<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 21, 1997 (July 18, 1997)
SERVICE MERCHANDISE COMPANY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Tennessee 1-9223 62-0816060
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(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
</TABLE>
7100 Service Merchandise Boulevard, Brentwood, TN 37027
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 660-6000
Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events
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See attached exhibits.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibit:
99.1 Press Release dated July 21, 1997.
99.2 Commitment Letter dated July 18, 1997.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SERVICE MERCHANDISE COMPANY, INC.
Date: July 21, 1997 By: /s/ S. Cusano
------------------------------------------
S. Cusano
Vice President and Chief Financial Officer
3
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EXHIBIT INDEX
No. Exhibit
- --------- ------------------------------------------------------------
99.1 Press Release dated July 21, 1997.
99.2 Commitment Letter dated July 18, 1997.
<PAGE> 1
EXHIBIT 99.1
PRESS RELEASE
BANK FINANCING TO TAKE SERVICE MERCHANDISE
INTO NEXT CENTURY
Chase and Citicorp Underwrite $900 Million Financing That Provides Service
Merchandise With Long-term Liquidity and Financial Flexibility In Executing Its
Strategic Initiatives To Close By September 30, 1997
NASHVILLE, TENNESSEE - (July 21, 1997) - Service Merchandise Company, Inc.
(NYSE: SME) announced today that it has reached agreement with The Chase
Manhattan Bank and Citibank to provide a five-year, $900 million bank facility
to replace its existing bank lines and other obligations. Under terms of the
fully underwritten commitment, Chase, Citibank and a syndicate of new and
existing lenders will provide up to $250 million in term loans and up to $650
million in revolving loans. The facility will also include a $175 million
sub-facility for letters of credit.
"This joint commitment from two of the largest and most sophisticated
financial institutions in the country, Chase and Citicorp, is another milestone
in Service Merchandise's turnaround program," said President and CEO Gary M.
Witkin. "Moving forward with our strategic plan means anticipating
opportunities. This five year financing agreement will carry us into the next
century. It provides us with long-term liquidity and operating flexibility,
both of which will enhance our ability to execute our strategic initiatives and
enhance shareholder value."
Terms of the financing commitment include the following provisions:
-- Both Chase and Citibank have committed to provide $450 million of the
fully underwritten $900 million in financing and expect to arrange a syndicate
of lenders.
-- The lenders will receive a first-priority lien on all material
unencumbered assets of the Company and its subsidiaries excluding mortgages on
leasehold interests. These liens will automatically terminate when Service
Merchandise either achieves investment grade credit rating on its debt or meets
certain operating performance targets.
-- Borrowings under the new financing will be subject to borrowing limits
based on percentages of certain current and fixed assets and borrowing
limitations contained in the Company's public subordinated debt indenture.
-- The financial covenants to be included in the definitive agreement relate
to coverage and leverage tests and will enhance the Company's ability to
implement its business plan.
-- The interest rate will be subject to a financial performance-based grid.
-- The closing of the financing is conditioned on the successful tender
and consent solicitation of the Company's $100 million 8-3/8% Senior Notes Due
2001.
<PAGE> 2
The tender and consent solicitation will be launched today and are subject to
the conditions to be set forth in the Offer to Purchase and Consent
Solicitation Statement to be mailed to holders of the outstanding notes. The
tender is conditional upon the execution of a supplemental indenture, the
successful completion and closing of the new bank facility and termination of
the Company's existing bank facility. Merrill Lynch & Co. is acting as Dealer
Manager for the Tender Offer and Consent Solicitation (call collect at
212-449-2551). Beacon Hill Partners, Inc. is acting as Information Agent.
(Contact: Edward McCarthy, 800-755-5001).
The complete terms of the financing commitment agreement are contained in a
commitment letter among Service Merchandise, Chase and Citibank dated as of July
18, 1997, which the Company is filing with the Securities and Exchange
Commission.
"Chase is pleased to be a leader in supporting Service Merchandise as it
implements a carefully planned repositioning of its business that bolsters the
confidence of all of the Company's business partners," said Chase Vice Chairman
James Lee. "Our goal" noted Stephen J. Karper, Head of Citicorp's Global
Structured Finance, "is to help Service Merchandise deliver its strategic
vision. We fully support the company's planned course of action and are eager
to demonstrate that by endorsing this sound new financial arrangement."
Service Merchandise EVP and Chief Financial Officer Sam Cusano commented:
"This new agreement will expand our bank lines from $525 million to
$900 million, extend the bank facility through the year 2002, and establish
operating covenants that support our strategic business plan. The financing,
when completed, will expand our excess borrowing availability to $300 million
during our seasonal peak borrowing periods and will enhance our long-term
liquidity and financial stability."
Service Merchandise is a leading retailer of fine jewelry and today's
lifestyle home products. The Company offers dominant selections of name brand
products and value pricing in categories of fine jewelry, kitchen and dining,
home accents and furniture, looking healthy/staying healthy, season to season,
travel/adventure, electronics and kid essentials. The Brentwood,
Tennessee-based company employs approximately 25,000 associates and operates
358 stores across the country.
Contact: Gwaine Ton, Assistant Vice President, Investor Relations (615)660-3474
For more information and access to current and prior press releases see our
home page on the Internet at http://www.servicemerchandise.com, or for fax
copies of the most current or prior releases contact 1-800-759-2793.
2
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SERVICE MERCHANDISE LAUNCHES CASH TENDER OFFER AND
CONSENT SOLICITATION FOR ITS $100 MILLION 8 3/8 PERCENT
SENIOR NOTES DUE 2001
NASHVILLE, TENNESSEE - (July 21, 1997) - Service Merchandise Company, Inc.,
(NYSE:SME) today announced that it is conducting a Tender Offer for all of its
outstanding $100 million aggregate principal amount 8 3/8% Senior Notes Due
2001. Concurrently with the Tender Offer, Service Merchandise is conducting a
Consent Solicitation in order to effect certain changes to the indenture
relating to the Senior Notes.
