As filed with the Securities and Exchange Commission on July 16, 1996
Registration No. 333-07023
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HIBBETT SPORTING GOODS, INC.
(Exact name of registrant as specified in its charter)
Alabama 5941 63-1074067
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Code Number) Identification No.)
451 Industrial Lane
Birmingham, Alabama 35211
(205) 942-4292
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Susan H. Fitzgibbon
Chief Financial Officer
Hibbett Sporting Goods, Inc.
451 Industrial Lane
Birmingham, Alabama 35211
(205) 942-4292
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Alan Dean Gregory S. Curran Steven Della Rocca
Davis Polk & Wardwell Balch & Bingham Latham & Watkins
450 Lexington Avenue 1901 Sixth Avenue North, 885 Third Avenue,
New York, New York 10017 Suite 2600 Suite 1000
(212) 450-4000 Birmingham, Alabama 35203 New York, New York 10022
(205) 251-8100 (212) 906-1200
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
============================================================================
SUBJECT TO COMPLETION, DATED JULY 16, 1996
PROSPECTUS
Shares
HIBBETT SPORTING GOODS, INC.
Common Stock
All of the shares of Common Stock, par value $.01 per share (the
"Common Stock"), being offered hereby (the "Offering") are being sold by
Hibbett Sporting Goods, Inc. ("Hibbett" or the "Company"). Prior to this
Offering, there has not been a public market for the Common Stock. It is
currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price.
Application has been made to trade the Common Stock on The Nasdaq National
Market under the symbol "HIBB."
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Discounts Proceeds to
Price to Public and Commissions (1) Company(2)
--------------- ---------------------- -----------
Per Share $ $ $
Total(3) $ $ $
- ------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering estimated at $ payable
by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase
up to additional shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts
and Commissions and Proceeds to Company will be $ , $
and $ , respectively.
The shares of Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted
by them and subject to certain conditions. It is expected that
certificates for the shares of Common Stock offered hereby will be
available for delivery on or about , 1996 at the offices
of Smith Barney Inc., 333 West 34th Street, New York, New York 10001.
SMITH BARNEY INC.
MONTGOMERY SECURITIES
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1996
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be
read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. All references to fiscal years of the Company in this
Prospectus refer to the fiscal years ended on the Saturday nearest to
January 31 of such year, except that references to the Company's fiscal
years 1992 and 1993 refer to the fiscal years ended on January 31 of such
year. Unless otherwise indicated, the information in this Prospectus (i)
assumes that the Underwriters' overallotment option is not exercised, (ii)
assumes the Company's reincorporation in the state of Delaware, which will
be completed prior to the closing of the Offering and (iii) gives effect to
a 1 for reverse stock split to be effected on , 1996.
The Company
Hibbett Sporting Goods, Inc. ("Hibbett" or the "Company") is a
leading rapidly-growing operator of full-line sporting goods stores in
small to mid-sized markets in the southeastern United States. Hibbett's
stores offer a broad assortment of quality athletic footwear, apparel and
equipment at competitive prices with superior customer service. The
Company's merchandise assortment features a core selection of brand
name merchandise emphasizing team and individual sports complemented by a
selection of localized apparel and accessories designed to appeal to a wide
range of customers within each market. The Company's stores are among the
primary retail distribution alternatives for brand name vendors that seek
to reach Hibbett's target markets. Hibbett has received the Nike Retailer
Excellence Award for the Southeast region for eight consecutive years based
on its performance in the full-line sporting goods category.
The Company currently operates 60 Hibbett Sports stores as well
as eight smaller-format Sports Additions athletic shoe stores and three
larger-format Sports & Co. superstores. Hibbett's primary retail format
and growth vehicle is Hibbett Sports, a 5,000 square foot store located
predominantly in enclosed malls. Hibbett Sports is typically the primary,
full-line sporting goods retailer in its markets because of, among other
factors, its more extensive selection of traditional team and individual
sports merchandise and its superior customer service.
Key Business Strategies
Unique Emphasis on Small Markets. The Company targets markets
ranging in population from 30,000 to 250,000. Management believes that
Hibbett is currently targeting markets of this size in the Southeast more
aggressively than any of its competitors. By targeting smaller markets,
the Company believes that it is able to achieve significant strategic
advantages, including numerous expansion opportunities, comparatively low
operating costs and a more limited competitive environment than generally
faced in larger markets. In addition, the Company establishes greater
customer and vendor recognition as the leading full-line sporting goods
retailer in the local community.
Strong Regional Focus. With over 30 years of experience as a full-
line sporting goods retailer in the Southeast, Hibbett benefits from strong
name recognition, a loyal customer base and operating and cost
efficiencies. Although the core merchandise assortment tends to be similar
for each Hibbett Sports store, important local and regional differences
frequently exist. Management believes that its ability to merchandise to
local sporting or community interests differentiates Hibbett from its
national competitors. The Company's regional focus also enables it to
achieve significant cost benefits including lower corporate expenses,
reduced distribution costs and increased economies of scale from its
marketing activities.
Low Cost Culture. In addition to the cost benefits of the Company's
small market emphasis and regional focus, over its long operating history
Hibbett has maintained a low cost corporate culture. Management exercises
tight control over store level operating expenses, real estate costs and
corporate overhead. The Company's management information systems enable
senior management to make timely and informed merchandise decisions,
maintain tight inventory control and monitor store-level financial
performance in a timely manner.
Emphasis on Training and Customer Satisfaction. Management
seeks to exceed customer expectations in order to build loyalty and
generate repeat business. The Company hires enthusiastic sales personnel
with an interest in sports and provides them with extensive training to
create a sales staff with strong product knowledge dedicated to outstanding
customer service. Hibbett's training programs focus on both selling skills
and continuing product/technical training and are conducted through
in-store clinics, video presentations and interactive group discussions.
Investment in Management and Infrastructure. The Company's
experienced management team and its recently upgraded information and
distribution systems are expected to facilitate the Company's future
growth. The Company's new headquarters and distribution center is
currently capable of servicing in excess of 150 Hibbett Sports stores and
has significant expansion potential to support the Company's growth for the
foreseeable future. Through its comprehensive information systems, the
Company monitors all aspects of store operations on a daily basis and is
able to control inventory levels and operating costs.
Expansion Strategy
The Company is accelerating its rate of new store openings to take
advantage of the growth opportunities in its target markets. As the
Company continues to expand, it is anticipated that Hibbett Sports will
remain its primary growth vehicle. The Company plans to open 17 Hibbett
Sports stores in fiscal 1997 (four have been opened to date) and
approximately 27 Hibbett Sports stores in fiscal 1998. The Company also
intends to open one Sports & Co. superstore and one Sports Additions store
in fiscal 1997. The Company anticipates that it will selectively open
additional Sports Additions stores and Sports & Co. superstores as
opportunities arise in the future. The Company has identified over 500
potential markets for future Hibbett Sports stores within the states in
which it operates and in contiguous states. Hibbett's clustered expansion
program, which calls for opening new stores within a two-hour driving
radius of another Company location, allows it to take advantage of
efficiencies in distribution, marketing and regional management.
The Company believes its business and expansion strategies have
contributed to its increasing net sales and operating profits. Over the past
five fiscal years, net sales have increased at a 20.3% compound annual growth
rate to $67.1 million in fiscal 1996, and operating income has increased at
a 29.3% compound annual growth rate to $5.6 million in fiscal 1996.
The Company's principal executive offices are located at 451
Industrial Lane, Birmingham, Alabama 35211, and its telephone number is
205-942-4292.
The Offering
Common Stock offered.................... shares of Common Stock
Common Stock to be outstanding after
the Offering.......................... shares of Common Stock(1)
Use of Proceeds......................... To redeem $16.0 million in
aggregate principal amount
of Subordinated Notes and
accrued interest thereon
and to repay a $1.0
million Term Loan and
accrued interest thereon,
with the balance to be
used to reduce outstanding
balances under its
Revolving Loan Agreement.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.. "HIBB"
- ------------
(1) Excludes options to acquire 681,749 shares of Common Stock that are
issuable under outstanding, currently exercisable options.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(In thousands, except per share and selected operating data)
<TABLE>
<CAPTION>
Thirteen Week
Fiscal Year Ended Period Ended
-------------------------------------------------------------------- -------------------
January 31, January 31, January 29, January 28, February 3, April 29, May 4,
1992 1993 1994(1) 1995 1996 1995 1996
---------- ---------- ---------- ----------- ----------- --------- ------
(52 Weeks) (52 Weeks) (53 Weeks) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.................... $32,033 $36,366 $40,119 $52,266 $67,077 $15,001 $20,251
Gross profit................. 9,901 11,368 12,388 16,041 20,435 4,570 6,216
Operating income............. 2,020 2,693 2,877 4,522 5,642 1,476 2,429(2)
Interest expense............. 453 325 488 654 1,685(3) 182 910(3)
Income before provision for
income taxes................ 1,567 2,368 2,389 3,868 3,957 1,294 1,519
Net income................... 979(4) 1,462(4) 1,469 2,389 2,443 799 935
Net income per share......... .03(4) .04(4) .04 .06 .07(5) .02 .04(5)
Weighted average shares
outstanding................. 38,687 38,722 39,678 39,678 35,613(3) 39,678 23,768(3)
Selected Operating Data:
Number of stores open at end
of period:
Hibbett Sports............. 34 33 41 52 56 52 58
Sports & Co................ 0 0 0 0 3 1 3
Sports Additions........... 4 6 8 8 8 7 8
------- -------- -------- -------- -------- ------- ------
Total....................... 38 39 49 60 67 60 69
======= ======== ======== ======== ======== ======= ======
Net sales growth............. 13.7% 13.5% 10.3% 30.3% 28.3% 28.6% 35.0%
Comparable store net sales
increase (decrease)(6)...... 2.4% 10.6% (0.3%) 15.6% 6.2% 7.9% 15.7%
</TABLE>
At May 4, 1996
---------------------------------
Actual As adjusted(7)
------------ --------------
(Unaudited)
Balance Sheet Data:
Working capital....................... $14,598 $
Total assets.......................... 37,703
Total debt............................ 30,325(3)
Stockholders' investment (deficit).... (7,158)(3)
- -------------
(1) During fiscal year 1994, the Company changed its fiscal year from a
twelve-month period ending January 31 to a 52-53 week period ending on
the Saturday nearest to January 31.
(2) Includes a $513,000 pre-tax gain on the sale of the Company's former
headquarters and distribution facility.
(3) In November 1995, the Company completed a series of equity and debt
transactions which resulted in a recapitalization of the Company and a
change in controlling ownership of the common stock outstanding (the
"Recapitalization"). The Recapitalization included the repurchase and
retirement of 34,220,000 shares of common stock for cash and debt and
the issuance of 17,609,000 new shares of common stock and debt in
exchange for cash. The Recapitalization resulted in a substantial
increase in total debt outstanding and a deficit in stockholders'
investment.
(4) Prior to July 1, 1992, the Company was a Subchapter S corporation. Under
these provisions the taxable income of the Company was included in the
individual income tax returns of the stockholders. Effective July 1,
1992, the Company and its stockholders terminated the S corporation
election and the Company became a taxable corporation. Thus, the
provisions for income taxes for the fiscal years ended January 31, 1992
and 1993 give effect to the application of pro forma income taxes that
would have been reported had the Company been a taxable corporation for
federal and state income tax purposes for such fiscal years.
(5) The net proceeds from the Offering will be used to retire a substantial
portion of the Company's debt. Accordingly, a presentation of
supplemental net income per share before extraordinary item is
calculated by dividing net income (after adjustment for applicable
interest expense) by the number of weighted average shares outstanding
after giving effect to the estimated number of shares that would be
required to be sold (at the initial public offering price of $ per
share) to repay $ and $ of debt at February 3, 1996 and
May 4, 1996, respectively. Supplemental net income per share before
extraordinary item for the fiscal year ended February 3, 1996 and the
thirteen week period ended May 4, 1996 was $ and $ ,
respectively. Supplemental net income per share after extraordinary
item (to reflect the write-off of unamortized debt discount and debt
issuance costs) for the fiscal year ended February 3, 1996 and the
thirteen week period ended May 4, 1996 was $ and $ ,
respectively.
(6) Comparable store net sales data for a period reflect stores open
throughout that period and the corresponding period of the prior
fiscal year. For the periods indicated, comparable store net sales do
not include sales by Sports & Co. superstores or Team Sales (as
defined herein).
(7) Adjusted to give effect to the Offering and the application of the
estimated net proceeds thereof as described in "Use of Proceeds."
RISK FACTORS
Before purchasing the shares of Common Stock offered hereby, a
prospective investor should consider the specific factors set forth below as
well as the other information set forth elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" for a description of other factors affecting the
business of the Company generally.
Expansion Plans
During the last three fiscal years, Hibbett opened approximately 10
new stores a year, growing from 39 stores at the beginning of fiscal 1994
to 67 stores at the end of fiscal 1996. The Company plans to open 17
Hibbett Sports stores in fiscal 1997 (four have been opened to date) and
approximately 27 Hibbett Sports stores in fiscal 1998. The Company also
intends to open one Sports & Co. superstore and one Sports Additions store
in fiscal 1997. The proposed expansion is substantially more rapid than
the Company's historical growth, and the continued growth of the Company
will depend, in large part, upon the Company's ability to open new stores
in a timely manner and to operate them profitably. However, successful
expansion is subject to various contingencies, many of which are beyond the
Company's control. These contingencies include, among others, (i) the
Company's ability to identify and secure suitable store sites on a timely
basis and on satisfactory terms and to complete any necessary construction
or refurbishment of these sites, (ii) the Company's ability to hire, train
and retain qualified managers and other personnel and (iii) the successful
integration of new stores into existing operations. No assurance can be
given that the Company will be able to complete its expansion plans
successfully; that the Company will be able to achieve results similar to
those achieved with prior locations; or that the Company will be able to
continue to manage its growth effectively. The Company's failure to
achieve its expansion plans could materially adversely affect its business,
financial condition and results of operations. In addition, operating
margins may be impacted in periods in which incremental expenses have been
incurred in advance of new store openings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview;
- -Quarterly Fluctuations."
Merchandise Trends
The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer demand in a timely
manner. Accordingly, any failure by the Company to identify and respond to
emerging trends could adversely affect consumer acceptance of the
merchandise in the Company's stores, which in turn could materially
adversely affect the Company's business, financial condition and results of
operations. In addition, if the Company miscalculates either the market
for the merchandise in its stores or its customers' purchasing habits, it
may be faced with a significant amount of unsold inventory, which could
have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, a major shift in
consumer demand away from athletic footwear and apparel could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Merchandising."
Vendor Relationships
The Company's business is dependent to a significant degree upon close
relationships with vendors and the Company's ability to purchase brand name
merchandise at competitive prices. During fiscal 1996, the Company's
largest vendor, Nike, represented approximately 35% of its purchases. The
loss of key vendor support could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company believes that it has long-standing and strong relationships
with its vendors and that it has adequate sources of brand name merchandise
on competitive terms; however, there can be no assurance that the Company
will be able to acquire such merchandise at competitive prices or on
competitive terms in the future. In this regard, certain merchandise that
is high profile and in high demand may be allocated by vendors based upon
the vendors' internal criteria which are beyond the Company's control.
See "Business--Vendor Relationships."
Competition
The business in which the Company is engaged is highly competitive and
many of the items sold by the Company are sold by local sporting goods
stores, department and discount stores, national and regional full-line
sporting goods stores, footwear and other specialty sports supply stores
and traditional shoe stores. Many of the stores with which the Company
competes are units of national chains that have substantially greater
financial and other resources than the Company. Although several of those
competitors, such as Foot Locker or Foot Action, are already present in most of
Hibbett Sports' mall locations, the Company believes that its Hibbett
Sports format is able to compete effectively by distinguishing itself as a
full-line sporting goods store emphasizing a selection of individual and
team sports merchandise complemented by a localized mix of apparel and
accessories. The Company's Sports & Co. superstores compete with sporting
goods superstores, athletic footwear superstores, small-format sporting
goods stores and mass merchandisers. Expansion by the Company into the
markets served by its competitors, entry of new competitors or expansion
of existing competitors into the Company's markets, could have a material
adverse effect on the Company's business, financial condition and results
of operations. See "Business--Competition."
Retail Industry; Seasonality and Quarterly Fluctuations
The Company's sales are subject to general economic conditions and
could be adversely affected by a weak retail environment. No assurances
can be given that purchases of sporting goods will not decline during
recessionary periods or that a prolonged recession will not have a material
adverse effect on the Company's business, financial condition and results
of operations. In addition, the Company has historically experienced and
expects to continue to experience seasonal fluctuations in its net sales,
operating income and net income. The Company's net sales, operating income
and net income are typically higher in the fourth quarter due to sales
increases during the Christmas season. An economic downturn during this
period could adversely affect the Company to a greater extent than if such
downturn occurred at other times of the year.
The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of factors, including, among other
factors, the timing of new store openings, the amount and timing of net
sales contributed by new stores, the level of pre-opening expenses
associated with new stores, the relative proportion of new stores to mature
stores, merchandise mix, the relative proportion of stores represented by
each of the Company's three store concepts and demand for apparel and
accessories driven by local interest in sporting events such as the NCAA
basketball championship. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Fluctuations."
Regional Market Concentration
Most of the Company's stores are located in the southeastern United
States. In addition, the Company's current expansion plans anticipate that
all new stores will be located in the states where the Company currently
has operations or in contiguous new states. Consequently, the Company's
results of operations are more subject to regional economic conditions,
regional weather conditions, regional demographic and population changes
and other regional factors than the operations of more geographically
diversified competitors. See "Business--Store Locations."
Dependence on Key Personnel
The Company's future success depends to a significant extent upon the
leadership and performance of Michael J. Newsome, its President, and other
executive officers. The loss of the services of certain of these
individuals could have a material adverse effect on the Company's business,
financial condition and results of operations. As the Company continues to
grow, it will continue to hire, appoint or otherwise change senior managers
and other key executives. There can be no assurance that the Company will
be able to retain its executive officers and key personnel or attract
additional qualified members to its management team in the future. The
Company does not have employment or non-competition agreements with its
executive officers other than Mr. Newsome. None of the Company's senior
management has any experience in managing a public company. See
"Management."
Control of the Company by Certain Stockholders
Upon completion of the Offering, The SK Equity Fund, L.P. and SK
Investment Fund, L.P. (collectively, the "Funds") will own approximately
% of the outstanding Common Stock, and the Anderson Shareholders (as
defined herein) will own approximately % of the outstanding Common Stock.
Pursuant to the Stockholders Agreement (as defined herein) the Funds and
the Anderson Shareholders agreed to vote for a Board of Directors composed
of the nominees of the Funds and the Anderson Shareholders. Directors are
elected by a plurality of the votes cast by the holders of shares entitled
to vote and cumulative voting is not permitted. Subject to the
Stockholders Agreement, the Funds will have power to elect the directors of
the Company and to determine the outcome of any matter submitted to a vote
of the Company's stockholders for approval which requires a majority
stockholder vote, and, acting together with the Anderson Shareholders, to
determine the outcome of any matter that requires two-thirds stockholder
vote including mergers, consolidations or the sale of all or substantially
all of the Company's assets and to prevent or cause a change in control of
the Company. See Certain Transactions--Stockholders Agreement" and
"Principal Stockholders."
Anti-Takeover Effect of Certain Provisions of the Company's
Certificate of Incorporation and Bylaws
Certain provisions of the Company's Certificate of Incorporation and
Bylaws which will be adopted in connection with the Company's
reincorporation in Delaware prior to the completion of the Offering may be
deemed to have anti-takeover effects and may discourage, delay or prevent a
takeover attempt that a stockholder might consider in its best interest.
These provisions, among other things, (i) classify the Company's Board of
Directors into three classes, each of which will serve for different three
year periods, (ii) provide that a director may be removed by stockholders
only for cause by a vote of the holders of more than two-thirds of the
shares entitled to vote, (iii) provide that all vacancies on the Company's
Board of Directors, including any vacancies resulting from an increase in
the number of directors, may be filled by a majority of the remaining
directors, even if the number is less than quorum, (iv) provide that
special meetings of the stockholders may only be called by the Chairman of
the Board of Directors, a majority of the Board of Directors or upon the
demand of the holders of a majority of the shares entitled to vote at any
such special meeting, and (v) require a vote of the holders of more than
two-thirds of the shares entitled to vote in order to amend the foregoing
and certain other provisions of the Certificate of Incorporation and
Bylaws. See "Description of Capital Stock--Charter and Bylaw Provisions."
In addition, the Board of Directors, without further action of the
stockholders, is permitted to issue and fix the terms of preferred stock
which may have rights senior to those of the Common Stock. See
"Description of Capital Stock--Preferred Stock." The Company will also be
subject to the Delaware business combination statute, which may render more
difficult a change in control of the Company. See "Description of Capital
Stock--Delaware Law."
Potential Adverse Market Price Effects of Shares Eligible for Future Sale
No prediction can be made as to the effect, if any, that future sales
of Common Stock, or the availability of shares for future sales, will have
on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. Upon completion of the Offering, the Company will have
( if the Underwriters' overallotment option is exercised
in full) shares of Common Stock outstanding. Of these shares, all of the
( if the Underwriters' overallotment option is
exercised in full) shares sold in the Offering will generally be freely
transferable by persons other than affiliates of the Company, without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"). The remaining outstanding
shares of Common Stock ("Restricted Shares") will be "restricted securities"
within the meaning of Rule 144 under the Securities Act and may not be sold
in the absence of registration under the Securities Act unless an exemption
from registration is available, including exemptions contained in Rule 144.
Without considering the contractual restrictions described below,
approximately Restricted Shares will become eligible for public
sale in accordance with the provisions of Rule 144 during the 12 months
following the consummation of the Offering. The Company, its officers and
directors, the Funds and the Anderson Shareholders have agreed that, for a
period of 180 days following the date of this Prospectus, they will not,
without the prior written consent of Smith Barney Inc., offer, sell, grant
any option to purchase or otherwise dispose of Common Stock or any
securities convertible into or exchangeable for Common Stock. See "Shares
Eligible for Future Sale" and "Underwriting."
Lack of Prior Public Market and Volatility of Stock Price
Prior to the Offering, there has not been a public market for the
Common Stock and there can be no assurance that an active trading market in
the Common Stock will develop subsequent to the Offering or, if developed,
that it will be sustained. The initial public offering price will be
determined by negotiations between the Company and the Representatives of
the Underwriters. See "Underwriting." Upon commencement of the Offering,
the Common Stock will be quoted on The Nasdaq National Market, which has
experienced and is likely to experience in the future significant price and
volume fluctuations which could adversely affect the market price of the
Common Stock without regard to the operating performance of the Company.
In addition, the Company believes that factors such as seasonal and
quarterly fluctuations in the financial results of the Company, the overall
economy and condition of the financial markets could cause the price of the
Common Stock to fluctuate substantially.
Dilution
Purchasers of Common Stock in the Offering will incur immediate and
substantial dilution in net tangible book value per share. See "Dilution."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common
Stock offered hereby (after deducting underwriting discounts and commissions
and estimated offering expenses) are expected to be approximately $ million
($ million if the Underwriters' over-allotment option is exercised in
full). The Company intends to use the net proceeds to redeem $16.0 million
in aggregate principal amount of the Subordinated Notes (as defined herein)
and accrued interest thereon, and to repay a $1.0 million Term Loan (as
defined herein) and accrued interest thereon, with the balance to be used
to reduce the outstanding balance on the Revolving Loan Agreement (as
defined herein). Amounts repaid under the Revolving Loan Agreement may be
reborrowed subject to satisfaction of borrowing base requirements. As of
June 15, 1996 the Anderson Shareholders owned $11,426,000 principal amount
of the Subordinated Notes and the Funds owned the remaining $4,574,000.
The Subordinated Notes bear interest at the rate of 12% per annum and
mature on November 1, 2002. The Term Loan bears interest at a floating
rate (7.77% at June 15, 1996), and matures in November 1997. The borrowings
under the Revolving Loan Agreement bear interest at a floating rate (7.79%
at June 15, 1996), and the Revolving Loan Agreement expires in November 2000.
DIVIDEND POLICY
The Company currently anticipates that it will retain all
available funds for use in the operation and expansion of its business and
does not anticipate paying any cash dividends in the foreseeable future. In
addition, the Revolving Loan Agreement prohibits the Company from declaring,
paying or making any dividend or distribution on its Common Stock other than
dividends or distributions payable in stock.
DILUTION
The Company's net tangible book value at May 4, 1996 was a
deficit of $(7,158,000) or $(.31) per share of Common Stock. Without taking
into account any changes in net tangible book value after May 4, 1996, other
than to give effect to the sale by the Company of shares of Common
Stock offered hereby (at an assumed public offering price of $ per
share, before deduction of underwriting discounts and commissions and
estimated offering expenses), the Company's pro forma net tangible book value
at May 4, 1996 would have been $ , or $ per share of Common Stock.
This represents an immediate increase in net tangible book value of $ per
share to existing shareholders and an immediate dilution in net tangible book
value of $ per share to new investors purchasing shares in the Offering.
The following table illustrates the per share dilution:
Public offering price............................. $_____________
Net tangible book value (deficit)
before the Offering(1)....................... $ (0.31)
----------
Increase in net tangible book value
attributable to new investors................
Dilution to new investors(2)...................... $_____________
- -----------
(1) Net tangible book value (deficit) per share is determined by dividing
the net tangible book value (deficit) of the Company (tangible assets
less liabilities) by the number of shares of Common Stock outstanding
as of May 4, 1996.
(2) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offering from the amount of cash paid by a new
investor for a share of Common Stock.
The following table sets forth as of May 4, 1996 the number of
shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid by the existing stockholders and by
new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------------- -----------------------------
Average Price
Number Percent Amount Percent Per Share
--------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... % $ % $
New investors..............
--------- ---------- ----------- ----------- -------------
Total..................... 100.0% $ 100.0% $
========= ========== =========== =========== =============
</TABLE>
The foregoing tables assume no exercise of outstanding stock options
after May 4, 1996. At May 4, 1996, 681,749 shares of Common Stock were
subject to outstanding options, at a weighted average exercise price of
$.84 per share. To the extent these options are exercised there will be
further dilution to new investors. See "Management--Stock Option Plans"
and Note 8 of Notes to Consolidated Financial Statements.
CAPITALIZATION
The following table sets forth the Company's capitalization as
of May 4, 1996 and as adjusted to give effect to the sale by the Company of
shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share (before deduction of underwriting
discounts and commissions and estimated expenses of the Offering) and
application of the proceeds therefrom as described in "Use of Proceeds."
<TABLE>
<CAPTION>
May 4, 1996
(in thousands)
-----------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Long-term debt:
Revolving Loan Agreement..................................................... $14,773 $
Term Loan.................................................................... 1,000
Subordinated Notes........................................................... 16,000
Unamortized debt discount related to Subordinated Notes ..................... (1,448)
----------- -----------
Total long-term debt........................................................ 30,325
----------- -----------
Stockholders' investment (deficit):
Common Stock, par value $.01 per share, 50,000,000 shares authorized,
23,389,000 shares issued and outstanding.................................... 234
Paid-in capital.............................................................. 14,933
Retained earnings (deficit).................................................. (22,325)
----------- -----------
Total stockholders' investment (deficit).................................... (7,158)
----------- -----------
Total capitalization........................................................ $23,167 $
=========== ===========
</TABLE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The statement of operations data and balance sheet data for
each of the five fiscal years ended January 31, 1992, January 31, 1993,
January 29, 1994, January 28, 1995, and February 3, 1996 set forth below have
been derived from audited financial statements of the Company, except for the
provision for income taxes, net income and net income per share in fiscal 1992
and 1993, which are pro forma amounts as explained in footnote 4. The data
for the thirteen week periods ended April 29, 1995 and May 4, 1996 have been
derived from unaudited financial statements of the Company. The unaudited
financial statements include all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
its financial position and results of operations for these periods. Operating
results for the thirteen week period ended May 4, 1996 are not necessarily
indicative of the results that may be expected for any future period. The
following data should be read in conjunction with the consolidated financial
statements of the Company and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Thirteen Week
Fiscal Year Ended Period Ended
------------------------------------------------------------------ ---------------------
January 31, January 31, January 29, January 28, February 3, April 29, May 4,
1992 1993 1994(1) 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- ---------- --------
(52 Weeks) (52 Weeks) (53 Weeks) (Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales...................... $32,033 $36,366 $40,119 $52,266 $67,077 $15,001 $20,251
Cost of goods sold, including
warehouse, distribution, and
store occupancy costs......... 22,132 24,998 27,731 36,225 46,642 10,431 14,035
------- ------- ------- ------- ------- -------- --------
Gross profit................... 9,901 11,368 12,388 16,041 20,435 4,570 6,216
Store operating, selling, and
administrative expenses ...... 6,859 7,446 8,352 10,197 13,326 2,681 3,344(2)
Depreciation and amortization.. 657 814 932 1,066 1,322 383 393
Management fees(3)............. 365 415 227 256 145 30 50
------- ------- ------- ------- ------- -------- --------
Operating income............... 2,020 2,693 2,877 4,522 5,642 1,476 2,429
Interest expense............... 453 325 488 654 1,685(7) 182 910(7)
------- ------- ------- ------- ------- -------- --------
Income before provision for
income taxes.................. 1,567 2,368 2,389 3,868 3,957 1,294 1,519
Provision for income taxes..... 588(4) 906(4) 920 1,479 1,514 495 584
------- ------- ------- ------- ------- -------- --------
Net income..................... $979(4) $1,462(4) $1,469 $2,389 $2,443 $799 $935
======= ======= ======= ======= ======= ======== ========
Net income per share........... $ .03(4) $ .04(4) $ .04 $ .06 $ .07(5) $ .02 $ .04(5)
======= ======= ======= ======= ======= ======== ========
Weighted average shares
outstanding.................. 38,687 38,722 39,678 39,678 35,613(7) 9,678 23,768(7)
======= ======= ======= ======= ======= ======== ========
Selected Operating Data:
Number of stores open at
end of period:
Hibbett Sports............... 34 33 41 52 56 52 58
Sports & Co.................. 0 0 0 0 3 1 3
Sports Additions............. 4 6 8 8 8 7 8
------- ------- ------- ------- ------- -------- --------
Total......................... 38 39 49 60 67 60 69
======= ======= ======= ======= ======= ======== ========
Net sales growth............... 13.7% 13.5% 10.3% 30.3% 28.3% 28.6% 35.0%
Comparable store net sales
increase (decrease)(6)........ 2.4% 10.6% (0.3%) 15.6% 6.2% 7.9% 15.7%
</TABLE>
<TABLE>
<CAPTION>
As Of
---------------------------------------------------------------------------------------
January 31, January 31, January 29, January 28, February 3,
1992 1993 1994(1) 1995 1996 May 4, 1996
----------- ----------- ----------- ----------- ------------ -----------
(52 Weeks) (52 Weeks) (53 Weeks) (Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $2,825 $2,097 $4,030 $7,459 $10,907 $14,598
Total assets 12,638 14,569 17,507 22,787 36,702 37,703
Total debt 4,661 4,810 6,179 5,328 31,912(7) 30,325(7)
Stockholders' investment (deficit) 4,666 4,402 5,871 8,259 (8,093)(7) (7,158)(7)
</TABLE>
[FN]
- -------------
(1) During fiscal year 1994, the Company changed its fiscal year from a
twelve-month period ending January 31 to a 52-53 week period ending
on the Saturday nearest to January 31.
(2) Includes a $513,000 pre-tax gain on the sale of the Company's former
headquarters and distribution facility.
(3) See "Certain Transactions--Management Services" and "--Advisory
Agreement" and Note 6 of Notes to Consolidated Financial Statements.
(4) Prior to July 1, 1992, the Company was a Subchapter S corporation.
Under these provisions, the taxable income of the Company was
included in the individual income tax returns of the stockholders.
Effective July 1, 1992, the Company and its stockholders terminated
the S corporation election and the Company became a taxable
corporation. Thus, the provisions for income taxes for the fiscal
years ended January 31, 1992 and 1993 give effect to the application
of pro forma income taxes that would have been reported had the
Company been a taxable corporation for federal and state income tax
purposes for such fiscal years.
(5) The net proceeds from the Offering will be used to retire a substantial
portion of the Company's debt. Accordingly, a presentation of
supplemental net income per share before extraordinary item is
calculated by dividing net income (after adjustment for applicable
interest expense) by the number of weighted average shares
outstanding after giving effect to the estimated number of shares
that would be required to be sold (at the initial public offering
price of $ per share) to repay $ and $ of debt
at February 3, 1996 and May 4, 1996, respectively. Supplemental net
income per share before extraordinary item for the fiscal year ended
February 3, 1996 and the thirteen week period ended May 4, 1996
was $ and $ , respectively. Supplemental net income
per share after extraordinary item (to reflect the write off of
unamortized debt discount and debt issuance costs) for the fiscal
year ended February 3, 1996 and the thirteen week period ended May 4,
1996 was $ and $ , respectively.
(6) Comparable store net sales data for a period reflect stores open
throughout that period and the corresponding period of the prior fiscal
year. For the periods indicated, comparable store net sales do not
include sales by Sports & Co. superstores or Team Sales.
(7) In November 1995, the Company completed the Recapitalization. The
Recapitalization included the repurchase and retirement of 34,220,000
shares of common stock for cash and debt and the issuance of 17,609,000
new shares of common stock and debt in exchange for cash. The
Recapitalization resulted in a substantial increase in total debt
outstanding and a deficit in stockholders' investment.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Hibbett is a leading rapidly-growing operator of full-line sporting
goods stores in small to mid-sized markets in the southeastern United
States. The Company currently operates 71 stores in nine states. Hibbett
began operations in 1945 in Florence, Alabama as Dixie Supply Company, a
retailer of athletic, marine and aviation equipment. In 1952, the Company
changed its operating strategy to focus on team sports oriented merchandise
and its name to Hibbett & Sons. In the mid 1960s, the Company refocused
its operating strategy on retailing and changed its name to Hibbett
Sporting Goods, Inc. In 1980, the Anderson family of Florence, Alabama
(the "Anderson Shareholders") purchased Hibbett and continued to expand the
Company's store base at a moderate pace, while investing in professional
management and systems. Beginning in fiscal 1994, Hibbett accelerated its
store opening rate to approximately 10 stores per year.
On November 1, 1995, The SK Equity Fund, L.P. and SK Investment Fund,
L.P. (collectively, the "Funds") acquired the majority of the outstanding
shares of Common Stock as part of a recapitalization of the Company (the
"Recapitalization"). In connection with the Recapitalization, the Company
(i) sold to the Funds approximately 75% of the Company's Common Stock, (ii)
repurchased a portion of the Common Stock held by the Anderson Shareholders
(leaving them with approximately 22% of the Company's outstanding Common
Stock), (iii) issued $16,000,000 in aggregate principal amount of its
subordinated notes ("Subordinated Notes") and (iv) issued $4,125,000 in
aggregate principal amount of its senior subordinated notes ("Senior
Subordinated Notes"). See "Certain Transactions--Transactions Related to
the Recapitalization." In connection with the Recapitalization, the Company
also refinanced its bank facilities with a $26,000,000 credit facility
provided by Heller Financial, Inc. ("Heller"), consisting of a $25,000,000
revolving loan agreement (the "Revolving Loan Agreement") and a $1,000,000
term loan (the "Term Loan"). The Senior Subordinated Notes which financed
the construction of the Company's new headquarters and distribution center
were subsequently redeemed in February 1996 from proceeds of the sale and
leaseback of this facility.
In fiscal 1997, the Company has further accelerated its rate of new
store openings to take advantage of the growth opportunities in its target
markets. The Company plans to open 17 Hibbett Sports stores in fiscal 1997
(four have been opened to date) and approximately 27 Hibbett Sports stores
in fiscal 1998. The Company also intends to open one Sports & Co.
superstore and one Sports Additions store in fiscal 1997. To support its
expansion plans, the Company has increased its staffing levels in finance,
merchandising, real estate, distribution and field management. In January
1996, the Company moved into its new headquarters and distribution center
which currently has the capacity to service in excess of 150 Hibbett Sports
stores and has significant expansion potential to support the Company's
growth for the foreseeable future. While operating margins may be impacted
in periods in which incremental expenses have been incurred to support
acceleration of the Company's expansion plans, over the long term, the
Company expects to benefit from leveraging its expenses over a larger store
base as it continues to implement its expansion plans.
The Company operates on a 52 or 53 week fiscal year ending on the
Saturday nearest to January 31 of such year. The consolidated statements
of operations for the fiscal years ended January 28, 1995 and January 29,
1994 include 52 weeks of operations while the fiscal year ended February 3,
1996 includes 53 weeks of operations.
Hibbett was incorporated under the laws of the state of Alabama and
anticipates that it will reincorporate in Delaware prior to the completion
of the Offering.
Results of Operations
The following table sets forth selected statement of operations items
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Week Period
Fiscal Year Ended Ended
------------------------------------------------ ------------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, including
warehouse, distribution and store
occupancy costs.................. 69.1 69.3 69.5 69.5 69.3
----------- ----------- ------------ ------------ -----------
Gross profit...................... 30.9 30.7 30.5 30.5 30.7
Store operating, selling, and
administrative expenses (1)...... 21.4 20.0 20.1 18.1 16.8(2)
Depreciation and amortization..... 2.3 2.0 2.0 2.6 1.9
----------- ----------- ------------ ------------ -----------
Operating income.................. 7.2 8.7 8.4 9.8 12.0(2)
Interest expense.................. 1.2 1.3 2.5 1.2 4.5
----------- ----------- ------------ ------------ -----------
Income before provision for income
taxes............................ 6.0 7.4 5.9 8.6 7.5
Provision for income taxes........ 2.3 2.8 2.3 3.3 2.9
----------- ----------- ------------ ------------ -----------
Net income........................ 3.7% 4.6% 3.6% 5.3% 4.6%
=========== =========== ============ ============ ===========
</TABLE>
[FN]
- ----------------
(1) Includes management fees. See "Certain Transactions--Management
Services" and "--Advisory Agreement" and Note 6 of Notes to
Consolidated Financial Statements.
(2) Includes a $513,000 pre-tax gain on sale of the Company's former
headquarters and distribution facility. Excluding this gain, store
operating, selling and administrative expenses represented 19.3% of
net sales and operating income would have been 9.6% of net sales for
the thirteen weeks ended May 4, 1996.
Thirteen Weeks Ended May 4, 1996 Compared to Thirteen Weeks
Ended April 29, 1995
Net sales. Net sales increased $5.3 million, or 35.0%, to
$20.3 million for the thirteen weeks ended May 4, 1996, from $15.0 million
for the comparable period in the prior year. This increase is attributable
to the opening of six Hibbett Sports stores, two Sports & Co. superstores
and one Sports Additions store and a 15.7% increase in comparable store net
sales. During the thirteen weeks ended May 4, 1996, the Company opened two
Hibbett Sports stores. The increase in comparable store net sales was due
primarily to increased footwear sales and demand for licensed apparel and
accessories related to the University of Kentucky's NCAA basketball
championship as well as improved inventory processing at the distribution
center. New stores and stores not in the comparable store net sales
calculation accounted for $3.0 million of the increase in net sales and
increases in comparable store net sales contributed $2.2 million.
Comparable store net sales data for a period reflect stores open throughout
that period and the corresponding period of the prior fiscal year. For the
periods indicated, comparable store net sales do not include sales by
Sports & Co. superstores or Team Sales.
Gross profit. Cost of goods sold includes the cost of inventory,
occupancy costs for stores and occupancy and operating costs for the
distribution center. Gross profit was $6.2 million, or 30.7% of net sales,
in the thirteen weeks ended May 4, 1996, as compared to $4.6 million, or
30.5% of net sales, in the same period of the prior fiscal year. The
increase in gross profit as a percentage of net sales resulted primarily
from improved leveraging of store occupancy costs over higher sales, offset
in part by slightly higher markdowns in the current year period and the
addition of distribution center personnel.
Store operating, selling and administrative expenses. Store
operating, selling and administrative expenses for the thirteen weeks ended
May 4, 1996 include a net gain on the disposal of assets which primarily
relates to the gain on the sale of the former headquarters and distribution
facility which was replaced by the Company's new headquarters and
distribution center. Excluding the net gain on the disposal of assets,
store operating, selling and administrative expenses were $3.9 million, or
19.3% of net sales, for the thirteen weeks ended May 4, 1996, as compared
to $2.7 million, or 18.1% of net sales, for the comparable period a year
ago. This increase as a percentage of net sales is primarily attributable
to the costs associated with increasing the Company's corporate staff to
support future growth, including the addition of a chief financial officer,
two real estate professionals, two loss prevention professionals, one
merchandise buyer one visual merchandise manager and one training manager.
Depreciation and amortization. Depreciation and amortization as a
percentage of net sales declined to 1.9% in the thirteen weeks ended May 4,
1996 from 2.6% in the prior year period. This decrease as a percentage of
net sales is primarily due to a write-off of the unamortized portion of
leasehold improvements for one of the Company's stores in the prior year
period due to the change in the terms of that lease.
Interest expense. The $728,000 increase in interest expense for the
thirteen weeks ended May 4, 1996 compared to the prior year period is due
primarily to the interest expense associated with the Subordinated Notes
which were issued in connection with the Recapitalization in November 1995
and also to an increase in borrowings under the Revolving Loan Agreement to
fund new store openings.
Net income. Net income increased $136,000, or 17.0%, to $935,000 in
the thirteen weeks ended May 4, 1996 from $799,000 in the comparable period
in the prior year. This increase as a percentage of net sales was
attributable to factors described above.
Fiscal 1996 Compared to Fiscal 1995
Net sales. Net sales increased $14.8 million, or 28.3%, to $67.1
million in fiscal 1996 from $52.3 million in fiscal 1995. This increase is
attributable to the opening of five Hibbett Sports stores, three Sports &
Co. superstores and one Sports Additions store, an increase in comparable
store net sales of 6.2% and an additional week of sales as fiscal 1996
included 53 weeks of operations, offset in part by the closing of one
Sports Additions store. The increase in comparable store net sales was due
primarily to increased sales of footwear and apparel. New stores and
stores not in the comparable store net sales calculation accounted for
$11.8 million of the increase in net sales and increases in comparable
store net sales contributed $3.0 million.
Gross profit. Gross profit was $20.4 million, or 30.5% of net sales,
in fiscal 1996 as compared to $16.0 million, or 30.7% of net sales, in
fiscal 1995. The decline in gross profit as a percentage of net sales
primarily resulted from higher distribution costs. In anticipation of its
accelerated expansion plan, the Company increased staff positions at its
distribution center, adding two senior distribution center managers.
Additionally, distribution costs were higher as a result of the higher
occupancy costs associated with the Company's new headquarters and
distribution center.
Store operating, selling and administrative expenses. Store
operating, selling and administrative expenses were $13.5 million, or 20.1%
of net sales, in fiscal 1996 as compared to $10.5 million, or 20.0% of net
sales, in fiscal 1995. This increase as a percentage of net sales is
primarily attributable to the costs associated with increasing the
Company's corporate staff to support future growth, including the addition
of one real estate professional, one loss prevention professional, one
merchandise buyer and one visual merchandise manager.
Depreciation and amortization. Depreciation and amortization as a
percentage of net sales remained constant at 2.0% in fiscal 1996 and fiscal
1995.
Interest expense. The $1.0 million increase in interest expense for
fiscal 1996 is primarily due to the interest expense associated with the
Subordinated Notes which were issued in connection with the
Recapitalization and the increase in borrowings under the Revolving Loan
Agreement and the previous loan agreement to fund new store openings.
Net income. Net income increased $54,000, or 2.3%, to $2.4 million in
fiscal 1996 compared to fiscal 1995 due to the factors discussed above.
Fiscal 1995 Compared to Fiscal 1994
Net sales. Net sales increased $12.1 million, or 30.3%, to $52.3
million in fiscal 1995 from $40.1 million in fiscal 1994. This increase is
attributable to the opening of 11 Hibbett Sports stores and an increase in
comparable store net sales of 15.6%. The increase in comparable store net
sales was due primarily to a significant increase in branded apparel sales
as well as a moderate increase in footwear sales. New stores and stores
not in the comparable store net sales calculation accounted for $7.3
million of the increase in net sales and increases in comparable store net
sales contributed $4.8 million.
