<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: March 30, 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.)
7100 Service Merchandise Boulevard, Brentwood, TN 37027
- ------------------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
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 3. Bankruptcy or Receivership
- --------------------------------------------------------------------------------
On March 15, 1999, five of the Company's vendors filed an involuntary
Chapter 11 Reorganization petition in the United States Bankruptcy Court for the
Middle District of Tennessee (the "Bankruptcy Court") seeking court supervision
of the Company's restructuring efforts. On March 27, 1999, the Company and 31 of
its subsidiaries (collectively, the "Debtors") filed voluntary petitions with
the Bankruptcy Court for reorganization under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code")(Case No. 399-02649).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- --------------------------------------------------------------------------------
See Exhibit Index.
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: March 30, 1999 By: /s/ C. Steven Moore
-----------------------------------
C. Steven Moore
Senior Vice President, General
Counsel and Chief Administrative
Officer
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Exhibit
- -- -------
<S> <C>
99.1 Press release dated March 16, 1999.
99.2 Second Waiver to Second Amended and Restated Credit Agreement dated as
of March 16, 1999 by and among Service Merchandise Company, Inc.,
Citicorp USA, Inc., as Administrative Agent, Bank Boston, N.A. as
Documentation Agent and Collateral Monitoring Agent and other lenders
set forth therein.
99.3 Press Release dated March 24, 1999.
99.4 Press Release dated March 26, 1999.
99.5 Press Release dated March 27, 1999.
99.6 Commitment letter by and among Service Merchandise Company, Inc.,
Citicorp USA, Inc. and the lenders listed therein dated March 25, 1999.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PRESS RELEASE
The following is the text of a press release issued by Service Merchandise
Company, Inc. on March 16, 1999.
BOARD AUTHORIZES RESTRUCTURING THROUGH
VOLUNTARY CHAPTER 11 BY LATE MARCH
Service Merchandise Company, Inc. (NYSE:SME) reported today that an
involuntary Chapter 11 reorganization petition seeking Court supervision of the
Company's restructuring efforts was filed last night.
The Company is permitted to operate its business in the ordinary
course, despite the filing of the involuntary proceeding, unless the court
otherwise orders. The involuntary filing does not involve any of the Company's
affiliates or subsidiaries. It was filed by five vendors who are not members of
the unofficial vendors' committee that had been formed at the Company's request
in connection with the Company's out-of-court restructuring activities.
Service Merchandise said that its Board of Directors met last evening
and has authorized the Company to commence voluntary Chapter 11 proceedings as
soon as practicable in order to maximize the value of the business for all of
the Company's stakeholders and to avoid the uncertainties of protracted
litigation over the involuntary filing.
The Company said that the voluntary filing would take place as soon as
the Company completes negotiations for debtor-in-possession (DIP) financing and
other first-day preparations required for such cases. Service Merchandise said
that these actions were expected to be completed by late March, prior to the
response deadline early next month for the involuntary petition.
"The Company plans to utilize the Chapter 11 process as a means to
restructure our debt and our operations and to facilitate the transformation of
Service Merchandise into a stronger, more focused and healthier chain," said
Chief Executive Officer Bettina M. Whyte. "In the interim, we need the support
of our vendors, employees and other stakeholders as we work with our secured and
unsecured creditors to prepare for the commencement of a consensual and
productive Chapter 11 case."
Service Merchandise said that the Company's stores, distribution
centers and offices will continue to operate as usual. Similarly, the Company
expects that its employees will be paid wages, severance and other
employee-related items without interruption. Additionally, it will continue to
pay for all new product shipments from its vendors and it expects policies
regarding returns, exchanges, layaways, product protection plans and gift
certificates to remain unchanged.
<PAGE> 2
"Our stores will be open for business as usual," Ms. Whyte said. "We
intend to operate our businesses vigorously and to meet our customers' needs."
Separately, the Company announced today that Citicorp U.S.A., the
Administrative Agent for the revolving credit facility, was preparing a waiver
for immediate circulation to the bank group that would permit the Company to
continue to borrow without regard to the vendors' involuntary filing. The
agreement will be effective following approval by the requisite number of
lenders in the bank group. Ms. Whyte stated that the current undrawn
availability under the asset-based revolver was estimated by the Company to
exceed $50 million.
Ms. Whyte said that the Company appreciated the immediate support
received from its senior lenders and, with the waiver in place, it expects to
have sufficient financing resources to fund obligations to be incurred while a
DIP financing agreement and other voluntary reorganization preparations are
finalized.
In recent weeks, Service Merchandise has undertaken various actions
aimed at increasing operating efficiencies and reducing overhead, including the
closing of up to 134 underperforming stores during the next two to three months,
the closing of its Dallas, Texas distribution center in mid-May and a 12 percent
workforce reduction at its corporate offices in Nashville last week.
Service Merchandise is a specialty retailer focusing on fine jewelry,
gifts and home decor products.
This press release includes certain forward-looking statements in
reliance on the "safe harbor" provisions of The Private Securities Litigation
Reform Act of 1995. Any such forward-looking statements are subject to a number
of risks and uncertainties, including but not limited to the factors identified
below. Actual results may differ materially from those anticipated in any such
forward-looking statements. The Company undertakes no obligation to update or
revise any such forward-looking statements.
The Company's liquidity, capital resources, and results of operations
may be affected from time to time by a number of factors and risks, including,
but not limited to, the ability of the Company to secure a waiver agreement from
its senior lenders; the ability of the Company to arrange DIP financing; the
ability of the Company to operate successfully under a Chapter 11 proceeding;
the ability of the Company to comply with terms of its credit facility prior to
obtaining DIP financing; the ability of the Company to access borrowings under
its credit facility prior to obtaining DIP financing; the ability of the Company
to obtain shipments and negotiate terms with vendors and service providers for
current orders; the ability of the Company to negotiate terms with landlords
with respect to stores to be closed and current and future lease obligations;
the ability to conduct going out of business inventory sales to result in
improved liquidity; the ability to develop, fund and execute a new 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;
<PAGE> 3
the ability to maintain gross profit margins; the seasonal nature of the
Company's business 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 ability to liquidate unwanted inventory at existing or closed stores;
and the ability to effect conversions to new technological systems, including
becoming Year 2000 compliant.
<PAGE> 1
EXHIBIT 99.2
SECOND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Waiver") dated as of March 16, 1999, among SERVICE MERCHANDISE COMPANY,
INC., a Tennessee corporation (the "Borrower"), the financial institutions and
other entities listed on the signature pages of this Waiver (collectively, the
"Lenders" and each individually, a "Lender"), CITICORP USA, INC., a Delaware
corporation, as collateral and administrative agent for the Lenders (in such
capacity, the "Administrative Agent"), and BANKBOSTON, N.A., a national banking
capacity, the "Administrative Agent"), and BANKBOSTON, N.A., a national banking
association, as documentation agent and collateral monitoring agent for the
Lenders.
WITNESSETH:
WHEREAS, pursuant to the Second Amended and Restated Credit
Agreement dated as of January 20, 1999, as amended by the First Amendment and
Waiver thereto dated as of February 25, 1999 (as amended, 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.
WHEREAS, certain creditors of the Borrower commenced an
involuntary case under chapter 11 of the United State Bankruptcy Code concerning
the Borrower on March 15, 1999 by filing a petition against the Borrower under
said chapter 11 (the "Involuntary Petition") and the Borrower announced that its
Board of Directors had authorized the company to commence a voluntary case under
said chapter as soon as practicable (said resolution and any action taken to
implement same, the "Board Action"); and
WHEREAS, the Borrower has requested that the Lenders waive the
Default that has arisen as a result of the Involuntary Petition and the Board
Action, such waiver to be effective until the earlier to occur of (i) the date
on which an order for relief under chapter 11 of the United States Bankruptcy
Code is entered or deemed entered in a case under said chapter concerning the
Borrower or any of its Restricted Subsidiaries and (ii) April 5, 1999 (the
"Waiver Termination Date");
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and provisions hereinafter contained, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. Capitalized items used herein and not
otherwise defined are used herein as defined in the Credit Agreement.
