================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NO. 000-21011
STAGE STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0407711
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10201 MAIN STREET, HOUSTON, TEXAS 77025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (800) 579-2302
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK ($0.01 PAR VALUE) NASDAQ NATIONAL MARKET SYSTEM
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting common stock held by non-affiliates as
of March 28, 1997 was $336,658,656.
At March 28, 1997, there were 22,044,459 shares of Common Stock and 1,250,584
shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held May 15, 1997 (the "Proxy Statement") are incorporated by reference into
Part III.
================================================================================
<PAGE>
PART I
REFERENCES TO A PARTICULAR YEAR ARE TO THE COMPANY'S FISCAL YEAR WHICH
IS THE 52 OR 53 WEEK PERIOD ENDING ON THE SATURDAY CLOSEST TO JANUARY 31 OF THE
FOLLOWING CALENDAR YEAR (E.G., A REFERENCE TO "1996" IS A REFERENCE TO THE
FISCAL YEAR ENDED FEBRUARY 1, 1997).
ITEM 1. BUSINESS
GENERAL
Stage Stores, Inc. (the "Company" or "Stage Stores") 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. Stage Stores' history
began in 1988 when the management of Palais Royal, together with a venture
capital firm, acquired the family owned Bealls and Palais Royal chains which
were originally founded in the 1920's. 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.
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.
At February 1, 1997, the Company operated 315 stores through its
"Stage", "Bealls" and "Palais Royal" trade names in nineteen states throughout
the central United States through its wholly-owned subsidiary, Specialty
Retailers, Inc. ("SRI"). 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.
The Company's merchandising strategy focuses on the traditionally
higher margin categories of women's, men's and children's branded apparel,
accessories and footwear. Merchandise mix may vary from store to store to
accommodate differing demographic factors. The Company purchases merchandise
from a vendor base of over two thousand vendors. Over 85% of 1996 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. Levi accounted for approximately 9% of the
Company's 1996 retail purchases. No other vendor accounted for more than 4%. In
addition, the Company, through its membership in Associated Merchandising
Corporation ("AMC", a cooperative buying service), purchases imported
merchandise for its private label program. The membership provides the Company
with synergistic purchasing opportunities allowing it to augment its branded
merchandise assortments. Private label merchandise purchased through AMC
accounted for approximately 6% of the Company's total retail purchases for 1996.
1
<PAGE>
The Company offers a carefully edited but broad selection of moderately
priced, branded merchandise which is divided into distinct departments as
follows (percentages represent each department's contribution to Company sales):
Department 1996 1995
---------------------------------- ---------- ----------
Men's/Young Men................... 22% 22%
Misses Sportswear................. 16 15
Juniors........................... 12 13
Accessories & Gifts............... 9 9
Children.......................... 9 9
Shoes............................. 9 8
Intimate.......................... 5 6
Special Sizes..................... 5 5
Cosmetics......................... 5 5
Misses Dresses.................... 4 4
Boys.............................. 3 3
Furs & Coats...................... 1 1
---------- ----------
100% 100%
========== ==========
EMPLOYEES
During 1996, the Company employed an average of 9,606 full and
part-time employees at all of its locations, of which 1,165 were salaried and
8,441 were hourly. The Company's central office (which includes corporate,
credit and distribution center offices) employed an average of 337 salaried and
679 hourly employees during 1996. In its stores during 1996, the Company
employed an average of 828 salaried and 7,762 hourly employees. Such averages
will vary during the year as the Company traditionally hires additional
employees and increases the hours of part-time employees during peak seasonal
selling periods. There are no collective bargaining agreements in effect with
respect to any of the Company's employees. The Company believes that
relationships with its employees are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in a one hundred thirty
thousand square foot building in Houston, Texas. The Company leases the building
and most of the land at its Houston facility. The Company owns its four-hundred
fifty thousand square foot distribution center and its credit department
facility, both located in Jacksonville, Texas. The Jacksonville distribution
center collateralizes the Company's Credit Agreements (as defined herein). See
Note 6 to the Consolidated Financial Statements.
At February 1, 1997, the Company operated 315 stores located in
nineteen states as follows: Texas (168 stores); Louisiana (27 stores); Ohio (26
stores); Oklahoma (13 stores); Arkansas (12 stores); Illinois (12 stores); New
Mexico (9 stores); Missouri (6 stores); Mississippi (6 stores); Michigan (6
stores); Indiana (6 stores); Iowa (6 stores); Colorado (5 stores); Alabama (3
stores); Kansas (3 stores); Arizona (3 stores); South Dakota (2 stores);
Minnesota (1 store) and Nebraska (1 store). Stores generally range in size from
12,000 to 30,000 square feet, with the average being 18,000 square feet. In
general, Bealls stores are located in rural markets in Texas, Oklahoma, New
Mexico and Alabama; Palais Royal stores are located in metropolitan Houston and
Stage stores are located in states other than Texas, Oklahoma, New Mexico and
Alabama. The Company's stores are primarily located in strip shopping centers.
All store locations are leased except for three Bealls stores and one Stage
store which are owned. The majority of leases provide for a base rent plus
contingent rentals, generally based upon a percentage of net sales.
2
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are involved in
various litigation matters arising in the ordinary course of 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended February 1, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's authorized common equity securities consist of par value
$0.01 per share common stock ("Common Stock") and par value $0.01 per share
Class B common stock ("Class B Common Stock"). The Common Stock is quoted on the
NASDAQ National Market System under the symbol "STGE". As of March 28, 1997,
(the date of record for Proxy Statement matters) there was one holder of Class B
Common Stock and approximately 2,100 holders of Common Stock. The following
table sets forth, for the periods indicated, the high and low closing bid prices
for the Common Stock as reported by the NASDAQ National Market System. The
Common Stock commenced trading on October 25, 1996.
Common Stock Prices
--------------------------
High Low
------------- -------------
Quarter ended November 2, 1996.................. $ 19.25 $ 18.25
Quarter ended February 1, 1997.................. 20.50 17.38
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 (see Item 6. "Selected Financial Data"), 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.
3
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data for the
periods indicated. The selected consolidated financial data were derived from
the Company's Consolidated Financial Statements. Certain reclassifications of
prior year data have been made to conform to the 1996 reporting format. These
reclassifications had no impact on operating income or net income (loss) for the
years presented. All dollar amounts are stated in thousands, except for per
share and store data.
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------------------
1996 (1) 1995(2) 1994 1993 (3) 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................................ $ 776,550 $ 682,624 $ 581,463 $ 557,422 $ 504,401
Cost of sales and related buying,
occupancy and distribution expenses ................ 532,563 468,347 398,659 384,843 350,136
--------- --------- --------- --------- ---------
Gross profit ......................................... 243,987 214,277 182,804 172,579 154,265
Selling, general and
administrative expenses ............................ 172,579 149,102 126,200 115,008 99,523
Store opening and closure costs ...................... 2,838 3,689 5,647 199 120
--------- --------- --------- --------- ---------
Operating income (4) ................................. 68,570 61,486 50,957 57,372 54,622
Interest, net ........................................ 45,954 43,989 40,010 36,377 31,771
Other non-operating expense .......................... -- -- -- -- 2,276
--------- --------- --------- --------- ---------
Income before income tax and extraordinary
item ............................................... 22,616 17,497 10,947 20,995 20,575
Income tax expense ................................... 8,594 6,767 4,317 7,569 8,340
--------- --------- --------- ---------
Income before extraordinary item ..................... 14,022 10,730 6,630 13,426 12,235
Extraordinary item ................................... (16,081) -- (308) (16,208) --
--------- --------- --------- --------- ---------
Net income (loss) .................................... $ (2,059) $ 10,730 $ 6,322 $ (2,782) $ 12,235
========= ========= ========= ========= =========
Earnings (loss) per common share (5) ................. $ (0.13) $ 0.84 $ 0.51 $ (0.41) $ 0.82
========= ========= ========= ========= =========
Weighted average common shares
outstanding ........................................ 15,927 12,726 12,393 12,342 12,093
========= ========= ========= ========= =========
MARGIN AND OTHER DATA:
Gross profit margin .................................. 31.4% 31.4% 31.4% 31.0% 30.6%
Selling, general and administrative expense
rate ............................................... 22.2% 21.8% 21.7% 20.6% 19.7%
Operating income margin (4) .......................... 8.8% 9.0% 8.8% 10.3% 10.8%
STORE DATA: (6)
Comparable store sales growth (7) .................... 3.3% 0.8% 4.1% 6.3% 1.8%
Net sales per selling area square foot (7) ........... $ 151 $ 157 $ 157 $ 149 $ 138
Number of stores open at end of period (8) ........... 315 256 188 180 175
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital ...................................... $ 235,219 $ 170,108 $ 148,229 $ 156,782 $ 214,430
Total assets ......................................... 509,283 408,254 366,243 343,406 403,824
Long-term debt ....................................... 298,453 380,039 349,775 347,468 296,587
Redeemable preferred stock ........................... -- -- -- -- 17,500
Stockholders' equity (deficit) (9) ................... 92,266 (72,314) (81,193) (87,727) (9,605)
</TABLE>
4
<PAGE>
- -----------------------------------
(1) During October 1996, the Company successfully completed an initial
public offering of its common stock (the "Offering"). The net proceeds
were used primarily to retire the 12 3/4% Senior Discount Debentures
due 2000 (the "Senior Discount Debentures"). In addition, the Company
replaced its working capital facility during January 1997. As a result
of these transactions, the Company recorded an extraordinary charge of
$16.1 million, net of applicable income taxes of $9.8 million.
(2) 1995 includes 53 weeks.
(3) During 1993, the Company completed (i) the refinancing of its existing
debt and preferred stock (the "Refinancing") and (ii) a cash
distribution (the "Distribution") to the Company's stockholders. As a
result of the Refinancing, the Company recorded an after-tax
extraordinary charge of $16.2 million. Pursuant to the Distribution,
the Company issued the Senior Discount Debentures which were sold at a
discount of approximately $69.1 million. Substantially all of the $80.0
million in proceeds were used to make the Distribution.
(4) Operating income and operating income margin decreased during 1994
compared to 1993 due primarily to the impact of the implementation of
the Company's accounts receivable securitization program, (see Note 3
to the Company's Consolidated Financial Statements) 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").
See Note 5 to the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(5) Historical earnings (loss) per common share reflects the impact of a
.94727 for 1 reverse stock split of the common stock consummated
concurrently with the Offering. Loss per common share for 1996 and 1993
includes the impact of the extraordinary item associated with the
Offering and Refinancing, respectively, which reduced earnings per
common share by $1.01 and $1.31, respectively.
(6) Store data exclude Bealls stores scheduled to be closed under the
Bealls 1988 store closure program, except as otherwise noted in Note 8
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.
(7) Comparable store sales growth and net sales per selling square foot
including the stores which were part of the Store Closure Plan and the
1988 Bealls store closure plan were as follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Comparable store sales growth ........................... 3.3% 0.5% 3.2% 5.4% 1.8%
Net sales per selling area square foot .................. $ 151 $ 150 $ 151 $ 143 $ 138
</TABLE>
Excluding the six Bealls stores located on the border of Mexico which
were adversely affected by the peso devaluation in 1994, comparable
store sales growth for 1995 would have increased to 3.0%.
(8) The number of stores open at the end of each period presented excludes
stores in the Store Closure Plan and the Bealls 1988 store closure
program. 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
store closure program.
(9) Beginning in 1993, stockholders' deficit includes the impact of the
extraordinary charge associated with the Refinancing and Distribution.
Stockholders' equity at the end of 1996 reflects the impact of the
Offering.
5
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Certain items discussed or incorporated by reference herein contain
forward-looking statements that involve risks and uncertainties including, but
not limited to, the seasonality of demand for apparel which can be affected by
weather patterns, levels of competition, competitors' marketing strategies,
changes in fashion trends and availability of product, the failure to achieve
the expected results of merchandising and marketing plans or store opening or
closing plans. The occurrence of any of the above could have a material adverse
impact on the Company's operating results. See "Risk Factors" below. Certain
information herein contains estimates which represent management's best judgment
as to the date hereof based on information currently available; however, the
Company does not intend to update this information to reflect developments or
information obtained after the date hereof and disclaims any legal obligation to
the contrary.
GENERAL
OVERVIEW. The Company operates 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 in small markets and has identified these markets as a
profitable and underserved niche. The Company has developed a unique franchise
focused on these small markets, differentiating itself from the competition by
offering a broad range of brand name merchandise with a high level of customer
service in convenient locations.
At February 1, 1997, the Company operated 315 stores through its
"Stage", "Bealls" and "Palais Royal" trade names in nineteen states throughout
the central United States through SRI. 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.
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.
ACQUISITIONS. The Company acquired 45 stores from Beall-Ladymon, Inc.
("Beall-Ladymon") in 1994 and subsequently reopened the stores in the first
quarter of 1995 under the Stage name. On June 3, 1996, the Company completed the
acquisition of Uhlmans Inc. ("Uhlmans"), a privately-owned 34 retail store chain
similar in concept to the Company. The Company has completed the consolidation
of the Uhlmans general office functions, including accounting, data processing,
merchandising, personnel, sales promotion, credit and distribution into similar
functions provided by the Company.
On March 5, 1997, the Company reached a definitive agreement to merge
with C.R. Anthony Company ("CR Anthony") a retailer of branded and private label
apparel for the entire family. CR Anthony operated 224 stores in 13 southwestern
and Rocky Mountain states at February 1, 1997. Under the terms of the agreement,
the Company will acquire the common stock of CR Anthony for a value of $8.00 per
share plus $0.01 per share for every $0.05 per share by which the average
closing price of the Company's common stock exceeds $20.00 share. The average
closing price of the Company's common stock will be determined based upon ten
randomly selected days out of the twenty trading days ending on the fifth
trading day preceding the closing of the transaction.
6
<PAGE>
The form of consideration (stock/cash mix) to be paid by the Company
for CR Anthony's common stock will also be determined using a formula based upon
the average closing price of the Company's common stock. The consideration will
be 100% Company common stock so long as the Company's average closing price is
$20.00 per share or higher, and such stock percentage will decline in a linear
fashion to 25% of the consideration if the average closing price of Company
common stock is $15.00 per share. As an example, if the Company's average
closing price was $21.00 per share, CR Anthony's common shareholders would
receive a value of $8.20 per share, 100% of which would be paid in Company
common stock (0.39 shares of Company common stock to be exchanged for each share
of CR Anthony common stock). At prices below $15.00 per share, the Company has
the option to terminate the agreement, or to close and pay 0.1333 shares of
Company common stock and an amount in cash equal to the difference between $8.00
per share and the value of 0.1333 share of Company common stock. The Company is
currently evaluating its financing options for payments to CR Anthony option
holders and stockholders and any one-time costs to be incurred in connection
with the merger of CR Anthony's operations into the Company which could not
otherwise be funded out of existing sources.
The transaction is subject to approval by the shareholders of CR
Anthony and other closing conditions. In addition, the agreement contains
provisions relating to the obligations of the parties in the event of
termination of the agreement. It is expected that the transaction will be
completed by mid-year 1997.
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.
The financial information, discussion and analysis that follow should
be read in conjunction with the Company's Consolidated Financial Statements. See
"Index to Financial Statements and Schedules" included elsewhere herein.
RESULTS OF OPERATIONS
The following sets forth the results of operations as a percentage of
sales for the periods indicated. Certain income statement reclassifications have
been made to conform to the 1996 format; accordingly, prior year percentages
differ slightly from those previously reported.
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales .................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ................................................ 68.6 68.6 68.6 69.0 69.4
----- ----- ----- ----- -----
Gross profit margin .......................................... 31.4 31.4 31.4 31.0 30.6
Selling, general and
administrative expenses ................................. 22.2 21.8 21.7 20.6 19.7
Store opening and closure costs .............................. 0.4 0.6 0.9 0.1 0.1
----- ----- ----- ----- -----
Operating income margin ...................................... 8.8 9.0 8.8 10.3 10.8
Net interest expense ......................................... 5.9 6.4 6.9 6.5 6.3
Other non-operating expense .................................. -- -- -- -- 0.4
----- ----- ----- ----- -----
Income before income tax
and extraordinary item................................... 2.9% 2.6% 1.9% 3.8% 4.1%
===== ===== ===== ===== =====
</TABLE>
7
<PAGE>
1996 COMPARED TO 1995
Sales for 1996 increased 13.8% to $776.5 million from $682.6 million in
1995. The increase in sales was due primarily to a 12.9% increase in sales from
stores opened during 1996 and 1995, combined with a 3.3% increase in comparable
store sales. Total sales for 1996 were not directly comparable to 1995 because
1995 had one additional selling week when compared to 1996. Eliminating the
extra selling week from 1995 (approximately $10.0 million in sales), sales for
1996 increased 15.5%.
Gross profit increased 13.9% to $244.0 million in 1996 from $214.3
million in 1995. Gross profit for 1996 was favorably impacted by an increase in
markup on merchandise sold relating to an improved mix of inventories and a
lower markdown rate, the result of a continued focus and tight control over
inventories. These factors were offset by a $2.4 million decline in LIFO
credits. Gross profit margin was 31.4% in 1996 and 1995.
Selling, general and administrative expenses for 1996 increased 15.8%
to $172.6 million from $149.1 million in 1995. As a percentage of sales, these
expenses increased to 22.2% in 1996 from 21.8% in 1995 due to (i) the extra
selling week in 1995 which had the impact of lowering the selling, general and
administrative expense rate for 1995, (ii) duplicative costs associated with the
acquisition of Uhlmans and (iii) an increase in bad debt expense associated with
the Company's proprietary credit card program, partially offset by an increase
in service charge income as a result of higher fees assessed on delinquent
accounts. Bad debt expense as a percent of sales in 1996 increased to 2.8% from
2.2% in 1995. The increase in bad debt expense was the result of a general rise
in the level of personal bankruptcies in the Company's accounts receivable
portfolio as well as the Company's adoption of higher late fees. Advertising
expenses as a percent of sales for 1996 and 1995 were 3.8% and 3.9%,
respectively.
Operating income for 1996 increased 11.5% to $68.6 million from $61.5
million for 1995 due to the factors discussed above. Operating income as a
percent of sales was 8.8% in 1996 as compared to 9.0% in 1995.
Net interest expense increased 4.5% to $46.0 million in 1996 from $44.0
million in 1995. Net interest expense increased due to the issuance of (i) $30.0
million in aggregate principal amount of 12.5% SRPC Notes during May 1996 and
(ii) $18.3 million in aggregate principal amount of 11% Series D Senior
Subordinated Notes Due 2003 during August 1995. These increases were offset by
decreased accretion of discount on the Senior Discount Debentures which were
retired in October 1996 in connection with the Offering.
In connection with the Offering and the replacement of the Company's
working capital facility, the Company recorded an extraordinary charge of $16.1
million, net of applicable income taxes of $9.8 million.
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 3.3%.
Gross profit increased 17.2% to $214.3 million in 1995 from $182.8
million in 1994. Gross margin was 31.4% for both 1995 and 1994. Gross profit for
1995 was favorably impacted by (i) the opening of 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
8
<PAGE>
reduce inventories and an increase in the level of shrinkage. Management
believes that the increased shrinkage was due primarily to the rapid expansion
of stores during 1995.
Selling, general and administrative expenses for 1995 increased 18.1%
to $149.1 million from $126.2 million in 1994. As a percentage of sales, these
expenses increased to 21.8% for 1995 from 21.7% in 1994. The increase resulted
from incremental costs associated with opening stores in new markets, increased
costs associated with the certificates issued under the Accounts Receivable
Program to third party investors and an increase in the bad debt expense to 2.2%
of sales in 1995 from 1.9% of sales in 1994 associated with the Company's credit
card program (including charge-offs resulting from sales of the Mexican border
stores). 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. 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.
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 ten 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.
SEASONALITY AND INFLATION
The Company's business is seasonal and sales and profits traditionally
are lower during the first nine months of the year (February through October)
and higher during the last three months of the year (November through January).
Working capital requirements fluctuate during the year and generally reach their
highest levels during the third and fourth quarters.
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------- -----------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----------- ------------ ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ..................... $163,177 $182,750 $ 182,562 $248,061 $142,353 $154,578 $ 159,161 $226,532
Gross profit .................. 52,081 56,623 56,208 79,075 46,283 46,555 48,659 72,780
Operating income .............. 16,045 13,925 12,342 26,258 14,835 11,074 9,724 25,853
Quarters' operating
income as a percent
of annual ...................... 24% 20% 18% 38% 24% 18% 16% 42%
Income (loss) before
extraordinary item ............. $ 2,652 $ 868 $ (265) $ 10,767 $ 2,438 $ 221 $ (899) $ 8,970
</TABLE>
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.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During October 1996, the Company completed the Offering. The net
proceeds from the Offering were approximately $165.7 million after deducting
underwriting discounts and expenses related to the Offering. The net proceeds
were primarily used to retire the Senior Discount Debentures. The remaining
proceeds of approximately $26.5 million were used for general corporate
purposes. The Company's consolidated long-term debt at February 1, 1997 included
$130.0 million of Senior Notes, $116.7 million of Senior Subordinated Notes,
$30.0 million of SRPC Notes and 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 two certificates of beneficial
ownership in a special purpose trust (the "Retained Certificates"). 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 the Retained
Certificates 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 2000 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 to
third-party investors under the Accounts Receivable Program.
Total working capital increased $65.1 million to $235.2 million at
February 1, 1997 from $170.1 million at February 3, 1996, due primarily to the
acquisition of Uhlmans through the issuance of the SRPC Notes and the Offering.
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 to be approximately $35.0 million
during each of 1997 and 1998. Capital expenditures are generally for new store
openings, remodeling of existing stores and facilities and customary store
maintenance. Capital expenditures in 1996 were $26.1 million as compared to
$28.6 million in 1995. Management expects capital expenditures (excluding any
capital expenditures resulting from the potential acquisition of CR Anthony) to
be approximately $35.0 million during 1997, consisting primarily of 55 new store
openings and remodeling of existing stores. Required aggregate principal
payments on debt total $2.6 million for each of 1997 and 1998.
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 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.
On January 31, 1997, SRI entered into amended and restated revolving
credit agreements with a bank (the "Credit Agreements") to help fund its annual
working capital needs. The Credit Agreements provide for a base borrowing level
of $50.0 million, additional seasonal borrowings of $10.0 million and a letter
of credit facility of an additional $15.0 million (the "L/C Facility") for a
total commitment of $75.0 million. As of February 1, 1997, no borrowings were
outstanding under the Credit Agreements. Seasonal borrowings are available from
August 15 through January 15 of each calendar year. As of February 1, 1997, $8.0
million of the L/C Facility was used to collateralize letters of credit. The
Credit Agreements are available through January 29, 2000.
The Company securitizes all of its trade accounts receivables through a
wholly-owned special purpose entity, SRI Receivables Purchase Co., Inc.
("SRPC"). SRPC holds a retained interest in the securitization vehicle, a
special purpose trust (the "Trust") which is represented by the Retained
Certificates. The Company transfers, on a daily basis, 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 as SRPC's creditors
have a
10
<PAGE>
claim on its assets prior to such assets becoming available to any creditor of
the Company. SRPC transfers, on a daily basis, the accounts receivable purchased
from the Company to the Trust in exchange for cash or an increase in the
Retained Certificates. The remaining interest in the Trust is held by
third-party investors which are represented by the Trust Certificates (as
defined below). The Retained Certificates are effectively subordinated to the
interests of such third-party investors, and are pledged to secure the SRPC
Notes which were issued to finance the Uhlmans acquisition.
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 in the Trust above the level
required to support the term certificates (aggregating $204.1 million at
February 1, 1997), up to a maximum of $40.0 million. As of February 1, 1997,
there was no outstanding balance under the revolving certificate. The Retained
Certificates are effectively subordinated to the interests of third-party
investors, and are pledged to secure the SRPC Notes. If the amount of accounts
receivable in the Trust falls below the level required to support the Trust
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.
Management believes that funds provided by operations, together with
funds available under the Credit Agreements and the Accounts Receivable Program
will be adequate to meet the Company's anticipated requirements for working
capital, interest payments, planned capital expenditures and principal payments
on debt. Estimates as to working capital needs and other expenditures may be
materially affected if the foregoing sources are not available or do not
otherwise provide sufficient funds to meet the Company's obligations.
RISK FACTORS
LEVERAGE AND RESTRICTIVE COVENANTS: Due to the level of the Company's
indebtedness, 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 imposes operating and
financial restrictions on the Company and certain of its subsidiaries. Such
restrictions limit the Company's ability to incur additional indebtedness, to
make dividend payments and to make capital expenditures. 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 "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 (including the acquisition of C.R. Anthony
(see "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations"). 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
11
<PAGE>
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'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, particularly the significant devaluation of the Mexican
peso, adversely affected sales during 1995. Deterioration of the economic
conditions in Mexico in the future could adversely affect the Company's sales.
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
(February through October) and higher during the fourth fiscal quarter (November
through January). In addition, working capital requirements fluctuate throughout
the year, increasing substantially in October and November in anticipation of
the holiday season due to requirements for significantly higher inventory
levels. Any substantial decrease in sales for the last three months of the year
could have a material adverse effect on the Company's business and financial
condition.
COMPETITION: The retail apparel business is highly competitive.
Although competition varies widely from market to market, the Company faces
substantial competition, particularly in its Houston area markets, from
national, regional and local department and specialty stores. Some of the
Company's competitors are considerably larger than the Company and have
substantially greater financial and other resources. Although the Company
currently offers branded merchandise not available at certain other retailers
(including large national discounters) in its small market stores, there can be
no assurance that existing or new competitors will not 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, 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.
CONSUMER CREDIT RISKS - PRIVATE LABEL CREDIT CARD PORTFOLIO: Sales
under the Company's private label credit card program represent a significant
portion of the Company's business. In recent years, there have been substantial
increases in the rate of charge-offs on the Company's accounts receivable. To
date, aggregate increases in finance and service charges have offset a
significant portion of the increases in charge-offs. However, further
deterioration in the quality of the Company's accounts receivable portfolio or
any adverse changes in laws
12
<PAGE>
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 through the Accounts Receivable Program. Under this 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 "Liquidity and Capital
Resources."
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 Company's
operating results could be materially adversely affected. See "Liquidity and
Capital Resources."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Schedules" included on page for
information required under this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and all positions held by the
directors and executive officers of Stage Stores as of April 1, 1997:
NAME Age Position
- --------------------------- ------- ----------------------------------------
Carl Tooker 49 Chairman, President and Chief Executive
Officer
Mark Shulman 48 Director, Executive Vice President/Chief
Merchandising Officer
James Marcum 37 Executive Vice President/Chief Financial
Officer
Stephen Lovell 41 Executive Vice President/Director of
Stores
Ron Lucas 49 Senior Vice President/Human Resources
Joshua Beckenstein 38 Director
Adam Kirsch 35 Director
Peter Mulvihill 38 Director
Harold Compton 49 Director
Robert Huth 51 Director
Richard Jolosky 62 Director
Mr. Tooker joined the Company as Director, President and Chief
Operating Officer on July 1, 1993. On July 1, 1994, Mr. Tooker was appointed
Chief Executive Officer and on January 27, 1997, Mr. Tooker was elected Chairman
of the Board. Mr. Tooker succeeds Mr. Bernard Fuchs, age 70, who retired. Mr.
Tooker has 25 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.
Effective December 1996, Mr. Shulman was appointed to the Board of Directors.
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.
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.
Mr. Marcum served as Treasurer of Melville Corporation 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.
14
<PAGE>
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. 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. Compton has been a Director since March 1997. Mr. Compton has
served as Director, Executive Vice President and Chief Executive Officer of
CompUSA, Inc. since 1995. Previously, he served as a Director, Executive Vice
President-Operations, from 1994 to 1995. Prior to joining CompUSA, Mr. Compton
served as President and Chief Operating Officer of Central Electric, Inc. from
1993 to 1994. From 1989 to 1993, Mr. Compton served as Executive Vice
President-Operations & Human Resources of HomeBase, Inc.
Mr. Huth has been a Director since March 1997. Mr. Huth has served as
President of David's Bridal from 1995 to the present. Prior to joining David's
Bridal, Mr. Huth was employed by Melville Corporation from 1987 to 1995, where
he served as Director, Executive Vice President and Chief Executive Officer.
Previously, Mr. Huth was a Partner at KPMG Peat Marwick.
Mr. Jolosky has been a Director since March 1997. Mr. Jolosky has
served as President of Payless ShoeSource, Inc. from 1985 to 1988, and again,
since 1996 to the present. Before becoming President, Mr. Jolosky served as
Executive Vice President Merchandising from 1982 to 1988. Mr. Jolosky served as
President and Chief Executive Officer of Silverman Jewelry Company from 1995 to
1996. He also served as Chief Executive Officer of the Richard Allen Company
from 1992 to 1995, and President and Chief Executive Officer of T & J Shoe
Company from 1988 to 1989.
Certain other information regarding directors and officers is
incorporated herein by reference to the information under the heading "Director
and Officer and Ten Percent Stockholder Security Reports" in the Proxy
Statement.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Information regarding compensation of directors is incorporated herein
by reference to the information under the heading "Compensation of Directors" in
the Proxy Statement.
COMPENSATION OF EXECUTIVE OFFICERS
Information regarding compensation of executive officers is
incorporated herein by reference to the information under the heading "Executive
Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by reference to the information under the
heading "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information under the heading "Certain
Relationships and Related Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements
See "Index to Financial Statements and Schedules" on Page 19.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated November 25, 1996 was filed
under Item 5 to report that the Company issued a press release
to announce operating results for the three and nine months
ended November 2, 1996.
A Current Report on Form 8-K dated March 5, 1997 was filed
under Item 5 to report that the Company issued a press release
to announce the agreement to acquire the C.R. Anthony Company.
(c) Exhibits - See "Exhibit Index" at X-1.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STAGE STORES, INC.
/S/ CARL TOOKER April 4, 1997
Carl Tooker
President, Chairman and
Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/S/ CARL TOOKER Chairman, President and Chief Executive
Carl Tooker Officer (principal executive officer) April 4, 1997
/S/ MARK SHULMAN Director and Executive Vice President/
Mark Shulman Chief Merchandising Officer April 4, 1997
/S/ JAMES MARCUM Executive Vice President and
James Marcum Chief Financial Officer
(principal financial and accounting officer) April 4, 1997
/S/ JOSHUA BEKENSTEIN Director April 4, 1997
Joshua Bekenstein
/S/ ADAM KIRSCH Director April 4, 1997
Adam Kirsch
/S/ PETER MULVIHILL Director April 4, 1997
Peter Mulvihill
</TABLE>
17
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
NUMBER
FINANCIAL STATEMENTS
Report of Independent Accountants............................................F-1
Consolidated Balance Sheet at February 1, 1997 and February 3, 1996..........F-2
Consolidated Statement of Operations for 1996, 1995 and 1994.................F-3
Consolidated Statement of Cash Flows for 1996, 1995 and 1994.................F-4
Consolidated Statement of Stockholders' Equity for 1996, 1995 and 1994.......F-6
Notes to Consolidated Financial Statements...................................F-7
SCHEDULES
I. Condensed Financial Information of the Registrant......................S-1
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
18
<PAGE>
<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. and its subsidiaries at February 1, 1997 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 1, 1997, 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 12, 1997
F-1
<PAGE>
STAGE STORES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except par value and number of shares)
February 1, February 3,
1997 1996
--------- ---------
ASSETS
Cash and cash equivalents ...................... $ 18,286 $ 20,273
Undivided interest in accounts receivable trust 80,672 56,515
Merchandise inventories ........................ 187,717 150,032
Prepaid expenses ............................... 15,690 17,378
Other current assets ........................... 32,797 12,225
--------- ---------
Total current assets ..................... 335,162 256,423
Property, equipment and leasehold
improvements, net ............................ 111,189 93,118
Goodwill, net .................................. 47,173 30,876
Other assets ................................... 15,759 27,837
--------- ---------
$ 509,283 $ 408,254
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ............................... $ 54,336 $ 41,494
Accrued interest ............................... 12,908 12,327
Accrued employee compensation costs ............ 10,068 7,892
Accrued expenses and other current
liabilities .................................. 22,631 24,602
--------- ---------
Total current liabilities ................ 99,943 86,315
Long-term debt ................................. 298,453 380,039
Other long-term liabilities .................... 12,638 14,214
Deferred income taxes .......................... 5,983 --
--------- ---------
Total liabilities ........................ 417,017 480,568
========= =========
Preferred stock, par value $1.00, non-voting,
2,500 shares authorized, no shares
issued or outstanding ........................ -- --
Common stock, par value $0.01, 75,000,000 shares
authorized, 22,033,303 and 10,866,041 shares
issued and outstanding, respectively ......... 220 109
Class B common stock, par value $0.01,
non-voting, 3,000,000 shares authorized,
1,250,584 and 1,391,303 shares
issued and outstanding, respectively ......... 13 14
Additional paid-in capital ..................... 169,811 3,800
Accumulated deficit ............................ (77,778) (76,237)
--------- ---------
Stockholders' equity (deficit) .............. 92,266 (72,314)
--------- ---------
Commitments and contingencies .................. -- --
--------- ---------
$ 509,283 $ 408,254
========= =========
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except earnings per share)
Fiscal Year
---------------------------------
1996 1995 1994
--------- -------- ---------
Net sales ............................ $ 776,550 $682,624 $ 581,463
Cost of sales and related buying,
occupancy and distribution expenses 532,563 468,347 398,659
--------- -------- ---------
Gross profit ......................... 243,987 214,277 182,804
Selling, general and
administrative expenses ............ 172,579 149,102 126,200
Store opening and closure costs ...... 2,838 3,689 5,647
--------- -------- ---------
Operating income ..................... 68,570 61,486 50,957
Interest, net ........................ 45,954 43,989 40,010
--------- -------- ---------
Income before income tax and
extraordinary item ................ 22,616 17,497 10,947
Income tax expense ................... 8,594 6,767 4,317
--------- -------- ---------
Income before extraordinary item ..... 14,022 10,730 6,630
Extraordinary item - early retirement
of debt ........................... (16,081) -- (308)
--------- -------- ---------
Net income (loss) .................... $ (2,059) $ 10,730 $ 6,322
========= ======== =========
EARNINGS (LOSS) PER COMMON SHARE DATA:
Earnings per common share before
extraordinary item ................ $ 0.88 $ 0.84 $ 0.54
Extraordinary item - early retirement
of debt ........................... (1.01) -- (0.03)
--------- -------- ---------
Earnings (loss) per common share after
extraordinary item ................ $ (0.13) $ 0.84 $ 0.51
========= ======== =========
Weighted average common shares
outstanding ........................ 15,927 12,726 12,393
========= ======== =========
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................... $ (2,059) $ 10,730 $ 6,322
--------- -------- --------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization ..................... 14,181 12,816 9,997
Deferred income taxes ............................. 15,650 (4,065) (3,608)
Accretion of discount ............................. 11,097 13,940 12,286
Amortization of debt issue costs .................. 2,104 1,860 1,674
Issuance of long-term debt in lieu of
interest payment ................................ -- 147 282
Loss on early retirement of debt .................. 16,081 -- 308
Changes in operating assets and liabilities:
Decrease (increase) in undivided interest in
accounts receivable trust .................... (18,815) 7,885 (11,974)
Increase in merchandise inventories ............. (28,199) (31,650) (14,077)
Increase in other assets ........................ (3,339) (6,611) (3,265)
Increase (decrease) in accounts payable and
accrued liabilities .......................... (6,614) 1,202 11,861
--------- -------- --------
Total adjustments ............................. 2,146 (4,476) 3,484
--------- -------- --------
Net cash provided by operating activities ....... 87 6,254 9,806
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted investments ....... -- (100) 10,811
Acquisitions, net of cash acquired .................. (27,346) (1,167) (20,840)
Additions to property, equipment and leasehold
improvements, net ................................. (26,096) (28,638) (19,706)
--------- -------- --------
Net cash used in investing activities ........... (53,442) (29,905) (29,735)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Long-term debt .................................... 30,000 16,458 --
Common stock ...................................... 165,969 68 97
Payments on:
Long-term debt .................................... (140,677) (266) (10,442)
Redemption of common stock ........................ (46) (122) --
Additions to debt issue costs ..................... (3,878) (807 (448)
--------- -------- --------
Net cash provided by (used in)
financing activities .......................... 51,368 15,331 (10,793)
--------- -------- --------
Net decrease in cash and cash
equivalents ................................... (1,987) (8,320) (30,722)
Cash and cash equivalents:
Beginning of year ................................. 20,273 28,593 59,315
--------- -------- --------
End of year ....................................... $ 18,286 $ 20,273 $ 28,593
========= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(in thousands)
Fiscal Year
1996 1995 1994
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid ........................ $ 32,094 $ 27,845 $ 28,414
======== ======== ========
Income taxes paid .................... $ 6,988 $ 5,939 $ 5,198
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased Uhlmans, Inc. on June 3, 1996, Mammouth, Inc. and
Szolds, Inc. during 1995 and a significant portion of the assets of
Beall-Ladymon, Inc. during 1994. In conjunction with these acquisitions,
liabilities were assumed as follows:
Fair value allocated to assets acquired $ 35,001 $ 1,702 $ 24,043
Cash paid for assets acquired, including
acquisition expenses ................. (27,346) (1,167) (20,840)
Purchase price payable at closing ...... -- (393) --
-------- --------- --------
Liabilities assumed .................... $ 7,655 $ 142 $ 3,203
======== ========= ========
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(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 29, 1994 ....... 10,735,544 $107 1,391,303 $ 14 $ 3,228 $(91,076) $ (87,727)
---------- ---- --------- ---- --------- -------- ---------
Net income ...................... -- -- -- -- -- 6,322 6,322
Vested compensatory stock options -- -- -- -- 247 -- 247
Issuance of stock ............... 45,469 -- -- -- 97 -- 97
Adjustment for minimum
pension liability ............. -- -- -- -- -- (132) (132)
---------- ---- --------- ---- --------- -------- ---------
Balance, January 28, 1995 ....... 10,781,013 107 1,391,303 14 3,572 (84,886) (81,193)
Net income ...................... -- -- -- -- -- 10,730 10,730
Vested compensatory stock options -- -- -- -- 284 -- 284
Issuance of stock ............... 115,208 2 -- -- 66 -- 68
Adjustment for minimum
pension liability ............. -- -- -- -- -- (2,081) (2,081)
Retirement of stock ............. (30,180) -- -- -- (122) -- (122)
---------- ---- --------- ---- --------- -------- ---------
Balance, February 3, 1996 ....... 10,866,041 109 1,391,303 14 3,800 (76,237) (72,314)
Net loss ........................ -- -- -- -- -- (2,059) (2,059)
Vested compensatory stock options -- -- -- -- 198 -- 198
Issuance of stock ............... 11,032,236 110 -- -- 165,859 -- 165,969
Conversion of Class B common
stock ......................... 140,719 1 (140,719) (1) -- -- --
Adjustment for minimum
pension liability ............. -- -- -- -- -- 518 518
Retirement of stock ............. (5,693) -- -- -- (46) -- (46)
---------- ---- --------- ---- --------- -------- ---------
Balance, February 1, 1997 ....... 22,033,303 $220 1,250,584 $ 13 $ 169,811 $(77,778) $ 92,266
========== ==== ========= ==== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Stage Stores, Inc. ("Stage Stores" or the
"Company"), through its wholly-owned subsidiary, Specialty Retailers, Inc.
("SRI"), operates family apparel stores primarily under the names "Bealls",
"Palais Royal" and "Stage" offering branded fashion apparel and accessories
for women, men and children. As of February 1, 1997, the Company operated 315
stores in nineteen 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. All significant
intercompany transactions have been eliminated in consolidation.
FISCAL YEAR: References to a particular year are to the Company's fiscal
year which is the 52 or 53 week period ending on the Saturday closest to January
31 of the following calendar year (e.g., a reference to "1996" is a reference to
the fiscal year ended February 1, 1997). All fiscal years presented consisted of
52 weeks except for 1995 which consisted of 53 weeks.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
ACCOUNTS RECEIVABLE SECURITIZATION: The Company securitizes all of its
trade accounts receivable through a wholly-owned special purpose entity, SRI
Receivables Purchase Co., Inc. ("SRPC"). SRPC holds a retained interest in the
securitization vehicle, a special purpose trust (the "Trust"), which is
represented by two certificates of beneficial ownership in the Trust (the
"Retained Certificates"). The Company accounts for the Retained Certificates
under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115,
the Retained Certificates are accounted for as debt securities and classified as
trading securities. Accordingly, the Retained Certificates are recorded at fair
value in the accompanying balance sheet with any change in fair value reflected
currently in income.
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
February 1, 1997 and February 3, 1996 would have been lower by $5.3 million and
$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 of the related lease, including
renewal options. The estimated useful lives in years are as follows:
Buildings ............................................ 20-25
Store and office fixtures and
equipment .......................................... 7-12
Warehouse equipment .................................. 5-15
Leasehold improvements ............................... 15-50
F-7
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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: 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. Prior to the initial public
offering of the Company's common stock (see Note 2), the fair value of the
Company's common stock was determined in good faith by the Board of Directors
based upon the Company's historical and projected financial performance.
STOCK SPLIT: Share and per share amounts for all periods presented reflect
the impact of a .94727 for 1 reverse stock split of the Company's common stock
consummated concurrently with the Company's initial public offering.
DEBT ISSUE COSTS: Debt issue costs are accounted for as a deferred charge
and amortized on a straight-line basis over the term of the related issue.
Amortization of debt issue costs were $2.1 million, $1.9 million and $1.7
million for 1996, 1995 and 1994, respectively.
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 $5.4 million and
$4.7 million at February 1, 1997 and February 3, 1996, respectively.
STORE PRE-OPENING EXPENSES: Pre-opening expenses of new stores are
charged to operations in the year the store opens.
ADVERTISING EXPENSES: Advertising costs are charged to operations when the
related advertising first takes place. Advertising costs were $29.7 million,
$25.9 million and $22.3 million for 1996, 1995 and 1994, respectively. Prepaid
advertising costs were $1.2 million and $0.5 million at February 1, 1997 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: Except for the Retained Certificates, the Company
records all financial instruments at cost. The cost of all financial
instruments, except long-term debt and the Retained Certificates, approximates
fair value.
IMPAIRMENT OF ASSETS: The Company adopted 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" during the first
quarter of 1996. The adoption of SFAS 121 did not have a material effect on the
Company's financial position or results of operations.
RECLASSIFICATIONS: The accompanying consolidated financial statements
include reclassifications from financial statements issued in previous years.
F-8
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2 - INITIAL PUBLIC OFFERING OF COMMON STOCK
During October 1996, the Company completed an initial public offering
whereby the Company sold 10,750,000 shares of its common stock to the public.
The net proceeds of $165.7 million were used primarily to retire the 12 3/4%
Senior Discount Debentures due 2000 (the "Senior Discount Debentures"). In
addition, the Company replaced its working capital facility in January 1997. As
a result of the early retirement of the Senior Discount Debentures and the
replacement of the working capital facility, the Company recorded an
extraordinary charge of $16.1 million, net of applicable income taxes of $9.8
million.
NOTE 3 - ACCOUNTS RECEIVABLE SECURITIZATION
Pursuant to the accounts receivable securitization (the "Accounts
Receivable Program"), the Company transfers all of the accounts receivable
generated by the holders of the Company's private label credit card accounts to
SRPC on a daily basis in exchange for cash or an increase in the Retained
Certificates. 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. 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 in the Trust above the
level required to support the Retained Certificates, up to a maximum of $40.0
million. If accounts receivable balances in the Trust fall below the level
required to support the term certificates and revolving certificates, certain
principal collections may be retained in the Trust until such time as the
receivable balances exceed the certificates then outstanding and the required
Retained Certificates. 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 $165.0
million at February 1, 1997 and February 3, 1996. There were no balances
outstanding under the revolving certificates at February 1, 1997 or February 3,
1996.
Total accounts receivable transferred to the Trust during 1996, 1995 and
1994 were $441.4 million, $411.6 million and $362.3 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 on 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 a loss in the event of
non-performance by the bank. However, the Company does not anticipate
non-performance by the bank. At February 1, 1997, the average rate of return on
the term certificates was 6.5%. 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.
F-9
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The impact of the Accounts Receivable Program on the Company's statement
of operations for the years presented is as follows (in thousands):
Fiscal Year
------------------------------
1996 1995 1994
-------- -------- ---------
Finance charge income billed to
cardholders............................. $48,555 $41,321 $35,183
Return paid to certificateholders....... (11,428) (11,529) (8,200)
Servicing and bad debt expenses......... (37,626) (28,551) (22,504)
Other................................... 279 (62) (1,552)
-------- -------- ---------
$ (220) $ 1,179 $ 2,927
======== ======== =========
NOTE 4 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as follows (in
thousands):
February 1, February 3,
1997 1996
-------------- --------------
Land..................................... $ 3,074 $ 3,074
Buildings................................ 16,308 16,313
Fixtures and equipment................... 104,958 88,794
Leasehold improvements................... 63,022 49,290
---------- ----------
187,362 157,471
Accumulated depreciation................. 76,173 64,353
---------- ----------
$ 111,189 $ 93,118
========== ==========
Depreciation expense was $12.3 million, $10.8 million and $8.5 million for
1996, 1995 and 1994, respectively.
NOTE 5 - 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
philosophy or growth strategy. The Company accrued $5.2 million for the expected
costs associated with the Store Closure Plan in 1994. The Company substantially
completed the Store Closure Plan during 1995. Net sales and operating income
attributable to the stores closed were $23.2 million and $0.6 million,
respectively, in 1994. Such amounts were not material during 1996 and 1995.
F-10
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
February 1, February 3,
1997 1996
-------------- --------------
SRI Senior Notes......................... $ 130,000 $ 130,000
SRI Senior Subordinated Notes, net of
discount.............................. 116,686 116,530
Revolving Credit Agreements.............. -- --
SRPC Notes............................... 30,000 --
Bealls Holding Subordinated Notes, net
of discount........................... 11,945 11,319
FB Holdings Subordinated Notes, net of
discount.............................. 4,174 4,125
Bealls Holding Junior Subordinated
Debentures, net of discount........... 6,408 6,221
Port Arthur IDRB......................... 1,877 2,002
Senior Discount Debentures, net of
discount.............................. -- 109,817
Other long term debt..................... -- 301
---------- ----------
301,090 380,315
Current maturities....................... 2,637 276
---------- ----------
$ 298,453 $ 380,039
========== ==========
The Company used the proceeds of the initial public offering of the
Company's common stock to retire the Senior Discount Debentures at 112.7% of the
accreted value ($120.0 million). Prior to their retirement, the Senior Discount
Debentures bore interest at 12 3/4% of the accreted value. During the time the
Senior Discount Debentures were outstanding, no cash interest was paid.
The SRI Senior Notes were 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 25% 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. At February 1, 1997 and February 3, 1996, an affiliate of a
significant stockholder held $44.2 million of SRI Senior Notes. Interest expense
related to SRI Senior Notes held by related parties was $4.4 million for 1996
and 1995, and $2.9 million for 1994.
The SRI Senior Subordinated Notes consist of two series with principal
balances of $100.0 million and $18.3 million. The $18.3 million series was
issued at a discount which results in a combined effective interest rate for
both series of 11.3%. Both series bear interest at 11% payable semi-annually on
February 15 and August 15. SRI is required to make a mandatory sinking fund
payment in 2002 equal to forty percent of the original principal amount of both
series. The SRI Senior Subordinated Notes are subordinated to the obligations
under the SRI Senior Notes.
The SRI Senior Notes and SRI Senior Subordinated Notes contain restrictive
covenants which, among other things, limit (i) SRI's ability to sell certain
assets, pay dividends, retire its common stock or retire certain debt, (ii) its
ability to incur additional debt or issue stock and (iii) certain related party
transactions.
F-11
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On January 31, 1997, SRI entered into amended and restated revolving
credit agreements with a bank (the "Credit Agreements") to help fund its annual
working capital needs. The Credit Agreements provide for a base borrowing level
of $50.0 million, seasonal borrowings of an additional $10.0 million and letters
of credit of an additional $15.0 million for a total commitment of $75.0
million. Prior to this amended agreement, the Company's total availability under
the working capital facility was $35.0 million. The Credit Agreements are
available through January 29, 2000 and provide for a commitment fee of 0.5% per
annum on the average daily unused portion of the commitment amount paid on a
quarterly basis. Interest is charged on outstanding loans at a base rate set
forth in the agreement plus a specified margin. The specified margin range is
0.5% to 2.75% based on calculated debt service ratios as defined in the
agreement. The effective interest rate at February 1, 1997 was 9.25%. As of
February 1, 1997 the Company had no borrowings outstanding under the Credit
Agreements. The Credit Agreements contain covenants which, among other things,
restrict the (i) incurrance 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 under the agreement, (viii)
aggregate amount of capital expenditures and (ix) transactions with related
parties. The Credit Agreements also contain certain financial covenants which
require among other things, the maintenance of the debt service ratio above
predetermined levels, the amount of earnings before interest, taxes,
depreciation and amortization on an annual and quarterly basis above
predetermined levels, and the ratio of consolidated current assets to
consolidated current liabilities above 2.5. A portion of the Credit Agreements
are 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 $6.6 million at February 1, 1997.
During 1996, the Company issued $30.0 million in aggregate principal
amount of 12.5% Trust Certificate-Backed Notes (the "SRPC Notes"). The SRPC
Notes are collateralized by the Retained Certificates. Interest and principal
payments are made from amounts otherwise received by SRPC from funds associated
with the Retained Certificates and are non-recourse to the Company to the extent
these funds are insufficient to make scheduled interest and principal payments.
Interest is payable semi-annually on June 15 and December 15 of each year
commencing December 15, 1996. Principal repayments are scheduled to begin during
December 2000.
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 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 of the Company. SRI is the primary obligor under
these debentures.
In connection with a previous acquisition, a subsidiary of the Company
issued approximately $3.6 million aggregate principal amount of 7% FB Holdings
Subordinated Notes Due 2000 ("FB Holdings Subordinated Notes"). 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,
F-12
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
interest is being paid in cash. The principal amount of FB Holdings Subordinated
Notes at February 1, 1997 was $4.4 million. The FB Holdings Subordinated Notes
are subordinated to all debt of the Company. 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 1, 1997 was $14.3 million. The Bealls Holding Junior
Subordinated Debentures are subordinated to all debt of the Company. 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 1, 1997 was 6.0%. The Port
Arthur IDRB is collateralized by a building with a net book value of
approximately $0.7 million. Under a separate agreement, SRI is required to make
scheduled annual sinking fund payments ranging from $0.1 million to $0.2
million.
Aggregate maturities of long-term debt for the next five years are: 1997 -
$2.6 million; 1998 - $2.6 million; 1999 - $22.3 million; 2000 - $117.4 million
and 2001 - $ 32.7 million.
Management estimates the fair value of its long-term debt to be $320.1
million and $352.3 million at February 1, 1997 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 7 - STOCK OPTION PLANS
In 1993, the Company adopted the Third Amended and Restated Stock Option
Plan (the "1993 Stock Option Plan") designed to provide incentives to present
and future executive, managerial, technical and other key employees and advisors
to the Company (the "Participants") as selected by the Board of Directors or the
compensation committee of the Board of Directors (the "Board"). All options
granted under the 1993 Stock Option Plan were non-qualified within the meaning
of Section 422A of the Internal Revenue Code. The number of shares of common
stock which could be granted under the 1993 Stock Option Plan was 1,894,540
shares. As of February 1, 1997, there were 1,475,581 options outstanding under
the 1993 Stock Option Plan. During 1996, the 1993 Stock Option Plan was frozen
and replaced by the 1996 Equity Incentive Plan (the "Incentive Plan"). The
Incentive Plan provides for the granting 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
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. There were no grants
made under the Incentive Plan during 1996.
F-13
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Board will have exclusive discretion to select the participants and to
determine the type, size and terms of each award, to modify the terms of awards,
to determine when awards will be granted and paid, and to make all other
determinations which it deems necessary or desirable in the interpretation and
administration of the Incentive Plan. The Incentive Plan is scheduled to
terminate ten years from the date that the Incentive Plan was initially approved
and adopted by the stockholders of the Company, unless extended for up to an
additional five years by action of the Board. With limited exceptions, including
termination of employment as a result of death, disability or retirement, or
except as otherwise determined by the Board, rights to these forms of contingent
compensation are forfeited if a recipient's employment or performance of
services terminates within a specified period following the award. Generally, a
participant's rights and interest under the Incentive Plan will not be
transferable except by will or by the laws of descent and distribution.
Options, which include nonqualified stock options and ISOs, are rights to
purchase a specified number of shares of common stock at a price fixed by the
Board. The option price may be equal to or greater than the fair market value of
the underlying shares of common stock, but in no event less than the fair market
value on the date of grant. Options granted under the 1993 Stock Option Plan and
the Incentive Plan generally become exercisable in installments of 20% per year
on each of the first through the fifth anniversaries of the grant date and have
a maximum term of ten years.
F-14
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of the option activity under the various plans follows:
Weighted
Number of Average
Outstanding Option
Options Price
----------- -----------
Options outstanding at January 29,
1994............................. 540,987 $0.46
Granted......................... 186,647 2.27
Surrendered..................... (21,068) 1.25
Exercised....................... (2,720) 0.11
-----------
Options outstanding at January 28,
1995............................. 703,846 0.91
Granted......................... 409,108 2.95
Surrendered..................... (7,435) 1.50
Exercised....................... (99,985) 0.32
-----------
Options outstanding at February 3,
1996............................. 1,005,534 1.80
Granted......................... 783,819 10.72
Surrendered..................... (31,550) 4.48
Exercised....................... (282,222) 1.10
-----------
Options outstanding at February 1,
1997............................. 1,475,581 6.61
===========
Exercisable options at February 3, 1996 and January 28, 1995 were 241,355
and 123,685, respectively. A summary of outstanding and exercisable options as
of February 1, 1997 follows:
Weighted
Average
Number of Remaining Number of
Option Outstanding Contractual Exercisable
Price Options Life Options
- ------------ ------------ ------------ -----------
$0.11 175,318 6.3 75,171
2.27 246,392 7.3 79,777
3.04 260,584 8.4 21,392
5.28 503,212 9.0 5,018
10.56 34,329 9.3 --
21.11 255,746 9.3 --
------------ -----------
1,475,581 181,358
============ ===========
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its plans.
