SERVICE MERCHANDISE CO INC
8-K, 1999-10-07
MISC GENERAL MERCHANDISE STORES
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<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: October 7, 1999



                        SERVICE MERCHANDISE COMPANY, INC.
- --------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)



<TABLE>
<S>                                                  <C>                               <C>
                   Tennessee                                 1-9223                        62-0816060
- ----------------------------------------------       ------------------------          -------------------
(State or other jurisdiction of incorporation)       (Commission File Number)           (I.R.S. Employer
                                                                                       Identification No.)
</TABLE>


7100 Service Merchandise Boulevard, Brentwood, TN                   37027
- -------------------------------------------------                ----------
    (Address of principal executive offices)                     (Zip Code)



       Registrant's telephone number, including area code: (615) 660-6000



                                 Not Applicable
- --------------------------------------------------------------------------------
          (Former name or former address, if changed since last report)



<PAGE>   2




Item 5. Other Events
- --------------------------------------------------------------------------------


         On October 6, 1999, Service Merchandise Company, Inc. announced that
its lenders have approved an amendment to its $750 million debtor-in-possession
financing agreement that provides for the release of the $50 million borrowing
base reserve which had been in effect pending negotiation of financial
covenants. See attached press release and Second Amendment to Post-Petition
Credit Agreement.











                                       2
<PAGE>   3




                                   SIGNATURES


         Pursuant to the requirements of Section 12 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: October 7, 1999              By: /s/ C. Steven Moore
                                      ------------------------------------------
                                      C. Steven Moore
                                      Senior Vice President, General Counsel and
                                      Chief Administrative Officer























                                       3

<PAGE>   4





                                  EXHIBIT INDEX


No.          Exhibit
- ---          -------
99.1         Press release dated October 6, 1999.

99.2         Second Amendment to Post-Petition Credit Agreement.






<PAGE>   1





                                  EXHIBIT 99.1

                                  PRESS RELEASE


The following is the text of a press release issued by Service Merchandise
Company, Inc. on October 6, 1999.


FOR IMMEDIATE RELEASE
                                            Contact:  Ann Julsen/Jennifer Mercer
                                                      Sitrick And Company
                                                      310-788-2850
                                                      615-660-4480


          SERVICE MERCHANDISE ANNOUNCES ADOPTION OF FINANCIAL COVENANTS
                     AND INCREASES IN BORROWING AVAILABILITY

         NASHVILLE, TENNESSEE (OCTOBER 6, 1999) -- Service Merchandise Company,
Inc. (NYSE:SME) announced today that its lenders have approved an amendment to
its $750 million debtor-in-possession (DIP) financing agreement that provides
for the release of the $50 million borrowing base reserve which had been in
effect pending negotiation of financial covenants.

         The adoption of the covenant package provides the Company an additional
$50 million in availability under the DIP facility, as the borrowing base
reserve is eliminated. The covenants require the Company to maintain either a
minimum EBITDA (earnings before interest, taxes, depreciation, and amortization)
performance OR minimum availability under the facility.

         Under the DIP agreement, the Company's senior lenders, led by Citibank
as administrative agent and BankBoston as documentation agent and collateral
monitoring agent, provided $750 million in post-petition financing to fund the
Company's operations during its restructuring.

         "The two-pronged nature of this covenant and its reasonable EBITDA
thresholds signify the strong support and confidence of our lenders. We believe
that the flexibility of the covenants, coupled with the release of the $50
million reserve, will further increase our merchandise vendors' confidence in
our liquidity and will maintain the momentum of their return to normalized
payment terms," said Chief Executive Officer Sam Cusano.

         Under the terms of the amendment, a maximum annual capital expenditure
covenant is set at $50 million. Additional flexibility is provided to carry over
50 percent of unused capital expenditures from a prior year and to earn
additional capital expenditure capacity as EBITDA rises.