Gross profit. Gross profit was $16.0 million, or 30.7% of net sales,
in fiscal 1995 as compared to $12.4 million, or 30.9% of net sales, in
fiscal 1994. The decline in gross profit as a percentage of net sales
primarily resulted from higher store occupancy costs.
Store operating, selling and administrative expenses. Store
operating, selling and administrative expenses were $10.5 million, or 20.0%
of net sales, in fiscal 1995 as compared to $8.6 million, or 21.4% of net
sales, in fiscal 1994. This decrease as a percentage of net sales was the
result of spreading fixed costs over the Company's larger sales base.
Depreciation and amortization. Depreciation and amortization as a
percentage of net sales decreased to 2.0% in fiscal 1995 from 2.3% in
fiscal 1994 as a result of the Company's operating leverage as these costs
were allocated over a larger sales base.
Interest expense. The $166,000 increase in interest expense for
fiscal 1995 was due primarily to an increase in borrowings under the
previous loan agreement to fund new store openings.
Net income. Net income increased $920,000, or 62.6%, to $2.4 million
in fiscal 1995 from $1.5 million in fiscal 1994. This increase as a
percentage of net sales was attributable to factors described above.
Quarterly Fluctuations
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its net sales and operating income.
The Company's net sales and operating income are typically higher in the
fourth quarter due to sales increases during the Christmas season.
However, the seasonal fluctuations are mitigated by the strong product
demand in the spring, summer and back-to-school sales periods. The
Company's quarterly results of operations may also fluctuate significantly
as a result of a variety of factors, including the timing of new store
openings, the amount and timing of net sales contributed by new stores, the
level of pre-opening expenses associated with new stores, the relative
proportion of new stores to mature stores, merchandise mix, the relative
proportion of stores represented by each of the Company's three store
concepts and demand for apparel and accessories driven by local interest in
sporting events such as the NCAA basketball championship.
The following tables set forth certain unaudited financial data for
the quarters indicated:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------
July 30, 1994 October 29, 1994 January 28, 1995 April 29, 1995
------------- ---------------- ---------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net sales.................................... $11,260 $12,967 $16,372 $15,001
Operating income............................. 758 1,105 1,375 1,476
Operating income as percentage of net sales.. 6.7% 8.5% 8.4% 9.8%
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------
July 29, 1995 October 28, 1995 February 3, 1996 May 4, 1996
------------- ---------------- ---------------- -----------
(Dollars in thousands) (14 weeks)
<S> <C> <C> <C> <C>
Net sales.................................... $14,355 $15,737 $21,984 $20,251
Operating income............................. 1,055 1,323 1,788(1) 2,429(2)
Operating income as percentage of net sales.. 7.3% 8.4% 8.1%(1) 12.0%(2)
</TABLE>
- --------------
(1) Includes pre-opening expenses for two Sports & Co. superstores opened in
the fourth quarter of fiscal 1996.
(2) Includes a $513,000 pre-tax gain on sale of the Company's former
headquarters and distribution facility. Excluding this gain, operating
income would have been 9.6% of net sales.
In the opinion of the Company's management, this unaudited information
has been prepared on the same basis as the audited information presented
elsewhere herein and includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set
forth therein. The operating results from any quarter are not necessarily
indicative of the results to be expected for any future period.
Liquidity and Capital Resources
The Company's capital requirements relate primarily to new store
openings and working capital requirements. The Company's working capital
needs are somewhat seasonal in nature and typically reach their peak near
the end of the third and the beginning of the fourth quarter of its fiscal
year. Historically, the Company has funded its cash requirements primarily
through cash flow from operations and borrowings under its revolving credit
facilities.
Net cash provided by (used in) operating activities has historically
been driven by net income levels combined with fluctuations in inventory
and accounts payable balances. Net income levels have increased in each of
the last three fiscal years and in the thirteen weeks ended May 4, 1996.
In addition, the Company has continued to increase inventory levels
throughout these periods as the number of stores has increased and the
larger Sports & Co. superstores have opened. These inventory increases
were primarily financed through increased accounts payable balances in
fiscal 1995 but were primarily financed with cash from operations in both
fiscal 1996 and the thirteen weeks ended May 4, 1996. These activities
resulted in cash flows provided by (used in) operating activities in each
of the last three fiscal years and in the thirteen week period ending May
4, 1996 of $269,000, $3.2 million, ($158,000), and ($2.8 million),
respectively.
With respect to cash flows from investing activities, during the first
quarter of fiscal 1997, the Company completed the sale-leaseback of its new
headquarters and distribution center and the sale of the former
headquarters and warehouse facilities for combined proceeds of $5.6 million
and used the proceeds to repay $4.3 million then outstanding under the
Senior Subordinated Notes issued to finance the new headquarters and
distribution center on a temporary basis and to fund its working capital
requirements. Capital expenditures for fiscal 1996 were $8.2 million
compared with $2.2 million in fiscal 1995 and $1.6 million in fiscal 1994.
The increase in these expenditures for fiscal 1996 was primarily the result
of the construction of the new headquarters and distribution center for
$4.7 million.
Cash flows from financing activities have historically represented the
Company's financing of its long-term growth. As previously discussed, in
fiscal 1996 the Company completed the Recapitalization. This resulted in
the refinancing of all existing debt the repurchase and retirement of
previously existing shares of Common Stock for cash and debt and the
issuance of debt and new shares of Common Stock in exchange for cash. The
net impact of these financing activities provided $7.6 million in cash in
fiscal 1996 and resulted in a substantial increase in total debt
outstanding and a deficit in stockholders' investment. See "Certain
Transactions--Transactions Related to the Recapitalization."
The Company estimates capital expenditures in fiscal 1997 to be
approximately $3.2 million, (i) approximately 70% of which will be used to
fund the opening of 17 Hibbett Sports stores, one Sports & Co. superstore
and one Sports Additions store and to remodel selected existing stores and
(ii) approximately 30% of which will be used to fund capital expenditures
related to the headquarters and distribution center. The Company estimates
capital expenditures in fiscal 1998 to be approximately $3.6 million which
includes resources budgeted to (i) fund the opening of approximately 27
Hibbett Sports stores, (ii) remodel selected existing stores and (iii)
fund headquarters and distribution center-related capital expenditures.
The Company's principal source of liquidity is its $25.0 million
Revolving Loan Agreement provided by Heller. Borrowings under the
Revolving Loan Agreement bear interest at the Company's option either at 2
1/4% plus LIBOR or 1/4% plus the higher of the prime rate and the federal
funds rate. The Revolving Loan Agreement is secured by a lien on
inventory, accounts receivable, equipment and certain other assets.
Availability of funds under the Revolving Loan Agreement is restricted to a
borrowing base consisting of designated percentages of eligible inventory
and accounts receivable. In addition, the Revolving Loan Agreement
requires the maintenance of certain specified financial ratios, restricts
levels of capital expenditures and restricts the incurrence of debt and
payments in respect of capital stock and junior indebtedness. As of May
4, 1996, the Company had $14.8 million of borrowings outstanding under the
Revolving Loan Agreement and availability to borrow up to an additional
$1.1 million. The Revolving Loan Agreement expires on November 1, 2000.
The Company also has an outstanding $1.0 million Term Loan from Heller that
matures on November 1, 1997.
The Company plans to use the proceeds of the Offering (i) to repay $16.0
million aggregate principal amount of the Subordinated Notes issued in
connection with the Recapitalization and the accrued interest thereon, (ii)
to repay $1.0 million principal amount of the Term Loan borrowed in
connection with the Recapitalization and accrued interest thereon and (iii)
to reduce the outstanding level of its borrowings under the Revolving Loan
Agreement. Based on its current operating and store opening plans, the
Company believes that it can fund its cash needs through borrowings under
the Revolving Loan Agreement and cash generated from operations. See "Use of
Proceeds."
BUSINESS
General
Hibbett is a leading rapidly-growing operator of full-line sporting
goods stores in small to mid-sized markets in the southeastern United
States. Hibbett's stores offer a broad assortment of quality athletic
footwear, apparel and equipment at competitive prices with superior
customer service. The Company's merchandise assortment features a core
selection of brand name merchandise emphasizing team and individual
sports complemented by a selection of localized apparel and accessories
designed to appeal to a wide range of customers within each market. The
Company's stores are among the primary retail distribution alternatives for
brand name vendors that seek to reach Hibbett's target markets. Hibbett
has received the Nike Retailer Excellence Award for the Southeast region
for eight consecutive years based on its performance in the full-line
sporting goods category.
The Company currently operates 60 Hibbett Sports stores as well as
eight smaller-format Sports Additions athletic shoe stores and three
larger-format Sports & Co. superstores. Hibbett's primary retail
format and growth vehicle is Hibbett Sports, a 5,000 square foot store
located predominantly in enclosed malls. Hibbett Sports is typically the
primary, full-line sporting goods retailer in its markets because of, among
other factors, its more extensive selection of traditional team and
individual sports merchandise and its superior customer service.
Industry Overview
According to the National Sporting Goods Association ("NSGA"), United
States retail sales of sporting goods (including athletic footwear, apparel
and equipment) totaled approximately $36 billion in 1995. The marketplace
for sporting goods remains highly fragmented, as many different retailers
compete for market share by utilizing a variety of store formats and
merchandising strategies. In recent years, the growth of large format
retailers such as Sports Authority has resulted in significant
consolidation in large metropolitan markets. However, the competitive
environment for sporting goods remains different in small to mid-sized
markets where retail demand does not currently support larger-format
stores. In these markets, customers generally shop for sporting goods at
either (i) a discount store or department store, (ii) a sporting goods
retailer that focuses on a specialty category, such as athletic footwear,
or an activity, such as golf or tennis, and that is either an independent
local operator or part of a national chain or (iii) a full-line sporting
goods retailer that is typically a single-store operation or part of a
small chain.
With over 30 years of operating experience in small to mid-sized
markets (population range from 30,000 to 250,000), the Company believes
that it is well-positioned to continue to compete effectively against such
other sporting goods retailers. The Company's merchandise assortment
features a core selection of brand name merchandise emphasizing team and
individual sports complemented by a selection of localized apparel and
accessories designed to appeal to a wide range of customers within each
market. Compared to Hibbett, (i) discounters and department stores
typically offer more limited sporting goods assortments, fewer high-quality
name brands and more limited customer service; (ii) specialty sporting
goods retailers typically focus on a specific category, such as athletic
footwear, or an activity, such as golf or tennis, and therefore lack the
wide range of products offered by Hibbett; and (iii) full-line sporting
goods retailers, although offering a broad assortment of merchandise, are
typically single store operations that lack the systems, vendor
relationships and economies of scale of Hibbett.
Business Strategy
Unique Emphasis on Small Markets. The Company targets markets ranging
in population from 30,000 to 250,000. Management believes that Hibbett is
currently targeting markets of this size in the Southeast more aggressively
than any of its competitors. By targeting smaller markets, the Company
believes that it is able to achieve significant strategic advantages,
including numerous expansion opportunities, comparatively low operating
costs and a more limited competitive environment than generally faced in
larger markets. In addition, the Company establishes greater customer and
vendor recognition as the leading full-line sporting goods retailer in the
local community.
Strong Regional Focus. With over 30 years of experience as a full-
line sporting goods retailer in the Southeast, Hibbett benefits from strong
name recognition, a loyal customer base and operating and cost
efficiencies. Although the core merchandise assortment tends to be similar
for each Hibbett Sports store, important local and regional differences
frequently exist. Management believes that its ability to merchandise to
local sporting or community interests differentiates Hibbett from its
national competitors. The Company's regional focus also enables it to
achieve significant cost benefits including lower corporate expenses,
reduced distribution costs and increased economies of scale from its
marketing activities.
Low Cost Culture. In addition to the cost benefits of the
Company's small market emphasis and regional focus, over its long operating
history Hibbett has maintained a low cost corporate culture.
Management exercises tight control over store level operating expenses,
real estate costs and corporate overhead. The Company's management
information systems enable senior management to make timely and informed
merchandise decisions, maintain tight inventory control and monitor store-
level financial performance in a timely manner.
Emphasis on Training and Customer Satisfaction. Management
seeks to exceed customer expectations in order to build loyalty and
generate repeat business. The Company hires enthusiastic sales personnel
with an interest in sports and provides them with extensive training to
create a sales staff with strong product knowledge dedicated to outstanding
customer service. Hibbett's training programs focus on both selling skills
and continuing product/technical training and are conducted through
in-store clinics, video presentations and interactive group discussions.
Investment in Management and Infrastructure. The Company's
experienced management team and information and distribution systems are
expected to facilitate the Company's future growth for the foreseeable
future. The Company's new headquarters and distribution center is
currently capable of servicing in excess of 150 Hibbett Sports stores and
has significant expansion potential to support the Company's growth.
Through its comprehensive information systems, the Company monitors all
aspects of store operations on a daily basis and is able to control
inventory levels and operating costs.
Store Locations
As of June 15, 1996, the Company operated 71 stores in nine
states, including 60 Hibbett Sports stores, eight Sports Additions stores
and three Sports & Co. superstores. Sixty-one of the stores are located in
malls, and ten, including the three Sports & Co. superstores, are in strip
center locations. Over 80% of the Company's stores are in markets with a
population of less than 250,000.
A map showing the states in which the Company operated
stores as of June 15, 1996 is set forth below:
[MAP to come]
Expansion Strategy
The Company believes its business and expansion strategies
have contributed to its increasing net sales and operating profits. Over
the past five fiscal years, net sales have increased at a 20.3% compound
annual growth rate to $67.1 million in fiscal 1996 and operating income has
increased at a 29.3% compound annual growth rate to $5.6 million in fiscal
1996. Over this period, the Company's net sales growth has been driven by
new store openings and increases in comparable store net sales. The
Company increased its store base from 38 stores at the end of fiscal 1992
to 67 stores at the end of fiscal 1996.
The Company is accelerating its rate of new store openings to take
advantage of the growth opportunities in its target markets. The Company
has identified over 500 potential markets for future Hibbett Sports stores
within the states in which it operates and in contiguous states.
Hibbett's clustered expansion program, which calls for opening new stores
within a two-hour driving radius of another Company location, allows it to
take advantage of efficiences in distribution, marketing and regional
management. In evaluating potential markets, the Company considers
population, economic conditions, local competitive dynamics and
availability of suitable real estate. Although approximately 90% of
Hibbett Sports stores are located in enclosed malls, the stores also
operate profitably in strip center locations. As the Company continues to
expand, it will open new stores in mall and strip center locations.
Management anticipates that Hibbett Sports will remain the Company's
primary growth vehicle as it continues to expand. The Company plans to
open 17 Hibbett Sports stores in fiscal 1997 and approximately 27 Hibbett
Sports stores in fiscal 1998. Of the 17 Hibbett Sports stores scheduled to
open this fiscal year, the Company has opened four to date, has signed
leases for eight additional ones and is currently negotiating leases for
the remaining five. In fiscal 1997, the Company plans to open one Sports &
Co. superstore in Monroe, Louisiana (a lease with respect to which has been
signed) and one Sports Additions store (the lease for which is currently
being negotiated). In the future, the Company anticipates that it will
selectively open Sports Additions stores and Sports & Co. superstores as
opportunities arise. See "Risk Factors--Expansion Plans."
Store Concepts
Hibbett Sports
The Company's primary retail format is Hibbett Sports, a
5,000 square foot store located predominantly in enclosed malls. The
Company tailors its Hibbett Sports concept to the size, demographics and
competitive conditions of the small to mid-sized markets. Fifty-three
Hibbett Sports stores are located in enclosed malls, the majority of which
are the only enclosed malls in the county, and the remaining seven are
located in strip centers. The Company uses exciting design and in-store
atmosphere, eye-catching in-store signage and gift-with-purchase
promotional programs to channel mall traffic into the stores.
Hibbett Sports stores offer a core selection of quality,
brand name merchandise with an emphasis on team and individual sports.
This merchandise mix is complemented by a selection of localized apparel
and accessories designed to appeal to a wide range of customers
within each market. For example, the Company believes that apparel with
logos of sports teams of local interest represents a larger percentage of
the merchandise mix in Hibbett Sports stores than it does in the stores of
national chain competitors. In addition, the Company strives to quickly
respond to major sports events of local interest such as the recent
University of Kentucky national championship in men's basketball. For
example, Hibbett Sports stores in the state of Kentucky had a selection of
national championship apparel and accessories prominently displayed in the
front of each store the morning following the game and promoted this
merchandise with local radio advertising.
Sports & Co.
The Company opened the first Sports & Co. superstore in the spring of
1995 in Huntsville, Alabama. Sports & Co. superstores average 25,000
square feet and offer a larger assortment of athletic footwear, apparel and
equipment than Hibbett Sports stores. Athletic equipment and apparel
represent a higher percentage of the overall merchandise mix at Sports &
Co. superstores than they do at Hibbett Sports stores. Sports & Co.
superstores are designed to project the same exciting and entertaining in-
store atmosphere as Hibbett Sports stores but on a larger scale. For
example, Sports & Co. superstores offer customer participation areas, such
as putting greens and basketball hoop shoots, and feature periodic special
events including appearances by well-known athletes.
Sports Additions
Sports Additions stores are small, mall-based stores, averaging 1,500
square feet with approximately 90% of merchandise consisting of athletic
footwear and the remainder consisting of caps and a limited assortment of
apparel. Sports Additions stores offer a broader assortment of athletic
footwear, with a greater emphasis on fashion than the athletic footwear
assortment offered by Hibbett Sports stores. All Sports Additions stores
are currently located in the malls in which Hibbett Sports stores are also
present.
Merchandising
Merchandising Strategy. The Company's merchandising
strategy is to provide a broad assortment of quality athletic footwear,
apparel and equipment at competitive prices. The Company's stores offer a
core selection of brand name merchandise with an emphasis on team and
individual sports. This merchandise mix is complemented by a selection of
localized apparel and accessories designed to appeal to a wide range
of customers within each market. The Company's leading product category is
athletic footwear, followed by apparel and sporting equipment, ranked
according to sales. No single product category accounts for more than 50%
of sales. The Company's pricing strategy is to offer competitive prices to
its customers. The Company's management information systems track
different retail prices for the same item at different stores, enabling
more competitive pricing by location. In addition, information from the
Company's point-of-sale computer system is regularly reviewed and analyzed
by the purchasing staff to assist it in making merchandise allocation and
markdown decisions.
Brand Name Merchandise. The Company emphasizes quality brand
name merchandise. Many of the national brands offered at the Company's
stores are not carried by local competitors. Many of these branded
products are highly technical and require considerable sales assistance.
The Company works with its vendors to educate the sales staff at the store
level on new products and trends.
The following list represents the top 25 brand names (based on
sales) offered by the Company:
Adidas K-Swiss Rollerblade
Asics Louisville Slugger Russell
Champion Mizuno Spalding
Columbia New Balance Starter
Converse New Era The Game
Dodger Nike Umbro
Easton Pro Line Wilson
Everlast Rawlings
Fila Reebok
Regional Merchandise. Although the core merchandise assortment tends
to be similar for each Hibbett Sports store, important local or regional
differences frequently exist. Accordingly, the Company's stores regularly
offer products that reflect preferences for particular sporting activities
in each community and local interest in college and professional sports
teams. The Company's knowledge of these interests, combined with its
access to leading vendors, enables Hibbett Sports stores to react quickly
to emerging trends or special events, such as college or professional
championships.
Purchasing. The Company's merchandise staff, consisting of the Vice
President of Merchandising and nine merchandise buyers, analyze current
sporting goods trends by maintaining close relationships with the Company's
vendors, monitoring sales at competing stores, communicating with
customers, store managers and personnel and reviewing industry trade
publications. The merchandise staff works closely with store personnel to
meet the requirements of individual stores for appropriate merchandise in
sufficient quantities.
Vendor Relationships
The sporting goods retail business is very brand name driven.
Accordingly, the Company maintains relationships with a number of well-
known sporting goods vendors to satisfy customer demand. The Company's
stores are among the primary retail distribution alternatives for brand
name vendors that seek to reach Hibbett's target markets. As a result, the
Company is able to attract considerable vendor interest and establish long-
term partnerships with vendors. As its vendors expand their product lines
and grow in popularity, the Company expands its sales and promotions of
these products within its stores. In addition, as the Company continues to
increase its store base and enter new markets, the vendors have increased
their brand presence within these regions. The Company also places
significant emphasis on and works with its vendors to establish the most
favorable pricing and to receive cooperative marketing funds.
Management believes the Company maintains excellent working
relationships with vendors. During fiscal 1996, the Company's largest
vendor, Nike, represented approximately 35% of its total purchases. Hibbett
has received the Nike Retailer Excellence Award for the Southeast region
for eight consecutive years based on its performance in the full-line
sporting goods category.
Advertising and Promotion
The Company targets special advertising opportunities in its markets
to increase the effectiveness of its advertising spending. In particular,
the Company prefers advertising in local media as a way to further
differentiate itself from national chain competitors. Substantially all of
the Company's advertising and promotional spending is centrally directed,
with some funds allocated to district managers on an as-requested basis.
Advertising in the sports pages of local newspapers serves as the
foundation of the Company's promotional program, and in fiscal 1996 it
accounted for the majority of total advertising spending. Other media such
as local radio, television and outdoor billboards are used by the Company
to reinforce Hibbett name recognition and brand awareness in the community.
In addition, direct mail to customers on an in-house mailing list has been
used by the Company to reinforce already established buying patterns and to
increase customer loyalty.
The cooperative promotional program with its vendors plays an integral
part in the Company's advertising strategy by funding a significant portion
of its advertising budget and increasing Hibbett's name recognition. The
Company holds an annual marketing meeting at which it presents to its major
vendors a number of advertising alternatives. At that meeting, vendors
select their preferred advertising and promotional programs which often
cover a number of different media and are based on multiple themes, and
during the ensuing twelve-month period the Company develops and implements
the selected programs in close cooperation with those vendors. For
example, the Company has recently developed a joint television commercial
with Nike and has begun placing vendor sponsored advertising signage on its
delivery trucks.
Customer Satisfaction
Customer Service. Commitment to customer satisfaction and service is
an integral part of Hibbett's operating strategy. Management seeks to
exceed customer expectations in order to build loyalty and generate repeat
business. The Company hires enthusiastic sales personnel with an interest
in sports and provides them with extensive training to create a sales staff
with strong product knowledge, dedicated to customer service. The Company
also offers services such as special order programs, monogramming, sewing
and screening services and large order processing for local groups in an
effort to further maximize customer satisfaction.
Training. The Company provides continuing sales and technical/
product training for its sales personnel. A key part of the training
process is its testing program. All store personnel are required to take a
written test and perform role playing exercises before moving on to a
higher sales position and ultimately advancing within the organization.
The Company utilizes a number of training tools to develop competent
salespeople and future managers, including: (i) a two-part salesperson
training program designed to teach new hires and seasoned employees how to
be effective salespeople; (ii) a continuing product/ technical training
program taught through in-store clinics, instructional manuals or video
presentations designed to educate the sales personnel on technical facets
and the use of a particular product; and (iii) store training meetings
designed to educate all salespeople at the store level as a group on a
particular topic.
Store Operations
Effective interaction between the corporate office and the
stores is a key element of Hibbett's operating strategy. Close
communications are maintained among senior management, district managers,
store managers and sales personnel. Senior management is easily accessible
to store managers and staff. In addition, the close proximity of the
stores encourages regular visits by the district managers to address store
issues and concerns, to provide encouragement and to discuss national,
regional and local trends in the sporting goods sector. Senior management
conducts monthly meetings at the Company's corporate headquarters with all
of the district managers. The outcome of these meetings is communicated to
the store base by the district managers on a regular basis as well as in
similar all-day sessions with the store managers. These meetings
facilitate constant two-way communication between headquarters and the
store base.
The Company's management structure consists of one district
manager for approximately every ten stores and at the store level, on
average, one store manager, two assistant store managers and five or six
sales personnel including trainees. Additional trainees and part-time
personnel are typically hired to assist the store personnel with increased
traffic and sales volume in the fourth quarter. Store managers are
responsible for the operations of individual stores including recruiting
and hiring store personnel. The Company strongly favors internal
development of its store managers and constantly looks for motivated and
talented people to promote from within.
Distribution
The Company maintains a single 130,000 square foot distribution center
in Birmingham, Alabama for all 71 of its existing stores and manages the
distribution process centrally from its corporate headquarters which are
located in the same building as the distribution center. In January 1996
the Company moved its operations to this newly constructed distribution
center which is capable of servicing in excess of 150 Hibbett Sports stores
and has significant expansion potential to support the Company's growth for
the foreseeable future. The Company believes strong distribution support
for its stores is a critical element of its expansion strategy and is
central to its ability to maintain a low cost operating structure. As the
Company continues its expansion, it intends to open new stores in locations
that can be supplied from the Company's distribution center.
The Company receives substantially all of its merchandise at
its distribution center. Upon receipt, the merchandise is inspected,
entered into the Company's computer system, allocated to stores, ticketed
(to the extent that it was not pre-ticketed by the vendor) and boxed for
distribution to the Company's stores. For more efficient processing, the
Company also operates a "cross-dock" system for merchandise that has been
pre-split by store and pre-ticketed by the vendor before arriving at the
distribution center. The Company continually strives to improve its
allocation methods to manage its inventory more efficiently. For key
products, the Company maintains backstock at the distribution center that
is allocated and distributed to stores through an automatic replenishment
program based on items sold during the prior week. Merchandise is
typically delivered to stores weekly via Company-operated vehicles.
Management Information Systems
The Company utilizes integrated information systems
centralized at the corporate level. The Company's systems are designed to
track product movement throughout the store base. Detailed sales
transaction records are accumulated on each store's POS system and polled
nightly by the Company's main system which runs on an IBM AS/400 system.
This information is communicated to the merchandise buyers, who use the
Company's inventory control system to order merchandise as needed. The
Company recently upgraded its systems to manage a store base in excess of
150 stores.
Inventory. The Company's inventory control systems, written by Island
Pacific Software, report purchasing, receiving, shipping, sales and
individual SKU level inventory stocking information. Information from the
Company's point-of-sale computer system is regularly reviewed and analyzed
by the purchasing staff to assist in making merchandise allocation and
markdown decisions. The Company uses an automatic reorder system to
maintain in-stock positions on key items. This system provides management
with the information needed to determine the proper timing and quantity of
reorders. Through the Island Pacific Software package, the Company is able
to accommodate different retail prices for the same item at different
stores and as a result to price merchandise competitively by market.
EDI and Quick-Ship. Current electronic data interchange capabilities
include the transmission of purchase orders directly to some of the
Company's vendors. The Company has recently implemented EDI on its IBM
AS/400 system. This allows for the scheduling of EDI transmissions and
receiving as well as the required processes before and after
communications. Management believes the Company's EDI effort with vendors
will continue to grow in the future as retailers and suppliers focus on
further increasing operating efficiencies.
Financial Reporting. The financial reporting systems provide the
Company with detailed financial reporting to support management's
operational decisions and cost control efforts. All accounting, accounts
payable, accounts receivable, payroll and human resources software is
written and maintained by Lawson Software, Inc. and resides on the
Company's IBM AS/400 system. This system provides functions such as
scheduling of payments, receiving of payments, general ledger interface,
vendor tracking, and flexible reporting options.
Team Sales
Hibbett Team Sales, Inc. ("Team Sales"), a wholly-owned subsidiary of
the Company, is a leading supplier of customized athletic apparel,
equipment and footwear to school, athletic and youth programs in Alabama.
Team Sales sells its merchandise directly to educational institutions and
youth associations. The operations of Team Sales are independent of the
operations of the Company's stores, and its warehousing and distribution
are managed separately out of its own warehouse. The Company believes that
Team Sales' operations generate goodwill in the community and introduce
young sports enthusiasts to Hibbett as a supplier of sporting goods.
Although Team Sales represents a small percentage of the Company's sales
and profits, management believes that through the operation of Team Sales
the Company is able to enhance many of its vendor relationships.
Properties
The Company currently leases all of its existing 71 store locations
and expects that its policy of leasing rather than owning will continue as
it expands. The Company's leases typically provide for a short initial
lease term with options on the part of the Company to extend. Management
believes that this lease strategy enhances the Company's flexibility to
pursue various expansion opportunities resulting from changing market
conditions and to periodically re-evaluate store locations. The Company's
ability to open new stores is contingent upon locating satisfactory sites,
negotiating favorable leases and recruiting and training additional
qualified management personnel.
As current leases expire, the Company believes that it will be able
either to obtain lease renewals if desired for present store locations or
to obtain leases for equivalent or better locations in the same general
area. To date, the Company has not experienced difficulty in either
renewing leases for existing locations or securing leases for suitable
locations for new stores. A majority of the Company's store leases contain
provisions that would permit the landlord to terminate the lease or to
increase rent upon a change in control of the Company. The
Recapitalization constituted a change in control that triggered these
rights for a majority of the Company's landlords as of November 1, 1995,
the date of the consummation of the Recapitalization. Many of such leases
also require the Company to give notice of any change in control. No
notice was given to landlords prior to the Recapitalization. As of June
15, 1996, the Company has not received any notice regarding any landlord's
intention to either terminate a lease or to increase rent as a result of
the Recapitalization. In addition, many of the Company's leases contain
certain provisions with which the Company may not be in compliance. Based
primarily on the Company's belief that it maintains good relations with its
landlords, that most of its leases are at market rents and that it has
historically been able to secure leases for suitable locations, management
believes that these provisions will not have a material adverse effect on
the business or financial condition of the Company.
The Company moved its operations to the newly-built
corporate offices and distribution center in Birmingham, Alabama in January
1996. The offices and the distribution center are leased by the Company
under a long term operating lease. Team Sales owns its warehousing and
distribution center located in Birmingham, Alabama.
Competition
The business in which the Company is engaged is highly competitive and
many of the items sold by the Company are sold by local sporting goods
stores, department and discount stores, athletic footwear and other
specialty athletic stores, traditional shoe stores and national and
regional full-line sporting goods stores. Many of the stores with which
the Company competes are units of national chains that have substantially
greater financial and other resources than the Company. Although several
of those competitors, such as Foot Locker or Foot Action, are already
present in most of Hibbett Sports' mall locations, the Company believes
that its Hibbett Sports format is able to compete effectively by
distinguishing itself as a full-line sporting goods store with an emphasis
on team and individual sports merchandise complemented by a selection of
localized apparel and accessories. The Company's Sports & Co. superstores
compete with sporting goods superstores, athletic footwear superstores and
mass merchandisers. Expansion by the Company into markets served by its
competitors, entry of new competitors or expansion of existing competitors
into the Company's markets, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Employees
The Company employed approximately 460 full-time and approximately 500
part-time employees at May 4, 1996, none of whom are represented by a labor
union. The number of part-time employees fluctuates depending on seasonal
needs. There can be no assurance that the Company's employees will not, in
the future, elect to be represented by a union. The Company considers its
relationship with its employees to be good and has not experienced
significant interruptions of operations due to labor disagreements.
Legal Proceedings
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, after consultation with legal
counsel, the ultimate liability, if any, with respect to those proceedings
is not presently expected to materially affect the business, financial
position or results of operations of the Company.
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and their ages as
of May 4, 1996 are as follows:
Name Age Position
- ----------------------- --- -----------------------------------
Michael J. Newsome 57 President; Chief Operating Officer;
Director
Susan H. Fitzgibbon 32 Chief Financial Officer
Joy A. McCord 41 Vice President of Merchandising
Cathy E. Pryor 33 Vice President of Store Operations
John F. Megrue 37 Chairman of the Board; Director
Clyde B. Anderson 35 Director
Barry H. Feinberg 51 Director
F. Barron Fletcher, III 29 Director
Thomas A. Saunders, III 59 Director
Michael J. Newsome has been the President and the Chief Operating
Officer of the Company since 1981. Since joining the Company as an outside
salesman over 30 years ago, Mr. Newsome has held numerous positions at
Hibbett, including as retail clerk, outside salesman to schools, store
manager, district manager, division manager and president. Prior to
joining the Company, Mr. Newsome worked in the sporting goods retail
business for six years.
Susan H. Fitzgibbon has been the Chief Financial Officer of the
Company since April 1996. Prior to joining the Company, she held various
financial positions at Bruno's Inc., a supermarket store operator, from
December 1992 through April 1996, serving most recently as Controller.
Prior to Bruno's Inc., Ms. Fitzgibbon spent six years at Arthur Andersen
LLP during which she worked extensively with retailing clients.
Joy A. McCord has been the Vice President of Merchandising at the
Company since 1995. Ms. McCord is responsible for buying, advertising and
inventory control. Ms. McCord has been with the Company for nine years.
During that time, she has held positions as sporting goods buyer for four
years and general merchandise manager for five years. Prior to joining the
Company, she worked as a department manager at Loveman's department stores
for two years and merchandise buyer at Parisian department stores for eight
years. Ms. McCord has over 19 years of experience in the retailing
industry.
Cathy E. Pryor has been the Vice President of Store Operations at the
Company since 1995. Her responsibilities include overseeing all of the
stores, directing district managers, organizing training and overseeing
management information systems. Ms. Pryor has been with the Company for
eight years. During that time, she has held positions as a district
manager and Director of Store Operations. Prior to joining the Company,
she worked at Champs as a district manager. Ms. Pryor has over eleven
years of experience in the sporting goods retail business.
John F. Megrue has been a Director and Chairman of the Board of the
Company since 1995. Mr. Megrue has been a partner of SK Partners, L.P.,
which serves as the general partner of Saunders Karp & Co., a private
equity investment firm, and each of the Funds, since 1992. From 1989 to
1992, Mr. Megrue served as a Vice President and Principal at Patricof &
Co., a private equity investment firm, and prior thereto he served as a
Vice President at C.M. Diker Associates, a private equity investment firm.
Mr. Megrue is also a Vice Chairman and director of Dollar Tree Stores,
Inc.
Clyde B. Anderson has been a Director of the Company since
1987. Mr. Anderson has served as the Chief Executive Officer of Books-A-
Million, Inc., a book retailer, since July 1992 and as director and
President of Books-A-Million, Inc. since November 1987. From November 1987
to March 1994, Mr. Anderson also served as the Chief Operating Officer of
Books-A-Million, Inc.
Barry H. Feinberg has been a Director of the Company since 1996. Mr.
Feinberg has been an advisor to Saunders Karp & Co. since 1994. He is a
founding partner of Kaiser, Feinberg & Associates, a marketing consulting
firm, specializing in multi-market retail organizations. From 1974 until
1991, he was with Silo, Inc., a national consumer electronics retailer,
where he served as President and CEO from 1978 to 1991. Mr. Feinberg
currently teaches courses in retailing and retail marketing at the Wharton
School at the University of Pennsylvania. He also serves as a director of
Deb Shops, Inc.
F. Barron Fletcher, III has been a Director of the Company
since 1995. Mr. Fletcher joined Saunders Karp & Co. as an associate in
1992 and is currently a principal with Saunders Karp & Co. Prior to
joining Saunders Karp & Co., from 1991 through 1992, Mr. Fletcher was a
financial analyst with Wasserstein Perella & Co. where he served in the
merchant banking department and also in mergers and acquisitions. Prior to
that, Mr. Fletcher was a financial analyst with Trammell Crow Ventures
which specialized in leveraged acquisitions and divestitures in the real
estate industry.
Thomas A. Saunders, III, has been a Director of the Company since
1995. Mr. Saunders has been a partner of SK Partners, L.P., which serves
as the general partner of Saunders Karp & Co. and each of the Funds, since
1990. Before founding Saunders Karp & Co., Mr. Saunders served as a
Managing Director of Morgan Stanley & Co. Incorporated from 1974 to 1989
and as Chairman of The Morgan Stanley Leveraged Equity Fund II, L.P., from
1987 to 1989. Mr. Saunders is a member of the Board of Visitors of the
Virginia Military Institute and is the Chairman of the Board of Trustees of
the University of Virginia's Darden Graduate School of Business
Administration. Mr. Saunders is also a Trustee of the Cold Spring Harbor
Laboratory and a director of Dollar Tree Stores, Inc.
Prior to the closing of the Offering, the Company's Certificate of
Incorporation will provide that the number of directors constituting the
Board of Directors shall be such number, not more than nine or less than
three, as is established from time to time by resolution of the Board of
Directors pursuant to the Bylaws. The Board of Directors currently
consists of six directors who, prior to the closing of the Offering, will
be divided into three classes of two directors, designated Class I, Class
II and Class III. The initial Class I directors will serve until the
annual shareholder meeting in 1997, the initial Class II directors will
serve until the annual shareholder meeting in 1998 and the initial Class
III directors will serve until the annual shareholder meeting in 1999.
All of the current members of the Board of Directors were
elected pursuant to the Stockholders Agreement. See "Certain
Transactions--Stockholders Agreement."
It will be necessary for the Company to have two independent directors
within 90 days after the date of this Prospectus in order to maintain its
Nasdaq National Market listing. Failure to have such directors within such
period could result in a delisting of the Common Stock from The Nasdaq
National Market.
The Company's Board of Directors intends to establish an audit
committee (the "Audit Committee") and a compensation committee (the
"Compensation Committee"). The Audit Committee will recommend the annual
engagement of the Company's auditors, with whom the Audit Committee will
review the scope of audit and non-audit assignments, related fees, the
accounting principles used by the Company in financial reporting and the
adequacy of the Company's internal control procedures. The Compensation
Committee will determine officers' salaries and bonuses, and will
administer the Company's stock plans. The two new independent directors
will be appointed to the Audit and Compensation Committees at the time they
are elected to the Board of Directors of the Company. Further, the
approval of disinterested directors will be required for any material
agreements or arrangements between the Company and directors, officers,
existing principal shareholders and their affiliates.
Director Compensation
Pursuant to the Stockholders Agreement, each member of the Company's
Board of Directors who is not an employee of the Company has been entitled
to an annual fee of $20,000, which fee may be waived by that director.
Each of John F. Megrue, Barry H. Feinberg, F. Barron Fletcher, III and
Thomas A. Saunders, III has waived his director fees. Following the
completion of the Offering, pursuant to the Bylaws, each director who is
not an employee will be entitled to an annual fee of $ , which fee
may be waived by that director. Messrs. Megrue, Feinberg, Fletcher and
Saunders intend to waive their fees.
Executive Compensation
The following table sets forth the compensation earned by the
President and each other executive officer whose compensation for services
rendered in fiscal 1996 exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
- -----------------------------------------------------------------------------
Annual Compensation
----------------------------------------------
Other
Name and Principal Position Year(1) Salary Bonus Compensation
- -------------------------- ------ ------ ----- ------------
<S> <C> <C> <C> <C>
Michael J. Newsome
President, Chief
Operating Officer and
Director................. 1996 $112,692 $96,705 --
Cathy E. Pryor
Vice President of
Store Operations......... 1996 $ 75,654 $31,894 --
Long-Term Compensation
-----------------------------------
Awards Payouts
------------------------- --------
Securities
Restricted Underlying All Other
Stock Options LTIP Compensa-
Awards /SARs (2) Payouts tion (3)
---------- ------------ ------- ---------
<C> <C> <C> <C>
Michael J. Newsome
President, Chief
Operating Officer and
Director................. -- 250,000 -- $6,750
Cathy E. Pryor
Vice President of
Store Operations......... -- 77,374 -- $4,291
<FN>
______________
(1) Hibbett's fiscal year ends on the Saturday nearest to January 31 of
each year.
(2) Consists of stock options granted pursuant to the Hibbett Sporting
Goods, Inc. Stock Option Plan.
(3) Consists of contributions by the Company under the Hibbett Sporting
Goods, Inc. 401(k) Profit Sharing Plan.
</TABLE>
Stock Option Plans
The Company's shareholders approved and adopted the Hibbett Sporting
Goods, Inc. Stock Option Plan (the "Original Plan") as of August 25, 1995,
in order to provide selected officers and employees of the Company who are
responsible for the conduct and management of its business with equity-
based incentives in connection with the performance of their duties and
responsibilities with the Company. Under the Original Plan, 404,749 shares
of Common Stock were reserved for issuance. Options on all of these shares
have been granted and the Company's Board of Directors has discontinued
future grants of stock options under the Original Plan. As of April 1,
1996, the Company's shareholders approved and adopted the Hibbett Sporting
Goods, Inc. 1996 Stock Option Plan (as amended from time to time, the "1996
Plan") under which future grants of stock options under the Company's stock
option program will be made. Under the 1996 Plan, 995,251 shares of
Common Stock have been reserved for issuance.
The Original Plan and the 1996 Plan (collectively, the
"Plans") provide for the grant of stock options, which may be non-qualified
stock options or incentive stock options for tax purposes. The Plans are
administered by the Company's Board of Directors or a committee appointed
by the Board. It is anticipated that following the completion of the
Company's initial public offering, the Plans will be administered by a
Compensation Committee consisting of members of the Company's Board of
Directors who are "disinterested persons" within the meaning set forth in
Rule 16b-3(d)(3) promulgated under the Securities Exchange Act of 1934, as
amended. Under the Plans, all full-time employees selected by the
Compensation Committee will be eligible to receive options.
The Board of Directors or a committee thereof, as the case may be, is
authorized to determine the terms and conditions of all option grants,
subject to the limitations that the option price per share under the Plans
may not be less than the fair market value of a share of Common Stock on
the date of grant and the term of an option may not be longer than ten
years. Payment of the option price may be made in the discretion of the
Compensation Committee in cash or common stock or a combination thereof.
Options granted under the Plans are not transferable except by will or the
laws of descent and distribution, and are exercisable during the optionee's
life only by the optionee. In addition, under the 1996 Plan, an optionee's
outstanding vested options and shares acquired pursuant to the exercise of
such optionee's options may be repurchased by the Company in the event of the
termination of such optionee's employment with the Company. Following
completion of the Company's initial public offering, unless otherwise
determined by the Compensation Committee, such purchase price shall be, in
the case of the shares, the closing price of the Common Stock as reported
in the Wall Street Journal, and in the case of the vested options, such
closing price less the exercise price. In the case of the 1996 Plan, the
transfer of shares acquired pursuant to the exercise of an option shall be
subject to the right of first refusal by the Company, and the Compensation
Committee may impose other restrictions on shares acquired pursuant to the
exercise of an option. Under the Original Plan, in the event of the
termination of an optionee's employment with the Company, the Company shall
repurchase all outstanding options held by such optionee, and under the
1996 Plan, in the event of the termination of an optionee's employment with
the Company, the Company may repurchase all, but not less than all,
outstanding options and stock acquired pursuant to options granted under
the 1996 Plan.
In the event of a merger of the Company (or similar corporate
transaction) or the sale of all or substantially all of the assets of the
Company, if the options granted under the Plans are not assumed or
substituted by the acquiror, such options may, in the discretion of the
Compensation Committee, be canceled in exchange for delivery by the Company
of shares of Common Stock having a value with respect to each option equal
to the product of (1) the excess of the fair market value of a share of
Common Stock over the exercise price of the option and (2) the number of
shares with respect to which the option is then exercisable. Any options
the exercise price of which exceeds the fair market value of a share of
Common Stock shall be canceled without payment of any consideration. In
the event of a change in control (defined as the acquisition of (i) the
power to direct the management of the Company or (ii) 50% of the voting
shares of Common Stock) or a tender offer for shares of Common Stock (other
than a self-tender), the Compensation Committee may take any action it
deems appropriate with respect to outstanding options.
The Plans may be amended or terminated by the Compensation Committee
from time to time to the extent deemed appropriate; provided however that
no amendment shall be made (i) which would impair the rights of an optionee
without such optionee's consent or (ii) which would increase the number of
shares reserved for issuance under the Plans or change the class of
employee eligible to participate in the Plans.
Options to purchase a total of 404,749 shares of Common Stock have
been granted under the Original Plan to six employees of the Company,
including a grant to Mr. Newsome of an option to purchase 250,000 shares
of Common Stock and a grant to Ms. Pryor of an option to purchase 77,374
shares of Common Stock. Ms. Pryor's options granted under the Original
Plan vest over a three year period in equal installments beginning on the
first anniversary of the grant date. Mr. Newsome's options vest over five
years in equal installments beginning on the first anniversary of the grant
date. On April 1, 1996 options to purchase a total of 277,000 shares of
Common Stock were granted under the 1996 Plan to 36 employees, including a
grant to Ms. Pryor of an option to purchase 65,000 shares of Common Stock.
Options granted under the 1996 Plan vest over a five year period, in equal
installments, beginning on the first anniversary of the grant date.
