.1 and any
L/C Participating Interests heretofore granted by Chase to the Banks in such
Letter of
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27
Credit shall be deemed terminated (subject to automatic reinstatement in the
event that such cash collateral is returned and Chase is not fully reimbursed
for any such L/C Obligations) but the Letter of Credit fees payable under
subsection 2.9 shall continue to accrue to Chase (or, in the event of any such
automatic reinstatement, as provided in subsection 2.9) with respect to such
Letter of Credit until the expiry thereof.
(c) In the case of termination of any of the Commitments, interest accrued
on the amount of any prepayment relating thereto and any unpaid commitment fee
accrued hereunder shall be made on the date of such termination. Any partial
reduction of Revolving Credit Commitments shall be in an amount of $5,000,000,
or a whole multiple of $1,000,000 in excess thereof, and shall reduce
permanently the amount of Revolving Credit Commitments then in effect.
3.4 Optional Prepayments. The Company may at any time and from time to
time prepay Loans, in whole or in part, without premium or penalty, (but subject
to Section 3.12 hereof) upon at least one Business Day irrevocable notice to the
Administrative Agent in the case of ABR Loans, and three Working Days'
irrevocable notice to the Administrative Agent in the case of Eurodollar Loans,
specifying the date and amount of prepayment. Upon receipt of such notice the
Administrative Agent shall promptly notify each Bank thereof. If such notice is
given, the Company shall make such prepayment, and the payment amount specified
in such notice shall be due and payable, on the date specified therein. Accrued
interest on the amount of such prepayment shall be paid on the Interest Payment
Date next succeeding the date of any partial prepayment and on the date of such
prepayment in the case of termination of the Commitments. Partial prepayments of
Revolving Credit Loans, shall be in an aggregate principal amount equal to the
lesser of (A) $3,000,000 or a whole multiple of $1,000,000 in excess thereof and
(B) the aggregate unpaid principal amount of the Revolving Credit Loans.
3.5 Interest Rates and Payment Dates. (a) Eurodollar Loans shall bear
interest for each Interest Period applicable thereto, commencing on the first
day of such Interest Period to, but excluding, the last day of such Interest
Period, on the unpaid principal amount thereof at a rate per annum equal to the
Eurodollar Rate determined for such Interest Period plus the Applicable Margin.
(b) ABR Loans shall bear interest for the period from and including the
date such Loans are made to, but excluding, the maturity date thereof, or to,
but excluding, the conversion date if such Loans are earlier converted into
Eurodollar Loans on the unpaid principal amount thereof at a rate per annum
equal to the ABR plus the Applicable Margin.
(c) If all or a portion of the principal amount of any of the Loans shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise) such Loan, if a Eurodollar Loan, shall be converted into an ABR Loan
at the end of the then-current Interest Period for said Eurodollar Loan (which
conversion shall occur automatically and without need for compliance with the
conditions for conversion set forth in subsection 3.2), and any such overdue
principal amount shall, without limiting the rights of the Banks under Section
8, bear interest at a rate per annum which is 2% above the ABR plus the
Applicable Margin from the date of such non-payment until paid in full (as well
after as before judgment).
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(d) Interest shall be payable in arrears on each Interest Payment Date.
3.6 Computation of Interest and Fees. (a) Interest in respect of ABR Loans
(when based on the Prime Rate) and all fees hereunder shall be calculated on the
basis of a 365 (or 366 as the case may be) day year for the actual days elapsed.
Interest in respect of Eurodollar Loans and ABR Loans (when based on the Base CD
Rate or the Federal Funds Effective Rate) shall be calculated on the basis of a
360 day year for the actual days elapsed. The Administrative Agent shall as soon
as practicable notify the Company and the Banks of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR shall become effective as of the opening of business on the
day on which such change in the ABR becomes effective. The Administrative Agent
shall as soon as practicable notify the Company and the Banks of the effective
date and the amount of each such change.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Company and the Banks in the absence of manifest error. The Administrative
Agent shall, at the request of the Company, deliver to the Company a statement
showing the quotations used by the Administrative Agent in determining the
Eurodollar Rate.
(c) If any Reference Bank's Commitment shall terminate (otherwise than on
termination of all the Commitments) such Reference Bank shall thereupon cease to
be a Reference Bank and, if as a result of the foregoing, there shall only be
one Reference Bank remaining, then the Administrative Agent (after consultation
with the Company and the Banks) shall, by notice to the Company and the Banks,
designate another Bank as a Reference Bank so that there shall at all times be
at least two Reference Banks.
(d) Each Reference Bank shall use its best efforts to furnish quotations
of rates to the Administrative Agent as contemplated hereby. If any of the
Reference Banks shall be unable or otherwise fails to supply such rates to the
Administrative Agent upon its request, the rate of interest shall be determined
on the basis of the quotations of the remaining Reference Banks or Reference
Bank.
3.7 Certain Fees. The Company agrees to pay to the Administrative Agent
for its own account, a non-refundable agent's fee, in the amount and upon the
terms set forth in the letter agreement, dated October 8, 1996, between the
Company and the Administrative Agent.
3.8 Inability to Determine Interest Rate. In the event that the
Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Company) that (a) by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for any Interest Period with respect
to (i) proposed Loans that the Company has requested be made as Eurodollar
Loans, (ii) any Eurodollar Loans that will result from the requested conversion
of all or part of the ABR Loans into Eurodollar Loans or (iii) the continuation
of any Eurodollar Loan as such for an additional Interest Period, or (b) dollar
deposits in the relevant amount
<PAGE>
29
and for the relevant period with respect to any such Eurodollar Loan are not
generally available to the Banks in their respective Eurodollar Lending Offices'
interbank eurodollar markets, the Administrative Agent shall forthwith give
notice of such determination to the Company and the Banks at least one day prior
to, as the case may be, the requested Borrowing Date, the conversion date or the
last day of such Interest Period. If such notice is given (i) any requested
Eurodollar Loans shall be made as ABR Loans, (ii) any ABR Loans that were to
have been converted to Eurodollar Loans shall be continued as ABR Loans, and
(iii) any outstanding Eurodollar Loans shall be converted, on the last day of
the then current Interest Period applicable thereto, into ABR Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made.
3.9 Pro Rata Treatment and Payments. (a) Each borrowing of Loans by the
Company from the Banks (other than Swing Line Loans) and any reduction of the
Commitments of the Banks hereunder shall be made pro rata according to the
relevant Revolving Credit Commitment Percentages of the Banks.
(b) Whenever any payment received by the Administrative Agent under this
Agreement or any Note is insufficient to pay in full all amounts then due and
payable to the Administrative Agent and the Banks under this Agreement and the
Notes, such payment shall be distributed by the Administrative Agent and applied
by the Administrative Agent and the Banks in the following order: First, to the
payment of fees and expenses due and payable to the Administrative Agent under
and in connection with this Agreement; Second, to the payment of all expenses
due and payable under subsection 10.5, ratably among the Banks in accordance
with the aggregate amount of such payments owed to each such Bank; Third, to the
payment of fees due and payable under subsections 2.3 and 2.9, ratably among the
Banks in accordance with the Revolving Credit Commitment Percentage of each Bank
of the Commitment for which such payment is owed and, in the case of Chase, the
amount retained by Chase for its own account pursuant to subsection 2.9; Fourth,
to the payment of interest then due and payable under the Notes, ratably in
accordance with the aggregate amount of interest owed to each such Bank; and
Fifth, to the payment of the principal amount of the Notes which is then due and
payable, ratably among the Banks in accordance with the aggregate principal
amount owed to each such Bank.
(c) All payments (including prepayments) to be made by the Company on
account of principal, interest and fees shall be made without set-off or
counterclaim and shall be made to the Administrative Agent, for the account of
the Banks at the Administrative Agent's office located at 2 Grand Central Tower,
140 East 45th Street, 29th Floor, New York, New York 10017, in lawful money of
the United States of America and in immediately available funds. The
Administrative Agent shall promptly distribute such payments in accordance with
the provisions of subsection 3.9(b) promptly upon receipt in like funds as
received. If any payment hereunder would become due and payable on a day other
than a Business Day, (i) if such payment would become due and payable on any
June 30 or December 31, such payment shall become due and payable on the
immediately preceding Business Day and (ii) otherwise, such payment shall become
due and payable on the next succeeding Business Day and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Working Day, the maturity thereof shall
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30
be extended to the next succeeding Working Day (and with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension), unless the result of such extension would be to extend such
payment into another calendar month in which event such payment shall be made on
the immediately preceding Working Day.
(d) Unless the Administrative Agent shall have been notified in writing by
any Bank prior to a Borrowing Date that such Bank will not make the amount which
would constitute its Revolving Credit Commitment Percentage of the borrowing on
such date available to the Administrative Agent, the Administrative Agent may
assume that such Bank has made such amount available to the Administrative Agent
on such Borrowing Date in accordance with subsection 3.1 and the Administrative
Agent may, in reliance upon such assumption, make available to the Company a
corresponding amount. If such amount is made available to the Administrative
Agent by such Bank on a date after such Borrowing Date, such Bank shall pay to
the Administrative Agent on demand an amount equal to the product of (i) the
daily average Federal funds rate during such period as quoted by the
Administrative Agent, times (ii) the amount of such Bank's Revolving Credit
Commitment Percentage of such borrowing, times (iii) a fraction the numerator of
which is the number of days that elapse from and including such Borrowing Date
to the date on which such Bank's Revolving Credit Commitment Percentage of such
borrowing shall have become immediately available to the Administrative Agent
and the denominator of which is 360. A certificate of the Administrative Agent
submitted to any Bank with respect to any amounts owing under this subsection
3.9(c) shall be conclusive, absent manifest error. If such Bank's Revolving
Credit Commitment Percentage of such borrowing is not in fact made available to
the Administrative Agent by such Bank within three Business Days of such
Borrowing Date, the Administrative Agent shall be entitled to recover such
amount with interest thereon at the rate per annum applicable to ABR Loans
hereunder, on demand, from the Company, without prejudice to any rights which
the Company or the Administrative Agent may have against such Bank hereunder.
Nothing contained in this subsection 3.9(c) shall relieve any Bank which has
failed to make available its ratable portion of any borrowing hereunder from its
obligation to do so in accordance with the terms hereof.
(e) The failure of any Bank to make the Loan to be made by it on any
Borrowing Date shall not relieve any other Bank of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Bank shall be
responsible for the failure of any other Bank to make the Loan to be made by
such other Bank on such Borrowing Date.
(f) All payments and optional prepayments (other than prepayments as set
forth in subsection 3.11 with respect to increased costs) of Eurodollar Loans
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Loans with the same Interest Period shall not be less than $5,000,000
or a whole multiple of $5,000,000 in excess thereof.
3.10 Illegality. Notwithstanding any other provisions herein, if any
Requirement of Law or any change therein or in the interpretation or application
thereof occurring after the date that any lender becomes a Bank party to this
Agreement, shall make it unlawful for such Bank to make or maintain Eurodollar
Loans as contemplated by this
<PAGE>
31
Agreement, the commitment of such Bank hereunder to make Eurodollar Loans or to
convert all or a portion of ABR Loans into Eurodollar Loans shall forthwith be
cancelled and such Bank's Loans then outstanding as Eurodollar Loans, if any,
shall, if required by law and if such Bank so requests, be converted
automatically to ABR Loans on the date specified by such Bank in such request.
To the extent that such affected Eurodollar Loans are converted into ABR Loans,
all payments of principal which would otherwise be applied to such Eurodollar
Loans shall be applied instead to such Bank's ABR Loans. The Company hereby
agrees promptly to pay any Bank, upon its demand, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this subsection 3.10 including, but not
limited to, any interest or fees payable by such Bank to lenders of funds
obtained by it in order to make or maintain its Eurodollar Loans hereunder (such
Bank's notice of such costs, as certified in reasonable detail as to such
amounts to the Company through the Administrative Agent, to be conclusive absent
manifest error).
3.11 Requirements of Law. (a) In the event that any Requirement of Law or
any change therein or in the interpretation or application thereof or compliance
by any Bank with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority occurring after the
date any Bank becomes a party to this Agreement:
(i) does or shall subject any Bank to any tax of any kind whatsoever
with respect to this Agreement, any Note or any Eurodollar Loans made by
it, or change the basis of taxation of payments to such Bank of principal,
commitment fee, interest or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of such Bank) (except
for (x) income or franchise taxes imposed on such Bank by the jurisdiction
under the laws of which such Bank is organized or any political
subdivision or taxing authority thereof or therein, or by any jurisdiction
in which such Bank's Office where its operations in respect of Eurodollar
Loans is then located or any political subdivision or taxing authority
thereof or therein, including changes in the rate of tax on the overall
net income of such Bank or office and (y) taxes resulting from the
substitution of any such system by another system of taxation, provided
that the taxes payable by Banks subject to such other system of taxation
are not generally charged to borrowers from such other system of taxation
are not generally charged to borrowers from such Banks having loans or
advances bearing interest at a rate similar to the Eurodollar Rate);
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, or deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any other
acquisition of funds by, any office of such Bank which are not otherwise
included in the determination of the Eurodollar Rate; or
(iii) does or shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank of
making, converting, renewing or maintaining advances or extensions of credit or
to reduce any amount
<PAGE>
32
receivable hereunder, in each case, in respect of its Eurodollar Loans, then, in
any such case, the Company shall promptly pay such Bank, upon its demand, any
additional amounts necessary to compensate such Bank for such additional cost or
reduced amount receivable which such Bank deems to be material as determined by
such Bank with respect to such Eurodollar Loans, together with interest on each
such amount from the date demanded until payment in full thereof at a rate per
annum equal to the ABR plus the Applicable Margin for ABR Loans.
(b) In the event that any Change in Law occurring after the date any Bank
becomes a Bank party to this Agreement with respect to any such Bank shall, in
the opinion of such Bank, require that any Commitment of such Bank be treated as
an asset or otherwise be included for purposes of calculating the appropriate
amount of capital to be maintained by such Bank or any corporation controlling
such Bank, and such Change in Law shall have the effect of reducing the rate of
return on such Bank's or such corporation's capital, as the case may be, as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank or such corporation, as the case may be, could have achieved but for
such Change in Law (taking into account such Bank's or such corporation's
policies, as the case may be, with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time following notice by
such Bank to the Company of such Change in Law as provided in paragraph (c) of
this subsection 3.11, within 15 days after demand by such Bank, the Company
shall pay to such Bank such additional amount or amounts as will compensate such
Bank or such corporation, as the case may be, for such reduction.
(c) If any Bank becomes entitled to claim any additional amounts pursuant
to this subsection 3.11, it shall promptly notify the Company, through the
Administrative Agent, of the event by reason of which it has become so entitled.
If any Bank has notified the Company through the Administrative Agent of any
increased costs pursuant to paragraph (a) of this subsection 3.11, the Company
at any time thereafter may, upon at least three Working Days' notice to the
Administrative Agent (which shall promptly notify the Banks thereof), and
subject to subsection 3.12, prepay (or convert into ABR Loans) all (but not a
part) of the Eurodollar Loans then outstanding. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of paragraph (a) of this
subsection 3.11 with respect to such Bank, it will, if requested by the Company
and to the extent permitted by law or by the relevant Governmental Authority,
endeavor in good faith to avoid or minimize the increase in costs or reduction
in payments resulting from such event (including, without limitation,
endeavoring to change its Eurodollar lending office); provided, however, that
such avoidance or minimization can be made in such a manner that such Bank, in
its sole determination, suffers no economic, legal or regulatory disadvantage.
If any Bank has notified the Company through the Administrative Agent of any
increased costs pursuant to paragraph (b) of this subsection 3.11, the Company
at any time thereafter may, upon at least five Business Days' notice to the
Administrative Agent (which shall promptly notify the Banks thereof), and
subject to subsection 3.12, reduce or terminate the Revolving Credit Commitments
in accordance with subsection 3.3.
(d) Each Bank that is not a United States Person (as defined in Section
7701(a)(30) of the Code) for federal income tax purposes (i) represents to the
Company (for
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33
the benefit of the Company and the Administrative Agent) that under applicable
law and treaties in effect on the date hereof or on the date it becomes a Bank
pursuant to subsection 10.6, as the case may be, no taxes are required to be
withheld by the Company or the Administrative Agent with respect to any payments
to be made to such Bank in respect of the Loans, (ii) (a) agrees to furnish to
the Company, with a copy to the Administrative Agent, either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
such Bank claims entitlement to complete exemption from U.S. federal withholding
tax on all interest payments hereunder) or, (b) in the case of a Bank claiming
exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest", a U.S. Internal
Revenue Service Form W-8 (and, if a Bank delivers a Form W-8, a statement under
the penalties of perjury that such Bank is not a "bank" under Section
881(c)(3)(A) of the Code, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, and has not been treated as a bank
for purposes of any tax, securities law or other filing or submission made to
any Governmental Authority, any application made to a rating agency or
qualification for any exemption from tax, securities law or other legal
requirements as of the Effective Date) and (iii) agrees (for the benefit of the
Company and the Administrative Agent), to the extent it may lawfully do so at
such time, to provide the Company, with a copy to the Administrative Agent, a
new Form 4224, Form 1001 or Form W-8 upon the expiration or obsolescence of any
previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments duly executed and completed
by such Bank, and to comply from time to time with all applicable U.S. laws and
regulations with regard to such withholding tax exemption. Notwithstanding any
provision in this subsection 3.11 to the contrary, the Company shall have no
obligation to pay any amount to or for the account of any Bank on account of any
taxes pursuant to this subsection 3.11 to the extent that such amount results
from (i) the failure of any Bank to comply with its obligations pursuant to this
subsection 3.11 or (ii) any representation or warranty made or deemed to be made
by any Bank pursuant to this subsection 3.11(d) proving to have been incorrect,
false or misleading in any material respect when so made or deemed to be made or
(iii) any Change in Law or compliance by any Bank with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority, the effect of which would be to subject to any taxes any
payment made pursuant to this Agreement to any Bank making the representation
and covenants set forth in subsection 3.11(d)(ii)(b), which payment would not be
subject to such taxes were such Bank eligible to make and comply with, and
actually made and complied with, the representation and covenants set forth in
subsection 3.11(d)(ii)(a) hereinabove.
(e) A certificate in reasonable detail as to any amounts submitted by such
Bank, through the Administrative Agent, to the Company shall be conclusive in
the absence of manifest error. The covenants contained in this subsection 3.11
shall survive the termination of this Agreement and payment of the outstanding
Notes.
3.12 Indemnity. The Company agrees to indemnify each Bank and to hold such
Bank harmless from any loss or expense which such Bank may sustain or incur as a
consequence of (a) default by the Company in payment of the principal amount of
or interest on any Eurodollar Loans of such Bank, including, but not limited to,
any such loss or expense arising from interest or fees payable by such Bank to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Loans hereunder, (b) default by the Company in making a
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34
borrowing after the Company has given a notice in accordance with subsection 3.1
or in making a conversion of ABR Loans to Eurodollar Loans after the Company has
given notice in accordance with subsection 3.2, (c) default by the Company in
making any prepayment after the Company has given a notice in accordance with
subsection 3.4 or (d) a payment or prepayment of a Eurodollar Loan or conversion
of any Eurodollar Loan into an ABR Loan, in either case on a day which is not
the last day of an Interest Period with respect thereto, including, but not
limited to, any such loss or expense arising from interest or fees payable by
such Bank to lenders of funds obtained by it in order to maintain its Eurodollar
Loans hereunder. This covenant shall survive termination of this Agreement and
payment of the outstanding Notes.
3.13 Replacement of Banks. In the event any Bank requests payments
pursuant to subsections 3.10 or 3.11, the Company may require, at the Company's
expense and subject to subsection 3.12, such Bank to assign, at par plus accrued
interest and fees, without recourse (in accordance with subsection 10.6) all of
its interests, rights and obligations hereunder (including all of its
Commitments and the Loans and other amounts at the time owing to it hereunder
and its Notes) to a bank, financial institution or other entity specified by the
Company; provided that (i) such assignment shall not conflict with or violate
any Requirement of Law, (ii) the Company shall have received the written consent
of the Administrative Agent, which consent shall not unreasonably be withheld,
to such assignment and (iii) the Company shall have paid to the assigning Bank
all monies other than principal, interest and fees accrued and owing hereunder
to it (including pursuant to subsections 3.10 or 3.11).
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement to make Loans
and to induce Chase to issue, and the Participating Banks to participate in, the
Letters of Credit, the Company hereby represents and warrants to each Bank and
the Administrative Agent, as of the Effective Date and as of the date of the
making of any extension of credit hereunder:
4.1 Financial Condition. (a) The unaudited pro forma consolidated balance
sheet of Holdings and its Subsidiaries as at August 3, 1996 (including the notes
thereto) (the "Pro Forma Balance Sheet"), a copy of which has heretofore been
furnished to each Bank, has been prepared based upon the consolidated balance
sheet of Holdings and its Subsidiaries as of August 3, 1996 and gives effect to
(i) the issuance for cash of $276 million of Convertible Subordinated Notes by
Holdings, (ii) the issuance of the Intercompany Note, (iii) the repayment in
full by the Company of all of the loans (and all other fees, expenses and
interest) outstanding under the Existing Credit Agreement as of the Effective
Date, and (iv) the repayment of $35,000,000 aggregate principal amount of the
Subordinated Notes. The transactions described in clauses (i), (ii), (iii) and
(iv) are hereinafter referred to as the "Refinancing" as though such events had
occurred on and as of August 3, 1996.
(b) The consolidated balance sheet (the "Balance Sheet") of Holdings and
its consolidated Subsidiaries as at February 3, 1996 and the related
consolidated statements of income and of cash flows for the fiscal year ended on
such date, reported on by Coopers &
<PAGE>
35
Lybrand, copies of which have heretofore been furnished to each Bank, are
complete and correct and present fairly in accordance with GAAP the consolidated
financial condition of Holdings and its consolidated Subsidiaries as at such
date, and the consolidated results of their operations and their consolidated
cash flows for the fiscal year then ended. The unaudited consolidated balance
sheet of Holdings and its consolidated Subsidiaries as at August 3, 1996 and the
related unaudited consolidated statements of income and of cash flows for the
six-month period ended on such date, certified by a Responsible Officer, copies
of which have heretofore been furnished to each Bank, are complete and correct
and present fairly the consolidated financial condition of Holdings and its
consolidated Subsidiaries as at such date, and the consolidated results of their
operations and their consolidated cash flows for the six-month period then ended
(subject to normal year-end audit adjustments). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants or Responsible Officer, as the case may
be, and as disclosed therein). Neither Holdings nor any of its consolidated
Subsidiaries had, at the date of the most recent balance sheet referred to
above, any material Contingent Obligation, contingent liability or liability for
taxes, or any long-term lease or unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the foregoing statements or in
the notes thereto. During the period from February 3, 1996 to and including the
Effective Date there has been no sale, transfer or other disposition by the
Company or any of its consolidated Subsidiaries of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material in relation
to the consolidated financial condition of the Company and its consolidated
Subsidiaries at February 3, 1996.