Compensation expense was $0.3 million for each of 1996, 1995 and 1994. The
following unaudited pro forma data is calculated as if compensation cost for the
Company's stock option plans were determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation":
F-15
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Fiscal Year
--------------------
1996 1995
--------- ---------
Pro forma net income (loss)............. $(2,653) $10,592
Pro forma earnings (loss) per common
share................................. (0.17) 0.83
Weighted average grant date value of
options granted....................... 8.33 3.59
The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following assumptions: no dividend yield;
volatility of 34.35%; risk-free interest rate of 6.25%; assumed forfeiture rate
of 68.26% and an expected life of eight years. The pro forma amounts above are
not likely to be representative of future years because options vest over
several years and additional awards generally are made each year.
NOTE 8 - EMPLOYEE BENEFIT PLANS
Pension benefits for employees are provided under the SRI Restated
Retirement Plan (the "Retirement Plan"), a qualified defined benefit plan.
Benefits are administered through a Trust arrangement which provides monthly
payments or lump sum distributions. The Retirement Plan covers substantially all
employees who have completed one year of service with 1,000 hours of service.
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 Retirement Plan and the
amounts recognized in the consolidated financial statements (in thousands):
February 1, February 3,
1997 1996
-------------- --------------
Actuarial present value of benefits:
Vested benefit obligations............ $ (24,650) $ (24,680)
========== ==========
Accumulated benefit obligations....... $ (25,660) $ (25,790)
========== ==========
Projected benefit obligations............ $ (33,790) $ (32,240)
Market value of plan assets, primarily
fixed income and equity securities.... 20,990 20,000
---------- ----------
Pension obligations in excess of assets.. (12,800) (12,240)
Unrecognized prior service income........ (21) (28)
Unrecognized net loss.................... 11,772 10,948
Adjustment required to recognize minimum
liability............................. (3,621) (4,470)
---------- ----------
Accrued pension cost..................... $ (4,670) $ (5,790)
========== ==========
Assumptions utilized in determining projected obligations and funding
amounts:
Discount rate......................... 7.50% 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%
F-16
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's funding policy for the Retirement Plan is to contribute the
minimum amount required by applicable regulations. Retirement Plan assets
include 100,000 shares of Stage Stores common stock purchased during the
Company's initial public offering.
The components of pension cost for the Retirement Plan were as follows (in
thousands):
Fiscal Year
------------------------------
1996 1995 1994
-------- -------- ---------
Service cost............................ $ 1,269 $ 771 $ 887
Interest cost........................... 2,085 2,139 1,995
Actual loss (return) on plan assets..... (2,047) (3,377) 940
Net amortization and deferral........... 789 2,292 (2,174)
-------- -------- ---------
$ 2,096 $ 1,825 $ 1,648
======== ======== =========
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 net sales. The Company has renewal options for most of its store leases; such
leases generally require that the Company pay for utilities, taxes and
maintenance expense. A summary of rental expense associated with operating
leases follows (in thousands):
Fiscal Year
------------------------------
1996 1995 1994
-------- -------- ---------
Minimum rentals......................... $30,397 $26,943 $22,979
Contingent rentals...................... 3,318 2,618 2,874
Equipment rentals....................... 829 593 784
-------- -------- ---------
$34,544 $30,154 $26,637
======== ======== =========
F-17
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Minimum rental commitments on long-term operating leases at February 1,
1997, net of sub-leases, are as follows (in thousands):
Fiscal Year:
1997........................................... $32,657
1998........................................... 31,087
1999........................................... 29,248
2000........................................... 25,561
2001........................................... 21,614
Thereafter..................................... 107,428
--------
$247,595
========
NOTE 10 - RELATED PARTY TRANSACTIONS
Pursuant to a professional service agreement with an affiliate of a
principal stockholder, the Company paid fees for professional services rendered
and expense reimbursements in the amount of $2.7 million, $0.8 million and $0.6
million for 1996, 1995 and 1994 respectively. Upon consummation of the initial
public offering (see Note 2), such agreement was terminated.
The Company has made loans, in an aggregate principal amount of $1.5
million, 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 loans provide for interest from 5.7% to 7.25%
and mature no later than June 1, 2000.
F-18
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 11 - INCOME TAXES
All Company operations are domestic. Income tax expense charged to
continuing operations consisted of the following (in thousands):
Fiscal Year
------------------------------
1996 1995 1994
-------- -------- ---------
Federal income tax expense (benefit):
Current.............................. $(7,443) $ 9,772 $ 7,154
Deferred............................. 15,399 (3,630) (3,794)
-------- -------- ---------
7,956 6,142 3,360
-------- -------- ---------
State income tax expense (benefit):
Current.............................. 764 1,060 771
Deferred............................. (126) (435) 186
-------- -------- ---------
638 625 957
-------- -------- ---------
$ 8,594 $ 6,767 $ 4,317
======== ======== =========
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
------------------------------
1996 1995 1994
-------- -------- ---------
Federal income tax expense at the
statutory rate.......................... $ 7,915 $ 6,124 $ 3,831
State income taxes, net................. 414 406 797
Permanent differences, net.............. 265 290 (311)
Other, net.............................. -- (53) --
-------- -------- ---------
$ 8,594 $ 6,767 $ 4,317
======== ======== =========
As a result of the early retirement of the Senior Discount Debentures and
the replacement of the working capital facility, the Company recorded and
extraordinary charge of $16.1 million, net of applicable income taxes of $9.8
million. The 1996 income tax benefit relating to the extraordinary item is
comprised of a $7.7 million current federal tax benefit, a $0.9 million deferred
federal tax benefit and a $1.2 million state tax benefit.
F-19
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred tax liabilities (assets) consist of the following (in thousands):
February 1, February 3,
1997 1996
-------------- --------------
Gross deferred tax liabilities:
Depreciation and amortization......... $ 12,903 $ 7,485
Inventory reserves.................... 3,735 1,406
State income taxes.................... 495 --
Other................................. 1,660 1,435
---------- ----------
18,793 10,326
---------- ----------
Gross deferred tax assets:
Retained Certificates................. (2,173) (2,502)
Accrued consolidation costs........... (1,318) (1,478)
Net operating loss carryforwards...... (2,961) (82)
Original issue discount............... -- (10,042)
Accrued expenses...................... (1,607) (990)
Pensions.............................. (2,163) (2,686)
Escalating leases..................... (1,482) (962)
Charitable contribution carryforward.. (575) (113)
Accrued payroll costs................. (1,212) (884)
Accrued store closure costs........... -- (558)
Other................................. (403) (780)
---------- ----------
(13,894) (21,077)
---------- ----------
Deferred tax assets valuation allowance.. -- --
---------- ----------
$ 4,899 $ (10,751)
========== ==========
As a result of the extraordinary loss on the early retirement of debt
during 1996, the Company has recorded a $17.0 million federal income tax
receivable which is included in other current assets on the consolidated balance
sheet.
F-20
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12 - QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly financial data is summarized as follows (in
thousands):
Fiscal Year 1996
-------------------------------------
Q1 Q2 Q3 Q4
--------- -------- --------- --------
Net sales........................ $163,177 $182,750 $182,562 $248,061
Gross profit..................... 52,081 56,623 56,208 79,075
Operating income................. 16,045 13,925 12,342 26,258
Income (loss) before
extraordinary item............. 2,652 868 (265) 10,767
Net income (loss)................ 2,652 868 (16,071) 10,492
Earnings (loss) per common share
data:
Earnings (loss) per common
share before extraordinary
item........................ 0.21 0.07 (0.02) 0.45
Extraordinary item - early
retirement of debt......... -- -- (1.12) (0.01)
Earnings (loss) per common
share after extraordinary
item....................... 0.21 0.07 (1.14) 0.44
Fiscal Year 1995
-------------------------------------
Q1 Q2 Q3 Q4
--------- -------- --------- --------
Net sales........................ $142,353 $154,578 $159,161 $226,532
Gross profit..................... 46,283 46,555 48,659 72,780
Operating income................. 14,835 11,074 9,724 25,853
Net income (loss)................ 2,438 221 (899) 8,970
Earnings (loss) per common share
data:
Earnings (loss) per common
share after extraordinary
item....................... 0.19 0.02 (0.07) 0.70
NOTE 13 - 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 or its
results of operations.
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 $8.0 million at February 1, 1997, all of
which were collateralized by the Credit Agreements (see Note 6). These letters
of credit expire within twelve months of issuance.
CONCENTRATION OF CREDIT RISK: Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily cash,
short-term investments and the accounts receivable transferred to the Trust (see
Note
F-21
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3). The Company's cash management and investment policies restrict
investments to low risk, highly-liquid securities and the Company performs
periodic evaluations of the relative credit standing of the financial
institutions with which it deals. The credit risk associated with the accounts
receivable transferred to the Trust is limited by the large number of customers
in the Company's customer base. Substantially all of the Company's customers
reside in the central United States.
NOTE 14 - SUBSEQUENT EVENT
On March 5, 1997, the Company reached a definitive agreement to merge with
C.R. Anthony Company ("CR Anthony"), a retailer of branded and private label
apparel for the entire family which operated 224 stores in 13 southwestern and
Rocky Mountain states at February 1, 1997. Under the terms of the agreement, the
Company will acquire the common stock of CR Anthony for a value of $8.00 per
share plus $0.01 per share for every $0.05 per share by which the average
closing price of the Company's common stock exceeds $20.00 per share. The
Company's average closing price will be determined based upon ten randomly
selected days out of the twenty trading days ending on the fifth trading day
preceding the closing of the transaction.
The form of consideration (stock/cash mix) to be paid by the Company for
CR Anthony's common stock will also be determined using a formula based upon the
average closing price of the Company's stock. The consideration will be 100%
Company common stock so long as the Company's average closing price is $20.00
per share or higher, and such stock percentage will decline in a linear fashion
to 25% of the consideration if the average closing price of Company common stock
is $15.00 per share. As an example, if the Company's average closing price was
$21.00 per share, CR Anthony's common shareholders would receive a value of
$8.20 per share, 100% of which would be paid in Company common stock (0.39
shares of Company common stock to be exchanged for each share of CR Anthony
common stock). At prices below $15.00 per share, the Company has the option to
terminate the agreement, or to close and pay 0.1333 shares of Company common
stock and an amount in cash equal to the difference between $8.00 per share and
the value of 0.1333 share of Company common stock. The Company is currently
evaluating its financing options for payments to CR Anthony option holders and
stockholders and any one-time costs to be incurred in connection with the merger
of CR Anthony's operations into the Company which could not otherwise be funded
out of existing sources.
The transaction is subject to approval by the shareholders of CR Anthony
and other closing conditions. In addition, the agreement contains provisions
relating to the obligations of the parties in the event of termination of the
agreement. It is expected that the transaction will be completed by mid-year
1997.
F-22
<PAGE>
EXHIBIT INDEX
The following documents are the exhibits to the Form 10-K. For convenient
reference, each exhibit is listed according to the Exhibit Table of Regulation
S-K.
EXHIBIT
NUMBER EXHIBIT
*2.1 Agreement and Plan of Merger, dated as of March 5, 1997, between Stage
Stores, Inc. and C.R. Anthony Company (Incorporated by Reference to
Exhibit 2.1 on Form 8-K of Stage Stores, Inc., dated March 5, 1997).
*3.1 Form of Certificate of Incorporation of Stage Stores, Inc. (Incorporated
by Reference to Exhibit 3.3 of Registration No. 333-5855 on Form S-1).
*3.2 Form of By-Laws of Stage Stores, Inc. (Incorporated by Reference to
Exhibit 3.4 of Registration No. 333-5855 on Form S-1).
**4.1 Amended and Restated Revolving Credit Agreement by and among Stage
Stores, Inc., Specialty Retailers, Inc., Palais Royal, Inc. and the
First National Bank of Boston, as agent for itself and other financial
institutions dated January 31, 1997.
**4.2 Amended and Restated Seasonal Revolving Credit Agreement by and among
Stage Stores, Inc., Specialty Retailers, Inc., Palais Royal, Inc., and
the First National Bank of Boston, as agent for itself and other
financial institutions dated January 31, 1997.
*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 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).
*4.4 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).
*4.5 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).
*4.6 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).
*4.7 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).
X-1
<PAGE>
EXHIBIT INDEX
(Continued)
EXHIBIT
NUMBER EXHIBIT
*4.8 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).
*4.9 Amended and Restated Pooling and Servicing Agreement by and among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and Bankers
Trust (Delaware) dated August 11, 1995 (Incorporated by Reference to
Exhibit 4.6 on Form 10-Q of Apparel Retailers, Inc., dated October 28,
1995).
*4.10 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 May 30, 1996 (Incorporated by
Reference to Exhibit 4.2 on Form 10-Q of Apparel Retailers, Inc., dated
May 4,1996).
*4.11 Amended and Restated Series 1993-1 Supplement among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust
(Delaware) dated May 30, 1996 (Incorporated by Reference to Exhibit 4.3
on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
*4.12 Amended and Restated Series 1993-2 Supplement among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust
(Delaware) dated May 30, 1996 (Incorporated by Reference to Exhibit 4.4
on Form 10-Q of Apparel Retailers, Inc., dated May 4 , 1996).
*4.13 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 August
11, 1995 (Incorporated by Reference to Exhibit 4.5 on Form 10-Q of
Apparel Retailers, Inc., dated May 4, 1996).
*4.14 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
May 30, 1996 (Incorporated by Reference to Exhibit 4.6 on Form 10-Q of
Apparel Retailers, Inc., dated May 4, 1996).
*4.15 Amended and Restated Receivables Purchase Agreement among SRI
Receivables Purchase Co., Inc. and Originators dated May 30, 1996
(Incorporated by Reference to Exhibit 4.7 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
*4.16 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).
*4.17 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).
*4.18 Certificate Purchase Agreement among SRI Receivables Purchase Co.,
Specialty Retailers, Inc. and the Certificate Purchaser dated August 11,
1995 (Incorporated by Reference to Exhibit 4.9 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995).
X-2
<PAGE>
EXHIBIT INDEX
(Continued)
EXHIBIT
NUMBER EXHIBIT
*10.1 Registration Rights Agreement dated as of May 30, 1996 by and among SRI
Receivables Purchase Co., Inc. and BT Securities Corporation relating to
the sale of SRI Receivables Purchase Co., Inc. 12.5% Trust
Certificate-Backed Notes.
*10.2 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 December 29, 1988
(Incorporated by Reference to Exhibit 10.9 of Registration No. 33-27714
on Form S-1) and Amendment 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).
*10.3 Registration Agreement by and among Specialty Retailers, Inc., Tyler
Capital Fund, L.P. Tyler Massachusetts, L.P., Tyler International,
L.P.-I, Tyler International, L.P.-II, Bain Venture Capital, Citicorp
Capital Investors, Ltd., Acadia Partners, L.P., Drexel Burnham Lambert
Incorporated, and certain other Purchasers, dated December 29, 1988
(Incorporated by Reference to Exhibit 10.10 of Registration No. 33-27714
on Form S-1) and Amendment to Registration Agreement dated August 2,
1993 (Incorporated by Reference to Exhibit 10.5 of Registration No.
33-68258 on Form S-4).
*10.4 Apparel Retailers, Inc. Stock Option Plan (Incorporated by Reference to
Exhibit 10.13 to Registration No. 33-68258 on Form S-4).
*10.5 Employment Agreement between Stage Stores, Inc. and Carl E. Tooker dated
June 12, 1996 (Incorporated by Reference to Exhibit 10.17 of
Registration No. 33-5855 on Form S-1).
*10.6 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).
*10.7 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).
*10.8 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).
*10.9 Employment Agreement between Mark Shulman and Stage Stores, Inc. dated
June 12, 1996 (Incorporated by Reference to Exhibit 10.23 of
Registration No. 333-5855 of Form S-1).
*10.10 Stock Option Agreement between Mark Shulman and Apparel Retailers, Inc.,
dated January 31, 1994 (Incorporated by Reference to Exhibit 10.2 on
Form 10-Q of Apparel Retailers, Inc., dated April 29, 1995).
*10.11 Employment Agreement between James Marcum and Stage Stores, Inc. dated
June 12, 1996 (Incorporated by Reference to Exhibit 10.24 of
Registration No. 333-5855 of Form S-1).
X-3
<PAGE>
EXHIBIT INDEX
(Continued)
EXHIBIT
NUMBER EXHIBIT
*10.12 Employment between Stephen Lovell and Stage Stores, Inc. dated June 12,
1996 (Incorporated by Reference to Exhibit 10.25 of Registration No.
333-5855 of Form S-1).
*10.13 Employment Agreement between Ron Lucas and Stage Stores, Inc. dated June
12, 1996 (Incorporated by Reference to Exhibit 10.28 of Registration No.
333-5855 of Form S-1).
*10.14 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).
*10.15 Securities Purchase Agreement among Palais Royal, Inc. and certain
selling stockholders of Uhlmans, dated May 9, 1996 (Incorporated by
Reference to Exhibit 10.1 on Form 10-Q of Stage Stores, Inc., dated June
12, 1996).
*10.16 Termination Option Agreement, dated as of March 5, 1997, between Stage
Stores, Inc. and C.R. Anthony Company (Incorporated by Reference to
Exhibit 10.1 on Form 8-K of Stage Stores, Inc., dated March 5, 1997).
*10.17 Stage Stores, Inc. Equity Incentive Plan (Incorporated by Reference to
Exhibit 10.29 of Registration No. 333-5855 of Form S-1).
**12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
**21.1 List of Registrant's Subsidiaries.
- ----------
* Previously Filed
** Filed Herewith
X-4
<PAGE>
Schedule I
STAGE STORES, INC.
CONDENSED BALANCE SHEET
(in thousands, except par value and numbers of shares)
February 1, February 3,
1997 1996
--------- ---------
ASSETS
Cash and cash equivalents ............................ $ 16 $ 9
Intercompany advances ................................ 64,217 7,240
Debt issue costs, net of amortization ................ -- 4,163
Investment in subsidiary ............................. 41,066 35,340
Deferred income taxes ................................ -- 10,042
--------- ---------
$ 105,299 $ 56,794
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses ..................................... $ 111 $ 6,369
Long-term debt ....................................... -- 109,817
--------- ---------
Total liabilities .............................. 111 116,186
--------- ---------
Preferred stock, par value $1.00, non-voting, 2,500
shares authorized, zero shares issued
and outstanding .................................... -- --
Common Stock, par value $0.01, 75,000,000 shares
authorized, 22,033,303 and 10,866,041 shares
issued and outstanding, respectively ............... 220 109
Class B common stock, par value $0.01, non-voting,
3,000,000 shares authorized, 1,250,584 and 1,391,303
shares issued and outstanding, respectively ........ 13 14
Additional paid-in capital ........................... 169,811 3,800
Accumulated deficit .................................. (64,856) (63,315)
--------- ---------
Stockholders' equity (deficit) ....................... 105,188 (59,392)
--------- ---------
$ 105,299 $ 56,794
========= =========
The accompanying notes are an integral part of this condensed
financial information.
S-1
<PAGE>
Schedule I
(continued)
STAGE STORES, INC.
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(in thousands)
Fiscal Year
--------------------------------
1996 1995 1994
-------- -------- --------
Selling, general and administrative expenses $ 17 $ -- $ --
Interest income ............................ 14 18 30
Interest expense ........................... 10,953 13,511 11,954
-------- -------- --------
Loss before income tax and equity in
earnings of subsidiary ................... (10,956) (13,493) (11,924)
Income tax benefit ......................... (3,690) (4,550) (4,022)
-------- -------- --------
Loss before equity in earnings
of subsidiary ............................ (7,266) (8,943) (7,902)
Equity in earnings of subsidiaries ......... 5,207 19,673 14,224
-------- -------- --------
Net income (loss) .......................... (2,059) 10,730 6,322
Accumulated deficit:
Beginning of year ........................ (63,315) (71,964) (78,154)
Adjustment for minimum pension
liability ............................... 518 (2,081) (132)
-------- -------- --------
End of year .............................. $(64,856) $(63,315) $(71,964)
======== ======== ========
The accompanying notes are an integral part of this condensed
financial information.
S-2
<PAGE>
Schedule I
(continued)
STAGE STORES, INC.
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................. $ (2,059) $ 10,730 $ 6,322
--------- -------- --------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Accretion of discount ........................... 10,229 13,070 11,515
Amortization of debt issue costs ................ 4,163 438 437
Deferred federal income tax ..................... 10,042 (4,402) (3,879)
Equity in earnings of subsidiaries .............. (5,207) (19,673) (14,224)
Changes in operating assets and liabilities:
Increase (decrease) in accrued liabilities .... (6,061) (641) 7,116
Intercompany advances ......................... (56,977) (243) (7,382)
--------- -------- --------
Total adjustments ........................... (43,811) (11,451) (6,417)
--------- -------- --------
Net cash used in operating activities ......... (45,870) (721) (95)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt .................................. (120,046) -- --
Issuance of common stock ........................ 165,969 68 97
Redemption of common stock ...................... (46) (122) --
Additions to debt issue cost .................... -- -- --
Dividends paid .................................. -- -- --
--------- -------- --------
Net cash provided by (used in) financing activities 45,877 (66) 97
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 7 (787) 2
Cash and cash equivalents:
Beginning of year ............................... 9 796 794
--------- -------- --------
End of year ..................................... $ 16 $ 9 $ 796
========= ======== ========
</TABLE>
The accompanying notes are an integral part of this condensed
financial information.
S-3
<PAGE>
Schedule I
(continued)
STAGE STORES, 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 - 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.
NOTE 3 - INITIAL PUBLIC OFFERING OF COMMON STOCK:
During October 1996, the Company completed an initial public offering
whereby the Company sold 10,750,000 shares of its common stock to the public.
The net proceeds of $165.7 million were used primarily to retire the 12 3/4%
Senior Discount Debentures due 2000.
NOTE 4 - SUBSEQUENT EVENT:
On March 5, 1997, the Company entered into an Agreement and Plan of Merger
with C.R. Anthony Company, an Oklahoma Corporation ("CR Anthony"). The
consummation of the transaction is subject to certain conditions, including
approval by the shareholders of CR Anthony.
S-4
EXHIBIT 4.1
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
by and among
STAGE STORES, INC.
SPECIALTY RETAILERS, INC.,
PALAIS ROYAL, INC.,
THE FIRST NATIONAL BANK OF BOSTON
and the other lending institutions listed
on SCHEDULE 1 hereto
and
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
January 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
SS.1. DEFINITION AND RULES OF INTERPRETATION
ss.1.1 Definitions.............................................. 1
ss.1.2 Rules of Interpretation.................................. 15
SS.2. THE REVOLVING CREDIT FACILITY
ss.2.1 Commitment to Lend....................................... 16
ss.2.2 Commitment Fee........................................... 16
ss.2.3 Reduction of Total Commitment............................ 16
2.3.1. Mandatory Reduction of Total Commitment.......... 16
2.3.2. Optional Reduction of Total Commitment........... 16
ss.2.4 The Revolving Credit Notes............................... 17
ss.2.5 Interest on Revolving Credit Loans....................... 17
ss.2.6 Requests for Revolving Credit Loans...................... 17
ss.2.7 Conversion Options....................................... 18
2.7.1. Conversion to Different Type of Revolving
Credit Loan.................................... 18
2.7.2. Continuation of Type of Revolving Credit Loan.... 18
2.7.3 Eurodollar Rate Loans............................. 19
ss.2.8 Funds for Loan........................................... 19
2.8.1. Funding Procedures............................... 19
2.8.2. Advances by Agent................................ 19
SS.3. REPAYMENT OF THE REVOLVING CREDIT LOANS
ss.3.1 Maturity .............................................. 20
ss.3.2 Mandatory Repayments of Loans............................ 20
3.2.1. Exceeding Total Commitment....................... 20
ss.3.3 Optional Repayments of Loans............................. 20
SS.4. CERTAIN GENERAL PROVISIONS
ss.4.1 Closing Fee.............................................. 20
ss.4.2 Agent's Fee.............................................. 21
ss.4.3 Funds for Payments....................................... 21
4.3.1 Payments to Agent................................. 21
4.3.2 No Offset, etc.................................... 21
ss.4.4 Computations............................................. 21
ss.4.5 Inability to Determine Eurodollar Rate................... 21
ss.4.6 Illegality .............................................. 22
<PAGE>
-ii-
ss.4.7 Additional Costs, Etc.................................... 22
ss.4.8 Capital Adequacy......................................... 23
ss.4.9 Certificate.............................................. 24
ss.4.10 Indemnity .............................................. 24
ss.4.11 Interest After Default................................... 24
ss.4.12 Interest Limitation...................................... 24
SS.5. GUARANTIES ............................................ 25
SS.6. REPRESENTATIONS AND WARRANTIES
ss.6.1 Corporate Authority...................................... 25
6.1.1 Incorporation; Good Standing...................... 25
6.1.2 Authorization..................................... 26
6.1.3 Enforceability.................................... 26
ss.6.2 Governmental Approvals................................... 26
ss.6.3 Title to Properties; Leases.............................. 26
ss.6.4 Financial Statements and Projections..................... 26
6.4.1 Financial Statements.............................. 26
6.4.2 Projections....................................... 27
ss.6.5 No Material Changes, Etc................................. 27
ss.6.6 Franchises, Patents, Copyrights, Etc..................... 27
ss.6.7 Litigation .............................................. 28
ss.6.8 No Materially Adverse Contracts, Etc..................... 28
ss.6.9 Compliance with Other Instruments, Law, Etc.............. 28
ss.6.10 Tax Status .............................................. 28
ss.6.11 No Event of Default...................................... 28
ss.6.12 Holding Company and Investment Company Acts.............. 29
ss.6.13 Absence of Financing Statements, Etc..................... 29
ss.6.14 Certain Transactions..................................... 29
ss.6.15 Employee Benefit Plans................................... 29
6.15.1 In General....................................... 29
6.15.2 Terminability of Welfare Plans................... 29
6.15.3 Guaranteed Pension Plans......................... 30
6.15.4 Multiemployer Plans.............................. 30
ss.6.16 Regulations U and X...................................... 30
ss.6.17 Environmental Compliance................................. 30
ss.6.18 Subsidiaries, Etc........................................ 32
ss.6.19 Senior Debt.............................................. 33
ss.6.20 Fiscal Year.............................................. 33
ss.6.21 Insurance .............................................. 33
SS.7. AFFIRMATIVE COVENANTS OF THE BORROWER
ss.7.1 Punctual Payment......................................... 33
ss.7.2 Maintenance of Office.................................... 33
<PAGE>
-iii-
ss.7.3 Records and Accounts..................................... 33
ss.7.4 Financial Statements, Certificates and Information....... 34
ss.7.5 Notices .............................................. 37
7.5.1 Defaults.......................................... 37
7.5.2 Environmental Events.............................. 37
7.5.3 Notice of Litigation and Judgments................ 37
ss.7.6 Corporate Existence; Maintenance of Properties........... 38
ss.7.7 Insurance .............................................. 38
ss.7.8 Taxes .............................................. 38
ss.7.9 Inspection of Properties and Books, Etc.................. 38
7.9.1 General........................................... 38
7.9.2 Appraisals........................................ 39
7.9.3 Communications with Accountants................... 39
ss.7.10 Compliance with Laws, Contracts, Licenses and Permits.... 39
ss.7.11 Employee Benefit Plans................................... 40
ss.7.12 Use of Proceeds.......................................... 40
ss.7.13 Further Assurances....................................... 40
SS.8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER
ss.8.1 Restrictions on Indebtedness............................. 40
ss.8.2 Restrictions on Liens.................................... 42
ss.8.3 Restrictions on Investments.............................. 43
ss.8.4 Distributions; Repayment................................. 44
ss.8.5 Merger, Consolidation and Disposition of Assets.......... 45
8.5.1 Mergers and Acquisitions.......................... 45
8.5.2 Disposition of Assets............................. 46
ss.8.6 Sale and Leaseback....................................... 46
ss.8.7 Compliance with Environmental Laws....................... 46
ss.8.8 Senior Note and Senior Subordinated Note Payments........ 47
ss.8.9 Changes in Terms of Senior Notes and Senior
Subordinated Notes............................... 47
ss.8.10 Employee Benefit Plans................................... 47
ss.8.11 Transactions with Affiliates............................. 48
ss.8.12 Fiscal Year.............................................. 48
ss.8.13 Negative Pledges......................................... 48
ss.8.14 Upstream Limitations..................................... 49
SS.9. FINANCIAL COVENANT OF THE BORROWER
ss.9.1 Debt Service Ratio....................................... 49
ss.9.2 Capital Expenditures..................................... 49
ss.9.3 Total Funded Debt to EBITDA.............................. 50
ss.9.4 Minimum EBITDA........................................... 50
ss.9.5 Current Assets........................................... 51
ss.9.6 Seasonal Debt Service Ratio.............................. 51
<PAGE>
-iv-
SS.10. CLOSING CONDITIONS
ss.10.1 Loan Documents........................................... 51
ss.10.2 Certified Copies of Charter Documents.................... 51
ss.10.3 Corporate, Action........................................ 51
ss.10.4 Incumbency Certificate................................... 51
ss.10.5 Certificates of Insurance................................ 52
ss.10.6 Solvency Certificate..................................... 52
ss.10.7 Opinion of Counsel....................................... 52
ss.10.8 Payment of Fees.......................................... 52
SS.11. CONDITIONS TO ALL BORROWINGS
ss.11.1. Representations True; No Event of Default................ 52
ss.11.2. No Legal Impediment...................................... 52
ss.11.3 Governmental Regulation.................................. 53
ss.11.4 Proceedings and Documents................................ 53
SS.12. EVENTS OF DEFAULT; ACCELERATION; ETC.
ss.12.1 Events of Default and Acceleration....................... 53
ss.12.2 Termination of Commitments............................... 57
ss.12.3 Remedies .............................................. 57
SS.13. SETOFF ............................................ 57
SS.14. THE AGENT
ss.14.1 Authorization............................................ 58
ss.14.2 Employees and Agents..................................... 59
ss.14.3 No Liability............................................. 59
ss.14.4 No Representations....................................... 59
ss.14.5 Payments .............................................. 59
14.5.1. Payments to Agent............................... 59
14.5.2. Distribution by Agent........................... 60
14.5.3. Delinquent Banks................................ 60
ss.14.6 Holders of Notes......................................... 60
ss.14.7 Indemnity .............................................. 60
ss.14.8 Agent as Bank............................................ 61
ss.14.9 Resignation.............................................. 61
ss.14.10 Notification of Defaults and Events of Default........... 61
SS.15. EXPENSES ............................................ 61
SS.16. INDEMNIFICATION ............................................ 62
<PAGE>
-v-
SS.17. SURVIVAL OF COVENANTS, ETC....................................... 63
SS.18. ASSIGNMENT AND PARTICIPATION..................................... 63
ss.18.1 Conditions to Assignment by Banks........................ 63
ss.18.2 Certain Representations and Warranties;
Limitations; Covenants........................... 63
ss.18.3 Register .............................................. 64
ss.18.4 New Notes .............................................. 64
ss.18.5 Participations........................................... 65
ss.18.6 Disclosure .............................................. 65
ss.18.7 Assignee or Participant Affiliated with the Borrower..... 65
ss.18.8 Miscellaneous Assignment Provisions...................... 66
ss.18.9 Assignment by Borrower................................... 66
SS.19. NOTICES, ETC. ............................................ 66
SS.20. GOVERNING LAW ............................................ 67
SS.21. HEADINGS ............................................ 67
SS.22. COUNTERPARTS ............................................ 67
SS.23. ENTIRE AGREEMENT, ETC............................................ 68
SS.24. WAIVER OF JURY TRIAL ............................................ 68
SS.25. CONSENTS, AMENDMENTS, WAIVERS, ETC............................... 68
SS.26. SEVERABILITY ............................................ 69
SS.27. TRANSITIONAL ARRANGEMENTS........................................ 69
ss.27.1 Original Credit Agreement Superseded..................... 69
ss.27.2 Return and Cancellation of Notes......................... 69
ss.27.3 Interest and Fees Under Superseded Agreement............. 69
SS.28. COVENANT OF SSI ............................................ 69
<PAGE>
SCHEDULES
Schedule 1 Banks/Commitments
Schedule 6.3 Title to Properties; Leases
Schedule 6.7 Litigation
Schedule 6.14 Transactions with Affiliates
Schedule 6.15.3 ERISA Matters
Schedule 6.17 Environmental Matters
Schedule 6.18 Joint Ventures
Schedule 6.21 Insurance
Schedule 8.1 Indebtedness
Schedule 8.2 Liens
EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Loan Request
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Guaranty
<PAGE>
-7-
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of
the 31st day of January, 1997, by and among STAGE STORES, INC. ("SSI"), a
Delaware corporation (for the limited purpose of ss.28 hereof only), SPECIALTY
RETAILERS, INC. ("SRI"), a Delaware corporation, PALAIS ROYAL, INC. (the
"Borrower"), a Texas corporation having its principal place of business at 10201
Main Street, Houston, Texas 77025, and THE FIRST NATIONAL BANK OF BOSTON and the
other lending institutions listed on SCHEDULE 1 and THE FIRST NATIONAL BANK OF
BOSTON as agent for itself and such other lending institutions.
WHEREAS, pursuant to a Revolving Credit Agreement dated as of March
31, 1995 (as amended and in effect from time to time, the "Original Credit
Agreement") by and among SRI, the Borrower, certain of the Banks (as hereinafter
defined) and the Agent (as hereinafter defined), the Banks party thereto made
available revolving credit loans for general corporate and working capital
purposes; and
WHEREAS, the Borrower has requested, among other things, additional
financing to refinance certain Indebtedness and for general corporate and
working capital purposes, and the Banks are willing to provide such additional
financing on the terms and conditions set forth herein;
NOW, THEREFORE, SRI, the Borrower, the Banks and the Agent agree that
on the Closing Date the Original Credit Agreement is hereby amended and restated
in its entirety and shall remain in full force and effect only as set forth
herein.
SS.1. DEFINITIONS AND RULES OF INTERPRETATION.
SS.1.1. DEFINITIONS. The following terms shall have the
meanings set forth in this ss.1 or elsewhere in the provisions of this Credit
Agreement referred to below:
ACQUISITION CAPITAL EXPENDITURES. Capital Expenditures made
by SRI or the Borrower and (a) funded by Indebtedness incurred or
assumed by the Borrower or SRI as permitted by ss.8.1(l) in
connection with any acquisition permitted by ss.8.5.1 or (b) which
the Borrower can demonstrate to the satisfaction of the Agent,
pursuant to an officer's certificate signed by an officer of the
Borrower and completed with sufficient detail, (i) were made in
connection with an acquisition permitted by ss.8.5.1 or the expansion
of the Borrower's business if such expansion is not considered an
acquisition; and (ii) were made with proceeds of a Loan; and (iii) do
not exceed, in the aggregate, $10,000,000 during the term of this
Credit Agreement.
<PAGE>
-8-
ADJUSTMENT DATE. The first day of the next calendar month
immediately following the day in which a Compliance Certificate is to
be delivered by the Borrower pursuant to ss.7.4(e).
AFFILIATE. Any Person that would be considered to be an
affiliate of the Borrower under Rule 144(a) of the Rules and
Regulations of the Securities and Exchange Commission, as in effect
on the date hereof, if the Borrower were issuing securities.
AGENT'S HEAD OFFICE. The Agent's head office located at 100
Federal Street, Boston, Massachusetts 02110, or at such other
location as the Agent may designate from time to time.
AGENT. The First National Bank of Boston acting as agent
for the Banks.
AGENT'S FEE. See ss.4.2.
AGENT'S SPECIAL COUNSEL. Bingham, Dana & Gould LLP or such
other counsel as may be approved by the Agent.
APPLICABLE MARGIN. For each period commencing on an
Adjustment Date through the date immediately preceding the next
Adjustment Date (each a "Rate Adjustment Period"), the Applicable
Margin shall be the applicable margin set forth below with respect to
the Borrower's Debt Service Ratio, as determined for the fiscal
period of the Borrower and its Subsidiaries ending immediately prior
to the applicable Rate Adjustment Period.
- ---------- ---------------------------------- ---------------- -----------------
EURODOLLAR
TIER DEBT SERVICE RATIO BASE RATE LOANS RATE LOANS
- ---------- ---------------------------------- ---------------- -----------------
1 Less than 1.10:1.00 1 1/2% 2 3/4%
- ---------- ---------------------------------- ---------------- -----------------
Equal to or greater than
2 1.10:1.00 but less than 1.30:1.00 1 1/4% 2 1/2%
- ---------- ---------------------------------- ---------------- -----------------
Equal to or greater than
3 1:30:1.00 but less than 1.50:1.00 1% 2 1/4%
- ---------- ---------------------------------- ---------------- -----------------
Equal to or greater than
4 1:50:1.00 but less than 1.70:1.00 3/4% 2%
- ---------- ---------------------------------- ---------------- -----------------
Equal to or greater than
5 1.70:1.00 1/2% 1 3/4%
- ---------- ---------------------------------- ---------------- -----------------
Notwithstanding the foregoing, (a) for Loans outstanding
during the period commencing on the Closing Date through the date
immediately preceding the Adjustment Date occurring after the fiscal
quarter ending April 30, 1997, the Applicable Margin shall be the
Applicable Margin set forth in Tier 3; (b) in the event the Debt
Service Ratio reflected in the financial statements delivered with
the Compliance Certificate pursuant to ss.7.4(a) differs from such
ratio in the financial statements delivered pursuant to ss.7.4(b) for
the fiscal quarter which is
<PAGE>
-9-
the last fiscal quarter of a fiscal year, then the Debt Service Ratio
as reflected in the financial statements delivered pursuant to
ss.7.4(a) shall govern from and after the date of delivery of such
financial statement pursuant to ss.7.4(a); and (c) if the Borrower
fails to deliver any Compliance Certificate pursuant to ss.7.4(e)
hereof of if a Default or Event of Default has occurred and is
continuing, then, for the period commencing on the next Adjustment
Date to occur subsequent to such failure or occurrence through the
date immediately following the date on which such Compliance
Certificate is delivered or such Default or Event of Default has been
cured or waived, as the case may be, the Applicable Margin shall be
the highest Applicable Margin set forth above.
ASSIGNMENT AND ACCEPTANCE. See ss.18.1.
BALANCE SHEET DATE. November 2, 1996.
BANKS. FNBB and the other lending institutions listed on
SCHEDULE 1 hereto and any other Person who becomes an assignee of any
rights and obligations of a Bank pursuant to ss.18.
BASE RATE. The higher of (a) the annual rate of interest
announced from time to time by FNBB at its head office in Boston,
Massachusetts, as its "base rate" and (b) one-half of one percent
(1/2%) above the Federal Funds Effective Rate. For the purposes of
this definition, "Federal Funds Effective Rate" shall mean for any
day, the rate per annum equal to the weighted average of the rates on
overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Business Day,
the average of the quotations for such day on such transactions
received by the Agent from three funds brokers of recognized standing
selected by the Agent.
BASE RATE LOANS. Loans bearing interest calculated by
reference to the Base Rate.
BORROWER. As defined in the preamble hereto.
BUSINESS DAY. Any day on which banking institutions in
Boston, Massachusetts, are open for the transaction of banking
business and, in the case of Eurodollar Rate Loans, also a day which
is a Eurodollar Business Day.
CAPITAL ASSETS. Fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as
patents, copyrights, trademarks, franchises and good will) and
including the capital stock or other equity interests of another
Person; PROVIDED that Capital Assets shall not include any item
customarily charged directly to expense or depreciated over a
<PAGE>
-10-
useful life of twelve (12) months or less in accordance with
Generally Accepted Accounting Principles.
CAPITAL EXPENDITURES. Without duplication, amounts paid or
indebtedness incurred by SRI or any of its Subsidiaries in connection
with the purchase or lease under Capitalized Leases by SRI or any of
its Subsidiaries of Capital Assets that would be required to be
capitalized and shown on the balance sheet of such Person in
accordance with Generally Accepted Accounting Principles.
CAPITALIZED LEASES. Leases under which SRI or any of its
Subsidiaries is the lessee or obligor, the discounted future rental
payment obligations under which are required to be capitalized on the
balance sheet of the lessee or obligor in accordance with Generally
Accepted Accounting Principles.
CERCLA. See ss.6.17.
CLOSING DATE. The first date on which the conditions set
forth in ss.10 have been satisfied.
CODE. The Internal Revenue Code of 1986.
COMMITMENT. With respect to each Bank, the amount set forth
on SCHEDULE 1 hereto as the amount of such Bank's commitment to make
Loans to the Borrower, as the same may be reduced from time to time;
or if such commitment is terminated pursuant to the provisions
hereof, zero.
COMMITMENT PERCENTAGE. With respect to each Bank, the
percentage set forth on SCHEDULE 1 hereto as such Bank's percentage
of the aggregate Commitments of all of the Banks.
COMPLIANCE CERTIFICATE. See ss.7.4(e).
CONSOLIDATED OR CONSOLIDATED. With reference to any term
defined herein, shall mean that term as applied to the accounts of
SRI, the Borrower and their Subsidiaries, consolidated in accordance
with Generally Accepted Accounting Principles.
CONSOLIDATED CURRENT ASSETS. All assets of SRI, the
Borrower and their Subsidiaries on a consolidated basis that, in
accordance with Generally Accepted Accounting Principles are properly
classified as current assets, PROVIDED that (a) notes and accounts
receivable shall be included only if good and collectible as
determined by SRI or the Borrower in accordance with the Borrower's
established practice consistently applied and, with respect to such
notes, only if payable on demand or within one (1) year from the date
as of which Consolidated Current Assets are to be determined and if
not directly or
<PAGE>
-11-
indirectly renewable or extendible at the option of the debtors, by
their terms, or by the terms of any instrument or agreement relating
thereto, beyond one (1) year, and, with respect to such accounts
receivable, only if payable on terms which are determined by SRI or
the Borrower in accordance with established credit terms consistently
applied; and such notes and accounts receivable shall be taken at
their face value less reserves determined to be sufficient in
accordance with Generally Accepted Accounting Principles; and (ii)
inventory shall be included only if and to the extent that the same
shall consist of saleable finished goods ready and available for
shipment to purchasers thereof or saleable finished goods available
for shipment and located on the Mortgaged Property or classified as
"in transit" consistent with the Borrower's past practices.
CONSOLIDATED CURRENT LIABILITIES. All liabilities of SRI,
the Borrower and their Subsidiaries on a consolidated basis maturing
on demand or within one (1) year from the date as of which
Consolidated Current Liabilities are to be determined, and such other
liabilities as may properly be classified as current liabilities in
accordance with Generally Accepted Accounting Principles; provided,
however that Consolidated Current Liabilities shall exclude
outstanding Loans and the principal amount of the loans outstanding
under the Seasonal Revolving Agreement.
CONSOLIDATED FINANCIAL OBLIGATIONS. With respect to any
fiscal period, an amount equal to the sum of all scheduled and other
mandatory principal payments in respect of Indebtedness of SRI, the
Borrower and its Subsidiaries paid or due and payable in such period,
including without limitation the principal portion of all payments in
respect of Capitalized Leases of SRI, the Borrower and their
Subsidiaries paid or due and payable in such period. Demand
obligations shall be deemed to be due and payable during any fiscal
quarter during which such obligations are outstanding.
CONSOLIDATED NET INCOME. The consolidated net income (or
deficit) of SRI, the Borrower and their Subsidiaries, after deduction
of all expenses, taxes, and other proper charges, determined in
accordance with Generally Accepted Accounting Principles, after
eliminating therefrom all extraordinary nonrecurring items of income
or expense.
CONSOLIDATED OPERATING CASH FLOW. For any period, an amount
equal to (a) EBITDA for such period, LESS (b) the sum of (i) cash
payments for all income taxes paid during such period, calculated on
a consolidated basis, PLUS (ii) Capital Expenditures made by SRI or
any of its Subsidiaries during such period other than Acquisition
Capital Expenditures, PLUS (iii) without duplication of amounts
included in Capital Expenditures, the cash portion of the purchase
price for the assets purchased in any acquisition permitted pursuant
to ss.8.5.1 and paid in such period, PLUS (iv) distributions to SRI
(including distributions for income taxes) not otherwise deducted in
calculating Consolidated Net Income.
<PAGE>
-12-
CONSOLIDATED TOTAL INTEREST EXPENSE. For any period, the
aggregate amount of interest required to be paid or accrued by SRI,
the Borrower and their Subsidiaries during such period on all
Indebtedness of SRI, the Borrower and their Subsidiaries outstanding
during all or any part of such period, other than interest accrued on
the Junior Subordinated Notes, whether such interest was or is
required to be reflected as an item of expense or capitalized,
including payments consisting of interest in respect of Capitalized
Leases and including commitment fees, agency fees, facility fees and
similar fees or expenses in connection with the borrowing of money,
LESS interest income actually received in the period.
CONVERSION REQUEST. A notice given by the Borrower to the
Agent of the Borrower's election to convert or continue a Loan in
accordance with ss.2.7.
CREDIT AGREEMENT. This Amended and Restated Revolving
Credit Agreement, including the Schedules and Exhibits hereto.
DEBT SERVICE. The sum of Consolidated Total Interest
Expense PLUS Consolidated Financial Obligations.
DEBT SERVICE RATIO. At any time and for any period, the
ratio of Consolidated Operating Cash Flow to Debt Service.
DEFAULT. See ss.12.1.
DISTRIBUTION. The declaration or payment of any dividend on
or in respect of any shares of any class of capital stock of any
Person, other than dividends payable solely in shares of common stock
of such Person; the purchase, redemption, or other retirement of any
shares of any class of capital stock of any Person, directly or
indirectly through a Subsidiary of such Person or otherwise; the
return of capital by any Person to its shareholders as such; or any
other distribution on or in respect of any shares of any class of
capital stock of any Person.
DOLLARS or $. Dollars in lawful currency of the United
States of America.
DOMESTIC LENDING OFFICE. Initially, the office of each Bank
designated as such in SCHEDULE 1 hereto; thereafter, such other
office of such Bank, if any, located within the United States that
will be making or maintaining Base Rate Loans.
DRAWDOWN DATE. The date on which any Loan is made or is to
be made, and the date on which any Loan is converted or continued in
accordance with ss.2.7.
<PAGE>
-13-
EBITDA. With respect to any fiscal period, an amount
calculated on a consolidated basis equal to the sum of (a)
Consolidated Net Income for such period, PLUS (b) all depreciation
and all amortization for such period (excluding amortization related
to interest expense previously added in calculating Consolidated Net
Income), PLUS (c) without duplication, other noncash charges made in
calculating Consolidated Net Income for such period, PLUS (d) without
duplication, tax expense for such period, PLUS (e) without
duplication, Consolidated Total Interest Expense paid or accrued
during such period.
ELIGIBLE ASSIGNEE. Any of (a) a commercial bank or finance
company organized under the laws of the United States, or any State
thereof or the District of Columbia, and having total assets in
excess of $1,000,000,000; (b) a savings and loan association or
savings bank organized under the laws of the United States, or any
State thereof or the District of Columbia, and having a net worth of
at least $100,000,000, calculated in accordance with Generally
Accepted Accounting Principles; (c) a commercial bank organized under
the laws of any other country which is a member of the Organization
for Economic Cooperation and Development (the "OECD"), or a political
subdivision of any such country, and having total assets in excess of
$1,000,000,000, PROVIDED that such bank is acting through a branch or
agency located in the country in which it is organized or another
country which is also a member of the OECD; (d) the central bank of
any country which is a member of the OECD; and (e) if, but only if,
any Event of Default has occurred and is continuing, any other bank,
insurance company, commercial finance company or other financial
institution or other Person approved by the Agent, such approval not
to be unreasonably withheld.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the
meaning of ss.3(3) of ERISA maintained or contributed to by SRI or
the Borrower, other than a Guaranteed Pension Plan or a Multiemployer
Plan.
ENVIRONMENTAL LAWS. See ss.6.17(a).
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA AFFILIATE. Any Person which is treated as a single
employer with the Borrower under ss.414 of the Code.
ERISA REPORTABLE EVENT. A reportable event with respect to
a Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and
the regulations promulgated thereunder as to which the requirement of
notice has not been waived.
EUROCURRENCY RESERVE RATE. For any day with respect to a
Eurodollar Rate Loan, the maximum rate (expressed as a decimal) at
which any lender subject thereto would be required to maintain
reserves under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor or
<PAGE>
-14-
similar regulations relating to such reserve requirements) against
"Eurocurrency Liabilities" (as that term is used in Regulation D), if
such liabilities were outstanding. The Eurocurrency Reserve Rate
shall be adjusted automatically on and as of the effective date of
any change in the Eurocurrency Reserve Rate.
EURODOLLAR BUSINESS DAY. Any day on which commercial banks
are open for international business (including dealings in Dollar
deposits) in London or such other eurodollar interbank market as may
be selected by the Agent in its sole discretion acting in good faith.
EURODOLLAR LENDING OFFICE. Initially, the office of each
Bank designated as such in SCHEDULE 1 hereto; thereafter, such other
office of such Bank, if any, that shall be making or maintaining
Eurodollar Rate Loans.
EURODOLLAR RATE. For any Interest Period with respect to a
Eurodollar Rate Loan, the rate of interest equal to (a) the per annum
rate at which the Reference Bank's Eurodollar Lending Office is
offered Dollar deposits two (2) Eurodollar Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market
where the eurodollar and foreign currency and exchange operations of
such Eurodollar Lending Office are customarily conducted, for
delivery on the first day of such Interest Period for the number of
days comprised therein and in an amount comparable to the amount of
the Eurodollar Rate Loan of the Reference Bank to which such Interest
Period applies, divided by (b) a number equal to 1.00 minus the
Eurocurrency Reserve Rate.
EURODOLLAR RATE LOANS. Loans bearing interest calculated by
reference to the Eurodollar Rate.
EVENT OF DEFAULT. See ss.12.1.
FEE LETTER. The Fee Letter dated on or prior to the Closing
Date between the Borrower and the Agent, and in form and substance
satisfactory to the Agent.
FNBB. The First National Bank of Boston, a national banking
association, in its individual capacity.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (a) When used in
ss.9, whether directly or indirectly through reference to a
capitalized term used therein, means (i) principles that are
consistent with the principles promulgated or adopted by the
Financial Accounting Standards Board and its predecessors, in effect
for the fiscal year including the Balance Sheet Date,
<PAGE>
-15-
and (ii) to the extent consistent with such principles, the
accounting practice of the Borrower reflected in its financial
statements for the fiscal year including the Balance Sheet Date, and
(b) when used in general, other than as provided above, means
principles that are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors, as in effect from time to time, and (ii) consistently
applied with past financial statements of the Borrower adopting the
same principles, provided that in each case referred to in this
definition of "Generally Accepted Accounting Principles" a certified
public accountant would, insofar as the use of such accounting
principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in Generally
Accepted Accounting Principles) as to financial statements in which
such principles have been properly applied.
GUARANTEED PENSION PLAN. Any employee pension benefit plan
within the meaning of ss.3(2) of ERISA maintained or contributed to
by SRI, the Borrower or any ERISA Affiliate the benefits of which are
guaranteed on termination in full or in part by the PBGC pursuant to
Title IV of ERISA, other than a Multiemployer Plan.
GUARANTY. The Amended and Restated Guaranty, dated or to be
dated on or prior to the Closing Date, made by SRI in favor of the
Banks and the Agent pursuant to which SRI guaranties to the Banks and
the Agent the payment and performance of the Obligations and in
substantially the form of EXHIBIT E hereto.
HAZARDOUS SUBSTANCES. See ss.6.17(b).
INDEBTEDNESS. All obligations, contingent and otherwise,
that in accordance with Generally Accepted Accounting Principles
should be classified upon the obligor's balance sheet as liabilities,
or to which reference should be made by footnotes thereto, including
in any event and whether or not so classified: (a) all debt and
similar monetary obligations, whether direct or indirect; (b) all
liabilities secured by any mortgage, pledge, security interest, lien,
charge or other encumbrance existing on property owned or acquired
subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other
contingent obligations whether direct or indirect in respect of
indebtedness of others, including any obligation to supply funds to
or in any manner to invest in, directly or indirectly, the debtor, to
purchase indebtedness, or to assure the owner of indebtedness against
loss, through an agreement to purchase goods, supplies, or services
for the purpose of enabling the debtor to make payment of the
indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
INTEREST PAYMENT DATE. (a) As to any Base Rate Loan, the
last day of each fiscal quarter for such fiscal quarter; and (b) as
to any Eurodollar Rate Loan in respect of which the Interest Period
is (i) three (3) months or less, the last day of such Interest Period
and (ii) more than three (3) months, the date that is three
<PAGE>
-16-
(3) months from the first day of such Interest Period and, in
addition, the last day of such Interest Period.