Stock Plan for Outside Directors
It is anticipated that, prior to the consummation of the Offering, the
Company's Board of Directors will adopt, and the Company's shareholders
will approve, effective on the consummation of the Offering, the Outside
Director Stock Plan. The Outside Director Stock Plan provides for awards
of nonqualified options to directors of the Company who are not employees
of the Company, Saunders Karp & Co. or any affiliate of either of them
("Eligible Directors"). The purpose of the Outside Director Stock Plan is
to promote the interests of the Company and its shareholders by increasing
the proprietary interest of Eligible Directors in the growth and
performance of the Company.
Pursuant to the Outside Director Stock Plan, on the effective date
(the "Effective Date") of the Offering each Eligible Director will be
granted an option to purchase shares of Common Stock and each Eligible
Director elected following the Effective Date will be granted an option to
purchase shares of Common Stock upon his initial election to the Board.
At each annual meeting of shareholders, each Eligible Director shall be
granted an additional option for shares of Common Stock; provided that any
person elected as an Eligible Director between annual meetings will be
granted an option for a prorated portion of shares at the first annual
meeting of shareholders following such election. Each option will: (i)
vest in annual 25% increments commencing on the first anniversary of the
grant date; and (ii) expire on the earlier of the tenth anniversary of the
grant date and one year from the date on which an optionee ceases to be an
Eligible Director. The exercise price per share of Common Stock will be
100% of the fair market value per share on the grant date. In addition,
the Outside Director Stock Plan will provide that each Eligible Director
may receive a portion of such Eligible Director's annual retainer in
unrestricted shares of Common Stock.
The maximum number of shares of Common Stock in respect of which
options may be granted and shares awarded in lieu of a portion of the
annual retainer under the Outside Director Stock Plan is .
Shares of Common Stock subject to options that are forfeited, terminated or
canceled will again be available for awards. The shares of Common Stock to
be delivered under the Outside Director Stock Plan will be made available
from the authorized but unissued shares of Common Stock or from treasury
shares. The number and class of shares available under the Outside
Director Plan and/or subject to outstanding options may be adjusted by the
Board of Directors to prevent dilution or enlargement of rights in the
event of various changes in the capitalization of the Company.
The Outside Director Stock Plan will be administered by the Board of
Directors. Subject to the provisions of the Outside Director Stock Plan,
the Board shall be authorized to interpret the Outside Director Stock Plan,
to establish, amend, and rescind any rules and regulations relating to it
and to make all other determinations necessary or advisable for its
administration; provided, however, that the Board will have no discretion
with respect to the selection of directors to receive options, the number
of shares of Common Stock subject to any such options, the purchase price
thereunder or the timing or term of grants of options. The determinations
of the Board in the administration of the Outside Director Stock Plan, as
described herein, will be final and conclusive. The validity,
construction and effect of the Outside Director Stock Plan and any rules
and regulations relating to it will be determined in accordance with the
laws of the State of Delaware.
The options granted under the Outside Director Stock Plan may not be
assigned or transferred, except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order. Shares
issued under the Outside Director Stock Plan in respect of the annual
retainer may be assigned or transferred.
No option may be granted under the Outside Director Stock Plan after
the tenth annual meeting of the Company's shareholders following the
consummation of the Offering.
The Outside Director Stock Plan may be amended by the Company's Board
of Directors, as it shall deem advisable or to conform to any change in any
law or regulation applicable thereto; provided that the Company's Board of
Directors may not, except in the limited circumstances described above,
without the authorization and approval of shareholders: (i) increase the
number of shares of Common Stock which may be purchased pursuant to
options, either individually or in the aggregate; (ii) change the
requirement that option grants be priced at fair market value; or (iii)
modify in any respect the class of individuals who constitute Eligible
Directors. The provisions governing eligibility, the grant, terms and
conditions of the options and the award of shares of Common Stock in
respect of the annual retainer and, for purposes of the Outside Director
Stock Plan, the amount of the annual retainer, may not be amended more
often than once every six months, other than to comport with changes in the
Code, the Employment Retirement Income Security Act of
1974, as amended ("ERISA") or the rules under either such statute.
Employee Stock Purchase Plan
It is anticipated that, effective on the consummation of the Offering,
the Company will have in place the Hibbett Sporting Goods, Inc. Employee
Stock Purchase Plan (the "Employee Stock Purchase Plan"). Under the
Employee Stock Purchase Plan, a maximum of shares of Common
Stock may be purchased from the Company by the employees through payroll
withholding pursuant to a series of offerings. The Employee Stock Purchase
Plan is established pursuant to the provisions of Section 423 of the Code.
All full-time employees who have completed one year of service, except for
employees who own Common Stock of the Company or options on such stock
which represent more than 5% of the Common Stock of the Company are
eligible to participate. The Employee Stock Purchase Plan will be
administered by a committee of the Board of Directors (the "Committee").
The Committee shall have discretion to administer, interpret and construe
any and all provisions of the Employee Stock Purchase Plan. The
Committee's determinations will be conclusive. In the event of certain
corporate transactions or events affecting the Common Stock or structure of
the Company, the Committee may make certain adjustments set forth in the
Employee Stock Purchase Plan. The Board may amend, alter or terminate the
Plan at any time; provided that shareholder approval must generally be
obtained for any change that would require shareholder approval under Rule
16b-3 of the Exchange Act or any other regulatory or tax requirement that
the Board deems desirable to comply with or obtain relief under and subject
to the requirement that no rights under an outstanding option may be
impaired by such action without the consent of the holder thereof. The
purchase price of the Common Stock will be % of the fair market value of
the Common Stock on the date of the offering commencement or termination,
whichever is lower. The Shares of Common Stock which may be purchased
pursuant to the Employee Stock Purchase Plan will be made available from
authorized but unissued shares of Common Stock or from treasury shares. No
employee will be granted any right to purchase Common Stock with a value in
excess of $25,000 per year.
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning
grants of stock options made to the executive officers named in the Summary
Compensation Table during the fiscal year ended February 3, 1996.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Rates of Stock Price
Appreciation
Individual Grants for Option Term
-------------------------------------------------------------- -------------------------
% of
Number of Total
Securities Options/
Underlying SARs Exercise
Options/ Granted to or Base
SARs Employees Price Expiration
Name Granted in Fiscal Year ($/Sh) Date 5% (3) 10% (3)
---- --------- -------------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Newsome... 250,000(1) 61.77% 1.00 11/01/05 $157,224 $398,436
Cathy E. Pryor....... 77,374(2) 19.12% 0.31 8/25/01 $ 8,156 $ 18,507
<FN>
______________
(1) These options have a term of ten years and vest over a five year
period, in equal installments beginning on the first anniversary of
the grant date. These options were granted as of November 1, 1995 under
the Original Plan pursuant to the terms of the Employment Agreement.
See "--Employment Agreement."
(2) These options have a term of six years and vest over a three year
period, in equal installments beginning on the first anniversary of the
grant date.
(3) The dollar amounts shown are based on certain assumed rates of
appreciation and the assumption that the options will not be exercised
until the end of the expiration periods applicable to the options.
Actual realizable values, if any, on stock option exercises and common
stock holdings are dependent on the future performance of the Common
Stock and overall stock market conditions. There can be no assurance
that the amounts reflected will be achieved.
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
No options were exercised by the executive officers named in the
Summary Compensation Table during fiscal 1996. No stock appreciation
rights were exercised by such executive officers or were outstanding at the
end of the year. The following table sets forth certain information
concerning unexercised options and fiscal year-end option values for the
named executive officers.
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal Year-End at Fiscal Year-
(#) End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable (1)
---- ------------------ -----------------
Michael J. Newsome...... 0/250,000 0/[ ]
Cathy E. Pryor.......... 0/77,374 0/[ ]
______________
(1) Based on the fair market value of the Company's Common Stock at the end
of fiscal 1996 ($ per share), as determined by the Company's Board
of Directors less the exercise price payable for such shares.
Employment Agreement
Michael J. Newsome, President and Chief Operating Officer of the
Company, has entered into an employment agreement with the Company and a
letter agreement with the Board of Directors of the Company (collectively,
the "Employment Agreement") which took effect on November 1, 1995. The
Employment Agreement has an initial term that expires on November 1, 1998
and provides for annual base salary and annual incentive bonuses and the
grant of the options set forth above. If the Company terminates Mr.
Newsome's employment without cause, as defined in the Employment Agreement
(other than by reason of death or disability), or Mr. Newsome terminates
his employment for good reason, as defined in the Employment Agreement the
Employment Agreement provides that Mr. Newsome will continue to receive
his base salary and certain benefits for what would have been the remainder
of the employment term determined without regard to such termination.
Notwithstanding the foregoing, such payments will cease if Mr. Newsome
breaches the noncompetition clause, described below. If the Company
terminates Mr. Newsome's employment without cause or Mr. Newsome
terminates his employment with good reason, the Company will have the right
to purchase and Mr. Newsome will have the right to sell the shares of
Common Stock held by him on October 31, 1995 at a price equal to the fair
market value, as determined by the Compensation Committee of the Board of
Directors. If the Company terminates Mr. Newsome's employment for cause
or Mr. Newsome terminates his employment for any reason other than good
reason, the Employment Agreement provides that the Company will have a
right to repurchase such shares at book value, as defined in the Employment
Agreement. The Employment Agreement includes a noncompetition clause
requiring Mr. Newsome not to compete with the Company following a
termination of his employment for a period which may be as long as the
longer of (i) two years after ceasing to be employed and (ii) what would
have been the remaining term of employment without regard to such
termination of employment.
Compensation Committee Interlocks and Insider Participation
The Board of Directors does not currently have a compensation
committee, but anticipates establishing one within 90 days of the closing of
the Offering. The functions of the compensation committee other than
administration of the Plans, as discussed above, are currently performed by
the Board of Directors of the Company. Mr. Newsome, the President of the
Company, serves on the Board of Directors and on the committee established to
administer the Plans prior to establishment of the compensation committee.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning
the beneficial ownership of the Common Stock as of May 4, 1996 and as
adjusted to reflect the sale of shares of Common Stock offered hereby by
(i) each person (or group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to own beneficially
more than five percent of the Company's Common Stock, (ii) each of the
executive officers named in the Summary Compensation Table, (iii) each
director and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------------- -------------------------------
Common Stock Common Stock
Name and address of Beneficial Owner(1) beneficially owned Percent beneficially owned Percent
- ----------------------------------------- ------------------ ------- ------------------ -------
<S> <C> <C> <C> <C>
The SK Equity Fund, L.P.(2)
SK Investment Fund, L.P.(2)
Allan Karp(2)
John F. Megrue(2)
Thomas A. Saunders, III(2)
Two Greenwich Plaza
Suite 100
Greenwich, CT 06830...................... 17,609,000 75%
Clyde B. Anderson
402 Industrial Lane
Birmingham, AL 35211..................... 1,576,049 7%
Michael J. Newsome(3)
451 Industrial Lane
Birmingham, AL 35211..................... 750,000 3%
All Directors and Executive Officers
as a group(4).............................. 19,935,049 85%
<FN>
______________
(1) As used in this table "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the
disposition of any security. A person is deemed as of any date to
have "beneficial ownership" of any security that such person has a
right to acquire within 60 days and such security is deemed to be
outstanding for purposes of calculating the ownership percentage of
such person, but is not deemed to be outstanding for purposes of
calculating the ownership percentage of any other person.
(2) Includes 17,418,455 shares owned by The SK Equity Fund, L.P. and
190,545 shares owned by SK Investment Fund, L.P. SK Partners, L.P.
is the general partner of each of The SK Equity Fund, L.P. and SK
Investment Fund, L.P. Messrs. Karp, Megrue and Saunders are general
partners of SK Partners, L.P., and, therefore, may be deemed to have
beneficial ownership of the shares shown as being owned by the Funds
above. Messrs. Karp, Megrue and Saunders disclaim benefical
ownership of such shares, except to the extent that any of them has
a limited partnership interest in SK Investment Fund, L.P.
(3) All of the shares owned by Mr. Newsome are subject to call by the
Company at "book value" or "fair market value" if Mr. Newsome's
employment is terminated under certain circumstances set forth in the
Employment Agreement. See "Management--Employment Agreement."
(4) Includes shares held by the Funds as a result of affiliations described
in note (2) above.
</TABLE>
Prior to the consummation of the Offering, the Anderson Shareholders
collectively own approximately 22% of the Company's Common Stock, including
the Common Stock shown as being owned by Clyde B. Anderson in the table
above. After the consummation of the Offering, the Anderson Shareholders
will collectively own approximately % of the Company's Common Stock. The
Anderson Shareholders have agreed that, for a period of 180 days from the
date of this Prospectus, they will not, without the prior written consent
of Smith Barney Inc. offer, sell, grant any option to purchase or otherwise
dispose of the Company's Common Stock or any securities convertible into or
exchangeable for such Common Stock.
CERTAIN TRANSACTIONS
Transactions Related to the Recapitalization
Prior to November 1, 1995, all of the issued and outstanding common
stock of the Company was owned by Charles C. Anderson, Sr., Joel R.
Anderson, Charles C. Anderson, Jr., Terry C. Anderson, Clyde B.
Anderson, Harold M. Anderson, certain Anderson family trusts and certain
other persons (the "Anderson Shareholders") and by Michael J. Newsome.
Pursuant to the terms of a stock purchase and redemption agreement dated
November 1, 1995 (the "Stock Purchase Agreement"), The SK Equity Fund, L.P.
(the "Equity Fund") and SK Investment Fund, L.P. (the "Investment Fund"
and, together with the "Equity Fund", the "Funds") agreed to acquire from
the Company for $24,250,000 in cash, and the Company agreed to issue and
sell (i) to the Funds: (x) 17,609,000 shares of Common Stock and (y)
$4,574,000 aggregate principal amount of its 12% Subordinated Notes due
November 1, 2002 (the "Subordinated Notes"), and (ii) to the Equity Fund
$2,500,000 in the aggregate principal amount of its 12% Senior Subordinated
Note due November 2, 2000 (the "Senior Subordinated Notes") (collectively,
the "Acquisition"). In addition, pursuant to the terms of the Stock
Purchase Agreement, the Company agreed, upon the consummation of the
Acquisition, to redeem from the Anderson Shareholders 34,220,000 shares of
Common Stock (the "Redemption") in exchange for: (i) $22,500,000 in cash,
(ii) $1,625,000 aggregate principal amount of the Senior Subordinated Notes
and (iii) $11,426,000 aggregate principal amount of the Subordinated Notes.
Thus, upon the consummation of the Acquisition and the Redemption, the
Funds and the Anderson Shareholders owned 17,609,000 and 5,030,000 shares
of Common Stock, respectively, or approximately 75.3% and 21.5% of the
outstanding Common Stock, respectively. The remaining 750,000 shares of
Common Stock were held by Mr. Newsome. In February, 1996 the Company
repaid in full all the amounts outstanding under the Senior Subordinated
Notes.
The Subordinated Notes were issued by the Company at a discount,
with a yield to maturity compounded annually of 14.92%. Pursuant to the
terms of the Subordinated Notes, payment of interest accrued thereon during
the first year of the term thereof is deferred until November 1, 1996. The
Company is permitted to redeem the Subordinated Notes at their face value
plus the interest accrued thereon until the day of redemption out of the
proceeds from a public offering of its stock. The Subordinated Notes bear
interest at the rate of 12% per annum and mature on November 1, 2002. The
Company intends to redeem the Subordinated Notes out of the proceeds of the
Offering.
Prior to November 1, 1995, in consideration for his assistance
in arranging the Recapitalization, the Company issued to Clyde B. Anderson
322,419 shares of Common Stock.
Stockholders Agreement
In connection with the Acquisition and the Redemption, the Company,
the Anderson Shareholders, Mr. Newsome and the Funds entered into a
stockholders agreement dated as of November 1, 1995 (the "Stockholders
Agreement"). Except for provisions relating to indemnification and
contribution, the Stockholders Agreement will terminate when the number of
shares of Common Stock held by the Anderson Shareholders falls below
1,974,500. In addition, the Funds, the Anderson Shareholders and Mr.
Newsome agreed to amend certain provisions of the Stockholders Agreement.
The Stockholders Agreement currently specifies the number of members
of the Board of Directors of the Company as well as the right of the Funds
to nominate the majority of such members and the right of the Anderson
Shareholders to nominate one such member. Such directors can currently
only be removed for cause or if persons entitled to designate such
directors consents to removal in writing.
Actions of the Board currently require either (i) the affirmative vote
of a majority of the directors at a duly convened meeting of the Board at
which a quorum consisting of three directors, of whom at least two must be
designees of the Funds, is present or (ii) the unanimous written consent of
the Board. Certain actions including an amendment to the Company's
Articles of Incorporation or Bylaws, a sudden and material change in the
Company's line of business, certain related party transactions and a change
in the Company's auditors prior to the completion of the fiscal 1997 audit,
currently require the affirmative vote of the Board, with the director
designated by the Anderson Shareholders voting in the affirmative.
Subject to certain exceptions, including the public offering of Common
Stock, the Stockholders Agreement currently provides preemptive rights to
each of the Funds, the Anderson Shareholders and Mr. Newsome to purchase
their respective pro rata portions of any newly issued stock of the Company
or any newly issued securities convertible, exchangeable or exercisable
into the Company's stock.
The Stockholders Agreement grants the Anderson Shareholders and Mr.
Newsome "tag along" rights to participate in a private sale of shares of
Common Stock by the Funds to a third party. In addition, the Stockholders
Agreement grants the Funds certain "drag along rights" to compel the
Anderson Shareholders and Mr. Newsome to participate in a private sale of
all the shares of Common Stock owned by the Funds to a third party.
The Stockholders Agreement also grants to the Funds unlimited
demand registration rights and to the Anderson Shareholders, holding the
majority of the total number of shares of Common Stock held by the Anderson
Shareholders, one demand registration right that becomes exercisable 270
days after the closing of the Offering. The Company, notwithstanding these
demand registration rights, shall not be obligated to effect more than one
demand registration in any six-month period. The Stockholders Agreement
also grants the Funds, the Anderson Shareholders and Mr. Newsome "piggy
back" registration rights, subject to certain limitations, if the Company
proposes to register its Common Stock.
The Company is obligated to pay all reasonable fees, costs and
expenses in connection with any demand or "piggy back" registration other
than underwriting discounts or commissions. The Stockholders Agreement
contains customary indemnity provisions between the Company and the selling
shareholders for losses arising out of any demand or "piggy back"
registration.
Advisory Agreements
Prior to June 1, 1995, the Company contracted with ANCO Management
Services, Inc. ("ANCO"), an affiliated entity of the Anderson
Shareholders, to obtain certain financial advisory services. From June to
November 1, 1995, following the liquidation of ANCO, the Company contracted
for substantially similar services with Anderson & Anderson, LLC, another
affiliated entity of the Anderson Shareholders. Fees for those services
amounted to $227,000, $256,000 and $95,000 in fiscal 1994, 1995 and 1996,
respectively. On November 1, 1995, the Company entered into an advisory
agreement with Saunders Karp & Co., L.P. (the "Saunders Karp"), a limited
partnership the general partner of which is SK Partners L.P., which is also
the general partner of each of the Funds. Pursuant to the advisory
agreement, Saunders Karp has agreed to provide certain financial
services to the Company. In consideration for these services, Saunders
Karp is entitled to receive an annual fee of $200,000, payable quarterly in
advance. The Company expensed Saunders Karp $50,000 in fiscal 1996 and
$50,000 during the thirteen week period ending on May 4, 1996 pursuant to
that agreement. The Company also has agreed to indemnify Saunders Karp for
certain losses arising out of the provision of advisory services and to
reimburse certain of Saunders Karp's out-of-pocket expenses. In addition,
on November 1, 1995, the Company paid Saunders Karp a one-time fee of
$500,000 primarily for its assistance in the arrangement, placement and
negotiation of the Term Loan and the Revolving Loan Agreement.
Non-Competition Agreement
Messrs. Charles C. Anderson, Joel R. Anderson and Clyde B.
Anderson, as former controlling shareholders of the Company, have entered
into a non-competition agreement with the Company and the Funds in
connection with the Acquisition and Redemption. Under the agreement,
Messrs. Andersons agreed not to be engaged in the retail sales of athletic
equipment, apparel, footwear or other sporting goods in any and all states of
Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North
Carolina, South Carolina, Illinois, Tennessee and any other state
immediately adjacent to any of the foregoing states at any time prior to
November 1, 2000.
Certain Transactions with Anderson Entities
In November 1994, Hibbett paid $118,788 to reimburse Books-A-Million,
Inc. ("Books-A-Million"), a book retailer in the southeastern United
States controlled by the Anderson Shareholders, for payments made under
a tax sharing arrangement.
In fiscal 1994, the Company paid $66,227 in respect of certain
vehicle purchases to Anderson Ford, a car dealership affiliated with the
Anderson Shareholders.
During fiscal 1995, the Company borrowed funds from ANCO, an
affiliated entity of the Anderson Shareholders, to fund certain working
capital needs. The average amount outstanding under these loans during
fiscal 1995 was $120,000, the maximum amount outstanding was $810,000 and
the weighted average interest rate was 7.45%. The loans were repaid in
full during fiscal 1995.
In February 1996 the Company sold its leasehold interest in its former
headquarters and distribution facility to Anderson & Anderson, LLC, an
entity affiliated with certain Anderson Shareholders, for $850,000.
Hibbett has recently entered into a sublease agreement ("Sublease
Agreement") with Books-A-Million, an entity affiliated with Clyde B.
Anderson, a director and one of the principal stockholders of the Company,
pursuant to which Hibbett will sublease certain real estate from
Books-A-Million in Florence, Alabama for one of its stores. The term of the
Sublease Agreement expires in June 2008. Under the Sublease Agreement,
Hibbett will make annual lease payments to Books-A-Million of approximately
$190,000.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices.
Upon completion of the Offering, the Company will have
approximately shares of Common Stock outstanding (assuming no exercise
of the Underwriters' over-allotment option and no exercise of outstanding
options after May 4, 1996). Of these shares, the shares sold in the
Offering will be freely tradeable without registration under the Securities
Act of 1933, as amended (the "Act"), except to the extent the shares are held
by affiliates of the Company. On the date of this Prospectus, approximately
"restricted shares" as defined in Rule 144 will be outstanding. Of such
shares, and without consideration of the contractual restrictions described
below, approximately shares would be available for immediate sale in
the public market without restriction pursuant to Rule 144(k). Beginning 90
days after the date of this Prospectus, and without consideration of the
contractual restrictions described below, approximately shares would be
eligible for sale in reliance upon Rule 144 promulgated under the Act and
approximately shares would be eligible for sale in reliance upon Rule
701 promulgated under the Act. The holders of the remaining approximately
restricted shares will not be able to sell such shares pursuant to Rule
144 until a two year period has elapsed since the shares were acquired from
the Company or an affiliate of the Company, which two year periods will end
between and . Furthermore, holders of an aggregate of 23,389,000
shares are entitled to piggyback registration rights, of which 22,639,000
shares are also entitled to demand registration rights. To date,
none of these holders has indicated an intention to exercise such demand
registration rights. See "Certain Transactions--Stockholders Agreement."
The Funds, the Anderson Shareholders, officers and directors
who own shares of the Company's stock have agreed not to offer, sell, contract
to sell or grant any option to purchase or otherwise dispose of Common Stock
of the Company or any securities convertible into, or exchangeable for, shares
of Common Stock, subject to certain exceptions, owned by them without the
prior written consent of Smith Barney Inc. for a period of 180 days after the
date of this Prospectus. As a result of these contractual restrictions and
the provisions of Rules 144(k), 144 and 701, additional shares will be
available for sale in the public market as follows: (i) approximately
shares will be eligible for immediate sale on the date of this Prospectus,
(ii) approximately shares will be eligible for sale beginning 90 days
after the date of this Prospectus, (iii) approximately shares will be
eligible for sale beginning 180 days after the date of this Prospectus.
Additional shares may be available if options are exercised between May 4,
1996 and 180 days after the date of this Prospectus, or upon the vesting of
shares pursuant to stock repurchase agreements between the Company and certain
of its employees.
In general, under Rule 144 as currently in effect, beginning 90
days after the Offering, a person (or persons whose shares are aggregated) may
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Company's Common Stock
(approximately shares immediately after the Offering) or the average
weekly trading volume of the Company's Common Stock during the four-calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission; provided that at least two years have
elapsed since the shares to be sold were last acquired from the Company or an
affiliate of the Company. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, may sell shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements; provided that at least three
years have elapsed since the shares to be sold were last acquired from the
Company or an affiliate of the Company.
Subject to certain limitations on the aggregate offering price
of a transaction and other conditions, Rule 701 may be relied upon with
respect to the resale of securities originally purchased from the Company
by its employees, directors, officers, consultants or advisers between May
20, 1988, the effective date of Rule 701, and the date the issuer becomes
subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such
persons. In addition, the Securities and Exchange Commission has indicated
that Rule 701 will apply to typical incentive stock options granted by an
issuer before it becomes subject to the reporting requirements of the
Exchange Act (including options granted before May 20, 1988, if made in
accordance with the Rule had it been in effect), along with the shares
acquired upon exercise of such options after May 20, 1988 (including
exercises after the date of this Prospectus). Securities issued in
reliance on Rule 701 are restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its two-year holding period
requirements.
The Company has also agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or any
rights to acquire Common Stock for a period of 180 days after the date of
this Prospectus, without the prior written consent of Smith Barney Inc.,
subject to certain limited exceptions.
Following the Offering, the Company intends to file registration
statements under the Act covering approximately 1,000,000 shares of Common
Stock issued or reserved for issuance under the Plans. Accordingly, shares
registered under such registration statements will, subject to Rule 144
volume limitations applicable to affiliates and the lapsing of the
Company's repurchase options, be available for sale in the open market,
unless such shares are subject to vesting restrictions with the Company or
the contractual restrictions described above.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock,
and shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), after giving effect to the reincorporation of the Company in
Delaware prior to the completion of the Offering. The following summaries
of certain provisions of the Common Stock and Preferred Stock do not
purport to be complete and are subject to, and qualified in their entirety
by, the provisions of the Company's Certificate of Incorporation, which is
included as an exhibit to the Registration Statement of which this
Prospectus forms a part, and by applicable law.
Common Stock
As of May 4, 1996 there were 23,389,000 shares of Common Stock
outstanding which were held of record by 23 stockholders. There will be
shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options)
after giving effect to the sale of the shares of Common Stock offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and do not have cumulative
voting rights. Subject to preferences as may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to
time by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding.
Except as provided in the Stockholders Agreement, the holders of Common
Stock will have no preemptive or conversion rights or other subscription
rights. See "Certain Transactions--Stockholders Agreement." There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and
the shares of Common Stock to be issued upon completion of this offering
will be fully paid and non-assessable.
Preferred Stock
The Board of Directors is empowered by the Company's Certificate of
Incorporation to designate and issue from time to time one or more classes
or series of Preferred Stock without stockholder approval. The Board of
Directors may affix and determine the relative rights, preferences and
privileges of each class or series of Preferred Stock so issued. Because
the Board of Directors has the power to establish the preferences and
rights of each class or series of Preferred Stock, it may afford the
holders of any series or class of Preferred Stock preferences, powers and
rights, with respect to voting, liquidation or otherwise, senior to the
rights of the holders of Common Stock. The issuance of Preferred Stock
could have the effect of, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change
in control of the Company. There are no shares of Preferred Stock
currently outstanding, and the Board of Directors has no present plans to
issue any shares of Preferred Stock.
Charter and Bylaw Provisions
Stockholders' rights and related matters are governed by the Delaware
General Corporation Law, the Company's Certificate of Incorporation and its
Bylaws. Certain provisions of the Certificate of Incorporation and Bylaws
of the Company, which are summarized below, tend to limit stockholders'
ability to influence matters of corporate governance. This may make it
more difficult to change the composition of the Company's Board of
Directors and may discourage or make more difficult any attempt by a
persons or group to obtain control of the Company.
Size of Board, Classified Board, Removal of Directors and Filling
Vacancies. The Company's Certificate of Incorporation provides that
subject to the right to elect additional directors that may be granted to
holders of any class or series of Preferred Stock, the number of directors
shall be fixed from time to time as provided in the Bylaws, but may not
consist of more than nine or less than three persons. The Certificate of
Incorporation further provides that the directors other than those who may
be elected by the holders of any class or series of Preferred Stock shall
be classified, with respect to the time for which they severally hold
office, into three classes, designated Class I, Class II and Class III, as
nearly equal in number as possible, and that one class shall be elected
each year and serve for a three-year term. The Bylaws provide that the
majority of the votes cast in the election of directors shall elect those
directors. Accordingly, the holders of a majority of the then outstanding
shares of voting stock can elect all the directors of the class then being
elected. The Certificate of Incorporation also provides that a director
may be removed by stockholders only for cause by a vote of the holders of
more than two-thirds of the shares entitled to vote generally in the
election of directors. The Certificate of Incorporation also provides that
all vacancies on the Company's Board of Directors, including any vacancies
resulting from an increase in the number of directors, may be filled by a
majority of the remaining directors, even if the number is less than a
quorum.
The foregoing provisions may have the effect of making it more
difficult for stockholders to change the composition of the Board. As a
result, at least two annual meetings of stockholders may be required for
the stockholders to change a majority of the directors, whether or not the
majority of the Company's stockholders believes that such a change would be
desirable.
Super Majority Voting Requirements. The affirmative vote of the
holders of more than two-thirds of the shares entitled to vote generally in
the election of directors is required to amend, alter, change or repeal any
of the foregoing provisions. In addition, under the Company's Certificate
of Incorporation, the Company's Bylaws may not be amended by the
stockholders without the affirmative vote of holders of more than two-
thirds of the shares entitled to vote generally in the election of
directors. This restriction makes it more difficult for the stockholders
of the Company to amend the Bylaws and thus enhances the power of the
Company's Board of Directors vis-a-vis stockholders with regard to the
matters of corporate governance addressed by the Bylaws.
Limitations on Calling Special Shareholder Meetings. Under the
Company's Bylaws, special meetings of the stockholders may only be called
by the Chairman of the Board, a majority of the Board of Directors or upon
the demand of the holders of a majority of the shares entitled to vote at
any such special meeting. This provision makes it more difficult for
stockholders to require the Company to call a special meeting of
stockholders to consider any proposed corporate action, including any sale
of the Company, which may be favored by the stockholders.
Delaware Law
The Company will be a Delaware corporation and will be subject to
Section 203 of the Delaware General Corporation Laws, an anti-takeover law.
In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless (with certain exceptions) the "business combination" or
the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination"
includes a merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years prior to the determination of interested stockholder
status, did own) 15% or more of a corporation's voting stock, other than
"interested stockholders" prior to the time the Common Stock of the Company
is quoted on the NASDAQ National Market. The existence of this provision
would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the Board of Directors, including
discouraging takeover attempts that might result in a premium over the
market price for the shares of Common Stock held by stockholders.
Limitation of Directors' Liability
Section 145 of the Delaware General Corporation Act permits the
Company to indemnify officers, directors or employees against expenses
(including attorney's fees), judgments, fines and amounts paid in
settlement in connection with legal proceedings "if [as to any officer,
director or employee] he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to the best interests of the corporation,
and, with respect to any criminal act or proceeding, had no reasonable
cause to believe his conduct was unlawful", provided that with respect to
actions by, or in the right of the corporation against, such individuals,
indemnification is not permitted as to any matter as to which such person
"shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless, and only to the extent
that, the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper."
Individuals who are successful in the defense of such action are entitled
to indemnification against expenses reasonably incurred in connection
therewith.
The By-Laws of the Company will require the Company to
indemnify directors and officers against liabilities which they may incur
under the circumstances set forth in the preceding paragraph.
The Company is in the process of obtaining standard policies
of insurance under which coverage will be provided (a) to its directors and
officers against loss arising from claims made by reason of breach of duty
or other wrongful act, and (b) to the Company with respect to payments
which may be made by the Company to such officers and directors pursuant
to the above indemnification provision or otherwise as a matter of law.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is .
UNDERWRITING
Upon the terms and subject to the conditions stated in the
Underwriting Agreement dated the date hereof, each of the Underwriters named
below has severally agreed to purchase, and the Company has agreed to sell to
such Underwriters, the respective number of shares of Common Stock set forth
opposite the name of such Underwriter.
Number of
Name Shares
---- ---------
Smith Barney Inc...................................
Montgomery Securities..............................
The Robinson-Humphrey Company, Inc.................
-----------
Total.................................. ===========
The Underwriting Agreement provides that the obligations of the
several Underwriters to pay for and accept delivery of the shares offered
hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take
and pay for all shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares
are taken.
The Underwriters, for whom Smith Barney Inc., Montgomery
Securities and The Robinson-Humphrey Company, Inc. are acting as the
Representatives, propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of the shares of Common Stock to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. The Representatives of the Underwriters have
advised the Company that the Underwriters do not intend to confirm any
sales to any accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to additional
shares of Common Stock at the price to public set forth on the cover page
of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter
will be obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number of shares set
forth opposite each Underwriter's name in the preceding table bears to the
total number of shares listed in such table.
The Company, its officers and directors and certain of its
shareholders have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, pledge, contract to sell, or otherwise dispose of any
Common Stock (or any security convertible into or exchangeable or exercisable
for Common Stock) or other securities of the Company that are substantially
similar to Common Stock or grant any options or warrants to purchase Common
Stock or similar securities, subject to certain limited exceptions.
Prior to the Offering, there has not been any public market for Common
Stock of the Company. Consequently, the initial public offering price for
the shares of Common Stock included in the Offering has been determined by
negotiations between the Company and the Representatives. Among the
factors considered in determining such price were the history of and
prospects for the Company's business and the industry in which it competes,
an assessment of the Company's management and the present state of the
Company's development, the past and present revenues and earnings of the
Company, the prospects for growth of the Company's revenues and earnings,
the current state of the economy in the United States and the current level
of economic activity in the industry in which the Company competes and in
related or comparable industries, and currently prevailing conditions in
the securities markets, including current market valuations of publicly
traded companies which are comparable to the Company.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Davis Polk & Wardwell, New York, New York.
Certain legal matters relating to the Offering will be passed upon for the
Underwriters by Latham & Watkins, New York, New York. From time to time
Davis Polk & Wardwell and Latham & Watkins render certain legal services
to the Funds, and Latham & Watkins also renders certain legal services
to certain of the Anderson Shareholders.
EXPERTS
The audited consolidated financial statements of the Company
and its subsidiaries as of January 28, 1995 and February 3, 1996, and for each
of the three fiscal years in the period ended February 3, 1996, included in
this Prospectus and the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part
and which term shall encompass any amendments thereto) on Form S-1 pursuant
to the Securities Act with respect to the Common Stock being offered in the
Offering. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are
not necessarily complete; with respect to any such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference
is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety
by such reference. For further information about the Company and the
securities offered hereby, reference is made to the Registration Statement
and to the financial statements, schedules and exhibits filed as a part
thereof.
Upon completion of the Offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"), and, in accordance therewith will file reports and other
information with the Commission. The Registration Statement, the exhibits
and schedules forming a part thereof and other information filed by the
Company with the Commission in accordance with the Exchange Act can be
inspected and copies obtained at the public reference facilities maintained
by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material or any part thereof may also
be obtained by mail from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The Company intends to furnish its stockholders with annual
reports containing audited financial statements and quarterly reports
containing unaudited summary financial information for the first three
fiscal quarters of each fiscal year.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of January 28, 1995,
February 3, 1996, and May 4, 1996 (unaudited) F-3
Consolidated Statements of Operations for the fiscal years ended
January 29, 1994, January 28, 1995, and February 3, 1996, and
the thirteen week periods ended April 29, 1995 and May 4, 1996
(unaudited) F-4
Consolidated Statements of Stockholders' Investment (Deficit) for
the fiscal years ended January 29, 1994, January 28, 1995, and
February 3, 1996, and the thirteen week period ended May 4, 1996
(unaudited) F-5
Consolidated Statements of Cash Flows for the fiscal years ended
January 29, 1994, January 28, 1995, and February 3, 1996, and
the thirteen week periods ended April 29, 1995 and May 4, 1996
(unaudited) F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hibbett Sporting Goods, Inc.:
We have audited the accompanying consolidated balance sheets of HIBBETT
SPORTING GOODS, INC. (an Alabama corporation) AND SUBSIDIARIES as of
January 28, 1995 and February 3, 1996, and the related consolidated
statements of operations, stockholders' investment (deficit), and cash
flows for each of the three fiscal years in the period ended February 3,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hibbett
Sporting Goods, Inc. and subsidiaries as of January 28, 1995 and February
3, 1996, and the results of their operations and their cash flows for each
of the three fiscal years in the period ended February 3, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
April 2, 1996
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
ASSETS
<TABLE>
<CAPTION>
January 28, February 3, May 4,
1995 1996 1996
------------- ------------ ------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 727 $ 31 $ 32
Accounts receivable, net 1,094 1,341 1,418
Inventories 14,736 20,705 26,065
Prepaid expenses and other 112 756 1,035
Refundable income taxes 0 419 0
Deferred income taxes 410 538 584
------------- ------------ ------------
17,079 23,790 29,134
------------- ------------ ------------
PROPERTY AND EQUIPMENT:
Land 94 748 24
Buildings 1,084 4,869 83
Equipment 3,145 4,581 4,865
Furniture and fixtures 2,557 3,470 3,576
Leasehold improvements 4,092 5,901 6,038
Construction in progress 673 170 434
------------- ------------ ------------
11,645 19,739 15,020
Less accumulated depreciation and amortization 6,281 7,605 7,226
------------- ------------ ------------
5,364 12,134 7,794
------------- ------------ ------------
NONCURRENT ASSETS:
Deferred income taxes 296 308 320
Unamortized debt issuance costs, net 0 434 423
Other, net 48 36 32
------------- ------------ ------------
344 778 775
------------- ------------ ------------
$22,787 $36,702 $37,703
============= ============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 420 $ 0 $ 0
Accounts payable 7,543 10,371 11,378
Accrued income taxes 71 0 221
Accrued expenses:
Payroll-related 809 1,079 878
Other 650 887 976
Related-party 127 546 1,083
------------- ------------ ------------
9,620 12,883 14,536
------------- ------------ ------------
LONG-TERM DEBT 4,908 31,912 30,325
------------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT (DEFICIT):
Common stock, $.01 par value, 50,000,000 shares authorized,
23,389,000 shares issued and outstanding at February 3, 1996 and
May 4, 1996 (unaudited); and $.01 par value, 3,000,000 shares
authorized, 1,025,600 shares issued and outstanding at January 28,
1995 10 234 234
Paid-in capital 117 14,933 14,933
Retained earnings (deficit) 8,132 (23,260) (22,325)
------------- ------------ --------------
8,259 (8,093) (7,158)
------------- ------------ --------------
$22,787 $36,702 $37,703
============= ============ ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended Period Ended
-------------------------------------------- ----------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
------------- -------------- ------------- ------------- -------------
(52 Weeks) (52 Weeks) (53 Weeks) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $40,119 $52,266 $67,077 $15,001 $20,251
COST OF GOODS SOLD, INCLUDING WAREHOUSE,
DISTRIBUTION, AND STORE OCCUPANCY COSTS 27,731 36,225 46,642 10,431 14,035
------------- -------------- ------------- ------------- -------------
Gross profit 12,388 16,041 20,435 4,570 6,216
STORE OPERATING, SELLING, AND ADMINISTRATIVE
EXPENSES 8,352 10,197 13,326 2,681 3,344
DEPRECIATION AND AMORTIZATION 932 1,066 1,322 383 393
MANAGEMENT FEES 227 256 145 30 50
------------- -------------- ------------- ------------- -------------
Operating income 2,877 4,522 5,642 1,476 2,429
INTEREST EXPENSE 488 654 1,685 182 910
------------- -------------- ------------- ------------- -------------
Income before provision for income
taxes 2,389 3,868 3,957 1,294 1,519
PROVISION FOR INCOME TAXES 920 1,479 1,514 495 584
------------- -------------- ------------- ------------- -------------
Net income $ 1,469 $ 2,389 $ 2,443 $ 799 $ 935
============= ============== ============= ============= =============
NET INCOME PER SHARE $.04 $.06 $.07 $.02 $.04
============= ============== ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 39,677,581 39,677,581 35,613,428 39,677,581 23,768,133
============= ============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (DEFICIT)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------------ Retained
Number Paid-In Earnings
of Shares Amount Capital (Deficit)
---------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
BALANCE, January 31, 1993 10,256 $ 1 $ 126 $ 4,274
Net income 0 0 0 1,469
---------------- ------------ ------------- ------------
BALANCE, January 29, 1994 10,256 1 126 5,743
Net income 0 0 0 2,389
Change in par value 0 (1) 1 0
Issuance of shares in connection with a
100-for-1 stock split
1,015,344 10 (10) 0
--------------- ------------- ------------- ---------------
BALANCE, January 28, 1995 1,025,600 10 117 8,132
Net income 0 0 0 2,443
Issuance of shares in connection with a
38.687189-for-1 stock split 38,651,981 387 (387) 0
Purchase and retirement of shares (34,220,000) (342) (43) (33,835)
Issuance of shares 17,609,000 176 17,433 0
Expenses related to capital transactions 322,419 3 (2,187) 0
--------------- ------------- ------------- ---------------
BALANCE, February 3, 1996 23,389,000 234 14,933 (23,260)
Net income (unaudited) 0 0 0 935
--------------- ------------- ------------- ---------------
BALANCE, May 4, 1996 (Unaudited) 23,389,000 $234 $14,933 $(22,325)
=============== ============= ============= ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 29, January 28, February 3,
1994 1995 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $1,469 $2,389 $2,443
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 989 1,124 1,475
Deferred income taxes 21 (266) (140)
(Gain) loss on disposal of assets 20 4 6
Interest expense funded through additional debt 0 0 128
(Increase) decrease in assets:
Accounts receivable, net (85) (9) (247)
Inventories (1,966) (3,930) (5,969)
Prepaid expenses and other (159) 71 (644)
Refundable income taxes (61) 61 (419)
Other noncurrent assets (58) 11 (474)
Increase (decrease) in liabilities:
Accounts payable 138 2,978 2,828
Accrued income taxes (187) 71 (71)
Accrued expenses 148 694 926
---------- ---------- ----------
Total adjustments (1,200) 809 (2,601)
---------- ---------- ----------
Net cash provided by (used in) operating activities 269 3,198 (158)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,600) (2,179) (8,172)
Proceeds from sale of property 9 26 6
---------- ---------- ----------
Net cash provided by (used in) in investing activities (1,591) (2,153) (8,166)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase and retirement of shares 0 0 (22,250)
Issuance of shares 0 0 17,609
Expenses related to capital transactions 0 0 (2,184)
Principal payments on long-term debt (994) (3,251) (5,328)
Proceeds from issuance of long-term debt 2,535 4,579 0
Proceeds from issuance of long-term debt to stockholders 0 6,641
Proceeds from term loan 0 0 1,000
Revolving loan borrowings and repayments, net 0 0 12,140
Borrowings (repayments) of short-term debt, net (172) (2,179) 0
---------- ---------- ----------
Net cash provided by (used in) financing activities 1,369 (851) 7,628
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 47 194 (696)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 486 533 727
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 533 $ 727 $ 31
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 327 $ 612 $ 1,038
========== ========== ==========
Income taxes, net of refunds $1,147 $1,500 $ 2,144
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of debt to stockholders for the purchase of shares $ 0 $ 0 $13,051
========== ========== ==========
Issuance of stock as compensation related to capital transactions $ 0 $ 0 $ 322
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Thirteen Week
Period Ended
------------------------
April 29, May 4,
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 799 $ 935
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 398 447
Deferred income taxes (58) (58)
(Gain) loss on disposal of assets 0 (478)
Interest expense funded through additional debt 0 14
(Increase) decrease in assets:
Accounts receivable, net 77 (77)
Inventories (2,550) (5,360)
Prepaid expenses and other (156) (279)
Refundable income taxes 0 419
Other noncurrent assets (1) (6)
Increase (decrease) in liabilities:
Accounts payable (45) 1,007
Accrued income taxes 406 221
Accrued expenses (280) 425
---------- ----------
Total adjustments (2,209) (3,725)
---------- ----------
Net cash provided by (used in) operating activities (1,410) (2,790)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,365) (1,128)
Proceeds from sale of property 5 5,553
---------- ----------
Net cash provided by (used in) in investing activities (1,360) 4,425
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase and retirement of shares 0 0
Issuance of shares 0 0
Expenses related to capital transactions 0 0
Principal payments on long-term debt (1,113) (4,267)
Proceeds from issuance of long-term debt 0 0
Proceeds from issuance of long-term debt to stockholders 0 0
Proceeds from term loan 0 0
Revolving loan borrowings and repayments, net 0 2,633
Borrowings (repayments) of short-term debt, net 3,830 0
---------- ----------
Net cash provided by (used in) financing activities 2,717 (1,634)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (53) 1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 727 31
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 674 $ 32
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 224 $ 311
========== ==========
Income taxes, net of refunds $ 147 $ 0
========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of debt to stockholders for the purchase of shares $ 0 $ 0
========== ==========
Issuance of stock as compensation related to capital transactions $ 0 $ 0
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Hibbett Sporting Goods, Inc. (the "Company") is an operator of
full-line sporting goods retail stores in small to mid-sized markets
in the Southeastern United States. The Company's fiscal year ends on
the Saturday closest to January 31 of each year.
