<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1997
REGISTRATION NO. 333-34415
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
STAGE STORES, INC.
(Exact name of registrant as specified in its charter)
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<C> <C> <C>
DELAWARE 5311 76-0407711
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
10201 MAIN STREET
HOUSTON, TX 77025
TELEPHONE: (713) 667-5601
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
MR. CARL TOOKER
STAGE STORES, INC.
10201 MAIN STREET
HOUSTON, TX 77025
TELEPHONE: (713) 667-5601
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<C> <C>
LANCE C. BALK MORTON A. PIERCE
KIRKLAND & ELLIS DEWEY BALLANTINE
153 EAST 53RD STREET 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10022-4675 NEW YORK, NEW YORK 10019-6092
TELEPHONE: (212) 446-4800 TELEPHONE: (212) 259-8000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
===========================================================================================================
PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $.01 per
share............................ 24,069 $807,996 $244.85
===========================================================================================================
</TABLE>
(1) 6,423,949 shares were registered in connection with the original filing on
August 26, 1997. 24,069 represents additional shares being registered.
(2) Estimated solely for the purpose of calculating the registration fee for the
additional 24,069 shares.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1997
6,448,018 Shares
[STAGE STORES INC. LOGO]
Common Stock
($.01 par value)
---------------------
All of the shares of Common Stock, par value $.01 per share (the "Common Stock")
of Stage Stores, Inc., a Delaware corporation ("Stage" or the "Company"),
offered hereby (the "Offering") are being sold by the Selling Stockholders named
herein under "Principal and Selling Stockholders." The Company will not receive
any proceeds from the sale of shares by the Selling Stockholders.
The Common Stock is listed on the Nasdaq National Market under the symbol
"STGE". On September 15, 1997, the last reported sales price of the Common Stock
on the Nasdaq National Market was 35.13 per share. See "Price Range of Common
Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions Stockholders(1)
---------------------- -------------------- --------------------
Per Share.................................. $ $ $
Total (2).................................. $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Selling Stockholders estimated
at $ . The Company will pay expenses related to the Offering
estimated at $ .
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 650,000
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ , Proceeds to
Selling Stockholders will be $ , and Proceeds to the Company will
be $ .
The shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the shares will be ready
for delivery on or about , 1997, against payment in immediately
available funds.
CREDIT SUISSE FIRST BOSTON BEAR, STEARNS & CO. INC.
Prospectus dated , 1997.
<PAGE> 3
[PICTURES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. References in this Prospectus to the Company
shall, as the context requires, refer to Stage Stores, Inc. ("Stage"), together
with its wholly owned subsidiaries. Unless otherwise specified, the information
contained herein assumes that the Underwriters' over-allotment option is not
exercised. 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).
THE COMPANY
The Company operates the store of choice for well known, national brand
name family apparel in over 400 small towns and communities across the central
United States. The Company has recognized the high level of brand awareness and
demand for fashionable, quality apparel by consumers in small markets and has
identified these markets as a profitable and underserved niche. The Company has
developed a unique franchise focused on small markets, differentiating itself
from the competition by offering a broad range of branded merchandise with a
high level of customer service in convenient locations.
As of August 2, 1997, the Company operated 578 stores in 24 states
throughout the central United States primarily under the "Stage," "Bealls" and
"Palais Royal" trade names. Of these stores, the Company acquired 246 stores
through the acquisition (the "Acquisition") of C.R. Anthony Company ("CR
Anthony") on June 26, 1997. The Company intends to convert the acquired stores
to its existing format and trade names during the remainder of 1997 and the
first half of 1998. See "The Acquisition." Approximately 80% of the Company's
stores are located in small markets and communities with populations generally
below 30,000 people, some with as few as 4,000 people. The remainder of the
Company's stores operate in metropolitan areas, primarily in suburban Houston.
The Company's store format (averaging approximately 16,000 selling square feet)
and merchandising capabilities enable the Company to operate profitably in small
markets. For 1996, after giving effect to the Refinancing (as defined), the
Acquisition and the acquisition of Uhlmans Inc. ("Uhlmans") in June 1996 (the
"Uhlmans Acquisition") as if each had occurred at the beginning of the year,
sales and operating income would have been $1.1 billion and $89.9 million,
respectively.
The Company's merchandise offerings include a carefully edited but broad
selection of brand name, moderately priced, fashion apparel, accessories,
fragrances, cosmetics and footwear for women, men and children. Over 85% of 1996
sales consisted of brand name merchandise, including nationally recognized
brands such as Calvin Klein, Chaps/Ralph Lauren, Guess, Haggar Apparel, Hanes,
Levi Strauss, Liz Claiborne, Nike and Reebok.
The Company generally faces less competition for brand name apparel as a
result of its small market focus. In those markets, competition generally comes
from local retailers or small regional chains as most national department stores
do not operate in small markets, and access to brand name merchandise generally
requires travel to distant regional malls with national department stores. In
those small markets where the Company does compete for brand name apparel sales,
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, the Company generally does not directly compete for brand name apparel
sales with national discounters such as Wal-Mart.
The Company has begun to realize the full potential of its unique franchise
in small markets as a result of several initiatives undertaken in recent years,
including: (i) recruiting a new senior management team; (ii) embarking on an
accelerated store expansion program to capitalize on opportunities in new
markets through new store openings and strategic acquisitions; and (iii)
continuing to refine the Company's retailing concept
3
<PAGE> 5
through new merchandising and operating programs. As a result of these
initiatives, as well as the lower operating costs of small market stores, the
Company has among the highest operating income margins in the apparel retailing
industry.
KEY STRENGTHS
The following factors serve as the Company's key strengths and
distinguishing characteristics:
Ability to Operate Profitably in Smaller Markets. In targeting small
markets, the Company has developed a store format, generally ranging in size
from 12,000 to 30,000 selling square feet, which is smaller than typical
department stores yet large enough to offer a well edited, but broad selection
of merchandise. In 1996, the Company's small market stores open for at least one
year generated a store contribution (operating profit before allocation of
corporate overhead) as a percentage of sales of 17%, as compared to 12% for its
larger market stores.
Benefits of Strong Vendor Relationships. The Company's extensive store base
offers major vendors a unique vehicle for accessing many small markets in a cost
effective manner. The proliferation of media combined with the significant
marketing efforts of these vendors has created significant demand for branded
merchandise. The financial and other limitations of many local retailers have,
however, left vendors of large national brands with limited access to such
markets. Further, these vendors, in order to preserve brand image, generally do
not sell to national discounters. As a result, the Company is able to carry
branded merchandise frequently not carried by local competitors. Additionally,
the Company continuously seeks to expand its vendor base and has recently added
nationally recognized brand names such as Dockers for Women, Oshkosh and Polo,
and fragrances by Elizabeth Arden, Liz Claiborne and Perry Ellis. In addition,
the Company has successfully increased the participation by key vendors in joint
marketing programs to a level that the Company believes exceeds the standard
programs provided to its smaller, regional competitors.
Effective Merchandising Strategy. The Company's merchandising strategy is
based on an in-depth understanding of its customers and is designed to
accommodate the particular demographic profile of each store. Store layouts and
visual merchandising displays are designed to create a friendly, modern,
department store environment, which is frequently not found in small markets.
The Company's strategy focuses on moderately-priced, brand name merchandise
categories of women's, men's and children's apparel, accessories, fragrances,
cosmetics and footwear, which have traditionally experienced attractive margins.
The Company utilizes a sophisticated merchandise allocation and transfer system
which is designed to maximize in-stock positions, increase sales and reduce
markdowns. The Company believes that the combination of the size and experience
of its buyer group, strong vendor relationships, effective merchandising systems
and participation in the Associated Merchandising Corporation ("AMC")
cooperative buying service enable it to compete effectively on both price and
selection in its markets.
Focused Marketing Strategy. The Company's primary target customers are
women between the ages of 20 and 55 with household incomes over $25,000 who are
the primary decision makers for family clothing purchases. The Company uses a
multi-media advertising approach to position its stores as the local destination
for fashionable, brand name merchandise. In addition, the Company heavily
promotes its proprietary credit card in order to create customer loyalty and to
effectively identify its core customers. The Company believes it has a high
level of customer awareness due to the small size of its markets, its aggressive
advertising strategy and well developed programs designed to encourage a high
level of customer interaction and employee participation in local community
activities.
Benefits of Proprietary Credit Card Program. The Company aggressively
promotes its proprietary credit card and, as a result, the Company believes it
experiences a higher percentage of proprietary credit card sales (approximately
50% of net sales in 1996) than most apparel retailers. The Company considers its
credit card program to be a critical component of its retailing concept because
it: (i) enhances customer loyalty by providing a service that few local and
regional competitors or discounters offer; (ii) allows the Company to identify
and regularly contact its best customers; and (iii) creates a comprehensive
database that enables the Company to implement detailed, segmented marketing and
merchandising strategies for each store.
4
<PAGE> 6
Emphasis on Customer Service. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. Each sales associate is evaluated and compensated
based upon the attainment of specific customer service standards such as
offering prompt assistance, suggesting complementary items, sending thank-you
notes to credit card customers and establishing consistent contact with
customers in order to create the associate's own customer base. The Company
continuously monitors the quality of its service by making over 4,500 calls each
month to credit card customers who have recently made a purchase. The results of
these surveys are used to determine a portion of each store manager's bonus. The
Company further extends its service philosophy to the design of the store,
including installing call buttons in its fitting rooms and, in many of its small
market stores, locating the store manager on the selling floor to increase
accessibility to customers.
Sophisticated Operating and Information Systems. The Company supports its
retail concept with highly automated and integrated systems in areas such as
merchandising, distribution, sales promotions, credit, personnel management,
store design and accounting. These systems have enabled the Company to
effectively manage its inventory, improve sales productivity and reduce costs,
and have contributed to its relatively high operating income margins.
GROWTH STRATEGY
In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company has initiated
an aggressive growth strategy to capitalize on available opportunities in new
markets through new store openings and strategic acquisitions. The Company
opened 23 new stores and acquired 45 stores in 1995, and opened 35 new stores
and acquired 34 stores in 1996. The Company expects to open approximately 55 new
stores in 1997 in addition to the 246 stores acquired pursuant to the
Acquisition.
The following are the primary elements of the Company's strategy for
profitable growth:
New Store Openings in Small Markets. As part of its ongoing expansion
program, the Company has identified over 600 additional markets in the central
United States and contiguous states which meet its demographic and competitive
criteria. All of these target markets are smaller communities with populations
from 12,000 to 30,000 where the Company has historically experienced its highest
profit margins.
Strategic Acquisitions. The Company believes that it can benefit from
strategic acquisitions by: (i) applying its buying and merchandising
capabilities, sales promotion techniques and customer service methods; (ii)
introducing its proven management systems; and (iii) consolidating overhead
functions. This strategy has been successfully demonstrated by the Company's
acquisition of 45 stores from Beall-Ladymon, Inc. ("Beall-Ladymon") in 1994 and
the subsequent reopening of the stores in the first quarter of 1995 under the
Stage name. In 1993, the year prior to their acquisition, the Beall-Ladymon
stores generated sales of approximately $53.4 million, whereas during the first
four full quarters operated by Stage (the 12 months ended August 3, 1996), the
newly opened Stage stores in the same locations generated sales of $95.0
million, an increase of 78%. Over the same period, store contribution more than
doubled.
In June 1996, the Company acquired Uhlmans, a privately held retailer with
34 locations in Ohio, Indiana and Michigan, where the Company previously had no
stores. These stores were of similar size and merchandise content to the
Company's existing stores and were compatible with the Company's retailing
concept and growth strategy. For 1995, Uhlmans had net sales of $59.7 million
and operating income of $2.2 million. For the first six full months since the
merchandising function of Uhlmans was completely integrated (December 1996
through May 1997), sales at Uhlmans stores increased approximately 6% over the
comparable period in the prior year, which represents the last six months prior
to the consummation of the Uhlmans Acquisition. The Company believes that
certain changes to the merchandise mix and an increase in proprietary credit
card-based sales will provide further improvement over Uhlmans historical
results.
On June 26, 1997, the Company acquired CR Anthony which operated 246 family
apparel stores in small markets throughout the central and midwestern United
States under the names "Anthonys" and "Anthonys Limited." The Company intends to
convert the "Anthonys" and "Anthonys Limited" stores to the Company's format
under its "Stage" and "Bealls" trade names during the remainder of 1997 and the
first half of 1998.
5
<PAGE> 7
Expansion to Micromarkets. The Company believes that there is significant
growth potential targeting communities with populations from 4,000 to 12,000
("micromarkets") using a scaled-down, further edited version of the Company's
small market format. This avenue for growth would be designed to capitalize on
the Company's historically favorable operating experience in markets of this
size. The Company believes that it can successfully operate in micromarkets
because: (i) the Company can tailor its existing successful small market store
model to the appropriate size for these micromarkets (approximately 10,000
selling square feet and smaller); and (ii) micromarkets are generally
characterized by lower levels of competition and lower labor and occupancy costs
compared to small markets. The Company has identified approximately 1,200
potential micromarkets in the central United States and contiguous states which
meet these criteria.
THE ACQUISITION
On June 26, 1997, the Company acquired CR Anthony which operated 246 family
apparel stores in small markets throughout the central and midwestern United
States under the names "Anthonys" and "Anthonys Limited." The Company believes
the Acquisition will strengthen the Company's position as a leading retailer of
national brand name apparel in small markets throughout the central and
midwestern United States where CR Anthony had been operating for over 70 years.
For the fiscal year ended February 1, 1997, CR Anthony's net sales and EBITDA
were $288.4 million and $14.0 million, respectively.
CR Anthony's operating strategy was to offer brand name and private label
apparel and footwear for the entire family at competitive prices. The acquired
stores are located in 18 states, with the highest concentrations in Texas,
Oklahoma, Kansas and New Mexico. Approximately 85% of CR Anthony stores are
located in small markets and communities with populations generally below 30,000
and its store format averages approximately 12,000 selling square feet.
The Company believes that the Acquisition is consistent with its growth
strategy to expand as a retailer of moderately priced, national brand name
apparel into underserved, small markets through both organic store development
and strategic acquisitions. The Acquisition provides an opportunity for the
Company to accelerate its expansion program in existing markets and extend its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) there is a relatively small number of markets in which the two
companies directly overlap; (ii) a majority of the acquired stores are in
markets which fit the Company's demographic profile; (iii) a majority of the
acquired stores are comparable in size to the Company's stores in similar
markets; and (iv) the acquired stores are located in states which are the same
as or are contiguous to states in which the Company currently operates.
The addition of the CR Anthony stores not only expands the geographic reach
of the Company, but it is expected that there will be meaningful synergies
between the Company and CR Anthony including: (i) central overhead cost savings;
(ii) CR Anthony revenue enhancement opportunities; and (iii) CR Anthony gross
margin improvement opportunities. The Company intends to convert the "Anthonys"
and "Anthonys Limited" stores to the Company's format under its "Stage" and
"Bealls" trade names during the remainder of 1997 and the first half of 1998.
The Company expects to realize the aforementioned synergies once the integration
and conversion process is substantially complete.
THE REFINANCING
On June 17, 1997, the Company completed an offering of $300.0 million of
long-term indebtedness (the "Note Offering") consisting of $200.0 million in
aggregate principal amount of 8 1/2% Senior Notes Due 2005 (the "Senior Notes")
and $100.0 million in aggregate principal amount of 9% Senior Subordinated Notes
Due 2007 (the "Senior Subordinated Notes" and together with the Senior Notes,
the "Notes"). The gross proceeds from the Note Offering of approximately $299.7
million were used: (i) to retire approximately $248.2 million of the Company's
existing higher coupon long-term indebtedness and to pay related fees and
expenses; and (ii) to pay transaction and other costs associated with the
Acquisition.
Concurrently with the Note Offering, the Company entered into a $200.0
million new credit facility with a group of lenders (the "Credit Agreement").
The Credit Agreement provides for a $100.0 million working capital
6
<PAGE> 8
and letter of credit facility (the "Working Capital Facility") and a $100.0
million expansion revolving credit facility (the "Expansion Facility"). See
"Description of Certain Indebtedness." The Credit Agreement, the Note Offering
and related retirement of approximately $248.2 million of the Company's existing
indebtedness are collectively referred to herein as the "Refinancing."
The Company believes the Refinancing provides a more flexible permanent
capital structure which: (i) lowers the Company's weighted average cost of
borrowing; (ii) extends the average maturities of the Company's debt; (iii)
increases the Company's working capital facilities to support its operations;
and (iv) provides increased financial flexibility to allow the Company to
continue to implement its growth strategy.
7
<PAGE> 9
THE OFFERING
Common Stock offered by
Selling Stockholders.......... 6,448,018
Common Stock to be outstanding
after the Offering(1)......... 27,028,347
Use of Proceeds............... All shares offered hereby are being sold by the
Selling Stockholders. The Company will not
receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Use of
Proceeds."
Nasdaq National Market
symbol........................ "STGE"
- ---------------
(1) Includes 1,250,584 shares issuable upon the conversion of non-voting Class B
Common Stock, $0.01 par value per share (the "Class B Common Stock"), which
are convertible into Common Stock on a share-for-share basis, subject to
certain restrictions. See "Description of Capital Stock." Excludes 1,742,429
shares that may be issued upon the exercise of options granted pursuant to
the 1993 Stock Option Plan.
Prospective purchasers of the Common Stock offered hereby should carefully
consider the "Risk Factors" immediately following this Prospectus Summary.
The executive offices of the Company are located at 10201 Main Street,
Houston, Texas 77025. The Company's telephone number is (800) 579-2302.
8
<PAGE> 10
SUMMARY CONSOLIDATED HISTORICAL AND
PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated historical and pro
forma combined financial and operating data of the Company for the periods
indicated. The Company's summary consolidated historical financial data were
derived from the Company's Consolidated Financial Statements. The summary pro
forma combined financial and operating data were derived from the Unaudited Pro
Forma Combined Income Statements of the Company and give effect to the
Acquisition, the Refinancing, the Uhlmans Acquisition and the retirement of the
Company's 12 3/4% Senior Discount Debentures due 2000 (the "Senior Discount
Debentures") with the proceeds of the Company's initial public offering
completed during the third quarter of 1996 (the "IPO"), as if they had occurred
at the beginning of the period. The information in the table should be read in
conjunction with "Unaudited Pro Forma Combined Income Statements", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
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PRO
PRO FORMA
FORMA AUG. 3, AUG. 2, AUG. 2,
1992 1993(1) 1994 1995(2) 1996(3) 1996 1996 1997 1997
-------- -------- -------- -------- -------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STORE DATA)
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STATEMENT OF OPERATIONS
DATA:
Net sales................. $504,401 $557,422 $581,463 $682,624 $776,550 $1,081,458 $345,927 $429,649 $538,149
Cost of sales and related
buying, occupancy and
distribution expenses... 350,136 384,843 398,659 468,347 532,563 759,488 237,223 293,822 380,088
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Gross profit.............. 154,265 172,579 182,804 214,277 243,987 321,970 108,704 135,827 158,061
Selling, general and
administrative
expenses................ 99,523 115,008 126,200 149,102 172,579 229,232(4) 78,433 94,663 115,630(4)
Store opening and closure
costs................... 120 199 5,647 3,689 2,838 2,838 301 904 904
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Operating income(5)....... 54,622 57,372 50,957 61,486 68,570 89,900 29,970 40,260 41,527
Interest, net............. 31,771 36,377 40,010 43,989 45,954 38,685 24,054 18,391 19,140
Other non-operating
expense................. 2,276 -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Income before income tax
and extraordinary
item.................... 20,575 20,995 10,947 17,497 22,616 51,215 5,916 21,869 22,387
Income tax expense........ 8,340 7,569 4,317 6,767 8,594 19,907 2,396 8,529 8,803
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Income before
extraordinary item...... $ 12,235 $ 13,426 $ 6,630 $ 10,730 $ 14,022 $ 31,308 $ 3,520 $ 13,340 $ 13,584
======== ======== ======== ======== ======== ========== ======== ======== ========
Earnings per common share
before extraordinary
item.................... $ 1.01 $ 1.09 $ 0.53 $ 0.84 $ 0.88 $ 1.15 $ 0.27 $ 0.54 $ 0.49
======== ======== ======== ======== ======== ========== ======== ======== ========
MARGIN AND OTHER DATA:
Gross profit margin....... 30.6% 31.0% 31.4% 31.4% 31.4% 29.8% 31.4% 31.6% 29.4%
Operating income
margin(5)............... 10.8% 10.3% 8.8% 9.0% 8.8% 8.3% 8.7% 9.4% 7.7%
Adjusted operating income
margin(6)............... 8.7% 8.4% 9.2% 9.4% 9.2% -- 7.8% 9.6% --
Adjusted operating
income(6)............... $ 43,680 $ 46,828 $ 53,677 $ 63,996 $ 71,628 $ -- $ 27,128 $ 41,037 $ --
Depreciation and
amortization............ 9,065 9,259 9,997 12,816 14,181 18,520(7) 6,844 8,003 9,002(7)
Capital expenditures...... 7,631 8,503 19,706 28,638 26,096 31,964(7) 15,183 20,797 10,805(7)
STORE DATA:(8)
Comparable store sales
growth:
Bealls/Stage(9)......... 5.1% 7.2% 4.8% 3.3% 5.1% -- 7.7% 7.2% --
Palais Royal............ (9.8)% 0.8% 1.7% 1.4% 0.7% -- 6.3% (1.3)% --
Total Company(10)... 1.8% 6.3% 4.1% 0.8%(11) 3.3% -- 7.3% 5.3% --
Net sales per selling
square foot:
Bealls/Stage(9)......... $ 118 $ 129 $ 138 $ 142 $ 141 $ -- $ -- $ -- $ --
Palais Royal............ 191 200 205 203 202 -- -- -- --
Total Company(10)....... 138 149 157 157 151 -- -- -- --
Total selling square
footage (in
thousands)(12).......... 3,418 3,472 3,516 4,581 5,677 8,653 5,361 9,125 9,125
Number of stores open at
end of period(12)....... 175 180 188 256 315 539 308 578 578
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital........................................................................................... $261,615 --
Total assets.............................................................................................. 662,677 --
Long-term debt............................................................................................ 356,877 --
Stockholders' equity...................................................................................... 160,735 --
</TABLE>
9
<PAGE> 11
NOTES TO SUMMARY CONSOLIDATED
HISTORICAL AND PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
(1) During 1993, the Company completed: (i) the refinancing of its existing
debt and preferred stock (the "1993 Financing"); and (ii) a cash
distribution (the "Distribution") to the Company's stockholders. As a
result of the 1993 Financing, 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 from the issuance of the Senior Discount Debentures were used to
make the Distribution.
(2) 1995 includes 53 weeks. Comparable store sales growth and net sales per
selling square foot for 1995 have been determined based on a comparable
fifty-two week period.
(3) The net proceeds of the IPO were used primarily to retire 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.
(4) Includes store opening and closure costs for CR Anthony.
(5) Operating income and operating income margin decreased during 1994 compared
to 1993 due primarily to the impact of the implementation of an accounts
receivable securitization program (the "Accounts Receivable Program") (see
Note 3 to the Company's Consolidated Financial Statements and Note 6
below), combined with a $5.2 million provision associated with the closure
of a majority of the stores operated under the Fashion Bar name (the "Store
Closure Plan"). See Note 5 to the Company's Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
(6) Adjusted operating income represents operating income adjusted to eliminate
store opening and closure costs, and the impact on operating income of the
Company's proprietary credit card program (including the Accounts
Receivable Program).
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
----------------------------------------------------- ----------------------
AUGUST 3, AUGUST 2,
1992 1993 1994 1995 1996 1996 1997
-------- -------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income............ $ 54,622 $ 57,372 $50,957 $61,486 $68,570 $29,970 $40,260
Store opening and closure
costs..................... 120 199 5,647 3,689 2,838 301 904
(Income)/expense related to
the proprietary credit
card program.............. (11,062) (10,743) (2,927) (1,179) 220 (3,143) (127)
-------- -------- ------- ------- ------- ------- -------
Adjusted operating income... $ 43,680 $ 46,828 $53,677 $63,996 $71,628 $27,128 $41,037
======== ======== ======= ======= ======= ======= =======
</TABLE>
The impact of the Company's proprietary credit card program (including the
Accounts Receivable Program) is reflected in the Company's selling, general
and administrative expenses and is calculated as: (i) service charge income
less (ii) servicing costs, bad debt costs and return to certificateholders
less (iii) the increase (or plus a decrease) in the fair value of the
Retained Certificates (see Note 1 to the Company's Consolidated Financial
Statements).
Although adjusted operating income and adjusted operating income margin do
not represent operating income or any other measure of financial
performance under generally accepted accounting principles, the Company
believes they are helpful in understanding the profitability of the
Company's retailing operations prior to the impact of its credit card
program, the Accounts Receivable Program and store opening and closure
costs.
(7) Pro forma depreciation and amortization and capital expenditures for 1996
and the six months ended August 2, 1997 do not reflect approximately $38.0
million of capital expenditures anticipated in the CR Anthony Integration
Plan. See "Unaudited Pro Forma Combined Income Statements."
10
<PAGE> 12
(8) 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. Store data exclude the Fashion Bar stores
included in the Store Closure Plan.
(9) Excludes for all the periods presented the six Bealls stores located on the
border of Mexico which were adversely affected by the peso devaluation in
1994. Comparable stores sales growth and net sales per selling square foot
for Bealls/Stage including these stores were:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
-------------------------------- ---------------------
AUGUST 3, AUGUST 2,
BEALLS/STAGE 1992 1993 1994 1995 1996 1996 1997
------------ ---- ---- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales
growth....................... 6.7% 7.7% 4.6% 0.2% 5.1% 7.7% 7.3%
Net sales per selling square
foot......................... $125 $137 $146 $145 $141 -- --
</TABLE>
(10) Total Company comparable store sales growth and net sales per selling
square foot including the stores which were part of the Store Closure Plan
were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
-------------------------------- ---------------------
AUGUST 3, AUGUST 2,
TOTAL COMPANY 1992 1993 1994 1995 1996 1996 1997
------------- ---- ---- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales
growth....................... 1.8% 5.4% 3.2% 0.5% 3.3% 6.8% 5.3%
Net sales per selling square
foot......................... $138 $143 $151 $150 $151 -- --
</TABLE>
(11) Excluding the six Bealls stores located on the border of Mexico which were
adversely affected by the peso devaluation in 1994, total Company
comparable store sales growth for 1995 would have been 3.0%.
(12) Excludes data related to the stores which were included in the Store
Closure Plan. Data are as of the end of the period.
11
<PAGE> 13
RISK FACTORS
In addition to the other information and data included in this Prospectus,
the following factors should be considered carefully prior to making an
investment in the Common Stock offered hereby.
LEVERAGE AND RESTRICTIVE COVENANTS
The Company has a significant amount of outstanding indebtedness. As of
August 2, 1997, the Company had outstanding indebtedness of $359.6 million in
principal amount (including the Notes and excluding trade payables, accrued
liabilities and unused commitments under the Credit Agreement). See
"Capitalization."
The Company's significant leverage poses several risks to the Company,
including the risks that: (i) a substantial portion of the Company's cash flow
from operations will be dedicated to the payment of principal and interest on
the Company's indebtedness; (ii) the Company's highly leveraged position may
impede its ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes, including acquisitions;
(iii) the Company's highly leveraged financial position may make it more
vulnerable to economic downturns and may limit its ability to withstand
competitive pressures; (iv) to the extent that the Company incurs any
indebtedness under the Credit Agreement, which indebtedness will be at variable
rates, the Company will be vulnerable to increases in interest rates; (v) the
certificates outstanding under the Accounts Receivable Program bear interest at
floating rates which results in the Company being vulnerable to higher interest
rates; and (vi) the Company's flexibility in planning for or reacting to changes
in market conditions may be limited. In addition, the Company's debt imposes
operating and financial restrictions on the Company and certain of its
subsidiaries. Such restrictions limit, among other things, the Company's ability
to incur additional indebtedness, to make dividend payments and to make capital
expenditures. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Certain Indebtedness."
