As filed with the Securities and Exchange Commission on August 7, 1997
Registration No. 333-32695
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SPECIALTY RETAILERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
5311
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
TEXAS 04-3034294
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
STAGE STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
5311
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
DELAWARE 76-0407711
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
SPECIALTY RETAILERS, INC. (NV)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
5311
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
NEVADA 91-1826900
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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)
<PAGE>
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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.
- 2 -
<PAGE>
PROSPECTUS
SPECIALTY RETAILERS, INC.
OFFER TO EXCHANGE ITS SERIES B 8 1/2% SENIOR NOTES DUE 2005
FOR ANY AND ALL OF ITS OUTSTANDING 8 1/2% SENIOR NOTES DUE 2005
AND TO EXCHANGE ITS SERIES B 9% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING 9% SENIOR SUBORDINATED NOTES DUE 2007
UNCONDITIONALLY GUARANTEED BY STAGE STORES, INC. AND SPECIALTY RETAILERS, INC.
(NV)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
SEPTEMBER 9, 1997, UNLESS EXTENDED.
Specialty Retailers, Inc. ("SRI"), a wholly owned subsidiary of Stages Stores,
Inc. ("Stage" and, together with SRI, "the Company") hereby offers (the
"Exchange Offer"), upon the terms and conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange (i) $1,000 principal amount of its Series B 8 1/2%
Senior Notes due 2005 (the "Senior Exchange Notes"), which will have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
pursuant to a Registration Statement of which this Prospectus is a part, for
each $1,000 principal amount of its outstanding 8 1/2 % Senior Notes due 2005
(the "Senior Notes"), of which $200,000,000 principal amount is outstanding; and
(ii) $1,000 principal amount of its Series B 9% Senior Subordinated Notes due
2007 (the "Senior Subordinated Exchange Notes" and, together with the Senior
Exchange Notes, the "Exchange Notes"), which will have been registered under the
Securities Act pursuant to a Registration Statement of which this Prospectus is
a part, for each $1,000 principal amount of its outstanding 9% Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes" and, together with
the Senior Notes, the "Notes"), of which $100,000,000 principal amount is
outstanding. The form and terms of the Exchange Notes are the same as the form
and terms of the Notes (which they replace) except that the Exchange Notes will
bear a Series B designation and will have been registered under the Securities
Act and, therefore, will not bear legends restricting their transfer and will
not contain certain provisions relating to an increase in the interest rate
which were included in the terms of the Notes in certain circumstances relating
to the timing of the Exchange Offer. The Senior Exchange Notes will evidence the
same debt as the Senior Notes (which they replace) and will be issued under and
be entitled to the benefits of the Indenture governing the Senior Notes dated
June 17, 1997 (the "Senior Notes Indenture") among SRI, Stage and State Street
Bank and Trust Company, as Trustee (the "Trustee"). The Senior Subordinated
Exchange Notes will evidence the same debt as the Senior Subordinated Notes
(which they replace) and will be issued under and entitled to the benefits of
the Indenture governing the Senior Subordinated Notes dated June 17, 1997 (the
"Senior Subordinated Notes Indenture" and, together with the Senior Notes
Indenture, the "Indentures") among SRI, Stage and the Trustee. See "The Exchange
Offer" and "Description of the Exchange Notes."
The Company has not issued, and does not have any current firm arrangements to
issue, any significant indebtedness to which the Exchange Notes would rank
Senior or PARI PASSU in right of payment.
The Senior Exchange Notes will be unsecured senior obligations of SRI, ranking
PARI PASSU in right of payment to all existing and future Senior Debt (as
defined) of SRI, including all obligations under the New Credit Agreement (as
defined). The Senior Exchange Notes will be guaranteed on a senior basis by
Stage, Specialty Retailers, Inc. (NV) ("Specialty NV"), a wholly owned
subsidiary of Stage, and certain future subsidiaries of Stage. The Senior
Subordinated Exchange Notes will be unsecured senior subordinated obligations of
SRI, ranking subordinate in right of payment to all existing and future Senior
Debt of SRI, including the Senior Exchange Notes and all obligations under the
New Credit Agreement, and ranking PARI PASSU in right of payment with all
existing and future Senior Subordinated Debt of SRI and senior in right of
payment to all existing and future subordinated debt of SRI. The Senior
Subordinated Exchange Notes will be guaranteed on a senior subordinated basis by
Stage, Specialty NV and certain future subsidiaries of Stage. As of May 3, 1997,
after giving pro forma effect to the Acquisition (as defined) and the
Refinancing (as defined), Senior Debt of the Company (including the Senior
Exchange Notes and amounts outstanding under the New Credit Agreement) would
have been approximately $201.7 million in principal amount and Senior
Subordinated Debt of the Company (including the Senior Subordinated Exchange
Notes) would have been approximately $100.0 million in principal amount. The
Exchange Notes will be effectively subordinated to all liabilities of the
subsidiaries of the Company that are not guarantors of the Exchange Notes. As of
May 3, 1997, after giving pro forma effect to the Acquisition and the
Refinancing, the amount of liabilities of such subsidiaries (consisting of Debt
and payables) would have been approximately $34.1 million. See "Description of
the New Credit Agreement" and "Description of the Exchange Notes."
SRI will accept for exchange any and all Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on September 9, 1997, unless
extended by SRI in its sole discretion (the "Expiration Date"). Notwithstanding
the foregoing, SRI will not extend the Expiration Date beyond September 10,
1997. Tenders of Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Notes were sold by SRI on June 17, 1997 to the Initial Purchasers (as
defined) in a transaction not registered under the Securities Act in reliance
upon an exemption under the Securities Act. The Initial Purchasers subsequently
placed the Notes with qualified institutional buyers in reliance upon Rule 144A
under the Securities Act. Accordingly, the Notes may not be reoffered, resold or
otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes are being
offered hereunder in order to satisfy the obligations of SRI under the
Registration Rights Agreement (as defined) entered into by SRI in connection
with the offering of the Notes. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties, SRI believes the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of SRI or Stage within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
<PAGE>
in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "The Exchange Offer--Resale of the Exchange Notes." Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. SRI has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
Holders of Notes not tendered and accepted in the Exchange Offer will continue
to hold such Notes and will be entitled to all the rights and benefits and will
be subject to the limitations applicable thereto under the Indentures and with
respect to transfer under the Securities Act. SRI will pay all the expenses
incurred by it incident to the Exchange Offer. See "The Exchange Offer."
SEE "RISK FACTORS" ON PAGE 18 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 8, 1997
2
<PAGE>
There has not previously been any public market for the Notes or the Exchange
Notes. SRI does not intend to list the Exchange Notes on any securities exchange
or to seek approval for quotation through any automated quotation system. There
can be no assurance that an active market for the Exchange Notes will develop.
See "Risk Factors--Absence of a Public Market." Moreover, to the extent that
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Notes could be adversely affected.
The Exchange Notes will be available initially only in book-entry form. SRI
expects that the Exchange Notes issued pursuant to this Exchange Offer will be
issued in the form of a Global Certificate (as defined), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Certificate representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Certificate, Exchange Notes in
certified form will be issued in exchange for the Global Certificate only on the
terms set forth in the Indentures. See "Description of the Exchange
Notes--Book-Entry, Delivery and Form."
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.
3
<PAGE>
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, SPECIALTY RETAILERS, INC. ("SRI") AND
SPECIALTY RETAILERS, INC. (NV) ("SPECIALTY NV"). UNLESS OTHERWISE SPECIFIED,
REFERENCES IN THIS PROSPECTUS TO THE COMPANY, STAGE, SRI OR SPECIALTY NV DO NOT
GIVE EFFECT TO THE ACQUISITION OF C.R. ANTHONY COMPANY. 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 200 small towns and communities across the central
United States. The Company has recognized the high level of brand awareness and
demand for fashionable, quality apparel by consumers in small markets and has
identified these markets as a profitable and underserved niche. The Company has
developed a unique franchise focused on small markets, differentiating itself
from the competition by offering a broad range of branded merchandise with a
high level of customer service in convenient locations.
As of July 28, 1997, the Company operated 577 stores in 24 states
throughout the central United States, 329 of which operated under the Company's
"Stage," "Bealls" and "Palais Royal" trade names. The remaining 248 stores were
acquired through the acquisition of C.R. Anthony Company ("CR Anthony") which
was completed on June 26, 1997 (the "Acquisition") and are operated under the
"Anthonys" and "Anthonys Limited" trade names. See "The Acquisition."
Approximately 78% of the "Stage," "Bealls" and "Palais Royal" stores are located
in small markets and communities with populations generally below 30,000 people,
some with as few as 4,000 people. The Company's store format (averaging
approximately 18,000 selling square feet) and merchandising capabilities enable
the Company to operate profitably in small markets. The remainder of the
Company's stores operate in metropolitan areas, primarily in suburban Houston.
For 1996, after giving effect to the Refinancing, the Acquisition and the
acquisition of Uhlmans Inc. ("Uhlmans") in June 1996 as if each had occurred at
the beginning of the year, sales and EBITDA would have been $1.1 billion and
$108.9 million, respectively.
The Company's merchandise offerings include a carefully edited but broad
selection of brand name, moderately priced, 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
brands such as Calvin Klein, Chaps/Ralph Lauren, Guess, Haggar Apparel, Hanes,
Levi Strauss, Liz Claiborne, Nike and Reebok. 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 1998.
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
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 and EBITDA margins in the apparel
retailing industry.
4
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KEY STRENGTHS
The following factors serve as the Company's key strengths and
distinguishing characteristics:
ABILITY TO OPERATE PROFITABLY IN SMALLER MARKETS. In targeting small
markets, the Company has developed a store format, generally ranging in size
from 12,000 to 30,000 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
53% 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.
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.
5
<PAGE>
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 at least 55 new
stores in 1997 in addition to those stores acquired pursuant to the Acquisition.
See "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 (the "Uhlmans Acquisition"). 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 five full
months since the merchandising function of Uhlmans was completely integrated
(December 1996 through April 1997), sales at Uhlmans stores have increased 10.4%
over the comparable period in the prior year. 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 by merging CR Anthony
with and into SRI. CR Anthony operated 248 brand name family apparel stores in
small markets throughout the central and midwestern United States as of June 25,
1997 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
1998. See "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.
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<PAGE>
THE ACQUISITION
On June 26, 1997, the Company acquired CR Anthony by merging CR Anthony
with and into SRI. CR Anthony operated 248 brand name family apparel stores in
small markets as of June 25, 1997 under the names "Anthonys" and "Anthonys
Limited." The Acquisition is expected to 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 "CR
Anthony's Consolidated Financial Statements."
Similar to the Company, CR Anthony's operating strategy was to offer
national brand name apparel and footwear for the entire family at competitive
prices. The stores acquired are located in 16 states, with the highest
concentrations in Texas, Oklahoma, Kansas and New Mexico. The majority of CR
Anthony's stores are located in rural communities with populations under 30,000
and are between 8,000 and 23,100 selling square feet in size, with 92 stores
that are less than 10,000 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 expand its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) the stores acquired are located in states which are the same as or
are contiguous to states in which the Company currently operates; (ii) there are
a relatively small number of markets in which the two companies directly
overlapped; (iii) a majority of the stores acquired are in markets which fit the
Company's demographic profile; and (iv) a majority of the stores acquired are
comparable in size to the Company's stores in similar markets.
The addition of the CR Anthony stores not only expanded 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 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 the offering of the Notes (the
"Offering"). The Offering was made in connection with the offers (the "Tender
Offers") to purchase for cash up to all (but not less than a majority in
principal amount outstanding) of each of SRI's 10% Senior Notes due 2000 (the
"Existing Senior Notes") and SRI's 11% Senior Subordinated Notes due 2003 (the
"Existing Senior Subordinated Notes" and, together with the Existing Senior
Notes, the "Existing Notes") and related solicitations (the "Consent
Solicitations") of consents to modify certain terms of the indentures under
which the Existing Notes were issued. The gross proceeds from the Offering of
$299.7 million were used to fund the Tender Offers, to pay fees and expenses
related to the Offering and the Tender Offers and related Consent Solicitations,
and for general corporate purposes.
Concurrently with the Offering, 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 (the "Working Capital Facility") and a $100.0 million expansion
revolving credit facility (the "Expansion Facility"). See "Description of New
Credit Agreement." The Offering, the Tender Offers and Consent Solicitations,
and the New Credit Agreement are collectively referred to herein as the
"Refinancing."
The Company believes the Refinancing provides a more flexible permanent
capital structure which: (i) increases the Company's working capital facilities
to support its operations; (ii) extends the average maturities of the Company's
debt; (iii) lowers the Company's weighted average cost of borrowing; and (iv)
provides increased financial flexibility to allow the Company to continue to
implement its growth strategy.
7
<PAGE>
THE OFFERING
Notes............................The Notes were sold by the Company on June 17,
1997 to Credit Suisse First Boston, Bear,
Stearns & Co. Inc., and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Initial
Purchasers") pursuant to a Purchase Agreement
dated June 11, 1997 (the "Purchase Agreement").
The Initial Purchasers subsequently resold the
Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act.
Registration Rights Agreement....Pursuant to the Purchase Agreement, the Company
and the Initial Purchasers entered into a
Registration Rights Agreement dated June 11,
1997 (the "Registration Rights Agreement"),
which grants the holder of the Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange
rights which terminate as a general matter upon
the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered...............$200,000,000 aggregate principal amount of
Series B 8 1/2% Senior Notes due 2005 (the
"Senior Exchange Notes").
$100,000,000 aggregate principal amount of
Series B 9% Senior Subordinated Notes due 2007
(the "Senior Subordinated Exchange Notes" and,
together with the Senior Exchange Notes, the
"Exchange Notes").
The Exchange Offer...............$1,000 principal amount of the Senior Exchange
Notes in exchange for each $1,000 principal
amount of Senior Notes. As of the date hereof,
$200,000,000 aggregate principal amount of
Senior Notes are outstanding.
$1,000 principal amount of the Senior
Subordinated Exchange Notes in exchange for
each $1,000 principal amount of Senior
Subordinated Notes. As of the date hereof,
$100,000,000 aggregate principal amount of
Senior Subordinated Notes are outstanding.
The Company will issue the Exchange Notes to
holders on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than
any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has
no arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer."
8
<PAGE>
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Notes where such Notes
were acquired by such Participating Broker-
Dealer as a result of market-making activities
or other trading activities. The Company has
agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer
for use in connection with any such resale. See
"Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Company.
Expiration Date..................5:00 p.m., New York City time, on September 9,
1997 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the Exchange
Notes and the Notes........Each Exchange Note will bear interest from its
issuance date. Holders of Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Conditions to the Exchange Offer.The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange
Offer--Conditions."
9
<PAGE>
Procedures for Tendering Notes...Each holder of Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Notes and any other required documentation
to the Exchange Agent (as defined) at the
address set forth herein. By executing the
Letter of Transmittal, each holder will
represent to the Company that, among other
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act,
of the Company. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer" and "--Procedures for Tendering."
Untendered Notes.................Following the consummation of the Exchange
Offer, holders of Notes eligible to participate
but who do not tender their Notes will not have
any further exchange rights and such Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the
market for such Notes could be adversely
affected.
Consequences of Failure to
Exchange...................The Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Notes may be
resold only (i) to the Company, (ii) pursuant
to Rule 144A or Rule 144 under the Securities
Act or pursuant to some other exemption under
the Securities Act, (iii) outside the United
States to a foreign person pursuant to the
requirements of Rule 904 under the Securities
Act or (iv) pursuant to an effective
registration statement under the Securities
Act. See "The Exchange Offer--Consequences of
Failure to Exchange."
Shelf Registration Statement.....If any holder of the Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) is not eligible under
applicable securities laws to participate in
the Exchange Offer, and such holder has
provided information regarding such holder and
the distribution of such holder's Notes to the
Company for use therein, the Company has agreed
to register the Notes on a shelf registration
statement (the "Shelf Registration Statement")
and use its best efforts to cause it to be
declared effective by the Commission as
promptly as practical on or after the
consummation of the Exchange Offer. The Company
has agreed to maintain the effectiveness of the
Shelf Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Notes held by any such holders.
10
<PAGE>
Special Procedures for Beneficial
Owners.....................Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee and
who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering its
Notes, either make appropriate arrangements to
register ownership of the Notes in such owner's
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable
time. The Company will keep the Exchange Offer
open for not less than twenty days in order to
provide for the transfer of registered
ownership.
Guaranteed Delivery Procedures...Holders of Notes who wish to tender their Notes
and whose Notes are not immediately available
or who cannot deliver their Notes, the Letter
of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date must tender their Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights................Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
Acceptance of Notes and Delivery
of Exchange Notes..........The Company will accept for exchange any and
all Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Use of Proceeds..................There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent...................State Street Bank and Trust Company, 2
International Place (4th Floor), Boston, MA
02110, Telephone: 617-664-5419, Facsimile:
617-664-5371.
11
<PAGE>
THE EXCHANGE NOTES
General..........................The form and terms of the Exchange Notes are
the same as the form and terms of the Notes
(which they replace) except that (i) the
Exchange Notes bear a Series B designation,
(ii) the Exchange Notes have been registered
under the Securities Act and, therefore, will
not bear legends restricting the transfer
thereof and (iii) the holders of Exchange Notes
will not be entitled to certain rights under
the Registration Rights Agreement, including
the provisions providing for an increase in the
interest rate on the Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate as
a general matter when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer." The Exchange
Notes will evidence the same debt as the Notes
and will be entitled to the benefits of the
Indentures. See "Description of the Exchange
Notes."
Securities Offered...............$200,000,000 aggregate principal amount of
Series B 8 1/2% Senior Notes due 2005.
$100,000,000 aggregate principal amount of
Series B 9% Senior Subordinated Notes due 2007.
Maturity Dates
Senior Exchange Notes......July 15, 2005.
Senior Subordinated
Exchange Notes........July 15, 2007.
Interest Payment Dates
Senior Exchange Notes......January 15 and July 15 of each year, commencing
January 15, 1998.
Senior Subordinated Exchange
Notes.................January 15 and July 15 of each year, commencing
January 15, 1998.
Optional Redemption
Senior Exchange Notes......The Senior Exchange Notes will not be
redeemable at the option of SRI prior to July
15, 2001. Thereafter, the Senior Exchange Notes
will be redeemable, at SRI's option, in whole
or in part from time to time, at the redemption
prices set forth herein, plus accrued and
unpaid interest, if any, to the applicable
redemption date. In addition, at any time and
from time to time prior to July 15, 2000, SRI
may redeem in the aggregate, with the net cash
proceeds of one or more Public Equity Offerings
(as defined), up to 35% of the original
principal amount of the Senior Exchange Notes
at a redemption price of 108.50% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the applicable
redemption date. See "Description of the
Exchange Notes-Optional Redemption."
12
<PAGE>
Senior Subordinated Exchange
Notes.................The Senior Subordinated Exchange Notes will not
be redeemable at the option of SRI prior to
July 15, 2002. Thereafter, the Senior
Subordinated Exchange Notes will be redeemable,
at SRI's option, in whole or in part from time
to time, at the redemption prices set forth
herein, plus accrued and unpaid interest, if
any, to the applicable redemption date. In
addition, at any time and from time to time
prior to July 15, 2000, SRI may redeem in the
aggregate, with the net cash proceeds of one or
more Public Equity Offerings, up to 35% of the
original principal amount of the Senior
Subordinated Exchange Notes, at a redemption
price of 109.00% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the applicable redemption date. See
"Description of the Exchange Notes-Optional
Redemption."
Ranking
Senior Exchange Notes......The Senior Exchange Notes will constitute
senior unsecured obligations of SRI, will rank
PARI PASSU in right of payment with all
existing and future Senior Debt of SRI
(including borrowings under the New Credit
Agreement) and will be senior in right of
payment to all existing and future subordinated
indebtedness of SRI, including the Senior
Subordinated Exchange Notes.
Senior Subordinated Exchange
Notes.................The Senior Subordinated Exchange Notes will
constitute senior subordinated unsecured
obligations of SRI, will be subordinate in
right ofpayment to all existing and future
Senior Debt of SRI to the extent set forth in
the Senior Subordinated Notes Indenture (as
defined), including the Senior Exchange Notes
and borrowings under the New Credit Agreement,
will rank PARI PASSU in right of payment with
all existing and future Senior Subordinated
Debt of SRI and will be senior in all respects
to all existing and future subordinated
indebtedness of SRI.
As of May 3, 1997, on a pro forma basis after
giving effect to the Acquisition and the
Refinancing, Senior Debt of SRI, including the
Senior Exchange Notes and the obligations of
SRI under the New Credit Agreement, would have
been approximately $201.7 million in principal
amount and Senior Subordinated Debt of SRI,
including the Senior Subordinated Exchange
Notes, would have been approximately $100.0
million in principal amount. The Exchange Notes
will be effectively subordinated to all
liabilities of the subsidiaries of the Company
that are not guarantors of the Exchange Notes.
As of May 3, 1997, after giving pro forma
effect to the Acquisition and the Refinancing,
the amount of liabilities of such subsidiaries
(consisting of Debt and payables) would have
been approximately $34.1 million. See
"Description of the Exchange Notes-Ranking."
Guaranties
Senior Exchange Notes......SRI's obligations under the Senior Exchange
Notes will be unconditionally guaranteed (the
"Senior Exchange Notes Guaranties") by Stage,
Specialty NV and any Person that shall become a
Restricted Subsidiary of SRI or Stage after the
Issue Date (the "Guarantors"). The Senior
Exchange Notes Guaranties will constitute
senior unsecured obligations of the Guarantors
and will rank PARI PASSU in right of payment
with all existing and future Senior Debt of the
Guarantors. See "Description of the Exchange
Notes -- Guaranties."
13
<PAGE>
Senior Subordinated Exchange
Notes.................SRI's obligations under the Senior Subordinated
Exchange Notes will be unconditionally
guaranteed by the Guarantors (the "Senior
Subordinated Exchange Notes Guaranties"). The
Senior Subordinated Exchange Notes Guaranties
will constitute senior subordinated unsecured
obligations of the Guarantors and will rank
PARI PASSU with all existing and future Senior
Subordinated Debt of the Guarantors. The Senior
Subordinated Exchange Notes Guaranties will, to
the extent set forth in the Senior Subordinated
Notes Indenture (as defined), be subordinated
in right of payment to the prior payment in
full of all Senior Debt of the Guarantors and
will be subject to the rights of holders of
Designated Senior Debt (as defined) of the
Guarantors. See "Description of the Exchange
Notes -- Guaranties."
Change of Control................Upon the occurrence of a Change of Control (as
defined), each holder of the Exchange Notes
will have the right to require SRI to
repurchase such holder's Exchange Notes, in
whole or in part, at a purchase price equal to
101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the
date of repurchase. See "Description of the
Exchange Notes-Change of Control."
Certain Covenants................The Indentures (as defined) under which the
Exchange Notes will be issued contain certain
covenants that, among other things, limit the
ability of Stage and its Restricted
Subsidiaries (as defined) to incur additional
indebtedness, pay dividends or make certain
other restricted payments, engage in
transactions with affiliates, incur liens and
engage in asset sales. The Indentures will also
restrict the ability of Stage, SRI and the
Guarantors to consolidate or merge with, or
transfer all or substantially all of their
assets to, another person. See "Description of
the Exchange Notes-Certain Covenants."
For additional information regarding the Exchange Notes,
see "Description of the Exchange Notes."
RISK FACTORS
Holders of the Notes should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included in
this Prospectus prior to tendering their Notes in the Exchange Offer.
14
<PAGE>
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 Financial Data 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 pro forma combined financial and operating data reflects the Stage
Average Closing Price (as defined) of $20.04 which resulted in approximately
3,607,000 shares of Common Stock being issued in exchange for 9,035,645 shares
of CR Anthony common stock (0.399 shares of Common Stock for each share of CR
Anthony common stock). The information in the table should be read in
conjunction with "Selected Consolidated Historical Financial and Operating
Data", "Unaudited Pro Forma Combined Financial Data", "Management's Discussion
and Analysis of Financial Condition and Results of Operations", the Company's
Consolidated Financial Statements and CR Anthony's Consolidated Financial
Statements, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------------
PRO FORMA
1992 1993(1) 1994 1995(2) 1996(3) 1996
--------- -------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT STORE DATA AND RATIOS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Net sales ................................... $ 504,401 $557,422 $581,463 $682,624 $776,550 $1,081,458
Gross profit ................................ 154,265 172,579 182,804 214,277 243,987 321,970
Selling, general and administrative
expenses ............................... 99,523 115,008 126,200 149,102 172,579 228,950(4)
Store opening and closure costs ............. 120 199 5,647 3,689 2,838 2,838
Operating income(5) ......................... 54,622 57,372 50,957 61,486 68,570 90,182
Interest, net ............................... 31,771 36,377 40,010 43,989 45,954 38,685
Income before extraordinary item ............ 12,235 13,426 6,630 10,730 14,022 31,590
MARGIN AND OTHER DATA:
Gross profit margin ......................... 30.6% 31.0% 31.4% 31.4% 31.4% 29.8%
Operating income margin(5) .................. 10.8% 10.3% 8.8% 9.0% 8.8% 8.3%
Adjusted operating income margin(6) ......... 8.7% 8.4% 9.2% 9.4% 9.2% --
Adjusted operating income(6) ................ $ 43,680 $ 46,828 $ 53,677 $ 63,996 $ 71,628 $ --
EBITDA(7) ................................... 64,300 67,861 62,638 75,083 83,279 108,948
Depreciation and amortization ............... 9,065 9,259 9,997 12,816 14,181 18,238
Capital expenditures ........................ 7,631 8,503 19,706 28,638 26,096 31,964
Ratio of EBITDA to interest expense ......... 2.0x 1.8x 1.5x 1.7x 1.8x 2.8x
Ratio of total debt to EBITDA ............... 4.8x 5.1x 5.6x 5.1x 3.6x 3.2x
Ratio of earnings to fixed charges(8) ....... 1.5x 1.4x 1.2x 1.3x 1.4x 1.9x
STORE DATA:(9)
Comparable store sales growth:
Bealls/Stage(10) ....................... 5.1% 7.2% 4.8% 3.3% 5.1% --
Palais Royal ........................... (9.8)% 0.8% 1.7% 1.4% 0.7% --
Total Company(11) ...................... 1.8% 6.3% 4.1% 0.8%(12) 3.3% --
Net sales per selling square foot:
Bealls/Stage(10) ....................... $ 118 $ 129 $ 138 $ 142 $ 141 $ --
Palais Royal ........................... 191 200 205 203 202 --
Total Company(11) ...................... 138 149 157 157 151 --
Total selling square footage (in
thousands)(13) ..................... 3,418 3,472 3,516 4,581 5,677 8,653
Number of stores open at end of
period(13) .......................... 175 180 188 256 315 539
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital......................................................................................................
Total assets.........................................................................................................
Long-term debt.......................................................................................................
Stockholders' equity.................................................................................................
<CAPTION>
THREE MONTHS ENDED
--------------------------------
PRO
FORMA
May 4, May 3, May 3,
1996 1997 1997
-------- --------- --------
(IN THOUSANDS, EXCEPT STORE DATA AND RATIOS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Net sales ................................... $163,177 $ 191,512 $255,799
Gross profit ................................ 52,081 61,925 75,063
Selling, general and administrative
expenses ............................... 35,965 41,258 52,848(4)
Store opening and closure costs ............. 71 143 143
Operating income(5) ......................... 16,045 20,524 22,072
Interest, net ............................... 11,588 8,942 9,479
Income before extraordinary item ............ 2,652 7,094 7,669
MARGIN AND OTHER DATA:
Gross profit margin ......................... 31.9% 32.3% 29.3%
Operating income margin(5) .................. 9.8% 10.7% 8.6%
Adjusted operating income margin(6) ......... 8.6% 10.0% --
Adjusted operating income(6) ................ $ 14,033 $ 19,221 $ --
EBITDA(7) ................................... 19,320 24,303 26,637
Depreciation and amortization ............... 3,149 3,620 4,406
Capital expenditures ........................ 6,449 9,097 10,611
Ratio of EBITDA to interest expense ......... 1.6x 2.7x 2.8x
Ratio of total debt to EBITDA ............... -- -- --
Ratio of earnings to fixed charges(8) ....... 1.3x 2.0x 1.9x
STORE DATA:(9) Comparable store sales growth:
Bealls/Stage(10) ....................... 7.4% 7.1% --
Palais Royal ........................... 7.7% (3.1)% --
Total Company(11) ...................... 7.4% 5.0% --
Net sales per selling square foot:
Bealls/Stage(10) ....................... $ -- $ -- $ --
Palais Royal ........................... -- -- --
Total Company(11) ...................... -- -- --
Total selling square footage (in
thousands)(13) ..................... 4,753 5,814 8,877
Number of stores open at end of
period(13) .......................... 267 327 565
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................................ $ 238,050 $288,310
Total assets................................... 515,193 661,288
Long-term debt................................. 298,599 351,530
Stockholders' equity........................... 99,384 154,907
</TABLE>
- 15 -
<PAGE>
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>
THREE MONTHS
FISCAL YEAR ENDED
----------------------------------------------------------- ----------------------
MAY 4, MAY 3,
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 $ 16,045 $ 20,524
Store opening and closure costs ........... 120 199 5,647 3,689 2,838 71 143
(Income)/expense related to the
proprietary credit card program ........... (11,062) (10,743) (2,927) (1,179) 220 (2,083) (1,446)
-------- -------- -------- -------- ------- -------- --------
Adjusted operating income ................. $ 43,680 $ 46,828 $ 53,677 $ 63,996 $71,628 $ 14,033 $ 19,221
-------- -------- -------- -------- ------- -------- --------
</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) EBITDA represents income before extraordinary loss plus income tax
expenses, interest expense, depreciation and amortization. The Company
believes that EBITDA provides useful information regarding the Company's
ability to service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted accounting
principles and should not be considered as a substitute for net income
as an indicator of the Company's operating performance or cash flow as a
measure of liquidity. Similarly to operating income, EBITDA decreased
during 1994 compared to 1993 due primarily to the impact of the
implementation of the Accounts Receivable Program. See Note 5 above.
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<PAGE>
(8) For purposes of computing the ratio of earnings to fixed charges,
earnings include income before income taxes and extraordinary loss, plus
fixed charges. Fixed charges consist of interest expense and one-third
of rental expense (deemed by management to be representative of the
interest factor of rental payments).
(9) 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.
(10) 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>
THREE MONTHS
FISCAL YEAR ENDED
------------------------------------------------------ -----------------
MAY 4, MAY 3,
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% 7.2% 7.3%
Net sales per selling square foot .................. $ 125 $ 137 $ 146 $ 145 $ 141 $ -- $ --
</TABLE>
(11) 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>
THREE MONTHS
FISCAL YEAR ENDED
------------------------------------------------------ -----------------
MAY 4, MAY 3,
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% 6.5% 5.0%
Net sales per selling square foot .................. $ 138 $ 143 $ 151 $ 150 $ 151 $ -- $ --
</TABLE>
(12) 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%.
(13) Excludes data related to the stores which were included in the Store
Closure Plan. Data are as of the end of the period.
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<PAGE>
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 EXCHANGE NOTES OFFERED HEREBY.
SUBSTANTIAL LEVERAGE
The Company incurred significant debt in connection with the
Refinancing. As of May 3, 1997, after giving pro forma effect to the Acquisition
and the Refinancing and the application of the net proceeds thereof, the Company
would have had outstanding indebtedness of $354.2 million in principal amount
(including the Exchange Notes and excluding trade payables, accrued liabilities
and unused commitments under the New Credit Agreement). The Company's leveraged
financial position poses substantial consequences to holders of the Exchange
Notes, including the risks that: (i) a substantial portion of the Company's cash
flow from operations will be dedicated to the payment of the interest of the
Exchange Notes and the payment of principal and interest under the indebtedness
of the Company; (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 New 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. The Company believes that, based on its current level
of operations, it will have sufficient capital to carry on its business and will
be able to meet its scheduled debt service requirements. There can be no
assurance, however, that the future cash flow of the Company will be sufficient
to meet the Company's obligations and commitments. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
indebtedness and to meet its other commitments, the Company will be required to
adopt one or more alternatives, such as refinancing or restructuring its
indebtedness, selling material assets or operations or seeking to raise
additional debt or equity capital. There can be no assurance that any of these
actions could be effected on a timely basis or on satisfactory terms or that
these actions would enable the Company to continue to satisfy its capital
requirements. In addition, the terms of existing or future debt agreements,
including the Indentures and the New Credit Agreement, may prohibit the Company
from adopting any of these alternatives. See "The Refinancing,"
"Capitalization," "Unaudited Pro Forma Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of New Credit
Agreement" and "Description of the Exchange Notes."
SUBORDINATION OF SENIOR SUBORDINATED EXCHANGE NOTES; UNSECURED EXCHANGE NOTES;
GUARANTIES
The Senior Subordinated Exchange Notes are subordinated in right of
payment to all present and future Senior Debt of the Company, including
principal, premium (if any) and interest with respect to the Senior Debt of the
Company under the New Credit Agreement. The Senior Subordinated Exchange Notes
rank PARI PASSU with all present and future senior subordinated indebtedness of
the Company and will rank senior to all other subordinated indebtedness of the
Company. As of May 3, 1997, after giving pro forma effect to the Acquisition and
the Refinancing, Senior Debt of the Company (including the Senior Exchange Notes
and amounts outstanding under the New Credit Agreement) would have been
approximately $201.7 million in principal amount and Senior Subordinated Debt of
the Company (including the Senior Subordinated Exchange Notes) would have been
approximately $100.0 million in principal amount. Consequently, in the event of
a bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Company, assets of the Company will be available to pay
obligations of the Senior Subordinated Exchange Notes only after all Senior Debt
of the Company has been paid in full. In addition, no payment may be made with
respect to the Senior Subordinated Exchange Notes during the continuance of a
payment default under any Designated Senior Debt (as defined). Furthermore, if
certain non-payment defaults exist with respect to Designated Senior Debt, the
holders of such debt will be able to prevent payments on the Senior Subordinated
Exchange Notes for certain periods of time. There can be no assurance that there
will be sufficient assets to pay amounts due on all or any of the Senior
Subordinated Exchange Notes. See "Description of the Exchange Notes--Ranking."
Stage and Specialty NV unconditionally guarantee the Senior Exchange
Notes on a senior basis and unconditionally guarantee the Senior Subordinated
Exchange Notes on a senior subordinated basis. Stage is a holding company that
derives substantially all of its operating income and cash flow from SRI and
whose only material asset is the outstanding shares of common stock of SRI.
Accordingly, Stage is dependent upon the earnings and cash flow of, and
dividends and distributions from, SRI to perform on its guarantees of the
Exchange Notes. Specialty NV's only material asset is an intercompany note
payable from SRI to Specialty NV in the amount of $136.7 million as of June 26,
1997. Specialty NV has no material liabilities other than its
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<PAGE>
guarantees of the Exchange Notes. In addition, the Indentures provide that any
entity that becomes a Restricted Subsidiary of Stage or SRI after the Exchange
Notes are issued will guarantee the Exchange Notes jointly and severally with
Stage and Specialty NV. The claims of creditors (including trade creditors) of
any subsidiaries of the Company that are not guarantors of the Exchange Notes
will generally have priority as to the assets of such subsidiaries over the
claims of holders of the Exchange Notes. As of May 3, 1997, after giving pro
forma effect to the Acquisition and the Refinancing, the amount of liabilities
of such subsidiaries (consisting of Debt and payables) would have been
approximately $34.1 million.
The Exchange Notes are also unsecured and are effectively subordinated
to any secured indebtedness of the Company. The indebtedness outstanding under
the New Credit Agreement is secured by liens on certain assets of the Company
and the pledge of SRPC's common stock and the stock of all existing future
material subsidiaries of Stage and SRI. The ability of the Company to comply
with the provisions of the New Credit Agreement may be affected by events beyond
the Company's control. The breach of any such provisions could result in a
default under the New Credit Agreement, in which case, depending on the actions
taken by the lenders thereunder or their successors or assignees, such lenders
could elect to declare all amounts borrowed under the New Credit Agreement,
together with accrued interest, to be due and payable, and the Company could be
prohibited from making payments of interest and principal on the Exchange Notes
until the default is cured or all Senior Debt is paid or satisfied in full. If
the Company were unable to repay such borrowings, such lenders could proceed
against the collateral. If the indebtedness under the New Credit Agreement were
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other indebtedness of the
Company, including the Exchange Notes. See "Description of New Credit Agreement"
and "Description of the Exchange Notes--Ranking."
RESTRICTIONS IMPOSED BY THE NEW CREDIT AGREEMENT AND THE INDENTURES
The New Credit Agreement requires the Company to maintain specified
financial ratios and tests, among other obligations, including a minimum
interest coverage ratio, a minimum fixed charge coverage ratio, a maximum
leverage ratio and maximum amounts of capital expenditures (excluding
expenditures for acquisitions). In addition, the New Credit Agreement restricts,
among other things, the Company's ability to incur additional indebtedness and
make acquisitions and capital expenditures beyond a certain level. A failure to
comply with the restrictions contained in the New Credit Agreement could lead to
an event of default thereunder which could result in an acceleration of such
indebtedness. Such an acceleration would constitute an event of default under
the Indentures relating to the Exchange Notes. In addition, the Indentures
restrict, among other things, the Company's ability to incur additional
indebtedness, sell assets, make certain payments and dividends or merge or
consolidate. A failure to comply with the restrictions in the Indentures could
result in an event of default under the Indentures. If the indebtedness under
the New Credit Agreement or the Exchange Notes were to be accelerated, there can
be no assurance that the assets of the Company would be sufficient to repay such
indebtedness in full. See "Description of New Credit Agreement" and "Description
of the Exchange Notes."