Principles of Consolidation
The consolidated financial statements of the Company include its
accounts and the accounts of all wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect (1) the reported amounts of certain
assets and liabilities and disclosure of certain contingent assets
and liabilities at the date of the financial statements, and (2) the
reported amounts of certain revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited consolidated balance
sheet as of May 4, 1996, and the unaudited consolidated statements of
income and cash flows for the thirteen week periods ended April 29,
1995 and May 4, 1996, reflect all adjustments (which include only
normal recurring adjustments) necessary to present fairly the
information set forth therein. The results of operations for interim
periods are not necessarily indicative of results for the full year
as the Company's business is seasonal. Typically, sales and net
income from operations are highest during the fourth fiscal quarter.
Inventories
Inventories are valued at the lower of cost or market using the retail
inventory method of accounting, with cost determined on a first-in,
first-out basis and market based on the lower of replacement cost or
estimated realizable value.
Property and Equipment
Property and equipment are recorded at cost. It is the Company's
policy to depreciate assets acquired prior to January 28, 1995 using
accelerated and straight-line methods over the estimated service
lives (3 to 10 years for equipment, 5 to 10 years for furniture and
fixtures, and 10 to 31.5 years for buildings) and to amortize
leasehold improvements using the straight-line method over the
periods of the applicable leases. Depreciation on assets acquired
subsequent to January 28, 1995 is provided using the straight-line
method over the estimated service lives (3 to 5 years for equipment,
7 years for furniture and fixtures, and 39 years for buildings) or,
in the case of leasehold improvements, 10 years or over the lives of
the respective leases, if shorter.
Maintenance and repairs are charged to expense as incurred. Costs of
renewals and betterments are capitalized by charges to property
accounts and are depreciated using applicable annual rates. The cost
and accumulated depreciation of assets sold, retired, or otherwise
disposed of are removed from the accounts, and the related gain or
loss is credited or charged to income.
Store Opening Costs
Non-capital expenditures incurred in preparation for opening new
retail stores are expensed in the period each store opens.
Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial
instruments, management has assumed that the carrying amount
approximates fair value for cash and cash equivalents, receivables,
short-term borrowings and accounts payable, because of the short
maturities of those instruments. The estimated fair values of
long-term debt instruments are based upon the current interest rate
environment and remaining term to maturity.
Income Taxes
The Company accounts for income taxes using the asset and liability
method, which generally requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined
based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. In
addition, the asset and liability method requires the adjustment of
previously deferred income taxes for changes in tax rates.
Net Income Per Share
Net income per share for each of the periods presented is calculated
by dividing net income by the number of weighted average common
shares outstanding. Common stock equivalents in the form of stock
options are included in the calculation utilizing the treasury stock
method for all periods presented.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the
Company considers all short-term, highly liquid investments with
original maturities of three months or less to be cash equivalents.
Accounting for the Impairment of Long-Lived Assets
During 1995, Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, was issued. The new standard
requires all businesses to recognize an impairment loss on a
long-lived asset as a charge to current income when certain events or
changes in circumstances indicate that the carrying value of the
asset may not be recoverable. The Company adopted the new standard
effective Febuary 4, 1996 with no significant impact on its financial
position or results of operations (unaudited).
Accounting for Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, allows
companies to continue to record compensation cost under Accounting
Principles Board Opinion ("APB") No. 25 or to record compensation
cost based on the fair value of stock based awards. Management
currently anticipates that it will continue using its current
accounting policy under APB No. 25; and as a result, adoption of SFAS
No. 123 will not affect the financial condition or results of
operations of the Company. SFAS No. 123 does, however, require
certain pro forma disclosures reflecting what compensation cost would
have been if the fair value based method of recording compensation
expense for stock-based compensation had been adopted. The
disclosure rules under SFAS No. 123 will be adopted by the Company in
fiscal 1997.
Prior Year Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. STOCKHOLDERS' INVESTMENT TRANSACTIONS
In December 1994, the Company's Board of Directors approved an
increase in the number of authorized shares of common stock from
20,000 to 3,000,000 shares and a decrease in the par value from $.10
to $.01 per share. In addition, the Company's Board of Directors
declared a 100-for-1 stock split in the form of a 100% stock
dividend.
On November 1, 1995, the Company's Board of Directors approved a
series of equity and debt transactions which resulted in a
recapitalization of the Company and a change in controlling ownership
of the common stock outstanding (the "Recapitalization"). In
connection with the Recapitalization, the Company's Board of
Directors (i) increased the number of authorized shares of common
stock from 3,000,000 to 50,000,000 shares, (ii) declared a 38.687189-
for-1 stock split, (iii) approved the repurchase and retirement of
34,220,000 shares of common stock for $1.00 per share ($22,250,000
cash and the issuance of $13,051,000 of debt), and (iv) approved the
issuance of 17,609,000 new shares of common stock at $1.00 per share
and $7,074,000 of debt for $24,250,000 cash. Expenses of $2,506,000
were incurred in connection with the Recapitalization and have
reduced paid-in capital.
All references in the financial statements to weighted average shares
outstanding, net income per share, and stock options have been
restated to reflect the above stock splits.
3. LONG-TERM DEBT
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
January 28, February 3, May 4,
1995 1996 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Revolving loan agreement $ 0 $12,140,000 $14,773,000
Term loan agreement, due November 1997, unsecured 0 1,000,000 1,000,000
Subordinated notes payable to stockholders, unsecured,
12%, due November 2002, interest payable quarterly,
beginning November 1, 1996 0 16,000,000 16,000,000
Senior subordinated bridge notes payable to stockholders,
unsecured, 12%, due November 2000, interest payable
quarterly 0 4,253,000 0
Revolving convertible term loan 4,580,000 0 0
Bank notes payable 748,000 0 0
Unamortized debt discount 0 (1,481,000) (1,448,000)
------------- ------------- -------------
5,328,000 31,912,000 30,325,000
Less current maturities 420,000 0 0
------------- ------------- -------------
$4,908,000 $31,912,000 $30,325,000
============= ============= =============
</TABLE>
At February 3, 1996 and May 4, 1996 (unaudited), the Company
maintained a secured revolving loan agreement totaling $25,000,000
which expires November 2000. Amounts available and secured under the
loan agreement are based on levels of certain specified Company
assets. Based on the agreement, the Company may borrow amounts
against a Base Rate or a LIBOR Rate, as defined in the agreement.
Base Rate loans have no specified maturity date and interest on the
loans is payable monthly. The Base Rate on these loans at February
3, 1996 and May 4, 1996 was 8.75% and 8.50% (unaudited),
respectively. LIBOR Rate loans have specified interest periods (30,
60, 90, or 180 days) attached to the loan with the maturity date
being the date principal and interest are due. The rate on these
loans at February 3, 1996 and May 4, 1996 was 7.89% and 7.73%
(unaudited), respectively. As amounts under the loan agreement do
not have to be repaid until the expiring date of November 2000, the
full amount outstanding is classified as long-term debt.
The Company's term loan also allows the Company to specify the
interest rate against which amounts are borrowed, the Base Rate or
LIBOR Rate. At February 3, 1996 and May 4, 1996, the full amount of
the term loan was borrowed against the LIBOR Rate which was 9.45% and
8.78% (unaudited), respectively.
As part of the Recapitalization, in November 1995, the Company issued
to stockholders subordinated notes and senior subordinated bridge
notes totaling $20,125,000 with an original issue discount of
$1,514,000 related solely to the stockholders subordinated notes. In
January 1996, the Company issued $128,000 of additional notes as
satisfaction for interest on the Company's bridge notes. A portion
of the proceeds of these borrowings was utilized to retire existing
debt.
The Company's debt agreements contain certain restrictive covenants
common to such agreements. The Company was in compliance, or had
received a noncompliance waiver, with respect to all of its covenants
at February 3, 1996 and May 4, 1996 (unaudited).
Long-term debt contractually matures in each of the next five fiscal
years as follows: $0 in 1997, $1,000,000 in 1998, $0 in 1999, $0 in
2000, $16,393,000 in 2001, and $16,000,000 thereafter. However, the
senior subordinated bridge notes ($4,253,000) were repaid in advance
during the thirteen week period ended May 4, 1996 (unaudited).
During fiscal 1995 and the majority of fiscal 1996, the Company
maintained working capital lines of credit under which the average
borrowings outstanding were $4,009,000 and $5,200,0000, and the
maximum borrowings outstanding were $6,620,000 and $6,697,000 in
fiscal 1995 and 1996, respectively. The weighted average interest
rate was approximately 7.35% and 9.0% in fiscal 1995 and 1996,
respectively. In addition, during fiscal 1995, the Company also
borrowed funds to meet working capital needs from a related party.
The average amount of borrowings outstanding under these loans during
fiscal 1995 was $120,000, the maximum amount outstanding was
$810,000, and the weighted average interest rate was 7.45%. No
borrowings related to these former working capital lines of credit
were outstanding at January 28, 1995, February 3, 1996, or May 4,
1996 (unaudited).
The estimated fair value of the Company's long-term debt was
$32,657,000 and $30,921,000 (unaudited) at February 3, 1996 and May
6, 1996, respectively.
4. LEASES
The Company leases the premises for its retail sporting goods stores
under operating leases which expire in various years through the year
2008. Many of these leases contain renewal options and require the
Company to pay executory costs (such as property taxes, maintenance,
and insurance). Rental payments typically include minimum rentals
plus contingent rentals based on sales.
In February 1996, the Company entered into a sale-leaseback
transaction to finance its new warehouse and office facilities. The
sales price of $4,700,000 approximated the book value of the facility
after considering transaction expenses. The related lease term is
for 15 years at $476,000 per year, and is structured as an operating
lease.
Minimum future rental payments under noncancelable operating leases
having remaining terms in excess of one year as of February 3, 1996
are as follows:
Fiscal Year Ending
----------------------------------------
1997 $ 3,497,000
1998 3,434,000
1999 3,115,000
2000 2,926,000
2001 2,192,000
Thereafter 9,375,000
--------------
$24,539,000
==============
Rental expense for all operating leases consisted of the following:
<TABLE>
<CAPTION>
Thirteen Week
Fiscal Year Ended Period Ended
--------------------------------------------- ----------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------ ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Minimum rentals $1,749,000 $2,469,000 $3,080,000 $ 673,000 $ 913,000
Contingent rentals 315,000 392,000 487,000 134,000 244,000
------------- ------------- ------------- ------------ ----------
$2,064,000 $2,861,000 $3,567,000 $ 807,000 $1,157,000
============= ============= ============= ============ ==========
</TABLE>
5. PROFIT-SHARING PLAN
The Company maintains a 401(k) profit sharing plan (the "Plan") which
permits participants to make pretax contributions to the Plan. The
Plan covers all employees who have completed one year of service and
who are at least 21 years of age. Participants of the Plan may
voluntarily contribute from 2% to 15% of their compensation within
certain dollar limits as allowed by law. These elective
contributions are made under the provisions of Section 401(k) of the
Internal Revenue Code which allows deferral of income taxes on the
amount contributed to the Plan. The Company's contribution to the
Plan equals (1) an amount determined at the discretion of the Board
of Directors plus (2) a matching contribution equal to a
discretionary percentage of up to 6% of a participant's compensation.
Contribution expense for fiscal years 1994, 1995, and 1996 was
$89,000, $108,000, and $165,000, respectively, and was $21,000 and
$60,000 (unaudited) for the thirteen week periods ended April 29,
1995 and May 4, 1996, respectively.
6. RELATED-PARTY TRANSACTIONS
Subsequent to November 1, 1995, the Company's new majority
shareholder began providing financial advisory services to the
Company for an annual fee of $200,000. Such services include, but
are not necessarily limited to, advice and assistance concerning any
and all aspects of the operation, planning, and financing of the
Company. Management fee expense under this arrangement was $50,000
in each of fiscal 1996 and the thirteen week period ended May 4, 1996
(unaudited).
Prior to November 1, 1995, the Company's previous majority
shareholders (now minority shareholders) provided to the Company
similar services as discussed above. Fees for these services
amounted to $227,000, $256,000, and $95,000 in fiscal years 1994,
1995, and 1996, respectively, and $30,000 and $0 (unaudited) in the
thirteen week periods ended April 29, 1995 and May 4, 1996,
respectively.
Subordinated notes payable to stockholders, net of the related
unamortized debt discount, were outstanding and included in long-term
debt in the amount of $18,772,000 and $14,552,000 (unaudited) at
February 3, 1996 and May 4, 1996, respectively. Related to these
notes, the Company incurred approximately $620,000 of interest
expense in fiscal 1996, of which approximately $492,000 was included
in accrued expenses and approximately $128,000 was capitalized into
the senior subordinated bridge notes payable at February 3, 1996.
For the thirteen week period ended May 4, 1996, the Company incurred
approximately $500,000 (unaudited) of interest expense related to
these notes.
In connection with the Recapitalization discussed in Note 2, both the
majority shareholder and minority shareholders were paid for services
provided to the Company related to the Recapitalization. These costs
were recorded as a reduction to paid-in capital and approximated
$960,000 in fiscal 1996.
The Company leased its previous warehouse and office facilities under
a lease-purchase agreement which was fully paid in a previous year.
Subsequent to February 3, 1996, the Company sold an assignment of its
interest in the lease on this property to a related party for
$850,000, which resulted in a gain of approximately $513,000 in the
thirteen week period ended May 4, 1996.
7. INCOME TAXES
A summary of the components of the provision for income taxes is as
follows:
<TABLE>
<CAPTION>
Thirteen Week
Fiscal Year Ended Period Ended
----------------------------------------------- -----------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
-------------- -------------- -------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current $799,000 $1,553,000 $1,476,000 $493,000 $573,000
Deferred 19,000 (237,000) (126,000) (52,000) (52,000)
-------------- -------------- -------------- ------------ -------------
818,000 1,316,000 1,350,000 441,000 521,000
-------------- -------------- -------------- ------------ -------------
State:
Current 100,000 192,000 178,000 60,000 69,000
Deferred 2,000 (29,000) (14,000) (6,000) (6,000)
-------------- -------------- -------------- ------------ -------------
102,000 163,000 164,000 54,000 63,000
-------------- -------------- -------------- ------------ -------------
Provision for income taxes $920,000 $1,479,000 $1,514,000 $495,000 $584,000
============== ============== ============== ============ =============
-------------- -------------- -------------- ------------ -------------
</TABLE>
The provision for income taxes differs from the amounts computed by
applying federal statutory rates due to the following:
<TABLE>
<CAPTION>
Thirteen Week
Fiscal Year Ended Period Ended
--------------------------------------------- ----------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
------------- ------------- ------------- ----------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tax provision computed at the
federal statutory rate (34%) $812,000 $1,315,000 $1,345,000 $440,000 $516,000
Effect of state income taxes, net
of benefits 66,000 127,000 118,000 36,000 42,000
Other 42,000 37,000 51,000 19,000 26,000
------------- ------------- ------------- ----------- ---------
$920,000 $1,479,000 $1,514,000 $495,000 $584,000
============= ============= ============= =========== =========
</TABLE>
Temporary differences which create deferred tax assets are detailed below:
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996 May 4, 1996
-------------------------- ------------------------- ---------------------------
Current Noncurrent Current Noncurrent Current Noncurrent
----------- ------------- ---------- ------------- ----------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Depreciation $ 0 $296,000 $ 0 $308,000 $ 0 $320,000
Inventory 253,000 0 371,000 0 312,000 0
Accruals 147,000 0 153,000 0 258,000 0
Other 10,000 0 14,000 0 14,000 0
-------------------------- ------------------------- ---------------------------
410,000 296,000 538,000 308,000 584,000 320,000
Valuation allowance 0 0 0 0 0 0
-------------------------- ------------------------- ---------------------------
Deferred tax asset, net $410,000 $296,000 $538,000 $308,000 $584,000 $320,000
========================== ========================= ===========================
</TABLE>
The Company has not recorded a valuation allowance for deferred tax
assets as realization is considered more likely than not.
8. STOCK OPTIONS
The Hibbett Sporting Goods, Inc. Employee Stock Option Plan (the
"Stock Option Plan") authorizes the granting of stock options for the
purchase of up to 1,000,000 shares of common stock. The difference
in the total exercise price of the options and the estimated fair
value at the date of the grant is recorded as compensation expense
over the vesting period. As of February 3, 1996, a total of 595,251
shares of the Company's authorized and unissued common stock were
reserved for future grants under the Stock Option Plan and options
for 404,749 shares were outstanding at that date. The weighted
average exercise price of the options granted in fiscal 1996 was $.74
per share. Options outstanding become exercisable 33% at the end of
each of the following three successive years for 154,749 shares and
the remainder become exercisable 20% at the end of each of the
following five successive years.
Subsequent to February 3, 1996, the Company granted options for
277,000 shares which are exercisable at $1.00 per share, and become
exercisable 20% at the end of each of the following five successive
years (unaudited).
9. COMMITMENTS AND CONTINGENCIES
Employment Agreement
On November 1, 1995, the Company entered into an employment agreement
with an employee which provides for a three-year employment period at
a base salary plus various incentives.
Legal
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, after consultation with legal
counsel, the ultimate liability, if any, with respect to those
proceedings is not presently expected to materially affect the financial
position or results of operations of the Company.
10. INITIAL PUBLIC OFFERING (UNAUDITED)
The Company is proceeding with the offering of __________ shares of
common stock at an initial public price of $_____ per share. The
estimated net proceeds to the Company of $__________ will be used to
repay the subordinated notes payable to stockholders and to reduce
borrowings on the revolving loan agreement.
Supplemental net income per share before extraordinary item is
calculated by dividing net income (after adjustment for applicable
interest expense) by the number of weighted average shares
outstanding after giving effect to the estimated number of shares
that would be required to be sold (at the initial public offering
price of $_____ per share) to repay $_____ and $_____ of debt at
February 3, 1996 and May 4, 1996, respectively. Supplemental net
income per share before extraordinary item for the fiscal year ended
February 3, 1996 and the thirteen week period ended May 4, 1996 was
$____ and $_____, respectively. Supplemental net income per share
after extraordinary item (to reflect the write off of unamortized
debt discount and debt issuance costs) for the fiscal year ended
February 3, 1996 and the thirteen week period ended May 4, 1996 was
$_____ and $_____, respectively.
<PAGE>
======================================
No dealer, salesperson or any other
person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus in
connection with the offer contained
herein, and, if given or made, such
information or representations must
not be relied upon as having been
authorized by the Company or by any
of the Underwriters. This Prospectus
does not constitute an offer of any
securities other than those to
which it relates or an offer to sell,
or a solicitation of an offer to
buy, those to which it relates in
any state to any person to whom it
is not lawful to make such offer
in such state. The delivery of
this Prospectus at any time does
not imply that the information
herein is correct as of any time
subsequent to its date.
--------------
Table of Contents
Page
----
Prospectus Summary............ 3
Risk Factors.................. 7
Use of Proceeds............... 10
Dividend Policy............... 10
Dilution...................... 11
Capitalization................ 12
Selected Consolidated
Financial and
Operating Data.............. 13
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................. 16
Business...................... 22
Management.................... 30
Principal Stockholders........ 38
Certain Transactions.......... 39
Shares Eligible for Future
Sale........................ 42
Description of Capital
Stock....................... 43
Underwriting.................. 46
Legal Matters................. 47
Experts ...................... 47
Additional Information........ 47
Index to Consolidated
Financial Statements.......... F-1
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================
Shares
HIBBETT SPORTING GOODS, INC.
Common Stock
______________
PROSPECTUS
, 1996
______________
Smith Barney Inc.
Montgomery Securities
The Robinson-Humphrey Company, Inc.
======================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Registration Fee........................... $11,897
NASD Filing Fee............................ 3,950
NASDAQ/National Market filing fee..........
Transfer Agent's Fees......................
Printing and Engraving.....................
Legal Fees.................................
Accounting Fees............................
Blue Sky Fees..............................
Miscellaneous..............................
-------
Total..................................... $
=======
Each of the amounts set forth above, other than the
Registration Fee, NASD Filing Fee and NASDAQ/National Market filing fee, is
an estimate.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Act permits the
Registrant to indemnify officers, directors or employees against expenses
(including attorney's fees), judgments, fines and amounts paid in
settlement in connection with legal proceedings "if [as to any officer,
director or employee] he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to the best interests of the corporation,
and, with respect to any criminal act or proceeding, had no reasonable
cause to believe his conduct was unlawful", provided that with respect to
actions by, or in the right of the corporation against, such individuals,
indemnification is not permitted as to any matter as to which such person
"shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless, and only to the extent
that, the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper."
Individuals who are successful in the defense of such action are entitled
to indemnification against expenses reasonably incurred in connection
therewith.
The By-Laws of the Registrant require the Registrant to
indemnify directors and officers against liabilities which they may incur
under the circumstances set forth in the preceding paragraph.
The Registrant is in the process of obtaining standard policies
of insurance under which coverage will be provided (a) to its directors and
officers against loss arising from claims made by reason of breach of duty
or other wrongful act, and (b) to the Registrant with respect to payments
which may be made by the Registrant to such officers and directors pursuant
to the above indemnification provision or otherwise as a matter of law.
The proposed form of Underwriting Agreement filed as Exhibit 1 to this
Registration Statement provides for indemnification of directors and
officers of the Registrant by the underwriters against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Since June 1, 1993, the Registrant has sold the following securities
without registration under the Securities Act of 1933, as amended (the
"Act"):
1. Immediately prior to the Recapitalization, in consideration for his
assistance in arranging the Recapitalization, the Company issued to Clyde
B. Anderson 322,419 shares of Common Stock. Section 4(2) of the Act was
relied upon for exemption from the registration requirements.
2. On November 1, 1995, as part of the Recapitalization, The SK Equity
Fund, L.P. purchased 17,418,455 shares of Common Stock for $17,418,455 in
cash, and SK Investment Fund, L.P. purchased 190,545 shares of Common Stock
for $190,545. Section 4(2) of the Act was relied upon for exemption from
the registration requirements.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this
Registration Statement:
Exhibit
Number Description
- ------- -----------
1* Form of Underwriting Agreement
3.1* Articles of Incorporation of the Registrant, as amended
3.2* Bylaws of the Registrant, as amended
3.3* Form of Certificate of Incorporation of the Registrant
3.4* Form of Bylaws of the Registrant
4.1* Form of Share Certificate
5.1* Opinion of Davis Polk & Wardwell
10.1.1 Loan and Security Agreement dated as of November 1, 1995
between the Registrant, Hibbett Team Sales, Inc. and Heller
Financial, Inc. (the "Heller Loan Agreement")
10.1.2 Letter from Heller Financial, Inc. to the Registrant dated
February 12, 1996 re: certain waivers from the Heller
Loan Agreement
10.2.1* Stockholders Agreement dated as of November 1, 1995 among
The SK Equity Fund, L.P., SK Investment Fund, L.P., the
Registrant and certain stockholders of the Registrant named
therein (the "Stockholders Agreement")
10.2.2* Form of Amendment No. 1 to the Stockholders Agreement
10.3** Advisory Agreement dated November 1, 1995 between the
Registrant and Saunders, Karp & Co., L.P.
10.4** Employment and Post-Employment Agreement dated as of
November 1, 1995 between the Registrant and Michael J.
Newsome
10.5** Letter from the Registrant to Michael J. Newsome dated
November 1, 1995 re: Incentive Compensation Arrangements
10.6** Non-competition Agreement dated November 1, 1995 among
Charles C. Anderson, Joel R. Anderson, Clyde B. Anderson, the
Registrant, The SK Equity Fund, L.P. and SK Investment Fund,
L.P.
10.7** The Registrant's Stock Option Plan (as amended, effective as of
March 6, 1996)
10.8** The Registrant's 1996 Stock Option Plan ("the 1996 Plan")
10.9.1** Lease Agreement dated as of February 12, 1996 between QRS
12-14 (AL), Inc. and Sports Wholesale, Inc. (the "Lease
Agreement")
10.9.2 Landlord's Waiver and Consent re: Lease Agreement dated
February 12, 1996 by QRS 12-14 (AL), Inc.
10.10* Form of the Registrant's Employee Stock Purchase Plan
10.11* Form of the Registrant's Outside Director Stock Plan
11** Statement of Computation of Net Income Per Share
21** List of Registrant's Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Davis Polk & Wardwell (to be included in Exhibit 5.1 to
this Registration Statement)
27** Financial Data Schedule
______________
* Each exhibit marked by an (*) will be filed by Amendment to this
Registration Statement.
** Previously filed exhibits are marked by (**).
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions or are
inapplicable as the information has been provided in the financial statements
or related notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) The undersigned registrant hereby undertakes to provide to
the underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and persons
controlling the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification (other than by
policies of insurance) is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama, on the 16th day of July, 1996.
Hibbett Sporting Goods, Inc.
By /s/ Michael J. Newsome
-------------------------------------
Michael J. Newsome
President, Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to the Registration Statement has been signed
by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Principal Executive Officer July 16, 1996
- -------------------------- and Director
Michael J. Newsome
/s/ Susan H. Fitzgibbon Principal Financial Officer, July 16, 1996
- -------------------------- Controller and Principal
Susan Fitzgibbon Accounting Officer
* Director July 16, 1996
- --------------------------
Clyde B. Anderson
* Director July 16, 1996
- --------------------------
Thomas A. Saunders, III
* Director July 16, 1996
- --------------------------
F. Barron Fletcher, III
* Director July 16, 1996
- --------------------------
John F. Megrue
* Director July 16, 1996
- --------------------------
Barry H. Feinberg
*By /s/ Susan H. Fitzgibbon
-----------------------
Susan H. Fitzgibbon
(Attorney-in-fact)
EXHIBIT INDEX
Exhibit
Number Description
- ------- ----------
1* Form of Underwriting Agreement
3.1* Articles of Incorporation of the Registrant, as amended
3.2* Bylaws of the Registrant, as amended
3.3* Form of Certificate of Incorporation of the Registrant
3.4* Form of Bylaws of the Registrant
4.1* Form of Share Certificate
5.1* Opinion of Davis Polk & Wardwell
10.1.1 Loan and Security Agreement dated as of November 1, 1995
between the Registrant, Hibbett Team Sales, Inc. and Heller
Financial, Inc. (the "Heller Loan Agreement")
10.1.2 Letter from Heller Financial, Inc. to the Registrant dated
February 12, 1996 re: certain waivers from the Heller
Loan Agreement
10.2.1** Stockholders Agreement dated as of November 1, 1995 among
The SK Equity Fund, L.P., SK Investment Fund, L.P., the
Registrant and certain stockholders of the Registrant named
therein (the "Stockholder Agreement")
10.2.2* Form of Amendment No. 1 to the Stockholders Agreement
10.3** Advisory Agreement dated November 1, 1995 between the
Registrant and Saunders, Karp & Co., L.P.
10.4** Employment and Post-Employment Agreement dated as of
November 1, 1995 between the Registrant and Michael J.
Newsome
10.5** Letter from the Registrant to Michael J. Newsome dated
November 1, 1995 re: Incentive Compensation Arrangements
10.6** Non-competition Agreement dated November 1, 1995 among
Charles C. Anderson, Joel R. Anderson, Clyde B. Anderson, the
Registrant, The SK Equity Fund, L.P. and SK Investment Fund,
L.P.
10.7** The Registrant's Stock Option Plan (as amended, effective as of
March 6, 1996)
10.8** The Registrant's 1996 Stock Option Plan ("the 1996 Plan")
10.9.1** Lease Agreement dated as of February 12, 1996 between QRS
12-14 (AL), Inc. and Sports Wholesale, Inc.
(the "Lease Agreement")
10.9.2 Landlord's Waiver and Consent re: Lease Agreement dated
February 12, 1996 by QRS 12-14 (AL), Inc.
10.10* Form of the Registrant's Employee Stock Purchase Plan
10.11* Form of the Registrant's Outside Director Stock Plan
11** Statement of Computation of Net Income Per Share
21** List of Registrant's Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Davis Polk & Wardwell (to be included in Exhibit 5.1 to
this Registration Statement)
27** Financial Data Schedule
______________
* Each exhibit marked by an (*) will be filed by Amendment to this
Registration Statement.
** Previously filed exhibits are marked by (**).
LOAN AND SECURITY AGREEMENT
DATED AS OF NOVEMBER 1, 1995
between
HIBBETT SPORTING GOODS, INC.
and
HIBBETT TEAM SALES, INC.,
as Borrowers,
and
HELLER FINANCIAL, INC.,
as Agent and as Lender
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of November 1, 1995 and
entered into among HIBBETT SPORTING GOODS, INC. ("Hibbett") and HIBBETT TEAM
SALES, INC. ("Hibbett Team"), each an Alabama corporation (Hibbett and Hibbett
Team, each a "Borrower" and collectively, "Borrowers"), each with its
principal place of business at 131 South 25th Street, Birmingham, Alabama
35211, the financial institutions listed on the signature pages hereof and
their respective successors and assigns (each individually a "Lender" and
collectively Lenders) and HELLER FINANCIAL, INC., a Delaware corporation (in
its individual capacity, "Heller"), with offices at 500 W. Monroe Street,
Chicago, Illinois 60661, for itself as a Lender and as Agent. All capitalized
terms used herein are defined in Section 1 of this Agreement.
WHEREAS, Borrowers desire that Lenders extend a credit facility to (i)
refinance Borrower's existing indebtedness for money borrowed and (ii) provide
working capital financing and to provide funds for other general corporate
purposes;
WHEREAS, Borrowers desire to secure its obligations under the Loan
Documents by granting to Agent, for the ratable benefit of Lenders, a security
interest in and lien upon certain of each Borrower's property; and
WHEREAS, Sports Wholesale, Inc., an Alabama corporation ("Guarantor") is
willing to guaranty all of the obligations of Borrowers to Agent and Lenders
under the Loan Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrowers, Agent and Lenders agree
as follows:
SECTION 1. DEFINITIONS
1.1. Certain Defined Terms. The following terms used in this Agreement
shall have the following meanings:
"Acceptable CPA" means a firm of independent certified public
accountants of recognized national standing (such as the firms widely known as
the "Big Six") selected by Borrowers.
"Accounts" means, all "accounts" (as defined in the UCC), accounts
receivable, contract rights and general intangibles relating thereto, notes,
drafts and other forms of obligations owed to or owned by Borrowers arising or
resulting from the sale of goods or the rendering of services.
"Affiliate" means any Person (other than Agent or Lender): (a) directly
or indirectly controlling, controlled by, or under common control with, any
Borrower; (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in any Borrower; or (c) five percent (5%) or more
of whose voting stock or other equity interest is directly or indirectly owned
or held by any Borrower. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by"
and "under common control with") means the possession directly or indirectly
of the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities or by contract
or otherwise.
"Agent" means Heller in its capacity as agent for the Lenders under the
Loan Documents and any successor in such capacity appointed pursuant to
subsection 9.1.
"Agent's Account" means ABA No. 0710-0001-3, Account No. 55-34046 at
First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of Hibbett Sporting Goods,
Inc. and Hibbett Team Sales, Inc.
"Aggregate Formula Borrowing Base" means at any time the sum of each
Borrower's Formula Borrowing Base.
"Aggregate Maximum Revolving Amount" means at any time, an amount equal
to $25,000,000 less the aggregate Letter of Credit Reserve.
"Agreement" means this Loan and Security Agreement as it may be amended,
supplemented or otherwise modified from time to time.
"Anderson Subordinated Bridge Loan" means the subordinated bridge loan
made by one or more members of the Anderson Group to Hibbett in the aggregate
principal amount of $1,625,000 pursuant to the Anderson Subordinated Bridge
Loan Documentation.
"Anderson Subordinated Bridge Loan Documentation" means the notes
evidencing the Anderson Subordinated Bridge Loan and all documents and
agreements executed in connection therewith on terms and conditions
satisfactory to Agent.
"Anderson Group" means each of the "Stockholders" of Hibbett as defined
in the Purchase and Redemption Agreement.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any or all
of the assets of any Borrower or any of such Borrower's Subsidiaries other
than sales of Inventory in the ordinary course of business.
"Average Excess Availability" means, for any month, the quotient
determined by dividing (a) the sum of the Excess Availability for each day
during such month by (b) the number of days in such month.
"Bank Letters of Credit" means letters of credit issued by a bank for
the account of any Borrower and supported by a Risk Participation Agreement.
"Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in
Federal Reserve Statistical Release H.15(519) entitled "Selected Interest
Rates" or any successor publication of the Federal Reserve System reporting
the Bank Prime Loan rate or its equivalent, or (b) the Federal Funds Effective
Rate. The statistical release generally sets forth a Bank Prime Loan rate for
each Business Day. In the event the Board of Governors of the Federal Reserve
System ceases to publish a Bank Prime Loan rate or its equivalent, the term
"Base Rate" shall mean a variable rate of interest per annum equal to the
highest of the "prime rate", "reference rate", "base rate", or other similar
rate announced from time to time by any of Bankers Trust Company, The Chase
Manhattan Bank, National Association or Chemical Bank, or their successors
(with the understanding that any such rate may merely be a reference rate and
may not necessarily represent the lowest or best rate actually charged to any
customer by any such bank).
"Base Rate Loans" means Loans bearing interest at rates determined by
reference to the Base Rate.
"Blocked Accounts" has the meaning assigned to that term in subsection
5.6.
"Borrowers" has the meaning assigned to that term in the preamble to
this Agreement.
"Borrowing Agent" shall mean Hibbett.
"Borrowing Base Certificate" means a certificate and assignment schedule
duly executed by an officer of each Borrower appropriately completed and in
substantially the form of Exhibit 1.1(A).
"Bridge Loan Documentation" means, collectively, the Anderson
Subordinated Bridge Loan Documentation and the Saunders Subordinated Bridge
Loan Documentation.
"Bridge Loans" means, collectively, the Saunders Subordinated Bridge
Loan and the Anderson Subordinated Bridge Loan.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Illinois,
Pennsylvania, Alabama or for the purposes of LIBOR Rate Loans only, London,
England or is a day on which banking institutions located in any such state or
city are closed.
"Capital Commitments" means (i) all contracts or commitments for (a)
leases of real property and/or improvements which require the making of
Capital Expenditures by any Borrower ("Real Property Leases"), (b) Capital
Leases in conjunction with any Real Property Leases and (ii) all purchase
orders for any fixed assets or improvements.
"Capital Expenditures" means all expenditures (including deposits and
cash down payments for assets acquired under Capital Leases) for any fixed
assets or improvements, or for replacements, substitutions or additions
thereto, which have a useful life of more than one year, including the direct
or indirect acquisition of such assets by way of increased product or service
charges, offset items or otherwise.
"Capital Lease" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within six (6) months from the date of acquisition
thereof; (b) commercial paper maturing no more than six (6) months from the
date issued and, at the time of acquisition, having a rating of at least A-1
from Standard & Poor's Corporation ("S&P") or at least P-1 from Moody's
Investors Service, Inc. ("Moody's"); (c) certificates of deposit or bankers'
acceptances maturing within six (6) months from the date of issuance thereof
issued by, or overnight reverse repurchase agreements from, any commercial
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia having combined capital and surplus of not
less than $250,000,000 and not subject to setoff rights in favor of such bank;
(d) money market funds; and (e) bonds of corporate or municipal issuers having
a rating of not less than "A" from Moody's or S&P and having a put feature of
not more than one year from the date of purchase.
"Closing Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of each Borrower appropriately
completed and in substantially the form of Exhibit 1.1(B).
"Closing Date" means November 1, 1995.
"Collateral" has the meaning assigned to that term in subsection 2.7.
"Collecting Banks" has the meaning assigned to that term in subsection
5.6.
"Commitment" or "Commitments" means the commitment or commitments of
Lenders to make Loans as set forth in subsections 2.1(A) and/or 2.1(B) and to
provide Lender Letters of Credit as set forth in subsection 2.1(G).
"Dating Program" means a Borrower's sales program pursuant to which such
Borrower offers extended dating terms on Accounts which arise from the sale of
Inventory to such Borrower's customers during certain prescribed months, which
shall at all times be consistent with such program as in effect on the Closing
Date.
"Default" means a condition or event that, after notice or lapse of time
or both, would constitute an Event of Default if that condition or event were
not cured or removed within any applicable grace or cure period.
"Default Rate" has the meaning assigned to that term in subsection
2.2(A).
"EBITDA" means, for any period, without duplication, the total of the
following for Borrowers and their Subsidiaries on a consolidated basis, each
calculated for such period: (1) net income determined in accordance with
GAAP; plus, to the extent included in the calculation of net income, (2) the
sum of (a) income and franchise taxes paid or accrued; (b) Interest Expenses,
net of interest income, paid or accrued; (c) interest paid in kind; (d)
amortization and depreciation and (e) other non-cash charges (excluding
accruals for cash expenses made in the ordinary course of business); less, to
the extent included in the calculation of net income, (3) the sum of (a) the
income of any Person (other than wholly-owned Subsidiaries of each Borrower)
in which any Borrower or a wholly owned Subsidiary of such Borrower has an
ownership interest unless such income is received by such Borrower or such
wholly-owned Subsidiary in a cash distribution; (b) gains or losses from sales
or other dispositions of assets (other than Inventory in the normal course of
business); and (c) extraordinary or non-recurring gains, but not net of
extraordinary or non-recurring "cash" losses.
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(C).
"Eligible Inventory" has the meaning assigned to that term in subsection
2.1(C).
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six (6) years been maintained for the employees of any Loan Party or any
current or former ERISA Affiliate.
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"Environmental Laws" means any present or future federal, state or local
law, rule, regulation or order relating to pollution, waste, disposal or the
protection of human health or safety, plant life or animal life, natural
resources or the environment.
"Equipment" means all "equipment" (as defined in the UCC), including,
without limitation, all machinery and all parts thereof and all additions and
accessions thereto and replacements therefor but does not include any
"fixtures" (as defined in the UCC) or motor vehicles, trucks, trailers,
vessels, aircraft and rolling stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who is
a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the
meaning of Section 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in subsection 8.1.
"Excess Availability" means at any time the amount by which the lesser
of (a) the Aggregate Maximum Revolving Loan Amount and (b) the Aggregate
Formula Borrowing Base exceeds the sum of (a) the outstanding principal
balance of the Revolving Loans plus (b) the aggregate amount of trade payables
of each Borrower which are due and owing beyond such Borrower's historical
payment practices.
"Excess Cash Flow" means, for any period, the greater of (A) zero (0);
or (B) without duplication, the total of the following for Borrowers and their
Subsidiaries on a consolidated basis, each calculated for such period: (1)
EBITDA; plus (2) tax refunds actually received; less (3) Capital Expenditures
(to the extent actually made in cash and/or due to be made in cash within such
period but in no event more than the amount permitted by subsection 6.5
hereof); less (4) income and franchise taxes paid or accrued excluding any
provision for deferred taxes included in the determination of net income; less
(5) decreases in deferred income taxes resulting from payments of deferred
taxes accrued in prior periods; less (6) Interest Expenses paid or accrued;
less (7) mandatory repayments of Indebtedness actually paid and/or due to be
paid within such period and permitted under subsection 7.5.
"Existing Facility" means Hibbett's location at 131 South 25th Street,
Birmingham, Alabama.
"Expiry Date" means November 1, 2000.
"Federal Funds Effective Rate" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Agent from three
Federal funds brokers of recognized standing selected by Agent.
"Fiscal Quarter" means each fiscal quarter of Borrowers ending on or
about April 30, July 31, October 31, and January 31 of each Fiscal Year.
"Fiscal Year" means each twelve-month period ending on or about January
31 of each year.
"Fixed Charge Coverage" means, for any period, Operating Cash Flow
divided by Fixed Charges.
"Fixed Charges" means, for any period, and each calculated for such
period (without duplication), (a) Interest Expenses paid or accrued by
Borrowers and their Subsidiaries; plus (b) scheduled payments of principal
with respect to all Indebtedness of Borrowers and their Subsidiaries; plus (c)
any provision for (to the extent it is greater than zero) income or franchise
taxes included in the determination of net income, excluding any provision for
deferred taxes; plus (d) Restricted Junior Payments made in cash to the extent
permitted under subsection 7.5(b) plus (e) payment of deferred taxes accrued
during any prior period.
"Formula Borrowing Base" has the meaning given to it in Section
2.1(B)(i).
"Funding Date" means the date of each funding of a Loan or issuance of a
Lender Letter of Credit.
"Funds" means, collectively The SK Equity Fund, L.P. and SK Investment
Fund, L.P.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination.
"Guarantor" has the meaning assigned to that term in the preamble to
this Agreement.
"Guaranty" means the continuing guaranty executed by Guarantor in
substantially the form of Exhibit 1.1(D), as such agreement may hereafter be
amended, restated, supplemented or otherwise modified from time to time.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "EP toxicity"; (b) oil, petroleum or petroleum
derived substances, natural gas, natural gas liquids or synthetic gas and
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or electrical equipment which contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million.
"Hibbett" has the meaning assigned to that term in the preamble to this
Agreement.
"Hibbett Team" has the meaning assigned to that term in the preamble to
this Agreement.
"Indebtedness", as applied to any Person, means without duplication: (a)
all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all or any part of
the deferred purchase price of property or services if the purchase price is
due more than six months from the date the obligation is incurred or is
evidenced by a note or similar written instrument; and (e) all indebtedness
secured by any Lien on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is nonrecourse to the credit of that Person.
"Individual Borrowing Base" has the meaning assigned to that term in
subsection 2.1(B).
"Intangible Assets" means all intangible assets (determined in
conformity with GAAP) including, without limitation, goodwill, trademarks,
tradenames, licenses, organizational costs, deferred amounts, covenants not to
compete, unearned income and restricted funds.
"Intellectual Property" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all
applications and registrations therefor, software or computer programs,
license rights, trade secrets, methods, processes, know-how, drawings,
specifications, descriptions, and all memoranda, notes and records with
respect to any research and development, whether now owned or hereafter
acquired, all goodwill associated with any of the foregoing, and proceeds of
all of the foregoing, including, without limitation, proceeds of insurance
policies thereon.
"Interest Coverage" means, for any period, Operating Cash Flow divided
by Interest Expenses.
"Interest Expenses" means, without duplication, for any period, the
following, for Borrowers and their Subsidiaries each calculated for such
period: interest expenses deducted in the determination of net income
(excluding the amortization of fees and costs with respect to the transactions
contemplated hereunder on the Closing Date which have been capitalized as
transaction costs).
"Interest Period" has the meaning assigned to that term in subsection
2.2(B).
"Interest Rate" has the meaning assigned to that term in subsection
2.2(A).
"Inventory" means all "inventory" (as defined in the UCC), including,
without limitation, finished goods, raw materials, work in process and other
materials and supplies used or consumed in a Person's business, and goods
which are returned or repossessed.
"Inventory Report" means a report duly executed by an officer of each
Borrower appropriately completed and in substantially the form of Exhibit
1.1(E).
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" or "Lenders" has the meaning assigned to that term in the
preamble to this Agreement.
"Lender Addition Agreement" means an agreement among Agent, a Lender and
such Lender's assignee regarding their respective rights and obligations with
respect to assignments of the Loans, the Commitments and other interests under
this Agreement and the other Loan Documents substantially in the form of
Exhibit 1.1(F).
"Lender Letter of Credit" has the meaning assigned to that term in
subsection 2.1(G).