4.2 Corporate Existence; Compliance with Law. The Company and each
Domestic Subsidiary of the Company (a) is duly organized or formed and validly
existing under the laws of the state of its incorporation or formation, (b) has
full power and authority and possesses all governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it to use its name and
to own, lease or otherwise hold its properties and assets and to carry on its
business as presently conducted other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole, (c) is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure so to qualify would not
have a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, and (d) is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any governmental authority or
instrumentality, domestic or foreign (including, without limitation, those
related to asbestos, petroleum and hazardous wastes and substances), except
where noncompliance would not have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole. The Company has not received any
written communication from a governmental authority that alleges that the
Company or any of its Subsidiaries is not in compliance, in all
<PAGE>
36
material respects, with all material federal, state, local or foreign laws,
ordinances, rules and regulations.
4.3 Corporate Power; Authorization. The Company and each Subsidiary of the
Company have power and authority to make, deliver and perform the Credit
Documents to which it is a party, and the Company has the corporate power and
authority and legal right to borrow hereunder and to have Letters of Credit
issued for its account hereunder. Holdings, the Company and each Subsidiary of
the Company have taken all necessary action to authorize the execution, delivery
and performance of the Credit Documents to which it is a party and the Company
has taken all necessary corporate action to authorize the borrowings hereunder
and the issuance of Letters of Credit for its account hereunder. No consent or
authorization of, or filing with, any Person (including, without limitation, any
Governmental Authority) is required in connection with the execution, delivery
or performance by Holdings, the Company or any of the Company's Subsidiaries, or
for the validity or enforceability against Holdings, the Company or any of the
Company's Subsidiaries, of any Credit Document except for the consents,
authorizations and filings which have been obtained or made and are in full
force and effect.
4.4 Enforceable Obligations. Each Credit Document has been duly executed
and delivered on behalf of Holdings, the Company or any Subsidiary of the
Company that is party thereto and constitutes the legal, valid and binding
obligation of Holdings, the Company or such Subsidiary, as the case may be, and
is enforceable against Holdings, the Company or such Subsidiary in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of each Credit
Document and the use of the proceeds of the Loans and of drawings under the
Letters of Credit will not violate any Requirement of Law or any Contractual
Obligation applicable to or binding upon Holdings, the Company or any Subsidiary
of the Company or any of their respective properties or assets, in any manner
which, individually or in the aggregate, (i) would have a material adverse
effect on the ability of Holdings, the Company or any such Subsidiary to perform
its obligations under the Credit Documents to which it is a party, (ii) would
give rise to any liability on the part of the Administrative Agent or any Bank,
or (iii) would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole, and will not result in the creation or imposition
of any Lien on any of its properties or assets pursuant to any Requirement of
Law applicable to it, as the case may be, or any of its Contractual Obligations,
except for the Liens arising under the Pledge Agreements and the Security
Agreements.
4.6 No Material Litigation. No litigation by, investigation known to the
Company or proceeding of, any Governmental Authority is pending against the
Company or any of its Subsidiaries with respect to the validity, binding effect
or enforceability of any Credit Document or with respect to the Loans made
hereunder, the use of proceeds thereof or
<PAGE>
37
of any drawings under a Letter of Credit and the other transactions contemplated
hereby or is reasonably likely, if adversely decided, to have a material adverse
effect on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole.
4.7 Investment Company Act. Neither Holdings, the Company nor any
Subsidiary of the Company is an "investment company" or a company "controlled"
by an "investment company" (as each of the quoted terms is defined or used in
the Investment Company Act of 1940, as amended).
4.8 Federal Regulation. No part of the proceeds of any of the Loans or any
drawing under a Letter of Credit will be used for any purpose which violates, or
which would be inconsistent with, the provisions of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System. Neither the Company nor
any of its Subsidiaries is engaged or will engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under said Regulation U.
4.9 No Default. Neither the Company nor any Subsidiary is in default under
any material judgment, order or decree of any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, applicable to it or any of its respective properties, assets,
operations or business or under any Contractual Obligation which, in either
case, would be materially adverse to the business, assets, condition (financial
or otherwise) or results of operations of the Company and its Subsidiaries,
taken as a whole.
4.10 Taxes. (a) The Company and each of the Subsidiaries, and any
affiliated group, within the meaning of Section 1504 of the Code, of which the
Company or any Subsidiary is or has been a member, has filed or caused to be
filed in a timely manner (within any applicable extension periods) all material
tax returns, reports and forms required to be filed by the Code or by applicable
state, local or foreign tax laws, (b) all taxes shown to be due on such tax
returns, reports and forms have been or will be timely paid in full (other than
any the amount of which are currently being contested in good faith by
appropriate proceedings and with respect to which reserves (or other sufficient
provisions) in conformity with GAAP have been provided on the books of the
Company or its Subsidiaries, as the case may be) and (c) no tax liens have been
filed and no material claims are being asserted in writing with respect to any
taxes.
4.11 Subsidiaries. The Subsidiaries of the Company listed on Schedule III
constitute all of the Domestic Subsidiaries of the Company and the Subsidiaries
listed on Schedule IV constitute all of the Foreign Subsidiaries of the Company
as of the Effective Date.
4.12 Ownership of Property; Liens. Subject to transfers and dispositions
of property permitted under subsection 7.5, the Company or a Subsidiary of the
Company has good and valid title to all material assets (other than real
property or interests in real property) reflected on the Balance Sheet (as
defined in subsection 4.1(b)) or thereafter acquired, except those since sold or
otherwise disposed of in accordance with the terms
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38
hereof, in each case free and clear of all mortgages, liens, security interests
or encumbrances of any nature whatsoever except Permitted Liens and other
imperfections of title or other encumbrances, if any, which imperfections of
title or other encumbrances do not, individually or in the aggregate, materially
impair the continued use and operation of the assets to which they relate in the
business of the Company and its Subsidiaries, taken as a whole, as presently
conducted. With respect to real property or interests in real property, the
Company or a Subsidiary of the Company has (i) good and insurable fee title to
all real property and interests in real property owned by the Company or a
Subsidiary of the Company and (ii) good and valid title to the leasehold estates
in all real property and interests in real property leased by the Company or a
Subsidiary of the Company (each, a "Leased Property," each such property that is
owned and each Leased Property is referred to individually as a "Company
Property" in this Section 4.12), in each case free and clear of all mortgages,
liens, security interests, easements, covenants, rights-of-way and other similar
restrictions of any nature whatsoever, except (A) Permitted Liens, (B)
easements, covenants, rights of way and other similar restrictions of record,
(C) any conditions that may be shown by a current, accurate survey or physical
inspection of any Company Property, (D) (i) zoning, building and other similar
restrictions, (ii) mortgages, liens, security interests or encumbrances that
have been placed by any developer, landlord or other third party on property
over which the Company or any Subsidiary of the Company has easement rights or
on any Leased Property and subordination or similar agreements relating thereto
and (iii) unrecorded easements, covenants, rights-of-way or other similar
restrictions, none of which items set forth in clauses (i), (ii) and (iii),
individually or in the aggregate, materially impair the continued use and
operation of the property to which they relate in the business of the Company
and its Subsidiaries, taken as a whole, as presently conducted and (E) Liens
incurred in connection with the Real Estate Financing or any refinancing
thereof.
4.13 ERISA. None of the Company or any Subsidiary or any corporation or
trade or business (whether or not incorporated) which would be treated as a
member of the controlled group of the Company under Section 4001(a)(14) of ERISA
(hereinafter, "controlled group"), would be liable for any amount pursuant to
Sections 4062, 4063 or 4064 of ERISA, if any Plan were to terminate.
Neither the Company nor any member of its controlled group has been
involved in any transaction that would cause the Company to be subject to
liability with respect to a Plan to which the Company or any member of its
controlled group contributed or was obligated to contribute during the six-year
period ending on the Effective Date under Sections 4062, 4069 or 4212(c) of
ERISA. Neither the Company nor any member of its controlled group has incurred
any material liability under Title IV of ERISA which could become or remain a
liability of the Company after the Effective Date.
Neither the Company nor any Subsidiary, nor solely with respect to Section
409 and 502(l) of ERISA, to the best knowledge of the Company, any director,
officer or employee of either, or any of the Plans, or any trust created
thereunder, or any trustee or administrator thereof, has engaged in a
transaction in connection with which the Company or any Subsidiary could be
subject to either a material liability or civil penalty assessed pursuant to
Sections 409, 502(i) or 502(l) of ERISA or a material tax imposed pursuant to
Sections
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39
4975 or 4976 of the Code. Each of the Plans has been operated and administered
in all material respects in accordance with applicable laws, including but not
limited to ERISA and the Code. There are no material pending or, to the best
knowledge of the Company, threatened claims by or on behalf of any of the Plans
or any fiduciary, by any employee or beneficiary covered under any such Plan or
fiduciary, or otherwise involving any such Plan or fiduciary (other than routine
claims for benefits).
No event has occurred with respect to any Plan that is a multiemployer
plan (as defined in Section 4001(a)(3) of ERISA) which presents a material risk
of a complete or partial withdrawal under Subtitle E of Title IV of ERISA, nor
has the Company or any member of its controlled group been notified that any
such Plan is insolvent or in reorganization within the meaning of Section 4241
of ERISA. Neither the Company nor any Subsidiary has been a party to any
transaction or agreement to which the provisions of Section 4204 of ERISA were
applicable.
Neither the Company nor any Subsidiary is obligated to contribute, on
behalf of any current or former employee of the Company, to a Multiemployer
Plan.
None of the Plans or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Plans. No contribution failure has occurred with
respect to any Plan sufficient to give rise to a lien under Section 302(f) of
ERISA.
4.14 Collateral Documents Subject to subsection 10.12:
(a) Each of the Pledge Agreements is effective to create in favor of the
Administrative Agent, for the ratable benefit of the Banks, a legal, valid and
enforceable security interest in the pledged stock described therein and such
security interests constitute perfected first liens on, and security interests
in, all right, title and interest of the pledgor party thereto in the pledged
stock described therein.
(b) Each of the Security Agreements is effective to create in favor of the
Administrative Agent, for the ratable benefit of the Banks, a legal, valid and
enforceable security interest in the collateral described therein and Uniform
Commercial Code financing statements have been filed in each of the
jurisdictions listed on Schedule VIII and such security interests constitute
perfected liens on, and security interests in, all right, title and interest of
the debtor party thereto in the collateral described therein.
(c) Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the ratable benefit of the Banks, a legal, valid and
enforceable security interest in the collateral described therein and such
Mortgages have been filed in each of the jurisdictions listed therein and such
security interests will constitute perfected liens on, and security interests
in, all right, title and interest of the mortgagor party thereto in the
collateral described therein.
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40
4.15 Patents, Copyrights, Permits and Trademarks, Licenses and Leases.
Schedule XII sets forth a true and complete list, as of the Effective Date, of
all material patents, trademarks (registered or unregistered), trade names,
service marks and copyrights and applications therefor owned, used or filed by
or licensed to the Company and its Subsidiaries and, with respect to registered
trademarks, contains a list, as of the Effective Date, of all jurisdictions in
which such trademarks are registered or applied for and all registration and
application numbers. Except as disclosed on Schedule XII, the Company or a
Subsidiary of the Company owns or has the right to use, without payment to any
other party, the patents, trademarks (registered or unregistered), trade names,
service marks, copyrights and applications therefor referred to in such
Schedule. Except as set forth on Schedule XII, to the best knowledge of the
Company, no claims are pending by any person with respect to the ownership,
validity, enforceability or use of any such patents, trademarks (registered or
unregistered), trade names, service marks, copyrights, or applications therefor,
challenging or questioning the validity or effectiveness of any of the
foregoing, in any jurisdiction, domestic or foreign.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness. The effectiveness of the Agreement and
the obligation of each Bank to make its Loans, and the obligation of Chase to
issue any Letter of Credit, on the Effective Date are subject to the
satisfaction, or waiver by such Bank of the following conditions on or prior to
December 31, 1996 (the date on which such conditions are so satisfied or waived,
the "Effective Date"):
(a) Agreement; Notes. The Administrative Agent shall have received
(i) a counterpart of this Agreement for each Bank duly executed and
delivered by a duly authorized officer of the Company and (ii) for the
account of each requesting Bank a Revolving Credit Note (which in the case
of an Existing Lender shall be delivered in exchange for its outstanding
notes under the Existing Credit Agreement).
(b) Credit Document Amendments. The Administrative Agent shall have
received from each Credit Party with respect to the Credit Documents to
which it is a party: an acknowledgment and consent to the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby substantially in the form of Exhibit G.
(c) Legal Opinion. The Administrative Agent shall have received,
dated the Effective Date and addressed to the Administrative Agent and the
Banks, an opinion of Gibson, Dunn & Crutcher, counsel to Holdings and the
Company, in substantially the form of Exhibit B with such changes thereto
as may be approved by and otherwise in form and substance reasonably
satisfactory to the Administrative Agent and its counsel.
(d) Closing Certificates. The Administrative Agent shall have
received a Closing Certificate of each of the Company and Holdings, dated
the Effective Date, in
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41
substantially the form of Exhibit C-1 and C-2, as the case may be, with
appropriate insertions and attachments, in form and substance reasonably
satisfactory to the Administrative Agent and its counsel, executed by the
President or any Vice President and the Secretary or any Assistant
Secretary of the Company and Holdings, respectively.
(e) Refinancing. The Administrative Agent shall have received
evidence satisfactory to it that the Refinancing shall have been
consummated prior to or on the Effective Date.
(f) No Violation. The consummation of the transactions contemplated
hereby shall not contravene, violate or conflict with, nor involve any
Bank in a violation of, any Requirement of Law.
(g) Consents, Authorizations and Filings, etc. All consents,
authorizations and filings, if any, (i) required in connection with the
execution, delivery and performance by the Company, Holdings or any
Subsidiary of the Company, and the validity and enforceability against the
Company, Holdings or any Subsidiary of the Company, of the Credit
Documents to which it is a party and (ii) required or in the reasonable
discretion of the Administrative Agent, advisable in connection with the
Refinancing and the continuing operations of the Company and its
Subsidiaries, shall have been obtained or made, and such consents,
authorizations and filings shall be in full force and effect, except such
consents, authorizations and filings the failure to obtain which would not
be reasonably expected to have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole.
(h) Other Agreements. The Administrative Agent shall have received
each additional document or instrument reasonably requested by the Banks.
(i) Insurance. The Administrative Agent shall have received a
schedule describing all insurance maintained by the Company and its
Subsidiaries pursuant to subsection 6.5.
(j) Financial Statements. The Administrative Agent shall have
received copies of (i) the Balance Sheet and (ii) the Pro Forma Balance
Sheet and the other financial statements described in subsection 4.1.
(k) Fees. The Administrative Agent shall have received the fees
referred to in subsection 3.7.
(l) Actions to Perfect Liens. The Administrative Agent shall have
received evidence in form and substance satisfactory to it that all
filings, recordings, registrations and other actions, including, without
limitation, the filing of duly executed financing statements on form UCC-1
or any trademark or copyright filings, necessary or, in the reasonable
opinion of the Administrative Agent, desirable to insure
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42
the continued perfection of the Liens created by the Security Agreements
shall have been completed.
5.2 Conditions to All Loans and Letters of Credit. The obligation of each
Bank to make any Loan (other than any Revolving Credit Loan the proceeds of
which are to be used to repay Refunded Swing Line Loans) and the obligation of
Chase to issue any Letter of Credit is subject to the satisfaction of the
following conditions precedent on the relevant Borrowing Date including the
Effective Date:
(a) Representations and Warranties. Each of the representations and
warranties made in or pursuant to Section 4 or which are contained in any
other Credit Document shall be true and correct in all material respects
on and as of the date of such Loan or of the issuance of such Letter of
Credit as if made on and as of such date (unless stated to relate to a
specific earlier date, in which case, such representations and warranties
shall be true and correct in all material respects as of such earlier
date). Since February 3, 1996, there shall have been no material adverse
change in the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a
whole.
(b) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing on such Borrowing Date or after
giving effect to such Loan to be made or such Letter of Credit to be
issued on such Borrowing Date.
Each borrowing by the Company hereunder and the issuance of each Letter of
Credit by Chase hereunder shall constitute a representation and warranty by the
Company as of the date of such borrowing or issuance that the conditions in
clauses (a) and (b) and of this subsection 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments remain in
effect, any Loan or L/C Obligation remains outstanding and unpaid, any amount
(unless cash in an amount equal to such amount has been deposited to a cash
collateral account established by the Administrative Agent) remains available to
be drawn under any Letter of Credit or any other amount is owing to any Bank, or
the Administrative Agent hereunder, the Company shall, and, in the case of the
agreements contained in subsections 6.3 through 6.6 and 6.8 shall cause each of
its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent (with
sufficient copies for each Bank):
(a) as soon as available, but in any event within 95 days after the
end of each fiscal year of Holdings (i) a copy of the consolidated balance
sheets of Holdings and its consolidated Subsidiaries as at the end of such
fiscal year and the related consolidated statements of stockholders'
equity and cash flows and the consolidated
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43
statements of income of Holdings and its Subsidiaries for such fiscal
year, setting forth in each case in comparative form the figures for the
previous year and, (ii) in the case of the consolidated balance sheet
referred to above, reported on, without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, or qualification which would affect the computation of
financial covenants, by independent certified public accountants of
nationally recognized standing;
(b) as soon as available, but in any event not later than 50 days
after the end of each of the first three quarterly periods of each fiscal
year of Holdings, the unaudited consolidated balance sheets of Holdings
and its Subsidiaries as at the end of each such quarter and the related
unaudited consolidated statements of income and cash flows of Holdings and
its Subsidiaries for such quarterly period and the portion of the fiscal
year of Holdings through such date, setting forth in each case in
comparative form the figures for the corresponding quarter in, and year to
date portion of, the previous year, certified by the chief financial
officer, treasurer or the senior vice president of finance of Holdings as
being fairly stated in all material respects;
(c) as soon as available, but in any event within 45 days prior to
the beginning of each fiscal year of Holdings to which such budget
relates, a preliminary consolidated operating budget for Holdings and its
Subsidiaries taken as a whole; and as soon as available, any material
revision to or any final revision of, any such preliminary annual
operating budget or any such consolidated operating budget, in each case
as adopted by the Board of Directors of Holdings;
(d) as soon as practicable, and in any event within 50 days after
the end of each fiscal quarter a report in reasonable detail as to the
aggregate amount of the credit card receivables of Holdings and its
Subsidiaries on the last day or Business Day of such fiscal quarter;
(e) until such time as the Remaining Strategic Capital Amount is
zero, concurrently with delivery of any financial statement pursuant to
subsection 6.1(a) or (b), deliver to the Administrative Agent (with
sufficient copies for each Bank requesting the same) a certificate of a
Responsible Officer showing for the applicable fiscal period (i) the
aggregate amount of acquisitions made in accordance with subsection
7.6(m), (ii) the aggregate amount of Capital Expenditures made in
accordance with the last sentence of subsection 7.7 and (iii) the
Remaining Strategic Capital Amount as of the end of such fiscal period;
all such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and (except in the case of
the statements referred to in paragraphs (c), (d) and (e) of this subsection
6.1) in accordance with GAAP. The financial statements of Holdings included or
incorporated in any Form 10-K or Form 10-Q filed by Holdings with the Securities
and Exchange Commission will if timely furnished to the Banks satisfy the
requirements of subsections 6.1(a)(i) or 6.1(b) respectively.
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44
6.2 Certificates; Other Information. Furnish to the Administrative Agent
(with sufficient copies for each Bank):
(a) concurrently with the delivery of the consolidated financial
statements referred to in subsection 6.1(a), a letter from the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary to express their opinion
on such financial statements no knowledge was obtained of any Default or
Event of Default, except as specified in such letter;
(b) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a certificate of the chief
financial officer of the Company (i) stating that, to the best of such
officer's knowledge, each of Holdings, the Company and their respective
Subsidiaries has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement,
the Notes and the other Credit Documents to be observed, performed or
satisfied by it, and that such officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate, (ii)
showing in detail as of the end of the related fiscal period the figures
and calculations supporting such statement in respect of clause (b) of
subsection 7.3, subsections 7.7, 7.8 and 7.9, (iii) if not specified in
the financial statements delivered pursuant to subsection 6.1, specifying
the aggregate amount of interest paid or accrued by Holdings, the Company
and their respective Subsidiaries, and the aggregate amount of
depreciation, depletion and amortization charged on the books of Holdings,
the Company and their Subsidiaries, during such accounting period and (iv)
listing all Contingent Obligations of the type described in clause (a) of
subsection 7.3 and all Indebtedness in each case incurred since the date
of the previous consolidated balance sheet of Holdings;
(c) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company or any of its Subsidiaries and all regular and
periodic reports and all final registration statements and final
prospectuses, if any, filed by the Company or any of its Subsidiaries with
any securities exchange or with the Securities and Exchange Commission or
any Governmental Authority succeeding to any of its functions; and
(d) promptly, such additional financial and other information as any
Bank may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations and liabilities of whatever nature, except (a) when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Company or any of its Subsidiaries, as the case may
be, (b) for delinquent obligations which do not have a material adverse effect
on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole and (c) for
trade and other
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45
accounts payable in the ordinary course of business in accordance with customary
trade terms and which are not overdue for a period of more than 90 days (or any
longer period if longer payment terms are accepted in the ordinary course of
business) or, if overdue for more than 90 days (or such longer period), as to
which a dispute exists and adequate reserves in conformity with GAAP have been
established on the books of the Company and its Subsidiaries, as the case may
be.
