As filed with the Securities and Exchange Commission on October 24, 1996
Registration No. 333-5855
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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STAGE STORES, INC.
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 76-0407711 5311
(State or other jurisdiction (I.R.S. (Primary Standard
of Employer Industrial
incorporation or Identification Classification Code
organization) No.) Number)
10201 Main Street, Houston, Texas 77025 Telephone: 713-667-5601
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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MR. CARL TOOKER
STAGE STORES, INC.
10201 Main Street
Houston, Texas 77025
Telephone: 713-667-5601
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Lance C. Balk, Esq.Kirkland & Ellis Mark A. Stegemoeller, Esq.
Citicorp Center, 39th Floor Latham & Watkins
153 East 53rd Street 885 Third Avenue, Suite 1000
New York, New York 10022 New York, New York 10022
Telephone: 212-446-4800 Telephone: 212-906-1200
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------
Proposed Maximum
Title of Each Class of Aggregate
Securities to be Offering Amount of
Registered Price (1) Registration Fee
--------------------------------------------------------------
Common Stock, par value
$0.01 per share $202,400,000 $3,152.00 (2)
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(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the registration fee.
(2) $66,206.90 of the registration fee for this Offering has been paid
previously. This amount reflects the additional fee required in
connection with the registration of additional securities with a value of
$10,400,000.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1996
11,000,000 Shares
[logo] S T A G E S T O R E S I N C .
BEALLS - PALAIS ROYAL - STAGE
Common Stock
($.01 par value)
-------------
Of the 11,000,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") 10,000,000 shares are being sold by Stage Stores, Inc.
("Stage Stores" or the "Company") and 1,000,000 shares are being sold by
certain stockholders of the Company (the "Selling Stockholders"). The
Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders."
Prior to the Offering, there has been no public market for
the Common Stock. It is anticipated that the initial
public offering price will be between $14.00 and
$16.00 per share. For information relating to
the factors considered in determining the
initial public offering price, see
"Underwriting."
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "STGE", subject to notice of issuance.
-------------
For a discussion of certain factors that should be considered in connection
with an investment in the Common Stock, see "Risk Factors" beginning on page
12 herein.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Company (1) Stockholders
---------- --------- ------------- ----------- ------------
Per Share $ $ $ $
Total (2) $ $ $ $
(1)Before deduction of expenses payable by the Company estimated at
$1,300,000.
(2)The Company and the Selling Stockholders have granted the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to
purchase up to 1,650,000 additional shares (up to 750,000 additional
shares from the Company and up to 900,000 outstanding shares from the
Selling Stockholders) to cover over-allotments of shares. If the option
is exercised in full, the total Price to Public will be $, Underwriting
Discounts and Commissions will be $, Proceeds to Company will be $ and
Proceeds to Selling Stockholders will be $.
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The shares are offered by the several Underwriters when, as and if issued by
the Company, delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that the
shares will be ready for delivery on or about , 1996, against
payment in immediately available funds.
CS First Boston
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
PaineWebber Incorporated
The date of this Prospectus is , 1996.
<PAGE>
2
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3
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[Pictures to come]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR
THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10b-6, 10b-7, AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. References in this
Prospectus to the Company shall, as the context requires, refer to Stage
Stores, Inc. ("Stage Stores"), which was previously known as Apparel
Retailers, Inc., together with its wholly-owned subsidiaries, including
Specialty Retailers, Inc. ("SRI"). References to a particular year are to the
Company's fiscal year which is the 52 or 53 week period ending on the
Saturday closest to January 31 of the following calendar year (e.g., a
reference to "1995" is a reference to the fiscal year ended February 3,
1996). The term pro forma refers to the basis described under "Unaudited Pro
Forma Combined Financial Data." In addition, unless otherwise indicated, (i)
the information in this Prospectus reflects a .94727 for 1 reverse stock
split of the common stock to be consummated prior to the Offering and (ii)
the information contained herein assumes that the Underwriters'
over-allotment option is not exercised. See "Underwriting."
The Company
The Company operates the store of choice for well known, national brand
name family apparel in over 200 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved
niche. The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a broad range of
merchandise with a high level of customer service in convenient locations.
The Company currently operates 314 stores through its "Stage", "Bealls"
and "Palais Royal" trade names in 20 states throughout the central United
States. Approximately 77% of these stores are located in small markets and
communities with as few as 4,000 people. The Company's store format
(averaging approximately 18,000 total selling square feet) and merchandising
capabilities enable the Company to operate profitably in small markets. The
remainder of the Company's stores operate in metropolitan areas, primarily in
suburban Houston. For the twelve months ended February 3, 1996, the Company
would have had pro forma sales and income before extraordinary item of $742.4
million and $20.7 million, respectively.
Stage Stores' merchandise offerings include a carefully edited but broad
selection of branded, moderately priced, fashion apparel, accessories,
fragrances and cosmetics and footwear for women, men and children. Over 85%
of 1995 sales consisted of branded merchandise, including nationally
recognized brands such as Levi Strauss, Liz Claiborne, Chaps/Ralph Lauren,
Calvin Klein, Guess, Hanes, Nike, Reebok and Haggar Apparel.
In recent years, the Company has undertaken several initiatives to realize
the full potential of its unique franchise in small markets, including (i)
recruiting a new senior management team, (ii) embarking on a store expansion
program to capitalize on available opportunities in new markets through new
store openings and strategic acquisitions, (iii) continuing to refine the
Company's retailing concept and (iv) closing unprofitable stores. As a result
of these initiatives, the lower operating costs of small market stores, the
benefits of economies of scale, and its highly automated facilities and
sophisticated information systems, the Company has among the highest
operating income margins in the apparel retailing industry.
Competitively Well Positioned
As a result of its small market focus, Stage Stores generally faces less
competition for brand name apparel because consumers in small markets
generally have only been able to shop for branded merchandise in distant
regional malls. In those small markets where the Company does compete for
brand name apparel sales, such competition generally comes from local
retailers, small regional chains and, to a lesser extent, national department
stores. The Company believes it has a competitive advantage over local
retailers and smaller regional chains due to its (i) economies of scale, (ii)
strong vendor relationships, (iii) proprietary credit card program and (iv)
sophisticated operating systems. The Company believes it has a competitive
advantage in small markets over national department stores due to its (i)
experience with smaller markets, (ii) ability to effectively manage
merchandise assortments in a small store format and (iii) established
operating systems designed for efficient management within small markets. In
addition, due to minimal merchandise overlap, Stage Stores generally does not
directly compete for branded apparel sales with national discounters such as
Wal-Mart.
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Key Strengths
The following factors serve as the Company's key strengths and
distinguishing characteristics:
Ability to Operate Profitably in Smaller Markets. In targeting small
markets, the Company has developed a store format, generally ranging in size
from 12,000 to 30,000 square feet, which is smaller than typical department
stores yet large enough to offer a well edited, but broad selection of
merchandise. This format, together with economies of scale in buying and
merchandising, information systems, distribution and advertising, has enabled
the Company to operate profitably in small markets. In 1995, the Company's
small market stores open for at least one year generated a store contribution
(operating profit before allocation of corporate overhead) as a percentage of
sales of 18%, as compared to 12% for its larger market stores.
Benefits of Strong Vendor Relationships. The Company's large store base
offers major vendors a unique vehicle for accessing multiple small markets in
a cost effective manner. The proliferation of media combined with the
significant marketing efforts of these vendors has created significant demand
for branded merchandise. However, the financial and other limitations of many
local retailers have left vendors of large national brands with limited
access to such markets. Further, these vendors, in order to preserve brand
image, generally do not sell to national discounters. As a result, the
Company is able to carry branded merchandise frequently not carried by local
competitors. Additionally, the Company continuously seeks to expand its
vendor base and has recently added nationally recognized brand names such as
Polo, Dockers for Women, and Oshkosh, and fragrances by Elizabeth Arden, Liz
Claiborne and Perry Ellis. In addition, the Company has successfully
increased the participation by key vendors in joint marketing programs to a
level that the Company believes exceeds the standard programs provided to its
smaller, regional competitors.
Effective Merchandising Strategy. The Company's merchandising strategy is
based on an in-depth understanding of its customers and is designed to
accommodate the particular demographic profile of each store. Store layouts
and visual merchandising displays are designed to create a friendly, modern,
department store environment, which is frequently not found in small markets.
The Company's strategy focuses on moderately priced merchandise categories of
women's, men's and children's apparel, accessories, fragrances, cosmetics and
footwear, which have traditionally experienced attractive margins. The
Company utilizes a sophisticated merchandise allocation and transfer system
which is designed to maximize in-stock positions, increase sales and reduce
markdowns. The Company believes that the combination of the size and
experience of its buyer group, strong vendor relationships, effective
merchandising systems and participation in the Associated Merchandising
Corporation ("AMC") cooperative buying service enable it to compete
effectively on both price and selection in its markets.
Focused Marketing Strategy. The Company's primary target customers are
women between the ages of 20 and 55 with household incomes over $25,000 who
are the primary decision makers for family clothing purchases. The Company
uses a multi-media advertising approach to position its stores as the local
destination for fashionable, brand name merchandise. In addition, the Company
heavily promotes its proprietary credit card in order to create customer
loyalty and to effectively identify its core customers. The Company believes
it has a high level of customer awareness due to the small size of its
markets, its aggressive advertising strategy and well developed corporate
programs designed to encourage a high level of customer interaction and
employee participation in local community activities.
Benefits of Proprietary Credit Card Program. The Company aggressively
promotes its proprietary credit card and, as a result, the Company believes
it experiences a higher percentage of proprietary credit card sales (55.6% of
net sales in 1995) than most retailers. The Company considers its credit card
program to be a critical component of its retailing concept because it (i)
enhances customer loyalty by providing a service that few local and regional
competitors or discounters offer, (ii) allows the Company to identify and
regularly contact its best customers and (iii) creates a comprehensive
database that enables the Company to implement detailed, segmented marketing
and merchandising strategies for each store.
Emphasis on Customer Service. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. Each sales associate is evaluated based upon the
attainment of specific customer service standards such as offering prompt
assistance, suggesting complementary items, sending thank-you notes to charge
customers and establishing consistent contact with customers in order to
create the associate's own customer base. The Company continuously monitors
the quality
6
<PAGE>
of its service by making over 3,000 calls each month to credit card customers
who have recently made a purchase. The results of these surveys are used to
determine a portion of each store manager's bonus. The Company further
extends its service philosophy to the design of the store, including
installing call buttons in its fitting rooms and, in its small market stores,
locating the store manager on the selling floor to increase accessibility to
customers.
Sophisticated Operating and Information Systems. The Company supports its
retail concept with highly automated and integrated systems in areas such as
merchandising, distribution, sales promotions, credit, personnel management,
store design and accounting. These systems have enabled the Company to
effectively manage its inventory, improve sales productivity and reduce
costs, and have contributed to its relatively high operating income margins.
Growth Strategy
In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company has
initiated an aggressive growth strategy to capitalize on available
opportunities in new markets through new store openings and strategic
acquisitions. The Company opened 23 new stores and 45 acquired stores in
1995, has opened 25 new stores and acquired 34 stores to date in 1996, and
expects to open approximately 10 additional new stores during the remainder
of 1996. The Company's goal is to open at least 55 new stores in 1997.
The following are the primary elements of the Company's strategy for
profitable growth:
New Store Openings in Smaller Markets. As part of its ongoing expansion
program, the Company has identified over 600 additional markets in the
central United States and contiguous states which meet its demographic and
competitive criteria. All of these target markets are smaller communities,
where the Company has historically experienced its highest profit margins.
Strategic Acquisitions. The Company believes that it can benefit from
strategic acquisitions by (i) applying its buying and merchandising
capabilities, sales promotion techniques and customer service methods, (ii)
introducing its proven management systems, and (iii) consolidating overhead
functions. This strategy has been successfully demonstrated by the Company's
acquisition of 45 stores from Beall-Ladymon, Inc. ("Beall-Ladymon") in 1994
and the subsequent reopening of the stores in the first quarter of 1995 under
the Stage name. In 1993, the year prior to their acquisition, the
Beall-Ladymon stores generated sales of approximately $53.4 million, whereas
the newly opened Stage stores in the same locations generated sales for the
twelve months ended August 3, 1996 of $95.0 million, an increase of 78%. Over
the same periods, store contribution more than doubled.
In June 1996, the Company acquired Uhlmans Inc. ("Uhlmans"), a privately
held retailer with 34 locations in Ohio, Indiana and Michigan, where the
Company previously had no stores (the "Uhlmans Acquisition"). These stores
are of similar size and merchandise content to the Company's existing stores
and are compatible with the Company's retailing concept and growth strategy.
For 1995, Uhlmans had net sales of $59.7 million and operating income of $2.2
million. The Company believes significant opportunities are available to
improve Uhlmans' financial results through the expansion of certain
merchandise categories, the Company's lower merchandising costs, increased
proprietary credit card-based sales, the implementation of the Company's
operating systems and the elimination of duplicative central and
administrative overhead.
Expansion to Micromarkets. The Company recently began targeting its small
market retailing concept towards communities with populations from 4,000 to
12,000 ("micromarkets"). These efforts are designed to capitalize on the
Company's favorable operating experience in markets of this size. Stage
Stores believes that micromarkets may offer a significant avenue for
potential growth, because the Company is able to apply its existing
successful store model in those micromarkets due to its ability to scale its
store concept to the appropriate size (less than 12,000 gross square feet),
the generally lower levels of competition and low labor and occupancy costs.
The Company has identified approximately 1,200 potential micromarkets in the
central United States and contiguous states which meet these criteria.
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The Offering
Common Stock offered by:
The Company (1) 10,000,000 shares
Selling Stockholders 1,000,000 shares
(1)
Total 11,000,000 shares
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Common Stock to be
outstanding after the
Offering (2) 22,520,892 shares
Use of proceeds The net proceeds to be received by the Company
from the Offering are estimated to be
approximately $139.7 million and will be used
(i) to purchase for cash up to all of the
Company's outstanding 12-3/4% Senior Discount
Debentures due 2005 (the "Senior Discount
Debentures") in a tender offer (the "Tender
Offer") and to pay a consent fee for
elimination or amendment of certain covenants
in the Senior Discount Debentures for an
aggregate amount of approximately $135.0
million, (ii) to pay consent fees for
amendments to certain covenants in the
indebtedness of SRI and (iii) to pay a $2.0
million fee to terminate the Professional
Services Agreement (as defined). See "Use of
Proceeds" and "Certain Relationships and
Related Transactions." The Company will not
receive any of the proceeds from the sale of
shares by the Selling Stockholders.
Proposed Nasdaq National "STGE"
Market symbol
- -------------
(1) Assumes that the Underwriters' over-allotment option is not exercised.
(2) Includes 1,351,967 shares issuable upon the conversion of non-voting
Class B Common Stock, $0.01 par value per share (the "Class B Common
Stock"), which are convertible into Common Stock on a share-for-share
basis, subject to certain restrictions. See "Description of Capital
Stock." Excludes 1,511,523 shares that may be issued upon the exercise of
options granted pursuant to the 1993 Stock Option Plan (as defined). See
"Management--1993 Stock Option Plan."
Prospective purchasers of the Common Stock offered hereby should carefully
consider the "Risk Factors" immediately following this Prospectus Summary.
The executive offices of the Company are located at 10201 Main Street,
Houston, Texas 77025. The Company's telephone number is (713) 667-5601.
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Summary Consolidated Historical and
Pro Forma Combined Financial and Operating Data
The following table sets forth summary consolidated historical and pro
forma combined financial and operating data of the Company for the periods
indicated. The Company's summary consolidated historical financial data were
derived from the Company's Consolidated Financial Statements. The summary pro
forma combined financial data were derived from the Unaudited Pro Forma
Combined Financial Data of the Company and give effect to the Uhlmans
Acquisition, including the issuance of the SRPC Notes (as defined), and the
Offering (including a .94727 for 1 reverse stock split of the common stock to
be consummated prior to the Offering). The information in the table should be
read in conjunction with "Selected Consolidated Historical Financial and
Operating Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations", "Unaudited Pro Forma Combined Financial Data",
the Company's Consolidated Financial Statements and the Financial Statements
of Uhlmans, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------------------------
Pro Forma
1991 1992 1993(1) 1994 1995(2) 1995 (2)
------------ ------------ ------------ ------------ ------------ ------------
(dollars in thousands, except per share and store data)
<S> <C> <C> <C> <C> <C> <C>
Statement of
operations data:
Net sales $447,142 $504,401 $557,422 $581,463 $682,624 $742,373
Gross profit 135,569 154,265 172,579 182,804 214,277 229,498
Selling, general
and
administrative
expenses 116,403 129,193 135,011 134,715 159,625 168,936
Service charge
income (3) 22,840 29,670 20,003 8,515 10,523 11,374
Store opening and
closure costs 255 120 199 5,647 3,689 3,689
Operating income
(4) 41,751 54,622 57,372 50,957 61,486 68,247
Net interest
expense 33,407 31,771 36,377 40,010 43,989 34,713
Income before
extraordinary
item 3,961 12,235 13,426 6,630 10,730 20,673
Pro forma earnings
per common share
(5) -- -- -- -- -- 0.91
Margin and other
data:
Gross profit
margin 30.3% 30.6% 31.0% 31.4% 31.4% 30.9%
Selling, general
and
administrative
expense rate 26.0% 25.6% 24.2% 23.2% 23.4% 22.8%
Operating income
margin (4) 9.3% 10.8% 10.3% 8.8% 9.0% 9.2%
Adjusted operating
income margin
(6) 8.1% 8.7% 8.4% 9.2% 9.4% 9.4%
Adjusted operating
income (6) $ 36,064 $ 43,680 $ 46,828 $ 53,677 $ 63,996 $ 70,036
Depreciation and
amortization 10,049 9,065 9,259 9,997 12,816 13,712
Capital
expenditures 4,768 7,631 8,503 19,706 28,638 --
Store data: (7)
Comparable store
sales growth:
Bealls/Stage (8) 4.1% 5.1% 7.2% 4.8% 3.3% --
Palais Royal (2.8)% (9.8)% 0.8% 1.7% 1.4% --
Total Company (9) 2.9% 1.8% 6.3% 4.1% 0.8%(10) --
Net sales per
selling square
foot:
Bealls/Stage (8) $ 113 $ 118 $ 129 $ 138 $ 142 --
Palais Royal 228 191 200 205 203 --
Total Company (9) 138 138 149 157 157 --
Total selling
square
footage(11) 3,354 3,418 3,472 3,516 4,581 --
Number of stores
open at end of
period(12) 159 175 180 188 256 290
</TABLE>
Six Months Ended
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Pro Forma
July 29, August 3, August 3,
1995 1996 1996
------------ ------------ ------------
Statement of
operations data:
Net sales $296,931 $345,927 $362,443
Gross profit 92,838 108,704 112,697
Selling, general
and
administrative
expenses 70,877 84,335 86,425
Service charge
income (3) 5,124 5,902 6,171
Store opening and
closure costs 1,176 301 301
Operating income
(4) 25,909 29,970 32,142
Net interest
expense 21,365 24,054 18,091
Income before
extraordinary
item 2,659 3,520 8,563
Pro forma earnings
per common share
(5) -- -- 0.37
Margin and other
data:
Gross profit
margin 31.3% 31.4% 31.1%
Selling, general
and
administrative
expense rate 23.9% 24.4% 23.8%
Operating income
margin (4) 8.7% 8.7% 8.9%
Adjusted operating
income margin
(6) 8.5% 7.8% 8.0%
Adjusted operating
income (6) $ 25,134 $ 27,128 $ 29,031
Depreciation and
amortization 5,721 6,844 7,148
Capital
expenditures 16,786 15,183 --
Store data: (7)
Comparable store
sales growth:
Bealls/Stage (8) 3.8% 7.7% --
Palais Royal 0.9% 6.2% --
Total Company (9) 0.5% 7.3% --
Net sales per
selling square
foot:
Bealls/Stage (8) -- -- --
Palais Royal -- -- --
Total Company (9) -- -- --
Total selling
square
footage(11) 4,365 5,361 5,361
Number of stores
open at end of
period(12) 242 308 308
Balance sheet data (at end of period):
Working capital $181,118 $204,808
Total assets 463,240 473,534
Total long-term debt 425,353 308,354
Stockholders' (deficit) equity (68,428) 56,451(13)
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Notes to Summary Consolidated Historical and
Pro Forma Combined Financial and Operating Data
(1) During 1993, Stage Stores was formed and concurrently became the direct
parent of SRI when the existing stockholders of SRI exchanged all of
their common stock for common stock of Stage Stores. Concurrent with the
formation of Stage Stores, the Company completed the refinancing of its
existing debt and preferred stock (the "Refinancing"). As a result of the
Refinancing, the Company recorded an after-tax extraordinary charge of
$16.2 million.
(2) 1995 includes 53 weeks.
(3) Service charge income for 1993, 1994 and 1995 decreased as compared to
levels achieved during 1991 and 1992 due to the sale of accounts
receivable to the SRI Receivables Master Trust (the "Trust") established
as part of the Refinancing in which the Company adopted an accounts
receivable securitization program (the "Accounts Receivable Program").
Without giving effect to the Accounts Receivable Program, service charge
income for 1993, 1994 and 1995 would have been $32.5 million, $35.2
million and $41.3 million, respectively. For a complete summary of the
impact of the Company's proprietary credit card program and the Accounts
Receivable Program, see Note 2 to the Company's Consolidated Financial
Statements, Note 6 below and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General--Accounts
Receivable Program."
(4) Operating income and operating income margin decreased during 1994
compared to 1993 due primarily to the impact of the adoption of the
Accounts Receivable Program (See Note 2 to the Company's Consolidated
Financial Statements and Note 6 below) combined with a $5.2 million
provision associated with the closure of a majority of the stores
operated under the Fashion Bar name (the "Store Closure Plan")
(substantially all of which were underperforming). See Note 4 to the
Company's Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(5) Pro forma earnings per common share reflects the impact of a .94727 for 1
reverse stock split of the common stock to be consummated prior to the
Offering.
(6) Adjusted operating income represents operating income adjusted to
eliminate store opening and closure costs, and the positive impact on
operating income of the Company's proprietary credit card program
(including the Accounts Receivable Program).
Fiscal Year
----------------------------------------------------------
Pro Forma
1991 1992 1993 1994 1995 1995
--------- --------- ------------------ --------- ---------
(in thousands)
Operating income $41,751 $54,622 $57,372 $50,957 $61,486 $68,247
Plus: Store
opening and
closure costs 255 120 199 5,647 3,689 3,689
Less: Positive
impact of
proprietary
credit card
program on
operating income 5,942 11,062 10,743 2,927 1,179 1,900
--------- --------- ------------------ --------- ---------
Adjusted operating
income $36,064 $43,680 $46,828 $53,677 $63,996 $70,036
========= ========= ================== ========= =========
Six Months Ended
-----------------------------
July 29, August 3, Pro Forma
August 3,
1995 1996 1996
--------- --------- ---------
Operating income $25,909 $29,970 $32,142
Plus: Store
opening and
closure costs 1,176 301 301
Less: Positive
impact of
proprietary
credit card
program on
operating income 1,951 3,143 3,412
--------- --------- ---------
Adjusted operating
income $25,134 $27,128 $29,031
========= ========= =========
The impact of the Company's proprietary credit card program (including
the Accounts Receivable Program) on operating income is calculated as:
(i) the reported service charge income less (ii) the servicing and bad
debt costs reflected in the Company's selling, general and administrative
expenses less (iii) the gain (or plus the loss) associated with the sale
of receivables to the Trust. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General--Accounts
Receivable Program" and Note 7 to Selected Consolidated Historical
Financial and Operating Data.
Although adjusted operating income and adjusted operating income margin
do not represent operating income or any other measure of financial
performance under generally accepted accounting principles, the Company
believes they are helpful in understanding the profitability of the
Company's retailing operations prior to the impact of its credit card
program, the Accounts Receivable Program and store opening and closure
costs.
10
<PAGE>
(7) Store data exclude Bealls stores scheduled to be closed under the Bealls
1988 store closure program, except as otherwise noted in Note 12 below,
and also exclude the Fashion Bar stores included in the Store Closure
Plan. Comparable store sales growth and net sales per selling square
foot for 1995 have been determined based on a comparable fifty-two week
period. Sales are considered comparable after a store has been in
operation fourteen months. Net sales per selling square foot are
calculated for stores open the entire year.
(8) Excludes for all the periods presented the six Bealls stores located on
the border of Mexico which were adversely affected by the peso
devaluation in 1994. Comparable stores sales growth and net sales per
selling square foot for Bealls/Stage including these stores were:
Fiscal Year
------------------------------------
Bealls/Stage 1991 1992 1993 1994 1995
------ ------ ------ ------ ------
Comparable store
sales growth 5.4% 6.7% 7.7% 4.6% 0.2% 0.3%
Net sales per
selling square
foot $119 $125 $137 $146 $145 --
Six Months Ended
-------------------------
July 29, August 3,
Bealls/Stage 1995 1996
------------ ------------
Comparable store
sales growth 0.3% 7.7%
Net sales per
selling square
foot -- --
(9) Total Company comparable store sales growth and net sales per selling
square foot including the stores which were part of the Store Closure
Plan were as follows:
Fiscal Year
------------------------------------
Total Company 1991 1992 1993 1994 1995
------ ------ ------ ------ ------
Comparable store
sales growth 2.9% 1.8% 5.4% 3.2% 0.5%
Net sales per
selling square
foot $138 $138 $143 $151 $150
Six Months Ended
-------------------------
July 29, August 3,
Total Company 1995 1996
------------ ------------
Comparable store
sales growth 0.4 6.8%
Net sales per
selling square
foot -- --
(10) Excluding the six Bealls stores located on the border of Mexico which
were adversely affected by the peso devaluation in 1994, total Company
comparable store sales growth for 1995 would have been 3.0%.
(11) Excludes data related to the stores which were included in the Store
Closure Plan. Data is in thousands and is as of the end of the period.
(12) Number of stores open at the end of each period presented also exclude
stores in the Store Closure Plan. Stores open at the end of 1992 and
1993 included one and six stores, respectively, which were previously
excluded under the Bealls 1988 store closure program. Such stores are
only included in the Company's results of operations subsequent to their
removal from the Bealls 1988 store closure program. Both the Store
Closure Plan and the Bealls 1988 store closure program were
substantially completed before the end of 1995.
(13) Reflects non-recurring charges, net of tax, totalling approximately
$14.8 million in connection with the early retirement of the Senior
Discount Debentures and the write-off of related debt issue costs, the
payment of consent fees for amendments to certain covenants in the
indebtedness of SRI and the termination of the Professional Services
Agreement (as defined).
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before making an investment in the Common Stock offered hereby.
Leverage and Restrictive Covenants
Although the Company will use the proceeds from the Offering to reduce
certain high-cost debt, the Company will remain significantly leveraged
following the Offering. As of August 3, 1996, on a pro forma basis to give
effect to the Offering, the Company's total consolidated indebtedness would
have been $308.4 million and total stockholders' equity would have been $56.5
million. See "Capitalization."
Due to the level of the Company's remaining indebtedness after giving
effect to the Offering, any material adverse development affecting the
business of the Company could significantly limit its ability to withstand
competitive pressures and adverse economic conditions, to take advantage of
expansion opportunities or other significant business opportunities that may
arise, or to meet its obligations as they become due. The Company's debt that
remains outstanding following the Offering will continue to impose operating
and financial restrictions on the Company and certain of its subsidiaries.
Such restrictions limit, among other matters, the Company's ability to incur
additional indebtedness, to make dividend payments and to make capital
expenditures. See Note 5 to the Company's Consolidated Financial Statements
and "Description of Certain Indebtedness." The Company will begin to incur
significant scheduled principal repayment obligations on its indebtedness
beginning in 1999, and expects that it will be necessary to refinance this
indebtedness upon the respective maturity of such debt through additional
debt issuances or through additional equity financing. No assurance can be
given that the Company will be able to obtain such financing, or that such
financing will be available on favorable terms. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Future Growth and Recent Acquisitions; Liquidity
Key components of the Company's growth strategy are to (i) continue to
identify and acquire new store locations where the Company believes it can
operate profitably and (ii) identify and consummate strategic acquisitions.
Such expansions and acquisitions could be material in size and cost. The
Company's ability to achieve its expansion plans is dependent upon many
factors, including the availability and permissibility under restrictive
covenants of financing, general and market specific economic conditions, the
identification of suitable markets, the availability and leasing of suitable
sites on acceptable terms, the hiring, training and retention of qualified
management and other store personnel and the integration of new stores into
the Company's information systems and operations. As a result, there can be
no assurance that the Company will be able to achieve its targets for opening
new stores (including acquisitions) or that such new stores will operate
profitably when opened or acquired. The Company recently completed the
acquisition of Uhlmans; however, there can be no assurance that the Company
will be able to successfully integrate the stores acquired or that they will
operate profitably or as profitably as previously acquired stores. If the
Company is unable to successfully locate or integrate new and acquired stores
or operate them profitably, the Company's business and financial condition
could be materially adversely affected.
The Company's growth strategy may significantly expand the Company's
capital expenditure and working capital requirements, and the Company's
ability to meet such requirements may be adversely affected by the Company's
level of indebtedness and the restrictive covenants contained therein,
especially in periods of economic downturn.
Economic and Market Conditions; Seasonality
Substantially all of the Company's operations are located in the central
United States. In addition, many of the Company's stores are situated in
small towns and rural environments that are substantially dependent upon the
local economy. The retail apparel business is dependent upon the level of
consumer spending, which may be adversely affected by an economic downturn or
a decline in consumer confidence. An economic downturn, particularly in the
central United States and any state (such as Texas) from which the Company
derives a significant portion of its net sales, could have a material adverse
effect on the Company's business and financial condition. The Company
currently has seven stores located near the Texas-Mexico border and has plans
to open several additional stores in that region. Economic conditions in
Mexico, and particularly a significant devaluation of the Mexican peso, have
adversely affected, and in the future may adversely affect, the Company's
business and financial condition.
12
<PAGE>
The Company's success depends in part upon its ability to anticipate and
respond to changing consumer preferences and fashion trends in a timely
manner. Although the Company attempts to stay abreast of emerging lifestyle
and consumer preferences affecting its merchandise, any sustained failure by
the Company to identify and respond to such trends could have a material
adverse effect on the Company's business and financial condition.
The Company's business is seasonal and its quarterly sales and profits
traditionally have been lower during the first three fiscal quarters of the
year and higher during the fourth fiscal quarter (November through January).
In addition, working capital requirements fluctuate throughout the year,
increasing substantially in October and November in anticipation of the
holiday season due to requirements for significantly higher inventory levels.
Any substantial decrease in sales for the last three months of the year could
have a material adverse effect on the Company's business and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Competition
The retail apparel business is highly competitive. Although competition
varies widely from market to market, the Company faces substantial
competition, particularly in its Houston area markets, from national,
regional and local department and specialty stores. Some of the Company's
competitors are considerably larger than the Company and have substantially
greater financial and other resources. Although the Company currently offers
branded merchandise not available at certain other retailers (including large
national discounters) in its small market stores, there can be no assurance
that existing or new competitors will not begin to carry similar branded
merchandise, which could have a material adverse effect on the Company's
business and financial condition.
Dependence on Key Personnel
The success of the Company depends to a large extent on its executive
management team, including the Company's President and Chief Executive
Officer, Carl Tooker. Although the Company has entered into employment
agreements with each of the Company's executive officers prior to the
completion of the Offering, it is possible that members of executive
management may leave the Company, and such departures could have a material
adverse effect on the Company's business and financial condition. The Company
does not maintain key-man life insurance on any of its executive officers.
See "Management."
Consumer Credit Risks
Private Label Credit Card Portfolio. Sales under the Company's private
label credit card program represent a significant portion of the Company's
business, accounting for approximately 55.6% of the Company's net sales for
1995. In recent years (and continuing in the first six months of 1996), there
have been substantial increases in the rate of charge-offs on the Company's
accounts receivable. To date, aggregate increases in finance charges and late
fee collections have more than offset the increases in charge-offs. However,
further deterioration in the quality of the Company's accounts receivable
portfolio or any adverse changes in laws regulating the granting or servicing
of credit (including late fees and the finance charge applied to outstanding
balances) could have a material adverse effect on the Company's business and
financial condition. There can be no assurance that the rate of charge-offs
on the Company's accounts receivable portfolio will not increase further or
that increases in finance charges and late fee collections will continue to
offset any such increases in charge-offs.
Accounts Receivable Program. The Company currently securitizes
substantially all of the receivables derived from its proprietary credit card
accounts. Under the Accounts Receivable Program, the Company causes such
receivables to be transferred to the Trust, which from time to time issues
certificates to investors backed by such receivables. The Accounts Receivable
Program has provided the Company with substantially more liquidity (through
the issuance and sale of such certificates) than it would have had without
this program. There can be no assurance that the Company will be able to
continue to securitize its receivables in this manner. There can be no
assurance that receivables will continue to be generated by credit card
holders, or that new credit card accounts will continue to be established, at
the rate historically experienced by the Company. Any decline in the
generation of receivables or in the rate or pattern of cardholder payments on
accounts could have a material adverse effect on the Company's business and
financial condition. In addition, significant increases in the floating rates
paid on investor certificates and/or significant deterioration in the
performance of the Company's receivables portfolio could trigger an early
repayment requirement, which could materially adversely affect liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Accounts Receivable Program."
13
<PAGE>
Interest Rate Risk. Although the Company is protected to a certain extent
by interest rate caps, investors in the receivables-backed certificates of
the Trust receive interest payments on such certificates based on a floating
rate. If the interest rate on these certificates increases, the profitability
of the Company's Accounts Receivable Program and the Company's operating
income could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Accounts
Receivable Program."
Control by Existing Stockholders
Upon consummation of the Offering, Bain Capital ("Bain") and certain of
its affiliates will beneficially own 18.2%, Acadia Partners, L.P. ("Acadia")
and certain of its affiliates will beneficially own 14.7%, Court Square
Capital Limited ("Court Square"), a subsidiary of Citicorp Banking
Corporation ("Citicorp"), will beneficially own 7.2% (assuming conversion of
all shares of Class B Common Stock to shares of Common Stock) and Bernard
Fuchs, the Company's Chairman, will beneficially own 4.7% of the Company's
outstanding Common Stock. To the knowledge of the Company, upon consummation
of the Offering, there will be no agreements among the Company's principal
stockholders relating to the voting of Common Stock or otherwise relating to
corporate governance issues. Upon consummation of the Offering, if such
parties were to vote their shares together, such parties would possess 44.8%
of the combined voting power of the Company's Common Stock and would be in a
position to significantly influence the affairs of the Company and the
outcome of all matters requiring a stockholder vote, including the election
of the Board of Directors. See "Principal Stockholders" and "Management."
Dilution
Based upon an assumed public offering price of $15.00 per share, the
Offering will result in immediate and substantial dilution of $14.56 per
share of the Common Stock to investors purchasing shares of Common Stock. See
"Dilution."
Absence of Public Market and Possible Volatility of Stock Price
Prior to the Offering, there has been no public market for the Common
Stock. Although the Common Stock has been approved for trading on the Nasdaq
National Market, there can be no assurance that an active trading market for
the Common Stock will develop or be sustained. The initial public offering
price of the Common Stock offered hereby will be determined by negotiations
among the Company and the representatives of the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. The
market price for shares of the Common Stock may be volatile and may fluctuate
based upon a number of factors, including, without limitation, business
performance of the Company and the retail sector, news announcements or
changes in general market and economic conditions. See "Underwriting."
Shares Eligible for Future Sale
Upon completion of the Offering, the Company will have 22,520,892 shares
of common stock outstanding. The shares of Common Stock sold in the Offering
will be freely tradeable without restriction or further registration under
the Securities Act of 1933 (the "Securities Act") unless held by an
"affiliate" of the Company, as that term is defined under Rule 144 of the
Securities Act, which shares will be subject to the resale limitations of
Rule 144. In addition, certain existing stockholders, including holders of
restricted Common Stock, have registration rights with respect to Common
Stock held by them. Beginning 90 days following the Offering, 11,125,792
shares of Common Stock will be eligible for sale subject to certain volume
and other limitations of Rule 144 under the Securities Act applicable to
"affiliates" of the Company. In connection with the Offering, stockholders
holding in the aggregate 10,394,782 shares (or 46.2% of the total outstanding
common stock after the Offering) have agreed not to sell or otherwise dispose
of any shares for a period of 180 days from the date of this Prospectus, and
the Company has agreed not to sell any shares (other than shares sold by the
Company in the Offering or issuances by the Company of certain employee stock
options and shares covered thereby) for a period of 180 days from the date of
this Prospectus, without the prior written consent of CS First Boston
Corporation. No prediction can be made as to the effect that market sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price of the Common Stock from time to time. The sale
of a substantial number of shares held by the existing stockholders, whether
pursuant to a subsequent public offering or otherwise, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities. See "Shares Eligible for
Future Sale" and "Underwriting."
14
<PAGE>
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 1,894,540 shares of Common Stock
reserved for issuance under the 1993 Stock Option Plan (as defined) and the
Incentive Plan (as defined). As a result, any shares issued upon exercise of
stock options granted under such plans will be available, subject to
limitations on sales by affiliates under Rule 144, for resale in the public
market after the effective date of such registration statement, subject to
applicable lock-up arrangements. See "Management--1993 Stock Option Plan" and
"Management--1996 Equity Incentive Plan."
Restriction on Payment of Dividends on Common Stock
Since its inception, the Company has not customarily declared or paid any
regular cash or other dividends on the Common Stock other than in connection
with the Distribution (as defined) and does not expect to pay cash dividends
for the foreseeable future. The indentures governing SRI's indebtedness
generally restrict the ability of SRI to make payments to the Company, which
effectively limits the ability of the Company to pay dividends. The Company's
credit agreements also contain restrictive covenants that restrain the
Company from paying dividends. See "Dividend Policy" and "--Leverage and
Restrictive Covenants."
Anti-Takeover Provisions
Certain provisions of the Company's certificate of incorporation and
by-laws may inhibit changes in control of the Company not approved by the
Company's board of directors (the "Board of Directors" or the "Board") and
could limit the circumstances in which a premium may be paid for the Common
Stock in proposed transactions or a proxy contest for control of the Board.
These provisions include (i) a prohibition on stockholder action through
written consents, (ii) advance notice requirements for stockholder proposals
and nominations, (iii) limitations on the ability of stockholders to amend,
alter or repeal certain provisions of the Company's certificate of
incorporation and by-laws, (iv) the authority of the Board to issue, without
stockholder approval, preferred stock (of which 2,500 shares are authorized)
with such terms as the Board may determine and (v) a "fair price" provision
pursuant to which certain transactions involving an interested stockholder
and the Company require super-majority shareholder approval. The Company will
also be afforded the protections of Section 203 of the Delaware General
Corporation Law, which could have similar effects. See "Description of
Capital Stock."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the 10,000,000 shares of
Common Stock by the Company in the Offering (after deducting the underwriting
discounts and estimated expenses of the Offering) are estimated to be
approximately $139.7 million, based on an assumed initial public offering
price of $15.00 per share. The Company intends to use such net proceeds (i)
to purchase, through the Tender Offer, up to all of the Senior Discount
Debentures, and pay a consent fee for elimination and amendment of certain
covenants in the Senior Discount Debentures for an aggregate amount of
approximately $135.0 million, (ii) to pay consent fees for amendments to
certain covenants in the indebtedness of SRI and (iii) to pay a $2.0 million
fee to terminate the Professional Services Agreement (as defined). The
Company will receive no proceeds from the sale of shares by the Selling
Stockholders. See "Description of Certain Indebtedness--Long-Term
Indebtedness--Senior Discount Debentures" and "Certain Relationships and
Related Transactions."
DIVIDEND POLICY
Since its inception, the Company has not declared or paid any regular cash
or other dividends on its Common Stock other than in connection with the
Distribution, and does not expect to pay cash dividends for the foreseeable
future. The Company anticipates that for the foreseeable future, earnings
will be reinvested in the business and used to service indebtedness. The
Company's existing indebtedness limits its ability to pay dividends. The
declaration and payment of dividends by the Company are subject to the
discretion of the Board. Any future determination to pay dividends will
depend on the Company's results of operations, financial condition, capital
requirements, contractual restrictions under its current indebtedness and
other factors deemed relevant by the Board. See "Risk Factors--Leverage and
Restrictive Covenants" and "--Restriction on Payment of Dividends on Common
Stock."
16
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company at August 3, 1996 and adjusted to give pro forma effect to the
Offering. This presentation should be read in conjunction with the Company's
Consolidated Financial Statements, the Unaudited Pro Forma Combined Financial
Data of the Company, the Selected Consolidated Historical Financial and
Operating Data and other information appearing elsewhere in this Prospectus.
August 3, 1996
--------------------------
Historical Pro Forma
------------- ------------
(in thousands)
Long-term debt, including current portion:
Revolving credit agreement (1) $ 7,500 $ 7,500
Senior Discount Debentures, net (2) 116,999 --
Senior Notes 130,000 130,000
Senior Subordinated Notes, net (2) 116,606 116,606
SRPC Notes 30,000 30,000
Other long-term debt 24,248 24,248
------------- ------------
Total long-term debt 425,353 308,354
Stockholders' equity (deficit) (3) (68,428) 56,451 (4)
------------- ------------
Total capitalization $356,925 $364,805
============= ============
- -------------
(1) The Company currently has a revolving credit agreement under which it may
draw up to $25.0 million with an additional seasonal availability of
$10.0 million from August 15 through January 15 of each year. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operation--Liquidity and Capital Resources."
(2) The Senior Discount Debentures and the Senior Subordinated Notes have
unamortized original issue discounts of $32.1 million and $1.6 million,
respectively.
(3) Following the consummation of the Offering, the authorized capitalization
of the Company will consist of (i) 75,000,000 shares of Common Stock, of
which 21,168,925 shares will be outstanding, (ii) 3,000,000 shares of
non-voting Class B Common Stock, of which 1,351,967shares will be issued
and outstanding and (iii) 2,500 shares of Preferred Stock, par value
$1.00 per share, of which no shares will be outstanding. Options to
purchase 1,511,523 shares of Common Stock will be outstanding immediately
following consummation of the Offering. See "Description of Capital
Stock."
(4) Reflects non-recurring charges, net of tax, totalling approximately $14.8
million in connection with the early retirement of the Senior Discount
Debentures and the write-off of related debt issue costs, the payment of
consent fees for amendments to certain covenants in the indebtedness of
SRI and the termination of the Professional Services Agreement.
17
<PAGE>
DILUTION
The net tangible book value of the Company as of August 3, 1996, without
giving effect to the Offering, but giving effect to a .94727 for 1 reverse
stock split of the common stock to be consummated prior to the Offering, was
approximately $(115.0) million, or $(9.19) per share of common stock. Net
tangible book value per share represents the amount of the Company's total
tangible assets less its total liabilities, divided by the number of shares
of common stock outstanding. After giving effect to the receipt of $139.7
million of estimated net proceeds from the sale by the Company of shares of
common stock in the Offering and the use of such net proceeds as described
under "Use of Proceeds", the pro forma net tangible book value of the Company
at August 3, 1996 would have been approximately $9.9 million, or $0.44 per
share of common stock. This represents an immediate increase in net tangible
book value of $9.63 per share to the existing stockholders and an immediate
net tangible book value dilution of $14.56 per share to new investors
purchasing shares in the Offering.
The following table illustrates this dilution:
Assumed initial public offering price per
share $15.00
Net tangible book value per share,
without giving effect to the Offering $(9.19)
Increase in pro forma net tangible book
value per share attributable to new
investors 9.63
---------
Pro forma net tangible book value per share
after the Offering 0.44
---------
Dilution per share to new investors $14.56
=========
The foregoing computations assume no exercise of stock options. As of
September 20, 1996, there were 1,255,761 options with exercise prices below
the initial public offering price to purchase shares of Common Stock at a
weighted average exercise price of approximately $3.57 per share. If all of
such options had been exercised at August 3, 1996, the net tangible book
value per share of common stock, without giving effect to the Offering but
giving effect to the reverse stock split at such date, would have been
$(8.02) and the pro forma net tangible book value per share after giving
effect to the Offering and the reverse stock split would have been $0.60,
representing an immediate dilution to new investors of $14.40 per share and
an immediate increase in net tangible book value of $8.62 per share
attributable to the Offering.
18
<PAGE>
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated historical financial
and operating data of the Company for the periods indicated. The Company's
selected consolidated historical financial data were derived from the
Company's Consolidated Financial Statements. The data for the unaudited
six-month periods ended July 29, 1995 and August 3, 1996, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results of the interim
periods. The Company's business is seasonal and the results of operations for
these six-month periods are not necessarily indicative of the results
expected for a complete fiscal year or any other interim period. The
information in the table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
the Company's Consolidated Financial Statements and the Financial Statements
of Uhlmans, included elsewhere in this Prospectus.
Fiscal Year
-------------------------------------------------------
1991 1992 1993(1) 1994 1995(2)
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share and store data)
Statement of
operations data:
Net sales $447,142 $504,401 $557,422 $581,463 $682,624
Cost of sales and
related buying,
occupancy and
distribution
expenses 311,573 350,136 384,843 398,659 468,347
---------- ---------- ---------- ---------- ----------
Gross profit 135,569 154,265 172,579 182,804 214,277
Selling, general
and
administrative
expenses 116,403 129,193 135,011 134,715 159,625
Service charge
income (3) 22,840 29,670 20,003 8,515 10,523
Store opening and
closure costs 255 120 199 5,647 3,689
---------- ---------- ---------- ---------- ----------
Operating income
(4) 41,751 54,622 57,372 50,957 61,486
Other
non-operating
income (expense) 359 (2,276) -- -- --
Net interest
expense (5) 33,407 31,771 36,377 40,010 43,989
---------- ---------- ---------- ---------- ----------
Income before
income tax and
extraordinary
item 8,703 20,575 20,995 10,947 17,497
Income tax expense 3,993 8,340 7,569 4,317 6,767
---------- ---------- ---------- ---------- ----------
Income before
extraordinary
item 4,710 12,235 13,426 6,630 10,730
Minority interest
expense (749) -- -- -- --
Extraordinary item -- -- (16,208) (308) --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 3,961 $ 12,235 $ (2,782) $ 6,322 $ 10,730
========== ========== ========== ========== ==========
Earnings (loss)
per common share
(6) $ 0.10 $ 0.77 $ (0.39) $ 0.48 $ 0.80
========== ========== ========== ========== ==========
Margin and other
data:
Gross profit
margin 30.3% 30.6% 31.0% 31.4% 31.4%
Selling general
and
administrative
expense rate 26.0% 25.6% 24.2% 23.2% 23.4%
Operating income
margin (4) 9.3% 10.8% 10.3% 8.8% 9.0%
Adjusted operating
income margin
(7) 8.1% 8.7% 8.4% 9.2% 9.4%
Adjusted operating
income (7) $ 36,064 $ 43,680 $ 46,828 $ 53,677 $ 63,996
Depreciation and
amortization 10,049 9,065 9,259 9,997 12,816
Capital
expenditures 4,768 7,631 8,503 19,706 28,638
Store data: (8)
Comparable store
sales growth:
Bealls/Stage (9) 4.1% 5.1% 7.2% 4.8% 3.3%
Palais Royal (2.8)% (9.8)% 0.8% 1.7% 1.4%
Total Company(10) 2.9% 1.8% 6.3% 4.1% 0.8%(11)
Net sales per
selling square
foot:
Bealls/Stage (9) $ 113 $ 118 $ 129 $ 138 $ 142
Palais Royal 228 191 200 205 203
Total Company(10) 138 138 149 157 157
Total selling
square
footage(12) 3,354 3,418 3,472 3,516 4,581
Number of stores
open at end of
period(13) 159 175 180 188 256
Balance sheet data
(at end of
period):
Working capital $200,050 $214,430 $156,782 $148,229 $170,108
Total assets 365,381 403,824 347,055 369,730 412,333
Long-term debt 298,266 296,587 347,468 349,775 380,039
Redeemable
preferred stock 15,200 17,500 -- -- --
Stockholders'
(deficit)(14) (19,500) (9,605) (87,727) (81,193) (72,314)
Six Months Ended
---------------------
July 29, August 3,
1995 1996
---------- ----------
Statement of operations data:
Net sales $296,931 $345,927
Cost of sales and related buying, occupancy
and distribution expenses 204,093 237,223
---------- ----------
Gross profit 92,838 108,704
Selling, general and administrative expenses 70,877 84,335
Service charge income (3) 5,124 5,902
Store opening and closure costs 1,176 301
---------- ----------
Operating income (4) 25,909 29,970
Other non-operating income (expense) -- --
Net interest expense (5) 21,365 24,054
---------- ----------
Income before income tax and extraordinary
item 4,544 5,916
Income tax expense 1,885 2,396
---------- ----------
Income before extraordinary item 2,659 3,520
Minority interest expense -- --
Extraordinary item -- --
---------- ----------
Net income (loss) $ 2,659 $ 3,520
========== ==========
Earnings (loss) per common share (6) $ 0.20 $ 0.26
========== ==========
Margin and other data:
Gross profit margin 31.3% 31.4%
Selling general and administrative expense
rate 23.9% 24.4%
Operating income margin (4) 8.7% 8.7%
Adjusted operating income margin (7) 8.5% 7.8%
Adjusted operating income (7) $ 25,134 $ 27,128
Depreciation and amortization 5,721 6,844
Capital expenditures 16,786 15,183
Store data: (8)
Comparable store sales growth:
Bealls/Stage (9) 3.8% 7.7%
Palais Royal 0.9% 6.2%
Total Company(10) 0.5% 7.3%
Net sales per selling square foot:
Bealls/Stage (9) -- --
Palais Royal -- --
Total Company(10) -- --
Total selling square footage(12) 4,365 5,361
Number of stores open at end of period(13) 242 308
Balance sheet data (at end of period):
Working capital $161,658 $181,118
Total assets 394,945 463,240
Long-term debt 372,972 425,353
Redeemable preferred stock -- --
Stockholders' (deficit)(14) (78,297) (68,428)
19
<PAGE>
NOTES TO SELECTED CONSOLIDATED HISTORICAL
FINANCIAL AND OPERATING DATA
(1) During 1993, Stage Stores was formed and concurrently became the direct
parent of SRI when the existing stockholders of SRI exchanged all of
their common stock for common stock of Stage Stores. Concurrent with the
formation of Stage Stores, the Company completed the Refinancing. As a
result of the Refinancing the Company recorded an after-tax extraordinary
charge of $16.2 million.
(2) 1995 includes 53 weeks.
(3) Service charge income for 1993, 1994 and 1995 decreased as compared to
levels achieved during 1991 and 1992 due to the sale of accounts
receivable to the Trust as part of the Accounts Receivable Program.
Without giving effect to the Accounts Receivable Program, service charge
income for 1993, 1994 and 1995 would have been $32.5 million, $35.2
million and $41.3 million, respectively. For a complete summary of the
impact of the Company's proprietary credit card program and the Accounts
Receivable Program, see Note 2 to the Company's Consolidated Financial
Statements, Note 7 below and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General--Accounts
Receivable Program."
(4) Operating income and operating income margin decreased during 1994
compared to 1993 due primarily to the impact of the adoption of the
Accounts Receivable Program (See Note 2 to the Company's Consolidated
Financial Statements and Note 7 below) combined with a $5.2 million
provision associated with the Store Closure Plan. See Note 4 to the
Company's Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Store
Closure Plan."
(5) Net interest expense includes $6.8 million, $5.2 million and $2.4 million
for 1991, 1992 and 1993, respectively, that represented the interest
expense associated with the Company's accounts receivable facility
outstanding prior to the adoption of the Accounts Receivable Program.
(6) Earnings (loss) per common share for 1993 includes the impact of the
extraordinary item associated with the Refinancing which reduced earnings
per common share by $1.24. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletins and Staff policy, common stock options issued
during the twelve months prior to the Offering have been included in the
calculation of earnings (loss) per common share as if such options were
outstanding during 1993, 1994, 1995 and the six months ended August 3,
1996. Historical earnings (loss) per common share does not reflect the
impact of a .94727 for 1 reverse stock split of the common stock to be
consummated prior to the Offering.
(7) Adjusted operating income represents operating income adjusted to
eliminate store opening and closure costs and the positive impact on
operating income of the Company's proprietary credit card program
(including the Accounts Receivable Program) as follows.
Fiscal Year
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ----------
(in thousands)
Operating income $41,751 $54,622 $57,372 $50,957 $61,486
Plus: Store
opening and
closure cost 255 120 199 5,647 3,689
Less: Positive
impact of
proprietary
credit card
program on
operating income 5,942 11,062 10,743 2,927 1,179
--------- --------- --------- --------- ----------
Adjusted operating
income $36,064 $43,680 $46,828 $53,677 $63,996
========= ========= ========= ========= ==========
Six Months Ended
------------------------
July 29, August 3,
1995 1996
----------- ------------
Operating income $25,909 $29,970
Plus: Store
opening and
closure cost 1,176 301
Less: Positive
impact of
proprietary
credit card
program on
operating income 1,951 3,143
----------- ------------
Adjusted operating
income $25,134 $27,128
=========== ============
The impact of the Company's proprietary credit card program (including
the Accounts Receivable Program) on operating income is calculated as:
(i) the reported service charge income less (ii) the servicing and bad
debt costs reflected in the Company's selling, general and administrative
expenses less (iii) the gain (or plus the loss) associated with the sale
of receivables to the Trust. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General--Accounts
Receivable Program."
20
<PAGE>
Fiscal Year
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ----------
(in thousands)
Service charge
income:
Consolidated $22,840 $29,670 $32,547 $35,183 $41,321
Certificateholders'
portion -- -- 12,544 26,668 30,798
--------- --------- --------- --------- ----------
Reported service
charge income (i) 22,840 29,670 20,003 8,515 10,523
--------- --------- --------- --------- ----------
Servicing and bad
debt costs:
Consolidated 16,898 18,608 21,374 22,504 28,551
Certificateholders'
portion -- -- 8,814 15,956 19,400
--------- --------- --------- --------- ----------
Reported in
selling, general
andadministrative
expenses (ii) 16,898 18,608 12,560 6,548 9,151
Loss (gain) on sale
of receivables:
Certificateholders'
portion of service
charge income -- -- 12,544 26,668 30,798
Certificateholders'
portion of
servicing
and bad debt costs -- -- 8,814 15,956 19,400
Return to
Certificateholders -- -- 3,219 8,200 11,529
Other -- -- (2,789) 1,552 62
--------- --------- --------- --------- ----------
Total (gain) loss
on sale of
receivables (iii) -- -- (3,300) (960) 193
--------- --------- --------- --------- ----------
Total positive
impact of
proprietary
credit card
program on
operating income
[(i)-(ii) -(iii)] $ 5,942 $11,062 $10,743 $ 2,927 $ 1,179
========= ========= ========= ========= ==========
Six Months Ended
------------------------
July 29, August 3,
1995 1996
----------- ------------
Service charge
income:
Consolidated $19,228 $23,968
Certificateholders'
portion 14,104 18,066
----------- ------------
Reported service
charge income (i) 5,124 5,902
----------- ------------
Servicing and bad
debt costs:
Consolidated 11,158 15,215
Certificateholders'
portion 7,290 10,766
----------- ------------
Reported in
selling, general
and
administrative
expenses (ii) 3,868 4,449
Loss (gain) on sale
of receivables:
Certificateholders'
portion of service
charge income 14,104 18,066
Certificateholders'
portion of
servicing
and bad debt costs 7,290 10,766
Return to
Certificateholders 5,547 5,629
Other 572 (19)
----------- ------------
Total (gain) loss
on sale of
receivables (iii) (695) (1,690)
----------- ------------
Total positive
impact of
proprietary
credit card
program on
operating income
[(i)-(ii) -(iii)] $ 1,951 $ 3,143
=========== ============
Although adjusted operating income and adjusted operating income margin
do not represent operating income or any other measure of financial
performance under generally accepted accounting principles, the Company
believes they are helpful in understanding the profitability of the
Company's retailing operations prior to the impact of its credit card
program, the Accounts Receivable Program and store opening and closure
costs.