INTEREST PERIOD. With respect to each Loan, (a) initially,
the period commencing on the Drawdown Date of such Loan and ending on
the last day of one of the periods set forth below (with respect to a
Eurodollar Rate Loan, as selected by the Borrower in a Loan Request)
(i) for any Base Rate Loan, the last day of the fiscal quarter; and
(ii) for any Eurodollar Rate Loan, 1, 2, 3, or 6 months; and (b)
thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Loan and ending on the
last day of one of the periods set forth above, as selected by the
Borrower in a Conversion Request; PROVIDED that all of the foregoing
provisions relating to Interest Periods are subject to the following:
(A) if any Interest Period with respect to a
Eurodollar Rate Loan would otherwise end on a day that is
not a Eurodollar Business Day, that Interest Period shall
be extended to the next succeeding Eurodollar Business Day
unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding
Eurodollar Business Day;
(B) if any Interest Period with respect to a Base
Rate Loan would end on a day that is not a Business Day,
that Interest Period shall end on the next succeeding
Business Day;
(C) if the Borrower shall fail to give notice as
provided in ss.2.7, the Borrower shall be deemed to have
requested a conversion of the affected Eurodollar Rate Loan
to a Base Rate Loan and the continuance of all Base Rate
Loans as Base Rate Loans on the last day of the then
current Interest Period with respect thereto;
(D) any Interest Period relating to any
Eurodollar Rate Loan that begins on the last Eurodollar
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the
last Eurodollar Business Day of a calendar month; and
(E) any Interest Period relating to any
Eurodollar Rate Loan that would otherwise extend beyond the
Maturity Date shall end on the Maturity Date.
INVESTMENTS. All expenditures made and all liabilities
incurred (contingently or otherwise) for the acquisition of stock or
Indebtedness of, or for loans, advances, capital contributions or
transfers of property to, or in respect of any guaranties (or other
commitments as described under Indebtedness), or
<PAGE>
-17-
obligations of, any Person. In determining the aggregate amount of
Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at the principal
amount of the obligations guaranteed and still outstanding; (b) there
shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating
distribution); (c) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment,
whether as dividends, interest or otherwise; and (d) there shall not
be deducted from the aggregate amount of Investments any decrease in
the value thereof.
JUNIOR SUBORDINATED NOTES. Collectively, the subordinated
promissory notes issued by SRI or the Borrower to SSI evidencing
subordinated intercompany loans from SSI to SRI or the Borrower, as
the case may be, which notes shall contain terms, conditions and
subordination provisions acceptable to the Agent, including, without
limitation, no cash payments of interest or principal prior to
December 31, 2003.
LOAN DOCUMENTS. This Credit Agreement, the Notes and the
Guaranty.
LOAN REQUEST. See ss.2.6.
LOANS. Revolving credit loans made or to be made by the
Banks to the Borrower pursuant to ss.2.
MAJORITY BANKS. As of any date, the Banks holding at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding
principal amount of the Notes on such date; and if no principal is
outstanding, the Banks whose aggregate Commitments constitute at
least sixty-six and two-thirds percent (66 2/3%) of the Total
Commitment.
MATURITY DATE. January 29, 2000.
MULTIEMPLOYER PLAN. Any multiemployer plan within the
meaning of ss.3(37) of ERISA maintained or contributed to by the
Borrower or any ERISA Affiliate.
NOTES. The Revolving Credit Notes.
OBLIGATIONS. All indebtedness, obligations and liabilities
of any of SRI, the Borrower and its Subsidiaries to any of the Banks
and the Agent, individually or collectively, existing on the date of
this Credit Agreement or arising thereafter, direct or indirect,
joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by
contract, operation of law or otherwise, provided that such
indebtedness, obligations or liabilities arise or are incurred under
this Credit
<PAGE>
-18-
Agreement or any of the other Loan Documents or in respect of any of
the Loans made or any of the Notes or other instruments at any time
evidencing any thereof. For the avoidance of doubt, the term
Obligations does not include any indebtedness, obligations and/or
liabilities of any of SRI, the Borrower and its Subsidiaries to any
of the Seasonal Revolver Banks or the Seasonal Revolver Agent arising
or incurred under the Seasonal Revolving Agreement.
OUTSTANDING. With respect to the Loans, the aggregate
unpaid principal thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by
ss.4002 of ERISA and any successor entity or entities having similar
responsibilities.
PERMITTED LIENS. Liens, security interests and other
encumbrances permitted by ss.8.2.
PERSON. Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and any
government or any governmental agency or political subdivision
thereof.
POOLING AND SERVICING AGREEMENT. The Amended and Restated
Pooling and Servicing Agreement, dated as of August 11, 1995, among
the Receivables Subsidiary, as Transferor, SRI, as Servicer and
Bankers Trust (Delaware), as trustee in the form of the counterpart
previously delivered to the Agent, including all supplements and
amendments thereto, whether entered into prior to or after the
Closing Date.
RATE ADJUSTMENT PERIOD. As defined in the definition of
Applicable Margin.
REAL ESTATE. All real property at any time owned or leased
(as lessee or sublessee) by the Borrower or any of its Subsidiaries.
RECEIVABLES PURCHASE AGREEMENT. The Amended and Restated
Receivables Purchase Agreement by and among the Borrower and the
Receivables Subsidiary dated as of May 30, 1996.
RECEIVABLES SUBSIDIARY. SRI Receivables Purchase Co., Inc.,
a Delaware corporation.
RECEIVABLES SUBSIDIARY NOTES. The promissory notes issued
by the Receivables Subsidiary on May 30, 1996 in the aggregate
principal amount of not more than $30,000,000, and which notes are
secured by the Transferor Retained Certificates (as such term is
defined in the Pooling and Servicing Agreement) and/or rights in the
Transferor Interest (as such term is defined in
<PAGE>
-19-
the Pooling and Servicing Agreement) and are in form and substance
reasonably satisfactory to the Agent.
RECORD. The grid attached to a Note, or the continuation of
such grid, or any other similar record, including computer records,
maintained by any Bank with respect to any Loan referred to in such
Note.
REFERENCE BANK. FNBB.
REPURCHASE AMOUNT. See ss.8.8.
REPURCHASE DATE. See ss.8.8.
REVOLVING AGREEMENT. The Amended and Restated Revolving
Credit Agreement dated as of the date hereof among SSI, SRI, the
Borrower, The First National Bank of Boston and the other lending
institutions listed on SCHEDULE 1 thereto (the "Revolver Banks") and
The First National Bank of Boston as agent for the Revolver Banks
(the "Revolver Agent"), as the same may be amended, restated,
modified or supplemented from time to time, pursuant to which the
Revolver Banks have agreed, subject to the terms and conditions
contained therein, to make loans and other extensions of credit
available to the Borrower in the aggregate principal amount of not
more than $65,000,000.
REVOLVING CREDIT NOTE RECORD. A Record with respect to a
Revolving Credit Note.
REVOLVING CREDIT NOTES. See ss.2.4.
SEASONAL DEBT SERVICE RATIO. For any period consisting of
the immediately preceding twelve (12) fiscal months (treated as a
single accounting period) from such test date of SRI and its
Subsidiaries, the ratio of Consolidated Operating Cash Flow to Debt
Service.
SRI. As defined in the preamble hereto.
SEASONAL PERIOD. August 15 through January 15 of each
calendar year.
SENIOR NOTES. The 10% Series A Senior Notes Due 2000 and
the 10% Series B Senior Notes Due 2000, issued pursuant to the Senior
Notes Indenture.
SENIOR NOTES INDENTURE. The Indenture, dated as of August
2, 1993, entered into by SRI, the Borrower and The First National
Bank of Boston as Trustee in connection with the issuance of the
Senior Notes, in the form of the counterpart previously delivered to
the Agent, and as amended, supplemented or modified from time to time
as permitted by ss.8.9.
<PAGE>
-20-
SENIOR SUBORDINATED NOTES. The 11% Series A Senior
Subordinated Notes Due 2003 and the 11% Series B Senior Subordinated
Notes Due 2003, issued pursuant to the Senior Subordinated Notes
Indenture.
SENIOR SUBORDINATED NOTES INDENTURE. The Indenture, dated
as of August 2, 1993, entered into by SRI, the Borrower and The First
National Bank of Boston as Trustee in connection with the issuance of
the Senior Subordinated Notes, in the form of the counterpart
previously delivered to the Agent, and as amended, supplemented or
modified from time to time as permitted by ss.8.9.
SRI INDENTURE CONSENT. The Consent Solicitation Statement
of SRI dated October 1, 1996, which sets forth the amendments to each
of the Senior Notes Indenture, the Senior Subordinated Notes
Indenture and the SRI Subordinated Notes Indenture in the form
delivered to the Agent on October 8, 1996.
SRI SUBORDINATED NOTES. The 11% Series C Senior
Subordinated Notes Due 2003 and the 11% Series D Senior Subordinated
Notes Due 2003, issued pursuant to the SRI Subordinated Notes
Indenture in an aggregate principal amount not to exceed $18,250,000.
SRI SUBORDINATED NOTES INDENTURE. The Indenture, dated as
of July 27, 1995, entered into between SRI and The First National
Bank of Boston as Trustee in connection with the issuance of the SRI
Subordinated Notes, in the form of the counterpart previously
delivered to the Agent, and as amended, supplemented or modified from
time to time as permitted by ss.8.9.
SUBORDINATED DEBT. The Senior Subordinated Notes, the SRI
Subordinated Notes and such other unsecured Indebtedness of SRI, the
Borrower or any of its Subsidiaries that is consented to by the
Majority Banks in their sole discretion and is expressly subordinated
and made junior to the payment and performance in full of the
Obligations, and evidenced as such by a written instrument containing
subordination provisions in form and substance approved by the Banks
in writing.
SUBSIDIARY. Any corporation, association, trust, or other
business entity of which the designated parent shall at any time own
directly or indirectly through a Subsidiary or Subsidiaries at least
a majority (by number of votes) of the outstanding Voting Stock.
TOTAL COMMITMENT. The sum of the Commitments of the Banks,
as in effect from time to time.
TOTAL FUNDED INDEBTEDNESS. All Indebtedness of SRI, the
Borrower and their Subsidiaries for borrowed money (other than)
Indebtedness consisting of the Loans and Indebtedness consisting of
the "Loans" as such term is defined in the Revolving Agreement,
purchase money Indebtedness evidenced by notes or
<PAGE>
-21-
bonds, and with respect to Capitalized Leases, determined on a
consolidated basis in accordance with Generally Accepted Accounting
Principles.
TYPE. As to any Loan, its nature as a Base Rate Loan or a
Eurodollar Rate Loan.
VOTING STOCK. Stock or similar interests, of any class or
classes (however designated), the holders of which are at the time
entitled, as such holders, to vote for the election of a majority of
the directors (or persons performing similar functions) of the
corporation, association, trust or other business entity involved,
whether or not the right so to vote exists by reason of the happening
of a contingency.
SS.1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented
from time to time in accordance with its terms and the
terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted successors
and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by Generally Accepted Accounting
Principles applied on a consistent basis by the accounting
entity to which they refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by Generally
Accepted Accounting Principles, which terms are defined in
the Uniform Commercial Code as in effect in the
Commonwealth of Massachusetts, have the meanings assigned
to them therein, with the term "instrument" being that
defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "ss." refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Credit Agreement as a whole and
not to any particular section or subdivision of this Credit
Agreement.
<PAGE>
-22-
SS.2. THE REVOLVING CREDIT FACILITY.
SS.2.1. COMMITMENT TO LEND. Subject to the terms and conditions set
forth in this Credit Agreement, each of the Banks severally agrees to lend to
the Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Maturity Date upon notice by the Borrower to
the Agent given in accordance with ss.2.6, such sums as are requested by the
Borrower up to a maximum aggregate amount Outstanding (after giving effect to
all amounts requested) at any one time equal to such Bank's Commitment, PROVIDED
that the sum of the Outstanding amount of the Loans (after giving effect to all
amounts requested) shall not at any time exceed the Total Commitment. The Loans
shall be made PRO RATA in accordance with each Bank's Commitment Percentage.
Each request for a Loan hereunder shall constitute a representation and warranty
by the Borrower that the conditions set forth in ss.10 and ss.11, in the case of
the initial Loans to be made on the Closing Date, and ss.11, in the case of all
other Loans, have been satisfied on the date of such request.
SS.2.2. COMMITMENT FEE. The Borrower agrees to pay to the Agent for
the accounts of the Banks in accordance with their respective Commitment
Percentages a commitment fee calculated at the rate of one-half of one percent
(1/2%) per annum on the average daily amount during each Seasonal Period or
portion thereof from the first day of the first Seasonal Period to the Maturity
Date by which the Total Commitment exceeds the Outstanding amount of Loans
during such Seasonal Period. The commitment fee shall be payable quarterly in
arrears on the first day following the conclusion of each Seasonal Period for
the Seasonal Period then concluded, commencing on the first such date following
the date hereof, with a final payment on the first Business Day following the
conclusion of the most recent Seasonal Period or any earlier date on which the
Commitments shall terminate.
SS.2.3. REDUCTION OF TOTAL COMMITMENT.
2.3.1. MANDATORY REDUCTION OF TOTAL COMMITMENT. On January
15 of each calendar year (the "Reduction Date") the Total Commitment shall
automatically be reduced to $0. If on the Reduction Date any Loans are
outstanding after giving effect to the reduction of the Total Commitment that
occurred on the Reduction Date pursuant to this ss.2.3.1, the Borrower shall
immediately pay the amounts of such outstanding Loans to the Agent for the
respective accounts of the Banks for application to the Loans. If no Default or
Event of Default has occurred and is continuing, the Total Commitment shall
automatically be increased to the amount set forth on Schedule 1 hereto on
August 15 of each calendar year.
2.3.2. OPTIONAL REDUCTION OF TOTAL COMMITMENT. The Borrower
shall have the right at any time and from time to time upon five (5) Business
Days' prior written notice to the Agent to reduce by $1,000,000 or an integral
multiple thereof or terminate entirely the Total Commitment, whereupon the
Commitments of the Banks shall be reduced PRO RATA in accordance with their
respective Commitment Percentages of the amount specified in such notice or, as
the case may be, terminated. Promptly
<PAGE>
-23-
after receiving any notice of the Borrower delivered pursuant to this ss.2.3,
the Agent will notify the Banks of the substance thereof. Upon the effective
date of any such reduction or termination, the Borrower shall pay to the Agent
for the respective accounts of the Banks the full amount of any commitment fee
then accrued on the amount of the reduction. No reduction or termination of the
Commitments under this ss.2.3 may be reinstated.
SS.2.4. THE REVOLVING CREDIT NOTES. The Loans shall be evidenced by
separate amended and restated promissory notes of the Borrower in substantially
the form of EXHIBIT A hereto (each a "Revolving Credit Note"), dated as of the
Closing Date and completed with appropriate insertions. One Revolving Credit
Note shall be payable to the order of each Bank in a principal amount equal to
such Bank's Commitment or, if less, the Outstanding amount of all Loans made by
such Bank, plus interest accrued thereon, as set forth below. The Borrower
irrevocably authorizes each Bank to make or cause to be made, at or about the
time of the Drawdown Date of any Loan or at the time of receipt of any payment
of principal on such Bank's Revolving Credit Note, an appropriate notation on
such Bank's Revolving Credit Note Record reflecting the making of such Loan or
(as the case may be) the receipt of such payment. The Outstanding amount of the
Loans set forth on such Bank's Revolving Credit Note Record shall be PRIMA FACIE
evidence of the principal amount thereof owing and unpaid to such Bank, but the
failure to record, or any error in so recording, any such amount on such Bank's
Revolving Credit Note Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Revolving Credit Note to make payments of
principal of or interest on any Revolving Credit Note when due.
SS.2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise
provided in ss.4.11,
(a) each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day
of the Interest Period with respect thereto at the rate per annum
equal to the Base Rate PLUS the Applicable Margin;
(b) each Eurodollar Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the
last day of the Interest Period with respect thereto at the rate per
annum equal to the Eurodollar Rate for such Interest Period PLUS the
Applicable Margin; and
(c) the Borrower promises to pay interest on each Loan in
arrears on each Interest Payment Date with respect thereto and at
maturity of such Loan.
SS.2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrower shall give
to the Agent written notice (which may be by facsimile) in the form of EXHIBIT B
hereto (or telephonic notice confirmed in a writing in the form of EXHIBIT B
hereto) of each Loan requested hereunder (a "Loan Request") no less than (a) one
(1) Business Day prior to the proposed Drawdown Date of any Base Rate Loan and
(b) three (3) Eurodollar
<PAGE>
-24-
Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan.
Each such notice shall specify (i) the principal amount of the Loan requested,
(ii) the proposed Drawdown Date of such Loan, (iii) with respect to a Eurodollar
Rate Loan, the Interest Period for such Loan and (iv) the Type of such Loan.
Promptly upon receipt of any such notice, the Agent shall notify each of the
Banks thereof. Each Loan Request shall be irrevocable and binding on the
Borrower and shall obligate the Borrower to accept the Loan requested from the
Banks on the proposed Drawdown Date. Each Loan Request (i) pertaining to
Eurodollar Rate Loans shall be in a minimum aggregate amount of $1,000,000 or a
whole multiple of $250,000 in excess thereof; and (ii) pertaining to Base Rate
Loans shall be in a minimum aggregate amount of $100,000 or a whole multiple of
$50,000 in excess thereof.
SS.2.7. CONVERSION OPTIONS.
2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT
LOAN. The Borrower may elect from time to time to convert any Outstanding Loan
to a Loan of another Type, PROVIDED that (a) with respect to any such conversion
of a Loan to a Base Rate Loan, the Borrower shall give the Agent at least one
(1) Business Days' prior written notice of such election and such conversion
shall only be made on the last day of the Interest Period with respect thereto;
(b) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate
Loan, the Borrower shall give the Agent at least three (3) Eurodollar Business
Days' prior written notice of such election; and (c) no Loan may be converted
into a Eurodollar Rate Loan when any Default or Event of Default has occurred
and is continuing. On the date on which such conversion is being made each Bank
shall take such action as is necessary to transfer its Commitment Percentage of
such Loans to its Domestic Lending Office or its Eurodollar Lending Office, as
the case may be. All or any part of Outstanding Loans of any Type may be
converted into a Loan of another Type as provided herein, PROVIDED that any
partial conversion (a) into a Eurodollar Rate Loan shall be in an aggregate
principal amount of $1,000,000 or a whole multiple of $250,000 in excess thereof
and (b) into a Base Rate Loan shall be in an aggregate principal amount of
$100,000 or a whole multiple of $50,000 in excess thereof. Each Conversion
Request relating to the conversion of a Loan to a Eurodollar Rate Loan shall be
irrevocable by the Borrower.
2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any
Loan of any Type may be continued as a Loan of the same Type upon the expiration
of an Interest Period with respect thereto by compliance by the Borrower with
the notice provisions contained in ss.2.7.1; PROVIDED that no Eurodollar Rate
Loan may be continued as such when any Default or Event of Default has occurred
and is continuing, but shall be automatically converted to a Base Rate Loan on
the last day of the first Interest Period relating thereto ending during the
continuance of any Default or Event of Default of which officers of the Agent
active upon the Borrower's account have actual knowledge. In the event that the
Borrower fails to provide any such notice with respect to the continuation of
any Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be
automatically converted to a Base Rate Loan on the last day of the first
<PAGE>
-25-
Interest Period relating thereto. The Agent shall notify the Banks promptly when
any such automatic conversion contemplated by this ss.2.7 is scheduled to occur.
2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from
Eurodollar Rate Loans shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of all Eurodollar Rate Loans having the same Interest Period shall not be less
than $1,000,000 or a whole multiple of $250,000 in excess thereof.
SS.2.8. FUNDS FOR LOAN.
2.8.1. FUNDING PROCEDURES. Not later than 11:00 a.m.
(Boston time) on the proposed Drawdown Date of any Loans, each of the Banks will
make available to the Agent, at the Agent's Head Office, in immediately
available funds, the amount of such Bank's Commitment Percentage of the amount
of the requested Loans. Upon receipt from each Bank of such amount, and upon
receipt of the documents required by ss.ss.11 and 12 and the satisfaction of the
other conditions set forth therein, to the extent applicable, the Agent will
make available to the Borrower the aggregate amount of such Loans made available
to the Agent by the Banks. The failure or refusal of any Bank to make available
to the Agent at the aforesaid time and place on any Drawdown Date the amount of
its Commitment Percentage of the requested Loans shall not relieve any other
Bank from its several obligation hereunder to make available to the Agent the
amount of such other Bank's Commitment Percentage of any requested Loans.
2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to
the contrary by any Bank prior to a Drawdown Date, assume that such Bank has
made available to the Agent on such Drawdown Date the amount of such Bank's
Commitment Percentage of the Loans to be made on such Drawdown Date, and the
Agent may (but it shall not be required to), in reliance upon such assumption,
make available to the Borrower a corresponding amount. If any Bank makes
available to the Agent such amount on a date after such Drawdown Date, such Bank
shall pay to the Agent on demand an amount equal to the product of (a) the
average computed for the period referred to in clause (c) below, of the weighted
average interest rate paid by the Agent for federal funds acquired by the Agent
during each day included in such period, TIMES (b) the amount of such Bank's
Commitment Percentage of such Loans, TIMES (c) a fraction, the numerator of
which is the number of days that elapse from and including such Drawdown Date to
the date on which the amount of such Bank's Commitment Percentage of such Loans
shall become immediately available to the Agent, and the denominator of which is
365. A statement of the Agent submitted to such Bank with respect to any amounts
owing under this paragraph shall be PRIMA FACIE evidence of the amount due and
owing to the Agent by such Bank. If the amount of such Bank's Commitment
Percentage of such Loans is not made available to the Agent by such Bank within
three (3) Business Days following such Drawdown Date, the Agent shall be
entitled to recover such amount from the Borrower on demand, with interest
thereon at the rate per annum applicable to the Loans made on such Drawdown
Date.
<PAGE>
-26-
SS.3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
SS.3.1. MATURITY. The Borrower promises to pay on the Maturity Date,
and there shall become absolutely due and payable on the Maturity Date, all of
the Loans Outstanding on such date, together with any and all accrued and unpaid
interest thereon and any outstanding fees, expenses and other amounts owing
hereunder.
SS.3.2. MANDATORY REPAYMENTS OF LOANS.
ss.3.2.1. EXCEEDING TOTAL COMMITMENT. If at any time the
sum of the Outstanding amount of the Loans exceeds the Total Commitment, then
the Borrower shall immediately pay the amount of such excess to the Agent for
the respective accounts of the Banks for application to the Loans. Each payment
of the Loans shall be allocated among the Banks, in proportion, as nearly as
practicable, to each Bank's Commitment Percentage of the respective unpaid
principal amount of each Bank's Revolving Credit Note, with adjustments to the
extent practicable to equalize any prior payments or repayments not exactly in
proportion.
SS.3.3. OPTIONAL REPAYMENTS OF LOANS. The Borrower shall have the
right, at its election, to repay the Outstanding amount of the Loans, as a whole
or in part, at any time without penalty or premium, PROVIDED that any full or
partial prepayment of the Outstanding amount of any Eurodollar Rate Loans
pursuant to this ss.3.3 may be made only on the last day of the Interest Period
relating thereto. The Borrower shall give the Agent, no later than 12:00 noon,
Boston time, at least one (1) Business Day's prior written notice of any
proposed prepayment pursuant to this ss.3.3 of Base Rate Loans, and three (3)
Eurodollar Business Days' notice of any proposed prepayment pursuant to this
ss.3.3 of Eurodollar Rate Loans, in each case specifying the proposed date of
prepayment of Loans and the principal amount to be prepaid. Each such partial
prepayment of the Loans shall be in a minimum aggregate amount of $100,000 or a
whole multiple of $50,000 in excess thereof, shall be accompanied by the payment
of accrued interest on the principal prepaid to the date of prepayment and shall
be applied, in the absence of instruction by the Borrower, first to the
principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans.
Each partial prepayment shall be allocated among the Banks, in proportion, as
nearly as practicable, to the respective unpaid principal amount of each Bank's
Revolving Credit Note, with adjustments to the extent practicable to equalize
any prior repayments not exactly in proportion.
SS.4. CERTAIN GENERAL PROVISIONS.
SS.4.1. CLOSING FEE. The Borrower agrees to pay to the Agent on the
Closing Date a closing fee as described in a fee letter dated as of the date
herewith (the "Fee Letter").
<PAGE>
-27-
SS.4.2. AGENT'S FEE. The Borrower shall pay to the Agent an Agent's
fee as provided in the Fee Letter.
SS.4.3. FUNDS FOR PAYMENTS.
4.3.1. PAYMENTS TO AGENT. All payments of principal,
interest, commitment fees and any other amounts due hereunder or under any of
the other Loan Documents shall be made to the Agent, for the respective accounts
of the Banks and the Agent, at the Agent's Head Office or at such other location
in the Boston, Massachusetts, area that the Agent may from time to time
designate, in each case in immediately available funds.
4.3.2. NO OFFSET, ETC. All payments by the Borrower
hereunder and under any of the other Loan Documents shall be made without setoff
or counterclaim and free and clear of and without deduction for any taxes,
levies, imposts, duties, charges, fees, deductions, withholdings, compulsory
loans, restrictions or conditions of any nature now or hereafter imposed or
levied by any jurisdiction or any political subdivision thereof or taxing or
other authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the Borrower
with respect to any amount payable by it hereunder or under any of the other
Loan Documents, the Borrower will pay to the Agent, for the account of the Banks
or (as the case may be) the Agent, on the date on which such amount is due and
payable hereunder or under such other Loan Document, such additional amount in
Dollars as shall be necessary to enable the Banks or the Agent to receive the
same net amount which the Banks or the Agent would have received on such due
date had no such obligation been imposed upon the Borrower. The Borrower will
deliver promptly to the Agent certificates or other valid vouchers for all taxes
or other charges deducted from or paid with respect to payments made by the
Borrower hereunder or under such other Loan Document.
SS.4.4. COMPUTATIONS. All computations of interest on the Base Rate
Loans shall be based on a 365 or 366 day year, as the case may be, and paid for
the actual number of days elapsed, and all computations of interest on the
Eurodollar Rate Loans and of commitment fees or other fees shall be based on a
360-day year and paid for the actual number of days elapsed. Except as otherwise
provided in the definition of the term "Interest Period" with respect to
Eurodollar Rate Loans, whenever a payment hereunder or under any of the other
Loan Documents becomes due on a day that is not a Business Day, the due date for
such payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The Outstanding amount of the Loans as
reflected on the Revolving Credit Note Records from time to time shall be
considered correct and binding on the Borrower unless the Agent or such Bank
shall notify the Borrower to the contrary.
SS.4.5. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior
to the commencement of any Interest Period relating to any Eurodollar Rate Loan,
the Agent
<PAGE>
-28-
shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the Eurodollar Rate that would
otherwise determine the rate of interest to be applicable to any Eurodollar Rate
Loan during any Interest Period, the Agent shall forthwith give notice of such
determination (which shall be conclusive and binding on the Borrower and the
Banks) to the Borrower and the Banks. In such event (a) any Loan Request or
Conversion Request with respect to Eurodollar Rate Loans shall be automatically
withdrawn and shall be deemed a request for Base Rate Loans, (b) each Eurodollar
Rate Loan will automatically, on the last day of the then current Interest
Period relating thereto, become a Base Rate Loan, and (c) the obligations of the
Banks to make Eurodollar Rate Loans shall be suspended until the Agent or the
Majority Banks determines that the circumstances giving rise to such suspension
no longer exist, whereupon the Agent or, as the case may be, the Agent upon the
instruction of the Majority Banks, shall so notify the Borrower and the Banks.
SS.4.6. ILLEGALITY. Notwithstanding any other provisions herein, if
any present or future law, regulation, treaty or directive or the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrower and the other Banks and thereupon (a) the
commitment of such Bank to make Eurodollar Rate Loans or convert Loans of
another Type to Eurodollar Rate Loans shall forthwith be suspended and (b) such
Bank's Loans then Outstanding as Eurodollar Rate Loans, if any, shall be
converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurodollar Rate Loans or within such earlier period as
may be required by law. The Borrower hereby agrees promptly to pay the Agent for
the account of such Bank, upon demand by such Bank, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this ss.4.6, including any interest or fees
payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Rate Loans hereunder.
SS.4.7. ADDITIONAL COSTS, ETC. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature
with respect to this Credit Agreement, the other Loan
Documents, such Bank's Commitment or the Loans (other than
taxes based upon or measured by the income or profits of
such Bank or the Agent), or
<PAGE>
-29-
(b) materially change the basis of taxation (except for changes
in taxes on income or profits) of payments to any Bank of
the principal of or the interest on any Loans or any other
amounts payable to any Bank or the Agent under this Credit
Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit
Agreement) any special deposit, reserve, assessment,
liquidity, capital adequacy or other similar requirements
(whether or not having the force of law) against assets
held by, or deposits in or for the account of, or loans by,
or letters of credit issued by, or commitments of an office
of any Bank, or
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the
other Loan Documents, the Loans, such Bank's Commitment or
any class of loans, letters of credit or commitments of
which any of the Loans or such Bank's Commitment forms a
part, and the result of any of the foregoing is
(i) to increase the cost to any Bank of
making, funding, issuing, renewing,
extending or maintaining any of the
Loans or such Bank's Commitment, or
(ii) to reduce the amount of principal,
interest or other amount payable to
such Bank or the Agent hereunder on
account of such Bank's Commitment or
any of the Loans, or
(iii) to require such Bank or the Agent to
make any payment or to forego any
interest or other sum payable
hereunder, the amount of which payment
or foregone interest or other sum is
calculated by reference to the gross
amount of any sum receivable or deemed
received by such Bank or the Agent
from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank or
(as the case may be) the Agent at any time and from time to time and as often as
the occasion therefor may arise, pay to such Bank or the Agent such additional
amounts as will be sufficient to compensate such Bank or the Agent for such
additional cost, reduction, payment or foregone interest or other sum.
SS.4.8. CAPITAL ADEQUACY. If after the date hereof any Bank or the
Agent determines that (a) the adoption of or change in any law, governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) regarding capital requirements for banks or bank holding companies
or any change in the interpretation or application thereof by a court or
governmental authority with appropriate jurisdiction, or (b) compliance by such
Bank or the Agent or any corporation controlling
<PAGE>
-30-
such Bank or the Agent with any law, governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law) of any such
entity regarding capital adequacy, has the effect of reducing the return on such
Bank's or the Agent's commitment with respect to any Loans to a level below that
which such Bank or the Agent could have achieved but for such adoption, change
or compliance (taking into consideration such Bank's on the Agent's then
existing policies with respect to capital adequacy and assuming full utilization
of such entity's capital) by any amount deemed by such Bank or (as the case may
be) the Agent to be material, then such Bank or the Agent may notify the
Borrower of such fact. To the extent that the amount of such reduction in the
return on capital is not reflected in the Base Rate, the Borrower agrees to pay
such Bank or (as the case may be) the Agent for the amount of such reduction in
the return on capital as and when such reduction is determined upon presentation
by such Bank or (as the case may be) the Agent of a certificate in accordance
with ss.4.9 hereof. Each Bank shall allocate such cost increases among its
customers in good faith and on an equitable basis.
SS.4.9. CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to ss.ss.4.7 or 4.8 and a brief explanation of such
amounts which are due, submitted by any Bank or the Agent to the Borrower, shall
be conclusive, absent manifest error, that such amounts are due and owing.
SS.4.10. INDEMNITY. The Borrower agrees to indemnify each Bank and to
hold each Bank harmless from and against any loss, cost or expense (including
loss of anticipated profits) that such Bank may sustain or incur as a
consequence of (a) default by the Borrower in payment of the principal amount of
or any interest on any Eurodollar Rate Loans as and when due and payable,
including any such loss or expense arising from interest or fees payable by such
Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate
Loans, (b) default by the Borrower in making a borrowing or conversion after the
Borrower has given (or is deemed to have given) a Loan Request or a Conversion
Request relating thereto in accordance with ss.2.6 or ss.2.7 or (c) the making
of any payment of a Eurodollar Rate Loan or the making of any conversion of any
such Loan to a Base Rate Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by such Bank to lenders of funds obtained by it in order to maintain any
such Loans.
SS.4.11. INTEREST AFTER DEFAULT. During the continuance of a Default
or an Event of Default, the principal and interest of the Loans shall, until
such Default or Event of Default has been cured or remedied or such Default or
Event of Default has been waived by the Majority Banks pursuant to ss.26, bear
interest at a rate per annum equal to two percent (2%) above the rate of
interest otherwise applicable to such Loans pursuant to ss.2.5.
SS.4.12. INTEREST LIMITATION. Notwithstanding any other term of this
Credit Agreement or any Note or any other document referred to herein or
therein, the maximum amount of interest which may be charged to or collected
from any Person liable hereunder or under any Note by the Banks, shall be
absolutely limited to, and
<PAGE>
-31-
shall in no event exceed, the maximum amount of interest (the "Maximum Rate")
which could lawfully be charged to collected under applicable law (including, to
the extent applicable, the provisions of Section 5197 of the Revised Statutes of
the United States of America, as amended, 12 U.S.C. Section 85, as amended), so
that the maximum of all amounts constituting interest under applicable law,
howsoever computed, shall never exceed as to any Person liable therefor the
Maximum Rate, and any term of this Credit Agreement or any Note or any other
document referred to herein or therein which could be construed as providing for
interest in excess of such lawful maximum shall be and hereby is made expressly
subject to and modified by the provisions of this paragraph. If, in any month,
the effective interest rate on any amounts owing pursuant to this Credit
Agreement, the Notes or any of the other Loan Documents, absent the Maximum Rate
limitation contained herein, would have exceeded the Maximum Rate, and if in the
future months, such effective interest rate would otherwise be less than the
Maximum Rate, then the effective interest rate for such month shall be increased
to the Maximum Rate until such time as the amount of interest paid hereunder
equals the amount of interest which would have been paid if the same had not
been limited by the Maximum Rate. In the event that, upon payment in full of the
Borrower's Obligations pursuant to this Credit Agreement, the Notes or the other
Loan Documents, the total amount of interest paid or accrued under the terms of
this Credit Agreement is less than the total amount of interest which would have
been paid or accrued had the interest not been limited hereby to the Maximum
Rate, then the Borrower shall, to the extent permitted by such applicable
federal, state or other law, pay to the Banks hereunder or under the Notes an
amount equal to the excess, if any, of (i) the lesser of (A) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect with respect to the Obligations hereunder or under the Notes and
(B) the amount of interest which would have accrued had the effective interest
rate applicable not been limited hereunder by the Maximum Rate over (ii) the
amount of interest actually paid or accrued under this Credit Agreement.
SS.5. GUARANTIES. The Obligations shall be guaranteed pursuant to the
terms of the Guaranty.
SS.6. REPRESENTATIONS AND WARRANTIES. Each of the Borrower and SRI
represents and warrants to the Banks and the Agent as follows:
SS.6.1. CORPORATE AUTHORITY.
6.1.1. INCORPORATION; GOOD STANDING. Each of SRI, the
Borrower and each of their respective Subsidiaries (a) is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, (b) has all requisite corporate power to own its property and
conduct its business as now conducted and as presently contemplated, and (c) is
in good standing as a foreign corporation and is duly authorized to do business
in each jurisdiction where such qualification is necessary except where a
failure to be so qualified would not have a materially adverse effect on
<PAGE>
-32-
the business, assets or financial condition of SRI, the Borrower and their
Subsidiaries on a consolidated basis.
6.1.2. AUTHORIZATION. The execution, delivery and
performance of this Credit Agreement and the other Loan Documents to which SRI,
the Borrower or any of their Subsidiaries is or is to become a party and the
transactions contemplated hereby and thereby (a) are within the corporate
authority of such Person, (b) have been duly authorized by all necessary
corporate proceedings, (c) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to which SRI,
the Borrower or any Subsidiary is subject or any judgment, order, writ,
injunction, license or permit applicable to SRI, the Borrower or any Subsidiary
and (d) do not conflict with any provision of the corporate charter or bylaws
of, or any agreement or other instrument binding upon, SRI, the Borrower or any
of their Subsidiaries.
6.1.3. ENFORCEABILITY. The execution and delivery of this
Credit Agreement and the other Loan Documents to which SRI, the Borrower or any
of their Subsidiaries is or is to become a party will result in valid and
legally binding obligations of such Person enforceable against it in accordance
with the respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
SS.6.2. GOVERNMENTAL APPROVALS. The execution, delivery and
performance by SRI, the Borrower and any of their Subsidiaries of this Credit
Agreement and the other Loan Documents to which SRI, the Borrower or any of
their Subsidiaries is or is to become a party and the transactions contemplated
hereby and thereby do not require the approval or consent of, or filing with,
any governmental agency or authority other than those already obtained.
SS.6.3. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE
6.3 hereto, SRI, the Borrower and their Subsidiaries own all of the assets
reflected in the consolidated and consolidating balance sheet of SRI, the
Borrower and their Subsidiaries as at the Balance Sheet Date or acquired since
that date (except property and assets sold or otherwise disposed of in the
ordinary course of business since that date), subject to no rights of others,
including any mortgages, leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except Permitted Liens.
SS.6.4. FINANCIAL STATEMENTS AND PROJECTIONS.
6.4.1. FINANCIAL STATEMENTS. There has been furnished to
each of the Banks a consolidated and consolidating balance sheet of SSI and its
Subsidiaries as at the Balance Sheet Date, and a consolidated and consolidating
statement of income of SSI and its Subsidiaries for the period then ended,
certified by a member of senior
<PAGE>
-33-
management of the Borrower. Such balance sheet and statement of income have been
prepared in accordance with Generally Accepted Accounting Principles and fairly
present the financial condition of SSI, SRI and the Borrower as at the close of
business on the date thereof (excluding normal year-end adjustments) and the
results of operations for the period then ended. There are no contingent
liabilities of SSI or any of its Subsidiaries as of such date involving material
amounts, known to the officers of SSI, SRI or the Borrower, which were not
disclosed in such balance sheet and the notes related thereto. In addition,
there has been furnished to each of the Banks SSI's most recent Form 10-K (the
"10-K") for the fiscal year ended January, 1996 and Form 10-Q (the "10-Q") for
the fiscal quarter ended November 2, 1996.
6.4.2. PROJECTIONS. The six (6) month seasonal income
statement plan of SSI and its Subsidiaries on a consolidated basis, for the six
(6) month period commencing January 30, 1997 and through July 30, 1997 (and,
with the six month seasonal income statement plan for the six month period
commencing on the Saturday closest to July 30 through the Saturday closest to
January 30, the "Seasonal Projections"), the projected capital budget and
projected cash flow statements for the fiscal year ended January 28, 1997 (the
"Fiscal Year Projections") and the annual projected balance sheets, income
statements and cash flow statements of SSI and its Subsidiaries on a
consolidated basis for the 1996 to 2000 fiscal years (the "Annual Projections"
and, collectively with the Seasonal Projections, and the Fiscal Year
Projections, the "Projections"), copies of which have been delivered to each
Bank, disclose all assumptions made with respect to general economic, financial
and market conditions used in formulating such Projections. The Projections are
based upon reasonable estimates and assumptions, have been prepared on the basis
of the assumptions stated therein and as at the Closing Date reflect the
reasonable estimates of SSI and its Subsidiaries of the results of operations
and other information projected therein, it being understood that the
projections are not guarantees of results and that actual results will vary from
the projections, and such variations may be material.
SS.6.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there
has occurred no materially adverse change in the financial condition or business
of SRI, the Borrower and their Subsidiaries as shown on or reflected in the
consolidated balance sheet of SRI, the Borrower and their Subsidiaries as at the
Balance Sheet Date, or the consolidated and consolidating statement of income
for the fiscal year then ended, other than changes in the ordinary course of
business that have not had any materially adverse effect either individually or
in the aggregate on the business or financial condition of SRI, the Borrower and
their Subsidiaries on a consolidated basis. Since the Balance Sheet Date,
neither SRI nor the Borrower has made any Distributions.
SS.6.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of SRI, the
Borrower and each of their Subsidiaries possesses all franchises, patents,
copyrights, trademarks, trade names, licenses and permits, and rights in respect
of the foregoing, adequate for the conduct of its business substantially as now
conducted without known conflict with any rights of others.
<PAGE>
-34-
SS.6.7. LITIGATION. Except as set forth in SCHEDULE 6.7 hereto, there
are no actions, suits, proceedings or investigations of any kind pending or
threatened against SRI, the Borrower or any of their Subsidiaries before any
court, tribunal or administrative agency or board that, if adversely determined,
would reasonably be expected, either in any case or in the aggregate, materially
adversely affect the properties, assets, financial condition or business of SRI,
the Borrower or any of their Subsidiaries or materially impair the right of SRI,
the Borrower and their Subsidiaries, considered as a whole, to carry on business
substantially as now conducted by them, or result in any substantial liability
not adequately covered by insurance, or for which adequate reserves are not
maintained on the consolidated balance sheet of SRI, the Borrower and their
Subsidiaries, or which question the validity of this Credit Agreement or any of
the other Loan Documents, or any action taken or to be taken pursuant hereto or
thereto.
SS.6.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither SRI, the
Borrower nor any of their Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation that
has or is expected in the future to have a materially adverse effect on the
business, assets or financial condition of SRI, the Borrower or any of their
Subsidiaries. Neither SRI, the Borrower nor any of their Subsidiaries is a party
to any contract or agreement that has or is expected, in the judgment of the
Borrower's officers, to have any materially adverse effect on the business of
SRI, the Borrower and their Subsidiaries on a consolidated basis.
SS.6.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Each of SRI,
the Borrower and any of their Subsidiaries is not in violation of any provision
of its charter documents, bylaws, or any agreement or instrument to which it may
be subject or by which it or any of its properties may be bound or any decree,
order, judgment, statute, license, rule or regulation, in any of the foregoing
cases in a manner that could reasonably be expected to materially and adversely
affect the financial condition, properties or business of SRI, the Borrower and
their Subsidiaries on a consolidated basis.
SS.6.10. TAX STATUS. SRI, the Borrower and their Subsidiaries (a)
have made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which any of them is
subject, (b) have paid all taxes and other governmental assessments and charges
shown or determined to be due on such returns, reports and declarations, except
those being contested in good faith and by appropriate proceedings and (c) have
set aside on their books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Borrower know of no basis for any such claim.
SS.6.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
<PAGE>
-35-
SS.6.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither SRI,
the Borrower nor any of their Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is it an "investment company", or an "affiliated company" or a
"principal underwriter" of an "investment company", as such terms are defined in
the Investment Company Act of 1940.
SS.6.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of SRI, the Borrower or any of their Subsidiaries or
any rights relating thereto.
SS.6.14. CERTAIN TRANSACTIONS. Except (a) as disclosed on SCHEDULE
6.14 hereto; (b) for consulting arrangements with Bain Capital, Inc. and (c) for
arm's length transactions pursuant to which SRI, the Borrower or any of their
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than SRI, the Borrower or such Subsidiary could obtain from third
parties, none of the officers, directors, or employees of SRI, the Borrower or
any of their Subsidiaries is presently a party to any contract, agreement or
other arrangement with SRI, the Borrower or any of their Subsidiaries (other
than for services as employees, officers and directors), providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
SS.6.15. EMPLOYEE BENEFIT PLANS.
6.15.1. IN GENERAL. Each Employee Benefit Plan and each
Guaranteed Pension Plan has been maintained and operated in compliance in all
material respects with the provisions of ERISA and, to the extent applicable,
the Code, including but not limited to the provisions thereunder respecting
prohibited transactions and the bonding of fiduciaries and other persons
handling plan funds as required by ss.412 of ERISA. The Borrower has heretofore
delivered to the Agent the most recently completed annual report, Form 5500,
with all required attachments, and actuarial statement required to be submitted
under ss.103(d) of ERISA, with respect to each Guaranteed Pension Plan.
6.15.2. TERMINABILITY OF WELFARE PLANS. No Employee Benefit
Plan which is an employee welfare benefit plan within the meaning of ss.3(1) or
ss.3(2)(B) of ERISA, provides benefit coverage subsequent to termination of
employment except as required by Title I, Part 6 of ERISA or applicable state
insurance laws. The Borrower may terminate each such Plan at any time (or at any
time subsequent to the expiration of any applicable bargaining agreement) in the
discretion of the Borrower without liability to any Person other than for claims
arising prior to termination.
<PAGE>
-36-
6.15.3. GUARANTEED PENSION PLANS. Each contribution
required to be made to a Guaranteed Pension Plan, whether required to be made to
avoid the incurrence of an accumulated funding deficiency, the notice or lien
provisions of ss.302(f) of ERISA, or otherwise, has been timely made. No waiver
of an accumulated funding deficiency or extension of amortization periods has
been received with respect to any Guaranteed Pension Plan, and neither the
Borrower not any ERISA Affiliate is obligated to or has posted security in
connection with an amendment of a guaranteed Pension Plan pursuant to ss.307 of
ERISA or ss.401(a)(29) of the Code. Except as set forth on SCHEDULE 6.15.3
hereto, no liability to the PBGC (other than required insurance premiums, all of
which have been paid) has been incurred by the Borrower or any ERISA Affiliate
with respect to any Guaranteed Pension Plan and there has not been any ERISA
Reportable Event, or any other event or condition which presents a material risk
of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest
valuation of each Guaranteed Pension Plan (which in each case occurred within
twelve months of the date of this representation), and on the actuarial methods
and assumptions employed for that valuation, the aggregate benefit liabilities
of all such Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did
not exceed the aggregate value of the assets of all such Guaranteed Pension
Plans, disregarding for this purpose the benefit liabilities and assets of any
Guaranteed Pension Plan with assets in excess of benefit liabilities, by more
than $100,000.
6.15.4. MULTIEMPLOYER PLANS. Neither the Borrower nor any
ERISA Affiliate has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan under ss.4201 of ERISA or as a result of
a sale of assets described in ss.4204 of ERISA that has not been satisfied in
full. Neither the Borrower nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or insolvent under and within the
meaning of ss.4241 or ss.4245 of ERISA or is at risk of entering reorganization
or becoming insolvent, or that any Multiemployer Plan intends to terminate or
has been terminated under ss.4041A of ERISA.
SS.6.16. REGULATIONS U AND X. The proceeds of the Loans shall be used
to convert existing Indebtedness to the Banks under the Original Credit
Agreement to Loans hereunder and for working capital and general corporate
purposes No portion of any Loan is to be used for the purpose of purchasing or
carrying any "margin security" or "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve System, 12
C.F.R. Parts 221 and 224.
SS.6.17. ENVIRONMENTAL COMPLIANCE. Except as set forth on SCHEDULE
6.17 hereto:
(a) none of SRI, the Borrower, any of their Subsidiaries or any
operator of the Real Estate or any operations thereon is in
violation of any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters,
including without limitation, those arising under the
Resource
<PAGE>
-37-
Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of
1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, or any state or local statute, regulation,
ordinance, order or decree relating to health, safety or
the environment (hereinafter "Environmental Laws"), which
violation would reasonably be expected to have a material
adverse effect on the environment or the business, assets
or financial condition of SRI, the Borrower and their
Subsidiaries on a consolidated basis;
(b) neither SRI, the Borrower nor any of their Subsidiaries has
received written notice from any third party including,
without limitation: any federal, state or local
governmental authority, (i) that any one of them has been
identified by the United States Environmental Protection
Agency ("EPA") as a potentially responsible party under
CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii)
that any hazardous waste, as defined by 42 U.S.C.ss.
9601(5), any hazardous substances as defined by 42
U.S.C.ss. 9601(14), any pollutant or contaminant as defined
by 42 U.S.C.ss.9601(33) and any toxic substances, oil or
hazardous materials or other chemicals or substances
regulated by any Environmental Laws ("Hazardous
Substances") which any one of them has generated,
transported or disposed of has been found at any site at
which a federal, state or local agency or other third party
has conducted or has ordered that SRI, the Borrower or any
of its Subsidiaries conduct a remedial investigation,
removal or other response action pursuant to any
Environmental Law; or (iii) that it is or shall be a named
party to any claim, action, cause of action, complaint, or
legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's
incurrence of costs, expenses, losses or damages of any
kind whatsoever in connection with the release of Hazardous
Substances except for such of the foregoing clauses (i)
through (iii) which would not reasonably be expected to
have a materially adverse effect on the business, assets or
financial condition of SRI, the Borrower and their
Subsidiaries on a consolidated basis;
(c) except as would not reasonably be expected to have a
materially adverse effect on the business, assets or
financial condition of SRI, the Borrower and their
Subsidiaries on a consolidated basis: (i) no portion of the
Real Estate has been used for the handling, processing,
storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; and no
underground tank or other underground storage receptacle
for Hazardous Substances is located on any portion of the
Real Estate; (ii) in the course of any activities conducted
by SRI, the Borrower, their Subsidiaries or operators of
its properties, no Hazardous Substances have been generated
or are being used on the Real Estate
<PAGE>
-38-
except in accordance with applicable Environmental Laws;
(iii) there have been no releases (i.e. any past or present
releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or
dumping) or threatened releases of Hazardous Substances on,
upon, into or from the properties of the Borrower or its
Subsidiaries, which releases would have a material adverse
effect on the value of any of the Real Estate or adjacent
properties or have a materially adverse effect on the
environment; (iv) to the best of the Borrower's knowledge,
there have been no releases on, upon, from or into any real
property in the vicinity of any of the Real Estate which,
through soil or groundwater contamination, has come to be
located on, and which would have a material adverse effect
on the value of, the Real Estate; and (v) in addition, to
the best of the Borrower's knowledge, any Hazardous
Substances that have been generated on any of the Real
Estate have been transported offsite only by carriers
having an identification number issued by the EPA, treated
or disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable
Environmental Laws, which transporters and facilities have
been and are operating in compliance with such permits and
applicable Environmental Laws; and
(d) Neither SRI, the Borrower nor any of their Subsidiaries,
any Mortgaged Property or any of the other Real Estate is
subject to any applicable Environmental Law requiring the
performance of Hazardous Substances site assessments, or
the removal or remediation of Hazardous Substances, or the
giving of notice to any governmental agency or the
recording or delivery to other Persons of an environmental
disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or
as a condition to the recording of any Mortgage or to the
effectiveness of any other transactions contemplated hereby
where the failure to comply with such Environmental Laws
would be expected to have a materially adverse effect on
the business, assets or financial condition of SRI, the
Borrower and their Subsidiaries on a consolidated basis.
SS.6.18. SUBSIDIARIES, ETC. The Receivables Subsidiary is the only
Subsidiary of the Borrower, and the Borrower owns one hundred percent (100%) of
the issued and outstanding capital stock of the Receivables Subsidiary. The
Borrower is the only direct Subsidiary of SRI, and SRI owns one hundred percent
(100%) of the issued and outstanding capital stock of the Borrower. SRI is the
only Subsidiary of SSI, and SSI owns one hundred percent (100%) of the issued
and outstanding capital stock of SRI. Except as set forth on SCHEDULE 6.18
hereto, neither SRI, the Borrower nor any Subsidiary of the Borrower or SRI is
engaged in any joint venture or partnership with any other Person.
<PAGE>
-39-
SS.6.19. SENIOR DEBT. The execution, delivery and performance of this
Credit Agreement and the other Loan Documents to which SRI, the Borrower or any
of their Subsidiaries is or is to become a party and, the transactions
contemplated hereby and thereby (a) does not violate any provision of the Senior
Notes, the Senior Subordinated Notes, the Senior Notes Indenture or the Senior
Subordinated Notes Indenture (b) the Indebtedness arising hereunder constitutes
permitted "Indebtedness" (as defined in the Senior Notes Indenture and Senior
Subordinated Notes Indenture (collectively, the "Indentures")) pursuant to the
terms of the Indentures, (c) the liens arising as a result of this transaction
constitute "Permitted Liens" (as defined in the Indentures) pursuant to the
terms of the Indentures and (d) the Obligations constitute "Senior Debt" (as
defined in the Senior Subordinated Notes Indenture) pursuant to the terms of the
Senior Subordinated Notes Indenture, to which the Senior Subordinated Notes are
subordinated and junior in rights of payment.
SS.6.20. FISCAL YEAR. Each of SRI and the Borrower has a fiscal year
which ends on the Saturday closest to the end of January of each year.
SS.6.21. INSURANCE. Each of SRI, the Borrower and each of their
Subsidiaries maintains with financially sound and reputable insurers insurance
with respect to its properties and businesses against such casualties and
contingencies as are in accordance with general practices of businesses engaged
in similar activities and similar geographic areas, with the details of such
coverage being more fully described on SCHEDULE 6.21 hereto.
SS.7. AFFIRMATIVE COVENANTS OF THE BORROWER. Each of SRI and the
Borrower covenants and agrees that, so long as any Loan or Note is outstanding
or any Bank has any obligation to make any Loans:
SS.7.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay
or cause to be paid the principal and interest on the Loans, the commitment
fees, the Agent's fee and all other amounts provided for in this Credit
Agreement and the other Loan Documents to which the Borrower or any of its
Subsidiaries is a party, all in accordance with the terms of this Credit
Agreement and such other Loan Documents.
SS.7.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office in 10201 Main Street, Houston, Texas, or at such other place in
the United States of America as the Borrower shall designate upon written notice
to the Agent, where notices, presentations and demands to or upon the Borrower
in respect of the Loan Documents to which the Borrower is a party may be given
or made.
SS.7.3. RECORDS AND ACCOUNTS. SRI and the Borrower will (a) keep, and
cause each of their Subsidiaries to keep, true and accurate records and books of
account in which full, true and correct entries will be made in accordance with
Generally Accepted Accounting Principles and (b) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves.