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
(including the Acquisition). 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 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."
ACQUISITION 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
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<PAGE>
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 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."
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 sixteen stores located near the Texas-Mexico border and has plans to open
several additional stores in that region. Economic conditions in Mexico,
particularly the significant devaluation of the Mexican peso, adversely affected
sales during 1995. Deterioration of the economic conditions in Mexico in the
future could adversely affect the Company's sales.
The Company's success depends in part upon its ability to anticipate
and respond to changing consumer preferences and fashion trends in a timely
manner. Although the Company attempts to stay abreast of emerging lifestyle and
consumer preferences affecting its merchandise, any sustained failure by the
Company to identify and respond to such trends could have a material adverse
effect on the Company's business and financial condition.
The Company's business is seasonal and its quarterly sales and profits
traditionally have been lower during the first three fiscal quarters of the year
(February through October) and higher during the fourth fiscal quarter (November
through January). In addition, working capital requirements fluctuate throughout
the year, increasing substantially in October and November in anticipation of
the holiday season due to requirements for significantly higher inventory
levels. Any substantial decrease in sales 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 higher populated markets (such as Houston) where approximately 19% of the
Company's sales are generated. 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."
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
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<PAGE>
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. The Company currently securitizes
substantially all of the receivables derived from its proprietary credit card
accounts through the Accounts Receivable Program. Under this program, the
Company causes such receivables to be transferred to the Trust, which from time
to time issues certificates to investors backed by such receivables. The
Accounts Receivable Program has provided the Company with substantially more
liquidity (through the issuance and sale of such certificates) than it would
have had without this program. There can be no assurance that the Company will
be able to continue to securitize its receivables in this manner. There can be
no assurance that receivables will continue to be generated by credit card
holders, or that new credit card accounts will continue to be established at the
rate historically experienced by the Company. Any decline in the generation of
receivables or in the rate or pattern of cardholder payments on accounts could
have a material adverse effect on the Company's business and financial
condition. In addition, significant increases in the floating rates paid on
investor certificates and/or significant deterioration in the performance of the
Company's receivables portfolio could trigger an early repayment requirement,
which could materially adversely affect liquidity. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
INTEREST RATE RISK. Although the Company is protected to a certain
extent by interest rate caps, investors in the receivables-backed certificates
of the Trust receive interest payments on such certificates based on a floating
rate. If the interest rate on these certificates increases, the Company's
operating results could be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
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 reached an agreement in principle to terminate this
agreement effective September 11, 1997. Under the pending termination agreement,
the Company will pay Citicorp a termination fee. Additionally, the Company will
repurchase any outstanding accounts receivable on the termination date at their
face value. The Company intends to incorporate the 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.
LIMITATIONS ON CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to
make an offer for cash to repurchase the Exchange Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
repurchase date. A Change of Control will result in an event of default under
the New Credit Agreement and may result in a default under other indebtedness of
the Company that may be incurred in the future. The New Credit Agreement will
prohibit the purchase of outstanding Exchange Notes prior to repayment of the
borrowings under the New Credit Agreement and any exercise by the holders of the
Exchange Notes of their right to require the Company to repurchase the Exchange
Notes will cause an event of default under the New Credit Agreement. Finally,
there can be no assurance that the Company will have the financial resources
necessary to repurchase the Exchange Notes upon a Change of Control. See
"Description of the Exchange Notes--Change of Control."
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for
the Notes. The Notes have not been registered under the Securities Act and will
be subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Notes (other than any such holder that is an
"affiliate" of the company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Company is required to file a Shelf
Registration Statement with respect to such Notes. The Exchange Notes will
constitute a new issue of securities with no established trading market. SRI
does not intend to list the Exchange Notes on any national securities exchange
or to seek the admission thereof to trading in the National
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<PAGE>
Association of Securities Dealers Automated Quotation System. In addition, such
market making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act and may be limited during the Exchange Offer and the
pendency of the Shelf Registration Statements. Accordingly, no assurance can be
given that an active public or other market will develop for the Exchange Notes
or as to the liquidity of the trading market for the Exchange Notes. If a
trading market does not develop or is not maintained, holders of the Exchange
Notes may experience difficulty in reselling the Exchange Notes or may be unable
to sell them at all. If a market for the Exchange Notes develops, any such
market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future
trading prices of the Exchange Notes will depend on many factors, including,
among other things, prevailing interest rates, SRI's operating results and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors including the financial
condition of SRI, the Exchange Notes may trade at a discount from their
principal amount.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Notes pursuant to
the Exchange Offer will be made only after a timely receipt by SRI of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. SRI is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, certain
registration rights under the Registration Rights Agreement will terminate. In
addition, any holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transactions. Each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Notes, where such
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution" and "The Exchange Offer."
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Notes who do not exchange their Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Notes as set forth in the legend thereon as a consequence of
the issuance of the Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Notes
under the Securities Act. In addition, upon the consummation of the Exchange
Offer holders of Notes which remain outstanding will not be entitled to any
rights to have such Notes registered under the Securities Act or to any similar
rights under the Registration Rights Agreement. To the extent that Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered, or tendered but unaccepted, Notes could be adversely affected.
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<PAGE>
THE ACQUISITION
On June 26, 1997, the Company acquired CR Anthony by merging CR Anthony
with and into SRI. CR Anthony operated 248 brand name family apparel stores in
small markets as of June 25, 1997 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 1998. The Acquisition is expected to 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 CR Anthony's Consolidated Financial Statements.
Similar to the Company, CR Anthony's operating strategy was to offer
brand name apparel and footwear for the entire family at competitive prices. The
stores acquired are located in 16 states, with the highest concentrations in
Texas, Oklahoma, Kansas and New Mexico. The majority of the stores acquired are
located in rural communities with populations under 30,000 and are between 8,000
and 23,100 selling square feet in size, with 92 stores that are less than 10,000
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 expand its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) the stores acquired are located in states which are the same as or
are contiguous to states in which the Company currently operates; (ii) there are
a relatively small number of markets in which the two companies directly
overlapped; (iii) a majority of the stores acquired are in markets which fit the
Company's demographic profile; and (iv) a majority of the stores acquired are
comparable in size to the Company's stores in similar markets.
The addition of the CR Anthony stores not only expanded 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 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 1998. 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 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 stores generated sales of $151 per square foot ($141 per square foot
for its small market stores) versus sales of $99 per square foot for all CR
Anthony stores. The Company expects 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 expects 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.
Based on the Stage Average Closing Price of $20.04, the total value of
the Acquisition, net of cash acquired, was approximately $95.8 million,
including the retirement of approximately $22.4 million of CR Anthony debt.
Under the terms of the agreement, the Company acquired the common stock of CR
Anthony for a value of $8.00 per share. The form of consideration was 100%
Common Stock with Stage issuing approximately 3,607,000 shares of Common Stock
in exchange for 9,035,645 shares
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<PAGE>
of CR Anthony common stock (0.399 shares of Common Stock in exchange for each
issued and outstanding share of common stock of CR Anthony, other than shares
held by persons exercising dissenter's rights in accordance with Section 1091 of
the Oklahoma General Corporation Act, subject to the adjustment provided for
under the agreement). 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 to exist. The "Stage Average Closing Price" was the average
closing price expressed in dollars per share of Common Stock quoted on the
NASDAQ National Market System for the ten trading days selected by lot by CR
Anthony and Stage out of the twenty consecutive trading days prior to and
including the fifth day preceding the closing of the Acquisition.
- 24 -
<PAGE>
THE REFINANCING
The Offering was made in connection with the Tender Offers, completed
June 17, 1997, to purchase for cash up to all (but not less than a majority in
principal amount outstanding) of each of the Existing Senior Notes and Existing
Senior Subordinated Notes, and the related Consent Solicitations of consents to
modify certain terms under which the Existing Notes were issued. The gross
proceeds from the Offering of $299.7 million were used to fund the Tender Offers
and Consent Solicitations, to pay fees and expenses related to the Offering, the
Tender Offers and related Consent Solicitations, and for general corporate
purposes. Concurrently with the Offering, the Company entered into the New
Credit Agreement. The New Credit Agreement provides for the $100.0 million
Working Capital Facility and the $100.0 million Expansion Facility. See
"Description of New Credit Agreement."
The Company believes the Refinancing provides it with a more flexible
permanent capital structure which: (i) increases the Company's working capital
facilities to support its operations; (ii) extends the average maturities of the
Company's debt; (iii) lowers the Company's weighted average cost of borrowing;
and (iv) provides increased financial flexibility to allow the Company to
continue to implement its growth strategy. As of May 3, 1997, on a pro forma
basis after giving effect to the Refinancing, indebtedness of the Company
(including the Notes and amounts outstanding under the New Credit Agreement)
would have been $354.2 million in principal amount.
The Company's existing revolving credit facilities (the "Existing
Credit Agreements") were terminated in connection with the Offering. The
Existing Credit Agreements provided for a base borrowing (the "Base Facility")
level of $50.0 million (at an interest rate of 9.5%), additional seasonal
borrowings (the "Seasonal Facility") of $10.0 million (at a current interest
rate of 9.5%) and a letter of credit facility of an additional $15.0 million for
a total commitment of $75.0 million. As of May 3, 1997, no borrowings were
outstanding under the Base Facility or the Seasonal Facility and $12.4 million
of the letter of credit facility in the Existing Credit Agreements was used to
collateralize letters of credit, which were replaced with letters of credit
under the New Credit Agreement.
The Exchange Offer results in no sources or uses of cash to the
Company.
- 25 -
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer.
- 26 -
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated
capitalization of the Company at May 3, 1997 and adjusted to give pro forma
effect to the Acquisition and the Refinancing. This presentation should be read
in conjunction with the Company's "Selected Consolidated Historical Financial
and Operating Data," the "Unaudited Pro Forma Combined Financial Data" and the
Company's Consolidated Financial Statements and accompanying notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 3, 1997
---------------------------
STAGE
STORES ACQUISITION REFINANCING
HISTORICAL ADJUSTMENTS (1) ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term debt, including current portion:
Existing Credit Agreements ......................... $ -- $ -- $ -- $ --
New Credit Agreement ............................... -- -- -- --
Existing Senior Notes .............................. 130,000 -- (130,000) --
Existing Senior Subordinated Notes,
net of discount of $1,564 ........................ 116,729 -- (116,729) --
Senior Notes ....................................... -- -- 200,000 200,000
Senior Subordinated Notes, net of
discount of $340 ................................... -- -- 99,660 99,660
SRPC Notes ........................................... 30,000 -- -- 30,000
Other debt ........................................... 24,517 -- -- 24,517
-------- ------- --------- --------
Total long-term debt ........................ 301,246 -- 52,931 354,177
Stockholders' equity ............................... 99,384 72,285 (16,762)(2) 154,907
-------- ------- --------- --------
Total capitalization ........................ $400,630 $72,285 $ 36,169 $509,084
======== ======= ========= ========
</TABLE>
- --------------------
(1) Reflects the Stage Average Closing Price of $20.04, which resulted in
approximately 3,607,000 shares of Common Stock being issued in exchange for
9,035,645 shares of CR Anthony common stock (0.399 shares of Common Stock
for each share of CR Anthony common stock).
(2) Reflects non-recurring charges, net of tax, in connection with the early
retirement of the Existing Notes, the replacement of the Existing Credit
Agreements and the write-off of related debt issue costs.
- 27 -
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated historical
financial and operating data of the Company for the periods indicated. The
Company's selected consolidated historical financial data were derived from the
Company's Consolidated Financial Statements. The data for the unaudited
three-month periods ending May 4, 1996 and May 3, 1997, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of the interim
periods. The Company's business is seasonal and the results of operations for
these three-month periods are not necessarily indicative of the results expected
for a complete fiscal year or any other interim period. The information in the
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED
--------------------------------------------------------- ------------------------
1992 1993(1) 1994 1995(2) 1996(3) MAY 4, 1996 MAY 3, 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT STORE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $ 504,401 $ 557,422 $ 581,463 $ 682,624 $ 776,550 $ 163,177 $ 191,512
Cost of sales and related buying, occupancy
and distribution expenses .............. 350,136 384,843 398,659 468,347 532,563 111,096 129,587
--------- --------- --------- --------- --------- --------- ---------
Gross profit ................................ 154,265 172,579 182,804 214,277 243,987 52,081 61,925
Selling, general and administrative expenses 99,523 115,008 126,200 149,102 172,579 35,965 41,258
Store opening and closure costs ............. 120 199 5,647 3,689 2,838 71 143
--------- --------- --------- --------- --------- --------- ---------
Operating income(4) ......................... 54,622 57,372 50,957 61,486 68,570 16,045 20,524
Interest, net ............................... 31,771 36,377 40,010 43,989 45,954 11,588 8,942
Other non-operating expense ................. 2,276 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income before income tax and
extraordinary item .......................... 20,575 20,995 10,947 17,497 22,616 4,457 11,582
Income tax expense .......................... 8,340 7,569 4,317 6,767 8,594 1,805 4,488
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item ............ 12,235 13,426 6,630 10,730 14,022 2,652 7,094
Extraordinary item .......................... -- (16,208) (308) -- (16,081) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income .................................. $ 12,235 $ (2,782) $ 6,322 $ 10,730 $ (2,059) $ 2,652 $ 7,094
========= ========= ========= ========= ========= ========= =========
Earnings (loss) per common share ............ $ 0.82 $ (0.41) $ 0.51 $ 0.84 $ (0.13) $ 0.21 $ 0.30
========= ========= ========= ========= ========= ========= =========
MARGIN AND OTHER DATA:
Gross profit margin ......................... 30.6% 31.0% 31.4% 31.4% 31.4% 31.9% 32.3%
Operating income margin(4) .................. 10.8% 10.3% 8.8% 9.0% 8.8% 9.8% 10.7%
Adjusted operating income margin(5) ......... 8.7% 8.4% 9.2% 9.4% 9.2% 8.6% 10.0%
Adjusted operating income(5) ................ $ 43,680 $ 46,828 $ 53,677 $ 63,996 $ 71,628 $ 14,033 $ 19,221
EBITDA(6) ................................... 64,300 67,861 62,638 75,083 83,279 19,320 24,303
Depreciation and amortization ............... 9,065 9,259 9,997 12,816 14,181 3,149 3,620
Capital expenditures ........................ 7,631 8,503 19,706 28,638 26,096 6,449 9,097
Ratio of EBITDA to interest expense ......... 2.0x 1.8x 1.5x 1.7x 1.8x 1.6x 2.7x
Ratio of total debt to EBITDA ............... 4.8x 5.1x 5.6x 5.1x 3.6x -- --
Ratio of earnings to fixed charges(7) ....... 1.5x 1.4x 1.2x 1.3x 1.4x 1.3x 2.0x
STORE DATA:(8)
Comparable store sales growth:
Bealls/Stage(9) ......................... 5.1% 7.2% 4.8% 3.3% 5.1% 7.4% 7.1%
Palais Royal ............................ (9.8)% 0.8% 1.7% 1.4% 0.7% 7.7% (3.1)%
Total Company(10) ....................... 1.8% 6.3% 4.1% 0.8%(11) 3.3% 7.4% 5.0%
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(12) ............ 3,418 3,472 3,516 4,581 5,677 4,753 5,814
Number of stores open at end of period ...... 175 180 188 256 315 267 327
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital ......................... $ 214,430 $ 156,782 $ 148,229 $ 170,108 $ 235,219 $ 171,666 $ 238,050
Total assets ............................ 403,824 343,406 366,243 408,254 509,283 403,339 515,193
Long-term debt .......................... 296,587 347,468 349,775 380,039 298,453 383,667 298,599
Redeemable preferred stock .............. 17,500 -- -- -- -- -- --
Stockholders' equity (deficit) .......... (9,605) (87,727) (81,193) (72,314) 92,266 (69,638) 99,384
</TABLE>
- 28 -
<PAGE>
NOTES TO SELECTED CONSOLIDATED
HISTORICAL FINANCIAL AND OPERATING DATA
(1) During 1993, the Company completed the 1993 Financing and 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 upon 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) Operating income and operating income margin decreased during 1994
compared to 1993 due primarily to the impact of the implementation of
the Accounts Receivable Program (see Note 3 to the Company's
Consolidated Financial Statements and Note 5 below), combined with a
$5.2 million provision associated with 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."
Historical earnings (loss) per common share reflects the impact of a
.94727 for 1 reverse stock split of the common stock consummated
concurrently with the IPO. Loss per common share for 1993 and 1996
includes the impact of the extraordinary items associated with the 1993
Financing and the IPO, respectively, which reduced earnings per common
share by $1.31 and $1.01, respectively.
(5) 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 THREE MONTHS ENDED
----------------------------------------------------------- ----------------------
MAY 4, MAY 3
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 $ 16,045 $ 20,524
Store opening and closure
costs ..................................... 120 199 5,647 3,689 2,838 71 143
(Income)/Expense related to
proprietary credit card program ....... (11,062) (10,743) (2,927) (1,179) 220 (2,083) (1,446)
-------- -------- -------- -------- ------- -------- --------
Adjusted operating income ................. $ 43,680 $ 46,828 $ 53,677 $ 63,996 $71,628 $ 14,033 $ 19,221
======== ======== ======== ======== ======= ======== ========
</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.
(6) EBITDA represents income before extraordinary loss plus income tax
expenses, interest expense, depreciation and amortization. The Company
believes that EBITDA provides useful information regarding the Company's
ability to service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted accounting
- 29 -
<PAGE>
principles and should not be considered as a substitute for net income
as an indicator of the Company's operating performance or cash flow as a
measure of liquidity. Similarly to operating income, EBITDA decreased
during 1994 compared to 1993 due primarily to the impact of the
implementation of the Accounts Receivable Program. See Note 4 above.
(7) For purposes of computing the ratio of earnings to fixed charges,
earnings include income before income taxes and extraordinary loss, plus
fixed charges. Fixed charges consist of interest expense and one-third
of rental expense (deemed by management to be representative of the
interest factor of rental payments).
(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 THREE MONTHS ENDED
------------------------------------------------------ ---------------------
MAY 4, MAY 3,
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BEALLS/STAGE
Comparable store sales growth ............... 6.7% 7.7% 4.6% 0.2% 5.1% 7.2% 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 THREE MONTHS ENDED
------------------------------------------------------ ---------------------
MAY 4, MAY 3,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL COMPANY
Comparable store sales
growth .................................. 1.8% 5.4% 3.2% 0.5% 3.3% 6.5% 5.0%
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.
- 30 -
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data give effect
to the Acquisition, the Refinancing, the Uhlmans Acquisition and the retirement
of the Senior Discount Debentures with the proceeds from the IPO. The unaudited
pro forma financial data 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 condensed balance sheet was
prepared as if the Acquisition and the Refinancing had occurred on the balance
sheet date. The unaudited pro forma financial data 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 financial data should be
read in conjunction with "Selected Consolidated Historical Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" shown elsewhere in this Prospectus. This pro forma presentation
reflects the Stage Average Closing Price of $20.04, which resulted in
approximately 3,607,000 shares of Common Stock being issued in exchange for
9,035,645 shares of CR Anthony common stock (0.399 shares of Common Stock for
each share of CR Anthony common stock).
- 31 -
<PAGE>
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) (6,394) (f) -- 231,788
-------- -------- -------- ------- ----- ----------
Operating income ............................... 68,570 9,729 2,172 9,711 -- 90,182
Interest, net .................................. 45,954 1,806 (10,071)(d) -- 996(g) 38,685
-------- -------- -------- ------- ----- ----------
Income before income tax and extraordinary
item .................................. 22,616 7,923 12,243 9,711 (996) 51,497
Income tax expense (benefit)(5) ................ 8,594 3,090 4,652 3,950 (379) 19,907
-------- -------- -------- ------- ----- ----------
Income before extraordinary item(6) ............ $ 14,022 $ 4,833 $ 7,591 $ 5,761 $(617) $ 31,590
-------- -------- -------- ------- ----- ----------
EBITDA ......................................... $ 83,279 $ 14,044 $ 2,612 $ 9,013 $-- $ 108,948
-------- -------- -------- ------- ----- ----------
Ratio of earnings to fixed charges ............. 1.4x 1.9x
-------- ----------
Earnings per common share before
extraordinary item .................... $ 0.88 $ 1.16
-------- ----------
Weighted average common shares outstanding ..... 15,927 27,331
-------- ----------
</TABLE>
- 32 -
<PAGE>
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
THREE MONTHS ENDED MAY 3, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL DATA
-----------------------
CR ACQUISITION REFINANCING PRO FORMA
STAGE ANTHONY(1) ADJUSTMENTS(3) ADJUSTMENTS(4) COMBINED
-------- -------- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $191,512 $ 64,287 $ -- $ -- $ 255,799
Cost of sales and related buying, occupancy and
distribution expenses.......................... 129,587 51,966 (817)(e) -- 180,736
-------- -------- -------- ------- ----------
Gross profit...................................... 61,925 12,321 817 -- 75,063
Selling, general and administrative
expenses........................... 41,401 13,459 (1,869)(f) -- 52,991
-------- -------- -------- ------- ----------
Operating income.................................. 20,524 (1,138) 2,686 -- 22,072
Interest, net..................................... 8,942 363 -- 174 (g) 9,479
-------- -------- -------- ------- ----------
Income (loss) before income tax and
extraordinary items................ 11,582 (1,501) 2,686 (174) 12,593
Income tax expense (benefit)(5)................... 4,488 (586) 1,088 (66) 4,924
-------- -------- -------- ------- ----------
Income (loss) before extraordinary item(6) $ 7,094 $ (915) $ 1,598 $ (108) $ 7,669
======== ======== ======== ======= ==========
EBITDA............................................ $ 24,303 $ (172) $ 2,506 $ -- $ 26,637
======== ======== ======== ======= ==========
Ratio of earnings to fixed charges................ 2.0x 1.9x
======== ==========
Earnings per common share before extraordinary item $ 0.30 $ 0.28
======== ==========
Weighted average common shares outstanding........ 23,904 27,511
======== ==========
</TABLE>
- 33 -
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS
NOTE 1--CR ANTHONY HISTORICAL FINANCIAL DATA
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."
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 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 paid severance to each individual whose employment 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:
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............. (606)
--------
Consolidation Program....................................... $12,523
========
- 34 -
<PAGE>
(c) Adjustments to selling, general and administrative expenses as follows:
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
=========
(d) Adjustments to net interest as follows:
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)
=========
The components of the purchase price of the Uhlmans Acquisition, net of
cash acquired, were as follows:
Cash acquired.................................................... $ (887)
Cash paid to Uhlmans shareholders................................ 12,023
Uhlmans debt retired.............................................
16,210
---------
Total purchase price, net of cash acquired....................
$27,346
=========
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:
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
==========
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.
- 35 -
<PAGE>
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 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 $28.5 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
New 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:
1996 1Q 1997
----------- --------
Income before income tax and extraordinary item...... $ (3,818) $ (954)
========== ========
Income before extraordinary item..................... $ (2,367) $ (591)
========== ========
Earnings per common share before extraordinary item.. $ (0.09) $ (0.02)
========== ========
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, the long operating history and historical profitability of
these stores, management believes a 40-year amortization period for this
goodwill is appropriate.
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:
1996 1Q 1997
---- -------
Elimination of rental expense related to
the closure of CR Anthony's distribution
center ............................................ $ (477) $(123)
Elimination of payroll and costs associated
with the termination of CR Anthony's buying
staff ............................................. (2,840) (694)
------- -----
$(3,317) $(817)
======= =====
(f) Adjustment to selling, general and administrative expenses as
follows:
1996 1Q 1997
---- -------
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) $(2,046)
Amortization of goodwill resulting from the
Acquisition ..................................... 684 177
------- -------
$(6,394) $(1,869)
======= =======
36
<PAGE>
NOTE 4--REFINANCING ADJUSTMENTS
(g) Adjustments to net interest as follows:
1996 1Q 1997
---- -------
Interest expense associated with
the Refinancing .............................. $ 27,019 $ 6,755
Amortization of debt issue costs
associated with the Refinancing .............. 1,617 404
Elimination of interest expense associated
with the Existing Notes ...................... (26,251) (6,614)
Elimination of debt issue costs associated
with the Existing Notes ...................... (1,389) (371)
-------- -------
$ 996 $ 174
======== =======
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 38.7% and 39.1% for 1996 and the three months ended May
3,1997, respectively.
NOTE 6--NON-RECURRING CHARGES
In the fiscal quarter in which the Refinancing was consummated (the second
quarter of 1997), the Company expects to incur non-recurring charges, net of
tax, totaling approximately $16.8 million in connection with the early
retirement of the Existing Notes, the replacement of the Existing Credit
Agreements and the write-off of related debt issue costs.
37
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MAY 3, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION
------------------- ADJUST- REFINANCING PRO FORMA
STAGE CR ANTHONY MENTS(1)(2) ADJUSTMENTS(3) COMBINED
----- ---------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ............................ $ 10,017 $ 3,649 $(27,121)(a) $ 14,575(h) $ 1,120
Undivided interest in accounts receivable trust ...... 65,382 5,286 -- -- 70,668
Merchandise inventories .............................. 222,762 86,103 -- -- 308,865
Prepaid assets and other current assets .............. 38,240 4,643 -- -- 42,883
--------- -------- -------- --------- ---------
Total current assets ................................. 336,401 99,681 (27,121) 14,575 423,536
Property, equipment and leasehold improvements, net .. 116,687 17,569 -- -- 134,256
Goodwill, net ........................................ 47,016 -- 28,255(b) -- 75,271
Other assets ......................................... 15,089 7,241 -- 5,895(i) 28,225
--------- -------- -------- --------- ---------
$ 515,193 $124,491 $ 1,134 $ 20,470 $ 661,288
========= ======== ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ..................................... $ 57,620 $ 20,741 $ -- $ -- $ 78,361
Accrued expenses and other current liabilities ....... 40,731 15,776 16,057(c) (15,699)(j) 56,865
--------- -------- -------- --------- ---------
Total current liabilities ............................ 98,351 36,517 16,057 (15,699) 135,226
Long-term debt ....................................... 298,599 16,064 (16,064)(d) 52,931(k) 351,530
Other long-term liabilities .......................... 18,859 766 -- -- 19,625
--------- -------- -------- --------- ---------
Total liabilities ........................... 415,809 53,347 (7) 37,232 506,381
--------- -------- -------- --------- ---------
Common stock ......................................... 233 90 (54)(e) -- 269
Additional paid-in capital ........................... 169,835 57,307 14,942 (f) -- 242,084
Accumulated deficit .................................. (70,684) 13,747 (13,747)(g) (16,762)(l) (87,446)
--------- -------- -------- --------- ---------
Stockholders' equity ................................. 99,384 71,144 1,141 (16,762) 154,907
--------- -------- -------- --------- ---------
$ 515,193 $124,491 $ 1,134 $ 20,470 $ 661,288
========= ======== ======== ========= =========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
NOTE 1--CR ANTHONY ACQUISITION ADJUSTMENTS
The pro forma acquisition adjustments represent the estimated adjustments
necessary to state the historical assets and liabilities of CR Anthony at their
estimated fair values based upon information currently available to the Company
and the recognition of the excess of the purchase price over the estimated fair
value of the assets acquired and liabilities assumed as goodwill to the extent
any refinements to the purchase price allocation will be made based upon the
Company's ongoing calculation of the assets acquired and liabilities assumed.
Consideration for the Acquisition was 100% Common Stock. This pro forma
presentation reflects the Stage Average Closing Price of $20.04 which resulted
in approximately 3,607,000 shares of Common Stock being issued in exchange for
the 9,035,645 shares of CR Anthony common stock (0.399 shares of Common Stock
for each share of CR Anthony common stock).
The accompanying unaudited pro forma combined condensed balance sheet does
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 $28.5 million
of capital expenditures anticipated in the CR Anthony Integration Plan. The
Company expects to finance this investment through operating cash flows and
borrowings under the New Credit Agreement.
The acquisition adjustments shown on the unaudited pro forma combined
condensed balance sheet reflect (in thousands, except share and per share
amounts):
(a) Adjustments to cash as follows:
Cash paid to retire the outstanding CR Anthony
options.........................................$ (4,692)
Retirement of CR Anthony Indebtedness............. (22,429)
----------
$(27,121)
==========
In accordance with EITF 85-45, CR Anthony will
record a $4,692 charge in its historical
financial statements upon retirement of the
outstanding CR Anthony options. Such charge is
not reflected in the accompanying unaudited pro
forma combined income statements.
(b) Recognition of goodwill (see Note 2 below)
(c) Adjustments to accrued expenses and other current
liabilities as follows:
Severance due CR Anthony employees who work at
the general office terminated pursuant to the
CR Anthony Integration Plan...................... $ 4,300
Transaction fees................................... 3,000
One-time costs associated with closed or converted
facilities....................................... 15,122
Retirement of the current portion of CR Anthony
indebtedness..................................... (6,365)
--------
$16,057
========
(d) Retirement of CR Anthony indebtedness
(e) Adjustments to Common Stock as follows:
Issuance of Common Stock........................... $ 36
Retirement of CR Anthony common stock.............. (90)
--------
$(54)
========
- 39 -
<PAGE>
(f) Adjustments to additional paid-in capital as follows:
Recognition of Stage paid-in capital................ $72,249
Retirement of CR Anthony common stock............... (57,307)
--------
$14,942
========
(g) Elimination of CR Anthony's historical retained earnings.
NOTE 2--CR ANTHONY PURCHASE PRICE
The components of the purchase price, net of cash acquired, are as
follows:
Cash acquired............................................... $(3,649)
Cash paid to CR Anthony option holders...................... 4,692
Value of Common Stock issued................................ 72,285
CR Anthony debt retired..................................... 22,429
--------
Total purchase price, net of cash acquired.................. $95,757
========
The purchase price of CR Anthony for accounting purposes is allocated
as follows to the assets purchased and the liabilities assumed based upon the
estimated fair values.
Current assets, other than cash............................. $96,032
Property, equipment and leasehold improvements.............. 17,569
Goodwill.................................................... 28,255
Other assets................................................ 7,241
Liabilities assumed......................................... (53,340)
--------
Total purchase price, net of cash acquired.................. $95,757
========
NOTE 3--REFINANCING ADJUSTMENTS
The following assumes 100% of the Existing Notes are tendered pursuant to
the Tender Offers and 100% of the consent payments have been paid pursuant to
the Consent Solicitations.
(h) Sources and uses of cash as follows:
SOURCE OF FUNDS
Notes..................................................... $ 299,660
USES OF FUNDS
Retirement of Existing Senior Notes(1).................... (137,284)
Retirement of Existing Senior Subordinated Notes(1)....... (129,885)
Payments of costs associated with the Offering, the Tender
Offers and the Consent Solicitations, and the New Credit
Agreement............................................... (12,491)
Payment of accrued interest relating to debt retired...... (5,425)
---------
Net change in cash and cash equivalents................... $ 14,575
=========
--------------------------
(1) Includes premiums related to the Tender Offers and consent
fees related to the Consent Solicitations.
- 40 -
<PAGE>
(i) Adjustments to other assets as follows:
Debt issue costs associated with the
Refinancing.................................... $ 11,491
Write-off of debt issue costs related to the
retirement of the Existing Notes............... (5,596)
---------
$ 5,895
=========
(j) Adjustments to accrued expenses and other current liabilities
as follows:
Reduction of income taxes payable resulting from the
extraordinary charge for loss on early retirement
of debt........................................ $ (10,274)
Payment of accrued interest....................... (5,425)
---------
$ (15,699)
=========
(k) Adjustments to long-term debt as follows:
Retirement of Existing Senior
Notes.......................................... $ (130,000)
Retirement of Existing Senior Subordinated
Notes.......................................... (116,729)
Issuance of Notes to be issued in the
Offering....................................... 299,660
---------
$ 52,931
=========
(l) Extraordinary charge, net of tax, in connection with the early
retirement of the Existing Notes, the replacement of certain
existing credit agreements and the write-off of related debt
issue costs
- 41 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
OVERVIEW. The Company operates the store of choice for well-known national
brand name family apparel in over 200 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved niche.
The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a broad range of 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 and EBITDA margins in the apparel
retailing industry.
RECENT ACQUISITIONS. The Company acquired 45 stores from Beall-Ladymon in
1994 and subsequently reopened the stores in the first quarter of 1995 under the
Stage name. In 1993, the year prior to their acquisition, the Beall-Ladymon
stores generated sales of approximately $53.4 million, whereas 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.
On June 3, 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 retaining
concept and growth strategy. For 1995, Uhlmans had net sales of $59.7 million
and operating income of $2.2 million. For the five full months since the
merchandising function of Uhlmans was completely integrated (December 1996
through April 1997), sales at Uhlmans' stores have increased 10.4% over the
comparative period in the prior year. 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 by merging CR Anthony
with and into SRI. CR Anthony operated 248 brand name family apparel stores in
small markets as of June 25, 1997 under the names "Anthonys" and "Anthonys
Limited." The Acquisition is expected to 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.
- 42 -
<PAGE>
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>
Fiscal Year Three Months Ended
------------------------- -------------------------
1994 1995 1996 May 4, 1996 May 3, 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 68.1 67.7
----- ----- ----- ----- -----
Gross profit margin ........................... 31.4 31.4 31.4 31.9% 32.3%
Selling, general and administrative expenses .. 21.7 21.8 22.2 22.0% 21.5%
Store opening and closure costs ............... 0.9 0.6 0.4 0.1% 0.1%
----- ----- ----- ----- -----
Operating income margin ....................... 8.8 9.0 8.8 9.8% 10.7%
Net interest expense .......................... 6.9 6.4 5.9 7.1% 4.7%
----- ----- ----- ----- -----
Income before income tax and extraordinary
item ........................................ 1.9% 2.6% 2.9% 2.7% 6.0%
===== ===== ===== ===== =====
EBITDA margin ................................. 10.8% 11.0% 10.7% 11.8% 12.7%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MAY 3, 1997 COMPARED TO THREE MONTHS ENDED MAY 4, 1996
Sales for the first quarter of 1997 increased 17.3% to $191.5 million
from $163.2 million in the same period in 1996. The increase in first quarter
sales was primarily due to $24.1 million in incremental sales from stores opened
during 1997 and 1996 combined with a 5.0% increase in comparable store sales.
The increase in comparable store sales was the result of the strength in the
performance of the Company's small market stores.
Gross profit increased 18.8% to $61.9 million for the first quarter of
1997 from $52.1 million in the same period in 1996. Gross profit margin for the
first quarter of 1997 increased to 32.3% compared to 31.9% for the same period
in 1996. Gross profit margin was favorably impacted by an increase in markup on
merchandise sold due to an improved mix of inventories coupled with additional
leverage of the fixed cost component of gross margin.
Selling, general and administrative expenses for the first quarter of
1997 increased 14.7% to $41.3 million from $36.0 million for the same period in
1996. As a percentage of sales, these expenses decreased to 21.5% for the first
quarter of 1997 from 22.0% in the same period of 1996 due to the effective
leveraging of the Company's central overhead function as well as an improvement
in store variable expenses.
Operating income for the first quarter of 1997 increased 28.1% to $20.5
million from $16.0 million for the first quarter of 1996 due to the factors
discussed above. Operating income as a percent of sales was 10.7% for the first
quarter of 1997 as compared to 9.8% for the same period in 1996.
Net interest expense for the first quarter of 1997 decreased 23.3% to
$8.9 million from $11.6 million for the same period in 1996. This decrease
reflects the retirement of the Senior Discount Debentures which were retired in
connection with the Offering. Excluding this interest from 1996, net interest
expense would have increased $0.9 million due to the issuance of SRPC Notes
during May 1996.
As a result of the foregoing, net income for the first quarter of 1997
increased by 163.0% to $7.1 million from $2.7 million for the same period in
1996.
- 43 -
<PAGE>
1996 COMPARED TO 1995
Sales for 1996 increased 13.8% to $776.5 million from $682.6 million in
1995. The increase in sales was due primarily to a 12.9% increase in sales from
stores opened during 1996 and 1995, combined with a 3.3% increase in
comparable store sales. Total sales for 1996 were not directly comparable to
1995 because 1995 had one additional selling week when compared to 1996.
Eliminating the extra selling week from 1995 (approximately $10.0 million in
sales), sales for 1996 increased 15.5%.
Gross profit increased 13.9% to $244.0 million in 1996 from $214.3
million in 1995. Gross profit for 1996 was favorably impacted by an increase in
markup on merchandise sold relating to an improved mix of inventories and a
lower markdown rate, the result of a continued focus and tight control over
inventories. These factors were offset by a $2.4 million decline in LIFO
credits. Gross profit margin was 31.4% in 1996 and 1995.