6.4 Conduct of Business and Maintenance of Existence. Continue to engage
in business of the same general type as now conducted by it, and preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges, franchises, copyrights,
trademarks and trade names necessary or desirable in the normal conduct of its
business except for rights, privileges, franchises, copyrights, trademarks and
tradenames the loss of which would not in the aggregate have a material adverse
effect on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole, and except as
otherwise permitted by subsections 7.4 and 7.5; and comply with all applicable
Requirements of Law except to the extent that the failure to comply therewith
would not, in the aggregate, have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries taken as a whole.
6.5 Maintenance of Property; Insurance. (a) Keep all material property
useful and necessary in its business in good working order and condition
(ordinary wear and tear excepted); and
(b) Maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and with only such
deductibles as are usually maintained by, and against at least such risks (but
including, in any event, public liability and product liability insurance) as
are usually insured against in the same general area, by companies engaged in
the same or a similar business; and furnish to the Administrative Agent, (i)
annually, a schedule disclosing (in a manner substantially similar to that used
in the schedule provided pursuant to subsection 5.1(i)) all insurance against
products liability risk maintained by the Company and its Subsidiaries pursuant
to this subsection 6.5(b) or otherwise and (ii) upon written request of the
Administrative Agent, full information as to the insurance carried; provided
that the Company may implement programs of self insurance in the ordinary course
of business and in accordance with industry standards for a company of similar
size so long as reserves are maintained in accordance with GAAP for the
liabilities associated therewith.
6.6 Inspection of Property; Books and Records; Discussions. Keep proper
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities which
permit financial statements to be prepared in conformity with GAAP and all
Requirements of Law; and permit representatives of the Administrative Agent upon
reasonable notice to visit and inspect any of its properties and examine and
make abstracts from any of its books and records at any reasonable time and as
often as may reasonably be desired upon reasonable notice, and to discuss the
business, operations, properties and financial and other condition of the
Company
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46
and its Subsidiaries with officers and employees thereof and with their
independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and each
Bank:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any instrument or
other agreement, guarantee or collateral document of Holdings or any of
its Subsidiaries which default or event of default has not been waived and
would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of Holdings and its
Subsidiaries taken as a whole, or any other default or event of default
under any such instrument, agreement, guarantee or other collateral
document which, but for the proviso to clause (e) of Section 8, would have
constituted a Default or Event of Default under this Agreement, or (ii)
litigation, investigation or proceeding which may exist at any time
between Holdings or any of its Subsidiaries and any Governmental
Authority, or receipt of any notice of any environmental claim or
assessment against Holdings or any of its Subsidiaries by any Governmental
Authority, which in any such case would have a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations of Holdings and its Subsidiaries taken as a whole;
(c) of any litigation or proceeding affecting Holdings or any of its
Subsidiaries (i) in which more than $10,000,000 of the amount claimed is
not covered by insurance or (ii) in which injunctive or similar relief is
sought which if obtained would have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of
operations of Holdings and its Subsidiaries taken as a whole;
(d) of the following events, as soon as practicable after, and in
any event within 30 days after, Holdings or the Company knows or has
reason to know thereof: (i) the occurrence of any Reportable Event with
respect to any Single Employer Plan which Reportable Event could have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of Holdings and its Subsidiaries taken
as a whole, or (ii) the institution of proceedings or the taking of any
other action by PBGC, Holdings, the Company or any Commonly Controlled
Entity to terminate, withdraw or partially withdraw from any Plan and,
with respect to a Multiemployer Plan, the Reorganization or Insolvency of
the Plan, in each of the foregoing cases which could have a material
adverse effect on the business, assets, condition (financial or otherwise)
or results of Holdings and its Subsidiaries taken as a whole, and in
addition to such notice, deliver to the Administrative Agent and each Bank
whichever of the following may be applicable: (A) a certificate of the
chief financial officer of Holdings or the Company setting forth details
as to such Reportable Event and the action that Holdings, the Company or
such Commonly Controlled Entity proposes to take with respect thereto,
together with a copy of any notice of such Reportable Event that may be
required to be filed with PBGC, or (B)
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47
any notice delivered by PBGC evidencing its intent to institute such
proceedings or any notice to PBGC that such Plan is to be terminated, as
the case may be; and
(e) of a material adverse change known to Holdings or its
Subsidiaries in the business, assets, condition (financial or otherwise)
or results of operations of Holdings and its Subsidiaries taken as a
whole.
Each notice pursuant to this subsection 6.7 shall be accompanied by a statement
of the chief executive officer, chief operating officer or chief financial
officer of Holdings or the Company setting forth details of the occurrence
referred to therein and (in the cases of clauses (a) through (d)) stating what
action Holdings or the Company proposes to take with respect thereto.
6.8 Dividends by Real Estate Holding Subsidiaries. Cause each Real Estate
Holding Subsidiary to distribute to the Company or a Subsidiary of the Company
(other than a Real Estate Holding Subsidiary), no less frequently than
semi-annually, an amount equal to the excess of (A) the aggregate rent paid by
the Company and its Subsidiaries (other than a Real Estate Holding Subsidiary)
to the Real Estate Holding Subsidiaries under leases of real property, over (B)
the sum of (i) aggregate principal and interest expense of such Real Estate
Holding Subsidiary in respect of Indebtedness incurred in connection with the
Real Estate Financing, plus (ii) aggregate operating expenses of such Real
Estate Holding Subsidiary and not previously distributed to the Company or a
Subsidiary of the Company (other than a Real Estate Holding Subsidiary), to the
extent (x) such distributions are not prohibited by any indenture, note,
mortgage or other loan document or instrument entered into by such Real Estate
Holding Subsidiary in connection with the Real Estate Financing, or (y) such
distributions are not then prohibited by applicable law.
SECTION 7. NEGATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments remain in
effect, any Loan or L/C Obligation remains outstanding and unpaid, any amount
(unless cash in an amount equal to such amount has been deposited to a cash
collateral account established by the Administrative Agent) remains available to
be drawn under any Letter of Credit or any other amount is owing to any Bank, or
the Administrative Agent hereunder:
7.1 Real Estate Financings; Other Letters of Credit. None of the Company
or any of its Subsidiaries shall create, incur, assume or suffer to exist any:
(a) Indebtedness pursuant to the Real Estate Financings in excess of
$500,000,000 in the aggregate at any time; and
(b) Indebtedness in respect of letters of credit (other than Letters
of Credit) having an aggregate undrawn face amount at any time
outstanding, together with the aggregate amount of any drawings thereunder
not yet reimbursed by the Company or a Subsidiary of the Company to the
issuing bank thereof, in excess of $25,000,000.
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7.2 Limitation on Liens. None of the Company or any of its
Subsidiaries shall create, incur, assume or suffer to exist any Lien upon any of
its property, assets, income or profits, whether now owned or hereafter
acquired, except:
(a) Liens for taxes, assessments or other governmental charges not
yet delinquent or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Company or such Subsidiary, as the case may
be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business in respect of obligations which are not yet due or
which are bonded or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Company or such Subsidiary, as the case may
be, in accordance with GAAP;
(c) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, tenders, trade or
government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of
business;
(e) easements (including, without limitation, reciprocal easement
agreements), rights-of-way, building, zoning and similar restrictions,
utility agreements, covenants, reservations, restrictions, encroachments,
changes, and other similar encumbrances or title defects incurred, or
leases or subleases granted to others, in the ordinary course of business,
which do not interfere with or adversely affect in any material respect
the ordinary conduct of the business of the Company and its Subsidiaries
taken as a whole;
(f) Liens in favor of the Banks pursuant to the Credit Documents and
bankers' liens arising by operation of law;
(g) Liens on property of the Company or any of its Subsidiaries
created solely for the purpose of securing Indebtedness representing or
incurred to finance, refinance or refund the purchase price of property or
operating leases, provided that no such Lien shall extend to or cover
other property of the Company or such Subsidiary other than the respective
property so acquired, and the principal amount of Indebtedness secured by
any such Lien shall at no time exceed the original purchase price of such
property;
(h) Liens existing on the Effective Date and described in Schedule
VI;
<PAGE>
49
(i) Liens on assets of Persons which become Subsidiaries of the
Company after the Closing Date, provided that such Liens exist at the time
such Persons became or become Subsidiaries and were or are not created in
anticipation thereof, and provided further that no such Lien shall extend
to or cover other property of such Subsidiary other than the assets
subject to such Liens at the time such Person becomes a Subsidiary of the
Company;
(j) Liens on documents of title and the property covered thereby
securing Indebtedness in respect of the Commercial L/Cs;
(k) additional Liens securing Indebtedness or other obligations of
the Company and/or any of its Subsidiaries which do not exceed $20,000,000
in the aggregate at any one time outstanding; provided that no such Lien
shall encumber any Pledged Stock or Pledged Notes (as defined in any
Pledge Agreement) under any of the Pledge Agreements;
(l) Liens incurred in connection with Real Estate Financings;
(m) Liens on accounts receivable of the Company or any of its
Subsidiaries incurred in connection with Accounts Receivable Financings;
(n) (i) mortgages, liens, security interests, restrictions,
encumbrances or any other matter of record that have been placed by any
developer, landlord or other third party on property over which the
Company or any Subsidiary of the Company has easement rights or on any
Leased Property and subordination or similar agreements relating thereto
and (ii) any condemnation or eminent domain proceedings affecting any real
property;
(o) Liens in connection with general liability exposure of the
Company and its Subsidiaries;
(p) Liens securing Indebtedness permitted under subsection 7.1(b);
(q) Liens in respect of Indebtedness of the Company and its
Subsidiaries for industrial revenue bonds, for capitalized lease
obligations and for the deferred purchase price of newly acquired property
of the Company and its Subsidiaries whether payable to a third party or
otherwise, provided that in the case of Liens in respect of Indebtedness
for the deferred purchase price of newly acquired property, no such Lien
shall extend to or cover other property of the Company or such Subsidiary
other than the property so acquired;
(r) Liens on real property that are junior to Liens securing the
Commercial Mortgage Pass-Through Certificates issued by the Fifth Avenue
Capital Trust on May 12, 1995 or any refinancings thereof.
7.3 Limitation on Contingent Obligations. None of the Company or any
of its Subsidiaries shall create, incur, assume or suffer to exist any
Contingent Obligation except:
<PAGE>
50
(a) Contingent Obligations in respect of Indebtedness representing
or incurred to finance, refinance or refund the purchase price of
property;
(b) guarantees by the Company or any of its Subsidiaries, in an
amount up to $10,000,000 at any one time outstanding incurred in the
ordinary course of business or for the guarantee of employee obligations;
(c) guarantees by the Company of the obligations of its Subsidiaries
(other than Real Estate Holding Companies), or by the Subsidiaries of the
Company of the obligations of the Company or another Subsidiary of the
Company (other than Real Estate Holding Companies) in the ordinary course
of business;
(d) Contingent Obligations existing on the Effective Date and
described in Schedule VI;
(e) Contingent Obligations in respect of foreign currency exchange
contracts permitted by subsection 7.12;
(f) Contingent Obligations incurred in connection with any Real
Estate Financing (i) by the Company in favor of the Real Estate Holding
Subsidiaries, in respect of obligations of Subsidiaries of the Company
(other than Real Estate Holding Subsidiaries) arising under leases of real
property, and (ii) by any Real Estate Holding Subsidiary, in respect of
Indebtedness incurred by any other Real Estate Holding Subsidiary in
connection with any Real Estate Financing;
(g) Contingent Obligations in respect of Indebtedness of the Company
and its Subsidiaries incurred after the Closing Date for industrial
revenue bonds, for capitalized lease obligations and for the deferred
purchase price of newly acquired property of the Company and its
Subsidiaries whether payable to a third party or otherwise;
(h) the Subsidiary Guarantee; and
(i) Contingent Obligations in connection with workmen's compensation
obligations and general liability exposure of the Company and its
Subsidiaries.
7.4 Prohibition of Fundamental Changes. None of the Company or any
of its Subsidiaries shall enter into any merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or make any material change in the present method
of conducting business or engage in any type of business other than of the same
general type now conducted by it, except for (i) the transactions otherwise
permitted pursuant to clause (e) of subsection 7.5 and (ii) the merger of a
Subsidiary of the Company with (A) another Subsidiary of the Company if the
surviving entity in such merger is a party to a Subsidiary Security Agreement
and a Subsidiary Guarantee and neither Subsidiary was a Real Estate Holding
Subsidiary that at such time is obligated for any Indebtedness in connection
with the Real Estate Financing, (B) the Company if the Company is the surviving
<PAGE>
51
entity in such merger and the Subsidiary was not a Real Estate Holding
Subsidiary that at such time is obligated for any Indebtedness in connection
with the Real Estate Financing or (C) another Subsidiary of the Company if
neither Subsidiary is, or was, a party to a Subsidiary Security Agreement or a
Subsidiary Guarantee. No transaction constituting a part of the Real Estate
Financing or a sale or other disposition of any part of the International
Rights shall be prohibited under this subsection 7.4.
7.5 Prohibition on Sale of Assets. None of the Company or any of
its Subsidiaries shall convey, sell, lease, assign, transfer or otherwise
dispose of any of its property, business or assets (including, without
limitation, tax benefits, receivables and leasehold interests), whether now
owned or hereafter acquired except:
(a) sales or other dispositions of property or other assets in any
fiscal year not exceeding, in the aggregate, 10% of Consolidated Net Worth
at the beginning of such fiscal year; provided that the beginning of the
fiscal year for 1996 shall be deemed to be August 3, 1996;
(b) sales or other dispositions of fee or leasehold interests, the
proceeds of which are used substantially at the same time to acquire
another fee or leasehold interest in the same geographical area;
(c) for the sale or other disposition of any tangible personal
property that, in the reasonable judgment of the Company, has become
uneconomic, obsolete or worn out, and which is disposed of in the ordinary
course of business (provided that any such sale made in connection with
liquidation of personal property used in connection with any store or
stores that the Company determines to close or otherwise cease to operate
shall be considered to be a disposition of such personal property in the
ordinary course of business provided, further, that this proviso shall not
apply to the closing or ceasing to operate of more than ten full line
stores in any one transaction or series of related transactions without
the consent of the Required Banks);
(d) for sales or other dispositions of inventory made in the
ordinary course of business;
(e) that (i) the Company may contribute fee and leasehold interests
in real property held by it to the Real Estate Holding Subsidiaries and
(ii) any Subsidiary of the Company may contribute fee and leasehold
interests in real property held by it to the Real Estate Holding
Subsidiaries and (iii) the Company or any Subsidiary of the Company may
sell, lease, transfer or otherwise dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to the Company or a wholly-owned
Subsidiary of the Company and the Company or any Subsidiary of the Company
may sell or otherwise dispose of, or part with control of any or all of,
the stock of any Subsidiary to a wholly-owned Subsidiary of the Company;
provided that no such transaction may be effected, except such
transactions effected in connection with Real Estate Financings, if it
would result in the transfer of any assets of the Company or any
Subsidiary of the Company, or of any stock of a Subsidiary, to a
Subsidiary whose capital stock has not been pledged to the Administrative
Agent and that has not made
<PAGE>
52
a Subsidiary Guarantee and Subsidiary Security Agreement in favor of the
Administrative Agent;
(f) substantially like-kind exchanges of real property and sales and
leasebacks of real property or sales of real property;
(g) the sale, encumbrance or other disposition, at any time or from
time to time, of all or a portion of the accounts receivable of the
Company or any of its Subsidiaries, whether now existing or hereafter
arising, made in connection with an Accounts Receivable Financing; and
(h) the sale in connection with a sale and leaseback of equipment
located at the Aberdeen distribution center or the Folio telemarketing
center.
7.6 Limitation on Investments, Loans and Advances. None of Holdings,
the Company or any of the Subsidiaries of the Company shall make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of, or make any other investment
in, any Person, except:
(a) (i) the Company may make investments in, or loans or advances
to, any Subsidiary of the Company (other than any Foreign Subsidiary of
the Company and other than any Subsidiaries of the Company that are not
parties to the Subsidiary Guarantee and Subsidiary Security Agreement and
whose stock in not pledged by the Company to the Administrative Agent on
behalf of the Banks), (ii) any Subsidiary of the Company may make
investments in, or loans or advances to, the Company or any other
Subsidiary of the Company and (iii) Holdings may make investments in, or
loans or advances to, any of its Subsidiaries;
(b) (i) any Subsidiary may make investments in the Company (by way
of capital contribution or otherwise) and (ii) the Company and any
Subsidiary may make investments in, or create, any wholly-owned Domestic
Subsidiary (by way of capital contribution or otherwise) or make
investments permitted by subsection 7.5(e), provided that, in any such
case (other than an investment in a Real Estate Holding Subsidiary in
connection with any Real Estate Financing or any Subsidiary formed solely
for the purpose of an Accounts Receivable Financing) if stock is issued or
otherwise acquired in connection with such investment, such stock is
pledged to the Administrative Agent for the benefit of the Banks and, if a
new Subsidiary is formed or created, such Subsidiary becomes a party to
the Subsidiary Guarantee and the Subsidiary Security Agreement;
(c) Holdings and its Subsidiaries may invest in, acquire and hold
Cash Equivalents;
(d) Holdings or any of its Subsidiaries may make travel and
entertainment advances and relocation loans to officers and employees of
the Company or any such Subsidiary, provided that the aggregate principal
amount of all such loans and
<PAGE>
53
advances outstanding at any one time, together with the guarantees made
pursuant to subsection 7.3(b), shall not exceed $10,000,000;
(e) Holdings or any of its Subsidiaries may make payroll advances in
the ordinary course of business;
(f) Holdings or any of its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms (provided that nothing in this clause (f) shall prevent Holdings or
any Subsidiary from offering such concessionary trade terms, or from
receiving such investments in connection with the bankruptcy or
reorganization of their respective suppliers or customers or the
settlement of disputes with such customers or suppliers arising in the
ordinary course of business, as management deems reasonable in the
circumstances);
(g) the Company and its Subsidiaries may make loans and advances
permitted by subsection 7.10;
(h) Holdings and its Subsidiaries may make loans and advances to
employees and former employees of Holdings and its Subsidiaries for the
purpose of financing the purchases by them of shares of capital stock of
Holdings in an aggregate principal amount at any one time outstanding not
to exceed $10,000,000, plus the amounts of any proceeds of such loans and
advances paid by such employees and former employees to Holdings on
account of such purchases and contributed by Holdings as equity in the
Company;
(i) the Company and its Subsidiaries may make an acquisition of all
or any substantial part of the capital stock or assets of any other
Person, if such acquisition, in the good faith opinion of the Company as
specified in a notice to the Administrative Agent and the Banks, is
functionally equivalent to a Capital Expenditure;
(j) Holdings and its Subsidiaries may make acquisitions of all or
any substantial portion of the capital stock or assets of other Persons;
provided that the consideration paid by the Company or any of its
Subsidiaries for all such acquisitions (exclusive of any acquisition
pursuant to paragraph (i) of this subsection 7.6) does not exceed
$5,000,000 in each fiscal year;
(k) the Company may, at or prior to any closing under any Real
Estate Financing, make an investment in the special-purpose finance
vehicle established or to be established in connection with such Real
Estate Financing in an amount not in excess of the sum of (i) transaction
costs incurred in connection with such Real Estate Financing and (ii) an
amount which is in the reasonable judgment of the Company nominal relative
to such Real Estate Financing;
(l) loans, advances or contributions by the Company and its
Subsidiaries to the Company's Foreign Subsidiaries or joint ventures
which, directly or indirectly, own
<PAGE>
54
the Company's interest in its foreign stores or operations for the purpose
of financing the acquisition, construction and operation thereof in an
aggregate amount not to exceed the greater of (i) $50,000,000 and (ii) if
Holdings receives senior unsecured ratings from both S&P and Moody's of
BBB- and Baa3, respectively, 10% of the Consolidated Net Worth of Holdings
as of the date of the most recent financial statements delivered by the
Company pursuant to subsection 6.1(a) or (b) prior to the making of such
loan, advance or contribution;
(m) the acquisition by Holdings, the Company or any of their
respective Subsidiaries of all or any substantial part of the capital
stock or assets of any other Person (including in connection with the
initial capitalization of such other Person) or of the assets of any other
Person constituting a line of business thereof if the Remaining Strategic
Capital Amount is not less than zero after giving effect to such
acquisition; and
(n) investments (including, without limitation, extensions of
credit) in an aggregate principal amount not to exceed $30,000,000 at any
one time outstanding relating to the sale by the Company or any Subsidiary
of the Company of any assets or property thereof in accordance with
subsection 7.5.
7.7 Capital Expenditures. None of the Company or any of its
Subsidiaries shall make or commit to make Capital Expenditures in the aggregate
for the Company and its Subsidiaries, exceeding the amount set forth below (the
"Base Amount") for each of the fiscal years set forth below:
Fiscal Year
Ending Base
December 31 Amount
----------- -----------
1996 $125,000,000
1997 $125,000,000
1998 $125,000,000
1999 and $125,000,000
each fiscal year thereafter
provided, however, that the (a) Base Amount set forth above for any fiscal year
may be increased by carrying over to such fiscal year any portion of the Base
Amount not spent in any prior fiscal year and (b) in addition to the Base Amount
(as increased) in any year, the Company and its Subsidiaries may spend an
additional $50,000,000 in the aggregate; and provided, further, that the amount
otherwise available for Capital Expenditures for any fiscal year as provided
above shall be reduced by the amount of any acquisition made during such fiscal
year by the Company or any of its Subsidiaries under subsection 7.6(i).
Notwithstanding the foregoing limitation on Capital Expenditures,
the Company and its Subsidiaries shall be permitted to make or commit to make
additional Capital
<PAGE>
55
Expenditures so long as the Remaining Strategic Capital Amount is not less than
zero after giving effect to such Capital Expenditures, provided that reductions
in the Remaining Strategic Capital Amount made pursuant to subsection 7.6(m)
shall not be deemed to be Capital Expenditures.