Aggregate consideration to Noteholders that tender and consent will be $980.00
per $1,000 principal amount plus accrued and unpaid interest to the tender
date. Such amount consists of $970.00 per $1,000 principal amount plus accrued
and unpaid interest for tendered notes and $10 per $1,000 principal amount for
Noteholders providing their consent by August 1, 1997. The Consent Solicitation
and the Tender Offer will expire at 12:00 midnight, New York City Time, on
August 15, 1997. The aggregate consideration will be paid only upon closing of
the Tender Offer. Noteholders may not tender their Senior Notes without consent
to the indenture modifications.
The Consent Solicitation is related to certain proposed amendments to the
indenture pursuant to which the Senior Notes were issued to, among other
things, eliminate or amend certain of the covenants and other provisions
contained in the indenture. The proposed amendments require the consent of the
holders of at least a majority in aggregate principle amount of the Senior
Notes outstanding.
The Tender Offer and Consent Solicitation is conditioned upon the execution of
a supplemental indenture giving effect to the proposed amendment, the
refinancing of the Company's bank facility and contain other customary terms
and conditions.
The Tender Offer and Consent Solicitation are subject to the terms and
conditions set forth in documentation which has been sent to holders of the
Senior Notes.
Merrill Lynch & Co. is acting as Dealer Manager for the Tender Offer and
Consent Solicitation (call collect at 212-449-2551). Beacon Hill Partners, Inc.
is acting as Information Agent. (Contact: Edward McCarthy, 800-755-5001).
Service Merchandise is a leading retailer of fine jewelry and today's lifestyle
home products. The Company offers dominant selections of name brand products
and value pricing in categories of fine jewelry, kitchen and dining, home
accents and furniture, looking healthy/staying healthy, season to season,
travel/adventure, electronics and kid essentials. The Brentwood, Tennessee
based company employs approximately 25,000 associates and operates 358 stores
across the country.
Contact: Gwaine Ton, Assistant Vice President, Investor Relations
(615)660-3474.
For more information and access to current or prior press releases, see our
home page on the Internet at http://www.servicemerchandise.com, or fax copies
of the most current or prior press release you may call 1-800-759-2793.
<PAGE> 1
EXHIBIT 99.2
THE CHASE MANHATTAN BANK
CHASE SECURITIES, INC.
CITICORP USA, INC.
CITICORP SECURITIES, INC.
July 18, 1997
Service Merchandise Company, Inc.
Senior Secured Credit Facilities
Commitment Letter
Service Merchandise Company, Inc.
7100 Service Merchandise Drive
Brentwood, Tennessee 37027
Attention: Mr. Sam Cusano
Executive Vice President and Chief Financial Officer
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase"), Chase
Securities Inc. ("Chase Securities"), Citicorp USA, Inc. ("Citicorp"), and
Citicorp Securities, Inc. ("Citicorp Securities") that Service Merchandise
Company, Inc. (the "Borrower"), wishes to refinance and replace its existing
bank credit facilities (the "Existing Facilities"). In that connection, you have
requested that Chase Securities and Citicorp Securities agree to structure,
arrange and syndicate senior secured credit facilities in an aggregate amount of
$900,000,000 (the "Facilities"), and that Chase and Citicorp each severally
commit to provide one-half of the Facilities.
Chase Securities and Citicorp Securities are each pleased to
advise you that it is willing to act as arranger for the Facilities
(collectively, in such capacities, the "Arrangers").
Furthermore, Chase and Citicorp are each pleased to advise you
of its commitment to severally provide one-half of the Facilities upon the terms
and subject to the conditions set forth or referred to in this commitment letter
(the "Commitment Letter") and in the Summary of Terms and Conditions attached
hereto as Exhibit A (the "Term Sheet"). It shall be a condition to Chase's and
Citicorp's commitments hereunder that the portion of the Facilities not being
provided by it shall be provided by Chase or Citicorp, as the case may be.
<PAGE> 2
2
It is agreed that Chase will act as the sole and exclusive
Administrative Agent and Collateral Agent, that Citicorp will act as
Documentation Agent and that Chase Securities and Citicorp Securities will act
as Arrangers, for the Facilities, and each will, in such capacities, perform the
duties and exercise the authority customarily performed and exercised by it in
such roles. Except as provided in the next paragraph, you agree that no other
agents, co-agents or arrangers will be appointed, no other titles will be
awarded and no compensation (other than that expressly contemplated by the Term
Sheet and the Underwriting Fee Letter referred to below) will be paid to any
other Lender (as defined below) in connection with the Facilities unless you and
we shall so agree.
The Arrangers intend to syndicate the Facilities to a group of
financial institutions (together with Chase and Citicorp, the "Lenders")
identified by us in consultation with you. The Arrangers intend to commence
syndication efforts promptly upon the execution of this Commitment Letter, and
you agree actively to assist the Arrangers in completing a syndication
satisfactory to them. Such assistance shall include (a) your using commercially
reasonable efforts to ensure that the syndication efforts benefit materially
from your existing lending relationships, (b) direct contact between senior
management and advisors of the Borrower and the proposed Lenders, (c) assistance
in the preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication and (d) the hosting,
with the Arrangers, of one or more meetings of prospective Lenders.
The Arrangers will manage all aspects of the syndication in
consultation with you, including decisions as to the selection of institutions
to be approached and when they will be approached, when their commitments will
be accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. In this regard, we understand that it is your desire to keep the number
of Lenders in the Facilities as small as practicable. To assist the Arrangers in
their syndication efforts, you agree promptly to prepare and provide to Chase,
Citicorp and the Arrangers all information with respect to the Borrower and the
other transactions contemplated hereby, including all financial information and
projections (the "Projections"), as any of them may reasonably request in
connection with the arrangement and syndication of the Facilities. You hereby
represent and covenant that (a) all information other than the Projections (the
"Information") that has been or will be made available to Chase, Citicorp or the
Arrangers by you or any of your representatives is or will be, as of the
respective dates thereof, complete and correct in all material respects and does
not or will not, as of the respective dates thereof, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which such statements are made and (b) the Projections
that have been or will be made available to Chase, Citicorp or the Arrangers by
you or any of your representatives have been or will be prepared in good faith
based upon reasonable assumptions (it being understood that the Projections are
subject to significant uncertainties, many of which are beyond your control, and
that no assurances are being given that such Projections will be realized). You
understand that in arranging and syndicating the
<PAGE> 3
3
Facilities we may use and rely on the Information and Projections without
independent verification thereof.