Selling, general and administrative expenses for 1996 increased 15.8%
to $172.6 million from $149.1 million in 1995. As a percentage of sales, these
expenses increased to 22.2% in 1996 from 21.8% in 1995 due to: (i) the extra
selling week in 1995 which had the impact of lowering the selling, general and
administrative expense rate for 1995; (ii) duplicative costs associated with the
acquisition of Uhlmans; and (iii) an increase in bad debt expense associated
with the Company's proprietary credit card program. 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 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
- 44 -
<PAGE>
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.
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.
- 45 -
<PAGE>
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 ............... 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
During October 1996, the Company completed the IPO. The net proceeds 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. The Company's consolidated
long-term debt at May 3, 1997 included $130.0 million of Existing Senior Notes,
$116.7 million of Existing Senior Subordinated Notes, $30.0 million in aggregate
principal amount of SRPC notes (the "SRPC Notes") and certain other debt.
On June 3, 1996, the Company purchased Uhlmans for approximately $27.3
million, including acquisition costs and net of cash acquired. The Company,
through 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.
Total working capital of $238.0 million at May 3, 1997 remained essentially
unchanged from February 1, 1997, although the components of working capital
including cash, inventory, accounts receivable and other current assets varied.
Merchandise inventories increased and cash decreased primarily due to the
seasonal build in inventories and the opening of 13 stores during the first
quarter of 1997. Accounts receivable increased $35.0 million during the first
quarter of 1997 as a result of the seasonal increase in accounts receivable
generated during the Christmas season. Other current assets decreased primarily
due to the collection of a federal tax refund during the first quarter of 1997.
On June 26, 1997, the Company acquired CR Anthony by merging CR Anthony
with and into SRI. CR Anthony operated 248 brand name family apparel stores in
small markets as of June 25, 1997 under the names "Anthonys" and "Anthonys
Limited." The Acquisition is expected to strengthen the Company's position as a
leading retailer of national
- 46 -
<PAGE>
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. Under the terms of the agreement, the
Company acquired the common stock of CR Anthony for a value of $8.00 per share.
The form of consideration was 100% Common Stock with Stage issuing 0.399 shares
of Common Stock in exchange for each issued and outstanding share of common
stock of CR Anthony, other than shares held by persons exercising dissenter's
rights in accordance with Section 1091 of the Oklahoma General Corporation Act,
subject to the adjustment provided for under the agreement. 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 to exist.
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 pro forma 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 (excluding any
capital expenditures resulting from the Acquisition) to be approximately $35.0
million during each of 1997 and 1998, consisting primarily of new store openings
and remodeling and maintenance of existing stores. In addition, the Company
expects capital expenditures of approximately $28.5 million in the aggregate
during the 12 month period immediately following the Acquisition to convert the
current CR Anthony stores to the Stage format following consummation of the
Acquisition. 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.
Concurrently with the Offering, the Company entered into the New Credit
Agreement. The New Credit Agreement provides for the $100.0 million Working
Capital Facility and the $100.0 million Expansion Facility. See "Description of
New Credit Agreement" and "Description of the Notes--Certain
Covenants--Limitation on Indebtedness."
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 New 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 will provide it with a
more flexible capital structure which: (i) increases the Company's working
capital facilities to support its operations; (ii) extends the average
maturities of the Company's debt; (iii) lowers the Company's weighted average
cost of borrowing; and (iv) provides increased financial flexibility to allow
the Company to continue to implement its growth strategy. See "Description of
New Credit Agreement."
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
- 47 -
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Notes. The SRPC Notes have an expected maturity date of December 15, 2000 (the
"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, 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 May 3,
1997), up to a maximum of $40.0 million. As of May 3, 1997, there was no
outstanding balance under the revolving certificate. The Retained Certificates
are effectively subordinated to the interests of third-party investors, and are
pledged to secure the SRPC Notes. If the amount of accounts receivable in the
Trust falls below the level required to support the Trust Certificates, certain
principal collections may be retained in the Trust until such time as the
accounts receivable balances exceed the amount of accounts receivable required
to support the Trust Certificates and any required transferor's interest. SRPC
receives distributions from the Trust of cash in excess of amounts required to
satisfy the Trust's obligations to third-party investors on the Trust
Certificates. Cash so received by SRPC may be used to purchase additional
accounts receivable from, or make distributions to, the Company after SRPC has
satisfied its obligations on the SRPC Notes. The Trust may issue additional
series of certificates from time to time on various terms. Terms of any future
series will be determined at the time of issuance. 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 reached an
agreement in principle 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 at their
face value. 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
provided by excess cash proceeds from the Offering, the New 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, including those requirements
associated with the Acquisition. 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.
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BUSINESS
GENERAL
The Company operates the store of choice for well-known national brand name
family apparel in over 240 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 July 28, 1997, the Company operated 577 stores in 24 states
throughout the central United States, 329 of which operated under the Company's
"Stage," "Bealls" and "Palais Royal" trade names. The remaining 248 stores were
acquired through the Acquisition and are operated under the "Anthony" and
"Anthonys Limited" trade names. Approximately 78% of the "Stage," "Bealls" and
"Palais Royal" stores are located in small markets and communities with
populations generally below 30,000 people, some with as few as 4,000 people. The
Company's store format (averaging approximately 18,000 selling square feet) and
merchandising capabilities enable the Company to operate profitably in small
markets. The remainder of the Company's stores operate in metropolitan areas,
primarily in suburban Houston. For 1996, after giving pro forma effect to the
Refinancing, the Acquisition and the Uhlmans Acquisition as if each had occurred
on the beginning of the year, the Company would have had pro forma sales and
EBITDA of $1.1 billion and $108.9 million, respectively. 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
1998.
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 and EBITDA 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 at least 55 stores in 1997 in addition to the stores
acquired pursuant to the Acquisition.
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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 300 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
acess 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 43 buyers who average approximately 11 years of service with the Company.
Store layouts and visual merchandising displays are designed to create a
friendly, modern and convenient department store atmosphere which is frequently
not found in small markets. The Company's strategy focuses on moderately-priced,
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.
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
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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 53% 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.
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.
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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 at least 55 new stores in 1997, in addition to those
stores acquired pursuant to the Acquisition. Since 1994, store additions have
allowed the Company to begin operating in 14 additional states. As part of new
management's ongoing expansion strategy, the Company has identified over 600
additional markets in the central United States and contiguous states which meet
the Company's demographic and competitive criteria. All of these target markets
are smaller communities 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. 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 five full months since the merchandising function of Uhlmans was completely
integrated (December 1996 through April 1997), sales at the Uhlmans store have
increased 10.4% over the comparative period in the prior year. 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. CR Anthony was a
retailer of brand name family apparel in small markets and operated 248 stores
as of June 25, 1997 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 1998. The Acquisition is expected to 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 CR Anthony's Consolidated Financial Statements.
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Similar to the Company, CR Anthony's operating strategy is to offer brand
name apparel and footwear for the entire family at competitive prices. CR
Anthony's stores are located in 16 states, with the highest concentrations in
Texas, Oklahoma, Kansas and New Mexico. The majority of CR Anthony's stores are
located in rural communities with populations under 30,000 and are between 8,000
and 23,100 selling square feet in size, with 92 stores that are less than 10,000
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 expand its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) CR Anthony stores are located in states which are the same as or
are contiguous to states in which the Company currently operates; (ii) there are
a relatively small number of markets in which the two companies directly
overlap; (iii) a majority of the CR Anthony stores are in markets which fit the
Company's demographic profile; and (iv) a majority of the CR Anthony stores are
comparable in size to the Company's stores in similar markets.
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 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 1998. 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--Acquisition 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 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.
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Set forth below is certain information regarding the percentage of net
sales by major merchandise departments for the Company for 1995 and 1996:
DEPARTMENT 1995 1996
- ---------------------- --------------- ---------------
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%
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
February 1, 1997, there were more than 1.6 million active accounts. Private
label credit card purchases generated approximately 53% 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.
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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 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 2,000
full-time employees and 950 part-time 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 6 to the Consolidated Financial Statements.
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The Company and CR Anthony operate stores located in the following states:
NUMBER OF
CR ANTHONY
NUMBER OF COMPANY STORES(1) STORES
------------------------------ ----------
FEBRUARY 3, FEBRUARY 1, MAY 3, MAY 3,
1996 1997 1997 1997
------ ------ ------ ------
LOCATION
- ---------------------------------
Alabama ......................... 3 3 3 --
Arizona ......................... -- 3 3 1
Arkansas ........................ 12 12 12 11
California ...................... -- -- -- 1
Colorado ........................ 13 5 5 3
Illinois ........................ 5 12 12 --
Indiana ......................... -- 6 7 --
Iowa ............................ 3 6 6 4
Kansas .......................... 2 3 4 19
Louisiana ....................... 26 27 29 11
Michigan ........................ -- 6 6 --
Minnesota ....................... -- 1 3 --
Mississippi ..................... 6 6 7 --
Missouri ........................ 4 6 6 7
Montana ......................... -- -- -- 12
Nebraska ........................ -- 1 1 5
New Mexico ...................... 8 9 9 19
North Dakota .................... -- -- -- 2
Ohio ............................ -- 26 26 --
Oklahoma ........................ 13 13 13 60
South Dakota .................... -- 2 2 2
Texas ........................... 161 168 172 70
Wisconsin ....................... -- -- 1 --
Wyoming ......................... 1 -- -- 11
------ ------ ------ ------
Total........................... 257 315 327 238
====== ====== ====== ======
- ---------------------------
(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.
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.
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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 July 28, 1997:
NAME AGE POSITION
---- --- --------
Carl Tooker 49 Chairman, President and Chief Executive Officer
Harry Brown 50 Executive Vice President/Chief Merchandising Officer
James Marcum 37 Executive Vice President/Chief Financial Officer
Stephen Lovell 41 Executive Vice President/Director of Stores
Ron Lucas 50 Senior Vice President/Human Resources
Joshua Bekenstein 38 Director
Harold Compton 49 Director
Robert Huth 51 Director
Richard Jolosky 62 Director
Adam Kirsch 35 Director
Peter Mulvihill 38 Director
John J. Wiesner 59 Director
Mr. Tooker joined the Company as Director, President and Chief
Operating Officer on July 1, 1993. On July 1, 1994, Mr. Tooker was appointed
Chief Executive Officer and on January 27, 1997, Mr. Tooker was elected Chairman
of the Board. Mr. Tooker succeeds Mr. Bernard Fuchs, age 70, who retired. Mr.
Tooker has 25 years of experience in the retail industry, 18 of which were spent
in the May Co. where he served as Chairman and Chief Operating Officer of
Filene's of Boston from 1988 to 1990. In 1990, Mr. Tooker joined Rich's, a
division of Federated Department Stores, Inc., as President and Chief Operating
Officer, and in 1991 Mr. Tooker was promoted to Chief Executive Officer of
Rich's where he served until joining the Company in 1993.
Mr. Brown will be joining 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 1990-1995, 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.
Mr. Marcum joined the Company in June 1995 as Executive Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Marcum held
various positions at the Melville Corporation where he was employed since 1983.
Mr. Marcum served as Treasurer of Melville Corporation from 1986 to 1989, Vice
President and Controller of Marshalls, Inc., a division of the Melville
Corporation, from 1989 to 1990 and from 1990 to 1995 as Senior Vice President
and Chief Financial Officer of Marshalls, Inc. From 1980 to 1983, Mr. Marcum was
employed at Coopers and Lybrand L.L.P.
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.
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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) since 1993. From June 1987 to 1993, Mr. Mulvihill worked for
and was associated with Rosecliff, Inc. (the predecessor of Oak Hill). Prior to
joining Rosecliff, Mr. Mulvihill was an investment banker with Drexel Burnham
Lambert Incorporated in the corporate finance department from 1985 to 1987. Mr.
Mulvihill also serves as a director of Harvest Foods, Inc., an Arkansas-based
grocery chain.
Mr. 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.
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DESCRIPTION OF NEW CREDIT AGREEMENT
In connection with the Offering, SRI entered into the New Credit
Agreement with a syndicate of financial institutions (the "Lenders") for which
Credit Suisse First Boston, an affiliate of Credit Suisse First Boston
Corporation, acted as arranger and administrative agent (the "Agent"). Stage and
all existing and future material subsidiaries of SRI (excluding SRPC) will
guarantee the borrowings under the New Credit Agreement. The New Credit
Agreement provides for the Working Capital Facility and the Expansion Facility.
The following is a summary of the material terms and conditions of the New
Credit Agreement and is subject to the detailed provisions of the New Credit
Agreement and various related documents entered into in connection with the New
Credit Agreement.
GENERAL. The New Credit Agreement consists of: (i) the $100 million
Working Capital Facility, pursuant to which SRI has the right at any time prior
to the third anniversary of the closing date of the Offering to solicit one or
more Lenders and/or new financial institutions to provide up to $25 million in
additional commitments to increase the Working Capital Facility to an amount not
to exceed in the aggregate $125 million, subject to certain conditions, of which
up to $50 million may be used for letters of credit and $10 million may be used
for a swing line facility; and (ii) the $100 million Expansion Facility.
Proceeds of the Working Capital Facility will be 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. Proceeds of the
Expansion Facility will be 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 on and following the closing of the Offering
and amounts borrowed and repaid may be reborrowed until the fifth anniversary of
the closing date of the Offering (the "Final Maturity Date"); provided that in
addition to the mandatory reductions in commitments described below, the
commitments under the Expansion Facility will be reduced by $25 million on the
fourth anniversary of the closing of the Offering 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 million. The Working Capital Facility (other than the amount of the
excess thereof over $100 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.
INTEREST RATES; FEES. 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 New Credit Agreement) which bear
interest at the Base Rate plus the applicable Margin Percentage (each as defined
in the New Credit Agreement) or (b) Eurodollar Rate Loans (as defined in the New
Credit Agreement) bearing interest at the Eurodollar Rate (adjusted for
reserves) as determined by the Agent for the applicable interest period, plus
the applicable Margin Percentage (as defined in the New Credit Agreement). The
initial Margin Percentage for Eurodoller loans shall be per annum rate equal to
2.00%, and the initial Margin Percentage for Base Rate Loans shall be 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 New Credit
Agreement).
Interest on Base Rate Loans are payable quarterly in arrears on the
last business day of each quarter. Eurodollar Rate Loans may have 1, 2, 3 and 6
month interest periods. Interest on Eurodollar Rate Loans are payable in arrears
at the end of the applicable interest period and every three months where the
applicable period exceeds three months.
SRI pays a commitment fee on the unutilized commitments of each of the
Working Capital Facility and Expansion Facility. This fee accrues from the date
of consummation of the Offering to and including the Final Maturity Date
quarterly in arrears. The amount of the commitment fee will be determined based
on the Adjusted Leverage Ratio (as defined in the New Credit Agreement), and
will range from 0.25% to 0.50% per annum.
With respect to standby letters of credit issued pursuant to the
Working Capital Facility, SRI will pay a fee equal to the applicable Margin
Percentage for Eurodollar Rate Loans less 0.25% on the aggregate outstanding
stated amount of such letters of credit and with respect to documentary letters
of credit issued pursuant to the Working Capital Facility, SRI will pay a fee
equal to the then applicable Margin Percentage for Eurodollar Loans less 0.75%
(and in no event less than 0.75% per annum) on the aggregate outstanding stated
amount of such letters of credit, and in each case SRI will pay such other fees
as may separately be agreed between SRI and the applicable issuing lender.
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PREPAYMENTS; MANDATORY PREPAYMENTS. The New Credit Agreement will
terminate on the Final Maturity Date. Amounts outstanding under the Working
Capital Facility and Expansion Facility shall be due in full and such
commitments shall expire on the Final Maturity Date. The Expansion Facility is
subject to the following mandatory prepayments, subject to a maximum Expansion
Facility reduction of 50%: (i) 50% of the net cash proceeds of Indebtedness (as
defined in the New Credit Agreement), other than certain Indebtedness permitted
to be incurred thereunder, is rated BBB/Baa2 or better; (ii) 50% of the net cash
proceeds of an equity issuance by the Company (excluding any issuance of equity
by the Company substantially concurrent with an acquisition to fund such
acquisition) if the Adjusted Leverage Ratio is greater than 3.5:1; (iii) 75% of
Excess Cash Flow (as defined in the New Credit Agreement) if the Adjusted
Leverage Ratio is greater than 3.5:1 and 50% of Excess Cash Flow if the Adjusted
Leverage Ratio is less than or equal to 3.5:1 and greater than 2.5:1; (iv) 100%
of net cash proceeds from Asset Sales (as defined in the New Credit Agreement),
excluding Eligible Asset Sales (as defined in the New Credit Agreement) subject
to reinvestment conditions contained therein shall be applied to the Expansion
Facility; and (v) 100% of net cash proceeds from insurance receipts (subject to
certain reinvestment provisions) shall be applied to the Expansion Facility.
COLLATERAL. All amounts owing under the New Credit Agreement are
secured by: (i) a first priority (subject to permitted liens and encumbrances)
perfected security interest in SRI's 450,000 square foot distribution center
located in Jacksonville, Texas, including equipment located therein, in Stage's,
SRI's and each other future guarantor's, if any, intangibles, in the receivables
of CR Anthony in the event proceeds of the New Credit Agreement are used to
purchase such receivables, provided that a security interest in such receivables
will be released upon the sale of the receivables to a receivables trust upon
terms and conditions no worse than those of the Accounts Receivable Program and
the application of all the proceeds of such sale to the payment of the Working
Capital Facility; and (ii) a pledge of SRPC's common stock, the common stock of
SRI and the stock of all existing and future material subsidiaries of Stage and
SRI.
COVENANTS. Stage, SRI and each of their existing and future
subsidiaries, other than SRPC, are subject to certain affirmative and negative
covenants contained in the New 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
Exchange 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.
There are also covenants relating to compliance with ERISA and environmental and
other laws, payment of taxes, maintenance of corporate existence and rights,
maintenance of insurance and interest rate protection, and financial reporting.
Certain of these covenants are more restrictive than those set forth in the
Indenture. In addition, the New Credit Agreement requires the Company to
maintain compliance with certain specified financial covenants, including
covenants relating to minimum interest coverage, minimum fixed charge coverage
and maximum Adjusted Leverage Ratio.
EVENTS OF DEFAULT. The New Credit Agreement also includes customary
events of default, including, without limitation, a default in the event of a
change of control of the Company and a default under the Accounts Receivable
Program. The occurrence of any such events of default could result in
acceleration of the Company's obligations under the New Credit Agreement and
foreclosure on the collateral securing such obligations, which could have a
material adverse effect on holders of the Exchange Notes.
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DESCRIPTION OF THE EXCHANGE NOTES
The Series B 8 1/2% Senior Notes due 2005 (the "Senior Exchange Notes")
are to be issued pursuant to the Indenture, dated as of June 17, 1997 (the
"Senior Notes Indenture"), among Stage, SRI and State Street Bank and Trust
Company as trustee (the "Senior Notes Trustee"). The Series B 9% Senior
Subordinated Notes (the "Senior Subordinated Exchange Notes" and, together with
the Senior Exchange Notes, the "Exchange Notes") are to be issued pursuant to
the Indenture, dated as of June 17, 1997 (the "Senior Subordinated Notes
Indenture" and, together with the Senior Notes Indenture, the "Indentures"),
among Stage, SRI and State Street Bank and Trust Company, as trustee (the
"Senior Subordinated Notes Trustee" and, together with the Senior Notes Trustee,
the "Trustees"). The following is a summary of the material provisions of the
Indentures. This summary does not purport to be complete and is subject to and
is qualified in its entirety by reference to all the provisions of the Notes and
the Indentures (including provisions made part of the Indentures by reference to
the Trust Indenture Act of 1939, as amended), including the definitions therein
of terms not defined herein. Certain terms used herein are defined below under
"-- Certain Definitions." Copies of the forms of the Indentures and the
Registration Rights Agreement are available as set forth under "Available
Information." For purposes of this section, references to the "Senior and Senior
Subordinated Notes" include the Exchange Notes and the Notes.
GENERAL
The Senior Notes are, and the Senior Exchange Notes will be, senior
unsecured obligations of SRI, limited to $200 million aggregate principal
amount. The Senior Subordinated Notes are, and the Senior Subordinated Exchange
Notes will be, senior subordinated unsecured obligations of SRI, limited to $100
million aggregate principal amount. The Exchange Notes will be issued only in
fully registered form, without coupons, in denominations of $1,000 and any
multiple of $1,000. No service charge will be made for any registration of
transfer or exchange of Senior and Senior Subordinated Notes, but SRI may
require payment of a sum sufficient to cover any transfer tax or other
governmental charge payable in connection therewith. Initially, the Trustee will
act as paying agent and registrar for the Exchange Notes. The form and terms of
the Exchange Notes are the same as the form and terms of the Notes (which they
replace) except that (i) the Exchange Notes bear a Series B designation, (ii)
the Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof and (iii) the holders of
the Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for an increase in the
interest rate on the Notes in certain circumstances relating to the timing of
the Exchange Offer, which rights will terminated when the Exchange Offer is
consummated.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes and the Senior Exchange Notes will mature on, July 15,
2005 and will bear interest at the rate per annum shown on the cover page
hereof, from June 17, 1997 or from the most recent date to which interest has
been paid as provided for, payable semi-annually on January 15 and July 15 of
each year, commencing January 15, 1998 to each Person in whose name a Senior
Note or a Senior Exchange Note is registered at the close of business on the
preceding January 1 or July 1, as the case may be.
The Senior Subordinated Notes and the Senior Subordinated Exchange
Notes will mature on July 15, 2007 and will bear interest at the rate per annum
shown on the cover page hereof from June 17 , 1997 or from the most recent date
to which interest has been paid as provided, payable semi-annually on January 15
and July 15 of each year, commencing January 15, 1998 to each Person in whose
name a Senior Subordinated Note or a Senior Subordinated Exchange Note is
registered at the close of business on the preceding January 1 or July 1, as the
case may be.
Principal of and premium, if any, and any interest on the Senior and
Senior Subordinated Notes will be payable, and the transfer of Senior and Senior
Subordinated Notes will be registrable, at the office or agency maintained by
SRI in the City of New York. In addition, payment of interest may, at the option
of SRI, be made by check mailed to the address of the person entitled thereto as
it appears in the Senior Note Register or the Senior Subordinated Note Register
or the Senior Exchange Note Register or the Senior Subordinated Exchange Note
Register, as the case may be. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
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OPTIONAL REDEMPTION
SENIOR EXCHANGE NOTES
Except as set forth in the following paragraph, the Senior Exchange
Notes will not be redeemable at the option of SRI prior to July 15, 2001.
Thereafter, the Senior Exchange Notes will be redeemable, at SRI's option, in
whole or in part from time to time, upon not less than 30 nor more than 60 days
prior notice mailed to each Holder of Senior Exchange Notes to be redeemed at
the Holder's address appearing in the Senior Exchange Note Register, at the
following redemption prices (expressed in percentages of principal amount at
maturity), plus accrued and unpaid interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period beginning July 15 of the years set forth below:
REDEMPTION
PERIOD PRICE
----------
2001............................................................. 104.250%
2002............................................................. 102.125%
2003 and thereafter.............................................. 100.000%
In addition, at any time and from time to time prior to July 15, 2000,
SRI may redeem in the aggregate up to 35% of the original principal amount of
the Senior Exchange Notes with the net cash proceeds of one or more Public
Equity Offerings, at a redemption price (expressed as a percentage of principal
amount) of 108.50% plus accrued interest to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); PROVIDED, HOWEVER, that at least $130
million aggregate principal amount at maturity of the Senior Exchange Notes,
together with the Senior Notes, must remain outstanding after each such
redemption.
SENIOR SUBORDINATED EXCHANGE NOTES
Except as set forth in the following paragraph, the Senior Subordinated
Exchange Notes will not be redeemable at the option of SRI prior to July 15,
2002. Thereafter, the Senior Subordinated Exchange Notes will be redeemable, at
SRI's option, in whole or in part from time to time, upon not less than 30 nor
more than 60 days prior notice mailed to each Holder of Senior Subordinated
Exchange Notes to be redeemed at the Holder's address appearing in the Senior
Subordinated Exchange Note Register, at the following redemption prices
(expressed in percentages of principal amount at maturity), plus accrued and
unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period beginning July 15
of the years set forth below:
REDEMPTION
PERIOD PRICE
----------
2002 ............................................................. 104.50%
2003 ............................................................. 103.00%
2004 ............................................................. 101.50%
2005 and thereafter .............................................. 100.00%
In addition, at any time and from time to time prior to July 15, 2000,
SRI may redeem in the aggregate up to 35% of the original principal amount of
the Senior Subordinated Exchange Notes with the net cash proceeds of one or more
Public Equity Offerings, at a redemption price (expressed as a percentage of
principal amount) of 109.00% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); PROVIDED, HOWEVER,
that at least $65 million aggregate principal amount at maturity of the Senior
Subordinated Exchange Notes, together with the Senior Subordinated Notes, must
remain outstanding after each such redemption.
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NOTICES AND SELECTION
In the case of any partial redemption, selection of the Senior and
Senior Subordinated Notes for redemption will be made by the appropriate Trustee
on a pro rata basis, by lot or by such other method as such Trustee in its sole
discretion shall deem to be fair and appropriate, although no Senior and Senior
Subordinated Notes of $1,000 in principal amount at maturity or less shall be
redeemed in part. If any Senior and Senior Subordinated Notes is to be redeemed
in part only, the notice of redemption relating to such Senior or Senior
Subordinated Note shall state the portion of the principal amount at maturity
thereof to be redeemed. A new Senior and Senior Subordinated Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Senior and Senior Subordinated
Note.
RANKING
As of May 3, 1997, on a pro forma basis after giving effect to the
Acquisition and the Refinancing, (i) the Senior Debt of SRI, including the
Senior Exchange Notes and the obligations of SRI under the New Credit Agreement,
would have been approximately $209.8 million in principal amount and (ii) the
Senior Subordinated Debt of SRI would have been approximately $100.0 million in
principal amount, including the Senior Subordinated Exchange Notes. Although the
Indentures contain limitations on the amount of additional Debt that Stage and
its Restricted Subsidiaries may Incur, under certain circumstances the amount of
such Debt could be substantial and, in any case, such Debt may be Senior Debt.
See "--Certain Covenants-- Limitation on Debt; - Limitation on Restrictions on
Distributions from Restricted Subsidiaries."
SENIOR EXCHANGE NOTES
The indebtedness evidenced by the Senior Exchange Notes and the Senior
Exchange Notes Guaranties will constitute senior unsecured obligations of SRI or
Stage, as the case may be, will rank PARI PASSU in right of payment with all
existing and future Senior Debt of SRI and Stage, as the case may be, and will
be senior in right of payment to all existing and future subordinated
indebtedness of SRI and Stage, including the Senior Subordinated Exchange Notes
and the Senior Subordinated Exchange Notes Guaranties.
SENIOR SUBORDINATED EXCHANGE NOTES
The indebtedness evidenced by the Senior Subordinated Exchange Notes
and the Senior Subordinated Exchange Notes Guaranties will constitute senior
subordinated unsecured obligations of SRI or the Guarantors, as the case may be,
will be subordinate in right of payment to all existing and future Senior Debt
of SRI or the Guarantors, as the case may be, to the extent set forth in the
Senior Subordinated Notes Indenture, and will rank PARI PASSU in right of
payment with all existing and future Senior Subordinated Debt of SRI or the
Guarantors, as the case may be, and will be senior in all respects to all
existing and future subordinated debt of SRI or the Guarantors, as the case may
be. SRI and Stage have agreed in the Senior Subordinated Notes Indenture that
they will not, and that they will not permit any Guarantor to, Incur, directly
or indirectly, any Debt that is subordinate or junior in ranking in right of
payment to its Senior Debt unless such Debt is Senior Subordinated Debt or is
expressly subordinated in right of payment to Senior Subordinated Debt.
SRI may not pay principal of, premium (if any) or interest on, the
Senior Subordinated Exchange Notes or make any deposit pursuant to the
provisions described under "Defeasance" below and may not repurchase, redeem or
otherwise retire any Senior Subordinated Exchange Notes (collectively, "pay the
Senior Subordinated Exchange Notes") if (i) any Designated Senior Debt is not
paid when due or (ii) any other default on Designated Senior Debt occurs and the
maturity of such Designated Senior Debt is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Debt has been paid in
full. However, SRI may pay the Senior Subordinated Exchange Notes without regard
to the foregoing if SRI and the Senior Subordinated Notes Trustee receive
written notice approving such payment from the Representative of the Designated
Senior Debt with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing and
no other event of the type described in such clause (i) or (ii) has occurred and
is continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the second
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preceding sentence) with respect to any Designated Senior Debt pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, SRI may not pay the Senior
Subordinated Exchange Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Senior Subordinated Notes Trustee (with a
copy to SRI) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Debt specifying an
election to effect a Payment Blockage Period and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated (i) by written notice to
the Senior Subordinated Notes Trustee and SRI from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing or (iii) because such Designated Senior Debt has
been repaid in full). Notwithstanding the provisions described in the
immediately preceding sentence, unless the holders of such Designated Senior
Debt or the Representative of such holders have accelerated the maturity of such
Designated Senior Debt, SRI may resume payments on the Senior Subordinated Notes
after the end of such Payment Blockage Period. The Senior Subordinated Exchange
Notes shall not be subject to more than one Payment Blockage Period in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Debt during such period; PROVIDED, HOWEVER, that if a
Blockage Notice is delivered by holders of Designated Senior Debt other than the
Bank Debt, holders of the Bank Debt shall not be prohibited from delivering a
Blockage Notice during the succeeding 360-day period.
Upon any payment or distribution of the assets of SRI upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to SRI or its property, the holders of Senior Debt will be entitled to
receive payment in full of such Senior Debt before the holders of the Senior
Subordinated Notes are entitled to receive any payment, and until the Senior
Debt is paid in full, any payment or distribution to which holders of the Senior
Subordinated Notes would be entitled but for the subordination provisions of the
Senior Subordinated Notes Indenture will be made to holders of such Senior Debt
as their interests may appear. If a distribution is made to holders of the
Senior Subordinated Notes that, due to the subordination provisions, should not
have been made to them, such holders are required to hold it in trust for the
holders of Senior Debt and pay it over to them as their interests may appear.
If payment of the Senior Subordinated Exchange Notes is accelerated
because of an Event of Default, SRI or the Senior Subordinated Notes Trustee
shall promptly notify the holders of Designated Senior Debt or the
Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Senior
Subordinated Notes Indenture, in the event of insolvency, creditors of SRI or a
Guarantor who are holders of Senior Debt of SRI or such Guarantor, as the case
may be, may recover more, ratably, than the holders of the Senior Subordinated
Exchange Notes, and creditors of SRI who are not holders of Senior Debt may
recover less, ratably, than holders of Senior Debt and may recover more,
ratably, than the holders of the Senior Subordinated Exchange Notes.
The terms of the subordination provisions described above will not
apply to payments from money or the proceeds of U.S. Government Obligations held
in trust by the Senior Subordinated Notes Trustee for the payment of principal
of and interest on the Senior Subordinated Exchange Notes pursuant to the
provisions described under "--Defeasance" so long as such deposit shall not have
violated the terms of any Senior Debt.
GUARANTIES
Stage and Specialty NV and any Person that shall become a Restricted
Subsidiary of Stage or SRI after the Issue Date (the "Subsidiary Guarantors")
will unconditionally guarantee on a joint and several basis the payment and
performance by SRI of (i) SRI's obligations under the Senior Exchange Notes on a
senior unsecured basis (the "Senior Notes Guaranties") and (ii) SRI's
obligations under the Senior Subordinated Exchange Notes on a senior
subordinated unsecured basis (the "Senior Subordinated Notes Guaranties" and,
together with the Senior Notes Guaranties, the "Notes Guaranties") and will pay
all expenses (including, without limitation, fees and disbursements of counsel)
paid or incurred by the Trustees or the Holders in enforcing their rights under
the Senior and Senior Subordinated Notes Guaranties.
The Senior Notes Guaranties will be unsecured senior obligations of the
Guarantors and will rank PARI PASSU with future senior unsecured indebtedness of
the Guarantors. The Senior Subordinated Notes Guaranties will be unsecured
senior subordinated obligations of the Guarantors and will rank PARI PASSU with
future senior subordinated
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unsecured indebtedness of the Guarantors. The Senior Subordinated Notes
Guaranties will, to the extent set forth in the Senior Subordinated Notes
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Debt of such Guarantor and will be subject to the rights of holders
of Designated Senior Debt of such Guarantor to initiate blockage periods upon
terms substantially comparable to the subordination of the Senior Subordinated
Exchange Notes to all Senior Debt of SRI. The principal asset of Stage is all of
the outstanding shares of common stock of SRI, and virtually all of the
operations of Stage are conducted through SRI.
The obligations of Subsidiary Guarantors are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary and after giving effect to any collections from
or payments made by or on behalf of any other Subsidiary in respect of the
obligations of such other Subsidiary under its Notes Guaranties or pursuant to
its contribution obligations under the Indentures, result in the obligations of
such Subsidiary under its Notes Guaranties not constituting a fraudulent
conveyance or fraudulent transfer under federal, state or foreign law. Each such
Subsidiary Guarantor that makes a payment or distribution of more than its
proportionate share under a Notes Guaranty shall be entitled to a contribution
from each other such Subsidiary Guarantor which has not paid its share of such
payment or distribution.
Pursuant to the Indentures, a Subsidiary Guarantor may consolidate
with, merge with or into, or transfer all or substantially all its assets to any
other Person to the extent described below under "--Merger and Consolidation";
PROVIDED, HOWEVER, that if such other Person is not Stage or SRI, such
Subsidiary Guarantor's obligations under its Notes Guaranties must be expressly
assumed by such other Person. However, upon the sale or other disposition
(including by way of consolidation or merger) of a Subsidiary Guarantor or the
sale or disposition of all or substantially all the assets of a Subsidiary
Guarantor (in each case other than to Stage or SRI or an Affiliate of Stage or
SRI) permitted by the Indentures including any sale pursuant to foreclosure on a
pledge of the stock of such Subsidiary Guarantor securing the Bank Debt in
accordance with the applicable provisions of the Uniform Commercial Code, such
Subsidiary Guarantor will be released and relieved from all its obligations
under its Notes Guaranties.
Although holders of the Senior and Senior Subordinated Notes will be
direct creditors of the Guarantors by virtue of the Notes Guaranties, existing
or future creditors of Subsidiary Guarantors could attempt to avoid the relevant
Notes Guaranties, in whole or in part, under fraudulent conveyance laws. To the
extent any such Guaranty is avoided as a fraudulent conveyance or held
unenforceable for any other reason, the claims of the holders of the Senior and
Senior Subordinated Notes against a Subsidiary who is not a valid Guarantor
would be subject to the prior payment of all liabilities of that Subsidiary. In
addition, the claims of holders of the Senior and Senior Subordinated Notes
against any Subsidiary that is not required to become a Guarantor will be
subject to the prior payment of all liabilities of that Subsidiary. As of May 3,
1997, after giving pro forma effect to the Acquisition and the Refinancing, the
amount of liabilities (consisting of Debt and payables) of Subsidiaries that are
not Guarantors would have been approximately $34.1 million.
BOOK-ENTRY, DELIVERY AND FORM
The Senior and Senior Subordinated Notes were issued in the form of
Global Notes except as described below. The Global Notes will be deposited with,
or on behalf of, the Depositary and registered in the name of the Depositary or
its nominee. Except as set forth below, the Global Notes may be transferred, in
whole and not in part, only to the Depositary or another nominee of the
Depositary. Investors may hold their beneficial interests in the Global Notes
directly through the Depositary if they have an account with the Depositary or
indirectly through organizations which have accounts with the Depositary.
Senior and Senior Subordinated Notes that are issued as described below
under "-- Certificated Notes" will be issued in definitive form. Upon the
transfer of a Senior and Senior Subordinated Note in definitive form, such
Senior and Senior Subordinated Note will, unless the applicable Global Note has
previously been exchanged for Senior and Senior Subordinated Notes in definitive
form, be exchanged for an interest in the applicable Global Note representing
the principal amount of Senior and Senior Subordinated Notes being transferred.
The Depositary has advised SRI as follows: The Depositary is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the
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meaning of the New York Uniform Commercial Code and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Notes, the Depositary will credit, on
its book-entry registration and transfer system, the principal amount of Senior
and Senior Subordinated Notes represented by such Global Notes to the accounts
of participants. The accounts to be credited shall be designated by the Initial
Purchasers of such Senior and Senior Subordinated Notes. Ownership of beneficial
interests in the Global Notes will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests in
the Global Notes will be shown on, and the transfer of those ownership interests
will be effected only through, records maintained by the Depositary (with
respect to participants' interests) and such participants (with respect to the
owners of beneficial interests in the Global Notes other than participants). The
laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer or pledge beneficial interests in the
Global Notes.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Notes, the Depositary or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Senior and
Senior Subordinated Notes for all purposes of such Senior and Senior
Subordinated Notes and the Indentures. Except as set forth below, owners of
beneficial interests in the Global Notes will not be entitled to have the Senior
and Senior Subordinated Notes represented by the applicable Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated Senior and Senior Subordinated Notes in definitive form
and will not be considered to be the owners or holders of any Senior and Senior
Subordinated Notes under such Global Note. SRI understands that under existing
industry practice, in the event an owner of a beneficial interest in a Global
Note desires to take any action that the Depositary, as the holder of such
Global Note, is entitled to take, the Depositary would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payment of principal of and interest on Senior and Senior Subordinated
Notes represented by the Global Notes registered in the name of and held by the
Depositary or its nominee will be made to the Depositary or its nominee, as the
case may be, as the registered owner and holder of the Global Notes.