7.8 Interest Coverage. At the last day of any fiscal quarter set
forth below, commencing with the fiscal quarter ending November 2, 1996, the
Company shall not permit the Interest Coverage Ratio to be less than the ratio
set forth below for such fiscal quarter:
Fiscal Year Fiscal Quarter Ratio
----------- -------------- -----
1996 3rd 2.50
4th 2.50
1997 1st 2.50
2nd 2.50
3rd 2.50
4th 2.90
1998 1st 2.90
2nd 2.90
3rd 2.90
4th 3.25
1999 1st 3.25
2nd 3.25
3rd 3.25
4th 3.75
2000 1st 3.75
2nd 3.75
3rd 3.75
4th 4.00
2001 1st 4.00
2nd 4.00
7.9 Total Indebtedness to Total Capitalization. (a) The Company
shall not permit Total Indebtedness as a percentage of Total Capitalization at
the last day of any fiscal quarter set forth below to be greater than the
percentage set forth below for such fiscal quarter:
Fiscal Year Fiscal Quarter Ratio
----------- -------------- -----
1996 3rd 68.0%
4th 65.0
<PAGE>
56
1997 1st 65.0
2nd 67.0
3rd 68.0
4th 65.0
1998 1st 65.0
2nd 67.0
3rd 68.0
4th 60.0
1999 1st 60.0
2nd 62.0
3rd 63.0
4th 55.0
2000 1st 55.0
2nd 57.0
3rd 58.0
4th 50.0
2001 1st 50.0
2nd 52.0
(b) Holdings shall not permit Total Indebtedness (calculated without
regard to the Company and the Subsidiaries of the Company) as a percentage of
Total Capitalization (calculated without regard to the Company and the
Subsidiaries of the Company) at the last day of any fiscal quarter to be greater
than 50%.
7.10 Limitation on Dividends. None of the Company or any of its
Subsidiaries shall declare any dividends on the common stock of the Company
other than dividends payable solely in common stock of the Company on any shares
of any class of stock, or make any payment on account of, or set apart assets
for a sinking or other analogous fund for, the purchase, redemption, retirement
or other acquisition of any shares of any class of stock of the Company, whether
now or hereafter outstanding, or make any other distribution in respect thereof
or make any loan or advance to Holdings, either directly or indirectly, whether
in cash or property or in obligations of the Company or any of its Subsidiaries;
except that (a) Subsidiaries may pay dividends to the Company or to Domestic
Subsidiaries or, in the case of a Foreign Subsidiary, to another Foreign
Subsidiary which are directly or indirectly wholly owned by the Company and (b)
the Company may pay dividends or make loans and advances as follows:
(i) prior to the time when Holdings has received senior unsecured
rating from both S&P and Moody's of BBB- and Baa3, respectively, in an
aggregate amount during any fiscal year not in excess of the sum of (A)
the lesser of 25% of consolidated net income of the Company and its
Subsidiaries for such fiscal year or
<PAGE>
57
$10,000,000 and (B) for fiscal years beginning on or after February 1,
1998, the amount by which (I) the lesser of 25% of consolidated net income
of the Company and its Subsidiaries for the prior fiscal year or
$10,000,000 exceeds (II) the amount of dividends, loans or advances made
in such prior fiscal year pursuant solely to this Section 7.10(i);
(ii) after and during the time when Holdings has received senior
unsecured ratings from both S&P and Moody's of BBB- and Baa3,
respectively, in an aggregate amount during any fiscal year not in excess
of 25% of consolidated net income of the Company and its Subsidiaries for
such fiscal year;
(iii) in amounts equal to amounts required for Holdings to pay
Federal, state and local income taxes to the extent that such income taxes
are attributable to the income of the Company and its Subsidiaries and to
pay franchise taxes and other fees required to maintain its corporate
existence;
(iv) in amounts equal to amounts expended by Holdings to repurchase
capital stock of Holdings owned by former employees of the Company and its
Subsidiaries and their assigns, estates and heirs, provided that the
amount paid, loaned or advanced to Holdings pursuant to this paragraph
(iii) shall not exceed in the aggregate $10,000,000, plus any amounts
contributed by Holdings to the Company as a result of resales of such
repurchased capital stock; and
(v) the Company shall be permitted to make payments, dividends or
distributions with respect to operating costs incurred by Holdings in
amounts not to exceed $4,000,000 in the aggregate during each fiscal year
of the Company;
Notwithstanding any of the provisions of this subsection 7.10 or subsection
7.13(i), the Company shall be permitted to prepay the Intercompany Notes or pay
a dividend to Holdings from time to time in an aggregate amount since the
Effective Date of up to $36,000,000; provided that in no event shall the
aggregate amount in any fiscal year of such prepayments of the Intercompany Note
and such payments of dividends, together with the dividends and loans and
advances made pursuant to clause (b)(i) of this subsection 7.10, exceed during
any fiscal year 50% of the consolidated net income of the Company and its
Subsidiaries for such fiscal year.
7.11 Transactions with Affiliates. None of the Company or any of its
Subsidiaries shall enter into any transaction, including, without limitation,
any purchase, sale, lease or exchange of property or the rendering of any
service, with any Affiliate except (a) for transactions which are otherwise
permitted under this Agreement and which are in the ordinary course of the
Company's or a Subsidiary's business and which are upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than it would obtain
in a hypothetical comparable arm's length transaction with a Person not an
Affiliate, (b) as permitted under subsections 7.3(b), (c), (d) or (f), 7.5(e),
7.6(a), (b), (d), (e) or (h), 7.10 or 7.13 or as not prohibited under subsection
7.1, (c) the performance of the Company's or any Subsidiary's obligations under
any employment contract, collective bargaining agreement, employee benefit plan,
related trust agreement or any other similar arrangement heretofore or
<PAGE>
58
hereafter entered into in the ordinary course of business, (d) payment of
compensation to employees, officers, directors or consultants in the ordinary
course of business and (e) maintenance of benefit programs or arrangements for
employees, officers or directors, including, without limitation, vacation plans,
health and life insurance plans, deferred compensation plans, and retirement or
savings plans and similar plans, in each case in the ordinary course of
business.
7.12 Foreign Exchange Contracts. None of the Company or any of its
Subsidiaries shall enter into any foreign currency exchange contracts other than
foreign currency exchange contracts entered into for the purpose of hedging any
payments required to be made or anticipated to be received by the Company or any
of its Subsidiaries in a foreign currency in the ordinary course of business.
7.13 Prepayments and Amendments of Subordinated Debt and Real Estate
Indebtedness. None of the Company or any of its Subsidiaries shall (i)
optionally prepay, optionally retire, optionally redeem, optionally purchase,
optionally defease or optionally exchange, or optionally make any deposits or
segregation of funds in respect of, any principal of (A) the Intercompany Notes
(other than in connection with a refinancing thereof on terms and conditions
substantially similar to the terms and conditions of a refinancing of the
Convertible Subordinated Notes or with the proceeds of the contribution of
equity to the Company by Holdings) and the Subordinated Notes, provided that the
Subordinated Notes may be redeemed in whole or in part from time to time if at
the time of any such redemption no Default or Event of Default exists or would
result therefrom or (B) any Indebtedness incurred pursuant to a Real Estate
Financing (other than in connection with a refinancing of any such Indebtedness
or in preparation or contemplation of a sale or other dispositions (including
the renegotiation of a lease) of the real estate securing such Indebtedness) or
(ii) amend, supplement or otherwise modify the Intercompany Notes or any of the
documents or instruments relating to any of the Indebtedness incurred pursuant
to the Real Estate Financing.
7.14 Restrictions on Holdings. Unless Holdings shall have entered
into an unconditional guarantee of all of the obligations of the Company and its
Subsidiaries hereunder, which guarantee shall have substantially the same terms
and conditions of the guarantee referred to in subsection 10.13, Holdings and
its Subsidiaries (other than the Company and its Subsidiaries) shall not
conduct, transact or otherwise engage in any business or operations, incur,
create, assume or suffer to exist any Indebtedness (other than the Convertible
Subordinated Notes), Contingent Obligations or other liabilities or obligations
expressly permitted hereby, or own, lease, manage or otherwise operate any
properties or assets, other than incident to the ownership of all of the
outstanding shares of capital stock of the Company, provided that Holdings may
take all actions reasonably necessary incident to its status as a public
company.
<PAGE>
59
SECTION 8. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the
following events:
(a) The Company shall fail to (i) pay any principal of any Note when
due in accordance with the terms hereof or thereof or to reimburse Chase
in accordance with subsection 2.8 or (ii) pay any interest on any Note or
any other amount payable hereunder within five days after any such
interest or other amount becomes due in accordance with the terms thereof
or hereof; or
(b) Any representation or warranty made or deemed made by any Credit
Party in any Credit Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) The Company shall default in the observance or performance of
any agreement contained in subsection 6.7(a) or Section 7 of this
Agreement or any Credit Party or any of its Subsidiaries shall default in
the observance or performance of any agreement contained in Section 5 of
the Pledge Agreement or Section 2 (insofar as it relates to subsection
6.7(a) or Section 7 of this Agreement) of the Supplemental Agreement to
which it is a party or the Company or any of its Subsidiaries shall
default in the observance or performance of any agreement contained in
Section 5 of the Security Agreement to which it is a party; or
(d) The Company or any of its Subsidiaries or any other Credit Party
shall default in the observance or performance of any other agreement
contained in any Credit Document, and such default shall continue
unremedied for a period of 30 days; or
(e) Holdings or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on any Indebtedness (other than the
Notes, the L/C Obligations and any inter-company debt) or in the payment
of any Contingent Obligation, beyond the period of grace, if any, provided
in the instrument or agreement under which such Indebtedness or Contingent
Obligation was created; or (ii) default in the observance or performance
of any other agreement or condition relating to any such Indebtedness or
Contingent Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur
or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Contingent Obligation
(or a trustee or agent on behalf of such holder or holders or beneficiary
or beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity, any applicable
grace period having expired, or such Contingent Obligation to become
payable, any applicable grace period having expired, provided that the
aggregate principal amount of all such Indebtedness and Contingent
Obligations which would then become due or payable would equal or exceed
$10,000,000; or
<PAGE>
60
(f) (i) The Company or any of its Subsidiaries or Holdings shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Company or
any of its Subsidiaries or Holdings shall make a general assignment for
the benefit of its creditors; or (ii) there shall be commenced against the
Company or any of its Subsidiaries or Holdings any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against the Company
or any of its Subsidiaries or Holdings any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint
or similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60
days from the entry thereof; or (iv) the Company or any of its
Subsidiaries or Holdings shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or
any of its Subsidiaries or Holdings shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(g) (i) Any of the Company, any Subsidiary, or any director, officer
or employee of either, or any of the Plans, or any trust created
thereunder, or any trustee or administrator thereof, shall engage in a
transaction involving any Plan in connection with which the Company or any
Subsidiary could be subject to either a material liability or civil
penalty assessed pursuant to Sections 409, 502(i) or 502(l) of ERISA or a
material tax imposed pursuant to Sections 4975 or 4976 of the Code, or
(ii) any Plan or any trust established thereunder incurs any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412 of
the Code), whether or not waived; and in each case in clauses (i) through
(ii) above, such event or condition, together with all other such events
or conditions relating to such Plans, if any, could subject the Company or
any of its Subsidiaries to any tax, penalty or other liabilities which in
the aggregate are material in relation to the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole; or
(h) One or more judgments or decrees, which shall not have been
vacated, discharged, stayed or bonded pending appeal within the time
required by the terms of such judgment, shall be entered against the
Company or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of $10,000,000 or more; or
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61
(i) Any Credit Document shall cease, for any reason, to be in full
force and effect or any Credit Party or any of its Subsidiaries shall so
assert in writing, or any Pledge Agreement or Security Agreement or
Mortgage shall cease to be effective to grant a perfected Lien on the
collateral described therein with the priority purported to be created
thereby (other than as a result of any action or inaction of the part of
the Administrative Agent or the Banks), subject to such exceptions as may
be permitted therein, and in the case of any Security Agreement such
condition shall continue unremedied for 30 days after notice thereof to
the Company by the Administrative Agent or any Bank; or
(j) There shall have occurred a Change in Control;
then, and in any such event, (a) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above, automatically (i) the Commitments
shall immediately terminate and the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes shall
immediately become due and payable, and (ii) all obligations of the Company in
respect of the Letters of Credit, although contingent and unmatured, shall
become immediately due and payable and Chase's obligations to issue the Letters
of Credit shall immediately terminate and (b) if such event is any other Event
of Default, so long as any such Event of Default shall be continuing, either or
both of the following actions may be taken: (i) with the consent of the Required
Banks, the Administrative Agent may, or upon the request of the Required Banks,
the Administrative Agent shall, by notice to the Company, declare the
Commitments and Chase's obligations to issue the Letters of Credit to be
terminated forthwith, whereupon the Commitments and such obligations shall
immediately terminate; and (ii) with the consent of the Required Banks, the
Administrative Agent may, or upon the request of the Required Banks, the
Administrative Agent shall, by notice of default to the Company, (A) declare all
or a portion of the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable, and (B)
declare all or a portion of the obligations of the Company in respect of the
Letters of Credit, although contingent and unmatured, to be due and payable
forthwith, whereupon the same shall immediately become due and payable and/or
demand that the Company discharge any or all of the obligations supported by the
Letters of Credit by paying or prepaying any amount due or to become due in
respect of such obligations. All payments under this Section 8 on account of
undrawn Letters of Credit shall be made by the Company directly to a cash
collateral account established by the Administrative Agent for such purpose for
application to the Company's reimbursement obligations under subsection 2.8 as
drafts are presented under the Letters of Credit, with the balance, if any, to
be applied to the Company's obligations under this Agreement and the Notes as
the Administrative Agent shall determine with the approval of the Required
Banks. Except as expressly provided above in this Section 8, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
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62
SECTION 9. THE ADMINISTRATIVE AGENT; CHASE AS ISSUER
9.1 Appointment. Each Bank hereby irrevocably designates and
appoints The Chase Manhattan Bank as the Administrative Agent under this
Agreement and irrevocably authorizes The Chase Manhattan Bank as Administrative
Agent for such Bank, to take such action on its behalf under the provisions of
the Credit Documents and to exercise such powers and perform such duties as are
expressly delegated to the Administrative Agent by the terms of the Credit
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into the Credit Documents or otherwise exist against
the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any
of its duties under this Agreement and each of the other Credit Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Without limiting the
foregoing, the Administrative Agent may appoint Chase Agent Bank Services
Corporation as its agent to perform the functions of the Administrative Agent
hereunder relating to the advancing of funds to the Company and distribution of
funds to the Banks and to perform such other related functions of the
Administrative Agent hereunder as are reasonably incidental to such functions.
The Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care, except as otherwise provided in subsection 9.3.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with the Credit Documents (except for its
or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by any Credit Party or any of its
Subsidiaries or any officer thereof contained in the Credit Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, the Credit
Documents or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of the Credit Documents or for any failure of any Credit Party or
any of its Subsidiaries to perform its obligations thereunder. The
Administrative Agent shall not be under any obligation to any Bank to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, any Credit Document, or to inspect the
properties, books or records of any Credit Party or any of its Subsidiaries.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and
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63
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Company), independent accountants and other experts selected by
the Administrative Agent. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under any Credit Document unless it shall
first receive such advice or concurrence of the Required Banks (or, where
unanimous consent of the Banks is expressly required hereunder, such Banks) as
it deems appropriate or it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Administrative Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under any Credit Document in accordance with a request of the Required Banks,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Banks and all future holders of the Notes.
9.5 Notice of Default. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received written notice from a
Bank or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall promptly give notice thereof to the Banks. The Administrative Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Banks; provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Banks, except to the extent that
this Agreement expressly requires that such action be taken or not be taken with
the consent of the Required Banks.
9.6 Non-Reliance on Administrative Agent and Other Banks. Each Bank
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Credit
Parties or any of their Subsidiaries, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Bank. Each Bank
represents to the Administrative Agent that it has, independently and without
reliance upon the Administrative Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, financial and
other condition and creditworthiness of the Credit Parties and their
Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Administrative Agent or any other Bank, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under the Credit Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Credit Parties and
their
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64
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Banks by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, operations,
property, financial and other condition or creditworthiness of the Credit
Parties which may come into the possession of the Administrative Agent or any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Banks agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Credit
Parties and without limiting the obligation of the Credit Parties to do so),
ratably according to the respective amounts of their Commitments, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including without limitation at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of the
Credit Documents or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; provided
that no Bank shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the Administrative Agent's gross
negligence or willful misconduct. The agreements in this subsection 9.7 shall
survive the payment of the Notes and all other amounts payable hereunder.
9.8 The Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Credit Parties and their
Subsidiaries as though the Administrative Agent were not the Administrative
Agent hereunder. With respect to its Loans made or renewed by it and any Note
issued to it, the Administrative Agent shall have the same rights and powers,
duties and liabilities under the Credit Documents as any Bank and may exercise
the same as though it were not the Administrative Agent and the terms "Bank" and
"Banks" shall include the Administrative Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Banks. If the
Administrative Agent shall resign as Administrative Agent under the Credit
Documents, then the Required Banks shall appoint from among the Banks a
successor agent for the Banks which successor agent shall be approved by the
Company, which shall not unreasonably withhold its approval, whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent and the term "Administrative Agent" shall mean such
successor agent effective upon its appointment, and the former Administrative
Agent's rights, powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement or any holders of
the Notes. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent the provisions of this Section 9 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Agent under the Credit Documents.
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65
9.10 Chase as Issuer of Letters of Credit. Each Bank holding a
Revolving Credit Commitment hereby acknowledges that the provisions of this
Section 9 shall apply to Chase, in its capacity as issuer of the Letters of
Credit, in the same manner as such provisions are expressly stated to apply to
the Administrative Agent.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. No Credit Document nor any terms
thereof may be amended, supplemented or modified except in accordance with the
provisions of this subsection 10.1. With the written consent of the Required
Banks, the Administrative Agent and the respective Credit Parties or their
Subsidiaries may, from time to time, enter into written amendments, supplements
or modifications hereto for the purpose of adding any provisions to any Credit
Document to which they are parties or changing in any manner the rights of the
Banks or of any such Credit Party or its Subsidiaries thereunder or waiving, on
such terms and conditions as the Administrative Agent may specify in such
instrument, any of the requirements of any such Credit Document or any Default
or Event of Default and its consequences; provided, however, that:
(a) no such waiver and no such amendment, supplement or modification
shall release collateral which, in the aggregate with all other collateral
released pursuant to this clause (a) (other than collateral released
pursuant to the proviso to this clause (a)) during the calendar year in
which such proposed release would be effected and the immediately
preceding calendar year, has fair market value on the proposed date of
release in excess of 20% of the fair market value of all collateral on
such date without the written consent of the Banks holding 66 2/3% of the
aggregate Commitments; provided that, notwithstanding the foregoing, this
clause (a) shall not be applicable to any release of collateral (i) in
connection with any restructuring of the Company or any of its
Subsidiaries in which, after giving effect to such release, the
Administrative Agent, in its sole discretion, deems there to be no
material impairment of the value of the collateral taken as a whole or
(ii) pursuant to subsection 10.12;
(b) no such waiver and no such amendment, supplement or modification
shall extend the maturity of any Note or installment of any Loan, or
reduce the rate or extend the time of payment of interest thereon, or
change the method of calculating interest thereon, or reduce or extend the
time of payment for any fee payable to the Banks hereunder, or reduce the
principal amount thereof, or increase the amount of any Bank's Commitment,
or amend, modify or waive any provision of this subsection 10.1 or reduce
the percentage specified in the definition of Required Banks, or change
the percentage of the Banks required to waive a condition precedent under
Section 5 or consent to the assignment or transfer by the Company of any
of its rights and obligations under any Credit Document, in each case,
without the written consent of each Bank directly affected thereby; and
(c) no such waiver and no such amendment, supplement or modification
shall amend, modify or waive any provision of Section 9 without the
written consent of the then Administrative Agent.
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66
Any such waiver and any such amendment, supplement or modification described in
this subsection 10.1 shall apply equally to each of the Banks and shall be
binding upon each Credit Party and its Subsidiaries, the Banks, the
Administrative Agent and all future holders of the Notes. In the case of any
waiver, the Company, the Banks and the Administrative Agent shall be restored to
their former position and rights hereunder and under the outstanding Notes, and
any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy or telex), and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or three Business
Days after being deposited in the mail, postage prepaid, or, in the case of
telecopy notice, when sent, confirmation of receipt received, or, in the case of
telex notice, when sent, answerback received, addressed as follows in the case
of the Company and the Administrative Agent, and as set forth on the signature
page hereto in the case of any Bank, or to such other address as may be
hereafter notified by the respective parties hereto and any future holders of
the Notes:
The Company: Saks & Company
12 East 49th Street
New York, New York 10017
Attention: Executive Vice President/Chief
Financial Officer
Telecopy: (212) 940-4103
With a copy to: Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Janet Vance
Telecopy: (212) 351-4035
The Administrative
Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Neil Boylan
Telecopy:
With a copy to: The Chase Manhattan Bank
2 Grand Central Tower
140 East 45th Street, 29th Floor
New York, New York 10017
Attention: Sandra Miklave
Telecopy: (212) 622-0005
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67
provided that any notice, request or demand to or upon the Administrative Agent
or the Banks pursuant to subsections 2.2, 2.5, 3.1, 3.2, 3.3 and 3.4 shall not
be effective until received and provided that the failure to provide the copies
of notices to the Company provided for in this subsection 10.2 shall not result
in any liability to the Administrative Agent.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Bank, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement, the Letters of Credit and the Notes.