         "This additional boost to our liquidity raises the Company's
availability to approximately $185 million as of October 5, 1999," said Thomas
Garrett, Chief Financial Officer. "This development further demonstrates the
confidence shown by our lenders."





<PAGE>   2

         Service Merchandise and its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 in the U. S. Bankruptcy Court for the Middle
District of Tennessee in Nashville on March 27, 1999.

         Known as "America's Leading Jeweler", Service Merchandise is a
specialty retailer focusing on fine jewelry, home and gift products.

                              SAFE HARBOR STATEMENT

         This press release and other communications from the Company may
include forward-looking statements subject to various assumptions that may not
be realized and are subject to significant business, economic and competitive
uncertainties and contingencies, including those described herein, many of which
are beyond the Company's control. This information has been included in reliance
upon the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. Consequently such matters should not be regarded as a
representation or warranty by the Company that such matters will be realized or
are indicative of the Company's financial condition or operating results for
future periods. Actual results may differ materially from those contemplated in
any forward-looking statements and the Company undertakes no obligation to
update or revise such statements.

         The statements in this press release and the Company's liquidity,
capital resources and results of operations are subject to a number of risks and
uncertainties including, but not limited to, the following: the ability of the
Company to continue as a going concern; the ability of the Company to operate
pursuant to the terms of the DIP Facility; the ability of the Company to operate
successfully under a Chapter 11 proceeding; approval of plans and activities by
the Bankruptcy Court; risks associated with operating a business in Chapter 11;
the ability of the Company to create and have approved a reorganization plan in
the Chapter 11 Cases; adverse developments with respect to the Company's
liquidity or results of operations; the ability of the Company to obtain
shipments and negotiate terms with vendors and service providers for current
orders; the ability to conduct inventory liquidation sales to improve liquidity;
the ability to develop, fund and execute an operating plan for the Company; the
ability of the Company to attract and retain key executives and associates;
competitive pressures from other retailers, including specialty retailers and
discount stores, which may affect the nature and viability of the Company's
business strategy; trends in the economy as a whole which may affect consumer
confidence and consumer demand for the types of goods sold by the Company; the
ability to maintain gross profit margins; the seasonal nature of the Company's
business (including risks related to seasonal inventory increases) and the
ability of the Company to predict consumer demand as a whole, as well as demand
for specific goods; the ability of the Company to attract and retain customers;
costs associated with the shipping, handling and control of inventory and the
Company's ability to optimize its supply chain; potential adverse publicity;
availability and cost of management and labor employed; real estate occupancy
and development costs, including the substantial fixed investment costs
associated with opening, maintaining or closing a Company store; the potential
delisting of the Company's securities and the absence of an active public
trading market; the ability of the Company to provide a private label credit
card; and the ability to effect conversions to new technological systems,
including becoming Year 2000 compliant.


                                      # # #



<PAGE>   1
                                                                   EXHIBIT 99.2





                               SECOND AMENDMENT TO
                         POST-PETITION CREDIT AGREEMENT

                  SECOND AMENDMENT (this "Amendment"), dated as of September 29,
1999, to POST-PETITION CREDIT AGREEMENT dated as of March 29, 1999, among
SERVICE MERCHANDISE COMPANY, INC., a Tennessee corporation and a debtor and
debtor-in-possession under chapter 11 of the Bankruptcy Code (as defined in the
Credit Agreement referenced below) (the "Borrower"), the financial institutions
and other entities identified from time to time parties thereto as Lenders (as
defined in the Credit Agreement referenced below), CITICORP USA, INC., a
Delaware corporation ("Citicorp"), as collateral agent and administrative agent
for the Lenders (in such capacities, the "Administrative Agent"), and
BANKBOSTON, N.A., a national banking association ("BankBoston"), as
documentation agent and collateral monitoring agent for the Lenders (in such
capacities, the "Collateral Monitoring Agent"), as amended by that certain First
Amendment to Post-Petition Credit Agreement and Master Security Agreement dated
as of May 6, 1999.