SRI expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the applicable Global
Note as shown on the records of the Depositary or its nominee. SRI also expects
that payments by participants to owners of beneficial interests in the Global
Notes held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. SRI
will not have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Notes for any Senior and Senior Subordinated Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between the Depositary and
its participants or the relationship between such participants and the owners of
beneficial interests in the Global Notes owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
Senior and Senior Subordinated Notes in definitive form, a Global Note may not
be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order
to facilitate transfers of interests in the Global Notes among participants of
the Depositary, it is under no obligation to perform or continue to perform such
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procedures, and such procedures may be discontinued at any time. Neither the
Trustees nor SRI will have any responsibility for the performance by the
Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Senior and Senior Subordinated Notes represented by the Global Note
are exchangeable for certificated Senior and Senior Subordinated Notes in
definitive form of like tenor as such Senior and Senior Subordinated Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depositary notifies SRI that it is unwilling or unable to continue as Depositary
for the applicable Global Note or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act, (ii) SRI in its discretion at
any time determines not to have all of the Senior and Senior Subordinated Notes
represented by the Global Notes or (iii) a default entitling the holders of the
Senior and Senior Subordinated Notes to accelerate the maturity thereof has
occurred and is continuing. Any Senior and Senior Subordinated Note that is
exchangeable pursuant to the preceding sentence is exchangeable for certificated
Senior and Senior Subordinated Notes issuable in authorized denominations and
registered in such names as the Depositary shall direct. Subject to the
foregoing, a Global Note is not exchangeable, except for a Global Note of the
same aggregate denomination to be registered in the name of the Depositary or
its nominee. In addition, such certificates will bear the legend referred to
under "Transfer Restrictions" (unless SRI determines otherwise in accordance
with applicable law) subject, with respect to such Senior and Senior
Subordinated Notes, to the provisions of such legend.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the
right to require SRI to repurchase such Holder's Senior and Senior Subordinated
Notes at a purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest (if any) to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date).
The occurrence of any of the following events will constitute a "Change
of Control" under the Indentures:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting
Stock of Stage;
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of Stage (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of
Stage, was approved by a majority of the directors of Stage then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors
of Stage then in office;
(iii) the merger or consolidation of Stage or SRI, as the case
may be, with or into another Person or the merger of another Person
with or into Stage or SRI, as the case may be, or the sale or transfer
in one or a series of transactions of all or substantially all the
assets of Stage or SRI, as the case may be, to another Person, and, in
the case only of any such merger or consolidation, the securities of
Stage or SRI, as the case may be, that are outstanding immediately
prior to such transaction and which represent 100% of the aggregate
voting power of the Voting Stock of Stage or SRI, as the case may be,
are changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of
the surviving corporation that represent immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation; PROVIDED, HOWEVER, that the
merger or consolidation of Stage with or into SRI or the merger or
consolidation of SRI with or into Stage shall not be deemed a Change of
Control; or
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(iv) Stage shall hold, directly or indirectly, less than 100%
of the Capital Stock of SRI or less than 100% of the Voting Stock of
SRI; and provided further, that a Change of Control shall occur if at
any time that Stage does not directly hold such Capital Stock or Voting
Stock of SRI, the entity holding such Capital Stock or Voting Stock of
SRI shall not be a Restricted Subsidiary and a Subsidiary Guarantor.
Within 30 days following any Change of Control, SRI shall mail a notice
to each Holder with a copy to the Trustees stating: (1) that a Change of Control
has occurred and that such Holder has the right to require SRI to purchase such
Holder's Senior and Senior Subordinated Notes at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the material circumstances and facts regarding such Change of Control
(including information with respect to pro forma historical income, cash flow
and capitalization, each after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed in the event of a Change of Control); and
(4) the instructions determined by SRI, consistent with the covenant described
hereunder, that a Holder must follow in order to have its Senior and Senior
Subordinated Notes purchased.
SRI shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior and Senior Subordinated Notes
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the covenant described
above, SRI shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under such covenant by
virtue thereof.
The Change of Control purchase feature is a result of negotiations
among SRI, Stage and the Initial Purchasers. Management has no present intention
to engage in a transaction involving a Change of Control, although it is
possible that SRI or Stage would decide to do so in the future. The provisions
of the Indentures relating to a Change of Control may not afford Holders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction (including, in certain
circumstances, a transaction involving SRI's management or its affiliates) that
may adversely affect Holders, if such transaction does not constitute a Change
of Control, as defined above. Any such transaction will result in a Change of
Control only if it is the type of transaction specified by such definition.
The New Credit Agreement generally will prohibit SRI from purchasing
any Senior and Senior Subordinated Notes, and will also provide that the
occurrence of certain change of control events with respect to SRI would
constitute a default thereunder. In the event a Change of Control occurs at a
time when SRI is prohibited from purchasing Senior and Senior Subordinated
Notes, SRI could seek the consent of its lenders to the purchase of Senior and
Senior Subordinated Notes or could attempt to refinance the borrowings that
contain such prohibition. If SRI does not obtain such a consent or repay such
borrowings, SRI will remain prohibited from purchasing Senior and Senior
Subordinated Notes. In such case, SRI's failure to purchase tendered Senior and
Senior Subordinated Notes would constitute an Event of Default under the
Indentures which would, in turn, constitute a default under the New Credit
Agreement.
Future indebtedness of SRI may contain prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require SRI to repurchase the Senior and Senior
Subordinated Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on SRI. Finally, SRI's ability to pay cash to the holders of Senior
and Senior Subordinated Notes following the occurrence of a Change of Control
may be limited by SRI's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. The provisions under the Indentures relating to SRI's
obligation to make an offer to repurchase the Senior and Senior Subordinated
Notes as a result of a Change of Control may be waived or modified with the
prior written consent of the Holders of a majority in principal amount of the
Senior and Senior Subordinated Notes.
The Change of Control purchase feature of the Senior and Senior
Subordinated Notes may in certain circumstances make more difficult or
discourage a takeover of SRI or Stage, and, thus, removal of incumbent
management.
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CERTAIN COVENANTS
Except as otherwise specified, each of the Indentures will contain
certain covenants, including among others the ones summarized below.
LIMITATION ON DEBT. (a) Stage shall not, and shall not permit any of
its Restricted Subsidiaries to, Incur, directly or indirectly, any Debt unless
the Consolidated EBITDA Coverage Ratio at the date of such Incurrence exceeds
2.25 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), Stage and its
Restricted Subsidiaries may Incur the following Debt: (1) the Senior and Senior
Subordinated Notes; (2) Debt Incurred by Stage and its Restricted Subsidiaries
pursuant to the Working Capital Facility Provisions of the New Credit Agreement
or any other working capital facility which, when taken together with the
outstanding principal amount of all unreimbursed letters of credit and the
outstanding principal amount of all other Debt Incurred pursuant to this clause
(2), does not exceed at any time in an aggregate principal amount the greater of
(A) $125 million and (B) the sum of (i) 50% of the book value of the inventory
of Stage and its Restricted Subsidiaries and (ii) 85% of the book value of
Receivables (or interests in a Master Trust comprised of Receivables including,
without limitation, "Transferor Certificates" under the Accounts Receivable
Facility) of Stage, its Restricted Subsidiaries and any Accounts Receivable
Subsidiary, but only to the extent that such Receivables (or Master Trust
interests) are owned by Stage, any of its Restricted Subsidiaries or any
Accounts Receivable Subsidiary and may be transferred by Stage, any Restricted
Subsidiary or any Accounts Receivable Subsidiary to a third party for fair value
without the consent of existing investors in such Receivables or such Master
Trust; (3) Debt Incurred by Stage and its Restricted Subsidiaries pursuant to
the Expansion Revolving Credit Facility Provisions of the New Credit Agreement
or Debt Incurred under any other credit or loan agreement or any indenture in
each case which Refinances Debt Incurred under such Expansion Revolving Credit
Facility Provisions or any Debt that previously Refinanced such Debt in
accordance with this clause (3) during the term thereof or concurrent with the
termination thereof which, when taken together with the principal amount of all
other Debt Incurred pursuant to this clause (3), does not exceed $100 million
outstanding at any one time; (4) Debt of Stage owed to and held by a Wholly
Owned Subsidiary and Debt of a Wholly Owned Subsidiary owed to and held by Stage
or another Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any subsequent
issuance or transfer of any Capital Stock which results in such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any transfer of such Debt
(other than to a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Debt by the issuer thereof; (5) Debt of a
Restricted Subsidiary Incurred and outstanding on or prior to the date on which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by
Stage (other than Debt Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Stage); (6) Debt of Stage and
its Restricted Subsidiaries outstanding on the Issue Date (other than Debt
described in clause (1), (2), (3), (4) or (5)); (7) Refinancing Debt in respect
of Debt Incurred pursuant to paragraph (a) or pursuant to clause (1) or (6) or
this clause (7); (8) Hedging Obligations to the extent directly related to Debt
permitted to be Incurred by Stage pursuant to the Indentures; and (9) Debt in an
aggregate principal amount which, together with all other Debt of Stage and its
Restricted Subsidiaries then outstanding (other than Debt permitted by clauses
(1) through (8) of this paragraph (b) or paragraph (a) above) does not exceed
$25 million.
(c) Notwithstanding the foregoing paragraphs (a) and (b) above, Stage
shall not, and shall not permit any Restricted Subsidiary to, Incur any Debt if
the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Debt shall be subordinated to the
applicable Senior and Senior Subordinated Notes at least to the same extent as
the Subordinated Obligations.
(d) The Senior Subordinated Notes Indenture will further provide that,
notwithstanding paragraphs (a) and (b) above, Stage shall not, and shall not
permit SRI or any Guarantor to, Incur any Debt if such Debt is subordinated or
junior in ranking to any Senior Debt, unless such Debt is Senior Subordinated
Debt or is expressly subordinated in right of payment to Senior Subordinated
Debt.
(e) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Debt meets the criteria of more than one of the
types of Debt described in paragraph (b), Stage, in its sole discretion, will
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classify such item of Debt and only be required to include the amount and type
of such Debt in one of the clauses of paragraph (b), (ii) an item of Debt may be
divided and classified in more than one of the types of debt in paragraph (b)
and (iii) Guarantees of Debt otherwise included in the determination of
particular amounts of Debt of Stage or any Restricted Subsidiary shall not also
be included.
LIMITATION ON RESTRICTED PAYMENTS. (a) Stage shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend (either in cash or property) or make any distribution on or in
respect of, or redeem, repurchase, retire or otherwise acquire, its Capital
Stock or the Capital Stock of any Restricted Subsidiary (including any payment
in connection with any merger or consolidation involving Stage) or similar
payment to the direct or indirect holders of its Capital Stock (except dividends
or distributions payable solely in its Non-Convertible Capital Stock or in
options, warrants or other rights to purchase its Non-Convertible Capital Stock
and except dividends or distributions payable to Stage or a Restricted
Subsidiary), and other than pro rata dividends or other distributions made by a
Restricted Subsidiary of Stage that is not a Wholly Owned Subsidiary to minority
shareholders (or owners of an equivalent interest in the case of a Restricted
Subsidiary that is an entity other than a corporation), (ii) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of Stage or a Restricted
Subsidiary (other than such Capital Stock owned by Stage or any Wholly Owned
Subsidiary), (iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition);
(iv) make any Investment (other than a Permitted Investment) in any Person (any
such dividend, distribution, purchase, redemption, repurchase, defeasance or
other acquisition, retirement or Investment being herein referred to as a
"Restricted Payment"), if at the time Stage or such Restricted Subsidiary makes
such Restricted Payment or after giving effect thereto: (1) a Default shall have
occurred and be continuing (or would result therefrom); (2) Stage, after giving
pro forma effect to such Restricted Payment, would not be permitted to Incur at
least an additional $1.00 of Debt pursuant to paragraph (a) under "--Limitation
on Debt"; or (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income (excluding any extraordinary or nonrecurring charges in
connection with the Refinancing and the Acquisition) accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
during which the Notes were originally issued to the end of the most recent
fiscal quarter ending at least 45 days (or, if less, the number of days after
the end of such fiscal quarter as the consolidated financial statements of Stage
shall be provided to Holders pursuant to the Indentures) prior to the date of
such Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds and
aggregate Deemed Asset Value received by Stage from the issue or sale of its
Capital Stock (other than Redeemable Stock or Exchangeable Stock) subsequent to
the Issue Date (other than an issuance or sale to a Subsidiary or an employee
stock ownership plan or similar trust); (C) the amount by which Debt of Stage is
reduced on Stage's balance sheet upon the conversion or exchange (other than by
a Subsidiary) subsequent to the Issue Date, of any Debt of Stage convertible or
exchangeable for Capital Stock (other than Redeemable Stock or Exchangeable
Stock) of Stage (less the amount of any cash, or the fair value of any other
property, distributed by Stage upon such conversion or exchange); (D) an amount
equal to the sum of (i) the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or advances or other
transfers of assets, in each case to Stage or any Restricted Subsidiary from
Unrestricted Subsidiaries (except as provided in clause (xi) of the definition
of "Permitted Investment"), and (ii) the portion (proportionate to the equity
interest of Stage in such Subsidiary) of the fair market value of the net assets
of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum
shall not exceed, in the case of an Unrestricted Subsidiary, the amount of
Investments previously made (and treated as a Restricted Payment) by Stage or
any Restricted Subsidiary in such Unrestricted Subsidiary; and (E) $5 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated Obligations of
Stage made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of Stage (other than Redeemable Stock or
Exchangeable Stock of Stage and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan); PROVIDED, HOWEVER, that (A)
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clause (3)(B) of paragraph (a) above; (ii) any purchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Obligations of Stage made by exchange for, or out of the
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proceeds of the substantially concurrent sale of, Debt of Stage which is
permitted to be Incurred pursuant to the covenant described under "--Limitation
on Debt" above; PROVIDED, HOWEVER, that such purchase, redemption, defeasance or
other acquisition or retirement for value shall be excluded in the calculation
of the amount of Restricted Payments; (iii) any purchase or redemption of
Subordinated Obligations of Stage from Net Available Cash to the extent
permitted under "--Limitation on Sales of Assets and Subsidiary Stock" below;
PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iv) dividends paid within 60
days after the date of declaration thereof if at such date of declaration such
dividend would have complied with this provision; PROVIDED, HOWEVER, that at the
time of declaration of such dividend, no other Default shall have occurred and
be continuing (or would result therefrom); and PROVIDED, FURTHER, HOWEVER, that
such dividend shall be included in the calculation of the amount of Restricted
Payments; (v) the repurchase of shares of, or options to purchase shares of,
common stock of Stage or any of its Subsidiaries from employees, former
employees, directors or former directors of Stage or any of its Subsidiaries (or
permitted transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of Directors
under which such individuals purchase or sell or are granted the option to
purchase or sell, shares of such common stock; PROVIDED, HOWEVER, that the
aggregate amount of such repurchases shall not exceed $5 million in any calendar
year; PROVIDED, FURTHER, HOWEVER, that such repurchases shall be excluded in the
calculation of the amount of Restricted Payments; (vi) the issuance of
securities or payment of cash to consummate the Acquisition in accordance with
the terms of the Merger Agreement; PROVIDED, HOWEVER, that such issuance or
payment shall be excluded in the calculation of the amount of Restricted
Payments; and (vii) Restricted Payments, in addition to those otherwise
permitted pursuant to this covenant, in an aggregate amount not to exceed $15
million; PROVIDED, HOWEVER, that such payments shall be excluded in the
calculation of the amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. Stage shall not, and shall not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Debt or other obligation owed to Stage or any Restricted
Subsidiary, (ii) make any loans or advances to Stage or any Restricted
Subsidiary or (iii) transfer any of its property or assets to Stage or any
Restricted Subsidiary, except: (a) any encumbrance or restriction pursuant to
the New Credit Agreement or any agreement in effect on the Issue Date or
pursuant to the issuance of the Notes; (b) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any Debt
Incurred by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by Stage (other than Debt Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by Stage), and outstanding on such date; (c) any
encumbrance or restriction pursuant to an agreement effecting a Refinancing of
Debt Incurred pursuant to an agreement referred to in clause (a) or (b) or
contained in any amendment to an agreement referred to in clause (a) or (b);
PROVIDED, HOWEVER, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are no less favorable to the Holders than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (d) any such encumbrance or restriction consisting
of customary nonassignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease or other customary
non-assignment provisions in contracts (other than contracts that constitute
Debt) entered into in the ordinary course of business to the extent such
provisions restrict the transfer of the assets subject to such contracts; (e) in
the case of clause (iii) above, restrictions contained in security agreements or
mortgages securing Debt of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages; (f) encumbrances or restrictions imposed by operation
of applicable law; (g) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; and (h) any encumbrance or restriction on the sale of
Receivables arising under agreements in connection with such sales between Stage
or a Restricted Subsidiary and an Accounts Receivable Subsidiary.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) Stage shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) Stage or such Restricted Subsidiary
receives consideration at the time of such Asset Disposition at least equal to
the fair market value (including as to the value of all non-cash consideration),
as determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% of the consideration thereof
received by Stage or such Restricted
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Subsidiary is in the form of cash or cash equivalents and (ii) an amount equal
to 100% of the Net Available Cash from such Asset Disposition is applied by
Stage or SRI (or such Restricted Subsidiary, as the case may be) (A) FIRST, to
the extent Stage or SRI elects (or is required by the terms of any Senior Debt),
to prepay, repay or purchase Senior Debt (other than Debt owed to Stage or SRI
or an Affiliate of Stage or SRI) within one year from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (A), at the election of Stage to the investment by Stage
or any Wholly Owned Subsidiary in assets to replace the assets that were the
subject of such Asset Disposition or an asset or assets that (as determined by
the Board of Directors) will be used in the business of Stage and the Wholly
Owned Subsidiaries existing on the Issue Date or in businesses reasonably
related thereto, in each case within the later of one year from the date of such
Asset Disposition or the receipt of such Net Available Cash; (C) THIRD, to the
extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase the applicable
Senior and Senior Subordinated Notes (and any other Debt designated by SRI
ranking PARI PASSU with such Senior and Senior Subordinated Notes) pursuant to
and subject to the conditions contained in the applicable Indenture (it being
understood that, in all cases, SRI shall be required to make an offer to
purchase the Senior Exchange Notes or Senior Notes prior to making any offer to
purchase the Senior Subordinated Exchange Notes or Senior Subordinated Notes);
and (D)FOURTH, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to (x) the acquisition
by Stage or any Wholly Owned Subsidiary of Tangible Property or (y) the
prepayment, repayment or purchase of Debt (other than any Redeemable Stock) of
Stage or SRI (other than Debt owed to an Affiliate of Stage or SRI) or Debt of
any Restricted Subsidiary (other than Debt owed to Stage or SRI or an Affiliate
of Stage or SRI), in each case within one year from the later of the receipt of
such Net Available Cash and the date the offer described in paragraph (b) below
is consummated; PROVIDED, HOWEVER, that in connection with any prepayment,
repayment or purchase of Debt pursuant to clause (A), (C) or (D) above, Stage,
SRI or such Restricted Subsidiary shall retire such Debt and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, Stage and its Restricted Subsidiaries
shall not be required to apply any Net Available Cash in accordance with this
paragraph except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this paragraph
exceeds $10 million. Pending application of Net Available Cash pursuant to this
paragraph, such Net Available Cash shall be invested in Permitted Investments or
to reduce loans outstanding under any working capital facility.
For the purposes of this covenant, the following are deemed to be cash
or cash equivalents: (x) the express assumption of Debt of Stage or any
Restricted Subsidiary and the release of Stage or Restricted Subsidiary from all
liability on such Debt in connection with such Asset Disposition and (y)
securities received by Stage or any Restricted Subsidiary from the transferee
that are converted by Stage or such Restricted Subsidiary into cash within 90
days of the receipt of such securities.
(b) In the event of an Asset Disposition that requires the purchase of
the Senior and Senior Subordinated Notes (and other Debt ranking PARI PASSU with
the applicable Senior and Senior Subordinated Notes) pursuant to clause
(a)(ii)(C) above, SRI will be required to purchase Senior and Senior
Subordinated Notes tendered pursuant to an offer by SRI for the Senior and
Senior Subordinated Notes (and such other Debt) at a purchase price of 100% of
the principal amount of the Senior and Senior Subordinated Notes on the date of
such offer (without premium) plus accrued but unpaid interest (or, in respect of
such other Debt, such lesser price, if any, as may be provided for by the terms
of such Debt) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the applicable Indenture. If the
aggregate purchase price of Senior and Senior Subordinated Notes (and any such
other Debt) tendered pursuant to any such offer is less than the Net Available
Cash allotted to the purchase thereof, SRI will be required to apply the
remaining Net Available Cash in accordance with clause (a)(ii)(D) above. SRI
shall not be required to make any such offers to purchase Senior and Senior
Subordinated Notes (and other Debt ranking PARI PASSU with the applicable Senior
and Senior Subordinated Notes) pursuant to this covenant if the Net Available
Cash available therefore is less than $10 million (which lesser amount shall be
carried forward for purposes of determining whether any such offer is required
with respect to any subsequent Asset Disposition).
(c) SRI shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Senior and Senior Subordinated
Notes pursuant to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with provisions
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of this covenant, SRI shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
clause by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) Stage shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction or
series of related transactions (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate (including any Accounts Receivable Subsidiary) of
Stage (an "Affiliate Transaction") unless (i) the terms of such Affiliate
Transaction are (A) set forth in writing and (B) as favorable to Stage or such
Restricted Subsidiary as terms that would be obtainable at the time for a
comparable transaction or series of related transactions in arm's-length
dealings with an unrelated third Person, (ii) if such Affiliate Transaction
involves an amount in excess of $3 million, a majority of the disinterested
members of the Board of Directors of Stage have approved, by resolution, and
determined in good faith that such Affiliate Transaction meets the criteria set
forth in (i)(B) above and (iii) if such Affiliate Transaction involves an amount
in excess of $7.5 million (other than a contribution, disposition or other
transfer of Receivables to an Accounts Receivable Subsidiary as permitted under
the Indentures and the related customary contractual arrangements and Customary
Securitization Undertakings), such Affiliate Transaction is determined by a
nationally recognized investment banking firm to be fair from a financial
standpoint to Stage or such Restricted Subsidiary, as the case may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments," (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors of Stage, (iii) loans or
advances to employees in the ordinary course of business, but in any event not
to exceed $5 million in the aggregate outstanding at any one time, (iv) the
payment of reasonable and customary fees to directors of Stage and its
Restricted Subsidiaries, (v) any transaction between Stage and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries, (vi) any written agreement as
in effect on the Issue Date and as amended from time to time PROVIDED that any
such amendment is not less favorable in any material respect to Stage and its
Subsidiaries than the terms in effect on the Issue Date, and (vii)
indemnification payments to directors and officers of Stage in accordance with
applicable state laws.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. Stage shall not sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to Stage or a Wholly Owned Subsidiary;
(ii) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary remains a Restricted Subsidiary; or
(iii) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
thereto would have been permitted to be made under the covenant described under
"--Limitation on Restricted Payments" if made on the date of such issuance, sale
or other disposition. In connection with any such sale or disposition of Capital
Stock, Stage or any such Restricted Subsidiary shall comply with the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock." Nothing
herein shall limit or modify SRI's obligations under "--Change of Control"
above.
LIMITATION ON LIENS. The Senior Notes Indenture will provide that Stage
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, incur or permit to exist any Lien of any nature whatsoever on any of
its properties (including Capital Stock of a Restricted Subsidiary), whether
owned at the Issue Date or thereafter acquired, other than Permitted Liens,
without effectively providing that the Senior Notes shall be secured equally and
ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured.
The Senior Subordinated Notes Indenture will provide that,
notwithstanding paragraphs (a) and (b) of the covenant described under
"--Limitation on Debt" above, Stage shall not, and shall not permit SRI or any
Guarantor to, incur any Secured Debt which is not Senior Debt unless
contemporaneously therewith effective provision is made to secure the Senior
Subordinated Exchange Notes, the Senior Subordinated Notes or the Senior
Subordinated Notes Guaranties, as applicable, equally and ratably with such
Secured Debt for so long as such Secured Debt is secured by a Lien.
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LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Senior Notes Indenture
will provide that Stage shall not, and shall not permit any Restricted
Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any
property unless (i) Stage or such Restricted Subsidiary would be entitled to (A)
incur Debt in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to the covenant described under
"--Limitation on Debt" and (B) create a Lien on such property securing such
Attributable Debt without equally and ratably securing the Senior Exchange Notes
and the Senior Notes pursuant to the covenant described under "--Limitation on
Liens," (ii) the net proceeds received by Stage or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
value (as determined by the Board of Directors) of such property and (iii) Stage
applies the proceeds of such transaction in compliance with the covenant
described under "--Limitation on Sale of Assets and Subsidiary Stock."
ACCOUNTS RECEIVABLE SUBSIDIARIES. Stage (a) shall not permit any
Accounts Receivable Subsidiary to sell any Receivables purchased from Stage or
any of its Subsidiaries or participation interests therein to any other Person
except on an arms-length basis and solely for consideration in the form of cash,
cash equivalents, promissory notes of such Person or Debt of or other interests
in a Master Trust; PROVIDED, HOWEVER, that such Accounts Receivable Subsidiary
may not sell such Debt or other interests to any other Person except on an
arms-length basis and solely for consideration in the form of cash or cash
equivalents; (b) shall not permit any Accounts Receivable Subsidiary to incur
Debt in an amount in excess of the book value of such Accounts Receivable
Subsidiary's total assets, as determined in accordance with GAAP; and (c) shall
not, and shall not permit any of its Subsidiaries to, sell Receivables to an
Accounts Receivable Subsidiary if (i) such Accounts Receivable Subsidiary,
pursuant to or within the meaning of Bankruptcy Law, (A) commences a voluntary
case, (B) consents to the entry of an order for relief against it in an
involuntary case, (C) consents to the appointment of a Custodian of it or for
all or substantially all of its property or (D) makes a general assignment for
the benefit of its creditors or (ii) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (A) is for relief against such
Accounts Receivable Subsidiary, (B) appoints a Custodian of such Accounts
Receivable Subsidiary or for all or substantially all of the property of such
Accounts Receivable Subsidiary or (C) orders the liquidation of such Accounts
Receivable Subsidiary.
FUTURE GUARANTORS. Stage and SRI shall cause each Restricted Subsidiary
to execute and deliver to each Trustee a Guaranty Agreement pursuant to which
such Restricted Subsidiary will Guarantee payment of the Senior and Senior
Subordinated Notes on the same terms and conditions as those set forth in the
Indentures.
SEC REPORTS. Notwithstanding that Stage may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, Stage shall file with the SEC and provide the Trustees and Holders with
such annual reports and such information, documents and other reports specified
in Sections 13 and 15(d) of the Exchange Act, such information, documents and
other reports to be so filed and provided at the times specified for the filing
of such information, documents and reports under such sections.
MERGER AND CONSOLIDATION
Neither Stage nor SRI shall consolidate with or merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all its properties and assets to any Person, unless: (i) the
resulting, surviving or transferee Person (the "Successor Company"), if other
than Stage or SRI, as the case may be, shall be a Person organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia and the Successor Company expressly assumes, by an
indenture supplemental thereto, executed and delivered to the Trustees, in form
acceptable to the Trustees, all the obligations of Stage or SRI, as the case may
be, under the Senior and Senior Subordinated Notes and the Indentures; (ii)
immediately after giving effect to such transaction, on a pro forma basis (and
treating any Debt which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, on a pro forma basis, the Successor Company would be
able to Incur at least $1.00 of additional Debt pursuant to paragraph (a) of the
covenant described under "--Limitation on Debt"; (iv) immediately after giving
effect to such transaction, on a pro forma basis, the Successor Company shall
have Consolidated Net Worth in an amount at least equal to the Consolidated Net
Worth of Stage or SRI, as the case may be, prior to such transaction minus any
costs incurred in connection with such transaction; and (v) Stage or SRI, as the
case may be, shall have delivered to the Trustees an
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Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indentures. The foregoing shall not prohibit the consummation of
the Acquisition by Stage and SRI on the terms described under "The Acquisition."
The Successor Company shall be the successor to Stage or SRI, as the
case may be, and shall succeed to, and be substituted for, and may exercise
every right and power of, Stage or SRI, as the case may be, under the
Indentures, but the predecessor Person in the case of a conveyance, transfer or
lease shall not be released from the obligation to pay the principal of and
interest on the Senior and Senior Subordinated Notes, in the case of SRI, or
from the obligations under the Notes Guaranties, in the case of Stage.
No Subsidiary Guarantor shall, and Stage or SRI, as the case may be,
shall not permit any Subsidiary Guarantor to, consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any Person unless: (i)
the resulting, surviving or transferee Person (if not such Subsidiary Guarantor)
shall be a Person organized and existing under the laws of the jurisdiction
under which such Subsidiary Guarantor was organized or under the laws of the
United States of America, or any State thereof or the District of Columbia, and
such Person shall expressly assume, by Guaranty Agreements, in a form
satisfactory to the Trustees, all the obligations of such Subsidiary Guarantor,
if any, under its Notes Guaranties; (ii) immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Debt which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time of
such transaction), no Default shall have occurred and be continuing; and (iii)
Stage or SRI, as the case may be, delivers to the Trustees Officers'
Certificates and Opinions of Counsel, each stating that such consolidation,
merger or transfer and such Guaranty Agreements, if any, comply with the
Indenture.
DEFAULTS
An "Event of Default" is defined in the Indentures as (a) a default in
any payment of interest on any Exchange Note or Note when the same becomes due
and payable, and such default continues for a period of 30 days; (b) a default
in the payment of the principal of, or premium, if any, on any Exchange Note or
Note when the same becomes due and payable at its Stated Maturity, upon
redemption, upon declaration, upon required repurchase or otherwise; (c) the
failure by SRI or any Guarantor to comply with its obligations under "- Merger
and Consolidation"; (d) the failure by Stage or SRI to comply for 30 days after
the notice specified below with any of its obligations in the covenants
described above under "--Change of Control" (other than a failure to purchase
Notes) or under "--Certain Covenants" under "--Limitation on Debt,"
"--Limitation on Restricted Payments," "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "--Limitation on Sales of Assets
and Subsidiary Stock" (other than a failure to purchase Notes), "--Limitation on
Transactions with Affiliates," "--Limitation on Liens," "--Limitation on
Sale/Leaseback Transactions," "Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries," "Accounts Receivable Subsidiaries," "Future
Guarantors" or "--SEC Reports"; (e) the failure by Stage, SRI or any Guarantor
to comply with any of its agreements in the Senior and Senior Subordinated Notes
or the Indentures (other than those referred to in (a), (b), (c) or (d) above)
and such failure continues for 60 days after the notice specified below; (f) a
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Debt for money borrowed
by Stage or any of its Subsidiaries (or the payment of which is Guaranteed by
Stage or any of its Subsidiaries) whether such Debt or Guarantee now exists, or
is created after the date of the Indentures, which default (i) is caused by
failure to pay principal of such Debt at the final maturity thereof or, in the
case of the Senior Exchange Notes and the Senior Notes only, failure to pay
principal of or interest on such Debt, prior to the expiration of the grace
period provided in such Debt on the date of such default ("Payment Default") or
(ii) results in the acceleration of such Debt prior to its express maturity and,
in each case, the principal amount of any such Debt, together with the principal
amount of any other such Debt under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $15 million or more;
(g) certain events of bankruptcy or insolvency of Stage, SRI or any Significant
Subsidiary; (h) any final non-appealable judgment or decree in excess of $15
million is rendered against Stage, SRI or a Significant Subsidiary and is not
discharged and either an enforcement proceeding has been commenced upon such
judgment or decree or such judgment or decree shall remain undischarged for a
period of 60 days; or (i) any Guarantee ceases to be in effect (other than in
accordance with the terms of the Indentures) or any Guarantor denies or
disaffirms its Guarantee obligations. A Default under clause (d) or (e) is not
an Event of Default until the relevant Trustee
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or the Holders of at least 25% in principal amount of the applicable Senior and
Senior Subordinated Notes notify SRI of the Default and SRI does not cure such
Default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing with respect to the
Senior and Senior Subordinated Notes, the applicable Trustee or the holders of
at least 25% in principal amount of the applicable outstanding Senior and Senior
Subordinated Notes may declare the principal of and accrued but unpaid interest
on all such Senior and Senior Subordinated Notes to be due and payable. Upon
such a declaration, such principal amount and interest shall be due and payable
immediately; PROVIDED that if any Bank Debt shall remain outstanding, such
declaration with respect to the Senior Subordinated Exchange Notes shall not
become effective until three Business Days after notice of such declaration has
been given to the Representative of the holders of the Bank Debt. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of Stage, SRI or a Significant Subsidiary occurs and is continuing, the
principal of and interest on all the relevant Senior and Senior Subordinated
Notes will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the applicable Trustee or any holders of
the relevant Senior and Senior Subordinated Notes. Under certain circumstances,
the holders of a majority in principal amount of the applicable outstanding
Senior and Senior Subordinated Notes may rescind any such acceleration with
respect to such Senior and Senior Subordinated Notes and its consequences.
Subject to the provisions of the Indentures relating to the duties of
the Trustees, in case an Event of Default occurs and is continuing, the Trustees
will be under no obligation to exercise any of the rights or powers under the
Indentures at the request or direction of any of the holders of the Senior and
Senior Subordinated Notes unless such holders have offered to the Trustees
reasonable indemnity or security against any loss, liability or expense. Except
to enforce the right to receive payment of principal, premium (if any) or
interest when due, no holder of an Exchange Note or a Note may pursue any remedy
with respect to the Indentures or the Senior and Senior Subordinated Notes
unless: (i) such holder has previously given the relevant Trustee notice that an
Event of Default is continuing; (ii) holders of at least 25% in principal amount
of the applicable outstanding Senior and Senior Subordinated Notes have
requested the applicable Trustee to pursue the remedy; (iii) such holders have
offered the applicable Trustee reasonable security or indemnity against any
loss, liability or expense ; (iv) the applicable Trustee has not complied with
such request within 60 days after the receipt thereof and the offer of security
or indemnity and (v) the holders of a majority in principal amount of the
applicable outstanding Senior and Senior Subordinated Notes have not given such
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the applicable outstanding Senior and Senior Subordinated Notes are given the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the applicable Trustee or of exercising any trust or power
conferred on such Trustee.
The Indentures provide that if a Default occurs and is continuing and is
known to the Trustees, the Trustees must mail to each Holder notice of the
Default within 90 days (or such shorter period as may be required by applicable
law) after it occurs. Except in the case of a Default in the payment of
principal of, premium (if any) or interest on any Exchange Note or on any Note,
the Trustees may withhold notice if and so long as a committee of its trust
officers determines that withholding notice is in the interest of the holders of
the Senior and Senior Subordinated Notes. In addition, SRI is required to
deliver to the Trustees, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. SRI also is required to deliver to the
Trustees, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action SRI
is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, each of the Senior Notes Indenture and
the Senior Subordinated Notes Indenture may be amended or supplemented with the
consent of the holders of a majority in principal amount of the Senior Exchange
Notes or the Senior Subordinated Exchange Notes, as the case may be, then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Senior and Senior Subordinated Notes) and any past default or
compliance with any provisions may also be waived with the consent of the
holders of a majority in principal amount of the Senior Exchange Notes or the
Senior Subordinated Exchange Notes and the Senior Subordinated Notes, as the
case may be, then outstanding. However, without the consent of each holder of an
outstanding Senior Exchange Note or Senior Subordinated Exchange Note, as the
case may be, no amendment may, among other things: (i) reduce
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the amount of Senior and Senior Subordinated Notes whose holders must consent to
an amendment; (ii) reduce the rate of or extend the time for payment of interest
on any and Senior and Senior Subordinated Note; (iii) reduce the principal of or
extend the Stated Maturity of any Senior and Senior Subordinated Note; (iv)
reduce the premium payable upon the redemption of any Senior and Senior
Subordinated Note or change the time at which any Senior and Senior Subordinated
Note may or shall be redeemed as described under "--Optional Redemption"; (v)
make any Senior and Senior Subordinated Note payable in money other than that
stated in the Senior and Senior Subordinated Note; (vi) impair the right of any
holder of the Senior and Senior Subordinated Notes to receive payment of
principal of, or premium, if any, and interest on such holder's Senior and
Senior Subordinated Notes on or after the due dates therefore or to institute
suit for the enforcement of any payment on or with respect to such holder's
Senior and Senior Subordinated Notes; (vii) make any change in the amendment
provsions which requires each holder's consent or in the waiver provisions;
(viii) make any change in any Notes Guaranty that would adversely affect the
Holders; or (ix) in the case of the Senior Subordinated Exchange Notes, make any
change in the subordination provisions of the Senior Subordinated Notes
Indenture that would adversely affect the holders of the Senior Subordinated
Exchange Notes.