(8) Store data exclude Bealls stores scheduled to be closed under the Bealls
1988 store closure program, except as otherwise noted in Note 12 below
and also exclude the Fashion Bar stores included in the Store Closure
Plan. Comparable store sales growth and net sales per selling square
foot for 1995 have been determined based on a comparable fifty-two week
period. Sales are considered comparable after a store has been in
operation fourteen months. Net sales per selling square foot are
calculated for stores open the entire year.
(9) Excludes for all the periods presented the six Bealls stores located on
the border of Mexico which were adversely affected by the peso
devaluation in 1994. Comparable stores sales growth and net sales per
selling square foot for Bealls/Stage including these stores were:
Fiscal Year
------------------------------------
Bealls/Stage 1991 1992 1993 1994 1995
- --------------------------- ------ ------ ------ ------ -------
Comparable store sales
growth 5.4% 6.7% 7.7% 4.6% 0.2%
Net sales per selling
square foot $119 $125 $137 $146 $145
Six Months
Ended
--------------
July August
29, 3,
Bealls/Stage 1995 1996
------ -------
Comparable store sales
growth 0.3% 7.7%
Net sales per selling
square foot -- --
(10) Total Company comparable store sales growth and net sales per selling
square foot including the stores which were part of the Store Closure
Plan were as follows:
Fiscal Year
------------------------------------
Total Company 1991 1992 1993 1994 1995
- --------------------------- ------ ------ ------ ------ -------
Comparable store sales
growth 2.9% 1.8% 5.4% 3.2% 0.5%
Net sales per selling
square foot $138 $138 $143 $151 $150
Six Months
Ended
--------------
July August
29, 3,
Total Company 1995 1996
- --------------------------- ------ -------
Comparable store sales
growth 0.4% 6.8%
Net sales per selling
square foot -- --
(11) Excluding the six Bealls stores located on the border of Mexico which
were adversely affected by the peso devaluation in 1994, total Company
comparable store sales growth for 1995 would have increased to 3.0%.
(12) Excludes data related to the stores which were in the Store Closure
Plan. Data is in thousands and is as of the end of the period.
(13) Number of stores open at the end of each period presented also exclude
stores in the Store Closure Plan. Stores open at the end of 1992 and
1993 included one and six stores, respectively, which were previously
excluded under the Bealls 1988 store closure program. Such stores are
only included in the Company's results
21
<PAGE>
of operations subsequent to their removal from the store closure
program. Both the Store Closure Plan and the Bealls 1988 store closure
program were substantially completed before the end of 1995.
(14) Beginning in 1993, Stockholders' deficit includes the impact of the
extraordinary charge associated with the Refinancing ($16.2 million) and
the dividend associated with a cash distribution (the "Distribution") to
the Company's stockholders ($74.8 million).
22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data give effect to
the Uhlmans Acquisition, the issuance of the SRPC Notes, the application of
the net proceeds of the Offering and a .94727 for 1 reverse stock split of
the common stock to be consummated prior to the Offering. The unaudited pro
forma financial data are based on the historical consolidated financial
statements for the Company, the historical financial statements of Uhlmans
and the assumptions and adjustments described in the accompanying notes. The
unaudited pro forma combined statements of operations were prepared as if the
transactions described above had occurred at the beginning of the earliest
period presented and do not (i) purport to represent what the Company's
results of operations actually would have been if the Uhlmans Acquisition and
the Offering had occurred as of the dates indicated or will be for any future
periods or (ii) give effect to certain non-recurring charges expected to
result from the application of the net proceeds of the Offering. The
unaudited pro forma financial data are based upon assumptions deemed
appropriate by the management of the Company. The unaudited pro forma
combined financial data should be read in conjunction with the Company's
Consolidated Financial Statements and the Financial Statements of Uhlmans
included elsewhere in this Prospectus.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 3, 1996
<TABLE>
<CAPTION>
Historical
----------------------
Acquisition Offering Pro Forma
Company Uhlmans Adjustments (1) Adjustments (2) Combined
------------ --------- --------------- --------------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $682,624 $59,749 $ -- $ -- $742,373
Cost of sales and related buying,
occupancy and distribution expenses 468,347 46,129 (1,601)(a) -- 512,875
------------ --------- --------------- --------------- -----------
Gross profit 214,277 13,620 1,601 -- 229,498
Selling, general and administrative
expenses 159,625 12,232 (2,408)(b) (513)(i) 168,936
Service charge income 10,523 851 -- -- 11,374
Store opening and closure costs 3,689 -- -- -- 3,689
------------ --------- --------------- --------------- -----------
Operating income 61,486 2,239 4,009 513 68,247
Interest expense, net 43,989 1,637 2,595(c) (13,508)(j) 34,713
------------ --------- --------------- --------------- -----------
Income before income tax and
extraordinary item 17,497 602 1,414 14,021 33,534
Income tax expense (3) 6,767 -- 766(d) 5,328(k) 12,861
------------ --------- --------------- --------------- -----------
Income before extraordinary
item (4) $ 10,730 $ 602 $ 648 $ 8,693 $ 20,673
============ ========= =============== =============== ===========
Earnings per common share data:
Earnings per common share before
extraordinary item $ 0.80 $ 0.91
============ ===========
Weighted average common shares
outstanding 13,434 (5) 22,726
============ ===========
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 3, 1996
<TABLE>
<CAPTION>
Historical
-----------------------
Acquisition Offering Pro Forma
Company Uhlmans (6) Adjustments (1) Adjustments (2) Combined
------------ ----------- --------------- --------------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $345,927 $16,516 $ -- $ -- $362,443
Cost of sales and related buying,
occupancy and distribution expenses 237,223 13,030 (507)(e) -- 249,746
------------ ----------- --------------- --------------- -----------
Gross profit 108,704 3,486 507 -- 112,697
Selling, general and administrative
expenses 84,335 3,751 (1,411)(f) (250)(l) 86,425
Service charge income 5,902 269 -- -- 6,171
Store opening and closure costs 301 -- -- -- 301
------------ ----------- --------------- --------------- -----------
Operating income (loss) 29,970 4 1,918 250 32,142
Interest expense, net 24,054 554 885(g) (7,402)(m) 18,091
------------ ----------- --------------- --------------- -----------
Income (loss) before income tax and
extraordinary item 5,916 (550) 1,033 7,652 14,051
Income tax expense (benefit) (3) 2,396 -- 184(h) 2,908(n) 5,488
------------ ----------- --------------- --------------- -----------
Income (loss) before extraordinary
item (4) $ 3,520 $ (550) $ 849 $ 4,744 $ 8,563
============ =========== =============== =============== ===========
Earnings per common share data:
Earnings per common share
before extraordinary item $ 0.26 $ 0.37
============ ===========
Weighted average common shares
outstanding 13,678 (5) 22,957
============ ===========
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Note 1--Acquisition Adjustments
Uhlmans Consolidation Program
The Company has substantially completed a consolidation program to absorb
the Uhlmans general office functions, including accounting, data processing,
merchandising, personnel, credit and distribution into similar functions
provided by the Company (the "Uhlmans Consolidation Program"). As a part of
the acquisition agreement with the former stockholders of Uhlmans, the
Company has paid severance to each individual whose employment has been
terminated as a result of the Uhlmans Consolidation Program. Additionally,
all leases associated with Uhlmans' corporate offices and distribution center
have been terminated.
Although the consolidation of the Uhlmans general office functions took
place over a period of two months, the pro forma combined statements of
operations reflect the elimination of the separate Uhlmans general office
expenses assuming the consolidation had been fully implemented at the
beginning of the respective periods.
The accompanying pro forma combined statements of operations do not
reflect certain cost savings or improvements in sales volume or gross margin
related to the acquisition of Uhlmans which the Company believes can be
realized. For instance, the Company believes it should be able to receive
better pricing and vendor participation programs on the merchandise it
purchases for the acquired stores given the Company's historical ability to
negotiate better pricing structures with its vendors as compared to those
historically obtained by Uhlmans. Additionally, the Company intends to expand
certain merchandise categories in the acquired stores such as footwear, which
Uhlmans has historically offered on a limited basis in only certain stores.
Finally, the Company believes it should be able to increase the penetration
of the Company's proprietary credit card as compared to historical levels,
since Uhlmans had not aggressively promoted its proprietary credit card.
Purchase Accounting
The application of purchase accounting to the Uhlmans Acquisition results
in an excess of the purchase price over the estimated fair value of the
assets acquired and liabilities assumed. This excess is treated as goodwill.
Based upon the strategic positioning of the Uhlmans stores in relation to the
Company's growth strategy, the stores purchased by the Company and the long
operating history and historical profitability of these stores, management
believes a forty-year amortization period for this goodwill is appropriate.
Such acquisition will be accounted for as an asset purchase for tax purposes,
and accordingly, the annual goodwill amortization will be tax deductible.
Acquisition Financing
The Company financed the Uhlmans Acquisition through the issuance of $30.0
million in aggregate principal amount of SRPC Notes. The pro forma combined
statements of operations reflect additional interest expense relating to
these notes. See "Description of Certain Indebtedness--Long-term
Indebtedness--SRPC Notes."
The pro forma combined statements of operations reflect the impact of the
aforementioned items as follows (in thousands):
Year ended February 3, 1996:
(a) Elimination of Uhlmans' historical personnel costs associated with the
buying and distribution functions which the Company has absorbed into
its existing central office of $(1,908) offset by incremental freight
due to the use of the Company's distribution center of $307.
(b) Elimination of Uhlmans' historical personnel costs associated with the
accounting, advertising, data processing and credit functions and
occupancy costs associated with leases the Company is terminating in
connection with the Uhlmans Consolidation Program aggregating $(2,676)
offset by amortization of goodwill resulting from the acquisition of
$268.
(c) Elimination of Uhlmans' historical interest expense of $(1,637) offset
by interest on the SRPC Notes of $3,750 and amortization of debt issue
costs of $482.
(d) Additional income tax expense associated with the Uhlmans' historical
income of $229 and the remaining acquisition adjustments of $537.
25
<PAGE>
Six months ended August 3, 1996:
(e) Elimination of Uhlmans' historical personnel costs associated with the
buying and distribution functions which the Company has absorbed into
its existing central office of $(606) offset by incremental freight
due to the use of the Company's distribution center of $99.
(f) Elimination of Uhlmans' historical personnel costs associated with the
accounting, advertising, data processing and credit functions and
occupancy costs associated with leases the Company is terminating in
connection with the Uhlmans Consolidation Program aggregating $(1,547)
offset by amortization of goodwill resulting from the acquisition of
$136.
(g) Elimination of Uhlmans' historical interest expense of $(554) offset
by interest on the SRPC Notes of $1,250 and amortization of debt issue
costs of $189.
(h) Income tax benefit of Uhlmans' historical loss of $(209) and remaining
acquisition adjustments of $393.
Note 2--Offering Adjustments
The unaudited pro forma combined statements of operations should be read
in conjunction with the discussion of the Offering included under "Use of
Proceeds." The completion of the Offering at the beginning of the pro forma
periods presented would have resulted in the following adjustments (in
thousands):
Year ended February 3, 1996:
(i) Elimination of the expense associated with the termination of the
Professional Services Agreement (as defined) of $(513). See "Certain
Relationships and Related Transactions--Professional Services
Agreement."
(j) Elimination of historical interest expense and amortization of debt
issue costs associated with the Senior Discount Debentures of
$(13,070) and $(438), respectively.
(k) Income tax expense associated with the Offering adjustments of $5,328.
Six months ended August 3, 1996:
(l) Elimination of the expense associated with the termination of the
Professional Services Agreement (as defined) of $(250).
(m) Elimination of historical interest expense and amortization of debt
issue costs associated with the Senior Discount Debentures of $(7,183)
and $(219), respectively.
(n) Income tax expense associated with the Offering adjustments of $2,908.
Note 3--Income Taxes
Pro forma adjustments to record the provision or benefit for income taxes
have been made assuming a tax rate of 38%, based upon the statutory federal
and state income tax rates. These adjustments result in a pro forma combined
effective tax rate of 38% and 39% for the year ended February 3, 1996, and
the six months ended August 3, 1996, respectively.
Note 4--Non-Recurring Charges
In the fiscal quarter in which the Offering is consummated (currently
expected to be the third quarter of 1996), the Company expects to incur
non-recurring charges, net of tax, totaling approximately $15.0 million in
connection with the early retirement of the Senior Discount Debentures and
the write-off of related debt issue costs, the payment of consent fees for
amendments to certain covenants in the indebtedness of SRI and the
termination of the Professional Services Agreement (as defined).
Note 5--Reverse Stock Split
The historical weighted average common shares outstanding does not give
effect to a .94727 for 1 reverse stock split of the common stock to be
consummated prior to the Offering.
Note 6--Uhlmans Historical Statement of Operations
Statement of operations data for Uhlmans includes results only for the
period from February 4, 1996 through June 3, 1996, the date when Uhlmans was
acquired and from which it is included in the Company's historical results of
operation.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Overview. The Company operates the store of choice for well known national
brand name family apparel in over 200 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved
niche. The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a broad range of
merchandise with a high level of customer service in convenient locations.
In recent years, the Company has undertaken several initiatives to realize
the full potential of its unique franchise in small markets, including (i)
recruiting a new senior management team, (ii) embarking on a store expansion
program to capitalize on available opportunities in new markets through new
store openings and strategic acquisitions, (iii) continuing to refine the
Company's retailing concept and (iv) closing unprofitable stores. As a result
of these initiatives, the lower operating costs of small market stores, the
benefits of economies of scale and its highly automated facilities and
sophisticated information systems, the Company has among the highest
operating income margins in the apparel retailing industry.
Recent Acquisitions. The Company acquired 45 stores from Beall-Ladymon in
1994 and subsequently reopened the stores in the first quarter of 1995 under
the Stage name. In 1993, the year prior to their acquisition, the
Beall-Ladymon stores generated sales of approximately $53.4 million, whereas
the newly opened Stage stores in the same locations generated sales for the
twelve months ended August 3, 1996 of $95.0 million, an increase of 78%. Over
the same periods, store contribution more than doubled. The Company believes
that the following key strengths have contributed to its successful expansion
and acquisition plan: (i) ability to operate profitably in smaller markets,
(ii) benefits of strong vendor relationships, (iii) effective merchandising
strategy, (iv) focused marketing strategy, (v) benefits of proprietary credit
card program, (vi) emphasis on customer service, and (vii) sophisticated
operating and information systems.
On June 3, 1996 the Company consummated the Uhlmans Acquisition for $27.3
million, including acquisition expenses and net of cash acquired. In 1995,
Uhlmans had net sales of $59.7 million and operating income of $2.2 million.
The Company has substantially completed a consolidation program to absorb the
Uhlmans general office functions, including accounting, data processing,
merchandising, personnel, credit and distribution into similar functions
provided by the Company. As a result of the Uhlmans Consolidation Plan the
Company has eliminated approximately $4.0 million of annualized Uhlmans
historical overhead costs. In addition to any improvements in operating
results that may be achieved through the opportunity to expand the business
above its historical levels, the Company believes it should be able to
receive better pricing and vendor participation programs on the merchandise
it purchases for the acquired stores given the Company's historical ability
to negotiate better pricing structures with its vendors as compared to those
historically obtained by Uhlmans. Additionally, the Company has introduced
certain expanded merchandise categories in the acquired stores such as
footwear, which Uhlmans has historically offered in only certain stores.
Finally, the Company believes it should be able to increase the penetration
of proprietary credit card usage as compared to historical levels since
Uhlmans had not aggressively promoted its own proprietary credit card.
Store Closure Plan. During the fourth quarter of 1994, the Company
approved the Store Closure Plan which provided for the closure of 40
underperforming Fashion Bar stores. These stores were primarily located in
major regional malls within the Denver area. Management determined that the
merchandising strategy and market positions of such stores were not
compatible with the Company's overall strategy. Accordingly, the Company
accrued $5.2 million for the expected costs associated with the Store Closure
Plan during 1994. The Store Closure Plan was substantially completed in 1995.
Accounts Receivable Program. Pursuant to the Accounts Receivable Program,
the Company sells, on a daily basis, substantially all of the accounts
receivable generated from purchases by the holders of the Company's
proprietary credit card to SRPC. SRPC is a separate limited-purpose
subsidiary that is operated in a manner intended to ensure that its assets
and liabilities are distinct from those of the Company and its other
affiliates so that SRPC's creditors have a claim on its assets prior to such
assets becoming available to any creditor of the Company. SRPC sells, on a
daily basis, the accounts receivable purchased from the Company to the Trust
in exchange for cash or
27
<PAGE>
a certificate representing an undivided interest in the Trust (together with
SRPC's interest in receivables previously sold to the Trust, the "Retained
Interest"). The Company's Retained Interest at August 3, 1996 was $55.8
million, which represented 25.2% of total receivables outstanding in the
Trust. The remaining interest in the Trust is held by third-party investors.
The Retained Interest is effectively subordinated to the interests of such
third-party investors, and is pledged to secure the SRPC Notes.
Prior to the implementation of the Accounts Receivable Program in 1993,
operating income included all service charge income and servicing costs
attributable to the Company's accounts receivable and credit card operations.
The cost of financing the Company's accounts receivable was included in
interest expense. Subsequent to the implementation of the Accounts Receivable
Program, service charge income only includes the amount of service charge
income attributable to the Company's Retained Interest. Additionally, the
Company's selling, general and administrative expenses are decreased or
increased by a gain or loss, respectively, on the sale of receivables to the
Trust. This gain or loss is calculated based upon the projected cash receipts
from the receivables sold to the Trust (primarily service charge income) and
reduced by the projected payments of returns to the holders of the Trust
Certificates, and projected credit expenses. Selling, general and
administrative expenses are also affected by adjustments to previously
recorded gains and losses. Bad debt expenses on the Company's entire
portfolio were reflected in selling, general and administrative expenses
prior to the adoption of the Accounts Receivable Program. Under the Accounts
Receivable Program, bad debt expenses remain effectively included in selling,
general and administrative expenses because they directly affect the
profitability of the Accounts Receivable Program.
The financial information, discussion and analysis that follow should be
read in conjunction with the Company's Consolidated Financial Statements
included elsewhere herein.
Results of Operations
The following sets forth certain components of operations as a percentage
of sales for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and related buying,
occupancy and distribution expenses (69.7) (69.4) (69.0) (68.6) (68.6)
-------- -------- -------- -------- ---------
Gross profit 30.3 30.6 31.0 31.4 31.4
Selling, general and administrative
expenses (26.0) (25.6) (24.2) (23.2) (23.4)
Service charge income 5.1 5.9 3.6 1.5 1.5
Store opening and closure costs (0.1) -- -- (1.0) (0.5)
-------- -------- -------- -------- ---------
Operating income 9.3 10.8 10.3 8.8 9.0
Net interest expense (7.5) (6.3) (6.5) (6.9) (6.4)
-------- -------- -------- -------- ---------
Income before income tax, minority
interest and extraordinary item 1.9% 4.1% 3.8% 1.9% 2.6%
======== ======== ======== ======== =========
Income before extraordinary item 0.9% 2.4% 2.4% 1.1% 1.6%
======== ======== ======== ======== =========
Other data:
Adjusted operating income (1) 8.1% 8.7% 8.4% 9.2% 9.4%
</TABLE>
Six Months Ended
--------------------------------
July 29, 1995 August 3, 1996
---------------- ---------------
Net sales 100.0% 100.0%
Cost of sales and related buying,
occupancy and distribution expenses (68.7) (68.6)
---------------- ---------------
Gross profit 31.3 31.4
Selling, general and administrative
expenses (23.9) (24.4)
Service charge income 1.7 1.7
Store opening and closure costs (0.4) --
---------------- ---------------
Operating income 8.7 8.7
Net interest expense (7.2) (7.0)
---------------- ---------------
Income before income tax, minority
interest and extraordinary item 1.5% 1.7%
================ ===============
Income before extraordinary item 0.9% 1.0%
================ ===============
Other data:
Adjusted operating income (1) 8.5% 7.8%
- -------------
(1) Adjusted operating income represents operating income adjusted to
eliminate the income and expense associated with the Company's
proprietary credit card program (including the Accounts Receivable
Program) and store opening and closure costs. See Note 7 to the Selected
Consolidated Historical Financial and Operating Data.
Because of the 53-week year in 1995, the Company's quarterly accounting
periods for 1996 occur one week later than their 1995 counterparts. This
calendar shift, combined with the timing of the Company's promotional events
and holidays, has had the effect of increasing year-to-year comparable store
performance during the first half of 1996 and will likely have the effect of
decreasing comparable store performance during the second half of 1996.
28
<PAGE>
Six Months Ended August 3, 1996 Compared to Six Months Ended July 29, 1995
Sales for the first six months of 1996 increased 16.5% to $345.9 million
from $296.9 million in the comparable period in 1995. The increase in sales
for the six month period was primarily due to an 11.1% increase in sales from
stores opened during 1996 and 1995 combined with a 6.8% increase in
comparable store sales. The significant increase in comparable store sales
was primarily attributable to the strong performance of the Company's Bealls
stores combined with a one-week shift in the comparable calendar period due
to the 53-week year in 1995. Adjusting for this shift in the fiscal calendar,
the increase in comparable store sales for the first six months of 1996 would
have been 4.2%. As mentioned above, the effect of this calendar shift will
likely negatively affect comparable store sales comparisons for the third and
the fourth quarters of 1996.
Gross profit for the first six months of 1996 increased 17.1% to $108.7
million from $92.8 million in the comparable period in 1995 as a result of
the opening/acquisition of 67 stores during the twelve month period ended
August 3, 1996. Gross profit margin increased to 31.4% for the first six
months of 1996 from 31.3% in the comparable period in 1995. The increase in
gross profit margin was derived from the application of fixed buying,
occupancy and distribution expenses over a larger sales base, partially
offset by the favorable impact of vendor discount programs related to the
purchase of new inventory for the opening of 68 new stores during the first
six months of 1995 (as compared to 19 new stores receiving such discounts in
the first six months of 1996).
Selling, general and administrative expenses as a percent of sales for the
first six months of 1996 increased to 24.4% from 23.9% in the comparable
period in 1995 due to an increase in bad debt expense associated with the
Company's proprietary credit card program as well as certain non-recurring
costs associated with the Company's expansion program. Bad debt expense as a
percent of sales increased to 2.3% for the first six months of 1996 from 1.5%
for the comparable period in 1995. The increase in bad debt was the result of
a general rise in the level of personal bankruptcies in the Company's
accounts receivable portfolio. As a result of the acquisition of Uhlmans, the
Company incurred $0.4 million (0.1% of sales) of duplicative costs during the
first six months of 1996 related to the Uhlmans central office which has been
eliminated as of August 31, 1996. Advertising expenses as a percentage of
sales remained unchanged at approximately 3.8% for the first six months of
1996 and 1995.
Service charge income for the first six months of 1996 increased 15.7% to
$5.9 million from $5.1 million for the comparable period in 1995. Service
charge income increased due to an increase in the average level of accounts
receivable balances combined with an increased yield on the accounts
receivable portfolio. The increased yield resulted primarily from an increase
in late fees applied to delinquent accounts.
Operating income increased 15.7% for the first six months of 1996 as
compared to comparable period in 1995 due to the factors described above.
Interest expense for the first six months of 1996 increased 12.5% to $24.3
million from $21.6 million for the comparable period in 1995. Interest
expense increased due to (i) the issuance of $30.0 million in aggregate
principal amount of SRPC Notes during May 1996, (ii) the issuance of $18.3
million in aggregate principal amount of Senior Subordinated Notes during
August 1995 and (iii) the increase in the accretion of discount on the Senior
Discount Debentures.
As a result of the foregoing, the Company's net income for the first six
months of 1996 increased by 29.6% to $3.5 million from $2.7 million for the
comparable period in 1995.
1995 Compared to 1994
1995 was highlighted by the positive initial results of management's
growth strategy to expand into small markets. Sales increased 17.4% to $682.6
million in 1995 from $581.5 million in 1994. This increase was due to (i) a
$112.5 million increase in sales from stores opened during 1994 and 1995,
(ii) a 0.8% increase in comparable store sales in 1995 and (iii) $10.0
million in sales due to the inclusion of one extra week in 1995 as a result
of 1995 being a 53-week year. Such increases were partially offset by the
effects of the Store Closure Plan which was substantially completed in 1995.
During 1995, the devaluation of the Mexican peso, which resulted in extremely
weak economic conditions throughout Mexico, negatively impacted sales at the
Company's six stores located on the Texas/Mexico border. Excluding these
stores, comparable store sales growth for 1995 would have been 3.0%.
Gross profit increased 17.2% to $214.3 million in 1995 from $182.8 million
in 1994. Gross profit as a percent of sales was 31.4% for both 1995 and 1994.
Gross profit for 1995 was favorably impacted by (i) the opening of
29
<PAGE>
new stores, which traditionally experience lower markdown activity during
their first six months of operations, (ii) vendor discount programs granted
to the Company to support new store openings, (iii) the application of
buying, occupancy and distribution costs over a larger sales base, and (iv)
LIFO credits. These items were offset by an increase in markdowns resulting
from additional promotional events during the Christmas season intended to
increase sales and reduce inventories and an increase in the level of
shrinkage. Management believes that the increased shrinkage was primarily due
to the Company's focus on improving ticketing compliance on merchandise in
1995 as well as the rapid expansion of stores during the same year. In
response, management has put several new programs in place, including
shortage awareness programs, which are intended to return the level of
shrinkage to historical levels.
Selling, general and administrative expenses as a percent of sales were
23.4% for 1995 and 23.2% for 1994. The increase resulted from incremental
costs associated with opening stores in new markets, increased costs
associated with the certificates issued by the Trust to third party investors
under the Accounts Receivable Program and an increase in the charge-off ratio
associated with the Company's credit card program (including charge-offs
resulting from sales of the Mexican border stores) from 6.0% of average
balances in 1994 to 7.9% in 1995. These increases were partially offset by
the application of fixed costs to a greater volume of sales and the reversal
of a $0.8 million litigation reserve as a result of a favorable court ruling.
Selling, general and administrative expenses for 1995 increased 18.5% to
$159.6 million from $134.7 million in 1994. Advertising expenses as a percent
of sales for 1995 and 1994 were 3.9% and 3.8%, respectively; the increase was
primarily a result of the Company's expansion into new markets.
Service charge income for 1995 increased 23.5% to $10.5 million from $8.5
million in 1994. Such increase was due to an increase in average accounts
receivable balances resulting from the 17.4% increase in sales discussed
above, an increase in the late fee rate charged on delinquent accounts as
well as the fifty-third week of 1995.
The 1995 store opening and closure costs of $3.7 million were comprised of
store opening costs related to 68 new stores. The 1994 store opening and
closure costs were comprised of a $5.2 million provision for the Store
Closure Plan and $0.4 million for store opening costs related to 10 new
stores.
Operating income for 1995 increased 20.6% to $61.5 million from $51.0
million for 1994 due to the factors discussed above. Operating income as a
percent of sales was 9.0% in 1995 as compared to 8.8% for 1994.
Interest expense for 1995 increased 10.0% to $44.0 million from $40.0
million for 1994. The increase in interest expense was due primarily to an
increase in the accretion on the Senior Discount Debentures combined with
interest related to the Series D Senior Subordinated Notes issued in August
1995.
As a result of the factors described above, the Company's net income for
1995 increased 69.8% to $10.7 million from $6.3 million for 1994.
1994 Compared to 1993
Sales for 1994 increased 4.3% to $581.5 million from $557.4 million for
1993. The overall increase in sales was a result of a 3.2% increase in
comparable store sales combined with an increase in sales from new stores
opened during 1994.
Gross profit for 1994 increased 5.9% to $182.8 million from $172.6 million
in 1993. Gross profit as a percent of sales for 1994 increased to 31.4% from
31.0% for 1993. The increase in the gross profit percentage was due primarily
to a reduced level of markdowns as a result of better inventory management.
Selling, general and administrative expenses as a percent of sales
declined to 23.2% in 1994 from 24.2% in 1993. Selling, general and
administrative expenses for 1994 decreased to $134.7 million from $135.0
million in 1993. These decreases were primarily due to the sale of accounts
receivable pursuant to the Accounts Receivable Program that began during
August 1993, offset in part by an increase in the level of bad debt expense
associated with the Company's credit card program. Excluding the effect of
the Accounts Receivable Program, selling, general and administrative expenses
as a percent of sales for 1994 would have been 26.1% as compared to 26.4% in
1993. Such decrease was due to the Company's ability to effectively manage
variable selling, general and administrative expenses. Advertising expenses
as a percent of sales for 1994 and 1993 were 3.8% and 4.0%, respectively, a
decrease of 0.2%.
Service charge income decreased to $8.5 million for 1994 from $20.0
million for 1993 due to the implementation of the Accounts Receivable
Program. Without giving effect to the Accounts Receivable Program,
30
<PAGE>
1994 service charge income would have increased 8.1% from 1993 as a result of
an increase in average accounts receivable balances due to the increase in
sales and the purchase of certain accounts receivable from Beall-Ladymon.
Store opening and closure costs for 1994 comprised the $5.2 million
accrual related to the Store Closure Plan and $0.4 million related primarily
to the 10 stores opened during 1994.
Operating income for 1994 decreased 11.1% to $51.0 million from $57.4
million for 1993. Operating income as a percent of sales for 1994 decreased
to 8.8% from 10.3% for 1993 as a result of the items discussed above. Such
decreases were due to the $5.2 million provision associated with the Store
Closure Plan combined with the impact of the implementation of the Accounts
Receivable Program in 1993 (see Note 2 to the Company's Consolidated
Financial Statements). Adjusted operating income, which excludes the above
two factors and store opening costs, increased 14.7% to $53.7 million (or
9.2% of sales) from $46.8 million (or 8.4% of sales).
Net interest expense in 1994 increased 9.9% to $40.0 million from $36.4
million in 1993. The increase in net interest expense is due to a full year
of discount accretion in 1994 related to the Senior Discount Debentures
versus six months of accretion in 1993. Such increase was partially offset by
a decrease in interest expense due to the purchase and retirement of $20.0
million of Senior Notes, and by a reduction in interest expense and the
impact on interest expense of the Accounts Receivable Program adopted in
1993.
As a result of the factors described above, the Company's net income in
1994 increased to $6.3 million from a net loss of $2.8 million in 1993 which
included a $16.2 million extraordinary charge associated with the
Refinancing.
Seasonality and Inflation
The Company's business is seasonal and its quarterly sales and profits
traditionally are lower during the first three quarters and higher during the
fourth quarter (November through January). In addition, working capital
requirements fluctuate throughout the year, increasing substantially in
October and November in anticipation of the holiday season due to
requirements for significantly higher inventory levels.
1994
----------------------------------------------
Q1 Q2 Q3 Q4
----------- ---------------------- -----------
(dollars in thousands)
Net sales $128,073 $132,060 $134,939 $186,391
Gross profit (1) 39,856 39,163 41,110 62,675
Operating income 11,943 10,576 10,029 18,409
Quarters' operating
income as a percent
of annual income 23% 21% 20% 36%
Income before
extraordinary item $ 1,197 $ 463 $ 52 $ 4,918
Net income 871 463 90 4,898
Adjusted operating
income (2) 9,868 9,081 9,387 25,341
1995
----------------------------------------------
Q1 Q2 Q3 Q4
----------- ---------------------- -----------
Net sales $142,353 $154,578 $159,161 $226,532
Gross profit (1) 46,283 46,555 48,659 72,780
Operating income 14,835 11,074 9,724 25,853
Quarters' operating
income as a percent
of annual income 24% 18% 16% 42%
Income before
extraordinary item $ 2,438 $ 221 $ (899) $ 8,970
Net income 2,438 221 (899) 8,970
Adjusted operating
income (2) 13,797 11,337 10,364 28,498
- -------------
(1) The Company states its inventories at the lower of cost or market, cost
being determined on the last-in first-out method. See Note 1 to the
Company's Consolidated Financial Statements.
(2) Adjusted operating income represents operating income adjusted to
eliminate the income and expense associated with the Company's
proprietary credit card program (including the Accounts Receivable
Program) and store opening and closure costs.
The Company does not believe that inflation had a material effect on its
results of operations during the past two years. However, there can be no
assurance that the Company's business will not be affected by inflation in
the future.
31
<PAGE>
Liquidity and Capital Resources
At August 3, 1996, the Company's consolidated long-term debt included
$130.0 million of Senior Notes, $116.6 million of Senior Subordinated Notes,
Senior Discount Debentures with an accreted value of $117.0 million, $30.0
million of SRPC Notes and $24.2 million of certain other debt.
On June 3, 1996, the Company purchased Uhlmans for approximately $27.3
million, including acquisition costs and net of cash acquired. The Company,
through SRPC, issued $30.0 million in aggregate principal amount of SRPC
Notes during May 1996, the proceeds of which were used to fund the Uhlmans'
acquisition. The SRPC Notes are secured by the Company's Retained Interest.
Interest on the SRPC Notes is payable semi-annually on June 15 and December
15 of each year, commencing December 15, 1996. Amounts received by SRPC from
its Retained Interest are expected to provide a source of cash flows to pay
the interest on the SRPC Notes. The scheduled amortization of principal will
commence in December 1999 and is subject to the collection experience of the
receivables underlying the Trust Certificates at that time. The issuance of
the SRPC Notes does not impact the ability of the Company to issue additional
certificates under the Accounts Receivable Program to third-party investors.
Total working capital increased $11.0 million to $181.1 million at August
3, 1996 from $170.1 million at February 3, 1996, due primarily to the
issuance of the SRPC Notes and the acquisition of Uhlmans.
Working capital at February 3, 1996 increased 14.8% to $170.1 million from
$148.2 million at January 28, 1995. The increase in working capital during
1995 was primarily the result of an increase in inventories required to
support the Company's larger store base.
The Company's primary capital requirements are for working capital, debt
service and capital expenditures. Based upon the current capital structure,
management anticipates cash interest payments during 1996 and 1997 to be
approximately $5.5 million higher than the 1995 level due to the issuance of
the Series D Senior Subordinated Notes and the SRPC Notes. Capital
expenditures are generally for new store openings, remodeling of existing
stores and facilities and customary store maintenance. Capital expenditures
for the first six months of 1996 were $15.2 million as compared to $16.8
million for the comparable period of 1995 as a result of fewer stores opened
or acquired. Management expects capital expenditures to be approximately
$12.8 million for the last six months of 1996 consisting primarily of the
opening of approximately 16 new stores, the conversion of most of the Uhlmans
stores to Stage stores, routine store maintenance, store remodels and
renovations at the corporate headquarters. Required principal payments on
debt during 1996 and 1997 aggregate $2.4 million.
The Company's short-term liquidity needs are provided by (i) existing cash
balances, (ii) operating cash flows, (iii) the Accounts Receivable Program
and (iv) the Revolving Credit Agreements (as defined below). The Company
expects to fund its long-term liquidity needs from its operating cash flows,
the issuance of debt and/or equity securities, the securitization of its
accounts receivable and bank borrowings.
The Company has a revolving credit agreement with a bank (the "Revolving
Credit Agreement") under which it may draw up to $25.0 million. Of this
amount, $15.0 million may be used to support letters of credit. As of August
3, 1996, $14.5 million of the capacity under the Revolving Credit Agreement
was utilized of which $7.0 million of this amount was used to collateralize
letters of credit. The Company also has a separate agreement with the bank
under which it may borrow an additional $10.0 million for seasonal working
capital needs (the "Seasonal Credit Agreement" and together with the
Revolving Credit Agreement, the "Revolving Credit Agreements"). Funds are
available under the Seasonal Credit Agreement from August 15 through January
15 of each calendar year (the "Seasonal Period"). The Revolving Credit
Agreements are available through February 3, 1998.
SRI is soliciting consents to certain amendments to the indentures
governing its Senior Notes, its Series B Senior Subordinated Notes and its
Series D Senior Subordinated Notes to, among other things, increase the
maximum amount of revolving senior secured borrowing capacity to $50.0
million (subject to a reduction to $25.0 million for a 45-day period
annually) and relax the limitations on the incurrence of additional
indebtedness.
These amendments are intended to provide the Company with additional
financial flexibility in meeting its expansion plans and the working capital
requirements of its growing store base, and are conditioned on the
consummation of the Offering.
Since its inception, the Trust has issued $165.0 million of term
certificates and a $40.0 million revolving certificate (collectively, the
"Trust Certificates") to third parties representing undivided interests in
the Trust. The holder of the revolving certificate agreed to purchase
interests in the Trust equal to the amount of accounts receivable
32
<PAGE>
in the Trust above the level required to support the term certificates
(aggregating $200.1 million at August 3, 1996), up to a maximum of $40.0
million. As of August 3, 1996, the outstanding balance under the revolving
certificate was $1.1 million. The Company's Retained Interest at August 3,
1996 was $55.8 million, which represented 25.2% of total receivables
outstanding in the Trust. The remaining interest in the Trust is held by
third-party investors. The Retained Interest is effectively subordinated to
the interests of such third-party investors, and is pledged to secure the
SRPC Notes. If receivable balances in the Trust fall below the level required
to support the term certificates and revolving certificates, certain
principal collections may be retained in the Trust until such time as the
accounts receivable balances exceed the amount of accounts receivable
required to support the Trust Certificates and any required transferor's
interest. SRPC receives distributions from the Trust of cash in excess of
amounts required to satisfy the Trust's obligations to third-party investors
on the Trust Certificates. Cash so received by SRPC may be used to purchase
additional accounts receivable from, or make distributions to, the Company
after SRPC has satisfied its obligations on the SRPC Notes. The Trust may
issue additional series of certificates from time to time on various terms.
Terms of any future series will be determined at the time of issuance.
33
<PAGE>
BUSINESS
General
The Company operates the store of choice for well known national brand
name family apparel in over 200 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved
niche. The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a carefully edited,
but broad range of merchandise with a high level of customer service in
convenient locations. Stage Stores' product offerings include fashion
apparel, accessories, fragrances and cosmetics and footwear for women, men
and children. Over 85% of 1995 sales consisted of branded merchandise,
including nationally recognized names such as Levi Strauss, Liz Claiborne,
Chaps/Ralph Lauren, Calvin Klein, Guess, Hanes, Nike, Reebok and Haggar
Apparel.
The Company currently operates 314 stores through its "Stage", "Bealls"
and "Palais Royal" trade names in 20 states throughout the central United
States. Approximately 77% of these stores are located in small markets and
communities with as few as 4,000 people. The Company's store format
(averaging approximately 18,000 total selling square feet) and merchandising
capabilities enable the Company to operate profitably in small markets. The
remainder of the Company's stores operate in metropolitan areas, primarily in
suburban Houston. For the twelve months ended February 3, 1996, the Company
would have had pro forma sales and income before extraordinary item of $742.4
million and $20.7 million, respectively.
In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company began
recruiting a new senior management team commencing in 1993. This new
management team has (i) initiated an aggressive growth strategy to capitalize
on available opportunities through new store openings and strategic
acquisitions in new markets, (ii) refined the Company's retailing concept,
(iii) implemented new merchandising and operating programs, and (iv) closed
unprofitable stores. The Company has made substantial progress in
implementing its growth strategy by opening or acquiring 68 stores in 1995
and 59 stores to date in 1996, and expects to open approximately 10
additional stores during the remainder of 1996. In addition, the Company's
goal is to open at least 55 new stores in 1997.
Competitively Well Positioned
As a result of its small market focus, Stage Stores generally faces less
competition for brand name apparel, because consumers in small markets
generally have only been able to shop for branded merchandise in distant
regional malls. In those small markets where the Company does compete for
brand name apparel sales, such competition generally comes from local
retailers, small regional chains and, to a lesser extent, national department
stores. The Company believes it has a competitive advantage over local
retailers and smaller regional chains due to (i) the economies of scale of
its large store base, (ii) strong vendor relationships which provide it with
a broad selection of branded merchandise at a lower cost, (iii) a proprietary
credit card program, which enables it to provide an independent source of
credit and which generates a significant customer database that supports the
Company's promotion and marketing efforts, and (iv) sophisticated operating
systems for efficient management. The Company believes it has a competitive
advantage in small markets over national department stores due to its (i)
experience with smaller markets, (ii) ability to effectively manage
merchandise assortments in a small store format, and (iii) operating systems
designed for efficient management within small markets. In addition, due to
minimal merchandise overlap, Stage Stores generally does not directly compete
for branded apparel sales with national discounters such as Wal-Mart.
Key Strengths
The following factors serve as the Company's key strengths and
distinguishing characteristics.
Ability to Operate Profitably in Smaller Markets. The Company has
recognized that customers in small markets are generally as aware of current
fashion trends and as sophisticated as consumers in larger urban centers due
to the proliferation of electronic, computer and print media. However, these
consumers have not traditionally had convenient access to broad assortments
of quality, brand name merchandise. The Company operates in small markets
with populations ranging from 4,000 to 100,000, and has developed a store
format, generally ranging in size from 12,000 to 30,000 square feet, which is
smaller than typical department stores yet large enough to offer a well
edited, but broad selection of merchandise. This format has enabled the
Company to operate profitably in
34
<PAGE>
small markets. Historically, the Company has achieved higher profit margins
in its small market stores. For 1995, store contribution (operating profit
before allocation of corporate overhead) as a percentage of sales for small
market stores open for at least one year was 18%, as compared to 12% for
larger market stores. In addition, by operating more than 300 stores, the
Company benefits from economies of scale in buying and merchandising,
information systems, distribution and advertising which, combined with the
lower cost structure of the smaller market stores, has resulted in operating
margins which are among the highest in the retailing industry.
Benefits of Strong Vendor Relationships. The Company's large store base
offers major vendors a unique vehicle for accessing multiple small markets in
a cost effective manner. The proliferation of media combined with the
significant national marketing efforts of these vendors has created
significant demand for branded merchandise in small markets. However, the
financial and other limitations of many local retailers has left large
national brands with limited access to such markets. Furthermore, these large
vendors generally do not sell through national discounters in order to
preserve their brand image. The Company's new management team recognized this
significant opportunity and continuously seeks to expand its vendor base and
has recently added nationally recognized name brands such as Polo, Dockers
for Women and Oshkosh, as well as fragrances by Elizabeth Arden, Liz
Claiborne and Perry Ellis during 1996. In addition, the Company has also
increased the participation by key vendors in joint marketing programs to a
level that the Company believes exceeds the standard vendor programs provided
to its smaller competitors. For example, the Company is among the largest
customers of Levi Strauss, Liz Claiborne and Haggar Apparel and enjoys
significant support from such vendors in sales promotions, advertising and
store fixture programs.
Effective Merchandising Strategy. The Company's merchandising strategy is
based on an in-depth understanding of its customers and is designed to
accommodate the particular demographic profile of each store. This
understanding is attributable to over 70 years of experience operating in its
markets coupled with 43 buyers who average approximately 11 years of service
with the Company. Store layouts and visual merchandising displays are
designed to create a friendly, modern and convenient department store
atmosphere which is frequently not found in small markets. The Company's
strategy focuses on moderately priced merchandise categories which have
traditionally yielded attractive margins. The Company offers an edited
assortment of quality, moderately priced merchandise that is divided into
distinct departments including misses, women's, men's, boy's, footwear,
intimate apparel, junior's, children's, accessories, cosmetics, fragrances
and gifts.
To augment its branded merchandise offerings, the Company also offers a
quality assortment of higher margin, private label merchandise which
comprises less than 15% of total sales. The Company's private label
merchandise includes its highly successful Graphite(R) label for apparel,
accessories and footwear as well as its new Whispers(R) line of bath and body
products and intimate apparel. The Company procures the majority of its
private label merchandise through AMC, a cooperative buying service whose
participants include nationally recognized retailers, such as Federated
Department Stores.
The Company also utilizes a sophisticated merchandise allocation and
transfer system which is designed to maximize in-stock positions, increase
sales and reduce markdowns. The Company believes that the combination of the
size and experience of its buyer group, its vendor relationships, its strong
merchandising systems and its participation in AMC allow the Company to
compete effectively on both price and selection in its markets.
Focused Marketing Strategy. The Company's primary target customers are
women between the ages of 20 and 55 with household incomes over $25,000 who
are the primary decision makers for family clothing purchases. The Company
uses a multi-media advertising approach, including newspaper, radio, direct
mail and television, to position its store as the local destination for
fashionable, brand name merchandise. In addition, the Company heavily
promotes its proprietary credit card in order to create customer loyalty and
to effectively identify its core customers. The Company believes it is better
able to maintain personal contact with its customers due to the small size of
its markets, aggressive advertising strategy and well-developed corporate
customer service programs designed to encourage a high level of customer
interaction. Stage Stores seeks to enhance its image in the communities it
serves by encouraging its store managers and employees to be involved in
local activities such as youth groups, civic activities and athletic events.
Benefits of Proprietary Credit Card Program. The Company aggressively
promotes its proprietary credit card and, as a result, experiences a higher
percentage of proprietary credit card sales (55.6% of net sales in 1995) than
most retailers. The Company considers its credit card program to be a
critical component of its retailing concept because it (i) enhances customer
loyalty by providing customers with a service that few of its local and
regional
35
<PAGE>
competitors or discounters offer, (ii) allows the Company to identify and
regularly contact its best customers, and (iii) helps create a comprehensive
database that allows the Company to implement detailed, segmented marketing
and merchandising strategies for each store. In addition, the Company has
established a VIP program which offers special services and benefits to
customers with credit card purchases over $750 annually. VIP customers are
rewarded with certain extra services such as free gift-wrapping, emergency
check cashing, free credit card registration, discounts on alterations, and
other benefits. While these customers only represent approximately 9.5% of
total active cardholders, credit sales to these customers during 1995
comprised 36.6% of total cardholder sales. Sales associates are encouraged to
focus their selling efforts on these customers to increase the productivity
of the Company's marketing efforts.
Emphasis on Customer Service. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. All sales associates are evaluated based upon the
attainment of specific customer service standards such as offering prompt
assistance, suggesting complementary items, sending thank-you notes to charge
customers and establishing consistent contact with customers in order to
create a customer base for each associate. The Company continuously monitors
the quality of its service by making over 3,000 calls each month to its
credit card customers who have recently made a purchase. The results of these
surveys are used to determine a portion of each store manager's bonus. In
addition, the Company has extended this service philosophy to the design of
the store; for example, in nearly all stores it has installed call buttons in
the fitting rooms and in smaller market stores, has adopted a "Team One"
concept which locates the store manager on the selling floor. The Team One
concept is also designed to help the store manager ensure that sales
associates focus on selling and customer service.
Sophisticated Operating and Information Systems. The Company supports its
retail concept with highly automated and integrated systems in areas such as
merchandising, distribution, sales promotions, credit, personnel management,
store design and accounting. The Company's merchandising systems assist
merchandise planners in allocating merchandise assortments for each store
based on specific characteristics and recent sales trends. The Company's
point of sale systems include bar code scanning and electronic credit and
check authorization, all of which allow the Company to capture customer
specific sales data for use in its merchandising system. Other systems allow
the Company to identify and mark down slow moving merchandise or efficiently
transfer it to stores selling such items more rapidly, and to maintain high
levels of in-stock positions in basic items including jeans and hosiery. The
Company is focused on expanding its use of electronic data interchange (EDI)
and has made significant progress in doing so over the last two years. These
systems have enabled the Company to efficiently manage its inventory, improve
sales productivity and reduce costs, which have contributed to the Company's
relatively high operating income margins. The Company has developed and
utilizes an automated store personnel scheduling system that analyzes
historical hourly and projected sales trends to efficiently schedule sales
personnel. This system is designed to minimize labor costs while producing a
higher level of customer service.
Growth Strategy
In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company, through
its new management team, has (i) initiated an aggressive growth strategy to
capitalize on available opportunities through new store openings and
acquisitions and (ii) refined its retailing concept to successfully operate
in very small markets with populations of less than 12,000.
New Store Openings in Smaller Markets. The Company opened 23 new stores
and 45 acquired stores in 1995, has opened 25 new stores and acquired 34
stores to date in 1996, and expects to open approximately 10 additional new
stores during the remainder of 1996. In addition, the Company's goal is to
open at least 55 new stores in 1997. Since 1994, store additions have allowed
the Company to begin operating in 14 additional states. As part of new
management's ongoing expansion strategy, the Company has identified over 600
additional markets in the central United States and contiguous states which
meet the Company's demographic and competitive criteria. All of these target
markets are smaller communities, where the Company has historically
experienced its highest profit margins. In addition, the Company believes it
has a competitive advantage over local retailers in these markets which are
typically underserved by department stores. Based on the Company's historical
operating experience, small market stores typically experience lower
incremental opening costs and lower occupancy and operating expenses than
larger markets. When combined with the Company's operating systems in
merchandising, credit, distribution and store personnel scheduling, the
smaller market stores have typically generated higher margins than
36
<PAGE>
metropolitan market stores. For 1995, store contribution as a percentage of
sales for small market stores open for at least one year was 18% as compared
to 12% for larger market stores.
The Company utilizes a proprietary model which is designed to allow
management to identify suitable markets for new stores. The Company targets
communities for new store openings with populations generally ranging from
12,000 to 30,000, an average household income of $25,000 or more, and which
are located at least 30 miles from the nearest regional mall. Such locations
generally face limited competition from national retailers. In addition to
satisfying the above criteria, only those markets that management believes
have the potential to exceed certain minimum sales and profitability
standards and have available, suitable, low cost real estate are selected for
new store openings.
In opening a new store, the Company's investment consists primarily of
inventory, net of vendor payables, and furniture, fixtures, equipment and
leasehold improvements. For the Company's stores opened in 1995, inventory
investment per store was approximately $450,000, with average vendor payables
equal to approximately $110,000 for a net investment per store of
approximately $340,000 and investment in furniture, fixtures, equipment and
leasehold improvement was approximately $313,000 per store. In addition,
pre-opening expenses (which are deferred and expensed in the fiscal year the
store opens) for the new stores opened in 1995 averaged approximately $60,000
per new store.
Strategic Acquisitions. The Company believes that it can benefit from
strategic acquisitions by (i) applying its buying and merchandising
capabilities, sales promotion techniques and customer service methods, (ii)
introducing its proven management systems and (iii) consolidating overhead
functions. The Company believes that such actions have allowed it to improve
the overall profitability of acquired retailers.
The Company believes that numerous acquisition opportunities are available
in its target markets on favorable terms due in part to (i) financially
weakened local retailers and regional chains which, due to their lack of
merchandise differentiation, have been adversely impacted by national
discounters, (ii) the limited exit strategies available to owners of regional
chains who wish to sell, (iii) the relatively limited availability of
favorable credit terms from vendors/factors and (iv) competitive pressures
created by cost effective retailers such as Stage Stores.
This strategy has been successfully demonstrated by the Company's
acquisition of 45 stores from Beall-Ladymon in 1994 and the subsequent
reopening of the stores in the first quarter of 1995 under the Stage name. In
1993, the year prior to their acquisition, the Beall-Ladymon stores generated
sales of $53.4 million, whereas the newly opened Stage stores in the same
locations generated sales for the twelve months ended August 3, 1996 of $95.0
million, an increase of 78%. Over the same periods, store contribution more
than doubled.
In June 1996, the Company acquired Uhlmans, a privately held apparel
retailer with 34 locations in Ohio, Indiana and Michigan, where the Company
previously had no stores. These stores are of similar size and merchandise
content to the Company's existing stores and are compatible with the
Company's retailing concept and growth strategy. Uhlmans generated 1995 sales
of $59.7 million. The Company believes significant opportunities are
available to improve Uhlmans' financial results through the expansion of
certain merchandise categories, the Company's lower merchandising costs,
increased proprietary credit card-based sales, the implementation of the
Company's operating systems and the elimination of overlapping administrative
costs. See "Risk Factors--Future Growth and Recent Acquisitions; Liquidity."
Expansion to Micromarkets. The Company recently began targeting its small
market retailing concept toward communities with populations ranging from
4,000 to 12,000 with stores of less than 12,000 gross square feet. These
efforts are designed to build on the Company's favorable operating experience
in markets of this size. Stage Stores believes that micromarkets may offer a
significant additional avenue for potential growth, because it can
successfully apply its existing store model in those micromarkets due to its
ability to scale its store concept to the appropriate size, the generally
lower levels of competition and low labor and occupancy costs. The Company
has identified 1,200 such potential sites in and around the central United
States and contiguous states.
37
<PAGE>
Company Operations
Merchandise Purchasing and Allocation. The Company offers a select
assortment of quality, moderately priced soft goods, which are divided into
departments including misses, women's, men's, boys, juniors, children's,
intimate, petites, accessories, cosmetics, fragrances, gifts and footwear
departments. Merchandise mix may vary significantly from store to store to
accommodate differing demographic factors. The Company modifies its
assortments to focus on merchandise its buyers expect will have the broadest
appeal to its targeted customers based upon sales analyses and individual
store attributes.
The Company purchases merchandise from a vendor base of over 2,000
suppliers. The Company's leading vendors for 1995 were Levi Strauss, Liz
Claiborne, Haggar Apparel, Guess, Hanes, Nike, Chorus Line, Parson Place and
Reebok. The Company was one of Levi Strauss's top ten customers in 1995. No
one supplier accounted for more than 9% of the Company's 1995 purchases. The
Company is also a member of the cooperative buying service AMC, and as such
is entitled to make purchases of imported merchandise for its private label
program. The membership provides the Company with group purchasing
opportunities. Private label products result in better gross margins for the
Company and excellent value for the customer as a result of the lower cost of
such apparel as compared to branded items in the same categories. Private
label purchases were approximately 8%, 10% and 11% of total purchases in
1993, 1994 and 1995, respectively. The Company currently intends to keep
private label merchandise sales below 15% of total sales in order to focus on
sales of branded merchandise.
Set forth below is certain information regarding the percentage of net
sales by major merchandise departments for the Company for 1994 and 1995.