2. WAIVER IN RESPECT OF SECTION 9(F)(II). The Lenders
hereby waive the Default which exists solely as the result of the Involuntary
Petition and the Board Action,
<PAGE> 2
provided that such Waiver shall only be effective until the Waiver Termination
Date (as such term is defined in the recitals to this Waiver).
3. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
WAIVER. This Amendment shall become effective as of the date hereof on the date
(the "Waiver Effective Date") when the following conditions precedent have been
satisfied;
(a) Certain Documents. The Administrative Agent
shall have received, on or before the Waiver 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 Waiver, executed by the
Borrower and the Lenders constituting the Majority Lenders and
the Majority Revolving Credit Lenders;
(ii) an Acknowledgment substantially in
the form of Exhibit B attached hereto executed by each
Subsidiary Guarantor; and
(iii) such additional documentation as
the Agents or the Majority Revolving Credit Lenders may
reasonably require.
(b) Representations and Warranties. Except as
waived hereby, each of the representations and warranties made by the
Borrowers or the Subsidiary Guarantors in or pursuant to the Credit
Agreement, and the other Loan Documents to 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 Waiver Effective Date (other than
representations and warranties in any such Loan Document which
expressly speak as of a different 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 Waiver shall be satisfactory in all respects in form and substance
to the Administrative Agent and the [Majority Lenders and] the Majority
Revolving Credit Lenders.
(d) No Event of Default. After giving effect to
the waivers in Section 2 hereof, no Event of Default or Default shall
have occurred and be continuing on the Waiver Effective Date.
9. Representations and Warranties. On and as of the date
hereof after giving effect to this Waiver, 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
<PAGE> 3
that such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date;
(b) No Default or Event of Default has occurred and is
continuing.
10. CONTINUING EFFECT: NO OTHER AMENDMENTS. Except as
expressly waived 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
waiver contained herein shall not constitute a waiver of any other provision of
the Credit Agreement or the other Loan Documents or for any other purpose except
as expressly set forth herein.
11. FEES, COSTS AND EXPENSES. The borrower agrees to pay
on demand in accordance with the terms of Section 11.5 of the Credit Agreement
all costs and expenses of the Administrative Agent in connection with the
preparation, reproduction, execution and delivery of this Waiver, including the
reasonable fees and expenses of counsel for the Administrative Agent with
respect thereto.
12. GOVERNING LAW: COUNTERPARTS: MISCELLANEOUS.
(a) THIS WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
(b) This Waiver 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 Waiver are for
conveniences 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]
<PAGE> 4
EXHIBIT B
ACKNOWLEDGMENT
Reference is hereby made to the Subsidiaries Guarantee (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 First Amendment and
Waiver to Second Amended and Restated Credit Agreement and agrees that the terms
thereof shall not affect in any way its obligations and liabilities under the
undersigneds' Subsidiaries Guarantee 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 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.
By: /s/ Bettina Whyte
--------------------------------------------------------
Bettina Whyte
CEO
ACKNOWLEDGMENT TO
FIRST AMENDMENT AND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 5
CITICORP USA, INC.
as Administrative Agent, as a Lender
By: /s/
-----------------------------------------
Keith R. Karako
Vice President
CITIBANK, N.A.
as an Issuing Bank
By: /s/
-----------------------------------------
Keith R. Karako
Vice President
SIGNATURE PAGE TO
SECOND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 6
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 WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 7
NATIONAL CITY COMMERCIAL FINANCE,
INC., as a Lender
By: /s/ Elizabeth M. Lynch
-----------------------------------------
Name:
Title:
SIGNATURE PAGE TO
SECOND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 8
HELLER FINANCIAL, INC.
as a Lender
By: /s/ Thomas W. Bukowski
-----------------------------------------
Name:
Title:
SIGNATURE PAGE TO
SECOND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 9
FOOTHILL INCOME TRUST, L.P.,
as a Lender
By: FIT GP, LLC,
its general partner
By: /s/ John Nicholl
------------------------------------
Name: John Nicholl
Title: Managing Member
FOOTHILL CAPITAL CORPORATION
as a Lender
By: /s/ Michael P. Baranowski
-----------------------------------------
Name:
Title:
SIGNATURE PAGE TO
SECOND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 10
JACKSON NATIONAL LIFE INSURANCE
COMPANY, as a Lender
By: PRM FINANCE, INC.,
its general partner
By: /s/ Jeffrey J. Podwika
------------------------------------
Name:
Title: Attorney-in-Fact
SIGNATURE PAGE TO
SECOND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 11
IN WITNESS WHEREOF, the undersigned parties have executed this SECOND
WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT to be effective for all
purposes as of the Effective Date.
SERVICE MERCHANDISE COMPANY, INC.,
as the Borrower
By: /s/ Bettina Whyte
-------------------------------------------
Bettina Whyte
CEO
SIGNATURE PAGE TO
SECOND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 1
EXHIBIT 99.3
PRESS RELEASE
The following is the text of a press release issued by Service Merchandise
Company, Inc. on March 24, 1999.
SERVICE MERCHANDISE NAMES PERMANENT
CEO, PRESIDENT AS KEY COMPONENT OF
RESTRUCTURING INITIATIVES
SAM CUSANO NAMED CEO; CHARLES SEPTER NAMED PRESIDENT, COO;
C. STEVEN MOORE ASSUMES ADDITIONAL ROLE OF CHIEF ADMINISTRATIVE OFFICER
NASHVILLE, Tenn--March 24, 1999--Service Merchandise Company, Inc. (NYSE: SME)
today announced that, as a key step in its reorganization process, it has
appointed a permanent Chief Executive Officer and a permanent President and
Chief Operating Officer of the Company.
Effective immediately, San Cusano, 45, Executive Vice President and Chief
Financial Officer of Service Merchandise and a member of the Company's Board of
Directors, was named Chief Executive Officer by the Board. Charles Septer, 47,
Senior Vice President, Jewelry Merchandising, has been named President and Chief
Operating Officer of the Company, and elected to its Board of Directors. C.
Steven Moore, Senior Vice President and General Counsel, 36, assumes the
additional role of Chief Administrative Officer.
Mr. Cusano has been with the Company since 1991, and during his tenure has
served as Executive Vice President and Chief Financial Officer. He was elected
to the Board of Directors in July 1998.
Mr. Septer, a long-term Service Merchandise executive, has headed the Company's
jewelry organization since 1982, and will lead all of the Company's
merchandising and marketing operations going forward. He joined Service
Merchandise in 1982 and became Senior Vice President, Jewelry Merchandising in
1988.
Mr. Moore joined the Company in 1992 and assumed the role of General Counsel and
Corporate Secretary in 1996.
"Throughout their combined tenures with the Company, Messrs. Cusano and Septer
have developed a key understanding of our business, our customers, our vendors
and our employees," said Raymond Zimmerman, Chairman of the Board. "Our Board of
Directors has the highest degree of confidence in their abilities to lead
Service Merchandise as the Company builds the fundamentals for a solid future.
Sam Cusano has extensive knowledge of every aspect of Service Merchandise's
operations and with his historical perspective as Executive Vice President and a
Board member, he is in a unique position to lead the transformation of the
Company's business,"
<PAGE> 2
he noted. "Under Charles Septer's leadership, Service Merchandise's jewelry
organization has continued to expand and flourish, despite the significant
challenges our Company has faced in recent years. Going forward, we are
confident that he will be able to translate the success of our core jewelry
business to our Company's overall operations."