Without the consent of any holder of the Senior and Senior Subordinated
Notes, SRI and the Trustees may amend or supplement the Indentures to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of Stage, SRI or any Guarantor under
the Indentures, to provide for uncertificated Senior and Senior Subordinated
Notes in addition to or in place of certificated Senior and Senior Subordinated
Notes (provided that the uncertificated Senior and Senior Subordinated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Senior and Senior Subordinated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Senior and Senior Subordinated Notes, to release a Notes Guaranty when
permitted by the applicable Indenture, to secure the Senior and Senior
Subordinated Notes, to add to the covenants of Stage and its Subsidiaries for
the benefit of the Holders or to surrender any right or power conferred upon
Stage, SRI or any Guarantor to make any change that does not adversely affect
the rights of any Holder or to comply with any requirement of the SEC in
connection with the qualification of the Indentures under the Trust Indenture
Act of 1939. However, no amendment may be made to the subordination provisions
of the Senior Subordinated Notes Indenture that adversely affects the rights of
any holder of Senior Debt then outstanding unless the holders of such Senior
Debt (or their Representative) consent to such change.
The consent of the Holders is not necessary under either the Senior
Notes Indenture or the Senior Subordinated Notes Indenture to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under either the Senior Notes Indenture or the
Senior Subordinated Notes Indenture becomes effective, SRI is required to mail
to the applicable Holders a notice briefly describing such amendment. However,
the failure to give such notice to all applicable Holders, or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
SRI at any time may terminate all the obligations of Stage and SRI
under the Senior Notes Indenture or the Senior Subordinated Notes Indenture
("legal defeasance"), except for certain obligations, including those respecting
the defeasance trust and obligation to register the transfer or exchange of the
Senior and Senior Subordinated Notes issued under such Indenture, to replace
mutilated, destroyed, lost or stolen Senior and Senior Subordinated Notes and to
maintain a registrar and paying agent in respect of the Senior and Senior
Subordinated Notes. SRI at any time may terminate the obligations of Stage and
SRI under "--Change of Control" and the covenants described under "--Certain
Covenants," the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment default
provision described under "--Defaults" above and the limitations contained in
clauses (iii) and (iv) of the first paragraph under "--Merger and Consolidation"
above ("covenant defeasance").
SRI may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If SRI exercises its legal
defeasance option, payment of the Senior and Senior Subordinated Notes may not
be accelerated because of an Event of Default with respect thereto. If SRI
exercises its covenant defeasance option, payment of the Senior and Senior
Subordinated Notes may not be accelerated because of an Event of Default
specified in clauses
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(d), (f) and (g) (with respect only to Significant Subsidiaries) or (h) under
"--Events of Default" above or because of the failure of SRI to comply with
clause (iii) or (iv) under "--Merger and Consolidation" above. If SRI exercises
its legal defeasance option or its covenant defeasance option, each Guarantor
will be released from all of its obligations with respect to its Notes
Guaranties.
In order to exercise either defeasance option, SRI must irrevocably
deposit in trust (the "defeasance trust") with the applicable Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the Senior and Senior Subordinated Notes to redemption or maturity,
as the case may be, and must comply with certain other conditions, including
delivering to the applicable Trustee an Opinion of Counsel to the effect that
holders of the Senior and Senior Subordinated Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or a change in applicable Federal income tax law).
CONCERNING THE TRUSTEES
State Street Bank and Trust Company is to be the trustee under the
Senior Notes Indenture and the Senior Subordinated Notes Indenture and has been
appointed by SRI as Registrar and Paying Agent with regard to the Senior and
Senior Subordinated Notes.
The Holders of a majority in principal amount of the outstanding Senior
Exchange Notes or the Senior Subordinated Exchange Notes, as the case may be,
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the applicable Trustee,
subject to certain exceptions. The Indentures provide that if an Event of
Default occurs (and is not cured), the Trustees will be required, in the
exercise of their power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, neither Trustee will be
under any obligation to exercise any of its rights or powers under the
Indentures at the request of any Holder of Senior and Senior Subordinated Notes,
unless such Holder shall have offered to the applicable Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the applicable Indenture.
GOVERNING LAW
The Indentures provide that they and each of the Senior and Senior
Subordinated Notes will be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Accounts Receivable Facility" means the program and the transactions
in effect on the Issue Date pursuant to the following principal documents, each
as in effect on the Issue Date, pursuant to which SRPC has acquired and
securitized Receivables originated by SRI: Receivables Purchase Agreement
between SRI and SRPC; Pooling and Servicing Agreement among SRI, as servicer,
SRPC, as transferor, and Bankers Trust (Delaware), as trustee; Series 1993-1
Supplement, Series 1993-2 Supplement and Series 1995-1 Supplement, each between
SRPC, as transferor, and Bankers Trust (Delaware), as trustee; each related
certificate purchase agreement and placement agent agreement; Indenture between
SRPC, as issuer, and Bankers Trust (Delaware), as trustee and collateral agent;
and Purchase Agreement between BT Securities Corp., SRPC and SRI, pertaining to
12.5% Trust Certificate-Backed Notes.
"Accounts Receivable Subsidiary" means a wholly owned Subsidiary of
Stage or a Subsidiary of such wholly owned Subsidiary, in each case which
engages in no activities other than in connection with the financing of
Receivables, including any Banking Subsidiary, and which is designated by the
Board of Directors as an Accounts Receivable Subsidiary pursuant to a board
resolution set forth in an Officers' Certificate and delivered to the Trustees,
(a) no portion of the Debt or any other obligations (contingent or otherwise) of
which: (i) is Guaranteed by Stage or any other Subsidiary of Stage; (ii) is
recourse to or obligates Stage or any other Subsidiary of Stage in any way,
other than pursuant
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to Customary Securitization Undertakings; or (iii) subjects any property or
asset of Stage or any other Subsidiary of Stage, directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other than pursuant to
Customary Securitization Undertakings, (b) with which none of Stage or any other
Subsidiary of Stage has any contract, agreement, arrangement or understanding
other than or such other Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of Stage, other than sales of
Receivables in accordance with clause (v) of the definition of "Asset
Disposition" and fees payable in the ordinary course of business in connection
with servicing Receivables and (c) with which neither Stage nor any other
Subsidiary of Stage or has any obligation: (i) to subscribe for additional
shares of Capital Stock therein; or (ii) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants --Limitation on
Affiliate Transactions" and "--Certain Covenants --Limitations on Sales of
Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Capital
Stock representing 10% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of Stage, or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by Stage or any of its Restricted
Subsidiaries, including, without limitation, any disposition by means of a
merger, consolidation or similar transaction, other than: (i) a disposition by a
Restricted Subsidiary to Stage or by Stage or a Restricted Subsidiary to a
Wholly Owned Subsidiary; (ii) a disposition of property or assets (other than
shares of Capital Stock of a Restricted Subsidiary and which do not constitute
all or substantially all of the assets of any division or line of business of
Stage or any Restricted Subsidiary) at fair market value in the ordinary course
of business; (iii) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sale of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment or a Permitted Investment
permitted by the covenant described under "--Certain Covenants --Limitation on
Restricted Payments"; (iv) a transaction or series of related transactions for
which Stage or its Restricted Subsidiaries receive aggregate consideration of
less than $250,000; (v) contributions, dispositions or other transfers of
Receivables to an Accounts Receivable Subsidiary that is wholly owned, directly
or indirectly, by Stage in exchange for Capital Stock or an increase in paid-in
capital in such Accounts Receivable Subsidiary or sales of Receivables to an
Accounts Receivable Subsidiary for cash and promissory notes, in each case for
consideration having a value at least equal to 95% of the book value thereof as
determined in accordance with GAAP; and (vi) the disposition of all or
substantially all of the assets of Stage permitted by the covenant described
under "Merger and Consolidation."
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction,
as at the time of determination, the present value (discounted at the interest
rate borne by the Senior Exchange Notes, compounded annually) of the total
obligations of the lesse for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing: (i) the sum of
the products of numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount of
such payment by; and (ii) the sum of all such payments.
"Bank Debt" means all obligations pursuant to the New Credit Agreement
including reimbursement obligations in respect of letters of credit and interest
accruing at the contract rate specified therein on or after the filing of any
petition in bankruptcy or for reorganization relating to Stage or SRI whether or
not post-filing interest is an allowed claim in such proceeding.
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"Banking Subsidiary" means a wholly owned Subsidiary of Stage or a
Subsidiary of a wholly owned Subsidiary of Stage, in each case chartered under
the banking laws of the United States or any state thereof, which engages in
activities permitted by applicable banking laws and the primary purpose of which
is to finance the Receivables arising out of sales of goods and services by
Stage and its Subsidiaries.
"Bankruptcy Law" means Title 11, United States Code, or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of Stage or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in such Person (however designated), including any Preferred Stock,
but excluding any debt securities convertible into or exchangeable for such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated EBITDA Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; PROVIDED, HOWEVER, that (1) if Stage or any Restricted
Subsidiary has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated EBITDA Coverage Ratio is an Incurrence of Debt, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, (2) if since
the beginning of such period Stage or any Restricted Subsidiary shall have made
any Asset Disposition, the EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive) directly attributable to the assets which are
the subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative), directly attributable thereto for such
period, and Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable to any
Debt of Stage or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to Stage and its continuing Restricted
Subsidiaries in connection with such Asset Dispositions for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Debt of such
Restricted Subsidiary to the extent Stage and its continuing Restricted
Subsidiaries are no longer liable for such Debt after such sale), (3) if since
the beginning of such period Stage or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period, and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into Stage or any Restricted Subsidiary since
the beginning of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to clause (2) or (3)
above if made by Stage or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition or Investment occurred on
the first day of such period. For purposes of this definition, whenever pro
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forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto, and the amount of Consolidated Interest Expense
associated with any Debt Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of Stage. If any Debt bears a floating rate of interest and
is being given pro forma effect, the interest of such Debt shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Debt if such Interest Rate Agreement has a remaining term in
excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of Stage and its consolidated Restricted Subsidiaries
(excluding amortization of deferred financing costs), plus, to the extent not
included in such interest expense: (i) interest expense attributable to Capital
Lease Obligations; (ii) amortization of debt discount; (iii) capitalized
interest; (iv) non-cash interest expense; (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; (vi) net costs under Hedging Obligations (including amortization of
fees); (vii) Preferred Stock dividends in respect of all Redeemable Stock of
Stage and Preferred Stock dividends payable in cash in respect of all Preferred
Stock held by Persons other than Stage or a Wholly Owned Subsidiary; (viii)
interest incurred in connection with Investments in discontinued operations;
(ix) interest accruing on any Debt of any other Person to the extent such Debt
is Guaranteed by Stage or any of its Restricted Subsidiaries; and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than Stage) in connection with Debt Incurred by such plan
or trust.
"Consolidated Net Income" means, for any period, the net income of
Stage and its consolidated Subsidiaries; provided, however, that there shall not
be included in such Consolidated Net Income (i) any net income of any Person if
such Person is not a Restricted Subsidiary, except that subject to the exclusion
contained in clause (iv) below, Stage's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Person during such
period to Stage or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (iii) below); (ii) any net
income of any Person acquired by Stage or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income of any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to
Stage, except that (A) subject to the exclusion contained in clause (iv) below,
Stage's equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Restricted Subsidiary during such
period to Stage or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to
another Restricted Subsidiary, to the limitation contained in this clause) and
(B) Stage's equity in a net loss of any such Restricted Subsidiary for such
period shall be included in determining such Consolidated Net Income; (iv) any
gain or loss realized upon the sale or other disposition of any property, plant
or equipment of Stage or its consolidated subsidiaries (including pursuant to
any sale-and-leaseback arrangement) which is not sold or otherwise disposed of
in the ordinary course of business and any gain or loss realized upon the sale
or other disposition of any Capital Stock of any Person; (v) extraordinary or
nonrecurring gains or losses; and (vi) the cumulative effect of a change in
accounting principles. Notwithstanding the foregoing, for the purposes of the
covenant described under "Certain Covenants --Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans as advances or other transfers of assets from Unrestricted
Subsidiaries to Stage or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" of any Person means the total of the amounts
shown on the balance sheet of such Person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of such Person ending at least 45 days prior to the
taking of any action for the purpose of which the determination is being made,
as (i) the par or stated value of all outstanding Capital Stock of such Person
plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit,
(B) any amounts attributable to Redeemable Stock and (C) any amounts
attributable to Exchangeable Stock.
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"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Customary Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by Stage or any of its
Restricted Subsidiaries in connection with a Receivables transaction with an
Accounts Receivable Subsidiary and which are reasonably customary in asset
securitization transactions involving accounts, general intangibles or other
rights to payment. All terms and provisions of the Accounts Receivable Facility
shall constitute Customary Securitization Undertakings.
"Debt" of any Person means, without duplication, (i) the principal of
and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business); (iv) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) all Redeemable
Stock of such Person and, with respect to any Subsidiary of such Person, all
Preferred Stock (the amount of Debt represented thereby shall equal the greater
of its liquidation preference and the redemption, repayment or other repurchase
obligations with respect thereto, but excluding any accrued dividends); (vi) all
Hedging Obligations of such Person; (vii) all obligations of the type referred
to in clauses (i) through (v) of other Persons and all dividends of other
Persons for the payment of which, in either case, such Person is responsible or
liable, directly or indirectly, as obligor, guarantor or otherwise, including by
means of any Guarantee; and (viii) all obligations of the type referred to in
clauses (i) through (vi) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured. The amount of
Debt of any Person at any date shall be the outstanding balance of such date of
all unconditional obligations as described above and the maximum liability upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date; PROVIDED, HOWEVER, that the amount
outstanding at any time of any Debt Incurred with original issue discount is the
face amount of such Debt less the remaining unamortized portion of the original
issue discount of such Debt at such time as determined in conformity with GAAP.
"Deemed Asset Value" means 75% of the fair market value, as determined
in good faith by the Board of Directors of Stage, of assets (other than cash)
received by Stage from the issuance or sale of its Capital Stock.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Debt" of any Person means (i) the Bank Debt and (ii)
any other Senior Debt of such Person which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $20
million and is specifically designated by such Person in the instrument
evidencing or governing such Senior Debt as "Designated Senior Debt" for
purposes of the Senior Subordinated Notes Indenture.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of Stage,
(b) depreciation expense, (c) amortization expense and (d) all other non-cash
items reducing such Consolidated Net Income (excluding any non-cash items to the
extent it represents an accrual of, or reserve for, cash disbursements for any
subsequent period) less all non-cash items increasing such Consolidated Net
Income, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
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amortization of, a Subsidiary of Stage shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to Stage by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of Stage which is
neither Exchangeable Stock nor Redeemable Stock).
"Expansion Revolving Credit Facility Provisions" means the provisions
of the New Credit Agreement pursuant to which lenders thereunder have committed
to make available to SRI a reducing revolving credit facility.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
(i) in the opinions and pronouncements of the Certified Public Accountants, (ii)
statements and pronouncements of the Financial Accounting Standards Board, (iii)
in such other statements by such other entity as approved by a significant
segment of the accounting profession, and (iv) the rules and regulations of the
SEC governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff of
the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business,
guarantees of obligations of a Subsidiary in the ordinary course of business if
such obligations do not constitute Debt of such Subsidiary or Customary
Securitization Undertakings. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantor" means any Person that Guarantees SRI's obligations with
respect to the Senior and Senior Subordinated Notes, as the case may be.
"Guaranty Agreement" means a supplemental indenture, in a form
satisfactory to the applicable Trustee, pursuant to which a Guarantor becomes
subject to the applicable terms and conditions of the Senior Notes Indenture or
the Senior Subordinated Notes Indenture.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means the Person in whose name Senior and Senior Subordinated
Note is registered on the Registrar's books.
"Incur" means issue, create, assume, Guarantee, incur or otherwise
become liable for; PROVIDED, HOWEVER, that any Debt or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning.
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"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
to protect Stage or any Restricted Subsidiary against fluctuations in interest
rates.
"Investment" in any Person means any loan or advance to, any
acquisition of Capital Stock, equity interest, obligation or other security of,
or capital contribution or other investment in, or any other credit extension to
(including by way of Guarantee of any Debt of) such Person. For purposes of the
definition of "Unrestricted Subsidiary," the definition of "Restricted Payment"
and the covenant described under "--Certain Covenants --Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Stage's equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of Stage at the time that such Subsidiary is designated
an Unrestricted Subsidiary; PROVIDED, HOWEVER, that if such designation is made
in connection with the acquisition of such Subsidiary or the assets owned by
such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the
consideration paid in connection with such acquisition; PROVIDED, FURTHER,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Stage shall be deemed to continue to have a permanent "Investment"
in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x)
Stage's "Investmentment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to Stage's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the original issue date of the Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Master Trust" means a trust organized for the purpose securitizing
Receivables held by an Accounts Receivable Subsidiary that does not engage in
any business other than (a) the purchase of Receivables or participation
interests therein, (b) the issuance and distribution of indebtedness and other
interests in such trust to (i) the Accounts Receivable Subsidiary or (ii) to
other parties for cash or cash equivalents on an arms-length basis, (c) the
servicing of Receivables and any indebtedness or interests in such trust and (d)
activities ancillary to the actions described in clauses (a), (b) and (c).
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
March 5, 1997, by and between Stage and CR Anthony.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to such
properties or assets that are the subject of such Asset Disposition or received
in any other noncash form) therefrom, in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Debt which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition, and
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts provided by the
sellers as a reserve, in accordance with GAAP, against any liabilities
associated with the property or other assets disposed in such Asset Disposition
and retained by Stage or any Restricted Subsidiary after such Asset Disposition.
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"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock, the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Credit Agreement" means the agreement dated June 17, 1997 among
SRI, Credit Suisse First Boston, as administrative agent, and the other lenders
party thereto, and their respective successors and assigns, together with all
other instruments, documents and agreements related thereto, as the same may be
amended, supplemented, waived and otherwise modified from time to time in
accordance with the terms thereof, and any agreement (and all other related
instruments, documents and agreements) governing Debt Incurred to refund,
replace or refinance, in whole or in part, the borrowings and commitments then
outstanding or permitted to be outstanding under such New Credit Agreement or a
successor New Credit Agreement, whether by the same or any other lender or group
of lenders.
"Non-Convertible Capital Stock" means, with respect to any corporation,
any non-convertible Capital Stock of such corporation and any Capital Stock of
such corporation convertible solely into non-convertible common stock of such
corporation; PROVIDED, HOWEVER, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Notes Guaranty" means the Guarantee by a Guarantor of SRI's
obligations with respect to the Senior and Senior Subordinated Notes, as the
case may be.
"Permitted Investment" means an Investment by Stage or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the
primary business of such Restricted Subsidiary is reasonably related to the
business of Stage; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, Stage or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Person's primary business is reasonably related to the
business of Stage; (iii) Temporary Cash Investments; (iv) receivables owing to
Stage or any Restricted Subsidiary if created or acquired in the ordinary course
of business and payable or dischargeable in accordance with customary trade
terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary
trade terms as Stage or any such Restricted Subsidiary deems reasonable under
the circumstances; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of Stage or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to Stage or any Restricted
Subsidiary or in satisfaction of judgments; (viii) other Investments in an
aggregate amount not to exceed $5 million; (ix) Investments in an Accounts
Receivable Subsidiary received in consideration of contributions or sales of
Receivables permitted pursuant to clause (v) of the definition of "Asset
Disposition;" (x) Investments in a Banking Subsidiary in an aggregate amount not
to exceed $10 million; (xi) Investments in an Accounts Receivable Subsidiary in
an aggregate amount not to exceed the amount of dividends and other
distributions made to Stage or any of its Restricted Subsidiaries from such
Accounts Receivable Subsidiary; PROVIDED, HOWEVER, that the amount of such
Investments actually made shall reduce the amount included in the calculation
made pursuant to clause (a)(3)(D) of the covenant described under "--Certain
Covenants --Limitation on Restricted Payments" to the extent that the amount of
dividends and other distributions by the Accounts Receivable Subsidiary to which
such Investments relate shall have otherwise increased the amount included in
the calculation made pursuant to such clause (a)(3)(D); and (xii) any Person to
the extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition as permitted pursuant to the covenant
described under "--Certain Covenants --Limitation on Sales of Assets and
Subsidiary Stock."
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Debt) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, such as
carriers',
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warehousemen's and mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such Person shall
then be proceeding with an appeal or other proceedings for review; (c) Liens for
property taxes not yet subject to penalties for non-payment or which are being
contested in good faith and by appropriate proceedings; (d) Liens in favor of
issuers of surety bonds or letters of credit issued pursuant to the request of
and for the account of such Person in the ordinary course of its business;
PROVIDED, HOWEVER, that such letters of credit do not constitute Debt; (e) minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Debt and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such Person; (f) Liens securing Debt Incurred to
finance the construction, purchase or lease of, or repairs, improvements or
additions to, property of such Person; PROVIDED, HOWEVER, that the Lien may not
extend to any other property owned by such Person or any of its Subsidiaries at
the time the Lien is Incurred, and the Debt secured by the Lien may not be
Incurred more than 180 days after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full operation of
the property subject to the Lien; PROVIDED, FURTHER, HOWEVER, that all such Debt
does not exceed 10% of Total Assets at the time of Incurrence; (g) Liens to
secure Debt permitted under the provisions described in clause (b)(2) and (b)(3)
under "--Certain Covenants --Limitation on Debt"; (h) Liens existing on the
Issue Date; (i) Liens on property or shares of Capital Stock of another Person
at the time such other Person becomes a Subsidiary of such Person; PROVIDED,
HOWEVER, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
PROVIDED, FURTHER, HOWEVER, that such Lien may not extend to any other property
owned by such Person or any of its Subsidiaries; (j) Liens on property at the
time such Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; PROVIDED, HOWEVER, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; PROVIDED, HOWEVER, that the Liens may not extend to any other
property owned by such Person or any of its Subsidiaries; (k) Liens securing
Debt or other obligations of a Subsidiary of such Person owing to such Person or
a wholly owned Subsidiary of such Person; (l) Liens securing Hedging Obligations
so long as such Hedging Obligations relate to Debt that is, and is permitted to
be under the Indenture, secured by a Lien on the same property securing such
Hedging Obligations; (m) Liens on Receivables in connection with the
contribution or sale of such Receivables to an Accounts Receivable Subsidiary;
and (n) Liens to secure any Refinancing (or successive Refinancings) as a whole,
or in part, of any Debt secured by any Lien referred to in the foregoing clauses
(f), (h), (i) and (j); PROVIDED, HOWEVER, that (x) such new Lien shall be
limited to all or part of the same property that secured the original Lien (plus
improvements to or on such property) and (y) the Debt secured by such Lien at
such time is not increased to any amount greater than the sum of (A) the
outstanding principal amount or, if greater, committed amount of the Debt
described under clauses (f), (h), (i) or (j) at the time the original Lien
became a Permitted Lien and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding, extension,
renewal or replacement. Notwithstanding the foregoing, "Permitted Liens" will
not include any Lien described in clauses (f), (i) or (j) above to the extent
such Lien applies to any Additional Assets acquired directly or indirectly from
Net Available Cash pursuant to the covenant described under "--Certain Covenants
- --Limitation on Sale of Assets and Subsidiary Stock." References to "Debt" in
the foregoing definition of Permitted Liens include Debt and the related
interest or other obligations.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten primary public offering
of common stock of Stage pursuant to an effective registration statement under
the Securities Act.
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"Receivables" means accounts, general intangibles or other rights to
payment from obligors arising from extension of credit to obligors, together
with any financing charges or other fees or charges related thereto, and any
related assets which are transferred under the Accounts Receivable Facility or
which are customarily transferred in connection with asset securitization
transactions involving accounts, general intangibles or other rights to payment.
"Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed on or prior to the first anniversary of the
Stated Maturity of the Senior and Senior Subordinated Notes or is redeemable at
the option of the holder thereof at any time on or prior to the first
anniversary of the Stated Maturity of the Senior and Senior Subordinated Notes.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease, exchange or retire, or to issue other
Debt in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of Stage or any
Restricted Subsidiary existing on the Issue Date or Incurred in compliance with
the Indentures including Debt that Refinances Refinancing Debt; PROVIDED,
HOWEVER, that (i) such Refinancing Debt has a Stated Maturity no earlier than
the Stated Maturity of the Debt being Refinanced, (ii) such Refinancing Debt has
an Average Life at the time such Refinancing Debt is Incurred that is equal to
or greater than the Average Life of the Debt being Refinanced, (iii) such
Refinancing Debt has an aggregate principal amount or premium, if any, (or if
Inc) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Debt being Refinanced and (iv) with respect to any
Refinancing Debt of Debt other than Senior Debt, such Refinancing Debt shall
rank no more senior, and shall be at least as subordinated, in right of payment
to the Notes as the Debt being so extended, renewed, refunded or refinanced;
PROVIDED FURTHER, HOWEVER, that Refinancing Debt shall not include (x) Debt of a
Subsidiary that Refinances Debt of Stage or (y) Debt of Stage or a Restricted
Subsidiary that Refinances Debt of an Unrestricted Subsidiary.
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Debt.
"Restricted Subsidiary" means any Subsidiary of Stage that is not an
Unrestricted Subsidiary, and in all cases shall include SRI.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby Stage or a Restricted Subsidiary
transfers such property to a Person and Stage or a Restricted Subsidiary leases
it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Debt" means any Debt of Stage or any Guarantor secured by a
Lien.
"Senior Debt" of any Person means (I) (i) Debt of such Person, whether
outstanding on the Issue Date or thereafter Incurred and (ii) accrued and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such Person to the extent
post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the applicable
Senior and Senior Subordinated Notes; PROVIDED, HOWEVER, that Senior Debt shall
not include (1) any obligation of such Person to any subsidiary of such Person,
(2) any liability for Federal, state, local or other taxes owed or owing by such
Person, (3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Debt of such Person (and any accrued and
unpaid interest in respect thereof) which is subordinate or junior in any
respect to any other Debt or other obligation of such Person, (5) that portion
of any Debt which at the time of Incurrence is Incurred in violation of an
Indenture, (6) Debt owed to, due, or guaranteed on behalf of, any director,
officer or
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employee of such Person or any subsidiary of such Person (including, without
limitation, amounts owed for compensation), and (7) Debt which when Incurred and
without respect to any election under Section 1111(b) of Title 11 United States
Code, is without recourse to such Person and (II) the Bank Debt.
"Senior Subordinated Debt" means (i) with respect to SRI,any other Debt
of SRI that specifically provides that such Debt is to rank PARI PASSU with the
Senior Subordinated Exchange Notes in right of payment and is not subordinated
by its terms in right of payment to any Debt or other obligation of SRI which is
not Senior Debt of SRI and (ii) with respect to any Guarantor, their respective
Senior Subordinated Notes Guaranties and any other Debt of such Person that
specifically provides that such Debt ranks PARI PASSU with such Senior
Subordinated Notes Guaranties in right of payment and is not subordinated by its
terms in right of payment to any Debt or other obligation of such Person which
is not Senior Debt of such Person.
"Significant Subsidiary" of any Person means any Restricted Subsidiary
that would be a "significant subsidiary" of such Person as defined in Rule 1-02
of Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" of any Person means (i) with respect to the
Senior Notes Indenture, any Debt of such Person (whether outstanding on Issue
Date or hereafter Incurred) which is subordinate or junior in right of payment
to the Senior Exchange Notes pursuant to a written agreement and (ii) with
respect to the Senior Subordinated Notes Indenture, any Debt of such Person
(whether outstanding on Issue Date or hereafter Incurred) which is subordinate
or junior in right of payment to the Senior Subordinated Exchange Notes pursuant
to a written agreement, in each case including, without limitation, the Bealls
Holding Subordinated Notes, the FB Holdings Subordinated Notes and the Bealls
Holding Junior Subordinated Debentures.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) Stage, (ii) Stage and one or more Subsidiaries or
(iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and equipment
and leasehold interests and improvements which would be reflected on a balance
sheet of Stage prepared in accordance with generally accepted accounting
principles, excluding (i) all rights, contracts and other intangible assets of
any nature whatsoever and (ii) all inventories and other current assets.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof in a money market mutual fund registered under the Investment Company
Act of 1940, the principal of which is invested solely in such direct or
guaranteed obligations, (ii) investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000 (or
the foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above and (iv) investments in commercial paper, maturing not more than 90
days after the date of acquisition, issued by a corporation (other than an
Affiliate of Stage) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein
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is made of "P-1" (or higher) according to Moody's Investor Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Group.
"Total Assets" means the total consolidated assets of Stage and its
Subsidiaries, as shown on the most recent balance sheet of Stage.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Unrestricted Subsidiary" means (i) any Subsidiary of Stage that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; (ii) any Subsidiary of an
Unrestricted Subsidiary and (iii) any Accounts Receivable Subsidiary. The Board
of Directors may designate any Subsidiary of Stage (including any newly acquired
or newly formed Subsidiary), to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries own any Capital Stock or Debt of, or holds
any Lien on any property of, Stage or any other Subsidiary of Stage that is not
a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets of greater than $1,000, such designation
would be permitted under the covenant described under "--Certain Covenants --
Limitation on Restricted Payments"; and PROVIDED, FURTHER, HOWEVER, that (1) no
Subsidiary of Stage that is a Restricted Subsidiary on the Issue Date may be
designated an Unrestricted Subsidiary and (2) no Subsidiary holding, directly or
indirectly, any assets held by Stage or a Restricted Subsidiary on the Issue
Date may be designated an Unrestricted Subsidiary. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED,
HOWEVER, that immediately after giving effect to such designation (x) Stage
could Incur $1.00 of additional Debt under paragraph (a) of the covenant
described under "--Certain Covenants --Limitation on Debt" and (y) no Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be by Stage to the Trustee by promptly filing with the Trustee a
copy of the board resolution giving effect to such designation and an Officer's
Certificate certifying that such designation complied with the foregoing
provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled (without regard to any
contingency) to vote in the election of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Stage or
another Wholly Owned Subsidiary.
"Working Capital Facility Provisions" means the provisions of the New
Credit Agreement pursuant to which lenders thereunder have committed to make
available to SRI and certain other Subsidiaries of Stage a revolving credit and
letter of credit facility.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on June 17, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act. As a condition to the Purchase Agreement,
the Company entered into the Registration Rights Agreement with the Initial
Purchasers (the "Registration Rights Agreement") pursuant to which the Company
has agreed, for the benefit of the holders of the Notes, at the Company's cost,
to use its best efforts to (i) file the Exchange Offer Registration Statement
within 60 days after the date of the original issue of the Notes with the
Commission with respect to the Exchange Offer for the Exchange Notes, and (ii)
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within 150 days after the date of original issuance of the
Notes. Upon the Exchange Offer Registration Statement being declared effective,
the Company will offer the Exchange Notes in exchange for surrender of the
Notes. The Company will keep the Exchange Offer open for not less than 30
calendar days (or longer if required by applicable law) after the date on which
notice of the Exchange Offer is mailed to the holders of the Notes. For each
Note surrendered to the Company pursuant to the Exchange Offer, the holder of
such Note will receive an Exchange Note having a principal amount equal to that
of the surrendered Note. Interest on each Exchange Note will accrue from the
date of its original issue.
Under existing interpretations of the staff of the Commission contained
in several no-action letters to third parties, the Exchange Notes would in
general be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing the Exchange Notes (i) will not be able to rely
on the interpretation of the staff of the Commission, (ii) will not be able to
tender its Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes, unless such sale or transfer
is made pursuant to an exemption from such requirements.
Each holder of the Notes (other than certain specified holders) who
wishes to exchange the Notes for Exchange Notes in the Exchange Offer will be
required to represent in the Letter of Transmittal that (i) it is not an
affiliate of the Company, (ii) the Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) at the time of
commencement of rangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any Participating
Broker-Dealer who acquired the Notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Company is required to allow Participating Broker-Dealers and other persons,
if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes.
In the event that changes in the law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect such an
Exchange Offer, or if for any other reason the Exchange Offer is not consummated
within 180 days after the original issue date of the Notes, or if any holder of
the Notes (other than an "affiliate" of the Company or the Initial Purchaser) is
not eligible to participate in the Exchange Offer, or upon the request of the
Initial Purchaser under certain circumstances, the Company will, at its cost,
(a) as promptly as practicable but in no event more than 30 days after so
required or requested, file the Shelf Registration Statement covering resales of
the Notes, (b) use its best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act and (c) use its best efforts to
keep effective the Shelf Registration Statement for a period of two years (or
for such longer period as may be required under certain circumstances) from the
date of its effectiveness or such shorter period that will terminate when the
Notes covered by the Shelf Registration Statement can be sold pursuant to Rule
144 without any limitation under clauses (c), (e), (f) and (h) of Rule 144 (or
any successor rule thereof). The Company will, in the event of the filing of the
Shelf Registration Statement, provide to each applicable holder of the Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective
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and take certain other actions as are required to permit unrestricted resales of
the Notes. A holder of Notes that sells such Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each holder
of the Notes will be required to deliver information to be used in connection
with the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Notes included in the Shelf Registration
Statement and to benefit from the provisions set forth in the following
paragraph.
If (i) on or prior to August 18, 1997, neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement has been filed with
the SEC; (ii) on or prior to December 15, 1997, neither the Registered Exchange
Offer is consummated nor the Shelf Registration Statement is declared effective;
or (iii) after the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions) in
connection with resales of Exchange Notes in accordance with and during the
periods specified in the Registration Rights Agreement (each such event referred
to in clause (i) through (iii) being herein called a "Registration Default"),
additional interest will accrue on the Senior and Senior Subordinated Notes over
and above the stated interest at the rate of 0.50% per annum from and including
the date on which any such Registration Default shall occur to, but excluding,
the date on which all Registration Defaults have been cured. At all other times,
the Notes will bear interest at the applicable rate set forth on the cover page
hereof.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period (determined
on the basis of a 360-day year comprised of twelve 30-day months and, in the
case of a partial month, the actual number of days elapsed), and, the
denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Notes will not have any further registration rights and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Notes
accepted in the Exchange Offer. Holders may tender some or all of their Notes
pursuant to the Exchange Offer. However, Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and
terms of the Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Notes, (ii) the Exchange Notes
have been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Notes in certain circumstances relating to the timing of the Exchange Offer, all
of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Notes and will be entitled to
the benefits of the Indentures.
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As of the date of this Prospectus, $200,000,000 aggregate principal
amount of Senior Notes were outstanding and $100,000,000 aggregate principal
amount of Senior Subordinated Notes were outstanding. The Company has fixed the
close of business on August 7, 1997 as the record date for the Exchange Offer
for purposes of determining the persons to whom this Prospectus and the Letter
of Transmittal will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions into the
exchange of Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September 9, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Company will not extend the Expiration Date beyond September 10,
1997.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance.
Holders of Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on January 15, 1998. Interest on the Notes accepted for exchange
will cease to accrue upon issuance of the Exchange Notes.
Interest on the Senior Exchange Notes and the Senior Subordinated
Exchange Notes is payable semi-annually on each January 15 and July 15,
commencing January 15, 1998.
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PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the third paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the
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Exchange Agent's account with respect to the Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of the Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Notes to the Exchange Agent in accordance with DTC's
ATOP procedures for transfer. DTC will then send an Agent's Message to the
Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received
by the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that SRI may enforce such agreement
against such participant. In the case of an Agent's Message relating to
guaranteed delivery, the term means a message transmitted by DTC and received by
the Exchange Agent, which states that DTC has received an express acknowledgment
from the participant in DTC tendering Notes that such participant has received
and agrees to be bound by the Notice of Guaranteed Delivery.
Notwithstanding the foregoing, in order to validly tender in the
Exchange Offer with respect to Securities transferred pursuant to ATOP, a DTC
participant using ATOP must also properly complete and duly execute the
applicable Letter of Transmittal and deliver it to the Exchange Agent. Pursuant
to authority granted by DTC, any DTC participant which has Notes credited to its
DTC account at any time (and thereby held of record by DTC's nominee) may
directly provide a tender as though it were the registered holder by so
completing, executing and delivering the applicable Letter of Transmittal to the
Exchange Agent. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, aconnection with tenders of Notes must be cured within such time as the
Company shall determine. Although the Company intends, to notify holders of
defects or irregularities with respect to tenders of Notes, neither the Company,
the Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering holders, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
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(b) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder, the
certificate number(s) of such Notes and the principal amount of Notes
tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and any other
documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal
(of facsimile thereof), as well as the certificate(s) representing all
tendered Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility), and all other documents required by
the Letter of Transmittal are received by the Exchange Agent upon five
New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Notes to be withdrawn (the "Depositor"),
(ii) identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Notes are to
be registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or Exchange Notes for, any Notes, and
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in
any court or by or before any governmental agency with respect to the
Exchange Offer which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the
Exchange Offer or any material adverse development has occurred in any
existing action or proceeding with respect to the Company or any of its
subsidiaries; or
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(b) any law, statute, rule, regulation or interpretation by
the staff of the Commission is proposed, adopted or enacted, which, in
the sole judgment of the Company, might materially impair the ability
of the Company to proceed with the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which
approval the Company shall, in its sole discretion, deem necessary for
the consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Notes (see
"--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
State Street Bank and Trust Company
2 International Place (4th Floor)
Boston, Massachusetts 02110
Delivery to an address other than as set forth above will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A
96
<PAGE>
in a transaction meeting the requirements of Rule 144A, in accordance with Rule
144 under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Company), (iii) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904 under
the Securities Act, or (iv) pursuant to an effective registration statement
under the Securities Act, in each case in accordance with any applicable
securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by
the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Notes, where such Notes were acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives an Exchange Note
for its own account in exchange for Notes must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
97
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel
described below) is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to the Company, has advised the
Company that in its opinion, the exchange of the Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Notes. Rather, the Exchange Notes received
by a holder will be treated as a continuation of the Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging Notes for Exchange Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sales of the
Exchange Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Exchange Notes.