Department 1994 1995
- ---------------------------- -------- ---------
Mens and Young Men 20% 22%
Misses Sportswear 15 15
Juniors 15 13
Accessories and Gifts 10 9
Children 9 9
Footwear 8 8
Intimate 6 6
Special Sizes 5 5
Cosmetics 4 5
Misses Dresses 4 4
Boys 3 3
Furs and Coats 1 1
-------- ---------
Total 100% 100%
======== =========
The Company's integrated merchandising systems are designed to provide its
buyers with the information and analytical support needed to maximize
efficiency, increase sales, reduce markdowns and increase inventory turnover
through better inventory management. These systems include, among others: (i)
an automated merchandise, financial planning and allocation system which
recognizes the attributes and current merchandise needs of each store; (ii) a
staple stock replenishment system to ensure the Company is in stock on basic
items such as hosiery, foundation garments, dress shirts and jeans; (iii)
markdown and merchandise transfer analysis; and (iv) an assortment planning
system which enables the Company to closely tailor the merchandise assortment
in each store based on local demographics and historical trends and
automatically allocate merchandise accordingly. In addition, electronic
point-of-sale ("POS") terminals at each store record and transmit to the
Company's corporate headquarters a real time, full accounting of each day's
sales by transaction and item. The Company utilizes its information systems
to monitor slow and fast moving merchandise for the purpose of enabling the
Company to transfer slower moving merchandise from one store to another store
where such merchandise is selling more rapidly. The Company believes that its
inventory transfer system improves in-stock positions, increases sales and
reduces markdowns, thereby increasing profit margins.
Credit Services. The Company offers its own private label credit card
program, which enhances the Company's relationship with core customers by
tailoring credit availability to individual customers and facilitating
frequent communication of promotional offering. The number of private label
credit accounts and dollar volume of charges reflects an important element in
the Company's marketing strategy. The Company believes that private label
credit card holders shop more regularly and purchase more merchandise than
customers who pay cash or use bankcards. In addition, the Company maintains a
database of all proprietary charge purchases of these customers.
38
<PAGE>
Management believes that this data base is a significant competitive
advantage over competitors who lack such programs, allowing the Company to
target promotional material, via direct mail, to its regular customers. At
August 31, 1996, there were more than 1.6 million active accounts. Private
label credit card purchases generated approximately 55.6% of net sales in
1995. The Company seeks to expand the volume of such credit card purchases
through a marketing strategy emphasizing (i) direct mail of promotional
materials to existing cardholders to communicate new merchandise offerings,
(ii) promotion of customer incentive programs and (iii) the issuance of new
credit through the opening of new accounts and extension of credit on
existing accounts. It is the Company's policy to expand the number and use of
private label credit card accounts on a controlled basis by utilizing
computerized systems such as point-scoring for approving new accounts and
behavioral scoring for monitoring account performance and approving
additional purchases.
The Company administers its private label credit card program through a
dedicated in-house facility and staff located in Jacksonville, Texas. The
Company's internally developed, fully computerized and highly automated
credit systems analyze customer payment histories, automatically approve or
reject new sales at point of sale and enable account representatives to
efficiently manage delinquent account collections.
Management Information Systems. In addition to its merchandising systems
described above, the Company relies on proprietary management information
systems to maximize productivity and minimize costs in the other
labor-intensive areas of its business, including distribution, personnel
management, credit and accounting. In each store, the Company's POS system
uses bar code scanning and includes electronic credit and check
authorization. The Company has made substantial investments in its systems
and utilizes a central mainframe computer to coordinate store level
information and to support almost every aspect of the business. By linking
the corporate headquarters with each store, the Company's systems allow the
merchandising department to track sales of all items at all stores at any
time and enable immediate POS credit approval for the use of private label
credit cards. These systems have enabled the Company to better manage and
plan its inventory while reducing costs and have contributed to the Company's
relatively high operating margins.
Distribution. The Company's 450,000 square foot automated and centralized
distribution center in Jacksonville, Texas enables it to distribute most
merchandise within 48 hours of receipt and has the current capacity (with
minimal incremental investment) to support in excess of 800 stores. The
Company's centralized distribution system results in more efficient
distribution costs per unit, lower freight costs and reduced accounts payable
processing costs than certain of the Company's competitors. In 1995, the
Company entered into an arrangement with a major freight forwarder for the
delivery of merchandise from the distribution center to all of the Company's
stores on a daily basis. This arrangement is a more cost-efficient method of
distribution than the Company's previous method of multiple common carriers.
Distribution expenses, net of handling fees charged to vendors, were less
than 0.5% of net sales in each of 1994 and 1995, which the Company believes
is below industry averages.
Competition
The retail apparel business is highly competitive. Retailers generally
compete on the basis of convenience of location, merchandise selection,
service and price. Although competition varies widely from market to market,
the Company faces substantial competition, particularly in metropolitan
markets, from national, regional and local department and specialty stores.
Some of the Company's competitors are considerably larger than the Company
and have substantially greater financial and other resources. The Company
believes that its distinctive retail concept, combined with its emphasis on
operating systems and technology, distinguishes it from department store and
specialty store competitors, especially in small markets. The Company
believes that its knowledge of small markets has enabled it to establish a
strong franchise in those markets.
Employees
During 1995, the Company employed an average of 9,946 employees, of which
1,069 were salaried and 8,877 were hourly. The central offices (which
includes corporate, credit and distribution center offices) averaged 296
salaried and 684 hourly employees during 1995. In its stores, the Company
employed an average of 773 salaried and 8,193 hourly employees during 1995.
Such averages will vary during the year as the Company traditionally hires
additional employees and increases the hours of part-time employees during
peak seasonal selling periods. At September 19, 1996, the Company employed
11,570 employees, including 1,143 central office employees. There are no
collective bargaining agreements in effect with respect to any of the
Company's employees. The Company believes that it has a good relationship
with its employees.
39
<PAGE>
The Company has implemented performance monitoring systems designed to
assure achievement of selling and service standards at the store level. Most
of the Company's sales associates participate in incentive-based compensation
programs with objectives that are defined at the individual department and
store level. During 1995, 95% of all Company personnel participated in
incentive and recognition programs based on individual performance.
Properties
The Company's corporate headquarters is located in a 130,000 gross square
foot building in Houston, Texas. The Company leases the land and building at
its Houston facility. See "Certain Relationships and Related
Transactions--Transactions with Management." The Company owns its
distribution center and its credit department facility, both located in
Jacksonville, Texas.
The Company currently operates stores located in the following states:
Number of Stores (1)
-------------------------------------
Year End September 20,
------------------ 1996
Location 1994 1995
------------------ -------- --------
Alabama 3 3 3
Arizona -- -- 2
Arkansas -- 12 13
Colorado 11 12 11
Illinois -- 5 11
Indiana (2) -- -- 3
Iowa -- 3 6
Kansas -- 2 3
Louisiana -- 26 27
Michigan (2) -- -- 6
Minnesota -- -- 1
Mississippi -- 6 7
Missouri 1 4 5
Nebraska -- -- 1
New Mexico 8 8 9
Ohio (2) -- -- 25
Oklahoma 11 13 13
South Dakota -- -- 2
Texas 153 161 165
Wyoming 1 1 1
-------- -------- -----------------
Total 188 256 314
======== ======== =================
- -------------
(1) Excluding the stores included in the Store Closure Plan.
(2) Represents stores acquired in connection with the Uhlmans Acquisition.
Stores range in size from 4,000 to 46,000 selling square feet with the
majority between 12,000 and 30,000 selling square feet. In general, Bealls
stores are located in small markets primarily in Texas, Oklahoma and New
Mexico, Stage stores are located in small markets in states other than Texas,
Oklahoma and New Mexico and Palais Royal stores are located in metropolitan
Houston and suburban areas. These stores are primarily located in strip
shopping centers. All store locations are leased except for three Bealls
stores and two Stage stores that are owned. Most leases provide for a base
rent amount plus contingent rentals, generally based upon a percentage of
gross sales.
Litigation
From time to time the Company and its subsidiaries are involved in various
litigation matters arising in the ordinary course of its business. Management
believes that none of the matters in which the Company or its subsidiaries
are currently involved, either individually or in the aggregate, is material
to the financial position, results of operations or cash flows of the Company
or its subsidiaries.
40
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company and their respective
ages and positions are as follows:
Name Age Position
- ---------------- --- --------------------------------------------------
Bernard Fuchs(1) 70 Chairman and Director
Carl Tooker 49 Chief Executive Officer, President and Director
Mark Shulman 47 Executive Vice President/Chief Merchandising
Officer
James Marcum 37 Executive Vice President/Chief Financial Officer
Stephen Lovell 40 Executive Vice President/Director of Stores
Ron Lucas 49 Senior Vice President/Human Resources
Jerry Ivie 63 Senior Vice President, Secretary and Treasurer
Joshua 38 Director
Bekenstein(1)
Adam Kirsch(2) 34 Director
Peter 37 Director
Mulvihill(2)
Lasker Meyer 70 Director
- -------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
The Company expects to expand the size of the Board to add three
directorships by the end of 1997, at least two of which will be filled with
independent, outside directors.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee oversees actions taken by the
Company's independent auditors, recommends the engagement of auditors and
reviews the Company's internal accounting policies and practices. The
Compensation Committee approves the compensation of executives of the
Company, makes recommendations to the Board of Directors with respect to
standards for setting compensation levels and administers the Company's
incentive plans.
Mr. Fuchs has been involved in retailing since 1944. He began his career
with Grayson Shops of California and subsequently served as Executive Vice
President and Chief Operating Officer of S. Klein in New York from 1960
through 1967. He came to Palais as Executive Vice President and Chief
Operating Officer in 1967 and became President and Chief Executive Officer in
1979. Mr. Fuchs was Chairman and Chief Executive Officer of the Company and
SRI from December 1988 until July 1994 when Mr. Tooker was appointed Chief
Executive Officer. Mr. Fuchs continues to serve as Chairman.
Mr. Tooker joined the Company as a Director, President and Chief Operating
Officer on July 1, 1993. On July 1, 1994, Mr. Tooker was appointed Chief
Executive Officer. Mr. Tooker has 24 years of experience in the retail
industry, 18 of which were spent in the May Co. where he served as Chairman
and Chief Operating Officer of Filene's of Boston from 1988 to 1990. In 1990,
Mr. Tooker joined Rich's, a division of Federated Department Stores, Inc., as
President and Chief Operating Officer, and in 1991 Mr. Tooker was promoted to
Chief Executive Officer of Rich's where he served until joining the Company
in 1993.
Mr. Shulman joined the Company in January 1994 as Executive Vice President
and Chief Merchandising Officer with 24 years of retailing experience. Prior
to joining the Company, Mr. Shulman held varying positions with
Bloomingdales, Rikes and I. Magnin, all of which are divisions of Federated
Department Stores, Inc. Mr. Shulman served as President and Chief Executive
Officer of Ann Taylor from 1985 to 1987, President and Chief Executive
Officer of Henri Bendel (a division of the Limited) from 1987 to 1990,
President and Chief Operating Officer of Bonjour, Inc. from 1990 to 1992, and
president of Leslie Fay Dress Division from 1992 to 1994.
41
<PAGE>
Mr. Marcum joined the Company in June 1995 as Executive Vice President and
Chief Financial Officer. Prior to joining the Company, Mr. Marcum held
various positions at the Melville Corporation where he was employed since
1983 and where he served as Treasurer from 1986 to 1989, Vice President and
Controller of Marshalls, Inc., a division of the Melville Corporation, from
1989 to 1990 and from 1990 to 1995 as Senior Vice President and Chief
Financial Officer of Marshalls, Inc. From 1980 to 1983, Mr. Marcum was
employed at Coopers and Lybrand L.L.P.
Mr. Lovell joined the Company in June 1995 as Executive Vice President and
Director of Stores. Before joining the Company, Mr. Lovell served in various
positions at Hit or Miss, a division of TJX Companies, where he was employed
since 1980 and where he served since January 1987 as Senior Vice President
and Director of Stores.
Mr. Lucas joined the Company in July 1995 as Senior Vice President, Human
Resources. Between 1987 and 1995, Mr. Lucas served as Vice President, Human
Resources at two different divisions of Limited, Inc., the Limited Stores
Division and Lane Bryant. Previously, he spent seventeen years at the Venture
Stores Division of May Co. where from 1985 to 1987 he was Vice President,
Organization Development.
Mr. Ivie has served as Senior Vice President, Secretary and Treasurer of
the Company since December 1988. Between 1976 and 1990, he served in various
capacities with Palais. From 1959 to 1976, Mr. Ivie was employed in the
finance department of Burdine's, a division of Federated Department Stores,
Inc.
Mr. Bekenstein has been a director since December 1988 and was Vice
Chairman of the Board of Directors and Chief Financial Officer of the Company
from May 1992 until June 1995 when Mr. Marcum was appointed Chief Financial
Officer. In March 1996, Mr. Bekenstein resigned as Vice Chairman. Mr.
Bekenstein continues to serve as a director. Mr. Bekenstein has been a
Managing Director of Bain Capital, Inc. since May 1993 and a General Partner
of Bain Venture Capital since its inception in 1987. Mr. Bekenstein also
currently serves on the Board of Directors of Waters Corporation.
Mr. Kirsch has been a director since June 1992 and has been a Managing
Director of Bain Capital, Inc. since May 1993 and a General Partner of Bain
Venture Capital since 1990 and was an associate and principal of Bain from
1987 to 1990. Mr. Kirsch also currently serves as a director of Brookstone,
Inc., Duane Reade Holding Corp., Diagnostics Holdings Inc. and the
Wesley-Jessen Corporation.
Mr. Mulvihill has been a director since December 1988. Mr. Mulvihill has
served as a Managing Director of Oak Hill Partners, Inc. (the management
company for Acadia) since 1993. From June 1987 to 1993, Mr. Mulvihill worked
for and was associated with Rosecliff, Inc. (the predecessor of Oak Hill).
Prior to joining Rosecliff, Mr. Mulvihill was an investment banker with
Drexel Burnham Lambert Incorporated in the corporate finance department from
1985 to 1987. Mr. Mulvihill also serves as a director of Harvest Foods, Inc.,
an Arkansas-based grocery chain.
Mr. Meyer served as Vice-Chairman and Chief Merchandising Officer of SRI
from May 1989 until he retired in December 1993. Mr. Meyer has been a
director since 1988. Mr. Meyer was at Foley's from 1959 until 1987, when he
retired from his position as Chairman and Chief Executive Officer.
At present, all Directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or
removal. Currently, certain members of the Board of Directors are elected
pursuant to a stockholders agreement, which will be terminated upon
completion of the Offering. There are no family relationships between any of
the Directors or executive officers of the Company. Following the
consummation of the Offering each director shall serve until the following
annual meeting when a successor is duly elected and qualified or until his or
her earlier death, resignation or removal.
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<PAGE>
Executive Compensation
Summary Compensation Table
The following summarizes the principal components of compensation of the
Company's Chief Executive Officer and the four highest compensated executive
officers. The compensation set forth below fully reflects compensation for
work performed on behalf of the Company.
Annual Compensation
------------------------------------
Other
Annual
Name and Principal Fiscal Salary Bonus Compensation
Position Year ($) ($) ($)
----------------------- ------- --------- -------- ---------------
Bernard Fuchs, 1995 437,500 28,870 189,375 (2)
Chairman and 1994 450,000 65,265 35,625 (3)
Director 1993 450,000 59,200 3,713,000 (4)
Carl Tooker,
President, 1995 538,416 43,305 67,600 (5)
Chief Executive 1994 468,750 56,128 67,600 (5)
Officer and Director 1993 247,916 75,000 132,116 (6)
Mark Shulman,
Executive Vice
President and 1995 302,082 75,000 9,600 (7)
Chief Merchandising 1994 276,614 41,250 393,984 (8)
Officer 1993 -- -- --
James Marcum,
Executive Vice
President and 1995 183,333 55,000 184,722 (9)
Chief Financial 1994 -- -- --
Officer 1993 -- -- --
Stephen Lovell,
Executive Vice 1995 183,333 55,000 173,535(10)
President, 1994 -- -- --
Director of Stores 1993 -- -- --
Long-Term
Compensation
Awards
----------------
Securities All Other
Name and Principal Underlying Comp.
Position Options/SARs(#) ($) (1)
--------------------------------------- -----------
Bernard Fuchs, -- 252
Chairman and -- 1,260
Director 186,612 1,260
Carl Tooker,
President, -- 87
Chief Executive 47,363 174
Officer and Director 189,454 --
Mark Shulman,
Executive Vice
President and 14,208 783
Chief Merchandising 94,727 160
Officer -- --
James Marcum,
Executive Vice
President and 94,727 173
Chief Financial -- --
Officer -- --
Stephen Lovell,
Executive Vice 71,045 268
President, -- --
Director of Stores -- --
- -------------
(1) Amounts shown for 1995 reflect premiums paid for life insurance
coverage.
(2) Amount shown reflects a distribution related to options vested of
$35,625 and the value realized upon the exercise of options for Common
Stock of $153,750. Value realized is based upon the Fair Market Value
(as defined) of the stock at the exercise date minus the exercise price.
(3) Amount shown reflects a distribution related to options vested.
(4) Amount shown reflects the value realized upon the exercise of options
for Common Stock. Value realized is based upon the Fair Market Value of
the stock at the exercise date minus the exercise price.
(5) Amount shown reflects a distribution related to options vested of
$38,000 and housing and automobile allowances of $29,600 paid to Mr.
Tooker during 1994 and 1995.
(6) Amount shown reflects moving expenses of $114,861 and housing and
automobile allowances of $17,255 paid to Mr. Tooker during 1993.
(7) Amount shown reflects housing and automobile allowances paid to Mr.
Shulman during 1995.
(8) Amount shown reflects moving expenses of $385,184 and housing and
automobile allowances of $8,800 paid to Mr. Shulman during 1994.
(9) Amount shown reflects moving expenses paid to Mr. Marcum during 1995.
(10) Amount shown reflects moving expenses of $167,935 and housing and
automobile allowances of $5,600 paid to Mr. Lovell during 1995.
43
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following discloses options granted during 1995 for the executives
named in the compensation table above.
Individual Grants
------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Expiration
Name Granted(#) (1) Fiscal Year (%) Base Price ($) Date
- -------------- -------------- ---------------- --------------- ------------
Mark Shulman 14,209 3.5 3.04 6/10/05
James Marcum 94,727 23.2 3.04 6/01/05
Stephen Lovell 71,045 17.4 3.04 6/01/05
Potential Realizable
Value at Assumed Annual
Rates of Stock Price Appreciation
for Option Term
---------------------------------
5% Annual 10% Annual
Name Growth Rate ($) Growth Rate ($)
---------------- ---------------- ----------------
Mark Shulman 27,000 68,850
James Marcum 180,000 459,000
Stephen Lovell 135,000 344,250
- -------------
(1) All of such options were granted under the 1993 Option Plan (as defined).
The options granted under such plan are subject to vesting and repurchase
provisions upon termination of employment.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
The following summarizes exercises of stock options (granted in prior
years) during 1995 by the executives named in the compensation table above in
the past year, as well as the number and value of all unexercised options
held by the named officers at the end of 1995.
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($) (2)
--------------- ---------------------
Shares Value
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) (1) Unexercisable Unexercisable
---------------------------- --------- --------------- ---------------------
Bernard Fuchs 79,949 153,750 44,426/62,235 210,540/264,120
Carl Tooker -- -- 85,254/151,563 420,000/702,000
Mark Shulman -- -- 37,890/71,045 114,000/202,800
James Marcum -- -- -/94,727 -/212,000
Stephen Lovell -- -- -/71,045 -/159,000
- -------------
(1) Value is based upon the fair market value of the stock at the applicable
date minus the exercise price (the "Fair Market Value"). Fair Market
Value has been determined in good faith by the Board of Directors based
upon historical and projected financial performance.
(2) Value is based upon the Fair Market Value of the stock as of February 3,
1996 minus the exercise price.
Compensation of Directors
During 1995, Mr. Meyer received cash compensation of $25,000 for services
rendered as a director. The Company expects that its independent outside
directors will be paid in a manner and at a level consistent with industry
practice.
Compensation Committee Interlocks and Insider Participation
The current members of the Compensation Committee are Mr. Fuchs and Mr.
Bekenstein, who served in such capacities during the last fiscal year. Mr.
Fuchs abstains from voting on matters relating directly to his compensation
as an executive officer. See "Certain Relationships and Related Transactions"
for a description of certain transactions between Mr. Fuchs and the Company
and Bain and the Company.
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Management And Employment Agreements
Fuchs Management Agreement
The Company, Bain and certain of its affiliates, Citicorp and Bernard
Fuchs entered into a management agreement (the "Fuchs Management Agreement"),
dated as of May 26, 1989 and amended effective February 1, 1993, pursuant to
which (i) the Company employed Mr. Fuchs as an executive officer and (ii) Mr.
Fuchs purchased from Bain and certain of its affiliates, and an affiliate of
Citicorp, in the aggregate, 278,259 shares of the Company's common stock for
$0.09 per share and 250 shares of the Company's senior preferred stock for
$1,000 per share (subsequently redeemed in connection with the Refinancing).
The Fuchs Management Agreement provides that transfers of common stock by Mr.
Fuchs are subject to certain rights to first offer and refusal of the Company
and the other parties to the Fuchs Management Agreement.
Pursuant to the Fuchs Management Agreement, Mr. Fuchs served as Chairman
of the Board and Chief Executive Officer until July 1, 1994 when Mr. Tooker
was appointed Chief Executive Officer. Mr. Fuchs continues to serve as
Chairman. The Fuchs Management Agreement, as amended, provides for a base
salary plus an annual incentive bonus based on an increase in the Company's
pretax income (excluding any increase or decrease in pretax income
attributable to any financial restructuring) as compared to the fiscal year
in which the Company recorded its highest pretax income prior to the fiscal
year for which the bonus is being paid. The incentive bonus is applicable to
fiscal years 1993 through 1998. Mr. Fuchs may also be awarded discretionary
bonuses by the Company's Compensation Committee elected by the Board of
Directors. The Fuchs Management Agreement generally restricts Mr. Fuchs from
competing with the Company or its subsidiaries for a period of 24 months
after his termination, except for termination without cause. Pursuant to the
Fuchs Management Agreement, Mr. Fuchs' base salary for 1996, 1997 and 1998
shall be $300,000, $200,000 and $100,000, respectively. The Fuchs Management
Agreement terminates at the end of 1998.
In connection with the February 1993 amendment to the Fuchs Management
Agreement, the Company also entered into a stock option agreement with Mr.
Fuchs providing the grant of options to acquire up to 142,090 shares of SRI's
common stock at an original purchase price of $5.28 per share. Such options
are subject to vesting and repurchase restrictions. In connection with the
formation of the Company, such options were converted into options to acquire
shares of Common Stock at a price of $0.11 per share and the right to receive
payments equaling $1.00 per option share ratably over the vesting schedule.
Tooker Employment Agreement
The Company and Carl Tooker have entered into an employment agreement (the
"Tooker Employment Agreement") which provides for Mr. Tooker's employment as
President and Chief Executive Officer. The Tooker Employment Agreement
provides for an initial base salary of $600,000 plus an annual incentive
bonus as agreed to with the Compensation Committee. The Tooker Employment
Agreement also provides for annual performance and salary reviews, and for
participation in all other bonus and benefit plans available to executive
officers of the Company.
If the Company terminates Mr. Tooker other than for good cause, (as
defined in the Tooker Employment Agreement) or if Mr. Tooker voluntarily
terminates his employment for good reason, Mr. Tooker would be entitled to 18
months' base salary, any accrued or unpaid bonus, salary and deferred
compensation, any expense allowances and any earned but unpaid benefits under
the Company's benefit plans. The Tooker Employment Agreement also provides
that, following a change in control (as defined in the Tooker Employment
Agreement) if Mr. Tooker is terminated other than for good cause or Mr.
Tooker resigns other than for good reason, Mr. Tooker would be entitled to
three years' base salary (as opposed to eighteen months) plus the amounts
referred to above. In the event of a change of control of the Company in
which the Company does not survive, all unvested options for the purchase of
Common Stock held by Mr. Tooker would vest immediately. The Tooker Employment
Agreement contains certain non-compete and confidentiality provisions. The
Tooker Employment Agreement renews annually in accordance with its terms
unless terminated by either party.
Other Employment Agreements
The Company has entered into employment agreements with Messrs. Shulman,
Marcum, Lovell and Lucas which provide for their initial base salaries as
well as annual incentive bonuses as agreed to with the Compensation
Committee. The employment agreements also provide for annual performance
reviews, salary increases at the
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<PAGE>
discretion of the Compensation Committee, and participation in all other
bonus and benefit plans available to executive officers of the Company. The
initial base salaries, which are provided for in the individual employment
agreements, are as follows:
Initial Base
Executive Position Salary
- -------------- --------------------------------------- --------------
Mark Shulman Executive Vice President and $350,000
Chief Merchandising Officer
James Marcum Executive Vice President and $300,000
Chief Financial Officer
Stephen Lovell Executive Vice President and $300,000
Director of Stores
Ron Lucas Senior Vice President, Human Resources $190,000
If the Company terminates any of the aforementioned individuals, other
than for good cause (as defined in the respective employment agreements),
then the terminated individual would be entitled to one year's base salary,
any accrued or unpaid bonus, salary and deferred compensation, any expense
allowances, and any earned but unpaid benefits under the Company's benefit
plans. The employment agreements also provide that, following a change of
control (as defined in the respective employment agreements), the respective
individual would be entitled to two years' base salary (as opposed to one)
plus the amounts referred to above. In the event of a change of control of
the Company in which the Company does not survive, all unvested options for
the purchase of Common Stock held by the aforementioned individuals would
vest immediately. The employment agreements contain certain non-compete and
confidentiality provisions. Each of the employment agreements renews annually
in accordance with its terms unless terminated by either party.
1993 Stock Option Plan
In 1993, the Company adopted the Third Amended and Restated Stock Option
Plan, a successor plan to prior SRI plans (the "1993 Stock Option Plan"),
designed to provide incentives to present and future executive, managerial,
marketing, technical, other key employees, and consultants and advisors of
the Company and its subsidiaries as selected in the sole discretion of the
Board of Directors. The 1993 Stock Option Plan provided for aggregate option
grants of up to 1,894,540 shares. As of September 20, 1996, options to
purchase an aggregate of 1,511,523 shares of Common Stock at prices from
$0.11 to $21.11 are currently outstanding under the 1993 Stock Option Plan.
In connection with the Offering, the Compensation Committee has granted
options to purchase 255,762 shares of Common Stock under this plan to members
of executive management at an exercise price of $21.11 per share with a
five-year cliff vesting requirement. No additional grants shall be made under
the 1993 Stock Option Plan after the consummation of the Offering.
1996 Equity Incentive Plan
In connection with the Offering, the Company has adopted the 1996 Equity
Incentive Plan (the "Incentive Plan") designed to update and replace the 1993
Stock Option Plan.
The Incentive Plan provides for the granting to employees and other key
individuals who perform services for the Company and its subsidiaries
("Participants") of the following types of incentive awards: stock options,
stock appreciation rights ("SARs"), restricted stock, performance units,
performance grants and other types of awards that the Board of Directors or
the Compensation Committee (the "Plan Administrator") deems to be consistent
with the purposes of the Incentive Plan. An aggregate of 1,500,000 shares of
Common Stock have been reserved for issuance under the Incentive Plan;
however, no Participant shall be entitled to receive grants of Common Stock,
stock options or SARs with respect to Common Stock, in any calendar year in
excess of 400,000 shares in the aggregate. The Incentive Plan affords the
Company latitude in tailoring incentive compensation for the retention of key
personnel, to support corporate and business objectives, and to anticipate
and respond to a changing business environment and competitive compensation
practices.
The Plan Administrator will have exclusive discretion to select the
Participants and to determine the type, size and terms of each award, to
modify the terms of awards, to determine when awards will be granted and
paid, and to make all other determinations which it deems necessary or
desirable in the interpretation and administration of the Incentive Plan. The
Incentive Plan is scheduled to terminate ten years from the date that the
Incentive Plan was initially approved and adopted by the stockholders of the
Company, unless extended for up to an additional
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<PAGE>
five years by action of the Board of Directors. With limited exceptions,
including termination of employment as a result of death, disability or
retirement, or except as otherwise determined by the Plan Administrator,
rights to these forms of contingent compensation are forfeited if a
recipient's employment or performance of services terminates within a
specified period following the award. Generally, a Participant's rights and
interest under the Incentive Plan will not be transferable except by will or
by the laws of descent and distribution.
Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock
at a price fixed by the Plan Administrator. The option price may be less
than, equal to or greater than the fair market value of the underlying shares
of Common Stock, but in no event less than the fair market value on the date
of grant. Options generally will expire not later than ten years after the
date on which they are granted. Options will become exercisable at such times
and in such installments as the Plan Administrator shall determine. Payment
of the option price must be made in full at the time of exercise in such form
(including, but not limited to, cash or Common Stock of the Company) as the
Plan Administrator may determine.
An SAR may be granted alone, or in tandem with another option or award, or
a holder of an option or other award may be granted a related SAR, either at
the time of grant or by amendment thereafter. In the event that an SAR is
granted in tandem with another award, the holder of the SAR must surrender
the SAR and surrender, unexercised, any related option or other award, and
the holder will receive in exchange, at the election of the Plan
Administrator, cash or Common Stock or other consideration, or any
combination thereof, equal in value to the difference between the exercise
price or option price per share and the fair market value per share on the
last business day preceding the date of exercise, times the number of shares
subject to the SAR or option or other award, or portion thereof, which is
exercised.
A restricted stock award is an award of a given number of shares of Common
Stock which are subject to a restriction against transfer and to a risk of
forfeiture during a period set by the Plan Administrator. During the
restriction period, the Participant generally has the right to vote and
receive dividends on the shares. Dividends received while under restriction
are treated as compensation.
Performance grants are awards whose final value, if any, is determined by
the degree to which specified performance objectives have been achieved
during an award period set by the Plan Administrator, subject to such
adjustments as the Plan Administrator may approve based on relevant factors.
Performance objectives are based on such measures of performance, including,
without limitation, measures of industry, Company, unit or Participant
performance, or any combination of the foregoing, as the Plan Administrator
may determine. The Committee may make such adjustments in the computation of
any performance measure as it deems appropriate. A target value of an award
is established (and may be amended thereafter) by the Plan Administrator and
may be a fixed dollar amount, an amount that varies from time to time based
on the value of a share of Common Stock, or an amount that is determinable
from other criteria specified by the Plan Administrator. Payment of the final
value of an award is made as promptly as practicable after the end of the
award period or at such other time or times as the Plan Administrator may
determine.
Upon the liquidation or dissolution of the Company all outstanding awards
under the Incentive Plan shall terminate immediately prior to the
consummation of such liquidation or dissolution, unless otherwise provided by
the Plan Administrator. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, all restrictions on any outstanding awards
may lapse and Participants may be entitled to the full benefit of such
awards, as determined by the Plan Administrator, immediately prior to the
closing date of such sale or merger.
Certain Federal Tax Consequences under the Incentive Plan
The following discussion addresses certain federal income tax consequences
under current law to recipients of awards made under the Incentive Plan. The
following discussion is intended only as a general summary of the federal
income tax consequences arising under the Incentive Plan based upon the
Internal Revenue Code of 1986, as amended (the "Code") as currently in
effect. Because federal income tax consequences will vary as a result of
individual circumstances, each Participant should consult his tax advisor
with respect to the tax consequences of such participation. Moreover, the
following summary relates only to a Participants' federal income tax
treatment, and the state, local and foreign tax consequences may be
substantially different.
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<PAGE>
A Participant to whom a nonqualified stock option is granted will not
recognize any income at the time of the grant. When a Participant exercises a
nonqualified stock option, he generally will recognize ordinary compensation
income equal to the difference, if any, between the fair market value of the
Common Stock he receives at such time and the option's exercise price. The
Participant's tax basis in such shares will be equal to the exercise price
paid plus the amount includable in his gross income as compensation, and his
holding period for such shares will begin on the day on which he recognizes
taxable income in respect of such shares.
A Participant to whom an incentive stock option is granted will not
recognize any ordinary income at the time of grant or at the time of
exercise. However, upon the exercise of an incentive stock option, the
Participant generally will be required to include the excess of fair market
value of the Common Stock over the option's exercise price in his alternative
minimum taxable income and, as a result, he may be subject to an alternative
minimum tax ("AMT"). In order to obtain incentive stock option treatment for
federal income tax purposes, a Participant (i) must be an employee of the
Company or a subsidiary continuously from the date of grant until any
termination of employment and (ii) in the event of such a termination, must
exercise an incentive stock option within three months after such
termination, except if disabled, in which case exercise may occur within one
year from the date of termination of employment. If a Participant holds
Common Stock received upon the exercise of an incentive stock option for more
than one year after exercise and more than two years after the option was
granted (the "Statutory Holding Periods"), then upon a sale of such Common
Stock he will recognize long-term capital gain or loss equal to the
difference, if any, between the sale price of such shares and the option's
exercise price. If the Participant has not held such shares for the Statutory
Holding Periods, when he sells such share (a "disqualifying disposition") he
will recognize ordinary compensation income equal to the lesser of (i) the
excess, if any, of the fair market value of such shares on the date of
exercise over the exercise price or (ii) the excess, if any, of the sale
price over the exercise price. Any additional gain or any loss on such sale
will constitute capital gain or loss, short- or long-term depending upon
whether the Participant has held the Common Stock for more than one year
after the exercise date. The tax basis of such shares to the Participant, for
purposes of computing such other gain or loss, will be equal to the exercise
price paid plus the amount includable in his gross income as compensation, if
any.
A participant will not recognize any taxable income as a result of the
inclusion of SARs in a nonqualified stock option or an incentive stock
option. At the time of exercise, a Participant generally will recognize
ordinary compensation income in an amount equal to the cash and the fair
market value of the Common Stock he receives to satisfy his SARs. The
Participant's tax basis in any such shares received pursuant to a SAR will be
equal to the amount includable in his gross income as compensation in respect
of such shares, and the Participant's holding period therefor will begin on
the day on which he recognizes taxable income in respect of such shares.
With respect to restricted stock awards, unless he files a timely election
with the Internal Revenue Service under Section 83(b) of the Code (a "Section
83(b) election"), a Participant who receives Common Stock pursuant to a
restricted stock award will not recognize any taxable income upon the receipt
of such award, but will recognize taxable compensation income at the time his
interest in such shares is no longer subject to the repurchase option imposed
by the Plan in an amount equal to the fair market value of such shares at
such time. Alternatively, by filing a Section 83(b) election within 30 days
after the shares are granted, the Participant may elect to recognize ordinary
income equal to the fair market value of the shares on the grant date. In
either event, the Participant's tax basis in such shares will be equal to the
amount includable in his gross income as compensation, and his holding period
for such shares will begin on the date his compensation income is determined.
If a Participant does not make a Section 83(b) election, dividends paid on
restricted stock awards will be includable in his income as compensation when
received.
A Participant to whom a performance grant award is made will not recognize
taxable income at the time such award is made. Such Participant generally
will recognize taxable income, however, at the time cash, Common Stock or
other Company securities or property are paid to him pursuant to such award
in an amount equal to the amount of such cash and the fair market value at
such time of such shares, securities or property. The tax basis of any such
shares, securities or property received by a Participant pursuant to a
performance grant award will be equal to the amount includable in his gross
income as compensation in respect of such shares, securities or property, and
the holding period therefor will begin on the day on which he recognizes
taxable income in respect of such shares, securities or property. Any income
equivalents paid to a Participant with respect to his performance grant award
should generally be regarded as compensation.
If a Participant who receives Common Stock under the Incentive Plan
(whether pursuant to the exercise of an option, as a restricted stock award,
or as a performance grant award) is subject to Section 16(b) of the
Securities
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<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act") (such recipient, an
"Insider"), the tax consequences may be different from those described above.
Generally, an Insider will not recognize income (or, in the case of the
exercise of an incentive stock option, alternative minimum taxable income) on
receipt of Common Stock until he is no longer subject to liability with
respect to the disposition of such Common Stock. However, by filing a Section
83(b) election with the Internal Revenue Service no later than 30 days after
the date of transfer of property (e.g., after exercise of a nonqualified
stock option that was granted within six months of such exercise to the
extent a six month holding period is required), an Insider may elect to be
taxed based upon the fair market value of the Common Stock at the time of
such transfer.
Subject to certain limitations described in the next paragraph, the
company for which a Participant is performing services generally will be
allowed to deduct amounts that are includable in the Participant's income as
ordinary compensation income at the time such amounts are so includable,
provided that such amounts qualify as reasonable compensation for personal
services actually rendered.
With limited exceptions, the Company may not deduct certain compensation
paid to its chief executive officer or any of its four other highest paid
executives to the extent such compensation exceeds $1 million in any taxable
year. Depending on the circumstances, some or all of the compensation paid to
such an executive under the Incentive Plan may be nondeductible.
Company Retirement Plans
Retirement Plan. The Specialty Retailers, Inc. Restated Retirement Plan
(the "Retirement Plan") is a qualified defined benefit plan. Benefits under
the Retirement Plan are administered through a trust arrangement providing
benefits in the form of monthly payments or a single lump sum payment. The
Retirement Plan covers substantially all employees who have completed one
year of service with 1,000 hours of service. The Retirement Plan is
administered by the retirement plan committee (the "Retirement Committee"),
and its three to five members are appointed by the Company. All
determinations of the Retirement Committee are made in accordance with the
provisions of the Retirement Plan in a uniform and nondiscriminatory manner.
Generally, a participant is eligible for a benefit on his/her normal
retirement date, which is the later of age 65 or the fifth anniversary of the
date of hire. A participant may elect an early retirement benefit if he/she
is at least 55 years old, has 10 Years of Service (as defined below) and
retires from active employment with the Company. Early retirement benefits
are reduced according to a formula established in the Retirement Plan based
upon each full month that the participant's age is less than 65 on the date
the payments commence. If a participant who is vested terminates employment,
he/she is entitled to a deferred benefit payable at his/her normal retirement
date or an earlier date, if requested, but not before age 55.
The amount of a participant's retirement benefit is based on each Year of
Credited Service (as defined below) and on his/her earnings for that year.
The individual yearly benefits are then totaled to determine the annual
benefit at age 65. A participant's accrued benefits in the superseded plan
are determined in accordance with the terms of those plans except as modified
by the terms of the Retirement Plan. The annual amount of the participant's
normal retirement benefit is derived, subject to certain limitations, by
adding (i) 1% of earnings up to $30,600 plus 1-1/2% of the excess of such
earnings over $30,600 for each Year of Credited Service earned on or after
July 1, 1989 through December 31, 1991, (ii) 1% of earnings up to $31,800
plus 1-1/2% of the excess of such earnings over $31,800 for each Year of
Credited Service earned after December 31, 1991, (iii) 1% of earnings up to
$42,500 plus 1-1/2% of the excess of such earnings over $42,500 for each Year
of Credited Service earned after December 31, 1994 and (iv) accrued benefits
determined in accordance with the terms of the Retirement Plan under any
superseded plan. The normal retirement benefit formula produces an annual
benefit which is paid to the participant in equal monthly installments. The
standard form of payment for a single participant is a monthly benefit
payable for the participant's life only. The standard form of payment for a
married participant is a 50% joint and survivor benefit, which provides a
reduced monthly benefit to the participant during his/her lifetime, and 50%
of that benefit to the participant's spouse for his/her lifetime in the event
of the participant's death. Other forms of the payment are also provided
including lump sum payouts, but they require participant election. In
addition, the Retirement Committee may elect to pay the benefit equivalent of
a benefit payable at normal retirement date in the form of a lump sum
payment, if the lump sum payment does not exceed $3,500.
Any participant who is credited with 1,000 or more hours of service in a
calendar year receives a "Year of Service", while any participant who is
credited with 1,284 or more hours of service in a calendar year receives
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<PAGE>
a "Year of Credited Service". Years of Service determine a participant's
eligibility for benefits under the Retirement Plan, and the percentage vested
in those benefits. After five Years of Service, a participant is 100% vested.
Participants in any superseded plan earn Years of Service and Years of
Credited Service pursuant to sightly different criteria for plan years
beginning prior to January 1, 1990.
The Retirement Plan is funded entirely by Company contributions which are
held by a trustee for the exclusive benefit of the participants. The Company
voluntarily agreed to contribute the amounts necessary to provide the assets
required to meet the future benefits payable to Retirement Plan participants.
Under the Retirement Plan, contributions are not specifically allocated to
individual participants. Although the Company intends to continue the
Retirement Plan indefinitely, it can terminate the plan at any time, upon
which all participants will become 100% vested in any benefit accrued to the
extent funds are available in trust. In this event, assets will be allocated
to benefit categories in the order specified in the Retirement Plan.
The Benefit Equalization Plan. The Specialty Retailers, Inc. Benefit
Equalization Plan (the "Equalization Plan") is a nonqualified defined benefit
plan which is intended to replace the benefits that cannot be provided under
the terms of the Retirement Plan on account of certain limitations imposed
under the Internal Revenue Code (for example, the Retirement Plan cannot
consider compensation for a participant which is in excess of $150,000 when
determining the participant's benefit). The Equalization Plan is unfunded.
However, upon a change of control as defined in the Equalization Plan, the
Company is required to deposit into a rabbi trust sufficient funds to cover
all obligations then accrued under the Equalization Plan.
Supplemental Employee Retirement Plan. The Company is currently
considering adopting a supplemental employee retirement plan (the "Proposed
SERP"). If adopted, the Proposed SERP may provide for certain additional
retirement benefits for the Company's senior management upon retirement at or
after a certain age with a certain number of years of service with the
Company. Additionally, the Proposed SERP may provide for certain accelerated
benefits which could be triggered upon, among other things, a change of
control of the Company.
The estimated annual benefits payable upon retirement under the Retirement
Plan, and Equalization Plan at normal retirement age, subject to certain
adjustments permitted by applicable federal law, for the individuals named in
the cash compensation table above would be as follows (assuming no increase
in compensation): Mr. Fuchs--$0; Mr. Tooker--$172,000; Mr. Shulman--$110,000;
Mr. Marcum--$133,000; Mr. Lovell--$117,000; and Mr. Lucas--$49,000. No
amounts were paid or distributed during 1995 or to date in 1996 pursuant to
any of the above plans to any of the individuals named or included in the
group in the cash compensation table above.
Company Deferred Compensation Plan
On February 26, 1996 and effective April 1, 1996, the Company adopted the
Specialty Retailers, Inc. Deferred Compensation Plan (the "Deferred
Compensation Plan") that provides officers of the Company with the
opportunity to participate in an unfunded, deferred compensation program that
is not qualified under the Code. Generally, the Code and the Employee
Retirement Income Security Act of 1974, as amended, restrict contributions to
a 401(k) plan by highly compensated employees. The Deferred Compensation Plan
is intended to allow officers to defer income at the same rates as those
employees not restricted by such regulations. Under the Deferred Compensation
Plan, participants may defer up to 15% of their salary and bonus (not
otherwise covered by the Company's 401(k) plan) and earn a rate of return
based on select indices chosen by each participant. The Company may, but is
not obligated to, establish a grantor trust for the purposes of holding
assets to provide benefits to the participants. The Company will match 25% of
the first 6% of each participant's contributions to the Deferred Compensation
Plan not otherwise covered by the Company's 401(k) plan. Company
contributions vest over five years of service.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management
The Company's corporate headquarters in Houston and the land and buildings
upon which six Palais stores are located are leased from PR Investments, a
partnership in which Mr. Fuchs, his wife and certain former owners of Palais
are general partners. The lease relating to the Company's corporate
headquarters is for a term of 50 years expiring in 2032 and includes an
established minimum annual rent adjusted periodically for changes in the
Consumer Price Index ("CPI"). Three of the Palais store leases with PR
Investments are for terms of 20 years expiring in the years 1999, 1999 and
2000, respectively. The remaining three Palais store leases with PR
Investments are for 25-year terms expiring in the years 2005, 2010 and 2010,
respectively. All of the Palais store leases with PR Investments provide
Palais with the option to extend the term of the lease for two consecutive
five-year terms. One of the Palais leases with PR Investments provides Palais
with the option to extend the term of the lease for an additional 20 years.
In addition to an established minimum annual rent adjusted annually for
changes in the CPI, the above described store leases include additional rent
calculated at 4% of gross sales exceeding established levels per store.
During 1993, 1994 and 1995, the Company paid PR Investments an aggregate of
$1.9 million, $2.0 million and $2.1 million, respectively, under the leases
described above.
The Company has made loans, in an aggregate principal amount of $774,700,
to certain executive officers of the Company. These loans are full recourse
loans and are secured by a pledge of the shares of Common Stock owned by such
executive officers. The following executive officers' loans bear interest at
5.7% interest and have a maturity date of April 15, 1997: Carl Tooker,
$343,200, Mark Shulman, $230,300, James Marcum, $115,000, Stephen Lovell,
$86,200. In addition, the following executive officers have the following
full recourse loans outstanding which bear market rates of interest: Carl
Tooker, $380,000, James Marcum, $75,000, Stephen Lovell, $150,000.
Professional Services Agreement
Pursuant to a professional service agreement (the "Professional Services
Agreement"), Bain received fees from the Company for professional services
rendered and expense reimbursements in the aggregate amount of $1.5 million
in 1993, $0.6 million in 1994, $0.8 million in 1995 and $0.5 million in 1996
prior to the Offering. Upon consummation of the Offering, Bain will receive a
fee of $2.0 million to terminate this agreement.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The Company's authorized equity consists of Common Stock and Class B
Common Stock. Except as otherwise described herein, all shares of Common
Stock and Class B Common Stock are identical and entitle the holders thereof
to the same rights and privileges (except with respect to voting privileges).
Holders of Class B Common Stock may elect at any time to convert any or all
of such shares into Common Stock, on a share-for-share basis, to the extent
the holder thereof is not prohibited from owning additional voting securities
by virtue of regulatory restrictions. The holders of Common Stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Except as required by law, holders of Class B Common Stock do
not have the right to vote on any matters to be voted upon by the
stockholders. As of September 20, 1996, 1,351,967 shares of Class B Common
Stock were outstanding, 1,250,584 of which were owned by Court Square. Except
for the column relating to voting power, the numbers and percentages of
shares of Common Stock held by holders of the Class B Common Stock are
calculated assuming all Class B Common Stock is converted.
The table below sets forth certain information regarding ownership of
Common Stock as of September 20, 1996 assuming exercise of options
exercisable within sixty days of such date by (i) each person or entity who
owns of record or beneficially 5% or more of the Common Stock, (ii) each
Selling Stockholder, (iii) each director and named executive officer and (iv)
all executive officers and directors as a group.
<TABLE>
<CAPTION>
Percentage
of
Voting Percentage of
Number of Power Total Shares Percentage of
Shares of Prior to Owned Prior Total Shares
Common the Shares to to the Owned After
Name Stock Owned Offering be Sold Offering the Offering (1)
----------------------- ------------ ---------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Bain Capital Funds 5,012,868
(2) 44.4% 904,400 39.7% 18.2%
Acadia (3) 3,330,095 29.5 26.4 14.7
Court Square (4) 1,620,651 3.1 12.8 7.2
DIRECTORS AND EXECUTIVE OFFICERS
Bernard Fuchs (5) 1,067,526 9.5 8.4 4.7
Joshua Bekenstein (6) 5,080,343 45.0 904,400 40.2 18.5
Adam Kirsch (6) 5,059,032 44.8 912,990 40.0 18.4
Carl Tooker 141,901 1.3 1.1 *
Mark Shulman 40,733 * * *
Jerry Ivie (7) 32,323 * * *
Lasker Meyer (8) 12,800 * * *
Stephen Lovell 14,209 * * *
James Marcum 18,945 * * *
Peter Mulvihill (9) 0 * * *
All executive officers
and directors as a
group (10 Persons)
(10) 6,454,944 57.2% 51.1% 28.5%
OTHER SELLING STOCKHOLDERS
12 other Selling
Stockholders, each of
whom is selling less
than 40,000 shares in
the Offering 379,795 1.8% 87,010 1.7% 1.3%
</TABLE>
- -------------
* Less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option and does
not give effect to any purchase, if any, by such persons in the Offering.
(2) Includes 3,951,122 shares of Common Stock held by Tyler Capital Fund,
L.P.; 809,567 shares of Common Stock held by Tyler Massachusetts, L.P.;
236,814 shares of Common Stock held by Tyler International; 15,067 shares
of Common Stock held by BCIP Associates ("BCIP Associates"); and 295
shares of Common Stock held by BCIP Trust Associates, L.P. ("BCIP Trust"
and, collectively with BCIP Associates and the Tyler entities, the "Bain
Capital Funds"). The Bain Funds and certain related persons have granted
the Underwriters
52
<PAGE>
an option to purchase an aggregate of 600,000 shares of Common Stock as
part of the Underwriters' over-allotment option. The address of the Bain
Capital Funds is c/o Bain Venture Capital, Two Copley Place, Boston,
Massachusetts 02116.
(3) Amounts shown represent shares held by the nominee of Acadia and shares
held by FWHY-Coinvestment I Partner L.P. ("FCP") and Rosecliff-Specialty
Retailing 1989 Partner, L.P. ("Rosecliff"), both affiliates of Acadia.
Acadia has granted the Underwriters an option to purchase 300,000 shares
of Common Stock as part of the Underwriters' over-allotment option. The
address of Acadia and FCP is 201 Main Street, Fort Worth, Texas 76102.
The address of Rosecliff is 65 East 55th Street, New York, New York
10022.
(4) Court Square is a subsidiary of Citicorp, a Delaware corporation. Amount
and percentage shown as owned include 1,250,584 shares of non-voting
Class B Common Stock owned by Court Square. Each share of non-voting
Class B Common Stock is convertible, subject to certain restrictions,
into one share of Common Stock. The address of Court Square is 399 Park
Avenue, 6th Floor, New York, New York 10043.
(5) Amount shown for Mr. Fuchs includes (i) 445,216 shares held by The Fuchs
Family Limited Partnership for which Mr. Fuchs may be deemed to possess
beneficial ownership and (ii) 8,904 options which are exercisable within
60 days.
(6) Amounts shown include shares beneficially owned by the Bain Capital
Funds. Mr. Bekenstein and Mr. Kirsch may be deemed to share voting and
dispositive power as to all shares owned by the Bain Capital Funds.
Shares to be sold by Mr. Kirsch include 8,590 shares of Common Stock
held of record by Mr. Kirsch.
(7) Includes 334 shares of Common Stock that may be acquired through options
exercisable within 60 days.
(8) Includes 1,670 shares of Common Stock that may be acquired through
options exercisable within 60 days.
(9) Mr. Mulvihill is a director and a managing director of the investment
adviser to Acadia. In addition, Mr. Mulvihill holds indirectly a limited
interest in Acadia and holds directly a limited interest in Rosecliff.
However, he does not hold or share voting or dispositive power as to
shares beneficially owned by Acadia or Rosecliff.
(10) Amount shown includes 10,908 shares of Common Stock that such persons or
group could acquire upon the exercise of options exercisable within 60
days.
53
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Revolving Credit Agreements
The Company may draw up to $25.0 million under the Revolving Credit
Agreements. Of this amount, up to $15.0 million may be used to support
letters of credit. As of February 3, 1996, $8.4 million of the total
commitment was used to collateralize letters of credit resulting in available
funds of $16.6 million. In addition, $10.0 million are available under the
Seasonal Credit Agreement during the Seasonal Period for working capital
needs. The Revolving Credit Agreements are available through February 3, 1998
and provide for a commitment fee of 1/2 of 1% of the average daily unused
portion of the commitment amount paid on a quarterly basis. Interest is
charged on outstanding loans at a base rate plus a specified margin. The
Revolving Credit Agreements contain covenants which, among other things,
restrict (i) incurrence of additional debt, (ii) purchase of certain
investments, (iii) payment of dividends, (iv) formation of certain business
combinations, (v) disposition of certain assets, (vi) acquisition of
subordinated debt, (vii) use of proceeds received and (viii) certain
transactions with related parties. The Revolving Credit Agreements also
require that SRI maintain a debt service ratio above predetermined levels.
The Revolving Credit Agreements are secured by the distribution center
located in Jacksonville, Texas, including equipment located therein, and a
pledge of SRPC's stock.
Long-term Indebtedness
Senior Discount Debentures. During 1993, the Company issued the Senior
Discount Debentures. The Senior Discount Debentures were issued at a discount
for aggregate net proceeds of approximately $75.6 million. Substantially all
of the net proceeds from the Senior Discount Debentures were used to make
cash payments to the holders of Common Stock equal to $6.17 per share. Cash
interest begins to accrue in August 1998 and is payable semi-annually on
February 15 and August 15 commencing February 15, 1999. The discount is being
charged to interest expense over the term to maturity using the effective
interest method which, together with the coupon interest, results in a 12.7%
effective interest rate. The Senior Discount Debentures contain restrictions
which, among other things, limit (i) the payment of dividends, (ii) the
repurchase of stock and subordinated debt, (iii) the acquisition of
additional debt or the creation of certain liens, (iv) disposition of certain
assets and (v) certain related party intercompany transactions. The Senior
Discount Debentures are secured by all of the issued and outstanding common
stock of SRI and are structurally subordinated to all of SRI's debt.
The Company has commenced the Tender Offer to purchase up to 100% of the
outstanding Senior Discount Debentures with the proceeds of the Offering. In
connection with the Tender Offer, the Company is seeking consents from the
holders of the Senior Discount Debentures to modify or remove certain of the
covenants governing such debentures to provide the Company with greater
operational flexibility.
Senior Notes. During 1993, SRI issued the Senior Notes. The Senior Notes
were issued in an aggregate principal amount of $150.0 million and bear
interest at 10% payable semi-annually on February 15 and August 15. SRI is
required to make a mandatory sinking fund payment on August 15, 1999 equal to
twenty-five percent of the original principal amount. The Company has
purchased $20.0 million of the Senior Notes which satisfied a portion of the
August 15, 1999 sinking fund requirement. The Senior Notes are general
unsecured obligations and rank senior to all subordinated debt including the
Series B Senior Subordinated Notes.
Series B Senior Subordinated Notes. During 1993, SRI issued the Series B
Senior Subordinated Notes. The Series B Senior Subordinated Notes were
originally issued in an aggregate principal amount of $100.0 million and bear
interest at 11% payable semi-annually on February 15 and August 15. The
Company is required to make a mandatory sinking fund payment on August 15,
2002 equal to forty percent of the original principal amount. The Series B
Senior Subordinated Notes are subordinated to the obligations under the
Senior Notes.
Series D Senior Subordinated Notes. During 1995, SRI issued $18.3 million
in an aggregate principal amount of Series D Senior Subordinated Notes. The
Series D Senior Subordinated Notes were issued at a discount of $1.8 million
and bear interest at 11% payable semi-annually on February 15 and August 15
of each year. The original issue discount is being charged to interest
expense over the term to maturity using the effective interest method. The
combination of coupon interest payments and original issue discount results
in an effective interest rate of 13.0%. The Company is required to make a
mandatory sinking fund payment on September 15, 2002 equal to forty percent
of the original aggregate principal amount of the Series D Senior
Subordinated Notes. The Series D Senior Subordinated Notes rank pari passu
with the existing Series B Senior Subordinated Notes (collectively, the
"Senior Subordinated Notes").