Jay Alix & Associates, retained by Service Merchandise in January 1999, is
expected to continue as financial advisor to the Company. "Our Board of
Directors is extremely grateful for the contributions of Jay Alix in this
process, and in particular JAA principal Bettina M. Whyte, who has served as
interim CEO of Service Merchandise during these critical past few months. As
interim CEO, Ms. Whyte was instrumental in leading the Company in its
restructuring process, in particular the reorganization of the Company's costs
structure, a process that is now well underway. As the Company proceeds with its
restructuring utilizing the Chapter 11 process rather than continuing with its
out-of-court restructuring activities, we believe it is the right time to put in
place a permanent management team," Mr. Zimmerman said.
"Sam Cusano and Charles Septer bring the experience and talent necessary to
successfully reorganize Service Merchandise," said Ms. Whyte. "The Jay Alix
organization looks forward to working with them and the whole Service
Merchandise team in continuing to complete this process."
As previously announced, on March 15, 1999 a group of five vendors filed an
involuntary Chapter 11 petition seeking court supervision of Service
Merchandise's restructuring efforts. The Company's Board has authorized it to
commence voluntary Chapter 11 proceedings as soon as is practicable in order to
maximize the value of the business for all of the Company's stakeholders.
Service Merchandise is a specialty retailer focusing on fine jewelry, gifts and
home decor products.
This press release includes certain forward-looking statements in reliance on
the "safe harbor" provisions of The Private Securities Litigation Reform Act of
1995. Any such forward-looking statements are subject to a number of risks and
uncertainties, including but not limited to the factors identified below. Actual
results may differ materially from those anticipated in any such forward-looking
statements. The Company undertakes no obligation to update or revise any such
forward-looking statements.
The Company's liquidity, capital resources, and results of operations may be
affected from time to time by a number of factors and risks, including, but not
limited to, the ability of the Company to arrange DIP financing; the ability of
the Company to operate successfully under a Chapter 11 proceeding; the ability
of the Company to comply with the terms of its credit facility prior to
obtaining DIP financing; the ability of the Company to access borowings under
its credit facility prior to obtaining DIP financing; approval of plans and
activities by the Bankruptcy Court; risks associated with operating a business
in Chapter 11; 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 of the Company to negotiate terms with landlords with respect to stores
to be closed and current and future lease
<PAGE> 3
obligations; the ability to conduct going out of business inventory sales to
result in improved liquidity; the ability to develop, fund and execute a new
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; the ability to maintain gross profit margins; the seasonal nature of the
Company's business 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 ability to liquidate unwanted inventory at existing or closed stores;
and the ability to effect conversions to new technological systems, including
becoming Year 2000 compliant.
<PAGE> 1
EXHIBIT 99.4
PRESS RELEASE
The following is the text of a press release issued by Service Merchandise
Company, Inc. on March 26, 1999.
POST-PETITION FINANCING WILL FUND COMPANY'S
OPERATIONS DURING RESTRUCTURING PROCESS
NASHVILLE, Tenn.--March 26, 1999 -- Service Merchandise Company, Inc. (NYSE:SME)
announced today that it has obtained a commitment for up to $750 million in
debtor-in- possession financing to fund the Company's operations during its
voluntary restructuring under Chapter 11. The financing, which is subject to
Court approval, is being provided by the Company's current senior lenders led by
Citicorp USA, Inc., as administrative agent, BankBoston, N.A., as documentation
agent and collateral monitoring agent, and Salomon Smith Barney Inc., as sole
arranger and book manager.
"With this critical step accomplished, the Company is now in a position
to implement the next phase of its restructuring process, which is the
commencement of voluntary Chapter 11 proceedings," said Chief Executive Officer
Sam Cusano. As previously announced, the Company expects to commence voluntary
proceedings by the end of the month.
"We appreciate the level of ongoing support demonstrated by our
lenders, which will enable Service Merchandise to operate on a business-as-usual
basis while we restructure," Mr. Cusano said. "With the commitment for DIP
financing, we expect to have sufficient funding for all trade, employee and
other obligations during the restructuring process."
As previously announced, on March 15, 1999 a group of five vendors
filed an involuntary Chapter 11 petition seeking court supervision of Service
Merchandise's restructuring efforts. The Company's Board has authorized it to
commence voluntary Chapter 11 proceedings as soon as is practicable in order to
maximize the value of the business for all of the Company's stakeholders.
Service Merchandise is a specialty retailer focusing on fine jewelry,
gifts and home decor products.
This press release includes certain forward-looking statements in
reliance on the "safe harbor" provisions of The Private Securities Litigation
Reform Act of 1995. Any such forward-looking statements are subject to a number
of risks and uncertainties, including but not limited to the factors identified
below. Actual results may differ materially from those anticipated in any such
forward-looking statements. The Company undertakes no obligation to update or
revise any such forward-looking statements.
<PAGE> 2
The Company's liquidity, capital resources, and results of operations
may be affected from time to time by a number of factors and risks, including,
but not limited to, the ability of the Company to execute definitive DIP
financing documents which are approved by the Bankruptcy Court; 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; 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 of the Company to negotiate terms with landlords with
respect to stores to be closed and current and future lease obligations; the
ability to conduct going out of business inventory sales to result in improved
liquidity; the ability to develop, fund and execute a new 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; the ability to
maintain gross profit margins; the seasonal nature of the Company's business 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
ability to liquidate unwanted inventory at existing or closed stores; and the
ability to effect conversions to new technological systems, including becoming
Year 2000 compliant.
<PAGE> 1
EXHIBIT 99.5
PRESS RELEASE
The following is the text of a press release issued by Service Merchandise
Company, Inc. on March 27, 1999.
SERVICE MERCHANDISE FILES TO RESTRUCTURE UNDER CHAPTER 11;
COMPANY HAS COMMITMENT FOR $750 MILLION IN POST-PETITION FINANCING
NASHVILLE, Tenn.--March 27, 1999 -- Service Merchandise Company, Inc. (NYSE:SME)
announced today that in order to implement the next phase of its restructuring
process, it has filed voluntary petitions under Chapter 11 of the Bankruptcy
Code. Yesterday, the Company announced it obtained a commitment for up to $750
million in debtor-in-possession financing to fund the Company's operations
during its voluntary restructuring under Chapter 11. The financing, which is
subject to Court approval, is being provided by the Company's current senior
lenders led by Citicorp USA, Inc., as administrative agent, BankBoston, N.A., as
documentation agent and collateral monitoring agent, and Salomon Smith Barney
Inc., as sole arranger and book manager.
Service Merchandise's Board of Directors authorized the Company to
commence the voluntary proceedings after an involuntary Chapter 11 petition was
filed on March 15 by five merchandise vendors.
"After exploring all available alternatives, we believe that a
voluntary Chapter 11 proceeding presents the most effective means to restructure
our debt and our operations," said Chief Executive Officer Sam Cusano. "Chapter
11 allows us to continue to move forward with our planned improvements in
operations and merchandising and allows us to achieve our restructuring
objectives in an orderly, timely manner."
"With the support of our vendors and the hard work of our employees, we
will be able to emerge from this process a stronger, more competitive company,"
Mr. Cusano stated. "Looking ahead, the $750 million financing package we have
arranged will fund our ongoing operations and enable the Company to purchase and
pay for goods and services."
Service Merchandise said that while it completes its restructuring, the
Company's stores, distribution centers and offices will continue to operate as
usual. The Company's employees will continue to be paid without interruption,
and it will continue to pay for all new product shipments from vendors in the
ordinary course of business. The Company said that it expects policies regarding
returns, exchanges, layaways, product protection plans and gift certificates to
remain unchanged.
Mr. Cusano was recently named permanent chief executive officer as a
key component of the restructuring initiatives. The Board also named Charles
Septer as president and chief
<PAGE> 2
operating officer and announced that Senior Vice President and General Counsel
C. Steven Moore will assume the additional role of Chief Administrative Officer.
Service Merchandise is a specialty retailer focusing on fine jewelry,
gifts and home decor products. The Company filed its voluntary Chapter 11
petitions today in the U.S. Bankruptcy Court for the Middle District of
Tennessee in Nashville.