                              W I T N E S S E T H:

                  WHEREAS, pursuant to the above-referenced Post-Petition Credit
Agreement (as, supplemented or otherwise modified from time to time, the "Credit
Agreement") the Lenders have agreed to make, and have made, Loans to the
Borrower and have issued Letters of Credit for the account of the Borrower; and

                  WHEREAS, pursuant to the requirements of subsection 7.1(e) of
the Credit Agreement, the Borrower has delivered the Business Plan to the
Administrative Agent and the Administrative Agent has reviewed and accepted the
Business Plan as provided by subsection 11.19 of the Credit Agreement; and

                  WHEREAS, pursuant to subsection 11.20 of the Credit Agreement,
the Borrower and the Agents have agreed to amend the Credit Agreement to
establish certain covenants for the credit facility as a result of the
acceptance of the Business Plan, and to make other amendments to the Credit
Agreement as provided in this Amendment, all upon the terms and subject to the
conditions set forth below.

                  NOW, THEREFORE, in consideration of the premises and the
mutual covenants and provisions hereinafter contained, the parties hereto hereby
agree as follows:

                  1. DEFINED TERMS. Capitalized terms used herein and not
defined herein but defined in the Credit Agreement are used herein as defined in
the Credit Agreement.



<PAGE>   2


                  2. AMENDMENT TO SUBSECTION 1.1.

                  (a) The definition of "EBITDA" in subsection 1.1 of the Credit
Agreement is hereby amended by deleting the definition thereof in its entirety
and inserting in its place the following definition:

                      "EBITDA": with respect to any period, Consolidated Net
         Income of the Borrower and its Consolidated Subsidiaries for such
         period plus (a) in each case to the extent deducted in determining
         such Consolidated Net Income for such period, the sum of the following
         (without duplication): (i) Consolidated Interest Expense of the
         Borrower and its Consolidated Subsidiaries, (ii) consolidated income
         tax expense of the Borrower and its Consolidated Subsidiaries, (iii)
         consolidated depreciation and amortization expense of the Borrower and
         its Consolidated Subsidiaries, including, without limitation,
         depreciation and amortization included in selling, general and
         administrative expenses of the Borrower and its Consolidated
         Subsidiaries, (iv) any non-cash expenses, non-cash losses or other
         non-cash charges resulting from the impairment or write-down in the
         valuation of any assets, (v) any non-recurring charge, reorganization
         cost or restructuring charge which was deducted in determining
         Consolidated Net Income for such period, plus or minus the amount of
         cash received or expended in such period in respect of any amount
         which was taken into account in determining EBITDA for such or any
         prior period, (vi) losses, expenses and other charges, including
         related severance payments, in respect of store and distribution
         center closures and related going-out-of-business sales, to the extent
         such cash losses, expenses and other charges (other than cost of goods
         sold) do not exceed the cash proceeds received from such sales, (vii)
         Permitted Expenses, (viii) expenses, losses and other charges in
         respect of employee retention bonuses and other payments approved by
         the Bankruptcy Court, (ix) non-cash losses or gains arising from the
         freezing or termination of any Plan or other employee benefit or
         welfare plan, and (x) losses or gains arising from asset dispositions,
         minus (b) to the extent added in determining such Consolidated Net
         Income for such period, any non-cash gains resulting from the write-up
         in the valuation of any assets.

                  (b) The definition of "Permitted Prepetition Claim Payment" in
subsection 1.1 of the Credit Agreement is hereby amended by deleting the
definition thereof in its entirety and inserting in its place the following
definition:

                      "Permitted Prepetition Claim Payment": a payment (as
         adequate protection or otherwise) on account of any Claim arising or
         deemed to have arisen prior to the commencement of the Reorganization
         Cases, which is made (i) pursuant to authority granted by a First Day
         Order of the Bankruptcy Court, (ii) in connection with (A) pre-petition
         Consignment Inventory Claims, (B) reclamation Claims up to