10.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or
reimburse the Administrative Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, the Credit Documents and any other
documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Bank and the Administrative Agent for all their costs and
expenses incurred in connection with, and to pay, indemnify, and hold the
Administrative Agent and each Bank harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever arising out of
or in connection with, the enforcement or preservation of any rights under any
Credit Document and any such other documents, including, without limitation,
reasonable fees and disbursements of counsel to the Administrative Agent and
each Bank incurred in connection with the foregoing and in connection with
advising the Administrative Agent with respect to its rights and
responsibilities under this Agreement and the documentation relating thereto,
(c) to pay, indemnify, and to hold the Administrative Agent and each Bank
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
similar taxes (other than withholding taxes), if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
any Credit Document and any such other documents, and (d) to pay, indemnify, and
hold the Administrative Agent and each Bank and their respective officers and
directors harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable fees and disbursements of counsel) which may be incurred by or
asserted against the Administrative Agent or the Banks (x) arising out of or in
connection with any investigation, litigation or proceeding related to this
Agreement, the other
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68
Credit Documents, the proceeds of the Loans, or any of the other transactions
contemplated hereby, whether or not the Administrative Agent or any of the Banks
is a party thereto, or (y) without limiting the generality of the foregoing by
reason of or in connection with the execution and delivery or transfer of, or
payment or failure to make payments under, Letters of Credit (it being agreed
that nothing in this subsection 10.5(d)(y) is intended to limit the Company's
obligations pursuant to Section 2.8) (all the foregoing, collectively, the
"indemnified liabilities"), provided that the Company shall have no obligation
hereunder with respect to indemnified liabilities of the Administrative Agent or
any Bank or any of their respective officers and directors arising from (i) the
gross negligence or willful misconduct of such Administrative Agent or Bank or
their respective directors or officers or (ii) legal proceedings commenced
against the Administrative Agent or a Bank by any security holder or creditor
(other than a beneficiary of a Letter of Credit in its capacity as such, unless
such indemnified liabilities arise from the gross negligence or willful
misconduct of such Administrative Agent or Bank or their respective directors or
officers) thereof arising out of and based upon rights afforded any such
security holder or creditor solely in its capacity as such or (iii) legal
proceedings commenced against the Administrative Agent or any such Bank by any
Transferee (as defined in subsection 10.6). The agreements in this subsection
10.5 shall survive repayment of the Notes and all other amounts payable
hereunder.
10.6 Successors and Assigns; Participations; Purchasing Banks. (a)
This Agreement shall be binding upon and inure to the benefit of the Company,
the Banks and the Administrative Agent, all future holders of the Notes, and
their respective successors and assigns, except that the Company may not assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of each Bank.
(b) Any Bank may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, at any time sell to
one or more banks or other entities ("Participants") participating interests in
minimum amount of $5,000,000 in any Loan owing to such Bank, any participating
interest in the Letters of Credit of such Bank, any Note held by such Bank, any
Commitment of such Bank or any other interest of such Bank hereunder. In the
event of any such sale by a Bank of participating interests to a Participant,
such Bank's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Bank shall remain solely responsible for
the performance thereof, such Bank shall remain the holder of any such Note for
all purposes under this Agreement and the Company and the Administrative Agent
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement. The Company agrees that
if amounts outstanding under this Agreement and the Notes are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of setoff in respect of its participating interest in amounts owing under
this Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement
or any Note; provided, that such right of setoff shall be subject to the
obligation of such Participant to share with the Banks, and the Banks agree to
share with such Participant, as provided in subsection 10.8. The Company also
agrees that each Participant shall be entitled to the benefits of subsections
2.10, 3.11 and 3.12 with respect to its participation in the Letters of Credit
and in the Commitments and the
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69
Loans outstanding from time to time; provided, that no Participant shall be
entitled to receive any greater amount pursuant to such subsections than the
transferor Bank would have been entitled to receive in respect of the amount of
the participation transferred by such transferor Bank to such Participant had no
such transfer occurred. In the event of any such sale by a selling Bank of a
participating interest to a Participant the selling Bank shall not grant any
such Participant any voting rights or veto power over any action by the selling
Bank under this Agreement, except that the selling Bank may agree not to take
any action which would require the consent of such selling Bank under subsection
10.1(b) without the consent of such Participant.
(c) Any Bank may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, (i) at any time sell
all or any part of its rights and obligations under this Agreement and the Notes
to any Bank or any Affiliate thereof, provided that, in the event of a sale of
less than all of such rights and obligations, such assigning Bank after any such
sale to any other Bank or any Affiliate of such Bank shall retain Commitments
and/or Loans and L/C Participating Interests aggregating at least $5,000,000 (or
such lesser amount as the Administrative Agent may determine) and (ii) with the
written consent of the Company and the Administrative Agent (which in each case
shall not be unreasonably withheld) sell to one or more additional banks or
financial institutions ("Purchasing Banks"), all or any part of its rights and
obligations under this Agreement and the Notes, pursuant to a Commitment
Transfer Supplement, executed by such Purchasing Bank, such transferor Bank
(and, in the case of a Purchasing Bank that is not then a Bank or an Affiliate
thereof, by the Administrative Agent and the Company), and delivered to the
Administrative Agent for its acceptance and recording in the Register (as
defined below); provided that (A) each such sale pursuant to clause (i) or (ii)
of this subsection 10.6(c) shall be in an amount of $5,000,000 or more and (B)
in the event of a sale of less than all of such rights and obligations, such
Bank after any such sale shall retain a Commitment and/or Loans aggregating at
least $5,000,000. Upon such execution, delivery, acceptance and recording, from
and after the Transfer Effective Date as defined in the Commitment Transfer
Supplement determined pursuant to such Commitment Transfer Supplement, (x) the
Purchasing Bank thereunder shall be a party hereto and, to the extent provided
in such Commitment Transfer Supplement, have the rights and obligations of a
Bank hereunder with a Commitment as set forth therein, and (y) the transferor
Bank thereunder shall, to the extent of the interest transferred, as reflected
in such Commitment Transfer Supplement, be released from its obligations under
this Agreement (and, in the case of a Commitment Transfer Supplement covering
all or the remaining portion of a transferor Bank's rights and obligations under
this Agreement, such transferor Bank shall cease to be a party hereto). Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Bank and the resulting adjustment of Revolving Credit Commitment
Percentages arising from the purchase by such Purchasing Bank of all or a
portion of the rights and obligations of such transferor Bank under this
Agreement and the Notes. On or prior to the Transfer Effective Date determined
pursuant to such Commitment Transfer Supplement, the Company, at its own
expense, shall execute and deliver to the Administrative Agent in exchange for
the surrendered Notes new Notes to the order of such Purchasing Bank in an
amount equal to the Commitments assumed by it pursuant to such Commitment
Transfer Supplement and, if the transferor Bank has retained any Commitments
hereunder, new Notes to the order of the
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transferor Bank in an amount equal to the Commitments retained by it hereunder.
Such new Notes shall be dated, and shall otherwise be in the form of, the Notes
replaced thereby. The Notes surrendered by the transferor Bank shall be returned
by the Administrative Agent to the Company marked "cancelled".
(d) The Administrative Agent shall maintain at its address referred
to in subsection 10.2 a copy of each Commitment Transfer Supplement delivered to
it and a register (the "Register") for the recordation of the names and
addresses of the Banks and the Commitment of the Revolving Credit Loans and/or
Swing Line Loans owing to, and the L/C Participating Interests of, each Bank
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Company, the Administrative Agent and the
Banks may treat each Person whose name is recorded in the Register as the owner
of the Loan or L/C Participating Interest recorded therein for all purposes of
this Agreement. The Register shall be available for inspection by the Company or
any Bank at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by
a transferor Bank and a Purchasing Bank (and, in the case of a Purchasing Bank
that is not then a Bank or an Affiliate thereof, by the Company and the
Administrative Agent), together with payment to the Administrative Agent of a
registration and processing fee of $4,000 if the Purchasing Bank is not a Bank
prior to the execution of such supplement and $1,000 otherwise, the
Administrative Agent shall (i) promptly accept such Commitment Transfer
Supplement and (ii) on the Transfer Effective Date determined pursuant thereto
record the information contained therein in the Register and give notice of such
acceptance and recordation to the Banks and the Company.
(f) The Banks agree that they will protect the confidentiality of
any confidential information concerning Holdings, the Company and its
Subsidiaries and Affiliates. Notwithstanding the foregoing, the Company
authorizes each Bank to disclose to any Participant or Purchasing Bank (each, a
"Transferee") and any prospective Transferee any and all financial information
in such Bank's possession concerning Holdings, the Company and its Subsidiaries
and Affiliates which has been delivered to such Bank by or on behalf of the
Company pursuant to this Agreement or which has been delivered to such Bank by
or on behalf of Holdings or the Company in connection with such Bank's credit
evaluation of Holdings, the Company and its Subsidiaries and Affiliates prior to
becoming a party to this Agreement; provided that each Bank shall cause its
respective prospective Transferee to agree in writing to protect the
confidentiality of any confidential information concerning Holdings, the Company
and its Subsidiaries and Affiliates.
(g) If, pursuant to this subsection 10.6, any interest in this
Agreement or any Note is transferred to any Transferee which is organized under
the laws of any jurisdiction other than the United States or any State thereof,
the transferor Bank shall cause such Transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Bank (for the
benefit of the transferor Bank, the Administrative Agent and the Company) that
under applicable law and treaties no taxes will be required to be withheld by
the Administrative Agent, the Company or the transferor Bank with respect to any
payments
<PAGE>
71
to be made to such Transferee in respect of the Loans or L/C Participating
Interests, (ii) to furnish to the transferor Bank (and, in the case of any
Purchasing Bank registered in the Register, the Administrative Agent and the
Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue
Service Form 1001 (wherein such Transferee claims entitlement to complete
exemption from U.S. federal withholding tax on all interest payments hereunder)
or, in the case of a Transferee claiming exemption from U.S. Federal withholding
tax under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest", a U.S. Internal Revenue Service Form W-8 (and, if a
Transferee delivers a Form W-8, a statement under the penalties of perjury that
such Transferee is not a "bank" under Section 881(c)(3)(A) of the Code, is not
subject to regulatory or other legal requirements as a bank in any jurisdiction,
and has not been treated as a bank for purposes of any tax, securities law or
other filing or submission made to any Governmental Authority, any application
made to a rating agency or qualification for any exemption from tax, securities
law or other legal requirements as of the date the Transferee becomes a Bank
party to this Agreement), and (iii) agrees (for the benefit of the Company and
the Administrative Agent), to the extent it may lawfully do so at such time, to
provide the Company, with a copy to the Administrative Agent, a new Form 4224,
Form 1001 or Form W-8 upon the expiration or obsolescence of any previously
delivered form and comparable statements in accordance with applicable U.S. laws
and regulations and amendments duly executed and completed by such Bank, and to
comply from time to time with all applicable U.S. laws and regulations with
regard to such withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging or
assigning any Note to any Federal Reserve Bank in accordance with applicable
law.
10.7 Permitted Payments. Notwithstanding any provision to the
contrary contained in this Agreement, the Company shall be permitted to enter
into, or, as the case may be, make payments of fees pursuant to, the following
agreements: (i) agreements providing for the payment of commercially reasonable
fees in connection with the Real Estate Financing; and (ii) agreements providing
for the payment of commercially reasonable fees in connection with the
financing, refinancing, sale, transfer, sale and leaseback or other disposition
of any other assets of the Company, including without limitation the
International Rights.
10.8 Adjustments; Set-off. (a) If any Bank (a "benefitted Bank")
shall at any time receive any payment of all or part of any of its Loans or L/C
Participating Interests, as the case may be, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in clause (f) of
Section 8, or otherwise) in a greater proportion than any such payment to and
collateral received by any other Bank, if any, in respect of such other Bank's
Loans or L/C Participating Interests, as the case may be, or interest thereon,
such benefitted Bank shall purchase for cash from the other Banks such portion
of each such other Bank's Loans or L/C Participating Interests, as the case may
be, or shall provide such other Banks with the benefits of any such collateral,
or the proceeds thereof, as shall be necessary to cause such benefitted Bank to
share the excess payment or benefits of such collateral or proceeds ratably with
each of the Banks; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Bank, such
purchase shall be
<PAGE>
72
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The Company agrees that each Bank so purchasing
a portion of another Bank's Loans and/or L/C Participating Interests may
exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Bank were the direct
holder of such portion. The Administrative Agent shall promptly give the Company
notice of any set-off, provided that the failure to give such notice shall not
affect the validity of such set-off.
(b) In addition to any rights and remedies of the Banks provided by
law, each Bank shall have the right, without prior notice to the Company, any
such notice being expressly waived by the Company to the extent permitted by
applicable law, upon the filing of a petition under any of the provisions of the
federal bankruptcy code or amendments thereto, by or against; the making of an
assignment for the benefit of creditors by; the application for the appointment,
or the appointment, of any receiver of, or of any of the property of; the
issuance of any execution against any of the property of; the issuance of a
subpoena or order, in supplementary proceedings, against or with respect to any
of the property of; or the issuance of a warrant of attachment against any of
the property of; the Company, to set-off and apply against any indebtedness,
whether matured or unmatured, of the Company to such Bank, any amount owing from
such Bank to the Company, at or at any time after, the happening of any of the
above mentioned events, and as security for such indebtedness, the Company
hereby grants to each Bank a continuing security interest in any and all
deposits, accounts or moneys of the Company then or thereafter maintained with
such Bank, subject in each case to subsection 10.8(a) of this Agreement. The
aforesaid right of set-off may be exercised by such Bank against the Company or
against any trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, receiver or execution, judgment or attachment creditor of
the Company, or against anyone else claiming through or against the Company or
such trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Bank prior to the making, filing or issuance, or service upon
such Bank of, or of notice of, any such petition; assignment for the benefit of
creditors; appointment or application for the appointment of a receiver; or
issuance of execution, subpoena, order or warrant. Each Bank agrees promptly to
notify the Company and the Administrative Agent after any such set-off and
application made by such Bank, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
10.9 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and the Administrative Agent.
10.10 Governing Law; No Third Party Rights. This Agreement and the
Notes and the rights and obligations of the parties under this Agreement and the
Notes shall be governed by, and construed and interpreted in accordance with,
the law of the State of New York. This Agreement is solely for the benefit of
the parties hereto and their respective
<PAGE>
73
successors and assigns, and, except as set forth in subsection 10.6, no other
Persons shall have any right, benefit, priority or interest under, or because of
the existence of, this Agreement.
10.11 Submission to Jurisdiction; Waivers. (a) Each party to this
Agreement hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Credit Agreement or any of the other Credit
Documents, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought in
such courts, and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth in subsection 10.2 or at
such other address of which the Administrative Agent shall have been
notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
(b) EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE.
10.12 Release of Collateral. (a) The collateral securing the
Company's obligations hereunder and the other Credit Documents (other than the
Supplemental Agreement) shall be released upon the request of the Company upon
Holdings receiving senior unsecured ratings from both S&P and Moody's of at
least BBB- and Baa3, respectively.
(b) Upon termination of the lease on the property located in Boca
Raton, Florida, the Administrative Agent, on its own behalf and on behalf of the
Banks, shall release the leasehold mortgage, dated April 5, 1995, from the
Company to the Administrative Agent, as amended, on such lease.
10.13 Termination of Holdings Guarantee. The Guarantee, dated July
2, 1990, made by Holdings in favor of the Administrative Agent for the ratable
benefit of the Banks, as amended, modified or supplemented, including, without
limitation, Section 7 thereof, is hereby terminated and the Administrative Agent
and each Bank hereby releases and discharges Holdings from any and all
liabilities thereunder.
<PAGE>
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
SAKS & COMPANY
By: /s/ Mark E. Hood
---------------------------------------
Title: SVP Finance
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Bank
By:
---------------------------------------
Title:
Address for Notice:
270 Park Avenue, 9th Floor
New York, New York 10017
Attn: Neil Boylan
Telecopy: 212-972-0009
and
2 Grand Central Tower
140 East 45th Street, 29th Floor
New York, New York 10017
Attn: Barbara Clemens
Telecopy: 212-623-8979
Revolving Credit Commitment: $ 30,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
SAKS & COMPANY
By:
---------------------------------------
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Bank
By: /s/ Neil R. Boylan
---------------------------------------
Title: NEIL R. BOYLAN
VICE PRESIDENT
Address for Notice:
270 Park Avenue, 9th Floor
New York, New York 10017
Attn: Neil Boylan
Telecopy: 212-972-0009
and
2 Grand Central Tower
140 East 45th Street, 29th Floor
New York, New York 10017
Attn: Barbara Clemens
Telecopy: 212-623-8979
Revolving Credit Commitment: $ 30,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
CREDIT SUISSE, as a Bank
By: /s/ Joel Glodowski
---------------------------------------
Title: JOEL GLODOWSKI
MEMBER OF SENIOR MANAGEMENT
/s/ Chris T. Horgan
---------------------------------------
CHRIS T. HORGAN
ASSOCIATE
Address for Notice:
New York, New York
Attn:
Telecopy:
Revolving Credit Commitment: $ 25,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
CANADIAN IMPERIAL BANK OF
COMMERCE, as a Bank
By: /s/ E.O. Fischer
---------------------------------------
Title: Authorized Signatory
Address for Notice:
425 Lexington Avenue
New York, New York 10017
Attn:
Telecopy:
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH, as a Bank
By: /s/ Koji Sasayama
---------------------------------------
Title: Vice President
Address for Notice:
165 Broadway
New York, New York 10006
Attn: Koji Sasayama
Telecopy: (212) 608-2371
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
ARAB BANKING CORPORATION, as a Bank
By: /s/ Louise Bilbro
---------------------------------------
Title: Vice President
Address for Notice:
277 Park Avenue
New York, New York 10172
Attn: Louise Bilbro
Telecopy: 212-585-0921
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
BANKERS TRUST, as a Bank
By: /s/ Mary Kay Coyle
---------------------------------------
Title: MARY KAY COYLE
MANAGING DIRECTOR
Address for Notice:
One Bankers Trust Plaza
New York, New York 10006
Attn: Mary Kay Coyle
Telecopy: 212-250-7218
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
MELLON BANK, as a Bank
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: Vice President
Address for Notice:
One Mellon Bank Center
Pittsburg, Pennsylvania 15258-0001
Attn:
Telecopy:
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC., as
a Bank
By: /s/ Edward A. Jesser
---------------------------------------
Title: Edward A. Jesser
Vice President
Address for Notice:
1211 Avenue of the Americas
New York, New York 10036
Attn: Edward A. Jesser, VP
Telecopy: 212/536-1295
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
THE BANK OF TOKYO -- MITSUBISHI
TRUST COMPANY, as a Bank
By: /s/ Paul P. Malecki
---------------------------------------
Title: PAUL P. MALECKI
Vice President
Address for Notice:
1251 Avenue of the Americas
New York, New York 10020-1104
Attn: Robert Gamba
Telecopy: 212-782-4981
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
SOCIETE GENERALE, as a Bank
By: /s/ Karel Vasak
---------------------------------------
Title: Karel Vasak
Vice President and
Senior Relationship Director
Address for Notice:
1121 Avenue of the Americas
New York, New York 10020
Attn:
Telecopy:
Revolving Credit Commitment: $ 20,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
THE SUMITOMO TRUST AND BANKING CO.,
LTD., NY BRANCH, as a Bank
By: /s/ Suraj P. Bhatia
---------------------------------------
Title: SURAJ P. BHATIA
SENIOR VICE PRESIDENT
MANAGER, CORPORATE FINANCE DEPT.
Address for Notice:
527 Madison Avenue
New York, New York 10022
Attn:
Telecopy:
Revolving Credit Commitment: $ 20,000,000
<PAGE>
CREDIT LYONNAIS, NEW YORK BRANCH,
as a Bank
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: [ILLEGIBLE]
SVP
Address for Notice:
1301 Avenue of the Americas
New York, New York 10019
Attn: Heidi Rosen
Telecopy: 212-459-3179
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
FLEET BANK, NATIONAL ASSOCIATION,
as a Bank
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: Asst. Vice-President
Address for Notice:
56 East 42nd Street, 3rd Floor
New York, New York 10017
Attn: Alex Sade
Telecopy:
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
FIRST HAWAIIAN BANK, as a Bank
By: /s/ Kathryn Plumb
---------------------------------------
Title: VICE PRESIDENT
Address for Notice:
1132 Bishop Street
Honolulu, Hawaii 96813
Attn: KATHRYN PLUMB
Telecopy: 808-525-6372
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
ALLIED IRISH BANKS, P.L.C., Cayman Islands
Branch, as a Bank
By: /s/ Marcia Meeker
---------------------------------------
Title: V.P.
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: S.V.P.
Address for Notice:
405 Park Avenue
New York, New York 10022
Attn:
Telecopy:
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
POSTIPANKKI LTD., as a Bank
By: /s/ LAWRENCE HALM /s/ [ILLEGIBLE]
-------------------------------------
Title: SENIOR MANAGER
VICE PRESIDENT
Address for Notice:
153 East 53rd Street
New York, New York 10022
Attn: LAWRENCE HALM
Telecopy: 212 758 0011
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
NIPPON CREDIT BANK, as a Bank
By: /s/ Barry S. Fein
---------------------------------------
Title: Assistant Vice President
Address for Notice:
245 Park Avenue
New York, New York 10167
Attn: Barry S. Fein
Telecopy: (212) 490-3895
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
WELLS FARGO BANK, N.A.,
as a Bank
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: VICE PRESIDENT
Address for Notice:
885 Third Avenue
New York, New York 10022
Attn: Roy Roberts
Telecopy: 212-836-4031
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
FIRST UNION NATIONAL BANK, as a Bank
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: AVP
Address for Notice:
301 South College Street
Charlotte, North Carolina 28288-0737
Attn:
Telecopy:
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
SWISS BANK CORPORATION, NY BRANCH,
as a Bank
By: /s/ Thomas Eggenschwiler /s/ Thomas R. Salzano
---------------------------- ------------------------
Title: Thomas Eggenschwiler Thomas R. Salzano
Executive Director Associate Director
Credit Risk Management Banking Finance Support,
Address for Notice:
222 Broadway
New York, New York 10038
Attn:
Telecopy:
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
BANK OF SCOTLAND, as a Bank
By: /s/ Catherine M. Oniffrey
---------------------------------------
Title: CATHERINE M. ONIFFREY
VICE PRESIDENT
Address for Notice:
565 Fifth Avenue
New York, New York 10017
Attn:
Telecopy:
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
CORESTATES BANK, as a Bank
By: /s/ Irene Rosen Marks
---------------------------------------
Title: Vice President
Address for Notice:
1345 Chestnut Street
Philadelphia, Pennsylvania 19101-7618
Attn: Irene Rosen Marks
Telecopy: 215-975-7671
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR, as a Bank
By: /s/ Pieter J. van Tulder
---------------------------------------
Title: Pieter J. van Tulder
Vice President And Manager
Multinational Group
Address for Notice:
645 Fifth Avenue
New York, New York 10022
Attn: Pieter van Tulder
Telecopy: 212-872-5045
Revolving Credit Commitment: $ 9,000,000
SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
GIROCREDIT BANK, AG der SPARKASSEN,
GRAND CAYMAN ISLAND BRANCH,
as a Bank
By: /s/ Anca Trifan
---------------------------------------
Title: ANCA TRIFAN
VICE PRESIDENT
Address for Notice:
65 East 55th Street
New York, New York 10022
Attn: Anca Trifan
Telecopy: 212-644-0644
Revolving Credit Commitment: $ 7,000,000
<PAGE>
Exhibit 4.04.2
CONSENT
CONSENT NO. 1 (this "Consent"), dated as of January 17, 1997, under the
Credit Agreement, dated as of October 8, 1996 (as amended, supplemented and
otherwise modified from time to time, the "Credit Agreement"; capitalized terms
used but not defined herein shall have the respective meanings specified in the
Credit Agreement), among Saks & Company (the "Company"), the several lenders
from time to time party thereto (the "Banks") and The Chase Manhattan Bank, as
administrative agent for the Banks (in such capacity, the "Administrative
Agent").