54
<PAGE>
The Senior Notes and the Senior Subordinated Notes contain restrictive
covenants which, among other things, (i) limit SRI's ability to sell certain
assets, pay dividends, retire its common stock or retire certain debt, (ii)
limit its ability to incur additional debt or issue stock and (iii) limit
certain related party transactions.
SRI is soliciting consents to certain amendments to the indentures
governing its Senior Notes, its Series B Senior Subordinated Notes and its
Series D Senior Subordinated Notes to, among other things increase the
maximum amount of revolving senior secured borrowing capacity to $50.0
million (subject to a reduction to $25.0 million for a 45-day period
annually) and relax the limitations on the incurrence of additional
indebtedness.
These amendments are intended to provide the Company with additional
financial flexibility in meeting its expansion plans and the working capital
requirements of its growing store base, and are conditioned on the
consummation of the Offering.
SRPC Notes. On May 30, 1996, SRPC issued $30.0 million in aggregate
principal amount of SRPC Notes in order to finance the Uhlmans Acquisition.
The SRPC Notes have an expected maturity date of December 15, 2000 ("Expected
Maturity Date"). Principal is expected to be paid on the SRPC Notes in one
payment on the Expected Maturity Date. If principal is not paid in full on
the Expected Maturity Date it will be paid monthly thereafter on each Monthly
Payment Date (as defined therein), to the extent of available funds. Interest
on the Notes accrues at the rate per annum of 12.5% and is payable
semi-annually on June 15 and December 15 of each year.
Principal, interest and premium, if any, on the SRPC Notes is secured by,
and paid solely from distributions on, certificates issued to SRPC by the
Trust representing the Retained Interest. For a description of the Accounts
Receivable Program, see Note 2 to the Company's Consolidated Financial
Statements.
Bealls Subordinated Debentures. The increasing rate 3 Bealls Holding, Inc.
("Bealls Holding") subordinated debentures due 2002 (the "Bealls Holding
Subordinated Debentures") in aggregate principal amount of approximately
$15.0 million bore interest at 10% through 1994 and 11% in 1995 and currently
bear interest of 12% until maturity. Interest is payable semi-annually on
June 30 and December 31. Original issue discount of $7.3 million is being
charged to interest expense over the term to maturity using the effective
interest method. The combination of coupon interest payments and original
issue discount results in an effective interest rate of 20.9%. The Bealls
Holding Subordinated Debentures may be prepaid, at the Company's option, at
their face value. The Company is required to redeem the Bealls Holding
Subordinated Debentures beginning no later than December 31, 1997, in no more
than six equal annual installments. The Bealls Holding Subordinated
Debentures are subordinated to all debt except the Senior Discount
Debentures. SRI is the primary obligor under these debentures.
Bealls Junior Subordinated Debentures. In connection with the acquisition
of Bealls, Bealls Holding issued the 7% Bealls Holding Junior Subordinated
Debentures Due 2003 ("Bealls Holding Junior Subordinated Debentures") at a
face value of approximately $12.5 million, net of discount of approximately
$8.4 million. Such discount is being charged to interest expense over the
term to maturity using the effective interest method. The Bealls Holding
Junior Subordinated Debentures are limited to an aggregate principal amount
of approximately $18.3 million. Interest is payable semi-annually on June 30
and December 31. The combination of coupon interest payments and original
issue discount results in an effective interest rate of 39.4%. The principal
amount of Bealls Holding Junior Subordinated Debentures are subordinated to
all debt except the Senior Discount Debentures. SRI is the primary obligor
under these debentures.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General Matters
The total amount of authorized capital stock of the Company consists of
75,000,000 shares of Common Stock, par value $0.01 per share, 3,000,000
shares of Class B Common Stock, par value $0.01 per share, and 2,500 shares
of preferred stock, par value $1.00 per share (the "Preferred Stock"). Upon
completion of the Offering, 22,520,892 shares of Common Stock will be issued
and outstanding, 1,351,967 shares of Class B Common Stock will be issued and
outstanding, and no shares of Preferred Stock will be outstanding. The
discussion herein describes the Company's capital stock, the Certificate of
Incorporation and Bylaws as will be in effect upon consummation of the
Offering. The following summary of certain provisions of the Company's
capital stock describes all material provisions of, but does not purport to
be complete and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and the Bylaws of the Company that are included
as exhibits to the Registration Statement of which this Prospectus forms a
part and by the provisions of applicable law.
Common Stock
As of September 20, 1996, there were 11,168,925 shares of Common Stock
outstanding held by 110 holders of record. The issued and outstanding shares
of Common Stock are, and the shares of Common Stock being offered will be
upon payment therefor, validly issued, fully paid and nonassessable. Subject
to the prior rights of the holders of any Preferred Stock and restrictions
contained in the Company's indebtedness, the holders of outstanding shares of
Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board may from
time to time determine. See "Dividend Policy."
Following consummation of the Offering, the shares of Common Stock will
not be redeemable or convertible, and the holders thereof will have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata, along with the holders of
Common Stock, the assets of the Company which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of Preferred Stock then outstanding.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "STGE", subject to notice of issuance.
Class B Common Stock
Unless otherwise required by law, holders of the Class B Common Stock are
not entitled to vote on matters submitted to a vote of stockholders,
including the election of directors. Holders of Class B Common Stock may
elect at any time to convert any or all of such shares into Common Stock, on
a share for share basis, to the extent such holder is not prohibited from
owning additional voting securities by virtue of regulatory restrictions.
As of September 20, 1996, there were 1,351,967 shares of Class B Common
Stock outstanding held by 11 holders of record. The issued and outstanding
shares of Class B Common Stock are validly issued, fully paid and
nonassessable. Subject to the prior rights of the holders of any Preferred
Stock and restrictions contained in the Company's indebtedness, the holders
of outstanding shares of Class B Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board may from time to time determine. See "Dividend Policy."
Following consummation of the Offering, the shares of Class B Common Stock
will not be redeemable or convertible other than into shares of Common Stock,
and the holders thereof will have no preemptive or subscription rights to
purchase any securities of the Company. Upon liquidation, dissolution or
winding up of the Company, the holders of Class B Common Stock are entitled
to receive pro rata, along with the holders of Common Stock, the assets of
the Company which are legally available for distribution, after payment of
all debts and other liabilities and subject to the prior rights of any
holders of Preferred Stock then outstanding.
Preferred Stock
The Board may, without further action by the Company's stockholders, from
time to time, direct the issuance of additional shares of Preferred Stock in
series and may, at the time of issuance, determine the rights, preferences
and limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of Preferred Stock
56
<PAGE>
would reduce the amount of funds available for the payment of dividends on
shares of Common Stock. Holders of shares of Preferred Stock may be entitled
to receive a preference payment in the event of any liquidation, dissolution
or winding-up of the Company before any payment is made to the holders of
shares of Common Stock. Under certain circumstances, the issuance of shares
of Preferred Stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a
large block of the Company's securities or the removal of incumbent
management. The Board, without stockholder approval, may issue shares of
Preferred Stock with voting and conversion rights which could adversely
affect the holders of shares of Common Stock. Upon consummation of the
Offering, there will be no shares of Preferred Stock outstanding, and the
Company currently has no present intention to issue any shares of Preferred
Stock.
Certain Provisions of the Restated Certificate of Incorporation and By-laws
The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot
be taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the By-laws provides that, except as otherwise required by
law, special meetings of the stockholders can only be called pursuant to a
resolution adopted by a majority of the Board of Directors or by the chief
executive officer of the Company. Stockholders will not be permitted to call
a special meeting or to require the Board to call a special meeting.
The Restated Certificate of Incorporation contains a "fair price"
provision pursuant to which any Business Combination (as defined therein)
involving an interested stockholder and the Company or any subsidiary would
require approval by the affirmative vote of the holders of at least 66-2/3%
of the shares of voting stock of the Company. The fair price provision of the
Restated Certificate of Incorporation provides that 66-2/3% stockholder vote
is not required if the Business Combination is approved by 70% of the
continuing directors or if certain procedures and price requirements are
satisfied. Instead, the vote, if any, required by applicable Delaware law or
by any other provision of the Restated Certificate of Incorporation would be
necessary.
The By-laws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders of the
Company, including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and
who has given to the Company's Secretary timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the By-laws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.
Section 203 of Delaware Law
Following the consummation of the Offering, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation
Law. In general, such provisions prohibit a publicly-held Delaware
corporation from engaging in various "business combination" transactions with
any "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder,"
unless (i) the transaction is approved by the Board of Directors prior to the
date the interested stockholder obtained such status, (ii) upon consummation
of the transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (iii) on or subsequent to such date the "business
combination" is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66-2/3% of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
In general, an "interested stockholder" is a person who, together with
affiliates and
57
<PAGE>
associates, owns (or within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
Limitations on Liability and Indemnification of Officers and Directors
The Certificate of Incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In
addition, the Amended and Restated Certificate of Incorporation provides that
the Company shall indemnify directors and officers of the Company to the
fullest extent permitted by such law.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices of the Common Stock.
Upon the closing of the Offering there will be 22,520,892 shares of common
stock outstanding. The 11,000,000 shares of Common Stock sold in the Offering
will be freely tradeable without restriction or further registration under
the Securities Act, unless held by an "affiliate" of the Company as that term
is defined in Rule 144, which shares will be subject to the resale
limitations of Rule 144. Of the outstanding shares, 11,520,892 have not been
registered under the Securities Act and may not be sold unless they are
registered or unless an exemption from registration, such as the exemption
provided by Rule 144, is available.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities
acquired from the Company or an affiliate of the Company in a non-public
transaction) for at least two years, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the outstanding Common Stock or the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the date on
which notice of such sale is filed pursuant to Rule 144. Sales under Rule 144
are also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder (or stockholders whose shares are aggregated) who is
not an affiliate of the Company for at least 90 days prior to a proposed
transaction and who has beneficially owned "restricted securities" for at
least three years is entitled to sell such shares under Rule 144 without
regard to the limitations described above. Beginning 90 days following the
Offering, 11,125,792 shares of common stock will be eligible for sale under
this rule. Rule 144 is proposed to be amended, and the two and three year
holding periods specified above may be reduced to one and two years,
respectively.
Certain of the Company's existing stockholders, including the officers and
directors of the Company, have agreed that they will not, without the prior
written consent of CS First Boston Corporation on behalf of the Underwriters,
sell or otherwise dispose of any shares of Common Stock for a period of 180
days after the date hereof. 10,394,782 outstanding shares (or 46.2% of the
total outstanding Common Stock after the Offering) are subject to such
agreement.
Registration Rights
The Company is party to a Registration Agreement (the "Registration
Agreement") with the Bain Capital Funds, Acadia and Court Square pursuant to
which such stockholders have the right to cause the Company to register
shares of Common Stock (the "registrable securities") under the Securities
Act. Upon the consummation of the Offering, 8,963,611 outstanding shares of
Common Stock will constitute registrable securities and therefore will be
eligible for registration pursuant to the Registration Agreement. Under the
terms of the Registration Agreement, (i) the holders of at least a majority
of the registrable securities can require the Company, subject to certain
limitations, to file up to three "long-form" registration statements under
the Securities Act covering all or part of the registrable securities, and,
subject to certain limitations, to file an unlimited number of "short-form"
registration statements under the Securities Act covering all or part of the
registrable securities and (ii) Acadia can require the Company, subject to
certain limitations, to file a "long-form" registration statement on Form S-1
covering all or part of the registrable securities held by Acadia (each, a
"demand registration"). The Company is obligated to pay all registration
expenses (other than underwriting discounts and commissions and subject to
certain limitations) incurred in connection with the demand registrations. In
addition, the Registration Statement provides the Bain Capital Funds, Acadia
and Court Square with "piggyback" registration rights, subject to certain
limitations, whenever the Company files a registration statement on a
registration form that can be used to register registrable securities.
58
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom CS First Boston Corporation, Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and PaineWebber Incorporated are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from
the Company the following respective numbers of shares of Common Stock:
Number of
Underwriter Shares
------------------------------------------------------------ -------------
CS First Boston Corporation ................................
Bear, Stearns & Co. Inc. ...................................
Donaldson, Lufkin & Jenrette Securities Corporation ........
PaineWebber Incorporated ...................................
-------------
Total ..................................................
=============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides
that, in the event of a default by an Underwriter, in certain circumstances
the purchase commitments of the non-defaulting Underwriters may be increased
or the Underwriting Agreement may be terminated.
The Company and the Selling Stockholders have granted to the Underwriters
an option, expiring at the close of business on the 30th day after the date
of this Prospectus, to purchase up to 1,650,000 additional shares (up to
750,000 additional shares from the Company and up to 900,000 outstanding
shares from the Selling Stockholders) at the initial public offering price
less the underwriting discounts and commissions, all as set forth on the
cover page of this Prospectus. Such option may be exercised only to cover
over-allotments in the sale of the shares of Common Stock. To the extent such
option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as it was obligated to purchase pursuant to
the Underwriting Agreement.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer shares of Common Stock
to the public initially at the public offering price set forth on the cover
page of this Prospectus and, through the Representatives, to certain dealers
at such price less a concession of $ per share, and the Underwriters and
such dealers may allow a discount of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The Company and certain stockholders (holding in aggregate 10,394,782
shares) have agreed that they will not offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities Exchange Commission a registration
statement under the Securities Act relating to any of its Common Stock or
securities convertible or exchangeable into or exercisable for any shares of
Common Stock without the prior written consent of CS First Boston Corporation
for a period of 180 days from the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
The shares of Common Stock have been approved for listing on the Nasdaq
National Market subject to official notice of issuance under the symbol
"STGE".
59
<PAGE>
The Underwriters do not intend to confirm sales of the Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial price to the public for the shares of Common Stock will be
negotiated among the Company and the Representatives. Such initial price will
be based on, among other things in addition to prevailing market conditions,
the Company's financial and operating history and condition, its prospects
and the prospects for its industry in general, the management of the Company
and the market prices for securities of companies in businesses similar to
that of the Company.
DLJ will act as dealer manager in connection with the Tender Offer and the
solicitation of consents to certain amendments to the indentures governing
SRI's indebtedness, and expects to receive customary fees in connection
therewith. DLJ makes a market in the Senior Discount Debentures and, in such
capacity, has a position in such Senior Discount Debentures from time to
time. To the extent DLJ owns Senior Discount Debentures upon expiration of
the Tender Offer, it is expected that DLJ would tender such Senior Discount
Debentures into the Tender Offer.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of Common Stock are effected. Accordingly, any resale
of the Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek
legal advice prior to any resale of the Common Stock.
Representations of Purchasers
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities
laws to purchase such Common Stock without the benefit of a prospectus
qualified under such securities laws, (ii) where required by law, that such
purchaser is purchasing as principal and not as agent and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."
Right of Action and Enforcement
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the Company or such persons. All or a substantial portion of the assets
of the Company and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against the Company of such persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company.
Only one such report must be filed in respect of Common Stock acquired on the
same date and under the same prospectus exemption.
60
<PAGE>
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is
a person or entity that, for U.S. federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership,
or a non-resident fiduciary of a foreign estate or trust.
This discussion is based on the Code and administrative interpretations as
of the date hereof, all of which are subject to change, including changes
with retroactive effect. This discussion does not address all aspects of U.S.
federal income and estate taxation that may be relevant to Non-U.S. Holders
in light of their particular circumstances and does not address any tax
consequences arising under the laws of any state, local or foreign
jurisdiction. Prospective holders should consult their tax advisors with
respect to the particular tax consequences to them of owning and disposing of
Common Stock, including the consequences under the laws of any state, local
or foreign jurisdiction.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United
States taxation of dividends paid to a Non-U.S. Holder on Common Stock. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged
to consult their tax advisors with respect to the effect the Proposed
Regulations would have if adopted.
Dividends
Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to withholding tax at a rate
of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable income tax treaty. For purposes of determining
whether tax is to be withheld at a 30% rate or at a reduced rate as specified
by an income tax treaty, in accordance with existing United States Treasury
Regulations, the Company ordinarily will presume that dividends paid to an
address in a foreign country are paid to a resident of such country absent
knowledge that such presumption is not warranted.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-United States Holder would generally be required to
provide an Internal Revenue Service Form W-3 certifying such Non-United
States Holder's entitlement to benefits under a treaty. The Proposed
Regulations would also provide special rules to determine whether, for
purposes of determining the applicability of a tax treaty, dividends paid to
a Non-United States Holder that is an entity should be treated as paid to the
entity or to those holding an interest in that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder if
such dividends are effectively connected with the Non-U.S. Holder's conduct
of a trade or business within the United States and if a Form 4224 stating
that the dividends are so connected is filed with the Company or its paying
agent. Instead, the effectively connected dividends will be subject to
regular U.S. net income tax at graduated rates, in the same manner as if the
Non-U.S. Holder were a U.S. resident. In addition to the graduated tax
described above, a non-U.S. corporation receiving effectively connected
dividends may be subject to a "branch profits tax" which is imposed, under
certain circumstances, at a rate of 30% (or such lower rate as may be
specified by an applicable treaty) of the non-U.S. corporation's effectively
connected earnings and profits, subject to certain adjustments.
Generally, the Company must report to the U.S. Internal Revenue Service
the amount of dividends paid, the name and address of the recipient, and the
amount, if any of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or certain other agreements, the U.S. Internal
Revenue Service may make its reports available to tax authorities in the
recipient's country of residence.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information to the
Company or its paying agent.
61
<PAGE>
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a
sale or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such holder in the United States, (ii)
in the case of certain Non-U.S. Holders who are non-resident alien
individuals and hold the Common Stock as a capital asset, such individuals
are present in the United States for 183 or more days in the taxable year of
the disposition, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the Code regarding the taxation of U.S. expatriates, or (iv)
the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes and the Non-U.S. Holder owned directly or
pursuant to certain attribution rules more than 5% of the Company's Common
Stock (assuming the Common Stock is regularly traded on an established
securities market) at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period.
Information Reporting Requirements and Backup Withholding on Disposition of
Common Stock
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of
a disposition of Common Stock paid to or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds if the
payment is made outside the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting requirements (but not
backup withholding) will apply to a payment of disposition proceeds outside
the United States if the payment is made through an office outside the United
States of a broker that is (i) a U.S. Person, (ii) a foreign person which
derives 50% or more of its gross income for certain periods from the conduct
of a trade or business in the United States or (iii) a "controlled foreign
corporation" for U.S. federal income tax purposes, unless the broker
maintains documentary evidence that the holder is a Non-U.S. Holder and that
certain conditions are met, or that the holder otherwise is entitled to an
exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject
to backup withholding and information reporting unless the Company receives
certification from the holder of its non-U.S. status.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
Federal Estate Tax
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Common Stock will be
required to include the value thereof in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.
LEGAL MATTERS
The validity of the Common Stock being offered hereby and certain other
legal matters relating to the Offering will be passed upon for the Company by
Kirkland & Ellis (a partnership which includes professional corporations),
New York, New York. Mr. Karl E. Lutz, whose professional corporation is a
partner of Kirkland & Ellis, as of the date hereof holds 27,823 shares of
Common Stock and 7,688 shares of Class B Common Stock. Certain legal matters
will be passed upon for the Underwriters by Latham & Watkins, New York, New
York.
EXPERTS
The consolidated financial statements of the Company as of January 28,
1995 and February 3, 1996 and for each of the three years in the period ended
February 3, 1996 included in this Prospectus and the Registration Statement
of which it is a part, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting. The financial statements of
Uhlmans as of January 31, 1995 and February 3, 1996 and for each of the three
years in the period ended February 3, 1996 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP,
62
<PAGE>
independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed the Registration Statement on Form S-1 with respect
to the Common Stock being offered hereby with the Securities and Exchange
Commission (the "Commission") under the Securities Act. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all
the information set forth in the Registration Statement, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the provisions
of documents filed with the Registration Statement as exhibits are
necessarily summaries of such documents, and each such statement is qualified
in its entirety by reference to the copy of the applicable document filed as
an exhibit to the Registration Statement. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; at its Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and at its New York Regional Office, 75 Park Place, 14th Floor,
New York, New York 10007. Copies of such material can be obtained from the
public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material may also be
accessed electronically at the Commission's site on the World Wide Web
located at http://www.sec.gov. For further information pertaining to the
Company and the Common Stock being offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof.
63
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
STAGE STORES, INC. Number
-------
Unaudited Financial Statements
Consolidated Condensed Balance Sheet at February 3,
1996 and August 3, 1996 F-2
Consolidated Condensed Statement of Income for the
three and six months ended July 29, 1995 and
August 3, 1996 F-3
Consolidated Condensed Statement of Cash Flows for the
six months ended July 29, 1995 and August 3, 1996 F-4
Consolidated Condensed Statement of Stockholders' Defi-
cit for the six months ended August 3, 1996 F-6
Notes to Unaudited Consolidated Condensed Financial
Statements F-7
Audited Financial Statements
Report of Independent Accountants F-8
Consolidated Balance Sheet at January 28, 1995 and Feb-
ruary 3, 1996 F-9
Consolidated Statement of Operations for the fiscal
years 1993, 1994 and 1995 F-10
Consolidated Statement of Cash Flows for the fiscal
years 1993, 1994 and 1995 F-11
Consolidated Statement of Stockholders' Deficit for the
fiscal years 1993, 1994 and 1995 F-13
Notes to Consolidated Financial Statements F-14
UHLMANS INC.
Report of Independent Auditors F-26
Balance Sheets at January 31, 1995 and February 3, 1996 F-27
Statements of Income for the years ended January 31,
1994 and 1995 and for the period from February 1,
1995 through February 3, 1996 F-28
Statements of Stockholders' Equity for the years ended
January 31, 1994 and 1995 and for the period from
February 1, 1995 through February 3, 1996 F-29
Statements of Cash Flows for the years ended January
31, 1994 and 1995 and for the period from February 1,
1995 through February 3, 1996 F-30
Notes to Financial Statements F-31
F-1
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Balance Sheet
(in thousands, except par value and number of shares)
<TABLE>
<CAPTION>
February 3, 1996 August 3, 1996
----------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 20,273 $ 18,940
Accounts receivable 65,740 64,684
Merchandise inventories 150,032 167,769
Prepaid expenses and other current assets 24,457 29,826
----------------- ---------------
Total current assets 260,502 281,219
Property, equipment and leasehold improvements, net 93,118 106,464
Goodwill, net 30,876 46,577
Other assets 27,837 28,980
----------------- ---------------
$412,333 $463,240
================= ===============
Liabilities and Stockholders' Deficit
Accounts payable $ 41,494 $ 44,336
Accrued interest 12,327 13,009
Accrued expenses and other current liabilities 33,197 37,067
Accrued taxes, other than income taxes 3,376 5,689
----------------- ---------------
Total current liabilities 90,394 100,101
Long-term debt 335,839 373,362
Related party debt 44,200 44,200
Other long-term liabilities 14,214 14,005
----------------- ---------------
Total liabilities 484,647 531,668
----------------- ---------------
Preferred stock, par value $1.00, non-voting, 2,500 shares
authorized, no shares issued or outstanding -- --
Common stock, par value $0.01, 15,000,000 shares
authorized, 11,470,902 and 11,748,686 shares
issued and outstanding, respectively 115 117
Class B common stock, par value $0.01, non-voting,
1,500,000 shares authorized, 1,468,750 shares
issued and outstanding 15 15
Additional paid-in capital 3,793 4,157
Accumulated deficit (76,237) (72,717)
----------------- ---------------
Stockholders' deficit (72,314) (68,428)
----------------- ---------------
Commitments and contingencies -- --
----------------- ---------------
$412,333 $463,240
================= ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Statement of Income
(in thousands, except earnings per share)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- --------------------------------
July 29, 1995 August 3, 1996 July 29, 1995 August 3, 1996
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $154,578 $182,750 $296,931 $345,927
Cost of sales and related buying,
occupancy and distribution expenses 108,023 126,127 204,093 237,223
Gross profit 46,555 56,623 92,838 108,704
Selling, general and
administrative expenses 37,061 45,457 70,877 84,335
Service charge income 2,441 2,989 5,124 5,902
Store opening and closure costs 861 230 1,176 301
Operating income 11,074 13,925 25,909 29,970
Interest income 111 116 271 242
Interest expense:
Related party 1,117 1,118 2,154 2,235
Other 9,315 10,902 18,550 21,030
Amortization of debt issue costs 480 562 932 1,031
10,912 12,582 21,636 24,296
Income before income tax 273 1,459 4,544 5,916
Income tax expense 52 591 1,885 2,396
Net income $ 221 $ 868 $ 2,659 $ 3,520
Earnings per common share data:
- ---------------------------------------
Earnings per common share $ 0.02 $ 0.06 $ 0.20 $ 0.26
Weighted average common shares 13,678
outstanding 13,404 13,740 13,390
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
July 29, 1995 August 3, 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,659 $ 3,520
---------------- ---------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,721 6,844
Deferred income taxes (490) (833)
Accretion of discount 6,722 7,663
Amortization of debt issue costs 932 1,031
Issuance of long-term debt in lieu of interest payment 147 --
Changes in operating assets and liabilities:
Decrease in accounts receivable 10,809 5,299
Increase in merchandise inventories (28,696) (8,205)
Increase in other assets (8,169) (5,366)
Increase in accounts receivable sold 1,200 1,100
Decrease in accounts payable and accrued liabilities (1,349) (4,946)
---------------- ---------------
Total adjustments (13,173) 2,587
---------------- ---------------
Net cash provided by (used in) operating activities (10,514) 6,107
---------------- ---------------
Cash flows from investing activities:
Acquisitions, net of cash acquired -- (27,276)
Additions to property, equipment and
leasehold improvements (16,786) (15,183)
---------------- ---------------
Net cash used in investing activities (16,786) (42,459)
---------------- ---------------
Cash flows from financing activities:
Proceeds from:
Revolving credit agreement -- 7,500
Long-term debt 16,458 30,000
Common stock 64 292
Payments on:
Long-term debt (115) (125)
Redemption of common stock -- (16)
Additions to debt issue costs (734) (2,632)
---------------- ---------------
Net cash provided by financing activities 15,673 35,019
---------------- ---------------
Net decrease in cash and cash equivalents (11,627) (1,333)
Cash and cash equivalents:
Beginning of period 28,593 20,273
---------------- ---------------
End of period $ 16,966 $ 18,940
================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
July 29, 1995 August 3, 1996
---------------- ----------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid $13,894 $ 14,885
================ ================
Income taxes paid $ 5,862 $ 8,617
================ ================
Supplemental schedule of noncash investing and financing
activities:
The Company purchased Uhlmans, Inc. for $27,276 in cash, including acquisition expenses
and net of cash acquired, on June 3, 1996. In conjunction with this acquisition,
liabilities were assumed as follows:
Six Months Ended
August 3, 1996
----------------
Fair value allocated to assets acquired $ 34,295
Cash paid for assets acquired, including acquisition expenses (27,276)
----------------
Liabilities assumed $ 7,019
================
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Statement of Stockholders' Deficit
(in thousands, except numbers of shares)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------
Class B
---------------------
Additional
Shares Shares Paid-in Accumulated
Outstanding Amount Outstanding Amount Capital Deficit Total
------------- ------- ------------- ------------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 3,
1996 11,470,902 $115 1,468,750 $15 $3,793 $(76,237) $(72,314)
Net income -- -- -- -- -- 3,520 3,520
Vested compensatory
stock options -- -- -- -- 90 -- 90
Issuance of stock 280,994 2 -- -- 290 -- 292
Retirement of stock (3,210) -- -- -- (16) -- (16)
------------- ------- ------------- ------------------- ------------- ----------
Balance, August 3,
1996 11,748,686 $117 1,468,750 $15 $4,157 $(72,717) $(68,428)
============= ======= ============= =================== ============= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Unaudited Consolidated Condensed Financial Statements
1. The accompanying unaudited consolidated condensed financial statements
of Stage Stores, Inc. (formerly Apparel Retailers, Inc.) ("Stage Stores"),
have been prepared in accordance with Rule 10-01 of Regulation S-X and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Those adjustments,
which include only normal recurring adjustments, that are, in the opinion of
management, necessary for a fair presentation of the results of the interim
periods have been made. The results of operations for such interim periods
are not necessarily indicative of results of operations for a full year. The
unaudited consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the year ended February 3, 1996. Certain reclassifications have
been made to prior year amounts to conform with the current year
presentation. The fiscal years discussed herein end on the Saturday nearest
to January 31, in the following calendar year. For example, references to
"1996" mean the fiscal year ended February 1, 1997.
Stage Stores conducts its business exclusively through its wholly owned
subsidiary Specialty Retailers, Inc. ("SRI"), which operated 308 family
apparel stores in the central United States as of August 3, 1996. Stage
Stores has no operations of its own and its primary asset is the common stock
of SRI. Stage Stores and SRI are collectively referred to herein as the
"Company".
2. Pursuant to the accounts receivable securitization program implemented
in 1993 (the "Accounts Receivable Program"), an indirect wholly owned
subsidiary of the Company, SRI Receivables Purchase Co., Inc. ("SRPC")
purchases the accounts receivable generated by the Company's private label
credit card program. Such accounts receivable are transferred to a master
trust (the "Trust") which has issued certain certificates to third parties
representing undivided interests in the Trust. SRPC owns an undivided
interest in the accounts receivable not supporting the certificates issued to
third parties by the Trust (the "Retained Interest"). SRPC is a separate
corporate entity from the Company and SRPC's creditors have a claim on its
assets prior to those assets becoming available to any creditor of the
Company.
3. On June 3, 1996, the Company completed its acquisition of Uhlmans Inc.
("Uhlmans") for $27.3 million, including acquisition expenses and net of cash
acquired. Uhlmans, which operated 34 family apparel stores located in Ohio,
Michigan and Indiana, had sales of $59.7 million and net income of $0.6
million for the year ended February 3, 1996.
The Company financed the acquisition of Uhlmans through the issuance of
$30.0 million in aggregate principal amount of 12.5% Trust Certificate-Backed
Notes Due 2000 (the "SRPC Notes"). Interest on the SRPC Notes is payable
semi-annually on June 15 and December 15 of each year, commencing December
15, 1996 from amounts otherwise received by SRPC from its Retained Interest.
Principal repayments are scheduled to begin on December 1, 1999.
4. Pursuant to Securities and Exchange Commission Staff Bulletins and
Staff policy, common stock options issued during the twelve months prior to
the proposed initial public offering have been included in the calculations
of earnings per common share as if such options were outstanding for all
periods presented.
5. During the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"),
and Statement of Financial Accounting Standard No. 123, Accounting for Stock
Based Compensation ("SFAS 123"). Neither the adoption of SFAS 121 or SFAS 123
had a material effect on the Company's financial position or its results of
operations. With the adoption of SFAS 123, the Company continues to measure
compensation plans using the intrinsic value method prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees, and will provide pro forma
disclosures of net income and earnings per share as if the market value based
method prescribed by SFAS 123 had been applied in measuring compensation
expense in its annual financial statements.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Stage Stores, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Stage Stores, Inc. (formerly Apparel Retailers, Inc.) and its
subsidiaries at January 28, 1995 and February 3, 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended February 3, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
March 15, 1996
F-8
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Balance Sheet
(in thousands, except par value and number of shares)
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
----------------- -----------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 28,593 $ 20,273
Accounts receivable 70,356 65,740
Merchandise inventories 118,039 150,032
Restricted investments 338 438
Prepaid expenses and other current assets 17,824 24,019
----------------- -----------------
Total current assets 235,150 260,502
Property, equipment and leasehold improvements, net 75,602 93,118
Goodwill, net 31,865 30,876
Other assets 27,113 27,837
----------------- -----------------
$369,730 $412,333
================= =================
Liabilities and Stockholders' Deficit
Accounts payable $ 38,332 $ 41,494
Accrued interest 11,372 12,327
Accrued employee compensation costs 8,907 7,892
Accrued expenses and other current liabilities 25,668 25,305
Accrued taxes, other than income taxes 2,642 3,376
----------------- -----------------
Total current liabilities 86,921 90,394
Long-term debt 310,575 335,839
Related party debt 39,200 44,200
Deferred income taxes 562 --
Other long-term liabilities 13,665 14,214
----------------- -----------------
Total liabilities 450,923 484,647
----------------- -----------------
Preferred stock, par value $1.00, non-voting, 2,500 shares
authorized, no shares issued or outstanding -- --
Common stock, par value $0.01, 15,000,000 shares
authorized, 11,381,141 and 11,470,902 shares
issued and outstanding, respectively 113 115
Class B common stock, par value $0.01, non-voting,
1,500,000 shares authorized, 1,468,750 shares
issued and outstanding 15 15
Additional paid-in capital 3,565 3,793
Accumulated deficit (84,886) (76,237)
----------------- -----------------
Stockholders' deficit (81,193) (72,314)
----------------- -----------------
Commitments and contingencies -- --
----------------- -----------------
$369,730 $412,333
================= =================
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Operations
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $557,422 $581,463 $682,624
Cost of sales and related buying, occupancy and
distribution expenses 384,843 398,659 468,347
----------- ----------- -----------
Gross profit 172,579 182,804 214,277
Selling, general and
administrative expenses 135,011 134,715 159,625
Service charge income 20,003 8,515 10,523
Store opening and closure costs 199 5,647 3,689
----------- ----------- -----------
Operating income 57,372 50,957 61,486
----------- ----------- -----------
Interest income 1,230 1,684 781
----------- ----------- -----------
Interest expense:
Related party 6,038 2,902 4,355
Other 29,985 37,118 38,555
Amortization of debt issue costs 1,584 1,674 1,860
----------- ----------- -----------
37,607 41,694 44,770
----------- ----------- -----------
Income before income tax and
extraordinary item 20,995 10,947 17,497
Income tax expense 7,569 4,317 6,767
----------- ----------- -----------
Income before extraordinary item 13,426 6,630 10,730
Extraordinary item--early
extinguishment of debt (16,208) (308) --
----------- ----------- -----------
Net income (loss) $ (2,782) $ 6,322 $ 10,730
=========== =========== ===========
Earnings (loss) per common share data:
Income before extraordinary item $ 13,426 $ 6,630 $ 10,730
Dividends and accretion on mandatorily
redeemable preferred stock (2,297) -- --
----------- ----------- -----------
Earnings before extraordinary item
applicable to common stock $ 11,129 $ 6,630 $ 10,730
=========== =========== ===========
Earnings per common share before
extraordinary item $ 0.85 $ 0.50 $ 0.80
Extraordinary item--early
extinguishment of debt (1.24) (0.02) --
----------- ----------- -----------
Earnings (loss) per common share after
extraordinary item $ (0.39) $ 0.48 $ 0.80
=========== =========== ===========
Weighted average common shares
outstanding 13,029 13,083 13,434
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------
1993 1994 1995
------------ ----------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (2,782) $ 6,322 $ 10,730
------------ ----------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 9,259 9,997 12,816
Deferred income taxes (2,783) (3,608) (4,065)
Accretion of discount 5,796 12,286 13,940
Amortization of debt issue costs 1,584 1,674 1,860
Issuance of long-term debt in lieu of interest payment 1,214 282 147
Loss on early extinguishment of debt 25,032 474 --
Changes in operating assets and liabilities:
Increase in accounts receivable (18,822) (5,378) (20,206)
Increase in merchandise inventories (10,862) (14,077) (31,650)
Increase in other assets (5,907) (2,599) (4,112)
Increase (decrease) in accounts receivable sold 147,100 (7,100) 25,000
Increase in accounts payable and accrued liabilities 6,388 11,532 1,794
------------ ----------------------
Total adjustments 157,999 3,483 (4,476)
------------ ----------------------
Net cash provided by operating activities 155,217 9,805 6,254
------------ ----------------------
Cash Flows from Investing Activities:
Decrease (increase) in restricted investments (2,150) 10,812 (100)
Acquisitions, net of cash acquired -- (20,840) (1,167)
Payments to former Bealls and Palais Royal shareholders (252) -- --
Additions to property, equipment and leasehold improvements (8,503) (19,706) (28,638)
------------ ----------------------
Net cash used in investing activities (10,905) (29,734) (29,905)
------------ ----------------------
Cash Flows from Financing Activities:
Proceeds from:
Short-term debt 19,135 -- --
Long-term debt 352,041 -- 16,458
Common stock 325 97 68
Payments on:
Working capital facility (1,000) -- --
Short-term debt (24,992) -- --
Long-term debt (337,254) (10,442) (266)
Redemption of redeemable preferred stock (19,797) -- --
Redemption of common stock (33) -- (122)
Additions to debt issue costs (14,035) (448) (807)
Dividends paid (74,804) -- --
------------ ----------------------
Net cash provided by (used in) financing activities (100,414) (10,793) 15,331
------------ ----------------------
Net increase (decrease) in cash and cash equivalents 43,898 (30,722) (8,320)
Cash and cash equivalents:
Beginning of year 15,417 59,315 28,593
------------ ----------------------
End of year $ 59,315 $ 28,593 $ 20,273
============ ======================
</TABLE>
The accompanying notes are an integral part of this statement.
F-11
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Cash Flows (Continued)
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1993 1994 1995
--------- ----------- ----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid $30,142 $ 28,814 $27,845
========= =========== ==========
Income taxes paid $ 3,857 $ 5,198 $ 5,939
========= =========== ==========
Supplemental schedule of noncash investing and financing activities:
The Company purchased a significant portion of the assets of Beall-
Ladymon, Inc. for $20,840 in cash during 1994. In addition, the Company
purchased Mammouth, Inc. and Szolds, Inc. ("Szolds") for $1,067 and $493,
respectively, during 1995. Pursuant to the Szolds purchase agreement, $393
was paid at closing to Szolds during February 1996. In conjunction with
these acquisitions, liabilities were assumed as follows:
Fair value allocated to assets acquired $ -- $ 24,043 $ 1,702
Cash paid for assets acquired, including acquisition expenses -- (20,840) (1,167)
Purchase price payable at closing -- -- (393)
--------- ----------- ----------
Liabilities assumed $ -- $ 3,203 $ 142
========= =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-12
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Stockholders' Deficit
(in thousands, except numbers of shares)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------
Class B
--------------------
Additional
Shares Shares Paid-in Accumulated
Outstanding Amount Outstanding Amount Capital Deficit Total
------------- ------------------- ------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January
30, 1993 10,559,167 $106 1,468,750 $15 $ 899 $(10,625) $ (9,605)
Net loss -- -- -- -- -- (2,782) (2,782)
Dividends on
preferred stock -- -- -- -- -- (1,596) (1,596)
Dividends on
common stock -- -- -- -- -- (74,804) (74,804)
Accretion on
preferred stock -- -- -- -- -- (701) (701)
Tax benefits from
stock option
activity -- -- -- -- 2,037 -- 2,037
Adjustment for
minimum pension
liability -- -- -- -- -- (568) (568)
Issuance of stock 783,998 7 -- -- 318 -- 325
Retirement of
stock (10,024) -- -- -- (33) -- (33)
------------- ------------------- ------------------- ------------ ---------
Balance, January
29, 1994 11,333,141 113 1,468,750 15 3,221 (91,076) (87,727)
Net income -- -- -- -- -- 6,322 6,322
Vested
compensatory
stock options -- -- -- -- 247 -- 247
Adjustment for
minimum pension
liability -- -- -- -- -- (132) (132)
Issuance of stock 48,000 -- -- -- 97 -- 97
------------- ------------------- ------------------- ------------ ---------
Balance, January
28, 1995 11,381,141 113 1,468,750 15 3,565 (84,886) (81,193)
Net income -- -- -- -- -- 10,730 10,730
Vested
compensatory
stock options -- -- -- -- 284 -- 284
Adjustment for
minimum pension
liability -- -- -- -- -- (2,081) (2,081)
Issuance of stock 121,621 2 -- -- 66 -- 68
Retirement of
stock (31,860) -- -- -- (122) -- (122)
------------- ------------------- ------------------- ------------ ---------
Balance, February
3, 1996 11,470,902 $115 1,468,750 $15 $3,793 $(76,237) $(72,314)
============= =================== =================== ============ =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-13
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Stage Stores, Inc. (formerly Apparel Retailers,
Inc.) was incorporated under the laws of Delaware on June 17, 1993 at the
direction of the stockholders of Specialty Retailers, Inc. as a part of an
overall refinancing and distribution plan (see Note 5). As a part of this
plan, the stockholders of Specialty Retailers, Inc. exchanged all of their
common stock for Stage Stores, Inc. common stock with identical terms and
conditions. Stage Stores, Inc., Specialty Retailers, Inc. and their
subsidiaries are collectively referred to as the "Company". When the
distinction is necessary, "Stage Stores" refers to Stage Stores, Inc. and
"SRI" refers to Specialty Retailers, Inc. SRI operates family apparel stores
primarily under the names "Bealls", "Palais Royal" and "Stage" offering
branded fashion apparel and accessories for women, men and children. The
Company currently operates 268 stores in thirteen states located throughout
the central United States.
Principles of Consolidation: The consolidated financial statements include
the accounts of Stage Stores and its wholly-owned subsidiaries subsequent to
June 17, 1993. Prior to June 17, 1993, the consolidated financial statements
include the accounts of SRI and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
On October 31, 1994, Palais Royal, Inc., a wholly-owned subsidiary of the
Company, purchased a significant portion of the assets of the Beall-Ladymon
Corporation ("Beall-Ladymon") for $20.8 million in cash. The assets acquired
consisted primarily of customer accounts receivable and fixed assets. In
addition, the Company assumed leases for forty-five store locations which the
Company opened as Stage stores during the first quarter of 1995.
Beall-Ladymon was a regional apparel retailer which operated stores primarily
in Louisiana, Arkansas and Mississippi.
The following unaudited pro forma information gives effect to the
Beall-Ladymon acquisition as if it had occurred at the beginning of the
periods presented and includes operating activity of Beall-Ladymon prior to
the beginning of the closure period (in thousands, except per common share
data):
Fiscal Year
---------------------
1993 1994
---------- ----------
(unaudited)
Net sales $609,857 $613,994
========== ==========
Income before extraordinary
item $ 13,359 $ 4,353
========== ==========
Net income (loss) $ (2,849) $ 4,045
========== ==========
Earnings (loss) per common
share $ (0.40) $ 0.31
========== ==========
The above amounts are based on certain estimates and assumptions which the
Company believes are reasonable. The pro forma results do not purport to be
indicative of the results which would have occurred if the acquisition had
actually taken place at the beginning of the periods presented, nor are they
necessarily indicative of the results of any future periods.
The Beall-Ladymon acquisition was accounted for under the purchase method
of accounting. Accordingly, the total acquisition cost was allocated to the
assets acquired and liabilities assumed based upon their estimated fair
values. The excess of the purchase price over the estimated fair value of
such assets and liabilities was recognized as goodwill and is being amortized
on a straight-line basis over fifteen years.
Fiscal Year: The fiscal years discussed herein end on the Saturday nearest
to January 31 in the following calendar year. For example, references to
"1995" mean the fiscal year ended February 3, 1996. All fiscal years consist
of fifty-two weeks except for 1995 which consists of fifty-three weeks.
F-14
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Merchandise Inventories: The Company states its merchandise inventories at
the lower of cost or market, cost being determined using the retail last-in,
first-out ("LIFO") method. Market is estimated on a pool-by-pool basis.
The Company believes that the LIFO method, which charges the most recent
merchandise costs to the results of current operations, provides a better
matching of current costs with current revenues in the determination of
operating results. Some companies use the retail first-in, first-out ("FIFO")
method in valuing their inventories. If the retail FIFO method had been used,
inventories at January 28, 1995 and February 3, 1996 would have been higher
by $0.4 million and lower by $3.5 million, respectively.
Property, Equipment and Leasehold Improvements: Property, equipment and
leasehold improvements are stated at cost and depreciated over their
estimated useful lives using the straight line method. The estimated useful
lives of leasehold improvements do not exceed the term, including renewal
options, of the related lease. The estimated useful lives in years are as
follows:
Buildings 20-25
Store and office fixtures and equipment 7-12
Warehouse equipment 5-15
Favorable leases and leasehold improvements 15-50
Income Taxes: The provision for income taxes is computed based on the
pretax income included in the consolidated statement of operations. The asset
and liability approach is used to recognize deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Earnings (Loss) Per Common Share: Earnings or loss per common share is
computed based upon net income or loss adjusted for dividends and accretion
on preferred stock. Common stock options outstanding are treated as common
stock equivalents in the computation of earnings or loss per common share
using the treasury stock method. The fair value of the Company's common stock
is determined in good faith by the Board of Directors based upon the
historical and projected financial performance of the Company. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletins and Staff
policy, common stock options issued during the twelve months prior to the
proposed initial public offering have been included in the calculation of
earnings (loss) per common share as if such options were outstanding for all
periods presented.
Debt Issue Costs: Debt issue costs are accounted for as a deferred charge
and amortized on a straight-line basis over the term of the related issue.
Goodwill and Other Intangibles: The Company amortizes goodwill and
intangible assets on a straight-line basis over the estimated future periods
benefited, not to exceed forty years. Amortization periods for goodwill and
other intangibles associated with acquisitions are currently five to forty
years. Each year, the Company evaluates the remaining useful life associated
with goodwill based upon, among other things, historical and expected
long-term results of operations. Accumulated amortization of goodwill was
$3.7 million and $4.7 million at January 28, 1995 and February 3, 1996,
respectively.
Store Pre-Opening Expenses: Pre-opening expenses of new stores are
deferred and charged to operations in the year the store opens.
F-15
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
Advertising Expenses: Advertising costs are charged to operations when the
related advertising first takes place. Advertising costs were $22.3 million,
$22.3 million, and $25.9 million for 1993, 1994 and 1995, respectively.
Prepaid advertising costs were $0.6 million and $0.5 million at January 28,
1995 and February 3, 1996, respectively.
Statement of Cash Flows: The Company considers highly liquid investments
with initial maturities of less than three months to be cash equivalents in
its statement of cash flows.
Financial Instruments: The Company records all financial instruments at
cost. The fair values of accounts receivable and accounts payable approximate
cost.
Impairment of Assets: The Company has not elected early adoption of
Statement of Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 becomes effective beginning with the Company's first
quarter of 1996. The Company does not believe that the adoption of SFAS 121
will have a material effect on the Company's financial position or results of
operations.
Stock Based Compensation: The Company has not elected early adoption of
Statement of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation." SFAS 123 becomes effective beginning with the
Company's first quarter of 1996 and will not have a material effect on the
Company's financial position or results of operations. Upon adoption of SFAS
123, the Company will continue to measure compensation plans using the
intrinsic value method prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and will provide pro forma disclosures of net
income and earnings per share as if the fair value-based method prescribed by
SFAS 123 had been applied in measuring compensation expense.
Reclassifications: The accompanying consolidated financial statements
include reclassifications from financial statements issued in previous years.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable balances were as follows (in thousands):
January 28, 1995 February 3, 1996
----------------- -----------------
Gross customer
accounts
receivable $ 210,941 $ 228,354
Accounts
receivable sold (140,000) (165,000)
Other receivables 2,647 5,146
----------------- -----------------
73,588 68,500
Less--allowance
for doubtful
accounts (3,232) (2,760)
----------------- -----------------
$ 70,356 $ 65,740
================= =================
During 1993, the Company implemented an accounts receivable securitization
program (the "Accounts Receivable Program") which provides a source of funds
from the sale of accounts receivable to a master trust (the "Trust").
Pursuant to the Accounts Receivable Program, the Company sells all of the
accounts receivable generated by the holders of the Company's private label
credit card accounts to its wholly-owned subsidiary, SRI Receivables Purchase
Co., Inc. ("SRPC"), on a daily basis. SRPC is a separate limited-purpose
subsidiary that is operated in a fashion intended to ensure that its assets
and liabilities are distinct from those of the Company and its other
affiliates as SRPC's creditors have a claim on its assets prior to becoming
available to any creditor of the Company. SRPC sells, on a daily basis, the
accounts receivable purchased from the Company to the Trust in exchange for
cash or a certificate representing an undivided interest in the Trust. The
Trust currently has $165.0 million of term certificates and a $40.0 million
revolving certificate outstanding which represent undivided interests in the
Trust. The holder of the revolving certificate has agreed to purchase
interests in the Trust equal to the amount of accounts receivable
F-16
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
in the Trust above the level required to support the term certificates and
the transferor's retained interest (currently $204.1 million), up to a
maximum of $40.0 million. If receivable balances in the Trust fall below the
level required to support the term certificates and revolving certificates,
certain principal collections may be retained in the Trust until such time as
the receivable balances exceed the certificates then outstanding and the
required transferor's interest. The Company owns an undivided interest in the
accounts receivable in the Trust not represented by the term or revolving
certificates and continues to service all of the accounts receivable in the
Trust. The Trust may issue additional series of certificates from time to
time. Terms of any future series will be determined at the time of issuance.
The outstanding balances of the term certificates totaled $140.0 million and
$165.0 at January 28, 1995 and February 3, 1996, respectively. There was no
portion of the revolving certificate outstanding at January 28, 1995 and
February 3, 1996.
Total accounts receivable sold to the Trust during 1993, 1994 and 1995
were $285.1 million, $278.6 million and $306.8 million, respectively. The
cash flows generated from the accounts receivable in the Trust are dedicated
to (i) the purchase of new accounts receivable generated by the Company, (ii)
payment of a return on the certificates and (iii) the payment of a servicing
fee to SRI. Any remaining cash flows are remitted to the Company. The term
certificates entitle the holders to receive a return, based upon the London
Interbank Offered Rate ("LIBOR"), plus a specified margin paid on a quarterly
basis. Principal payments commence in December 31, 1999 but can be
accelerated upon occurrence of certain events. The revolving certificate
entitles the holder to receive a return based upon a floating LIBOR rate,
plus a specified margin, or prime rate, at the option of the Company paid on
a monthly basis. The Company is currently protected against increases above
12% under an agreement entered into with a bank. The Company is exposed to
loss in the event of non-performance by the bank. However, the Company does
not anticipate non-performance by the bank. At February 3, 1996, the average
rate of return on the term certificates was 6.8%. The purchase commitment for
the Revolving certificate is five years, subject to renewal at the option of
the parties. The revolving certificate holders are entitled to repayment in
the event the accounts receivable decrease below that required to support
such certificates.
Subsequent to the implementation of the Accounts Receivable Program in
1993, the Company's financial statements do not reflect accounts receivable,
finance charge income, bad debt expense or servicing costs attributable to
the Trust accounts receivable supporting the outstanding term or revolving
certificates. The Company recognized an initial gain of $2.7 million on the
sale of accounts receivable during 1993 which was reflected as a reduction of
selling, general and administrative expenses. Subsequent gains on the sale of
accounts receivable were not material.
The provision for doubtful accounts was $6.6 million, $2.6 million and
$3.8 million for 1993, 1994 and 1995, respectively. The provision for
doubtful accounts does not reflect the Company's recourse obligations under
the Accounts Receivable Program which have been included in the calculation
of the gain on the sale of accounts receivable.
NOTE 3 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as follows (in
thousands):
January 28, February 3,
1995 1996
-------------- --------------
Land $ 3,074 $ 3,074
Buildings 16,313 16,313
Fixtures and
equipment 72,624 88,794
Leasehold
improvements 37,542 49,290
-------------- --------------
129,553 157,471
Less--accumulated
depreciation (53,951) (64,353)
-------------- --------------
$ 75,602 $ 93,118
============== ==============
Depreciation expense was $8.3 million, $8.5 million and $10.8 million for
1993, 1994 and 1995, respectively.
F-17
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
(4) STORE CLOSURES (Continued)
NOTE 4 - STORE CLOSURES
During 1994, the Company approved a store closure plan (the "Store
Closure Plan") which provided for the closure of forty Fashion Bar stores.
These stores were primarily located in major regional malls within the Denver
area. Management determined that the merchandising strategy and market
positions of such stores were not compatible with the Company's overall
merchandising philosophies or growth strategy. The Company accrued $5.2
million for the expected costs associated with the Store Closure Plan which
include: occupancy ($4.2 million); severance ($0.4 million); write-off of
fixed assets and other intangibles ($0.9 million); other expenses ($0.8
million) and the write-off of negative goodwill ($1.1 million) allocated to
the stores to be closed. The Company substantially completed the Store
Closure Plan during 1995. At January 28, 1995 and February 3, 1996, the
balance of the Store Closure Plan accrual was $4.8 million and $1.0 million,
respectively, primarily reflecting the lease costs associated with closed
stores. During 1995, the Company charged $3.8 million to the accrual.
Net sales and operating income attributable to the stores closed were
as follows (in thousands):
Fiscal Year
-----------------------
1993 1994 1995
------- ------- -------
Net sales $25,442 $23,174 $605
======= ======= =======
Operating income
(loss) $ (213) $ 618 $ 32
======= ======= =======
At the date of the acquisition of Bealls, the Company undertook a
centralization and consolidation program which included the expected closure
of twenty-six store locations (the "Store Closure Program") and certain
operating facilities, as well as the consolidation of certain duplicate
administrative and distribution functions. At January 30, 1993, twenty-one
stores remained in the Store Closure Program, sixteen of which had been
closed. During 1993, based on the Company's ongoing assessment of scheduled
store closures, the remaining five open stores were removed from the Store
Closure Program. As a result of the removal of these five stores from the
Store Closure Program, the Company reduced its consolidation and
centralization accrual by $2.3 million. Of this amount, $1.1 million, before
applicable taxes, was credited to goodwill and the remaining $1.2 million
credited to long-term liabilities to reflect the ongoing adverse lease
commitments associated with the removed stores. At January 28, 1995 and
February 3, 1996, the balance of the consolidation and centralization accrual
was $4.7 million and $4.1 million, respectively, primarily reflecting the
lease costs associated with closed stores. During 1993, 1994 and 1995, the
Company charged $0.8 million, $0.7 million and $0.6 million, respectively, to
the accrual.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
January 28, February 3,
1995 1996
-------------- --------------
Held by third parties:
SRI Senior Notes $ 90,800 $ 85,800
SRI Senior Subordinated
Notes, net of discount 100,000 116,530
Revolving Credit Agreement -- --
Bealls Holding Subordinated
Notes, net of discount 10,686 11,319
FB Holdings Subordinated
Notes, net of discount 3,939 4,125
Bealls Holding Junior
Subordinated Debentures,
net of discount 6,095 6,221
Port Arthur IDRB 2,117 2,002
Stage Stores Senior
Discount Debentures, net
of discount 96,748 109,817
Other long term debt 451 301
-------------- --------------
310,836 336,115
Less--current maturities (261) (276)
-------------- --------------
$310,575 $335,839
============== ==============
Held by related party:
SRI Senior Notes $ 39,200 $ 44,200
============== ==============
F-18
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
(4) STORE CLOSURES (Continued)
During 1993, the Company completed its refinancing (the "Refinancing")
which included (i) the replacement of SRI's existing accounts receivable
facility with the Accounts Receivable Program and (ii) the issuance of SRI
10% Senior Notes Due 2000 (the "SRI Senior Notes") and SRI 11% Series B
Senior Subordinated Notes Due 2003 (the "SRI Series B Senior Subordinated
Notes"). The proceeds from the Refinancing were used primarily to replace
certain previously outstanding debt. As a result of the Refinancing, the
Company recorded an extraordinary charge of $16.2 million net of applicable
income taxes of $8.8 million during 1993.