                                       2
<PAGE>   3


         $15,000,000, (C) pre-petition sales tax and payroll tax Claims, (D)
         Claims in respect of the assumption of leases and other contractual
         obligations, (E) in respect of pre-petition secured Indebtedness, in
         amounts pursuant to this clause (E) that do not exceed (x) for the
         month of September, 1999, $4,200,000 and (y) for any fiscal quarter
         from and after the fiscal quarter ending December 31, 1999,
         $4,000,000, (F) pursuant to an effective order of the Bankruptcy
         Court, unless the Administrative Agent has filed with the Bankruptcy
         Court and not withdrawn an objection to such authorization and (G)
         additional payments in respect of pre-petition Claims of up to
         $15,000,000, or (iii) in satisfaction of secured Indebtedness by
         application of the Proceeds received from the sale of the specific
         assets securing such Indebtedness.

                  (c) The following new definitions are hereby added to
subsection 1.1 of the Credit Agreement in the proper alphabetical order:

                      "Cumulative EBITDA": for any fiscal month, Consolidated
         EBITDA for the period beginning October 4, 1999 through and including
         the end of such fiscal month.

                      "Excess Availability": as of the date of determination,
         the excess of the Borrowing Base on such date as reflected on the most
         recently delivered Borrowing Base Certificate over the Aggregate
         Outstanding Extensions of Credit on such date.

                      "Rolling 12-Month EBITDA": for any fiscal month,
         Consolidated EBITDA for the consecutive twelve-fiscal month period
         ending with the end of such fiscal month.

                  3. AMENDMENT TO SUBSECTION 7.1(C). Subsection 7.1(c) of the
Credit Agreement is hereby amended and restated in its entirety as follows:

                      (c) as soon as available, but in any event not later
         than 30 days after the end of each fiscal month, (i) for each fiscal
         month other than a fiscal month which is also the end of a quarterly
         period, an unaudited consolidated balance sheet of the Borrower and its
         Consolidated Subsidiaries in summary form as at the end of such fiscal
         month and the related unaudited consolidated statement of income of the
         Borrower and its Consolidated Subsidiaries in summary form for such
         fiscal month, certified by a Responsible Officer as being fairly stated
         in all material respects (subject to normal year-end audit adjustments)
         and (ii) for each fiscal month a statement setting forth the
         Consolidated EBITDA, Cumulative EBITDA or Rolling 12-Month EBITDA, as
         applicable, of the Borrower and its Consolidated Subsidiaries for such
         fiscal month;




                                       3
<PAGE>   4


                  4. AMENDMENT TO SUBSECTION 7.2(B). Subsection 7.2(b) of the
Credit Agreement is hereby amended and restated in its entirety as follows:

                     (b) (i) concurrently with the delivery of the financial
         statements referred to in subsections 7.1(a) and (b), a certificate of
         a Responsible Officer stating that such Responsible Officer has
         obtained no knowledge of any Default or Event of Default with respect
         to the period covered by such financial statements except as specified
         in such certificate and (ii) concurrently with the delivery of the
         financial statements referred to in subsections 7.1(a), (b) and (c), a
         certificate of a Responsible Officer setting forth, in reasonable
         detail, a calculation of the financial covenants set forth in
         subsection 8.1 for the period corresponding to such financial
         statements;

                  5. AMENDMENT TO SUBSECTION 8.1(A). Subsection 8.1(a) of the
Credit Agreement is hereby amended and restated in its entirety as follows:

                     (a) EBITDA. Permit Excess Availability to be less than
         $50,000,000 at any time or alternatively, in the event Excess
         Availability is less than $50,000,000, permit Consolidated EBITDA,
         Cumulative EBITDA or Rolling 12-Month EBITDA, as applicable, for the
         most recently ended fiscal month for which financial statements have
         been delivered pursuant to subsection 7.1(c), to be less than the
         amount set forth below opposite such fiscal month:


<TABLE>
<CAPTION>

                     --------------------------------------------------------
                                                             MINIMUM
                         FISCAL MONTH ENDING           CONSOLIDATED EBITDA
                         -------------------           -------------------
                         <S>                           <C>
                     --------------------------------------------------------
                           October 3, 1999                $(16,000,000)
                     --------------------------------------------------------
<CAPTION>

                     --------------------------------------------------------
                                                              MINIMUM
                         FISCAL MONTH ENDING            CUMULATIVE EBITDA
                         -------------------            -----------------
                         <S>                            <C>
                     --------------------------------------------------------
                          October 31, 1999                $(21,000,000)
                     --------------------------------------------------------
                          November 28, 1999               $(24,000,000)
                     --------------------------------------------------------
                           January 2, 2000                 $26,000,000
                     --------------------------------------------------------
                          January 30, 2000                 $18,000,000
                     --------------------------------------------------------
                          February 27, 2000                $22,000,000
                     --------------------------------------------------------
                            April 2, 2000                  $21,000,000
                     --------------------------------------------------------
                           April 30, 2000                  $21,000,000
                     --------------------------------------------------------
                            May 28, 2000                   $39,000,000
                     --------------------------------------------------------
                            July 2, 2000                   $35,000,000
                     --------------------------------------------------------

</TABLE>






                                       4
<PAGE>   5


<TABLE>
<CAPTION>

                     --------------------------------------------------------
                                                             MINIMUM
                         FISCAL MONTH ENDING            CUMULATIVE EBITDA
                         -------------------            -----------------
                         <S>                            <C>
                     --------------------------------------------------------

                            July 30, 2000                   $27,000,000
                     --------------------------------------------------------
                           August 27, 2000                  $25,000,000
                     --------------------------------------------------------
                           October 1, 2000                  $18,000,000
                     --------------------------------------------------------

<CAPTION>
                     --------------------------------------------------------
                                                         ROLLING 12-MONTH
                         FISCAL MONTH ENDING                 EBITDA
                         -------------------                 ------
                         <S>                             <C>
                     ---------------------------------------------------------
                           October 29, 2000                 $30,000,000
                     ---------------------------------------------------------
                           November 26, 2000                $35,000,000
                     ---------------------------------------------------------
                           December 31, 2000                $40,000,000
                     ---------------------------------------------------------
                            January 28, 2001                $40,000,000
                     ---------------------------------------------------------
                           February 25, 2001                $40,000,000
                     ---------------------------------------------------------
                             April 1, 2001                  $40,000,000
                     ---------------------------------------------------------
                            April 29, 2001                  $40,000,000
                     ---------------------------------------------------------
                             May 27, 2001                   $40,000,000
                     ---------------------------------------------------------
                             July 1, 2001                   $40,000,000
                     ---------------------------------------------------------

</TABLE>


                  6. AMENDMENT TO SUBSECTION 8.1(B). Subsection 8.1(b) of the
Credit Agreement is hereby amended and restated in its entirety as follows:

                     (c) Capital Expenditures. Make aggregate Capital
         Expenditures in any Fiscal Year in excess of the sum of (i)(x) in the
         case of the 1999 and 2000 Fiscal Years, $50,000,000 per Fiscal Year and
         (y) in the case of the first six months of the 2001 Fiscal Year,
         $25,000,000 plus (ii) 50% of any unused permitted Capital Expenditures
         for the immediately preceding Fiscal Year, plus (iii) to the extent
         Consolidated EBITDA for the immediately preceding Fiscal Year exceeds
         $50,000,000, 50% of such excess over $50,000,000. Notwithstanding the
         foregoing, no Capital Expenditures shall be made if, before or after
         giving effect to the making of such Capital Expenditure, an Event of
         Default then exists or thereafter would exist.