As consideration for Chase's and Citicorp's commitments
hereunder and the Arrangers' agreements to perform the services described
herein, you agree to pay the nonrefundable fees set forth in Annex I to the Term
Sheet and in the Underwriting Fee Letter dated the date hereof and delivered
herewith (the "Underwriting Fee Letter").
Chase's and Citicorp's commitments hereunder and the
Arranger's agreements to perform the services described herein are subject to
(a) there not occurring or becoming known to us after the date hereof any
material adverse condition or material adverse change in or affecting the
business, operations, property or condition (financial or otherwise) of the
Borrower and its subsidiaries, taken as a whole (it being understood that any
past or future reduction in the Borrower's or any subsidiary's credit rating or
decline in the market price of the Borrower's or any subsidiary's securities
shall not in and of themselves be deemed to constitute such a material adverse
condition or material adverse change), (b) our not becoming aware after the date
hereof of any information or other matter affecting the Borrower or the
transactions contemplated hereby which is inconsistent in a material and adverse
manner with any such information or other matter disclosed to us prior to the
date hereof, (c) there not having occurred a material disruption of or material
adverse change in financial, banking or capital market conditions that, in our
judgment, could materially impair the syndication of the Facilities, (d) our
satisfaction that prior to and during the syndication of the Facilities there
shall be no competing offering, placement or arrangement of any debt securities
or bank financing by or on behalf of the Borrower or any affiliate thereof
(except for the renegotiation of the Borrower's existing letter of credit
facilities and inventory financing facilities as disclosed to us), (e) the
negotiation, execution and delivery on or before September 30, 1997 of
definitive documentation with respect to the Facilities satisfactory to us and
our counsel and (f) the other conditions set forth or referred to in the Term
Sheet. Although the material terms and conditions of Chase's and Citicorp's
commitments hereunder are set forth or described herein and in the Term Sheet,
the terms and conditions of the Credit Documentation (as defined in the Term
Sheet) and of the Facilities are not limited to those set forth or described
herein and in the Term Sheet. Those matters that are not covered by the
provisions hereof and of the Term Sheet are subject to the approval and
agreement of Chase, Citicorp, the Arrangers and the Borrower. Chase, Citicorp
and the Arrangers hereby confirm that the representations and warranties,
covenants and events of default applicable to the Existing Facilities are
generally acceptable to them and that the representations and warranties,
covenants and events of default in the Credit Documentation (as defined in the
Term Sheet) will be based upon, where practicable (in light of the differences
between the Facilities and the Existing Facilities), the representations and
warranties, covenants and events of default applicable to the Existing
Facilities.
You agree (a) to indemnify and hold harmless Chase, Citicorp,
the Arrangers, their affiliates and their respective officers, directors,
employees, advisors, and agents (each, an "indemnified person") from and against
any and all losses, claims, damages and liabilities to which any such
indemnified person may become subject arising out of or in connection
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4
with this Commitment Letter, the Facilities, the use of the proceeds thereof or
any related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing, regardless of whether any indemnified person
is a party thereto, and to reimburse each indemnified person upon demand for any
reasonable out-of-pocket legal or other expenses incurred in connection with
investigating or defending any of the foregoing, provided that the foregoing
indemnity will not, as to any indemnified person, apply to losses, claims,
damages, liabilities or related expenses to the extent they arise from the
willful misconduct or gross negligence of such indemnified person, and (b) to
reimburse Chase, Citicorp, the Arrangers and their affiliates on demand for all
reasonable out-of-pocket expenses (including due diligence expenses, syndication
expenses, consultant's fees and expenses, travel expenses, and reasonable fees,
charges and disbursements of counsel) incurred in connection with the Facilities
and any related documentation (including this Commitment Letter, the Term Sheet,
the Underwriting Fee Letter and the definitive financing documentation) or the
administration, amendment, modification or waiver thereof and all reasonable
fees and expenses relating to the audit of the inventory and accounts receivable
of the Borrower and its subsidiaries. No indemnified person shall be liable for
any indirect or consequential damages in connection with its activities related
to the Facilities.
You acknowledge that Chase, Citicorp and their affiliates (the
terms "Chase" and "Citicorp" being understood to refer hereinafter in this
paragraph to include their respective affiliates) may be providing debt
financing, equity capital or other services (including financial advisory
services) to other companies in respect of which you may have conflicting
interests regarding the transactions described herein and otherwise. Each of
Chase and Citicorp agrees that it will not use confidential information obtained
from you by virtue of the transactions contemplated by this Commitment Letter or
their other relationships with you in connection with the performance by it of
services for other companies, and it will not furnish any such information to
other companies. You also acknowledge that neither Chase nor Citicorp has any
obligation to use in connection with the transactions contemplated by this
Commitment Letter, or to furnish to you, confidential information obtained from
other companies. In addition, each of Chase and Citicorp agrees that it will not
disclose to any other person or entity this Commitment Letter, the Term Sheet,
the Underwriting Fee Letter, or any of the terms or substance of any of the
foregoing, or any confidential information furnished or disclosed by or on
behalf of you or your advisors to it, except for any such disclosure (a) made to
any of its officers, directors, employees, attorneys and other advisors on a
"need-to-know" and confidential basis, (b) of any information which is or has
become public information other than as a result of a disclosure by it or any of
the persons described in the preceding clause (a), (c) as required by any
applicable law, rule or regulation or judicial process or requested by any
governmental authority, in which event, to the extent permitted by law, notice
of any such disclosure shall be given as promptly as practicable to you, (d) to
prospective Lenders during the syndication process which agree for your benefit
to be bound by confidentiality provisions substantially the same as those
contained in this sentence, (e) in connection with any adversarial legal
proceeding between it and you, (f) which was available to it on a
non-confidential basis prior to its disclosure by you or your advisors to it, or
(g) which becomes available to it on a non-confidential basis from a source
other than you or any of your advisors, provided that such source is not (1)
known to it to be
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5
bound by a confidentiality agreement with you or any of your advisors or (2)
known to it to be otherwise prohibited from transmitting the information to it
by a contractual, legal or fiduciary obligation.