Any Participating Broker-Dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compe The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the Holders of the Senior and Senior Subordinated Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
Holders of the Securities (including any Broker-Dealer) against certain
liabilities under the Securities Act.
98
<PAGE>
Prior to the Exchange Offer, there has not been any public market for
the Notes. The Notes have not been registered under the Securities Act and will
be subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Notes (other than any such holder that is an
"affiliate" of the company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Company is required to file a Shelf
Registration Statement with respect to such Notes. The Exchange Notes will
constitute a new issue of securities with no established trading market. SRI
does not intend to list the Exchange Notes on any national securities exchange
or to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statements. Accordingly, no assurance can be given that
an active public or other market will develop for the Exchange Notes or as to
the liquidity of the trading market for the Exchange Notes. If a trading market
does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may be
discontinued at any time.
If a public trading market develops for the Exchange Notes, future
trading prices of the Exchange Notes will depend on many factors, including,
among other things, prevailing interest rates, SRI's operating results and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of SRI, the Exchange Notes may trade at a discount from their
principal amount.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Exchange Notes
offered hereby will be passed upon for the Company by Kirkland & Ellis, New
York, New York.
INDEPENDENT ACCOUNTANTS
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 in this Prospectus, have been audited by Price
Waterhouse LLP, independent accountants, as stated in their report appearing
elsewhere herein. The consolidated financial statements of CR Anthony as of and
for the 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996 and the
52 weeks ended January 29, 1995, included in this Prospectus, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing elsewhere herein.
AVAILABLE INFORMATION
SRI has filed with the Commission a Registration Statement on Form S-4
(the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to SRI and the Exchange Offer, reference is made to the Exchange
Offer Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer 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.
99
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents of Stage, which have been filed with the
Commission pursuant to the Exchange Act, 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 filed March 6, 1997.
3. Stage's Proxy Statement filed April 16, 1997.
4. Stage's Quarterly Report on Form 10-Q for the three months
ended May 3, 1997.
5. Stage's Proxy Statement/Prospectus on Form S-4 filed
May 27, 1997.
6. Stage's Current Report on Form 8-K filed May 27, 1997.
7. Stage's Current Report on Form 8-K filed July 3, 1997.
8. Stage's Current Report on Form 8-K/A filed August 1, 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 this Exchange Offer
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: (713)
667-5601).
100
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STAGE STORES, INC.
AND
CR ANTHONY COMPANY
Page
----
FINANCIAL STATEMENTS OF STAGE STORES, INC.
UNAUDITED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheet at May 3, 1997 and
February 1, 1997 ................................................... F-2
Consolidated Condensed Statement of Income for the three
months ended May 3, 1997 and May 4, 1996 ........................... F-3
Consolidated Condensed Statement of Cash Flows for the
three months ended May 3, 1997 and May 4, 1996 ..................... F-4
Consolidated Condensed Statement of Stockholders' Equity
for the three months ended May 3, 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
FINANCIAL STATEMENTS OF C.R. ANTHONY COMPANY
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets at May 3, 1997, May 4, 1996 and
February 1, 1997 ................................................... F-28
Consolidated Statements of Operations for the thirteen weeks
ended May 3, 1997 and May 4, 1996 .................................. F-29
Consolidated Statements of Cash Flows for the thirteen weeks
ended May 3, 1997 and May 4, 1996 .................................. F-30
Notes to Unaudited Consolidated Financial Statements ................. F-31
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report ......................................... F-32
Consolidated Balance Sheets at February 1, 1997 and
February 3, 1996 ................................................... F-33
Consolidated Statements of Income for 1996, 1995 and 1994 ............ F-34
Consolidated Statements of Stockholders' Equity for 1996,
1995 and 1994 ...................................................... F-35
Consolidated Statements of Cash Flows for 1996, 1995 and 1994 ........ F-36
Notes to Consolidated Financial Statements ........................... F-37
F-1
<PAGE>
STAGE STORES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
FEBRUARY 1,
MAY 3, 1997 1997
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents ...................... $ 10,017 $ 18,286
Undivided interest in accounts
receivable trust ............................ 65,382 80,672
Merchandise inventories ........................ 222,762 187,717
Prepaid expenses ............................... 19,783 15,690
Other current assets ........................... 18,457 32,797
------------ ------------
Total current assets ........................ 336,401 335,162
Property, equipment and leasehold
improvements, net ........................... 116,687 111,189
Goodwill, net .................................. 47,016 47,173
Other assets ................................... 15,089 15,759
------------ ------------
$ 515,193 $ 509,283
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ............................... $ 57,620 $ 54,336
Accrued interest ............................... 7,881 12,908
Accrued expenses and other current
liabilities ................................. 32,850 32,699
------------ ------------
Total current liabilities ................... 98,351 99,943
Long-term debt ................................. 298,599 298,453
Other long-term liabilities .................... 18,859 18,621
------------ ------------
Total liabilities ........................... 415,809 417,017
------------ ------------
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, 22,048 and 22,033 shares
issued and outstanding, respectively ........ 220 220
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 .................. 169,835 169,811
Accumulated deficit ......................... (70,684) (77,778)
------------ ------------
Stockholders' equity ........................ 99,384 92,266
------------ ------------
Commitments and contingencies ............... -- --
------------ ------------
$ 515,193 $ 509,283
============ ============
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
(UNAUDITED)
THREE MONTHS ENDED
----------------------------
MAY 3, 1997 MAY 4, 1996
------------ ------------
Net sales ...................................... $ 191,512 $ 163,177
Cost of sales and related buying,
occupancy and distribution expenses .......... 129,587 111,096
------------ ------------
Gross profit ................................... 61,925 52,081
Selling, general and administrative expenses ... 41,258 35,965
Store opening and closure costs ................ 143 71
------------ ------------
Operating income ............................... 20,524 16,045
Interest, net .................................. 8,942 11,588
------------ ------------
Income before income tax ....................... 11,582 4,457
Income tax expense ............................. 4,488 1,805
------------ ------------
Net income ..................................... $ 7,094 $ 2,652
============ ============
Earnings per common share data:
Earnings per common share ...................... $ 0.30 $ 0.21
============ ============
Weighted average common shares outstanding ..... 23,904 12,861
============ ============
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
---------------------------
MAY 3, 1997 MAY 4, 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 7,094 $ 2,652
------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............... 3,620 3,149
Deferred income taxes ....................... 487 (958)
Accretion of discount ....................... 146 3,768
Amortization of debt issue costs ............ 530 469
Changes in working capital .................. (10,990) (12,295)
------------ ------------
Total adjustments .................... (6,207) (5,867)
------------ ------------
Net cash provided by (used in)
operating activities .................. 887 (3,215)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, equipment and
leasehold improvements .................... (9,097) (6,449)
------------ ------------
Net cash used in investing activities ... (9,097) (6,449)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock .................. 20 34
Payments on long-term debt .................. -- (125)
Redemption of common stock .................. -- (14)
Additions to debt issue costs ............... (79) (92)
------------ ------------
Net cash used in financing activities ... (59) (197)
------------ ------------
Net decrease in cash and cash equivalents ........ (8,269) (9,861)
Cash and cash equivalents:
Beginning of period ......................... 18,286 20,273
------------ ------------
End of period ............................... $ 10,017 $ 10,412
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................... $ 13,247 $ 13,207
============ ============
Income taxes paid ........................... $ 2 $ 5,883
============ ============
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------
CLASS B
--------------------
SHARES SHARES ADDITIONAL ACCUMU-
OUTSTAND- OUTSTAND- PAID-IN LATED
ING AMOUNT ING 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 income .............................. -- -- -- -- -- 7,094 7,094
Vested compensatory stock
options .............................. -- -- -- -- 4 -- 4
Exercise of stock options ............... 15 -- -- -- 20 -- 20
--------- ------ --------- ------ ---------- -------- -------
Balance, May 3, 1997 .................... 22,048 $ 220 1,251 $ 13 $ 169,835 $(70,684) $99,384
========= ====== ========= ====== ========== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
STAGE STORES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated condensed financial statements
of Stage Stores, Inc. (the "Company" or "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/A. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation. 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 "1997" is a
reference to the fiscal year ended January 31, 1998).
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 May 3, 1997, the Company operated 327 stores in
20 states located throughout the central United States.
2. Pursuant to the accounts receivable securitization program (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 a wholly-owned special purpose entity, SRI Receivables Purchase Co.,
Inc. ("SRPC"). SRPC, in turn, transfers the accounts receivable to a
securitization vehicle, a special purpose trust (the "Trust"), in exchange for
cash or an increase in a retained interest in the Trust which is represented by
two certificates of beneficial ownership (the "Retained Certificates"). SRPC 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.
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
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 on the accompanying
financial statements for all periods presented.
4. On March 5, 1997, the Company reached a definitive agreement to acquire
C.R. Anthony Company ("CR Anthony"), a retailer of branded and private label
apparel for the entire family which operated 238 stores in 16 southwestern and
Rocky Mountain states as of May 3, 1997. 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
5. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128, which is effective for periods ending after December 15, 1997,
specifies the computation, presentation and disclosure requirements of earnings
per share ("EPS") and supersedes Accounting Principles Board Opinion No. 15
("APB 15"). SFAS 128 requires a dual presentation of basic and diluted EPS.
Basic EPS, which excludes the impact of common stock equivalents, replaces
primary EPS. Diluted EPS, which utilizes the average market price per share as
opposed to the greater of the average market price per share or ending market
price per share when applying the treasury stock method in determining common
stock equivalents, replaces fully diluted EPS. Basic and diluted EPS for all
historical periods presented, calculated assuming
F-6
<PAGE>
SFAS 128 was effective at the beginning of such historical period, would not be
materially different than the presentations using APB 15.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Stage Stores, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Stage Stores, Inc. 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>
STAGE STORES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
FEBRUARY 1, FEBRUARY 3,
1997 1996
--------- ---------
ASSETS
Cash and cash equivalents .............................. $ 18,286 $ 20,273
Undivided interest in accounts receivable trust ........ 80,672 56,515
Merchandise inventories ................................ 187,717 150,032
Prepaid expenses ....................................... 15,690 17,378
Other current assets ................................... 32,797 12,225
--------- ---------
Total current assets ................................ 335,162 256,423
Property, equipment and leasehold improvements, net .... 111,189 93,118
Goodwill, net .......................................... 47,173 30,876
Other assets ........................................... 15,759 27,837
--------- ---------
$ 509,283 $ 408,254
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ....................................... $ 54,336 $ 41,494
Accrued interest ....................................... 12,908 12,327
Accrued employee compensation costs .................... 10,068 7,892
Accrued expenses and other current liabilities ......... 22,631 24,602
--------- ---------
Total current liabilities ........................... 99,943 86,315
Long-term debt ......................................... 298,453 380,039
Other long-term liabilities ............................ 12,638 14,214
Deferred income taxes .................................. 5,983 --
--------- ---------
Total liabilities ................................... 417,017 480,568
--------- ---------
Preferred stock, par value $1.00, non-voting, 2,500
shares authorized, no shares issued or outstanding ... -- --
Common stock, par value $0.01, 75,000,000 shares
authorized, 22,033,303 and 10,866,041 shares
issued and outstanding, respectively ................. 220 109
Class B common stock, par value $0.01, non-voting
3,000,000 shares authorized, 1,250,584 and
1,391,303 shares issued and outstanding, respectively 13 14
Additional paid-in capital ............................. 169,811 3,800
Accumulated deficit .................................... (77,778) (76,237)
--------- ---------
Stockholders' equity (deficit) ....................... 92,266 (72,314)
--------- ---------
Commitments and contingencies .......................... -- --
--------- ---------
$ 509,283 $ 408,254
========= =========
The accompanying notes are an integral part of this statement.
F-9
<PAGE>
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
FISCAL YEAR
-----------------------------------
1996 1995 1994
---------- ---------- ----------
Net sales ................................ $ 776,550 $ 682,624 $ 581,463
Cost of sales and related buying,
occupancy and distribution expenses ... 532,563 468,347 398,659
---------- ---------- ----------
Gross profit ............................. 243,987 214,277 182,804
Selling, general and
administrative expenses ............... 172,579 149,102 126,200
Store opening and closure costs .......... 2,838 3,689 5,647
---------- ---------- ----------
Operating income ......................... 68,570 61,486 50,957
Interest, net ............................ 45,954 43,989 40,010
---------- ---------- ----------
Income before income tax and
extraordinary item .................... 22,616 17,497 10,947
Income tax expense ....................... 8,594 6,767 4,317
---------- ---------- ----------
Income before extraordinary item ......... 14,022 10,730 6,630
Extraordinary item - early retirement
of debt ............................... (16,081) -- (308)
---------- ---------- ----------
Net income (loss) ........................ $ (2,059) $ 10,730 $ 6,322
========== ========== ==========
Earnings (loss) per common share data:
Earnings per common share before
extraordinary item .................... $ 0.88 $ 0.84 $ 0.54
Extraordinary item - early retirement
of debt ............................... (1.01) -- (0.03)
---------- ---------- ----------
Earnings (loss) per common share after
extraordinary item .................... $ (0.13) $ 0.84 $ 0.51
========== ========== ==========
Weighted average common shares
outstanding ........................... 15,927 12,726 12,393
========== ========== ==========
The accompanying notes are an integral part of this statement.
F-10
<PAGE>
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ (2,059) $ 10,730 $ 6,322
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................ 14,181 12,816 9,997
Deferred income taxes .................................... 15,650 (4,065) (3,608)
Accretion of discount .................................... 11,097 13,940 12,286
Amortization of debt issue costs ......................... 2,104 1,860 1,674
Issuance of long-term debt in lieu of interest payment ... -- 147 282
Loss on early retirement of debt ......................... 16,081 -- 308
Changes in operating assets and liabilities:
Decrease (increase) in undivided interest in
accounts receivable trust ......................... (18,815) 7,885 (11,974)
Increase in merchandise inventories ................... (28,199) (31,650) (14,077)
Increase in other assets .............................. (3,339) (6,611) (3,265)
Increase (decrease) in accounts payable
and accrued liabilities ........................... (6,614) 1,202 11,861
---------- ---------- ----------
Total adjustments ................................... 2,146 (4,476) 3,484
---------- ---------- ----------
Net cash provided by operating activities ............. 87 6,254 9,806
---------- ---------- ----------
Cash flows from investing activities:
Decrease (increase) in restricted investments ............ -- (100) 10,811
Acquisitions, net of cash acquired ....................... (27,346) (1,167) (20,840)
Additions to property, equipment and leasehold
improvements, net ..................................... (26,096) (28,638) (19,706)
---------- ---------- ----------
Net cash used in investing activities ................. (53,442) (29,905) (29,735)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from:
Long-term debt ............................................. 30,000 16,458 --
Common stock ............................................... 165,969 68 97
Payments on:
Long-term debt ........................................... (140,677) (266) (10,442)
Redemption of common stock ............................... (46) (122) --
Additions to debt issue costs ............................ (3,878) (807) (448)
---------- ---------- ----------
Net cash provided by (used in)
financing activities ............................... 51,368 15,331 (10,793)
---------- ---------- ----------
Net decrease in cash and cash equivalents ............. (1,987) (8,320) (30,722)
Cash and cash equivalents:
Beginning of year ........................................ 20,273 28,593 59,315
---------- ---------- ----------
End of year .............................................. $ 18,286 $ 20,273 $ 28,593
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-11
<PAGE>
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
FISCAL YEAR
----------------------------
1996 1995 1994
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid .................................. $ 32,094 $ 27,845 $ 28,414
======== ======== ========
Income taxes paid .............................. $ 6,988 $ 5,939 $ 5,198
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased Uhlmans, Inc. on June 3, 1996, Mammouth, Inc. and
Szolds, Inc. during 1995 and a significant portion of the assets of
Beall-Ladymon, Inc. during 1994. In conjunction with these acquisitions,
liabilities were assumed as follows:
<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>
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>
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:
Buildings............................................ 20-25
Store and office fixtures and equipment.............. 7-12
Warehouse equipment.................................. 5-15
Leasehold improvements............................... 15-50
F-14
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INCOME TAXES: The provision for income taxes is computed based on the
pretax income included in the consolidated statement of operations. The asset
and liability approach is used to recognize deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
EARNINGS (LOSS) PER COMMON SHARE: Common stock options outstanding are
treated as common stock equivalents in the computation of earnings or loss per
common share using the treasury stock method. Prior to the initial public
offering of the Company's common stock (see Note 2), the fair value of the
Company's common stock was determined in good faith by the Board of Directors
based upon the Company's historical and projected financial performance.
STOCK SPLIT: Share and per share amounts for all periods presented
reflect the impact of a .94727 for 1 reverse stock split of the Company's common
stock consummated concurrently with the Company's initial public offering.
DEBT ISSUE COSTS: Debt issue costs are accounted for as a deferred
charge and amortized on a straight-line basis over the term of the related
issue. Amortization of debt issue costs were $2.1 million, $1.9 million and $1.7
million for 1996, 1995 and 1994, respectively.
GOODWILL AND OTHER INTANGIBLES: The Company amortizes goodwill and
intangible assets on a straight-line basis over the estimated future periods
benefited, not to exceed forty years. Amortization periods for goodwill and
other intangibles associated with acquisitions are currently five to forty
years. Each year, the Company evaluates the remaining useful life associated
with goodwill based upon, among other things, historical and expected long-term
results of operations. Accumulated amortization of goodwill was $5.4 million and
$4.7 million at February 1, 1997 and February 3, 1996, respectively.
STORE PRE-OPENING EXPENSES: Pre-opening expenses of new stores are
charged to operations in the year the store opens.
ADVERTISING EXPENSES: Advertising costs are charged to operations when
the related advertising first takes place. Advertising costs were $29.7 million,
$25.9 million and $22.3 million for 1996, 1995 and 1994, respectively. Prepaid
advertising costs were $1.2 million and $0.5 million at February 1, 1997 and
February 3, 1996, respectively.
STATEMENT OF CASH FLOWS: The Company considers highly liquid
investments with initial maturities of less than three months to be cash
equivalents in its statement of cash flows.
FINANCIAL INSTRUMENTS: Except for the Retained Certificates, the
Company records all financial instruments at cost. The cost of all financial
instruments, except long-term debt and the Retained Certificates, approximates
fair value.
IMPAIRMENT OF ASSETS: The Company adopted Statement of Financial
Accounting Standard No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" during the first
quarter of 1996. The adoption of SFAS 121 did not have a material effect on the
Company's financial position or results of operations.
RECLASSIFICATIONS: The accompanying consolidated financial statements
include reclassifications from financial statements issued in previous years.
F-15
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2--INITIAL PUBLIC OFFERING OF COMMON STOCK
During October 1996, the Company completed an initial public offering
whereby the Company sold 10,750,000 shares of its common stock to the public.
The net proceeds of $165.7 million were used primarily to retire the 12 3/4%
Senior Discount Debentures due 2000 (the "Senior Discount Debentures"). In
addition, the Company replaced its working capital facility in January 1997. As
a result of the early retirement of the Senior Discount Debentures and the
replacement of the working capital facility, the Company recorded an
extraordinary charge of $16.1 million, net of applicable income taxes of $9.8
million.
NOTE 3--ACCOUNTS RECEIVABLE SECURITIZATION
Pursuant to the accounts receivable securitization (the "Accounts
Receivable Program"), the Company transfers all of the accounts receivable
generated by the holders of the Company's private label credit card accounts to
SRPC on a daily basis in exchange for cash or an increase in the Retained
Certificates. SRPC is a separate limited-purpose subsidiary that is operated in
a fashion intended to ensure that its assets and liabilities are distinct from
those of the Company and its other affiliates as SRPC's creditors have a claim
on its assets prior to becoming available to any creditor of the Company. The
Trust currently has $165.0 million of term certificates and a $40.0 million
revolving certificate outstanding which represent undivided interests in the
Trust. The holder of the revolving certificate has agreed to purchase interests
in the Trust equal to the amount of accounts receivable in the Trust above the
level required to support the Retained Certificates, up to a maximum of $40.0
million. If accounts receivable balances in the Trust fall below the level
required to support the term certificates and revolving certificates, certain
principal collections may be retained in the Trust until such time as the
receivable balances exceed the certificates then outstanding and the required
Retained Certificates. The Trust may issue additional series of certificates
from time to time. Terms of any future series will be determined at the time of
issuance. The outstanding balances of the term certificates totaled $165.0
million at February 1, 1997 and February 3, 1996. There were no balances
outstanding under the revolving certificates at February 1, 1997 or February 3,
1996.
Total accounts receivable transferred to the Trust during 1996, 1995
and 1994 were $441.4 million, $411.6 million and $362.3 million, respectively.
The cash flows generated from the accounts receivable in the Trust are dedicated
to (i) the purchase of new accounts receivable generated by the Company, (ii)
payment of a return on the certificates and (iii) the payment of a servicing fee
to SRI. Any remaining cash flows are remitted to the Company. The term
certificates entitle the holders to receive a return, based upon the London
Interbank Offered Rate ("LIBOR"), plus a specified margin paid on a quarterly
basis. Principal payments commence on December 31, 1999 but can be accelerated
upon occurrence of certain events. The revolving certificate entitles the holder
to receive a return based upon a floating LIBOR rate, plus a specified margin,
or prime rate, at the option of the Company paid on a monthly basis. The Company
is currently protected against increases above 12% under an agreement entered
into with a bank. The Company is exposed to a loss in the event of
non-performance by the bank. However, the Company does not anticipate
non-performance by the bank. At February 1, 1997, the average rate of return on
the term certificates was 6.5%. The purchase commitment for the revolving
certificate is five years, subject to renewal at the option of the parties. The
revolving certificate holders are entitled to repayment in the event the
accounts receivable decrease below that required to support such certificates.
F-16
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The impact of the Accounts Receivable Program on the Company's
statement of operations for the years presented is as follows (in thousands):
Fiscal Year
------------------------------
1996 1995 1994
-------- -------- --------
Finance charge income billed to cardholders ... $ 48,555 $ 41,321 $ 35,183
Return paid to certificateholders ............. (11,428) (11,529) (8,200)
Servicing and bad debt expenses ............... (37,626) (28,551) (22,504)
Other ......................................... 279 (62) (1,552)
-------- -------- --------
$ (220) $ 1,179 $ 2,927
======== ======== ========
NOTE 4--PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as follows (in
thousands):
FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ----------------
Land ............................... $ 3,074 $ 3,074
Buildings .......................... 16,308 16,313
Fixtures and equipment ............. 104,958 88,794
Leasehold improvements ............. 63,022 49,290
---------------- ----------------
187,362 157,471
Accumulated depreciation ........... 76,173 64,353
---------------- ----------------
$ 111,189 $ 93,118
================ ================
Depreciation expense was $12.3 million, $10.8 million and $8.5 million
for 1996, 1995 and 1994, respectively.
NOTE 5--STORE CLOSURES
During 1994, the Company approved a store closure plan (the "Store
Closure Plan") which provided for the closure of forty Fashion Bar stores. These
stores were primarily located in major regional malls within the Denver area.
Management determined that the merchandising strategy and market positions of
such stores were not compatible with the Company's overall merchandising
philosophy or growth strategy. The Company accrued $5.2 million for the expected
costs associated with the Store Closure Plan in 1994. The Company substantially
completed the Store Closure Plan during 1995. Net sales and operating income
attributable to the stores closed were $23.2 million and $0.6 million,
respectively, in 1994. Such amounts were not material during 1996 and 1995.
F-17
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ----------------
SRI Senior Notes ....................... $ 130,000 $ 130,000
SRI Senior Subordinated Notes,
net of discount ...................... 116,686 116,530
Revolving Credit Agreements ............ -- --
SRPC Notes ............................. 30,000 --
Bealls Holding Subordinated Notes,
net of discount ...................... 11,945 11,319
FB Holdings Subordinated Notes,
net of discount ...................... 4,174 4,125
Bealls Holding Junior Subordinated
Debentures, net of discount .......... 6,408 6,221
Port Arthur IDRB ....................... 1,877 2,002
Senior Discount Debentures,
net of discount ...................... -- 109,817
Other long term debt ................... -- 301
---------------- ----------------
301,090 380,315
Current maturities ..................... 2,637 276
---------------- ----------------
$ 298,453 $ 380,039
================ ================
The Company used the proceeds of the initial public offering of the
Company's common stock to retire the Senior Discount Debentures at 112.7% of the
accreted value ($120.0 million). Prior to their retirement, the Senior Discount
Debentures bore interest at 12 3/4% of the accreted value. During the time the
Senior Discount Debentures were outstanding, no cash interest was paid.
The SRI Senior Notes were issued with a principal amount of $150.0
million and bear interest at 10% payable semi-annually on February 15 and August
15. The Company is required to make a mandatory sinking fund payment on August
15, 1999 equal to 25% of the original principal amount. The Company has
purchased $20.0 million of the SRI Senior Notes which satisfied a portion of the
August 15, 1999 sinking fund requirement. The SRI Senior Notes are general
unsecured obligations and rank senior to all subordinated debt of the Company
including the SRI Senior Subordinated Notes. At February 1, 1997 and February 3,
1996, an affiliate of a significant stockholder held $44.2 million of SRI Senior
Notes. Interest expense related to SRI Senior Notes held by related parties was
$4.4 million for 1996 and 1995, and $2.9 million for 1994.
The SRI Senior Subordinated Notes consist of two series with principal
balances of $100.0 million and $18.3 million. The $18.3 million series was
issued at a discount which results in a combined effective interest rate for
both series of 11.3%. Both series bear interest at 11% payable semi-annually on
February 15 and August 15. SRI is required to make a mandatory sinking fund
payment in 2002 equal to forty percent of the original principal amount of both
series. The SRI Senior Subordinated Notes are subordinated to the obligations
under the SRI Senior Notes.
The SRI Senior Notes and SRI Senior Subordinated Notes contain
restrictive covenants which, among other things, limit (i) SRI's ability to sell
certain assets, pay dividends, retire its common stock or retire certain debt,
(ii) its ability to incur additional debt or issue stock and (iii) certain
related party transactions.
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
F-18
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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%.
F-19
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The principal amount of Bealls Holding Junior Subordinated Debentures
outstanding at February 1, 1997 was $14.3 million. The Bealls Holding Junior
Subordinated Debentures are subordinated to all debt of the Company. SRI is the
primary obligor under these debentures.
The Port Arthur Industrial Development Revenue Bond (the "Port Arthur
IDRB") bears interest at 75% of the prime rate payable monthly. The interest
rate applicable to the Port Arthur IDRB at February 1, 1997 was 6.0%. The Port
Arthur IDRB is collateralized by a building with a net book value of
approximately $0.7 million. Under a separate agreement, SRI is required to make
scheduled annual sinking fund payments ranging from $0.1 million to $0.2
million.
Aggregate maturities of long-term debt for the next five years are:
1997 - $2.6 million; 1998 - $2.6 million; 1999 - $22.3 million; 2000 - $117.4
million and 2001 - $ 32.7 million.
Management estimates the fair value of its long-term debt to be $320.1
million and $352.3 million at February 1, 1997 and February 3, 1996,
respectively. In developing its estimates, management considered quoted market
prices for each instrument, if available, current market interest rates in
relation to the coupon interest rates of each instrument, the relative
subordination of each instrument and the relative liquidity of the instrument as
indicated by the presence or lack of an active market.
NOTE 7--STOCK OPTION PLANS
In 1993, the Company adopted the Third Amended and Restated Stock
Option Plan (the "1993 Stock Option Plan") designed to provide incentives to
present and future executive, managerial, technical and other key employees and
advisors to the Company (the "Participants") as selected by the Board of
Directors or the compensation committee of the Board of Directors (the "Board").
All options granted under the 1993 Stock Option Plan were non-qualified within
the meaning of Section 422A of the Internal Revenue Code. The number of shares
of common stock which could be granted under the 1993 Stock Option Plan was
1,894,540 shares. As of February 1, 1997, there were 1,475,581 options
outstanding under the 1993 Stock Option Plan. During 1996, the 1993 Stock Option
Plan was frozen and replaced by the 1996 Equity Incentive Plan (the "Incentive
Plan"). The Incentive Plan provides for the granting of the following types of
incentive awards: stock options, stock appreciation rights ("SARs"), restricted
stock, performance units, performance grants and other types of awards that the
Board deems to be consistent with the purposes of the Incentive Plan. An
aggregate of 1,500,000 shares of common stock have been reserved for issuance
under the Incentive Plan; however, no Participant shall be entitled to receive
grants of common stock, stock options or SARs with respect to common stock, in
any calendar year in excess of 400,000 shares in the aggregate. There were no
grants made under the Incentive Plan during 1996.
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>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of the option activity under the various plans follows:
NUMBER OF WEIGHTED
OUTSTANDING AVERAGE
OPTIONS OPTION PRICE
------------ ------------
Options outstanding at January 29, 1994 ....... 540,987 $ 0.46
Granted ....................................... 186,647 2.27
Surrendered ................................... (21,068) 1.25
Exercised ..................................... (2,720) 0.11
------------
Options outstanding at January 28, 1995 ....... 703,846 0.91
Granted ....................................... 409,108 2.95
Surrendered ................................... (7,435) 1.50
Exercised ..................................... (99,985) 0.32
------------
Options outstanding at February 3, 1996 ....... 1,005,534 1.80
Granted ....................................... 783,819 10.72
Surrendered ................................... (31,550) 4.48
Exercised ..................................... (282,222) 1.10
------------
Options outstanding at February 1, 1997 ....... 1,475,581 6.61
============
Exercisable options at February 3, 1996 and January 28, 1995 were 241,355
and 123,685, respectively. A summary of outstanding and exercisable options as
of February 1, 1997 follows:
WEIGHTED
AVERAGE
NUMBER OF REMAINING NUMBER OF
OUTSTANDING CONTRACTUAL EXERCISABLE
OPTION PRICE OPTIONS LIFE OPTIONS
- -------------- ------------------ ------------- -------------------
$ 0.11 175,318 6.3 75,171
2.27 246,392 7.3 79,777
3.04 260,584 8.4 21,392
5.28 503,212 9.0 5,018
10.56 34,329 9.3 --
21.11 255,746 9.3 --
------------------ -------------------
1,475,581 181,358
================== ===================
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for its plans. Compensation expense
was $0.3 million for each of 1996, 1995 and 1994. The following unaudited pro
forma data is calculated as if compensation cost for the Company's stock option
plans were determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation":
F-21
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1996 1995
---------- ----------
Pro forma net income (loss) ........................... $ (2,653) $ 10,592
Pro forma earnings (loss) per common share ............ (0.17) 0.83
Weighted average grant date value of options granted .. 8.33 3.59
The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following assumptions: no dividend yield;
volatility of 34.35%; risk-free interest rate of 6.25%; assumed forfeiture rate
of 68.26% and an expected life of eight years. The pro forma amounts above are
not likely to be representative of future years because options vest over
several years and additional awards generally are made each year.
NOTE 8--EMPLOYEE BENEFIT PLANS
Pension benefits for employees are provided under the SRI Restated
Retirement Plan (the "Retirement Plan"), a qualified defined benefit plan.
Benefits are administered through a Trust arrangement which provides monthly
payments or lump sum distributions. The Retirement Plan covers substantially all
employees who have completed one year of service with 1,000 hours of service.
Benefits under the plan are based upon a percentage of the participant's
earnings during each year of credited service.
The following sets forth the funded status of the Retirement Plan and the
amounts recognized in the consolidated financial statements (in thousands):
FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ----------------
Actuarial present value of benefits:
Vested benefit obligations ............... $ (24,650) $ (24,680)
================ ================
Accumulated benefit obligations .......... $ (25,660) $ (25,790)
================ ================
Projected benefit obligations ............ $ (33,790) $ (32,240)
Market value of plan assets, primarily
fixed income and equity securities ... 20,990 20,000
---------------- ----------------
Pension obligations in excess of assets .. (12,800) (12,240)
Unrecognized prior service income ........ (21) (28)
Unrecognized net loss .................... 11,772 10,948
Adjustment required to recognize
minimum liability .................... (3,621) (4,470)
---------------- ----------------
Accrued pension cost ..................... $ (4,670) $ (5,790)
================ ================
Assumptions utilized in determining
projected obligations and
funding amounts:
Discount rate............................. 7.50% 7.00%
Rate of increase in compensation levels... 4.00% 4.00%
Expected long-term rate of return on
plan assets........................... 9.00% 9.00%
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.
F-22
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of pension cost for the Retirement Plan were as follows (in
thousands):
FISCAL YEAR
------------------------------------
1996 1995 1994
---------- ---------- ----------
Service cost ............................ $ 1,269 $ 771 $ 887
Interest cost ........................... 2,085 2,139 1,995
Actual loss (return) on plan assets ..... (2,047) (3,377) 940
Net amortization and deferral ........... 789 2,292 (2,174)
---------- ---------- ----------
$ 2,096 $ 1,825 $ 1,648
========== ========== ==========
NOTE 9--OPERATING LEASES
The Company leases stores, service center facilities, the corporate
headquarters and equipment under operating leases. A number of store leases
provide for escalating minimum rent. Rental expense is recognized on a
straight-line basis over the life of such leases. The majority of the Company's
store leases provide for contingent rentals, generally based upon a percentage
of net sales. The Company has renewal options for most of its store leases; such
leases generally require that the Company pay for utilities, taxes and
maintenance expense. A summary of rental expense associated with operating
leases follows (in thousands):
FISCAL YEAR
------------------------------------------
1996 1995 1994
---------- ---------- ----------
Minimum rentals ................ $ 30,397 $ 26,943 $ 22,979
Contingent rentals ............. 3,318 2,618 2,874
Equipment rentals .............. 829 593 784
---------- ---------- ----------
$ 34,544 $ 30,154 $ 26,637
========== ========== ==========
Minimum rental commitments on long-term operating leases at February 1,
1997, net of sub-leases, are as follows (in thousands):
Fiscal Year:
1997 ........................................ $ 32,657
1998 ........................................ 31,087
1999 ........................................ 29,248
2000 ........................................ 25,561
2001 ........................................ 21,614
Thereafter .................................. 107,428
--------
$247,595
========
F-23
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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):
FISCAL YEAR
------------------------------------
1996 1995 1994
---------- ---------- ----------
Federal income tax expense (benefit):
Current ................................. $ (7,443) $ 9,772 $ 7,154
Deferred ................................ 15,399 (3,630) (3,794)
---------- ---------- ----------
7,956 6,142 3,360
---------- ---------- ----------
State income tax expense (benefit):
Current ................................. 764 1,060 771
Deferred ................................ (126) (435) 186
---------- ---------- ----------
638 625 957
---------- ---------- ----------
$ 8,594 $ 6,767 $ 4,317
========== ========== ==========
A reconciliation between the federal income tax expense charged to
continuing operations computed at statutory tax rates and the actual income tax
expense recorded follows (in thousands):
FISCAL YEAR
---------------------------------------
1996 1995 1994
---------- ---------- ----------
Federal income tax expense at
the statutory rate ............... $ 7,915 $ 6,124 $ 3,831
State income taxes, net ............ 414 406 797
Permanent differences, net ......... 265 290 (311)
Other, net ......................... -- (53) --
---------- ---------- ----------
$ 8,594 $ 6,767 $ 4,317
========== ========== ==========
As a result of the early retirement of the Senior Discount Debentures and
the replacement of the working capital facility, the Company recorded an
extraordinary charge of $16.1 million, net of applicable income taxes of $9.8
million.
F-24
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The 1996 income tax benefit relating to the extraordinary item is comprised of a
$7.7 million current federal tax benefit, a $0.9 million deferred federal tax
benefit and a $1.2 million state tax benefit.
F-25
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred tax liabilities (assets) consist of the following (in
thousands):
FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ----------------
Gross deferred tax liabilities:
Depreciation and amortization ............ $ 12,903 $ 7,485
Inventory reserves ....................... 3,735 1,406
State income taxes ....................... 495 --
Other .................................... 1,660 1,435
---------------- ----------------
18,793 10,326
---------------- ----------------
Gross deferred tax assets:
Retained Certificates .................... (2,173) (2,502)
Accrued consolidation costs .............. (1,318) (1,478)
Net operating loss carryforwards ......... (2,961) (82)
Original issue discount .................. -- (10,042)
Accrued expenses ......................... (1,607) (990)
Pensions ................................. (2,163) (2,686)
Escalating leases ........................ (1,482) (962)
Charitable contribution carryforward ..... (575) (113)
Accrued payroll costs .................... (1,212) (884)
Accrued store closure costs .............. -- (558)
Other .................................... (403) (780)
---------------- ----------------
(13,894) (21,077)
---------------- ----------------
Deferred tax assets valuation allowance .. -- --
---------------- ----------------
$ 4,899 $ (10,751)
================ ================
As a result of the extraordinary loss on the early retirement of debt
during 1996, the Company has recorded a $17.0 million federal income tax
receivable which is included in other current assets on the consolidated balance
sheet.