"Letter of Credit Liability" means, all reimbursement and other
liabilities of each Borrower with respect to each Lender Letter of Credit,
whether contingent or otherwise, including: (a) the amount available to be
drawn or which may become available to be drawn; (b) all amounts which have
been paid or made available by the issuing bank to the extent not reimbursed;
and (c) all unpaid interest, fees and expenses.
"Letter of Credit Reserve" means, at any time, an amount equal to (a)
the aggregate amount of Letter of Credit Liability with respect to all Lender
Letters of Credit outstanding at such time plus (b) the aggregate amount
theretofore paid by Agent or any Lender under Lender Letters of Credit and not
debited to the Loan Account pursuant to subsection 2.1(G)(2) or otherwise
reimbursed by Borrowers.
"Liabilities" shall have the meaning given that term in accordance with
GAAP and shall include Indebtedness.
"LIBOR Rate" means, for each Interest Period, a rate of interest equal
to:
(a) the rate of interest determined by Agent at which deposits in
Dollars for the relevant Interest Period are offered based on information
presented on the Reuters Screen LIBOR Page as of 11:00 A.M. (London time) on
the day which is two (2) Business Days prior to the first day of such Interest
Period; provided that if at least two such offered rates appear on the Reuters
Screen LIBOR Page in respect of such Interest Period, the arithmetic mean of
all such rates (as determined by Agent) will be the rate used; provided
further that if Reuters ceases to provide LIBOR quotations, such rate shall be
the average rate of interest determined by Agent at which deposits in Dollars
are offered for the relevant Interest Period by Bankers Trust Company, Chase
Manhattan Bank, N.A. and Chemical Bank, or their successors, (or their
respective successors) to prime banks in the London interbank market as of
11:00 A.M. (London time) on the applicable interest rate determination date,
divided by
(b) a number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements in
effect on the day which is two (2) Business Days prior to the beginning of
such Interest Period (including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations of the Board of
Governors of the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) which are required to be maintained by a member
bank of the Federal Reserve System:
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16 of
1%) or, if there is not a nearest one sixteenth of one percent (1/16 of 1%),
to the next higher one sixteenth of one percent (1/16 of 1%).
"LIBOR Rate Loan" means at any time that portion of the Loans bearing
interest at rates determined by reference to the LIBOR Rate.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any Capital Lease in the
nature thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term Loan
Commitment or the Revolving Loan Commitment.
"Loan Documents" means this Agreement, the Notes, and all other
instruments, documents and agreements executed by or on behalf of each
Borrower and delivered concurrently herewith or at any time hereafter to or
for Agent or any Lender in connection with the Loans and other transactions
contemplated by this Agreement, all as amended, restated, supplemented or
modified from time to time.
"Loan Party" means, collectively, Borrowers, Guarantor and any other
Person (other than Agent or any Lender) which is or becomes a party to any
Loan Document.
"Loan Year" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of any Loan Party on an individual basis or taken as a whole or (b)
the ability of any Loan Party to perform its obligations under any Loan
Document to which it is a party or of Agent or any Lender to enforce or
collect any of the Obligations.
"Maximum Revolving Loan Amount" has the meaning assigned to that term in
subsection 2.1(B)(i).
"Net Worth" means, as of any date, with respect to Borrowers and their
Subsidiaries on a consolidated basis, the sum of the capital stock and
additional paid-in capital plus retained earnings (or minus accumulated
deficit) calculated in conformity with GAAP.
"New Distribution Facility" means the new distribution facility of
Borrowers currently under construction at 425 Industrial Lane, Oxmoor
Industrial Park, Birmingham, Alabama.
"Notes" means the Revolving Note and the Term Note.
"Notice of Borrowing" has the meaning assigned to that term in
subsection 2.1(D).
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Agent or to any
Lender under the Loan Documents including the principal amount of all debts,
claims and indebtedness (whether incurred before or after the Termination
Date), accrued and unpaid interest and all fees, costs and expenses, whether
primary, secondary, direct, contingent, Fixed Charge Coverage covenant or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable.
"Operating Cash Flow" means, for any period, (a) EBITDA; less (b) Capital
Expenditures.
"Permitted Contractual Landlords Liens" means security interests which
have been granted by a Borrower to landlords pursuant to the leases listed on
Schedule 1.1(D) and which (i) have not been perfected in accordance with
applicable law (other than perfected security interests constituting the
greater of one and 10% or less of the total number of such contractual
landlord security interests) and (ii) secure solely such Borrower's
obligations to pay rent and other amounts due under the applicable lease.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b)
statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen
and other similar liens imposed by law, which are incurred in the ordinary
course of business for sums not more than thirty (30) days delinquent; (c)
Liens (other than any Lien imposed by ERISA) incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money); (d)
easements, rights-of-way, restrictions, and other similar charges or
encumbrances not interfering in any material respect with the ordinary conduct
of the business of any Loan Party; (e) Liens for purchase money obligations or
Capital Leases, provided that (i) the purchase of the asset subject to any
such Lien is permitted under subsection 6.3, (ii) the Indebtedness secured by
any such Lien is permitted under subsection 7.1, and (iii) such Lien encumbers
only the asset so purchased; (f) Liens in favor of Agent, on behalf of
Lenders, (g) Liens on the New Distribution Facility to secure a Real Property
Financing, (h) Permitted Contractual Landlords Liens and (i) Liens set forth
on Schedule 1.1(B).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.
"Prepayment Fee" has meaning set forth in Section 2.3(C) hereof.
"Pro Forma" means the unaudited consolidated balance sheet of Borrowers
as of the Closing Date after giving effect to the transactions contemplated by
this Agreement. The Pro Forma is annexed hereto as Schedule 1.1(C).
"Pro Rata Share" means (a) with respect to matters relating to a
particular Commitment of a Lender, the percentage obtained by dividing (i)
such Commitment of that Lender by (ii) all such Commitments of all Lenders and
(b) with respect to all other matters, the percentage obtained by dividing (i)
the Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of
all Lenders, in either case as such percentage may be adjusted by assignments
permitted pursuant to subsection 9.1; provided, however, for the purpose
hereof, the amount of the Commitment shall be deemed to be the outstanding
balance of the respective Loan after the Commitment has been terminated.
"Projections" means Borrowers' forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a basis consistent with Borrowers'
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions.
"Purchase and Redemption Agreement" means that certain Stock Purchase and
Redemption Agreement dated the Closing Date by and among The SK Equity Fund,
L.P., a Delaware limited partnership, SK Investment Fund, L.P. a Delaware
limited partnership, Hibbett and the Anderson Group and all exhibits and
schedules attached thereto and all other documents and agreements executed in
connection therewith.
"Real Property" means the real property owned or leased by Borrowers or
any of their Subsidiaries as described on Schedule 1.1(A).
"Real Property Documentation" means all documents, agreements, mortgages
and instruments executed in connection with a Real Property Financing.
"Real Property Financing" means either (i) a financing provided by a
third-party lender in favor of a Borrower in an amount not to exceed
$5,000,000 in principal amount and bearing an effective cost of not more than
11-1/2 percent per annum (including principal and interest payments) or (ii) a
Sale Leaseback Transaction in respect of the New Distribution Facility having
an initial attributable principal amount not exceeding $5,000,000 and an
effective cost of not more than 11-1/2 percent per annum; provided, however,
any such financing or Sale Leaseback Transaction shall be secured solely by
the New Distribution Facility and the proceeds thereof shall be used to repay
the Saunders Subordinated Bridge Loan in full and the Anderson Subordinated
Bridge Loan in whole or in part.
"Reconciliation Report" means a report duly executed by the chief
executive officer or chief financial officer of each Borrower appropriately
completed and in substantially the form of Exhibit 1.1(G).
"Requisite Lenders" means Lenders holding or being responsible for
fifty-one percent (51%) or more of the sum of (a) outstanding Loans, (b)
outstanding Letter of Credit Liability and (c) unutilized Commitments.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of any Borrower or any of such Borrower's Subsidiaries now or hereafter
outstanding, except a stock dividend; (b) any payment or prepayment of
principal of, premium, if any, or interest on, or any redemption, conversion,
exchange, retirement, defeasance, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any Subordinated Debt or
any shares of any class of stock of any Borrower or any of such Borrower's
Subsidiaries now or hereafter outstanding; (c) any payment made to retire, or
to obtain the surrender of, any outstanding warrants, options or other rights
to acquire shares of any class of stock of any Borrower or any of such
Borrower's Subsidiaries now or hereafter outstanding; and (d) any payment by
any Borrower or any of such Borrower's Subsidiaries of any management fees or
similar fees to any Affiliate, whether pursuant to a management agreement or
otherwise.
"Revolving Loan" means all advances made by Lenders pursuant to
subsection 2.1(B) and any amounts added to the principal balance of the
Revolving Loan pursuant to this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment
of such Lender to make a portion of the Revolving Loan and to purchase
participations in Lender Letters of Credit pursuant to subsection 2.1(G) as
set forth on the signature page of this Agreement opposite such Lender's
signature or in the most recent Lender Addition Agreement, if any, executed by
such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders
to make the Revolving Loan and to purchase participations in Lender Letters of
Credit pursuant to subsection 2.1(G).
"Revolving Note" means each promissory note of Borrowers in
substantially the form of Exhibit 1.1(H), issued pursuant to subsection 2.1(B).
"Risk Participation Agreement" has the meaning assigned to that term in
subsection 2.1(G).
"Sale Leaseback Transaction" means an arrangement with any Person
providing for the leasing (otherwise than pursuant to a Capital Lease) by any
Borrower or any of such Borrower's Subsidiaries of any asset that has been or
is to be sold, assigned, transferred or otherwise disposed of by such Borrower
or such Subsidiary to such Person with the intention of entering into such a
lease.
"Saunders" means Saunders Karp & Co., L.P.
"Saunders Subordinated Bridge Loan" means the subordinated bridge loan
made by one of the Funds to Hibbett in the aggregate principal amount of
$2,500,000 pursuant to the Saunders Subordinated Bridge Loan Documentation.
"Saunders Subordinated Bridge Loan Documentation" means the notes
evidencing the Saunders Subordinated Bridge Loan and all documents and
agreements executed in connection therewith on terms and conditions
satisfactory to Agent.
"Settlement Date" has the meanings assigned to that term in subsection
9.6(A)(2).
"Subordinated Debt" means all Indebtedness owing by Borrowers under the
Subordinated Notes and the Bridge Loan Documentation.
"Subordinated Notes" means those certain 12% Subordinated Notes dated
the Closing Date issued by Borrowers in favor of one of the Funds and one or
more members of the Anderson Group in the aggregate principal sum of
$16,000,000 and all documents and agreements executed in connection therewith.
"Subsidiary" means, with respect to any Borrower or any Person, any
corporation, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Borrower or Person or one or more of the other Subsidiaries of that Borrower
or Person or a combination thereof.
"Tangible Net Worth" means, with respect to Borrowers and their
Subsidiaries on a consolidated basis, an amount equal to: (a) Net Worth; less
(b) Intangible Assets; less (c) prepaid expenses; and less (d) all obligations
owed to Borrowers and their Subsidiaries by any Affiliate of any Borrower or
any of such Borrower's Subsidiaries.
"Term Loan" means the $1,000,000 Term Loan made pursuant to subsection
2.1(A).
"Term Loan Commitment" means (a) as to any Lender, the commitment of
such Lender to make a portion of the Term Loan in the amount set forth on the
signature page of this Agreement opposite such Lender's signature or in the
most recent Lender Addition Agreement, if any, executed by such Lender and (b)
as to all Lenders, the aggregate commitment of all Lenders to make the Term
Loan.
"Term Note" means each promissory note of Borrowers in substantially the
form of Exhibit 1.1(I), issued pursuant to subsection 2.1(A).
"Termination Date" means the date this Agreement is terminated as set
forth in subsection 2.5.
"Testing Date" means any date at which the Fixed Charge Coverage
covenant set forth in Section 6.4 is tested.
"Total Loan Commitment" means the aggregate commitments of any Lender
with respect to the Revolving Loan Commitment and the Term Loan Commitment.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, as amended from time to time, and any successor
statute.
"Working Capital" means with respect to Borrowers and their Subsidiaries
on a consolidated basis: (a) current assets; less (b) current liabilities; and
less (c) the amount of any obligations owed to any Borrower or any of such
Borrower's Subsidiaries by any Affiliate of any Borrower or any of such
Borrower's Subsidiaries.
1.2. Accounting Terms. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other information
furnished to Agent or any Lender pursuant to subsection 5.1 shall be prepared
in accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis (except for changes approved by an Acceptable CPA which are
in accordance with GAAP). In the event any "Accounting Changes" (as defined
below) shall occur and such changes affect financial covenants, standards or
terms in this Agreement, then Borrowers and Lenders agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the financial condition of Borrowers shall be the same
after such Accounting Changes as if such Accounting Changes had not been made,
and until such time as such an amendment shall have been executed and
delivered by Borrowers and Requisite Lenders, (A) all financial covenants,
standards and terms in this Agreement shall be calculated and/or construed as
if such Accounting Changes had not been made, and (B) Borrowers shall prepare
footnotes to each Compliance Certificate and the financial statements required
to be delivered hereunder that show the differences between the financial
statements delivered (which reflect such Accounting Changes) and the basis for
calculating financial covenant compliance (without reflecting such Accounting
Changes). "Accounting Changes" means: (a) changes in accounting principles
required by GAAP and implemented by Borrowers; (b) changes in accounting
principles recommended by an Acceptable CPA; and (c) changes in carrying value
of Borrowers' (or any of their Subsidiaries') assets, liabilities or equity
accounts or any other adjustments that, in each case, were applicable to, but
not included in, the Pro Forma. All such adjustments resulting from
expenditures made subsequent to the Closing Date (including, but not limited
to, capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated as expenses in the period the expenditures are
made and deducted as part of the calculation of EBITDA in such period.
1.3. Other Definitional Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. References to the "Subordinated Notes" and the
"Subordinated Bridge Loan Documentation" shall mean the Subordinated Notes and
Subordinated Bridge Loan Documentation as in effect on the Closing Date. Any
of the terms defined in subsection 1.1 may, unless the context otherwise
requires, be used in the singular or the plural depending on the reference.
In this Agreement, words importing any gender include the other genders; the
words "including," "includes" and "include" shall be deemed to be followed by
the words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments,
assignments and other modifications are not prohibited by the terms of this
Agreement or any other Loan Document; references to Persons include their
respective permitted successors and assigns or, in the case of governmental
Persons, Persons succeeding to the relevant functions of such Persons; and all
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations.
SECTION 2. LOANS AND COLLATERAL
2.1. Loans.
(A) Term Loan. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of each
Borrower herein set forth, each Lender, severally, agrees to lend to
Borrowers, on the Closing Date, its Pro Rata Share of the Term Loan. The Term
Loan shall be funded in one drawing. Amounts borrowed under this subsection
2.1(A) and repaid may not be reborrowed. The outstanding balance of the Term
Loan shall be due and payable in full on November 1, 1997.
(B) Revolving Loan. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of each
Borrower herein set forth, each Lender, severally, agrees to lend to Borrowers
from time to time its Pro Rata Share of the Revolving Loan. The aggregate
amount of all Revolving Loan Commitments shall not exceed at any time the
Aggregate Maximum Revolving Amount. The Revolving Loan to each Borrower shall
not exceed at any time an amount outstanding greater than the lesser of (x) the
applicable Maximum Revolving Loan Amount or (y) such Borrower's Individual
Borrowing Base, and the aggregate outstanding principal balance of all
Revolving Loans at any time shall not exceed the Aggregate Maximum Revolving
Amount. Revolving Loans may be borrowed, repayed and reborrowed without
penalty, all in accordance with the terms and conditions of this Agreement.
(i) "Maximum Revolving Loan Amount" means, as to any
Borrower as of any date of determination, the lesser of (a) the Revolving Loan
Commitment minus the Letter of Credit Reserve applicable to such Borrower's
Letters of Credit minus the aggregate outstanding amount of (1) Revolving
Loans made to the other Borrower and (2) Letter of Credit Reserves applicable
to all other Letters of Credit and (b) the Individual Borrowing Base of such
Borrower minus the Letter of Credit Reserve applicable to such Borrower's
Letters of Credit ("Formula Borrowing Base").
(ii) "Individual Borrowing Base" means, as of any date of
determination, with respect to each Borrower an amount equal to the sum of (a)
eighty percent (80%) of Eligible Accounts plus (b) during the months of
January, April, August and September of each year up to sixty-five percent
(65%) of Eligible Inventory of such Borrower plus (c) during the months of
February, March, May, June, July, October, November and December of each year
up to seventy percent (70%) of Eligible Inventory of such Borrower plus (c)
the lesser of (x) $650,000 and (y) (i) sixty-five percent (65%) of Inventory
ordered but not received, the payment for which is to be made under
documentary Lender Letters of Credit ("Letter of Credit Inventory") less (ii)
duty and freight due with respect to the Letter of Credit Inventory, and less
in each case such reserves (the "Reserves") as Agent in its reasonable
business judgment elects to establish, including, without limitation, reserves
for shrinkage, markdowns, unpaid taxes, overdue and unpaid rent for each of
Borrowers' leased locations and for the preservation of the Collateral and
Agent's security interest therein. Agent shall endeavor to give Borrowing
Agent telephonic notice concurrently with any imposition of a Reserve;
provided, however, that Agent's failure to give such notice shall not result
in any liability to Agent or any Lender.
(C) Eligible Collateral.
"Eligible Accounts" means, as at any date of determination, the
aggregate of all Accounts that Agent, in its reasonable judgment, deems to be
eligible for borrowing purposes. Without limiting the generality of the
foregoing, unless otherwise agreed by Agent, the following Accounts are not
Eligible Accounts:
(1) Accounts (other than Accounts under the Dating
Program) which, at the date of issuance of the respective invoice therefor,
were payable more than sixty (60) days after the date of issuance of such
invoice and with respect to Accounts under the Dating Program which at the
date of issuance of the respective invoice therefor, were payable more than
one hundred eighty (180) days after the date of issuance of such invoice;
(2) Accounts (other than Accounts under the Dating
Program) which remain unpaid for more than sixty (60) days after the due date
specified in the original invoice or for more than ninety (90) days after the
invoice date if no due date was specified or with respect to Accounts under
the Dating Program, Accounts which remain unpaid for more than thirty (30)
days after the due date or one hundred ninety (190) days after the invoice
date;
(3) Accounts which are otherwise eligible with respect to
which the account debtor is owed a credit by Borrowers, but only to the extent
of such credit;
(4) Accounts due from a customer whose principal place of
business is located outside the United States of America;
(5) Accounts due from a customer which Agent has notified
Borrowers does not have a satisfactory credit standing;
(6) Accounts with respect to which the customer is the
United States of America, any state or any municipality, or any department,
agency or instrumentality thereof unless such Borrower has, with respect to
such Accounts, complied with the Federal Assignment of Claims Act (31 U.S.C.
Section 3727) or any applicable statute or municipal ordinance of similar
purpose and effect;
(7) Accounts with respect to which the customer is an
Affiliate of a Borrower or a director, officer, agent, stockholder or employee
of any Borrower or any of its Affiliates;
(8) Accounts due from a customer if more than twenty-five
percent (25%) of the aggregate amount of Accounts of such customer have at the
time remained unpaid for more than sixty (60) days after due date or ninety
(90) days after the invoice date if no due date was specified;
(9) Accounts with respect to which there is any unresolved
dispute with the respective customer (but only to the extent of such dispute);
(10) Accounts evidenced by an "instrument" or "chattel
paper" (as defined in the UCC) not in the possession of Agent, on behalf of
Lenders;
(11) Accounts with respect to which Agent, on behalf of
Lenders, does not have a valid, first priority and fully perfected security
interest;
(12) Accounts subject to any Lien except those in favor of
Agent, on behalf of Lenders;
(13) Accounts with respect to which the customer is the
subject of any bankruptcy or other insolvency proceeding;
(14) Accounts due from a customer to the extent that such
Accounts exceed in the aggregate an amount equal to twenty percent (20%) of
the aggregate of all Accounts at said date;
(15) Accounts with respect to which the customer's
obligation to pay is conditional or subject to a repurchase obligation or a
contractual right to return or with respect to which the goods or services
giving rise to such Account have not been delivered (or performed, as
applicable) and accepted by such account debtor, including progress billings,
bill and hold sales, guarantied sales, sale or return transactions, sales on
approval or consignment sales;
(16) Accounts with respect to which the customer is located
in Indiana, New Jersey, Minnesota, or any other state denying creditors access
to its courts in the absence of a Notice of Business Activities Report or
other similar filing, unless such Borrower has either qualified as a foreign
corporation authorized to transact business in such state or has filed a
Notice of Business Activities Report or similar filing with the applicable
state agency for the then current year;
(17) Accounts with respect to which the customer is a
creditor of any Borrower, provided, however, that any such Account shall only
be ineligible as to that portion of such Account which is less than or equal
to the amount owed by such Borrower to such Person.
(18) Accounts of Hibbett.
"Eligible Inventory" means, as at any date of determination, the
value (determined at the lower of cost or market on a first-in, first-out
basis) of all Inventory owned by and in the possession of each Borrower and
located in the United States of America that Agent, in its reasonable credit
judgment, deems to be eligible for borrowing purposes. Without limiting the
generality of the foregoing, unless otherwise agreed by Agent, the following
is not Eligible Inventory: (a) work-in-process and raw materials; (b)
finished goods which do not meet the specifications of the purchase order for
such goods; (c) Inventory which Agent determines is unacceptable for borrowing
purposes due to age, quality, type, category and/or quantity; (d) Inventory
with respect to which Agent, on behalf of Lenders, does not have a valid,
first priority (subject to statutory landlord's Liens described in clause (e)
of this definition) and fully perfected security interest; (e) Inventory with
respect to which there exists any Lien (other than statutory landlords' Liens
and Permitted Contractual Landlords Liens) in favor of any Person other than
Agent, on behalf of Lenders; and (f) Inventory produced in violation of the
Fair Labor Standards Act and subject to the so-called "hot goods" provisions
contained in Title 29 U.S.C. 215 (a)(i).
(D) Borrowing Mechanics. (1) LIBOR Rate Loans made on any
Funding Date shall be in an aggregate minimum amount of $500,000 and integral
multiples of $100,000 in excess of such amount. (2) On any day when any
Borrower desires to borrow under this subsection 2.1, Borrowing Agent shall
give Agent telephonic notice of the proposed borrowing by 11:00 a.m. Central
time on the Funding Date of a Base Rate Loan and two (2) Business Days in
advance of the Funding Date of a LIBOR Rate Loan, which notice (a "Notice of
Borrowing") must also specify the proposed Funding Date (which shall be a
Business Day), whether such Loans shall consist of Base Rate Loans or LIBOR
Rate Loans and for LIBOR Rate Loans the Interest Period applicable thereto.
Any such telephonic notice shall be confirmed in writing on the same day.
Neither Agent nor any Lender shall incur any liability to Borrowers for acting
upon any telephonic notice Agent believes in good faith to have been given by
a duly authorized officer or other person authorized to borrow on behalf of
Borrowers or for otherwise acting in good faith under this subsection 2.1(D).
Neither Agent nor any Lender will make any advance pursuant to any telephonic
notice unless Agent has also received the most recent Borrowing Base
Certificate and all other documents required under subsection 5.1(F) by 11:00
a.m. Central time. Each advance made to Borrowers under the Revolving Loan
shall be deposited by wire transfer in immediately available funds in such
account as Borrowing Agent may from time to time designate to Agent in
writing. Unless payment is otherwise timely made by Borrowers, the becoming
due of any amount required to be paid under this Agreement or any of the other
Loan Documents as principal, accrued interest and fees shall be deemed
irrevocably to be a request by Borrowers for a Base Rate Revolving Loan on the
due date of, and in the amount required to pay, such principal, accrued
interest and fees, and the proceeds of each such Revolving Loan if made by
Agent or any Lender shall be disbursed by Agent or such Lender by way of
direct payment of the relevant obligation.
(E) Notes. Borrowers shall execute and deliver to each Lender
(i) a Term Note to evidence such Lender's portion of the Term Loan, such Term
Note to be in the principal amount of the respective Term Loan Commitment of
such Lender and with other appropriate insertions, and (ii) a Revolving Note
to evidence such Lender's portion of the Revolving Loan, such Revolving Note
to be in the principal amount of the Revolving Loan Commitment of such Lender
and with other appropriate insertions. In the event of an assignment under
subsection 9.1, Borrowers shall, upon surrender of the assigning Lender's
Notes, issue new Notes to reflect the new Commitments of the assigning Lender
and its assignee (or in the case of the Term Note, the outstanding principal
amount of the assigning Lender's and its assignee's portions of the Term Loan).
(F) Evidence of Revolving Loan Obligations. The advances
constituting the Revolving Loan shall be evidenced by this Agreement, the
Revolving Note, and notations made from time to time by Agent in its books and
records, including computer records. Agent shall record in its books and
records, including computer records, the principal amount of the Revolving
Loans owing to each Lender from time to time. Agent's books and records shall
constitute presumptive evidence, absent manifest error, of the accuracy of the
information contained therein. Failure by Agent to make any such notation or
record shall not affect the obligations of Borrowers to Lenders with respect
to the Revolving Loans.
(G) Letters of Credit. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of each
Borrower herein set forth, the Revolving Loan Commitments may, in addition to
advances under the Revolving Loan, be utilized, upon the request of Borrowing
Agent, for (i) the issuance of letters of credit by Agent; or with Agent's
consent any Lender, or (ii) the issuance by Agent of risk participations (a
Risk Participation Agreement) to banks to induce such banks to issue letters
of credit for the account of Borrowers (each of (i) and (ii) above a "Lender
Letter of Credit"). Each Lender shall be deemed to have purchased a
participation in each Lender Letter of Credit issued on behalf of a Borrower
in an amount equal to its Pro Rata Share thereof. In no event shall any
Lender Letter of Credit be issued to the extent that a Revolving Loan in the
same amount would not have been available to such Borrower under subsection
2.1(B) hereof.
(1) Maximum Amount. The aggregate amount of Letter of
Credit Liability with respect to all Lender Letters of Credit outstanding at
any time shall not exceed $1,000,000.
(2) Reimbursement. Each Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind, to reimburse Agent or the issuer for any
amounts paid with respect to a Lender Letter of Credit including all fees,
costs and expenses paid to any bank that issues Bank Letters of Credit
("Reimbursement Obligation"). Each Borrower hereby authorizes and directs
Agent, at Agent's option, to debit such Borrower's account (by increasing the
principal balance of the Revolving Loan) in the amount of any payment made
with respect to any Lender Letter of Credit ("Agent's Option"). All
Reimbursement Obligations that are not immediately repaid by Borrowers with
the proceeds of a Revolving Loan or otherwise shall bear interest at the
Default Rate applicable to Revolving Loans; provided, however, that if Agent
chooses not to exercise Agent's Option at a time when no Event of Default has
occurred and is then continuing and there would be Excess Availability in an
amount greater than $1.00 if such Agent's Option were then exercised, then the
Reimbursement Obligations shall bear interest at the rate then applicable to a
Base Rate Loan (assuming no Event of Default had occurred and was continuing)
rather than at the Default Rate. Agent will endeavor to give Borrowers notice
of any failure on the part of any Borrower to immediately repay Lenders as
provided for in the immediately preceding sentence and the consequent
imposition of the Default Rate for any Lender Letter of Credit provided that
Agent's failure to give such notice shall not result in any liability to Agent
nor preclude accrual of interest at the Default Rate. In the event that
Borrowers shall fail to reimburse Agent on the date of any payment under a
Lender Letter of Credit in an amount equal to the amount of such payment,
Agent shall promptly notify each Lender of the unreimbursed amount of such
payment together with accrued interest thereon and each Lender, on the next
Business Day, shall deliver to Agent an amount equal to its respective
participation in same day funds. The obligation of each Lender to deliver to
Agent an amount equal to its respective participation pursuant to the
foregoing sentence shall be absolute and unconditional and such remittance
shall be made notwithstanding the occurrence or continuation of an Event of
Default or Default or the failure to satisfy any condition set forth in
Section 3. In the event any Lender fails to make available to Agent the
amount of such Lender's participation in such Lender Letter of Credit, Agent
shall be entitled to recover such amount on demand from such Lender together
with interest at the Base Rate.
(3) Conditions of Issuance. In addition to all other
terms and conditions set forth in this Agreement, the issuance of any Lender
Letter of Credit shall be subject to the conditions precedent that the letter
of credit which a Borrower requests be in such form, be for such amount,
contain such terms and support such transactions as are reasonably
satisfactory to Agent. The expiration date of each Lender Letter of Credit
shall be on a date which is at least thirty (30) days prior to the Expiry Date.
(4) Request for Letters of Credit. Borrowing Agent shall
give Agent at least five (5) Business Days prior notice specifying the date a
Lender Letter of Credit is to be issued, identifying the beneficiary and the
Borrower which is requesting the Letter of Credit and describing the nature of
the transactions proposed to be supported thereby. The notice shall be
accompanied by the form of the letter of credit being requested.
(H) Other Letter of Credit Provisions.
(1) Obligations Absolute. The obligation of Borrowers to
reimburse Agent or any Lender for payments made under any Lender Letter of
Credit shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances including
the following circumstances:
(a) any lack of validity or enforceability of any
Lender Letter of Credit or any other agreement;
(b) the existence of any claim, set-off, defense or
other right which any Borrower, any Affiliate of a Borrower, Agent or any
Lender, on the one hand, may at any time have against any beneficiary or
transferee of any Lender Letter of Credit or Bank Letter of Credit (or any
Persons for whom any such transferee may be acting), Agent, any Lender or any
other Person, on the other hand, whether in connection with this Agreement,
the transactions contemplated herein or any unrelated transaction (including
any underlying transaction between any Borrower or any of its Affiliates and
the beneficiary of the letter of credit);
(c) any draft, demand, certificate or any other
document presented under any Lender Letter of Credit or Bank Letter of Credit
which is forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(d) payment under any Lender Letter of Credit against
presentation of a demand, draft or certificate or other document which does
not comply with the terms of such letter of credit; provided that, in the case
of any payment by Lender under any Lender Letter of Credit, Lender has not
acted with gross negligence or willful misconduct (as determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Lender Letter of Credit complies on its face with any applicable requirements
for a demand for payment under such Lender Letter of Credit;
(e) any other circumstance or happening whatsoever,
which is similar to any of the foregoing; or
(f) the fact that a Default or an Event of Default
shall have occurred and be continuing.
(2) Nature of Lender's Duties. As between Agent and
Lenders, on the one hand, and Borrowers, on the other hand, Borrowers assume
all risks of the acts and omissions of, or misuse of any Lender Letter of
Credit by the beneficiary thereof. In furtherance and not in limitation of
the foregoing, neither Agent nor any Lender shall be responsible: (a) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document by any party in connection with the application for and issuance of
any Lender Letter of Credit, even if it should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Lender Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason; (c) for failure of the
beneficiary of any Lender Letter of Credit to comply fully with conditions
required in order to demand payment thereunder; provided that, in the case of
any payment by Agent or any Lender under any Lender Letter of Credit, Agent or
Lender has not acted with gross negligence or willful misconduct (as
determined by a court of competent jurisdiction) in determining that the
demand for payment under such Lender Letter of Credit complies on its face
with any applicable requirements for a demand for payment thereunder; (d) for
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they
be in cipher; (e) for errors in interpretation of technical terms; (f) for any
loss or delay in the transmission or otherwise of any document required in
order to make a payment under any Lender Letter of Credit; (g) for the credit
of the proceeds of any drawing under any Lender Letter of Credit; and (h) for
any consequences arising from causes beyond the control of Agent or any Lender
as the case may be. None of the above shall affect, impair, or prevent the
vesting of any of Agent's or any Lender's rights or powers hereunder.
(3) Liability. In furtherance and extension of and not in
limitation of, the specific provisions herein above set forth, any action
taken or omitted by Agent or any Lender under or in connection with any Lender
Letter of Credit, if taken or omitted in good faith, shall not put Agent or
any Lender under any resulting liability to Borrowers.
2.2. Interest.
(A) Rate of Interest. The Loans and all other Obligations shall
bear interest from the date such Loans are made or such other Obligations
become due to the date paid at a rate per annum equal to (i) in the case of
Base Rate Loans, the Base Rate plus (a) one quarter of one percent (0.25%)
with respect to the Revolving Loan and (b) one and one half percent (1.50%)
with respect to the Term Loan and (ii) in the case of LIBOR Rate Loans, the
LIBOR Rate plus (a) two and one quarter percent (2.25%) with respect to the
Revolving Loan, and (b) three and one half percent (3.50%) with respect to the
Term Loan (the "Interest Rate"). The applicable basis for determining the
rate of interest shall be selected by Borrowing Agent initially at the time a
notice of borrowing is given pursuant to subsection 2.1(D). The basis for
determining the interest rate with respect to any Loan or a portion of any
Loan may be changed from time to time pursuant to subsection 2.2(E). If on
any day a Loan or a portion of any Loan is outstanding with respect to which
notice has not been delivered to Agent in accordance with the terms of this
Agreement specifying the basis for determining the rate of interest, then for
that day that Loan or portion thereof shall bear interest determined by
reference to the Base Rate.
After the occurrence and during the continuance of an Event of Default
(i) the Loans and all other Obligations shall, at the option of Requisite
Lenders, bear interest at a rate per annum equal to two percent (2%) plus the
applicable Interest Rate (the "Default Rate"), (ii) each LIBOR Rate Loan shall
automatically convert to a Base Rate Loan at the end of any applicable
Interest Period and (iii) no Loans may be converted to LIBOR Rate Loans.
(B) Interest Periods. In connection with each LIBOR Rate Loan,
Borrowing Agent shall elect an interest period (each an "Interest Period") to
be applicable to such Loan, which Interest Period shall be either a one, two,
three or six month period; provided that:
(1) the initial Interest Period for any Loan shall
commence on the Funding Date of such Loan;
(2) in the case of successive Interest Periods, each
successive Interest Period shall commence on the day on which the immediately
preceding Interest Period expires;
(3) if an Interest Period expiration date is not a
Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided that if any Interest Period expiration date is not a
Business Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the immediately
preceding Business Day;
(4) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to part (5), below, end on the last Business Day of a calendar
month;
(5) no Interest Period shall extend beyond the Termination
Date;
(6) no Interest Period may extend beyond a scheduled
principal payout date unless the sum of (a) the aggregate principal amount of
Loans that are Base Rate Loans or that have Interest Periods expiring on or
before such date and (b) the lesser of the (i) available, unused Revolving
Loan Commitment or (ii) Borrowing Base equals or exceeds the principal amount
required to be paid on the Loans on such date; and
(7) there shall be no more than six (6) Interest Periods
relating to LIBOR Rate Loans outstanding at any time.
(C) Computation and Payment of Interest. Interest on the Loans
and all other Obligations shall be computed on the daily principal balance on
the basis of a 360 day year for the actual number of days elapsed in the
period during which it accrues. In computing interest on any Loan, the date
of funding of the Loan or the first day of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted from a LIBOR
Rate Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate
Loan, shall be included and the date of payment of such Loan or the expiration
date of an Interest Period applicable to such Loan, or with respect to a Base
Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such
Base Rate Loan to such LIBOR Rate Loan, shall be excluded; provided that if a
Loan is repaid on the same day on which it is made, one day's interest shall
be paid on that Loan. Interest on Base Rate Loans and all other Obligations
other than LIBOR Rate Loans shall be payable to Agent for benefit of Lenders
monthly in arrears on the first day of each month, on the date of any
prepayment of Loans and at maturity, whether by acceleration or otherwise.
Interest on LIBOR Rate Loans shall be payable to Agent for benefit of Lenders
on the last day of the applicable Interest Period for such Loan, on the date
of any prepayment of the Loans, and at maturity, whether by acceleration or
otherwise. In addition, for each LIBOR Rate Loan having an Interest Period
longer than three (3) months, interest accrued on such Loan shall also be
payable on the last day of each three (3) month interval during such
Interest Period.
(D) Interest Laws. Notwithstanding any provision to the
contrary contained in this Agreement or any other Loan Document, Borrowers
shall not be required to pay, and neither Agent nor any Lender shall be
permitted to collect, any amount of interest in excess of the maximum amount
of interest permitted by law ("Excess Interest"). If any Excess Interest is
provided for or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any other Loan Document, then in such
event: (1) the provisions of this subsection shall govern and control; (2)
neither Borrowers nor any Loan Party shall be obligated to pay any Excess
Interest; (3) any Excess Interest that Agent or any Lender may have received
hereunder shall be, at such Lender's option, (a) applied as a credit against
the outstanding principal balance of the Obligations or accrued and unpaid
interest (not to exceed the maximum amount permitted by law), (b) refunded to
the payor thereof, or (c) any combination of the foregoing; (4) the interest
rate(s) provided for herein shall be automatically reduced to the maximum
lawful rate allowed from time to time under applicable law (the "Maximum
Rate"), and this Agreement and the other Loan Documents shall be deemed to
have been and shall be, reformed and modified to reflect such reduction; and
(5) neither Borrowers nor any Loan Party shall have any action against Agent
or any Lender for any damages arising out of the payment or collection of any
Excess Interest. Notwithstanding the foregoing, if for any period of time
interest on any Obligations is calculated at the Maximum Rate rather than the
applicable rate under this Agreement, and thereafter such applicable rate
becomes less than the Maximum Rate, the rate of interest payable on such
Obligations shall remain at the Maximum Rate until each Lender shall have
received the amount of interest which such Lender would have received during
such period on such Obligations had the rate of interest not been limited to
the Maximum Rate during such period.
(E) Conversion or Continuation. Subject to the provisions of
subsection 2.2(A) Borrowers shall have the option to (1) convert at any time
all or any part of outstanding Loans equal to $500,000 and integral multiples
of $100,000 in excess of that amount from Base Rate Loans to LIBOR Rate Loans
or (2) upon the expiration of any Interest Period applicable to a LIBOR Rate
Loan, to (a) continue all or any portion of such Loan equal to $500,000 and
integral multiplies of $100,000 in excess of that amount as a LIBOR Rate Loan
or (b) convert all or any portion of such Loan to a Base Rate Loan. The
succeeding Interest Period(s) of such continued or converted Loan commence on
the last day of the Interest Period of the Loan to be continued or converted;
provided that no outstanding Loan may be continued as, or be converted into, a
LIBOR Rate Loan, when any Event of Default or Default has occurred and is
continuing.
Borrowing Agent shall deliver a notice of conversion/continuation
to Agent no later than 11:00 a.m. (Central time) at least two (2) Business
Days in advance of the proposed conversion/ continuation date ("Notice of
Conversion/Continuation"). A Notice of Conversion/Continuation shall certify:
(1) the proposed conversion/continuation date (which shall be a Business Day);
(2) the amount of the Loan to be converted/continued; (3) the nature of the
proposed conversion/continuation; (4) in the case of conversion to, or a
continuation of, a LIBOR Rate Loan, the requested Interest Period; and (5)
that no Default or Event of Default has occurred and is continuing or would
result from the proposed conversion/continuation.
In lieu of delivering the Notice of Conversion/Continuation,
Borrowing Agent may give Agent telephonic notice by the required time of any
proposed conversion/continuation under this subsection 2.2(E); provided that
such notice shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Agent on or before the proposed
conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to
Borrowers in acting upon any telephonic notice referred to above that Agent
believes in good faith to have been given by a duly authorized officer or
other person authorized to act on behalf of Borrowers or for otherwise acting
in good faith under this subsection 2.2(E) and upon conversion/continuation by
Lenders in accordance with this Agreement pursuant to any telephonic notice,
Borrowers shall have effected such conversion or continuation, as the case may
be, hereunder.
2.3. Fees.
(A) Unused Line Fee. Borrowers shall pay to Agent, for the
benefit of Lenders, a fee in an amount equal to the Revolving Loan Commitment
less the sum of the average daily balance of the Revolving Loan plus the
average daily face amount of the Lender Letter of Credit Reserve during the
preceding Fiscal Quarter multiplied by three eights percent (3/8%) per annum,
such fee to be calculated on the basis of a 360 day year for the actual number
of days elapsed and to be payable quarterly in arrears on the first day of the
first Fiscal Quarter following the Closing Date and on the first day of each
Fiscal Quarter thereafter.
(B) Letter of Credit Fees. Borrowers shall pay to Agent for the
benefit of Lenders, a fee with respect to the Lender Letters of Credit in the
amount of the average daily amount of Letter of Credit Liability outstanding
during such Fiscal Quarter multiplied by two percent (2%) per annum. Such
fees will be calculated on the basis of a 360 day year for the actual number
of days elapsed and will be payable quarterly in arrears on the first day of
each Fiscal Quarter. Borrowers shall also reimburse Agent for any and all fees
and expenses, if any, paid by Agent or any Lender to the issuer of Bank
Letters of Credit.
(C) Prepayment Fees. If Borrowers voluntarily terminate the
Revolving Loan Commitment, Borrowers at the time of such termination, shall
prepay all outstanding Obligations and in addition shall pay to Agent, for the
benefit of Lenders, as compensation for the costs of being prepared to make
funds available to Borrowers under this Agreement, and not as a penalty, an
amount (the "Prepayment Fee") determined by multiplying the percentage set
forth below by the Revolving Loan Commitment plus the outstanding balance of
the Term Loan: three percent (3%) upon a prepayment during the first Loan
Year; two percent (2%) upon a prepayment during the second Loan Year; and one
percent (1%) upon a prepayment during third Loan Year and each Loan Year
thereafter; provided, however, the Prepayment Fee shall be waived (a) if
termination is made in conjunction with an Initial Public Offering or private
placement of common stock of Hibbett ("Offering") and Borrowers have in good
faith provided Agent and Lenders with reasonable opportunity to provide any
senior financing sought in conjunction with such Offering including, without
limitation, the right to match the most favorable terms offered by any other
bona fide third- party lender or (b) if prepayment is made within ninety (90)
days before the Expiry Date.
(D) Audit Fees. Borrowers agree to pay to Agent for its own
account an audit fee for each inspection equal to $650.00 per auditor per day
or any portion thereof, together with out of pocket expenses; provided,
however, so long as no Event of Default or Default has occurred and is
continuing, Borrowers shall pay fees and reasonable out-of-pocket costs and
disbursements for (i) no more than four (4) such inspections in any Fiscal
Year and (ii) inspections lasting not more than seven (7) days each.
(E) Other Fees and Expenses. Borrowers shall pay to Agent, for
its own account, all charges for returned items and all other bank charges
incurred by Agent, as well as Agent's standard wire transfer charges for each
wire transfer made under this Agreement.
(F) Closing Fee. Borrowers shall pay to Agent for the ratable
benefit of Lenders on the Closing Date, a closing fee in the amount of
$260,000.
(G) Agency Fee. Borrowers shall pay Agent an annual agency fee
in an amount equal to $26,000 per year payable on the Closing Date and on the
anniversary date of the Closing Date during each year of the term hereof and
such fee shall in no event be subject to any proration.
2.4. Payments and Prepayments.
(A) Manner and Time of Payment. In its sole discretion, Agent
may charge principal, interest and fees and all other amounts ("Other
Amounts") due and payable hereunder, to the Revolving Loan, all as set forth
on Agent's books and records. If Agent elects to bill Borrowers for any
amount due hereunder, such amount shall be immediately due and payable with
interest thereon as provided herein. Agent shall endeavor to provide
Borrowers with concurrent notice of any charge of Other Amounts to the
Revolving Loan. All payments made by Borrowers with respect to the
Obligations shall be made without deduction, defense, setoff or counterclaim.
All payments to Agent hereunder shall, unless otherwise directed by Agent, be
made to Agent's Account or in accordance with subsection 5.6. Proceeds
remitted to Agent's Account shall be credited to the Obligations on the first
Business Day following the day such proceeds were received; provided, however,
for the purpose of calculating interest on the Obligations, such funds shall
be deemed received on the first Business Day thereafter. Proceeds remitted to
Agent's Account by wire transfer shall be credited to the Obligations on the
Business Day received; provided, however, for the purpose of calculating
interest on the Obligations such funds shall be deemed received the first
Business Day thereafter.
(B) Mandatory Prepayments.
(1) Overadvance. At any time that the principal balance
of the Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrowers
shall, upon demand by Agent, immediately repay the Revolving Loan to the
extent necessary to reduce the principal balance to an amount that is equal to
or less than the Maximum Revolving Loan Amount.