This Commitment Letter shall not be assignable by you without
the prior written consent of Chase, Citicorp and the Arrangers (and any
purported assignment without such consent shall be null and void), is intended
to be solely for the benefit of the parties hereto and is not intended to confer
any benefits upon, or create any rights in favor of, any person other than the
parties hereto. This Commitment Letter may not be amended or waived except by an
instrument in writing signed by you, Chase, Citicorp and the Arrangers. This
Commitment Letter may be executed in any number of counterparts, each of which
shall be an original, and all of which, when taken together, shall constitute
one agreement. Delivery of an executed signature page of this Commitment Letter
by facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. This Commitment Letter shall be governed by, and construed
in accordance with, the laws of the State of New York.
This Commitment Letter is delivered to you on the
understanding that neither this Commitment Letter, the Term Sheet or the
Underwriting Fee Letter nor any of their terms or substance shall be disclosed,
directly or indirectly, to any other person except (a) to your officers, agents
and advisors who are directly involved in the consideration of this matter or
(b) as may be compelled in a judicial or administrative proceeding or as
otherwise required by law (in which case you agree to inform us promptly
thereof), provided, that the foregoing restrictions shall cease to apply (except
in respect of the Underwriting Fee Letter and their terms and substance) after
this Commitment Letter has been accepted by you.
The compensation, reimbursement, indemnification and
confidentiality provisions contained herein and in the Underwriting Fee Letter
shall remain in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or Chase's and Citicorp's commitments
hereunder.
If the foregoing correctly sets forth our agreement, please
indicate your acceptance of the terms hereof and of the Term Sheet and the
Underwriting Fee Letter by returning to us executed counterparts hereof and of
the Underwriting Fee Letter not later than 5:00 p.m., New York City time, on
July 25, 1997. Chase's and Citicorp's commitments and the Arranger's agreements
herein will expire at such time in the event we have not received such executed
counterparts in accordance with the immediately preceding sentence.
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6
We are pleased to have been given the opportunity to assist
you in connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK
By:
--------------------------------
Name:
Title:
CHASE SECURITIES INC.
By:
--------------------------------
Name:
Title:
CITICORP USA, INC.
By:
--------------------------------
Name:
Title:
CITICORP SECURITIES, INC.
By:
--------------------------------
Name:
Title:
Accepted and agreed to
as of the date first
written above by:
SERVICE MERCHANDISE COMPANY, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 7
Exhibit A
SERVICE MERCHANDISE SENIOR SECURED CREDIT FACILITIES
Summary of Terms and Conditions
July 18, 1997
------------------------
I. Parties
Borrower: Service Merchandise Company, Inc.
(the "Borrower").
Initial Guarantors: Each of the Borrower's direct and
indirect domestic subsidiaries which
are guarantors of the Existing
Facilities (the "Guarantors"; the
Borrower and the Guarantors,
collectively, the "Credit Parties").
Arrangers: Chase Securities Inc. and Citicorp
Securities, Inc. (collectively, in such
capacities, the "Arrangers").
Administrative Agent: The Chase Manhattan Bank ("Chase" and,
in such capacity, the "Administrative
Agent").
Collateral Agent: Chase (in such capacity, the
"Collateral Agent").
Documentation Agent: Citicorp USA, Inc. ("Citicorp" and, in
such capacity, the "Documentation
Agent"; together with the
Administrative Agent and the Collateral
Agent, the "Agents").
Lenders: A syndicate of banks, financial
institutions and other entities,
including Chase and Citicorp, arranged
by the Arrangers (collectively, the
"Lenders").
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2
II. Types and Amounts of
Credit Facilities
1. Term Loan Facility
Type and Amount of
Facility: Five-year term loan facility (the "Term
Loan Facility") in the amount of up to
$250,000,000 (the loans thereunder, the
"Term Loans").
Availability: The Term Loans, subject to the then-
current Borrowing Base, shall be made
in a single drawing on the Closing Date
(as defined below).
Amortization: The Term Loans shall be repayable in
consecutive quarterly installments,
commencing on the date which is three
months after the Closing Date in
amounts to be determined. The repayment
schedule for the Term Loans will
provide for only nominal amounts to be
repaid prior to the Maturity Date (as
defined below) (with the aggregate
amount payable during any year
(excluding the payment due on the
Maturity Date) not to exceed
$4,000,000).
Maturity: The final installment on the Term Loans
will be due on the fifth anniversary of
the Closing Date (the "Maturity Date").
Purpose: The proceeds of the Term Loans may be
used to refinance the Existing
Facilities, to refinance outstanding
public senior debt of the Borrower, to
pay related fees and expenses with
respect to the foregoing, to finance
capital expenditures and for other
general corporate purposes of the
Borrower and its subsidiaries.
- --------
1. At the option of the Borrower, the Facilities may take the form of an
amendment and restatement of the Existing Facilities if such form would
facilitate or reduce the cost of the granting of and perfecting liens on the
contemplated collateral. The Facilities will also be structured such that the
Borrower will have flexibility in borrowing (including, without limitation, by
refunding the Term Loans with new term loans under the Facilities) the maximum
available amount of the Facilities within the requirements of the Borrower's
then outstanding indentures, including requirements as to the financing of
capital expenditures.
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3
2. Revolving Credit Facility
Type and Amount of
Facility: Five-year revolving credit facility
(the "Revolving Credit Facility" and,
together with the Term Loan Facility,
the "Facilities") in the amount of
$650,000,000 plus an amount equal to
the amount by which the aggregate
initial principal amount of the Term
Loans is less than $250,000,000 (the
loans thereunder, the "Revolving Credit
Loans").
Availability: The Revolving Credit Facility shall,
subject to the then-current Borrowing
Base, be available on a revolving basis
during the period commencing on the
Closing Date and ending on the fifth
anniversary thereof (the "Revolving
Credit Termination Date").