                  7. AMENDMENT TO SUBSECTION 9(M). Subsection 9(m) of the Credit
Agreement is hereby amended by inserting the following immediately before the
words "pari passu" in the fourth line thereof:




                                       5
<PAGE>   6

         , other than pursuant to the First Day Orders and obligations in
         respect of permitted adequate protection payments,

                  8.  AMENDMENT TO SECTION 11.19. Section 11.19 of the Credit
Agreement is hereby deleted in its entirety.

                  9.  AMENDMENT TO SECTION 11.20. Section 11.20 of the Credit
Agreement is hereby deleted in its entirety.

                  10. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AMENDMENT. This Amendment shall become effective as of the date hereof on the
date (the "Amendment Effective Date") when the following conditions precedent
have been satisfied:

                  (a) Certain Documents. The Administrative Agent shall have
received, on or before the Amendment Effective Date, all of the following, all
of which shall be in form and substance satisfactory to the Administrative
Agent, in sufficient originally executed copies for each of the Lenders:

                         (i) this Amendment, executed by the Borrower and the
         Lenders constituting the Majority Lenders;

                         (ii) the Acknowledgment attached hereto executed by
         each Subsidiary Guarantor; and

                         (iii) such additional documentation as the Agents or
         the Majority Lenders may reasonably require.

                  (b) Representations and Warranties. Each of the
representations and warranties made by the Borrowers or the Subsidiary
Guarantors in or pursuant to the Credit Agreement, as amended hereby, and the
other Loan Documents to which the Borrower or any of the Subsidiary Guarantors
is a party or by which the Borrower or any of the Subsidiary Guarantors is
bound, shall be true and correct in all material respects on and as of the
Amendment Effective Date (other than representations and warranties in any such
Loan Document which expressly speak as of a specific date, which shall have been
true and correct in all material respects as of such specific date).

                  (c) Corporate and Other Proceedings. All corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Amendment shall be
satisfactory in all respects in form and substance to the Administrative Agent
and the Majority Lenders.

                  (d) No Event of Default. No Event of Default or Default shall
have occurred and be continuing on the Amendment Effective Date.





                                       6
<PAGE>   7

                  11. REPRESENTATIONS AND WARRANTIES. On and as of the date
hereof after giving effect to this Amendment, the Borrower hereby represents and
warrants to the Lenders as follows:

                  (a) Each of the representations and warranties contained in
Section 5 of the Credit Agreement or in any certificate, document or financial
or other statement furnished at any time under or in connection therewith are
true and correct in all material respects on and as of the such date as if made
on and as of such date, except to the extent that such representations and
warranties specifically relate to a specific date, in which case such
representations and warranties shall be true and correct in all material
respects as of such specific date; provided that references therein to the
"Credit Agreement" shall be deemed to include this Amendment;

                  (b) No Default or Event of Default has occurred and is
continuing.

                  12. CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as
expressly amended hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendments contained herein shall not constitute an amendment of any
other provision of the Credit Agreement or the other Loan Documents or for any
other purpose except as expressly set forth herein.

                  13. GOVERNING LAW; COUNTERPARTS; MISCELLANEOUS.

                  (a) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  (b) This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, each of
which counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.

                  (c) Section captions used in this Amendment are for
convenience only and shall not affect the construction of this Amendment.

                  (d) From and after the effective date hereof, all references
in the Credit Agreement to the "Agreement" shall be deemed to be references to
such Agreement as modified hereby.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]





                                       7
<PAGE>   8



          IN WITNESS WHEREOF, the undersigned parties have executed this SECOND
AMENDMENT TO POST-PETITION CREDIT AGREEMENT to be effective for all purposes as
of the Amendment Effective Date.