This press release includes certain forward-looking statements in
reliance on the "safe harbor" provisions of The Private Securities Litigations
Reform Act of 1995. Any such forward-looking statements are subject to a number
of risks and uncertainties, including but not limited to the factors identified
below. Actual results may differ materially from those anticipated in any such
forward-looking statements. The Company undertakes no obligation to update or
revise any such forward-looking statements.
The Company's liquidity, capital resources, and results of operations
may be affected from time to time by a number of factors and risks, including,
but not limited to, the ability of the Company to execute definitive DIP
financing documents which are approved by the Bankruptcy Court; the ability of
the Company to operate successfully under a Chapter 11 proceeding; approval of
plans and activities by the Bankruptcy Court; the ability of the Company to
operate successfully under Chapter 11 proceeding; approval of plans and
activities by the Bankruptcy Court; risks associated with operating a business
in Chapter 11; 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 of the Company to negotiate terms with landlords with respect to stores
to be closed and current and future lease obligations; the ability to conduct
going out of business inventory sales to result in improved liquidity; the
ability to develop, fund and execute a new 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; the ability to maintain
gross profit margins; the seasonal nature of the Company's business 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 ability to
liquidate unwanted inventory at existing or closed stores; and the ability to
effect conversions to new technological systems, including becoming Year 2000
compliant.
<PAGE> 1
EXHIBIT 99.6
March 25, 1999
Service Merchandise Company, Inc.
7100 Service Merchandise Drive
Brentwood, TN 37027
Attention: Sam Cusano
COMMITMENT LETTER
$750,000,000 SUPERPRIORITY SECURED
DEBTOR-IN-POSSESSION CREDIT FACILITY
Ladies and Gentlemen:
You have advised us that an involuntary chapter 11 petition was filed
against Service Merchandise Company, Inc. (the "Company" or the "Borrower" or
"you") on March 15, 1999 and that the Board of Directors of the Company has
authorized the Company to commence a voluntary chapter 11 case int he Untied
States Bankruptcy Court for the Middle District of Tennessee (the "Bankruptcy
Court"). You have asked us to submit to you a commitment for a
debtor-in-possession ("DIP") superpriority, secured term loan and revolving
credit facility (the "Credit Facility") in the aggregate principal amount of up
to $750,000,000 to be provided to the Company for the purpose of providing
financing to fund working capital needs and for other general corporate purposes
during the Company's chapter 11 case (the "Case"). You have asked Citicorp USA,
Inc. ("Citicorp") and the lenders listed on Schedule 1 hereto (together with
Citicorp, the "Lenders") to commit, severally but not jointly, to provide you
with financing commitments for the entire amount of the Credit Facility.
Citicorp is pleased to inform you of the Lenders' commitment to provide
the entire amount of the Credit Facility, severally but not jointly, in the
respective amounts listed on Schedule 1 hereto, subject to the terms and
conditions described in this letter and in the attached Annex I (this letter,
Schedule 1, Annex I and the Fee Letter referred to below being collectively
referred to herein as the "Commitment Letter"). The Credit Facility would
refinance the Second Amended and Restated Credit Agreement, by and among you,
the lenders party thereto, Citicorp, BankBoston, N.A. and Salomon Smith Barney
Inc. dated January 20, 1999 (as amended, the "Existing Credit Facility"). Except
as otherwise provided in this Commitment Letter, the terms and conditions of the
Credit Facility will be substantially similar to those contained in the Existing
Credit Facility.
<PAGE> 2
CONDITIONS PRECEDENT
The commitment of the Lenders hereunder is subject to: (i) the preparation,
execution and delivery of mutually acceptable loan documentation, including a
credit agreement incorporating substantially the terms and conditions outlined
in this Commitment Letter; (ii) the absence of (A) a material adverse change in
the business, condition (financial or otherwise), operations performance,
properties or prospects of the Company and its subsidiaries since September 30,
1998 (except for or as resulting from the commencement of the Case and such
changes that have heretofore been disclosed publicly and which the Company has
brought to the attention of the Administrative Agent, as defined below) and (B)
any change in loan syndication, financial or capital market conditions generally
that, in the judgment of Salomon Smith Barney Inc. ("SSB"), would materially
impair syndication of the Credit Facility; (iii) the accuracy and completeness
in all material respects of all representations that you make to us and all
information that you furnish to us and your compliance with the terms of this
Commitment Letter; (iv) the payment in full of all fees, expenses and other
amounts due and payable under this Commitment letter; and (v) a closing of the
Credit Facility on or prior to April 5, 1999.
COMMITMENT TERMINATION
The Lenders' commitment set forth in this Commitment Letter will terminate on
April 5, 1999 unless the Credit Facility has been approved by final order of the
Bankruptcy Court and closes on or before such date. Prior to such date, this
Commitment Letter may be terminated (i) by you at any time at your option upon
payment of all fees, expenses and other amounts then payable under this
Commitment Letter or (ii) by Citicorp if any event occurs or information has
become available that, in its reasonable judgment, results in any condition set
forth in the immediately preceding paragraph not being satisfied at all times
prior to April 5, 1999.
SYNDICATION
Citicorp reserves the right, prior to or after the execution of definitive
documentation with respect to the Credit Facility, to syndicate all or a portion
of the Lenders' commitments to one or more other financial institutions
reasonably acceptable to it and selected in consultation with you that will
become parties to such definitive documentation pursuant to a syndication to be
managed by SSB (the financial institutions becoming parties to such definitive
documentation being collectively referred to herein as the "Syndicate Lenders").
You understand that SSB intends to commence a syndication efforts promptly and
that it may elect to appoint one or more syndication agents (which may include
Citicorp) to direct the syndication efforts on its behalf. The nature of the
information to be disclosed in discussions with potential Syndicate Lenders, and
any written materials to be provided to such Syndicate Lenders in connection
herewith, shall be mutually acceptable to you and SSB.
SSB will manage all aspects of the syndication in consultation with you,
including the timing of all offers to potential Syndicate Lenders, the
acceptance of commitments, and the determination of the amounts offered and the
compensation provided.
<PAGE> 3
You agree to take all action as SSB may reasonably request to assist it in
forming a syndicate acceptable to it. Your assistance in forming such a
syndicate shall include but not be limited to: (i) making senior management and
representatives of the Company available to participate in information meetings
with potential Syndicate Lenders at such times and places as SSB may reasonably
request; (ii) using your best efforts to ensure that the syndication efforts
benefit from your lending relationships and those of your equity holders; and
(iii) providing SSB with all information reasonably deemed necessary by it to
successfully complete the syndication.
To ensure an orderly and effective syndication of the Credit Facility, you agree
that until the termination of the syndication (as determined by SSB), you will
not syndicate or issue, attempt to syndicate or issue, announce or authorize the
announcement of the syndication or issuance of, or engage in discussions
concerning the syndication or issuance of, any debt facility or debt security
(including any renewals thereof), without the prior written consent of SSB.
You agree that Citicorp will be the administrative and collateral agent for the
Credit Facility (in such capacity, the "Administrative Agent"), that SSB will
act as sole arranger and book manager for the Credit Facility, that BankBoston,
N.A. ("BankBoston") will be the documentation agent and collateral monitoring
agent for the Credit Facility and that no additional agents or co-agents will be
appointed, or other titles conferred, without the consent of SSB, Citicorp and
BankBoston.
FEES
In addition to the fees described in Annex I, you agree to pay the fees set
forth in that certain letter between you and Citicorp of even date herewith (the
"Fee Letter"). The terms of the Fee Letter are an integral part of the Lenders'
commitment hereunder and constitute part of this Commitment Letter for all
purposes hereof. Each of the fees described in the Fee Letter shall be
non-refundable when paid.