INTEGRATION OF CR ANTHONY
The integration and consolidation of CR Anthony will require substantial
management, financial and other resources and may pose risks with respect to
sales, customer service and market share. For example, the Company will need to
sell a substantial amount of existing inventory in CR Anthony stores at
discounted prices, expend capital to remodel the stores in a manner more
consistent with the Company's existing format and integrate the CR Anthony
stores' operating procedures into the Company's management information systems
process and operations. The Acquisition is significantly larger than any
acquisition the Company has previously made and, while the Company believes that
it has sufficient financial and management resources to accomplish the
integration of CR Anthony, there can be no assurance in this regard or that the
Company will not experience difficulties with customers, personnel, assignments
of leases or obtaining other required consents, or other factors. Although the
Company believes that the Acquisition will enhance the competitive position and
business prospects of the Company, there can be no assurance that such benefits,
including, without limitation, expected cost savings, revenue enhancement and
margin improvement, will be realized or that the combination of the Company and
CR Anthony will be successful. See "The Acquisition."
FUTURE GROWTH STRATEGY
Key components of the Company's growth strategy are to: (i) continue to
identify and acquire new store locations where the Company believes it can
operate profitably; and (ii) identify and consummate strategic acquisitions.
Such expansions and acquisitions could be material in size and cost. The
Company's ability to achieve its expansion plans is dependent upon many factors,
including the availability and permissibility under restrictive covenants of
financing, general and market specific economic conditions, the identification
of suitable markets, the availability and leasing of suitable sites on
acceptable terms, the hiring, training and retention of qualified management and
other store personnel, the integration of new stores and inventory procedures
into the Company's management information systems and operations and the
capability of the Company's existing distribution system to accommodate newly
acquired stores. As a result, there can be no assurance that the Company will be
able to achieve its targets for opening new stores (including acquisitions) or
that such new stores will operate profitably when opened or acquired. The
Company's growth strategy may significantly expand
12
<PAGE> 14
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. See "Business."
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 30
stores located near the border of Mexico, including 13 stores acquired in the
Acquisition, and may open additional stores in that region. Economic conditions
in Mexico, particularly the significant devaluation of the Mexican peso may have
a negative impact on sales in several of these stores. For example, the
devaluation of the Mexican peso in December 1994 had a material adverse impact
on six stores during 1995.
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 or profitability 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
from national, regional and local department and specialty stores, particularly
in certain metropolitan areas where the Company faces such competition, which
accounted for approximately 23% of the Company's 1996 sales. 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. In addition, there can be no assurance that
new competitors will not enter the Company's existing markets.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a large extent on its executive
management team, including the Company's Chairman, 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. See "Management -- Directors and Executive Officers."
13
<PAGE> 15
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
regulating the granting or servicing of credit (including late fees and the
finance charges 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/Interest Rate Risk. 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 floating rate certificates to investors backed by
such receivables. The Accounts Receivable Program has provided the Company with
substantially more liquidity at more attractive rates (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, deterioration in the
rate or pattern of cardholder payments on accounts or adverse change in the
floating rates of the investor certificates 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. The Company is protected to a certain extent by rate caps on these
certificates. If the rate on these certificates increases, however, the
Company's operating results could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Integration of CR Anthony Private Label Credit Card Program. Prior to the
Acquisition, CR Anthony sold all its private label credit card accounts
receivable to Citicorp Retail Services, Inc. ("Citicorp") pursuant to a Retail
Credit Services Agreement. Pursuant to this agreement, Citicorp has the right to
purchase all sales under the CR Anthony private label credit card program. The
Company and Citicorp have agreed to terminate this agreement effective September
11, 1997. Under the terms of this termination agreement, the Company will pay
Citicorp a termination fee. Additionally, the Company will repurchase any
outstanding accounts receivable on the termination date (September 11, 1997) at
their face value. The Company intends to incorporate these accounts receivable
into the Accounts Receivable Program. There can be no assurance that the Company
will be successful in incorporating the accounts receivable purchased from
Citicorp into the Accounts Receivable Program on a timely basis. CR Anthony had
historically been less successful than the Company in generating sales on its
private label credit card and there can be no assurance that the Company will be
successful in increasing the penetration of its private label credit card usage
in the stores acquired, or that such customers will be of acceptable credit risk
to the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 27,028,347 shares of
common stock outstanding. The shares of Common Stock sold in the Offering will
be freely tradeable without restriction or further registration under the
Securities Act of 1933 (the "Securities Act") unless held by an "affiliate" of
the Company, as that term is defined under Rule 144 of the Securities Act, which
shares will be subject to the resale limitations of Rule 144. In addition,
certain existing stockholders, including holders of restricted Common Stock,
have registration rights with respect to Common Stock held by them. Beginning 90
days following the Offering, 109,945 shares of Common Stock will be eligible for
sale subject to certain volume and other limitations of Rule 144 under the
Securities Act applicable to "affiliates" of the Company.
14
<PAGE> 16
The Company, the Selling Stockholders, the executive officers and directors
of the Company and certain other stockholders of the Company, including the
Citicorp Entities (as defined), have agreed that they will not offer, sell,
contract to sell, grant any option to purchase, establish a put equivalent
position (as defined in Rule 1a-1(h) under the Exchange Act), pledge or
otherwise dispose of, directly or indirectly, or file or cause to be filed with
the Securities and Exchange Commission a registration statement under the
Securities Act relating to, any shares of Common Stock, or any securities that
are convertible into or exercisable or exchangeable for, or that represent the
right to receive, shares of Common Stock, or publicly disclose the intention to
make any such offer, sale, grant, establishment, pledge, disposal or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 90 days from the date of this Prospectus.
No prediction can be made as to the effect that market sales of shares of
Common Stock or the availability of shares of Common Stock for sale will have on
the market price of the Common Stock from time to time. The sale of a
substantial number of shares held by the existing stockholders, whether pursuant
to a subsequent public offering or otherwise, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could materially impair the Company's future ability to raise capital through an
offering of equity securities. See "Shares Eligible for Future Sale" and
"Underwriting."
RESTRICTION ON PAYMENT OF DIVIDENDS ON COMMON STOCK
Since the IPO, the Company has not declared or paid any regular cash or
other dividends on the Common Stock and does not expect to pay cash dividends
for the foreseeable future. The indentures governing the Notes generally
restrict the ability of Stage to pay dividends. The Credit Agreement also
contains restrictive covenants that restrain Stage from paying dividends. See
"Dividend Policy."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's certificate of incorporation and bylaws
may inhibit changes in control of the Company not approved by the Company's
board of directors (the "Board of Directors" or the "Board") and could limit the
circumstances in which a premium may be paid for the Common Stock in proposed
transactions or a proxy contest for control of the Board. These provisions
include: (i) a prohibition on stockholder action through written consents; (ii)
advance notice requirements for stockholder proposals and nominations; (iii)
limitations on the ability of stockholders to amend, alter or repeal certain
provisions of the Company's certificate of incorporation and bylaws; (iv) the
authority of the Board to issue, without stockholder approval, preferred stock
(of which 2,500 shares are authorized) with such terms as the Board may
determine; and (v) a "fair price" provision pursuant to which certain
transactions involving an interested stockholder and the Company require
super-majority shareholder approval. The Company will also be afforded the
protections of Section 203 of the Delaware General Corporation Law, which could
have similar effects. See "Description of Capital Stock."
15
<PAGE> 17
THE ACQUISITION
On June 26, 1997, the Company acquired CR Anthony which operated 246 family
apparel stores in small markets throughout the central and midwestern United
States under the names "Anthonys" and "Anthonys Limited." The Company intends to
convert the "Anthonys" and "Anthonys Limited" stores to the Company's format
under the "Stage" and "Bealls" trade names during the remainder of 1997 and the
first half of 1998. The Company believes the Acquisition will strengthen the
Company's position as a leading retailer of national brand name apparel in small
markets throughout the central and midwestern United States where CR Anthony had
been operating for over 70 years. For the fiscal year ended February 1, 1997, CR
Anthony's net sales and EBITDA were $288.4 million and $14.0 million,
respectively.
CR Anthony's operating strategy was to offer brand name and private label
apparel and footwear for the entire family at competitive prices. The acquired
stores are located in 18 states, with the highest concentrations in Texas,
Oklahoma, Kansas and New Mexico. Approximately 85% of CR Anthony stores are
located in small markets and communities with populations generally below 30,000
and its store format averages approximately 12,000 selling square feet.
The Company believes that the Acquisition is consistent with its growth
strategy to expand as a retailer of moderately priced, national brand name
apparel into underserved, small markets through both organic store development
and strategic acquisitions. The Acquisition provides an opportunity for the
Company to accelerate its expansion program in existing markets and extends its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) there is a relatively small number of markets in which the two
companies directly overlapped; (ii) a majority of the acquired stores are in
markets which fit the Company's demographic profile; (iii) a majority of the
acquired stores are comparable in size to the Company's stores in similar
markets; and (iv) the acquired stores are located in states which are the same
as or are contiguous to states in which the Company currently operates.
The addition of the CR Anthony stores not only expands the geographic reach
of the Company, but the Company believes there will be meaningful synergies
between the Company and CR Anthony including: (i) central overhead cost savings;
(ii) CR Anthony revenue enhancement opportunities; and (iii) CR Anthony gross
margin improvement opportunities. The Company expects to realize the
aforementioned synergies once the integration and conversion process is
substantially complete.
Cost Savings. The Company has formally adopted a detailed integration plan
to absorb CR Anthony's general office functions, including accounting, data
processing, merchandising, personnel and distribution into similar functions
provided by the Company (the "CR Anthony Integration Plan"). The Company
believes that the central overhead cost savings (before amortization of capital
investments) from the CR Anthony Integration Plan should be approximately $10
million per year once the operations are fully integrated.
Revenue Enhancements. The Company generates significantly greater sales
productivity than CR Anthony. In 1996, on a sales per square foot basis, the
Company's small market stores generated sales of $141 per square foot versus
sales of $99 per square foot for all CR Anthony stores. The Company believes
that it has the opportunity over time to increase sales per square foot in CR
Anthony stores through a variety of measures including: (i) increasing sales of
women's apparel, an area in which CR Anthony was historically less focused; (ii)
introducing and expanding cosmetics, fragrance and accessories departments which
CR Anthony did not offer in many of its stores; (iii) improving the acquired
stores' overall merchandise selection based on the Company's experience and
strong vendor relationships; (iv) emphasizing sales on the Company's private
label credit card, which was underutilized by CR Anthony; and (v) extending
store hours of operation in certain markets to conform with the Company's
standard practice.
Gross Margin Improvements. The Company believes that it has the opportunity
over time to improve the gross margin in the stores acquired (which was 24.5%
for CR Anthony in 1996, calculated on a basis comparable to Stage, versus 31.4%
for the Company in 1996) by: (i) adjusting the merchandise mix to emphasize
higher margin categories within women's, men's and children's; (ii) introducing
and expanding high margin areas such as fragrances, cosmetics and accessories;
and (iii) improving upon the prices at which CR Anthony was able to buy
merchandise from certain vendors.
16
<PAGE> 18
The Company issued approximately 3.6 million shares of Common Stock to
stockholders of CR Anthony in connection with the Acquisition. The Acquisition
was structured as a merger with CR Anthony merging with and into its
wholly-owned operating subsidiary, Specialty Retailers, Inc. ("SRI"), and SRI
surviving with all its rights, privileges, powers and franchises unaffected by
the merger. The separate corporate existence of CR Anthony ceased.
17
<PAGE> 19
USE OF PROCEEDS
All shares of Common Stock offered hereby are being sold by the Selling
Stockholders. The Company will not receive any proceeds from the sale of shares
by the Selling Stockholders. If the Underwriters' over-allotment option is
exercised, the proceeds received by the Company from such exercise will be used
to reduce the average amount of borrowings outstanding under the Working Capital
Facility. See "Description of Certain Indebtedness."
DIVIDEND POLICY
Since the IPO, the Company has not declared or paid any regular cash or
other dividends on its Common Stock and does not expect to pay cash dividends
for the foreseeable future. The Company anticipates that for the foreseeable
future, earnings will be reinvested in the business and used to service
indebtedness. The Company's existing indebtedness limits its ability to pay
dividends. The declaration and payment of dividends by the Company are subject
to the discretion of the Board. Any future determination to pay dividends will
depend on the Company's results of operations, financial condition, capital
requirements, contractual restrictions under its current indebtedness and other
factors deemed relevant by the Board. See "Risk Factors -- Leverage and
Restrictive Covenants" and "-- Restriction on Payment of Dividends on Common
Stock."
PRICE RANGE OF COMMON STOCK
The Common Stock commenced trading on the Nasdaq National Market under the
symbol "STGE" on October 25, 1996. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
Third Quarter (from October 25, 1996)..................... $19.75 $18.00
Fourth Quarter............................................ $20.50 $16.50
FISCAL 1997
First Quarter............................................. $25.00 $17.00
Second Quarter............................................ $29.88 $18.50
Third Quarter (through September 15, 1997)................ $35.75 $28.50
</TABLE>
On September 15, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $35.13 per share. As of August 1, 1997, there
were approximately 254 holders of record of the Common Stock.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company at August 2, 1997. This presentation should be read in
conjunction with "Unaudited Pro Forma Combined Income Statements," the Company's
Consolidated Financial Statements and accompanying notes thereto and other
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 2,
1997
--------------
(IN THOUSANDS)
<S> <C>
SHORT-TERM DEBT (INCLUDES CURRENT PORTION OF LONG-TERM
DEBT)..................................................... $ 2,722
LONG-TERM DEBT, EXCLUDING CURRENT PORTION:
Credit Agreement.......................................... 5,000
8 1/2% Senior Notes Due 2005.............................. 200,000
9% Senior Subordinated Notes Due 2007, net of discount of
$337................................................... 99,663
SRPC Notes (as defined)................................... 30,000
Other debt................................................ 22,214
--------
Total long-term debt.............................. 356,877
STOCKHOLDERS' EQUITY........................................ 160,735
--------
TOTAL CAPITALIZATION.............................. $520,334
========
</TABLE>
19
<PAGE> 21
UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS
The unaudited pro forma combined income statements are based on the
historical consolidated financial statements of the Company, the historical
consolidated financial statements for CR Anthony and the assumptions and
adjustments described in the accompanying notes. The unaudited pro forma
combined income statements have been prepared as if the Acquisition, the
Refinancing, the Uhlmans Acquisition and the retirement of the Senior Discount
Debentures with the proceeds from the IPO had occurred at the beginning of each
period presented and do not purport to represent what the Company's results of
operations actually would have been if each of the aforementioned events had
occurred as of the dates indicated or will be for any future periods. The
unaudited pro forma combined income statements are based upon assumptions deemed
appropriate by the management of the Company and do not reflect: (i) certain
cost savings or improvements in sales volume or gross margin related to the
Acquisition which the Company believes could be realized as a result of
implementing Stage's merchandising, distribution, credit card and other
operational programs; and (ii) certain capital investments required as a result
of the Acquisition. The unaudited pro forma combined income statements should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
YEAR ENDED FEBRUARY 1, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
FINANCIAL DATA IPO AND
--------------------- UHLMANS
CR ACQUISITION ACQUISITION REFINANCING PRO FORMA
STAGE ANTHONY(1) ADJUSTMENTS(2) ADJUSTMENTS(3) ADJUSTMENTS(4) COMBINED
-------- ---------- -------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................. $776,550 $288,392 $ 16,516(a) $ -- $ -- $1,081,458
Cost of sales and related
buying, occupancy and
distribution expenses... 532,563 217,719 12,523(b) (3,317)(e) -- 759,488
-------- -------- -------- ------- ----- ----------
Gross profit.............. 243,987 70,673 3,993 3,317 -- 321,970
Selling, general and
administrative
expenses................ 175,417 60,944 1,821(c) (6,112)(f) -- 232,070
-------- -------- -------- ------- ----- ----------
Operating income.......... 68,570 9,729 2,172 9,429 -- 89,900
Interest, net............. 45,954 1,806 (10,071)(d) -- 996(g) 38,685
-------- -------- -------- ------- ----- ----------
Income (loss) before
income tax and
extraordinary item...... 22,616 7,923 12,243 9,429 (996) 51,215
Income tax expense
(benefit)(5)............ 8,594 3,090 4,652 3,950 (379) 19,907
-------- -------- -------- ------- ----- ----------
Income (loss) before
extraordinary item...... $ 14,022 $ 4,833 $ 7,591 $ 5,479 $(617) $ 31,308
======== ======== ======== ======= ===== ==========
Earnings per common share
before extraordinary
item.................... $ 0.88 $ 1.15
======== ==========
Weighted average common
shares outstanding...... 15,927 27,331(6)
======== ==========
</TABLE>
20
<PAGE> 22
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
SIX MONTHS ENDED AUGUST 2, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL DATA
------------------------- PRO
CR ACQUISITION REFINANCING FORMA
STAGE ANTHONY(1) ADJUSTMENTS(3) ADJUSTMENTS(4) COMBINED
---------- ------------ -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales......................... $429,649 $108,500 $ -- $ -- $538,149
Cost of sales and related buying,
occupancy and distribution
expenses........................ 293,822 87,645 (1,379)(e) -- 380,088
-------- -------- ------- ---- --------
Gross profit...................... 135,827 20,855 1,379 -- 158,061
Selling, general and
administrative expenses......... 95,567 30,788 (9,821)(f) -- 116,534
-------- -------- ------- ---- --------
Operating income.................. 40,260 (9,933) 11,200 -- 41,527
Interest, net..................... 18,391 677 -- 72(g) 19,140
-------- -------- ------- ---- --------
Income (loss) before income tax
and extraordinary item.......... 21,869 (10,610) 11,200 (72) 22,387
Income tax expense (benefit)(5)... 8,529 (4,138) 4,440 (28) 8,803
-------- -------- ------- ---- --------
Income (loss) before extraordinary
item............................ $ 13,340 $ (6,472) $ 6,760 $(44) $ 13,584
======== ======== ======= ==== ========
Earnings per common share before
extraordinary item.............. $ 0.54 $ 0.49
======== ========
Weighted average common shares
outstanding..................... 24,688 27,542(6)
======== ========
</TABLE>
21
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS
NOTE 1 -- CR ANTHONY HISTORICAL FINANCIAL DATA (AS OF JULY 5, 1997)
Reclassifications have been made to certain historical CR Anthony costs and
expenses to reflect a presentation similar to that of Stage. Certain store
occupancy expenses (including depreciation) and buying expenses have been
reclassified to "Cost of sales and related buying, occupancy and distribution
expenses." In its reported financial statements, CR Anthony includes these costs
and expenses as "Selling, general and administrative expenses" and as
"Depreciation and amortization." Additionally, advertising expenses and
depreciation and amortization (not otherwise reclassified to cost of sales) have
been included in "Selling, general and administrative expenses."
For purposes of the Unaudited Pro Forma Combined Income Statement for the
six months ended August 2, 1997, the CR Anthony historical financial data
includes the twenty-two weeks ended July 5, 1997. Included in such historical
financial data are acquisition related expenses of approximately $6.7 million
primarily related to the retirement of outstanding CR Anthony options, severance
payments and other direct costs directly associated with the Acquisition.
NOTE 2 -- IPO AND UHLMANS ACQUISITION
During 1996, Stage completed the IPO and the related retirement of the
Senior Discount Debentures, and the Uhlmans Acquisition. In connection with the
Uhlmans Acquisition, the Company has completed a consolidation program which
absorbed the Uhlmans general office functions, including accounting, data
processing, merchandising, personnel, credit and distribution into similar
functions provided by the Company (the "Uhlmans Consolidation Program"). As a
part of the acquisition agreement with the former stockholders of Uhlmans, the
Company has paid severance to each individual whose employment has been
terminated as a result of the Uhlmans Consolidation Program. In addition, all
leases associated with Uhlmans corporate offices and distribution center have
been terminated.
Although the consolidation of the Uhlmans general office functions took
place over a period of three months, the unaudited pro forma combined income
statement reflects the elimination of the separate Uhlmans general office
expenses assuming the consolidation had been fully implemented at the beginning
of the period.
The accompanying pro forma adjustments for the Uhlmans Acquisition reflect
the historical operating results for Uhlmans from February 4, 1996 through June
2, 1996 (representing the period in 1996 prior to the closing of the Uhlmans
Acquisition) adjusted for the impact of the Uhlmans Consolidation Program and
related financing. The accompanying pro forma adjustments related to the IPO
reflect the issuance of 10.75 million shares of Common Stock as well as the
retirement of the Senior Discount Debentures.
(a) Uhlmans pre-acquisition net sales
(b) Adjustments to cost of sales and related buying, occupancy and
distribution expenses as follows:
<TABLE>
<S> <C>
Uhlmans pre-acquisition cost of sales and related buying,
occupancy and distribution expenses....................... $13,030
Incremental freight due to use of Stage's distribution
center.................................................... 99
Uhlmans pre-acquisition buying and merchandising personnel
costs eliminated in connection with the Uhlmans
Consolidation Program..................................... (606)
-------
$12,523
=======
</TABLE>
22
<PAGE> 24
(c) Adjustments to selling, general and administrative expenses as follows:
<TABLE>
<S> <C>
Uhlmans pre-acquisition selling, general and administrative
expenses.................................................. $ 3,482
Amortization of goodwill resulting from the Uhlmans
Acquisition............................................... 136
Uhlmans pre-acquisition personnel costs eliminated in
connection with the Uhlmans Consolidation Program......... (1,547)
Elimination of a professional service agreement terminated
in connection with the IPO................................ (250)
-------
$ 1,821
=======
</TABLE>
(d) Adjustments to net interest as follows:
<TABLE>
<S> <C>
Incremental interest related to the SRPC Notes used to
finance the Uhlmans
Acquisition............................................... $ 1,250
Amortization of debt issue costs related to the SRPC
Notes..................................................... 189
Elimination of the historical interest expense and
amortization of debt issue costs associated with the
Senior Discount Debentures retired in connection with the
IPO....................................................... (10,956)
Elimination of the Uhlmans pre-acquisition interest expense
and amortization of debt issue costs...................... (554)
--------
$(10,071)
========
</TABLE>
The components of the purchase price of the Uhlmans Acquisition, net of
cash acquired, were as follows:
<TABLE>
<S> <C>
Cash acquired............................................... $ (887)
Cash paid to Uhlmans shareholders........................... 12,023
Uhlmans debt retired........................................ 16,210
--------
Total purchase price, net of cash acquired........ $ 27,346
========
</TABLE>
The purchase price of the Uhlmans Acquisition for accounting purposes was
allocated as follows to the assets purchased and the liabilities assumed based
upon their fair values:
<TABLE>
<S> <C>
Current assets, other than cash............................. $ 13,923
Property, equipment and leasehold improvements.............. 3,953
Goodwill.................................................... 17,014
Other assets................................................ 111
Liabilities assumed......................................... (7,655)
--------
Total purchase price, net of cash acquired........ $ 27,346
========
</TABLE>
NOTE 3 -- THE ACQUISITION
The Company has formally adopted the CR Anthony Integration Plan to absorb
CR Anthony's general office functions, including accounting, data processing,
merchandising, personnel and distribution into similar functions provided by the
Company. Although the CR Anthony Integration Plan is expected to take place over
a period of twelve months, the pro forma combined income statement reflects the
elimination of the separate CR Anthony general office and distribution center
expenses assuming the consolidation had been fully implemented at the beginning
of each period presented.
As a part of the CR Anthony Integration Plan, the Company has specifically
identified the general office employees of CR Anthony who will be terminated as
a result of the Acquisition. The Company has contractually agreed to a severance
schedule for each of these individuals whose employment will be terminated as a
result of the Acquisition.
The acquisition adjustments are based on estimates of the Company's
management and are not necessarily indicative of the level of permanent savings
for future periods. These pro forma adjustments only give effect to those
amounts that are directly related to the CR Anthony Integration Plan. The actual
application by the
23
<PAGE> 25
Company of the CR Anthony Integration Plan could result in different levels of
savings from the amounts presented in the pro forma combined income statements.
The accompanying pro forma combined income statements do not reflect
certain cost savings or improvements in sales volume or gross margin related to
the Acquisition which the Company believes could be realized as a result of
implementing the Company's merchandising, distribution, credit card and other
operational programs nor does it reflect approximately $38.0 million of capital
expenditures anticipated in the CR Anthony Integration Plan. The Company expects
to finance this investment through operating cash flows and borrowings under the
Credit Agreement. If such investment, along with the related financing, had been
reflected in the unaudited pro forma combined income statements the incremental
depreciation and interest expense would have the following impact:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
------- ----------
<S> <C> <C>
Income before income tax and extraordinary item............. $(4,578) $(2,289)
======= =======
Income before extraordinary item............................ $(2,839) $(1,419)
======= =======
Earnings per common share before extraordinary item......... $ (0.10) $ (0.05)
======= =======
</TABLE>
The application of purchase accounting to the Acquisition results in an
excess of the purchase price over the estimated fair value of the assets
acquired and liabilities assumed. This excess is treated as goodwill. Based upon
the strategic positioning of the CR Anthony stores in relation to the Company's
growth strategy and the long operating history and historical profitability of
these stores, management believes a 40-year amortization period for this
goodwill is appropriate. This preliminary purchase price allocation may be
adjusted, if necessary, based on additional information as it becomes available.
The pro forma combined income statements reflect the impact of the CR
Anthony Integration Plan as follows (in thousands):
(e) Adjustments to cost of sales and related buying, occupancy and
distribution expenses as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
------- ----------
<S> <C> <C>
Elimination of rental expense related to the closure of CR
Anthony's distribution center............................. $ (477) $ (205)
Elimination of payroll and costs associated with the
termination of CR Anthony's buying staff.................. (2,840) (1,174)
------- -------
$(3,317) $(1,379)
======= =======
</TABLE>
(f) Adjustment to selling, general and administrative expenses as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
------- ----------
<S> <C> <C>
Elimination of CR Anthony's payroll and other expenses
associated with employees who work at the general office
which is being closed pursuant to the CR Anthony
Integration Program....................................... $(7,078) $(3,613)
Elimination of acquisition related expenses recorded in CR
Anthony's historical results.............................. -- (6,691)
Amortization of goodwill resulting from the Acquisition..... 966 483
------- -------
$(6,112) $(9,821)
======= =======
</TABLE>
24
<PAGE> 26
NOTE 4 -- REFINANCING ADJUSTMENTS
(g) Adjustments to net interest as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
-------- ----------
<S> <C> <C>
Interest expense associated with the Refinancing............ $ 27,019 $ 10,169
Amortization of debt issue costs associated with the
Refinancing............................................... 1,617 609
Elimination of interest expense associated with retired
notes..................................................... (26,251) (10,045)
Elimination of debt issue costs associated with retired
notes..................................................... (1,389) (661)
-------- --------
$ 996 $ 72
======== ========
</TABLE>
NOTE 5 -- INCOME TAXES
Pro forma adjustments to record the provision or benefit for income taxes
have been made assuming a tax rate of 38%, based upon the statutory federal and
state income tax rates. These adjustments result in a pro forma combined
effective tax rate of 38.9% and 39.3% for 1996 and the six months ended August
2, 1997, respectively.