WHEREAS, the Company has requested the Agent and the Banks to consent to
matters regarding certain provisions of the Credit Agreement; and
WHEREAS, the Agent and the Banks party hereto are willing to agree to such
request on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual premises and mutual
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Consent. Notwithstanding anything to the contrary in the Credit
Agreement, at any time prior to March 31, 1997, the Company or one or more of
its Subsidiaries shall be permitted to repurchase up to $100,000,000 principal
amount of the Saks Finance REMIC Trust Commercial Mortgage Pass-Through Class C
Certificates (the "Certificates") and in connection therewith pay any premiums
or other transaction costs related to such repurchase and amend the documents
relating to the Real Estate Financing to permit such repurchase; provided,
however, that at the time of such repurchase no Default or Event of Default
shall have occurred and be continuing. No Certificates held by the Company or
its Subsidiaries as a result of such repurchase shall be deemed to constitute
Indebtedness for any purpose under the Credit Agreement.
2. Representations and Warranties. To induce the Banks to enter into this
Consent, 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 this Consent, as if made on and as of
the date hereof unless expressly stated to relate to an earlier date, in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date.
3. Counterparts. This Consent may be executed by the parties hereto in any
number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
4. Continuing Effect of Credit Agreement. Except for the consents and
modifications expressly set forth herein, the Credit Agreement shall continue to
be, and shall remain, in full force and effect in accordance with its terms.
CONSENT NO. 1 TO THE SAKS & COMPANY CREDIT AGREEMENT
<PAGE>
5. Effectiveness. This Consent shall become effective upon the execution
hereof by the Company, the Agent and Required Banks and receipt of same by the
Agent.
6. Governing Law. THIS CONSENT SHALL BE GOVERNED BY, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Consent 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:
----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Bank
By:
----------------------------------
Name:
Title:
CREDIT SUISSE, as a Bank
By:
----------------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, as a Bank
By:
----------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK BRANCH, as
a Bank
By:
----------------------------------
Name:
Title:
CONSENT NO. 1 TO THE SAKS & COMPANY CREDIT AGREEMENT
2
<PAGE>
ARAB BANKING CORPORATION, as a Bank
By:
----------------------------------
Name:
Title:
BANKERS TRUST COMPANY, as a Bank
By:
----------------------------------
Name:
Title:
MELLON BANK, as a Bank
By:
----------------------------------
Name:
Title:
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Bank
By:
----------------------------------
Name:
Title:
THE BANK OF TOKYO -- MITSUBISHI
TRUST COMPANY, as a Bank
By:
----------------------------------
Name:
Title:
SOCIETE GENERALE, as a Bank
By:
----------------------------------
Name:
Title:
THE SUMITOMO TRUST AND BANKING
CO., LTD., NEW YORK BRANCH, as a Bank
By:
----------------------------------
Name:
Title:
CONSENT NO. 1 TO THE SAKS & COMPANY CREDIT AGREEMENT
3
<PAGE>
CREDIT LYONNAIS, NEW YORK BRANCH,
as a Bank
By:
----------------------------------
Name:
Title:
FIRST HAWAIIAN BANK, as a Bank
By:
----------------------------------
Name:
Title:
FLEET BANK, NATIONAL ASSOCIATION,
as a Bank
By:
----------------------------------
Name:
Title:
ALLIED IRISH BANKS, P.L.C., CAYMAN
ISLANDS BRANCH, as a Bank
By:
----------------------------------
Name:
Title:
NIPPON CREDIT BANK, as a Bank
By:
----------------------------------
Name:
Title:
POSTIPANKKI LTD., as a Bank
By:
----------------------------------
Name:
Title:
WELLS FARGO BANK, N.A., as a Bank
By:
----------------------------------
Name:
Title:
CONSENT NO. 1 TO THE SAKS & COMPANY CREDIT AGREEMENT
4
<PAGE>
FIRST UNION NATIONAL BANK, as a Bank
By:
----------------------------------
Name:
Title:
SWISS BANK CORPORATION, NEW YORK
BRANCH, as a Bank
By:
----------------------------------
Name:
Title:
BANK OF SCOTLAND, as a Bank
By:
----------------------------------
Name:
Title:
CORESTATES BANK, as a Bank
By:
----------------------------------
Name:
Title:
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR, as a Bank
By:
----------------------------------
Name:
Title:
GIROCREDIT BANK, AG der SPARKASSEN,
GRAND CAYMAN ISLAND BRANCH, as a
Bank
By:
----------------------------------
Name:
Title:
CONSENT NO. 1 TO THE SAKS & COMPANY CREDIT AGREEMENT
5
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned corporations hereby:
(a) acknowledges and consents to the execution, delivery and performance
of (i) Consent No. 1, dated as of January 17, 1997, under the Credit Agreement,
dated as of October 8, 1996 (as amended, supplemented and otherwise modified
from time to time, the "Credit Agreement"), among Saks & Company (the
"Company"), the several lenders from time to time party thereto (the "Banks")
and The Chase Manhattan Bank, as administrative agent for the Banks (in such
capacity, the "Administrative Agent") and (ii) the transactions contemplated
thereby; and
(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 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, which obligations on the date
hereof remain absolute and unconditional and are not subject to any defense,
set-off or counterclaim (other than resulting from the gross negligence or
willful misconduct of the Administrative Agent or any Bank).
Dated: January __, 1997
SAKS & COMPANY
By:
----------------------------------
Name:
Title:
SAKS HOLDINGS, INC.
By:
----------------------------------
Name:
Title:
CAFE SFA-MINNEAPOLIS, INC.
THE RESTAURANT AT SAKS FIFTH
AVENUE CORPORATION
SAKS FIFTH AVENUE FOOD
CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE>
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.
By:
----------------------------------
Name:
Title:
AGREED TO AND ACCEPTED
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:
----------------------------------
Name:
Title:
2
<PAGE>
Exhibit 11.01 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
------------------ ------------------ ------------------
(In Thousands, except per share data)
<S> <C> <C> <C>
Average shares outstanding ......................... 57,722 44,955 45,010
Net effect of dilutive stock options - based on
the treasury stock method using average
market price .................................... 1,118 - -
Total .............................................. 58,840 44,955 45,010
================== ================== ==================
Income (loss) before extraordinary charge .......... $ 36,890 $ (58,104) $ (10,083)
================== ================== ==================
Net income (loss) .................................. $ 24,144 $ (64,095) $ (10,618)
================== ================== ==================
Per share amounts:
Income (loss) before extraordinary charge ....... $ .63 $ (1.29) $ (0.22)
================== ================== ==================
Net income (loss) ............................... $ .41 $ (1.43) $ (0.24)
================== ================== ==================
</TABLE>
Note: In fiscal 1996, the conversion of the 5-1/2% Convertible Subordinated
Notes is not assumed in the computation because its effect is antidilutive.
<PAGE>
EXHIBIT 13.01
COMMON STOCK INFORMATION
The shares of Common Stock of Saks Holdings, Inc. are listed on the New York
Stock Exchange with the symbol SKS.
QUARTERLY PER SHARE MARKET PRICES
Market Price of Common Stock
------------------------------
High Low Close
- --------------------------------------------------------------------------------
Second Quarter 35 7/8 25 1/2 33 1/4
Third Quarter 41 1/4 32 1/8 34
Fourth Quarter 37 7/8 25 1/2 28 1/2
- --------------------------------------------------------------------------------
46
<PAGE>
EXHIBIT 13.02
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Overview
Since fiscal 1994, the Company has been developing and implementing
comprehensive and integrated merchandising, service and marketing strategies to
position its core retail business for future growth. It has also implemented
growth strategies to leverage and extend the Saks franchise.
The Company's strategies resulted in significant improvements in Saks' financial
performance. From fiscal 1994 to fiscal 1996, Saks' net sales increased by $527
million, or 37%, to $1,945 million from $1,418 million. Operating income,
excluding management fees, increased by $42 million, or 62%, to $110 million in
fiscal 1996 from $68 million in fiscal 1994. The improvement in operating income
demonstrates the productivity and leverage of fixed costs when sales growth is
accelerated. Our financial momentum is evidenced in our comparable sales
performance, which is set forth in the table, above right.
CHANGE IN COMPARABLE SALES*
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
- ------------------- ----------------------------------------------------------
<S> <C> <C> <C>
First Quarter 13.3% 10.2% 4.1%
Second Quarter 11.3 11.3 5.3
Third Quarter 9.2 9.9 5.9
Fourth Quarter 8.3 11.0 6.6
Annual 10.3 10.6 5.6
- ------------------- ----------------------------------------------------------
</TABLE>
*Comparable sales exclude the impact of the 53rd week in fiscal 1995, and in
fiscal 1996 comparable sales are adjusted for the calendar shift following the
53rd week in fiscal 1995.
In fiscal 1996, the Company concluded its first year as a public company
following the completion of an initial public offering in May 1996 which
generated net proceeds of $418 million. This offering, together with the
establishment of a new credit facility and the issuance of $276 million of
Convertible Subordinated Notes enabled the Company to reduce its overall
indebtedness by $275 million and decrease the effective annual interest rate on
its year-end indebtedness to 7.6% from 8.8%.
Saks' net sales are generated through multiple retail formats: At February 1,
1997 the Company operates 50 Full-Line, Resort and Main Street stores, 33 OFF
5TH stores, and its Folio catalog operation. The following table provides net
sales and percent of total sales information for these formats.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995 Fiscal 1994
---------------- ---------------- ----------------
(Dollars in millions) Dollars Percent Dollars Percent Dollars Percent
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Full-Line, Resort and Main Street stores $1,665.7 86% $1,504.5 89% $1,302.7 92%
OFF 5TH stores 200.1 10 108.0 6 57.2 4
Folio catalog 79.1 4 74.3 5 58.3 4
- --------------------------------------------------------------------------------------------------------------------
Total $1,944.9 100% $1,686.8 100% $1,418.2 100%
====================================================================================================================
</TABLE>
25
<PAGE>
RESULTS OF OPERATIONS
Results of operations as a percent of total net sales for the past three years
were as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996(1) 1995(1) 1994(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy (69.3) (69.3) (69.1)
- -------------------------------------------------------------------------------------------------------------
Gross margin 30.7 30.7 30.9
Selling, general and administrative expenses (25.0) (26.0) (26.1)
Management fees (0.1) (0.4) (0.1)
Impairment and special charges - (2.2) -
- -------------------------------------------------------------------------------------------------------------
Operating income (loss) 5.6 2.1 4.7
Interest, net (3.7) (5.6) (5.4)
- -------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary charge 1.9 (3.5) (0.7)
Income taxes - - -
- -------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge 1.9 (3.5) (0.7)
Extraordinary charge-loss on early extinguishment of debt (0.7) (0.3) -
- -------------------------------------------------------------------------------------------------------------
Net income (loss) 1.2% (3.8)% (0.7)%
=============================================================================================================
</TABLE>
(1) Fiscal 1995 consisted of 53 weeks. Fiscal 1996 and fiscal 1994 each
consisted of 52 weeks.
Fiscal 1996 Compared to Fiscal 1995
NET SALES
Net sales for fiscal 1996 were $1,944.9 million, an increase of $258.1 million,
or 15.3%, over net sales of $1,686.8 million for fiscal 1995. Fiscal 1995
included 53 weeks; therefore annual sales comparisons are not comparable. Fiscal
1995 net sales comparisons are presented on a 52-week basis for comparability.
The increase in total net sales was 16.7% and comparable sales increased 10.3%.
All of Saks' geographic regions experienced increased net sales. Full-Line,
Resort and Main Street store net sales were $1,665.7 million in fiscal 1996, an
increase of $161.2 million, or 10.7%, from fiscal 1995. Comparable sales of
Full-Line, Resort and Main Street stores increased 10.5%. OFF 5TH store net
sales for fiscal 1996 were $200.1 million, an increase of $92.1 million, or
85.3%, from fiscal 1995. This increase is a result of the 16 new stores opened
in fiscal 1996 as well as the 11 new stores opened in fiscal 1995. Comparable
sales for OFF 5TH stores increased 11.4%. Folio catalog net sales for fiscal
1996 were $79.1 million, an increase of $4.8 million, or 6.5%, from fiscal 1995.
COST OF SALES
Cost of sales includes the cost of merchandise and buying and occupancy costs.
Cost of sales increased $179.2 million, or 15.3%, to $1,347.7 million during
fiscal 1996 from $1,168.5 million in fiscal 1995. As a percentage of net sales,
cost of sales, including buying and occupancy costs, was 69.3% for both fiscal
1996 and fiscal 1995. The increased penetration of lower margin OFF 5TH sales
was offset by increased sales of higher margin accessories and leverage of
buying and occupancy costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $486.8 million, or
25.0% of net sales, in fiscal 1996 from $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 expense leverage associated with the comparable sales growth,
increased penetration of OFF 5TH stores which have a lower expense rate and
relatively flat depreciation and amortization expense.
MANAGEMENT FEES
Management fees paid to an affiliate of Investcorp, decreased by $6 million to
$1 million in fiscal 1996 from $7 million in fiscal 1995. The fees paid in
fiscal 1995 reflected additional advisory services related to strategic planning
and real estate alternatives. Management fees were discontinued in July 1996.
IMPAIRMENT AND SPECIAL CHARGES
Impairment and special charges of $36.4 million were recorded in fiscal 1995. No
such charges were recorded in fiscal 1996.
OPERATING INCOME
Operating income was $109.4 million for fiscal 1996, an increase of $73.1
million from fiscal 1995. Excluding the special charges and management fees,
operating income increased by 38.5% or $30.7 million.
26
<PAGE>
INTEREST EXPENSE
Interest expense decreased by 23.5% to $72.2 million for fiscal 1996 compared to
$94.4 million for fiscal 1995, primarily due to reduced debt levels following
the initial public offering. As a result of the lower debt levels following the
offering and the issuance of the Convertible Subordinated Notes the effective
interest rate on the Company's debt decreased from 8.8% at the end of fiscal
1995 to 7.6% at the end of fiscal 1996.
INCOME TAXES
Income taxes increased to $.3 million in fiscal 1996 from $0 in fiscal 1995 due
to an increase in the alternative minimum taxable income.
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, Resort and Main Street store net sales increased $201.8
million, or 15.5%, from $1,302.7 million to $1,504.5 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 stores increased by $50.8 million, or 88.8%, to $108.0 million from
$57.2 million primarily as a result of the addition of 11 new stores. Folio
catalog net sales increased by $16.0 million, or 27.4%, to $74.3 million from
$58.3 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 to $1,168.5 million, or 69.3% of net sales, in
fiscal 1995 from $979.7 million, or 69.1% of net sales, in fiscal 1994. This
increase as a percentage of net sales resulted from the increased penetration of
lower margin OFF 5TH sales, partially offset by slightly higher retail and Folio
gross margins, and improved leverage of buying and occupancy costs. The change
in mix of merchandise assortments featured in Full-Line, Resort and Main Street
stores did not have a significant impact on cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $438.6 million, or
26.0% of net sales, in fiscal 1995 from $370.4 million, or 26.1% of net sales,
in fiscal 1994. This decrease as a percentage of net sales was achieved as a
result of lower depreciation and amortization expense and improved store expense
leverage, offset in part by higher bad debt charges, as well as investments in
central organization (management information systems, merchandising, training
and communications and planning) to position for future growth.
MANAGEMENT FEES
Management fees paid to an affiliate of Investcorp increased to $7 million in
fiscal 1995 from $2 million in fiscal 1994. This increase reflected the payment
of fees for additional advisory services relating to strategic planning and real
estate alternatives rendered in fiscal 1995.
IMPAIRMENT AND SPECIAL CHARGES
Impairment and special charges of $36.4 million were recorded in fiscal 1995.
These charges consisted of $19.0 million relating to exit costs associated with
relocation of distribution activities from 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 special
charges and management fees, operating income increased to $79.7 million in
fiscal 1995, an increase of $11.6 million, or 17.0%.
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.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company completed an initial public offering of 18,062,500 shares of common
stock during May 1996. The net proceeds of $417.8 million were primarily used to
prepay term loan borrowings under the Credit Facility and repay outstanding
balances on the revolving credit portion of the facility. Upon completion of the
offering, the Company amended its Credit Facility to reduce the spread on its
variable interest rate borrowings and to change availability of borrowings.
In September 1996, the Company issued $276 million of 5-1/2% Convertible
Subordinated Notes for net cash proceeds after offering expenses of $267.5
million. The net proceeds from the offering were primarily used to prepay term
loan borrowings under the Credit Facility and repay outstanding balances on the
revolving credit portion of the Credit Facility.
In October 1996, the Company amended and restated the Credit Facility. The
revolving credit commitments were increased to $350 million and the maturity of
the revolving credit commitments was extended to October 30, 2001. The borrowing
availability is reduced by any standby or commercial letters of credit. As of
February 1, 1997, the Company has $344.2 million of borrowing capacity under the
Credit Facility.
In April 1996, the Company replaced its existing accounts receivable
securitization program with a new facility. The program includes $413 million in
floating rate medium term notes and $118 million in variable principal floating
rate series. The medium term notes and variable principal amount series mature
in April 1999. In August 1996, the Company entered into interest rate swap
agreements with a notional amount of $250 million to reduce its exposure to
changes in prevailing market interest rates.
During fiscal 1996, the Company financed its working capital needs and
capital expenditures primarily with cash provided by operations and by
borrowings available under the Credit Facility. The following discussion
analyzes liquidity and capital resources by operating, investing and financing
activities as presented in the Company's Consolidated Statements of Cash Flows.
Net cash provided by operating activities was $4.5 million during fiscal
1996 compared to a $6.8 million usage in fiscal 1995. This increase was primary
attributable to an increase in net income which was partially offset by
increases in working capital accounts. The primary items affecting working
capital in fiscal 1996 were a net increase in merchandise inventories of $99
million due to the addition of new stores and an increase to support existing
store sales growth, partially offset by an increase in accounts payable and
accrued liabilities of $27 million due to the timing of the related payments.
Net cash used in investing activities was $103.6 million in fiscal 1996
compared to $56.3 million in fiscal 1995. Capital expenditures were $133.9
million, net of construction allowances, during fiscal 1996 compared to $82.6
million during fiscal 1995. Capital expenditures during fiscal 1996 consisted
principally of construction of new stores and remodeling existing stores.
Proceeds from the sale and sale-leaseback of assets were $30.3 million in fiscal
1996 compared to $12.8 million in fiscal 1995. The increase in 1996 is due to a
$22.6 million sale-leaseback of one of the Company's store locations. During
1996, the Company opened one Full-Line, two Resort, two Main Street and 16 OFF
5TH stores.
Net cash provided from financing activities in fiscal 1996 was $145.5
million compared to $60.2 million in fiscal 1995. The 1996 amount reflects the
proceeds from the Company's May 1996 initial public offering of common stock and
issuance of the Convertible Subordinated Notes, net of debt repayments. The 1995
amount reflects increased borrowings used to renovate four former I. Magnin
locations, net of financing costs related to the refinancing of real estate
borrowings in May 1995.
At February 1, 1997, the Company has a net operating loss carryforward of
$761 million which is available to offset taxes otherwise payable on its future
taxable income. The carryforwards begin to expire unless utilized in fiscal
years 2005 through 2011.
Our growth strategy and capital expenditures for fiscal 1997 and fiscal
1998 are expected to add 1.5 million square feet. The growth in square footage
will span all four of our store formats - Full-Line, Resort, Main Street and OFF
5TH - and is expected to add approximately 35 new or replacement stores and
encompass 12 expansion projects. Capital expenditures for these programs as well
as operations are expected to be approximately $500 million ($250 million in
each of fiscal 1997 and fiscal 1998). These projects will primarily be funded
from cash generated from operations. Borrowings under the Credit Facility, lease
financing and developer contributions may also be used to fund these
expenditures. Inflation has not had a material impact on the financial
statements during the past three years.
PRO FORMA
As a result of the issuance of common stock in the Company's initial public
offering (the "Offering") pro forma earnings per share has been computed
assuming the Offering occurred at the beginning of the current fiscal year. Pro
forma earnings per share is computed by dividing the pro forma weighted average
common and common equivalent shares into the earnings applicable to such shares.
The pro forma net earnings reflect the elimination of management fees, the
elimination of the early extinguishment of debt charges and the interest expense
savings on debt repayments made with proceeds of the Offering. On a pro forma
basis, the Company's 1996 net income was $48,116, or $.75 per share.