(2) Proceeds of Asset Dispositions. Immediately upon
receipt by any Borrower of proceeds of Inventory, and within five (5) Business
Days upon receipt by any Borrower of proceeds of any other Asset Disposition
(in one or a series of related transactions) (other than a sale of the
Existing Facility or a sale of or Sale Leaseback Transaction involving the New
Distribution Facility in connection with a Real Property Financing), which
proceeds exceed $25,000 (it being understood that if the proceeds exceed
$25,000, the entire amount and not just the portion above $25,000 shall be
subject to this subsection 2.4(B)(2)), Borrowers shall prepay the Loans in an
amount equal to such proceeds net of actual cash costs incurred in connection
with such Asset Disposition and taxes paid or payable as a result thereof. If
any Borrower reasonably expects net proceeds of any Asset Disposition to be
reinvested within 180 days to repair or replace such assets with like assets,
such Borrower shall deliver such net proceeds to Agent to be applied to the
Revolving Loan, and such Borrower may, so long as no Default or Event of
Default shall have occurred and be continuing, reborrow such net proceeds only
for such repair or replacement. If any Borrower fails to reinvest such net
proceeds within 180 days, such Borrower hereby authorizes Lenders to make a
Revolving Loan to repay the Term Loan as required hereby. All such
prepayments shall first be applied in payment of the Term Loan and then, upon
payment in full of the Term Loan, such payments shall be applied to the
outstanding balance of the Revolving Loans.
(3) Prepayments from Excess Cash Flow. So long as the
Term Loan is outstanding, within 120 days after the end of each Fiscal Year,
Borrowers shall prepay the Term Loan in an amount equal to fifty percent (50%)
of Excess Cash Flow for such prior Fiscal Year calculated on the basis of the
audited financial statements for such Fiscal Year delivered to Agent and
Lenders pursuant to subsection 5.1(c). Concurrently with the making of any
such payment, Borrowers shall deliver to Agent and Lenders a certificate of
each Borrower's chief executive officer or chief financial officer
demonstrating its calculation of the amount required to be paid.
(C) Voluntary Prepayments and Repayments. The Revolving Loan
Commitment may not be reduced and may only be terminated in full after or
concurrently with the payment in full of the Term Loan. Upon termination of
the Revolving Loan Commitment, Borrowers shall cause Agent and each Lender to
be released from all liability under any Lender Letters of Credit or, at
Agent's option, Borrowers will deposit cash collateral with Agent in an amount
equal to 105% of the Letter of Credit Liability that will remain outstanding
after prepayment or repayment. Revolving Loans may be repaid in full or in
part without penalty.
(D) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees
due hereunder.
2.5. Term of this Agreement. This Agreement shall be effective until
the earlier of the Expiry Date and the date this Agreement is terminated
pursuant to Section 8.3 hereof (the "Termination Date"). The Commitments
shall (unless earlier terminated) terminate on the Termination Date. On the
Termination Date, all Obligations shall become immediately due and payable
without notice or demand. Notwithstanding any termination, until all
Obligations have been fully paid and satisfied, Agent, on behalf of Lenders,
shall be entitled to retain security interests in and liens upon all
Collateral, and even after payment of all Obligations hereunder, each
Borrower's obligation to indemnify Agent and each Lender in accordance with
the terms hereof shall continue.
2.6. Statements. Agent shall render a monthly statement of account to
Borrowing Agent within twenty (20) days after the end of each month. Such
statement of account shall constitute an account stated unless Borrowing Agent
makes written objection thereto within thirty (30) days from the date such
statement is mailed to Borrowing Agent. Borrowers jointly and severally
promise to pay all of its Obligations as such amounts become due or are
declared due pursuant to the terms of this Agreement.
2.7. Grant of Security Interest. To secure the payment and performance
of the Obligations, including all renewals, extensions, restructurings and
refinancings of any or all of the Obligations, each Borrower hereby grants to
Agent, on behalf of Lenders, a continuing security interest, lien and mortgage
in and to all right, title and interest of Borrowers in the following property
of Borrowers, whether now owned or existing or hereafter acquired or arising
and regardless of where located (all being collectively referred to as the
"Collateral"): (A) Accounts, and all guaranties and security therefor, and
all goods and rights represented thereby or arising therefrom including the
right of stoppage in transit, replevin and reclamation; (B) Inventory; (C)
general intangibles (as defined in the UCC); (D) documents (as defined in the
UCC) or other receipts covering, evidencing or representing goods; (E)
instruments (as defined in the UCC); (F) chattel paper (as defined in the
UCC); (G) Equipment; (H) Intellectual Property; (I) all deposit accounts of
each Borrower maintained with any bank or financial institution; (J) all cash
and other monies and property of each Borrower in the possession or under the
control of Agent, any Lender or any participant; (K) all books, records,
ledger cards, files, correspondence, computer programs, tapes, disks and
related data processing software that at any time evidence or contain
information relating to any of the property described above or are otherwise
necessary or helpful in the collection thereof or realization thereon; and (L)
proceeds of all or any of the property described above, including, without
limitation, the proceeds of any insurance policies covering any of the above
described property.
2.8. Capital Adequacy and Other Adjustments. In the event Agent or any
Lender shall have determined that the adoption after the date hereof of any
law, treaty, governmental (or quasi-governmental) rule, regulation, guideline
or order regarding capital adequacy, reserve requirements or similar
requirements or compliance by Agent or such Lender or any corporation
controlling Agent or such Lender with any request or directive regarding
capital adequacy, reserve requirements or similar requirements (whether or not
having the force of law and whether or not failure to comply therewith would
be unlawful) from any central bank or governmental agency or body having
jurisdiction does or shall have the effect of increasing the amount of
capital, reserves or other funds required to be maintained by Agent or such
Lender or any corporation controlling Agent or such Lender and thereby
reducing the rate of return on Agent's or such Lender's or such corporation's
capital as a consequence of its obligations hereunder, then Borrowers shall
from time to time within fifteen (15) days after notice and demand from such
Lender (with a copy to Agent) or Agent (together with the certificate referred
to in the next sentence) pay to Agent or such Lender additional amounts
sufficient to compensate Agent or such Lender for such reduction. A
certificate as to the amount of such cost and showing the basis of the
computation of such cost submitted by Agent or any Lender to Borrowers shall,
absent manifest error, be final, conclusive and binding for all purposes.
2.9. Taxes.
(A) No Deductions. Any and all payments or reimbursements made
hereunder or under the Term Note shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto; excluding, however,
the following: taxes imposed on the net income of any Lender or Agent by the
jurisdiction under the laws of which Agent or such Lender is organized or
doing business or any political subdivision thereof and taxes imposed on its
net income by the jurisdiction of Agent's or such Lender's applicable lending
office or any political subdivision thereof (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
excluding such taxes imposed on net income, herein "Tax Liabilities"). If
Borrowers shall be required by law to deduct any such Tax Liabilities from or
in respect of any sum payable hereunder to Agent or any Lender, then the sum
payable hereunder shall be increased as may be necessary so that, after making
all required deductions, Agent or such Lender receives an amount equal to the
sum it would have received had no such deductions been made.
(B) Changes in Tax Laws. In the event that, subsequent to the
Closing Date, (i) any changes in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (ii) any new law,
regulation, treaty or directive enacted or any interpretation or application
thereof, or (iii) compliance by Lender with any request or directive (whether
or not having the force of law) from any governmental authority, agency or
instrumentality:
(1) does or shall subject Agent or any Lender to any tax
of any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made or Lender Letters of Credit issued hereunder, or
change the basis of taxation of payments to Agent or such Lender of principal,
fees, interest or any other amount payable hereunder (except for net income
taxes, or franchise taxes imposed in lieu of net income taxes, imposed
generally by federal, state or local taxing authorities with respect to
interest or commitment or other fees payable hereunder or changes in the rate
of tax on the overall net income of Agent or such Lender); or
(2) does or shall impose on Agent or any Lender any other
condition or increased cost in connection with the transactions contemplated
hereby or participations herein; and the result of any of the foregoing is to
increase the cost to Agent or such Lender of issuing any Lender Letter of
Credit or making or continuing any LIBOR Rate Loan hereunder, as the case may
be, or to reduce any amount receivable hereunder, then, in any such case,
Borrowers shall promptly pay to Agent or such Lender, upon its demand, any
additional amounts necessary to compensate Agent or such Lender, on an
after-tax basis, for such additional cost or reduced amount receivable, as
determined by Agent or such Lender with respect to this Agreement or the other
Loan Documents. If Agent or any Lender becomes entitled to claim any
additional amounts pursuant to this subsection, it shall promptly notify
Borrowers of the event by reason of which Agent or such Lender has become so
entitled. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by Agent or any Lender to Borrowers shall, absent
manifest error, be final, conclusive and binding for all purposes.
(C) Foreign Lenders. Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which
payments to be made under this Agreement or under the Term Note are exempt
from United States withholding tax or are subject to United States withholding
tax at a reduced rate under an applicable statute or tax treaty shall provide
to Borrowers and Agent (i) a properly completed and executed Internal Revenue
Service Form 4224 or Form 1001 or other applicable form, certificate or
document prescribed by the Internal Revenue Service of the United States
certifying as to such Foreign Lender's entitlement to such exemption or
reduced rate of withholding with respect to payments to be made to such
Foreign Lender under this Agreement and under the Term Note (a "Certificate of
Exemption") or (ii) a letter from any such Foreign Lender stating that it is
not entitled to any such exemption or reduced rate of withholding (a "Letter
of Non-Exemption"). Prior to becoming a Lender under this Agreement and
within fifteen (15) days after a reasonable written request of Borrowers or
Agent from time to time thereafter, each Foreign Lender that becomes a Lender
under this Agreement shall provide a Certificate of Exemption or a Letter of
Non-Exemption to Borrowers and Agent.
If a Foreign Lender is entitled to an exemption with respect to
payments to be made to such Foreign Lender under this Agreement (or to a
reduced rate of withholding) and does not provide a Certificate of Exemption
to Borrowers and Agent within the time periods set forth in the preceding
paragraph, Borrowers shall withhold taxes from payments to such Foreign Lender
at the applicable statutory rates and Borrowers shall not be required to pay
any additional amounts as a result of such withholding; provided, however,
that all such withholding shall cease upon delivery by such Foreign Lender of
a Certificate of Exemption to Borrowers and Agent.
2.10. Required Termination and Prepayment. If on any date any Lender
shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the making or continuation of
its LIBOR Rate Loans has become unlawful or impossible by compliance by Lender
in good faith with any law, governmental rule, regulation or order (whether or
not having the force of law and whether or not failure to comply therewith
would be unlawful), then, and in any such event, that Lender shall promptly
give notice (by telephone confirmed in writing) to Borrowing Agent and Agent
of that determination. Subject to prior withdrawal of a Notice of Borrowing
or a Notice of Conversion/Continuation or prepayment of the LIBOR Rate Loans
as contemplated by the subsection 2.11, the obligation of such Lender to make
or maintain its LIBOR Rate Loans during any such period shall be terminated at
the earlier of the termination of the Interest Period then in effect or when
required by law and Borrowers shall no later than the termination of the
Interest Period in effect at the time any such determination pursuant to this
subsection 2.10 is made or, earlier, when required by law, repay or prepay the
LIBOR Rate Loans made by such Lender together with all interest accrued
thereon or convert the LIBOR Rate Loans to Base Rate Loans.
2.11. Optional Prepayment/Replacement of Agent or Lenders in Respect of
Increased Costs. Within fifteen (15) days after receipt by Borrowing Agent of
written notice and demand from Agent or any Lender (an "Affected Lender") for
payment of additional costs as provided in subsections 2.8, 2.9 or 2.10,
Borrowers may, at their option, notify Agent and such Affected Lender of its
intention to do one of the following:
(A) Borrowers may obtain, at Borrowers' expense, a replacement
Lender ("Replacement Lender") for such Affected Lender, which Replacement
Lender shall be reasonably satisfactory to Agent. In the event Borrowers
obtain a Replacement Lender within ninety (90) days following notice of its
intention to do so, the Affected Lender shall sell and assign its Loans and
Commitments to such Replacement Lender provided, that Borrowers have
reimbursed such Affected Lender for its increased costs for which it is
entitled to reimbursement under this Agreement through the date of such sale
and assignment.
(B) Borrowers may prepay in full all outstanding Obligations
owed to such Affected Lender and terminate such Affected Lender's Commitments.
Borrowers shall, within ninety (90) days following notice of its intention to
do so, prepay in full all outstanding Obligations owed to such Affected Lender
(including such Affected Lender's increased costs for which it is entitled to
reimbursement under this Agreement through the date of such prepayment but
excluding the prepayment fee referenced in subsection 2.3(C) and terminate
such Affected Lender's Commitments).
2.12. Compensation. Borrowers shall compensate Lenders, upon written
request by Lenders (which request shall set forth in reasonable detail the
basis for requesting such amounts and which shall, absent manifest error, be
conclusive and binding upon all parties hereto), for all reasonable losses,
expenses and liabilities (including, without limitation, any loss (including
interest paid) sustained by Lenders in connection with the re-employment of
such funds), Lenders may sustain: (i) if for any reason (other than a default
by Lenders) a borrowing of any LIBOR Rate Loan does not occur on a date
specified therefor in a Notice of Borrowing, a Notice of
Conversion/Continuation or a telephonic request for borrowing or
Conversion/Continuation; (ii) if any prepayment of any of its LIBOR Rate Loans
occurs on a date that is not the last day of an Interest Period applicable to
that Loan; (iii) if any prepayment of any of its LIBOR Rate Loans is not made
on any date specified in a notice of prepayment given by Borrowing Agent; or
(iv) as a consequence of any other default by Borrowers to repay their LIBOR
Rate Loans when required by the terms of this Agreement; provided that during
the period while any such amounts have not been paid, Lenders shall reserve an
equal amount from amounts otherwise available to be borrowed under the
Revolving Loan.
2.13. Booking of LIBOR Rate Loans. Lenders may make, carry or transfer
LIBOR Rate Loans at, to, or for the account of, any of its branch offices or
the office of an Affiliate of any Lender; provided, however, Lenders shall
make, carry or transfer LIBOR Rate Loans at such office so as to avoid the
imposition of the provision of subsections 2.8, 2.9 or 2.10 hereof.
2.14. Assumptions Concerning Funding of LIBOR Rate Loans. Calculation
of all amounts payable to each Lender under subsection 2.12 shall be made as
though such Lender had actually funded its relevant LIBOR Rate Loan through
the purchase of a LIBOR deposit bearing interest at the LIBOR Rate in an
amount equal to the amount of that LIBOR Rate Loan and having maturity
comparable to the relevant Interest Period and through the transfer of such
LIBOR deposit from an offshore office to a domestic office in the United
States of America; provided, however, that each Lender may fund each of its
LIBOR Rate Loans in any manner it sees fit and the foregoing assumption shall
be utilized only for the calculation of amounts payable under subsection 2.12.
SECTION 3. CONDITIONS TO LOANS
3.1. Conditions to Loans. The obligations of Agent and each Lender to
make Loans and the obligation of Agent or any Lender to issue Lender Letters
of Credit on the Closing Date and on each Funding Date are subject to
satisfaction of all of the conditions set forth below.
(A) Closing Deliveries. Agent shall have received, in form and
substance satisfactory to Agent, all documents, instruments and information
identified on Schedule 3.1(A) and all other agreements, notes, certificates,
orders, authorizations, financing statements, mortgages and other documents
which Agent may reasonably request prior to or on the Closing Date.
(B) Security Interests. Agent shall have received satisfactory
evidence that all security interests and liens granted to Agent for the
benefit of Lenders pursuant to this Agreement or the other Loan Documents have
been duly perfected and constitute first priority liens on the Collateral,
subject only to Permitted Encumbrances.
(C) Closing Date Availability. After giving effect to the
consummation of the transactions contemplated hereunder on the Closing Date
and the payment by Borrowers of all costs, fees and expenses relating thereto,
Excess Availability shall be at least $2,400,000.
(D) Representations and Warranties. The representations and
warranties contained herein and in the Loan Documents shall be true, correct
and complete in all material respects on and as of that Funding Date to the
same extent as though made on and as of that date, except for any
representation or warranty limited by its terms to a specific date and taking
into account any amendments to the Schedules or Exhibits as a result of any
disclosures made by Borrowers to Agent after the Closing Date and approved by
Agent.
(E) Fees. With respect to Loans or Lender Letters of Credit to
be made or issued on the Closing Date, Borrowers shall have paid the fees
payable on the Closing Date.
(F) No Default. No event shall have occurred and be continuing
or would result from the consummation of the requested borrowing or notice
requesting issuance of a Lender Letter of Credit that would constitute an
Event of Default or a Default.
(G) Performance of Agreements. Each Loan Party shall have
performed in all material respects all agreements and satisfied all conditions
which any Loan Document provides shall be performed by it on or before that
Funding Date.
(H) No Prohibition. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Agent
or any Lender from making any Loans or issuing any Lender Letters of Credit.
(I) No Litigation. There shall not be pending or, to the
knowledge of Borrowers, threatened, any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration by, against or
affecting any Loan Party or any of its Subsidiaries or any property of any
Loan Party or any of its Subsidiaries that has not been disclosed by Borrowers
in writing, and there shall have occurred no development in any such action,
charge, claim, demand, suit, proceeding, petition, governmental investigation
or arbitration that, in the Agent's reasonable judgment, could reasonably be
expected to have a Material Adverse Effect.
(J) Equity Contribution. Borrowers shall have entered into the
Purchase and Redemption Agreement and shall have received on or before the
Closing Date an aggregate contribution to its equity in cash of not less than
$17,176,000 on terms and conditions acceptable to Agent.
(K) Financial Condition Opinions. On the Closing Date Agent
shall have received an executed officer's certificate together with the Pro
Formas and the Projections satisfactory in form and substance to Agent,
certifying the solvency of Hibbett on a consolidated basis after giving effect
to the Indebtedness and Obligations contemplated hereby and as to Borrowers'
financial resources, their ability to meet their obligations and liabilities
as they become due and to the effect that as of the Closing Date the Borrowers
have sufficient capital with which to engage in their business as conducted on
the Closing Date and as anticipated to be conducted subsequent to the Closing
Date.
(L) Subordinated Debt Documents. On or before the Closing Date
(i) Agent shall have received final executed copies of the Subordinated Notes
and the Bridge Loan Documentation and all related agreements, documents and
instruments which shall contain provisions acceptable to Agent and the
transactions contemplated by such documentation shall be consummated
concurrently with the making of the initial Loan hereunder and (ii) Borrowers
shall have received cash proceeds of Subordinated Debt in an aggregate amount
of not less than $4,574,000.
(M) Insurance. Lender shall have received in form and substance
satisfactory to Agent, certified copies of Borrowers' casualty insurance
policies, together with loss payable endorsements satisfactory to Agent naming
Agent as loss payee, and certified copies of Borrowers' liability insurance
policies, together with endorsements naming Agent as a co-insured;
(N) Consents. Agent shall have received any and all consents
necessary to permit the effectuation of the transactions contemplated by this
Agreement and the Loan Documents; and, Agent shall have received such consents
and waivers of such third parties as might assert claims with respect to the
Collateral (other than the consents of Borrowers' landlords who may claim the
benefit of applicable statutory and contractual landlord's liens or
contractual change of control provisions), as Agent and its counsel shall deem
necessary.
(O) No Adverse Material Change. (i) Since August 26, 1995,
there shall not have occurred (x) any material adverse change in the
condition, financial or otherwise, operations, properties of Borrowers, (y)
any material damage or destruction to the Collateral considered as a whole nor
any material depreciation in the value thereof considered as a whole and (z)
any event, condition or state of facts which would reasonably be expected
materially and adversely to affect the business, prospects, financial
condition or results of operations of Borrowers and (ii) no representations
made or information supplied to Agent shall have been proven to be inaccurate
or misleading in any material respect.
SECTION 4. BORROWERS' REPRESENTATIONS AND WARRANTIES
To induce Agent and each Lender to enter into this Agreement, to make
Loans and to issue Lender Letters of Credit, each Borrower represents and
warrants to Agent and each Lender that the following statements are and will
be true, correct and complete:
4.1. Organization, Powers, Capitalization.
(A) Organization and Powers. Each of the Loan Parties is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and qualified to do business in all
states where such qualification is required except where failure to be so
qualified could not be reasonably expected to have a Material Adverse Effect.
Each of the Loan Parties has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted and
proposed to be conducted and to enter into each Loan Document.
(B) Capitalization. The authorized capital stock of each of the
Loan Parties is as set forth on Schedule 4.1(B). All issued and outstanding
shares of capital stock of each of the Loan Parties are duly authorized and
validly issued, fully paid, nonassessable, free and clear of all Liens, and
such shares were issued in compliance with all applicable state and federal
laws concerning the issuance of securities. The capital stock of each of the
Loan Parties is owned by the stockholders and in the amounts set forth on
Schedule 4.1(B). No shares of the capital stock of any Loan Party, other than
those described above, are issued and outstanding. There are no preemptive or
other outstanding rights, options, warrants, conversion rights or similar
agreements or understandings for the purchase or acquisition from any Loan
Party, of any shares of capital stock or other securities of any such entity
other than warrants issued pursuant to the Purchase and Redemption Agreement
and options under the Borrowers' employee benefit plans.
4.2. Authorization of Borrowing, No Conflict. Such Borrower has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Closing Date, the execution, delivery and
performance of the Loan Documents by each Loan Party signatory thereto will
have been duly authorized by all necessary corporate and shareholder action.
The execution, delivery and performance by each Loan Party of each Loan
Document to which it is a party and the consummation of the transactions
contemplated by this Agreement and the other Loan Documents by each Loan Party
do not contravene and will not be in contravention of the corporate charter or
bylaws of any Loan Party or contravene any applicable law, agreement or order
by which any Loan Party or any Loan Party's property is bound, the effect of
which could reasonably be expected to result in a Material Adverse Effect.
This Agreement is, and the other Loan Documents, including the Notes when
executed and delivered will be, the legally valid and binding obligations of
the applicable Loan Parties respectively, each enforceable against the Loan
Parties, as applicable, in accordance with their respective terms.
4.3. Financial Condition. All financial statements concerning
Borrowers and their Subsidiaries which have been or will hereafter be
furnished by Borrowers to Agent or any Lender pursuant to this Agreement have
been or will be prepared in accordance with GAAP consistently applied
throughout the periods involved (except as disclosed therein) and do or will
present fairly the financial condition of the corporations covered thereby as
at the dates thereof and the results of their operations for the periods then
ended. The Pro Forma was prepared by Borrower based on the unaudited
consolidated balance sheet of Borrowers dated August 26, 1995. The
Projections delivered and to be delivered have been and will be prepared by
Borrower in light of the past operations of the business of Borrowers and
their Subsidiaries, and such Projections represent and will represent the
good faith estimate of Borrowers and its senior management concerning the most
probable course of its business as of the date such Projections are prepared
and delivered.
4.4. Indebtedness and Liabilities. As of the Closing Date, no Borrower
has (a) any Indebtedness except as reflected on the Pro Forma or on the most
recent financial statements delivered to Agent and Lenders; or (b) any
Liabilities other than as reflected on the Pro Forma or the most recent
financial statements delivered to Agent and Lenders or as incurred in the
ordinary course of business following the date of the Pro Forma or the most
recent financial statements delivered to Agent and Lenders.
4.5. Account Warranties. Each Borrower represents, warrants and
covenants as to each Account that, at the time of its creation, the Account is
a valid, bona fide account, representing an undisputed indebtedness incurred
by the named account debtor for goods actually sold and delivered or for
services completely rendered; there are no setoffs, offsets or counterclaims,
genuine or otherwise, against the Account, other than credits given in the
ordinary course of business; the Account does not represent a sale to an
Affiliate or a consignment, sale or return or a bill and hold transaction; no
agreement exists permitting any deduction or discount (other than the discount
stated on the invoice); a Borrower is the lawful owner of the Account and has
the right to assign the same to Agent, for the benefit of Lenders; the Account
is free of all security interests, liens and encumbrances other than those in
favor of Agent, on behalf of Lenders, and the Account is due and payable in
accordance with its terms.
4.6. Names. Schedule 4.6 sets forth all names, trade names, fictitious
names and business names under which each Borrower currently conducts business
or has at any time during the past five years conducted business.
4.7. Locations; FEIN. Schedule 4.7 sets forth the location of each
Borrower's principal place of business, the location of each Borrower's books
and records, the location of all other offices of each Borrower and all
Collateral locations, and such locations are each Borrower's sole locations
for its business and the Collateral. Each Borrower's federal employer
identification number is set forth on the signature page hereof.
4.8. Title to Properties; Liens. Except as otherwise disclosed on
Schedule 1.1(A), each Borrower has good, sufficient and legal title, subject
to Permitted Encumbrances, to all its respective material properties and
assets. Except for Permitted Encumbrances, all such properties and assets are
free and clear of Liens. To the best knowledge of each Borrower after due
inquiry, there are no actual, threatened or alleged defaults with respect to
any leases of real property under which any Borrower or any of such Borrower's
Subsidiaries is lessee or lessor which would reasonably be expected to have a
Material Adverse Effect.
4.9. Litigation; Adverse Facts. There are no judgments outstanding
against any Loan Party or affecting any property of any Loan Party nor is
there any action, charge, claim, demand, suit, proceeding, petition,
governmental investigation or arbitration now pending or, to the best
knowledge of each Borrower after due inquiry, threatened against or affecting
any Loan Party or any property of any Loan Party which could reasonably be
expected to result in any Material Adverse Effect. No Loan Party has received
any opinion or memorandum or legal advice from legal counsel to the effect
that it is exposed to any liability which could reasonably be expected to
result in any Material Adverse Effect.
4.10. Payment of Taxes. All material tax returns and reports of each
Borrower and of each Borrower's Subsidiaries required to be filed by any of
them have been timely filed, and all taxes, assessments, fees and other
governmental charges upon such Persons and upon their respective properties,
assets, income and franchises which are shown on such returns as due and
payable have been paid when due and payable. As of the Closing Date, none of
the United States income tax returns of any Borrower or any of such Borrower's
Subsidiaries are under audit. No tax liens have been filed and no claims
(except as otherwise permitted by Section 5.9) are being asserted with respect
to any such taxes. The charges, accruals and reserves on the books of each
Borrower in respect of any taxes or other governmental charges are in
accordance with GAAP.
4.11. Performance of Agreements. None of the Loan Parties is in default
in the performance, observance or fulfillment of any material obligations,
covenants or conditions contained in any contract for money borrowed or any
material contractual obligation of any such Person, and no condition exists
that, with the giving of notice or the lapse of time or both, would constitute
such a default.
4.12. Employee Benefit Plans. No Borrower nor any ERISA Affiliate
maintains or contributes to any Employee Benefit Plan other than those listed
on Schedule 4.12. Except as set forth in Schedule 4.12, each Borrower, each
Subsidiary of each Borrower and each ERISA Affiliate is in compliance in all
material respects with all applicable provisions of ERISA, the IRC and all
other applicable laws and the regulations and interpretations thereof with
respect to all Employee Benefit Plans. No material liability has been
incurred by any Borrower, any Subsidiary of any Borrower or any ERISA
Affiliate which remains unsatisfied for any funding obligation, taxes or
penalties with respect to any Employee Benefit Plan.
4.13. Intellectual Property. Each Borrower and each Subsidiary of each
Borrower owns, is licensed to use or otherwise has the right to use, all
Intellectual Property used in or necessary for the conduct of its business as
currently conducted (except to the extent its failure to own or have the right
to use such Intellectual Property could not reasonably be expected to have a
Material Adverse Effect), and all such Intellectual Property is identified on
Schedule 4.13.
4.14. Broker's Fees. No broker's or finder's fee or commission will be
payable with respect to any of the transactions contemplated hereby other than
a fee to (a) Smith Barney, Inc. in the amount of $650,000 plus reasonable
expenses and (b) Saunders in an amount previously disclosed to Agent.
4.15. Environmental Compliance. Each Loan Party has been and is
currently in compliance with all applicable Environmental Laws (except to the
extent its failure to comply with any such law could not reasonably be
expected to have a Material Adverse Effect), including obtaining and
maintaining in effect all permits, licenses or other authorizations required
by applicable Environmental Laws. To the best of each Borrower's knowledge,
there are no claims, liabilities, investigations, litigation, administrative
proceedings, whether pending or threatened, or judgments or orders relating to
any Hazardous Materials asserted or threatened against any Loan Party or
relating to any real property currently or formerly owned, leased or operated
by any Loan Party.
4.16. Solvency. As of and from and after the date of this Agreement,
each Borrower: (a) owns and will own assets the fair salable value of which
are (i) greater than the total amount of its liabilities (including contingent
liabilities) and (ii) greater than the amount that will be required to pay the
probable liabilities of such Borrower as they mature; (b) has capital that is
not unreasonably small in relation to its business as presently conducted or
any contemplated or undertaken transaction; and (c) does not intend to incur
and does not believe that it will incur debts beyond its ability to pay such
debts as they become due.
4.17. Disclosure. No representation or warranty of any Borrower or any
other Loan Party contained in this Agreement, the financial statements, the
other Loan Documents, or any other document, certificate or written statement
furnished to Agent or any Lender by or on behalf of any such Person for use in
connection with the Loan Documents contains any untrue statement of a material
fact or omitted, omits or will omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading in
light of the circumstances in which the same were made. The Projections and
pro forma financial information contained in such materials are based upon
good faith estimates and assumptions believed by such Persons to be reasonable
at the time made, it being recognized by Agent and Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may
differ from the projected results. There is no material fact known to any
Borrower that has had or reasonably be expected to have a Material Adverse
Effect and that has not been disclosed herein or in such other documents,
certificates and statements furnished to Agent or any Lender for use in
connection with the transactions contemplated hereby.
4.18. Insurance. Each Borrower and each Subsidiary maintains adequate
insurance policies for public liability, property damage for its business and
properties, product liability, and business interruption, no notice of
cancellation has been received with respect to such policies and Borrower and
each of Subsidiary is in compliance with all conditions contained in such
policies.
4.19. Compliance with Laws. Neither any Borrower nor any Subsidiary is
in violation of any law, ordinance, rule, regulation, order, policy, guideline
or other requirement of any domestic or foreign government or any
instrumentality or agency thereof, having jurisdiction over the conduct of its
business or the ownership of its properties, including, without limitation,
any violation relating to any use, release, storage, transport or disposal of
any Hazardous Material, which violation would subject any Borrower or any
Subsidiary, or any of their respective officers to criminal liability or could
reasonably be expected to have a Material Adverse Effect and no such violation
has been alleged.
4.20. Bank Accounts. Schedule 4.20 sets forth the account numbers and
locations of all bank accounts of each Borrower.
4.21. Subsidiaries. No Borrower has any Subsidiary other than as set
forth on Schedule 4.21.
4.22. Employee Matters. Except as set forth on Schedule 4.22, (a) no
Loan Party nor any of such Loan Party's employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge
of each Borrower after due inquiry, threatened between any Loan Party and its
respective employees, other than employee grievances arising in the ordinary
course of business which could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Except as set
forth on Schedule 4.22, no Borrower is subject to an employment contract.
4.23. Governmental Regulation. None of the Loan Parties is, or after
giving effect to any loan will be, subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act or the Investment
Company Act of 1940 or to any federal or state statute or regulation limiting
its ability to incur indebtedness for borrowed money.
The Borrowers may, at any time and from time to time (and subject to
subsection 5.13), amend any one or more of the Schedules referred in this
Section 4 and any representation or warranty contained herein which refers to
any such Schedule shall from and after the date of any such amendment refer to
such Schedule as so amended, provided, however, that in no event may the
Borrowers amend any such Schedule if such amendment would reflect or evidence
a Default or Event of Default.
SECTION 5. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall be in effect and until payment in full of all
Obligations and termination of all Lender Letters of Credit, unless Requisite
Lenders shall otherwise give their prior written consent, Borrowers shall
perform, and shall cause each of their Subsidiaries to perform, all covenants
in this Section 5 applicable to such Person.
5.1. Financial Statements and Other Reports. Borrowers will maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Borrowers will deliver to Agent and each Lender (unless specified
to be delivered solely to Agent) the financial statements and other reports
described below.
(A) Monthly Financials. As soon as available and in any event
within forty-five (45) days after the end of each month for the period
commencing with November of 1995 and ending with May of 1996 and within thirty
(30) days after the end of each month thereafter, Borrowers will deliver (1)
the consolidated balance sheet of Borrowers and their Subsidiaries as at the
end of such month and the related consolidated statements of income,
stockholders' equity and cash flow for such month and for the period from the
beginning of the then current Fiscal Year to the end of such month, and (2) a
schedule of the outstanding Indebtedness for borrowed money of Borrowers and
their Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan.
(B) Year-End Financials. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, Borrowers will
deliver: (1) the consolidated balance sheet of Borrowers and their
Subsidiaries as at the end of such year and the related consolidated
statements of income, stockholders' equity and cash flow for such Fiscal Year;
(2) a schedule of the outstanding Indebtedness of Borrowers and its
Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan; and (3) a report with respect to
the financial statements from an Acceptable CPA, which report shall be
unqualified as to going concern and scope of audit of Borrowers and their
Subsidiaries and shall state that (a) such consolidated financial statements
present fairly the consolidated financial position of Borrowers and their
Subsidiaries as at the dates indicated and the results of their operations and
cash flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except for changes with which they concur) and
(b) that the examination by such accountants in connection with such
consolidated financial statements has been made in accordance with generally
accepted auditing standards.
(C) Accountants' Certification and Reports. Together with each
delivery of consolidated financial statements of Borrowers and their
Subsidiaries pursuant to subsection 5.1(B), Borrowers will deliver (1) a
written statement by an Acceptable CPA (a) stating that the examination has
included a review of the terms of this Agreement as same relate to accounting
matters and (b) stating whether, in connection with the examination, any
condition or event that constitutes a Default or an Event of Default has come
to their attention and, if such a condition or event has come to their
attention, specifying the nature and period of existence thereof and (2) a
letter addressed to Agent and Lenders from such accountants stating that such
accountants have been informed that a primary intent of Borrowers was to have
the professional services such accountants provided to Borrowers in preparing
their audit report and the letter referred to in this subsection 5.1(C)
benefit or influence Agent and Lenders, and identifying Agent and Lenders as
parties that Borrowers have indicated intend to rely on such professional
services provided to Borrowers by such accountants. Promptly upon receipt
thereof, Borrowers will deliver copies of all significant reports submitted to
Borrowers by independent public accountants in connection with each annual,
interim or special audit of the financial statements of Borrowers made by such
accountants, including the comment letter submitted by such accountants to
management in connection with their annual audit.
(D) Compliance Certificate. Together with the delivery of each
set of financial statements referenced in subparts (A) and (B) of this
subsection 5.1, Borrowers will deliver an officer's certificate as to
Borrower's compliance or noncompliance as at the date of such financial
statements with the financial covenants set forth in Section 6.
(E) Borrowing Base Certificates, Registers and Journals. On
each Tuesday (or, if such day is not a Business Day, the immediately following
Business Day), Borrowers shall deliver to Agent for the week ending the
previous Saturday (1) a Borrowing Base Certificate updated to reflect the most
recent sales and collections of Borrowers and an assignment schedule of all
Accounts created by Borrowers; (2) an invoice register or sales journal
describing all sales of Borrowers for such week in form and substance
satisfactory to Agent, and, if Agent so requests, copies of invoices
evidencing such sales and proofs of delivery relating thereto; and (3) a cash
receipts journal for such week.
(F) Reconciliation Reports, Inventory Reports and Listings and
Agings. On the Closing Date and within twenty (20) Business Days after the
last day of each month and from time to time upon the request of Agent,
Borrowers will deliver to Agent: (1) an aged trial balance of all then
existing Accounts as of the last day of such period; and (2) an Inventory
Report as of the last day of such period. As soon as available and in any
event within twenty (20) Business Days after the last day of each month, and
from time to time upon the request of Agent, Borrowers will deliver to Agent:
(1) a Reconciliation Report as at the last day of such period; (2) an aged
trial balance of all then existing accounts payable as of the last day of such
period; provided that during the first Loan Year such aged trial balance need
only list accounts payable of Borrowers' five largest vendors; and (3) a
detailed inventory listing and cover summary report as of the last day of such
period. All such reports shall be in form and substance satisfactory to Agent.
(G) Management Report. After the end of each Fiscal Quarter
through the first anniversary of the Closing Date and, thereafter, together
with each delivery of financial statements of Borrowers and their Subsidiaries
pursuant to subdivisions (A) and (B) of this subsection 5.1, Borrowers will
deliver a management report: (1) describing the operations and financial
condition of Borrowers and their Subsidiaries for the month then ended and the
portion of the current Fiscal Year then elapsed (or for the Fiscal Year then
ended in the case of year-end financials); (2) setting forth in comparative
form the corresponding figures for the corresponding periods of the previous
Fiscal Year and the corresponding figures from the most recent Projections for
the current Fiscal Year delivered to Lenders pursuant to 5.1(P); and (3)
discussing the reasons for any significant variations. The information above
shall be presented in reasonable detail and shall be certified by the chief
financial officer of each Borrower to the effect that such information fairly
presents the results of operations and financial condition of Borrowers and
their Subsidiaries as at the dates and for the periods indicated.
(H) Appraisals. From time to time, upon the request of Agent,
but no more frequently than once during any consecutive 24 month period
(except following the occurrence and during the continuation of an Event of
Default), Borrowers will obtain and deliver to Agent, at Borrowers' expense,
appraisal reports in form and substance and from appraisers satisfactory to
Agent, stating the then current fair market and orderly liquidation values of
all or any portion of the Inventory.
(I) Government Notices. Borrowers will deliver to Agent
promptly after receipt copies of all notices, requests, subpoenas, inquiries
or other writings received from any governmental agency concerning the
violation or alleged violation of, or default under any Employee Benefit Plan,
the violation or alleged violation of any Environmental Laws, the storage, use
or disposal of any Hazardous Material, the violation or alleged violation of
the Fair Labor Standards Act or Borrowers' payment or non-payment of any taxes
including any tax audit.
(J) Events of Default, etc. Promptly upon any officer of
Borrowers obtaining knowledge of any of the following events or conditions,
Borrowers shall deliver a certificate of each Borrower's president, chief
executive officer specifying the nature and period of existence of such
condition or event and what action such Borrower has taken, is taking and
proposes to take with respect thereto: (1) any condition or event that
constitutes an Event of Default or Default; (2) any notice of default that any
Person has given to any Borrower or any of such Borrower's Subsidiaries or any
other action taken with respect to a claimed default; or (3) any Material
Adverse Effect.
(K) Trade Names. Borrowers will give Agent at least thirty (30)
days advance written notice of any change of name or of any new trade name or
fictitious business name. Borrowers' use of any trade name or fictitious
business name will be in compliance with all laws regarding the use of such
names.
(L) Locations. Borrowers will give Agent at least thirty (30)
days advance written notice of any change in any Borrower's principal place of
business or any change in the location of its books and records or the
Collateral or of any new location for its books and records or the Collateral.
(M) Bank Accounts. Borrowers will give Agent prompt notice of
any new bank accounts any Borrower or any of such Borrower's Subsidiaries
intends to establish prior to its opening same.
(N) Litigation. Promptly upon any officer of any Borrower
obtaining knowledge of (1) the institution of any action, suit, proceeding,
governmental investigation or arbitration against or affecting any Loan Party
or any property of any Loan Party not previously disclosed by Borrowers to
Agent or (2) any material development in any action, suit, proceeding,
governmental investigation or arbitration at any time pending against or
affecting any Loan Party or any property of any Loan Party which is reasonably
likely to have a Material Adverse Effect, Borrowers will promptly give notice
thereof to Agent and provide such other information as may be reasonably
available to them to enable Agent and its counsel to evaluate such matter.
(O) Projections. As soon as available and in any event no later
than thirty (30) days prior to the end of each Fiscal Year of Borrowers,
Borrowers will deliver consolidated Projections of Borrower and their
Subsidiaries for the forthcoming three Fiscal Years, year by year, and for the
forthcoming Fiscal Year, month by month.
(P) Subordinated Debt and Other Indebtedness Notices. Borrowers
shall promptly deliver copies of all notices given or received by any Borrower
and any Subsidiary with respect to noncompliance with any term or condition
related to any Subordinated Debt and other Indebtedness, and shall promptly
notify Lenders and Agent of any potential or actual event of default with
respect to any Subordinated Debt or other Indebtedness.
(Q) Other Information. With reasonable promptness, Borrowers
will deliver such other information and data with respect to any Loan Party,
any Subsidiary of any Loan Party or the Collateral as Agent or any Lender may
reasonably request from time to time.
(R) Opening Balance Sheet. As soon as available and in any
event within ninety (90) days after the Closing Date, Borrowers will deliver
an unaudited consolidated Closing Date balance sheet prepared by an officer of
each Borrower.
5.2. Access to Accountants. Each Borrower authorizes Agent and Lenders
to discuss the financial condition and financial statements of each Borrower
and its Subsidiaries with such Borrower's independent public accountants upon
reasonable notice to such Borrower of its intention to do so, and authorizes
such accountants to respond to all of Agent's and Lenders' inquiries.
5.3. Inspection. Each Borrower shall permit Agent and any authorized
representatives designated by Agent to visit and inspect any of the properties
of any Borrower or any of such Borrower's Subsidiaries, including its
financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and affairs, finances and business with its
officers and independent public accountants, at such reasonable times during
normal business hours and as often as may be reasonably requested. Each
Borrower acknowledges that Agent intends to make such inspections on at least
a quarterly basis. Each Lender may with the consent of Agent, which will not
be unreasonably denied, accompany Agent on any such visit or inspection.
5.4. Collateral Records. Each Borrower shall keep full and accurate
books and records relating to the Collateral and shall mark such books and
records to indicate Agent's security interests in the Collateral, for the
benefit of Lenders.
5.5. Account Covenants; Verification. Each Borrower shall, at its own
expense: (a) at the request of Agent, cause all invoices evidencing Accounts
and all copies thereof to bear a notice that such invoices are payable to the
lockboxes established in accordance with subsection 5.6 and (b) use its best
efforts to assure prompt payment of all amounts due or to become due under the
Accounts. Except to the extent provided in the ordinary course of each
Borrower's business consistent with past practices, no discounts, credits or
allowances will be issued, granted or allowed by any Borrower to customers and
no returns will be accepted without Agent's prior written consent; provided,
that until Agent notifies such Borrower to the contrary, Borrower may presume
consent. Borrower will immediately notify Agent in the event that a customer
alleges any dispute or claim with respect to an Account or of any other
circumstances known to any Borrower that may impair the validity or
collectibility of an Account having a value equal to or in excess of $10,000.
Agent shall have the right, at any time or times hereafter, to verify the
validity, amount or any other matter relating to an Account, by mail,
telephone or in person. After the occurrence of a Default or an Event of
Default, no Borrower shall, without the prior consent of Agent, adjust, settle
or compromise the amount or payment of any Account, or release wholly or
partly any customer or obligor thereof, or allow any credit or discount
thereon.
5.6. Collection of Accounts and Payments. Each Borrower shall
establish (a) at the option of Agent, lockboxes and (b) depository accounts
(collectively, "Depository Accounts") in such Borrower's name with the
applicable banks or the financial institutions listed on Schedule 4.20 and
such other financial institutions of which the Agent may be notified in
writing by the Borrowing Agent from time to time (each a "Depository Bank"),
to which all account debtors shall be instructed directly remit all payments
on Accounts. Unless deposited directly into a Depository Account, Borrowers
will promptly deposit all payments made for Inventory or other payments
constituting proceeds of Collateral in the identical form in which such
payment was made, whether by cash or check. Borrowers shall cause each
Depository Bank to transfer via ACH transfer, on a daily basis, all funds on
deposit in each Depository Account (other than a retained balance in the
ordinary course of business consistent with past practice) to Agent's Account.