<PAGE>
-40-
SS.7.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrower will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than one
hundred ten (110) days after the end of each fiscal year of
the Borrower, the consolidated balance sheet of SSI and its
Subsidiaries and the consolidating balance sheet of SSI and
its Subsidiaries, each as at the end of such year, and the
related consolidated statement of income and consolidated
statement of cash flow and consolidating statement of
income, each setting forth in comparative form the figures
for the previous fiscal year and all such consolidated and
consolidating statements to be in reasonable detail,
prepared in accordance with Generally Accepted Accounting
Principles, and certified (as to consolidated statements)
without qualification by SSI's accountants or by other
independent certified public accountants satisfactory to
the Agent, together with a written statement from such
accountants to the effect that they have read a copy of
this Credit Agreement, and that, in making the examination
necessary to said certification, they have obtained no
knowledge of any Default or Event of Default, or, if such
accountants shall have obtained knowledge of any then
existing Default or Event of Default they shall disclose in
such statement any such Default or Event of Default;
PROVIDED that such accountants shall not be liable to the
Banks for failure to obtain knowledge of any Default or
Event of Default;
(b) as soon as practicable, but in any event not later than
fifty (50) days after the end of each of the fiscal
quarters of the Borrower, copies of the unaudited
consolidated balance sheet of SSI and its Subsidiaries and
the unaudited consolidating balance sheets of SSI and its
Subsidiaries, each as at the end of such quarter, and the
related consolidated and consolidating statements of income
and consolidated and consolidating statement of cash flow
for the portion of the fiscal year then elapsed, all in
reasonable detail and prepared in accordance with Generally
Accepted Accounting Principles, together with a
certification by the principal financial or accounting
officer of SRI and the Borrower that the information
contained in such financial statements fairly presents the
financial position of SRI and its Subsidiaries on the date
thereof and for the period then ended (subject to year-end
adjustments);
(c) as soon as practicable, but in any event within thirty-five
(35) days after the end of each month in each fiscal year
of the Borrower, preliminary and unaudited monthly
consolidated income statement and balance sheet of SSI and
its Subsidiaries for such month and unaudited monthly
consolidating income statement and balance sheet of SSI and
its Subsidiaries for such month, and the related
consolidated and consolidating financial statements of SSI
and its Subsidiaries for the
<PAGE>
-41-
portion of the Borrower's fiscal year then elapsed, setting
forth in comparative form the figures set forth in the
Seasonal Projections and projected capital budget portion
of the Fiscal Year Projections delivered pursuant to
ss.6.4.2 (or, if updated, pursuant toss.8.3(d) or (h)) for
the comparable period and those figures for the comparable
period in the preceding fiscal year (in the consolidated
statement only), each prepared in accordance with Generally
Accepted Accounting Principles, together with a
certification by the principal financial or accounting
officer of SSI that the information contained in such
financial statements fairly presents the financial
condition of SRI and its Subsidiaries on the date thereof
and for the period then ended (subject to any quarterly and
year-end adjustments);
(d) not later than January 1 and July 1 of each year, the
Seasonal Projections of SRI, the Borrower and their
Subsidiaries, and not later than January 15 of each year,
(i) the Fiscal Year Projections of SRI, the Borrower and
their Subsidiaries, updating those Seasonal Projections and
Fiscal Year Projections delivered to the Banks and referred
to in ss.6.4.2 and (ii) the cash flow budget of SSI and its
Subsidiaries for such year;
(e) simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b) above, a
statement certified by the principal financial or
accounting officer of the Borrower in substantially the
form of EXHIBIT C hereto (the "Compliance Certificate") and
setting forth in reasonable detail computations evidencing
compliance with the covenants contained inss.10 and (if
applicable) reconciliations to reflect changes in Generally
Accepted Accounting Principles since the Balance Sheet
Date, and within ten (10) Business Days after the
Borrower's fiscal month ending in December of each fiscal
year, a Compliance Certificate setting forth in reasonable
detail computations evidencing compliance with the covenant
contained inss.10.6 hereof to the extent that the
Compliance Certificate states that (i) the financial
statements of SSI and its Subsidiaries fairly present in
all material respects the financial condition of SRI and
its Subsidiaries for the period in respect of which such
certificate shall be given and (ii) the consolidated
revenue of SRI and its Subsidiaries constitutes
substantially all of the consolidated revenues of SSI and
its Subsidiaries and that the combined assets of SSI and
its Subsidiaries constitute substantially all of the
consolidated assets of SSI and its Subsidiaries, then for
the purpose of demonstrating compliance ofss.10 hereof, SRI
and the Borrower may use the consolidated financial
statements of SSI in lieu of the actual consolidated
financial statements of SRI and the Borrower;
(f) as soon as practicable, but in any event within thirty-five
(35) days after the end of each month in each fiscal year
of the Borrower, (i) a store by
<PAGE>
-42-
store analysis setting forth the financial information for
each store (including such store's monthly sales) for such
month, a comparison of such information to the Borrower's
current budget for such store and a comparison of such
information to the similar financial information for such
store in the prior year, as well as an aggregate financial
statement for all stores as compared to the similar
financial information for all stores contained in the
Borrower's budget and a comparison of such information to
the same information for all stores in the prior year and
(ii) a calculation of the Borrower's EBITDA for the prior
month;
(g) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the
Securities and Exchange Commission and sent to the
stockholders of SSI generally, including without
limitation, copies of the 10-K and 10-Q of SSI;
(h) contemporaneously with the receipt by the Borrower thereof,
copies of all letters and other reports of substance
submitted to SSI, the Borrower or SRI by independent
certified public accountants in connection with any annual
or interim audit of the books of SSI, the Borrower or SRI
made by such accountants, including, without limitation,
all reconciliations made from SSI's management prepared
financial statements to its 10-K and 10-Q for the same
period;
(i) from time to time upon request of the Agent, Annual
Projections of SRI, the Borrower and their Subsidiaries
updating those Annual Projections delivered to the Banks
and referred to in ss.6.4.2 or, if applicable, updating any
later such Annual Projections delivered in response to a
request pursuant to this ss.7.4(i);
(j) as soon as practicable, but in any event within three (3)
days after the end of each of the Borrower's fiscal weeks
for the Borrower's fiscal month of December of each year, a
store by store analysis setting forth the sales for each
store for such fiscal week and a comparison of such
information to the similar information for such store in
the prior year, as well as an aggregate financial statement
for all stores as compared to the similar information for
all stores contained in the Borrower's budget and a
comparison of such information to the same information for
all stores in the prior year;
(k) as soon as practicable, but in any event within thirty-five
(35) days after the end of each fiscal month of the
Borrower, the Borrower's "cash flow report", which report
shall set forth the Borrower's cash flow for such month, a
comparison of such information to the Borrower's current
monthly budget for such month, together with a comparison
of such information to the Borrower's actual budget,
together with any and all updates to the Borrower's budget;
<PAGE>
-43-
(l) contemporaneously with the mailing or other dissemination
thereof, copies of all press releases by SSI or any of its
Subsidiaries; and
(m) from time to time such other financial data and information
as the Agent or any Bank may reasonably request.
SS.7.5. NOTICES.
7.5.1. DEFAULTS. The Borrower will promptly notify the
Agent and each of the Banks in writing of the occurrence of any Default or Event
of Default. If any Person shall give any notice or take any other action in
respect of a claimed default (whether or not constituting an Event of Default)
under this Credit Agreement or any other note, evidence of indebtedness,
indenture or other obligation to which or with respect to which the Borrower or
any of its Subsidiaries is a party or obligor, whether as principal, guarantor,
surety or otherwise, the Borrower shall forthwith give written notice thereof to
the Agent and each of the Banks, describing the notice or action and the nature
of the claimed default.
7.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly
give notice to the Agent and each of the Banks (a) of any violation of any
Environmental Law that SRI, the Borrower or any of their Subsidiaries reports in
writing or is reportable by such Person in writing (or for which any written
report supplemental to any oral report is made) to any federal, state or local
environmental agency and (b) upon becoming aware thereof, of any inquiry,
proceeding, investigation, or other action pursuant or related to Environmental
Laws, including a written notice from any agency of potential environmental
liability, or any federal, state or local environmental agency or board, that
could reasonably be expected to materially adversely affect the assets,
liabilities, financial conditions or operations of SRI, the Borrower and their
Subsidiaries on a consolidated basis.
7.5.4. NOTICE OF LITIGATION AND JUDGMENTS. SRI and the
Borrower will, and will cause each of their Subsidiaries to, give notice to the
Agent and each of the Banks in writing within fifteen (15) days of becoming
aware of any litigation or proceedings threatened in writing or any pending
litigation and proceedings affecting SRI, the Borrower or any of their
Subsidiaries or to which SRI, the Borrower or any of their Subsidiaries is or
becomes a party involving an uninsured claim against SRI, the Borrower or any of
their Subsidiaries that could reasonably be expected to have a materially
adverse effect on SRI, the Borrower and their Subsidiaries on a consolidated
basis and stating the nature and status of such litigation or proceedings. SRI
and the Borrower will, and will cause each of their Subsidiaries to, give notice
to the Agent and each of the Banks, in writing, in form and detail satisfactory
to the Agent, within ten (10) days of any judgment not covered by insurance,
final or otherwise, against SRI, the Borrower or any of their Subsidiaries in an
amount in excess of $200,000.
<PAGE>
-44-
SS.7.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. Each of SRI
and the Borrower will do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and franchises
and those of their Subsidiaries. Each (a) will cause all of its properties and
those of their Subsidiaries used or useful in the conduct of its business or the
business of their Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment, (b) will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Borrower may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times, and (c) will, and will cause each of
their Subsidiaries to, continue to engage primarily in the businesses now
conducted by them and in related businesses; PROVIDED that nothing in this
ss.7.6 shall prevent SRI or the Borrower from discontinuing the operation and
maintenance of any of its properties or any of those of its Subsidiaries (unless
such Subsidiary is the Borrower) if such discontinuance is, in the judgment of
SRI or the Borrower, as the case may be, desirable in the conduct of its or
their business and that do not in the aggregate materially adversely affect the
business of SRI, the Borrower and their Subsidiaries on a consolidated basis.
SS.7.7. INSURANCE. SRI and the Borrower will, and will cause each of
their Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as described on SCHEDULE 6.21 hereto, and as shall be in
accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and in amounts, containing such terms, in
such forms and for such periods as may be reasonable and prudent.
SS.7.8. TAXES. SRI and the Borrower will, and will cause each of
their Subsidiaries to, duly pay and discharge, or cause to be paid and
discharged, before the same shall become overdue, all taxes, assessments and
other governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid would
reasonably be expected by law to become a lien or charge upon any of its
property; PROVIDED that any such tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith by appropriate proceedings and if SRI, the Borrower or such Subsidiary
shall have set aside on its books adequate reserves with respect thereto; and
PROVIDED FURTHER that SRI, the Borrower and each of their Subsidiaries will pay
all such taxes, assessments, charges, levies or claims forthwith upon the
commencement of proceedings to foreclose any lien that may have attached as
security therefor.
SS.7.9. INSPECTION OF PROPERTIES AND BOOKS, ETC.
7.9.1. GENERAL. SRI and the Borrower shall permit the
Banks, through the Agent or any of the Banks' other designated representatives,
to visit, during normal business hours, and inspect any of the properties of
SRI, the Borrower or any of their
<PAGE>
-45-
Subsidiaries, to examine the books of account of SRI, the Borrower and their
Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss
the affairs, finances and accounts of SRI, the Borrower and their Subsidiaries
with, and to be advised as to the same by, their and their officers, all at such
reasonable times and intervals as the Agent or any Bank may reasonably request.
Each of SRI, the Borrower and any of their Subsidiaries shall permit the Agent,
the Banks or any of their or their designated representatives to conduct
commercial finance examinations, such examinations to be at the Borrower's
expense, PROVIDED, HOWEVER, if no Default or Event of Default exists or is
continuing, the Borrower shall only be required to pay for one such examination
per calendar year.
7.9.2. APPRAISALS. If an Event of Default shall have
occurred and be continuing, or if any Bank is required by any law, rule,
regulation or directive to obtain an appraisal, upon the request of the Agent,
the Borrower will obtain and deliver to the Agent appraisal reports in form and
substance and from appraisers satisfactory to the Agent, stating the then
current business value of each of the Borrower and its Subsidiaries. All such
appraisals shall be conducted and made at the expense of the Borrower.
7.9.3. COMMUNICATIONS WITH ACCOUNTANTS. Each of SRI and the
Borrower authorizes the Agent and, if accompanied by the Agent, the Banks to
communicate directly with SRI's and the Borrower's independent certified public
accountants and authorizes such accountants to disclose to the Agent and the
Banks any and all financial statements and other supporting financial documents
and schedules including copies of any management letter with respect to the
business, financial condition and other affairs of SRI, the Borrower or any of
their Subsidiaries. At the request of the Agent, SRI or the Borrower shall
deliver a letter addressed to such accountants instructing them to comply with
the provisions of this ss.7.9.3.
SS.7.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. Each
of SRI and the Borrower will, and will cause each of their Subsidiaries to,
comply with (a) the applicable laws and regulations wherever its business is
conducted, including all Environmental Laws except for such noncompliance which
would not reasonably be expected to have a materially adverse effect on the
business, assets or financial condition of SRI, the Borrower and their
Subsidiaries on a consolidated basis, (b) the provisions of its charter
documents and by-laws, (c) all agreements and instruments by which it or any of
its properties may be bound and (d) all applicable decrees, orders, and
judgments. If any authorization, consent, approval, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that SRI, the Borrower or any of their Subsidiaries may
fulfill any of its obligations hereunder or any of the other Loan Documents to
which SRI, the Borrower or such Subsidiary is a party, SRI and the Borrower
will, or (as the case may be) will cause such Subsidiary to, immediately take or
cause to be taken all reasonable steps within the power of SRI or the Borrower
or such Subsidiary to obtain such authorization, consent, approval, permit or
license and furnish the Agent and the Banks with evidence thereof.
<PAGE>
-46-
SS.7.11. EMPLOYEE BENEFIT PLANS. Upon the Agent's request, the
Borrower will (i) promptly furnish to the Agent a copy of the most recent
actuarial statement required to be submitted under ss.103(d) of ERISA and Annual
Report, Form 5500, with all required attachments, in respect of each Guaranteed
Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent
any notice, report or demand sent or received in respect of a Guaranteed Pension
Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or
in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245
of ERISA.
SS.7.12. USE OF PROCEEDS. The Borrower will use the proceeds of the
Loans to convert existing Indebtedness to the Banks under the Original Credit
Agreement to Loans hereunder and for working capital and general corporate
purposes.
SS.7.13. FURTHER ASSURANCES. Each of SRI and the Borrower will, and
will cause each of their Subsidiaries to, cooperate with the Banks and the Agent
and execute such further instruments and documents as the Banks or the Agent
shall reasonably request to carry out to their satisfaction the transactions
contemplated by this Credit Agreement and the other Loan Documents.
SS.8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. Each of SRI and the
Borrower covenants and agrees that, so long as any Loan or Note is outstanding
or any Bank has any obligation to make any Loans:
SS.8.1. RESTRICTIONS ON INDEBTEDNESS. Each of SRI and the Borrower
will not, and will not permit any of their Subsidiaries to, create, incur,
assume, guarantee or be or remain liable, contingently or otherwise, with
respect to any Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising under any
of the Loan Documents;
(b) current liabilities of SRI, the Borrower or such Subsidiary
incurred in the ordinary course of business not incurred
through (i) the borrowing of money, or (ii) the obtaining
of credit except for credit on an open account basis
extended in connection with normal purchases of goods and
services;
(c) Indebtedness in respect of taxes, assessments or
governmental charges to the extent that payment therefor
shall not at the time be required to be made in accordance
with the provisions of ss.7.8;
(d) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for
taking an appeal so long as execution is not levied
thereunder or in respect of which SRI, the Borrower or such
Subsidiary shall at the time in good faith be
<PAGE>
-47-
prosecuting an appeal or proceedings for review and in
respect of which a stay of execution shall have been
obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred
in the ordinary course of business;
(f) Indebtedness of SRI and the Borrower evidenced by the
Senior Notes and Indebtedness of SRI and the Borrower
consisting of Subordinated Debt;
(g) obligations of SRI or the Borrower under Capitalized Leases
not exceeding $4,000,000 in aggregate amount at any time
outstanding;
(h) Indebtedness incurred in connection with the acquisition
after the date hereof of any real or personal property by
SRI or the Borrower, PROVIDED that the aggregate principal
amount of such Indebtedness of SRI and the Borrower shall
not exceed the aggregate amount of $3,000,000 outstanding
at any one time;
(i) Indebtedness existing on the date hereof and listed and
described on SCHEDULE 8.1 hereto;
(j) Indebtedness of a Subsidiary of the Borrower to the
Borrower, which Indebtedness exists on the Closing Date;
(k) Indebtedness arising under the Receivables Purchase
Agreement and Pooling and Servicing Agreement;
(l) in addition to the Indebtedness incurred pursuant to clause
(h) above, Indebtedness incurred or assumed by SRI or the
Borrower in connection with acquisitions permitted by
ss.8.5.1, PROVIDED that the aggregate principal amount of
such Indebtedness incurred or assumed by SRI and the
Borrower shall not exceed the aggregate amount of
$8,000,000 during the term of this Credit Agreement and
PROVIDED, FURTHER that such Indebtedness is expressly
subordinated in right of payment to the Obligations on
terms acceptable to the Agent, including without limitation
no cash payments of principal until after the Maturity
Date;
(m) Indebtedness in respect of dividends declared by SRI, the
Borrower or the Receivables Subsidiary as permitted under
ss.8.4 but not yet paid;
(n) Indebtedness in respect of indemnification obligations of
SRI and the Borrower to their respective officers and
directors pursuant to their charter documents;
<PAGE>
-48-
(o) Indebtedness to the Revolver Banks and the Revolver Agent
arising under the Revolving Agreement;
(p) Indebtedness of the Receivables Subsidiary evidenced by the
Receivables Subsidiary Notes; and
(q) Indebtedness of SRI and the Borrower to SSI pursuant to the
Junior Subordinated Notes, PROVIDED, the aggregate
principal amount of all such Indebtedness shall not exceed
$65,000,000 outstanding at any one time.
SS.8.2. RESTRICTIONS ON LIENS. Each of SRI and the Borrower will not,
and will not permit any of their Subsidiaries to, (a) create or incur or suffer
to be created or incurred or to exist any lien, encumbrance, mortgage, pledge,
charge, restriction or other security interest of any kind upon any of its
property or assets of any character whether now owned or hereafter acquired, or
upon the income or profits therefrom; (b) transfer any of such property or
assets or the income or profits therefrom for the purpose of subjecting the same
to the payment of Indebtedness or performance of any other obligation in
priority to payment of its general creditors; (c) acquire, or agree or have an
option to acquire, any property or assets upon conditional sale or other title
retention or purchase money security agreement, device or arrangement; (d)
suffer to exist for a period of more than thirty (30) days after the same shall
have been incurred any Indebtedness or claim or demand against it that if unpaid
would reasonably be expected by law or upon bankruptcy or insolvency, or
otherwise, to be given any priority whatsoever over its general creditors; or
(e) sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles, chattel paper or instruments, with or without recourse;
PROVIDED that each of SRI, the Borrower and any Subsidiary of SRI or of the
Borrower may create or incur or suffer to be created or incurred or to exist:
(i) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue;
(ii) deposits or pledges made in connection with, or to
secure payment of, workmen's compensation, unemployment insurance,
old age pensions or other social security obligations;
(iii) liens on properties other than the Mortgaged Property
in respect of judgments or awards, the Indebtedness with respect to
which is permitted by ss.8.1(d);
(iv) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties other than the
Mortgaged Property, in existence less than 120 days from the date of
creation thereof in respect of obligations not overdue;
(v) liens in respect of Capitalized Leases;
<PAGE>
-49-
(vi) encumbrances on Real Estate consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which the Borrower or a
Subsidiary of the Borrower is a party, and other minor liens or
encumbrances none of which in the reasonable opinion of the Borrower
interferes materially with the use of the property affected in the
ordinary conduct of the business of the Borrower and its
Subsidiaries, which defects do not individually or in the aggregate
have a materially adverse effect on the business of the Borrower
individually or of the Borrower and its Subsidiaries on a
consolidated basis;
(vii) liens existing on the date hereof and listed on
SCHEDULE 8.2 hereto;
(viii) purchase money security interests in or purchase
money mortgages on real or personal property other than Mortgaged
Properties acquired after the date hereof to secure purchase money
Indebtedness of the type and amount permitted by ss.8.1(h), incurred
in connection with the acquisition of such property, which security
interests or mortgages cover only the real or personal property so
acquired;
(ix) liens in favor of the Revolver Agent for the benefit
of the Revolver Banks and the Revolver Agent under the Revolving
Agreement;
(x) liens on the Borrower's or the Receivable Subsidiary's
credit card receivables in favor of the buyers pursuant to the
Receivables Purchase Agreement and the Pooling and Servicing
Agreement, to the extent that the same do not constitute a true sale;
(xi) liens on assets and property of SRI, the Borrower and
their Subsidiaries when such assets and property, individually and in
the aggregate, have a value of less than $50,000; and
(xii) liens in favor of the holders of the Receivables
Subsidiary Notes on the Transferor Retained Certificates and the
Transferor Interest (as such terms are defined in the Pooling and
Servicing Agreement).
SS.8.3. RESTRICTIONS ON INVESTMENTS. Each of SRI and the Borrower
will not, and will not permit any of their Subsidiaries to, make or permit to
exist or to remain outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United
States of America that mature within six (6) months from
the date of purchase by the Borrower;
<PAGE>
-50-
(b) demand deposits, certificates of deposit, bankers
acceptances and time deposits with maturities of six (6)
months or less of United States banks having capital and
surplus in excess of $500,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the
United States of America or any state thereof that at the
time of purchase have been rated and the ratings for which
are not less than "P 1" if rated by Moody's Investors
Services, Inc., and not less than "A 1" if rated by
Standard and Poor's;
(d) Investments consisting of acquisitions permitted by
ss.8.5.1 hereof;
(e) Investments with respect to Indebtedness permitted by
ss.8.1(j) so long as such entities remain Subsidiaries of
either SRI or the Borrower, as the case may be;
(g) Investments in the Receivables Subsidiary received in
consideration of sales of accounts receivable permitted
under ss.8.5.2; and
(h) Investments consisting of loans to officers, directors and
employees of SRI and the Borrower or Investments consisting
of the repurchase by SRI or the Borrower of real property
consisting of the personal residences of certain officers,
directors or employees of SRI or the Borrower in connection
with relocation of such officers, directors or employees,
which loans and repurchases shall not exceed at any one
time, in the aggregate, $3,000,000 LESS the sum of (i)
Investments consisting of loans to officers, directors and
employees of SRI and the Borrower then outstanding on the
Closing Date PLUS (ii) the amount of any Distributions made
for the repurchase of employee stock pursuant to ss.8.4 net
of the amount of any sales of stock to employees.
SS.8.4. DISTRIBUTIONS; REPAYMENT. SRI will not make any Distributions
or make any repayments in respect of intercompany indebtedness or any other
payments to any stockholder of SRI, PROVIDED, HOWEVER, if no Default or Event of
Default has occurred or is continuing or would exist after giving effect
thereto, SRI shall be permitted to (a) make a payment to SSI to reimburse it for
(i) its out-of-pocket administrative expenses (including without limitation,
legal, accounting, franchise tax and general operating expenses) in an amount
not to exceed, in the aggregate, $500,000 in any fiscal year, and (ii) the
amount of income tax payments to be made by SSI pursuant to the terms of the
Federal Income Tax Allocation Agreement dated as of August 2, 1993 by and among
SSI, SRI, the Borrower and the Receivables Subsidiary, in the form delivered to
the Agent prior to the Closing Date in an aggregate amount with respect to each
year not to exceed SSI's actual income tax paid with respect to such year, and
(b) make Distributions to SSI in an amount which shall not exceed at any time,
in the aggregate, $2,500,000 LESS the sum of (i) Distributions previously made
<PAGE>
-51-
to SSI for the repurchase of employee stock net of the amount of any sales of
stock to employees PLUS (ii) the amount of Investments made consisting of
employee loans or repurchases permitted pursuant to ss.8.3(h), PROVIDED such
Distribution is used by SSI for the repurchase of employee stock. The Borrower
will not, and will not permit its Subsidiaries to, directly or indirectly make
any repayments in respect of intercompany indebtedness or any other payments to
any Affiliate other than SRI or the Borrower. In addition, the Borrower will not
permit its Subsidiaries to, directly or indirectly, make any Distributions prior
to the repayment by such Subsidiary of all intercompany indebtedness of such
Subsidiary PROVIDED, HOWEVER, so long as no Default or Event of Default has
occurred or is continuing or would exist as a result thereof, the Receivables
Subsidiary shall be permitted to make Distributions to the Borrower prior to the
repayment of all of its intercompany indebtedness in an amount not to exceed the
amount of Defaulted Receivables (as defined in the Receivables Purchase
Agreement) repurchased by the Borrower from the Receivables Subsidiary pursuant
to the terms and conditions set forth in the Receivables Purchase Agreement and
Pooling and Servicing Agreement and provided that such Distributions are made by
the end of the calendar month in which the Borrower purchased such Defaulted
Receivables.
SS.8.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
8.5.1. MERGERS AND ACQUISITIONS. Neither SRI nor the
Borrower will become a party to any merger or consolidation, or agree to or
effect any asset acquisition or stock acquisition (other than the acquisition of
assets in the ordinary course of business consistent with past practice
(including, without limitation, the purchase of deminimis amounts of capital
stock by SRI or any of its Subsidiaries of another Person in the same or a
similar line of business) or the merger of SRI and the Borrower) except (a) the
merger of SRI with and into the Borrower, with the Borrower being the surviving
entity and changing its name to "Specialty Retailers, Inc.", PROVIDED that (i)
no Default or Event of Default has occurred and is continuing or would exist
after giving effect thereto; (ii) the Borrower has provided the Agent with prior
written notice of such merger; (iii) the Borrower has provided to the Agent
copies of all documents, instrument and agreements pertaining to the merger, and
such documents, instruments and agreements are in form and substance
satisfactory to the Agent; (iv) the Borrower has delivered to the Agent evidence
that the merger would not either (1) violate the terms of any other agreement to
which either the Borrower or SRI is a party or (2) if any violation would occur,
such violation of any such agreement or agreements would have a material adverse
effect on the SRI, the Borrower or any of their Subsidiaries, and (v) the Loan
Documents have been amended to reflect the change in the Borrower's name
thereunder; and (b) the Borrower may effect acquisitions of entities which are
in the same or a similar line of business as the Borrower, PROVIDED, that (i) no
Default or Event of Default has occurred or is continuing or would exist after
giving effect thereto; (ii) the Borrower has provided the Agent with prior
written notice of each such acquisition; (iii) the aggregate total consideration
for all such acquisitions (which shall include, without limitation, the cash
purchase price of such acquisition and any Indebtedness incurred or assumed by
the Borrower in connection therewith) does not exceed, in the aggregate,
$10,000,000 during the term of this Credit Agreement; (iv)
<PAGE>
-52-
the Borrower has demonstrated to the Agent based on a PRO FORMA Compliance
Certificate covenant compliance with ss.10 on a PRO FORMA basis immediately
prior to and after giving effect to each such acquisition on the assumption that
each such acquisition occurred at the beginning of the covenant calculations
period; (v) any payments on acquisition related debt instruments shall be
included in the calculation of Debt Service; and (vi) any acquisition related
debt instruments would not violate the restrictions on Indebtedness set forth in
ss.8.1.
In the event any new Subsidiary is formed as a result of or in
connection with any acquisition, and such Subsidiary is not immediately merged
with and into the Borrower with the Borrower being the surviving entity, the
Loan Documents shall be amended and/or supplemented as necessary to make the
terms and conditions of the Loan Documents applicable to such Subsidiary, and
such Subsidiary shall be required to execute and deliver to the Agent a guaranty
satisfactory to the Agent guaranteeing the Obligations of the Borrower to the
Agent and the Banks.
8.5.2. DISPOSITION OF ASSETS. Each of SRI and the Borrower
will not, and will not permit any of its Subsidiaries to, become a party to or
agree to or effect any disposition of assets, other than (a) the disposition of
assets (including obsolete assets) in the ordinary course of business,
consistent with past practices, (b) the sale of credit card receivables to the
Receivables Subsidiary pursuant to the Receivables Purchase Agreement and the
pooling and sale of such receivables in the Receivables Subsidiary pursuant to
the Pooling and Servicing Agreement, in each case for consideration having a
value at least equal to ninety-five percent (95%) of the book value thereof
determined in accordance with Generally Accepted Accounting Principles, (c) the
disposition of any assets pursuant to a trade-in of such asset for a similar
asset, and (d) the disposition by sale to an independent and unrelated third
party for fair value of assets, not to exceed $1,000,000 in the aggregate in any
fiscal year; PROVIDED, that only for the fiscal year ending in January 1997 such
$1,000,000 limit shall be increased to $2,000,000.
SS.8.6. SALE AND LEASEBACK. The Borrower will not, enter into any
arrangement, directly or indirectly, whereby the Borrower shall sell or transfer
the Mortgaged Property (as defined in the Revolving Agreement) in order then or
thereafter to lease such property or lease other property that the Borrower
intends to use for substantially the same purpose as the property being sold or
transferred.
SS.8.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of SRI and the
Borrower will not, and will not permit any of their Subsidiaries to, (a) use any
of the Real Estate or any portion thereof for the handling, processing, storage
or disposal of Hazardous Substances, (b) cause or permit to be located on any of
the Real Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (c) generate any Hazardous Substances on any of the Real
Estate, (d) conduct any activity at any Real Estate or use any Real Estate in
any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (e) otherwise conduct any
<PAGE>
-53-
activity at any Real Estate or use any Real Estate in any manner where any of
the foregoing clauses (a) through (e) would reasonably be expected to have a
materially adverse effect on the business, financial condition or assets of SRI,
the Borrower and their Subsidiaries on a consolidated basis.
SS.8.8. SENIOR NOTE AND SENIOR SUBORDINATED NOTE PAYMENTS. Neither
the Borrower nor SRI will, nor will either of them permit any of their
Subsidiaries to, make any payment of, or in respect of, the Junior Subordinated
Notes, the Senior Subordinated Notes, or any other Subordinated Debt including,
without limitation, any direct or indirect purchase, repurchase, redemption or
other acquisition or retirement for value of all or any part of the Senior
Subordinated Notes, the Junior Subordinated Notes or any other Subordinated
Debt, or to optionally prepay, repurchase, redeem, defease or otherwise
optionally repay or retire for value all or any part of the Senior Notes except
that:
(a) SRI may, so long as no Default or Event of Default has
occurred or is continuing or would exist after giving
effect thereto, make regularly scheduled interest payments
when permitted by the terms of the Senior Subordinated
Notes and the SRI Subordinated Notes.
(b) SRI may, so long as no Default or Event of Default has
occurred or is continuing or would exist after giving
effect thereto and SRI and the Borrower can demonstrate to
the satisfaction of the Agent PRO FORMa compliance with the
covenants set forth in ss.10 hereof both before and after
giving effect to any payment, make regularly scheduled
required principal payments when permitted by the terms of
the Senior Subordinated Notes and the SRI Subordinated
Notes.
SS.8.9. CHANGES IN TERMS OF SENIOR NOTES AND SENIOR SUBORDINATED
NOTES. Without the written consent of the Majority Banks, neither the Borrower
nor SRI will make any changes of any promissory note, indenture, agreement or
other instrument evidencing or governing the Senior Notes, the Senior
Subordinated Notes, any Subordinated Debt, the Senior Note Indenture or the
Senior Subordinated Note Indenture; PROVIDED, HOWEVER, SRI shall be permitted to
amend the Senior Notes Indenture, the Senior Subordinated Notes Indenture and
the SRI Subordinated Notes Indenture pursuant to the SRI Indenture Consent or if
such an amendment is of an immaterial or ministerial nature that would not have
any adverse effect on the Agent's or the Banks' rights under the Loan Documents
or SRI's or the Borrower's rights under the Loan Documents.
SS.8.10. EMPLOYEE BENEFIT PLANS. Neither SRI, the Borrower nor any
ERISA Affiliate will
(a) engage in any "prohibited transaction" within the meaning
of ss.406 of ERISA or ss.4975 of the Code which could
result in a material liability for the Borrower or any of
its Subsidiaries; or
<PAGE>
-54-
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in ss.302 of
ERISA, whether or not such deficiency is or may be waived;
or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a
manner which, could result in the imposition of a lien or
encumbrance on the assets of the Borrower or any of its
Subsidiaries pursuant to ss.302(f) or ss.4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances
requiring the posting of security pursuant to ss.307 of
ERISA or ss.401(a)(29) of the Code; or
(e) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of ss.4001
of ERISA) of all Guaranteed Pension Plans exceeding the
value of the aggregate assets of such Plans, disregarding
for this purpose the benefit liabilities and assets of any
such Plan with assets in excess of benefit liabilities by
more than $100,000.
SS.8.11. TRANSACTIONS WITH AFFILIATES. Except for arm's-lengths
transactions pursuant to which SRI, the Borrower or any of their Subsidiaries
makes payments in the ordinary course of business upon terms no less favorable
than SRI, the Borrower or such Subsidiary could obtain from third parties, no
officer, director or employee of SSI, the Borrower or any of their Subsidiaries
will become party to any transaction with SRI, the Borrower or any of their
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement, or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or other wise requiring payments to or from any officer,
director or such employee or any corporation, partnership, trust or other entity
in which any officer, director, or any such person has a substantial interest or
is an officer, director, trustee or partner; PROVIDED, HOWEVER, SRI shall be
permitted to pay to Bain Venture Capital, a California limited partnership
and/or its Affiliates, fees for services not to exceed, in the aggregate
$1,000,000 per annum, the Receivables Subsidiary shall be permitted to make
payments to SRI for collecting and servicing receivables in the amounts provided
in the Pooling and Servicing Agreement as in effect on the date hereof and the
Borrower shall be permitted, pursuant to the Receivables Purchase Agreement as
in effect on the date hereof, to repurchase the Defaulted Receivables (as such
term is defined in the Receivables Purchase Agreement) in the amounts and on the
terms in such Receivables Purchase Agreement as in effect on the date hereof.
8.12. FISCAL YEAR. Neither SRI nor the Borrower will change the date
of the end of their respective fiscal years from that set forth in ss.7.21
hereof.
8.13. NEGATIVE PLEDGES. Neither SRI, the Borrower nor any of their
Subsidiaries will enter into any agreement (excluding this Credit Agreement, the
Loan
<PAGE>
-55-
Documents, the Senior Notes Indenture, the SRI Subordinated Note Indenture and
the Senior Subordinated Notes Indenture) prohibiting the creation or assumption
of any lien upon its properties, revenues or assets or those of any of its
Subsidiaries, whether now owned or hereafter acquired other than agreements with
Persons prohibiting any such lien on assets in which such Person has a prior
security interest which is permitted by ss.8.2.
8.14. UPSTREAM LIMITATIONS. The Borrower will not, nor will the
Borrower permit any of its Subsidiaries to enter into any agreement, contract or
arrangement (other than the Credit Agreement and the other Loan Documents) and,
as to the Receivables Subsidiary, the Receivables Purchase Agreement and such
Receivables Subsidiary's charter and organizational documents, all as in effect
on the Closing Date) that restricts the ability of any Subsidiary to pay or make
dividends or distributions in cash or kind, to make loans, advances or other
payments of whatsoever nature or to make transfers or distributions of all or
any part of its assets to the Borrower or to any Subsidiary of such Subsidiary.
SS.9. FINANCIAL COVENANT OF THE BORROWER. The Borrower covenants and
agrees that, so long as any Loan or Note is outstanding or any Bank has any
obligation to make any Loans:
SS.9.1. DEBT SERVICE RATIO. The Borrower will not, for any period
consisting of the preceding four (4) consecutive fiscal quarters (treated as a
single accounting period), permit the Debt Service Ratio for any fiscal quarter
ending during any period described in the table set forth below to be less than
the ratio set forth opposite such period in such table:
Period Ratio
------ -----
Fourth fiscal quarter, 1996 1.30:1.00
First fiscal quarter, 1997 1.20:1.00
Second fiscal quarter, 1997 1.20:1.00
Third fiscal quarter, 1997 1.20:1.00
Fourth fiscal quarter, 1997 1.40:1.00
First fiscal quarter, 1998 1.20:1.00
Second fiscal quarter, 1998 1.30:1.00
Third fiscal quarter, 1998 1.30:1.00
Fourth fiscal quarter, 1998 1.40:1.00
First fiscal quarter, 1999 1.20:1.00
Second fiscal quarter, 1999 1.30:1.00
Third fiscal quarter, 1999 1.10:1.00
each fiscal quarter ending thereafter 1.20:1.00
SS.9.2 CAPITAL EXPENDITURES. Neither SSI, SRI nor the Borrower will
make, nor permit any Subsidiary to make, Capital Expenditures (including any
expenditures made in connection with any permitted acquisitions but excluding
any expenditures
<PAGE>
-56-
consisting of indebtedness incurred or assumed as permitted by ss.9.1(l) in
connection with any permitted acquisitions) in the fiscal year that exceed in
the aggregate, (a) $30,000,000 for the 1996 fiscal year; (b) $40,000,000 for the
1997 fiscal year; (c) $45,000,000 for the 1998 fiscal year; and (d) $50,000,000
for each fiscal year thereafter.
SS.9.3. TOTAL FUNDED DEBT TO EBITDA. The Borrower will not, at any
time during any period described in the table set forth below, permit the ratio
of Total Funded Indebtedness on such date to EBITDA for the four most recently
ended fiscal quarters to exceed the ratio set forth opposite such period in such
table:
Period Ratio
------ -----
Fourth fiscal quarter, 1996 3.75:1.00
First fiscal quarter, 1997 3.65:1.00
Second fiscal quarter, 1997 3.60:1.00
Third fiscal quarter, 1997 3.55:1.00
Fourth fiscal quarter, 1997 3.25:1.00
First fiscal quarter, 1998 3.15:1.00
Second fiscal quarter, 1998 3.10:1.00
Third fiscal quarter, 1998 3.05:1.00
Fourth fiscal quarter, 1998 2.75:1.00
First fiscal quarter, 1999 2.65:1.00
Second fiscal quarter, 1999 2.60:1.00
Third fiscal quarter, 1999 2.55:1.00
each fiscal quarter ending thereafter 2.25:1.00
SS.9.4. MINIMUM EBITDA. The Borrower will not, as of the end of any
fiscal quarter ending during any period described in the table set forth below,
permit the EBITDA of SSI, the Borrower and their Subsidiaries for the period of
the four (4) immediately preceding consecutive fiscal quarters then ending, to
be less than the amount set forth opposite such period in such table:
Period Amount
------ ------
Fourth fiscal quarter, 1996 $ 80,000,000
First fiscal quarter, 1997 $ 82,000,000
Second fiscal quarter, 1997 $ 84,000,000
Third fiscal quarter, 1997 $ 86,000,000
Fourth fiscal quarter, 1997 $ 95,000,000
First fiscal quarter, 1998 $ 97,000,000
Second fiscal quarter, 1998 $ 99,000,000
Third fiscal quarter, 1998 $101,000,000
Fourth fiscal quarter, 1998 $108,000,000
First fiscal quarter, 1999 $110,000,000
Second fiscal quarter, 1999 $112,000,000
Third fiscal quarter, 1999 $114,000,000
<PAGE>
-57-
each fiscal quarter ending thereafter $123,000,000
SS.9.5. CURRENT ASSETS. The Borrower will not at any time permit the
ratio of Consolidated Current Assets to Consolidated Current Liabilities to be
less than 2.50:1.00.
SS.9.6. SEASONAL DEBT SERVICE RATIO. The Borrower will not permit the
Seasonal Debt Service Ratio as at the last day of the Borrower's December fiscal
month for the period of the immediately preceding twelve (12) fiscal months of
the Borrower to be less than the ratio set forth opposite such period in such
table:
Period Ratio
------ -----
Last day of fiscal month ending December, 1997 1.40:1.00
Last day of fiscal month ending December, 1998 1.40:1.00
Last day of fiscal month ending December, 1999 1.20:1.00
SS.10. CLOSING CONDITIONS. The obligations of the Banks to make the
initial Loans shall be subject to the satisfaction of the following conditions
precedent on or prior to the date hereof:
SS.10.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to each of the
Banks. Each Bank shall have received a fully executed copy of each such
document.
SS.10.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks
shall have received from SRI, the Borrower and each of their Subsidiaries which
is a party to any of the Loan Documents, a copy, certified by a duly authorized
officer of such Person to be true and complete on the Closing Date, of each of
(a) its charter or other incorporation documents as in effect on such date of
certification, and (b) its by-laws as in effect on such date.
SS.10.3. CORPORATE ACTION. All corporate action necessary for the
valid execution, delivery and performance by SRI, the Borrower and each of their
Subsidiaries of this Credit Agreement and the other Loan Documents to which it
is or is to become a party shall have been duly and effectively taken, and
evidence thereof satisfactory to the Banks shall have been provided to each of
the Banks.
SS.10.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have
received from SRI, the Borrower and each of their Subsidiaries an incumbency
certificate, dated as of the Closing Date, signed by a duly authorized officer
of SRI, the Borrower or such Subsidiary, and giving the name and bearing a
specimen signature of each individual who shall be authorized: (a) to sign, in
the name and on behalf of each of SRI, the Borrower or such Subsidiary, each of
the Loan Documents to which SRI, the Borrower or such Subsidiary is or is to
become a party; (b) in the case of the Borrower, to make
<PAGE>
-58-
Loan Requests and Conversion Requests; and (c) to give notices and to take other
action on its behalf under the Loan Documents.
SS.10.5. CERTIFICATES OF INSURANCE. The Agent shall have received (a)
a certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of this Credit Agreement and (b) certified copies of all policies
evidencing such insurance (or certificates therefor signed by the insurer or an
agent authorized to bind the insurer).
SS.10.6. SOLVENCY CERTIFICATE. Each of the Banks shall have received
an officer's certificate of the Borrower dated as of the Closing Date as to the
solvency of SRI, the Borrower and their Subsidiaries both before and immediately
following the consummation of the transactions contemplated herein and in form
and substance satisfactory to the Banks.
SS.10.7. OPINION OF COUNSEL. Each of the Banks and the Agent shall
have received a favorable legal opinion addressed to the Banks and the Agent,
dated as of the Closing Date, in form and substance satisfactory to the Banks
and the Agent, from Kirkland & Ellis, counsel to SRI, the Borrower and its
Subsidiaries.
SS.10.8. PAYMENT OF FEES. The Borrower shall have paid to the Agent
the Closing Fee and Agent's Fee pursuant to ss.ss.4.1 and 4.2.
SS.11. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to
make any Loan, whether on or after the Closing Date, shall also be subject to
the satisfaction of the following conditions precedent:
SS.11.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of SRI, the Borrower and their
Subsidiaries contained in this Credit Agreement, the other Loan Documents or in
any document or instrument delivered pursuant to or in connection with this
Credit Agreement shall be true in all material respects as of the date as of
which they were made and shall also be true in all material respects at and as
of the time of the making of such Loan, with the same effect as if made at and
as of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and the other Loan Documents
or changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, or to the extent that such representations
and warranties relate expressly to an earlier date) and no Default or Event of
Default shall have occurred and be continuing. The Agent shall have received a
certificate of the Borrower signed by an authorized officer of the Borrower to
such effect.
SS.11.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any
law or regulations thereunder or interpretations thereof that in the reasonable
opinion of any Bank would make it illegal for such Bank to make such Loan.
<PAGE>
-59-
SS.11.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
SS.11.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Credit Agreement, the other Loan
Documents and all other documents incident thereto shall be satisfactory in
substance and in form to the Banks and to the Agent and the Agent's Special
Counsel, and the Banks, the Agent and such counsel shall have received all
information and such counterpart originals or certified or other copies of such
documents as the Agent may reasonably request.
SS.12. EVENTS OF DEFAULT; ACCELERATION; ETC.
SS.12.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) the Borrower shall fail to pay any principal of the Loans
or interest on the Loans when the same shall become due and
payable, whether at the stated date of maturity or any
accelerated date of maturity or at any other date fixed for
payment;
(b) the Borrower shall fail to pay the commitment fee, the
Agent's fee, or other sums due hereunder or under any of
the other Loan Documents, within three (3) days after the
same shall become due and payable, whether at the stated
date of maturity or any accelerated date of maturity or at
any other date fixed for payment;
(c) the Borrower or SRI shall fail to comply with any of its
covenants contained in ss.7.1, ss.7.3, ss.7.5-7.10,
ss.7.12, ss.8 or ss.9 or SSI shall fail to comply with the
covenant contained in ss.28;
(d) the Borrower or SRI shall fail to comply with the
provisions of ss.7.4 for a period of twenty-four (24) hours
after written notice of such failure has been given to the
Borrower by the Agent;
(e) SRI, the Borrower or any of their Subsidiaries shall fail
to perform any term, covenant or agreement contained herein
or in any of the other Loan Documents (other than those
specified elsewhere in this ss.12.1) for fifteen (15) days
after written notice of such failure has been given to the
Borrower by the Agent;
(f) any representation or warranty of SRI, the Borrower or any
of their Subsidiaries in this Credit Agreement or any of
the other Loan Documents or in any other document or
instrument delivered pursuant to
<PAGE>
-60-
or in connection with this Credit Agreement shall prove to
have been false in any material respect upon the date when
made or deemed to have been made or repeated;
(g) SRI, the Borrower or any of their Subsidiaries shall fail
to pay at maturity, or within any applicable period of
grace, any obligation for borrowed money or credit received
or in respect of any Capitalized Leases in an aggregate
amount in excess of $250,000, or fail to observe or perform
any material term, covenant or agreement contained in any
agreement by which it is bound, evidencing or securing such
borrowed money or credit received or in respect of any such
Capitalized Leases for such period of time as would permit
(assuming the giving of appropriate notice if required) the
holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof;
(h) any of SRI, the Borrower or any of their Subsidiaries shall
make an assignment for the benefit of creditors, or admit
in writing their inability to pay or generally fail to pay
their debts as they mature or become due, or shall petition
or apply for the appointment of a trustee or other
custodian, liquidator or receiver of SRI, the Borrower or
any of their Subsidiaries or of any substantial part of the
assets of SRI, the Borrower or any of their Subsidiaries or
shall commence any case or other proceeding relating to
SRI, the Borrower or any of their Subsidiaries under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar
law of any jurisdiction, now or hereafter in effect, or
shall take any action to authorize or in furtherance of any
of the foregoing, or if any such petition or application
shall be filed or any such case or other proceeding shall
be commenced against SRI, the Borrower or any of their
Subsidiaries and SRI, the Borrower or any of their
Subsidiaries shall indicate their approval thereof, consent
thereto or acquiescence therein;
(i) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating any of
SRI, the Borrower or any of their Subsidiaries bankrupt or
insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief is
entered in respect of SRI, the Borrower or any of their
Subsidiaries in an involuntary case under federal
bankruptcy laws as now or hereafter constituted;
(j) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not
consecutive, any final judgment against SRI, the Borrower
or any of their Subsidiaries that, with other outstanding
final judgments, undischarged, against SRI, the Borrower or
any of their Subsidiaries exceeds in the aggregate
$250,000;
<PAGE>
-61-
(k) any default or event of default shall have occurred and be
continuing under the Senior Notes Indenture of the Senior
Subordinated Notes Indenture, or the holders of all or any
part of the Senior Notes or the Subordinated Debt shall
accelerate the maturity of all or any part of the Senior
Notes or the Subordinated Debt or the Senior Notes or the
Subordinated Debt shall be prepaid, redeemed or repurchased
in whole or in part, except as permitted underss.8.8 or any
Servicer Default, Payout Event, Insolvency Event or Trigger
Event (as each of such terms is defined in the Pooling and
Servicing Agreement) shall have occurred or any Purchase
Termination Event or Incipient Purchase Termination Event
(as such terms are defined in the Receivables Purchase
Agreement) shall have occurred or any Change of Control or
Change of Control Offer (as such terms are defined in the
Senior Notes Indenture and the Senior Subordinated Notes
Indenture) shall have occurred;
(l) if any of the Loan Documents shall be cancelled,
terminated, revoked or rescinded otherwise than in
accordance with the terms thereof or with the express prior
written agreement, consent or approval of the Banks, or any
action at law, suit in equity or other legal proceeding to
cancel, revoke or rescind any of the Loan Documents shall
be commenced by or on behalf of SRI, the Borrower or any of
their Subsidiaries party thereto or any of their respective
stockholders, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction
shall make a determination that, or issue a judgment,
order, decree or ruling to the effect that, any one or more
of the Loan Documents is illegal, invalid or unenforceable
in accordance with the terms thereof;
(m) the Borrower or any ERISA Affiliate incurs any liability to
the PBGC or a Guaranteed Pension Plan pursuant to Title IV
of ERISA in an aggregate amount exceeding $1,000,000; the
Borrower or any ERISA; the Borrower or any ERISA Affiliate
is assessed withdrawal liability pursuant to Title IV of
ERISA by a Multiemployer Plan requiring aggregate annual
payments exceeding $1,000,000, or any of the following
occurs with respect to a Guaranteed Pension Plan; (i) an
ERISA Reportable Event, or a failure to make a required
installment or other payment (within the meaning
ofss.302(f)(1) of ERISA), provided the Agent determines in
its reasonable discretion that such event (A) could be
expected to result in liability of the Borrower to the PBGC
or the Plan in an aggregate amount exceeding $1,000,000 and
(B) could constitute grounds for the termination of such
Plan by the PBGC, for the appointment by the appropriate
United States District Court of a trustee to administer
such Plan or for the imposition of a lien in favor of the
Guaranteed Pension Plan; (ii) the appointment by a United
States District Court of a trustee to administer such Plan;
or (iii) the institution by the PBGC of proceedings to
terminate such Plan.
<PAGE>
-62-
(n) SRI, the Borrower or any of their Subsidiaries shall be
enjoined, restrained or in any way prevented by the order
of any court or any administrative or regulatory agency
from conducting any material part of its business and such
order shall continue in effect for more than thirty (30)
days;
(o) there shall occur any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other
casualty, which in any such case causes, for more than
fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility
of SRI, the Borrower or any of their Subsidiaries if such
event or circumstance is not covered by business
interruption insurance and would have a material adverse
effect on the business or financial condition of SRI, the
Borrower and their Subsidiaries on a consolidated basis;
(p) there shall occur the loss, suspension or revocation of, or
failure to renew, any license or permit now held or
hereafter acquired by SRI, the Borrower or any of their
Subsidiaries if such loss, suspension, revocation or
failure to renew would have a material adverse effect on
the business or financial condition of SRI, the Borrower
and their Subsidiaries on a consolidated basis;
(q) SRI, the Borrower or any of their Subsidiaries shall be
indicted for a federal crime, a punishment for which could
include the forfeiture of any assets of SRI, the Borrower
or such Subsidiary having a fair market value in excess of
$250,000;
(r) SSI shall, at any time prior to the consummation of the
merger of SRI and the Borrower as contemplated by ss.8.5.1
hereof, legally or beneficially own less than one hundred
percent (100%) of the shares of the capital stock of SRI
and after such merger, shall at any time legally or
beneficially own less than one hundred percent (100%) of
the shares of the capital stock of the Borrower, and SRI
shall, at any time prior to the consummation of the merger
of SRI and the Borrower as contemplated by ss.8.5.1 hereof,
legally or beneficially own less than one hundred percent
(100%) of the shares of the capital stock of the Borrower;
(s) the Receivables Subsidiary shall make any Distribution
which, after giving effect to such Distribution, results in
the value of the Receivable Subsidiary's unencumbered
interest in the amount of the Aggregate Principal
Receivables PLUS the aggregate amount of the Finance Charge
Receivables (as such terms are defined in the Pooling and
Servicing Agreement) being less than $25,000,000; or
<PAGE>
-63-
(t) there shall occur a Default or Event of Default under any
of the Revolving Agreement.
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Notes and the other Loan Documents to be, and they shall thereupon forthwith
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrower; PROVIDED that in the event of any Event of Default specified in
ss.ss.12.1(h), 12.1(i) or 12.1(l), all such amounts shall become immediately due
and payable automatically and without any requirement of notice from the Agent
or any Bank.
SS.12.2. TERMINATION OF COMMITMENTS. If any one or more of the Events
of Default specified in ss.12.1(h), ss.12.1(i) or ss.12.1(l) shall occur, any
unused portion of the credit hereunder shall forthwith terminate and each of the
Banks shall be relieved of all further obligations to make Loans to the
Borrower. If any other Event of Default shall have occurred and be continuing,
or if on any Drawdown Date the conditions precedent to the making of the Loans
to be made on such Drawdown Date are not satisfied, the Agent may and, upon the
request of the Majority Banks, shall, by notice to the Borrower, terminate the
unused portion of the credit hereunder, and upon such notice being given such
unused portion of the credit hereunder shall terminate immediately and each of
the Banks shall be relieved of all further obligations to make Loans. No
termination of the credit hereunder shall relieve the Borrower or any of its
Subsidiaries of any of the Obligations.
SS.12.3. REMEDIES. In case any one or more of the Events of Default
shall have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to ss.12.1, each Bank, if owed
any amount with respect to the Loans, may, with the consent of the Majority
Banks but not otherwise, proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Credit Agreement and
the other Loan Documents or any instrument pursuant to which the Obligations to
such Bank are evidenced, including as permitted by applicable law the obtaining
of the EX PARTE appointment of a receiver, and, if such amount shall have become
due, by declaration or otherwise, proceed to enforce the payment thereof or any
other legal or equitable right of such Bank. No remedy herein conferred upon any
Bank or the Agent or the holder of any Note is intended to be exclusive of any
other remedy and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or any other provision of law.