28
<PAGE>
EXHIBIT 13.03
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SAKS HOLDINGS, INC.:
We have audited the accompanying consolidated balance sheets of Saks Holdings,
Inc. as of February 1, 1997 and February 3, 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three fiscal years in the period ended February 1, 1997. 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. as of February 1, 1997 and February 3, 1996, and the consolidated
results of its operations and its cash flows for each of the three fiscal years
in the period ended February 1, 1997, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
March 4, 1997
29
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
February 1, February 3,
(Dollars and shares in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 52,955 $ 6,627
Accounts receivable, net 42,195 37,426
Inventories 435,666 339,723
Other current assets 69,791 61,538
- --------------------------------------------------------------------------------
Total current assets 600,607 445,314
Property and equipment:
Land 186,277 188,157
Buildings and building improvements 439,451 409,693
Furniture, fixtures and equipment 232,258 229,276
Beneficial leasehold interests 54,161 54,161
Construction in progress 49,439 5,088
Leased property under capital leases 118,493 107,008
- --------------------------------------------------------------------------------
1,080,079 993,383
Less accumulated depreciation and amortization (255,999) (225,119)
- --------------------------------------------------------------------------------
824,080 768,264
Goodwill, net 90,417 93,123
Other intangibles, net 7,519 8,533
Other noncurrent assets 50,240 50,953
- --------------------------------------------------------------------------------
Total assets $ 1,572,863 $ 1,366,187
================================================================================
Liabilities
Current liabilities:
Accounts payable, trade $ 146,462 $ 120,858
Accrued liabilities 139,681 117,853
Taxes other than income taxes 13,616 21,456
Current portion of long-term debt and capital
lease obligations 5,437 31,235
- --------------------------------------------------------------------------------
Total current liabilities 305,196 291,402
Long-term debt 591,841 840,239
Obligations under capital leases 111,189 104,468
Other noncurrent liabilities 35,967 46,903
- --------------------------------------------------------------------------------
Total liabilities 1,044,193 1,283,012
- --------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, par value $.01 per share, 10,000
shares authorized, no shares issued and outstanding -- --
Common stock, par value $.01 per share, 150,000
shares authorized, 63,274 and 44,987 shares issued
as of February 1, 1997 and February 3, 1996; 63,250
and 44,958 shares outstanding as of
February 1, 1997 and February 3, 1996 633 450
Additional paid-in capital 1,343,536 922,424
Accumulated deficit (814,973) (839,117)
Treasury stock, at cost (526) (582)
- --------------------------------------------------------------------------------
Total shareholders' equity 528,670 83,175
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,572,863 $ 1,366,187
================================================================================
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
30
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
(Dollars and shares in thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,944,862 $ 1,686,787 $ 1,418,163
Cost of sales, including buying and occupancy costs (1,347,653) (1,168,490) (979,650)
- ----------------------------------------------------------------------------------------------------------------
Gross margin 597,209 518,297 438,513
Selling, general and administrative expenses (486,829) (438,624) (370,441)
Management fees (1,000) (7,000) (2,000)
Impairment and special charges -- (36,415) --
- ----------------------------------------------------------------------------------------------------------------
Operating income 109,380 36,258 66,072
Interest, net (72,215) (94,362) (76,155)
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary charge 37,165 (58,104) (10,083)
Income taxes (275) -- --
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge 36,890 (58,104) (10,083)
Extraordinary charge-loss on early extinguishment of debt, net of taxes (12,746) (5,991) (535)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 24,144 $ (64,095) $ (10,618)
================================================================================================================
Net income (loss) per share before extraordinary charge $ 0.63 $ (1.29) $ (0.22)
================================================================================================================
Net income (loss) per share $ 0.41 $ (1.43) $ (0.24)
================================================================================================================
Weighted-average number of shares outstanding 58,840 44,955 45,010
================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital Stock
------------------ Additional Treasury Total
Shares Par Paid-in Accumulated Stock, Shareholders'
(Dollars and shares in thousands) Outstanding Value Capital Deficit at Cost Equity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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) --
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 --
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
- ------------------------------------------------------------------------------------------------------------
Issuance of common stock, net
of offering expenses 18,063 181 416,789 -- -- 416,970
Exercise of options 224 2 4,323 -- -- 4,325
Purchase of treasury stock (5) -- -- -- (148) (148)
Reissuance of treasury stock 10 -- -- -- 204 204
1996 net income -- -- -- 24,144 -- 24,144
- ------------------------------------------------------------------------------------------------------------
Balance at February 1, 1997 63,250 $633 $ 1,343,536 $(814,973) $ (526) $ 528,670
============================================================================================================
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
32
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 24,144 $ (64,095) $ (10,618)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Extraordinary charge 12,746 5,991 535
Impairment and special charges -- 36,415 --
Depreciation and amortization 66,975 66,766 67,974
Amortization of deferred financing costs 7,197 10,009 12,731
Other items, net (477) (1,583) (8,597)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities before
changes in operating assets and liabilities 110,585 53,503 62,025
- ----------------------------------------------------------------------------------------------------------
Change in operating assets and liabilities:
Accounts receivable (36,801) (62,583) (67,705)
Proceeds from sale of accounts receivable 912,854 805,158 739,851
Origination of accounts receivable (882,745) (751,478) (673,202)
Inventories (98,854) (70,974) (18,006)
Accounts payable 30,604 27,269 21,265
Accrued liabilities (3,807) 18,627 (11,340)
Taxes other than income taxes (7,840) (10,105) 1,108
Other assets and liabilities (19,512) (16,248) 9,122
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 4,484 (6,831) 63,118
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale and sale-leaseback of assets 30,269 12,806 31,150
Capital expenditures (157,486) (87,028) (71,713)
Construction allowances received from third parties 23,590 4,449 15,990
Proceeds from sale of subordinated certificates -- 13,427 13,500
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (103,627) (56,346) (11,073)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from initial public offering 417,769 -- --
Proceeds from issuance of 5-1/2% Convertible Subordinated Notes 276,000 -- --
Payment under revolving credit facility, net (198,101) (13,566) (832)
Proceeds from term loans -- 125,000 --
Prepayment/payment of term loans (283,602) (19,826) (16,573)
Payment of 9% Subordinated Notes (50,000) -- --
Payment of REMIC Certificates (4,159) -- --
Proceeds from REMIC Certificates -- 335,000 --
Payment of Euronotes -- (335,000) (26,000)
Financing costs (11,919) (27,064) (571)
Payment of capital lease obligations (4,100) (3,739) (2,483)
Other 3,583 (629) (1,447)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 145,471 60,176 (47,906)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 46,328 (3,001) 4,139
Cash and cash equivalents, beginning of period 6,627 9,628 5,489
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 52,955 $ 6,627 $ 9,628
==========================================================================================================
Supplemental cash flow information:
Interest paid $ 53,733 $ 69,504 $ 54,416
==========================================================================================================
Supplemental disclosure of non-cash investing and financing activities:
Capital leases $ 11,485 $ 13,626 $ 28,867
==========================================================================================================
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. BASIS OF PRESENTATION
Saks Holdings, Inc. ("Saks Holdings"), through its wholly owned subsidiary Saks
& Company, which does business as Saks Fifth Avenue, OFF 5TH and Folio ("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. Saks Holdings' primary asset is its investment
in Saks. 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.
Certain amounts in the fiscal 1995 and fiscal 1994 financial statements have
been reclassified to conform with the fiscal 1996 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
1996 and fiscal 1994 contain 52 weeks and ended on February 1, 1997 and January
28, 1995, respectively. Fiscal 1995 contains 53 weeks and ended on February 3,
1996.
NET SALES
Net sales include sales of merchandise and services and sales of leased
departments, net of returns and exclusive of sales tax. Sales of leased
departments were $81,778, $70,940 and $56,416 in fiscal 1996, fiscal 1995 and
fiscal 1994, respectively. Comparable sales changes represent the percentage
increase (decrease) in net sales of stores (excluding major store expansions)
open in both reporting periods for the portion of such periods open, and Folio
net sales.
SAKSFIRST 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 that 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 is included in other current assets
in the accompanying consolidated balance sheets. Restricted cash consists of
$1.9 million and $1.5 million, respectively, payable under the Company's
accounts receivable securitization program in fiscal 1996 and fiscal 1995.
Additionally, restricted cash in fiscal 1995 includes a $4.2 million real estate
financing prepayment related to the sale of a closed store location.
ACCOUNTS RECEIVABLE
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 and recourse
obligations which, when realized, has been within the range of management's
expectations.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for uncollectible
accounts - beginning of period $ 11,160 $ 9,313 $ 10,892
Bad debt provision 20,961 20,628 11,400
Write-offs, net of recoveries (19,038) (18,781) (12,979)
------- ------- -------
Allowance for uncollectible
accounts - end of period $ 13,083 $ 11,160 $ 9,313
================================================================================
</TABLE>
34
<PAGE>
The Company has an ongoing program to sell certain of its proprietary credit
card receivables (see Note 4). Accounts repurchased as a result of the recourse
provision are included in accounts receivable until they are collected or
written off. The Company also includes its retained interest in the trust, which
is not material, as a component of accounts receivable due to the similarity of
the underlying collateral with the Company's retained receivables. The portion
of the allowance for recourse obligations is not material and has therefore not
been reclassified to liabilities.
In accordance with industry practice, installments on deferred payment
accounts receivable maturing in more than one year have been included in current
assets to the extent that they have not been sold as part of the Company's
accounts receivable securitization.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or market, as determined
by the retail method. Consignment merchandise on hand of $72,684 and $72,720 at
February 1, 1997 and February 3, 1996, respectively, is not reflected in the
consolidated balance sheets.
ADVERTISING
Direct response advertising relates primarily to the production and distribution
of the Company's catalogs and is amortized within a three-month period following
mailing. All other advertising costs are expensed in the period incurred.
Advertising expenses were $52,900, $42,956 and $30,566 in fiscal 1996, fiscal
1995 and fiscal 1994, respectively. Direct response advertising amounts included
in other current assets in the consolidated balance sheets at February 1, 1997
and February 3, 1996 were $3,837 and $6,972, respectively.
STORE PRE-OPENING COSTS
Costs associated with the opening of a new store are deferred and amortized over
the 12-month period following the store opening. Pre-opening costs included in
other current assets in the consolidated balance sheets at February 1, 1997 and
February 3, 1996 were $7,339 and $1,698, respectively. Amortization of
pre-opening costs was $4,828, $882 and $1,798 in fiscal 1996, fiscal 1995 and
fiscal 1994, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Property and equipment is
depreciated using the straight-line method over estimated useful lives.
Leasehold improvements included in buildings and building improvements are
amortized over the shorter of their estimated useful lives or their related
lease terms. Beneficial leasehold interests are 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 using the
straight-line method over a five-year period (see Note 3). Capitalized software
costs included in the consolidated balance sheets at February 1, 1997 and
February 3, 1996 were $14,364 and $8,062, respectively, net of accumulated
amortization.
During fiscal 1996, fiscal 1995 and fiscal 1994, the Company capitalized
interest cost of $1,973, $1,555 and $1,401, respectively, to property and
equipment.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 prescribes the accounting for the
impairment of long-lived assets, such as property, plant and equipment and
intangible assets, as well as the accounting for long-lived assets that are held
for disposal. The statement requires that such assets be reviewed only when
events or circumstances indicate that an impairment might exist. The adoption of
this Statement in fiscal 1996 did not have a material effect on the results of
operations or financial position of the Company.
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.
35
<PAGE>
DERIVATIVES POLICY
The Company uses financial derivatives only to reduce risk in conjunction with
specific business transactions.
The Company purchases interest rate cap agreements to limit its exposure to
adverse movements in interest rates related to the real estate financing and the
accounts receivable securitizations. In addition, the Company entered into
interest rate swap agreements to limit its exposure to interest rate
fluctuations related to accounts receivable securitizations (see Note 4). 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 allocated to individual stores on the basis of their projected cash
flows at their acquisition date. Goodwill is amortized over 40 years using the
straight-line method. Accumulated amortization at February 1, 1997 and February
3, 1996 totaled $18,080 and $15,374, respectively.
OTHER INTANGIBLES
Other intangibles include customer lists acquired which are amortized using the
straight-line method over their estimated useful life of 14 years. Accumulated
amortization at February 1, 1997 and February 3, 1996 totaled $6,693 and $5,679,
respectively.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse (see Note
9).
EARNINGS PER SHARE
Earnings per share amounts are computed using the weighted-average number of
common and common equivalent shares outstanding during the year. Common
equivalent shares relate to employee stock plans.
STOCK OPTIONS GRANTED TO EMPLOYEES
The Company records compensation expense for all stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under Opinion No.
25, compensation expense, if any, is measured as the excess of the market price
of the stock over the exercise price on the measurement date. In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which
encourages companies to recognize expense for stock-based awards based on their
estimated value on the date of grant. SFAS No. 123, which is first effective for
fiscal year 1996, does not require companies to change their existing accounting
for stock-based awards. The Company continues to account for stock-based
compensation plans using the intrinsic value method, and has supplementally
disclosed pro forma information required by SFAS No. 123 (see Note 7).
OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
applies to all entities with publicly held common stock and requires a dual
presentation of basic and diluted earnings per share by entities with complex
capital structures. This statement will be adopted in the Company's fiscal 1997
financial statements and, based on current circumstances, is not expected to
have a material effect on the current earnings per share computation or
disclosure.
36
<PAGE>
3. IMPAIRMENT AND SPECIAL CHARGES
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 write-down of capitalized
EDP software and amounted to $19,015, $8,900 and $8,500, respectively.
Exit costs include the write-down of the Yonkers distribution center to its
net realizable value. The write-down 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 write-down and the costs associated with exiting this facility totaled
$19,015. The costs of 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 500 associates.
The liability for these costs at February 1, 1997 of $7,208 is included in
accrued liabilities in the consolidated balance sheets. Amounts paid and charged
against the liability during fiscal 1996 totaled $1,042. Amounts paid and
charged against the liability and other adjustments to the liability during
fiscal 1995 were not material. The anticipated costs of relocating the
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 SECURITIZATION
Saks has entered into agreements to securitize most of its proprietary credit
card receivables. The securitization of receivables involves the transfer 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 servicing fee
which totaled $7.9 million, $7.7 million and $6.5 million in fiscal 1996, fiscal
1995 and fiscal 1994, respectively. This fee approximates the fees paid by Saks
to third parties to provide certain credit card processing and related credit
card services. Due to the short-term life of the underlying receivables the
servicing asset is not significant.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." The principal provisions
of SFAS No. 125, as it relates to Saks, require that the carrying amount of the
financial assets retained, comprised of servicing rights and certain cash flows,
be recorded at their fair values. In accordance with SFAS No. 125, Saks adopted
the provisions of this statement on January 1, 1997. The effect of adopting SFAS
No. 125 was not material to the Company's results of operations or financial
position. Prior to the adoption of SFAS No. 125, the Company recorded finance
charge income and servicing revenues net of securitization costs when earned.
Net finance charge income included with selling, general and administrative
expenses in the consolidated statements of operations totaled $43.0 million,
$37.1 million and $34.4 million in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively.
In April 1996, the trust sold two series of certificates of beneficial
interests with subordinated structures. This issuance was in conjunction with
the previously existing trust entering its wind-down period, which was completed
in fiscal 1996. The first series is a term series with a maximum capacity of
$413 million. The second series is a variable series with a maximum capacity of
$118 million. Each series of beneficial interest bears interest at fixed spreads
over the one-month LIBOR and matures in April 1999. Saks retained interest in
the trust and outstanding securitized receivables sold to third parties were
$23.6 million and $428.4 million at February 1, 1997 and $11.2 million and
$398.3 million at February 3, 1996, respectively.
37
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Credit Facility
Term Loans:
Tranche A $ -- $ 59,475
Tranche B -- 224,127
Revolving Credit -- 198,100
- --------------------------------------------------------------------------------
-- 481,702
Real Estate Financing-REMIC Certificates 315,841 335,000
5-1/2% Convertible Subordinated Notes 276,000 --
9% Subordinated Notes -- 50,000
- --------------------------------------------------------------------------------
591,841 866,702
Less current portion of long-term debt -- 26,463
- --------------------------------------------------------------------------------
$591,841 $840,239
================================================================================
</TABLE>
CREDIT FACILITY
In October 1996, the Company amended and restated the Credit Facility. The
revolving credit commitments were increased to $350 million and the maturity of
the revolving credit commitments was extended to October 30, 2001. Borrowings
under the Credit Facility bear interest at variable rates as defined in the
agreement. The borrowing availability is reduced by any standby or commercial
letters of credit. As of February 1, 1997 and February 3, 1996, the Company has
approximately $5,834 and $6,694, respectively, of outstanding letters of credit.
In May 1996, the Company completed an initial public offering with net
proceeds of approximately $418 million. The net proceeds from the offering were
primarily used to prepay term loan borrowings under the Credit Facility and
repay outstanding balances on the revolving credit portion of the Credit
Facility. The Company recorded an extraordinary charge of $3.3 million
associated with the accelerated write-off of deferred financing costs related to
these prepayments.
As of February 1, 1997, total available credit under the credit agreements
was $344,166. During fiscal 1996 and fiscal 1995, the weighted-average interest
rate was approximately 8.3% and 9.0%, respectively, for all borrowings under the
credit agreements.
The Credit Facility contains restrictive covenants, which include
limitations on capital expenditures and payment of dividends, specified maximum
levels of consolidated indebtedness to total capitalization, as well as
maintenance of specified ratios, including an interest coverage ratio, as
defined.
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 subsidiaries established to effect the accounts receivable
sale.
REAL ESTATE FINANCING
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
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 and leases collateralizing the mortgage
certificates are cross guaranteed. Saks guarantees the obligations under all
intercompany leases. In conjunction with the May 1995 transaction, the Company
recorded an extraordinary charge related to the early extinguishment of debt of
$5,991.
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. In
January 1997, the Company acquired $15,000 of certificates with an annual fixed
interest rate of 12.36%, effectively prepaying the mortgage certificates. The
Company recorded an extraordinary charge of $3.0 million associated with the
repurchase premium and accelerated write-off of deferred financing costs related
to this repurchase. In February 1997, the Company entered into an agreement to
acquire an additional $15,000 of certificates with an annual fixed interest rate
of 12.36%. During the first quarter of fiscal 1997, the Company will record an
extraordinary charge of $3.4 million.
The sale of the Yonkers distribution center (see Notes 3 and 13) would
require the prepayment of mortgage certificates totaling $9,074.
CONVERTIBLE SUBORDINATED NOTES
In September 1996, Saks Holdings issued $276 million aggregate principal amount
of 5-1/2% Convertible Subordinated Notes (the "Notes") for net cash proceeds
after offering expenses and financing costs of $267.5 million.
The Notes are due on September 15, 2006 and are convertible at any time
prior to maturity into shares of the Company's common stock at a conversion rate
of 24.0601 shares of common stock for each one thousand dollar
38
<PAGE>
principal amount of Notes, which is equivalent to a conversion price of
approximately $41.563 per share. If all of the Notes are converted, a total of
6,641 shares of common stock will be issued. The Notes are redeemable at the
Company's option at any time on or after September 15, 1999 at redemption rates
ranging from 100.55% to 103.85%. The Notes are unsecured obligations
subordinated in right of payment to all existing and future senior indebtedness
of the Company and are effectively subordinated in right of payment to all
indebtedness and other liabilities of its subsidiaries. The Notes contain no
sinking fund requirements.
The net proceeds from the issuance of the Notes were primarily used to
prepay term loan borrowings under the Credit Facility and repay outstanding
balances on the revolving credit portion of the Credit Facility. During fiscal
1996, the Company prepaid its $50 million 9% Subordinated Notes. During fiscal
1996, the Company recorded extraordinary charges of $6.5 million associated with
the accelerated write-off of deferred financing costs related to the prepayments
under the Credit Facility and 9% Subordinated Notes.
As of February 1, 1997, approximately $5.3 million in letters of credit
were outstanding under a $10 million letter-of-credit facility.
As of February 1, 1997, all of the Company's outstanding long-term debt,
excluding capital leases (see Note 10) is due after fiscal 2001.
6. SHAREHOLDERS' EQUITY
CAPITALIZATION
In May 1996, the Company completed an initial public offering of Common Stock.
The Company sold approximately 18,062 shares of Common Stock at an initial
public offering price of $25 per share. The net proceeds from the offering were
$418 million. Effective with the initial public offering, all issued and
outstanding shares of Class A, Class B, Class C and Class D Stock automatically
converted into shares of Common Stock on a one-for-one basis. As of February 1,
1997, the Company has issued 63,274 shares of Common Stock, of which 63,250 are
outstanding and 24 are in treasury.
The following is a summary of the capitalization of the Company at February
3, 1996:
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 shares issued and 5,158 shares outstanding at
February 3, 1996. Additionally, treasury stock aggregated 29 shares as of
February 3, 1996.
Class D Stock:
100 shares authorized; 50 shares issued and outstanding at February 3, 1996.
Common Stock:
150,000 shares authorized; none issued and outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations prescribed
by law, to issue up to 10,000 shares of 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.
SHARES RESERVED FOR FUTURE ISSUANCE
The Company has 6,011 shares reserved for issuance upon the exercise of options
under the stock incentive plans (see Note 7) and 6,641 shares reserved for
issuance upon the conversion of the 5-1/2 % Convertible Subordinated Notes.
7. 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 the Company. As of February 1, 1997,
there were options to purchase 18.7 shares of Common Stock outstanding under the
Old Incentive Plan, all of which vested upon the closing of the initial public
offering, and options to purchase 2,890 shares of Common Stock 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 6,011, subject to adjustment to reflect stock splits,
stock dividends and similar stock transactions.
In accordance with an exchange approved on January 19, 1996 by the Board of
Directors of the Company, on February 28, 1996, Options to acquire 1,414 shares
of Common Stock issued under the Old Incentive Plan were surrendered to the
Company in exchange for the issuance of Options to purchase an identical number
of shares with an exercise price of $16 per share to reflect the fair market
value of the underlying shares at that time. The individual Stock Option
Agreements pursuant to which Options were exchanged provide that Options vest,
to the extent of one-third of the shares underlying the Options granted, as of
the closing of an initial public offering, one-third on the first anniversary
thereof and one-third on the second anniversary thereof, and expire upon the
tenth anniversary of such Stock Option Agreement.
39
<PAGE>
As discussed in Note 2, the Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and
related Interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's employee stock options equaled
the market price of the underlying stock on the date of grant, no compensation
expense was recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.60%
and 5.51%; dividend yields of 0% and 0%; volatility of the Company's Common
Stock of 33% and 0.1%; and an expected life of the options ranging from two to
four years for 1996 grants and five years for 1995 grants. All options granted
prior to the Company's initial public offering were valued using the Minimum
Value option pricing model with the same weighted-average assumptions discussed
above, with the exception of volatility, for which minimal value was utilized.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation expense for the options been determined consistent with the
provisions of SFAS No. 123, the Company's net income (loss) for fiscal 1996 and
1995 would have been $18,542 and $(64,112), respectively. The Company's pro
forma earnings (loss) per share for fiscal 1996 and fiscal 1995 would have been
$.32 and $(1.43), respectively.