NOTE 6 -- WEIGHTED AVERAGE SHARES
Pro forma combined weighted average shares outstanding for 1996 has been
adjusted to give effect to: (i) the IPO; and (ii) the issuance by the Company of
3,607,044 shares of Common Stock to stockholders of CR Anthony in connection
with the Acquisition as if each transaction had occurred at the beginning of
1996. Pro forma combined weighted average shares outstanding for the six months
ended August 2, 1997 has been adjusted to give effect to the issuance of Common
Stock in connection with the Acquisition.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Overview. The Company operates the store of choice for well-known national
brand name family apparel in over 400 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved niche.
The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a broad range of brand
name merchandise with a high level of customer service in convenient locations.
The Company has begun to realize the full potential of its unique franchise
in small markets as a result of several initiatives undertaken in recent years,
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; and (iii) continuing to
refine the Company's retailing concept through new merchandising and operating
programs. As a result of these initiatives, the lower operating costs of small
market stores and the competitive advantages outlined above, the Company has
among the highest operating income margins in the apparel retailing industry.
Acquisitions. The Company acquired 45 stores from Beall-Ladymon in 1994 and
subsequently reopened the stores in the first quarter of 1995 under the Stage
name. In 1993, the year prior to their acquisition, the Beall-Ladymon stores
generated sales of approximately $53.4 million, whereas during the first four
full quarters operated by Stage (the 12 months ended August 3, 1996), the newly
opened Stage stores in the same locations generated sales of $95.0 million, an
increase of 78%. Over the same period, store contribution more than doubled.
In June 1996, the Company acquired Uhlmans, a privately-held retailer with
34 locations in Ohio, Indiana and Michigan, where the Company previously had no
stores. These stores were of similar size and merchandise content to the
Company's existing stores and were compatible with the Company's retailing
concept and growth strategy. For 1995, Uhlmans had net sales of $59.7 million
and operating income of $2.2 million. For the first six full months since the
merchandising function of Uhlmans was completely integrated (December 1996
through May 1997), sales at Uhlmans' stores increased approximately 6% over the
comparable period in the prior year, which represents the last six months prior
to the consummation of the Uhlmans Acquisition. The Company believes that
certain changes to the merchandise mix and an increase in proprietary credit
card-based sales will provide further improvement over Uhlmans historical
results.
On June 26, 1997, the Company acquired CR Anthony which operated 246 family
apparel stores in small markets throughout the central and midwestern United
States under the names "Anthonys" and "Anthonys Limited." The Company believes
the Acquisition will strengthen the Company's position as a leading retailer of
national brand name apparel in small markets throughout the central and
midwestern United States where CR Anthony had been operating for over 70 years.
For the fiscal year ended February 1, 1997, CR Anthony's net sales and EBITDA
were $288.4 million and $14.0 million, respectively. See "-- Liquidity and
Capital Resources."
The Company believes that the following key strengths have contributed to
its successful expansion and acquisition plan: (i) ability to operate profitably
in smaller markets; (ii) benefits of strong vendor relationships; (iii)
effective merchandising strategy; (iv) focused marketing strategy; (v) benefits
of proprietary credit card program; (vi) emphasis on customer service; and (vii)
sophisticated operating and information systems.
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 completed in 1996.
26
<PAGE> 28
The financial information, discussion and analysis that follow should be
read in conjunction with the Company's Consolidated Financial Statements
included elsewhere herein.
RESULTS OF OPERATIONS
The following sets forth the results of operations as a percentage of sales
for the periods indicated. 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>
SIX MONTHS ENDED
FISCAL YEAR ---------------------
--------------------- AUGUST 3, AUGUST 2,
1994 1995 1996 1996 1997
----- ----- ----- --------- ---------
<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 68.6 68.4
----- ----- ----- ----- -----
Gross profit margin.......................... 31.4 31.4 31.4 31.4 31.6
Selling, general and administrative
expenses................................... 21.7 21.8 22.2 22.6 22.0
Store opening and closure costs.............. 0.9 0.6 0.4 0.1 0.2
----- ----- ----- ----- -----
Operating income margin...................... 8.8 9.0 8.8 8.7 9.4
Net interest expense......................... 6.9 6.4 5.9 7.0 4.3
----- ----- ----- ----- -----
Income before income tax and extraordinary
item....................................... 1.9% 2.6% 2.9% 1.7% 5.1%
===== ===== ===== ===== =====
</TABLE>
THREE AND SIX MONTHS ENDED AUGUST 2, 1997 COMPARED TO AUGUST 3, 1996
Sales for the second quarter of 1997 increased 30.3% to $238.1 million from
$182.8 million in the comparable period of 1996. The increase in second quarter
sales was due primarily to $13.4 million of sales from stores opened during 1997
and 1996, $32.4 million of sales for the month of July from the acquired CR
Anthony stores, as well as a 5.7% increase in comparable store sales. Sales for
the first six months of 1997 increased 24.2% to $429.6 million from $345.9
million in the comparable period of 1996. The increase in sales for the six
month period was due primarily to $34.0 million of sales for stores opened
during 1997 and 1996, $32.4 million of sales for the month of July from the
acquired CR Anthony stores, as well as a 5.3% increase in comparable store
sales. The increase in comparable store sales was attributable primarily to the
strong performance of the Company's small market stores partially offset by a
slight decline in sales at the Company's metropolitan stores.
Gross profit for the second quarter of 1997 increased 30.6% to $73.9
million from $56.6 million in the comparable period of 1996. Gross profit margin
for the second quarter of 1997 and 1996 was 31.0%. Gross profit margin for the
second quarter of 1997 was impacted by lower gross profit margins experienced by
the acquired CR Anthony locations during July offset by an increase in markup on
merchandise sold in the Company's existing stores due to an improved mix of
merchandise as well as additional leverage of the fixed cost component of gross
margin. Gross profit for the first six months of 1997 increased 24.9% to $135.8
million from $108.7 million in the comparable period of 1996. Gross profit
margin for the first six months of 1997 increased to 31.6% from 31.4% for the
comparable period in 1996 due to the increase in markup on merchandise sold
mentioned above coupled with additional leverage of the fixed cost component of
gross margin partially offset by lower gross profit margins experienced by the
acquired CR Anthony locations during July.
The Company has historically used United Parcel Service ("UPS") to ship the
majority of merchandise from its distribution center to the Company's stores on
a daily basis. As a result of the UPS strike which began during the second
quarter of 1997 and was resolved during the third quarter of 1997, the Company
used alternative delivery services for approximately 20 days. These services met
the Company's distribution needs with minor disruption to its operations but
resulted in slightly higher operating costs to the Company than it would have
experienced with UPS. Following the conclusion of the UPS strike, UPS resumed
service for the Company under the terms of its existing contract. The Company is
in the process of rationalizing its distribution arrangements given the current
environment which may result in terms which are more or less attractive than the
Company's existing agreement with UPS.
27
<PAGE> 29
Selling, general and administrative expenses for the second quarter of 1997
increased 25.6% to $53.4 million from $42.5 million in the comparable period of
1996. Selling, general and administrative expenses as a percentage of sales for
the second quarter of 1997 decreased to 22.4% from 23.2% in the comparable
period of 1996 due to the effective leveraging of the Company's central overhead
function as well as an improvement in store variable expenses. Included in
selling, general and administrative expenses for the second quarter of 1997 is
approximately $1.0 million of integration and duplicative administrative costs
at the CR Anthony general office. Selling, general and administrative expenses
for the first six months of 1997 increased 20.8% to $94.7 million from $78.4
million in the comparable period of 1996. Selling, general and administrative
expenses as a percentage of sales for the first six months of 1997 decreased to
22.0% from 22.6% in the comparable period of 1996 due to the above factors.
Advertising expenses as a percentage of sales remained unchanged at
approximately 3.6% for the first six months of 1997 and 1996.
Operating income for the second quarter of 1997 increased 41.7% to $19.7
million from $13.9 million for the second quarter of 1997. Operating income as a
percentage of sales for the second quarter of 1997 was 8.3% as compared to 7.6%
for the second quarter of 1996 due to the factors described above. Operating
income for the first six months of 1997 increased 34.3% to $40.3 million from
$30.0 million in the comparable period of 1996. Operating income as a percentage
of sales for the first six months of 1997 was 9.4% as compared to 8.7% in the
comparable period of 1996.
Net interest expense for the second quarter of 1997 decreased 24.8% to $9.4
million from $12.5 million for the comparable period in 1996. Net interest
expense for the first six months of 1997 decreased 23.6% to $18.4 million from
$24.1 million for the comparable period in 1996. Net interest expense for both
the three and six months ended August 2, 1997 decreased from the comparable
periods in the prior year due to the retirement of the Senior Discount
Debentures in connection with the IPO. This decrease was partially offset by
increased interest expense associated with issuance of the SRPC Notes in May
1996. The Refinancing did not materially impact interest expense for the second
quarter of 1997 or for the first six months of 1997.
As a result of the foregoing, income before extraordinary item for the
second quarter of 1997 increased by 619.6% to $6.2 million from $0.9 million for
the comparable period in 1996. Income before extraordinary item for the first
six months of 1997 increased by 279.0% to $13.3 million from $3.5 million for
the comparable period in 1996.
In connection with the Refinancing in June 1997, the Company recorded an
extraordinary charge of $17.4 million, net of applicable income taxes of $11.1
million, related to the tender premiums and write-off of unamortized debt issue
costs associated with the retired debt.
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. These increases were
partially offset by the application of fixed costs to a greater volume of sales
and an increase in service charge income as a
28
<PAGE> 30
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 Existing Senior
Subordinated Notes 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 IPO.
In connection with the IPO 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 3.0%.
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 reduce inventories and an
increase in the level of shrinkage. Management believes that the increased
shrinkage was due primarily to the Company's focus on improving ticketing
compliance on merchandise in 1995 as well as the rapid expansion of stores
during the same year.
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.
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<PAGE> 31
Net 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 its quarterly sales and profits
traditionally are lower during the first three quarters (February through
October) and higher during the fourth quarter (November through January). In
addition, working capital requirements fluctuate throughout the year, increasing
substantially in October and November in anticipation of the holiday season due
to requirements for significantly higher inventory levels.
<TABLE>
<CAPTION>
1995 1996
----------------------------------------- -----------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $142,353 $154,578 $159,161 $226,532 $163,177 $182,750 $182,562 $248,061
Gross profit(1)................... 46,283 46,555 48,659 72,780 52,081 56,623 56,208 79,075
Operating income.................. 14,835 11,074 9,724 25,853 16,045 13,925 12,342 26,258
Quarters' operating income as a
percent of annual income........ 24% 18% 16% 42% 24% 20% 18% 38%
Income (loss) before extraordinary
item............................ $ 2,438 $ 221 $ (899) $ 8,970 $ 2,652 $ 868 $ (265) $ 10,767
Net income (loss)................. 2,438 221 (899) 8,970 2,652 868 (16,071) 10,492
Adjusted operating income(2)...... 13,797 11,337 10,364 28,498 14,033 13,095 12,053 32,447
</TABLE>
- ---------------
(1) The Company states its inventories at the lower of cost or market, cost
being determined on the last-in first-out method. See Note 1 to the
Company's Consolidated Financial Statements.
(2) Adjusted operating income represents operating income adjusted to eliminate
the income and expense associated with the Company's proprietary credit
card program (including the Accounts Receivable Program) and store opening
and closure costs.
The Company does not believe that inflation had a material effect on its
results of operations during the past two years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
LIQUIDITY AND CAPITAL RESOURCES
On June 3, 1996, the Company purchased Uhlmans for approximately $27.3
million, including acquisition costs and net of cash acquired. The Company,
through SRI Receivables Purchase Co., Inc. ("SRPC"), issued the SRPC Notes
during May 1996, the proceeds of which were used to fund the Uhlmans
Acquisition. 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.
During October 1996, the Company completed the IPO. The net proceeds to the
Company from the IPO were approximately $165.7 million after deducting
underwriting discounts and expenses related to the IPO. The net proceeds were
used primarily to retire the Senior Discount Debentures. The remaining proceeds
of approximately $26.5 million were used for general corporate purposes.
On June 17, 1997, the Company completed the Refinancing which consisted of
the Credit Agreement, the Note Offering and related retirement of approximately
$248.2 million of the Company's existing indebtedness. The Note Offering
consisted of $200.0 million in Senior Notes and $100.0 million in Senior
Subordinated Notes. The gross proceeds from the Note Offering of approximately
$299.7 million were used: (i) to retire approximately $248.2 million of the
Company's existing higher coupon long-term indebtedness and to pay related fees
and expenses; and (ii) to pay transaction and other costs associated with the
Acquisition. Concurrently with the Note Offering, the Company entered into the
Credit Agreement consisting of the $100.0 million Working Capital Facility and
$100.0 million Expansion Facility.
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<PAGE> 32
On June 26, 1997, in connection with the Acquisition, the Company issued
approximately 3.6 million shares of Common Stock to stockholders of CR Anthony
and assumed approximately $25.9 million in debt. The Acquisition was structured
as a merger with CR Anthony merging with and into SRI and SRI surviving with all
its rights, privileges, powers and franchises unaffected by the merger. The
separate corporate existence of CR Anthony ceased.
Total working capital increased $26.4 million to $261.6 million at August
2, 1997 from $235.2 million at February 1, 1997, due primarily to the
Acquisition. The most significant changes in working capital were: (i) an
increase in inventories, accrued expenses and other current liabilities and
accounts payable due to the Acquisition and the seasonal build of inventories;
and (ii) a decrease in accounts receivable as a result of the seasonal decrease
of accounts receivable which were generated during the Christmas season. In
addition, prepaid expenses and other current assets increased due primarily to
the Acquisition partially offset by the collection of a federal tax refund
during the first quarter of 1997.
The Company's primary capital requirements are for working capital, debt
service and capital expenditures. Based upon the Company's capital structure,
after giving pro forma effect to the Refinancing and the Acquisition, management
anticipates cash interest expense 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 (including capital expenditures
resulting from the Acquisition) to be approximately $62.0 million during each of
1997 and 1998, consisting primarily of new store openings, conversion of the CR
Anthony stores to the Stage format, and remodeling and maintenance of existing
stores. The Company also incurred approximately $18.0 million of one-time costs
in connection with the Acquisition, which consisted of, among other things,
costs associated with the termination of contracts (including the costs to
terminate CR Anthony's private label credit card portfolio with Citicorp), lease
terminations, severance payments to CR Anthony employees and transaction fees.
Required aggregate principal payments on debt of the Company are expected to
total $2.6 million for each of 1997 and 1998.
The Company's short-term liquidity needs, including a portion of the
one-time costs associated with the Acquisition, are expected to be provided by:
(i) existing cash balances; (ii) operating cash flows; (iii) the Accounts
Receivable Program; and (iv) the Credit Agreement. The Company expects to fund
its long-term liquidity needs from its operating cash flows, the issuance of
debt and/or equity securities, the securitization of its accounts receivable and
bank borrowings. The Company believes the Refinancing provides it with a more
flexible capital structure which: (i) lowers the Company's weighted average cost
of borrowing; (ii) extends the average maturities of the Company's debt; (iii)
increases the Company's working capital facilities to support its operations;
and (iv) provides increased financial flexibility to allow the Company to
continue to implement its growth strategy. See "Description of Certain
Indebtedness."
The Company securitizes all of its trade accounts receivable through its
wholly owned special purpose entity, SRPC. SRPC holds a retained interest in the
securitization vehicle, a special purpose trust (the "Trust") which is
represented by three certificates of beneficial ownership in the Trust (the
"Retained Certificates"). See Note 3 to the Company's Consolidated Financial
Statements. 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 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. The SRPC Notes are
secured by, and paid solely from, the Retained Certificates issued to SRPC by
the Trust. Interest on the SRPC Notes accrues at the rate per annum of 12.5% and
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 SRPC Notes have an expected maturity date of December 15, 2000 (the
"Expected Maturity Date"). Principal is
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<PAGE> 33
expected to be paid on the SRPC Notes in one payment on the Expected Maturity
Date. If principal is not paid in full on the Expected Maturity Date it will be
paid monthly thereafter on each monthly payment date, to the extent of available
funds and subject to the collection experience of the receivables underlying the
Trust Certificates at that time.
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 $200.1 million at August
2, 1997), up to a maximum of $40.0 million. As of August 2, 1997, the
outstanding balance under the revolving certificate was $16.6 million. 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. See "Risk
Factors -- Consumer Credit Risks."
Prior to the Acquisition, CR Anthony sold all its private label credit card
accounts receivable to Citicorp pursuant to a Retail Credit Services Agreement
which expires August 1, 1998. The Company and Citicorp have agreed to terminate
this agreement in exchange for the payment of a termination fee by the Company
to Citicorp. Additionally, the Company will repurchase any outstanding accounts
receivable on the termination date (September 11, 1997) at their face value. As
of August 13, 1997, there were approximately $36.0 million of CR Anthony
accounts receivable outstanding. The Company intends to incorporate the accounts
receivable into the Accounts Receivable Program. See "Risk Factors -- Consumer
Credit Risks -- Integration of CR Anthony Private Label Credit Card Program."
The Company believes that funds provided by operations, together with funds
available from the Credit Agreement 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.
32
<PAGE> 34
BUSINESS
GENERAL
The Company operates the store of choice for well known national brand name
family apparel in over 400 small towns and communities across the central United
States. The Company has recognized the high level of brand awareness and demand
for fashionable, quality apparel by consumers in small markets and has
identified these markets as a profitable and underserved niche. The Company has
developed a unique franchise focused on small markets, differentiating itself
from the competition by offering a carefully edited, but broad range of brand
name merchandise with a high level of customer service in convenient locations.
Stage's product offerings include fashion apparel, accessories, fragrances and
cosmetics and footwear for women, men and children. Over 85% of 1996 sales
consisted of brand name merchandise, including nationally recognized names such
as Chaps/Ralph Lauren, Liz Claiborne, Guess, Haggar Apparel, Hanes, Calvin
Klein, Nike, Reebok and Levi Strauss.
As of August 2, 1997, the Company operated 578 stores in 24 states
throughout the central United States primarily under the "Stage," "Bealls" and
"Palais Royal" trade names. Of these stores, the Company acquired 246 stores
through the Acquisition. The Company intends to convert the acquired stores to
its existing format and trade names during the remainder of 1997 and the first
half of 1998. Approximately 80% of the Company's stores are located in small
markets and communities with populations generally below 30,000 people, some
with as few as 4,000 people. The remainder of the Company's stores operate in
metropolitan areas, primarily in suburban Houston. The Company's store format
(averaging approximately 16,000 selling square feet) and merchandising
capabilities enable the Company to operate profitably in small markets. For
1996, after giving effect to the Refinancing, the Acquisition and the Uhlmans
Acquisition as if each had occurred at the beginning of the year, sales and
operating income would have been $1.1 billion and $89.9 million, respectively.
The Company generally faces less competition for brand name apparel as a
result of its small market focus. In those markets, competition generally comes
from local retailers or small regional chains as most national department stores
do not operate in small markets, and access to brand name merchandise generally
requires travel to distant regional malls with national department stores. In
those small markets where the Company does compete for brand name apparel sales,
the Company believes it has a competitive advantage over local retailers and
smaller regional chains due to its: (i) economies of scale of its large store
base; (ii) strong vendor relationships which provide it with a broad selection
of branded merchandise at a lower cost; (iii) proprietary credit card program,
which enables it to provide an independent source of credit and which generates
a significant customer database that supports the Company's promotion and
marketing efforts; and (iv) sophisticated operating systems for efficient
management. The Company believes it has a competitive advantage in small markets
over national department stores due to its: (i) experience with smaller markets;
(ii) ability to effectively manage merchandise assortments in a small store
format; and (iii) operating systems designed for efficient management within
small markets. In addition, due to minimal merchandise overlap, the Company
generally does not directly compete for branded apparel sales with national
discounters such as Wal-Mart.
In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company recruited a
new senior management team commencing in 1993. This new management team has: (i)
initiated an accelerated store expansion program to capitalize on available
opportunities in new markets through new store openings and strategic
acquisitions; and (ii) refined the Company's retailing concept through new
merchandising and operating programs. As a result of these initiatives, as well
as the generally lower operating costs of small market stores and the
competitive advantages outlined above, the Company has among the highest
operating income margins in the apparel retailing industry. The Company has made
substantial progress in implementing its growth strategy by opening or acquiring
68 stores in 1995 and 69 stores in 1996. In addition, the Company expects to
open approximately 55 stores in 1997 in addition to the 246 stores acquired
pursuant to the Acquisition.
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<PAGE> 35
KEY STRENGTHS
The following factors serve as the Company's key strengths and
distinguishing characteristics:
Ability to Operate Profitably in Small Markets. The Company has recognized
that customers in small markets are generally as aware of current fashion trends
and as sophisticated as consumers in larger urban centers due to the
proliferation of electronic, computer and print media. These consumers, however
have not traditionally had convenient access to broad assortments of quality,
brand name merchandise. The Company operates in small markets with populations
ranging from 4,000 to 30,000, and has developed a store format, generally
ranging in size from 12,000 to 30,000 selling square feet, which is smaller than
typical department stores yet large enough to offer a well edited, but broad
selection of merchandise. This format has enabled the Company to operate
profitably in small markets. Historically, the Company has achieved higher
profit margins in its small market stores. For 1996, store contribution
(operating profit before allocation of corporate overhead) as a percentage of
sales for small market stores open for at least one year was 17%, as compared to
12% for larger market stores. In addition, by operating more than 575 stores,
the Company benefits from economies of scale in buying and merchandising,
management information systems, distribution and advertising which, combined
with the lower cost structure of the smaller market stores, has resulted in
operating margins which are among the highest in the retailing industry.
Benefits of Strong Vendor Relationships. The Company's extensive store base
offers major vendors a unique vehicle for accessing small markets in a cost
effective manner. The proliferation of media combined with the significant
national marketing efforts of these vendors has created significant demand for
branded merchandise in small markets. However, the financial and other
limitations of many local retailers has left large national brands with limited
access to such markets. Furthermore, these vendors, in order to preserve brand
image, generally do not sell to national discounters. As a result, the Company
is able to carry branded merchandise frequently not carried by local
competitors. In addition, the Company continuously seeks to expand its vendor
base and has recently added nationally recognized name brands such as Dockers
for Women, Oshkosh and Polo, as well as fragrances by Elizabeth Arden, Liz
Claiborne and Perry Ellis during 1996. In addition, the Company has also
increased the participation by key vendors in joint marketing programs to a
level that the Company believes exceeds the standard vendor programs provided to
its smaller competitors. For example, the Company is among the largest customers
of Levi Strauss, Liz Claiborne and Haggar Apparel and enjoys significant support
from such vendors in sales promotions, advertising and store fixture programs.
Effective Merchandising Strategy. The Company's merchandising strategy is
based on an in-depth understanding of its customers and is designed to
accommodate the particular demographic profit of each store. This understanding
is attributable to over 70 years of experience operating in its markets coupled
with a buyers' organization that averages over ten years experience with the
Company. Store layouts and visual merchandising displays are designed to create
a friendly, modern and convenient department store atmosphere which is
frequently not found in small markets. The Company's strategy focuses on
moderately-priced, brand name merchandise categories which have traditionally
yielded attractive margins. The Company offers an edited assortment of quality,
moderately-priced, brand name merchandise that is divided into distinct
departments including misses, women's, men's, boy's, footwear, intimate apparel,
junior's, accessories, cosmetics, fragrances and gifts.
To augment its brand name merchandise offerings, the Company also offers a
quality assortment of higher margin, private label merchandise which comprises
less than 15% of total sales. The Company's private label merchandise includes
its highly successful Graphite(R) label for apparel, accessories and footwear as
well as its new Whispers(R) merchandise through AMC, a cooperative buying
service whose participants include nationally recognized retailers such as
Federated Department Stores.
The Company also utilizes a sophisticated merchandise allocation and
transfer system which is designed to maximize in-stock positions, increase sales
and reduce markdowns. The Company believes that the combination of the size and
experience of its buyer group, its vendor relationships, its strong
merchandising systems and its participation in AMC allow the Company to compete
effectively on both price and selection in its markets.
34
<PAGE> 36
Focused Marketing Strategy. The Company's primary target customers are
women between the ages of 20 and 55 with household incomes over $25,000 who are
the primary decision makers for family clothing purchases. The Company uses a
multi-media advertising approach, including newspaper, radio, direct mail and
television, to position its store as the local destination for fashionable,
brand name merchandise. In addition, the Company heavily promotes its
proprietary credit card in order to create customer loyalty and to effectively
identify its core customers. The Company believes it is better able to maintain
personal contact with its customers due to the small size of its markets,
aggressive advertising strategy and well-developed customer service programs
designed to encourage a high level of customer interaction. The Company seeks to
enhance its image in the communities it serves by encouraging its store managers
and employees to be involved in local activities such as youth groups, civic
activities and athletic events.
Benefits of Proprietary Credit Card Program. The Company aggressively
promotes its proprietary credit card and, as a result, experiences a higher
percentage of proprietary credit card sales (approximately 50% of net sales in
1996) than most apparel retailers. The Company considers its credit card program
to be a critical component of its retailing concept because it: (i) enhances
customer loyalty by providing customers with a service that few of its local and
regional competitors or discounters offer; (ii) allows the Company to identify
and regularly contact its best customers; and (iii) helps create a comprehensive
database that allows the Company to implement detailed, segmented marketing and
merchandising strategies for each store. In addition, the Company has
established a VIP program which offers special services and benefits to
customers with credit card purchases over $750 annually. VIP customers are
rewarded with certain extra services such as free gift-wrapping, emergency check
cashing, free credit card registration, discounts in alterations, and other
benefits. While these customers only represent approximately 17.1% of total
active cardholders, credit sales to these customers during 1996 comprised 42.9%
of total cardholder sales. Sales associates are encouraged to focus their
selling efforts on these customers to increase the productivity of the Company's
marketing efforts.
Emphasis on Customer Service. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. All sales associates are evaluated and compensated
based upon the attainment of specific customer service standards such as
offering prompt assistance, suggesting complementary items, sending thank-you
notes to credit card customers and establishing consistent contact with
customers in order to create a customer base for each associate. The Company
continuously monitors the quality of its service by making over 4,500 calls each
month to its credit card customers who have recently made a purchase. The
results of these surveys are used to determine a portion of each store manager's
bonus. In addition, the Company has extended this service philosophy to the
design of the store; for example, in nearly all stores it has installed call
buttons in the fitting rooms and in smaller market stores, has adopted a "Team
One" concept which locates the store manager on the selling floor. The Team One
concept is also designed to help the store manager ensure that sales associates
focus on selling customer service.
Sophisticated Operating and Information Systems. The Company supports its
retail concept with highly automated and integrated systems in areas such as
merchandising, distribution, sales promotions, credit, personnel management,
store design and accounting. The Company's merchandising systems assist
merchandise planners in allocating merchandise assortments for each store based
on specific characteristics and recent sales trends. The Company's point of sale
systems include bar code scanning and electronic credit and check authorization,
all of which allow the Company to capture customer specific sales data for use
in its merchandising system. Other systems allow the Company to identify and
mark down slow moving merchandise or efficiently transfer it to stores selling
such items more rapidly, and to maintain high levels of in-stock positions in
basic items including jeans and hosiery. The Company is focused on expanding its
use of electronic data interchange (EDI) and has made significant progress in
doing so over the last two years. These systems have enabled the Company to
efficiently manage its inventory, improve sales productivity and reduce costs,
which have helped contribute to the Company's relatively high operating income
margins. The Company has developed and utilizes an automated store personnel
scheduling system that analyzes historical hourly and projected sales trends to
efficiently schedule sales personnel. This system is designed to minimize labor
costs while producing a higher level of customer service.
35
<PAGE> 37
GROWTH STRATEGY
In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company, through its
new management team, has: (i) initiated an aggressive growth strategy to
capitalize on available opportunities through new store openings and
acquisitions; and (ii) refined its retailing concept to successfully operate in
very small markets with populations of less than 12,000.