SS.13. SETOFF. Regardless of the adequacy of any collateral, during
the continuance of any Event of Default, any deposits or other sums credited by
or due from any of the Banks to the Borrower and any securities or other
property of the Borrower in the possession of such Bank may be applied to or set
off by such Bank against the
<PAGE>
-64-
payment of Obligations and any and all other liabilities, direct, or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
of the Borrower to such Bank. Each of the Banks agrees with each other Bank that
(a) if an amount to be set off is to be applied to Indebtedness of the Borrower
to such Bank, other than Indebtedness evidenced by the Notes held by such Bank,
such amount shall be applied ratably to such other Indebtedness and to the
Indebtedness evidenced by all such Notes held by such Bank, and (b) if such Bank
shall receive from the Borrower, whether by voluntary payment, exercise of the
right of setoff, counterclaim, cross action, enforcement of the claim evidenced
by the Notes held by such Bank by proceedings against the Borrower at law or in
equity or by proof thereof in bankruptcy, reorganization, liquidation,
receivership or similar proceedings, or otherwise, and shall retain and apply to
the payment of the Note or Notes held by such Bank any amount in excess of its
ratable portion of the payments received by all of the Banks with respect to the
Notes held by all of the Banks, such Bank will make such disposition and
arrangements with the other Banks with respect to such excess, either by way of
distribution, PRO TANTO assignment of claims, subrogation or otherwise as shall
result in each Bank receiving in respect of the Notes held by it, its
proportionate payment as contemplated by this Credit Agreement; PROVIDED that if
all or any part of such excess payment is thereafter recovered from such Bank,
such disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
SS.14. THE AGENT.
SS.14.1. AUTHORIZATION. The Agent is authorized to take such action
on behalf of each of the Banks and to exercise all such powers as are hereunder
and under any of the other Loan Documents and any related documents delegated to
the Agent, together with such powers as are reasonably incident thereto,
PROVIDED that no duties or responsibilities not expressly assumed herein or
therein shall be implied to have been assumed by the Agent. The relationship
between the Agent and the Banks is that of an independent contractor. The term
"Agent" is for convenience only and is used to describe, as a form of
convention, the independent contractual relationship between the Agent and each
of the Banks. Nothing contained in this Credit Agreement or any of the other
Loan Documents shall be construed to create an agency, trust or other fiduciary
relationship between the Agent and any of the Banks. As an independent
contractor empowered by the Banks to exercise certain rights and perform certain
duties and responsibilities hereunder and under the other Loan Documents, the
Agent is nevertheless a "representative" of the Banks, as that term is defined
in Article I of the Uniform Commercial Code, for purposes of actions for the
benefit of the Banks and the Agent with respect to all collateral security and
guaranties as "secured party", "mortgagee" or the like on all financing
statements and other documents and instruments, whether recorded or otherwise,
relating to the attachment, perfection, priority or enforcement of any security
interests, mortgages or deeds of trust in collateral security intended to secure
the payment or performance of any of the Obligations, all for the benefit of the
Banks and the Agent.
<PAGE>
-65-
SS.14.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrower.
SS.14.3. NO LIABILITY. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
SS.14.4. NO REPRESENTATIONS. The Agent shall not be responsible for
the execution or validity or enforceability of this Credit Agreement, the Notes,
any of the other Loan Documents or any instrument at any time constituting, or
intended to constitute, collateral security for the Notes, or for the value of
any such collateral security or for the validity, enforceability or
collectability of any such amounts owing with respect to the Notes, or for any
recitals or statements, warranties or representations made herein or in any of
the other Loan Documents or in any certificate or instrument hereafter furnished
to it by or on behalf of the Borrower or any of its Subsidiaries, or be bound to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, covenants or agreements herein or in any instrument at any time
constituting, or intended to constitute, collateral security for the Notes or to
inspect any of the properties, books or records of the Borrower or any of its
Subsidiaries. The Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by the Borrower or any holder of any
of the Notes shall have been duly authorized or is true, accurate and complete.
The Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Banks, with respect
to the credit worthiness or financial conditions of SRI, the Borrower or any of
its Subsidiaries. Each Bank acknowledges that it has, independently and without
reliance upon the Agent or any other Bank, and based upon such information and
documents as it has deemed appropriate, made its own credit analysis and
decision to enter into this Credit Agreement.
SS.14.5. PAYMENTS.
14.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the
Agent hereunder or any of the other Loan Documents for the account of any Bank
shall constitute a payment to such Bank. The Agent agrees promptly to distribute
to each Bank such Bank's PRO RATA share of payments received by the Agent for
the account of
<PAGE>
-66-
the Banks except as otherwise expressly provided herein or in any of the other
Loan Documents.
14.5.2. DISTRIBUTION BY AGENT. If in the opinion of the
Agent the distribution of any amount received by it in such capacity hereunder,
under the Notes or under any of the other Loan Documents might involve it in
liability, it may refrain from making distribution until its right to make
distribution shall have been adjudicated by a court of competent jurisdiction.
If a court of competent jurisdiction shall adjudge that any amount received and
distributed by the Agent is to be repaid, each Person to whom any such
distribution shall have been made shall either repay to the Agent its
proportionate share of the amount so adjudged to be repaid or shall pay over the
same in such manner and to such Persons as shall be determined by such court.
14.5.3. DELINQUENT BANKS. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan Documents,
any Bank that fails (a) to make available to the Agent its PRO RATA share of any
Loan or (b) to comply with the provisions of ss.13 with respect to making
dispositions and arrangements with the other Banks, where such Bank's share of
any payment received, whether by setoff or otherwise, is in excess of its PRO
RATA share of such payments due and payable to all of the Banks, in each case
as, when and to the full extent required by the provisions of this Credit
Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed
a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent
Bank shall be deemed to have assigned any and all payments due to it from the
Borrower, whether on account of Outstanding Loans, interest, fees or otherwise,
to the remaining nondelinquent Banks for application to, and reduction of, their
respective PRO RATA shares of all Outstanding Loans. The Delinquent Bank hereby
authorizes the Agent to distribute such payments to the nondelinquent Banks in
proportion to their respective PRO RATA shares of all Outstanding Loans. A
Delinquent Bank shall be deemed to have satisfied in full a delinquency when and
if, as a result of application of the assigned payments to all Outstanding Loans
of the nondelinquent Banks, the Banks' respective PRO RATA shares of all
Outstanding Loans have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing such
delinquency.
SS.14.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of
any Note as the absolute owner or purchaser thereof for all purposes hereof
until it shall have been furnished in writing with a different name by such
payee or by a subsequent holder, assignee or transferee.
SS.14.7. INDEMNITY. The Banks ratably agree hereby to indemnify and
hold harmless the Agent from and against any and all claims, actions and suits
(whether groundless or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by the Borrower as
required by ss.15), and liabilities of every nature and character arising out of
or related to this Credit Agreement, the Notes, or any of the other Loan
Documents or the transactions
<PAGE>
-67-
contemplated or evidenced hereby or thereby, or the Agent's actions taken
hereunder or thereunder, except to the extent that any of the same shall be
directly caused by the Agent's willful misconduct or gross negligence.
SS.14.8. AGENT AS BANK. In its individual capacity, FNBB shall have
the same obligations and the same rights, powers and privileges in respect to
its Commitment and the Loans made by it, and as the holder of any of the Notes,
as it would have were it not also the Agent.
SS.14.9. RESIGNATION. The Agent may resign at any time by giving
sixty (60) days' prior written notice thereof to the Banks and the Borrower.
Upon any such resignation, the Majority Banks shall have the right to appoint a
successor Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
SS.14.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Bank
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Agent thereof. The Agent hereby agrees
that upon receipt of any notice under this ss.14.10 it shall promptly notify the
other Banks of the existence of such Default or Event of Default.
SS.15. EXPENSES. The Borrower agrees to pay (a) the reasonable costs
of producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (b) any taxes (including
any interest and penalties in respect thereto) payable by the Agent or any of
the Banks (other than taxes based upon the Agent's or any Bank's net income) on
or with respect to the transactions contemplated by this Credit Agreement (the
Borrower hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (c) the reasonable fees, expenses and disbursements of the Agent's
Special Counsel or any local counsel to the Agent incurred in connection with
the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the fees,
expenses and disbursements of the Agent incurred by the Agent in connection with
the preparation, administration or interpretation of the
<PAGE>
-68-
Loan Documents and other instruments mentioned herein, including all title
insurance premiums and surveyor, engineering and appraisal charges,
environmental site assessment charges, and expenses associated with commercial
finance examinations, (e) all fees, disbursements of the Agent incurred by the
Agent in connection with the administration and maintenance of the Loan
Documents and other instruments mentioned herein, including any additional title
insurance premiums, appraisal charges, site assessment charges, and periodic
commercial financial examinations; and (f) all reasonable out-of-pocket expenses
(including without limitation reasonable attorneys' fees and costs, which
attorneys may be employees of any Bank or the Agent, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by any Bank or the Agent in connection with (i) the
enforcement of or preservation of rights under any of the Loan Documents against
the Borrower or any of its Subsidiaries or the administration thereof after the
occurrence of a Default or Event of Default and (ii) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to any
Bank's or the Agent's relationship with the Borrower or any of its Subsidiaries.
The covenants of this ss.15 shall survive payment or satisfaction of all other
Obligations.
SS.16. INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Agent and the Banks from and against any and all claims, actions
and suits whether groundless or otherwise, and from and against any and all
liabilities, losses, damages and expenses of every nature and character arising
out of this Credit Agreement or any of the other Loan Documents or the
transactions contemplated hereby (except to the extent arising from the gross
negligence of willful misconduct of the Agent or the applicable Bank) including,
without limitation, (a) any actual or proposed use by the Borrower or any of its
Subsidiaries of the proceeds of any of the Loans, (b) SRI, the Borrower or any
of its Subsidiaries entering into or performing this Credit Agreement or any of
the other Loan Documents or (c) with respect to SRI, the Borrower and its
Subsidiaries and their respective properties and assets, the violation of any
Environmental Law, the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threatened release of any Hazardous Substances
or any action, suit, proceeding or investigation brought or threatened with
respect to any Hazardous Substances (including, but not limited to, claims with
respect to wrongful death, personal injury or damage to property), in each case
including, without limitation, the reasonable fees and disbursements of counsel
and allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding. In litigation, or the preparation
therefor, the Banks and the Agent shall be entitled to select their own counsel
and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly
the reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Borrower under this ss.16 are unenforceable for any reason,
the Borrower hereby agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law. The
covenants contained in this ss.16 shall survive payment or satisfaction in full
of all other Obligations.
<PAGE>
-69-
SS.17. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein, in the Notes, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have
been relied upon by the Banks and the Agent, notwithstanding any investigation
heretofore or hereafter made by any of them, and shall survive the making by the
Banks of any of the Loans, as herein contemplated, and shall continue in full
force and effect so long as any amount due under this Credit Agreement or the
Notes or any of the other Loan Documents remains outstanding or any Bank has any
obligation to make any Loans, and for such further time as may be otherwise
expressly specified in this Credit Agreement. All statements contained in any
certificate or other paper delivered to any Bank or the Agent at any time by or
on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the Borrower or such Subsidiary hereunder.
SS.18. ASSIGNMENT AND PARTICIPATION.
SS.18.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided
herein, each Bank may assign to one or more Eligible Assignees all or a portion
of its interests, rights and obligations under this Credit Agreement (including
all or a portion of its Commitment Percentage and Commitment and the same
portion of the Loans at the time owing to it and the Notes held by it); PROVIDED
that (a) each of the Agent and (except in the case of an assignment to an
Affiliate of a Bank or if a Default or Event of Default has occurred and is
continuing) the Borrower shall have given its prior written consent to such
assignment, which consent, in the case of the Borrower and the Agent, will not
be unreasonably withheld, (b) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Bank's rights and obligations
under this Credit Agreement, (c) each assignment shall be in an amount of not
less than $5,000,000, (d) FNBB and its Affiliates shall retain, free of any such
assignment, an amount of its Commitment of not less than $3,000,000 and (e) the
parties to such assignment shall execute and deliver to the Agent, for recording
in the Register (as hereinafter defined), an Assignment and Acceptance,
substantially in the form of EXHIBIT D hereto (an "Assignment and Acceptance"),
together with any Notes subject to such assignment. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, (i) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank
shall, to the extent provided in such assignment and upon payment to the Agent
of the registration fee referred to in ss.18.3, be released from its obligations
under this Credit Agreement.
SS.18.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS;
COVENANTS. By executing and delivering an Assignment and Acceptance, the parties
to the assignment thereunder confirm to and agree with each other and the other
parties
<PAGE>
-70-
hereto as follows: (a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, the assigning Bank makes no representation or warranty,
express or implied, and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or mortgage; (b) the
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower and its Subsidiaries or
any other Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by the Borrower and its
Subsidiaries or any other Person primarily or secondarily liable in respect of
any of the Obligations of any of their obligations under this Credit Agreement
or any of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; (c) such assignee confirms that it has received a
copy of this Credit Agreement, together with copies of the most recent financial
statements referred to in ss.6.4 and ss.7.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (d) such assignee will,
independently and without reliance upon the assigning Bank, the Agent or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Credit Agreement; (e) such assignee represents and
warrants that it is an Eligible Assignee; (f) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Credit Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof or thereof, together with such powers
as are reasonably incidental thereto; (g) such assignee agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of this Credit Agreement are required to be performed by it as a Bank; and (h)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance.
SS.18.3. REGISTER. The Agent shall maintain a copy of each Assignment
and Acceptance delivered to it and a register or similar list (the "Register")
for the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to the
Banks from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower and the Banks at any reasonable time and from time to
time upon reasonable prior notice. Upon each such recordation, the assigning
Bank agrees to pay to the Agent a registration fee in the sum of $3,000.
SS.18.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment,
<PAGE>
-71-
the Agent shall (a) record the information contained therein in the Register,
and (b) give prompt notice thereof to the Borrower and the Banks (other than the
assigning Bank). Within five (5) Business Days after receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Agent, in
exchange for each surrendered Note, a new Note to the order of such Eligible
Assignee in an amount equal to the amount assumed by such Eligible Assignee
pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained some portion of its obligations hereunder, a new Note to the order of
the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such in Assignment and Acceptance and shall otherwise be substantially the form
of the assigned Notes. Within five (5) days of issuance of any new Notes
pursuant to this ss.18.4, the Borrower shall deliver an opinion of counsel,
addressed to the Banks and the Agent, relating to the due authorization,
execution and delivery of such new Notes and the legality, validity and binding
effect thereof, in form and substance satisfactory to the Banks. The surrendered
Notes shall be cancelled and returned to the Borrower.
SS.18.5. PARTICIPATIONS. Each Bank may sell participations to one or
more banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; PROVIDED
that (a) each such participation shall be in an amount of not less than
$5,000,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant or
reduce the amount of any commitment fees to which such participant is entitled
or extend any regularly scheduled payment date for principal or interest.
SS.18.6. DISCLOSURE. The Borrower agrees that in addition to
disclosures made in accordance with standard and customary banking practices any
Bank may disclose information obtained by such Bank pursuant to this Credit
Agreement to assignees or participants and potential assignees or participants
hereunder; PROVIDED that such assignees or participants or potential assignees
or participants shall agree (a) to treat in confidence such information unless
such information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
SS.18.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for
<PAGE>
-72-
purposes of granting consents or waivers or for purposes of agreeing to
amendments or other modifications to any of the Loan Documents or for purposes
of making requests to the Agent pursuant to ss.12.1 or ss.12.2, and the
determination of the Majority Banks shall for all purposes of this Agreement and
the other Loan Documents be made without regard to such assignee Bank's interest
in any of the Loans. If any Bank sells a participating interest in any of the
Loans to a participant, and such participant is the Borrower or an Affiliate of
the Borrower, then such transferor Bank shall promptly notify the Agent of the
sale of such participation. A transferor Bank shall have no right to vote as a
Bank hereunder or under any of the other Loan Documents for purposes of granting
consents or waivers or for purposes of agreeing to amendments or modifications
to any of the Loan Documents or for purposes of making requests to the Agent
pursuant to ss.12.1 or ss.12.2 to the extent that such participation is
beneficially owned by the Borrower or any Affiliate of the Borrower, and the
determination of the Majority Banks shall for all purposes of this Agreement and
the other Loan Documents be made without regard to the interest of such
transferor Bank in the Loans to the extent of such participation.
SS.18.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank
shall retain its rights to be indemnified pursuant to ss.16 with respect to any
claims or actions arising prior to the date of such assignment. If any assignee
Bank is not incorporated under the laws of the United States of America or any
state thereof, it shall, prior to the date on which any interest or fees are
payable hereunder or under any of the other Loan Documents for its account,
deliver to the Borrower and the Agent certification as to its exemption from
deduction or withholding of any United States federal income taxes. If any
Reference Bank transfers all of its interest, rights and obligations under this
Credit Agreement, the Agent shall, in consultation with the Borrower and with
the consent of the Borrower and the Majority Banks, appoint another Bank to act
as a Reference Bank hereunder. Anything contained in this ss.18 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion of its
interest and rights under this Credit Agreement (including all or any portion of
its Notes) to any of the twelve Federal Reserve Banks organized under ss.4 of
the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement
thereof shall release the pledgor Bank from its obligations hereunder or under
any of the other Loan Documents.
SS.18.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
SS.19. NOTICES, ETC. Except as otherwise expressly provided in this
Credit Agreement, all notices and other communications made or required to be
given pursuant to this Credit Agreement or the Notes shall be in writing and
shall be delivered in hand, mailed by United States registered or certified
first class mail, postage prepaid, sent by overnight courier, or sent by
telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or
postal service, addressed as follows:
<PAGE>
-73-
(a) if to the Borrower, at 10201 Main Street, Houston, Texas
77025, Attention: _______________, or at such other address
for notice as the Borrower shall last have furnished in
writing to the Person giving the notice;
(b) if to the Agent, at 100 Federal Street, 01-08-05, Boston,
Massachusetts 02110, USA, Attention: Brian F.X. Geraghty,
Vice President, or such other address for notice as the
Agent shall last have furnished in writing to the Person
giving the notice; and
(c) if to any Bank, at such Bank's address set forth on
SCHEDULE 1 hereto, or such other address for notice as such
Bank shall have last furnished in writing to the Person
giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
SS.20. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SS.20. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
SS.21. HEADINGS. The captions in this Credit Agreement are for
convenience of reference only and shall not define or limit the provisions
hereof.
SS.22. COUNTERPARTS. This Credit Agreement and any amendment hereof
may be executed in several counterparts and by eacH party on a separate
counterpart, each of which when executed and delivered shall be an original, and
all of which together shall constitute one instrument. In proving this Credit
Agreement it shall not
<PAGE>
-74-
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
SS.23. ENTIRE AGREEMENT, ETC. The Loan Documents and any other
documents executed in connection herewith or therewitH express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Credit Agreement nor any term hereof may be changed,
waived, discharged or terminated, except as provided in ss.25.
SS.24. WAIVER OF JURY TRIAL. The Borrower hereby waives its right to
a jury trial with respect to any action or claiM arising out of any dispute in
connection with this Credit Agreement, the Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of which rights and obligations. Except as prohibited by law, the Borrower
hereby waives any right it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. The Borrower (a) certifies that no representative, agent or attorney of
any Bank or the Agent has represented, expressly or otherwise, that such Bank or
the Agent would not, in the event of litigation, seek to enforce the foregoing
waivers and (b) acknowledges that the Agent and the Banks have been induced to
enter into this Credit Agreement, the other Loan Documents to which it is a
party by, among other things, the waivers and certifications contained herein.
SS.25. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval
required or permitted by this Credit Agreement to bE given by all of the Banks
may be given, and any term of this Credit Agreement, the other Loan Documents or
any other instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower or any of its Subsidiaries of any
terms of this Credit Agreement, the other Loan Documents or such other
instrument or the continuance of any Default or Event of Default may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Borrower and the
written consent of the Majority Banks. Notwithstanding the foregoing, the
reduction of the principal of or the rate of interest on the Notes (other than
interest accruing pursuant to ss.4.11 following the effective datE of any waiver
by the Majority Banks of the Default or Event of Default relating thereto), the
extension of the term of the Notes, any change in a date fixed for payment on
the Loans, the increase in the amount of the Commitments of the Banks, and the
decrease in the amount of commitment fee hereunder may not be changed without
the written consent of the Borrower and the written consent of each Bank
affected thereby; the definition of Majority Banks may not be amended without
the written consent of all of the Banks; and the amount of the Agent's Fee
payable for the Agent's account and ss.14 may not be amended without the written
consent of the Agent. No waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon. No course of dealing or
delay or omission on the part of the Agent or any Bank in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial
<PAGE>
-75-
thereto. No notice to or demand upon the Borrower shall entitle the Borrower to
other or further notice or demand in similar or other circumstances.
SS.26. SEVERABILITY. The provisions of this Credit Agreement are
severable and if any one clause or provision hereof shalL be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Credit
Agreement in any jurisdiction.
SS.27. TRANSITIONAL ARRANGEMENTS.
27.1. ORIGINAL CREDIT AGREEMENT SUPERSEDED. This Credit
Agreement shall on the Closing Date supersede the Original Credit Agreement in
its entirety, except as provided in this ss.27. On the Closing Date, the rights
and obligations of thE parties evidenced by the Original Credit Agreement shall
be evidenced by the Credit Agreement and the other Loan Documents and the
"Loans" as defined in the Original Credit Agreement shall be converted to Loans
as defined herein.
27.2. RETURN AND CANCELLATION OF NOTES. As soon as
reasonably practicable after its receipt of its Revolving Credit Note hereunder
on the Closing Date, the Banks will promptly return to the Borrower, marked
"Substituted" or "Cancelled", as the case may be, any notes of the Borrower held
by the Banks pursuant to the Original Credit Agreement.
27.3. INTEREST AND FEES UNDER SUPERSEDED AGREEMENT. All
interest and fees and expenses, if any, owing or accruing under or in respect of
the Original Credit Agreement through the Closing Date shall be calculated as of
the Closing Date (prorated in the case of any fractional periods), and shall be
paid in accordance with the method, and on the dates, specified in the Original
Credit Agreement, as if the Original Credit Agreement were still in effect.
Commencing on the Closing Date, the commitment fees shall be payable by the
Borrower to the Agent for the account of the Banks in accordance with ss.2.2.
hereof.
SS.28. COVENANT OF SSI. SSI covenants and agrees that, so long as any
Loan, Unpaid Reimbursement Obligation, or Note iS outstanding or any Bank has
any obligation to make any Loans, SSI will not (a) create or incur or suffer to
be created or incurred or to exist any lien, encumbrance, mortgage, pledge,
charge, restriction or other security interest of any kind upon any of the
capital stock of SRI, and, subsequent to the merger of SRI and the Borrower as
contemplated by ss.8.5.1. hereof, the capital stock oF the Borrower or (b)
transfer any of such capital stock for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors. The parties hereto hereby acknowledge and
agree that SSI is executing this Credit Agreement for the sole purpose of being
bound by the covenant contained in this ss.28.
<PAGE>
-76-
IN WITNESS WHEREOF, the undersigned have duly executed this Amended
and Restated Credit Agreement as a sealed instrument as of the date first set
forth above.
PALAIS ROYAL, INC.
By:____________________________________
Name: _________________________________
Title: ________________________________
SPECIALTY RETAILERS, INC.
By:____________________________________
Name: _________________________________
Title: ________________________________
STAGE STORES, INC.
By:____________________________________
Name: _________________________________
Title: ________________________________
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By:____________________________________
Name: Brian F.X. Geraghty
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By:____________________________________
Name: _________________________________
Title: ________________________________
<PAGE>
-77-
CREDITANSTALT-BANKVEREIN
By:____________________________________
Name: _________________________________
Title: ________________________________
BANQUE PARIBAS
By:____________________________________
Name: _________________________________
Title: ________________________________
CREDIT SUISSE FIRST BOSTON
By:____________________________________
Name: _________________________________
Title: ________________________________
DLJ CAPITAL FUNDING
By:____________________________________
Name: _________________________________
Title: ________________________________
THE FUJI BANK, LIMITED
By:____________________________________
Name: _________________________________
Title: ________________________________
HIBERNIA NATIONAL BANK
By:____________________________________
Name: _________________________________
Title: ________________________________
<PAGE>
Schedule 1
Commmittment of Committment
Banks Seasonal Revolver Percentage
First National Bank of Boston $2,666,667 26.66666667%
Union Bank of California, N.A. $2,000,000 20%
Creditanstalt-Bankverein $1,333,333 13.33333333%
Banque Paribas $800,000 8%
Credit Suisse First Boston $800,000 8%
DLJ Capital Funding $800,000 8%
The Fuji Bank, Limited $800,000 8%
Hibernia National Bank $800,000 8%
TOTAL $10,000,000 100%
EXHIBIT 4.2
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
by and among
\
STAGE STORES, INC.
SPECIALTY RETAILERS, INC.,
PALAIS ROYAL, INC.,
THE FIRST NATIONAL BANK OF BOSTON
and the other lending institutions listed
on SCHEDULE 1 hereto
and
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
January 31, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
SS.1. DEFINITION AND RULES OF INTERPRETATION
ss.1.1 Definitions........................................ 1
ss.1.2 Rules of Interpretation............................ 17
SS.2. THE REVOLVING CREDIT FACILITY
ss.2.1 Commitment to Lend................................. 18
ss.2.2 Commitment Fee..................................... 18
ss.2.3 Reduction of Total Commitment...................... 19
ss.2.4 The Revolving Credit Notes......................... 19
ss.2.5 Interest on Revolving Credit Loans................. 19
ss.2.6 Requests for Revolving Credit Loans................ 20
ss.2.7 Conversion Options................................. 20
2.7.1. Conversion to Different Type of Revolving
Credit Loan.............................. 20
2.7.2. Continuation of Type of Revolving Credit Loan 21
2.7.3 Eurodollar Rate Loans....................... 21
ss.2.8 Funds for Loan..................................... 21
2.8.1. Funding Procedures......................... 21
2.8.2. Advances by Agent.......................... 21
SS.3. REPAYMENT OF THE REVOLVING CREDIT LOANS
ss.3.1 Maturity........................................... 22
ss.3.2 Mandatory Repayments of Loans...................... 22
3.2.1. Exceeding Total Commitment................. 22
3.2.2. Cleanup Provision.......................... 22
ss.3.3 Optional Repayments of Loans....................... 23
SS.4. LETTERS OF CREDIT
ss.4.1 Letter of Credit Commitments....................... 23
4.1.1. Commitment to Issue Letters of Credit 23
4.1.1.1. General Provisions........................ 23
4.1.1.2 Commitment to Issue Stand Alone
Letters of Credit........................ 24
4.1.1.3. Commitment to Issue Revolver
Letters of Credit.......... 24
4.1.2. Letter of Credit Applications.............. 24
4.1.3. Terms of Letters of Credit................. 25
4.1.4. Reimbursement Obligations of Banks......... 25
4.1.5. Participations of Banks.................... 25
<PAGE>
-ii-
PAGE
4.1.6. Reduction of Total LC Commitment........... 25
ss.4.2 Reimbursement Obligation of the Borrower........... 25
ss.4.3 Letter of Credit Payments.......................... 26
ss.4.4 Obligations Absolute............................... 27
ss.4.5 Reliance by Issuer................................. 27
ss.4.6 Letter of Credit Fee............................... 28
ss.4.7 Commitment Fee on Stand Alone Letters of Credit 28
SS.5. CERTAIN GENERAL PROVISIONS
ss.5.1 Closing Fee........................................ 28
ss.5.2 Agent's Fee........................................ 29
ss.5.3 Funds for Payments................................. 29
5.3.1 Payments to Agent........................... 29
5.3.2 No Offset, etc.............................. 29
ss.5.4 Computations....................................... 29
ss.5.5 Inability to Determine Eurodollar Rate............. 29
ss.5.6 Illegality......................................... 30
ss.5.7 Additional Costs, Etc.............................. 30
ss.5.8 Capital Adequacy................................... 32
ss.5.9 Certificate........................................ 32
ss.5.10 Indemnity.......................................... 32
ss.5.11 Interest After Default............................. 32
ss.5.12 Interest Limitation................................ 33
SS.6. COLLATERAL SECURITY AND GUARANTIES
ss.6.1 Security of Borrower............................... 33
ss.6.2 Guaranties......................................... 34
ss.6.3 Guaranties and Security of Subsidiaries............ 34
ss.6.4 Termination of Security Interest................... 34
SS.7. REPRESENTATIONS AND WARRANTIES
ss.7.1 Corporate Authority................................ 34
7.1.1 Incorporation; Good Standing................ 34
7.1.2 Authorization............................... 34
7.1.3 Enforceability.............................. 35
ss.7.2 Governmental Approvals............................. 35
ss.7.3 Title to Properties; Leases........................ 35
ss.7.4 Financial Statements and Projections............... 35
7.4.1 Financial Statements........................ 35
7.4.2 Projections................................. 36
ss.7.5 No Material Changes, Etc........................... 36
ss.7.6 Franchises, Patents, Copyrights, Etc............... 36
ss.7.7 Litigation......................................... 36
<PAGE>
-iii-
PAGE
ss.7.8 No Materially Adverse Contracts, Etc............... 37
ss.7.9 Compliance with Other Instruments, Law, Etc. 37
ss.7.10 Tax Status......................................... 37
ss.7.11 No Event of Default................................ 37
ss.7.12 Holding Company and Investment Company Acts 37
ss.7.13 Absence of Financing Statements, Etc............... 38
ss.7.14 Perfection of Security Interest.................... 38
ss.7.15 Certain Transactions............................... 38
ss.7.16 Employee Benefit Plans............................. 38
7.16.1 In General................................. 38
7.16.2 Terminablility of Welfare Plans............ 38
7.16.3 Guaranteed Pension Plans................... 39
7.16.4 Multiemployer Plans........................ 39
ss.7.17 Regulations U and X................................ 39
ss.7.18 Environmental Compliance........................... 39
ss.7.19 Subsidiaries, Etc.................................. 41
ss.7.20 Senior Debt........................................ 42
ss.7.21 Fiscal Year........................................ 42
ss.7.22 Insurance.......................................... 42
SS.8. AFFIRMATIVE COVENANTS OF THE BORROWER
ss.8.1 Punctual Payment................................... 42
ss.8.2 Maintenance of Office.............................. 42
ss.8.3 Records and Accounts............................... 43
ss.8.4 Financial Statements, Certificates and Information 43
ss.8.5 Notices .......................................... 46
8.5.1 Defaults.................................... 46
8.5.2 Environmental Events........................ 46
8.5.3 Notification of Claim against Collateral 46
8.5.4 Notice of Litigation and Judgments.......... 47
ss.8.6 Corporate Existence; Maintenance of Properties 47
ss.8.7 Insurance.......................................... 47
ss.8.8 Taxes .......................................... 47
ss.8.9 Inspection of Properties and Books, Etc............ 48
8.9.1 General..................................... 48
8.9.2 Appraisals.................................. 48
8.9.3 Environmental Assessments................... 48
8.9.4 Communications with Accountants............. 49
ss.8.10 Compliance with Laws, Contracts,
Licenses and Permits............................. 49
ss.8.11 Employee Benefit Plans............................. 49
ss.8.12 Use of Proceeds.................................... 50
ss.8.13 Further Assurances................................. 50
<PAGE>
-iv-
PAGE
SS.9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER
ss.9.1 Restrictions on Indebtedness....................... 50
ss.9.2 Restrictions on Liens.............................. 52
ss.9.3 Restrictions on Investments........................ 53
ss.9.4 Distributions; Repayment........................... 54
ss.9.5 Merger, Consolidation and Disposition of Assets 55
9.5.1 Mergers and Acquisitions.................... 55
9.5.2 Disposition of Assets....................... 56
ss.9.6 Sale and Leaseback................................. 56
ss.9.7 Compliance with Environmental Laws................. 56
ss.9.8 Senior Note and Senior Subordinated Note Payments 57
ss.9.9 Changes in Terms of Senior Notes and Senior
Subordinated Notes......................... 57
ss.9.10 Employee Benefit Plans............................. 57
ss.9.11 Transactions with Affiliates....................... 58
ss.9.12 Fiscal Year........................................ 58
ss.9.13 Negative Pledges................................... 59
ss.9.14 Upstream Limitations............................... 59
SS.10. FINANCIAL COVENANT OF THE BORROWER
ss.10.1 Debt Service Ratio................................. 59
ss.10.2 Capital Expenditures............................... 60
ss.10.3 Total Funded Debt to EBITDA........................ 60
ss.10.4 Minimum EBITDA..................................... 60
ss.10.5 Current Assets..................................... 61
ss.10.6 Seasonal Debt Service Ratio........................ 61
SS.11. CLOSING CONDITIONS
ss.11.1 Loan Documents..................................... 61
ss.11.2 Certified Copies of Charter Documents.............. 61
ss.11.3 Corporate, Action.................................. 61
ss.11.4 Incumbency Certificate............................. 61
ss.11.5 Validity of Liens.................................. 62
ss.11.6 Title Search Results............................... 62
ss.11.7 Taxes .......................................... 62
ss.11.8 Title Insurance.................................... 62
ss.11.9 Certificates of Insurance.......................... 62
ss.11.10 Solvency Certificate............................... 62
ss.11.11 Opinion of Counsel................................. 63
ss.11.12 Payment of Fees.................................... 63
<PAGE>
-v-
PAGE
SS.12. CONDITIONS TO ALL BORROWINGS
ss.12.1. Representations True; No Event of Default.......... 63
ss.12.2. No Legal Impediment................................ 63
ss.12.3 Governmental Regulation............................ 63
ss.12.4 Proceedings and Documents.......................... 63
SS.13. EVENTS OF DEFAULT; ACCELERATION; ETC.
ss.13.1 Events of Default and Acceleration................. 64
ss.13.2 Termination of Commitments......................... 68
ss.13.3 Remedies........................................... 68
ss.13.4 Distribution of Collateral Proceeds................ 68
SS.14. SETOFF .......................................... 69
SS.15. THE AGENT
ss.15.1 Authorization...................................... 70
ss.15.2 Employees and Agents............................... 70
ss.15.3 No Liability....................................... 71
ss.15.4 No Representations................................. 71
ss.15.5 Payments........................................... 71
15.5.1. Payments to Agent......................... 71
15.5.2. Distribution by Agent..................... 71
15.5.3. Delinquent Banks.......................... 72
ss.15.6 Holders of Notes................................... 72
ss.15.7 Indemnity.......................................... 72
ss.15.8 Agent as Bank...................................... 73
ss.15.9 Resignation........................................ 73
ss.15.10 Notification of Defaults and Events of Default 73
ss.15.11 Duties in the Case of Enforcement.................. 73
SS.16. EXPENSES .......................................... 73
SS.17. INDEMNIFICATION............................................. 74
SS.18. SURVIVAL OF COVENANTS, ETC.................................. 75
SS.19. ASSIGNMENT AND PARTICIPATION................................ 75
ss.19.1 Conditions to Assignment by Banks.................. 75
ss.19.2 Certain Representations and Warranties;
Limitations; Covenants..................... 76
ss.19.3 Register........................................... 77
ss.19.4 New Notes.......................................... 77
<PAGE>
-vi-
PAGE
ss.19.5 Participations..................................... 77
ss.19.6 Disclosure......................................... 78
ss.19.7 Assignee or Participant Affiliated with the Borrower 78
ss.19.8 Miscellaneous Assignment Provisions................ 78
ss.19.9 Assignment by Borrower............................. 79
SS.20. NOTICES, ETC. .......................................... 79
SS.21. GOVERNING LAW .......................................... 79
SS.22. HEADINGS .......................................... 80
SS.23. COUNTERPARTS .......................................... 80
SS.24. ENTIRE AGREEMENT, ETC....................................... 80
SS.25. WAIVER OF JURY TRIAL........................................ 80
SS.26. CONSENTS, AMENDMENTS, WAIVERS, ETC.......................... 80
SS.27. SEVERABILITY .......................................... 81
SS.28. TRANSITIONAL ARRANGEMENTS................................... 81
ss.28.1 Original Credit Agreement Superseded............... 81
ss.28.2 Return and Cancellation of Notes................... 81
ss.28.3 Interest and Fees Under Superseded Agreement 82
SS.29. COVENANT OF SSI............................................. 82
<PAGE>
SCHEDULES
Schedule 1 Banks/Commitments
Schedule 6.3 Title to Properties; Leases
Schedule 6.7 Litigation
Schedule 6.14 Transactions with Affiliates
Schedule 6.15.3 ERISA Matters
Schedule 6.17 Environmental Matters
Schedule 6.18 Joint Ventures
Schedule 6.21 Insurance
Schedule 8.1 Indebtedness
Schedule 8.2 Liens
EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Loan Request
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Guaranty
<PAGE>
-8-
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of the
31st day of January, 1997, by and among STAGE STORES, INC. ("SSI"), a Delaware
corporation (for the limited purpose of ss.29 hereof only), SPECIALTY RETAILERS,
INC. ("SRI"), a Delaware corporation, PALAIS ROYAL, INC. (the "Borrower"), a
Texas corporation having its principal place of business at 10201 Main Street,
Houston, Texas 77025, and THE FIRST NATIONAL BANK OF BOSTON and the other
lending institutions listed on SCHEDULE 1 and THE FIRST NATIONAL BANK OF BOSTON
as agent for itself and such other lending institutions.
WHEREAS, pursuant to a Revolving Credit Agreement dated as of January 28,
1994 (as amended and in effect from time to time, the "Original Credit
Agreement") by and among SRI, the Borrower, certain of the Banks (as hereinafter
defined) and the Agent (as hereinafter defined), the Banks party thereto made
available revolving credit loans for general corporate and working capital
purposes; and
WHEREAS, the Borrower has requested, among other things, additional
financing to refinance certain Indebtedness and for general corporate and
working capital purposes, and the Banks are willing to provide such additional
financing on the terms and conditions set forth herein;
NOW, THEREFORE, SRI, the Borrower, the Banks and the Agent agree that on
the Closing Date the Original Credit Agreement is hereby amended and restated in
its entirety and shall remain in full force and effect only as set forth herein.
SS.1. DEFINITIONS AND RULES OF INTERPRETATION.
SS.1.1. DEFINITIONS. The following terms shall have the meanings set
forth in this ss.1 or elsewhere in the provisions of this Credit Agreement
referred to below:
ACQUISITION CAPITAL EXPENDITURES. Capital Expenditures made by SRI
or the Borrower and (a) funded by Indebtedness incurred or assumed by the
Borrower or SRI as permitted by ss.9.1(l) in connection with any
acquisition permitted by ss.9.5.1 or (b) which the Borrower can
demonstrate to the satisfaction of the Agent, pursuant to an officer's
certificate signed by an officer of the Borrower and completed with
sufficient detail, (i) were made in connection with an acquisition
permitted by ss.9.5.1 or the expansion of the Borrower's business if such
expansion is not considered an acquisition; and (ii) were made with
proceeds of a Loan; and (iii) do not exceed, in the aggregate, $10,000,000
during the term of this Credit Agreement.
<PAGE>
-9-
ADJUSTMENT DATE. The first day of the next calendar month
immediately following the day in which a Compliance Certificate is to be
delivered by the Borrower pursuant to ss.8.4(e).
AFFILIATE. Any Person that would be considered to be an affiliate of
the Borrower under Rule 144(a) of the Rules and Regulations of the
Securities and Exchange Commission, as in effect on the date hereof, if
the Borrower were issuing securities.
AGENT'S HEAD OFFICE. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the
Agent may designate from time to time.
AGENT. The First National Bank of Boston acting as agent for the
Banks.
AGENT'S FEE. See ss.5.2.
AGENT'S SPECIAL COUNSEL. Bingham, Dana & Gould LLP or such other
counsel as may be approved by the Agent.
APPLICABLE MARGIN. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a
"Rate Adjustment Period"), the Applicable Margin shall be the applicable
margin set forth below with respect to the Borrower's Debt Service Ratio,
as determined for the fiscal period of the Borrower and its Subsidiaries
ending immediately prior to the applicable Rate Adjustment Period.
- --------------------------------------------------------------------------------
Base Rate Eurodollar Letters of
TIER Debt Service Ratio Loans Rate Loans Credit
- --------------------------------------------------------------------------------
1 Less than 1.10:1.00 1 1/2% 2 3/4% 2 3/4%
- --------------------------------------------------------------------------------
2 Equal to or greater than 1 1/4% 2 1/2% 2 1/2%
1.10:1.00 but less than
1.30:1.00
- --------------------------------------------------------------------------------
3 Equal to or greater than 1% 2 1/4% 2 1/4%
1:30:1.00 but less than
1.50:1.00
- --------------------------------------------------------------------------------
4 Equal to or greater than 3/4% 2% 2%
1:50:1.00 but less than
1.70:1.00
- --------------------------------------------------------------------------------
5 Equal to or greater than 1/2% 1 3/4% 1 3/4%
1.70:1.00
- --------------------------------------------------------------------------------
Notwithstanding the foregoing, (a) for Loans outstanding and the
Letter of Credit Fees payable during the period commencing on the Closing
Date through the date immediately preceding the Adjustment Date occuring
after the fiscal quarter ending April 30, 1997, the Applicable Margin
shall be the Applicable Margin set forth in Tier 3; (b) in the event the
Debt Service Ratio reflected in the financial statements delivered with
the Compliance Certificate pursuant to ss.8.4(a) differs from such ratio
in the financial statements delivered
<PAGE>
-10-
pursuant to ss.8.4(b) for the fiscal quarter which is the last fiscal
quarter of a fiscal year, then the Debt Service Ratio as reflected in the
financial statements delivered pursuant to ss.8.4(a) shall govern from and
after the date of delivery of such financial statement pursuant to
ss.8.4(a); and (c) if the Borrower fails to deliver any Compliance
Certificate pursuant to ss.8.4(e) hereof of if a Default or Event of
Default has occurred and is continuing, then, for the period commencing on
the next Adjustment Date to occur subsequent to such failure or occurrence
through the date immediately following the date on which such Compliance
Certificate is delivered or such Default or Event of Default has been
cured or waived, as the case may be, the Applicable Margin shall be the
highest Applicable Margin set forth above.
ASSIGNMENT AND ACCEPTANCE. See ss.19.1.
BALANCE SHEET DATE. November 2, 1996.
BANKS. FNBB and the other lending institutions listed on SCHEDULE 1
hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to ss.19.
BASE RATE. The higher of (a) the annual rate of interest announced
from time to time by FNBB at its head office in Boston, Massachusetts, as
its "base rate" and (b) one-half of one percent (1/2%) above the Federal
Funds Effective Rate. For the purposes of this definition, "Federal Funds
Effective Rate" shall mean for any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers,
as published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by
the Agent from three funds brokers of recognized standing selected by the
Agent.
BASE RATE LOANS. Loans bearing interest calculated by reference to
the Base Rate.
BORROWER. As defined in the preamble hereto.
BUSINESS DAY. Any day on which banking institutions in Boston,
Massachusetts, are open for the transaction of banking business and, in
the case of Eurodollar Rate Loans, also a day which is a Eurodollar
Business Day.
CAPITAL ASSETS. Fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as
patents, copyrights, trademarks, franchises and good will) and including
the capital stock or other equity interests of another Person; PROVIDED
that Capital Assets shall not
<PAGE>
-11-
include any item customarily charged directly to expense or depreciated
over a useful life of twelve (12) months or less in accordance with
Generally Accepted Accounting Principles.
CAPITAL EXPENDITURES. Without duplication, amounts paid or
indebtedness incurred by SRI or any of its Subsidiaries in connection with
the purchase or lease under Capitalized Leases by SRI or any of its
Subsidiaries of Capital Assets that would be required to be capitalized
and shown on the balance sheet of such Person in accordance with Generally
Accepted Accounting Principles.
CAPITALIZED LEASES. Leases under which SRI or any of its
Subsidiaries is the lessee or obligor, the discounted future rental
payment obligations under which are required to be capitalized on the
balance sheet of the lessee or obligor in accordance with Generally
Accepted Accounting Principles.
CERCLA. See ss.7.18.
CLOSING DATE. The first date on which the conditions set forth in
ss.11 have been satisfied.
CODE. The Internal Revenue Code of 1986.
COLLATERAL. All of the property, rights and interests of the
Borrower and its Subsidiaries that are or are intended to be subject to
the security interests and mortgages created by the Security Documents.
COMMITMENT. With respect to each Bank, the amount set forth on
SCHEDULE 1 hereto as the amount of such Bank's commitment to make Loans
to, and to participate in the issuance, extension and renewal of the
Revolver Letters of Credit for the account of, the Borrower, as the same
may be reduced from time to time; or if such commitment is terminated
pursuant to the provisions hereof, zero.
COMMITMENT PERCENTAGE. With respect to each Bank, the percentage set
forth on SCHEDULE 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.
COMPLIANCE CERTIFICATE. See ss.8.4(e).
CONSOLIDATED OR CONSOLIDATED. With reference to any term defined
herein, shall mean that term as applied to the accounts of SRI, the
Borrower and their Subsidiaries, consolidated in accordance with Generally
Accepted Accounting Principles.
<PAGE>
-12-
CONSOLIDATED CURRENT ASSETS. All assets of SRI, the Borrower and
their Subsidiaries on a consolidated basis that, in accordance with
Generally Accepted Accounting Principles are properly classified as
current assets, PROVIDED that (a) notes and accounts receivable shall be
included only if good and collectible as determined by SRI or the
Borrower in accordance with the Borrower's established practice
consistently applied and, with respect to such notes, only if payable on
demand or within one (1) year from the date as of which Consolidated
Current Assets are to be determined and if not directly or indirectly
renewable or extendible at the option of the debtors, by their terms, or
by the terms of any instrument or agreement relating thereto, beyond one
(1) year, and, with respect to such accounts receivable, only if payable
on terms which are determined by SRI or the Borrower in accordance with
established credit terms consistently applied; and such notes and
accounts receivable shall be taken at their face value less reserves
determined to be sufficient in accordance with Generally Accepted
Accounting Principles; and (ii) inventory shall be included only if and
to the extent that the same shall consist of saleable finished goods
ready and available for shipment to purchasers thereof or saleable
finished goods available for shipment and located on the Mortgaged
Property or classified as "in transit" consistent with the Borrower's
past practices.
CONSOLIDATED CURRENT LIABILITIES. All liabilities of SRI, the
Borrower and their Subsidiaries on a consolidated basis maturing on demand
or within one (1) year from the date as of which Consolidated Current
Liabilities are to be determined, and such other liabilities as may
properly be classified as current liabilities in accordance with Generally
Accepted Accounting Principles; provided, however that Consolidated
Current Liabilities shall exclude outstanding Loans and the principal
amount of the loans outstanding under the Seasonal Revolving Agreement.
CONSOLIDATED FINANCIAL OBLIGATIONS. With respect to any fiscal
period, an amount equal to the sum of all scheduled and other mandatory
principal payments in respect of Indebtedness of SRI, the Borrower and its
Subsidiaries paid or due and payable in such period, including without
limitation the principal portion of all payments in respect of Capitalized
Leases of SRI, the Borrower and their Subsidiaries paid or due and payable
in such period. Demand obligations shall be deemed to be due and payable
during any fiscal quarter during which such obligations are outstanding.
CONSOLIDATED NET INCOME. The consolidated net income (or deficit) of
SRI, the Borrower and their Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with Generally
Accepted Accounting Principles, after eliminating therefrom all
extraordinary nonrecurring items of income or expense.
<PAGE>
-13-
CONSOLIDATED OPERATING CASH FLOW. For any period, an amount equal to
(a) EBITDA for such period, LESS (b) the sum of (i) cash payments for all
income taxes paid during such period, calculated on a consolidated basis,
PLUS (ii) Capital Expenditures made by SRI or any of its Subsidiaries
during such period other than Acquisition Capital Expenditures, PLUS (iii)
without duplication of amounts included in Capital Expenditures, the cash
portion of the purchase price for the assets purchased in any acquisition
permitted pursuant to ss.9.5.1 and paid in such period, PLUS (iv)
distributions to SRI (including distributions for income taxes) not
otherwise deducted in calculating Consolidated Net Income.
CONSOLIDATED TOTAL INTEREST EXPENSE. For any period, the aggregate
amount of interest required to be paid or accrued by SRI, the Borrower and
their Subsidiaries during such period on all Indebtedness of SRI, the
Borrower and their Subsidiaries outstanding during all or any part of such
period, other than interest accrued on the Junior Subordinated Notes,
whether such interest was or is required to be reflected as an item of
expense or capitalized, including payments consisting of interest in
respect of Capitalized Leases and including commitment fees, agency fees,
facility fees and similar fees or expenses in connection with the
borrowing of money, LESS interest income actually received in the period.
CONVERSION REQUEST. A notice given by the Borrower to the Agent of
the Borrower's election to convert or continue a Loan in accordance with
ss.2.7.
CREDIT AGREEMENT. This Amended and Restated Revolving Credit
Agreement, including the Schedules and Exhibits hereto.
DEBT SERVICE. The sum of Consolidated Total Interest Expense PLUS
Consolidated Financial Obligations.
DEBT SERVICE RATIO. At any time and for any period, the ratio of
Consolidated Operating Cash Flow to Debt Service.
DEFAULT. See ss.13.1.
DISTRIBUTION. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of any Person, other
than dividends payable solely in shares of common stock of such Person;
the purchase, redemption, or other retirement of any shares of any class
of capital stock of any Person, directly or indirectly through a
Subsidiary of such Person or otherwise; the return of capital by any
Person to its shareholders as such; or any other distribution on or in
respect of any shares of any class of capital stock of any Person.
DOLLARS or $. Dollars in lawful currency of the United States of
America.
<PAGE>
-14-
DOMESTIC LENDING OFFICE. Initially, the office of each Bank
designated as such in SCHEDULE 1 hereto; thereafter, such other office of
such Bank, if any, located within the United States that will be making or
maintaining Base Rate Loans.
DRAWDOWN DATE. The date on which any Loan is made or is to be made,
and the date on which any Loan is converted or continued in accordance
with ss.2.7.
EBITDA. With respect to any fiscal period, an amount calculated on a
consolidated basis equal to the sum of (a) Consolidated Net Income for
such period, PLUS (b) all depreciation and all amortization for such
period (excluding amortization related to interest expense previously
added in calculating Consolidated Net Income), PLUS (c) without
duplication, other noncash charges made in calculating Consolidated Net
Income for such period, PLUS (d) without duplication, tax expense for such
period, PLUS (e) without duplication, Consolidated Total Interest Expense
paid or accrued during such period.
ELIGIBLE ASSIGNEE. Any of (a) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000;
(b) a savings and loan association or savings bank organized under the
laws of the United States, or any State thereof or the District of
Columbia, and having a net worth of at least $100,000,000, calculated in
accordance with Generally Accepted Accounting Principles; (c) a commercial
bank organized under the laws of any other country which is a member of
the Organization for Economic Cooperation and Development (the "OECD"), or
a political subdivision of any such country, and having total assets in
excess of $1,000,000,000, PROVIDED that such bank is acting through a
branch or agency located in the country in which it is organized or
another country which is also a member of the OECD; (d) the central bank
of any country which is a member of the OECD; and (e) if, but only if, any
Event of Default has occurred and is continuing, any other bank, insurance
company, commercial finance company or other financial institution or
other Person approved by the Agent, such approval not to be unreasonably
withheld.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning
of ss.3(3) of ERISA maintained or contributed to by SRI or the Borrower,
other than a Guaranteed Pension Plan or a Multiemployer Plan.
ENVIRONMENTAL LAWS. See ss.7.18(a).
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA AFFILIATE. Any Person which is treated as a single employer
with the Borrower under ss.414 of the Code.
<PAGE>
-15-
ERISA REPORTABLE EVENT. A reportable event with respect to a
Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice
has not been waived.
EUROCURRENCY RESERVE RATE. For any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any lender
subject thereto would be required to maintain reserves under Regulation D
of the Board of Governors of the Federal Reserve System (or any successor
or similar regulations relating to such reserve requirements) against
"Eurocurrency Liabilities" (as that term is used in Regulation D), if such
liabilities were outstanding. The Eurocurrency Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in
the Eurocurrency Reserve Rate.
EURODOLLAR BUSINESS DAY. Any day on which commercial banks are open
for international business (including dealings in Dollar deposits) in
London or such other eurodollar interbank market as may be selected by the
Agent in its sole discretion acting in good faith.
EURODOLLAR LENDING OFFICE. Initially, the office of each Bank
designated as such in SCHEDULE 1 hereto; thereafter, such other office of
such Bank, if any, that shall be making or maintaining Eurodollar Rate
Loans.
EURODOLLAR RATE. For any Interest Period with respect to a
Eurodollar Rate Loan, the rate of interest equal to (a) the per annum rate
at which the Reference Bank's Eurodollar Lending Office is offered Dollar
deposits two (2) Eurodollar Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar
and foreign currency and exchange operations of such Eurodollar Lending
Office are customarily conducted, for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of the Eurodollar Rate Loan of the Reference Bank
to which such Interest Period applies, divided by (b) a number equal to
1.00 minus the Eurocurrency Reserve Rate.
EURODOLLAR RATE LOANS. Loans bearing interest calculated by
reference to the Eurodollar Rate.
EVENT OF DEFAULT. See ss.13.1.
FEE LETTER. The Fee Letter dated on or prior to the Closing Date
between the Borrower and the Agent, and in form and substance satisfactory
to the Agent.
<PAGE>
-16-
FNBB. The First National Bank of Boston, a national banking
association, in its individual capacity.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (a) When used in ss.10,
whether directly or indirectly through reference to a capitalized term
used therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year including the Balance Sheet
Date, and (ii) to the extent consistent with such principles, the
accounting practice of the Borrower reflected in its financial statements
for the fiscal year including the Balance Sheet Date, and (b) when used in
general, other than as provided above, means principles that are (i)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to
time, and (ii) consistently applied with past financial statements of the
Borrower adopting the same principles, provided that in each case referred
to in this definition of "Generally Accepted Accounting Principles" a
certified public accountant would, insofar as the use of such accounting
principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in Generally
Accepted Accounting Principles) as to financial statements in which such
principles have been properly applied.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within
the meaning of ss.3(2) of ERISA maintained or contributed to by SRI, the
Borrower or any ERISA Affiliate the benefits of which are guaranteed on
termination in full or in part by the PBGC pursuant to Title IV of ERISA,
other than a Multiemployer Plan.