Borrowers hereby agree that all payments received by Agent, whether by cash,
check, wire transfer or any other instrument, made to such Agent's Account or
otherwise received by Agent and whether on the Accounts or as proceeds of
other Collateral or otherwise will be the sole and exclusive property of
Agent, for the benefit of Lenders. Borrowers shall irrevocably instruct each
Depository Bank to promptly transfer all payments or deposits to Depository
Accounts into Agent's Account (other than a retained balance in the ordinary
course of business consistent with past practice). Borrowers, and any of their
Affiliates, employees, agents or other Persons acting for or in concert with
Borrowers, shall, acting as trustee for Agent, receive, as the sole and
exclusive property of Agent, any monies, checks, notes, drafts or any other
payments relating to and/or proceeds of Accounts or other Collateral which
come into the possession or under the control of any Borrower or any of
Borrower's Affiliates, employees, agents or other Persons acting for or in
concert with Borrowers, and immediately upon receipt thereof, Borrowers or
such Persons shall remit the same or cause the same to be remitted, in kind,
to Agent's account.
5.7. Endorsement. Borrowers hereby constitute and appoint Agent and
all Persons designated by Agent for that purpose as Borrowers' true and lawful
attorney-in-fact, with power to endorse Borrowers' name to any of the items of
payment or proceeds described in subsection 5.6 above and all proceeds of
Collateral that come into Agent's possession or under Agent's control. Both
the appointment of Agent as Borrowers' attorney and Agent's rights and powers
are coupled with an interest and are irrevocable until payment in full and
complete performance of all of the Obligations.
5.8. Corporate Existence. Borrowers will, and will cause each
Subsidiary to, at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business.
Borrowers will promptly notify Agent of any change in its or a Subsidiary's
ownership or corporate structure.
5.9. Payment of Taxes. Borrowers will, and will cause each of its
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or with respect to any of
its franchises, business, income or property before any penalty accrues
thereon provided that no such tax need be paid if Borrower or a Subsidiary is
contesting same in good faith by appropriate proceedings promptly instituted
and diligently conducted and if Borrower or a Subsidiary has established
appropriate reserves as shall be required in conformity with GAAP.
5.10. Maintenance of Properties; Insurance. Borrowers will maintain or
cause to be maintained in good repair (reasonable wear and tear excepted),
working order and condition all material properties used in the business of
Borrowers and their Subsidiaries and will make or cause to be made all
appropriate repairs, renewals and replacements thereof. Borrowers will
maintain or cause to be maintained, with financially sound and reputable
insurers, public liability and property damage insurance with respect to its
business and properties against loss or damage of the kinds customarily
carried or maintained by corporations of established reputation engaged in
similar businesses and in amounts acceptable to Agent. Borrowers shall cause
Agent, for the benefit of Lenders, to be named as loss payee on all insurance
policies relating to any Collateral and as additional insured under all
liability policies, in each case pursuant to appropriate endorsements in form
and substance satisfactory to Agent and shall collaterally assign to Agent,
for the benefit of Lenders, as security for the payment of the Obligations all
business interruption insurance of Borrowers. Borrowers shall apply any
proceeds received from any policies of insurance relating to any Collateral to
the Obligations as set forth in subsection 2.4(B).
5.11. Compliance with Laws. Borrowers will, and will cause each
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority as now in effect and
which may be imposed in the future in all jurisdictions in which any Borrower
or any of such Borrower's Subsidiaries is now doing business or may hereafter
be doing business, other than those laws the noncompliance with which would
not have a Material Adverse Effect.
5.12. Further Assurances. Borrowers shall, and shall cause each
Subsidiary to, from time to time, execute such guaranties, financing or
continuation statements, documents, security agreements, reports and other
documents or deliver to Agent such instruments, certificates of title or other
documents as Agent at any time may reasonably request to evidence, perfect or
otherwise implement the guaranties and security for repayment of the
Obligations provided for in the Loan Documents. At Agent's request, Borrowers
shall cause any Subsidiary promptly to guaranty the Obligations and to grant
to Agent, on behalf of Lenders, security interests in the same type of
property of such Subsidiary as currently constitutes "Collateral" under this
Agreement to secure the Obligations.
5.13. Collateral Locations. Borrowers will keep the Collateral at the
locations specified on Schedule 4.7. With respect to any new location (which
in any event shall be within the continental United States), Borrowers will
execute such documents and take such actions as Agent deems necessary to
perfect and protect the security interests of the Agent, on behalf of Lenders,
in the Collateral prior to the transfer or removal of any Collateral to such
new location.
5.14. Bailees. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Borrowers' agents or processors,
Borrowers shall, upon the request of Lenders, notify such warehouseman,
bailee, agent or processor of the security interests in favor of Agent, for
the benefit of Lenders, created hereby and shall instruct such Person to hold
all such Collateral for Agent's account subject to Agent's instructions.
5.15. Use of Proceeds and Margin Security. Borrowers shall use the
proceeds of all Loans for proper business purposes (as described in the
recitals to this Agreement) consistent with all applicable laws, statutes,
rules and regulations. No portion of the proceeds of any Loan shall be used
by any Borrower or any of such Borrower's Subsidiaries for the purpose of
purchasing or carrying margin stock within the meaning of Regulation G or
Regulation U, or in any manner that might cause the borrowing or the
application of such proceeds to violate Regulation T or Regulation X or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Exchange Act.
SECTION 6. FINANCIAL COVENANTS
Each Borrower covenants and agrees that so long as any of the
Commitments remain in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit, unless such Borrower has received
the prior written consent of Requisite Lenders, such Borrower shall comply
with all covenants in this Section 6.
6.1. Tangible Net Worth. Borrowers shall maintain Tangible Net Worth
of at least the amounts set forth below at the end of each Fiscal Year set
forth below.
Fiscal Year Ending On
or About January 31 Amount
1997 $(9,000,000)
1998 $(7,500,000)
1999 $(6,000,000)
2000 $(4,500,000)
6.2. Minimum EBITDA. (a) If Borrower's Calculated Fixed Charge
Coverage as at the end of any of the periods set forth below is less than .85
to 1, then Borrowers shall be required to achieve EBITDA as at the end of each
such period of at least the amounts set forth below.
Period of Fiscal Quarters Amount
On or about November 1, 1995 - on or about $1,900,000
January 31, 1996
On or about November 1, 1995 - on or about $3,800,000
April 30, 1996
On or about November 1, 1995 - on or about $5,500,000
July 31, 1996
(b) Borrowers shall achieve EBITDA as at the end of each of the Fiscal
Years set forth below of at least the amounts set forth below.
Fiscal Year Ending On
or About January 31 Amount
1997 $8,000,000
1998 $9,000,000
1999 $10,000,000
2000 $11,000,000
6.3. Capital Expenditure Limits. The aggregate amount of all Capital
Expenditures of Borrowers and their Subsidiaries (excluding (i) trade-ins and
(ii) Capital Expenditures in respect of replacement assets to the extent
funded with casualty insurance proceeds will not exceed the amount set forth
below for each period set forth below. In the event that any Borrower or any
of such Borrower's Subsidiaries enters into a Capital Lease with respect to
fixed assets, for purposes of calculating Capital Expenditures under this
subsection only, the amount of the Capital Lease initially capitalized on
Borrowers' or any Subsidiary's balance sheet prepared in accordance with GAAP
shall be considered expended in full on the date that any Borrower or any of
such Borrower's Subsidiaries enters into such Capital Lease. Permitted
Capital Expenditures not made in any Fiscal Year may be carried over for one
year only to the next Fiscal Year provided, however, any carried-over Capital
Expenditure will be deemed used only after all otherwise Permitted Capital
Expenditures for that Fiscal Year have been used.
Fiscal Year Amount
1996 $8,000,000
1997 $5,400,000
1998 $7,000,000
1999 $9,400,000
2000 $11,500,000
2001 $10,900,000
6.4. Fixed Charge Coverage. Borrowers shall not permit its Fixed
Charge Coverage as at the end of any period set forth below to be less than
the amount set forth below for such period. For purposes of calculating Fixed
Charge Coverage for any period, the effect of the payment of up to (i)(a)
$2,500,000 of the Saunders Subordinated Bridge Note and (b) $500,000 of the
Anderson Subordinated Bridge Note to the extent of the proceeds received from
the Real Property Financing, (ii) $850,000 of the Anderson Subordinated Bridge
in connection with the conveyance of the Existing Facility and (iii) Capital
Expenditures not to exceed $1,600,000 in the aggregate incurred in connection
with the construction of the New Distribution Facility ("Calculated Fixed
Charge Coverage"), shall be excluded to the extent paid in the applicable
period.
Period of Fiscal Quarters Ratio For Period
On or about November 1, 1995 - on or about .7 to 1
January 31, 1996
On or about November 1, 1995 - on or about .7 to 1
April 30, 1996
On or about November 1, 1995 - on or about .7 to 1
July 31, 1996
Rolling Four Fiscal Quarters
Ending On or About
October 31, 1996 .85 to 1
January 31, 1997 .85 to 1
April 30, 1997 .85 to 1
July 31, 1997 .85 to 1
October 31, 1997 .85 to 1
January 31, 1998 .90 to 1
April 30, 1998 .90 to 1
July 31, 1998 .90 to 1
October 31, 1998 .90 to 1
January 31, 1999 1.00 to 1
April 30, 1999 1.00 to 1
July 31, 1999 1.00 to 1
October 31, 1999 1.00 to 1
January 31, 2000 1.10 to 1
April 30, 2000 1.10 to 1
July 31, 2000 1.10 to 1
October 31, 2000 1.10 to 1
6.5. Interest Coverage. Borrowers shall not permit Interest Coverage
for any Fiscal Year to be less than the amount set forth below for such Fiscal
Year.
Fiscal Year Ending On
or About January 31 Ratio
1997 1.2 to 1
1998 1.25 to 1
1999 1.30 to 1
2000 1.35 to 1
6.6. Leverage. At no time during the Fiscal Years set forth below
shall the ratio of (i) Consolidated Total Debt (as defined in the Subordinated
Notes) at such time to (ii) EBITDA (as defined in the Subordinated Notes) for
the four fiscal quarters of Hibbett then most recently ended (considered as a
single accounting period), exceed the ratio set forth below opposite such
Fiscal Year:
Fiscal Year Ending On
or About January 31 Ratio
1996 5.5:1.0
1997 5.5:1.0
1998 5.0:1.0
1999 5.0:1.0
2000 and thereafter 4.5:1.0
6.7. Consolidated Fixed Charge Ratio. As of the last day of any Fiscal
Quarter of Hibbett, the Consolidated Fixed Charge Ratio (as defined in the
Subordinated Notes) of Hibbett will not be less than the applicable ratio set
forth below.
As of any such day on or prior
to January 31 (or such other
date as is the last day of the
Fiscal Year in question) of: Ratio
1996 1.2:1.0
1997 1.2:1.0
1998 1.2:1.0
1999 1.3:1.0
2000 and thereafter 1.4:1.0
SECTION 7. NEGATIVE COVENANTS
Each Borrower covenants and agrees that so long as any of the
Commitments remain in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit, unless such Borrower has received
the prior written consent of Requisite Lenders, such Borrower shall not and
will not permit any Subsidiary to:
7.1. Indebtedness and Liabilities. Directly or indirectly create,
incur, assume, guaranty, or otherwise become or remain directly or indirectly
liable, on a fixed or contingent basis, with respect to any Indebtedness
except: (a) the Obligations; (b) intercompany Indebtedness, not to exceed
$100,000 outstanding at any time in the aggregate, among any Borrower and a
Subsidiary; provided that such Indebtedness is subordinated in right of
payment to the Obligations; (c) Indebtedness (excluding capital leases) not to
exceed $250,000 in the aggregate at any time outstanding secured by purchase
money Liens; (d) Indebtedness under Capital Leases not to exceed $250,000
outstanding at any time in the aggregate; (e) Indebtedness incurred in
connection with the Real Property Financing not to exceed $5,000,000 in the
aggregate at any time outstanding and which will be secured solely by the New
Distribution Facility, (f) Subordinated Debt and (g) Indebtedness existing on
the Closing Date and identified on Schedule 1.1(B) and any refinancing thereof
which does not increase the aggregate outstanding indebtedness set forth on
Schedule 1.1(B). Except for Indebtedness described permitted in the preceding
sentence, Borrowers will not, and will not permit any Subsidiaries to, incur
any Liabilities in excess of $500,000 in the aggregate that remain unpaid or
unsatisfied more than 30 days when due at any time except for trade payables
and normal accruals in the ordinary course of business not yet due and payable
or with respect to which any Borrower or any of such Borrower's Subsidiaries
is contesting in good faith the amount or validity thereof by appropriate
proceedings and then only to the extent that any Borrower or any of such
Borrower's Subsidiaries has established adequate reserves therefor, if
appropriate under GAAP.
7.2. Guaranties. Except for endorsements of instruments or items of
payment for collection in the ordinary course of business and the subordinated
guaranties of Team Sales and Guarantor in favor of the holders of Subordinated
Debt, guaranty, endorse, or otherwise in any way become or be responsible for
any obligations of any other Person, whether directly or indirectly by
agreement to purchase the indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or discharging
any indebtedness or obligation of such other Person or otherwise.
7.3. Transfers, Liens and Related Matters.
(A) Transfers. Sell, assign (by operation of law or otherwise)
or otherwise dispose of, or grant any option with respect to any of the
Collateral or the assets of such Person, except that Borrowers and their
Subsidiaries may (i) sell inventory in the ordinary course of business; (ii)
make Asset Dispositions if all of the following conditions are met: (1) the
market value of assets sold or otherwise disposed of in any single transaction
or series of related transactions does not exceed $50,000 and the aggregate
market value of assets sold or otherwise disposed of in any Fiscal Year does
not exceed $250,000; (2) the consideration received is at least equal to the
fair market value of such assets; (3) the sole consideration received is cash;
(4) the net proceeds of such Asset Disposition are applied as required by
subsection 2.4(B); (5) after giving effect to the sale or other disposition of
the assets included within the Asset Disposition and the repayment of the
Obligations with the proceeds thereof, each Borrower is in compliance on a pro
forma basis with the covenants set forth in Section 6 recomputed for the most
recently ended month for which information is available and is in compliance
with all other terms and conditions contained in this Agreement; and (6) no
Default or Event of Default shall result from such sale or other disposition
and (iii) sell the Existing Facility to the Anderson Group in conjunction with
the completion of the New Distribution Facility (so long as the proceeds are
applied as partial payment of the Anderson Subordinated Bridge Loan) or
transfer, by way of sale or Sale Leaseback Transaction, the New Distribution
Facility in connection with a Real Property Financing.
(B) Liens. Except for Permitted Encumbrances, directly or
indirectly create, incur, assume or permit to exist any Lien on or with
respect to any of the Collateral or the assets of such Person or any proceeds,
income or profits therefrom.
(C) No Negative Pledges. Other than as set forth in the Loan
Documents, the Subordinated Notes, the Bridge Notes or documentation relating
to any Permitted Lien or Capital Lease or purchase money debt permitted by
Section 7.1 enter into or assume any agreement prohibiting the creation or
assumption of any Lien upon its properties or assets, whether now owned or
hereafter acquired.
7.4. Investments and Loans. Make or permit to exist (other than
investments in Subsidiaries existing as of the Closing Date) investments in or
loans to any other Person, except: (a) Cash Equivalents; (b) loans and
advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business in an aggregate outstanding amount
not in excess of $100,000 at any time, (c) loans by one Borrower in another
Borrower not to exceed $1,000,000 in the aggregate per Fiscal Year and (d)
loans by any Borrower to Guarantor not to exceed $50,000 in the aggregate per
Fiscal Year.
7.5. Restricted Junior Payments. Directly or indirectly declare,
order, pay, make or set apart any sum for any Restricted Junior Payment,
except that: (a) Subsidiaries of each Borrower (including Hibbett Team with
respect to Hibbett) may make Restricted Junior Payments with respect to their
common stock to the extent necessary to permit such Borrower to pay the
Obligations, to make Restricted Junior Payments permitted under clause (b)
below and to permit Borrowers to pay expenses incurred in the ordinary course
of business; (b) Borrowers may make payments on the Subordinated Debt
(including any voluntary prepayments in connection with an Initial Public
Offering contemplated therein) in accordance with the terms of the
Subordinated Notes and the Bridge Loan Documentation; (c) Borrowers may make a
cash payment to one or more members of Anderson Group in the sum of
$22,250,000 pursuant to the Purchase and Redemption Agreement, (d) in the
absence of an Event of Default which is continuing, Borrowers may pay a fee to
Saunders not to exceed $200,000 in the aggregate per Fiscal Year and (e) in
the absence of an Event of Default which is continuing, Borrowers may pay such
amounts as are required to permit Borrowers to buy out employee stock options
pursuant to the Borrowers' stock option plan or to cash out options in
connection with the death or discharge of employees; provided, however that
after giving effect to such buy out or cash out (i) no Event of Default shall
have occurred and (ii) Borrowers shall have Excess Availability of at least
$3,000,000.
7.6. Restriction on Fundamental Changes. (a) Enter into any
transaction of merger or consolidation; (b) liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution); (c) convey, sell, lease,
sublease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets, or the
capital stock of any of its Subsidiaries, whether now owned or hereafter
acquired; or (d) acquire by purchase or otherwise all or any substantial part
of the business or assets of, or stock or other evidence of beneficial
ownership of, any Person.
7.7. Changes Relating to Subordinated Debt. Change or amend the terms
of the Subordinated Debt if the effect of such amendment is to: (a) increase
the interest rate on such Indebtedness; (b) change the dates upon which
payments of principal or interest are due on such Indebtedness; (c) change any
event of default or add any covenant with respect to such Indebtedness; (d)
change the payment provisions of such Indebtedness; (e) change the
subordination provisions thereof; or (f) change or amend any other term if
such change or amendment would materially increase the obligations of the
obligor or confer additional material rights on the holder of such
Indebtedness in a manner adverse to Borrowers, any Subsidiaries, Agent or any
Lender.
7.8. Transactions with Affiliates. Directly or indirectly, enter into
or permit to exist any transaction (including the purchase, sale or exchange
of property or the rendering of any service) with any Affiliate or with any
officer, director or employee of any Loan Party, except for transactions in
the ordinary course of and pursuant to the reasonable requirements of
Borrowers' business and upon fair and reasonable terms which are fully
disclosed to Agent and Lenders and which are no less favorable to Borrowers
than it would obtain in a comparable arm's length transaction with an
unaffiliated Person and other than with respect to agreements listed on
Schedule 7.8 hereto and any payments permitted under Section 7.5 hereof.
7.9. Environmental Liabilities. (a) Violate any applicable
Environmental Law the effect of which could reasonably be expected to have a
Material Adverse Effect; (b) dispose of any Hazardous Materials (except in
accordance with applicable law) into or onto or from, any real property owned,
leased or operated by any Loan Party; or (c) permit any Lien imposed pursuant
to any Environmental Law to be imposed or to remain on any real property owned,
leased or operated by any Loan Party.
7.10. Conduct of Business. From and after the Closing Date, engage in
any business other than businesses of the type engaged in by Borrowers on the
Closing Date.
7.11. Compliance with ERISA. Establish any new Employee Benefit Plan or
amend any existing Employee Benefit Plan if the liability or increased
liability resulting from such establishment or amendment is material. Neither
Borrowers nor any Subsidiary shall fail to establish, maintain and operate
each Employee Benefit Plan in compliance in all material respects with the
provisions of ERISA, the IRC and all other applicable laws and the regulations
and interpretations thereof.
7.12. Tax Consolidations. File or consent to the filing of any
consolidated income tax return with any Person other than with the any other
Borrower or any of its or the other Borrower's Subsidiaries.
7.13. Subsidiaries. Establish, create or acquire any new Subsidiaries.
7.14. Fiscal Year. Change its Fiscal Year.
7.15. Press Release; Public Offering Materials. Disclose the name of
Agent or any Lender in any press release or in any prospectus, proxy statement
or other materials filed with any governmental entity relating to a public
offering of the capital stock of any Loan Party except as may be required by
law.
7.16. Bank Accounts. Establish any new bank accounts, or amend or
terminate any Depository Account or lockbox agreement unless established in
accordance with section 5.6 hereof and Agent is given prompt notice thereof.
7.17. Capital Commitments. Enter into any Capital Commitments in any
month following a month (the "Control Month") during which the Average Excess
Availability for the Control Month was less than $1,000,000.
SECTION 8. DEFAULT, RIGHTS AND REMEDIES
8.1. Event of Default. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) Payment. Failure to make payment of any of the Obligations
when due and in the case of interest, such failure shall not be cured within
five (5) days of the applicable due date; or
(B) Default in Other Agreements. (1) Failure of any Borrower or
any of such Borrower's Subsidiaries to pay when due any principal or interest
on any Indebtedness (other than the Obligations), (2) breach or default of any
Borrower or any of such Borrower's Subsidiaries with respect to any
Indebtedness (other than the Obligations); if such failure to pay, breach or
default entitles the holder to cause such Indebtedness having an individual
principal amount in excess of $100,000 or having an aggregate principal amount
in excess of $250,000 to become or be declared due prior to its stated
maturity or (3) an event of default has occurred under the Subordinated Note
or the Purchase and Redemption Agreement; or
(C) Breach of Certain Provisions. Failure of Borrowers to
perform or comply with any term or condition contained in subsections 5.1 (A),
(B) and (R), 5.3, 5.5 or 5.6 or contained in Section 6 or Section 7; provided,
however, in the event Borrowers fail to comply with the Fixed Charge Coverage
covenant set forth in Section 6.4 as of any Testing Date, Borrowers shall not
be deemed to be in Default during the period commencing as of such Testing
Date through the day immediately preceding the date of the next Testing Date
(the "Forbearance Period"), solely with respect to such failure of compliance,
but only for so long as Average Excess Availability for the last month prior
to the first month of any such Forbearance Period and for each month during
such Forbearance Period is not less than $1,000,000. Borrowers shall not be
entitled to have successive Forbearance Periods; or
(D) Breach of Warranty. Any representation, warranty,
certification or other statement made by any Loan Party in any Loan Document
or in any statement or certificate at any time given by such Person in writing
pursuant or in connection with any Loan Document is false in any material
respect on the date made; or
(E) Other Defaults Under Loan Documents. Borrowers or any other
Loan Party defaults in the performance of or compliance with any term
contained in this Agreement or the other Loan Documents and such default is
not remedied or waived within ten (10) days after receipt by Borrowers of
notice from Agent, or Requisite Lenders of such default (other than
occurrences described in other provisions of this subsection 8.1 for which a
different grace or cure period is specified or which constitute immediate
Events of Default); or
(F) Change in Control. (1) Saunders ceases to beneficially own
and control, directly or indirectly, at least fifty-one percent (51%) of the
issued and outstanding shares of each class of capital stock of Hibbett
entitled (without regard to the occurrence of any contingency) to vote for the
election of a majority of the members of the board of directors of Hibbett, or
(2) Hibbett ceases to beneficially own and control at least one hundred percent
(100%) of the issued and outstanding shares of each class of capital stock of
Hibbett Team and Guarantor or (3) the Subordinated Notes held by a Fund or the
Saunders Subordinated Bridge Loan Documentation are transferred contrary to
the terms thereof; or
(G) Involuntary Bankruptcy; Appointment of Receiver, etc. (1) A
court enters a decree or order for relief with respect to any Borrower or
Guarantor in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the
following events for sixty (60) days unless dismissed, bonded or discharged:
(a) an involuntary case is commenced against any Borrower, under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (b) a decree or order of a court for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over any Borrower, or over all or a substantial part of their
respective property, is entered; or (c) an interim receiver, trustee or other
custodian is appointed without the consent of a Borrower, for all or a
substantial part of the property of any Borrower; or
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. (1) An
order for relief is entered with respect to any Borrower or any Borrower
commences a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case or to the
conversion of an involuntary case to a voluntary case under any such law or
consents to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; or (2) any
Borrower makes any assignment for the benefit of creditors; or (3) the board
of directors of any Borrower adopts any resolution or otherwise authorizes
action to approve any of the actions referred to in this subsection 8.1(H); or
(I) Liens. Any lien, levy or assessment is filed or recorded
with respect to or otherwise imposed upon all or any part of the Collateral or
the assets of any Borrower or any of such Borrower's Subsidiaries by the
United States or any department or instrumentality thereof or by any state,
county, municipality or other governmental agency (other than Permitted
Encumbrances) and such lien, levy or assessment is not stayed, vacated, paid or
discharged within ten (10) days; or
(J) Judgment and Attachments. Any money judgment, writ or
warrant of attachment, or similar process involving (1) an amount in any
individual case in excess of $100,000 or (2) an amount in the aggregate at any
time in excess of $250,000 (in either case not adequately covered by insurance
as to which the insurance company has acknowledged coverage) is entered or
filed against any Borrower or any of such Borrower's Subsidiaries or any of
their respective assets and remains undischarged, unvacated, unbonded or
unstayed for a period of thirty (30) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or
(K) Dissolution. Any order, judgment or decree is entered
against any Borrower or any of such Borrower's Subsidiaries decreeing the
dissolution or split up of Borrower or that Subsidiary and such order remains
undischarged or unstayed for a period in excess of twenty (20) days; or
(L) Solvency. Any Borrower admits in writing its present or
prospective inability to pay its debts as they become due; or
(M) Injunction. Any Borrower or any of such Borrower's
Subsidiaries is enjoined, restrained or in any way prevented by the order of
any court or any administrative or regulatory agency from conducting all or
any material part of its business and such order continues for more than
thirty (30) days; or
(N) Invalidity of Loan Documents. Any of the Loan Documents for
any reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any
Loan Documents to which it is party, or gives notice to such effect; or
(O) Failure of Security. Agent, on behalf of Lenders, does not
have or ceases to have a valid and perfected first priority security interest
in the Collateral (subject to Permitted Encumbrances), in each case, for any
reason other than the failure of Agent or any Lender to take any action within
its control; or
(P) Damage, Strike, Casualty. Any material damage to, or loss,
theft or destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty which causes, for more than fifteen (15) consecutive
days beyond the coverage period of any applicable business interruption
insurance, the cessation or substantial curtailment of revenue producing
activities at any facility of any Borrower or any of such Borrower's
Subsidiaries if any such event or circumstance could reasonably be expected to
have a Material Adverse Effect.
(Q) Licenses and Permits. The loss, suspension or revocation
of, or failure to renew, any license or permit not held or hereafter acquired
by any Borrower or any of such Borrower's Subsidiaries, if such loss,
suspension, revocation or failure to renew could have a Material Adverse
Effect.
(R) Forfeiture. There is filed against any Borrower any civil
or criminal action, suit or proceeding under any federal or state racketeering
statute (including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not
dismissed within one hundred twenty (120) days; and (2) could result in the
confiscation or forfeiture of any material portion of the Collateral.
8.2. Suspension of Commitments. Upon the occurrence of any Default or
Event of Default, notwithstanding any grace period or right to cure, Agent may
or upon demand by Requisite Lenders shall, without notice or demand,
immediately cease making additional Loans and the Commitments shall be
suspended; provided that, in the case of a Default, if the subject condition
or event is waived or cured within any applicable grace or cure period, the
Commitments shall be reinstated.
8.3. Acceleration. Upon the occurrence of any Event of Default
described in the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrowers, and the Commitments shall thereupon terminate. Upon the
occurrence and during the continuance of any other Event of Default, Agent
may, and upon demand by Requisite Lenders shall, by written notice to
Borrowers, (a) declare all or any portion of the Obligations to be, and the
same shall forthwith become, immediately due and payable and the Commitments
shall thereupon terminate and (b) demand that Borrowers immediately deposit
with Agent an amount equal to one hundred five percent (105%) of the Letter of
Credit Reserve to enable Lender to make payments under the Lender Letters of
Credit when required and such amount shall become immediately due and payable.
8.4. Remedies. If any Event of Default shall have occurred and be
continuing, in addition to and not in limitation of any other rights or
remedies available to Agent and Lenders at law or in equity, Agent may and
shall upon the request of Requisite Lenders exercise in respect of the
Collateral, in addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and may also (a) notify any or all obligors on the Accounts to
make all payments directly to Agent; (b) require Borrowers to, and Borrowers
hereby agree that they will, at their expense and upon request of Agent
forthwith, assemble all or part of the Collateral as directed by Agent and
make it available to Agent at a place to be designated by Agent which is
reasonably convenient to both parties; (c) withdraw all cash in the Depository
Accounts and apply such monies in payment of the Obligations in the manner
provided in subsection 8.7; (d) without notice or demand or legal process,
enter upon any premises of Borrowers and take possession of the Collateral;
and (e) without notice except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any of the
Agent's offices or elsewhere, at such time or times, for cash, on credit or
for future delivery, and at such price or prices and upon such other terms as
Agent may deem commercially reasonable. Borrowers agree that, to the extent
notice of sale shall be required by law, at least ten (10) days notice to
Borrowers of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. At any
sale of the Collateral, if permitted by law, Agent or any Lender may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for
the account of Agent or such Lender. Agent shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Borrowers
shall remain liable for any deficiency. Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Borrowers
hereby specifically waive all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter enacted. Agent shall
not be required to proceed against any Collateral but may proceed against
Borrowers directly.
8.5. Appointment of Attorney-in-Fact. Borrowers hereby constitute and
appoint Agent as Borrowers' attorney-in-fact with full authority in the place
and stead of Borrowers and in the name of Borrowers, Agent or otherwise, from
time to time in Agent's discretion while an Event of Default is continuing to
take any action and to execute any instrument that Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including: (a) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral; (b) to adjust, settle or compromise the amount or payment of any
Account, or release wholly or partly any customer or obligor thereunder or
allow any credit or discount thereon; (c) to receive, endorse, and collect any
drafts or other instruments, documents and chattel paper, in connection with
clause (a) above; (d) to file any claims or take any action or institute any
proceedings that Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of Agent and Lenders
with respect to any of the Collateral; and (e) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, assignments, verifications and notices in connection with Accounts
and other documents relating to the Collateral. The appointment of Agent as
Borrowers' attorney and Agent's rights and powers are coupled with an interest
and are irrevocable until payment in full and complete performance of all of
the Obligations.
8.6. Limitation on Duty of Agent with Respect to Collateral. Beyond
the safe custody thereof, Agent and each Lender shall have no duty with
respect to any Collateral in its possession or control (or in the possession
or control of any agent or bailee) or with respect to any income thereon or
the preservation of rights against prior parties or any other rights
pertaining thereto. Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which Agent
accords its own property. Neither Agent nor any Lender shall be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by Agent in good faith.
8.7. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, (a) Borrowers irrevocably waive the right
to direct the application of any and all payments at any time or times
thereafter received by Agent from or on behalf of Borrowers, and Borrowers
hereby irrevocably agree that Agent shall have the continuing exclusive right
to apply and to reapply any and all payments received at any time or times
after the occurrence and during the continuance of an Event of Default against
the Obligations in such manner as Agent may deem advisable notwithstanding any
previous entry by Agent upon any books and records and (b) the proceeds of
any sale of, or other realization upon, all or any part of the Collateral
shall be applied: first, to all fees, costs and expenses incurred by Agent or
any Lender with respect to this Agreement, the other Loan Documents or the
Collateral; second, to all fees due and owing to Agent and Lenders; third, to
accrued and unpaid interest on the Obligations; fourth, to the principal
amounts of the Obligations outstanding; and fifth, to any other indebtedness
or obligations of Borrowers owing to Agent or any Lender.
8.8. License of Intellectual Property. Borrowers hereby assign,
transfer and convey to Agent, for the benefit Lenders, effective upon the
occurrence of any Event of Default hereunder, the non-exclusive right and
license to use all Intellectual Property owned or used by Borrowers together
with any goodwill associated therewith, all to the extent necessary to enable
Agent to realize on the Collateral and any successor or assign to enjoy the
benefits of the Collateral. This right and license shall inure to the benefit
of all successors, assigns and transferees of Agent and its successors,
assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such right and license is granted free of charge, without requirement that any
monetary payment whatsoever be made to Borrowers by Agent.
8.9. Waivers, Non-Exclusive Remedies. No failure on the part of Agent
or any Lender to exercise, and no delay in exercising and no course of dealing
with respect to, any right under this Agreement or the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise by
Agent or any Lender of any right under this Agreement or any other Loan
Document preclude any other or further exercise thereof or the exercise of any
other right. The rights in this Agreement and the other Loan Documents are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 9. ASSIGNMENT AND PARTICIPATION
9.1. Assignments and Participations in Loans.
(A) Each Lender may assign its rights and delegate its
obligations under this Agreement to another Person; provided, that (a) such
Lender shall first obtain the written consent of Agent and each Borrower,
which shall not be unreasonably withheld, (b) the amount of Commitments and
Loans of the assigning Lender being assigned shall in no event be less than
the lesser of (i) $5,000,000 or (ii) the entire amount of the Commitments and
Loans of such assigning Lender and (c)(i) each such assignment shall be of a
pro rata portion of all such assigning Lender's Loans and Commitments
hereunder, and (ii) the parties to such assignment shall execute and deliver
to Agent for acceptance and recording a Lender Addition Agreement together
with (x) a processing and recording fee of $2,500 payable to Agent and (y) the
Notes originally delivered to the assigning Lender. Upon receipt of all of
the foregoing, Borrowers shall comply with their obligations under the last
sentence of subsection 2.1(E). In the case of an assignment authorized under
this subsection 9.1, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were
a Lender hereunder. The assigning Lender shall be relieved of its obligations
hereunder with respect to its Commitment or assigned portion thereof.
Borrowers hereby acknowledge and agree that any assignment will give rise to a
direct obligation of Borrowers to the assignee and that the assignee shall be
considered to be a "Lender".
(B) Each Lender may sell participations in all or any part of
any Loans made by it to another Person; provided, that any such participation
shall be in a minimum amount of $5,000,000, and provided, further, that all
amounts payable by Borrowers hereunder shall be determined as if that Lender
had not sold such participation and the holder of any such participation shall
not be entitled to require such Lender to take or omit to take any action
hereunder except action directly effecting (a) any reduction in the principal
amount, interest rate or fees payable with respect to any Loan in which such
holder participates; (b) any extension of the Expiry Date or the date fixed
for any payment of principal interest or fees payable with respect to any Loan
in which such holder participates; and (c) any release of substantially all of
the Collateral (other than in accordance with the terms of this Agreement or
the Loan Documents). Borrowers hereby acknowledge and agree that any
participation will give rise to a direct obligation of Borrowers to the
participant, and the participant shall for purposes of subsection 2.8, 2.9,
2.10, 9.4 and 11.2 be considered to be a "Lender".
(C) Except as otherwise provided in this subsection 9.1 no
Lender shall, as between Borrowers and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans
or other Obligations owed to such Lender. Each Lender may furnish any
information concerning Borrowers and their Subsidiaries in the possession of
that Lender from time to time to assignees and participants (including
prospective assignees and participants) provided that the Persons obtaining
such information agrees to maintain the confidentiality of such information to
the extent required by subsection 11.21.
(D) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Notes held by it in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System).
9.2. Agent.
(A) Appointment. Each Lender hereby designates and appoints
Heller as its agent under this Agreement and the Loan Documents, and each
Lender hereby irrevocably authorizes Agent to take such action or to refrain
from taking such action on its behalf under the provisions of this Agreement
and the Loan Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonably incidental thereto.
Agent is authorized and empowered to amend, modify, or waive any provisions of
this Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances
as provided in subsection 9.3. Agent agrees to act as such on the express
conditions contained in this subsection 9.2. The provisions of this
subsection 9.2 are solely for the benefit of Agent and Lenders and neither
Borrowers nor any Loan Party shall have any rights as a third party
beneficiary of any of the provisions hereof. In performing its functions and
duties under this Agreement, Agent shall act solely as an administrative
representative of Lenders and does not assume and shall not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for
Lenders, Borrowers or any Loan Party. Agent may perform any of its duties
hereunder, or under the Loan Documents, by or through its agents or employees.
(B) Nature of Duties. Agent shall have no duties, obligations or
responsibilities except those expressly set forth in this Agreement or in the
Loan Documents. The duties of Agent shall be mechanical and administrative in
nature. Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender. Each Lender shall make its own
independent investigation of the financial condition and affairs of Borrowers
in connection with the extension of credit hereunder and shall make its own
appraisal of the credit worthiness of Borrowers, and Agent shall have no duty
or responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto, whether
coming into its possession before the Closing Date or at any time or times
thereafter. If Agent seeks the consent or approval of any Lenders to the
taking or refraining from taking any action hereunder, then Agent shall send
notice thereof to each Lender. Agent shall promptly notify each Lender any
time that the applicable percentage of Lenders have instructed Agent to act or
refrain from acting pursuant hereto.
(C) Rights, Exculpation, Etc. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to any Lender for any
action taken or omitted by them hereunder or under any of the Loan Documents,
or in connection herewith or therewith, except that Agent shall be obligated
on the terms set forth herein for performance of its express obligations
hereunder, and except that Agent shall be liable with respect to its own gross
negligence or willful misconduct. Agent shall not be liable for any
apportionment or distribution of payments made by it in good faith and if any
such apportionment or distribution is subsequently determined to have been
made in error the sole recourse of any Lender to whom payment was due but not
made, shall be to recover from other Lenders any payment in excess of the
amount to which they are determined to be entitled (and such other Lenders
hereby agree to return to such Lender any such erroneous payments received by
them). In performing its functions and duties hereunder, Agent shall exercise
the same care which it would in dealing with loans for its own account, but
Agent shall not be responsible to any Lender for any recitals, statements,
representations or warranties herein or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, or sufficiency of this
Agreement or any of the Loan Documents or the transactions contemplated
thereby, or for the financial condition of any Loan Party. Agent shall not be
required to make any inquiry concerning either the performance or observance
of any of the terms, provisions or conditions of this Agreement or any of the
Loan Documents or the financial condition of any Loan Party, or the existence
or possible existence of any Default or Event of Default. Agent may at any
time request instructions from Lenders with respect to any actions or
approvals which by the terms of this Agreement or of any of the Loan Documents
Agent is permitted or required to take or to grant, and Agent shall be
absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan
Documents until it shall have received such instructions from the applicable
percentage of the Lenders. Without limiting the foregoing, no Lender shall
have any right of action whatsoever against Agent as a result of Agent acting
or refraining from acting under this Agreement or any of the other Loan
Documents in accordance with the instructions of the applicable percentage of
the Lenders and notwithstanding the instructions of Lenders, Agent shall have
no obligation to take any action if it, in good faith believes that such
action exposes Agent to any liability.
(D) Reliance. Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any telephone
message or other communication (including any writing, telex, telecopy or
telegram) believed by it in good faith to be genuine and correct and to have
been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Loan Documents and its
duties hereunder or thereunder, upon advice of counsel selected by it. Agent
shall be entitled to rely upon the advice of legal counsel, independent
accountants, and other experts selected by Agent in its sole discretion.
(E) Indemnification. Each Lender, severally, agrees to
reimburse and indemnify Agent for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against Agent in any way relating to
or arising out of this Agreement or any of the Loan Documents or any action
taken or omitted by Agent under this Agreement for any of the Loan Documents,
in proportion to each Lender's Pro Rata Share; provided, however, that no
Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses,
advances or disbursements resulting from Agent's gross negligence or willful
misconduct. The obligations of Lenders under this subsection 9.2(E) shall
survive the payment in full of the Obligations and the termination of this
Agreement.
(F) Heller Individually. With respect to its Commitments and
the Loans made by it, and the Notes issued to it, Heller shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any
other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms
shall, unless the context clearly otherwise indicates, include Heller in its
individual capacity as a Lender or one of the Requisite Lenders. Heller may
lend money to, and generally engage in any kind of banking, trust or other
business with any Loan Party as if it were not acting as Agent pursuant hereto.
(G) Successor Agent.
(1) Resignation. Agent may resign from the performance of
all its functions and duties hereunder at any time by giving at least thirty
(30) Business Days' prior written notice to Borrowers and the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (2) below or as otherwise provided below.
(2) Appointment of Successor. Upon any such notice of
resignation pursuant to clause (G)(1) above, Requisite Lenders shall, upon
receipt of Borrowers' prior consent which shall not unreasonably be withheld,
appoint a successor Agent. If a successor Agent shall not have been so
appointed within said thirty (30) Business Day period, the retiring Agent,
upon notice to Borrowers, shall then appoint a successor Agent who shall serve
as Agent until such time, as Requisite Lenders, upon receipt of Borrowers'
prior written consent which shall not be unreasonably withheld, appoint a
successor Agent as provided above.
(3) Successor Agent. Upon the acceptance of any
appointment as Agent under the Loan Documents by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Loan
Documents. After any retiring Agent's resignation as Agent under the Loan
Documents, the provisions of this subsection 9.2 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Agent under the
Loan Documents.
(H) Collateral Matters.
(1) Release of Collateral. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by this Agreement or the
Loan Documents (i) upon termination of the Commitments and payment and
satisfaction of all Obligations; (ii) constituting property being sold or
disposed of if Borrowers certify to Agent that the sale or disposition is made
in compliance with the provisions of this Agreement (and Agent may rely in
good faith conclusively on any such certificate, without further inquiry); or
(iii) constituting property leased to Borrowers under a lease which has
expired or been terminated in a transaction permitted under this Agreement or
is about to expire and which has not been, and is not intended by Borrowers to
be, renewed or extended. In addition during any Fiscal Year (x) Agent may
release Collateral having a book value of not more than 10% of the book value
of all Collateral, (y) Agent, with the consent of Requisite Lenders, may
release Collateral having a book value of not more than 25% of the book value
of all Collateral and (z) Agent, with the consent of Lenders having 90% of (i)
the Total Loan Commitments and (ii) Loans, may release all the Collateral.
(2) Confirmation of Authority; Execution of Releases.
Without in any manner limiting Agent's authority to act without any specific
or further authorization or consent by Lenders (as set forth in subsection
9.2(H)(1)), each Lender agrees to confirm in writing, upon request by
Borrowers, the authority to release any property covered by this Agreement or
the Loan Documents conferred upon Agent under subsection 9.2(H)(1). So long
as no Event of Default is then continuing, upon receipt by Agent of
confirmation from the requisite percentage of Lenders, of its authority to
release any particular item or types of property covered by this Agreement or
the Loan Documents, and upon at least five (5) Business Days prior written
request by Borrowers, Agent shall (and is hereby irrevocably authorized by
Lenders to) execute such documents as may be necessary to evidence the release
of the Liens granted to Agent for the benefit of Lenders herein or pursuant
hereto upon such Collateral; provided, however, that (i) Agent shall not be
required to execute any such document on terms which, in Agent's opinion,
would expose Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens upon (or obligations of any Loan Party, in respect
of), all interests retained by any Loan Party, including, without limitation,
the proceeds of any sale, all of which shall continue to constitute part of
the property covered by this Agreement or the Loan Documents.
(3) Absence of Duty. Agent shall have no obligation
whatsoever to any Lender or any other Person to assure that the property
covered by this Agreement or the Loan Documents exists or is owned by
Borrowers or is cared for, protected or insured or has been encumbered or that
the Liens granted to Agent on behalf of Lenders herein or pursuant hereto have
been properly or sufficiently or lawfully created, perfected, protected or
enforced or are entitled to any particular priority, or to exercise at all or
in any particular manner or under any duty of care, disclosure or fidelity, or
to continue exercising, any of the rights, authorities and powers granted or
available to Agent in this subsection 9.2(H) or in any of the Loan Documents,
it being understood and agreed that in respect of the property covered by this
Agreement or the Loan Documents or any act, omission or event related thereto,
Agent may act in any manner it may deem appropriate, in its discretion, given
Agent's own interest in property covered by this Agreement or the Loan
Documents as one of the Lenders and that Agent shall have no duty or liability
whatsoever to any of the other Lenders; provided, that Agent shall exercise
the same care which it would in dealing with loans for its own account.
(I) Agency for Perfection. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in Collateral which, in accordance with Article 9 of the Uniform Commercial
Code in any applicable jurisdiction, can be perfected only by possession.
Should any Lender (other than Agent) obtain possession of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent's request
therefor, shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
(J) Exercise of Remedies. Each Lender agrees that it will not
have any right individually to enforce or seek to enforce this Agreement or
any Loan Document or to realize upon any collateral security for the Loans, it
being understood and agreed that such rights and remedies may be exercised
only by Agent.
9.3. Consents.
(A) In the event Agent requests the consent of a Lender and does
not receive a written denial thereof within five (5) Business Days after such
Lender's receipt of such request, then such Lender will be deemed to have
given such consent.