New Store Openings in Small Markets. The Company opened 23 stores and
acquired 45 stores in 1995, and opened 35 stores and acquired 34 stores in 1996.
The Company expects to open approximately 55 new stores in 1997 in addition to
the 246 stores acquired pursuant to the Acquisition. Since 1994, store additions
have allowed the Company to begin operating in 17 additional states. As part of
new management's ongoing expansion strategy, the Company has identified over 600
additional markets in the central United States and contiguous states which meet
the Company's demographic and competitive criteria. All of these target markets
are smaller communities with populations from 12,000 to 30,000, where the
Company has historically experienced its highest profit margins. In addition,
the Company believes it has a competitive advantage over local retailers in
these markets which are typically underserved by department stores. Based on the
Company's historical operating experience, small market stores typically
experience lower incremental opening costs and lower occupancy and operating
expenses than larger markets. When combined with the Company's operating systems
in merchandising, credit, distribution and store personnel scheduling, the
smaller market stores have typically generated higher margins than metropolitan
market stores. For 1996, store contributions as a percentage of sales for small
market stores open for at least one year was 17% as compared to 12% for larger
market stores.
The Company utilizes a proprietary model which is designed to allow
management to identify suitable markets for new stores. The Company targets
communities for new store openings with populations generally ranging from
12,000 to 30,000, an average household income of $25,000 or more, and which are
located at least 30 miles from the nearest regional mall. Such locations
generally face limited competition from national retailers. In addition to
satisfying the above criteria, only those markets that management believes have
the potential to exceed certain minimum sales and profitability standards and
have available, suitable, low cost real estate are selected for new store
openings.
In opening a new store, the Company's investment consists primarily of
inventory, net of vendor payables, furniture, fixtures, equipment and leasehold
improvements and pre-opening expenses. Generally, the Company expects to invest
approximately $700,000 in a new store, including: (i) inventory of $450,000 less
vendor payables of $110,000; (ii) furniture, fixtures, equipment and leasehold
improvements of $300,000; and (iii) pre-opening expenses of $60,000. The average
investment in stores opened during 1996 was slightly lower due to the lower
investment required to convert the Uhlmans stores.
Strategic Acquisitions. The Company believes that it can benefit from
strategic acquisitions by: (i) applying its buying and merchandising
capabilities, sales promotion techniques and customer service methods; (ii)
introducing its proven management systems; and (iii) consolidating overhead
functions. See "Risk Factors -- Future Growth Strategy" and "Risk
Factors -- Acquisition of CR Anthony." This strategy has been successfully
demonstrated by the Company's acquisition of 45 stores from Beall-Ladymon in
1994 and the subsequent reopening of the stores in the first quarter of 1995
under the Stage name. In 1993, the year prior to their acquisition, the
Beall-Ladymon stores generated sales of approximately $53.4 million. During the
first four full quarters operated by Stage (the 12 months ended August 3, 1996),
the newly opened Stage stores in the same locations generated sales of $95.0
million, an increase of 78%. Over the same period, store contribution more than
doubled.
In June 1996, the Company acquired Uhlmans, a privately held retailer with
34 locations in Ohio, Indiana and Michigan, where the Company previously had no
stores. These stores were of similar size and merchandise content to the
Company's existing stores and were compatible with the Company's retailing
concept and growth strategy. For 1995, Uhlmans had net sales of $59.7 million
and operating income of $2.2 million. For the first six full months since the
merchandising function of Uhlmans was completely integrated (December 1996
through May 1997), sales at the Uhlmans store increased approximately 6% over
the comparative period in the prior year, which represents the last six months
prior to the consummation of the Uhlmans Acquisition. The Company
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<PAGE> 38
believes that certain changes to the merchandise mix and an increase in
proprietary credit card-based sales will provide further improvement over
Uhlmans historical results.
On June 26, 1997, the Company acquired CR Anthony which was a retailer of
brand name family apparel in small markets and operated 246 stores throughout
the central and midwestern United States under the names "Anthonys" and
"Anthonys Limited." The Company intends to convert the "Anthonys" and "Anthonys
Limited" stores to the Company's format under its "Stage" and "Bealls" trade
names during the remainder of 1997 and the first half of 1998. The Company
believes the Acquisition will strengthen the Company's position as a leading
retailer of national brand name apparel in small markets throughout the central
and midwestern United States where CR Anthony had been operating for over 70
years. For the fiscal year ended February 1, 1997, CR Anthony's net sales and
EBITDA were $288.4 million and $14.0 million, respectively.
CR Anthony's operating strategy was to offer brand name and private label
apparel and footwear for the entire family at competitive prices. The stores are
located in 18 states, with the highest concentrations in Texas, Oklahoma, Kansas
and New Mexico. Approximately 85% of CR Anthony stores are located in small
markets and communities with populations generally below 30,000 and its store
format averages approximately 12,000 selling square feet.
The Company believes that the Acquisition is consistent with its growth
strategy to expand as a retailer of moderately priced, national brand name
apparel into underserved, small markets through both organic store development
and strategic acquisitions. The Acquisition provides an opportunity for the
Company to accelerate its expansion program in existing markets and extend its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) there is a relatively small number of markets in which the two
companies directly overlap; (ii) a majority of the acquired stores are in
markets which fit the Company's demographic profile; (iii) a majority of the
acquired stores are comparable in size to the Company's stores in similar
markets; and (iv) the acquired stores are located in states which are the same
as or are contiguous to states in which the Company currently operates.
The addition of the CR Anthony stores has not only expanded the geographic
reach of the Company, but the Company believes that there will be meaningful
synergies between the Company and CR Anthony including: (i) central overhead
cost savings; (ii) CR Anthony revenue enhancement opportunities; and (iii) CR
Anthony gross margin improvement opportunities. The Company expects to realize
the aforementioned synergies once the integration and conversion process is
substantially complete. See "Risk Factors -- Future Growth Strategy," "Risk
Factors -- Integration of CR Anthony" and "The Acquisition."
Expansion to Micromarkets. The Company believes that there is significant
growth potential targeting communities with populations from 4,000 to 12,000
("micromarkets") using a scaled-down, further edited version of the Company's
small market format. This avenue for growth would be designed to capitalize on
the Company's historically favorable operating experience in markets of this
size. The Company believes that it can successfully operate in micromarkets
because: (i) the Company can tailor its existing successful small market store
model to the appropriate size for these micromarkets (approximately 10,000
selling square feet and smaller); and (ii) micromarkets are generally
characterized by lower levels of competition and lower labor and occupancy costs
compared to small markets. The Company has identified approximately 1,200
potential micromarkets in the central United States and contiguous states which
meet these criteria.
COMPANY OPERATIONS
Merchandise Purchasing and Allocation. The Company offers a select
assortment of quality, moderately priced soft goods, which are divided into
departments including misses, women's, men's, boys, juniors, children's,
intimate, petites, accessories, cosmetics, fragrances, gifts and footwear
departments. Merchandise mix may vary significantly from store to store to
accommodate differing demographic factors. The Company modifies its assortments
to focus on merchandise its buyers expect will have the broadest appeal to its
targeted customers based upon sales analyses and individual store attributes.
The Company purchases merchandise from a vendor base of over 2,000
suppliers. The Company's leading vendors for 1996 were Levi Strauss, Liz
Claiborne, Haggar Apparel, Guess, Hanes, Nike, Chorus Line, Parson
37
<PAGE> 39
Place and Reebok. The Company was one of Levi Strauss's top ten customers in
1996. No one supplier accounted for more than 9% of the Company's 1996
purchases. The Company is also a member of the cooperative buying service AMC,
and as such is entitled to make purchases of imported merchandise for its
private label program. The membership provides the Company with group purchasing
opportunities. Private label products result in better gross margins for the
Company and excellent value for the customer as a result of the lower cost of
such apparel as compared to branded items in the same categories. Private label
purchases were approximately 10%, 11% and 9% of total purchases in 1994, 1995
and 1996, respectively. The Company currently intends to keep private label
merchandise sales below 15% of total sales in order to focus on sales of branded
merchandise.
Set forth below is certain information regarding the historical percentage
of net sales by major merchandise departments for the Company for 1995 and 1996:
<TABLE>
<CAPTION>
DEPARTMENT 1995 1996
---------- ---- ----
<S> <C> <C>
Men's/Young Men.............................. 22% 22%
Misses Sportswear............................ 15 16
Juniors...................................... 13 12
Accessories & Gifts.......................... 9 9
Children..................................... 9 9
Shoes........................................ 8 9
Intimate..................................... 6 5
Special Sizes................................ 5 5
Cosmetics.................................... 5 5
Misses Dresses............................... 4 4
Boys......................................... 3 3
Furs & Coats................................. 1 1
--- ---
100% 100%
</TABLE>
Upon completion of the CR Anthony Integration Plan, the Company expects the
merchandise mix of the converted stores to be similar to that of the Company's
existing stores.
The Company's integrated merchandising systems are designed to provide its
buyers with the information and analytical support needed to maximize
efficiency, increase sales, reduce markdowns and increase inventory turnover
through better inventory management. These systems include, among others: (i) an
automated merchandise, financial planning and allocation system which recognizes
the attributes and current merchandise needs of each store; (ii) a staple stock
replenishment system to ensure the Company is in stock on basic items such as
hosiery, foundation garments, dress shirts and jeans; (iii) markdown and
merchandise transfer analysis; and (iv) an assortment planning system which
enables the Company to closely tailor the merchandise assortment in each store
based on local demographics and historical trends and automatically allocate
merchandise accordingly. In addition, electronic point-of-sale ("POS") terminals
at each store record and transmit to the Company's corporate headquarters a real
time, full accounting of each day's sales by transaction and item. The Company
utilizes its information systems to monitor slow and fast moving merchandise for
the purpose of enabling the Company to transfer slower moving merchandise from
one store to another store where such merchandise is selling more rapidly. The
Company believes that its inventory transfer system improves in-stock positions,
increases sales and reduces markdowns, thereby increasing profit margins.
Credit Services. The Company offers its own private label credit card
program, which enhances the Company's relationship with core customers by
tailoring credit availability to individual customers and facilitating frequent
communication of promotional offering. The number of private label credit
accounts and dollar volume of charges reflects an important element in the
Company's marketing strategy. The Company believes that private label credit
card holders shop more regularly and purchase more merchandise than customers
who pay cash or use bankcards. In addition, the Company maintains a database of
all proprietary charge purchases of these customers.
The Company believes that this data base is a significant competitive
advantage over competitors who lack such programs, allowing the Company to
target promotional material, via direct mail, to its regular customers. At
38
<PAGE> 40
February 1, 1997, there were more than 1.6 million active accounts. Private
label credit card purchases generated approximately 50% of net sales in 1996.
The Company seeks to expand the volume of such credit card purchases through a
marketing strategy emphasizing: (i) direct mail of promotional materials to
existing cardholders to communicate new merchandise offerings; (ii) promotion of
customer incentive programs; and (iii) the issuance of new credit through the
opening of new accounts and extension of credit on existing accounts. It is the
Company's policy to expand the number and use of private label credit card
accounts on a controlled basis by utilizing computerized systems such as
point-scoring for approving new accounts and behavioral scoring for monitoring
account performance and approving additional purchases.
The Company administers its private label credit card program through a
dedicated in-house facility and staff located in Jacksonville, Texas. The
Company's internally developed, fully computerized and highly automated credit
systems analyze customer payment histories, automatically approve or reject new
sales at point of sale and enable account representatives to efficiently manage
delinquent account collections.
Management Information Systems. In addition to its merchandising systems
described above, the Company relies on proprietary management information
systems to maximize productivity and minimize costs in the other labor-intensive
areas of its business, including distribution, personnel management, credit and
accounting. In each store, the Company's POS system uses bar code scanning and
includes electronic credit and check authorization. The Company has made
substantial investments in its systems and utilizes a central mainframe computer
to coordinate store level information and to support almost every aspect of the
business. By linking the corporate headquarters with each store, the Company's
systems allow the merchandising department to track sales of all items at all
stores at any time and enable immediate POS credit approval for the use of
private label credit cards. These systems have enabled the Company to better
manage and plan its inventory while reducing costs and have contributed to the
Company's relatively high operating margins.
Distribution. The Company's 450,000 square foot automated and centralized
distribution center in Jacksonville, Texas enables it to distribute most
merchandise within 48 hours of receipt and has the current capacity (with
minimal incremental investment) to support in excess of 1,000 stores. The
Company's centralized distribution system results in more efficient distribution
costs per unit, lower freight costs and reduced accounts payable processing
costs than certain of the Company's competitors. In 1995, the Company entered
into an arrangement with a major freight forwarder for the delivery of
merchandise from the distribution center to all of the Company's stores on a
daily basis. This arrangement is a more cost-efficient method of distribution
than the Company's previous method of multiple common carriers. Distribution
expenses, net of handling fees charged to vendors, were less than 1% of net
sales in each of 1995 and 1996, which the Company believes is below industry
averages.
COMPETITION
The retail apparel business is highly competitive. Retailers generally
compete on the basis of convenience of location, merchandise selection, service
and price. Although competition varies widely from market to market, the Company
faces substantial competition, particularly in metropolitan markets, from
national, regional and local department and specialty stores. Some of the
Company's competitors are considerably larger than the Company and have
substantially greater financial and other resources. The Company believes that
its distinctive retail concept, combined with its emphasis on operating systems
and technology, distinguishes it from department store and specialty store
competitors, especially in small markets. The Company believes that its
knowledge of small markets has enabled it to establish a strong franchise in
those markets.
EMPLOYEES
During 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
39
<PAGE> 41
agreements in effect with respect to any of the Company's employees. The Company
believes that relationships with its employees are good. During 1996, CR Anthony
employed approximately 2,950 full and part-time employees at all of its
locations, of which 351 were salaried and 2,599 were hourly. CR Anthony's
central office employed an average of 92 salaried and 171 hourly employees
during 1996. In its stores during 1996, CR Anthony employed an average of 259
salaried and 2,428 hourly employees.
PROPERTIES
The Company's corporate headquarters is located in a 130,000 square foot
building in Houston, Texas. The Company leases the building and most of the land
at its Houston facility. The Company owns its 450,000 square foot distribution
center and its credit department facility, both located in Jacksonville, Texas.
See Note 4 to the Consolidated Financial Statements.
The Company operated stores located in the following states:
<TABLE>
<CAPTION>
NUMBER OF STORES(1)
---------------------------------------
FEBRUARY 3, FEBRUARY 1, AUGUST 2,
LOCATION 1996 1997 1997
-------- ----------- ----------- ---------
<S> <C> <C> <C>
Alabama............................ 3 3 2
Arizona............................ -- 3 4
Arkansas........................... 12 12 24
California......................... -- -- 1
Colorado........................... 13 5 8
Illinois........................... 5 12 13
Indiana............................ -- 6 8
Iowa............................... 3 6 12
Kansas............................. 2 3 24
Louisiana.......................... 26 27 40
Michigan........................... -- 6 6
Minnesota.......................... -- 1 6
Mississippi........................ 6 6 7
Missouri........................... 4 6 13
Montana............................ -- -- 12
Nebraska........................... -- 1 6
New Mexico......................... 8 9 28
North Dakota....................... -- -- 2
Ohio............................... -- 26 27
Oklahoma........................... 13 13 73
South Dakota....................... -- 2 5
Texas.............................. 161 168 245
Wisconsin.......................... -- -- 1
Wyoming............................ 1 -- 11
--- --- ---
Total.................... 257 315 578
=== === ===
</TABLE>
- ---------------
(1) Excluding the stores included in the Store Closure Plan.
Company stores range in size from 4,000 to 46,000 selling square feet with
the majority between 12,000 and 30,000 selling square feet. In general, Bealls
stores are located in small markets primarily in Texas, Oklahoma and New Mexico,
Stage stores are located in small markets in states other than Texas, Oklahoma
and New Mexico and Palais Royal stores are located in metropolitan Houston and
suburban areas. These stores are primarily located in strip shopping centers.
All store locations are leased except for three Bealls stores and one Stage
store that are owned. Most leases provide for a base rent amount plus contingent
rentals, generally based upon a percentage of gross sales.
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<PAGE> 42
Some of the buildings which the Company owns and leases in connection with
its business may have been constructed with asbestos-containing materials. In
the past, the Company has owned underground storage tanks. The Company believes
that it is in substantial compliance with federal, state and local environmental
provisions and that it currently has no material environmental liabilities.
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.
41
<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the names, ages and all positions held by the
directors and executive officers of Stage as of August 25, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Carl Tooker............. 50 Chairman of the Board of Directors, President and
Chief Executive Officer
Harry Brown............. 50 Executive Vice President/Chief Merchandising Officer
James Marcum............ 38 Executive Vice President/Chief Financial Officer and
Director
Stephen Lovell.......... 41 Executive Vice President/Director of Stores
Ron Lucas............... 50 Senior Vice President/Human Resources
Joshua Bekenstein(1).... 39 Director
Harold Compton(1)....... 49 Director
Robert Huth(2).......... 51 Director
Richard Jolosky(1)...... 62 Director
Adam Kirsch(2).......... 35 Director
Peter Mulvihill(2)...... 38 Director
John J. Wiesner......... 59 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Kirsch and Mr. Mulvihill will resign from the Board of Directors and
the Audit Committee effective upon consummation of the Offering. The Company
expects to fill the two vacant Board of Directors seats with two independent
directors following consummation of the Offering.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee oversees actions taken by the
Company's independent auditors, recommends the engagement of auditors and
reviews the Company's internal accounting policies and practices. The
Compensation Committee approves the compensation of executives of the Company,
makes recommendations to the Board of Directors with respect to standards for
setting compensation levels and administers the Company's incentive plans.
Mr. 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 of Directors. 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. Brown joined the Company on August 4, 1997. Prior to joining the
Company, Mr. Brown was the Executive Vice President for Merchandising, Planning
and Marketing at Office Depot in Del Ray Beach, Florida since 1995. Mr. Brown
served as the Executive Vice President, General Merchandise Manager over all
apparel, accessories and cosmetics at Marshall's from 1990 to 1995, and as Sr.
Vice President of Merchandising for both Men's and Women's apparel at Macy's, a
division of Federated Department Stores, Inc., from 1978 to 1990.
Mr. Marcum joined the Company in June 1995 as Executive Vice President and
Chief Financial Officer. On August 20, 1997, he was named a Director of the
Company. 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
42
<PAGE> 44
of the Melville Corporation, from 1989 to 1990 and from 1990 to 1995 as Senior
Vice President and Chief Financial Officer of Marshalls, Inc. From 1980 to 1983,
Mr. Marcum was employed at Coopers and Lybrand L.L.P.
Mr. Lovell joined the Company in June 1995 as Executive Vice President and
Director of Stores. Before joining the Company, Mr. Lovell served in various
positions at Hit or Miss, a division of TJX Companies, where he was employed
since 1980 and where he served since January 1987 as Senior Vice President and
Director of Stores.
Mr. Lucas joined the Company in July 1995 as Senior Vice President, Human
Resources. Between 1987 and 1995, Mr. Lucas served as Vice President, Human
Resources at two different divisions of Limited, Inc., The Limited Stores
Division and Lane Bryant. Previously, he spent seventeen years at the Venture
Stores Division of May Co. where from 1985 to 1987 he was Vice President,
Organization Development.
Mr. 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. 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. Compton has been a Director since March 1997. Mr. Compton has served as
Executive Vice President and Chief Operating Officer of CompUSA Inc. since
January 1995. Previously, he served as Executive Vice President -- Operations,
from August 1994 to January 1995. Prior to joining CompUSA Inc., Mr. Compton
served as President and Chief Operating Officer of Central Electric Inc. from
December 1993 to August 1994. Previously, Mr. Compton served as Executive Vice
President -- Operations & Human Resources of HomeBase, Inc. from 1989 to 1993.
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.
Mr. Jolosky has been a Director since March 1997. Mr. Jolosky has served as
President of Payless ShoeSource, Inc. since 1996. Mr. Jolosky previously served
as President and Chief Executive Officer of Silverman Jewelry Company from 1995
to 1996 and as Chief Executive Officer of the Richard Allen Company from 1992 to
1995.
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 and Oak Hill Securities Fund, L.P.) 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. Wiesner joined the Company as Director effective July 1, 1997. Prior to
joining the Company, Mr. Wiesner held varying positions at CR Anthony, including
Chairman of the Board, Chief Executive Officer from 1987 to 1997, and President
from 1987 to 1990 and 1992 to 1995. From 1977 to 1987, Mr. Wiesner was employed
by Pamida, Inc., an operator of discount stores in the midwestern United States,
serving as Corporate Controller from 1977 to 1979, Senior Vice President from
1979 to 1981, Senior Executive Vice President and Chief Financial Officer from
1981 to 1985 and Vice Chairman of the Board and Chief Administrative Officer
from 1985 to 1987. Prior to joining Pamida, Inc., Mr. Wiesner was employed for
seven years by Fisher Foods, Inc., a supermarket chain, attaining the position
of Vice President and Controller.
43
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth certain information regarding ownership of the
Common Stock as of August 21, 1997 assuming exercise of options exercisable
within sixty days of such date by: (i) each person or entity who owns of record
or beneficially 5% or more of the Common Stock; (ii) each Selling Stockholder;
(iii) each director and named executive officer; and (iv) all executive officers
and directors as a group. Each of such stockholders is assumed to have sole
voting and investment power as to the shares shown. Known exceptions are noted.
As of August 21, 1997, 1,250,584 shares of Class B common stock were
outstanding, all of which are owned by Court Square Capital Limited.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF OF TOTAL OF TOTAL
SHARES OF PERCENTAGE OF SHARES SHARES
COMMON VOTING POWER OWNED SHARES TO BE OWNED
STOCK PRIOR TO THE PRIOR TO THE SOLD IN THE AFTER THE
NAME OWNED OFFERING OFFERING OFFERING OFFERING
---- --------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Bain Capital Funds(1)............... 3,517,829 13.5% 12.9% 3,517,829 --
Acadia Entities..................... 3,030,095(2) 11.6% 11.1% 2,709,715(3) --(4)
Citicorp Entities(5)................ 2,215,497 3.7% 8.1% 8.1%
DIRECTORS AND EXECUTIVE OFFICERS
Joshua Bekenstein(6)................ 3,574,184 13.7% 13.1% 3,555,239 *
Adam Kirsch(6)...................... 3,550,249 13.6% 13.0% 3,550,249 --
Carl Tooker......................... 103,943 * * *
James Marcum........................ 42,625 * * *
Stephen Lovell...................... 33,154 * * *
Ron Lucas........................... 17,997 * * *
John Wiesner........................ 4,000 * * *
Robert Huth......................... 2,000 * * *
Harry Brown......................... -- -- -- --
Harold Compton...................... -- -- -- --
Richard Jolosky..................... -- -- -- --
Peter Mulvihill(7).................. -- -- -- --
All executive officers and directors
as a group (12 Persons)(8)....... 3,810,323 14.6% 13.9% *
OTHER SELLING STOCKHOLDERS
9 other Selling Stockholders,
each of whom is selling less than
50,000 shares in the
Offering(9)...................... 150,644 * * 150,644 --
</TABLE>
- ---------------
* Less than 1%
(1) Amounts shown include 2,772,741 shares of Common Stock held by Tyler Capital
Fund, L.P.; 568,116 shares of Common Stock held by Tyler Massachusetts,
L.P.: 166,185 shares of Common Stock held by Tyler International; 10,587
shares of Common Stock held by BCIP Associates ("BCIP Associates"); and 200
shares of Common Stock held by BCIP Trust Associates, L.P. ("BCIP Trust"
and, collectively with BCIP Associates and the Tyler entities, the "Bain
Capital Funds"). The address of the Bain Capital Funds is c/o Bain Venture
Capital, Two Copley Place, Boston, Massachusetts 02116.
(2) Amount shown represents 2,836,693 shares held directly by Acadia Partners,
L.P. ("Acadia"), 96,701 shares held by FWHY Coinvestments I Partners, L.P.
("FCP") and 96,701 shares held by Rosecliff-Specialty Retailing 1989
Partners, L.P. ("Rosecliff"). A Schedule 13G Statement dated February 14,
1997 (the "Acadia 13G"), reported the collective beneficial ownership of
3,030,095 shares, or 11.1% of the Company's Common Stock, by Acadia, Acadia
FW Partners, L.P., a Delaware limited partnership ("Acadia FW"), Acadia MGP,
Inc., a Texas corporation ("Acadia MGP"), J. Taylor Crandall, FCP, Bondo
FTW, Inc., a Delaware corporation ("Bondo FTW"), David Bonderman, Rosecliff,
and Glenn R. August (collectively, the "Acadia Entities"). Acadia, acting
through its sole general partner, Acadia FW, acting in turn through its
44
<PAGE> 46
managing general partner, Acadia MGP, has the sole power to vote and dispose
of 2,836,693 shares of Common Stock. As the President of Acadia MGP, Mr.
Crandall has the sole power to vote and dispose of such 2,836,693 shares of
Common Stock. Each of FCP and Rosecliff own 96,701 shares of Common Stock.
Because of his position as the President of Bondo FTW, the sole general
partner of FCP, Mr. Bonderman may be deemed to be the beneficial owner of
the 96,701 shares of Common Stock held by FCP. Because of his position as
the sole general partner of Rosecliff, Mr. August may be deemed to be the
beneficial owner of the 96,701 shares of Common Stock held by Rosecliff. The
Acadia 13G states that neither the fact of its filing by the Acadia Entities
nor anything contained therein shall be deemed an admission by the Acadia
Entities that a "group" exists within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended. The address of Acadia and FCP
is 201 Main Street, Fort Worth, Texas 76102. The address of Rosecliff is 65
East 55th Street, New York, New York 10022.
(3) Acadia and Rosecliff have advised the Company that immediately prior to the
Offering, Acadia and Rosecliff will distribute all of the shares of Common
Stock of the Company held by them to their partners (the "Acadia
Distributions"). Certain of these partners yet to be determined will be
among the Selling Stockholders in the Offering. FCP will not sell any shares
in the Offering.
(4) Shares held by FCP and shares received in the Acadia Distributions by
partners of Acadia and Rosecliff which will not participate in the Offering
will in each case constitute less than one percent of the total shares of
Common Stock outstanding after the Offering. As a result, no Acadia Entities
will continue to be reflected as 5% Stockholders of the Company after the
consummation of the Offering.
(5) Amounts shown include 1,250,584 shares of non-voting Class B Common Stock
and 370,068 shares of Common Stock owned by Court Square Capital Limited
("Court Square"), a subsidiary of Citicorp, a Delaware corporation and
594,845 shares of Common Stock owned by Citicorp Venture Capital Limited
("CVC"), a subsidiary of Citicorp. Each share of non-voting Class B Common
Stock is convertible, subject to certain restrictions, into one share of
Common Stock. The address of Court Square and CVC is 399 Park Avenue, New
York, New York 10043.
(6) Amounts shown include shares beneficially owned by the Bain Capital Funds.
Mr. Bekenstein and Mr. Kirsch, both Directors of the Company and Managing
Directors of Bain Capital, Inc., may be deemed to share voting and
dispositive power as to all shares owned by the Bain Capital Funds.
(7) Mr. Mulvihill is a Director of the Company and a Managing Director of the
investment adviser to Acadia. In addition, Mr. Mulvihill holds indirectly a
limited interest in Acadia and holds directly a limited interest in
Rosecliff. However, he does not hold or share voting or dispositive power as
to shares beneficially owned by Acadia or Rosecliff.
(8) Amount shown includes 112,719 shares of Common Stock that such persons or
group could acquire upon the exercise of options exercisable within 60 days.