GUARANTY. The Amended and Restated Guaranty, dated or to be dated on
or prior to the Closing Date, made by SRI in favor of the Banks and the
Agent pursuant to which SRI guaranties to the Banks and the Agent the
payment and performance of the Obligations and in substantially the form
of EXHIBIT E hereto.
HAZARDOUS SUBSTANCES. See ss.7.18(b).
INDEBTEDNESS. All obligations, contingent and otherwise, that in
accordance with Generally Accepted Accounting Principles should be
classified upon the obligor's balance sheet as liabilities, or to which
reference should be made by footnotes thereto, including in any event and
whether or not so classified: (a) all debt and similar monetary
obligations, whether direct or indirect; (b) all liabilities secured by
any mortgage, pledge, security interest, lien, charge or other encumbrance
existing on property owned or acquired subject thereto, whether or not the
liability secured thereby shall have been assumed; and (c) all guarantees,
endorsements and other contingent obligations whether direct or indirect
in respect of indebtedness of others, including any obligation to supply
funds to or in any manner to invest in, directly or indirectly, the
debtor, to purchase indebtedness, or to assure the owner of indebtedness
<PAGE>
-17-
against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling the debtor to make payment of the
indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
INTEREST PAYMENT DATE. (a) As to any Base Rate Loan, the last day of
each fiscal quarter for such fiscal quarter; and (b) as to any Eurodollar
Rate Loan in respect of which the Interest Period is (i) three (3) months
or less, the last day of such Interest Period and (ii) more than three (3)
months, the date that is three (3) months from the first day of such
Interest Period and, in addition, the last day of such Interest Period.
INTEREST PERIOD. With respect to each Loan, (a) initially, the
period commencing on the Drawdown Date of such Loan and ending on the last
day of one of the periods set forth below (with respect to a Eurodollar
Rate Loan, as selected by the Borrower in a Loan Request) (i) for any Base
Rate Loan, the last day of the fiscal quarter; and (ii) for any Eurodollar
Rate Loan, 1, 2, 3, or 6 months; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods
set forth above, as selected by the Borrower in a Conversion Request;
PROVIDED that all of the foregoing provisions relating to Interest Periods
are subject to the following:
(A) if any Interest Period with respect to a Eurodollar Rate
Loan would otherwise end on a day that is not a Eurodollar Business
Day, that Interest Period shall be extended to the next succeeding
Eurodollar Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Eurodollar Business Day;
(B) if any Interest Period with respect to a Base Rate Loan
would end on a day that is not a Business Day, that Interest Period
shall end on the next succeeding Business Day;
(C) if the Borrower shall fail to give notice as provided in
ss.2.7, the Borrower shall be deemed to have requested a conversion
of the affected Eurodollar Rate Loan to a Base Rate Loan and the
continuance of all Base Rate Loans as Base Rate Loans on the last
day of the then current Interest Period with respect thereto;
(D) any Interest Period relating to any Eurodollar Rate Loan
that begins on the last Eurodollar Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall end on
the last Eurodollar Business Day of a calendar month; and
<PAGE>
-18-
(E) any Interest Period relating to any Eurodollar Rate Loan
that would otherwise extend beyond the Maturity Date shall end on
the Maturity Date.
INVESTMENTS. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness
of, or for loans, advances, capital contributions or transfers of property
to, or in respect of any guaranties (or other commitments as described
under Indebtedness), or obligations of, any Person. In determining the
aggregate amount of Investments outstanding at any particular time: (a)
the amount of any Investment represented by a guaranty shall be taken at
the principal amount of the obligations guaranteed and still outstanding;
(b) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution);
(c) there shall not be deducted in respect of any Investment any amounts
received as earnings on such Investment, whether as dividends, interest or
otherwise; and (d) there shall not be deducted from the aggregate amount
of Investments any decrease in the value thereof.
JUNIOR SUBORDINATED NOTES. Collectively, the subordinated promissory
notes issued by SRI or the Borrower to SSI evidencing subordinated
intercompany loans from SSI to SRI or the Borrower, as the case may be,
which notes shall contain terms, conditions and subordination provisions
acceptable to the Agent, including, without limitation, no cash payments
of interest or principal prior to December 31, 2003.
LC COMMITMENT. With respect to each Bank, the amount set forth on
SCHEDULE 1 hereto as the amount of such Bank's commitment to participate
in the issuance, extension and renewal of the Stand Alone Letters of
Credit for the account of the Borrower, as the same may be reduced from
time to time; or if such commitment is terminated pursuant to the
provisions hereof, zero.
LC COMMITMENT PERCENTAGE. With respect to each Bank, the percentage
set forth on SCHEDULE 1 hereto as such Bank's percentage of the aggregate
LC Commitments of all the Banks.
LETTER OF CREDIT. Any of the Revolver Letters of Credit and/or the
Stand Alone Letters of Credit.
LETTER OF CREDIT APPLICATION. See ss.4.1.1.
LETTER OF CREDIT PARTICIPATION. See ss.4.1.4.
LOAN DOCUMENTS. This Credit Agreement, the Notes, the Letter of
Credit Applications, the Letters of Credit, and the Security Documents.
<PAGE>
-19-
LOAN REQUEST. See ss.2.6.
LOANS. Revolving credit loans made or to be made by the Banks to the
Borrower pursuant to ss.2.
MAJORITY BANKS. As of any date, the Banks whose Outstanding Loans
and Letter of Credit Participations equal at least sixty-six and
two-thirds percent (66 2/3%) of the sum of (a) the aggregate outstanding
principal amount of the Notes on such date PLUS (b) the aggregate
Reimbursement Obligations and Unpaid Reimbursement Obligations on Stand
Alone Letters of Credit PLUS (c) the Maximum Drawing Amount on all issued
and outstanding Stand Alone Letters of Credit; and if no such principal is
Outstanding, the Banks whose aggregate Commitments constitute at least
sixty-six and two-thirds percent (66 2/3%) of the sum of the Total
Commitment plus the Total LC Commitment.
MATURITY DATE. January 29, 2000.
MAXIMUM DRAWING AMOUNT. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as
such aggregate amount may be reduced from time to time pursuant to the
terms of the Letters of Credit.
MORTGAGE. The deed of trust, dated as of January 28, 1994, from the
Borrower to the Agent with respect to the fee interest of the Borrower in
the Mortgaged Property, as amended pursuant to the First Amendment to
Mortgage dated as of the date hereof.
MORTGAGED PROPERTY. The Borrower's Real Estate located in
Jacksonville, Texas and all buildings, improvements, fixtures and
equipment thereon which is subject to and more particularly described in
the Mortgage.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of
ss.3(37) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate.
NOTES. The Revolving Credit Notes.
OBLIGATIONS. All indebtedness, obligations and liabilities of any of
SRI, the Borrower and its Subsidiaries to any of the Banks and the Agent,
individually or collectively, existing on the date of this Credit
Agreement or arising thereafter, direct or indirect, joint or several,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise,
provided that such indebtedness, obligations or liabilities arise or are
incurred under this Credit Agreement or any of the other Loan Documents or
in respect of any of the Loans
<PAGE>
-20-
made or Reimbursement Obligations incurred or any of the Notes, Letter of
Credit Application, Letter of Credit or other instruments at any time
evidencing any thereof. For the avoidance of doubt, the term Obligations
does not include any indebtedness, obligations and/or liabilities of any
of SRI, the Borrower and its Subsidiaries to any of the Seasonal Revolver
Banks or the Seasonal Revolver Agent arising or incurred under the
Seasonal Revolving Agreement.
OUTSTANDING. With respect to the Loans, the aggregate unpaid
principal thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of
ERISA and any successor entity or entities having similar
responsibilities.
PERMITTED LIENS. Liens, security interests and other encumbrances
permitted by ss.9.2.
PERSON. Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and any
government or any governmental agency or political subdivision thereof.
POOLING AND SERVICING AGREEMENT. The Amended and Restated Pooling
and Servicing Agreement, dated as of August 11, 1995, among the
Receivables Subsidiary, as Transferor, SRI, as Servicer and Bankers Trust
(Delaware), as trustee in the form of the counterpart previously delivered
to the Agent, including all supplements and amendments thereto, whether
entered into prior to or after the Closing Date.
RATE ADJUSTMENT PERIOD. As defined in the definition of Applicable
Margin.
REAL ESTATE. All real property at any time owned or leased (as
lessee or sublessee) by the Borrower or any of its Subsidiaries.
RECEIVABLES PURCHASE AGREEMENT. The Amended and Restated
Receivables Purchase Agreement by and among the Borrower and the
Receivables Subsidiary dated as of May 30, 1996.
RECEIVABLES SUBSIDIARY. SRI Receivables Purchase Co., Inc., a
Delaware corporation.
RECEIVABLES SUBSIDIARY NOTES. The promissory notes issued by the
Receivables Subsidiary on May 30, 1996 in the aggregate principal amount
of not more than $30,000,000, and which notes are secured by the
Transferor Retained Certificates (as such term is defined in the Pooling
and Servicing Agreement) and/or rights in the Transferor Interest (as such
term is defined in
<PAGE>
-21-
the Pooling and Servicing Agreement) and are in form and substance
reasonably satisfactory to the Agent.
RECORD. The grid attached to a Note, or the continuation of such
grid, or any other similar record, including computer records, maintained
by any Bank with respect to any Loan referred to in such Note.
REFERENCE BANK. FNBB.
REIMBURSEMENT OBLIGATION. The Borrower's obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit
as provided in ss.4.2.
REPURCHASE AMOUNT. See ss.9.8.
REPURCHASE DATE. See ss.9.8.
REVOLVER LETTERS OF CREDIT. See ss.4.1.1.2.
REVOLVING CREDIT NOTE RECORD. A Record with respect to a Revolving
Credit Note.
REVOLVING CREDIT NOTES. See ss.2.4.
SEASONAL DEBT SERVICE RATIO. For any period consisting of the
immediately preceding twelve (12) fiscal months (treated as a single
accounting period) from such test date of SRI and its Subsidiaries, the
ratio of Consolidated Operating Cash Flow to Debt Service.
SEASONAL REVOLVING AGREEMENT. The Amended and Restated Revolving
Credit Agreement dated as of the date hereof among SSI, SRI, the Borrower,
The First National Bank of Boston and the other lending institutions
listed on SCHEDULE 1 thereto (the "Seasonal Revolver Banks") and The First
National Bank of Boston as agent for the Seasonal Revolver Banks (the
"Seasonal Revolver Agent"), as the same may be amended, restated, modified
or supplemented from time to time, pursuant to which the Seasonal Revolver
Banks have agreed, subject to the terms and conditions contained therein,
to make loans available to the Borrower in the aggregate principal amount
of not more than $10,000,000.
SRI. As defined in the preamble hereto.
SECURITY AGREEMENT. The Amended and Restated Security Agreement,
dated or to be dated on or prior to the Closing Date, among the Borrower,
SRI and the Agent and in substantially the form of EXHIBIT G hereto.
<PAGE>
-22-
SECURITY DOCUMENTS. The Guaranty, the Mortgage, the Security
Agreement, the Trademark Agreements and the Stock Pledge Agreement.
SENIOR NOTES. The 10% Series A Senior Notes Due 2000 and the 10%
Series B Senior Notes Due 2000, issued pursuant to the Senior Notes
Indenture.
SENIOR NOTES INDENTURE. The Indenture, dated as of August 2, 1993,
entered into by SRI, the Borrower and The First National Bank of Boston as
Trustee in connection with the issuance of the Senior Notes, in the form
of the counterpart previously delivered to the Agent, and as amended,
supplemented or modified from time to time as permitted by ss.9.9.
SENIOR SUBORDINATED NOTES. The 11% Series A Senior Subordinated
Notes Due 2003 and the 11% Series B Senior Subordinated Notes Due 2003,
issued pursuant to the Senior Subordinated Notes Indenture.
SENIOR SUBORDINATED NOTES INDENTURE. The Indenture, dated as of
August 2, 1993, entered into by SRI, the Borrower and The First National
Bank of Boston as Trustee in connection with the issuance of the Senior
Subordinated Notes, in the form of the counterpart previously delivered to
the Agent, and as amended, supplemented or modified from time to time as
permitted by ss.9.9.
SRI INDENTURE CONSENT. The Consent Solicitation Statement of SRI
dated October 1, 1996, which sets forth the amendments to each of the
Senior Notes Indenture, the Senior Subordinated Notes Indenture and the
SRI Subordinated Notes Indenture in the form delivered to the Agent on
October 8, 1996.
SRI SUBORDINATED NOTES. The 11% Series C Senior Subordinated Notes
Due 2003 and the 11% Series D Senior Subordinated Notes Due 2003, issued
pursuant to the SRI Subordinated Notes Indenture in an aggregate principal
amount not to exceed $18,250,000.
SRI SUBORDINATED NOTES INDENTURE. The Indenture, dated as of July
27, 1995, entered into between SRI and The First National Bank of Boston
as Trustee in connection with the issuance of the SRI Subordinated Notes,
in the form of the counterpart previously delivered to the Agent, and as
amended, supplemented or modified from time to time as permitted by
ss.9.9.
STAND ALONE LETTER OF CREDIT. see ss.4.1.1.1.
STOCK PLEDGE AGREEMENT. The Amended and Restated Stock Pledge
Agreement, dated or to be dated on or prior to the Closing Date, between
the Borrower and the Agent and in substantially the form of EXHIBIT F
hereto.
SUBORDINATED DEBT. The Senior Subordinated Notes, the SRI
Subordinated Notes and such other unsecured Indebtedness of SRI, the
<PAGE>
-23-
Borrower or any of its Subsidiaries that is consented to by the Majority
Banks in their sole discretion and is expressly subordinated and made
junior to the payment and performance in full of the Obligations, and
evidenced as such by a written instrument containing subordination
provisions in form and substance approved by the Banks in writing.
SUBSIDIARY. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by
number of votes) of the outstanding Voting Stock.
SURVEY. In relation to the Mortgaged Property, an instrument survey
of the Mortgaged Property dated as of a date subsequent to January 1,
1994, which shall show the location of all buildings, structures,
easements and utility lines on the Mortgaged Property, shall be sufficient
to remove the survey exception from the Title Policy, shall show that all
buildings and structures are within the lot lines of the Mortgaged
Property, shall not show any encroachments by others, shall show the
zoning district or districts in which the Mortgaged Property is located in
a flood hazard district as established by the Federal Emergency Management
Agency or any successor agency or is located in any flood plain, flood
hazard or wetland protection district established under federal, state or
local law.
SURVEYOR CERTIFICATE. In relation to the Mortgaged Property for
which a Survey has been conducted, a certificate executed by the surveyor
who prepared the Survey dated as of a recent date and containing such
information relating to the Mortgaged Property as the Agent or the Title
Insurance Company may require, such certificate to be satisfactory to the
Agent in form and substance.
TITLE COMMITMENT. In relation to the Mortgaged Property, the ALTA
standard form title insurance commitment issued by the Title Insurance
Company (with commitments for such reinsurance or co-insurance as the
Agent may require, any such reinsurance to be with direct access
endorsements) insuring the priority of the Mortgage of the Mortgaged
Property and that the Borrower holds marketable fee simple title to the
Mortgaged Property, subject only to the encumbrances permitted by the
Mortgage and which does not contain exceptions for mechanics liens,
persons in occupancy or matters which would be shown by a survey (except
as may be permitted by the Mortgage), does not commit to insure over any
matter except to the extent that any such affirmative insurance is
acceptable to the Agent in its sole discretion, and contains such
endorsements and affirmative commitment for insurance as the Agent in its
discretion may require, including but not limited to (a) comprehensive
endorsement, (b) variable rate of interest endorsement, (c) usury
endorsement, (d) revolving credit endorsement, (e) doing business
endorsement and (f) ALTA form 3.1 zoning endorsement.
<PAGE>
-24-
TITLE INSURANCE COMPANY shall mean the Cherokee County Title Co.,
Inc.
TOTAL COMMITMENT. The sum of the Commitments of the Banks, as in
effect from time to time.
TOTAL FUNDED INDEBTEDNESS. All Indebtedness of SRI, the Borrower and
their Subsidiaries for borrowed money (other than Indebtedness consisting
of the Loans and Indebtedness consisting of the "Loans" as such term is
defined in the Seasonal Revolving Agreement), purchase money Indebtedness
evidenced by notes or bonds, and with respect to Capitalized Leases,
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles.
TOTAL LC COMMITMENT. The sum of the LC Commitments of the Banks,
as in effect from time to time.
TRADEMARK AGREEMENTS. The Amended and Restated Trademark Collateral
Security and Pledge Agreements, each dated or to be dated on or prior to
the Closing Date, between the Borrower and the Agent and SRI and the Agent
and in substantially the form of EXHIBIT H hereto.
TYPE. As to any Loan, its nature as a Base Rate Loan or a Eurodollar
Rate Loan.
UNIFORM CUSTOMS. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500 or any successor
version thereto adopted by the Agent in the ordinary course of its
business as a letter of credit issuer and in effect at the time of
issuance of such Letter of Credit.
UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for
which the Borrower does not reimburse the Agent and the Banks on the date
specified in, and in accordance with, ss.4.2.
VOTING STOCK. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as
such holders, to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, association,
trust or other business entity involved, whether or not the right so to
vote exists by reason of the happening of a contingency.
SS.1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include such document
or agreement as amended, modified or supplemented from time to time
in accordance with its terms and the terms of this Credit Agreement.
<PAGE>
-25-
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by Generally Accepted Accounting Principles applied
on a consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by Generally Accepted
Accounting Principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts,
have the meanings assigned to them therein, with the term
"instrument" being that defined under Article 9 of the Uniform
Commercial Code.
(h) Reference to a particular "ss." refers to that section of this
Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Credit Agreement as a whole and not to any
particular section or subdivision of this Credit Agreement.
SS.2. THE REVOLVING CREDIT FACILITY.
SS.2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth
in this Credit Agreement, each of the Banks severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Maturity Date upon notice by the Borrower to
the Agent given in accordance with ss.2.6, such sums as are requested by the
Borrower up to a maximum aggregate amount Outstanding (after giving effect to
all amounts requested) at any one time equal to such Bank's Commitment MINUS
such Bank's Commitment Percentage of the sum of the Maximum Drawing Amount and
all Unpaid Reimbursement Obligations on the Revolver Letters of Credit, PROVIDED
that the sum of the Outstanding amount of the Loans (after giving effect to all
amounts requested) PLUS the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations on the Revolver Letters of Credit shall not at any time exceed the
Total Commitment. The Loans shall be made PRO RATA in accordance with each
Bank's Commitment Percentage. Each request for a Loan hereunder shall constitute
a representation and warranty by the Borrower that the conditions set forth in
ss.11 and ss.12, in the case of the initial Loans to be made on the Closing
Date, and ss.12, in the case of all other Loans, have been satisfied on the date
of such request.
<PAGE>
-26-
SS.2.2. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee calculated at the rate of one-half of one percent (1/2%) per
annum on the average daily amount during each calendar quarter or portion
thereof from the date hereof to the Maturity Date by which the Total Commitment
MINUS the sum of the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations on the Revolver Letters of Credit exceeds the Outstanding amount of
Loans during such calendar quarter. The commitment fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Maturity Date or any
earlier date on which the Commitments shall terminate.
SS.2.3. REDUCTION OF TOTAL COMMITMENT. The Borrower shall have the right
at any time and from time to time upon five (5) Business Days' prior written
notice to the Agent to reduce by $1,000,000 or an integral multiple thereof or
terminate entirely the Total Commitment, whereupon the Commitments of the Banks
shall be reduced PRO RATA in accordance with their respective Commitment
Percentages of the amount specified in such notice or, as the case may be,
terminated. Promptly after receiving any notice of the Borrower delivered
pursuant to this ss.2.3, the Agent will notify the Banks of the substance
thereof. Upon the effective date of any such reduction or termination, the
Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction.
No reduction or termination of the Commitments under this ss.2.3 may be
reinstated.
SS.2.4. THE REVOLVING CREDIT NOTES. The Loans shall be evidenced by
separate amended and restated promissory notes of the Borrower in substantially
the form of EXHIBIT A hereto (each a "Revolving Credit Note"), dated as of the
Closing Date and completed with appropriate insertions. One Revolving Credit
Note shall be payable to the order of each Bank in a principal amount equal to
such Bank's Commitment or, if less, the Outstanding amount of all Loans made by
such Bank, plus interest accrued thereon, as set forth below. The Borrower
irrevocably authorizes each Bank to make or cause to be made, at or about the
time of the Drawdown Date of any Loan or at the time of receipt of any payment
of principal on such Bank's Revolving Credit Note, an appropriate notation on
such Bank's Revolving Credit Note Record reflecting the making of such Loan or
(as the case may be) the receipt of such payment. The Outstanding amount of the
Loans set forth on such Bank's Revolving Credit Note Record shall be PRIMA FACIE
evidence of the principal amount thereof owing and unpaid to such Bank, but the
failure to record, or any error in so recording, any such amount on such Bank's
Revolving Credit Note Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Revolving Credit Note to make payments of
principal of or interest on any Revolving Credit Note when due.
SS.2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise provided
in ss.5.11,
<PAGE>
-27-
(a) each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the rate per annum equal to
the Base Rate PLUS the Applicable Margin;
(b) each Eurodollar Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the rate per annum equal to
the Eurodollar Rate for such Interest Period PLUS the Applicable Margin;
and
(c) the Borrower promises to pay interest on each Loan in arrears on
each Interest Payment Date with respect thereto and at maturity of such
Loan.
SS.2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrower shall give to
the Agent written notice (which may be by facsimile) in the form of EXHIBIT B
hereto (or telephonic notice confirmed in a writing in the form of EXHIBIT B
hereto) of each Loan requested hereunder (a "Loan Request") no less than (a) one
(1) Business Day prior to the proposed Drawdown Date of any Base Rate Loan and
(b) three (3) Eurodollar Business Days prior to the proposed Drawdown Date of
any Eurodollar Rate Loan. Each such notice shall specify (i) the principal
amount of the Loan requested, (ii) the proposed Drawdown Date of such Loan,
(iii) with respect to a Eurodollar Rate Loan, the Interest Period for such Loan
and (iv) the Type of such Loan. Promptly upon receipt of any such notice, the
Agent shall notify each of the Banks thereof. Each Loan Request shall be
irrevocable and binding on the Borrower and shall obligate the Borrower to
accept the Loan requested from the Banks on the proposed Drawdown Date. Each
Loan Request (i) pertaining to Eurodollar Rate Loans shall be in a minimum
aggregate amount of $1,000,000 or a whole multiple of $250,000 in excess
thereof; and (ii) pertaining to Base Rate Loans shall be in a minimum aggregate
amount of $100,000 or a whole multiple of $50,000 in excess thereof.
SS.2.7. CONVERSION OPTIONS.
2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN. The
Borrower may elect from time to time to convert any Outstanding Loan to a Loan
of another Type, PROVIDED that (a) with respect to any such conversion of a Loan
to a Base Rate Loan, the Borrower shall give the Agent at least one (1) Business
Days' prior written notice of such election and such conversion shall only be
made on the last day of the Interest Period with respect thereto; (b) with
respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan,
the Borrower shall give the Agent at least three (3) Eurodollar Business Days'
prior written notice of such election; and (c) no Loan may be converted into a
Eurodollar Rate Loan when any Default or Event of Default has occurred and is
continuing. On the date on which such conversion is being made each Bank shall
take such action as is necessary to transfer its Commitment Percentage of such
Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the
case may be. All or any part of Outstanding Loans of any Type may be
<PAGE>
-28-
converted into a Loan of another Type as provided herein, PROVIDED that any
partial conversion (a) into a Eurodollar Rate Loan shall be in an aggregate
principal amount of $1,000,000 or a whole multiple of $250,000 in excess thereof
and (b) into a Base Rate Loan shall be in an aggregate principal amount of
$100,000 or a whole multiple of $50,000 in excess thereof. Each Conversion
Request relating to the conversion of a Loan to a Eurodollar Rate Loan shall be
irrevocable by the Borrower.
2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any Loan of
any Type may be continued as a Loan of the same Type upon the expiration of an
Interest Period with respect thereto by compliance by the Borrower with the
notice provisions contained in ss.2.7.1; PROVIDED that no Eurodollar Rate Loan
may be continued as such when any Default or Event of Default has occurred and
is continuing, but shall be automatically converted to a Base Rate Loan on the
last day of the first Interest Period relating thereto ending during the
continuance of any Default or Event of Default of which officers of the Agent
active upon the Borrower's account have actual knowledge. In the event that the
Borrower fails to provide any such notice with respect to the continuation of
any Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be
automatically converted to a Base Rate Loan on the last day of the first
Interest Period relating thereto. The Agent shall notify the Banks promptly when
any such automatic conversion contemplated by this ss.2.7 is scheduled to occur.
2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from Eurodollar
Rate Loans shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Rate Loans having the same Interest Period shall not be less than
$1,000,000 or a whole multiple of $250,000 in excess thereof.
SS.2.8. FUNDS FOR LOAN.
2.8.1. FUNDING PROCEDURES. Not later than 11:00 a.m. (Boston time)
on the proposed Drawdown Date of any Loans, each of the Banks will make
available to the Agent, at the Agent's Head Office, in immediately available
funds, the amount of such Bank's Commitment Percentage of the amount of the
requested Loans. Upon receipt from each Bank of such amount, and upon receipt of
the documents required by ss.ss.11 and 12 and the satisfaction of the other
conditions set forth therein, to the extent applicable, the Agent will make
available to the Borrower the aggregate amount of such Loans made available to
the Agent by the Banks. The failure or refusal of any Bank to make available to
the Agent at the aforesaid time and place on any Drawdown Date the amount of its
Commitment Percentage of the requested Loans shall not relieve any other Bank
from its several obligation hereunder to make available to the Agent the amount
of such other Bank's Commitment Percentage of any requested Loans.
2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to the
contrary by any Bank prior to a Drawdown Date, assume that such Bank has made
available to the Agent on such Drawdown Date the amount of such Bank's
Commitment Percentage of the Loans to be made on such Drawdown Date, and the
<PAGE>
-29-
Agent may (but it shall not be required to), in reliance upon such assumption,
make available to the Borrower a corresponding amount. If any Bank makes
available to the Agent such amount on a date after such Drawdown Date, such Bank
shall pay to the Agent on demand an amount equal to the product of (a) the
average computed for the period referred to in clause (c) below, of the weighted
average interest rate paid by the Agent for federal funds acquired by the Agent
during each day included in such period, TIMES (b) the amount of such Bank's
Commitment Percentage of such Loans, TIMES (c) a fraction, the numerator of
which is the number of days that elapse from and including such Drawdown Date to
the date on which the amount of such Bank's Commitment Percentage of such Loans
shall become immediately available to the Agent, and the denominator of which is
365. A statement of the Agent submitted to such Bank with respect to any amounts
owing under this paragraph shall be PRIMA FACIE evidence of the amount due and
owing to the Agent by such Bank. If the amount of such Bank's Commitment
Percentage of such Loans is not made available to the Agent by such Bank within
three (3) Business Days following such Drawdown Date, the Agent shall be
entitled to recover such amount from the Borrower on demand, with interest
thereon at the rate per annum applicable to the Loans made on such Drawdown
Date.
SS.3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
SS.3.1. MATURITY. The Borrower promises to pay on the Maturity Date, and
there shall become absolutely due and payable on the Maturity Date, all of the
Loans Outstanding on such date, together with any and all accrued and unpaid
interest thereon and any outstanding fees, expenses and other amounts owing
hereunder.
SS.3.2. MANDATORY REPAYMENTS OF LOANS.
ss.3.2.1. EXCEEDING TOTAL COMMITMENT. If at any time the sum of the
Outstanding amount of the Loans, the Maximum Drawing Amount of the Revolver
Letters of Credit and all Unpaid Reimbursement Obligations on the Revolver
Letters of Credit exceeds the Total Commitment, then the Borrower shall
immediately pay the amount of such excess to the Agent for the respective
accounts of the Banks for application: first, to any Unpaid Reimbursement
Obligations on the Revolver Letters of Credit; second, to the Loans; and third,
to provide to the Agent cash collateral for Reimbursement Obligations as
contemplated by ss.4.2(b) and (c). Each payment of any Unpaid Reimbursement
Obligations on the Revolver Letters of Credit or prepayment of Loans shall be
allocated among the Banks, in proportion, as nearly as practicable, to each
Bank's Commitment Percentage of such Reimbursement Obligation or (as the case
may be) the respective unpaid principal amount of each Bank's Revolving Credit
Note, with adjustments to the extent practicable to equalize any prior payments
or repayments not exactly in proportion.
SS.3.2.2. CLEANUP PROVISION. The Borrower shall either (a) reduce
the aggregate principal amount of Outstanding Loans (which shall include the
Maximum Drawing Amount of all issued and outstanding Revolver Letters of Credit
and all Reimbursement Obligations and Unpaid Reimbursement Obligations relating
to the
<PAGE>
-30-
Revolver Letters of Credit) to not more than $20,000,000 for a period of sixty
(60) consecutive days during the period commencing on the date hereof through
and including November 30, 1997 and thereafter for the twelve (12) month period
beginning on each December 1 and ending on each November 30 (the "Cleanup
Period") or (b) reduce the aggregate principal amount of Outstanding Loans
(which shall include the Maximum Drawing Amount of all issued and outstanding
Revolver Letters of Credit and all Reimbursement Obligations and Unpaid
Reimbursement Obligations relating to the Revolver Letters of Credit) to not
more than $10,000,000 for forty-five (45) consecutive days during the Cleanup
Period.
SS.3.3. OPTIONAL REPAYMENTS OF LOANS. The Borrower shall have the right,
at its election, to repay the Outstanding amount of the Loans, as a whole or in
part, at any time without penalty or premium, PROVIDED that any full or partial
prepayment of the Outstanding amount of any Eurodollar Rate Loans pursuant to
this ss.3.3 may be made only on the last day of the Interest Period relating
thereto. The Borrower shall give the Agent, no later than 12:00 noon, Boston
time, at least one (1) Business Day's prior written notice of any proposed
prepayment pursuant to this ss.3.3 of Base Rate Loans, and three (3) Eurodollar
Business Days' notice of any proposed prepayment pursuant to this ss.3.3 of
Eurodollar Rate Loans, in each case specifying the proposed date of prepayment
of Loans and the principal amount to be prepaid. Each such partial prepayment of
the Loans shall be in a minimum aggregate amount of $100,000 or a whole multiple
of $50,000 in excess thereof, shall be accompanied by the payment of accrued
interest on the principal prepaid to the date of prepayment and shall be
applied, in the absence of instruction by the Borrower, first to the principal
of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each
partial prepayment shall be allocated among the Banks, in proportion, as nearly
as practicable, to the respective unpaid principal amount of each Bank's
Revolving Credit Note, with adjustments to the extent practicable to equalize
any prior repayments not exactly in proportion.
SS.4. LETTERS OF CREDIT.
SS.4.1. LETTER OF CREDIT COMMITMENTS.
4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT.
4.1.1.1. GENERAL PROVISIONS. The execution and delivery by the
Borrower of a Letter of Credit Application requesting a standby letter of credit
shall automatically be deemed a request for a Stand Alone Letter of Credit;
PROVIDED, HOWEVER, in the event the Borrower does not have sufficient
availability under the Total LC Commitment for the issuance of such requested
Letters of Credit, the portion of such request which exceeds the availability of
the Total LC Commitment shall instead be deemed a request for a Revolver Letter
of Credit.
<PAGE>
-31-
4.1.1.2 COMMITMENT TO ISSUE STAND ALONE LETTERS OF CREDIT. Subject
to the terms and conditions hereof (including, without limitation, the
provisions of ss.4.1.1.1 above) and the execution and delivery by the Borrower
of a letter of credit application on the Agent's customary form (a "Letter of
Credit Application"), the Agent on behalf of the Banks and in reliance upon the
agreement of the Banks set forth in ss.4.1.4 and upon the representations and
warranties of the Borrower contained herein, agrees, in its individual capacity,
to issue, extend and renew for the account of the Borrower one or more standby
or documentary letters of credit (individually, a "Stand Alone Letter of
Credit"), in such form as may be requested from time to time by the Borrower and
agreed to by the Agent; PROVIDED, HOWEVER, that, after giving effect to such
request, (a) the sum of the aggregate Maximum Drawing Amount and all Unpaid
Reimbursement Obligations pertaining to such Stand Alone Letters of Credit shall
not exceed the Total LC Commitment. If at any time the sum of the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations on the Stand Alone
Letters of Credit exceeds the Total LC Commitment, then the Borrower shall
immediately pay the amount of such excess to the Agent for the respect accounts
of the Banks for application: first to any Unpaid Reimbursement Obligations on
the Stand Alone Letters of Credit; and second, to provide to the Agent cash
collateral for Reimbursment Obligations as contemplated by ss.4.2(b) and (c).
Each payment of any Unpaid Reimbursement Obligation on the Stand Alone Letters
of Credit shall be allocated among the Banks, in proportion, as nearly as
practicable, to such Bank's LC Commitment Percentage of such Reimbursement
Obligation, with adjustments to the extent practicable to equalize any prior
payments or repayments not exactly in proportion.
4.1.1.3. COMMITMENT TO ISSUE REVOLVER LETTERS OF CREDIT. Subject to
the terms and conditions hereof (including, without limitation, the provisions
of ss.4.1.1.1 above) an the execution and delivery by the Borrower of a Letter
of Credit Application, the Agent on behalf of the Banks and in reliance upon the
agreement of the Banks set forth in ss.4.1.4 and upon the representations and
warranties of the Borrower contained herein, agrees, in its individual capacity,
to issue, extend and renew for the account of the Borrower one or more standby
letters of credit (individually, a "Revolver Letter of Credit"), in such form as
may be requested from time to time by the Borrower and agreed to by the Agent;
PROVIDED, HOWEVER, that after giving effect to such request (a) the sum of the
aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations
pertaining to such Revolver Letters of Credit shall not exceed $10,000,000 at
any one time and (b) the sum of (i) the Maximum Drawing Amount on all Revolver
Letters of Credit, (ii) all Unpaid Reimbursement Obligations on all Revolver
Letters of Credit and (iii) the amount of all Loans Outstanding shall not exceed
the Total Commitment.
4.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
Application shall be completed to the satisfaction of the Agent. In the event
that any provision of any Letter of Credit Application shall be inconsistent
with any provision of this Credit Agreement, then the provisions of this Credit
Agreement shall, to the extent of any such inconsistency, govern.
<PAGE>
-32-
4.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued,
extended or renewed hereunder shall, among other things, (a) provide for the
payment of sight drafts for honor thereunder when presented in accordance with
the terms thereof and when accompanied by the documents described therein, and
(b) have an expiry date no later than the earlier to occur of (i) the first
anniversary date of the date of issue, extension or renewal and (ii) the date
which is fifteen (15) days prior to the Maturity Date. Each Letter of Credit so
issued, extended or renewed shall be subject to the Uniform Customs.
4.1.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank severally
agrees that it shall be absolutely liable, without regard to the occurrence of
any Default or Event of Default or any other condition precedent whatsoever, to
the extent of such Bank's Commitment Percentage or LC Commitment Percentage, as
the case may be, to reimburse the Agent on demand for the amount of each draft
paid by the Agent under each Letter of Credit to the extent that such amount is
not reimbursed by the Borrower pursuant to ss.4.2 (such agreement by a Bank
being called herein the "Letter of Credit Participation" of such Bank).
4.1.5. PARTICIPATIONS OF BANKS. Each such payment made by a Bank
shall be treated as the purchase by such Bank of a participating interest in the
Borrower's Reimbursement Obligation under ss.4.2 in an amount equal to such
payment. Each Bank shall share in accordance with its participating interest in
any interest which accrues pursuant to ss.4.2.
4.1.6. REDUCTION OF TOTAL LC COMMITMENT. The Borrower shall have the
right at any time and from time to time upon five (5) Business Days' prior
written notice to the Agent to reduce by $1,000,000 or an integral multiple
thereof or terminate entirely the Total LC Commitment, whereupon the LC
Commitments of the Banks shall be reduced PRO RATA in accordance with their
respective LC Commitment Percentages of the amount specified in such notice or,
as the case may be, terminated. Promptly after receiving any notice of the
Borrower delivered pursuant to this ss.4.1.6, the Agent shall notify the Banks
of the substance thereof. Upon the effective date of any such reduction or
termination, the Borrower shall pay to the Agent for the respective accounts of
the Banks the full amount of any commitment fees then accrued on the amount of
the reduction. No reduction or termination of the LC Commitments under this
ss.4.1.6 may be reinstated.
SS.4.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce the
Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Agent or (as the case may be) the Banks, with
respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder,
(a) except as otherwise expressly provided in ss.4.2(b), (c) and
(d), on each date that any draft presented under such Letter of Credit is
honored by the
<PAGE>
-33-
Agent, or the Agent otherwise makes a payment with respect thereto, (i)
the amount paid by the Agent under or with respect to such Letter of
Credit, and (ii) the amount of any taxes, fees, charges or other costs and
expenses whatsoever incurred by the Agent or any Bank in connection with
any payment made by the Agent or any Bank under, or with respect to, such
Letter of Credit,
(b) upon the reduction (but not termination) of (i) the Total
Commitment to an amount less than the Maximum Drawing Amount on the
Revolver Letters of Credit or (ii) the Total LC Commitment to an amount
less than the Maximum Drawing Amount on the Stand Alone Letters of Credit,
an amount equal to such difference, which amount shall be held by the
Agent for the benefit of the Banks and the Agent as cash collateral for
all Obligations, PROVIDED, HOWEVER, in the event that after such amount is
deposited with the Agent the Maximum Drawing Amount decreases, the Agent
shall refund to the Borrower an amount equal to such decrease, and
(c) upon the termination of the Total Commitment, the Total LC
Commitment or the acceleration of the Reimbursement Obligations with
respect to all Letters of Credit in accordance with ss.13, an amount equal
to the then Maximum Drawing Amount on all Letters of Credit, which amount
shall be held by the Agent for the benefit of the Banks and the Agent as
cash collateral for all Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
the Borrower under this ss.4.2 at any time from the date such amounts become due
and payable (whether as stated in this ss.4.2, by acceleration or otherwise)
until payment in full (whether before or after judgment) shall be payable to the
Agent on demand at the rate specified in ss.5.11 for overdue principal on the
Loans. Any interest which accrues on amounts being held by the Agent as cash
collateral for all Obligations shall also be held as cash collateral for all
Obligations to the extent required to satisfy the provisions of clauses (a)
through (d) above.
SS.4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or
other demand for payment shall be made under any Letter of Credit, the Agent
shall notify the Borrower of the date and amount of the draft presented or
demand for payment and of the date and time when it expects to pay such draft or
honor such demand for payment. If the Borrower fails to reimburse the Agent as
provided in ss.4.2 on or before the date that such draft is paid or other
payment is made by the Agent, the Agent may at any time thereafter notify the
Banks committed to participate in such Letter of Credit of the amount of any
such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on
the Business Day next following the receipt of such notice, each Bank shall make
available to the Agent, at the Agent's Head Office, in immediately available
funds, such Bank's Commitment Percentage or LC Commitment Percentage, as the
case may be, of such Unpaid Reimbursement Obligation, together with an amount
equal to the product of (a) the average, computed for the period
<PAGE>
-34-
referred to in clause (c) below, of the weighted average interest rate paid by
the Agent for federal funds acquired by the Agent during each day included in
such period, TIMES (b) the amount equal to such Bank's Commitment Percentage or
LC Commitment Percentage, as the case may be, of such Unpaid Reimbursement
Obligation, TIMES (c) a fraction, the numerator of which is the number of days
that elapse from and including the date the Agent paid the draft presented for
honor or otherwise made payment to the date on which such Bank's Commitment
Percentage or LC Commitment Percentage, as the case may be, of such Unpaid
Reimbursement obligation shall become immediately available to the Agent, and
the denominator of which is 360. The responsibility of the Agent to the Borrower
and the Banks shall be only to determine that the documents (including each
draft) delivered under each Letter of Credit in connection with such presentment
shall be in conformity in all material respects with such Letter of Credit.
SS.4.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this ss.4
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Agent, any Bank or any
beneficiary of a Letter of Credit. The Borrower further agrees with the Agent
and the Banks that the Agent and the Banks shall not be responsible for, and the
Borrower's Reimbursement Obligations under ss.4.2 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, PROVIDED that such documents
conform on their face with the terms of the applicable Letter of Credit or any
dispute between or among the Borrower, the beneficiary of any Letter of Credit
or any financing institution or other party to which any Letter of Credit may be
transferred or any claims or defenses whatsoever of the Borrower against the
beneficiary of any Letter of Credit or any such transferee. The Agent and the
Banks shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Borrower agrees that
any action taken or omitted by the Agent or any Bank under or in connection with
each Letter of Credit and the related drafts and documents, if done in good
faith and without gross negligence or willful misconduct, shall be binding upon
the Borrower and shall not result in any liability on the part of the Agent or
any Bank to the Borrower.
SS.4.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.4.4,
the Agent shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent. As between the Agent and the Banks, the
Agent shall be fully justified in failing or refusing to take any action under
this Credit Agreement unless it shall first have received such advice or
concurrence of the Majority Banks as it reasonably deems appropriate or it shall
first
<PAGE>
-35-
be indemnified to its reasonable satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. As between the Agent and the Banks, the
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Credit Agreement in accordance with a request of the Majority
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon the Banks and all future holders of the Revolving Credit
Notes or of a Letter of Credit Participation.
SS.4.6. LETTER OF CREDIT FEE. The Borrower shall, on the first day of each
fiscal quarter for the immediately preceding fiscal quarter and at such other
time or times as such charges are customarily made by the Agent, pay a fee (in
each case, a "Letter of Credit Fee") to the Agent (a) in respect of each standby
Stand Alone Letter of Credit and Revolver Letter of Credit equal to the
Applicable Margin set forth in the column headed "Letters of Credit" in such
definition then in effect of the Maximum Drawing Amount of such Letter of Credit
(the "Standby Margin") PLUS the Agent's customary issuance fee, which shall
equal one quarter of one percent (1/4%) per annum of the Maximum Drawing Amount
of each Letter of Credit (the "Issuance Fee"), and (b) in respect of each
documentary Stand Alone Letter of Credit equal to (i) the Agent's Issuance Fee
or amendment fee, as the case may be, PLUS (ii) the Agent's customary time
negotiation fee PLUS (iii) the Applicable Margin set forth in the column headed
"Letters of Credit" in such definition then in effect LESS three-quarters of one
percent (3/4%) per annum of the Maximum Drawing Amount of such documentary
Letter of Credit (the "Documentary Margin"). The Agent shall retain for its own
account the Issuance Fees on all Letters of Credit and all amendment and
negotiation fees, and will remit the remainder of the Letter of Credit Fees to
the Banks in accordance with their respective Commitment Percentages and LC
Commitment Percentages, as the case may be.
SS.4.7. COMMITMENT FEE ON STAND ALONE LETTERS OF CREDIT. The Borrower
agrees to pay to the Agent for the accounts of the Banks in accordance with
their respective Commitment Percentages a commitment fee calculated at the rate
of one-half of one percent (1/2%) per annum on the average daily amount during
each calendar quarter or portion thereof from the date hereof to the Maturity
Date by which the Total LC Commitment exceeds the sum of the Maximum Drawing
Amount and all Unpaid Reimbursement Obligations on the Stand Alone Letters of
Credit during such calendar quarter. The commitment fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Maturity Date or any
earlier date on which the Commitments shall terminate.
SS.5. CERTAIN GENERAL PROVISIONS.
SS.5.1. CLOSING FEE. The Borrower agrees to pay to the Agent on the
Closing Date a closing fee as described in a fee letter dated as of the date
herewith (the "Fee Letter").
<PAGE>
-36-
SS.5.2. AGENT'S FEE. The Borrower shall pay to the Agent an Agent's fee as
provided in the Fee Letter.
SS.5.3. FUNDS FOR PAYMENTS.
5.3.1. PAYMENTS TO AGENT. All payments of principal, interest,
Reimbursement Obligations, commitment fees, Letter of Credit Fees and any other
amounts due hereunder or under any of the other Loan Documents shall be made to
the Agent, for the respective accounts of the Banks and the Agent, at the
Agent's Head Office or at such other location in the Boston, Massachusetts, area
that the Agent may from time to time designate, in each case in immediately
available funds.
5.3.2. NO OFFSET, ETC. All payments by the Borrower hereunder and
under any of the other Loan Documents shall be made without setoff or
counterclaim and free and clear of and without deduction for any taxes, levies,
imposts, duties, charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or levied by
any jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such deduction
or withholding. If any such obligation is imposed upon the Borrower with respect
to any amount payable by it hereunder or under any of the other Loan Documents,
the Borrower will pay to the Agent, for the account of the Banks or (as the case
may be) the Agent, on the date on which such amount is due and payable hereunder
or under such other Loan Document, such additional amount in Dollars as shall be
necessary to enable the Banks or the Agent to receive the same net amount which
the Banks or the Agent would have received on such due date had no such
obligation been imposed upon the Borrower. The Borrower will deliver promptly to
the Agent certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Borrower hereunder or
under such other Loan Document.
SS.5.4. COMPUTATIONS. All computations of interest on the Base Rate Loans
shall be based on a 365 or 366 day year, as the case may be, and paid for the
actual number of days elapsed, and all computations of interest on the
Eurodollar Rate Loans and of commitment fees, Letter of Credit Fees or other
fees shall be based on a 360-day year and paid for the actual number of days
elapsed. Except as otherwise provided in the definition of the term "Interest
Period" with respect to Eurodollar Rate Loans, whenever a payment hereunder or
under any of the other Loan Documents becomes due on a day that is not a
Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension. The
Outstanding amount of the Loans as reflected on the Revolving Credit Note
Records from time to time shall be considered correct and binding on the
Borrower unless the Agent or such Bank shall notify the Borrower to the
contrary.
SS.5.5. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to the
commencement of any Interest Period relating to any Eurodollar Rate Loan, the
Agent
<PAGE>
-37-
shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the Eurodollar Rate that would
otherwise determine the rate of interest to be applicable to any Eurodollar Rate
Loan during any Interest Period, the Agent shall forthwith give notice of such
determination (which shall be conclusive and binding on the Borrower and the
Banks) to the Borrower and the Banks. In such event (a) any Loan Request or
Conversion Request with respect to Eurodollar Rate Loans shall be automatically
withdrawn and shall be deemed a request for Base Rate Loans, (b) each Eurodollar
Rate Loan will automatically, on the last day of the then current Interest
Period relating thereto, become a Base Rate Loan, and (c) the obligations of the
Banks to make Eurodollar Rate Loans shall be suspended until the Agent or the
Majority Banks determines that the circumstances giving rise to such suspension
no longer exist, whereupon the Agent or, as the case may be, the Agent upon the
instruction of the Majority Banks, shall so notify the Borrower and the Banks.
SS.5.6. ILLEGALITY. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or the interpretation or
application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrower and the other Banks and thereupon (a) the
commitment of such Bank to make Eurodollar Rate Loans or convert Loans of
another Type to Eurodollar Rate Loans shall forthwith be suspended and (b) such
Bank's Loans then Outstanding as Eurodollar Rate Loans, if any, shall be
converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurodollar Rate Loans or within such earlier period as
may be required by law. The Borrower hereby agrees promptly to pay the Agent for
the account of such Bank, upon demand by such Bank, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this ss.5.6, including any interest or fees
payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Rate Loans hereunder.
SS.5.7. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to
this Credit Agreement, the other Loan Documents, any Letters of
Credit, such Bank's Commitment, LC Commitment or the Loans (other
than taxes based upon or measured by the income or profits of such
Bank or the Agent), or
<PAGE>
-38-
(b) materially change the basis of taxation (except for changes in taxes
on income or profits) of payments to any Bank of the principal of or
the interest on any Loans or any other amounts payable to any Bank
or the Agent under this Credit Agreement or any of the other Loan
Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Credit Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or
other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or
loans by, or letters of credit issued by, or commitments of an
office of any Bank, or
(d) impose on any Bank or the Agent any other conditions or requirements
with respect to this Credit Agreement, the other Loan Documents, any
Letters of Credit, the Loans, such Bank's Commitment, such Bank's LC
Commitment or any class of loans, letters of credit or commitments
of which any of the Loans or such Bank's Commitment or LC Commitment
forms a part, and the result of any of the foregoing is
(i) to increase the cost to any Bank of making, funding,
issuing, renewing, extending or maintaining any of the
Loans or such Bank's Commitment, LC Commitment or any
Letter of Credit, or
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amount payable to such
Bank or the Agent hereunder on account of such Bank's
Commitment, LC Commitment, any Letter of Credit or any
of the Loans, or
(iii) to require such Bank or the Agent to make any payment or
to forego any interest or Reimbursement Obligation or
other sum payable hereunder, the amount of which payment
or foregone interest or Reimbursement Obligation or
other sum is calculated by reference to the gross amount
of any sum receivable or deemed received by such Bank or
the Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank or
(as the case may be) the Agent at any time and from time to time and as often as
the occasion therefor may arise, pay to such Bank or the Agent such additional
amounts as will be sufficient to compensate such Bank or the Agent for such
additional cost, reduction, payment or foregone interest or Reimbursement
Obligation or other sum.
<PAGE>
-39-
SS.5.8. CAPITAL ADEQUACY. If after the date hereof any Bank or the Agent
determines that (a) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (b) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
effect of reducing the return on such Bank's or the Agent's commitment with
respect to any Loans to a level below that which such Bank or the Agent could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's on the Agent's then existing policies with respect to
capital adequacy and assuming full utilization of such entity's capital) by any
amount deemed by such Bank or (as the case may be) the Agent to be material,
then such Bank or the Agent may notify the Borrower of such fact. To the extent
that the amount of such reduction in the return on capital is not reflected in
the Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the
Agent for the amount of such reduction in the return on capital as and when such
reduction is determined upon presentation by such Bank or (as the case may be)
the Agent of a certificate in accordance with ss.5.9 hereof. Each Bank shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
SS.5.9. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to ss.ss.5.7 or 5.8 and a brief explanation of such amounts
which are due, submitted by any Bank or the Agent to the Borrower, shall be
conclusive, absent manifest error, that such amounts are due and owing.
SS.5.10. INDEMNITY. The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (a)
default by the Borrower in payment of the principal amount of or any interest on
any Eurodollar Rate Loans as and when due and payable, including any such loss
or expense arising from interest or fees payable by such Bank to lenders of
funds obtained by it in order to maintain its Eurodollar Rate Loans, (b) default
by the Borrower in making a borrowing or conversion after the Borrower has given
(or is deemed to have given) a Loan Request or a Conversion Request relating
thereto in accordance with ss.2.6 or ss.2.7 or (c) the making of any payment of
a Eurodollar Rate Loan or the making of any conversion of any such Loan to a
Base Rate Loan on a day that is not the last day of the applicable Interest
Period with respect thereto, including interest or fees payable by such Bank to
lenders of funds obtained by it in order to maintain any such Loans.
SS.5.11. INTEREST AFTER DEFAULT. During the continuance of a Default or an
Event of Default, the principal and interest of the Loans, Reimbursement
Obligations and Unpaid Reimbursement Obligations shall, until such Default or
Event of Default has been cured or remedied or such Default or Event of Default
has been waived by the
<PAGE>
-40-
Majority Banks pursuant to ss.26, bear interest at a rate per annum equal to two
percent (2%) above the rate of interest otherwise applicable to such Loans
pursuant to ss.2.5.
SS.5.12. INTEREST LIMITATION. Notwithstanding any other term of this
Credit Agreement or any Note or any other document referred to herein or
therein, the maximum amount of interest which may be charged to or collected
from any Person liable hereunder or under any Note by the Banks, shall be
absolutely limited to, and shall in no event exceed, the maximum amount of
interest (the "Maximum Rate") which could lawfully be charged to collected under
applicable law (including, to the extent applicable, the provisions of Section
5197 of the Revised Statutes of the United States of America, as amended, 12
U.S.C. Section 85, as amended), so that the maximum of all amounts constituting
interest under applicable law, howsoever computed, shall never exceed as to any
Person liable therefor the Maximum Rate, and any term of this Credit Agreement
or any Note or any other document referred to herein or therein which could be
construed as providing for interest in excess of such lawful maximum shall be
and hereby is made expressly subject to and modified by the provisions of this
paragraph. If, in any month, the effective interest rate on any amounts owing
pursuant to this Credit Agreement, the Notes or any of the other Loan Documents,
absent the Maximum Rate limitation contained herein, would have exceeded the
Maximum Rate, and if in the future months, such effective interest rate would
otherwise be less than the Maximum Rate, then the effective interest rate for
such month shall be increased to the Maximum Rate until such time as the amount
of interest paid hereunder equals the amount of interest which would have been
paid if the same had not been limited by the Maximum Rate. In the event that,
upon payment in full of the Borrower's Obligations pursuant to this Credit
Agreement, the Notes or the other Loan Documents, the total amount of interest
paid or accrued under the terms of this Credit Agreement is less than the total
amount of interest which would have been paid or accrued had the interest not
been limited hereby to the Maximum Rate, then the Borrower shall, to the extent
permitted by such applicable federal, state or other law, pay to the Banks
hereunder or under the Notes an amount equal to the excess, if any, of (i) the
lesser of (A) the amount of interest which would have been charged if the
Maximum Rate had, at all times, been in effect with respect to the Obligations
hereunder or under the Notes and (B) the amount of interest which would have
accrued had the effective interest rate applicable not been limited hereunder by
the Maximum Rate over (ii) the amount of interest actually paid or accrued under
this Credit Agreement.