Letters of Credit: A portion of the Revolving Credit
Facility in the amount of $175,000,000
shall, subject to the then-current
Borrowing Base, be available for the
issuance of letters of credit (the
"Letters of Credit") by Chase, Citicorp
and other Lenders to be designated (in
such capacity, each an "Issuing
Lender"). No Letter of Credit shall
have an expiration date after the
earlier of (a) one year after the date
of issuance and (b) five business days
prior to the Revolving Credit
Termination Date, provided that any
Letter of Credit with a one-year tenor
may provide for the renewal thereof for
additional one-year periods (which
shall in no event extend beyond the
date referred to in clause (b) above).
Letters of Credit may be issued as
trade letters of credit in the ordinary
course of business of the Borrower and
its subsidiaries or as standby letters
of credit.
Drawings under any Letter of Credit
shall be reimbursed by the Borrower
(whether with its own funds or with the
proceeds of Swing Line Loans or
Revolving Credit Loans) on or prior to
the next business day (with interest
payable on such drawings, to the extent
such drawings are not reimbursed on the
same business day, until the next
business day at the rate then
applicable to ABR Loans (as defined in
Annex I)). To the extent that the
Borrower does not so reimburse the
Issuing Lender, the Lenders under the
Revolving Credit Facility shall be
irrevocably and
<PAGE> 10
4
unconditionally obligated to reimburse
the Issuing Lender on a pro rata basis.
Swing Line Loans: A portion of the Revolving Credit
Facility not in excess of $50,000,000
shall be available for swing line loans
(the "Swing Line Loans") from, at the
Borrower's election, Chase and any
other Lender designated by the Borrower
prior to the Closing Date (in such
capacity, the "Swing Line Lender") on
same-day notice at interest rates to be
agreed. Any such Swing Line Loans will
reduce availability under the Revolving
Credit Facility on a dollar-for-dollar
basis. Each Lender under the Revolving
Credit Facility shall acquire, under
certain circumstances, an irrevocable
and unconditional pro rata
participation in each Swing Line Loan.
Maturity: The Revolving Credit Termination Date.
Purpose: The proceeds of the Revolving Credit
Loans shall be used to refinance the
Existing Facilities, to refinance
outstanding public senior debt of the
Borrower, to pay related fees and
expenses with respect to the foregoing,
to replace certain existing letters of
credit, to finance capital expenditures
and for other general corporate
purposes of the Borrower and its
subsidiaries.
III. Certain Payment and Other Provisions
Borrowing Base: The amount from time to time available
under the Facilities shall not exceed
the aggregate of (i) 65% of the
eligible inventory (50% of the face
amount of Letters of Credit issued to
finance goods in transit) and up to 80%
of the eligible accounts receivable
(final advance rates and eligibility
criteria to be defined in a manner
satisfactory to the Agents after review
of inventory and receivables by Chase's
specialized due diligence group) of the
Credit Parties, (ii) 100% of all cash
and cash equivalents subject to a first
priority security interest in favor of
the Collateral Agent and (iii) 60% of
the "alternative use" value of
unencumbered real estate of the Credit
Parties as shall be agreed subject to
an aggregate sublimit of $200,000,000,
<PAGE> 11
5
provided that the Borrowing Base value
of any parcel of real property included
in the Borrowing Base shall be reduced
by 1.5% at the end of each three-month
period after such parcel of real
property is initially included in the
determination of the Borrowing Base.
The Borrowing Base will be computed
monthly by the Borrower and a Borrowing
Base certificate presenting the
Borrower's computation will be
delivered to the Administrative Agent
promptly, but in no event later than
the 15th day of the following month.
Clean-up/down: The outstanding principal amount of all
Revolving Credit Loans may not exceed
$100 million (increased by the amount,
if any, by which the initial amount of
the Term Loans is less than $250
million) for at least 30 consecutive
days during each period beginning on
each December 1 and ending on the
following February 28.
Fees and Interest Rates: As set forth on Annex I.
Optional Prepayments and
Commitment Reductions: Loans may be prepaid and commitments
may be reduced by the Borrower in
minimum amounts to be agreed upon.
Optional prepayments of the Term Loans
shall be applied to the installments
thereof in the scheduled order of
maturity thereof and may not be
reborrowed.
Mandatory Prepayments: The Loans shall be prepaid to the
extent the aggregate outstanding
extensions of credit under the
Facilities exceed the then-current
Borrowing Base. All such amounts shall
be applied, first, to the prepayment of
the Revolving Credit Loans, second, to
cash collateralize outstanding Letters
of Credit and, third, to the prepayment
of the Term Loans. Each such prepayment
of the Term Loans shall be applied to
the installments thereof in the
scheduled order of maturity thereof and
may not be reborrowed. To the extent
that the then-current Borrowing Base
exceeds the aggregate outstanding
extensions of credit under the
Facilities, any cash collateral held in
respect of the Letters of Credit shall
be released to the Borrower in an
amount equal to the amount of such
excess.
Subject to a $75,000,000 basket for
reinvestment of the net proceeds of
sales of real property and
reinvestments of
<PAGE> 12
6
proceeds of asset sales pursuant to the
1997 Restructuring Plan (as defined in
the Existing Facilities), the Term
Loans shall be prepaid upon the sale of
any parcel of real property subject to
a first priority mortgage in favor of
the Lenders (such prepayment to be in
an amount equal to the greater of (i)
80% of the net cash proceeds of such
sale and (ii) the Borrowing Base value
of such parcel of real property).