INDEMNIFICATION
You agree to indemnify and hold harmless Citicorp, each other Lender, SSB,
BankBoston, each Syndicate Lender and each of their affiliates and each of their
respective officers, directors, employees, agents, advisors, attorneys and
representatives (each, as "Indemnified Party") from and against any and all
claims, damages, losses, liabilities and expenses (including, without
limitation, reasonable fees and disbursements of counsel), joint or several,
that may be incurred by or asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or relating to any investigation,
litigation or proceeding or the preparation of any defense with respect thereto,
arising out of or in connection with or relating to this Commitment Letter or
the loan documentation or the transactions contemplated hereby or thereby or any
use made or proposed to be made with the proceeds of the Credit Facility,
whether or not such investigation, litigation or proceeding is brought by the
Company, any of its shareholder or creditors, an Indemnified Party or any other
person, or an Indemnified Party is otherwise a party thereto and whether or not
the transactions contemplated hereby are consummated, except to the extent such
claim, damage, loss, liability or expense is
<PAGE> 4
found in a final judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. You
further agree that no Indemnified Party shall have any liability (whether direct
or indirect, in contract, tort or otherwise) to the Company or any of its
shareholders or creditors for or in connection with the transactions
contemplated hereby, except to the extent such liability is found in a final
judgment by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. In no event,
however, shall any Indemnified Party be liable on any theory of liability for
any special, indirect, consequential or punitive damages.
COSTS AND EXPENSES
In further consideration of the commitment of the Lenders hereunder, and
recognizing that in connection herewith Citicorp, SSB and BankBoston are
incurring substantial costs and expenses (including, without limitation,
reasonable fees and disbursements of counsel and its syndication agent(s),
filing and recording fees and due diligence, syndication (including printing,
distribution and bank meetings), transportation, computer, duplication,
messenger, appraisal, audit, insurance and consultant costs and expenses), you
hereby agree to pay, or reimburse Citicorp, SSB and BankBoston on demand for,
all such reasonable costs and expenses (whether incurred before or after the
date hereof), regardless of whether any of the transactions contemplated hereby
is consummated. You also agree to pay all reasonable costs and expenses of
Citicorp, SSB and BankBoston (including, without limitation, reasonable fees and
disbursements of counsel) incurred in connection with the enforcement of any of
their rights and remedies hereunder.
CONFIDENTIALITY
BY ACCEPTING DELIVERY OF THIS COMMITMENT LETTER, YOU AGREE THAT THIS COMMITMENT
LETTER IS FOR YOUR AND OUR CONFIDENTIAL USE ONLY AND THAT NEITHER ITS EXISTENCE
NOR THE TERMS HEREOF WILL BE DISCLOSED BY YOU TO ANY PERSON OTHER THAN YOUR
OFFICERS, DIRECTORS, EMPLOYEES, ACCOUNTANTS AND ATTORNEYS, AND THEN ONLY ON A
"NEED TO KNOW" BASIS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND
ON A CONFIDENTIAL BASIS. Notwithstanding the foregoing, following your
acceptance of the provisions hereto and your return of an executed counterpart
of this Commitment Letter to us as provided below, you (i) may make public
disclosure of the existence and amount of the Lenders' commitment hereunder, or
Citicorp's identify as administrative agent, of BankBoston's identity as
documentation agent and collateral monitoring agent and of SSB's identify as
sole arranger and book manager, (ii) may file a copy of this Commitment Letter
(but not the Fee Letter) in any public record in which it is required by law to
be filed and (iii) may make such other public disclosures of the terms and
conditions hereto as you are required by law, in the opinion of your counsel, to
make.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
You represent and warrant that (i) all written information that has been or will
hereafter be made available to Citicorp, any other Lender or any potential
Syndicate Lender by you or any
<PAGE> 5
of your representatives in connection with the transactions contemplated hereby
is and will be complete and correct in all material respects and does not and
will not 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
misleading in light of the circumstances under which such statements were or are
made and (ii) all financial projections, if any, that have been or will be
prepared by you and made available to Citicorp, any other Lender or any
potential Syndicate Lender have been or will be prepared in good faith based
upon reasonable assumptions, which assumptions shall be reasonable as of the
date of the preparation of such financial projections. You agree to supplement
the information and projections from time to time up to and including the date
of the closing of the Credit Facility so that the representations and warranties
contained in this paragraph remain correct in all material respects.
In issuing this commitment, the Lenders are relying on the accuracy of the
information furnished to it by or on behalf of the Company and its affiliates
without independent verification thereof.
NO THIRD PARTY RELIANCE, ETC.
The agreements of the Lenders hereunder and of any Syndicate Lender that issues
a commitment to provide financing under the Credit Facility are made solely for
the benefit of the Company and may not be relied upon or enforced by any other
person. Please not that those matters that are not covered or made clear herein
or in Annex I or in the Fee Letter are subject to mutual agreement of the
parties. The terms and conditions of this Commitment Letter may be modified only
in a writing signed by each of the parties hereto.
You should be aware that Citicorp, SSB, BankBoston and the other Lenders or one
or more of their affiliates may be providing financing or other services to
parties whose interests may conflict with yours. Be assured, however, that none
of Citicorp, SSB, BankBoston and the other Lenders nor any of their affiliates
will furnish confidential information obtained from you to any of their other
customers or any other person. By the same token, none of Citicorp, SSB,
BankBoston and the other Lenders nor any of their affiliates will make available
to you confidential information that any of them obtained or may obtain from any
other customer.
GOVERNING LAW, ETC.
This Commitment Letter shall be governed by, and construed in accordance with,
the law of the State of New York. This Commitment Letter sets forth the entire
agreement between the parties with respect to the matters addressed herein and
supersedes all prior communications, written or oral, with respect hereto. This
Commitment Letter may be executed in any number of counterparts, each of which,
when so executed, shall be deemed to be an original and all of which, taken
together, shall constitute one and the same Commitment Letter. Delivery of an
executed counterpart of a signature page to this Commitment Letter by telecopier
shall be as effective as delivery of a manually executed counterpart of this
Commitment Letter. Your obligations under the paragraphs captioned "Fees",
"Indemnification", "Costs and Expenses" and "Confidentiality" shall survive the
expiration or termination of this Commitment Letter.
<PAGE> 6
WAIVER OF JURY TRIAL
Each party hereto irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Commitment Letter or the transactions
contemplated hereby or the actions of Citicorp, any other Lender, SSB or
BankBoston in the negotiation, performance or enforcement hereof.
<PAGE> 7
Please indicate your acceptance of the provisions hereof by signing the enclosed
copy of this Commitment Letter and the Fee Letter and returning them, together
with the fees then payable under the Fee Letter, to Claudia Slacik, c/o Citicorp
USA, Inc., 399 Park Avenue, New York, New York 10043 (telecopier: (212)
793-1290) at or before 7:00 p.m. (New York City time) on March 26, 1999, the
time at which the commitment of the Lenders set forth above (if not so accepted
prior thereto) will expire. If you elect to deliver this Commitment Letter by
telecopier, please arrange for the executed original to follow by next-day
courier.
Very truly yours,
SALOMON SMITH BARNEY INC.
By: /s/
------------------------------------
Title: Attorney-in-Fact
CITICORP USA, INC.
By: Claudia Slacik
------------------------------------
Title: Attorney-in-Fact
BANKBOSTON, N.A.
By: /s/ Betsy Ratto
------------------------------------
Title: Attorney-in-Fact
NATIONAL CITY COMMERCIAL FINANCE,
INC., as a Lender
By: /s/ Thomas R. Poe
------------------------------------
Name: Thomas R. Poe
Title: President/CEO
<PAGE> 8
HELLER FINANCIAL, INC.
as a Lender
By: /s/ John Buff
---------------------------------------
Name: John Buff
Title: SVP
FOOTHILL INCOME TRUST, L.P.,
as a Lender
By: FIT GP, LLC,
its general partner
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. Podwika
--------------------------------
Name: Jeffrey J. Podwika
Title: Vice President
ACCEPTED this _____ day
of March, 1999
SERVICE MERCHANDISE COMPANY, INC.