Concurrent with the Refinancing, the Company completed its distribution
plan which included the issuance of $149.1 million principal amount of 12
3/4% Senior Discount Debentures Due 2005 (the "Stage Stores Senior Discount
Debentures"); the proceeds of which were used primarily to make a
distribution to the shareholders of Stage Stores.
The SRI Senior Notes were originally issued with a principal amount of
$150.0 million and bear interest at 10% payable semi-annually on February 15
and August 15. The Company is required to make a mandatory sinking fund
payment on August 15, 1999 equal to twenty five percent of the original
principal amount. The Company has purchased $20.0 million of the SRI Senior
Notes which satisfied a portion of the August 15, 1999 sinking fund
requirement. The SRI Senior Notes are general unsecured obligations and rank
senior to all subordinated debt of the Company including the SRI Senior
Subordinated Notes.
The SRI Series B Senior Subordinated Notes were originally issued with a
principal amount of $100.0 million and bear interest at 11% payable
semi-annually on February 15 and August 15. SRI is required to make a
mandatory sinking fund payment on August 15, 2002 equal to forty percent of
the original principal amount. The SRI Series B Senior Subordinated Notes are
subordinated to the obligations under the SRI Senior Notes.
During 1995, SRI issued $18.3 million in aggregate principal amount of SRI
11% Series D Senior Subordinated Notes Due 2003 (the "SRI Series D Senior
Subordinated Notes"). The SRI Series D Senior Subordinated Notes were issued
at a discount of $1.8 million and bear interest at 11% payable semi-annually
on February 15 and August 15 of each year. The original issue discount is
being charged to interest expense over the term to maturity using the
effective interest method. The combination of coupon interest payments and
original issue discount results in an effective interest rate of 13.0%. SRI
is required to make a mandatory sinking fund payment on September 15, 2002
equal to forty percent of the original aggregate principal amount of the SRI
Series D Senior Subordinated Notes. The SRI Series D Senior Subordinated
Notes rank pari passu with the existing SRI Series B Senior Subordinated
Notes (collectively, the "SRI Senior Subordinated Notes").
The SRI Senior Notes and SRI Senior Subordinated Notes contain restrictive
covenants which, among other things (i) limit SRI's ability to sell certain
assets, pay dividends, retire its common stock or retire certain debt, (ii)
limit its ability to incur additional debt or issue stock and (iii) limit
certain related party transactions.
SRI has a revolving credit agreement with a bank (the "Credit Agreement")
under which it may draw up to $25.0 million. Of this amount, up to $15.0
million may be used to support letters of credit. As of February 3, 1996,
$8.4 million of the total commitment was used to collateralize letters of
credit resulting in available funds of $16.6 million. The Company also has a
separate agreement with the bank under which it may borrow an additional
$10.0 million for seasonal working capital needs (the "Seasonal Credit
Agreement" and together with the Credit Agreement, the "Revolving Credit
Agreement"). Funds are available under the Seasonal Credit Agreement from
August 15 through January 15 of each calendar year (the "Seasonal Period").
The Revolving Credit Agreement is available through February 3, 1998 and
provides for a commitment fee of 1/2 of 1% of the average daily unused
portion of the commitment amount paid on a quarterly basis. Interest is
charged on outstanding loans at a base rate plus a specified margin. The base
rate is the higher of the bank's prime rate or 1/2 of 1% above the Federal
Funds Effective Rate. The specified margin range is 1.25% to 2.75% based on
calculated debt service ratios as defined in the agreement. During 1995, the
availability under the Credit Agreement was never less than $4.5 million.
During the Seasonal Period, the availability under the Revolving Credit
Agreement was never less than $11.5 million. The Revolving Credit Agreement
contains covenants which, among other things, restricts the (i) incurrence of
additional
F-19
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
debt, (ii) purchase of certain investments, (iii) payment of dividends, (iv)
formation of certain business combinations, (v) disposition of certain
assets, (vi) acquisition of subordinated debt, (vii) use of proceeds received
under the agreement, (viii) aggregate amount of capital expenditures
(including any expenditures made in connection with any permitted
acquisitions) to $31.0 million during 1995 and (iv) certain transactions with
related parties. The Revolving Credit Agreement also requires that SRI
maintain a debt service ratio above a predetermined level. The Revolving
Credit Agreement is secured by SRI's distribution center located in
Jacksonville, Texas, including equipment located therein, a pledge of SRPC
stock and a pledge of the Company's trademarks. The net book value of the
distribution center was approximately $10.7 million at February 3, 1996.
The increasing rate Bealls Holding, Inc. ("Bealls Holding") Subordinated
Debentures Due 2002 (the "Bealls Holding Subordinated Debentures") in
aggregate principal amount of approximately $15.0 million bear interest at
10% through 1994, 11% in 1995 and 12% thereafter until maturity. Interest is
payable semi-annually on June 30 and December 31. Original issue discount of
$7.3 million is being charged to interest expense over the term to maturity
using the effective interest method. The combination of coupon interest
payments and original issue discount results in an effective interest rate of
20.9%. The Bealls Holding Subordinated Debentures may be prepaid, at the
Company's option, at their face value. The Company is required to redeem the
Bealls Holding Subordinated Debentures beginning no later than December 31,
1997, in no more than six equal annual installments. The Bealls Holding
Subordinated Debentures are subordinated to all debt except the Stage Stores
Senior Discount Debentures. SRI is the primary obligor under these
debentures.
In connection with the acquisition of Fashion Bar, FB Holdings, Inc. ("FB
Holdings") issued approximately $3.6 million aggregate principal amount of 7%
FB Holdings Subordinated Notes Due 2000 ("FB Holdings Subordinated Notes") to
former stockholders of Fashion Bar. The FB Holdings Subordinated Notes were
recorded at their estimated fair value at issuance date of $3.1 million. The
difference between the estimated fair value and principal amount of $0.5
million is being charged to interest expense over the term to maturity using
the effective interest method. The FB Holdings Subordinated Notes are due in
two equal installments on June 30, 1999 and 2000. The FB Holdings
Subordinated Notes may be prepaid at any time in whole or in part at SRI's
option. The FB Holdings Subordinated Notes bear interest at 7% per annum,
payable quarterly. The combination of coupon interest payments and original
issue discount results in an effective interest rate of 9.0%. Prior to and
including June 1995, SRI paid interest in the form of additional FB Holdings
Subordinated Notes; thereafter, interest is being paid in cash. The principal
amount of FB Holdings Subordinated Notes at February 3, 1996 was $4.4
million. The FB Holdings Subordinated Notes are subordinated to all debt
except the Stage Stores Senior Discount Debentures. SRI is the primary
obligor under these debentures.
In connection with the acquisition of Bealls, Bealls Holding issued the 7%
Bealls Holding Junior Subordinated Debentures Due 2003 ("Bealls Holding
Junior Subordinated Debentures") at a face value of approximately $12.5
million, net of discount of approximately $8.4 million. Such discount is
being charged to interest expense over the term to maturity using the
effective interest method. The Bealls Holding Junior Subordinated Debentures
are limited to an aggregate principal amount of approximately $18.3 million.
Interest is payable semi-annually on June 30 and December 31. The combination
of coupon interest payments and original issue discount results in an
effective interest rate of 39.4%. The principal amount of Bealls Holding
Junior Subordinated Debentures outstanding at February 3, 1996 was $14.3
million. The Bealls Holding Junior Subordinated Debentures are subordinated
to all debt except the Stage Stores Senior Discount Debentures. SRI is the
primary obligor under these debentures.
The Port Arthur Industrial Development Revenue Bond (the "Port Arthur
IDRB") bears interest at 75% of the prime rate payable monthly. The interest
rate applicable to the Port Arthur IDRB at February 3, 1996 was 6.6%. The
Port Arthur IDRB is collateralized by a building with a net book value of
approximately $1.7 million. Under a separate agreement, SRI is required to
make scheduled annual sinking fund payments ranging from $0.1 million to $0.2
million.
The Stage Stores Senior Discount Debentures were issued with a principal
amount of approximately $149.1 million. The debentures were sold at a
discount of approximately $69.1 million. Substantially all of the net
proceeds
F-20
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
from the Stage Stores Senior Discount Debentures were used to make cash
payments to the holders of Stage Stores common stock equal to $5.85 per
share. Interest begins to accrue in August 1998 and is payable semi-annually
on February 15 and August 15 commencing February 15, 1999. The discount is
being charged to interest expense over the term to maturity using the
effective interest method which, together with the coupon interest, results
in a 12.74% effective interest rate. The Stage Stores Senior Discount
Debentures contain restrictions which, among other things, limits (i) the
payment of dividends, (ii) the repurchase of stock and subordinated debt,
(iii) the acquisition of additional debt or the creation of certain liens,
(iv) disposition of certain assets and (v) certain related party and
intercompany transactions. The Stage Stores Senior Discount Debentures are
secured by all of the issued and outstanding common stock of SRI and is
subordinated to all debt.
Aggregate maturities of long-term debt for the next five years are:
1996--$0.3 million; 1997--$2.1 million; 1998--$2.1 million; 1999--$21.7
million and 2000--$116.6 million.
Management estimates the fair value of its long-term debt to be $325.7
million and $352.3 million at January 28, 1995 and February 3, 1996,
respectively. In developing its estimates, management considered quoted
market prices for each instrument, if available, current market interest
rates in relation to the coupon interest rates of each instrument, the
relative subordination of each instrument and the relative liquidity of the
instrument as indicated by the presence or lack of an active market.
NOTE 6 - MANDATORILY REDEEMABLE PREFERRED STOCK
In connection with the Refinancing in 1993 (see Note 5), the Company
redeemed all of the outstanding shares of its 15% cumulative senior
redeemable preferred stock and 14% cumulative junior redeemable preferred
stock (8,080 and 2,000 shares, respectively) at the aggregate of their
liquidation value plus accrued and unpaid dividends amounting to $16.0
million and $3.8 million, respectively.
NOTE 7 - STOCK OPTION PLAN
During 1993, the Company adopted the Third Amended and Restated Stock Option
Plan (the "Stock Option Plan") which was designed to provide incentives to
present and future key employees and advisors to the Company (the
"Participants") as selected by the compensation committee of the Board of
Directors (the "Board"). Options to purchase shares of the Company's common
stock may be granted to any Participant at any time, at such price and on
such terms as established by the Board. Options granted under the Stock
Option Plan may be either non-qualified or incentive stock options ("ISOs")
within the meaning of Section 422A of the Internal Revenue Code or in a form
consistent with the Stock Option Plan as the Board may determine. All
outstanding options are non-qualified.
The number of shares of common stock which may be granted under the Stock
Option Plan shall not exceed 2,000,000 shares. All Options issued as ISOs
under the Stock Option Plan are required to (i) have an exercise price not
less than 100% of the fair value of the common stock at the date of grant,
(ii) not be exercisable more than 10 years after grant date, (iii) be
nontransferable and (iv) be exercisable only during the holder's employment
by the Company or a period not exceeding three months following termination
thereof. Options which are not ISOs may provide that the holder receive cash
equal to the excess of the fair market value per share of common stock at the
exercise date over the exercise price per share, in lieu of issuance of
common stock upon exercise of the option. Upon termination of the
Participant's employment with the Company, the Company may, at its option,
repurchase any vested common stock obtained under the Stock Option Plan at
the fair market value of the common stock. Any unvested common stock obtained
under the Stock Option Plan may be repurchased at the Company's option, at
the original issuance cost of the common stock. The Stock Option Plan also
provides that the Company may sell to any Participant shares of common stock
or preferred stock consistent with the Plan and at the discretion of the
Board.
During 1993, all of SRI's options with an exercise price of $0.10 were
exercised. Additionally, the Board granted active Participants who exercised
such options one Stage Stores option with an exercise price of $2.15
F-21
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
for every ten SRI options exercised. All of SRI's options with an exercise
price of $5.00 remained outstanding and were exchanged for Stage Stores
options with an exercise price of $0.10 and the right to receive a
distribution of $0.95 per option which will be paid as the options vest. This
distribution is being recognized as compensation expense over the vesting
period.
The range of prices for options exercised during 1995 was $0.10 to $2.15
per share. The range of prices for options outstanding at the end of 1995 was
$0.10 to $5.00 per share.
A summary of the activity in the Stock Option Plan follows:
Fiscal Year
--------------------------------
1993 1994 1995
---------- ---------- ----------
Options outstanding at
beginning of year 863,625 571,082 743,012
Granted 457,227 197,050 431,880
Surrendered (13,045) (22,240) (7,849)
Exercised (736,725) (2,880) (105,551)
---------- ---------- ----------
Options outstanding at end
of year 571,082 743,012 1,061,492
========== ========== ==========
Options vested at end of
year -- 130,570 254,790
========== ========== ==========
Options exercisable at end
of year -- 130,570 254,790
========== ========== ==========
NOTE 8 - EMPLOYEE BENEFIT PLANS
Pension benefits for employees are provided under the SRI Retirement Plan
(the "Plan"), a qualified benefit plan. Benefits are administered through a
Trust arrangement which provides monthly payments or lump sum distributions.
The Plan covers substantially all employees who have completed one year of
service with one thousand hours of service. Benefits under the plan are based
upon a percentage of the participant's earnings during each year of credited
service.
The following sets forth the funded status of the Plan and the amounts
recognized in the consolidated financial statements (in thousands):
January 28, February 3,
1995 1996
-------------- --------------
Actuarial present value of
benefits:
Vested benefit obligations $(18,590) $(24,680)
============== ==============
Accumulated benefit
obligations $(19,630) $(25,790)
============== ==============
Projected benefit
obligations $(24,530) $(32,240)
Market value of Plan
assets, primarily fixed
income and equity
securities 16,320 20,000
-------------- --------------
Pension obligations in
excess of assets (8,210) (12,240)
Unrecognized prior service
income (34) (28)
Unrecognized net loss 6,078 10,948
Adjustment required to
recognize minimum
liability (1,144) (4,470)
-------------- --------------
Accrued pension cost $ (3,310) $ (5,790)
============== ==============
Assumptions utilized in
determining projected
obligations and funding
amounts:
Discount rate 8.75% 7.00%
Rate of increase in
compensation levels 4.00% 4.00%
Expected long-term rate of
return on Plan assets 9.00% 9.00%
The Company's funding policy for the Plan is to contribute the minimum
amount required by applicable regulations. During 1993, 1994 and 1995, in
accordance with Statement of Financial Accounting Standards No.
F-22
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
87, the Company recorded adjustments of $1.1 million, $0.2 million and $3.2
million to recognize the excess of the accumulated benefit obligation over
the market value of the Plan assets, respectively. Accordingly, the Company
recorded a charge to retained earnings of $0.6 million, $0.1 million and $2.1
million, net of applicable tax and unrecognized prior service cost, for 1993,
1994 and 1995, respectively.
The components of pension cost for the Plan were as follows (in
thousands):
Fiscal Year
---------------------------
1993 1994 1995
-------- -------- --------
Service cost $ 743 $ 887 $ 771
Interest cost 1,861 1,995 2,139
Actual loss (return) on
Plan assets (1,955) 940 (3,377)
Net amortization and
deferral 409 (2,174) 2,292
-------- -------- --------
$ 1,058 $ 1,648 $ 1,825
======== ======== ========
Prior to its acquisition, Beall Brothers, Inc. sponsored an unfunded,
nonqualified Benefit Restoration Plan which provided certain key executives
defined pension benefits in excess of limits imposed by federal tax law. In
February 1989, this plan was terminated. The recorded liability for this plan
was $1.3 million at February 3, 1996.
NOTE 9 - OPERATING LEASES
The Company leases stores, service center facilities, the corporate
headquarters and equipment under operating leases. A number of store leases
provide for escalating minimum rent. Rental expense is recognized on a
straight-line basis over the life of such leases. The majority of the
Company's store leases provide for contingent rentals, generally based upon a
percentage of gross sales. The Company has renewal options for most of its
store leases; such leases generally require that the Company pay for
utilities, taxes and maintenance expense. A summary of rental expense
associated with operating leases follows (in thousands):
Fiscal Year
---------------------------
1993 1994 1995
-------- -------- --------
Minimum rentals $22,319 $22,979 $26,943
Contingent rentals 2,818 2,874 2,618
Equipment rentals 1,273 784 593
-------- -------- --------
$26,410 $26,637 $30,154
======== ======== ========
Minimum rental commitments on long-term operating leases at February 3,
1996, net of sub-leases, are as follows (in thousands):
Fiscal Year:
1996 $ 28,307
1997 27,028
1998 25,146
1999 23,527
2000 20,233
Thereafter 84,999
-----------
$209,240
===========
The Company's corporate headquarters and six Palais Royal stores are
leased from a partnership in which a Company director is a general partner.
The lease relating to the corporate headquarters is for a term of fifty years
expiring in 2032 and includes an established minimum annual rate adjusted
every three years for changes in the Consumer Price Index. Three of the
Palais Royal store leases are for terms of twenty years expiring between 1999
and 2000. The remaining three store leases are for terms of twenty-five years
expiring between 2005 and 2010.
F-23
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
All of the store leases provide options to extend the term of the lease and
for contingent rentals based on a percentage of gross sales. The Company
recognized rental expense of $1.9 million, $2.0 million and $2.1 during 1993,
1994 and 1995, respectively, for all such leases. Future minimum lease
payments total $44.7 million, $9.6 million of which is payable over the next
five fiscal years for all such leases. The Company believes that the terms of
all such leases are comparable to leases with unaffiliated third parties
covering similar properties.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company's corporate headquarters and six Palais Royal stores are leased
from a partnership in which a Company officer is a general partner (see Note
9).
An affiliate of a principal shareholder of the Company received fees for
professional services rendered and expense reimbursements in the amounts of
$1.5 million, $0.6 million and $0.8 million for 1993, 1994 and 1995,
respectively.
During 1993, the Company entered into an employment agreement with the
President and Chief Executive Officer of the Company. As part of this
agreement, the Company agreed to purchase his former residence for subsequent
resale for $1.2 million and loaned $0.3 million to him. Such loan is due
October 2, 1996, subject to extension, and bears a market rate of interest.
NOTE 11 - INCOME TAXES
All Company operations are domestic. Income tax expense charged to continuing
operations consisted of the following (in thousands):
Fiscal Year
-------------------------------
1993 1994 1995
--------- --------- ----------
Federal income tax
expense (benefit):
Current $ 9,989 $ 7,154 $ 9,772
Deferred (2,362) (3,794) (3,630)
--------- --------- ----------
7,627 3,360 6,142
--------- --------- ----------
State income tax
expense (benefit):
Current 1,250 771 1,060
Deferred (1,308) 186 (435)
--------- --------- ----------
(58) 957 625
--------- --------- ----------
$ 7,569 $ 4,317 $ 6,767
========= ========= ==========
A reconciliation between the federal income tax expense charged to
continuing operations computed at statutory tax rates and the actual income
tax expense recorded follows (in thousands):
Fiscal Year
----------------------------
1993 1994 1995
-------- -----------------
Federal income tax
expense at the
statutory rate $7,348 $3,831 $6,124
State income
taxes, net 125 797 406
Permanent
differences, net 58 (311) 290
Other, net 38 -- (53)
-------- -----------------
$7,569 $4,317 $6,767
======== =================
The 1993 income tax benefit relating to the extraordinary item of $8.8
million (see Note 5) is comprised of current federal tax benefit ($7.4
million), deferred federal tax benefit ($1.3 million) and state tax benefit
($0.1 million). The 1994 income tax benefit relating to the extraordinary
item associated with the retirement of the SRI Senior Notes (see Note 5) is
comprised of $0.2 million current federal tax benefit.
F-24
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)
Deferred tax liabilities (assets) consist of the following (in thousands):
January 28, 1995 February 3, 1996
----------------- -----------------
Gross deferred tax
liabilities:
Depreciation and
amortization $ 8,303 $ 7,485
Inventory
reserves 3,175 1,406
Gain on sale of
accounts
receivable 822 800
Other 1,310 1,435
----------------- -----------------
13,610 11,126
----------------- -----------------
Gross deferred tax
assets:
Allowance for
doubtful
accounts (3,174) (3,302)
Accrued
consolidation
costs (1,968) (1,478)
Net operating
loss
carryforwards -- (82)
Original issue
discount (5,640) (10,042)
Accrued expenses (1,518) (990)
Prepaid expenses -- --
Pensions (1,404) (2,686)
Escalating
leases (962) (962)
Charitable
contribution
carryforward (620) (113)
Accrued payroll
costs (1,196) (884)
Accrued store
closure costs (2,085) (558)
Other (975) (780)
----------------- -----------------
(19,542) (21,877)
----------------- -----------------
Deferred tax
assets valuation
allowance -- --
----------------- -----------------
$ (5,932) $(10,751)
================= =================
The utilization of any carryforwards which originated prior to the
Company's acquisition of Bealls or Fashion Bar are recorded as an adjustment
to goodwill or other intangibles associated with the respective acquisition.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Litigation: The Company is subject to claims and litigation arising in the
normal course of its business. The Company does not believe that any of these
proceedings will have a material adverse effect on its financial position,
its results of operations or its cash flows.
Letters of Credit: The Company issues letters of credit to support certain
merchandise purchases which are required to be collateralized. The Company
had outstanding letters of credit totaling $8.4 million at February 3, 1996,
all of which were collateralized by the Revolving Credit Agreement (see Note
5). These letters of credit expire within twelve months of issuance.
Concentration of Credit Risk: Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily cash,
short-term investments and accounts receivable. The Company's cash management
and investment policies restrict investments to low risk, highly-liquid
securities and the Company performs periodic evaluations of the relative
credit standing of the financial institutions with which it deals. The credit
risk associated with the Company's accounts receivable is limited by the
large number of customers in the Company's customer base. Substantially all
of the Company's customers reside in the central United States.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Uhlmans Inc.
We have audited the accompanying balance sheets of Uhlmans Inc. as of
February 3, 1996 and January 31, 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended February 3, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Uhlmans Inc. at February 3,
1996 and January 31, 1995, and the results of its operations and its cash
flows for each of the three years in the period ended February 3, 1996 in
conformity with generally accepted accounting principles.
In fiscal 1996, as described in Note 6 to the financial statements, the
Company adopted the provisions of FASB Statement No. 106, "Employer's
Accounting for Retirement Benefits Other Than Pensions."
Ernst & Young LLP
Toledo, Ohio
March 22, 1996
F-26
<PAGE>
UHLMANS INC.
BALANCE SHEETS
JANUARY 31, FEBRUARY 3,
1995 1996
-------------- --------------
Assets
Current Assets:
Cash $ 924,550 $ 847,823
Trade accounts receivable, less $100,000
allowance for doubtful accounts 6,617,576 6,115,928
Merchandise inventories 10,921,994 11,295,466
Prepaid expenses 138,978 171,978
-------------- --------------
Total current assets 18,603,098 18,431,195
Other assets 227,697 217,252
Leasehold improvements and equipment:
Leasehold improvements 7,299,310 6,969,300
Furniture and fixtures 4,229,136 4,333,724
Transportation equipment 53,431 68,148
-------------- --------------
11,581,877 11,371,172
Less allowances for depreciation and
amortization 7,190,789 7,216,929
-------------- --------------
4,391,088 4,154,243
-------------- --------------
$23,221,883 $22,802,690
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 3,288,528 $ 2,939,965
Accrued expenses 421,904 453,496
Compensation and payroll taxes 658,316 654,994
State and local taxes 309,630 321,406
Interest 51,149 70,177
Current maturities of long-term liabilities 876,292 924,595
-------------- --------------
Total current liabilities 5,605,819 5,364,633
Long-term liabilities, less current
maturities:
Notes payable including notes payable to
stockholders and
former stockholders (Note 2) 13,877,904 13,768,910
Obligations under deferred compensation
arrangements 234,748 186,636
Pension 110,089 147,875
-------------- --------------
14,222,741 14,103,421
Deferred credit 5,133 --
Commitments and Contingencies -- --
Stockholders' equity (Note 3):
Common stock, no par value:
Authorized--150,000 shares
Outstanding--8,271 shares after deducting
86,069 treasury
shares, at stated value 82,710 82,710
Retained earnings 3,305,480 3,305,443
Reduction for minimum pension liability -- (53,517)
-------------- --------------
3,388,190 3,334,636
-------------- --------------
$23,221,883 $22,802,690
============== ==============
See accompanying notes.
F-27
<PAGE>
UHLMANS INC.
STATEMENTS OF INCOME
Period from
February 1,
1995 through
Year ended January 31, February 3,
1994 1995 1996
--------------- --------------- ---------------
Net merchandise sales $ 57,101,769 $ 60,212,662 $ 59,749,342
Cost of sales and related
buying, occupancy, and
distribution expenses (43,545,216) (46,559,601) (46,129,222)
--------------- --------------- ---------------
Gross profit 13,556,553 13,653,061 13,620,120
Selling, general and
administrative expenses (12,096,093) (11,883,614) (12,231,712)
Service charge income 801,584 874,029 850,852
--------------- --------------- ---------------
Operating income 2,262,044 2,643,476 2,239,260
Interest expense (1,168,260) (1,431,055) (1,636,673)
--------------- --------------- ---------------
Net income $ 1,093,784 $ 1,212,421 $ 602,587
=============== =============== ===============
See accompanying notes.
F-28
<PAGE>
UHLMANS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------
Reduction
for Minimum
Retained Pension
Shares Stated Value Earnings Liability Total
-------------------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at February 1, 1993 27,016 $ 270,160 $ 5,599,966 $ 5,870,126
Net income 1,093,784 1,093,784
Cash distributions to
stockholders (360,394) (360,394)
Purchase of common stock for
treasury (Note 3) (18,745) (187,450) (3,726,256) (3,913,706)
-------------------------- -------------- ------------- --------------
Balances at February 1, 1994 8,271 82,710 2,607,100 2,689,810
Net income 1,212,421 1,212,421
Cash distributions to
stockholders (514,041) (514,041)
-------------------------- -------------- ------------- --------------
Balances at January 31, 1995 8,271 82,710 3,305,480 3,388,190
Net income 602,587 602,587
Cash distributions to
stockholders (602,624) (602,624)
Reduction for minimum pension
liability (Note 5) $(53,517) (53,517)
-------------------------- -------------- ------------- --------------
Balances at February 3, 1996 8,271 $ 82,710 $ 3,305,443 $(53,517) $ 3,334,636
========================== ============== ============= ==============
</TABLE>
See accompanying notes.
F-29
<PAGE>
UHLMANS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 1,
1995 through
Year ended January 31, February 3,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,093,784 $ 1,212,421 $ 602,587
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 876,037 844,625 896,177
Provision for bad debts 143,996 135,647 131,678
Amortization of deferred credit (13,000) (13,000) (5,133)
Changes in operating assets and liabilities:
Trade accounts receivable (462,008) 75,559 369,722
Merchandise inventories (503,840) (717,111) (373,768)
Prepaid expenses and other assets (30,822) 43,116 51,881
Trade accounts payable and accrued expenses 529,784 669,810 (258,588)
Pension obligations (51,320) 34,602 (108,138)
Obligations under deferred compensation
arrangements 4,629 (30,659) (48,112)
Cash value of life insurance 65,413 (10,557) (12,386)
-------------- -------------- --------------
Net cash provided by operating activities 1,652,653 2,244,453 1,245,920
Net cash used in investing activities--purchase of
leasehold improvements and equipment (762,617) (860,912) (659,332)
Financing activities
Borrowings on notes payable 2,750,000 -- --
Payments on notes payable (617,158) (860,692) (960,691)
Distributions to stockholders (360,394) (514,041) (602,624)
Purchase of common stock (2,500,000) -- --
Net borrowings on revolving line of credit -- -- 900,000
-------------- -------------- --------------
Net cash used in financing activities (727,552) (1,374,733) (663,315)
-------------- -------------- --------------
Increase (decrease) in cash 162,484 8,808 (76,727)
Cash at beginning of year 753,258 915,742 924,550
-------------- -------------- --------------
Cash at end of year $ 915,742 $ 924,550 $ 847,823
============== ============== ==============
</TABLE>
See accompanying notes.
F-30
<PAGE>
UHLMANS INC.
NOTES TO FINANCIAL STATEMENTS
February 3, 1996
(1) SIGNIFICANT ACCOUNT POLICIES
Basis of Presentation
In fiscal 1996, the Company changed its fiscal year-end to a
fifty-two/fifty-three week year which ends on the Saturday closest to January
31.
Description of Business
Uhlmans Inc. (the Company--formerly Fred W. Uhlman and Co.) operates 34
family apparel stores in Ohio, Michigan and Indiana.
Management Estimates
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 and 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.
Trade Accounts Receivable
Retail customer accounts receivable are charged-off in full if no payment
has been applied against the unpaid balance of the customer's account during
the last seven months of the fiscal year and no action has been taken by the
customer to repay the account. The allowance for doubtful accounts is based
on historical bad debt experience and an evaluation of the past-due status of
the accounts. The credit risk associated with the Company's accounts
receivable is limited by the large number of customers in the Company's
customer base. Substantially all of the Company's customers reside in Ohio,
Indiana and Michigan.
Advertising
The Company expenses the production costs of advertising as incurred.
Advertising expense for fiscal 1994, 1995 and 1996 was approximately
$1,695,000, $1,650,000 and $1,700,000, respectively. No advertising costs
have been capitalized by the Company.
Merchandise Inventories
Merchandise inventories are valued by use of the retail method and are
stated at the lower of cost or market using the first-in, first-out method.
Leasehold Improvements and Equipment
Leasehold improvements and equipment (including significant renewals and
betterments) are capitalized at cost. The Company provides for depreciation
and amortization by the straight-line method for financial-reporting purposes
and by accelerated methods for income-tax purposes. Leasehold improvements
are amortized over 10 years which approximates the lease terms. Equipment is
depreciated over its useful life (generally 5 to 10 years).
Income Taxes
Under an election privilege afforded by provisions of the Internal Revenue
Code, the Company has elected Subchapter S status for federal income tax
reporting. Accordingly, no provision has been made for federal income taxes
as the income of the Company is included in the stockholders' personal income
tax returns.
Financial Instruments
The Company records all financial instruments at cost. The fair value of
all financial instruments approximates cost.
F-31
<PAGE>
UHLMANS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(1) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Assets
The Company has not elected early adoption of Statement of Financial
Accounting Standard No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121
becomes effective beginning with the Company's first quarter of fiscal 1997.
The Company does not believe that the adoption of SFAS 121 will have a
material effect on the Company's financial position or results of operations.
(2) NOTES PAYABLE
The Company's lending agreement with banks (the agreement) provides for an
unsecured term note of $5,000,000 and an unsecured $12,000,000 revolving line
of credit (the revolver) (increasing to $14,500,000 during the period from
September 15 to December 15), and expires June 1, 1997.
Interest on the term note is at a base rate (8-1/4% at February 3, 1996)
fluctuating with prime plus 1/4%--2-1/2% dependent on the Company's financial
position. Interest on the revolver is at a base rate (6-3/4% at February 3,
1996) fluctuating with LIBOR plus 1-1/2%--3% dependent on the Company's
financial position. A commitment fee of 1/2% per annum is due on the unused
portion of the revolver.
The agreement requires the Company to maintain certain financial ratios
and net worth requirements. The agreement also limits annual stockholder
distributions to $40,000 plus an amount equivalent to income taxes that would
otherwise be payable. Provisions of the agreement were complied with during
fiscal 1994, 1995 and 1996.
Details of notes payable are as follows:
<TABLE>
<CAPTION>
January 31, 1995 February 3, 1996
----------------- -----------------
<S> <C> <C>
Revolving line of credit with banks $ 9,500,000 $10,400,000
Term note payable to banks, due in semiannual installments of
$350,000 plus interest through January 1, 1999 3,950,000 3,150,000
Subordinated notes payable to stockholders ($677,014 in 1995 and
$597,366 in 1996) and to former stockholders, unsecured, due in
semiannual installments of $70,685 plus interest at 12% through
May 31, 1998 1,201,650 1,060,280
Other unsecured notes payable 86,946 67,625
14,738,596 14,677,905
Less current maturities 860,692 908,995
Totals $13,877,904 $13,768,910
</TABLE>
The future maturities of long-term notes payable for fiscal years 1998
through 2000 are $11,241,371, $1,477,539 and $1,050,000, respectively.
Interest paid in fiscal 1994, 1995 and 1996 amounted to $1,253,904,
$1,463,607 and $1,617,645, respectively.
(3) COMMON STOCK
On November 25, 1986, the Company entered into a Stock Redemption and
Share Transfer Restriction Agreement (the Agreement) with certain
stockholders of the Company and redeemed 34,100 shares of common stock for
$2,584,098. On July 19, 1993, the Company redeemed 18,745 shares of common
stock not owned by management for $3,913,706. The 1993 redemption was
financed by an increase in the term note with the banks of $2,500,000 and
unsecured subordinated notes payable in the amount of $1,413,706.
The Company has the option in the event of termination of employment to
purchase shares of the Company's common stock owned by the management group.
The price per share is the book value per share. The Company also has the
obligation to purchase the shares of the Company owned by the president of
the Company in the event
F-32
<PAGE>
UHLMANS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(3) COMMON STOCK (CONTINUED)
of his death at 133% of book value per share at the end of the preceding
fiscal year. The Company carries life insurance on the life of the president
of the Company to fund the obligation.
(4) RENTAL EXPENSE
The Company leases all facilities and certain equipment under
noncancellable operating leases. Total rental expense amounted to $3,906,282,
$3,747,293 and $3,667,703 (including contingent rental expense of $213,390
$261,696 and $230,738) for fiscal years 1994, 1995 and 1996, respectively,
including $767,899, $775,999 and $746,979 applicable to leases with related
parties for the same periods.
Future minimum rental commitments under noncancellable operating leases
with initial terms of more than one year are as follows:
Fiscal years:
1997 .......................... $ 2,883,776
1998 .......................... 2,475,548
1999 .......................... 1,820,334
2000 .......................... 1,474,366
2001 .......................... 809,138
2002 and thereafter ........... 2,218,049
Total ......................... $11,681,211
Certain leases have provisions for additional contingent rentals based on
percentages of sales and contain options to renew for additional terms
ranging from one to twenty years.
(5) EMPLOYEE BENEFIT PLANS
The Company has a defined-benefit pension plan (the "Plan") covering the
majority of its employees. The benefits are primarily based on the employee's
compensation. The Company's funding policy is to contribute amounts to the
Plan sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus additional amounts as
the Company may determine to be appropriate. Effective December 31, 1994, the
Company curtailed all future benefit accruals of participants in the Plan
that resulted in a gain of $39,244 which is included in the results of
operations for the year ended January 31, 1995.
The Company has recorded an additional minimum liability of $110,089 and
$147,875 as of January 31, 1995 and February 3, 1996, respectively, which
represent the amounts required to bring the Company's recorded pension asset
equal to the excess of the accumulated benefit obligation over plan assets.
Intangible assets (included in other assets) of $110,089 and $94,358 as of
January 31, 1995 and February 3, 1996, respectively, were recorded to the
extent of the unrecognized prior service costs and net transition obligation.
The difference between the additional minimum liability and intangible asset
as of February 3, 1996 was included as a reduction of shareholders' equity.
F-33
<PAGE>
UHLMANS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(5) EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Company's balance sheets for the Plan:
January 31, 1995 February 3, 1996
----------------- -----------------
Projected benefit obligation
(substantially all vested) $1,547,517 $1,745,457
Plan assets at fair value, primarily
invested in common trust funds and
U. S. Treasury and agency
securities 1,407,071 1,675,363
Projected benefit obligation in
excess of plan assets (140,446) (70,094)
Unrecognized prior service cost 110,089 94,358
Unrecognized net gain from past
experience different from that
assumed and effects of changes in
assumptions 17,205 68,265
Unrecognized net asset (17,205) (14,748)
Minimum liability (110,089) (147,875)
Net pension liability $ (140,446) $ (70,094)
The net pension liability is
included in:
Prepaid (accrued) expenses $ (30,357) $ 77,781
Long-term liabilities (110,089) (147,875)
$ (140,446) $ (70,094)
Net periodic pension cost includes the following components:
Period from
February 1,
1995 through
Year ended January 31, February 3,
1994 1995 1996
- --------------------------- -----------
Interest cost on projected
benefit obligation $116,299 $ 125,095 $ 112,641
Service cost--benefits
earned during the period 88,483 92,630 --
Return on plan assets
(gain) loss (24,522) 43,777 (241,959)
Net amortization and
deferral (80,331) (141,640) 144,117
Net periodic pension cost $ 99,929 $ 119,862 $ 14,799
Assumptions used in the actuarial determinations for the Plan are:
1994 1995 1996
-------- -------- ---------
Weighted average discount rate 7.5% 7.5% 6.5%
Expected long-term rate of return on
plan assets 7.5% 7.5% 6.5%
Rate of increase in future
compensation levels 4.0% -- --
In fiscal 1996, the Company established a 401(k) profit sharing plan for
the benefit of all qualifying employees. Employer matching contributions are
made monthly based upon a percentage of qualified employees' contributions,
and amounted to $52,000 in fiscal year 1996. No additional profit sharing
contributions were made by the Company in fiscal year 1996.
F-34
<PAGE>
UHLMANS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(6) OTHER POSTRETIREMENT BENEFIT PLAN
The Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to a group of 17 retired employees. No
additional employees are being added to the Plan. The Plan is contributory,
with retiree contributions adjusted annually to cover any increased costs,
and contains other cost-slimming features such as deductibles and
coinsurance. The accounting for the Plan anticipates future cost-sharing
changes. The Company's policy is to fund the cost of medical benefits in
amounts determined at the discretion of management.
In 1996, the Company adopted FASB Statement No. 106, "Employer's
Accounting for Postretirement Benefits Other than Pensions" and elected to
use the prospective recognition method for transition. The effect of adopting
the new rules increased 1996 net periodic postretirement benefit cost by
$2,400 and decreased 1996 net income by $2,400. Postretirement benefit cost
for 1994 and 1995, which was recorded on a cash basis, has not been restated.
The following table presents the Plan's funded status reconciled with
amounts recognized in the Company's balance sheet at February 3, 1996:
Accumulated postretirement benefit
obligation for retirees $100,000
Plan assets at fair value --
Accumulated postretirement benefit
obligation in excess of plan
assets 100,000
Transition obligation (94,600)
Unrecognized net gain (3,000)
(97,600)
Accrued post retirement benefit
liability $ 2,400
Net periodic postretirement benefit
cost includes the following
components:
Interest cost $ 7,700
Amortization of transition
obligation over 11 years 9,500
-----------
Net periodic postretirement benefit
cost $ 17,200
Medical trend rates are not applicable since the subsidy is not related to
trend rates. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% for 1996.
F-35
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-36
<PAGE>
=========================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction to any person
to whom it is unlawful to make such offer in such jurisdiction. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof or that there has been no change
in the affairs of the Company since such date.
-------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary .................................... 5
Risk Factors .......................................... 12
Use of Proceeds ....................................... 16
Dividend Policy ....................................... 16
Capitalization ........................................ 17
Dilution .............................................. 18
Selected Consolidated Historical Financial and Operat-
ing Data ............................................ 19
Unaudited Pro Forma Combined Financial Data ........... 23
Management's Discussion and Analysis of Financial Con-
dition and Results of Operations .................... 27
Business .............................................. 34
Management ............................................ 41
Certain Relationships and Related Transactions ........ 51
Principal and Selling Stockholders .................... 52
Description of Certain Indebtedness ................... 54
Description of Capital Stock .......................... 56
Shares Eligible for Future Sale ....................... 58
Underwriting .......................................... 59
Notice to Canadian Residents .......................... 60
Certain U.S. Federal Tax Considerations for Non-U.S.
Holders of Common Stock ............................. 61
Legal Matters ......................................... 62
Experts ............................................... 62
Additional Information ................................ 63
Index to Financial Statements ......................... F-1
-------------
Until , 1996 (25 days after the commencement of the Offering), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
-----------------------------------------------------------------------------
[logo] S T A G E S T O R E S I N C .
BEALLS - PALAIS ROYAL - STAGE
11,000,000 Shares
Common Stock
($.01 par value)
PROSPECTUS
CS First Boston
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
PaineWebber Incorporated
-----------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
SEC registration fee $ 69,359
NASD filing fee 19,700
Nasdaq National Market original listing fee 25,000
Blue sky fees and expenses (including attorneys' fees and
expenses) 20,000
Printing and engraving expenses 200,000
Transfer agent's fees and expenses 10,000
Accounting fees and expenses 175,000
Legal fees and expenses 500,000
Miscellaneous expenses 280,941
------------
Total $1,300,000
============
- -------------
All amounts are estimated except for the SEC registration fee and the NASD
filing fee.
Item 14. Indemnification of Directors and Officers.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any person who is,
or is threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any person who is, or is threatened to be made, a
party to any threatened, pending or completed action or suit by or in the
right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the
indemnification of directors and officers of the Company to the fullest
extent permitted by Section 145.
In that regard, the Certificate of Incorporation provides that the Company
shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he
is or was a director or officer of such corporation, or is or was serving at
the request of such corporation as a director, officer or member of another
corporation, partnership, joint venture,
II-1
<PAGE>
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of such corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Indemnification in connection with an action or suit by or in
the right of such corporation to procure a judgment in its favor is limited
to payment of settlement of such an action or suit except that no such
indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the indemnifying corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine that, despite
the adjudication of liability but in consideration of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the court shall deem proper.
Item 15. Recent Sales of Unregistered Securities.
DATE OF AGGREGATE OFFERING
NAME SALE TITLE SHARES PRICE
- -------------------- ----------- --------------- ----------------------------
Mark White 09/30/93 Common Stock 8,547 $19,401,60
Sandra Bornstein 01/28/94 Common Stock 5,730 $13,007.50
Eddy Osborne 02/22/94 Common Stock 8,547 $19,401.60
Pat Bowman 10/31/94 Common Stock 8,547 $19,401.60
Peter Realmuto 11/08/94 Common Stock 1,781 $ 188.00
Tom Buttaccio 12/05/94 Common Stock 8,547 $19,401.60
Mark Hess 01/15/95 Common Stock 379 $ 40.00
Kathy Bodin 02/20/95 Common Stock 379 $ 40.00
Dan Singer 01/15/95 Common Stock 568 $ 60.00
Harry Gray 02/20/95 Common Stock 283 $ 30.00
Bob Mitchell 02/20/95 Common Stock 283 $ 30.00
Jerry Forrest 01/26/95 Common Stock 8,547 $19,401.60
David Slaughter 01/28/95 Common Stock 8,547 $19,401.60
Joshua Bekenstein 04/07/95 Common Stock 9,472 $ 1,000.00
Jim Hanks 04/07/95 Common Stock 222 $ 505.25
Bernard Fuchs 04/07/95 Common Stock 71,045 $ 7,500.00
Bernard Fuchs 04/07/95 Common Stock 8,904 $20,210.00
Elizabeth Winkler 04/10/95 Common Stock 8,525 $19,350.00
Joanne Swartz 04/15/95 Common Stock 4,849 $11,008.00
June Betz 05/17/95 Common Stock 1,657 $ 5,040.00
Doug Scarth 08/16/95 Common Stock 2,670 $ 282.00
Tom Hill 11/06/95 Common Stock 189 $ 20.00
Josh Bekenstein 12/27/95 Common Stock 4,735 $ 500.00
Dan Singer 01/22/96 Common Stock 283 $ 30.00
Bob Mitchell 01/23/96 Common Stock 142 $ 15.00
Bob Hart 02/29/96 Common Stock 568 $ 60.00
Bernard Fuchs 03/15/96 Common Stock 35,522 $ 3,750.00
Ron Sells 03/28/96 Common Stock 1,420 $ 150.00
Dan Singer 04/17/96 Common Stock 189 $ 430.00
Carl Tooker 05/01/96 Common Stock 75,781 $ 8,000.00
Carl Tooker 05/01/96 Common Stock 9,472 $21,500.00
Bernard Fuchs 06/05/96 Common Stock 8,904 $20,210.00
Joanne Turano 06/05/96 Common Stock 426 $ 45.00
Dan Singer 6/6/96 Common Stock 189 $ 430.00
Elizabeth Winkler 6/9/96 Common Stock 890 $ 2,021.00
Al Cocek 6/10/96 Common Stock 426 $ 45.00
Jerry Ivie 6/11/96 Common Stock 1,046 $ 2,375.75
Joanne Turano 6/20/96 Common Stock 94 $ 215.00
Al Cocek 6/28/96 Common Stock 189 $ 430.00
II-2
<PAGE>
Carolann Moore 6/28/96 Common Stock 947 $ 920.00
Joanne Turano 6/29/96 Common Stock 94 $ 215.00
Eugene Good 7/1/96 Common Stock 729 $ 1,655.50
Carl Tooker 7/5/96 Common Stock 47,363 $25,500.00
Mark Shulman 7/8/96 Common Stock 40,732 $94,640.00
Steve Lovell 7/9/96 Common Stock 14,209 $43,200.00
James Marcum 7/9/96 Common Stock 18,945 $57,600.00
Patsy McLeod 7/9/96 Common Stock 189 $ 430.00
Mark Hess 7/9/96 Common Stock 568 $ 880.00
William McLaughlin 7/10/96 Common Stock 367 $ 834.20
Robert Bowers 7/11/96 Common Stock 189 $ 430.00
Deborah Repace 7/11/96 Common Stock 284 $ 30.00
Burke Randolph 7/11/96 Common Stock 473 $ 255.00
Harry Gray 7/11/96 Common Stock 378 $ 552.50
Kathy Bodin 7/15/96 Common Stock 663 $ 1,095.00
Trina Gladwell 7/15/96 Common Stock 473 $ 225.00
Jack Chipperfield 7/24/96 Common Stock 356 $ 808.40
Rebecca Ross 7/30/96 Common Stock 952 $ 2,160.75
William Ehlert 8/7/96 Common Stock 94 $ 215.00
Eugene Good 8/19/96 Common Stock 222 $ 505.25
William Bloomfield 9/5/96 Common Stock 189 $ 430.00
James Murphy 9/11/96 Common Stock 94 $ 215.00
Patti Bodkins 9/12/96 Common Stock 568 $ 60.00
The Company relied upon Section 4(2) of the Securities Act of 1933 in
connection with the foregoing sales of unregistered securities.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
EXHIBIT DESCRIPTION
NUMBER
- ------------ -----------------------------------------------------
**1.1 Form of Underwriting Agreement.
**3.1 Certificate of Incorporation of Apparel Retailers,
Inc. (Incorporated by Reference to Exhibit 3.1 of
Registration No. 33-68258 on Form S-4).
**3.2 By-Laws of Apparel Retailers, Inc. (Incorporated by
Reference to Exhibit 3.2 of Registration No.
33-68258 on Form S-4).
***3.3 Form of Certificate of Incorporation of Stage Stores,
Inc.
***3.4 Form of By-Laws of Stage Stores, Inc.
**4.1 Form of Indenture between Apparel Retailers, Inc. and
The First National Bank of Boston, as Trustee,
relating to the 12 3/4% Senior Discount Debentures
due 2005 of Apparel Retailers, Inc. (Incorporated by
Reference to Exhibit 4.1 of Registration No.
33-68258 on Form S-4).
**4.2 Form of Indenture among Specialty Retailers, Inc.,
The First National Bank of Boston, as Trustee, and
Palais Royal, Inc., as Guarantor, relating to the
10% Senior Notes due 2000 of Specialty Retailers,
Inc. (including form of note) (Incorporated by
Reference to Exhibit 4.2 of Registration No.
33-68258 on Form S-4).
**4.3 Form of Indenture among Specialty Retailers, Inc.,
The First National Bank of Boston, as Trustee, and
Palais Royal, Inc., as Guarantor, relating to the
11% Senior Subordinated Notes due 2003 of Specialty
Retailers, Inc. (including form of note)
(Incorporated by Reference to Exhibit 4.3 on
Registration No. 33-68258 on Form S-4).
**4.4 Form of Indenture between 3 Bealls Holding
Corporation and Bankers Trust Company, as Trustee,
relating to 3 Bealls Holding Corporation's 9%
Subordinated Debentures due 2002 (Incorporated by
Reference to Exhibit 4.2 of Registration No.
33-24571 on Form S-4) and First Supplemental
Indenture dated August 2, 1993 (Incorporated by
Reference to Exhibit 4.4 of Registration No.
33-68258 on Form S-4).
**4.5 Form of Indenture between 3 Bealls Holding
Corporation and IBJ Schroder Bank and Trust Company,
as Trustee, relating to 3 Bealls Holding
Corporation's 7% Junior Subordinated Debentures due
2002 (Incorporated by Reference to Exhibit 4.3 of
Registration No. 33-24571 on Form S-4) and First
Supplemental Indenture dated August 2, 1993
(Incorporated by Reference to Exhibit 4.5 of
Registration No. 33-68258 on Form S-4).
**4.6 Indenture by and between Specialty Retailers, Inc.
and The First National Bank of Boston, as Trustee,
relating to the 11% Series C and Series D Senior
Subordinated Notes due 2003 of Specialty Retailers,
Inc. dated July 27, 1995 (including form of note),
(Incorporated by Reference to Exhibit 4.1 on Form
10-Q of Apparel Retailers, Inc., dated October 28,
1995).
**4.7 Form of Indenture among SRI Receivables Purchase Co.,
Inc., Specialty Retailers, Inc., as Administrative
Agent, and Bankers Trust Company, as Trustee and
Collateral Agent, relating to the 12.5% Trust
Certificate-Backed Notes of SRI Receivables Purchase
Co., Inc. (including form of note). (Incorporated by
Reference to Exhibit 4.1 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
**4.8 Amended and Restated Pooling and Servicing Agreement
by and among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc. and Bankers Trust
(Delaware) dated as of August 11, 1995 (Incorporated
by Reference to Exhibit 4.6 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995).
**4.9 First Amendment to Amended and Restated Pooling and
Servicing Agreement by and among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware), dated as of May 30, 1996
(Incorporated by Reference to Exhibit 4.2 on Form
10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.10 Amended and Restated Series 1993-1 Supplement among
SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated
as of May 30, 1996 (Incorporated by Reference to
Exhibit 4.3 on Form 10-Q of Apparel Retailers, Inc.,
dated May 4, 1996).
II-4
<PAGE>
EXHIBIT DESCRIPTION
NUMBER
- ------------ -----------------------------------------------------
**4.11 Amended and Restated Series 1993-2 Supplement among
SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated
as of May 30, 1996 (Incorporated by Reference to
Exhibit 4.4 on Form 10-Q of Apparel Retailers, Inc.,
dated May 4, 1996).
**4.12 First Amendment to the Series 1993-2 Supplement and
Revolving Certificate Purchase Agreement by and
among Specialty Retailers, Inc., SRI Receivables
Purchase Co., Inc., Bankers Trust (Delaware) as
Trustee for the SRI Receivables Master Trust, the
financial institutions parties thereto and National
Westminster Bank Plc, New York branch dated as of
August 11, 1995 (Incorporated by Reference to
Exhibit 4.5 on Form 10-Q of Apparel Retailers, Inc.,
dated as of May 4, 1996).
**4.13 Amended and Restated Series 1995-1 Supplement by and
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) on
behalf of the Series 1995- 1 Certificateholders
dated as of May 30, 1996 (Incorporated by Reference
to Exhibit 4.6 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996).
**4.14 Amended and Restated Receivables Purchase Agreement
among SRI Receivables Purchase Co., Inc. and
Originators dated as of May 30, 1996 (Incorporated
by Reference to Exhibit 4.7 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
**4.15 Certificate Purchase Agreements between SRI
Receivables Purchase Co., Inc. and the Purchasers of
the Series 1993-1 Offered Certificates (Incorporated
by Reference to Exhibit 4.10 of Registration No.
33-68258 on Form S-4).
**4.16 Revolving Certificate Purchase Agreement between SRI
Receivables Purchase Co., Inc., the Facility Agent
and the Revolving Purchasers with respect to the
Class A-R Certificates (Incorporated by Reference to
Exhibit 4.11 of Registration No. 33-68258 on Form
S-4).
**4.17 Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and the First
National Bank of Boston, as agent for itself and
other financial institutions dated January 29, 1994
(Incorporated by Reference to Exhibit A of Current
Report on Form 8-K of Apparel Retailers, Inc. dated
February 9, 1994).
**4.18 First Amendment dated July 14, 1994 to Revolving
Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc. and the First National Bank
of Boston, as agent for itself and other financial
institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.13 on Form
10-K of Apparel Retailers, Inc. dated January 28,
1995).
**4.19 Second Amendment dated October 31, 1994 to Revolving
Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc. and the First National Bank
of Boston, as agent for itself and other financial
institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.14 on Form
10-K of Apparel Retailers, Inc. dated January 28,
1995).
**4.20 Third Amendment dated January 5, 1995 to Revolving
Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc. and the First National Bank
of Boston, as agent for itself and other financial
institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.15 on Form
10-K of Apparel Retailers, Inc. dated January 28,
1995).
**4.21 Fourth Amendment dated March 31, 1995 to Revolving
Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc. and the First National Bank
of Boston, as agent for itself and other financial
institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.16 on Form
10-K of Apparel Retailers, Inc. dated January 28,
1995).
**4.22 Fifth Amendment dated July 7, 1995 to Revolving
Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc., and the First National
Bank of Boston, as agent for itself and other
financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.2 on Form
10-Q of Apparel Retailers, Inc., dated October 28,
1995).
**4.23 Sixth Amendment dated July 27, 1995 to Revolving
Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc. and the First National Bank
of Boston, as agent for itself and other financial
institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.3 on Form
10-Q of Apparel Retailers, Inc., dated October 28,
1995).
II-5
<PAGE>
EXHIBIT DESCRIPTION
NUMBER
- ------------ -----------------------------------------------------
**4.24 Seventh Amendment dated February 1, 1996 to Revolving
Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc., and the First National
Bank of Boston, as agent for itself and other
financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.8 on Form
10-Q of Apparel Retailers, Inc., dated as of May 4,
1996).
**4.25 Eighth Amendment dated as of May 30, 1996 to
Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and The First
National Bank of Boston, as agent for itself and
other financial institutions dated as of January 28,
1994 (Incorporated by Reference to Exhibit 4.9 on
Form 10-Q of Apparel Retailers, Inc., dated May 4,
1996).
**4.26 Seasonal Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc. and
the First National Bank of Boston, as agent for
itself and other financial institutions dated March
31, 1995 (Incorporated by Reference to Exhibit 4.17
on Form 10-K of Apparel Retailers, Inc. dated
January 28, 1995).
**4.27 First Amendment dated July 7, 1995 to the seasonal
Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc., and the First
National Bank of Boston, as agent for itself and
other financial institutions dated March 31, 1995
(Incorporated by Reference to Exhibit 4.4 on Form
10-Q of Apparel Retailers, Inc., dated October 28,
1995).
**4.28 Second Amendment dated July 27, 1995 to the seasonal
Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc., and the First
National Bank of Boston, as agent for itself and
other financial institutions dated March 31, 1995
(Incorporated by Reference to Exhibit 4.5 on Form
10-Q of Apparel Retailers, Inc., dated October 28,
1995).