IV. Collateral The obligations of each Credit Party in
respect of the Facilities, any exposure
of a Lender in respect of any cash
management activities conducted by such
Lender for any of the Credit Parties
and any exposure of a Lender in respect
of any hedging transactions entered
into between such Lender and any of the
Credit Parties shall be secured by a
perfected first priority security
interest in all of its tangible and
intangible assets (including, without
limitation, cash and cash equivalents,
intellectual property, real property
and all of the capital stock of each of
its direct and indirect domestic
subsidiaries and 65% of the stock of
the Credit Parties' first-tier foreign
subsidiaries and excluding, without
limitation, leasehold interests). The
non-inventory collateral package will
be substantially the same as under the
Existing Facilities. In furtherance of
the foregoing, the Collateral Agent
shall serve as the primary
concentration bank for the Credit
Parties and the Borrower shall
establish a system of lockbox and/or
blocked depositary accounts with its
depositary banks (pursuant to
satisfactory documentation) with
respect to the transfer of amounts to
the concentration account maintained
with the Collateral Agent which shall
(i) become effective upon notice from
the Administrative Agent or the
Required Lenders (as defined below)
after the earlier of (a) the occurrence
of a default (other than a default in
respect of affirmative covenants) or
event of default and (b) the end of a
period of 30 consecutive days during
which the average availability under
the Revolving Credit Facility is less
than $150,000,000 and (ii) remain
effective until the event which results
in such effectiveness has ceased to
exist for a period (the length of which
is to be agreed) and no default (other
than a default in respect of
affirmative covenants) or event of
default shall have then occurred and be
continuing. Any mortgage on any parcel
of real property which is subject to a
permitted sale or refinancing
<PAGE> 13
7
transaction shall be released upon
consummation of such sale or
refinancing.
Collateral Release
Provisions: The Collateral shall be released
automatically if (a) the senior
long-term unsecured debt of the
Borrower is rated (or has an implied
rating of) at least investment grade by
at least two of Moody's, S&P and Duff &
Phelps or (b) as of the last day of any
two consecutive fiscal quarters, (i)
the Fixed Charge Coverage Ratio (as
defined below) is greater than or equal
to 2.00 to 1.00 and (ii) the Leverage
Ratio (as defined below) is equal to or
less than 0.375 to 1.00.
V. Certain Conditions
Initial Conditions: The availability of the Credit
Facilities shall be conditioned
upon satisfaction of, among other
customary conditions, the following
conditions precedent (the date upon
which all such conditions precedent
shall be satisfied, the "Closing
Date") on or before September 30,
1997:
(a) Each Credit Party shall have
executed and delivered satisfactory
definitive financing documentation with
respect to the Credit Facilities (the
"Credit Documentation").
(b) The Borrower shall have repurchased
all of its outstanding 8-3/8% Senior
Notes due 2001 or the Indenture in
respect of such Senior Notes shall have
been amended in a manner satisfactory
to the Agents.
(c) The Lenders, the Administrative
Agent and the Arrangers shall have
received, concurrently with the closing
of the Credit Facilities, all fees
required to be paid, and all expenses
for which invoices have been presented,
on or before the Closing Date.
(d) All governmental and material third
party approvals (including, without
limitation, any necessary approvals
under the Borrower's then outstanding
indentures) necessary or, in the
discretion of the Agents, advisable in
connection with the Facilities shall
have been obtained and be in full force
and effect.
<PAGE> 14
8
(e) All amounts under the Existing
Facilities shall have been repaid and
the commitments thereunder shall have
been terminated (to be modified if the
Existing Facilities are amended and
restated).
(f) The Lenders shall have received the
results of a recent lien search with
respect to the Credit Parties in such
jurisdictions as the Agents may
reasonably request, and such search
shall reveal no liens on any of the
assets of the Credit Parties except for
liens permitted by the Credit
Documentation or liens to be discharged
on or prior to the Closing Date
pursuant to documentation reasonably
satisfactory to the Agents.
(g) The Agents shall have received a
satisfactory audit prepared by Chase's
specialized due diligence group with
respect to the accounts receivable and
inventory of the Credit Parties.
(h) With respect to Collateral
constituting owned real property or
interests in owned real property, the
Borrower shall have taken such steps as
shall have been agreed with the Agents
to perfect the security interest
therein for the benefit of the Lenders
and to comply with applicable banking
regulations (including FIRREA) in
respect of real property to be included
in the Borrowing Base.
(i) The Agents shall be satisfied with
the internal compliance procedures of
the Borrower in respect of
environmental rules and regulations.
(j) The Lenders shall have received
such legal opinions (including opinions
(i) from counsel to the Borrower and
its subsidiaries and (ii) from such
special and local counsel as may be
reasonably required by the Agents),
documents and other instruments as are
customary for transactions of this type
or as the Agents may reasonably
request.
On-Going Conditions: The making of each extension of credit
shall be conditioned upon (a) the
accuracy in all material respects of
all representations and warranties in
the Credit Documentation (including,
without limitation, the material
adverse change and litigation
representations) and (b) there being no
default
<PAGE> 15
9
or event of default in existence at the
time of, or after giving effect to the
making of, such extension of credit. As
used herein and in the Credit
Documentation a "material adverse
change" shall mean any event,
development or circumstance that has
had or could reasonably be expected to
have a material adverse effect on (a)
the business, assets, property or
condition (financial or otherwise) of
the Borrower and its subsidiaries taken
as a whole (it being understood that
any past or future reduction in the
Borrower's or any subsidiary's credit
rating or decline in the market price
of the Borrower's or any subsidiary's
securities shall not in and of
themselves be deemed to constitute such
a material adverse effect), or (b) the
validity or enforceability of any of
the material terms of the Credit
Documentation or the rights and
remedies of the Administrative Agent,
the Collateral Agent and the Lenders
thereunder, taken as a whole.
VI. Certain Documentation Matters
The Credit Documentation shall contain
representations, warranties, covenants
and events of default customary for
financings of this type and other terms
deemed appropriate by the Agents,
including, without limitation:
Representations and
Warranties: Financial statements; absence of
undisclosed liabilities; no material
adverse change (it being understood
that any past or future reduction in
the Borrower's or any subsidiary's
credit rating or decline in the market
price of the Borrower's or any
subsidiary's securities shall not in
and of themselves be deemed to
constitute a material adverse change);
corporate existence; compliance with
law; corporate power and authority;
enforceability of Credit Documentation;
no conflict with law or contractual
obligations; no material litigation; no
default; ownership of property; liens;
intellectual property; no burdensome
restrictions; taxes; Federal Reserve
regulations; ERISA; Investment Company
Act; subsidiaries; environmental
matters; accuracy of disclosure; and
creation and perfection of security
interests.