By: /s/ S. Cusano
---------------------------------
Title:
------------------------------
<PAGE> 9
SCHEDULE 1
<TABLE>
<CAPTION>
Lender Amount of Commitment
- ------ --------------------
<S> <C>
Citicorp USA, Inc. $175 million
BankBoston, N.A. $175 million
National City Commercial Finance, Inc. $100 million
Heller Financial, Inc. $100 million
Foothill Capital Corp. $ 50 million
Jackson National Life Insurance Company $150 million
</TABLE>
<PAGE> 10
ANNEX I
$750 MILLION SECURED DEBTOR-IN-POSSESSION CREDIT FACILITY
SUMMARY OF TERMS AND CONDITIONS
This Summary of Terms and Conditions outlines certain terms of the Credit
Facility referred to in the Commitment Letter dated March 25, 1999, addressed to
Service Merchandise Company, Inc. from Citicorp USA, Inc., Salomon Smith Barney
Inc. and BankBoston, N.A., and the Lenders referred to therein (the "Commitment
Letter"). This Summary of Terms and Conditions is part of and subject to the
Commitment Letter. Certain capitalized terms used herein are defined in the
Commitment Letter.
BORROWER: Service Merchandise Company, Inc., as debtor
and debtor-in-possession (the "Borrower")
under chapter 11 of title 11 of the United
States Code (the "Bankruptcy Code").
GUARANTORS: All of the Borrower's direct and indirect
subsidiaries other than the Excluded
Subsidiaries (as defined in the Existing
Credit Facility), as debtors-in-possession
under chapter 11 of the Bankruptcy Code.
ADMINISTRATIVE AND
COLLATERAL AGENT: Citicorp USA, Inc. (the "Administrative
Agent").
DOCUMENTATION AND
COLLATERAL MONITORING
AGENT: BankBoston, N.A. (together with the
Administrative Agent, the "Agents").
ARRANGER AND BOOK MANAGER: Salomon Smith Barney Inc. ("SSB")
CREDIT FACILITY: A secured credit facility, subject to the
Borrowing Base (as defined below), of up to
$750,000,000, (the "Credit Facility"),
provided as follows:
(a) Term Loan. A term loan in a principal
amount of $100,000,000 maturing on June 30,
2001 (the "Term Loan").
(b) Revolving Credit Facility. A revolving
credit facility (the "Revolving Credit
Facility") in a principal amount of up to
$650,000,000 at any time
<PAGE> 11
outstanding maturing on June 30, 2001 (the
loans thereunder, "Revolving Loans", and
together with the Term Loans, the "Loans",
and the commitments of the Lenders
thereunder, the "Revolving Credit Facility
Commitments").
(c) Letters of Credit. Up to $200,000,000 of
the Revolving Credit Facility, subject to
the Borrowing Base, shall be available for
the issuance of letters of credit by
Citibank, N.A., BankBoston, N.A. and other
issuing banks as provided in the definitive
documentation (collectively, the "Issuing
Banks"), $125,000,000 of which shall be
available for standby letters of credit and
$10,000,000 of which shall be available for
letters of credit denominated in foreign
currencies.
(d) Swing Loans. Up to $50,000,000 of the
Revolving Credit Facility, subject to the
Borrowing Base, shall be available for swing
line loans from the Administrative Agent.
CLOSING DATE: The date of (i) the execution and delivery
of definitive loan documentation and (ii)
the satisfaction of applicable conditions
precedent (including the entry of an interim
or emergency order of the Bankruptcy Court
approving the Credit Facility, provided such
order has not been stayed), and in any event
on or before April 5, 1999.
AVAILABILITY: The Revolving Credit Facility shall be
available on an interim basis from the
Closing Date until the entry by the
Bankruptcy Court of a permanent order
approving the Credit Facility (the
"Permanent Order") up to an amount equal to
the difference between (i) the lesser of the
Borrowing Base and $500,000,000 and (ii) the
outstanding extensions of credit under the
Existing Credit Facility. From the entry of
the Permanent Order and satisfaction of
customary condition precedent (the
"Effective Date") until the Termination Date
(as defined below), the entire amount of the
Revolving Credit Facility shall be available
in multiple drawings from time to time, and
in amounts and on notice to be specified in
the loan documentation. Amounts
<PAGE> 12
under the Revolving Credit Facility may be
borrowed, repaid and reborrowed, subject to
the Borrowing Base.
TERM LOAN MATURITY DATE: June 30, 2001.
TERMINATION DATE: The Credit Facility shall terminate and all
Loans outstanding thereunder shall become
due and payable on the earliest to occur of
(i) June 30, 2001, (ii) the date of
substantial consummation of a plan of
reorganization, (iii) termination of the
Revolving Credit Facility Commitments
following an Event of Default (as defined
below) or as a result of voluntary or
required prepayments and (iv) acceleration
following an Event of Default.
BORROWING BASE: Outstanding extensions of credit shall not
exceed:
(a) 70% (subject to upward adjustment to
72.5% in the Agents' discretion and up to
75% from September 1 through December 10 of
each year in the Agents' sole discretion
exercised reasonably) of eligible inventory
(subject to adjustments and certain
reserves, including a 35% reserve for
closing store and clearance sale inventory,
substantially the same as those set forth in
the Existing Credit Facility, but excluding
in any event the Cumulative Asset Sale
Reserve (as defined in the Existing Credit
Facility)); plus
(b) up to 75% of eligible trade accounts
receivable; plus
(c) up to 60% of the sum of (i) the
aggregate undrawn amount of trade letters of
credit issued to finance the purchase of
inventory and (ii) in transit inventory
covered by drawn and reimbursed trade
letters of credit not yet included in
eligible inventory; plus
(d) the lesser of (i) 54.5% (subject to
amortization of $500,000 per quarter and
environmental and mechanics' lien reserves)
of eligible mortgaged real property and (ii)
$82,000,000; plus
<PAGE> 13
(e) 100% of cash equivalents pledged to the
Administrative Agent and cash in accounts
subject to blocked account arrangements or
payable to the Borrower (net of fees) in
respect of branded credit card receivables;
minus
(f) 25% of the Agents' estimate of the net
proceeds to be realized by the Borrower from
the sale of certain leasehold interests, up
to a maximum of $25,000,000; minus
(g) the Interim Reserve Amount. The Interim
Reserve Amount means an amount equal to (i)
from the closing Date until the Effective
Date, $75,000,000, (ii) from the Effective
Date until the date the Administrative Agent
accepts a business plan from the Borrower's
management (the "Business Plan") and the
Borrower and the Agents mutually agree on
new and revised financial and negative
covenants, $50,000,000, and (iii)
thereafter, zero.
The Borrowing Base shall be subject to other
reserves that may be imposed from time to
time by the Agents in accordance with the
terms of the Credit Agreement, which shall
be substantially similar to those contained
in the Existing Credit Facility.
For the period from the Closing Date until
the Effective Date, total outstandings under
the Credit Facility and the Existing Credit
Facility shall not exceed the lesser of
$500,000,000 and the Borrowing Base.
AMORTIZATION OF THE TERM LOAN: The principal amount of the Term Loan shall
be payable in eight equal quarterly
installments commencing July 1, 1999, each
in an aggregate principal amount of
$250,000, with a final ninth installment on
the Term Loan Maturity Date equal to the
remaining unpaid balance of the Term Loan.
PURPOSE: Until the Effective Date, the proceeds of
the Loans shall be used to pay for the
Borrower's post-petition operating expenses
incurred in the ordinary course
<PAGE> 14
of business, certain costs and expenses of
administration of the Case and general
corporate purposes. From and after the
Effective Date, such proceeds shall be used
for such purposes and to repay in full all
indebtedness outstanding under the Existing
Credit Facility.
INTEREST: All loans under the Credit Facility shall
bear interest, at the option of the
Borrower, at Citibank, N.A.'s fluctuating
Alternate Base Rate III (the "Base Rate")
plus the Applicable Margin (as defined
below) on a 365/366-day basis or
reserve-adjusted LIBOR (for interest periods
of one, two, three or six months) plus the
Applicable Margin on a 360-day basis.