**4.29 Third Amendment dated February 1, 1996 to the
seasonal Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc., and
the First National Bank of Boston, as agent for
itself and other financial institutions dated March
31, 1995 (Incorporated by Reference to Exhibit 4.10
on Form 10-Q of Apparel Retailers, Inc., dated as of
May 4, 1996).
**4.30 Fourth Amendment dated as of May 30, 1996 to the
seasonal Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc. and
The First National Bank of Boston, as agent for
itself and other financial institutions dated as of
March 31, 1995 (Incorporated by Reference to Exhibit
4.11 on Form 10-Q of Apparel Retailers, Inc., dated
May 4, 1996).
**4.31 Certificate Purchase Agreement among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc. and
the Certificate Purchaser dated as of August 11,
1995 (Incorporated by Reference to Exhibit 4.9 on
Form 10-Q of Apparel Retailers, Inc., dated October
28, 1995).
***5.1 Opinion of Kirkland and Ellis.
**10.1 Purchase Agreement dated July 22, 1993 by and among
Apparel Retailers, Inc., Specialty Retailers, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation
and Bear, Stearns & Co. Inc. relating to the sale of
Apparel Retailers, Inc. 12 3/4% Senior Discount
Debentures due 2005 (Incorporated by Reference to
Exhibit 10.1 of Registration No. 33-68258 on Form
S-4).
**10.2 Registration Rights Agreement dated August 2, 1993 by
and among Apparel Retailers, Inc., Donaldson, Lufkin
& Jenrette Securities Corporation and Bear, Stearns
& Co. Inc. relating to the sale of Apparel
Retailers, Inc. 12 3/4% Senior Discount Debentures
due 2005 (Incorporated by Reference to Exhibit 10.2
of Registration No. 33-68258 on Form S-4).
**10.3 Senior Management Agreement and Stock Option
Agreement between Specialty Retailers, Inc., Bain
Venture Capital, Citicorp Venture Capital, Ltd., and
Bernard Fuchs, dated as of May 26, 1989
(Incorporated by Reference to Exhibit 10.8 of
Registration No. 33-27714 on Form S-1) and Amendment
to Senior Management Agreement and Stock Option
Agreement dated February 1, 1993 (Incorporated by
Reference to Exhibit 10.3 of Registration No.
33-68258 on Form S-4).
10.4 Intentionally Omitted
II-6
<PAGE>
EXHIBIT DESCRIPTION
NUMBER
- ------------ -----------------------------------------------------
**10.5 Registration Agreement by and among Specialty
Retailers, Inc., Tyler Capital Fund, L.P. Tyler
Massachusetts, L.P., Tyler International, L.P.-I,
Tyler International, L.P.-II, Bain Venture Capital,
Citicorp Capital Investors, Ltd., Acadia Partners,
L.P., Drexel Burnham Lambert Incorporated, and
certain other Purchasers, dated as of December 29,
1988 (Incorporated by Reference to Exhibit 10.10 of
Registration No. 33-27714 on Form S-1) and Amendment
to Registration Agreement dated August 2, 1993
(Incorporated by Reference to Exhibit 10.5 of
Registration No. 33-68258 on Form S-4).
**10.6 Lease Agreement between PR Investments and Palais
Royal, Inc., dated as of August 2, 1982
(Incorporated by Reference to Exhibit 10.11 of
Registration No. 33-27714 on Form S-1).
**10.7 Lease Agreement between PR Investments and Palais
Royal, Inc., dated as of March 15, 1979, as amended
(Incorporated by Reference to Exhibit 10.12 of
Registration No. 33-27714 on Form S-1).
**10.8 Lease Agreement between PR Investments and Palais
Royal, Inc., dated as of November 7, 1978, as
amended (Incorporated by Reference to Exhibit 10.13
of Registration No. 33-27714 on Form S-1).
**10.9 Lease Agreement between PR Investments and Palais
Royal, Inc., dated October 4, 1983, as amended
(Incorporated by Reference to Exhibit 10.14 of
Registration No. 33-27714 on Form S-1).
**10.10 Lease Agreement between PR Investments and Palais
Royal, Inc., dated as of December 21, 1983, as
amended (Incorporated by Reference to Exhibit 10.15
of Registration No. 33-27714 on Form S-1).
**10.11 Lease Agreement between PR Investments and Palais
Royal, Inc., dated as of March 21, 1985, as amended
(Incorporated by Reference to Exhibit 10.16 of
Registration No. 33-27714 on Form S-1).
**10.12 Lease Agreement between PR Investments and Palais
Royal, Inc., dated as of November 22, 1985, as
amended (Incorporated by Reference to Exhibit 10.17
of Registration No. 33-27714 on Form S-1).
**10.13 Apparel Retailers, Inc. Stock Option Plan
(Incorporated by Reference to Exhibit 10.13 to
Registration No. 33-68258 on Form S-4).
**10.14 Form of Stock Option Agreement between Apparel
Retailers, Inc. and Executive to be named therein
(Incorporated by Reference to Exhibit 10.14 to
Registration No. 33-68258 on
Form S-4).
***10.15 Form of Management Agreement by an among Specialty
Retailers, Inc., the Bain Entities, Citicorp Venture
Capital, Ltd. and Executive to be named therein
(Incorporated by Reference to Exhibit 10.22 of
Registration No. 33-32045 on Form S-1) and Form of
First Amendment (Incorporated by Reference to
Exhibit 10.15 to Registration No. 33-68258 on Form
S-4).
**10.16 Professional Services Agreement between Specialty
Retailers, Inc. and Bain Capital Partners
(Incorporated by Reference to Exhibit 10.21 of
Registration No. 33-54504 on Form S-1).
***10.17 Employment Agreement between Stage Stores, Inc. and
Carl E. Tooker dated as of June 12, 1996.
**10.18 Stock Option Agreement between Specialty Retailers,
Inc. and Carl E. Tooker dated June 9, 1993
(Incorporated by Reference to Exhibit 10.18 to
Registration No. 33-68258 on
Form S-4).
**10.19 Purchase agreement dated September 2, 1994 by and
among Palais Royal, Inc. and Beall-Ladymon
Corporation relating to the sale of certain assets
of Beall-Ladymon Corporation (Incorporated by
Reference to Exhibit 10.1 on Form 10-Q of Apparel
Retailers, Inc., dated July 30, 1994).
**10.20 Purchase Agreement dated July 20, 1995 by and among
Specialty Retailers, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, relating to the
sale of the Company's 11% Series C Senior
Subordinated Notes due 2003 (Incorporated by
Reference to Exhibit 10.1 on Form
10-Q of Apparel Retailers, Inc., dated October 28,
1995).
II-7
<PAGE>
EXHIBIT DESCRIPTION
NUMBER
- ------------ -----------------------------------------------------
**10.21 Registration Rights Agreement dated July 27, 1995 by
and between Specialty Retailers, Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, relating
to the sale of the Company's 11% Series C Senior
Subordinated Notes due 2003 (Incorporated by
Reference to Exhibit 10.2 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995).
***10.22 Employment Agreement between Mark Shulman and Stage
Stores, Inc., dated as of June 12, 1996.
**10.23 Stock Option Agreement between Mark Shulman and
Apparel Retailers, Inc., dated as of January 31,
1994 (Incorporated by Reference to Exhibit 10.2 on
Form 10-Q of Apparel Retailers, Inc., dated April
29, 1995).
***10.24 Employment Agreement between James Marcum and Stage
Stores, Inc. dated as of June 12, 1996.
***10.25 Employment Agreement between Stephen Lovell and Stage
Stores, Inc., dated as of June 12, 1996.
**10.26 Agency Agreement between Specialty Retailers, Inc.
and Palais Royal, Inc. dated January 29, 1995
(Incorporated by Reference to Exhibit 10.26 on Form
10-K of Apparel Retailers, Inc., dated February 3,
1996)
**10.27 Securities Purchase Agreement among Palais Royal,
Inc. and certain selling stockholders of Uhlmans,
Inc. dated May 9, 1996 (Incorporated by Reference to
Exhibit 10.1 on Form 10-Q of Stage Stores, Inc.,
dated June 12, 1996.
***10.28 Employment Agreement between Ron Lucas and Stage
Stores, Inc. dated as of June 12, 1996.
***10.29 Stage Stores, Inc. 1996 Equity Incentive Plan.
***12.1 Statement Regarding Computation of Ratio of Earnings
to Fixed Charges.
**21.1 List of Registrant's Subsidiaries (Incorporated by
Reference to Exhibit 21.1 to Registration No.
33-68258 on Form S-4).
***23.1 Consent of Price Waterhouse LLP.
***23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Kirkland & Ellis (included in opinion
filed as Exhibit 5.1).
***24.1 Powers of attorney (included in signature page
included in this Part II).
** Previously filed.
*** Filed herewith.
(b) Financial Statement Schedules:
Schedule III - Condensed Financial Information
Schedule VIII - Consolidated Valuation Accounts
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that the undertakings set forth in paragraph (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
II-8
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the Offering.
In addition, the undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of
Texas on October 24, 1996.
STAGE STORES, INC.
By: /s/ Carl Tooker
-----------------------------
Name: Carl Tooker
Title: President, Chief Executive
Officer and Director
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 24, 1996, by the following
persons in the capacities indicated with respect to Stage Stores, Inc.:
Signature Capacity
-------- ---------
*
----------------------
Bernard Fuchs Director and Chairman
/s/ Carl Tooker
---------------------- President, Chief Executive Officer and Director
Carl Tooker (Principal Executive Officer)
*
---------------------- Executive Vice President and Chief Financial Officer
James Marcum (Principal Financial and Accounting Officer)
*
----------------------
Joshua Bekenstein Director
*
----------------------
Adam Kirsch Director
*
----------------------
Peter Mulvihill Director
*
----------------------
Lasker Meyer Director
* By /s/ Carl Tooker
-------------------
Carl Tooker
Attorney-in-Fact
II-10
<PAGE>
Schedule III
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Condensed Balance Sheet
(in thousands, except par value and numbers of shares)
January 28, 1995 February 3, 1996
----------------- -----------------
Assets
Cash and cash equivalents $ 796 $ 9
Intercompany advances 6,997 7,240
Debt issue costs, net of
amortization 4,588 4,163
Investment in subsidiary 17,750 35,340
Deferred income taxes 5,640 10,042
----------------- -----------------
$ 35,771 $ 56,794
================= =================
Liabilities and Stockholders'
Deficit
Accrued expenses $ 7,294 $ 6,369
Intercompany advances -- --
Long-term debt 96,748 109,817
----------------- -----------------
Total liabilities 104,042 116,186
----------------- -----------------
Preferred stock, par value $1.00,
non-voting, 2,500 shares
authorized, zero shares issued and
outstanding -- --
Common Stock, par value $0.01,
15,000,000 shares authorized,
11,381,141 and 11,470,902 shares
issued and outstanding,
respectively 113 115
Class B common stock, non-voting,
par value $0.01, 1,500,000 shares
authorized, 1,468,750 shares
issued and outstanding 15 15
Additional paid-in capital 3,565 3,793
Accumulated deficit (71,964) (63,315)
----------------- -----------------
Stockholders' deficit (68,271) (59,392)
----------------- -----------------
$ 35,771 $ 56,794
================= =================
The accompanying notes are an integral part
of this condensed financial information.
<PAGE>
Schedule III
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Condensed Statement of Operations and Accumulated Deficit
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
------------------------
For the Period from
August 2, 1993 to
January 29, 1994 1994 1995
------------------------------- -----------
<S> <C> <C> <C>
Interest income $ 18 $ 30 $ 18
Interest expense (5,471) (11,954) (13,511)
------------------------------- -----------
Loss before income tax and equity in earnings of
subsidiary (5,453) (11,924) (13,493)
Income tax benefit 1,761 4,022 4,550
------------------------------- -----------
Loss before equity in earnings of subsidiary (3,692) (7,902) (8,943)
Equity in earnings of subsidiary 910 14,224 19,673
------------------------------- -----------
Net income (loss) (2,782) 6,322 10,730
Accumulated deficit:
Beginning of period -- (78,154) (71,964)
Dividends on common stock (74,804) -- --
Adjustment for minimum pension liability (568) (132) (2,081)
------------------------------- -----------
End of period $(78,154) $(71,964) $(63,315)
=============================== ===========
</TABLE>
The accompanying notes are an integral part
of this condensed financial information.
<PAGE>
Schedule III
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Condensed Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------
For the Period from
August 2, 1993 to
January 29, 1994 1994 1995
------------------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (2,782) $ 6,322 $ 10,730
------------------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Accretion of discount 5,233 11,515 13,070
Amortization of debt issue costs 207 437 438
Deferred federal income tax (1,761) (3,879) (4,402)
Equity in earnings of subsidiary (910) (14,224) (19,673)
Changes in operating assets and liabilities:
Increase (decrease) in accrued liabilities 31 7,116 (641)
Intercompany advances -- (7,382) (243)
------------------- ----------- -----------
Total adjustments 2,800 (6,417) (11,451)
------------------- ----------- -----------
Net cash provided by (used in) operating
activities 18 (95) (721)
------------------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from:
Long-term debt 80,000 -- --
Common stock 33 97 68
Redemption of Common stock -- -- (122)
Additions to debt issue cost (4,453) -- (12)
Dividends paid (74,804) -- --
------------------- ----------- -----------
Net cash provided by (used in) financing activities 776 97 (66)
------------------- ----------- -----------
Net increase (decrease) in cash 794 2 (787)
Cash and cash equivalents:
Beginning of period -- 794 796
------------------- ----------- -----------
End of period $ 794 $ 796 $ 9
=================== =========== ===========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Debt issue costs accrued for by the Company or paid by
subsidiary $ 779 $ -- $ --
=================== =========== ===========
</TABLE>
The accompanying notes are an integral part
of this condensed financial information.
<PAGE>
Stage Stores, Inc.
(formerly Apparel Retailer, Inc.)
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE 1--BASIS OF PRESENTATION:
The accompanying condensed financial statements present the financial
position and results of operations of Stage Stores, Inc. (the "Company") on a
separate company basis. The condensed financial statements of the Company
have been prepared in accordance with Rule 10-01 of Regulation S-X and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The Company's
investment in its wholly-owned subsidiary is accounted for using the equity
method.
The Company's fiscal year ends on the Saturday nearest to January 31 in
the following calendar year. For example, references to "1995" mean the
fiscal year ended February 3, 1996.
NOTE 2--HOLDING COMPANY FORMATION:
The Company was incorporated under the laws of Delaware on June 17, 1993
at the direction of the shareholders of Specialty Retailers, Inc. ("SRI"). On
August 2, 1993, the Company acquired all of the common stock of SRI and the
existing stockholders of SRI acquired all of the common stock of the Company.
The Company has no operations of its own and its primary asset is the common
stock of the SRI.
NOTE 3--INCOME TAXES:
The Company files a consolidated federal income tax return with its
subsidiaries. The Company's recorded tax benefit represents the impact of its
tax assets and liabilities on the consolidated group.
<PAGE>
Schedule VIII
Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Valuation Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions
---------------------------------
Balance at
beginning of Charged to costs Charged to other Balance at end
year and expenses accounts Deductions of year
-------------- ---------------- ---------------- ------------- ----------------
Description
- ------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts: (1)
Fiscal Year:
1993 $7,855 $6,590 $ -- $12,501 (2) $1,944
============== ================ ================ ============= ================
1994 $1,944 $3,176 $486 (3) $ 2,374 $3,232
============== ================ ================ ============= ================
1995 $3,232 $4,905 $ -- $ 5,377 $2,760
============== ================ ================ ============= ================
Reserve for Shrinkage:
Fiscal Year:
1993 $ 160 $4,042 $ -- $ 4,004 $ 198
============== ================ ================ ============= ================
1994 $ 198 $4,459 -- $ 4,459 $ 198
============== ================ ================ ============= ================
1995 $ 198 $8,967 $ -- $ 8,808 $ 357
============== ================ ================ ============= ================
</TABLE>
(1) Includes reserve for uncollectible service charge and late fee income.
(2) Includes $6.1 million which has been reclassified to accrued liabilities
as a result of the implementation of the Accounts Receivable Program.
(3) This represents the initial allowance for doubtful accounts associated
with the accounts receivable purchased in an acquisition.
<PAGE>
EXHIBIT INDEX
The following documents are the exhibits to this Registration Statement on
Form S-1. For convenient reference, each exhibit is listed according to the
Exhibit Table of Regulation S-K.
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
----- ------------------------------------------------------------------------------------- ----------
<S> <C> <C>
**1.1 Form of Underwriting Agreement. --
**3.1 Certificate of Incorporation of Apparel Retailers, Inc. (Incorporated by Reference to --
Exhibit 3.1 of Registration No. 33-68258 on Form S-4).
**3.2 By-Laws of Apparel Retailers, Inc. (Incorporated by Reference to Exhibit 3.2 of --
Registration No. 33-68258 on Form S-4).
***3.3 Form of Certificate of Incorporation of Stage Stores, Inc.
***3.4 Form of By-Laws of Stage Stores, Inc.
**4.1 Form of Indenture between Apparel Retailers, Inc. and The First National Bank of --
Boston, as Trustee, relating to the 12 3/4% Senior Discount Debentures due 2005 of
Apparel Retailers, Inc. (Incorporated by Reference to Exhibit 4.1 of Registration
No. 33-68258 on Form S-4).
**4.2 Form of Indenture among Specialty Retailers, Inc., The First National Bank of Boston, --
as Trustee, and Palais Royal, Inc., as Guarantor, relating to the 10% Senior Notes
due 2000 of Specialty Retailers, Inc. (including form of note) (Incorporated by
Reference to Exhibit 4.2 of Registration No. 33-68258 on Form S-4).
**4.3 Form of Indenture among Specialty Retailers, Inc., The First National Bank of Boston, --
as Trustee, and Palais Royal, Inc., as Guarantor, relating to the 11% Senior
Subordinated Notes due 2003 of Specialty Retailers, Inc. (including form of note)
(Incorporated by Reference to Exhibit 4.3 on Registration No. 33-68258 on Form S-4).
**4.4 Form of Indenture between 3 Bealls Holding Corporation and Bankers Trust Company, as --
Trustee, relating to 3 Bealls Holding Corporation's 9% Subordinated Debentures due
2002 (Incorporated by Reference to Exhibit 4.2 of Registration No. 33-24571 on Form
S-4) and First Supplemental Indenture dated August 2, 1993 (Incorporated by
Reference to Exhibit 4.4 of Registration No. 33-68258 on Form S-4).
**4.5 Form of Indenture between 3 Bealls Holding Corporation and IBJ Schroder Bank and --
Trust Company, as Trustee, relating to 3 Bealls Holding Corporation's 7% Junior
Subordinated Debentures due 2002 (Incorporated by Reference to Exhibit 4.3 of
Registration No. 33-24571 on Form S-4) and First Supplemental Indenture dated August
2, 1993 (Incorporated by Reference to Exhibit 4.5 of Registration No. 33-68258 on
Form S-4).
**4.6 Indenture by and between Specialty Retailers, Inc. and The First National Bank of --
Boston, as Trustee, relating to the 11% Series C and Series D Senior Subordinated
Notes due 2003 of Specialty Retailers, Inc. dated July 27, 1995 (including form of
note), (Incorporated by Reference to Exhibit 4.1 on Form 10-Q of Apparel Retailers,
Inc., dated October 28, 1995).
**4.7 Form of Indenture among SRI Receivables Purchase Co., Inc., Specialty Retailers, --
Inc., as Administrative Agent, and Bankers Trust Company, as Trustee and Collateral
Agent, relating to the 12.5% Trust Certificate-Backed Notes of SRI Receivables
Purchase Co., Inc. (including form of note). (Incorporated by Reference to Exhibit
4.1 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.8 Amended and Restated Pooling and Servicing Agreement by and among SRI Receivables --
Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware) dated as
of August 11, 1995 (Incorporated by Reference to Exhibit 4.6 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995).
<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
----- ------------------------------------------------------------------------------------- ----------
**4.9 First Amendment to Amended and Restated Pooling and Servicing Agreement by and among --
SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust
(Delaware), dated as of May 30, 1996 (Incorporated by Reference to Exhibit 4.2 on
Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.10 Amended and Restated Series 1993-1 Supplement among SRI Receivables Purchase Co., --
Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware) dated as of May 30,
1996 (Incorporated by Reference to Exhibit 4.3 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996).
**4.11 Amended and Restated Series 1993-2 Supplement among SRI Receivables Purchase Co., --
Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware) dated as of May 30,
1996 (Incorporated by Reference to Exhibit 4.4 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996).
**4.12 First Amendment to the Series 1993-2 Supplement and Revolving Certificate Purchase --
Agreement by and among Specialty Retailers, Inc., SRI Receivables Purchase Co.,
Inc., Bankers Trust (Delaware) as Trustee for the SRI Receivables Master Trust, the
financial institutions parties thereto and National Westminster Bank Plc, New York
branch dated as of August 11, 1995 (Incorporated by Reference to Exhibit 4.5 on Form
10-Q of Apparel Retailers, Inc., dated as of May 4, 1996).
**4.13 Amended and Restated Series 1995-1 Supplement by and among SRI Receivables Purchase --
Co., Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware) on behalf of the
Series 1995- 1 Certificateholders dated as of May 30, 1996 (Incorporated by
Reference to Exhibit 4.6 on Form 10-Q of Apparel Retailers, Inc., dated May 4,
1996).
**4.14 Amended and Restated Receivables Purchase Agreement among SRI Receivables Purchase --
Co., Inc. and Originators dated as of May 30, 1996 (Incorporated by Reference to
Exhibit 4.7 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.15 Certificate Purchase Agreements between SRI Receivables Purchase Co., Inc. and the --
Purchasers of the Series 1993-1 Offered Certificates (Incorporated by Reference to
Exhibit 4.10 of Registration No. 33-68258 on Form S-4).
**4.16 Revolving Certificate Purchase Agreement between SRI Receivables Purchase Co., Inc., --
the Facility Agent and the Revolving Purchasers with respect to the Class A-R
Certificates (Incorporated by Reference to Exhibit 4.11 of Registration No. 33-68258
on Form S-4).
**4.17 Revolving Credit Agreement by and among Specialty Retailers, Inc., Palais Royal, Inc. --
and the First National Bank of Boston, as agent for itself and other financial
institutions dated January 29, 1994 (Incorporated by Reference to Exhibit A of
Current Report on Form 8-K of Apparel Retailers, Inc. dated February 9, 1994).
**4.18 First Amendment dated July 14, 1994 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston,
as agent for itself and other financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.13 on Form 10-K of Apparel Retailers, Inc.
dated January 28, 1995).
**4.19 Second Amendment dated October 31, 1994 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston,
as agent for itself and other financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.14 on Form 10-K of Apparel Retailers, Inc.
dated January 28, 1995).
<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
----- ------------------------------------------------------------------------------------- ----------
**4.20 Third Amendment dated January 5, 1995 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston,
as agent for itself and other financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.15 on Form 10-K of Apparel Retailers, Inc.
dated January 28, 1995).
**4.21 Fourth Amendment dated March 31, 1995 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston,
as agent for itself and other financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.16 on Form 10-K of Apparel Retailers, Inc.
dated January 28, 1995).
**4.22 Fifth Amendment dated July 7, 1995 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank of
Boston, as agent for itself and other financial institutions dated as of January 28,
1994 (Incorporated by Reference to Exhibit 4.2 on Form 10-Q of Apparel Retailers,
Inc., dated October 28, 1995).
**4.23 Sixth Amendment dated July 27, 1995 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston,
as agent for itself and other financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.3 on Form 10-Q of Apparel Retailers, Inc.,
dated October 28, 1995).
**4.24 Seventh Amendment dated February 1, 1996 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank of
Boston, as agent for itself and other financial institutions dated as of January 28,
1994 (Incorporated by Reference to Exhibit 4.8 on Form 10-Q of Apparel Retailers,
Inc., dated as of May 4, 1996).
**4.25 Eighth Amendment dated as of May 30, 1996 to Revolving Credit Agreement by and among --
Specialty Retailers, Inc., Palais Royal, Inc. and The First National Bank of Boston,
as agent for itself and other financial institutions dated as of January 28, 1994
(Incorporated by Reference to Exhibit 4.9 on Form 10-Q of Apparel Retailers, Inc.,
dated May 4, 1996).
**4.26 Seasonal Revolving Credit Agreement by and among Specialty Retailers, Inc., Palais --
Royal, Inc. and the First National Bank of Boston, as agent for itself and other
financial institutions dated March 31, 1995 (Incorporated by Reference to Exhibit
4.17 on Form 10-K of Apparel Retailers, Inc. dated January 28, 1995).
**4.27 First Amendment dated July 7, 1995 to the seasonal Revolving Credit Agreement by and --
among Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank of
Boston, as agent for itself and other financial institutions dated March 31, 1995
(Incorporated by Reference to Exhibit 4.4 on Form 10-Q of Apparel Retailers, Inc.,
dated October 28, 1995).
**4.28 Second Amendment dated July 27, 1995 to the seasonal Revolving Credit Agreement by --
and among Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank
of Boston, as agent for itself and other financial institutions dated March 31, 1995
(Incorporated by Reference to Exhibit 4.5 on Form 10-Q of Apparel Retailers, Inc.,
dated October 28, 1995).
**4.29 Third Amendment dated February 1, 1996 to the seasonal Revolving Credit Agreement by --
and among Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank
of Boston, as agent for itself and other financial institutions dated March 31, 1995
(Incorporated by Reference to Exhibit 4.10 on Form 10-Q of Apparel Retailers, Inc.,
dated as of May 4, 1996).
<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
----- ------------------------------------------------------------------------------------- ----------
**4.30 Fourth Amendment dated as of May 30, 1996 to the seasonal Revolving Credit Agreement --
by and among Specialty Retailers, Inc., Palais Royal, Inc. and The First National
Bank of Boston, as agent for itself and other financial institutions dated as of
March 31, 1995 (Incorporated by Reference to Exhibit 4.11 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
**4.31 Certificate Purchase Agreement among SRI Receivables Purchase Co., Inc., Specialty --
Retailers, Inc. and the Certificate Purchaser dated as of August 11, 1995
(Incorporated by Reference to Exhibit 4.9 on Form 10-Q of Apparel Retailers, Inc.,
dated October 28, 1995).
***5.1 Opinion of Kirkland and Ellis. --
**10.1 Purchase Agreement dated July 22, 1993 by and among Apparel Retailers, Inc., --
Specialty Retailers, Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Bear, Stearns & Co. Inc. relating to the sale of Apparel Retailers, Inc. 12 3/4%
Senior Discount Debentures due 2005 (Incorporated by Reference to Exhibit 10.1 of
Registration No. 33-68258 on Form S-4).
**10.2 Registration Rights Agreement dated August 2, 1993 by and among Apparel Retailers, --
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co.
Inc. relating to the sale of Apparel Retailers, Inc. 12 3/4% Senior Discount
Debentures due 2005 (Incorporated by Reference to Exhibit 10.2 of Registration No.
33-68258 on Form S-4).
**10.3 Senior Management Agreement and Stock Option Agreement between Specialty Retailers, --
Inc., Bain Venture Capital, Citicorp Venture Capital, Ltd., and Bernard Fuchs, dated
as of May 26, 1989 (Incorporated by Reference to Exhibit 10.8 of Registration No.
33-27714 on Form S-1) and Amendment to Senior Management Agreement and Stock Option
Agreement dated February 1, 1993 (Incorporated by Reference to Exhibit 10.3 of
Registration No. 33-68258 on Form S-4).
**10.4 Equity Stock Purchase Agreement by and among Specialty Retailers, Inc., Tyler Capital --
Fund, L.P. Tyler Massachusetts, L.P., Tyler International, L.P.-I, Tyler
International, L.P.-II, Bain Venture Capital, Citicorp Capital Investors, Ltd.,
Acadia Partners, L.P., Drexel Burnham Lambert Incorporated, and certain other
Purchasers, dated as of December 28, 1988 (Incorporated by Reference to Exhibit 10.9
of Registration No. 33-27714 on Form S-1) and Amendments to Equity Stock Purchase
Agreement dated September 21, 1992 and August 2, 1993 (Incorporated by Reference to
Exhibit 10.4 of Registration No. 33-68258 on Form S-4).
**10.5 Registration Agreement by and among Specialty Retailers, Inc., Tyler Capital Fund, --
L.P. Tyler Massachusetts, L.P., Tyler International, L.P.-I, Tyler International,
L.P.-II, Bain Venture Capital, Citicorp Capital Investors, Ltd., Acadia Partners,
L.P., Drexel Burnham Lambert Incorporated, and certain other Purchasers, dated as of
December 29, 1988 (Incorporated by Reference to Exhibit 10.10 of Registration No.
33-27714 on Form S-1) and Amendment to Registration Agreement dated August 2, 1993
(Incorporated by Reference to Exhibit 10.5 of Registration No. 33-68258 on Form
S-4).
**10.6 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of August 2, --
1982 (Incorporated by Reference to Exhibit 10.11 of Registration No. 33-27714 on
Form S-1).
**10.7 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of March 15, --
1979, as amended (Incorporated by Reference to Exhibit 10.12 of Registration No.
33-27714 on Form S-1).
<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
----- ------------------------------------------------------------------------------------- ----------
**10.8 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of November --
7, 1978, as amended (Incorporated by Reference to Exhibit 10.13 of Registration No.
33-27714 on Form S-1).
**10.9 Lease Agreement between PR Investments and Palais Royal, Inc., dated October 4, 1983, --
as amended (Incorporated by Reference to Exhibit 10.14 of Registration No. 33-27714
on Form S-1).
**10.10 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of December --
21, 1983, as amended (Incorporated by Reference to Exhibit 10.15 of Registration No.
33-27714 on Form S-1).
**10.11 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of March 21, --
1985, as amended (Incorporated by Reference to Exhibit 10.16 of Registration No.
33-27714 on Form S-1).
**10.12 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of November --
22, 1985, as amended (Incorporated by Reference to Exhibit 10.17 of Registration No.
33-27714 on Form S-1).
**10.13 Apparel Retailers, Inc. Stock Option Plan (Incorporated by Reference to Exhibit 10.13 --
to Registration No. 33-68258 on Form S-4).
**10.14 Form of Stock Option Agreement between Apparel Retailers, Inc. and Executive to be --
named therein (Incorporated by Reference to Exhibit 10.14 to Registration No.
33-68258 on Form S-4).
**10.15 Form of Management Agreement by an among Specialty Retailers, Inc., the Bain --
Entities, Citicorp Venture Capital, Ltd. and Executive to be named therein
(Incorporated by Reference to Exhibit 10.22 of Registration No. 33-32045 on Form
S-1) and Form of First Amendment (Incorporated by Reference to Exhibit 10.15 to
Registration No. 33-68258 on Form S-4).
**10.16 Professional Services Agreement between Specialty Retailers, Inc. and Bain Capital --
Partners (Incorporated by Reference to Exhibit 10.21 of Registration No. 33-54504 on
Form S-1).
***10.17 Employment Agreement between Specialty Retailers, Inc. and Carl E. Tooker dated June --
9, 1993 (Incorporated by Reference to Exhibit 10.17 to Registration No. 33-68258 on
Form S-4).
**10.18 Stock Option Agreement between Specialty Retailers, Inc. and Carl E. Tooker dated --
June 9, 1993 (Incorporated by Reference to Exhibit 10.18 to Registration No.
33-68258 on Form S-4).
**10.19 Purchase agreement dated September 2, 1994 by and among Palais Royal, Inc. and --
Beall-Ladymon Corporation relating to the sale of certain assets of Beall-Ladymon
Corporation (Incorporated by Reference to Exhibit 10.1 on Form 10-Q of Apparel
Retailers, Inc., dated July 30, 1994).
**10.20 Purchase Agreement dated July 20, 1995 by and among Specialty Retailers, Inc., --
Donaldson, Lufkin & Jenrette Securities Corporation, relating to the sale of the
Company's 11% Series C Senior Subordinated Notes due 2003 (Incorporated by Reference
to Exhibit 10.1 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
**10.21 Registration Rights Agreement dated July 27, 1995 by and between Specialty Retailers, --
Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, relating to the sale
of the Company's 11% Series C Senior Subordinated Notes due 2003 (Incorporated by
Reference to Exhibit 10.2 on Form 10-Q of Apparel Retailers, Inc., dated October 28,
1995).
***10.22 Employment Agreement between Mark Shulman and Specialty Retailers, Inc., dated as of --
January 8, 1994 (Incorporated by Reference to Exhibit 10.1 on Form 10-Q of Apparel
Retailers, Inc., dated April 29, 1995).
<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
----- ------------------------------------------------------------------------------------- ----------
**10.23 Stock Option Agreement between Mark Shulman and Apparel Retailers, Inc., dated as of --
January 31, 1994 (Incorporated by Reference to Exhibit 10.2 on Form 10-Q of Apparel
Retailers, Inc., dated April 29, 1995).
***10.24 Employment Agreement between James Marcum and Specialty Retailers, Inc., dated as of --
May 15, 1995 (Incorporated by Reference to Exhibit 10.3 on Form 10-Q of Apparel
Retailers, Inc., dated April 29, 1995).
***10.25 Employment Agreement between Stephen Lovell and Specialty Retailers, Inc., dated as --
of May 19, 1995 (Incorporated by Reference to Exhibit 10.4 on Form 10-Q of Apparel
Retailers, Inc., dated April 29, 1995).
**10.26 Agency Agreement between Specialty Retailers, Inc. and Palais Royal, Inc. dated
January 29, 1995 (Incorporated by Reference to Exhibit 10.26 on Form 10-K of Apparel
Retailers, Inc., dated February 3, 1996).
**10.27 Securities Purchase Agreement among Palais Royal, Inc. and certain selling --
stockholders of Uhlmans, Inc. dated May 9, 1996 (Incorporated by Reference to
Exhibit 10.1 on Form 10-Q of Stage Stores, Inc., dated June 12, 1996.
***10.28 Employment Agreement between Ron Lucas and Stage Stores, Inc. dated as of June 12,
1996.
***10.29 Stage Stores, Inc. 1996 Equity Incentive Plan.
***12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. --
**21.1 List of Registrant's Subsidiaries (Incorporated by Reference to Exhibit 21.1 to --
Registration No. 33-68258 on Form S-4).
***23.1 Consent of Price Waterhouse LLP. --
***23.2 Consent of Ernst & Young LLP. --
**23.3 Consent of Kirkland & Ellis (included in opinion filed as Exhibit 5.1). --
***24.1 Powers of attorney (included in signature page included in this Part II).
</TABLE>
- -------------
** Previously filed.
*** Filed herewith.
DRAFT 10/14/96
RESTATED CERTIFICATE OF INCORPORATION
OF
STAGE STORES, INC.
ARTICLE I - Name
The name of the corporation is Stage Stores, Inc. (hereinafter referred
to as the "Corporation").
ARTICLE II - Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, County of New Castle, Wilmington, Delaware
19801. The name of the registered agent of the Corporation at that address is
The Corporation Trust Company.
ARTICLE III - Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
ARTICLE IV - Capital Stock
Section A. General. The maximum number of shares of stock that the
Corporation is authorized to have outstanding at any one time is 78,002,500
shares consisting of 75,000,000 shares of Common Stock, par value $.01 per share
(the "Common Stock"), 3,000,000 shares of Class B Common Stock, par value $.01
per share (the "Class B Common Stock") and 2,500 shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock").
Section B. Common Stock. Except as otherwise provided by the Delaware
General Corporation Law, by this Restated Certificate of Incorporation and
subject to the rights of holders of any series of Preferred Stock, the holders
of record of Common Stock shall share ratably all dividends in cash, stock or
otherwise in such amounts as the board of directors of the Corporation may from
time to time determine and, are subject to all the powers, rights, privileges,
preferences and priorities of any series of Preferred Stock as provided herein
or in any resolution or resolutions adopted by the board of directors pursuant
to authority expressly vested in it by the provisions of Section D of this
ARTICLE IV. Upon liquidation, dissolution or winding up of the Corporation, the
holders of the Common Stock are entitled to receive pro rata, along with the
holders of the Class B
-1-
<PAGE>
Common Stock, the assets of the Corporation which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of Preferred Stock then outstanding.
(a) The Common Stock shall not be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same of the Corporation's capital stock.
(b) No holder of Common Stock shall have any preemptive,
subscription, redemption, conversion or sinking fund rights with respect to the
Common Stock, or to any obligations convertible (directly or indirectly) into
stock of the Corporation whether now or hereafter authorized.
(c) Except as otherwise provided by the Delaware General
Corporation Law, by this Restated Certificate of Incorporation and subject to
the rights of holders of any series of Preferred Stock, all of the voting power
of the stockholders of the Corporation shall be vested in the holders of the
Common Stock, and each holder of Common Stock shall have one vote for each share
held by such holder on all matters voted upon by the stockholders of the
Corporation.
Section C. Class B Common Stock. Except as otherwise provided by the
Delaware General Corporation Law, by this Restated Certificate of Incorporation
and subject to the rights of holders of any series of Preferred Stock, the
holders of record of Class B Common Stock shall share ratably all dividends in
cash, stock or otherwise in such amounts as the board of directors of the
Corporation may from time to time determine and, are subject to all the powers,
rights, privileges, preferences and priorities of any series of Preferred Stock
as provided herein or in any resolution or resolutions adopted by the board of
directors pursuant to authority expressly vested in it by the provisions of
Section D of this ARTICLE IV. Upon liquidation, dissolution or winding up of the
Corporation, the holders of the Class B Common Stock are entitled to receive pro
rata, along with the holders of the Common Stock, the assets of the Corporation
which are legally available for distribution, after payment of all debts and
other liabilities and subject to the prior rights of any holders of Preferred
Stock then outstanding.
(a) Each holder of record of Class B Common Stock is entitled
at any time to convert any or all of the shares of such holder's Class B Common
Stock into the same number of shares of Common Stock; provided that no holder of
Class B Common Stock is entitled to convert any share or shares of Class B
Common Stock to the extent that, as a result of such conversion, such holder or
its affiliates would directly or indirectly own, control or have power to vote
or dispose of a greater quantity of securities of any kind issued by the Company
than such holder and its affiliates are permitted to own, control or have power
to vote or dispose of under any law or under any regulation, rule or other
requirement of any governmental authority at any time applicable to such holder
and its affiliates.
(b) Each conversion of shares of Class B Common Stock into
shares of Common Stock will be effected by the surrender of the certificate or
certificates representing the shares to be
-2-
<PAGE>
converted at the principal office of the Corporation at any time during normal
business hours, together with a written notice by the holder of such Class B
Common Stock stating that such holder desires to convert the shares, or a stated
number of the shares, of Class B Common Stock represented by such certificate or
certificates into Common Stock and that upon such conversion such holder and its
affiliates will not directly or indirectly own, control or have the power to
vote or dispose of a greater quantity of securities of any kind issued by the
Corporation than such holders and its affiliates are permitted to own, control
or have the power to vote or dispose of under any applicable law, regulation,
rule or other governmental requirement. Such conversion will be deemed to have
been effected as of the close of business on the date on which such certificate
or certificates have been surrendered and such notice has been received, and at
such time the rights of such holder will cease and the person or persons in
whose name or names the certificate or certificates for shares of Common Stock
are to be issued upon such conversion will be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby.
(c) Promptly after such surrender and receipt of such written
notice, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions (a) the certificate or certificates for the
Common Stock issuable upon such conversion and (b) a certificate representing
any Class B Common Stock which was represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which was not converted.
(d) The issuance of certificates for Common Stock upon
conversion of Class B Common Stock will be made without charge to the holders of
such shares for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and the related issuance of
Common Stock.
(e) The Corporation will not close its books against the
transfer of Class B Common Stock or of Common Stock issued or issuable upon
conversion of Class B Common Stock in any manner which would interfere with the
timely conversion of Class B Common Stock.
(f) The Class B Common Stock shall not be convertible into, or
exchangeable for, other than shares of Common Stock, shares of any other class
or classes or of any other series of the same of the Corporation's capital
stock.
(g) No holder of Class B Common Stock shall have any
preemptive, subscription, redemption, conversion or sinking fund rights with
respect to the Class B Common Stock, or to any obligations convertible (directly
or indirectly) into stock of the Corporation whether now or hereafter
authorized.
(h) The holders of the Class B Common Stock shall not be
entitled to vote on matters submitted to a vote of stockholders, including the
election of directors.
Section D. Preferred Stock. Authority is hereby expressly vested in the
board of directors of the Corporation, subject to the provisions of this ARTICLE
IV and to the limitations prescribed
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by law, to authorize the issuance from time to time of one or more series of
Preferred Stock. The authority of the board of directors with respect to each
series shall include, but not be limited to, the determination or fixing of the
following by resolution or resolutions adopted by the affirmative vote of the
majority of the total number of the directors then in office:
(a) The designation of such series;
(b) The dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes or series of
the Corporation's capital stock, and whether such dividends shall be cumulative
or non-cumulative;
(c) Whether the shares of such series shall be subject to
redemption for cash, property or rights, including securities of any other
corporation, by the Corporation or upon the happening of a specified event, and,
if made subject to any such redemption, the times or events, prices, rates,
adjustments and other terms and conditions of such redemptions;
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) Whether or not the shares of such series shall be
convertible into, or exchangeable for, at the option of either the holder or the
Corporation or upon the happening of a specified event, shares of any other
class or classes or any other series of the same class of the Corporation's
capital stock, and, if provision be made for conversion or exchange, the times
or events, prices, rates, adjustments and other terms and conditions of such
conversions or exchanges;
(f) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(g) The rights of the holders of the shares of such series
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(h) The provisions as to voting, optional and/or other special
rights and preferences, if any, including, without limitation, the right to
elect one or more directors.
Section E. Recapitalization
(a) Stock Split. Immediately upon the filing of this Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware (the "Effective Time"), each share of Common Stock outstanding at the
Effective Time shall be, without further action by the Corporation or the holder
thereof, changed and converted into a number of shares of Common Stock equal to
the number determined by multiplying each outstanding share of Common Stock by
.94727 (the "Stock Split"). Each certificate then outstanding representing
shares of Common Stock shall
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automatically represent from and after the Effective Time that number of shares
of Common Stock equal to the number of shares shown on the face of the
certificate multiplied by .94727.
(b) Fractional Shares. In the event that the Stock Split would
result in any holder of shares of Common Stock holding a share of Common Stock
that is not an integral multiple of one, the effect of the Stock Split shall be
such that the shares of Common Stock issued as a result of the Stock Split shall
be the integral multiple of one closest to the product of the stock split ratio
.94727 and the number of shares of Common Stock held by such holder, with
fractions of 0.50 or greater being rounded up to the next integral multiple of
one and fractions less than 0.50 being rounded down to the next lower integral
multiple of one.
ARTICLE V - Existence
The Corporation is to have a perpetual existence.
ARTICLE VI - Stockholders and Directors
Section A. Stockholders Action. Election of directors need not be by
written ballot unless the by-laws of the Corporation so provide. Subject to the
rights of any series of Preferred Stock, from and after the date on which the
Common Stock of the Corporation is registered pursuant to the Securities Act of
1933, as amended (the "1933 Act"), (i) any action required or permitted to be
taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected in
lieu thereof by any consent in writing by such stockholders, (ii) special
meetings of the stockholders of the Corporation may be called only by either the
board of directors pursuant to a resolution adopted by the affirmative vote of
the majority number of the total number of directors then in office or by the
chief executive officer of the Corporation, (iii) special meetings of the
stockholders cannot be called by the stockholders of the Corporation, and (iv)
advance notice of stockholder nominations of persons for election to the Board
of Directors of the Corporation and of business to be brought before any annual
meeting of the stockholders by the stockholders of the Corporation shall be
given in the manner provided in the by-laws of the Corporation.
Section B. Number of Directors and Term of Office. Subject to any
rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances, the number of directors which shall
constitute the Board of Directors of the Corporation shall be such number as
shall be fixed by resolution adopted by the affirmative vote of the majority of
the total number of directors then in office. Each director shall be elected at
each annual meeting of stockholders and shall hold such office until the next
annual meeting of stockholders and until his successor shall be elected and
qualified.
Section C. Removal and Resignation. No director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
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directors; provided, however, that if the holders of any class or series of
capital stock are entitled to vote by the provisions of this Restated
Certificate of Incorporation (it being understood that any references to this
Restated Certificate of Incorporation shall include any duly authorized
certificate of designation) to elect one or more directors, such director or
directors so elected may be removed without cause only by the vote of the
holders of a majority of the outstanding shares of that class or series entitled
to vote. Any director may resign at any time upon written notice to the
Corporation.
Section D. Vacancies and Newly Created Directorships. Subject to any
rights of the holders of any series of Preferred Stock to fill such newly
created directorships or vacancies, any newly created directorships resulting
from any increase in the authorized number of directors and any vacancies in the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall, unless provided by law or by resolution approved by the
majority of the total number of directors then in office, be filled only by
resolution approved by the affirmative vote of the majority of the total number
of directors then in office, and any director so chosen shall hold office until
the next annual meeting of stockholders and until his successor shall have been
duly elected and qualified, unless he shall resign, die, become disqualified or
be removed for cause.
ARTICLE VII - General Provisions
Section A. Dividends. The board of directors shall have authority from
time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working capital or for any
other purpose or purposes, and to abolish or add to any such reserve or reserves
from time to time as said board may deem to be in the interest of the
Corporation; and said board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of the Corporation.
Section B. Issuance of Stock. The shares of all classes of stock of the
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the board of directors of the
Corporation, provided that shares having a par value shall not be issued for a
consideration less than such par value, as determined by the board. At any time,
or from time to time, the Corporation may grant rights or options to purchase
from the Corporation any shares of its stock of any class or classes to run for
such period of time, for such consideration, upon such terms and conditions, and
in such form as the board of directors may determine. The board of directors
shall have authority, as provided by law, to determine that only a part of the
consideration which shall be received by the Corporation for the shares of its
stock issued shall be shares having a par value, the amount of the part of such
consideration so determined to be capital shall be equal to the aggregate par
value of such shares. The excess, if any, at any time, of the total net assets
of the Corporation over the amount so determined to be capital, as aforesaid,
shall be surplus. All classes of stock of the Corporation shall be and remain at
all times nonassessable.
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The board of directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the board of directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.
Section C. Inspection of Books and Records. The board of directors
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
board of directors or of the stockholders of the Corporation.
Section D. Location of Meetings, Books and Records. Except as otherwise
provided in the by-laws, the stockholders of the Corporation and the board of
directors may hold their meetings and have an office or offices outside of the
State of Delaware, and, subject to the provisions of the laws of said State, may
keep the books of the Corporation outside of said State at such places as may,
from time to time, be designated by the Board of Directors.
ARTICLE VIII - Amendments
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation in the
manner now or hereinafter prescribed herein and by the laws of the State of
Delaware, and all rights conferred upon stockholders herein are granted subject
to this reservation. Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, ARTICLE IX, ARTICLE XI and this
ARTICLE VIII of this Restated Certificate of Incorporation shall not be altered,
amended or repealed and no provision inconsistent therewith shall be adopted
without the affirmative vote of the holders of at least 66 2/3% of the voting
power of the then outstanding shares of capital stock of the Corporation
entitled to vote on such alteration, amendment or repeal.
ARTICLE IX - Liability
Section A. Limitation of Liability.
(a) To the fullest extent permitted by the Delaware General
Corporation Law as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), and except as otherwise provided in the Corporation's by-laws, no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.
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(b) Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
Section B. Right to Indemnification. Each person who was or is made
party or is threatened to be made a part to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another Corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide for broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section C of this ARTICLE IX with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the board
of directors of the Corporation. The right to indemnification conferred in this
Section B of ARTICLE IX shall be a contract right and shall include the
obligation of the Corporation to pay the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advance of
expenses"); provided, however, that, if and to the extent that the Delaware
General Corporation Law requires, an advance of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section B or otherwise. The Corporation may, by action of its board of
directors, provide indemnification to employees and agents of the Corporation
with the same or lesser scope and effect as the foregoing indemnification of
directors and officer.
Section C. Procedure for Indemnification. Any indemnification of a
director or officer of the Corporation or advance of expenses under Section B of
this ARTICLE IX shall be made promptly, and in any event within forty-five days
(or, in the case of an advance of expenses, twenty days) upon the written
request of the director or officer. If a determination by the Corporation that
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the director or officer is entitled to indemnification pursuant to this ARTICLE
IX is required, and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advance of expenses, in whole or in part, or if payment in full pursuant to such
request is not made within forty-five days (or, in the case of an advance of
expenses, twenty days), the right to indemnification or advances as granted by
this ARTICLE IX shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
Section B of this ARTICLE IX, if any, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its board of
directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. The procedure for indemnification of other employees and agents for
whom indemnification is provided pursuant to Section B of this ARTICLE IX shall
be the same procedure set forth in this Section C for directors or officers,
unless otherwise set forth in the action of the board of directors providing for
indemnification for such employee or agent.
Section D. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or was serving at the
request of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.
Section E. Service for Subsidiaries. Any person serving as a director,
officer, employee or agent of another Corporation, partnership, limited
liability company, joint venture or other enterprise, at least 50% of whose
equity interests are owned by the Corporation (hereinafter a "subsidiary" for
this ARTICLE IX) shall be conclusively presumed to be serving in such capacity
at the request of the Corporation.
Section F. Reliance. Persons who after the date of the adoption of this
provision become or remain directors or officers of the Corporation or who,
while a director or officer of the Corporation, become or remain a director,
officer, employee or agent of a subsidiary, shall be
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conclusively presumed to have relied on the rights to indemnity, advance of
expenses and other rights contained in this ARTICLE IX in entering into or
continuing such service. The rights to indemnification and to the advance of
expenses conferred in this ARTICLE IX shall apply to claims made against an
indemnitee arising out of acts or omissions which occurred or occur both prior
and subsequent to the adoption hereof.
Section G. Non-Exclusivity of Rights. The rights to indemnification and
to the advance of expenses conferred in this ARTICLE IX shall not be exclusive
of any other right which any person may have or hereafter acquire under this
Restated Certificate of Incorporation or under any statute, by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
Section H. Merger or Consolidation. For purposes of this ARTICLE IX,
references to "the Corporation" shall include any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this ARTICLE IX with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
ARTICLE X - Business Combinations
The Corporation expressly elects to be governed by Section 203
of the Delaware General Corporation Law. Notwithstanding the terms of Section
203 of the Delaware General Corporation Law, Bain Venture Capital IV, L.P. and
its affiliates (the "Bain Entities") shall not be deemed at any time and without
regard to percentage of voting stock of the Corporation owned by the Bain
Entities to be an "interested stockholder" as such term is defined in Section
203(c)5 of the Delaware General Corporation Law.
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ARTICLE XI - Fair Price Provision
Section A. Required Vote for Certain Business Combinations. In addition
to any affirmative vote required by law or by this Restated Certificate of
Incorporation, and except as otherwise expressly provided in Section B of this
ARTICLE XI:
(a) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder (as
herein defined) or (ii) any other corporation or entity (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defied) of any Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $5,000,000 or more; or
(c) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate
of any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $5,000,000
or more; or
(d) the adoption of any plan or proposal for the liquidation,
dissolution or winding up of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder; or
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require, subject to Section B of this ARTICLE XI, the affirmative vote of
the holders of at least 66 2/3% of the voting power of the then outstanding
Voting Stock (as hereinafter defined), voting together as a single class at a
duly constituted meeting of stockholders called expressly for such purpose. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law.
Section B. Definition of "Business Combination." The term "Business
Combination" as used in this ARTICLE XI shall mean any transaction which is
referred to in any one or more of clauses (a) through (e) of Section A of
ARTICLE XI; provided, however, that the term "Business
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Combination" shall not include any transaction which occurs on or prior to the
date of the closing of the initial public offering of the Common Stock of the
Corporation.
Section C. Conditions to be Satisfied. The provisions of Section A of
this ARTICLE XI shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative vote, if any,
as is required by law and any other provisions of this Restated Certificate of
Incorporation, if all of the conditions specified in any of the following
Paragraphs (a), (b) or (c) are met:
(a) The Business Combination shall have been approved by the
affirmative vote of 70% of the Continuing Directors then in office.
(b) All of the following conditions shall have been met:
(i) aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by holders of Common Stock in such Business
Combination shall be at least equal to the highest of the
following:
(A) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers fees) paid by the
Interested Stockholder for any shares of Common Stock
acquired by it (1) within the two-year period
immediately prior to and including the first public
announcement of the proposal of the Business
Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested
Stockholder, whichever is higher;
(B) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date
on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred
to in this ARTICLE XI as the "Determination Date"),
whichever is higher.
(C) The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation
of the Business Combination of consideration other
than cash to be received per share by holders of
shares of any other class of outstanding Voting Stock
in such Business Combination shall be at least equal
to the highest of the following (it being intended
that the requirements of this Paragraph 2(ii) shall
be required to be met with respect to every other
class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any
shares of a particular class of Voting Stock):
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(D) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of such class
of Voting Stock acquired by it (1) within the
two-year period immediately prior to and including
the Announcement Date or (2) in the transaction in
which it became an Interested Stockholder, whichever
is higher;
(E) (if applicable) the highest preferential
amount per share which the holders of shares of such
class of Voting Stock are entitled to receive from
the corporation in the event of any voluntary or
involuntary liquidation, dissolution or winding up of
the corporation; and
(F) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on
the Determination Date, whichever is higher.
(ii) The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash
or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If
the Interested Stockholder has paid for shares of any class of
Voting Stock with varying forms of consideration, the form of
consideration for such a class of Voting Stock shall be either
cash or the form used to acquire the largest number of shares
of such class of Voting Stock previously acquired by such
Interested Stockholder.
(iii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (a) there shall have been (1) no failure
to declare and pay at regular dates therefor the full amount
of any dividends (whether or not cumulative) payable on any
class or series of Preferred Stock, except as approved by the
affirmative vote of a majority of the Continuing Directors;
(2) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision
of the Common Stock), except as approved by the affirmative
vote of the majority of the Continuing Directors; and (3) an
increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, unless the failure so
to increase such annual rate is approved by the affirmative
vote of a majority of the Continuing Directors; the beneficial
owner of any additional shares of Voting Stock except as part
of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
(iv) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly
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or indirectly (except proportionately as a stockholder), of
any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided
by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise, unless
such transaction shall have been approved or ratified by the
affirmative vote of a majority of the Continuing Directors
after such person shall have become an Interested Stockholder.
(v) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the 1934 Act and the rules and regulations
thereunder (or any subsequent provisions replacing such 1934
Act, rules and regulations) shall be mailed to public
stockholders of the Corporation at least 20 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed
pursuant to such 1934 Act, rules or regulations or subsequent
provisions thereof).
(c) Upon consummation of the transaction which resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder owned
at least 85% of the voting stock of the Corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (i) persons who are directors and also
officers of the Corporation and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer.
Section C. Certain Definitions. For the purposes of this ARTICLE XI:
(a) A "person" shall mean an individual, a Group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, a business trust, a government or political subdivision, any
unincorporated organization, or any other association or entity.