(9) Amount shown represent 150,644 shares of Common Stock held by certain
partners or employees of Bain Capital Funds. Amount shown excludes shares of
Common Stock held by Messrs. Bekenstein and Kirsch. Certain partners and
other employees of Bain Capital Funds may make a contribution of Common
Stock to one or more charities prior to the Offering. In such case, the
recipient charity will be the selling stockholder with respect to such
donated shares.
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<PAGE> 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Loans to Executive Officers. The Company has made loans, in an aggregate
principal amount of $1,344,400, to certain executive officers of the Company.
Such loans provide for interest ranging from 5.7% to 7.25% and mature no later
than June 1, 2000. All loans are secured by Common Stock or certain real estate
owned by such executive officers.
TRANSACTIONS WITH STOCKHOLDERS
Registration Rights Agreement. The Company is party to a Registration
Agreement (the "Registration Agreement") with the Bain Capital Funds, Acadia and
Court Square pursuant to which such stockholders have the right to cause the
Company to register shares of Common Stock (the "registrable securities") under
the Securities Act. Under the terms of the Registration Agreement: (i) the
holders of at least a majority of the registrable securities can require the
Company, subject to certain limitations, to file up to three "long-form"
registration statements under the Securities Act covering all or part of the
registrable securities, and subject to certain limitations, to file an unlimited
number of "short-form" registration statements under the Securities Act covering
all or part of the registrable securities, and (ii) Acadia can require the
Company, subject to certain limitations, to file a "long-form" registration
statement on Form S-1 covering all or part of the registrable securities held by
Acadia (each a "demand registration"). The Company is obligated to pay all
registration expenses (other than underwriting discounts and commissions and
subject to certain limitations) incurred in connection with the demand
registrations. In addition, the Registration Agreement provides the Bain Capital
Funds, Acadia and Court Square with "piggyback" registration rights, subject to
certain limitations, whenever the Company files a registration statement on a
registration form that can be used to register registrable securities.
46
<PAGE> 48
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
The Credit Agreement consists of: (i) the $100.0 million Working Capital
Facility, pursuant to which the Company has the right at any time prior to June
17, 2000 to solicit one or more Lenders and/or new financial institutions to
provide up to $25.0 million in additional commitments to increase the Working
Capital Facility to an amount not to exceed in the aggregate $125.0 million,
subject to certain conditions, of which up to $50.0 million may be used for
letters of credit and $10.0 million may be used for a swing line facility; and
(ii) the $100.0 million Expansion Facility. The Working Capital Facility is used
to finance the working capital and general corporate requirements of the
Company, including the interim financing of the acquisition of the receivables
of CR Anthony. The Expansion Facility is used for acquisitions and general
corporate purposes. Each of the Working Capital Facility and Expansion Facility
are available in multiple drawings from time to time and amounts borrowed and
repaid may be reborrowed until June 17, 2002 (the "Final Maturity Date");
provided that in addition to certain mandatory reductions, the commitments under
the Expansion Facility will be reduced on June 17, 2001 by the amount, if any,
necessary so that total reductions in the amount of the commitments under the
Expansion Facility (taking into account all mandatory reductions) will have been
at least $25.0 million. The Working Capital Facility (other than the amount of
the excess thereof over $100.0 million after giving effect to any increase
thereof) must be reduced to $0.0 million (excluding issued and undrawn letters
of credit) for a minimum of 45 consecutive days of each rolling 12 month period.
Each of the Working Capital Facility and Expansion Facility may be
maintained from time to time, at the Company's option, as (a) Base Rate Loans
(as defined in the Credit Agreement) which bear interest at the Base Rate plus
the applicable Margin Percentage (each as defined in the Credit Agreement) or
(b) Eurodollar Rate Loans (as defined in the Credit Agreement) bearing interest
at the Eurodollar Rate (adjusted for reserves) as determined by the
administrative agent for the applicable interest period, plus the applicable
Margin Percentage (as defined in the Credit Agreement). The initial Margin
Percentage for Eurodollar loans is a per annum rate equal to 2.00%, and the
initial Margin Percentage for Base Rate Loans is a per annum rate equal to
1.00%. The Margin Percentage will be determined from time to time based on the
Adjusted Leverage Ratio (as defined in the Credit Agreement) at the end of each
fiscal quarter.
The Credit Agreement contains certain affirmative and negative covenants
contained in the Credit Agreement, including without limitation, covenants that
restrict, subject to specified exceptions: (i) the incurrence of additional
indebtedness and other obligations and the granting of additional liens; (ii)
mergers, acquisitions, investments and acquisitions and dispositions of assets;
(iii) the incurrence of capitalized lease obligations; (iv) dividends; (v)
prepayments or repurchase of other indebtedness and amendments to certain
agreements governing indebtedness, including the Indentures, the Notes and the
Accounts Receivable Program; (vi) engaging in transactions with affiliates and
formation of subsidiaries; (vii) capital expenditures; (viii) the use of
proceeds; and (ix) changes of lines of business. The Credit Agreement also
requires that the Company maintain compliance with certain specified financial
covenants, including covenants relating to minimum interest coverage and minimum
fixed charge coverage. The Credit Agreement is secured by the distribution
center located in Jacksonville, Texas, including equipment located therein and a
pledge of SRPC's stock.
OTHER LONG-TERM INDEBTEDNESS
Senior Notes. The Senior Notes were issued by SRI in an aggregate principal
amount of $200.0 million and bear interest at 8 1/2% payable semi-annually on
January 15 and July 15. The Senior Notes have a maturity date of July 15, 2005.
The Senior Notes are general unsecured obligations and rank senior to all
subordinated debt including the Senior Subordinated Notes. The Senior Notes are
guaranteed on a senior basis by Stage and all material subsidiaries of Stage.
Senior Subordinated Notes. The Senior Subordinated Notes were issued by SRI
in an aggregate principal amount of $100.0 million and bear interest at 9%
payable semi-annually on January 15 and July 15. The Senior Subordinated Notes
have a maturity date of July 15, 2007. The Senior Subordinated Notes are
subordinated to all
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<PAGE> 49
senior debt, including the obligations under the Senior Notes. The Senior
Subordinated Notes are guaranteed on a senior subordinated basis by Stage and
all material subsidiaries of Stage.
The Senior Notes and the Senior Subordinated Notes contain restrictive
covenants which, among other things, (i) limit the Company's ability to sell
certain assets, pay dividends, retire its common stock or retire certain debt,
(ii) limit its ability to insure additional debt or issue stock and (iii) limit
certain related party transactions.
SRPC Notes. On May 30, 1996, SRPC issued $30.0 million in aggregate
principal amount of SRPC Notes in order to finance the Uhlmans Acquisition. The
SRPC Notes have an expected maturity date of December 15, 2000 ("Expected
Maturity Date"). Principal is expected to be paid on the SRPC Notes in one
payment on the Expected Maturity Date. If principal is not paid in full on the
Expected Maturity Date it will be paid monthly thereafter on each Monthly
Payment Date (as defined therein), to the extent of available funds. Interest on
the Notes accrues at the rate per annum of 12.5% and is payable semi-annually on
June 15 and December 15 of each year.
Principal, interest and premium, if any, on the SRPC Notes is secured by,
and paid solely from distributions on, certificates issued to SRPC by the Trust
representing the Retained Interest. For a description of the Accounts Receivable
Program, see Note 2 to the Company's Consolidated Financial Statements.
Bealls Subordinated Debentures. The increasing rate 3 Bealls Holding, Inc.
("Bealls Holding") subordinated debentures due 2002 (the "Bealls Holding
Subordinated Debentures") in aggregate principal amount of approximately $15.0
million bore interest at 10% through 1994 and 11% in 1995 and currently bear
interest of 12% until maturity. Interest is payable semi-annually on June 30 and
December 31. Original issue discount of $7.3 million is being charged to
interest expense over the term to maturity using the effective interest method.
The combination of coupon interest payments and original issue discount results
in an effective interest rate of 20.9%. The Bealls Holding Subordinated
Debentures may be prepaid, at the Company's option, at their face value. The
Company is required to redeem the Bealls Holding Subordinated Debentures
beginning no later than December 31, 1997, in no more than six equal annual
installments. The Bealls Holding Subordinated Debentures are subordinated to all
debt except the Senior Discount Debentures. SRI is the primary obligor under
these debentures.
Bealls Junior Subordinated Debentures. In connection with the acquisition
of Bealls, Bealls Holding issued the 7% Bealls Holding Junior Subordinated
Debentures Due 2003 ("Bealls Holding Junior Subordinated Debentures") at a face
value of approximately $12.5 million, net of discount of approximately $8.4
million. Such discount is being charged to interest expense over the term to
maturity using the effective interest method. The Bealls Holding Junior
Subordinated Debentures are limited to an aggregate principal amount of
approximately $18.3 million. Interest is payable semi-annually on June 30 and
December 31. The combination of coupon interest payments and original issue
discount results in an effective interest rate of 39.4%. The principal amount of
Bealls Holding Junior Subordinated Debentures are subordinated to all debt
except the Senior Discount Debentures. SRI is the primary obligor under these
debentures.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The total amount of authorized capital stock of the Company consists of
75,000,000 shares of Common Stock, par value $0.01 per share, 3,000,000 shares
of Class B Common Stock, par value $0.01 per share, and 2,500 shares of
preferred stock, par value $1.00 per share (the "Preferred Stock"). Upon
completion of the Offering, 27,028,347 shares of Common Stock will be issued and
outstanding, 1,250,584 shares of Class B Common Stock will be issued and
outstanding, and no shares of Preferred Stock will be outstanding. The
discussion herein describes the Company's capital stock, Stage's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") and
Stage's Amended and Restated Bylaws (the "Bylaws") as will be in effect upon
consummation of the Offering. The following summary of certain provisions of the
Company's capital stock describes all material provisions of, but does not
purport to be complete and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and the Bylaws of the Company that are included as
exhibits to the Registration Statement of which this Prospectus forms a part and
by the provisions of applicable law.
COMMON STOCK
As of August 21, 1997, there were 27,028,347 shares of Common Stock
outstanding held by approximately 254 holders of record. The issued and
outstanding shares of Common Stock are, and the shares of Common Stock being
offered will be upon payment therefor, validly issued, fully paid and
nonassessable. Subject to the prior rights of the holders of any Preferred Stock
and restrictions contained in the Company's indebtedness, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the Board
of Directors may from time to time determine. See "Dividend Policy."
The shares of Common Stock are not redeemable or convertible, and the
holders thereof will have no preemptive or subscription rights to purchase any
securities of the Company. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive pro rata, along
with the holders of Common Stock, the assets of the Company which are legally
available for distribution, after payment of all debts and other liabilities and
subject to the prior rights of any holders of Preferred Stock then outstanding.
The Common Stock is listed on the Nasdaq National Market under the symbol
"STGE".
CLASS B COMMON STOCK
Unless otherwise required by law, holders of the Class B Common Stock are
not entitled to vote on matters submitted to a vote of stockholders, including
the election of directors. Holders of Class B Common Stock may elect at any time
to convert any or all of such shares into Common Stock, on a share for share
basis, to the extent such holder is not prohibited from owning additional voting
securities by virtue of regulatory restrictions.
As of August 21, 1997, there were 1,250,584 shares of Class B Common Stock
outstanding held by one holder of record. The issued and outstanding shares of
Class B Common stock are validly issued, fully paid and nonassessable. Subject
to the prior rights of the holders of any Preferred Stock and restrictions
contained in the Company's indebtedness, the holders of outstanding shares of
Class B Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board of Directors
may from time to time determine. See "Dividend Policy."
The shares of Class B Common Stock are not redeemable or convertible other
than into shares of Common Stock, and the holders thereof will have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of Class
B Common Stock are entitled to receive pro rata, along with the holders of
Common Stock, the assets of the Company which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of Preferred Stock then outstanding.
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<PAGE> 51
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of additional shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the holders of shares of Common
Stock. There are no shares of Preferred Stock outstanding, and the Company
currently has no present intention to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. The Certificate of Incorporation and
the Bylaws provides that, except as otherwise required by law, special meetings
of the stockholders can only be called pursuant to a resolution adopted by a
majority of the Board of Directors or by the chief executive offer of the
Company. Stockholders will not be permitted to call a special meeting or to
require the Board of Directors to call a special meeting.
The Certificate of Incorporation contains a "fair price" provision pursuant
to which any Business Combination (as defined therein) involving an interested
stockholder and the Company or any subsidiary would require approval by the
affirmative vote of the Holders of at least 66 2/3% of the shares of voting
stock of the Company. The fair price provision of the Certificate of
Incorporation provides that 66 2/3% stockholder vote is not required if the
Business Combination is approved by 70% of the continuing directors or if
certain procedures and price requirements are satisfied. Instead, the vote, if
any, required by applicable Delaware law or by any other provision of the
Certificate of Incorporation would be necessary.
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company, including
proposed nominations of persons for election to the Board of Directors.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board of Directors or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has given to the Company's Secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. Although the Bylaws do not give the Board of Directors the power to
approve or disapprove stockholder nominations of candidates or proposals
regarding other business to be conducted at a special or annual meeting, the
Bylaws may have the effect of precluding the conduct of certain business at a
meeting if the proper procedures are not followed or may discourage or defer a
potential acquiror from conducting a solicitation of proxies to elect its own
slate of directors or otherwise attempting to obtain control of the Company.
SECTION 203 OF DELAWARE LAW
The Company is subject to the "business combination" provisions of the
Delaware General Corporation Law. In general, such provisions prohibit a
publicly-held Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless (i) the transaction is approved by the Board of
Directors prior to the date the interested stockholder obtained such status,
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the numbers of
shares outstanding those shares
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<PAGE> 52
owned by (a) persons who are directors and also officers and (b) employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." A "business
combination" is defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of a corporation's voting stock. The
statute could prohibit or delay mergers or other takeover or change in control
attempts with respect to the Company and, accordingly, may discourage attempts
to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
the Certificate of Incorporation provides that the Company shall indemnify
directors and officers of the Company to the fullest extent permitted by such
law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
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<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices of the Common Stock.
Upon the closing of the Offering there will be 27,028,347 shares of common
stock outstanding. The 6,423,949 shares of Common Stock sold in the Offering
will be freely tradeable without restriction or further registration under the
Securities Act, unless held by an "affiliate" of the Company as that term is
defined in Rule 144, which shares will be subject to the resale limitations of
Rule 144. Of the outstanding shares, 109,945 have not been registered under the
Securities Act and may not be sold unless they are registered or unless an
exemption from registration, such as the exemption provided by Rule 144, is
available.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least one year, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the outstanding Common
Stock or the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is filed pursuant
to Rule 144. Sales under Rule 144 are also subject to certain provisions
regarding the manner of sale, notice requirements and the availability of
current public information about the Company. A stockholder (or stockholders
whose shares are aggregated) who is not an affiliate of the Company for at least
90 days prior to a proposed transaction and who has beneficially owned
"restricted securities" for at least two years is entitled to sell such shares
under Rule 144 without regard to the limitations described above. Beginning 90
days following the Offering, 109,945 shares of common stock will be eligible for
sale under this rule.
The Company, the Selling Stockholders, the executive officers and directors
of the Company and certain other stockholders of the Company, including the
Citicorp Entities, have agreed that they will not offer, sell, contract to sell,
grant any option to purchase, establish a put equivalent position (as defined in
Rule 1a-1(h) under the Exchange Act), pledge or otherwise dispose of, directly
or indirectly, or file or cause to be filed with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
shares of Common Stock, or any securities that are convertible into or
exercisable or exchangeable for, or that represent the right to receive, shares
of Common Stock, or publicly disclose the intention to make any such offer,
sale, grant, establishment, pledge, disposal or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days from the date of this Prospectus.
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<PAGE> 54
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation and Bear, Stearns & Co. Inc. are acting as representatives
(the "Representatives"), have severally but not jointly agreed to purchase from
the Selling Stockholders the following respective numbers of shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Bear, Stearns & Co. Inc.....................................
---------
Total............................................. 6,448,018
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 650,000 additional shares at the initial public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer shares of Common Stock to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such
price less a concession of $ per share, and the Underwriters and such
dealers may allow a discount of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate-covering transactions,
penalty bids and "passive" market making in accordance with Regulation M under
the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate-covering
transactions involve purchases of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Common Stock who are Underwriters
or prospective underwriters may, subject to certain limitations, make bids for
or purchases of the Common Stock until the time, if any, at which the
stabilizing bid is made. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the shares of Common Stock
originally sold by such syndicate member are purchased in a syndicate-covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate-covering transactions and penalty bids may cause the price of the
Common Stock to be
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<PAGE> 55
higher than it would be in the absence of such transactions. These transactions
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.
The Company, the Selling Stockholders, the executive officers and directors
of the Company and certain other stockholders of the Company, including the
Citicorp Entities, have agreed that they will not offer, sell, contract to sell,
grant any option to purchase, establish a put equivalent position (as defined in
Rule 1a-1(h) under the Exchange Act), pledge or otherwise dispose of, directly
or indirectly, or file or cause to be filed with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
shares of Common Stock, or any securities that are convertible into or
exercisable or exchangeable for, or that represent the right to receive, shares
of Common Stock, or publicly disclose the intention to make any such offer,
sale, grant, establishment, pledge, disposal or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days from the date of this Prospectus.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, various investment banking and
commercial banking services for the Company and the Selling Stockholders, for
which they have received and will receive customary fees and commissions.
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<PAGE> 56
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that: (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHT ACTION FOR ONTARIO PURCHASERS
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission of rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts and the
Selling Stockholders named herein may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the Company or such persons. All or a substantial
portion of the assets of the Company and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the Company or such persons in Canada or to enforce a judgment obtained in
Canadian courts against the Company of such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by such purchasers under relevant Canadian
legislation.
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<PAGE> 57
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a
non-resident fiduciary of a foreign estate or trust.
This discussion is based on the Code and administrative interpretations as
of the date hereof, all of which are subject to change, including changes with
retroactive effect. This discussion does not address all aspects of U.S. federal
income and estate taxation that may be relevant to Non-U.S. Holders in light of
their particular circumstances and does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction. Prospective holders
should consult their tax advisors with respect to the particular tax
consequences to them of owning and disposing of Common Stock, including the
consequences under the laws of any state, local or foreign jurisdiction.
Proposed United States Treasury Regulations were issued on April 22, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The
discussion below is not intended to be a complete discussion of the provisions
of the Proposed Regulations, and prospective investors are urged to consult
their tax advisors with respect to the effect the Proposed Regulations would
have if adopted.
DIVIDENDS
Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to withholding tax at a rate of
30% of the gross amount of the dividend or such lower rate as may be specified
by an applicable income tax treaty. For purposes of determining whether tax is
to be withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, in accordance with existing United States Treasury Regulations, the
Company ordinarily will presume that dividends paid to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-United States Holder would generally be required to
provide an Internal Revenue Service Form W-8 certifying such Non-United States
Holder's entitlement to benefits under a treaty. The Proposed Regulations would
also provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-United States Holder that
is an entity should be treated as paid to the entity or to those holding an
interest in that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder if
such dividends are effectively connected with the Non-U.S. Holder's conduct of a
trade or business within the United States and if a Form 4224 stating that the
dividends are so connected is filed with the Company or its paying agent.
Instead, the effectively connected dividends will be subject to regular U.S. net
income tax at graduated rates, in the same manner as if the Non-U.S. Holder were
a U.S. resident. In addition to the graduated tax described above, a non-U.S.
corporation receiving effectively connected dividends may be subject to a
"branch profits tax" which is imposed, under certain circumstances, at a rate of
30% (or such lower rate as may be specified by an applicable treaty) of the non-
U.S. corporation's effectively connected earnings and profits, subject to
certain adjustments.
Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information to the
Company or its paying agent.
56
<PAGE> 58
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such holder in the United States, (ii) in
the case of certain Non-U.S. Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
United States for 183 or more days in the taxable year of the disposition and
certain other conditions are met, (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) the Company is or has been a "United States real property
holding corporation" for federal income tax purposes and the Non-U.S. Holder
owned directly or pursuant to certain attribution rules more than 5% of the
Company's Common Stock (assuming the Common Stock is regularly traded on an
established securities market) at any time within the shorter of the five-year
period preceding such disposition or such holder's holding period.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Common Stock paid to or through a U.S. office of a broker unless
the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds if the payment
is made outside the United States through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds outside the United
States if the payment is made through an office outside the United States of a
broker that is (i) a U.S. Person, (ii) a foreign person which derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States or (iii) a "controlled foreign corporation" for
U.S. federal income tax purposes, unless the broker maintains documentary
evidence that the holder is a Non-U.S. Holder and that certain conditions are
met, or that the holder otherwise is entitled to an exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject to
backup withholding and information reporting unless the Company receives
certification from the holder of its non-U.S. status.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Common Stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise. Estates of non-resident aliens are
generally allowed a statutory credit which has the effect of offsetting the
United States federal estate tax imposed on the first $60,000 of the taxable
estate.
57
<PAGE> 59
LEGAL MATTERS
The validity of the Common Stock being offered hereby and certain other
legal matters relating to the Offering will be passed upon for the Company and
certain Selling Stockholders by Kirkland & Ellis (a partnership which includes
professional corporations), New York, New York. Certain legal matters will be
passed upon for the Underwriters by Dewey Ballantine, New York, New York.
Certain legal matters will be passed upon for Acadia by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York.
EXPERTS
The consolidated financial statements of the Company at February 1, 1997
and February 3, 1996 and for each of the three years in the period ended
February 1, 1997 included herein have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of CR Anthony incorporated herein by
reference for the 52 weeks ended February 1, 1997, the 53 weeks ended February
3, 1996 and 52 weeks ended January 29, 1995, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed the Registration Statement on Form S-3 with respect
to the Common Stock being offered hereby with the Securities and Exchange
Commission (the "Commission") under the Securities Act. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus concerning the provisions of documents
filed with the Registration Statement as exhibits are necessarily summaries of
such documents, and each such statement is qualified in its entirety by
reference to the copy of the applicable document filed as an exhibit to the
Registration Statement. The Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Regional Offices of the commission at 75 Park Place, New
York, New York 10007 and at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Additionally, the Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company.
INFORMATION INCORPORATED BY REFERENCE
The following documents of Stage, which have been filed with the
Commission, are incorporated herein by reference:
1. Stage's Annual Report on Form 10-K for the 52 weeks ended February 1,
1997.
2. Stage's Current Report on Form 8-K dated March 5, 1997.
3. Stage's Proxy Statement dated April 16, 1997, as amended.
4. Stage's Quarterly Report on Form 10-Q for the three months ended May 3,
1997.
5. Stage's Registration Statement on Form S-4 dated May 27, 1997, as
amended.
6. Stage's Current Report on Form 8-K dated May 21, 1997.
7. Stage's Current Report on Form 8-K dated June 26, 1997.
58
<PAGE> 60
8. Stage's Current Report on Form 8-K/A-1 dated June 26, 1997.
9. Stage's Registration Statement on Form S-4 dated August 1, 1997, as
amended.
10. Stage's Quarterly Report on Form 10-Q for the three months ended August
2, 1997.
All documents filed by Stage with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination or completion of the Offering shall be
deemed to be incorporated by reference in this Prospectus and to be part of this
Prospectus from the date of the filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Stage hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any or all of the information filed by it that has been
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference herein unless such exhibits are
specifically incorporated by reference in such information). Requests for such
information should be directed to Stage Stores, Inc., 10201 Main Street,
Houston, Texas 77025, Attention: Investor Relations (telephone number: (800)
579-2302).
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE
"PROSPECTUS SUMMARY," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED
ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS
STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
59
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheet at August 2, 1997
and February 1, 1997.................................. F-2
Consolidated Condensed Statement of Income for the six
months ended August 2, 1997 and August 3, 1996........ F-3
Consolidated Condensed Statement of Cash Flows for the
six months ended August 2, 1997 and August 3, 1996.... F-4
Consolidated Condensed Statement of Stockholders'
Equity for the six months ended August 2, 1997........ F-5
Notes to Unaudited Consolidated Condensed Financial
Statements............................................ F-6
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants...................... F-8
Consolidated Balance Sheet at February 1, 1997 and
February 3, 1996...................................... F-9
Consolidated Statement of Operations for 1996, 1995 and
1994.................................................. F-10
Consolidated Statement of Cash Flows for 1996, 1995 and
1994.................................................. F-11
Consolidated Statement of Stockholders' Equity for
1996, 1995 and 1994................................... F-13
Notes to Consolidated Financial Statements............. F-14
</TABLE>
F-1
<PAGE> 62
STAGE STORES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
ASSETS
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1997 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 18,929 $ 18,286
Undivided interest in accounts receivable trust............. 51,822 80,672
Merchandise inventories, net................................ 258,488 187,717
Prepaid expenses............................................ 18,551 15,690
Other current assets........................................ 39,842 32,797
-------- --------
Total current assets.............................. 387,632 335,162
Property, equipment and leasehold improvements, net......... 138,383 111,189
Goodwill, net............................................... 87,033 47,173
Other assets................................................ 49,629 15,759
-------- --------
$662,677 $509,283
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 66,638 $ 54,336
Accrued interest............................................ 4,347 12,908
Accrued expenses and other current liabilities.............. 55,032 32,699
-------- --------
Total current liabilities......................... 126,017 99,943
Long-term debt.............................................. 356,877 298,453
Other long-term liabilities................................. 19,048 18,621
-------- --------
Total liabilities................................. 501,942 417,017
-------- --------
Preferred stock, par value $1.00, non-voting, 3 shares
authorized, no shares issued or outstanding............... -- --
Common stock, par value $0.01, 75,000 shares authorized,
25,741 and 22,033 shares issued and outstanding,
respectively.............................................. 257 220
Class B common stock, par value $0.01, non-voting 3,000
shares authorized, 1,251 issued and outstanding........... 13 13
Additional paid-in capital.................................. 242,283 169,811
Accumulated deficit......................................... (81,818) (77,778)
-------- --------
Stockholders' equity........................................ 160,735 92,266
-------- --------
Commitments and contingencies............................... -- --
-------- --------
$662,677 $509,283
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE> 63
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.......................................... $238,137 $182,750 $429,649 $345,927
Cost of sales and related buying, occupancy and
distribution expenses............................ 164,235 126,127 293,822 237,223
-------- -------- -------- --------
Gross profit....................................... 73,902 56,623 135,827 108,704
Selling, general and administrative expenses....... 53,405 42,468 94,663 78,433
Store opening and closure costs.................... 761 230 904 301
-------- -------- -------- --------
Operating income................................... 19,736 13,925 40,260 29,970
Interest, net...................................... 9,449 12,466 18,391 24,054
-------- -------- -------- --------
Income before income tax and extraordinary item.... 10,287 1,459 21,869 5,916
Income tax expense................................. 4,041 591 8,529 2,396
-------- -------- -------- --------
Income before extraordinary item................... 6,246 868 13,340 3,520
Extraordinary item -- early retirement of debt..... (17,380) -- (17,380) --
-------- -------- -------- --------
Net income (loss).................................. $(11,134) $ 868 $ (4,040) $ 3,520
======== ======== ======== ========
Earnings (loss) per common share data:
- ----------------------------------------
Earnings per common share before extraordinary
item.......................................... $ 0.25 $ 0.07 $ 0.54 $ 0.27
Extraordinary item -- early retirement of debt... (0.68) -- (0.70) --
-------- -------- -------- --------
Earnings (loss) per common share................. $ (0.44) $ 0.07 $ (0.16) $ 0.27
======== ======== ======== ========
Weighted average common shares outstanding....... 25,478 13,015 24,688 12,957
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 64
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (4,040) $ 3,520
-------- --------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 8,003 6,844
Deferred income taxes..................................... 364 (833)
Accretion of discount..................................... 579 7,663
Amortization of debt issue costs.......................... 1,016 1,031
Loss on early extinguishment of debt...................... 17,380 --
Changes in working capital................................ 7,327 (12,118)
-------- --------
Total adjustments................................. 34,669 2,587
-------- --------
Net cash provided by operating activities............ 30,629 6,107
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ (4,996) (27,276)
Additions to property, equipment and leasehold
improvements........................................... (20,797) (15,183)
-------- --------
Net cash used in investing activities................ (25,793) (42,459)
-------- --------
Cash flows from financing activities:
Proceeds from common stock................................ 224 292
Proceeds from long-term debt.............................. 299,720 30,000
Proceeds from Revolving Credit Agreement, net............. 5,000 7,500
Payments on long-term debt................................ (296,805) (125)
Redemption of common stock................................ -- (16)
Additions to debt issue costs............................. (12,332) (2,632)
-------- --------
Net cash provided by (used in) financing
activities.......................................... (4,193) 35,019
Net increase (decrease) in cash and cash equivalents........ 643 (1,333)
-------- --------
Cash and cash equivalents:
Beginning of period....................................... 18,286 20,273
-------- --------
End of period............................................. $ 18,929 $ 18,940
======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 25,594 $ 14,885
======== ========
Income taxes paid......................................... $ 3,175 $ 8,617
======== ========
</TABLE>
The Company purchased Uhlmans, Inc. on June 3, 1996. On June 26, 1997, the
Company acquired C.R. Anthony Company. In conjunction with these acquisitions,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Fair value allocated to assets acquired..................... $120,665 $ 34,295
Cash paid for assets acquired, including acquisition
expenses.................................................. (4,996) (27,276)
Value of Common Stock exchanged............................. (72,284) --
-------- --------
Liabilities assumed......................................... $ 43,385 $ 7,019
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 65
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------
CLASS B
-------------------- ADDITIONAL
SHARES SHARES PAID-IN ACCUMULATED
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL DEFICIT TOTAL
----------- ------ ----------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1997............ 22,033 $220 1,251 $13 $169,811 $(77,778) $ 92,266
Net loss............................. -- -- -- -- -- (4,040) (4,040)
Option activity...................... 101 1 -- -- 224 -- 225
Issuance of stock in connection with
CR Anthony Acquisition............. 3,607 36 -- -- 72,248 -- 72,284
------- ---- ----- --- -------- -------- --------
Balance, August 2, 1997.............. 25,741 $257 1,251 $13 $242,283 $(81,818) $160,735
======= ==== ===== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 66
STAGE STORES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated condensed financial statements
of Stage Stores, Inc. ("Stage Stores"), have been prepared in accordance with
Rule 10-01 of Regulation S-X and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Those adjustments, which include only normal recurring
adjustments, that are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods have been made. The results
of operations for such interim periods are not necessarily indicative of results
of operations for a full year. The unaudited consolidated condensed financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended February 1, 1997 filed with
Stage Stores, Inc.'s Annual Report on Form 10-K. Certain reclassifications have
been made to prior year amounts to conform with the current year presentation.