A summary of the Company's stock option activity, and related information, is as
follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995 Fiscal 1994
----------- ----------- -----------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 1,455 $20.00 1,307 $20.00 1,486 $20.00
Granted 1,718 22.88 253 20.00 147 20.00
Exercised (224) 19.29 -- -- -- --
Forfeited (40) 20.71 (105) 20.00 (326) 20.00
- ----------------------------------------------------------------------------------
Outstanding - end of year 2,909 $19.80 1,455 $20.00 1,307 $20.00
==================================================================================
Exercisable at end of year 964 $19.55 871 $20.00 596 $20.00
Weighted-average fair value
of options granted during
the year $ 4.49 $ 4.82 N/A
- ----------------------------------------------------------------------------------
</TABLE>
Exercise prices and weighted-average contractual lives for options outstanding
as of February 1, 1997 were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
- -------------- ------------------------------ ----------------------- -------
<S> <C> <C> <C> <C> <C>
$16.00 1,722 9.1 $16.00 574 $16.00
$20.00 19 7.0 $20.00 19 $20.00
$25.00 1,115 9.3 $25.00 371 $25.00
$30.13 - $35.75 53 9.7 $33.88 - -
- --------------------------------------------------------------------------------
2,909 964
</TABLE>
40
<PAGE>
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 contributed $18,440 in fiscal
1996 and did not make any contributions in fiscal 1995 or fiscal 1994. 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 common stock funds, U.S. Government and agencies obligations,
corporate debt securities, bonds and real estate interests.
Net periodic pension expense consisted of the following components:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4,729 $3,527 $ 4,250
Interest cost 6,629 5,778 6,226
Loss (return) on plan assets (5,587) (9,095) 3,085
Net amortization (deferral) 2 4,906 (8,600)
- --------------------------------------------------------------------------------
Net pension expense $ 5,773 $5,116 $ 4,961
================================================================================
</TABLE>
The following table sets forth the Pension Plan's funded status and the present
value of benefit obligations:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ (79,876) $ (77,266)
Nonvested (4,636) (4,838)
(84,512) (82,104)
- --------------------------------------------------------------------------------
Effect of projected salary increases (4,867) (4,562)
- --------------------------------------------------------------------------------
Projected benefit obligation (89,379) (86,666)
Plan assets at fair value 73,800 53,058
- --------------------------------------------------------------------------------
Excess of projected benefit obligation
over plan assets (15,579) (33,608)
Unrecognized net (gain) loss (1,027) 4,415
Unrecognized prior service cost 24 (56)
Accrued pension cost $ (16,582) $ (29,249)
================================================================================
</TABLE>
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 $784, $502 and $487 in fiscal
1996, fiscal 1995 and fiscal 1994, respectively. Payments from the supplemental
plan were $233, $279 and $336 during fiscal 1996, fiscal 1995 and fiscal 1994,
respectively. The accrued liability for this plan at February 1, 1997 and
February 3, 1996 was $7,811 and $7,260, respectively, and is included in other
noncurrent liabilities in the accompanying consolidated balance sheets.
The actuarial present value of the projected benefit obligations for both
the Pension Plan and supplemental plan was determined using a weighted-average
discount rate of 8% at February 1, 1997 and 7.35% at February 3, 1996. The
projected benefit obligation was determined using an assumed rate of increase in
future compensation of 3.0% at February 1, 1997 and February 3, 1996. The
assumed long-term rate of return on plan assets was 9.5% for fiscal 1996 and
9.0% for fiscal 1995. A 1% change in the assumed discount rate would change the
accumulated benefit obligation for the Pension Plan and the supplemental plan by
approximately $9 million and $.5 million, respectively, at February 1, 1997.
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, nine other mutual funds, or a Saks Holdings, Inc. Stock Fund. Eligible
employees may contribute up to 16% of their compensation, as defined. The
Company contributes a percentage of employees' elective contributions in the
form of a matching contribution. The match rate in each fiscal year was 25%. The
Company's expense related to contributions to this plan totaled $2,327, $2,098
and $1,912, for fiscal 1996, fiscal 1995 and fiscal 1994, respectively.
9. INCOME TAXES
At February 1, 1997, the Company has net operating loss carryforwards of
approximately $761,494 for income tax purposes that expire, unless utilized, in
fiscal years 2005 through 2011.
The Company recorded certain assets and liabilities at the date of their
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.
41
<PAGE>
The Company uses the liability method to account for income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are summarized below:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Operating loss carryforward $ 303,101 $ 289,609
Accrued expenses and reserves 16,555 17,722
Employee benefits 7,122 14,532
Depreciation, amortization
and basis differences 14,748 15,575
Allowance for doubtful accounts 5,207 4,442
Deferred lease payments 3,732 3,133
Other 4,360 4,084
- --------------------------------------------------------------------------------
Total deferred tax assets 354,825 349,097
Deferred tax liabilities
Deferred financing costs (5,590) (4,038)
Pre-opening costs (2,921) --
- --------------------------------------------------------------------------------
Total deferred tax liabilities (8,511) (4,038)
- --------------------------------------------------------------------------------
Net deferred tax asset 346,314 345,059
Less valuation allowance (346,314) (345,059)
- --------------------------------------------------------------------------------
Net deferred taxes $ -- $ --
================================================================================
</TABLE>
The Company's provision for income taxes resulted in effective tax rates that
varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------
39.8 39.8 39.8
Generation of net operating
loss carryforward (39.1) (39.8) (39.8)
- --------------------------------------------------------------------------------
Net effective income tax rate 0.7% 0.0% 0.0%
================================================================================
</TABLE>
The fiscal 1996 income tax provision consists principally of a current federal
provision relating to alternative minimum taxes, as well as a deferred tax
benefit of $1.3 million principally related to tax losses, which has been fully
reserved.
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 67 years. Operating leases consist of land leases and land and building
leases with remaining terms ranging primarily from five to 30 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
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and building rent:
Fixed minimum $15,957 $11,401 $ 8,787
Contingent rentals 7,580 5,454 4,516
- --------------------------------------------------------------------------------
Total land and building rent 23,537 16,855 13,303
Equipment and other 4,636 3,956 4,540
- --------------------------------------------------------------------------------
Total rent expense $28,173 $20,811 $17,843
================================================================================
</TABLE>
Future minimum payments under capital leases and noncancelable operating leases
consist of the following at February 1, 1997:
<TABLE>
<CAPTION>
Fiscal Years Capital Operating
- --------------------------------------------------------------------------------
<S> <C> <C>
1997 $15,602 $32,053
1998 13,870 30,462
1999 13,355 29,718
2000 13,767 29,706
2001 13,568 30,468
Thereafter 207,939 335,089
- --------------------------------------------------------------------------------
Total minimum payments $278,101 $487,496
================================================================================
Less executory costs 531
- -------------------------------------------------------------
Net minimum lease payments 277,570
- -------------------------------------------------------------
Less interest 160,944
- -------------------------------------------------------------
Present value of net
minimum lease payments $116,626
=============================================================
Current obligations under capital leases $ 5,437
Noncurrent obligations under capital leases 111,189
- -------------------------------------------------------------
$116,626
=============================================================
</TABLE>
42
<PAGE>
Property and equipment includes the following amounts for leases that have been
capitalized at February 1, 1997 and February 3, 1996. Amortization of assets
under capital leases is included in depreciation expense.
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Building and equipment $118,493 $107,008
Less accumulated amortization (28,056) (20,403)
- --------------------------------------------------------------------------------
$ 90,437 $ 86,605
================================================================================
</TABLE>
The Company leases certain selling space within its stores to other specialty
retailers under contingent rental agreements. Rental income related to these
agreements was $11,486, $10,209 and $9,038 in fiscal 1996, fiscal 1995 and
fiscal 1994, respectively.
During fiscal 1996, fiscal 1995 and fiscal 1994, the Company consummated the
sale and sale-leaseback of certain property and equipment with proceeds of
$30,269, $12,806 and $31,150, respectively.
11. 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 relating
to the Accounts Receivable Securitization. At February 1, 1997, there were six
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 exceed 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.
The following is a summary of the interest rate cap agreements related to
real estate financing as of February 1, 1997:
<TABLE>
<CAPTION>
Notional Strike Effective Expiration
Amount Rate Date Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$175,000 7.25% 05/09/95 02/12/97
87,500 9.70 02/12/97 05/13/02
87,500 9.70 02/12/97 05/13/02
- --------------------------------------------------------------------------------
</TABLE>
The combined carrying value and fair value of the Company's interest rate cap
agreements were $2,319 and $870 at February 1, 1997 and $2,242 and $1,828 at
February 3, 1996, respectively.
During fiscal 1996, the Company entered into three financial fixed-rate swap
agreements. The Company is obligated to pay a fixed rate of interest, and will
receive a floating rate based on LIBOR. The Company utilizes interest rate swaps
solely as a risk management tool with an objective of managing the level of
interest rate risk relating to its accounts receivable securitization.
The following is a summary of the interest rate swap agreements as of
February 1, 1997:
<TABLE>
<CAPTION>
Notional Swap Effective Expiration
Amount Rate Date Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$250,000 6.02% 02/20/97 02/20/98
250,000 6.41 02/20/98 02/20/99
250,000 6.55 02/20/99 04/20/99
- --------------------------------------------------------------------------------
</TABLE>
At February 1, 1997, the combined carrying value and fair value of the Company's
financial fixed-rate swap agreements were $0 and $(1,134), respectively.
The fair value of the Company's other financial instruments, which consist
primarily of cash and cash equivalents, accounts receivable, accounts payable
and long-term debt, approximate their carrying amounts reported in the
consolidated balance sheets.
12. RELATED PARTY TRANSACTIONS
The Company received various consulting and advisory services from an affiliate
of Investcorp, a shareholder, under an agreement which expired in July 1996. The
fees paid or payable for such services were $1 million, $7 million and $2
million in fiscal 1996, fiscal 1995 and fiscal 1994, respectively. In
conjunction with the initial public offering, the Company committed to register
securities and absorb the cost in connection with certain secondary offerings
initiated by Investcorp.
43
<PAGE>
13. CONTINGENCIES
The Company is from time to time involved in routine litigation incidental to
the course of its business. Management does not believe that the disposition of
such litigation will have a material adverse effect on the financial position or
results of 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 1996
--------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Full Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 464,479 $ 403,766 $ 476,271 $ 600,346 $ 1,944,862
Cost of goods sold 323,172 298,001 319,623 406,857 1,347,653
Net income (loss) before
extraordinary charge (2,952) (22,655) 15,810 46,687 36,890
Net income (loss) (2,952) (25,995) 9,355 43,736 24,144
Net income (loss) per share
before extraordinary charge (0.07) (0.38) 0.25 0.73 0.63
Net income (loss) per share (0.07) (0.44) 0.15 0.68 0.41
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal 1995
--------------------------------------------------------------------------------
First Second Third Fourth
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 262,446 262,945 275,035 368,064 1,168,490
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 (0.37) (0.76) (0.79) 0.62 (1.29)
Net income (loss) per share (0.37) (0.89) (0.79) 0.61 (1.43)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
EXHIBIT 21.01
Subsidiaries of Saks Holdings, Inc.
<TABLE>
<CAPTION>
Name of Subsidiary Additional Names Jurisdiction of
as per under which Incorporation
Certificate of Incorporation Subsidiary Does Business
<S> <C> <C>
Saks & Company Saks Fifth Avenue New York
Off 5th - Saks Fifth Avenue Outlet
Cafe SFA - Saks Fifth Avenue California
Minneapolis, Inc.
Saks Fifth Avenue, Atlanta, Inc. Saks Fifth Avenue Georgia
Saks Fifth Avenue Food Saks Fifth Avenue California
Corporation
Saks Fifth Avenue, Inc. Saks Fifth Avenue Massachusetts
Off 5th - Saks Fifth Avenue Outlet
Saks Fifth Avenue - Louisiana Saks Fifth Avenue Delaware
Inc.
Saks Fifth Avenue of Missouri, Saks Fifth Avenue Missouri
Inc.
Saks Fifth Avenue of Ohio, Inc. Saks Fifth Avenue Delaware
Off 5th - Saks Fifth Avenue Outlet
Saks Fifth Avenue of Texas, Saks Fifth Avenue Delaware
Inc. Off 5th - Saks Fifth Avenue Outlet
Saks Fifth Avenue - Stamford Saks Fifth Avenue Connecticut
Inc.
(Formerly Saks Fifth Avenue
New Haven, Inc.)
Saks Specialty Stores, Inc. Saks Fifth Avenue Delaware
Off 5th - Saks Fifth Avenue Outlet
S.F.A. Data Processing, Inc. Saks Fifth Avenue Delaware
SFA Folio Collections, Inc. Folio New York
SFA Folio
Saks Fifth Avenue Folio
SFA Boca Inc. Saks Fifth Avenue Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Additional Names Jurisdiction of
as per under which Incorporation
Certificate of Incorporation Subsidiary Does Business
<S> <C> <C>
SFA Post Street Saks Fifth Avenue Delaware
The Restaurant at Saks Fifth Saks Fifth Avenue New York
Avenue Corporation Cafe SFA
(formerly Fashions for Men)
Fifth Win, Inc. Saks Fifth Avenue Delaware
Ohio Win, Inc. Saks Fifth Avenue Delaware
(formerly Mass Win, Inc.)
Or. Win, Inc. Saks Fifth Avenue Delaware
(formerly Lou Win, Inc.)
Vir. Win, Inc. Saks Fifth Avenue Delaware
York Win Realty, Inc. Saks Fifth Avenue Delaware
(formerly New Win, Inc.)
Calwin Realty II, Inc. Saks Fifth Avenue Delaware
Tex Win II, Inc. Saks Fifth Avenue Delaware
Win Realty Holdings II, Inc. Saks Fifth Avenue Delaware
Cal SFA, Inc. Saks Fifth Avenue New York
(survivor of merger with Calwin
Realty, Inc.)
Penn SFA, Inc. Saks Fifth Avenue New York
(survivor of merger with Win
Realty Holdings, Inc.)
Tex SFA, Inc. Saks Fifth Avenue New York
(survivor of merger with Tex
Win, Inc.)
Fifteenth Win, Inc. (Formerly Saks Fifth Avenue Delaware
Winrock, Inc.) Off 5th - Saks Fifth Avenue Outlet
SFA Finance Company Saks Fifth Avenue Delaware
SFA Finance Company II Saks Fifth Avenue Delaware
SFA Real Estate Co. Saks Fifth Avenue Delaware
Saks Fifth Avenue Distribution Saks Fifth Avenue Delaware
Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Additional Names Jurisdiction of
as per under which Incorporation
Certificate of Incorporation Subsidiary Does Business
<S> <C> <C>
HNY, Inc. Delaware
FCT, Inc. Delaware
The Gallery, Inc. Pennsylvania
Gimbels Food Services, Inc. Pennsylvania
Modern Realty Company Pennsylvania
Saks-Chicago, Inc. Delaware
</TABLE>
<PAGE>
Exhibit 23.01 - Consent of Independent Accountants
We consent to the inclusion or incorporation by reference in the registration
statement of Saks Holdings, Inc. on Form S-8 (File No. 33-18589) of our reports
dated March 4, 1997, on our audits of the consolidated financial statements and
financial statement schedule of Saks Holdings, Inc. as of February 1, 1997 and
February 3, 1996 and for each of the three years in the period ended February 1,
1997, which reports are included or incorporated by reference in this Annual
Shareholders Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
New York, New York
May 2, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 52,955
<SECURITIES> 0
<RECEIVABLES> 55,278
<ALLOWANCES> 13,083
<INVENTORY> 435,666
<CURRENT-ASSETS> 600,607
<PP&E> 1,080,079
<DEPRECIATION> 255,999
<TOTAL-ASSETS> 1,572,863
<CURRENT-LIABILITIES> 305,196
<BONDS> 591,841
0
0
<COMMON> 0
<OTHER-SE> 528,670
<TOTAL-LIABILITY-AND-EQUITY> 1,572,863
<SALES> 1,944,862
<TOTAL-REVENUES> 1,944,862
<CGS> 1,347,653
<TOTAL-COSTS> 1,347,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,215
<INCOME-PRETAX> 37,165
<INCOME-TAX> 275
<INCOME-CONTINUING> 36,890
<DISCONTINUED> 0
<EXTRAORDINARY> (12,746)
<CHANGES> 0
<NET-INCOME> 24,144
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.01 - Press Release - Saks announces preliminary first quarter results
For: Saks Holdings, Inc.
Approved by: Jaqui Lividini
Media
Contact: Jennifer Mann/Saks Holdings, Inc.
212/940-4259
Stacey Bibi/Saks Holdings, Inc.
212/940-5262
David Walke/Naomi Rosenfeld
Morgen-Walke Associates
212/850-5600
FOR IMMEDIATE RELEASE
SAKS ANNOUNCES PRELIMINARY FIRST QUARTER RESULTS
New York, NY April 22, 1997 -- Saks Holdings, Inc. (NYSE:SAKS), the holding
company for Saks Fifth Avenue, today announced that, based on sales trends in
March and April, it expects to report sales of approximately $520 million, for
the first fiscal quarter of fiscal 1997, ending May 3, 1997. This compares to
sales of $465 million for the first quarter of fiscal 1996. As a result, the
company is estimating, depending on final sales results for the month of April,
lower than expected earnings for the first quarter of approximately $0.20 per
share as compared to pro forma earnings per share of $0.09 in the first quarter
of fiscal 1996. The company expects to report actual results for the first
quarter on or about May 15, 1997.
Management commanded that results for the first quarter of fiscal 1997 have
primarily been affected by continued softness in the Folio catalog operation, a
slowdown in sales of Off 5th due to lower-than-planned sell-off inventory levels
and lower than expected sales in casual bridge apparel at the full-line stores.
Philip B. Miller, Chairman and Chief Executive Officer, noted, "The strategic
initiatives that have contributed to our past two years of double digit
comparable sales and earnings growth remain fundamentally in evidence in the
first quarter. While our first quarter performance does reflect a significant
increase over last year's earnings results, we have taken steps to address the
issues that arose during the period. In addition, we continue to implement our
real estate strategies, which will enhance our penetration of key markets. As
such, we are on track with the planning and construction of our core store
projects and Off 5th stores for fiscal 1997."
Saks Fifth Avenue was founded in 1924. Today, the company comprises 40 full-line
stores, eight resort stores and three main street stores led by the company's
landmark flagship on New York's Fifth Avenue. In addition, Saks also operates 34
Off 5th stores and Folio, a separate direct mail business.
This release contains forward-looking information within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include, without limitation, the projection of first quarter sales
and earnings statements containing the words "believes", "estimates",
"expects", and words of similar import. Such forward-looking statements
involve risks, uncertainties and other factors that may cause the actual
results to be materially different from such forward-looking
<PAGE>
statements. Such factors include, among others, levels of store sales and
traffic and general economic conditions in those areas in which Saks operates;
competition; changes in business strategy or development plans; and the
availability of capital to fund the expansion of Saks' business. For more
details, see the company's filings with the Securities and Exchange Commission.
<PAGE>
Exhibit 99.02 - Press Release - Saks Holding, Inc. and Isetan Company Limited
agree to a joint reorganization plan for Barney's Inc.
For: Saks Holdings, Inc.
Approved by: Jaqui Lividini
Saks
Contacts: Jennifer Mann (Media)
212/940-4259
FOR IMMEDIATE RELEASE Stacey Bibi (Investors)
212/940-5262
Saks Holdings, Inc.
David Walke/Naomi Rosenfeld
Morgen-Walke Associates
212/850-5600
Isetan
Contact: William Cox
Dentsu Communications, Inc.
609/896-3250
SAKS HOLDINGS, INC. AND ISETAN COMPANY LIMITED AGREE TO A JOINT
REORGANIZATION PLAN FOR BARNEY'S INC.
New York, NY, April 22, 1997-- Saks Holdings, Inc. (NYSE:SAKS) and Isetan
Company Limited today announced that they have agreed to the terms of a
proposed Joint Plan of reorganization for Barney's Inc., and its related debtor
subsidiaries, and that they intend to seek the approval of the Bankruptcy Court
for the Southern District of New York to file the Joint Plan with the Court.
Under the terms of the proposed Joint Plan, Saks would acquire 100% of the
stock or substantially all of the assets of the Barney's debtors for a
consideration of $290 million, subject to adjustment in certain circumstances.
The reorganized company will enter into leases with Isetan for its three
flagship stores. It is estimated that unsecured creditors would receive
approximately twenty cents on the dollar under the Joint Plan.
In a joint statement, the two companies said, "We believe the Saks-Isetan Joint
Plan offers a global settlement to, and is the most viable resolution for, all
parties in the Barney's bankruptcy. It is a significant increase over the prior
publicly-announced offer. The combination of Saks and Isetan represents the
strongest possible pairing of retailing and real estate expertise." In a
separate statement, Saks said, "The acquisition of Barney's is consistent with
Saks' long-term objective of enhancing this strategic investment will be
accretive to Saks shareholders."
Isetan also stated, "Isetan has agreed to the Joint Plan despite having to
accept rents that are substantially below current market rates and the existing
lease rates. In addition, Isetan will experience a significant loss on its
emergency loans to Barney's affiliated companies totaling nearly $20 million.
While we have held, and may in the future hold, discussion with other interested
investors in Barney's, we have concluded that Saks presented the most attractive
transaction. We believe the Joint Plan is fair to all parties and that it will
bring to Barney's the management skills of one of the world's finest retailers
of luxury goods. This Plan treats all parties in accordance with their
legitimate legal and contractual rights and will bring to an end Barney's
baseless litigation initiatives."
<PAGE>
SAKS AND ISETAN AGREE TO BARNEY'S REORGANIZATION PLAN --2
Saks Holdings, Inc. is the holding company for Saks Fifth Avenue, founded in
1924. Today, Saks comprises 40 full-line stores, 8 resort stores and 3 main
street stores led by its landmark flagship on New York's 5th Avenue. In
addition, Saks operated 34 Off 5th outlet stores and Folio, a separate direct
mail business.
Isetan Company Limited is one of Japan's foremost retailing groups. Its
operations are centered on department stores. Isetan has seven full-scale
department stores in the Tokyo area, including its flagship store in Shinjuku
and subsidiary stores in Niigata and Shizuoka. The company's expanding
international operations now comprise 10 department stores in Asia and
specialty stores in Asia and Europe.