SS.6. COLLATERAL SECURITY AND GUARANTIES.
SS.6.1. SECURITY OF BORROWER. The Obligations shall be secured by a
perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in the Mortgaged Property, a pledge
of the stock of the Receivables Subsidiary, and a first priority security
interest in certain other assets of the Borrower, whether now owned or hereafter
acquired, pursuant to the terms of the Security Documents to which the Borrower
is a party.
<PAGE>
-41-
SS.6.2. GUARANTIES. The Obligations shall also be guaranteed
pursuant to the terms of the Guaranty. The obligations of SRI under the Guaranty
shall be in turn secured by a perfected first priority security interest
(subject only to Permitted Liens entitled to priority under applicable law) in
certain assets of SRI, whether now owned or hereafter acquired, pursuant to the
terms of the Security Documents to which SRI is a party.
SS.6.3. GUARANTIES AND SECURITY OF SUBSIDIARIES. In the event any
new Subsidiary of the Borrower is formed or acquired after the Closing Date,
simultaneously with such formation or acquisition, the Loan Documents shall be
amended and/or supplemented as necessary to make the terms and conditions of the
Loan Documents applicable to such Subsidiary, each such Subsidiary shall become
a guarantor of the Obligations hereunder and secure its obligations under such
guaranty by a perfected first priority security interest (subject only to
Permitted Liens entitled to priority under applicable law) in certain assets of
such Subsidiary, whether then owned or thereafter acquired, pursuant to the
terms of the Security Documents to which such Subsidiary will become a party,
with all such additional documents or modifications to be in form and substance
satisfactory to the Agent.
SS.6.4. TERMINATION OF SECURITY INTEREST. The security interest
granted pursuant to this ss.6 shall, upon the indefeasible repayment in full, in
cash, of all the Obligations other than Obligations in respect of indemnities
relating to unasserted claims which survive termination of this Credit
Agreement, the termination of the Commitments, the LC Commitments and the return
of all issued and unexpired Letters of Credit, terminate.
SS.7. REPRESENTATIONS AND WARRANTIES. Each of the Borrower and
SRI represents and warrants to the Banks and the Agent as follows:
SS.7.1. CORPORATE AUTHORITY.
7.1.1. INCORPORATION; GOOD STANDING. Each of SRI, the Borrower and
each of their respective Subsidiaries (a) is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, (b) has all requisite corporate power to own its property and
conduct its business as now conducted and as presently contemplated, and (c) is
in good standing as a foreign corporation and is duly authorized to do business
in each jurisdiction where such qualification is necessary except where a
failure to be so qualified would not have a materially adverse effect on the
business, assets or financial condition of SRI, the Borrower and their
Subsidiaries on a consolidated basis.
7.1.2. AUTHORIZATION. The execution, delivery and performance of
this Credit Agreement and the other Loan Documents to which SRI, the Borrower or
any of their Subsidiaries is or is to become a party and the transactions
contemplated hereby and thereby (a) are within the corporate authority of such
Person, (b) have been duly authorized by all necessary corporate proceedings,
(c) do not conflict with or result in
<PAGE>
-42-
any breach or contravention of any provision of law, statute, rule or regulation
to which SRI, the Borrower or any Subsidiary is subject or any judgment, order,
writ, injunction, license or permit applicable to SRI, the Borrower or any
Subsidiary and (d) do not conflict with any provision of the corporate charter
or bylaws of, or any agreement or other instrument binding upon, SRI, the
Borrower or any of their Subsidiaries.
7.1.3. ENFORCEABILITY. The execution and delivery of this Credit
Agreement and the other Loan Documents to which SRI, the Borrower or any of
their Subsidiaries is or is to become a party will result in valid and legally
binding obligations of such Person enforceable against it in accordance with the
respective terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
SS.7.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
SRI, the Borrower and any of their Subsidiaries of this Credit Agreement and the
other Loan Documents to which SRI, the Borrower or any of their Subsidiaries is
or is to become a party and the transactions contemplated hereby and thereby do
not require the approval or consent of, or filing with, any governmental agency
or authority other than those already obtained.
SS.7.3. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE 7.3
hereto, SRI, the Borrower and their Subsidiaries own all of the assets reflected
in the consolidated and consolidating balance sheet of SRI, the Borrower and
their Subsidiaries as at the Balance Sheet Date or acquired since that date
(except property and assets sold or otherwise disposed of in the ordinary course
of business since that date), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens.
SS.7.4. FINANCIAL STATEMENTS AND PROJECTIONS.
7.4.1. FINANCIAL STATEMENTS. There has been furnished to each of the
Banks a consolidated and consolidating balance sheet of SSI and its Subsidiaries
as at the Balance Sheet Date, and a consolidated and consolidating statement of
income of SSI and its Subsidiaries for the period then ended, certified by a
member of senior management of the Borrower. Such balance sheet and statement of
income have been prepared in accordance with Generally Accepted Accounting
Principles and fairly present the financial condition of SSI, SRI and the
Borrower as at the close of business on the date thereof (excluding normal
year-end adjustments) and the results of operations for the period then ended.
There are no contingent liabilities of SSI or any of its Subsidiaries as of such
date involving material amounts, known to the officers of SSI, SRI or the
Borrower, which were not disclosed in such balance sheet and the notes related
thereto. In addition, there has been furnished to each of the Banks SSI's most
<PAGE>
-43-
recent Form 10-K (the "10-K") for the fiscal year ended January, 1996 and Form
10-Q (the '"10-Q") for the fiscal quarter ended November 2, 1996.
7.4.2. PROJECTIONS. The six (6) month seasonal income statement plan
of SSI and its Subsidiaries on a consolidated basis, for the six (6) month
period commencing January 30, 1997 and through July 30, 1997 (and, with the six
month seasonal income statement plan for the six month period commencing on the
Saturday closest to July 30 through the Saturday closest to January 30, the
"Seasonal Projections"), the projected capital budget and projected cash flow
statements for the fiscal year ended January 28, 1997 (the "Fiscal Year
Projections") and the annual projected balance sheets, income statements and
cash flow statements of SSI and its Subsidiaries on a consolidated basis for the
1996 to 2000 fiscal years (the "Annual Projections" and, collectively with the
Seasonal Projections, and the Fiscal Year Projections, the "Projections"),
copies of which have been delivered to each Bank, disclose all assumptions made
with respect to general economic, financial and market conditions used in
formulating such Projections. The Projections are based upon reasonable
estimates and assumptions, have been prepared on the basis of the assumptions
stated therein and as at the Closing Date reflect the reasonable estimates of
SSI and its Subsidiaries of the results of operations and other information
projected therein, it being understood that the projections are not guarantees
of results and that actual results will vary from the projections, and such
variations may be material.
SS.7.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there has
occurred no materially adverse change in the financial condition or business of
SRI, the Borrower and their Subsidiaries as shown on or reflected in the
consolidated balance sheet of SRI, the Borrower and their Subsidiaries as at the
Balance Sheet Date, or the consolidated and consolidating statement of income
for the fiscal year then ended, other than changes in the ordinary course of
business that have not had any materially adverse effect either individually or
in the aggregate on the business or financial condition of SRI, the Borrower and
their Subsidiaries on a consolidated basis. Since the Balance Sheet Date,
neither SRI nor the Borrower has made any Distributions.
SS.7.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of SRI, the Borrower
and each of their Subsidiaries possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of its business substantially as now
conducted without known conflict with any rights of others.
SS.7.7. LITIGATION. Except as set forth in SCHEDULE 7.7 hereto, there are
no actions, suits, proceedings or investigations of any kind pending or
threatened against SRI, the Borrower or any of their Subsidiaries before any
court, tribunal or administrative agency or board that, if adversely determined,
would reasonably be expected, either in any case or in the aggregate, materially
adversely affect the properties, assets, financial condition or business of SRI,
the Borrower or any of their Subsidiaries or materially impair the right of SRI,
the Borrower and their Subsidiaries, considered as a whole, to carry on business
substantially as now conducted by them, or
<PAGE>
-44-
result in any substantial liability not adequately covered by insurance, or for
which adequate reserves are not maintained on the consolidated balance sheet of
SRI, the Borrower and their Subsidiaries, or which question the validity of this
Credit Agreement or any of the other Loan Documents, or any action taken or to
be taken pursuant hereto or thereto.
SS.7.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither SRI, the Borrower
nor any of their Subsidiaries is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation that has
or is expected in the future to have a materially adverse effect on the
business, assets or financial condition of SRI, the Borrower or any of their
Subsidiaries. Neither SRI, the Borrower nor any of their Subsidiaries is a party
to any contract or agreement that has or is expected, in the judgment of the
Borrower's officers, to have any materially adverse effect on the business of
SRI, the Borrower and their Subsidiaries on a consolidated basis.
SS.7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Each of SRI, the
Borrower and any of their Subsidiaries is not in violation of any provision of
its charter documents, bylaws, or any agreement or instrument to which it may be
subject or by which it or any of its properties may be bound or any decree,
order, judgment, statute, license, rule or regulation, in any of the foregoing
cases in a manner that could reasonably be expected to materially and adversely
affect the financial condition, properties or business of SRI, the Borrower and
their Subsidiaries on a consolidated basis.
SS.7.10. TAX STATUS. SRI, the Borrower and their Subsidiaries (a) have
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which any of them is subject,
(b) have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Borrower know of no basis for any such claim.
SS.7.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
SS.7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither SRI, the
Borrower nor any of their Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935; nor is
it an "investment company", or an "affiliated company" or a "principal
underwriter" of an "investment company", as such terms are defined in the
Investment Company Act of 1940.
<PAGE>
-45-
SS.7.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of SRI, the Borrower or any of their Subsidiaries or
any rights relating thereto.
SS.7.14. PERFECTION OF SECURITY INTEREST. All filings, assignments,
pledges and deposits of documents or instruments have been made and all other
actions have been taken that are necessary, under applicable law, to establish
and perfect the Agent's security interest in the Collateral. The Collateral and
the Agent's rights with respect to the Collateral are not subject to any setoff,
claims, withholdings or other defenses. Each of SRI and the Borrower is the
owner of the Collateral free from any lien, security interest, encumbrance and
any other claim or demand, except for Permitted Liens.
SS.7.15. CERTAIN TRANSACTIONS. Except (a) as disclosed on SCHEDULE 7.15
hereto; (b) for consulting arrangements with Bain Capital, Inc. and (c) for
arm's length transactions pursuant to which SRI, the Borrower or any of their
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than SRI, the Borrower or such Subsidiary could obtain from third
parties, none of the officers, directors, or employees of SRI, the Borrower or
any of their Subsidiaries is presently a party to any contract, agreement or
other arrangement with SRI, the Borrower or any of their Subsidiaries (other
than for services as employees, officers and directors), providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
SS.7.16. EMPLOYEE BENEFIT PLANS.
7.16.1. IN GENERAL. Each Employee Benefit Plan and each Guaranteed
Pension Plan has been maintained and operated in compliance in all material
respects with the provisions of ERISA and, to the extent applicable, the Code,
including but not limited to the provisions thereunder respecting prohibited
transactions and the bonding of fiduciaries and other persons handling plan
funds as required by ss.412 of ERISA. The Borrower has heretofore delivered to
the Agent the most recently completed annual report, Form 5500, with all
required attachments, and actuarial statement required to be submitted under
ss.103(d) of ERISA, with respect to each Guaranteed Pension Plan.
7.16.2. TERMINABILITY OF WELFARE PLANS. No Employee Benefit Plan
which is an employee welfare benefit plan within the meaning of ss.3(1) or
ss.3(2)(B) of ERISA, provides benefit coverage subsequent to termination of
employment except as required by Title I, Part 6 of ERISA or applicable state
insurance laws. The Borrower may terminate each such Plan at any time (or at any
time subsequent to the expiration
<PAGE>
-46-
of any applicable bargaining agreement) in the discretion of the Borrower
without liability to any Person other than for claims arising prior to
termination.
7.16.3. GUARANTEED PENSION PLANS. Each contribution required to be
made to a Guaranteed Pension Plan, whether required to be made to avoid the
incurrence of an accumulated funding deficiency, the notice or lien provisions
of ss.302(f) of ERISA, or otherwise, has been timely made. No waiver of an
accumulated funding deficiency or extension of amortization periods has been
received with respect to any Guaranteed Pension Plan, and neither the Borrower
not any ERISA Affiliate is obligated to or has posted security in connection
with an amendment of a guaranteed Pension Plan pursuant to ss.307 of ERISA or
ss.401(a)(29) of the Code. Except as set forth on SCHEDULE 7.16.3 hereto, no
liability to the PBGC (other than required insurance premiums, all of which have
been paid) has been incurred by the Borrower or any ERISA Affiliate with respect
to any Guaranteed Pension Plan and there has not been any ERISA Reportable
Event, or any other event or condition which presents a material risk of
termination of any Guaranteed Pension Plan by the PBGC. Based on the latest
valuation of each Guaranteed Pension Plan (which in each case occurred within
twelve months of the date of this representation), and on the actuarial methods
and assumptions employed for that valuation, the aggregate benefit liabilities
of all such Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did
not exceed the aggregate value of the assets of all such Guaranteed Pension
Plans, disregarding for this purpose the benefit liabilities and assets of any
Guaranteed Pension Plan with assets in excess of benefit liabilities, by more
than $100,000.
7.16.4. MULTIEMPLOYER PLANS. Neither the Borrower nor any ERISA
Affiliate has incurred any material liability (including secondary liability) to
any Multiemployer Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan under ss.4201 of ERISA or as a result of a sale of assets
described in ss.4204 of ERISA that has not been satisfied in full. Neither the
Borrower nor any ERISA Affiliate has been notified that any Multiemployer Plan
is in reorganization or insolvent under and within the meaning of ss.4241 or
ss.4245 of ERISA or is at risk of entering reorganization or becoming insolvent,
or that any Multiemployer Plan intends to terminate or has been terminated under
ss.4041A of ERISA.
SS.7.17. REGULATIONS U AND X. The proceeds of the Loans shall be used to
convert existing Indebtedness to the Banks under the Original Credit Agreement
to Loans and Letters of Credit, as the case may be, hereunder and for working
capital and general corporate purposes The Borrower will obtain Letters of
Credit solely for working capital and general corporate purposes. No portion of
any Loan is to be used, and no portion of any Letter of Credit is to be
obtained, for the purpose of purchasing or carrying any "margin security" or
"margin stock" as such terms are used in Regulations U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
SS.7.18. ENVIRONMENTAL COMPLIANCE. Except as set forth on SCHEDULE 7.18
hereto:
<PAGE>
-47-
(a) none of SRI, the Borrower, any of their Subsidiaries or any operator
of the Real Estate or any operations thereon is in violation of any
judgment, decree, order, law, license, rule or regulation pertaining
to environmental matters, including without limitation, those
arising under the Resource Conservation and Recovery Act ("RCRA"),
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act,
the Federal Clean Air Act, the Toxic Substances Control Act, or any
state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter
"Environmental Laws"), which violation would reasonably be expected
to have a material adverse effect on the environment or the
business, assets or financial condition of SRI, the Borrower and
their Subsidiaries on a consolidated basis;
(b) neither SRI, the Borrower nor any of their Subsidiaries has received
written notice from any third party including, without limitation:
any federal, state or local governmental authority, (i) that any one
of them has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous
waste, as defined by 42 U.S.C. ss. 9601(5), any hazardous substances
as defined by 42 U.S.C.ss. 9601(14), any pollutant or contaminant as
defined by 42 U.S.C.ss.9601(33) and any toxic substances, oil or
hazardous materials or other chemicals or substances regulated by
any Environmental Laws ("Hazardous Substances") which any one of
them has generated, transported or disposed of has been found at any
site at which a federal, state or local agency or other third party
has conducted or has ordered that SRI, the Borrower or any of its
Subsidiaries conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it
is or shall be a named party to any claim, action, cause of action,
complaint, or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence
of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances except for such
of the foregoing clauses (i) through (iii) which would not
reasonably be expected to have a materially adverse effect on the
business, assets or financial condition of SRI, the Borrower and
their Subsidiaries on a consolidated basis;
(c) except as would not reasonably be expected to have a materially
adverse effect on the business, assets or financial condition of
SRI, the Borrower and their Subsidiaries on a consolidated basis:
(i) no portion of the Real Estate has been used for the handling,
processing, storage or disposal of Hazardous Substances except in
accordance with applicable
<PAGE>
-48-
Environmental Laws; and no underground tank or other underground
storage receptacle for Hazardous Substances is located on any
portion of the Real Estate; (ii) in the course of any activities
conducted by SRI, the Borrower, their Subsidiaries or operators of
its properties, no Hazardous Substances have been generated or are
being used on the Real Estate except in accordance with applicable
Environmental Laws; (iii) there have been no releases (i.e. any past
or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Substances on, upon, into or from
the properties of the Borrower or its Subsidiaries, which releases
would have a material adverse effect on the value of any of the Real
Estate or adjacent properties or have a materially adverse effect on
the environment; (iv) to the best of the Borrower's knowledge, there
have been no releases on, upon, from or into any real property in
the vicinity of any of the Real Estate which, through soil or
groundwater contamination, has come to be located on, and which
would have a material adverse effect on the value of, the Real
Estate; and (v) in addition, to the best of the Borrower's
knowledge, any Hazardous Substances that have been generated on any
of the Real Estate have been transported offsite only by carriers
having an identification number issued by the EPA, treated or
disposed of only by treatment or disposal facilities maintaining
valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are operating in
compliance with such permits and applicable Environmental Laws; and
(d) Neither SRI, the Borrower nor any of their Subsidiaries, any
Mortgaged Property or any of the other Real Estate is subject to any
applicable Environmental Law requiring the performance of Hazardous
Substances site assessments, or the removal or remediation of
Hazardous Substances, or the giving of notice to any governmental
agency or the recording or delivery to other Persons of an
environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or as a
condition to the recording of any Mortgage or to the effectiveness
of any other transactions contemplated hereby where the failure to
comply with such Environmental Laws would be expected to have a
materially adverse effect on the business, assets or financial
condition of SRI, the Borrower and their Subsidiaries on a
consolidated basis.
SS.7.19. SUBSIDIARIES, ETC. The Receivables Subsidiary is the only
Subsidiary of the Borrower, and the Borrower owns one hundred percent (100%) of
the issued and outstanding capital stock of the Receivables Subsidiary. The
Borrower is the only direct Subsidiary of SRI, and SRI owns one hundred percent
(100%) of the issued and outstanding capital stock of the Borrower. SRI is the
only Subsidiary of SSI, and SSI owns one hundred percent (100%) of the issued
and outstanding capital stock of SRI.
<PAGE>
-49-
Except as set forth on SCHEDULE 7.19 hereto, neither SRI, the Borrower nor any
Subsidiary of the Borrower or SRI is engaged in any joint venture or partnership
with any other Person.
SS.7.20. SENIOR DEBT. The execution, delivery and performance of this
Credit Agreement and the other Loan Documents to which SRI, the Borrower or any
of their Subsidiaries is or is to become a party and, the transactions
contemplated hereby and thereby (a) does not violate any provision of the Senior
Notes, the Senior Subordinated Notes, the Senior Notes Indenture or the Senior
Subordinated Notes Indenture (b) the Indebtedness arising hereunder constitutes
permitted "Indebtedness" (as defined in the Senior Notes Indenture and Senior
Subordinated Notes Indenture (collectively, the "Indentures")) pursuant to the
terms of the Indentures, (c) the liens arising as a result of this transaction
constitute "Permitted Liens" (as defined in the Indentures) pursuant to the
terms of the Indentures and (d) the Obligations constitute "Senior Debt" (as
defined in the Senior Subordinated Notes Indenture) pursuant to the terms of the
Senior Subordinated Notes Indenture, to which the Senior Subordinated Notes are
subordinated and junior in rights of payment.
SS.7.21. FISCAL YEAR. Each of SRI and the Borrower has a fiscal year which
ends on the Saturday closest to the end of January of each year.
SS.7.22. INSURANCE. Each of SRI, the Borrower and each of their
Subsidiaries maintains with financially sound and reputable insurers insurance
with respect to its properties and businesses against such casualties and
contingencies as are in accordance with general practices of businesses engaged
in similar activities and similar geographic areas, with the details of such
coverage being more fully described on SCHEDULE 7.22 hereto.
SS.8. AFFIRMATIVE COVENANTS OF THE BORROWER. Each of SRI and the Borrower
covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation,
Letter of Credit or Note is outstanding or any Bank has any obligation to make
any Loans or the Agent has any obligation to issue, extend or renew any Letters
of Credit:
SS.8.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loans, all Reimbursement
Obligations, the Letter of Credit Fees, the commitment fees, the Agent's fee and
all other amounts provided for in this Credit Agreement and the other Loan
Documents to which the Borrower or any of its Subsidiaries is a party, all in
accordance with the terms of this Credit Agreement and such other Loan
Documents.
SS.8.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office in 10201 Main Street, Houston, Texas, or at such other place in
the United States of America as the Borrower shall designate upon written notice
to the Agent, where notices, presentations and demands to or upon the Borrower
in respect of the Loan Documents to which the Borrower is a party may be given
or made.
<PAGE>
-50-
SS.8.3. RECORDS AND ACCOUNTS. SRI and the Borrower will (a) keep, and
cause each of their Subsidiaries to keep, true and accurate records and books of
account in which full, true and correct entries will be made in accordance with
Generally Accepted Accounting Principles and (b) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves.
SS.8.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower
will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than one hundred
ten (110) days after the end of each fiscal year of the Borrower,
the consolidated balance sheet of SSI and its Subsidiaries and the
consolidating balance sheet of SSI and its Subsidiaries, each as at
the end of such year, and the related consolidated statement of
income and consolidated statement of cash flow and consolidating
statement of income, each setting forth in comparative form the
figures for the previous fiscal year and all such consolidated and
consolidating statements to be in reasonable detail, prepared in
accordance with Generally Accepted Accounting Principles, and
certified (as to consolidated statements) without qualification by
SSI's accountants or by other independent certified public
accountants satisfactory to the Agent, together with a written
statement from such accountants to the effect that they have read a
copy of this Credit Agreement, and that, in making the examination
necessary to said certification, they have obtained no knowledge of
any Default or Event of Default, or, if such accountants shall have
obtained knowledge of any then existing Default or Event of Default
they shall disclose in such statement any such Default or Event of
Default; PROVIDED that such accountants shall not be liable to the
Banks for failure to obtain knowledge of any Default or Event of
Default;
(b) as soon as practicable, but in any event not later than fifty (50)
days after the end of each of the fiscal quarters of the Borrower,
copies of the unaudited consolidated balance sheet of SSI and its
Subsidiaries and the unaudited consolidating balance sheets of SSI
and its Subsidiaries, each as at the end of such quarter, and the
related consolidated and consolidating statements of income and
consolidated and consolidating statement of cash flow for the
portion of the fiscal year then elapsed, all in reasonable detail
and prepared in accordance with Generally Accepted Accounting
Principles, together with a certification by the principal financial
or accounting officer of SRI and the Borrower that the information
contained in such financial statements fairly presents the financial
position of SRI and its Subsidiaries on the date thereof and for the
period then ended (subject to year-end adjustments);
<PAGE>
-51-
(c) as soon as practicable, but in any event within thirty-five (35)
days after the end of each month in each fiscal year of the
Borrower, preliminary and unaudited monthly consolidated income
statement and balance sheet of SSI and its Subsidiaries for such
month and unaudited monthly consolidating income statement and
balance sheet of SSI and its Subsidiaries for such month, and the
related consolidated and consolidating financial statements of SSI
and its Subsidiaries for the portion of the Borrower's fiscal year
then elapsed, setting forth in comparative form the figures set
forth in the Seasonal Projections and projected capital budget
portion of the Fiscal Year Projections delivered
pursuant to ss.7.4.2 (or, if updated, pursuant to ss.8.4(d) or (h))
for the comparable period and those figures for the comparable
period in the preceding fiscal year (in the consolidated statement
only), each prepared in accordance with Generally Accepted
Accounting Principles, together with a certification by the
principal financial or accounting officer of SRI that the
information contained in such financial statements fairly presents
the financial condition of SRI and its Subsidiaries on the date
thereof and for the period then ended (subject to any quarterly and
year-end adjustments);
(d) not later than January 1 and July 1 of each year, the Seasonal
Projections of SRI, the Borrower and their Subsidiaries, and not
later than January 15 of each year, (i) the Fiscal Year Projections
of SRI, the Borrower and their Subsidiaries, updating those Seasonal
Projections and Fiscal Year Projections delivered to the Banks and
referred to in ss.7.4.2 and (ii) the cash flow budget of SSI and its
Subsidiaries for such year;
(e) simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified
by the principal financial or accounting officer of the Borrower in
substantially the form of EXHIBIT C hereto (the "Compliance
Certificate") and setting forth in reasonable detail computations
evidencing compliance with the covenants contained inss.10 and (if
applicable) reconciliations to reflect changes in Generally Accepted
Accounting Principles since the Balance Sheet Date, and within ten
(10) Business Days after the Borrower's fiscal month ending in
December of each fiscal year, a Compliance Certificate setting forth
in reasonable detail computations evidencing compliance with the
covenant contained inss.10.6 hereof. To the extent that the
Compliance Certificate states that (i) the financial statements of
SSI and its Subsidiaries fairly present in all material respects the
financial condition of SRI and its Subsidiaries for the period in
respect of which such certificate shall be given and (ii) the
consolidated revenue of SRI and its Subsidiaries constitutes
substantially all of the consolidated revenues of SSI and its
Subsidiaries and that the combined assets of SRI and its
Subsidiaries constitutes substantially all of the consolidated
assets of SSI
<PAGE>
-52-
and its Subsidiaries, then for purposes of demonstrating compliance
with ss.10 hereof, SRI and the Borrower may use the consolidated
financial statements of SSI in lieu of the actual consolidated
financial statements of SRI and the Borrower;
(f) as soon as practicable, but in any event within thirty-five (35)
days after the end of each month in each fiscal year of the
Borrower, (i) a store by store analysis setting forth the financial
information for each store (including such store's monthly sales)
for such month, a comparison of such information to the Borrower's
current budget for such store and a comparison of such information
to the similar financial information for such store in the prior
year, as well as an aggregate financial statement for all stores as
compared to the similar financial information for all stores
contained in the Borrower's budget and a comparison of such
information to the same information for all stores in the prior year
and (ii) a calculation of the Borrower's EBITDA for the prior month;
(g) contemporaneously with the filing or mailing thereof, copies of all
material of a financial nature filed with the Securities and
Exchange Commission and sent to the stockholders of SSI generally,
including without limitation, copies of the 10-K and 10-Q of SSI;
(h) contemporaneously with the receipt by the Borrower thereof, copies
of all letters and other reports of substance submitted to SSI, the
Borrower or SRI by independent certified public accountants in
connection with any annual or interim audit of the books of SSI, the
Borrower or SRI made by such accountants, including, without
limitation, all reconciliations made from SSI's management prepared
financial statements to its 10-K and 10- Q for the same period;
(i) from time to time upon request of the Agent, Annual Projections of
SRI, the Borrower and their Subsidiaries updating those Annual
Projections delivered to the Banks and referred to in ss.7.4.2 or,
if applicable, updating any later such Annual Projections delivered
in response to a request pursuant to this ss.8.4(i);
(j) as soon as practicable, but in any event within three (3) days after
the end of each of the Borrower's fiscal weeks for the Borrower's
fiscal month of December of each year, a store by store analysis
setting forth the sales for each store for such fiscal week and a
comparison of such information to the similar information for such
store in the prior year, as well as an aggregate financial statement
for all stores as compared to the similar information for all stores
contained in the Borrower's budget and a comparison of such
information to the same information for all stores in the prior
year;
<PAGE>
-53-
(k) as soon as practicable, but in any event within thirty-five (35)
days after the end of each fiscal month of the Borrower, the
Borrower's "cash flow report", which report shall set forth the
Borrower's cash flow for such month, a comparison of such
information to the Borrower's current monthly budget for such month,
together with a comparison of such information to the Borrower's
actual budget, together with any and all updates to the Borrower's
budget;
(l) contemporaneously with the mailing or other dissemination thereof,
copies of all press releases by SSI or any of its Subsidiaries; and
(m) from time to time such other financial data and information as the
Agent or any Bank may reasonably request.
SS.8.5. NOTICES.
8.5.1. DEFAULTS. The Borrower will promptly notify the Agent and
each of the Banks in writing of the occurrence of any Default or Event of
Default. If any Person shall give any notice or take any other action in respect
of a claimed default (whether or not constituting an Event of Default) under
this Credit Agreement or any other note, evidence of indebtedness, indenture or
other obligation to which or with respect to which the Borrower or any of its
Subsidiaries is a party or obligor, whether as principal, guarantor, surety or
otherwise, the Borrower shall forthwith give written notice thereof to the Agent
and each of the Banks, describing the notice or action and the nature of the
claimed default.
8.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give notice
to the Agent and each of the Banks (a) of any violation of any Environmental Law
that SRI, the Borrower or any of their Subsidiaries reports in writing or is
reportable by such Person in writing (or for which any written report
supplemental to any oral report is made) to any federal, state or local
environmental agency and (b) upon becoming aware thereof, of any inquiry,
proceeding, investigation, or other action pursuant or related to Environmental
Laws, including a written notice from any agency of potential environmental
liability, or any federal, state or local environmental agency or board, that
could reasonably be expected to materially adversely affect the assets,
liabilities, financial conditions or operations of SRI, the Borrower and their
Subsidiaries on a consolidated basis, or the Agent's mortgages, deeds of trust
or security interests pursuant to the Security Documents.
8.5.3. NOTIFICATION OF CLAIM AGAINST COLLATERAL. The Borrower will,
immediately upon becoming aware thereof, notify the Agent and each of the Banks
in writing of any setoff, claims (including, with respect to the Real Estate,
environmental claims), withholdings or other defenses to which any of the
Collateral, or the Agent's rights with respect to the Collateral, are subject.
<PAGE>
-54-
8.5.4. NOTICE OF LITIGATION AND JUDGMENTS. SRI and the Borrower
will, and will cause each of their Subsidiaries to, give notice to the Agent and
each of the Banks in writing within fifteen (15) days of becoming aware of any
litigation or proceedings threatened in writing or any pending litigation and
proceedings affecting SRI, the Borrower or any of their Subsidiaries or to which
SRI, the Borrower or any of their Subsidiaries is or becomes a party involving
an uninsured claim against SRI, the Borrower or any of their Subsidiaries that
could reasonably be expected to have a materially adverse effect on SRI, the
Borrower and their Subsidiaries on a consolidated basis and stating the nature
and status of such litigation or proceedings. SRI and the Borrower will, and
will cause each of their Subsidiaries to, give notice to the Agent and each of
the Banks, in writing, in form and detail satisfactory to the Agent, within ten
(10) days of any judgment not covered by insurance, final or otherwise, against
SRI, the Borrower or any of their Subsidiaries in an amount in excess of
$200,000.
SS.8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. Each of SRI and
the Borrower will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises and
those of their Subsidiaries. Each (a) will cause all of its properties and those
of their Subsidiaries used or useful in the conduct of its business or the
business of their Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment, (b) will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Borrower may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times, and (c) will, and will cause each of
their Subsidiaries to, continue to engage primarily in the businesses now
conducted by them and in related businesses; PROVIDED that nothing in this
ss.8.6 shall prevent SRI or the Borrower from discontinuing the operation and
maintenance of any of its properties or any of those of its Subsidiaries (unless
such Subsidiary is the Borrower) if such discontinuance is, in the judgment of
SRI or the Borrower, as the case may be, desirable in the conduct of its or
their business and that do not in the aggregate materially adversely affect the
business of SRI, the Borrower and their Subsidiaries on a consolidated basis.
SS.8.7. INSURANCE. SRI and the Borrower will, and will cause each of their
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as described on SCHEDULE 7.22 hereto, and as shall be in
accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and in amounts, containing such terms, in
such forms and for such periods as may be reasonable and prudent. The Borrower
will, and will cause each of their Subsidiaries to, maintain insurance on the
Mortgaged Property in accordance with the terms of the Mortgage.
SS.8.8. TAXES. SRI and the Borrower will, and will cause each of their
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges
<PAGE>
-55-
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid would reasonably be expected by law
to become a lien or charge upon any of its property; PROVIDED that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if SRI, the Borrower or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto; and PROVIDED FURTHER that SRI, the
Borrower and each of their Subsidiaries will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor.
SS.8.9. INSPECTION OF PROPERTIES AND BOOKS, ETC.
8.9.1. GENERAL. SRI and the Borrower shall permit the Banks, through
the Agent or any of the Banks' other designated representatives, to visit,
during normal business hours, and inspect any of the properties of SRI, the
Borrower or any of their Subsidiaries, to examine the books of account of SRI,
the Borrower and their Subsidiaries (and to make copies thereof and extracts
therefrom), and to discuss the affairs, finances and accounts of SRI, the
Borrower and their Subsidiaries with, and to be advised as to the same by, their
and their officers, all at such reasonable times and intervals as the Agent or
any Bank may reasonably request. Each of SRI, the Borrower and any of their
Subsidiaries shall permit the Agent, the Banks or any of their or their
designated representatives to conduct commercial finance examinations, such
examinations to be at the Borrower's expense, PROVIDED, HOWEVER, if no Default
or Event of Default exists or is continuing, the Borrower shall only be required
to pay for one such examination per calendar year.
8.9.2. APPRAISALS. If an Event of Default shall have occurred and be
continuing, or if any Bank is required by any law, rule, regulation or directive
to obtain an appraisal, upon the request of the Agent, the Borrower will obtain
and deliver to the Agent appraisal reports in form and substance and from
appraisers satisfactory to the Agent, stating (a) the then current fair market,
orderly liquidation and forced liquidation values of the Mortgaged Property and
(b) the then current business value of each of the Borrower and its
Subsidiaries. All such appraisals shall be conducted and made at the expense of
the Borrower.
8.9.3. ENVIRONMENTAL ASSESSMENTS. If an Event of Default shall have
occurred and be continuing or if the Borrower gives notice pursuant to
ss.8.5.2(a) to the Agent and the Banks of a violation of an Environmental Law or
becomes aware of any inquiry, proceeding, investigation or other action pursuant
to or related to Environmental Laws, the Agent may, in its discretion for the
purpose of assessing and ensuring the value of the Mortgaged Property, obtain
one or more environmental assessments or audits of such Mortgaged Property
prepared by a hydrogeologist, an independent engineer or other qualified
consultant or expert approved by the Agent to evaluate or confirm (a) whether
any Hazardous Materials are present in the soil or water at such Mortgaged
Property and (b) whether the use and operation of such
<PAGE>
-56-
Mortgaged Property complies with all Environmental Laws. Environmental
assessments may include without limitation detailed visual inspections of such
Mortgaged Property including any and all storage areas, storage tanks, drains,
dry wells and leaching areas, and the taking of soil samples, surface water
samples and ground water samples, as well as such other investigations or
analyses as the Agent deems appropriate. All such environmental assessments
shall be conducted and made at the expense of the Borrower.
8.9.4. COMMUNICATIONS WITH ACCOUNTANTS. Each of SRI and the Borrower
authorizes the Agent and, if accompanied by the Agent, the Banks to communicate
directly with SRI's and the Borrower's independent certified public accountants
and authorizes such accountants to disclose to the Agent and the Banks any and
all financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of SRI, the Borrower or any of their
Subsidiaries. At the request of the Agent, SRI or the Borrower shall deliver a
letter addressed to such accountants instructing them to comply with the
provisions of this ss.8.9.4.
SS.8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. Each of
SRI and the Borrower will, and will cause each of their Subsidiaries to, comply
with (a) the applicable laws and regulations wherever its business is conducted,
including all Environmental Laws except for such noncompliance which would not
reasonably be expected to have a materially adverse effect on the business,
assets or financial condition of SRI, the Borrower and their Subsidiaries on a
consolidated basis, (b) the provisions of its charter documents and by-laws, (c)
all agreements and instruments by which it or any of its properties may be bound
and (d) all applicable decrees, orders, and judgments. If any authorization,
consent, approval, permit or license from any officer, agency or instrumentality
of any government shall become necessary or required in order that SRI, the
Borrower or any of their Subsidiaries may fulfill any of its obligations
hereunder or any of the other Loan Documents to which SRI, the Borrower or such
Subsidiary is a party, SRI and the Borrower will, or (as the case may be) will
cause such Subsidiary to, immediately take or cause to be taken all reasonable
steps within the power of SRI or the Borrower or such Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Banks with evidence thereof.
SS.8.11. EMPLOYEE BENEFIT PLANS. Upon the Agent's request, the Borrower
will (i) promptly furnish to the Agent a copy of the most recent actuarial
statement required to be submitted under ss.103(d) of ERISA and Annual Report,
Form 5500, with all required attachments, in respect of each Guaranteed Pension
Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent any
notice, report or demand sent or received in respect of a Guaranteed Pension
Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or
in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245
of ERISA.
<PAGE>
-57-
SS.8.12. USE OF PROCEEDS. The Borrower will use the proceeds of the Loans
and will obtain Letters of Credit to convert existing Indebtedness to the Banks
under the Original Credit Agreement to Loans and Letters of Credit, as the case
may be, hereunder and for working capital and general corporate purposes.
SS.8.13. FURTHER ASSURANCES. Each of SRI and the Borrower will, and will
cause each of their Subsidiaries to, cooperate with the Banks and the Agent and
execute such further instruments and documents as the Banks or the Agent shall
reasonably request to carry out to their satisfaction the transactions
contemplated by this Credit Agreement and the other Loan Documents.
SS.9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. Each of SRI and the
Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement
Obligation, Letter of Credit or Note is outstanding or any Bank has any
obligation to make any Loans or the Agent has any obligations to issue, extend
or renew any Letters of Credit:
SS.9.1. RESTRICTIONS ON INDEBTEDNESS. Each of SRI and the Borrower will
not, and will not permit any of their Subsidiaries to, create, incur, assume,
guarantee or be or remain liable, contingently or otherwise, with respect to any
Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising under any of the
Loan Documents;
(b) current liabilities of SRI, the Borrower or such Subsidiary incurred
in the ordinary course of business not incurred through (i) the
borrowing of money, or (ii) the obtaining of credit except for
credit on an open account basis extended in connection with normal
purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments or governmental
charges to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of ss.8.8;
(d) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which
SRI, the Borrower or such Subsidiary shall at the time in good faith
be prosecuting an appeal or proceedings for review and in respect of
which a stay of execution shall have been obtained pending such
appeal or review;
(e) endorsements for collection, deposit or negotiation and warranties
of products or services, in each case incurred in the ordinary
course of business;
<PAGE>
-58-
(f) Indebtedness of SRI and the Borrower evidenced by the Senior Notes
and Indebtedness of SRI and the Borrower consisting of Subordinated
Debt;
(g) obligations of SRI or the Borrower under Capitalized Leases not
exceeding $4,000,000 in aggregate amount at any time outstanding;
(h) Indebtedness incurred in connection with the acquisition after the
date hereof of any real or personal property by SRI or the Borrower,
PROVIDED that the aggregate principal amount of such Indebtedness of
SRI and the Borrower shall not exceed the aggregate amount of
$3,000,000 outstanding at any one time;
(i) Indebtedness existing on the date hereof and listed and described on
SCHEDULE 9.1 hereto;
(j) Indebtedness of a Subsidiary of the Borrower to the Borrower, which
Indebtedness exists on the Closing Date;
(k) Indebtedness arising under the Receivables Purchase Agreement and
Pooling and Servicing Agreement;
(l) in addition to the Indebtedness incurred pursuant to clause (h)
above, Indebtedness incurred or assumed by SRI or the Borrower in
connection with acquisitions permitted byss.9.5.1, PROVIDED that the
aggregate principal amount of such Indebtedness incurred or assumed
by SRI and the Borrower shall not exceed the aggregate amount of
$8,000,000 during the term of this Credit Agreement and PROVIDED,
FURTHER that such Indebtedness is expressly subordinated in right of
payment to the Obligations on terms acceptable to the Agent,
including without limitation no cash payments of principal until
after the Maturity Date;
(m) Indebtedness in respect of dividends declared by SRI, the Borrower
or the Receivables Subsidiary as permitted under ss.9.4 but not yet
paid;
(n) Indebtedness in respect of indemnification obligations of SRI and
the Borrower to their respective officers and directors pursuant to
their charter documents;
(o) Indebtedness to the Seasonal Revolver Banks and the Seasonal
Revolver Agent arising under the Seasonal Revolving Agreement;
(p) Indebtedness of the Receivables Subsidiary evidenced by the
Receivables Subsidiary Notes; and
<PAGE>
-59-
(q) Indebtedness of SRI and the Borrower to SSI pursuant to the Junior
Subordinated Notes, PROVIDED, the aggregate principal amount of all
such Indebtedness shall not exceed $65,000,000 outstanding at any
one time.
SS.9.2. RESTRICTIONS ON LIENS. Each of SRI and the Borrower will not, and
will not permit any of their Subsidiaries to, (a) create or incur or suffer to
be created or incurred or to exist any lien, encumbrance, mortgage, pledge,
charge, restriction or other security interest of any kind upon any of its
property or assets of any character whether now owned or hereafter acquired, or
upon the income or profits therefrom; (b) transfer any of such property or
assets or the income or profits therefrom for the purpose of subjecting the same
to the payment of Indebtedness or performance of any other obligation in
priority to payment of its general creditors; (c) acquire, or agree or have an
option to acquire, any property or assets upon conditional sale or other title
retention or purchase money security agreement, device or arrangement; (d)
suffer to exist for a period of more than thirty (30) days after the same shall
have been incurred any Indebtedness or claim or demand against it that if unpaid
would reasonably be expected by law or upon bankruptcy or insolvency, or
otherwise, to be given any priority whatsoever over its general creditors; or
(e) sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles, chattel paper or instruments, with or without recourse;
PROVIDED that each of SRI, the Borrower and any Subsidiary of SRI or of the
Borrower may create or incur or suffer to be created or incurred or to exist:
(i) liens to secure taxes, assessments and other government charges
in respect of obligations not overdue;
(ii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iii) liens on properties other than the Mortgaged Property in
respect of judgments or awards, the Indebtedness with respect to which is
permitted by ss.9.1(d);
(iv) liens of carriers, warehousemen, mechanics and materialmen, and
other like liens on properties other than the Mortgaged Property, in
existence less than 120 days from the date of creation thereof in respect
of obligations not overdue;
(v) liens in respect of Capitalized Leases;
(vi) encumbrances on Real Estate other than the Mortgaged Property
consisting of easements, rights of way, zoning restrictions, restrictions
on the use of real property and defects and irregularities in the title
thereto, landlord's or lessor's liens under leases to which the Borrower
or a Subsidiary of the Borrower is a party, and other minor liens or
encumbrances none of which in the reasonable opinion of the Borrower
interferes materially with the use of the
<PAGE>
-60-
property affected in the ordinary conduct of the business of the Borrower
and its Subsidiaries, which defects do not individually or in the
aggregate have a materially adverse effect on the business of the Borrower
individually or of the Borrower and its Subsidiaries on a consolidated
basis;
(vii) liens existing on the date hereof and listed on SCHEDULE 9.2
hereto;
(viii) purchase money security interests in or purchase money
mortgages on real or personal property other than Mortgaged Properties
acquired after the date hereof to secure purchase money Indebtedness of
the type and amount permitted by ss.9.1(h), incurred in connection with
the acquisition of such property, which security interests or mortgages
cover only the real or personal property so acquired;
(ix) liens and encumbrances on the Mortgaged Property as and to the
extent permitted by the Mortgage;
(x) liens in favor of the Agent for the benefit of the Banks and the
Agent under the Loan Documents;
(xi) liens on the Borrower's or the Receivable Subsidiary's credit
card receivables in favor of the buyers pursuant to the Receivables
Purchase Agreement and the Pooling and Servicing Agreement, to the extent
that the same do not constitute a true sale;
(xii) liens on assets and property of SRI, the Borrower and their
Subsidiaries when such assets and property, individually and in the
aggregate, have a value of less than $50,000; and
(xiii) liens in favor of the holders of the Receivables Subsidiary
Notes on the Transferor Retained Certificates and the Transferor Interest
(as such terms are defined in the Pooling and Servicing Agreement).
SS.9.3. RESTRICTIONS ON INVESTMENTS. Each of SRI and the Borrower will
not, and will not permit any of their Subsidiaries to, make or permit to exist
or to remain outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United States of
America that mature within six (6) months from the date of purchase
by the Borrower;
(b) demand deposits, certificates of deposit, bankers acceptances and
time deposits with maturities of six (6) months or less of United
States banks having capital and surplus in excess of $500,000,000;
<PAGE>
-61-
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase
have been rated and the ratings for which are not less than "P 1" if
rated by Moody's Investors Services, Inc., and not less than "A 1"
if rated by Standard and Poor's;
(d) Investments consisting of acquisitions permitted by ss.9.5.1 hereof;
(e) Investments with respect to Indebtedness permitted by ss.9.1(j) so
long as such entities remain Subsidiaries of either SRI or the
Borrower, as the case may be;
(g) Investments in the Receivables Subsidiary received in consideration
of sales of accounts receivable permitted under ss.9.5.2; and
(h) Investments consisting of loans to officers, directors and employees
of SRI and the Borrower or Investments consisting of the repurchase
by SRI or the Borrower of real property consisting of the personal
residences of certain officers, directors or employees of SRI or the
Borrower in connection with relocation of such officers, directors
or employees, which loans and repurchases shall not exceed at any
one time, in the aggregate, $3,000,000 LESS the sum of (i)
Investments consisting of loans to officers, directors and employees
of SRI and the Borrower then outstanding on the Closing Date PLUS
(ii) the amount of any Distributions made for the repurchase of
employee stock pursuant toss.9.4 net of the amount of any sales of
stock to employees.
SS.9.4. DISTRIBUTIONS; REPAYMENT. SRI will not make any Distributions or
make any repayments in respect of intercompany indebtedness or any other
payments to any stockholder of SRI, PROVIDED, HOWEVER, if no Default or Event of
Default has occurred or is continuing or would exist after giving effect
thereto, SRI shall be permitted to (a) make a payment to SSI to reimburse it for
(i) its out-of-pocket administrative expenses (including without limitation,
legal, accounting, franchise tax and general operating expenses) in an amount
not to exceed, in the aggregate, $500,000 in any fiscal year, and (ii) the
amount of income tax payments to be made by SSI pursuant to the terms of the
Federal Income Tax Allocation Agreement dated as of August 2, 1993 by and among
SSI, SRI, the Borrower and the Receivables Subsidiary, in the form delivered to
the Agent prior to the Closing Date in an aggregate amount with respect to each
year not to exceed SSI's actual income tax paid with respect to such year, and
(b) make Distributions to SSI in an amount which shall not exceed at any time,
in the aggregate, $2,500,000 LESS the sum of (i) Distributions previously made
to SSI for the repurchase of employee stock net of the amount of any sales of
stock to employees PLUS (ii) the amount of Investments made consisting of
employee loans or repurchases permitted pursuant to ss.9.3(h), PROVIDED such
Distribution is used by SSI for the repurchase of employee stock. The Borrower
will not, and will not permit its
<PAGE>
-62-
Subsidiaries to, directly or indirectly make any repayments in respect of
intercompany indebtedness or any other payments to any Affiliate other than SRI
or the Borrower. In addition, the Borrower will not permit its Subsidiaries to,
directly or indirectly, make any Distributions prior to the repayment by such
Subsidiary of all intercompany indebtedness of such Subsidiary PROVIDED,
HOWEVER, so long as no Default or Event of Default has occurred or is continuing
or would exist as a result thereof, the Receivables Subsidiary shall be
permitted to make Distributions to the Borrower prior to the repayment of all of
its intercompany indebtedness in an amount not to exceed the amount of Defaulted
Receivables (as defined in the Receivables Purchase Agreement) repurchased by
the Borrower from the Receivables Subsidiary pursuant to the terms and
conditions set forth in the Receivables Purchase Agreement and Pooling and
Servicing Agreement and provided that such Distributions are made by the end of
the calendar month in which the Borrower purchased such Defaulted Receivables.
SS.9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
9.5.1. MERGERS AND ACQUISITIONS. Neither SRI nor the Borrower will
become a party to any merger or consolidation, or agree to or effect any asset
acquisition or stock acquisition (other than the acquisition of assets in the
ordinary course of business consistent with past practice (including, without
limitation, the purchase of deminimis amounts of capital stock by SRI or any of
its Subsidiaries of another Person in the same or a similar line of business) or
the merger of SRI and the Borrower) except (a) the merger of SRI with and into
the Borrower, with the Borrower being the surviving entity and changing its name
to "Specialty Retailers, Inc.", PROVIDED that (i) no Default or Event of Default
has occurred and is continuing or would exist after giving effect thereto; (ii)
the Borrower has provided the Agent with prior written notice of such merger;
(iii) the Borrower has provided to the Agent copies of all documents, instrument
and agreements pertaining to the merger, and such documents, instruments and
agreements are in form and substance satisfactory to the Agent; (iv) the
Borrower has delivered to the Agent evidence that the merger would not either
(1) violate the terms of any other agreement to which either the Borrower or SRI
is a party or (2) if any violation would occur, such violation of any such
agreement or agreements would have a material adverse effect on the SRI, the
Borrower or any of their Subsidiaries, (v) all actions as are required by the
Agent have been taken to continue the perfected first priority security interest
of the Agent in the Collateral and (vi) the Loan Documents have been amended to
reflect the change in the Borrower's name thereunder; and (b) the Borrower may
effect acquisitions of entities which are in the same or a similar line of
business as the Borrower, PROVIDED, that (i) no Default or Event of Default has
occurred or is continuing or would exist after giving effect thereto; (ii) the
Borrower has provided the Agent with prior written notice of each such
acquisition; (iii) the aggregate total consideration for all such acquisitions
(which shall include, without limitation, the cash purchase price of such
acquisition and any Indebtedness incurred or assumed by the Borrower in
connection therewith) does not exceed, in the aggregate, $10,000,000 during the
term of this Credit Agreement; (iv) the Borrower has demonstrated to the Agent
based on a PRO FORMA Compliance Certificate covenant compliance with ss.10 on a
PRO FORMA basis immediately prior to and after
<PAGE>
-63-
giving effect to each such acquisition on the assumption that each such
acquisition occurred at the beginning of the covenant calculations period; (v)
any payments on acquisition related debt instruments shall be included in the
calculation of Debt Service; and (vi) any acquisition related debt instruments
would not violate the restrictions on Indebtedness set forth in ss.9.1.
In the event any new Subsidiary is formed as a result of or in connection
with any acquisition, and such Subsidiary is not immediately merged with and
into the Borrower with the Borrower being the surviving entity, the Loan
Documents shall be amended and/or supplemented as necessary to make the terms
and conditions of the Loan Documents applicable to such Subsidiary, and such
Subsidiary shall be required to execute and deliver to the Agent (a) a guaranty
satisfactory to the Agent guaranteeing the Obligations of the Borrower to the
Agent and the Banks and (b) a security agreement and such other security
documents as the Agent and the Banks shall require in order to grant to the
Agent for the benefit of the Agent and the Banks a first priority perfected
security interest on all of such new Subsidiary's assets.
9.5.2. DISPOSITION OF ASSETS. Each of SRI and the Borrower will not,
and will not permit any of its Subsidiaries to, become a party to or agree to or
effect any disposition of assets, other than (a) the disposition of assets
(including obsolete assets) in the ordinary course of business, consistent with
past practices, (b) the sale of credit card receivables to the Receivables
Subsidiary pursuant to the Receivables Purchase Agreement and the pooling and
sale of such receivables in the Receivables Subsidiary pursuant to the Pooling
and Servicing Agreement, in each case for consideration having a value at least
equal to ninety-five percent (95%) of the book value thereof determined in
accordance with Generally Accepted Accounting Principles, (c) the disposition of
any assets pursuant to a trade-in of such asset for a similar asset, and (d) the
disposition by sale to an independent and unrelated third party for fair value
of assets, not to exceed $1,000,000 in the aggregate in any fiscal year;
PROVIDED, that only for the fiscal year ending in January 1997 such $1,000,000
limit shall be increased to $2,000,000.
SS.9.6. SALE AND LEASEBACK. The Borrower will not, enter into any
arrangement, directly or indirectly, whereby the Borrower shall sell or transfer
the Mortgaged Property in order then or thereafter to lease such property or
lease other property that the Borrower intends to use for substantially the same
purpose as the property being sold or transferred.
SS.9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of SRI and the Borrower
will not, and will not permit any of their Subsidiaries to, (a) use any of the
Real Estate or any portion thereof for the handling, processing, storage or
disposal of Hazardous Substances, (b) cause or permit to be located on any of
the Real Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (c) generate any Hazardous Substances on any of the Real
Estate, (d) conduct any activity at any Real Estate or use any Real Estate in
any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release
<PAGE>
-64-
of Hazardous Substances on, upon or into the Real Estate or (e) otherwise
conduct any activity at any Real Estate or use any Real Estate in any manner
where any of the foregoing clauses (a) through (e) would reasonably be expected
to have a materially adverse effect on the business, financial condition or
assets of SRI, the Borrower and their Subsidiaries on a consolidated basis.
SS.9.8. SENIOR NOTE AND SENIOR SUBORDINATED NOTE PAYMENTS. Neither the
Borrower nor SRI will, nor will either of them permit any of their Subsidiaries
to, make any payment of, or in respect of, the Junior Subordinated Notes, the
Senior Subordinated Notes, or any other Subordinated Debt including, without
limitation, any direct or indirect purchase, repurchase, redemption or other
acquisition or retirement for value of all or any part of the Senior
Subordinated Notes, the Junior Subordinated Notes or any other Subordinated
Debt, or to optionally prepay, repurchase, redeem, defease or otherwise
optionally repay or retire for value all or any part of the Senior Notes except
that:
(a) SRI may, so long as no Default or Event of Default has occurred or
is continuing or would exist after giving effect thereto, make
regularly scheduled interest payments when permitted by the terms of
the Senior Subordinated Notes and the SRI Subordinated Notes.