The fiscal years discussed herein end on the Saturday nearest to January 31, in
the following calendar year. For example, references to "1997" mean the fiscal
year ending January 31, 1998.
Stage Stores conducts its business exclusively through its wholly owned
subsidiary Specialty Retailers, Inc. ("SRI"), which operated 578 family apparel
stores in the central United States as of August 2, 1997. Stage Stores has no
operations of its own and its primary asset is the common stock of SRI. Stage
Stores and SRI are collectively referred to herein as the "Company".
2. Pursuant to the accounts receivable securitization program implemented
in 1993 (the "Accounts Receivable Program"), an indirect wholly owned subsidiary
of the Company, SRI Receivables Purchase Co., Inc. ("SRPC") purchases the
accounts receivable generated by the Company's private label credit card
program. Such accounts receivable are transferred to a master trust (the
"Trust") which has issued certain certificates to third parties representing
undivided interests in the Trust. SRPC owns an undivided interest in the
accounts receivable not supporting the certificates issued to third parties by
the Trust (the "Restricted Interest"). SRPC is a separate corporate entity from
the Company and SRPC's creditors have a claim on its assets prior to those
assets becoming available to any creditor of the Company.
3. During October 1996, the Company completed an initial public offering
(the "Offering") of its common stock. The Company sold 10,750,000 shares at an
initial offering price of $16.50 per share. The net proceeds from the Offering
to the Company were approximately $165.7 million after deducting underwriting
discounts and expenses related to the transaction. The net proceeds were used
primarily to retire the 12 3/4% Senior Discount Debentures due 2000 (the "Senior
Discount Debentures"). The remaining proceeds of approximately $26.5 million
were used for general corporate purposes. Immediately prior to the Offering, the
Board of Directors approved a .94727 for 1 reverse stock split, the effect of
which is reflected in the accompanying financial statements for all periods
presented.
4. During the second quarter of 1997, the Company completed an offering of
$300.0 million of long-term indebtedness consisting of $200.0 million in
aggregate principal amount of 8 1/2% Senior Notes Due 2005 and $100.0 million in
aggregate principal amount of 9% Senior Subordinated Notes Due 2007. The gross
proceeds from the issuance of these notes (approximately $299.7 million) were
used to retire the Company's existing 10% Senior Notes due 2000 and 11% Senior
Subordinated Notes due 2003 and to pay related fees and expenses and to pay
costs associated with the acquisition of C.R. Anthony Company ("CR Anthony").
Concurrently with this transaction, the Company entered into a new credit
facility with a group of lenders (the "New Credit Agreement"). The New Credit
Agreement provides for a $100.0 million working capital and letter of credit
facility and a $100.0 million expansion revolving credit facility. The New
Credit Agreement replaced the Company's existing $75.0 million credit facility.
In connection with the above transactions, the Company recorded an extraordinary
charge of $17.4 million, net of applicable income taxes of $11.1 million,
related to the tender transactions and write off of unamortized debt issue costs
associated with the retired debt.
5. On June 26, 1997, the Company acquired CR Anthony which operated 246
family apparel stores in small markets throughout the central and midwestern
United States under the names "Anthony's" and "Anthony's Limited". The Company
issued 3,607,044 shares in exchange for the outstanding common stock of CR
Anthony. The purchase price for CR Anthony (including the common stock issued by
the Company) was approximately
F-6
<PAGE> 67
$77.3 million, including acquisition costs and net of cash acquired. CR Anthony
had net sales of $288.4 million and net income of $4.8 million of the year ended
February 1, 1997.
The following unaudited pro forma information gives effect to the
acquisition of CR Anthony and the refinancing of the Company's debt as discussed
in Note 4 above as if each transaction had occurred at the beginning of the
periods presented (in thousands, except per common share data):
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
AUGUST 2, FISCAL
1997 1996
--------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $538,149 $1,081,458
======== ==========
Income before extraordinary item............................ $ 13,584 $ 31,308
======== ==========
Earnings per common share before extraordinary item......... $ 0.49 $ 1.15
======== ==========
</TABLE>
The above amounts are based on certain estimates and assumptions which the
Company believes are reasonable. The pro forma results do not purport to be
indicative of the results which would have occurred if the acquisition or
refinancing had actually taken place at the beginning of the periods presented,
nor are they necessarily indicative of the results of any future periods.
The acquisition of CR Anthony was accounted for under the purchase method
of accounting. Accordingly, the total acquisition cost was allocated to the
assets acquired and liabilities assumed at their estimated fair values based
upon information currently available to the Company. The excess of the purchase
price over the estimated fair value of such assets and liabilities was
recognized as goodwill and is being amortized on a straight-line basis over
forty years. This preliminary purchase price allocation may be adjusted, if
necessary, based on additional information as it becomes available.
F-7
<PAGE> 68
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-8
<PAGE> 69
STAGE STORES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
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,.......................................... 13 14
respectively
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
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE> 70
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE> 71
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-11
<PAGE> 72
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid............................................. $32,094 $27,845 $28,414
======= ======= =======
Income taxes paid......................................... $ 6,988 $ 5,939 $ 5,198
======= ======= =======
</TABLE>
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:
<TABLE>
<S> <C> <C> <C>
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
======== ======= ========
</TABLE>
The accompanying notes are an integral part of this statement
F-12
<PAGE> 73
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-13
<PAGE> 74
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.
In June 1996, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 125, "Accounting for Transfers of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). Among other things, SFAS 125
provides new accounting and reporting standards for sales, securitization and
servicing of receivables and is generally effective for transactions occurring
after December 31, 1996. The Company's current accounting policy is consistent
with the provisions of SFAS 125 and therefore, the implementation of this
statement had no impact on the Company's financial statements.
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:
<TABLE>
<S> <C>
Buildings................................................... 20-25
Store and office fixtures and equipment..................... 7-12
Warehouse equipment......................................... 5-15
Leasehold improvements...................................... 15-50
</TABLE>
F-14
<PAGE> 75
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.
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
F-15
<PAGE> 76
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The impact of the Accounts Receivable Program on the Company's statement of
operations for the years presented is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
F-16
<PAGE> 77
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as follows (in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
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
======== ========
</TABLE>
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.
NOTE 6 -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
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
======== ========
</TABLE>
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
F-17
<PAGE> 78
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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)
incurrence of additional debt, (ii) purchase of certain investments, (iii)
payment of dividends, (iv) formation of certain business combinations, (v)
disposition of certain assets, (vi) acquisition of subordinated debt, (vii) use
of proceeds received 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.
F-18
<PAGE> 79
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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.
F-19
<PAGE> 80
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-20
<PAGE> 81
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the option activity under the various plans follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OUTSTANDING OPTION
OPTIONS PRICE
----------- ------------
<S> <C> <C>
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
===========
</TABLE>
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:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF REMAINING NUMBER OF
OUTSTANDING CONTRACTUAL EXERCISABLE
OPTION PRICE OPTIONS LIFE OPTIONS
- ------------ ----------- ----------- -----------
<C> <C> <C> <C>
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
========= =======
</TABLE>
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":
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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
</TABLE>
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
F-21
<PAGE> 82
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
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..... 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%
</TABLE>
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):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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
F-22
<PAGE> 83
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
Minimum rental commitments on long-term operating leases at February 1,
1997, net of sub-leases, are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Year:
1997............................................ $ 32,657
1998............................................ 31,087
1999............................................ 29,248
2000............................................ 25,561
2001............................................ 21,614
Thereafter...................................... 107,428
--------
$247,595
========
</TABLE>
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.
NOTE 11 -- INCOME TAXES
All Company operations are domestic. Income tax expense charged to
continuing operations consisted of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
F-23
<PAGE> 84
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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.
Deferred tax liabilities (assets) consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
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)
======== ========
</TABLE>
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-24
<PAGE> 85
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly financial data is summarized as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR 1996
-----------------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1995
-----------------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
NOTE 13 -- CLASS B COMMON STOCK
Unless otherwise required by law, holders of Class B Common Stock are not
entitled to vote on matters submitted to a vote of stockholders, including the
election of directors. Holders of Class B Common Stock may elect at any time to
convert any or all of such shares into Common Stock, on a share for share basis,
to the extent such holder is not prohibited from owning additional voting
securities by virtue of regulatory restrictions. Upon liquidation, dissolution
or winding up of the Company, the holders of the Class B Common Stock are
entitled to receive pro rata, along with the holders of the Common Stock, the
assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the rights of any
holders of Preferred Stock then outstanding.
NOTE 14 -- 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 3). The Company's cash management and investment policies restrict
investments to low risk, highly-
F-25
<PAGE> 86
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 15 -- 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-26
<PAGE> 87
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 12
The Acquisition........................ 16
Use of Proceeds........................ 18
Dividend Policy........................ 18
Price Range of Common Stock............ 18
Capitalization......................... 19
Unaudited Pro Forma Combined Income
Statements........................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 33
Management............................. 42
Principal and Selling Stockholders..... 44
Certain Relationships and Related
Transactions......................... 46
Description of Certain Indebtedness.... 47
Description of Capital Stock........... 49
Shares Eligible for Future Sale........ 52
Underwriting........................... 53
Notice to Canadian Residents........... 55
Certain U.S. Federal Tax Considerations
for Non-U.S. Holders of Common
Stock................................ 56
Legal Matters.......................... 58
Experts................................ 58
Additional Information................. 58
Information Incorporated by
Reference............................ 58
Disclosure Regarding Forward-Looking
Statements........................... 59
Index to Financial Statements.......... F-1
</TABLE>
======================================================
[STAGE STORES INC. LOGO]
6,448,018 Shares
Common Stock
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
------------------------------------------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 63,482
National Association of Securities Dealers, Inc. Filing
Fee....................................................... 21,449
NASDAQ National Market Listing Fee.......................... 13,000
Blue Sky Legal Fees and Expenses............................ 5,000
Printing Expenses........................................... 150,000
Transfer Agent's Fees and Expenses.......................... 10,000
Accounting Fees and Expenses................................ 50,000
Legal Fees and Expenses..................................... 200,000
Miscellaneous Expenses...................................... 7,069
--------
Total............................................. $520,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Stage is incorporated under the laws of the State of Delaware. Section 145
of the General Corporation Law of the State of Delaware, inter alia, ("Section
145") provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Article IX of Stage's Restated Certificate of Incorporation provides, in
substance, for indemnification by Stage of its directors and officers in
accordance with the provisions of the Delaware Act.
In addition, Stage has purchased insurance coverage under policies which
insure Stage for amounts which Stage is required or permitted to pay as
indemnification of directors and certain officers of Stage and its subsidiaries,
and which insure directors and certain officers of Stage and its subsidiaries
against certain liabilities which might be incurred by them in such capacities
and for which they are not entitled to indemnification by Stage.
II-1
<PAGE> 89
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. EXHIBITS. The following documents are exhibits to the Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**1.1 -- Form of Underwriting Agreement
*2.1 -- Agreement and Plan of Merger, dated as of March 5, 1997,
between Stage Stores, Inc. and C.R. Anthony Company
(Incorporated by Reference to Exhibit 2.1 of Registration
No. 333-27809 on Form S-4).
*2.2 -- First Amendment to Agreement and Plan of Merger, dated as
of May 20, 1997, between Stage Stores, Inc. and C.R.
Anthony Company. (Incorporated by reference to Exhibit
2.2 of Registration No. 333-27809 on Form S-4).
*3.1 -- Amended and Restated Certificate of Incorporation of
Stage Stores, Inc. (Incorporated by Reference to Exhibit
3.3 of Registration No. 333-5855 on Form S-1).
*3.2 -- Amended and Restated Bylaws of Stage Stores, Inc.
(Incorporated by Reference to Exhibit 3.4 of Registration
No. 333-5855 on Form S-1).
*3.3 -- Restated Articles Certificate of Incorporation of
Specialty Retailers, Inc. (Incorporated by Reference to
Exhibit 3.3 of Registration No. 333-32695 on Form S-4).
*3.4 -- Amended and Restated Bylaws of Specialty Retailers, Inc.
(Incorporated by Reference to Exhibit 3.4 of Registration
No. 333-32695 on Form S-4).
*3.5 -- Certificate of Incorporation of Specialty Retailers, Inc.
(NV). (Incorporated by Reference to Exhibit 3.5 of
Registration No. 333-32695 on Form S-4).
*3.6 -- Bylaws of Specialty Retailers, Inc. (NV). (Incorporated
by Reference to Exhibit 3.6 of Registration No. 333-32695
on Form S-4).
*4.1 -- Credit Agreement dated as of June 17, 1997 by and among
Specialty Retailers, Inc., Stage Stores, Inc., the banks
named therein, and Credit Suisse First Boston.
(Incorporated by Reference to Exhibit 4.1 of Registration
No. 333-32695 on Form S-4).
*4.2 -- Indenture dated as of June 17, 1997 relating to the
$200,000,000 aggregate principal amount of 8 1/2% Senior
Notes due 2005 among Specialty Retailers, Inc., Stage
Stores, Inc. and State Street Bank and Trust Company, and
First Supplemental Indenture dated as of July 2, 1997.
(Incorporated by Reference to Exhibit 4.2 of Registration
No. 333-32695 on Form S-4).
*4.3 -- Indenture dated as of June 17, 1997 relating to the
$100,000,000 aggregate principal amount of 9% Senior
Subordinated Notes due 2007 among Specialty Retailers,
Inc., Stage Stores, Inc. and State Street Bank and Trust
Company, and First Supplemental Indenture dated as of
July 2, 1997. (Incorporated by Reference to Exhibit 4.3
of Registration No. 333-32695 on Form S-4).
*4.4 -- 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).
II-2
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*4.5 -- Indenture between 3 Bealls Holding Corporation and IBJ
Schroder Bank and Trust Company, as Trustee, relating to
3 Bealls Holding Corporation's 7% Junior Subordinated
Debentures due 2002 (Incorporated by Reference to Exhibit
4.3 of Registration No. 33-24571 on Form S-4) and First
Supplemental Indenture dated August 2, 1993 (Incorporated
by Reference to Exhibit 4.5 of Registration No. 33-68258
on Form S-4).
*4.6 -- Indenture by and between Specialty Retailers, Inc. and
The First National Bank of Boston, as Trustee, relating
to the 11% Series C and Series D Senior Subordinated
Notes due 2003 of Specialty Retailers, Inc. dated July
27, 1995 (including form of Note), (Incorporated by
Reference to Exhibit 4.1 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995).
*4.7 -- Indenture among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc., as Administrative Agent, and
Bankers Trust Company, as Trustee and Collateral Agent,
relating to the 12.5% Trust Certificate-Backed Notes of
SRI Receivables Purchase Co., Inc. (including form of
note). (Incorporated by Reference to Exhibit 4.1 on Form
10-Q of Apparel Retailers Inc., dated May 4, 1996).
*4.8 -- Amended and Restated Pooling and Servicing Agreement by
and among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated 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 Certificate holders 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 Purchases of the Series 1993-1
Offered Certificates (incorporated by Reference to
Exhibit 4.10 of Registration No. 33-68258 on Form S-4).
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------------- ------------------------------------------------------------------------------------------
<C> <S>
*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).
**5.1 -- Opinion of Kirkland & Ellis.
*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 as of June 11, 1997 among Specialty Retailers,
Inc., Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation (Incorporated by Reference to Exhibit 10.8 of
Registration No. 333-32695 on Form S-4).
*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).
</TABLE>
II-4
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*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).
*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).
*21.1 -- List of Registrant's Subsidiaries. (Incorporated by Reference to Exhibit 21.1 of
Registration No. 333-32695 on Form S-4).
**23.1 -- Consent of Price Waterhouse LLP (Stage Stores).
**23.2 -- Consent of Deloitte & Touche LLP (CR Anthony).
**23.3 -- Consent of Kirkland & Ellis (included in Exhibit 5.1 to this Registration Statement).
**24.1 -- Power of Attorney for Stage Stores, Inc. (included in signature page hereto).
*27.1 -- Financial Data Schedule (Incorporated by Reference to Exhibit 27.1 on Form 10-Q dated
August 2, 1997).
</TABLE>
- ---------------
* Previously Filed
** Filed Herewith
b. FINANCIAL STATEMENT SCHEDULES. The following documents are financial
statement schedules to the Registration Statement.
Not Applicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(a) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
registration statement shall be deemed to be a new registration
II-5
<PAGE> 93
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof;
(b)(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other Items of the applicable form;
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act, and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue;
(d) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in the documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request; and
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being involved therein, that was
not the subject of and included in the Registration Statement when it
became effective.
II-6
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf, as
guarantor, by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on September 15, 1997.
STAGE STORES, INC.
By: /s/ CARL TOOKER
----------------------------------
Name: Carl Tooker
Title: President, Chief Executive
Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed on September 15,
1997, by the following persons in the capacities indicated with respect to Stage
Stores, Inc.:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ CARL TOOKER President, Chief Executive Officer, and
- ----------------------------------------------------- Director (Principal Executive Officer)
Carl Tooker
/s/ JAMES MARCUM Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer and Director (Principal Financial
James Marcum and Accounting Officer)
* Director
- -----------------------------------------------------
Joshua Bekenstein
* Director
- -----------------------------------------------------
Adam Kirsch
* Director
- -----------------------------------------------------
Peter Mulvihill
* Director
- -----------------------------------------------------
Robert Huth
* Director
- -----------------------------------------------------
Richard Jolosky
* Director
- -----------------------------------------------------
Hal Compton
* Director
- -----------------------------------------------------
John J. Wiesner
* /s/ CARL TOOKER Attorney-in-fact
- -----------------------------------------------------
Carl Tooker
* /s/ JAMES MARCUM Attorney-in-fact
- -----------------------------------------------------
James Marcum
</TABLE>
- ---------------
* Attorney-in-fact
II-7
<PAGE> 95
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**1.1 -- Form of Underwriting Agreement
*2.1 -- Agreement and Plan of Merger, dated as of March 5, 1997,
between Stage Stores, Inc. and C.R. Anthony Company
(Incorporated by Reference to Exhibit 2.1 of Registration
No. 333-27809 on Form S-4).
*2.2 -- First Amendment to Agreement and Plan of Merger, dated as
of May 20, 1997, between Stage Stores, Inc. and C.R.
Anthony Company. (Incorporated by reference to Exhibit
2.2 of Registration No. 333-27809 on Form S-4).
*3.1 -- Amended and Restated Certificate of Incorporation of
Stage Stores, Inc. (Incorporated by Reference to Exhibit
3.3 of Registration No. 333-5855 on Form S-1).
*3.2 -- Amended and Restated Bylaws of Stage Stores, Inc.
(Incorporated by Reference to Exhibit 3.4 of Registration
No. 333-5855 on Form S-1).
*3.3 -- Restated Articles Certificate of Incorporation of
Specialty Retailers, Inc. (Incorporated by Reference to
Exhibit 3.3 of Registration No. 333-32695 on Form S-4).
*3.4 -- Amended and Restated Bylaws of Specialty Retailers, Inc.
(Incorporated by Reference to Exhibit 3.4 of Registration
No. 333-32695 on Form S-4).
*3.5 -- Certificate of Incorporation of Specialty Retailers, Inc.
(NV). (Incorporated by Reference to Exhibit 3.5 of
Registration No. 333-32695 on Form S-4).
*3.6 -- Bylaws of Specialty Retailers, Inc. (NV). (Incorporated
by Reference to Exhibit 3.6 of Registration No. 333-32695
on Form S-4).
*4.1 -- Credit Agreement dated as of June 17, 1997 by and among
Specialty Retailers, Inc., Stage Stores, Inc., the banks
named therein, and Credit Suisse First Boston.
(Incorporated by Reference to Exhibit 4.1 of Registration
No. 333-32695 on Form S-4).
*4.2 -- Indenture dated as of June 17, 1997 relating to the
$200,000,000 aggregate principal amount of 8 1/2% Senior
Notes due 2005 among Specialty Retailers, Inc., Stage
Stores, Inc. and State Street Bank and Trust Company, and
First Supplemental Indenture dated as of July 2, 1997.
(Incorporated by Reference to Exhibit 4.2 of Registration
No. 333-32695 on Form S-4).
*4.3 -- Indenture dated as of June 17, 1997 relating to the
$100,000,000 aggregate principal amount of 9% Senior
Subordinated Notes due 2007 among Specialty Retailers,
Inc., Stage Stores, Inc. and State Street Bank and Trust
Company, and First Supplemental Indenture dated as of
July 2, 1997. (Incorporated by Reference to Exhibit 4.3
of Registration No. 333-32695 on Form S-4).
*4.4 -- Indenture between 3 Bealls Holding Corporation and
Bankers Trust Company, as Trustee, relating to 3 Bealls
Holding Corporation's 9% Subordinated Debentures due 2002
(Incorporated by Reference to Exhibit 4.2 of Registration
No. 33-24571 on Form S-4) and First Supplemental
Indenture dated August 2, 1993 (Incorporated by Reference
to Exhibit 4.4 of Registration No. 33-68258 on Form S-4).
*4.5 -- 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).
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*4.6 -- Indenture by and between Specialty Retailers, Inc. and
The First National Bank of Boston, as Trustee, relating
to the 11% Series C and Series D Senior Subordinated
Notes due 2003 of Specialty Retailers, Inc. dated July
27, 1995 (including form of Note), (Incorporated by
Reference to Exhibit 4.1 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995).
*4.7 -- Indenture among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc., as Administrative Agent, and
Bankers Trust Company, as Trustee and Collateral Agent,
relating to the 12.5% Trust Certificate-Backed Notes of
SRI Receivables Purchase Co., Inc. (including form of
note). (Incorporated by Reference to Exhibit 4.1 on Form
10-Q of Apparel Retailers Inc., dated May 4, 1996).
*4.8 -- Amended and Restated Pooling and Servicing Agreement by
and among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated 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 Certificate holders 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 Purchases 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).
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*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).
**5.1 -- Opinion of Kirkland & Ellis.
*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 as of June 11, 1997
among Specialty Retailers, Inc., Credit Suisse First
Boston Corporation, Bear, Stearns & Co. Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation
(Incorporated by Reference to Exhibit 10.8 of
Registration No. 333-32695 on Form S-4).
*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).
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*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).
*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).
*21.1 -- List of Registrant's Subsidiaries. (Incorporated by
Reference to Exhibit 21.1 of Registration No. 333-32695
on Form S-4).
**23.1 -- Consent of Price Waterhouse LLP (Stage Stores).
**23.2 -- Consent of Deloitte & Touche LLP (CR Anthony).
**23.3 -- Consent of Kirkland & Ellis (included in Exhibit 5.1 to
this Registration Statement).
*24.1 -- Power of Attorney for Stage Stores, Inc. (included in
signature page hereto).
*27.1 -- Financial Data Schedule (Incorporated by Reference to
Exhibit 27.1 on Form 10-Q dated August 2, 1997).
</TABLE>
- ---------------
* Previously Filed
** Filed Herewith
<PAGE> 1
6,448,018 SHARES
STAGE STORES, INC.
COMMON STOCK ($.01 PAR VALUE)
UNDERWRITING AGREEMENT
September ____, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
BEAR, STEARNS & CO. INC.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, NY 10010-3629
Dear Sirs:
1. Introductory. The stockholders listed in Schedule A hereto
(collectively, the "Selling Stockholders") propose severally to sell an
aggregate of 6,448,018 outstanding shares (the "Firm Securities") of the common
stock, $.01 par value (the "Securities") of Stage Stores, Inc., a Delaware
corporation (the "Company"), and the Company also proposes to sell to the
Underwriters, at the option of the Underwriters, an aggregate of not more than
650,000 additional shares (the "Optional Securities") of the Company's
Securities as set forth below. The Firm Securities and the Optional Securities
are herein collectively called the "Offered Securities." The Company and the
Selling Stockholders hereby agree with the several Underwriters named in
Schedule B hereto (the "Underwriters") as follows:
2. Representations and Warranties of the Company and the Selling
Stockholders. (a) The Company represents and warrants to, and agrees with,
the several Underwriters that:
(i) A registration statement (No. 333-34415) relating
to the Offered Securities, including a form of prospectus, has
been filed with the Securities and Exchange Commission (the
"Commission") and either (A) has been declared effective under
the Securities Act of 1933 (the "Act") and is not proposed to
be amended or (B) is proposed to be amended by amendment or
post-effective amendment. If such registration statement (the
"initial registration statement") has been declared effective,
either (A) an additional registration statement (the
"additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to
Rule 462(b) ("Rule 462(b)") under the Act and, if so filed,
has become effective upon filing pursuant to such Rule and the
Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if
applicable, the additional registration statement or (B) such
an additional registration statement is proposed to be filed
with the Commission pursuant to Rule 462(b) and will become
effective upon
<PAGE> 2
filing pursuant to such Rule and upon such filing the Offered
Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such
additional registration statement. If the Company does not
propose to amend the initial registration statement or if an
additional registration statement has been filed and the
Company does not propose to amend it, and if any
post-effective amendment to either such registration statement
has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared
effective by the Commission or has become effective upon
filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule
462(b). For purposes of this Agreement, "Effective Time" with
respect to the initial registration statement or, if filed
prior to the execution and delivery of this Agreement, the
additional registration statement means (A) if the Company has
advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which
such registration statement, or the most recent post-
effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon
filing pursuant to Rule 462(c), or (B) if the Company has
advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration
statement, the date and time as of which such registration
statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not
been filed prior to the execution and delivery of this
Agreement but the Company has advised the Representatives that
it proposes to file one, "Effective Time" with respect to such
additional registration statement means the date and time as
of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with
respect to the initial registration statement or the
additional registration statement (if any) means the date of
the Effective Time thereof. The initial registration
statement, as amended at its Effective Time, including all
material incorporated by reference therein, including all
information contained in the additional registration statement
(if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of
the Form on which it is filed and including all information
(if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b)
("Rule 430A(b)") under the Act, is hereinafter referred to as
the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time,
including the contents of the initial registration statement
incorporated by reference therein and including all
information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to
Rule 430A(b), is hereinafter referred to as the "Additional
Registration Statement." The Initial Registration Statement
and the Additional Registration Statement are hereinafter
referred to collectively as the "Registration Statements" and
individually as a "Registration Statement". The form of
prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule
424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, including
all material incorporated by reference in such prospectus, is
hereinafter referred to as the "Prospectus". No document has
been or will be prepared or distributed in reliance on Rule
434 under the Act.