                               SERVICE MERCHANDISE COMPANY, INC.,
                               as the Borrower



                               By:  /s/ Thomas Garrett, Jr.
                                  ---------------------------------------------
                                  Name: Thomas Garrett, Jr.
                                  Title:


                               CITICORP USA, INC.,
                               as Administrative Agent, as a Lender


                               By: /s/ Claudia Slacik
                                  ---------------------------------------------
                                  Claudia Slacik
                                  Vice President



                               CITIBANK, N.A.,
                               as an Issuing Bank



                               By: /s/ Claudia Slacik
                                  ---------------------------------------------
                                 Claudia Slacik
                                 Vice President



                               BANKBOSTON, N.A.,
                               as Documentation Agent and Collateral Monitoring
                               Agent, as a Lender, and as an Issuing Bank



                               By:  /s/ Betsy Ratto
                                  ---------------------------------------------
                                  Betsy Ratto
                                  Vice President






                                SIGNATURE PAGE TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT


<PAGE>   9


                                NATIONAL CITY COMMERCIAL FINANCE, INC.,
                                as a Lender



                                By: /s/ Gregory R. Godec
                                   --------------------------------------------
                                   Name: Gregory R. Godec
                                   Title: Vice President



                                HELLER FINANCIAL, INC.
                                as a Lender



                                By: /s/ Thomas W. Bukowski
                                   --------------------------------------------
                                   Name: Thomas W. Bukowski
                                   Title: Senior Vice President



                                FOOTHILL CAPITAL CORPORATION
                                as a Lender



                                By: /s/ Michael P. Baranowski
                                   --------------------------------------------
                                   Name: Michael P. Baranowski
                                   Title: Vice President



                                JACKSON NATIONAL LIFE INSURANCE COMPANY,
                                as a Lender



                                By:  PPM FINANCE, INC.,
                                     its Attorney-in-Fact

                                     By:  /s/ Jeffrey J. Podwik
                                        ---------------------------------------
                                        Name: Jeffrey J. Podwik
                                        Title: Attorney-in-Fact




                                SIGNATURE PAGE TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT



<PAGE>   10




                                FINOVA CAPITAL CORPORATION, as a Lender



                                     By: /s/ Thomas L. Gibbon
                                        ---------------------------------------
                                        Name: Thomas L. Gibbon
                                        Title: Vice President



                                SOVEREIGN BANK, as a Lender



                                     By: /s/ Joseph Becker
                                        ---------------------------------------
                                        Name: Joseph Becker
                                        Title: Vice President



                                LASALLE BUSINESS CREDIT, INC., as a Lender



                                     By: /s/ Corey Scler
                                        ---------------------------------------
                                         Name: Corey Scler
                                         Title: Vice President



                                SENIOR DEBT PORTFOLIO, as a Lender


                                By:  Boston Management and Research, as
                                     Investment Advisor



                                     By:
                                        ---------------------------------------
                                        Name:
                                        Title:






                                SIGNATURE PAGE TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT

<PAGE>   11




                                 DEBIS FINANCIAL SERVICES, INC., as a Lender



                                     By: /s/ James M. Van Ogwalk
                                        ---------------------------------------
                                        Name: James M. Van Ogwalk
                                        Title: Group Leader



                                     By:
                                        ---------------------------------------
                                         Name:
                                         Title:




                                GENERAL ELECTRIC CAPITAL CORPORATION,
                                as a Lender



                                     By:
                                        ---------------------------------------
                                        Name:
                                         Title:



                                ORIX BUSINESS CREDIT, INC., as a Lender



                                     By:  /s/ Frank Plank
                                        ---------------------------------------
                                        Name: Frank Plank
                                        Title: President



                                IBJ WHITEHALL BUSINESS CREDIT CORPORATION,
                                as a Lender



                                     By: /s/ Russell Kason
                                        ---------------------------------------
                                        Name: Russell Kason
                                        Title: Assistant Vice President





                                SIGNATURE PAGE TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT

<PAGE>   12




                                BANK OF AMERICA, NATIONAL ASSOCIATION,
                                as a Lender



                                     By: /s/ May C. Lindsey
                                        ---------------------------------------
                                        Name:
                                        Title:



                                THE PROVIDENT BANK, as a Lender



                                     By: /s/ Jose V. Garde
                                        ---------------------------------------
                                        Name: Jose V. Garde
                                        Title: Vice President