APPLICABLE MARGIN: The "Applicable Margin" shall be, at the
option of the Borrower (to be exercised
before the Closing Date), either (i) 2.25 %
for LIBOR Loans and 1.25% for ABR Loans or
(ii) in the event that the Borrower selects
the Pricing Grid Option (as defined below),
computed monthly, based on the average
Excess Availability (as defined below) for
the prior month, as set forth an Schedule A;
provided, that in the case of clause (ii),
Level III will be applicable until the first
of the month following the month in which
the Agents accept the Business Plan.
EXCESS AVAILABILITY: At any date the amount by which the
Borrowing Base at such date exceeds the
aggregate outstanding extensions of credit
under the Credit Facility and the Existing
Credit Facility at such date.
COMMITMENT FEE: Commencing on the Closing Date, a
non-refundable "Commitment Fee" will accrue
as a percentage of the daily average unused
portion of the Revolving Credit Facility
Commitments (whether or not then available),
payable monthly in arrears and on the final
maturity of the Revolving Credit Facility
(whether by stated maturity or otherwise),
at a rate per annum, at the option of the
Borrower (to be exercised before the Closing
Date), either (i) equal to 0.375 % or (ii)
in the event that the Borrower selects the
Pricing Grid Option, computed monthly,
<PAGE> 15
based on the average Excess Availability for
the prior month, as set forth on Schedule A;
provided, that in the case of clause (ii),
Level III will be applicable until the first
of the month following the month in which
the Agents accept the Business Plan.
CLOSING FEE: .50% of the Lenders' commitments, to be
allocated among them pro rata based on their
respective commitments, payable two-thirds
on the Closing Date and the balance on the
Effective Date.
LETTER OF CREDIT FEES: A "Letter of Credit Fee" for issued
documentary and standby letters of credit,
payable pro rata to the Revolving Credit
Facility Lenders, will accrue on the
aggregate undrawn amount of such letters of
credit at a rate per annum, at the option of
the Borrower (to be exercised before the
Closing Date), either (i) equal to 1.00 %
for documentary letters of credit and 2.00%
for standby letters of credit or (ii) in the
event that the borrower selects the Pricing
Grid Option, computed monthly, based on the
average Excess Availability for the prior
month, as set forth on Schedule A; provided,
that in the case of clause (ii), Level III
will be applicable until the first of the
month following the month in which the
Agents accept the Business Plan. A fronting
fee for all issued letters of credit,
payable to the Issuing Bank with respect to
such letter of credit, will accrue on the
aggregate amount of such letters of credit
at a rate per annum equal to 0.25 % per
annum, together with customary transaction
fees. The letter of credit and fronting fees
shall be payable monthly in arrears, and
transaction fees shall be paid upon each
issuance or amendment of a letter of credit.
Upon the occurrence and during the
continuance of any Event of Default, (i) the
Applicable Margin shall increase by 2% per
annum, (ii) each LIBOR Loan will convert to
a Base Rate Loan at the end of the interest
period then in effect for such LIBOR Loan
and (iii) the Letter of Credit Fees payable
to the Revolving Credit Facility Lenders
shall increase by 2% per annum.
BORROWER'S MARGIN AND
FEE ELECTION: The Borrower shall have the option, to be
exercised prior to the Closing Date, either
(i) to have each of the Applicable Margin,
the Commitment Fee and the Letter of Credit
Fee determined monthly from Schedule A
<PAGE> 16
hereto (the "Pricing Grid Option") or (ii)
to have each of such amounts fixed as set
forth herein.
MANDATORY PREPAYMENTS: The Administrative Agent shall have dominion
and control over the collateral proceeds of
the Borrower, including a lock-box or
depository arrangement and concentration
accounts acceptable to the Administrative
Agent and the Borrower. All amounts
collected in the lock-box accounts and
concentration accounts shall be used to
repay the loans outstanding under the
Existing Credit Facility until the entry of
the Permanent Order and thereafter the
Revolving Credit Facility. The Borrower
shall be entitled to retain up to
$15,000,000 of cash and cash equivalents
outside of such lock-box accounts and
concentration accounts.
100% of net cash proceeds from the sale of
assets other than in the ordinary course of
business or as otherwise permitted through
negotiated baskets shall be applied to
Revolving Credit Loans (without a permanent
reduction in the Revolving Credit Facility).
The Borrower shall repay the outstanding
Loans under the Revolving Credit Facility to
the extent that such Loans and the
outstanding Letters of Credit exceed the
lesser of the aggregate of the Lenders'
Revolving Credit Facility Commitments and
the Borrowing Base.
PRIORITY: The obligations of the Borrower under the
Credit Facility shall be granted
super-priority administrative expense status
in accordance with section 364(c)(1) of the
Bankruptcy Code, with priority over any and
all such other expenses, subject only to (a)
amounts payable to the United States Trustee
pursuant to 28 U.S.C. section 1930(a)(6) and
any fees payable to the clerk of the
Bankruptcy Court and (b) the payment of
allowed fees and expenses of professionals
retained and authorized by the Bankruptcy
Court other than such fees and expenses
incurred after an Event of Default and
notice in excess of $3,000,000 (the
"Carve-Out Expenses"). No proceeds of the
Credit Facility shall be used to pay any
fees and expenses incurred at any time in
connection with any action or investigation
which seeks to invalidate, avoid,
subordinate, or otherwise impair any claims
of the Lenders under the Credit Facility or
the Existing Credit Facility, or any liens
or priorities created by either facility, or
which seeks to recover on any claims against
or transfers made to the Lenders.
<PAGE> 17
SECURITY: The obligations of the Borrower and
Guarantors under the Credit Facility, any
exposure of a Lender in respect of cash
management or hedging activities conducted
by such Lender for the Borrower or any
Guarantor and any exposure of a Lender in
respect of any hedging transactions entered
into between such Lender and the Borrower or
any Guarantor shall be secured by a security
package consisting of substantially all of
the assets of the Borrower and the
Guarantors, subject only to valid,
enforceable, subsisting and nonvoidable
liens of record as of the date of
commencement of the Case and other permitted
liens. The Existing Credit Agreement will
have the benefit of liens on post-petition
collateral.
FINANCIAL COVENANTS: Upon acceptance by the Administrative Agent
of the Business Plan, the Agents, the
Borrower and the Majority Lenders (as
defined in the Existing Credit Facility)
will agree to mutually acceptable financial
covenants, including EBITDA or similar cash
flow covenants appropriate for the Credit
Facility as a result of the Business Plan.
Capital expenditures shall be permitted up
to $50,000,000 per year.
REPRESENTATIONS AND
WARRANTIES: Customary and appropriate representations
and warranties and others deemed by the
Administrative Agent to be appropriate to
this transaction (and which are expected to
be substantially similar to those contained
in the Existing Credit Facility except for
the addition of certain bankruptcy-related
provisions), including, but not limited to
superpriority administrative expense status
and liens and security interests as set
forth herein.
AFFIRMATIVE AND
REPORTING COVENANTS: Customary and appropriate affirmative and
reporting covenants and others deemed by the
Administrative Agent to be appropriate to
this transaction (and which are expected to
be substantially similar to those contained
in the Existing Credit Facility except for
the addition of certain bankruptcy-related
provisions), including but not limited to
delivery to the Administrative Agent and its
counsel of all pleadings, motions and other
documents filed on behalf of the Borrower
with the Bankruptcy Court, and payment of
all post-petition taxes and other
post-petition obligations as and when due
except where contested in good faith.
NEGATIVE COVENANTS: Customary and appropriate negative covenants
and others deemed by the Administrative
Agent to be
<PAGE> 18
appropriate to this transaction (and which
are expected to be substantially similar to
those contained in the Existing Credit
Facility except for the addition of certain
bankruptcy-related provisions).