2
<PAGE> 3
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this
Agreement: (A) on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and
the rules and regulations of the Commission (the "Rules and
Regulations") and did not include any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, (B) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did
not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading, and (C) on the
date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration
Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant
to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in
which the Prospectus is included, and on each Closing Date (as
hereinafter defined) each Registration Statement and the
Prospectus will conform, in all respects to the requirements
of the Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of
the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective
Date of the Initial Registration Statement and on each Closing
Date, the Initial Registration Statement and the Prospectus
will conform in all respects to the requirements of the Act
and the Rules and Regulations, neither of such documents will
include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and
no Additional Registration Statement has been or will be
filed. The two preceding sentences do not apply to statements
in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the
Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed
that the only such information is that described as such in
Section 7(c) hereof.
(iii) Each of the Company and its subsidiaries, all of
which are listed on Schedule C hereto (the "Subsidiaries"),
have been duly incorporated, are validly existing as
corporations in good standing under the laws of their
respective jurisdictions of incorporation and have the
corporate power and authority to carry on their respective
businesses as described in the Prospectus and to own, lease
and operate their respective properties, and each is duly
qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the
nature of their respective business or their ownership or
leasing of property requires such qualification, except where
the failure to be so qualified would not have a material
adverse effect on the Company and its Subsidiaries, taken as a
whole, which jurisdictions are listed on Schedule C hereto.
(iv) The Company has an authorized capitalization as
set forth in the Prospectus, and the Offered Securities and
all of the issued shares of capital stock
3
<PAGE> 4
of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable and no further
approval or authority of the stockholders or the Board of
Directors of the Company is or will be required for the
issuance and sale of the Optional Securities to be sold by the
Company as contemplated by this Agreement and the Securities
are not subject to any preemptive or similar right and conform
in all material respects to the description thereof contained
in the Prospectus. All of the issued and outstanding capital
stock of each Subsidiary of the Company, including without
limitation, Specialty Retailers, Inc., a Texas corporation
("SRI"), has been duly authorized and validly issued and is
fully paid and nonassessable and is owned by the Company,
directly or through subsidiaries, free from liens,
encumbrances and defects, except for liens described in the
Prospectus and except for liens securing indebtedness under
the Credit Agreement (as defined in the Prospectus).
(v) Except as described in the Prospectus, there are
no contracts, agreements or understandings between the Company
and any third party (whether acting in an individual,
fiduciary or other capacity) granting such third party the
right to require the Company to file a registration statement
under the Act with respect to any securities of the Company
owned or to be owned by such third party or to require the
Company to include such securities in the securities
registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act; and there are no
legal or governmental proceedings, statutes, regulations,
contracts or other documents that are required to be described
in the Registration Statements or the Prospectus or required
to be filed as exhibits to the Registration Statements that
are not described or filed as required.
(vi) On the date each Registration Statement was first
filed with the Commission, and at the Effective Time, the
Company met the conditions for the use of Form S-3 under the
Act and the Rules and Regulations.
(vii) The Company has not taken and will not take,
directly or indirectly, any action designed to or that could
cause or result in stabilization or manipulation of the price
of the Offered Securities to facilitate the sale or resale of
the Offered Securities and the Company has not distributed and
will not distribute any offering material in connection with
the offering and sale of the Offered Securities other than any
preliminary prospectus filed with the Commission or the
Prospectus or other materials, if any, permitted by the Act or
the Rules and Regulations.
(viii) The Securities are listed on the Nasdaq National
Market.
(ix) Neither the Company nor any of its Subsidiaries
is (i) in violation of its respective charter or by-laws or
(ii) in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other
agreement, indenture or instrument to which the Company or any
of its Subsidiaries is a party or by which it or any of them
or their respective property is bound or (iii) in violation of
any applicable law, ordinance, administrative or governmental
rule or regulation, or any order, decree or judgment of any
court or governmental agency or body having jurisdiction over
the Company or any of its Subsidiaries, which defaults and
violations in clause (ii) or (iii) would, singly or in the
aggregate,
4
<PAGE> 5
have a material adverse effect on the business, properties,
financial condition or results of operations of the Company
and its Subsidiaries taken as a whole.
(x) The execution and delivery by the Company of, and
performance by the Company of its obligations under, this
Agreement and the issuance and sale of the Offered Securities
will not require any consent, approval, authorization or other
order of any court, regulatory body, administrative agency or
other governmental body, except as may be required by the
rules and regulations of the National Association of
Securities Dealers, Inc. or the securities or blue sky laws of
the various states in connection with the sale of the Offered
Securities.
(xi) The execution and delivery by the Company of, and
performance by the Company of its obligations under, this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any statute,
any rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction
over the Company or any of its Subsidiaries or any of their
respective properties, assets or operations, or any agreement
or instrument to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is bound or to
which any of the properties of the Company or any Subsidiary
is subject, or the charter or by-laws of the Company or any
Subsidiary, except for such breaches and violations as would
not, singly or in the aggregate, have a material adverse
effect on the business, properties, financial condition or
results of operations of the Company and its Subsidiaries,
taken as a whole or on the consummation of the issuance and
sale of the Offered Securities.
(xii) This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and
binding agreement of the Company enforceable against the
Company in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors'
rights and to general equity principles.
(xiii) Except as otherwise set forth in the Prospectus,
there are no material legal or governmental proceedings
pending to which the Company or any of its Subsidiaries is a
party or of which any of their respective property is the
subject and no legal or governmental proceedings are pending
which could have a material adverse effect on the consummation
of the transactions contemplated by this Agreement and, to the
best knowledge of the Company, no such proceedings are
threatened or contemplated.
(xiv) Neither the Company nor any of its Subsidiaries
has violated any foreign, federal, state or local law or
regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), nor
any federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable
federal or state wages and hours laws, nor any provisions of
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or the rules and regulations promulgated
thereunder, nor incurred any liability under Section 412 of
the Internal Revenue Code of 1986, as amended, or Title IV of
ERISA, which in each case would result in any material adverse
change in the
5
<PAGE> 6
business, properties, financial condition or results of
operations of the Company and its Subsidiaries, taken as a
whole.
(xv) The Company and its Subsidiaries have such
material permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws,
as are necessary to own, lease and operate their respective
properties and to conduct their business; the Company and its
Subsidiaries have fulfilled and performed all of their
material obligations with respect to such permits and no event
has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of
any such permit; and, except as described in the Prospectus,
such permits contain no restrictions that are materially
burdensome to the Company and its Subsidiaries.
(xvi) In the ordinary course of its business, the
Company conducts a periodic review of the effect of
Environmental Laws on the Company and its Subsidiaries, in the
course of which it identifies and evaluates associated costs
and liabilities (including, without limitation, any capital or
operative expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on
operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has
reasonably concluded that such associated costs and
liabilities would not, singly or in the aggregate, have a
material adverse effect on the business, properties, financial
condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
(xvii) Except as otherwise set forth in the Prospectus
or such as are not material to the business, prospects,
financial condition or results of operation of the Company and
its Subsidiaries, taken as a whole, the Company and each of
its Subsidiaries have good and marketable title, free and
clear of all liens, claims, encumbrances and restrictions
except liens for taxes not yet due and payable, to all
property and assets described in the Prospectus as being owned
by it. All leases to which the Company or any of its
Subsidiaries is a party are valid and binding and no default
has occurred or is continuing thereunder, which would result
in any material adverse change in the business, properties,
financial condition or results of operations of the Company
and its Subsidiaries taken as a whole, and the Company and its
Subsidiaries enjoy peaceful and undisturbed possession under
all such leases to which any of them is a party as lessee with
such exceptions as do not materially interfere with the use
made by the Company or any of it Subsidiaries.
(xviii) The Company and each of its Subsidiaries
maintains reasonably adequate and customary insurance for the
industry in which it operates.
(xix) The Company and each of its Subsidiaries (a) own
or have obtained valid and enforceable licenses for the U.S.
and foreign patents, patent applications, inventions,
technology, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights,
computer software, trade secrets and proprietary or other
intellectual property rights owned or used by or licensed to
it or necessary for the conduct of its business (collectively,
the "Intellectual Property"), and (b) have not received any
notice of infringement of
6
<PAGE> 7
or conflict with asserted rights of others with respect to any
Intellectual Property, or questioning the use or validity of
any Intellectual Property, in the case of (a) and (b) that, if
determined adversely to the Company or any of its Subsidiaries
would, singly or in the aggregate, have a material adverse
effect on the business, properties, financial condition or
results of operations of the Company and its Subsidiaries,
taken as a whole.
(xx) The consolidated financial statements of the
Company, together with related schedules and notes forming
part of the Prospectus (and any amendment or supplement
thereto), present fairly the consolidated financial position,
results of operations and cash flows of the Company and its
Subsidiaries on the basis stated in the Prospectus at the
respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have
been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods
involved, except as disclosed therein, and the other financial
and statistical information and data set forth in the
Prospectus (and any amendment or supplement thereto) is, in
all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books
and records of the Company. The unaudited pro forma combined
income statements and other pro forma financial information
(including the notes thereto) included in the Prospectus (A)
present fairly in all material respects the information shown
therein, and (B) have been prepared in accordance with the
applicable requirements of Regulation S-X promulgated under
the Exchange Act. The assumptions used in the preparation of
the pro forma combined income statements and other pro forma
financial information included in the Prospectus are
reasonable and the adjustments used therein are appropriate to
give effect to the transactions or circumstances referred to
therein and reflect the proper application of those
adjustments to the corresponding historical financial
statement amounts.
(xxi) To the knowledge of the Company, the consolidated
financial statements of C.R. Anthony Company, the separate
corporate existence of which ceased on June 26, 1997 upon
acquisition by the Company ("C.R. Anthony"), together with
related notes, incorporated by reference in the Prospectus
(and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and
cash flows of C.R. Anthony and its subsidiaries on the basis
stated in the Prospectus at the respective dates or for the
respective periods to which they apply; to the knowledge of
the Company, such statements and related notes have been
prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods
involved, except as disclosed therein.
(xxii) To the knowledge of the Company, the information
set forth in the Prospectus with respect to C.R. Anthony does
not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
(xxiii) Since the dates as of which information is
given in each Registration Statement and the Prospectus, (i)
neither the Company nor any of its Subsidiaries has incurred
any material liability or obligation (indirect, direct or
contingent) or entered into any material verbal or written
agreement or other transaction that is
7
<PAGE> 8
not in the ordinary course of business or that is reasonably
likely to result in a material reduction in the future
earnings of Stage and its respective subsidiaries; (ii) none
of the Company or any of its Subsidiaries has sustained any
material loss or interference with its business or properties
from fire, flood, windstorm, accident or other calamity
(whether or not covered by insurance); (iii) except as
contemplated by the Prospectus, there has been no change in
the indebtedness of the Company and no change in the capital
stock of the Company and no dividend or distribution of any
kind declared, paid or made by the Company on any class of its
capital stock; and (iv) there has been no material adverse
change, nor any development or event involving a prospective
material adverse change, in the business, properties,
financial condition or results of operations of the Company
and its Subsidiaries taken as a whole.
(xxiv) Neither the Company nor its Subsidiaries is, and
after giving effect to the issuance and sale of the Offered
Securities, will not be, an open-end investment company, unit
investment trust or face amount certificate company that is or
is required to be registered under Section 8 of the Investment
Company Act of 1940, as amended or a closed-end investment
company required to be registered thereunder.
(xxv) There is (i) no significant unfair labor practice
complaint pending against the Company or any of its
Subsidiaries or, to the knowledge of the Company, threatened
against any of them, before the National Labor Relations Board
or any state or local labor relations board, and no
significant grievance or more significant arbitration
proceeding arising out of or under any collective bargaining
agreement is so pending against the Company or any of its
Subsidiaries or, to the knowledge of the Company, threatened
against any of them, and (ii) no significant strike, labor
dispute, slowdown or stoppage is pending against the Company
or any of its Subsidiaries or, to the knowledge the Company,
threatened against it or any of its subsidiaries except for
such actions specified in clause (i) or (ii) above which,
singly or in the aggregate, would not have a material adverse
effect on the business, properties, financial condition or
results of operations of the Company and its Subsidiaries,
taken as a whole.
(xxvi) The Company and each of its Subsidiaries
maintains a system of internal accounting controls sufficient
to provide reasonable assurance that: (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in
accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any
differences.
(xxvii) All material tax returns required to be filed
by the Company and each of its Subsidiaries in any
jurisdiction have been filed, other than those filings being
contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees
and other charges due pursuant to such returns or pursuant to
any assessment received by, the Company or any of its
Subsidiaries have been paid, other than those being contested
in good faith and for which adequate reserves have been
provided.
8
<PAGE> 9
(xxviii) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings between the
Company and any person that would give rise to a valid claim
against the Company or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection
with the sale of the Offered Securities.
(xxix) The Company has obtained the written agreement of
each director and executive officer of the Company listed on
Schedule D hereto, that for a period of 90 days after the date
of the public offering of the Offered Securities, such person
will not offer, sell, contract to sell, grant any option for
the sale of, establish a put equivalent position (as defined
in Rule 1a-1(h) under the Exchange Act), pledge or otherwise
dispose of, directly or indirectly, or request the filing with
the Commission of a registration statement under the Act
relating to, any shares of Securities or securities
convertible into or exchangeable or exercisable for, or any
rights to purchase or acquire, any shares of Securities, or
publicly disclose the intention to make any such offer, sale,
pledge, grant, establishment, disposal or filing request,
without the prior written consent of Credit Suisse First
Boston Corporation ("CSFBC").
(xxx) The Company and SRI are subject to Section 13 or
15(d) of the Exchange Act.
(xxxi) Price Waterhouse LLP are independent public
accountants with respect to the Company as required by the
Act and the Exchange Act. Deloitte & Touche LLP were
independent public accountants with respect to C.R. Anthony
as required by the Act and the Exchange Act.
(b) Each Selling Stockholder severally and not
jointly represents and warrants to, and agrees with, the several
Underwriters that:
(i) Such Selling Stockholder has and on each Closing
Date hereinafter mentioned will have valid and unencumbered
title to the Offered Securities to be delivered by such
Selling Stockholder on such Closing Date, free and clear of
any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind; such Selling Stockholder has full
right, power and authority to enter into this Agreement, the
Custody Agreement (the "Custody Agreement") and the
Irrevocable Power of Attorney (the "Power of Attorney")
entered into by such Selling Stockholder in connection with
the transactions contemplated hereby and to sell, assign,
transfer and deliver the Offered Securities to be delivered by
such Selling Stockholder on such Closing Date hereunder; and
upon the delivery of and payment for the Offered Securities on
each Closing Date hereunder such Selling Stockholder will pass
valid and unencumbered title to the Offered Securities to be
delivered by such Selling Stockholder to the several
Underwriters on such Closing Date.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this
Agreement: (A) on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement did
not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (B)
on the Effective Date of the Additional Registration Statement
(if any), each Registration Statement did not include, or will
not include, any untrue statement
9
<PAGE> 10
of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and
(C) on the date of this Agreement, the Initial Registration
Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery
of this Agreement, the Additional Registration Statement, and
at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective
Date of the Additional Registration Statement in which the
Prospectus is included, and on each Closing Date (as
hereinafter defined) neither each Registration Statement nor
the Prospectus includes, or will include, any untrue statement
of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading. If the Effective
Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement: on the Effective
Date of the Initial Registration Statement and on each Closing
Date, neither the Initial Registration Statement nor the
Prospectus will include any untrue statement of a material
fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. The two preceding sentences apply only to the
extent that any statements in or omissions from a Registration
Statement or the Prospectus are based on written information
furnished to the Company by such Selling Stockholder
specifically for use therein.
(iii) Except as disclosed in the Prospectus, there are
no contracts, agreements or understandings between such
Selling Stockholder and any third party that would give rise
to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in
connection with the transactions contemplated by this
Agreement, the Custody Agreement and the Power of Attorney.
(iv) This Agreement, the Custody Agreement and the
Power of Attorney have each been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder and this
Agreement, the Custody Agreement and the Power of Attorney
each constitute the legal, valid and binding obligations of
such Selling Stockholder enforceable against such Selling
Stockholder in accordance with their respective terms (except
as rights to indemnification and contribution may be limited
by applicable federal or state law).
(v) No consent, approval, authorization, order,
registration or qualification of, or filing with, any third
party (whether acting in an individual, fiduciary or other
capacity) or any governmental or regulatory agency or body or
court is required to be obtained or made by such Selling
Stockholder for the consummation of the transactions
contemplated by this Agreement, the Custody Agreement and the
Power of Attorney in connection with the sale of the Offered
Securities, except such as have been obtained and made under
the Act and such as may be required under state securities
laws.
(vi) The execution, delivery and performance of this
Agreement, the Custody Agreement and the Power of Attorney by
such Selling Stockholder and the consummation of the
transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under (A) any
statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having
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<PAGE> 11
jurisdiction over such Selling Stockholder or any of its
properties or operations, or any agreement or instrument to
which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the properties
or operations of such Selling Stockholder is subject, or (B)
if applicable, the charter, by-laws or other organizational
documents of such Selling Stockholder, except, in the case of
clause (A), for such conflicts, breaches, violations or
defaults which could not reasonably be expected to,
individually or in the aggregate, have a material adverse
effect on the consummation of the transactions contemplated by
this Agreement, the Custody Agreement or the Power of
Attorney.
(vii) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or
that could reasonably be expected to cause or result in
stabilization or manipulation of the price of the Offered
Securities to facilitate the sale or resale of the Offered
Securities, and such Selling Stockholder has not distributed
and will not distribute any offering material in connection
with the offering and sale of the Offered Securities other
than any preliminary prospectus filed with the Commission or
the Prospectus or other materials, if any, permitted by the
Act or the Rules and Regulations.
3. Purchase, Sale and Delivery of Offered Securities. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, each Selling Stockholder agrees,
severally and not jointly, to sell to the Underwriters, and each Underwriter
agrees, severally and not jointly, to purchase from each Selling Stockholder,
at a purchase price of $[ ] per share, that number of Firm Securities
(rounded up or down, as determined by CSFBC in its discretion, in order to
avoid fractions) obtained by multiplying the number of Firm Securities set
forth opposite the name of such Selling Stockholder in Schedule A hereto by a
fraction the numerator of which is the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule B hereto and the denominator
of which is the total number of Firm Securities.
Certificates in negotiable form for the Firm Securities have been
placed in custody, for delivery under this Agreement, under Custody Agreements
made with ChaseMellon Shareholder Services, L.L.C., as custodian (the
"Custodian"). Each Selling Stockholder agrees that the shares represented by
the certificates held in custody for the Selling Stockholders under such
Custody Agreement are subject to the interests of the Underwriters hereunder,
that the arrangements made by the Selling Stockholders for such custody are to
that extent irrevocable, and that the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, whether by the death of
any individual Selling Stockholder or the occurrence of any other event, or in
the case of a trust, by the death of any trustee or trustees or the termination
of such trust. If any individual Selling Stockholder or any such trustee or
trustees should die, or if any other such event should occur, or if any of such
trusts should terminate, before the delivery of the Firm Securities hereunder,
certificates for the Firm Securities shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such death or
other event or termination had not occurred, regardless of whether or not the
Custodian shall have received notice of such death or other event or
termination.
The Custodian will deliver the Firm Securities to the Representatives
for the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to
an account at a bank acceptable to CSFBC drawn to the order of the Custodian at
the office of Dewey Ballantine, 1301 Avenue of the Americas, New York, New York
10019 at 10:00 A.M., New York time, on September [ ], 1997, or at such other
time not later than seven full business days thereafter as CSFBC and the
Custodian determine,
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<PAGE> 12
such time being herein referred to as the "First Closing Date". The
certificates for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at the office of Credit
Suisse First Boston Corporation, Eleven Madison Avenue, New York, New York
1001-3629 at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus,
the Underwriters may purchase all or less than all of the Optional Securities
at the purchase price per Security to be paid for the Firm Securities. Such
Optional Securities shall be purchased from the Company for the account of each
Underwriter in the same proportion as the number of Firm Securities set forth
opposite such Underwriter's name in Schedule B bears to the total number of
Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may
be purchased by the Underwriters only for the purpose of covering
over-allotments made in connection with the sale of the Firm Securities. No
Optional Securities shall be sold or delivered unless the Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC on behalf of the Underwriters to
the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver
the Optional Securities being purchased on each Optional Closing Date to CSFBC
for the accounts of the several Underwriters, against payment of the purchase
price in Federal (same day) funds by official bank check or checks or wire
transfer to an account at a bank acceptable to CSFBC drawn to the order of the
Company, at the office of Dewey Ballantine, 1301 Avenue of the Americas, New
York, New York 10019. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at the office of Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, New York 10010-3629, at a reasonable time in
advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Stockholders.
The Company and each of the Selling Stockholders severally and not jointly
agree with the several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement,
the Company will file the Prospectus with the Commission pursuant to
and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than
the earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement. The Company
will advise CSFBC promptly of any such filing pursuant to Rule 424(b).
If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement and an additional
registration statement is necessary to
12
<PAGE> 13
register a portion of the Offered Securities under the Act but the
Effective Time thereof has not occurred as of such execution and
delivery, the Company will file the additional registration statement
or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior
to 10:00 P.M., New York time, on the date of this Agreement or, if
earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or
supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or the Prospectus and of the institution by
the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection
with sales by any Underwriter or dealer, any event occurs as a result
of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent
to, nor the Underwriters' delivery of, any such amendment or
supplement shall constitute a waiver of any of the conditions set
forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of
the Additional Registration Statement) which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the
end of the fourth fiscal quarter following the fiscal quarter that
includes such Effective Date, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(e) The Company will furnish to the Representatives copies of
each Registration Statement (two of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so
long as a prospectus relating to the Offered Securities is required to
be delivered under the Act in connection with sales by any Underwriter
or dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other such documents shall be so
furnished as soon as available. The
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<PAGE> 14
Company will pay the expenses of printing and distributing to the
Underwriters all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as
CSFBC designates and will continue such qualifications in effect so
long as required for the distribution.
(g) During the period of five years hereafter so long as the
Company is a reporting company under the Exchange Act, the Company
will furnish to the Representatives and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such
year; and the Company will furnish to the Representatives (i) as soon
as available, a copy of each report and any definitive proxy statement
of the Company filed with the Commission under the Securities Exchange
Act of 1934 or mailed to stockholders, and (ii) from time to time,
such other information concerning the Company as CSFBC may reasonably
request.
(h) For a period of 90 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, grant any option for the sale of, establish a
put equivalent position (as defined in Rule 1a-1(h) under the Exchange
Act), pledge or otherwise dispose of, directly or indirectly, or file
with the Commission a registration statement under the Act relating
to, any shares of Securities or securities convertible into or
exchangeable or exercisable for, or any rights to purchase or acquire,
any shares of Securities, or publicly disclose the intention to make
any such offer, sale, pledge, grant, establishment, disposal or
filing, without the prior written consent of CSFBC.
(i) The Company will pay all expenses incident to the
performance of the obligations of the Selling Stockholders and the
obligations of the Company under this Agreement, for any filing fees
and other expenses (including fees and disbursements of counsel)
incurred in connection with qualification of the Offered Securities
for sale under the laws of such jurisdictions as CSFBC designates and
the printing of memoranda relating thereto, for the filing fee
incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. of the Offered Securities, for
any travel expenses of the Company's officers and employees and any
other expenses of the Company in connection with the attending or
hosting meetings with prospective purchasers of the Offered
Securities, for any transfer taxes on the sale of the Offered
Securities to the Underwriters and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.
(j) The Selling Stockholders will deliver to CSFBC, attention:
Transactions Advisory Group on or prior to the First Closing Date a
properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
(k) The Selling Stockholders will not, for a period of 90 days
after the date of the initial public offering of the Offered
Securities, offer, sell, contract to sell, grant any option for the
sale of, establish a put equivalent position (as defined in Rule
1a-1(h) under the Exchange Act), pledge or otherwise dispose of,
directly or indirectly, or request the filing with the Commission of a
registration statement under the Act relating to, any shares of
Securities or securities convertible into or exchangeable or
exercisable for, or
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<PAGE> 15
any rights to purchase or acquire, any shares of Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
grant, establishment, disposal or filing, without the prior written
consent of CSFBC.
6. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities on the First Closing Date and the Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders herein, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by the Company and the
Selling Stockholders of their obligations hereunder and to the following
additional conditions precedent:
(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to
the registration statement to be filed shortly prior to such Effective
Time), of Price Waterhouse LLP, confirming that they are independent
public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations thereunder
and stating to the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;
(iii) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim
financial statements of the Company, inquiries of officials of
the Company who have responsibility for financial and
accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:
(A) the unaudited financial statements
included in the Registration Statements do not comply
as to form in all material respects with the
applicable accounting requirements of the Act and the
related published Rules and Regulations or any
material modifications should be made to such
unaudited financial statements for them to be in
conformity with generally accepted accounting
principles;
(B) the information set forth in the
Prospectus under the caption "Summary Consolidated
Historical and Pro Forma Combined Financial and
Operating Data" does not agree with the amounts set
forth in the unaudited consolidated financial
statements or the audited consolidated financial
statements, as the case may be, from which it was
derived or
15
<PAGE> 16
were not determined on a basis substantially
consistent with that of the corresponding amounts in
the unaudited statements or the audited statements
included in the Registration Statements and the
Prospectus;
(C) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt
or decrease in stockholders' equity of the Company
and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such
accountants, there was any decrease in consolidated
net current assets or total assets, as compared with
amounts shown on the latest balance sheet included in
the Prospectus; or
(D) for the period from the closing date
of the latest income statement included in the
Registration Statements and the Prospectus to the
closing date of the latest available income statement
read by such accountants, and at a subsequent
specified date not more than three business days
prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period
of the previous year and with the period of
corresponding length ended the date of the latest
income statement included in the Registration
Statements and the Prospectus, in consolidated net
sales or net operating income, or in the total or per
share amounts of consolidated income before income
tax and extraordinary items or net income;
except in all cases set forth in clauses (C) and (D) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(iv) (A) they have read the pro forma financial
statements and other pro forma financial information included
in the Registration Statements (collectively, the "Pro Forma
Information");
(A) they have made inquiries of certain
officials of the Company who have responsibility for
financial and accounting matters about the basis for
the pro forma adjustments;
(B) they have proved the arithmetic accuracy
of the application of the pro forma adjustments to
the historical amounts in the Pro Forma Information
and whether the Pro Forma Information complies as to
form in all material respects with the accounting
requirements of the Securities Act and the related
published Rules and Regulations; and
(C) on the basis of such procedures, and
such other inquiries and procedures as may be
specified in such letter, nothing came to their
attention that caused them to believe that the Pro
Forma Information included in the Registration
Statements does not comply as to form in all material
respects with the accounting requirements of the
Securities Act and the related published Rules and
Regulations or has not been properly compiled and
that the pro forma adjustments have not been properly
16
<PAGE> 17
applied to the historical amounts in the compilation
of those statements; and
(v) they have compared specified dollar amounts (or
percentages derived from such dollars amounts) and other
financial information contained in the Registration Statements
with the results obtained from inquiries, a reading of such
general accounting records and other procedures specified in
such letter and have found such dollar amounts, percentages
and other financial information to be in agreement with such
results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration Statement is
subsequent to such execution and delivery, "Registration Statements"
shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to
its Effective Time, and (iii) "Prospectus" shall mean the prospectus
included in the Registration Statements. All financial statements and
schedules included in material incorporated by reference into the
Prospectus shall be deemed included in the Registration Statements for
purposes of this subsection.