                                KZH STERLING LLC, as a Lender



                                     By: /s/ Peter Chin
                                        ---------------------------------------
                                        Name: Peter Chin
                                        Title: Authorized Agent



                                GREEN TREE FINANCIAL SERVICING CORP.,
                                as a Lender



                                     By: /s/
                                        ---------------------------------------
                                        Name:
                                        Title:





                                SIGNATURE PAGE TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT

<PAGE>   13




                                FOOTHILL INCOME TRUST, L.P.
                                as a Lender



                                By:  FIT GP, LLC, its general partner



                                     By: /s/ Dennis R. Ascher
                                        ---------------------------------------
                                        Name: Dennis R. Ascher
                                        Title: Managing Member





                                SIGNATURE PAGE TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT


<PAGE>   14





                                BHF-BANK AKTIENGESELLSCHAFT, as a Lender



                                     By: /s/ Nina Zhou
                                        ---------------------------------------
                                        Name: Nina Zhou
                                        Title: Associate


                                     By: /s/ Jeffrey Frost
                                        ---------------------------------------
                                        Name: Jeffrey Frost
                                        Title: Vice President




                                SIGNATURE PAGE TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT



<PAGE>   15




                                 ACKNOWLEDGMENT

                  Reference is hereby made to the Master Security Agreement (as
defined in the Credit Agreement) to which each of the undersigned is a party.
Each of the undersigned hereby consents to the terms of the foregoing Second
Amendment to Post-Petition Credit Agreement and agrees that the terms thereof
shall not affect in any way its obligations and liabilities under the Master
Security Agreement or any other Loan Document, all of which obligations and
liabilities shall remain in full force and effect and each of which is hereby
affirmed.

                            B.A. PARGH, INC.
                            H.J. WILSON CO., INC.
                            H.J. WILSON CO. REALTY, INC.
                            HOMEOWNERS WAREHOUSE, INC.
                            SERVICE MERCHANDISE CO. BROAD, INC.
                            SERVICE MERCHANDISE COMPANY OF IOWA, INC.
                            SERVICE MERCHANDISE COMPANY OF KANSAS, INC.
                            SERVICE MERCHANDISE CO. NO 30, INC.
                            SERVICE MERCHANDISE CO. NO 34, INC.
                            SERVICE MERCHANDISE CO. NO 35, INC.
                            SERVICE MERCHANDISE CO. NO 51, INC.
                            SERVICE MERCHANDISE CO. NO 93, INC.
                            SERVICE MERCHANDISE CO. NO 99, INC.
                            SERVICE MERCHANDISE FINANCIAL CO., INC.
                            SERVICE MERCHANDISE INDIANA PARTNERS (by its
                                Partners, Service Merchandise Co. No. 34, Inc.,
                                and Service Merchandise Co. No. 35, Inc.)
                            SERVICE MERCHANDISE OF TENNESSEE LIMITED PARTNERSHIP
                                (by its General Partner, Service Merchandise
                                Company. Inc.)
                            SERVICE MERCHANDISE OF TEXAS LIMITED PARTNERSHIP (by
                                its General Partner, Service Merchandise
                                Company. Inc.)
                            SMC-HC, INC.
                            THE TOY STORE, INC.
                            WHOLESALE SUPPLY COMPANY, INC.
                            A.F.S. MARKETING SERVICES, INC.
                            SERVICE MERCHANDISE OF NEW YORK, INC.
                            SERVICE MERCHANDISE OFFICE SUPPLY, INC.
                            SERVICE MERCHANDISE SHOWROOMS, INC.
                            SERVICE MERCHANDISE RM, INC.
                            THE McNALLY SUPPLY COMPANY
                            TRAVEL MANAGEMENT CONSULTANTS, INC.
                            PROMOTABLES, INC.
                                as Guarantors


                            By: /s/ Thomas Garrett, Jr.
                               ------------------------------------------------
                               Name:
                               Title:




                                ACKNOWLEDGMENT TO
               SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT






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