<PAGE> 16
10
Affirmative Covenants: Delivery of financial statements,
reports, accountants' letters,
projections, borrowing base
certificates, officers' certificates
and other information requested by the
Lenders; payment of other obligations;
continuation of business and
maintenance of existence and material
rights and privileges; compliance with
laws and material contractual
obligations; maintenance of property
and insurance; maintenance of books and
records; right to inspect property and
books and records; notices of defaults,
litigation and other material events;
compliance with environmental laws; and
further assurances (including, without
limitation, with respect to security
interests in after-acquired property
and certain subsequently formed or
acquired subsidiaries to be Guarantors
with permitted exceptions to be agreed
upon).
Financial Covenants: The ratio as of the last day of each
quarter (calculated on a rolling four
quarter basis) of EBITDAR (to be
defined as EBITDA plus rental expense
and in a manner consistent with the
definition thereof in the Existing
Facilities) to net interest and rental
expense (the "Fixed Charge Coverage
Ratio") shall be greater than or equal
to 1.25 to 1 and the ratio of
consolidated total debt (excluding
borrowings under the Revolving Credit
Facility) to total capitalization (to
be defined as the sum of the amount of
such debt plus preferred securities and
stockholders' equity but excluding
effects of 1997 restructuring) (the
"Leverage Ratio") shall not exceed 0.75
to 1 at any time.
Negative Covenants: Limitations on: indebtedness (permitted
subject only to compliance with
financial covenants); liens (purchase
money and consignment liens permitted
subject only to compliance with
financial covenants and existing liens
in respect of the Borrower's letter of
credit facilities to be permitted);
guarantee obligations; mergers,
consolidations, liquidations and
dissolutions; sales of assets;
dividends and other payments in respect
of capital stock; capital expenditures
($125 million per year with a one-year
carry forward); investments, loans and
advances; optional payments and
modifications of subordinated and other
debt instruments (tender for existing
public senior debt to be permitted);
transactions with affiliates; sale and
leasebacks; changes in fiscal year;
negative pledge clauses; and changes in
lines of business.
<PAGE> 17
11
Events of Default: Nonpayment of principal when due;
nonpayment of interest, fees or other
amounts after a grace period to be
agreed upon; material inaccuracy of
representations and warranties;
violation of covenants (subject, in the
case of certain affirmative covenants,
to a grace period to be agreed upon);
cross-default to indebtedness and
guarantee obligations having an
outstanding amount in excess of an
amount to be agreed upon; bankruptcy
events; certain ERISA events; material
judgments; actual or asserted
invalidity of any guarantee or security
document or security interest; and a
change of control (the definition of
which is to be agreed).
Voting: Amendments and waivers with respect to
the Credit Documentation shall require
the approval of Lenders holding not
less than a majority of the aggregate
amount of the Term Loans, Revolving
Credit Loans, participations in Letters
of Credit, participations in Swingline
Loans and unused commitments under the
Facilities (the "Required Lenders"),
except that (a) the consent of each
Lender directly affected thereby shall
be required with respect to (i)
reductions in the amount or extensions
of the scheduled date of amortization
or final maturity of any Loan, (ii)
reductions in the rate of interest or
any fee or extensions of any due date
thereof and (iii) increases in the
amount or extensions of the expiry date
of any Lender's commitment and (b) the
consent of 100% of the Lenders shall be
required with respect to (i)
modifications to any of the voting
percentages and (ii) releases of all or
substantially all of the Guarantors or
all or substantially all of the
collateral (other than in accordance
with the terms of the Credit
Documentation). In addition, the
consent of Lenders holding a majority
of the aggregate amount of the Term
Loans shall be required with respect to
certain modifications affecting the
Term Loan Facility.
Assignments
and Participations: The Lenders shall be permitted to
assign and sell participations in their
Loans and commitments, subject, in the
case of assignments (other than to
another Lender or to an affiliate of a
Lender), to the consent of the
Administrative Agent and the Borrower
(which consent in each case shall not
be unreasonably withheld), except that
assignments by a Lender of all or a
portion of its
<PAGE> 18
12
commitment under the Revolving Credit
Facility must be made to an "Eligible
Assignee" (the definition of which is
to be mutually agreed). Non-pro rata
assignments shall be permitted. In the
case of partial assignments (other than
to another Lender or to an affiliate of
a Lender), the minimum assignment
amount shall be $10,000,000, and, after
giving effect thereto, the assigning
Lender shall have commitments and Loans
aggregating at least $10,000,000, in
each case unless otherwise agreed by
the Borrower and the Administrative
Agent. Participants shall have the same
benefits as the Lenders with respect to
yield protection and increased cost
provisions, provided that the
Borrower's obligations under such
provisions are not increased as a
result thereof. Voting rights of
participants shall be limited to those
matters which require the affirmative
vote of all Lenders as described under
"Voting" above or which requires the
affirmative vote of the Lender from
which such participant purchased its
participation. Pledges of Loans in
accordance with applicable law shall be
permitted without restriction, except
that pledges of Loans (other than to
the Federal Reserve Bank) by certain
banks and financial institutions shall
be subject to certain restrictions to
be agreed. Promissory notes shall be
issued under the Credit Facilities only
upon request.
Yield Protection: The Credit Documentation shall contain
customary provisions (a) protecting the
Lenders against increased costs or loss
of yield resulting from changes in
reserve, tax, capital adequacy and
other requirements of law and from the
imposition of or changes in withholding
or other taxes and (b) indemnifying the
Lenders for "breakage costs" incurred
in connection with, among other things,
any prepayment of a Eurodollar Loan (as
defined in Annex I) on a day other than
the last day of an interest period with
respect thereto (it being understood
that with respect to clause (a) and (b)
above such provisions shall be no less
favorable to the Borrower in any
material respect than those applicable
to the Existing Facilities).