(b) "Interested Stockholder" shall mean any person who or
which:
(i) is the beneficial owner, directly or indirectly,
of 15% or more of the voting power of the then outstanding
shares of Voting Stock; or
(ii) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to and
including the date in question was the beneficial owner,
directly or indirectly, of 15% or more of the voting power of
the then outstanding shares of Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
the beneficial ownership of any shares of Voting Stock which
were at any time within the two-year period immediately prior
to and including the date in question beneficially owned by
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any Interested Stockholder, if such assignment or succession
shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the
meaning of the Securities Act of 1933 (or any subsequent
provisions replacing such Act or the rules and regulations
promulgated thereunder) and such Assignment or succession was
not approved by a majority of the Continuing Directors;
provided, however, that the term "Interested Stockholder"
shall not include (1) the Corporation; (2) any Subsidiary of
the Corporation; (3) any person, directly or indirectly,
owning of the record or beneficially 100% of the issued and
outstanding capital stock of the Corporation (other than
directors' qualifying shares, if any); (4) any employee
benefit plan or compensation arrangement of the Corporation or
any Subsidiary of the Corporation; (5) any person holding
shares of Voting Stock organized, appointed or established by
the Corporation or any Subsidiary for or pursuant to the terms
of any such employee benefit plan or compensation arrangement;
or (6) any Grandfathered Person unless such Grandfathered
Person becomes, after the closing of the initial public
offering of shares of Common Stock of the Corporation, the
beneficial owner of more than the Grandfathered Percentage of
the Voting Stock then outstanding.
Notwithstanding the foregoing, no person shall become an "Interested
Stockholder" as the result of an acquisition of Voting Stock by the Corporation
which, by reducing the number of shares outstanding, increase the proportionate
number of shares beneficially owned by such person to 15% (or, if applicable,
the Grandfathered Percentage with respect to such person) or more of the voting
power of the then outstanding shares of Voting Stock; provided, however, that if
a person shall become the beneficial owner of 15% (or, if applicable, the
Grandfathered Percentage with respect to such person) or more of the voting
power of the then outstanding shares of Voting Stock by reason of share
purchases by the Corporation and shall, after such share purchases by the
Corporation, become the beneficial owner of any additional shares of Voting
Stock of the Corporation (other than any shares of Voting Stock issued to such
person as a result of a stock dividend, stock split, reclassification,
recapitalization, or other similar transaction involving the issuance of shares
of Voting Stock on a pro rata basis to all holders of Voting Stock), then such
person shall be deemed to be an "Interested Stockholder" if immediately
thereafter the voting power of the shares of Voting Stock beneficially owned by
such person equals or exceeds 15% (or in the case of a Grandfathered Person, the
Grandfathered Percentage with respect to such person) or more of the voting
power of all of the shares of Voting Stock then outstanding.
(c) A person shall be deemed the "beneficial owner" of, and
shall be deemed to beneficially own, any Voting Stock:
(i) which such person or any of such person's Affiliates or
Associates, directly or indirectly beneficially owns (as determined
pursuant to Rule 13d-3 of the Rules and Regulations promulgated by the
Securities and Exchange Commission under the 1934 Act);
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(ii) which such person or any of its Affiliates or Associates,
directly or indirectly, has or shares with respect to the Voting Stock
(1) the right to acquire, or direct the acquisition of such voting
Stock pursuant to any agreement, arrangement, understanding or
otherwise (whether or not in writing) (other than customary
arrangements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise; provided, however, that a person shall not be deemed the
"beneficial owner" of, or to "beneficially own," securities tendered
pursuant to a tender or exchange offer made by or on behalf of such
person or any of such person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, (2) the
right to vote, or to direct the voting of, such Voting Stock pursuant
to any agreement, arrangement, understanding or otherwise (whether or
not in writing) (provided that a person shall not be deemed to be the
beneficial owner of any securities if the agreement, arrangement or
understanding to vote such security arises solely from a revocable
proxy given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the Rules and Regulations
promulgated under the 1934 Act and is not also then reportable by such
person on Schedule 13D under the 1934 Act (or any comparable or
successor report)), or (3) the right to dispose of, or to direct the
disposition of, such Voting Stock pursuant to any agreement,
arrangement, understanding or otherwise (whether or not in writing)
(other than customary arrangements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities); or
(iii) which is beneficially owned, directly or indirectly, by
any other person (or any Affiliate or Associate thereof) with which
such person or any of such person's Affiliates or Associates has any
agreement, arrangement, understanding or otherwise (whether or not in
writing) (other than customary arrangements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy described in Clause
3(ii)(2) above) or disposing of any shares of Voting Stock;
provided, however, that (1) no person engaged in business as an underwriter of
securities shall be deemed the beneficial owner of any securities acquired
through such person's participation as an underwriter in good faith in a firm
commitment underwriting until the expiration of 40 days after the date of such
acquisition and (2) no person who is a director or an officer of the Corporation
shall be deemed, solely as a result of his or her position as director or
officer of the Corporation, the beneficial owner of any securities of the
Corporation that are beneficially owned by any other director or officer of the
Corporation.
(d) Notwithstanding anything in the definition of beneficial
owner to the contrary, the phrase "then outstanding," when used with reference
to a person's beneficial ownership of securities of the Corporation, shall mean
the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
person would be deemed to own beneficially hereunder.
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(e) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the 1934 Act (or any subsequent provisions replacing the 1934
Act or the rules and regulations promulgated thereunder); provided, however,
that no person who is a director or officer of the Corporation shall be deemed
an Affiliate or an Associate of any other director or officer of the Corporation
solely as a result of his or her position as a director or officer of the
Corporation.
(f) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph (b) of this Section D, the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the Corporation.
(g) "Continuing Director" means (i) any member of the Board of
Directors of the Corporation who is not an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder and was a member of the
Board of Directors prior to the time that the Interested Stockholder became an
Interested Stockholder, and (ii) any person who subsequently becomes a member of
the Corporation's Board of Directors who is not an Associate or Affiliate of an
Interested Stockholder and is recommended or approved by the affirmative vote of
a majority of the Continuing Directors.
(h) "Fair Market Value" means:
(i) in the case of stock, the highest closing sale price
during the 30-day period immediately prior to and including the date in question
of a share of such stock on the principal United States securities exchange
registered under the 1934 Act (or any subsequent provisions replacing such Act
or the rules and regulations promulgated thereunder) on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the 30-day
period immediately prior to and including the date in question on the National
Association of Securities Dealers Automated Quotation System or any comparable
system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by the
affirmative vote of a majority of the Continuing Directors of the Board of
Directors in good faith; and
(ii) in the case of property other than cash or stock, the
fair market value of such property on the date in question as
determined by an affirmative vote of a majority of the Continuing
Directors of the Board of Directors in good faith.
(i) "Group Acting in Concert" shall mean persons seeking to
combine or pool their voting or other interests in the securities of the
Corporation for a common purpose, pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written, oral or
otherwise, or any "group of persons" as defined under Section 13(d) of the 1934
Act (or any
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<PAGE>
subsequent provisions replacing the 1934 Act or the rules and regulations
promulgated thereunder). When persons act together for any such purpose, their
group is deemed to have acquired their stock.
(j) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in Paragraphs (i) and (ii) of Section C of this ARTICLE XI shall include
the shares of Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
(k) "Voting Stock" shall mean the outstanding shares of
capital stock of the Corporation entitled, at the time, to vote generally in the
election of directors.
(l) "Grandfathered Percentage" shall mean, with respect to any
Grandfathered Person, the percentage of the voting power of the then outstanding
shares of Voting Stock that such Grandfathered Person beneficially owns as of
the close of business on the date of the closing of the initial public offering
of shares of Common Stock of the Corporation plus an additional five (5)
percentage points; provided, however, than in the event the underwriters
exercise their over-allotment option in connection with the initial public
offering of shares of Common Stock, the Grandfathered Percentage shall, from and
after the closing of such over-allotment option, mean, with respect to any
Grandfathered Person, the percentage of the voting power of the then outstanding
shares of Voting Stock that such Grandfathered Person beneficially owns as of
the close of business on the date of the closing of the over-allotment option
plus an additional five (5) percentage points; and provided, further, that, in
the event any Grandfathered Person shall sell, transfer, or otherwise dispose of
any outstanding shares of Voting Stock after the close of business on the date
of the closing of the initial public offering of the Corporation's Common Stock,
the Grandfathered Percentage shall, subsequent to such sale, transfer or
disposition, mean, with respect to such Grandfathered Person, the lesser of (1)
the Grandfathered Percentage as in effect immediately prior to such sale,
transfer, or disposition or (2) the percentage of the voting power of the then
outstanding shares of Voting Stock that such Grandfathered Person beneficially
owns immediately following such sale, transfer or disposition plus an additional
five (5) percentage points.
(m) "Grandfathered Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, is, as of the close
of business on the date of the closing of the initial public offering of shares
of Common Stock of the Corporation, the beneficial owner of 15% or more of the
voting power of the then outstanding Voting Stock at such time. Any
Grandfathered Person who becomes, after the close of business on the date of the
initial public offering of shares of Common Stock of the Corporation, the
beneficial owner of less than 15% of the voting power of the then outstanding
shares of Voting Stock shall cease to be a Grandfathered Person.
(n) The term "voting power" shall mean, with respect to each
outstanding share of capital stock of the Corporation, the number of votes which
a holder of such share shall be entitled, at the time, to vote generally in the
election of directors.
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Section D. Powers of the Board of Directors. A majority of the
directors of the Corporation, unless there is an Interested Stockholder, in
which case a majority of the Continuing Directors then in office, shall have the
power to determine for the purposes of this ARTICLE XI, on the basis of
information known to them after reasonable inquiry, (i) whether a person is an
Interested Stockholder, (ii) the number or percentage of shares of Voting Stock
or other equity securities beneficially owned by any person, (iii) whether a
person is an Affiliate or Associate of, or is affiliated or associated with,
another person, (iv) whether the assets of which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $5,000,000 or more, (v)
whether the requirements of Section C of this ARTICLE XI have been met with
respect to any Business Combination, and (vi) any other matters of
interpretation arising under this ARTICLE XI. The good faith determination by
the affirmative vote of 70% of the directors or, if there is an Interested
Stockholder, by the affirmative vote of a majority of the Continuing Directors
then in office, on such matters shall be conclusive and binding for all purposes
of this ARTICLE XI.
Section E. No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this ARTICLE XI shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
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AMENDED AND RESTATED BY-LAWS
OF
STAGE STORES, INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle, State of Delaware, and the name of the corporation's registered
agent at such address shall be The Corporation Trust Company. The registered
office and/or registered agent of the corporation may be changed from time to
time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders shall
be held each year within 120 days after the close of the immediately preceding
fiscal year of the corporation or at such other time specified by the Board of
Directors for the purpose of electing directors and conducting such other proper
business as may come before the meeting. At the annual meeting stockholders
shall elect directors and transact such other business as properly may be
brought before the meeting pursuant to ARTICLE II, Section 11 hereof.
Section 2. Special Meetings. Special Meetings of the stockholders may
only be called in the manner provided in the restated certificate of
incorporation.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings,
<PAGE>
the purpose or purposes, of such meeting, shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting. All such notices shall be delivered, either
personally or by mail, by or at the direction of the board of directors, the
chairman of the board, the president or the secretary, and if mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the outstanding shares
of capital stock entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders, except as
otherwise provided by the General Corporation Law of the State of Delaware or by
the restated certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a specified item of business requires a vote by
a class or series (if the corporation shall then have outstanding shares of more
than one class or series) voting as a class, the holders of a majority of the
shares of such class or series shall constitute a quorum (as to such class or
series) for the transaction of such item of business.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
restated certificate of incorporation a different vote is required, in which
case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the
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election of directors, in which case Section 2 of ARTICLE III hereof shall
govern and control the approval of such subject matter.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the restated certificate of
incorporation of the corporation or any amendments thereto and subject to
Section 3 of ARTICLE VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the secretary or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, (ii)
brought before the meeting by or at the direction of the board of directors, or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy days' notice or
prior public announcement of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the date on
which such notice of the date of the annual meeting was mailed or such public
announcement was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these by-laws to the contrary, no business shall be conducted at an annual
meeting except
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in accordance with the procedures set forth in this Section 11. The presiding
officer of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 11; and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. For purposes of this Section
11, "public announcement" shall mean disclosure in a press release reported by
Dow Jones News Service, Associated Press or a comparable national news service.
Nothing in this Section 11 shall be deemed to affect any rights of stockholders
to request inclusion of proposals in the corporation's proxy statement pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors. In
addition to such powers as are herein and in the restated certificate of
incorporation expressly conferred upon it, the board of directors shall have and
may exercise all the powers of the corporation, subject to the provisions of the
laws of Delaware, the restated certificate of incorporation and these by-laws.
Section 2. Number, Election and Term of Office. Subject to any rights
of the holders of any series of Preferred Stock to elect additional directors
under specified circumstances, the number of directors which shall constitute
the board shall be such as from time to time shall be fixed by resolution
adopted by the affirmative vote of a majority of the total number of directors
then in office. The directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote in the election of directors; provided that, whenever the holders of any
class or series of capital stock of the corporation are entitled to elect one or
more directors pursuant to the provisions of the restated certificate of
incorporation of the corporation (including, but not limited to, for purposes of
these by-laws, pursuant to any duly authorized certificate of designation), such
directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such directors. The directors shall be elected and shall hold
office only in the manner provided in the restated certificate of incorporation.
Section 3. Removal and Resignation. No director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of directors voting together as a
single class; provided, however, that if the holders of any class or series of
capital stock are entitled by the provisions of this restated certificate of
incorporation (it being understood that any references to this restated
certificate of incorporation shall include any duly authorized certificate of
designation) to elect one or more directors, such director or directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote. Any
director may resign at any time upon written notice to the corporation.
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<PAGE>
Section 4. Vacancies. Vacancies and newly created directorships
resulting from any increase in the total number of directors may be filled only
in the manner provided in the restated certificate of incorporation.
Section 5. Nominations.
(a) Only persons who are nominated in accordance with the
procedures set forth in these by-laws shall be eligible to serve as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders (i) by or at the direction of the board
of directors or (ii) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this by-law, who is
entitled to vote for the election of directors at the meeting and who shall have
complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for
election to the board of directors of the corporation at a meeting of
stockholders, such stockholder shall have delivered timely notice of such
stockholder's intent to make such nomination in writing to the secretary of the
corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the corporation (i) in
the case of an annual meeting, not less than sixty (60) nor more than ninety
(90) days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure of the meeting
was made, and (ii) in the case of a special meeting at which directors are to be
elected, not later than the close of business on the tenth (10th) day following
the earlier of the day on which notice of the date of the meeting was mailed or
public announcement of the meeting was made. Such stockholder's notice shall set
forth (i) as to each person whom the stockholder proposes to nominate for
election as a director at such meeting all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(ii) as to the stockholder giving the notice (A) the name and address, as they
appear on the corporation's books, of such stockholder and (B) the class and
number of shares of the corporation which are beneficially owned by such
stockholder and also which are owned of record by such stockholder; and (iii) as
to the beneficial owner, if any, on whose behalf the nomination is made, (A) the
name and address of such person and (B) the class and number of shares of the
corporation which are beneficially owned by such person. At the request of the
board of directors, any person nominated by the board of directors for election
as a director shall furnish to the secretary of the corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
(c) No person shall be eligible to serve as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 5. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 5, and if he should so determine,
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<PAGE>
he shall so declare to the meeting and the defective nomination shall be
disregarded. A stockholder seeking to nominate a person to serve as a director
must also comply with all applicable requirements of the Exchange Act, and the
rules and regulations thereunder with respect to the matters set forth in this
Section 5.
Section 6. Annual Meetings. The annual meeting of the board of
directors shall be held without other notice than this by-law immediately after,
and at the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by the
chairman of the board, the president (if the president is a director) or, upon
the written request of at least a majority of the directors then in office, the
secretary of the corporation on at least 24 hours notice to each director,
either personally, by telephone, by mail, or by telecopy.
Section 8. Chairman of the Board, Quorum, Required Vote and
Adjournment. The board of directors shall elect, by the affirmative vote of a
majority of the total number of directors then in office, a chairman of the
board, who shall preside at all meetings of the stockholders and board of
directors at which he or she is present. If the chairman of the board is not
present at a meeting of the stockholders or the board of directors, the
president (if the president is a director and is not also the chairman of the
board) shall preside at such meeting, and, if the president is not present at
such meeting, a majority of the directors present at such meeting shall elect
one of their members to so preside. A majority of the total number of directors
then in office shall constitute a quorum for the transaction of business. Unless
by express provision of an applicable law, the corporation's amended and
restated certificate of incorporation or these by-laws a different vote is
required, the vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Committees. The board of directors may, by resolution passed
by a majority of the total number of directors then in office, designate one or
more committees, each committee to consist of one or more of the directors of
the corporation, which to the extent provided in such resolution or these
by-laws shall have, and may exercise, the powers of the board of directors in
the management and affairs of the corporation, except as otherwise limited by
law. The board of directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
Section 10. Committee Rules. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise
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provided in such a resolution, the presence of at least a majority of the
members of the committee shall be necessary to constitute a quorum. Unless
otherwise provided in such a resolution, in the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 9 of this ARTICLE III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
Section 11 shall constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of
the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by
the restated certificate of incorporation, any action required or permitted to
be taken at any meeting of the board of directors, or of any committee thereof,
may be taken without a meeting if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by
the board of directors and shall consist of a chairman of the board, if any is
elected, chief executive officer, a president, one or more vice-presidents, a
secretary, a chief financial officer, a treasurer and such other officers and
assistant officers as may be deemed necessary or desirable by the board of
directors. Any number of offices may be held by the same person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
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Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors.
Section 5. Compensation. Compensation of all executive officers shall
be approved by the board of directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of the
corporation.
Section 6. The Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the board, an officer of the
Corporation, and, if present, shall preside at each meeting of the board of
directors or shareholders. The Chairman of the Board shall, in the absence or
disability of the president, act with all of the powers and be subject to all
the restrictions of the president. He shall advise the president, and in the
president's absence, other officers of the Corporation, and shall perform such
other duties as may from time to time be assigned to him by the board of
directors.
Section 7. Chief Executive Officer. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to the
powers of the board of directors, he shall be in the general and active charge
of the entire business and affairs of the corporation, and shall be its chief
policy making officer. In the abscence of the Chairman of the Board, he shall
preside at all meetings of the board of directors and stockholders and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or provided in these by-laws. The chief executive officer is
authorized to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the board of directors to some other
officer or agent of the corporation. Whenever the president is unable to serve,
by reason of sickness, absence or otherwise, the chief executive officer shall
perform all the duties and responsibilities and exercise all the powers of the
president.
Section 8. The President. The president of the corporation shall,
subject to the powers of the board of directors and the chairman of the board,
have general charge of the business, affairs and property of the corporation,
and control over its officers, agents and employees; and shall see that all
orders and resolutions of the board of directors are carried into effect. The
president is authorized to execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other
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officer or agent of the corporation. The president shall have such other powers
and perform such other duties as may be prescribed by the chief executive
officer, the board of directors or as may be provided in these by-laws.
Section 9. Vice-presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the board of
directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the board of directors, the chief executive officer,
the president or these by-laws may, from time to time, prescribe. The
vice-presidents may also be designated as executive vice-presidents or senior
vice-presidents, as the board of directors may from time to time prescribe.
Section 10. The Secretary and Assistant Secretaries. The secretary
shall attend all meetings of the board of directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose or
shall ensure that his or her designee attends each such meeting to act in such
capacity. Under the chairman of the board's supervision, the secretary shall
give, or cause to be given, all notices required to be given by these by-laws or
by law; shall have such powers and perform such duties as the board of
directors, the chief executive officer, the president or these by-laws may, from
time to time, prescribe; and shall have custody of the corporate seal of the
corporation. The secretary, or an assis tant secretary, shall have authority to
affix the corporate seal to any instrument requiring it and when so affixed, it
may be attested by his or her signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corpora tion and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
chief executive officer, the president, or secretary may, from time to time,
prescribe.
Section 11. The Chief Financial Officer. The chief financial officer:
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the chairman of the board
or the board of directors; shall cause the funds of the corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the board of directors, at
its regular meeting or when the board of directors so requires, an account of
the corporation; shall have such powers and perform such duties as the board of
directors, the chief executive officer, the president or these by-laws may, from
time to time, prescribe. If required by the board of directors, the chief
financial officer shall give the corporation a bond (which shall be rendered
every six years) in such sums and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of the office of chief financial officer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the chief financial officer belonging to
the corporation.
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Section 12. Treasurer. The treasurer shall, in the absence or
disability of the chief financial officer, act with all of the powers and be
subject to all the restrictions of the chief financial officer. The treasurer
shall also perform such other duties and have such other powers as the board of
directors, the chief executive officer, the chief financial officer or these
by-laws may, from time to time, prescribe.
Section 13. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 14. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person selected by it.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by such holder in the corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the corporation or its employee or (ii) by a registrar, other than the
corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary, or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the corporation. Shares of stock of the corporation
shall only be transferred on the books of the corporation by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the corporation of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such evidence of the
authenticity of such endorsement, transfer, authorization, and other matters as
the corporation may reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the corporation to issue
a new certificate to the person entitled thereto, cancel the old certificate or
certificates, and record the transaction on its books. The board of directors
may appoint a bank or trust company organized
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under the laws of the United States or any state thereof to act as its transfer
agent or registrar, or both in connection with the transfer of any class or
series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 6. Subscriptions for Stock. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at
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such times, as shall be determined by the board of directors. Any call made by
the board of directors for payment on subscriptions shall be uniform as to all
shares of the same class or as to all shares of the same series. In case of
default in the payment of any installment or call when such payment is due, the
corporation may proceed to collect the amount due in the same manner as any debt
due the corporation.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the restated certificate of
incorporation, if any, may be declared by the board of directors at any regular
or special meeting, in accordance with applicable law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the provisions
of the restated certificate of incorporation. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or any other purpose and the directors may modify or abolish any
such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
orders for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to ARTICLE IV hereof, the board of directors may authorize any
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer or employee who is a
director of the corporation or its subsidiaries, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
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Section 5. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the board of
directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the power
to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The board of directors
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
board of directors or of the stockholders of the corporation.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the restated
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these by-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
AMENDMENTS
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
make, alter, amend, change, add to or repeal these by-laws by the affirmative
vote of 70% of the total number of directors then in office. Any alteration or
repeal of these by-laws by the stockholders of the corporation shall require the
affirmative vote of a majority of the outstanding shares of the corporation
entitled to vote on such alteration or repeal; provided, however, that Section
11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VII
of these by-laws shall not be altered, amended or repealed and no provision
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inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of the corporation
entitled to vote on such alteration or repeal.
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October 24, 1996
Stage Stores, Inc.
10201 Main Street
Houston, Texas 77025
Re: Shares of Common Stock, $.01 par value
Ladies and Gentlemen:
We are acting as counsel to Stage Stores, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), of a Registration Statement on Form S-1 (File
No. 333-5855) (the "Registration Statement") pertaining to the registration of a
proposed offering of shares of the Company's Common Stock, $.01 par value per
share (the "Common Stock") yielding gross proceeds of up to $202,400,000.00.
We have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate records and other
instruments as we have deemed necessary for the purposes of this opinion,
including the following: (i) Amended and Restated Certificate of Incorporation
and the Bylaws of the Company, each as amended to the date hereof; and (ii)
certain resolutions adopted by the Board of Directors of the Company. In
addition, we have made such other and further investigations as we have deemed
necessary to enable us to express the opinions hereinafter set forth.
Based upon the foregoing and having regard to legal
considerations that we deem relevant, and subject to the comments and
qualifications set forth below, it is our opinion that the Common Stock has been
duly authorized.
For purposes of this opinion, we have with your permission
made the following assumptions, in each case without independent verification:
(i) the authenticity of all documents submitted to us as originals, (ii) the
conformity to the originals of all documents submitted to us as copies, (iii)
the authenticity of the originals of all documents submitted to us as copies,
(iv) the genuineness of the signatures of persons signing all documents in
connection with which this opinion is rendered, (v) the authority of such
persons signing all documents on behalf of the parties thereto and (vi) the due
authorization, execution and delivery of all documents by the parties thereto.
We hereby consent to the filing of this opinion as an exhibit
to the Registration
<PAGE>
Stage Stores, Inc.
October 24, 1996
Page 2
Statement and the incorporation by reference of this opinion in a registration
statement filed under Rule 462(b) under the Securities Act of 1933, as amended,
which incorporates by reference the contents of the Registration Statement. In
giving such consent, we do not thereby concede that we are within the category
of persons whose consent is required under Section 7 of the Securities Act or
the Rules and Regulations promulgated thereunder.
We do not find it necessary for purposes of this opinion to
cover, and accordingly we do not purport to cover herein, the application of the
securities or "Blue Sky" laws of the various states to the offering and sale of
the Common Stock.
This opinion shall be limited to the laws of the State of
Delaware.
This opinion is furnished to you in connection with the filing
of the Registration Statement and is not to be used, circulated, quoted or
otherwise relied upon for any other purpose.
Very truly yours,
KIRKLAND & ELLIS
STAGE STORES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of June 12, 1996, between Stage Stores, Inc.
a Delaware corporation (the "Company"), and Carl Tooker ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall continue to employ Executive, and
Executive hereby accepts continued employment with the Company, upon the terms
and conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 4 hereof (the Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of the Company and shall have the normal
duties, responsibilities and authority of the President and Chief Executive
Officer, subject to the power of the Board to expand or limit such duties,
responsibilities and authority and to override action of the President and Chief
Executive Officer.
(b) Executive shall report to the Board, and Executive shall devote his
best efforts and his full business time and attention (expect for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affaires of the Company and its Subsidiaries. Executive shall
preform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the sale time of determination, owned by the Company,
directly or through one or more Subsidiaries.
(d) Whenever this Agreement calls for action on the part of the Board,
the Board may delegate responsibility for such action to a duly appointed
committee of the Board, including the Compensation Committee of the board.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$600,000 per annum or such other rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Executive
shall be entitled to participate in all of the Company's employment benefit
programs for which senior executive employees of the Company and its
Subsidiaries are generally eligible, including all supplemental benefits such
as; supplemental retirement plans, supplemental medical plans, supplemental
disability plans, deferred compensation plans, supplemental life insurance plans
and any other approved plans made available by the company to the Executive.
Also, the Executive shall be entitled to four (4) weeks of paid vacation each
year, which if not taken may not be carried forward to any subsequent year.
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(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing such duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses. In addition, the Company will provide Executive with an automobile
allowance of $1000 per month and a housing allowance of $1,667 per month.
(c) In addition to the Base Salary, the Board may award a bonus to
Executive following the end of each fiscal year during the Employment Period
based upon Executive's performance and the Company's operating results during
such year in relation to performance targets established by the Board.
Determination of the bonus amount shall take into account such unusual or
non-recurring items as Board deems appropriate.
4. Term and Termination.
(a) The initial employment period shall end on June 12, 1997 and the
Employment Period shall be automatically renewed for consecutive additional
periods of one year each commencing at the end of the initial Employment Period
hereof or any subsequent renewal term, on the same terms and conditions as
herein set forth; however (i) the Employment Period shall terminate prior to the
expiration of the initial or subsequent Employment Period upon Executive's
resignation other than for Good Reason (as defined below), death or permanent
disability or incapacity which persists for a period of 6 consecutive months (as
determined by the Board in its good faith judgement) and (ii) the Employment
Period may be terminated by the Company at any time prior to such date for Good
Cause (as defined below) or without Good Cause.
(b) In addition to termination of the Employment Period as provided
above, Executive may terminate the Employment Period for Good Reason. If
Executive deems Good Reason to exist Executive shall deliver a written notice to
the Company specifying the violation. If the Company shall fail, within (10)
days, to respond to such notice in writing, or shall respond but shall fail to
specify action taken to correct the event or condition which gave or is giving
rise to such Good Reason, Executive may, at his option, resign his employment by
giving a further written notice which shall state an effective date of such
resignation no earlier than ten (10) days and no later than twenty (20) days
thereafter. Such resignation shall be deemed a termination by the Executive for
Good Reason.
(c) If the Employment Period is terminated by the Company without Good
Cause or by Executive for Good Reason, Executive shall be entitled to receive a
amount equal to one and one-half times his annual Base Salary in effect on the
date of termination of Executive's employment (the "Termination Date") together
with any accrued and unpaid benefits and bonus, if and only if Executive has not
breached the provisions of paragraphs 7 and 8 hereof and is not entitled to
receive payments pursuant to paragraph 5 hereof. The amounts payable pursuant to
this paragraph 4(c) may be payable, at Executive's discretion, in one lump sum
payment within 30 days following termination of the Employment Period and will
not be reduced by any other compensation he has earned from any other source nor
by any other benefits due him.
(d) If the Employment Period is terminated by the Company for Good
Cause or is terminated pursuant to clause (a)(i) above, Executive shall be
entitled to receive his Base Salary through the date of termination.
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(e) Prior to the occurrence of a Change in Control (as defined), "Good
Reason" is defined as (a) non-payment of compensation which shall persist more
than ten days after written notice of such non-payment is given by Executive to
the Company; (b) removal of Executive from the offership position of President
or as a Director of Specialty Retailers, Inc.; (c) Executive shall be assigned
any duties which are not appropriate to the position assigned to him pursuant to
this Agreement or shall be deprived of any of the authority previously exercised
by him; (d) Executive's responsibilities as Chief Executive Officer are
substantially diminished, or any other person shall be appointed to a position
of equal or superior authority to Executive; or (e) the Company shall comment a
substantial breach of any other material provision of this Agreement.
(f) All of Executive's rights to fringe benefits and bonuses hereunder
(if any) which accrue after the termination of the Employment Period shall cease
upon such termination.
(g) Prior to receipt of any severance benefits hereunder including any
amounts payable pursuant to sections 4(b), 4(c) or 5(a), Executive shall execute
a release of claims against the Company and its affiliates in form and substance
reasonably satisfactory to the Company.
5. Change in Control.
(a) If at any time after the date hereof a Change in Control of the
Company occurs and within three years thereafter (i) Executive involuntarily
ceases to be an employee of the Company for any reason other than termination
for Good Cause, disability or death or (ii) Executive terminates his employment
with the Company for Good Reason, then Executive shall be entitled to benefits
under this Section 5. The amount of such benefits (which benefits shall be in
addition to any other benefits to which Executive is entitled other than by
reason of this Agreement) shall be equal to the sum of (i) unpaid salary with
respect to any vacation days accrued but not taken as of the Termination Date,
(ii) accrued but unpaid salary and bonus through the Termination Date; and (iii)
an amount equal to three times the Base Salary in effect on the Termination
Date. Executive shall not be required to mitigate the amount of any payment or
benefit provided for in this Section 5 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section be
reduced by any compensation earned by him as a result of employment by another
employer or by retirement benefits after the Termination Date, or otherwise.
(b) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (i) any "person" or "group" (as such terms are used
in Section 13(b) of the Securities Exchange Act of 1937, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities (other than Bain Capital ("Bain") or Acadia Partners,
L.P. ("Acadia"), or an affiliate of Bain or Acadia) and, following such "person"
or "group" acquiring 50% or more of the combined voting power of the Company
(the "Trigger Date") the members of the Board immediately prior to the Trigger
Date cease to constitute a majority of the Board, (ii) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the surviving or continuing corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have (directly or
indirectly) at least a 51% ownership interest in the outstanding Common Stock of
the surviving corporation immediately after the merger, (iii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions)
3
<PAGE>
of all, or substantially all, of the assets of the Company, or (iv) the
stockholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company.
6. Certain Definitions. For purposes of this Agreement, "Good Cause"
means (A) Executive's conviction of any criminal violation involving dishonesty,
fraud or breach of trust, (B) Executive's gross negligence or willful and
serious misconduct in the performance of his duties, or (c) Executive's willful
failure to comply with the directives of the Board; Executive shall be
"disabled" if, by any reason of physical or mental disability, he becomes unable
to preform his normal duties for more than 6 months in aggregate (excluding
infrequent and temporary absence due to ordinary transitory illness) during any
twelve-month period; and ("Good Reason") shall exist, following a Change in
Control, if, with our Executive's express written consent, (A) Executive is
assigned duties materially inconsistent with his position, duties,
responsibilities and status with the Company as of the time of a Change of
Control, (B) the Company reduces Executive's Base Salary as in effect on the
effective date hereof, or (c) the Company requires Executive regularly to
perform his duties of employment beyond a fifty-mile radius from the location of
his employment as of the time of a Change of Control.
7. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and its Subsidiaries concerning the business or affairs of the Company or any
Subsidiary ("Confidential Information") are the property of the Company or such
Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own purposes any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Executive's acts or omissions. Executive
shall deliver to the Company at the termination of the Employment Period, or at
any time the Company may request, all memoranda, notes, plans, records, reports,
computer tapes, printouts and software and other documents and data (and copies
thereof) relating to the Confidential Information, or the business of the
Company or any Subsidiary which he may then posses or have under his control.
8. Non-Complete, Non-Solicitation.
(a) Executive hereby agrees that during the Noncompete Period (as
defined below), he will not directly or indirectly either for himself or for any
other person or entity (whether as an owner, stockholder, consultant, agent,
advisor, partner (general or limited) or otherwise), individually or as a part
of a group, own, operate, manage, control, participate in, consult with, render
services for, or in any manner engage in any business competing with any part of
the business presently engaged in by the Company within any geographical area in
which the Company engages or proposes to engage in such business (or solicit any
person to engage in any of the foregoing activities). For purposes of the
foregoing, a business shall be deemed to be competing with the business of the
Company if such business (i) operates apparel stores in Houston or (ii) (a)
operates apparel stores in small markets (i.e., with populations of less than
100,000) and (b) operates apparel stores in 10,000 - 30,000 square foot formats
and (c) has sales in excess of $10 million per annum. "Noncompete Period" shall
mean the term of Executive's employment and (i) in the event Executive's
employment is terminated by the company for Good Cause or by Executive other
than for Good Reason the period ending on the date twenty-four months after
Termination Date and (ii) in the event Executive's employment is terminated by
the Company other than for Good Cause or by Executive for Good Reason, the
period ending twelve months after the Termination Date. Nothing herein shall
prohibit Executive from being a passive owner of not more than 5% in the
aggregate, of the outstanding stock of any
4
<PAGE>
class of a corporation which is publicly traded and which competes with the
business of the Company so long as Executive has no direct or indirect
participation in the management of such corporation. Executive acknowledged that
there is no general geographical restriction contained in this paragraph due to
the Company-wide nature of his job responsibilities and that no lesser scope of
the restriction would adequately protect the Company's assets and other
legitimate business interests.
(b) During the period ending twenty-four months after the Termination
Date, Executive agrees not to directly or indirectly, on his own behalf or for
any other person or entity, induce or attempt to induce any employee of the
Company to leave the employ of the Company, hire any person who is an employee
of the Company as of or immediately prior to the time of such hiring, or induce
or attempt to induce any manufacturers' representative, customer, supplier,
licensee, agent or other business relation of the Company to cease doing
business with the Company.
9. Option Grants.
(a) In consideration of Executive entering into this Agreement, the
Company has granted to Executive as of June 12, 1996 options to purchase 100,000
shares of the Company's common stock at a price of $20.00 per share(1)*. The
option grant shall be governed by a separate option agreement which shall
provide that such options will vest and become exercisable on the fifth
anniversary of grant or, if earlier following a Change in Control, upon the
termination of Executive other than for Good Cause or by Executive for Good
Reason.
(b) In the event Executive exercises any of his options (including the
options referred to in paragraph 9(a) above), if requested by Executive, the
Company will give Executive an 'Option Loan' (with interest charged annually and
added to principal at the applicable prime rate) in principal amount equal to
the tax cost (defined as Executive's tax liability associated with the income
recognized upon exercise of the option due to the spread between fair market
value and the exercise price). The Option Loan will be for such term and contain
such other provisions as the Company and Executive will agree.
(c) Upon making an option loan, the option stock shall be held as
collateral for the Option Loan by the Company pursuant to a security agreement
which shall provide that the option stock is held as security for repayment of
the Option Loan, and shall further provide for (i) the sale of option stock by
the Company at the discretion and direction of Executive after all of the sale
restrictions lapse, (ii) the receipt of the proceeds by the Company in repayment
of the loan, and (iii) remission of any excess proceeds following such repayment
to Executive. Such security agreements shall also contain such additional
provisions as are customary in similar agreements. Executive will be entitled to
all dividends and distributions on the option stock which shall be retained by
the Company and applied to the repayment, first to interest and then to the
principal, of the loan.
10. Survival. Paragraphs 7 and 8 and paragraphs 11 through 18 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
- --------
1 * The number of shares and exercise price of such option shall be
equitably adjusted to reflect any stock splits of the Company's common stock as
provided in the agreement governing such option.
5
<PAGE>
11. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Carl Tooker
3805 West Alabama, #5104
Houston, Texas 77027
Notices to the Company:
Stage Stores, Inc.
10201 South Main Street
Houston, Texas 77025
Attention Chief Financial Officer
or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this agreement shall be deemed to have been given when
so delivered or mailed.
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement if held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, constructed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Compete Agreement. This Agreement, those documents expressly
referred to herein and other documents of every date herewith embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14. No Strict Construction. The language used in this Agreement shall
be deemed to be language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
6
<PAGE>
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Texas, without giving effect to any choice of law
or conflict of law rules or provision (whether of the State of Texas or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas. In furtherance of the foregoing, the
internal law of the State of Texas shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under the jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity binding effect or
enforceability of this Agreement.
* * * * *
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date written above.
STAGE STORES, INC.
By ___________________________
Its __________________________
-----------------------------
Carl Tooker
8
STAGE STORES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of June 12, 1996, between Stage Stores, Inc.
A Delaware corporation (the "Company"), and Mark Shulman ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall continue to employ Executive, and
Executive hereby accepts continued employment with the Company, upon the terms
and conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 4 hereof (the Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President, Chief Merchandising Officer of the Company and shall
have the normal duties, responsibilities and authority of the Executive Vice
President, Chief Merchandising Officer, subject to the power of the Board to
expand or limit such duties, responsibilities and authority and to override
actions of Executive Vice President, Chief Merchandising Officer.
(b) Executive shall report to the Board or to the Chief Executive
Officer, as designated by this board, and Executive shall devote his best
efforts and his full business time and attention (except for permitted vacation
periods and reasonable periods of illness or other incapacity) to the business
and affairs of the Company and its Subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
(d) Whenever this Agreement calls for action on the part of the Board,
the Board may delegate responsibility for such action to a duly appointed
committee of the Board, including the Compensation Committee of the Board.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$350,000 per annum or such other rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Executive
shall be entitled to participate in all of the Company's employment benefit
programs for which senior executive employees of the Company and its
Subsidiaries are generally eligible,
<PAGE>
including all supplemental benefit programs such as; supplemental retirement
plans, supplemental medical plans, supplemental disability plans,
deferredcompensation plans, supplemental life insurance plans and any other
approved plans made available by the Company to the Executive. Also, the
Executive shall be entitled to four (4) weeks of paid vacation each year, which
if not taken may not be carried forward to any subsequent year.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing such duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, the Board may award a bonus to
Executive following the end of each fiscal year during the Employment Period
based upon Executive's performance and the Company's operating results during
such year in relation to performance targets established by the Board.
Determination of the bonus amount shall take into account such unusual or
non-recurring items as Board deems appropriate.
4. Term and Termination.
(a) The initial employment period shall end on June 12, 1997 and the
Employment Period shall be automatically renewed for consecutive additional
periods of one year each commencing at the end of the initial Employment Period
hereof or any subsequent renewal term, on the same terms and conditions as
herein set forth; however (i) the Employment Period shall terminate prior to the
expiration of the initial or subsequent Employment Period upon Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgement) and (ii) the Employment Period may be
terminated by the Company at any time prior to such a date for Good Cause (as
defined below) or without Good Cause.
(b) If the Employment Period is terminated by the Company without Good
Cause, Executive shall be entitled to receive an amount equal to his annual Base
Salary in effect on the date of termination of Executive's employment (the
"Termination Date") together with any accrued and unpaid benefits and bonus, if
and only if Executive has not breached the provisions of paragraphs 7 and 8
hereof and is not entitled to receive payments pursuant to paragraph 5 hereof.
The amounts payable pursuant to this paragraph 4(b) may be payable, at the
Executives discretion, in one lump sum within 30 days following termination of
the Employment period and will not be reduced by any other compensation he has
earned from any other source nor by any benefits due to him.
(c) If the Employment Period is terminated by the Company for Good
Cause or is terminated pursuant to clause (a)(i) above, Executive shall be
entitled to receive his Base Salary through the date of termination.
(d) All of Executive's rights to fringe benefits and bonuses hereunder
(if any) which accrue after the termination of the Employment Period shall cease
upon such termination.
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<PAGE>
(e) Prior to receipt of any severance benefits hereunder including any
amounts payable pursuant to sections 4(b), 4(c) or 5(a), Executive shall execute
a release of claims against the Company and its affiliates in form and substance
reasonably satisfactory to the Company.
5. Change in Control.
(a) If at any time after the date hereof a Change in Control (as
defined) of the Company occurs and within two years thereafter (i) Executive
involuntarily ceases to be an employee of the Company for any reason other than
termination for Good Cause, disability or death or (ii) Executive terminates his
employment with the Company for Good Reason (as defined), then Executive shall
be entitled to benefits under this Section 5. The amount of such benefits (which
benefits shall be in addition to any other benefits to which Executive is
entitled other than by reason of this Agreement) shall be equal to the sum of
(i) unpaid salary with respect to any vacation days accrued but not taken as of
the Termination Date; (ii) accrued but unpaid salary and bonus through the
Termination Date; and (iii) an amount equal to two times the Base Salary in
effect on the Termination Date. The amount of any payment or benefit provided
for in clause 5(a)(iii) above shall be payable at Executives discretion in one
lump sum payment within 30 days following the termination of Executive and shall
not be reduced by any compensation earned by him from any other source.
(b) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (i) any "person" or "group" (as such terms are used
in Section 13(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities (other than Bain Capital ("Bain") or Acadia Partners,
L.P. ("Acadia"), or an affiliate of Bain or Acadia) and, following such "person"
or "group" acquiring 50% or more of the combined voting power of the Company
(the "Trigger Date") the members of the Board immediately prior to the Trigger
Date cease to constitute a majority of the Board, (ii) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the surviving or continuing corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have (directly or
indirectly) at least a 51% ownership interest in the outstanding Common Stock of
the surviving corporation immediately after the merger, (iii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(iv) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company.
6. Certain Definitions. For purposes of this Agreement, "Good Cause"
means (A) Executive's conviction of any criminal violation involving dishonesty,
fraud or breach of trust, (B) Executive's gross negligence or willful and
serious misconduct in the performance of his duties, or (C) Executive's willful
failure to comply with the directives of the Board or the Chief Executive
Officer; and "Good Reason" shall exist if, without Executive's express written
consent, (A) Executive is assigned duties materially inconsistent with his
position, duties, responsibilities and status with the Company as of the time of
a Change of Control, (B) the Company reduces Executive's Base Salary as in
effect on the effective date hereof, or (C) the Company requires
3
<PAGE>
Executive regularly to perform his duties of employment beyond a fifty-mile
radius from the location of his employment as of the time of a Change in
Control.
7. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and its Subsidiaries concerning the business or affairs of the Company or any
Subsidiary ("Confidential Information") are the property of the Company or such
Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own purposes any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Executive's acts or omissions. Executive
shall deliver to the Company at the termination of the Employment Period, or at
any time the Company may request, all memoranda, notes, plans, records, reports,
computer tapes, printouts and software and other documents and data (and copies
thereof) relating to the Confidential Information, or the business of the
Company or any Subsidiary which he may then posses or have under his control.
8. Non-Complete, Non-Solicitation.
(a) Executive hereby agrees that during the Noncompete Period (as
defined below), he will not directly or indirectly either for himself or for any
other person or entity (whether as an owner, stockholder, consultant, agent,
advisor, partner (general or limited) or otherwise), individually or as a part
of a group, own, operate, manage, control, participate in, consult with, render
services for, or in any manner engage in any business competing with any part of
the business presently engaged in by the Company within any geographical area in
which the Company engages or proposes to engage in such business (or solicit any
person to engage in any of the foregoing activities). For purposes of the
foregoing, a business shall be deemed to be competing with the business of the
Company if such business (i) operates apparel stores in Houston or (ii) (a)
operates apparel stores in small markets (i.e., with populations of less than
100,000) and (b) operates apparel stores in 10,000 - 30,000 square foot formats
and (c) has sales in excess of $10 million per annum. "Noncompete Period" shall
mean the term of Executive's employment and (i) in the event Executive's
employment is terminated by the Company for Good Cause or by Executive other
than for Good Reason the period ending on the date twenty-four months after
Termination Date and (ii) in the event Executive's employment is terminated by
the Company other than for Good Cause or by Executive for Good Reason, the
period ending twelve months after the Termination Date. Nothing herein shall
prohibit Executive from being a passive owner of not more than 5% in the
aggregate, of the outstanding stock of any class of a corporation which is
publicly traded and which competes with the business of the Company so long as
Executive has no direct or indirect participation in the management of such
corporation. Executive acknowledged that there is no general geographical
restriction contained in this paragraph due to the Company-wide nature of his
job responsibilities and that no lesser scope of the restriction would
adequately protect the Company's assets and other legitimate business interests.
(b) During the period ending twenty-four months after the Termination
Date, Executive agrees not to directly or indirectly, on his own behalf or for
any other person or entity, induce or attempt to induce any employee of the
Company to leave the employ of the Company, hire any
4
<PAGE>
person who is an employee of the Company as of or immediately prior to the time
of such hiring, or induce or attempt to induce any manufacturers'
representative, customer, supplier, licensee, agent or other business relation
of the Company to cease doing business with the Company.
9. Option Grants. In consideration of Executive entering into this
Agreement, the Company has granted to Executive as of June 12, 1996 options to
purchase 50,000 shares of the Company's common stock at a price of $20.00 per
share*(1). The option grant shall be governed by a separate option agreement
which shall provide that such options will vest and become exercisable on the
fifth anniversary of grant or, if earlier, following a Change of Control, upon
the termination of Executive other than for Good Cause or by Executive for Good
Reason.
10. Survival. Paragraphs 7 and 8 and paragraphs 11 through 18 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
11. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Mark Shulman
1 Farnham Park
Houston, TX 77024
Notices to the Company:
Stage Stores, Inc.
10201 South Main Street
Houston, Texas 77025
Attention: Executive
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced
- --------
1 The number of shares and exercise price of such option shall be
equitably adjusted to reflect any stock splits of the Company's common stock as
provided in the agreement governing such option.
5
<PAGE>
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
13. Compete Agreement. This Agreement, those documents expressly
referred to herein and other documents of every date herewith embody the
complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
14. No Strict Construction. The language used in this Agreement shall
deemed to be language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Texas, without giving effect to any choice of law
or conflict of law rules or provisions (whether of the State of Texas or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas. In furtherance of the foregoing, the
internal law of the State of Texas shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under the jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity binding effect or
enforceability of this Agreement.
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
STAGE STORES, INC.
By ___________________________
Its __________________________
-----------------------------
7
STAGE STORES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of June 12, 1996, between Stage Stores, Inc.
A Delaware corporation (the "Company"), and Jim Marcum ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall continue to employ Executive, and
Executive hereby accepts continued employment with the Company, upon the terms
and conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 4 hereof (the Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President, Chief Financial Officer of the Company and shall have
the normal duties, responsibilities and authority of the Executive Vice
President, Chief Financial Officer, subject to the power of the Board to expand
or limit such duties, responsibilities and authority and to override actions of
Executive Vice President, Chief Financial Officer.
(b) Executive shall report to the Board or to the Chief Executive
Officer, as designated by this board, and Executive shall devote his best
efforts and his full business time and attention (except for permitted vacation
periods and reasonable periods of illness or other incapacity) to the business
and affairs of the Company and its Subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
(d) Whenever this Agreement calls for action on the part of the Board,
the Board may delegate responsibility for such action to a duly appointed
committee of the Board, including the Compensation Committee of the Board.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$300,000 per annum or such other rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Executive
shall be entitled to participate in all of the Company's employment benefit
programs for which senior executive employees of the Company and its
Subsidiaries are generally eligible, including all supplemental benefit programs
such
<PAGE>
as; supplemental retirement plans, supplemental medical plans, supplemental
disability plans, deferred compensation plans, supplemental life insurance plans
and any other approved plans made available by the Company to the Executive.
Also, the Executive shall be entitled to four (4) weeks of paid vacation each
year, which if not taken may not be carried forward to any subsequent year.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing such duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, the Board may award a bonus to
Executive following the end of each fiscal year during the Employment Period
based upon Executive's performance and the Company's operating results during
such year in relation to performance targets established by the Board.
Determination of the bonus amount shall take into account such unusual or
non-recurring items as Board deems appropriate.
4. Term and Termination.
(a) The initial employment period shall end on June 12, 1997 and the
Employment Period shall be automatically renewed for consecutive additional
periods of one year each commencing at the end of the initial Employment Period
hereof or any subsequent renewal term, on the same terms and conditions as
herein set forth; however (i) the Employment Period shall terminate prior to the
expiration of the initial or subsequent Employment Period upon Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgement) and (ii) the Employment Period may be
terminated by the Company at any time prior to such a date for Good Cause (as
defined below) or without Good Cause.
(b) If the Employment Period is terminated by the Company without Good
Cause, Executive shall be entitled to receive an amount equal to his annual Base
Salary in effect on the date of termination of Executive's employment (the
"Termination Date") together with any accrued and unpaid benefits and bonus, if
and only if Executive has not breached the provisions of paragraphs 7 and 8
hereof and is not entitled to receive payments pursuant to paragraph 5 hereof.
The amounts payable pursuant to this paragraph 4(b) may be payable, at the
Executives discretion, in one lump sum within 30 days following termination of
the Employment period and will not be reduced by any other compensation he has
earned from any other source nor by any benefits due to him.
(c) If the Employment Period is terminated by the Company for Good
Cause or is terminated pursuant to clause (a)(i) above, Executive shall be
entitled to receive his Base Salary through the date of termination.
(d) All of Executive's rights to fringe benefits and bonuses hereunder
(if any) which accrue after the termination of the Employment Period shall cease
upon such termination.
(e) Prior to receipt of any severance benefits hereunder including any
amounts payable pursuant
2
<PAGE>
to sections 4(b), 4(c) or 5(a), Executive shall execute a release of claims
against the Company and its affiliates in form and substance reasonably
satisfactory to the Company.
5. Change in Control.
(a) If at any time after the date hereof a Change in Control (as
defined) of the Company occurs and within two years thereafter (i) Executive
involuntarily ceases to be an employee of the Company for any reason other than
termination for Good Cause, disability or death or (ii) Executive terminates his
employment with the Company for Good Reason (as defined), then Executive shall
be entitled to benefits under this Section 5. The amount of such benefits (which
benefits shall be in addition to any other benefits to which Executive is
entitled other than by reason of this Agreement) shall be equal to the sum of
(i) unpaid salary with respect to any vacation days accrued but not taken as of
the Termination Date; (ii) accrued but unpaid salary and bonus through the
Termination Date; and (iii) an amount equal to two times the Base Salary in
effect on the Termination Date. The amount of any payment or benefit provided
for in clause 5(a)(iii) above shall be payable at Executives discretion in one
lump sum payment within 30 days following the termination of Executive and shall
not be reduced by any compensation earned by him from any other source.
(b) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (i) any "person" or "group" (as such terms are used
in Section 13(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities (other than Bain Capital ("Bain") or Acadia Partners,
L.P. ("Acadia"), or an affiliate of Bain or Acadia) and, following such "person"
or "group" acquiring 50% or more of the combined voting power of the Company
(the "Trigger Date") the members of the Board immediately prior to the Trigger
Date cease to constitute a majority of the Board, (ii) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the surviving or continuing corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have (directly or
indirectly) at least a 51% ownership interest in the outstanding Common Stock of
the surviving corporation immediately after the merger, (iii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(iv) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company.
6. Certain Definitions. For purposes of this Agreement, "Good Cause"
means (A) Executive's conviction of any criminal violation involving dishonesty,
fraud or breach of trust, (B) Executive's gross negligence or willful and
serious misconduct in the performance of his duties, or (C) Executive's willful
failure to comply with the directives of the Board or the Chief Executive
Officer; and "Good Reason" shall exist if, without Executive's express written
consent, (A) Executive is assigned duties materially inconsistent with his
position, duties, responsibilities and status with the Company as of the time of
a Change of Control, (B) the Company reduces Executive's Base Salary as in
effect on the effective date hereof, or (C) the Company requires Executive
regularly to perform his duties of employment beyond a fifty-mile radius from
3
<PAGE>
the location of his employment as of the time of a Change in Control.
7. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and its Subsidiaries concerning the business or affairs of the Company or any
Subsidiary ("Confidential Information") are the property of the Company or such
Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own purposes any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Executive's acts or omissions. Executive
shall deliver to the Company at the termination of the Employment Period, or at
any time the Company may request, all memoranda, notes, plans, records, reports,
computer tapes, printouts and software and other documents and data (and copies
thereof) relating to the Confidential Information, or the business of the
Company or any Subsidiary which he may then posses or have under his control.
8. Non-Complete, Non-Solicitation.
(a) Executive hereby agrees that during the Noncompete Period (as
defined below), he will not directly or indirectly either for himself or for any
other person or entity (whether as an owner, stockholder, consultant, agent,
advisor, partner (general or limited) or otherwise), individually or as a part
of a group, own, operate, manage, control, participate in, consult with, render
services for, or in any manner engage in any business competing with any part of
the business presently engaged in by the Company within any geographical area in
which the Company engages or proposes to engage in such business (or solicit any
person to engage in any of the foregoing activities). For purposes of the
foregoing, a business shall be deemed to be competing with the business of the
Company if such business (i) operates apparel stores in Houston or (ii) (a)
operates apparel stores in small markets (i.e., with populations of less than
100,000) and (b) operates apparel stores in 10,000 - 30,000 square foot formats
and (c) has sales in excess of $10 million per annum. "Noncompete Period" shall
mean the term of Executive's employment and (i) in the event Executive's
employment is terminated by the Company for Good Cause or by Executive other
than for Good Reason the period ending on the date twenty-four months after
Termination Date and (ii) in the event Executive's employment is terminated by
the Company other than for Good Cause or by Executive for Good Reason, the
period ending twelve months after the Termination Date. Nothing herein shall
prohibit Executive from being a passive owner of not more than 5% in the
aggregate, of the outstanding stock of any class of a corporation which is
publicly traded and which competes with the business of the Company so long as
Executive has no direct or indirect participation in the management of such
corporation. Executive acknowledged that there is no general geographical
restriction contained in this paragraph due to the Company-wide nature of his
job responsibilities and that no lesser scope of the restriction would
adequately protect the Company's assets and other legitimate business interests.