(b) SRI may, so long as no Default or Event of Default has occurred or
is continuing or would exist after giving effect thereto and SRI and
the Borrower can demonstrate to the satisfaction of the Agent PRO
FORMa compliance with the covenants set forth in ss.10 hereof both
before and after giving effect to any payment, make regularly
scheduled required principal payments when permitted by the terms of
the Senior Subordinated Notes and the SRI Subordinated Notes.
SS.9.9. CHANGES IN TERMS OF SENIOR NOTES AND SENIOR SUBORDINATED NOTES.
Without the written consent of the Majority Banks, neither the Borrower nor SRI
will make any changes of any promissory note, indenture, agreement or other
instrument evidencing or governing the Senior Notes, the Senior Subordinated
Notes, any Subordinated Debt, the Senior Note Indenture or the Senior
Subordinated Note Indenture; PROVIDED, HOWEVER, SRI shall be permitted to amend
the Senior Notes Indenture, the Senior Subordinated Notes Indenture and the SRI
Subordinated Notes Indenture pursuant to the SRI Indenture Consent or if such an
amendment is of an immaterial or ministerial nature that would not have any
adverse effect on the Agent's or the Banks' rights under the Loan Documents or
SRI's or the Borrower's rights under the Loan Documents.
SS.9.10. EMPLOYEE BENEFIT PLANS. Neither SRI, the Borrower nor any ERISA
Affiliate will
<PAGE>
-65-
(a) engage in any "prohibited transaction" within the meaning of ss.406
of ERISA or ss.4975 of the Code which could result in a material
liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated funding
deficiency", as such term is defined in ss.302 of ERISA, whether or
not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an extent
which, or terminate any Guaranteed Pension Plan in a manner which,
could result in the imposition of a lien or encumbrance on the
assets of the Borrower or any of its Subsidiaries pursuant to
ss.302(f) or ss.4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances requiring the
posting of security pursuant to ss.307 of ERISA or ss.401(a)(29) of
the Code; or
(e) permit or take any action which would result in the aggregate
benefit liabilities (with the meaning of ss.4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets
of such Plans, disregarding for this purpose the benefit liabilities
and assets of any such Plan with assets in excess of benefit
liabilities by more than $100,000.
SS.9.11. TRANSACTIONS WITH AFFILIATES. Except for arm's-lengths
transactions pursuant to which SRI, the Borrower or any of their Subsidiaries
makes payments in the ordinary course of business upon terms no less favorable
than SRI, the Borrower or such Subsidiary could obtain from third parties, no
officer, director or employee of SRI, the Borrower or any of their Subsidiaries
will become party to any transaction with SSI, the Borrower or any of their
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement, or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or other wise requiring payments to or from any officer,
director or such employee or any corporation, partnership, trust or other entity
in which any officer, director, or any such person has a substantial interest or
is an officer, director, trustee or partner; PROVIDED, HOWEVER, SRI shall be
permitted to pay to Bain Venture Capital, a California limited partnership
and/or its Affiliates, fees for services not to exceed, in the aggregate
$1,000,000 per annum, the Receivables Subsidiary shall be permitted to make
payments to SRI for collecting and servicing receivables in the amounts provided
in the Pooling and Servicing Agreement as in effect on the date hereof and the
Borrower shall be permitted, pursuant to the Receivables Purchase Agreement as
in effect on the date hereof, to repurchase the Defaulted Receiveables (as such
term is defined in the Receivables Purchase Agreement) in the amounts and on the
terms in such Receiveables Purchase Agreement as in effect on the date hereof.
9.12. FISCAL YEAR. Neither SRI nor the Borrower will change the date of
the end of their respective fiscal years from that set forth in ss.7.21 hereof.
<PAGE>
-66-
9.13. NEGATIVE PLEDGES. Neither SRI, the Borrower nor any of their
Subsidiaries will enter into any agreement (excluding this Credit Agreement, the
Loan Documents, the Senior Notes Indenture, the SRI Subordinated Notes Indenture
and the Senior Subordinated Notes Indenture) prohibiting the creation or
assumption of any lien upon its properties, revenues or assets or those of any
of its Subsidiaries, whether now owned or hereafter acquired other than
agreements with Persons prohibiting any such lien on assets in which such Person
has a prior security interest which is permitted by ss.9.2.
9.14. UPSTREAM LIMITATIONS. The Borrower will not, nor will the Borrower
permit any of its Subsidiaries to enter into any agreement, contract or
arrangement (other than the Credit Agreement and the other Loan Documents and,
as to the Receivables Subsidiary, the Receivables Purchase Agreement and such
Receivables Subsidiary's charter and organizational documents, all as in effect
on the Closing Date) that restricts the ability of any Subsidiary to pay or make
dividends or distributions in cash or kind, to make loans, advances or other
payments of whatsoever nature or to make transfers or distributions of all or
any part of its assets to the Borrower or to any Subsidiary of such Subsidiary.
SS.10. FINANCIAL COVENANT OF THE BORROWER. The Borrower covenants and
agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of
Credit or Note is outstanding or any Bank has any obligation to make any Loans
or the Agent has any obligation to issue, extend or renew any Letters of Credit:
SS.10.1. DEBT SERVICE RATIO. The Borrower will not, for any period
consisting of the preceding four (4) consecutive fiscal quarters (treated as a
single accounting period), permit the Debt Service Ratio for any fiscal quarter
ending during any period described in the table set forth below to be less than
the ratio set forth opposite such period in such table:
PERIOD RATIO
Fourth fiscal quarter, 1996 1.30:1.00
First fiscal quarter, 1997 1.20:1.00
Second fiscal quarter, 1997 1.20:1.00
Third fiscal quarter, 1997 1.20:1.00
Fourth fiscal quarter, 1997 1.40:1.00
First fiscal quarter, 1998 1.20:1.00
Second fiscal quarter, 1998 1.30:1.00
Third fiscal quarter, 1998 1.30:1.00
Fourth fiscal quarter, 1998 1.40:1.00
First fiscal quarter, 1999 1.20:1.00
Second fiscal quarter, 1999 1.30:1.00
Third fiscal quarter, 1999 1.10:1.00
each fiscal quarter ending thereafter 1.20:1.00
<PAGE>
-67-
SS.10.2 CAPITAL EXPENDITURES. Neither SSI, SRI nor the Borrower will make,
nor permit any Subsidiary to make, Capital Expenditures (including any
expenditures made in connection with any permitted acquisitions but excluding
any expenditures consisting of indebtedness incurred or assumed as permitted by
ss.9.1(l) in connection with any permitted acquisitions) in the fiscal year that
exceed in the aggregate, (a) $30,000,000 for the 1996 fiscal year; (b)
$40,000,000 for the 1997 fiscal year; (c) $45,000,000 for the 1998 fiscal year;
and (d) $50,000,000 for each fiscal year thereafter.
SS.10.3. TOTAL FUNDED DEBT TO EBITDA. The Borrower will not, at any time
during any period described in the table set forth below, permit the ratio of
Total Funded Indebtedness on such date to EBITDA for the four most recently
ended fiscal quarters to exceed the ratio set forth opposite such period in such
table:
PERIOD RATIO
Fourth fiscal quarter, 1996 3.75:1.00
First fiscal quarter, 1997 3.65:1.00
Second fiscal quarter, 1997 3.60:1.00
Third fiscal quarter, 1997 3.55:1.00
Fourth fiscal quarter, 1997 3.25:1.00
First fiscal quarter, 1998 3.15:1.00
Second fiscal quarter, 1998 3.10:1.00
Third fiscal quarter, 1998 3.05:1.00
Fourth fiscal quarter, 1998 2.75:1.00
First fiscal quarter, 1999 2.65:1.00
Second fiscal quarter, 1999 2.60:1.00
Third fiscal quarter, 1999 2.55:1.00
each fiscal quarter ending thereafter 2.25:1.00
SS.10.4. MINIMUM EBITDA. The Borrower will not, as of the end of any
fiscal quarter ending during any period described in the table set forth below,
permit the EBITDA of SSI, the Borrower and their Subsidiaries for the period of
the four (4) immediately preceding consecutive fiscal quarters then ending, to
be less than the amount set forth opposite such period in such table:
PERIOD AMOUNT
Fourth fiscal quarter, 1996 $ 80,000,000
First fiscal quarter, 1997 $ 82,000,000
Second fiscal quarter, 1997 $ 84,000,000
Third fiscal quarter, 1997 $ 86,000,000
Fourth fiscal quarter, 1997 $ 95,000,000
First fiscal quarter, 1998 $ 97,000,000
Second fiscal quarter, 1998 $ 99,000,000
Third fiscal quarter, 1998 $101,000,000
<PAGE>
-68-
Fourth fiscal quarter, 1998 $108,000,000
First fiscal quarter, 1999 $110,000,000
Second fiscal quarter, 1999 $112,000,000
Third fiscal quarter, 1999 $114,000,000
each fiscal quarter ending thereafter $123,000,000
SS.10.5. CURRENT ASSETS. The Borrower will not at any time permit the
ratio of Consolidated Current Assets to Consolidated Current Liabilities to be
less than 2.50:1.00.
SS.10.6. SEASONAL DEBT SERVICE RATIO. The Borrower will not permit the
Seasonal Debt Service Ratio as at the last day of the Borrower's December fiscal
month for the period of the immediately preceding twelve (12) fiscal months of
the Borrower to be less than the ratio set forth opposite such period in such
table:
PERIOD RATIO
Last day of fiscal month ending December, 1997 1.40:1.00
Last day of fiscal month ending December, 1998 1.40:1.00
Last day of fiscal month ending December, 1999 1.20:1.00
SS.11. CLOSING CONDITIONS. The obligations of the Banks to make the
initial Loans and of the Agent to issue any initial Letters of Credit shall be
subject to the satisfaction of the following conditions precedent on or prior to
the date hereof:
SS.11.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.
SS.11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall
have received from SRI, the Borrower and each of their Subsidiaries which is a
party to any of the Loan Documents, a copy, certified by a duly authorized
officer of such Person to be true and complete on the Closing Date, of each of
(a) its charter or other incorporation documents as in effect on such date of
certification, and (b) its by-laws as in effect on such date.
SS.11.3. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by SRI, the Borrower and each of their
Subsidiaries of this Credit Agreement and the other Loan Documents to which it
is or is to become a party shall have been duly and effectively taken, and
evidence thereof satisfactory to the Banks shall have been provided to each of
the Banks.
SS.11.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received
from SRI, the Borrower and each of their Subsidiaries an incumbency certificate,
dated as of the Closing Date, signed by a duly authorized officer of SRI, the
Borrower or such
<PAGE>
-69-
Subsidiary, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
each of SRI, the Borrower or such Subsidiary, each of the Loan Documents to
which SRI, the Borrower or such Subsidiary is or is to become a party; (b) in
the case of the Borrower, to make Loan Requests and Conversion Requests and to
apply for Letters of Credit; and (c) to give notices and to take other action on
its behalf under the Loan Documents.
SS.11.5. VALIDITY OF LIENS. The Security Documents shall be effective to
create in favor of the Agent a legal, valid and enforceable first (except for
Permitted Liens entitled to priority under applicable law) security interest in
and lien upon the Collateral. All filings, recordings, deliveries of
instruments, stock certificates and stock powers duly executed in blank and
other actions necessary or desirable in the opinion of the Agent to protect and
preserve such security interests shall have been duly effected. The Agent shall
have received evidence thereof in form and substance satisfactory to the Agent.
SS.11.6. TITLE SEARCH RESULTS. The Agent shall have received from SRI and
the Borrower the results of the title searches with respect to the Collateral,
indicating no liens other than Permitted Liens and otherwise in form and
substance satisfactory to the Agent.
SS.11.7. TAXES. The Agent shall have received evidence of payment of real
estate taxes and municipal charges on all Real Estate not delinquent on or
before the Closing Date.
SS.11.8. TITLE INSURANCE. The Agent shall have received an endorsement to
the Title policy covering the Mortgaged Property from the Title Insurance
Company and in amounts satisfactory to the Agent, committing to insure the
interest of the Agent and each of the Banks as mortgagee under the Mortgage.
SS.11.9. CERTIFICATES OF INSURANCE. The Agent shall have received (a) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of this Credit Agreement and the Mortgage and (b) certified
copies of all policies evidencing such insurance (or certificates therefor
signed by the insurer or an agent authorized to bind the insurer).
SS.11.10. SOLVENCY CERTIFICATE. Each of the Banks shall have received an
officer's certificate of the Borrower dated as of the Closing Date as to the
solvency of SRI, the Borrower and their Subsidiaries both before and immediately
following the consummation of the transactions contemplated herein and in form
and substance satisfactory to the Banks.
<PAGE>
-70-
SS.11.11. OPINION OF COUNSEL. Each of the Banks and the Agent shall have
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from:
(a) Kirkland & Ellis, counsel to SRI, the Borrower and its Subsidiaries;
and
(b) local counsel to the Borrower as to real estate matters.
SS.11.12. PAYMENT OF FEES. The Borrower shall have paid to the Agent the
Closing Fee and Agent's Fee pursuant to ss.ss.5.1 and 5.2.
SS.12. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to make
any Loan, and of the Agent to issue, extend or renew any Letter of Credit, in
each case whether on or after the Closing Date, shall also be subject to the
satisfaction of the following conditions precedent:
SS.12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of SRI, the Borrower and their
Subsidiaries contained in this Credit Agreement, the other Loan Documents or in
any document or instrument delivered pursuant to or in connection with this
Credit Agreement shall be true in all material respects as of the date as of
which they were made and shall also be true in all material respects at and as
of the time of the making of such Loan or the issuance, extension or renewal of
such Letter of Credit, with the same effect as if made at and as of that time
(except to the extent of changes resulting from transactions contemplated or
permitted by this Credit Agreement and the other Loan Documents or changes
occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse, or to the extent that such representations and
warranties relate expressly to an earlier date) and no Default or Event of
Default shall have occurred and be continuing. The Agent shall have received a
certificate of the Borrower signed by an authorized officer of the Borrower to
such effect.
SS.12.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal for such Bank to make such Loan or to
participate in the issuance, extension or renewal of such Letter of Credit or in
the reasonable opinion of the Agent would make it illegal for the Agent to
issue, extend or renew such Letter of Credit.
SS.12.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
SS.12.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
form to the
<PAGE>
-71-
Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent
and such counsel shall have received all information and such counterpart
originals or certified or other copies of such documents as the Agent may
reasonably request.
SS.13. EVENTS OF DEFAULT; ACCELERATION; ETC.
SS.13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) the Borrower shall fail to pay any principal of the Loans or
interest on the Loans or any Reimbursement Obligation when the same
shall become due and payable, whether at the stated date of maturity
or any accelerated date of maturity or at any other date fixed for
payment;
(b) the Borrower shall fail to pay the commitment fee, any Letter of
Credit Fee, the Agent's fee, or other sums due hereunder or under
any of the other Loan Documents, within three (3) days after the
same shall become due and payable, whether at the stated date of
maturity or any accelerated date of maturity or at any other date
fixed for payment;
(c) the Borrower or SRI shall fail to comply with any of its covenants
contained in ss.8.1, ss.8.3, ss.8.5-8.10, ss.8.12, ss.9 or ss.10 or
any of the covenants contained in the Mortgage or SSI shall fail to
comply with the covenant contained in ss.29;
(d) the Borrower or SRI shall fail to comply with the provisions of
ss.8.4 for a period of twenty-four (24) hours after written notice
of such failure has been given to the Borrower by the Agent;
(e) SRI, the Borrower or any of their Subsidiaries shall fail to perform
any term, covenant or agreement contained herein or in any of the
other Loan Documents (other than those specified elsewhere in this
ss.13.1) for fifteen (15) days after written notice of such failure
has been given to the Borrower by the Agent;
(f) any representation or warranty of SRI, the Borrower or any of their
Subsidiaries in this Credit Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant
to or in connection with this Credit Agreement shall prove to have
been false in any material respect upon the date when made or deemed
to have been made or repeated;
(g) SRI, the Borrower or any of their Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation
for borrowed money or credit received or in respect of any
Capitalized Leases
<PAGE>
-72-
in an aggregate amount in excess of $250,000, or fail to observe or
perform any material term, covenant or agreement contained in any
agreement by which it is bound, evidencing or securing such borrowed
money or credit received or in respect of any such Capitalized
Leases for such period of time as would permit (assuming the giving
of appropriate notice if required) the holder or holders thereof or
of any obligations issued thereunder to accelerate the maturity
thereof;
(h) any of SRI, the Borrower or any of their Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing their
inability to pay or generally fail to pay their debts as they mature
or become due, or shall petition or apply for the appointment of a
trustee or other custodian, liquidator or receiver of SRI, the
Borrower or any of their Subsidiaries or of any substantial part of
the assets of SRI, the Borrower or any of their Subsidiaries or
shall commence any case or other proceeding relating to SRI, the
Borrower or any of their Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now
or hereafter in effect, or shall take any action to authorize or in
furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding
shall be commenced against SRI, the Borrower or any of their
Subsidiaries and SRI, the Borrower or any of their Subsidiaries
shall indicate their approval thereof, consent thereto or
acquiescence therein;
(i) a decree or order is entered appointing any such trustee, custodian,
liquidator or receiver or adjudicating any of SRI, the Borrower or
any of their Subsidiaries bankrupt or insolvent, or approving a
petition in any such case or other proceeding, or a decree or order
for relief is entered in respect of SRI, the Borrower or any of
their Subsidiaries in an involuntary case under federal bankruptcy
laws as now or hereafter constituted;
(j) there shall remain in force, undischarged, unsatisfied and unstayed,
for more than thirty (30) days, whether or not consecutive, any
final judgment against SRI, the Borrower or any of their
Subsidiaries that, with other outstanding final judgments,
undischarged, against SRI, the Borrower or any of their Subsidiaries
exceeds in the aggregate $250,000;
(k) any default or event of default shall have occurred and be
continuing under the Senior Notes Indenture of the Senior
Subordinated Notes Indenture, or the holders of all or any part of
the Senior Notes or the Subordinated Debt shall accelerate the
maturity of all or any part of the Senior Notes or the Subordinated
Debt or the Senior Notes or the Subordinated Debt shall be prepaid,
redeemed or repurchased in whole or in part, except as permitted
under ss.9.8 or any Servicer Default, Payout
<PAGE>
-73-
Event, Insolvency Event or Trigger Event (as each of such terms is
defined in the Pooling and Servicing Agreement) shall have occurred
or any Purchase Termination Event or Incipient Purchase Termination
Event (as such terms are defined in the Receivables Purchase
Agreement) shall have occurred or any Change of Control or Change of
Control Offer (as such terms are defined in the Senior Notes
Indenture and the Senior Subordinated Notes Indenture) shall have
occurred;
(l) if any of the Loan Documents shall be cancelled, terminated, revoked
or rescinded or the Agent's security interest, mortgages or liens in
substantially all of the Collateral shall cease to be perfected or
shall cease to have the priority contemplated by the Security
Documents, in each case otherwise than in accordance with the terms
thereof or with the express prior written agreement, consent or
approval of the Banks, or any action at law, suit in equity or other
legal proceeding to cancel, revoke or rescind any of the Loan
Documents shall be commenced by or on behalf of SRI, the Borrower or
any of their Subsidiaries party thereto or any of their respective
stockholders, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to
the effect that, any one or more of the Loan Documents is illegal,
invalid or unenforceable in accordance with the terms thereof;
(m) the Borrower or any ERISA Affiliate incurs any liability to the PBGC
or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an
aggregate amount exceeding $1,000,000; the Borrower or any ERISA
Affiliate is assessed withdrawal liability pursuant to Title IV of
ERISA by a Multiemployer Plan requiring aggregate annual payments
exceeding $1,000,000, or any of the following occurs with respect to
a Guaranteed Pension Plan; (i) an ERISA Reportable Event, or a
failure to make a required installment or other payment (within the
meaning ofss.302(f)(1) of ERISA), provided the Agent determines in
its reasonable discretion that such event (A) could be expected to
result in liability of the Borrower to the PBGC or the Plan in an
aggregate amount exceeding $1,000,000 and (B) could constitute
grounds for the termination of such Plan by the PBGC, for the
appointment by the appropriate United States District Court of a
trustee to administer such Plan or for the imposition of a lien in
favor of the Guaranteed Pension Plan; (ii) the appointment by a
United States District Court of a trustee to administer such Plan;
or (iii) the institution by the PBGC of proceedings to terminate
such Plan.
(n) SRI, the Borrower or any of their Subsidiaries shall be enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any material
part of its business and such order shall continue in effect for
more than thirty (30) days;
<PAGE>
-74-
(o) there shall occur any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty, which in any such case causes, for
more than fifteen (15) consecutive days, the cessation or
substantial curtailment of revenue producing activities at any
facility of SRI, the Borrower or any of their Subsidiaries if such
event or circumstance is not covered by business interruption
insurance and would have a material adverse effect on the business
or financial condition of SRI, the Borrower and their Subsidiaries
on a consolidated basis;
(p) there shall occur the loss, suspension or revocation of, or failure
to renew, any license or permit now held or hereafter acquired by
SRI, the Borrower or any of their Subsidiaries if such loss,
suspension, revocation or failure to renew would have a material
adverse effect on the business or financial condition of SRI, the
Borrower and their Subsidiaries on a consolidated basis;
(q) SRI, the Borrower or any of their Subsidiaries shall be indicted for
a federal crime, a punishment for which could include the forfeiture
of any assets of SRI, the Borrower or such Subsidiary having a fair
market value in excess of $250,000;
(r) SSI shall, at any time prior to the consummation of the merger of
SRI and the Borrower as contemplated byss.9.5.1 hereof, legally or
beneficially own less than one hundred percent (100%) of the shares
of the capital stock of SRI and after such merger, shall at any time
legally or beneficially own less than one hundred percent (100%) of
the shares of the capital stock of the Borrower, and SRI shall, at
any time prior to the consummation of the merger of SRI and the
Borrower as contemplated by ss.9.5.1 hereof, legally or beneficially
own less than one hundred percent (100%) of the shares of the
capital stock of the Borrower;
(s) the Receivables Subsidiary shall make any Distribution which, after
giving effect to such Distribution, results in the value of the
Receivable Subsidiary's unencumbered interest in the amount of the
Aggregate Principal Receivables PLUS the aggregate amount of the
Finance Charge Receivables (as such terms are defined in the Pooling
and Servicing Agreement) being less than $25,000,000; or
(t) there shall occur a Default or Event of Default under any of the
Seasonal Revolving Agreement.
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower
<PAGE>
-75-
declare all amounts owing with respect to this Credit Agreement, the Notes and
the other Loan Documents and all Reimbursement Obligations to be, and they shall
thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrower; PROVIDED that in the event of any Event of Default
specified in ss.ss.13.1(h), 13.1(i) or 13.1(l), all such amounts shall become
immediately due and payable automatically and without any requirement of notice
from the Agent or any Bank.
SS.13.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of
Default specified in ss.13.1(h), ss.13.1(i) or ss.13.1(l) shall occur, any
unused portion of the credit hereunder shall forthwith terminate and each of the
Banks shall be relieved of all further obligations to make Loans to the Borrower
and the Agent shall be relieved of all further obligations to issue, extend or
renew Letters of Credit. If any other Event of
Default shall have occurred and be continuing, or if on any Drawdown Date or
other date for issuing, extending or renewing any Letter of Credit the
conditions precedent to the making of the Loans to be made on such Drawdown Date
or (as the case may be) to issuing, extending or renewing such Letter of Credit
on such other date are not satisfied, the Agent may and, upon the request of the
Majority Banks, shall, by notice to the Borrower, terminate the unused portion
of the credit hereunder, and upon such notice being given such unused portion of
the credit hereunder shall terminate immediately and each of the Banks shall be
relieved of all further obligations to make Loans and the Agent shall be
relieved of all further obligations to issue, extend or renew Letters of Credit.
No termination of the credit hereunder shall relieve the Borrower or any of its
Subsidiaries of any of the Obligations.
SS.13.3. REMEDIES. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to ss.13.1, each Bank, if owed
any amount with respect to the Loans or the Reimbursement Obligations, may, with
the consent of the Majority Banks but not otherwise, proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Bank are evidenced,
including as permitted by applicable law the obtaining of the EX PARTE
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Note or purchaser of any Letter of Credit
Participation is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or any
other provision of law.
SS.13.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that following
the occurrence or during the continuance of any Default or Event of Default, the
Agent or any Bank, as the case may be, receives any monies in connection with
the enforcement
<PAGE>
-76-
of any the Security Documents, or otherwise with respect to the realization upon
any of the Collateral, such monies shall be distributed for application as
follows:
(a) First, to the payment of, or (as the case may be) the reimbursement
of the Agent for or in respect of all reasonable costs, expenses,
disbursements and losses which shall have been incurred or sustained
by the Agent in connection with the collection of such monies by the
Agent, for the exercise, protection or enforcement by the Agent of
all or any of the rights, remedies, powers and privileges of the
Agent under this Credit Agreement or any of the other Loan Documents
or in respect of the Collateral or in support of any provision of
adequate indemnity to the Agent against any taxes or liens which by
law shall have, or may have, priority over the rights of the Agent
to such monies;
(b) Second, to all other Obligations in such order or preference as the
Majority Banks may determine; PROVIDED, HOWEVER, that distributions
in respect of such obligations shall be made (i) PARI PASSU among
Obligations with respect to the Agent's fee payable pursuant
toss.5.2 and all other Obligations and (ii) Obligations owing to the
Banks with respect to each type of Obligation such as interest,
principal, fees and expenses, shall be made among the Banks PRO
RATA; and PROVIDED, FURTHER, that the Agent may in its discretion
make proper allowance to take into account any Obligations not then
due and payable;
(c) Third, upon payment and satisfaction in full or other provisions for
payment in full satisfactory to the Banks and the Agent of all of
the Obligations, to the payment of any obligations required to be
paid pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of
the Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the Borrower or to
such other Persons as are entitled thereto.
SS.14. SETOFF. Regardless of the adequacy of any collateral, during the
continuance of any Event of Default, any deposits or other sums credited by or
due from any of the Banks to the Borrower and any securities or other property
of the Borrower in the possession of such Bank may be applied to or set off by
such Bank against the payment of Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees
with each other Bank that (a) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by
the Notes held by such Bank or constituting Reimbursement Obligations owed to
such Bank, such amount shall be applied ratably to such other Indebtedness and
to the Indebtedness evidenced by all such Notes held by such Bank or
constituting Reimbursement Obligations owed to such Bank, and (b) if such Bank
shall receive from the Borrower, whether by voluntary payment, exercise of the
right of
<PAGE>
-77-
setoff, counterclaim, cross action, enforcement of the claim evidenced by the
Notes held by, or constituting Reimbursement Obligations owed to, such Bank by
proceedings against the Borrower at law or in equity or by proof thereof in
bankruptcy, reorganization, liquidation, receivership or similar proceedings, or
otherwise, and shall retain and apply to the payment of the Note or Notes held
by, or Reimbursement Obligations owed to, such Bank any amount in excess of its
ratable portion of the payments received by all of the Banks with respect to the
Notes held by, and Reimbursement Obligations owed to, all of the Banks, such
Bank will make such disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution, PRO TANTO assignment of
claims, subrogation or otherwise as shall result in each Bank receiving in
respect of the Notes held by it or Reimbursement obligations owed it, its
proportionate payment as contemplated by this Credit Agreement; PROVIDED that if
all or any part of such excess payment is thereafter recovered from such Bank,
such disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
SS.15. THE AGENT.
SS.15.1. AUTHORIZATION. The Agent is authorized to take such action on
behalf of each of the Banks and to exercise all such powers as are hereunder and
under any of the other Loan Documents and any related documents delegated to the
Agent, together with such powers as are reasonably incident thereto, PROVIDED
that no duties or responsibilities not expressly assumed herein or therein shall
be implied to have been assumed by the Agent. The relationship between the Agent
and the Banks is that of an independent contractor. The term "Agent" is for
convenience only and is used to describe, as a form of convention, the
independent contractual relationship between the Agent and each of the Banks.
Nothing contained in this Credit Agreement or any of the other Loan Documents
shall be construed to create an agency, trust or other fiduciary relationship
between the Agent and any of the Banks. As an independent contractor empowered
by the Banks to exercise certain rights and perform certain duties and
responsibilities hereunder and under the other Loan Documents, the Agent is
nevertheless a "representative" of the Banks, as that term is defined in Article
I of the Uniform Commercial Code, for purposes of actions for the benefit of the
Banks and the Agent with respect to all collateral security and guaranties as
"secured party", "mortgagee" or the like on all financing statements and other
documents and instruments, whether recorded or otherwise, relating to the
attachment, perfection, priority or enforcement of any security interests,
mortgages or deeds of trust in collateral security intended to secure the
payment or performance of any of the Obligations, all for the benefit of the
Banks and the Agent.
SS.15.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrower.
<PAGE>
-78-
SS.15.3. NO LIABILITY. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
SS.15.4. NO REPRESENTATIONS. The Agent shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the Notes, the
Letters of Credit, any of the other Loan Documents or any instrument at any time
constituting, or intended to constitute, collateral security for the Notes, or
for the value of any such collateral security or for the validity,
enforceability or collectability of any such amounts owing with respect to the
Notes, or for any recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrower or any of its
Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in
any instrument at any time constituting, or intended to constitute, collateral
security for the Notes or to inspect any of the properties, books or records of
the Borrower or any of its Subsidiaries. The Agent shall not be bound to
ascertain whether any notice, consent, waiver or request delivered to it by the
Borrower or any holder of any of the Notes shall have been duly authorized or is
true, accurate and complete. The Agent has not made nor does it now make any
representations or warranties, express or implied, nor does it assume any
liability to the Banks, with respect to the credit worthiness or
financial conditions of SRI, the Borrower or any of its Subsidiaries. Each Bank
acknowledges that it has, independently and without reliance upon the Agent or
any other Bank, and based upon such information and documents as it has deemed
appropriate, made its own credit analysis and decision to enter into this Credit
Agreement.
SS.15.5. PAYMENTS.
15.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the Agent
hereunder or any of the other Loan Documents for the account of any Bank shall
constitute a payment to such Bank. The Agent agrees promptly to distribute to
each Bank such Bank's PRO RATA share of payments received by the Agent for the
account of the Banks except as otherwise expressly provided herein or in any of
the other Loan Documents.
15.5.2. DISTRIBUTION BY AGENT. If in the opinion of the Agent the
distribution of any amount received by it in such capacity hereunder, under the
Notes or under any of the other Loan Documents might involve it in liability, it
may refrain from making distribution until its right to make distribution shall
have been
<PAGE>
-79-
adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the Agent
is to be repaid, each Person to whom any such distribution shall have been made
shall either repay to the Agent its proportionate share of the amount so
adjudged to be repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court.
15.5.3. DELINQUENT BANKS. Notwithstanding anything to the contrary
contained in this Credit Agreement or any of the other Loan Documents, any Bank
that fails (a) to make available to the Agent its PRO RATA share of any Loan or
to purchase any Letter of Credit Participation or (b) to comply with the
provisions of ss.14 with respect to making dispositions and arrangements with
the other Banks, where such Bank's share of any payment received, whether by
setoff or otherwise, is in excess of its PRO RATA share of such payments due and
payable to all of the Banks, in each case as, when and to the full extent
required by the provisions of this Credit Agreement, shall be deemed delinquent
(a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as
such delinquency is satisfied. A Delinquent Bank shall be deemed to have
assigned any and all payments due to it from the Borrower, whether on account of
Outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or
otherwise, to the remaining nondelinquent Banks for application to, and
reduction of, their respective PRO RATA shares of all Outstanding Loans and
Unpaid Reimbursement Obligations. The Delinquent Bank hereby authorizes the
Agent to distribute such payments to the nondelinquent Banks in proportion to
their respective PRO RATA shares of all Outstanding Loans and Unpaid
Reimbursement Obligations. A Delinquent Bank shall be deemed to have satisfied
in full a delinquency when and if, as a result of application of the assigned
payments to all Outstanding Loans and Unpaid Reimbursement Obligations of the
nondelinquent Banks, the Banks' respective PRO RATA shares of all Outstanding
Loans and Unpaid Reimbursement Obligations have returned to those in effect
immediately prior to such delinquency and without giving effect to the
nonpayment causing such delinquency.
SS.15.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any
Note or the purchaser of any Letter of Credit Participation as the absolute
owner or purchaser thereof for all purposes hereof until it shall have been
furnished in writing with a different name by such payee or by a subsequent
holder, assignee or transferee.
SS.15.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold
harmless the Agent from and against any and all claims, actions and suits
(whether groundless or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by the Borrower as
required by ss.16), and liabilities of every nature and character arising out of
or related to this Credit Agreement, the Notes, or any of the other Loan
Documents or the transactions contemplated or evidenced hereby or thereby, or
the Agent's actions taken hereunder or thereunder, except to the extent that any
of the same shall be directly caused by the Agent's willful misconduct or gross
negligence.
<PAGE>
-80-
SS.15.8. AGENT AS BANK. In its individual capacity, FNBB shall have the
same obligations and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the Notes and
as the purchaser of any Letter of Credit Participations, as it would have were
it not also the Agent.
SS.15.9. RESIGNATION. The Agent may resign at any time by giving sixty
(60) days' prior written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
SS.15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Bank hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this ss.15.10 it shall promptly notify the other
Banks of the existence of such Default or Event of Default.
SS.15.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events of
Default have occurred and shall be continuing, and whether or not acceleration
of the Obligations shall have occurred, the Agent shall, if (a) so requested by
the Majority Banks and (b) the Banks have provided to the Agent such additional
indemnities and assurances against expenses and liabilities as the Agent may
reasonably request, proceed to enforce the provisions of the Security Documents
authorizing the sale or other disposition of all or any part of the Collateral
and exercise all or any such other legal and equitable and other rights or
remedies as it may have in respect of such Collateral. The Majority Banks may
direct the Agent in writing as to the method and the extent of any such sale or
other disposition, the Banks hereby agreeing to indemnify and hold the Agent,
harmless from all liabilities incurred in respect of all actions taken or
omitted in accordance with such directions, PROVIDED that the Agent need not
comply with any such direction to the extent that the Agent reasonably believes
the Agent's compliance with such direction to be unlawful or commercially
unreasonable in any applicable jurisdiction.
SS.16. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of
producing and reproducing this Credit Agreement, the other Loan Documents and
the
<PAGE>
-81-
other agreements and instruments mentioned herein, (b) any taxes (including any
interest and penalties in respect thereto) payable by the Agent or any of the
Banks (other than taxes based upon the Agent's or any Bank's net income) on or
with respect to the transactions contemplated by this Credit Agreement (the
Borrower hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (c) the reasonable fees, expenses and disbursements of the Agent's
Special Counsel or any local counsel to the Agent incurred in connection with
the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the fees,
expenses and disbursements of the Agent incurred by the Agent in connection with
the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, including all title insurance premiums and
surveyor, engineering and appraisal charges, environmental site assessment
charges, and expenses associated with commercial finance examinations, (e) all
fees, disbursements of the Agent incurred by the Agent in connection with the
administration and maintenance of the Loan Documents and other instruments
mentioned herein, including any additional title insurance premiums, appraisal
charges, site assessment charges, and periodic commercial financial
examinations; (f) all reasonable out-of-pocket expenses (including without
limitation reasonable attorneys' fees and costs, which attorneys may be
employees of any Bank or the Agent, and reasonable consulting, accounting,
appraisal, investment banking and similar professional fees and charges)
incurred by any Bank or the Agent in connection with (i) the enforcement of or
preservation of rights under any of the Loan Documents against the Borrower or
any of its Subsidiaries or the administration thereof after the occurrence of a
Default or Event of Default and (ii) any litigation, proceeding or dispute
whether arising hereunder or otherwise, in any way related to any Bank's or the
Agent's relationship with the Borrower or any of its Subsidiaries and (g) all
reasonable fees, expenses and disbursements of any Bank or the Agent incurred in
connection with UCC searches, UCC filings or mortgage recordings. The covenants
of this ss.16 shall survive payment or satisfaction of all other Obligations.
SS.17. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless
the Agent and the Banks from and against any and all claims, actions and suits
whether groundless or otherwise, and from and against any and all liabilities,
losses, damages and expenses of every nature and character arising out of this
Credit Agreement or any of the other Loan Documents or the transactions
contemplated hereby (except to the extent arising from the gross negligence of
willful misconduct of the Agent or the applicable Bank) including, without
limitation, (a) any actual or proposed use by the Borrower or any of its
Subsidiaries of the proceeds of any of the Loans or Letters of Credit, (b) SRI,
the Borrower or any of its Subsidiaries entering into or performing this Credit
Agreement or any of the other Loan Documents or (c) with respect to SRI, the
Borrower and its Subsidiaries and their respective properties and assets, the
violation of any Environmental Law, the presence, disposal, escape, seepage,
leakage, spillage, discharge, emission, release or threatened release of any
Hazardous Substances or any action, suit, proceeding or investigation brought or
threatened with respect to any Hazardous Substances (including, but not limited
to, claims with respect
<PAGE>
-82-
to wrongful death, personal injury or damage to property), in each case
including, without limitation, the reasonable fees and disbursements of counsel
and allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding. In litigation, or the preparation
therefor, the Banks and the Agent shall be entitled to select their own counsel
and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly
the reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Borrower under this ss.17 are unenforceable for any reason,
the Borrower hereby agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law. The
covenants contained in this ss.17 shall survive payment or satisfaction in full
of all other Obligations.
SS.18. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein, in the Notes, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have
been relied upon by the Banks and the Agent, notwithstanding any investigation
heretofore or hereafter made by any of them, and shall survive the making by the
Banks of any of the Loans and the issuance, extension or renewal of any Letters
of Credit, as herein contemplated, and shall continue in full force and effect
so long as any Letter of Credit or any amount due under this Credit Agreement or
the Notes or any of the other Loan Documents remains outstanding or any Bank has
any obligation to make any Loans or the Agent has any obligation to issue,
extend or renew any Letter of Credit, and for such further time as may be
otherwise expressly specified in this Credit Agreement. All statements contained
in any certificate or other paper delivered to any Bank or the Agent at any time
by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the Borrower or such Subsidiary hereunder.
SS.19. ASSIGNMENT AND PARTICIPATION.
SS.19.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein,
each Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage, Commitment and LC Commitment and the
same portion of the Loans at the time owing to it, the Notes held by it and its
participating interest in the risk relating to any Letters of Credit); PROVIDED
that (a) each of the Agent and (except in the case of an assignment to an
Affiliate of a Bank or if a Default or Event of Default has occurred and is
continuing) the Borrower shall have given its prior written consent to such
assignment, which consent, in the case of the Borrower and the Agent, will not
be unreasonably withheld, (b) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Bank's rights and obligations
under this Credit Agreement, (c) each assignment shall be in an amount of not
less than $5,000,000, (d) FNBB and its Affiliates shall retain, free of any such
assignment, an amount of its Commitment of not less than $13,000,000 and (e) the
parties to such assignment shall execute and deliver to the Agent, for recording
in the Register (as
<PAGE>
-83-
hereinafter defined), an Assignment and Acceptance, substantially in the form of
EXHIBIT D hereto (an "Assignment and Acceptance"), together with any Notes
subject to such assignment. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5) Business Days after
the execution thereof, (i) the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the
extent provided in such assignment and upon payment to the Agent of the
registration fee referred to in ss.19.3, be released from its obligations under
this Credit Agreement.
SS.19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS.
By executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows: (a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, the assigning Bank makes no representation or warranty,
express or implied, and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or mortgage; (b) the
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower and its Subsidiaries or
any other Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by the Borrower and its
Subsidiaries or any other Person primarily or secondarily liable in respect of
any of the Obligations of any of their obligations under this Credit Agreement
or any of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; (c) such assignee confirms that it has received a
copy of this Credit Agreement, together with copies of the most recent financial
statements referred to in ss.7.4 and ss.8.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (d) such assignee will,
independently and without reliance upon the assigning Bank, the Agent or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Credit Agreement; (e) such assignee represents and
warrants that it is an Eligible Assignee; (f) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Credit Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof or thereof, together with such powers
as are reasonably incidental thereto; (g) such assignee agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of this Credit Agreement are required to be performed by it as a Bank; (h) such
assignee represents and warrants that it is legally authorized to enter into
such Assignment and Acceptance; and (i) such assignee acknowledges that it has
made arrangements with the assigning Bank satisfactory to such assignee with
<PAGE>
-84-
respect to its PRO RATA share of Letter of Credit Fees in respect of outstanding
Letters of Credit.
SS.19.3. REGISTER. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to and
Letter of Credit Participations purchased by, the Banks from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by the Borrower and
the Banks at any reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assigning Bank agrees to pay to the
Agent a registration fee in the sum of $3,000.
SS.19.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (a) record the information contained therein in
the Register, and (b) give prompt notice thereof to the Borrower and the Banks
(other than the assigning Bank). Within five (5) Business Days after receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Note to the order
of the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such in Assignment and Acceptance and shall otherwise be substantially the form
of the assigned Notes. Within five (5) days of issuance of any new Notes
pursuant to this ss.19.4, the Borrower shall deliver an opinion of counsel,
addressed to the Banks and the Agent, relating to the due authorization,
execution and delivery of such new Notes and the legality, validity and binding
effect thereof, in form and substance satisfactory to the Banks. The surrendered
Notes shall be cancelled and returned to the Borrower.
SS.19.5. PARTICIPATIONS. Each Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; PROVIDED
that (a) each such participation shall be in an amount of not less than
$5,000,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates
<PAGE>
-85-
to such participant, reduce the amount of any commitment fees or Letter of
Credit Fees to which such participant is entitled or extend any regularly
scheduled payment date for principal or interest.
SS.19.6. DISCLOSURE. The Borrower agrees that in addition to disclosures
made in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants and potential assignees or participants hereunder;
PROVIDED that such assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such information unless such
information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
SS.19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2, and
the determination of the Majority Banks shall for all purposes of this Agreement
and the other Loan Documents be made without regard to such assignee Bank's
interest in any of the Loans. If any Bank sells a participating interest in any
of the Loans or Reimbursement Obligations to a participant, and such participant
is the Borrower or an Affiliate of the Borrower, then such transferor Bank shall
promptly notify the Agent of the sale of such participation. A transferor Bank
shall have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or modifications to any of the Loan Documents or for
purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2 to the
extent that such participation is beneficially owned by the Borrower or any
Affiliate of the Borrower, and the determination of the Majority Banks shall for
all purposes of this Agreement and the other Loan Documents be made without
regard to the interest of such transferor Bank in the Loans to the extent of
such participation.
SS.19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall
retain its rights to be indemnified pursuant to ss.16 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. If any Reference Bank
transfers all of its interest, rights and obligations under this Credit
Agreement, the Agent shall, in consultation with the Borrower and with the
consent of the Borrower and the Majority Banks, appoint another Bank to act as a
Reference Bank hereunder. Anything contained in this ss.19 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion of its
interest and
<PAGE>
-86-
rights under this Credit Agreement (including all or any portion of its Notes)
to any of the twelve Federal Reserve Banks organized under ss.4 of the Federal
Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement thereof shall
release the pledgor Bank from its obligations hereunder or under any of the
other Loan Documents.
SS.19.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or transfer
any of its rights or obligations under any of the Loan Documents without the
prior written consent of each of the Banks.
SS.20. NOTICES, ETC. Except as otherwise expressly provided in this Credit
Agreement, all notices and other communications made or required to be given
pursuant to this Credit Agreement or the Notes or any Letter of Credit
Applications shall be in writing and shall be delivered in hand, mailed by
United States registered or certified first class mail, postage prepaid, sent by
overnight courier, or sent by telegraph, telecopy, facsimile or telex and
confirmed by delivery via courier or postal service, addressed as follows:
(a) if to the Borrower, at 10201 Main Street, Houston, Texas 77025,
Attention: _______________, or at such other address for notice as
the Borrower shall last have furnished in writing to the Person
giving the notice;
(b) if to the Agent, at 100 Federal Street, 01-08-05, Boston,
Massachusetts 02110, USA, Attention: Brian F.X. Geraghty, Vice
President, or such other address for notice as the Agent shall last
have furnished in writing to the Person giving the notice; and
(c) if to any Bank, at such Bank's address set forth on SCHEDULE 1
hereto, or such other address for notice as such Bank shall have
last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
SS.21. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF
<PAGE>
-87-
THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SS.20. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
SS.22. HEADINGS. The captions in this Credit Agreement are for convenience
of reference only and shall not define or limit the provisions hereof.
SS.23. COUNTERPARTS. This Credit Agreement and any amendment hereof may be
executed in several counterparts and by each party on a separate counterpart,
each of which when executed and delivered shall be an original, and all of which
together shall constitute one instrument. In proving this Credit Agreement it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.
SS.24. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents
executed in connection herewith or therewith express the entire understanding of
the parties with respect to the transactions contemplated hereby. Neither this
Credit Agreement nor any term hereof may be changed, waived, discharged or
terminated, except as provided in ss.26.
SS.25. WAIVER OF JURY TRIAL. The Borrower hereby waives its right to a
jury trial with respect to any action or claim arising out of any dispute in
connection with this Credit Agreement, the Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of which rights and obligations. Except as prohibited by law, the Borrower
hereby waives any right it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. The Borrower (a) certifies that no representative, agent or attorney of
any Bank or the Agent has represented, expressly or otherwise, that such Bank or
the Agent would not, in the event of litigation, seek to enforce the foregoing
waivers and (b) acknowledges that the Agent and the Banks have been induced to
enter into this Credit Agreement, the other Loan Documents to which it is a
party by, among other things, the waivers and certifications contained herein.
SS.26. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or
approval required or permitted by this Credit Agreement to be given by all of
the Banks may be given, and any term of this Credit Agreement, the other Loan
Documents or any other instrument related hereto or mentioned herein may be
amended, and the performance or observance by the Borrower or any of its
Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or
such other instrument or the
<PAGE>
-88-
continuance of any Default or Event of Default may be waived (either generally
or in a particular instance and either retroactively or prospectively) with, but
only with, the written consent of the Borrower and the written consent of the
Majority Banks. Notwithstanding the foregoing, the reduction of the principal of
or the rate of interest on the Notes (other than interest accruing pursuant to
ss.5.11.2 following the effective date of any waiver by the Majority Banks of
the Default or Event of Default relating thereto), the extension of the term of
the Notes, any change in a date fixed for payment on the Loans, the increase in
the amount of the Commitments of the Banks, and the decrease in the amount of
commitment fee or Letter of Credit Fees hereunder may not be changed without the
written consent of the Borrower and the written consent of each Bank affected
thereby; the definition of Majority Banks may not be amended without the written
consent of all of the Banks; and the amount of the Agent's Fee or any Letter of
Credit Fees payable for the Agent's account and ss.15 may not be amended without
the written consent of the Agent. No waiver shall extend to or affect any
obligation not expressly waived or impair any right consequent thereon. No
course of dealing or delay or omission on the part of the Agent or any Bank in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon the Borrower shall entitle the
Borrower to other or further notice or demand in similar or other circumstances.
SS.27. SEVERABILITY. The provisions of this Credit Agreement are severable
and if any one clause or provision hereof shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Credit
Agreement in any jurisdiction.
SS.28. TRANSITIONAL ARRANGEMENTS.
28.1. ORIGINAL CREDIT AGREEMENT SUPERSEDED. This Credit Agreement
shall on the Closing Date supersede the Original Credit Agreement in its
entirety, except as provided in this ss.28. On the Closing Date, the rights and
obligations of the parties evidenced by the Original Credit Agreement shall be
evidenced by the Credit Agreement and the other Loan Documents, the "Loans" as
defined in the Original Credit Agreement shall be converted to Loans as defined
herein, and all outstanding letters of credit issued by the Agent for the
account of the Borrower prior to the Closing Date shall, for the purposes of
this Credit Agreement, be Stand Alone Letters of Credit.
28.2. RETURN AND CANCELLATION OF NOTES. As soon as reasonably
practicable after its receipt of its Revolving Credit Note hereunder on the
Closing Date, the Banks will promptly return to the Borrower, marked
"Substituted" or "Cancelled", as the case may be, any notes of the Borrower held
by the Banks pursuant to the Original Credit Agreement.
<PAGE>
-89-
28.3. INTEREST AND FEES UNDER SUPERSEDED AGREEMENT. All interest and
fees and expenses, if any, owing or accruing under or in respect of the Original
Credit Agreement through the Closing Date shall be calculated as of the Closing
Date (prorated in the case of any fractional periods), and shall be paid in
accordance with the method, and on the dates, specified in the Original Credit
Agreement, as if the Original Credit Agreement were still in effect. Commencing
on the Closing Date, the commitment fees shall be payable by the Borrower to the
Agent for the account of the Banks in accordance with ss.2.2. hereof.
SS.29. COVENANT OF SSI. SSI covenants and agrees that, so long as any
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding
or any Bank has any obligation to make any Loans or the Agent has any obligation
to issue, extend or renew any Letters of Credit, SSI will not (a) create or
incur or suffer to be created or incurred or to exist any lien, encumbrance,
mortgage, pledge, charge, restriction or other security interest of any kind
upon any of the capital stock of SRI, and, subsequent to the merger of SRI and
the Borrower as contemplated by ss.9.5.1. hereof, the capital stock of the
Borrower or (b) transfer any of such capital stock for the purpose of subjecting
the same to the payment of Indebtedness or performance of any other obligation
in priority to payment of its general creditors. The parties hereto hereby
acknowledge and agree that SSI is executing this Credit Agreement for the sole
purpose of being bound by the covenant contained in this ss.29.
<PAGE>
-90-
IN WITNESS WHEREOF, the undersigned have duly executed this Amended and
Restated Credit Agreement as a sealed instrument as of the date first set forth
above.
PALAIS ROYAL, INC.
By:____________________________________
Name:
Title:
SPECIALTY RETAILERS, INC.
By:____________________________________
Name:
Title:
STAGE STORES, INC.
By:____________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF
BOSTON, individually and as
Agent
By:_____________________________________
Name: Brian F.X. Geraghty
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By:______________________________________
Name:
Title:
<PAGE>
-91-
CREDITANSTALT-BANKVEREIN
By:______________________________________
Name:
Title:
BANQUE PARIBAS
By:______________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By:______________________________________
Name:
Title:
DLJ CAPITAL FUNDING
By:______________________________________
Name:
Title:
THE FUJI BANK, LIMITED
By:______________________________________
Name:
Title:
HIBERNIA NATIONAL BANK
By:______________________________________
Name:
Title:
<PAGE>
-92-
Schedule 1
<TABLE>
<CAPTION>
COMMITMENT OF
REVOLVER AND COMMITMENT OF LC TOTAL
REVOLVER LETTERS COMMITMENT STAND ALONE COMMITMENT COMMITMENT
BANKS OF CREDIT PERCENTAGE LETTERS OF CREDIT PERCENTAGE PERCENTAGE
----- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
First National Bank ...... $13,333,333 26.66666666% $ 4,000,000 26.66666667% 26.66666667%
of Boston
Union Bank of ............ $10,000,000 20% $ 3,000,000 20% 20%
California, N.A ..........
Creditanstalt- ........... $ 6,666,667 13.33333333% $ 2,000,000 13.33333333% 13.33333333%
Bankverein
Banque Paribas ........... $ 4,000,000 8% $ 1,200,000 8% 8%
Credit Suisse First ...... $ 4,000,000 8% $ 1,200,000 8% 8%
Boston
DLJ Capital .............. $ 4,000,000 8% $ 1,200,000 8% 8%
Funding
The Fuji Bank, ........... $ 4,000,000 8% $ 1,200,000 8% 8%
Limited
Hibernia National ........ $ 4,000,000 8% $ 1,200,000 8% 8%
Bank
Total .................... $50,000,000 100% $15,000,000 100% 100%
</TABLE>
EXHIBIT TO COME
EXHIBIT 12.1
STAGE STORES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before extraordinary item .............. $14,022 $10,730 $ 6,630 $13,426 $12,235
Income tax expense ............................ 8,594 6,767 4,317 7,569 8,340
------- ------- ------- ------- -------
Income before income tax and extraordinary item 22,616 17,497 10,947 20,995 20,575
------- ------- ------- ------- -------
Fixed charges charged to expense:
Rental expense (1) ....................... 11,515 10,051 8,879 8,803 7,575
Interest expense ......................... 46,482 44,770 41,694 37,607 32,384
------- ------- ------- ------- -------
Total fixed charges charged to expense ... 57,997 54,821 50,573 46,410 39,959
------- ------- ------- ------- -------
Income before income tax, extraordinary item,
and fixed charges charged to expense ..... $80,613 $72,318 $61,520 $67,405 $60,534
======= ======= ======= ======= =======
Fixed charges charged to accruals:
Rental expense (1) ....................... $ 334 $ 1,516 $ 446 $ 298 $ 803
Interest expense ......................... -- -- -- -- 381
------- ------- ------- ------- -------
Total fixed charges charged to accruals .. 334 1,516 446 298 1,184
------- ------- ------- ------- -------
Total fixed charges ........................... $58,331 $56,337 $51,019 $46,708 $41,143
======= ======= ======= ======= =======
Ratio of earnings to fixed charges ............ 1.38 1.28 1.21 1.44 1.47
======= ======= ======= ======= =======
</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 21.1
STAGE STORES, INC.
LIST OF SUBSIDIARIES
FEBRUARY 1, 1997
Specialty Retailers, Inc., a Texas corporation.
SRI Receivables Purchase Co., Inc., a Delaware corporation.