CONDITIONS PRECEDENT TO THE
CLOSING: The conditions to the closing of the Credit
Facility shall be those customarily found in
the Administrative Agent's loan agreements
for similar financings and others deemed by
the Administrative Agent to be appropriate
to this transaction, and in any event
including, but not limited to:
- All documentation related to the
Credit Facility shall be in form
and substance reasonably
satisfactory to the Borrower and
its counsel and each Lender and its
counsel.
- The Administrative Agent's
satisfaction with all first-day and
related orders entered by the
Bankruptcy Court in the Case and
receipt of an initial budget (the
"Budget").
- Authorization and approval by the
Bankruptcy Court pursuant to an
interim and a Permanent Order
(collectively, the "Orders"), each
in form and substance satisfactory
to the Administrative Agent,
entered on notice to such parties
as may be reasonably satisfactory
to the Administrative Agent,
approving the transactions
contemplated herein, including but
not limited to, the granting of the
superiority status and liens and
security interests referred to
herein and the payment of all fees
referred to herein, which Orders
shall not have been reversed,
modified, amended or stayed without
prior written consent of the
Lenders.
- Satisfaction with all motions and
other documents to be filed with
and submitted to the Bankruptcy
Court in connection with the Credit
Facility and the approval thereof.
<PAGE> 19
- All fees and expenses (including
reasonable fees and expenses of
counsel) required to be paid to the
Administrative Agent and the
Lenders on or before the Closing
Date shall have been paid.
- The Lenders shall have received
satisfactory opinions of
independent counsel to the
Borrower, addressing such matters
as the Lenders shall reasonably
request.
- Except for or as resulting from the
filing of the Case, and such
changes that heretofore have been
disclosed publicly and which the
Company has brought to the
attention of the Administrative
Agent, there shall have occurred no
material adverse change in the
business, condition (financial or
otherwise), operations,
performance, properties or
prospects of the Borrower and its
subsidiaries since September 30,
1998.
- Except for the Case, there shall
exist no action, suit,
investigation, litigation or
proceeding commenced or threatened
in any court or before any
arbitrator or governmental
instrumentality that could
reasonably be expected to have a
material adverse effect on the
business, condition (financial or
otherwise), operations,
performance, properties or
prospects of the Borrower and its
subsidiaries.
- All governmental and third-party
consents and approvals necessary in
connection with the Credit Facility
and grant of security interests
shall have been obtained (without
the imposition of any conditions
that are not reasonably acceptable
to the Lenders) and shall remain in
effect; and no law or regulation
shall be applicable in the
reasonable judgment of the lenders
that restrains, prevents or imposes
materially adverse conditions upon
the transactions contemplated
hereby.
- The Lenders shall be satisfied with
the amount, types and terms and
conditions of all insurance and
bonding maintained by the Borrower
and its subsidiaries, and the
Lenders shall have received
endorsements naming the
Administrative Agent, on behalf of
the Lenders, as an additional
insured and loss payee under all
insurance policies to be maintained
with respect to the properties of
the
<PAGE> 20
Borrower and its subsidiaries
forming part of the Lenders'
collateral.
CONDITIONS PRECEDENT
TO EACH REVOLVING
CREDIT LOAN: On the funding date of each
Revolving Credit Loan (and on the
date of issuance of any Letter of
Credit) the Order approving the
financing shall have been entered,
there shall exist no default under
the loan documents, the
representations and warranties of
the Borrower and each Guarantor
therein shall be true and correct
in all material respects
immediately prior to, and after
giving effect to, funding (except
those representations and
warranties which speak as of a date
other than such funding date, which
shall have been true and correct as
of such specific date). In
addition, from and after the first
anniversary of the Closing Date,
the Interim Reserve Amount shall
have been reduced to zero in
accordance with its definition.
EVENTS OF DEFAULT: Customary and appropriate events
of default (subject to customary
and appropriate grace periods)
including but not limited to:
failure to make payments when due;
postpetition defaults under other
evidences of indebtedness;
noncompliance with covenants;
breaches of representations and
warranties; certain materially
adverse employee benefit
liabilities; material invalidity of
guarantees; "change of control";
cross-default to post-petition
indebtedness; dismissal of any
chapter 11 case or conversion to
chapter 7 case; appointment of
chapter 11 trustee, responsible
officer or examiner with enlarged
powers relating to the operation of
the business of the Borrower or
Guarantors; support by the Borrower
or Guarantors of any challenge to
prepetition claims or liens;
granting of relief from automatic
stay to permit foreclosure on
assets of the Borrower with
aggregate value in excess of an
amount to be agreed upon; entry of
order, without the Lenders' prior
consent, reversing, amending,
supplementing, staying or vacating
the Orders; Permanent Order is not
approved within 45 days after the
date on which the Borrower
commences a voluntary chapter 11
case; post-petition judgment in
excess of an amount to be agreed
upon; payment of pre-petition
debt, other than reclamation claims
up to
<PAGE> 21
$15,000,000 in the aggregate, pre-
petition consignment claims or as
approved by the Lenders and the
Bankruptcy Court; liens or
superpriority claims granted with
respect to the Credit Facility
cease to be valid, perfected and
enforceable in all respects; filing
of a motion for alternate or
additional debtor-in-possession
financing; unenforceability of any
material provision of any loan
document.
INDEMNIFICATION: Indemnification of the
Administrative Agent, the Lenders
and their affiliates and their
respective officers, directors,
employees, agents and advisors for
any liabilities and expenses
arising out of the Credit Facility
or the use of proceeds.
EXPENSES: The Borrower and each Guarantor
shall jointly and severally pay all
(i) reasonable costs and expenses
of the Agents and the Arranger
(including all reasonable fees,
expenses and disbursements of
outside counsel) in connection with
the preparation, execution and
delivery of the loan documentation
and the funding of all loans under
the Credit Facility, including, but
not limited to, all due diligence,
syndication (including printing,
distribution and bank meetings),
transportation, computer,
duplication, messenger, audit,
insurance, appraisal and consultant
costs and expenses, search, filing
and recording fees incurred or
sustained by the Administrative
Agent and Arranger in connection
with this transaction or the
administration, amendment or waiver
of the loan documentation, and (ii)
costs and expenses of the Lenders
(including reasonable fees,
expenses and disbursements of
counsel) in connection with the
enforcement of any of their rights
and remedies under any loan
documentation.
ASSIGNMENTS: Each Lender shall have the right
with the consent of the Agents
(which consent shall not be
unreasonably withheld) to assign
its loans or commitments to an
Eligible Assignee (as defined in
the Existing Credit Facility).
Assignments of Term Loans must be
in a minimum amount of $5,000,000
and assignments of Revolving Loans
and Revolving Credit Facility
Commitments must be in a minimum
amount of $5,000,000. Each Lender
will also have the right, without
consent of the Borrower or the
Administrative
<PAGE> 22
Agent, to assign (i) as security,
all or part of its rights under the
loan documentation to any Federal
Reserve Bank and (ii) with notice
to the Borrowers and the
Administrative Agent, all or part
of its rights or obligations under
the loan documentation to any of
its affiliates.
GOVERNING LAW: State of New York.
COUNSEL TO ADMINISTRATIVE
AGENT: Weil, Gotshal & Manges LLP.
<PAGE> 23
SCHEDULE A
<TABLE>
<CAPTION>
======================================================================================================================
Applicable Margin L/C Fee
--------------------- Commitment -------------------
Level Average Excess Availability for ABR Eurodollar Fee Trade Standby
Prior Month
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
I Greater than $300 million 0.75% 1.75% 0.375% 0.750% 1.50%
- ----------------------------------------------------------------------------------------------------------------------
II Greater than $200 million and less
than or equal to $300 million 1.00% 2.00% 0.375% 0.875% 1.75%
- ----------------------------------------------------------------------------------------------------------------------
III Greater than $75 million and less
than or equal to $200 million 1.25% 2.25% 0.375% 1.000% 2.00%
- ----------------------------------------------------------------------------------------------------------------------
IV Less than or equal to $75 million
1.50% 2.50% 0.500% 1.125% 2.25%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