(b) During the period ending twenty-four months after the Termination
Date, Executive agrees not to directly or indirectly, on his own behalf or for
any other person or entity, induce or attempt to induce any employee of the
Company to leave the employ of the Company, hire any person who is an employee
of the Company as of or immediately prior to the time of such hiring, or induce
or attempt to induce any manufacturers' representative, customer, supplier,
licensee, agent or other business relation of the Company
4
<PAGE>
to cease doing business with the Company.
9. Option Grants. In consideration of Executive entering into this
Agreement, the Company has granted to Executive as of June 12, 1996 options to
purchase 50,000 shares of the Company's common stock at a price of $20.00 per
share*(1). The option grant shall be governed by a separate option agreement
which shall provide that such options will vest and become exercisable on the
fifth anniversary of grant or, if earlier, following a Change of Control, upon
the termination of Executive other than for Good Cause or by Executive for Good
Reason.
10. Survival. Paragraphs 7 and 8 and paragraphs 11 through 18 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
11. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Jim Marcum
4144 Greystone Way, Unit 410
Sugar Land, TX 77479
Notices to the Company:
Stage Stores, Inc.
10201 South Main Street
Houston, Texas 77025
Attention: Executive
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
--------
1 The number of shares and exercise price of such option shall be
equitably adjusted to reflect any stock splits of the Company's common stock as
provided in the agreement governing such option.
5
<PAGE>
13. Compete Agreement. This Agreement, those documents expressly
referred to herein and other documents of every date herewith embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14. No Strict Construction. The language used in this Agreement shall
deemed to be language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Texas, without giving effect to any choice of law
or conflict of law rules or provisions (whether of the State of Texas or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas. In furtherance of the foregoing, the
internal law of the State of Texas shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under the jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity binding effect or
enforceability of this Agreement.
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
STAGE STORES, INC.
By ___________________________
Its __________________________
-----------------------------
7
STAGE STORES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of June 12, 1996, between Stage Stores, Inc.
A Delaware corporation (the "Company"), and Steven Lovell ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall continue to employ Executive, and
Executive hereby accepts continued employment with the Company, upon the terms
and conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 4 hereof (the Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President, Director of Stores of the Company and shall have the
normal duties, responsibilities and authority of the Executive Vice President,
Director of Stores, subject to the power of the Board to expand or limit such
duties, responsibilities and authority and to override actions of Executive Vice
President, Director of Stores.
(b) Executive shall report to the Board or to the Chief Executive
Officer, as designated by this board, and Executive shall devote his best
efforts and his full business time and attention (except for permitted vacation
periods and reasonable periods of illness or other incapacity) to the business
and affairs of the Company and its Subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
(d) Whenever this Agreement calls for action on the part of the Board,
the Board may delegate responsibility for such action to a duly appointed
committee of the Board, including the Compensation Committee of the Board.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$300,000 per annum or such other rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Executive
shall be entitled to participate in all of the Company's employment benefit
programs for which senior executive employees of the Company and its
Subsidiaries are generally eligible, including all supplemental benefit programs
such as; supplemental retirement plans, supplemental medical plans, supplemental
disability plans, deferred
<PAGE>
compensation plans, supplemental life insurance plans and any other approved
plans made available by the Company to the Executive. Also, the Executive shall
be entitled to four (4) weeks of paid vacation each year, which if not taken may
not be carried forward to any subsequent year.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing such duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, the Board may award a bonus to
Executive following the end of each fiscal year during the Employment Period
based upon Executive's performance and the Company's operating results during
such year in relation to performance targets established by the Board.
Determination of the bonus amount shall take into account such unusual or
non-recurring items as Board deems appropriate.
4. Term and Termination.
(a) The initial employment period shall end on June 12, 1997 and the
Employment Period shall be automatically renewed for consecutive additional
periods of one year each commencing at the end of the initial Employment Period
hereof or any subsequent renewal term, on the same terms and conditions as
herein set forth; however (i) the Employment Period shall terminate prior to the
expiration of the initial or subsequent Employment Period upon Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgement) and (ii) the Employment Period may be
terminated by the Company at any time prior to such a date for Good Cause (as
defined below) or without Good Cause.
(b) If the Employment Period is terminated by the Company without Good
Cause, Executive shall be entitled to receive an amount equal to his annual Base
Salary in effect on the date of termination of Executive's employment (the
"Termination Date") together with any accrued and unpaid benefits and bonus, if
and only if Executive has not breached the provisions of paragraphs 7 and 8
hereof and is not entitled to receive payments pursuant to paragraph 5 hereof.
The amounts payable pursuant to this paragraph 4(b) may be payable, at the
Executives discretion, in one lump sum within 30 days following termination of
the Employment period and will not be reduced by any other compensation he has
earned from any other source nor by any benefits due to him.
(c) If the Employment Period is terminated by the Company for Good
Cause or is terminated pursuant to clause (a)(i) above, Executive shall be
entitled to receive his Base Salary through the date of termination.
(d) All of Executive's rights to fringe benefits and bonuses hereunder
(if any) which accrue after the termination of the Employment Period shall cease
upon such termination.
(e) Prior to receipt of any severance benefits hereunder including any
amounts payable pursuant to sections 4(b), 4(c) or 5(a), Executive shall execute
a release of claims against the Company and its
2
<PAGE>
affiliates in form and substance reasonably satisfactory to the Company.
5. Change in Control.
(a) If at any time after the date hereof a Change in Control (as
defined) of the Company occurs and within two years thereafter (i) Executive
involuntarily ceases to be an employee of the Company for any reason other than
termination for Good Cause, disability or death or (ii) Executive terminates his
employment with the Company for Good Reason (as defined), then Executive shall
be entitled to benefits under this Section 5. The amount of such benefits (which
benefits shall be in addition to any other benefits to which Executive is
entitled other than by reason of this Agreement) shall be equal to the sum of
(i) unpaid salary with respect to any vacation days accrued but not taken as of
the Termination Date; (ii) accrued but unpaid salary and bonus through the
Termination Date; and (iii) an amount equal to two times the Base Salary in
effect on the Termination Date. The amount of any payment or benefit provided
for in clause 5(a)(iii) above shall be payable at Executives discretion in one
lump sum payment within 30 days following the termination of Executive and shall
not be reduced by any compensation earned by him from any other source.
(b) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (i) any "person" or "group" (as such terms are used
in Section 13(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities (other than Bain Capital ("Bain") or Acadia Partners,
L.P. ("Acadia"), or an affiliate of Bain or Acadia) and, following such "person"
or "group" acquiring 50% or more of the combined voting power of the Company
(the "Trigger Date") the members of the Board immediately prior to the Trigger
Date cease to constitute a majority of the Board, (ii) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the surviving or continuing corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have (directly or
indirectly) at least a 51% ownership interest in the outstanding Common Stock of
the surviving corporation immediately after the merger, (iii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(iv) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company.
6. Certain Definitions. For purposes of this Agreement, "Good Cause"
means (A) Executive's conviction of any criminal violation involving dishonesty,
fraud or breach of trust, (B) Executive's gross negligence or willful and
serious misconduct in the performance of his duties, or (C) Executive's willful
failure to comply with the directives of the Board or the Chief Executive
Officer; and "Good Reason" shall exist if, without Executive's express written
consent, (A) Executive is assigned duties materially inconsistent with his
position, duties, responsibilities and status with the Company as of the time of
a Change of Control, (B) the Company reduces Executive's Base Salary as in
effect on the effective date hereof, or (C) the Company requires Executive
regularly to perform his duties of employment beyond a fifty-mile radius from
the location of his employment as of the time of a Change in Control.
3
<PAGE>
7. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and its Subsidiaries concerning the business or affairs of the Company or any
Subsidiary ("Confidential Information") are the property of the Company or such
Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own purposes any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Executive's acts or omissions. Executive
shall deliver to the Company at the termination of the Employment Period, or at
any time the Company may request, all memoranda, notes, plans, records, reports,
computer tapes, printouts and software and other documents and data (and copies
thereof) relating to the Confidential Information, or the business of the
Company or any Subsidiary which he may then posses or have under his control.
8. Non-Complete, Non-Solicitation.
(a) Executive hereby agrees that during the Noncompete Period (as
defined below), he will not directly or indirectly either for himself or for any
other person or entity (whether as an owner, stockholder, consultant, agent,
advisor, partner (general or limited) or otherwise), individually or as a part
of a group, own, operate, manage, control, participate in, consult with, render
services for, or in any manner engage in any business competing with any part of
the business presently engaged in by the Company within any geographical area in
which the Company engages or proposes to engage in such business (or solicit any
person to engage in any of the foregoing activities). For purposes of the
foregoing, a business shall be deemed to be competing with the business of the
Company if such business (i) operates apparel stores in Houston or (ii) (a)
operates apparel stores in small markets (i.e., with populations of less than
100,000) and (b) operates apparel stores in 10,000 - 30,000 square foot formats
and (c) has sales in excess of $10 million per annum. "Noncompete Period" shall
mean the term of Executive's employment and (i) in the event Executive's
employment is terminated by the Company for Good Cause or by Executive other
than for Good Reason the period ending on the date twenty-four months after
Termination Date and (ii) in the event Executive's employment is terminated by
the Company other than for Good Cause or by Executive for Good Reason, the
period ending twelve months after the Termination Date. Nothing herein shall
prohibit Executive from being a passive owner of not more than 5% in the
aggregate, of the outstanding stock of any class of a corporation which is
publicly traded and which competes with the business of the Company so long as
Executive has no direct or indirect participation in the management of such
corporation. Executive acknowledged that there is no general geographical
restriction contained in this paragraph due to the Company-wide nature of his
job responsibilities and that no lesser scope of the restriction would
adequately protect the Company's assets and other legitimate business interests.
(b) During the period ending twenty-four months after the Termination
Date, Executive agrees not to directly or indirectly, on his own behalf or for
any other person or entity, induce or attempt to induce any employee of the
Company to leave the employ of the Company, hire any person who is an employee
of the Company as of or immediately prior to the time of such hiring, or induce
or attempt to induce any manufacturers' representative, customer, supplier,
licensee, agent or other business relation of the Company to cease doing
business with the Company.
4
<PAGE>
9. Option Grants. In consideration of Executive entering into this
Agreement, the Company has granted to Executive as of June 12, 1996 options to
purchase 50,000 shares of the Company's common stock at a price of $20.00 per
share*(1). The option grant shall be governed by a separate option agreement
which shall provide that such options will vest and become exercisable on the
fifth anniversary of grant or, if earlier, following a Change of Control, upon
the termination of Executive other than for Good Cause or by Executive for Good
Reason.
10. Survival. Paragraphs 7 and 8 and paragraphs 11 through 18 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
11. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Steven Lovell
3319 Onion Creek
Sugar Land, TX 77479
Notices to the Company:
Stage Stores, Inc.
10201 South Main Street
Houston, Texas 77025
Attention: Executive
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Compete Agreement. This Agreement, those documents expressly
referred to herein and other documents of every date herewith embody the
complete agreement and understanding among the
- --------
1 The number of shares and exercise price of such option shall be
equitably adjusted to reflect any stock splits of the Company's common stock as
provided in the agreement governing such option.
5
<PAGE>
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
14. No Strict Construction. The language used in this Agreement shall
deemed to be language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Texas, without giving effect to any choice of law
or conflict of law rules or provisions (whether of the State of Texas or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas. In furtherance of the foregoing, the
internal law of the State of Texas shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under the jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity binding effect or
enforceability of this Agreement.
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
STAGE STORES, INC.
By ___________________________
Its __________________________
-----------------------------
7
STAGE STORES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of June 12, 1996, between Stage Stores, Inc.
A Delaware corporation (the "Company"), and Ron Lucas ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall continue to employ Executive, and
Executive hereby accepts continued employment with the Company, upon the terms
and conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 4 hereof (the Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the Senior
Vice President, Human Relations of the Company and shall have the normal duties,
responsibilities and authority of the Senior Vice President, Human Relations,
subject to the power of the Board to expand or limit such duties,
responsibilities and authority and to override actions of Senior Vice President,
Human Relations.
(b) Executive shall report to the Board or to the Chief Executive
Officer, as designated by this board, and Executive shall devote his best
efforts and his full business time and attention (except for permitted vacation
periods and reasonable periods of illness or other incapacity) to the business
and affairs of the Company and its Subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
(d) Whenever this Agreement calls for action on the part of the Board,
the Board may delegate responsibility for such action to a duly appointed
committee of the Board, including the Compensation Committee of the Board.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$190,000 per annum or such other rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Executive
shall be entitled to participate in all of the Company's employment benefit
programs for which senior executive employees of the Company and its
Subsidiaries are generally eligible, including all supplemental benefit programs
such as; supplemental retirement plans, supplemental medical plans, supplemental
disability plans, deferred
<PAGE>
compensation plans, supplemental life insurance plans and any other approved
plans made available by the Company to the Executive. Also, the Executive shall
be entitled to four (4) weeks of paid vacation each year, which if not taken may
not be carried forward to any subsequent year.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing such duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, the Board may award a bonus to
Executive following the end of each fiscal year during the Employment Period
based upon Executive's performance and the Company's operating results during
such year in relation to performance targets established by the Board.
Determination of the bonus amount shall take into account such unusual or
non-recurring items as Board deems appropriate.
4. Term and Termination.
(a) The initial employment period shall end on June 12, 1997 and the
Employment Period shall be automatically renewed for consecutive additional
periods of one year each commencing at the end of the initial Employment Period
hereof or any subsequent renewal term, on the same terms and conditions as
herein set forth; however (i) the Employment Period shall terminate prior to the
expiration of the initial or subsequent Employment Period upon Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgement) and (ii) the Employment Period may be
terminated by the Company at any time prior to such a date for Good Cause (as
defined below) or without Good Cause.
(b) If the Employment Period is terminated by the Company without Good
Cause, Executive shall be entitled to receive an amount equal to his annual Base
Salary in effect on the date of termination of Executive's employment (the
"Termination Date") together with any accrued and unpaid benefits and bonus, if
and only if Executive has not breached the provisions of paragraphs 7 and 8
hereof and is not entitled to receive payments pursuant to paragraph 5 hereof.
The amounts payable pursuant to this paragraph 4(b) may be payable, at the
Executives discretion, in one lump sum within 30 days following termination of
the Employment period and will not be reduced by any other compensation he has
earned from any other source nor by any benefits due to him.
(c) If the Employment Period is terminated by the Company for Good
Cause or is terminated pursuant to clause (a)(i) above, Executive shall be
entitled to receive his Base Salary through the date of termination.
(d) All of Executive's rights to fringe benefits and bonuses hereunder
(if any) which accrue after the termination of the Employment Period shall cease
upon such termination.
(e) Prior to receipt of any severance benefits hereunder including any
amounts payable pursuant to sections 4(b), 4(c) or 5(a), Executive shall execute
a release of claims against the Company and its
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affiliates in form and substance reasonably satisfactory to the Company.
5. Change in Control.
(a) If at any time after the date hereof a Change in Control (as
defined) of the Company occurs and within two years thereafter (i) Executive
involuntarily ceases to be an employee of the Company for any reason other than
termination for Good Cause, disability or death or (ii) Executive terminates his
employment with the Company for Good Reason (as defined), then Executive shall
be entitled to benefits under this Section 5. The amount of such benefits (which
benefits shall be in addition to any other benefits to which Executive is
entitled other than by reason of this Agreement) shall be equal to the sum of
(i) unpaid salary with respect to any vacation days accrued but not taken as of
the Termination Date; (ii) accrued but unpaid salary and bonus through the
Termination Date; and (iii) an amount equal to two times the Base Salary in
effect on the Termination Date. The amount of any payment or benefit provided
for in clause 5(a)(iii) above shall be payable at Executives discretion in one
lump sum payment within 30 days following the termination of Executive and shall
not be reduced by any compensation earned by him from any other source.
(b) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (i) any "person" or "group" (as such terms are used
in Section 13(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities (other than Bain Capital ("Bain") or Acadia Partners,
L.P. ("Acadia"), or an affiliate of Bain or Acadia) and, following such "person"
or "group" acquiring 50% or more of the combined voting power of the Company
(the "Trigger Date") the members of the Board immediately prior to the Trigger
Date cease to constitute a majority of the Board, (ii) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the surviving or continuing corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have (directly or
indirectly) at least a 51% ownership interest in the outstanding Common Stock of
the surviving corporation immediately after the merger, (iii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(iv) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company.
6. Certain Definitions. For purposes of this Agreement, "Good Cause"
means (A) Executive's conviction of any criminal violation involving dishonesty,
fraud or breach of trust, (B) Executive's gross negligence or willful and
serious misconduct in the performance of his duties, or (C) Executive's willful
failure to comply with the directives of the Board or the Chief Executive
Officer; and "Good Reason" shall exist if, without Executive's express written
consent, (A) Executive is assigned duties materially inconsistent with his
position, duties, responsibilities and status with the Company as of the time of
a Change of Control, (B) the Company reduces Executive's Base Salary as in
effect on the effective date hereof, or (C) the Company requires Executive
regularly to perform his duties of employment beyond a fifty-mile radius from
the location of his employment as of the time of a Change in Control.
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7. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and its Subsidiaries concerning the business or affairs of the Company or any
Subsidiary ("Confidential Information") are the property of the Company or such
Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own purposes any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Executive's acts or omissions. Executive
shall deliver to the Company at the termination of the Employment Period, or at
any time the Company may request, all memoranda, notes, plans, records, reports,
computer tapes, printouts and software and other documents and data (and copies
thereof) relating to the Confidential Information, or the business of the
Company or any Subsidiary which he may then posses or have under his control.
8. Non-Complete, Non-Solicitation.
(a) Executive hereby agrees that during the Noncompete Period (as
defined below), he will not directly or indirectly either for himself or for any
other person or entity (whether as an owner, stockholder, consultant, agent,
advisor, partner (general or limited) or otherwise), individually or as a part
of a group, own, operate, manage, control, participate in, consult with, render
services for, or in any manner engage in any business competing with any part of
the business presently engaged in by the Company within any geographical area in
which the Company engages or proposes to engage in such business (or solicit any
person to engage in any of the foregoing activities). For purposes of the
foregoing, a business shall be deemed to be competing with the business of the
Company if such business (i) operates apparel stores in Houston or (ii) (a)
operates apparel stores in small markets (i.e., with populations of less than
100,000) and (b) operates apparel stores in 10,000 - 30,000 square foot formats
and (c) has sales in excess of $10 million per annum. "Noncompete Period" shall
mean the term of Executive's employment and (i) in the event Executive's
employment is terminated by the Company for Good Cause or by Executive other
than for Good Reason the period ending on the date twenty-four months after
Termination Date and (ii) in the event Executive's employment is terminated by
the Company other than for Good Cause or by Executive for Good Reason, the
period ending twelve months after the Termination Date. Nothing herein shall
prohibit Executive from being a passive owner of not more than 5% in the
aggregate, of the outstanding stock of any class of a corporation which is
publicly traded and which competes with the business of the Company so long as
Executive has no direct or indirect participation in the management of such
corporation. Executive acknowledged that there is no general geographical
restriction contained in this paragraph due to the Company-wide nature of his
job responsibilities and that no lesser scope of the restriction would
adequately protect the Company's assets and other legitimate business interests.
(b) During the period ending twenty-four months after the Termination
Date, Executive agrees not to directly or indirectly, on his own behalf or for
any other person or entity, induce or attempt to induce any employee of the
Company to leave the employ of the Company, hire any person who is an employee
of the Company as of or immediately prior to the time of such hiring, or induce
or attempt to induce any manufacturers' representative, customer, supplier,
licensee, agent or other business relation of the Company to cease doing
business with the Company.
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9. Option Grants. In consideration of Executive entering into this
Agreement, the Company has granted to Executive as of June 12, 1996 options to
purchase 20,000 shares of the Company's common stock at a price of $20.00 per
share*(1). The option grant shall be governed by a separate option agreement
which shall provide that such options will vest and become exercisable on the
fifth anniversary of grant or, if earlier, following a Change of Control, upon
the termination of Executive other than for Good Cause or by Executive for Good
Reason.
10. Survival. Paragraphs 7 and 8 and paragraphs 11 through 18 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
11. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Ron Lucas
7171 Buffalo Speedaway #737
Houston, TX 77025
Notices to the Company:
Stage Stores, Inc.
10201 South Main Street
Houston, Texas 77025
Attention: Executive
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Compete Agreement. This Agreement, those documents expressly
referred to herein and other documents of every date herewith embody the
complete agreement and understanding among the
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1 The number of shares and exercise price of such option shall be
equitably adjusted to reflect any stock splits of the Company's common stock as
provided in the agreement governing such option.
5
<PAGE>
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
14. No Strict Construction. The language used in this Agreement shall
deemed to be language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Texas, without giving effect to any choice of law
or conflict of law rules or provisions (whether of the State of Texas or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas. In furtherance of the foregoing, the
internal law of the State of Texas shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under the jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity binding effect or
enforceability of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
STAGE STORES, INC.
By __________________________
Its __________________________
-----------------------------
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STAGE STORES, INC.
1996 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the Stage Stores, Inc. 1996 Equity Incentive
Plan (the "Plan") is to advance the interests of Stage Stores, Inc., a Delaware
corporation (the "Company"), and its stockholders by providing incentives to
certain key employees of the Company and its subsidiaries who contribute
significantly to the strategic and long-term performance objectives and growth
of the Company.
2. Administration. The Plan shall be administered solely by the Board
of Directors (the "Board") or the Compensation Committee (the "Committee") of
the Board, which Committee shall be comprised solely of two or more Outside
Directors who shall administer the Plan. The term "Outside Director" shall mean
a director who, within the meaning of Treasury Department regulation
ss.1.162-27(e)(3), (1) is not a current employee of the Company, (2) is not a
former employee of the Company who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan) during the taxable
year with respect to which the director's status is being determined, (3) has
not been an officer of the Company or (4) does not receive remuneration from the
Company, either directly or indirectly, in any capacity other than as a
director. References to the Committee hereunder shall include the Board where
appropriate. The membership of the Committee or such successor committee shall
be constituted so as to comply at all times with the applicable requirements of
Rule 16b-3. No member of the Committee shall have within one year prior to his
appointment received awards under the Plan ("Awards") or under any other plan,
program or arrangement of the Company or any of its affiliates if such receipt
would cause such member to cease to be a "disinterested person" under Rule
16b-3; provided that if at any time (i) Rule 16b-3 so permits without adversely
affecting the ability of the Plan to comply with the conditions for exemption
from Section 16 of the Exchange Act (or any successor provision) provided by
Rule 16b-3 and (ii) Treasury Department regulation ss.1.162-27 so permits
without adversely affecting the ability of Awards under the Plan to qualify as
"performance-based" within the meaning of such regulation, one or more members
of the Committee may cease to be a "disinterested person." For purposes of the
remainder of the Plan, reference to the "Committee" shall include the Board to
the extent that the Board has not designated a committee to administer the Plan.
The Committee has all the powers vested in it by the terms of the Plan
set forth herein, such powers to include exclusive authority (except as may be
delegated as permitted herein) to select the key employees and other key
individuals to be granted Awards under the Plan, to determine the type, size and
terms of the Award to be made to each individual selected, to modify the terms
of any Award that has been granted, to determine the time when Awards will be
granted, to establish performance objectives, to make any adjustments necessary
or desirable as a result of the granting of Awards to eligible individuals
located outside the United States and to prescribe the form of the instruments
embodying Awards made under the Plan. The Committee is authorized to interpret
the Plan and the Awards granted under the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, and to make any other
determinations which it deems necessary or desirable for the administration of
the Plan. The Committee (or its delegate as permitted herein) may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any Award in the manner and to the extent the Committee deems necessary or
desirable to carry it into effect. Any decision of the Committee (or its
delegate as permitted herein) in the interpretation and administration of the
Plan, as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned. The Committee
may act only by a majority of its members in office, except that the members
thereof may authorize any one or more of their members or any officer of the
Company to execute and deliver documents or to take any other ministerial action
on behalf of the Committee with respect to Awards made or to be made to Plan
participants. No member of the Committee and no officer of the Company shall be
liable for anything done or omitted to be done by him, by any other member of
the Committee or by any officer of the Company in connection with the
performance of duties under the Plan, except for his own willful misconduct or
as expressly provided by statute. Determinations to be made by the Committee
under the Plan may be made by its delegates.
3. Participation. Consistent with the purposes of the Plan, the
Committee shall have exclusive power (except as may be delegated as permitted
herein) to select the key employees of the Company and its subsidiaries who may
participate in the Plan and be granted Awards under the Plan. Eligible
individuals may be selected individually or by groups or categories, as
determined by the Committee in its discretion. No non-employee director of the
Company shall be eligible to receive an Award under the Plan.
<PAGE>
4. Awards under the Plan.
(a) Types of Awards. Awards under the Plan may include, but
need not be limited to, one or more of the following types, either
alone or in any combination thereof: (i) "Stock Options," (ii) "Stock
Appreciation Rights," or (iii) "Restricted Stock" (including, but not
limited to, Awards of, or options or similar rights granted with
respect to, unbundled stock units or components thereof, and Awards
made to participants who are foreign nationals or are employed or
performing services outside the United States). Stock Options, which
include "Nonqualified Stock Options" and "Incentive Stock Options" or
combinations thereof, are rights to purchase common shares of the
Company having a par value of $.01 per share and stock of any other
class into which such shares may thereafter be changed (the "Common
Shares"). Nonqualified Stock Options and Incentive Stock Options are
subject to the terms, conditions and restrictions specified in
Paragraph 5. Stock Appreciation Rights are rights to receive (without
payment to the Company) cash, Common Shares, other Company securities
(which may include, but need not be limited to, unbundled stock units
or components thereof, debentures, preferred stock, warrants,
securities convertible into Common Shares or other property ("Other
Company Securities")) or property, or other forms of payment, or any
combination thereof, as determined by the Committee, based on the
increase in the value of the number of Common Shares specified in the
Stock Appreciation Right. Stock Appreciation Rights are subject to the
terms, conditions and restrictions specified in Paragraph 6. Shares of
Restricted Stock are Common Shares which are issued subject to certain
restrictions pursuant to Paragraph 7.
(b) Maximum Number of Shares that May be Issued. There may be
issued under the Plan (as Restricted Stock, pursuant to the exercise of
Stock Options or Stock Appreciation Rights, or in payment of or
pursuant to the exercise of such other Awards as the Committee, in its
discretion, may determine) an aggregate of not more than 1,500,000
Common Shares, subject to adjustment as provided in Paragraph 13.
Irrespective of the aggregate number of shares authorized herein, each
participant in the Plan shall be entitled to receive grants of Stock
Options and Stock Appreciation Rights with respect to no more than
400,000 Common Shares in any calendar year. Common Shares issued
pursuant to the Plan may be either authorized but unissued shares,
treasury shares, reacquired shares, or any combination thereof. If any
Common Shares issued as Restricted Stock or otherwise subject to
repurchase or forfeiture rights are reacquired by the Company pursuant
to such rights, or if any Award is cancelled, terminates or expires
unexercised, any Common Shares that would otherwise have been issuable
pursuant thereto will be available for issuance under new Awards.
(c) Rights with respect to Common Shares and Other Securities.
(i) Unless otherwise determined by the Committee in
its discretion, a participant to whom an Award of Restricted
Stock has been made (and any person succeeding to such
participant's rights in accordance with the Plan) shall have,
after issuance of a certificate for the number of Common
Shares awarded and prior to the expiration of the Restricted
Period (as hereinafter defined) or the earlier repurchase of
such Common Shares as herein provided, ownership of such
Common Shares, including the right to vote the same and to
receive dividends or other distributions made or paid with
respect to such Common Shares (provided that such Common
Shares, and any new, additional or different shares, or Other
Company Securities or property, or other forms of
consideration which the participant may be entitled to receive
with respect to such Common Shares as a result of a stock
split, stock dividend or any other change in the corporation
or capital structure of the Company, shall be subject to the
restrictions hereinafter described as determined by the
Committee in its discretion), subject, however, to the
options, restrictions and limitations imposed thereon pursuant
to the Plan. Notwithstanding the foregoing, a participant with
whom an Award agreement is made to issue Common Shares in the
future, shall have no rights as a stockholder with respect to
Common Shares related to such agreement until issuance of a
certificate to him.
(ii) Unless otherwise determined by the Committee in
its discretion, a participant to whom a grant of Stock Options
or Stock Appreciation Rights is made (and any person
succeeding to such a participant's rights pursuant to the
Plan) shall have no rights as a stockholder with respect
<PAGE>
to any Common Shares or as a holder with respect to other
securities, if any, issuable pursuant to any such Award until
the date of the issuance of a stock certificate to him for
such Common Shares or other instrument of ownership, if any.
Except as provided in Paragraph 13, no adjustment shall be
made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities,
other property or other forms of consideration, or any
combination thereof) for which the record date is prior to the
date such stock certificate or other instrument of ownership,
if any, is issued.
(iii) Any participant who is directly or indirectly
the beneficial owner of more than 10 per centum of any class
of any equity security which is registered pursuant to Section
12 of the Exchange Act, or who is an officer of the Company,
shall hold his Restricted Stock, if any, for at least six
months from the date of grant and any other Award received by
him for at least six months from the date of acquisition of
the Award before disposition of the Award or its underlying
Common Stock.
(d) Vesting. Rights acquired pursuant to an Award may be
subject to vesting as determined by the Committee in its sole
discretion.
(e) Frequency of Grants. Unless otherwise determined by the
Committee in its discretion, Awards shall be granted once per year.
(f) Securities and Tax Law Compliance.
(i) Unless otherwise determined by the Committee in
its discretion, no Awards shall be granted unless counsel for
the Company shall be satisfied that such issuance will qualify
as performance-based compensation for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended, or
any successor statutory provision thereto (the "Code") and
that such issuance will be in compliance with the Code and
regulations issued thereunder.
(ii) No Common Shares, Other Company Securities or
property, other securities or property, or other forms of
payment shall be issued hereunder with respect to any Award
unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal, state,
local and foreign legal, securities exchange and other
applicable requirements.
5. Stock Options. The Committee may grant or sell Stock Options either
alone, or in conjunction with Stock Appreciation Rights, either at the time of
grant or by amendment thereafter; provided that an Incentive Stock Option may be
granted only to an eligible employee of the Company or any parent or subsidiary
corporation. Each Stock Option (referred to herein as an "Option") granted or
sold under the Plan shall be evidenced by an instrument in such form as the
Committee shall prescribe from time to time in accordance with the Plan and
shall comply with the following terms and conditions, and with such other terms
and conditions, including, but not limited to, restrictions upon the Option or
the Common Shares issuable upon exercise thereof, as the Committee, in its
discretion, shall establish:
(a) The option price shall be at least the fair market value
of the Common Shares subject to such Option at the time the Option is
granted.
(b) The Committee shall determine the number of Common Shares
to be subject to each Option. The number of Common Shares subject to an
outstanding Option may be reduced on a share-for-share or other
appropriate basis, as determined by the Committee, to the extent that
Common Shares under such Option are used to calculate the cash, Common
Shares, Other Company Securities or property, or other forms of
payment, or any combination thereof, received pursuant to exercise of a
Stock Appreciation Right attached to such Option.
(c) Unless the Committee determines otherwise, the Option may
not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and distribution,
and shall be exercisable during the grantee's lifetime only by him.
Unless the Committee determines otherwise,
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the Option shall not be exercisable for at least six months after the
date of grant, unless the grantee ceases employment before the
expiration of such six-month period by reason of his disability as
defined in Paragraph 11 or his death.
(d) The Option shall not be exercisable:
(i) after the tenth anniversary of the date it is
granted. Any Option may be exercised during such period only
as set forth under Paragraph 4(d) or at such time or times and
in such installments as the Committee may establish in its
grant of the Option;
(ii) unless payment in full is made for the shares
being acquired thereunder at the time of exercise; such
payment shall be made in such form (including, but not limited
to, cash, Common Shares held for at least six months, or a
combination thereof) as the Committee may determine in its
discretion; and
(iii) unless the person exercising the Option has
been, at all times during the period beginning with the date
of the grant of the Option and ending on the date of such
exercise, employed by the Company, or a parent or subsidiary
of the Company, or a corporation substituting or assuming the
Option in a transaction to which Section 424(a) of the Code,
is applicable, except that:
(A) if such person shall cease such
employment by reason of his disability as defined in
Paragraph 11 or early, normal or deferred retirement
under an approved retirement program of the Company
(or such other plan or arrangement as may be approved
by the Committee, in its discretion, for this
purpose) while holding an Option which has not
expired and has not been fully exercised, such
person, at any time within one year (or such period
determined by the Committee) after the date he ceased
such employment (but in no event after the Option has
expired), may exercise the Option with respect to any
shares as to which he could have exercised the Option
on the date he ceased such employment or with respect
to such greater number of shares as determined by the
Committee;
(B) if any person to whom an Option has been
granted shall die holding an Option which has not
expired and has not been fully exercised, his
executors, administrators, heirs or distributees, as
the case may be, may, at any time within one year (or
such other period determined by the Committee) after
the date of death (but in no event after the Option
has expired), exercise the Option with respect to any
shares as to which the decedent could have exercised
the Option at the time of his death, or with respect
to such greater number of shares as determined by the
Committee; or
(C) if such person shall cease employment
with the Company while holding an Option which has
not expired and has not been fully exercised, the
Committee may determine to allow such person at any
time within the one year (or three months in the case
of an Incentive Stock Option) or such other period
determined by the Committee after the date he ceased
such employment (but in no event after the Option has
expired), to exercise the Option with respect to any
shares as to which he could have exercised the Option
on the date he ceased such employment or with respect
to such greater number of shares as determined by the
Committee.
(e) In the case of an Incentive Stock Option, the amount of
the aggregate fair market value of Common Shares (determined at the
time of grant of the Option pursuant to subparagraph 5(a) of the Plan)
with respect to which incentive stock options are exercisable for the
first time by an employee during any calendar year (under all such
plans of his employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000.
(f) It is the intent of the Company that Nonqualified Stock
Options granted under the Plan not be
4
<PAGE>
classified as Incentive Stock Options, that the Incentive Stock Options
granted under the Plan be consistent with and contain or be deemed to
contain all provisions required under Section 422 (and the other
appropriate provisions) of the Code and any implementing regulations
(and any successor provisions thereof), and that any ambiguities in
construction shall be interpreted in order to effectuate such intent.
6. Stock Appreciation Rights. The Committee may grant Stock
Appreciation Rights either alone, or in conjunction with Stock Options, either
at the time of grant or by amendment thereafter. Each Award of Stock
Appreciation Rights granted under the Plan shall be evidenced by an instrument
in such form as the Committee shall prescribe from time to time in accordance
with the Plan and shall comply with the following terms and conditions, and with
such other terms and conditions, including, but not limited to, restrictions
upon the Award of Stock Appreciation Rights or the Common Shares issuable upon
exercise thereof, as the Committee, in its discretion, shall establish:
(a) The Stock Appreciation Right shall be granted with a
hurdle price equal to at least the fair market value of the underlying
Common Shares on the date of such grant.
(b) The Committee shall determine the number of Common Shares
to be subject to each Award of Stock Appreciation Rights. The number of
Common Shares subject to an outstanding Award of Stock Appreciation
Rights may be reduced on a share-for-share or other appropriate basis,
as determined by the Committee, to the extent that Common Shares under
such Award of Stock Appreciation Rights are used to calculate the cash,
Common Shares, Other Company Securities or property, or other forms of
payment, or any combination thereof, received pursuant to exercise of
an Option attached to such Award of Stock Appreciation Rights, or to
the extent that any other Award granted in conjunction with such Award
of Stock Appreciation Rights is paid.
(c) Unless the Committee determines otherwise, the Award of
Stock Appreciation Rights may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, except by will or the
laws of descent and distribution, and shall be exercisable during the
grantee's lifetime only by him. Unless the Committee determines
otherwise, the Award of Stock Appreciation Rights shall not be
exercisable for at least six months after the date of grant, unless the
grantee ceases employment or performance of services before the
expiration of such six-month period by reason of his disability as
defined in Paragraph 11 or his death.
(d) The Award of Stock Appreciation Rights shall not be
exercisable:
(i) after the tenth anniversary of the date it is
granted. Any Award of Stock Appreciation Rights may be
exercised only as set forth under Paragraph 4(d) or at such
time or times and in such installments as the Committee may
establish;
(ii) in the case that the Award of Stock Appreciation
Rights is attached to an Option, unless such Option is at the
time exercisable; and
(iii) unless the person exercising the Award of Stock
Appreciation Rights has been, at all times during the period
beginning with the date of the grant thereof and ending on the
date of such exercise, employed by the Company, except that:
(A) if such person shall cease such
employment or performance of services by reason of
his disability as defined in Paragraph 11 or early,
normal or deferred retirement under an approved
retirement program of the Company (or such other plan
or arrangement as may be approved by the Committee,
in its discretion, for this purpose) while holding an
Award of Stock Appreciation Rights which has not
expired and has not been fully exercised, such person
may, at any time within three years (or such other
period determined by the Committee) after the date he
ceased such employment (but in no event after the
Award of Stock Appreciation Rights has expired),
exercise the Award of Stock Appreciation Rights with
respect to any shares as to which he could have
exercised the Award of Stock Appreciation Rights on
the date he ceased such employment or with
5
<PAGE>
respect to such greater number of shares as
determined by the Committee; or
(B) if any person to whom an Award of Stock
Appreciation Rights has been granted shall die
holding an Award of Stock Appreciation Rights which
has not expired and has not been fully exercised, his
executors, administrators, heirs or distributees, as
the case may be, may at any time within one year (or
such other period determined by the Committee) after
the date of death (but in no event after the Award of
Stock Appreciation Rights has expired), exercise the
Award of Stock Appreciation Rights with respect to
any shares as to which the decedent could have
exercised the Award of Stock Appreciation Rights at
the time of his death, or with respect to such
greater number of shares as determined by the
Committee.
(e) An Award of Stock Appreciation Rights shall entitle the
holder (or any person entitled to act under the provisions of
subparagraph 6(d)(iii)(B) hereof) to exercise such Award and surrender
unexercised the Option, if any, to which the Stock Appreciation Right
is attached (or any portion of such Option) to the Company and to
receive from the Company in exchange thereof, without payment to the
Company, that number of Common Shares having an aggregate value equal
to (or, in the discretion of the Committee, less than) the excess of
the fair market value of one share at the time of such exercise, over
the exercise price (or Option Price, as the case may be), times the
number of shares subject to the Award or the Option, or portion
thereof, which is so exercised or surrendered, as the case may be. The
Committee shall be entitled in its discretion to elect to settle the
obligation arising out of the exercise of a Stock Appreciation Right by
the payment of cash or Other Company Securities or property, or other
forms of payment, or any combination thereof, as determined by the
Committee, equal to the aggregate value of the Common Shares it would
otherwise be obligated to deliver. Any such election by the Committee
shall be made as soon as practicable after the receipt by the Committee
of written notice of the exercise of the Stock Appreciation Right. The
value of a Common Share, Other Company Securities or property, or other
forms of payment determined by the Committee for this purpose shall be
the fair market value thereof on the last business day next preceding
the date of the election to exercise the Stock Appreciation Right,
unless the Committee, in its discretion, determines otherwise.
(f) A Stock Appreciation Right may provide that it shall be
deemed to have been exercised at the close of business on the business
day preceding the expiration date of the Stock Appreciation Right or of
the related Option, or such other date as specified by the Committee,
if at such time such Stock Appreciation Right has a positive value.
Such deemed exercise shall be settled or paid in the same manner as a
regular exercise thereof as provided in subparagraph 6(e) hereof.
(g) No fractional shares may be delivered under this Paragraph
6, but in lieu thereof a cash or other adjustment shall be made as
determined by the Committee in its discretion.
7. Restricted Stock. Each Award of Restricted Stock under the Plan
shall be evidenced by an instrument in such form as the Committee shall
prescribe from time to time in accordance with the Plan and shall comply with
the following terms and conditions, and with such other terms and conditions as
the Committee, in its discretion, shall establish:
(a) The Committee shall determine the number of Common Shares
to be issued to a participant pursuant to the Award, and the extent, if
any, to which they shall be issued in exchange for cash, other
consideration, or both.
(b) Restricted Stock awarded to a participant in accordance
with the Award shall be subject to the following restrictions until the
expiration of such period as the Committee shall determine, from the
date on which the Award is granted (the "Restricted Period"): (i) a
participant to whom an award of Restricted Stock is made shall be
issued, but shall not be entitled to, a stock certificate, (ii) the
Restricted Stock shall not be transferable prior to the end of the
Restricted Period, (iii) the Restricted Stock shall be forfeited and
the stock certificate shall be returned to the Company and all rights
of the holder of such Restricted Stock to such shares and as a
shareholder shall terminate without further obligation on the part of
the Company if the participant's continuous employment or performance
of services for the Company shall terminate for any
6
<PAGE>
reason prior to the end of the Restricted Period, except as otherwise
provided in subparagraph 7(c), and (iv) such other restrictions as
determined by the Committee in its discretion.
(c) if a participant who has been in continuous employment
with the Company since the date on which a Restricted Stock Award was
granted to him shall, while in such employment, die, or terminate such
employment by reason of disability as defined in Paragraph 11 or by
reason of early, normal or deferred retirement under an approved
retirement program of the Company (or such other plan or arrangement as
may be approved by the Committee in its discretion, for this purpose)
and any of such events shall occur after the date on which the Award
was granted to him and prior to the end of the Restricted Period of
such Award, the Committee may determine to cancel any and all
restrictions on any or all of the Common Shares subject to such Award.
8. Deferral of Compensation. The Committee shall determine whether or
not an Award shall be made in conjunction with deferral of the participant's
salary, bonus or other compensation, or any combination thereof, and whether or
not such deferred amounts may be:
(a) forfeited to the Company or to other participants or any
combination thereof, under certain circumstances (which may include,
but need not be limited to, certain types of termination of employment
with the Company),
(b) subject to increase or decrease in value based upon the
attainment of or failure to attain, respectively, certain performance
measures and/or,
(c) credited with income equivalents (which may include, but
need not be limited to, interest, dividends or other rates of return)
until the date or dates of payment of the Award, if any.
9. Deferred Payment of Awards. The Committee may specify that the
payment of all or any portion of cash, Common Shares, Other Company Securities
or property, or any other form of payment, or any combination thereof, under an
Award shall be deferred until a later date. Deferrals shall be for such periods
or until the occurrence of such events, and upon such terms, as the Committee
shall determine in its discretion. Deferred payments of Awards may be made by
undertaking to make payment in the future based upon the performance of certain
investment equivalents (which may include, but need not be limited to,
government securities, Common Shares, other securities, property or
consideration, or any combination thereof), together with such additional
amounts of income equivalents (which may be compounded and may include, but need
not be limited to, interest, dividends or other rates of return or any
combination thereof) as may accrue thereon until the date or dates of payment,
such investment equivalents and such additional amounts of income equivalents to
be determined by the Committee in its discretion.
10. Amendment or Substitution of Awards under the Plan. The terms of
any outstanding Award under the Plan may be amended from time to time by the
Committee in its discretion in any manner that it deems appropriate (including,
but not limited to, acceleration of the date of exercise of any Award and/or
payments thereunder); provided that no such amendment shall adversely affect in
a material manner any right of a participant under the Award without his written
consent, unless the Committee determines in its discretion that there have
occurred or are about to occur significant changes in the participant's
position, duties or responsibilities, or significant changes in economic,
legislative, regulatory, tax, accounting or cost/benefit conditions which are
determined by the Committee in its discretion to have or to be expected to have
a substantial effect on the performance of the Company, or any subsidiary,
affiliate, division or department thereof, on the Plan or on any Award under the
Plan. The Committee may, in its discretion, permit holders of Awards under the
Plan to surrender outstanding Awards in order to exercise or realize the rights
under other Awards, or in exchange for the grant of new Awards, or require
holders of Awards to surrender outstanding Awards as a condition precedent to
the grant of new Awards under the Plan.
11. Disability. For the purposes of this Plan, a participant shall be
deemed to have terminated his employment by the Company and its Affiliates by
reason of disability, if the Committee shall determine that the physical or
mental condition of the participant by reason of which such employment
terminated was such at that time as would entitle him to payment of monthly
disability benefits under any Company disability plan. If the participant
7
<PAGE>
is not eligible for benefits under any disability plan of the Company, he shall
be deemed to have terminated such employment by reason of disability if the
Committee shall determine that his physical or mental condition would entitle
him to benefits under any Company disability plan if he were eligible therefor.
12. Termination of a Participant. For all purposes under the Plan, the
Committee shall determine whether a participant has terminated employment with
the Company.
13. Dilution and Other Adjustments. In the event of any change in the
outstanding Common Shares of the Company by reason of any stock split, dividend,
split-up, split-off, spin-off, recapitalization, merger, consolidation, rights
offering, reorganization, combination or exchange of shares, a sale by the
Company of all of its assets, any distribution to stockholders other than a
normal cash dividend, or other extraordinary or unusual event, if the Committee
shall determine, in its discretion, that such change equitably requires an
adjustment in the terms of any Award or the number of Common Shares available
for Awards, such adjustment may be made by the Committee and shall be final,
conclusive and binding for all purposes of the Plan.
In the event of the proposed dissolution or liquidation of the Company,
all outstanding Awards shall terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Committee. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, all restrictions on
any outstanding Awards shall lapse and participants shall be entitled to the
full benefit of all such Awards immediately prior to the closing date of such
sale or merger, unless otherwise provided by the Committee.
14. Designation of Beneficiary by Participant. A participant may name a
beneficiary to receive any payment to which he may be entitled in respect of any
Award under the Plan in the event of his death, on a written form to be provided
by and filed with the Committee, and in a manner determined by the Committee in
its discretion. The Committee reserves the right to review and approve
beneficiary designations. A participant may change his beneficiary from time to
time in the same manner, unless such participant has made an irrevocable
designation. Any designation of beneficiary under the Plan (to the extent it is
valid and enforceable under applicable law) shall be controlling over any other
disposition, testamentary or otherwise, as determined by the Committee in its
discretion. If no designated beneficiary survives the participant and is living
on the date on which any amount becomes payable to such a participant's
beneficiary, such payment will be made to the legal representatives of the
participant's estate, and the term "beneficiary" as used in the Plan shall be
deemed to include such person or persons. If there are any questions as to the
legal right of any beneficiary to receive a distribution under the Plan, the
Committee in its discretion may determine that the amount in question be paid to
the legal representatives of the estate of the participant, in which event the
Company, the Board and the Committee and the members thereof, will have no
further liability to anyone with respect to such amount.
15. Financial Assistance. If the Committee determines that such action
is advisable, the Company may assist any person to whom an Award has been
granted in obtaining financing from the Company (or under any program of the
Company approved pursuant to applicable law), or from a bank or other third
party, on such terms as are determined by the Committee, and in such amount as
is required to accomplish the purposes of the Plan, including, but not limited
to, to permit the exercise of an Award, the participation therein, and/or the
payment of any taxes in respect thereof. Such assistance may take any form that
the Committee deems appropriate, including, but not limited to, a direct loan
from the Company, a guarantee of the obligation by the Company, or the
maintenance by the Company of deposits with such bank or third party.
16. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right
to be granted an Award under the Plan. Determinations made by the
Committee under the Plan need not be uniform and may be made
selectively among eligible individuals under the plan, whether or not
such eligible individuals are similarly situated. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee
any right to continue to be employed by the Company, and the right to
terminate the employment of any participants at any time and for any
reason is specifically reserved.
(b) No participant or other person shall have any right with
respect to the Plan, the Common
8
<PAGE>
Shares reserved for issuance under the Plan or in any Award, contingent or
otherwise, until written evidence of the Award shall have been delivered to the
recipient and all the terms, conditions and provisions of the Plan and the Award
applicable to such recipient (and each person claiming under or through him)
have been met.
(c) Except as may be approved by the Committee where such
approval shall not adversely affect compliance of the Plan with Rule
16b-3 under the Exchange Act, a participant's rights and interest under
the Plan may not be assigned or transferred, hypothecated or encumbered
in whole or in part either directly or by operation of law or otherwise
(except in the event of a participant's death) including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy or in any other manner; provided, however, that any Option
or similar right (including, but not limited to, a Stock Appreciation
Right) offered pursuant to the Plan shall be transferable by will or
the laws of descent and distribution but shall be exercisable during
the participant's lifetime only by him.
(d) It is the intent of the Company that the Plan comply in
all respects with Rule 16b-3 under the Exchange Act, that any
ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that if any provision
of the Plan is found not to be in compliance with Rule 16b-3, such
provision shall be deemed null and void to the extent required to
permit the Plan to comply with Rule 16b-3.
(e) The Company shall have the right to deduct from any
payment made under the Plan any federal, state, local or foreign income
or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to
issue Common Shares, Other Company Securities or property, other
securities or property, or other forms of payment, or any combination
thereof, upon exercise, settlement or payment of any Award under the
Plan, that the participant (or any beneficiary or person entitled to
act) pay to the Company, upon its demand, such amount as may be
required by the Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. If the
amount requested is not paid, the Company may refuse to issue Common
Shares, Other Company Securities or property, other securities or
property, or other forms of payment, or any combination thereof.
Notwithstanding anything in the Plan to the contrary, the Committee
may, in its discretion, permit an eligible participant (or any
beneficiary or person entitled to act) to elect to pay a portion or all
of the amount requested by the Company for such taxes with respect to
such Award, at such time and in such manner as the Committee shall deem
to be appropriate (including, but not limited to, by authorizing the
Company to withhold, or agreeing to surrender to the Company on or
about the date such tax liability is determinable, Common Shares, Other
Company Securities or property, other securities or property, or other
forms of payment, or any combination thereof, owned by such person or a
portion of such forms of payment that would otherwise be distributed,
or have been distributed, as the case may be, pursuant to such Award to
such person, having a fair market value equal to the amount of such
taxes).
(f) The expenses of the Plan shall be borne by the Company.
(g) The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the
Plan, and rights to the payment of Awards shall be no greater than the
rights of the Company's general creditors.
(h) By accepting any Award or other benefit under the Plan,
each participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification
of, and consent to, any action taken under the Plan by the Company, the
Board or the Committee or its delegates.
(i) Fair market value in relation to Common Shares, Other
Company Securities or property, other securities or property or other
forms of payment of Awards under the Plan, or any combination thereof,
as of any specific time shall mean such value as determined by the
Committee in accordance with applicable law.
(j) The masculine pronoun includes the feminine and the
singular includes the plural wherever
9
<PAGE>
appropriate.
(k) The appropriate officers of the Company shall cause to be
filed any reports, returns or other information regarding Awards
hereunder of any Common Shares issued pursuant hereto as may be
required by Section 13 or 15(d) of the Exchange Act (or any successor
provision) or any other applicable statute, rule or regulation.
(l) The validity, construction, interpretation, administration
and effect of the Plan, and of its rules and regulations, and rights
relating to the Plan and to Awards granted under the Plan, shall be
governed by the substantive laws, but not the choice of law rules, of
the State of Delaware.
17. Plan Amendment or Suspension. The Plan may be amended or suspended
in whole or in part at any time from time to time by the Board, but no amendment
shall be effective unless and until the same is approved by stockholders of the
Company where the failure to obtain such approval would adversely affect the
compliance of the Plan with Rule 16b-3 under the Exchange Act and with other
applicable law. No amendment of the Plan shall adversely affect in a material
manner any right of any participant with respect to any Award theretofore
granted without such participant's written consent, except as permitted under
Paragraph 10.
18. Plan Termination. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating
the Plan; or
(b) ten years from the date the Plan is initially approved and
adopted by the stockholders of the Company in accordance with Paragraph
19 hereof; provided, however, that the Board may, prior to the
expiration of such ten-year period, extend the term of the Plan for an
additional period of up to five years for the grant of Awards other
than Incentive Stock Options. No termination of the Plan shall
materially alter or impair any of the rights or obligations of any
person, without his consent, under any Award theretofore granted under
the Plan, except that subsequent to termination of the Plan, the
Committee may make amendments permitted under Paragraph 17.
19. Stockholder Adoption. The Plan was approved by the Board of
Directors and stockholders of the Company on July __, 1996.
STAGE STORES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Six Months Ended
---------------------------------------------------- -------------------
July 29, August 3,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -----------
Income before extraordinary income $3,961 $12,235 $13,426 $6,630 $10,730 $2,659 $3,520
<S> <C> <C> <C> <C> <C> <C> <C>
Minority interest in Bealls Holding 749 -- -- -- -- -- --
Income tax expense 3,993 8,340 7,569 4,317 6,767 1,885 2,396
--------- --------- --------- --------- --------- --------- -----------
Income before income tax, minority
interest and extraordinary item 8,703 20,575 20,995 10,947 17,497 4,544 5,916
========= ========= ========= ========= ========= ========= ===========
Fixed charges charged to expense:
Rental expense (1) 7,275 7,575 8,803 8,879 10,051 4,726 5,315
Interest expense 33,928 32,384 37,607 41,694 44,770 21,636 24,296
Dividend and accretion on redeemable
preferred stock of subsidiary 749 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- -----------
Total fixed charges charged to
expense 41,952 39,959 46,410 50,573 54,821 26,362 29,611
--------- --------- --------- --------- --------- --------- -----------
Income before income tax, minority
interest, extraordinary item and
fixed charges charged to expense $50,655 $60,534 $67,405 $61,520 $72,318 $30,906 $35,527
========= ========= ========= ========= ========= ========= ===========
Fixed charges charged to accruals:
Rental expense (1) $ 898 $ 803 $ 298 $ 446 $ 1,516 $ 1,283 $ 243
Interest expense 667 381 -- -- -- -- --
--------- --------- --------- --------- --------- --------- -----------
Total fixed charges charged to
accruals 1,565 1,184 298 446 1,516 1,283 243
--------- --------- --------- --------- --------- --------- -----------
Total fixed charges $43,517 $41,143 $46,708 $51,019 $56,337 $27,645 $29,854
========= ========= ========= ========= ========= ========= ===========
Ratio of earnings to fixed charges 1.16 1.47 1.44 1.21 1.28 1.12 1.19
========= ========= ========= ========= ========= ========= ===========
</TABLE>
- -------------
(1) Rental expense comprises one-third of all rental expenses incurred during
the period.
This is deemed by management to be representative of the interest factor
of rental payments.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 4 to this Registration Statement on Form S-1 of our report dated March
15, 1996, relating to the financial statements of Stage Stores, Inc. which
appears in such Prospectus. We also consent to the application of such report
to the Financial Statement Schedules for the period and two years ended
February 3, 1996 listed under Item 16(b) of this Registration Statement when
such schedules are read in conjunction with the financial statements referred
to in our report. The audits referred to in such report also included these
schedules. We also consent to the references to us under the headings
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
October 24, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 22, 1996, with respect to the financial
statements of Uhlmans Inc. included in Amendment No. 4 to the Registration
Statement (Form S-1 No. 333-5855) and related prospectus of Stage Stores,
Inc. for the registration of 11,000,000 shares of its common stock.
Ernst & Young LLP
Toledo, Ohio
October 24, 1996