(B) In the event Agent requests the consent of a Lender and such
consent is denied, then Heller may, at its option, require such Lender to
assign its interest in the Loans to Heller for a price equal to the then
outstanding principal amount thereof plus accrued and unpaid interest and fees
due such Lender, which interest and fees will be paid when collected from
Borrowers. In the event that Heller elects to require any Lender to assign
its interest to Heller, Heller will so notify such Lender in writing within
forty-five (45) days following such Lender's denial, and such Lender will
assign its interest to Heller no later than five (5) days following receipt of
such notice.
9.4. Set Off and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any
such rights, upon the occurrence and during the continuance of any Event of
Default, each Lender is hereby authorized by Borrowers at any time or from
time to time, with reasonably prompt subsequent notice to Borrowers or to any
other Person (any prior or contemporaneous notice being hereby expressly
waived) to set off and to appropriate and to apply any and all (A) balances
held by such Lender or such holder at any of its offices for the account of
any Borrower or any of its Subsidiaries (regardless of whether such balances
are then due to Borrower or its Subsidiaries), and (B) other property at any
time held or owing by such Lender or such holder to or for the credit or for
the account of any Borrower or any of its Subsidiaries, against and on account
of any of the Obligations which are not paid when due; except that no Lender
or any such holder shall exercise any such right without the prior written
consent of Agent. Any Lender which has exercised its right to set off shall,
to the extent the amount of any such set off exceeds its Pro Rata Share of the
Obligations, purchase for cash (and the other Lenders or holders shall sell)
participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share such excess
with each other Lender or holder in accordance with their respective Pro Rata
Shares. Borrower agrees, to the fullest extent permitted by law, that (a) any
Lender or holder may exercise its right to set off with respect to amounts in
excess of its Pro Rata Share of the Obligations and may sell participations in
such excess to other Lenders and holders, and (b) any Lender or holder so
purchasing a participation in the Loans made or other Obligations held by
other Lenders or holders may exercise all rights of set-off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as
if such Lender or holder were a direct holder of Loans and other Obligations
in the amount of such participation.
9.5. Disbursement of Funds. Agent may, on behalf of Lenders, disburse
funds to Borrowers for Loans requested. Each Lender shall reimburse Agent on
demand for all funds disbursed on its behalf by Agent, or if Agent so
requests, each Lender will remit to Agent its Pro Rata Share of any Loan
before Agent disburses same to Borrowers. If Agent elects to require that
funds be made available prior to disbursement to Borrowers, Agent shall advise
each Lender by telephone, telex or telecopy of the amount of such Lender's Pro
Rata Share of such requested Loan no later than (a) one (1) Business Day prior
to the Funding Date applicable thereto for LIBOR Rate Loans and (b) by 1:00
p.m. Central time on the Funding Date for Base Rate Loans, and each such
Lender shall pay Agent such Lender's Pro Rata Share of such requested Loan, in
same day funds, by wire transfer to Agent's account not later than 10:00 a.m.
Central time on such Funding Date for LIBOR Rate Loans and 3:00 p.m. Central
time for Base Rate Loans. If any Lender fails to pay the amount of its Pro
Rata Share forthwith upon Agent's demand, Agent shall promptly notify
Borrowing Agent and Borrowers shall immediately repay such amount to Agent.
Any repayment required pursuant to this subsection 9.5 shall be without
premium or penalty. Nothing in this subsection 9.5 or elsewhere in this
Agreement or the other Loan Documents, including without limitation the
provisions of subsection 9.6, shall be deemed to require Agent to advance
funds on behalf of any Lender or to relieve any Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that Agent or
Borrowers may have against any Lender as a result of any default by such
Lender hereunder.
9.6. Settlements, Payments and Information.
(A) Revolving Loan Advances and Payments; Fee Payments.
(1) The Revolving Loan balance may fluctuate from day to
day through Agent's disbursement of funds to, and receipt of funds from,
Borrowers. In order to minimize the frequency of transfers of funds between
Agent and each Lender notwithstanding terms to the contrary set forth in
Section 2 and subsection 9.5, Revolving Loan advances and payments may be
settled according to the procedures described in subsection 9.6(A)(2) and
9.6(A)(3) of this Agreement. Payments of principal, interest and fees in
respect of the Term Loan will be settled on the Business Day received in
accordance with the provisions of Section 2. Notwithstanding these
procedures, each Lender's obligation to fund its portion of any advances made
by Agent to Borrowers will commence on the date such advances are made by
Agent. Such payments will be made by such Lender without set-off,
counterclaim or reduction of any kind.
(2) Once each week, or more frequently (including daily),
if Agent so elects (each such day being a "Settlement Date"), Agent will
advise each Lender by 1 p.m. Central time by telephone, telex, or telecopy of
the amount of each such Lender's Pro Rata Share of the Revolving Loan balance.
In the event that payments are necessary to adjust the amount of such Lender's
share of the Revolving Loan balance to such Lender's Pro Rata Share of the
Revolving Loan, the party from which such payment is due will pay the other,
in same day funds, by wire transfer to the other's account not later than 3:00
p.m. Central time on the Business Day following the Settlement Date.
(3) On the first Business Day of each month ("Interest
Settlement Date"), Agent will advise each Lender by telephone, telefax or
telecopy of the amount of interest and fees charged to and collected from
Borrowers for the proceeding month. Provided that such Lender has made all
payments required to be made by it under this Agreement, Agent will pay to
such Lender, by wire transfer to such Lender's account (as specified by such
Lender on the signature page of this Agreement as amended by such Lender from
time to time after the date hereof pursuant to the notice provisions contained
herein or in the applicable Lender Addition Agreement) not later than 3 p.m.
Central time on the next Business Day following the Interest Settlement Date
such Lender's share of such interest and fees.
(B) Availability of Lender's Pro Rata Share.
(1) Unless Agent has been notified by a Lender prior to a
Funding Date of such Lender's intention not to fund its Pro Rata Share of the
Loan amount requested by Borrowers, Agent may assume that such Lender will
make such amount available to Agent on the Funding Date or the Business Day
following the next Settlement Date, as applicable. If such amount is not, in
fact, made available to Agent by such Lender when due, Agent will be entitled
to recover such amount on demand from such Lender without set-off, counterclaim
or deduction of any kind.
(2) Nothing contained in this subsection 9.6(B) will be
deemed to relieve a Lender of its obligation to fulfill its Commitments or to
prejudice any rights Agent or Borrowers may have against such Lender as a
result of any default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing, each
Lender shall be obligated to fund its Pro Rata Share of any Revolving Loan
made with respect to any draw on a Lender Letter of Credit.
(C) Return of Payments
(1) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrowers and such related payment is not received
by Agent, then Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to Borrowers or paid
to any other person pursuant to any solvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement, Agent will not
be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent
has distributed to such Lender, together with interest at such rate, if any,
as Agent is required to pay to Borrowers or such other Person, without
set-off, counterclaim or deduction of any kind.
9.7. Dissemination of Information. Agent will provide Lenders with any
information received by Agent from Borrowers which is required to be provided
to a Lender hereunder; provided, however, that Agent shall not be liable to
Lenders for any failure to do so, except to the extent that such failure is
attributable to Agent's gross negligence or willful misconduct.
9.8. Discretionary Advances. Agent may, in its sole discretion, (i)
provided that no Event of Default exists, make Revolving Loans in excess of
the limitations set forth in subsection 2.1 (B) during the continuance of an
Event of Default, make Revolving Loans in excess of the limitations set forth
in subsection 2.1 (B) for the purpose of preserving or protection the
Collateral.
SECTION 10. BORROWING AGENCY
10.1. Borrowing Agency Provisions.
(A) Each Borrower hereby irrevocably designates Borrowing Agent
to be its attorney and agent and in such capacity to borrow, sign and endorse
notes, and execute and deliver all instruments, documents, writings and
further assurances now or hereafter required hereunder, on behalf of such
Borrower or Borrowers, and hereby authorizes Agent and Lenders to pay over or
credit all loan proceeds hereunder in accordance with the request of Borrowing
Agent.
(B) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement is
solely as an accommodation to Borrowers and at their request. Agent and
Lenders shall not incur liability to Borrowers as a result thereof. To induce
Agent and Lenders to do so and in consideration thereof, each Borrower hereby
indemnifies Agent and Lenders and holds Agent and Lenders harmless from and
against any and all liabilities, expenses, losses, damages and claims of
damage or injury asserted against Lender by any Person arising from or
incurred by reason of the handling of the financing arrangements of Borrowers
as provided herein, reliance by Lender on any request or instruction from
Borrowing Agent or any other action taken by Lender with respect to this
Section 10.1 except due to willful misconduct or gross (not mere) negligence
by the indemnified party.
(C) All Obligations shall be joint and several, and each
Borrower shall make payment upon the maturity of the Obligations, by
acceleration or otherwise, and such obligation and liability on the part of
each Borrower shall in no way be affected by any extensions, renewals and
forbearance granted to Agent and Lenders to any Borrower, failure of Agent and
Lenders to give any Borrower notice of borrowing or any other notice, any
failure of Lender to pursue or preserve its rights against any Borrower, the
release by Agent and Lenders of any Collateral now or thereafter acquired from
any Borrower, and such agreement by each Borrower to pay upon any notice
issued pursuant thereto is unconditional and unaffected by prior recourse by
Agent and Lenders to the other Borrowers or any Collateral for such Borrower's
Obligations or the lack thereof.
10.2. Waiver of Subrogation. Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution of
any other claim which such Borrower may now or hereafter have against the
other Borrowers or other Person directly or contingently liable for the
Obligations hereunder, or against or with respect to the other Borrowers'
property (including, without limitation, any property which is Collateral for
the Obligations), arising from the existence or performance of this Agreement,
until all Obligations have been paid in full.
SECTION 11. MISCELLANEOUS
11.1. Expenses and Attorneys' Fees. Whether or not the transactions
contemplated hereby shall be consummated, Borrowers agree to promptly pay all
fees, costs and expenses incurred by Agent in connection with any matters
contemplated by or arising out of this Agreement or the other Loan Documents
including the following, and all such fees, costs and expenses shall be part
of the Obligations, payable on demand and secured by the Collateral: (a)
fees, costs and expenses (including reasonable attorneys' fees, allocated
costs of internal counsel and fees of environmental consultants, accountants
and other professionals retained by Agent) incurred in connection with the
examination, review, due diligence investigation, documentation and closing of
the financing arrangements evidenced by the Loan Documents; (b) fees, costs
and expenses (including reasonable attorneys' fees, allocated costs of internal
counsel and fees of environmental consultants, accountants and other
professionals retained by Agent) incurred in connection with the review,
negotiation, preparation, documentation, execution and administration of the
Loan Documents, the Loans, and any amendments, waivers, consents, forbearances
and other modifications relating thereto or any subordination or intercreditor
agreements; (c) fees, costs and expenses incurred by Agent in creating,
perfecting and maintaining perfection of Liens in favor of Agent, on behalf of
Lenders; (d) fees, costs and expenses incurred by Agent in connection with
forwarding to Borrowers the proceeds of Loans including Agent's or any
Lenders' standard wire transfer fee; (e) fees, costs, expenses and bank
charges, including bank charges for returned checks, incurred by Agent or any
Lender in establishing, maintaining and handling lock box accounts, blocked
accounts or other accounts for collection of the Collateral; (f) fees, costs,
expenses (including reasonable attorneys' fees and allocated costs of internal
counsel) of Agent or any Lender and costs of settlement incurred in collecting
upon or enforcing rights against the Collateral or incurred in any action to
enforce this Agreement or the other Loan Documents or to collect any payments
due from Borrowers or any other Loan Party under this Agreement or any other
Loan Document or incurred in connection with any refinancing or restructuring
of the credit arrangements provided under this Agreement, whether in the
nature of a "workout" or in connection with any insolvency or bankruptcy
proceedings or otherwise.
11.2. Indemnity. In addition to the payment of expenses pursuant to
subsection 11.1, whether or not the transactions contemplated hereby shall be
consummated, Borrowers agree to indemnify, pay and hold Agent and each Lender
and any holder of the Notes, and the officers, directors, employees, agents,
consultants, auditors, persons engaged by Agent or any Lender and any holder
of any of the Notes to evaluate or monitor the Collateral, affiliates and
attorneys of Agent, Lender and such holders (collectively called the
"Indemnitees") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (including the fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may
be imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement or the other Loan Documents, the
consummation of the transactions contemplated by this Agreement, the
statements contained in the commitment letters, if any, delivered by Agent or
any Lender, Agent's and each Lender's agreement to make the Loans hereunder,
the use or intended use of the proceeds of any of the Loans or the exercise of
any right or remedy hereunder or under the other Loan Documents (the
"Indemnified Liabilities"); provided that Borrower shall have no obligation to
an Indemnitee hereunder with respect to Indemnified Liabilities arising from
the gross negligence or willful misconduct of that Indemnitee as determined by
a court of competent jurisdiction.
11.3. Amendments and Waivers.
(A) Except as otherwise provided herein, no amendment,
modification, termination or waiver of any provision of this Agreement, the
Notes or any other Loan Document, or consent to any departure by any Loan
Party therefrom, shall in any event be effective unless the same shall be in
writing and signed by Requisite Lenders or Agent, as applicable; provided,
that no amendment, modification, termination or waiver shall, unless in
writing and signed by all Lenders, do any of the following: (i) increase the
Commitment of any Lender; (ii) reduce the principal of, rate of interest on or
fees payable with respect to any Loan; (iii) extend the scheduled due date of
any installment of principal of the Loans; (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans, or the
percentage of Lenders which shall be required for Lenders or any of them to
take any action hereunder; (v) amend or waive this subsection 11.3 or the
definitions of the terms used in this subsection 11.3 insofar as the
definitions affect the substance of this subsection 11.3; (vi) consent to the
assignment or other transfer by any Loan Party of any of its rights and
obligations under any Loan Document; and (vii) increase the percentages
contained in the definition of Borrowing Base and provided, further, that no
amendment, modification, termination or waiver affecting the rights or duties
of Agent under any Loan Document shall in any event be effective, unless in
writing and signed by Agent, in addition to the Lenders required herein above
to take such action.
(B) Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for Agent to take additional Collateral pursuant to any Loan
Document.
(C) No amendment, modification or waiver of any provision of any
Lender Letter of Credit shall be applicable without the written concurrence of
the issuer of such Lender Letter of Credit. No notice to or demand on
Borrowers or any other Loan Party in any case shall entitle Borrowers or any
other Loan Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 11.3 shall be binding upon each
holder of the Notes at the time outstanding, each future holder of the Notes,
and, if signed by a Loan Party, on such Loan Party.
(D) In the event Agent waives (1) any Default arising under
subsection 8.1(E) as a result of the breach of any of the provisions of
Section 5 of this Agreement (other than any such breach which constitutes an
Event of Default) or (2) any Default constituting a condition to the funding
of any Revolving Loan or issuance of any Lender Letter of Credit, such waiver
shall expire on the date upon which the Default which was the subject of such
waiver matures into an Event of Default pursuant to the terms of this
Agreement.
11.4. Notices. Unless otherwise specifically provided herein, all
notices shall be in writing addressed to the respective party as set forth
below and may be personally served, telecopied or sent by overnight courier
service or United States mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by telecopy, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. Central time
or, if not, on the next succeeding Business Day; (c) if delivered by overnight
courier, two (2) days after delivery to such courier properly addressed; or
(d) if by U.S. Mail, four (4) Business Days after depositing in the United
States mail, with postage prepaid and properly addressed.
If to Borrowing Agent
or Borrowers: c/o Hibbett Sporting Goods, Inc.
131 South 25th Street
Birmingham, Alabama 35211
Telecopy No.: (205) 956-0164
With a copy to: Balch & Bingham
1710 Sixth Avenue North
P.O. Box 206
Birmingham, Alabama 35201
Telecopy No.: (205) 226-8799
and a copy to: Saunders Karp & Co., L.P.
667 Madison Avenue, 21st Floor
New York, New York 10021
Attention: John Megrue
Telecopy No.: (212) 755-1624
If to Agent
or to Heller: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois, 60661
Attn: HBC Portfolio Manager
Telecopy No.: (312) 441-7026
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
Attn: Legal Department
Telecopy No.: (312) 441-7026
If to any Lender: Its address indicated on the signature page hereto,
in a Lender Addition Agreement or in a notice to Agent and Borrowers or to
such other address as the party addressed shall have previously designated by
written notice to the serving party, given in accordance with this subsection
11.4.
11.5. Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrowers set forth in subsections 11.1 and 11.2 shall
survive the payment of the Loans and the termination of this Agreement.
11.6. Indulgence Not Waiver. No failure or delay on the part of Agent,
any Lender or any holder of any the Notes in the exercise of any power, right
or privilege hereunder or under the Notes shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
11.7. Marshaling; Payments Set Aside. Neither Agent nor any Lender
shall be under any obligation to marshal any assets in favor of any Loan Party
or any other party or against or in payment of any or all of the Obligations.
To the extent that any Loan Party makes a payment or payments to Agent and/or
any Lender or Agent and/or any Lender enforces its security interests or
exercise its rights of setoff, and such payment or payments or the proceeds
of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such recovery, the Obligations or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor, shall
be revived and continued in full force and effect as if such payment had not
been made or such enforcement or setoff had not occurred.
11.8. Entire Agreement. This Agreement, the Notes, and the other Loan
Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. There are no oral agreements among the parties hereto.
11.9. Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
11.10. Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Agreement or the
other Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this
Agreement, or the other Loan Documents or of such provision or obligation in
any other jurisdiction.
11.11. Lenders' Obligations Several; Independent Nature of Lenders'
Rights. The obligation of each Lender hereunder is several and not joint and
neither Agent nor any Lender shall be responsible for the obligation or
commitment of any other Lender hereunder. In the event that any Lender at any
time should fail to make a Loan as herein provided, the Lenders, or any of
them, at their sole option, may make the Loan that was to have been made by the
Lender so failing to make such Loan. Nothing contained in any Loan Document
and no action taken by Agent or any Lender pursuant hereto or thereto shall be
deemed to constitute Lenders to be a partnership, an association, a joint
venture or any other kind of entity. The amounts payable at any time hereunder
to each Lender shall be a separate and independent debt, and, provided Agent
fails or refuses to exercise any remedies against Borrowers after receiving
the direction of the Requisite Lenders, each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement and it shall not
be necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
11.12. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive
effect.
11.13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
11.14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns except that Borrowers may not assign their rights or obligations
hereunder without the written consent of Lenders.
11.15. No Fiduciary Relationship; Limitation of Liabilities.
(A) No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty by Agent or any Lender to Borrowers.
(B) Neither Agent nor any Lender, nor any affiliate, officer,
director, shareholder, employee, attorney, or agent of Agent or any Lender
shall have any liability with respect to, and Borrowers hereby waive, release,
and agree not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by Borrowers in
connection with, arising out of, or in any way related to, this Agreement or
any of the other Loan Documents, or any of the transactions contemplated by
this Agreement or any of the other Loan Documents. Borrowers hereby waive,
release, and agree not to sue Agent or any Lender or any of Agent's or any
Lender's affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of,
or in any way related to, this Agreement or any of the other Loan Documents,
or any of the transactions contemplated by this Agreement or any of the
transactions contemplated hereby.
11.16. CONSENT TO JURISDICTION. BORROWERS HEREBY CONSENT TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION,
ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
TERM NOTE OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
BORROWERS ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR RESPECTIVE
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT, THE TERM NOTE, THE OTHER LOAN DOCUMENTS OR THE
OBLIGATIONS.
11.17. WAIVER OF JURY TRIAL. BORROWERS, AGENT AND EACH LENDER HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE TERM NOTE OR THE OTHER LOAN
DOCUMENTS. BORROWERS, AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, THE TERM NOTE
AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS. BORROWERS, AGENT AND EACH LENDER FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
11.18. Construction. Borrowers, Agent and each Lender each acknowledge
that it has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement and the other Loan Documents
with its legal counsel and that this Agreement and the other Loan Documents
shall be construed as if jointly drafted by Borrowers, Agent and each Lender.
11.19. Counterparts; Effectiveness. This Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute but one and the same instrument.
This Agreement shall become effective upon the execution of a counterpart
hereof by each of the parties hereto.
11.20. No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by Agent or any Lender shall
have the right to act exclusively in the interest of Agent or such Lender and
shall have no duty of disclosure, duty of loyalty, duty of care, or other duty
or obligation of any type or nature whatsoever to any Borrower or any of
Borrower's shareholders or any other Person.
11.21. Confidentiality. Agent and Lenders shall hold all nonpublic
information obtained pursuant to the requirements hereof and identified as
such by Borrowers in accordance with such Person's customary procedures for
handling confidential information of this nature and in accordance with safe
and sound business practices and in any event may make disclosure reasonably
required by a bona fide offeree or assignee (or participation), or as required
or requested by any Governmental Authority or representative thereof, or
pursuant to legal process, or to its accountants, lawyers and other advisors,
and shall require any such offeree or assignee (or participant) to agree (and
require any of its offerees, assignees or participants to agree) to comply
with this Section 11.21. In no event shall the Agent or any Lender be
obligated or required to return any materials furnished by Borrowers; provided,
however, each Offeree shall be required to agree that if it does not become a
assignee (or participant) it shall return all materials furnished to it by
Borrowers in connection herewith.
11.22. Joint and Several Obligations. Each Borrower further agrees that
all Obligations shall be joint and several, and that each Borrower shall make
payment upon the Obligations upon their maturity by acceleration or otherwise,
and that such obligation and liability on the part of each Borrower shall in
no way be affected by any extensions, renewals and forbearances granted by
Agent and Lenders to any Borrower, failure of Agent or Lenders to give any
Borrower notice of borrowing or any other notice, any failure of Agent or any
Lender to pursue or preserve its rights against the other Borrower, the
release by Agent and Lenders of any Collateral now or hereafter acquired from
any Borrower, failure of Agent and Lenders to realize upon such Collateral in
a commercially reasonable manner, and that such agreement by each Borrower to
pay upon any notice issued pursuant hereto is unconditional and unaffected by
prior recourse by Agent and Lenders to the other Borrowers or any Collateral
for such Borrowers' Obligations or the lack thereof. Each Borrower hereby
agrees (a) that Agent and Lenders shall be under no obligation to marshal any
assets in favor of such Borrower and (b) to waive any right of subrogation
with respect to any other Borrower arising out of any obligation which arises
as a result of the joint and several obligations of the Borrowers hereunder.
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
HIBBETT SPORTING GOODS, INC.
By: /s/ Michael J. Newsome
----------------------
Name: Michael J. Newsome
Title: President
HIBBETT TEAM SPORTS, INC.
By: /s/ Michael J. Newsome
----------------------
Name: Michael J. Newsome
Title: President
HELLER FINANCIAL, INC.
By: /s/ Mark Thies
--------------
Name: Mark Thies
Title: Vice President
Revolving Loan Commitment:
$25,000,000.00
Term Loan Commitment:
$1,000,000.00
EXHIBITS
1.1(A) Borrowing Base Certificate
1.1(B) Closing Certificate
1.1(C) Compliance Certificate
1.1(D) Guaranty
1.1(E) Inventory Report
1.1(F) Lender Addition Agreement
1.1(G) Reconciliation Report
1.1(H) Revolving Note
1.1(I) Term Note
SCHEDULES
1.1(A) Real Property
1.1(B) Other Liens
1.1(C) Pro Forma
1.1(D) Permitted Contractual Landlords Liens
4.1(B) Capitalization of Loan Parties
3.1(A) List of Closing Documents
4.6 Trade Names (Present and Past Five Years)
4.7 Location of Principal Place of Business, Books and Records and
Collateral
4.12 Employee Benefit Plans
4.13 Intellectual Property
4.20 Bank Accounts
4.21 Subsidiaries
4.22 Employee Matters
5.6 Depository Banks
7.8 Transactions with Affiliates
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.................................................... 1
1.1. Certain Defined Terms.......................................... 1
1.2. Accounting Terms............................................... 14
1.3. Other Definitional Provisions.................................. 15
SECTION 2. LOANS AND COLLATERAL........................................... 15
2.1. Loans.......................................................... 15
2.2. Interest....................................................... 22
2.3. Fees........................................................... 25
2.4. Payments and Prepayments....................................... 26
2.5. Term of this Agreement......................................... 27
2.6. Statements..................................................... 28
2.7. Grant of Security Interest..................................... 28
2.8. Capital Adequacy and Other Adjustments......................... 28
2.9. Taxes.......................................................... 29
(A) No Deductions............................................ 29
(B) Changes in Tax Laws...................................... 29
(C) Foreign Lenders.......................................... 30
2.10. Required Termination and Prepayment............................ 30
2.11. Optional Prepayment/Replacement of Agent or Lenders in Respect
of Increased Costs............................................ 31
2.12. Compensation................................................... 31
2.13. Booking of LIBOR Rate Loans.................................... 31
2.14. Assumptions Concerning Funding of LIBOR Rate Loans............. 32
SECTION 3. CONDITIONS TO LOANS............................................ 32
3.1. Conditions to Loans............................................ 32
(A) Closing Deliveries....................................... 32
(B) Security Interests....................................... 32
(C) Closing Date Availability................................ 32
(D) Representations and Warranties........................... 32
(E) Fees..................................................... 32
(F) No Default............................................... 32
(G) Performance of Agreements................................ 33
(H) No Prohibition........................................... 33
(I) No Litigation............................................ 33
(J) Equity Contribution...................................... 33
(K) Financial Condition Opinions............................. 33
(L) Subordinated Debt Documents.............................. 33
(M) Insurance................................................ 33
(N) Consents................................................. 33
(O) No Adverse Material Change............................... 34
SECTION 4. BORROWERS' REPRESENTATIONS AND WARRANTIES...................... 34
4.1. Organization, Powers, Capitalization........................... 34
(A) Organization and Powers.................................. 34
(B) Capitalization........................................... 34
4.2. Authorization of Borrowing, No Conflict........................ 34
4.3. Financial Condition............................................ 35
4.4. Indebtedness and Liabilities................................... 35
4.5. Account Warranties............................................. 35
4.6. Names.......................................................... 35
4.7. Locations; FEIN................................................ 36
4.8. Title to Properties; Liens..................................... 36
4.9. Litigation; Adverse Facts...................................... 36
4.10. Payment of Taxes............................................... 36
4.11. Performance of Agreements...................................... 36
4.12. Employee Benefit Plans......................................... 36
4.13. Intellectual Property.......................................... 37
4.14. Broker's Fees.................................................. 37
4.15. Environmental Compliance....................................... 37
4.16. Solvency....................................................... 37
4.17. Disclosure..................................................... 37
4.18. Insurance...................................................... 38
4.19. Compliance with Laws........................................... 38
4.20. Bank Accounts.................................................. 38
4.21. Subsidiaries................................................... 38
4.22. Employee Matters............................................... 38
4.23. Governmental Regulation........................................ 38
SECTION 5. AFFIRMATIVE COVENANTS.......................................... 39
5.1. Financial Statements and Other Reports......................... 39
(A) Monthly Financials....................................... 39
(B) Year-End Financials...................................... 39
(C) Accountants' Certification and Reports................... 39
(D) Compliance Certificate................................... 40
(E) Borrowing Base Certificates, Registers and Journals...... 40
(F) Reconciliation Reports, Inventory Reports and Listings
and Agings.............................................. 40
(G) Management Report........................................ 40
(H) Appraisals............................................... 41
(I) Government Notices....................................... 41
(J) Events of Default, etc................................... 41
(K) Trade Names.............................................. 41
(L) Locations................................................ 41
(M) Bank Accounts............................................ 41
(N) Litigation............................................... 41
(O) Projections.............................................. 42
(P) Subordinated Debt and Other Indebtedness Notices......... 42
(Q) Other Information........................................ 42
(R) Opening Balance Sheet.................................... 42
5.2. Access to Accountants.......................................... 42
5.3. Inspection..................................................... 42
5.4. Collateral Records............................................. 42
5.5. Account Covenants; Verification................................ 43
5.6. Collection of Accounts and Payments............................ 43
5.7. Endorsement.................................................... 43
5.8. Corporate Existence............................................ 44
5.9. Payment of Taxes............................................... 44
5.10. Maintenance of Properties; Insurance........................... 44
5.11. Compliance with Laws........................................... 44
5.12. Further Assurances............................................. 44
5.13. Collateral Locations........................................... 45
5.14. Bailees........................................................ 45
5.15. Use of Proceeds and Margin Security............................ 45
SECTION 6. FINANCIAL COVENANTS............................................ 45
6.1. Tangible Net Worth............................................. 45
6.2. Minimum EBITDA................................................. 45
6.3. Capital Expenditure Limits..................................... 46
6.4. Fixed Charge Coverage.......................................... 46
6.5. Interest Coverage.............................................. 47
6.6. Leverage....................................................... 48
6.7. Consolidated Fixed Charge Ratio................................ 48
SECTION 7. NEGATIVE COVENANTS............................................. 48
7.1. Indebtedness and Liabilities................................... 48
7.2. Guaranties..................................................... 49
7.3. Transfers, Liens and Related Matters........................... 49
(A) Transfers................................................ 49
(B) Liens.................................................... 49
(C) No Negative Pledges...................................... 50
7.4. Investments and Loans.......................................... 50
7.5. Restricted Junior Payments..................................... 50
7.6. Restriction on Fundamental Changes............................. 50
7.7. Changes Relating to Subordinated Debt.......................... 50
7.8. Transactions with Affiliates................................... 51
7.9. Environmental Liabilities...................................... 51
7.10. Conduct of Business............................................ 51
7.11. Compliance with ERISA.......................................... 51
7.12. Tax Consolidations............................................. 51
7.13. Subsidiaries................................................... 51
7.14. Fiscal Year.................................................... 51
7.15. Press Release; Public Offering Materials....................... 51
7.16. Bank Accounts.................................................. 51
7.17. Capital Commitments............................................ 52
SECTION 8. DEFAULT, RIGHTS AND REMEDIES................................... 52
8.1. Event of Default............................................... 52
(A) Payment.................................................. 52
(B) Default in Other Agreements.............................. 52
(C) Breach of Certain Provisions............................. 52
(D) Breach of Warranty....................................... 52
(E) Other Defaults Under Loan Documents...................... 52
(F) Change in Control........................................ 53
(G) Involuntary Bankruptcy; Appointment of Receiver, etc..... 53
(H) Voluntary Bankruptcy; Appointment of Receiver, etc....... 53
(I) Liens.................................................... 53
(J) Judgment and Attachments................................. 53
(K) Dissolution.............................................. 54
(L) Solvency................................................. 54
(M) Injunction............................................... 54
(N) Invalidity of Loan Documents............................. 54
(O) Failure of Security...................................... 54
(P) Damage, Strike, Casualty................................. 54
(Q) Licenses and Permits..................................... 54
(R) Forfeiture............................................... 54
8.2. Suspension of Commitments...................................... 54
8.3. Acceleration................................................... 55
8.4. Remedies....................................................... 55
8.5. Appointment of Attorney-in-Fact................................ 56
8.6. Limitation on Duty of Agent with Respect to Collateral......... 56
8.7. Application of Proceeds........................................ 56
8.8. License of Intellectual Property............................... 57
8.9. Waivers, Non-Exclusive Remedies................................ 57
SECTION 9. ASSIGNMENT AND PARTICIPATION................................... 57
9.1. Assignments and Participations in Loans........................ 57
9.2. Agent.......................................................... 58
(A) Appointment.............................................. 58
(B) Nature of Duties......................................... 58
(C) Rights, Exculpation, Etc................................. 59
(D) Reliance................................................. 59
(E) Indemnification.......................................... 60
(F) Heller Individually...................................... 60
(G) Successor Agent.......................................... 60
(1) Resignation........................................ 60
(2) Appointment of Successor........................... 60
(3) Successor Agent.................................... 60
(H) Collateral Matters....................................... 61
(1) Release of Collateral.............................. 61
(2) Confirmation of Authority; Execution of Releases... 61
(3) Absence of Duty.................................... 61
(I) Agency for Perfection.................................... 62
(J) Exercise of Remedies..................................... 62
9.3. Consents....................................................... 62
9.4. Set Off and Sharing of Payments................................ 62
9.5. Disbursement of Funds.......................................... 63
9.6. Settlements, Payments and Information.......................... 64
(A) Revolving Loan Advances and Payments; Fee Payments....... 64
(B) Availability of Lender's Pro Rata Share.................. 64
(C) Return of Payments....................................... 65
9.7. Dissemination of Information................................... 65
9.8. Discretionary Advances......................................... 65
SECTION 10. BORROWING AGENCY............................................... 65
10.1. Borrowing Agency Provisions.................................... 65
10.2. Waiver of Subrogation.......................................... 66
SECTION 11. MISCELLANEOUS.................................................. 66
11.1. Expenses and Attorneys' Fees................................... 66
11.2. Indemnity...................................................... 67
11.3. Amendments and Waivers......................................... 68
11.4. Notices........................................................ 68
11.5. Survival of Warranties and Certain Agreements.................. 69
11.6. Indulgence Not Waiver.......................................... 69
11.7. Marshaling; Payments Set Aside................................. 70
11.8. Entire Agreement............................................... 70
11.9. Independence of Covenants...................................... 70
11.10. Severability................................................... 70
11.11. Lenders' Obligations Several; Independent Nature of Lenders'
Rights......................................................... 70
11.12. Headings....................................................... 71
11.13. APPLICABLE LAW................................................. 71
11.14. Successors and Assigns......................................... 71
11.15. No Fiduciary Relationship; Limitation of Liabilities........... 71
11.16. CONSENT TO JURISDICTION........................................ 71
11.17. WAIVER OF JURY TRIAL........................................... 72
11.18. Construction................................................... 72
11.19. Counterparts; Effectiveness.................................... 72
11.20. No Duty........................................................ 72
11.21. Confidentiality................................................ 72
11.22. Joint and Several Obligations.................................. 73
February 12, 1996
Hibbett Sporting Goods, Inc.
Sports Wholesale, Inc.
131 South 25th Street
Birmingham, Alabama 35211
Reference is made to the Loan and Security Agreement (the
"Agreement") dated as November 1, 1995 among Hibbett Sporting Goods, Inc.
("Hibbett") and Hibbett Team Sales, Inc., the financial institutions listed on
the signature pages thereof and Heller Financial, Inc. ("Heller"), as Lender
and Agent. Capitalized terms used herein without definition have the meanings
given in the Agreement.
You have advised Heller that you propose to carry out a sale and
leaseback transaction with respect to the New Distribution Facility, with QRS
12-14 (AL), Inc. (the "Landlord"), an affiliate of W.P. Carey & Co. Inc., as
the counterparty. You will receive gross proceeds of $4,700,000 as
consideration for conveyance of the New Distribution Facility to the Landlord.
Simultaneously, the Guarantor will enter into a Lease Agreement (the "Lease
Agreement") with the Landlord and Hibbett will enter into with the Landlord a
Guaranty and Suretyship Agreement (the "Guaranty") and a Purchase Agreement
(the "Purchase Agreement"); together with the Lease Agreement and the
Guaranty, the "Carey Documents") relating to the obligations of the Guarantor
under the Lease Agreement. Copies of the Carey Documents in the form to be
executed and delivered by the Guarantor and Hibbett are attached hereto, and
all references herein to any Carey Document (including any Exhibit thereto)
are limited to such Carey Document as originally executed in such form.
You and the Guarantor have requested Heller to confirm certain
waivers and other agreements with respect to the Carey Documents insofar as
certain restrictions and other provisions of the Agreement are applicable
thereto. Heller by its execution below hereby agrees, upon satisfaction of
the conditions precedent hereof, as follows.
1. The transactions contemplated by the Carey Documents
shall be considered to satisfy the maximum attributable principal amount and
effective cost criteria of the definition of the Real Property Financing and
shall for all purposes of the Agreement qualify as and constitute the Real
Property Financing. The Indebtedness so evidenced by the Real Property
Financing is agreed not to exceed $5,000,000. The proceeds of such
transactions shall be used to repay the Saunders Subordinated Bridge Loan in
full and the Anderson Subordinated Bridge Loan in whole or in part.
2. All property described on Exhibit B to the Lease
Agreement, any right to an award or payment with respect to any Condemnation
(as defined in and pursuant to Section l7(b) of the Lease Agreement) and all
subleases and related property described to Section 21(d) of the Lease
Agreement are hereby released from the security interest created by Section
2.7 of the Agreement and shall no longer constitute any portion of the
Collateral, and all such property shall constitute part of the New Distribution
Facility for all purposes of the Agreement. Heller agrees to execute and
deliver, at your expense, UCC-3 financing statements and such other
instruments as you may reasonably request to effect or otherwise evidence the
foregoing.
3. The provisions of Section 7.2 of the Agreement are waived
to the extent necessary to permit Hibbett to enter into the Guaranty and the
Purchase Agreement.
4. Schedule 1.1(A) to the Agreement shall be considered
modified to reflect the leasehold interest of the Borrowers and the Guarantor
in the New Distribution Facility.
5. The provisions of Section 7.3(C) of the Agreement are
waived to the extent necessary to permit the Guarantor and Hibbett to enter
into the Carey Documents.
6. The following items shall constitute Permitted
Encumbrances under the Agreement: any Escrow Payment described in Section 9(b)
of the Lease Agreement; any financial assurances in the form of a letter of
credit or bond with respect to Environmental Violations described in Section
10(d) of the Lease Agreement; any security, other than with respect to the
Collateral, in connection with a Permitted Violation as described in Section
14 of the Lease Agreement; and any Restoration Fund as described in Section
19(c) of the Lease Agreement.
7. With respect to any period for which the Lease Agreement
is not a Capital Lease, EBITDA and Fixed Charges for such period shall (except
for purposes of calculating Excess Cash Flow for such period) be the amount
otherwise determined for such period plus the amount of Basic Rent (as defined
in the Lease Agreement) for such period.
* * *
Other than specifically provided herein, no provision set forth
herein shall operate as a waiver or amendment of any right, power or privilege
of Heller under the Agreement or of any other term or condition of the
Agreement, nor shall the entering into of this letter preclude Heller from
refusing to enter into any further waivers or amendments with respect to the
Agreement.
This Agreement shall become effective upon (i) receipt by
Heller of a Landlord's Waiver and Consent executed by landlord in form
satisfactory to Heller in all respects and (ii) the execution by Borrowers and
the Guarantor of a copy of this letter.
This letter shall be governed by, and shall be construed and
enforced in accordance with, the internal laws of the State of Illinois,
without regard to conflicts of laws principles.
Very truly yours,
HELLER FINANCIAL, INC., as
Lender and Agent
By: /s/ Dwayne L. Cohen
-------------------
Vice President
ACKNOWLEDGED AND AGREED:
LANDLORD'S WAIVER AND CONSENT
NAME OF RECORD OWNER OF REAL PROPERTY: QRS 12-14 (AL), INC.
("Landlord")
ADDRESS OF REAL PROPERTY: 451 Industrial Lane, Birmingham, AL 35211 (the
"Premises")
The Premises are more fully described in Exhibit A attached hereto and made a
part hereof.
WHEREAS, Landlord is the owner of the Premises, and represents that
Landlord has or is about to enter into a Lease Agreement (the "Lease") with
SPORTS WHOLESALE, INC. ("Tenant") pursuant to which Tenant will acquire a
leasehold interest in all of the Premises; and
WHEREAS, Landlord has been advised that all of the issued and
outstanding stock of Tenant is owned by Hibbett Sporting Goods, Inc. ("HSG")
and to induce Landlord to enter into the Lease and to secure Tenant's
obligations thereunder, Landlord has required that HSG guaranty Tenant's
obligations under the Lease pursuant to a certain Guaranty and Suretyship
Agreement (the "Guaranty") between HSG and Landlord.
WHEREAS, Landlord has been advised that HELLER FINANCIAL, INC.
("Lender") has entered into that certain Loan and Security Agreement dated as
of November 1, 1995 (the "Loan Agreement) with HSG and Hibbett Team Sales, Inc.
(collectively, "Borrowers") and to secure such financing, Landlord has been
advised that each Borrower has granted to Lender a security interest in the
personal property of such Borrower, which personal property shall not include
"Equipment", as defined in the Lease, as such Lease is in effect on the date
hereof (the personal property in which Lender has a security interest,
excluding Equipment, shall be referred to herein as the "Collateral"); and
WHEREAS, all or a portion of the Collateral may from time to time be
located at the Premises or may become wholly or partially affixed to the
Premises;
NOW THEREFORE, to induce Lender to consent to the Lease and the
Guaranty and in consideration of any financial accommodation extended by
Lender to Borrowers at any time, and other good and valuable consideration the
receipt and sufficiency of which Landlord hereby acknowledges, the Landlord
hereby agrees as follows:
1. The Collateral may be stored, utilized and/or installed at the
Premises and shall not be deemed a fixture or part of the real estate but
shall at all times be considered personal property, whether or not any of the
Collateral becomes so related to the real estate that an interest therein
arises under real estate law;
2. Until such time as the obligations of the Borrowers and Tenant
to Lender are paid in full, the Landlord disclaims any interest in the
Collateral, and agrees not to distrain upon any of the Collateral, or assert
any claim (whether by levy or otherwise) against the Collateral which is
senior to or on a parity with security interest of Lender for any reason.
3. Lender or its representatives may (subject to Tenant's rights
under the lease to have sole possession of the Premises) enter upon the
Premises at any time to inspect or remove the Collateral, and may advertise
and conduct public auctions or private sales of the Collateral at the
Premises, in each case without liability of Lender to Landlord but subject
to paragraph 5; provided however, that Lender shall promptly repair, at
Lender's expense, any physical damage to the Premises actually caused by
said removal by Lender. Lender shall not be liable for any diminution in
value of the Premises caused by the absence of Collateral actually removed
or by any necessity of replacing the Collateral. Lender shall use its best
efforts to give prior written notice to Landlord of its intention to enter
the Premises, but Lender's failure to give such notice shall neither
adversely affect Lender's ability to come onto the Premises or result in
any liability to Lender.
4. Subject to paragraph 5, Landlord shall not interfere with any
sale of the Collateral, by public auction or otherwise, conducted by or on
behalf of Lender on the Premises.
5. Landlord will permit Lender to come onto the Premises for a
period of up to one hundred thirty-five (135) days following receipt by Lender
of written notice from Landlord that landlord has terminated the Lease (or
taken possession of the Premises) and directing removal of the Collateral,
subject, however, to the payment to Landlord by the Lender of the rent and
other monetary amounts due under the Lease for the period Lender's Collateral
remains on the Premises following receipt by Lender of such notice, pro-rated
on a per diem basis determined on a 30-day month. Lender's right to come onto
the Premises under the preceding sentence shall be extended for the time
period (not to exceed 60 days) Lender is prohibited from selling or taking
possession of the Collateral due to the imposition of the automatic stay by
the filing of bankruptcy proceedings by the Tenant. Lender shall not assume
nor be liable for any unperformed or unpaid obligations of Tenant under the
Lease for the period prior to the receipt of such notice of termination.
6. This waiver shall inure to the benefit or Lender, its
successors and assigns and shall be binding upon the Landlord, its heirs,
assigns, representatives and successors. Landlord agrees and consents to the
filing of this document for recording on the Land Records.
All notices to Lender hereunder shall be in writing, sent by certified mail,
and shall be addressed to Lender at the following address: Heller Financial,
Inc., 500 West Monroe, Chicago, Illinois 60661.
Dated this 12th day of February, 1996.
Witnessed By: QRS 12-14 (AL), INC.
__________________________ By: /s/ Gordon J. Whiting
---------------------
Title: Vice President
STATE OF ALABAMA
COUNTY OF JEFFERSON
Before me, the undersigned Notary Public in the State and County
aforesaid, personally appeared Gordon J. Whiting with whom I am personally
acquainted and who, upon oath, acknowledged himself to be the Vice President
of QRS 12-14 (AL), Inc., the within named Landlord, an Alabama
corporation, and that he as such officer, being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by himself as such Vice President.
WITNESS my hand and Official Seal at office this 12th day of February, 1996.
/s/ Patty J. Frey
My commission expires: -----------------
4-28-99 Notary Public
EXHIBIT "A"
Lot 1, according to Oxmoor-MDB 11-94 Survey as recorded in Map Book
181, Page 4 in the Probate Office of Jefferson County, Alabama.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated April 2, 1996 included in or made a part of this Registration
Statement of Hibbett Sporting Goods, Inc. on Form S-1 (No. 333-07023) and
to the reference to our Firm under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
Arthur Andersen LLP
Birmingham, Alabama
July 12, 1996