F-26
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12--QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly financial data is summarized as follows (in
thousands):
<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
FISCAL YEAR 1995
-----------------------------------------------
Q1 Q2 Q3 Q4
---------- ---------- ---------- ----------
Net sales ........................................ $ 142,353 $ 154,578 $ 159,161 $ 226,532
Gross profit ..................................... 46,283 46,555 48,659 72,780
Operating income ................................. 14,835 11,074 9,724 25,853
Net income (loss) ................................ 2,438 221 (899) 8,970
Earnings (loss) per common share data:
Earnings (loss) per common share after
extraordinary item ............................ 0.19 0.02 (0.07) 0.70
</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,
F-27
<PAGE>
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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-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-28
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
MAY 3, MAY 4, FEBRUARY 1,
1997 1996 1997
---------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............... $ 3,649 $ 3,814 $ 3,139
Accounts receivable, less allowance
for doubtful accounts of $100 ......... 5,286 3,409 3,295
Merchandise inventories ................. 86,103 86,321 84,280
Other assets ............................ 2,554 1,769 2,228
Deferred income taxes ................... 2,089 2,323 1,503
---------- ---------- ----------
Total current assets .............. 99,681 97,636 94,445
PROPERTY AND EQUIPMENT, net ................ 17,569 14,876 17,022
DEFERRED INCOME TAXES ...................... 6,960 8,439 6,960
OTHER ASSETS ............................... 281 358 301
---------- ---------- ----------
TOTAL ...................................... $ 124,491 $ 121,309 $ 118,728
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................ $ 20,741 $ 22,392 $ 19,491
Other liabilities ....................... 7,766 7,796 7,208
Accrued compensation .................... 1,645 1,856 2,925
Income taxes payable .................... -- -- 1,182
Current maturities of long-term debt .... 6,365 3,695 93
---------- ---------- ----------
Total current liabilities ......... 36,517 35,739 30,899
LONG-TERM DEBT, less current maturities .... 16,064 18,081 14,742
OTHER LIABILITIES .......................... 766 1,095 1,028
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
50,000,000 shares authorized;
9,035,645, 9,005,245, and
9,035,645 shares ...................... 90 90 90
Additional paid-in capital .............. 57,307 57,216 57,307
Retained earnings ....................... 13,747 9,088 14,662
---------- ---------- ----------
Total stockholders' equity ........ 71,144 66,394 72,059
---------- ---------- ----------
TOTAL ...................................... $ 124,491 $ 121,309 $ 118,728
========== ========== ==========
See notes to consolidated financial statements.
F-29
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THIRTEEN WEEKS ENDED
-----------------------------
MAY 3, 1997 MAY 4, 1996
------------ ------------
NET SALES .................................... $ 64,287 $ 61,190
COST OF GOODS SOLD ........................... 46,300 43,012
------------ ------------
GROSS MARGIN ................................. 17,987 18,178
EXPENSES:
Selling, general and administrative ..... 16,050 15,944
Advertising ............................. 1,658 2,051
Merger costs ............................ 451 --
Depreciation and amortization ........... 984 975
Interest ................................ 345 423
------------ ------------
Total expenses ...................... 19,488 19,393
------------ ------------
LOSS BEFORE INCOME TAXES ..................... (1,501) (1,215)
INCOME TAX BENEFIT ........................... 586 474
------------ ------------
NET LOSS ..................................... $ (915) $ (741)
============ ============
NET LOSS PER SHARE ........................... $ (0.10) $ (0.08)
============ ============
WEIGHTED AVERAGE COMMON STOCK AND COMMON
STOCK EQUIVALENTS OUTSTANDING ............. 9,584,708 9,005,245
============ ============
See notes to consolidated financial statements.
F-30
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
13 WEEKS 13 WEEKS
ENDED ENDED
MAY 3, MAY 4,
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $ (915) $ (741)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization ................... 984 975
Deferred tax benefit ............................ (586) (474)
Gain on sales of property and equipment ......... (1) (12)
Changes in other assets and liabilities:
Accounts receivable ............................. (1,991) (1,056)
Merchandise inventories ......................... (1,823) (1,883)
Other assets .................................... (324) (149)
Accounts payable and other liabilities .......... 364 8,430
Accrued compensation ............................ (1,280) (33)
---------- ----------
Net cash provided by (used in)
operating activities ...................... (5,572) 5,057
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................ (1,514) (500)
Proceeds from sales of property and equipment ... 2 10
---------- ----------
Net cash used in investing activities ....... (1,512) (490)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments)-- Revolving
Credit Agreement .............................. 7,630 (3,375)
Payments of long-term debt ...................... (36) (32)
---------- ----------
Net cash provided by (used in)
financing activities ...................... 7,594 (3,407)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............ 510 1,160
CASH AND CASH EQUIVALENTS, Beginning of period ....... 3,139 2,654
---------- ----------
CASH AND CASH EQUIVALENTS, End of period ............. $ 3,649 $ 3,814
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................ $ 469 $ 344
Income taxes .................................... $ 1,276 $ 557
See notes to consolidated financial statements.
F-31
<PAGE>
C.R. ANTHONY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF INTERIM REPORTING PRACTICES
BASIS OF PRESENTATION -- The consolidated financial statements include the
results of operations, account balances and cash flows of the Company and its
wholly owned subsidiary (ANCO Transportation, which principally transports
merchandise to Company stores.) All material intercompany accounts and
transactions have been eliminated.
The consolidated balance sheets as of May 3, 1997 and May 4, 1996 and the
statements of operations and cash flows for the thirteen weeks ended May 3, 1997
and May 4, 1996 have been prepared by the Company without audit. In the opinion
of management, all adjustments (consisting only of normal, recurring accruals)
necessary to state fairly the Company's financial position and the results of
operations and cash flows for the thirteen weeks ended May 3, 1997 and May 4,
1996 have been made. Due to the seasonal nature of the business, results for the
interim periods are not necessarily indicative of a full year's operations, and
balances of inventory, receivables, revolving credit agreement borrowings, and
trade payables vary with the seasonal demands of the business.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in connection with the annual consolidated financial statements and
notes thereto.
EARNINGS PER SHARE -- Earnings (loss) per share is computed based upon net
income (loss) divided by the weighted average number of shares of common stock
and common stock equivalents (if dilutive) outstanding during each period. In
February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE, which
establishes standards for computing and presenting earnings per share. SFAS No.
128 is effective for periods ending after December 15, 1997. Management believes
that SFAS No. 128 will not have a significant effect on the Company's
calculation of earnings per share considering its current capital structure.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior year
balances to conform with the classifications of such amounts in the current
period.
RECENTLY ADOPTED ACCOUNTING STANDARDS -- In February 1997, the Financial,
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE.
SFAS No. 129 establishes standards for disclosure of information regarding an
entity's capital structure. The adoption of SFAS No. 129 did not affect the
Company's consolidated financial position or results of operations.
2. MERGER PLAN WITH STAGE STORES, INC.
On March 5, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger") whereby the Company will be merged with and into Stage Stores,
Inc. ("Stage Stores"), a retailer of apparel in the central United States. In
the Merger, each outstanding share of the Company's common stock will be
acquired 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 Stage Stores' common stock exceeds
$20 per share. Stage Stores' average closing price will be determined based on a
randomly-selected ten day period 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 Stage Stores for the common stock
of the Company will also be determined using a formula based upon the average
closing price of Stage Stores stock.
The consideration will be 100% Stage Stores common stock so long as its
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 the Stage Stores stock is $15.00 per share. At prices below
$15.00 per share, Stage Stores has the option to terminate the Merger, and pay
the Company a $3.5 million fee plus expenses, or to close the Merger and pay
0.1333 shares of Stage Stores common stock and an amount in cash equal to the
difference between $8.00 per share and the
F-32
<PAGE>
C.R. ANTHONY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
value of 0.1333 shares of Stage Stores common stock. All options outstanding
under the Company stock option plan (see Note 7) will be canceled as a term of
the Merger and the option holders will be entitled to receive cash equal to the
exchange price for the Company common stock less the exercise price of the
related Company option. In addition to the termination event by Stage Stores as
noted above, if the Merger is terminated by the Company under other certain
conditions, the Company will be required to pay a fee of $3.5 million plus
expenses. In the event that another bidder acquires control of the Company
during the Merger or six months thereafter, Stage Stores can exercise an option
to acquire 19.9% of the Company common stock at $8.00 per share.
The Merger is subject to approval by the stockholders of the Company and
certain other conditions including Stage Stores obtaining adequate financing.
During the periods ended February 1, 1997 and February 3, 1996, a member of the
Board of Directors of the Company was employed by an affiliate of the Financial
advisory firm the Company has engaged to provide corporate advisory services,
including the Merger. Management of the Company expects the Merger transaction
will be completed by mid-year 1997.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
C.R. Anthony Company:
We have audited the accompanying consolidated balance sheets of C.R. Anthony
Company and subsidiary (the "Company"), as of February 1, 1997 and February 3,
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for the fifty-two weeks ended February 1, 1997, the fifty-three
weeks ended February 3, 1996 and the fifty-two weeks ended January 29, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
February 1, 1997 and February 3, 1996, and the results of their operations and
their cash flows for the fifty-two weeks ended February 1, 1997, the fifty-three
weeks ended February 3, 1996 and the fifty-two weeks ended January 29, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, on March 5,
1997, the Company entered into an Agreement and Plan of Merger with Stage
Stores, Inc.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 12, 1997
F-34
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FEBRUARY 1, 1997 FEBRUARY 3, 1996
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................. $ 3,139 $ 2,654
Accounts receivable, less allowance for
doubtful accounts of $100 ................ 3,295 2,353
Merchandise inventories .................... 84,280 84,438
Other assets ............................... 2,228 1,620
Deferred income taxes ...................... 1,503 1,849
-------------- --------------
Total current assets ................ 94,445 92,914
PROPERTY AND EQUIPMENT, net ................... 17,022 15,331
DEFERRED INCOME TAXES ......................... 6,960 8,439
OTHER ASSETS .................................. 301 376
-------------- --------------
TOTAL ......................................... $ 118,728 $ 117,060
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................... $ 19,491 $ 14,562
Other liabilities .......................... 7,208 6,673
Accrued compensation ....................... 2,925 1,889
Income taxes payable ....................... 1,182 522
Current maturities of long-term debt ....... 93 7,069
-------------- --------------
Total current liabilities ........... 30,899 30,715
LONG-TERM DEBT, less current maturities ....... 14,742 18,114
OTHER LIABILITIES ............................. 1,028 1,096
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000
shares authorized; 9,035,645 and
9,005,245 shares issued and outstanding
at February 1, 1997 and February 3, 1996,
respectively ............................. 90 90
Additional paid-in capital ................. 57,307 57,216
Retained earnings .......................... 14,662 9,829
-------------- --------------
Total stockholders' equity .......... 72,059 67,135
-------------- --------------
TOTAL ......................................... $ 118,728 $ 117,060
-------------- --------------
See notes to consolidated financial statements
F-35
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
NET SALES ............................ $ 288,392 $ 304,451 $ 302,241
COST OF GOODS SOLD ................... 194,875 207,688 205,415
----------- ----------- -----------
GROSS MARGIN ......................... 93,517 96,763 96,826
EXPENSES:
Selling, general and administrative 69,012 73,317 72,188
Advertising ....................... 10,461 12,997 12,599
Depreciation and amortization ..... 4,315 4,862 3,817
Interest .......................... 1,806 2,577 2,165
----------- ----------- -----------
Total expenses ............. 85,594 93,753 90,769
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ........... 7,923 3,010 6,057
INCOME TAX EXPENSE ................... (3,090) (924) (2,362)
----------- ----------- -----------
NET INCOME ........................... $ 4,833 $ 2,086 $ 3,695
----------- ----------- -----------
NET INCOME PER COMMON SHARE .......... $ 0.53 $ 0.23 $ 0.41
----------- ----------- -----------
WEIGHTED AVERAGE COMMON STOCK
AND COMMON STOCK EQUIVALENTS
OUTSTANDING ....................... 9,140,490 9,005,245 9,003,497
----------- ----------- -----------
See notes to consolidated financial statements
F-36
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ------- -------- -------
BALANCE
JANUARY 31, 1994 ............. 9,000,000 $ 90 $49,137 $ 4,048 $53,275
Issuance of stock ............... 5,245 -- 20 -- 20
Net income ...................... -- -- -- 3,695 3,695
Utilization of
pre-reorganization ........... -- -- 8,059 -- 8,059
deferred tax assets
--------- ------ ------- -------- -------
BALANCE
JANUARY 29, 1995 ............. 9,005,245 90 57,216 7,743 65,049
Net income ...................... -- -- -- 2,086 2,086
--------- ------ ------- -------- -------
BALANCE
FEBRUARY 3, 1996 ............. 9,005,245 90 57,216 9,829 67,135
Issuance of stock ............... 30,400 -- 91 -- 91
Net income ...................... -- -- -- 4,833 4,833
--------- ------ ------- -------- -------
BALANCE
FEBRUARY 1, 1997 ............. 9,035,645 $ 90 $57,307 $ 14,662 $72,059
--------- ------ ------- -------- -------
See notes to consolidated financial statements
F-37
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 29,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ......................................... $ 4,833 $ 2,086 $ 3,695
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization .................. 4,315 4,862 3,817
Deferred tax expense (benefit) ................. 657 (743) 10
Utilization of pre-reorganization tax assets ... 1,168 1,424 1,080
Gain on sales of property and equipment ........ (18) (9) (67)
Common stock issued as compensation expense .... 91 -- --
Changes in other assets and liabilities:
Accounts receivable ............................ (942) 296 (364)
Merchandise inventories ........................ 158 (8,517) (4,251)
Other assets ................................... (605) (1,146) 627
Accounts payable and other liabilities ......... 5,396 (1,888) 1,588
Accrued compensation ........................... 1,036 (1,072) 135
Income taxes payable ........................... 660 (782) 864
---------- ---------- ----------
Net cash provided by (used in)
operating activities ....................... 16,749 (5,489) 7,134
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures ............................... (5,868) (4,812) (5,298)
Proceeds from sales of property and
equipment ........................................ 18 33 99
---------- ---------- ----------
Net cash used in investing
activities ................................. (5,850) (4,779) (5,199)
---------- ---------- ----------
FINANCING ACTIVITIES:
Net borrowings (payments) - Revolving
Credit Agreement ................................. (10,185) 24,845 --
Payments of long-term debt ......................... (229) (15,707) (1,164)
Proceeds from issuance of common stock ............. -- -- 20
---------- ---------- ----------
Net cash (used) provided by
financing activities ....................... (10,414) 9,138 (1,144)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................... 485 (1,130) 791
CASH AND CASH EQUIVALENTS,
Beginning of period ................................ 2,654 3,784 2,993
---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
End of period ...................................... $ 3,139 $ 2,654 $ 3,784
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ....................................... $ 1,777 $ 2,685 $ 2,145
Income taxes ................................... 604 1,027 407
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996
AND JANUARY 29, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
ORGANIZATION - C.R. Anthony Company (the "Company"), an Oklahoma
corporation, is engaged in the operation of a regional chain of retail stores,
with the majority in smaller communities throughout the southwestern and
midwestern United States, offering national brand apparel, including footwear,
for the entire family.
BASIS OF PRESENTATION - The consolidated financial statements include
the results of operations, account balances and cash flows of the Company and
its wholly owned subsidiary (ANCO Transportation, which principally transports
merchandise to Company stores). All material intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts on deposit at financial
institutions and all temporary cash investments purchased with a maturity of
three months or less.
MERCHANDISE INVENTORIES - Inventories are valued at the lower of cost
or market using the retail method for merchandise inventories at stores and the
average cost method for merchandise inventories at the Company's distribution
center. The Company purchased approximately 20% and 19% of its merchandise
inventory from one vendor for the periods ended February 1, 1997 and February 3,
1996.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost
less accumulated depreciation. Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the estimated useful life or the
remaining lease term using the straight-line method. The estimated useful lives
and periods used in computing depreciation and amortization are: buildings - 30
years; fixtures and equipment - 3 to 10 years; transportation and data
processing equipment - 3 to 8 years; and leasehold improvements - 5 to 25 years.
PRE-OPENING EXPENSES - Costs related to the opening of new stores are
expensed as incurred.
INCOME TAXES - The Company recognizes an asset and liability approach
for accounting for income taxes. Deferred income taxes are recognized for the
tax consequences of temporary differences and carryforwards by applying enacted
tax rates applicable to future years to differences between the financial
statement amounts and the tax bases of existing assets and liabilities. A
valuation allowance is to be established if it is more likely than not that some
portion of the deferred tax asset will not be realized.
EARNINGS PER SHARE - Earnings per share is computed based upon net
income divided by the weighted average number of shares of common stock and
common stock equivalents (if dilutive) outstanding during each period. In
February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER
SHARE. The Company believes the impact of SFAS No. 128 will not be material.
LONG-LIVED ASSETS - In March 1995, the FASB issued SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG- LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. The Company adopted SFAS No. 121 effective February 4, 1996 as
required, which establishes accounting standards for the impairment of
long-lived assets, certain identified intangibles and goodwill related to such
assets. The adoption of SFAS No. 121 did not have a material effect on the
Company's financial position or results of operations.
F-39
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED - In June 1996, The
FASB issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES, and in February 1997, the FASB issued
SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. The Company
will adopt SFAS Nos. 125 and 129 when required. Management believes that
adoption of these standards will not have a material impact on the Company's
consolidated financial position or results of operations.
Fair value disclosures of financial instruments - The following
disclosure of the estimated fair value of financial instruments is made in
accordance with the requirements of SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The Company's financial instruments include the following: cash and
cash equivalents, accounts receivable, accounts payable, accrued compensation,
income taxes payable, and long-term debt. At February 1, 1997 and February 3,
1996, the carrying amounts of all financial instruments as reflected in the
accompanying balance sheets were the same as their estimated fair values.
Long-term debt's carrying amount approximates fair value based upon current
rates offered to the Company for debt with similar terms. The carrying amounts
of all other financial instruments are a reasonable estimate of fair values due
to the short maturities of such items.
Fair value estimates are based upon pertinent information available to
management as of February 1, 1997 and February 3, 1996. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been significantly revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein. The
Company held no derivative financial instruments at February 1, 1997 or February
3, 1996.
STOCK OPTION PLAN - The Company adopted SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS No. 123") on February 4, 1996, as required. The
company has elected to continue applying Accounting Principles Board Opinion No.
25 in accounting for its stock-based compensation awards as permitted under SFAS
No. 123. Accordingly, no compensation cost has been recognized in the
accompanying financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to 1995
and 1996 balances to conform with the classifications of such amounts for the
current period.
2. MERGER PLAN WITH STAGE STORES, INC.
On March 5, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger") whereby the Company will be merged with and into Stage
Stores, Inc. ("Stage Stores"), a retailer of apparel in the central United
States. In the Merger, each outstanding share of the Company's common stock will
be acquired 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 Stage Stores' common stock
exceeds $20 per share. Stage Stores' average closing price will be determined
based on a randomly-selected ten day period 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 Stage Stores for the common
stock of the Company will also be determined using a formula based upon the
average closing price of Stage Stores stock.
The consideration will be 100% Stage Stores common stock so long as its
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 the Stage Stores stock is $15.00 per share. At prices below
$15.00 per share, Stage Stores has the option to terminate the Merger, and pay
the Company a $3.5 million fee plus expenses, or to close the Merger and pay
0.1333 shares of Stage Stores common stock and an amount in cash equal to the
difference between $8.00 per share and the value of 0.1333 shares of Stage
Stores common stock. All options outstanding under the Company stock option plan
(see Note 7) will be canceled as a term of the Merger and the option holders
will be entitled to receive cash equal to the
F-40
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exchange price for the Company common stock less the exercise price of the
related Company option. In addition to the termination event by Stage Stores as
noted above, if the Merger is terminated by the Company under other certain
conditions, the Company will be required to pay a fee of $3.5 million plus
expenses. In the event that another bidder acquires control of the Company
during the Merger or six months thereafter, Stage Stores can exercise an option
to acquire 19.9% of the Company common stock at $8.00 per share.
The Merger is subject to approval by the stockholders of the Company
and certain other conditions including Stage Stores obtaining adequate
financing. During the periods ended February 1, 1997 and February 3, 1996, a
member of the Board of Directors of the Company was employed by an affiliate of
the Financial advisory firm the Company has engaged to provide corporate
advisory services, including the Merger. Management of the Company expects the
Merger transaction will be completed by mid-year 1997.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
FEBRUARY 1, FEBRUARY 3,
1997 1996
---------- ----------
Land ............................................... $ 214 $ 214
Buildings .......................................... 791 781
Leasehold improvements ............................. 8,094 7,910
Fixtures and equipment ............................. 14,028 12,015
Transportation and data processing equipment ....... 8,647 6,345
---------- ----------
31,774 27,265
Less accumulated depreciation and amortization ..... (14,752) (11,934)
---------- ----------
Total property and equipment, net .................. $ 17,022 $ 15,331
========== ==========
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
FEBRUARY 1, FEBRUARY 3,
1997 1996
---------- ----------
Revolving Credit Agreement ............... $ 14,660 $ 24,845
Tax notes payable ........................ 18 182
Other .................................... 157 156
---------- ----------
14,835 25,183
Less current maturities .................. (93) (7,069)
---------- ----------
Total long-term debt ..................... $ 14,742 $ 18,114
========== ==========
On July 27, 1995, the Company entered into an Amended and Restated Loan
Agreement ("Agreement") maturing July 26, 2000. The Agreement provides for
revolving credit borrowings, letters of credit and $20 million of long-term debt
with a $2 million annual reduction. Available borrowings are based on a
percentage of eligible inventory, as defined, with a maximum of $60 million to
be reduced annually by a $2 million long-term principal payment. The Company
classifies as non-current revolving credit borrowings up to the maximum
long-term portion available for the
F-41
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
next fiscal year ($16 million). The rate of interest on borrowings is at the
index rate plus 2% per annum (7.3% and 7.4% at February 1, 1997 and February 3,
1996, respectively) plus a fee of 0.25% on the unused portion of the facility
payable monthly in arrears. The Agreement is secured by a lien on substantially
all assets of the Company. The Company is required to reduce short-term
borrowings under the Agreement to zero for a 30-day period each fiscal year. The
Agreement requires defined fixed charge and specified inventory turnover ratios
and maintenance of a minimum net worth, and restricts the payment of dividends
and limits the amount of capital expenditures and additional borrowings. At
February 1, 1997, the Company was in compliance with all such requirements.
Tax notes represent miscellaneous tax claims financed at 3.5% interest,
of which the final $18,000 principal payment will be made in fiscal year 1998.
Other long-term debt represents two notes for equipment purchases which
are being repaid with interest at 4.9% and 7.4% in equal monthly installments,
including interest, totaling $6,841.
Future maturities of long-term debt during each of the next five years
are $93,000 in 1998; $705,000 in 1999; $2,013,000 in 2000; $12,013,000 in 2001;
and $11,000 in 2002.
5. LEASES
The Company has operating leases for its store facilities, distribution
center, and certain other equipment. Substantially all of the leases are net
leases which require the payment of property taxes, insurance and maintenance
costs in addition to rental payments. Certain store leases provide for
additional rentals based on a percentage of sales, renewal options for one or
more periods ranging from one to five years and rent escalation clauses.
At February 1, 1997, the future minimum lease payments under operating
leases with rental terms of more than one year are as follows (in thousands):
FISCAL YEAR ENDING
1998 $10,288
1999 8,167
2000 6,089
2001 3,633
2002 2,227
Later years 4,121
-------
$34,525
=======
Rent expense relating to operating leases consists of the following (in
thousands):
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 29,
1997 1995 1995
------------ ------------ ------------
Minimum rentals $ 12,271 $ 12,450 $ 11,623
Contingent rentals 664 899 1,093
F-42
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Current and deferred income tax expense (benefit) recorded in the
accompanying statements of income for each period are as follows (in
thousands):
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 29,
1997 1995 1995
------------ ------------ ------------
Current:
Federal $ 2,173 $ 1,461 $ 2,202
State 260 206 150
------------ ------------ ------------
2,433 1,667 2,352
------------ ------------ ------------
Deferred:
Federal 517 (690) (166)
State 140 (53) 176
------------ ------------ ------------
657 (743) 10
------------ ------------ ------------
Total expense $ 3,090 $ 924 $ 2,362
============ ============ ============
The effective income tax rate differed from the statutory federal
income tax rate as follows:
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 29,
1997 1995 1995
------------ ------------ ------------
Statutory federal income tax rate 34% 34% 34%
State income taxes 5 5 5
General business credits -- (9) (2)
Other -- 1 2
--- --- ---
39% 31% 39%
=== === ===
The tax bases of certain assets and liabilities are different from the
values reflected in the accompanying balance sheets. There were no
valuation allowances at February 1, 1997 and February 3, 1996. The
related deferred tax assets and liabilities created by these temporary
differences are as follows (in thousands):
F-43
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED TAX ASSETS
(LIABILITIES)
-------------------------
FEBRUARY 1, FEBRUARY 3,
1997 1996
---------- ----------
Depreciation ....................................... $ 1,591 $ 1,899
Receivable valuation ............................... (102) (56)
Inventory .......................................... 574 688
Employee benefits .................................. 986 1,041
Deferred lease cost ................................ 35 68
Other .............................................. 21 63
Tax benefit of net operating loss carryforwards .... 4,736 5,963
General business credit carryforwards .............. 622 622
---------- ----------
Total .............................................. $ 8,463 $ 10,288
---------- ----------
The Company has net operating loss deduction carryforwards for tax
purposes of approximately $14,000,000 which arose from pre-organization
operations and will expire in 2007. The Company emerged from Chapter 11
pursuant to a confirmed Plan of Reorganization on August 3, 1992. The
Company's ability to utilize the operating loss for income tax purposes
is limited to an annual deduction of approximately $2,700,000 because
of IRS rules applicable to the terms of the Plan of Reorganization. The
Company has recognized the full tax benefit of the loss carryforwards
as a deferred tax asset for financial statement purposes. In
recognizing $8,059,000 of such tax benefits at January 29, 1995,
management considered the nonrecurring nature of significant expenses
which contributed to the creation of the operating loss carryforwards
and the results of operations subsequent to the consummation of the
Plan of Reorganization. The tax benefits recognized related to
pre-organization deferred tax assets were recorded as a direct addition
to additional paid-in capital.
7. STOCK OPTION PLAN
The C.R. Anthony 1992 Amended and Restated Stock Option Plan (the
"Option Plan"), originally effective August 3, 1992, provides for the
issuance of incentive stock options, nonqualified options, of both, to
any key employee as determined by the Board of Directors, or the
issuance of nonqualified options to nonemployee directors. The Company
has reserved 1,500,000 shares of common stock ("Shares") for issuance
under the Option Plan, and any Shares, subject to options which are
forfeited, will be returned to the Option Plan. The Company had 676,667
and 485,000 exercisable stock options at February 1, 1997 and February
3, 1996, respectively.
F-44
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of activity in the Option Plan follows:
NUMBER OF WEIGHTED
OUTSTANDING AVERAGE
OPTIONS EXERCISE PRICE
--------------- --------------
Options outstanding at January 31, 1994 ... 505,000 $ 4.00
Granted .......................... 230,000 4.50
Expired .......................... (10,000) 4.00
---------------
Options outstanding at January 29, 1995 ... 725,000 4.16
Granted .......................... 395,000 3.00
Exercised ........................ (35,000) 4.00
Forfeited ........................ (33,334) 4.00
Expired .......................... (51,666) 4.00
---------------
Options outstanding at February 3, 1996 ... 1,000,000 3.72
Granted .......................... 82,500 3.00
---------------
Options outstanding at February 1, 1997 ... 1,082,500 3.67
---------------
The options granted will vest at 33.3% per year at the end of each
12-month period following the date of the grant and expire on the tenth
year following the date of grant. The Option Plan will automatically
terminate and no additional options will be granted on the tenth
anniversary of its effective date. The Option Plan provides that all
options will become immediately exercisable upon an involuntary
termination of employment, a substantial diminution of duties, a
reduction in compensation, a change in control (as defined), death or
disability (see Note 2). At February 1, 1997, a summary of the
exercisable options follows:
EXERCISABLE OPTIONS
WEIGHTED AVERAGE -------------------------------------
NUMBER OF OPTIONS REMAINING NUMBER OF WEIGHTED AVERAGE
OUTSTANDING CONTRACTUAL LIFE EXERCISABLE OPTIONS EXERCISE PRICE
- ------------------- ------------------ ----------------- ------------------
477,500 8.8 years 131,667 $ 3.00
545,000 5.9 years 505,000 4.00
60,000 7.1 years 40,000 5.92
- ------------------- ----------------- ------------------
1,082,500 676,667 $ 3.92
=================== ================= ==================
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock-based compensation awards. Accordingly, no
compensation cost has been recognized in the accompanying financial
statements. The following pro forma data is calculated as if
compensation cost for the Company's stock-based compensation awards was
determined based upon the fair value at the grant date consistent with
the methodology prescribed under SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION.
F-45
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
52 WEEKS 53 WEEKS
ENDED ENDED
FEBRUARY 1, FEBRUARY 3,
1996 1996
---------- ----------
Net income as reported (in thousands) .......... $ 4,833 $ 2,086
Pro forma net income (in thousands) ............ $ 4,623 $ 2,008
Net income per common share as reported ........ $ 0.53 $ 0.23
Pro forma net income per common share .......... $ 0.51 $ 0.22
The weighted average fair value at the date of grant for options
granted in fiscal year 1997 and 1996 was $1.54 and $1.51, respectively.
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 48.6%; risk-free interest rate of 6.13%
and 6.76% for options granted on September 28, 1995 and June 10, 1996,
respectively; no assumed forfeitures; and an expected life of five
years. The pro forma amounts above are not likely to be representative
of future years because options vest over several years and additional
awards are generally made each year.
8. COMMITMENTS AND CONTINGENCIES
The Company has a contributory 401(k) savings plan covering
substantially all employees. The Company contributed approximately
$279,000, $278,000 and $247,000, respectively, for the fifty-two weeks
ended February 1, 1997, the fifty-three weeks ended February 3, 1996
and the fifty-two weeks ended January 29, 1995, in matching
contributions based upon employees' contributions. The Company's
matching rate is currently 40% of each participants contribution,
limited to 2.0% of each participant's salary.
Effective August 1, 1995, the Company entered into a "Second Amended
and Restated Private Label Retail Credit Services Agreement" with
Citicorp Retail Services, Inc. ("CRS") related to the Company's private
label charge card. The Agreement matures August 1, 1998, with annual
renewal options to August, 2000. The Agreement provides for the sale of
the charge card receivables to CRS on a nonrecourse basis at 100% of
face value, less a stated discount rate. Charge card receivables of
approximately $52,000,000, $55,300,000 and $44,200,000 were sold to CRS
during the fifty-two weeks ended February 1, 1997, the fifty-three
weeks ended February 3, 1996 and the fifty-two weeks ended January 29,
1995, respectively. The Company is also obligated to pay a fee to CRS
for bad debt losses equal to 50% of such losses in excess of 2.25% of
annual private label charge card sales. The former agreement provided
for reimbursement of losses up to 3% of average outstanding accounts
receivable balances. The amount of losses incurred by the Company
pursuant to the current and former agreements for the fifty-two weeks
ended February 1, 1997, the fifty-three weeks ended February 3, 1996
and the fifty-two weeks ended January 29, 1995 were $831,000, $399,000
and $419,000, respectively. The Company records the discount and
accrues for its estimated obligation for bad debt expense at the time
the receivables are sold.
The Company has a Severance Pay Plan for the purpose of attracting and
retaining its employees and providing the employees assurance of the
payment which will be made to them if terminated by the Company without
cause (as defined) upon their termination of employment by the Company.
The Company also has an Executive Severance Compensation Agreement with
certain key executives.
The Company is currently subject to certain litigation in the normal
course of business which, in the opinion of management, will not result
in a material adverse effect on the Company's business, financial
position, or results of operations.
F-46
<PAGE>
C.R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company retains certain risks for general liability, workers'
compensation and group health losses. The Company has individual and
aggregate stop loss coverage with insurers for these claims. Management
of the Company believes the recorded reserves of approximately
$2,105,000 at February 1, 1997 are adequate to cover these retained
risks.
At February 1, 1997, the Company was contingently liable for
approximately $2,308,000 for outstanding letters of credit securing
performance of purchase contracts and other guarantees.
F-47
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.........................................................
Risk Factors...............................................................
The Acquisition............................................................
The Refinancing............................................................
Use of Proceeds............................................................
Capitalization.............................................................
Selected Consolidated Historical Financial Data............................
Unaudited Pro Forma Combined Financial Data................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................
Business...................................................................
Management.................................................................
Description of New Credit Agreement........................................
Description of the Exchange Notes..........................................
The Exchange Offer.........................................................
Certain Federal Income Tax Consequences....................................
Plan of Distribution.......................................................
Legal Matters..............................................................
Independent Auditors.......................................................
Available Information......................................................
Information Incorporated by Reference......................................
Index to Financial Statements..............................................
================================================================================
SPECIALTY RETAILERS, INC.
OFFER TO EXCHANGE ITS SERIES B 8 1/2% SENIOR NOTES DUE 2005 FOR ANY AND
ALL OF ITS OUTSTANDING 8 1/2% SENIOR NOTES DUE 2005 AND TO EXCHANGE ITS
SERIES B 9% SENIOR SUBORDINATED NOTES DUE 2007 FOR ANY AND ALL OF ITS
OUTSTANDING 9% SENIOR SUBORDINATED NOTES DUE 2007
UNCONDITIONALLY GUARANTEED BY STAGE STORES, INC. AND SPECIALTY
RETAILERS, INC. (NV)
PROSPECTUS
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. 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.
SRI is incorporated under the laws of the State of Texas. Section 2.02-1 of
the Texas Business Corporation Act, as amended, INTER ALIA, ("Section 2.02-1")
provides that a Texas corporation may indemnify any person who was, is or is
threatened to be made a named defendant or respondent in a threatened, pending
or completed action suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or proceeding
or any inquiry that could lead to such action, suit or proceeding because the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, provided that
it is determined (in accordance with procedures outlined in Section 2.02-1) that
the person (1) conducted himself in good faith; (2) reasonably believed: (a) in
the case of conduct in his official capacity as director, officer, employee or
agent of the corporation, that his conduct was in the corporation's best
interests; and (b) in all other cases, that his conduct was at least not opposed
to the corporation's best interests; and (3) in the case of any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
indemnity may include judgments, penalties (including excise and similar taxes),
fines, settlements, and reasonable (as determined by procedures outlined in
Section 2.02-1) expenses (including court costs and attorneys' fees) actually
incurred by the person in connection with the proceeding. A person may not be so
indemnified, however, in respect of a proceeding (1) in which the person is
found liable on the basis that personal benefit was improperly received by him,
whether or not the benefit resulted from an action taken in the person's
official capacity or (2) in which the person is found liable to the corporation,
except that in such cases, the indemnification (1) is limited to reasonable
expenses actually incurred by the person in connection with the proceeding and
(2) shall not be made in respect of any proceeding in which the person shall
have been found liable for willful or intentional misconduct in the performance
of his duty to the corporation. A corporation must indemnify a director,
officer, employee or agent of the corporation against reasonable expenses
(including court costs and attorneys' fees) incurred by him in connection with
any proceeding a referred to above if he has been wholly successful, on the
merits or otherwise, in the defense of the proceeding.
Specialty NV is incorporated under the laws of the State of Nevada. Section
78.751 of the Nevada General Corporation Law, INTER ALIA, ("Section 78.751")
provides that a Nevada corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of such corporation, by
reason of the fact that he is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of the corporation as a
director, officer employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in cont or proceeding, if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
unlawful. The termination of any action, suit or proceeding by
II-2
<PAGE>
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, does not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and that with respect to
any criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful. A Nevada corporation may indemnify any person who was or
is a party or is threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the corporation's
best interests, provided that no indemnification may be made for any claim,
issue or matter or for amounts paid in settlement to the corporation without
judicial approval if the officer, director, employee or agent has been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the corporation. Unless ordered by a court or advanced pursuant
to provisions in the articles of incorporation, the bylaws or an agreement made
by the corporation which provide that expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation, any indemnification must be made by the
corporation only as authorized in the specific case upon a determination (in
accordance with procedures outlined in Section 78.751) that indemnification of
the director, officer, employee or agent is proper under the circumstances. To
the extent that a director, officer, employee or agent of a corporation is
successful on the merits or otherwise in the defense of any action referred to
above, or in defense of any claim, issue or matter therein, he must be
indemnified by the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense.
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.
Article X of SRI's Restated Articles of Incorporation provides, in
substance, for indemnification by SRI of its directors and officers in
accordance with the provisions of the Texas Act.