Expenses and
Indemnification: The Borrower shall pay (a) all
reasonable out-of-pocket expenses of
the Administrative Agent, the
Documentation Agent, the Collateral
Agent and the Arrangers associated
<PAGE> 19
13
with the syndication of the Credit
Facilities and the preparation,
execution, delivery and administration
of the Credit Documentation and any
amendment or waiver with respect
thereto (including the reasonable fees,
disbursements and other charges of
counsel) and all reasonable fees and
expenses in connection with audits of
the accounts receivable and inventory
of the Borrower and its subsidiaries
and (b) all out-of-pocket expenses of
the Administrative Agent and the
Collateral Agent (including the
reasonable fees, disbursements and
other charges of counsel) in connection
with the enforcement of the Credit
Documentation.
The Administrative Agent, the
Collateral Agent, the Documentation
Agent, the Arrangers and the Lenders
(and their affiliates and their
respective officers, directors,
employees, advisors and agents) will
have no liability for, and will be
indemnified and held harmless against,
any loss, liability or reasonable
out-of-pocket cost or expense incurred
in respect of the financing
contemplated hereby or the use or the
proposed use of proceeds thereof
(except to the extent resulting from
the gross negligence or willful
misconduct of the indemnified party).
Confidentiality: The Credit Documentation shall contain
confidentiality provisions reasonably
satisfactory to the Borrower and the
Agents.
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent, the
Documentation Agent, the
Collateral Agent, the
Arrangers and the Lenders: Simpson Thacher & Bartlett.
<PAGE> 20
ANNEX I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that the Loans
comprising each borrowing bear interest
at a rate per annum equal to:
the ABR plus the Applicable Margin;
or
the Eurodollar Rate plus the
Applicable Margin.
As used herein:
"ABR" means the highest of (i) the rate
of interest publicly announced by Chase
as its prime rate in effect at its
principal office in New York City (the
"Prime Rate"), (ii) the secondary
market rate for three-month
certificates of deposit (adjusted for
statutory reserve requirements) plus 1%
and (iii) the federal funds effective
rate from time to time plus 0.5%.
"Applicable Margin" means a percentage
determined in accordance with the
pricing grid attached hereto as Annex
I- A.
"Eurodollar Rate" means the rate
(adjusted for statutory reserve
requirements for eurocurrency
liabilities and rounded to the nearest
1/100th of 1%) appearing on Page 3750
of the Dow Jones Telerate Service at
approximately 11:00 a.m., London time,
two business days prior to the
commencement of an interest period, for
dollar deposits for a period of one,
two, three or six months (as selected
by the Borrower).
Interest Payment Dates: In the case of Loans bearing interest
based upon the ABR ("ABR Loans"),
quarterly in arrears.
In the case of Loans bearing interest
based upon the Eurodollar Rate
("Eurodollar Loans"), on the last day
of each relevant interest period and,
in the case of any interest period
longer than three months, on each
successive date three months after the
first day of such interest period.
<PAGE> 21
2
Commitment Fees: The Borrower shall pay a commitment fee
calculated at the rate determined in
accordance with the pricing grid
attached hereto as Annex I-A on the
average daily unused portion of the
Revolving Credit Facility, payable
quarterly in arrears. Swing Line Loans
shall, for purposes of the commitment
fee calculations only, not be deemed to
be a utilization of the Revolving
Credit Facility.
Letter of Credit Fees: The Borrower shall pay a commission on
all outstanding Letters of Credit at a
per annum rate equal, in the case of
standby letters of credit, to the
Applicable Margin then in effect with
respect to Eurodollar Revolving Credit
Loans and, in the case of commercial
letters of credit, to 50% of such
Applicable Margin, in each case on the
face amount of each such Letter of
Credit. Such commission shall be shared
ratably among the Lenders participating
in the Letter of Credit Facility and
shall be payable quarterly in arrears.
A fronting fee equal to rate per annum
to be separately agreed with each
Issuing Lender on the face amount of
each Letter of Credit of such Issuing
Lender shall be payable quarterly in
arrears to such Issuing Lender for its
own account. In addition, customary
administrative, issuance, amendment,
payment and negotiation charges shall
be payable to such Issuing Lender for
its own account.
Default Rate: At any time when the Borrower is in
default in the payment of any amount of
principal due under the Facilities,
such amount shall bear interest at 2%
above the rate otherwise applicable
thereto. Overdue interest, fees and
other amounts shall bear interest at 2%
above the rate applicable to ABR Loans.
Rate and Fee Basis: All per annum rates shall be calculated
on the basis of a year of 360 days (or
365/366 days, in the case of ABR Loans
the interest rate payable on which is
then based on the Prime Rate and
commitment fees) for actual days
elapsed.
<PAGE> 22
Annex I-A
FEE AND APPLICABLE MARGIN TABLE
<TABLE>
<CAPTION>
===============================================================================================================================
Term
Revolving Loan REVOLVING
FIXED CHARGE Committment Credit Loans Euro- CREDIT LOANS
COVERAGE RATIO2 Fee Eurodollar dollar AND TERM
(bp) Margin (bp) Margin LOANS ABR
(bp) MARGIN (BP)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Category 1 Below 1.5 37.50 225.00 250.00 125.00
- --------------------------------------------------------------------------------------------------------------------------------
Category 2 Above 1.50 but 37.50 200.00 225.00 100.00
less than 2.00
- --------------------------------------------------------------------------------------------------------------------------------
Category 3 2.00 or above but 37.50 175.00 200.00 75.00
less than 2.125
- --------------------------------------------------------------------------------------------------------------------------------
Category 4 2.125 or above but 37.50 150.00 175.00 50.00
less than 2.25
- --------------------------------------------------------------------------------------------------------------------------------
Category 5 2.25 or above 30.00 100.00 150.00 0.00
================================================================================================================================
</TABLE>
- --------
2. Fixed Charge Coverage Ratio as of the last day of each quarter defined (in a
manner consistent with the definition thereof in the Existing Facilities) as (a)
consolidated EBITDAR divided by consolidated net interest and rent expense on a
rolling 4 quarter basis. On the Closing Date, the applicable category shall be
Category 2. Thereafter the appropriate category will be determined upon receipt
of the relevant quarterly or annual financiale statements in respect of each
quarter ending after the Closing Date.