(b) The Representatives shall have received a letter,
dated the date of delivery thereof (which, if the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Deloitte & Touche LLP in
form and substance satisfactory to the Representatives confirming that
they were independent public accountants with respect to C.R. Anthony
within the meaning of the Securities Act and the Rules and Regulations
and to the effect that:
(i) in their opinion the consolidated financial
statements of C.R. Anthony examined by them and included in
the Registration Statements comply as to form in all material
respects with the applicable accounting requirements of the
Securities Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;
(iii) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim
financial statements of C.R. Anthony, inquiries of officials
of C.R. Anthony who have responsibility for financial and
accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:
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<PAGE> 18
(A) the unaudited financial statements
of C.R. Anthony included in the Registration
Statements do not comply as to form in all material
respects with the applicable accounting requirements
of the Securities Act and the related published Rules
and Regulations or any material modifications should
be made to such unaudited financial statements for
them to be in conformity with generally accepted
accounting principles;
(B) the information set forth in the
Prospectus under the caption "Summary Consolidated
Historical and Pro Forma Combined Financial and
Operating Data" does not agree with the amounts set
forth in the unaudited consolidated financial
statements or the audited consolidated financial
statements, as the case may be, from which it was
derived or were not determined on a basis
substantially consistent with that of the
corresponding amounts in the unaudited statements or
the audited statements included in the Registration
Statements and the Prospectus;
(C) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt
or decrease in stockholders' equity of C.R. Anthony
and its consolidated subsidiaries or, at the date of
the latest balance sheet read by such accountants,
there was any decrease in consolidated net current
assets or total assets, as compared with amounts
shown on the latest balance sheet included in the
Prospectus; or
(D) for the period from the closing date
of the latest income statement included in the
Registration Statements and the Prospectus to the
closing date of the latest available income statement
read by such accountants, and at a subsequent
specified date not more than three business days
prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period
of the previous year and with the period of
corresponding length ended the date of the latest
income statement included in the Registration
Statements and the Prospectus, in consolidated net
sales, net operating income, or in the total or per
share amounts of consolidated income before
extraordinary items or net income;
except in all cases set forth in clauses (C) and (D)
above for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or
which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
with the results obtained from inquiries, a reading of such
general accounting records and other procedures specified in
such letter and have found such dollar amounts, percentages
and other financial information to be in agreement with such
results, except as otherwise specified in such letter.
18
<PAGE> 19
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration Statement is
subsequent to such execution and delivery, "Registration Statements"
shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to
its Effective Time, and (iii) "Prospectus" shall mean the prospectus
included in the Registration Statements. All financial statements and
schedules included in material incorporated by reference into the
Prospectus shall be deemed included in the Registration Statements for
purposes of this subsection.
(c) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than
10:00 P.M., New York time, on the date of this Agreement or such later
date as shall have been consented to by CSFBC. If the Effective Time
of the Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time
of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and
Section 5(a) of this Agreement. Prior to such Closing Date, no stop
order suspending the effectiveness of a Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of any Selling Stockholder, the
Company or the Representatives, shall be contemplated by the
Commission.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) a change in United States
or international financial, political or economic conditions or
currency exchange rates or exchange controls as would, in the judgment
of CSFBC, be likely to prejudice materially the success of the
proposed public offering or the sale of and payment for the Offered
Securities, whether in the primary market or in respect of dealings in
the secondary market, or (ii) (A) any change, or any development or
event involving a prospective change, in the business, properties,
financial condition or results of operations of the Company or any of
its Subsidiaries which, in the judgment of a majority in interest of
the Underwriters, including the Representatives, makes it impractical
or inadvisable to proceed with completion of the public offering or
the sale of and payment for the Offered Securities; (B) any
downgrading in the rating of any debt securities or preferred stock of
the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act),
or any public announcement that any such organization has under
surveillance or review its rating of any debt securities or preferred
stock of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (C) any suspension or limitation of
trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq Stock Market, or any setting of
minimum prices for trading on such exchange or market, or any
suspension of trading of any securities of the Company or any of its
Subsidiaries on any exchange or in the over-the-counter market; (D)
any banking moratorium declared by United States Federal or
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New York authorities or the taking of any action by any Federal, state
or local government or agency in respect of its monetary or fiscal
affairs which in the judgment of a majority in interest of the
Underwriters, including the Representatives, has a material adverse
effect on the financial markets in the United States; or (E) any
outbreak or escalation of hostilities in which the United States is
involved, any declaration of war by Congress or any other national or
international calamity or emergency if, in the judgment of a majority
in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
(e) The Representatives shall have received an opinion, dated
such Closing Date, of Kirkland & Ellis, counsel for the Company, to
the effect that:
(i) The Company and each of its Subsidiaries (other
than SRI and Specialty Retailers, Inc. (NV)) listed on
Schedule C hereto is a corporation existing and in good
standing under the laws of the State of Delaware. Each of the
Company and its Subsidiaries is qualified to do business and
is in good standing in each jurisdiction listed opposite its
name on Schedule C hereto;
(ii) Each of the Company and its Subsidiaries
listed on Schedule C hereto has the corporate power to own and
lease its properties and to conduct its business as described
in the Prospectus;
(iii) This Agreement has been duly authorized,
executed and delivered by the Company;
(iv) To such counsel's knowledge, neither the
Company nor any of its Subsidiaries is in violation of its
charter or by-laws;
(v) To such counsel's knowledge, no
authorization, approval, consent or order of, or filing with,
any court or governmental body or agency is required for the
consummation by the Company of the transactions contemplated
by this Agreement, except such as have been obtained or made
under the Securities Act, state securities or Blue Sky laws or
regulations or as may be required by the NASD with respect to
the issuance and sale of the Offered Securities;
(vi) The execution and delivery by the Company of,
and performance by the Company of its obligations under, this
Agreement and the issuance and sale of the Offered Securities
will not (i) violate the charter or bylaws of the Company or
any of its Subsidiaries, (ii) breach or result in a default
under an existing obligation of the Company under, or cause an
acceleration of any obligation under or result in the
imposition or creation of (or the obligation to create or
impose) a lien with respect to, any agreement listed as an
exhibit to (A) the Annual Report on Form 10-K of the Company
for the fiscal year ended February 1, 1997 as filed with the
Commission (provided that such counsel need express no opinion
as to compliance with any financial test or cross-default
provision in any such agreements) or (B) the Registration
Statement on Form S-4 of the Company (file no. 333-27809)
declared effective on May 27, 1997 by the Commission (provided
that such counsel need express no opinion as to compliance
with any financial test or cross-default provision in any such
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<PAGE> 21
agreements) or (C) the Registration Statement on Form S-4 of
the Company (file no. 333-32695) declared effective on [ ],
1997 by the Commission (provided that such counsel need
express no opinion as to compliance with any financial test or
cross-default provision in any such agreements); (iii) to such
counsel's knowledge, breach or otherwise violate any provision
in any court or administrative order, writ, judgment or decree
that names the Company or any of its Subsidiaries and is
specifically directed to any of their property; or (iv)
constitute a material violation by the Company or any of its
Subsidiaries of any applicable provision of Federal, New York
State or Delaware corporate law, statute or regulation (except
that such counsel need express no opinion in this clause (iv)
as to compliance of the Registration Statements or the
Prospectus with any disclosure requirement or prohibition
against fraud or misrepresentation and no opinion as to
whether performance of the indemnification or contribution
provisions in this Agreement would be enforceable);
(vii) To such counsel's knowledge, there is no
action, suit, proceeding or investigation before or by any
court or governmental agency or body, domestic or foreign,
pending or threatened against, the Company or any of its
Subsidiaries that (i) has caused such counsel to conclude that
such action, suit, proceeding or investigation is required to
be described in the Registration Statements or the Prospectus
but is not so described or (ii) would be reasonably likely to
adversely affect the consummation of any of the transactions
contemplated by this Agreement, including without limitation
the issuance and sale of the Offered Securities;
(viii) The Company is not, and after giving effect to
the issuance and sale of the Offered Securities, will not be,
an "investment company" as defined in the Investment Company
Act of 1940;
(ix) The Offered Securities conform in all material
respects to the description thereof contained in the
Prospectus; and the descriptions in the Prospectus under the
headings "Description of Capital Stock," and "Certain U.S.
Federal Tax Considerations for Non-U.S. Holders of Common
Stock" insofar as statements therein constitute a summary of
legal matters, documents or proceedings referred to therein,
fairly present and summarize such matters in all material
respects;
(x) The Offered Securities and all of the issued
shares of capital stock of the Company have been duly
authorized and will be, when issued and paid for in accordance
with this Agreement, validly issued, fully paid and
nonassessable and no further approval or authority of the
shareholders or the Board of Directors of the Company is or
will be required for the issuance and sale of the Optional
Securities to be sold by the Company as contemplated by this
Agreement and the Securities are not subject to any preemptive
or similar right and conform in all material respects to the
description thereof contained in the Prospectus;
(xi) Except as described in the Prospectus, there are
no contracts, agreements or understandings between the Company
and any third party (whether acting in an individual,
fiduciary or other capacity) granting such third party the
right to require the Company to file a registration statement
under the Act with respect to any securities of the Company
owned or to be owned by such third party or to require the
Company to include such securities in the securities
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<PAGE> 22
registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act; and there are no
legal or governmental proceedings, statutes, regulations,
contracts or other documents that are required to be described
in the Registration Statements or the Prospectus or required
to be filed as exhibits to the Registration Statements that
are not described or filed as required; and
(xii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Additional Registration Statement (if any)
was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on
the date specified therein or was included in the Initial
Registration Statement or the Additional Registration
Statement (as the case may be), and, to the knowledge of such
counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and
no proceedings for that purpose have been instituted or are
pending or contemplated under the Act, and each Registration
Statement and the Prospectus, and each amendment or supplement
thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
Such counsel shall also include a statement to the effect that
nothing has come to such counsel's attention to cause it to believe
that (except for financial statements, the schedules included therein
and other financial or statistical data and the text under the caption
"Notice to Canadian Residents" in the Prospectus, as aforesaid) a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
In making the statement set forth in the immediately preceding
paragraph, such counsel may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statements and the Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
The opinion of Kirkland & Ellis described in paragraph (e)
above shall be rendered to you at the request of the Company and shall
so state therein.
(f) The Underwriters shall have received an opinion, dated
such Closing Date, of Scott Woods, Esq., Senior Counsel of the
Company, to the effect that:
(i) SRI and Specialty Retailers, Inc. (NV) are each
corporations existing and in good standing under the laws of
their respective jurisdictions of incorporation. SRI and
Specialty Retailers, Inc. (NV) each have the corporate power
to own and lease their respective properties and to conduct
their respective businesses as described in the Prospectus;
and
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<PAGE> 23
(ii) The execution and delivery by the Company of, and
performance by the Company of its obligations under, this
Agreement and the issuance and sale of the Offered Securities
will not constitute a material violation by the Company or any
of its Subsidiaries of any applicable provision of Texas law,
statute or regulation.
The opinion of Scott Woods, Esq. described in paragraph (f) above
shall be rendered to you at the request of the Company and shall so
state therein.
(g) The Representatives shall have received an opinion, dated
such Closing Date, of counsel for each of the Selling Stockholders, to
the effect that:
(i) To the knowledge of such counsel, such Selling
Stockholder had valid and unencumbered title to the Offered
Securities delivered by such Selling Stockholder on such
Closing Date and had full right, power and authority to enter
into this Agreement, the Custody Agreement and the Power of
Attorney and to sell, assign, transfer and deliver the Offered
Securities delivered by such Selling Stockholder on such
Closing Date hereunder; and such Selling Stockholder has
passed valid and unencumbered title to the several
Underwriters to the Offered Securities purchased by them on
such Closing Date, free and clear of any adverse claim (within
the meaning of the Uniform Commercial Code) to the extent the
Underwriters are without notice of any such adverse claim;
(ii) This Agreement has been duly authorized, executed
and delivered on behalf of such Selling Stockholder;
(iii) The Custody Agreement and the Power of Attorney
with respect to such Selling Stockholder have been duly
authorized, executed and delivered by such Selling Stockholder
and constitute valid and legally binding obligations of such
Selling Stockholder enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(iv) To the knowledge of such counsel, no consent,
approval, authorization, order, registration or qualification
of, or filing with, any third party (whether acting in an
individual, fiduciary or other capacity) or any governmental
agency or body or any court is required to be obtained or made
by such Selling Stockholder for the consummation of the
transactions contemplated by this Agreement, the Custody
Agreement and the Power of Attorney in connection with the
sale of the Offered Securities, except such as have been
obtained and made under the Act and such as may be required
under state securities laws; and
(v) The execution, delivery and performance of this
Agreement, the Custody Agreement and the Power of Attorney by
such Selling Stockholder and the consummation of the
transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under (A) to the
knowledge of such counsel, any statute, any rule, regulation
or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over such Selling
Stockholder or any of its properties or operations, or any
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound or
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<PAGE> 24
to which any of the properties or operations of such Selling
Stockholder is subject, or (B) if applicable, the charter,
by-laws or other organizational documents of such Selling
Stockholder, except, in the case of clause (A), for such
conflicts, breaches, violations or defaults which could not
reasonably be expected to, individually or in the aggregate,
have a material adverse effect on the consummation of the
transactions contemplated by this Agreement, the Custody
Agreement or the Power of Attorney.
(h) The Representatives shall have received from Dewey
Ballantine, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the Registration Statements,
the Prospectus and other related matters as the Representatives may
require, and the Selling Stockholders and the Company shall have
furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received a certificate,
dated such Closing Date, of James Marcum, Executive Vice President and
Chief Financial Officer of the Company and Mark Hess, Vice President,
Financial Planning of the Company in which such officers shall state
that: the representations and warranties of the Company in this
Agreement are true and correct; the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) or
Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under
the Act, prior to the time the Prospectus was printed and distributed
to any underwriter; and, since the date of the latest balance sheet
included in the Prospectus, there has not been any material adverse
change, or any development involving a prospective material adverse
change, in the condition, financial or otherwise, or in the earnings,
affairs or business prospects, whether or not arising in the ordinary
course of business, of the Company; since the date of the latest
balance sheet included in the Prospectus, there has not been any
change, or any development involving a prospective material adverse
change, in the capital stock or long-term debt of the Company and its
Subsidiaries from that set forth in the Prospectus; and the Company
and its Subsidiaries have no liability or obligation, direct or
contingent, which is material to the Company and its Subsidiaries,
taken as a whole, other than those reflected in the Prospectus.
(j) The Representatives shall have received a letter, dated
such Closing Date, of each of Price Waterhouse LLP and Deloitte &
Touche LLP which meets the requirements of subsections (a) and (b) of
this Section, respectively, except that the specified date referred to
in such subsection will be a date not more than three days prior to
such Closing Date for the purposes of this subsection.
The Selling Stockholders and the Company will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably request. CSFBC may in its sole discretion waive
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date
or otherwise.
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7. Indemnification and Contribution. (a) The Company will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims, damages
or liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus correcting such untrue statement or alleged untrue statement in
or omission or alleged omission from such preliminary prospectus if the Company
had previously furnished such quantity of copies thereof to such Underwriter as
reasonably requested by or on behalf of such Underwriter.
(b) Each Selling Stockholder will severally and not jointly
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, in each case only to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with written information furnished by such Selling Stockholder specifically for
use therein; provided, however, that with respect to any untrue statement or
alleged untrue statement in or omission or alleged omission from any
preliminary prospectus the indemnity agreement contained in this subsection (b)
shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased the Offered
Securities concerned, to the extent that a prospectus relating to such Offered
Securities was required to be delivered by such Underwriter under the Act in
connection with such purchase and any such loss, claim, damage or liability of
such Underwriter results from the fact that there was not sent or given to such
person, at or prior to the written
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<PAGE> 26
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus correcting such untrue statement or alleged untrue statement in
or omission or alleged omission from such preliminary prospectus if the Company
had previously furnished such quantity of copies thereof to such Underwriter as
reasonably requested by or on behalf of such Underwriter. Notwithstanding the
foregoing, the aggregate liability of any Selling Stockholder pursuant to the
provisions of this paragraph shall be limited to an amount equal to the
aggregate sale price received by such Selling Stockholder from the sale of such
Selling Stockholder's shares hereunder.
(c) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities to which the Company or such Selling Stockholder
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, the Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Company and
each Selling Stockholder in connection with investigating or defending any such
loss, claim, damage, liability or action as such expenses are incurred, it
being understood and agreed that the only such information furnished by any
Underwriter consists of the following information in the Prospectus furnished
on behalf of each Underwriter: the last paragraph at the bottom of the cover
page concerning the terms of the offering by the Underwriters, the legend
concerning over-allotments and stabilization at the bottom of the inside front
cover page, the information appearing in the fourth paragraph under the caption
"Underwriting" with respect to concession and reallowance figures and the
information appearing in the fifth paragraph under the caption "Underwriting."
(d) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a), (b) or (c) above, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under subsection (a), (b) or (c) above.
In case any such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, except as provided in the
next sentence, to the extent that it may wish jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party such
indemnified party of its election so as to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, except as provided in
the next sentence, other than reasonable costs of investigation. The
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both such
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<PAGE> 27
indemnified party and an indemnifying party, and such indemnified party shall
have been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
the indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified
person, it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all such
indemnified parties, which firm shall be designated in writing by CSFBC, in the
case of subsections (a) and (b) above, or by the Company or the Selling
Stockholders, as the case may be, in the case of subsection (c) above, and that
all such fees and expenses shall be reimbursed as they are incurred). An
indemnifying party shall not be liable for any settlement of any such action
effected without the written consent of such indemnifying party but if settled
with the written consent of such indemnifying party, such indemnifying party
agrees to indemnify and hold harmless any indemnified person from and against
any loss or liability by reason of such settlement. Notwithstanding the
immediately preceding sentence, if in any case where the fees and expenses of
counsel are at the expense of the indemnifying party and an indemnified party
shall have requested the indemnifying party to reimburse the indemnified party
for such fees and expenses of counsel as incurred, such indemnifying party
agrees that it shall be liable for any settlement of any action effected
without its written consent if (i) such settlement is entered into more than
ten business days after the receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall have failed to reimburse the
indemnified party in accordance with such request for reimbursement prior to
the date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or
(c) above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters under this Agreement. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied in writing by the
Company, the Selling Stockholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party as
a result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection
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<PAGE> 28
with investigating or defending any action or claim which is the subject of
this subsection (e). Notwithstanding the provisions of this subsection (e),
(i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and
(ii) no Selling Stockholder shall be required to contribute any amount in
excess of the amount by which the aggregate sale price received by such Selling
Stockholder from the sale of the Offered Securities hereunder exceeds the
amount of any damages or indemnification which such Selling Stockholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint. The Selling Stockholders' obligations
in this subsection (e) to contribute are several and not joint.
(f) The obligations of the Company and the Selling
Stockholders under this Section shall be in addition to any liability which the
Company and the Selling Stockholders may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each director of the Company, to each officer of the
Company who has signed a Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on either
the First or any Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing
Date, CSFBC may make arrangements satisfactory to the Selling Stockholders or
the Company, as the case may be, for the purchase of such Offered Securities by
other persons, including any of the Underwriters, but if no such arrangements
are made by such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder,
to purchase the Offered Securities that such defaulting Underwriters agreed but
failed to purchase on such Closing Date. If any Underwriter or Underwriters so
default and the aggregate number of shares of Offered Securities with respect
to which such default or defaults occur exceeds 10% of the total number of
shares of Offered Securities that the Underwriters are obligated to purchase on
such Closing Date and arrangements satisfactory to CSFBC and the Selling
Stockholders or the Company, as the case may be, for the purchase of such
Offered Securities by other persons are not made within 36 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders, except as
provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Selling Stockholders, of the Company or its officers and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective representatives, officers
or directors or any controlling
28
<PAGE> 29
person, and will survive delivery of and payment for the Offered Securities.
If this Agreement is terminated pursuant to Section 8 or if for any reason the
purchase of the Offered Securities by the Underwriters is not consummated, the
Company and the Selling Stockholders shall remain responsible for the expenses
to be paid or reimbursed by them pursuant to Section 5 and the respective
obligations of the Company, the Selling Stockholders, and the Underwriters
pursuant to Section 7 shall remain in effect, and if any Offered Securities
have been purchased hereunder the representations and warranties in Section 2
and all obligations under Section 5 shall also remain in effect. If the
purchase of the Offered Securities by the Underwriters is not consummated for
any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (C),
(D) or (E) of Section 6(c)(ii), the Company will reimburse the Underwriters for
all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the Offered.
Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and
confirmed to CSFBC at Eleven Madison Avenue, New York, NY 10010-3629,
Attention: Investment Banking Department--Transactions Advisory Group, or, if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at 10201 Main Street, Houston, Texas 77025, Attention: Carl Tooker, or, if
sent to the Selling Stockholders or any of them, will be mailed, delivered or
telegraphed and confirmed to such Selling Stockholder at the address of the
Attorneys-in-Fact as set forth in the Powers of Attorney, or in each case to
such other address as the person to be notified may have requested in writing;
provided, however, that any notice to any Underwriter pursuant to Section 7
will be mailed, delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
12. Representation. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this
Agreement, and any action under this Agreement taken by the Representatives
jointly or by CSFBC will be binding upon all the Underwriters. [ ]
will act for the Selling Stockholders in connection with such transactions,
and any action under or in respect of this Agreement taken by [ ]
will be binding upon all the Selling Stockholders.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
29
<PAGE> 30
If the foregoing is in accordance with the Representatives understanding of our
agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement among the Selling
Stockholders, the Company and the several Underwriters in accordance with its
terms.
Very truly yours,
STAGE STORES, INC.
By
--------------------------------------
Name:
Title:
SELLING STOCKHOLDERS:
By
--------------------------------------
Name:
Title: Attorney-in-Fact
30
<PAGE> 31
31
<PAGE> 32
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BEAR, STEARNS & CO. INC.
Acting on behalf of themselves and as the
Representatives of the several Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
--------------------------------------
Name:
Title:
32
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Selling Stockholder Securities to be Sold
-------------------- ---------------------
<S> <C>
--------------
Total . . . . . . . . . . . . . . . . . . . . . . .
==============
</TABLE>
<PAGE> 34
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm
Securities to be
Underwriter Purchased
----------- ------------------------
<S> <C>
Credit Suisse First Boston Corporation
Bear Stearns & Co., Inc.
--------------
Total . . . . . . . . . . . . . . . . . . . . . . .
==============
</TABLE>
<PAGE> 35
SCHEDULE C
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdictions Where
Name Jurisdiction of Incorporation Qualified To Do Business
---- ----------------------------- ------------------------
<S> <C> <C> <C> <C>
Stage Stores, Inc. Delaware None
Specialty Retailers, Inc. Texas Alabama Minnesota
Arizona Mississippi
Colorado Missouri
Illinois Nebraska
Indiana Ohio
Iowa Oklahoma
Kansas South Dakota
Louisiana Wisconsin
Michigan Wyoming
Specialty Retailers, Inc.(NV) Nevada None
SRI Receivables Purchase
Co., Inc. Delaware None
SRI Unrestricted Sub, Inc. Delaware None
</TABLE>
<PAGE> 36
SCHEDULE D
EXECUTIVE OFFICERS AND DIRECTORS SUBJECT TO LOCK UP
<PAGE> 1
EXHIBIT 5.1
September 15, 1997
Stage Stores, Inc.
10201 Main Street
Houston, Texas 77025
Re: Shares of Common Stock, $.01 par value
Ladies and Gentlemen:
We are acting as counsel to State Stores, Inc., a Delaware corporation (the
'Company'), in connection with the preparation and filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
'Securities Act'), of a Registration Statement on Form S-3, Registration No.
333-34415 (the 'Registration Statement') pertaining to the registration of a
proposed offering of shares of the Company's Common Stock, $.01 par value per
share, all of which are currently outstanding and which are proposed to be
offered by certain stockholders of the Company (the 'Existing Shares') and
650,000 shares pursuant to which the Company has granted the underwriters an
option to purchase solely to cover over-allotments, if any, shares to be newly
issued and sold by the Company in the proposed offering (the 'New Shares' and,
together with the Existing Shares, the 'Common Stock').
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of such documents, corporate records and other instruments as
we have deemed necessary for the purposes of this opinion, including the
following: (i) Amended and Restated Certificate of Incorporation and the Bylaws
of the Company, each as amended to the date hereof; and (ii) certain resolutions
adopted by the Board of Directors of the Company. In addition, we have made such
other and further investigations as we have deemed necessary to enable us to
express the opinions hereinafter set forth.
Based upon the foregoing and having regard to legal considerations that we
deem relevant, and subject to the comments and qualifications set forth below,
it is our opinion that the Common Stock has been duly authorized and (i) the
Existing Shares have been duly and validly issued and are fully paid and
nonassessable; and (ii) the New Shares, when duly executed and delivered by
authorized officers of the Company and issued upon receipt of the consideration
to be paid therefor (all in conformity with the Board of Directors' resolutions
examined by us), will be duly and validly issued, fully paid and non-assessable.
For purposes of this opinion, we have with your permission made the
following assumptions, in each case without independent verification: (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as copies, (iii) the
authenticity of the originals of all documents submitted to us as copies, (iv)
the genuineness of the signatures of persons signing all documents in connection
with which this opinion is rendered, (v) the authority of such persons signing
all documents on behalf of the parties thereto and (vi) the due authorization,
execution and delivery of all documents by the parties thereto.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the section
entitled 'Legal Matters' in the prospectus included in the Registration
Statement. In giving such consent, we do not thereby concede that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations promulgated thereunder.
We do not find it necessary for purposes of this opinion to cover, and
accordingly we do not purport to cover herein, the application of the securities
or 'Blue Sky' laws of the various states to the offering and sale of the Common
Stock.
This opinion shall be limited to the laws of the State of Delaware.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
KIRKLAND & ELLIS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 1 to Form S-3 of our report dated March
12, 1997, relating to the consolidated financial statements of Stage Stores,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
September 15, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
No. 333-34415, Amendment No. 1, of Stage Stores, Inc. on Form S-3 of our report
dated March 12, 1997 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to C.R. Anthony Company entering into an
Agreement and Plan of Merger with Stage Stores, Inc.), appearing in and
incorporated by reference in the Annual Report on Form 10-K of C.R. Anthony
Company for the fifty-two weeks ended February 1, 1997, which is part of this
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ Deloitte & Touche LLP
Oklahoma City, Oklahoma
September 15, 1997