Article V of Specialty NV's By-Laws provides, in substance, for
indemnification by Specialty NV of its directors and officers in accordance with
the Nevada 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.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. EXHIBITS. The following documents are exhibits to the Registration
Statement.
* 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 By-Laws of Stage Stores, Inc.
(Incorporated by Reference to Exhibit 3.4 of Registration No.
333-5855 on Form S-1).
* 3.3 Restated Articles of Incorporation of Specialty Retailers,
Inc.
* 3.4 Amended and Restated By-Laws of Specialty Retailers, Inc.
* 3.5 Articles of Incorporation of Specialty Retailers, Inc. (NV).
* 3.6 By-Laws of Specialty Retailers, Inc. (NV).
* 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.
* 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.
* 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.
* 4.4 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.
* 4.5 Indenture between 3 Bealls Holding Corporation and Bankers
Trust Company, as Trustee, relating to 3 Bealls Holding
Corporation's 9% Subordinated Debentures due 2002
(Incorporated by Reference to Exhibit 4.2 of Registration No.
33-24571 on Form S-4) and First Supplemental Indenture dated
August 2, 1993 (Incorporated by Reference to Exhibit 4.4 of
Registration No. 33-68258 on Form S-4).
* 4.6 Indenture between 3 Bealls Holding Corporation and IBJ
Schroder Bank and Trust Company, as Trustee, relating to 3
Bealls Holding Corporation's 7% Junior Subordinated Debentures
due 2002 (Incorporated by Reference to Exhibit 4.3 of
Registration No. 33-24571 on Form S-4) and First Supplemental
Indenture dated August 2, 1993 (Incorporated by Reference to
Exhibit 4.5 of Registration No. 33-68258 on Form S-4).
* 4.7 Indenture by and between Specialty Retailers, Inc. and The
First National Bank of Boston, as Trustee, relating to the 11%
Series C and Series D Senior Subordinated Notes due 2003 of
Specialty Retailers, Inc. dated July 27, 1995 (including form
of Note), (Incorporated by Reference to Exhibit 4.1 on Form
10-Q of Apparel Retailers, Inc., dated October 28, 1995).
* 4.8 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).
II-4
<PAGE>
* 4.9 Amended and Restated Pooling and Servicing Agreement by and
among SRI Receivables Purchase Co., Inc., Specialty Retailers,
Inc. and Bankers Trust (Delaware) dated August 11, 1995
(Incorporated by Reference to Exhibit 4.6 on Form 10-Q of
Apparel Retailers, Inc., dated October 28, 1995).
* 4.10 First Amendment to Amended and Restated Pooling and Servicing
Agreement by and among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc. and Bankers Trust (Delaware) dated
May 30, 1996 (Incorporated by Reference to Exhibit 4.2 on Form
10-Q of Apparel Retailers, Inc., dated May 4, 1996).
* 4.11 Amended and Restated Series 1993-1 Supplement among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware) dated May 30, 1996 (Incorporated by
Reference to Exhibit 4.3 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996).
* 4.12 Amended and Restated Series 1993-2 Supplement among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware) dated May 30, 1996 (Incorporated by
Reference to Exhibit 4.4 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996).
* 4.13 First Amendment to the Series 1993-2 Supplement and Revolving
Certificate Purchase Agreement by and among Specialty
Retailers, Inc., SRI Receivables Purchase Co., Inc., Bankers
Trust (Delaware) as Trustee for the SRI Receivables Master
Trust, the financial institutions parties thereto and National
Westminster Bank Plc, New York branch dated August 11, 1995
(Incorporated by Reference to Exhibit 4.5 on Form 10- Q of
Apparel Retailers, Inc., dated May 4, 1996).
* 4.14 Amended and Restated Series 1995-1 Supplement by and among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware) on behalf of the Series 1995-1
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 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. (Incorporated
by Reference to Exhibit 10.1 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
* 4.17 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).
* 4.18 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).
* 4.19 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.
** 8.1 Opinion of Kirkland & Ellis re Tax Matters.
* 10.1 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).
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<PAGE>
* 10.2 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).
* 10.3 Apparel Retailers, Inc. Stock Option Plan (Incorporated by
Reference to Exhibit 10.13 to Registration No. 33-68258 on
Form S-4).
* 10.4 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).
* 10.5 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).
* 10.6 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).
* 10.7 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).
* 10.8 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).
* 10.9 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).
* 10.10 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).
* 10.11 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).
* 10.12 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).
* 10.13 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).
* 10.14 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).
* 10.15 Stage Stores, Inc. Equity Incentive Plan (Incorporated by
Reference to Exhibit 10.29 of Registration No. 333-5855 of
Form S-1).
* 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
* 21.1 List of Registrant's Subsidiaries.
** 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 Exhibits 5.1 and 8.1
to this Registration Statement).
II-6
<PAGE>
* 24.1 Powers of Attorney for Specialty Retailers, Inc. (included on
signature page hereto).
* 24.2 Powers of Attorney for Stage Stores, Inc. (included in
signature page hereto).
* 24.3 Powers of Attorney for Specialty Retailers, Inc. (NV)
(included on signature page hereto).
* 25.1 Statement of Eligibility of Trustee on Form T-1 for 8 1/2%
Senior Notes due 2005.
* 25.2 Statement of Eligibility of Trustee on Form T-1 for 9% Senior
Subordinated Notes due 2007.
* 27.1 Financial Data Schedule. (Incorporated by Reference to Exhibit
27.1 on Form 10-Q of Stage Stores, Inc., dated May 3, 1997)
** 99.1 Form of Letter of Transmittal.
** 99.2 Form of Notice of Guaranteed Delivery.
** 99.3 Form of Tender Instructions.
- ----------------------
* Previously Filed
** Filed Herewith
b. FINANCIAL STATEMENT SCHEDULES. The following documents are financial
statement schedules to the Registration Statement.
Not Applicable.
ITEM 22. 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 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;
II-7
<PAGE>
(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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on August 7, 1997.
SPECIALTY RETAILERS, 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 Amendment
No. 1 to Registration Statement has been signed on August 7, 1997, by the
following persons in the capacities indicated with respect to Specialty
Retailers, Inc.:
SIGNATURE CAPACITY
--------- --------
/s/ CARL TOOKER President, Chief Executive Officer, and Director
Carl Tooker (Principal Executive Officer)
/s/ JAMES MARCUM Executive Vice President and Chief Financial Officer
James Marcum (Principal Financial and Accounting Officer)
* Director
Joshua Beckenstein
* By: /s/ CARL TOOKER
Carl Tooker
Attorney-in-fact
* By: /s/ JAMES MARCUM
James Marcum
Attorney-in-fact
* means signed by Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to 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 August 7, 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 Amendment
No. 1 to Registration Statement has been signed on August 7, 1997, by the
following persons in the capacities indicated with respect to Stage Stores,
Inc.:
Signature Capacity
--------- --------
/s/ CARL TOOKER President, Chief Executive Officer, and Director
Carl Tooker (Principal Executive Officer)
/s/ JAMES MARCUM Executive Vice President and Chief Financial Officer
James Marcum (Principal Financial and Accounting Officer)
* Director
Joshua Beckenstein
* Director
Adam Kirsch
* Director
Peter Mulvihill
* Director
Robert Huth
* Director
Richard Jolosky
* Director
Hal Compton
* Director
John J. Wiesner
* By: /s/ CARL TOOKER
Carl Tooker
Attorney-in-fact
* By: /s/ JAMES MARCUM
James Marcum
Attorney-in-fact
* means signed by Attorney-in-fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to 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 August 7, 1997.
SPECIALTY RETAILERS, INC. (NV)
By: /s/ LOIS PADGETT
Name: Lois Padgett
Title: President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed on August 7, 1997, by the
following persons in the capacities indicated with respect to Specialty
Retailers, Inc. (NV):
SIGNATURE CAPACITY
--------- --------
/s/ LOIS PADGETT President and Director
Lois Padgett (Principal Executive Officer)
* Secretary and Director
Michael Melchin
* By: /s/ LOIS PADGETT
Lois Padgett
Attorney--in-fact
* means signed by Attorney-in-fact
II-11
EXHIBIT 5.1
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
212 446-4800
Facsimile:
212 446-4900
August 7, 1997
Specialty Retailers, Inc.
10201 Main Street
Houston, Texas 77025
Re: OFFER BY SPECIALTY RETAILERS, INC. TO EXCHANGE ITS (I) SERIES B 8
1/2% SENIOR NOTES DUE 2005 FOR ANY AND ALL ITS 8 1/2% SENIOR NOTES
DUE 2005 AND (II) SERIES B 9% SENIOR SUBORDINATED NOTES DUE 2007 FOR
ANY AND ALL ITS 9% SENIOR SUBORDINATED NOTES DUE 2007
Ladies and Gentlemen:
We are acting as special counsel to Stage Stores, Inc., a Delaware
corporation ("Stage"), Specialty Retailers, Inc., a Texas corporation and a
wholly owned subsidiary of Stage (the "COMPANY"), and Specialty Retailers Inc.
(NV), a Nevada corporation and a wholly owned subsidiary of Stage ("Specialty
NV" and, together with Stage, the "Guarantors") in connection with the proposed
registration by the Company of (i) up to $200,000,000 in aggregate principal
amount of the Company's Series B 8 1/2% Senior Notes due 2005 (the "SENIOR
EXCHANGE NOTES") and (ii) up to $100,000,000 in aggregate principal amount of
the Company's Series B 9% Senior Subordinated Notes due 2007 (the "Senior
Subordinated Exchange Notes" and, together with the Senior Exchange Notes, the
"Exchange Notes"), pursuant to a Registration Statement on Form S-4 orginally
filed with the Securities and Exchange Commission (the "COMMISSION") on July 31,
1997 under the Securities Act of 1933, as amended (the "SECURITIES ACT") (such
Registration Statement, as amended or supplemented, is hereinafter referred to
as the "REGISTRATION STATEMENT"), for the purpose of effecting an exchange offer
(the "EXCHANGE OFFER") for (i) the Company's 8 1/2% Senior Notes due 2005 (the
"Senior Notes") and (ii) the Company's 9% Senior Subordinated Notes due 2007
(the "Senior Subordinated Notes" and, together with the Senior Notes, the
"Notes"), respectively. The Senior Exchange Notes are to be issued pursuant to
the
<PAGE>
Specialty Retailers, Inc.
August 7, 1997
Page 2
Senior Notes Indenture (the "Senior Notes Indenture"), dated as of June 17,
1997, between the Company, the Guarantors, and State Street Bank and Trust
Company, as Trustee (the "Trustee"), in exchange for and in replacement of the
Company's outstanding Senior Notes, of which $200,000,000 in aggregate principal
amount is outstanding. The Senior Subordinated Notes are to be issued pursuant
to the Senior Subordinated Notes Indenture (the "Senior Subordinated Notes
Indenture, and together with the Senior Notes Indenture, the "Indentures"),
dated as of June 17, 1997, between the Company, the Guarantors, and the Trustee,
in exchange for and in replacement of the Company's outstanding Senior
Subordinated Notes, of which $100,000,000 in aggregate principal amount is
outstanding. The Senior Exchange Notes will be guaranteed on a senior basis by
the Guarantors (the "Senior Notes Guaranty"), and the Senior Subordinated
Exchange Notes will be guaranteed on a senior subordinated basis by the
Guarantors (the "Senior Subordinated Notes Guaranty and, together with the
Senior Notes Guaranty, the "Guarantees").
In connection with the Exchange Offer, 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 (i) the corporate and organizational
documents of the Company and the Guarantors, (ii) minutes and records of the
corporate proceedings of the Company and the Guarantors with respect to the
issuance of the Exchange Notes, (iii) the Registration Statement and exhibits
thereto and (iv) the Registration Rights Agreement, dated as of June 11, 1997,
among the Company, Stage, Credit Suisse First Boston Corporation, Bear Stearns &
Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Company and the Guarantors, and the due
authorization, execution and delivery of all documents by the parties thereto
other than the Company and the Guarantors. As to any facts material to the
opinions expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company, the Guarantors, and others.
<PAGE>
Specialty Retailers, Inc.
August 7, 1997
Page 3
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) The Company is a corporation existing and in good standing under the
General Corporation Law of the State of Texas.
(2) Stage is a corporation existing and in good standing under the General
Corporation Law of the State of Delaware.
(3) Specialty (NV) is a corporation existing and in good standing under
the General Corporation Law of the State of Nevada.
(4) The issuance of the Exchange Notes has been duly authorized by the
Company.
(5) Each Guarantee has been duly authorized by the respective Guarantor.
(6) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the Indentures
shall have been qualified pursuant to the provisions of the Trust Indenture Act
of 1939, as amended, (iii) the Notes shall have been validly tendered to the
Company, (iv) the Exchange Notes shall have been issued in the form and
containing the terms described in the Registration Statement, the Indentures,
the resolutions of the Company's Board of Directors (or authorized committee
thereof) authorizing the foregoing and any legally required consents, approvals,
authorizations and other order of the Commission and any other regulatory
authorities to be obtained, the Exchange Notes when issued pursuant to the
Exchange Offer will be legally issued, fully paid and nonassessable and will
constitute valid and binding obligations of the Company and the Guarantees will
constitute valid and binding obligations of the Guarantors under the terms and
conditions described in the Registration Statement, the Indentures, the
resolutions of the Guarantors' Board of Directors (or authorized committee
thereof) authorizing the foregoing and any legally required consents, approvals,
authorizations and other order of the Commission and any other regulatory
authorities to be obtained.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public
<PAGE>
Specialty Retailers, Inc.
August 7, 1997
Page 4
policy considerations which may limit the rights of parties to obtain certain
remedies and (iv) any laws except the laws of the State of New York and the
General Corporation Law of the State of Delaware. We advise you that issues
addressed by this letter may be governed in whole or in part by other laws, but
we express no opinion as to whether any relevant difference exists between the
laws upon which our opinions are based and any other laws which may actually
govern. For purposes of the opinion in paragraphs 1, 2, and 3, we have relied
exclusively upon recent certificates issued by the Texas Secretary of State with
respect to the Company, the Delaware Secretary of State with respect to Stage,
and the Nevada Secretary of State with respect to Specialty NV, and such opinion
is not intended to provide any conclusion or assurance beyond that conveyed by
such certificates. We have assumed without investigation that there has been no
relevant change or development between the respective dates of such certificates
and the date of this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of Delaware or New York be changed by legislative action,
judicial decision or otherwise.
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 purposes.
Yours very truly,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
EXHIBIT 8.1
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
212 446-4800
Facsimile:
212 446-4900
August 7, 1997
Specialty Retailers, Inc.
10201 Main Street
Houston, Texas 77025
Re: OFFER BY SPECIALTY RETAILERS, INC. TO EXCHANGE ITS (I) SERIES B 8
1/2% SENIOR NOTES DUE 2005 FOR ANY AND ALL OF ITS 8 1/2% SENIOR
NOTES DUE 2005 AND (II) SERIES B 9% SENIOR SUBORDINATED NOTES DUE
2007 FOR ANY AND ALL OF ITS 9% SENIOR SUBORDINATED NOTES DUE 2007
We have acted as special counsel to Specialty Retailers, Inc. (the
"COMPANY") in connection with its offer (the "EXCHANGE OFFER") to Exchange its:
(i) Series B 8 1/2% Senior Notes due 2005 (the "SENIOR EXCHANGE NOTES") for any
and all of its 8 1/2% Senior Notes due 2005 (the "SENIOR NOTES"); and (ii)
Series B 9% Senior Subordinated Notes due 2007 (the "SENIOR SUBORDINATED
EXCHANGE NOTES" and, together with the Senior Exchange Notes, the "EXCHANGE
NOTES") for any and all of its 9% Senior Subordinated Notes due 2007 (the
"SENIOR SUBORDINATED NOTES" and, together with the Senior Notes, the "NOTES").
You have requested our opinion as to certain United States federal income
tax consequences of the Exchange Offer. In preparing our opinion, we have
reviewed and relied upon the Company's Registration Statement on Form S-4, filed
with the Securities and Exchange Commission on July 31, 1997 (the "REGISTRATION
STATEMENT"), and such other documents as we deemed necessary.
On the basis of the foregoing, it is our opinion that the exchange of the
Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as
an "exchange" for United States federal income tax purposes.
The opinions set forth above are based upon the applicable provisions of
the Internal Revenue Code of 1986, as amended; the Treasury Regulations
promulgated or proposed
<PAGE>
Specialty Retailers, Inc.
August 7, 1997
Page 2
thereunder; current positions of the Internal Revenue Service (the "IRS")
contained in published revenue rulings, revenue procedures, and announcements;
existing judicial decisions; and other applicable authorities. No tax rulings
have been sought from the IRS with respect to any of the matters discussed
herein. Unlike a ruling from the IRS, opinions of counsel are not binding on the
IRS. Hence, no assurance can be given that the opinions stated in this letter
will not be successfully challenged by the IRS or by a court. We express no
opinion concerning any United States federal income tax consequences of the
Exchange Offer except as expressly set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm and the summarization
of this opinion under the section titled "Certain Federal Income Tax
Consequences" in the Registration Statement.
Very truly yours,
/s/ Kirkland & Ellis
Kirkland & Ellis
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-4 of Specialty Retailers,
Inc. of our report dated March 12, 1997 relating to the consolidated financial
statements of Stage Stores, Inc., which appears in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
August 7, 1997
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-32695 of Specialty Retailers, Inc. on Form S-4 of our report
dated March 12, 1997, on the consolidated financial statements of C.R. Anthony
Company for the fifty-two weeks ended February 1, 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 the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants" in such Prospectus.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
August 7, 1997
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
8 1/2% SENIOR NOTES DUE 2005 AND/OR
9% SENIOR SUBORDINATED NOTES DUE 2007
OF
SPECIALTY RETAILERS, INC.
Pursuant to the Prospectus Dated August 8, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON SEPTEMBER 9, 1997 UNLESS EXTENDED (THE
"EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed, and submitted to the Exchange Agent:
BY HAND/OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
2 International Place (4th Floor) 2 International Place (4th Floor)
Boston, Massachusetts 02110 Boston, Massachusetts 02110
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
617-664-5419, OR BY FACSIMILE AT 617-664-5371.
The undersigned hereby acknowledges receipt of the Prospectus dated
___________, 1997 (the "Prospectus") of Specialty Retailers, Inc., a Texas
corporation (the "Issuer"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Issuer's offer (the "Exchange
Offer") to exchange (i) $1,000 in principal amount of its Series B 8 1/2% Senior
Notes due 2005 (the "Senior Exchange Notes"), which have been registered under
the Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), pursuant to a Registration
Statement for each $1,000 in principal amount of its outstanding 8 1/2% Senior
Notes due 2005 (the "Senior Notes"), of which $200,000,000 aggregate principal
amount is outstanding; and (ii) $1,000 in principal amount of its Series B 9%
Senior Subordinated Notes due 2007 (the "Senior Subordinated Exchange Notes"
and, together with the Senior Exchange Notes, the "Exchange Notes"), which have
been registered under the Securities Act, pursuant to a Registration Statement,
for each $1,000 in principal amount of its outstanding 9% Senior Subordinated
Notes due 2007 (the "Senior Subordinated Notes" and, together with the Senior
Notes, the "Notes"), of which $100,000,000 aggregate principal amount is
outstanding. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
The Letter of Transmittal is to be used by holders of Notes if (i)
certificates representing Notes are to be physically delivered to the Exchange
Agent herewith by such holders; (ii) tender of Notes is to be made by book-entry
transfer to the Exchange Agent's account at the Depository Trust Company (the
"Book-Entry
<PAGE>
Transfer Faciltiy") pursuant to the procedures set forth under the caption "THE
EXCHANGE OFFER--PROCEDURES FOR TENDERING" in the Prospectus; or (iii) tender of
Notes is to be made according to the guaranteed delivery procedures set forth
under the caption "THE EXCHANGE OFFER--GUARANTEED DELIVERY PROCEDURES" in the
Prospectus; and, in each case, instructions are not being transmitted through
the DTC Automated Tender Offer Program ("ATOP").
Holders of Notes that are tendering by book-entry transfer to the Exchange
Agent's account at the Book-Entry Transfer Facility can execute the tender
through ATOP for which the transaction will be eligible. The Book-Entry Transfer
Facility participants that are accepting the Exchange Offer must transmit their
acceptances to the Book-Entry Transfer Facility which will verify the acceptance
and execute a book-entry delivery to the Exchange Agent's account at the
Book-Entry Transfer Facility. The Book-Entry Transfer Faciltiy will then send an
Agent's Message to the Exchange Agent for its acceptance. Delivery of the
Agent's Message by the Book-Entry Transfer Facility will satisfy the terms of
the Exchange Offer as to execution and delivery of a Letter of Transmittal by
the participant identified in the Agent's Message.
The undersigned hereby tenders the Senior Notes described in Box 1A below
(the "TENDERED SENIOR NOTES") and/or the Senior Subordinated Notes described in
Box 1B below (the "TENDERED SENIOR SUBORDINATED NOTES" and, together with the
Tendered Senior Notes, the "TENDERED NOTES") pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Tendered Notes and the
undersigned represents that it has received from each beneficial owner of the
Tendered Notes ("BENEFICIAL OWNERS") a duly completed and executed form of
"INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY
PARTICIPANT FROM BENEFICIAL OWNER" accompanying this Letter of Transmittal,
instructing the undersigned to take the action described in this Letter of
Transmittal.
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon the
order of, the Issuer, all right, title, and interest in, to, and under the
Tendered Notes.
Please issue the Exchange Notes exchanged for Tendered Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "SPECIAL
DELIVERY INSTRUCTIONS" below (Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1A and/or Box 1B, as the
case may be.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to the Issuer or cause ownership of the Tendered
Notes to be transferred to, or upon the order of, the Issuer, on the books of
the registrar for the Notes and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Issuer upon receipt by the
Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon acceptance by the Issuer of the Tendered Notes
pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Tendered Notes, all in
accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer-Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owners hereunder shall be
binding upon the heirs, representatives, successors, and assigns of the
undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Issuer will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges, encumbrances, and adverse claims
when the Tendered Notes are acquired by the Issuer as contemplated herein. The
undersigned and each Beneficial Owner will, upon request, execute and deliver
any additional documents reasonably requested by the Issuer or the Exchange
Agent as necessary or desirable to complete and give effect to the transactions
contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) except as otherwise disclosed in
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the
2
<PAGE>
Securities Act, of the Issuer, and (iv) the undersigned and each Beneficial
Owner acknowledge and agree that any person participating in the Exchange Offer
with the intention or for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale of the Exchange Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission (the "Commission") set forth in the no-action
letters that are discussed in the section of the Prospectus entitled "The
Exchange Offer." In addition, by accepting the Exchange Offer, the undersigned
hereby (i) represents and warrants that, if the undersigned or any Beneficial
Owner of the Notes is a Participating Broker-Dealer, such Participating
Broker-Dealer acquired the Notes for its own account as a result of
market-making activities or other trading activities and has not entered into
any arrangement or understanding with the Company or any affiliate of the
Company (within the meaning of Rule 405 under the Securities Act) to distribute
the Exchange Notes to be received in the Exchange Offer, and (ii) acknowledges
that, by receiving Exchange Notes for its own account in exchange for Notes,
where such Notes were acquired as a result of market-making activities or other
trading activities, such Participating Broker-Dealer will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes.
CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
"USE OF GUARANTEED DELIVERY" BELOW (Box 4).
CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER" BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1A
DESCRIPTION OF SENIOR NOTES TENDERED
(Attach additional signed pages, if necessary)
<TABLE>
<CAPTION>
Name(s) and Address(es) of Registered Senior Note Aggregate
Holder(s), exactly as name(s) appear(s) on Senior Note Certificate Principal Amount Aggregate
Certificate(s) Number(s) of Represented by Principal Amount
(Please fill in, if blank) Senior Notes* Certificate(s) Tendered**
<S> <C> <C> <C>
TOTAL
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Senior
Notes. All other tenders must be in integral multiples of $1,000 of
principal amount. Unless otherwise indicated in this column, the principal
amount of all Senior Note Certificates identified in this Box 1A or
delivered to the Exchange Agent herewith shall be deemed tendered. See
Instruction 4. -----------------------------------------------------
3
<PAGE>
BOX 1B
DESCRIPTION OF SENIOR SUBORDINATED NOTES TENDERED
(Attach additional signed pages, if necessary)
<TABLE>
<CAPTION>
Name(s) and Address(es) of Registered Senior Subordinated Certificate Number(s) of Aggregate
Note Holder(s), exactly as name(s) appear(s) on Senior Senior Principal Amount Aggregate
Subordinated Note Certificate(s) Subordinated Represented by Principal Amount
(Please fill in, if blank) Notes* Certificate(s) Tendered**
<S> <C> <C> <C>
TOTAL
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Senior
Subordinated Notes. All other tenders must be in integral multiples of
$1,000 of principal amount. Unless otherwise indicated in this column, the
principal amount of all Senior Subordinated Note Certificates identified
in this Box 1B or delivered to the Exchange Agent herewith shall be deemed
tendered. See Instruction 4.
BOX 2
BENEFICIAL OWNER(S)
STATE OF PRINCIPAL PRINCIPAL AMOUNT OF
<TABLE>
<CAPTION>
STATE OF PRINCIPAL PRINCIPAL AMOUNT OF RESIDENCE OF EACH TENDERED SENIOR
RESIDENCE OF EACH TENDERED SENIOR NOTES BENEFICIAL OWNER OF SUBORDINATED NOTES HELD
BENEFICIAL OWNER OF HELD FOR ACCOUNT OF TENDERED SENIOR FOR ACCOUNT OF BENEFICIAL
TENDERED SENIOR NOTES BENEFICIAL OWNER SUBORDINATED NOTES OWNER
<S> <C> <C> <C>
</TABLE>
4
<PAGE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED NOTES
ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT
AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to:
Name(s):
- --------------------------------------------------------------------------------
(please print)
Address:
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Institution which Guaranteed Delivery:__________________________________
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
5
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
X_____________________________________________________
X_____________________________________________________Authorized Signature
(Signature of Registered Holder(s) or
Authorized Signatory)
Note: The above lines must be signed by the
registered holder(s) of Notes as their name(s)
appear(s) on the Notes or by persons(s)
authorized to become registered holder(s)
(evidence of which authorization must be
transmitted with this Letter of Transmittal). If
signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer, or other
person acting in a fiduciary or representative
capacity, such person must set forth his or her
full title below. See Instruction 5.
Capacity:______________________________________________________________________
Street Address:_________________________________________
_________________________________________
(include Zip Code)
Area Code and Telephone Number:_________________________
Tax Identification or Social Security Number:__________________
- -------------------------------------------------------------------------------
Signature Guarantee
(If required by Instruction 5)
X___________________________________
Name:___________________________
(please print)
Title:_______________________
Name of Firm:__________________________________
(Must be an Eligible Institution
as defined in Instruction 2)
Address:_________________________________________
_________________________________________
_________________________________________
(include Zip Code)
Area Code and Telephone Number:__________________
Dated:___________________________________________
BOX 7
BROKER-DEALER STATUS
Check this box if the Beneficial Owner of the Notes is a
Participating Broker-Dealer and such Participating Broker-Dealer
acquired the Notes for its own account as a result of
[ ] market-making activities or other trading activities.
6
<PAGE>
PAYOR'S NAME: SPECIALTY RETAILERS, INC.
Name (if joint names, list first and circle the name of the
SUBSTITUTE person or entity whose number you enter in Part 1 below. See
instructions if your name has changed.)
FORM W-9
Department of the
Treasury
Internal Revenue Service
Address
_______________________________________________________________________________
City, State and ZIP Code
_______________________________________________________________________________
List account number(s) here (optional)
_______________________________________________________________________________
PART 1--PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION Social Security
NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY Number or TIN
SIGNING AND DATING BELOW
PART 2--Check the box if you are NOT subject to backup
withholding under the provisions of section
3406(a)(1)(C) of the Internal Revenue Code because (1)
you have not been notified that you are subject to
backup withholding as a result of failure to report all
interest or dividends or (2) the Internal Revenue
Service has notified you that you are no longer subject
to backup withholding. [ ]
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY
THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE,
CORRECT AND COMPLETE. PART 3
SIGNATURE _________________DATE ____________________ Awaiting TIN [ ]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W- 9 FOR ADDITIONAL
DETAILS.
7
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute Form
W-9, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant to
the procedures for book-entry transfer described in the Prospectus under the
caption "THE EXCHANGE OFFER--PROCEDURE FOR TENDERING" (and a confirmation of
such transfer received by the Exchange Agent), in each case prior to 5:00 p.m.,
New York City time, on the Expiration Date. The method of delivery of
certificates for Tendered Notes, this Letter of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
tendering holder and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. Instead of delivery
by mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Notes should be sent to the Company.
Neither the Issuer nor the registrar is under any obligation to notify any
tendering holder of the Issuer's acceptance of Tendered Notes prior to the
closing of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Notes according to
the guaranteed delivery procedures set forth below, including completion of Box
4. Pursuant to such procedures: (i) such tender must be made by or through a
firm which is a member of a recognized Medallion Program approved by the
Securities Transfer Association Inc. (an "Eligible Institution") and the Notice
of Guaranteed Delivery must be signed by the holder; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the holder and the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of the Tendered Notes and the principal amount
of Tendered Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal together with the certificate(s)
representing the Notes and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all Tendered
Notes in proper form for transfer, must be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date. Any holder
who wishes to tender Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Notes prior to 5:00 p.m., New York City
time, on the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
an Eligible Holder who attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes
who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the INSTRUCTIONS
TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM
BENEFICIAL OWNER form accompanying this Letter of Transmittal.
8
<PAGE>
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder should fill
in the principal amount tendered in the columns labeled "Aggregate Principal
Amount Tendered" of the box entitled "Description of Senior Notes Tendered" (Box
1A) above and/or the box entitled "Description of Senior Subordinated Notes
Tendered" (Box 1B) above, as the case may be. The entire principal amount of
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Notes held by
the holder is not tendered, then Notes for the principal amount of Notes not
tendered and Exchange Notes issued in exchange for any Notes tendered and
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued
(and any untendered principal amount of Notes is to be reissued) in the name of
the registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed
or accompanied by appropriate bond powers, in each case, signed as the name(s)
of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Issuer, evidence satisfactory to the Issuer of their authority to so act must be
submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the
applicable box (Box 3), the name and address to which the Exchange Notes and/or
substitute Notes for principal amounts not tendered or not accepted for exchange
are to be sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
9
<PAGE>
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the transfer and
exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide the
Issuer (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuer is not provided with the correct TIN, the Holder
may be subject to backup withholding and a $50 penalty imposed by the Internal
Revenue Service. (If withholding results in an over-payment of taxes, a refund
may be obtained.) Certain holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue Service
has notified the holder that such holder is no longer subject to backup
withholding. If the Tendered Notes are registered in more than one name or are
not in the name of the actual owner, consult the "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for information on
which TIN to report.
The Issuer reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Issuer's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of Tendered Notes will be
determined by the Issuer in its sole discretion, which determination will be
final and binding. The Issuer reserves the right to reject any and all Notes not
validly tendered or any Notes the Issuer's acceptance of which would, in the
opinion of the Issuer or their counsel, be unlawful. The Issuer also reserves
the right to waive any conditions of the Exchange Offer or defects or
irregularities in tenders of Notes as to any ineligibility of any holder who
seeks to tender Notes in the Exchange Offer. The interpretation of the terms and
conditions of the Exchange Offer (including this Letter of Transmittal and the
instructions hereto) by the Issuer shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Notes
must be cured within such time as the Issuer shall determine. Neither the
Issuer, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Notes, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify any of the conditions in the Exchange Offer in the case
of any Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will be
accepted.
10
<PAGE>
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder whose
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF NOTES.
Subject to the terms and conditions of the Exchange Offer, the Issuer will
accept for exchange all validly tendered Notes as soon as practicable after the
Expiration Date and will issue Exchange Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to
have accepted tendered Notes when, as and if the Issuer has given written or
oral notice (immediately followed in writing) thereof to the Exchange Agent. If
any Tendered Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Notes will be returned, without expense, to the
undersigned at the address shown in Box 1A and/or Box 1B or at a different
address as may be indicated herein under "Special Delivery Instructions" (Box
3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer."
11
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
8 1/2% SENIOR NOTES DUE 2005 AND/OR
9% SENIOR SUBORDINATED NOTES DUE 2007
OF
SPECIALTY RETAILERS, INC.
Pursuant to the Prospectus Dated August 8, 1997
This form must be used by a holder of 8 1/2% Senior Notes due 2005 (the
"Senior Notes") and/or a holdeR of 9% Senior Subordinated Notes due 2007 (the
"Senior Subordinated Notes" and, together with the Senior Notes, the "Notes") of
Specialty Retailers, Inc., a Texas corporation (the "Company"), who wishes to
tender Notes to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer - Guaranteed Delivery Procedures" of
the Company's Prospectus, dated August 8, 1997 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Notes pursuant to such guaranteed delivery procedures must ensure that
the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date of the Exchange Offer. Capitalized terms used but not defined
herein have the meanings ascribed to them in the Prospectus or the Letter of
Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON SEPTEMBER 9, 1997 UNLESS EXTENDED (THE
"EXPIRATION DATE").
State Street Bank and Trust Company
(the "Exchange Agent")
BY HAND/OVERNIGHT COURIER: BY REGISTERED OR CERTIFIED MAIL:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
2 International Place (4th Floor) 2 International Place (4th Floor)
Boston, Massachusetts 02110 Boston, Massachusetts 02110
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
1
<PAGE>
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Senior Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF SENIOR NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
<S> <C> <C>
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
</TABLE>
The undersigned hereby tenders the Senior Subordinated Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF SENIOR SUBORDINATED NOTES AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
OR ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
<S> <C> <C>
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
</TABLE>
2
<PAGE>
PLEASE SIGN AND COMPLETE
<TABLE>
<CAPTION>
<S> <C>
Signatures of Registered Holder(s) or
Authorized Signatory:______________________ Date: ___________________, 1996
___________________________________________ Address:__________________________________
__________________________________________
Name(s) of Registered Holder(s):_____________ Area Code and Telephone No._______________
_____________________________________________
_____________________________________________
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s): _______________________________________________________________________
Capacity: ______________________________________________________________________
Address(es):____________________________________________________________________
3
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility described in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures" and in the Letter of Transmittal) and any other required documents,
all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange
trading day following the Expiration Date.
<TABLE>
<CAPTION>
<S> <C>
Name of firm_____________________________ ________________________________________
(Authorized Signature)
Address__________________________________ Name____________________________________
(Please Print)
________________________________________ Title_____________________________________
(Include Zip Code)
Area Code and Tel. No. ___________________ Dated______________________________, 1996
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF
SECURITIES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN
EXECUTED LETTER OF TRANSMITTAL.
4
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of the Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
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EXHIBIT 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
SPECIALTY RETAILERS, INC.
8 1/2% SENIOR NOTES DUE 2005
9% SENIOR SUBORDINATED NOTES DUE 2007
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated August
8, 1997 (the "Prospectus") of Specialty Retailers, Inc., a Texas corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 8 1/2% Senior Notes due 2005 (the "Senior Notes")
and/or the 9% Senior Subordinated Notes due 2007 (the "Senior Subordinated
Notes" and, together with the Senior Notes, the "Notes") held by you for the
account of the undersigned.
The aggregate face amount of the Senior Notes held by you for the account
of the undersigned is (FILL IN AMOUNT): $ of the 8 1/2% Senior Notes due
2005.
The aggregate face amount of the Senior Subordinated Notes held by you for
the account of the undersigned is (FILL IN AMOUNT): $ of the 9% Senior
Subordinated Notes due 2007
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Senior Notes held by you for the account of
the undersigned (INSERT PRINCIPAL AMOUNT OF SENIOR NOTES TO BE
TENDERED, IF ANY): $
[ ] NOT TO TENDER any Senior Notes held by you for the account of the
undersigned.
[ ] TO TENDER the following Senior Subordinated Notes held by you for
the account of the undersigned (INSERT PRINCIPAL AMOUNT OF SENIOR
SUBORDINATED NOTES TO BE TENDERED, IF ANY): $
[ ] NOT TO TENDER any Senior Subordinated Notes held by you for the
account of the undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE) , (ii) the
undersigned is acquiring the Exchange Notes in the ordinary course of business
of the undersigned, (iii) the undersigned is not participating, does not
participate, and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) the undersigned
acknowledges that any person participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Act"), in connection with a secondary resale transaction of the Exchange Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission set forth in no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange Offer--Resale
of the Exchange Notes," and (v) the undersigned is not an "affiliate," as
defined in Rule 405 under the Act, of the Company; (b) to agree, on behalf of
the undersigned, as set forth in the Letter of Transmittal; and (c) to take such
other action as necessary under the Prospectus or the Letter of Transmittal to
effect the valid tender of such Notes.
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<PAGE>
SIGN HERE
Name of beneficial owner(s):___________________________________________________
Signature(s):__________________________________________________________________
Name (PLEASE PRINT):____________________________________________________________
Address:________________________________________________________________________
Telephone number:_______________________________________________________________
Taxpayer Identification or Social Security Number:______________________________
Date:___________________________________________________________________________
2
